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Exhibit 10.12









                             MASTER LEASE AGREEMENT

                                     BETWEEN

                             HEALTH CARE REIT, INC.


                                       AND

                       BALANCED CARE AT MERRILLVILLE, INC.



                           DATED AS OF OCTOBER 1, 2000






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                                TABLE OF CONTENTS

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ARTICLE 1:  LEASED PROPERTY, TERM AND DEFINITIONS.................................................................1
         1.1      Leased Property.................................................................................1
         1.2      Indivisible Lease...............................................................................1
         1.3      Term............................................................................................2
         1.4      Definitions.....................................................................................2

ARTICLE 2:  RENT.................................................................................................10
         2.1      Base Rent......................................................................................10
         2.2      Increase of Lease Rate and Base Rent...........................................................10
         2.3      Additional Rent................................................................................11
         2.4      Place of Payment of Rent.......................................................................11
         2.5      Net Lease......................................................................................11
         2.6      No Termination, Abatement, Etc.................................................................11
         2.7      Computational Method...........................................................................12

ARTICLE 3:  IMPOSITIONS AND UTILITIES............................................................................12
         3.1      Payment of Impositions.........................................................................12
         3.2      Definition of Impositions......................................................................14
         3.3      Escrow of Impositions..........................................................................14
         3.4      Utilities......................................................................................15
         3.5      Discontinuance of Utilities....................................................................15
         3.6      Business Expenses..............................................................................15
         3.7      Permitted Contests.............................................................................16

ARTICLE 4:  INSURANCE............................................................................................17
         4.1      Property Insurance.............................................................................17
         4.2      Liability Insurance............................................................................18
         4.3      Builder's Risk Insurance.......................................................................18
         4.4      Insurance Requirements.........................................................................19
         4.5      Replacement Value..............................................................................19
         4.6      Blanket Policy.................................................................................20
         4.7      No Separate Insurance..........................................................................20
         4.8      Waiver of Subrogation..........................................................................20
         4.9      Mortgages......................................................................................21
         4.10     Escrows........................................................................................21

ARTICLE 5:  INDEMNITY............................................................................................21
         5.1      Tenant's Indemnification.......................................................................21
                      5.1.1 Notice of Claim......................................................................22
                      5.1.2 Survival of Covenants................................................................22
                      5.1.3 Reimbursement of Expenses............................................................22
         5.2      Environmental Indemnity; Audits................................................................22
                      5.2.1 Indemnification......................................................................22
         5.3      Limitation of Landlord's Liability.............................................................23
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ARTICLE 6:  USE AND ACCEPTANCE OF PREMISES.......................................................................23
         6.1      Use of Leased Property.........................................................................24
         6.2      Acceptance of Leased Property..................................................................24
         6.3      Conditions of Use and Occupancy................................................................24

ARTICLE 7:  REPAIRS AND MECHANICS' LIENS.........................................................................25
         7.1      Maintenance....................................................................................25
         7.2      Required Alterations...........................................................................25
         7.3      Mechanic's Liens...............................................................................25
         7.4      Replacements of Fixtures and Landlord's Personal Property......................................26

ARTICLE 8:  DEFAULTS AND REMEDIES................................................................................26
         8.1      Events of Default..............................................................................26
         8.2      Remedies.......................................................................................29
         8.3      Right of Set-Off...............................................................................33
         8.4      Performance of Tenant's Covenants..............................................................33
         8.5      Late Payment Charge............................................................................33
         8.6      Interest.......................................................................................33
         8.7      Attorneys' Fees................................................................................34
         8.8      Escrows and Application of Payments............................................................34
         8.9      Remedies Cumulative............................................................................34
         8.10     Waivers........................................................................................34

ARTICLE 9:  DAMAGE AND DESTRUCTION...............................................................................35
         9.1      Notice of Casualty.............................................................................35
         9.2      Substantial Destruction........................................................................35
         9.3      Partial Destruction............................................................................37
         9.4      Restoration....................................................................................37
         9.5      Insufficient Proceeds..........................................................................38
         9.6      Not Trust Funds................................................................................38
         9.7      Landlord's Inspection..........................................................................38
         9.8      Landlord's Costs...............................................................................39
         9.9      No Rent Abatement..............................................................................39

ARTICLE 10:  CONDEMNATION........................................................................................39
         10.1     Total Taking...................................................................................39
         10.2     Partial Taking.................................................................................40
         10.3     Condemnation Proceeds Not Trust Funds..........................................................40

ARTICLE 11:  TENANT'S PROPERTY...................................................................................41
         11.1     Tenant's Property..............................................................................41
         11.2     Requirements for Tenant's Property.............................................................41
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ARTICLE 12:  [INTENTIONALLY DELETED].............................................................................42

ARTICLE 13:  OPTION TO PURCHASE..................................................................................42
         13.1     Option to Purchase.............................................................................42
         13.2     Option Price...................................................................................43
         13.3     Fair Market Value..............................................................................43
         13.4     Closing........................................................................................45
         13.5     Failure to Close Option........................................................................46
                      13.5.1  Failure to Exercise Option to Purchase.............................................46

ARTICLE 14:  NEGATIVE COVENANTS..................................................................................46
         14.1     No Debt........................................................................................46
         14.2     No Liens.......................................................................................46
         14.3     No Guaranties..................................................................................46
         14.4     No Transfer....................................................................................46
         14.5     No Dissolution.................................................................................47
         14.6     No Change in Management or Operation...........................................................47
         14.7     No Investments.................................................................................47
         14.8     Contracts......................................................................................47
         14.9     Subordination of Payments to Affiliates........................................................47
         14.10    Change of Location or Name.....................................................................48

ARTICLE 15:  AFFIRMATIVE COVENANTS...............................................................................48
         15.1     Perform Obligations............................................................................48
         15.2     Proceedings to Enjoin or Prevent Construction..................................................48
         15.3     Documents and Information......................................................................48
                      15.3.1   Furnish Documents ................................................................48
                      15.3.2   Furnish Information ..............................................................49
                      15.3.3   Further Assurances and Information................................................49
                      15.3.4   Material Communications...........................................................49
                      15.3.5   Requirements for Financial Statements.............................................50
         15.4     Compliance With Laws...........................................................................50
         15.5     Broker's Commission............................................................................50
         15.6     Existence and Change in Ownership..............................................................50
         15.7     Financial Covenants............................................................................50
                      15.7.1   Definitions ......................................................................51
                      15.7.2   Coverage Ratio ...................................................................51
                      15.7.3   Net Worth ........................................................................51
                      15.7.4   Current Ratio ....................................................................51
                      15.7.5   Debt to Equity Ratio .............................................................51
         15.8     Transfer of License............................................................................52

ARTICLE 16:  ALTERATIONS, CAPITAL IMPROVEMENTS, AND SIGNS........................................................52
         16.1     Prohibition on Alterations and Improvements....................................................52
         16.2     Approval of Alterations........................................................................52
         16.3     Permitted Alterations..........................................................................53
         16.4     Requirements for Permitted Alterations.........................................................53
         16.5     Ownership and Removal of Permitted Alterations.................................................54
         16.6     Signs..........................................................................................54
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ARTICLE 17:  [RESERVED]..........................................................................................54

ARTICLE 18:  ASSIGNMENT AND SALE OF LEASED PROPERTY..............................................................54
         18.1     Prohibition on Assignment and Subletting.......................................................54
         18.2     Requests for Landlord's Consent to Assignment, Sublease or Management Agreement................55
         18.3     Agreements with Residents......................................................................56
         18.4     Sale of Leased Property........................................................................56
         18.5     Assignment by Landlord.........................................................................57

ARTICLE 19:  HOLDOVER AND SURRENDER..............................................................................57
         19.1     Holding Over...................................................................................57
         19.2     Surrender......................................................................................57

ARTICLE 20:  [INTENTIONALLY DELETED].............................................................................57

ARTICLE 21:  QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT AND ESTOPPEL CERTIFICATES................................57
         21.1     Quiet Enjoyment................................................................................57
         21.2     Subordination..................................................................................57
         21.3     Attornment.....................................................................................58
         21.4     Estoppel Certificates..........................................................................59

ARTICLE 22:  REPRESENTATIONS AND WARRANTIES......................................................................60
         22.1     Organization and Good Standing.................................................................60
         22.2     Power and Authority............................................................................61
         22.3     Enforceability.................................................................................61
         22.4     Government Authorizations......................................................................61
         22.5     Financial Statements...........................................................................61
         22.6     Condition of Facility..........................................................................61
         22.7     Compliance with Laws...........................................................................62
         22.8     No Litigation..................................................................................62
         22.9     Consents.......................................................................................62
         22.10    No Violation...................................................................................62
         22.11    Reports and Statements.........................................................................63
         22.12    ERISA..........................................................................................63
         22.13    Chief Executive Office.........................................................................63
         22.14    Other Name or Entities.........................................................................64
         22.15    Parties in Possession..........................................................................64
         22.16    Access.........................................................................................64
         22.17    Utilities......................................................................................64
         22.18    Condemnation and Assessments...................................................................64
         22.19    Zoning.........................................................................................64
         22.20    Pro Forma Statement............................................................................65
         22.21    Environmental Matters..........................................................................65
         22.22    Leases and Contracts...........................................................................65
         22.23    No Default.....................................................................................66
         22.24    Tax Status.....................................................................................66
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ARTICLE 23:  [INTENTIONALLY DELETED].............................................................................66

ARTICLE 24:  SECURITY INTEREST...................................................................................66
         24.1     Collateral.....................................................................................66
         24.2     Additional Documents...........................................................................67
         24.3     Notice of Sale.................................................................................67
         24.4     Recharacterization.............................................................................68

ARTICLE 25:  MISCELLANEOUS.......................................................................................68
         25.1     Notices........................................................................................68
         25.2     Advertisement of Leased Property...............................................................68
         25.3     Entire Agreement...............................................................................68
         25.4     Severability...................................................................................68
         25.5     Captions and Headings..........................................................................69
         25.6     Governing Law..................................................................................69
         25.7     Memorandum of Lease............................................................................69
         25.8     Waiver.........................................................................................69
         25.9     Binding Effect.................................................................................69
         25.10    Power of Attorney..............................................................................69
         25.11    No Offer.......................................................................................70
         25.12    Modification...................................................................................70
         25.13    Landlord's Modification........................................................................71
         25.14    No Merger......................................................................................71
         25.15    Laches.........................................................................................71
         25.16    Limitation on Tenant's Recourse................................................................71
         25.17    Construction of Lease..........................................................................71
         25.18    Counterparts...................................................................................72
         25.19    Lease Guaranty.................................................................................72
         25.20    Custody of Escrow Funds........................................................................72
         25.21    Landlord's Status as a REIT....................................................................72
         25.22    Exhibits.......................................................................................72
         25.23    WAIVER OF JURY TRIAL...........................................................................72
         25.24    CONSENT TO JURISDICTION........................................................................72
         25.25    Attorney's Fees and Expenses...................................................................73
         25.26    Survival.......................................................................................73
         25.27    Time...........................................................................................73


EXHIBIT A:           LEGAL DESCRIPTIONS

EXHIBIT B:           PERMITTED EXCEPTIONS

EXHIBIT C:           FACILITY INFORMATION

EXHIBIT D:           LANDLORD'S PERSONAL PROPERTY
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EXHIBIT E:           DOCUMENTS TO BE DELIVERED

EXHIBIT F:           TENANT'S CERTIFICATE AND FACILITY FINANCIAL REPORTS

EXHIBIT G:           GOVERNMENT AUTHORIZATIONS TO BE OBTAINED;
                     ZONING PERMITS

EXHIBIT H:           PENDING LITIGATION

EXHIBIT I:           LIST OF LEASES AND CONTRACTS
</TABLE>



                                      (vi)


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                             MASTER LEASE AGREEMENT

                  This Master Lease Agreement ("Lease") is entered into as of
October 1, 2000 ("Contract Date") and made effective as of the Effective Date
(defined below) between Health Care REIT, Inc., a corporation organized under
the laws of the State of Delaware ("HCRI" and a "Landlord" as further defined in
Section 1.4 below), having its principal office located at One SeaGate, Suite
1500, P.O. Box 1475, Toledo, Ohio 43603, and Balanced Care at Merrillville,
Inc., a corporation organized under the laws of the State of Delaware
("Tenant"), having its chief executive office located at 1215 Manor Drive,
Mechanicsburg, Pennsylvania, 17055.


                                 R E C I T A L S

                  A. Landlord desires to lease the Leased Property to Tenant and
Tenant desires to lease the Leased Property from Landlord upon the terms set
forth in this Lease.

                  NOW, THEREFORE, Landlord and Tenant agree as follows:


                ARTICLE 1: LEASED PROPERTY, TERM AND DEFINITIONS

                  1.1      Leased Property. Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord the Leased Property, subject, however, to the
Permitted Exceptions and subject to the terms and conditions of this Lease.

                  1.2      Indivisible Lease. This Lease constitutes one
indivisible lease of the Leased Property, and not separate leases governed by
similar terms. The Leased Property constitutes one economic unit, and the Base
Rent and all other provisions have been negotiated and agreed to based on a
lease of all of the Leased Property as a single, composite, inseparable
transaction and would have been materially different had separate leases or a
divisible lease been intended. Except as expressly provided herein for specific,
isolated purposes (and then only to the extent expressly otherwise stated), all
provisions of this Lease shall apply equally and uniformly to all the Leased
Property as one unit. An Event of Default with respect to any Leased Property or
Facility is an Event of Default as to all of the Leased Property. The parties
intend that the provisions of this Lease shall at all times be construed,
interpreted and applied so as to carry out their mutual objective to create an
indivisible lease of all the Leased Property and, in particular but without
limitation, that for purposes of any assumption, rejection or


<PAGE>   9


assignment of this Lease under 11 U.S.C. 365, this is one indivisible and
non-severable lease and executory contract dealing with one legal and economic
unit which must be assumed, rejected or assigned as a whole with respect to all
(and only all) the Leased Property covered hereby. The parties agree that the
existence of more than one Landlord, if any, under this Lease does not affect
the indivisible, non-severable nature of this Lease. The parties expect and
intend to amend this Lease from time to time to include one or more additional
Facility Properties as part of the Leased Property and such future addition to
the Leased Property shall not in any way change the indivisible and
non-severable nature of this Lease and all of the foregoing provisions shall
continue to apply in full force.

                  1.3      Term. The initial term ("Initial Term") of this Lease
commences on the Effective Date and expires at 12:00 Midnight Eastern Time on
December 31, 2015 (the "Expiration Date"); provided, however, that any addition
to the Leased Property pursuant to amendment of this Lease shall extend the
Initial Term so that the Initial Term shall expire on the Amended Commence Date.

 .

                  1.4      Definitions. Except as otherwise expressly provided,
[i] the terms defined in this section have the meanings assigned to them in this
section and include the plural as well as the singular; [ii] all accounting
terms not otherwise defined herein have the meanings assigned to them in
accordance with generally accepted accounting principles as of the time
applicable; and [iii] the words "herein", "hereof", and "hereunder" and similar
words refer to this Lease as a whole and not to any particular section.

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

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

                  "Allocated Lease Amount" means the portion of the Lease Amount
allocated to a specific Facility as set forth on the attached Exhibit C.



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                  "Amended Commencement Date" means the Commencement Date as
amended pursuant to the most recent amendment of this Lease in effect at such
time.

                  "Annual Facility Budget" means Tenant's projection of the
Facility Financial Statement for the next fiscal year.

                  "Annual Financial Statements" means [i] for Tenant, an
unaudited balance sheet and statement of income for the most recent fiscal year;
[ii] for each Facility, an unaudited Facility Financial Statement for the most
recent fiscal year; [iii] for Guarantor, if Guarantor is or includes a
corporation, partnership or limited liability company, an audited balance sheet
and statement of income for the most recent fiscal year with consolidating
schedules; and [iv] for Guarantor, if Guarantor is or includes an individual, a
current unaudited personal financial statement.

                  "Base Rent" has the meaning set forth in Section 2.1, as
increased from time to time pursuant to Section 2.2.

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

                  "Cash Flow" has the meaning set forth in Section 15.7.1.

                  "CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time.

                  "Closing" means the closing of the lease of the Leased
Property to Tenant.

                  "Collateral" has the meaning set forth in Section 24.1.

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

                  "Contract Date" means the date of this Lease.

                  "Coverage Ratio" has the meaning set forth in Section 15.7.1.

                  "Effective Date" means the later of [i] October 31, 2000, or
[ii] the date on which Tenant receives approval from the Indiana State
Department of Health, Division of Long Term Care for a change of ownership of
the Facility.



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                  "Environmental Laws" means all federal, state, and local laws,
ordinances and policies the purpose of which is to protect human health and the
environment, as amended from time to time, including but not limited to [i]
CERCLA; [ii] the Resource Conservation and Recovery Act; [iii] the Hazardous
Materials Transportation Act; [iv] the Clean Air Act; [v] Clean Water Act; [vi]
the Toxic Substances Control Act; [vii] the Occupational Safety and Health Act;
[viii] the Safe Drinking Water Act; and [ix] analogous state laws and
regulations.

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

                  "Expiration Date" has the meaning set forth in Section 1.3.

                  "Facility" means each facility located on a portion of the
Land, including the Facility Property associated with such Facility. References
in this Lease to "the Facility" shall mean each Facility individually unless
expressly stated otherwise.

                  "Facility Financial Statement" means a financial statement for
each Facility which shall include the balance sheet, statement of income,
occupancy census data (including payor mix) and a comparison of the actual
financial data versus the Annual Facility Budget for the applicable period.

                  "Facility Name" means the name under which a Facility has done
business during the Term. The Facility Name in use by each Facility on the
Effective Date is set forth on the attached Exhibit C.

                  "Facility Property" means the portion of the Land on which a
Facility is located, the legal description of which is set forth beneath the
applicable Facility Name on Exhibit A, the Improvements on such portion of the
Land, the Related Rights with respect to such portion of the Land, and
Landlord's Personal Property with respect to such Facility.

                  "Facility Uses" means the uses relating to the operation of a
Facility as a facility of the type and operating the number of beds and units
set forth on Exhibit C with respect to such Facility.

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


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                  "Financial Statements" means the annual, quarterly and year to
date financial statements of Tenant and Guarantor.

                  "Fixtures" means all permanently affixed equipment, machinery,
fixtures and other items of real and/or personal property (excluding Landlord's
Personal Property), including all components thereof, now and hereafter located
in, on or used in connection with, and permanently affixed to or incorporated
into the Improvements, including, without limitation, all furnaces, boilers,
heaters, electrical equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control, waste disposal,
air-cooling and air-conditioning systems and apparatus, sprinkler systems and
fire and theft protection equipment, built-in oxygen and vacuum systems, towers
and other devices for the transmission of radio, television and other signals,
all of which, to the greatest extent permitted by law, are hereby deemed by the
parties hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto.

                  "Government Authorizations" means all permits, licenses,
approvals, consents, and authorizations required to comply with all Legal
Requirements, including but not limited to, [i] zoning permits, variances,
exceptions, special use permits, conditional use permits, and consents; [ii] the
permits, licenses, provider agreements and approvals required for licensure and
operation of each Facility in accordance with its respective Facility Uses and
certified as a provider under the federal Medicare and state Medicaid programs;
[iii] environmental, ecological, coastal, wetlands, air, and water permits,
licenses, and consents; [iv] curb cut, subdivision, land use, and planning
permits, licenses, approvals and consents; [v] building, sign, fire, health, and
safety permits, licenses, approvals, and consents; and [vi] architectural
reviews, approvals, and consents required under restrictive covenants.

                  "Guarantor" means Balanced Care Corporation, a Delaware
corporation.

                  "Guaranty" means the Unconditional and Continuing Guaranty
entered into by Guarantor to guarantee payment and performance of Tenant's
Obligations and any amendments thereto or substitutions or replacements
therefor.

                  "Hazardous Materials" means any substance [i] the presence of
which poses a hazard to the health or safety of persons on or about the Land
including but not limited to asbestos





                                      - 5 -
<PAGE>   13



containing materials; [ii] which requires removal or remediation under any
Environmental Law, including without limitation any substance which is toxic,
explosive, flammable, radioactive, or otherwise hazardous; or [iii] which is
regulated under or classified under any Environmental Law as hazardous or toxic
including but not limited to any substance within the meaning of "hazardous
substance", "hazardous material", "hazardous waste", "toxic substance",
"regulated substance", "solid waste", or "pollutant" as defined in any
Environmental Law.

                  "HCRI" means Health Care REIT, Inc., a corporation organized
under the laws of the State of Delaware.

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

                  "Improvements" means all buildings, structures, Fixtures and
other improvements of every kind on the Land including, but not limited to,
alleys, sidewalks, utility pipes, conduits and lines (on-site and off-site),
parking areas and roadways appurtenant to such buildings and structures, now or
hereafter situated upon the Land.

                  "Increaser Rate" means the increase in the Lease Rate per year
for the Initial Term as set forth on the attached Exhibit C.

                  "Initial Lease Advance" means $7,720,000.00.

                  "Initial Term" has the meaning set forth in Section 1.3.

                  "Land" means the real property described in Exhibit A attached
hereto.

                  "Landlord" means HCRI.

                   "Landlord's Personal Property" means all Personal Property
owned by Landlord on the Effective Date, including without limitation, all
personal property listed on the attached Exhibit D, together with any and all
replacements thereof, and all Personal Property that pursuant to the terms of
this Lease becomes the property of Landlord during the Term.

                  "Lease" means this Master Lease Agreement, as amended from
time to time.

                  "Lease Advance" means any advance of funds by Landlord to
Tenant pursuant to the terms of this Lease.



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                  "Lease Advance Amount" means the amount of any Lease Advance.
The first Lease Advance Amount is the Lease Amount on the Effective Date.

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

                  "Lease Amount" is an aggregate concept and means the sum of
the Lease Advance Amounts outstanding at the applicable time. As of the
Effective Date, the Lease Amount is $7,720,000.00.

                  "Lease Documents" means this Lease and all documents executed
by Landlord and Tenant relating to this Lease or the Facility.

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

                  "Lease Rate" means the annual rate used to determine Base Rent
for each Lease Advance. The Lease Rate is set forth on Exhibit C, computed using
the 365/360 method. The Lease Rate includes any accrued Increaser Rate.

                  "Lease Year" means each consecutive period of 365 or 366 days
throughout the Term. The first Lease Year commences on the October 1, 2000 and
expires on September 30, 2001.

                  "Leased Property" means all of the Land, Improvements, Related
Rights and Landlord's Personal Property.

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


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<PAGE>   15

                  "Loan Agreement" means that certain Loan Agreement, of even
date, entered into by and between Landlord and Tenant.

                  "Manager" means BCC Development and Management Co., a Delaware
corporation.

                  "Occupancy Date" means the date Tenant first occupies the
Facility pursuant to a Management Agreement between Tenant and Prior Tenant.

                  "Material Obligation" means [i] any indebtedness secured by a
security interest in or a lien, deed of trust or mortgage on any of the Leased
Property (or any part thereof, including any Personal Property) and any
agreement relating thereto; [ii] any obligation or agreement that is material to
the construction or operation of the Facility or that is material to Tenant's
business or financial condition; [iii] any indebtedness or capital lease of
Tenant that has an outstanding principal balance of at least $50,000.00 and any
agreement relating thereto; and [iv] any sublease of the Leased Property,
exclusive of occupancy agreements with residents of the Leased Property.

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

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

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

                  "Periodic Financial Statements" means [i] for Tenant, an
unaudited balance sheet and statement of income of Tenant for the most recent
quarter; [ii] for the Facility, an unaudited Facility Financial Statement for
the most recent month; [iii] for Guarantor, if Guarantor is or includes a
corporation, partnership, or limited liability company, an unaudited balance
sheet and statement of income of Guarantor for the most recent quarter; and [iv]
for Guarantor, if Guarantor is or includes an individual, a current unaudited
personal financial statement.

                  "Permitted Exceptions" means all easements, liens,
encumbrances, restrictions, agreements and other title matters existing as of
the Effective Date, including without limitation, the exceptions to title set
forth on Exhibit B attached hereto, and any sublease of any portion of the
Leased Property made in complete accordance with Article 18.


                                      - 8 -
<PAGE>   16


                  "Permitted Liens" means [i] liens granted to Landlord; [ii]
liens customarily incurred by Tenant in the ordinary course of business for
items not delinquent including, without limitation, mechanic's liens and
deposits and charges under worker's compensation laws; [iii] liens for taxes and
assessments not yet due and payable; [iv] any lien, charge, or encumbrance which
is being contested in good faith pursuant to Section 3.7 of this Lease; [v] the
Permitted Exceptions; and [vi] purchase money financing and capitalized
equipment leases for the acquisition of personal property provided, however,
that Landlord obtains a nondisturbance agreement from the purchase money lender
or equipment lessor in form and substance as may be reasonably satisfactory to
Landlord if the original cost of the equipment exceeds $75,000.00.

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

                  "Pledge Agreement" means the Stock Pledge Agreement of even
date from Guarantor to Landlord pledging Guarantor's interest in Tenant to
secure this Lease and the Working Capital Loan.

                  "Pro Forma Statement" means a financial forecast for the
Facility for the next 4 year period prepared in accordance with the standards
for forecasts established by the American Institute of Certified Public
Accountants.

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

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




                                      - 9 -
<PAGE>   17


                  "Related Rights" means all easements, rights and appurtenances
relating to the Land and the Improvements.

                  "Rent" has the meaning set forth in Section 2.3.

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

                  "States" means, collectively, the States in which the Leased
Property is located.

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

                  "Tenant's Organizational Documents" means [i] for a corporate
Tenant, the Articles of Incorporation of Tenant certified by the Secretary of
State of the state of organization, as amended to date, and the Bylaws of Tenant
certified by Tenant, as amended to date; [ii] for a partnership Tenant, the
Partnership Agreement of Tenant certified by Tenant, as amended to date and the
Partnership Certificate, certified by the appropriate authority, as amended to
date; and [iii] for a limited liability company Tenant, the Articles of
Organization or Certificate of Formation of Tenant certified by the Secretary of
State of the state of organization, as amended to date and the Operating
Agreement of Tenant certified by Tenant, as amended to date.

                  "Term" means the Initial Term.


                                 ARTICLE 2: RENT

                  2.1 Base Rent. Tenant shall pay Landlord base rent ("Base
Rent") in advance in consecutive monthly installments payable on the first day
of each month during the Term commencing on the Contract Date. Notwithstanding
the foregoing, Landlord and Tenant acknowledge that Rent for the month of
October, 2000 will be paid by Tenant on the Effective Date. The Base Rent for
the Initial Term will be computed monthly and will be equal to 1/12th of the sum
of the products of each Lease Advance times the Lease Rate for each Lease
Advance.

                  2.2 Increase of Lease Rate and Base Rent. The Lease Rate will
increase by the applicable Increaser Rate on the first day of the applicable
Lease Year as provided in Exhibit C. On each date that the Lease Rate is
increased, the Base Rent will be increased accordingly and will be equal to
1/12th of the sum of



                                     - 10 -
<PAGE>   18


the products of each Lease Advance times the Lease Rate (including the
applicable Increaser Rate) for each Lease Advance.

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

                  2.4 Place of Payment of Rent. Tenant shall make all payments
of Rent at the Landlord's address set forth in the first paragraph of this Lease
or at such other place as Landlord may designate from time to time.

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

                  2.6 No Termination, Abatement, Etc. Except as otherwise
specifically provided in this Lease, Tenant shall remain bound by this Lease in
accordance with its terms. Tenant shall not, without the consent of Landlord,
modify, surrender or terminate the Lease, nor seek nor be entitled to any
abatement, deduction, deferment or reduction of Rent, or set-off against the
Rent. Except as expressly provided in this Lease, the obligations of Landlord
and Tenant shall not be affected by reason of [i] any damage to, or destruction
of, the Leased Property or any part thereof from whatever cause or any Taking
(as hereinafter defined) of the Leased Property or any part thereof; [ii] the
lawful or unlawful prohibition of, or restriction upon, Tenant's use of the
Leased Property, or any part thereof, the interference with such use by any
person, corporation, partnership or other entity, or by reason of eviction by
paramount title; [iii] any claim which Tenant has or might have against Landlord
or by reason of any default or breach of any warranty by Landlord under this
Lease or any other agreement between Landlord and Tenant, or to which Landlord
and Tenant are parties; [iv] any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceeding affecting Landlord or any assignee or transferee of Landlord; or [v]
any other cause,



                                     - 11 -
<PAGE>   19



whether similar or dissimilar to any of the foregoing, other than a discharge of
Tenant from any such obligations as a matter of law. Except as otherwise
specifically provided in this Lease, Tenant hereby specifically waives all
rights, arising from any occurrence whatsoever, which may now or hereafter be
conferred upon it by law [a] to modify, surrender or terminate this Lease or
quit or surrender the Leased Property or any portion thereof; or [b] entitling
Tenant to any abatement, reduction, suspension or deferment of the Rent or other
sums payable by Tenant hereunder. The obligations of Landlord and Tenant
hereunder shall be separate and independent covenants and agreements and the
Rent and all other sums payable by Tenant hereunder shall continue to be payable
in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease or by termination of this Lease
other than by reason of an Event of Default.

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

                  2.8 Conditions Precedent to Tenant's Obligations. Landlord and
Tenant acknowledge that any monetary obligation of Borrower under the terms of
this Lease, which cannot be satisfied from revenues from operation of the
Facility, are subject to and conditioned upon Lender advancing funds pursuant to
the Working Capital Loan (subject to Tenant's obligation to advance working
capital under Section 2.1.2 of the Loan Agreement). Landlord's failure to
advance such funds shall not entitle Landlord to declare an Event of Default due
to Tenant's failure to comply with a monetary obligation that cannot be
satisfied from revenues from operation of the Facility, however, Landlord shall
not be prohibited from declaring an Event of Default as a result of a
non-monetary cause Event of Default or a monetary Event of Default that occurs
when Landlord does not have an obligation to advance pursuant to Section 2.1.2
of the Loan Agreement.


                      ARTICLE 3: IMPOSITIONS AND UTILITIES

                  3.1 Payment of Impositions. Tenant shall pay, as Additional
Rent, all Impositions that may be levied or become a lien on the Leased Property
or any part thereof at any time (during the Term and on or after the Contract
Date), without regard to prior ownership of said Leased Property, before any
fine, penalty, interest, or cost is incurred; provided, however, Tenant may
contest any Imposition in accordance with Section 3.7. Tenant shall deliver to
Landlord [i] not more than 5 days after




                                     - 12 -
<PAGE>   20



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




                                     - 13 -
<PAGE>   21


                  3.2 Definition of Impositions. "Impositions" means,
collectively, [i] taxes (including without limitation, all capital stock and
franchise taxes of Landlord imposed by the State or any governmental entity in
the State due to this lease transaction or Landlord's ownership of the Leased
Property and the income arising therefrom, or due to Landlord being considered
as doing business in the State because of Landlord's ownership of the Leased
Property or lease thereof to Tenant but only to the extent Tenant would have
been obligated to pay such taxes if Tenant rather than Landlord was the owner of
the Leased Property), all real estate and personal property ad valorem, sales
and use, business or occupation, single business, gross receipts, transaction
privilege, rent or similar taxes; [ii] assessments (including without
limitation, all assessments for public improvements or benefits); [iii] ground
rents, water, sewer or other rents and charges, excises, tax levies, and fees
(including without limitation license, permit, inspection, authorization and
similar fees); [iv] all taxes imposed on Tenant's operations of the Leased
Property, including without limitation, employee withholding taxes, income taxes
and intangible taxes; [v] all taxes imposed by the State or any governmental
entity in the State with respect to the conveyance of the Leased Property by
Landlord to Tenant or Tenant's designee, including without limitation,
conveyance taxes and capital gains taxes; and [vi] all other governmental
charges, in each case whether general or special, ordinary or extraordinary, or
foreseen or unforeseen, of every character in respect of the Leased Property or
any part thereof and/or the Rent (including all interest and penalties thereon
due to any failure in payment by Tenant), which during or in respect of the Term
hereof may be assessed or imposed on or in respect of or be a lien upon [a]
Landlord or Landlord's interest in the Leased Property or any part thereof; [b]
the Leased Property or any part thereof or any rent therefrom or any estate,
right, title or interest therein; or [c] any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in connection with
the Leased Property or the leasing or use of the Leased Property or any part
thereof. Tenant shall not, however, be required to pay any tax [y] based on
income or assets imposed on Landlord by any governmental entity other than the
capital stock and franchise taxes described in clause [i] above or [z] based on
the transfer of Landlord's interest in the Leased Property or equity of Landlord
to a party other than Guarantor unless the transfer occurs pursuant to an Event
of Default.

                  3.3 Escrow of Impositions. If an Event of Default occurs and
while it remains uncured, Tenant shall, at Landlord's



                                     - 14 -
<PAGE>   22

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

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

                  3.5 Discontinuance of Utilities. Landlord will not be liable
for damages to person or property or for injury to, or interruption of, business
for any discontinuance of utilities nor will such discontinuance in any way be
construed as an eviction of Tenant or cause an abatement of rent or operate to
release Tenant from any of Tenant's obligations under this Lease.

                  3.6 Business Expenses. Tenant shall promptly pay all expenses
and costs incurred in connection with the operation of the Facility on the
Leased Property, including without limitation, employee benefits, employee
vacation and sick pay, consulting fees, and expenses for inventory and supplies.


                                     - 15 -
<PAGE>   23


                  3.7 Permitted Contests. Tenant, on its own or on Landlord's
behalf (or in Landlord's name), but at Tenant's expense, may contest, by
appropriate legal proceedings conducted in good faith and with due diligence,
the amount or validity or application, in whole or in part, of any Imposition or
any Legal Requirement or insurance requirement or any lien, attachment, levy,
encumbrance, charge or claim provided that [i] in the case of an unpaid
Imposition, lien, attachment, levy, encumbrance, charge or claim, the
commencement and continuation of such proceedings shall suspend the collection
thereof from Landlord and from the Leased Property; [ii] neither the Leased
Property nor any Rent therefrom nor any part thereof or interest therein would
be in any immediate danger of being sold, forfeited, attached or lost; [iii] in
the case of a Legal Requirement, Landlord would not be in any immediate danger
of civil or criminal liability for failure to comply therewith pending the
outcome of such proceedings; [iv] in the case of a Legal Requirement and/or an
Imposition, lien, encumbrance or charge in excess of $50,000.00, Tenant shall
give such reasonable security as may be demanded by Landlord to insure ultimate
payment of the same and to prevent any sale or forfeiture of the affected Leased
Property or the Rent by reason of such nonpayment or noncompliance; provided,
however, the provisions of this section shall not be construed to permit Tenant
to contest the payment of Rent (except as to contests concerning the method of
computation or the basis of levy of any Imposition or the basis for the
assertion of any other claim) or any other sums payable by Tenant to Landlord
hereunder; [v] in the case of an insurance requirement, the coverage required by
Article 4 shall be maintained; and [vi] if such contest be finally resolved
against Landlord or Tenant, Tenant shall, as Additional Rent due hereunder,
promptly pay the amount required to be paid, together with all interest and
penalties accrued thereon, or comply with the applicable Legal Requirement or
insurance requirement. Landlord, at Tenant's expense, shall execute and deliver
to Tenant such authorizations and other documents as may be reasonably required
in any such contest, and, if reasonably requested by Tenant or if Landlord so
desires, Landlord shall join as a party therein. Tenant hereby agrees to
indemnify and save Landlord harmless from and against any liability, cost or
expense of any kind that may be imposed upon Landlord in connection with any
such contest and any loss resulting therefrom, provided that no such indemnity
will apply if liability to Landlord was a result of Landlord's or Prior Tenant's
actions or omissions prior to the Effective Date.




                                     - 16 -
<PAGE>   24


                              ARTICLE 4: INSURANCE

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

                     (a) Loss or damage commonly covered by a "Special Form"
policy insuring against physical loss or damage to the Improvements and Personal
Property, including but not limited to, risk of loss from fire and other
hazards, collapse, transit coverage, vandalism, malicious mischief, theft,
earthquake (if the Leased Property is in earthquake zone 1 or 2) and sinkholes
(if usually recommended in the area of the Leased Property). The policy shall be
in the amount of the full replacement value (as defined in Section 4.5) of the
Improvements and Personal Property and shall contain a deductible amount
acceptable to Landlord. Landlord shall be named as an additional insured. The
policy shall include a stipulated value endorsement or agreed amount endorsement
and endorsements for contingent liability for operations of building laws,
demolition costs, and increased cost of construction.

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

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

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

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





                                     - 17 -
<PAGE>   25


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

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

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

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

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

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

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



                                     - 18 -
<PAGE>   26



supplies and temporary premises. The Builder's Risk Policy shall be in the
amount of the full replacement value of the Improvements and shall contain a
deductible amount acceptable to Landlord. Landlord shall be named as an
additional insured. The Builder's Risk Policy shall include an endorsement
permitting initial occupancy.

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

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

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

                     (c) Tenant shall be the "named insured" and Landlord shall
be an "additional insured" on each policy.

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

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

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

                     (g) At least 10 days prior to the expiration of each
insurance policy, Tenant shall deliver to Landlord a certificate showing renewal
of such policy and payment of the annual premium therefor and a current
Certificate of Compliance (in the form delivered at the time of Closing)
completed and signed by Tenant's insurance agent.

                  4.5 Replacement Value. The term "full replacement value" means
the actual replacement cost thereof from time to time including increased cost
of construction endorsement, with




                                     - 19 -
<PAGE>   27



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

                  4.6 Blanket Policy. Notwithstanding anything to the contrary
contained in this section, Tenant may [i] carry the insurance required by this
Article under a blanket policy of insurance, provided that the coverage afforded
Tenant will not be reduced or diminished or otherwise be different from that
which would exist under a separate policy meeting all of the requirements of
this Lease; and [ii] Tenant may meet the limits of liability for insurance by
maintaining a portion thereof as "excess" insurance under an umbrella policy.

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

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




                                     - 20 -
<PAGE>   28


person), each party hereto agrees immediately to give each insurance company
which has issued to it policies of insurance, written notice of the terms of
said mutual waivers, and to have such insurance policies properly endorsed, if
necessary, to prevent the invalidation of said insurance coverage by reason of
said waivers, so long as such endorsement is available at a reasonable cost.

                  4.9 Mortgages. The following provisions shall apply if
Landlord now or hereafter places a mortgage on the Leased Property or any part
thereof: [i] Tenant shall obtain a standard form of lender's loss payable clause
insuring the interest of the mortgagee; [ii] Tenant shall deliver evidence of
insurance to such mortgagee; [iii] loss adjustment shall require the consent of
the mortgagee; and [iv] Tenant shall provide such other information and
documents as may be required by the mortgagee.

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


                              ARTICLE 5: INDEMNITY

                  5.1 Tenant's Indemnification. Tenant hereby indemnifies and
agrees to hold harmless Landlord, any successors or assigns of Landlord, and
Landlord's and such successor's and assign's directors, officers, employees and
agents from and against any and all demands, claims, causes of action, fines,
penalties, damages (including consequential damages), losses, liabilities
(including strict liability), judgments, and expenses (including, without
limitation, reasonable attorneys' fees, court costs, and the costs set forth in
Section 8.7) incurred in connection with or arising from: [i] the use or
occupancy of the Leased Property by Tenant or any persons claiming under Tenant;
[ii] any activity, work, or thing done, or permitted or suffered by Tenant in or
about the Leased Property; [iii] any acts, omissions, or negligence of Tenant or
any person claiming under Tenant, or the contractors, agents, employees,
invitees, or visitors of Tenant or any such person; [iv] any breach, violation,
or nonperformance by Tenant or any person claiming under Tenant or the
employees, agents, contractors, invitees, or visitors of Tenant or of any such
person, of any term, covenant, or provision of this Lease or any law, ordinance,
or governmental requirement of any kind including, without limitation, any
failure to comply with any applicable requirements under the ADA; [v] any injury
or damage to the person, property or business of Tenant, its employees, agents,
contractors, invitees, visitors,



                                     - 21 -
<PAGE>   29


or any other person entering upon the Leased Property; and [vi] any
construction, alterations, changes or demolition of the Facility performed by or
contracted for by Tenant or its employees, agents or contractors. If any action
or proceeding is brought against Landlord, its employees, or agents by reason of
any such claim, Tenant, upon notice from Landlord, will defend the claim at
Tenant's expense with counsel reasonably satisfactory to Landlord. All amounts
payable to Landlord under this section shall be payable on written demand and
any such amounts which are not paid within 10 days after demand therefor by
Landlord shall bear interest at the Overdue Rate. In case any action, suit or
proceeding is brought against Tenant by reason of any such occurrence, Tenant
shall use its best efforts to defend such action, suit or proceeding.

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

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

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

                  5.2 Environmental Indemnity; Audits.

                  5.2.1 Indemnification. Tenant hereby indemnifies and agrees to
hold harmless Landlord, any successors to Landlord's interest in this Lease, and
Landlord's and such successors' directors, officers, employees and agents from
and against any losses, claims, damages (including consequential damages),
penalties, fines, liabilities (including strict liability), costs





                                     - 22 -
<PAGE>   30


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

                  5.3 Limitation of Landlord's Liability. Except for the grossly
negligent or willful acts or omissions of Landlord, its employees or agents,
Landlord, its agents, and employees, will not be liable for any loss, injury,
death, or damage (including consequential damages) to persons, property, or
Tenant's business occasioned by theft, act of God, public enemy, injunction,
riot, strike, insurrection, war, court order, requisition, order of governmental
body or authority, fire, explosion, falling objects, steam, water, rain or snow,
leak or flow of water (including water from the elevator system), rain or snow
from the Leased Property or into the Leased Property or from the roof, street,
subsurface or from any other place, or by dampness or from the breakage,
leakage, obstruction, or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, or lighting fixtures of the Leased
Property, or from construction, repair, or alteration of the Leased Property or
from any acts or omissions of any other occupant or visitor of the Leased
Property, or from any other cause beyond Landlord's control.

                    ARTICLE 6: USE AND ACCEPTANCE OF PREMISES


                                     - 23 -
<PAGE>   31


                  6.1 Use of Leased Property. Tenant shall use and occupy the
Leased Property exclusively for the Facility Uses specified for each Facility
and for all lawful and licensed ancillary uses, and for no other purpose without
the prior written consent of the Landlord. Tenant shall obtain and maintain (or
cause to be obtained and maintained) all approvals, licenses, and consents
needed to use and operate the Leased Property as herein permitted. Tenant shall
deliver to Landlord complete copies of surveys, examinations, certification and
licensure inspections, compliance certificates, and other similar reports issued
to Tenant by any governmental agency within 10 days after Tenant's receipt of
each item.

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

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


                                     - 24 -
<PAGE>   32


                     ARTICLE 7: REPAIRS AND MECHANICS' LIENS

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

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

                  7.3 Mechanic's Liens. Tenant shall have no authority to permit
or create a lien against Landlord's interest in the Leased Property, and Tenant
shall post notices or file such documents as may be required to protect
Landlord's interest in the Leased Property against liens. Tenant hereby agrees
to defend, indemnify, and hold Landlord harmless from and against any mechanic's
liens against the Leased Property by reason of work, labor, services or
materials supplied or claimed to have been supplied on or to the Leased
Property. Subject to Tenant's right to contest such lien pursuant to Section 3.7
of this Lease, Tenant shall remove, bond-off, or otherwise obtain the release of
any mechanic's lien filed against the Leased Property at Landlord's request
within 10 days after the filing thereof. Tenant shall pay all expenses in
connection therewith, including without limitation, damages, interest, court
costs and reasonable attorneys' fees.


                                     - 25 -
<PAGE>   33

                  7.4 Replacements of Fixtures and Landlord's Personal Property.
Tenant shall not remove Fixtures and Landlord's Personal Property from the
Leased Property except to replace the Fixtures and Landlord's Personal Property
by other similar items of equal quality and value. Items being replaced by
Tenant may be removed and shall become the property of Tenant and items
replacing the same shall be and remain the property of Landlord. Tenant shall
execute, upon written request from Landlord, any and all documents necessary to
evidence Landlord's ownership of Landlord's Personal Property and replacements
therefor. Tenant may finance replacements for the Fixtures and Landlord's
Personal Property by equipment lease or by a security agreement and financing
statement if [i] Landlord has consented to the terms and conditions of the
equipment lease or security agreement which consent shall not be unreasonably
withheld, conditioned, or delayed; and [ii] for fixtures and Personal Property
having a cost in excess of $75,000.00, the equipment lessor or lender has
entered into a nondisturbance agreement with Landlord upon terms and conditions
reasonably acceptable to Landlord, including without limitation, the following:
[a] Landlord shall have the right (but not the obligation) to assume such
security agreement or equipment lease upon the occurrence of an Event of Default
under this Lease; [b] the equipment lessor or lender shall notify Landlord of
any default by Tenant under the equipment lease or security agreement and give
Landlord a reasonable opportunity to cure such default; and [c] Landlord shall
have the right to assign its rights under the equipment lease, security
agreement, or nondisturbance agreement. Tenant shall, within 30 days after
receipt of an invoice from Landlord, reimburse Landlord for all reasonable costs
and expenses incurred in reviewing and approving the equipment lease, security
agreement and nondisturbance agreement, including without limitation, reasonable
attorney's fees and costs. Tenant shall use its best efforts to obtain the
provisions listed in this section from an equipment lessor, and Landlord shall
be commercially reasonable in negotiating such nondisturbance agreement.


                        ARTICLE 8: DEFAULTS AND REMEDIES

                  8.1 Events of Default. The occurrence of any one or more of
the following shall be an event of default ("Event of Default") hereunder
without any advance notice to Tenant unless specified herein:

                     (a) Tenant fails to pay in full any installment of Base
Rent, any Additional Rent or any other monetary obligation payable by Tenant
under this Lease (including the Option Price), within 10 days after such payment
is due.



                                     - 26 -
<PAGE>   34


                     (b) Tenant or Guarantor (where applicable) fails to comply
with any covenant set forth in Article 14, Section 15.3.6, Section 15.6, Section
15.7 or Article 20 of this Lease.

                     (c) Tenant fails to observe and perform any other covenant,
condition or agreement under this Lease to be performed by Tenant and [i] such
failure continues for a period of 30 days after written notice thereof is given
to Tenant by Landlord; or [ii] if, by reason of the nature of such default, the
same cannot be remedied within said 30 days, Tenant fails to proceed with
diligence reasonably satisfactory to Landlord after receipt of the notice to
cure the same or, in any event, fails to cure such default within 75 days after
receipt of the notice. The foregoing notice and cure provisions do not apply to
any Event of Default otherwise specifically described in any other subsection of
Section 8.1.

                     (d) Tenant abandons or vacates any Facility Property or any
material part thereof or ceases to do business or ceases to exist for any reason
for five or more days.

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

                     (f) [i] Any receiver, administrator, custodian or other
person takes possession or control of any of the Leased Property and continues
in possession for 60 days; [ii] any writ against any of the Leased Property is
not released within 60 days; [iii] any final nonappealable judgment is rendered
or proceedings are instituted against the Leased Property or Tenant




                                     - 27 -
<PAGE>   35



which affect the Leased Property or any part thereof, which is not dismissed for
60 days (except as otherwise provided in this section); [iv] all or a
substantial part of the assets of Tenant or Guarantor are attached, seized,
subjected to a writ or distress warrant, or are levied upon, or come into the
possession of any receiver, trustee, custodian, or assignee for the benefit of
creditors; [v] Tenant or Guarantor is enjoined, restrained, or in any way
prevented by court order, or any proceeding is filed or commenced seeking to
enjoin, restrain or in any way prevent Tenant from conducting all or a
substantial part of its business or affairs; or [vi] except as otherwise
permitted hereunder, a final notice of lien, levy or assessment is filed of
record with respect to all or any part of the Leased Property or any property of
Tenant located at the Leased Property and is not dismissed, discharged, or
bonded-off within 30 days.

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

                     (h) Tenant, any Guarantor, or any Affiliate defaults on any
indebtedness or obligation to Landlord in connection with this Lease, or Tenant
defaults on any Material Obligation, and any applicable grace or cure period
with respect to default under such indebtedness or obligation expires without
such default having been cured. This provision applies to all such indebtedness,
obligations and agreement as they may be amended, modified, extended, or
reviewed from time to time.

                     (i) The occurrence of any change in Tenant's leasehold
interest in any of the Leased Property, without the prior written consent of
Landlord.

                     (j) Any guarantor of this Lease dies, dissolves,
terminates, is adjudicated incompetent, files a petition in bankruptcy, or is
adjudicated insolvent under 11 U.S.C. or any other insolvency law (provided,
however, in the case of an involuntary bankruptcy petition or other commencement
of bankruptcy, reorganization or similar proceeding against Guarantor, Guarantor
shall have 60 days to dismiss such action), or fails to comply with any covenant
or requirement of such guarantor set forth in this Lease or in the guaranty of
such guarantor, and in the case of the death or incompetency of an individual
guarantor only, Tenant fails within 30 days to deliver


                                     - 28 -
<PAGE>   36

to Landlord a substitute guaranty or other collateral reasonably satisfactory to
Landlord.


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

                  8.2 Remedies. Upon the occurrence of an Event of Default under
this Lease or any Lease Document, and at any time thereafter until Landlord
waives the default in writing or acknowledges cure of the default in writing, at
Landlord's option, without declaration, notice of nonperformance, protest,
notice of protest, notice of default, notice to quit or any other notice or
demand of any kind, Landlord may exercise any and all rights and remedies
provided in this Lease or any Lease Document, including, without limitation, any
one or more of the following remedies:

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

                     (b) Landlord may terminate this Lease with respect to all
or any portion of the Leased Property, exclude Tenant from possession of such
Leased Property and use efforts to lease such Leased Property to others, holding
Tenant liable for the difference in the amounts received from such reletting and
the amounts payable by Tenant under this Lease.

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

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



                                     - 29 -
<PAGE>   37


                     (e) Landlord may accelerate all of the unpaid Rent
hereunder so that the aggregate Rent for the unexpired term of this Lease
becomes immediately due and payable, subject to Landlord's obligations under law
to leave Tenant in possession of the Leased Property.

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

                     (g) With respect to the Collateral or any portion thereof
and Landlord's security interest therein, Landlord may exercise all of its
rights as secured party under Article 9 of the Uniform Commercial Code as
adopted in the State. Landlord may sell the Collateral by public or private sale
upon 5 days notice to Tenant. Tenant agrees that a commercially reasonable
manner of disposition of the Collateral shall include, without limitation and at
the option of Landlord, a sale of the Collateral, in whole or in part,
concurrently with the sale of the Leased Property.

                     (h) Landlord may obtain control over and collect the
Receivables and apply the proceeds of the collections to satisfaction of
Tenant's Obligations unless prohibited by law. Tenant appoints Landlord or its
designee as attorney for Tenant with powers [i] to receive, to endorse, to sign
and/or to deliver, in Tenant's name or Landlord's name, any and all checks,
drafts, and other instruments for the payment of money relating to the
Receivables, and to waive demand, presentment, notice of dishonor, protest, and
any other notice with respect to any such instrument; [ii] to sign Tenant's name
on any invoice or bill of lading relating to any Receivable, drafts against
account debtors, assignments and verifications of Receivables, and notices to
account debtors; [iii] to send verifications of Receivables to any account
debtor; and [iv] to do all other acts and things necessary to carry out this
Lease. Except for willful acts or omissions, Landlord shall not be liable for
any omissions, commissions, errors of judgment, or mistakes in fact or law made
in the exercise of any such powers. At Landlord's option, Tenant shall [i]
provide Landlord a full accounting of all amounts received on account of
Receivables with such frequency and in such form as Landlord may require, either
with or without applying all collections on Receivables in payment of Tenant's
Obligations or [ii] deliver to Landlord on the day of receipt all such
collections in the form received and duly



                                     - 30 -
<PAGE>   38



endorsed by Tenant. At Landlord's request, Tenant shall institute any action or
enter into any settlement determined by Landlord to be necessary to obtain
recovery or redress from any account debtor in default of Receivables. Landlord
may give notice of its security interest in the Receivables to any or all
account debtors with instructions to make all payments on Receivables directly
to Landlord, thereby terminating Tenant's authority to collect Receivables.
After terminating Tenant's authority to enforce or collect Receivables, Landlord
shall have the right to take possession of any or all Receivables and records
thereof and is hereby authorized to do so, and only Landlord shall have the
right to collect and enforce the Receivables. Prior to the occurrence of an
Event of Default, at Tenant's cost and expense, but on behalf of Landlord and
for Landlord's account, Tenant shall collect or otherwise enforce all amounts
unpaid on Receivables and hold all such collections in trust for Landlord, but
Tenant may commingle such collections with Tenant's own funds, until Tenant's
authority to do so has been terminated, which may be done only after an Event of
Default. Notwithstanding any other provision hereof, Landlord does not assume
any of Tenant's obligations under any Receivable, and Landlord shall not be
responsible in any way for the performance of any of the terms and conditions
thereof by Tenant.

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

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

                     (k) Landlord may enter and take possession of the Land or
any portion thereof and the respective one or more Facilities without
terminating the Lease and complete construction and renovation of the
Improvements (or any part thereof) and perform the obligations of Tenant under
the Lease Documents. Without limiting the generality of the foregoing and for
the purposes aforesaid, Tenant hereby appoints Landlord its lawful
attorney-in-fact with full power to do any of the following: [i] complete
construction, renovation and equipping of the Improvements in the name of
Tenant; [ii] use unadvanced funds remaining under the Lease Amount, or funds
that may be reserved, escrowed, or set aside for any purposes hereunder at any
time, or to advance funds in excess of the Lease Amount, to complete the
Improvements; [iii] make changes in the plans and specifications that shall be
necessary or desirable to complete the Improvements in substantially the manner
contemplated by the plans and specifications; [iv] retain or employ new general
contractors,




                                     - 31 -
<PAGE>   39



subcontractors, architects, engineers, and inspectors as shall be required for
said purposes; [v] pay, settle, or compromise all existing bills and claims,
which may be liens or security interests, or to avoid such bills and claims
becoming liens against the Facility or security interest against fixtures or
equipment, or as may be necessary or desirable for the completion of the
construction and equipping of the Improvements or for the clearance of title;
[vi] execute all applications and certificates, in the name of Tenant, that may
be required in connection with any construction; [vii] do any and every act that
Tenant might do in its own behalf, to prosecute and defend all actions or
proceedings in connection with the Improvements; and [viii] to execute, deliver
and file all applications and other documents and take any and all actions
necessary to transfer the operations of the Facility to Landlord or Landlord's
designee. This power of attorney is a power coupled with an interest and cannot
be revoked.

                     (l) Landlord may apply, without notice to Tenant, for the
appointment of a receiver ("Receiver") of the Leased Property. Unless prohibited
by law, such appointment may be made either before or after termination of
Tenant's possession of the Leased Property, without notice, without regard to
the solvency or insolvency of Tenant at the time of application for such
Receiver and without regard to the then value of the Leased Property, and
Landlord may be appointed as Receiver. The Receiver shall have the power to
collect the rents, income, profits and Receivables of the Leased Property during
the pendency of the receivership and all other powers which may be necessary or
are usual in such cases for the protection, possession, control, management and
operation of the Leased Property during the whole of said proceeding. All sums
of money received by the Receiver from such rents and income, after deducting
therefrom the reasonable charges and expenses paid or incurred in connection
with the collection and disbursement thereof, shall be applied to the payment of
the Rent or any other monetary obligation of Tenant under this Lease, including,
without limitation, any losses or damages incurred by Landlord under this Lease.
Tenant, if requested to do so, will consent to the appointment of any such
Receiver as aforesaid.

                     (m) Landlord may terminate any management agreement with
respect to any of the Leased Property and shall have the right to retain one or
more managers for the Leased Property, such manager(s) to serve for such term
and at such compensation as Landlord reasonably determines is necessary under
the circumstances.




                                     - 32 -
<PAGE>   40

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

                  8.4      Performance of Tenant's Covenants. Landlord may
perform any obligation of Tenant which Tenant has failed to perform within 5
days after Landlord has sent a written notice to Tenant informing it of its
specific failure. Tenant shall reimburse Landlord on demand, as Additional Rent,
for any expenditures thus incurred by Landlord and shall pay interest thereon at
the Overdue Rate (as defined in Section 8.6).

                  8.5 Late Payment Charge. Tenant acknowledges that any default
in the payment of any installment of Rent payable hereunder will result in loss
and additional expense to Landlord in servicing any indebtedness of Landlord
secured by the Leased Property, handling such delinquent payments, and meeting
its other financial obligations, and because such loss and additional expense is
extremely difficult and impractical to ascertain, Tenant agrees that in the
event any Rent payable to Landlord hereunder is not paid within 10 days after
the due date, Tenant shall pay a late charge of 5% of the amount of the overdue
payment as a reasonable estimate of such loss and expenses, unless applicable
law requires a lesser charge, in which event the maximum rate permitted by such
law may be charged by Landlord. The 10 day grace period set forth in this
section shall not extend the time for payment of Rent or the period for curing
any default or constitute a waiver of such default.

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



                                     - 33 -
<PAGE>   41


payable under this Lease does not accrue at a rate in excess of the maximum
legal rate. Tenant shall not be required to pay interest upon any late payment
fees assessed pursuant to Section 8.5.

                  8.7 Attorneys' Fees. Tenant shall pay all reasonable costs and
expenses incurred by Landlord in enforcing or preserving Landlord's rights under
this Lease, whether or not an Event of Default has actually occurred or has been
declared and thereafter cured, including without limitation, [i] the reasonable
fees, expenses, and costs of any litigation, appellate, receivership,
administrative, bankruptcy, insolvency or other similar proceeding; [ii]
reasonable attorney, paralegal, consulting and witness fees and disbursements,
whether in-house counsel or outside counsel; and [iii] the reasonable expenses,
including without limitation, lodging, meals, and transportation, of Landlord
and its employees, agents, attorneys, and witnesses in preparing for litigation,
administrative, bankruptcy, insolvency or other similar proceedings and
attendance at hearings, depositions, and trials in connection therewith. All
such reasonable costs, expenses, charges and fees payable by Tenant shall be
deemed to be Additional Rent under this Lease.

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

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

                  8.10 Waivers. Tenant waives [i] any notice required by statute
or other law as a condition to bringing an action for possession of, or eviction
from, any of the Leased Property, [ii] any right of re-entry or repossession,
[iii] any right to a trial by jury in any action or proceeding arising out of or
relating to this Lease, [iv] any objections, defenses, claims or rights with
respect to the exercise by Landlord of any rights or




                                     - 34 -
<PAGE>   42


remedies, [v] any right of redemption whether pursuant to statute, at law or in
equity, [vi] all presentments, demands for performance, notices of
nonperformance, protest, notices of protest, notices of dishonor, notices to
quit and any other notice or demand of any kind, and [vii] all notices of the
existence, creation or incurring of any obligation or advance under this Lease
before or after this date.


                        ARTICLE 9: DAMAGE AND DESTRUCTION

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

                  9.2 Substantial Destruction.

                  9.2.1 If any Facility's Improvements are substantially
destroyed at any time other than during the final 18 months of the Initial Term,
Tenant shall promptly rebuild and restore such Improvements in accordance with
Section 9.4 and Landlord shall make the insurance proceeds available to Tenant
for such restoration. The term "substantially destroyed" means any casualty
resulting in the loss of use of 50% or more of the licensed beds at any one
Facility.



                                     - 35 -
<PAGE>   43


                  9.2.2 If any Facility's Improvements are substantially
destroyed during the final 18 months of the Initial Term, Landlord may elect to
terminate this Lease and retain the insurance proceeds unless Tenant exercises
its option to renew as set forth in Section 9.2.3 or exercises its option to
purchase as set forth in Section 9.2.4. If Landlord elects to terminate,
Landlord shall give notice ("Termination Notice") of its election to terminate
this Lease within 30 days after receipt of Tenant's notice of the damage. If
Tenant does not exercise its option to renew under Section 9.2.3 or its option
to purchase under Section 9.2.4 within 15 days after delivery of the Termination
Notice, this Lease shall terminate on the 15th day after delivery of the
Termination Notice. If this Lease is so terminated, Tenant shall be liable to
Landlord for all Rent and all other obligations accrued under this Lease through
the effective date of termination.

                  9.2.3 If any Facility's Improvements are substantially
destroyed during the final 18 months of the Initial Term and Landlord gives the
Termination Notice, Tenant shall have the option to extend the Initial Term of
this Lease. Tenant shall give Landlord irrevocable notice of Tenant's election
to extend within 15 days after delivery of the Termination Notice. If Tenant
elects to extend, the Initial Term will be in effect for the balance of the then
current Term plus a 5 year period. The extended Term will commence on the third
day following Landlord's receipt of Tenant's notice of extension. The
Improvements will be restored by Tenant in accordance with the provisions of
this Article 9 regarding partial destruction.

                  9.2.4 If any Facility's Improvements are substantially
destroyed during the final 18 months of the Initial Term and Landlord gives the
Termination Notice, Tenant shall have the option to purchase the Leased
Property. Tenant shall give Landlord notice of Tenant's election to purchase
within 15 days after delivery of the Termination Notice. If Tenant elects to
purchase the Leased Property, the Option Price will be determined in accordance
with Section 13.2 and the Fair Market Value will be determined in accordance
with Section 13.3. For purposes of determining the Fair Market Value, the Leased
Property will be valued as if it had been restored to be equal in value to the
Leased Property existing immediately prior to the occurrence of the damage. All
other terms of the option to purchase shall be in accordance with Article 13.
Landlord shall hold the insurance proceeds until the closing of the purchase of
the Leased Property and at closing shall deliver the proceeds to Tenant.




                                     - 36 -
<PAGE>   44


                  9.3 Partial Destruction. If any Facility's Improvements are
not substantially destroyed, then Tenant shall comply with the provisions of
Section 9.4 and Landlord shall make the insurance proceeds available to Tenant
for such restoration.

                  9.4 Restoration. Tenant shall promptly repair, rebuild, or
restore the damaged Leased Property, at Tenant's expense, so as to make the
Leased Property at least equal in value to the Leased Property existing
immediately prior to such occurrence and as nearly similar to it in character as
is practicable and reasonable. Before beginning such repairs or rebuilding, or
letting any contracts in connection with such repairs or rebuilding, Tenant will
submit for Landlord's approval, which approval Landlord will not unreasonably
withhold or delay, plans and specifications meeting the requirements of Section
16.2 for such repairs or rebuilding. Promptly after receiving Landlord's
approval of the plans and specifications and receiving the proceeds of
insurance, Tenant will begin such repairs or rebuilding and will prosecute the
repairs and rebuilding to completion with diligence, subject, however, to
strikes, lockouts, acts of God, embargoes, governmental restrictions, and other
causes beyond Tenant's reasonable control. Landlord will make available to
Tenant the net proceeds of any fire or other casualty insurance paid to Landlord
for such repair or rebuilding as the same progresses, after deduction of any
costs of collection, including attorneys' fees. Payments will be made against
properly certified vouchers of a competent architect in charge of the work and
approved by Landlord. Prior to commencing the repairing or rebuilding, Tenant
shall deliver to Landlord for Landlord's approval a schedule setting forth the
estimated monthly draws for such work. Landlord will contribute to such payments
out of the insurance proceeds an amount equal to the proportion that the total
net amount received by Landlord from insurers bears to the total estimated cost
of the rebuilding or repairing, multiplied by the payment by Tenant on account
of such work. Landlord may, however, withhold 10% from each payment until the
work is completed and proof has been furnished to Landlord that no lien or
liability has attached or will attach to the Leased Property or to Landlord in
connection with such repairing or rebuilding. Upon the completion of rebuilding
and the furnishing of such proof, the balance of the net proceeds of such
insurance payable to Tenant on account of such repairing or rebuilding will be
paid to Tenant. Tenant will obtain and deliver to Landlord a temporary or final
certificate of occupancy before the damaged Leased Property is reoccupied for
any purpose. Tenant shall complete such repairs or rebuilding free and clear of
mechanic's or other liens, and in accordance with the building



                                     - 37 -
<PAGE>   45


codes and all applicable laws, ordinances, regulations, or orders of any state,
municipal, or other public authority affecting the repairs or rebuilding, and
also in accordance with all requirements of the insurance rating organization,
or similar body. Any remaining proceeds of insurance after such restoration will
be Tenant's property.

                  9.5 Insufficient Proceeds. If the proceeds of any insurance
settlement are not sufficient to pay the costs of Tenant's repair, rebuilding or
restoration under Section 9.4 in full, Tenant shall deposit with Landlord at
Landlord's option, and within 10 days of Landlord's request, an amount
sufficient in Landlord's reasonable judgment to complete such repair, rebuilding
or restoration. Tenant shall not, by reason of the deposit or payment, be
entitled to any reimbursement from Landlord or diminution in or postponement of
the payment of the Rent.

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

                  9.7 Landlord's Inspection. During the progress of such repairs
or rebuilding, Landlord and its architects and engineers may, from time to time,
inspect the Leased Property and will be furnished, if required by them, with
copies of all plans, shop drawings, and specifications relating to such repairs
or rebuilding. Tenant will keep all plans, shop drawings, and specifications at
the building, and Landlord and its architects and engineers may examine them at
all reasonable times. If, during such repairs or rebuilding, Landlord and its
architects and engineers determine that the repairs or rebuilding are not being
done in accordance with the approved plans and specifications, Landlord will
give prompt notice in writing to Tenant, specifying in detail the particular
deficiency, omission, or other respect in which Landlord claims such repairs or
rebuilding do not accord with the approved plans and specifications. Upon the
receipt of any such notice, Tenant will cause corrections to be made to any
deficiencies, omissions, or such other respect. Tenant's obligations to supply
insurance, according to Article 4, will be applicable to any repairs or
rebuilding under this section.



                                     - 38 -
<PAGE>   46


                  9.8 Landlord's Costs. Tenant shall, within 30 days after
receipt of an invoice from Landlord, pay the reasonable costs, expenses, and
fees of any architect or engineer employed by Landlord to review any plans and
specifications and to supervise and approve any construction, or for any
services rendered by such architect or engineer to Landlord as contemplated by
any of the provisions of this Lease, or for any services performed by Landlord's
attorneys in connection therewith.

                  9.9 No Rent Abatement. Rent will not abate pending the repairs
or rebuilding of the Leased Property, but shall be offset against any rental
insurance proceeds received by Landlord.


                            ARTICLE 10: CONDEMNATION

                  10.1 Total Taking. If, by exercise of the right of eminent
domain or by conveyance made in response to the threat of the exercise of such
right ("Taking"), any entire Facility Property is taken, or so much of any
Facility Property is taken that the Facility Property cannot be used by Tenant
for the purposes for which it was used immediately before the Taking, then this
Lease will end with respect to such Facility Property only on the earlier of the
vesting of title to the Facility Property in the condemning authority or the
taking of possession of the Facility Property by the condemning authority. Upon
such termination, the Lease Amount shall be reduced by the Allocated Lease
Amount for such Facility Property and Rent hereunder shall be reduced
accordingly. All damages awarded for such Taking under the power of eminent
domain shall be the property of the Landlord, whether such damages shall be
awarded as compensation for diminution in value of the leasehold or the fee of
the Facility Property. If this Lease is terminated with respect to any Facility
Property subject to a taking as described in this section, Landlord may, at its
option, terminate this Lease with respect to all Leased Property.

                  10.1.1 If any Facility Property is taken during the final 18
months of the Initial Term and Landlord elects to terminate this Lease with
respect to all Leased Property, Tenant shall have the option to purchase all of
the Leased Property. Tenant shall give Landlord notice of Tenant's election to
purchase within 15 days after delivery of the notice of Landlord's intent to
terminate. If Tenant elects to purchase all of the Leased Property, the Option
Price will be determined in accordance with Section 13.2 and the Fair Market
Value will be




                                     - 39 -
<PAGE>   47


determined in accordance with Section 13.3. All other terms of the option to
purchase shall be in accordance with Article 13.

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

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




                                     - 40 -
<PAGE>   48


                          ARTICLE 11: TENANT'S PROPERTY

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

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

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

                     (b) Tenant shall, at Tenant's sole cost and expense, keep
Tenant's Property insured against loss or damage by fire, vandalism and
malicious mischief, sprinkler leakage, earthquake (if Leased Property is in
earthquake zone 1 or 2), and other physical loss perils commonly covered by fire
and extended coverage, boiler and machinery, and difference in conditions
insurance in an amount not less than 90% of the then full replacement cost
thereof. Tenant shall use the proceeds from any such policy for the repair and
replacement of Tenant's Property. The insurance shall meet the requirements of
Section 4.3.

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

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

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




                                     - 41 -
<PAGE>   49


                     (f) Tenant shall not, without the prior written consent of
Landlord or as otherwise provided in this Lease, remove any Tenant's Property or
Leased Property. Tenant shall, at Landlord's option, remove Tenant's Property
upon the termination or expiration of this Lease and shall repair any damage to
the Leased Property resulting from the removal of Tenant's Property. If Tenant
fails to remove Tenant's Property within 30 days after request by Landlord, then
Tenant shall be deemed to have abandoned Tenant's Property, Tenant's Property
shall become the property of Landlord, and Landlord may remove, store and
dispose of Tenant's Property. In such event, Tenant shall have no claim or right
against Landlord for such property or the value thereof regardless of the
disposition thereof by Landlord. Tenant shall pay Landlord, upon demand, all
expenses incurred by Landlord in removing, storing, and disposing of Tenant's
Property and repairing any damage caused by such removal. Tenant's obligations
hereunder shall survive the termination or expiration of this Lease.

                     (g) Tenant shall perform its obligations under any
equipment lease or security agreement for Tenant's Property. For equipment loans
or leases for equipment having an original cost in excess of $75,000.00, Tenant
shall cause such equipment lessor or lender to enter into a nondisturbance
agreement with Landlord upon terms and conditions acceptable to Landlord,
including without limitation, the following: [i] Landlord shall have the right
(but not the obligation) to assume such equipment lease or security agreement
upon the occurrence of an Event of Default by Tenant hereunder; [ii] such
equipment lessor or lender shall notify Landlord of any default by Tenant under
the equipment lease or security agreement and give Landlord a reasonable
opportunity to cure such default; and [iii] Landlord shall have the right to
assign its interest in the equipment lease or security agreement and
nondisturbance agreement. Tenant shall, within 30 days after receipt of an
invoice from Landlord, reimburse Landlord for all costs and expenses incurred in
reviewing and approving the equipment lease, security agreement and
nondisturbance agreement, including without limitation, reasonable attorneys'
fees and costs.


                       ARTICLE 12: [INTENTIONALLY DELETED]

                         ARTICLE 13: OPTION TO PURCHASE

                  13.1 Option to Purchase. Landlord hereby grants to Tenant an
option to purchase ("Option to Purchase") all of the Leased Property (but not
any part thereof) in accordance with the terms and conditions of this Article
13. Tenant may exercise its




                                     - 42 -
<PAGE>   50


Option to Purchase only by giving an irrevocable notice of Tenant's election to
purchase the Leased Property ("Purchase Notice") in accordance with the
following:

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

                     (b) If any Facility's Improvements are substantially
destroyed during the final 18 months of the Initial Term, Tenant must give a
Purchase Notice within 15 days after Landlord gives the Termination Notice
pursuant to Section 9.2.4.

                     (c) If any Facility Property is taken during the final 18
months of the Initial Term by exercise of the right of eminent domain or by
conveyance made in response to the threat of the exercise of such right, Tenant
must give a Purchase Notice within 30 days after delivery of the notice of
Landlord's intent to terminate pursuant to Section 10.1.1.

Tenant shall have no right to exercise the Option to Purchase other than in
accordance with subparagraphs (a) - (c).

                  13.2 Option Price. The option price ("Option Price") will be
an amount equal to the greater of [i] the Lease Amount; or [ii] the Fair Market
Value. In addition to the Option Price, Tenant shall pay all closing costs and
expenses in connection with the transfer of the Leased Property to Tenant
including but not limited to the following: [a] real property conveyance or
transfer fees or deed stamps; [b] title search fees, title insurance commitment
fees, and title insurance premiums; [c] survey fees; [d] environmental
assessment fees; [e] recording fees; [f] attorneys' fees of Landlord's counsel;
[g] fees of any escrow agent; and [h] all amounts, costs, expenses, charges,
Additional Rent and other items payable by Tenant to Landlord including but not
limited to enforcement costs as set forth in Section 8.7.

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

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



                                     - 43 -
<PAGE>   51



                  13.3.2 Landlord and Tenant shall each give the other party
notice of the name of an acceptable appraiser 15 days after giving of the
Purchase Notice. The two appraisers will then select a third appraiser within an
additional 5 days. Each appraiser must demonstrate to the reasonable
satisfaction of both Landlord and Tenant that it has significant experience in
appraising properties similar to the Leased Property. Within 5 days after
designation, each appraiser shall submit a resume to Landlord and Tenant setting
forth such appraiser's qualifications including education and experience with
similar properties. A notice of objections to the qualifications of any
appraiser shall be given within 10 days after receipt of such resume. If a party
fails to timely object to the qualifications of an appraiser, then the appraiser
shall be conclusively deemed satisfactory. If a party gives a timely notice of
objection to the qualifications of an appraiser, then the disqualified appraiser
shall be replaced by an appraiser selected by the qualified appraisers or, if
all appraisers are disqualified, then by an appraiser selected by a commercial
arbitrator acceptable to Landlord and Tenant.

                  13.3.3 The Fair Market Value shall be determined by the
appraisers within 45 days after the selection of the appraisers as follows. Each
of the appraisers shall be instructed to prepare an appraisal of the Leased
Property in accordance with the following instructions:

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

The three approaches to estimate value are summarized as follows:

                  Income Approach: This valuation approach recognizes that the
                  value of the operating tangible and intangible assets can be
                  represented by the expected economic viability of the business
                  giving returns on and of the assets.

                  Sales Comparison Approach: This valuation approach is based
                  upon the principle of substitution. When a facility is
                  replaceable in the market, the market approach assumes that
                  value tends to be set at the price of



                                     - 44 -
<PAGE>   52



                  acquiring an equally desirable substitute facility. Since
                  healthcare market conditions change and frequently are subject
                  to regulatory and financing environments, adjustments need to
                  be considered. These adjustments also consider the operating
                  differences such as services and demographics.

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

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

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

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

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

                  13.4 Closing. The purchase of the Leased Property by Tenant
shall close on a date agreed to by Landlord and Tenant which shall be not less
than 60 days after Landlord's receipt of the Purchase Notice and not more than
60 days after the Fair Market Value of the Leased Property has been determined.
At the closing, Tenant shall pay the Option Price and all closing costs in
immediately available funds and Landlord shall convey title to





                                     - 45 -
<PAGE>   53


the Leased Property to Tenant by a transferable and recordable special warranty
deed and special warranty bill of sale.

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

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


                         ARTICLE 14: NEGATIVE COVENANTS

                  Until Tenant's Obligations shall have been performed in full,
Tenant and Guarantor covenant and agree that Tenant (and Guarantor where
applicable) shall not do any of the following without the prior written consent
of Landlord:

                  14.1 No Debt. Tenant shall not create, incur, assume, or
permit to exist any indebtedness other than [i] trade debt incurred in the
ordinary course of Tenant's business; and [ii] indebtedness that is secured by
any Permitted Lien.

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

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

                  14.4 No Transfer. Tenant shall not sell, lease, sublease,
mortgage, convey, assign or otherwise transfer any legal or equitable interest
in the Leased Property or any part thereof, except for transfers made in
connection with any Permitted Lien without the prior written consent of
Landlord, which consent shall not be unreasonably withheld.




                                     - 46 -
<PAGE>   54



                  14.5 No Dissolution. Tenant, Manager (if applicable) or
Guarantor shall not dissolve, liquidate, merge, consolidate or terminate its
existence or sell, assign, lease, or otherwise transfer (whether in one
transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired). Notwithstanding the foregoing,
Guarantor may merge with another entity provided that [i] Guarantor is the
surviving corporation; and [ii] following the merger, Guarantor can satisfy all
of the obligations of Guarantor under the Lease Documents, including but not
limited to the financial covenants in Section 15.7.

                  14.6 No Change in Management or Operation. No material change
shall occur in the management of Tenant or Manager (if applicable) or in the
management or licensed operation of the Facility. BCC Development and Management
Co. shall remain the manager of the Facility. Tenant shall remain the licensed
operator of the Facility. Guarantor shall not make a change in its President,
Chief Operating Officer, or Chief Financial Officer without giving Landlord
prior written notice (or in the case of death, written notice within a
reasonable time thereafter).

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

                  14.8 Contracts. Tenant shall not execute or modify any
material contracts or agreements with respect to the Facility except for
contracts and modifications approved by Landlord. Contracts made in the ordinary
course of business and in an amount less than $250,000.00 shall not be
considered "material" for purposes of this paragraph.

                  14.9 Subordination of Payments to Affiliates. After the
occurrence of an Event of Default and until such Event of Default is cured,
Tenant and Guarantor shall not make any payments or distributions (including,
without limitation, salary, bonuses, fees, principal, interest, dividends,
liquidating distributions, management fees, cash flow distributions or lease
payments) to Guarantor, Manager (if applicable), any Affiliate, or any
shareholder, member or partner of Tenant, Guarantor, Manager (if applicable) or
any Affiliate. Notwithstanding the foregoing, Guarantor shall be permitted to
pay dividends to




                                     - 47 -
<PAGE>   55



shareholders and regularly scheduled salary and bonus payments (but no
extraordinary salary, bonuses, or other compensation).

                  14.10 Change of Location or Name. Tenant shall not change any
of the following without giving Landlord 30 days prior written notice: [i] the
location of the principal place of business or chief executive office of Tenant,
or any office where any of Tenant's books and records are maintained; or [ii]
the name under which Tenant conducts any of its business or operations.


                        ARTICLE 15: AFFIRMATIVE COVENANTS

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

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

                  15.3 Documents and Information.

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



                                     - 48 -
<PAGE>   56



Financial Report and a Quarterly Facility Accounts Receivable Aging Report
(based upon internal financial statements) within 60 days after the end of each
fiscal year.

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

                  15.3.3 Further Assurances and Information. Tenant shall, on
request of Landlord from time to time, execute, deliver, and furnish documents
as may be necessary to fully consummate the transactions contemplated under this
Lease. Within 15 days after a request from Landlord, Tenant shall provide to
Landlord such additional information regarding Tenant, Tenant's financial
condition or the Facility as Landlord, or any existing or proposed creditor of
Landlord, or any auditor or underwriter of Landlord, may require from time to
time, including, without limitation, a current Tenant's Certificate and Facility
Financial Report in the form of Exhibit F. Upon Landlord's request, but not more
than once every three years, Tenant shall provide to Landlord, at Tenant's
expense, an appraisal prepared by an MAI appraiser setting forth the current
fair market value of the Leased Property.

                  15.3.4 Material Communications. Tenant shall transmit to
Landlord, within 5 business days after receipt thereof, any material
communication affecting a Facility, this Lease, the Legal Requirements or the
Government Authorizations, and Tenant will promptly respond to Landlord's
inquiry with respect to such information. Tenant shall promptly notify Landlord
in writing after Tenant has knowledge of any potential, threatened or existing
litigation or proceeding against, or investigation of, Tenant, Guarantor, or the
Facility that may affect the right to operate the Facility or Landlord's title
to the Facility or Tenant's interest therein.



                                     - 49 -
<PAGE>   57


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

                  15.3.6 [Intentionally Deleted].

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

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

                  15.6 Existence and Change in Ownership. Tenant, Manager (if
applicable) and Guarantor shall maintain its existence throughout the term of
this Lease. Any change in the ownership of Tenant or Manager (if applicable),
directly or indirectly, shall require Landlord's prior written consent. A change
in ownership of Balanced Care Corporation shall not constitute an indirect
change in the ownership of Tenant or Manager. Landlord's consent to a change in
ownership shall not be unreasonably withheld.

                  15.7 Financial Covenants. The defined terms used in this
section are defined in Section 15.7.1. The method of calculating Net Worth and
valuing assets shall be consistent with




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<PAGE>   58


the Financial Statements. The following financial covenants shall be met
throughout the term of this Lease:

                  15.7.1 Definitions.

                     (a) "Cash Flow" means the net income of Tenant arising from
a respective Facility as reflected on the income statement of Tenant plus [i]
the amount of the provision for depreciation and amortization; [ii] the amount
of the provision for management fees; plus [iii] the amount of the provision for
income taxes; plus [iv] the amount of the provision for Rent payments allocated
to the respective Facility and interest and lease payments, if any, relating to
the respective Facility; minus [v] an imputed management fee equal to 5% of
gross revenues of the respective Facility (net of contractual allowances); and
minus [vi] an imputed replacement reserve of $250.00 per licensed bed at the
respective Facility, per year.

                     (b) "Coverage Ratio" is the ratio of [i] Cash Flow of a
respective Facility for each applicable period; to [ii] the Rent payments
allocated to the respective Facility and all other debt service and lease
payments relating to the respective Facility for the applicable period.

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

                  15.7.2 Coverage Ratio. Tenant shall maintain for each fiscal
quarter a Coverage Ratio with respect to the Facility of not less than 1.25 to
1.00.

                  15.7.3 Net Worth. Guarantor shall maintain for each fiscal
quarter a Net Worth and equity capitalization of not less than $35,000,000.00.

                  15.7.4 Current Ratio. Guarantor shall maintain for each fiscal
quarter a ratio of current assets to current liabilities of not less than 1.25
to 1.00.

                  15.7.5 Debt to Equity Ratio. Guarantor shall maintain for each
fiscal quarter a ratio of total indebtedness to shareholders' equity not to
exceed 10.0 to 1.00. The aggregate lease amount under all capitalized and
operating leases shall be included as indebtedness and all subordinated debt
shall be included as equity. For purposes of this section, "operating leases"
shall include all future lease obligations where




                                     - 51 -
<PAGE>   59


Guarantor is not currently the tenant but has an option to purchase the equity
interest in or assets of the tenant or where Guarantor otherwise has rights to
purchase the assets or equity of the tenant or where Guarantor has agreed to
fund operating shortfalls in connection with the operation of the facility by
the tenant.

                  15.8 Transfer of License. If this Lease is terminated due to
expiration of the Term, pursuant to an Event of Default or for any reason other
than Tenant's purchase of the Leased Property, or if Tenant vacates the Leased
Property without termination of this Lease, Tenant shall execute, deliver and
file all documents and statements requested by Landlord to effect the transfer
of the Facility license and Government Authorizations to an entity designated by
Landlord, subject to any required approval of governmental regulatory
authorities, and Tenant shall provide to Landlord all information and records
required by Landlord in connection with the transfer of the license and
Government Authorizations.


            ARTICLE 16: ALTERATIONS, CAPITAL IMPROVEMENTS, AND SIGNS

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

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




                                     - 52 -
<PAGE>   60


                  16.3 Permitted Alterations. Permitted Alterations means any
one of the following: [i] Alterations approved by Landlord; [ii] Alterations
required under Section 7.2; [iii] Alterations having a total cost of less than
$250,000.00; or [iv] repairs, rebuilding and restoration required or undertaken
pursuant to Section 9.4.

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

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

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

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

                     (d) For any Permitted Alterations having a total cost of
$250,000.00 or more, Tenant shall deliver to Landlord a payment and performance
bond, with a surety acceptable to Landlord, in an amount equal to the estimated
cost of the Permitted Alterations, guaranteeing the completion of the work free
and clear of liens and in accordance with the approved Plans and Specifications,
and naming Landlord and any mortgagee of Landlord as joint obligees on such
bond.

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

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



                                     - 53 -
<PAGE>   61

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

                     (h) Tenant shall, not later than 30 days after Landlord
sends an invoice, reimburse Landlord for any reasonable costs and expenses,
including attorneys' fees and architects' and engineers' fees, incurred in
connection with reviewing and approving the Permitted Alterations and ensuring
Tenant's compliance with the requirements of this section. The daily fee for
Landlord's consulting engineer is $750.00.

                  16.5 Ownership and Removal of Permitted Alterations. The
Permitted Alterations shall become a part of the Leased Property, owned by
Landlord, and leased to Tenant subject to the terms and conditions of this
Lease. Tenant shall not be required or permitted to remove any Permitted
Alterations.

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


                             ARTICLE 17: [RESERVED]

               ARTICLE 18: ASSIGNMENT AND SALE OF LEASED PROPERTY

                  18.1 Prohibition on Assignment and Subletting. Tenant
acknowledges that Landlord has entered into this Lease in reliance on the
personal services and business expertise of Tenant. Tenant may not assign,
sublet, mortgage, hypothecate, pledge, grant a right of first refusal or
transfer any interest in this Lease, or in the Leased Property, in whole or in
part, without the prior written consent of Landlord, which Landlord may withhold
in its sole and absolute discretion. The following transactions will be deemed
an assignment or sublease requiring Landlord's prior written consent: [i] an
assignment by operation of law; [ii] an imposition (whether or not consensual)
of a lien, mortgage, or encumbrance upon Tenant's interest in the Lease; [iii]
an arrangement (including but not limited to, management agreements,
concessions, licenses, and easements) which allows the use or occupancy of all
or part of the Leased Property by




                                     - 54 -
<PAGE>   62


anyone other than Tenant; and [iv] a change of ownership of Tenant. Landlord's
consent to any assignment, right of first refusal or sublease will not release
Tenant (or any guarantor) from its payment and performance obligations under
this Lease, but rather Tenant, any guarantor, and Tenant's assignee or sublessee
will be jointly and severally liable for such payment and performance. An
assignment, right of first refusal or sublease without the prior written consent
of Landlord will be void at the Landlord's option. Landlord's consent to one
assignment, right of first refusal or sublease will not waive the requirement of
its consent to any subsequent assignment or sublease. Notwithstanding the
foregoing, Tenant may enter into subleases for therapy services without
Landlord's prior consent provided that [a] Tenant provides Landlord a copy of
the executed agreement; [b] the agreement follows the form previously approved
by Landlord; and [c] the terms and circumstances of the sublease are
substantially similar to those approved by Landlord or its affiliate in other
transactions with Tenant or its Affiliates. Landlord has approved the Management
Agreement between Tenant and Manager.

                  18.2 Requests for Landlord's Consent to Assignment, Sublease
or Management Agreement. If Tenant is required to obtain Landlord's consent to a
specific assignment, sublease, or management agreement, Tenant shall give
Landlord [i] the name and address of the proposed assignee, subtenant or
manager; [ii] a copy of the proposed assignment, sublease or management
agreement; [iii] reasonably satisfactory information about the nature, business
and business history of the proposed assignee, subtenant, or manager and its
proposed use of the Leased Property; and [iv] banking, financial, and other
credit information, and references about the proposed assignee, subtenant or
manager sufficient to enable Landlord to determine the financial responsibility
and character of the proposed assignee, subtenant or manager. Any assignment,
sublease or management agreement shall contain provisions to the effect that [a]
such assignment, sublease or management agreement is subject and subordinate to
all of the terms and provisions of this Lease and to the rights of Landlord; [b]
such assignment, sublease or management agreement may not be modified without
the prior written consent of Landlord not to be unreasonably withheld or
delayed; [c] if this Lease shall terminate before the expiration of such
assignment, sublease or management agreement, the assignee, subtenant or manager
thereunder will, at Landlord's option, attorn to Landlord and waive any right
the assignee, subtenant or manager may have to terminate the assignment,
sublease or management agreement or surrender possession




                                     - 55 -
<PAGE>   63




thereunder as a result of the termination of this Lease; and [d] if the
assignee, subtenant or manager receives a written notice from Landlord stating
that Tenant is in default under this Lease, the assignee, subtenant or manager
shall thereafter pay all rentals or payments under the assignment, sublease or
management agreement directly to Landlord until such default has been cured.
Tenant hereby collaterally assigns to Landlord, as security for the performance
of its obligations hereunder, all of Tenant's right, title, and interest in and
to any assignment, sublease or management agreement now or hereafter existing
for all or part of the Leased Property. Tenant shall, at the request of
Landlord, execute such other instruments or documents as Landlord may request to
evidence this collateral assignment. If Landlord, in its sole and absolute
discretion, consents to such assignment, sublease, or management agreement, such
consent shall not be effective until [i] a fully executed copy of the instrument
of assignment, sublease or management agreement has been delivered to Landlord;
[ii] in the case of an assignment, Landlord has received a written instrument in
which the assignee has assumed and agreed to perform all of Tenant's obligations
under the Lease; and [iii] Tenant has paid to Landlord a fee in the amount of
$2,500.00; and [iv] Landlord has received reimbursement from Tenant or the
assignee for all attorneys' fees and expenses and all other reasonable
out-of-pocket expenses incurred in connection with determining whether to give
its consent, giving its consent and all matters relating to the assignment.

                  18.3 Agreements with Residents. Notwithstanding Section 18.1,
Tenant may enter into an occupancy agreement with residents of the Leased
Property without the prior written consent of Landlord provided that [i] the
agreement does not provide for lifecare services; [ii] Tenant may not collect
rent for more than one month in advance; and [iii] all residents of the Leased
Property are accurately shown in Tenant's accounting records.

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




                                     - 56 -
<PAGE>   64


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


                       ARTICLE 19: HOLDOVER AND SURRENDER

                  19.1 Holding Over. Should Tenant, with or without the express
or implied consent of Landlord, continue to hold and occupy any of the Leased
Property after the expiration of the Term or earlier termination of this Lease,
such holding over along with the acceptance or collection of Rent by Landlord
shall operate and be construed as creating a tenancy from month-to-month and not
for any other term whatsoever. During any holdover period, Tenant shall pay as
Rent for each month an amount equal to two times the Base Rent payable per month
plus all other Additional Rent payable under this Lease. Said month-to-month
tenancy may be terminated by Landlord by giving Tenant three days written notice
at any time during any month, and at any time after expiration of such notice
period Landlord may re-enter and take possession of the Leased Property.

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


                       ARTICLE 20: [INTENTIONALLY DELETED]

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

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

                  21.2 Subordination. Subject to the terms and conditions of
this section, this Lease and Tenant's rights under this Lease are subordinate to
any ground lease or underlying lease, first mortgage, first deed of trust, or
other first lien against the Leased Property, together with any renewal,
consolidation, extension, modification or replacement thereof, which now or at
any subsequent time affects the Leased Property or any interest of Landlord in
the Leased Property, except to the




                                     - 57 -
<PAGE>   65



extent that any such instrument expressly provides that this Lease is superior.
The foregoing subordination provision is expressly conditioned upon any lessor
or mortgagee being obligated and bound to recognize Tenant as the tenant under
this Lease, and such lessor or mortgagee shall have no right to disturb Tenant's
possession, use and occupancy of the Leased Property or Tenant's enjoyment of
its rights under this Lease unless and until an Event of Default occurs
hereunder. Any foreclosure action or proceeding by any mortgagee with respect to
the Leased Property shall not affect Tenant's rights under this Lease and shall
not terminate this Lease unless and until an Event of Default occurs hereunder.
The foregoing provisions will be self-operative, and no further instrument will
be required in order to effect them. However, Tenant shall execute, acknowledge
and deliver to Landlord, at any time and from time to time upon demand by
Landlord, such documents as may be requested by Landlord or any mortgagee or any
holder of any mortgage or other instrument described in this section, to confirm
or effect any such subordination, provided that any such document shall include
a non-disturbance provision as set forth in this section satisfactory to Tenant.
Any mortgagee of the Leased Property shall be deemed to be bound by the
non-disturbance provision set forth in this section. If Tenant fails or refuses
to execute, acknowledge, and deliver any such document within 20 days after
written demand, Landlord may execute acknowledge and deliver any such document
on behalf of Tenant as Tenant's attorney-in-fact. Tenant hereby constitutes and
irrevocably appoints Landlord, its successors and assigns, as Tenant's
attorney-in-fact to execute, acknowledge, and deliver on behalf of Tenant any
documents described in this section. This power of attorney is coupled with an
interest and is irrevocable.

                  21.3 Attornment. If any holder of any mortgage, indenture,
deed of trust, or other similar instrument described in Section 21.2 succeeds to
Landlord's interest in the Leased Property, Tenant will pay to such holder all
Rent subsequently payable under this Lease. Tenant shall, upon request of anyone
succeeding to the interest of Landlord, automatically become the tenant of, and
attorn to, such successor in interest without changing this Lease. The successor
in interest will not be bound by [i] any payment of Rent for more than one month
in advance; [ii] any amendment or modification of this Lease thereafter made
without its consent as provided in this Lease; [iii] any claim against Landlord
arising prior to the date on which the successor succeeded to Landlord's
interest; or [iv] any claim or offset of Rent against the Landlord. Upon request
by Landlord or such successor in interest and without cost to Landlord or such



                                     - 58 -
<PAGE>   66


successor in interest, Tenant will execute, acknowledge and deliver an
instrument or instruments confirming the attornment. If Tenant fails or refuses
to execute, acknowledge, and deliver any such instrument within 20 days after
written demand, then Landlord or such successor in interest will be entitled to
execute, acknowledge, and deliver any document on behalf of Tenant as Tenant's
attorney-in-fact. Tenant hereby constitutes and irrevocably appoints Landlord,
its successors and assigns, as Tenant's attorney-in-fact to execute,
acknowledge, and deliver on behalf of Tenant any such document. This power of
attorney is coupled with an interest and is irrevocable.

                  21.4 Estoppel Certificates. At the request of Landlord or any
mortgagee or purchaser of the Leased Property, Tenant shall execute,
acknowledge, and deliver an estoppel certificate, in recordable form, in favor
of Landlord or any mortgagee or purchaser of the Leased Property certifying, to
Tenant's knowledge, the following: [i] that the Lease is unmodified and in full
force and effect, or if there have been modifications that the same is in full
force and effect as modified and stating the modifications; [ii] the date to
which Rent and other charges have been paid; [iii] whether Tenant or Landlord is
in default or whether there is any fact or condition which, with notice or lapse
of time, or both, would constitute a default, and specifying any existing
default, if any; [iv] that Tenant has accepted and occupies the Leased Property;
[v] that Tenant has no defenses, set-offs, deductions, credits, or counterclaims
against Landlord, if that be the case, or specifying such that exist; and [vi]
such other information as may reasonably be requested by Landlord or any
mortgagee or purchaser. Any purchaser or mortgagee may rely on this estoppel
certificate. If Tenant fails to deliver the estoppel certificates to Landlord
within 20 days after the request of the Landlord, then Tenant shall be deemed to
have certified that to Tenant's knowledge [a] the Lease is in full force and
effect and has not been modified, or that the Lease has been modified as set
forth in the certificate delivered to Tenant; [b] Tenant has not prepaid any
Rent or other charges except for the current month; [c] Tenant has accepted and
occupies the Leased Property; [d] neither Tenant nor Landlord is in default nor
is there any fact or condition which, with notice or lapse of time, or both,
would constitute a default; and [e] Tenant has no defenses, set-offs,
deductions, credits, or counterclaims against Landlord. Tenant hereby
irrevocably appoints Landlord as Tenant's attorney-in-fact to execute,
acknowledge, and deliver on Tenant's behalf any estoppel certificate to which
Tenant does not object within 20 days after Landlord sends the certificate to
Tenant. This power of attorney



                                     - 59 -
<PAGE>   67



is coupled with an interest and is irrevocable. At the request of Tenant,
Landlord shall execute, acknowledge, and deliver an estoppel certificate, in
recordable form, in favor of Tenant certifying, to Landlord's knowledge, the
following: [i] that the Lease is unmodified and in full force and effect, or if
there have been modifications that the same is in full force and effect as
modified and stating the modifications; [ii] the date to which Rent and other
charges have been received by Landlord; [iii] whether Tenant or Landlord is in
default or whether there is any fact or condition which, with notice or lapse of
time, or both, would constitute a default, and specifying any existing default,
if any; [iv] that Landlord has no defenses, set-offs, deductions, credits, or
counterclaims against Tenant, if that be the case, or specifying such that
exist; and [vi] such other information as may reasonably be requested by Tenant.
If Landlord fails to deliver the estoppel certificate to Tenant within 20 days
after the request of the Tenant, then Landlord shall be deemed to have certified
that to Landlord's knowledge, [a] the Lease is in full force and effect and has
not been modified, or that the Lease has been modified as set forth in the
certificate delivered to Landlord; [b] Landlord has not received any prepaid
Rent or other charges except for the current month; [c] neither Tenant nor
Landlord is in default nor is there any fact or condition which, with notice or
lapse of time, or both, would constitute a default; and [d] Landlord has no
defenses, set-offs, deductions, credits, or counterclaims against Tenant.
Landlord hereby irrevocably appoints Tenant as Landlord's attorney-in-fact to
execute, acknowledge, and deliver on Landlord's behalf any estoppel certificate
to which Landlord does not object within 20 days after Tenant sends the
certificate to Landlord. This power of attorney is coupled with an interest and
is irrevocable.


                   ARTICLE 22: REPRESENTATIONS AND WARRANTIES

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

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




                                     - 60 -
<PAGE>   68


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

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

                  22.4 Government Authorizations. To the best of Tenant's
knowledge, except as otherwise noted in Exhibit G, Tenant holds all Government
Authorizations necessary for the operation of the Facility in accordance with
the Facility Uses. Upon the Closing, Tenant will be authorized to operate the
Facility in accordance with the Facility Uses until a license to operate the
Facility is issued to Tenant. Tenant has filed all applications and reports and
taken all necessary action to obtain all Government Authorizations as soon as
possible after the Occupancy Date, subject to governmental approval, and Tenant
has no knowledge of any fact or circumstance that would prevent or delay
Tenant's obtaining of such Government Authorizations.

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

                  22.6 Condition of Facility. To the best of Tenant's knowledge,
all of the mechanical and electrical systems, heating and air-conditioning
systems, plumbing, water and sewer systems, and all other items of mechanical
equipment or appliances are in good working order, condition and repair, are of
sufficient size and capacity to service the Facility for the Facility Uses and
conform with all applicable ordinances and regulations, and with




                                     - 61 -
<PAGE>   69


all building, zoning, fire, safety, and other codes, laws and orders. The
Improvements, including the roof and foundation, are structurally sound and free
from leaks and other defects.

                  22.7 Compliance with Laws. To the best of Tenant's knowledge,
there is no violation of, or noncompliance with, [i] any laws, orders, rules or
regulations, ordinances or codes of any kind or nature whatsoever relating to
the Facility or the ownership or operation thereof (including without
limitation, building, fire, health, occupational safety and health, zoning and
land use, planning and environmental laws, orders, rules and regulations); [ii]
any covenants, conditions, restrictions or agreements affecting or relating to
the ownership, use or occupancy of the Facility; or [iii] any order, writ,
regulation or decree relating to any matter referred to in [i] or [ii] above.

                  22.8 No Litigation. As of the Occupancy Date and except as
disclosed on Exhibit H, [i] there are no actions or suits, or any proceedings or
investigations by any governmental agency or regulatory body pending against
Tenant, Guarantor or the Facility; [ii] Tenant has not received notice of any
threatened actions, suits, proceedings or investigations against Tenant,
Guarantor or the Facility at law or in equity, or before any governmental board,
agency or authority which, if determined adversely to Tenant or Guarantor, would
materially and adversely affect the Facility or title to the Facility (or any
part thereof), the right to operate the Facility as presently operated, or the
financial condition of Tenant or Guarantor; [iii] there are no unsatisfied or
outstanding judgments against Tenant, Guarantor or the Facility; [iv] there is
no labor dispute materially and adversely affecting the operation or business
conducted by Tenant, Guarantor, or the Facility; and [v] Tenant does not have
knowledge of any facts or circumstances which might reasonably form the basis
for any such action, suit, or proceeding.

                  22.9 Consents. The execution, delivery and performance of this
Lease will not require any consent, approval, authorization, order, or
declaration of, or any filing or registration with, any court, any federal,
state, or local governmental or regulatory authority, or any other person or
entity, the absence of which would materially impair the ability of Tenant to
operate the Facility for the Facility Uses except for the post-acquisition
filing for licensure of the Facility.

                  22.10 No Violation. The execution, delivery and performance of
this Lease [i] do not and will not conflict with,





                                     - 62 -
<PAGE>   70


and do not and will not result in a breach of Tenant's Organizational Documents;
[ii] do not and will not conflict with, and do not and will not result in a
breach of, and do not and will not constitute a default under (or an event
which, with or without notice or lapse of time, or both, would constitute a
default under), any of the terms, conditions or provisions of any agreement or
other instrument or obligation to which Tenant is a party or by which its assets
are bound; and [iii] do not and will not violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Tenant or the Facility.

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

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

                  22.13 Chief Executive Office. Tenant maintains its chief
executive office and its books and records at the address set forth in the
introductory paragraph of this Lease. Tenant does not conduct any of its
business or operations other than at its chief executive office and at the
Facility.



                                     - 63 -
<PAGE>   71


                  22.14 Other Name or Entities. Except as disclosed herein, none
of Tenant's business is conducted through any corporate subsidiary,
unincorporated association or other entity and Tenant has not, within the six
years preceding the date of this Lease [i] changed its name, [ii] used any name
other than the name stated at the beginning of this agreement, or [iii] merged
or consolidated with, or acquired any of the assets of, any corporation or other
business except for the acquisition of assets from Butler Senior Care, Inc. in
1997.

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

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

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

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

                  22.19 Zoning. As of the Effective Date, [i] the use and
operation of the Facility for the Facility Uses is a permitted use under the
applicable zoning code; [ii] except as disclosed on Exhibit G hereto, no special
use permits, conditional use permits, variances, or exceptions have been granted
or are needed for such use of the Facility; [iii] the Land is not located in any
special districts such as historical districts or overlay districts; and [iv]
the Facility has been




                                     - 64 -
<PAGE>   72



constructed in accordance with and complies with all applicable zoning laws,
including but not limited to, dimensional, parking, setback, screening,
landscaping, sign and curb cut requirements.

                  22.20 Pro Forma Statement. Tenant has delivered to Landlord a
true, correct and complete copy of the Pro Forma Statement. The Pro Forma
Statement shows Tenant's reasonable expectation of the most likely results of
Facility operations for the next 4 year period.

                  22.21 Environmental Matters. During the period of Tenant's
ownership or possession of the Leased Property and, to the best of Tenant's
knowledge after diligent inquiry, for the period prior to Tenant's ownership or
possession of the Leased Property, [i] the Leased Property is in compliance with
all Environmental Laws; [ii] there were no releases or threatened releases of
Hazardous Materials on, from, or under the Leased Property, except in compliance
with all Environmental Laws; [iii] no Hazardous Materials have been, are or will
be used, generated, stored, or disposed of at the Leased Property, except in
compliance with all Environmental Laws; [iv] asbestos has not been and will not
be used in the construction of any Improvements; [v] no permit is or has been
required from the Environmental Protection Agency or any similar agency or
department of any state or local government for the use or maintenance of any
Improvements; [vi] underground storage tanks on or under the Land, if any, have
been and currently are being operated in compliance with all applicable
Environmental Laws; [vii] any closure, abandonment in place or removal of an
underground storage tank on or from the Land was performed in compliance with
applicable Environmental Laws and any such tank had no release contaminating the
Leased Property or, if there had been a release, the release was remediated in
compliance with applicable Environmental Laws to the satisfaction of regulatory
authorities; [viii] no summons, citation or inquiry has been made by any such
environmental unit, body or agency or a third party demanding any right of
recovery for payment or reimbursement for costs incurred under CERCLA or any
other Environmental Laws and the Land is not subject to the lien of any such
agency; and [ix] to the best of Tenant's knowledge, the Environmental Assessment
is true, complete and accurate. "Disposal" and "release" shall have the meanings
set forth in CERCLA.

                  22.22 Leases and Contracts. As of the Occupancy Date and
except as disclosed on Exhibit I, there are no leases or contracts (including
but not limited to, insurance contracts, maintenance contracts, construction
contracts, employee benefit plans, employment contracts, equipment leases,
security



                                     - 65 -
<PAGE>   73



agreements, architect agreements, and management contracts) to which Tenant or
Guarantor is a party relating to any part of the ownership, operation,
possession, construction, management or administration of the Land or the
Facility.

                  22.23 No Default. As of the Effective Date, [i] there is no
existing Event of Default under this Lease; and [ii] no event has occurred
which, with the giving of notice or the passage of time, or both, would
constitute or result in such an Event of Default.

                  22.24 Tax Status. If Tenant is a partnership or limited
liability company, Tenant is taxable as a partnership under the Internal Revenue
Code and all applicable state tax laws.


                       ARTICLE 23: [INTENTIONALLY DELETED]

                          ARTICLE 24: SECURITY INTEREST

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

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

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

                     (c) All franchises, permits, licenses, operating rights,
certifications, approvals, consents, authorizations and



                                     - 66 -
<PAGE>   74



other general intangibles regarding the use, occupancy or operation of the
Improvements, or any part thereof, including without limitation, certificates of
need, state health care facility licenses, and Medicare and Medicaid provider
agreements, to the extent permitted by law.

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

                     (e) All subleases, occupancy agreements, license agreements
and concession agreements, written or unwritten, of any nature, covering all of
the Leased Property or any part thereof, now or hereafter entered into, and all
right, title and interest of Tenant thereunder, and including, without
limitation, Tenant's right, if any, to cash or securities deposited thereunder
whether or not the same was deposited to secure performance by the subtenants,
occupants, licensees and concessionaires of their obligations thereunder,
including, the right to receive and collect the rents, revenues, and other
charges thereunder.

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

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

                  24.2 Additional Documents. At the request of Landlord, Tenant
shall execute additional security agreements, financing statements, and such
other documents as may be requested by Landlord to maintain and perfect such
security interest.

                  24.3 Notice of Sale. With respect to any sale or other
disposition of any of the Collateral after the occurrence of an Event of
Default, Landlord and Tenant agree that the giving of 5 days notice by Landlord,
sent by overnight delivery, postage prepaid, to Tenant's notice address
designating the time and place of any public sale or the time after which any
private sale or other intended disposition of such Collateral is to be made,



                                     - 67 -
<PAGE>   75



shall be deemed to be reasonable notice thereof and Tenant waives any other
notice with respect thereto.

                  24.4 Recharacterization. Landlord and Tenant intend this Lease
to be a true lease. However, if despite the parties' intent, it is determined or
adjudged by a court for any reason that this Lease is not a true lease or if
this Lease is recharacterized as a financing arrangement, then this Lease shall
be considered a secured financing agreement and Landlord's title to the Leased
Property shall constitute a perfected first priority lien in Landlord's favor on
the Leased Property to secure the payment and performance of all obligations of
Tenant to Landlord.


                            ARTICLE 25: MISCELLANEOUS

                  25.1 Notices. Landlord and Tenant hereby agree that all
notices, demands, requests, and consents (hereinafter "notices") required to be
given pursuant to the terms of this Lease shall be in writing, shall be
addressed to the addresses set forth in the introductory paragraph of this
Lease, and shall be served by [i] personal delivery; [ii] certified mail, return
receipt requested, postage prepaid; or [iii] nationally recognized overnight
courier. All notices shall be deemed to be given upon the earlier of actual
receipt or 3 days after mailing, or one Business Day after deposit with the
overnight courier. Any notices meeting the requirements of this section shall be
effective, regardless of whether or not actually received. Landlord or Tenant
may change its notice address at any time by giving the other party notice of
such change.

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

                  25.3 Entire Agreement. This Lease contains the entire
agreement between Landlord and Tenant with respect to the subject matter hereof.
No representations, warranties, and agreements have been made by Landlord except
as set forth in this Lease.

                  25.4 Severability. If any term or provision of this Lease is
held or deemed by Landlord to be invalid or




                                     - 68 -
<PAGE>   76



unenforceable, such holding shall not affect the remainder of this Lease and the
same shall remain in full force and effect, unless such holding substantially
deprives Tenant of the use of the Leased Property or Landlord of the rents
herein reserved, in which event this Lease shall forthwith terminate as if by
expiration of the Term.

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

                  25.6 Governing Law. This Lease shall be governed by and
construed in accordance with the laws of the State of Ohio, except as to matters
under which the laws of a State in which a respective Facility is located, or
under applicable procedural conflicts of laws rules, require the application of
laws of such other State, in which case the laws or conflicts of laws rules, as
the case may be, of such State shall govern to the extent required.

                  25.7 Memorandum of Lease. Tenant shall not record this Lease.
Tenant shall, however, record a memorandum of lease approved by Landlord upon
Landlord's request.

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

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

                  25.10 Power of Attorney. Effective upon [i] the occurrence and
during the continuance of an Event of Default, or [ii] termination of this Lease
for any reason other than Tenant's purchase of the Leased Property, Tenant
hereby irrevocably and unconditionally appoints Landlord, or Landlord's
authorized officer, agent, employee or designee, as Tenant's true and lawful
attorney-in-fact, to act for Tenant in Tenant's respective name,




                                     - 69 -
<PAGE>   77



place, and stead, to execute, deliver and file all applications and any and all
other necessary documents and statements to effect the issuance, transfer,
reinstatement, renewal and/or extension of the Facility license and all
Governmental Authorizations issued to Tenant or applied for by Tenant in
connection with Tenant's operation of the Facility, to permit any designee of
Landlord or any other transferee to operate the Facility under the Governmental
Authorizations, and to do any and all other acts incidental to any of the
foregoing. Tenant irrevocably and unconditionally grant to Landlord as their
respective attorney-in-fact full power and authority to do and perform every act
necessary and proper to be done in the exercise of any of the foregoing powers
as fully as Tenant might or could do if personally present or acting, with full
power of substitution, hereby ratifying and confirming all that said attorney
shall lawfully do or cause to be done by virtue hereof. This power of attorney
is coupled with an interest and is irrevocable prior to Tenant's purchase of the
Leased Property. Except in the case of an emergency, Landlord shall give Tenant
three business days prior written notice before acting on behalf of Tenant
pursuant to this power of attorney.

                  25.11 No Offer. Landlord's submission of this Lease to Tenant
is not an offer to lease the Leased Property, or an agreement by Landlord to
reserve the Leased Property for Tenant. Landlord will not be bound to Tenant
until Tenant has duly executed and delivered duplicate original leases to
Landlord, and Landlord has duly executed and delivered one of these duplicate
original leases to Tenant.

                  25.12 Modification. This Lease may only be modified by a
writing signed by both Landlord and Tenant. All references to this Lease,
whether in this Lease or in any other document or instrument, shall be deemed to
incorporate all amendments, modifications and renewals of this Lease, made after
the date hereof. If Tenant requests Landlord's consent to any change in
ownership, merger or consolidation of Tenant or Guarantor, any assumption of the
Lease, or any modification of the Lease, Tenant shall provide Landlord all
relevant information and documents sufficient to enable Landlord to evaluate the
request. In connection with any such request, Tenant shall pay to Landlord a fee
in the amount of $2,500.00 and shall pay all of Landlord's reasonable attorney's
fees and expenses and other reasonable out-of-pocket expenses incurred in
connection with Landlord's evaluation of Tenant's request, the preparation of
any documents and amendments, the subsequent amendment of any documents between



                                     - 70 -
<PAGE>   78


Landlord and its collateral pool lenders (if applicable), and all related
matters.

                  25.13 Landlord's Modification. Tenant acknowledges that
Landlord may, subject to Article 21, mortgage the Leased Property or use the
Leased Property as collateral for a collateralized mortgage obligations or Real
Estate Mortgage Investment Companies (REMICS). If any mortgage lender of
Landlord desires any modification of this Lease, Tenant agrees to consider such
modification in good faith and to execute an amendment of this Lease if Tenant
finds such modification acceptable.

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

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

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

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




                                     - 71 -
<PAGE>   79


or against either Landlord or Tenant merely because of their efforts in
preparing it.

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

                  25.19 Lease Guaranty. The payment of Rent and the performance
of Tenant's obligations under this Lease are guaranteed by Guarantor pursuant to
a Lease Guaranty of even date and secured by a stock pledge made by Guarantor in
favor of Landlord pursuant to the Pledge Agreement.

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

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

                  25.22 Exhibits. All of the exhibits referenced in this Lease
are attached hereto and incorporated herein.

                  25.23 WAIVER OF JURY TRIAL. LANDLORD AND TENANT WAIVE TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST
THE OTHER ON ALL MATTERS ARISING OUT OF THIS LEASE OR THE USE AND OCCUPANCY OF
THE LEASED PROPERTY (EXCEPT CLAIMS FOR PERSONAL INJURY OR PROPERTY DAMAGE). IF
LANDLORD COMMENCES ANY SUMMARY PROCEEDING FOR NONPAYMENT OF RENT, TENANT WILL
NOT INTERPOSE, AND WAIVES THE RIGHT TO INTERPOSE, ANY COUNTERCLAIM IN ANY SUCH
PROCEEDING.

                  25.24 CONSENT TO JURISDICTION. TENANT HEREBY IRREVOCABLY
SUBMITS AND CONSENTS TO THE NON-EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR
FEDERAL COURT HAVING JURISDICTION OVER LUCAS COUNTY, OHIO OR ANY COUNTY IN WHICH
A FACILITY IS LOCATED FOR ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
MATTER ARISING FROM OR RELATED TO THIS LEASE OR ANY DOCUMENT EXECUTED BY TENANT
IN CONNECTION WITH THIS LEASE. TENANT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT TENANT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. TENANT AGREES




                                     - 72 -
<PAGE>   80




THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW.

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

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

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

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

                  25.27 Time Time is of the essence in the performance of this
Lease.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]




                                     - 73 -
<PAGE>   81


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

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

Signature /s/ Rita J. Rogge                  By: /s/ Erin C. Ibele
Print Name Rita J. Rogge
                                             Title: Vice President and
                                                    Corporate Secretary

Signature /s/ Kathleen A. Sullivan
Print Name Kathleen A. Sullivan

                                             BALANCED CARE AT MERRILLVILLE, INC.

Signature /s/ Lorie A. Taylor                By: /s/ Robin L. Barber
Print Name Lorie A. Taylor                           Robin L. Barber
                                             Title: Vice President and
Signature /s/ Robyn Cronin                          Secretary
Print Name Robyn Cronin

                                             Tax I.D. No.: 25-1872167



STATE OF OHIO                  )
                               ) SS:
COUNTY OF LUCAS                )

                  The foregoing instrument was acknowledged before me this 7th
day of November, 2000 by Erin C. Ibele, the Vice President and Corporate
Secretary of Health Care REIT, Inc., a Delaware corporation, on behalf of the
corporation.

                                               /s/ Rita J. Rogge

                                               Notary Public


My Commission Expires:_____________________.                  [SEAL]



                                      S-1

<PAGE>   82



COMMONWEALTH OF PENNSYLVANIA        )
                                    ) SS:
COUNTY OF CUMBERLAND                )

                  The foregoing instrument was acknowledged before me this 1st
day of November, 2000 by Robin L. Barber, the Vice President and Secretary of
Balanced Care at Merrillville, Inc., a Delaware corporation, on behalf of the
corporation.

                                             /s/ Jaynelle D. Covert
                                             Notary Public


My Commission Expires: June 21, 2004                           [SEAL]


THIS INSTRUMENT PREPARED BY:

Cynthia L. Rerucha, Esq.
Shumaker, Loop & Kendrick, LLP
1000 Jackson Street
Toledo, Ohio 43624



                                      S-2