Document:

<PAGE>   1
                                                                  EXHIBIT 10.22

                 Amended Schedule of Meditrust Facility Leases
Which are Substantially Similar to the Facility Lease Attached as Exhibit 10.21

<TABLE>
<CAPTION>

                                                                                                ORIGINAL
                                                                                LEASING        MEDITRUST                NO. OF UNITS
 FACILITY NAME                               LOCATION                    COMMITMENT FEE       INVESTMENT    BASE RENT   IN FACILITY
------------------------------------------------------------------------------------------------------------------------------------

<S>                                          <C>                         <C>                 <C>           <C>          <C>
Alterra Clare Bridge of Farmington Hills     Farmington Hills, Michigan       34,209.00      3,420,850.00   329,770.00      28

Alterra Clare Bridge of Farmington Hills     Farmington Hills, Michigan       37,510.00      3,750,992.00   361,596.00      28

Alterra Clare Bridge of Fort Myers           Fort Myers, Florida              37,655.00      3,765,481.00   362,922.00      32

Alterra Clare Bridge of Lower Makefield      Yardley, Pennsylvania            49,989.00      4,998,920.00   481,896.00      36

Alterra Clare Bridge of Tampa                Tampa, Florida                   37,655.00      3,765,481.00   362,992.00      32

Alterra Clare Bridge of Utica                Utica, Michigan                  33,546.00      3,354,614.00   323,385.00      28

Alterra Sterling House of Brown Deer         Brown Deer, Wisconsin             7,073.00        707,266.00    68,180.00      15

Alterra Sterling House of Onalaska           Onalaska, Wisconsin              12,899.00      1,289,931.00   124,349.00      19
</TABLE><PAGE>   1
                                                                   EXHIBIT 10.27

<TABLE>
<CAPTION>

                                           Amended Schedule of Meditrust Facility Leases
                          Which are Substantially Similar to the Facility Lease Attached as Exhibit 10.26

                                                                                             ORIGINAL
                                                                             LEASING        MEDITRUST                   NO. OF UNITS
 FACILITY NAME                            LOCATION                    COMMITMENT FEE       INVESTMENT      BASE RENT    IN FACILITY
------------------------------------------------------------------------------------------------------------------------------------

<S>                                      <C>                          <C>              <C>                <C>           <C>
Alterra Clare Bridge of Charleston        Charleston, South Carolina   $   15,381.00    $  4,075,366.00   $  372,488.00      38

Alterra Clare Bridge of Charlotte         Charlotte, North Carolina        19,516.00       5,170,973.00      472,627.00      52

Alterra Clare Bridge of Columbia          Columbia, South Carolina         14,321.00       3,794,584.00      346,825.00      38

Alterra Clare Bridge of Greensboro        Greensboro, North Carolina       14,559.00       3,857,509.00      352,576.00      38

Alterra Clare Bridge of Jacksonville      Jacksonville, Florida            14,070.00       3,728,171.00      340,755.00      38

Alterra Sterling House of Eau Claire      Eau Claire, Wisconsin             4,847.00       1,284,173.00      117,373.00      20

Alterra Sterling House of Faribault       Faribault, Minnesota              4,474.00       1,185,390.00      108,345.00      20

Alterra Sterling House of Manitowoc       Manitowoc, Wisconsin              4,101.00       1,086,608.00       99,316.00      20

Alterra Sterling House of Mankato         Mankato, Minnesota                4,847.00       1,284,173.00      117,373.00      20

Alterra Sterling House of Medford         Medford, Wisconsin                4,545.00         930,802.00       85,075.00      19

Alterra Sterling House of Middleton       Middleton, Wisconsin              5,592.00       1,481,738.00      135,431.00      20

Alterra Sterling House of Neenah          Neenah, Wisconsin                 5,219.00       1,382,955.00      126,402.00      20

Alterra Sterling House of Oshkosh         Oshkosh, Wisconsin                4,101.00       1,086,608.00       99,316.00      20

Alterra Sterling House of Plover          Plover, Wisconsin                10,909.00       2,233,924.00      204,181.00      18

Alterra Sterling House of Sauk Rapids     Sauk Rapids, Minnesota            3,728.00         987,825.00       90,287.00      20

Alterra Sterling House of Sun Prairie     Sun Prairie, Wisconsin            4,474.00       1,185,390.00      108,345.00      20

Alterra Sterling House of The Oaks        Wisconsin Rapids, Wisconsin       6,364.00       1,303,123.00      119,105.00      19

Alterra Sterling House of Wausau          Wausau, Wisconsin                 8,182.00       1,675,443.00      153,135.00      40

Alterra Sterling House of Willmar         Willmar, Minnesota                4,474.00       1,185,390.00      108,345.00      20

Alterra Sterling House of Winona          Winona, Minnesota                 4,847.00       1,284,173.00      117,373.00      20

Alterra Wynwood of Charlotte              Charlotte, North Carolina        26,492.00       7,019,381.00      641,571.00      72

Alterra Wynwood of Greensboro             Greensboro, North Carolina       26,031.00       6,897,281.00      639,411.00      72

Alterra Wynwood of Meridian               Haslett, Michigan                26,248.00       6,954,771.00      635,666.00      60
</TABLE>

<PAGE>   2

                                                                  EXHIBIT 10.27

                 Amended Schedule of Meditrust Facility Leases
Which are Substantially Similar to the Facility Lease Attached as Exhibit 10.26

<TABLE>

<S>                                           <C>                           <C>            <C>               <C>            <C>
Alterra Sterling House of Menomonie            Menomonie, Wisconsin             NONE          969,000.00      93,993.00      19

Alterra Sterling House of New Richmond         New Richmond, Wisconsin          NONE          750,000.00      72,750.00      15

Alterra Sterling House of Plymouth             Plymouth, Wisconsin              NONE          760,000.00      73,720.00      15

Alterra Sterling House of Wisconsin Rapids     Wisconsin Rapids, Wisconsin    4,590.00      1,020,000.00      98,940.00      19
</TABLE><PAGE>   1

                                                                  EXHIBIT 10.35

                 Amended Schedule of Meditrust Facility Leases
Which are Substantially Similar to the Facility Lease Attached as Exhibit 10.34

<TABLE>
<CAPTION>

                                                                                              ORIGINAL
                                                                               LEASING       MEDITRUST                  NO. OF UNITS
 FACILITY NAME                               LOCATION                   COMMITMENT FEE      INVESTMENT      BASE RENT   IN FACILITY
------------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                         <C>                <C>             <C>          <C>

Alterra Sterling House of Davison            Davison, Michigan                   NONE       $ 1,425,648.0   $  124,174.0        19

Alterra Sterling House of Kenosha            Kenosha, Wisconsin                  NONE       $ 1,399,524.0   $  121,899.0        19

Alterra Clare Bridge of Delta and Alterra
Sterling House of Delta                      Lansing, Michigan                $    6,180.0  $ 5,618,049.0   $  495,512.0    38; 19

Alterra Clare Bridge of Grand Blanc and
Alterra Wynwood of Grand Blanc               Grand Blanc Township, Michigan   $   31,867.0  $13,186,688.0   $1,103,726.0    46; 66

Alterra Clare Bridge of Troy and Alterra
Wynwood of Troy                              Troy, Michigan                   $   33,891.0  $13,389,148.0   $1,120,672.0    46; 66
</TABLE><PAGE>   1
                                                                   EXHIBIT 10.36

                            FACILITY LEASE AGREEMENT

                      MEDITRUST ACQUISITION CORPORATION III

                            (A Delaware Corporation)

                                       as
                                     Lessor

                                       AND

                                ALS LEASING, INC.

                            (A Delaware Corporation)

                                       as
                                     Lessee

                           Dated As Of April 30, 1997

                             For Premises Located At

                                 100 Flume Road
                             Manlius, New York 13104

<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                      Page No.
                                                                                      --------
<S>               <C>                                                                 <C>
ARTICLE 1         LEASED PROPERTY; TERM; EXTENSIONS                                          1
     1.1          Leased Property                                                            1
     1.2          Term                                                                       2
     1.3          Extended, Terms                                                            2

ARTICLE 2         DEFINITIONS AND RULES OF CONSTRUCTION                                      3
     2.1          Definitions                                                                3
     2.2          Rules of Construction                                                     20

ARTICLE 3         RENT                                                                      21
     3.1          Rent for Land, Leased Improvements, Related Rights and Fixtures           21
                  3.1.1            Base Rent                                                21
                  3.1.2            Additional Rent                                          22
     3.2          Calculation and Payment of Additional Rent; Annual Reconciliation         22
                  3.2.1            Estimates and Payments                                   22
                  3.2.2            Annual Statement                                         22
                  3.2.3            Deficits                                                 23
                  3.2.4            Overpayments                                             23
                  3.2.5            Final Determination                                      23
                  3.2.6            Best Efforts To Maximize                                 23
     3.3          Confirmation and Audit of Additional Rent                                 23
                  3.3.1            Maintain Accounting Systems                              23
                  3.3.2            Audit By Lessor                                          24
                  3.3.3            Deficiencies and Overpayment                             24
                  3.3.4            Survival                                                 24
     3.4          Additional Charges                                                        24
     3.5          Leasing Commitment Fee                                                    25
     3.6          Net Lease                                                                 25
     3.7          No Lessee Termination or Offset                                           25
                  3.7.1            No Termination                                           25
                  3.7.2            Waiver                                                   26
                  3.7.3            Independent Covenants                                    26
     3.8          Abatement of Rent Limited                                                 26

ARTICLE 4         IMPOSITIONS; TAXES; UTILITIES; INSURANCE PAYMENTS                         27
     4.1          Payment of Impositions                                                    27
                  4.1.1            Lessee To Pay                                            27
                  4.1.2            Installment Elections                                    27
                  4.1.3            Returns and Reports                                      27
                  4.1.4            Refunds                                                  28
                  4.1.5            Protest                                                  28
</TABLE>

                                       2
<PAGE>   3
<TABLE>
<S>               <C>                                                                 <C>
     4.2          Notice of Impositions                                                     28
     4.3          Adjustment of Impositions                                                 28
     4.4          Utility Charges                                                           28
     4.5          Insurance Premiums                                                        28
     4.6          Deposits                                                                  29
                  4:6.1            Lessor's Option                                          29
                  4.6.2            Use of Deposits                                          29
                  4.6.3            Deficits                                                 30
                  4.6.4            Other Properties                                         30
                  4.6.5            Transfers                                                30
                  4.6.6            Security                                                 31
                  4.6.7            Return                                                   31
                  4.6.8            Receipts                                                 31

ARTICLE 5         OWNERSHIP OF LEASED PROPERTY AND PERSONAL
                  PROPERTY; INSTALLATION' REMOVAL AND REPLACEMENT OF
                  PERSONAL PROPERTY                                                         31
     5.1          Ownership of the Leased Property                                          31
     5.2          Personal Property; Removal and Replacement of Personal Property           31
                  5.2.1            Lessee To Equip Facility                                 31
                  5.2.2            Sufficient Personal Property                             32
                  5.2.3            Removal and Replacement; Lessor's Option to Purchase     32
ARTICLE 6         SECURITY FOR LEASE OBLIGATIONS                                            33
     6.1          Security for the Lessee's Obligations; Permitted Prior Security Interests 33
                  6.1.1            Security                                                 33
                  6.1.2            Purchase-Money Security Interests and Equipment Leases   34
     6.2          Cash Collateral  34
                  6.2.1            Cash Collateral                                          34
                  6.2.2            Application of Cash Collateral                           34
                  6.2.3            Replenishment of Cash Collateral                         35
     6.3          Guaranty                                                                  35

ARTICLE 7         CONDITION AND USE OF LEASED PROPERTY; MANAGEMENT
                  AGREEMENTS                                                                35
     7.1          Condition of the Leased Property                                          35
     7.2          Use of the Leased Property; Compliance; Management                        36
                  7.2.1            Obligation to Operate                                    36
                  7.2.2            Permitted Uses                                           36
                  7.2.3            Compliance With Insurance Requirements                   36
                  7.2.4            No Waste                                                 36
                  7.2.5            No Impairment                                            36
                  7.2.6            No Liens                                                 37
     7.3          Compliance with Legal Requirements                                        37
     7.4          Management Agreements                                                     37
     7.5          Compliance With and Satisfaction of Bond-Related Obligations              38
</TABLE>

                                       3
<PAGE>   4
<TABLE>
<S>               <C>                                                                 <C>
     7.6          Compliance With Superior Lease Obligations                                38

ARTICLE 8         REPAIRS; RESTRICTIONS                                                     39
     8.1          Maintenance and Repair                                                    39
                  8.1.1            Lessee's Responsibility                                  39
                  8.1.2            No Lessor Obligation                                     40
                  8.1.3            Lessee May Not Obligate Lessor                           40
                  8.1.4            Lessee's Obligation to Perform Upgrade Renovations       40
     8.2          Encroachments; Title Restrictions                                         41

ARTICLE 9         MATERIAL STRUCTURAL WORK AND CAPITAL ADDITIONS                            42
     9.1          Lessor's Approval                                                         42
     9.2          General Provisions as to Capital Additions and Certain
                  Material Structural Work                                                  42
                  9.2.1            No Liens                                                 42
                  9.2.2            Lessee's Proposal Regarding Capital Additions and
                                   Material Structural Work                                 42
                  9.2.3            Lessor's Options Regarding Capital Additions
                                   and Material Structural Work                             43
                  9.2.4            Lessor May Elect to Finance Capital Additions
                                   or Material Structural Work                              43
                  9.2.5            Legal Requirements; Quality of Work                      43
     9.3          Capital Additions and Material Structural Work Financed by Lessor         43
                  9.3.1            Lessee's Financing Request                               43
                  9.3.2            Lessor's General Requirements                            44
                  9.3.3            Payment of Costs                                         45
     9.4          General Limitations                                                       46
     9.5          Non-Capital Additions                                                     46
     9.6          Permitted Work                                                            47

ARTICLE 10        WARRANTIES AND REPRESENTATIONS                                            47
     10.1         Representations and Warranties                                            47
                  10.1.1           Existence; Power; Qualification                          47
                  10.1.2           Valid and Binding                                        47
                  10.1.3           Single Purpose                                           47
                  10.1.4           No Violation                                             48
                  10.1.5           Consents and Approvals                                   48
                  10.1.6           No Liens or Insolvency Proceedings                       48
                  10.1.7           No Burdensome Agreements                                 49
                  10.1.8           Commercial Acts                                          49
                  10.1.9           Adequate Capital, Not Insolvent                          49
                  10.1.10          Not Delinquent                                           49
                  10.1.11          No Affiliate Debt                                        49
                  10.1.12          Taxes Current                                            49
</TABLE>

                                       4
<PAGE>   5
<TABLE>
<S>               <C>                                                                      <C>
                  10.1.13          Financials Complete and Accurate                         50
                  10.1.14          Pending Actions, Notices and Reports                     50
                  10.1.15          Compliance with Legal and Other Requirements             51
                  10.1.16          No Action By Governmental Authority                      52
                  10.1.17          Property Matters                                         52
                  10.1.18          Third Party Payor Agreements                             53
                  10.1.19          Rate Limitations                                         54
                  10.1.20          Free Care                                                54
                  10.1.21          No Proposed Changes                                      54
                  10.1.22          ERISA                                                    54
                  10.1.23          No Broker                                                54
                  10.1.24          No Improper Payments                                     54
                  10.1.25          Nothing Omitted                                          55
                  10.1.26          No Margin Security                                       55
                  10.1.27          No Default                                               56
                  10.1.28          Principal Place of Business                              56
                  10.1.29          Labor Matters                                            56
                  10.1.30          Intellectual Property                                    56
                  10.1.31          Management Agreements                                    56
                  10.1.32          Fiscal Year                                              56
     10.2         Continuing Effect of Representations and Warranties                       56

ARTICLE 11        FINANCIAL AND OTHER COVENANTS                                             57
     11.1         Status Certificates                                                       57
     11.2         Financial Statements; Reports; Notice and Information                     57
                  11.2.1           Obligation To Furnish                                    57
                  11.2.2           Responsible Officer                                      61
                  11.2.3           No Material Omission                                     61
                  11.2.4           Confidentiality                                          62
     11.3         Financial Covenants                                                       62
                  11.3.1           Rent Coverage Ratio                                      62
                  11.3.2           [Intentionally Omitted]                                  62
                  11.3.3           [Intentionally Omitted]                                  62
                  11.3.4           [Intentionally Omitted]                                  63
                  11.3.5           Current Ratio - Guarantor                                63
                  11.3.6           Net Worth of Guarantor After a Permitted Transaction or
                                   Permitted Merger                                         63
                  11.3.7           [Intentionally Omitted]                                  63
                  11.3.8           Tangible Net Worth - Guarantor                           63
                  11.3.9           No Indebtedness                                          63
                  11.3.10          No Guaranties                                            63
     11.4         Affirmative Covenants                                                     64
                  11.4.1           Maintenance of Existence                                 64
                  11.4.2           Materials                                                64
                  11.4.3           Compliance With Legal Requirements And Applicable
</TABLE>

                                       5
<PAGE>   6
<TABLE>
<S>               <C>                                                                 <C>
                                   Agreements                                               64
                  11.4.4           Books And Records                                        64
                  11.4.5           Participation in Third Party Payor Programs              64
                  11.4.6           Conduct of its Business                                  65
                  11.4.7           Address                                                  65
                  11.4.8           Subordination of Affiliate Transactions                  65
                  11.4.9           Inspection                                               65
                  11.4.10          Additional Property                                      65
                  11.4.11          Acceptable Licensed Operator                             66
                  11.4.12          [Intentionally Omitted]                                  66
     11.5         Additional Negative Covenants                                             66
                  11.5.1           Restrictions Relating to Lessee                          67
                  11.5.2           No Liens                                                 67
                  11.5.3           Limits on Affiliate Transactions                         68
                  11.5.4           Non-Competition                                          68
                  11.5.5           No Default                                               69
                  11.5.6           Restrictions Relating to the Guarantor                   70
                  11.5.7           [Intentionally Omitted]                                  70
                  11.5.8           ERISA                                                    70
                  11.5.9           Forgiveness of Indebtedness                              70
                  11.5.10          Value of Assets                                          70
                  11.5.11          Changes in Fiscal Year and Accounting Procedures         70
                  11.5.12          [Intentionally Omitted]                                  70

ARTICLE 12        INSURANCE AND INDEMNITY                                                   71
     12.1         General Insurance Requirements                                            71
                  12.1.1           Types and Amounts of Insurance                           71
                  12.1.2           Insurance Company Requirements                           72
                  12.1.3           Policy Requirements                                      73
                  12.1.4           Notices; Certificates and Policies                       73
                  12.1.5           Lessor's Right to Place Insurance                        74
                  12.1.6           Payment of Proceeds                                      74
                  12.1.7           Irrevocable Power of Attorney                            74
                  12.1.8           Blanket Policies                                         75
                  12.1.9           No Separate Insurance                                    75
                  12.1.10          Assignment of Unearned Premiums                          75
     12.2         Indemnity                                                                 76
                  12.2.1           Indemnification                                          76
                  12.2.2           Indemnified Parties                                      76
                  12.2.3           Defense of Actions by the Lessee                         76
                  12.2.4           Limitation on Lessor Liability                           77
                  12.2.5           Risk of Loss                                             77

ARTICLE 13        FIRE AND CASUALTY                                                         78
     13.1         Restoration Following Fire or Other Casualty                              78
</TABLE>

                                       6
<PAGE>   7
<TABLE>
<S>               <C>                                                                 <C>
                  13.1.1           Following Fire or Casualty                               78
                  13.1.2           Procedures                                               78
                  13.1.3           Disbursement of Insurance Proceeds                       79
     13.2         Disposition of Insurance Proceeds                                         83
                  13.2.1           Proceeds To Be Released to Pay For Work                  83
                  13.2.2           Proceeds Not To Be Released                              83
                  13.2.3           Lessee Responsible for Short-Fall                        84
     13.3         Tangible Personal Property                                                84
     13.4         Restoration of Certain Improvements and the Tangible Personal Property    85
     13.5         No Abatement of Rent                                                      85
     13.6         Termination of Certain Rights                                             85
     13.7         Waiver                                                                    85
     13.8         Application of Rent Loss and/or Business Interruption Insurance           85
     13.9         Obligation To Account                                                     86

ARTICLE 14        CONDEMNATION                                                              86
     14.1         Parties' Rights and Obligations                                           86
     14.2         Total Taking                                                              86
     14.3         Partial or Temporary Taking                                               86
     14.4         Restoration                                                               87
     14.5         Award Distribution                                                        88
     14.6         Control of Proceedings                                                    88

ARTICLE 15        PERMITTED CONTESTS                                                        88
     15.1         Lessee's Right to Contest                                                 88
     15.2         Lessor's Cooperation                                                      89
     15.3         Lessee's Indemnity                                                        89

ARTICLE 16        DEFAULT                                                                   89
     16.1         Events of Default                                                         89
     16.2         Remedies                                                                  95
     16.3         Damages                                                                   96
     16.4         Lessee Waivers                                                            97
     16.5         Application of Funds                                                      97
     16.6         Intentionally Omitted                                                     97
     16.7         Lessor's Right to Cure                                                    97
     16.8         No Waiver By Lessor                                                       98
     16.9         Right of Forbearance                                                      98
     16.10        Cumulative Remedies                                                       99

ARTICLE 17        SURRENDER OF LEASED PROPERTY OR LEASE; HOLDING OVER                       99
     17.1         Surrender                                                                 99
     17.2         Transfer of Permits and Contracts                                         99
</TABLE>

                                       7
<PAGE>   8
<TABLE>
<S>               <C>                                                                 <C>
     17.3         No Acceptance of Surrender                                               100
     17.4         Holding Over                                                             100

ARTICLE 18        PURCHASE OF THE LEASED PROPERTY                                          100
     18.1         [Intentionally Omitted]                                                  101
     18.2         [Intentionally Omitted]                                                  101
     18.3         [Intentionally Omitted]                                                  101
     18.4         Lessee's Option to Purchase                                              101
                  18.4.1           Conditions to Option                                    101
                  18.4.2           Exercise of Option                                      101
                  18.4.3           Conveyance                                              101
                  18.4.4           Calculation of Purchase Price                           101
                  18.4.5           Payment of Purchase Price                               102
                  18.4.6           Place and Time of Closing                               102
                  18.4.7           Condition of Leased Property                            102
                  18.4.8           Quality of Title                                        102
                  18.4.9           Lessor's Inability to Perform                           102
                  18.4.10          Merger by Deed                                          102
                  18.4.11          Use of Purchase Price to Clear Title                    103
                  18.4.12          Lessee's Default                                        103

ARTICLE 19        SUBLETTING AND ASSIGNMENT                                                103
     19.1         Subletting and Assignment                                                103
     19.2         Permitted Subleases                                                      103
     19.3         Attornment                                                               103

ARTICLE 20        TITLE TRANSFERS AND LIENS GRANTED BY LESSOR                              104
     20.1         No Merger of Title                                                       104
     20.2         Transfers By Lessor                                                      104
     20.3         Lessor May Grant Liens                                                   104
     20.4         Subordination and Non-Disturbance                                        104

ARTICLE 21        LESSOR OBLIGATIONS                                                       106
     21.1         Quiet Enjoyment                                                          106
     21.2         Memorandum of Lease                                                      106
     21.3         Default by Lessor                                                        106

ARTICLE 22        NOTICES                                                                  107

ARTICLE 23        LIMITATION OF MEDITRUST LIABILITY                                        108

ARTICLE 24        MISCELLANEOUS PROVISIONS                                                 108
     24.1         Broker's Fee Indemnification                                             108
     24.2         No Joint Venture or Partnership                                          109
     24.3         Amendments, Waivers and Modifications                                    109
</TABLE>

                                       8
<PAGE>   9
<TABLE>
<S>               <C>                                                                 <C>
     24.4         Captions and Heading                                                     110
     24.5         Time is of the Essence                                                   110
     24.6         Counterparts                                                             110
     24.7         Entire Agreement                                                         110
     24.8         WAIVER OF JURY TRIAL                                                     110
     24.9         Successors and Assigns                                                   110
     24.10        No Third Party Beneficiaries                                             111
     24.11        Governing Law                                                            111
     24.12        General                                                                  111
     24.13        Intention of Parties                                                     112
     24.14        Appraisal                                                                112
                  24.14.1          Designation of Appraisers                               112
                  24.14.2          Appraisal Process                                       112
                  24.14.3          Specific Enforcement and Costs                          113

EXHIBIT A         LEGAL DESCRIPTION OF THE LAND                                            115

EXHIBIT B         PERMITTED ENCUMBRANCES                                                   116

EXHIBIT C         LIST OF SHAREHOLDERS                                                     117

EXHIBIT D         NATIONAL ACCOUNTS AND LOCAL DISCOUNTS                                    118

EXHIBIT E         OPEN COST REPORTS                                                        119

EXHIBIT F         RATE LIMITATIONS                                                         120

EXHIBIT G         FREE CARE REQUIREMENTS                                                   121

EXHIBIT H         CURRENT RATES                                                            122

EXHIBIT I         RENT COVERAGE RATIO CALCULATION                                          123

EXHIBIT J         [INTENTIONALLY OMITTED]                                                  124
</TABLE>

                                       9
<PAGE>   10
                            FACILITY LEASE AGREEMENT

This FACILITY LEASE AGREEMENT ("Lease") is dated as of the 30th day of April,
1997 and is between MEDITRUST ACQUISITION CORPORATION III ("Lessor"), a Delaware
corporation having its principal office at 197 First Avenue, Needham Heights,
Massachusetts 02194, and AILS LEASING, INC. ("Lessee"), a Delaware corporation,
having its principal office at 450 N. Sunnyslope Road, Suite 300, Brookfield,
Wisconsin 53005, Attn: Mr. William F. Lasky.

                                    ARTICLE 1

                        LEASED PROPERTY; TERM; EXTENSIONS

          1.1 Leased Property. Upon and subject to the terms and conditions
hereinafter set forth, the Lessor leases to the Lessee and the Lessee rents and
leases from the Lessor all of the Lessor's rights and interests in and to the
following real and personal property (collectively, the "Leased Property"):

                    (a)    the real property described in EXHIBIT A attached
          hereto (the "Land");

                    (b)    all buildings, structures, Fixtures (as hereinafter
          defined) and other improvements of every kind including, but not
          limited to, alleyways and connecting tunnels, sidewalks, utility
          pipes, conduits and lines, and parking areas and roadways appurtenant
          to such buildings and structures presently or hereafter situated upon
          the Land (collectively, the "Leased Improvements");

                    (c)    all easements, rights and appurtenances of every
          nature and description now or hereafter relating to or benefitting any
          or all of the Land and the Leased Improvements; and

                    (d)    all equipment, machinery, building fixtures, and
          other items of property (whether realty, personalty or mixed),
          including all components thereof, now or hereafter located in, on or
          used in connection with, and permanently affixed to or incorporated
          into the Leased Improvements, including, without limitation, all
          furnaces, boilers, heaters, electrical equipment, heating, plumbing,
          lighting, ventilating, refrigerating, incineration, air and water
          pollution control, waste disposal, air-cooling and air-conditioning
          systems and apparatus, sprinkler systems and fire and theft protection
          equipment, and built-in oxygen and vacuum systems, all of which, to
          the greatest extent permitted by law, are hereby deemed by the parties
          hereto to constitute real estate, together with all replacements,
          modifications, alterations and additions thereto, but specifically
          excluding all items included within the category of Tangible Personal
          Property (as hereinafter defined) which are not permanently affixed to
          or incorporated in the Leased Property (collectively, the "Fixtures").

          The Leased Property is leased in its present condition, AS IS, without
representation or
<PAGE>   11
warranty of any kind, express or implied, by the Lessor and subject to: (i) the
rights of parties in possession; (ii) the existing state of title including all
covenants, conditions, Liens (as hereinafter defined) and other matters of
record (including, without limitation, the matters set forth in EXHIBIT B);
(iii) all applicable laws; and (iv) all matters, whether or not of a similar
nature, which would be disclosed by an inspection of the Leased Property or by
an accurate survey thereof.

          Without limiting the generality of the foregoing, the Lessee
acknowledges and agrees that the following accurately describes the Lessor's
current ownership interests in the Leased Property:

          (a)       the Land is owned by the Lessor in fee simple subject to the
                  Permitted Encumbrances (defined below);

          (b)       Lessor is the assignee of the landlord's interest in a
                  ground lease (the "EDC Ground Lease"), dated October 13, 1993,
                  of the Land from Pioneer Liberty Square Company, LLC to the
                  Manlius Liberty Commons Economic Development Corporation
                  ("Manlius Liberty Commons EDC");

          (c)       Manlius Liberty Commons EDC has executed a sublease (the
                  "IDA Sublease"), dated October 13, 1993 subleasing the Land to
                  Onondaga County Industrial Development Agency ("Onondaga
                  County IDA") which has caused the Leased Improvements to be
                  constructed on the Land; and

          (d)       Onondaga County IDA has executed a sub-sublease (the
                  "Liberty Commons Sub-sublease"), dated October 13, 1993, of
                  the Land and. Leased Improvements to Liberty Commons
                  Associates LLC, which in turn has assigned its subsublessee's
                  interest in its entirety to the Lessor.

          1.2       Term. The term of this Lease shall consist of the "Initial
          Term", which shall commence on April 30, 1997 (the "Commencement
          Date") and end on April 30, 2010 (the "Expiration Date"); provided,
          however, that this Lease may be sooner terminated as hereinafter
          provided. In addition, the Lessee shall have the option(s) to extend
          the Term (as hereinafter defined) as provided for in Section 1.3.

          1.3     Extended Terms. Provided that this Lease has not been
previously terminated, and as long as there exists no Lease Default (as
hereinafter defined) at the time of exercise and on the last day of .the Initial
Term or the then current Extended Term (as hereinafter defined), as the case may
be, the Lessee is hereby granted the option to extend the Initial Term of this
Lease for three (3) additional periods (collectively, the "Extended Terms") as
follows: three (3) successive five (5) year periods for a maximum Term, if all
such options are exercised, which ends on April 30, 2025. The Lessee's extension
options shall be exercised by the Lessee by giving written notice to the Lessor
of the Lessee's exercise of each such extension at least one hundred eighty
(180) days, but not more than three hundred sixty (360) days, prior to the
termination of the Initial Term or the then current Extended Term, as the case
may be. The Lessee shall have no

                                       11
<PAGE>   12
right to rescind any such notice once given. The Lessee may not exercise its
option for more than one Extended Term at a time. During each effective Extended
Term, all of the terms and conditions of this Lease shall continue in full force
and effect, except that the Base Rent (as hereinafter defined) for each such
Extended Term shall be adjusted as set forth in Section 3.1.1.

         Notwithstanding anything to the contrary set forth herein, the Lessee's
rights to exercise the options granted in this Section 1.3 are subject to the
further condition that concurrently with the exercise of any extension option
hereunder, the Lessee shall have exercised its option to extend the terms of all
of the Group Two Acquisition Facility Leases (as defined in the Agreement
Regarding Related Lease Transactions) in accordance with the provisions of the
Agreement Regarding Related Lease Transactions and the provisions of Section 1.3
of each of the Related Leases.

                                    ARTICLE 2

                      DEFINITIONS AND RULES OF CONSTRUCTION

         2.1     Definitions. For all purposes of this Lease and the other Lease
Documents (as hereinafter defined), except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular and (ii) all references in this Lease or any of the other
Lease Documents to designated "Articles", "Sections" and other subdivisions are
to the designated Articles, Sections and other subdivisions of this Lease or the
other applicable Lease Document.

         Acceptable Licensed Operator: Any of (a) the Current Manager, (b) the
Lessee, or (c) any Sublessee or Manager of the Facility (pursuant to a Sublease
or Management Agreement approved by the Lessor) that is wholly-owned by
Alternative Living Services, Inc. and is, during the Term, engaged in no
business or venture other than the ownership and/or operation of any health care
facility owned or financed by any Meditrust Entity; provided, however, that the
Current Manager shall not continue to manage the Facility for more than six (6)
months after the Commencement Date and shall not be deemed an Acceptable
Licensed Operator beyond such six-month term.

         Accounts: As defined in the UCC.

         Accreditation Body: All Persons having jurisdiction over the
accreditation, certification, evaluation or operation of the Facility. The
Lessor understands that neither the Lessee nor any Sublessee nor the Facility is
currently under the jurisdiction, or is otherwise subject to the rules, of any
Accreditation Body and that, accordingly, the provisions of this Lease relating
in any way to an Accreditation Body are presently inapplicable to this
transaction; however, in the event that at any time during the Term, any of the
Lessee, any Sublessee or the Facility falls under the jurisdiction of, or
otherwise becomes subject to the rules of, any Accreditation Body, then all such
provisions of this Lease and the other Lease Documents relating to an
Accreditation Body shall apply with full force and effect.

                                       12
<PAGE>   13

         Addendum to Lease: The addendum attached to this Lease, dated of even
date herewith by and between the Lessor and the Lessee.

         Additional Rent: As defined in Section 3.1.2.

         Additional Rent Commencement Date: As defined in Section 3.1.2.

         Additional Charges: As defined in Section 3.2.

         Additional Land: As defined in Section 9.3.

         Affiliate: With respect to any Person (i) any other Person which,
directly or indirectly, controls or is controlled by or is under common control
with such Person, (ii) any other Person that owns, beneficially, directly or
indirectly, five percent (5%) or more of the outstanding capital stock, shares
or equity interests of such Person, or (iii) any officer, director, employee,
general partner or trustee of such Person, or any other Person controlling,
controlled by, or under common control with, such Person (excluding trustees and
Persons serving in a fiduciary or similar capacity who are not otherwise an
Affiliate of such Person). For the purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction, of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.

         Affiliated Party Subordination Agreement: That certain Amended and
Restated Affiliated Party Subordination Agreement of even date by and among the
Lessee, the Guarantor, the Lessor and various Affiliates of the Lessor.

         Agreement Regarding Related Lease Transactions: The Amended and
Restated Agreement Regarding Related Lease Transactions of even date, as amended
from time to time, between Lessee, Lessor and the Guarantor. Lessor and Lessee
anticipate that the Agreement Regarding Related Lease Transactions will be
amended from time to time in order to (a) include Affiliates of each of Lessor
and Lessee as parties thereto in connection with future transactions and (b)
include additional facilities within the scope of such related transactions and
acknowledge and agree that for all purposes under this Lease such amendments
shall be deemed to be included in this definition.

         Annual Facility Upgrade Expenditure: The aggregate amount spent on
Upgrade Renovations during any Lease Year.

         Appurtenant Agreements: Collectively, all instruments, documents and
other agreements that now or hereafter create any utility, access or other
rights or appurtenances benefiting or relating to the Leased Property.

         Award: All compensation, sums or anything of value awarded, paid or
received on a total

                                       13
<PAGE>   14
or partial Condemnation.

         Asset Purchase Agreement: That certain Asset Purchase Agreement dated
as of February 12, 1997 by and between the Seller, the Guarantor and other
parties, as amended by a First Amendment to .Acquisition Agreement, dated March
25, 1997, and Second Amendment to Acquisition Agreement, dated April 15, 1997.

         Asset Purchase Documents: Collectively, the Asset Purchase Agreement
and all other documents and instruments now or hereafter executed and/or
delivered in. connection therewith or pursuant thereto, but only to the extent
such Agreement, documents and instruments apply to the Leased Property and the
transactions contemplated by this Lease.

         Bankruptcy Code: Subsection 365(h) of the United States Bankruptcy
Code, 11 U.S.C. ss.365(h), as the same may hereafter be amended and including
any successor provision thereto.

         Base Rent: As defined in Section 3.1.1 and adjusted pursuant to
Sections 3.1.1.

         Bond: The Industrial Development Revenue Bond in the original face
amount of $5,000,000.00 issued by Onondaga County Industrial Development Agency
titled "(Manlius Liberty Commons Project), Series 1993A" and dated October 13,
1993.

         Bond-Related Obligations: Any and all duties, responsibilities or
obligations to be performed by the owner of the Leased Property under any
promissory note, agreement, certificate, instrument or other document issued to
evidence or secure in any way the Bond or the repayment of the Bond, including,
without limitation, (a) the Loan Agreement ("Loan Agreement"), dated as of
October 1, 1993, by and between Manlius Liberty Commons EDC, Onondaga County IDA
and Liberty Commons Associates, (b) the Building Loan Agreement ("Building Loan
Agreement"), dated as of October 1, 1993, by and between Manlius Liberty Commons
EDC, Onondaga County IDA, Liberty Commons Associates and Key Bank of New York,
(c) any of the promissory notes, mortgages or other instruments executed and
delivered in connection with either the Loan Agreement or the Building Loan
Agreement, and (d) the Mortgage, dated April _1997 from Manlius Liberty Commons
EDC, Onondaga County IDA, the Lessor and the Lessee, as mortgagors, to the
Village of Manlius, as mortgagee.

         Business Day: Any day which is not a Saturday or Sunday or a public
holiday under the laws of the United States of America, the Commonwealth of
Massachusetts, the State or the state in which the Lessor's depository bank is
located.

         Capital Additions: Collectively, all new buildings and additional
structures annexed to any portion of any of the Leased Improvements and material
expansions of any of the Leased Improvements which are constructed on any
portion of the Land during the Term, including, without limitation, the
construction of a new wing or new story, the renovation of any of the Leased
Improvements on the Leased Property in order to provide a functionally new
facility that is needed or used to provide services not previously offered, and
any expansion, construction, renovation or conversion or in order to (i)
increase the unit capacity of a Facility, (ii) change the

                                       14
<PAGE>   15
purpose for which such units are utilized and/or (iii) change the utilization of
any material portion of any of the Leased Improvements.

         Capital Addition Cost: The cost of any Capital Addition made by the
Lessee whether paid for by the Lessee or the Lessor. Such cost shall include all
costs and expenses of every nature whatsoever incurred directly or indirectly in
connection with the development, permitting, construction and financing of a
Capital Addition as reasonably determined by, or to the reasonable satisfaction
of, the Lessor.

         Cash Collateral: As defined in Section 6.2.1.

         Cash Flow: The Consolidated Net Income-(or Consolidated Net Loss),
arising solely from the operation of the Leased Property, before federal and
state income taxes for any period plus (i) the amount of the provision for
depreciation and amortization actually deducted on the books of the applicable
Person for the purposes of computing such Consolidated Net Income (or
Consolidated Net Loss) for the period involved, plus (ii) Rent and interest on
all other payments with respect to all Indebtedness and/or other obligations
(including, without limitation, management fees) which are fully subordinated to
the Lease Obligations pursuant to the Affiliated Party Subordination Agreement.

         Casualty: As defined in Section 13.1.1.

         Chattel Paper: As defined in the UCC.

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

         Collateral: All of the property in which security interests are granted
to the Lessor and the other Meditrust Entities pursuant to the Lease Documents
and the Related Party Agreements to secure the Lease Obligations, including,
without limitation, the Cash Collateral and the Receivables.

         Commencement Date: As defined in Section 1.2.

         Competitive Activity: As defined in Section 11.5.4.

         Condemnation: With respect to the Leased Property or any interest
therein or right accruing thereto or use thereof (i) the exercise by a
Condemnor, whether by legal proceedings or otherwise, resulting in a Taking or
(ii) a voluntary sale or transfer by the Lessor to any Condemnor, either under
threat of Condemnation or Taking or while legal proceedings for a Taking are
pending.

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

         Consolidated and Consolidating: When used with reference to any term
otherwise

                                       15
<PAGE>   16

defined herein, means such term as applied to the consolidated and consolidating
accounts of the relevant Person and its Subsidiaries consolidated in accordance
with GAAP.

         Consolidated Financials: For any fiscal year or other accounting period
for any Person and its consolidated Subsidiaries, statements of earnings and
retained earnings and of changes in financial position for such period and for
the period from the beginning of the respective fiscal year to the end of such
period and the related balance sheet as at the end of such period, together with
the notes thereto, all in reasonable detail and setting forth in comparative
form the corresponding figures for the corresponding period in the preceding
fiscal year, and prepared in accordance with GAAP.

         Consultants: Collectively, the architects, engineers, inspectors,
surveyors and other consultants that are engaged from time to time by the Lessor
to perform services for the Lessor in connection with this Lease.

         Consumer Price Adjustment Factor: A fraction, the numerator of which is
the Consumer Price Index in effect as of first day of the Lease Year for which
the Annual Facility Upgrade Expenditure increase is being calculated and the
denominator of which is the Consumer Price Index in effect as of the
Commencement Date.

         Consumer Price Index: The Consumer Price Index for Urban Wage Earners
and Clerical Workers, All Items-U.S. Cities Average (1982-84=100), published by
the Bureau of Labor Statistics, U.S. Department of Labor; provided, that, if the
compilation of the Consumer Price Index in its present form and calculated on
its present basis is discontinued or transferred to any other Governmental
Authority, then, the index most similar to the Consumer Price Index published by
the Bureau of Labor Statistics shall be used. If there is no such similar index,
a substitute index which is then generally recognized as being similar to the
Consumer Price Index shall be used, with such substitute index to be reasonably
selected by the Lessor and reasonably approved by the Lessee.

         Contracts: All agreements (including, without limitation, Provider
Agreements and Resident Agreements), contracts, (including without limitation,
construction contracts, subcontracts, and architects' contracts,) contract
rights, warranties and representations, franchises, and records and books of
account benefiting, relating to or affecting the Leased Property or the
ownership, -construction, development, maintenance, management, repair, use,
occupancy, possession, or operation thereof, or the operation of any programs or
services in conjunction with the Leased Property and all renewals, replacement
and substitutions therefor, now or hereafter issued by or entered into with any
Governmental Authority, Accreditation Body or Third Party Payor or maintained or
used by any member of the Leasing Group or entered into by any member of the
Leasing Group with any third Person.

         Current Assets: All assets of any Person which would, in accordance
with GAAP, be classified as current assets of a Person.

         Current Liabilities: All liabilities of any Person which would, in
accordance with GAAP,

                                       16
<PAGE>   17

be classified as current liabilities of a Person.

         Current Management Agreement: The "Service Agreement" and "Home Care
Agreement" as each is defined in and modified by the Assignment and Assumption
Agreement, dated as of April 28, 1997, by and between the Lessee, the Current
Manager, Pioneer Liberty Square Company, LLC, Liberty Common Associates, and
Loretto Adult Community Inc.

         Current Manager: Loretto Management Corporation and Brighton Management
Services, Inc.

         Date of Taking: The date the Condemnor has the right to possession of
the property being condemned.

         Declaration: As defined in Article 23.

         Deposit Pledge Agreement: The pledge and security agreement so
captioned and dated as of even date herewith between the Lessee and the Lessor.

         Documents: As defined in the UCC.

         EDC Ground Lease: As defined in Section 1.1.

         Encumbrance: As defined in Section 20.3.

         Environmental Indemnity Agreement: The Amended and Restated
Environmental Indemnity Agreement of even date herewith by and among the Lessee,
the Guarantor and the Lessor.

         Environmental Laws: As defined in the Environmental Indemnity
Agreement.

         ERISA: The Employment Retirement Income Security Act of 1.974, as
amended.

         Event of Default: As defined in Section 16.1.

         Excess Gross Revenues: Gross Revenues for a calendar year less the
Gross Revenues for the immediately preceding calendar year.

         Excluded Facilities: As defined in Section 11.5.4.

         Expiration Date: As defined in Section 1.2.

         Extended Terms: As defined in Section 1.3.

         Facility: The eighty (80) unit, eighty-four (84) bed, fully licensed
(to the extent licensing is required by the State) assisted living facility
known as "Liberty Commons" and located in

                                       17
<PAGE>   18
Manlius, New York, on the Land (together with related parking and other
amenities).

         Failure to Operate: As defined in Section 16.1.

         Failure to Perform: As defined in Section 16.1.

         Fair Market Added Value: The Fair Market Value of the Leased Property
(including all Capital Additions) minus the Fair Market Value of the Leased
Property determined as if no Capital Additions paid for by the Lessee had been
constructed.

         Fair Market Value of the Capital Addition: The amount by which the Fair
Market Value of the Leased Property upon the completion of a particular Capital
Addition exceeds the Fair Market Value of the Leased Property just prior to the
construction of the particular Capital Addition.

         Fair Market Value of the Leased Property: The fair market: value of the
Leased Property, including all Capital Additions, and including the Land and
all. other portions of the Leased Property, and (a) assuming the same is
unencumbered by this Lease, (b) determined in accordance with the appraisal
procedures set forth in Section 24.14 or in such other manner as shall be
mutually acceptable to the Lessor and the Lessee and (c) not taking into account
any reduction in value resulting from any Lien to which the Leased Property is
subject and which Lien the Lessee or the Lessor is otherwise required to remove
at or prior to closing of the transaction. However, the positive or negative
effect on the value of the Leased Property attributable to the interest rate,
amortization schedule, maturity date, prepayment provisions and other terms and
conditions of any Lien on the Leased Property which is not so required or agreed
to be removed shall be taken into account in determining the Fair Market Value
of the Leased Property. The Fair Market Value of the Leased Property shall be
determined as the overall value based on due consideration of the "income"
approach, the "comparable sales" approach and the "replacement cost" approach.

         Fair Market Value of the Material Structural Work: The amount by which
the Fair Market Value of the Leased Property upon the completion of any
particular Material Structural Work exceeds the Fair Market Value of the Leased
Property just prior to the construction of the applicable Material Structural
Work.

         Fee Mortgage: As defined in Section 20.3.

         Fee Mortgagee: As defined in Section 20.3.

         Financing Party: Any Person who is or may be participating with the
Lessor in any way in connection with the financing of any Capital Addition.

         Financing Statements: Uniform Commercial Code financing statements
evidencing the security interests granted to the Lessor in connection with the
Lease Documents.

                                       18
<PAGE>   19
         Fiscal Quarter: Each of the three (3) month periods commencing on
January 1st, April 1st, July 1st and October 1st.

         Fiscal Year: The twelve (12) month period from January 1st to December
31st.

         Fixtures: As defined in Section 1.1.

         GAAP: Generally accepted accounting principles, consistently applied
throughout the relevant period.

         General Intangibles: As defined in the UCC.

         Governmental Authorities: Collectively, all agencies, authorities,
bodies, boards, commissions, courts, instrumentalities, legislatures, and
offices of any nature whatsoever of any government, quasi-government unit or
political subdivision, whether with a federal, state, county, district,
municipal, city or otherwise and whether now or hereinafter in existence.

         Gross Revenues: Collectively, all revenues generated by reason of the
operation of the Leased Property (including any Capital Additions), whether or
not directly or indirectly received or to be received by the Lessee, including,
without limitation, all resident revenues received or receivable for the use of,
or otherwise by reason of, all rooms, units and other facilities provided, meals
served, services performed, space or facilities subleased or goods sold on or
from the Leased Property and further -including, without limitation, except as
otherwise specifically provided below, any consideration received under any
subletting, licensing, or other arrangements with any Person relating to the
possession or use of the Leased Property and all revenues from all ancillary
services provided at or relating to the Leased Property; provide however, that
Gross Revenues shall not include non-operating revenues such as interest income
or gain from the sale of assets not sold in the ordinary course of business; and
provide , further, that there shall be excluded or deducted (as the case may be)
from such revenues:

                     (i) contractual allowances (relating to any period during
          the Term of this Lease and thereafter until the Rent hereunder is paid
          in full) for billings not paid by or received from the appropriate
          Governmental Agencies or Third Party Payors,

                     (ii) allowances according to GAAP for uncollectible
          accounts,

                     (iii) all proper resident billing credits and adjustments
          according to GAAP relating to health care accounting,

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

                     (v) deposits refundable to residents of the Facility.

                                       19
<PAGE>   20
         To the extent that the Leased Property is subleased or occupied by an
Affiliate of the Lessee, Gross Revenues calculated for all purposes of this
Lease (including, without limitation, the determination of the Additional Rent
payable under this Lease) shall include the Gross Revenues of such Sublessee
with respect to the premises demised under the applicable Sublease (i.e., the
Gross Revenues generated from the operations conducted on such subleased portion
of the Leased Property) and the rent received or receivable from such Sublessee
pursuant to such Subleases shall be excluded from Gross Revenues for all such
purposes. As to any Sublease between the Lessee and a non- Affiliate of the
Lessee, only the rental actually received by the Lessee from such non-Affiliate
shall be included in Gross Revenues.

         Group One Acquisition Transaction Documents: As defined in the
Agreement Regarding Related Lease Transactions.

         Group Two Acquisition Transaction Documents: As defined in the
Agreement Regarding Related Lease Transactions.

         Guarantor: Alternative Living Services, Inc. and its successors and
assigns.

         Guaranty: The Amended and Restated Guaranty of even date executed by
Guarantor in favor of the Lessor.

         Hazardous Substances: As defined in the Environmental Indemnity
Agreement.

         IDA Sublease: As defined in Section 1.1.

         Impositions: Collectively, all taxes (including, without limitation,
all capital stock and franchise taxes of the Lessor, all ad valorem, property,
sales, use, single business, gross receipts, transaction privilege, rent or
similar taxes), payments due under the Payment In Lieu of Tax Agreement, dated
as of September 1, 1993 between Pioneer Liberty Square Company, LLC and the
Village of Manlius, payments due under the Agreement, dated June 2, 1993 by and
between Pioneer Liberty Square Company and the Village of Manlius (the so-called
"Impact Fee Agreement"), assessments (including, without limitation, all
assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not to be completed within the
Term), ground rents, water and sewer rents, water charges or other rents and
charges, excises, tax levies, fees (including, without limitation, license,
permit, inspection, authorization and similar fees), transfer taxes and
recordation taxes imposed as a result of the conveyance of the Land to the
Lessor (and/or the conveyance of the Leased Property to the Lessee pursuant to
the terms of this Lease), this Lease or any extensions hereof, and all other
governmental charges, in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of
either or both of the Leased Property and the Rent (including all interest and
penalties thereon due to any failure in payment by the Lessee), which at any
time prior to, during or in respect of the Term hereof and thereafter until the
Leased Property is surrendered to the Lessor as required by the terms of this
Lease, may be assessed or imposed on or in respect of or be a Lien upon (a) the
Lessor or the

                                       20
<PAGE>   21
Lessor's interest in the Leased Property, (6) the Leased Property or any rent
therefrom or any estate, right, title or interest therein, or (c) any occupancy,
operation, use or possession of, sales from, or activity conducted on, or in
connection with, the Leased Property or the leasing or use of the Leased
Property. Notwithstanding the foregoing, nothing contained in this Lease shall
be construed to require the Lessee to pay (1) any tax based on net income
(whether denominated as a franchise or capital stock or other tax) imposed on
the Lessor or any other Person, except the Lessee or its successors, (2) any net
revenue tax of the Lessor or any other Person, except the Lessee and its
successors, (3) any tax imposed with respect to the sale, exchange or other
disposition by the Lessor of the Leased Property or the proceeds thereof, (4)
any tax imposed with respect to any Fee Mortgage or any Fee Mortgagee, (5)
except as expressly provided elsewhere in this Lease, any principal or interest
on any Encumbrance on the Leased Property, or (6) any portion of assessments
which are assessed during the Term of this Lease and amortized over a period
which extends beyond the Term of this Lease provided the Lessee (and not the
Lessor) shall be responsible for that portion of the amortized assessment due
and owing during the Term and any and all finance charges and/or penalties which
accrue as a result of amortizing any such assessments, including, without
limitation, any finance charges and/or penalties (other than penalties which
accrue as a result of late payment after the expiration of the Term of this
Lease) which accrue after the expiration of the Term of this Lease; provide ,
however, the provisos set forth in clauses (1) and (2) of this sentence shall
not be applicable to the extent that any tax, assessment, tax levy or charge
which the Lessee is obligated to pay pursuant to the first sentence of this
definition and which is in effect at any time during the Term hereof is totally
or partially repealed, and a tax, assessment, tax levy or charge set forth in
clause (1) or (2) is levied, assessed or imposed expressly in lieu thereof. In
computing the amount of any franchise tax or capital stock tax which may be or
become an Imposition, the amount payable by the Lessee shall be equitably
apportioned based upon all properties owned by the Lessor that are located
within the particular jurisdiction subject to any such tax. Indebtedness: The
total of all obligations of a Person, whether current or long-term, which in
accordance with GAAP, would be included as liabilities upon such Person's
balance sheet at the date as of which Indebtedness is to be determined.

         Indemnified Parties: As defined in Section 12.2.2.

         Index: The rate of interest of actively traded marketable United States
Treasury Securities bearing a fixed rate of interest adjusted for a constant
maturity of ten (10) years as calculated by the Federal Reserve Board.

         Initial Term: As defined in Section 1.2.

         Instruments: As defined in the UCC.

         Insurance Requirements: All terms of any insurance policy required by
this Lease, all requirements of the issuer of any such policy with respect to
the Leased Property and the activities conducted thereon and the requirements of
any insurance board, association or organization or underwriters' regulations
pertaining to the Leased Property.

                                       21
<PAGE>   22
         JCAHO: The Joint Commission on Accreditation of Health Care
Organizations.

         Land: As defined in Article 1.

         Lease: As defined in the preamble of this Lease.

         Lease Default: The occurrence of any default or breach of condition
continuing beyond any applicable notice and/or grace and/or cure periods under
this Lease and/or any of the other Lease Documents.

         Lease Documents: Collectively, this Lease, the Guaranty, the Security
Agreement, the Deposit Pledge Agreement, the Pledge Agreement, the Agreement
Regarding Related Lease Transactions, the Permits Assignment, the Financing
Statements, the Affiliated Party Subordination Agreement, the Environmental
Indemnity Agreement, the other Facility Lease Agreements referred to in the
Agreement Regarding Related Lease Transactions, and any and all other
instruments, documents, certificates or agreements now or hereafter (i) executed
or furnished by any member of the Leasing Group in connection with the
transactions evidenced by this Lease and/or any of the foregoing documents
and/or (ii) evidencing or securing any of the Lessee's obligations. relating to
the Leased Property, including, without limitation, the Lessee's obligations
hereunder.

         Lease Obligations: Collectively, all indebtedness, covenants,
liabilities, obligations, agreements and undertakings (other than the Lessor's
obligations) under this Lease and the other Lease Documents.

         Lease Year: A twelve-month period ending on December 31 of each year;
provided, that the first Lease Year shall begin on the Commencement Date and
shall end on December 31, 1997.

         Leased Improvements: As defined in Article 1.

         Leased Property: As defined in Article 1.

         Leasing Commitment Fee: NINETY-ONE THOUSAND TWO HUNDRED AND 00/100
DOLLARS ($91,200.00).

         Leasing Group: Collectively, the Lessee, the Guarantor, any Sublessee
which is an Affiliate of the Lessee or the Guarantor and any Manager which is an
Affiliate of the Lessee or the Guarantor.

         Legal Requirements: Collectively, all statutes, ordinances, by-laws,
codes, rules, regulations, restrictions, orders, judgments, decrees and
injunctions (including, without limitation, all applicable building, health
code, zoning, subdivision, and other land use and assisted living licensing
statutes, ordinances, by-laws, codes, rules and regulations), whether now or
hereafter enacted, promulgated or issued by any Governmental Authority,
Accreditation Body

                                       22
<PAGE>   23
or Third Party Payor affecting any member of the Leasing Group and relating to
the Leased Property or the ownership, construction, development, maintenance,
management, repair, use, occupancy, possession or operation thereof or the
operation of any programs or services in connection with the Leased Property,
including, without limitation, any of the foregoing which may (i) require
repairs, modifications or alterations in or to the Leased Property, (ii) in any
way affect (adversely or otherwise) the use and enjoyment of the Leased Property
or (iii) require the assessment, monitoring, clean-up, containment, removal,
remediation or other treatment of any Hazardous Substances on, under or from the
Leased Property. Without limiting the foregoing, the term Legal Requirements
includes all Environmental Laws and shall also include all Permits and Contracts
issued or entered into by any Governmental Authority, any Accreditation Body
and/or any Third Party Payor and all Permitted Encumbrances, but shall exclude
any non-binding or non-mandatory rules or guidelines promulgated by an
Accreditation Body or Third Party Payor.

         Lessee: As defined in the preamble of this Lease and its successors and
assigns.

         Lessee's Election Notice: As defined in Section 14.3.

         Lessor: As defined in the preamble of this Lease and its successors and
assigns.

         Liberty Commons Sub-sublease: As defined in Section 1.1.

         Lien: With respect to any real or personal property, any mortgage, deed
of trust, easement, restriction, lien, pledge, collateral assignment,
hypothecation, charge, security interest, title retention agreement, levy,
execution, seizure, attachment, garnishment or other encumbrance of any kind in
respect of such property, whether or not choate, vested or perfected.

         Limited Parties: As defined in Section 11.5.4; provide , however, in no
event shall the term Limited Parties include any Person in its capacity as a
shareholder of a public entity, unless such shareholder is a member of the
Leasing Group or an Affiliate of any member of the Leasing Group.

         Managed Care Plans: All health maintenance organizations, preferred
provider organizations, individual practice associations, competitive medical
plans, and similar arrangements.

         Management Agreement: Any agreement, whether written or oral, between
the Lessee or any Sublessee and any other Person pursuant to which the Lessee or
such Sublessee provides any payment, fee or other consideration to any other
Person to operate or manage the Facility.

         Manager: Any Person who has entered into a Management Agreement with
the Lessee or any Sublessee.

         Material Structural Work: Any (i) structural alteration, (ii)
structural repair or (iii) structural renovation to the Leased Property that
would require (a) the design and/or involvement of a structural engineer and/or
architect and/or (b) the issuance of a Permit.

                                       23
<PAGE>   24
         Medicaid: The medical assistance program established by Title XIX of
the Social Security Act (42 USC ss.ss. 1396 et seq.) and any statute succeeding
thereto.

         Medicare: The health insurance program for the aged and disabled
established by Title XVIII of the Social Security Act (42 USC ss.ss. 1395 et
sect.) and any statute succeeding thereto.

         Meditrust: As defined in Article 23.

         Meditrust/ALS Transaction Documents: As defined in the Agreement
Regarding Related Lease Transactions, including Meditrust/ALS Transaction
Documents which are by implication added to, or deleted from, such definition as
EXHIBITS A or B to the Agreement Regarding Related Lease Transactions is amended
or modified from time to time in order to reflect the addition of new facilities
or the removal of one or more facilities.

         Meditrust - Entities: Collectively, Meditrust, the Lessor and any other
Affiliate of the Lessor which may now or hereafter be a party to any Related
Party Agreement.

         Meditrust Investment: The sum of (i) the Original Meditrust Investment
plus (ii) the aggregate amount of all Subsequent Investments.

         Monthly Deposit Date: As defined in Section 4.6.1.

         Net Income (or Net Loss): The net income (or net loss, expressed as a
negative number) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with GAAP;
it being expressly understood that any debt service paid by the Lessee on the
Bond-Related Obligations or any indebtedness which may refinance the
Bond-Related Obligations shall be calculated as an expense for purposes of
determining the Lessee's Net Income in connection with the Facility.

         Obligations: Collectively, the Lease Obligations and the Related Party
Obligations.

         Offer: As defined in Section 18.1.

         Offered Property: As defined in Section 18.1.

         Officer's Certificate: A certificate of the Lessee signed on behalf of
the Lessee by the Chairman of the Board of Directors, the President, any Vice
President or the Treasurer of the Lessee, or another officer authorized to so
sign by the Board of Directors or By-Laws of the Lessee, or any other Person
whose power and authority to act has been authorized by delegation in writing by
any of the Persons holding the foregoing offices.

         Original Meditrust Investment: NINE MILLION ONE HUNDRED TWENTY THOUSAND
AND 00/100 DOLLARS ($9,120,000.00).

                                       24
<PAGE>   25
         Other Permitted Uses: To the extent the Lessee elects, in its sole
discretion, to engage in same and then only if permitted under Legal
Requirements and under Insurance Requirements, and so long as the same do not
detract in any material manner from the Primary Intended Use, (i) medical or
dental offices or clinics, (ii) medical or dental laboratories, (iii) day care
center, (iv) hospitals, (v) pharmacy, (vi) medical services and physical
therapy, (vii) florists and card shops which do not have a separate entrance,
(viii) ancillary parking and (ax) beauty salons, and (x) other similar ancillary
uses currently being conducted at the Facility.

         Overdue Rate: On any date, a rate of interest per annum equal to the
greater of (i) a variable rate of interest per annum equal to one hundred twenty
percent (120%) of the Prime Rate, or (ii) eighteen percent (18%) per annum;
provided, however, in no event shall the Overdue Rate be greater than the
maximum rate then permitted under applicable law to be charged by the Lessor.

         PBGC: Pension Benefit Guaranty Corporation.

         Permits: Collectively, all permits, licenses, approvals,
qualifications, rights, variances, permissive uses, accreditations,
certificates, certifications, consents, agreements, contracts, contract rights,
franchises, interim licenses, permits and other authorizations of every nature
whatsoever required by, or issued under, applicable Legal Requirements
benefiting, relating or affecting the Leased Property or the construction,
development, maintenance, management, use or operation thereof, or the operation
of any programs or services in conjunction with the Leased Property and all
renewals, replacements and substitutions therefor, now or hereafter required or
issued by any Governmental Authority, Accreditation Body or Third Party Payor to
any member of the Leasing Group, or maintained or used by any member of the
Leasing Group, or entered into by any member of the Leasing Group with any third
Person.

         Permits Assignment: The Amended and Restated Collateral Assignment of
Permits, Licenses and Contracts of even date granted by the Lessee to the
Lessor.

         Permitted Encumbrances: As defined in Section 10.1.17.

         Permitted Prior Security Interests: As defined in Section 6.1.2.

         Person: Any individual, corporation, general partnership, limited
partnership, joint venture, stock company or association, company, bank, trust,
trust company, land trust, business trust, unincorporated organization,
unincorporated association, Governmental Authority or other entity of any kind
or nature.

         Plans and Specifications: As defined in Section 13.1.2.

         Pledge Agreement: The Amended and Restated Stock Pledge Agreement of
even date by and between the Guarantor, the Lessee and the Lessor.

         Primary Intended Use: The use of the Facility as an assisted living
facility with eighty

                                       25
<PAGE>   26
(80) assisted living units and such ancillary uses as are permitted by law and
may be necessary in connection therewith or incidental thereto.

         Prime Rate: The variable rate of interest per annum from time to time
announced by the Reference Bank as its prime rate of interest and in the event
that the Reference Bank no longer announces a prime rate of interest, then the
Prime Rate shall be deemed to be the variable rate of interest per annum which
is the prime rate of interest or base rate of interest from time to time
announced by any other major bank or other financial institution reasonably
selected by the Lessor.

         Principal Place of Business: As defined in Section 10.1.28.

         Proceeds: As defined in the UCC.

         Provider Agreements: All participation, provider and reimbursement
agreements or arrangements now or hereafter in effect for the benefit of the
Lessee or any Sublessee in connection with the operation of the Facility
relating to any right of payment or other claim arising out of or in connection
with the Lessee's or such Sublessee's participation in any Third Party Payor
Program.

         Purchaser: As defined in Section 11.5.4.

         Purchase Option: As defined in Section 18.4.1.

         Purchase Option Date: As defined in Section 18.4.2.

         Purchase Price: As defined in Section 18.4.4.

         Receivables: Collectively, all (i) Instruments, Documents, Accounts,
Proceeds, General Intangibles and Chattel Paper and (ii) rights to payment for
goods sold or leased or services rendered by the Lessee or any other party in
connection with the operation of the Facility, whether now in existence or
arising from time to time hereafter and whether or not yet earned by
performance, including, without limitation, obligations evidenced by an account,
note, contract, security agreement, chattel paper, or other evidence of
indebtedness.

         Reference Bank: Fleet Bank of Connecticut, N.A.

         Related Leases: Collectively, those Facility Leases relating to each of
the facilities listed on EXHIBITS A and B of the Agreement Regarding Related
Lease Transactions, as such Exhibits may be amended or modified from time to
time in order to reflect the addition of new facilities or the removal of one or
more facilities.

         Related Parties: Collectively, each Person that may now or hereafter be
a party to any Related Party Agreement other than the Meditrust Entities.

                                       26
<PAGE>   27
         Related Party Agreement: Any agreement, document or instrument now or
hereafter evidencing or securing any Related Party Obligation, including without
limitation, the Meditrust/ALS Transaction Documents.

         Related Party Default: The occurrence of a default or breach of
condition continuing beyond the expiration of any applicable notice and grace
and cure periods, if any, under the terms of any Related Party Agreement.

         Related Party Obligations: Collectively, all indebtedness, covenants,
liabilities, obligations, agreements and undertakings due to, or made for the
benefit of, the Lessor or any of the other Meditrust Entities by the Lessee or
any other member of the Leasing Group or any of their respective Affiliates;
whether such indebtedness, covenants, liabilities, obligations, agreements
and/or undertakings are direct or indirect, absolute or contingent, liquidated
or unliquidated, due or to become due, joint, several or joint and several,
primary or secondary, now existing or hereafter arising, including, without
limitation, the obligations under the Meditrust/ALS Transaction Documents.

         Rent: Collectively, the Base Rent, the Additional Rent, the Additional
Charges and all other sums payable under this Lease and the other Lease
Documents.

         Rent/Adjustment Date: The first day of each Extended Term.

         Rent Adjustment Rate: Three hundred thirty (330) basis points over the
Index.

         Rent Coverage Ratio: The ratio of (i) Cash Flow for each applicable
period to (ii) the total of all Rent paid or payable during such period or
accrued for such period.

         Rent Insurance Proceeds: As defined in Section 13.8.

         Rent Shortfall: As defined in Section 3.1.

         Rent Surplus: As defined in Section 3.1.

         Resident Agreements: Collectively, all Subleases now or hereafter
executed or entered into by or on behalf of any Person allowing such Person to
reside at the Facility.

         Retainage: As defined in Section 13.1.3.

         Security Agreement: The Security Agreement as of even date herewith
between the Lessee and the Lessor.

         Seller: Collectively, Pioneer Liberty Square Company, LLC and Liberty
Commons Associates, LLC.

         State: The state or commonwealth in which the Leased Property is
located.

                                       27
<PAGE>   28
         Stated Amount: An amount equal to three (3) months Base Rent during the
first Lease Year.

         Sublease: Collectively, all subleases, licenses, use agreements,
concession agreements, tenancy at will agreements, rentals of other facilities
of the Leased Property and all other occupancy agreements of every kind and
nature (including all Resident Agreements), whether oral or in writing, now in
existence or subsequently entered into by the Lessee, encumbering or affecting
the Leased Property.

         Sublessee: Any sublessee, licensee, concessionaire, tenant or other
occupant under any of the Subleases, but excluding any resident of the Facility
under any Resident Agreement.

         Subsequent Investments: The aggregate amount of all sums expended and
liabilities incurred by the Lessor in connection with Capital Additions.

         Subsidiary or Subsidiaries: With respect to any Person, any corporation
or other entity of which such Person, directly, or indirectly, through another
entity or otherwise, owns, or has the right to control or direct the voting of,
fifty percent (50%) or more of the outstanding capital stock or other ownership
interest having general voting power (under ordinary circumstances).

         Superior Lease Obligations: Any and all duties, obligations and
responsibilities to be performed or fulfilled by the holder of the
sub-subleasehold interest under the Liberty Commons Sub-sublease or otherwise
required to be performed or fulfilled by the Lessor under either the EDC Ground
Lease or the IDA Sublease.

         Taking: A taking or voluntary conveyance during the Term of the Leased
Property, or any interest therein or right accruing thereto, or use thereof, as
the result of, or in settlement of, any Condemnation or other eminent domain
proceeding affecting the Leased Property.

         Tangible Net Worth: An amount determined in accordance with GAAP equal
to the total assets of any Person, excluding the total intangible assets of such
Person, minus the total liabilities of such Person. Total intangible assets
shall be deemed to include, but shall not be limited to, the excess of cost over
book value of acquired businesses accounted for by the purchase method,
formulae, trademarks, trade names, patents, patent rights and deferred expenses
(including, but not limited to, unamortized debt discount and expense,
organizational expense and experimental and development expenses).

         Tangible Personal Property: All vehicles, machinery, equipment,
furniture, furnishings, movable walls or partitions, computers or trade
fixtures, goods, inventory, supplies, and other personal property owned or
leased (pursuant to equipment leases) by the Lessee and used in connection with
the operation of the Leased Property.

         Term: Collectively, the Initial Term and each Extended Term which has
become effective pursuant to Section 1.3, as the context may require, unless
earlier terminated pursuant to the

                                       28
<PAGE>   29
provisions hereof.

         Third Party Payor Programs: Collectively, all third party payor
programs in which the Lessee or any Sublessee presently or in the future may
participate, including without limitation, Medicare, Medicaid, Blue Cross and/or
Blue Shield, Managed Care Plans, other private insurance plans and employee
assistance programs.

         Third Party Payors: Collectively, Medicare, Medicaid, Blue Cross and/or
Blue Shield, private insurers and any other Person which presently or in the
future maintains Third Party Payor Programs.

         UCC: The Uniform Commercial Code as in effect from time to time in the
State.

         Unavoidable Delays: Delays due to strikes, lockouts, inability to
procure materials, power failure, acts of God, governmental restrictions, enemy
action, civil commotion, fire, unavoidable casualty or other causes beyond the
control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control of
either party hereto.

         United States Treasury Securities: The uninsured treasury securities
issued by the United States Federal Reserve Bank.

         Unsuitable For Its Primary Intended Use: As used anywhere in this
Lease, the term "Unsuitable For Its Primary Intended Use" shall mean that, by
reason of Casualty, or a partial or temporary Taking by Condemnation, as jointly
determined by the Lessor and the Lessee in good faith, the Facility cannot be
operated on a commercially practicable basis for the Primary Intended Use,
taking into account, among other relevant factors, the number of usable units
affected by such Casualty or partial or temporary Taking.

         Upgrade Renovations: As defined in Section 8.1.4.

         Work: As defined in Section 13.1.1.

         Work Certificates: As defined in Section 13.1.3.

         2.2 Rules of Construction. The following rules of construction shall
apply to the Lease and each of the other Lease Documents: (a) references to
"herein", "hereof' and "hereunder" shall be deemed to refer to this Lease or the
other applicable Lease Document, and shall not be limited to the particular text
or section or subsection in which such words appear; (b) the use of any gender
shall include all genders and the singular number shall include the plural and
vice versa as the context may require; (c) references to the Lessor's attorneys
shall be deemed to include, without limitation, special counsel and local
counsel for the Lessor; (d) reference to attorneys' fees and expenses shall be
deemed to include only actual attorneys' fees reasonably incurred and only
actual costs reasonably incurred for administrative, paralegal and other support
staff; (e) references to Leased Property shall be deemed to include references
to all

                                       29
<PAGE>   30

of the Leased Property and references to any portion thereof; (f) references to
the Lease Obligations shall be deemed to include references to all of the Lease
Obligations and references to any portion thereof; (g) references to the
Obligations shall be deemed to include references to all of the Obligations and
references to any portion thereof; (h) the term "including", when following any
general statement, will not be construed to limit such statement to the specific
items or matters as provided immediately following the term "including" (whether
or not non-limiting language such as "without limitation" or "but not limited
to" or words of similar import are also used), but rather will be deemed to
refer to all of the items or matters that could reasonably fall within the
broadest scope of the general statement; (i) any requirement that financial
statements be Consolidated in form shall apply only to such financial statements
as relate to a period during any portion of which the relevant Person has one or
more Subsidiaries; (j) all accounting terms not specifically defined in the
Lease Documents shall be construed in accordance with GAAP; and (k) all exhibits
annexed to any of the Lease Documents as referenced therein shall be deemed
incorporated in such Lease Document by such annexation and/or reference.

                                    ARTICLE 3

                                      RENT

         3.1      Rent for Land, Leased Improvements, Related Rights and
Fixtures. The Lessee will pay to the Lessor, in lawful money of the United
States of America, at the Lessor's address set forth herein or at such other
place or to such other Person as the Lessor from time to time may designate in
writing not less than five (5) Business Days in advance, rent for the Leased
Property, as follows.

                  3.1.1 Base Rent: The Lessee shall pay to the Lessor a base
         rent (the "Base Rent") per annum that is equal to EIGHT HUNDRED
         TWENTY-NINE THOUSAND EIGHT HUNDRED SIXTY-THREE AND 96/100 DOLLARS
         ($829,863.96), subject to adjustment as provided herein, payable in
         advance in equal, consecutive monthly installments due on the first day
         of each calendar month, commencing on June 1, 1997, provided that from
         May 5, 1997 through and including May 31, 1997 the Lessee shall pay to
         the Lessor a prorated portion of the Base Rent; and provided further
         that on each Rent Adjustment Date, the Base Rent shall be adjusted to
         equal the greater of (i) the then current Base Rent or (ii) an amount
         equal to the Meditrust Investment multiplied by the Rent Adjustment
         Rate then in effect on such Rent Adjustment Date.

                  3.1.2 Additional Rent: In addition to the Base Rent, the
         Lessee shall pay to the Lessor additional rent (the "Additional Rent")
         which shall equal, in each calendar year, the sum of (i) the Additional
         Rent payable in the immediately preceding calendar year plus (ii)
         twelve percent (12%) of Excess Gross Revenues for the then current
         calendar year during the Tenn. Additional Rent shall accrue commencing
         on May 1, 1998, and shall be payable during the Term, quarterly in
         arrears, commencing on July 20, 1998 ("Additional Rent Commencement
         Date") and there shall be an annual reconciliation as provided in
         Section 3.2 below. Notwithstanding the foregoing, in no event shall any

                                       30
<PAGE>   31
         increase to Additional Rent for any calendar year exceed two and
         one-half percent (2.5%) of the total of Base Rent and Additional Rent
         payable for the immediately preceding calendar year.

                  Additional Rent payable hereunder for any fractional calendar
         year shall be prorated so that such Additional Rent shall equal the
         product of (x) the Additional Rent payable with respect to the
         immediately preceding calendar year ~l an amount equal to twelve
         percent (12%) of the annualized Excess Gross Revenues for the
         applicable fractional calendar year multiplied by (y) a fraction (the
         "Proration Factor"), the numerator of which is the number of days in
         the applicable fractional calendar year and the denominator of which is
         365; provided, however, that, in no event: shall the Additional Rent
         payable during (A) the calendar year in which the Additional Rent
         Commencement Date occurs exceed the product of two and one-half percent
         (2.5%) of the total of Base Rent payable with respect to the
         immediately preceding calendar year multiplied by the applicable
         Proration Factor and (B) any other fractional calendar year increase by
         more than the product of two and one-half percent (2.5%) of the total
         of Base Rent and Additional Rent payable with respect to the
         immediately preceding calendar year multiplied by the applicable
         Proration Factor.

          3.2      Calculation and Payment of Additional Rent; Annual
Reconciliation.

         3.2.1 Estimates and Payments. Commencing on July 20, 1998, Additional
Rent to be paid during each calendar year during the Term shall be paid
quarterly in arrears (in equal installments on the 20th day of April, July,
October and January) based on the actual increase in Gross Revenues over the
comparable fiscal quarter for the immediately preceding calendar year, to be
adjusted at the end of each such year based on the actual Excess Gross Revenues
calculated for that calendar year. Additional Rent due for any portion of any
calendar year shall be prorated accordingly.

         3.2.2 Annual Statement. In addition, on or before the first day of
April of each year following any calendar year for which Additional Rent is
payable hereunder, the Lessee shall deliver to the Lessor an Officer's
Certificate, reasonably acceptable to the Lessor and certified by the chief
financial officer of the Lessee, setting forth the Gross Revenues for the
immediately preceding calendar year.

         3.2.3 Deficits. If the Additional Rent, as finally determined for any
calendar year (or portion thereof), exceeds the sum of the quarterly payments of
Additional Rent previously paid by the Lessee with respect to said calendar
year, within thirty (30) days after such determination is required to be made
hereunder, the Lessee shall pay such deficit to the Lessor and, if the deficit
exceeds five percent (5%) of the Additional Rent which was previously paid to
the Lessor with respect to said calendar year, then the Lessee shall also pay
the Lessor interest on such deficit at the Overdue Rate from the applicable
quarterly date that such payment should have originally been made by the Lessee
to the date that the Lessor receives such payment.

         3.2.4 Overpayments. If the Additional Rent, as finally determined for
any calendar year

                                       31
<PAGE>   32

(or portion thereof), is less than the amount previously paid with respect
thereto by the Lessee, and if no Lease Default exists, the Lessee shall notify
the Lessor either (a) to pay to the Lessee an amount equal to such difference or
(b) to grant the Lessee a credit against Additional Rent next coming due in the
amount of such difference.

         3.2.5 Final Determination. The obligation to pay Additional Rent shall
survive the expiration or earlier termination of the Term (as to Additional Rent
payments that are due and payable with respect to periods prior to the
expiration or earlier termination of the Term and during any periods that the
Lessee remains in possession of the Leased Property), and a final
reconciliation, taking into account, among other relevant adjustments, any
contractual allowances which related to Gross Revenues that accrued prior to the
date of such expiration or earlier termination, but which have been determined
to be not payable. The Lessee's good faith best estimate of the amount of any
unresolved contractual allowances shall be made not later than two (2) years
after said expiration or termination date. Within sixty (60) days after the
expiration or earlier termination of the Term, the Lessee shall advise the
Lessor of the Lessee's best estimate of the approximate amount of such
adjustments, which estimate shall not be binding on the Lessee or have any legal
effect whatsoever.

         3.2.6 Best Efforts To Maximize. The Lessee further covenants that the
operation of the Facility shall be conducted in a manner consistent with the
prevailing standards and practices recognized in the assisted living industry as
those customarily utilized by first class business operations. Subject to any
applicable Legal Requirements, the members of the Leasing Group shall use their
best efforts to maximize the Facility's Gross Revenues.

         3.3      Confirmation and Audit of Additional Rent.

         3.3.1 Maintain Accounting Systems. The Lessee shall utilize, or cause
to be utilized, an accounting system for the Leased Property in accordance with
usual and customary practices in the assisted living industry and in accordance
with GAAP which will accurately record all Gross Revenues. The Lessee shall
retain, for at least three (3) years after the expiration of each calendar year
(and in any event until the final reconciliation described in Section 3.2 above
has been made), adequate records conforming to such accounting system showing
all Gross Revenues for such calendar year.

         3.3.2 Audit By Lessor. The Lessor, at its own expense except as
provided hereinbelow, shall have the right from time to time to have its
accountants or representatives audit the information set forth in the Officer's
Certificate referred to in Section 3.2 and in connection with such audits, to
examine the Lessee's records with respect thereto (including supporting data,
income tax and sales tax returns), subject to any prohibitions or limitations on
disclosure of any such data under applicable law or regulations, including
without limitation, any duly enacted "Patients' Bill of Rights" or similar
legislation, including such limitations as may be necessary to preserve the
confidentiality of any Facility-patient relationship and any physician-patient
privilege.

         3.3.3 Deficiencies and Overpayments. If any such audit discloses a
deficiency in the

                                       32
<PAGE>   33
reporting of Gross Revenues and either the Lessee agrees with the result of such
audit or the matter is compromised, the Lessee shall forthwith pay to the Lessor
the amount of the deficiency in Additional Rent which would have been payable by
it had such deficiency in reporting Gross Revenues not occurred, as finally
agreed or determined, together with interest on the Additional Rent which should
have been payable by it, calculated at the Overdue Rate, from the date when said
payment should have been made by the Lessee to the date that the Lessor receives
such payment. Notwithstanding anything to the contrary herein, with respect to
any audit that is commenced more than two (Z) years after the date Gross
Revenues for any calendar year are reported by the Lessee to the Lessor, the
deficiency, if any, with respect to Additional Rent shall bear interest as
permitted herein only from the date such determination of deficiency is made,
unless such deficiency is the result of gross negligence or willful misconduct
on the part of the Lessee (or any Affiliate thereof). If any audit conducted for
the Lessor pursuant to the provisions hereof discloses that (a) the Gross
Revenues actually received by the Lessee for any calendar year exceed those
reported by the Lessee by more than five percent (5%), the Lessee shall pay the
reasonable cost of such audit and examination or (b) the Lessee has overpaid
Additional Rent, and if no Lease Default exists, the Lessor shall so notify the
Lessee and the Lessee shall direct the Lessor either (i) to refund the
overpayment to the Lessee or (ii) grant a credit against Additional Rent next
coming due in the amount of such difference.

                  3.3.4 Survival. The obligations of the Lessor and the Lessee
         contained in this Section shall survive the expiration or earlier
         termination of this Lease.

         3.4 Additional Charges. Subject to the rights to contest as set forth
in Article 15, in addition to the Base Rent and the Additional Rent, (a) the
Lessee will also pay and discharge as and when due and payable all Impositions,
all amounts, liabilities and obligations under the Appurtenant Agreements due
from or payable by the owner of the Leased Property, all amounts, liabilities
and obligations under the Permitted Encumbrances due from or payable by the
owner of the Leased Property and all other amounts, liabilities and obligations
which the Lessee assumes or agrees to pay under this Lease, and (b) in the event
of any failure on the part of the Lessee to pay any of those items referred to
in clause (a) above, the Lessee will also promptly pay and discharge every fine,
penalty, interest and cost which may be added for non-payment or late payment of
such items (the items referred to in clauses (a) and (b) above being referred to
herein collectively as the "Additional Charges"), and the Lessor shall have all
legal, equitable and contractual rights, powers and remedies provided in this
Lease, by statute or otherwise, in the case of non-payment of the Additional
Charges, as well as the Base Rent and the Additional Rent. To the extent that
the Lessee pays any Additional Charges to the Lessor pursuant to any requirement
of this Lease, the Lessee shall be relieved of its obligation to pay such
Additional Charges to any other Person to which such Additional Charges would
otherwise be due, and the Lessor shall be obligated to pay such Additional
Charges to any Person to whom such Additional Charges are due promptly and prior
to any additional costs or expenses being incurred.

         3.5 Leasing Commitment Fee: The Lessee shall pay to the Lessor the
Leasing Commitment Fee simultaneously with the execution of this Lease;
provided, however, that, at the Lessor's option, the Leasing Commitment Fee
shall be held in an escrow account established with a Person designated by the
Lessor pursuant to an escrow arrangement satisfactory to the

                                       33
<PAGE>   34

Lessor, with interest thereon benefiting the Lessor. If the Lessor exercises its
option to require that the Leasing Commitment Fee be held in such an escrow
account (a) the Leasing Commitment Fee shall be disbursed from said escrow
account only upon the joint instructions of the Lessee and the Lessor (which
instructions from the Lessee shall be immediately given upon the request of the
Lessor) and in no event shall the Leasing Commitment Fee be disbursed therefrom,
in whole or in part, unless and until so requested by the Lessor and (b) the
Lessor shall bear the risk of loss of or misappropriation of the Leasing
Commitment Fee by such escrow agent.

         3.6      Net Lease. The Rent shall be paid absolutely net to the
Lessor, so that this Lease shall yield to the Lessor throughout the Term the
full amount of the installments of Base Rent, the Additional Rent and the
payments of Additional Charges (it being understood, however, that certain
Additional Charges are required to be paid directly to some third party other
than the Lessor).

         3.7      No Lessee Termination or Offset.

               3.7.1 No Termination. Except as may be otherwise specifically and
         expressly provided in Article 13 or Article 14 of this Lease, the
         Lessee, to the extent not prohibited by applicable law, shall remain
         bound by this Lease in accordance with its terms and shall neither take
         any action without the consent of the Lessor to modify, surrender or
         terminate the same, nor seek nor be entitled to any abatement,
         deduction, deferment or reduction of Rent, or set-off against the Rent,
         nor shall the respective obligations of the Lessor and the Lessee be
         otherwise affected by reason of (a) any Casualty or any Taking of the
         Leased Property, (b) the lawful or unlawful prohibition of, or
         restriction upon, the Lessee's use of the Leased Property or the
         interference with such use by any Person (other than the Lessor, except
         to the extent permitted hereunder) or by reason of eviction by
         paramount title; (c) any claim that the Lessee has or might have
         against the Lessor, (d) any default or breach of any warranty by the
         Lessor or any of the other Meditrust Entities under this Lease, any
         other Lease Document or any Related Party Agreement, (e) any
         bankruptcy, insolvency, reorganization, composition, readjustment,
         liquidation, dissolution, winding up or other proceedings affecting the
         Lessor or any assignee or transferee of the Lessor or (f) any other
         cause whether similar or dissimilar to any of the foregoing, other than
         a discharge of the Lessee from any of the Lease Obligations as a matter
         of law.

               3.7.2 Waiver. The Lessee, to the fullest extent not prohibited by
         applicable law, hereby specifically waives all rights, arising from any
         occurrence whatsoever, which may now or hereafter be conferred upon it
         by law to (a) modify, surrender or terminate this Lease or quit or
         surrender the Leased Property or (b) entitle the Lessee to any
         abatement, reduction, suspension or deferment of the Rent or other sums
         payable by the Lessee hereunder, except as otherwise specifically and
         expressly provided in this Lease.

               3.7.3 Independent Covenants. The obligations of the Lessor and
         the Lessee hereunder shall be separate and independent covenants and
         agreements and the Rent and

                                       34
<PAGE>   35
         all other sums payable by the Lessee 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 (except
         in those instances where the obligation to pay expressly survives the
         termination of this Lease) by termination of this Lease other than by
         reason of an Event of Default.

         3.8 Abatement of Rent Limited. There shall be no abatement of Rent on
account of any Casualty, Taking or other event, except that in the event of a
partial Taking or a temporary Taking as described in Section 14.3 or in the
event of a Casualty described in Section 13.1.1, the Base Rent shall be abated
as follows: (a) in the case of such a partial Taking, the Meditrust Investment
shall be reduced for the purposes of calculating Base Rent pursuant to Section
3.1 by subtracting therefrom, as applicable, the net amount of the Award
received by the Lessor; (b) in the case of such a temporary Taking, by reducing
the Base Rent for the period of such a temporary Taking, by the net amount of
the Award received by the Lessor; and (c) in the event of a Casualty which is
not the result of the gross negligence or willful misconduct of any member of
the Leasing Group and which the Lessee is proceeding to restore in. accordance
with the provisions of this Lease, by reducing the Base Rent during the period
the Lessee is unable to use the Leased Property for the Primary Intended Use by
the net amount of rent loss and/or business interruption insurance received by
the Lessor.

         For the purposes of this Section 3.8, the "net amount of the Award
received by the Lessor" shall mean the Award paid to the Lessor on account of
such Taking, minus all costs and expenses incurred by the Lessor in connection
therewith, and minus any amounts paid to or for the account of the Lessee to
reimburse for the costs and expenses of reconstructing the Facility following
such Taking in order to create a viable and functional Facility under all of the
circumstances.

                                    ARTICLE 4

                         IMPOSITIONS; TAXES; UTILITIES;
                               INSURANCE PAYMENTS

         4.1     Payment of Impositions.

                 4.1.1 Lessee To Pay. Subject to the provisions of Section 4.1.2
         and Article 15, the Lessee will pay or cause to be paid all Impositions
         before any fine, penalty, interest or cost may be added for
         non-payment, such payments to be made directly to the taxing authority
         where feasible, and the Lessee, upon request by the Lessor, will
         promptly furnish the Lessor copies of official receipts or other
         satisfactory proof evidencing payment not later than the last day on
         which the same may be paid without penalty or interest. The Lessor
         shall promptly forward to the Lessee for payment any and all bills or
         invoices it receives with respect to Impositions.

                 4.1.2 Installment Elections. If any such Imposition may, at the
         option of the taxpayer, lawfully be paid in installments (whether or
         not interest shall accrue on the

                                       35
<PAGE>   36
         unpaid balance of such Imposition), the Lessee may exercise the option
         to pay the same (and any accrued interest on the unpaid balance of such
         imposition) in installments and, in such event, shall pay such
         installments during the Term hereof (subject to the Lessee's right to
         contest pursuant to the provisions of Section 4.1.5 below) as the same
         respectively become due and before any fine, penalty, premium, further
         interest or cost may be added thereto.

                 4.1.3 Returns and Reports. The Lessor, at its expense, shall,
         to the extent permitted by applicable law, prepare and file all tax
         returns and reports as may be required by Governmental Authorities in
         respect of the Lessor's net income, gross receipts, franchise taxes and
         taxes on its capital stock, and the Lessee, at its expense, shall, to
         the extent permitted by applicable laws and regulations, prepare and
         fine all other tax returns and reports in respect of any Imposition as
         may be required by Governmental Authorities. The Lessor and the Lessee
         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 that any Governmental Authority classifies any
         property covered by this Lease as personal property, the Lessee shall
         file all personal property tax returns in such jurisdictions where it
         may legally so file. The Lessor, to the extent it possesses the same,
         and the Lessee, 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 portion of Leased Property so classified as
         personal property. Where the Lessor is legally required to file
         personal property tax returns, if the Lessee notifies the Lessor of the
         obligation to do so in each year at least thirty (30) days prior to the
         date any protest must be filed, the Lessee will be provided with copies
         of assessment notices so as to enable the Lessee to file a protest.

                  4.1.4 Refunds. If no Lease Default shall have occurred and be
         continuing, any refund due from any taxing authority in respect of any
         Imposition paid by the Lessee shall be paid over to or retained by the
         Lessee. If a Lease Default shall have occurred and be continuing, at
         the Lessor's option, such funds shall be paid over to the Lessor and/or
         retained by the Lessor and applied toward the Obligations in accordance
         with the Lease Documents and/or the Related Party Agreements.

                  4.1.5 Protest. Upon giving notice to the Lessor, at the
         Lessee's option and sole cost and expense, and subject to compliance
         with the provisions of Article 15, the Lessee may contest, protest,
         appeal, or institute such other proceedings as the Lessee may deem
         appropriate to effect a reduction of any Imposition and the Lessor, at
         the Lessee's cost and expense as aforesaid, shall fully cooperate in a
         reasonable manner with the Lessee in connection with such protest,
         appeal or other action.

         4.2 Notice of Impositions. The Lessor shall give prompt notice to the
Lessee of all Impositions payable by the Lessee hereunder of which the Lessor at
any time has knowledge, but the Lessor's failure to give any such notice shall
in no way diminish the Lessee's obligations hereunder to pay such Impositions.

                                       36
<PAGE>   37

         4.3 Adjustment of Impositions. Impositions imposed in respect of the
period during which the expiration or earlier termination of the Term occurs
shall be adjusted and prorated between the Lessor and the Lessee, whether or not
such Impositions are imposed before or after such expiration or termination, and
the Lessee's obligation to pay and the Lessor's obligation to refund their
respective prorated share thereof shall survive such expiration or termination.

         4.4 Utility Charges. The Lessee will pay or cause to be paid all
charges for electricity, power, gas, oil, water, telephone and other utilities
used in the Leased Property during the Term and thereafter until the Lessee
surrenders the Leased Property in the manner required by this Lease. If the
Lessee is required to pay a deposit to any of the utility providers serving the
Leased Property, any and all such deposits shall become the property of the
Lessee at the expiration of the Term (as opposed to an earlier termination of
this Lease) if and when the Lessee surrenders the Leased Property in the manner
required by this Lease.

         4.5 Insurance Premiums. The Lessee will pay or cause to be paid all
premiums for the insurance coverage required to be maintained pursuant to
Article 12 during the Term, and thereafter until the Lessee yields up the Leased
Property in the manner required by this Lease. All such premiums shall be paid
annually in advance and the Lessee, at the Lessor's request, shall furnish the
Lessor with evidence satisfactory to the Lessor that all such premiums have been
so paid prior to the commencement of the Term and thereafter at least thirty
(30) days prior to the due date of each premium which thereafter becomes due.
Notwithstanding the foregoing, the Lessee may pay such insurance premiums to the
insurer in monthly installments so long as the applicable insurer is
contractually obligated to give the Lessor not less than a sixty (60) days
notice of non-payment and so long as no Lease Default has occurred and is
continuing. In the event of the failure of the Lessee either to comply with the
insurance requirements in Article 12, or to pay the premiums for such insurance,
or to deliver such policies or certificates thereof to the Lessor at the times
required hereunder, the Lessor shall be entitled, but shall have no obligation,
to effect such insurance and pay the premiums therefor, which 'premiums shall be
a demand obligation of the Lessee to the Lessor.

         4.6     Deposits.

                 4.6.1 Lessor's Option. At the option of the Lessor, which may
         be exercised at any time after an Event of Default occurs, the Lessee
         shall, upon written request of the Lessor, on the first day on the
         calendar month, immediately following such request, and on the first
         day of each calendar month thereafter during the Term (each of which
         dates is referred to as a "Monthly Deposit Date"), pay to and deposit
         with the Lessor a sum equal to one-twelfth (1/12th) of the Impositions
         to be levied, charged, filed, assessed or imposed upon or against the
         Leased Property within one (1) year after said Monthly Deposit Date and
         a sum equal to one-twelfth (1/12th) of the premiums for the insurance
         policies required pursuant to Article 12 which are payable within one
         (1) year after said Monthly Deposit Date. If the amount of the
         Impositions to be levied, charged, assessed or imposed or insurance
         premiums to be paid within the ensuing one (1) year period shall not be
         fixed upon any Monthly Deposit Date, such amount for the purpose of
         computing the deposit to be made by the Lessee hereunder shall be
         reasonably estimated by the Lessor with an

                                       37
<PAGE>   38

         appropriate adjustment to be promptly made between the Lessor and the
         Lessee as soon as such amount becomes determinable. In addition, the
         Lessor may, at its option, from time to time require that any
         particular deposit be greater than one-twelfth (1/12th) of the
         estimated amount payable within one (1) year after .said Monthly
         Deposit Date, if such additional deposit is reasonably required in
         order to provide to the Lessor a sufficient fund from which to make
         payment of all Impositions on or before the next due date of any
         installment thereof, or to make payment of any required insurance
         premiums not later than the due date thereof.

         4.6.2 Use of Deposits. The sums deposited by the Lessee under this
Section 4.6 shall be held by the Lessor and shall be applied by the Lessor in
payment of the Impositions or insurance premiums, as the case may be, on or
before the due date thereafter and prior to any penalty, interest, late fee or
other similar charge being imposed to the extent of available funds deposited by
the Lessee under this Section 4.6. Any such deposits may be commingled with
other assets of the Lessor, and shall be deposited by the Lessor at such bank as
the Lessor may, from time to time select, and the Lessor shall not be liable to
the Lessee or any other Person (a) based on the Lessor's (or such bank's) choice
of investment vehicles, (b) for any consequent loss of principal or interest or
(c) for any unavailability of funds based on such choice of investment;
provided, however, that notwithstanding the foregoing, the Lessor shall only
invest any such deposit in any of the investment vehicles described on Exhibit A
of the Deposit Pledge Agreement. Furthermore, the Lessor shall bear no
responsibility for the financial condition of, nor any act or omission by, the
Lessor's depository bank. The income from such investment or interest on such
deposit shall be paid to the Lessee on a semi-annual basis as long as no Lease
Default has occurred and is then continuing, and as long as no fact or
circumstance exists which, with the giving of notice and/or the passage of time,
would constitute a Lease Default. The Lessee shall give not less than ten (10)
days prior written notice to the Lessor in each instance when an Imposition or
insurance premium is due, specifying the Imposition or premium to be paid and
the amount thereof, the place of payment, and the last day on which the same may
be paid in order to comply with the requirements of this Lease. If the Lessor,
in violation of its obligations under this Lease, does not pay any Imposition or
insurance premium when due, for which a sufficient deposit exists, the Lessee
shall not be in default hereunder by virtue of the failure of the Lessor to pay
such Imposition or such insurance premium and the Lessor shall pay any interest
or fine assessed by virtue of the Lessor's failure to pay such Imposition or
insurance premium.

         4.6.3 Deficits. If for any reason any deposit held by the Lessor under
this Section 4.6 shall not be sufficient to pay an Imposition or insurance
premium within the time specified therefor in this Lease, then, within ten (10)
days after demand by the Lessor, the Lessee shall deposit an additional amount
with the Lessor, increasing the deposit held by the Lessor so that the Lessor
holds sufficient funds to pay such Imposition or premium in full (or in
installments as otherwise provided for herein), together with any penalty or
interest due thereon. The Lessor may change its estimate of any Imposition or
insurance premium for any period on the basis of a change in an assessment or
tax rate or on the basis of a prior miscalculation; in which event, within ten
(10) days after demand by the Lessor, the Lessee shall deposit with the Lessor
the amount in excess of the sums previously deposited with the Lessor for the
applicable period which would theretofore have been payable under the revised
estimate.

                                       38
<PAGE>   39
         4.6.4 Other Properties. If any Imposition shall be levied, charged,
filed, assessed, or imposed upon or against the Leased Property, and if such
Imposition shall also lie a levy, charge, assessment, or imposition upon or for
any other real or personal property that does not constitute a part of the
Leased Property, then the computation of the amounts to be deposited under this
Section 4.6 shall be based upon the entire amount of such Imposition and the
Lessee shall not have the right to apportion any deposit with respect to such
Imposition. However, the Lessor will reasonably cooperate with the Lessee (but
at no cost or expense to the Lessor) to change the manner of assessment for such
Imposition so that such Imposition will thereafter relate only to the Leased
Property.

         4.6.5 Transfers. In connection with any assignment of the Lessor's
interest under this Lease, the original Lessor named herein and each successor
in interest shall be obligated to transfer all amounts deposited pursuant to the
provisions of this Section 4.6 then in its possession to such assignee (as the
subsequent holder of the Lessor's interest in this Lease), who shall be
obligated to assume the Lessor's obligations with respect to all such deposited
amounts, and upon such transfer, the original Lessor named herein or the
applicable successor in interest transferring the deposits shall thereupon be
completely released from all liability with respect to such deposits so
transferred and the Lessee shall look solely to said assignee, as the subsequent
holder of the Lessor's interest under this Lease, in reference thereto. The
original Lessor named herein or the applicable successor in interest
transferring the deposits shall provide written notice to the Lessee of such
transfer. The original Lessor named herein or the applicable successor in
interest shall not be released from liability with respect to the deposits so
transferred unless the next successor in interest assumes liability for such
deposits.

         4.6.6 Security. All amounts deposited with the Lessor pursuant to the
provisions of this Section 4.6 shall be held by the Lessor as additional
security for the payment and performance of the Obligations and, upon the
occurrence of any Lease Default, the Lessor may, in its sole and absolute
discretion, apply said amounts towards payment or performance of such
Obligations.

         4.6.7 Return. Upon the expiration or earlier termination of this Lease,
provided, that, all of the Lease Obligations have been fully paid and performed,
any sums then held by the Lessor under this Section 4.6 shall be refunded to the
Lessee; unless a Related Party Default has occurred, in which event such sums
may be applied towards the Obligations in accordance with the Related Party
Agreements.

         4.6.8 Receipts. The Lessee shall immediately deliver to the Lessor
copies of all notices of non-payment of any insurance premiums and/or
Impositions and, upon the Lessor's request, shall deliver to the Lessor copies
of all other notices, demands, claims, bills and receipts in relation to the
Impositions and insurance premiums immediately upon receipt thereof by the
Lessee.

                                    ARTICLE 5

               OWNERSHIP OF LEASED PROPERTY AND PERSONAL PROPERTY;
                    INSTALLATION. REMOVAL AND REPLACEMENT OF

                                       39
<PAGE>   40
                                PERSONAL PROPERTY

         5.1 Ownership of the Leased Property. The Lessee acknowledges that the
Leased Property is the property of the Lessor and that the Lessee has only the
right to the exclusive possession and use of the Leased Property upon the terms
and conditions of this Lease.

         5.2     Personal Property; Removal and Replacement of Personal
Property.

                 5.2.1 Lessee To Equip Facility. The Lessee, at its sole cost
         and expense, shall install, affix or assemble or place on the Leased
         Property, sufficient items of Tangible Personal Property to enable the
         Leased Property to be operated in accordance with the requirements of
         this Lease for the Primary Intended Use and the Other Permitted Uses,
         and such Tangible Personal Property and replacements thereof, shall be
         at all times the property of the Lessee.

                 5.2.2 Sufficient Personal Property. The Lessee shall maintain,
         during the entire Term, the Tangible Personal Property in good order
         and repair and shall provide at its expense all necessary replacements
         thereof, as may be necessary in order to operate the Leased Property in
         compliance with all applicable Legal Requirements and Insurance
         Requirements and otherwise in accordance with customary practice in the
         industry for the Primary Intended Use and the Other Permitted Uses,
         unless the failure to comply with the same will not have any adverse
         effect on either the Leased Property or the Lessee. In addition, the
         Lessee shall (a) furnish all necessary replacements of obsolete items
         of the Tangible Personal Property during the Term, unless the Lessee
         provides the Lessor with an explanation (reasonably acceptable to the
         Lessor) as to why such Tangible Personal Property is no longer required
         in connection with the operation of the Leased Property and (b) if
         requested by the Lessor, deliver to the Lessor, a detailed inventory of
         all such Tangible Personal Property.

                 5.2.3 Removal and Replacement; Lessor's Option to Purchase. The
         Lessee shall not remove from the Leased Property any one or more items
         of Tangible Personal Property (whether now-owned or hereafter
         acquired), the fair market value of which exceeds TWENTY-FIVE THOUSAND
         and NO/100 DOLLARS ($25,000.00), individually or ONE HUNDRED THOUSAND
         and NO/100 DOLLARS ($100,000.00) collectively, except if such Tangible
         Personal Property is simultaneously suitably replaced or the Lessee
         provides the Lessor with an explanation (reasonably satisfactory to the
         Lessor) as to why such Tangible Personal Property is no longer required
         in connection with the operation of the Leased Property. At its sole
         cost and expense, the Lessee shall restore the Leased Property to the
         condition required by Article 8, including repair of all damage to the
         Leased Property caused by the removal of the Tangible Personal
         Property, whether effected by the Lessee or the Lessor. Upon the
         expiration or earlier termination of this Lease, the Lessor shall have
         the option, which may be exercised prior to or within the relevant
         Decision Period (defined below), of (a) acquiring the Tangible Personal
         Property (pursuant to a bill of sale and assignments of any equipment
         leases, all in such forms as are reasonably satisfactory to the Lessor)
         upon payment of its fair market value or (b)

                                       40
<PAGE>   41
         requiring the Lessee to remove the Tangible Personal Property. For
         purposes of the preceding sentence, the "Decision Period" shall mean
         (1) the last day of the Term with respect to the expiration thereof in
         accordance with the provisions of this Lease, (2) the fifth (5th)
         Business Day after the date of any earlier termination of this Lease
         based on either Casualty or Condemnation or (3) the thirtieth (30th)
         day after the date of any earlier termination of this Lease based on
         any Event of Default. If the Lessor exercises its option to purchase
         the Tangible Personal Property, the price to be paid by the Lessor
         shall be (i) reduced by the amount of all payments due on any equipment
         leases or any other Permitted Prior Security Interests assumed by the
         Lessor and (ii) applied to the Lease Obligations before any payment to
         the Lessee. If the Lessor requires the removal of the Tangible Personal
         Property, then all of the Tangible Personal Property that is not
         removed by the Lessee within ten (10) days following such request shall
         be considered abandoned by the Lessee and may be appropriated, sold,
         destroyed or otherwise disposed of by the Lessor without first giving
         notice thereof to the Lessee, without any payment to the Lessee and
         without any obligation to account therefor.

                                    ARTICLE 6

                         SECURITY FOR LEASE OBLIGATIONS

         6.1      Security for the Lessee's Obligations: Permitted Prior
Security Interests.

         6.1.1 Security. In order to secure the payment and performance of all
of the Obligations, the Lessee agrees to provide or cause there to be provided,
among other things, the following security:

                (a) a first lien and exclusive security interest in the
         Tangible Personal Property, Receivables and certain other Collateral as
         more particularly provided for in the Security Agreement;

                (b) the Cash Collateral described in Section 6.2;

                (c) a first lien and exclusive pledge of all of the capital
         stock of the Lessee all as more particularly set forth in the Pledge
         Agreement(s). If any Person other than the Lessee or the Guarantor
         shall ever operate the Facility, a pledge of all capital stock of, or
         partnership or other ownership interests, in such Person shall also be
         provided pursuant to a pledge and security agreement substantially
         similar to the Pledge Agreements;

                (d) a first lien and exclusive pledge and assignment of, and
          security interest in, all Permits and Contracts, as more particularly
          provided for in the Permits Assignment, to the extent permitted by law
          or the terms thereof; and

                (e) in the event that at any time during the Term, the Lessee
holds the fee title to or a leasehold interest in any real property and/or
personal property which is used as an integral part of the operation of the
Leased Property (but is not subject to this Lease), the Lessee shall (i)

                                       41
<PAGE>   42
provide the Lessor with prior notice of such acquisition and (ii) shall take
such actions and enter into such agreements as the Lessor shall reasonably
request in order to grant the Lessor a first priority mortgage or other security
interest in such real property and personal property, subject only to the
Permitted Encumbrances and other Liens reasonably acceptable to the Lessor.

         6.1.2 Purchase-Money Security Interests and Equipment Leases.
Notwithstanding any other provision hereof regarding the creation of Liens, but
subject to Section 11.3.8, the Lessee may (a) grant priority purchase money
security interests in items of Tangible Personal Property and (b) lease Tangible
Personal Property from equipment lessors, as long as in each instance where the
aggregate amount of such purchase money security interests and equipment leases
will exceed TWO HUNDRED THOUSAND and NO/100 DOLLARS ($200,000.00): (i) all of
the terms, conditions and provisions of the purchase money security agreements
or equipment. leases evidencing the financing arrangement are reasonably
acceptable to the Lessor; (ii) promptly after the execution thereof, the Lessee
provides to the Lessor true and complete copies, as executed, of all such
purchase money security agreements and equipment leases (and all amendments
thereto); (iii) no such purchase money security interest or equipment lease
shall be cross-defaulted or cross-collateralized with any other obligation other
than a purchase money security interest or equipment lease entered into by the
Lessee involving Tangible Personal Property and the same secured party or
equipment lessor, as applicable; (iv) the secured party or equipment lessors
enter into an intercreditor agreement with, and satisfactory to, the Lessor,
pursuant to which, without limiting the foregoing: (x) the Lessor shall be
afforded the option of curing defaults and the option of succeeding to the
rights of the Lessee; (y) the Lessor's security interest in Tangible Personal
Property shall be subordinated to the security interest granted to such secured
party; and (z) the secured party or equipment lessor is not a member of the
Leasing Group or an Affiliate of any member of the Leasing Group. Security
interests granted by the Lessee in full compliance with the provisions of this
Section 6.1.2 are referred to as "Permitted Prior Security Interests".

          6.2     Cash Collateral.

                  6.2.1 Cash Collateral. In order to further secure the Lessee's
performance of the Obligations, on the Commencement Date, pursuant to the terms
of the Deposit Pledge Agreement, the Lessee shall provide and pledge to the
Lessor a credit enhancement for the benefit of the Lessor in the form of cash or
other specified investments approved by the Lessor in the Lessor's name in the
total of the Stated Amount (the "Cash Collateral"). The Cash Collateral shall
serve as additional security for the Obligations and may be drawn upon by the
Lessor upon any Lease Default. The Lessee shall maintain the Cash Collateral in
the full Stated Amount throughout the Term, subject to the provisions of the
Agreement Regarding Related Lease Transactions. The Cash Collateral shall be in
form and substance and, if the Lessor elects a form of Cash Collateral other
than actual cash, from a bank continually acceptable to the Lessor in the
Lessor's reasonable discretion and shall be pledged to the Lessor pursuant to
the Deposit Pledge Agreement.

                  6.2.2 Application of Cash Collateral. Upon the occurrence of
any Lease Default, the Lessor shall be entitled, at its option, to use all or
any portion of the Cash Collateral,

                                       42
<PAGE>   43

including interest thereon, then held by it to pay any amount otherwise payable
by the Lessee or the Guarantor under any of the Lease Documents, in accordance
with the terms of this Lease or the other Lease Documents.

                  6.2.3 Replenishment of Cash Collateral. If the Lessor expends
any of the Cash Collateral to pay any amount payable by the Lessee, or otherwise
applies the same to or towards the Obligations, the Lessee shall, upon demand of
the Lessor, immediately augment the Cash Collateral so as to increase the amount
held by the Lessor to the full Stated Amount.

         6.3 Guaranty. All of the Lease Obligations shall be unconditionally and
irrevocably guaranteed by the Guarantor pursuant to the Guaranty.

                                    ARTICLE 7

                      CONDITION AND USE OF LEASED PROPERTY;
                              MANAGEMENT AGREEMENTS

         7.1 Condition of the Leased Property. The Lessee acknowledges that the
Guarantor has caused the Leased Property to be sold to the Lessor and that the
Lessee and the Lessor have concurrently entered into this Lease. The Lessee
acknowledges receipt and delivery of possession of the Leased Property and that
the Lessee has examined and otherwise has acquired knowledge of the condition of
the Leased Property prior to the execution and delivery of this Lease and has
found the same to be in good order and repair and satisfactory for its purposes
hereunder. The Lessee is leasing the Leased Property "AS-IS" in its present
condition. The Lessee waives any claim or action against the Lessor in respect
of the condition of the Leased Property. THE LESSOR MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY, EITHER
AS TO ITS FITNESS FOR ANY PARTICULAR PURPOSE OR USE, ITS DESIGN OR CONDITION OR
OTHERWISE, OR AS TO DEFECTS IN THE QUALITY OF THE MATERIAL OR WORKMANSHIP
THEREIN, LATENT OR PATENT; IT BEING AGREED THAT ALL RISKS RELATING TO THE
DESIGN, CONDITION AND/OR USE OF THE LEASED PROPERTY ARE TO BE BORNE BY THE
LESSEE. THE LESSEE HEREBY ASSUMES ALL RISK OF THE PHYSICAL CONDITION OF THE
LEASED PROPERTY, THE SUITABILITY OF THE LEASED PROPERTY FOR THE LESSEE'S
PURPOSES, AND THE COMPLIANCE OR NON-COMPLIANCE OF THE LEASED PROPERTY WITH ALL
APPLICABLE REQUIREMENTS OF LAW, INCLUDING BUT NOT LIMITED TO ENVIRONMENTAL LAWS
AND ZONING OR LAND USE LAWS.

          Upon the request of the Lessor following a Lease Default or if the
Lessor has a reasonable basis to believe any of the following circumstances
exist, at any time and from time to time during the Term, the Lessee shall
engage one (1) or more independent professional consultants, engineers and
inspectors, qualified to do business in the State and acceptable to the Lessor
to perform any environmental and/or structural investigations and/or other
inspections of the Leased Property and the Facility as the Lessor may reasonably
request in order to detect (a) any structural deficiencies in the Leased
Improvements or the utilities servicing and/or located on the

                                       43
<PAGE>   44
Leased Property or (b) the presence of any condition that (i) in the Lessor's
reasonable judgment is likely to be harmful or present a health hazard to the
residents and other occupants of the Leased Property or (ii) constitutes a
breach or violation of any of the Lease Documents. In the event that the Lessor
reasonably determines that the results of such testing or inspections are
unsatisfactory, within thirty (30) days of notice from the Lessor (except as
otherwise provided in the Environmental Indemnity Agreement), the Lessee shall
commence such appropriate remedial actions as may be required under this Lease
and reasonably requested by the Lessor to correct such unsatisfactory conditions
and, thereafter, shall diligently and continuously prosecute such remedial
actions to completion within the time limits prescribed in this Lease or the
other Lease Documents. Any report produced by any aforementioned consultant,
engineer or inspector in connection with an environmental and/or structural
investigation and/or other investigation of the Leased Property shall be
addressed to and provided to both the Lessor and the Lessee.

         7.2      Use of the Leased Property: Compliance: Management.

                  7.2.1 Obligation to Operate. The Lessee or any other
         Acceptable Licensed Operator shall continuously operate the Leased
         Property in accordance with the Primary Intended Use and the Other
         Permitted Uses and maintain its qualifications for licensure and
         accreditation as required by all applicable Legal Requirements and
         Insurance Requirements.

                  7.2.2 Permitted Uses. During the entire Term, the Lessee shall
         use the Leased Property, or permit the Leased Property to be used, only
         for the Primary Intended Use and the Other Permitted Uses. The Lessee
         shall not use the Leased Property or permit the Leased Property to be
         used for any other use without the prior written consent of the Lessor,
         which consent may be withheld in the Lessor's sole and absolute
         discretion.

                  7.2.3 Compliance With Insurance Requirements. No use shall be
         made or permitted to be made of the Leased Property and no acts shall
         be done which will cause the cancellation of any insurance policy
         covering the Leased Property, nor shall the Lessee, any Manager or any
         other Person sell or otherwise provide to any residents, other
         occupants or invitees therein, or permit to be kept, used or sold in or
         about the Leased Property, any article which may be prohibited by any
         Legal Requirement or by any of the Insurance Requirements. Furthermore,
         the Lessee shall, at its sole cost and expense, take whatever other
         actions that may be necessary to comply with and to insure that the
         Leased Property complies with all Insurance Requirements.

                  7.2.4 No Waste. The Lessee shall not commit or suffer to be
         committed any waste on, in or under the Leased Property, nor shall the
         Lessee cause or permit any nuisance thereon.

                  7.2.5 No Impairment. The Lessee shall neither suffer nor
         permit the Leased Property to be used in such a manner as (a) might
         reasonably tend to impair the Lessor's title thereto or (b) may
         reasonably make possible a claim or claims of adverse usage or adverse
         possession by the public or of implied dedication of the Leased
         Property.

                                       44
<PAGE>   45
                  7.2.6 No Liens. Except as permitted pursuant to Section 6.1.2,
         the Lessee shall not permit or suffer any Lien to exist on the Tangible
         Personal Property and shall in no event cause, permit or suffer any
         Lien to exist with respect to the :Leased Property other than as set
         forth in Section 11.5.2.

         7.3 Compliance with Legal Requirements. The Lessee covenants and agrees
that the Leased Property shall not be used for any unlawful purpose and that the
Lessee and any other Acceptable Licensed Operator, at their sole cost and
expense, shall promptly (a) comply with, and shall cause every other member of
the Leasing Group to comply with, all Legal Requirements relating to the use,
operation, maintenance, repair and restoration of the Leased Property, whether
or not compliance therewith shall require structural change in any of the Leased
Property or interfere with the use and enjoyment of the Leased Property and (b)
procure, maintain and comply with (in all material respects), and shall cause
every other member of the Leasing Group to procure, maintain and comply with (in
all material respects), all Contracts and Permits necessary or desirable in
order to operate the Leased Property for the Primary Intended Use and/or Other
Permitted Uses, and for compliance with all of the terms and conditions of this
Lease. Unless a Lease Default has occurred or any event has occurred which, with
the passage of time and/or the giving of notice would constitute a Lease
Default, the Lessee may, upon prior written notice to the Lessor, contest any
Legal Requirement to the extent. permitted by, and in accordance with, Article
15.

         7.4 Management Agreements. From and after the Commencement Date, the
Lessee shall not enter into any Management Agreement without the prior written
approval of the Lessor, in each instance, which approval shall not be
unreasonably withheld. The Lessee shall not, without the prior written approval
of the Lessor, in each instance, which approval shall not be unreasonably
withheld, agree to or allow (a) any change in any Manager or any change in the
ownership or control of any Manager except as otherwise permitted by the
provisions of Sections 16.1(h)(vi) and 16.1(i), (b) the termination of any
Management Agreement (other than in connection with the exercise by the Lessee
of any of its remedies under the Management Agreement as a result of any default
by the Manager thereunder), (c) any assignment by any Manager of its interest
under any Management Agreement or (d) any material amendment of any Management
Agreement. In addition, the Lessee shall, at its sole cost and expense, promptly
and fully perform or cause to be performed every covenant, condition, promise
and obligation of the licensed operator of the Leased Property under any
Management Agreement. Notwithstanding the foregoing, in the event that the
Lessee enters into any Management Agreement with an Affiliate of the Lessee, the
Lessor shall consent to the execution and delivery of such Management Agreement,
provided, that, concurrently with the execution and delivery of such Management
Agreement, the Affiliated Party Subordination Agreement and the Environmental
Indemnity Agreement are amended so as to add as a party thereto the applicable
Affiliate of the Lessee that is to be the Manager (so that, among other things,
the payments to be made under such Management Agreement are fully subordinated
to the Lease Obligations).

         Each Management Agreement shall provide that the Lessor shall be
provided notice of any defaults thereunder and, at the Lessor's option, an
opportunity to cure such default. The

                                       45
<PAGE>   46
Lessee shall furnish to the Lessor, within three (3) days after receipt thereof,
or after the mailing or service thereof by the Lessee, as the case may be, a
copy of each notice of default which the Lessee shall give to, or receive from
any Person, based upon the occurrence, or alleged occurrence, of any default in
the performance of any covenant, condition, promise or obligation under any
Management Agreement.

         Whenever and as often as the Lessee shall fail to perform, promptly and
fully, at its sole cost and expense, any covenant, condition, promise or
obligation on the part of the licensed operator of the Leased Property under and
pursuant to any Management Agreement, the Lessor, or a lawfully appointed
receiver of the Leased Property, may, at their respective options (and without
any obligation to do so), after five (5) days' prior notice to the Lessee
(except in the case of an emergency) enter upon the Leased Property and perform,
or cause to be performed, such work, labor, services, acts or things, and take
such other steps and do such other acts as they may deem advisable, to cure such
defaulted covenant, condition, promise or obligation, and any amount so paid or
advanced by the Lessor or such receiver and all costs and expenses reasonably
incurred in connection therewith (including, without limitation, attorneys' fees
and expenses and court costs), shall be a demand obligation of the Lessee to the
Lessor or such receiver, and, the Lessor shall have the same rights and remedies
for failure to pay such costs on demand as for the Lessee's failure to pay any
other sums due hereunder.

         7.5 Compliance With and Satisfaction of Bond-Related Obligations. The
Lessee covenants and agrees that the Lessee shall perform and satisfy any and
all Bond-Related Obligations to be performed and satisfied by the sub-sublessee
of the Leased Property or the owner of the Land or in any other way imposed upon
the Lessor by any of the documents executed by the Lessor in connection with
this Lease or any of the transactions contemplated by this Lease, including,
with limitation, any and all of the obligations assumed by the Lessor in either
the Assignment and Assumption of Project Documents dated April 30, 1997 by and
between the Lessor, Liberty Commons Associates, LLC, the Guarantor, the Lessee
and Onondaga County IDA or the Assumption and Modification Agreement (the "Key
Bank Modification Agreement"), dated April 30, 1997, by and between the Lessor
and KeyBank National Association ("KeyBank") (successor to Key Bank of New
York). Without limiting the generality of the foregoing, the Lessee shall pay
directly to KeyBank (or any successor or assignee of KeyBank) or any other party
entitled to payment, all debt service and any other amounts owed in connection
with the Building Loan Agreement or Loan Agreement. Further, Lessee shall be
fully responsible to obtain any loan required to refinance the indebtedness
evidenced by the Bond or any other indebtedness which encumbers the Land or the
Leased Property which Lessor has agreed to assume (or take subject to) in
connection with its acquisition of the Land and Leased Property and shall pay in
full any and all costs associated with any such refinancing. The Lessor will
reasonably cooperate with the Lessee in allowing such refinancing to be
implemented, provided that (1) the Lessor shall not be required to incur any
expense in connection with such cooperation, (2) such refinancing shall (a) be
non-recourse to the Lessor, (b) include terms similar to the KeyBank
Modification Agreement regarding prepayment, (ii) purchase of such loan by
Lessor, (iii) no regulation on stock ownership or merger of the Lessor, (iv)
notice to, and unity to cure by the Lessor and (v) financial reporting
requirements of the Lessor and (c) otherwise be on terms and conditions
reasonably acceptable to

                                       46
<PAGE>   47
the Lessor in its posture as owner of the Leased Property. Finally, the Lessee
agrees it will not exercise any right it may have to purchase the Borrower Note
(as defined in the Key Bank Modification Agreement without the prior written
consent of the Lessor.

         7.6 Compliance With Superior Lease Obligations. The Lessee covenants
and agrees that the Lessee shall perform all of the Superior Lease Obligations
to be performed by Lessor as the sub-sublessee of the Leased Property or the
owner of the Land or otherwise imposed upon the Lessor by any of the documents
executed by the Lessor in connection with this Lease or any of the transactions
contemplated by this Lease.

                                    ARTICLE 8

                              REPAIRS: RESTRICTIONS

         8.1   Maintenance and Repair.

         8.1.1 Lessee's Responsibility. The Lessee, at its sole cost and
expense, shall keep the Leased Property and all private roadways, sidewalks and
curbs appurtenant thereto which are under the Lessee's control in good order and
repair (whether or not the need for such repairs occurs as a result of the
Lessee's use, any prior use, the elements or the age of the Leased Property or
such private roadways, sidewalks and curbs or any other cause whatsoever).
Subject to Articles 9, 13 and 14, the Lessee shall promptly, with the exercise
of all reasonable efforts, undertake and diligently complete all necessary and
appropriate repairs, replacements, renovations, restorations, alterations and
modifications thereof of every kind and nature, whether interior or exterior,
structural or non-structural, ordinary or extraordinary, foreseen or unforeseen
or arising by reason of a condition (concealed or otherwise) existing prior to
the commencement of, or during, the Term and thereafter until the Lessee
surrenders the Leased Property in the manner required by this Lease. The Lessor
understands that the Facility will incur reasonable, normal wear and tear during
the Term of this Lease and agrees that the Lessee shall not be obligated to
repair or replace every incidence of reasonable and normal wear and tear.
However, nothing herein shall relieve the Lessee of its obligation to maintain
the Leased Property and all private roadways, sidewalks and curbs appurtenant
thereto which are under the Lessee's control in good order and repair. And
further, in no event shall such wear and tear present any condition which may be
harmful to residents or other occupants of the Leased Property or which prevents
the Leased Property from being operated for the Primary Intended Use in
accordance with the provisions of this Lease. In addition, the Lessee, at its
sole cost and expense, shall make all repairs, modifications, replacements,
renovations and alterations of the Leased Property (and such private roadways,
sidewalks and curbs) that are necessary to comply with all applicable Legal
Requirements and Insurance Requirements so that the Leased Property can be
legally operated for the Primary Intended Use and the Other Permitted Uses. All
repairs, replacements, renovations, alterations, and modifications required by
the terms of this Section 8.1 shall be (a) performed in a good and workmanlike
manner in compliance with all Legal Requirements, Insurance Requirements and the
requirements of Article 9 hereof, using new materials well suited for their
intended purpose and (b) consistent with the operation of the Leased Property in
a

                                       47
<PAGE>   48
first class manner. The Lessee will not take or omit to take any action the
taking or omission of which might materially impair the value or the usefulness
of the Leased Property for the Primary Intended Use and the Other Permitted
Uses. To the extent that any of the repairs, replacements, renovations,
alterations or modifications required by the terms of this Section 8.1
constitute Material Structural Work, the Lessee shall obtain the Lessor's prior
written approval (which approval shall not be unreasonably withheld) of the
specific repairs, replacements, renovations, alterations and modifications to be
performed by or on behalf of the Lessee in connection with such Material
Structural Work, and shall perform the same in accordance with the provisions of
this Lease upon receipt of such approval. Notwithstanding the foregoing, in the
event of a bona fide emergency during which the Lessee is unable to contact the
appropriate representatives of the Lessor, the Lessee may commence such Material
Structural Work as may be necessary in order to address such emergency without
the Lessor's prior approval, provided, however, that the Lessee shall
immediately thereafter advise the Lessor of such emergency and the nature and
scope of the Material Structural Work commenced and shall obtain the Lessor's
approval of the remaining Material Structural Work to be completed.

         8.1.2 No Lessor Obligation. The Lessor shall not, under any
circumstances (except to the extent of any damage caused thereto as a result of
the gross negligence or wilful misconduct of the Lessor or the Lessor's
employees, agents or contractors), be required to build or rebuild any
improvements on the Leased Property (or any private roadways, sidewalks or curbs
appurtenant thereto), or to make any repairs, replacements, renovations,
alterations, restorations, modifications, or renewals of any nature or
description to the Leased Property (or any private roadways, sidewalks or curbs
appurtenant thereto), whether ordinary or extraordinary, structural or
non-structural, foreseen or unforeseen, or to make any expenditure whatsoever
with respect thereto -in connection with this Lease, or to maintain the Leased
Property (or any private roadways, sidewalks or curbs appurtenant thereto) in
any way.

         8.1.3 Lessee May Not Obligate Lessor. Nothing contained herein nor any
action or inaction by the Lessor shall be construed as (a) constituting the
consent or request of the Lessor, express or implied, to any contractor,
subcontractor, laborer, materialman or vendor to or for the performance of any
labor or services for any construction, alteration, addition, repair or
demolition of or to the Leased Property or (b) giving the :Lessee any right,
power or permission to contract for or permit the performance of any labor or
services or the furnishing of any materials or other property in such fashion as
would permit the making of any claim against the Lessor for the payment thereof
or to make any agreement that may create, or in any way be the basis for, any
right, title or interest in, or Lien or claim against, the estate of the Lessor
in the Leased Property. Without limiting the generality of the foregoing, the
right, title and interest of the Lessor in and to the Leased Property shall not
be subject to liens or encumbrances for the performance of any labor or services
or the furnishing of any materials or other property furnished to the Leased
Property at or by the request of the Lessee or any other Person other than the
Lessor. The Lessee shall notify any contractor, subcontractor, laborer,
materialman or vendor providing any labor, services or materials to the Leased
Property of this provision.

         8.1.4 Lessee's Obligation to Perform Upgrade Renovations. Without
limiting the Lessee's obligations to maintain the Leased Property under this
Lease, within thirty (30) days after the end

                                       48
<PAGE>   49
of each Lease Year commencing with the end of the fourth (4th) Lease Year, the
Lessee shall provide the Lessor with evidence reasonably satisfactory to the
Lessor that the Lessee has in each and every consecutive thirty-six (36) month
period commencing with such fourth (4th) Lease Year spent an average annual
amount on Upgrade Renovations (collectively, the "Annual Facility Upgrade
Expenditure") equal to $200.00 per living unit within the Facility (as such per
living unit amount shall be adjusted annually at the beginning of each Lease
Year (commencing with the second (2nd) Lease Year) by an amount equal to the
product of (i) $200.00 multiplied by (ii) the Consumer :Price Adjustment Factor.
The term "Upgrade Renovations" is defined to mean upgrades or improvements to
the Leased Property which have the effect of maintaining or improving the
competitive position of the Leased Property in its marketplace; and Upgrade
Expenditures shall not include normal janitorial, cleaning and maintenance
activities. Non-exclusive examples of Upgrade Renovations include new or
replacement wallpaper, tiles, window coverings, lighting fixtures, painting,
upgraded landscaping, carpeting, architectural adornments, common areas
amenities and the like. It is expressly understood that capital improvements or
repairs (such as but not limited to repairs or replacements to the structural
elements of the walls, parking area, or the roof or to the electrical, plumbing,
HVAC or other mechanical or structural systems in the Leased Property) shall not
be considered Upgrade Renovations. In the event that during a given Lease Year
Upgrade Renovations are not necessary (which necessity shall be determined in
the Lessee's reasonable discretion) and/or the full amount of the respective
Annual Facility Upgrade Expenditure is not made for the Facility for whatever
reason, the Lessee shall be required to show evidence that a reserve fund has
been established with the balance of the unexpended Annual Facility Upgrade
Expenditure to be used solely for Upgrade Renovations in future Lease Years or
as otherwise requested by the Lessor. If the Lessee fails in each and every
consecutive thirty-six (36) month period (commencing with the end of the fourth
(4th) Lease Year) to make Upgrade Renovations in an average annual amount equal
to the Annual Facility Upgrade Expenditure or to establish a reserve fund as
aforesaid, the Lessee shall promptly on demand from the Lessor (but in no event
within more than five (5) days) pay to the Lessor the applicable shortfall in
the Annual Facility Upgrade Expenditure over any aforementioned thirty-six (36)
month period, as applicable; and the Lessor may retain such funds as additional
rent hereunder or, in its sole discretion, provide such funds to the Lessee to
perform Upgrade Renovations.

         8.2 Encroachments: Title Restrictions. If any of the Leased
Improvements shall, at any time, encroach upon any property, street or
right-of-way adjacent to the Leased Property, or shall violate the agreements or
conditions contained in any lawful restrictive covenant or other Lien now or
hereafter affecting the Leased Property, or shall impair the rights of others
under any easement, right-of-way or other Lien to which the Leased Property is
now or hereafter subject, then promptly upon the request of the Lessor, the
Lessee shall, at its sole cost and expense, subject to the Lessee's right to
contest the existence of any encroachment, violation or impairment as set forth
in Article 15, (a) obtain valid and effective waivers or settlements of all
claims, liabilities and damages resulting from each such encroachment, violation
or impairment or (b) make such alterations to the Leased Improvements, and take
such other actions, as the Lessee in the good faith exercise of its judgment
deems reasonably practicable, to remove such encroachment, or to end such
violation or impairment, including, if necessary, the alteration of any of the
Leased Improvements. Notwithstanding the foregoing, the Lessee shall, in any
event,

                                       49
<PAGE>   50
take all such actions as may be reasonably necessary in order to be able
to continue the operation of the Leased Improvements for the Primary Intended
Use and the Other Permitted Uses substantially in the manner and to the extent
that the Leased Improvements were operated prior to the assertion of such
encroachment, violation or impairment and nothing contained herein shall limit
the Lessee's obligations to operate the Leased Property in accordance with its
Primary Intended Use. Any such alteration made pursuant to the terms of this
Section 8.2 shall be completed in conformity with the applicable requirements of
Section 8.1 and Article 9. The Lessee's obligations under this Section 8.2 shall
be in addition to and shall in no way discharge or diminish any obligation of
any insurer under any policy of title or other insurance.

                                    ARTICLE 9

                          MATERIAL STRUCTURAL WORK AND
                                CAPITAL ADDITIONS

         9.1 Lessor's Approval. Without the prior written consent of the Lessor,
which consent may be withheld by the Lessor, in its sole and absolute
discretion, the Lessee shall make no Capital Addition or Material Structural
Work to the Leased Property (including, without limitation, any change in the
size or unit capacity of the Facility), except as may be otherwise expressly
required pursuant to Article 8.

         9.2 General Provisions as to Capital Additions and Certain Material
Structural Work. As to any Capital Addition or Material Structural Work (other
than such Material Structural Work that is required to be performed pursuant to
the terms of Section 8.1) for which the Lessor has granted its prior written
approval, the following terms and conditions shall apply unless otherwise
expressly set forth in the Lessor's written approval.

                  9.2.1 No Liens. Subject to Article 15 of this Lease, the
         Lessee shall not be permitted to create, nor suffer to exist, any Lien
         on the Leased Property in connection with any Capital Addition or
         Material Structural Work. NOTICE IS HEREBY GIVEN THAT THE LESSOR IS NOT
         AND SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED
         OR TO BE FURNISHED TO THE LESSEE OR TO ANYONE HOLDING ANY PART OF THE
         LEASED PROPERTY, AND THAT NO MECHANICS' LIENS, CONSTRUCTION LIENS OR
         OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO
         OR AFFECT THE INTEREST OF THE LESSOR IN AND TO THE LEASED PROPERTY.

                  9.2.,2 Lessee's Proposal Regarding Capital Additions and
         Material Structural Work. If the Lessee desires to undertake any
         Capital Addition or Material Structural Work, the Lessee shall submit
         to the Lessor in writing a proposal setting forth in reasonable detail
         any proposed Capital Addition or Material Structural Work and shall
         provide to the Lessor copies of, or information regarding, the
         applicable plans and specifications, Permits, Contracts and any other
         materials concerning the proposed Capital Addition or Material
         Structural Work, as the case may be, as the Lessor may reasonably
         request. Without limiting the generality of the foregoing, each such
         proposal

                                       50
<PAGE>   51
         pertaining to any Capital Addition shall indicate the approximate
         projected cost of constructing such Capital Addition and the use or
         uses to which it will be put.

         9.2.3 Lessor's Options Regarding Capital Additions and Material
Structural Work. The Lessor shall have the options of (a) denying permission for
the construction of the applicable Capital Addition or Material Structural Work,
(b) offering to finance the construction of the Capital Addition or Material
Structural Work pursuant to Section 9.3, (c) allowing the Lessee to pay for or
separately finance the construction of the Capital Addition or Material
Structural Work, subject to compliance with the terms and conditions of Section
9.2.1, Section 9.4, Section 13.1, all Legal Requirements and all other
requirements of this Lease and to such other terms and conditions as the Lessor
may in its discretion impose or (d) any combination of the foregoing. Unless the
Lessor notifies the Lessee in writing of a contrary election within thirty (30)
days of the Lessee's request, the Lessor shall be, deemed to have denied the
request for the Capital Addition or Material Structural Work.

         9.2.4 Lessor May Elect to Finance Capital Additions or Material
Structural Work. If the Lessor elects to offer financing for the proposed
Capital Addition or Material Structural Work, the provisions of Section 9.3
shall apply.

         9.2.5 Legal Requirements; Quality of Work. All Capital Additions and/or
Material Structural Work shall be performed in full compliance with all
applicable Legal Requirements and shall be performed in a good and workmanlike
manner.

         9.3   Capital Additions and Material Structural Work Financed by
Lessor.

         9.3.1 Lessee's Financing Request. The Lessee may request that the
Lessor provide or arrange financing for a Capital Addition or Material
Structural Work by providing to the Lessor such information about the Capital
Addition or Material Structural Work as the Lessor may reasonably request,
including, without limitation, all information referred to in Section 9.2 above.
The Lessee understands, however, that the Lessor shall be under no obligation to
agree to such request. Nevertheless, the Lessor shall notify the Lessee, within
forty-five (45) days of receipt of such information, as to whether the Lessor
will finance the proposed Capital Addition or Material Structural Work and, if
so, the terms and conditions upon which it would do so, including the terms of
any amendment to this Lease (including, without limitation, an increase in Base
Rent based on the Lessor's then existing terms and prevailing conditions to
compensate the Lessor for the additional funds advanced by it). The Lessee may
withdraw its request by notice to the Lessor at any time before such time as the
Lessee accepts the Lessor's terms and conditions. All advances of funds for any
such financing shall be made in accordance with the Lessor's then standard
construction loan requirements and procedures, which may include, without
limitation, the requirements and procedures applicable to Work under Section
13.1.

         9.3.2 Lessor's General Requirements. If the Lessor agrees to finance
the proposed Capital Addition or Material Structural Work and the Lessee accepts
the Lessor's proposal therefor, in addition to all other items which the Lessor
or any applicable Financing Party may reasonably require, the Lessee shall
provide to the Lessor the following:,

                                       51
<PAGE>   52

                  (a) prior to any advance of funds, (i) any information,
         opinions, certificates, Permits or documents reasonably requested by
         the Lessor or any applicable Financing Party which are necessary to
         confirm that the Lessee will be able to use the Capital Addition upon
         the completion thereof or the applicable portion of the Facility upon
         the completion of the Material Structural Work in accordance with the
         Primary Intended Use and/or the Other Permitted Uses and (ii) evidence
         satisfactory to the Lessor and any applicable Financing Party that all
         Permits required for the construction and use of the Capital Addition
         or the applicable portion of the Facility have been obtained, are in
         full force and effect and are not subject to appeal, except only for
         those Permits which cannot in the normal course be obtained prior to
         commencement or completion of the construction; provided, that the
         Lessor and any applicable Financing Party are furnished with reasonable
         evidence that the same will be available in the normal course of
         business without unusual condition;

                  (b) prior to any advance of funds, an Officer's Certificate
         and, if requested, a certificate from the Lessee's architect, setting
         forth in reasonable detail the projected (or actual, if available)
         Capital Addition Cost or the cost of the Material Structural Work;

                  (c) bills of sale, instruments of transfer and other documents
         required by the Lessor so as to vest title to the Capital Addition or
         the applicable Material Structural Work in the Lessor free and clear of
         all Liens, and amendments to this Lease and any recorded notice or
         memorandum thereof, duly executed and acknowledged, in form and
         substance reasonably satisfactory to the Lessor, providing for any
         changes required by the Lessor including, without limitation, changes
         in the Base Rent and the legal description of the Land;

                  (d) upon payment therefor, a deed conveying to the Lessor
         title to any land acquired for the purpose of constructing the Capital
         Addition or the applicable Material Structural Work ("Additional Land")
         free and clear of any Liens except those approved by the Lessor;

                  (e) upon completion of the Capital Addition or the Material
         Structural Work, a final as-built survey thereof reasonably
         satisfactory to the Lessor, if required by the Lessor;

                  (f) during and following the advance of funds and the
         completion of the Capital Addition or the Material Structural Work,
         endorsements to any outstanding policy of title insurance covering the
         Leased Property satisfactory in form and substance to the Lessor and
         any Financing Party (i) updating the same without any additional
         exception except as may be reasonably permitted by the Lessor, (ii) if
         applicable, including the Additional Land in the premises covered by
         such title insurance policy and (iii) increasing the coverage thereof
         by an amount equal to any amount paid by the Lessor for the Additional
         Land ~l the Fair Market Value of the Capital Addition or the Fair
         Market Value of the Material Structural Work (except to the extent
         covered by the owner's policy of title

                                       52
<PAGE>   53
         insurance referred to in subparagraph (g) below);

                   (g) simultaneous with the initial advance of funds, if
         appropriate, (i) an owner's policy of title insurance insuring fee
         simple title to any Additional Land conveyed to the Lessor pursuant to
         subparagraph (d) free .and clear of all Liens except those approved by
         the Lessor and (ii) a lender's policy of title insurance reasonably
         satisfactory in form and substance to any applicable Financing Party;

                   (h) following the completion of the Capital Addition or the
         Material Structural Work, if reasonably deemed necessary by the Lessor,
         an appraisal of the Leased Property by an M.A.I. appraiser acceptable
         to the Lessor, which states that the Fair Market Value of the Leased
         Property upon completion of the Capital Addition or the Material
         Structural Work exceeds the Fair Market Value of the Leased Property
         prior to the commencement of the construction of such Capital Addition
         or Material Structural Work by an amount not less than one hundred
         percent (100%) of the Capital Addition Cost or the cost of the Material
         Structural Work; and

                   (i) during or following the advancement of funds., prints of
         architectural and engineering drawings relating to the Capital Addition
         or the Material Structural Work and such other materials, including,
         without limitation, endorsements to the title insurance policies
         (insuring the Lessor and any applicable Financing Party with respect to
         the Leased Property) contemplated by subsection (f) above, opinions of
         counsel, appraisals, surveys, certified copies of duly adopted
         resolutions of the board of directors of the Lessee authorizing the
         execution and delivery of the lease amendment and any other documents
         and instruments as may be reasonably required by the Lessor and any
         applicable Financing Party.

         9.3.3 Payment of Costs. By virtue of making a request to finance a
         Capital Addition or any Material Structural Work, whether or not such
         financing is actually consummated, the Lessee shall be deemed to have
         agreed to pay, upon demand, all costs and expenses reasonably incurred
         by the Lessor and any Person participating with the Lessor in any way
         in the financing of the Capital Addition or Material Structural Work,
         including, but not limited to (a) fees and expenses of their respective
         attorneys, (b) all photocopying expenses, if any, (c) the amount of any
         filing, registration and recording taxes and fees, (d) documentary
         stamp taxes and intangible taxes and (e) title insurance charges and
         appraisal fees.

         9.4 General Limitations. Without in any way limiting the Lessor's
options with respect to proposed Capital Additions or Material Structural Work,
(a) no Capital Addition or Material Structural Work shall be completed that
could, upon completion, significantly alter the character or purpose or detract
from the value or operating efficiency of the Leased Property, or significantly
impair the revenue-producing capability of the Leased Property, or adversely
affect the ability of the Lessee to comply with the terms of this Lease, (b) no
Capital Addition or Material Structural Work shall be completed which would tie
in or connect any Leased Improvements on the Leased Property with any other
improvements on property adjacent to the

                                       53
<PAGE>   54
Leased Property (and not part of the Land covered by this Lease) including,
without limitation, tie-ins of buildings or other structures or utilities,
unless the Lessee shall have obtained the prior written approval of the Lessor,
which approval may be withheld in the Lessor's sole and absolute discretion and
(c;) all proposed Capital Additions and Material Structural Work shall be
architecturally integrated and consistent with the Leased Property.

         9.5 Non-Capital Additions. The Lessee shall have the obligation and
right to make repairs, replacements and alterations which are not Capital
Additions as required by the other Sections of this Lease, but in so doing, the
Lessee shall always comply with and satisfy the conditions of Sections 9.2.1,
9.2.5 and 9.4, mutatis, mutandis. The Lessee shall have the right, from time to
time, to make additions, modifications or improvements to the Leased Property
which do not constitute Capital Additions or Material Structural Work as it may
deem to be desirable or necessary for its uses and purposes, subject to the same
limits and conditions imposed under Sections 9.2.1, 9.2.5 and 9.4. The cost of
any such repair, replacement, alteration, addition, modification or improvement
shall be paid by the Lessee and the results thereof shall be included under the
terms of this Lease and become a part of the Leased Property, without payment
therefor by the Lessor at any time. Notwithstanding the foregoing, all such
additions, modifications and improvements which affect the structure of any of
the Leased Improvements, or which involve the expenditure of more than FIFTY
THOUSAND and NO/100 DOLLARS ($50,000.00) in any consecutive twelve (12) month
period, shall be undertaken only upon compliance with the provisions of Section
13.1, all Legal Requirements and all other applicable requirements of this
Lease; provided, however, that in the event of a bona fide emergency during
which the Lessee is unable to contact the appropriate representatives of the
Lessor, the Lessee may commence such additions, modifications and improvements
as may be necessary in order to address such emergency without the Lessor's
prior approval, as long as the Lessee immediately thereafter advises the Lessor
of such emergency and the nature and scope of the additions, modifications and
improvements performed and obtains the Lessor's approval of the remaining work
to be completed.

         9.6 Permitted Work. Notwithstanding Section 9.1 above, the Lessee shall
have the right to perform Permitted Work (as defined below) without the Lessor's
prior approval or consent as long as the Lessee gives to the Lessor prior notice
that the Lessee is undertaking such Permitted Work and provides the Lessor with
reasonably detailed plans and specifications describing the work to be done.
"Permitted Work" shall mean work to the Leased Improvements which will not
affect any of the structural elements of the Leased Improvements and which, in
the aggregate, costs less than FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00)
during any consecutive twelve (12) month period. Any work to the Facility,
regardless of cost, which (a) will affect any structural element of any of the
Leased Improvements and (b) is not otherwise subject to an approval of the
Lessor pursuant to any other provision of this Lease, shall still require the
prior written consent of the Lessor, which consent may be withheld by the Lessor
in its sole and absolute discretion.

                                   ARTICLE 10

                         WARRANTIES AND REPRESENTATIONS

                                       54
<PAGE>   55

         10.1 Representations and Warranties. The Lessee hereby represents and
warrants to, and covenants and agrees with, the Lessor that:

                  10.1.1 Existence; Power; Qualification. The Lessee is a
         corporation duly organized, validly existing and in good standing under
         the laws of the State of Delaware. The Lessee has all requisite
         corporate power to own and operate its properties and to carry on its
         business as now conducted and as proposed to be conducted and is duly
         qualified to transact business and is in good standing in each
         jurisdiction where such qualification is necessary or desirable in
         order to carry out its business as presently conducted and as proposed
         to be conducted. As of the date of this Lease, the Lessee does not have
         any Subsidiaries and the Lessee is not a member of any partnership or
         joint venture (except for each of the limited partnerships which have
         been created with the Lessor's approval to be the sublessees of the
         facilities known as Clare Bridge of Ft. Myers, Florida and Clare Bridge
         of Tampa, Florida, respectively). Attached hereto as EXHIBIT C is a
         true and correct list of all of the shareholders of the Lessee and
         their respective ownership interests in the Lessee.

                  10.1.2 Valid and Binding. The Lessee is duly authorized to
         make and enter into all of the Lease Documents to which the Lessee is a
         party and to carry out the transactions contemplated therein. All of
         the Lease Documents to which the Lessee is a party have been duly
         executed and delivered by the Lessee, and each is a legal, valid and
         binding obligation of the Lessee, enforceable in accordance with its
         terms.

                  10.1.3 Single Purpose. The Lessee is, and during the entire
         time that this Lease remains in force and effect the Lessee and any
         other Acceptable Licensed Operator (other than the Guarantor or Current
         Manager, if other than the Guarantor) shall be, engaged in

no business, trade or activity other than the operation of the Leased Property
for the Primary Intended Use and the Other Permitted Uses or the lease and
operation of other assisted living facilities and/or Alzheimer's dementia care
facilities where the Lessor or some other Meditrust Entity is the owner, lessor
or holder of a first priority fee mortgage on such other facility.

         10.1.4 No Violation. The execution, delivery and performance of the
Lease Documents and the consummation of the transactions thereby contemplated
shall not result in any breach of, or constitute a default under, or result in
the acceleration of, or constitute an event which, with the giving of notice or
the passage of time, or both, could result in default or acceleration of any
obligation of any member of the Leasing Group under any of the Permits or
Contracts or any other contract, mortgage, lien, lease, agreement, instrument,
franchise, arbitration award, judgment, decree, bank loan or credit agreement,
trust indenture or other instrument to which any member of the Leasing Group is
a party or by which any member of the Leasing Group or the Leased Property may
be bound or affected and do not violate or contravene any Legal Requirement.

         10.1.5 Consents and Approvals. Except as already obtained or filed, or
except as

                                       55
<PAGE>   56
otherwise expressly contemplated in any of the Lease Documents, as the case may
be, no consent or approval or other authorization of, or exemption by, or
declaration or filing with, any Person and no waiver of any right by any Person
is required to authorize or permit, or is otherwise required as a condition of
the execution and delivery of any of the Lease Documents by any member of the
Leasing Group and the performance of such member's obligations thereunder or as
a condition to the validity (assuming the due authorization, execution and
delivery by the Lessor of the Lease Documents to which it is a party) and the
first priority of any Liens granted under the Lease Documents, except the filing
of the Financing Statements.

         10.1.6 No Liens or Insolvency Proceedings. Each member of the Leasing
Group is financially solvent and there are no actions, suits, investigations or
proceedings including, without limitation, outstanding federal or state tax
liens, garnishments or insolvency or bankruptcy proceedings, pending or, to the
best of the Lessee's knowledge and belief; threatened:

                  (a) against or affecting any member of the Leasing Group,
         which if adversely resolved to such member of the Leasing Group, would
         materially adversely affect the ability of any of the foregoing to
         perform their respective obligations under the Lease Documents;

                  (b) against or affecting the Leased Property or the ownership,
         construction, development, maintenance, management, repair, use,
         occupancy, possession or operation thereof; or

                  (c) which may involve or affect the validity, priority or
         enforceability of any of the Lease Documents, at law or in equity, or
         before or by any arbitrator or Governmental Authority.

         10.1.7 No Burdensome Agreements. No member of the Leasing Group is a
party to any agreement the terms of which now have, or, as far as can be
reasonably foreseen, may have, a material adverse affect on its respective
financial condition or business or operation of the Leased Property for its
Primary Intended Use or any Other Permitted Use.

         10.1.8 Commercial Acts. The Lessee's performance of and compliance with
the obligations and conditions set forth herein and in the other Lease Documents
will constitute commercial acts done and performed for commercial purposes.

         10.1.9  Adequate Capital. Not Insolvent. After giving effect to the
consummation of the transactions contemplated by the Lease Documents, each of
the Lessee and the Guarantor, taken as a whole:

                  (a) will be able to pay its debts as they become due;

                  (b) will have sufficient funds and capital to carry on its
         business as now conducted or as contemplated to be conducted (in
         accordance with the terms of the Lease Documents);

                                       56
<PAGE>   57
                  (c) will own property having a value both at fair valuation
         and at present fair saleable value greater than the amount required to
         pay its debts as they become due; and

                  (d) will not be rendered insolvent as determined by applicable
         law.

         10.1.10 Not Delinquent. No member of the Leasing Group is delinquent or
claimed to be delinquent under any obligation for the payment of borrowed money
in excess of ONE HUNDRED THOUSAND and NO/100 DOLLARS ($100,000.00).

         10.1.11 No Affiliate Debt: The Lessee has not created, incurred,
guaranteed, endorsed, assumed or suffered to exist any liability (whether direct
or contingent) for borrowed money from the Guarantor (or any of its Affiliates)
or any Affiliate of the Lessee that is not fully subordinated to the Lease
Obligations pursuant to the Affiliated Party Subordination Agreement.

         10.1.12 Taxes Current. Each member of the Leasing Group (a) has filed
all federal, state and local tax returns which are required to be filed and as
to which extensions are not currently in effect and (b) has paid all taxes,
assessments, impositions, fees and other governmental charges (including
interest and penalties) (i) which have become due pursuant to such returns or
pursuant to any assessment or notice of tax claim or deficiency received by each
such member of the Leasing Group and (ii) for which nonpayment could result in
assessment of a penalty against (1) such member of the Leasing Group other than
the Guarantor in excess of ONE THOUSAND and NO/100 DOLLARS ($1,000.00) or (2)
the Guarantor in excess of FIVE THOUSAND and NO/100 DOLLARS ($5,000.00). No tax
liability has been asserted by the Internal Revenue Service against any member
of the Leasing Group or any other federal, state or local taxing authority for
taxes, assessments, impositions, fees or other governmental charges (including
interest or penalties thereon) in excess of those already paid.

         10.1.13 Financials Complete and Accurate. The financial statements of
each member of the Leasing Group given to the Lessor in connection with the
execution and delivery of the Lease Documents were true, complete and accurate,
in all material respects, and fairly presented the financial condition of each
such member of the Leasing Group as of the date thereof and for the periods
covered thereby, having been prepared in accordance with GAAP and such financial
statements disclosed all material liabilities. There has been no material
adverse change since such date with respect to the Tangible Net Worth of any
member of the Leasing Group or with respect to any other matters contained in
such financial statements, nor have any additional material liabilities,
including, without limitation, contingent liabilities, of any member of the
Leasing Group arisen or been incurred or asserted since such date. The
projections heretofore delivered to the Lessor continue to be reasonable (with
respect to the material assumptions upon which such projections are based) and
the Lessee reasonably anticipates the results projected therein will be
achieved, there having been (a) no material adverse change in the business,
assets or condition, financial or otherwise of any member of the Leasing Group
or the Leased Property and (b) no material depletion of the cash or decrease in
working capital of any member of the Leasing Group.

                                       57
<PAGE>   58
          10.1.14      Pending Actions. Notices and Reports.

          (a) There is no action or investigation pending or, to the best
knowledge and belief of the Lessee, threatened, anticipated or contemplated
(nor, to the knowledge of the Lessee, is there any reasonable basis therefor)
against or affecting the Leased Property or any member of the Leasing Group (or
any Affiliate thereof) before any Governmental Authority, Accreditation Body or
Third Pasty Payor which could prevent or hinder the consummation of the
transactions contemplated hereby or call into question the validity of any of
the Lease Documents or any action taken or to be taken in connection with the
transactions contemplated thereunder or which in any single case or in the
aggregate might result in any material adverse change in the business,
prospects, condition, affairs or operations of the Lessee or the Guarantor or
the Leased Property (including, without limitation, any action to revoke,
withdraw or suspend any Permit necessary or desirable for the operation of the
Leased Property in accordance with its Primary Intended Use and any action to
transfer or relocate any such Permit to a location other than the Leased
Property) or any material impairment of the right or ability of the Lessee or
the Guarantor to carry on its operations as presently conducted or proposed to
be conducted or which may materially adversely impact reimbursement to the
Lessee for services rendered to beneficiaries of Third Party Payor Programs.

         (b) Neither the Facility nor any member of the Leasing Group has
received any notice' of any claim, requirement or demand of any Governmental
Authority, Accreditation Body, Third Party Payor or any insurance body having or
claiming any licensing, certifying, supervising, evaluating or accrediting
authority over the Leased Property to rework or redesign the Leased Property,
its professional staff or its professional services, procedures or practices in
any material respect or to provide additional furniture, fixtures, equipment or
inventory or to otherwise take action so as to make the Leased Property conform
to or comply with any Legal Requirement;

         (c) The most recent utilization reviews relating to the Leased Property
by all applicable Third Party Payors, Accreditation Bodies and Governmental
Authorities and reviews or scrutiny by any managed care or utilization review
companies have not had a material adverse impact on the utilization of units or
programs at the Leased Property. No claims or assertions have been made in any
utilization review that any of the practices or procedures used at the Leased
Property are improper or inappropriate other than such claims or assertions
which singly and in the aggregate will not have a material adverse impact on the
Leased Property; and

         (d) The Lessee has delivered or caused to be delivered to the Lessor
true and correct copies of all licenses, inspection surveys and accreditation
reviews relating to the Leased Property, issued by any Governmental Authority or
Accreditation Body during the most recent licensing period, together with all
plans of correction relating thereto.

          10.1.15      Compliance with Legal and Other Requirements.

         (a) The Lessee and the Leased Property and the ownership, construction,
development, maintenance, management, repair, use, occupancy, possession and
operation thereof comply with all applicable Legal Requirements and there is no
claim of any violation thereof known to the

                                       58
<PAGE>   59
Lessee which could have a material adverse effect on the Leased Property or the
Lessee. Without limiting the foregoing, the Lessee is or will become the
licensed operator of the Facility, the Lessee has obtained all Permits that are
necessary to operate the-Leased Property in accordance with its Primary Intended
Use and the Other :permitted Uses, if any, and all such Permits are in full
force and effect.

          (b) Except as previously delivered to the Lessor pursuant to Section
10.1.14(d) hereof, there are no outstanding notices of deficiencies, notices of
proposed action or orders of any kind relating to the Leased Property issued by
any Governmental Authority requiring conformity to any of the Legal Requirements
and which could have a material adverse effect on the Leased Property or the
Lessee.

          (c) There exists no event of default by any party under the EDC Ground
Lease, the IDA Sublease or the Liberty Commons Sub-sublease nor is there any
event of default by any party with respect to any of the Bond-Related
Obligations.

          10.1.16 No Action By Governmental Authority. There is no action
pending or, to the best knowledge and belief of the Lessee, recommended, by any
Governmental Authority or Accreditation Body to revoke, repeal, cancel, modify,
withdraw or suspend any Permit or Contract or to take any other action of any
other type which could have a material adverse effect on the Leased Property.

          10.1.17 Property Matters.

          (a) The Leased Property is free and clear of agreements, covenants and
Liens, except those agreements, covenants and Liens to which this Lease is
expressly subject, whether presently existing, as are listed on EXHIBIT B or
were listed on the UCC lien search results delivered to the Lessor at or prior
to the execution and delivery of this Lease (and were not required to be
terminated as a condition of the execution and delivery of this Lease), or which
may hereafter be created in accordance with the terms hereof (collectively
referred to herein as the "Permitted Encumbrances"); and the Lessee shall
warrant anal defend the Lessor's title to the Leased Property against any and
all claims and demands of every kind and nature whatsoever, subject to the
Permitted Encumbrances;

          (b) There is no Condemnation or similar proceeding pending with
respect to or affecting the Leased Property, and the Lessee is not aware, to the
best of the Lessee's knowledge and belief, that any such proceeding is
contemplated;

          (c) No part of the Collateral or the Leased Property has been damaged
by any fire or other casualty. The Leased Improvements, Fixtures and Tangible
Personal Property are in good operating condition and repair, ordinary wear and
tear excepted, free from known defects in construction or design;

          (d) All buildings, facilities and other improvements necessary, both
legally and practically;, for the proper and efficient operation of the Facility
are located upon the Leased

                                       59
<PAGE>   60
Property and all real property and personal property currently utilized by the
Lessee is included within the definition of the Leased Property or the
Collateral;

         (e)      The Leased Property abuts on and has direct vehicular access
to a public road or access to a public road via permanent, irrevocable,
appurtenant easements;

         (f)      The Leased Property constitutes a separate parcel for real
estate tax purposes and no portion of any real property that does not constitute
a portion of the Leased Property is part of the same tax parcel as any part of
the Leased Property;

         (g)       All utilities necessary for the use and operation of the
Facility are available to the' lot lines of the Leased Property:

                   (i) in sufficient supply and capacity;

                   (ii) through validly created and existing easements of record
          appurtenant to or encumbering the Leased Property (which easements
          shall not impede or restrict the operation of the Facility); and

                   (iii) without need for any Permits and/or Contracts to be
          issued by or entered into with any Governmental Authority, except as
          already obtained or executed, as the case may be, or as otherwise
          shown to the satisfaction of the Lessor to be readily obtainable; and

          (h) Since the initial construction of the Facility, except as may be
shown on the survey of the Leased Property that has been reviewed and approved
by the Lessor, the Lessee has made no structural alterations or improvements to
any of the Leased Improvements that changed the foot-print of any of the Leased
Improvements, added an additional story to any of the Leased Improvements,
decreased the amount of parking available on the Leased Property or otherwise
involved any alteration which would be regulated by applicable zoning
requirements.

          10.1.18      Third Part Payor Agreements.

          (a) The Lessee or the Facility is fully qualified as a provider of
services under and participates in all Third Party Payor Programs and referral
programs as is necessary for the prudent operation of the Facility in the
Lessee's good faith exercise of commercially reasonable business judgment.

          (b) Attached hereto as EXHIBIT D is a list of national accounts and
local discount agreements, which constitute all of the agreements between the
Lessee or the Facility, on the one hand, and Third Party Payors on the other
hand, pursuant to which the Lessee or the Facility agrees to provide services
based on a discount factor from the rates regularly charged for services
rendered by the Lessee or the Facility.

          (c) No member of the Leasing Group, nor the Facility has any rate
appeal currently

                                       60
<PAGE>   61
pending before any Governmental Authority or any administrator of any Third
Party Payor Program or any other referral source other than such appeals which,
if determined adversely to any member of the Leasing Group or the Facility would
not have a materially adverse effect, either singly or in the aggregate, on the
financial condition of any member of the Leasing Group or the Facility.

   (d) All cost reports and financial reports submitted to any Third Party
Payor with respect to the Facility by any member of the Leasing Group have been
materially accurate and complete and have not been misleading in any material
respect. As a result of any audits by any Third Party Payor, there are no
related recoupment claims made or contests pending or threatened other than such
recoupment claims or contests which, if determined adversely to any member of
the Leasing Group or the Facility, would not have a materially adverse effect,
either singly or in the aggregate, on the financial condition of any member of
the Leasing Group or the Facility. As of the date hereof, no cost reports for
the Facility remain open or unsettled other than those listed on EXHIBIT E.

          10.1.19 Rate Limitations. Except as disclosed on EXHIBIT F, the State
currently imposes no restrictions or limitations on rates which may be charged
to private pay residents receiving services at the Facility.

          10.1.20 Free Care. Except as disclosed on EXHIBIT G, there are no
Contracts, Permits or Legal Requirements which require that a percentage of
units or slots in any program at the Facility be reserved for Medicaid or
Medicare eligible patients or that the Facility provide a certain amount of
welfare, free or charity care or discounted or government assisted resident
care.

          10.1.21 No Proposed Changes. The Lessee has no actual knowledge of any
Legal Requirements which have been enacted, promulgated or issued within the
eighteen (18) months preceding the date of this Lease or any proposed Legal
Requirements currently pending in the State which may materially adversely
affect rates at the Facility (or any program operated in conjunction with the
Facility) or the imposition of Medicaid, Medicare, charity, free care, welfare
or other discounted or government assisted residents at the Facility or require
that the Lessee or the Facility obtain a certificate of need, Section 11122
approval or the equivalent, which the Lessee or the Facility does not currently
possess.

          10.1.22 ERISA. No employee pension benefit plan maintained by any
member of the Leasing Group has any accumulated funding deficiency within the
meaning of the ERISA, nor does any member of the Leasing Group have any material
liability to the PBGC established under ERISA (or any successor thereto) in
connection with any employee pension benefit plan (or other class of benefit
which the PBGC has elected to insure), and there have been no "reportable
events" (not waived) or "prohibited transactions" with respect to any such plan,
as those terms are defined in Section 4043 of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as now or hereafter amended, respectively.

          10.1.23 No Broker. No member of the Leasing Group nor any of their
respective Affiliates has dealt with any broker or agent in connection with the
transactions contemplated by

                                       61
<PAGE>   62
the Lease Documents. The Lessor hereby represents and warrants to the Lessee
that no Meditrust Entity has dealt with any broker or agent in connection with
the transactions contemplated by the Lease Documents.

          10.1.24 No Improper Payments. No member of the Leasing Group nor, to
the best knowledge of the Lessee, any of their respective Affiliates (other than
individuals who are not acting on behalf of any such non-individual Affiliates)
has:

          (a) made any contributions, payments or gifts of its funds or property
to or for the private use of any government official, employee, agent or other
Person where either the payment or the purpose of such contribution, payment or
gifts is illegal under the laws of the United States, any state thereof or any
other jurisdiction (foreign or domestic);

          (b) established or maintained any unrecorded fund or asset for any
purpose or has made .any false or artificial entries on any of its books or
records for any reason;

          (c) made any payments to any Person with the intention or
understanding that any part of such payment was to be used for any other purpose
other than that described in the' documents supporting the payment; or

          (d) made any contribution, or has reimbursed any political gift or
contribution made by any other Person, to candidates for public office, whether
federal, state or local, where such contribution would be in violation of
applicable law.

          10.1.25      Nothing Omitted.

          (a) Neither this Lease, nor any of the other Lease Documents, nor any
certificate, agreement, statement or other document, including, without
limitation, any financial statements concerning the financial condition of any
member of the Leasing Group, furnished to or to be furnished to the Lessor or
its attorneys in connection with the transactions contemplated by the Lease
Documents, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to prevent all
statements contained herein and therein from being misleading.

          (b) There is no fact within the special knowledge of the Lessee which
has not been disclosed herein or in writing to the Lessor that materially
adversely affects, or in the future, insofar as the Lessee can reasonably
foresee, may materially adversely affect the business, properties, assets or
condition, financial or otherwise, of any member of the Leasing Group or the
Leased Property.

          10.1.26 No Margin Security. The Lessee is not engaged in the business
of extending. credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of the Meditrust Investment will be
used to purchase or carry any margin security or to extend credit to others for
the purpose of purchasing or carrying any margin security or in any other manner

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<PAGE>   63
which would involve a violation of any of the regulations of the Board of
Governors of the Federal Reserve System. The Lessee is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

                  10.1.27 No Default. No event or state of facts which
         constitutes, or which, with notice or lapse of time, or both, could
         constitute, a Lease Default has occurred and is continuing.

                  10.1.28 Principal Place of Business. The principal place of
         business and chief executive office of the Lessee is located at 450 N.
         Sunnyslope Road, Suite 300, Brookfield, Wisconsin 53005 (the "Principal
         Place of Business").

                  10.1.29 Labor Matters. There are no proceedings now pending,
         nor, to the best of the Lessee's knowledge, threatened with respect to
         the operation of the Facility before the National Labor Relations
         Board, State Commission on Human Rights and Opportunities, State
         Department of Labor, U.S. Department of Labor or any other Governmental
         Authority having jurisdiction of employee rights with respect to
         hiring, tenure and conditions of employment, and no member of the
         Leasing Group has experienced any material controversy with any
         Facility administrator or other employee of similar stature or with any
         labor organization.

                  10.1.30 Intellectual Property. The Lessee is duly licensed or
         authorized to use all (if any) copyrights, rights of reproduction,
         trademarks, trade-names, trademark applications, service marks, patent
         applications, patents and patent license rights, (all whether
         registered or unregistered, U.S. or foreign), inventions, franchises,
         discoveries, ideas, research, engineering, methods, practices,
         processes, systems, formulae, designs, drawings, products, projects,
         improvements, developments, know-how and trade secrets which are used
         in or necessary for the operation of the Facility in accordance with
         its Primary Intended Use, without conflict with or infringement of any,
         and subject to no restriction, lien, encumbrance, right, title or
         interest in others.

                  10.1.31 Management Agreements. There is no Management
         Agreement in force and effect as of the date hereof other than the
         Current Management Agreement, and the Current Management Agreement
         shall terminate not later than six (6) months after the Commencement
         Date.

                  10.1.32 Fiscal Year. The fiscal year of each of the Lessee and
         the Guarantor is the Fiscal Year.

          10.2 Continuing Effect of Representations and Warranties. All
representations and warranties contained in this Lease and the other Lease
Documents shall constitute continuing representations and warranties which shall
remain true, correct and complete throughout the Term. Notwithstanding the
provisions of the foregoing sentence but without derogation from any other terms
and provisions of this Lease, including, without limitation, those terms and
provisions containing covenants to be performed or conditions to be satisfied on
the part of the

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<PAGE>   64
Lessee, the representations and warranties contained in Sections 10.1.6, 10.1.7,
10.1.10, 10.1.14, 10.1.15, 10.1.17(b), l0.1.17(c), 10.1.18(b), 10.1.18(c),
10.1.19, 10.1.20, 10.1.21, 10.1.22, 10.1.25(b), 10.1.28, 10.1..29, in the second
sentence of Section 10.1.12, in the second and third sentences of Section
10.1.'113, and in the second and third sentences of Section 10.1.18(d) shall not
constitute continuing representations and warranties throughout the Term.

                                   ARTICLE 11

                          FINANCIAL AND OTHER COVENANTS

          11.1 Status Certificates. At any time, and from time to time, upon
request from the Lessor, the Lessee; shall furnish to the Lessor, within ten
(10) Business Days' after receipt of such request, an Officer's Certificate
certifying that this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth the
modification) and the dates to which the Rent has been paid. Any Officer's
Certificate furnished pursuant to this Section shall be addressed to any
prospective purchaser or mortgagee of the Leased Property as the Lessor may
request and may be relied upon by the Lessor and any such prospective purchaser
or mortgagee of the Leased Property.

                  11.2 Financial Statements; Reports; Notice and Information.

                  11.2.1 Obligation To Furnish. The Lessee will furnish and
         shall cause to be furnished to the Lessor the following statements,
         information and other materials:

                           (a) Annual Statements. Within ninety (90) days after
                  the end of each of their respective fiscal years, (i) a copy
                  of the Consolidated Financials for each of (x) the Lessee, (y)
                  the Guarantor and (z) any other Acceptable Licensed Operator
                  (other than the Current Manager) for the preceding fiscal
                  year, certified and audited (only with respect to the
                  Guarantor) by, and with the unqualified opinion of,
                  independent certified public accountants from a nationally
                  recognized public accounting firm (it being hereby
                  acknowledged that KPMG Peat Marwick is acceptable for this
                  purpose) and certified as true and correct by the Lessee, the
                  Guarantor or the applicable Acceptable Licensed Operator
                  (other than the Current Manager), as the case may be (and,
                  without limiting anything else contained herein, the
                  Consolidated Financials for the Lessee and for any other
                  Acceptable Licensed Operator (other than the Current Manager)
                  shall include a detailed income statement for Leased Property
                  as of the last day of such fiscal year and an unaudited
                  statement of earnings from the Leased Property for such fiscal
                  year showing, among other things, all rents and other income
                  therefrom and all expenses paid or incurred in connection with
                  the operation of the Leased Property); (ii) separate
                  statements, certified as true and correct by the Lessee, the
                  Guarantor and any other Acceptable Licensed Operator (other
                  than the Current Manager), stating whether, to the best of the
                  signer's knowledge and belief after making due inquiry, the
                  Lessee, the Guarantor or such Acceptable Licensed Operator
                  (other than the Current Manager), as the case may be, is in
                  default in the

                                       64
<PAGE>   65
                  performance or observance of any of the terms of this Lease or
                  any of the other Lease Documents and, if so, specifying all
                  such defaults, the nature thereof and the steps being taken to
                  immediately remedy the same; (iii) a copy of all letters from
                  the independent certified accountants engaged to perform the
                  annual audits referred to above, directed to the management of
                  the Lessee, the Guarantor or any other Acceptable Licensed
                  Operator (other than the Current Manager), as the case may be,
                  regarding the existence of any reportable conditions or
                  material weaknesses and (iv) a statement certified as true and
                  correct by the Lessee setting forth any and all Subleases
                  (excluding Resident Agreements) as of the last day of such
                  fiscal year, the respective areas demised thereunder, the
                  names of the Sublessees thereunder, the respective expiration
                  dates of such Subleases, the respective rentals provided for
                  therein, and such other information pertaining to such
                  Subleases as may be reasonably requested by the Lessor and (v)
                  evidence satisfactory to the Lessor that the Lessee has
                  fulfilled its obligation to make the Annual Facility Upgrade
                  Expenditure in accordance with the provisions of Section
                  11.4.11. Notwithstanding any provisions of this Section 11.2.1
                  (a) to the contrary, the Lessee may provide the Lessor with
                  Consolidated Financials covering each of the Lessee, the
                  Guarantor and any other Acceptable Licensed Operator (other
                  than the Current Manager) in accordance with the
                  aforementioned provisions; provided, however, the Lessee shall
                  provide the Lessor with a separate detailed balance sheet and
                  an unaudited statement of earnings for the Leased Property.

          (b) Monthly Statements of Lessee. Within thirty (30) days after the
end of each calendar month during the pendency of this Lease, (i) an unaudited,
detailed month and year to date income and expense statement for the Leased
Property which shall include a comparison to corresponding budget figures,
occupancy statistics (including the actual number of residents, the number of
units available and total patient days for such month) and resident mix
breakdowns (for each resident day during such month classifying residents by the
type of care required and source of payment) and (ii) an express written
calculation showing the compliance or non-compliance, as the case may be, with
the specific financial covenants set forth in Section 11.3 for the applicable
period, including, with respect to the calculation of the Lessee's Rent Coverage
Ratio, a schedule substantially in the form attached hereto as EXHIBIT I (which
calculation with respect to the Lessee's Rent Coverage Ratio shall be provided
only within thirty (30) days after the end of each Fiscal Year).

          (c)      [Intentionally Omitted].

          (d) Quarterly Statements of the Guarantor. Within forty-five (45) days
after the end of each Fiscal Quarter ending March 31, June 30 and September 30
respectively, all 10Q reports required to be filed with the Securities and
Exchange Commission for the Guarantor, certified as true and correct by the
Guarantor.

          (e) Permits and Contracts. Promptly after the issuance or the
execution thereof, as the case may be, true and complete copies of (i) all
Permits which constitute operating licenses for the Facility issued by any
Governmental Authority having jurisdiction over assisted living

                                       65
<PAGE>   66
matters and (ii) Contracts (involving payments in the aggregate in excess of
$100,000 per annum), including, without limitation, all Provider Agreements:

          (f) Contract Notices. Promptly after the receipt thereof, true and
complete copies of any notices, consents, terminations or statements of any kind
or nature relating to any of the Contracts (involving payments in the aggregate
in excess of $100,000 per annum) other than those issued in the ordinary course
of business.

          (g) Permit or Contract Defaults. Promptly after the receipt thereof,
true and complete copies of all surveys, follow-up surveys, licensing surveys,
complaint surveys, examinations, compliance certificates, inspection reports,
statements (other than those statements that are issued in the ordinary course
of business), terminations and notices of any kind (other than those notices
that are furnished in the ordinary course of business) issued or provided to the
Lessee or any other Acceptable Licensed Operator by any Governmental Authority,
Accreditation Body or any Third Party Payor, including, without limitation, any
notices pertaining to any delinquency in, or proposed revision of, the Lessee's
or any Acceptable Licensed Operator's obligations under the terms and conditions
of any Permits or Contracts now or hereafter issued by or entered into with any
Governmental Authority, Accreditation Body or Third Party Payor and the
response(s) thereto made by or on behalf of the Lessee or any Acceptable
Licensed Operator.

          (h) Official Reports. Upon completion or filing thereof, complete
copies of all applications (other than those that are furnished in the ordinary
course of business), notices (other than those that are furnished in the
ordinary course of business), statements, annual reports, cost reports and other
reports or filings of any kind (other than those that are furnished in the
ordinary course of business) provided by the Lessee or any other Acceptable
Licensed Operator to any Governmental Authority, Accreditation Body or any Third
Party Payor with respect to the Leased Property.

          (i) Other Information. With reasonable promptness, such other
information as the Lessor may from time to time reasonably request respecting
(i) the financial condition and affairs of each member of the Leasing Group and
the Leased Property and (ii) the licensing and operation of the Leased Property;
including, without limitation, audited financial statements, certificates and
consents from accountants and all other financial and licensing/operational
information as may be required or requested by any Governmental Authority.

          (j) Default Conditions. As soon as possible, and in any event within
five (5) Business Days after the occurrence of any Lease Default, or any event
or circumstance which, with the giving of notice or the passage of time, or
both, could constitute a Lease Default, a written statement of the Lessee
setting forth the details of such Lease Default, event or circumstance and the
action which the Lessee proposes to take with respect thereto.

          (k) Official Actions. Promptly after the commencement thereof, notice
of all actions, suits and proceedings before any Governmental Authority or
Accreditation Body which could have a material adverse effect on (i) any member
of the Leasing Group to perform any of its obligations under any of the Lease
Documents or (ii) the Leased Property.

                                       66
<PAGE>   67

          (1) Audit Reports. Promptly after receipt, a copy of all audits or
reports submitted to any member of the Leasing Group by any independent public
accountant in connection with any annual, special or interim audits of the books
of any such member of the Leasing Group and, if requested by the Lessor, any
letter of comments directed by such accountant to the management of any such
member of the Leasing Group.

          (m) Adverse Developments. Promptly after the Lessee acquires knowledge
thereof, written notice of

                   (i)   the potential termination of any Permit or Provider
                         Agreement necessary for the operation of the Leased
                         Property;

                   (ii)  any loss, damage or destruction to or of the Leased
                         Property in excess of FIFTY THOUSAND and NO/100 DOLLARS
                         ($50,000.00) occurring within any twelve (12) month
                         period (regardless of whether the same is covered by
                         insurance);

                   (iii) any material controversy involving the Lessee or any
                         other Acceptable Licensed Operator and;

                   (iv)  any controversy that calls into question the
                         eligibility of the Lessee, any other Acceptable
                         Licensed Operator or the Facility for the participation
                         in any Medicaid, Medicare or other Third Party Payor
                         Program;

                   (v)   any refusal of reimbursement by any Third Party Payor
                         which, singularly or together with all other such
                         refusals by any Third Party Payors, could have a
                         material adverse effect on the financial condition of
                         the Lessee or any other Acceptable Licensed Operator;
                         and

                   (vi)  any fact within the special knowledge of any member of
                         the Leasing Group, or any other development in the
                         business or affairs of any member of the Leasing Group,
                         which may be materially adverse to the business,
                         properties, assets or condition, financial or
                         otherwise, of any member of the Leasing Group or the
                         Leased Property.

          (n) Intentionally Omitted.

          (o) Responses To Inspection Reports. Within thirty (30) days after
receipt of an inspection report relating to the Leased Property from the Lessor,
a written response describing in detail prepared plans to address concerns
raised by the inspection report.

          (p) Public Information. Upon the completion or filing, mailing or
other delivery thereof, complete copies of all financial statements, reports,
notices and proxy statements, if any, sent by any member of the Leasing Group
(which is a publicly held corporation) to its shareholders and

                                       67
<PAGE>   68

of all reports, if any, filed by any member of the Leasing Group (which is a
publicly held corporation) with any securities exchange or with the Securities
Exchange Commission.

          (q) Annual Budgets. At least thirty (30) days prior to the end of each
Fiscal Year, the Lessee, any Sublessee and/or any Manager (other than the
Current Manager) shall submit to the Lessor a preliminary annual financial
budget for the Facility for the next Fiscal Year, a preliminary capital
expenditures budget for the Facility for the next Fiscal Year and a report
detailing the capital expenditures made in the then current Fiscal Year and on
or before the end of the first month of each Fiscal Year, the Lessee, any
Sublessee and/or any Manager (other than the Current manager) shall submit to
the Lessor revised finalized versions of such budgets and report.

11.2.2 Responsible Officer. Any certificate, instrument, notice, or other
document to be provided to the Lessor hereunder by any member of the Leasing
Group shall be signed by an executive officer of such member (in the event that
any of the foregoing is not an individual), having a position of Vice President
or higher and with respect to financial matters, any such certificate,
instrument, notice or other document shall be signed by the chief financial
officer of such member.

                  11.2.3 No Material Omission. No certificate, instrument,
         notice or other document, including without limitation, any financial
         statements furnished or to be furnished to the Lessor pursuant to the
         terms hereof or of any of the other Lease Documents shall contain any
         untrue statement of a material fact or shall omit to state any material
         fact necessary in order to prevent all statements contained therein
         from being misleading.

                  11.2.4 Confidentiality. The Lessor shall not disclose any
         information received pursuant to the provisions of the Lease Documents
         to any competitor of the Lessee and shall afford any such information
         the same degree of confidentiality that the Lessor affords similar
         information proprietary to the Lessor; provided. however, that the
         Lessor does not in any way warrant or represent that such information
         received from any member of the Leasing Group shall remain confidential
         (and shall not be liable in any way for any subsequent disclosure of
         such information .by any Person that the Lessor has provided such
         information in accordance with the terms hereof, including, without
         limitation, a disclosure by such Person to any competitor of the
         Lessee) and provided, further, that the Lessor shall have the
         unconditional right to (a) disclose any such information as the Lessor
         deems necessary or appropriate in connection with any sale, transfer,
         conveyance, participation or assignment of the Leased Property or any
         of the Lease Documents or any interest therein and (b) use such
         information in any litigation or arbitration proceeding between the
         Lessor and any member of the Leasing Group. Without limiting the
         foregoing, the Lessor may also utilize any information furnished to it
         hereunder as and to the extent (i) counsel to the Lessor determines
         that such utilization is necessary pursuant to 15 U.S.C. 77a-77aa or 15
         U.S.C. 78a-78jj and the rules and regulations promulgated thereunder,
         (ii) the Lessor is required or requested by any Governmental Authority
         to disclose any such information and/or (iii) the Lessor is requested
         to disclose any such

                                       68
<PAGE>   69
         information by any of the Meditrust Entities' lenders or potential
         lenders. The Lessor shall not be liable in any way for any subsequent
         disclosure of such information by any Person to whom the Lessor
         provided such information in accordance with the terms hereof.
         Nevertheless, in connection with any such disclosure, the Lessor shall
         inform the recipient of any such information of the confidential nature
         thereof. The Lessor shall observe any prohibitions or limitations on
         the disclosure of any such information under applicable confidentiality
         law or regulations, to the extent that the same are applicable to such
         information, including, without limitation, any duly enacted "Patients'
         Bill of Rights" or similar legislation, including such limitations as
         may be necessary to preserve the confidentiality of the
         facility-patient relationship and the physician-patient privilege.

         11.3 Financial Covenants. The Lessee covenants and agrees that,
throughout the Term and as long as the Lessee is in possession of the Leased
Property:

                  11.3.1      Rent Coverage Ratio. The Lessee shall comply with
         the provisions of the Agreement Regarding Related Lease Transactions
         pertaining to Rent Coverage Ratio.

          11.3.2      [Intentionally Omitted.

          11.3.3      [Intentionally Omitted].

          11.3.4      [Intentionally Omitted.

          11.3.5 Current Ratio - Guarantor. The Guarantor shall achieve, as of
December 31, 1997, a ratio of Consolidated Current Assets to Consolidated
Current Liabilities equal to or greater than 0.5 to 1 and, as of December 31 of
each year thereafter during the Term, a ratio of Consolidated Current Assets to
Consolidated Current Liabilities equal to or greater than 1.0 to 1; provided
however that if a Permitted Transaction (as defined in Section 16.1(h)(vi))
occurs, or if increased ratios are triggered by a Permitted Merger pursuant to
Section 16.1(i), then such ratios shall increase to 1.0 to 1.0 and 1.2 to 1.0,
respectively.

          11.3.6 Net Worth of Guarantor After a Permitted Transaction or
Permitted Merger. From and after the occurrence of a Permitted Transaction or if
triggered by a Permitted Merger pursuant to Section 16.1(i), the Guarantor shall
maintain a "Net Worth" (determined in accordance with GAAP) of not less than
FIFTY FIVE MILLION DOLLARS ($55,000,000.00).

          11.3.7 Tangible Net Worth - Guarantor. The Guarantor shall maintain,
at all times, a Tangible Net Worth of not less than FORTY MILLION AND NO/100
DOLLARS ($40,000,000.00).

          11.3.8 No Indebtedness. The Lessee shall not create, incur, assume or
suffer to exist any liability for borrowed money except (i) Indebtedness to the
Lessor under the Lease Documents and, (ii) Impositions allowed pursuant to the
provisions of the Lease, (iii) unsecured normal trade debt incurred upon
customary terms in the ordinary course of business, (iv) Indebtedness created in
connection with any financing of any Capital Addition, provided, that each such
financing has

                                       69
<PAGE>   70
been approved by the Lessor in accordance with the terms of Article 9 hereof,
(v) Indebtedness to any Affiliate, provided, that, such Indebtedness is fully
subordinated to the Lease Obligations pursuant to the Affiliated Party
Subordination Agreement, (vi) other Indebtedness of the Lessee in the aggregate
amount not to exceed TWO HUNDRED THOUSAND and NO/100 DOLLARS ($200,000.00)
incurred, for the exclusive use of the Leased Property, on account of purchase
money indebtedness or finance lease arrangements, each of which shall not exceed
the fair market value of the assets or property acquired or leased and shall not
extend to any assets or property other than those purchased or leased, (vii)
purchase money security interests in equipment and equipment leases which comply
with the provisions of Section 6.1.2 and (viii) the Bond-Related Obligations.

         11.3.9 No Guaranties. The Lessee shall not assume, guarantee, endorse,
contingently agree to purchase or otherwise become directly or contingently
liable (including, without limitation, liable by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise to invest in any debtor or otherwise to assure any creditor against
loss) in connection with any Indebtedness of any other Person, except by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business.

         11.4 Affirmative Covenants. The Lessee covenants and agrees that
throughout the Term and any periods thereafter that the Lessee remains in
possession of the Leased Property:

                  11.4.1 Maintenance of Existence. If the Lessee is a
         corporation, trust or partnership, during the entire time that this
         Lease remains in full force and effect, the Lessee shall keep in effect
         its existence and rights as a corporation, trust or partnership under
         the laws of the state of its incorporation or formation and its right
         to own property and transact business in the State.

                  11.4.2 Materials. Except as provided in Section 6.1.2, the
         Lessee shall not suffer the use in connection with any renovations or
         other construction relating to the Leased Property of any materials,
         fixtures or equipment intended to become part of the Leased Property
         which are purchased upon lease or conditional bill of sale or to which
         the Lessee does not have absolute and unencumbered title, and the
         Lessee covenants to cause to be paid punctually all sums becoming due
         for labor, materials, fixtures or equipment used or purchased in
         connection with any such renovations or construction, subject to the
         Lessee's right to contest to the extent provided for in Article 15.

                  11.4.3 Compliance With Legal Requirements And Applicable
         Agreements. The Lessee and the Leased Property and all uses thereof
         shall comply with (i) all Legal Requirements, (ii) all Permits and
         Contracts, (iii) all Insurance Requirements, (iv) the Lease Documents,
         (v) the Permitted Encumbrances and (vi) the Appurtenant Agreements.

                  11.4.4 Books And Records. The Lessee shall cause to be kept
         and maintained, and shall permit the Lessor and its representatives to
         inspect at ,all reasonable times, accurate books of accounts in which
         complete entries will be made in accordance with

                                       70
<PAGE>   71

         GAAP reflecting all financial transactions of the Lessee (showing, at a
         minimum, all income and expenses of the Leased Property as a
         discernible component of such books of account).

                   11.4.5 Participation in Third Party Payor Programs. The
          Lessee and any other Acceptable Licensed Operator shall participate in
          all Third Party Payor Programs (which would be participated in by a
          prudent operator in the good faith exercise of commercially reasonable
          business judgment), in accordance with all requirements thereof
          (including, without limitation, all applicable Provider Agreements),
          and shall remain eligible to participate in such Third Party Payor
          Programs, all as shall be necessary for the prudent operation of the
          Facility in the good faith exercise of commercially reasonable
          business judgment.

         11.4.6 Conduct of its Business. The Lessee will maintain, and cause any
Sublessee and any Manager to maintain, experienced and competent professional
management with respect to its business and with respect to the Leased Property.
The Lessor agrees that management by the executive officers listed on EXHIBIT J
attached hereto is satisfactory for the purposes of this provision. The Lessee,
any Sublessee and any Manager shall conduct, in the ordinary course, the
operation of the Facility, and the Lessee and any other Acceptable Licensed
Operator (other than the Guarantor, if applicable, or the Current Manager) shall
not enter into any other business or venture during the Term or such time as the
Lessee or any other Acceptable Licensed Operator (other than the Current
Manager) is in possession of the Leased Property, other than the development,
ownership and/or operation of any other health care facility owned or financed
by any Meditrust Entity.

         11.4.7 Address. The Lessee shall provide the Lessor thirty (30) days'
prior written notice of any change of its Principal Place of Business from. its
current Principal Place of Business. The Lessee shall maintain the Collateral,
including without limitation, all books and records relating to its business,
solely at its Principal Place of Business and at the Leased Property. The Lessee
shall not remove the Collateral, including, without limitation, any books or
records relating to the Lessee's business from either the Leased Property or the
Lessee's Principal Place of Business.

         11.4.8 Subordination of Affiliate Transactions. Without limiting the
provisions of any other Section of this Lease or the Affiliated Party
Subordination Agreement, any payments to be made by the Lessee to (a) any member
of the Leasing Group (or any Affiliate of any member of the Leasing Group) or
(b) any Affiliate of the Lessee, in connection with any transaction between the
Lessee and such Person, including, without limitation, the purchase, sale or
exchange of any property, the rendering of any service to or with any such
Person (including, without limitation, all allocations of any so-called
corporate or central office costs, expenses and charges of any kind or nature)
or the making of any loan or other extension of credit or the making of any
equity investment, shall be subordinate to the complete payment and performance
of the Lease Obligations; provided. however, that all such subordinated payments
may be paid at any time unless: (x) after giving effect to such payment, the
Lessee shall be unable to comply with any of its obligations under any of the
Lease Documents or (y) a Lease Default has occurred and is continuing and has
not been expressly waived in writing by the Lessor or an event or state of

                                       71
<PAGE>   72
facts exists, which, with the giving of notice or the passage of time, or both,
would constitute a Lease Default.

         11.4.9 Inspection. At reasonable times and upon reasonable notice, the
Lessee shall permit (and shall cause arty other Acceptable Licensed Operator to
permit) the Lessor and its authorized representatives (including, without
limitation, the Consultants) to inspect the Leased Property as provided in
Section 7.1 above.

         11.4.10 Additional Property. In the event that at any time during the
Term, the Lessee holds the fee title to or a leasehold interest in (a) any
personal property which was purchased or financed by a Meditrust Entity or which
replaces any personal property purchased or financed by a Meditrust Entity or
which is a Fixture or (b) any real property and such real or personal property
is used as an integral part of the operation of the Leased Property (but is not
subject to this Lease), the Lessee shall (i) provide the Lessor with prior
notice of such acquisition and (ii) shall take such actions and enter into such
agreements as the Lessor shall reasonably request in order to grant the Lessor a
first priority mortgage or other security interest in such real property and
personal property, subject only to the Permitted Encumbrances and other Liens
reasonably acceptable to the Lessor.

         11.4.11 Acceptable Licensed Operator. In the event that the Lessee
proposes that any other Acceptable Licensed Operator become the licensed
operator of the Facility, the Lessee shall so advise the Lessor and, subject to
the Lessor's review and approval of any applicable Sublease or Management
Agreement (pursuant to which the proposed Acceptable Licensed Operator shall
operate the Facility), the Lessor shall consent to such operation of the
Facility by the proposed Acceptable Licensed Operator, as long as, prior to or
contemporaneously with the commencement of the operation of the Facility by such
proposed Acceptable Licensed Operator and without limiting any other terms and
conditions of the Lease Documents, the Lessor receives (a) such evidence as the
Lessor may request evidencing that the proposed Acceptable Licensed Operator has
received all Permits necessary for the operation of the Facility in accordance
with its Primary Intended Use, (b) such documents executed by the proposed
Acceptable Licensed Operator as the Lessor may request to maintain and protect
the Lessor's security for the Lease Obligations (including, without limitation,
documents in form and substance substantially similar to the Permits Assignment
and Security Agreement), (c) a copy of the proposed Acceptable Licensed
Operator's articles of incorporation as certified by the Secretary of State of
the state of its incorporation, (d) a certificate of the Secretary of State of
the state of incorporation of the proposed Acceptable Licensed Operator to the
effect that the proposed Acceptable Licensed Operator is in legal existence and
good standing on the records of such Secretary of State as of the date of such
Certificate, (e) a copy of the bylaws of the proposed Acceptable Licensed
Operator as certified by the Secretary of the proposed Acceptable Licensed
Operator, (t) resolutions certified by the Secretary of the proposed Acceptable
Licensed Operator evidencing the execution and delivery of the documents
required under this Section 11.4.11 by the Lessor and (g;) if requested by the
Lessor, a due authorization and enforceability opinion, addressed to the Lessor,
in form and substance reasonably acceptable to the Lessor, rendered by counsel
to the Lessee and the proposed Acceptable Licensed Operator, opining as to the
due authorization, execution, delivery and enforceability of the documents
required under this Section 11.4.11 by

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<PAGE>   73
the Lessor.

                   11.4.12 [Intentionally Omitted.

         11.5 Additional Negative Covenants. The Lessee covenants and agrees
that, throughout the Term and such time as the Lessee remains in possession of
the Leased Property:

                  11.5.1 Restrictions Relating to Lessee. Except as may
         otherwise be expressly provided in any of the other Lease Documents,
         the Lessee shall not, without the prior written consent of the Lessor,
         in each instance, which consent may be; withheld in the sole and
         absolute discretion of the Lessor:

                           (a)     convey, assign, hypothecate, transfer,
                  dispose of or encumber, or permit the conveyance, assignment,
                  transfer, hypothecation, disposal or encumbrance of all or any
                  part of any legal or beneficial interest in this Lease, its
                  other assets or the Leased Property; provided, however, that
                  this restriction shall not apply to (i) the Permitted
                  Encumbrances that may be created after the date hereof
                  pursuant to the Lease Documents; (ii) Liens created in
                  accordance with the applicable provisions of Section 6.1.2
                  against Tangible Personal Property securing Indebtedness
                  permitted under Section 11.3.8(vi) relating to equipment
                  leasing or financing for the exclusive use of the Leased
                  Property; (iii) the sale, conveyance, assignment,
                  hypothecation, lease or other transfer of any material asset
                  or assets (whether now owned or hereafter acquired), the fair
                  market value of which equals or is less than TWENTY-FIVE
                  THOUSAND and NO/100 DOLLARS ($25,000.00), individually, or ONE
                  HUNDRED THOUSAND and NO/100 DOLLARS ($100,000.00)
                  collectively; (iv) without limitation as to amount, the
                  disposition in the ordinary course of business of any
                  obsolete, worn out or defective fixtures, furnishings or
                  equipment used in the operation of the Leased Property
                  provided that the same are replaced with fixtures, furnishings
                  or equipment of equal or greater utility or value or the
                  Lessee provides the Lessor with an explanation (reasonably
                  satisfactory to the Lessor) as to why such fixtures,
                  furnishings or equipment is no longer required in connection
                  with the operation of the Leased Property; (v) without
                  limitation as to amount, any sale of inventory by the Lessee
                  in the ordinary course of business; (vi) agreements entered
                  into with utility companies creating easements in favor of
                  such companies as are required to service the Facility,
                  provided, however, the term of any such. agreement shall not
                  extend beyond the Term and shall be in form reasonably
                  acceptable to the Lessor; and (vii) subject to the terms of
                  the Pledge Agreement and the Affiliated Party Subordination
                  Agreement, distributions to the shareholders of the Lessee;

                           (b)     permit the use of the Facility for any
                  purpose other than the Primary Intended Use and the Other
                  Permitted Uses;

                           (c)     subject to the terms of Section 11.4.11,
                  permit any Person other than the Lessee to be the Licensed
                  Operator of the Facility; or

                                       73
<PAGE>   74
                           (d)     liquidate, dissolve or merge or consolidate
                  with any other Person.

          11.5.2 No Liens. The Lessee will not directly or indirectly create or
allow to remain and will promptly discharge at its expense any Lien; title
retention agreement or claim upon or against the Leased Property (including the
Lessee's interest therein) or the Lessee's interest in this Lease or any of the
other Lease Documents, or in respect of the Rent, excluding (a) this Lease and
any permitted Subleases, (b) the Permitted Encumbrances, (c) Liens which are
consented to in writing by the Lessor, (d) Liens for those taxes of the Lessor
which the Lessee is not required to pay hereunder, (e) Liens of mechanics,
laborers, materialmen, suppliers or vendors for sums either not yet due or being
contested in strict compliance with the terms and conditions of Article 15, (f)
any Liens which are the responsibility of the Lessor pursuant to the provisions
of Article 20, (g) Liens for Impositions which are either not yet due and
payable or which are in the process of being contested in strict compliance with
the terms and conditions of Article 15 and (h) involuntary Liens caused by the
actions or omissions of the Lessor.

          11.5.3 Limits on Affiliate Transactions. The Lessee shall not enter
into any transaction with any Affiliate, including, without limitation, the
purchase, sale or exchange of any property, the rendering of any service to or
with any Affiliate and the making of any loan or other extension of credit,
except in the ordinary course of, and pursuant to the reasonable requirements
of, the Lessee's business and upon fair and reasonable terms no less favorable
to the Lessee than would be obtained in a comparable arms'-length transaction
with any Person that is not an Affiliate.

          11.5.4 Non-Competition. The Lessee acknowledges that upon and after
any termination of this Lease, any competition by any member of the Leasing
Group with any subsequent owner or subsequent lessee of the Leased Property (the
"Purchaser") would cause irreparable harm to the Lessor and any such Purchaser.
To induce the Lessor to enter into this Lease, the Lessee agrees that, from and
after the end of the seventh (7th) Lease Year and thereafter until the later of
(a) the expiration of this Lease or (b) the fifth (5th) anniversary of the
termination of this Lease on account of a Lease Default, without the prior
written consent of the Lessor (which consent shall not be unreasonably withheld
or delayed), no member of the Leasing Group nor any Subsidiary of any member of
the Leasing Group (collectively, the "Limited Parties") shall be involved in any
capacity in or lend any of their names to or engage in any capacity in any
assisted living facility (or other facility operated for any use included within
the definition of the Primary Intended Use), center, unit or program (or in any
Person engaged in any such activity or any related activity competitive
therewith), excluding however any of the facilities described on Schedule 11.5
attached hereto (collectively, the "Excluded Facilities"), whether such
competitive activity (the "Competitive Activity") shall be as an officer,
director, owner, employee, agent, advisor, independent contractor, developer,
lender, sponsor, venture capitalist, administrator, manager, investor, partner,
joint venturer, consultant or other participant in any capacity whatsoever with
respect to an assisted living facility (or other facility operated for any use
included within the definition of Primary Intended Use), center, unit or program
located within a seven (7) mile radius of the Leased Property.

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<PAGE>   75
         The Lessee hereby acknowledges and agrees that none of the time span,
scope or area covered by the foregoing restrictive covenants is or are
unreasonable and that it is the specific intent of the Lessee that each and all
of the restrictive covenants set forth hereinabove shall be valid and
enforceable as specifically set forth herein. The Lessee further agrees that
these restrictions are special, unique, extraordinary and reasonably necessary
for the protection of the Lessor and any Purchaser and that the violation of any
such covenant by any of the Limited Parties would cause irreparable damage to
the Lessor and any Purchaser for which a legal remedy alone would not be
sufficient to fully protect such parties.

         Therefore, in addition to and without limiting any other remedies
available at law or hereunder, in the event that any of the Limited Parties
breaches any of the restrictive covenants hereunder or shall threaten breach of
any of such covenants, then the Lessor and any Purchaser shall be entitled to
obtain equitable remedies, including specific performance and injunctive relief,
to prevent or otherwise restrain a breach of this Section 11.5.4 (without the
necessity of posting a bond) and, unless the Lessee prevails, to recover any and
all costs and expenses (including, without limitation, attorneys' fees and
expenses and court costs) reasonably incurred in enforcing the provisions of
this Section 11.5.4. The existence of any claim or cause of action of any of the
Limited Parties or any member of the Leasing Group against the Lessor or any
Purchaser, whether predicated on this Lease or otherwise, shall not constitute a
defense to the enforcement by the Lessor or any Purchaser of the foregoing
restrictive covenants and the Limited Parties shall not defend on the basis that
there is an adequate remedy at law.

         Without limiting any other provision of this Lease, the parties hereto
acknowledge that the foregoing restrictive covenants are severable and separate.
If at any time any of the foregoing restrictive covenants shall be deemed
invalid or unenforceable by a court having jurisdiction over this Lease, by
reason of being vague or unreasonable as to duration, or geographic scope or
scope of activities restricted, or for any other reason, such covenants shall be
considered divisible as to such portion and such covenants shall be immediately
amended and reformed to include only such covenants as are deemed reasonable and
enforceable by the court having jurisdiction over this Lease to the full
duration, geographic scope and scope of restrictive activities deemed reasonable
and thus enforceable by said court; and the parties agree that such covenants as
so amended and reformed, shall be valid and binding as through the invalid or
unenforceable portion has not been included therein.

         The provisions of this Section 11.5.4 shall survive the termination of
the Lease and any satisfaction of the Lease Obligations in connection therewith
or subsequent thereto. The parties hereto acknowledge and agree that any
Purchaser may enforce the provisions of this Section 11.5.4 as a third party
beneficiary.

         11.5.5 No Default. The Lessee shall not commit any default or breach
under any of the Lease Documents.

         11.5.6 Restrictions Relating to the Guarantor. If, at any time during
the Term, the Tangible Net Worth of the Guarantor is less than FORTY MILLION AND
NO/100 ($40,000,000.00), the Guarantor shall not, without the prior written
consent of the Lessor, in each

                                       75
<PAGE>   76
instance, which consent may be withheld in the sole and absolute discretion of
the Lessor, convey, assign, donate, sell, mortgage or pledge any real or
personal property or take any other action which would have a materially adverse
effect upon the Tangible Net Worth or general financial condition of the
Guarantor.

                  11.5.7 [Intentionally Omitted].

         11.5.8 ERISA. The Lessee shall not establish or permit any Sublessee to
establish any new pension or defined benefit plan or modify any such existing
plan for employees subject to ERISA, which plan provides any benefits based on
past service without the advance consent of the Lessor to the amount of the
aggregate past service liability thereby created, which consent shall not be
unreasonably withheld.

         11.5.9 Forgiveness of Indebtedness. The Lessee will not waive, or
permit any Sublessee or Manager which is an Affiliate of the Lessee or the
Guarantor to waive any debt or claim, except in the ordinary course of its
business.

         11.5.10 Value of Assets. Except as disclosed in the financial
statements provided to the Lessor as of the date hereof, the Lessee will not
write up (by creating an appraisal surplus or otherwise) the value of any assets
of the Lessee above their cost to the Lessee, less the depreciation regularly
allowable thereon, unless the same is allowed to be done by GAAP in the normal
course of business.

         11.5.11 Changes in Fiscal Year and Accounting Procedures. The Lessee
may (a) change its fiscal year or capital structure or (b) change, alter, amend
or modify, but only in accordance with GAAP, any of its current accounting
procedures related to the method of revenue recognition, billing procedures or
determinations of doubtful accounts or bad debt expenses or (c) permit any of
its Subsidiaries to change its fiscal year provided that (i) the Lessee shall
have notified the Lessor of any such change not less than thirty (30) days prior
to the proposed effective date of such change and shall have promptly furnished
to the Lessor all such financial information as the Lessor may have reasonably
requested in order to determine the impact of such change on the Lessee's
financial statements, (ii) no such change shall be permitted if its effect would
be to enable the Lessee to satisfy any covenant contained in this Lease which,
absent such change, would not have been satisfied and (iii) the Lessee shall
have entered into any amendment to this Lease which the Lessor shall have
reasonably requested in order to maintain the intended effect of the covenants
contained in this Lease.

          11.5.12      [Intentionally Omitted].

                                   ARTICLE 12

                             INSURANCE AND INDEMNITY

         12.1 General Insurance Requirements. During the Term of this Lease and
thereafter until the Lessee surrenders the Leased Property in the manner
required by this Lease, the Lessee shall

                                       76
<PAGE>   77
at its sole cost and expense keep the Leased Property and the Tangible Personal
Property located thereon and the business operations conducted on the Leased
Property insured as set forth below.

                  12.1.1 Types and Amounts of Insurance. The Lessee's insurance
         shall include the following:

                         (a) property loss and physical damage insurance; on an
                  all-risk basis (with only such exceptions as the Lessor may in
                  its reasonable discretion approve) covering the Leased
                  Property (exclusive of Land) for its full replacement cost,
                  which cost shall be reset once a year at the Lessor's option,
                  with an agreed-amount endorsement and a deductible not in
                  excess of FIFTY THOUSAND and NO/100 DOLLARS ($50,000.00). Such
                  insurance shall include, without limitation, the following
                  coverages: (i) increased cost of construction, (ii) cost of
                  demolition, (iii) the value of the undamaged portion of the
                  Facility and (iv) contingent liability from the operation of
                  building laws, less, exclusions provided in the normal "All
                  Risk" insurance policy. During any period of construction,
                  such insurance shall be on a builder's-risk, completed value,
                  non-reporting form with permission to occupy;

                         (b) flood insurance (if the Leased Property or any
                  portion thereof is situated in an area which is considered a
                  flood risk area by the U.S. Department of Housing and Urban
                  Development or any other Governmental Authority that may in
                  the future have jurisdiction over flood risk analysis) in
                  limits acceptable to the Lessor;

                         (c) boiler and machinery insurance (including related
                  electrical apparatus and components) under a standard
                  comprehensive form, providing coverage against loss or damage
                  caused by explosion of steam boilers, pressure vessels or
                  similar vessels, now or hereafter installed on the Leased
                  Property, in limits acceptable to the Lessor;

                         (d) earthquake insurance (if deemed necessary by the
                  Lessor) in limits and with deductibles acceptable to the
                  Lessor;

                         (e) business interruption and/or rent loss insurance in
                  an amount equal to the annual Base Rent and Additional Rent
                  due hereunder plus the aggregate sum of the Impositions
                  relating to the Leased Property due and payable during one
                  year;

                         (f) comprehensive general public liability insurance
                  including coverages commonly found in the Broad Form
                  Commercial Liability Endorsements with amounts not less than
                  FIVE MILLION and NO/100 DOLLARS ($5,000,000.00) per occurrence
                  with respect to bodily injury and death and THREE MILLION and
                  NO/100 DOLLARS ($3,000,000.00) for property damage and with
                  all limits based solely upon occurrences at the Leased

                                       77
<PAGE>   78
                  Property without any other impairment;

                         (g) professional liability insurance in an amount not
                  less than TEN MILLION and NO/100 DOLLARS ($10,000,000.00) for
                  each medical incident;

                         (h) physical damage insurance on an all-risk basis
                  (with only such exceptions as the Lessor in its reasonable
                  discretion shall approve) covering the Tangible Personal
                  Property for the full replacement cost thereof and with a
                  deductible not in excess of one percent (1%) of the full
                  replacement cost thereof;

                         (i) Workers' Compensation and Employers' Liability
                  Insurance providing protection against all claims arising out
                  of injuries to all employees of the Lessee or of any Sublessee
                  (employed on the Leased Property or any portion thereof) in
                  amounts equal for Workers' Compensation, to the statutory
                  benefits payable to employees in the State and for Employers'
                  Liability, to limits of not less than ONE HUNDRED THOUSAND and
                  NO/100 DOLLARS ($100,000.00) for injury by accident, ONE
                  HUNDRED THOUSAND and 1140/100 DOLLARS ($100,000.00) per
                  employee for disease, and FIVE HUNDRED THOUSAND and NO/100
                  DOLLARS ($500,000.00) disease policy limit;

                         (j) subsidence insurance (if deemed necessary by the
                  Lessor) in limits acceptable to the Lessor; and

                         (k) such other insurance as the Lessor from time to
                  time may reasonably require and also, as may from time to time
                  be required by applicable Legal Requirements and/or by any Fee
                  Mortgagee (other than a Meditrust Entity); provided, however,
                  that the cost of any additional insurance required by any Fee
                  Mortgagee shall be borne by the Lessor.

         12.1.2 Insurance Company Requirements. All such insurance required by
this Lease or the other Lease Documents shall be issued and underwritten by
insurance companies licensed to do insurance business by, and in good standing
under the laws of, the State and which companies have and maintain a rating of
A- or better by A.M. Best Co.

         12.1.3 Policy Requirements. Every policy of insurance from time to time
required under this Lease or any of the other Lease Documents (other than
worker's compensation) shall name the Lessor as owner, loss payee, secured party
(to the extent applicable) and an additional named insured as its interests may
appear. To the extent appropriate, the same policies may be used to insure the
Lessee's various interests in the Leased Property and to provide liability
coverage to the Lessee as long as combining the interests of the Lessor and the
Lessee in a single policy in no way impairs or diminishes the Lessor's rights in
such policies. If an insurance policy covers properties other than the Leased
Property, then the Lessor shall be so named with respect only to the Leased
Property. Each such policy, where applicable or appropriate, shall:

                (a) include an agreed amount endorsement and loss payee,
         additional named

                                       78
<PAGE>   79

         insured and secured party endorsements, in forms acceptable to the
         Lessor in its sole and absolute discretion;

                  (b) include mortgagee, secured party, loss payable and
         additional named insured endorsements reasonably acceptable to each Fee
         Mortgagee; provided, however, that the cost of any additional insurance
         required by any Fee Mortgagee shall be borne by the Lessor.

                  (c) provide that the coverages may not be cancelled or
         materially modified except upon thirty (30) days' prior written notice
         to the Lessor and any Fee Mortgagee;

                  (d) be payable to the Lessor and any Fee Mortgagee
         notwithstanding any defense or claim that the insurer may have to the
         payment of the same against any other Person holding any other interest
         in the Leased Property;

                  (e) be endorsed with standard noncontributory clauses in favor
         of and in form reasonably acceptable to the Lessor and any Fee
         Mortgagee; provided, however, that the cost of any additional insurance
         required by any Fee Mortgagee shall be borne by the Lessor.

                  (t) expressly waive any right of subrogation on the part of
         the insurer against the Lessor, any Fee Mortgagee or the Leasing Group;
         and

                  (g) otherwise be in such forms as shall be reasonably
         acceptable to the Lessor.

         12.1.4 Notices: Certificates and Policies. The Lessee shall promptly
provide to the Lessor copies of any and all notices (including notice of
non-renewal), claims and demands which the Lessee receives from insurers of the
Leased Property. At least ten (10) days prior to the expiration of any insurance
policy required hereunder, the Lessee shall deliver to the Lessor certificates
and evidence of insurance relating to all renewals and replacements thereof,
together with evidence, satisfactory to the Lessor, of payment of the premiums
thereon. The Lessee shall deliver to the Lessor original counterparts or copies
certified by the insurance company to be true and complete copies, of all
insurance policies required hereunder not later than the earlier to occur of (a)
ninety (90) days after the effective date of each such policy and (b) ten (10)
days after receipt thereof by the Lessee.

         12.1.5 Lessor's Right to Place Insurance. If the Lessee shall fail to
obtain any insurance policy required hereunder by the Lessor, or shall fail to
deliver the certificate and evidence of insurance relating to any such policy to
the Lessor, or if any insurance policy required hereunder (or any part thereof)
shall expire or be cancelled or become void or voidable by reason of any breach
of any condition thereof, or if the Lessor determines that such insurance
coverage is unsatisfactory by reason of the failure or impairment of the capital
of any insurance company which wrote any such policy, upon demand by the Lessor,
the Lessee shall promptly obtain new or additional insurance coverage on the
Leased Property, or for those risks required to be insured

                                       79
<PAGE>   80
by the provisions hereof, satisfactory to the Lessor, and, at its option, if the
Lessee fails to obtain any insurance coverage required under this Lease or after
demand by the Lessor, the Lessor may obtain such insurance and pay the -premium
or premiums therefor; in which event, any amount so paid or advanced by the
Lessor and all costs and expenses incurred in connection therewith (including,
without limitation, attorneys' fees and expenses and court costs), shall be a
demand obligation of the Lessee to the Lessor, payable as an Additional Charge.

         12.1.6 Payment of Proceeds. All insurance policies required hereunder
(except for general public liability, professional liability and workers'
compensation and employers liability insurance) shall provide that, in the event
of loss, injury or damage, all proceeds shall be paid to the Lessor alone
(rather than jointly to the Lessee and the Lessor). The Lessor is hereby
authorized to adjust and compromise any such loss with the consent of the Lessee
or, following any Lease Default, if not cured, without the consent of the
Lessee, and to collect and receive such proceeds in the name of the Lessor and
the Lessee, and the Lessee appoints the Lessor (or any agent designated by the
Lessor) as the Lessee's attorney-in-fact with full power of substitution, to
endorse the Lessee's name upon any check in payment thereof. Subject to the
provisions of Article 13, such insurance proceeds shall be applied first toward
reimbursement of all costs and expenses reasonably incurred by the Lessor in
collecting said insurance proceeds, then toward payment of the Lease Obligations
or any portion thereof, then due and payable, in such order as the. Lessor
determines, and then in whole or in part toward restoration, repair or
reconstruction of the Leased Property for which such insurance proceeds shall
have been paid.

         12.1.7 Irrevocable Power of Attorney. The power of attorney conferred
on the Lessor pursuant to the provisions of this Section 12.1, being coupled
with an interest, shall be irrevocable for as long as this Lease is in effect or
any Lease Obligations are outstanding, shall not be affected by any disability
or incapacity which the Lessee may suffer and shall survive the same. Such power
of attorney is provided solely to protect the interests of the Lessor and shall
not impose any duty on the Lessor to exercise any such power, and neither the
Lessor nor such attorney-in-fact shall be liable for any act, omission, error in
judgment or mistake of law, except as the same may result from its gross
negligence or wilful misconduct.

         12:1.8 Blanket Policies. Notwithstanding anything to the contrary
contained herein, the Lessee's obligations to carry the insurance provided for
herein may be brought within the coverage of a so-called blanket policy or
policies of insurance carried and maintained by the Lessee and its Affiliates;
provided, however. that the coverage afforded to the Lessor shall not be reduced
or diminished or otherwise be different from that which would exist under a
separate policy meeting all other requirements of this Lease by reason of the
use of such blanket policy of insurance, and provided, further that the
requirements of this Section 12.1 are otherwise satisfied.

         12.1.9 No Separate Insurance. The Lessee shall not, on the Lessee's own
initiative or pursuant to the request or requirement of any other Person, take
out separate insurance concurrent in form or contributing in the event of loss
with the insurance required hereunder to be furnished by the Lessee, or increase
the amounts of any then existing insurance by securing an additional policy or
additional policies, unless (a) all parties having an insurable interest in the
subject matter of the insurance, including the Lessor, arc included therein as
additional insureds

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<PAGE>   81
and (b) losses are payable under said insurance in the same manner as losses are
required to be payable under this Lease. The Lessee shall immediately notify the
Lessor of the taking out of any such separate insurance or of the increasing of
any of the amounts of the then existing insurance by securing an additional
insurance policy or policies.

         12.1.10 Assignment of Unearned Premiums. The Lessee hereby assigns to
the Lessor all rights of the Lessee in and to any unearned premiums on any
insurance policy required hereunder to be furnished by the Lessee which may
become payable or are refundable after the occurrence of an Event of Default
hereunder. In the event that this Lease is terminated for any reason (other than
the purchase of the Leased Property by the Lessee), the insurance policies
required to be maintained hereunder, including all right, title and interest of
the Lessee thereunder, shall become the absolute property of the Lessor.

         In the event that this Lease is terminated for any reason (other than
the purchase of the Leased Property by the Lessee), the insurance policies
required to be maintained hereunder, excluding Workers' Compensation and
Employers Liability Insurance, shall continue to be maintained for a period of
fifteen (15) days following such termination; provided, however, that the Lessee
shall not be obligated to maintain commercial general liability and professional
liability insurance for such fifteen (15) day period to the extent that any such
insurance is unavailable from the then current insurer as a result of any such
termination. The provisions of this Section 12.1.10 shall survive any
termination of this Lease.

12.2 Indemnity.

         12.2.1 Indemnification. Except with respect to the gross negligence or
wilful misconduct of the Lessor or any of the other Indemnified Parties, as to
which no indemnity is provided, the Lessee hereby agrees to defend with counsel
acceptable to the Lessor, indemnify and hold harmless the Lessor and each of the
other Indemnified Parties from and against all damages, losses, claims,
liabilities, obligations, penalties, causes of action, costs and expenses
(including, without limitation, attorneys' fees, court costs and other expenses
of litigation) suffered by, or claimed or asserted against, the Lessor or any of
the other Indemnified Parties, directly or indirectly, based on, arising out of
or resulting from (a) the use and occupancy of the Leased Property or any
business conducted therein, (b) any act, fault, omission to act or misconduct by
(i) any member of the Leasing Group, (ii) any Affiliate of the Lessee or (iii)
any employee, agent, licensee, business invitee, guest, customer, contractor or
sublessee of any of the foregoing parties, relating to, directly or indirectly,
the Leased Property, (c) any accident, injury or damage whatsoever caused to any
Person, including, without limitation, any claim of malpractice, or to the
property of any Person in or about the Leased Property or outside of the Leased
Property where such accident, injury or damage results or is claimed to have
resulted from any act, fault, omission to act or misconduct by any member of the
Leasing Group or any Affiliate of the Lessee or any employee, agent, licensee,
contractor or sublessee of any of the foregoing parties, (d) any Lease Default,
(e) any claim brought or threatened against any of the Indemnified Parties by
any member of the Leasing Group (unless such member of the Leasing Group
prevails in such claim against one of the Indemnified Parties) or by any other
Person on account of (i) the Lessor's relationship with any member of the
Leasing Group pertaining in any way to the Leased

                                       81
<PAGE>   82
Property and/or the transaction evidenced by the Lease Documents and/or (ii) the
Lessor's negotiation of, entering into and/or performing any of its obligations
and/or exercising any of its right and remedies under any of the Lease
Documents, (f) any attempt by any member of the Leasing Group or any Affiliate
of the Lessee to transfer or relocate any of the Permits to any location other
than the Leased Property and/or (g) the enforcement of this indemnity. Any
amounts which become payable by the Lessee under this Section 12.2.1 shall be a
demand obligation of the Lessee to the Lessor, payable as an Additional Charge.
The indemnity provided for in this Section 12.2.1 shall survive any termination
of this Lease.

         12.2.2 Indemnified Parties. As used in this Lease the term "Indemnified
Parties" shall mean the Meditrust Entities, any Fee Mortgagee which is an
Affiliate of Meditrust and their respective successors, assigns, employees,
servants, agents, attorneys, officers, directors, shareholders, partners and
owners.

         12.2.3 Defense of Actions by the Lessee. The Lessee's obligation to
defend, set forth in Section 12.2.1 above, may be satisfied by the defense of
such actions by counsel retained by any insurance carrier having an obligation
to defend any such action provided the counsel is acceptable to the Lessor in
its reasonable discretion. Further, if the insurance carrier having the
obligation to defend such action makes available insurance proceeds for the
payment of defense rather than retaining its own defense counsel, then such
insurance proceeds shall be made available to the Lessee to defray the costs of
such defense.

         12.2.4 Limitation on Lessor Liability. Neither the Lessor nor any
Affiliate of the Lessor shall be liable to any member of the Leasing Group or
any Affiliate of any member of the Leasing Group, or to any other Person
whatsoever for any damage, injury, loss, compensation, or claim (including, but
not limited to, any claim for the interruption of or loss to any business,
conducted on the Leased Property) based on, arising out of or resulting from any
cause whatsoever, including, but not limited to, the following: (a) repairs to
the Leased Property, (b) interruption in use of the Leased Property; (c) any
accident or damage resulting from the use or operation of the Leased Property or
any business conducted thereon; (d) the termination of this Lease by reason of
Casualty or Condemnation, (e) any fire, theft or other casualty or crime, (f)
the actions, omissions or misconduct of any other Person, (g) damage to any
property, or (h) any damage from the flow or leaking of water, rain or snow. All
Tangible Personal Property and the personal property of any other Person on the
Leased Property shall be at the sole risk of the Lessee and the Lessor shall not
in any manner be held responsible therefor. Notwithstanding the foregoing, the
Lessor shall not be released from liability for any injury, loss, damage or
liability suffered directly by the Lessee to the extent caused directly by the
gross negligence or willful misconduct of the Lessor, any Affiliate of the
Lessor or any of their respective successors, assigns, employees, servants,
agents, attorneys, officers, directors, shareholders, partners or owners on or
about the Leased Property or in regards to the Lease; provided, however, that in
no event shall the Lessor, any Affiliate of the Lessor or any of their
respective successors, assigns, employees, servants, agents, attorneys,
officers, directors, shareholders, partners or owners have any liability based
on any loss with respect to or interruption in the operation of any business at
the Leased Property or for any indirect or consequential damages.

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<PAGE>   83
         12.2.5 Risk of Loss. During the Term of this Lease, the risk of loss or
of decrease in the enjoyment and beneficial use of the Leased Property in
consequence of any damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures,
levies or executions of Liens (other than those created by the Lessor in
accordance with the provisions of Article 20) is assumed by the Lessee and, in
the absence of the gross negligence or willful misconduct as set forth in
Section 12.2.4, the Lessor shall in no event be answerable or accountable
therefor (except for the obligation to account for insurance proceeds and Awards
to the extent provided for in Articles 13 and 14) nor shall any of the events
mentioned in this Section entitle the Lessee to any abatement of Rent (except
for an abatement, if any, as specifically provided for in Section 3.6).

                                   ARTICLE 13

                                FIRE AND CASUALTY

13.1 Restoration Following Fire or Other Casualty.

         13.1.1 Following Fire or Casualty. In the event of any damage or
destruction to the Leased Property by reason of fire or other hazard or
casualty, (a "Casualty"), the Lessee shall give immediate written notice thereof
to the Lessor and, subject to the terms of this Article 13, the Lessee shall
proceed with reasonable diligence, in full compliance with all applicable Legal
Requirements, to perform such repairs, replacement and reconstruction work
(referred to herein as the "Work") to restore the Leased Property to the
condition it was in immediately prior to such damage or destruction and to a
condition adequate to operate the Facility for the Primary Intended Use and the
Other Permitted Uses and in compliance with Legal Requirements. All Work shall
be performed and completed in accordance with all Legal Requirements and the
other requirements of this Lease within one hundred eighty (180) days following
the occurrence of the damage or destruction plus a reasonable time to compensate
for Unavoidable Delays (including for the purposes of this Section, delays in
obtaining Permits and in adjusting insurance losses), but in no event beyond
two-hundred and seventy (270) days following the occurrence of the Casualty.

         13.1.2 Procedures. In the event that any Casualty results in
non-structural damage to the Leased Property in excess of FIFTY THOUSAND and
NO/100 DOLLARS ($50,000.00) or in any structural damage to the Leased Property,
regardless of the extent of such structural damage, prior to commencing the
Work, the Lessee shall comply with the following requirements:

                    (a) The Lessee shall furnish to the Lessor complete plans
         and specifications for the Work (collectively, the "Plans and
         Specifications"), for the Lessor's approval, in each instance, which
         approval shall riot be unreasonably withheld or delayed. The Plans and
         Specifications shall bear the signed approval thereof by an architect,
         licensed to do business in the State, reasonably satisfactory to the
         Lessor and shall be accompanied by a written estimate from the
         architect, bearing the architect's seal, of the entire cost of
         completing the Work, and to the extent feasible, the Plans and
         Specifications shall

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<PAGE>   84
         provide for Work of such nature, quality and extent, that, upon the
         completion thereof, the Leased Property shall be at least equal in
         value and general utility to its value and general utility prior to the
         Casualty and shall be adequate to operate the Leased Property for the
         Primary Intended Use and the Other Permitted Uses;

                  (b) The Lessee shall furnish to the Lessor certified or
         photostatic copies of all Permits and Contracts required by all
         applicable Legal Requirements in ' connection with the commencement and
         conduct of the Work;

                  (c) The Lessee shall furnish to the Lessor- a cash deposit or
         a payment and performance bond sufficient to pay for completion of and
         payment for the Work in an amount not less than the architect's
         estimate of the entire cost of completing the Work, less the amount of
         property insurance proceeds, if any, then held by the Lessor and which
         the Lessor shall be required to apply toward restoration of the Leased
         Property as provided in Section 13.2;

                  (d) The Lessee shall furnish to the Lessor such insurance with
         respect to the Work (in addition to the insurance required under
         Section 12.1 hereof) in such amounts and in such forms as is reasonably
         required by the Lessee; and

                  (e) The Lessee shall not commence any of the Work until the
         Lessee shall have complied with the requirements set forth in clauses
         (a) through (d) immediately above, as applicable, and, thereafter, the
         Lessee shall perform the Work diligently, in a good and workmanlike
         fashion anal in good faith in accordance with (i) the Plans and
         Specifications referred to in clause (a) immediately above, (ii) the
         Permits and Contracts referred to in clause (b) immediately above and
         (iii) all applicable Legal Requirements and other requirements of this
         Lease; provided, however, that in the event of a bona fide emergency
         during which the Lessee is unable to contact the appropriate
         representatives of the Lessor, the Lessee may commence such Work as may
         be necessary in order to address such emergency without the Lessor's
         prior approval, as long as the Lessee immediately thereafter advises
         the Lessor of such emergency and the nature and scope of the Work
         performed and obtains the Lessor's approval of the remaining Work to be
         completed.

         13.1.3 Disbursement of Insurance Proceeds. If, as provided in Section
13.2, the Lessor is required to apply any property insurance proceeds toward
repair or restoration of the Leased Property, then as long as the Work is being
diligently performed by the Lessee in accordance with the terms and conditions
of this Lease, the Lessor shall disburse such insurance proceeds from time to
time during the course of the Work in accordance with and subject to
satisfaction of the following provisions and conditions. The Lessor shall not be
required to make disbursements more often than at thirty (30) day intervals. The
Lessee shall submit a written request for each disbursement at least ten (10)
Business Days in advance and shall comply with the following requirements in
connection with each disbursement:

                   (a) Prior to the commencement of any Work, the Lessee shall
         have received the Lessor's written approval of the Plans and
         Specifications (which approval shall not be

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<PAGE>   85
         unreasonably withheld or delayed) and the Work shall be supervised by
         an experienced construction manager with the consultation of an
         architect or engineer qualified and licensed to do business in the
         State.

                   (b) Each request for payment shall be accompanied by (x) a
         certificate of the architect or engineer, bearing the architect's or
         engineer's seal, and (y) a certificate of the general contractor,
         qualified and licensed to do business in the State, that is performing
         the Work (collectively, the "Work Certificates"), each dated not more
         than ten (10) days prior to the application for withdrawal of funds,
         and each stating:

         (i)       that all of the Work performed as of the date of the
                   certificates has been completed in compliance with the
                   approved Plans and Specifications, applicable Contracts and
                   all applicable Legal Requirements;

         (ii)      that the sum then requested to be withdrawn has been paid by
                   the Lessee or is justly due to contractors, subcontractors,
                   materialmen, engineers, architects or other Persons, whose
                   names and addresses shall be stated therein, who have
                   rendered or furnished certain services or materials for the
                   Work, and the certificate shall also include a brief
                   description of such services and materials and the principal
                   subdivisions or categories thereof and the respective amounts
                   so paid or due to each of said Persons in respect thereof and
                   stating the progress of the Work up to the date of said
                   certificate;

         (iii)     that the sum then requested to be withdrawn, plus all sums
                   previously withdrawn, does not exceed the cost of the Work
                   insofar as actually accomplished up to the date of such
                   certificate;

         (iv)      that the remainder of the funds held by the Lessor will be
                   sufficient to pay for the full completion of the Work in
                   accordance with the Plans and Specifications;

         (v)       that no part of the cost of the services and materials
                   described in the applicable Work Certificate has been or is
                   being made the basis of the withdrawal of any funds in any
                   previous or then pending application; and

         (vi)      that, except for the amounts, if any, specified in the
                   applicable Work Certificate to be due for services and
                   materials, there is no outstanding indebtedness known, after
                   due inquiry, which is then due and payable for work, labor,
                   services or materials in connection with the Work which, if
                   unpaid, might become the basis of a vendor's, mechanic's,
                   laborer's or materialman's statutory or other similar Lien
                   upon the Leased Property.

                   (c) The Lessee shall deliver to the Lessor satisfactory
         evidence that the Leased Property and all materials and all property
         described in the Work Certificates are free and clear of Liens, except
         (i) Liens, if any, securing indebtedness due to Persons (whose names
         and addresses and the several amounts due them shall be stated therein)
         specified

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<PAGE>   86
         in an applicable Work Certificate, which Liens shall be discharged upon
         disbursement of the funds then being requested, (ii) any Fee Mortgage
         and (iii) the Permitted Encumbrances. The Lessor shall accept as
         satisfactory evidence of the foregoing lien waivers in customary form
         from the general contractor and all subcontractors performing the Work,
         together with an endorsement of its title insurance policy (relating to
         the Leased Property) in form acceptable to the Lessor, dated as of the
         date of the making of the then current disbursement, confirming the
         foregoing.

                  (d) If the Work involves alteration or restoration of the
         exterior of any Leased Improvement that changes the footprint of any
         Leased Improvement, the Lessee shall deliver to the Lessor, upon the
         request of the Lessor, an "as-built" survey of the Leased Property
         dated as of a date within ten (10) days prior to the making of the
         first and final advances (or revised to a date within ten (10) days
         prior to each such advance) showing no encroachments other than such
         encroachments, if any, by the Leased Improvements upon or over the
         Permitted Encumbrances as are in existence as of the date hereof.

                  (e) The Lessee shall deliver to the Lessor (i) an opinion of
         counsel or licensed architect or engineer (satisfactory to the Lessor
         both as to counsel, architect or engineer and as to the form of
         opinion) prior to the first advance opining that all necessary Permits
         for the repair, replacement and/or restoration of the Leased Property
         have been obtained and that the Leased Property, if repaired, replaced
         or rebuilt in accordance, in all material respects, with the approved
         Plans and Specifications and such Permits, shall comply with all
         applicable Legal Requirements and (ii) an architect's certificate
         (satisfactory to the Lessor both as to the architect and as to the form
         of the certificate) prior to the final advance, certifying that the
         Leased Property was repaired, replaced or rebuilt in accordance, in all
         material respects, with the approved Plans and Specifications and
         complies with all applicable Legal Requirements, including, without
         limitation, all Permits referenced in the foregoing clause (i).

                  (t) There shall be no Lease Default or any state of facts or
         circumstance existing which, with the giving of notice and/or the
         passage of time, would constitute any Lease Default.

The Lessor, at its option, may waive any of the foregoing requirements in whole
or in part in any instance. Upon compliance by the Lessee with the foregoing
requirements (except for such requirements, if any, as the Lessor may have
expressly elected to waive), and to the extent of (g) the insurance proceeds, if
any, which the Lessor may be required to apply to restoration of the Leased
Property pursuant to the provisions of this Lease and (y) all other cash
deposits made by the Lessee, the Lessor shall make available for payment to the
Persons named in the Work Certificate the respective amounts stated in said
certificate(s) to be due, subject to a retention of ten percent (10%) ass to all
hard costs of the Work (the "Retainage"). It is understood that the Retainage is
intended to provide a contingency fund to assure the Lessor that the Work shall
be fully completed in accordance with the Plans and Specifications and the
requirements of the Lessor. Upon the full and final completion of all of the
Work in accordance with the provisions hereof, the Retainage shall be made
available for payment to those Persons entitled thereto.

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<PAGE>   87
Upon completion of the Work, and as a condition precedent to making any further
advance, in addition to the requirements set forth above, the Lessee shall
promptly deliver to the Lessor:

         (i)    written certificates of the architect or engineer, bearing the
                architect's or engineer's seal, and the general contractor,
                certifying that the Work has been fully completed in a good and
                workmanlike manner in material compliance with the Plans and
                Specifications and all Legal Requirements;

         (iii)  an endorsement of its title insurance policy (relating to the
                Leased Property) in form reasonably acceptable to the Lessor
                insuring the Leased Property against all mechanic's and
                materialman's liens accompanied by the final lien waivers from
                the general contractor and all subcontractors;

         (iii)  a certificate by the Lessee in form and substance reasonably
                satisfactory to the Lessor, listing all costs and expenses in
                connection with the completion of the Work and the amount paid
                by the Lessee with respect to the Work; and

         (iv)   a temporary certificate of occupancy (if obtainable) and all
                other applicable Permits and Contracts (that have not previously
                been delivered to the Lessor) issued by or entered into with any
                Governmental Authority with respect to the Leased Property and
                the Primary Intended Use and the Other Permitted Uses and by the
                appropriate Board of Fire Underwriters or other similar bodies
                acting in and for the locality in which the Leased Property is
                situated; provided, that within thirty (30) days prior to the
                expiration of any temporary certificate of occupancy, the Lessee
                shall obtain and deliver to the Lessor a permanent certificate
                of occupancy for the Leased Property.

         Upon completion of the Work and delivery of the documents required
pursuant to the provisions of this Section 13.1, the Lessor shall pay the
Retainage to the Lessee or to those Persons entitled thereto and if there shall
be insurance proceeds or cash deposits, other than the Retainage, held by the
Lessor in excess of the amounts disbursed pursuant to the foregoing provisions,
then provided that no Lease Default has occurred and is continuing, nor any
state of facts or circumstances which, with the giving of notice and/or the
passage of time would constitute a Lease Default, the-Lessor shall pay over such
proceeds or cash deposits to the Lessee.

         No inspections or any approvals of the Work during or after
construction shall constitute a warranty or representation by the Lessor, or any
of its agents or Consultants, as to the technical sufficiency, adequacy or
safety of any structure or any of its component parts, including, without
limitation, any fixtures, equipment or furnishings, or as to the subsoil
conditions or any other physical condition or feature pertaining to the Leased
Property. All acts described in this paragraph, including any failure to act,
relating to the Lessor are performed solely for the benefit of the Lessor to
assure the payment and performance of the Lease Obligations and are not for the
benefit of the Lessee or the benefit of any other Person.

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<PAGE>   88
13.2 Disposition of Insurance Proceeds.

         13.2.1 Proceeds To Be Released to Pay For Work. In the event of any
Casualty, except as provided for in Section 13.2.2, the Lessor shall release
proceeds of property insurance held by it to pay for the Work in accordance with
the provisions and procedures set forth in this Article 13, only if

                (a) all of the terms, conditions and provisions of Sections 13.1
         and 13.2.1 are satisfied;

                (b) there does not then exist any Lease Default or any state of
         facts or circumstance which, with the giving of notice and/or the
         passage of time, would constitute such a Lease Default;

                (c) The Lessee demonstrates to the Lessor's satisfaction that
         the Lessee has the financial ability to satisfy the Lease Obligations
         during such repair or restoration; and

                (d) no Sublease (excluding Resident Agreements) material to the
         operation of the Facility immediately prior to such damage or taking
         shall have been cancelled or terminated, nor contain any still
         exercisable right to cancel or terminate, due to such Casualty if and
         to the extent that the; income from such Sublease is necessary in order
         to avoid the violation of any of the financial covenants set forth in
         this Lease or otherwise to avoid the creation of an Event of Default.

         13.2.2 Proceeds Not To Be Released. If, as the result of any Casualty,
the Leased Property is damaged to the extent it is rendered Unsuitable For Its
Primary Intended Use and if either: (a) the Lessee, after exercise of diligent
efforts, cannot within a reasonable time (not in excess of ninety (90) days)
obtain all necessary Permits in order to be able to perform all required Work
and to again operate the Facility for its Primary Intended Use and the Other
Permitted Uses within two hundred and seventy (270) days from the occurrence of
the damage or destruction in substantially the manner as immediately prior to
such damage or destruction or (b) such Casualty occurs during the last
twenty-four (24) months of the Term and would reasonably require more than nine
(9) months to obtain all Permits and complete the Work, then the Lessee may
either (i) acquire the Leased Property from the Lessor for a purchase price
equal to the greater of (x) the Meditrust Investment or (y) the Fair Market
Value of the Leased Property minus the Fair Market Added Value, with the Fair
Market Value and the Fair Market Added Value to be determined as of the day
immediately prior to such Casualty and prior to any other Casualty which has not
been fully repaired, restored or replaced, in which event, the Lessee shall be
entitled upon payment of the full purchase price to receive all property
insurance proceeds (less any costs and expenses incurred by the Lessor in
collecting the same), or (ii) terminate this Lease, in which event (subject to
the provisions of the last sentence of this Section 13.2.2) the Lessor shall be
entitled to receive and retain the insurance proceeds; provided, however. that
the Lessee shall only have such right of termination effective upon payment to
the Lessor of all Rent and other sums due under this Lease and the other Lease
Documents through the date of termination plus an amount,

                                       88
<PAGE>   89
which when added to the sum of (1) the Fair Market Value of the Leased Property
as affected by all unrepaired or unrestored damage due to any Casualty (and
giving due regard for delays, costs and expenses incident to completing all
repair or restoration required to fully repair or restore the same) ~l (2) the
amount of insurance proceeds actually received by the Lessor (net of costs and
expenses incurred by the Lessor in collecting the same) equals (3) the greater
of the Meditrust Investment or the Fair Market Value of the Leased Property
minus the Fair Market Added Value, with the Fair Market Value and the Fair
Market Added Value to be determined as of the day immediately prior to such
Casualty and prior to any other Casualty which has not been fully repaired. Any
acquisition of the Leased Property pursuant to the terms of this Section 13.2.2
shall be consummated in accordance with the terms and conditions of this Lease
and normal and customary practices of the State and at a time satisfactory to
the Lessor. If such termination becomes effective, the Lessor shall assign to
the Lessee any outstanding insurance claims.

                 13.2.3 Lessee Responsible for Short-Fall. If the cost of the
         Work exceeds the amount of proceeds received by the Lessor from the
         property insurance required under Article 12 (net of costs and expenses
         incurred by the Lessor in collecting the same), the Lessee shall be
         obligated to contribute any excess amount needed to repair or restore
         the Leased Property and pay for the Work. Such amount shall be paid by
         the Lessee to the Lessor together with any other property insurance
         proceeds for application to the cost of the Work.

         13.3 Tangible Personal Property. All insurance proceeds payable by
reason of any loss of or damage to any of the Tangible Personal Property shall
be paid to the Lessor as secured party, subject to the rights of the holders of
any Permitted Prior Security Interests, and, thereafter, provided that no Lease
Default, nor any fact or circumstance which with the giving of notice and/or the
passage of time could constitute a Lease Default, has occurred and is
continuing, the Lessor shall pay such insurance proceeds to the Lessee to
reimburse the Lessee for the cost of repairing or replacing the damaged Tangible
Personal Property, subject to the terms and conditions set forth in the other
provisions of this Article 13, mutatis mutamdis.

         13.4 Restoration of Certain Improvements and the Tangible Personal
Property. If the Lessee is required or elects to restore the Facility, the
Lessee shall either (a) restore (i) all alterations and improvements to the
Leased Property made by the Lessee and (ii) the Tangible Personal Property or
(b) replace such alterations and improvements and the Tangible Personal Property
with improvements or items of the same or better quality and utility in the
operation of the Leased Property.

         13.5 No Abatement of Rent. The obligation to pay Rent shall not abate
as a result of any Casualty. However, any insurance proceeds received by the
Lessor on account of rent loss insurance carried by the Lessee shall be credited
against Rent and any other amounts due hereunder or owed during the period of
restoration on account of such Casualty as provided in Section 13.8(b) below
provided no fact or circumstance exists which constitutes, or with notice, or
passage of time, or both, would constitute a Lease. Default.

         13.6 Termination of Certain Rights. Any termination of this Lease
pursuant to this Article

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<PAGE>   90
13 shall cause any right of the Lessee to extend the Term of this Lease, any
right of first refusal granted to the Lessee herein and any right of the Lessee
to purchase! the Leased Property contained in this Lease to be terminated and to
be without further force or effect.

         13.7 Waiver. The Lessee hereby waives any statutory rights of
termination which may arise by reason of any damage or destruction to the Leased
Property due to any Casualty which the Lessee is obligated to restore or may
restore under any of the provisions of this Lease.

         13.8 Application of Rent Loss and/or Business Interruption Insurance.
All proceeds of rent loss and/or business interruption insurance (collectively,
"Rent Insurance Proceeds") shall be paid to the Lessor and dealt with as
follows:

                  (a) if the Work has been promptly and diligently commenced by
         the Lessee and is in the process of being completed in accordance with
         this Lease and no fact or condition exists which constitutes, or which
         with the giving of notice and/or the passage of time would constitute,
         a Lease Default, the Lessor shall each month pay to the Lessee out of
         the Rent Insurance Proceeds a sum equal to that amount, if any, of the
         Rent Insurance Proceeds paid by the insurer which is allocable to the
         rental loss and/or business interruption for the preceding month minus
         an amount equal to the sum of the Rent due hereunder for such month
         plus any Impositions relating to the Leased Property then due and
         payable;

                 (b) if the Work has not been promptly and diligently commenced
         by the Lessee or is not in the process of being completed in accordance
         with this Lease, the Rent Insurance Proceeds shall be applied to any
         Rent then due, and, to the extent sufficient therefor, an amount equal
         to Base Rent, Additional Rent, Impositions and insurance premiums
         payable for the next twelve (12) months, as reasonably projected by the
         Lessor, shall be held by the Lessor as security for the Lease
         Obligations and applied to the payment of Rent as it becomes due;

                  (e) if such Rent Insurance Proceeds received by the Lessor
         (net of costs and expenses incurred by the Lessor in collecting the
         same) exceed the amounts required under clauses (a) and (b) above, the
         excess shall be paid to the Lessee, provided no fact or circumstance
         exists which constitutes, or with notice, or passage of time, or both,
         would constitute, a Lease Default; and

                  (d) if the Casualty causing such business interruption of the
         Lessee is the result of the gross negligence or willful misconduct of
         the Lessor or any of Lessor's employees, agents or contractors, then
         the proceeds of business interruption insurance (as distinguished from
         proceeds of rent loss insurance) shall be paid over to the Lessee,
         provided no fact or circumstance exists which constitutes, or with
         notice, or passage of time, or both, would constitute, a Lease Default.

Notwithstanding the foregoing, the Lessor may at its option use or release the
Rent Insurance Proceeds to pay for the Work and, if a Lease Default exists, the
Lessor may apply all such

                                       90
<PAGE>   91
insurance proceeds towards the Lease Obligations or hold such proceeds as
security therefor.

         13.9 Obligation To Account. Within fifteen (15) Business Days of the
Lessee's written request, which may not be made not more than once in any three
(3) month period, the Lessor shall provide the Lessee with a written accounting
of the application of all insurance proceeds received by the Lessor.

                                   ARTICLE 14

                                  CONDEMNATION

         14.1 Parties' Rights and Obligations. If during the Term there is any
Taking of all or any part of the Leased Property or any interest in this Lease,
the rights and obligations of the parties shall be determined by this Article
14.

         14.2 Total Taking. If there is a permanent Taking of all or
substantially all of the Leased Property, this Lease shall terminate on the Date
of Taking.

         14.3 Partial or Temporary Taking. If there is a Permanent Taking of a
portion of the Leased Property, or if there is a temporary Taking of all or a
portion of the :Leased Property, this Lease shall remain in effect so long as
the Leased Property is not thereby rendered permanently Unsuitable For Its
Primary Intended Use or temporarily Unsuitable For Its Primary Intended Use for
a period not likely to, or which does not, exceed two hundred and seventy (270)
days. If, however, the Leased Property is thereby so rendered permanently or
temporarily Unsuitable For Its Primary. Intended Use: (a) the Lessee shall have
the right to restore the; Leased Property, at its own expense, (subject to the
right under certain circumstances as provided for in Section 14.5 to receive the
net proceeds of an Award for reimbursement) to the extent possible, to
substantially the same condition as existed immediately before the partial or
temporary Taking or (b) the Lessee shall have the right to acquire the Leased
Property from the Lessor (i) upon payment of all Rent due through the date that
the purchase price is paid, for a purchase price equal to the greater of (x) the
Meditrust Investment or (y) the Fair Market Value of the Leased Property minus
the Fair Market Added Value, with the Fair Market Value of the Leased Property
and the Fair Market Added Value to be determined as of the day immediately prior
to such partial or temporary Taking and (ii) in accordance with the terms and
conditions set forth in Section 24.14; in which event, this Lease shall
terminate upon payment of such purchase price and the consummation of such
acquisition. Notwithstanding the foregoing, (1) if the Taking occurs at a time
when there is less than two (2) years remaining on the Term of this Lease and
the Lessee has elected to restore the Leased Property under clause (a) above,
then, unless the Lessee extends the Term pursuant to the provisions hereof, the
Lessor may overrule the Lessee's election and terminate this Lease as of the
date when the Lessee is required to surrender possession of the portion of the
Leased Property so taken and (2) if the Taking occurs at a time when there are
two (2) years or more remaining on the Term and the Lessee elects to acquire the
Leased Property under clause (b) above, then the Lessor may overrule the
Lessee's election and compel the Lessee to keep the Lease in full force and
effect and to restore the Leased Property as provided in clause (a) above, but
only if the Leased Property may be operated for at least eighty

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percent (80%) of the licensed unit capacity of the Facility if operated in
accordance with its Primary Intended Use. The Lessee shall exercise its election
under this Section 14.3 by giving the :Lessor notice thereof ("Lessee's Election
Notice") within sixty (60) days after the Lessee receives notice of the Taking.
The Lessor shall exercise its option to overrule the Lessee's election under
this Section 14.3 by giving the Lessee notice of the Lessor's exercise of its
rights under Section 14.3 within thirty (30) days after the Lessor receives the
Lessee's Election Notice. If, as the result of any such partial or temporary
Taking, this Lease is not terminated as provided above, the Lessee shall be
entitled to an abatement of Rent, but only to the extent, if any, provided for
in Section 3.6, effective as of the date upon which the Leased Property is
rendered Unsuitable For Its Primary Intended Use.

         14.4 Restoration. If there is a partial or temporary Taking of the
Leased Property and this Lease remains in full force and effect pursuant to
Section 14.3, the Lessee shall accomplish all necessary restoration and the
Lessor shall release the net proceeds of such Award to reimburse the Lessee for
the actual reasonable costs and expenses thereof, subject to all of the
conditions and provisions set forth in Article 13 as though the Taking was a
Casualty and the Award was insurance proceeds. If the cost of the restoration
exceeds the amount of the Award (net of costs and expenses incurred in obtaining
the Award), the Lessee shall be obligated to contribute any excess amount needed
to restore the Facility or pay for such costs and expenses. To the extent that
the cost of restoration is less than the amount of the Award (net of cost and
expenses incurred in obtaining the Award), the remainder of the Award shall be
retained by the Lessor and Rent shall be abated as set forth in Section 3.6.

         14.5 Award Distribution. In the event the Lessee completes the purchase
of the Leased Property, as described in Section 14.3, the entire Award shall,
upon payment of the purchase price and all Rent and other sums due under this
Lease and the other Lease Documents, belong to the Lessee and the Lessor agrees
to assign to the Lessee all of the Lessor's rights thereto. In any other event,
the entire Award shall belong to and be paid to the Lessor. However, if the
Lessor has recovered the entire Meditrust Investment from such Award, then the
Lessee shall be entitled to prosecute a claim against the Condemnor for the
value of the Lessee's leasehold estate under this Lease (although in no event
shall the Lessee be entitled to seek or recover any portion of the leasehold
value from the Lessor).

         14.6 Control of Proceedings. Subject to the rights of any Fee
Mortgagee, unless and until the Lessee completes the purchase of the Leased
Property as provided in Section 14.3, all proceedings involving any Taking and
the prosecution of claims arising out of any Taking against the Condemnor shall
be conducted, prosecuted and settled by the Lessor; provided, however, that the
Lessor shall keep the Lessee apprised of the progress of all such proceedings
and shall solicit the Lessee's advice with respect thereto and shall give due
consideration to any such advice. In addition, the Lessee shall reimburse the
Lessor (as an Additional Charge) for all costs and expenses, including
reasonable attorneys' fees, appraisal fees, fees of expert witnesses and costs
of litigation or dispute resolution, in relation to any Taking, whether or not
this Lease is terminated; provided, however, if this Lease is terminated as a
result of a Taking, the Lessee's obligation to so reimburse the Lessor shall be
diminished by the amount of the Award, if any, received by the Lessor which is
in excess of the Meditrust Investment.

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                                   ARTICLE 15

                               PERMITTED CONTESTS

         15.1 Lessee's Right to Contest. To the extent of the express references
made to this Article 15 in other Sections of this Lease, the Lessee, any
Sublessee or any Manager on their own or on the Lessor's behalf (or in the
Lessor's name), but at their sole cost and expense, may contest, by appropriate
legal proceedings conducted in good faith and with due diligence (until the
resolution thereof), the amount, validity or application, in whole or in part,
of any Imposition, Legal Requirement, the decision of any Governmental Authority
related to the operation of the Leased Property for its Primary Intended Use
and/or any of the Other Permitted Uses or any Lien or claim relating to the
Leased Property not otherwise permitted by this Lease; provided. that (a) prior
written notice of such contest is given to the Lessor, (b) in the case of an
unpaid Imposition, Lien or claim, the commencement and continuation of such
proceedings shall suspend the collection thereof from the Lessor and/or
compliance by any applicable member of the Leasing Group with the contested
Legal Requirement or other matter may be legally delayed pending the prosecution
of any such proceeding without the occurrence or creation of any Lien, charge or
liability of any kind against the Leased Property, (c) neither the Leased
Property nor any rent therefrom would be in any immediate danger of being sold,
forfeited, attached or lost as a result of such proceeding, (d) in the case of a
Legal Requirement, neither the Lessor nor any member of the Leasing Group would
be in any immediate danger of civil or criminal liability for failure to comply
therewith pending the outcome of such proceedings, (e) in the event that any
such contest shall involve a sum of money or potential loss in excess of TEN
THOUSAND and NO/100 DOLLARS ($10,000.00), the Lessee shall deliver to the Lessor
an Officer's Certificate and opinion of counsel, if the Lessor deems the
delivery of an opinion to be appropriate, certifying or opining, as the case may
be, as to the validity of the statements set forth to the effect set forth in
clauses (b), (c) and (d), to the extent applicable, (f) the Lessee shall give
such cash security (or letter of credit in form and substance acceptable to the
Lender) as may be demanded in good faith by the Lessor to insure ultimate
payment of any fine, penalty, interest or cost and to prevent any sale or
forfeiture of the affected portion of the Leased Property by reason of such
non-payment or non-compliance, (g) if such contest is finally resolved against
the Lessor or any member of the Leasing Group, the Lessee shall promptly pay, as
Additional Charges due hereunder, the amount required to be paid, together with
all interest and penalties accrued thereon and/or comply (and cause any
Sublessee and any Manager to comply) with the applicable Legal Requirement, and
(h) no state of facts or circumstance exists which constitutes, or with the
passage of time and/or the giving of notice, could constitute a Lease Default;
provided. however. the provisions of this Article 15 shall not be construed to
permit the Lessee to contest the payment of Rent or any other sums payable by
the Lessee to the Lessor under any of the Lease Documents.

         15.2 Lessor's Cooperation. The Lessor, at the Lessee's sole cost and
expense, shall execute and deliver to the Lessee such authorizations and other
documents as may reasonably be required in any such contest, so long as the same
does not expose the Lessor to any civil or criminal liability, and, if
reasonably requested by the Lessee or if the Lessor so desires, the Lessor shall
join as a party therein.

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<PAGE>   94
         15.3 Lessee's Indemnity. The Lessee, as more particularly provided for
in Section 12.2, shall indemnify, defend (with counsel acceptable to the Lessor)
and save the Lessor harmless against any liability, cost or expense of any kind,
including, without limitation, attorneys' fees and expenses that may be imposed
upon the Lessor in connection with any such contest and any loss resulting
therefrom and in the enforcement of this indemnification.

                                   ARTICLE 16

                                     DEFAULT

         16.1 Events of Default. Each of the following shall constitute an
"Event of Default" hereunder and shall entitle the Lessor to exercise its
remedies hereunder and under any of the other Lease Documents:

(a) any failure of the Lessee to pay any amount due hereunder or under any of
the other Lease Documents within ten (10) days following the date when such
payment was due;

(b) any failure in the observance or performance of any other covenant, term,
condition or warranty provided in this Lease or any of the other Lease
Documents, other than the payment of any monetary obligation and other than as
specified in subsections (c) through (w) below (a "Failure to Perform"),
continuing for thirty (30) days after the giving of notice by the Lessor to the
Lessee specifying the nature of the Failure to Perform; except as to matters not
susceptible to cure within thirty (30) days, provided that with respect to such
matters, (i) the Lessee commences the cure thereof within thirty (30) days after
the giving of such notice by the Lessor to the Lessee, (ii) the Lessee
continuously prosecutes such cure to completion, (iii) such cure is completed
within one hundred eighty (180) days after the giving of such notice by the
Lessor to the Lessee, and (iv) such Failure to .Perform does not materially
impair the value of, or the Lessor's rights with respect to, the Leased Property
or otherwise materially impair the Collateral or the Lessor's security interest
therein;

(c) the occurrence of any default or breach of condition continuing beyond the
expiration of the applicable notice and grace periods, if any, under any of the
other Lease Documents;

(d) if any representation, warranty or statement contained herein or in any of
the other Lease Documents proves to be untrue in any material respect as of the
date when made or at any time during the Term if such representation or warranty
is a continuing representation or warranty pursuant to Section 10.2 and the
breach of any such representation or warranty is not cured by the Lessee after
notice from the Lessor in the same time periods specified for a cure under
Section 16.1 (b) above;

(e) if any member of the Leasing Group shall (i) voluntarily be adjudicated a
bankrupt or insolvent, (ii) seek or consent to the appointment of a receiver or
trustee for itself or for the Leased Property, (iii) file a petition seeking
relief under the bankruptcy or other similar laws of the United States, any
state or any jurisdiction, (iv) make a general assignment for the benefit of

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<PAGE>   95
creditors, (v) make or offer a composition of its debts with its creditors or
(vi) be unable to pay its debts as such debts mature;

(f) if any court shall enter an order, judgment or decree appointing, without
the consent of any member of the Leasing Group, a receiver or trustee for such
member or for any of its property and such order, judgment or decree shall
remain in force, undischarged or unstayed, sixty (60) days after it is entered;

(g) if a petition is filed against any member of the Leasing Group which seeks
relief under the bankruptcy or other similar laws of the United States, any
state or any other jurisdiction, and such petition is not dismissed within sixty
(60) days after it is filed;

(h) in the event that, without the prior written consent of the Lessor, in each
instance, which consent may be withheld by the Lessor in its sole and absolute
discretion, and except as permitted in subsection (h)(vi) and subsection (i)
below:

         i.       there shall be a change in the Person or Persons presently in
                  control of any member of the Leasing Group (other than changes
                  in stock ownership of the Guarantor or changes in the officers
                  or directors of either the Lessee or the Guarantor), (whether
                  by operation of law or otherwise);

         ii.      any member of the Leasing Group (other than changes in the
                  stock ownership of the Guarantor), all or any portion of the
                  interest of any partner or member of any member of the Leasing
                  Group shall be, on any one or more occasions, directly or
                  indirectly, sold, assigned, hypothecated or otherwise
                  transferred (whether by operation of law or otherwise), if
                  such member of the Leasing Group shall be a partnership, joint
                  venture, syndicate or other group; any of the shares of the
                  issued and outstanding capital stock of any member of the
                  Leasing Group (other than changes of stock ownership of the
                  Guarantor) shall be, on any one or more occasions, directly or
                  indirectly, sold, assigned, hypothecated or otherwise
                  transferred (whether by operation of law or otherwise), if
                  such member of the Leasing Group shall be a corporation;

         iv.      all or any portion of the beneficial interest in any member of
                  the Leasing Group shall be, directly or indirectly, sold or
                  otherwise transferred (whether by operation of law or
                  otherwise), if such member of the Leasing Group shall be a
                  trust;

         v.       except as otherwise expressly permitted in accordance with the
                  provisions of Section 11.4.11, if any Person other than the
                  Lessee is the licensed operator of the Facility; or

         vi.      more than fifty percent (50%), in the aggregate, of the shares
                  of the issued and outstanding capital stock of the Guarantor
                  are held by a single Person or two (2) or more Affiliates
                  (collectively, an "Acquiror"), except in a "Permitted
                  Transaction". If immediately after the date on which the
                  Acquiror acquires) more

                                       95
<PAGE>   96

                  than fifty percent (50%) of such stock, the "Net Worth"
                  (defined as an amount determined in accordance with GAAP) of
                  the Guarantor is equal to or greater than Fifty-Five Million
                  Dollars ($55,000,000.00), then such acquisition shall be
                  deemed to be an "Permitted Transaction." However, in the event
                  that a Permitted Transaction occurs, then the higher ratios
                  specified in Section 11.3.5 and the Net Worth covenant
                  specified in Section 11.3.6 shall both become operative and
                  effective.

         (i) the death, incapacity, liquidation, dissolution or termination of
existence of any member of the Leasing Group (except in the case of a merger or
consolidation with the Guarantor (which shall be a "Permitted Merger");
provided, however, if the Persons who were the shareholders of the Guarantor
immediately prior to the Permitted Merger hold in the aggregate less than 50% of
the outstanding voting stock of the surviving corporation which results from the
Permitted Merger, then (A) the higher ratios specified in Section 11.3.5 and the
Net Worth covenant specified in Section 11.3.6 shall both become operative and
effective and (B) if Alternative Living Services, Inc. is not the surviving
corporation which results from such Permitted Merger, the new surviving
corporation will affirm in writing its obligations under the Guaranty.

         (j) except as otherwise permitted pursuant to Article 15 or Section
19.2 hereof, if, without the prior written consent of the Lessor, in each
instance, which consent may be withheld by the Lessor in its sole and absolute
discretion, the Lessee's or any Sublessee's interest in the Leased Property
shall be, directly or indirectly, mortgaged, encumbered (by any voluntary or
involuntary Lien other than the Permitted Encumbrances), subleased, sold,
assigned, hypothecated or otherwise transferred (whether by operation of law or
otherwise);

         (k) the occurrence of a default or breach of condition continuing
beyond the expiration of the applicable notice and grace periods, if any, in
connection with the payment or performance of any other material obligation of
the Lessee or any Sublessee, whether or not the applicable creditor or obligee
elects to declare the obligations of the Lessee or the applicable Sublessee
under the applicable agreement due and payable or to exercise any other right or
remedy available to such creditor or obligee, if such creditor's or obligee's
rights and remedies may involve or result in (i) the taking of possession of the
Leased Property or (ii) the assertion of any other right or remedy that, in the
Lessor's reasonable opinion, may impair the Lessee's ability punctually to
perform all of its obligations under this Lease and the other Lease Documents,
may impair such Sublessee's ability punctually to perform all of its obligations
under its Sublease or may materially impair the Lessor's security for the Lease
Obligations; provided. however, that in any event, the election by the
applicable creditor or obligee to declare the obligations of the Lessee under
the applicable agreement due and payable or to exercise any other right or
remedy available to such creditor or obligee shall be an Event of Default
hereunder only if such obligations, individually or in the aggregate, are in
excess of FIVE HUNDRED THOUSAND and NO/100 DOLLARS ($500,000.00);

         (l)      the occurrence of a Related Party Default;

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<PAGE>   97
         (m) the occurrence of any default or breach of condition continuing
beyond the expiration of the applicable notice and grace periods, if any, under
any credit agreement, loan agreement or other agreement establishing a major
line-of credit (or any documents executed in connection with such lines of
credit) on behalf of any member of the Leasing Group whether or not the
applicable creditor has elected to declare the indebtedness due and payable
under such line of credit or to exercise any other right or remedy available to
it. For the purposes of this provision, a major line of credit shall, with
respect to any member of the Leasing Group other than the Guarantor, mean and
include any line of credit established in an amount equal to or greater than ONE
MILLION and NO/100 DOLLARS ($1,000,000.00) and, with respect to the Guarantor
mean and include any line of credit established in an amount equal to or greater
than FIVE MILLION and NO/100 DOLLARS ($5,000,000.00);

         (n) except as a result of Casualty or a partial or complete
Condemnation, if the Lessee or any Sublessee ceases operation of the Facility
for a period in excess of thirty (30) days, except that if it is not possible to
resume operation of the Facility within thirty (30) days then the Lessee shall
have up to ninety (90) days to reopen the Facility subject to the terms of
subparts (i) and (ii) of Section 16.1 (b) above (a "Failure to Operate");

         (o) if one or more judgments against the Lessee or any other Acceptable
Licensed Operator or attachments against the. Lessee's interest or any other
Acceptable Licensed Operator's interest in the Leased Property, which in the
aggregate exceed ONE HUNDRED THOUSAND and NO/100 DOLLARS ($100,000.00) or which
may materially and adversely interfere with the operation of the Facility,
remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a
period of thirty (30) days;

         (p) if any malpractice award or judgment exceeding any applicable
professional liability insurance coverage by more than FIVE HUNDRED THOUSAND and
NO/100 DOLLARS ($500,000) shall be rendered against any member of the Leasing
Group and either (i) enforcement proceedings shall have been commenced by any
creditor upon such award or judgment or (ii) such award or judgment shall
continue unsatisfied and in effect for a period of ten (10) consecutive days
without an insurance company satisfactory to the Lessor (in its sole and
absolute discretion) having agreed to fund such award or judgment in a manner
satisfactory to the Lessor (in its sole and absolute discretion) and in either
case such award or judgment shall, in the reasonable opinion of the Lessor, have
a material adverse effect on the ability of any member of the Leasing Group to
operate the Facility;

         (q) any failure to comply with the Legal Requirements applicable to any
Third Party Payor Program in which the Lessee or the Applicable Licensed
Operator elects to participate, continuing for thirty (30) days after the giving
of notice by the Lessor to the Lessee specifying the nature of any such failure
(except as to matters not susceptible to cure within thirty (30) days, provided
that with respect to such matters, (i) the Lessee commences the cure thereof
within thirty (30) days after the giving of such notice by the Lessor to the
Lessee, (ii) the Lessee continuously prosecutes such cure to completion, (iii)
such cure is completed within one hundred eighty (180) days after the giving of
such notice by the Lessor to the Lessee, and (iv) such failure to comply does
not materially impair the value of, or the Lessor's rights with respect to, the

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<PAGE>   98
Leased Property or otherwise materially impair the Collateral or the Lessor's
security interest therein), unless the Lessee elects to no longer participate in
any such Third Party Payor Program and sends written notice of such election to
the Lessor;

         (r) any failure to comply with the Legal Requirements applicable to any
Accreditation Body under whose jurisdiction the Lessee or any other Acceptable
Licensed Operator elects to subject itself, continuing for thirty (30) days
after the giving of notice by the Lessor to the Lessee specifying the nature of
any such failure (except as to matters not susceptible to cure within thirty
(30) days, provided that with respect to such matters, (i) the Lessee commences
the cure thereof within thirty (30) days after the giving of such notice by the
Lessor to the Lessee, (ii) the Lessee continuously prosecutes such cure to
completion, (iii) such cure is completed within one hundred eighty (180) days
after the giving of such notice by the Lessor to the Lessee, and (iv) such
failure to comply does not materially impair the value of, or the Lessor's
rights with respect to, the Leased Property or otherwise materially impair the
Collateral or the Lessor's security interest therein), unless the Lessee elects
to no longer be subject to the jurisdiction of any such Accreditation Body and
sends written notice of such election to the Lessor;

         (s) if any member of the Leasing Group receives notice of a final
unappealable determination by applicable Governmental Authorities of the
revocation of any Permit required for the lawful construction or operation of
the Facility in accordance with the Primary Intended Use or the loss of, or the
failure to obtain and/or renew, any Permit under any other circumstances under
which any member of the Leasing Group is required to cease the operation of the
Facility in accordance with the Primary Intended Use; and

         (t) any failure to maintain the insurance required pursuant to Section
12 of this Lease in force and effect at all times until the Lease Obligations
are fully paid and performed;

         (u) the appointment of a temporary manager (or operator) for the Leased
Property by any Governmental Authority;

         (v) the entry of an order by a court with jurisdiction over the Leased
Property to close the Facility; or

         (w) the entry of an order to transfer one or more residents from the
Facility as a result of an allegation of abuse or neglect or to take any action
to eliminate an emergency situation then existing at the Facility where such
order would have a material adverse effect in the Lessor's reasonable judgment
on the continued operation of the Facility (it being understood, however, that
if there are more than three (3) such orders at any time during the term of this
Lease, then, ipso facto, the Lessor shall be entitled to deem there to 'be a
material adverse effect on the operation of the Facility)

         16.2     Remedies.

         (a) If any Lease Default shall have occurred, the Lessor may at its
option terminate this Lease by giving the Lessee not less than ten (10) days'
notice of such termination, or exercise any

                                       98
<PAGE>   99
one or more of its rights and remedies under this Lease or any of the other
Lease Documents, or as available at law or in equity and upon the expiration of
the time fixed in such notice, the Term shall terminate (but only if the Lessor
shall have specifically elected by a written notice to so terminate, the Lease)
and all rights of the Lessee under this Lease shall cease as though that date
was the date originally set as the Expiration Date. Notwithstanding the
foregoing, in the event of the Lessee's failure to pay Rent, if such Rent
remains unpaid beyond ten (10) days from the due date thereof, the Lessor shall
not be obligated to give ten (10) days notice of such termination or exercise of
any of its other rights and remedies under this Lease, or the other Lease
Documents, or otherwise available at law or in equity, and the Lessor shall be
at liberty to pursue any one or, more of such rights or remedies without further
notice. No taking of possession of the Leased Property by or on behalf of the
Lessor, and no other act done by or on behalf of the Lessor, shall constitute an
acceptance of surrender of the Leased Property by the Lessee or reduce the
Lessee's obligations under this Lease or the other Lease Documents, unless
otherwise expressly agreed to in a written document signed by an authorized
officer or agent of the Lessor.

         (b) To the extent permitted under applicable law, the Lessee shall pay
as Additional Charges all costs and expenses (including, without limitation,
attorneys' fee and expenses) reasonably incurred by or on behalf of the Lessor
as a result of any Lease Default.

         (c) If any Lease Default shall have occurred, whether or not this Lease
has been terminated pursuant to Paragraph (a) of this Section, the Lessee shall,
to the extent permitted under applicable law, if required by the Lessor so to
do, upon not less than ten (10) days' prior notice from the Lessor, immediately
surrender to the Lessor the Leased Property pursuant to the provisions of
Paragraph (a) of this Section and quit the same, and the Lessor may enter upon
and repossess the Leased Property by reasonable force, summary proceedings,
ejectment or otherwise, and may remove the Lessee and all other Persons and any
and all of the Tangible Personal Property from the Leased Property, subject to
the rights of any residents or patients of the Facility and any Sublessees who
are not Affiliates of any member of the Leasing Group and to any requirements of
applicable law, or the Lessor may claim ownership of the Tangible Personal
Property as set forth in Section 5.2.3 hereof or the Lessor may exercise its
rights as secured party under the Security Agreement. The Lessor shall use
reasonable, good faith efforts to relet the Leased Property or otherwise
mitigate damages suffered by the Lessor as a result of the Lessee's breach of
this Lease.

         (d) In addition to all of the rights and remedies of the Lessor set
forth in this Lease and the other Lease Documents, if the Lessee shall fail to
pay any rental or other charge due hereunder (whether denominated as Base Rent,
Additional Rent, Additional Charges or otherwise) within ten (10) days after
same shall have become due and payable, then and in such event the Lessee shall
also pay to the Lessor (i) a late payment service charge (in order to partially
defray the Lessor's administrative and other overhead expenses) equal to two
hundred fifty ($250) dollars and (ii) to the extent permitted by applicable law,
interest on such unpaid sum at the Overdue Rate; it being understood, however,
that nothing herein shall be deemed to extend the due date for payment of any
sums required to be paid by the Lessee hereunder or to relieve the Lessee of its
obligation to pay such sums at the time or times required by this Lease.

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<PAGE>   100
         16.3 Dates. None of (a) the termination of this Lease pursuant to
Section 16.2, (b) the eviction of the Lessee or the repossession of the Leased
Property, (c) the failure or inability of the Lessor, notwithstanding reasonable
good faith efforts, to relet the Leased Property, (d) the reletting of the
Leased Property or (e) the failure of the Lessor to collect or receive any
rentals due upon any such reletting, shall relieve the Lessee of its liability
and obligations hereunder, all of which shall survive any such termination,
repossession or reletting. In any such event, the Lessee shall forthwith pay to
the Lessor all Rent due and payable with respect to the Leased Property to and
including the date of such termination, repossession or eviction. Thereafter,
the Lessee shall forthwith pay to the Lessor, at the Lessor's option, either:

         (i)      the sum of: (x) all Rent that is due and unpaid at later to
                  occur of termination, repossession or eviction, together with
                  interest thereon at the Overdue Rate to the date of payment,
                  plus (y) the worth (calculated in the manner stated below) of
                  the amount by which the unpaid Rent for the balance of the
                  Term after the later to occur of the termination, repossession
                  or eviction exceeds the fair market rental value of the Leased
                  Property for the balance of the Term, plus (z) any other
                  amount necessary to compensate the Lessor for all damage
                  proximately caused by the Lessee's failure to perform the
                  Lease Obligations or which in the ordinary course would be
                  likely to result therefrom; or

         (ii)     each payment of Rent as the same would have become due and
                  payable if the Lessee's right of possession or other rights
                  under this Lease had not been terminated, or if the Lessee had
                  not been evicted, or if the Leased Property had not been
                  repossessed which Rent, to the extent permitted by law, shall
                  bear interest at the Overdue Rate from the date when due until
                  the date paid, and the Lessor may enforce, by action or
                  otherwise, any other term or covenant of this Lease. There
                  shall be credited against the Lessee's obligation under this
                  Clause (ii) amounts actually collected by the Lessor from
                  another tenant to whom the Leased Property may have actually
                  been leased or, if the Lessor is operating the Leased Property
                  for its own account, the actual Cash Flow of the Leased
                  Property.

         In making the determinations described in subparagraph (i) above, the
"worth" of unpaid Rent shall be determined by a court having jurisdiction
thereof using the lowest rate of capitalization (highest present worth)
reasonably applicable at the time of such determination and allowed by
applicable law.

         16.4 Lessee Waivers. If this Lease is terminated pursuant to Section
16.2, the Lessee waives, to the extent not prohibited by applicable law, (a) any
right of redemption, re-entry or repossession, (b) any right to a trial by jury
in the event of summary proceedings to enforce the remedies set forth in this
Article 16, and (c) the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt.

         In the event the Lessor elects to regain possession of the Leased
Property by a forcible detainer proceeding, the Lessee hereby specifically
waives any statutory notice which may be required prior to any such proceeding,
and agrees that the Lessor's execution of this Lease is, in

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part, consideration for this waiver. Except as otherwise set forth herein, the
Lessee further waives any demand for Rent, notice of termination and any notice
to quit required pursuant to statutes of the State or otherwise, and agrees that
the Lessor's execution of this Lease is, in part, consideration for these
waivers.

         All claims for damages by reason of re-entry and/or repossession and/or
alteration of locks or other security devices are hereby waived, as are all
claims for damages by reason of any distress warrant, forcible detainer
proceedings, sequestration proceedings or other legal process. The Lessee agrees
that any re-entry by the Lessor may be pursuant to judgment obtained in forcible
detainer proceedings or other legal proceedings or without the necessity for any
legal proceedings, as the Lessor may elect, and the Lessor shall not be liable
in trespass or otherwise.

         The Lessee shall not interpose any counterclaim of any kind in any
action or proceeding commenced by the Lessor to recover possession of the Leased
Property.

         16.5 Application of Funds. Any payments otherwise payable to the Lessee
which are received by the Lessor under any of the provisions of this Lease
during the existence or continuance of any Lease Default shall be applied to the
Lease Obligations in the order which the Lessor may reasonably determine or as
may be required by the laws of the State.

         16.6 Intentionally Omitted.

         16.7 Lessor's Right to Cure. If the Lessee shall fail to make any
payment, or to perform any act required to be made or performed under this Lease
and to cure the same within the relevant time periods provided in Section 16.1,
the Lessor, after five (5) Business Days' prior notice to the Lessee (except in
an emergency when such shorter notice shall be given as is reasonable under the
circumstances), and without waiving or releasing any obligation or Event of
Default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of the
Lessee, and may, to the extent permitted by law, enter upon the Leased Property
for such purpose and take all such action thereon as, in the Lessor's opinion,
may be necessary or appropriate therefor. No such entry shall be deemed an
eviction of the Lessee. All sums so paid by the Lessor and all costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses, in each case, to the extent permitted by law) so incurred shall be
paid by the Lessee to the Lessor on demand as an Additional Charge. The
obligations of the Lessee and rights of the Lessor contained in this Article
shall survive the expiration or earlier termination of this Lease.

         16.8 No Waiver By Lessor. The Lessor shall not by any act, delay,
omission or otherwise (including, without limitation, the exercise of any right
or remedy hereunder) be deemed to have waived any of its right or remedies
hereunder or under any of the other Lease Documents unless such waiver is in
writing and signed by the Lessor, and then, only to the extent specifically set
forth therein. No waiver at any time of any of the terms, conditions, covenants,
representations or warranties set forth in any of the Lease Documents
(including, without limitation, any of the time periods set forth therein for
the performance of the Lease Obligations) shall be construed as a waiver of any
other term, condition, covenant, representation or warranty of any of the Lease

                                      101
<PAGE>   102

Documents, nor shall such a waiver in any one instance or circumstances be
construed as a waiver of the same term, condition, covenant, representation or
warranty in any subsequent instance or circumstance. No such failure, delay or
waiver shall be construed as creating a requirement that the Lessor must
thereafter, as a result of such failure, delay or waiver, give notice to the
Lessee, any guarantor of the Lease Obligations, or any other Person that the
Lessor does not intend to, or may not, give a further waiver or to refrain from
insisting upon the strict performance of the terms, conditions, covenants,
representations and warranties set forth in the Lease Documents before the
Lessor can exercise any of its rights or remedies under any of the Lease
Documents or before any Lease Default can occur, or as establishing a course of
dealing for interpreting the conduct of and agreements between the Lessor and
the Lessee, any guarantor of the Lease Obligations or any other Person.

         The acceptance by the Lessor of any payment that is less than payment
in full of all amounts then due under any of the Lease Documents at the time of
the making of such payment shall not: (a) constitute a waiver of the right to
exercise any of the Lessor's remedies at that time or at any subsequent time,
(b) constitute an accord and satisfaction or (c) nullify any prior exercise of
any remedy, without the express written consent of the Lessor. Any failure by
the Lessor to take any action under this Lease or any of the other Lease
Documents by reason of a default hereunder or thereunder, any acceptance of a
past due installment, or any indulgence granted from time to time shall not be
construed (i) as a novation of this Lease or any of the other Lease Documents,
(ii) as a waiver of any right of the Lessor thereafter to insist upon strict
compliance with the terms of this Lease or any of the other Lease Documents or
(iii) to prevent the exercise of any right of acceleration or any other right
granted hereunder or under applicable law; and to the maximum extent not
prohibited by applicable law, the Lessor hereby expressly waives the benefit of
any statute or rule of law or equity now provided, or which may hereafter be
provided, which would produce a result contrary to or in conflict with the
foregoing.

         16.9 Right of Forbearance. Whether or not for consideration paid or
payable to the Lessor and, except as may be otherwise specifically agreed to by
the Lessor in writing, no forbearance on the part of the Lessor, no extension of
the time for the payment of the whole or any part of the Obligations, and no
other indulgence given by the Lessor to the Lessee or any other Person, shall
operate to release or in any manner affect the original liability of the Lessee
or such other Persons, or to limit, prejudice or impair any right of the Lessor,
including, without limitation, the right to realize upon any collateral, or any
part thereof, for any of the Obligations evidenced or secured by the Lease
Documents; notice of any such extension, forbearance or indulgence being hereby
waived by the Lessee and all those claiming by, through or under the Lessee.

         16.10 Cumulative Remedies. The rights and remedies set forth under this
Lease are in addition to all other rights and remedies afforded to the Lessor
under any of the other Lease Documents or at law or in equity, all of which are
hereby reserved by the Lessor, and this Lease is made and accepted without
prejudice to any such rights and remedies. All of the rights and remedies of the
Lessor under each of the Lease Documents shall be separate and cumulative and
may be exercised concurrently or successively in the Lessor's sole and absolute
discretion.

                                   ARTICLE 17

                                      102
<PAGE>   103

               SURRENDER OF LEASED PROPERTY OR LEASE: HOLDING OVER

         17.1 Surrender. The Lessee shall, upon the expiration or prior
termination of the Term (unless the Lessee has concurrently purchased the Leased
Property in accordance with the terms hereof), vacate and surrender the Leased
Property to the Lessor in good repair and condition, in compliance with all
Legal Requirements, all Insurance Requirements, and in compliance with the
provisions of Article 8, except for: (a) ordinary wear and tear (subject to the
obligation of the Lessee to maintain the Leased Property in good order and
repair during the entire Term of the Lease), (b) damage caused by the gross
negligence or willful acts of the Lessor, any Affiliate of the Lessor and any of
their respective successors, assigns, employees, servants, agents, attorneys,
officers, directors, shareholders, partners or owners, and (c) any damage or
destruction resulting from a Casualty or Taking that the Lessee is not required
by the terms of this Lease to repair or restore.

         17.2 Transfer of Permits and Contracts. In connection with the
expiration or any earlier termination of this Lease (unless the Lessee has
concurrently purchased the Leased Property in accordance with the terms hereof),
upon any request made from time to time by the Lessor, the Lessee shall (at no
out-of-pocket costs to the Lessee in connection with the expiration or
termination of this Lease for reasons other than a Lease Default) (a) promptly
and diligently use its best efforts to (i) transfer and assign all Permits and
Contracts necessary or desirable for the operation of the Leased Property in
accordance with its Primary Intended Use to the Lessor or its designee and/or
(ii) arrange for the transfer or assignment of such Permits and Contracts to the
Lessor or its designee, all to the extent the same may be transferred or
assigned under applicable law and the terms thereof, and (b) cooperate in every
respect (and to the fullest extent possible) and assist the Lessor or its
designee in obtaining such Permits and Contracts (whether by transfer,
assignment or otherwise). Such efforts and cooperation on the part of the Lessee
shall include, without limitation, the execution, delivery and filing with
appropriate Governmental Authorities and Third Party Payors of any applications,
petitions, statements, notices, requests, assignments and other documents or
instruments requested by the Lessor. Furthermore, the Lessee shall not take any
action or refrain from taking any action which would defer, delay or jeopardize
the process of the Lessor or its designee obtaining said Permits and Contracts
(whether by transfer, assignment or otherwise). Without limiting the foregoing,
the Lessee shall not seek to transfer or relocate any of said Permits or
Contracts to any location other than the Leased Property. The provisions of this
Section 17.2 shall survive the expiration or earlier termination of this Lease.

         The Lessee hereby appoints the Lessor as its attorney-in- fact, with
full power of substitution to take such actions, in the event that the Lessee
fails to comply with any request made by the Lessor hereunder, as the Lessor (in
its sole absolute discretion) may deem necessary or desirable to effectuate the
intent of this Section 17.2. The power of attorney conferred on the Lessor by
the provisions of this Section 17.2, being coupled with an interest,, shall be
irrevocable until the Obligations are fully paid and performed and shall not be
affected by any disability or incapacity which the Lessee may suffer and shall
survive the same. Such power of attorney is provided solely to protect the
interests of the Lessor and shall not impose any duty on the Lessor

                                      103
<PAGE>   104

to exercise any such power and neither the Lessor nor such attorney-in-fact
shall be liable for any act, omission, error in judgment or mistake of law,
except as the same may result from its gross negligence or willful misconduct.

         17.3 No Acceptance of Surrender. Except at the expiration of the Term
in the ordinary course, no surrender to the Lessor of this Lease or of the
Leased Property or any interest therein shall be valid or effective unless
agreed to and accepted in writing by the Lessor and no act by the Lessor or any
representative or agent of the Lessor; other than such a written acceptance by
the Lessor, shall constitute an acceptance of any such surrender.

         17.4 Holding, Over. If, for any reason, the Lessee shall remain in
possession of the Leased Property after the expiration or any earlier
termination of the Term, such possession shall be as a tenant at sufferance
during which time the Lessee shall pay as rental each month, one and one-half
times the aggregate of (i) one-twelfth of the aggregate Base Rent and Additional
Rent payable at the time of such expiration or earlier termination of the Term;
(ii) all Additional Charges accruing during the month and (iii) all other sums,
if any, payable by the Lessee pursuant to the provisions of this Lease with
respect to the Leased Property., During such period of tenancy, the Lessee shall
be obligated to perform and observe all of the terms, covenants and conditions
of this Lease, but shall have no rights hereunder other than the right, to the
extent given by law to tenants at sufferance, to continue its occupancy and use
of the Leased Property. Nothing contained herein shall constitute the consent,
express or implied, of the Lessor to the holding over of the Lessee after the
expiration or earlier termination of this Lease.

                                   ARTICLE 18

                         PURCHASE OF THE LEASED PROPERTY

         18.1 [Intentionally Omitted].

         18.2 [Intentionally Omitted].

         18.3 [Intentionally Omitted].

         18.4 Lessee's Option to Purchase.

         18.4.1 Conditions to Option. On the conditions (which conditions the
Lessor may waive, at its sole option, by notice to the Lessee at any time) that
(a) at the time of exercise of the Purchase Option (defined below) and on the
applicable Purchase Option Date (defined below), there then exists no Lease
Default, nor any state of facts or circumstance which constitutes, or with the
passage of time and/or the giving of notice, would constitute a Lease Default
and (b) the Lessee strictly complies with the provisions of this Section 18.4,
then the Lessee shall have the option to purchase the Leased Property, at the
price and upon the terns hereinafter set forth (the "Purchase Option").

         18.4.2 Exercise of Option. The Purchase Option shall permit the Lessee
to purchase the

                                      104
<PAGE>   105

Leased Property (a) on the last day of the Initial Term or (b) on the last day
of any Extended Term effectively exercised by the Lessee (each of such dates are
referred to herein as a "Purchase Option Date") and shall be exercised by notice
given by the Lessee to the Lessor (the "Lessee's Purchase Option Notice") at
least one hundred eighty (180) days (but not more than two hundred seventy (270)
days) prior to the relevant Purchase Option Date. Notwithstanding anything to
the contrary set forth in this Lease, the Lessee's right to purchase the Leased
Property is subject to the further condition that all of the conditions in the
Agreement Regarding Related Lease Transactions pertaining to the Purchase Option
are satisfied. Once given, the Lessee shall have no right to rescind the
Lessee's Purchase Option Notice.

         18.4.3 Conveyance. If the Purchase Option is exercised by the Lessee in
accordance with the terms hereof, the Leased Property shall be conveyed by a
good and sufficient deed with covenants only against acts of the Lessor (the
"Deed") running to the Lessee or to such grantee as the Lessee may designate by
notice to the Lessor at least seven (7) days before the Time of Closing. At the
Closing, the Lessor shall also deliver or cause to be delivered (a) a title
insurance affidavit in the usual form (but limited to the Lessor's own acts
during its ownership), (b) releases or discharges of any liens against the
Leased Property granted by the Lessor to any Meditrust Entity, except for any
Lien described in the first sentence of Section 18.4.8 below, and (c) a FIRPTA
Affidavit; and the Lessee shall cause to be delivered to the Lessor a release of
all liability under the Bond-Related Obligations and the Superior Lease
Obligations.

         18.4.4 Calculation of Purchase Price. Subject to the terms of the
Agreement Regarding Related Lease Transactions, the price to be paid by the
Lessee for the acquisition of the Leased Property pursuant to this Purchase
Option (the "Purchase Price") shall be' equal to the greater of (a) the
Meditrust Investment or (b) an amount equal to the then Fair Market Value of the
Leased Property minus the Fair Market Added Value, as determined in accordance
with the procedures set forth in Section 24.14 below. If the Purchase Price is
calculated in accordance with clause (b) above, fifty percent (50%) of the
Overage Amount shall be deducted from the Purchase Price. As used herein, the
"Overage Amount" is the amount by which (i) the Fair Market Value of the Leased
Property minus the Fair Market Added Value exceeds (ii) 115% of the Meditrust
Investment.

         18.4.5 Payment of Purchase Price. Subject to the terms of the Agreement
Regarding Related Lease Transactions, the Purchase Price shall be paid by the
Lessee at the Time of Closing by certified, cashier's, treasurer's or bank
checks) or wire transfer pursuant to instructions received from the Lessor.

         18.4.6 Place and Time of Closing. Subject to the terms of the Agreement
Regarding Related Lease Transactions, if the Purchase Option is exercised, the
closing shall occur and the Deed shall be delivered (the "Closing") at the
office of the Lessor at 12:00 o'clock noon (E.S.T.) on the applicable Purchase
Option Date (such time, as the same may be extended by mutual written agreement
of the Lessor and the Lessee, being hereinafter referred to as the "Time of
Closing"). It is agreed that time is of the essence of the purchase Option.

         18.4.7 Condition of Leased Property. The Leased Property is to be
purchased "AS IS"

                                      105
<PAGE>   106

and "WHERE IS" as of the Time of Closing.

         18.4.8 Quality of Title. Such conveyance shall be made subject to all
Legal Requirements, all of the matters described in clauses (a), (b), (e) and
(g) of Section 11.5.2 of the Lease, Impositions, any Liens created by the
Lessee, any Liens created in accordance with the terms of the Lease or consented
to by the Lessee, the claims of all Persons claiming by, through or under the
Lessee or any Affiliate thereof, and any other matters assented to by the Lessee
or any Affiliate thereof, and all matters for which the Lessee or any .Affiliate
thereof has responsibility under any of the Lease Documents; however, the Leased
Property shall not be conveyed subject to any Lien created by the Lessor from
and after the Commencement Date (other than an Encumbrance permitted under
Article 20 of the Lease which the Lessee elects to assume). If the Lessor shall
be unable to give title or to make conveyance, as stipulated in this Section
18.4, then, at the Lessor's option, the Lessor shall use reasonable efforts to
remove all defects in title and the applicable Purchase Option Date and Time of
Closing shall be extended for period of thirty (30) days. The Lessor shall not
be required to expend more than FIFTY THOUSAND and NO/100 DOLLARS ($50,000.00)
(inclusive of attorney's fees, but exclusive of payments needed to discharge any
voluntary liens or encumbrances imposed against the Leased Property by the
Lessor and not otherwise permissible under the first sentence of this section)
in order to have used "reasonable efforts."

         18.4.9 Lessor's Inability or Failure to Perform. If at the expiration
of the extended time the Lessor shall have failed so to remove any such defects
in title, then all other obligations of all parties hereto under Section 18.4
shall cease and Section 18.4 shall be void and without recourse to the parties
hereto. Notwithstanding the foregoing, the Lessee shall have the election, at
either the original or extended Purchase Option Date and Time of Closing, to
accept such title as the Lessor can deliver to the Leased Property in its then
condition and to pay therefor the Purchase Price without reduction, in which
case the Lessor shall convey such title; provided, that, in the event of such
conveyance, if any portion of the Leased Property shall have been taken by
Condemnation prior to the applicable Purchase Option Date and Time of Closing,
the Lessor shall pay over or assign to the Lessee at the Time of Closing, all
Awards recovered on account of such Taking, less any amounts reasonably expended
by the Lessor in obtaining such Awards, or, to the extent such Awards have not
been recovered as of the applicable Purchase Option Date and Time of Closing,
the Lessor shall assign to the Lessee all its rights with respect to any claim
therefor. If the Lessor simply refuses to perform its obligations under the
Purchase Option, the Lessee shall have the right to sue for specific performance
of such obligations.

         18.4.10 Merger by Deed. The acceptance of the Deed by the Lessee or the
grantee designated by the Lessee, as the case may be, shall be deemed to be a
full performance and discharge of every agreement and obligation to be performed
by the Lessor contained or expressed in this Lease.

         18.4.11 Use of Purchase Price to Clear Title. To enable the Lessor to
make conveyance as provided in this Section, the Lessor may, at the Time of
Closing, use the Purchase Price or any portion thereof to clear the title of any
Lien, provided that all instruments so procured are recorded contemporaneously
with the Closing or reasonable arrangements are made for a

                                      106
<PAGE>   107

recording subsequent to the Time of Closing in accordance with customary
conveyancing practices.

         18.4.12 Lessee's Default. If the Lessee delivers the Lessee's Purchase
Option Notice and fails to consummate the purchase of the Leased Property in
accordance with the terms hereof for any reason other than (i) the Lessor's
willful and unexcused refusal to deliver the Deed or (ii) the Lessor's inability
after satisfying the requirements of Section 18.4.8 to deliver to the Lessee the
quality of title required by this Lease, (a) the Lessee shall thereafter have no
further right to purchase the Leased Property pursuant to this Section, although
this Lease shall otherwise continue in full force and effect and (b) the Lessor
shall have the right to sue for specific performance of the Lessee's obligations
to purchase the Leased Property provided such suit for specific performance is
commenced within one (1) year after the applicable Purchase Option Date on which
such sale was supposed to occur.

                                   ARTICLE 19

                            SUBLETTING AND ASSIGNMENT

         19.1 Subletting and Assignment. Except as specifically set forth in
Section 19.2 below, the Lessee may not, without the prior written consent of the
Lessor, which consent may be withheld in' the Lessor's sole and absolute
discretion, assign or pledge all or any portion of its interest in this Lease or
any of the other Lease Documents (whether by operation of law or otherwise) or
sublet all. or any part of the Leased Property. For purposes of this Section
19.1, the term "assign" shall be deemed to include, but not be limited to, any
one or more sales, pledges, hypothecations or other transfers (including,
without limitation, any transfer by operation of law) of any of the capital
stock of or partnership interest in the Lessee or sales, pledges, hypothecations
or other transfers (including, without limitation, any transfer by operation of
law) of the capital or the assets of the Lessee. Any such assignment, pledge,
sale, hypothecation or other transfer made without the Lessor's consent shall be
void and of no force and effect.

         19.2 Permitted Subleases. Notwithstanding the foregoing, the Lessee
shall have the right to enter into Resident Agreements without the prior consent
of the Lessor.

         19.3 Attornment. The Lessee shall insert in each Sublease approved by
the Lessor or permitted under Section 19.2, provisions to the effect that (a)
such Sublease is subject and subordinate to all of the terms and provisions of
this Lease and to the rights of the Lessor hereunder, (b) in the event this
Lease shall terminate before the expiration of such Sublease, the Sublessee
thereunder will, at the Lessor's option, attorn to the Lessor and waive any
right the Sublessee may have to terminate the Sublease or to surrender
possession thereunder, as a result of the termination of this Lease and (c) in
the event the Sublessee receives a written notice from the Lessor stating that
the Lessee is in default under this Lease, the Sublessee shall thereafter be
obligated to pay all rentals accruing under said Sublease directly to the Lessor
or as the Lessor may direct. All rentals received from the Sublessee by the
Lessor shall be credited against the amounts owing by the Lessee under this
Lease.

                                      107
<PAGE>   108

                                   ARTICLE 20

                   TITLE TRANSFERS AND LIENS GRANTED BY LESSOR

         20.1 No Merger of Title. There shall be no merger of this Lease or of
the leasehold estate created hereby with the fee estate in the Leased Property
by reason of the fact that the same Person may acquire, own or hold, directly or
indirectly (a) this Lease or the leasehold estate created hereby or any interest
in this Lease or such leasehold estate and (b) the fee estate in the Leased
Property.

          20.2 Transfers By Lessor. If the original Lessor named herein or any
 successor in interest shall' convey the Leased Property in accordance with the
 terms hereof, other than as security for a debt, and the grantee or transferee
 of the Leased Property shall expressly assume all obligations of the Lessor
 hereunder arising or accruing from- and after the date of such conveyance or
 transfer, the original Lessor named herein or the applicable successor in
 interest so conveying the Leased Property shall thereupon be released from all
 future liabilities and obligations of the Lessor under this Lease arising or
 accruing from and after the date of such conveyance or other transfer as to the
 Leased Property and all such future liabilities and obligations shall thereupon
 be binding upon the new owner.

         20.3 Lessor May Grant Liens. Without the consent of the Lessee, but
subject to the terms and conditions set forth below in this Section 20.3, the
Lessor may, from time to time, directly or indirectly, create or otherwise cause
to exist any lien, encumbrance or title retention agreement upon the Leased
Property or any interest therein ("Encumbrance"), whether to secure any
borrowing or other means of financing or refinancing, provided that the Lessee
shall have no obligation to make payments under such Encumbrances. The Lessee
shall subordinate this Lease to the lien of any such Encumbrance, on the
condition that the beneficiary or holder of such Encumbrance executes a
non-disturbance agreement in conformity with the provisions of Section 20.4. To
the extent that any such Encumbrance consists of a mortgage or deed of trust on
the Lessor's interest in the Leased Property the same shall be referred to
herein as a "Fee Mortgage" and the holder thereof shall be referred to herein as
a "Fee Mortgagee".

         20.4 Subordination and Non-Disturbance. Concurrently with the execution
and delivery of any Fee Mortgage entered into after the date hereof, provided
that the Lessee executes and delivers an agreement of the type described in the
following paragraph, the Lessor shall obtain and deliver to the Lessee an
agreement by the holder of such Fee Mortgage, pursuant to which, (a) the
applicable Fee Mortgagee consents to this Lease and (b) agrees that,
notwithstanding the terms of the applicable Fee Mortgage held by such Fee
Mortgagee, or any default, expiration, termination, foreclosure, sale, entry or
other act or omission under or pursuant to such Fee Mortgage or a transfer in
lieu of foreclosure, (i) the Lessee shall not be disturbed in peaceful enjoyment
of the Leased Property nor shall this Lease be terminated or cancelled at any
time, except in the event that the Lessor shall have the right to terminate this
Lease under the terms and provisions expressly set forth herein, (ii) the
Lessee's rights under this Lease shall not be diminished or adversely effected
in any way provided no Event of Default exists hereunder, (iii) all insurance
proceeds received in connection with any loss, injury or damage relating to the

                                      108
<PAGE>   109

Leased Property shall be paid to the Lessor in accordance with the provisions of
this Lease and the Fee Mortgagee shall have no rights with respect to any such
proceeds unless the Lessee elects to terminate this Lease pursuant to the
provisions of Section 13.2.2, (iv) the Lessee's Purchase Option shall remain in
force and effect pursuant to the terms hereof and (v) in the event that the
Lessee elects to exercise the Right of First Refusal to purchase the Leased
Property and performs all of its obligations hereunder in connection with any
such election, the holder of the Fee Mortgage shall release its Fee Mortgage
upon payment by the Lessee of the purchase price required hereunder, provided.
that (1) such purchase price is paid to the holder of the Fee Mortgage, in the
event that the Indebtedness secured by the applicable Fee Mortgage is equal to
or greater than the purchase price or (2) in the event that the purchase price
is greater than the Indebtedness secured by the Fee Mortgage, a portion of the
purchase price equal to the Indebtedness secured by the Fee Mortgage is paid to
the Fee Mortgagee and the remainder of the purchase price is paid to the Lessor.

         At the request from time to time by any Fee Mortgagee, the Lessee shall
(a) subordinate this Lease and all of the Lessee's rights and estate hereunder
to the Fee Mortgage held by such Fee Mortgagee, (b) agree that the Lessee will
attorn to and recognize such Fee Mortgagee or the purchaser at any foreclosure
sale or any sale under a power of sale contained in any such Fee Mortgage as the
Lessor under this Lease for the balance of the Term then remaining and (c) enter
into a new lease with the Fee Mortgagee or the purchaser at any such sale on the
same terms and conditions of this Lease for the balance of the Term then
remaining. To effect the intent and purpose of the immediately preceding
sentence, the Lessee agrees to execute and deliver such instruments in
recordable from as are reasonably requested by the Lessor or the applicable Fee
Mortgagee; provided. however. that such Fee Mortgagee simultaneously executes,
delivers and records a written agreement of the type described in the preceding
paragraph.

                                   ARTICLE 21

                               LESSOR OBLIGATIONS

         21.1 Quiet Enjoyment. As long as the Lessee shall pay all Rent and all
other sums due under any of the Lease Documents as the same become due and shall
fully comply with all of the terms of this Lease and the other Lease Documents
and fully perform its obligations thereunder, the Lessee shall peaceably and
quietly have, hold and enjoy the Leased Property throughout the Term, free of
any claim or other action by the Lessor or anyone claiming by, through or under
the Lessor, but subject to the Permitted Encumbrances and such Liens as may
hereafter be consented to by the Lessee. No failure by the Lessor to comply with
the foregoing covenant shall give the Lessee any right to cancel or terminate
this Lease, or to fail to pay any other sum payable under this Lease, or to fail
to perform any other obligation of the Lessee hereunder. Notwithstanding the
foregoing, the Lessee shall have the right by separate and independent action to
pursue any claim it may have against the Lessor as a result of a breach by the
Lessor of the covenant of quiet enjoyment contained in this Article 21.

         21.2 Memorandum of Lease. The Lessor and the Lessee shall, promptly
upon the request of either, enter into a short form memorandum of this Lease, in
form suitable for recording under

                                      109
<PAGE>   110
the laws of the State, in which reference to this Lease and all options
contained herein shall be made. The Lessee shall pay all recording costs and
taxes associated therewith.

         21.3 Default by Lessor. The Lessor shall be in default of its
obligations under this Lease only if the Lessor shall fail to observe or perform
any term, covenant or condition of this Lease on its part to be performed and
such failure shall continue for a period of thirty (30) days after notice
thereof from the Lessee (or such shorter time as may be necessary in order to
protect the health or welfare of any residents of the Facility or to insure the
continuing compliance of the Facility with the applicable Legal Requirements),
unless such failure cannot with due diligence be cured within a period of thirty
(30) days, in which case such failure shall not be deemed to continue if the
Lessor, within said thirty (30) day period, proceeds promptly and with due
diligence to cure the failure and diligently completes the curing thereof. The
time within which the Lessor shall be obligated to cure any such failure shall
also be subject to extension of time due to the occurrence of any Unavoidable
Delay.

                                   ARTICLE 22

                                     NOTICES

         Any notice, request, demand, statement or consent made hereunder or
under any of the other Lease Documents shall be in writing and shall be deemed
duly given if personally delivered, sent by certified mail, return receipt
requested, or sent by a nationally recognized commercial overnight delivery
service with provision for a receipt, postage or delivery charges prepaid, and
shall be deemed given when so personally delivered or postmarked or placed in
the possession of such mail or delivery service and addressed as follows:

If to the Lessee:           ALS Leasing, Inc.
                            c/o Alternative Living Services, Inc.
                            450 N. Sunnyslope Road, Suite 300
                            Brookfield, Wisconsin 53005

With a copy to:             Miriam J. Dent, Esq.
[The Lessee's counsel]      Rogers & Hardin
                            229 Peachtree Street, N.E., 2700 International Tower

                            Atlanta, Georgia 30303
If to the Guarantor:        Alternative Living Services, Inc.
                            450 N. Sunnyslope Road, Suite 300
                            Brookfield, Wisconsin 53005

With a copy to:             Miriam J. Dent, Esq.
[Guarantor's Counsel]       Rogers & Hardin
                            229 Peachtree Street, N.E., 2700 International Tower
                            Atlanta, Georgia 30303

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<PAGE>   111

If to the Lessor:                       Meditrust Acquisition Corporation III
                                        197 First Avenue
                                        Needham Heights, Massachusetts 02194
                                        Attn: President

With copies tai:                        Meditrust Mortgage Investments, Inc.
                                        197 First Avenue
                                        Needham Heights, Massachusetts 02194
                                        Attn: General Counsel

         and                            Frank Giso III, Esq.
                                        Choate, Hall & Stewart
                                        Exchange Place
                                        53 State Street
                                        Boston, Massachusetts 02109

or such other address as the Lessor, the Lessee or the Guarantor shall
hereinafter from time to time designate, by a written notice to the others given
in such manner. Any notice given to the Lessee or the Guarantor by the Lessor at
any time shall not imply that such notice or any further or similar notice was
or is required.

                                   ARTICLE 23
                        LIMITATION OF MEDITRUST LIABILITY

         The Declaration of Trust establishing the sole shareholder of the
Lessor, Meditrust, a Massachusetts business trust ("Meditrust"), dated August 6,
1985 (the "Declaration"), as amended, a copy of which is duly filed in the
office of the Secretary of State of the Commonwealth of Massachusetts, provides
that the name "Meditrust" refers to the trustees under the Declaration
collectively as trustees, but not individually or personally; and that no
trustee, officer, shareholder, employee or agent of Meditrust or any of its
Subsidiaries shall be held to any personal liability, jointly, or severally, for
any obligation of, or claim against Meditrust or any of its Subsidiaries. All
Persons dealing with Meditrust or the Lessor, in any way, shall look only to the
assets of Meditrust or the Lessor, as applicable, for the payment of any sum or
the performance of any obligation. Furthermore, in no event shall Meditrust or
the Lessor ever be liable to the Lessee or any other Person for any indirect or
consequential damages incurred by the Lessee or such other Person resulting from
any cause whatsoever. Notwithstanding the foregoing, the Lessee hereby
acknowledges and agrees that Meditrust is not a party to this Lease and that the
Lessee shall look only to the assets of the Lessor for the payment of any sum or
performance of any obligation due by or from the Lessor pursuant to the terms
and provisions of the Lease Documents.

                                   ARTICLE 24

                            MISCELLANEOUS PROVISIONS

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         24.1 Broker's Fee Indemnification. Each of the Lessor and the Lessee
hereby represents and warrants to the other that it has not dealt with any
broker or any other similar agent in connection with any of the transactions
contemplated by the Lease Documents. Each of the Lessor and the Lessee shall and
hereby agrees to indemnify, defend (with counsel acceptable to the other) and
hold the other harmless from and against any and all claims for premiums or
other charges, finder's fees, taxes, brokerage fees or commissions and other
similar compensation and all other costs and expenses, including, without
limitation, reasonable attorneys' fees, due in connection with or otherwise
incurred as a result of the indemnifying party's breach of the representation
and warranty set forth in the preceding sentence. Notwithstanding the foregoing,
each of the Lessor and the Lessee shall have the option of conducting its own
defense against any such claims with counsel of its own choice, but at the
expense of the other, as aforesaid. This indemnification shall include all
attorneys' fees and expenses and court costs reasonably incurred by the Lessor
in connection with the defense against any such claims and the enforcement of
this indemnification agreement and shall survive the termination of this Lease.

         24.2 No Joint Venture or Partnership. Neither anything contained in any
of the Lease Documents, nor the acts of the parties hereto, shall create, or be
construed to create, a partnership or joint venture between the Lessor and the
Lessee. The Lessee is not the agent or representative of the Lessor and nothing
contained herein or in any of the other Lease Documents shall make, or be
construed to make, the Lessor liable to any Person for goods delivered to the
Lessee, services performed with respect to the Leased Property at the direction
of the Lessee or for debts or claims accruing against the Lessee.

         24.3 Amendments, Waivers and Modifications. Except as otherwise
expressly provided for herein or in any other Lease Document, none of the terms,
covenants, conditions, warranties or representations contained in this Lease or
in any of the other Lease Documents may be renewed, replaced, amended, modified,
extended, substituted, revised, waived, consolidated or terminated except by an
agreement in writing signed by (a) all parties to this Lease or the other
applicable Lease Document, as the case may be, with regard to any such renewal,
replacement, amendment, modification, extension, substitution, revision,
consolidation or termination and (b) the Person against whom enforcement is
sought with regard to any waiver. The provisions of this Lease and the other
Lease Documents shall extend and be applicable to all renewals, replacements,
amendments, extensions, substitutions, revisions, consolidations and
modifications of any of the Lease Documents, the Management Agreements, the
Related Party Agreements, the Permits and/or the Contracts. References herein
and in the ~ other Lease Documents to any of the Lease Documents, the Management
Agreements, the Related Party Agreements, the Permits and/or the Contracts shall
be deemed to include any renewals, replacements, amendments, extensions,
substitutions, revisions, consolidations or modifications thereof.

         Notwithstanding the foregoing, any reference contained in any of the
Lease Documents, whether express or implied, to any renewal, replacement,
amendment, extension, substitution, revisions, consolidation or modification of
any of the Lease Documents or any Management Agreement, Related Party Agreement,
Permit and/or the Contract is not intended to constitute an agreement or consent
by the Lessor to any such renewal, replacement, amendment, substitution,
revision, consolidation or modification; but, rather as a reference only to
those instances where

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the Lessor may give, agree or consent to any such renewal, replacement,
amendment, extension, substitution, revision, consolidation or modification as
the same may be required pursuant to the terms, covenants and conditions of any
of the Lease Documents.

         24.4 Captions and Headings. The captions and headings set forth in this
Lease and each of the other Lease Documents are included for convenience and
reference only, and the words contained therein shall in no way be held or
deemed to define, limit, describe, explain, modify, amplify or add to the
interpretation, construction or meaning of, or the scope or intent of, this
Lease, any of the other Lease Documents or any parts hereof or thereof.

         24.5 Time is of the Essence. Time is of essence of each and every term,
condition, covenant and warranty set forth herein and in the other Lease
Documents.

         24.6 Counterparts. This Lease may be executed in one or more
counterparts, each of which taken together shall constitute an original and all
of which shall constitute one and the same instrument.

         24.7 Entire Agreement. This Lease and the other Lease Documents set
forth the entire agreement of the parties with respect to the Facility and the
other Leased Property and shall, with respect to the Facility and the other
Leased Property, supersede in all respect the letter of intent dated July 22,
1996 (and all prior iterations thereof) from Meditrust to the Guarantor;
provided, however, said letter of intent is not superseded with respect to the
subject matter not contemplated by the Lease Documents.

         24.8 WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, THE LESSOR AND THE LESSEE HEREBY MUTUALLY, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT WHICH ANY PARTY HERETO MAY NOW OR
HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THE LEASE OR ANY OF THE LEASE DOCUMENTS. The
Lessee hereby certifies that neither the Lessor nor any of the Lessor's
representatives, agents or counsel has represented expressly or otherwise that
the Lessor would not, in the event of any such suit, action or proceeding seek
to enforce this waiver to the right of trial by jury and acknowledges that the
Lessor has been induced by this waiver (among other things) to enter into the
transactions evidenced by this Lease and the other Lease Documents and further
acknowledges that the Lessee (a) has read the provisions of this Lease, and in
particular, the paragraph containing this waiver, (b) has consulted legal
counsel, (c) understands the rights that it is granting in this Lease and the
rights that it waiving in this paragraph in particular and (d) makes the waivers
set forth herein knowingly, voluntarily and intentionally.

         24.9 Successors and Assigns. This Lease and the other Lease Documents
shall be binding and inure to the benefit of (a) upon the Lessee and the
Lessee's legal representatives and permitted successors and assigns and (b) the
Lessor and any other Person .who may now or hereafter hold the interest of the
Lessor under this Lease and their respective successors and assigns.
Notwithstanding the foregoing, except as may be permitted pursuant to Article
19, the

                                      113
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Lessee shall not assign any of its rights or obligations hereunder or under any
of the other Lease Documents without the prior written consent of the Lessor, in
each instance, which consent may be withheld in the Lessor's sole and absolute
discretion.

         24.10 No Third Party Beneficiaries. This Lease and the other Lease
Documents are solely for the benefit of the Lessor, its successors, assigns and
participants (if any), the Meditrust Entities, the Indemnified Parties, the
Lessee, the Guarantor, the other members of the Leasing Group and their
respective permitted successors and assigns, and, except as otherwise expressly
set forth in any of the Lease Documents, nothing contained therein shall confer
upon any Person other than such parties any right to insist upon or to enforce
the performance or observance of any of the obligations contained therein. All
conditions to the obligations of the Lessor to advance or make available
proceeds of insurance or Awards, or to release any deposits held for Impositions
or insurance premiums are imposed solely and exclusively for the benefit of the
Lessor, its successors and assigns. No other Person shall have standing to
require satisfaction of such conditions in accordance with their terms, and no
other Person shall, under any circumstances, be a beneficiary of such
conditions, any or all of which may be freely waived in whole or in part by the
Lessor at any time, if, in the Lessor's sole and absolute discretion, the Lessor
deems it advisable or desirable to do so.

         24.11 Governing Law. This Lease shall be construed and the rights and
obligations of the Lessor and the Lessee shall be determined in accordance with
the laws of the State.

         The Lessee hereby consents to personal jurisdiction in the courts of
the State and the United States District Court for the District in which the
Leased Property is situated as well as to the jurisdiction of all courts from
which an appeal may be taken from the aforesaid courts, for the purpose of any
suit, action or other proceeding arising out of or with respect to any of the
Lease Documents, the negotiation and/or consummation of the transactions
evidenced by the Lease Documents, the Lessor's relationship of any member of the
Leasing Group in connection with the transactions evidenced by the Lease
Documents and/or the performance of any obligation or the exercise of any remedy
under any of the Lease Documents and expressly waives any and all objections the
Lessee may have as to venue in any of such courts.

         24.12 General. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, the Lessee or the
Lessor arising prior to any date of termination of this Lease or any of the
other Lease Documents shall survive such termination.

         If any provision of this Lease or any of the other Lease Documents or
any application thereof shall be invalid or unenforceable, the remainder of this
Lease or the other applicable Lease Document, as the case may be, and any other
application of such term or provision shall not be affected thereby.
Notwithstanding the foregoing, it is the intention of the parties hereto that if
any provision of any of this Lease is capable of two (2) constructions, one of
which would render the provision void and the other of which would render the
provision valid, then such provision shall be construed in accordance with the
construction which renders such provision valid.

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<PAGE>   115

         If any late charges provided for in any provision of this Lease or any
of the other Lease Documents are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate.

         The Lessee waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance and waives all notices of the existence, creation, or incurring of
new or additional obligations, except as to all of the foregoing as expressly
provided for herein.

         24.13 Intention of Parties. The Lessor and the Lessee acknowledge and
agree that this Lease is intended to be a lease of the Leased Property and is in
no way intended to be a mortgage encumbering the Leased Property.

                  24.14 Appraisal.

                  24.14.1 Designation of Appraisers. In the event that it
         becomes necessary to determine the Fair Market Value of the Leased
         Property for any purpose of this Lease, the party required or permitted
         to give notice of such required determination shall include in the
         notice the name of a Person selected to act as appraiser on its behalf.
         Within ten (10) days after receipt of any such notice, the Lessor (or
         the Lessee, as the case may be) shall by notice to the Lessee (or the
         Lessor, as the case may be) appoint a second Person as appraiser on its
         behalf.

                  24.14.2 Appraisal Process. The appraisers thus appointed, each
         of whom must be a member of the American Institute of Real Estate
         Appraisers (or any successor organization thereto), shall, within
         forty-five (45) days after the date of the notice appointing the first
         appraiser, proceed to appraise the Leased Property to determine the
         Fair Market Value of the Leased Property as of the relevant date
         (giving effect to the impact, if any, of inflation from the date of
         their decision to the relevant date); provided, however, that if only
         one appraiser shall have been so appointed, or if two appraisers shall
         have been so appointed but only one such appraiser shall have made such
         determination within fifty (50) days after the making of the Lessee's
         or the Lessor's request, then the determination of such appraiser shall
         be final and binding upon the parties. If two appraisers shall have
         been appointed and shall have made their determinations within the
         respective requisite periods set forth above and if the difference
         between the amounts so determined shall not exceed ten per cent (10%)
         of the lesser of such amounts, then the Fair Market Value of the Leased
         Property shall be an amount equal to fifty percent (50%) of the sum of
         the amounts so determined. If the difference between the amounts so
         determined shall exceed ten percent (10%) of the lesser of such
         amounts, then such two appraisers shall have twenty (20) days to
         appoint a third appraiser, but if such appraisers fail to do so, then
         either party may request the American Arbitration Association or any
         successor organization thereto to appoint an appraiser within twenty
         (20) days of such request; and both parties shall be bound by any
         appointment so made within such twenty (20) day period. If no such
         appraiser shall have been appointed within such twenty (20) days or
         within ninety (90) days of the original request for a determination of
         Fair Market

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         Value of the Leased Property, whichever is earlier, either the Lessor
         or the Lessee may apply to any court having jurisdiction to have such
         appointment made by such court. Any appraiser appointed by the original
         appraisers, by the American Arbitration Association or by such court
         shall be instructed to determine the Fair Market Value of the Leased
         Property within thirty (30) days after appointment of such Appraiser.
         The determination of the appraiser which differs most in terms of
         dollar amount from the determinations of the other two appraisers shall
         be excluded, and fifty percent (50%) of the sum of the remaining two
         determinations shall be final and binding upon the Lessor and the
         Lessee as the Fair Market Value of the Leased Property.

         24.14.3 Specific Enforcement and Costs. This provision for
determination by appraisal shall be specifically enforceable to the extent such
remedy is available under applicable law, and any determination hereunder shall
be final and binding upon the parties except as otherwise provided by applicable
law. The Lessor and the Lessee shall each pay the fees and expenses of the
appraiser appointed by it and each shall pay one-half of the fees and expenses
of the third appraiser and one-half of all other cost and expenses incurred in
connection with each appraisal.

                    [Remainder of Page Intentionally Left Blank]

                                      116
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         IN WITNESS WHEREOF, the parties have caused this Lease to be executed
and attested by their respective officers thereunto duly authorized.

WITNESSES:                                LESSEE:

                                          ALS LEASING, INC., a Delaware
                                          corporation
/s/ Miriam J. Dent                        By:/s/ David M. Boitano
Name: Miriam J. Dent                      Name: David M. Boitano
                                              Title: Vice President

Name:

WITNESSES:                                LESSOR:
                                          MEDITRUST ACQUISITION
                                          CORPORATION III, a Delaware
                                          corporation
                                          By:
/s/ Susan E. Douglas                      By: /s/ Michael F. Bushee
Name: Susan E. Douglas                        Name: Michael F. Bushee
                                              Title: Chief Operating Officer

/s/ Frank Giso III
Name Frank Giso III

                                      117

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