<PAGE>

                                                                   Exhibit 10.20

                               GUARANTY AGREEMENT


         THIS GUARANTY AGREEMENT (this "Agreement") is made this    day of
February, 2002, by ARV ASSISTED LIVING, INC., a Delaware corporation
("Guarantor"), to and for the benefit of RED MORTGAGE CAPITAL, INC., an Ohio
corporation ("Lender").

                                    RECITALS

         WHEREAS, Lender has previously made a loan (the "Loan") to Retirement
Inns III, LLC, a Delaware limited liability company ("Borrower"), in the
principal sum of Eight Million Two Hundred Nine Thousand Nine Hundred Dollars
($8,209,900) evidenced by that certain Multifamily Note dated June 27, 1999,
issued by Borrower to the order of Lender (the "Original Note"), as amended by
that certain First Amendment to Multifamily Note dated December 28, 2000 between
Borrower and Lender (the "First Amendment to Note" and together with the
Original Note, the "Existing Note"), as further amended by that certain Second
Amendment to Multifamily Note dated as of even date herewith between Borrower
and Lender (the "Second Amendment to Note") (the Original Note, as amended by
the First Amendment to Note and the Second Amendment to Note, is herein called
the "Note"), secured in part, by that certain Multifamily Deed of Trust,
Assignment of Rents, Security Agreement and Fixture Filing dated as of June 27,
1999 by the Borrower for the benefit of Lender (the "Original Deed of Trust"),
recorded among the Official Records of Ventura County, California (the "Land
Records") on June 28, 1999 as Instrument No. 99-122405, as amended by that
certain Amendment to Multifamily Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing dated as of August 31, 1999 between Borrower and
Lender (the "First Amendment to Deed of Trust"), recorded among the Land Records
on September 10, 1999 as Instrument No. 99-173435, as affected by that certain
Confirmatory Assignment of Multifamily Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing dated as of December 12, 2000, effective
as of October 2, 2000, by Banc One Capital Funding Corporation, an Ohio
corporation to Provident Mortgage Capital, Inc., now known as Red Mortgage
Capital, Inc. (the "Confirmatory Assignment", and together with the Original
Deed of Trust and the First Amendment to Deed of Trust, the "Existing Deed of
Trust"), recorded among the Land Records on January 31, 2001 as Instrument No.
2001-0018605-00, as further amended by that certain Second Amendment to
Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing dated as of even date herewith between Borrower and Lender (the "Second
Amendment to Deed of Trust"), recorded among the Land Records simultaneously
with the execution of this Agreement (the Existing Deed of Trust, as amended by
the Second Amendment to Deed of Trust, is herein called the "Deed of Trust");
and

         WHEREAS, Borrower has requested and Lender has agreed pursuant to the
terms and conditions of that certain Master Modification Agreement dated as of
the date

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hereof by and among the Borrower, the Lender and the Guarantor (the
"Modification Agreement") to (i) increase the principal sum of the Loan to
$11,980,000 (the "Increase"), (ii) extend the Maturity Date (as defined in the
Existing Note) of the Loan to July 1, 2003 (the "Extension") and (iii) change
the interest rate of the Loan to 8.50% (the "Rate Change"); and

         WHEREAS, Guarantor is the parent company of Borrower and has obtained
material benefits from the Loan and will obtain material benefits from the Loan
as increased, extended and otherwise amended pursuant to the Modification
Agreement; and

         WHEREAS, Lender has required that Guarantor guaranty a portion of the
Loan pursuant to the terms of this Agreement as a condition to agreeing to the
Increase, the Extension and the Rate Change, and entering into the Modification
Agreement.

         NOW, THEREFORE, in consideration of the premises, the mutual entry of
the Modification Agreement by the parties thereto, the Increase, the Extension,
the Rate Change and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Guarantor and Lender hereby agree
as follows:

                                    ARTICLE I

                      DEFINITIONS AND RULES OF CONSTRUCTION

         SECTION 1.1. Definitions. All capitalized terms which are not
specifically defined in this Agreement shall have the meanings assigned to such
terms in the Deed of Trust. In addition, the terms defined in the Preamble and
Recitals hereto and elsewhere herein shall have the respective meanings
specified therein or elsewhere herein, and the following terms shall have the
following meanings:

         "ARVP III" means American Retirement Villas Properties III, L.P., a
California limited partnership.

         "ARVP III Pledge Agreement" means that certain American Retirement
Villas Properties III, L.P. Partnership Interest Pledge Agreement dated as of
the date hereof by Guarantor to and for the benefit of Lender.

         "Cash Collateral Agreement" means that certain Cash Collateral Pledge
Agreement dated as of the date hereof by Borrower for the benefit of Lender.

         "Collateral" means (a) (i) the partnership unit certificates of ARV
PIII and SGRV now owned or in the future acquired by Guarantor, (ii) any (if
any) certificates representing or evidencing the partnership units of ARVP III
and SGRV owned by Guarantor, (iii) any and all other property which may be
delivered to or held by Lender pursuant to the provisions of the ARV PIII Pledge
Agreement and the SGRV Pledge Agreement, and (iv) subject to the provisions of
the ARV PIII Pledge Agreement and the SGRV Pledge Agreement, all payments of
principal or interest, distributions, dividends,


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cash, income, profits instruments, securities and other property from time to
time received, receivable or otherwise distributed in respect of, in exchange
for or upon conversion of, the partnership units of ARV PIII and SGRV owned by
Guarantor, and (v) subject to the provisions of the ARV PIII Pledge Agreement
and the SGRV Pledge Agreement, any and all voting and other rights, powers and
privileges accruing or incidental to an owner of the partnership units of ARV
PIII or SGRV and the other property referred to in clauses (i) through (iv); and
(b) all cash and non-cash proceeds and products of the portion of the Collateral
described in clause (a) above.

         "Enforcement Costs" means any and all funds, costs, expenses and
charges of any nature whatsoever (including, without limitation, attorney's fees
and expenses) advanced, paid or incurred by or on behalf of Lender under or in
connection with the administration or enforcement of this Agreement, including,
without limitation, (a) the compliance of Guarantor with any covenant, warranty,
representation or agreement of Guarantor made in or pursuant to this Agreement
or any of the other Loan Documents, and (b) the exercise, preservation,
maintenance, protection, operation, management, enforcement, collection, sale or
other disposition of, or realization upon, this Agreement, all or any part of
the Collateral and the rights and remedies of Lender hereunder, under applicable
law and otherwise.

         "Event of Default" has the meaning set forth in Article V.

         "Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity or person exercising
applicable executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, administration, official, service or
other instrumentality of the United States of America, of any state within the
United States of America, of any territory or possession of the United States of
America, of the District of Columbia, of any municipality within the United
States of America, or of any other governmental entity.

         "Lien" means any interest in property securing any obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the lien, encumbrance, pledge, or security interest arising from a
deed of trust, mortgage, encumbrance, pledge, security agreement, conditional
sale or trust receipt or a lease, consignment or bailment for security purposes.

         "Loan Documents" shall have the meaning set forth in the Modification
Agreement.

         "Obligations" means collectively and includes (i) all present and
future liabilities and obligations of any kind and nature whatsoever of Borrower
to Lender both now existing and hereafter arising under, as a result of, on
account of, or in connection with, the Loan, (ii) the Note and any extensions,
renewals or replacements thereof, amendments thereto and restatements or
modifications thereof made at any time or from time to time hereafter, and/or
(iii) the other Loan Documents, including, without


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limitation, future advances, principal, interest, indemnities, fees, late
charges, enforcement costs and other costs and expenses, whether direct,
contingent joint, several, joint and several, matured or unmatured, and (iv) any
other financing or other financial arrangement provided by Lender to Borrower.
In addition, Obligations shall include all Enforcement Costs hereunder.

         "Person" or "person" means and includes an individual, a company, a
corporation, a partnership, a joint venture, a trust, an unincorporated
association, a Governmental Authority or any other entity.

         "SGRV" means San Gabriel Retirement Villa, L.P., a California limited
partnership.

         "SGRV Pledge Agreement" means that certain San Gabriel Retirement Villa
Partnership Interest Pledge Agreement dated as of the date hereof by Guarantor
to and for the benefit of Lender.

         "UCC" means the Uniform Commercial Code as in effect in the State of
California.

         SECTION 1.2. Rules of Construction. Unless otherwise defined herein and
unless the context otherwise requires, all terms used herein which are defined
by the UCC shall have the same meanings assigned to them by the UCC unless and
to the extent varied by this Agreement. The words "hereof", "herein", and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and section, subsection, schedule, and exhibit references are
references to sections or subsections of, or schedules or exhibits to, as the
case may be, this Agreement unless otherwise specified. As used herein, the
singular number shall include the plural, the plural the singular, and the use
of the masculine, feminine or neuter gender shall include all genders, as the
context may require.


                                   ARTICLE II

                                  THE GUARANTY

         SECTION 2.1. The Guaranty. Guarantor absolutely, unconditionally and
irrevocably guarantees to Lender the due and punctual payment in full (and not
merely the collectibility) of the Obligations; provided, however, that absent
fraud or willful misconduct on behalf of Guarantor, Lender's sole right of
recourse against Guarantor shall be against the Collateral in an amount not to
exceed $1,000,000. The guaranty of Guarantor under this Agreement is a guaranty
of payment and performance and not merely of collection or enforceability and
shall remain in full force and effect until all of the Obligations are
indefeasibly paid in full. Guarantor agrees that:


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              (a) The obligations of Guarantor under this Agreement shall be
              performed without demand by Lender and shall be unconditional
              irrespective of the genuineness, validity, regularity or
              enforceability of the Note, or any other Loan Document, and
              without regard to any other circumstance which might otherwise
              constitute a legal or equitable discharge of a surety or a
              guarantor. Guarantor hereby waives any and all benefits and
              defenses under California Civil Code Section 2810 and agrees that
              by doing so Guarantor shall be liable even if Borrower had no
              liability at the time of execution of the Note or any other Loan
              Document, or thereafter ceases to be liable. Guarantor hereby
              waives any and all benefits and defenses under California Civil
              Code Section 2809 and agrees that by doing so Guarantor's
              liability may be larger in amount and more burdensome than that of
              Borrower. Guarantor hereby waives the benefit of all principles or
              provisions of law, statutory or otherwise, which are or might be
              in conflict with the terms of this Agreement and agrees that
              Guarantor's obligations shall not be affected by any
              circumstances, whether or not referred to in this Agreement, which
              might otherwise constitute a legal or equitable discharge of a
              surety or a guarantor. Guarantor hereby waives the benefits of any
              right of discharge under any and all statutes or other laws
              relating to guarantors or sureties and any other rights of
              sureties and guarantors thereunder. Without limiting the
              generality of the foregoing, Guarantor hereby waives, to the
              fullest extent permitted by law, diligence in collecting the
              Obligations, presentment, demand for payment, protest, all notices
              with respect to the Note and this Agreement which may be required
              by statute, rule of law or otherwise to preserve Lender's rights
              against Guarantor under this Agreement, including notice of
              acceptance, notice of any amendment of the Loan Documents, notice
              of the occurrence of any default or Event of Default, notice of
              intent to accelerate, notice of acceleration, notice of dishonor,
              notice of foreclosure, notice of protest, and notice of the
              incurring by Borrower of any obligation or indebtedness. Guarantor
              also waives, to the fullest extent permitted by law, all rights to
              require Lender to (i) proceed against Borrower, (ii) if Borrower
              is a partnership, proceed against any general partner of Borrower,
              (iii) proceed against or exhaust any collateral held by Lender to
              secure the repayment of the Obligations, or (iv) pursue any other
              remedy it may now or hereafter have against Borrower, or, if
              Borrower is a partnership, any general partner of Borrower,
              including any and all benefits under California Civil Code
              Sections 2845, 2849 and 2850.

              (b) Guarantor understands that the exercise by Lender of certain
              rights and remedies afforded Lender in other Loan Documents may
              affect or eliminate Guarantor's right of subrogation against
              Borrower and that Guarantor may therefore incur a partially or
              totally nonreimbursable liability under this Agreement.
              Nevertheless, Guarantor hereby authorizes and empowers Lender to
              exercise, in its sole and absolute discretion, any


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              right or remedy, or any combination thereof, which may then be
              available, since it is the intent and purpose of Guarantor that
              the obligations under this Agreement shall be absolute,
              independent and unconditional under any and all circumstances.
              Guarantor expressly waives any defense (which defense, if
              Guarantor had not given this waiver, Guarantor might otherwise
              have) to a judgment against Guarantor by reason of a nonjudicial
              foreclosure. Without limiting the generality of the foregoing,
              Guarantor hereby expressly waives any and all benefits under (i)
              California Code of Civil Procedure Section 580a (which Section, if
              Guarantor had not given this waiver, would otherwise limit
              Guarantor's liability after a nonjudicial foreclosure sale to the
              difference between the obligations of Guarantor under this
              Agreement and the fair market value of the property or interests
              sold at such nonjudicial foreclosure sale), (ii) California Code
              of Civil Procedure Sections 580b and 580d (which Sections, if
              Guarantor had not given this waiver, would otherwise limit
              Lender's right to recover a deficiency judgment with respect to
              purchase money obligations and after a nonjudicial foreclosure
              sale, respectively), and (iii) California Code of Civil Procedure
              Section 726 (which Section, if Guarantor had not given this
              waiver, among other things, would otherwise require Lender to
              exhaust all of its security before a personal judgment could be
              obtained for a deficiency). Notwithstanding any foreclosure of the
              lien of the ARV PIII Pledge Agreement or the SGRV Pledge
              Agreement, whether by the exercise of the power of sale contained
              in the ARV PIII Pledge Agreement or the SGRV Pledge Agreement or
              by an action for judicial foreclosure, Guarantor shall remain
              bound under this Agreement.

              (c) In accordance with California Civil Code Section 2856,
              Guarantor also waives any right or defense based upon an election
              of remedies by Lender, even though such election (e.g.,
              nonjudicial foreclosure with respect to any collateral held by
              Lender to secure repayment of the Obligations) destroys or
              otherwise impairs the subrogation rights of Guarantor or the right
              of Guarantor (after payment of the obligations guaranteed by
              Guarantor under this Agreement) to proceed against Borrower for
              reimbursement, or both, by operation of California Code of Civil
              Procedure Section 580d or otherwise.

              (d) In accordance with California Civil Code Section 2856,
              Guarantor waives any and all other rights and defenses available
              to Guarantor by reason of California Civil Code Sections 2787
              through 2855, inclusive, including any and all rights or defenses
              Guarantor may have by reason of protection afforded to Borrower
              with respect to any of the obligations of Guarantor under this
              Agreement pursuant to the antideficiency or other laws of the
              State of California limiting or discharging Borrower's
              Obligations, including California Code of Civil Procedure Sections
              580a, 580b, 580d, and 726.

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              (e) In accordance with California Civil Code Section 2856,
              Guarantor agrees to withhold the exercise of any and all
              subrogation and reimbursement rights against Borrower, against any
              other person, and against any collateral or security for the
              Obligations, including any such rights pursuant to California
              Civil Code Sections 2847 and 2848, until the Obligations have been
              indefeasibly paid and satisfied in full, all obligations owed to
              Lender under the Loan Documents have been fully performed, and
              Lender has released, transferred or disposed of all of its right,
              title and interest in such collateral or security.

              (f) At any time or from time to time and any number of times,
              without notice to Guarantor and without affecting the liability of
              Guarantor, (i) the time for payment of the principal of or
              interest on the Obligations may be extended or the Obligations may
              be renewed in whole or in part; (ii) the time for Borrower's
              performance of or compliance with any covenant or agreement
              contained in the Note or any other Loan Document, whether
              presently existing or hereinafter entered into, may be extended or
              such performance or compliance may be waived; (iii) the maturity
              of the Obligations may be accelerated as provided in the Note or
              any other Loan Document; (iv) the Note or any other Loan Document
              may be modified or amended by Lender and Borrower in any respect,
              including an increase in the principal amount; and (v) any
              security for the Obligations may be modified, exchanged,
              surrendered or otherwise dealt with or additional security may be
              pledged or mortgaged for the Obligations.

              (g) If more than one person executes this Agreement, the
              obligations of those persons under this Agreement shall be joint
              and several. Lender, in its discretion, may (i) bring suit against
              Guarantor, or any one or more of the persons constituting
              Guarantor, jointly and severally, or against any one or more of
              them; (ii) compromise or settle with any one or more of the
              persons constituting Guarantor, or any other obligor of the
              Obligations, including Borrower, for such consideration as Lender
              may deem proper; (iii) release one or more of the persons
              constituting Guarantor, or any other obligor of the Obligations,
              including Borrower, from liability; and (iv) otherwise deal with
              Guarantor and any other obligor of the obligations, including
              Borrower, or any one or more of them, in any manner, and no such
              action shall impair the rights of Lender to collect from Guarantor
              any amount guaranteed by Guarantor under this Agreement. Nothing
              contained in this paragraph shall in any way affect or impair the
              rights or obligations of Guarantor with respect to any other
              obligor of the Obligations.

              (h) Any indebtedness of Borrower held by Guarantor now or in the
              future is and shall be subordinated to the Obligations and any
              such indebtedness of Borrower shall be collected, enforced and
              received by


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              Guarantor, as trustee for Lender, but without reducing or
              affecting in any manner the liability of Guarantor under the other
              provisions of this Agreement.

              (i) Guarantor shall have no right of, and hereby waives any claim
              for, subrogation or reimbursement against Borrower or any general
              partner of Borrower by reason of any payment by Guarantor under
              this Agreement, whether such right or claim arises at law or in
              equity or under any contract or statute, until the Obligations
              have been paid in full and there has expired the maximum possible
              period thereafter during which any payment made by Borrower to
              Lender with respect to the Obligations could be deemed a
              preference under the United States Bankruptcy Code.

              (j) If any payment by Borrower is held to constitute a preference
              under any applicable bankruptcy, insolvency, or similar laws, or
              if for any other reason Lender is required to refund any sums to
              Borrower, such refund shall not constitute a release of any
              liability of Guarantor under this Agreement. It is the intention
              of Lender and Guarantor that Guarantor's obligations under this
              Agreement shall not be discharged except by Guarantor's
              performance of such obligations and then only to the extent of
              such performance.


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<PAGE>

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

         Guarantor represents and warrants to Lender that the following
statements are true, correct and complete:

         SECTION 3.1. Authority. Guarantor has full power and authority to
guaranty the Obligations of Borrower under the Note and to execute, deliver and
perform the obligations of Guarantor in accordance with the terms of this
Agreement without the consent or approval of any Person other than any consent
or approval which has been obtained.

         SECTION 3.2. Review of Documents; Financial Statements; Taxes Etc. (a)
Guarantor has or has had an opportunity to examine the Loan Documents existing
on the date hereof, (b) Guarantor has a direct or indirect financial interest in
Borrower and the Loan to Borrower by the Lender will result in financial
benefits to the Guarantor, (c) the most recent financial statements of Guarantor
heretofore furnished to the Lender correctly and accurately present the
financial condition of Guarantor as of the date of such financial statement in
all material respects, and no material adverse change in the financial condition
of Guarantor has occurred since the date of such financial statement, (d)
Guarantor has filed, or has obtained extensions for the filing of, all federal,
state and local tax returns required to be filed by Guarantor, and has paid all
taxes shown as due on such returns, and (e) this Agreement constitutes the valid
and binding obligation of Guarantor enforceable in accordance with its terms.

         SECTION 3.3. Survival. All representations and warranties contained in
or made under or in connection with this Agreement (a) shall survive the
execution, delivery and performance of this Agreement, and (b) shall be true,
correct and complete at all times during which any of the Obligations (or
commitments therefor) are outstanding with the same effect as if such
representations and warranties had been made at such times.


                                   ARTICLE IV

                                    COVENANTS

         SECTION 4.1. Further Assurances. Guarantor covenants and agrees with
Lender that Guarantor shall, from time to time, at its expense, execute,
deliver, acknowledge and cause to be duly filed, recorded or registered, if
applicable, any other certificate, agreement, statement, instrument or other
document and take any other action that from time to time may be necessary or
desirable, or that Lender may reasonably request, in order to create, grant,
convey, confirm, preserve, validate or better assure to Lender the rights
intended to be granted, now or in the future, to Lender under this Agreement and
the other Loan Documents.


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                                    ARTICLE V

                                     DEFAULT

         The occurrence of any one or more of the following events shall
constitute a default under the provisions of this Agreement, and the term "Event
of Default" means, whenever it is used in this Agreement, any one or more of the
following events:

         SECTION 5.1. Payment of Obligations. If any of the Obligations are not
paid as and when due and payable in accordance with the provisions of this
Agreement, the Note, and/or any of the other Loan Documents after giving effect
to any applicable grace or cure periods, if any;

         SECTION 5.2. Perform, etc. Other Provisions of This Agreement and other
Loan Documents. The failure of Guarantor to perform, observe or comply with any
of the provisions of this Agreement not otherwise covered by other subsections
of this Section 5 or any of the other Loan Documents, and such failure is not
cured to the satisfaction of Lender within a period of thirty (30) days after
the date of written notice thereof by Lender to Guarantor (or, whenever such a
failure is such that it cannot be cured within thirty (30) days after Guarantor
is given notice thereof, then within sixty (60) days from the date after
Guarantor is given notice thereof if, in the sole but reasonable discretion of
Lender, Guarantor is taking appropriate corrective action to cure the failure
and such failure will not impair the ability of Guarantor to perform its
obligations under this Agreement and the other Loan Documents or otherwise
adversely affects Lender's security in or right to the Collateral).

         SECTION 5.3. Performance of Provisions of the other Loan Documents. If
an Event of Default (as defined in the Deed of Trust) occurs, or subject to
applicable notice and cure periods provided therein, if Borrower or Guarantor,
as applicable, fails to perform, observe, or comply with any of the provisions
of the Note or any of the other Loan Documents.

         SECTION 5.4. Representations and Warranties. If any representation or
warranty contained herein or any statement or representation made in any
certificate or other information at any time given by or on behalf of Guarantor
or Borrower or furnished in connection with this Agreement or any of the other
Loan Documents shall prove to be false or incorrect in any material respect on
the date as of which made;

         SECTION 5.5. Liquidation, Termination, Dissolution, etc. If Guarantor,
SGRV, ARV PIII or Borrower shall liquidate, dissolve or terminate its existence,
or if, without the prior written consent of Lender, any change occurs in the
ownership or control of Guarantor, Borrower, SGRV or ARV PIII;

         SECTION 5.6. Inability to Pay Debts. If Guarantor, Borrower, SGRV or
ARV PIII admits in writing or in sworn testimony the inability to pay its debts
as they mature or shall make any assignment for the benefit of any of its
creditors;


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<PAGE>

         SECTION 5.7. Bankruptcy. If proceedings in bankruptcy, or for
reorganization of Guarantor, Borrower, SGRV or ARV PIII, or for the readjustment
of any debts of Guarantor, Borrower, SGRV or ARV PIII, under the Bankruptcy
Code, as amended, or any part thereof, or under any other applicable laws,
whether state or federal, for the relief of debtors, now or hereafter existing,
shall be commenced against or by Guarantor, Borrower, SGRV or ARV PIII
(provided, however, that with respect to any such proceedings not instituted by
Guarantor, Borrower, SGRV or ARV PIII, such proceedings will not be an Event of
Default if discharged within ninety (90) days of their commencement);

         SECTION 5.8. Receiver. A receiver or trustee shall be appointed for
Guarantor, Borrower, SGRV or ARV PIII or for any substantial part of the assets
of Guarantor, Borrower, SGRV or ARV PIII, or any proceedings shall be instituted
for the dissolution or the full or partial liquidation of the Guarantor,
Borrower, SGRV or ARV PIII (provided, however, that with respect to any such
appointments not requested or instituted by Guarantor, Borrower, SGRV or ARV
PIII, such appointment or proceedings will not be an Event of Default if such
receiver or trustee is discharged within ninety (90) days of his or her
appointment and/or such proceedings are discharged within ninety (90) days of
their commencement).


                                   ARTICLE VI

                               RIGHTS AND REMEDIES

         SECTION 6.1. Rights and Remedies. Upon the occurrence of an Event of
Default under the provisions of this Agreement, an amount equal to the lesser of
(i) total of the Obligations then outstanding (whether matured or unmatured and
regardless of whether any portion of such Obligations are then due and payable
by Borrower), or (ii) $1,000,000 (absent fraud or willful misconduct, in which
event the total amount of the Obligations then outstanding as set forth in
clause (i) above), shall immediately and automatically be due and payable by
Guarantor to Lender, without further action by, or notice of any kind from,
Lender unless expressly provided for herein, and Lender may at any time and from
time to time thereafter exercise any powers, rights and remedies available to
Lender under the provisions of this Agreement, the other Loan Documents and
applicable laws to liquidate the Collateral, all such powers, rights and
remedies being cumulative and enforceable alternatively, successively or
concurrently. Each and every Event of Default hereunder shall give rise to a
separate cause of action hereunder, and separate actions may be brought
hereunder as each cause of action arises.

         SECTION 6.2. Application. The proceeds of any payment for the payment
of all or any part of the Obligations coming into Lender's possession may be
held, segregated, or applied by Lender to any of the Obligations, whether
matured or unmatured, in such order and manner as Lender may determine in its
sole discretion.


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<PAGE>

         SECTION 6.3. No Waiver, etc. No failure or delay by Lender to insist
upon the strict performance of any term, condition, covenant or agreement of
this Agreement or of the other Loan Documents, or to exercise any right, power
or remedy consequent upon a breach thereof, shall constitute a waiver of any
such term, condition, covenant or agreement or of any such breach, or preclude
Lender from exercising any such right, power or remedy at any later time or
times. By accepting payment after the due date of any amount payable under this
Agreement or under any of the other Loan Documents, Lender shall not be deemed
to waive the right either to require prompt payment when due of all other
amounts payable under this Agreement or under any of the other Loan Documents,
or to declare a default for failure to effect such prompt payment of any such
other amount. The payment by Guarantor, or any other Person and the acceptance
by Lender or any other amount due and payable under the provisions of this
Agreement or the other Loan Documents at any time during which a default or
Event of Default exists shall not in any way or manner be construed as a waiver
of such default or Event of Default by Lender or preclude Lender from exercising
any right of power or remedy consequent upon such default or Event of Default.


                                   ARTICLE VII

                                  MISCELLANEOUS

         SECTION 7.1. Course of Dealing; Amendment. No course of dealing between
Lender and Guarantor shall be effective to amend, modify or change any provision
of this Agreement or the other Loan Documents. Lender shall have the right at
all times to enforce the provisions of this Agreement and the other Loan
Documents in strict accordance with the provisions hereof and thereof,
notwithstanding any conduct or custom on the part of Lender in refraining from
so doing at any time or times. The failure of Lender at any time or times to
enforce its rights under such provisions, strictly in accordance with the same,
shall not be construed as having created a custom in any way or manner contrary
to specific provisions of this Agreement or the other Loan Documents or as
having in any way or manner modified or waived the same. This Agreement may not
be amended, modified, or changed in any respect except by an agreement in
writing signed by Lender and Guarantor.

         SECTION 7.2. Waiver of Default. Lender may, at any time and from time
to time, execute and deliver to Guarantor a written instrument waiving, on such
terms and conditions as Lender may specify in such written instrument, any of
the requirements of this Agreement or any Event of Default or default and its
consequences, provided, that any such waiver shall be for such period and
subject to such conditions as shall be specified in any such instrument. In the
case of any such waiver, Guarantor and Lender shall be restored to their former
positions prior to such Event of Default or default and shall have the same
rights as they had hereunder. No such waiver shall extend to any subsequent or
other Event of Default or default, or impair any right consequent thereto and
shall be effective only in the specific instance and for the specific purpose
for which given.


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         SECTION 7.3. Guaranty Absolute. All rights and remedies of Lender
hereunder and under applicable laws, the guaranty and all agreements and
obligations of Guarantor hereunder shall be absolute and unconditional
irrespective of, and shall not be released, discharged, impaired or affected by
(a) any lack of validity or enforceability of the Note, or any of the other Loan
Documents, (b) any change in the amount of any or all of the Obligations or any
change in the time, manner or place of payment of any or all of the Obligations
or any change of any other provision or term of any or all of the Obligations,
(c) any amendment to, or modification or waiver of, consent to, or departure
from, any of the provisions of any of the Loan Documents, (d) any exchange,
substitution, release, addition or non-perfection of any collateral and security
for any of the Obligations, (e) the release of, in whole or in part, any Person,
including, without limitation, Borrower or Guarantor, obligated or liable for
the payment of all or any part of the Obligations or any attempt, pursuit,
enforcement or exhaustion of any rights or remedies Lender may have against any
such Person or against any collateral and security for any or all of the
Obligations, (f) the failure, omission, lack of diligence or delay by Lender to
exercise or enforce any rights and remedies it may have under any of the Loan
Documents or applicable laws, and (g) any other event or circumstance which
might otherwise constitute a legal or equitable discharge, release or defense of
Guarantor or of the Collateral.

         SECTION 7.4. Notices. All notices, requests and demands to or upon the
parties to this Agreement shall be deemed to have been given or made when
delivered by hand, or when deposited in the mail, postage prepaid by registered
or certified mail, return receipt requested, or, in the case of telegraphic
notice, when delivered to the telegraphic company and when properly transmitted,
addressed as provided under the Deed of Trust (the address of the Guarantor
shall for all notice purposes be the same as the Borrower's address set forth in
the Deed of Trust).

         SECTION 7.5. Enforcement Costs. Guarantor shall pay to Lender upon
demand all Enforcement Costs. Enforcement Costs shall be included in the
Obligations secured hereby.

         SECTION 7.6. Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(a) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of Lender in order to
carry out the intentions of the parties hereto as nearly as may be possible, (b)
the invalidity or unenforceability of any provision hereof in any jurisdiction
shall not affect the validity or enforceability of such provision in any other
jurisdiction, and (c) the parties hereto shall endeavor, in good faith,
negotiations to replace the invalid or unenforceable provisions with valid and
enforceable provisions, the economic effect of which comes as close as possible
to that of the invalid or unenforceable provisions.

         SECTION 7.7. Assignment. Lender may, without prior notice to, or
consent of, Guarantor, sell, assign or transfer to any Person or Persons all or
any part of


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<PAGE>

the Obligations, and in the event of any such assignment and rights and remedies
of Lender hereunder shall extend to, and vest in, any such assignee or assignees
who shall have the right to enforce the provisions of this Agreement as fully as
Lender, provided that Lender shall continue to have the unimpaired right to
enforce the provisions of this Agreement as to so much of the Obligations that
it has not sold, assigned or transferred. Guarantor will fully cooperate with
Lender in connection with any such assignment and will execute and deliver such
consents and acceptances to any such assignment and amendments to this Agreement
in order to effect any such assignment (including, without limitation, the
appointment of Lender as agent for itself and all assignees).

         SECTION 7.8. Survival. All representations, warranties and covenants
contained among the provisions of this Agreement shall survive the execution and
delivery of this Agreement and all other Loan Documents.

         SECTION 7.9. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of Guarantor and Lender and their respective personal
representatives, successors and assigns, except that Guarantor shall not have
the right to assign their rights hereunder or any interest herein without the
prior written consent of Lender.

         SECTION 7.10. Continuing Agreement. This Agreement shall be continuing
and binding on Guarantor regardless of how long before or after the date hereof
any of the Obligations were or are incurred. This Agreement shall terminate when
all of the Obligations have been indefeasibly paid in full and no commitments
therefor are outstanding.

         SECTION 7.11. Applicable Law. This Agreement and the rights and
obligations of the parties hereunder shall be construed and interpreted in
accordance with the laws of the State of California, both in interpretation and
performance.

         SECTION 7.12. Exhibits and Schedules. Any exhibits and schedules
attached to this Agreement are an integral part hereof and are hereby
incorporated herein and included in the term "this Agreement."

         SECTION 7.13. Headings. Article, Section, paragraph, and clause
headings in this Agreement are included herein for convenience of reference
only, shall not constitute a part of this Agreement for any other purpose, and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.

         SECTION 7.14. Jurisdiction and Venue. Guarantor agrees that any
controversy arising under or in relation to this Agreement shall be litigated
exclusively in Ventura County, California (the "the Jurisdiction"). The state
and federal courts and authorities with jurisdiction in the Jurisdiction shall
have exclusive jurisdiction over all controversies which shall arise under or in
relation to this Agreement, the Note or any other Loan Document. Guarantor
irrevocably consents to service, jurisdiction, and venue of such courts for any
such litigation and waives any other venue to which it might be entitled by
virtue of domicile, habitual residence, or otherwise.


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<PAGE>

         SECTION 7.15. WAIVER OF JURY TRIAL. GUARANTOR AND LENDER EACH (A)
AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF
THIS AGREEMENT OR THE RELATIONSHIP BETWEEN THE PARTIES AS GUARANTOR AND LENDER
THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY
WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN
THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH
PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.


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<PAGE>

         IN WITNESS WHEREOF, Guarantor has executed and delivered this Agreement
under its seal as of the day and year first written above.


ATTEST:                                     ARV ASSISTED LIVING, INC.,
                                            a Delaware corporation



_____________________                       By:_______________________________
(SEAL)
                                            Name:  Abdo H. Khoury
                                            Title: President




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