<PAGE>   1
                                                                    EXHIBIT 10.5


                               KANSAS MASTER LEASE

                                  SINGLE LESSEE
                                 SINGLE FACILITY




                              OMEGA (KANSAS), INC.

                                       AND

                              AHC PROPERTIES, INC.

                             DATED: JUNE 14TH, 1999
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                                TABLE OF CONTENTS
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                                                                                                                   Page
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RECITALS .......................................................................................................    1

ARTICLE I.......................................................................................................    1
         1.1      Lease.........................................................................................    1
         1.2      Term..........................................................................................    2
         1.3      Option to Renew...............................................................................    2

ARTICLE II......................................................................................................    2
         2.1      Definitions...................................................................................    2

ARTICLE III.....................................................................................................   22
         3.1      Base Rent; Monthly Installments...............................................................   22
         3.2      Additional Charges............................................................................   22
         3.3      Late Charge; Interest.........................................................................   22
         3.4      Net Lease.....................................................................................   22
         3.5      Payments In The Event of a Rent Adjustment....................................................   23

ARTICLE IV......................................................................................................   23
         4.1      Payment of Impositions........................................................................   23
         4.2      Adjustment of Impositions.....................................................................   23
         4.3      Utility Charges...............................................................................   24
         4.4      Insurance Premiums............................................................................   24

ARTICLE V.......................................................................................................   24
         5.1      No Termination, Abatement, etc................................................................   24

ARTICLE VI......................................................................................................   24
         6.1      Ownership of the Leased Properties............................................................   24
         6.2      Lessor's Personal Property....................................................................   25
         6.3      Lessee's Personal Property....................................................................   25
         6.4      Grant of Security Interest in Personal Property and Accounts..................................   26

ARTICLE VII.....................................................................................................   26
         7.1      Condition of the Leased Properties............................................................   26
         7.2      Use of the Leased Properties..................................................................   26
         7.3      Certain Environmental Matters.................................................................   27
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<TABLE>
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ARTICLE VIII....................................................................................................   31
         8.1      Compliance with Legal and Insurance Requirements..............................................   31
         8.2      Certain Covenants.............................................................................   32
         8.3      Minimum Qualified Capital Expenditures........................................................   32
         8.4      Management Agreements.........................................................................   33
         8.5      Other Facilities..............................................................................   33
         8.6      No Other Business.............................................................................   33
         8.7      Separateness..................................................................................   33

ARTICLE IX......................................................................................................   34
         9.1      Maintenance and Repair........................................................................   34
         9.2      Encroachments, Restrictions, etc..............................................................   35

ARTICLE X.......................................................................................................   35
         10.1     Construction of Alterations and Additions to the Leased Properties............................   35

ARTICLE XI......................................................................................................   36
         11.1     Liens.........................................................................................   36

ARTICLE XII.....................................................................................................   36
         12.1     Permitted Contests............................................................................   36
         12.2     Lessor's Requirement for Deposits.............................................................   37

ARTICLE XIII....................................................................................................   37
         13.1     General Insurance Requirements................................................................   37
         13.2     Risks to be Insured...........................................................................   38
         13.3     Payment of Premiums; Copies of Policies; Certificates.........................................   39
         [13.4    INTENTIONALLY OMITTED]........................................................................   ..
         13.5     Umbrella Policies.............................................................................   39
         13.6      Legal Requirements re: Workers' Compensation Insurance.......................................   39
         13.7     No Liability; Waiver of Subrogation...........................................................   39
         13.8     Increase in Limits............................................................................   40
         13.9     Blanket Policy................................................................................   40
         13.10    No Separate Insurance.........................................................................   40

ARTICLE XIV.....................................................................................................   41
         14.1     Insurance Proceeds............................................................................   41
         14.2     Restoration in the Event of Damage or Destruction.............................................   41
         14.3     Restoration of Lessee's Property..............................................................   41
         14.4     No Abatement of Rent..........................................................................   41
         14.5.    Waiver........................................................................................   42
         14.6.    Disbursement of Insurance Proceeds Equal to or Greater Than The Approval Threshold............   42
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<TABLE>

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         14.7     Net Proceeds Paid to Facility Mortgagee.......................................................   43

ARTICLE XV......................................................................................................   44
         15.1     Total Taking or Other Taking with Leased Property Rendered Unsuitable for Its Primary Intended
                  Use...........................................................................................   44
         15.2     Allocation of Award...........................................................................   44
         15.3     Partial Taking................................................................................   45
         15.4     Temporary Taking..............................................................................   45
         15.5     Awards Paid to Facility Mortgagee.............................................................   45

ARTICLE XVI.....................................................................................................   46
         16.1     Lessor's Rights Upon an Event of Default......................................................   6
         16.2     Certain Remedies..............................................................................   46
         16.3     Damages.......................................................................................   47
         [16.4    INTENTIONALLY OMITTED] .......................................................................   47
         16.5     Waiver........................................................................................   47
         16.6     Application of Funds..........................................................................   48
         16.7     Bankruptcy....................................................................................   48

ARTICLE XVII....................................................................................................   48
         17.1     Lessor's Right to Cure Lessee's Default.......................................................   48

ARTICLE XVIII...................................................................................................   49
         18.1     Holding Over..................................................................................   49
         18.2     Indemnity.....................................................................................   49

ARTICLE XIX.....................................................................................................   49
         19.1     Subordination.................................................................................   49
         19.2     Attornment....................................................................................   50
         19.3     Lessee's Certificate..........................................................................   50

ARTICLE XX......................................................................................................   51
         20.1     Risk of Loss..................................................................................   51

ARTICLE XXI.....................................................................................................   51
         21.1     Indemnification...............................................................................   51

ARTICLE XXII....................................................................................................   51
         22.1     General Prohibition against Transfers.........................................................   51
         22.2     Consent to Certain Transfers..................................................................   52
         22.3     Termination of Previously Existing Lease Agreements, etc......................................   52
         22.4     Subordination and Attornment..................................................................   52
         22.5     Sublease Limitation...........................................................................   53
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ARTICLE XXIII...................................................................................................   53
         23.1     Officer's Certificates and Financial Statements...............................................   53
         23.2     Public Offering Information...................................................................   55

ARTICLE XXIV....................................................................................................   55
         24.1     Lessor's Right to Inspect.....................................................................   55

ARTICLE XXV.....................................................................................................   55
         25.1     No Waiver.....................................................................................   55

ARTICLE XXVI....................................................................................................   55
         26.1     Remedies Cumulative...........................................................................   55

ARTICLE XXVII...................................................................................................   56
         27.1     Acceptance of Surrender.......................................................................   56

ARTICLE XXIII...................................................................................................   56
         28.1     No Merger of Title............................................................................   56
         28.2     No Partnership................................................................................   56

ARTICLE XXIX....................................................................................................   56
         29.1     Conveyance by Lessor..........................................................................   56

ARTICLE XXX.....................................................................................................   56
         30.1     Quiet Enjoyment...............................................................................   56

ARTICLE XXXI....................................................................................................   57
         31.1     Notices.......................................................................................   57

ARTICLE XXXII...................................................................................................   58
         32.1     Appraisers....................................................................................   58

ARTICLE XXXIII..................................................................................................   59
         33.1     Breach by Lessor..............................................................................   59

ARTICLE XXXIV...................................................................................................   59
         34.1     Lessor's Option to Purchase Lessee's Personal Property........................................   59
         34.2     Transfer of Operational Control of the Facilities.............................................   59
         34.4     Intangibles and Personal Property.............................................................   61

ARTICLE XXXV....................................................................................................   62
         35.1     Arbitration...................................................................................   62
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ARTICLE XXXVI...................................................................................................   62
         36.1     Miscellaneous.................................................................................   62

ARTICLE XXXVII..................................................................................................   64
         37.1     Commissions (Lessee)..........................................................................   64
         37.2     Commissions (Lessor)..........................................................................   64

ARTICLE XVIII...................................................................................................   64
         38.1     Memorandum or Short Form of Lease.............................................................   64

ARTICLE XXXIX...................................................................................................   64
         39.1     Security Deposit..............................................................................   64
         39.2     Reduction in Security Deposit.................................................................   65
         39.3     Application of Security Deposit...............................................................   65
         39.4     Transfer of Security Deposit..................................................................   66

EXHIBIT A; FACILITY TRADE NAMES.................................................................................   A-1

EXHIBIT B-___; DESCRIPTION OF LAND..............................................................................   B-1

EXHIBIT C; LESSEE'S CERTIFICATE.................................................................................   C-1

EXHIBIT D; MINIMUM REPURCHASE PRICES............................................................................   D-1

EXHIBIT E-____; PERMITTED ENCUMBRANCES..........................................................................   E-1

EXHIBIT F; CONSENT AND NON-DISTURBANCE AGREEMENT................................................................   F-1

EXHIBIT G; MEMORANDUM OR SHORT FORM OF LEASE....................................................................   G-1
</TABLE>

                                        v
<PAGE>   7
                               KANSAS MASTER LEASE


         THIS KANSAS MASTER LEASE ("Lease") is executed and delivered as of this
14th day of June, 1999, and is entered into by OMEGA (KANSAS), INC., a Kansas
corporation ("Lessor"), the address of which is 900 Victors Way, Suite 350, Ann
Arbor, Michigan 48108, and AHC PROPERTIES, INC., a Delaware corporation
("Lessee"), the address of which is 450 N. Sunnyslope Road, Suite 300,
Brookfield, Wisconsin 53005.


                                    RECITALS

         The circumstances underlying the execution and delivery of this Lease
are as follows:

         A. Capitalized terms used and not otherwise defined herein have the
respective meanings given them in Article II, below.

         B. Lessor has purchased the real property described on page B to this
Lease (together with the improvements thereon and the related fixtures and other
tangible and intangible property) from Sterling House Corporation, a Kansas
corporation.

         C. Lessor now wishes to lease the Leased Properties to Lessee, and
Lessee wishes to lease the Leased Properties from Lessor, on the terms and
conditions set forth in this Lease.

         NOW THEREFORE Lessor and Lessee agree as follows:


                                    ARTICLE I

         1.1 Lease. Upon and subject to the terms and conditions hereinafter set
forth, Lessor leases to Lessee, and Lessee leases from Lessor, the Leased
Properties. Each Facility is leased subject to all covenants, conditions,
restrictions, easements and other matters affecting such Facility, whether or
not of record, including the Permitted Encumbrances and other matters which
would be disclosed by an inspection of the Facility or by an accurate survey
thereof. Lessor represents and warrants to Lessee that, other than this Lease
and as provided in Section 22.2, Lessor has not consented to the creation or
existence of any liens or encumbrances that are not Permitted Exceptions and
that no liens or judgments attached to the Leased Properties or title thereto by
virtue of Lessor's taking title thereto; provided, however, that Lessor
hereafter shall have the right to encumber the Leased Properties with one or
more Facility Mortgage(s).

         This Lease constitutes one indivisible lease of the Leased Properties,
and not separate leases governed by similar terms. The Leased Properties
constitute one economic unit, and the Base Rent and all other provisions have
been negotiated and agreed to based on a demise of all of the Leased Properties
as a single, composite, inseparable transaction and would have been
substantially different had separate leases or a divisible lease been intended.
Except as expressly provided herein for
<PAGE>   8
specific, isolated purposes (and then only to the extent expressly otherwise
stated), all provisions of this Lease apply equally and uniformly to all the
Leased Properties as one unit. An Event of Default with respect to any Leased
Property is an Event of Default as to all of the Leased Properties. The parties
intend that the provisions of this Lease shall at all times be construed,
interpreted and applied so as to carry out their mutual objective to create an
indivisible lease of all the Leased Properties and, in particular but without
limitation, that for purposes of any assumption, rejection or assignment of this
Lease under 11 USC Section 365, this is one indivisible and non-severable lease
and executory contract dealing with one legal and economic unit which must be
assumed, rejected or assigned as a whole with respect to all (and only all) the
Leased Properties covered hereby.

         1.2 Term. The initial term of this Lease ("Initial Term") shall be
fourteen (14) Lease Years plus the Preliminary Term, if any. The Initial Term
shall commence on the Commencement Date and end on the Expiration Date, subject
to renewal as set forth in Section 1.3, below.

         1.3 Option to Renew. Lessee is hereby granted three (3) options to
renew this Lease, each of which options is for a period of ten (10) Lease Years,
for a maximum Term if such options are exercised of forty-four (44) Lease Years
plus the Preliminary Term, if any, on the following terms and conditions: (a) An
option to renew is exercisable only by Notice to Lessor at least three hundred
sixty five (365) days prior to the expiration of the Initial Term (or prior to
the expiration of the preceding Renewal Term, as the case may be); (b) The
absence of any Event of Default both at the time a renewal option is exercised
and at the commencement of a Renewal Term is a condition precedent to any
renewal of the Term; and (c) During a Renewal Term, all of the terms and
conditions of this Lease shall remain in full force and effect.


                                   ARTICLE II

         2.1 Definitions. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, (i) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular, (ii) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
GAAP as at the time applicable, (iii) all references in this Lease to designated
"Articles," "Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of this Lease, and (iv) the words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this Lease
as a whole and not to any particular Article, Section or other subdivision.

             Additional Charges: All Impositions and other amounts, liabilities
and obligations which Lessee assumes or agrees to pay under this Lease.

             Adjustment Date: January 1, 2000, and each January 1 thereafter
during the Term.

             Affiliate: Any Person which, directly or indirectly, Controls or is
Controlled by or is under common Control with another Person.

                                       2
<PAGE>   9
                  Annual Site Inspection Fee: A fee of One Thousand Dollars
($1,000.00) for each Facility leased, which shall be paid by Lessee in each
Lease Year throughout the Term, beginning with the second (2nd) Lease Year, in
quarterly installments of Two Hundred and Fifty Dollars ($250.00) each at the
same time as the first (1st), fourth (4th), seventh (7th) and tenth (10th)
monthly installments of Base Rent are due in such Lease Year.

                  Approval Threshold: Fifty Thousand Dollars ($50,000.00)

                  Assessment: Any governmental assessment on the Leased
Properties or any part thereof for public or private improvements or benefits,
whether or not commenced or completed prior to the date hereof and whether or
not to be completed within the Term.

                  Assumed Indebtedness: Any indebtedness or other obligations
expressly assumed in writing by Lessor and secured by a mortgage, deed of trust
or other security agreement to which Lessor's title to the Leased Properties is
subject.

                  Award: All compensation, sums or anything of value awarded,
paid or received in connection with a total or partial Taking.

                  Base Rent:

                  (A) During the Initial Term, the Base Rent shall be:

                           (1) For the first Lease Year, $198,034; and

                           (2) For each Lease Year in the Initial Term after the
                  first Lease Year, the Base Rent for the immediately preceding
                  Lease Year (annualized, if the first Lease Year is the
                  Preliminary Term) increased by fifty percent (50%) of the (a)
                  the sum of the Gross Revenue Increase, if any, during the
                  immediately preceding Lease Year and (b) the aggregate
                  Carryover for all prior Lease Years; provided, however, that
                  the Base Rent for a Lease Year shall never be less than the
                  Base Rent for the immediately preceding Lease Year nor (i) in
                  the case of the Lease Year beginning January 1, 2000, shall
                  the Base Rent be more than 1.0135% of the annualized Base Rent
                  for the Preliminary Term, and (ii) in the case of the Lease
                  Year beginning January 1, 2001, and each Lease Year
                  thereafter, shall the Base Rent be more than 1.025% of the
                  Base Rent for the immediately preceding Lease Year.

                            (3) The Purchase Agreement sets forth the terms and
                  conditions upon which "Additional Purchase Price" (as defined
                  in the Purchase Agreement) is to be paid to the sellers
                  pursuant to the Purchase Agreement. With respect to any
                  portion of Additional Purchase Price paid on or before June
                  14, 2001, the Base Rent for the Lease Year in which such
                  portion thereof is paid shall be increased by an amount


                                       3
<PAGE>   10
                  equal to the product obtained by multiplying (a) the portion
                  of Additional Purchase Price so paid by (b) the quotient
                  obtained by dividing the Base Rent for the then current Lease
                  Year by the aggregate Purchase Price theretofore paid to the
                  sellers pursuant to the Purchase Agreement. With respect to
                  any portion of Additional Purchase Price paid on or after June
                  15, 2001, the Base Rent for the Lease Year in which such
                  portion thereof is made shall be increased by the greater of
                  (aa) an amount equal to the product obtained by multiplying
                  (x) the portion of the Additional Purchase Price so paid by
                  (y) the Omega Lease Rate for such Lease Year, or (bb) an
                  amount equal to the product obtained by multiplying (xx) the
                  portion of Additional Purchase Price so paid by (yy) the
                  quotient obtained by dividing the Base Rent for the then
                  current Lease Year by the aggregate Purchase Price theretofore
                  paid to the sellers pursuant to the Purchase Agreement . Any
                  such increase in Base Rent shall be effective as of the date
                  upon which the portion of Additional Purchase Price is paid,
                  and for periods of less than a full Lease Year such increase
                  shall be prorated on a daily basis and paid in equal monthly
                  installments (or as nearly equal as possible) on the first
                  (1st) day of each month remaining in such Lease Year.

                  (B) During a Renewal Term, the Base Rent shall be:

                           (1) For the first Lease Year of the Renewal Term, the
                  greater of (a) 1.025% of the Base Rent for the immediately
                  preceding Lease Year or (b) the Fair Market Rent for the
                  Leased Properties on the first day of such Renewal Term as
                  agreed upon by Lessor and Lessee, or, if prior to the
                  commencement of such Renewal Term they are unable to agree, as
                  determined by an appraisal pursuant to Article XXXII of this
                  Lease; provided, however, that in no event shall the Base Rent
                  for the first Lease Year of the Renewal Term ever be less than
                  the Base Rent for the immediately preceding Lease Year nor
                  more than 1.15% of the Base Rent for the immediately preceding
                  Lease Year; and

                           (2) For each succeeding Lease Year during such
                  Renewal Term, the Base Rent for the immediately preceding
                  Lease Year increased by application of the formula set forth
                  in (A)(2) above.

                  Break-even Operations: Break-even Operations shall have
occurred when the Facilities first achieve a Cash Flow to Rent Ratio of 1 or
more.

                  Business Day: Each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which national banks in the City of New York, New
York are authorized, or obligated, by law or executive order, to close.

                  Capitalization Rate:  9.63.

                                       4
<PAGE>   11
                  Capitalized Leases: Leases that in accordance with GAAP are
required to be capitalized for financial reporting purposes.

                  Capitalized Lease Obligations: All obligations under
Capitalized Leases the amount of the indebtedness for which shall be the
capitalized amount of such obligations determined in accordance with GAAP.

                  Carryover: The amount by which the Gross Revenue Increase for
a Lease Year exceeds two and one-half percent (2.5%) of the Base Rent for the
immediately preceding Lease Year or, as to the second Lease Year, the amount by
which the Gross Revenue Increase for the Preliminary Term exceeds one and 35/100
percent (1.35%) of the Base Rent for the Preliminary Term.

                  Cash Flow: For any period, the sum of (a) Net Income of Lessee
arising solely from the operation of the Facilities for the applicable period,
plus (b) the amounts deducted in computing Lessee's Net Income for the
applicable period for (i) depreciation, (ii) amortization, (iii) Base Rent, (iv)
interest (other than payments in the nature of interest under Capitalized Leases
and interest on any Purchase Money Financing), (v) income taxes (or, if greater,
income tax actually paid during the period) and (vi) management fees, less (c) a
management fee equal to five percent (5%) of Gross Revenues for the applicable
period.

                  Cash Flow to Rent Ratio: For any fiscal period, Cash Flow
divided by Base Rent.

                  Clean-Up: The investigation, removal, restoration, remediation
and/or elimination of, or other response to, Contamination, in each case to the
satisfaction of all governmental agencies having jurisdiction, in compliance
with or as may be required by Environmental Laws.

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

                  Commencement Date: The date set forth in the introductory
paragraph of this Lease.

                  Condemnor: Any public or quasi-public authority, or private
corporation or individual, having the power of condemnation.

                  Construction Funds: The Net Proceeds and such additional funds
as may be deposited with Lessor by Lessee pursuant to Section 14.6 for
restoration or repair work pursuant to this Lease.

                  Contamination: The presence, Release or threatened Release of
any Hazardous Substance at the Leased Properties in violation of any
Environmental Law, or in a quantity that would give rise to any affirmative
Clean-Up obligations under an Environmental Law, including, but not limited to,
the existence of any injury or potential injury to public health, safety,
natural


                                       5
<PAGE>   12
resources or the environment associated therewith, or any other environmental
condition at, in, about, under or migrating from or to the Leased Properties.

                  Control (and its corollaries "Controlled by" and "under common
Control with"): Possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, through the
ownership of voting securities, partnership interests or other equity interests.

                  Consumer Price Index or CPI: The United States Department of
Labor, Bureau of Labor Statistics Revised Consumer Price Index for All Urban
Consumers (1982=84=100), U.S. City Average, All Items, or, if that index is not
available at the time in question, the index designated by such Department as
the successor to such index, and if there is no index so designated, an index
for an area in the United States that most closely corresponds to the entire
United States, published by such Department, or if none, by any other
instrumentality of the United States.

                  Date of Taking: The date on which the Condemnor has the right
to possession of the Leased Property that is the subject of the Taking or
Partial Taking.

                  Debt: As of any date, all (a) obligations of a Person, whether
current or long-term, that in accordance with GAAP should be included as
liabilities on such Person's balance sheet; (b) Capitalized Lease Obligations of
such Person; (c) obligations of others for which that Person is liable directly
or indirectly, by way of guaranty (whether by direct guaranty, suretyship,
discount, endorsement, take-or-pay agreement, agreement to purchase or advance
or keep in funds or other agreement having the effect of a guaranty) or
otherwise; (d) liabilities and obligations secured by liens of any assets of
that Person, whether or not those liabilities or obligations are recourse to
that Person; and (e) liabilities of that Person, direct or contingent, with
respect to letters of credit issued for the account of that Person or others or
with respect to bankers acceptances created for that Person.

                  Encumbrance: Any mortgage, deed of trust, lien, encumbrance or
other matter affecting title to the Leased Properties, or any portion thereof or
interest therein, securing any borrowing or other means of financing or
refinancing.

                  Environmental Audit: A written certificate, in form and
substance satisfactory to Lessor, from an environmental consulting or
engineering firm acceptable to Lessor, which states that there is no
Contamination on the Leased Properties and that the Leased Properties are
otherwise in strict compliance with Environmental Laws.

                  Environmental Documents: Each and every (i) document received
by Lessee or any Affiliate from, or submitted by Lessee or any Affiliate to, the
United States Environmental Protection Agency and/or any other federal, state,
county or municipal agency responsible for enforcing or implementing
Environmental Laws with respect to the condition of the Leased Properties, or
Lessee's operations at the Leased Properties; and (ii) review, audit, report, or
other


                                       6
<PAGE>   13
analysis or data pertaining to environmental conditions, including, but not
limited to, the presence or absence of Contamination, at, in, or under or with
respect to the Leased Properties that have been prepared by, for or on behalf of
Lessee.

                  Environmental Laws: All federal, state and local laws
(including, without limitation, common law), statutes, codes, ordinances,
regulations, rules, orders, permits or decrees relating to the introduction,
emission, discharge or release of Hazardous Substances into the indoor or
outdoor environment (including without limitation, air, surface water,
groundwater, land or soil) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, transportation or disposal of Hazardous
Substances; or the Clean-Up of Contamination, all as are now or may hereinafter
be in effect.

                  Event of Default:  The occurrence of any of the following:

                  (a) Lessee fails to pay or cause to be paid the Rent prior to
the expiration of two (2) Business Days after it is due and payable (provided
that such two (2) Business Day grace period shall apply on only two occasions
per Lease Year, after which in any Lease Year there shall be further no grace
period applicable to the failure to pay Rent when due);

                  (b) Lessee, on a petition in bankruptcy filed against it, is
adjudicated a bankrupt or has an order for relief thereunder entered against it,
or a court of competent jurisdiction enters an order or decree appointing a
receiver of Lessee or any Guarantor or of the whole or substantially all of its
property, or approving a petition filed against Lessee seeking reorganization or
arrangement of Lessee under the federal bankruptcy laws or any other applicable
law or statute of the United States of America or any state thereof, and such
judgment, order or decree is not vacated or set aside or stayed within ninety
(90) days from the date of the entry thereof, subject to the applicable
provisions of the Bankruptcy Code (11 USC Section 101, et seq.) and to the
provisions of Section 16.7, below;

                   (c) Lessee: (i) admits in writing its inability to pay its
debts generally as they become due, (ii) files a petition in bankruptcy or a
petition to take advantage of any insolvency law, (iii) makes a general
assignment for the benefit of its creditors, (iv) consents to the appointment of
a receiver of itself or of the whole or any substantial part of its property, or
(v) files a petition or answer seeking reorganization or arrangement under the
Federal bankruptcy laws or any other applicable law or statute of the United
States of America or any state thereof, subject to the applicable provisions of
the Bankruptcy Code (11 USC Section 101, et seq.)
and to the provisions of Section 16.7, below;

                  (d) Lessee is liquidated or dissolved, or begins proceedings
toward liquidation or dissolution, or has filed against it a petition or other
proceeding to cause it to be liquidated or dissolved and the proceeding is not
dismissed within thirty (30) days thereafter, or Lessee in any manner permits
the sale or divestiture of substantially all of its assets;

                                       7
<PAGE>   14
                  (e) The estate or interest of Lessee in the Leased Properties
or any part thereof is levied upon or attached in any proceeding and the same is
not vacated or discharged within thirty (30) days thereafter (unless Lessee is
in the process of contesting such lien or attachment in good faith in accordance
with Article XII hereof);

                  (f) Lessee ceases operation of any Facility for a period in
excess of five (5) Business Days except upon prior Notice to, and with the
express prior written consent of, Lessor (which consent Lessor may withhold in
its absolute discretion), or as the unavoidable consequence of damage or
destruction as a result of a casualty, or a Partial or total Taking;

                  (g) Any representation or warranty made by a party (other than
Lessor) to the Purchase Agreement, or in the certificates delivered in
connection therewith, proves to be untrue when made in any material respect,
Lessor is materially and adversely affected thereby and Lessee fails within
twenty (20) days after Notice from Lessor thereof to cure such condition by
terminating such adverse effect and making Lessor whole for any damage suffered
therefrom, or, if with due diligence such cure cannot be effected within twenty
(20) days, if Lessee has failed to commence to cure the same within the twenty
(20) days or failed thereafter to proceed promptly and with due diligence to
cure such condition and complete such cure prior to the time that such condition
causes a default in any other lease to which Lessee is subject and prior to the
time that the same results in civil or criminal penalties to Lessor, Lessee, any
Affiliates of either or the Leased Properties;

                  (h) Lessee (or, if applicable, any sublessee or Manager) has
its license to operate any Facility as a provider of health care services in
accordance with its Primary Intended Use suspended or revoked or an order is
imposed suspending its right to operate or accept residents, which order is not
immediately stayed and promptly cured;

                  (i) A default occurs under any Guaranty;

                  (j) A Transfer occurs without the prior written consent of
Lessor;

                  (k) An Event of Default occurs under the Letter of Credit
Agreement or the Security Agreement;

                  (l) A default occurs under any other material contract
affecting any Facility or Lessee;

                  (m) Lessee breaches any of the financial covenants set forth
in Article VIII hereof and the breach is not cured within a period of the
shorter of (i) 30 days after the Notice thereof from Lessor, or (ii) 15 days
following the date of delivery of a certificate pursuant to Section 23.1 (i) or
23.1 (ii);

                  (n) Lessee or an Affiliate of Lessee defaults beyond any
applicable grace period in the payment of any amount or the performance of any
material act required of Lessee or such


                                       8
<PAGE>   15
Affiliate by the terms of any other lease or other agreement between Lessee or
such Affiliate and Lessor or any Affiliate of Lessor;

                  (o) Lessee fails to observe or perform any other term,
covenant or condition of this Lease and the failure is not cured by Lessee
within a period of thirty (30) days after Notice thereof from Lessor, unless the
failure cannot with due diligence be cured within a period of thirty (30) days,
in which case such failure shall not be deemed an Event of Default if and for so
long as Lessee proceeds promptly and with due diligence to cure the failure and
completes the cure prior to the time that the same causes a default in any
Facility Mortgage or any other lease to which Lessee is subject and prior to the
time that the same results in civil or criminal penalties to Lessor, Lessee, any
Affiliates of either or to the Leased Properties;

                  (p) Lessee breaches any material representation or warranty
made by it in this Lease.

                  (q) The issuance or entry against Lessee of any award or
judgment exceeding any applicable insurance coverage by more than TWENTY FIVE
THOUSAND DOLLARS ($25,000.00) and either (i) enforcement proceedings shall have
been commenced by any creditor upon such award or judgment or (ii) such award or
judgment shall continue unsatisfied and in effect for a period of ten (10)
consecutive days without an insurance company satisfactory to Lessor (in its
sole and absolute discretion) having agreed to fund such award or judgment in a
manner satisfactory to Lessor (in its sole and absolute discretion);

                  (s) The issuance or entry against Guarantor of any award or
judgment exceeding any applicable insurance coverage by more than ONE HUNDRED
THOUSAND DOLLARS ($100,000.00) and either (i) enforcement proceedings shall have
been commenced by any creditor upon such award or judgment or (ii) such award or
judgment shall continue unsatisfied and in effect for a period of ten (10)
consecutive days without an insurance company satisfactory to Lessor (in its
sole and absolute discretion) having agreed to fund such award or judgment in a
manner satisfactory to Lessor (in its sole and absolute discretion);

                  (t) The termination or suspension of the right of any Facility
to participate in Medicare, Medicaid or a similar program (collectively
"Provider Programs"), or the termination or suspension of the right of any
Facility to admit residents who would be entitled to receive benefits pursuant
to such Provider Programs, if in either case (i) such Facility participated at
any time during the Term in a Provider Program, and (ii) the revenues received
by or payable to such Facility from such Provider Programs equaled or exceeded
10% of such Facility's gross revenues in any Lease Year (annualized for periods
of less than an entire Lease Year);

                  (u) The final and unappealable revocation by a governmental
authority having jurisdiction of any permit required for the lawful construction
or operation of a Facility in accordance with the Primary Intended Use, or the
loss of, or the failure to obtain and/or renew any


                                       9
<PAGE>   16
permit under any other circumstances under which Lessee is required to cease the
operation of the Facility in accordance with the Primary Intended Use; or

                  (v) The occurrence of an Event of Default under the Master
Lease.

                  Expiration Date:  December 31, 2013.

                  Facility: A health care facility on the Land, including the
Leased Property associated with such Facility.

                  Facility Mortgage: Any mortgage, deed of trust or other
security agreement which with the express, prior, written consent of Lessor is a
lien upon any or all of the Leased Properties, whether such lien secures an
Assumed Indebtedness or another obligation or obligations.

                  Facility Mortgagee:  The secured party to a Facility Mortgage.

                  Facility Trade Names: The name(s) under which the Facilities
have done business during the Term. The Facility Trade Names in use by the
Facilities on the Commencement Date are set forth on attached EXHIBIT A.

                  Fair Market Rent: The rent that, at the relevant time, a
Facility would most probably command in the open market, under a lease on
substantially the same terms and conditions as are set forth in this Lease with
a lessee unrelated to Lessor having experience and a reputation in the health
care industry and a credit standing reasonably equivalent to that of Guarantor,
and, if this Lease is guaranteed, with such lease being guaranteed by guarantors
having a net worth at least equal to that of Guarantor as of the date of this
Lease, with evidence of such rent being the rent that is being asked and agreed
to at such time under any leases of facilities comparable to such Facility being
entered into at such time in which the lessees and lease guarantors meet the
qualifications set forth in this sentence. Fair Market Rent shall be determined
in accordance with the appraisal procedure set forth in Article XXXII or in such
other manner as may be mutually acceptable to Lessor and Lessee.

                  Fair Market Value: The fair market value of a Facility at the
relevant time (i) assuming the same is unencumbered by this Lease, and (ii)
determined in accordance with the appraisal procedure set forth in Article XXXII
or in such other manner as may be mutually acceptable to Lessor and Lessee.

                  Financial Statement: As to Lessee for any period, a statement
of profit and loss for such period, and for the period from the beginning of the
fiscal year to the end of such period, in reasonable detail and setting forth in
comparative form the corresponding figures for the corresponding period in the
preceding fiscal year, and prepared on a basis of accounting that is consistent
with that of Guarantor, certified to be accurate and complete by the chief
financial officer of Lessee and Guarantor. Guarantor's fiscal year-end Financial
Statement shall be an audited financial report prepared by KMPG, LLP or another
independent international firm of certified


                                       10
<PAGE>   17
public accountants reasonably satisfactory to Lessor, containing the Guarantor's
balance sheet as of the end of that year, its related profit and loss, a
statement of shareholder's equity for that year, a statement of cash flows for
that year, any management letter prepared by those certified public accountants
and such comments and financial details as are customarily included in reports
of like character and the unqualified opinion of the certified public
accountants as to the fairness of the statements therein.

                  Fixtures: Collectively, all permanently affixed equipment,
machinery, fixtures, and other items of real and/or personal property (excluding
Lessor's Personal Property), including all components thereof, now and hereafter
located in, on or used in connection with, and permanently affixed to or
incorporated into the Leased Improvements, including, 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 (other than
individual units), sprinkler systems and fire and theft protection equipment,
built-in oxygen and vacuum systems, towers and other devices for the
transmission of radio, television and other signals, 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.

                  Force Majeure: An event or condition beyond the control of a
Person, including without limitation a flood, earthquake, or other Act of God; a
fire or other casualty resulting in a complete or partial destruction of the
Facility in question; a war, revolution, riot, civil insurrection or commotion,
terrorism, or vandalism; unusual governmental action, delay, restriction, or
regulation not reasonably to be expected; a contractor or supplier delay or
failure in performance (not arising from a failure to pay any undisputed amount
due), or a delay in the delivery of essential equipment or materials; bankruptcy
or other insolvency of a contractor, subcontractor, or construction manager (not
an Affiliate of the party claiming Force Majeure); a strike, slowdown, or other
similar labor action; or any other similar event or condition beyond the
reasonable control of the party claiming that Force Majeure is delaying or
preventing such party from timely and fully performing its obligations under
this Lease; provided that in any such event, the party claiming the existence of
Force Majeure shall have given the other party Notice of such claim within
fifteen (15) days after becoming aware thereof, and if the party claiming Force
Majeure shall fail to give such Notice, then the event or condition shall not be
considered Force Majeure for any period preceding the date such Notice shall be
given. No lack of funds shall be construed as Force Majeure.

                  GAAP: Generally accepted accounting principles, consistently
applied, in effect at the time in question.

                  Gross Revenues: All revenues received or receivable from or by
reason of the operation of the Facilities, or any other use of the Leased
Properties, including without limitation all resident revenues received or
receivable for the use of or otherwise by reason of all rooms, beds, and other
facilities provided, meals served, services performed, space or facilities
subleased or goods sold on the Leased Properties and, except as provided below,
any consideration received for any


                                       11
<PAGE>   18
sublease, license or other arrangement with an unrelated third party in
possession, or using, any portion of the Leased Properties, and all revenues
received or receivable by Lessee and any Affiliates of Lessee from the operation
of any nursing home, rest home, assisted living facility, subacute facility,
retirement center or similar health care facility located within a ten (10) mile
radius of any of the Leased Properties. Gross Revenues shall not, however,
include:

                  (i) revenue from professional fees or charges by physicians,
         physical therapists, pharmacy services, hairdressers and barbers,
         hospice care and manicurists when and to the extent such charges are
         paid over to such providers or are accompanied by separate charges for
         use of a Facility or any portion thereof,

                  (ii) non-operating revenues such as interest income or income
         from the sale of assets not sold in the ordinary course of business,

                  (iii) contractual allowances and reasonable reserves (relating
         to any period during the Term) for billings not paid by or received
         from the appropriate governmental agencies, third party providers or
         other payor,

                  (iv) all proper resident billing credits and adjustments
         according to generally accepted accounting principles relating to
         health care accounting, and

                  (v) federal, state or local sales or excise taxes and any tax
         based upon or measured by said revenues which is added to or made a
         part of the amount billed to the resident or other recipient of such
         services or goods, whether included in the billing or stated
         separately.

         If any of the Leased Properties or any part thereof is subleased, or a
license permitting the use thereof is granted to an Affiliate of Lessee, Gross
Revenues shall include all revenues received or receivable by the sublessee or
licensee from its use of the Leased Properties and any rent or equivalent
payment by the sublessee or licensee received or receivable by Lessee from such
sublease or licensee shall be excluded from Gross Revenues (provided, however,
that in the case of a sublease of space for the placement or erection of
antennae or similar device, the rent or equivalent payment shall be included in
Gross Revenues).

                  Gross Revenue Increase: For any Lease Year, the increase, if
any, in aggregate Gross Revenues of the Leased Properties for such Lease Year
over aggregate Gross Revenues for the immediately preceding Lease Year;
provided, however, that for purposes of determining Base Rent for the Lease Year
beginning January 1, 2000, Gross Revenue Increase shall mean aggregate Gross
Revenues of the Leased Properties for the Preliminary Term minus aggregate Gross
Revenues of the Leased Properties for the period from and including January 1,
1999 through June 14, 1999.

                  Guarantor: Alterra Healthcare Corporation, a Delaware
corporation.

                                       12
<PAGE>   19
                  Guaranty: The Guaranty of even date herewith executed by the
Guarantor.

                  Hazardous Substance: Dangerous, toxic or hazardous material,
substance, pollutant, contaminant, chemical, waste (including medical waste),
including petroleum products, asbestos and PCBs defined, listed or described as
such under any Environmental Law.

                  Impositions: Collectively, all taxes (including, without
limitation, all capital stock and franchise taxes of Lessor and all ad valorem,
sales and use, single business, gross receipts, transaction privilege, rent or
similar taxes to the extent the same are assessed against Lessor on the basis of
its gross or net income from this Lease or the value of the Leased Property or
both), assessments (including Assessments), ground rents, water, sewer or other
rents and charges, excises, tax levies, fees (including, without limitation,
license, permit, inspection, authorization and similar fees), and all other
governmental charges, in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of the
Leased Properties or the businesses conducted thereon by Lessee and/or the Rent
(including all interest and penalties thereon), which at any time prior to,
during or in respect of the Term may be assessed or imposed on or in respect of
or be a lien upon (i) Lessor or Lessor's interest in the Leased Properties, (ii)
the Leased Properties or any part thereof or any rent therefrom or any estate,
right, title or interest therein, or (iii) any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in connection with
the Leased Properties or the leasing or use of the Leased Properties or any part
thereof or (iv) the Rent; notwithstanding the foregoing, Imposition shall not
include: (i) except as provided above, any tax imposed on Lessor's gross or net
income generally and not specifically arising in connection with the Leased
Properties (unless such a tax is levied, assessed or imposed in lieu of a
portion or all of a tax which was included within the definition of
"Imposition,") , (ii) any transfer or other tax imposed with respect to the
sale, exchange or other disposition by Lessor of the Leased Properties or any
part thereof or the proceeds thereof, or (iii) any tax imposed as a result of a
Facility Mortgage placed by Lessor on a Facility.

                  Initial Term: As defined in Section 1.2 hereof.

                  Insurance Requirements: All terms of any insurance policy
required by this Lease and all requirements of the issuer of any such policy.

                  Investigation: Soil and chemical tests or any other
environmental investigations, examinations or analyses.

                  Judgment Date: The date on which a judgment is entered against
Lessee which establishes, without the possibility of appeal, the amount of
liquidated damages to which Lessor is entitled hereunder.

                  Land: The real property described in EXHIBITS B-1 through B-9
attached hereto.

                  Lease:  As defined in the Preamble.

                                       13
<PAGE>   20
                  Lease Year: Each period from and including January 1 through
December 31 during the Term of this Lease, except that if there is a Preliminary
Term, the first Lease Year shall be the period from and including the
Commencement Date through the end of the Preliminary Term. If this Lease is
terminated before the end of any Lease Year, the final Lease Year shall be
January 1 of the year in which the Term expires or the Lease terminates through
the date of termination.

                  Leased Improvements: Collectively, all buildings, structures,
Fixtures and other improvements of every kind on the Land including, but not
limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits
and lines (on-site and off-site), parking areas and roadways appurtenant to such
buildings and structures.

                  Leased Property: The portion of the Land on which a Facility
is located, the legal description of which is set forth beneath the Facility's
name on EXHIBITS B-1 through B-9, the Leased Improvements on such portion of the
Land, the Related Rights with respect to such portion of the Land, and Lessor's
Personal Property with respect to such Facility.

                  Leased Properties: All of the Land, Leased Improvements,
Related Rights and Lessor's Personal Property.

                  Legal Requirements: All federal, state, county, municipal and
other governmental statutes, laws, rules, orders, waivers, regulations,
ordinances, judgments, decrees and injunctions affecting the Leased Properties
or any portion thereof, Lessee's Personal Property or the construction, use or
alteration thereof, including but not limited to the Americans with Disabilities
Act, whether enacted and in force before, after or on the Commencement Date, and
including any which may (i) require repairs, modifications, alterations or
additions in or to any portion or all of the Facilities, or (ii) in any way
adversely affect the use and enjoyment thereof, and all permits, licenses and
authorizations and regulations relating thereto including, but not limited to,
those relating to existing health care licenses, those authorizing the current
number of licensed beds and the level of services delivered from the Leased
Properties, and all covenants, agreements, restrictions and encumbrances
contained in any instruments, either of record or known to Lessee (other than
Facility Mortgages and other encumbrances created by Lessor), in force at any
time during the Term.

                  Lessee's Certificate: A statement in writing in substantially
the form of EXHIBIT C attached hereto (with such changes thereto as may
reasonably be requested by the person relying on such certificate).

                  Lessee's Personal Property: Personal Property owned or leased
by Lessee that is not included within the definition of Lessor's Personal
Property but is used by Lessee in the operation of the Facilities, including
Personal Property provided by Lessee in compliance with Section 6.3 hereof.

                                       14
<PAGE>   21
                  Lessor's Future Rent Loss: An amount equal to the Rent which
would have been payable by Lessee from and after the Liquidated Damages Payment
Date through the Expiration Date had the Lease not been terminated, plus such
additional amount as may be necessary in order to compensate Lessor for all
other damages proximately caused by Lessee's failure to perform its obligations
under this Lease which in the ordinary course of business would be likely to
result therefrom.

                  Lessor's Interim Rent Loss: An amount equal to the Rent which
would have been payable by Lessee from the Termination Date through the Judgment
Date had the Lease not been terminated (including interest and late charges
determined on the basis of the date or dates on which Lessor's Interim Rent Loss
is actually paid by Lessee), plus such additional amount as may be necessary in
order to compensate Lessor for all other damages proximately caused by Lessee's
failure to perform its obligations under this Lease which in the ordinary course
of business would be likely to result therefrom.

                  Lessor's Monthly Rent Loss: For any month, an amount equal to
the installment of Rent which would have been due in such month under the Lease
if it had not been terminated, plus, if such amount is not paid on or before the
day of the month on which such installment of Rent would have been due, the
amount of interest and late charges thereon which would also have been due under
the Lease, plus such additional amount as may be necessary in order to
compensate Lessor for all other damages proximately caused by Lessee's failure
to perform its obligations under this Lease which in the ordinary course of
business would be likely to result therefrom.

                  Lessor's Personal Property: All Personal Property and
intangibles, if any, owned by Lessor and leased to Lessee on the Commencement
Date, and all Personal Property and intangibles required in order to commence
operations of a Facility for the Primary Intended Use (whether in use on the
Commencement Date or thereafter), together with any and all replacements
thereof, and all Personal Property that pursuant to the terms of the Lease
becomes the property of Lessor during the Term; provided, however that Lessor's
Personal Property shall not include Lessee's proprietary brochures, computers,
computer software or any vehicles or other Personal Property that is leased by
Lessee as permitted by this Lease.

                  Letter of Credit Agreement: An agreement between Lessor and
Lessee providing for a letter of credit to be delivered to Lessor as the
Security Deposit.

                  Liquidated Damages Payment Date: The date on which Lessee pays
Lessor all of the liquidated damages for which it is liable under Article XVI.

                  Management Agreement: Any agreement pursuant to which
management of a Facility is delegated to any person not an employee of Lessee or
to any other related or unrelated party. Without limiting this definition, each
of the agreements between a sublessee referred to in Section 22.2 and Guarantor
pursuant to which Guarantor manages a Facility is a Management Agreement.

                                       15
<PAGE>   22
                  Manager: The Person to which management of the operation of a
Facility is delegated pursuant to a Management Agreement.

                  Master Lease: The Master Lease of even date herewith between
Omega Healthcare Investors, Inc., a Kansas corporation, as lessor, and Lessee,
as lessee.

                  Minimum Repurchase Price: As to each Facility, the amount set
forth opposite its name on attached EXHIBIT D, increased by three percent (3%)
compounded annually each Lease Year (pro rata for any Preliminary Term and
partial Lease Year) from the Commencement Date through the date of repurchase by
Lessee.

                  Net Income: For any period, Lessee's net income (or loss) for
such period, determined in accordance with GAAP, provided, however, that
Lessee's Net Income shall not include:

                  (a)      any after-tax gains or losses attributable to
                           returned surplus assets of any pension-benefit plan;

                  (b)      any extraordinary gains or losses or nonrecurring
                           gains or losses;

                  (c)      any gains or losses realized upon the sale or other
                           disposition of property which is not sold or
                           otherwise disposed of in the ordinary course of
                           business;

                  (d)      any gains or losses realized upon the sale or other
                           disposition of any capital stock of any Person;

                  (e)      any gains or losses from the disposal of a
                           discontinued business;

                  (f)      the cumulative effect on prior years of any change in
                           an accounting principle;

                  (g)      the income or loss of any Person acquired by Lessee
                           or an Affiliate in a pooling of interests transaction
                           for any period prior to the date of such acquisition;

                  (h)      the income or loss from any sale of assets in which
                           the book value of such assets had been the book value
                           of any Person acquired in a pooling-of-interests
                           transaction prior to the date such Person became an
                           Affiliate of Lessee;

                  (i)      the income of Lessee to the extent the payment of
                           such income is not permitted, whether on account of
                           any law, statute, judgment, decree or governmental
                           order, rule or regulation applicable to such Lessee;

                                       16
<PAGE>   23
                  (j)      all amounts included in computing such net income (or
                           loss) in respect of the write-up of any asset or the
                           write-down of any Debt at less than face value after
                           the later of the Commencement Date or the date on
                           which such asset or Debt was first properly included
                           on Lessee's balance sheet.

                  (k)      the reduction or increase in income tax expense
                           resulting from an increase or decrease in a deferred
                           income tax asset due to the anticipation of future
                           income tax benefits or obligations; or

                  (l)      the reduction or increase in income tax expense
                           resulting from an increase or decrease in a deferred
                           income tax asset or from a decrease or increase in a
                           deferred income tax liability due to a change in a
                           statutory tax rate.

                  Net Proceeds: All proceeds, net of any costs incurred by
Lessor in obtaining such proceeds, payable under any policy of insurance
required by Article XIII of this Lease (including any proceeds with respect to
Lessee's Personal Property that Lessee is required or elects to restore or
replace pursuant to Section 14.3) or paid by a Condemnor for the Taking of any
of all or any portion of a Leased Property.

                  Net Reletting Proceeds: Proceeds of the reletting of any
portion of the Leased Property received by Lessor, net of Reletting Costs.

                  Net Worth: At any date, net worth as determined in conformity
with GAAP.

                  Notice: A notice given in accordance with Article XXXI hereof.

                  Notice of Termination: A Notice from Lessor that it is
terminating this Lease by reason of an Event of Default.

                  Officer's Certificate: If for a corporation, a certificate
signed by one or more officers of the corporation authorized to do so by the
bylaws of such corporation or a resolution of the Board of Directors thereof; if
for a partnership, limited liability company or any other kind of entity, a
certificate signed by a Person having the authority to so act on behalf of such
entity.

                  Omega Lease Rate: The average yield to Lessor on leases,
entered into during the one hundred twenty (120) days preceding the date of the
payment of such portion of Additional Purchase Price, of assisted living and/or
dementia care facilities to lessees whose creditworthiness, alone or, as to any
such lease or leases which are guaranteed, in combination with that of the
guarantor or guarantors thereof, is similar to the creditworthiness of Lessee
and Guarantor on the date of this Lease.

                  Overdue Rate: On any date, the interest rate that is equal to
five percent (5%) (five hundred (500) basis points) above the Prime Rate, but in
no event greater than the maximum rate then permitted under applicable law.

                                       17
<PAGE>   24
                  Partial Taking: A taking of less than the entire fee of a
Leased Property that either (i) does not render the Leased Property Unsuitable
for its Primary Intended Use, or (ii) renders a Leased Property Unsuitable for
its Primary Intended Use, but neither Lessor nor Lessee elects pursuant to
Section 15.1 hereof to terminate this Lease.

                  Payment Date: Any due date for the payment of the installments
of Base Rent or for the payment of Additional Charges or any other amount
required to be paid by Lessee hereunder.

                  Permitted Encumbrances: Encumbrances listed on attached
EXHIBIT E.

                  Person: Any natural person, trust, partnership, corporation,
joint venture, limited liability company or other legal entity.

                  Personal Property: All machinery, equipment, furniture,
furnishings, movable walls or partitions, computers (and all associated
software), trade fixtures and other personal property (but excluding consumable
inventory and supplies owned by Lessee) used in connection with the Leased
Properties, together with all replacements and alterations thereof and additions
thereto, except items, if any, included within the definition of Fixtures or
Leased Improvements.

                  Portfolio Stabilization: Portfolio Stabilization shall have
occurred when the Cash Flow to Rent Ratio required by the first sentence of
Section 8.2.1.2 has first been achieved.

                  Preliminary Term: If the Commencement Date is not January 1,
the period from and including the Commencement Date through December 31st of the
calendar year in which the Commencement Date occurs.

                  Present Value: The value of future payments, determined by
discounting each such payment at a rate equal to the yield on the specified date
on securities issued by the United States Treasury (bills, notes and bonds)
maturing on the date closest to December 31 in the year in which such future
payment would have been due.

                  Primary Intended Use: Assisted living facility and/or dementia
care, together with incidental uses thereof for the care and/or housing of the
elderly, such as (provided the following are individually and in the aggregate
incidental and ancillary to the use of a Facility for assisted living and/or
dementia care) adult day care, physical therapy, hospice care, pharmacy and
related uses.

                  Prime Rate: On any date, an interest rate equal to the prime
rate published by the Wall Street Journal, but in no event greater than the
maximum rate then permitted under applicable law. If the Wall Street Journal
ceases to be in existence, or for any reason no longer publishes such prime
rate, the Prime Rate shall be the rate announced as its prime rate by Fleet
Bank, and if such bank no longer exists or does not announce a prime rate at
such time, the Prime Rate shall be the rate of interest announced as its prime
rate by a national bank selected by Lessor.

                                       18
<PAGE>   25
                  Proceeding: Any action, proposal or investigation by any
agency or entity.

                  Purchase Agreement: The Purchase Agreement and Agreement to
Complete Construction of even date among Lessor, as purchaser, Sterling House
Corporation and ALS-Clare Bridge, Inc., as sellers, and Guarantor.

                  Purchase Money Financing: Any financing provided by a Person
to Lessee in connection with the acquisition of Personal Property used in
connection with the operation of a Facility, whether by way of installment sale
or otherwise.

                  Qualified Capital Expenditures: Expenditures capitalized on
the books of Lessee for any of the following:

                  Replacement of furniture, fixtures and equipment, including
                  refrigerators, ranges, major appliances, bathroom fixtures,
                  doors (exterior and interior), central air conditioning and
                  heating systems (including cooling towers, water chilling
                  units, furnaces, boilers and fuel storage tanks) and major
                  replacement of siding; major roof replacements, including
                  major replacements of gutters, downspouts, eaves and soffits;
                  major repairs and replacements of plumbing and sanitary
                  systems; overhaul of elevator systems; major repaving,
                  resurfacing and sealcoating of sidewalks, parking lots and
                  driveways; repainting of entire building exterior; but
                  excluding major alterations, renovations, additions, normal
                  maintenance and repairs.

                  Regulatory Actions: Any claim, demand, notice, action or
proceeding brought, threatened or initiated by any governmental authority in
connection with any Environmental Law, including, without limitation, civil,
criminal and administrative proceedings, whether or not the remedy sought is
costs, damages, equitable remedies, penalties or expenses.

                  Related Rights: All easements, rights and appurtenances
relating to the Land and the Leased Improvements.

                  Release: The intentional or unintentional spilling, leaking,
dumping, pouring, emptying, seeping, disposing, discharging, emitting,
depositing, injecting, leaching, escaping, abandoning, or any other release or
threatened release, however defined, of any Hazardous Substance.

                  Reletting Costs: Actual expenses incurred by Lessor in
connection with the reletting of the Leased Properties in whole or in part after
an Event of Default, including without limitation attorneys' fees and expenses,
brokerage fees and expenses, marketing expenses and the cost of repairs and
renovations reasonably required for such reletting.

                                       19
<PAGE>   26
                  Renewal Term: A period for which the Term is renewed in
accordance with Section 1.3.

                  Rent: Collectively, Base Rent, Annual Site Inspection Fee and
Additional Charges.

                  Replacement Cost: The actual replacement cost of a Leased
Property, including an increased cost of construction endorsement, less
exclusions provided in the standard form of fire insurance policy. In all events
Replacement Cost shall be an amount sufficient that neither Lessor nor Lessee is
deemed to be a co-insurer of the Leased Property in question. Lessor shall have
the right from time to time, but no more frequently than once in any period of
three (3) consecutive Lease Years, to have Replacement Cost reasonably
redetermined by the fire insurance company which is then carrying the largest
amount of fire insurance on the Leased Properties, which determination shall be
final and binding on the parties hereto, and upon such determination Lessee
shall forthwith increase, but not decrease, the amount of the insurance carried
pursuant to Section 13.2.1 to the amount so determined, subject to the approval
of any Facility Mortgagee. Lessee shall pay the fee, if any, of the insurer
making such determination.

                  SEC:  Securities and Exchange Commission.

                  Security Agreement: The Security Agreement of even date
between Lessor as secured party and Lessee as debtor.

                  Security Deposit: Two Hundred Seventy-Seven Thousand
Eighty-Two Dollars ($277,082), to be delivered and held in accordance with
Article XXXIX hereof.

                  Special Risk Insurance: The insurance coverage required by
Section 13.2.1.

                  State(s): The State or States in which the Leased Properties
are located.

                  Taken: Conveyed pursuant to a Taking.

                  Taking: A taking or voluntary conveyance during the Term of
all or part of a Leased Property, or any interest therein or right accruing
thereto or use thereof, as the result of, or in settlement of any condemnation
or other eminent domain proceeding affecting the Leased Property whether or not
the same shall have actually been commenced.

                  Term: Collectively, the Initial Term plus the Renewal Term or
Renewal Terms, if any.

                  Termination Date: The tenth (10th) day following the date on
which a Notice of Termination is given.

                                       20
<PAGE>   27
                  Third Party Claims: Any claims, actions, demands or
proceedings (other than Regulatory Actions) howsoever based (including without
limitation those based on negligence, trespass, strict liability, nuisance,
toxic tort or detriment to health welfare or property) due to Contamination,
whether or not the remedy sought is costs, damages, penalties or expenses,
brought by any person or entity other than a governmental agency.

                  Transaction Documents: This Lease, the Master Lease, the
Purchase Agreement and the letter of credit agreements, security agreements,
pledge agreements, subordination agreements, guaranties and other documents
which evidence, secure or otherwise relate to this Lease, the Master Lease and
the Purchase Agreement.

                  Transfer: The (a) assignment, mortgaging or other encumbering
of all or any part of Lessee's interest in this Lease or in the Leased
Properties, or (b) subletting of the whole or any part of any Leased Property,
or (c) entering into of any Management Agreement or other arrangement under
which any Facility is operated by or licensed to be operated by an entity other
than Guarantor, or (d) merger, consolidation or reorganization of a corporate
Lessee or of any corporate Guarantor or corporate Manager, or the sale,
issuance, or transfer, cumulatively or in one transaction, of any voting stock
by Lessee, any Guarantor or Manager or by Persons who are stockholders of record
of Lessee, any Guarantor or Manager, which (with respect to such merger,
consolidation, reorganization, sale, issuance or transfer, as applicable)
results in a change of Control of Lessee, any Guarantor or Manager, or (e) sale,
issuance or transfer, cumulatively or in one transaction, of any interest, or
the termination of any interest, in Lessee, any Guarantor or Manager if Lessee,
such Guarantor or such Manager is a joint venture, partnership, limited
liability company or other association (other than a corporation), which results
in a change of Control of such joint venture, partnership or other association.
Notwithstanding the foregoing, a change in Control of Lessee or Guarantor or
Manager resulting from (a) a sale, issuance or transfer of any stock in
Guarantor or Manager or (b) a merger, consolidation, reorganization or other
business combination involving Guarantor or Manager shall not constitute a
"Transfer," provided that (i) after the change of Control, the Net Worth of the
Guarantor or such successor entity, on a consolidated basis, is at least equal
to ONE HUNDRED MILLION DOLLARS ($100,000,000.00); (ii) Guarantor or Guarantor's
parent corporation following such transaction is, at the time of or immediately
after such transaction, a publicly held corporation; and (iii) in the event of a
merger, consolidation, reorganization or other business combination involving
Guarantor, the successor entity of Guarantor, if any, executes and delivers to
Lessor a Guaranty, in substantially the form of the Guaranty executed by
Guarantor, pursuant to which the successor entity guarantees to Lessor the
payment and performance by Lessee of its obligations under this Lease.

                  Transferee: An assignee, subtenant or other occupant of a
Leased Property pursuant to a Transfer.

                  Unsuitable for Its Primary Intended Use: A state or condition
of a Facility such that by reason of a Partial Taking, the Facility cannot be
operated on a commercially practicable basis for its Primary Intended Use,
taking into account, among other relevant factors, the number of usable


                                       21
<PAGE>   28
beds permitted by applicable law and regulation in the Facility after the
Partial Taking, the square footage Taken and the estimated revenue impact of
such Partial Taking.


                                   ARTICLE III

         3.1 Base Rent; Monthly Installments. In addition to all other payments
to be made by Lessee under this Lease, Lessee shall pay Lessor the Base Rent in
lawful money of the United States of America which is legal tender for the
payment of public and private debts, in advance, in equal, consecutive monthly
installments. The first installment of Base Rent shall be payable on the
Commencement Date, together with a prorated amount of Base Rent for the period
from the Commencement Date until the last day of the first full calendar month
of the Term. Thereafter, installments of Base Rent shall be payable on the first
(1st) day of each calendar month. Base Rent shall be paid to Lessor, or to such
other Person as Lessor from time to time may designate by Notice to Lessee, by
wire transfer of immediately available federal funds to the bank account
designated in writing by Lessor. If Lessor directs Lessee to pay any Base Rent
or Additional Charges to any Person other than Lessor, Lessee shall send to
Lessor such evidence of such payment as Lessor may require.

         3.2 Additional Charges. In addition to the Base Rent, Lessee will also
pay as and when due (a) the Annual Site Inspection Fee and (b) all Additional
Charges.

         3.3 Late Charge; Interest If any Rent payable to Lessor is not paid
when due, Lessee shall pay Lessor on demand, as an Additional Charge, (a) a late
charge equal to the greater of (i) five percent (5%) of the amount not paid when
due and (ii) any and all charges, expenses, fees or penalties imposed on Lessor
by a Facility Mortgagee for late payment, plus (b) if such Rent (including the
late charge) is not paid within thirty (30) days of the date due, interest
thereon at the Overdue Rate from such thirtieth (30th) day until such Rent
(including the late charge and interest) is paid in full.

         3.4 Net Lease.

                  3.4.1 The Rent shall be paid absolutely net to Lessor, so that
this Lease shall yield to Lessor the full amount of the Rent payable to Lessor
hereunder throughout the Term, subject only to any provisions of the Lease which
expressly provide for adjustment or abatement of Rent or other charges.

                  3.4.2 If Lessor commences any proceedings for non-payment of
Rent, Lessee will not interpose any counterclaim or cross complaint or similar
pleading of any nature or description (other than an alleged default by Lessor
under Section 30.1) in such proceedings unless Lessee would lose or waive such
claim by the failure to assert it, but Lessee does not waive any rights to
assert such claim in a separate action brought by Lessee. The covenants to pay
Rent are independent covenants, and Lessee shall have no right to hold back,
offset or fail to pay any Rent because of any


                                       22
<PAGE>   29
alleged default by Lessor or for any other reason whatsoever, other than after
the entry of a final judgment of a court of competent jurisdiction that Lessor
has breached Section 30.1.

         3.5 Payments In The Event of a Rent Adjustment. In the event this Lease
provides for adjustment of the Base Rent on any basis that requires a
determination of Base Rent which cannot be made on or before the due date of the
first installment of Base Rent following the Adjustment Date, Lessee shall
continue to pay the Base Rent at the rate previously in effect until Lessor
gives Lessee Notice of its determination of the adjusted Base Rent. Upon such
determination, the Base Rent shall be retroactively adjusted as of the
Adjustment Date. On or before the second (2nd) Payment Date for Base Rent
following receipt by Lessee of Lessor's Notice of the adjustment, Lessee shall
make an additional payment of Base Rent in such amount as will bring the Base
Rent, as adjusted, current on or before such second (2nd) Payment Date, and
thereafter Lessee shall pay the adjusted Base Rent in correspondingly adjusted
monthly installments until the Base Rent is next adjusted as required herein.
This Section 3.5 shall survive the expiration or termination of this Lease with
respect to any adjustment which is not known or fully paid as of the date of
expiration or termination.


                                   ARTICLE IV

         4.1 Payment of Impositions. Subject to Article XII relating to
permitted contests, Lessee will pay all Impositions before any fine, penalty,
interest or cost is added for non-payment, and will promptly, upon request,
furnish to Lessor copies of official receipts or other satisfactory proof
evidencing such payments. If at the option of the taxpayer any Imposition may
lawfully be paid in installments, Lessee may pay the same in the required
installments provided it also pays any and all interest due thereon as and when
due.

         Lessee shall prepare and file as and when required all tax returns and
reports required by governmental authorities with respect to all Impositions.
Lessor and Lessee shall each, upon request, provide the other with such data,
including without limitation cost and depreciation records, as is maintained by
the party to whom the request is made as is necessary to prepare any required
returns and reports.

         Lessee shall be entitled to receive and retain any refund from a taxing
authority in respect of an Imposition paid by Lessee if at the time of the
refund no Event of Default has occurred and is continuing, but if an Event of
Default has occurred and is continuing at the time of the refund, Lessee shall
not be entitled to receive or retain such refund and if and when received by
Lessor such refund shall be applied as provided in Article XVI. Lessor shall pay
over to Lessee, promptly upon receipt, any refund to which Lessee would be
entitled under the preceding sentence that is received by Lessor after the
expiration or earlier termination of this Lease.

         4.2 Adjustment of Impositions. Impositions imposed in respect of the
tax-fiscal period during which the Term ends shall be adjusted and prorated
between Lessor and Lessee, whether or


                                       23
<PAGE>   30
not imposed before or after the expiration of the Term or the earlier
termination thereof, and Lessee's obligation to pay and Lessor's obligation to
refund the prorated share thereof shall survive such expiration or earlier
termination.

         4.3 Utility Charges. Lessee will pay or cause to be paid when due all
charges for electricity, power, gas, oil, water and other utilities imposed upon
the Leased Properties or upon Lessor or Lessee with respect to the Leased
Properties.

         4.4 Insurance Premiums. Lessee shall pay or cause to be paid when due
all premiums for the insurance coverage required to be maintained pursuant to
Article XIII during the Term.


                                    ARTICLE V

         5.1 No Termination, Abatement, etc. Lessee shall not take any action
without the consent of Lessor to modify, surrender or terminate this Lease, and
shall not seek or be entitled to any abatement, deduction, deferment or
reduction of Rent, or setoff against Rent, other than after the entry of a final
judgment of a court of competent jurisdiction that Lessor has breached Section
30.1. The respective obligations of Lessor and Lessee shall not be affected by
reason of (i) any damage to, or destruction of, the Leased Properties or any
portion thereof from whatever cause or any Taking of the Leased Properties or
any portion thereof, except as expressly set forth herein; (ii) the lawful or
unlawful prohibition of, or restriction upon, Lessee's use of the Leased
Properties, or any portion thereof, or the interference with such use by any
Person or by reason of eviction by paramount title (other than by the holder(s)
of any Facility Mortgage(s) or other encumbrances now or hereafter placed on a
Facility by Lessor and the claimants under liens attaching to a Facility as a
result of Lessor's ownership of an interest therein); (iii) any claim which
Lessee has or might have against Lessor or by reason of any default or breach of
any warranty by Lessor under this Lease or any other agreement between Lessor
and Lessee (other than Section 30.1), or to which Lessor and Lessee are parties,
(iv) any bankruptcy, insolvency, reorganization, composition, readjustment,
liquidation, dissolution, winding up or other proceedings affecting Lessor or
any assignee or transferee of Lessor, or (v) any other cause whether similar or
dissimilar to any of the foregoing other than a discharge of Lessee from any
such obligations as a matter of law. Lessee hereby specifically waives all
rights, arising from any occurrence whatsoever, which may now or hereafter be
conferred upon it by law to (i) modify, surrender or terminate this Lease or
quit or surrender the Leased Properties or any portion thereof, or (ii) entitle
Lessee to any abatement, reduction, suspension or deferment of the Rent or other
sums payable by Lessee hereunder except as otherwise specifically provided in
this Lease.


                                   ARTICLE VI

         6.1 Ownership of the Leased Properties. Lessee acknowledges that the
Leased Properties are the property of Lessor and that Lessee has only the right
to the possession and use of the Leased


                                       24
<PAGE>   31
Properties upon the terms and conditions of this Lease. Lessee will not (i) file
any income tax return or other associated documents; (ii) file any other
document with or submit any document to any governmental body or authority;
(iii) enter into any written contractual arrangement with any Person; or (iv)
release any financial statement of Lessee, in any case that takes any position
other than that throughout the Term Lessor is the owner of the Leased Properties
for federal, state and local income tax purposes, this Lease is a "true lease"
and an "operating lease" and not a "capital lease".

         6.2 Lessor's Personal Property. Lessee shall, during the entire Term,
maintain all of Lessor's Personal Property in good order, condition and repair
as shall be necessary in order to operate the Facilities for the Primary
Intended Use in compliance with all applicable licensure and certification
requirements, all applicable Legal Requirements and Insurance Requirements, and
customary industry practice for the Primary Intended Use. If any of Lessor's
Personal Property requires replacement in order to comply with the foregoing,
Lessee shall replace it with similar property of the same or better quality at
Lessee's sole cost and expense, and when such replacement property is placed in
service with respect to the Leased Property it shall become Lessor's Personal
Property. Lessee shall not permit or suffer Lessor's Personal Property to be
subject to any lien, charge, encumbrance, financing statement, contract of sale,
equipment lessor's interest or the like, except for any purchase money security
interest or equipment lessor's interest expressly approved in advance, in
writing, by Lessor. At the expiration or earlier termination of this Lease, all
of Lessor's Personal Property shall be surrendered to Lessor with the Leased
Properties at or before the time of the surrender of the Leased Property in at
least as good a condition as at the Commencement Date (or, as to replacements,
in at least as good a condition as when placed in service at the Facilities)
except for ordinary wear and tear.

         6.3 Lessee's Personal Property. Lessee shall provide and maintain
during the Term such Personal Property, in addition to Lessor's Personal
Property, as shall be necessary and appropriate in order to operate the
Facilities for the Primary Intended Use in compliance with all licensure and
certification requirements, in compliance with all applicable Legal Requirements
and Insurance Requirements and otherwise in accordance with customary practice
in the industry for the Primary Intended Use. Without the prior written consent
of Lessor, Lessee shall not permit or suffer Lessee's Personal Property to be
subject to any lien, charge, encumbrance, financing statement or contract of
sale or the like other than as permitted by Section 8.2.1.3. Upon the expiration
of the Term or the earlier termination of this Lease, without the payment of any
additional consideration by Lessor, Lessee shall be deemed to have sold,
assigned, transferred and conveyed to Lessor all of Lessee's right, title and
interest in and to any of Lessee's Personal Property that, in Lessor's
reasonable judgment, is integral to the Primary Intended Use of the Facilities
(or if some other use thereof has been approved by Lessor as required herein,
such other use as is then being made by Lessee) and, as provided in Section 34.1
hereof, Lessor shall have the option to purchase any of Lessee's Personal
Property that is not then integral to such use. Without Lessor's prior written
consent, Lessee shall not remove Lessee's Personal Property that is in use at
the expiration or earlier termination of the Term from the Leased Properties
until such option to purchase has expired or been waived in writing by Lessor.
Any of Lessee's Personal Property that is not integral to the use of the
Facilities being made by Lessee and is not purchased by Lessor pursuant to
Section 34.1 may be removed by Lessee


                                       25
<PAGE>   32
upon the expiration or earlier termination of this Lease, and, if not removed
within twenty (20) days following the expiration or earlier termination of this
Lease, shall be considered abandoned by Lessee and may be appropriated, sold,
destroyed or otherwise disposed of by Lessor without giving notice thereof to
Lessee and without any payment to Lessee or any obligation to account therefor.
Lessee shall reimburse Lessor for any and all expense incurred by Lessor in
disposing of any of Lessee's Personal Property that Lessee may remove but within
such twenty (20) day period fails to remove, and shall either at its own expense
restore the Leased Properties to the condition required by Section 9.1.5,
including repair of all damage to the Leased Properties caused by the removal of
any of Lessee's Personal Property, or reimburse Lessor for any and all expense
incurred by Lessor for such restoration and repair.

         6.4 Grant of Security Interest in Personal Property and Accounts.
Lessee has concurrently granted to Lessor a security interest in all of Lessee's
right, title and interest in the Collateral as defined in the Security
Agreement, which includes, without limitation, Lessee's Personal Property and
the Lessee's Accounts as defined in the Security Agreement.


                                   ARTICLE VII

         7.1 Condition of the Leased Properties. Lessee acknowledges that it has
inspected and otherwise has knowledge of the condition of the Leased Properties
prior to the execution and delivery of this Lease and has found the same to be
in good order and repair and satisfactory for its purposes hereunder. Lessee is
leasing the Leased Properties "as is" in their condition on the Commencement
Date. Lessee waives any claim or action against Lessor in respect of the
condition of the Leased Properties. LESSOR MAKES NO WARRANTY OR REPRESENTATION
EXPRESS OR IMPLIED, IN RESPECT OF ANY LEASED PROPERTY OR ANY PART THEREOF,
EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR
PURPOSE OR OTHERWISE AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN,
LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE.
Lessee further acknowledges that throughout the Term Lessee is solely
responsible for the condition of the Leased Properties.

         7.2 Use of the Leased Properties. Throughout the Term Lessee shall
continuously use the Leased Properties for the Primary Intended Use and uses
incidental thereto. Lessee shall not use the Leased Properties or any portion
thereof for any other use without the prior written consent of Lessor. No use
shall be made or permitted to be made of, or allowed in, the Leased Properties,
and no acts shall be done, which will cause the cancellation of, or be
prohibited by, any insurance policy covering the Leased Properties or any part
thereof, nor shall the Leased Properties or Lessee's Personal Property be used
for any unlawful purpose. Lessee shall not commit or suffer to be committed any
waste on the Leased Properties, or cause or permit any nuisance thereon, or
suffer or permit the Leased Properties or any portion thereof, or Lessee's
Personal Property, to be used in such a manner as (i) might reasonably tend to
impair Lessor's (or Lessee's, as the case may be) title thereto or to any
portion thereof, or (ii) may reasonably make possible a claim or claims of
adverse


                                       26
<PAGE>   33
usage or adverse possession by the public, as such, or of implied dedication of
the Leased Properties or any portion thereof.

         7.3 Certain Environmental Matters.

                  (a) Prohibition Against Use of Hazardous Substances. Lessee
         shall not permit, conduct or allow on the Leased Properties, the
         generation, introduction, presence, maintenance, use, receipt,
         acceptance, treatment, manufacture, production, installation,
         management, storage, disposal or release of any Hazardous Substance
         except for those types and quantities of Hazardous Substances necessary
         for and ordinarily associated with the conduct of Lessee's business
         which are used in full compliance with all Environmental Laws.

                  (b) Notice of Environmental Claims, Actions or Contaminations.
         Lessee shall notify Lessor, in writing, immediately upon learning of
         any existing, pending or threatened: (a) investigation, inquiry, claim
         or action by any governmental authority in connection with any
         Environmental Laws, (b) Third Party Claims, (c) Regulatory Actions,
         and/or (id) Contamination of any portion of the Leased Properties.

                  (c) Costs of Remedial Actions with Respect to Environmental
         Matters. If any investigation and/or Clean-Up of any Hazardous
         Substance or other environmental condition on, under, about or with
         respect to a Leased Property is required by any Environmental Law,
         Lessee shall complete, at its own expense, such investigation and/or
         Clean-Up or cause any other Person that may be legally responsible
         therefor to complete such investigation and/or Clean-Up.

                  (d) Delivery of Environmental Documents. Lessee shall deliver
         to Lessor complete copies of any and all Environmental Documents that
         may now be in or at any time hereafter come into the possession of
         Lessee.

                  (e) Environmental Audit. At Lessee's expense, Lessee shall
         from time to time, upon and within forty-five (45) days of Lessor's
         request therefor, deliver an Environmental Audit to Lessor. All tests
         and samplings shall be conducted using generally accepted and
         scientifically valid technology and methodologies. Lessee shall give
         the engineer or environmental consultant conducting the Environmental
         Audit reasonable and complete access to the Leased Properties and to
         all records in the possession of Lessee that may indicate the presence
         (whether current or past) of a Release or threatened Release of any
         Hazardous Substances on, in, under, about and adjacent to any Leased
         Property. Lessee shall also provide the engineer or environmental
         consultant full access to and the opportunity to interview such persons
         as may be employed in connection with the Leased Properties as the
         engineer or consultant deems appropriate. However, Lessor shall not be
         entitled to request an Environmental Audit from Lessee unless Lessor
         has reasonable cause to believe that a Release affecting a Facility has
         occurred or there are fewer than six (6) months remaining in the Term.
         If the Environmental Audit discloses the presence of Contamination or
         any


                                       27
<PAGE>   34
         noncompliance with Environmental Laws, Lessee shall immediately perform
         all of Lessee's obligations hereunder with respect to such Hazardous
         Substances or noncompliance.

                  (f) Entry onto Leased Properties for Environmental Matters. If
         Lessee fails to provide an Environmental Audit as and when required by
         Subparagraph (e) hereof, in addition to Lessor's other remedies Lessee
         shall permit Lessor from time to time, by its employees, agents,
         contractors or representatives, to enter upon the Leased Properties for
         the purpose of conducting such Investigations as Lessor may desire, the
         expense of which shall promptly be paid or reimbursed by Lessee as an
         Additional Charge. Lessor, and its employees, agents, contractors,
         consultants and/or representatives, shall conduct any such
         Investigation in a manner which does not unreasonably interfere with
         Lessee's use of and operations on the Leased Properties (however,
         reasonable temporary interference with such use and operations is
         permissible if the investigation cannot otherwise be reasonably and
         inexpensively conducted). Other than in an emergency, Lessor shall
         provide Lessee with prior notice before entering any of the Leased
         Properties to conduct such Investigation, and shall provide copies of
         any reports or results to Lessor, and Lessee shall cooperate fully in
         such Investigation.

                  (g) Environmental Matters Upon Termination of the Lease or
         Expiration of Term. Upon the expiration or earlier termination of the
         Term of this Lease, Lessee shall cause the Leased Properties to be
         delivered free of any and all Regulatory Actions and Third Party Claims
         and otherwise in compliance with all Environmental Laws with respect
         thereto, and in a manner and condition that is reasonably required to
         ensure that the then present use, operation, leasing, development,
         construction, alteration, refinancing or sale of the Leased Property
         shall not be restricted by any environmental condition existing as of
         the date of such expiration or earlier termination of the Term.

                  (h) Compliance with Environmental Laws. Lessee shall (and
         shall cause each sublessee referred to in Section 22.2 to) comply with,
         and shall cause its agents, servants and employees to comply with, and
         shall use reasonable efforts to cause each occupant and user of any of
         the Leased Properties, and the agents, servants and employees of such
         occupants and users, to comply with each and every Environmental Law
         applicable to Lessee, the Leased Properties and each such occupant or
         user with respect to the Leased Properties. Specifically, but without
         limitation:

                           (i) Maintenance of Licenses and Permits. Lessee shall
                  obtain and maintain (and Lessee shall use reasonable efforts
                  to cause each tenant, occupant and user to obtain and
                  maintain) all permits, certificates, licenses and other
                  consents and approvals required by any applicable
                  Environmental Law from time to time with respect to Lessee,
                  each and every part of the Leased Properties and/or the
                  conduct of any business at a Facility or related thereto;

                                       28
<PAGE>   35
                           (ii) Contamination. Lessee shall not cause, suffer or
                  permit any Contamination;

                           (iii) Clean-Up. If a Contamination occurs, the Lessee
                  promptly shall Clean-Up and remove any Hazardous Substance or
                  cause the Clean-Up and the removal of any Hazardous Substance
                  and in any such case such Clean-Up and removal of the
                  Hazardous Substance shall be effected to Lessor's reasonable
                  satisfaction and in any event in strict compliance with and in
                  accordance with the provisions of the applicable Environmental
                  Laws;

                           (iv) Discharge of Lien. Within twenty (20) days of
                  the date any lien is imposed against the Leased Properties or
                  any part thereof under any Environmental Law, Lessee shall
                  cause such lien to be discharged (by payment, by bond or
                  otherwise to Lessor's absolute satisfaction);

                           (v) Notification of Lessor. Within three (3) Business
                  Days after receipt by Lessee of notice or discovery by Lessee
                  of any fact or circumstance which might result in a breach or
                  violation of any covenant or agreement, Lessee shall notify
                  Lessor in writing of such fact or circumstance; and

                           (vi) Requests, Orders and Notices. Within three (3)
                  Business Days after receipt of any request, order or other
                  notice relating to the Leased Properties under any
                  Environmental Law, Lessee shall forward a copy thereof to
                  Lessor.

                  (i) Environmental Related Remedies. In the event of a breach
         by Lessee beyond any applicable notice and/or grace period of its
         covenants with respect to environmental matters, Lessor may, in its
         sole discretion, do any one or more of the following (the exercise of
         one right or remedy hereunder not precluding the simultaneous or
         subsequent exercise of any other right or remedy hereunder):

                           (i) Cause a Clean-Up. Cause the Clean-Up of any
                  Hazardous Substance or other environmental condition on or
                  under the Leased Properties, or both, at Lessee's cost and
                  expense; or

                           (ii) Payment of Regulatory Damages. Pay on behalf of
                  Lessee any damages, costs, fines or penalties imposed on
                  Lessee or Lessor as a result of any Regulatory Actions; or

                           (iii) Payments to Discharge Liens. On behalf of
                  Lessee, make any payment or perform any other act or cause any
                  act to be performed which will prevent a lien in favor of any
                  federal, state or local governmental authority from attaching
                  to the Leased Properties or which will cause the discharge of
                  any lien then attached to the Leased Properties; or

                                       29
<PAGE>   36
                           (iv) Payment of Third Party Damages. Pay, on behalf
                  of Lessee, any damages, cost, fines or penalties imposed on
                  Lessee as a result of any Third Party Claims; or

                           (v) Demand of Payment. Demand that Lessee make
                  immediate payment of all of the costs of such Clean-Up and/or
                  exercise of the remedies set forth in this Section 7.3
                  incurred by Lessor and not theretofore paid by Lessee as of
                  the date of such demand.

                  (j) Environmental Indemnification. Lessee shall and does
         hereby indemnify, and shall defend and hold harmless Lessor, its
         principals, officers, directors, agents and employees from each and
         every incurred and potential claim, cause of action, damage, demand,
         obligation, fine, laboratory fee, liability, loss, penalty, imposition,
         settlement, levy, lien removal, litigation, judgment, proceeding,
         disbursement, expense and/or cost (including without limitation the
         cost of each and every Clean-Up), however defined and of whatever kind
         or nature, known or unknown, foreseeable or unforeseeable, contingent,
         incidental, consequential or otherwise (including, but not limited to,
         attorneys' fees, consultants' fees, experts' fees and related expenses,
         capital, operating and maintenance costs, incurred in connection with
         (i) any Investigation or monitoring of site conditions, and (ii) any
         Clean-Up required or performed by any federal, state or local
         governmental entity or performed by any other entity or person because
         of the presence of any Hazardous Substance, Release, threatened Release
         or any Contamination on, in, under or about any of the Leased
         Properties) which may be asserted against, imposed on, suffered or
         incurred by, each and every indemnitee arising out of or in any way
         related to, or allegedly arising out of or due to any environmental
         matter including, but not limited to, any one or more of the following:

                           (i) Release Damage or Liability. The presence of
                  Contamination in, on, at, under, or near a Leased Property or
                  migrating to a Leased Property from another location;

                           (ii) Injuries. All injuries to health or safety
                  (including wrongful death), or to the environment, by reason
                  of environmental matters relating to the condition of or
                  activities past or present on, at, in, under a Leased
                  Property;

                           (iii) Violations of Law. All violations, and alleged
                  violations, of any Environmental Law relating to a Leased
                  Property or any activity on, in, at, under or near a Leased
                  Property;

                           (iv) Misrepresentation. All material
                  misrepresentations relating to environmental matters in any
                  documents or materials furnished by Lessee to Lessor and/or
                  its representatives in connection with the Lease;

                                       30
<PAGE>   37
                           (v) Event of Default. Each and every Event of Default
                  relating to environmental matters;

                           (vi) Lawsuits. Any and all lawsuits brought or
                  threatened, settlements reached and governmental orders
                  relating to any Hazardous Substances at, on, in, under or near
                  a Leased Property, and all demands of governmental
                  authorities, based upon or in any way related to any Hazardous
                  Substances at, on, in, under a Leased Property; and

                           (vii) Presence of Liens. All liens imposed upon any
                  of the Leased Properties in favor of any governmental entity
                  or any person as a result of the presence, disposal, release
                  or threat of release of Hazardous Substances at, on, in, from,
                  or under a Leased Property.

                  (k) Rights Cumulative and Survival. The rights granted Lessor
         under this Section are in addition to and not in limitation of any
         other rights or remedies available to Lessor hereunder or allowed at
         law or in equity or rights of indemnification provided to Lessor in any
         agreement pursuant to which Lessor purchased any of the Leased
         Property. The payment and indemnification obligations set forth in this
         Section 7.3 shall survive the expiration or earlier termination of the
         Term of this Lease.


                                  ARTICLE VIII

         8.1 Compliance with Legal and Insurance Requirements. In its use,
maintenance, operation and any alteration of the Leased Properties, Lessee, at
its expense, will promptly (i) comply with all Legal Requirements and Insurance
Requirements, whether or not compliance therewith requires structural changes in
any of the Leased Improvements (which structural changes shall be subject to
Lessor's prior written approval, which approval shall not be unreasonably
withheld or delayed) or interferes with or prevents the use and enjoyment of the
Leased Properties, and (ii) procure, maintain and comply with all licenses,
certificates of need, provider agreements and other authorizations required for
the use of the Leased Properties and Lessee's Personal Property then being made,
and for the proper erection, installation, operation and maintenance of the
Leased Properties or any part thereof. The judgment of any court of competent
jurisdiction, or the admission of Lessee in any action or proceeding against
Lessee, whether or not Lessor is a party thereto, that Lessee has violated any
such Legal Requirements or Insurance Requirements shall be conclusive of that
fact as between Lessor and Lessee.

                                       31
<PAGE>   38
         8.2 Certain Covenants.

                  8.2.1 Certain Financial Covenants.

                           8.2.1.1 Net Worth. At all times during the Term
Lessee and Guarantor, on a consolidated basis, shall maintain a Net Worth of at
least ONE HUNDRED MILLION DOLLARS ($100,000,000.00).

                           8.2.1.2 Cash Flow to Rent Ratio. Within twenty-four
(24) months after the Commencement Date, Lessee shall achieve and thereafter
maintain, on a trailing three (3) calendar month basis, a Cash Flow to Rent
Ratio of not less than 1.2. Not later than December 31, 2002, Lessee shall
achieve and thereafter maintain, on a trailing three (3) month basis, a Cash
Flow to Rent Ratio of not less than 1.25. Not later than December 31, 2003, and
not later than December 31 of each Lease Year thereafter throughout the Term,
Lessee shall achieve and thereafter maintain, on a trailing three (3) month
basis, a Cash Flow to Rent Ratio that is not less than three (3) basis points
higher than the Cash Flow to Rent Ratio that Lessee was required to achieve by
the immediately preceding December 31 (e.g., the Cash Flow to Rent Ratio for the
Lease Year ended December 31, 2003 shall be not less than 1.28, the Cash Flow to
Rent Ratio for the Lease Year ended December 31, 2004 shall be not less than
1.31, etc.) In determining Lessee's compliance with this financial covenant,
Lessee's Cash Flow for the pertinent fiscal period shall be reduced by an amount
equal to the Minimum Qualified Capital Expenditures allocable to such period
(prorated on a daily basis for any fiscal period of less than 365 days).

                           8.2.1.3 No Other Debt. Lessee shall not, directly or
indirectly, incur or otherwise become liable for any Debt or obligation to pay
money to any Person other than to (i) Lessor pursuant to this Lease , (ii)
lessors of leased equipment used in the operation of the Facilities, and (iii)
Purchase Money Financing; provided that in no event shall the aggregate payments
due with respect to such equipment leases and Purchase Money Financing at any
time during the Term exceed $150,000.

                           8.2.1.4 Pledge or Encumber Assets. Lessee shall not
pledge or otherwise encumber any of its assets, other than leased equipment used
in the operation of the Facilities.

                           8.2.1.5 Guarantees Prohibited. Lessee shall not
guarantee any indebtedness of any Person.

         8.3 Minimum Qualified Capital Expenditures. During the Lease Year that
begins January 1, 2001, Lessee shall expend at least Two Hundred and Fifty
Dollars ($250.00) per bed for Qualified Capital Expenditures to improve the
Facilities. Thereafter throughout the Term Lessee shall expend such amount each
Lease Year, increased annually in proportion to increases in the CPI. Qualified
Capital Expenditures in any Lease Year in excess of that required by the
previous two sentences of this Section 8.3 shall be credited toward the
Qualified Capital Expenditures required to be made in any ensuing Lease Year(s);
provided, however, that in each Lease Year in any period


                                       32
<PAGE>   39
of three (3) successive Lease Years (or, during the period beginning January 1,
2000 and ending December 31, 2001, two (2) successive Lease Years) during the
Term the Qualified Capital Expenditures actually made per bed at each Facility
shall be not less than the average of the sum of the Qualified Capital
Expenditures required hereby for such period. At least annually, at the request
of Lessor, Lessee shall prepare capital expenditures budgets and provide copies
of same to Lessor.

         8.4 Management Agreements. Lessee shall not enter into, amend, modify,
renew, replace or otherwise change the terms of any Management Agreement without
the prior written consent of Lessor as to the identity of the Manager and the
terms of the agreement, which consent Lessor may withhold in its sole
discretion, and in no event without the execution by Lessee, Manager and Lessor
of an agreement, satisfactory to Lessor in form and substance, pursuant to which
Manager's right to receive its management fee is subordinated to the obligation
of Lessee to pay the Rent to Lessor.

         8.5 Other Facilities. During the last three Lease Years in the Term,
neither Lessee nor any Affiliate shall acquire ownership or become an operator
or manager of, or acquire any interest whatever in, any nursing home, rest home,
assisted living facility, subacute facility, retirement center or similar health
care facility located within a five (5) mile radius of any Facility.

         8.6 No Other Business. Lessee shall not engage in any business other
than the operation of the Facilities.

         8.7 Separateness. Lessee shall:

                  a.       Maintain records and books of account separate from
                           those of any Affiliate.

                  b.       Not guarantee or become obligated for the debts of
                           any other entity, including any Affiliate, or hold
                           out its credit, jointly or severally, as being
                           available to satisfy the obligations of others.

                  c.       Not pledge its assets, jointly or severally, for the
                           benefit of any other entity, including any Affiliate.

                  d.       Hold itself out as an entity separate from any
                           Affiliates.

                  e.       At all times cause its Board of Directors to hold
                           appropriate meetings (or act by unanimous consent) to
                           authorize all appropriate corporate actions, and in
                           authorizing such actions, to observe all formalities.


                                       33
<PAGE>   40
                                   ARTICLE IX

         9.1 Maintenance and Repair.

                  9.1.1 Lessee, at its expense, will keep the Leased Properties,
and all landscaping, private roadways, sidewalks and curbs appurtenant thereto
which are under Lessee's control and Lessee's Personal Property in good order
and repair, whether or not the need for such repairs arises out of Lessee's use,
any prior use, the elements or the age of the Leased Property or any portion
thereof, or any cause whatsoever except the act or negligence of Lessor, and
with reasonable promptness shall make all necessary and appropriate repairs
thereto of every kind and nature, whether interior or exterior, structural or
non-structural, ordinary or extraordinary, foreseen or unforeseen or arising by
reason of a condition existing prior to the Commencement Date (concealed or
otherwise). Lessee shall at all times maintain, operate and otherwise manage the
Leased Properties on generally observed by Guarantor in the management of the
other properties that Guarantor or its Affiliates manage. All repairs shall, to
the extent reasonably achievable, be at least equivalent in quality to the
original work or the property to be repaired shall be replaced. Lessee will not
take or omit to take any action the taking or omission of which might materially
impair the value or the usefulness of the Leased Properties or any parts thereof
for the Primary Intended Use.

                  9.1.2 Lessor shall not under any circumstances be required to
maintain, build or rebuild any improvements on the Leased Properties (or any
private roadways, sidewalks or curbs appurtenant thereto), or to make any
repairs, replacements, alterations, restorations or renewals of any nature or
description to the Leased Properties, whether ordinary or extraordinary,
structural or non-structural, foreseen or unforeseen, or upon any adjoining
property, whether to provide lateral or other support or abate a nuisance, or
otherwise, or to make any expenditure whatsoever with respect thereto, in
connection with this Lease. Lessee hereby waives, to the extent permitted by
law, the right to make repairs at the expense of Lessor pursuant to any law in
effect at the time of the execution of this Lease or hereafter enacted.

                  9.1.3 Nothing contained in this Lease shall be construed as
(i) constituting the consent or request of Lessor, expressed or implied, to any
contractor, subcontractor, laborer, materialmen or vendor to or for the
performance of any labor or services or the furnishing of any materials or other
property for the construction, alteration, addition, repair or demolition of or
to any Leased Property or any part thereof, or (ii) giving Lessee any right,
power or permission to contract for or permit the performance of any labor or
services or the furnishing of any materials or other property in such fashion as
would permit the making of any claim against Lessor in respect thereof or to
make any agreement that may create, or in any way be the basis for any right,
title, interest, lien, claim or other encumbrance upon the estate of Lessor in
the Leased Properties, or any portion thereof. Lessor shall have the right to
give, record and post, as appropriate, notices of non-responsibility under any
mechanics' and construction lien laws now or hereafter existing.

                  9.1.4 Lessee shall promptly replace any of the Leased
Improvements or Lessor's Personal Property which become worn out, obsolete or
unusable or unavailable for the purpose for


                                       34
<PAGE>   41
which intended. All replacements shall have a value and utility at least equal
to that of the items replaced and shall become part of the Leased Properties
immediately upon their acquisition by Lessee. Upon Lessor's request, Lessee
shall promptly execute and deliver to Lessor a bill of sale or other instrument
establishing Lessor's lien-free ownership of such replacements. Lessee shall
promptly repair all damage to a Leased Property incurred in the course of such
replacement.

                  9.1.5 Lessee will, upon the expiration or prior termination of
the Term, vacate and surrender the Leased Properties to Lessor in the condition
in which they were originally received from Lessor, in good operating condition,
ordinary wear and tear excepted, except as repaired, rebuilt, restored, altered
or added to as permitted or required by the provisions of this Lease.

         9.2 Encroachments, Restrictions, etc. If, at any time, any of the
Leased Improvements are alleged to encroach upon any property, street or right
of way adjacent to a Leased Property, or to violate any restrictive covenant, or
to impair the rights of others under any easement or right of way, Lessee shall
promptly settle such allegations or take such other lawful action as may be
necessary in order to be able to continue the use of a Leased Property for the
Primary Intended Use substantially in the manner and to the extent such Leased
Property was being used at the time of the assertion of such violation,
impairment or encroachment, provided, however, that no such action shall violate
any other provision of this Lease and any alteration of a Leased Property must
be made in conformity with the applicable requirements of Article X. Lessee
shall not have any claim against Lessor or offset against any of Lessee's
obligations under this Lease with respect to any such violation, impairment or
encroachment.


                                    ARTICLE X

         10.1 Construction of Alterations and Additions to the Leased
Properties. Lessee shall not (a) make or permit to be made any structural
alterations, improvements or additions of or to the Leased Properties or any
part thereof, or (b) materially alter the plumbing, HVAC or electrical systems
thereon or (c) make any other alterations, improvements or additions the cost of
which exceeds, as to any given Facility (i) Twenty Five Thousand ($25,000.00)
Dollars per alteration, improvement or addition, or (ii) Fifty Thousand
($50,000.00) Dollars in any Lease Year as to any given facility, unless and
until Lessee has (a) caused complete plans and specifications therefor to have
been prepared by a licensed architect and submitted to Lessor at least ninety
(90) Business Days before the planned start of construction thereof, and (b)
obtained Lessor's written approval thereof and the approval of any Facility
Mortgagee. If Lessor requires a deposit, Lessor shall retain and disburse the
amount deposited in the same manner as is provided for insurance proceeds in
Section 14.6. If the deposit is reasonably determined by Lessor at any time to
be insufficient for the completion of the alteration, improvement or addition,
Lessee shall immediately increase the deposit to the amount reasonably required
by Lessor. Lessee shall be responsible for the completion of such improvements
in accordance with the plans and specifications approved by Lessor, and shall
promptly correct any failure with respect thereto.

                                       35
<PAGE>   42
         Alterations and improvements not falling within the categories
described in the first sentence of the preceding paragraph may be made by Lessee
without the prior approval of Lessor.

         All alterations, improvements and additions shall be constructed in a
first class, workmanlike manner, in compliance with all Insurance Requirements
and Legal Requirements, be in keeping with the character of the Leased
Properties and the other properties managed by Guarantor or an Affiliate, and be
designed and constructed so that the value of the Leased Properties will not be
diminished or and that the Primary Intended Use of the Leased Properties will
not be changed. All improvements, alterations and additions shall immediately
become a part of the Leased Properties.

         Lessee shall have no claim against Lessor at any time in respect of the
cost or value of any such improvement, alteration or addition. There shall be no
adjustment in the Rent by reason of any such improvement, alteration or
addition. With Lessor's consent, expenditures made by Lessee pursuant to this
Article X may be included as capital expenditures for purposes of inclusion in
the capital expenditures budget for the Facilities and for measuring compliance
with the obligations of Lessee set forth in Section 8.3 of this Lease.

         In connection with any alteration which involves the removal,
demolition or disturbance of any asbestos-containing material, Lessee shall
cause to be prepared at its expense a full asbestos assessment applicable to
such alteration, and shall carry out such asbestos monitoring and maintenance
program as shall reasonably be required thereafter in light of the results of
such assessment.


                                   ARTICLE XI

         11.1 Liens. Without the consent of Lessor or as expressly permitted
elsewhere herein, Lessee will not directly or indirectly create or allow to
remain and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Properties, and
any attachment, levy, claim or encumbrance in respect of the Rent, except for
(i) Permitted Encumbrances, (ii) liens of mechanics, laborers, materialmen,
suppliers or vendors for sums not yet due, and (iii) liens created by , through
or under Lessor or Lessor's title in the Leased Properties.


                                   ARTICLE XII

         12.1 Permitted Contests. Lessee, on its own or on Lessor's behalf (or
in Lessor's) name, but at Lessee's sole cost and expense, shall have the right
to contest, by appropriate legal proceedings conducted in good faith and with
due diligence, the amount or validity of any Imposition, Legal Requirement or
Insurance Requirement , provided (a) prior Notice of such contest is given to
Lessor, (b) the Leased Properties would not be in any danger of being sold,
forfeited or attached as a result of such contest, and there is no risk to
Lessor of a loss of or interruption in the


                                       36
<PAGE>   43
payment of, Rent, (c) in the case of an unpaid Imposition or Claim, collection
thereof is suspended during the pendency of such contest, (d) in the case of a
contest of a Legal Requirement, compliance may legally be delayed pending such
contest. Upon request of Lessor, Lessee shall deposit funds or assure Lessor in
some other manner reasonably satisfactory to Lessor that a contested Imposition
or Claim, together with interest and penalties, if any, thereon, and any and all
costs for which Lessee is responsible will be paid if and when required upon the
conclusion of such contest. Lessee shall defend, indemnify and save harmless
Lessor from all costs or expenses arising out of or in connection with any such
contest, including but not limited to attorneys' fees. If at any time Lessor
reasonably determines that payment of any Imposition or Claim, or compliance
with any Legal or Insurance Requirement being contested by Lessee is necessary
in order to prevent loss of any of the Leased Properties or Rent or civil or
criminal penalties or other damage, upon such prior Notice to Lessee as is
reasonable in the circumstances Lessor may pay such amount, require Lessee to
comply with such Legal or Insurance Requirement or take such other action as it
may deem necessary to prevent such loss or damage. If reasonably necessary, upon
Lessee's written request Lessor, at Lessee's expense, shall cooperate with
Lessee in a permitted contest, provided Lessee upon demand reimburses Lessor for
Lessor's costs incurred in cooperating with Lessee in such contest.

         12.2 Lessor's Requirement for Deposits. Any time after the occurrence
of an Event of Default, Lessor, in its sole discretion, shall be entitled to
require Lessee to deposit with Lessor monthly, at the time of its payments of
Base Rent, a prorata portion of the amounts required to comply with Insurance
Requirements, Impositions and Legal Requirements, and when such obligations
become due, Lessor shall pay them (to the extent of the deposit) upon Notice
from Lessee requesting such payment. In the event that sufficient funds have not
been deposited to cover the amount of the obligations due at least thirty (30)
days in advance of the due date, Lessee shall forthwith deposit the same with
Lessor upon Notice from Lessor. Lessor shall not be obligated to segregate such
deposited funds from its other funds, or to pay Lessee any interest on any
deposit so held by Lessor. Upon an Event of Default, any of the funds remaining
on deposit may be applied under this Lease in any manner and on such priority as
may be determined by Lessor.


                                  ARTICLE XIII

         13.1 General Insurance Requirements. Lessee shall keep the Leased
Properties, and all property located in or on the Leased Properties, including
Lessor's Personal Property and Lessee's Personal Property, insured with
insurance meeting the following requirements: (a) all insurance shall be written
by companies authorized to do insurance business in the applicable States and
having a rating classification of not less than A- and a financial size category
of "Class VIII", according to the then most recent issue of Best's Key Rating
Guide; (b) all policies must name Lessor as an additional insured, and name as
an additional insured any Facility Mortgagee by way of a standard form of
mortgagee's loss payable endorsement in use in the applicable States and in
accordance with any such other requirements as may be established by such
Facility Mortgagee, provided, however, that if requested by Lessor and available
on a commercially reasonable basis, all public liability and property damage
insurance shall contain a provision that Lessor, although named as an additional


                                       37
<PAGE>   44
insured, shall nevertheless be entitled to recovery for loss, damage, or injury
to Lessor, its servants, agents, and employees by reason of the negligence of
Lessee or Lessor; (c) losses must be payable to Lessor or Lessee as provided in
Article XIV, and loss adjustments shall require the written consent of Lessor
and, provided it is not then in default, Lessee, which consent shall not be
unreasonably withheld by either Lessor or Lessee; (d) each insurer must agree
that it will give Lessor and any Facility Mortgagee at least thirty (30) days'
written notice before its policy shall be altered, allowed to expire or
canceled; (e) the amount of any deductible or retention must be approved by
Lessor prior to the issuance of any policy; and (f) the form of all policies
shall be approved by Lessor, whose approval shall not unreasonably be withheld,
and by any Facility Mortgagee.

         13.2 Risks to be Insured. The policies covering the Leased Properties
and Lessee's Personal Property shall insure against the following risks:

                  13.2.1 Loss or damage by fire, vandalism and malicious
mischief, earthquake, extended coverage perils commonly known as "Special Risk,"
and all physical loss perils normally included in such Special Risk insurance,
including but not limited to sprinkler leakage, in an amount not less than one
hundred percent (100%) of Replacement Cost;

                  13.2.2 Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus in such amounts as may be required by Lessor from
time to time;

                  13.2.3 Loss of rental under a rental value insurance policy
covering risk of loss during reconstruction necessitated by the occurrence of
any of the hazards described in Sections 13.2.1 or 13.2.2 (but in no event for a
period less than twelve (12) months) in an amount sufficient to prevent Lessor
and Lessee from becoming a co-insurer;

                  13.2.4 Claims for personal injury or property damage under a
policy of commercial general public liability insurance with a combined single
limit per occurrence in respect of bodily injury and death and property damage
of One Million Dollars ($1,000,000.00), and an aggregate limitation of not less
than Five Million Dollars ($5,000,000.00), which insurance shall insure Lessee's
contractual liability to Lessor under the indemnity provisions of Article XXI of
this Lease and shall be written on an 'occurrence' and not a 'claims made'
basis;

                  13.2.5 Claims arising out of malpractice in an amount not less
than One Million Dollars ($1,000,000.00) for each person and for each occurrence
(with umbrella coverage of not less than Five Million Dollars ($5,000,000.00)
and, if written on a "claims-made" basis, Lessee shall also provide continuous
liability coverage for claims arising during the Term either by obtaining an
endorsement providing for an extended reporting period reasonably acceptable to
Lessor in the event such policy is canceled or not renewed for any reason
whatsoever, or by obtaining "tail" insurance coverage converting the policies to
"occurrence" basis policies providing coverage for a period of at least three
(3) years beyond the expiration of the Term;

                                       38
<PAGE>   45
                  13.2.6 Flood (with respect to any Leased Property located in
whole or in part within a designated flood plain area) and such other hazards
and in such amounts as may be customary for comparable properties in the area;

                  13.2.7 During such time as Lessee is constructing any
improvements, (i) worker's compensation insurance and employers' liability
insurance covering all persons employed in connection with the improvements in
statutory limits, (ii) a completed operations endorsement to the commercial
general liability and property damage insurance policies referred to above,
(iii) builder's risk insurance, completed value form, covering all physical
loss, in an amount satisfactory to Lessor, and (iv) such other insurance, in
such amounts, as Lessor deems necessary to protect Lessor's interest in the
Leased Properties from any act or omission of Lessee's contractors or
subcontractors, and certificates of insurance evidencing such coverage, in form
satisfactory to Lessor, shall be presented to Lessor prior to the commencement
of construction of such improvements;

                  13.2.8 Primary automobile liability insurance with limits of
One Million Dollars ($1,000,000.00) per occurrence each for owned and non-owned
and hired vehicles.

         13.3 Payment of Premiums; Copies of Policies; Certificates. Lessee
shall pay when due all of the premiums for the insurance required by this Lease,
and shall deliver to Lessor and to any Facility Mortgagee requesting such
evidence, certificates of insurance in form satisfactory to Lessor and such
Facility Mortgagee. Photocopies of the policies of insurance required by this
Lease and certificates thereof shall be delivered to Lessor not less than thirty
(30) days prior to their effective date (and, with respect to any renewal
policy, not less than twenty (20) days prior to the expiration of the existing
policy), and in the event of the failure of Lessee either to carry the required
insurance or pay the premiums therefor, or to deliver photocopies of policies or
certificates to Lessor as required, Lessor shall be entitled, but shall have no
obligation, to obtain such insurance and pay the premiums therefor when due,
which premiums shall be repayable to Lessor upon written demand therefor as
Additional Charges.

         [13.4 INTENTIONALLY OMITTED]

         13.5 Umbrella Policies. If Lessee chooses to carry umbrella liability
coverage to obtain the limits of liability required under this Lease, the
umbrella policies must provide coverage in the same manner as the primary
commercial general liability policy and must contain no exclusions in addition
to, or limitations materially different than, those of the primary policy.

         13.6 Legal Requirements re: Workers' Compensation Insurance. In
addition to the insurance described above, Lessee shall at all times comply with
all Legal Requirements with respect to worker's compensation insurance coverage.

         13.7 No Liability; Waiver of Subrogation. Lessor shall have no
liability to Lessee, and, provided Lessee provides the insurance required of it
by this Lease, Lessee shall have no liability


                                       39
<PAGE>   46
to Lessor (except as provided in Section 21.1), regardless of the cause, for any
loss or expense resulting from or in connection with any insured matter, and
neither party will have any right or claim against the other for any such loss
or expense by way of subrogation. Each insurance policy carried by either party
pursuant to this Lease, including without limitation, contents, fire and
casualty insurance, shall contain an express waiver of any right of subrogation
on the part of the insurer against the other party. Lessee shall pay any
additional costs or charges for obtaining such waiver.

         13.8 Increase in Limits. If from time to time Lessor determines, in the
exercise of its reasonable business judgment, that the limits of the personal
injury or property damage - public liability insurance then being carried are
insufficient, upon Notice from Lessor Lessee shall cause such limits to be
increased to the level specified in such Notice until further increase pursuant
to the provisions of this Section.

         13.9 Blanket Policy. Any insurance required by this Lease may be
provided by so-called blanket policies of insurance carried by Lessee, provided,
however, that the coverage afforded Lessor thereby may not thereby be less than
or materially different from that which would be provided by separate policies
meeting the requirements of this Lease.

         13.10 No Separate Insurance.

                  13.10.1 Lessee shall not on its own initiative or pursuant to
the request or requirement of any third party, take out separate insurance
concurrent in form or contributing in the event of loss with that required by
this Lease, to be furnished by, or which may reasonably be required to be
furnished by, Lessee, or increase the amount of any then existing insurance by
securing an additional policy or additional policies, unless all parties having
an insurable interest in the subject matter of the insurance, including in all
cases Lessor and all Facility Mortgagees, are named therein as additional
insureds, and losses are payable thereunder in the same manner as losses are
payable under this Lease.

                  13.10.2 Nothing herein shall prohibit Lessee, upon Notice to
Lessor, from (i) securing insurance required to be carried hereby with higher
limits of liability than required in this Lease, or (ii) securing insurance
against risks not required to be insured pursuant to this Lease, and as to such
insurance, Lessor and any Facility Mortgagee need not be included therein as
additional insureds, nor must losses thereunder be payable in the same manner as
losses are payable under this Lease, except to the extent required to avoid a
default under a Facility Mortgage or any other encumbrance.


                                       40
<PAGE>   47
                                   ARTICLE XIV

         14.1 Insurance Proceeds. Net Proceeds shall be paid to Lessor and held,
disbursed or retained by Lessor as provided herein.

                  14.1.1 Proceeds of Special Risk Insurance. If the Net Proceeds
         are less than the Approval Threshold, and no Event of Default has
         occurred and is continuing, Lessor shall pay the Net Proceeds to Lessee
         promptly for Lessee's use in Lessee's completion of the restoration of
         the damaged or destroyed Leased Property. If the Net Proceeds equal or
         exceed the Approval Threshold, and no Event of Default has occurred and
         is continuing, the Net Proceeds shall be made available for restoration
         or repair as provided in Section 14.6. Within fifteen (15) days of the
         receipt of the Net Proceeds of Special Risk Insurance, Lessor and
         Lessee shall agree as to the portion thereof, if any, attributable to
         the Lessee's Personal Property that Lessee is not required and does not
         elect to restore or replace, and if they cannot agree they shall submit
         the matter to arbitration pursuant to Article XXXV hereof, and the
         portion of the proceeds of such Special Risk Insurance agreed or
         determined by arbitration to be attributable to the Lessee's Personal
         Property that Lessee is not required and does not elect to restore or
         replace shall be paid to Lessee.

         14.2 Restoration in the Event of Damage or Destruction. If all or any
portion of a Leased Property is damaged by fire or other casualty, Lessee shall
(a) give Lessor Notice of such damage or destruction within five (5) Business
Days of the occurrence thereof, (b) within thirty (30) Business Days of the
occurrence commence the process of restoring such Leased Property and (c)
thereafter diligently proceed to complete such restoration to substantially the
same (or better) condition as such Leased Property was in immediately prior to
the damage or destruction as quickly as is reasonably possible, but in any
event, absent Force Majeure or any delays caused by Lessor's failure to remit
Net Proceeds to Lessee as required herein, within two hundred forty (240) days
of the occurrence. Regardless of the anticipated cost thereof, if the
restoration of a Leased Property requires any modification of structural
elements, prior to commencing such modification Lessee shall obtain Lessor's
written approval of the plans and specifications therefor, which approval may be
withheld in Lessor's sole discretion if such modification materially changes the
usable area or interior or exterior wall configuration of any building that is
part of the Leased Property, or reduces the load bearing capacity of any floor
in any such building, but which approval otherwise shall not be unreasonably
withheld, delayed or conditioned.

         14.3 Restoration of Lessee's Property. If Lessee is required to restore
a Leased Property, Lessee shall also concurrently restore any of Lessee's
Personal Property that is integral to the Primary Intended Use of such Leased
Property at the time of the damage or destruction.

         14.4 No Abatement of Rent. Absent termination of this Lease as provided
herein, there shall be no abatement of Rent by reason of any damage to or the
partial or total destruction of any Leased Property.

                                       41
<PAGE>   48
         14.5. Waiver. Except as provided elsewhere in this Lease, Lessee hereby
waives any statutory or common law rights of termination which may arise by
reason of any damage to or destruction of a Leased Property.

         14.6. Disbursement of Insurance Proceeds Equal to or Greater Than The
Approval Threshold. If Lessee restores or repairs a Leased Property pursuant to
this Article XIV, and if the Net Proceeds equal or exceed the Approval
Threshold, the restoration or repair and disbursement of funds to Lessee shall
be in accordance with the following procedures:

                  (i) The restoration or repair work shall be done pursuant to
         plans and specifications approved by Lessor, which approval may be
         withheld in Lessor's sole discretion if such plans and specifications
         would result in material changes to the usable area or interior or
         exterior wall configuration of any building that is part of the Leased
         Property, or would reduce the load bearing capacity of any floor in any
         such building, but which approval otherwise shall not be unreasonably
         withheld, delayed or conditioned, and a certified construction cost
         statement, to be obtained by Lessee from a contractor reasonably
         acceptable to Lessor, showing the total cost of the restoration or
         repair; to the extent the cost as so certified exceeds the Net
         Proceeds, prior to the commencement of the restoration and repair work
         (except for such emergency repair work as may be required immediately
         following the casualty), Lessee shall provide Lessor with assurance of
         its ability to pay such excess costs as and when required during the
         restoration and repair work, such assurance to be in the form of an
         unconditional letter of credit delivered to Lessor or a deposit of cash
         or the equivalent with Lessor or, at Lessee's request, in escrow with a
         title insurance company acceptable to Lessor and Lessee, such deposit
         to be disbursed by Lessor or such escrow agent pari passu with the
         disbursement of Net Proceeds by Lessor in payment of the costs of
         restoration or repair.

                  (ii) Construction Funds shall be made available to Lessee upon
         request, no more frequently than monthly, as the restoration and repair
         work progresses, subject to a ten (10%) percent holdback, pursuant to
         certificates of an architect selected by Lessee that, in the judgment
         of Lessor, reasonably exercised, is highly qualified in the design and
         construction of the type of Facility being repaired , which
         certificates must be in form and substance reasonably acceptable to
         Lessor.

                  (iii) After the first disbursement to Lessee, sworn statements
         and lien waivers in an amount at least equal to the amount of
         Construction Funds previously paid to Lessee shall be delivered to
         Lessor from all contractors, subcontractors and material suppliers
         covering all labor and materials furnished through the date of the
         previous disbursement.

                  (iv) Lessee shall deliver to Lessor such other evidence as
         Lessor may reasonably request from time to time during the course of
         the restoration and repair, as to the progress of the work, compliance
         with the approved plans and specifications, the cost of restoration and
         repair and the total amount needed to complete the restoration and
         repair, and showing


                                       42
<PAGE>   49
         that there are no liens against such Leased Property arising in
         connection with the restoration and repair and that the cost of the
         restoration and repair at least equals the total amount of Construction
         Funds then disbursed to Lessee hereunder.

                  (v) If the Construction Funds are at any time determined by
         Lessor to be inadequate for payment in full of all labor and materials
         for the restoration and repair, Lessee shall immediately increase the
         amount of the letter of credit delivered to Lessor pursuant to
         subsection 14.6 (i) hereof, if any, or pay the amount of the deficiency
         to Lessor or the escrow agent appointed pursuant to subsection 14.6 (i)
         hereof, to be held and disbursed as Construction Funds pari passu with
         the disbursement of any other Construction Funds then held by Lessor
         and such escrow agent.

                  (vi) The Construction Funds may be disbursed by Lessor to
         Lessee or to the persons entitled to receive payment thereof from
         Lessee, and such disbursement in either case may be made directly or
         through a third party escrow agent, such as, but not limited to, a
         title insurance company, or its agent, all as Lessor may determine in
         its sole discretion. Provided Lessee is not in default hereunder, any
         excess Construction Funds shall be paid to Lessee upon completion of
         the restoration or repair.

                  (vii) If Lessee at any time fails to promptly and fully
         perform the conditions and covenants set out in subparagraphs (i)
         through (vi) above, and the failure is not corrected within ten (10)
         days of written Notice thereof, or if during the restoration or repair
         an Event of Default occurs hereunder, Lessor may, at its option,
         immediately cease making any further payments to Lessee (and, if any
         Construction Funds are being held by an escrow agent pursuant to
         subsection 14.6(i) hereof, upon Lessor's direction such escrow agent
         shall also cease making any further payments to Lessee) for the
         restoration and repair.

                  (viii) Lessor may reimburse itself out of the Construction
         Funds for its reasonable expenses incurred in administering the
         Construction Funds and inspecting the restoration and repair work,
         including without limitation attorneys' and other professional fees and
         escrow fees and expenses.

         14.7 Net Proceeds Paid to Facility Mortgagee. In the event of any
conflict between the terms of this Lease and any Facility Mortgage with respect
to the use or manner of disbursement of Net Proceeds , as between Lessor and
Lessee the terms of this Lease shall prevail and Lessor shall make available for
use and disbursement in accordance with this Lease an amount equal to any
portion of the Net Proceeds that pursuant to such Facility Mortgage is applied,
held, and/or disbursed in a manner or for a purpose other than as set forth
herein.


                                       43
<PAGE>   50
                                   ARTICLE XV

         15.1 Total Taking or Other Taking with Leased Property Rendered
Unsuitable for Its Primary Intended Use. If title to the fee of the whole of a
Leased Property is Taken, this Lease shall cease and terminate as to the Leased
Property Taken as of the Date of Taking by the Condemnor and Rent shall be
apportioned as of the Date of Taking, provided, however, that if the Award to
Lessor is less than the Minimum Repurchase Price for such Leased Property at the
time of such Award, it shall be a condition precedent to the termination of this
Lease as to such Leased Property that Lessee pay the amount of the deficiency to
Lessor. If title to the fee of less than the whole of a Leased Property is
Taken, but such Leased Property is thereby rendered Unsuitable for Its Primary
Intended Use, Lessee and Lessor shall each have the option by written Notice to
the other, at any time prior to the taking of possession by, or the date of
vesting of title in, the Condemnor, whichever first occurs, to terminate this
Lease with respect to such Leased Property as of the such taking of possession
or vesting of title, in which event this Lease shall thereupon so cease and
terminate as of the earlier of the date specified in such Notice or the date on
which possession is taken by the Condemnor. If this Lease is so terminated as to
a Leased Property, the Base Rent for the Lease Year in which the Date of Taking
occurs shall be reduced as of the Date of Taking as set forth below, and Lessee
shall be deemed to have elected to purchase such Leased Property for the Minimum
Repurchase Price therefor. Lessee shall complete the purchase within ninety (90)
days of the Date of Taking, and Lessee shall receive credit against such Minimum
Repurchase Price for any portion of the Award received by Lessor. The Base Rent
for the Lease Year in which Lessee purchases the Leased Property as to which
this Lease is terminated shall be reduced by an amount equal to the product
obtained by multiplying (a) the Minimum Repurchase Price for such Leased
Property by (b) the quotient obtained by dividing the Base Rent for the then
current Lease Year by the aggregate Purchase Price (including Additional
Purchase Price, if any ) theretofore paid to the sellers pursuant to the
Purchase Agreement. Any such reduction in Base Rent shall be effective as of the
day following the date upon which Lessee pays the Minimum Repurchase Price to
Lessor, and for periods of less than a full Lease Year such decrease shall be
prorated on a daily basis and the monthly installments due during such Lease
Year after the date of such payment shall be reduced accordingly.

         15.2 Allocation of Award. The total Award made with respect to all or
any portion of a Leased Property or for loss of Rent, or for loss of business,
shall be solely the property of and payable to Lessor, subject to Lessor's
obligation to disburse to Lessee in accordance with Section 15.2 hereof for the
restoration of such Leased Property such portion of the Award as may be made for
damage to the Leased Property upon a Partial Taking. Nothing contained in this
Lease will be deemed to create any additional interest in Lessee, or entitle
Lessee to any payment based on the value of the unexpired term or so-called
"bonus value" to Lessee of this Lease. Any Award made for the taking of Lessee's
Personal Property that is not integral to the Primary Intended Use of the
Facilities, or for removal and relocation expenses of Lessee in any such
proceedings shall be payable to Lessee. Any Award made for the taking of
Lessee's Personal Property that is integral to the Primary Intended Use of the
Facilities shall payable to Lessor. In any proceedings with respect to an Award,
Lessor and Lessee shall each seek its own Award in conformity herewith, at its
own


                                       44
<PAGE>   51
expense. Notwithstanding the foregoing, Lessee may pursue a claim for loss of
its business, provided that under the laws of the State, such claim will not
diminish the Award to Lessor.

         15.3 Partial Taking. In the event of a Partial Taking, Lessee, at its
own cost and expense, shall within sixty (60) days of the taking of possession
by, or the date of vesting of title in, the Condemnor, whichever first occurs ,
commence the restoration of the Leased Premises to a complete architectural unit
of the same general character and condition (as nearly as may be possible under
the circumstances) as existed immediately prior to the Partial Taking, and
complete such restoration with all reasonable dispatch, but in any event, absent
Force Majeure or any delays caused by Lessor's failure to remit Net Proceeds to
Lessee as required herein, within one hundred eighty (180) days of the date on
which such Notice is given. Lessor shall contribute to the cost of restoration
only such portion of the Award as is made therefor. As long as no Event of
Default has occurred and is continuing, regardless of the amount thereof Lessor
shall make such portion of the Award available to Lessee in the manner provided
in Section 14.6 with respect to Net Proceeds in excess of the Approval
Threshold. Notwithstanding anything to the contrary elsewhere herein, if the
Fair Market Rent of the affected Leased Property is reduced by reason of the
Partial Taking, from and after the date on which possession is taken by the
Condemnor the annualized Base Rent shall be reduced by an amount determined by
dividing the portion of the Award made to Lessor expressly for such reduction in
Fair Market Rent by the Capitalization Rate.

         15.4 Temporary Taking. If there is a Taking of possession or the use of
all or part of a Leased Property, but the fee of such Leased Property is not
Taken in whole or in part, until such Taking of possession or use continues for
more than six (6) months, all the provisions of this Lease shall remain in full
force and effect and the entire amount of any Award made for such Taking shall
be paid to Lessee provided there is then no Event of Default. Upon the
termination of any such period of temporary use or occupancy, Lessee at its sole
cost and expense shall restore the affected Leased Property, as nearly as may be
reasonably possible, to the condition existing immediately prior to such Taking.
If any temporary Taking continues for longer than six (6) months, and fifty
percent (50%) or more of the resident capacity of the affected Facility is
thereby rendered Unsuitable for its Primary Intended Use, this Lease shall cease
and terminate as to the affected Leased Property as of the last day of the sixth
(6th) month, but if less than fifty percent (50%) of the resident capacity of
such Facility is thereby rendered Unsuitable for its Primary Intended Use,
Lessee and Lessor shall each have the option by at least sixty (60) day's prior
written Notice to the other, at any time prior to the end of the temporary
taking, to terminate this Lease as to the affected Leased Property on the date
set forth in such Notice, and Lessee shall be entitled to any Award made for the
period of such temporary Taking prior to the date of termination of the Lease.
Rent shall not abate during the period of any temporary Taking.

         15.5 Awards Paid to Facility Mortgagee. Notwithstanding anything herein
to the contrary, if pursuant to the terms of any Facility Mortgage the Award is
applied to the indebtedness secured by the Facility Mortgage: (i) if the Award
represents an Award for Partial Taking as described in Section 15.3 above,
Lessor shall make available to Lessee for its restoration of the affected
Facility an amount equal to the portion of the Award that would have been
payable to Lessee by Lessor for


                                       45
<PAGE>   52
such purpose under Section 15.3; or (ii) if the Award represents an Award for a
Total Taking as described in Section 15.1 above, Lessee shall pay to Lessor an
amount equal to the Minimum Repurchase Price minus a credit for the portion of
the Award applied to the Facility Mortgage and any portion of the Award received
by Lessor and not paid over to Lessee, and Lessor shall transfer its interest in
the affected Leased Property to Lessee.


                                   ARTICLE XVI

         16.1 Lessor's Rights Upon an Event of Default. If an Event of Default
shall occur Lessor may terminate this Lease by giving Lessee a Notice of
Termination, and in such event, the Term shall end and all rights of Lessee
under this Lease shall cease on the Termination Date. The Notice of Termination
shall be in lieu of and not in addition to any notice required by the laws of
any State as a condition to bringing an action for possession of the Leased
Premises or to recover damages under this Lease. In addition to Lessor's right
to terminate this Lease, Lessor shall have all other rights set forth in this
Lease and all remedies available at law and in equity.

                  Lessee shall, to the extent permitted by law, pay as
Additional Charges all costs and expenses incurred by or on behalf of Lessor,
including, without limitation, reasonable attorneys' fees and expenses (whether
or not litigation is commenced, and if litigation is commenced, including fees
and expenses incurred in appeals and post-judgment proceedings) as a result of
any default of Lessee hereunder.

                  No Event of Default (other than a failure to make payment of
money) shall be deemed to exist if and for so long as Lessee is unable to
prevent such Event of Default because of Force Majeure, provided that upon the
cessation of such Force Majeure, Lessee shall forthwith proceed to remedy the
action or condition giving rise to such Event of Default within the applicable
cure period as extended by such Force Majeure.

         16.2 Certain Remedies. If an Event of Default shall occur, whether or
not this Lease has been terminated pursuant to Section 16.1, if required to do
so by Lessor Lessee shall immediately surrender to Lessor the Leased Properties
to Lessor in the condition required by Section 9.1.5 and quit the same, and
Lessor may enter upon and repossess the Leased Properties by reasonable force,
summary proceedings, ejectment or otherwise, and may remove Lessee and all other
persons and any and all personal properties from the Leased Properties, subject
to rights of any residents or patients and to any Legal Requirements. In
addition to all other remedies set forth or referred to in this Article XVI,
Lessor shall have the right to suspend any Management Agreement as to one or
more or all Facilities and to retain a manager of the affected Facility or all
Facilities at the expense of Lessee, such manager to serve for such term and at
such compensation as Lessor reasonably determines is necessary under the
circumstances.

                                       46
<PAGE>   53
         16.3 Damages. Neither (i) the termination of this Lease pursuant to
Section 16.1, (ii) the repossession of the Leased Properties, (iii) the failure
of Lessor to relet the Leased Properties, (iv) the reletting of all or any
portion thereof, nor (v) the failure of Lessor to collect or receive any rentals
due upon such any reletting, shall relieve Lessee of its liability and
obligations hereunder, all of which shall survive any such termination,
repossession or reletting. In the event this Lease is terminated by Lessor,
Lessee shall forthwith pay to Lessor all Rent due and payable with respect to
the Leased Properties to and including the Termination Date, including without
limitation all interest and late charges payable under Section 3.3 hereof with
respect to any late payment of such Rent. Lessee shall also pay to Lessor, as
liquidated damages, at Lessor's option, either:

         (A) The sum of:

                  (i) Lessor's Interim Rent Loss, minus Net Reletting Proceeds
                  for such period, and minus the portion of Lessor's Interim
                  Rent Loss, if any, that Lessee prove could reasonably have
                  been mitigated by Lessor, plus

                  (ii) the Present Value on the Judgment Date of Lessor's Future
                  Rent Loss, assuming Gross Revenues were to increase four
                  percent (4%) per Lease Year and the Cost of Living Index were
                  to increase four (4) percentage points per Lease Year from the
                  Judgment Date through the Expiration Date, minus the Present
                  Value on the Termination Date of the portion of Lessor's
                  Future Rent Loss that Lessee proves could reasonably be
                  mitigated by Lessor;

         or

         (B) Each month between the Termination Date and the Expiration Date,
         Lessor's Monthly Rent Loss, minus the Net Reletting Proceeds for such
         month, and minus the portion, if any, of Lessor's Monthly Rent Loss
         that Lessee proves could reasonably have been avoided. Any suit brought
         to recover liquidated damages payable under this subsection "(B)" shall
         not prejudice Lessor's right to collect liquidated damages for
         subsequent months in a similar proceeding.

         [16.4 INTENTIONALLY OMITTED]

         16.5 Waiver. If this Lease is terminated pursuant to Section 16.1,
Lessee waives, to the extent permitted by applicable law, (i) any right of
reentry, repossession or redesignation, (ii) any right to a trial by jury in the
event of summary proceedings to enforce the remedies set forth in this Article
XVI, and (iii) the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt. Acceptance of Rent at any time
does not prejudice or remove any right of Lessor as to any right or remedy. No
course of conduct shall be held to bar Lessor from literal enforcement of the
terms of this Lease.

                                       47
<PAGE>   54
         16.6 Application of Funds. Any payments received by Lessor under any of
the provisions of this Lease during the existence or continuance of any Event of
Default shall be applied to Lessee's obligations in the order which Lessor may
determine or as may be prescribed by law.

         16.7 Bankruptcy.

         (a)      Neither Lessee's interest in this Lease, nor any estate hereby
                  created in Lessee's interest nor any interest herein or
                  therein, shall pass to any trustee or receiver or assignee for
                  the benefit of creditors or otherwise by operation of law,
                  except as may specifically be provided pursuant to the
                  Bankruptcy Code (11 USC Section 101 et. seq.), as the same may
                  be amended from time to time.

         (b)      Rights and Obligations Under the Bankruptcy Code.

                  (1)      Upon filing of a petition by or against Lessee under
                           the Bankruptcy Code, Lessee, as debtor and as
                           debtor-in-possession, and any trustee who may be
                           appointed with respect to the assets of or estate in
                           bankruptcy of Lessee, agree to pay monthly in advance
                           on the first day of each month, as reasonable
                           compensation for the use and occupancy of the Leased
                           Premises, an amount equal to all Rent due pursuant to
                           this Lease.

                  (2)      Included within and in addition to any other
                           conditions or obligations imposed upon Lessee or its
                           successor in the event of the assumption and/or
                           assignment of the Lease in connection with any
                           bankruptcy proceeding are the following: (i) the cure
                           of any monetary defaults and reimbursement of
                           pecuniary loss within not more than thirty (30) days
                           of assumption and/or assignment; (ii) the deposit of
                           an additional amount equal to not less than three (3)
                           months' Base Rent, which amount is agreed to be a
                           necessary and appropriate deposit to secure the
                           future performance under the Lease of Lessee or its
                           assignee; and (iii) the continued use of the Leased
                           Premises for the Primary Intended Use.


                                  ARTICLE XVII

         17.1 Lessor's Right to Cure Lessee's Default. If Lessee fails to make
any payment or perform any act required to be made or performed under this
Lease, and fails to cure the same within any grace or cure period applicable
thereto, upon such Notice as may be expressly required herein (or, if Lessor
reasonably determines that the giving of such Notice would risk loss to the
Leased Properties or cause damage to Lessor, upon such Notice as is practical
under the circumstances), and without waiving or releasing any obligation of
Lessee, Lessor may make such payment or perform such act for the account and at
the expense of Lessee, and may, to the extent permitted by law, enter upon the
Leased Properties for such purpose and take all such action thereon as, in
Lessor's sole


                                       48
<PAGE>   55
opinion, may be necessary or appropriate. No such entry shall be deemed an
eviction of Lessee. All amounts so paid by Lessor and all costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) so
incurred, together with the late charge and interest provided for in Section 3.3
thereon, shall be paid by Lessee to Lessor on demand. The obligations of Lessee
and rights of Lessor contained in this Article shall survive the expiration or
earlier termination of this Lease.


                                  ARTICLE XVIII

         18.1 Holding Over. If Lessee remains in possession of all or any of the
Leased Properties after the expiration of the Term or earlier termination of
this Lease, such possession shall be as a month-to-month tenant, and throughout
the period of such possession Lessee shall pay as Rent for each month one and
one-half (1.5) times the sum of: (i) one-twelfth (1/12th) of the Base Rent
payable during the Lease Year in which such expiration or termination occurs,
plus (ii) all Additional Charges accruing during the month, plus (iii) any and
all other sums payable by Lessee pursuant to this Lease. During such period of
month-to-month tenancy, Lessee shall be obligated to perform and observe all of
the terms, covenants and conditions of this Lease, but shall have no rights
hereunder other than the right, to the extent given by applicable law to
month-to-month tenancies, to continue its occupancy and use of the Leased
Properties until the month-to-month tenancy is terminated. Nothing contained
herein shall constitute the consent, express or implied, of Lessor to the
holding over of Lessee after the expiration or earlier termination of this
Lease.

         18.2 Indemnity. If Lessee fails to surrender the Leased Properties in a
timely manner and in accordance with the provisions of Section 9.1.5 upon the
expiration or termination of this Lease, in addition to any other liabilities
that Lessee may have to Lessor accruing therefrom, Lessee shall defend,
indemnify and hold Lessor, its principals, officers, directors, agents and
employees harmless from loss or liability resulting from such failure,
including, without limiting the generality of the foregoing, loss of rental with
respect to any new lease in which the rental payable thereunder exceeds the Rent
paid by Lessee pursuant to this Lease during Lessee's hold-over and any claims
by any proposed new tenant founded on such failure. The provisions of this
Section 18.2 shall survive the expiration or termination of this Lease.

                                   ARTICLE XIX

         19.1 Subordination. Subject to and conditioned upon Lessee's receipt of
a "Non-Disturbance Agreement" complying with the requirements of the next
sentence of this Section 19.1, Lessee shall, upon written request of Lessor, any
Facility Mortgagee, or the beneficiary of any deed of trust of Lessor, enter
into a written agreement subordinating its rights pursuant to this Lease (i) to
the lien of any mortgage, deed of trust or the interest of any lease in which
Lessor is the lessee and to all modifications, extensions, substitutions thereof
(or, at Lessor's option, agree to the subordination to this Lease of the lien of
said mortgage, deed of trust or the interest of any lease in which Lessor is the
lessee), and (ii) to all advances made or hereafter to be made thereunder. In


                                       49
<PAGE>   56
connection with any such request, Lessor shall provide Lessee with a
Non-Disturbance Agreement providing that if such mortgagee, beneficiary or
lessor , or any other successful bidder at any foreclosure sale, acquires the
Leased Properties by way of foreclosure or deed in lieu of foreclosure, such
mortgagee, beneficiary or lessor will not disturb Lessee's possession under this
Lease and will recognize Lessee's rights hereunder if and for so long as no
Event of Default has occurred and is continuing, and further acknowledging that
the provisions of this Lease relating to Lessee's right to insurance proceeds
and the proceeds of any Taking shall control over any conflicting provisions of
such mortgage, deed of trust or lease.

         19.2 Attornment. If any proceedings are brought for foreclosure, or if
the power of sale is exercised under any mortgage or deed of trust made by
Lessor encumbering the Leased Properties, or if a lease in which Lessor is the
lessee is terminated, Lessee shall attorn to the purchaser or lessor under such
lease upon any foreclosure or deed in lieu thereof, sale or lease termination
and recognize the purchaser or lessor as Lessor under this Lease, provided the
purchaser or lessor acquires and accepts the Leased Properties subject to this
Lease.

         19.3 Lessee's Certificate. Lessee shall, upon not less than ten (10)
days prior Notice from Lessor, execute, acknowledge and deliver to Lessor
Lessee's Certificate containing then-current facts. It is intended that any
Lessee's Certificate delivered pursuant hereto may be relied upon by Lessor, any
prospective tenant or purchaser of the Leased Properties, any mortgagee or
prospective mortgagee, and by any other party who may reasonably rely on such
statement. Lessee's failure to deliver the Lessee's Certificate within such time
shall constitute an Event of Default, provided that Lessor has given Lessee
Notice of such failure and Lessee has failed to cure it within five (5) days
after such Notice. In addition, if Lessee fails to deliver the Lessee's
Certificate to Lessor within the period set forth in the immediately preceding
sentence of this Section, Lessee hereby authorizes Lessor to execute and deliver
a certificate to the effect (if true) that Lessee represents and warrants that
(i) this Lease is in full force and effect without modification, and (ii) Lessor
is not in breach or default of any of its obligations under this Lease.


                                   ARTICLE XX

         20.1 Risk of Loss. During the Term, the risk of loss or of decrease in
the enjoyment and beneficial use of the Leased Properties in consequence of the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or otherwise, or in consequence of foreclosures, attachments, levies or
executions (other than those caused by Lessor and those claiming from, through
or under Lessor) is assumed by Lessee, and, in the absence of gross negligence,
willful misconduct or material breach of this Lease by Lessor, Lessor shall in
no event be answerable or accountable therefor nor shall any of the events
mentioned in this Section entitle Lessee to any abatement of Rent.

                                       50
<PAGE>   57
                                   ARTICLE XXI

         21.1 Indemnification. Notwithstanding the existence of any insurance or
self-insurance provided for in Article XIII, and without regard to the policy
limits of any such insurance or self-insurance, Lessee shall protect, indemnify,
save harmless and defend Lessor, its principals, officers, directors and agents
and employees from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses), to the extent permitted by law,
imposed upon or incurred by or asserted against Lessor by reason of: (i) any
accident, injury to or death of persons or loss of or damage to property
occurring on or about the Leased Properties or adjoining sidewalks, including
without limitation any claims of malpractice, (ii) any use, misuse, non-use,
condition, maintenance or repair by Lessee of the Leased Properties, (iii) the
failure to pay any Impositions, (iv) any failure on the part of Lessee to
perform or comply with any of the terms of this Lease, and (v) the
nonperformance of any contractual obligation, express or implied, assumed or
undertaken by Lessee or any party in privity with Lessee with respect to the
Leased Properties or any business or other activity carried on with respect to
the Leased Properties during the Term or thereafter during any time in which
Lessee or any such other party is in possession of the Leased Properties or
thereafter to the extent that any conduct by Lessee or any such person (or
failure of such conduct thereby if the same should have been undertaken during
such time of possession and leads to such damage or loss) causes such loss or
claim. Any amounts which become payable by Lessee under this Section shall be
paid within ten (10) days after liability therefor on the part of Lessee is
determined by litigation or otherwise, and if not timely paid, shall bear
interest (to the extent permitted by law) at the Overdue Rate from the date of
such determination to the date of payment. Nothing herein shall be construed as
indemnifying Lessor against its own grossly negligent acts or omissions or
willful misconduct.

         Lessee's liability under this Article shall survive the expiration or
any earlier termination of this Lease.


                                  ARTICLE XXII

         22.1 General Prohibition against Transfers. Lessee acknowledges that a
significant inducement to Lessor to enter into this Lease with Lessee on the
terms set forth herein is the combination of financial strength, experience,
skill and reputation possessed by the Lessee named herein, the Person or Persons
in Control of Lessee, the Guarantor and the Manager of the Facilities on the
Commencement Date, together with Lessee's assurance that Lessor shall have the
unrestricted right to approve or disapprove any proposed Transfer. Therefore,
there shall be no Transfer except as specifically permitted by this Lease or
consented to in advance by Lessor in writing. Lessee agrees that Lessor shall
have the right to withhold its consent to any proposed Transfer on the basis of
Lessor's judgment as to the effect the proposed Transfer may have on the
Facilities and the future performance of the obligations of the Lessee under
this Lease, whether or not Lessee agrees with such judgment. Any attempted
Transfer which is not specifically permitted by this Lease or


                                       51
<PAGE>   58
consented to by Lessor in advance in writing shall be null and void and of no
force and effect whatsoever. In the event of a Transfer, Lessor may collect Rent
and other charges from the assignee, subtenant or other occupant or transferee
(any and all of which are herein referred to as a "Transferee") and apply the
amounts collected to the Rent and other charges herein reserved, but no Transfer
or collection of Rent and other charges shall be deemed to be a waiver of
Lessor's rights to enforce Lessee's covenants or an acceptance of the Transferee
as Lessee, or a release of the Lessee named herein from the performance of its
covenants. Notwithstanding any Transfer, Lessee and each Guarantor of this Lease
shall remain fully liable for the performance of all terms, covenants and
provisions of this Lease. Any violation of this Lease by any Transferee shall be
deemed to be a violation of this Lease by Lessee.

         22.2 Consent to Certain Transfers. Lessor acknowledges that Lessee, as
sublessor, intends to enter into subleases with the parties identified on
Schedule 22.2 hereto, as sublessees, with respect to the Facilities identified
on such Schedule. Lessor consents to such subleases provided that all such
sublease agreements satisfy all of the requirements set forth in this Lease and
otherwise are satisfactory in form and substance to Lessor. The conditions set
forth in the immediately preceding sentence shall be deemed satisfied as to any
sublease with respect to which Lessor has executed and delivered a Consent and
Non-Disturbance Agreement in substantially the form of EXHIBIT F attached
hereto.

         22.3 Termination of Previously Existing Lease Agreements, etc. Lessee
represents and warrants to Lessor that any and all written or oral lease
agreements and arrangements (however evidenced or denominated) existing prior to
the date of this Lease between a seller, identified as such in the Purchase
Agreement, and a party listed in Schedule 22.2 hereto, pursuant to which a party
listed in Schedule 22.2 hereto had any right (whether as owner, lessee or
otherwise) in a Leased Property or any portion thereof (or had any right to
acquire any such right in a Leased Property or any portion thereof), have been
duly terminated and are null and void and of no further force and effect. Lessee
further represents and warrants to Lessor that the only agreements, arrangements
and understandings between Lessee and a party listed in Schedule 22.2 hereto
relating to the Leased Property are set forth in subleases with respect to which
Lessor has executed and delivered a Consent and Non-Disturbance Agreement in
substantially the form of EXHIBIT F attached hereto.

         22.4 Subordination and Attornment. Lessee shall insert in any sublease
permitted by Lessor provisions to the effect that (i) such sublease is subject
and subordinate to all of the terms and provisions of this Lease and to the
rights of Lessor hereunder, (ii) if this Lease terminates before the expiration
or earlier termination of such sublease, the sublessee thereunder will attorn to
Lessor and waive any right the sublessee may have to terminate the sublease or
to surrender possession thereunder as a result of the termination of this Lease,
and (iii) if the sublessee receives a written Notice from Lessor or Lessor's
assignee, if any, stating that Lessee is in default under this Lease, the
sublessee shall thereafter be obligated to pay all rentals accruing under the
sublease directly to the party giving such Notice, or as such party may direct,
which payments shall be credited against the amounts owing by Lessee under this
Lease.

                                       52
<PAGE>   59
         22.5 Sublease Limitation. Anything contained in this Lease to the
contrary notwithstanding, even if a sublease of a Leased Property is permitted,
Lessee shall not sublet such Leased Property on any basis such that the rental
to be paid by the sublessee thereunder would be based, in whole or in part, on
either (i) the income or profits derived by the business activities of the
sublessee, or (ii) any other formula such that any portion of the sublease
rental received by Lessor would fail to qualify as "rents from real property"
within the meaning of Section 856(d) of the Code, or any similar or successor
provision thereto. The parties agree that this paragraph shall not be deemed
waived or modified by implication, but may be waived or modified only by an
instrument in writing explicitly referring to this paragraph by number.


                                  ARTICLE XXIII

         23.1 Officer's Certificates and Financial Statements. Lessee shall
furnish (and as appropriate cause Guarantor to furnish) to Lessor:

                  (i) Within ninety (90) days after the end of each of Lessee's
         fiscal years: (a) Lessee's Financial Statement; (b) a consolidated
         profit and loss statement for the Facilities, which shall be prepared
         on the basis of accounting consistent with that of Guarantor; and (c)
         an Officer's Certificate stating that Lessee is not in default in the
         performance or observance of any of the terms of this Lease, or if
         Lessee is in default, specifying all such defaults, the nature thereof,
         and the steps being taken to remedy the same;

                  (ii) Within forty-five (45) days after the end of each of
         Guarantor's fiscal quarters, a copy of Guarantor's Report on Form 10-Q
         for the preceding fiscal quarter, in the form required to be filed with
         the SEC, together with an Officer's Certificate that Lessee is not in
         default of any covenant set forth in Section 8 of this Lease, or if
         Lessee is in default, specifying all such defaults, the nature thereof,
         and the steps being taken to remedy the same;

                  (iii) Within ninety (90) days after the end of each of
         Guarantor's fiscal years, Guarantor's Financial Statement for such
         fiscal year.

                  (iv) Within thirty (30) days after the end of each month,
         monthly financial reports for each Facility with detailed statements of
         income and expense (actual and as compared to budget), and detailed
         operational statistics regarding occupancy rates for the Facility;

                  (v) Within fifteen (15) days of filing a copy of each cost
         report filed with a governmental agency for any Facility;

                  (vi) Within ten (10) days after they are required to be filed
         with the SEC, copies of any annual or quarterly report and of
         information, documents and other reports (or copies of such portions of
         any of the foregoing as the SEC may by rules and regulations prescribe)


                                       53
<PAGE>   60
         which Lessee or any Guarantor are required to file with the SEC
         pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934;

                  (vii) Within thirty (30) days of Lessee's or Manager's receipt
         thereof, copies of surveys performed by the appropriate governmental
         agencies for licensing or certification purposes, and any plan of
         correction as approved by a State for a Facility;

                  (viii) Immediate Notice to Lessor of any action, proposal or
         investigation by any agency or entity, or complaint to such agency or
         entity, known to Lessee, the result of which could be to (i) modify in
         a way adverse to Lessee or revoke or suspend or terminate, or fail to
         renew or fully continue in effect, any license or certificate or
         operating authority pursuant to which Lessee carries on any part of the
         Primary Intended Use of the Facilities, or (ii) suspend, terminate,
         adversely modify, or fail to renew or fully continue in effect any cost
         reimbursement or cost sharing program by any state or federal
         governmental agency, including but not limited to Medicaid or Medicare
         or any successor or substitute therefor, or seek return of or
         reimbursement for any funds previously advanced or paid pursuant to any
         such program but only if Lessee participates in such programs), or
         (iii) impose any bed hold, limitation on resident admission or similar
         restriction on any Leased Property, or (iv) prosecute any party with
         respect to the operation of any activity on the Facilities or enjoin
         any party or seek any civil penalty in excess of One Thousand Dollars
         ($1,000.00) in respect thereof;

                  (ix) As soon as it is prepared in each Lease Year, a capital
         and operating budget for the Facilities for that and the following
         Lease Year;

                  (x) With reasonable promptness, such other information
         respecting the financial condition and affairs of Lessee, Guarantor and
         the Facilities as Lessor may reasonably request from time to time
         including, without limitation, any such other information as may be
         available to the administration of the Leased Properties; and

                  (xi) Upon Lessor's request from time to time, such additional
         information and unaudited quarterly financial information concerning
         the Leased Properties and Lessee as Lessor may require for its on-going
         filings with the Securities and Exchange Commission, under both the
         Securities Act of 1933, as amended and the Securities Exchange Act of
         1934, as amended, including, but not limited to 10-Q Quarterly Reports,
         10-K Annual Reports and registration statements to be filed by Lessor
         during the Term of this Lease.

                  (xii) The worksheets of Lessee and Guarantor (including
         worksheets furnished by or on behalf of Lessee or Guarantor to its
         accountants in connection with the preparation of the Financial
         Statements), but only after the occurrence of an Event of Default and
         following written request by Lessor.

                                       54
<PAGE>   61
         23.2 Public Offering Information. Lessee specifically agrees that
Lessor may include financial information and information concerning the
operation of the Facilities that does not violate the confidentiality of the
facility-resident relationship and the physician-resident privilege under
applicable laws, in offering memoranda or prospectuses, or similar publications
in connection with syndications or public offerings of Lessor's securities or
interests, and any other reporting requirements under applicable federal and
state laws, including those of any successor to Lessor. Lessee agrees to provide
such other reasonable information necessary with respect to Lessee and the
Leased Properties to facilitate a public offering or to satisfy SEC or
regulatory disclosure requirements. Upon request of Lessor, Lessee shall notify
Lessor of any necessary corrections to information Lessor proposes to publish
within a reasonable period of time (not to exceed three (3) Business Days) after
being informed thereof by Lessor.


                                  ARTICLE XXIV

         24.1 Lessor's Right to Inspect. Lessee shall permit Lessor and its
authorized representatives to inspect the Leased Properties and Lessee's books
and records pertaining thereto during normal business hours at any time upon not
less than 24 hours' Notice (except in the case of a bona fide emergency, in
which no advance Notice shall be required).


                                   ARTICLE XXV

         25.1 No Waiver. No failure by Lessor to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach hereof, and no acceptance of full or partial payment of
Rent during the continuance of any such breach, shall constitute a waiver of any
such breach or of any such term. No waiver of any breach shall affect or alter
this Lease, which shall continue in full force and effect with respect to any
other then existing or subsequent breach.


                                  ARTICLE XXVI

         26.1 Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor now or hereafter
provided either in this Lease or by statute or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power and remedy and
the exercise or beginning of the exercise by Lessor of any one or more of such
rights, powers and remedies shall not preclude the simultaneous or subsequent
exercise by Lessor of any or all of such other rights, powers and remedies.

                                       55
<PAGE>   62
                                  ARTICLE XXVII

         27.1 Acceptance of Surrender. No surrender to Lessor of this Lease or
of the Leased Properties or any part thereof, or of any interest therein, shall
be valid or effective unless agreed to and accepted in writing by Lessor, and no
act by Lessor or any representative or agent of Lessor, other than such a
written acceptance by Lessor, shall constitute an acceptance of any such
surrender.


                                  ARTICLE XXIII

         28.1 No Merger of Title. There shall be no merger of this Lease or of
the leasehold estate created hereby by reason of the fact that the same person,
firm, corporation or other entity may acquire, own or hold, directly or
indirectly, (i) this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate, and (ii) the fee estate in the
Leased Properties.

         28.2 No Partnership. Nothing contained in this Lease will be deemed or
construed to create a partnership or joint venture between Lessor and Lessee or
to cause either party to be responsible in any way for the debts or obligations
of the other or any other party, it being the intention of the parties that the
only relationship hereunder is that of Lessor and Lessee.


                                  ARTICLE XXIX

         29.1 Conveyance by Lessor. If Lessor or any successor owner of the
Leased Properties conveys the Leased Properties other than as security for a
debt, Lessor or such successor owner, as the case may be, shall thereupon be
released from all future liabilities and obligations of Lessor under this Lease
arising or accruing from and after the date of such conveyance or other transfer
and all such future liabilities and obligations shall thereupon be binding upon
the new owner.

                                   ARTICLE XXX

         30.1 Quiet Enjoyment. So long as Lessee pays all Rent as it becomes due
and complies with all of the terms of this Lease and performs its obligations
hereunder, Lessee shall peaceably and quietly have, hold and enjoy the Leased
Properties for the Term, free of any claim or other action by Lessor or anyone
claiming by, through or under Lessor, but subject to all other covenants,
conditions, restrictions, easements and other matters consented to by Lessee or
referred to in Section 1.1, whether now or hereafter existing or arising (other
than claims asserted by the holder(s) of any Facility Mortgage(s) or other
encumbrances now or hereafter placed on a Facility by Lessor and liens attaching
to a Facility as a result of Lessor's ownership of an interest therein). Except
as otherwise provided in this Lease, no failure by Lessor to comply with the
foregoing covenant will give Lessee any right to cancel or terminate this Lease
or abate, reduce or make a deduction from or offset against the Rent or any
other sum payable under this Lease, or to fail to perform any other obligation
of Lessee. Lessee shall, however, have the right, by separate and independent
action, to pursue any


                                       56
<PAGE>   63
claim it may have against Lessor as a result of a breach by Lessor of the
covenant of quiet enjoyment contained in this Section.

                                  ARTICLE XXXI

         31.1 Notices. Any notice, request or other communication to be given by
any party hereunder shall be in writing and shall be sent by registered or
certified mail, postage prepaid, by overnight deliver, hand delivery or
facsimile transmission to the following address:

                  TO LESSEE:            AHC Properties, Inc.
                                        450 N.  Sunnyslope Road, Suite 300
                                        Brookfield, Wisconsin 53005
                                        Attn:  Mark W.  Ohlendorf
                                        Telephone No.:  414/641-5100
                                        Facsimile No.:   414/789-6677

                  With copy to          Rogers & Hardin
                  (which shall not      2700 International Tower
                  constitute notice):   229 Peachtree Street, N.W.
                                        Atlanta, Georgia 30303
                                        Attn:  Miriam Dent
                                        Telephone No.: 404/522-4700
                                        Facsimile No.: 404/525-2224


                  TO LESSOR:            Omega Healthcare Investors, Inc.
                                        900 Victors Way, Suite 350
                                        Ann Arbor, Michigan 48108
                                        Attn.: F. Scott Kellman and
                                               Susan Allene Kovach
                                        Telephone No.: 734/887-0200
                                        Facsimile No.:  734/887-0201

                  With copy to          Dykema Gossett PLLC
                  (which shall not      1577 North Woodward Ave.
                  constitute notice):   Bloomfield Hills, MI 48304-2820
                                        Attn.: Fred J. Fechheimer, Esq.
                                        Telephone No.: (248) 203-0743
                                        Facsimile No.: (248) 203-0763

or to such other address as either party may hereafter designate. Notice shall
be deemed to have been given on the date of delivery if such delivery is made on
a Business Day, or if not, on the first Business Day after delivery. If delivery
is refused, Notice shall be deemed to have been given on the date delivery was
first attempted. Notice sent by facsimile transmission shall be deemed given


                                       57
<PAGE>   64
upon confirmation that such Notice was received at the number specified above or
in a Notice to the sender.

                                  ARTICLE XXXII

         32.1 Appraisers. If it becomes necessary to determine Fair Market Value
or Fair Market Rent for any purpose under this Lease, the party required or
permitted to give Notice of such required determination shall include in the
Notice the name of a person selected to act as appraiser on its behalf. Within
ten (10) days after such Notice, the party receiving such Notice shall give
Notice to the other party of its selection of a person to act as appraiser on
its behalf. The appraisers thus appointed, each of whom must be a member of the
Appraisal Institute (or any successor organization thereto) and experienced in
appraising facilities used for purposes similar to the Primary Intended Use of
the Facilities, shall, within forty-five (45) days after the date of the Notice
appointing the first appraiser, proceed to appraise the Leased Property or
Leased Properties, as the case may be, to determine the Fair Market Value or
Fair Market Rent thereof as of the relevant date (giving effect to the impact,
if any, of inflation between the date of their decision and the relevant date);
provided, however, that if only one appraiser has been so appointed, or if two
appraisers have been so appointed but only one such appraiser has made such
determination within fifty (50) days after the date of the Notice appointing the
first appraiser, then the determination of such appraiser shall be final and
binding upon the parties. To the extent consistent with sound appraisal practice
at the time of any such appraisal, such appraisal shall be made on a basis
consistent with the basis on which the Leased Property or Leased Properties were
appraised for purposes of determining its Fair Market Value at the time of
Lessor's acquisition thereof. If two appraisers have been appointed and have
made their determinations within the respective requisite periods set forth
above, and if the difference between the amounts so determined does not exceed
ten percent (10%) of the lesser of such amounts, then the Fair Market Value or
Fair Market Rent shall be an amount equal to fifty percent (50%) of the sum of
the amounts so determined. If the difference between the amounts so determined
exceeds ten percent (10%) of the lesser of such amounts, then such two
appraisers shall within twenty (20) days appoint a third appraiser. If no such
appraiser is appointed within such twenty (20) days or within ninety (90) days
of the date of the Notice appointing the first appraiser, whichever is earlier,
either Lessor or Lessee may apply to any court having jurisdiction to have such
appointment made by such court. Any appraiser appointed by the original
appraisers or by such court shall be instructed to determine the Fair Market
Value or Fair Market Rent within forty-five (45) days after appointment of such
appraiser. The determination of the appraiser which differs most in terms of
dollar amount from the determinations of the other two appraisers shall be
excluded, and the average of the remaining two determinations shall be final and
binding upon Lessor and Lessee as the Fair Market Value or Fair Market Rent of
the Leased Property or Leased Properties, as the case may be. If the Fair Market
Rent is being determined for more than one year, the Fair Market Rent may
include such annual increases, if any, as the appraisers determine to be in
accordance with the terms of this Lease.

         This provision for determining by appraisal shall be specifically
enforceable to the extent such remedy is available under applicable law, and any
determination hereunder shall be final and


                                       58
<PAGE>   65
binding upon the parties except as otherwise provided by applicable law, and
judgment may be entered upon such determination in a court of competent
jurisdiction. Lessor and Lessee shall each pay the fees and expenses of the
appraiser appointed by it and each shall pay one-half of the fees and expenses
of the third appraiser and one-half of all other costs and expenses incurred in
connection with each appraisal.


                                 ARTICLE XXXIII

         33.1 Breach by Lessor. Lessor shall not be in breach of this Lease
unless Lessor fails to observe or perform any term, covenant or condition of
this Lease on its part to be performed and such failure continues for a period
of thirty (30) days after written Notice specifying such failure and the
necessary curative action is received by Lessor from Lessee. If the failure
cannot with due diligence be cured within a period of thirty (30) days, the
failure shall not be deemed to continue if Lessor, within said thirty (30) day
period, proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof. The time within which Lessor shall be
obligated to cure any such failure shall also be subject to extension of time
due to Force Majeure.


                                  ARTICLE XXXIV

         34.1 Lessor's Option to Purchase Lessee's Personal Property. At the
expiration or termination of this Lease, Lessor shall have the option on the
terms hereinafter set forth to purchase any of Lessee's Personal Property that
is not deemed to have been sold, assigned, transferred and conveyed to Lessor
pursuant to Section 6.3 hereof, for an amount equal to the then fair market
value thereof, subject to, and with appropriate credits for, any obligations
owing from Lessee to Lessor and for the then outstanding balances owing on all
equipment leases, conditional sale contracts and any other encumbrances to which
such Lessee's Personal Property is subject. Lessor's option shall be exercised
by Notice to Lessee no more than one hundred eighty (180) days, nor less than
ninety (90) days, before the expiration of the Initial Term or, if the Term is
renewed as provided herein, before the expiration of the last Renewal Term,
unless this Lease is terminated prior to its expiration date by reason of an
Event of Default, in which event Lessor's option shall be exercised not more
than ninety (90) days after the date of termination. Lessor's option under this
Section 34.1 shall terminate if not timely exercised. If Lessor exercises its
option, Lessee shall, in exchange for Lessor's payment of the purchase price,
deliver the purchased Lessee's Personal Property to Lessor, together with a bill
of sale and such other documents as Lessor may reasonably request in order to
carry out the purchase, and the purchase shall be closed by such delivery and
such payment on the date set by Lessor in its Notice of exercise.

         34.2 Transfer of Operational Control of the Facilities. Lessee shall
cooperate fully in transferring operational control of all of the Facilities
which are then subject to this Lease to Lessor or Lessor's nominee if the Term
expires without renewal or this Lease is terminated upon the occurrence of an
Event of Default or for any other reason, and Lessee shall use reasonable
efforts



                                       59
<PAGE>   66
to cause the business conducted at all such Facilities to continue without
interruption. To that end, pending completion of the transfer of the operational
control of such Facilities to Lessor or its nominee:

                  (i) Lessee will not terminate the employment of any employees
         without just cause, or change any salaries, provided, however, that
         without the advance written consent of Lessor Lessee may grant
         pre-announced wage increases of which Lessor has knowledge, increases
         required by written employment agreements and normal raises to
         non-officers at regular review dates; and Lessee will not hire any
         additional employees except in good faith in the ordinary course of
         business;

                  (ii) Lessee will provide all necessary information reasonably
         requested by Lessor or its nominee for the preparation and filing of
         any and all necessary applications or notifications of any federal or
         state governmental authority having jurisdiction over a change in the
         operational control of the Facilities, and any other information
         reasonably required to effect an orderly transfer of the Facilities,
         and Lessee will use reasonable efforts to cause all operating health
         care licenses to be issued to Lessor or to Lessor's nominee;

                  (iii) Lessee shall use reasonable efforts to keep the business
         and organization of the Facilities intact and to preserve for Lessor or
         its nominee the goodwill of the suppliers, distributors, residents and
         others having business relations with Lessee with respect to the
         Facilities;

                  (iv) Lessee shall engage only in transactions or other
         activities with respect to the Facilities which are in the ordinary
         course of its business and shall perform all maintenance and repairs
         reasonably necessary to keep the Facilities in satisfactory operating
         condition and repair, and shall maintain the supplies and foodstuffs at
         levels which are consistent and in compliance with all health care
         regulations, and shall not sell or remove any personal property except
         in the ordinary course of business and in accordance with the terms and
         conditions of this Lease;

                  (v) Lessee shall provide Lessor or its nominee, within the
         limits of applicable law, with full and complete information regarding
         the employees of the Facilities and shall reimburse Lessor or its
         nominee for all outstanding accrued employee benefits, including
         accrued vacation, sick and holiday pay calculated on a true accrual
         basis, including all earned and a prorated portion of all unearned
         benefits, for all employees thereafter actually employed by Lessor or
         its nominee or assignee;

                  (vi) Lessee shall use reasonable efforts to obtain the
         acknowledgment and the consent of any creditor, lessor or sublessor,
         mortgagee, beneficiary of a deed of trust or security agreement
         affecting the real and personal properties of Lessee or any other party
         whose acknowledgment and/or consent would be required because of a
         change in the operational control of the Facilities and transfer of
         personal property. The consent must be


                                       60
<PAGE>   67
         in form, scope and substance satisfactory to Lessor or its nominee,
         including, without limitation, an acknowledgment in respect to all such
         contracts, leases, deeds of trust, mortgage, security agreements, or
         other agreements that Lessee and all predecessors or
         successors-in-interest thereto are not in default in respect thereto,
         that no condition known to the consenting party exists which with the
         giving of notice or lapse of time would result in such a default, and,
         if requested, affirmatively consenting to the change in the operational
         control of the Facilities;

                  (vii) To more fully preserve and protect Lessor's rights under
         this Section, Lessee does hereby make, constitute and appoint Lessor
         its true and lawful attorney-in-fact, for it and in its name, place and
         stead to execute and deliver all such instruments and documents, and to
         do all such other acts and things, as Lessor may deem to be necessary
         or desirable to protect and preserve the rights granted under this
         Section, including, without limitation, the preparation, execution and
         filing with the Board of Health (or similar agency) of each State OF
         any and all required "Letters of Responsibility" or similar documents.
         Lessee hereby grants to Lessor the full power and authority to appoint
         one or more substitutes to perform any of the acts that Lessor is
         authorized to perform under this Section, with a right to revoke such
         appointment of substitution at Lessor's pleasure. The power of attorney
         granted pursuant to this Section is coupled with an interest and
         therefore is irrevocable. Any person dealing with Lessor may rely upon
         the representation of Lessor relating to any authority granted by this
         power of attorney, including the intended scope of the authority, and
         may accept the written certificate of Lessor that this power of
         attorney is in full force and effect. Photographic or other facsimile
         reproductions of this executed Lease may be made and delivered by
         Lessor, and may be relied upon by any person to the same extent as
         though the copy were an original. Anyone who acts in reliance upon any
         representation or certificate of Lessor, or upon a reproduction of this
         Lease, shall not be liable for permitting Lessor to perform any act
         pursuant to this power of attorney. Notwithstanding the foregoing,
         Lessor covenants with Lessee that Lessor shall refrain from exercising
         the power of attorney granted hereby except in the case of an Event of
         Default hereunder or in the event of a default, which, in Lessor's
         reasonable judgment, may lead to the suspension or revocation of any
         license of Lessee or of any sublessee.

         34.4 Intangibles and Personal Property. Notwithstanding any other
provision of this Lease but subject to Section 6.4 relating to the security
interest in favor of Lessor, Lessor's Personal Property shall not include
goodwill nor shall it include any other intangible personal property that is
severable from Lessor's "interests in real property" within the meaning of
Section 856(d) of the Code, or any similar or successor provision thereto.


                                       61
<PAGE>   68
                                  ARTICLE XXXV

         35.1 Arbitration. Except with respect to the payment of Rent under this
Lease and any proceedings to recover possession of one or more of the Leased
Properties, in case any controversy arises between the parties hereto as to any
of the provisions of this Lease or the performance thereof, and the parties are
unable to settle the controversy by agreement or as otherwise provided herein,
the controversy shall be decided by arbitration. The arbitration shall be
conducted by three arbitrators selected in accordance with the rules and
procedures of the American Arbitration Association. The decision of the
arbitrators shall be final and binding, and judgment may be entered thereon in
any court of competent jurisdiction. The decision shall set forth in writing the
basis for the decision. In rendering the decision and award, the arbitrators
shall not add to, subtract from, or otherwise modify the provisions of this
Lease. The expense of the arbitration shall be divided between Lessor and Lessee
unless otherwise specified in the award. Each party in interest shall pay the
fees and expenses of its own counsel. The arbitration shall be conducted in Ann
Arbor, Michigan. In any arbitration, the parties shall be entitled to conduct
discovery in the same manner as permitted under Federal Rules of Civil Procedure
26 through 37, as amended. No provision in this Article shall limit the right of
any party to this Agreement to obtain provisional or ancillary remedies from a
court of competent jurisdiction before, after, or during the pendency of any
arbitration, and the exercise of such remedies does not constitute a waiver of
the right of either party to arbitration.


                                  ARTICLE XXXVI

         36.1 Miscellaneous.

                  36.1.1 Survival, Choice of law. Anything contained in this
Lease to the contrary notwithstanding, all claims against, and liabilities of,
Lessee or Lessor arising prior to the date of expiration or termination of this
Lease shall survive such expiration or termination. If any term or provision of
this Lease or any application thereof is held invalid or unenforceable, the
remainder of this Lease and any other application of such term or provisions
shall not be affected thereby. Neither this Lease nor any provision hereof may
be changed, waived, discharged or terminated except by an instrument in writing
and in recordable form signed by Lessor and Lessee. All the terms and provisions
of this Lease shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. The headings in this Lease
are for convenience of reference only and shall not limit or otherwise affect
the meaning hereof. This Lease shall be governed by and construed in accordance
with the laws of the state of Michigan, except as to matters which, under
applicable procedural conflicts of laws rules require the application of laws of
another State.

         LESSEE CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND
FEDERAL COURTS OF THE STATES OF MICHIGAN AND EACH STATE IN WHICH A FACILITY IS
LOCATED, AND AGREES THAT ALL DISPUTES CONCERNING THIS AGREEMENT BE HEARD IN THE
STATE AND FEDERAL COURTS LOCATED IN THE


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<PAGE>   69
STATES OF MICHIGAN OR ANY STATE IN WHICH A FACILITY IS LOCATED. LESSEE AGREES
THAT SERVICE OF PROCESS MAY BE EFFECTED UPON IT UNDER ANY METHOD PERMISSIBLE
UNDER THE LAWS OF THE STATES OF MICHIGAN OR ANY STATE IN WHICH A FACILITY IS
LOCATED AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL
COURTS OF THE STATES OF MICHIGAN OR ANY SUCH STATE.

                  36.1.2 Limitation on Recovery. Lessee specifically agrees to
look solely to Lessor's interest in the Leased Properties for recovery of any
judgment from Lessor, it being specifically agreed that no constituent
shareholder, officer or director of Lessor shall ever be personally liable for
any such judgment or for the payment of any monetary obligation to Lessee.
Furthermore, Lessor (original or successor) shall never be liable to Lessee for
any indirect or consequential damages suffered by Lessee from whatever cause.

                  36.1.3 Waivers. Lessee waives any defense by reason of any
disability of Lessee, and waives any other defense based on the termination of
Lessee's (including Lessee's successors) liability from any cause. Lessee waives
all presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance, and waives
all notices of the existence, creation, or incurring of new or additional
obligations.

                  36.1.4 Consents. Whenever the consent or approval of Lessor is
required hereunder, Lessor may in its sole discretion and without reason
withhold that consent or approval unless otherwise specifically provided.

                  36.1.5 Counterparts. This Lease may be executed in separate
counterparts, each of which shall be considered an original when each party has
executed and delivered to the other one or more copies of this Lease.

                  36.1.6 Options Personal. The renewal options granted to Lessee
in this Lease are granted solely to Lessee and are not assignable or
transferrable except in connection with a Transfer permitted in Article XXII.

                  36.1.7 Rights Cumulative. Except as provided herein to the
contrary, the respective rights and remedies of the parties specified in this
Lease shall be cumulative and in addition to any rights and remedies not
specified in this Lease.

                  36.1.8 Entire Agreement. There are no oral or written
agreements or representations between the parties hereto affecting this Lease
other than the Transaction Documents. This Lease and the Transaction Documents
supersede and cancel any and all previous negotiations, arrangements,
representations, brochures, agreements and understandings, if any, between
Lessor and Lessee.

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<PAGE>   70
                  36.1.9 Amendments in Writing. No provision of this Lease may
be amended except by an agreement in writing signed by Lessor and Lessee.

                  36.1.10 Severability. If any provision of this Lease or the
application of such provision to any person, entity or circumstance is found
invalid or unenforceable by a court of competent jurisdiction, such
determination shall not affect the other provisions of this Lease and all other
provisions of this Lease shall be deemed valid and enforceable.

                  36.1.11 Time of the Essence. Time is of the essence of all
provisions of this Lease of which time is an element.


                                 ARTICLE XXXVII

         37.1 Commissions (Lessee). Lessee agrees to save, indemnify and hold
Lessor harmless from and against any and all claims, liabilities or obligations
for brokerage commissions, finder's fees or the like in connection with this
Lease or the transactions contemplated hereby asserted by any person on the
basis of any statement or act alleged to have been made or taken by Lessee.
Lessee represents and warrants to Lessor that Lessee is aware of no Person who
would have a meritorious basis for asserting any such claims, liabilities or
obligations.

         37.2 Commissions (Lessor). Lessor agrees to save, indemnify and hold
Lessee harmless from and against any and all claims, liabilities or obligations
for brokerage commissions, finder's fees or the like in connection with this
Lease or the transactions contemplated hereby asserted by any person on the
basis of any statement or act alleged to have been made or taken by Lessor.
Lessor represents and warrants to Lessee that Lessor is aware of no Person who
would have a meritorious basis for asserting any such claims, liabilities or
obligations.


                                  ARTICLE XVIII

         38.1 Memorandum or Short Form of Lease. Lessor and Lessee shall,
promptly upon the request of either, enter into a Memorandum or Short Form of
Lease, substantially in the form of attached EXHIBIT G with such modifications
as may be appropriate under the laws and customs of the States and in the
customary form suitable for recording under the laws of each of the States.
Lessee shall pay all costs and expenses of recording such memorandum or short
form of this Lease.


                                  ARTICLE XXXIX

         39.1 Security Deposit. Concurrently with Lessee's execution of this
Lease, Lessee shall deliver the Security Deposit to Lessor, which Lessor shall
hold as security for the full and faithful performance by Lessee of each and
every term, provision, covenant and condition of this Lease. Unless otherwise
provided in the Purchase Agreement, Lessee shall satisfy the Security Deposit


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obligation by providing a letter of credit which shall be subject to the terms
and conditions of the Letter of Credit Agreement. If at any time the Security
Deposit is in the form of cash, it shall be deposited by Lessor into an account
which shall earn interest. Promptly upon receipt of written request from Lessee
(which may be made not more often than at quarterly intervals), Lessor shall,
provided there then exists no uncured Event of Default and no circumstance
which, with notice or the passage of time, or both, could become an Event of
Default, pay such interest to Lessee. Any interest that Lessee is not entitled
to receive under the preceding sentence shall be added to and become part of the
Security Deposit. The Security Deposit shall not be considered an advance
payment of Rent (or of any other sum payable to Lessee under this Lease) or a
measure of Lessor's damages in case of a default by Lessee. The Security Deposit
shall not be considered a trust fund, and Lessee expressly acknowledges and
agrees that Lessor is not acting as a trustee or in any fiduciary capacity in
controlling or using the Security Deposit. Lessor shall have no obligation to
maintain the Security Deposit separate and apart from Lessor's general and/or
other funds. The Security Deposit, less any portion thereof applied as provided
in the Letter of Credit Agreement or Section 39.3, shall be returned to Lessee
within sixty (60) days following the expiration of the Term.

         39.2 Reduction in Security Deposit.

                  (a) The Security Deposit shall be reduced to an amount equal
         to six (6) months' Base Rent when both of the following conditions have
         been satisfied (provided there then exists no Event of Default or fact
         or circumstance which, with notice or the passage of time, or both,
         would constitute an Event of Default): (i) Break-even Operations shall
         have occurred, and (ii) Lessee has acquired all of the outstanding
         equity interests in each of the sublessees listed in Schedule 22.2
         hereto and the sublease arrangement between Lessee and each such
         sublessee with respect to the Leased Property has been terminated.

                  (b) The Security Deposit shall be further reduced to an amount
         equal to three (3) months' Base Rent when both of the following
         conditions have been satisfied (provided there then exists no Event of
         Default or fact or circumstance which, with notice or the passage of
         time, or both, would constitute an Event of Default): (i) Portfolio
         Stabilization shall have occurred, and (ii) Lessee has acquired all of
         the outstanding equity interests in each of the sublessees listed in
         Schedule 22.2 hereto and the sublease arrangement between Lessee and
         each such sublessee with respect to the Leased Property has been
         terminated.

         39.3 Application of Security Deposit. If an Event of Default occurs
under this Lease, Lessor may, but shall not be required to, in addition to and
not in lieu of any other rights and remedies available to Lessor , apply all or
any part of the Security Deposit to the payment of any sum in default, or any
other sum, including but not limited to, any damages or deficiency in reletting
the Leased Properties, which Lessor may expend or incur or be required to expend
or incur by reason of Lessee's default. Whenever, and as often as, Lessor has
applied any portion of the Security Deposit as herein provided, Lessee shall,
within ten (10) days after Notice from Lessor, deliver a new letter of credit
meeting the requirements of the Letter of Credit Agreement to Lessor (or, at
Lessor's option, deposit additional money with Lessor) sufficient to restore the
Security Deposit to


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the full amount originally provided or paid, and Lessee's failure to do so shall
constitute an Event of Default hereunder without any further Notice or grace
period.

         39.4 Transfer of Security Deposit. If Lessor transfers its interest
under this Lease, Lessor shall assign the Security Deposit to the new lessor and
thereafter Lessor shall have no further liability for the return of the Security
Deposit, and Lessee agrees to look solely to the new lessor for the return of
the Security Deposit. The provisions of the preceding sentence shall apply to
every transfer or assignment of Lessor's interest under this Lease. Lessee
agrees that it will not assign or encumber or attempt to assign or encumber the
Security Deposit and that Lessor, its successors and assigns, may return the
Security Deposit to the last Lessee in possession at the last address for Notice
given by such Lessee and that Lessor shall thereafter be relieved of any
liability therefor, regardless of one or more assignments of this Lease or any
such actual or attempted assignment or encumbrances of the Security Deposit.

                          SIGNATURES ON FOLLOWING PAGE.

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         IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized officers as of the date first above written.

                                          LESSOR:

                                          OMEGA HEALTHCARE INVESTORS,
                                          INC., a Maryland corporation


June      , 1999                          By: /s/ Susan A. Kovach
    -----                                    -------------------------------
                                             Susan A. Kovach
                                             Vice President and General Counsel


                                          LESSEE:

                                          AHC PROPERTIES, INC.,
                                          a Delaware corporation


June     , 1999                           By: /s/ Mark W. Ohlendorf
    -----                                    --------------------------------
                                             Mark W. Ohlendorf
                                             Senior Vice President


STATE OF MICHIGAN              )
                               )  ss:
COUNTY OF WASHTENAW            )

         The foregoing instrument was acknowledged before me on June     , 1999,
by Susan A. Kovach who is the Vice President and General Counsel of Omega
Healthcare Investors, Inc., a Maryland corporation, on behalf of the
corporation, who acknowledged the same to be her free act and deed and the free
act and deed of the corporation.



                                   Notary Public,         County, Michigan
                                   My commission expires:
                                                          --------------------
STATE OF WISCONSIN             )
                               )  ss:
COUNTY OF                      )

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<PAGE>   74
         The foregoing instrument was acknowledged before me on June ____, 1999,
by Mark W. Ohlendorf who is a Senior Vice President of AHC Properties, Inc., a
Delaware corporation, on behalf of the corporation, who acknowledged the same to
be his free act and deed and the free act and deed of the corporation.


                                    Notary Public, _______ County, Wisconsin
                                    My commission expires:___________________




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