<PAGE>
 
                                                                   Exhibit 10.16

                              SUBLEASE AGREEMENT
                              ------------------

                  THIS SUBLEASE AGREEMENT ("Sublease") is made on January 1,
1994, between SUMMIT HEALTH LTD., a California corporation ("Sublessor") and
SUMMIT CARE CORPORATION, a California corporation ("Sublessee").

                                    Recitals
                                    --------

          A.      SIERRA LAND GROUP, INC., a California corporation ("Lessor"),
                  as landlord, and Sublessor, as tenant, executed a lease, as of
                  August 1, 1993 (the "Master Lease"). By the terms of the
                  Master Lease, Lessor leased certain real property to Sublessor
                  for a term of ten (10) years, commencing on August 1, 1993,
                  and ending on July 31, 2003. A copy of the Master Lease is
                  attached to this Sublease as Exhibit A.
                                               ---------
          B.      Sublessor desires to sublease to Sublessee the real property
                  currently occupied by Sublessor under the terms of the Master
                  Lease, and Sublessee desires to lease that real property from
                  Sublessor.

          C.      The Lessor under the Master Lease desires to consent to this
                  Sublease. 

NOW, THEREFORE, the parties agree as follows:

          1.      Premises. Sublessor hereby subleases to Sublessee and
                  --------
Sublessee hereby subleases from Sublessor that certain real property situated in
the County of Maricopa, State of Arizona, commonly known as 1314/1342 East
McDowell Road, Phoenix, Arizona, with improvements thereon, said real property
and improvements being collectively referred to as the "Premises".

          2.      Term. The term of this Sublease shall commence on January 1,
                  ----
1994 (hereinafter referred to as "Commencement Date") and end at midnight on
July 31, 2003 (hereinafter referred to as "Expiration Date"), unless otherwise
terminated or extended as provided herein. Notwithstanding the foregoing, this
Sublease is not effective until Lessor consents to this Sublease. This Sublease
terminates upon the termination of the Master Lease at any time.

                                       1
<PAGE>
 
          3. Rent and Security Deposit.
             -------------------------

             (a) Rent. Sublessee shall pay to Sublessor Thirty Seven Thousand 
                 ----
Five Hundred Dollars and 00/100 ($37,500.00) as monthly rent, without deduction,
set-off, prior notice or demand, all amounts due and owing Lessor under the
terms and conditions of the Master Lease for such month including, but not
limited to rent, additional rent, and real and personal property taxes (the
"Rent") each month in advance on the first day of each month, beginning on the
Commencement Date and continuing throughout the term hereof. The monthly rent
for any partial month shall be prorated on the basis of actual number of days in
said month.

          4. Use and Condition of the Premises.
             ---------------------------------

             (a) The Premises shall be used by Sublessee solely for those
purposes specified in the Master Lease and in compliance with all statutes and
regulations governing the provision of such services.

             (b) Sublessee shall not do or permit anything to be done in or
about the Premises which will in anyway (i) increase the existing rate of or
affect any fire or other insurance upon the Premises; or (ii) cause cancellation
of any insurance policy covering said Premises or any part thereof; or (ii) use
or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose; or (iii) cause, maintain or permit any nuisance in, on or
about the Premises. Sublessee shall not commit or suffer to be committed any
waste in or about the Premises.

             (c) Sublessee accepts the Premises in their condition existing
as of the date of execution hereof, subject to all applicable municipal, county
and state laws, ordinances and regulations governing and regulating the use of
the Premises, and accepts the Sublease subject thereto. Sublessee acknowledges
that neither Sublessor nor Sublessor's agents have made any representation or
warranty as to the suitability of the Premises for the conduct of the
Sublessee's business.

          5. Applicabi1ity of Master Lease. This Sublease is subject and
             -----------------------------
subordinate to the terms and conditions of the Master Lease.

          6. Assumption. Sublessee hereby expressly assumes and agrees to
             ----------
perform and comply with all the obligations required to be kept or performed by
the Sublessor under the provisions of the Master Lease, to the extent that they
are applicable to the Premises, with the following exception: the obligation and
covenant to pay rent to the Lessor under the Master Lease shall be considered
performed by Sublessee to the extent the Rent is

                                       2
<PAGE>
 
paid to Sublessor in accordance with this Sublease. Sublessee shall defend and
hold Sublessor harmless from all liability, claims, causes of action, costs,
damages, expenses, including reasonably attorneys' fees, arising out of or 
related to Sublessee's failure to comply with or perform the obligations
required hereunder.

          7.  Assignment and Subletting. Sublessee shall not, either voluntarily
              -------------------------
or by operation of law, directly or indirectly, sell, hypothecate, assign or
transfer this Sublease, or sublet the Premises or any part thereof, or permit
the Premises or any part thereof to be occupied by anyone other than Sublessee
or Sublessee's employees without the prior written consents of Lessor and
Sublessor thereto.

          8.  Hold Harmless; Indemnity.
              ------------------------

              (a) Sublessee shall indemnify, defend and hold Lessor and
Sublessor harmless from any and all liability, claims, causes of action, costs,
damages, expenses, including reasonably attorneys' fees, arising out of or
related to Sublessee's use of the Premises for the conduct of its business or
from any activity, work or other thing done, permitted or suffered by Sublessee
in or about the Premises and shall further indemnify, defend and hold Lessor and
Sublessor harmless from any and all liability, claims, causes of action, costs,
damages, expenses, including reasonably attorneys' fees, arising out of or
related to any breach or default in the performance of any obligation on
Sublessee's part to be performed under the terms of this Sublease, or arising
from any negligent or intentional act or omission of Sublessee, or any officer,
employee, agent or invitee of Sublessee. Sublessee, as a material part of the
consideration to Sublessor, hereby assumes all risk of damage to property or
injury to persons, in, upon or about the Premises, from any cause other than
Lessor's or Sublessor's negligence, and Sublessee hereby waives and releases all
claims in respect thereof against Sublessor.

              (b) Lessor and Sublessor shall not be liable for any loss,
damage or injury to the property or person of any person whomsoever, whether
arising directly or indirectly from any state or condition of the Premises or
any part thereof during the terms of this Sublease, except for acts attributable
to Lessor's or Sublessor's sole respective neglect.

          9.  Insurance.
              ---------

          Sublessee shall, at all times during the term of this Sublease at its
own cost and expense procure and continue in force all insurance coverage
required under the Master Lease. With the exception of the professional
liability insurance coverage, the aforesaid insurance shall name Lessor and
Sublessor

                                       3
<PAGE>
 
as additional insureds, and shall be with companies satisfactory to Lessor and
Sublessor. Sublessee shall furnish Lessor and Sublessor with certificates of
coverage within ten (10) days prior to the commencement of this Sublease.

          10. Rules and Regulations. Sublessee shall faithfully observe and
              ---------------------
comply with the rules and regulations adopted by Sublessor from time to time.

          11. Holding Over. If Sublessee holds over after the expiration or
              ------------
earlier termination of the term hereof without the express written consent of
Sublessor, Sublessee shall become a tenant at sufferance only, at a rental rate
equal to one and one-half times the rate then in effect upon the date
immediately prior to such expiration or termination (prorated on a daily basis),
and otherwise upon the terms, covenants and conditions herein specified, so far
as applicable. In addition, Sublessee agrees to be responsible for any
consequential damages to Sublessor and Lessor arising out of such holdover.
Acceptance by Sublessor of rent after such expiration or earlier termination
shall not constitute a consent to any holdover hereunder or result in a renewal
or extension. The foregoing provisions of this are in addition to and do not
affect Sublessor's rights of re-entry or any other rights of Sublessor hereunder
or as otherwise provided by law.

          12. Entry By Sublessor. Sublessor reserves and shall at all times have
              ------------------
the right to enter the Premises, to inspect the same, to show said Premises to
prospective purchasers or sublessees, and to post notices of nonresponsibility.
Sublessor may also enter the Premises, without abatement or rent, in order to
alter, improve or repair the Premises that Sublessor may deem necessary or
desirable. With respect to the entry rights of Sublessor herein provided for,
Sublessee hereby waives any claim for damages for any injury or inconvenience to
or interference with Sublessee's business, any loss of occupancy or quiet
enjoyment of the Premises, and any other loss occasioned thereby; provided that
Sublessor covenants and agrees to make all reasonable effort not to unreasonably
interfere with Sublessee's use and occupation of the Premises resulting from
Sublessor's entry upon the Premises.

          13. Obligations of Sublessor. Sublessor agrees to maintain the Master
              ------------------------   
Lease during the entire term of this Sublease, subject, however, to any earlier
termination of the Master Lease without the fault of Sublessor. Sublessor also
agrees to pay all rent provided for in the Master Lease in accordance with its
terms. Further, Sublessor agrees not to modify or surrender the Master Lease
without the prior consent of Sublessee. Any modification or surrender made
without that consent shall be null and void and shall have no effect on the
rights of Sublessee

                                       4
<PAGE>
 
under this Sublease. Sublessor does not assume the obligations of Lessor.

          14. Termination by Sublessor.
              ------------------------

              (a) Default by Sublessee. The occurrence of any one or more of
                  --------------------
the following events shall constitute an Event of Default hereunder by
Sublessee:

                  (i)   The vacating or abandonment or the Premises by
                        Sublessee.

                  (ii)  The failure by Sublessee to make any payment of Rent
                        when the same is due, if such failure shall continue for
                        a period of ten days after written notice thereof from
                        Sublessor to Sublessee.

                  (iii) The failure by Sublessee to observe or perform any of
                        the covenants or provisions of this Sublease or the
                        Master Lease to be observed or performed by Sublessee,
                        other than payment of Rent as specified above, where
                        such failure shall continue for a period of 30 days
                        after written notice thereof from Sublessor to
                        Sublessee.

                  (iv)  The filing of a petition for bankruptcy, insolvency or
                        transfer of property for the benefit of creditors by
                        Sublessee.

              (b) Termination for Default. Upon the occurrence of any Event
                  -----------------------
of Default by Sublessee, Sublessor shall have the following remedies, which
remedies are not exclusive and are cumulative with any other remedies now or
later allowed by law:

                  (i)   Continue this Sublease in full force and effect and not
                        terminate Sublessee's right to possession of the
                        Premises, in which event Sublessor shall have the right
                        to enforce all rights and remedies granted by this
                        Sublease or by law against Sublessee, including, without
                        limitation, the right to collect when due Rent and other
                        sums payable hereunder;

                  (ii)  Terminate Sublessee's right to possession of the
                        Premises by any lawful means, in which case this
                        Sublease shall terminate and Sublessee shall immediately
                        surrender possession of the Premises to Sublessor; and

                                       5
<PAGE>
 
                  (iii) Pursue any other remedy now or hereafter permitted by
                        law or in equity.

          15. Termination By Sublessee. Sublessee may terminate this Sublease
              ------------------------
following failure by Sublessor to observe or perform any material covenants or
provisions of this Sublease to be observed or performed by Sublessor, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Sublessee to Sublessor.

          16. Termination By Agreement. In the event the parties hereto shall
              ------------------------ 
agree in writing this Sublease may be terminated on terms and date stipulated
therein.

          17. Termination in Event of Government Action. If (a) any legislation,
              ----------------------------------------- 
regulations, rules or procedures are duly passed, adopted or implemented by any
federal, state or local government or legislative body or any private agency; or
(b) Sublessor or Sublessee shall receive notice of any actual or threatened
decision, finding, or action (collectively referred to herein as an "Action") by
any governmental or private agency, court or other third party which, if or when
implemented, would have the effect of (i) revoking or jeopardizing the status of
the health facility or other license granted to Sublessor; or (ii) subjecting
the Sublessor or the Sublessee, or any of their members, to civil or criminal
prosecution, or other adverse proceedings, on the basis of their participation
herein, Sublessor and Sublessee shall attempt to amend this Sublease to avoid
the action or threatened action. If the parties hereto, acting in good faith,
are unable to so amend this Sublease within ten (10) days to meet the
requirements of the agency, court or third party in question, or, alternatively,
if the parties determine in good faith that compliance with such requirements is
impossible or infeasible, this Sublease shall be terminated.

          18. Termination of Master Lease. If the Master Lease is terminated,
              ---------------------------
this Sublease shall terminate simultaneously therewith and the Sublessor and
Sublessee shall thereafter be released from all obligations under this Sublease,
and Sublessor shall refund to Sublessee any unearned rent paid in advance.

          19. Effects of Termination. Upon termination of this Sublease,
              ----------------------
Sublessee shall immediately surrender possession of the Premises to Sublessor,
and all of the rights, duties and obligations of the parties hereunder shall
cease except as necessary to effectuate the covenants, conditions and
restrictions contained herein.

          20. Attornment. Notwithstanding anything herein to the contrary, if
              ----------
Sublessor defaults under the Master Lease and Lessor provides Sublessee with
written notice thereof, Sublessee shall attorn to Lessor and perform all
Sublessee's obligations under

                                       6
<PAGE>
 
the Sublease directly to Lessor as if Lessor were Sublessor hereunder. From the
date Sublessee attorneys to Lessor as provided herein, Sublessee shall not be
further liable to Sublessor for performance under this Sublease. Lessor and
Sublessee, from the date of attornment, shall have the same rights that can be
enforced against each other as Sublessor and Sublessee have hereunder. Lessor
shall not be liable for any act or omission of Sublessor and its authorized
representatives, and shall not be subject to any offsets or defenses that
Sublessee has against Sublessor.

          21. Late Charges. Sublessee hereby acknowledges that late payment by
              ------------
Sublessee to Sublessor of rent or other sums due hereunder will cause Sublessor
to incur costs not contemplated by this Sublease, the exact amount of which will
be extremely difficult to ascertain. Such costs include, but are limited to,
processing and accounting charges, and late charges which may be imposed upon
Sublessor by terms of the Master Lease. Accordingly, if any installment of rent,
or of a sum due from Sublessee, is not received by Sublessor's designee within
10 days after written notice that said amount is past due, then Sublessee shall
pay to Sublessor a late charge equal to ten percent (10%) of such overdue
amount. The parties hereby agree that such late charges represent a fair and
reasonable estimate of the costs which Sublessor will incur by reason of the
late payment by Sublessee. Acceptance of such late charges by Sublessor shall in
no event constitute a waiver of Sublessee's default with respect to such overdue
amount, not prevent Sublessor from exercising any of the other rights and
remedies granted hereunder.

          22. Authority of Parties.
              --------------------

              (a) Each individual executing this Sublease on behalf of a
corporation represents and warrants that he is duly authorized to execute and
deliver this Sublease on behalf of the corporation, in accordance with a duly
adopted resolution of the board of directors of the corporation or in accordance
with the Bylaws of the corporation, and that this Sublease is binding upon the
corporation in accordance with its terms.

          23. Notices. Any notice required or permitted to be given under this
              -------
Sublease shall be in writing and hand delivered or sent by registered or
certified mail to each party as follows:

                  SUBLESSOR:     Summit Health Ltd.
                                 2600 W. Magnolia Blvd.
                                 Burbank, CA 91505
                                 Attention:   Chief Executive Officer

                                       7
<PAGE>
 
                  SUBLESSEE:     Summit Care Corporation
                                 2600 W. Magnolia Blvd.
                                 Burbank, CA 91505
                                 Attention:  Chief Executive Officer

Notice shall be deemed given 24 hours after the date it is placed, postage
prepaid, in a depository for United States mail. Either party may provide for a
different address by notifying the other party of said change as provided for
herein.

          24. General Provisions.
              ------------------

              (a) Prior notice. In the event of any act or omission on the
                  ------------
part of Sublessor which would give Sublessee the right to terminate this
Sublease or claim a total or partial eviction from the Premises, Sublessee shall
not exercise such right or make such claim until (i) it has given written notice
thereof to the Sublessor; and (ii) Sublessor has had a reasonable opportunity to
remedy such act or omission.

              (b) Time of Essence. Time is hereby made of the essence of
                  ---------------
each of the promises, covenants, agreements and conditions herein contained on
the part of Sublessee to be kept, observed and performed.

              (c) Modification. This Sublease contains all of the terms and
                  ------------
conditions agreed upon by the parties hereto with reference to the subject
matter hereof. No other agreements not specifically referred to herein, oral or
otherwise, shall be deemed to exist or to bind any of the parties hereto. This
Sublease cannot be modified or changed except by written instrument signed by
all of the parties hereto.

              (d) Relationship of Parties. Nothing contained in this
                  -----------------------
Sublease shall be deemed or construed by the parties or by any third person or
create the relationship of principal and agent or of partnership or of joint
venture or of any association between Sublessor and Sublessee.

              (e) Choice of Law. This Sublease shall be governed by the laws
                  -------------
of the State of Arizona.

              (f) Waiver. The waiver by Sublessor of any term, covenant or
                  ------
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition on any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Sublessor shall not be deemed to be a waiver of any preceding
breach by Sublessee of any term, covenant or condition of this Sublease,
regardless of Sublessor's knowledge of such preceding breach at the time of the
acceptance of such rent.


                                       8
<PAGE>
 
              (g) Partial Invalidity. If any term or provision of this Sublease,
                  ------------------
or the application thereof to any person or circumstance, shall to any event be
invalid or unenforceable, the remainder of this Sublease or the application or
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable shall not be affected thereby, and each term
and provisions of this Sublease shall be valid and enforced to the fullest
extent permitted by law.

              (h) Captions. The captions contained in this lease are for
                  --------
convenience only and shall not be referred to for the purpose of limiting and
construing this Sublease.

              (i) Successors and Assigns. The covenants and conditions herein
                  ----------------------
contained, subject to the provisions as to assignment and subletting, apply to
and bind the heirs, successors, executors, administrators and assigns of the
parties hereto.

              (j) Recordation. Neither Sublessor nor Sublessee shall record
                  -----------
this Sublease or a short form memorandum hereof without the prior written
consent of the other party.

              (k) Inability to Perform. This Sublease and the obligations of
                  --------------------
Sublessee hereunder shall not be affected or impaired because Sublessor is
unable to fulfill any of its obligations hereunder or is delayed in doing so, if
such inability or delay is caused by reason of strike, labor troubles, acts of
God, or any other cause beyond the reasonable control of Sublessor.

              (l) Cumulative Remedies. No remedy or election hereunder shall
                  -------------------
be deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.

              (m) Entire Agreement. The parties agree that this Sublease
                  ----------------
contains the entire agreement of the parties hereto with respect to the matters
covered hereby, and no other agreement, statement or promise made by any party
hereto or to any officer,

                                       9
<PAGE>
 
employee or agent of any party hereto which is not contained herein shall be
binding or valid.

                  IN WITNESS WHEREOF, the undersigned have executed this
Sublease as of the day and year first above written.

                           SUBLESSOR:    SUMMIT HEALTH LTD.
                                         a California corporation

                                         By:
                                            --------------------------------
                                         Its
                                            --------------------------------

                           SUBLESSEE:


                                         By: /s/ Derwin L. Williams
                                            --------------------------------
                                         Its VICE PRESIDENT, FINANCE
                                            --------------------------------


                               CONSENT OF LESSOR

          The undersigned is the Lessor under the Master Lease described in the
foregoing Sublease and hereby consents to the sublease of the premises described
in this Sublease to the Sublessee. In granting this consent, the undersigned
does not waive any of its rights under the Master Lease as to the Lessee or
under the Sublease as to the Sublessee.

                           LESSOR:       SIERRA LAND GROUP, INC.
                                         a California corporation


                                         By:
                                            --------------------------------
                                         Its
                                            --------------------------------

                                      10
<PAGE>
 
                                  EXHIBIT "A"

                                     LEASE


         This Lease is made and entered into this 1st day of August 1993, by and
between SIERRA LAND GROUP, INC., a California corporation ("Landlord"), and
SUMMIT CARE CORPORATION, a California corporation (Tenant").

         1.       Leased Premises
                  ---------------                  

         Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, subject to the terms and conditions contained herein, that certain
real property situated in the County of Maricopa, State of Arizona, commonly
known as 1314/1342 East McDowell Road, Phoenix, Arizona and more particularly
described in Exhibit "A" hereto and incorporated herein by reference (the
"Property"), with improvements thereon (the "Improvements"), said Property and
Improvements hereinafter being collectively referred to as the "Premises".

         2.       Term
                  ----

                  The term of the Lease shall be for ten (10) years commencing
on August 1, 1993 (the "Commencement Date") and ending on July 31, 2003
("Termination Date"), unless sooner terminated pursuant to any provision hereof.

          3.      Rent
                  ----

                  (a) Tenant shall pay Landlord as fixed rent for the Premises a
sum equal to Twenty Five Thousand Dollars and 00/100 ($25,000) (the "Fixed
Rent") before the first day of each and every month during the Term of this
Lease.

                  (b) On or before the first day of each and every month of each
twelve (12) month period (the "Adjustment Period"), the first of which shall
commence ____________________________, in addition to the Fixed Rent due
pursuant to subparagraph (a) above, Tenant shall pay as additional rent an
additional amount (the "Adjustment") to be determined in accordance with the
variations, if any, in the cost of living as shown by the Consumer Price Index
for all Urban Consumers, as published by the Bureau of Labor Statistics, United
States Department of Labor, or any successor agency (the "CPI"). The Adjustment
for each month of each Adjustment Period shall be an amount equal to the
difference between (i) the product obtained by multiplying the Fixed Rent by a
fraction, the numerator of which shall equal the CPI reported for the calendar
month of May immediately prior to the first day of such Adjustment Period and
the denominator of which shall equal the CPI reported for May, 1993 and (ii) the
Fixed Rent. The computation of the Adjustment for each month of

                                       1
<PAGE>
 
each Adjustment period shall be made without regard to whether any Adjustment
was payable with respect to any preceding Adjustment Period. In no event shall
the calculation of the amount of the Adjustment operate to reduce the total rent
due pursuant to this Paragraph 3 below the Fixed Rent. In the event that the
necessary CPI figures are not available to compute the Adjustment upon the
commencement of any Adjustment Period, Tenant shall continue to pay the Fixed
Rent plus the Adjustment in effect, if any, for the prior Adjustment period (the
"Tentative Adjustment") until such CPI figures become available, at which time
the appropriate Adjustment for each month of such Adjustment period shall be
determined. Immediately following such determination, either Landlord shall
refund to Tenant the amount by which the sum of all Tentative Adjustment
actually paid during such Adjustment Period exceeds the sum of all Adjustments
properly payable during such Adjustment Period, or Tenant shall pay to Landlord
the amount by which the sum of all Adjustment properly payable during such
Adjustment Period exceeds the sum of all Tentative Adjustments actually paid
during such Adjustment Period. In the event the CPI is no longer published,
Landlord and Tenant shall determine another index of similar nature showing
changes in the cost of living to be used to calculate the Adjustment due
Landlord. If Landlord and Tenant cannot agree on the selection of an index, or
if Landlord and Tenant disagree as to the computations called for in this
subparagraph (b), any disagreed matters shall then be resolved by arbitration
in the county in which the Premises are located, in accordance with the then
rules of the American Arbitration Association. The fixed Rent and any
adjustments are sometimes collectively referred to as the "Rent".

           (c) Rent for any period during the Term which is for less than one
month shall be a prorata portion of the monthly installment. Rent shall be
payable, without deduction or offset, in lawful money of the United States to
Landlord at the address stated herein or to such other persons or at such other
places as Landlord may designate in writing.

           (d) This lease is what is commonly called a "net lease", it being
understood that Landlord shall receive the Rent set forth in this paragraph free
and clear of any and all impositions, taxes, liens, charges, or expenses of any
nature whatsoever in connection with its ownership and leasing of the Premises.
In addition to the Rent provided in this paragraph, Tenant shall pay to the
parties respectively entitled thereto all impositions, taxes, insurance
premiums, operating charges, costs and expenses which arise or may be
contemplated under any provisions of this Lease during the Term. All of such
charges, costs and expenses shall constitute additional rent, and upon the
failure of Tenant to pay any of such costs, charges or expenses, Landlord shall
have the same rights and remedies as otherwise provided in this Lease for the
failure of Tenant to pay Rent. It is the intention

                                       2
<PAGE>
 
of the parties hereto that Tenant shall in no event be entitled to any abatement
of or reduction in Rent payable hereunder, except as expressly provided herein.
Any present or future law to the contrary shall not alter this agreement of the
parties.

          5.      Use
                  ---

                  (a) The Premises shall be used and occupied only for provision
of licensed skilled nursing facility services and any future programs which are
an extension of the programs contemplated by Tenant at the time of execution of
this Lease, and related office, administration and support services, and for no
other purposes without Landlord's prior written consent, which consent will not
be unreasonably withheld.

                  (b) Tenant shall, at Tenant's sole cost and expense, comply
with all present and future laws, ordinances, orders, rules, regulations and
requirements of all federal, state and municipal governments, courts,
commissions, boards, and officers, and any national or local Board of Fire
Underwriters, or any other body exercising functions similar to those of any of
the foregoing, foreseen or unforeseen, ordinary as well as extraordinary, which
may be applicable to the Premises and the sidewalk, curbs, and vaults adjoining
the Premises or to the use or manner of use of the Premises, whether or not such
law, ordinance, order, rule, regulation or requirement shall necessitate
structural changes or improvements, or the removal of any encroachments or
projections, ornamental, structural or otherwise, onto or over the streets or
sidewalks adjacent to the Premises, or onto or over other property contiguous or
adjacent thereto. Tenant shall obtain any required certificate of occupancy with
respect to its use of the Premises within thirty (30) days from the Commencement
Date and shall deliver a copy thereof to Landlord within such thirty (30) day
period. Tenant shall not use or permit the use of the Premises in any manner
that will tend to create waste or a nuisance.

                 (c) Tenant hereby accepts the Premises subject to all
applicable zoning, municipal, county and state laws, ordinances and regulation
governing and regulating the use of the Premises and subject to all liens,
claims and encumbrances currently existing against the Premises or any part
thereof, and accepts this Lease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto. Tenant acknowledges that neither
Landlord not Landlord's agents have made any representations or warranties as to
the Premises, including without limitation, any representation or warranty as to
condition or fitness of the Improvements or the suitability of the Improvements
for the conduct of Tenant's business.


                                       3
<PAGE>
 
          6.      Maintenance and Repairs
                  -----------------------

                  (a) Tenant shall, during the Term, keep in good order,
condition and repair, the Premises, (including the Improvements and any and all
alterations and additions made by Tenant pursuant to the provisions hereof),
structural or non-structural, and all adjacent sidewalks, landscaping,
driveways, parking lots, fences and signs located in the areas which are
adjacent to or included with the Premises. Landlord shall incur no expense nor
have any obligation of any kind whatsoever in connection with maintenance of the
Premises, and Tenant expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Tenant the right to make
repairs at Landlord's failure to keep the Premises in good order, condition and
repair.

          (b) On the last day of the Term, or on any sooner termination of this
Lease, Tenant shall surrender the Premises to Landlord in the same condition as
when received, broom clean, ordinary wear and tear alone excepted. Tenant shall
repair any damage to the Premises occasioned by the removal of Tenant's
alterations and improvements (including, without limitation, its trade fixtures,
furnishings and equipment) which repair shall include, without limitation, the
patching and filling of holes and repair of structural damage.

          (c) If Tenant fails to perform Tenant's obligations under this
paragraph, Landlord may at its option enter upon the Premises after ten (10)
days prior written notice to Lessee, and put the same in good order, condition
and repair, and the cost thereof together with interest thereon at the rate of
ten percent (10%) per annum shall become due and payable as additional rental to
landlord together with Tenant's next monthly Rent payment. Nothing herein shall
imply any duty upon the part of Landlord to do any such work and the performance
thereof by Landlord shall not constitute a waiver of Tenant's default in failing
to perform the same. Landlord may, during the progress of any such work in or on
the Premises, keep and store therein all necessary materials, tools, supplies
and equipment. Landlord shall not be liable for the inconvenience, annoyance,
disturbance, loss of business or other damage of Tenant by reason of making such
repairs or the performance of any such work, or on account of bringing
materials, tools, supplies or equipment into or through the Premises during the
course thereof and the obligations of Tenant under this Lease shall not be
affected thereby.

          7.      Alterations and Additions
                  -------------------------

                  (a) Tenant shall not, without Landlord's prior written
consent, make any alterations, improvements, additions, or utility installations
(which term "utility installations" shall include ducting, power panels,
fluorescent fixtures, space heaters, conduits and wiring) in, or about the
Premises, except

                                       4
<PAGE>
 
for nonstructural alterations to the Premises costing less than Twenty Five
Thousand Dollars ($25,000) in the aggregate over any one (1) year period. As a
condition to giving such consent, Landlord may require that Tenant agree to (i)
remove any such alterations, improvements, additions or utility installations at
the expiration of the Term and restore the Premises to their prior condition or,
in the alternative, (ii) require that such alterations, improvements, additions
or utility installation shall become the property of Landlord and shall be left
by Tenant upon the expiration of the Term. As a further condition to giving such
consent, Landlord may require Tenant to provide Landlord, at Tenant's sole cost
and expense, lien and completion bonds in an amount equal to one and one-half
(1-1/2) times the estimated cost of such improvements to insure Landlord against
any liability for mechanics' and materialsmen's liens and to insure completion
of the work.

                  (b) Tenant shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Tenant at or for
use on or in connection with the Premises, which claims are or may be secured by
any mechanics' or materialmen's liens against the Premises or any interest
therein. Tenant shall give Landlord not less than ten (10) days notice prior to
commencement of any work on the Premises, and Landlord shall have the right to
post notices of non-responsibility in or on the Premises as provided by law.

                  (c) Unless Landlord requires their removal as set forth in
subparagraph (a) above or otherwise consents to such removal, all alterations,
improvements, additions and utility installations which may be made on or to the
Premises shall become the property of Landlord and remain upon and be
surrendered with the Premises at the expiration of the Term. Notwithstanding the
provisions of this subparagraph (c), Tenant's machinery and equipment other
than that which is affixed to the Premises so that it cannot be removed without
material damage to the Premises, shall remain the property of Tenant and may be
removed by Tenant subject to the provisions of paragraph 8(c) above .

          8.      Insurance
                  ---------

                  (a) Tenant at its sole cost and expense, but for the mutual
benefit of Landlord and Tenant as named insureds, shall maintain comprehensive
general liability insurance on an "occurrence basis" against claims for
"personal injury", including without limitation, bodily injury, death or
property damage, occurring upon, in or about the Premises and on, in or about
the adjoining sidewalks, streets, and passageways and for all other areas
appurtenant thereto, such insurance to afford, immediate minimum protection, at
the time of the inception of this Lease, and at all times during the Term, to a
limit of not

                                       5
<PAGE>
 
less than One Million Dollars ($1,000,000) with respect to personal injury or
death to any one or more persons or to damage to property. Such insurance shall
also include coverage against liability for bodily injury or property damage
arising out of the use by or on behalf of Tenant, or any other person or
organization, of any owned, non-owned, leased or hired automotive equipment in
the conduct of any and all operations called for under this Lease. The limits of
said insurance shall not, however, limit the liability of Tenant hereunder.

                  (b) Tenant, at its sole cost and expense, shall keep the
Improvements insured during the Term for the mutual benefit of Landlord and
Tenant as named insureds, against loss or damage by fire and lightning and
against loss or damage by other risks embraced by coverage of the type now known
as the broad form of extended coverage, including but not limited to fire, riot
and civil commotion, vandalism and malicious mischief, special extended perils
(all risk) and sprinkler leakage, and against such other risks or hazards as
Landlord may from time to time reasonably designate, in amounts sufficient to
prevent Landlord or Tenant from becoming a co-insurer under the terms of the
applicable policies, but in any event in an amount not less than the full
replacement cost of the Improvements and the Personal Property, without
deduction for physical depreciation, and with not more than One Thousand Dollars
($1,000) deductible from the loss payable for any casualty. The policies of
insurance carried in accordance with this paragraph shall contain a "Replacement
Cost Endorsement". Such full replacement cost shall be determined from time to
time, but not more frequently than once in any twelve (12) consecutive calendar
months (except in the event of substantial changes or alterations to the
Improvements undertaken by Tenant as permitted hereunder) upon the written
request of Landlord by an appraiser, architect or contractor who shall be
mutually and reasonably acceptable to Landlord and Tenant. A copy of any such
determination shall promptly be sent to Landlord, and subject to the approval of
such determination by Landlord, the insurance maintained in this paragraph shall
be adjusted to the new full replacement cost. Said insurance shall provide for
payment for loss thereunder to Landlord or, at Landlord's request, to the holder
of any mortgage or deed of trust on the Premises.

                  (c) Insurance required hereunder shall be by companies rated
AAA or better in "Best Insurance Guide" licensed to do business in the state in
which the Premises are located and acceptable to Landlord and the holder of any
mortgage or deed of trust on the Premises or any part or portion thereof. Tenant
shall deliver to Landlord copies of policies of such insurance or certificates
evidencing the existence and amounts of such insurance with loss payable clauses
satisfactory to Landlord. No such policy shall be cancelable or subject to
reduction of coverage or other modification except after thirty (3) days

                                       6
<PAGE>
 
written notice to Landlord. Tenant shall, within ten (10) days of the expiration
of such policies, furnish Landlord with renewals of "binders' thereof, or
Landlord may order such insurance and charge the cost thereof to Tenant, which
amount shall be payable by Tenant upon demand. Each such policy or certificate
therefor issued by the insurer shall to the extent obtainable contain (i) a
provision that no act or omission of Tenant which would otherwise result in
forfeiture or reduction of the insurance therein provided it shall affect or
limit the obligation of the insurance company to pay the amount of any loss
sustained and (ii) an agreement by the insurer that such policy shall not be
cancelled without at least thirty (30) days prior written notice by registered
mail to Landlord. Tenant shall not do or permit to be done anything which shall
invalidate the insurance policies referred to herein. If Tenant shall fail to
procure and maintain any insurance required to be maintained by it by virtue of
any provision of this paragraph, Landlord may, but shall not be required to,
procure and maintain the same, but at the expense of Tenant.

                  (d) Landlord and Tenant each hereby waive any and all rights
of recovery against the other, or against the officers, employees, agents and
representative of the other, for loss of or damage to such waiving party, or its
property, or the property of other under its control to the extent that such
loss or damage is insured against under any insurance policy in force at the
time of such loss or damage. Tenant shall, upon obtaining the policies of
insurance required hereunder, give notice to the insurance carrier or carriers
that the foregoing mutual waiver of subrogation is contained in this Lease.

          9.      Indemnity; Exemption of Landlord from Liability
                  -----------------------------------------------

                  (a) In addition to any other obligations of Tenant hereunder,
including the obligations of Tenant to provide insurance, Tenant shall indemnify
and hold Landlord harmless from and against any and all claims arising from
Tenant's use of the Premises, or from the conduct of Tenant's business or from
any activity, work or things done, permitted or suffered by Tenant in or about
the Premises or elsewhere and shall further indemnify and hold Landlord harmless
from and against any and all claims arising from any breach or default in the
performance of any obligation on Tenant's part to the be performed under the
terms of this Lease, or arising from any negligence of Tenant, or any of
Tenant's agents, contractors, or employees, and from and against all costs,
attorneys' fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon; and in case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant, upon
notice from Landlord, shall defend the same at Tenant's expense by counsel
satisfactory to Landlord. Tenant, as a material part of the consideration to
Landlord for Landlord's

                                       7
<PAGE>
 
execution of this Lease, hereby assumes all risk of damage to property or injury
to persons in, upon or about the Premises arising from any cause and Tenant
hereby waives all claims in respect thereof against Landlord.

                  (b) In addition to any other obligation of Tenant hereunder,
including any obligation of Tenant to provide insurance, Tenant hereby agrees
that Landlord shall not be liable for injury to Tenant's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
property of Tenant, Tenant's employees, invitees, customers, or any other person
in or about the Premises, nor shall Landlord be liable for injury to the person
of Tenant or Tenant's employees, agents or contractors, whether such damage or
injury is caused by or results from fire, steam, electricity, gas, water or
rain, or from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing air conditioning or lighting fixtures,
or from any other cause, resulting from conditions arising upon the Premises, or
from other sources or places, and regardless of whether the cause of such damage
or injury or the means of repairing the same is inaccessible to Tenant.

          10.     Damage or Destruction: Obligation to Rebuild
                  --------------------------------------------

          In the event that during the Term the Improvements are damaged or
destroyed, partially or totally, from any cause whatsoever, whether or not such
damage or destruction is covered by any insurance required to be maintained
under this Lease, then Tenant shall repair, restore, and rebuild the Premises to
their condition existing immediately prior to such damage or destruction and
this Lease shall continue in full force and effect. Such repair, restoration and
rebuilding (all of which are herein called the "repair") shall be commenced
within a reasonable time after such damage or destruction and shall be
diligently prosecuted to completion. There shall be no abatement of Rent or of
any other obligation of Tenant hereunder by reason of such damage or
destruction. The proceeds of any insurance maintained under paragraph 8 hereof
shall be made available to Tenant for payment of the costs and expenses of the
repair, provided, however, that such proceeds may be made available to Tenant
subject to reasonable conditions including, but not limited to, architects'
certification of costs and retention of a percentage of such proceeds pending
final notice of completion. Landlord may require that Tenant provide, at
Tenant's sole costs and expense, lien and completion bonds in an amount equal to
one and one-half (1-1/2) times the estimated cost of repairs to insure against
mechanics' or materialmen's liens arising out of the repair and to insure
completion of the repair. In the event that the insurance proceeds are
insufficient to cover the cost of the repair, then any amount in excess thereof
required to complete the repair shall be paid by Tenant.

                                       8
<PAGE>
 
          11.     Property Taxes
                  --------------

                  (a) Tenant shall pay all "Property Taxes" (as defined below)
applicable to the Premises during the Term. Each payment shall be made at least
ten (10) days prior to the delinquency date of such payment; provided, however,
that if in connection with any financing obtained by Landlord on the Premises or
any portion thereof, Landlord is required to pay into an impound account any
sums due as Property taxes, then Tenant shall pay such sums to Landlord in
satisfaction of Tenant's obligation to pay such sums due as Property taxes as
additional rent and without deduction or offset on or before the first day of
each and every month during which said sums are required to be impounded. Tenant
shall promptly furnish Landlord with evidence satisfactory to Landlord that
Property taxes have been paid. If any Property Taxes due with respect to the
Premises shall cover any period of time prior to or after the expiration of the
Term, Tenant's share of such Property Taxes shall be equitably prorated to cover
only the period of time within the tax fiscal year during which this Lease shall
be in effect. If Tenant shall fail to pay any Property Taxes, Landlord shall
have the right, but not the obligation, to pay the same, in which case Tenant
shall repay such amount to Landlord with Tenant's next Rent installment.

                  (b) As used herein, the term "Property Taxes" shall include
any form of general or special assessment, license fee, commercial rental tax,
levy, penalty, or tax (other than inheritance or estate taxes) imposed by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, lighting,
drainage or other improvement district, or any part of part thereof, or against
any legal or equitable interest of Landlord's right to rent or other income
therefrom (but exclusive of taxes levied on or computed by reference to
Landlord's net income as a whole), or against Landlord's business of leasing the
Premises, it being the intention of the parties hereto that the Rent to be paid
hereunder shall be paid to Landlord absolutely net, without deduction of any
nature whatsoever, foreseeable or unforeseeable.

                  (c) If the Premises are not separately assessed, Tenant's
liability shall be an equitable proportion of the Property Taxes for all of the
land and improvements included within the tax parcel assessed, such proportion
to be determined by Landlord from the respective valuations assigned in the
assessor's work sheet or such other information as may be reasonably available.
Landlord's reasonably determination thereof, in good faith, shall be conclusive.

                  (d) Tenant shall pay prior to delinquency all taxes assessed
against the levied upon trade fixtures, furnishings,

                                       9
<PAGE>
 
equipment and all other personal property of Tenant contained on the Premises or
elsewhere. When possible, Tenant shall cause such trade fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the Premises.

                  (e) As between the parties hereto, Tenant alone shall have
the duty of attending to, making or filing any declaration, statement or report
which may be provided or required by law as the basis of or in connection with
the determination, equalization, reduction or payment of any Property Taxes
which are to be borne or paid or which may become payable by Tenant under the
provisions of this paragraph and Landlord shall not be or become responsible to
Tenant therefor, nor for the contents of any such declaration, statement or
report.

          12.     Condemnation
                  ------------

                  (a) If the Premises or any portion there of is taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs (the "Condemnation Date") and the Rent shall
be reduced (as of the Condemnation Date) as provided below. If (i) more than ten
percent (10%) of the floor area of any building comprising the Improvements or
more than twenty-five percent (25%) of the land area of the Property which is
not occupied by any such building is taken by condemnation, and (ii) as a result
of such taking by condemnation the balance of the Premises remaining after such
condemnation is not reasonably suitable for the use to which the Premises were
being put immediately prior to the condemnation, Landlord or Tenant may, at
either's option, to be exercised in writing only within ten (10) days after
Landlord shall have given Tenant written notice of such taking (or in the
absence of such notice, within ten (10) days of the Condemnation Date) terminate
this Lease as of the Condemnation Date. If Landlord or Tenant does not terminate
this Lease in accordance with the foregoing, or in the event that that portion
of the Premises taken by condemnation is not sufficiently large so as to give
rise to the right to terminate this Lease as above provided, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Fixed Rent shall be reduced (as of the Condemnation Date) in the
proportion that the area taken by condemnation bears to the total area of the
Premises.

                  (b) Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Landlord, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the

                                      10
<PAGE>
 
fee, or as severance damages, provided, however, that Lessee shall be entitled
to any award specifically attributed by the condemning authority to loss or
damage to Tenant's trade fixtures and removable personal property. In the event
that this Lease is not terminated by reason of such condemnation, Landlord
shall, to the extent of severance damages received by Landlord in connection
with such condemnation, repair any damage to the Premises caused by such
condemnation except to the extent that Tenant has been reimbursed therefor by
the condemning authority (in which event such reimbursement to Tenant shall also
be applied to such repair). Tenant shall pay any amount in excess of such
severance damages required to complete such repair.

                (c)   If the temporary use of the whole or any part of the
Premises shall be taken by condemnation, the Term shall not be reduced or
affected in any way, and Tenant in such event shall continue to pay in full the
rent and other charges herein reserved, without reduction or abatement, and
except to the extent that Tenant is prevented from so doing by reason of any
order of the condemning authority, shall continue to perform and observe all of
the other covenants, conditions and agreements of this Lease to be performed or
observed by Tenant as though such taking had not occurred. In the event of any
such temporary condemnation Tenant shall, so long as it is otherwise in
compliance with the provisions of this Lease, be entitled to receive for itself
any and all awards or payments made of such use of that portion of the Premises
so taken, provided, however, that Tenant shall repair any and all damages to the
Premises (whether or not covered by any award to Tenant) caused by such
temporary condemnation.

          13.   Utilities
                ---------

          Tenant shall pay for all water, gas, heat, light, power, telephone and
other utilities and services supplied to the Premises, together with any taxes
thereon. If any such services supplied to the Premises are not separately
metered by Tenant, Tenant shall pay a reasonable proportion to be determined by
Landlord of all charges jointly metered with other premises, and Landlord's
determination thereof, in good faith, shall be conclusive.

          14.   Assignment and Subletting
                -------------------------

                (a)   Tenant shall not voluntarily or by operation of law
assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any
part of Tenant's interest in this Lease or in the Premises without Landlord's
prior written consent, which Landlord shall not unreasonably withhold. Landlord
may withhold its consent to such assignment, transfer, mortgage, subletting or
other transfer or encumbrance pursuant to the preceding sentence for reasons
including, without limitation, the financial

                                      11
<PAGE>
 
condition of the proposed assignee or transferee. Any attempted assignment,
transfer, mortgage, subletting or encumbrance without such consent shall be
void, and shall constitute a breach of this Lease. The consent of Landlord to
any one assignment, transfer, mortgage, subletting, or encumbrance shall not be
deemed to be a consent to any subsequent assignment, transfer, mortgage,
subletting, or encumbrance. The transfer of more than twenty-five percent (25%)
of the stock or other ownership interest in Tenant, or the merger or
consolidation of Tenant with or into another firm or entity, shall be deemed to
be a transfer of Tenant's interest under this Lease and shall be subject to the
provisions of this subparagraph (a).

                   (b) Regardless of Landlord's consent, no subletting or
assignment shall alter the primary liability of Tenant to pay the rent or
release Tenant of Tenant's obligation to perform all other obligations to be
performed by Tenant hereunder unless Landlord's written consent shall so
specifically provide, and Landlord under no circumstances shall be obligated to
release Tenant from any such liability. The acceptance of rent by Landlord from
any other person shall not be deemed to be a waiver by Landlord of any
provisions hereof.

                   (c) In the event that Landlord shall consent to a sublease or
assignment under subparagraph (a) above, Tenant shall pay Landlord's reasonable
attorneys' fees not to exceed Five Hundred Dollars ($500) incurred in connection
with the giving of such consent.

          15.      Default; Remedies
                   -----------------
                   (a) Defaults. The occurrence of any one or more of the
                       --------
following events shall constitute a default and breach of this Lease by Tenant:

                       (i)  The vacating or abandonment of the Premises by
Tenant;

                       (ii) The failure by Tenant to make any payment of Rent or
any other payment required to be made by Tenant hereunder, as and when due,
where such failure shall continue for a period of three (3) days after written
notice thereof from Landlord to Tenant;

                       (iii) The failure by Tenant to observe or perform any of
the covenants, conditions or provisions of this Lease to be observed or
performed by Tenant, other than described in subparagraph (ii) above, where such
failure shall continue for a period of ten (10) days after written notice hereof
from Landlord to Tenant; provided, however, that if the nature of Tenant's
default is such that it is capable of being cured but more than ten (10) days
are reasonably required for its cure, then Tenant

                                      12
<PAGE>
 
shall not be deemed to be in default if Tenant commences such cure within such
ten (10) day period and thereafter diligently prosecuted such cure to
completion; or

                   (iv)  The making by Tenant of any general assignment for the
benefit of creditors; the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or of a petition for liquidation or reorganization or
rehabilitation or arrangement or rearrangement under any law relating to
bankruptcy whether now existing or hereafter enacted (including, without
limitation, any petition filed by or against Tenant under any one or more of the
following Chapters of the Federal Bankruptcy Act: Chapters 1-6 or Chapter 10 or
Chapter 11 or Chapter 12 or Chapter 13); the adjudication of Tenant as a
bankrupt or insolvent; the appointment of a trustee or receiver to take
possession of all or substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where possession is not restored
to Tenant within twenty (20) days; the attachment, execution or other judicial
seizure of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where such seizure is not discharged within
twenty (20) days. Unless Landlord's express written consent thereto is first
obtained, in no event shall this Lease, or any interest herein or hereunder or
any estate created hereby, be assigned or assignable by operation of law or by,
in or under voluntary or involuntary bankruptcy or insolvency or reorganization
proceeding or otherwise and in no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy or insolvency or
reorganization proceedings. Any purported assignment or transfer in violation of
the provisions of this subparagraph (iv) shall constitute a default and breach
of this Lease by Tenant and in connection with any such default and breach
Landlord shall have the rights and remedies described in subparagraph (b) below,
including, without limitation, the election to terminate this Lease. As used in
this subparagraph (iv), the words "bankruptcy or insolvency or reorganization
proceedings" shall include any proceedings under any law relating to bankruptcy
whether now existing or hereinafter enacted (including, without limitation,
proceedings under any one or more of the following Chapters of the Federal
Bankruptcy Act: Chapters 1-6 or Chapter 10 or Chapter 11 or Chapter 12 or
Chapter 13).

              (b)  Remedies
                   --------

                   (i)   In the event of any default and Breach by Tenant of any
of its obligations under this Lease and notwithstanding the vacation or
abandonment of the Premises by Tenant, this Lease shall continue in effect so
long as Landlord does not expressly terminate Tenant's right to possession in
any of the manners specified in this paragraph and Landlord may, at Landlord's
option and without limiting Landlord in the exercise of any other rights or
remedies which it may have by reason of

                                      13
<PAGE>
 
such default and breach, exercise all of its rights and remedies hereunder,
including, without limitation:

                   (A) The right to declare the Term ended and to re-enter the
Premises and take possession thereof and remove all persons therefrom, and
Tenant shall have no further claim in or to the Premises or under this Lease; or

                   (B) The right without declaring this Lease ended to re-enter
the Premises, take possession thereof, remove all persons therefrom and occupy
or lease the whole or any part thereof for and on account of Tenant and upon
such terms and conditions and for such rent as Landlord may deem proper and to
collect such rent or any other rent that may hereafter become payable and apply
the same as provided in subparagraph (ii) below; or

                   (C) The right, even though Landlord may have relet the
Premises or brought an action to collect Rent and other charges without
terminating this Lease, to thereafter elect to terminate this Lease and all of
the rights of Tenant in or to the Premises.

        (ii)    Should Landlord relet the Premises under the provisions of
subparagraph (b) (i) (B) above, Landlord may execute any lease either in its own
name or in the name of Tenant, but tenant hereunder shall have no right or
authority whatever to collect any rent from the new tenant. The proceeds of any
such reletting shall first be applied to the payment of the costs and expenses
of relating the Premises, including without limitation, reasonable brokerage
commissions and alterations and repairs which Landlord, in its sole discretion,
deems unreasonably necessary and advisable and to the payment of reasonable
attorneys' fees incurred by Landlord in connection with the retaking of the
Premises and such relating and, second, to the payment of any indebtedness,
other than Rent, due hereunder including, without limitation, storage charges
owing from Tenant to Landlord. When such costs and expenses of reletting have
been paid, and if there is no such indebtedness or such indebtedness has been
paid, Tenant shall be entitled to a credit for the net amount of rental received
from such reletting each month during the unexpired balance of the Term, and
Tenant shall pay Landlord monthly on the first day of each month as specified
herein such sums as may be required to make up the rentals provided for in this
Lease. Nothing contained herein shall be construed as obligating Landlord to
relet the whole or any part of the Premises.

        (iii)   Should Landlord elect to terminate this Lease under the
Provisions of subparagraphs (b) (i) (A) or (C) above, Landlord shall be entitled
to recover immediately from Tenant (in addition to any other amounts recoverable
by Landlord as provided

                                      14
<PAGE>
 
by law), the following amounts:

                   (A) The worth at the time of award of the unpaid rent which
had been earned at the time of termination;

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

                   (C) The worth at the time of award of the amount by which the
unpaid rent for the balance of the Term after the time of award exceeds the
amounts of such rental loss that Tenant proves could be reasonably avoided; and

                   (D) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under the Lease or which in the ordinary course of things would be likely to
result therefrom.

                       For purposes of computing "the worth at the time of the
award" of the amount specified in subparagraph (b) (iii) (C) above, such amount
shall be discounted at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award. For purposes of computing "the worth at the time
of the award" under subparagraph (b) (iii) (A) and (b) (iii) (B) above, an
interest rate of ten percent (10%) per annum shall be utilized.

             (iv)  If Landlord shall elect to re-enter the Premises as provided
above, Landlord shall not be liable for damages by reason of any re-entry.
Tenant hereby waives all claims and demands against Landlord for damages or loss
arising out of or in connection with any reentering and taking possession of the
Premises and waives all claims for damages or loss arising out of or in
connection with any destruction of or damage to the Premises, or for any loss of
property belonging to Tenant or to any other person, firm or corporation which
may be in or upon the Premises at the time of such re-entry.

             (v)   Landlord shall not be deemed to have terminated this Lease,
Tenant's right to possession of the Premises or the liability of Tenant to pay
Rent thereafter to accrue or its liability for damages under any of the
provisions hereof by any re-entry hereunder or by any action in unlawful
detainer or otherwise to obtain possession of the Premises, unless Landlord
shall notify Tenant in writing that Landlord has so elected to terminate this
Lease. Tenant agrees that the service by Landlord of any notice pursuant to the
unlawful detainer statutes or comparable statutes of the state or locality in
which the

                                      15
<PAGE>
 
Premises are located and the surrender of possession pursuant to such notice
shall not (unless Landlord elects to the contrary at the time of or at any time
subsequent to the service of such notice and such election shall be evidenced by
a written notice to Tenant) be deemed to be a termination of this Lease or of
Tenant's obligations hereunder. No re-entry or reletting under this paragraph
shall be deemed to constitute a surrender or termination of this Lease, or of
any of the rights, options, elections, powers and remedies reserved by Landlord
hereunder, or a release of Tenant from any of its obligations hereunder, unless
landlord shall specifically notify Tenant, in writing, to that effect. No such
reletting shall preclude Landlord from thereafter at any time terminating this
Lease as herein provided.

                   (vi)     All fixtures, furnishings, goods, equipment,
chattels or other personal property of Lessee remaining on the Premises at the
time that Landlord takes possession thereof may at Landlord's election be stored
at Tenant's expense or sold or otherwise disposed of by Landlord in any manner
permitted by applicable law.

                   (vii)    All rights, options, elections, powers and remedies
of Landlord under the provisions of this Lease are cumulative of each other and
of every other right, option, election, power or remedy which Landlord may
otherwise have at law or in equity and all or any of which Landlord is hereby
authorized to exercise. The exercise of one or more rights, options, elections,
powers or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies Landlord may have under this Lease and
shall not be deemed to be a waiver of Landlord's rights or remedies thereupon or
to be release of Tenant from Tenant's obligations thereon unless such waiver or
release is expressed in writing and signed by Landlord.

                   (viii)   In the event of the exercise by Landlord of any one
or more of its rights and remedies hereunder, Tenant hereby expressly waives any
and all rights of redemption, if any, granted by or under any present or future
laws.

             (c)   Defaults by Landlord Landlord shall not be in default under
                   --------------------
this Lease unless Landlord fails to perform obligations required of Landlord
within a reasonable time, but in no event later than ten (10) days after written
notice by Tenant to Landlord and to the holder of any first mortgage or deed of
trust covering the Premises whose name and address shall have theretofore been
furnished to Tenant in writing, specifying wherein Landlord has failed to
perform such obligation; provide, however, that if the nature of Landlord's
obligation is such that more than ten (10) days are required for performance,
then Landlord shall not be in default if Landlord commences performance within
such ten (10) day period and thereafter

                                      16
<PAGE>
 
diligently prosecutes the same to completion.

           (d)   Late Charges Tenant hereby acknowledges that late payment
                 ------------
by Tenant to Landlord of Rent and other sums due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of Rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within ten (10) days after
such amount shall be due, Tenant shall pay to Landlord a late charge equal to
ten percent (10%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.


     16.   Miscellaneous
           -------------

           (a)   Estoppel Certificate
                 --------------------

                 (i)   Tenant shall at any time upon not less than ten (10) days
prior written notice from Landlord execute, acknowledge, and deliver to Landlord
a statement in writing certifying that this Lease is unmodified and is in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and
acknowledging that there are not, to Tenant's knowledge, any unsecured defaults
on the part of Landlord hereunder, or specifying such defaults if any are
claimed. Any such statement may be conclusively relied upon by any person to
whom it shall be delivered by Landlord including any prospective purchaser or
encumbrancer of the Premises or any part thereof.

                 (ii)  Tenant's failure to deliver such statement within such
time shall be conclusive upon Tenant that this Lease is in full force and
effect, without modification, except as may be represented by Landlord; that
there are no uncured defaults in Landlord's performance; and that not more than
one month's Rent has been paid in advance.

                 (iii) If Landlord desires to finance or refinance the Premises,
or any part thereof, Tenant hereby agrees to deliver to any lender designated by
Landlord such financial

                                      17
<PAGE>
 
statements of Tenant as may be reasonably required by such lender. Such
statements shall include the past thee years financial statements of Tenant. All
such financial statements shall be received by Landlord in confidence and shall
be used only for the purposes herein set forth.

                   (b) Landlord's Liability The term "Landlord" as used herein
                       --------------------
shall mean only the owner or owners at the time in question of the fee title (or
the lessee's interest in any ground or master lease) to the Premises and in the
event of any transfer of such title, Landlord herein named (and in case of any
subsequent transfers, the then grantor) shall be relieved from and after the
date of such transfer of all liability as respects Landlord's obligations
thereafter to be performed, provided that any funds in the hands of Landlord or
the then grantor at the time of such transfer in which Tenant has an interest
shall be delivered to the grantee. The obligation contained in this Lease to be
performed by Landlord shall, subject as aforesaid, be binding on Landlord's
successors and assigns only during their respective period of ownership.

                   (c) Construction Paragraph captions are solely for the
                       ------------
convenience of the parties and shall not be deemed to or be used to define,
construe, or limit the terms hereof. As used in this Lease, the masculine,
feminine and neuter gender shall be deemed to include the others, and the
singular number shall be deemed to include the plural, whenever the context so
requires. The invalidity of any provision of this Lease as determined by a court
of competent jurisdiction shall in no way affect the validity of any other
provision hereof. This Lease shall be governed by the laws of the state in which
the Premises are located.

                   (d) Interest on Past-due Obligations Except as expressly
                       --------------------------------
herein provided, any amount due to Landlord not paid when due shall bear
interest at the lesser of (i) ten percent (10%) per annum or (ii) the maximum
rate permitted by law, from the date due until the date such amount is paid.
Payment of such interest shall not excuse or cure any default by Tenant under
this Lease.

                   (e) Time of Essence Time is of the essence of this Lease and
                       ---------------
all of the covenants and obligations hereof.

                   (f) Counterparts This Lease may be executed in two or more
                       ------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same Lease.

                   (g) Incorporation of Prior Agreements: Amendments
                       ---------------------------------------------
                   This Lease contains all agreements of the parties with

                                      18
<PAGE>
 
respect to any matter mentioned herein. No prior agreement or understanding
pertaining to any such matter shall be effective. This Lease may be modified in
writing only, signed by the parties in interest at the time of the modification.

                   (h) Notices Any notices, approvals, agreements, certificates,
                       -------
other documents or communications between the parties hereto required or
permitted under this Lease shall be in writing. Any such communication shall be
deemed to have been duly given or served if delivered in hand or forty-eight
(48) hours after deposit in the United States mail, certified or registered,
postage and fees prepaid, return receipt requested, addressed to the parties as
follows:

                               Landlord:        Sierra Land Group, Inc.
                                                620 N. Brand Blvd.
                                                Glendale, CA 91203
                                                Attn:   Chief Executive Officer

                               Tenant:          Summit Care Corporation
                                                2600 W. Magnolia Blvd.
                                                Burbank, CA 91505
                                                Attn:   Chief Executive Officer

                   The address to which any such communications shall be sent
may be changed by either party hereto from time to time by a written notice
mailed as aforesaid.

                   (i) Waivers No waiver by Landlord of any provision hereof
                       -------
shall be deemed a waiver of any other provision hereof or of any subsequent
breach by Tenant of the same or any other provisions. Landlord's consent to or
approval of any act shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act by Tenant. The
acceptance of Rent hereunder by Landlord shall not be a waiver of any preceding
breach by Tenant of any provision hereof, other than the failure of Tenant to
pay the particular Rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Rent.

                   (j) Recording Tenant shall not record this Lease without
                       ---------
Landlord's prior written consent and such recordation shall, at the option of
Landlord, constitute a non-curable default of Tenant hereunder. Landlord and
Tenant shall, upon the request of either party, execute, acknowledge, and
deliver to the other a "short form" memorandum of lease for recording purposes.

                   (k) Holding Over If Tenant remains in possession of the
                       ------------
Premises or any part thereof after the expiration of the Term or sooner
termination of this Lease without the express written

                                      19
<PAGE>
 
consent of Landlord, such occupancy shall be a tenancy from month to month at a
rental equal to one hundred twenty percent (120%) of the last monthly Rent plus
all other charges payable hereunder, and upon all the terms hereof applicable to
a month-to-month tenancy.

                   (1) Covenants and Conditions Each provision of this Lease
                       ------------------------  
performable by Tenant shall be deemed both a covenant and a condition.

                   (m) Binding Effect Subject to any provisions hereof
                       --------------
restricting assignment or subletting by Tenant and subject to the provisions of
subparagraph (b) above, this Lease shall bind the parties and their personal
representatives, successors and assigns.

                   (n) Subordination
                       -------------

                       (i)  This Lease, at Landlord's option, shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation for security now or hereafter placed upon the Premises, the
Property or the Improvements, or any part or parts thereof; and to any and all
advances made on the security thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof. If any present or future
mortgagee, trustee or ground lessor shall at any time elect to have this Lease
prior to the lien of its mortgage, deed of trust or ground lease, and written
notice of such election shall be given to Tenant, this Lease shall be deemed
prior to such mortgage, deed of trust, or ground lease, whether this Lease is
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof.

                       (ii) Tenant agrees to execute any documents required to
effectuate such subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be, and failing to do
so within ten (10) days after written demand, does hereby make, constitute and
irrevocably appoint Landlord as Tenant's attorney in fact and in Tenant's name,
place and stead, to do so.

                   (o) Attorneys' Fees If either party brings an action to
                       --------------- 
enforce the terms hereof or declare rights under this Lease, the prevailing
party in the final adjudication or any such action, on trial or appeal, shall be
entitled to its costs and expenses of suit, including, without limitation, its
actual attorneys fees, to be paid by the losing party as fixed by the court.

                   (p) Landlord's Access Landlord and Landlord's agents shall
                       -----------------
have the right to enter the Premises at reasonable times for the purpose of
inspecting the same, showing the same to

                                      20
<PAGE>
 
prospective purchasers or lenders, and making such alterations, repairs,
improvements or additions to the Premises or the Improvements as Landlord may
deem necessary or desirable. Landlord may at any time place on or about the
Premises any ordinary "For Sale" signs and Landlord may at any time during the
last One Hundred Twenty (120) days of the term place on or about the Premises
any ordinary "For Lease" signs, all without rebate of rent or liability to
Tenant.

                   (q) Signs and Auctions Tenant shall not place any sign upon
                       ------------------
the Premises or conduct any auction thereon without Landlord's prior written
consent. Further, Tenant shall erect an exterior, identifying sign in form and
substance satisfactory to Landlord.

                   (r) Merger The voluntary or other surrender of this Lease by
                       ------ 
Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at
the option of Landlord, terminate all or any existing subtenancies or may, at
the option of Landlord, operate as an assignment to Landlord of any or all of
such subtenancies.

                   (s) Joint and Several Liability Each party signing this Lease
                       ---------------------------
as Tenant shall be jointly and severally liable for the failure on the part of
Tenant to pay any sums due under the terms of this Lease or for the breach by
Tenant or any of the covenants or obligations of Tenant contained herein.

                   IN WITNESS WHEREOF, the undersigned have executed this Lease
as of the date and year first above written.

                                                       LANDLORD

                                              SIERRA LAND GROUP, INC.
                                              a California corporation

                                              By:
                                                 ------------------------
                                                       Don Freeberg
                                                   Chief Executive Officer
                                                   and President

                                                          TENANT

                                              SUMMIT CARE CORPORATION
                                              a California corporation

                                              By:
                                                 ------------------------


                                      21