Document:

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                                                                    EXHIBIT 10.2

                                                            Holley Court Terrace
                                                 Oak Park, Cook County, Illinois

                                 LEASE AGREEMENT

                          DATED AS OF FEBRUARY 11, 2002

                                 BY AND BETWEEN

                         CNL RETIREMENT-AM/ILLINOIS LP,
                         a Delaware limited partnership,

                                  AS LANDLORD,

                                       AND

                             ARC HOLLEY COURT, LLC,
                      a Tennessee limited liability company

                                    AS TENANT

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                                TABLE OF CONTENTS

<TABLE>
<S>            <C>                                                                                 <C>
ARTICLE 1...........................................................................................1
   DEFINITIONS......................................................................................1

ARTICLE 2..........................................................................................11
   LEASED PROPERTY AND TERM........................................................................11
      2.1      Leased Property.....................................................................11
      2.2      Condition of Leased Property........................................................12
      2.3      Initial Term........................................................................13
      2.4      Extended Term.......................................................................13
      2.5      Yield Up............................................................................13

ARTICLE 3..........................................................................................13
   RENT............................................................................................13
      3.1      Rent................................................................................13
      3.2      Minimum Rent........................................................................14
      3.3      Percentage Rent.....................................................................15
      3.4      Additional Charges..................................................................16
      3.5      Landlord Advances...................................................................17
      3.6      Late Payment of Rent................................................................18
      3.7      Net Lease...........................................................................18
      3.8      No Abatement of Rent................................................................19
      3.9      INTENTIONALLY OMITTED...............................................................19
      3.10     Tenant Security Deposit.............................................................19
      3.11     Security for all ARC-Related Leases.................................................20
      3.12     Security Agreement..................................................................20

ARTICLE 4..........................................................................................20
   USE OF THE LEASED PROPERTY; CONFLICTING BUSINESS................................................20
      4.1      Permitted Use.......................................................................20
      4.2      Environmental Matters...............................................................22
      4.3      Conflicting Businesses Prohibited...................................................22
      4.4      Continuous Operations...............................................................23
      4.5      Compliance With Restrictions, Etc...................................................23
      4.6      Standard of Operation...............................................................24
      4.7      Resident Agreements and Service Licenses............................................25
      4.8      Standards, Not Control..............................................................25
      4.9      Survival............................................................................25

ARTICLE 5..........................................................................................26
   MAINTENANCE AND REPAIRS.........................................................................26
      5.1      Tenant's Obligations................................................................26
      5.2      Reserve.............................................................................26

ARTICLE 6..........................................................................................29
   IMPROVEMENTS, ETC...............................................................................29
      6.1      Prohibition.........................................................................29
      6.2      Permitted Renovations...............................................................29
</TABLE>

                                       i

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<TABLE>
<S>            <C>                                                                                 <C>
      6.3      Conditions to Reserve Expenditures, Permitted Renovations and Major Alterations.....30
      6.4      Salvage.............................................................................31

ARTICLE 7..........................................................................................31
   LANDLORD'S INTEREST NOT SUBJECT TO LIENS........................................................31
      7.1      Liens, Generally....................................................................31
      7.2      Construction or Mechanics Liens.....................................................31
      7.3      Contest of Liens....................................................................32
      7.4      Notices of Commencement of Construction.............................................32

ARTICLE 8..........................................................................................32
   TAXES AND ASSESSMENTS...........................................................................32
      8.1      Obligation to Pay Taxes and Assessments.............................................32
      8.2      Tenant's Right to Contest Taxes.....................................................33
      8.3      Tax and Insurance Escrow Account....................................................33

ARTICLE 9..........................................................................................34
   INSURANCE.......................................................................................34
      9.1      General Insurance Requirements......................................................34
      9.2      Waiver of Subrogation...............................................................36
      9.3      General Provisions..................................................................36
      9.4      Blanket Policy......................................................................37
      9.5      Indemnification of Landlord.........................................................37

ARTICLE 10.........................................................................................38
   CASUALTY........................................................................................38
      10.1     Restoration and Repair..............................................................38
      10.2     Escrow and Disbursement of Insurance Proceeds.......................................38
      10.3     No Abatement of Rent................................................................39
      10.4     Tenant's Property and Business Interruption Insurance...............................39
      10.5     Restoration of Tenant's Property....................................................39
      10.6     Waiver..............................................................................40

ARTICLE 11.........................................................................................40
   CONDEMNATION....................................................................................40
      11.1     Total Condemnation, Etc.............................................................40
      11.2     Partial Condemnation................................................................40
      11.3     Disbursement of Award...............................................................40
      11.4     No Abatement of Rent................................................................41
      11.5     Disputes............................................................................41

ARTICLE 12.........................................................................................41
   DEFAULTS AND REMEDIES...........................................................................41
      12.1     Events of Default...................................................................41
      12.2     Remedies on Default.................................................................44
      12.3     Application of Funds................................................................47
      12.4     Landlord's Right to Cure Tenant's Default...........................................47
      12.5     Landlord's Lien.....................................................................48
</TABLE>

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<TABLE>
<S>            <C>                                                                                 <C>
ARTICLE 13.........................................................................................48
   HOLDING OVER....................................................................................48

ARTICLE 14.........................................................................................48
   LIABILITY OF LANDLORD; INDEMNIFICATION..........................................................48
      14.1     Liability of Landlord...............................................................48
      14.2     Indemnification of Landlord.........................................................49
      14.3     Notice of Claim or Suit.............................................................50
      14.4     Limitation on Liability of Landlord.................................................50

ARTICLE 15.........................................................................................50
   REIT AND UBTI REQUIREMENTS......................................................................50
      15.1     Limitations on Rents Attributable to Personal Property..............................50
      15.2     Basis for Sublease Rent Restricted..................................................51
      15.3     Landlord Affiliate Subleases Restricted.............................................51
      15.4     Landlord Interests in Tenant Restricted.............................................51
      15.5     Rents from Personal Property Restricted.............................................51
      15.6     Landlord Services...................................................................52
      15.7     Certain Subtenants Prohibited.......................................................52
      15.8     Future Amendment....................................................................52

ARTICLE 16.........................................................................................52
   SUBLETTING AND ASSIGNMENT.......................................................................52
      16.1     Transfers Prohibited Without Consent................................................52
      16.2     Indirect Transfer Prohibited Without Consent........................................53
      16.3     Adequate Assurances.................................................................53

ARTICLE 17.........................................................................................53
   ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS..................................................53
      17.1     Estoppel Certificates...............................................................53
      17.2     Monthly Financial Statements........................................................53
      17.3     Annual Financial Statements.........................................................54
      17.4     Records.............................................................................54
      17.5     General Operations Budget...........................................................55
      17.6     Quarterly Meetings..................................................................55

ARTICLE 18.........................................................................................55
   LANDLORD'S RIGHT TO INSPECT.....................................................................55

ARTICLE 19.........................................................................................55
   FACILITY MORTGAGES..............................................................................55
      19.1     Subordination.......................................................................55
      19.2     Attornment..........................................................................56
      19.3     Rights of Mortgagees and Assignees..................................................56

ARTICLE 20.........................................................................................57
   ADDITIONAL COVENANTS OF TENANT..................................................................57
      20.1     Conduct of Business.................................................................57
      20.2     Additional Covenants of Tenant......................................................57
</TABLE>

                                      iii
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<TABLE>
<S>            <C>                                                                                 <C>
      20.3     Tenant a Single Purpose Entity......................................................59
      20.4     Intentionally Omitted...............................................................59

ARTICLE 21.........................................................................................59
   MISCELLANEOUS...................................................................................59
      21.1     Limitation on Payment of Rent.......................................................59
      21.2     No Waiver...........................................................................60
      21.3     Remedies Cumulative.................................................................60
      21.4     Severability........................................................................60
      21.5     Acceptance of Surrender.............................................................60
      21.6     No Merger of Title..................................................................60
      21.7     Tenant's Representations............................................................60
      21.8     Quiet Enjoyment.....................................................................62
      21.9     Recordation of Memorandum of Lease..................................................62
      21.10    Notices.  (a).......................................................................63
      21.11    Construction; Nonrecourse...........................................................64
      21.12    Counterparts; Headings..............................................................64
      21.13    Applicable Law......................................................................64
      21.14    Right to Make Agreement.............................................................64
      21.15    Brokerage...........................................................................65
      21.16    No Partnership or Joint Venture.....................................................65
      21.17    Entire Agreement....................................................................65
      21.18    Costs and Attorneys' Fees...........................................................65
      21.19    Approval of Landlord................................................................65
      21.20    Successors and Assigns..............................................................66
      21.21    Waiver of Jury Trial................................................................66
      21.22    Treatment of Lease..................................................................66
      21.23    Transfer of Licenses................................................................66
      21.24    Tenant's Personal Property..........................................................66
      21.25    Landlord's Representations..........................................................67
      21.26    Guaranty of Lease...................................................................67
      21.27    Guaranty of ARC-Related Leases......................................................67
      21.28    Landlord's Assumed Financing........................................................67
</TABLE>

EXHIBITS

Exhibit "A" - The Land
Exhibit "B" - Minimum Rent
Exhibit "C" - Appraisal Process
Exhibit "D" - Tenant Estoppel Certificate
Exhibit "E" - Memorandum of Lease
Exhibit "F" - Single Purpose Entity Requirements
Exhibit "G" - Tenant Equity Ownership
Exhibit "H" - Property Expenses
Exhibit "I" - Initial Landlord P&E
Exhibit "J" - Initial Tenant Personal Property
Exhibit "K" - Landlord's Financing Terms

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<PAGE>

                                 LEASE AGREEMENT

        THIS LEASE AGREEMENT is entered into as of February 11, 2002 by and
between CNL RETIREMENT-AM/ILLINOIS LP, a Delaware limited partnership, as
landlord ("Landlord"), and ARC HOLLEY COURT, LLC, a Tennessee limited liability
company, as tenant ("Tenant").

                               W I T N E S S E T H :
                               - - - - - - - - - -

        WHEREAS, Landlord has heretofore acquired fee simple title to the Land
and the Facility (these and other capitalized terms used and not otherwise
defined herein having the meanings ascribed to such terms in Article 1); and

        WHEREAS, Landlord wishes to lease the Leased Property to Tenant and
Tenant wishes to lease the Leased Property from Landlord, all subject to and
upon the terms and conditions herein set forth;

        NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby
agree as follows:

                                   ARTICLE 1

                                   DEFINITIONS

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

        "Accessibility Laws" shall mean all applicable laws, statutes,
regulations, rules, ordinances, codes, licenses, permits and orders, from time
to time in existence, of all courts of competent jurisdiction and Government
Agencies, and all applicable judicial and administrative and regulatory decrees,
judgments and orders, including common law rulings and determinations, relating
to accessibility for the disabled or handicapped, including, but not limited to,
any applicable provisions of The Architectural Barriers Act of 1968, The
Rehabilitation Act of 1973, The Fair Housing Act of 1988, The Americans With
Disabilities Act, the accessibility code(s), if any, of the State in which the
Leased Property is located, and all regulations and guidelines promulgated under
any all of the foregoing, as the same may be amended from time to time.

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        "Accounting Period" shall mean each calendar month accounting period of
Tenant. If Tenant shall, for a bona fide business reason, change its accounting
period during the Term, appropriate adjustments, if any, shall be made with
respect to the timing of applicable accounting and reporting requirements of
this Agreement; provided, however, that in no event shall any such change or
adjustment alter the amount or frequency of payment of Minimum Rent within any
Fiscal Year, or alter the frequency of payment of Percentage Rent to less than
four (4) times within any Fiscal Year, or otherwise increase or reduce any
monetary obligation under this Agreement.

        "Accounting Year" shall mean each period of twelve (12) consecutive
Accounting Periods during the Term of this Agreement; the first Accounting Year
shall commence with the first full Accounting Period after the Commencement Date
of this Agreement.

        "Additional Charges" shall have the meaning given such term in Section
3.4.

        "Additional Rent" shall have the meaning given such term in Section 3.5.

        "Affiliated Person" shall mean, with respect to any Person, (i) any
Person directly or indirectly Controlling, Controlled by or under common Control
with any such Person, (ii) in the case of any such Person which is a
partnership, any partner in such partnership, (iii) in the case of any such
Person which is a limited liability company, any member of such company, (iv) in
the case of any such Person which is a corporation, any officer, director or
stockholder of such corporation, (v) any other Person which is a Parent, a
Subsidiary, or a Subsidiary of a Parent with respect to such Person or to one or
more of the Persons referred to in the preceding clauses (i) through (iv), (vi)
any other Person who is an officer, director, trustee or employee of, or partner
in, such Person or any Person referred to in the preceding clauses (i) through
(v) and (vii) any other Person who is a member of, or trustee of any trust for
the benefit of, the Immediate Family of such Person or of any Person referred to
in the preceding clauses (i) through (vi). Provided, however, a Person shall not
be deemed to be an Affiliated Person solely by virtue of the ownership of shares
of stock registered under the Securities Act of 1934, as amended, unless such
Person, as holder of such stock, is required to file a Schedule 13 D, pursuant
to Section 13(d) of such Act and Rule 13 d-1 promulgated thereunder.

        "Agreement" shall mean this Lease Agreement, including all Exhibits
hereto, as it and they may be amended or restated from time to time as herein
provided.

        "Annual Operations Statement" shall have the meaning given such term in
Section 3.3.2.

        "Applicable Laws" shall mean all applicable laws, statutes, regulations,
rules, ordinances, codes, licenses, permits and orders, from time to time in
existence, of all courts of competent jurisdiction and Government Agencies, and
all applicable judicial and administrative and regulatory decrees, judgments and
orders, including common law rulings and determinations of any kind, including
without limitation, those relating to (i) damage to, or the protection of real
or personal property, (ii) human health and safety (except those requirements
which, by definition, are solely the responsibility of employers), (iii) the
Environment, including, without limitation, all valid and lawful requirements of
courts and other Government Agencies pertaining to reporting, licensing,
permitting, investigation, remediation and removal of underground

                                       2
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improvements (including, without limitation, treatment or storage tanks, or
water, gas or oil wells), or emissions, discharges, releases or threatened
releases of Hazardous Substances, chemical substances, pesticides, petroleum or
petroleum products, pollutants, contaminants or hazardous or toxic substances,
materials or wastes whether solid, liquid or gaseous in nature, into the
Environment, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances,
underground improvements (including, without limitation, treatment or storage
tanks, or water, gas or oil wells), or pollutants, contaminants or hazardous or
toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, (iv) Accessibility Laws, (v) independent living, assisted living and/or
dementia care facility licensure (as applicable) or (vi) participation in
Medicare or Medicaid programs (if applicable).

        "Applicable Reserve Percentage" shall mean, with respect to any
Accounting Period, or portion thereof, the greater of (x) $350.00 per year per
licensed bed (if applicable) or living unit located on the Leased Property,
prorated for such Accounting Period and divided by and expressed as a percentage
of Total Facility Revenues for such Accounting Period, or (y) with respect to
(i) the period beginning on the Commencement Date and ending on the last day of
the sixtieth (60th) full Accounting Period next following the Commencement Date,
two percent (2%) of Total Facility Revenue, and, (ii) with respect to each
Accounting Period thereafter, three percent (3%) of Total Facility Revenue.

        "Approved Reserve Estimate" shall have the meaning given such term in
Section 5.2.3.

        "ARC-Related Leases" shall mean, collectively, all present and future
property leases between Landlord or CNL Retirement, or any Affiliated Person of
Landlord or CNL Retirement, as landlord, and Tenant or Guarantor or any
Affiliated Person of Tenant or Guarantor, as tenant.

        "Business Day" shall mean any day other than Saturday, Sunday, or any
other day on which banking institutions in the State are authorized by law or
executive action to close.

        "CNL Retirement" shall mean CNL Retirement Properties, Inc., a Maryland
corporation.

        "Code" shall mean the Internal Revenue Code of 1986 and, to the extent
applicable, the Treasury Regulations promulgated thereunder, each as amended
from time to time.

        "Commencement Date" shall mean the date of this Agreement.

        "Condemnation" shall mean (a) the exercise of any governmental power
with respect to the Leased Property, whether by legal proceedings or otherwise,
by a Condemnor of its power of condemnation, (b) a voluntary sale or transfer of
the Leased Property by Landlord to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending, or (c) a
taking or voluntary conveyance of all or part of the Leased Property, or any
interest therein, or right accruing thereto or use thereof, as the result or in
settlement of any Condemnation or other eminent domain proceeding affecting the
Leased Property, whether or not the same shall have actually been commenced.

        "Condemnor" shall mean any public or quasi-public authority, or Person
having the power of Condemnation.

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        "Conflicting Business" shall have the meaning given such term in Section
4.3.

        "Control" (including the correlative meanings of the terms
"Controlling", "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 policies of such Person
whether through the ownership of voting securities, by contract or otherwise.

        "CRC" shall mean CNL Retirement Corp., a Florida corporation.

        "Default" shall mean any event or condition existing which with the
giving of notice and/or lapse of time would ripen into an Event of Default.

        "Disbursement Rate" shall mean an annual rate of interest equal to the
greater of, as of the date of determination, (i) ten percent (10.00%) and (ii)
the per annum rate for ten (10) year U.S. Treasury Obligations as published in
The Wall Street Journal plus three hundred fifty (350) basis points.

        "Distribution" shall mean (a) any declaration or payment of any dividend
on or in respect of any shares of any class of capital stock of Tenant, if
Tenant is a corporation, or any cash distributions in respect of any partnership
interests or membership interests in Tenant, if Tenant is a partnership or a
limited liability company, (b) any purchase, redemption, retirement or other
acquisition of any shares of any class of capital stock of Tenant, if Tenant is
a corporation, or any purchase, redemption, retirement or other acquisition of
any partnership or membership interests in Tenant, if Tenant is a partnership or
a limited liability company, (c) any other distribution on or in respect of any
shares of any class of capital stock of Tenant, if Tenant is a corporation, or
any other distribution in respect of any partnership interests or membership
interests in Tenant, if Tenant is a partnership or a limited liability company,
or (d) any return of capital to shareholders of Tenant, if Tenant is a
corporation, or any return of capital to partners of Tenant, if Tenant is a
partnership or a limited liability company.

        "Entity" shall mean any corporation, general or limited partnership,
limited liability company, partnership, stock company or association, joint
venture, association, company, trust, bank, trust company, land trust, business
trust, cooperative, any government or agency or political subdivision thereof or
any other entity.

        "Environment" shall mean soil, surface waters, ground waters, land,
streams, sediments, surface or subsurface strata and ambient air.

        "Event of Default" shall have the meaning given such term in Section
12.1.

        "Extended Terms" shall have the meaning given such term in Section 2.4.

        "Facility" shall mean the independent living, and/or assisted living and
dementia care ( if applicable), facility located and operated on the Land.

        "Facility Mortgage" shall mean any encumbrance placed upon the Leased
Property as referenced in Article 19.

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<PAGE>

        "Fiscal Quarter" shall mean the first, second, third and fourth
three-month period (each consisting of three Accounting Periods) during each
Fiscal Year.

        "Fiscal Year" shall mean Tenant's Fiscal Year which as of the
Commencement Date begins on January 1 and ends on December 31 in each calendar
year. Any partial Fiscal Year between the Commencement Date and the commencement
of the first full Fiscal Year (except with respect to the calculation and
payment of Minimum Rent as referenced in Section 3.1 of this Agreement), shall
constitute a separate Fiscal Year. A partial Fiscal Year between the end of the
last full Fiscal Year and the termination of this Agreement shall also
constitute a separate Fiscal Year. If Tenant's Fiscal Year is changed in the
future, appropriate adjustments to this Agreement's reporting and accounting
procedures shall be made; provided, however, that no such change or adjustment
shall alter the Term of this Agreement or in any way reduce the distribution of
Percentage Rent or other payments due hereunder. Each full Fiscal Year shall
consist of twelve Accounting Periods.

        "Force Majeure Event" means any circumstance which is not in the
reasonable control of either party hereto, caused by any of the following:
strikes, lockouts; acts of God; civil commotion; fire or any other casualty;
governmental action; or other similar cause or circumstance which is not in the
reasonable control of either party hereto. Neither lack of financing nor general
economic and/or market factors is a Force Majeure Event.

        "GAAP" shall mean generally accepted accounting principles consistently
applied.

        "Guarantor" shall mean American Retirement Corporation, a Tennessee
corporation ("Guarantor").

        "Government Agencies" shall mean any legislative body, court, agency,
authority, board (including, without limitation, health and long term care,
environmental protection, planning and zoning), bureau, commission, department,
office or instrumentality of any nature whatsoever of any governmental or
quasi-governmental unit of the United States or the State or any county or any
political subdivision of any of the foregoing, whether now or hereafter in
existence, having jurisdiction over Tenant or the Leased Property or any portion
thereof or the Facility operated thereon.

        "Hazardous Substances" shall mean any substance:

                (a) the presence of which requires or may hereafter require
        notification, investigation or remediation under any federal, state or
        local statute, regulation, rule, ordinance, order, action or policy; or

                (b) which is or becomes defined as a "hazardous waste",
        "hazardous material" or "hazardous substance" or "pollutant" or
        "contaminant" under any present or future federal, state or local
        statute, regulation, rule or ordinance or amendments thereto including,
        without limitation, the Comprehensive Environmental Response,
        Compensation and Liability Act (42 U.S.C. et seq.) and the Resource
        Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.) and the
        regulations promulgated thereunder; or

                                       5
<PAGE>

                (c) which is toxic, explosive, corrosive, flammable, infectious,
        radioactive, carcinogenic, mutagenic or otherwise hazardous and is or
        becomes regulated by any governmental authority, agency, department,
        commission, board, agency or instrumentality of the United States, any
        state of the United States, or any political subdivision thereof; or

                (d) the presence of which on the Leased Property causes or
        materially threatens to cause an unlawful nuisance upon the Leased
        Property or to adjacent properties or poses or materially threatens to
        pose a hazard to the Leased Property or to the health or safety of
        persons on or about the Leased Property; or

                (e) without limitation, which contains gasoline, diesel fuel or
        other petroleum hydrocarbons or volatile organic compounds; or

                (f) without limitation, which contains polychlorinated biphenyls
        (PCBs) or asbestos or urea formaldehyde foam insulation; or

                (g) without limitation, which contains or emits radioactive
        particles, waves or material; or

                (h) without limitation, constitutes materials which are now or
        may hereafter be subject to regulation pursuant to the Material Waste
        Tracking Act of 1988, or any Applicable Laws promulgated by any
        Government Agencies.

        "Immediate Family" shall mean, with respect to any individual, such
individual's spouse, parents, brothers, sisters, children (natural or adopted),
stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law,
sisters-in-law, nephews and nieces.

        "Indebtedness" shall mean all obligations, contingent or otherwise,
which in accordance with GAAP should be reflected on the obligor's balance sheet
as liabilities.

        "Initial Landlord P&E" shall mean and refer to all P&E of any kind or
description which are located on or in the Leased Improvements as of the
Commencement Date, including without limitation those items enumerated on
Exhibit "I" attached hereto and made a part hereof, but specifically excluding
any specific items of Tenant's Personal Property identified on Exhibit "J"
attached hereto and made a part hereof.

        "Initial Term" shall have the meaning given such term in Section 2.3.

        "Insurance Requirements" shall mean all terms of any insurance policy
required by this Agreement and all requirements of the issuer of any such policy
and all orders, rules and regulations and any other requirements of the National
Board of Fire Underwriters (or any other body exercising similar functions)
binding upon Landlord, Tenant or the Leased Property.

        "Inventories" shall mean all inventories, as such term is customarily
used and defined in its most broad and inclusive sense including, but not
limited to, all inventories of food, beverages and other consumables held by
Tenant for sale or use at or from the Leased Property or the Facility, and soap,
cleaning supplies, paper supplies, operating supplies, china, glassware, silver,

                                       6
<PAGE>

linen, uniforms, building and maintenance supplies, spare parts and attic stock,
medical supplies, drugs and all other such goods, wares and merchandise held by
Tenant for sale to or for consumption by residents or patients of the Leased
Property or the Facility and all such other goods returned to or repossessed by
Tenant.

        "Land" shall have the meaning given such term in Section 2.1(a).

        "Landlord" shall have the meaning given such term in the preambles to
this Agreement and shall include its successors and assigns.

        "Landlord's Original Investment" shall mean the sum of Eighteen Million
Four Hundred Sixty-Nine Thousand Two Hundred Seventy-Five and No/100 Dollars
($18,469,275.00), which represents, for purposes of this Lease, Landlord's total
acquisition and transactional costs incurred in acquiring the Leased Property.

        "Lease" shall mean this Lease Agreement, including all Exhibits hereto,
as it and they may be amended or restated from time to time as herein provided.

        "Lease Year" shall mean any Fiscal Year during the Term and any partial
Fiscal Year at the beginning or end of the Term.

        "Leased Improvements" shall have the meaning given such term in Section
2.1(b).

        "Leased Intangible Property" shall mean all transferable or assignable
(a) governmental permits, including licenses and authorizations, required for
the construction, ownership and operation of the Leased Improvements, including
without limitation, certificates of need, certificates of authority,
certificates of occupancy, building permits, signage permits, site use
approvals, zoning certificates, environmental and land use permits and any and
all necessary approvals from state or local authorities and other approvals
granted by any public body or by any private party pursuant to a recorded
instrument relating to such Leased Improvements or the Land; (b) development
rights, trade names, telephone exchange numbers identified with the Leased
Property, if any (specifically excluding, however, any specific items of
Tenant's Personal Property identified on Exhibit "J" hereto); and (c)
certificates, licenses, warranties and guarantees and contracts other than such
permits, operating permits, certificates, licenses and approvals which are to
held by, or transferred to, the Tenant in order to permit the Tenant to operate
such Leased Improvements properly and in accordance with the terms of this
Agreement.

        "Leased Property" shall have the meaning given such term in Section 2.1.

        "Legal Requirements" shall mean all federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting the Leased Property or the
maintenance, construction, alteration or operation thereof, whether now or
hereafter enacted or in existence, including, without limitation, (a) all
permits, licenses, authorizations, certificates and regulations necessary to
operate the Leased Property for its Permitted Use, (b) all covenants,
agreements, declarations, restrictions and encumbrances contained in any
instruments at any time in force affecting the Leased Property or to which
Tenant has consented or which are required to be granted pursuant to Applicable
Laws, including those which may (i) require material repairs, modifications or

                                       7
<PAGE>

alterations in or to the Leased Property or (ii) in any way materially and
adversely affect the use and enjoyment thereof, but excluding any requirements
arising as a result of Landlord's status as a real estate investment trust, and
(c) Applicable Laws.

        "Lien" shall mean any mortgage, security interest, pledge, collateral
assignment, or other encumbrance, lien or charge of any kind, or any transfer of
property or assets for the payment of Indebtedness or performance of any other
obligation in priority to payment of the obligor's general creditors.

        "Major Alterations" shall have the meaning given such term in Section
6.2.2.

        "Major Violation" shall mean any violation of Applicable Laws relating
to the use, operation or maintenance of the Facility or to the care of residents
which presents an imminent danger to the residents or guests of the Facility or
a substantial probability that death or serious harm would result therefrom.

        "Minimum Rent" shall mean annual rent as set forth in Section 3.2,
subject to prorations and adjustments as set forth in Section 3.2.

        "Minor Alterations" shall have the meaning given such term in Section
6.2.1.

        "Mortgagee" shall mean the holder of any Facility Mortgage.

        "Notice" shall mean a notice given in accordance with Section 21.10.

        "Opening Date" shall mean the date on which the Facility first opened
for business to the general public.

        "Overdue Rate" shall mean, on any date, a per annum rate of interest
equal to the lesser of (i) fifteen percent (15%) or (ii) the maximum rate then
permitted under applicable law.

        "P&E" shall mean all items of personal property, as defined under the
Model Uniform Commercial Code, including, but not limited to: (a) all equipment,
machinery, fixtures, and other items of property, now or hereafter 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, all of
which, to the maximum extent permitted by law, are hereby deemed by the parties
hereto to constitute real estate, together with all replacements, modifications,
alterations and additions thereto; (b) all furniture, furnishings, movable walls
or partitions, computers or trade fixtures or other personal property of any
kind or description used or useful in Tenant's business on or in the Leased
Improvements, and located on or in the Leased Improvements, and all
modifications, replacements, alterations and additions to such personal
property; (c) all linen, china, glassware, tableware, uniforms and similar
items, whether used in connection with public space or tenant rooms; and (d)
"Property and Equipment," "P&E," and "FF&E" (as such terms are customarily used
and defined in the most broad and inclusive sense), as well as all other items
included within the category of Inventory;

                                       8
<PAGE>

and all including, without limitation, the Initial Landlord P&E, but not
including, however, any item of Tenant's Personal Property identified in Exhibit
"J" hereto.

        "P&E Replacements" shall mean all items purchased with funds from the
Reserve established under Article 5 of this Lease and all other items of P&E
added and used at the Leased Property during the Term of this Lease, together
with all leasehold improvements made by Tenant during the Term of this Lease to
the extent not constituting real property affixed to the Land, whether purchased
from the Reserve or with other funds of Tenant, all subject to disposal and
further replacement at the end of their useful lives.

        "Parent" shall mean, with respect to any Person, any Person which
directly, or indirectly through one or more Subsidiaries or Affiliated Persons,
(i) owns more than fifty percent (50%) of the voting or beneficial interest in,
or (ii) otherwise has the right or power (whether by contract, through ownership
of securities or otherwise) to control, such Person.

        "Percentage Rent" shall have the meaning given such term in Section 3.3.

        "Permits" means all licenses, permits and certificates used or useful in
connection with the ownership, operation, use or occupancy of the Leased
Property or the Facility, including, without limitation, business licenses,
state health department licenses, food service licenses, licenses to conduct
business, certificates of need and all such other permits, licenses and rights,
obtained from any governmental, quasi-governmental or private person or entity
whatsoever.

        "Permitted Encumbrances" shall mean all rights, restrictions, and
easements of record set forth on Schedule B to the applicable owner's title
insurance policy issued to Landlord for the Land, plus any other such
encumbrances as may have been consented to in writing by Landlord from time to
time.

        "Permitted Renovations" shall have the meaning given that term in
Section 6.2.

        "Permitted Use" shall mean any use of the Leased Property permitted
pursuant to Section 4.1.1.

        "Person" shall mean any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.

        "Property Expenses" shall mean those expenses more particularly
described on Exhibit "H" attached hereto.

        "Proscribed Area" shall have the meaning given such term in Section 4.3.

        "Reimbursement Contracts" means all third party reimbursement contracts
for the Facility which are now or hereafter in effect with respect to residents
or patients qualifying for coverage under the same, including private insurance
agreements, Medicare and Medicaid and any successor program or other similar
reimbursement program and/or private insurance agreements.

        "Rent" shall mean, collectively, Minimum Rent, Percentage Rent and
Additional Rent.

                                       9
<PAGE>

        "Reserve" shall have the meaning given such term in Section 5.2.

        "Reserve Estimate" shall have the meaning given such term in Section
5.2.

        "Reserve Expenditures" shall have the meaning given such term in Section
5.2.

        "SEC" shall mean the Securities and Exchange Commission.

        "Security Deposit" shall have the meaning given such term in Section
3.10.

        "Single Purpose Entity" shall have the meaning given such term in
Exhibit "F" attached hereto.

        "State" shall mean the State in which the Facility is located.

        "Subsidiary" shall mean, with respect to any Person, any Entity in which
such Person directly, or indirectly through one or more Subsidiaries or
Affiliated Persons, (a) owns more than fifty percent (50%) of the voting or
beneficial interest or (b) which such Person otherwise has the right or power to
control (whether by contract, through ownership of securities or otherwise).

        "Tax and Insurance Account" shall have the meaning given such term in
Section 8.3.

        "Tax and Insurance Escrow Amount" shall have the meaning given such term
in Section 8.3.

        "Tenant" shall be the entity identified in the preamble to this
Agreement and shall include its successors and assigns expressly permitted
hereunder.

        "Tenant's Personal Property" shall mean any specific items of P&E listed
in Exhibit "J" to this Lease, or replacements for such items or items within any
specific categories of P&E listed in Exhibit "J" to this Lease which hereafter
are acquired by Tenant with its own funds after the Commencement Date and
located at the Leased Property (but not including any property purchased with
funds from the Reserve established under Section 5.2).

        "Term" shall mean, collectively, the Initial Term and the Extended
Terms, unless sooner terminated pursuant to the provisions of this Agreement.

        "Threshold" shall mean the sum of Total Facility Revenue for the twelve
(12) Accounting Periods ending on the end of the twenty-fourth (24th) full
Accounting Period following the Commencement Date.

        "Total Facility Revenue" shall mean, for the applicable period of time,
but without duplication, all gross revenues and receipts of every kind derived
by or for the benefit of Tenant, or its Affiliated Persons from operating or
causing the operation of the Leased Property and all parts thereof, including,
but not limited to: income from both cash and credit transactions (after
reasonable deductions for bad debts and discounts for prompt or cash payments
and refunds) from rental or subleasing of every kind; entrance fees, fees for
health care and personal care services, license, lease and concession fees and
rentals, off premises catering, if any, and parking

                                       10
<PAGE>

(not including gross receipts of licensees, lessees and concessionaires); income
from vending machines; health club membership fees; food and beverage sales;
wholesale and retail sales of merchandise (other than proceeds from the sale of
furnishings, fixtures and equipment no longer necessary to the operation of the
Facility, which shall be deposited in the Reserve) and service charges, to the
extent not distributed to employees at the Facility as gratuities; provided,
however, that Total Facility Revenue shall not include the following: (a)
gratuities to Facility employees; (b) federal, state or municipal excise, sales,
occupancy, use or similar taxes collected directly from residents or included as
part of the sales price of any goods or services; (c) insurance proceeds; (d)
any proceeds from any sale of the Leased Property or from the refinancing of any
debt encumbering the Leased Property; (e) proceeds from the disposition of
furnishings, fixture and equipment no longer necessary for the operation of the
Facility; and (f) interest which accrues on amounts deposited in the Reserve.

        "Unsuitable for Its Permitted Use" shall mean a state or condition of
the Leased Property such that following any damage or destruction involving the
Leased Property, the Leased Property cannot be operated in the reasonable
judgement of Landlord (after conferring with Tenant) on a commercially
practicable basis for its Permitted Use and it cannot reasonably be expected to
be restored to substantially the same condition as existed before such damage or
destruction and as is otherwise required by Article 12 within (i) twelve (12)
months following such damage or destruction, or (ii) eighteen (18) months
following such damage or destruction in the event that Tenant has extended the
term of the business income insurance to pay at least eighteen (18) months Rent
for the benefit of Landlord or provides other reasonably acceptable security for
any uninsured portion of the eighteen (18) months Rent.

                                   ARTICLE 2

                            LEASED PROPERTY AND TERM

        2.1 Leased Property. Upon and subject to the terms and conditions
hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord all of Landlord's right, title and interest in and to all of the
following (collectively, the "Leased Property"):

                (a) all that certain tract, piece and parcel of land, as more
        particularly described in Exhibit "A", attached hereto and made a part
        hereof (the "Land");

                (b) the Facility, all buildings, structures and other
        improvements of every kind, including without limitation all roofs,
        plumbing systems, electric systems and HVAC systems, roadways,
        alleyways, parking areas, sidewalks, curbs, connecting tunnels, utility
        pipes, conduits and lines (on-site and off-site) appurtenant to or
        presently situated upon the Land (collectively, the "Leased
        Improvements");

                (c) all easements, rights and appurtenances relating to the Land
        and the Leased Improvements;

                                       11
<PAGE>

                (d) all P&E and Inventory;

                (e) all moveable machinery, equipment, furniture, furnishings,
        moveable walls or partitions, computers or trade fixtures located on or
        in the Leased Improvements, and all modifications, replacements,
        alterations and additions to such property, but specifically excluding
        all items included within the category of Tenant's Personal Property;

                (f) all of the Leased Intangible Property;

                (g) any and all subleases of space in the Leased Improvements to
        subtenants thereof; and

                (h) all other property and interests in property conveyed or
        assigned to Landlord pursuant to the Real Estate Purchase and Sale
        Agreement governing the sale and conveyance of the Leased Property from
        Tenant to Landlord on or about the effective date hereof (the "Purchase
        Agreement").

        2.2 Condition of Leased Property. Tenant acknowledges and agrees that
the Leased Property is and shall be leased by Landlord to Tenant and from
Landlord by Tenant in its present "as is" condition, subject to the existing
state of title and all applicable legal or governmental requirements, and
Landlord makes absolutely no representations or warranties whatsoever with
respect to the Leased Property or the condition thereof. Tenant acknowledges
that Landlord has not investigated and does not warrant or represent to Tenant
that the Leased Property is fit for the purposes intended by Tenant or for any
other purpose or purposes whatsoever, and Tenant acknowledges that the Leased
Property is to be leased to Tenant in its existing condition, i.e., "as-is", and
"where-is", without any representation or warranty as to habitability or fitness
for any particular purpose, on and as of the Commencement Date. Tenant
represents and acknowledges that all permits, licenses and approvals required by
any governmental or quasi-governmental body, department, commission, board,
bureau, instrumentality or officer, or otherwise appropriate with respect to the
construction, operation, leasing, maintenance or use of the Leased Property or
any part thereof, have been issued, are past all appeals periods and are valid
and in full force and effect and that no provision, condition or limitation of
any of the same has been breached or violated. Tenant acknowledges that Tenant
shall be solely responsible for any and all actions, repairs, permits, approvals
and costs required for the rehabilitation, renovation, use, occupancy and
operation of the Leased Property in accordance with applicable governmental
requirements, foreseen or unforeseen, including, without limitation, all
governmental charges and fees, if any, which may be due or payable to applicable
authorities. Tenant agrees that, by leasing the Leased Property, Tenant warrants
and represents that Tenant has examined and approved all things concerning the
Leased Property which Tenant deems material to Tenant's leasing and use of the
Leased Property. Tenant further acknowledges and agrees that (a) neither
Landlord nor any agent of Landlord has made any representation or warranty,
express or implied, concerning the Leased Property or which have induced Tenant
to execute this Agreement and (b) any other representations and warranties are
expressly disclaimed by Landlord.

                                       12
<PAGE>

        2.3 Initial Term. The initial term of this Agreement (the "Initial
Term") shall commence on the Commencement Date and shall terminate and expire at
11:59 p.m. on the last calendar day of the month on which the fifteenth (15th)
annual anniversary of the Commencement Date shall occur.

        2.4 Extended Term. Tenant shall have and is hereby granted two (2)
option(s) to extend this Agreement for an additional five (5) years each
(individually an "Extended Term"), upon the same terms, covenants, conditions
and rental as set forth herein; provided there exists no continuing Event of
Default hereunder, or Default which Tenant has had an opportunity but failed to
cure as provided hereunder, during any applicable cure hereunder at the
commencement of the respective Extended Term. Tenant may exercise each such five
(5) year option successively by giving written notice to Landlord not less than
twelve (12) months nor more than eighteen (18) months prior to the respective
expiration of the Initial Term of this Agreement or of the then applicable
Extended Term. Should Tenant fail to give Landlord such timely written notice
during the required period, all remaining rights of renewal shall automatically
expire.

        2.5 Yield Up. Tenant shall, on or before the last day of the Term or
upon the sooner termination thereof, peaceably and quietly surrender and deliver
to Landlord the Leased Property, including, without limitation, all Leased
Improvements and P&E and all additions thereto and replacements thereof made
from time to time during the Term, together with and including without
limitation the P&E Replacements, in good order, condition and repair, reasonable
wear and tear excepted, and free and clear of all liens and encumbrances (other
than Permitted Encumbrances, liens or encumbrances in favor of or granted by
Landlord, and any other encumbrances expressly permitted under the terms of this
Agreement). Tenant acknowledges that both the Initial Landlord P&E described on
Exhibit "I" attached hereto and consumable items of Inventory located at the
Leased Property as of the Commencement Date may be completely consumed and/or
otherwise disposed of in the course of operation of the Leased Property during
the Term of this Agreement. Tenant agrees that, at the expiration or earlier
termination of this Agreement, at Landlord's option: (i) Tenant shall fully
restore the Initial Landlord P&E, inclusive with and after consideration of all
P&E Replacements which will become the property of Landlord, to at least the
approximate types and amounts (with reasonably equivalent value) as shown on
Exhibit "I", and shall fully restore an adequate supply of Inventory consistent
with the full stocking levels to be maintained by Tenant pursuant to Section 4.6
of this Lease (or a full thirty days supply, which ever is greater), or (ii)
Landlord shall deduct the then-current value of amounts needed to fully restore
the required P&E and Inventory, as aforesaid, to the extent that this sum
exceeds the Reserve amount to be transferred to Landlord under Section 5.2.6
hereof, from the Security Deposit.

                                   ARTICLE 3

                                      RENT

        3.1 Rent. Tenant shall pay, in lawful money of the United States of
America which shall be legal tender for the payment of public and private debts,
without offset, abatement, demand or deduction (unless otherwise expressly
provided in this Agreement), Rent to Landlord

                                       13
<PAGE>

during the Term at the address to which notices to Landlord are to be given or
to such other party or to such other address as Landlord may designate from time
to time by written notice to Tenant. All payments to Landlord shall be made by
wire transfer of immediately available federal funds or by other means
acceptable to Landlord in its sole discretion and all such payments shall, upon
receipt by Landlord, be and remain the sole and absolute property of Landlord.
If Landlord shall at any time accept any such Rent or other sums after the same
shall become due and payable, or any partial payment of Rent, such acceptance
shall not excuse a delay upon subsequent occasions, or constitute or be
construed as a waiver of any of Landlord's rights hereunder.

        3.2 Minimum Rent. Tenant shall pay annual base minimum rent ("Minimum
Rent") to Landlord in equal installments in advance, on the first (1st) Business
Day of each Accounting Period; provided, however, that the first payment of
Minimum Rent shall be payable on the Commencement Date. Further, if applicable,
the first payment of Minimum Rent and the last payment of Minimum Rent shall be
prorated on a per diem basis provided, however, that for purposes of Minimum
Rent, any prorated payment for any partial Accounting Period prior to the first
full Accounting Period shall be prorated based upon the installment of Minimum
Rent payable for the first full Accounting Period, and any prorated Rent at the
end of the Term shall be prorated based upon the installment of Minimum Rent
payable for the last full Accounting Period.

                3.2.1 Calculation of Initial Term Minimum Rent. Subject to
        proration as set forth above, Tenant shall pay Minimum Rent during each
        Accounting Year of the Initial Term of this Agreement in the amounts set
        forth on Exhibit "B" attached hereto and made a part hereof.

                3.2.2 Calculation of Extended Term Minimum Rent. Subject to
        proration as set forth above, Tenant shall pay Minimum Rent under this
        Agreement during the first Accounting Year of each Extended Term in an
        amount equal to the greater of:

                        (a) two and five-tenths percent (2.5%) over the amount
                of Minimum Rent due in the immediately preceding Accounting
                Year; or

                        (b) the product of the fair market value of the Leased
                Property on the date of Tenant's Notice of exercise pursuant to
                Section 2.4, multiplied by Ten Percent (10.00%).

        Minimum Rent for each Accounting Year after the first Accounting Year in
        an Extended Term shall increase by one percent (1%) over the amount of
        Minimum Rent due in the immediately preceding Accounting Year.

        If within ten (10) days of the date of Tenant's Notice of exercise
        pursuant to Section 2.4, Landlord and Tenant are unable to agree on the
        fair market value of the Premises for purposes of this calculation, such
        fair market value shall be established by the appraisal process
        described on Exhibit "C" attached hereto. Landlord and Tenant
        acknowledge and agree that this Section is designed to establish a fair
        market Minimum Rent for the Leased Property during each applicable
        Extended Term. In the event that the Minimum

                                       14
<PAGE>

        Rent for the applicable Extended Term is not finally determined by such
        appraisal process prior to the commencement of the Extended Term, then
        in such event until such amount is finally determined the Tenant shall
        pay to Landlord as "Interim Rent" for the Extended Term an amount equal
        to one hundred twenty-five percent (125%) of the established Minimum
        Rent as of the end of the Accounting Year immediately preceding the
        Extended Term until such appraisal process and any dispute relating
        thereto is finally resolved. In such an event, the amount of any
        differential between the Interim Rent and Minimum Rent established
        shall, if resulting in an underpayment, be paid by Tenant to Landlord
        within fifteen (15) days, or if resulting in an overpayment be credited
        by Landlord against the next installment(s) of Rent coming due
        hereunder.

        3.3 Percentage Rent. In addition to and not in lieu of Minimum Rent,
Tenant shall pay percentage rent ("Percentage Rent") to Landlord for each Fiscal
Year or portion thereof. Installments of Percentage Rent shall be due and
payable in arrears within thirty (30) days after the end of each Fiscal Quarter
of the Term hereof, based upon Total Facility Revenue for such Fiscal Quarter
and an allocation of one-quarter of the Threshold amount to each such Fiscal
Quarter; provided, however, that no Percentage Rent shall be payable hereunder
with respect to the initial portion of the Term ending on the end of the
twenty-fourth (24th) full Accounting Period following the Commencement Date.
Along with each Percentage Rent payment Tenant shall submit to Landlord an
unaudited (but certified by a duly authorized officer or managing member of
Tenant) statement showing a detailed breakdown of the calculation of Percentage
Rent for that Fiscal Quarter and Fiscal Year-to-date on a cumulative basis.
Percentage Rent for any partial Fiscal Quarter in the final Fiscal Year shall be
prorated proportionately. Tenant's obligation to pay Percentage Rent for the
Fiscal Quarter which includes the date of termination of this Agreement shall
survive the termination hereof.

                3.3.1 Calculation of Percentage Rent. Subject to proration as
        set forth above, Tenant shall pay Percentage Rent in respect of each
        Fiscal Year under this Agreement equal to (a) ten percent (10%) of the
        Total Facility Revenue for such Fiscal Year in excess of the Threshold,
        less (b) the amount by which annual Minimum Rent in the Fiscal Year for
        which Percentage Rent is being calculated exceeds the amount of annual
        Minimum Rent due for the first (1st) Accounting Year under this
        Agreement.

                3.3.2 Annual Reconciliation of Percentage Rent. Tenant shall, no
        later than ninety (90) days following the end of each Fiscal Year during
        the Term hereof furnish to Landlord for such Fiscal Year a complete
        statement (the "Annual Operations Statement") certified true and correct
        by the Chief Financial Officer of Tenant's general partner or managing
        member and the Chief Financial Officer of the Guarantor, setting forth,
        with respect to such Fiscal Year in reasonable detail the Total Facility
        Revenue derived by or for the benefit of Tenant in respect of such
        Fiscal Year. If the Annual Operations Statement for any Fiscal Year
        indicates that the aggregate of the installment payments theretofore
        made with respect to such Fiscal Year pursuant to Section 3.3.1 exceeds
        the Percentage Rent due for such Fiscal Year, Landlord shall credit such
        overpayment against the next installment or installments of Minimum Rent
        falling due (or will pay the amount of such overpayment to Tenant if
        this Agreement shall have terminated other than by reason of Tenant's
        default or if Landlord so elects to do so). If, on the other hand, the
        Annual Operations Statement indicates that the aggregate of the
        installment payments

                                       15
<PAGE>

        theretofore made with respect to such Fiscal Year is less than the
        Percentage Rent due for such Fiscal Year then Tenant shall pay the
        balance or excess, as the case may be, together with interest thereon
        determined as set forth below in this paragraph, to Landlord
        concurrently with the submission of the Annual Operations Statement.
        Interest shall accrue on payments pursuant to this paragraph at the
        Disbursement Rate from the date when first due and payable until the
        date when the adjusted amount is fully paid in the manner as set forth
        above, except to the extent of de minimus adjustments of not more than
        ten percent (10%) of the amount initially paid resulting from the
        calculation method used or unintentional errors which could not
        reasonably have been avoided by reasonable care and diligence.

                3.3.3 Landlord Audit of Annual Operations Statement.
        Notwithstanding the foregoing, Landlord at its own expense, except as
        provided hereinbelow, shall have the right, exercisable by Notice to
        Tenant given within 270 days after receipt of the applicable Annual
        Operations Statement, by its accountants or representatives, to commence
        within such 270 day period an audit of the information set forth in such
        Annual Operations Statement and, in connection with such audit, to
        examine all of Tenant's books and records with respect thereto
        (including supporting data and sales and excise tax returns); provided,
        however, if Landlord reasonably believes Tenant has intentionally
        misrepresented Total Facility Revenue on any such Annual Operations
        Statement, the said 270 day period shall commence to run on the date
        Landlord obtains credible evidence that Tenant has intentionally
        misrepresented Total Facility Revenue on any such Annual Operations
        Statement. If Landlord does not commence an audit with such 270 day
        period, such Annual Operations Statement shall be deemed to be accepted
        by Landlord as correct. Landlord shall use commercially reasonable
        efforts to complete any such audit as soon as practicable. If such audit
        discloses a deficiency in the payment of Percentage Rent, Tenant shall
        forthwith pay to Landlord the amount of the deficiency, together with
        interest at the Disbursement Rate from the date such payment should have
        been made to the date of payment therefore. If such deficiency is more
        than three percent (3%) of the Total Facility Revenue reported by Tenant
        for such Fiscal Year, Tenant shall also pay the costs of such audit and
        examination.

        3.4 Additional Charges. In addition to the Minimum Rent and Percentage
Rent payable hereunder, Tenant shall pay to the appropriate parties and
discharge as and when due and payable hereunder the following (collectively the
"Additional Charges"):

                3.4.1 Taxes and Assessments. Tenant shall pay or cause to be
        paid all taxes and assessments required to be paid pursuant to Article
        8.

                3.4.2 Utility Charges. Tenant shall be liable for and shall
        promptly pay directly to the utility company all deposits, charges and
        fees (together with any applicable taxes or assessments thereon) when
        due for water, gas, electricity, air conditioning, heat, septic, sewer,
        refuse collection, telephone and any other utility charges, impact fees,
        or similar items in connection with the use or occupancy of the Leased
        Property. Landlord shall not be responsible or liable in any way
        whatsoever for the quality, quantity, impairment, interruption,
        stoppage, or other interference with any utility service, including,
        without limitation, water, air conditioning, heat, gas, electric current
        for light and power,

                                       16
<PAGE>

        telephone, or any other utility service provided to or serving the
        Leased Property. No interruption, termination or cessation of utility
        services shall relieve Tenant of its duties and obligations pursuant to
        this Agreement, including, without limitation, its obligation to pay all
        Rent as and when the same shall be due hereunder.

                3.4.3 Insurance Premiums. Tenant shall pay or cause to be paid
        all premiums for the insurance coverage required to be maintained
        pursuant to Article 9.

                3.4.4 Licenses and Permits. Tenant shall pay or cause to be paid
        all fees, dues and charges of any kind which are necessary in order to
        acquire and keep in effect and good standing all licenses and permits
        required for operation of the Leased Property in accordance with the
        terms of Article 4.

                3.4.5 Sales Tax. Simultaneously with each payment of Rent and
        Additional Charges hereunder, Tenant shall pay to Landlord the amount of
        any applicable sales, use, excise or similar or other tax on any such
        Rent and Additional Charges, whether the same be levied, imposed or
        assessed by the State in which the Leased Property is located or any
        Governmental Agencies, but specifically excluding any income taxes
        imposed on Landlord's net income. Landlord shall, upon written request
        by Tenant, provide to Tenant on an annual basis such reasonable
        information in Landlord's possession or control as shall be necessary to
        enable Tenant to pay such tax.

                3.4.6 Other Charges. Tenant shall pay or cause to be paid all
        other amounts, liabilities and obligations arising in connection with
        the Leased Property except those obligations expressly stated not to be
        an obligation of Tenant pursuant to this Agreement.

                3.4.7 Penalties and Interest. Tenant shall pay or cause to be
        paid every fine, penalty, interest and cost which may be added for
        non-payment or late payment of the items referenced in this Section 3.4.

        Tenant shall prepare and file at its expense, to the extent required or
permitted by Applicable Laws, all tax returns and other reports in respect of
any Additional Charge as may be required by Governmental Agencies.

        3.5 Landlord Advances. Except as specifically provided otherwise in this
Agreement, if Tenant does not pay or discharge all Additional Charges, and
provide proof of payment if requested by Landlord, at least fifteen (15) days
prior to delinquency, Landlord shall have the right but not the obligation to
pay such Additional Charges on behalf of Tenant. If Landlord shall make any such
expenditure for which Tenant is responsible or liable under this Agreement, or
if Tenant shall become obligated to Landlord under this Agreement for any other
sum besides Minimum Rent or Percentage Rent as hereinabove provided, the amount
thereof shall be deemed to constitute "Additional Rent" and shall be due and
payable by Tenant to Landlord, together with interest at the Overdue Rate and
all applicable sales or other taxes thereon, if any, simultaneously with the
next succeeding monthly installment of Minimum Rent or at such other time as may
be expressly provided in this Agreement for the payment of the same.

                                       17
<PAGE>

        3.6 Late Payment of Rent. If Tenant fails to make any payment of Rent on
or before the fifth business day after the date such payment is due and payable,
Tenant shall pay to Landlord an administrative late charge of five percent (5%)
of the amount of such payment. In addition, such past due payment shall bear
interest at the Overdue Rate from the date first due until paid. Such late
charge and interest shall constitute Additional Rent and shall be due and
payable with the next installment of Rent due hereunder.

        3.7 Net Lease. Landlord and Tenant acknowledge and agree that both
parties intend that this Agreement shall be and constitute what is generally
referred to in the real estate industry as a "triple net" or "absolute net"
lease, such that Tenant shall be obligated hereunder to pay all costs and
expenses incurred with respect to, and associated with, the Leased Property and
all personal property thereon and therein and the business operated thereon and
therein, including, without limitation, all taxes and assessments, utility
charges, insurance costs, maintenance costs and repair, replacement and
restoration expenses (all as more particularly herein provided), together with
any and all other assessments, charges, costs and expenses of any kind or nature
whatsoever related to, or associated with, the Leased Property and the business
operated thereon and therein, other than Landlord's financing costs and expenses
and related debt service; provided, however, that Landlord shall nonetheless be
obligated to pay Landlord's personal income taxes with respect to the Rent and
other amounts received by Landlord under this Agreement. Except as expressly
hereinabove provided, Landlord shall bear no cost or expense of any type or
nature with respect to, or associated with, the Leased Property. Except to the
extent otherwise expressly provided in this Agreement, it is agreed and intended
that Rent payable hereunder by Tenant shall be paid without notice, demand,
counterclaim, set-off, deduction or defense and without abatement, suspension,
deferment, diminution or reduction and that Tenant's obligation to pay Rent
throughout the Term and any applicable Extended Term is absolute and
unconditional and the respective obligations and liabilities of Tenant and
Landlord hereunder shall in no way be released, discharged or otherwise affected
for any reason, including without limitation: (a) any defect in the condition,
merchantability, design, quality or fitness for use of the Leased Property or
any part thereof, or the failure of the Leased Property to comply with
Applicable Laws, including any inability to occupy or use the Leased Property by
reason of such non-compliance; (b) any damage to, removal, abandonment, salvage,
loss, condemnation, theft, scrapping or destruction of or any requisition or
taking of the Leased Property or any part thereof, or any environmental
condition on the Leased Property or any property in the vicinity of the Leased
Property; (c) any restriction, prevention or curtailment of or interference with
any use of the Leased Property or any part thereof, including eviction; (d) any
defect in title to or rights to the Leased Property or any lien on such title or
rights to the Leased Property; (e) any change, waiver, extension, indulgence or
other action or omission or breach in respect of any obligation or liability of
or by any Person; (f) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceedings relating to
Tenant or any other Person or any action taken with respect to this Agreement by
any trustee or receiver of Tenant or any other Person or by any court, in any
such proceedings; (g) any right or claim that Tenant has or might have against
any Person, including, without limitation, Landlord or any vendor, manufacturer
or contractor of or for the Leased Property (other than a claim resulting from
any willful misconduct or gross negligence of Landlord); (h) any failure on the
part of Landlord or any other Person to perform or comply with any of the terms
of this Agreement, or of any other agreement; (i) any invalidity,
unenforceability, rejection or disaffirmance of this Agreement by

                                       18
<PAGE>

operation of law or otherwise against or by Tenant or any provision hereof; (j)
the impossibility of performance by Tenant or Landlord, or both; (k) any action
by any court, administrative agency or other Government Agencies; (l) any
interference, interruption or cessation in the use, possession or quiet
enjoyment of the Leased Property or otherwise; or (m) any other occurrence
whatsoever whether similar or dissimilar to the foregoing, whether foreseeable
or unforeseeable, and whether or not Tenant shall have notice or knowledge of
any of the foregoing. Except as specifically set forth in this Agreement, this
Agreement shall be non-cancellable by Tenant for any reason whatsoever and,
except as expressly provided in this Agreement Tenant, to the extent now or
hereafter permitted by Applicable Laws, waives all rights now or hereafter
conferred by statute or otherwise to quit, terminate or surrender this Agreement
or to any diminution, abatement or reduction of Rent payable hereunder. Except
as specifically set forth in this Agreement, under no circumstances or
conditions shall Landlord be expected or required to make any payment of any
kind hereunder or have any obligations with respect to the use, possession,
control, maintenance, alteration, rebuilding, replacing, repair, restoration or
operation of all or any part of the Leased Property, so long as the Leased
Property or any part thereof is subject to this Agreement, and Tenant expressly
waives the right to perform any such action at the expense of Landlord pursuant
to any law.

        3.8 No Abatement of Rent. No abatement, diminution or reduction (a) of
Rent, charges or other compensation, or (b) of Tenant's other obligations
hereunder shall be allowed to Tenant or any person claiming under Tenant, under
any circumstances or for any reason whatsoever and to the maximum extent
permitted by law, Tenant hereby waives the application of any local or state
statutes, land rules, regulations or ordinance providing to the contrary.

        3.9 INTENTIONALLY OMITTED

        3.10 Tenant Security Deposit. On the Commencement Date Tenant shall
deposit with Landlord in cash the sum of Seven Hundred Thirty-Eight Thousand
Seven Hundred Seventy-One and No/100 Dollars ($738,771.00), as a security
deposit (the "Security Deposit"), for Tenant's faithful performance of all of
Tenant's obligations under this Agreement. If Tenant fails to pay Rent or
Additional Charges due hereunder, fails to fund Reserve Expenditures which
exceed available funds in the Reserve, or otherwise defaults with respect to any
provision of this Agreement, then in addition to and not exclusive of any other
remedies available under this Agreement, Landlord may use, apply or retain all
or any portion of the Security Deposit for the payment of any Rent, the funding
of Additional Charges or Reserve Expenditures or other charges in default, or
for the payment of any sum to which Landlord may become obligated by reason of
Tenant's default. If Landlord so uses or applies all or any portion of the
Security Deposit, Tenant shall, within five (5) days after written demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to the full amount of the Security Deposit. Landlord shall not
be required to keep the Security Deposit separate from its general accounts. If
Tenant performs all of Tenant's obligations hereunder, at the expiration of the
Term, and after Tenant has vacated the Leased Property, the Security Deposit, or
so much thereof as has not been applied or used by Landlord as provided in this
Agreement, shall be returned to Tenant, without payment of interest or other
increment for its use. No trust relationship is created herein between Landlord
and Tenant with respect to the Security Deposit. The Security Deposit shall be
paid by Tenant to Landlord upon the Commencement Date.

                                       19
<PAGE>

        3.11 Security for all ARC-Related Leases. Tenant acknowledges that the
Security Deposit constitutes security for the faithful observance and
performance by Tenant of all the terms, covenants and conditions of this
Agreement and of all ARC-Related Leases (whether now in effect or entered into
in the future) to be observed and performed. If any Event of Default shall occur
and be continuing under this Agreement, Landlord may, at its option and without
prejudice to any other remedy which Landlord may have on account thereof,
appropriate and apply, first, the amount of the Security Deposit in accordance
with the terms set forth herein and, second, the amount of any other security
deposits under all ARC-Related Leases (herein the "Collective Security Deposit")
as may be necessary to compensate Landlord toward the payment of the Rent or
other sums due Landlord under this Agreement as a result of such breach by
Tenant. Additionally, Landlord may, if any Event of Default shall occur and be
continuing under any other ARC-Related Lease, appropriate and apply the Security
Deposit after first applying the security deposit under such other ARC-Related
Lease that is in default. It is understood and agreed that neither the Security
Deposit nor the Collective Security Deposit is to be considered as prepaid rent,
nor shall damages be limited to the amount of the Collective Security Deposit.

        3.12 Security Agreement. Tenant hereby grants to Landlord a security
interest in the Security Deposit and the Reserve as set forth below, as security
for all obligations of the Guarantor and as further security for Tenant's
obligations to Landlord hereunder, and agrees to execute and deliver all such
instruments as may be required by Landlord to evidence and perfect these
security interests.

                                   ARTICLE 4

                USE OF THE LEASED PROPERTY; CONFLICTING BUSINESS

        4.1 Permitted Use.

                4.1.1 Permitted Use. Tenant covenants and agrees that it shall,
        throughout the Term of this Agreement, continuously use and occupy the
        Leased Property solely and exclusively as a first class independent
        living facility (and, subject to Landlord's consent pursuant to Section
        4.1.2 below, as a first class licensed assisted living and dementia care
        facility), and for such other uses as may be necessary or incidental to
        such use (such as services provided directly to residents by Tenant or
        under Service Licenses, as such term is defined below), with appropriate
        amenities for the same and for no other purpose without interruption
        except for minimum necessary interruptions in respect to portions of the
        Leased Property for periods provided herein for repairs, renovations,
        replacements and rebuilding all of which shall be carried out pursuant
        to, and in accordance with the applicable provisions of this Agreement
        (the foregoing being referred to as the "Permitted Use"). Without the
        prior written consent of the Landlord, no Affiliated Person of Tenant
        may be a subtenant or concessionaire in the Leased Property, provided
        however that Landlord hereby consents and agrees that a qualified and
        fully-insured Affiliated Person of Tenant may provide therapy and
        therapy-related services at the Facility for customary and appropriate
        charges. No use shall be made or permitted to be made of the Leased
        Property and no acts shall be done thereon which will cause the
        cancellation of any

                                       20
<PAGE>

        insurance policy covering the Leased Property or any part thereof
        (unless another adequate policy is available), nor shall Tenant sell or
        otherwise provide or permit to be kept, used or sold in or about the
        Leased Property any article which may be prohibited by law or by the
        standard form of fire insurance policies, or any other insurance
        policies required to be carried hereunder, or fire underwriter's
        regulations. Tenant shall, at its sole cost, comply with all Insurance
        Requirements. Tenant shall not take or omit to take any action, the
        taking or omission of which materially impairs the value or the
        usefulness of the Leased Property or any part thereof for its Permitted
        Use, or causes the Leased Property to no longer be considered a first
        class facility.

                4.1.2 Assisted Living Units Conversion. Landlord shall not
        unreasonably withhold its consent to the use of portions of the Leased
        Property for licensed assisted living residential purposes provided that
        Tenant first provides to Landlord direct written evidence that (i)
        Tenant has received all necessary government licenses and approvals
        required for such use; (ii) Tenant remains in compliance with all
        applicable terms and requirements under any Facility Mortgage and at
        Tenant's sole expense but with Landlord's good faith cooperation has
        obtained any and all consents and approvals as may be required
        thereunder in respect of any proposed change in use and related
        construction and alterations; (iii) all required alterations and
        improvements will be made in accordance with plans and specifications
        reasonably acceptable to Landlord at no cost, expense or liability to
        Landlord; (iv) Tenant has secured all necessary funds for the costs of
        such alternations and improvements (insuring completion on a lien-free
        basis) and to cover all revenue losses resulting from the construction
        and interim vacancy of the units to be converted; and (v) Tenant
        provides updated appraisal and cash flow analyses acceptable to Landlord
        reflecting that the value of the Leased Property and anticipated
        revenues and profits (cash flow) should not be diminished as a result of
        such changes and any related alterations.

                4.1.3 Necessary Approvals. Tenant shall maintain all Permits and
        approvals necessary to use and operate, for its Permitted Use, the
        Leased Property and the Facility located thereon under Applicable Law
        and shall provide to Landlord a copy of Tenant's federal, state and
        Medicare survey regarding the Facility, and such other information or
        documents pertaining to said approvals. Landlord shall at no cost or
        liability to Landlord cooperate with Tenant in this regard, limited to
        executing all applications and consents required to be signed by
        Landlord in order for Tenant to obtain and maintain such approvals.

                4.1.4 Lawful Use, Etc. Tenant shall not use or suffer or permit
        the use of the Leased Property or Tenant's Personal Property, if any,
        for any unlawful purpose. Tenant shall not commit or suffer to be
        committed any waste on the Leased Property, or in the Facility, nor
        shall Tenant cause or permit any unlawful nuisance thereon or therein.
        Tenant shall not suffer nor permit the Leased Property, or any portion
        thereof, to be used in such a manner as (i) might reasonably impair
        Landlord's title thereto or to any portion thereof, or (ii) might
        reasonably allow a claim or claims for adverse usage or adverse
        possession by the public, as such, or of implied dedication of the
        Leased Property or any portion thereof.

                                       21
<PAGE>

                4.1.5 Compliance with Legal Requirements. Tenant shall at all
        times at its sole cost and expense, keep and maintain the Leased
        Property in compliance with all Legal Requirements. Tenant agrees to
        give Landlord Notice of any notices, orders or other communications
        relating to Legal Requirements affecting the Leased Property which is or
        are enacted, passed, promulgated, made, issued or adopted, a copy of
        which is served upon, or received by, Tenant, or a copy of which is
        posted on or fastened or attached to the Leased Property, within ten
        (10) business days after service, receipt, posting, fastening or
        attaching. At the same time, the Tenant will inform Landlord as to the
        work or steps which Tenant proposes to do or take in order to comply
        therewith.

        4.2 Environmental Matters. Except as permitted by Applicable Law, Tenant
shall at all times during the Term keep the Leased Property free of Hazardous
Substances. Neither Tenant nor any of its employees, agents, invitees,
licensees, contractors, guests, or subtenants (if permitted) shall use,
generate, manufacture, refine, treat, process, produce, store, deposit, handle,
transport, release, or dispose of Hazardous Substances in, on or about the
Leased Property or the groundwater thereof, in violation of any federal, state
or municipal law, decision, statute, rule, ordinance or regulation currently in
existence or hereafter enacted or rendered. Tenant shall give Landlord prompt
Notice of any claim received by Tenant from any person, entity, or Governmental
Agencies that a release or disposal of Hazardous Substances has occurred on the
Leased Property or the groundwater thereof.

        Tenant shall not discharge or permit to be discharged into any septic
facility or sanitary sewer system serving the Leased Property any toxic or
hazardous sewage or waste other than that which is permitted by Applicable Law
or which is normal domestic waste water for the type of business contemplated by
this Agreement to be conducted by Tenant on, in or from the Leased Property. Any
toxic or hazardous sewage or waste which is produced or generated in connection
with the use or operation of the Leased Property shall be handled and disposed
of as required by and in compliance with all applicable local, state and federal
laws, ordinances and rules or regulations or shall be pre-treated to the level
of domestic wastewater prior to discharge into any septic facility or sanitary
sewer system serving the Leased Property.

        4.3 Conflicting Businesses Prohibited. Landlord and Tenant hereby
recognize and acknowledge (a) that the Minimum Rent and the Percentage Rent
payable by Tenant to Landlord under this Agreement have been established at the
levels specified in this Agreement upon the premise and with the expectation
that the Minimum Rent and Percentage Rent may determine the market value of the
Leased Property and constitute a material consideration for Landlord's
willingness to execute this Agreement and thereby lease and demise the Leased
Property to Tenant, and (b) that the operation, management, franchising or
ownership by Tenant or an Affiliated Person of Tenant of another Facility of the
Permitted Use as specified in Section 4.1.1 above (such other Facility being
referred to herein as a "Conflicting Business") within a ten (10) mile radius of
the Leased Property (the "Proscribed Area") will tend to result in a decrease in
the amount of Total Facility Revenue which would otherwise reasonably be
expected to be made upon, within and from the Leased Property and thereby result
in a reduction of the market value of the Leased Property and a reduction in the
Rent which would otherwise be received by Landlord pursuant to this Agreement in
the absence of the operation of a Conflicting Business by Tenant or any such
Affiliated Person of Tenant within the Proscribed Area. Accordingly, Tenant on
behalf of itself and such Affiliated Persons, agrees that during the Term of
this Agreement

                                       22
<PAGE>

neither Tenant, nor any Affiliated Person of Tenant shall open, develop,
operate, manage, franchise, own, lease or have any other interest in a
Conflicting Business within the Proscribed Area. In the event of a breach of
this covenant, Landlord shall have the right to terminate this Agreement and
retain the Security Deposit, and pursue any other remedy at law available to
Landlord, including injunctive relief, or in lieu thereof but not in addition
thereto, Landlord may, at its election, require that forty percent (40%) of all
revenues (calculated in the same manner as if such revenues were Total Facility
Revenue) of such Conflicting Business opened, operated, managed, leased,
developed or owned by Tenant or any affiliated person of Tenant as defined in
this Section within the Proscribed Area be included in the amount of Total
Facility Revenue made from the Leased Property for purposes of the determination
and calculation of the Percentage Rent due from Tenant to Landlord under this
Agreement (i.e., as though such Total Facility Revenue of the Conflicting
Business had actually been made upon, within and from the Leased Property). If
Landlord so elects, all provisions of Article 17 of this Agreement relating to
Tenant's maintenance and submission to Landlord of books, records and statements
shall be applicable to all books, records and statements pertaining to any such
Conflicting Businesses. Further, Tenant agrees that Tenant's sole business shall
be to lease, and Tenant shall not incur any expenses or liability related to any
business or activity other than leasing and operating, the Leased Property and
other premises owned or hereinafter owned by Landlord or its Affiliated Persons
pursuant to terms acceptable to Landlord and Tenant. Landlord will not
unreasonably withhold its consent to a waiver of this Conflicting Business
restriction for any Conflicting Business which is approximately five (5) or more
miles away so long as Landlord is provided with evidence reasonably acceptable
to it that the proposed Conflicting Business is not likely to draw from the
demographic base otherwise available to support full occupancy of the Facility
and/or a revenue protection agreement acceptable to Landlord with respect to
adverse affects on Facility occupancy or residents tied to the Facility's
identified demographic base served at the Conflicting Business.

        4.4 Continuous Operations. Tenant shall continuously operate the Leased
Property and maintain sufficient skilled staff and employees, either directly or
through a qualified manager approved by Landlord, and shall maintain adequate
levels and quality of Tenant's Personal Property, to operate the Leased Property
as a first class independent living facility (and, subject to Landlord's consent
pursuant to Section 4.1.2 above, as a first class licensed assisted living and
dementia care facility) as herein required at its sole cost and expense
throughout the entire Term of this Agreement.

        4.5 Compliance With Restrictions, Etc. Tenant, at its expense, shall
comply with all restrictive covenants and other title exceptions affecting the
Leased Property as of the date of this Lease and comply with and perform all of
the obligations set forth in the same to the extent that the same are applicable
to the Leased Property or to the extent that the same would, if not complied
with or performed, impair or prevent the continued use, occupancy and operation
of the Leased Property for the purposes set forth in this Agreement. Further, in
addition to Tenant's payment obligations under this Agreement, Tenant shall pay
all sums charged, levied or assessed under any restrictive covenants,
declaration, reciprocal easement agreement or other title exceptions (not
including obligations of Landlord only under the GMACCMC Loan Documents
identified in Exhibit "K" hereto), equipment leases, leases and all other
agreements affecting the Leased Property as of the date of this Lease promptly
as the same become due and shall promptly furnish Landlord evidence of payment
thereof.

                                       23
<PAGE>

        4.6 Standard of Operation. Throughout the Term of this Agreement, Tenant
shall continuously operate the Leased Property in full compliance with the terms
hereof in a manner consistent with the level of operation of a national, first
class independent living or licensed assisted living and dementia care facility,
as applicable, including without limitation, the following:

                (a) to maintain the standard of care for the residents/patients
        of the Facility at all times at a level necessary to ensure quality care
        for the residents/patients of the Facility in accordance with customary
        and prudent industry standards;

                (b) to operate the Facility in a prudent manner and in
        compliance with applicable laws and regulations relating thereto and
        cause all Permits, Reimbursement Contracts and any other agreements
        necessary for the use and operation of the Facility or as may be
        necessary for participation in applicable reimbursement programs;

                (c) to maintain sufficient P&E and Inventories, and Tenant
        Personal Property, of types and quantities at the Facility to enable
        Tenant adequately to perform operations of the Facility; and

                (d) to keep all Leased Improvements and P&E located on or used
        or useful in connection with the Facility in good repair, working order
        and condition, reasonable wear and tear excepted, and from time to time
        make all needed and proper repairs, renewals, replacements, additions
        and improvements thereto to keep the same in good operating condition.

                (e) to maintain sufficient working capital to operate the Leased
        Property as a first class facility (working capital shall mean assets
        which are reasonably necessary and used for the day to day operation of
        the Leased Property, including, without limitation, amounts sufficient
        for the maintenance of change and petty cash funds, amounts deposited in
        operating bank accounts, receivables, prepaid expenses, and funds
        required to maintain Inventories and pay all operating expenses as they
        become due, less accounts payable and accrued current liabilities).

                (f) to operate and use the Leased Property to a standard
        consistent with national chain first class independent living or
        licensed assisted living and dementia care facilities, as applicable, at
        least equal to or better in quality than independent living and licensed
        assisted living and dementia care facilities (as applicable) operated by
        Guarantor and its Affiliated Persons at the Commencement Date, and to
        operate the Facility only under the Guarantor's name, trademarks, logos
        and service marks, with all required licenses and permits for such
        operation, if any.

                (g) to follow and conform to all of the same operating,
        employment, marketing, insurance, risk management and management
        standards and practices

                                       24
<PAGE>

        employed at first class independent living and licensed assisted living
        and dementia care facilities (as applicable) operated by Guarantor and
        its Affiliated Persons.

                (h) to recruit, train and employ appropriate personnel, or
        retain management services from Guarantor or other qualified operator or
        service-provider approved by Landlord for same.

                (i) to provide prompt written notice to Guarantor and to
        Landlord of material or extraordinary developments, lawsuits, violation
        of any Legal Requirements and fines relating to the use and operation of
        the Facility.

        Throughout the term of the Lease, Tenant shall continuously operate the
Leased Property as a national, first-class independent living and/or licensed
assisted living and dementia care facility (as applicable) in the manner set
forth above, and to a standard consistent with national chain, first-class
independent living and licensed assisted living and dementia care facilities (as
applicable) at least equal to or better in quality than independent living and
licensed assisted living and dementia care facilities (as applicable) operated
currently by Guarantor under Guarantor's name, trademarks, logos and service
marks. Tenant shall endeavor and use its best efforts to maximize Total Facility
Revenue for the Leased Property. Tenant shall further provide, or cause to be
provided, all group services, facilities and benefits generally available to a
national chain, first-class independent living and licensed assisted living and
dementia care facilities (as applicable) of a similar type operated elsewhere by
Guarantor or any successor to Guarantor (or by other national operators of
first-class independent living and licensed assisted living and dementia care
facilities, such as those operated by Marriott Senior Living Services).

        4.7 Resident Agreements and Service Licenses. Tenant shall comply in all
material respects with the terms and provisions of each agreement and
undertaking entered into with or provided to the residents of the Facility
("Resident Agreements"), including without limitation to fulfill or cause to be
fulfilled all undertakings and representations regarding the use, condition and
operation of the Facility and services to provided the residents and the
standards and services of and benefits to be provided by the Guarantor and its
Affiliated Persons. In addition, Tenant shall comply in all material respects
with the terms and conditions of any contract or license entered into with
respect to the provision of services to the residents at the Facility ("Service
Licenses").

        4.8 Standards, Not Control. Landlord and Tenant stipulate and agree that
Tenant is obligated to undertake such actions as are reasonably necessary to
properly achieve the highest standard of operation for the Facility as set forth
herein, and that although Landlord shall have the right to undertake all
enforcement rights as provided herein in the event that the required standard of
operation is not maintained by Tenant, the means and methods used and actions
taken to operate the Facility are within the sole control and election of
Tenant, and are not specified by or under the control of Landlord. Accordingly,
Landlord shall have no responsibility for any action taken by Tenant in order to
manage or operate the Facility.

        4.9 Survival. As to conditions and uses of Tenant existing or occurring
prior to the expiration or sooner termination of this Agreement, the provisions
of this Article 4 shall survive

                                       25
<PAGE>

the expiration or sooner termination of this Agreement to extent of any ongoing
effects on Landlord or its successors with respect to the Facility (specifically
including the prohibitions relating to conflicting businesses under Section 4.3.

                                   ARTICLE 5

                             MAINTENANCE AND REPAIRS

        5.1 Tenant's Obligations. Tenant shall, at its sole cost and expense,
keep the Leased Property in good order and repair, and shall promptly make all
necessary and appropriate repairs and replacements thereto of every kind and
nature, whether interior or exterior, structural or nonstructural, ordinary or
extraordinary, foreseen or unforeseen or arising by reason of a condition
existing prior to the commencement of the Term and whether or not necessitated
by wear, tear, obsolescence or defects, latent or otherwise, and shall use all
reasonable precautions to prevent damage or injury. All repairs shall be made in
a good, workmanlike manner, consistent with the industry standards for like
independent living and licensed assisted living and dementia care facilities, as
applicable, in like locales, in accordance with all applicable federal, state
and local statutes, ordinances, by-laws, codes, rules and regulations relating
to any such work. In addition, Tenant shall also, at its sole cost and expense,
put, keep, replace and maintain Tenant's Personal Property in good repair and in
good, safe and substantial order, howsoever the necessity or desirability for
repairs may occur, and whether or not necessitated by wear, tear, obsolescence
or defects. Tenant may at any time and from time to time remove and dispose of
any of Tenant's Personal Property which has become obsolete or unfit for use or
which is no longer useful in the operation of the Facility's business conducted
by Tenant on the Leased Property; provided, however, that Tenant's Personal
Property so disposed of shall be promptly replaced with other Tenant's Personal
Property not necessarily of the same character, but of at least equal usefulness
and quality as, and having a value at least equal to the value of, those
disposed of, and in any event in accordance with and in compliance with the
standards required by and the provisions of this Agreement. Tenant shall further
at all times maintain the Leased Property, including the grounds and
landscaping, in an aesthetically pleasing manner.

        5.2 Reserve.

                5.2.1 Tenant shall establish an interest bearing reserve account
        (the "Reserve") in a bank designated by Tenant and approved by Landlord.
        All interest earned on the Reserve shall be added to and remain a part
        of the Reserve. Both Tenant and Landlord shall be signatories on the
        Reserve, provided only one signature shall be required to withdraw funds
        and Landlord agrees that so long as Tenant is not in default hereunder,
        Landlord shall not be required to sign on any checks and Landlord shall
        not withdraw any funds from such account. Upon the occurrence and
        continuation of any Default or Event of Default hereunder the Tenant
        signatory party shall no longer be an authorized signatory on the
        Reserve account. Such account shall be established in Landlord's name
        and control for the benefit of Tenant and shall not include or
        contemplate "overdraft protection" and Tenant shall not request or
        attempt to draw or draft any funds which are not actually on deposit in
        such account. The purpose of the Reserve is to cover the cost

                                       26
<PAGE>

        of the following, to the extent carried out in accordance with this
        Agreement (collectively, "Reserve Expenditures"):

                        (a) Replacements (including P&E Replacements), renewals
                and additions to the P&E at the Facility; and

                        (b) repairs, alterations, improvements, renewals,
                replacements and additions, whether routine, non-routine or
                major, to the Leased Improvements, including without limitation
                those which are normally capitalized under GAAP such as repairs,
                alterations, improvements, renewals, replacements and additions
                to the structure, the exterior facade, the mechanical,
                electrical, heating, ventilating, air conditioning, plumbing and
                vertical transportation elements of the Leased Improvements,
                which expenditures Tenant believes should be made for the Leased
                Property for the following Fiscal Year.

                5.2.2 Commencing with the Commencement Date and continuing
        throughout the Term, Tenant shall on the last day of each Accounting
        Period during the Term, transfer into the Reserve an amount equal to the
        Applicable Reserve Percentage of Total Facility Revenues for such
        Accounting Period (based upon estimates of Total Facility Revenue if
        necessary, to be adjusted as soon as Tenant has had an opportunity to
        confirm actual Total Facility Revenue). At the time Tenant provides
        Landlord the documentation described in Section 3.3, Tenant shall also
        deliver to Landlord a statement setting forth the total amount of
        deposits made to and expenditures from the Reserve for the preceding
        Fiscal Year.

                5.2.3 On or before December 1 of each Fiscal Year, Tenant shall
        prepare an estimate (the "Reserve Estimate") of Reserve Expenditures
        anticipated during the ensuing Fiscal Year and shall submit such Reserve
        Estimate to Landlord for its review. Such Reserve Estimate shall reflect
        by line item the projected budget for Reserve Expenditures for the
        Leased Property and assumptions on the basis of which such line items
        were prepared in narrative form if necessary, including separate budget
        items for all projected expenditures for replacements, substitutions and
        additions to Tenant's Personal Property. Tenant shall provide to
        Landlord reasonable additional detail, information and assumptions used
        in the preparation of the Reserve Estimate as requested by Landlord and
        shall also submit to Landlord with the Reserve Estimate good faith
        longer-range projections of planned Reserve Expenditures for an
        additional three (3) Fiscal Years. Tenant shall review the Reserve
        Estimate with Landlord, and subject to Landlord's approval, Tenant shall
        implement such Reserve Estimate for the successive Fiscal Year (during
        which it shall, if approved by Landlord, be referred to as the "Approved
        Reserve Estimate"). In addition, Landlord shall have the right to
        disapprove any expenditures to be made pursuant to the Reserve Estimate
        which are not in compliance with Applicable Laws. Further, Landlord's
        approval of any expenditure pursuant to the Reserve Estimate shall not
        be, or be deemed to be, an assumption by Landlord of any liability in
        connection with the expenditures made. Pending resolution of any
        dispute, the specific disputed item of the Reserve Estimate shall be
        suspended and replaced for the Fiscal Year in question by an amount
        equal to the lesser of (a) that proposed by Tenant for such Fiscal Year
        or (b) such budget item for the Fiscal Year prior thereto. Tenant shall
        not make any

                                       27
<PAGE>

        expenditures from the Reserve, nor shall Tenant deviate from the
        Approved Reserve Estimate without the prior approval of Landlord, except
        in the case of emergency where immediate action is necessary to prevent
        imminent danger to person or property.

                5.2.4 Tenant shall, consistent with the Approved Reserve
        Estimate, from time to time make Reserve Expenditures from the Reserve
        as it reasonably deems necessary in accordance with Section 5.2.1 and
        Section 5.2.3. Tenant shall provide to Landlord, within thirty (30) days
        after the end of each Fiscal Quarter, an itemized statement setting
        forth Reserve Expenditures made to date during the Fiscal Year.

                5.2.5 In the event Reserve Expenditures not set forth in the
        Approved Reserve Estimate are required (i) as a result of Legal
        Requirements or are otherwise required for the continued safe and
        orderly operation of the Leased Property, (ii) due to an emergency
        threatening the Leased Property, its residents, patients, guests,
        invitees or employees, or (iii) because the continuation of a given
        condition will subject Tenant or Landlord to civil or criminal
        liability, Landlord agrees that it will not unreasonably withhold its
        approval of such expenditures.

                5.2.6 All interest earned on the Reserve shall be added to and
        become a part thereof, and all property purchased with funds from the
        Reserve shall be and remain the property of Tenant until the end of the
        Term of the Lease or earlier expiration or termination of this Agreement
        (subject to Landlord's lien rights hereunder), at which time all P&E at
        the Leased Property, including without limitation all P&E Replacements
        or other items purchased with funds from the Reserve (but not including
        Tenant's Personal Property except as specifically provided herein) shall
        be and become the sole property of Landlord. All funds in the Reserve
        shall be and remain the property of Tenant throughout the Lease Term,
        subject to the control rights and liens and security interests of
        Landlord, but following expiration or earlier termination of this
        Agreement and payment in full on all contracts entered into prior to
        such expiration or termination for work to be done or furniture,
        furnishings, fixtures and equipment to be supplied in accordance with
        this Section 5.2 out of the Reserve, ownership of the Reserve shall be
        transferred from Tenant to Landlord except (provided Tenant is not in
        Default at the time of termination) to the extent of the amount, if any,
        by which Tenant's cumulative cash expenditures on P&E used solely at the
        Leased Property (not including any of Tenant's Personal Property which
        is not used at the Leased Property throughout the useful life thereof),
        less all amounts received upon any disposition thereof, exceeds the
        cumulative amount deposited by Tenant into the Reserve. It is understood
        and agreed that the Reserve pursuant to this Agreement shall be
        maintained and used solely in connection with the Leased Property.

                5.2.7 If Landlord wishes to grant a security interest in or
        create another encumbrance on its interest in the Reserve in connection
        with a Facility Mortgage, all or any part of the existing or future
        funds therein, or any general intangible in connection therewith, the
        instrument granting such security interest or creating such other
        encumbrance shall expressly provide that such security interest or
        encumbrance is prior in right to the rights of Tenant with respect to
        the Reserve as set forth herein, provided that the same is subject to a
        Tenant non-disturbance agreement as provided herein and the

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<PAGE>

        Mortgagee thereunder agrees to be responsible to Tenant and to properly
        disburse all amounts of the Reserve received by it for use and
        disposition as provided herein.

                5.2.8 If, at any time, funds in the Reserve shall be
        insufficient or are reasonably projected by Tenant to be insufficient
        for necessary and permitted expenditures thereof or funding is necessary
        for Reserve Expenditures, Tenant shall give Landlord Notice thereof,
        which Notice shall set forth, in reasonable detail, the nature of the
        required or permitted action and the estimated cost thereof, and Tenant
        shall thereafter fund such additional Reserve Expenditures.

                                   ARTICLE 6

                               IMPROVEMENTS, ETC.

        6.1 Prohibition. Except for work funded by Reserve Expenditures and
Minor Alterations as hereinafter expressly provided in Section 6.2, no portion
of the Leased Property shall be demolished, removed or altered by Tenant in any
manner whatsoever without the prior written consent and approval of Landlord.
Notwithstanding the foregoing, however, Tenant shall be entitled and obligated
to undertake all alterations to the Leased Property required by any Legal
Requirements and, in such event, Tenant shall comply with the provisions of
Section 6.2 below.

        6.2 Permitted Renovations. The activities permitted pursuant to Section
6.2.1 and Section 6.2.2 below shall collectively constitute "Permitted
Renovations".

                6.2.1 Minor Alterations. Landlord acknowledges that certain
        minor alterations and renovations may be undertaken by Tenant from time
        to time ("Minor Alterations"). Landlord hereby agrees that Tenant shall
        be entitled to perform such Minor Alterations on or about the Leased
        Improvements; provided, however, that the cost of the same shall not
        exceed $20,000.00 and the same shall not weaken or impair the structural
        strength of the Leased Improvements, or alter their exterior design or
        appearance, materially impair the use of any of the service facilities
        located in, or fundamentally affect the character or suitability of, the
        Leased Improvements for the Permitted Use specified in Section 4.1.1
        above or materially lessen or impair their value.

                6.2.2 Additions, Expansions and Structural Alterations. Except
        as expressly permitted in Section 6.1 and Section 6.2.1 above, nothing
        in this Article 6 or elsewhere in this Agreement shall be deemed to
        authorize Tenant to construct and erect any additions to or expansions
        of the Leased Improvements, or perform any alterations of a structural
        nature whatsoever (collectively referred to herein as the "Major
        Alterations"); it being understood that Tenant may do so only with the
        prior written consent and approval of Landlord, which consent and
        approval may be withheld by Landlord in its sole and absolute discretion
        and may be conditioned upon the payment by Tenant to Landlord of all
        reasonable costs incurred by Landlord in evaluating the same.

                                       29
<PAGE>

        6.3 Conditions to Reserve Expenditures, Permitted Renovations and Major
Alterations. In connection with any Reserve Expenditures, Permitted Renovations
or Major Alterations of the Leased Property the following conditions shall be
met, to wit:

                        (a) Before the commencement of any such work, plans and
                specifications therefor or a detailed itemization thereof
                prepared by a licensed architect approved by Landlord or other
                design professional appropriate under the circumstances approved
                by Landlord and Tenant shall be furnished to Landlord for its
                review and approval. Such approval shall not constitute
                Landlord's agreement that the plans and specification are in
                compliance with Applicable Laws or an assumption by Landlord of
                any liability in connection with the renovation work
                contemplated thereby.

                        (b) Before the commencement of any such work Tenant
                shall obtain the approval thereof by all Governmental Agencies
                having or claiming jurisdiction of or over the Leased Property,
                and with any public utility companies having an interest
                therein. In connection with any such work Tenant shall comply
                with all Legal Requirements and Applicable Laws, of all other
                Governmental Agencies having or claiming jurisdiction of or over
                the Leased Property and of all their respective departments,
                bureaus and offices, and with the requirements and regulations,
                if any, of such public utilities, of the insurance underwriting
                board or insurance inspection bureau having or claiming
                jurisdiction, or any other body exercising similar functions,
                and of all insurance companies then writing policies covering
                the Leased Property or any part thereof.

                        (c) Tenant represents and warrants to Landlord that all
                such work will be performed in a good and workmanlike manner and
                in accordance with the plans and specifications therefor
                approved by Landlord, the terms, provisions and conditions of
                this Agreement and all governmental requirements.

                        (d) Landlord shall have the right, at Tenant's expense,
                to inspect any such work at all times during normal working
                hours using such inspector(s) as it may deem necessary so long
                as such inspections do not unreasonably interfere with Tenant's
                work (but Landlord shall not thereby assume any responsibility
                for the proper performance of the work in accordance with the
                terms of this Agreement, nor any liability arising from the
                improper performance thereof).

                        (e) All such work shall be performed free of any liens
                on Landlord's fee simple interest on or Tenant's leasehold
                interest in the Leased Property.

                        (f) Upon substantial completion of any such work, Tenant
                shall procure a certificate of occupancy or other final
                approvals, if applicable, from the appropriate Governmental
                Agencies and provide copies of same to Landlord.

                        (g) Tenant shall, and hereby agrees to, indemnify and
                save and hold Landlord and its Affiliated Parties harmless from
                and against and reimburse Landlord for any and all loss, damage,
                cost, liability, fee and expense (including,

                                       30
<PAGE>

                without limitation, reasonable attorney's fees based upon
                service rendered at hourly rates) incurred by or asserted
                against Landlord which is occasioned by or results, directly or
                indirectly, from any such work conducted upon the Leased
                Property; whether or not the same is caused by, or is the fault
                of Tenant or any agent, employee, manager, contractor,
                subcontractor, laborer, supplier, materialman or any other third
                party; but Tenant shall not be obligated to indemnify Landlord
                from any loss as aforesaid caused by Landlord's gross negligence
                or willful misconduct.

        6.4 Salvage. Other than Tenant's Personal Property, all materials which
are scrapped or removed in connection with maintenance and repair performed
pursuant to Article 5 and the making of Permitted Renovations pursuant to
Article 6 shall be disposed of by Tenant and the net proceeds thereof, if any,
shall be deposited in the Reserve.

                                   ARTICLE 7

                    LANDLORD'S INTEREST NOT SUBJECT TO LIENS

        7.1 Liens, Generally. Tenant shall not, directly or indirectly, create
or cause to be imposed, claimed or filed upon the Leased Property, or Tenant's
assets, properties or income or any portion thereof, or upon the interest of
Landlord therein, any Lien of any nature whatsoever. If, because of any act or
omission of Tenant, any such Lien shall be imposed, claimed or filed by any
party whosoever or whatsoever, Tenant shall, at its sole cost and expense, cause
the same to be promptly (and in no event later than thirty (30) days following
receipt of notice of such Lien) fully paid and satisfied or otherwise promptly
discharged of record (by bonding or otherwise) and Tenant shall indemnify and
save and hold Landlord harmless from and against any and all costs, liabilities,
suits, penalties, claims and demands whatsoever, and from and against any and
all reasonable attorney's fees, at both trial and all appellate levels,
resulting or on account thereof and therefrom. In the event that Tenant shall
fail to comply with the foregoing provisions of this Section 7, Landlord shall
have the option, but not the obligation, of paying, satisfying or otherwise
discharging (by bonding or otherwise) such Lien and Tenant agrees to reimburse
Landlord, upon demand and as Additional Rent, for all sums so paid and for all
costs and expenses incurred by Landlord in connection therewith, together with
interest thereon, until paid.

        7.2 Construction or Mechanics Liens. Landlord's interest in the Leased
Property shall not be subjected to Liens of any nature by reason of Tenant's
construction, alteration, renovation, repair, restoration, replacement or
reconstruction of any improvements on or in the Leased Property, or by reason of
any other act or omission of Tenant (or of any person claiming by, through or
under Tenant) including, but not limited to, construction, mechanics' and
materialmen's liens. All persons dealing with Tenant are hereby placed on notice
that such persons shall not look to Landlord or to Landlord's credit or assets
(including Landlord's interest in the Leased Property) for payment or
satisfaction of any obligations incurred in connection with the construction,
alteration, renovation, repair, restoration, replacement or reconstruction
thereof by or on behalf of Tenant. Tenant has no power, right or authority to
subject Landlord's interest in the Leased Property to any construction,
mechanic's or materialmen's lien or claim of

                                       31
<PAGE>

lien. If a Lien, a claim of lien or an order for the payment of money shall be
imposed against the Leased Property on account of work performed, or alleged to
have been performed, for or on behalf of Tenant, Tenant shall, within thirty
(30) days after written notice of the imposition of such Lien, claim or order,
cause the Leased Property to be released therefrom by the payment of the
obligation secured thereby or by furnishing a bond or by any other method
prescribed or permitted by law. If a Lien is released, Tenant shall thereupon
furnish Landlord with a written instrument of release which has been recorded or
filed in the appropriate office of land records of the County in which the
Leased Property is located, and otherwise sufficient to establish the release as
a matter of record.

        7.3 Contest of Liens. Tenant may, at its option, contest the validity of
any Lien or claim of lien if Tenant shall have first posted an appropriate and
sufficient bond in favor of the claimant or paid the appropriate sum into court,
if permitted by and in strict compliance with Applicable Laws, and thereby
obtained the release of the Leased Property from such Lien. If judgment is
obtained by the claimant under any Lien, Tenant shall pay the same immediately
after such judgment shall have become final and the time for appeal therefrom
has expired without appeal having been taken. Tenant shall, at its own expense,
using counsel reasonably approved by Landlord, diligently defend the interests
of Tenant and Landlord in any and all such suits; provided, however, that
Landlord may, nonetheless, at its election and expense, engage its own counsel
and assert its own defenses, in which event Tenant shall cooperate with Landlord
and make available to Landlord all information and data which Landlord deems
necessary or desirable for such defense.

        7.4 Notices of Commencement of Construction. If required by the laws of
the State in which the Leased Property is located, prior to commencement by
Tenant of any work on the Leased Property which shall have been previously
permitted by Landlord as provided in this Agreement, Tenant shall record or file
a notice of the commencement of such work or similar notice required by
Applicable Law (the "Notice of Commencement") in the land records of the County
in which the Leased Property is located, identifying Tenant as the party for
whom such work is being performed, stating such other matters as may be required
by law and requiring the service of copies of all notices, Liens or claims of
lien upon Landlord. Any such Notice of Commencement shall clearly reflect that
the interest of Tenant in the Leased Property is that of a leasehold estate and
shall also clearly reflect that the interest of Landlord as the fee simple owner
of the Leased Property shall not be subject to construction, mechanics or
materialmen's liens on account of the work which is the subject of such Notice
of Commencement. A copy of any such Notice of Commencement shall be furnished to
and approved by Landlord and its attorneys prior to the recording or filing
thereof, as aforesaid.

                                   ARTICLE 8

                              TAXES AND ASSESSMENTS

        8.1 Obligation to Pay Taxes and Assessments. Throughout the entire Term,
Tenant shall bear, pay and discharge as Additional Charges and not later than
the last day on which payment may be made without penalty or interest, any and
all taxes, assessments, charges, levies,

                                       32
<PAGE>

fees (including, without limitation, license, permit, inspection, authorization
and similar fees) and other impositions and charges of every kind and nature
whatsoever, extraordinary as well as ordinary, foreseen or unforeseen, and each
and every installment thereof which shall or may during or with respect to the
Term hereof be charged, laid, levied, assessed, or imposed upon, or arise in
connection with, the use, occupancy, operation or possession of the Leased
Property or any part thereof or the business conducted thereon, including,
without limitation, ad valorem real and personal property taxes, all taxes
charged, laid, levied, assessed or imposed in lieu of or in addition to any of
the foregoing by virtue of all present or future laws, ordinances, requirements,
orders, directions, rules or regulations of Governmental Agencies, and all
assessments and charges imposed pursuant to the Permitted Encumbrances (other
than obligations of Landlord only under the GMACCM Loan Documents as described
in Exhibit "K" hereto) or other documents of record affecting title to the
Leased Property (provided however that such documents have been approved by
Tenant, which approval shall not unreasonably be withheld, delayed or
conditioned provided that the same are appropriate and reasonably necessary in
connection with the normal and ordinary course of ownership and use of the
Facility), whether or not such Additional Charges become due and payable during
or after the Term. Notwithstanding the foregoing, Tenant shall not be
responsible for Additional Charges due and payable after the expiration of the
Term to the extent that the same relate and apply interests and benefits
accruing to Landlord after the Lease Term. Upon payment, Tenant shall promptly
furnish to Landlord satisfactory evidence of the payment of all such taxes,
assessments, impositions or charges. Tenant shall have no right to approve, nor
shall Tenant be obligated for any amounts due by virtue of, any Facility
Mortgage or other documents relating to indebtedness of Landlord.

        8.2 Tenant's Right to Contest Taxes. Notwithstanding the foregoing,
Tenant shall have the right, after prior written notice to Landlord, to contest
at its own expense the amount and validity of any taxes affecting the Leased
Property by appropriate proceedings under Applicable Law conducted in good faith
and with due diligence and to postpone or defer payment thereof, provided and so
long as:

                (a) Such proceedings shall operate to suspend the collection of
        such taxes with respect to the Leased Property;

                (b) Neither the Leased Property nor any part thereof would be in
        immediate danger of being forfeited or lost by reason of such
        proceedings, postponement or deferment; and

                (c) Tenant shall have furnished Landlord with security for
        payment of the contested taxes which is satisfactory to Landlord, and,
        in the event that the preconditions set forth in (a) and (b) above are
        no longer met, Landlord shall have the right to draw upon such security
        to pay and discharge the taxes in question and any liens against the
        Leased Property arising thereunder.

        8.3 Tax and Insurance Escrow Account. In the event Tenant fails to
timely pay any tax, assessment, imposition or charge required to be paid by
Tenant pursuant to Section 8.1, Landlord shall have the right, by written notice
to Tenant effective as of the date of such notice, to require Tenant to pay or
cause to be paid into a separate account (the "Tax and Insurance Account") to be
established by Tenant with a lending institution designated by Landlord (which

                                       33
<PAGE>

Tax and Insurance Account shall not be removed from such lending institution
without the express prior approval of Landlord), and which Landlord may draw
upon, a reserve amount sufficient to discharge the obligations of Tenant under
Section 8.1 and Article 9 hereof (other than worker's compensation insurance
premiums) with respect to real estate taxes and insurance premiums for the
applicable Fiscal Year as and when they become due (such amounts, the "Tax and
Insurance Escrow Amount"). During each month commencing with the first full
calendar month following the receipt of said notice from Landlord, Tenant shall
deposit into the Tax and Insurance Account one twelfth of the Tax and Insurance
Escrow Amount so that as each installment of insurance premiums and real estate
taxes becomes due and payable, there are sufficient funds in the Tax and
Insurance Account to pay the same. If the amount of such insurance premiums and
real estate taxes has not been definitively ascertained by Tenant at the time
when any such monthly deposit is to be paid, Landlord shall require payment of
the Tax and Insurance Escrow Amount based upon the amount of premiums and real
estate taxes paid for the preceding year, subject to adjustment as and when the
amount of such premiums and real estate taxes are ascertained by Tenant. The Tax
and Insurance Escrow Amount in the Tax and Insurance Account shall be and
constitute additional security for the performance of Tenant's obligations
hereunder and shall be subject to Landlord's security interest therein and
shall, if there are sufficient funds in escrow, be used to pay taxes and
insurance premiums when due. Landlord and Tenant shall execute such
documentation as may be necessary to create and maintain Landlord's security
interest in the Tax and Insurance Account.

                                   ARTICLE 9

                                    INSURANCE

        9.1 General Insurance Requirements. Tenant shall, at all times during
the Term and at any other time Tenant shall be in possession of the Leased
Property, keep the Leased Property and all property located therein or thereon,
insured against the following risks in the following amounts:

        (a) "All-risk" property insurance (and to the extent applicable,
Builder's Risk Insurance) on the Leased Improvements and all items of business
personal property, including but not limited to signs, awnings, canopies,
gazebos, fences and retaining walls, and all P&E, including without limitation,
insurance against loss or damage from the perils under "All Risk" (Special)
form, including but not limited to the following: fire, windstorm, sprinkler
leakage, vandalism and malicious mischief, water damage, explosion of steam
boilers, pressure vessels and other similar apparatus, and other hazards
generally included under extended coverage, all in an amount equal to one
hundred percent (100%) of the replacement value of the Leased Improvements
(excluding excavation and foundation costs), business personal property and P&E,
without a co-insurance provision, and shall include an Agreed Value endorsement;

        (b) Ordinance or Law Coverage with limits of not less than the Leased
Improvements for Coverage A (Loss to the undamaged portion of the building),
limits not less than $500,000.00 for Coverage B (Demolition Cost Coverage), and
limits not less than $500,000.00 for Coverage C (Increased Cost of Construction
Coverage);

                                       34
<PAGE>

        (c) Business income insurance to be written on "Special Form" (and on
"Earthquake" and "Flood" forms if such insurance for those risks is required)
including "Extra Expense", without a provision for co-insurance, including an
amount sufficient to pay at least twelve (12) months of Rent for the benefit of
Landlord, as its interest may appear, and at least twelve (12) months of "Net
Operating Income" less Rent for the benefit of Tenant;

        (d) Occurrence form commercial general liability insurance, including
bodily injury and property damage, liquor liability (if applicable), fire legal
liability, contractual liability and independent contractor's hazard and
completed operations coverage in an amount not less than $1,000,000.00 per
occurrence and $2,000,000.00 per location, aggregate;

        (e) Umbrella liability coverage which shall be on a following form for
the General Liability, Automobile Liability, Employers' Liability, Malpractice
and Liquor Liability (if applicable), with limits in a minimum amount of not
less than $20,000,000.00 per occurrence/aggregate;

        (f) Malpractice insurance/professional liability insurance in an amount
not less than $5,000,000.00 for each person and each occurrence to cover the
professional medical care providers working on the Leased Property;

        (g) Flood insurance (if the Leased Property is located in whole or in
part within an area identified as an area having special flood hazards under the
National Flood Insurance Program) for the full (100%) replacement value of the
improvements and all items of business personal property or any greater amount
as may be required by the National Flood Insurance Program;

        (h) Worker's compensation coverage for all persons employed by Tenant on
the Leased Property with statutory limits, and Employers' Liability insurance in
an amount of at least $1,000,000.00 per accident/disease;

        (i) Business auto liability insurance, including owned, non-owned and
hired vehicles for combined single limit of bodily injury and property damage of
not less than $1,000,000.00 per occurrence;

        (j) [Intentionally Omitted];

        (k) "Earthquake" insurance, if the Leased Property is currently, or at
any time in the future, located within a major earthquake disaster area, in
amount, and in such form and substance and with such limits and deductibles as
are satisfactory to Landlord; and

        (l) Crime insurance covering employee theft in an amount not less than
$1,500,000.

        (m) Such additional insurance or increased insurance limits as may be
reasonably required, from time to time, by Landlord (including, without
limitation, any mortgage, security agreement or other financing permitted
hereunder and then affecting the Leased Property, as well as any declaration,
ground lease or easement agreement affecting the Leased Property), or any
Mortgagee, provided the same is customarily carried by a majority of comparable
independent living and/or licensed assisted living and dementia care facilities
(as applicable) in the area.

                                       35
<PAGE>

Without limiting the generality of the foregoing Section 9.1(m), the required
commercial liability insurance and umbrella liability coverage limits and
deductible amounts pertaining thereto as set forth in this Article 9 shall in no
event provide less coverage (lower limits or higher deductibles) than the
"Comparable Insurance Coverage" carried on any of the other independent living
or licensed assisted living and dementia care facilities, as applicable, leased
or owned by Tenant and Guarantor and their Affiliated Persons, and the insurance
coverage for the Leased Property shall immediately be increased by Tenant to
equal any greater or increased "Comparable Insurance Coverage" carried or
obtained for such other facilities. For purposes of the foregoing, "Comparable
Insurance Coverage" shall mean insurance coverage levels adjusted for relevant
variations in risk and insurability characteristics between the insured
facilities being compared, including without limitation consideration of
variations in insurance coverages carried by Guarantor and its Affiliated
Persons between different insurance markets (states or other jurisdictional
subdivisions) where insured risks or insurance pricing or availability varies
materially. Tenant shall use all reasonable efforts to obtain increased umbrella
liability coverage of not less than $50,000,000 per occurrence/aggregate, and
decreased liability insurance deductibles, at such time as the same can be
obtained at commercially reasonable or economically feasible rates for the
Leased Property. Until such increased coverages are obtained the Tenant shall
provide to Landlord a thorough annual update and review of the overall liability
insurance coverage program and strategy for Tenant and Guarantor and their
Affiliated Persons, which shall include an analysis of market rates for the
current and desired liability insurance coverages. In addition, Tenant shall
have the right to provide commercial general liability insurance coverage on a
"claims made" basis, so long as the general liability insurance coverages
otherwise required hereunder are maintained or continued in existence at all
times throughout the Lease Term for all periods that Tenant or its Affiliates
have had any ownership or use of the Leased Property, and evidence thereof has
been provided to Landlord.

        9.2 Waiver of Subrogation. Landlord and Tenant agree that with respect
to any property loss which is covered by insurance then being carried by
Landlord or Tenant, respectively, the party carrying such insurance and
suffering said loss releases the other of and from any and all claims with
respect to such loss; and they further agree that their respective insurance
companies shall have no right of subrogation against the other on account
thereof.

        9.3 General Provisions. The Facility's allocated chargeback/deductible
for general liability insurance shall not exceed $1,000,000 for independent
living or assisted living and $1,000,000 for Memory Impaired, to the extent
commercially available, and $350,000.00 for workmen's compensation insurance, to
the extent commercially available, unless any greater amounts are agreeable to
both Landlord and Tenant. The Facility's property insurance deductible shall not
exceed $25,000.00 unless such greater amount is agreeable to both Landlord and
Tenant, or if a higher deductible for high hazard risks (i.e., wind or flood) is
mandated by the insurance carrier. All insurance policies pursuant to this
Article 9 shall be issued by insurance carriers having a general policy holder's
rating of no less than A-/VII in Best's latest rating guide, and shall contain
clauses or endorsements to the effect that (a) Landlord shall not be liable for
any insurance premiums thereon or subject to any assessments thereunder, and (b)
the coverages provided thereby will be primary and any insurance carried by any
additional insured shall be excess and non-contributory to the extent of the
indemnification obligation pursuant to Section 9.5 below. All such policies
described in Section 9.1 shall name Landlord, CRC and CNL Retirement and any
Mortgagee whose name and address has been provided to Tenant as

                                       36
<PAGE>

additional insureds, loss payees, or mortgagees, as their interests may appear
and to the extent of their indemnity. All loss adjustments shall be payable as
provided in Article 10. Tenant shall deliver certificates thereof to Landlord
prior to their effective date (and, with respect to any renewal policy, no less
than thirty (30) days prior to the expiration of the existing policy), which
certificates shall state the nature and level of coverage reported thereby, as
well as the amount of the applicable deductible. Upon Landlord's request,
duplicate original copies of all insurance policies to be obtained by Tenant
shall be provided to Landlord by Tenant. All such policies shall provide
Landlord (and any Mortgagee whose name and address has been provided to Tenant
if required by the same) thirty (30) days prior written notice of any material
change or cancellation of such policy.

        In the event Tenant shall fail to effect such insurance as herein
required, to pay the premiums therefor or to deliver such certificates to
Landlord or any Mortgagee at the times required, Landlord shall have the right,
but not the obligation, subject to the provisions of Section 12.4, to acquire
such insurance and pay the premiums therefor, which amounts shall be payable to
Landlord, upon demand, as Additional Rent, together with interest accrued
thereon at the Overdue Rate from the date such payment is made until (but
excluding) the date repaid.

        9.4 Blanket Policy. Notwithstanding anything to the contrary contained
in this Article 9, Tenant's obligation to maintain the insurance herein required
may be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant, so long as such policies otherwise
meet all requirements under this Article 9.

        9.5 Indemnification of Landlord. Except as expressly provided herein,
Tenant shall protect, indemnify and hold harmless Landlord for, from and against
all liabilities, obligations, claims, damages, penalties, causes of action,
costs and reasonable expenses (including, without limitation, reasonable
attorneys' fees), to the maximum extent permitted by law, imposed upon or
incurred by or asserted against Landlord by reason of: (a) any accident, injury
to or death of persons or loss of or damage to property of third parties
occurring on or about the Leased Property or adjoining sidewalks or rights of
way under Tenant's control, and (b) any use, misuse, condition, management,
maintenance or repair by Tenant or anyone claiming under Tenant of the Leased
Property or Tenant's Personal Property or any litigation, proceeding or claim by
Governmental Agencies relating to such use, misuse, condition, management,
maintenance, or repair thereof to which Landlord is made a party; provided,
however, that Tenant's obligations hereunder shall not apply to any liability,
obligation, claim, damage, penalty, cause of action, cost or expense arising
from any gross negligence or willful misconduct of Landlord, its employees,
agents, contractors or invitees. Any such claim, action or proceeding asserted
or instituted against Landlord covered under this indemnity shall be defended by
counsel selected by Tenant and reasonably acceptable to Landlord, at Tenant's
expense. Notwithstanding the foregoing, indemnification with respect to
Hazardous Substances is governed by Section 4.3. The obligations of Tenant under
this Section 9.5 shall survive the expiration or any early termination of this
Agreement.

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<PAGE>

                                   ARTICLE 10

                                    CASUALTY

        10.1 Restoration and Repair. If during the Term the Leased Property
shall be totally or partially destroyed and thereby rendered Unsuitable for Its
Permitted Use, Tenant shall give Landlord prompt Notice thereof. Either Landlord
or Tenant may, by the giving of Notice thereof to the other party within sixty
(60) days after such casualty occurs, terminate this Agreement, whereupon
Landlord shall be entitled to retain the insurance proceeds payable on account
of such damage and Tenant shall pay to Landlord the amount of any deductible.
Tenant further expressly acknowledges, understands and agrees that in the event
that the Agreement is terminated as aforesaid, Landlord may settle any insurance
claims and Tenant shall, upon request of Landlord, cooperate in any such
settlement. If during the Term, the Leased Property shall be destroyed or
damaged in whole or in part by fire, windstorm or any other cause whatsoever,
but the Leased Property either (i) is not rendered Unsuitable for Its Permitted
Use or (ii) is rendered Unsuitable for Its Permitted Use but neither Landlord
nor Tenant terminate this Agreement in the manner provided above, then, Tenant
shall give Landlord immediate Notice thereof and Tenant shall, subject to the
provisions of Section 10.2 below, repair, reconstruct and replace the Leased
Property, or the portion thereof so destroyed or damaged, at least to the extent
of the value and character thereof existing immediately prior to such occurrence
and in compliance with all Legal Requirements, including any alterations to the
Leased Property required to be made by any Governmental Agencies due to any
changes in code or building regulations (which Tenant acknowledges may increase
the replacement value of the Leased Property which Tenant will then be required
to insure, due to any changes in code or building regulations). All such
restoration work shall be started as promptly as practicable and diligently
completed at Tenant's sole cost and expense (using available insurance
proceeds). Tenant shall, however, immediately take such action as is necessary
to assure that the Leased Property (or any portion thereof), does not constitute
a nuisance or otherwise present or constitute a health or safety hazard.
Notwithstanding the foregoing the Tenant shall have the right to elect not to
repair any material casualty damage (estimated to cost greater than $250,000 to
repair) occurring within twelve (12) months prior to the scheduled expiration of
the then-current Term, provided and on the condition that: (i) Tenant promptly
pays to Landlord the full amount of all deductibles applying to the insured
loss, as well as of all uninsured amounts thereof, and Landlord or its Mortgagee
also receive and retain all insurance proceeds; (ii) Tenant has provided
adequate assurance that applicable business interruption insurance will continue
to be available through the end of the then-current Term to cover all resulting
loss of income or else adequate security therefor as requested by Landlord; and
(iii) Tenant, at Tenant's sole cost and expense, properly secures and protects
and preserves any damaged portion of the Facility in such a fashion as to insure
the safety of all Facility Residents, guest, invitees and others (to the extent
that such persons are reasonably expected to continue to occupy or come upon the
relevant portions of the Leased Property), and the value of the affected
improvements.

        10.2 Escrow and Disbursement of Insurance Proceeds. If this Agreement is
not otherwise terminated pursuant to Section 10.1, then in the event of a
casualty resulting in a loss to the Leased Improvements and/or P&E in an amount
greater than Fifty Thousand and No/100 Dollars ($50,000.00) (as determined by an
architect or engineer selected by Landlord), the

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<PAGE>

proceeds of all insurance policies maintained by Tenant shall be deposited in
Landlord's name in an escrow account at a bank or other financial institution
designated by Landlord, and shall be used by Tenant for the repair,
reconstruction or restoration of the Leased Property to its original condition.
Tenant shall, at the time of establishment of such escrow account and from time
to time thereafter until said work shall have been completed and paid for,
furnish Landlord with adequate evidence acceptable to Landlord that at all times
the undisbursed portion of the escrowed insurance proceeds, together with any
funds made available by Tenant, is sufficient to pay for the repair,
reconstruction or restoration in its entirety. Landlord may, at its option,
require, prior to advancement of said escrowed insurance proceeds (i) approval
of plans and specifications by an architect or other design professional
appropriate under the circumstances and approved by Landlord and Tenant (which
approval shall not be unreasonably withheld or delayed), (ii) general
contractors' estimates, (iii) architect's certificates, (iv) unconditional lien
waivers of general contractors, if available, (v) evidence of approval by all
Governmental Agencies and other regulatory bodies whose approval is required,
and (vi) such other terms as a Mortgagee or lender of Landlord may reasonably
require. The escrowed insurance proceeds shall be disbursed by Landlord, not
more than monthly, upon (i) certification of the architect or engineer selected
by Landlord and having supervision of the work that such amounts are the amounts
paid or payable for the repair, reconstruction or restoration and (ii) submittal
by Tenant of a written requisition and substantiation therefor on AIA Forms G702
and G703 (or on such other form or forms as may be reasonably acceptable to
Landlord). Tenant shall obtain, and make available to Landlord, receipted bills
and, upon completion of said work, full and final waivers of lien. In the event
of a casualty resulting in a loss payment for the Leased Improvements in an
amount equal to or less than the amount stated above, the proceeds shall be paid
to Tenant, and shall be applied towards repair, reconstruction and restoration.
Any and all loss adjustments with respect to losses payable hereunder shall
require the prior written consent of Landlord. All salvage resulting from any
risk covered by insurance shall belong to Tenant, provided any rights to the
same have been waived by the insurer. In addition, notwithstanding anything in
this Agreement to the contrary, Tenant shall be strictly liable and solely
responsible for the amount of any deductible and shall pay for all repairs,
reconstruction or alterations up to the full amount of such deductible (and
provide evidence of such payment to Landlord by documentation reasonably
acceptable to Landlord) before any insurance proceeds are used for repairs,
reconstruction or alterations.

        10.3 No Abatement of Rent. Unless terminated in accordance with the
provisions of Section 10.1 above, this Agreement shall remain in full force and
effect and Tenant's obligation to make all payments of Rent and to pay all
Additional Charges as and when required under this Agreement shall remain
unabated during the Term notwithstanding any casualty to the Leased Property
(provided that Landlord shall credit against such payments any amounts paid to
Landlord as a consequence of such damage under any business interruption
insurance obtained by Tenant hereunder). The provisions of this Article 10 shall
be considered an express agreement governing any event of casualty involving the
Leased Property and, to the maximum extent permitted by law, Tenant hereby
waives the application of any local or state statute, law, rule, regulation or
ordinance in effect during the Term which provides for such abatement.

        10.4 Tenant's Property and Business Interruption Insurance. All
insurance proceeds payable by reason of any loss of or damage to any of Tenant's
Personal Property and the business interruption insurance maintained for the
benefit of Tenant shall be paid to Tenant;

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<PAGE>

provided, however, no such payments shall diminish or reduce the insurance
payments otherwise payable to or for the benefit of Landlord hereunder.

        10.5 Restoration of Tenant's Property. If Tenant is required to restore
the Leased Property as hereinabove provided, Tenant shall either (i) restore all
alterations and improvements made by Tenant and Tenant's Personal Property, or
(ii) replace such alterations and improvements and Tenant's Personal Property
with improvements or items of the same or better quality and utility in the
operation of the Leased Property.

        10.6 Waiver. Tenant hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction of the Leased Property
and agrees that its rights shall be limited to those set forth in Section 10.1.

                                   ARTICLE 11

                                  CONDEMNATION

        11.1 Total Condemnation, Etc. If the whole of the Leased Property shall
be taken or condemned for any public or quasi-public use or purpose, by right of
eminent domain or by purchase in lieu thereof, or if a substantial portion of
the Leased Property shall be so taken or condemned that the portion or portions
remaining is or are not sufficient and suitable, in the mutual reasonable
judgment of Landlord and Tenant, for the continued operation thereof as required
herein, so as to effectively render the Leased Property Unsuitable for Its
Permitted Use, then this Agreement and the Term hereby granted shall cease and
terminate (without prejudice to Landlord's and Tenant's respective rights to an
award under Section 11.3 below), as of the date on which the Condemnor takes
possession and all Rent shall be paid by Tenant to Landlord up to that date or
refunded by Landlord to Tenant if Rent has previously been paid by Tenant beyond
that date.

        11.2 Partial Condemnation. If a portion of the Leased Property is taken,
and the portion or portions remaining can, in the mutual reasonable judgment of
Landlord and Tenant, be adapted and used for the conduct of Tenant's business
operation in accordance with the terms of this Agreement, such that the Leased
Property is not effectively rendered Unsuitable for Its Permitted Use, then the
Tenant shall, utilizing condemnation proceeds paid to Landlord from the
Condemnor, promptly restore the remaining portion or portions thereof to a
condition comparable to their condition at the time of such taking or
condemnation, less the portion or portions lost by the taking, and this
Agreement shall continue in full force and effect except that the Rent payable
hereunder shall, if necessary, be equitably adjusted to take into account the
proportionate reduction in the number of licensed beds or living units located
on the Leased Property as a result of the taking.

        11.3 Disbursement of Award. The entire award for the Leased Property or
the portion or portions thereof so taken shall be apportioned between Landlord
and Tenant as follows: (a) if this Agreement terminates due to a taking or
condemnation, Landlord shall be entitled to the entire award; provided, however,
that any portion of the award expressly made for the taking of

                                       40
<PAGE>

Tenant's leasehold interest in the Leased Property, loss of business during the
remainder of the Term, and the taking of Tenant's Personal Property shall be the
sole property of and payable to Tenant, and (b) if this Agreement does not
terminate due to such taking or condemnation, Tenant shall be entitled to the
award to the extent required for restoration of the Leased Property, and
Landlord shall be entitled to the balance of the award not applied to
restoration. In any condemnation proceedings, Landlord and Tenant shall each
seek its own award in conformity herewith, at its own expense. If this Agreement
does not terminate due to a taking or condemnation, Tenant shall, with due
diligence, restore the remaining portion or portions of the Leased Property in
the manner hereinabove provided. In such event, the proceeds of the award to be
applied to restoration shall be deposited with a bank or financial institution
designated by Landlord as if such award were insurance proceeds, and the amount
so deposited will thereafter be treated in the same manner as insurance proceeds
are to be treated under Section 10.2 of this Agreement until the restoration has
been completed and Tenant has been reimbursed for all the costs and expenses
thereof. If the award is insufficient to pay for the restoration, Tenant shall
be responsible for the remaining cost and expense of such restoration.

        11.4 No Abatement of Rent. This Agreement shall remain in full force and
effect and Tenant's obligation to make all payments of Rent and to pay all other
charges as and when required under this Agreement shall remain unabated during
the Term notwithstanding any Condemnation involving the Leased Property. The
provisions of this Article 11 shall be considered an express agreement governing
any Condemnation involving the Leased Property and, to the maximum extent
permitted by law, no local or State statute, law, rule, regulation or ordinance
in effect during the Term which provides for such abatement shall have any
application in such case.

        11.5 Disputes. If Landlord and Tenant cannot agree in respect of any
matters to be determined under this Article, a determination shall be requested
of the court having jurisdiction over the taking or condemnation; provided,
however, that if said court will not accept such matters for determination,
either party may have the matters determined by a court otherwise having
jurisdiction over the parties.

                                   ARTICLE 12

                              DEFAULTS AND REMEDIES

        12.1 Events of Default. Each of the following events shall be an Event
of Default hereunder by Tenant and shall constitute a breach of this Agreement:

                (a) If Tenant shall fail to (i) pay, when due, any Rent or any
        Additional Charge due hereunder; (ii) fully fund and maintain the
        Security Deposit as required by Section 3.11; or (iii) fully fund and
        maintain the Reserve and fund all Reserve Expenditures as required by
        Section 5.2, and such failure in each such event shall continue for a
        period of five (5) days after such amounts become due and payable.

                                       41
<PAGE>

                (b) If Tenant shall violate or fail to comply with or perform
        any other term, provision, covenant, agreement or condition to be
        performed or observed by Tenant under this Agreement which is not
        otherwise identified in this Section 12.1, and such violation or failure
        shall continue for a period of thirty (30) days after written notice
        thereof from Landlord; provided, however, if such violation or failure
        is incapable of cure by Tenant within such thirty (30) days after
        Tenant's diligent and continuous efforts to cure the same, Tenant shall
        have an additional period of sixty (60) days to cure the same.

                (c) If any assignment, transfer, sublease or encumbrance shall
        be made or deemed to be made that is in violation of the provisions of
        this Agreement.

                (d) If Tenant shall cease the actual and continuous operation of
        the business contemplated by this Agreement to be conducted by Tenant
        upon the Leased Property (and such cessation is not the result of
        casualty, condemnation or renovation and accompanying restoration or is
        not otherwise permitted by Landlord or is not the result of a legal
        requirement or during an emergency); or if Tenant shall vacate, desert
        or abandon the Leased Property; or if the Leased Property shall become
        empty and unoccupied; or if the Leased Property or Leased Improvements
        are used or are permitted to be used for any purpose, or for the conduct
        of any activity, other than the Permitted Use.

                (e) If, at any time during the Term of this Agreement, Tenant or
        Guarantor shall file in any court, pursuant to any statute of either the
        United States or of any State, a petition in bankruptcy or insolvency,
        or for reorganization or arrangement, or for the appointment of a
        receiver or trustee of all or any portion of Tenant's or Guarantor's
        property, including, without limitation, the leasehold interest in the
        Leased Property, or if Tenant or Guarantor shall make an assignment for
        the benefit of its creditors or petitions for or enters into an
        arrangement with its creditors.

                (f) If, at any time during the Term of this Agreement, there
        shall be filed against Tenant or Guarantor in any court pursuant to any
        statute of the United States or of any State, a petition in bankruptcy
        or insolvency, or for reorganization, or for the appointment of a
        receiver or trustee of all or a portion of Tenant's or Guarantor's
        property, including, without limitation, the leasehold interest in the
        Leased Property, and any such proceeding against Tenant or Guarantor
        shall not be dismissed within sixty (60) days following the commencement
        thereof.

                (g) If Tenant's leasehold interest in the Leased Property or any
        property therein (including without limitation Tenant's Personal
        Property and the P&E Replacements) shall be seized under any levy,
        execution, attachment or other process of court where the same shall not
        be vacated or stayed on appeal or otherwise within thirty (30) days
        thereafter, or if Tenant's leasehold interest in the Leased Property is
        sold by judicial sale and such sale is not vacated, set aside or stayed
        on appeal or otherwise within thirty (30) days thereafter.

                (h) If any of the Facility's Permits material to the Facility's
        operation for its Permitted Use are at any time suspended and the
        suspension is not stayed pending appeal

                                       42
<PAGE>

        within five (5) days, or voluntarily terminated without the prior
        written consent of Landlord.

                (i) If any Governmental Agencies having jurisdiction over the
        operation of the Facility removes ten percent (10%) or more of the total
        number of patients or residents located in the Facility at the time of
        such removal.

                (j) If Tenant voluntarily transfers ten (10) or more patients or
        residents located in the Facility in any one (1) year period (except as
        necessitated by a casualty), provided that any such transfer to a
        different type of care facility as a result of such patient's or
        resident's special needs that cannot be met at the Facility shall not be
        deemed a voluntary transfer.

                (k) If Tenant fails to give notice to Landlord not later than
        ten (10) days after Tenant's receipt of any fine notice from any
        Government Agency relating to a Major Violation at the Facility.

                (l) If Tenant fails to notify Landlord within twenty-four (24)
        hours after receipt of any notice from any Governmental Agency
        terminating or suspending or reflecting a material risk of an imminent
        termination or suspension, of any material Permit relating to the
        Facility.

                (m) If Tenant fails during the Term of this Lease to cure or
        abate any Major Violation occurring during the Term that is claimed by
        any Governmental Agency of any law, order, ordinance, rule or regulation
        pertaining to the operation of the Facility, and within the time
        permitted by such authority for such cure or abatement.

                (n) The failure of Tenant to correct, within the time deadlines
        set by any Governmental Agency, any deficiency which would result in the
        following actions by such agency with respect to the Facility:

                        (i)     a termination of any Reimbursement Contract or
                                any Permit material to the operation of the
                                Facility; or

                        (ii)    the issuance of a stop placement order or ban on
                                new admissions generally.

                (o) If a final unappealable determination is made by applicable
        state authorities of the revocation or limitation of any Permit required
        for the lawful operation of the Leased Property in accordance with its
        Permitted Use or there occurs the loss or material limitation of any
        Permit under any other circumstances under which Tenant is required to
        cease its operation of the Leased Property in accordance with its
        Permitted Use at the time of such loss or limitation.

                (p) If Tenant or the Facility should be assessed fines or
        penalties by any state health or licensing agency having jurisdiction
        over such Persons or the Facility in excess of $25,000.00 in any Fiscal
        Year.

                                       43
<PAGE>

                (q) If Tenant or Guarantor or an Affiliated Person of Tenant or
        Guarantor shall default under any other ARC-Related Lease (whether now
        in effect or entered into in the future) and shall fail to cure such
        default in the time period provided for in that lease.

                (r) If Guarantor shall default under the Guaranty and any such
        default shall remain uncured through any applicable notice and cure
        period thereunder.

        12.2 Remedies on Default. If any of the Events of Default hereinabove
specified shall occur, Landlord, at any time thereafter, shall have and may
exercise any of the following rights and remedies:

                (a) Landlord may, pursuant to written notice thereof to Tenant,
        immediately terminate this Agreement and, peaceably or pursuant to
        appropriate legal proceedings, re-enter, retake and resume possession of
        the Leased Property for Landlord's own account without liability for
        trespass (Tenant hereby waiving any right to notice or hearing prior to
        such taking of possession by Landlord) and, for Tenant's breach of and
        default under this Agreement, recover immediately from Tenant any and
        all sums and damages due or in existence at the time of such
        termination, including, without limitation, (i) all Rent and other sums,
        charges, payments, costs and expenses agreed and/or required to be paid
        by Tenant to Landlord hereunder prior to such termination, (ii) all
        costs and expenses of Landlord in connection with the recovery of
        possession of the Leased Property, including reasonable attorney's fees
        based upon services rendered at hourly rates and court costs, and (iii)
        all costs and expenses of Landlord in connection with any reletting or
        attempted reletting of the Leased Property or any part or parts thereof,
        including, without limitation, brokerage fees, advertising costs,
        reasonable attorney's fees based upon services rendered at hourly rates
        based upon service rendered at hourly rates and the cost of any
        alterations or repairs or tenant improvements which may be reasonably
        required to so relet the Leased Property, or any part or parts thereof.

                (b) Landlord may, pursuant to any prior notice required by law,
        and without terminating this Agreement, peaceably or pursuant to
        appropriate legal proceedings, re-enter, retake and resume possession of
        the Leased Property for the account of Tenant, make such alterations of
        and repairs and improvements to the Leased Property as may be reasonably
        necessary in order to relet the same or any part or parts thereof and,
        directly or through a qualified management or operating company which
        may include an Affiliated Person of Landlord, operate and manage the
        Leased Property, and relet or attempt to relet the Leased Property or
        any part or parts thereof for such term or terms (which may be for a
        term or terms extending beyond the Term of this Agreement), at such
        rents and upon such other terms and provisions as Landlord, in its sole
        discretion, may deem advisable. If Landlord takes possession and control
        of the Leased Property and operates the same, Tenant shall, for so long
        as Landlord is actively operating the Leased Property, have no
        obligation to operate the Leased Property but agrees that Landlord, any
        contract manager or operator, or any new tenant or sublessee may, to the
        extent permitted by law, operate the Facility under Tenant's Permits,
        including its Medicaid and Medicare provider agreements, if any, until
        same are issued in the name of the Landlord or the new manager/operator
        or tenant or sublessee, as applicable. If Landlord relets or attempts to

                                       44
<PAGE>

        relet the Leased Property, or obtains a contract manager or operator for
        the Leased Property, Landlord shall at its sole discretion determine the
        terms and provisions of any new lease or sublease, or management or
        operating agreement, and whether or not a particular proposed manager or
        operator, or new tenant or sublessee, is acceptable to Landlord. Upon
        any such reletting, or the operation of the Leased Property by a
        contract manager or operator, all rents or incomes received by the
        Landlord from such reletting or otherwise from the operation of the
        Leased Property shall be applied, (i) first, to the payment of all costs
        and expenses of recovering possession of the Leased Property, (ii)
        second, to the payment of any costs and expenses of such reletting and
        or operation, including brokerage fees, advertising costs, reasonable
        attorney's fees based upon service rendered at hourly rates, a
        management fee of between five percent (5%) and ten percent (10%) of the
        gross revenues generated, and the cost of any alterations and repairs
        reasonably required for such reletting or operation of the Leased
        Property; (iii) third, to the payment of any indebtedness, other than
        Rent, due hereunder from Tenant to the Landlord, (iv) fourth, to the
        payment of all Rent and other sums due and unpaid hereunder, and (v)
        fifth, the residue, if any, shall be held by the Landlord and applied in
        payment of future Rent as the same may become due and payable hereunder.
        If the rents received from such reletting or net income from the
        operation of the Leased Property during any period shall be less than
        the Rent and Additional Charges required to be paid during that period
        by the Tenant hereunder, Tenant shall promptly pay any such deficiency
        to the Landlord and failing the prompt payment thereof by Tenant to
        Landlord, Landlord shall immediately be entitled to institute legal
        proceedings for the recovery and collection of the same. Such deficiency
        shall be calculated and paid at the time each payment of Minimum Rent,
        Percentage Rent or any other sum shall otherwise become due under this
        Agreement, or, at the option of Landlord, at the end of the Term of this
        Agreement. Landlord shall, in addition, be immediately entitled to sue
        for and otherwise recover from Tenant any other damages occasioned by or
        resulting from any abandonment of the Leased Property or other breach of
        or default under this Agreement other than a default in the payment of
        Rent. No such re-entry, retaking or resumption of possession of the
        Leased Property by the Landlord for the account of Tenant shall be
        construed as an election on the part of Landlord to terminate this
        Agreement unless a written notice of such intention shall be given to
        the Tenant or unless the termination of this Agreement be decreed by a
        court of competent jurisdiction. Notwithstanding any such re-entry and
        reletting or attempted reletting of the Leased Property or any part or
        parts thereof for the account of Tenant without termination, Landlord
        may at any time thereafter, upon written notice to Tenant, elect to
        terminate this Agreement or pursue any other remedy available to
        Landlord for Tenant's previous breach of or default under this
        Agreement.

                (c) Landlord may, without re-entering, retaking or resuming
        possession of the Leased Property, sue for all Rent and all other sums,
        charges, payments, costs and expenses due from Tenant to Landlord
        hereunder (discounted to present value) either: (i) as they become due
        under this Agreement, taking into account that Tenant's right and option
        to pay the Rent hereunder on a monthly basis in any particular Fiscal
        Year is conditioned upon the absence of a Default on Tenant's part in
        the performance of its obligations under this Agreement, or (ii) at
        Landlord's option, accelerate the maturity and

                                       45
<PAGE>

        due date of the whole or any part of the Rent for the entire
        then-remaining unexpired balance of the Term of this Agreement, as well
        as all other sums, charges, payments, costs and expenses required to be
        paid by Tenant to Landlord hereunder, including, without limitation,
        damages for breach or default of Tenant's obligations hereunder in
        existence at the time of such acceleration, such that all sums due and
        payable under this Agreement shall, following such acceleration, be
        treated as being and, in fact, be due and payable in advance as of the
        date of such acceleration. Landlord may then proceed to recover and
        collect all such unpaid Rent and other sums so sued for from Tenant by
        distress, levy, execution or otherwise. Regardless of which of the
        foregoing alternative remedies is chosen by Landlord under this
        subparagraph (c), Landlord shall not be required to relet the Leased
        Property nor exercise any other right granted to Landlord pursuant to
        this Agreement, nor, except as may be required by Applicable Laws, shall
        Landlord be under any obligation to minimize or mitigate Landlord's
        damages or Tenant's loss as a result of Tenant's breach of or default
        under this Agreement. Notwithstanding the foregoing, following such time
        as Landlord may obtain possession of the Leased Property, Landlord or
        its successor Landlord at the time of any Lease termination, shall
        continue to make the Leased Property available for lease, on an "as is"
        basis, and shall turn over the net proceeds thereof to Tenant to the
        extent actually received by Landlord in respect of any time period for
        which Landlord shall have received the full amount of Rent payable with
        respect thereto (albeit perhaps on a basis reasonably discounted for the
        time value of money or present-value basis).

                (d) Landlord may, in addition to any other remedies provided
        herein, enter upon the Leased Property or any portion thereof and take
        possession of (i) any and all of Tenant's Personal Property, if any,
        (ii) Tenant's books and records necessary to operate the Leased
        Property, and (iii) all the bank accounts concerning, or established
        for, the Leased Property, without liability for trespass or conversion
        (Tenant hereby waiving any right to notice or hearing prior to such
        taking of possession by Landlord) and sell the same by public or private
        sale, after giving Tenant reasonable notice of the time and place of any
        public or private sale, at which sale Landlord or its assigns may
        purchase all or any portion of Tenant's Personal Property, if any,
        unless otherwise prevented by law. Unless otherwise provided by law and
        without intending to exclude any other manner of giving Tenant
        reasonable notice, the requirement of reasonable notice shall be met if
        such notice is given at least ten (10) days before the date of sale. The
        proceeds from any such disposition, less all expenses incurred in
        connection with the taking of possession, holding and selling of such
        Property (including reasonable attorneys' fees based upon services
        rendered at hourly rates) shall be credited against Rent which is due
        hereunder.

                (e) Tenant acknowledges that one of the rights and remedies
        available to Landlord under Applicable Law is to apply to a court of
        competent jurisdiction for the appointment of a receiver to collect the
        rents, issues, profits and income of the Leased Property and to manage
        the operation of the Leased Property. Tenant hereby further acknowledges
        that the revocation, suspension or material limitation of any
        certification of the Leased Property for provider status under Medicare
        or Medicaid (or successor programs), if applicable, and/or the
        revocation, suspension or material limitation of any licenses for the
        use of the Leased Property as an independent living or licensed assisted
        living and dementia care facility, as applicable, under the laws of the
        State will materially

                                       46
<PAGE>

        and irreparably impair the value of Landlord's investment in the Leased
        Property. Therefore, in any of such events, and in addition to any other
        right or remedy of Landlord under this Agreement, Landlord may petition
        any appropriate court for appointment of a receiver to manage the
        operation of the Leased Property (or any portion thereof as to which
        Tenant has suffered the revocation, suspension or material limitation of
        any license), to collect and disburse all rents, issues, profits and
        income generated thereby and to preserve or replace to the extent
        possible the operating license and provider certification of the Leased
        Property or to otherwise substitute the licensee or provider thereof.
        The receiver shall be entitled to a reasonable fee for his services as
        receiver. All such fees and other expenses of the receivership estate
        shall be payable as Additional Charges under this Agreement. Tenant
        hereby irrevocably stipulates to the appointment of a receiver under
        such circumstances and for such purposes and agrees not to contest such
        appointment.

                (f) In addition to the remedies hereinabove specified and
        enumerated, Landlord shall have and may exercise the right to invoke any
        other remedies allowed at law or in equity as if the remedies of
        re-entry, unlawful detainer proceedings and other remedies were not
        herein provided. Accordingly, the mention in this Agreement of any
        particular remedy shall not preclude Landlord from having or exercising
        any other remedy at law or in equity. Nothing herein contained shall be
        construed as precluding the Landlord from having or exercising such
        lawful remedies as may be and become necessary in order to preserve the
        Landlord's right or the interest of the Landlord in the Leased Property
        and in this Agreement, even before the expiration of any notice periods
        provided for in this Agreement, if under the particular circumstances
        then existing the allowance of such notice periods will prejudice or
        will endanger the rights and estate of the Landlord in this Agreement
        and in the Leased Property. In addition, any provision of this Agreement
        to the contrary notwithstanding, no provision of this Agreement shall
        delay or otherwise limit Landlord's right to seek injunctive relief or
        Tenant's obligation to comply with any such injunctive relief.

        12.3 Application of Funds. Any payments received by Landlord under any
of the provisions of this Agreement during the existence or continuance of any
Event of Default (and any payment made to Landlord rather than Tenant due to the
existence of any Event of Default) shall be applied to Tenant's current and past
due obligations under this Agreement in such order as Landlord may determine or
as may be prescribed by the laws of the State.

        12.4 Landlord's Right to Cure Tenant's Default. If Tenant shall default
in the performance of any term, provisions, covenant or condition on its part to
be performed hereunder, Landlord may, but shall have no obligation to perform
the same for the account and at the expense of Tenant. If, at any time and by
reason of such default, Landlord is compelled to pay, or elects to pay, any sum
of money or do any act which will require the payment of any sum of money, or is
compelled to incur any expense in the enforcement of its rights hereunder or
otherwise, such sum or sums, together with interest thereon at the Overdue Rate
shall be deemed Additional Rent hereunder and shall be repaid to Landlord by
Tenant promptly when billed therefor, and Landlord shall have all the same
rights and remedies in respect thereof as Landlord has in respect of the rents
herein reserved.

                                       47
<PAGE>

        12.5 Landlord's Lien. Landlord shall have at all times during the Term
of this Agreement, a valid lien for all rents and other sums of money becoming
due hereunder from Tenant, upon all goods, accounts, wares, merchandise,
inventory, furniture, fixtures, equipment, vehicles and other personal property
and effects of Tenant situated in or upon the Leased Property, including
Tenant's Personal Property and any interest of Tenant in P&E Replacements, but
specifically excluding the trade names "ARC," "American Retirement Corporation,"
or any derivation or replacement thereof or addition thereto applied by
Affiliated Persons of Guarantor to other facilities, and such property shall not
be removed therefrom except in accordance with the terms of this Agreement
without the approval and consent of Landlord until all arrearages in Rent as
well as any and all other sums of money then due to Landlord hereunder shall
first have been paid and discharged in full. Alternatively, the lien hereby
granted may be foreclosed in the manner and form provided by law for foreclosure
of security interests or in any other manner and form provided by law. The
statutory lien for Rent, if any, is not hereby waived and the express
contractual lien herein granted is in addition thereto and supplementary
thereto. Tenant agrees to execute and deliver to Landlord from time to time
during the Term of this Agreement such Financing Statements as may be required
by Landlord in order to perfect the Landlord's lien provided herein or granted
or created by state law. Tenant further agrees that during an Event of Default,
Tenant shall not make any distributions to its shareholders, partners, members
or other owners and any such distributions shall be considered and deemed to be
fraudulent and preferential and subordinate to Landlord's claim for Rent and
other sums hereunder.

                                   ARTICLE 13

                                  HOLDING OVER

        If Tenant or any other person or party shall remain in possession of the
Leased Property or any part thereof following the expiration of the Term or
earlier termination of this Agreement without an agreement in writing between
Landlord and Tenant with respect thereto, the person or party remaining in
possession shall be deemed to be a tenant at sufferance, and during any such
holdover, the Rent payable under this Agreement by such tenant at sufferance
shall be double the rate or rates in effect immediately prior to the expiration
of the Term or earlier termination of this Agreement. In no event, however,
shall such holding over be deemed or construed to be or constitute a renewal or
extension of this Agreement.

                                   ARTICLE 14

                     LIABILITY OF LANDLORD; INDEMNIFICATION

        14.1 Liability of Landlord. Landlord and its affiliates shall not be
liable to Tenant, its employees, agents, invitees, licensees, customers,
clients, residents and their respective family members or guests for any damage,
injury, loss, compensation or claim, including, but not limited to, claims for
the interruption of or loss to Tenant's business, based on, arising out of or
resulting from any cause whatsoever (other than Landlord's gross negligence or
willful misconduct), including, but not limited to: (a) repairs to any portion
of the Leased Property; (b)

                                       48
<PAGE>

interruption in Tenant's use of the Leased Property; (c) any accident or damage
resulting from the use or operation (by Landlord, Tenant or any other person or
persons) of any equipment within the Leased Property, including without
limitation, heating, cooling, electrical or plumbing equipment or apparatus; (d)
the termination of this Agreement by reason of the condemnation or destruction
of the Leased Property in accordance with the provisions of this Agreement; (e)
any fire, robbery, theft, mysterious disappearance or other casualty; (f) the
actions of any other person or persons; and (g) any leakage or seepage in or
from any part or portion of the Leased Property, whether from water, rain or
other precipitation that may leak into, or flow from, any part of the Leased
Property, or from drains, pipes or plumbing fixtures in the Leased Improvements.
Any goods, property or personal effects stored or placed by the Tenant or its
employees in or about the Leased Property including Tenant's Personal Property,
shall be at the sole risk of the Tenant.

        14.2 Indemnification of Landlord. Tenant shall defend, indemnify and
save and hold Landlord harmless from and against any and all liabilities,
obligations, losses, damages, injunctions, suits, actions, fines, penalties,
claims, demands, costs and expenses of every kind or nature, including
reasonable attorneys' fees and court costs, incurred by Landlord, arising
directly or indirectly from or out of: (a) any failure by Tenant to perform any
of the terms, provisions, covenants or conditions of this Agreement, on Tenant's
part to be performed including but not limited to the payment of any fee, cost
or expense which Tenant is obligated to pay and discharge hereunder, (b) any
accident, injury or damage which shall happen at, in or upon the Leased
Property, however occurring; (c) any matter or thing growing out of the
condition, occupation, maintenance, alteration, repair, use or operation by any
person of the Leased Property, or any part thereof, or the operation of the
business contemplated by this Agreement to be conducted thereon, thereat,
therein, or therefrom; (d) any failure of Tenant to comply with the Legal
Requirements; (e) any contamination of the Leased Property, or the groundwaters
thereof, arising on or after the date Tenant takes possession of the Leased
Property and occasioned by the use, transportation, storage, spillage or
discharge thereon, therein or therefrom of any toxic or hazardous chemicals,
compounds, materials or substances, whether by Tenant or by any agent or invitee
of Tenant; (f) any discharge of toxic or hazardous sewage or waste materials
from the Leased Property into any septic facility or sanitary sewer system
serving the Leased Property arising on or after the date Tenant takes possession
of the Leased Property, whether by Tenant or by any agent of Tenant; or (g) any
other act or omission of Tenant, its employees, agents, invitees, customers,
licensees or contractors, provided, however, Tenant shall not be liable for or
be obligated to indemnify Landlord from and against any damages resulting from
Landlord's gross negligence or willful misconduct.

        THE INDEMNIFICATION OF LANDLORD HEREUNDER IS INTENDED TO AND SHALL
        EXPRESSLY INCLUDE INDEMNIFICATION AGAINST LANDLORD'S OWN NEGLIGENCE,
        UNLESS SPECIFICALLY OTHERWISE PROVIDED.

        Tenant's indemnity obligations under this Article and elsewhere in this
Agreement arising prior to the termination or permitted assignment of this
Agreement shall survive any such termination or assignment.

                                       49
<PAGE>

        14.3 Notice of Claim or Suit. Tenant shall promptly notify Landlord of
any claim, action, proceeding or suit instituted or threatened against Tenant or
Landlord of which Tenant receives notice or of which Tenant acquires knowledge.
In the event Landlord is made a party to any action for damages or other relief
against which Tenant has indemnified Landlord, as aforesaid, Tenant shall at its
own expense using counsel reasonably approved by Landlord, diligently defend
Landlord, pay all costs in such litigation or, at Landlord's option, and
expense, Landlord may nonetheless engage its own counsel in connection with its
own defense or settlement of said litigation in which event Tenant shall
cooperate with Landlord and make available to Landlord all information and data
which Landlord deems necessary or desirable for such defense. In the event
Landlord is required to secure its own counsel due to a conflict in the
interests of Tenant and Landlord in any action for damages or other relief
against which Tenant has indemnified Landlord, Tenant shall pay all of
Landlord's costs in such litigation. Tenant is required to approve a settlement
agreement for any such claim or suit as requested by Landlord and which is
consistent with applicable insurance company requirements, unless Tenant posts a
bond or other security acceptable to Landlord for any potentially uninsured
liability amounts.

        14.4 Limitation on Liability of Landlord. In the event Tenant is awarded
a money judgment against Landlord, Tenant's sole recourse for satisfaction of
such judgment shall be limited to execution against the Landlord's interest in
the Leased Property. In no event shall any partner, member, officer, director,
stockholder or shareholder of Landlord or any partner thereof or Affiliated
Person or Subsidiary thereof, be personally liable for the obligations of
Landlord hereunder.

                                   ARTICLE 15

                           REIT AND UBTI REQUIREMENTS

        Tenant understands that, in order for Landlord to qualify as a real
estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"), the following requirements must be satisfied. The parties
intend that amounts to be paid by Tenant hereunder and received or accrued,
directly or indirectly, by Landlord with respect to the Leased Property
(including any rents attributable to personal property that is leased with
respect thereto) will qualify as "rents from real property" (within the meaning
of Code Section 856(d) and Section 512(b)(3)), and that neither party will take,
or permit to take, any action that would cause any amount received by the
Landlord under this Agreement to fail to qualify as such under the Code.
Consistent with this intent, the parties agree that:

        15.1 Limitations on Rents Attributable to Personal Property. "Rents
attributable to any personal property" leased to the Tenant cannot exceed
fifteen percent (15%) of the total rent received or accrued by Landlord under
this Agreement for the Fiscal Year of the Landlord. Consistent therewith, the
average of the adjusted tax bases of the personal property (within the meaning
set forth in Section 1.512(b)-1(c)(3)(ii) of the applicable Treasury
Regulations) that is leased to Tenant with respect to the Leased Property at the
beginning and end of a Fiscal Year cannot exceed fifteen percent (15%) of the
average of the aggregate adjusted tax bases of the real and personal property
comprising such Leased Property that is leased to Tenant under such lease

                                       50
<PAGE>

at the beginning and end of such Fiscal Year (the "REIT Personal Property
Limitation"). If Landlord reasonably anticipates that the REIT Personal Property
Limitation will be exceeded with respect to the Leased Property for any Fiscal
Year, Landlord shall notify Tenant, and Landlord and Tenant shall negotiate in
good faith the purchase by Tenant of items of personal property anticipated by
Landlord to be in excess of the Personal Property Limitation. Provided, however,
that Tenant's responsibility to purchase such personal property will be offset
by Landlord in some mutually agreeable manner, which would not result in the
Landlord earning income which would constitute "unrelated business taxable
income" within the meaning of Section 512 of the Code, if the Landlord was a
"qualified trust" within the meaning of Section 856(h)(3)(E) of the Code.

        15.2 Basis for Sublease Rent Restricted. Tenant cannot sublet the
property that is leased to it by Landlord, or enter into any similar
arrangement, on any basis such that the rental or other amounts paid by the
sublessee thereunder would be based, in whole or in part, on either (a) the net
income or profits derived by the business activities of the sublessee or (b) any
other formula such that any portion of the rent paid by Tenant to Landlord would
fail to qualify as "rent from real property" within the meaning of Section
856(d) and Section 512(b)(3) of the Code and regulations promulgated thereunder.

        15.3 Landlord Affiliate Subleases Restricted. Anything to the contrary
in this Agreement notwithstanding, Tenant shall not sublease the Leased Property
to, or enter into any similar arrangement with, any person in which Landlord
owns, directly or indirectly, a ten percent (10%) or more interest, with the
meaning of Section 856(d)(2)(B) of the Code, and any such action shall be deemed
void ab initio. Anything to the contrary in this Agreement notwithstanding,
Tenant shall not sublease the Leased Property to, or enter into any similar
arrangement with, any Person that Landlord would be deemed to control within the
meaning of Section 512 (b)(13) of the Code.

        15.4 Landlord Interests in Tenant Restricted. Anything to the contrary
in this Agreement notwithstanding, neither party shall take, or permit to take,
any action that would cause Landlord to own, directly or indirectly, a ten
percent (10%) or greater interest in the Tenant within the meaning of Section
856(d)(2)(B) of the Code, and any similar or successor provision thereto, and
any such action shall be deemed void ab initio. In addition, anything to the
contrary in this Agreement notwithstanding, Tenant shall not take or permit to
take, any action that would cause Landlord to own, directly or indirectly, such
interest in Tenant such that amounts received from Tenant would represent
amounts received from a controlled entity within the meaning of Section
512(b)(13) of the Code.

        15.5 Rents from Personal Property Restricted. Rents attributable to
personal property within the meaning of Treasury Regulation Section
1.512(b)-1(c)(3)(ii) that is leased to Tenant with respect to the Leased
Property will not exceed 10 percent (10%) of the total Rents per year (the "UBTI
Personal Property Limitation"). If Landlord reasonably anticipates that the UBTI
Personal Property Limitation will be exceeded with respect to the Leased
Property for any Fiscal Year, Landlord shall notify Tenant, and Landlord and
Tenant shall negotiate in good faith the purchase by Tenant of items of personal
property anticipated by Landlord to be in excess of the UBTI Personal Property
Limitation; provided, However, that Tenant's responsibility to purchase such
personal property will be offset by Landlord in some mutually agreeable manner
which will

                                       51
<PAGE>

not result in the Landlord earning income which would constitute "unrelated
business taxable income" within the meaning of Section 512 of the Code if the
Landlord was a "qualified trust" within the meaning of Section 856(h)(3)(E) of
the Code.

        15.6 Landlord Services. Any services provided by, or on behalf of,
Landlord will not prevent any amounts received or accrued from qualifying as
"Rents from real property" (within the meaning of Section 856(d)(2) or Section
512(b)(3) of the Code).

        15.7 Certain Subtenants Prohibited. Anything to the contrary in this
Agreement notwithstanding, Tenant shall not sublease the Leased Property to, or
enter into any similar arrangement with, any Person that would be described in
Section 514(c)(9)(B)(iii) or (iv) of the Code.

        15.8 Future Amendment. Tenant hereby agrees to amend this Article 15
from time to time as Landlord deems necessary or desirable in order to
effectuate the intent hereof.

                                   ARTICLE 16

                            SUBLETTING AND ASSIGNMENT

        16.1 Transfers Prohibited Without Consent. Tenant shall not, without the
prior written consent of Landlord in each instance which may be withheld in
Landlord's sole opinion and discretion, sell, assign or otherwise transfer this
Agreement, or Tenant's interest in the Leased Property together with all
interests of Tenant in all property of any nature located and used at the Leased
Property (including without limitation Tenant's Personal Property and the P&E
Replacements), in whole or in part, or any rights or interest which Tenant may
have under this Agreement, or sublet any part of the Leased Property, or grant
or permit any lien or encumbrance on or security interest in Tenant's interest
in this Agreement; notwithstanding the foregoing, Tenant shall be permitted to
grant sublease, rental or other occupancy rights in the Facility to individual
residents in connection with the operation of the Leased Property in accordance
with the Permitted Use. Notwithstanding the foregoing, Tenant may sell, assign
or otherwise transfer this Agreement, or Tenant's interest in the Leased
Property, in whole but not in part, without the consent of the Landlord, to an
Affiliated Person or to Guarantor provided (i) Tenant gives Landlord prior
written notice of such sale or assignment, (ii) Tenant shall remain liable under
this Agreement for the remaining Term, and (iii) such assignee or purchaser
shall continue to operate the Leased Property as a first-class independent
living and/or licensed assisted living and dementia care facility, as
applicable, consistent with other independent living and licensed assisted
living and dementia care facilities (as applicable) being operated by Guarantor
and its Affiliated Persons.

        Landlord shall not, without the prior written consent of Tenant in each
instance which may be withheld in Tenant's sole opinion and discretion, sell,
assign or otherwise transfer this Agreement, or Landlord's interest in the
Leased Property, in whole or in part, or any rights or interest which Landlord
may have under this Agreement, either directly or indirectly in the form of a
Facility Mortgage as contemplated under Article 19 hereof, to a direct
competitor of Tenant

                                       52
<PAGE>

or Guarantor. In the event that a direct competitor of Tenant or Guarantor
becomes a Mortgagee of the Leased Property the subordination provisions of
Section 19.1 shall not apply.

        16.2 Indirect Transfer Prohibited Without Consent. A sale, assignment,
pledge, transfer, exchange or other disposition of (a) the stock of Tenant or
any general partner interest in Tenant or (b) any interest of a member or
members of Tenant which results in a change or transfer of management or control
of Tenant, or a merger, consolidation or other combination of Tenant with
another entity which results in a change or transfer of management or control of
Tenant, shall be deemed an assignment hereunder and shall be subject to Section
16.1 hereof. For purposes hereof, exchange or transfer of management or control
or effective control, shall mean a transfer of 50% or more of the economic
benefit of, or Control of, any such entity.

        16.3 Adequate Assurances. Without limiting any of the foregoing
provisions of this Article, if, pursuant to the U.S. Bankruptcy Code, as the
same may be amended from time to time, Tenant is permitted to assign or
otherwise transfer its rights and obligations under this Agreement in disregard
of the restrictions contained in this Article, the assignee shall be deemed to
agree to provide adequate assurance to Landlord (a) that any Percentage Rent
shall not decline substantially after the date of such assignment, (b) of the
continued use of the Leased Property solely in accordance with the Permitted Use
thereof, (c) of the continuous operation of the business in the Leased Property
in strict accordance with the requirements of Article 4 hereof, and (d) of such
other matters as Landlord may reasonably require at the time of such assumption
or assignment. Without limiting the generality of the foregoing, adequate
assurance shall include the requirement that any such assignee shall have a net
worth (exclusive of good will) of not less than the aggregate of the Rent due
and payable for the previous Fiscal Year and is or can be licensed to operate
the Facility by the appropriate Governmental Agencies. Such assignee shall
expressly assume this Agreement by an agreement in recordable form, an original
counterpart of which shall be delivered to Landlord prior to an assignment of
the Agreement.

        Any approval of such successor Tenant shall not affect or alter
Landlord's approval rights of each manager of the Leased Property.

                                   ARTICLE 17

                 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS

        17.1 Estoppel Certificates. Tenant shall from time to time, within
fifteen (15) days after request by Landlord and without charge, give a Tenant
Estoppel Certificate in the form (or substantially the form) attached hereto as
Exhibit "D" and containing such other matters as may be reasonably requested by
Landlord to any person, firm or corporation specified by Landlord.

        17.2 Monthly Financial Statements. Throughout the Term of this
Agreement, Tenant shall prepare and deliver to Landlord at or prior to the end
of each month during the Term hereof, an income (or profit and loss) statement
and operating balance sheet showing the results of the operation of the Leased
Property for the immediately preceding month and for the Fiscal Year to date.
This information shall be provided to Landlord under a complete financial
statement for

                                       53
<PAGE>

the Facility which shall be delivered prior to the end of the next following
month, in the form customarily provided in the industry and approved in advance
by the Landlord, and which shall: (a) be taken from the books and records
maintained by Tenant, Guarantor and any manager in the form specified herein;
(b) follow a consistent form as approved in advance in writing by Landlord; and
(c) indicate variances from budgeted results for each line item against the
Tenant's budget for the Leased Property for such Fiscal Year. The aforesaid
financial statements shall be accompanied by an Officer's Certificate which, for
purposes hereof shall mean a Certificate of the Chief Financial Officer of
Tenant or Tenant's sole or Managing Member, and of Guarantor's Chief Financial
Officer, in which such Officer shall certify (a) that such statements have been
properly prepared in accordance with GAAP and are true, correct and complete in
all material respects and fairly present the consolidated financial condition of
the Tenant at and as of the dates thereof and the results of its operations for
the period covered thereby, and (b) that no Event of Default has occurred and is
continuing hereunder.

        17.3 Annual Financial Statements. Tenant shall deliver to Landlord
within ninety (90) days after the end of each Fiscal Year, a profit and loss
statement, balance sheet and statement of cash flow certified by an independent
certified public accountant who is actively engaged in the practice of his
profession and who is acceptable to Landlord (which statement shall also be
certified by an officer, partner or member in Tenant) together with copies of
all reports and communications furnished to Guarantor, Tenant's other Affiliated
Persons or any manager of the Leased Property, showing results from the
operation of the Leased Property during such Fiscal Year, and reasons for
material variations from the approved budget for such year. Tenant shall also
deliver to Landlord at Landlord's expense at any time and from time to time,
upon not less than twenty (20) days notice from Landlord, any financial
statements or other financial reporting information required to be filed by
Landlord with the SEC or any other governmental authority or required pursuant
to any order issued by any Governmental Agencies or arbitrator in any litigation
to which Landlord is a party for purposes of compliance therewith. The financial
statements required herein are in addition to the statements required under
Section 3.3.2 hereof. Notwithstanding the foregoing, in the event that Tenant's
financial records are not otherwise being reviewed or audited by an independent
certified public accountant then the Landlord will accept financial statements
certified true and correct by the Chief Financial Officer of Tenant or Tenant's
sole or Managing Member and by the Guarantor's Chief Financial Officer.

        17.4 Records. Tenant shall keep and maintain at all times in accordance
with GAAP (separate and apart from its other books, records and accounts)
complete and accurate up-to-date books and records adequate to reflect clearly
and correctly the results of operations of the Leased Property, on an accrual
basis, including but not limited to, each calculation of Percentage Rent. Such
books and records shall be kept and maintained at the Leased Property or
Tenant's principal office in Nashville, Tennessee. Landlord or its
representatives shall have, at all reasonable times during normal business
hours, reasonable access, on reasonable advance notice, to examine and copy the
books and records pertaining to the Leased Property. Such books and records
shall be available for at least four (4) years after the applicable quarterly
calculation of Percentage Rent for Landlord's inspection, copying, review and
audit at Landlord's expense during reasonable business hours and upon reasonable
notice for the purpose of verifying the accuracy of Tenant's calculation of
Percentage Rent.

                                       54
<PAGE>

        17.5 General Operations Budget. In addition to the Reserve Estimate,
Tenant shall furnish to Landlord, on or before December 1 of each Fiscal Year
proposed annual budgets in a form satisfactory to Landlord and consistent with
the then standards for the same brand of independent living and/or licensed
assisted living and dementia care facilities (as applicable) as the Facility
setting forth projected income and costs and expenses projected to be incurred
by Tenant in managing, leasing, maintaining and operating the Facility during
the following Fiscal Year.

        17.6 Quarterly Meetings. At Landlord's request, Tenant shall make the
Tenant's property management team and the executive officers of Tenant or its
sole or Managing Member available to meet with Landlord on a quarterly basis to
discuss the Reserve Estimate, the annual budgets and any other items related to
the operation of the Facility, which Landlord wishes to discuss. Tenant agrees
to give good faith consideration to any suggestions or requests that Landlord
may have.

                                   ARTICLE 18

                           LANDLORD'S RIGHT TO INSPECT

        Landlord, Mortgagee and their agents shall have the right to enter upon
the Leased Property or any portion thereof at any reasonable time to inspect the
same, including but not limited to, the operation, sanitation, safety,
maintenance and use of the same, or any portions of the same and to assure
itself that Tenant is in full compliance with its obligations under this
Agreement (but Landlord and Mortgagee shall not thereby assume any
responsibility for the performance of any of Tenant's obligations hereunder, nor
any liability arising from the improper performance thereof). In making any such
inspections, neither Landlord nor Mortgagee shall unduly interrupt or interfere
with the conduct of Tenant's business.

                                   ARTICLE 19

                               FACILITY MORTGAGES

        19.1 Subordination. This Agreement, Tenant's interest hereunder and
Tenant's leasehold interest in and to the Leased Property are hereby agreed by
Tenant to be and are hereby made junior, inferior, subordinate and subject in
right, title, interest, lien, encumbrance, priority and all other respects to
any mortgage or mortgages and security interests now or hereafter in force and
effect upon or encumbering Landlord's interest in the Leased Property, or any
portion thereof, and to all collateral assignments by Landlord to any third
party or parties of any of Landlord's rights under this Agreement or the rents,
issues and profits thereof or therefrom as security for any liability or
indebtedness, direct, indirect or contingent, of Landlord to such third party or
parties, and to all future modifications, extensions, renewals, consolidations
and replacements of, and all amendments and supplements to any such mortgage,
mortgages or assignments, and upon recording of any such mortgage, mortgages or
assignments, the same shall be deemed to be prior in dignity, lien and
encumbrance to this Agreement, Tenant's interest

                                       55
<PAGE>

hereunder and Tenant's leasehold interest in and to the Leased Property
irrespective of the dates of execution, delivery or recordation of any such
mortgage, mortgages or assignments (such mortgages, mortgages, security
interests, assignments, modifications, extensions, renewals, amendments,
supplements and replacement being a "Facility Mortgage"). The subordination of
this Lease shall be upon the express condition that the validity of this Lease
shall be recognized by the Mortgagee, and that, notwithstanding any default by
the mortgagor, with respect to such mortgage, Tenant's possession and right of
use under this Lease in and to the Leased Property (including without limitation
rights to have insurance and condemnation proceeds made available for proper
reconstruction of the Leased Property and the right to convert units within the
Facility to assisted living and/or dementia care uses in accordance with Section
4.1.2 above) shall not be disturbed by such Mortgagee unless and until Tenant
shall breach any of the provisions hereof and this Lease or Tenant's right to
possession hereunder shall have been terminated or shall be terminable in
accordance with the provisions of this Lease. The foregoing subordination and
non-disturbance provisions of this Section shall be automatic and self-operative
without the necessity of the execution of any further instrument or agreement of
subordination on the part of Tenant. Tenant acknowledges and agrees that
notwithstanding the foregoing automatic subordination, if Landlord or Mortgagee
shall request that Tenant execute and deliver any further instrument or
agreement of subordination of this Agreement or Tenant's interest hereunder or
Tenant's leasehold interest in the Leased Property to any such Facility
Mortgage, in confirmation or furtherance of or in addition to the foregoing
subordination provisions of this Section, Tenant shall promptly execute and
deliver the same to the requesting party (provided that such instrument or
agreement also reflects the non-disturbance provisions set forth above).
Further, Tenant agrees that it will, from time to time, execute such
documentation as may be requested by Landlord and any Mortgagee (a) to assist
Landlord and such Mortgagee in establishing or perfecting any security interest
in Landlord's interest in the Reserve and the funds therein; and (b) to
facilitate or allow Landlord to encumber the Leased Property as herein
contemplated. If, within thirty (30) days following Tenant's receipt of a
written request by Landlord or the holder or proposed holder of any such
Facility Mortgage, Tenant shall fail or refuse or shall have not executed any
such further instrument or agreement of subordination, for whatever reason,
Tenant shall be in breach and default of its obligation to do so and of this
Agreement and Landlord shall be entitled thereupon to exercise any and all
remedies available to Landlord pursuant to this Agreement or otherwise provided
by law.

        19.2 Attornment. Tenant shall and hereby agrees to attorn, and be bound
under all of the terms, provisions, covenants and conditions of this Agreement,
to any successor of the interest of Landlord under this Agreement for the
balance of the Term of this Agreement remaining at the time of the succession of
such interest to such successor. In particular, in the event that any
proceedings are brought for the foreclosure of any Facility Mortgage, Tenant
shall attorn to the purchaser at any such foreclosure sale and recognize such
purchaser as Landlord under this Agreement. Tenant agrees that neither the
purchaser at any such foreclosure sale nor the foreclosing Mortgagee or holder
of any such Facility Mortgage shall have any liability for any act or omission
of Landlord, be subject to any offsets or defenses which Tenant may have as
claims against Landlord, or be bound by any advance rents which may have been
paid by Tenant to Landlord for more than the current period in which such rents
come due.

        19.3 Rights of Mortgagees and Assignees. Provided Landlord has given
Tenant notice thereof, any Mortgagee shall have the right to unilateral
enjoyment, exercise or control over the

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rights, remedies, powers and interests of Landlord hereunder, or otherwise
arising under Applicable Law, as assigned or granted to such Mortgagee by
Landlord or as provided in any Facility Mortgage. At the time of giving any
notice of default to Landlord, Tenant shall mail or deliver to any Mortgagee of
whom Tenant has notice, a copy of any such notice. No notice of default or
termination of this Agreement by Tenant shall be effective until each Mortgagee
shall have been furnished a copy of such notice by Tenant. In the event Landlord
fails to cure any default by it under this Agreement, the Mortgagee shall have,
at its option, a period of thirty (30) days after expiration of any cure period
of Landlord within which to remedy such default of Landlord or to cause such
default to be remedied. In the event that the Mortgagee elects to cure any such
default by Landlord, then Tenant shall accept such performance on the part of
such Mortgagee as though the same had been performed by Landlord, and for such
purpose Tenant hereby authorizes any Mortgagee to enter upon the Leased Property
to the extent necessary to exercise any of Landlord's rights, powers and duties
under this Agreement. If, in the event of any default by Landlord which is
reasonably capable of being cured by a Mortgagee, the Mortgagee promptly
commences and diligently pursues to cure the default, then Tenant will not
terminate this Agreement or cease to perform any of its obligations under this
Agreement so long as the Mortgagee is, with due diligence, engaged in the curing
of such default.

                                   ARTICLE 20

                         ADDITIONAL COVENANTS OF TENANT

        20.1 Conduct of Business. Tenant shall not engage in any business other
than the leasing and operation of the Leased Property for the Permitted Use and
activities incidental thereto, including without limitation the delivery of
services to the Facility residents under the Service Licenses or otherwise, and
shall do or cause to be done all things necessary to preserve, renew and keep in
full force and effect and in good standing its legal entity existence and its
rights and licenses necessary to conduct such business. Promptly upon receipt of
same, Tenant shall provide Landlord with copies of all licenses, licensure and
certification surveys and related plans of correction, and notices of corrective
action required, of loss of licensure or certification of the Facility, or of
any limits imposed upon admissions to the Facility.

        20.2 Additional Covenants of Tenant. In addition to the other covenants
and representations of Tenant herein and in this Agreement, Tenant hereby
covenants, acknowledges and agrees that Tenant shall:

                        (a) Not guaranty any obligation of any Person other than
                the tenant under any ARC-Related Lease;

                        (b) Pay or cause to be paid all lawful claims for labor
                and rents with respect to the Leased Property;

                        (c) Pay or cause to be paid all trade payables;

                        (d) Not declare, order, pay or make, directly or
                indirectly, any Distribution or any payments to any members or
                Affiliated Persons as to Tenant

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<PAGE>

                (including payments in the ordinary course of business and
                payments pursuant to any management agreements with any such
                Affiliate), or set apart any sum of property therefor, or agree
                to do so, if, at the time of such proposed action or immediately
                after giving effect thereto, any Event of Default shall exist;

                        (e) Except as otherwise permitted by this Agreement, not
                sell, lease (as lessor or sublessor), transfer or otherwise
                dispose of or abandon, all or any material portion of its assets
                or business to any Person, or sell, lease, transfer or otherwise
                dispose of or abandon any of Tenant's Personal Property,
                provided, however, Tenant may dispose of portions of Tenant's
                Personal Property which have become inadequate, obsolete,
                worn-out, unsuitable, undesirable or unnecessary, provided
                substitute equipment or fixtures having equal or greater value
                and utility have been provided.

                        (f) Provide and maintain throughout the Term, all
                Tenant's Personal Property and P&E Replacements as shall be
                necessary in order to operate the Leased Property in compliance
                with applicable legal requirements and insurance requirements
                and otherwise in accordance with customary practice in the
                industry for the Permitted Use. If, from and after the
                Commencement Date, Tenant acquires an interest in any items of
                tangible personal property (other than motor vehicles) on, or in
                connection with the Leased Property which belong to anyone other
                than Tenant, Tenant shall require the agreement permitting such
                use to provide that Landlord or its designee may assume Tenant's
                rights and obligations under such agreement upon the termination
                of this Agreement and any assumption of management or operation
                of the Leased Property by Landlord or its designee.

                        (g) Deliver to Landlord within thirty (30) days after
                receipt of or after modification thereof, copies of all licenses
                authorizing Tenant to operate the Leased Property for its
                Permitted Use.

                        (h) Undertake a risk management analysis and report
                regarding the operation of the Facility annually for compliance
                with all Applicable Laws governing the ongoing use and operation
                of the Facility for the Permitted Use and provide Landlord with
                a copy of the report and any other results of the analysis.

                        (i) Give prompt notice to Landlord of any litigation or
                any administrative proceeding involving Tenant, Landlord or the
                Leased Property of which Tenant has notice or actual knowledge
                and which involves a potential uninsured liability equal to or
                greater than $100,000.00 or which, in Tenant's reasonable
                opinion, may otherwise result in any material adverse change in
                the business, operations, property, prospects, results of
                operation or conditions, financial or otherwise, of Tenant or
                the Facility.

                        (j) Not, except as approved in writing by Landlord,
                either directly or indirectly, for itself, or through, or on
                behalf of, or in connection with any Person, divert or attempt
                to divert any business or customer of the Leased Property to any
                competitor, by direct or indirect inducement or otherwise, or do
                or perform,

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<PAGE>

                directly or indirectly, any other act injurious or prejudicial
                to the good will associated with the Landlord or the Leased
                Property.

                        (k) Except for liabilities incurred in the ordinary
                course of business, not create, incur, assume or guarantee, or
                permit to exist or become or remain liable directly or
                indirectly upon, any Indebtedness except Indebtedness of Tenant
                to Landlord (or, if unsecured and expressly subject to the terms
                of this Agreement and Landlord's interest hereunder, and payable
                solely out of excess cash flow after payment of all Rent
                hereunder, to Tenant's shareholders, partners or members, as
                applicable). Tenant further agrees that the obligee in respect
                of any such Indebtedness shall agree in writing, in form and
                substance satisfactory to Landlord that (w) the payment of such
                Indebtedness shall be expressly subordinated in all respects to
                all of Tenant's obligations under this Agreement, (x) no
                remedies may be exercised by the obligee with respect to
                enforcement or collection of such Indebtedness until such time
                as this Agreement shall be terminated and all of Tenant's
                obligations hereunder shall have been discharged in full; (y)
                such Indebtedness shall not be assigned by the obligee to any
                other party; and (z) the obligee shall not initiate or join in
                any bankruptcy proceedings against Tenant. As used in this
                Section 20.2(k) (and notwithstanding any other definition of
                Indebtedness herein), Indebtedness shall mean all obligations,
                contingent or otherwise, to pay or repay monies irrespective of
                whether, in accordance with GAAP, such obligations should be
                reflected on the obligor's balance sheet as debt.

        20.3 Tenant a Single Purpose Entity. Tenant represents, agrees and
warrants that Tenant is, and throughout the Term will remain, a Single Purpose
Entity as described and contemplated on Exhibit "F" hereof. Notwithstanding the
foregoing, the Landlord agrees that the requirements for an Independent Director
or Independent Member thereunder shall not apply so long as Tenant is an
Affiliated Person of Guarantor.

        20.4 Intentionally Omitted.

                                   ARTICLE 21

                                  MISCELLANEOUS

        21.1 Limitation on Payment of Rent. All agreements between Landlord and
Tenant herein are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of Rent, or otherwise, shall the
Rent or any other amounts payable to Landlord under this Agreement exceed the
maximum permissible under Applicable Laws, the benefit of which may be asserted
by Tenant as a defense, and if, from any circumstance whatsoever, fulfillment of
any provision of this Agreement, at the time performance of such provision shall
be due, shall involve transcending the limit of validity prescribed by law, or
if from any circumstances Landlord should ever receive as fulfillment of such
provision such an excessive amount, then, ipso facto, the amount which would be
excessive shall be applied to the reduction of the installment(s) of Minimum
Rent next due and not to the payment of such excessive amount. This provision
shall control every other provision of this Agreement and any other agreements
between Landlord and Tenant.

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<PAGE>

        21.2 No Waiver. No release, discharge or waiver of any provision hereof
shall be enforceable against or binding upon Landlord or Tenant unless in
writing and executed by Landlord or Tenant, as the case may be. Neither the
failure of Landlord or Tenant to insist upon a strict performance of any of the
terms, provisions, covenants, agreements and conditions hereof, nor the
acceptance of any Rent by Landlord with knowledge of a breach of this Agreement
by Tenant in the performance of its obligations hereunder, or the following of
any practice or custom at variance with the terms hereof, shall be deemed or
constitute a waiver of any rights or remedies that Landlord or Tenant may have
or a waiver of any subsequent breach or default in any of such terms,
provisions, covenants, agreements and conditions or the waiver of the right to
demand exact compliance with the terms hereof.

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

        21.4 Severability. Any clause, sentence, paragraph, section or provision
of this Agreement held by a court of competent jurisdiction to be invalid,
illegal or ineffective shall not impair, invalidate or nullify the remainder of
this Agreement, but rather the effect thereof shall be confined to the clause,
sentence, paragraph, section or provision so held to be invalid, illegal or
ineffective, and this Agreement shall be construed as if such invalid, illegal
or ineffective provisions had never been contained therein.

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

        21.6 No Merger of Title. It is expressly acknowledged and agreed that it
is the intent of the parties that there shall be no merger of this Agreement or
of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly, this Agreement or the
leasehold estate created hereby and the fee estate or ground landlord's interest
in the Leased Property.

        21.7 Tenant's Representations. In addition to any other representation
or warranty set forth herein and as an inducement to Landlord to enter into this
Agreement, Tenant hereby represents and warrants to Landlord as follows:

                (a) Tenant is a limited liability company duly organized and
        validly existing and in good standing under the laws of the State of
        Tennessee. Tenant has all requisite power and authority under the laws
        of the State of Tennessee and the laws of the State of Illinois and its
        limited liability company operating agreement or other charter documents
        to enter into and perform its obligations under this Agreement and to
        consummate the

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<PAGE>

        transactions contemplated hereby. Tenant is duly authorized to transact
        business in any jurisdiction in which the nature of the business
        conducted by it requires such qualification.

                (b) Tenant has taken all necessary action to authorize the
        execution, delivery and performance of this Agreement, and upon the
        execution and delivery of any document to be delivered by Tenant, prior
        to the date hereof, such document shall constitute the valid and binding
        obligation and agreement of Tenant, enforceable against Tenant in
        accordance with its terms, except as such enforceability may be limited
        by bankruptcy, insolvency, reorganization, moratorium or similar laws of
        general application affecting the rights and remedies of creditors and
        except to the extent that the availability of equitable relief may be
        subject to the discretion of the court before which any proceeding may
        be brought.

                (c) There are no judgments presently outstanding and unsatisfied
        against Tenant or any of its properties, and neither Tenant nor any of
        its properties are involved in any material litigation at law or in
        equity or any proceeding before any court, or by or before any
        governmental or administrative agency, which litigation or proceeding
        could materially adversely affect Tenant, and no such material
        litigation or proceeding is, to the knowledge of Tenant, threatened
        against Tenant and no investigation looking toward such a proceeding has
        begun or is contemplated.

                (d) To the knowledge of Tenant, neither this Agreement nor any
        other document, certificate or statement furnished to Landlord by or on
        behalf of Tenant in connection with the transaction contemplated herein
        contains any untrue statement of a material fact or omits to state a
        material fact necessary in order to make the statements contained herein
        or therein not misleading. To the knowledge of Tenant there is no fact
        or condition which materially and adversely affects the business,
        operations, affairs, properties or condition of Tenant which has not
        been set forth in this Agreement or in other documents, certificates or
        statements furnished to Landlord in connection with the transaction
        contemplated hereby.

                (e) Tenant hereby represents to Landlord that, in the reasonable
        opinion of Tenant, the Leased Property and the Leased Improvements
        therein are adequately furnished and contain adequate P&E and
        Inventories consistent with the amount of P&E and Inventories which is
        customarily maintained in an independent living or licensed assisted
        living and dementia care facility, as applicable, of the type and
        character of the Leased Property as otherwise required to operate the
        Leased Property in a manner contemplated by this Agreement and in
        compliance with all legal requirements.

                (f) Tenant acknowledges that Tenant's failure or repeated delays
        in making prompt payment in accordance with the terms of any agreement,
        leases, invoices or statements for purchase or lease of P&E, Inventories
        or other goods or services will be detrimental to the reputation of
        Landlord and Tenant.

                (g) All employees of Tenant are solely employees of Tenant and
        not Landlord. Tenant is not Landlord's agent for any purpose in regard
        to Tenant's employees or

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<PAGE>

        otherwise. Further, Tenant expressly acknowledges and agrees that
        Landlord does not exercise any direction or control over the employment
        policies or employment decisions of Tenant.

                (h) Tenant has not (i) made any contributions, payments or gifts
        to or for the private use of any governmental official, employee or
        agent where either the payment or the purpose of such contribution,
        payment or gift is illegal under the laws of the United States or the
        jurisdiction in which made, (ii) established or maintained any
        unrecorded fund or asset for any purpose or made any false or artificial
        entries on its books, (iii) given or received any payments or other
        forms of remuneration in connection with the referral of patients which
        would violate the Medicare/Medicaid Anti-kickback Law, Section 1128(b)
        of the Social Security Act, 42 U.S.C. Section 1320a-7b(b), the federal
        physician self-referral law, 42 U.S.C. Section 1395 nn, or any analogous
        state statute or (iv) made any payments to any person with the intention
        or understanding that any part of such payment was to be used for any
        purpose other than that described in the documents supporting the
        payment. Tenant shall not take any such actions during the Term of this
        Agreement.

                (i) Tenant's equity is directly and (if applicable) indirectly
        owned as shown on Exhibit "G". Tenant shall promptly provide to
        Landlord, upon the occurrence thereof but in any event not more than
        fifteen (15) days following a written request therefor, written notice
        of any change in the executive officers, directors, shareholders,
        partners, and/or members of Tenant, as applicable to Tenant's formation
        and structure, and of any change in the respective interests in Tenant
        held by each of such Persons.

        21.8 Quiet Enjoyment. Landlord covenants and agrees that so long as
Tenant shall timely pay all rents due to Landlord from Tenant hereunder and
keep, observe and perform all covenants, promises and agreements on Tenant's
part to be kept, observed and performed hereunder, Tenant shall and may
peacefully and quietly have, hold and occupy the Leased Property free of any
interference from Landlord or any Person claiming by, through or under Landlord;
subject, however, and nevertheless to the terms, provisions and conditions of
this Agreement, the Permitted Encumbrances, any other documents affecting record
title to or the use and occupancy of the Leased Property immediately prior to
the conveyance thereof to Landlord on or about the date hereof, and documents
affecting title to the Leased Property approved by Tenant. Landlord shall not,
without the prior written approval of Tenant, enter into or record any document
which purports to or which by its terms will materially and adversely affect the
Tenant, Tenant's use and enjoyment of the Leased Property or Tenant's rights
under this Agreement (such approval not to be unreasonably withheld, delayed or
conditioned provided that the same is appropriate and reasonably necessary in
connection with the normal and ordinary course of ownership and use of the
Facility).

        21.9 Recordation of Memorandum of Lease. At either party's option, a
short form memorandum of this Agreement, in the form attached hereto as Exhibit
"E" shall be recorded or filed among the appropriate land records of the County
in which the Leased Property is located, and Tenant shall pay the transfer and
all recording costs associated therewith. In the event of a discrepancy between
the provisions of this Agreement and such short form memorandum thereof, the
provisions of this Agreement shall prevail.

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<PAGE>

        21.10 Notices. (a) Any and all notices, demands, consents, approvals,
offers, elections and other communications required or permitted under this
Agreement shall be deemed adequately given if in writing and the same shall be
delivered either in hand, by telecopier with written acknowledgment of receipt,
or by mail or Federal Express or similar expedited commercial carrier, addressed
to the recipient of the notice, postpaid and registered or certified with return
receipt requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).

        (b) All notices required or permitted to be sent hereunder shall be
deemed to have been given for all purposes of this Agreement upon the date of
acknowledged receipt, in the case of a notice by telecopier, and, in all other
cases, upon the date of receipt or refusal, except that whenever under this
Agreement a notice is either received on a day which is not a Business Day or is
required to be delivered on or before a specific day which is not a Business
Day, the day of receipt or required delivery shall automatically be extended to
the next Business Day.

        (c) All such notices shall be addressed,

            If to Landlord to:
            CNL Retirement-AM/Illinois LP
            CNL Center at City Commons
            450 South Orange Avenue
            Orlando, Florida 32801
            Attn:            Mr. Phillip M. Anderson, Jr.
                             Or Chief Operating Officer
            Phone:           (407) 650-1000
            Fax:             (407) 835-3232

            With a copy to:

            Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
            215 North Eola Drive
            Post Office Box 2809
            Orlando, Florida 32809
            Attn:            Scott C. Thompson, Esquire
            Phone:           (407) 843-4600
            Fax:             (407) 843-4444

            If to Tenant to:

            ARC Holley Court, LLC
            111 Westwood Place, Suite 402
            Brentwood, Tennessee 37027
            Attn:            Mr. George Hicks, Chief Financial Officer
            Phone:           (615) 221-2250
            Fax:             (615) 221-2269

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<PAGE>

            With a copy to:

            Bass, Berry & Sims PLC
            315 Deaderick Street, Suite 2700
            Nashville, Tennessee 37238
            Attn:            T. Andrew Smith, Esquire
            Phone:           (615) 742-6200
            Fax:             (615) 742-2766

        (d) By notice given as herein provided, the parties hereto and their
respective successors and assigns shall have the right from time to time and at
any time during the term of this Agreement to change their respective addresses
effective upon receipt by the other parties of such notice and each shall have
the right to specify as its address any other address within the United States
of America.

        21.11 Construction; Nonrecourse. Anything contained in this Agreement to
the contrary notwithstanding, all claims against, and liabilities of, Tenant or
Landlord arising prior to any date of termination or expiration of this
Agreement with respect to the Leased Property shall survive such termination or
expiration. Each term or provision of this Agreement to be performed by Tenant
shall be construed as an independent covenant and condition. Time is of the
essence with respect to the performance by Tenant of its obligations under this
Agreement, including, without limitation, obligations for the payment of money.
Except as otherwise set forth in this Agreement, any obligations arising prior
to the expiration or sooner termination of this Agreement of Tenant (including
without limitation, any monetary, repair and indemnification obligations) and
Landlord shall survive the expiration or sooner termination of this Agreement.
In addition, solely with respect to Landlord, nothing contained in this
Agreement shall be construed to create or impose any liabilities or obligations
and no such liabilities or obligations shall be imposed on any of the
shareholders, beneficial owners, direct or indirect, officers, directors,
trustees, employees or agents of Landlord or Tenant for the payment or
performance of the obligations or liabilities of Landlord hereunder. The parties
have participated jointly in the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.

        21.12 Counterparts; Headings. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but which, when
taken together, shall constitute but one instrument and shall become effective
as of the date hereof when copies hereof, which, when taken together, bear the
signatures of each of the parties hereto shall have been signed. Captions and
headings in this Agreement are for purposes of reference only and shall in no
way define, limit or describe the scope or intent of, or otherwise affect, the
provisions of this Agreement.

        21.13 Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State in which the Leased Property is
located.

        21.14 Right to Make Agreement. Each party warrants, with respect to
itself, that neither the execution and delivery of this Agreement, nor the
compliance with the terms and provisions

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<PAGE>

hereof, shall violate any provision of any law, or any judgment, writ,
injunction, order or decree of any court or Governmental Authority; nor result
in or constitute a breach or default under or the creation of any lien, charge
or encumbrance upon any of its property or assets under, any indenture,
mortgage, deed of trust, contract, other commitment or restriction to which it
is a party or by which it is bound; nor require any consent, vote or approval
which has not been given or taken, or at the time of the transaction involved
shall not have been given or taken. Each party covenants that it has and will
continue to have throughout the term of this Agreement and any extensions
thereof, the full right to enter into this Agreement and perform its obligations
hereunder.

        21.15 Brokerage. Landlord and Tenant hereby represent and warrant to
each other that they have not engaged, employed or utilized the services of any
business or real estate brokers, salesmen, agents or finders in the initiation,
negotiation or consummation of the business and real estate transaction
reflected in this Agreement. On the basis of such representation and warranty,
each party shall and hereby agrees to indemnify and save and hold the other
party harmless from and against the payment of any commissions or fees to or
claims for commissions or fees by any real estate or business broker, salesman,
agent or finder resulting from or arising out of any actions taken or agreements
made by them with respect to the business and real estate transaction reflected
in this Agreement.

        21.16 No Partnership or Joint Venture. Landlord shall not, by virtue of
this Agreement, in any way or for any purpose, be deemed to be a partner of
Tenant in the conduct of Tenant's business upon, within or from the Leased
Property or otherwise, or a joint venturer or a member of a joint enterprise
with Tenant.

        21.17 Entire Agreement. This Agreement contains the entire agreement
between the parties and, except as otherwise provided herein, can only be
changed, modified, amended or terminated by an instrument in writing executed by
the parties. It is mutually acknowledged and agreed by Landlord and Tenant that
there are no verbal agreements, representations, warranties or other
understandings affecting the same; and that Tenant hereby waives, as a material
part of the consideration hereof, all claims against Landlord for rescission,
damages or any other form of relief by reason of any alleged covenant, warranty,
representation, agreement or understanding not contained in this Agreement.

        21.18 Costs and Attorneys' Fees. In addition to Landlord's rights under
Sections 12.2 and 14.2, if either party shall bring an action to recover any sum
due hereunder, or for any breach hereunder, and shall obtain a judgment or
decree in its favor, the court may award to such prevailing party its reasonable
costs and reasonable attorney's fees based upon service rendered at hourly
rates, specifically including reasonable attorney's fees incurred in connection
with any appeals (whether or not taxable as such by law). Landlord shall also be
entitled to recover its reasonable attorney's fees based upon service rendered
at hourly rates and costs incurred in any bankruptcy action filed by or against
Tenant, including, without limitation, those incurred in seeking relief from the
automatic stay, in dealing with the assumption or rejection of this Agreement,
in any adversary proceeding, and in the preparation and filing of any proof of
claim.

        21.19 Approval of Landlord. Whenever Tenant is required under this
Agreement to do anything to meet the satisfaction or judgement of Landlord, the
reasonable satisfaction or

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<PAGE>

judgement of Landlord shall be deemed sufficient. The foregoing provision of
this Section shall not apply in any instance where the provisions of this
Agreement expressly state that the provisions of this Section do not apply or
where the provisions of this Agreement expressly state that such consent,
approval or satisfaction are subject to the sole and absolute discretion or
judgement of Landlord, and in each such instance Landlord's approval or consent
may be unreasonably withheld or unreasonable satisfaction or judgement may be
exercised by Landlord.

        21.20 Successors and Assigns. The agreements, terms, provisions,
covenants and conditions contained in this Agreement shall be binding upon and
inure to the benefit of Landlord and Tenant and, to the extent permitted herein,
their respective successors and assigns.

        21.21 Waiver of Jury Trial. TENANT AND LANDLORD HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAWS, THE RIGHT EITHER OF THEM OR THEIR HEIRS, PERSONAL
REPRESENTATIVES, SUCCESSORS OR ASSIGNS MAY HAVE TO A TRIAL BY JURY IN RESPECT TO
ANY LITIGATION PROCEEDINGS OR COUNTERCLAIM, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT TO LANDLORD'S
ACCEPTING THIS AGREEMENT.

        21.22 Treatment of Lease. Landlord and Tenant each agree to treat this
Agreement as a true lease for tax purposes and as an operating lease for
generally accepted accounting principles.

        21.23 Transfer of Licenses. Upon the expiration or sooner termination of
this Agreement, Tenant shall use its best efforts to transfer and assign to
Landlord or its designee or assist Landlord or its designee in obtaining
transfer or assignment of all Leased Intangible Property, including without
limitation and together with any contracts, licenses (including without
limitation all licenses identified as part of the Initial Tenant Personal
Property and any replacements thereof and additions thereto), permits,
development rights, trade names (except for trade names as included within the
Initial Tenant Personal Property), telephone exchange numbers identified with
the Leased Property, approvals and certificates and all other intangible rights,
benefits and privileges of any kind or character with respect to the Leased
Property, useful or required for the then operation of the Leased Property
(except for proprietary software as included within the Initial Tenant Personal
Property). If requested by Landlord and to the extent permitted by law the
Tenant shall provide a collateral assignment of such licenses and other
intangible rights as further security for Tenant's obligations hereunder.

        21.24 Tenant's Personal Property. Upon the expiration or sooner
termination of the Term of this Agreement, Landlord may, in its sole and
absolute discretion, elect to either (i) give Tenant Notice that Tenant shall be
required, within ten (10) Business Days after such expiration or termination, to
remove all of Tenant's Personal Property from the Leased Property, or (ii) pay
Tenant's book value of such Tenant's Personal Property (not including, however,
trade names and proprietary software listed as part of the Initial Tenant
Personal Property, which shall remain

                                       66
<PAGE>

the sole property of Tenant). Failure of Landlord to make such election shall be
deemed an election to proceed in accordance with clause (ii) preceding.

        21.25 Landlord's Representations. Landlord hereby represents and
warrants to Tenant as follows:

                (a) Landlord is a limited partnership duly organized and validly
        existing and in good standing under the laws of the State of Delaware.
        Landlord has all requisite power and authority under the laws of the
        State of Delaware and its charter documents to enter into and perform
        its obligations under this Agreement and to consummate the transactions
        contemplated hereby.

                (b) Landlord has taken all necessary action to authorize the
        execution, delivery and performance of this Agreement, and upon the
        execution and delivery hereof, this Agreement shall constitute the valid
        and binding agreement of Landlord.

        21.26 Guaranty of Lease. The Landlord has entered into this Lease in
reliance upon the Unconditional Guaranty of Payment and Performance by the
Guarantor in favor of Landlord dated of even date herewith (the "Guaranty"),
pursuant to which the Guarantor has unconditionally guaranteed all of the
obligations of the Tenant under this Lease, including without limitation the
covenants of Tenant in Section 4.4 and Section 4.6 hereof, and all of the
additional covenants of Tenant in Article 20 hereof.

        21.27 Guaranty of ARC-Related Leases. The obligations of each tenant
under each ARC-Related Lease (whether now in effect or entered into in the
future) also shall be and are hereby unconditionally guaranteed by Tenant.
Tenant agrees that its guaranty of the ARC-Related Leases hereunder shall be a
material inducement for the execution of each ARC-Related Lease, is and shall be
a guaranty of payment and performance and not of collection solely, and shall be
effective in accordance with the terms and conditions of the Guaranty, which are
incorporated herein by this reference. Notwithstanding the foregoing, and the
automatic and unconditional guaranty of all ARC-Related Leases hereunder, Tenant
shall upon request of the Landlord or its Affiliated Persons promptly execute
and deliver a separate Unconditional Guaranty of Payment and Performance with
respect to each ARC-Related Lease.

        21.28 Landlord's Assumed Financing. The obligations of Landlord and
Tenant are subject to the additional provisions set forth in Exhibit "K"
attached hereto relating to certain terms and conditions of the GMACCM Loan
Documents assumed and executed by Landlord which affect Tenant's performance and
obligations under this Lease.

                      [SIGNATURES APPEAR ON FOLLOWING PAGE]

                                       67
<PAGE>

        IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the date above first written.

NOTICE: THIS AGREEMENT CONTAINS WAIVERS AND INDEMNITIES BY THE TENANT OF THE
LANDLORD'S OWN NEGLIGENCE.

LANDLORD:                                 TENANT:

CNL RETIREMENT - AM/ILLINOIS LP, a        ARC HOLLEY COURT, LLC, a Tennessee
Delaware limited liability company        limited liability company

By: CNL Retirement - GP/Illinois Corp,    By: ARC Holley Court Management, Inc.,
    a Delaware corporation, as its        a Tennessee corporation, its
    General Partner                       Managing Member

    By:    /S/                            By:    /S/
           -----------------------               ------------------------

    Name:  Phillip M. Anderson            Name:  George T. Hicks
           -----------------------               ------------------------
                                          Its:   EVP-Finance, CFO,
                                                 ------------------------
    Its:   Exec. V. P.                           Secretary and Treasurer
           -----------------------               ------------------------

             (CORPORATE SEAL)

                                       68
<PAGE>
                                   EXHIBIT "A"

                                    The Land

                                      A-1

<PAGE>

                                   EXHIBIT "B"

                            Initial Term Minimum Rent

         The amount of Minimum Rent due during the Initial Term is as follows:

         For Accounting Year 1      -       $1,846,927.50

         Commencing with the 2nd Accounting Year, and on the first day of each
         Accounting Year thereafter during the Initial Term, Minimum Rent shall
         increase by one percent (1%) over the Minimum Rent owing in the
         immediately preceding Accounting Year. Accordingly, the Minimum Rent
         owing from the 2nd Accounting Year through the end of the Initial Term
         of this Agreement shall be as follows:

         For Accounting Year 2      -       $1,865,396.78;

         For Accounting Year 3      -       $1,884,050.74;

         For Accounting Year 4      -       $1,902,891.25;

         For Accounting Year 5      -       $1,921,920.16;

         For Accounting Year 6      -       $1,941,139.36;

         For Accounting Year 7      -       $1,960,550.76;

         For Accounting Year 8      -       $1,980,156.27;

         For Accounting Year 9      -       $1,999,957.83;

         For Accounting Year 10     -       $2,019,957.41;

         For Accounting Year 11     -       $2,040,156.98;

         For Accounting Year 12     -       $2,060,558.55;

         For Accounting Year 13     -       $2,081,164.14;

         For Accounting Year 14     -       $2,101,975.78;

         For Accounting Year 15     -       $2,122,995.53.

                                      B-1
<PAGE>

                                   EXHIBIT "C"

                                Appraisal Process

         If Landlord and Tenant are unable to agree upon the fair market value
of the Leased Property within any relevant period provided in this Agreement,
each shall within ten (10) days after written demand by the other select one MAI
Appraiser to participate in the determination of fair market value. Within ten
(10) days of such selection, the MAI Appraisers so selected by Landlord and
Tenant shall select a third MAI Appraiser. The three (3) selected MAI Appraisers
shall each determine the fair market value of the Leased Property within thirty
(30) days of the selection of the third appraiser. To the extent consistent with
sound appraisal practices as then existing at the time of any such appraisal,
and if requested by Landlord, such appraisal, shall be made on a basis
consistent with the basis on which the Leased Property was appraised at the time
of its acquisition by Landlord. Tenant shall pay the fees and expenses of any
MAI Appraiser retained pursuant to this Exhibit.

         In the event either Landlord or Tenant fails to select a MAI Appraiser
within the time period set forth in the foregoing paragraph, the MAI Appraiser
selected by the other party shall alone determine the fair market value of the
Leased Property in accordance with the provisions of this Exhibit and the fair
market value so determined shall be binding upon Landlord and Tenant.

         In the event the MAI Appraisers selected by Landlord and Tenant are
unable to agree upon a third MAI Appraiser within the time period set forth in
the first paragraph of this Exhibit, either Landlord or Tenant shall have the
right to apply at Tenant's expense to the presiding judge of the court of
original trial jurisdiction in the county in which the Leased Property is
located to name the third MAI Appraiser.

         Within five (5) days after completion of the third MAI Appraiser's
appraisal, all three MAI Appraisers shall meet and a majority of the MAI
Appraisers shall attempt to determine the fair market value of the Leased
Property. If a majority is unable to determine the fair market value at such
meeting, the three appraisals shall be added together and their total divided by
three. The resulting quotient shall be the fair market value of the Leased
Property. If, however, either or both of the low appraisal or the high appraisal
are more than ten percent (10%) lower or higher than the middle appraisal, any
such lower or higher appraisal shall be disregarded. If only one appraisal is
disregarded, the remaining two appraisals shall be added together and their
total divided by two, and the resulting quotient shall be such fair market
value. If both the lower appraisal and the higher appraisal are disregarded as
provided herein, the middle appraisal shall be such fair market value. In any
event, the result of the foregoing appraisal process shall be final and binding.

         "MAI APPRAISER" shall mean an appraiser licensed or otherwise qualified
to do business in the State and who has substantial experience in performing
appraisals of facilities similar to the Leased Property and is certified as a
member of the American Institute of Real Estate Appraisers or certified as a
SRPA by the Society of Real Estate Appraisers, or, if such organizations no
longer exist or certify appraisers, such successor organization or such other
organization as is approved by Landlord.

                                      C-1
<PAGE>

                                   EXHIBIT "D"

                           Tenant Estoppel Certificate

        THIS TENANT'S ESTOPPEL CERTIFICATE ("Certificate") is given this __ day
of ___, 20___ by ___________ ("Tenant") in favor of _____________________, a
__________, with principal office and place of business at______________________
("Beneficiary").

                                    RECITALS:

A.      Pursuant to the terms and conditions of that certain Lease Agreement
("Lease") dated ________, ___________________________ ("Landlord") leased to
Tenant certain real property in ______ County, _____ ("Leased Property"), which
Leased Property are more particularly described in the Lease.

B.      Pursuant to the terms and conditions of the Lease, the Beneficiary has
requested that the Tenant execute and deliver this Certificate with respect to
the Lease.

        NOW, THEREFORE, in consideration of the above Leased Property, the
Tenant hereby makes the following statements for the benefit of the Assignee:

        1. The copy of the Lease attached hereto and made a part hereof as
Exhibit "A" is a true, correct and complete copy of the Lease, which Lease is in
full force and effect as of the date hereof, and has not been modified or
amended.

        2. The Lease sets forth the entire agreement between the Landlord and
the Tenant relating to the leasing of the Leased Property, and there are no
other agreements, written or oral, relating to the leasing of the Leased
Property.

        3. There exists no uncured or outstanding defaults or events of default
under the Lease, or events which, with the passage of time, and the giving of
notice, or both, would be a default or event of default under the Lease.

        4. No notice of termination has been given by Landlord or Tenant with
respect to the Lease.

        5. All payments due the Landlord under the Lease through and including
the date hereof have been made, including the monthly installment of Minimum
Rent (as defined in the Lease) for the period of ______________ to
________________ in the amount of $___________.

        6. As of the date hereof, the annual Minimum Rent under the Lease is
$__________.

        7. Percentage Rent (as defined in the Lease) has been paid through and
including the Fiscal Year ending ______________________.

        8. There are no disputes between the Landlord and the Tenant with
respect to any rental due under the Lease or with respect to any provision of
the Lease.

        9. Notwithstanding any provisions of the Lease to the contrary, the
Tenant hereby consents to the collateral assignment of the Lease by the Landlord
to the Beneficiary, and agrees that no terms and conditions of the Lease shall
be altered, amended or changed as a result of such assignment.

                                       D-1
<PAGE>

        10. The Tenant hereby agrees that from and after the date hereof copies
of all notices which Tenant is required to deliver to the Landlord under the
Lease with respect to defaults, events of default or failure to perform by the
Landlord under the Lease, shall be delivered to Beneficiary at the following
address:

                             ----------------------
                             ----------------------
                             ----------------------
                             ----------------------

        11. The Tenant represents and warrants that (a) all improvements
constructed on the Leased Property have been approved and accepted by Tenant,
(b) all utility sources and utility companies which service the Leased Property
have been approved and accepted by Tenant and utility service is available to
the Leased Property, (c) Tenant is in occupancy of the Leased Property pursuant
to the Lease, and (d) Tenant has no offsets, counterclaims or defenses with
respect to its obligations under the Lease.

        12. The Tenant understands and acknowledges that Beneficiary is relying
upon the representations set forth in this Certificate, and may rely thereon in
connection with the [COLLATERAL] assignment of the Lease to Beneficiary.

        IN TESTIMONY WHEREOF, witness the signature of the Tenant as of the day
and year first set forth above.

                                       -----------------------------------------

                                       By:
                                            ------------------------------------
                                       Name:
                                              ----------------------------------
                                       Title:
                                               ---------------------------------

STATE OF _______
COUNTY OF _______

         The foregoing instrument was acknowledged before me this ___ day of
_____, 20___ by _________________, as _________________ of ____________, a
____________, on behalf of the _________. He/she is personally known to me or
has produced ________ as identification.

                                       _________________________________________
                                       Notary Public
                                       Printed Name:____________________________

expires: __________________
                                                          (NOTARY SEAL)

                                      D-2

<PAGE>

                                   EXHIBIT "E"

                               Memorandum of Lease

        THIS MEMORANDUM OF LEASE, entered into as of this ____ day of
_________, 20___, by and between __________________________________________,
whose address is 450 South Orange Avenue, Orlando, Florida 32801, as Landlord,
and ____________________, a ______________, whose address is___________________
___________________, as Tenant.

                                 W I T N E S E T H:
                                 -----------------

        THAT, Landlord and Tenant have heretofore entered into a certain Lease
Agreement dated ____________, 20___ (the "Lease") covering certain Leased
Property consisting of, among other things, certain real property located in
______ County, ______, more particularly described on Exhibit "A" attached
hereto upon which there is constructed and located certain improvements
(together the "Leased Property"), and

        WHEREAS, it is the desire of both Landlord and Tenant to memorialize the
Lease and set forth certain pertinent data with respect thereto,

        NOW THEREFORE, with respect to the Lease, Landlord and Tenant hereby
acknowledge and agree as follows:

        1. Demise. The Leased Property have been and are hereby demised, let and
leased by Landlord to Tenant, and taken and accepted by Tenant from Landlord,
all pursuant to and in accordance with the Lease.

        2. Term. The initial Term of the Lease is from February 11, 2002, until
February 10, 2017. Tenant has the right, privilege and option to renew and
extend the initial Term of the Lease for up to two (2) additional periods of
five (5) years each, subject to the provisions and conditions of the Lease.

        3. Possession. Landlord has delivered possession of the Leased Property
to Tenant and Tenant has accepted delivery and taken possession of the Leased
Property from Landlord in the "as is" condition of the Leased Property on the
Commencement Date.

        4. Liens on Landlord's Interest Prohibited. By the terms of the Lease,
Landlord's interest in the Leased Property may not be subjected to liens of any
nature by reason of Tenant's construction, alteration, repair, restoration,
replacement or reconstruction of any improvements on or in the Leased Property,
including those arising in connection with or as an incident to the renovation
of the improvements located on the Leased Property, or by reason of any other
act or omission of Tenant (or of any person claiming by, through or under
Tenant) including, but not limited to, construction, mechanics' and
materialmen's liens. Accordingly, all persons dealing with Tenant are hereby
placed on notice that such persons shall not look to Landlord or to

                                       E-1
<PAGE>

Landlord's credit or assets (including Landlord's interest in the Leased
Property) for payment or satisfaction of any obligations incurred in connection
with the construction, alteration, repair, restoration, renovation, replacement
or reconstruction thereof by or on behalf of Tenant. Tenant has no power, right
or authority to subject Landlord's interest in the Leased Property to any
construction, mechanic's or materialmen's lien or claim of lien.

        5. Subordination and Attornment. The Lease specifically provides that
the Lease and Tenant's leasehold interest in and to the Leased Property are
junior, inferior, subordinate and subject in all respects to any mortgage or
mortgages now or hereafter in force and effect upon or encumbering the Leased
Property or any portion thereof, and that Tenant shall, and has agreed to,
attorn to any successor of the interest of Landlord under the Lease, including
the purchaser at any foreclosure sale occasioned by the foreclosure of any such
mortgage or mortgages, for the balance of the Term of the Lease remaining at the
time of the succession of such interest to such successor. Such subordination
shall be upon the express condition that the validity of this Lease shall be
recognized by the mortgagee, and that, notwithstanding any default by the
mortgagor, with respect to such mortgage, Tenant's possession and right of use
under this Lease in and to the Premises (including rights to have insurance and
condemnation proceeds made available for proper reconstruction of the Premises)
shall not be disturbed by such mortgagee unless and until Tenant shall breach
any of the provisions hereof and this Lease or Tenant's right to possession
hereunder shall have been terminated in accordance with the provisions of this
Lease.

        6. Inconsistent Provisions. The provisions of this Memorandum constitute
only a general description of the content of the Lease with respect to matters
set forth herein. Accordingly, third parties are advised that the provisions of
the Lease itself shall be controlling with respect to all matters set forth
herein. In the event of any discrepancy between the provisions of the Lease and
this Memorandum, the provisions of the Lease shall take precedence and prevail
over the provisions of this Memorandum.

        7. Termination of Lease. All rights of Tenant shall terminate upon the
expiration or earlier termination of the Lease, which may be evidenced by a
written notice of such expiration or termination recorded or filed by Landlord
among the appropriate land records of the County in which the Leased Property is
located.

                     [SIGNATURES APPEAR ON FOLLOWING PAGES]

                                      E-2
<PAGE>

         IN WITNESS WHEREOF, Landlord and Tenant have caused this Memorandum of
Lease to be duly executed on or as of the day and year first above written.

Signed, sealed and delivered
in the presence of:                                                          , a
                                       --------------------------------------

                                       -----------------------------------------

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

                                                      (CORPORATE SEAL)

                                                         "LANDLORD"

                                                                             , a
                                       --------------------------------------

                                       -----------------------------------------

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

                                                         "TENANT"

STATE OF _______________
COUNTY OF _____________

         The foregoing instrument was acknowledged before me this _____ day of
_______________, 20___ by ____________________, as _________ of
____________________, a ______________________, on behalf of the _____________.
He/she is personally known to me or has produced _______________________ as
identification.

                                       -----------------------------------------
                                       Notary Public

                                       Notary Public, State of
                                                               -----------------
                                       Commission #:
                                                    ----------------------------
                                       My commission expires:
                                                             -------------------

                                                     (NOTARY SEAL)

                                       E-3

<PAGE>

STATE OF __________
COUNTY OF __________

         The foregoing instrument was acknowledged before me this _____ day of
_______________, 20___, by ___________________, as ______________ of
___________________, a _______________________, on behalf of the _____________.
He/she is personally known to me or has produced _______________________ as
identification.

                                     -------------------------------------------
                                     Notary Public
                                     Notary Public, State of ___________________
                                     Commission No.:  __________________________
                                     My Commission Expires:  ___________________

                                                       (SEAL)

                                      E-4
<PAGE>

                                   EXHIBIT "F"

                       Single Purpose Entity Requirements

        Tenant or its assignee shall throughout the Term hereof do all things
necessary to continue to be and remain a Single Purpose Entity (including
without limitation, if Tenant is a partnership, insuring that each General
Partner of Tenant, continues as a Single Purpose Entity and shall not amend its
Articles of Organization or Operating Agreement (or if Tenant is a corporation,
Tenant shall not amend its Articles of Incorporation or Bylaws, or if Tenant is
a partnership, Tenant shall prevent any general partner from amending such
general partner's Articles of Organization or Bylaws or other formation
documents). For purposes hereof, Single Purpose Entity shall mean a Person,
other than an individual, which (a) is formed, organized or reorganized solely
for the purpose of holding, directly, the leasehold interest in the Leased
Property, (b) does not engage in any business unrelated to the Leased Property
and the operation and management thereof, (c) has not and will not have any
assets other than those related to its interest in the Leased Property and has
not and will not have any indebtedness other than incurred in the ordinary
course of business and paid pursuant to the terms of financing applicable to
such trade payables and indebtedness expressly authorized in Section 20.2(f) of
the Agreement, (d) maintains its own separate books and records and its own
accounts, in each case which are separate and apart from the books and records
of any other Person, (e) holds itself out as being a Person separate and apart
from any other Person, (f) does not and will not commingle its funds or assets
with those of any other Person, (g) conducts its own business in its own name,
(h) maintains separate financial statements, (i) pays its own liabilities out of
its own funds, (j) observes all limited liability company formalities,
partnership formalities or corporate formalities, as applicable, (k) maintains
an arm's-length relationship with its Affiliated Persons, (l) pays the salaries
of its own employees and maintains a sufficient number of employees in light of
its contemplated business operation, (m) does not guarantee or otherwise
obligate itself with respect to the debts of any other Person or hold out its
credit as being available to satisfy the obligations of any other Person except
as required or expressly authorized under the Agreement, (n) does not acquire
obligations or securities of its partners, members or shareholders, (o)
allocates fairly and reasonably shared expenses, including without limitation,
any overhead for shared office space, (if any), (p) uses separate stationary,
invoices and checks, (q) except as required or expressly authorized under the
Agreement, does not and will not pledge its assets for the benefit of any Person
other than Landlord or make any loans or advances to any other Person, (r) does
and will correct any known misunderstanding regarding its separate identity, (s)
maintains adequate capital in light of its contemplated business operations, and
(t) has and will have an Operating Agreement, partnership agreement, certificate
of incorporation or other organization document which complies with the
standards and requirements for a Single Purpose Entity set by Rating Agencies
(as hereinafter defined) as of the date hereof applicable to a limited liability
company, partnership or corporation, as applicable. In addition, if such Person
is a limited liability company, (i) the managing member shall be a corporation
or limited liability company (or if a partnership, shall have as its sole
general partner a corporation or limited liability company) that is a Single
Purpose Entity whose organization documents shall comply

                                       F-1
<PAGE>

with the standards and requirements for a Single Purpose Entity set by the
Rating Agencies as of the date hereof applicable to such managing members, (ii)
its Articles of Organization, Certificate of Formation and/or Operating
Agreement, as applicable, shall provide that such entity will dissolve only upon
the bankruptcy of the managing member, (iii) if such Person has more than one
managing member, at least one member shall be a corporation or limited liability
company that qualifies as a Single Purpose Entity and the Organization Documents
shall provide that such Person shall continue (and not dissolve) for so long as
a solvent managing member exists (iv) such corporate member or limited liability
company shall conform to the requirements hereof for Persons that are
corporations or limited liability company and (v) such Person shall have at
least one Independent Member. In addition, if such Person is a partnership, (a)
all general partners of such Person shall be Single Purpose Entities whose
organizational documents shall comply with the standards and requirements for a
Single Purpose Entity set by the Rating Agencies as of the date hereof
applicable to such general partners, (b) if such Person has more than one
general partner, then the organization documents shall provide that such Person
shall continue (and not dissolve) for so long as a solvent general partner
exists. In addition, if such Person is a corporation, then at all times, (i)
such Person shall have at least one Independent Director, and (ii) Board of
Directors of such Person may not take any action relating to such Person's
bankruptcy, dissolution or status as a Single Purpose Entity without the
unanimous affirmative vote of 100% of the members of the Board of Directors
unless all of the directors, including the Independent Director shall have
participated in such vote. In addition, such Person which is formed or organized
solely for the purpose of holding, directly, the leasehold interest in the
Leased Property (i) without the unanimous consent of all of the partners,
directors or members, as applicable, has not and will not with respect to itself
or any other single purpose entity that owns an interest in the Leased Property
in which it has a direct or indirect legal or beneficial interest (a) seek or
consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator, custodian or other similar official for itself for all or any
portion of its properties, or (b) take any action which might cause it to become
insolvent, (ii) has held and will hold its assets in its own name, (iii) has and
will maintain its financial statements, accounting records and other entity
documents separate and apart form any other Person, and (iv) has not and will
not identify its partners, members or shareholders or any of its affiliates of
any of them as a division or part of it. For purposes hereof, "Rating Agencies"
shall mean any three of the following: Standards & Poor's Rating Services, a
division of the McGraw-Hill Companies, Inc., Duff and Phelps Credit Rating Co.,
Moody's Investors Services, Inc. and Fitch Investors Services, L.P. or if any
such corporation shall for any reason no longer perform the functions of a
securities rating agency, any other nationally recognized statistical rating
agency designated by Landlord. In addition, for purposes hereof, "Independent
Director" or "Independent Member" shall mean an individual appointed by CT
Corporation System, AMACAR Group, L.L.C., CSC Special Services or similar
corporate service or an individual reasonably satisfactory to Landlord, who in
any case shall not have been at the time of such individual's appointment, and
may not have been at any time during the preceding two years (i) a shareholder
of, or an officer or employee of, or a member or manager of Tenant or any of its
respective shareholders, subsidiaries or Affiliated

                                       F-2
<PAGE>

Persons, (ii) a customer of, or supplier to Tenant or any member, manager or
general partner or any of its respective shareholders, subsidiaries or
Affiliated Persons, (iii) a Person or other entity controlling any such
shareholder, supplier, customer, member or manager, or (iv) a member of the
immediate family of any such shareholder, officer, employee, supplier, customer,
member or manager or of any other director of Tenant or any general partner
thereof.

        In addition to the foregoing, and consistent with the Single Purpose
Entity requirements hereof, Tenant covenants and agrees that throughout the Term
hereof, Tenant shall not voluntarily file or consent to the filing of a petition
for bankruptcy, insolvency, reorganization, assignment for the benefit of
creditors or similar proceedings under any federal or state bankruptcy,
insolvency, reorganization or other similar law or otherwise seek any relief
under any laws relating to the relief of debts or the protection of debtors
generally, without the unanimous consent of its manager(s), which shall at all
times include the affirmative consent of the Independent Director, and if Tenant
is a partnership without the unanimous consent of its general partners
(including the unanimous consent of the directors of the corporate general
partners or shareholders as the case may be which shall at all times include the
consent of the Independent Director).

                                      F-3
<PAGE>

                                   EXHIBIT "G"

                             Tenant Equity Ownership

ARC Holley Court, LLC is a Tennessee limited liability company with two members:

           American Retirement Corporation, a Tennessee corporation:
                 100% economic member

           ARC Holley Court Management, Inc., a Tennessee corporation:
                 non-economic member

     ARC Holley Court Management, Inc. is a wholly-owned subsidiary of American
     Retirement Corporation

                                      G-1
<PAGE>

                                   EXHIBIT "H"

                                Property Expenses

        The term "Property Expenses" shall mean for the requisite period the sum
of the following items:

        1. the cost of sales, including without limitation, compensation, fringe
benefits, payroll taxes and other costs relating to employees of Tenant (the
foregoing costs shall not include salaries and other employee costs of executive
personnel of Tenant who do not work at the Leased Property on a regular basis;
except that the foregoing costs shall include the allocable portion of the
salary and other employee costs of any general manager or other supervisory
personnel (not including regional vice presidents or regional sales people)
assigned to a "cluster" of independent living or assisted living and dementia
care facilities which includes the Leased Property);

        2. departmental expenses incurred at departments within the Leased
Property; administrative and general expenses; the cost of marketing incurred by
the Leased Property; advertising and business promotion incurred by the Leased
Property; heat, light, and power; and computer line charges;

        3. the cost of Inventories and P&E consumed in the operation of the
Leased Property;

        4. a reasonable reserve for uncollectible accounts receivable as
determined by the Tenant;

        5. all costs and fees of independent professionals or other third
parties who are retained by Tenant to perform services required or permitted
hereunder;

        6. all costs and fees of technical consultants and operational experts
who are retained or employed by Tenant for specialized services (including,
without limitation, quality assurance inspectors) and the cost of attendance by
employees of the Leased Property at training and manpower development programs
sponsored by Tenant;

        7. Additional Charges as referenced in Section 3.4 of the Agreement;

        8. payments made into the Reserve pursuant to Section 5.2 of the
Agreement;

        9. management fees paid to any approved manager and such other costs and
expenses incurred by an approved manager as are specifically provided for under
any approved management agreement or are otherwise reasonably necessary for the
proper and efficient operating of the Leased Property;

        10. the term "Property Expenses" shall not include (a) debt service
payments pursuant to any Facility Mortgage, (b) payments pursuant to equipment
leases or other forms of financing obtained for the Tenant's Personal Property,
(c) rental payments pursuant to any ground lease of the Land, (d) any
indebtedness of Tenant, or (e) any employee claim which is not covered by

                                       H-1
<PAGE>

insurance and where the basis of such employee claim is conduct by Tenant or its
manager which is (i) a substantial violation of the standards of responsible
labor relations as generally practiced by prudent owners or operators of similar
retirement community operations in the state in which the Facility is situated,
and (ii) not the isolated act of individual employees, but rather is a direct
result of corporate policies of Tenant or any manager. Neither revenues from the
Facility, nor any disbursement from the Reserve, shall be used by Tenant to pay
the amounts not constituting Property Expenses under clauses 9(b), 9(c), 9(d) or
9(e) above.

Notwithstanding the foregoing definition of "Property Expenses," the financial
and other informational reports and statements to be provided pursuant to the
Lease may be provided by Tenant consistent with Tenant's standard information
reporting practices, provided that any omitted or varying item under such
practices is identified and separately scheduled as adjustments if necessary to
determine any financial or economic amount relevant to the Lease or if otherwise
requested in writing by Landlord.

                                      H-2
<PAGE>

                                   EXHIBIT "I"

                              Initial Landlord P&E

                                      I-1
<PAGE>

                                   EXHIBIT "J"

                        Initial Tenant Personal Property

(a)     The right to use the tradename "ARC," "American Retirement Corporation,"
        and any variations thereof;

(b)     Independent living facility licenses and Assisted living and
        Alzheimer's/dementia care licenses, if any, and any liquor licenses;

(c)     Any vans, cars or other motor vehicles; and

(d)     Any proprietary software of Tenant and its Affiliated Persons not
        including, however, information and data relating to the Leased Property
        and the ownership, operation and occupancy thereof, which information
        and data shall remain available to Landlord at all times during and be
        transferred to Landlord immediately upon the expiration or any early
        termination of the Lease Term.

                                      J-1
<PAGE>

                                   EXHIBIT "K"

                          Landlord's Assumed Financing

1.      The Leased Property is subject to certain existing GMAC Commercial
        Mortgage Corporation ("GMACCM") Loan Documents ("Loan Documents") as
        defined under that certain Agreement of Assumption and Modification of
        Mortgage, Note and Other Loan Documents dated of even date with this
        Lease and entered into by Tenant, Landlord, GMACCM and others (the
        "Assumption Agreement") to reflect Landlord's assumption of the Loan
        Documents and the first mortgage loan thereunder (the "Loan") in
        connection with the sale of the Leased Property from Tenant to Landlord.

2.      Tenant has assigned to Landlord the tax, insurance and debt service
        reserve escrows held by GMACCM under the Loan Documents, and the current
        balance thereof has been credited (and will continue to be credited,
        regardless of whether or not the funds remain in escrow under the Loan
        Documents) by Landlord towards the Security Deposit required to be paid
        by Tenant under this Lease. In the event that any further deposits are
        required under the terms of the Loan Documents then the same shall, at
        the request of Landlord, be made and deposited by Tenant to and for the
        benefit of Landlord, as an additional Security Deposit under this Lease,
        and any such additional deposits in excess of the required amount of the
        Security Deposit as stated in this Lease which are released by GMACCM
        shall be refunded to Tenant as a release and reduction of any such
        additional Security Deposit amounts paid by Tenant hereunder.

3.      Notwithstanding any provision of the Lease to the contrary, Tenant may
        and shall enter into all Loan Documents in respect of Tenant's interests
        in the Facility as are required by GMACCM and provided for under and in
        connection with the Assumption Agreement, and agrees with and in favor
        of Landlord, as an additional covenant under this Lease, to fully and
        timely perform and satisfy all of Tenant's obligations thereunder and
        that the indemnification of Landlord by Tenant under Article 14 of this
        Lease shall include any and all liabilities and damages incurred or
        suffered by Landlord arising directly or indirectly form or out of
        Tenant's failure to fully and timely perform all such obligations.

4.      Pursuant to and consistent with the provisions of Section 3.7 of the
        Lease, and the agreement of Tenant and Landlord that this Lease shall
        constitute an absolute triple net lease, Tenant further covenants and
        agrees with Landlord to perform and undertake all obligations set forth
        in the Loan Documents relating to the use, operation, condition and
        status of the Facility and the obligations of Tenant (including any
        provisions to the effect that Landlord shall or may cause Tenant to
        undertake or refrain from some act or action) and all undertakings and
        agreements in connection therewith, not including however: (a) any
        obligation to pay scheduled payments of principal and interest or any
        sums due and payable at the scheduled maturity of the Loan; or (b) any
        obligation which by its terms or nature relates solely to Landlord, is
        susceptible to being performed solely by Landlord, or would not
        constitute a type of obligation which would reasonably be considered
        within the scope of a tenant obligation under an absolute triple net
        lease.

                                      K-1<PAGE>
                                                                    EXHIBIT 10.3

                                              Heritage Club at Greenwood Village
                                              Denver, Arapahoe County, Colorado

                                 LEASE AGREEMENT

                           DATED AS OF MARCH 21, 2002

                                 BY AND BETWEEN

                        CNL RETIREMENT - AM/COLORADO LP,
                         a Delaware limited partnership,

                                  AS LANDLORD,

                                       AND

                          ARC GREENWOOD VILLAGE, INC.,
                            a Tennessee corporation,

                                    AS TENANT

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<S>                                                                                             <C>
ARTICLE 1........................................................................................1
   DEFINITIONS...................................................................................1

ARTICLE 2.......................................................................................12
   LEASED PROPERTY AND TERM.....................................................................12
      2.1   Leased Property.....................................................................12
      2.2   Condition of Leased Property........................................................13
      2.3   Initial Term........................................................................13
      2.4   Extended Term.......................................................................13
      2.5   Yield Up............................................................................13

ARTICLE 3.......................................................................................14
   RENT.........................................................................................14
      3.1   Rent................................................................................14
      3.2   Minimum Rent........................................................................14
      3.3   Percentage Rent.....................................................................15
      3.4   Additional Charges..................................................................17
      3.5   Landlord Advances...................................................................18
      3.6   Late Payment of Rent................................................................18
      3.7   Net Lease...........................................................................18
      3.8   No Abatement of Rent................................................................19
      3.9   Tenant Shortfall Reserve Requirement................................................19
      3.10  Tenant Security Deposit.............................................................21
      3.11  Security for all ARC-Related Leases.................................................21
      3.12  Security Agreement..................................................................21

ARTICLE 4.......................................................................................22
   USE OF THE LEASED PROPERTY; CONFLICTING BUSINESS.............................................22
      4.1   Permitted Use.......................................................................22
      4.2   Environmental Matters...............................................................23
      4.3   Conflicting Businesses Prohibited...................................................23
      4.4   Continuous Operations...............................................................24
      4.5   Compliance With Restrictions, Etc...................................................24
      4.6   Standard of Operation...............................................................24
      4.7   Resident Agreements and Service Licenses............................................26
      4.8   Standards, Not Control..............................................................26
      4.9   Survival............................................................................26

ARTICLE 5.......................................................................................27
   MAINTENANCE AND REPAIRS......................................................................27
      5.1   Tenant's Obligations................................................................27
      5.2   Reserve.............................................................................27

ARTICLE 6.......................................................................................30
   IMPROVEMENTS, ETC............................................................................30
      6.1   Prohibition.........................................................................30
</TABLE>

                                       i
<PAGE>
<TABLE>
<S>                                                                                             <C>
      6.2   Permitted Renovations...............................................................30
      6.3   Conditions to Reserve Expenditures, Permitted Renovations and Major Alterations.....31
      6.4   Salvage.............................................................................32

ARTICLE 7.......................................................................................32
   LANDLORD'S INTEREST NOT SUBJECT TO LIENS.....................................................32
      7.1   Liens, Generally....................................................................32
      7.2   Construction or Mechanics Liens.....................................................32
      7.3   Contest of Liens....................................................................33
      7.4   Notices of Commencement of Construction.............................................33

ARTICLE 8.......................................................................................34
   TAXES AND ASSESSMENTS........................................................................34
      8.1   Obligation to Pay Taxes and Assessments.............................................34
      8.2   Tenant's Right to Contest Taxes.....................................................34
      8.3   Tax and Insurance Escrow Account....................................................35

ARTICLE 9.......................................................................................35
   INSURANCE....................................................................................35
      9.1   General Insurance Requirements......................................................35
      9.2   Waiver of Subrogation...............................................................37
      9.3   General Provisions..................................................................37
      9.4   Blanket Policy......................................................................38
      9.5   Indemnification of Landlord.........................................................38

ARTICLE 10......................................................................................39
   CASUALTY.....................................................................................39
      10.1  Restoration and Repair..............................................................39
      10.2  Escrow and Disbursement of Insurance Proceeds.......................................39
      10.3  No Abatement of Rent................................................................40
      10.4  Tenant's Property and Business Interruption Insurance...............................40
      10.5  Restoration of Tenant's Property....................................................41
      10.6  Waiver..............................................................................41

ARTICLE 11......................................................................................41
   CONDEMNATION.................................................................................41
      11.1  Total Condemnation, Etc.............................................................41
      11.2  Partial Condemnation................................................................41
      11.3  Disbursement of Award...............................................................41
      11.4  No Abatement of Rent................................................................42
      11.5  Disputes............................................................................42

ARTICLE 12......................................................................................42
   DEFAULTS AND REMEDIES........................................................................42
      12.1  Events of Default...................................................................42
      12.2  Remedies on Default.................................................................44
      12.3  Application of Funds................................................................48
      12.4  Landlord's Right to Cure Tenant's Default...........................................48
</TABLE>

                                       ii

<PAGE>

<TABLE>
<S>                                                                                             <C>
      12.5  Landlord's Lien.....................................................................48

ARTICLE 13......................................................................................49
   HOLDING OVER.................................................................................49

ARTICLE 14......................................................................................49
   LIABILITY OF LANDLORD; INDEMNIFICATION.......................................................49
      14.1  Liability of Landlord...............................................................49
      14.2  Indemnification of Landlord.........................................................49
      14.3  Notice of Claim or Suit.............................................................50
      14.4  Limitation on Liability of Landlord.................................................50

ARTICLE 15......................................................................................51
   REIT AND UBTI REQUIREMENTS...................................................................51
      15.1  Limitations on Rents Attributable to Personal Property..............................51
      15.2  Basis for Sublease Rent Restricted..................................................51
      15.3  Landlord Affiliate Subleases Restricted.............................................51
      15.4  Landlord Interests in Tenant Restricted.............................................52
      15.5  Rents from Personal Property Restricted.............................................52
      15.6  Landlord Services...................................................................52
      15.7  Certain Subtenants Prohibited.......................................................52
      15.8  Future Amendment....................................................................52

ARTICLE 16......................................................................................52
   SUBLETTING AND ASSIGNMENT....................................................................52
      16.1  Transfers Prohibited Without Consent................................................52
      16.2  Indirect Transfer Prohibited Without Consent........................................53
      16.3  Adequate Assurances.................................................................53

ARTICLE 17......................................................................................54
   ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS...............................................54
      17.1  Estoppel Certificates...............................................................54
      17.2  Monthly Financial Statements........................................................54
      17.3  Annual Financial Statements.........................................................54
      17.4  Records.............................................................................55
      17.5  General Operations Budget...........................................................55
      17.6  Quarterly Meetings..................................................................55

ARTICLE 18......................................................................................55
   LANDLORD'S RIGHT TO INSPECT..................................................................55

ARTICLE 19......................................................................................56
   FACILITY MORTGAGES...........................................................................56
      19.1  Subordination.......................................................................56
      19.2  Attornment..........................................................................57
      19.3  Rights of Mortgagees and Assignees..................................................57
</TABLE>

                                      iii

<PAGE>
<TABLE>
<S>                                                                                             <C>
ARTICLE 20......................................................................................57
   ADDITIONAL COVENANTS OF TENANT...............................................................57
      20.1  Conduct of Business.................................................................57
      20.2  Additional Covenants of Tenant......................................................58
      20.3  Tenant a Single Purpose Entity......................................................59
      20.4  Intentionally Omitted...............................................................59

ARTICLE 21......................................................................................59
   MISCELLANEOUS................................................................................59
      21.1  Limitation on Payment of Rent.......................................................59
      21.2  No Waiver...........................................................................60
      21.3  Remedies Cumulative.................................................................60
      21.4  Severability........................................................................60
      21.5  Acceptance of Surrender.............................................................60
      21.6  No Merger of Title..................................................................60
      21.7  Tenant's Representations............................................................61
      21.8  Quiet Enjoyment.....................................................................62
      21.9  Recordation of Memorandum of Lease..................................................63
      21.10    Notices.   (a)...................................................................63
      21.11    Construction; Nonrecourse........................................................64
      21.12    Counterparts; Headings...........................................................64
      21.13    Applicable Law...................................................................65
      21.14    Right to Make Agreement..........................................................65
      21.15    Brokerage........................................................................65
      21.16    No Partnership or Joint Venture..................................................65
      21.17    Entire Agreement.................................................................65
      21.18    Costs and Attorneys' Fees........................................................65
      21.19    Approval of Landlord.............................................................66
      21.20    Successors and Assigns...........................................................66
      21.21    Waiver of Jury Trial.............................................................66
      21.22    Treatment of Lease...............................................................66
      21.23    Transfer of Licenses.............................................................66
      21.24    Tenant's Personal Property.......................................................66
      21.25    Landlord's Representations.......................................................67
      21.26    Guaranty of Lease................................................................67
      21.27    Guaranty of ARC-Related Leases...................................................67
</TABLE>

EXHIBITS

Exhibit "A" - The Land
Exhibit "B" - Minimum Rent
Exhibit "C" - Appraisal Process
Exhibit "D" - Tenant Estoppel Certificate
Exhibit "E" - Memorandum of Lease
Exhibit "F" - Single Purpose Entity Requirements
Exhibit "G" - Tenant Equity Ownership
Exhibit "H" - Property Expenses
Exhibit "I" - Initial Landlord P&E
Exhibit "J" - Initial Tenant Personal Property
Exhibit "K" - Fallback Shortfall Assumption

                                       iv

<PAGE>

                                 LEASE AGREEMENT

         THIS LEASE AGREEMENT is entered into as of March 21, 2002, by and
between CNL RETIREMENT - AM/COLORADO LP, a Delaware limited partnership, as
landlord ("Landlord"), and ARC GREENWOOD VILLAGE, INC., a Tennessee corporation,
as tenant ("Tenant").

                               W I T N E S S E T H :
                               - - - - - - - - - -

         WHEREAS, Landlord has heretofore acquired fee simple title to the Land
and the Facility (these and other capitalized terms used and not otherwise
defined herein having the meanings ascribed to such terms in Article 1); and

         WHEREAS, Landlord wishes to lease the Leased Property to Tenant and
Tenant wishes to lease the Leased Property from Landlord, all subject to and
upon the terms and conditions herein set forth;

         NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby
agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

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

         "Accessibility Laws" shall mean all applicable laws, statutes,
regulations, rules, ordinances, codes, licenses, permits and orders, from time
to time in existence, of all courts of competent jurisdiction and Government
Agencies, and all applicable judicial and administrative and regulatory decrees,
judgments and orders, including common law rulings and determinations, relating
to accessibility for the disabled or handicapped, including, but not limited to,
any applicable provisions of The Architectural Barriers Act of 1968, The
Rehabilitation Act of 1973, The Fair Housing Act of 1988, The Americans With
Disabilities Act, the accessibility code(s), if any, of the State in which the
Leased Property is located, and all regulations and guidelines promulgated under
any all of the foregoing, as the same may be amended from time to time.

                                       1
<PAGE>

         "Accounting Period" shall mean each calendar month accounting period of
Tenant. If Tenant shall, for a bona fide business reason, change its accounting
period during the Term, appropriate adjustments, if any, shall be made with
respect to the timing of applicable accounting and reporting requirements of
this Agreement; provided, however, that in no event shall any such change or
adjustment alter the amount or frequency of payment of Minimum Rent within any
Fiscal Year, or alter the frequency of payment of Percentage Rent to less than
four (4) times within any Fiscal Year, or otherwise increase or reduce any
monetary obligation under this Agreement.

         "Accounting Year" shall mean each period of twelve (12) consecutive
Accounting Periods during the Term of this Agreement; the first Accounting Year
shall commence with the first full Accounting Period after the Commencement Date
of this Agreement.

         "Additional Charges" shall have the meaning given such term in Section
3.4.

         "Additional Rent" shall have the meaning given such term in Section
3.5.

         "Affiliated Person" shall mean, with respect to any Person, (i) any
Person directly or indirectly Controlling, Controlled by or under common Control
with any such Person, (ii) in the case of any such Person which is a
partnership, any partner in such partnership, (iii) in the case of any such
Person which is a limited liability company, any member of such company, (iv) in
the case of any such Person which is a corporation, any officer, director or
stockholder of such corporation, (v) any other Person which is a Parent, a
Subsidiary, or a Subsidiary of a Parent with respect to such Person or to one or
more of the Persons referred to in the preceding clauses (i) through (iv), (vi)
any other Person who is an officer, director, trustee or employee of, or partner
in, such Person or any Person referred to in the preceding clauses (i) through
(v) and (vii) any other Person who is a member of, or trustee of any trust for
the benefit of, the Immediate Family of such Person or of any Person referred to
in the preceding clauses (i) through (vi). Provided, however, a Person shall not
be deemed to be an Affiliated Person solely by virtue of the ownership of shares
of stock registered under the Securities Act of 1934, as amended, unless such
Person, as holder of such stock, is required to file a Schedule 13 D, pursuant
to Section 13(d) of such Act and Rule 13 d-1 promulgated thereunder.

         "Agreement" shall mean this Lease Agreement, including all Exhibits
hereto, as it and they may be amended or restated from time to time as herein
provided.

         "Annual Operations Statement" shall have the meaning given such term in
Section 3.3.2.

         "Applicable Laws" shall mean all applicable laws, statutes,
regulations, rules, ordinances, codes, licenses, permits and orders, from time
to time in existence, of all courts of competent jurisdiction and Government
Agencies, and all applicable judicial and administrative and regulatory decrees,
judgments and orders, including common law rulings and determinations of any
kind, including without limitation, those relating to (i) damage to, or the
protection of real or personal property, (ii) human health and safety (except
those requirements which, by definition, are solely the responsibility of
employers), (iii) the Environment, including, without limitation, all valid and
lawful requirements of courts and other Government Agencies pertaining to
reporting, licensing, permitting, investigation, remediation and removal of
underground improvements (including, without limitation, treatment or storage
tanks, or water, gas or oil wells), or emissions, discharges, releases or
threatened releases of Hazardous Substances, chemical substances, pesticides,
petroleum or petroleum products,

                                       2
<PAGE>

pollutants, contaminants or hazardous or toxic substances, materials or wastes
whether solid, liquid or gaseous in nature, into the Environment, or relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances, underground improvements
(including, without limitation, treatment or storage tanks, or water, gas or oil
wells), or pollutants, contaminants or hazardous or toxic substances, materials
or wastes, whether solid, liquid or gaseous in nature, (iv) Accessibility Laws,
(v) dementia care/assisted facility licensure or (vi) participation in Medicare
or Medicaid programs.

         "Applicable Reserve Percentage" shall mean, with respect to any
Accounting Period, or portion thereof, the greater of $250.00 per year per
licensed bed or living unit located on the Leased Property, prorated for such
Accounting Period and divided by and expressed as a percentage of Total Facility
Revenues for such Accounting Period, or (i) with respect to the period beginning
on the later to occur of the Opening Date or the Commencement Date and ending on
the last day of the twenty-fourth (24th) full Accounting Period next following,
one percent (1%) of Total Facility Revenue; (ii) with respect to the
twenty-fifth (25th) through sixtieth (60th) full Accounting Periods next
following the Opening Date, two percent (2%) of Total Facility Revenue, and,
(iii) with respect to each Accounting Period thereafter, two and five-tenths
percent (2.5%) of Total Facility Revenue.

         "Approved Reserve Estimate" shall have the meaning given such term in
Section 5.2.3.

         "ARC-Related Leases" shall mean, collectively, all present and future
property leases between Landlord or CNL Retirement, or any Affiliated Person of
Landlord or CNL Retirement, as landlord, and Tenant or Guarantor or any
Affiliated Person of Tenant or Guarantor, as tenant.

         "Business Day" shall mean any day other than Saturday, Sunday, or any
other day on which banking institutions in the State are authorized by law or
executive action to close.

         "Calculation Period" shall mean each successive period of four (4)
consecutive Fiscal Quarters commencing with the first Fiscal Quarter following
the acquisition by Landlord of the Leased Property.

         "Cash Available for Lease Payments" shall mean for any Calculation
Period the remainder of (i) Total Facility Revenue for the Leased Property
during such Calculation Period, less (ii) Property Expenses for the Leased
Property for the same Calculation Period.

         "CNL Retirement" shall mean CNL Retirement Properties, Inc., a Maryland
corporation.

         "Code" shall mean the Internal Revenue Code of 1986 and, to the extent
applicable, the Treasury Regulations promulgated thereunder, each as amended
from time to time.

         "Commencement Date" shall mean the date of this Agreement.

         "Condemnation" shall mean (a) the exercise of any governmental power
with respect to the Leased Property, whether by legal proceedings or otherwise,
by a Condemnor of its power of condemnation, (b) a voluntary sale or transfer of
the Leased Property by Landlord to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending, or (c) a
taking or voluntary conveyance of all or part of the Leased Property, or any
interest therein, or right

                                       3
<PAGE>

accruing thereto or use thereof, as the result or in settlement of any
Condemnation or other eminent domain proceeding affecting the Leased Property,
whether or not the same shall have actually been commenced.

         "Condemnor" shall mean any public or quasi-public authority, or Person
having the power of Condemnation.

         "Conflicting Business" shall have the meaning given such term in
Section 4.3.

         "Control" (including the correlative meanings of the terms
"Controlling", "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 policies of such Person
whether through the ownership of voting securities, by contract or otherwise.

         "CRC" shall mean CNL Retirement Corp., a Florida corporation.

         "Default" shall mean any event or condition existing which with the
giving of notice and/or lapse of time would ripen into an Event of Default.

         "Disbursement Rate" shall mean an annual rate of interest equal to the
greater of, as of the date of determination, (i) ten percent (10.00%) and (ii)
the per annum rate for ten (10) year U.S. Treasury Obligations as published in
The Wall Street Journal plus three hundred fifty (350) basis points.

         "Distribution" shall mean (a) any declaration or payment of any
dividend on or in respect of any shares of any class of capital stock of Tenant,
if Tenant is a corporation, or any cash distributions in respect of any
partnership interests or membership interests in Tenant, if Tenant is a
partnership or a limited liability company, (b) any purchase, redemption,
retirement or other acquisition of any shares of any class of capital stock of
Tenant, if Tenant is a corporation, or any purchase, redemption, retirement or
other acquisition of any partnership or membership interests in Tenant, if
Tenant is a partnership or a limited liability company, (c) any other
distribution on or in respect of any shares of any class of capital stock of
Tenant, if Tenant is a corporation, or any other distribution in respect of any
partnership interests or membership interests in Tenant, if Tenant is a
partnership or a limited liability company, or (d) any return of capital to
shareholders of Tenant, if Tenant is a corporation, or any return of capital to
partners of Tenant, if Tenant is a partnership or a limited liability company.

         "Entity" shall mean any corporation, general or limited partnership,
limited liability company, partnership, stock company or association, joint
venture, association, company, trust, bank, trust company, land trust, business
trust, cooperative, any government or agency or political subdivision thereof or
any other entity.

         "Environment" shall mean soil, surface waters, ground waters, land,
streams, sediments, surface or subsurface strata and ambient air.

         "Event of Default" shall have the meaning given such term in Section
12.1.

         "Extended Terms" shall have the meaning given such term in Section 2.4.

                                       4
<PAGE>

        "Facility" shall mean the skilled nursing, assisted living and dementia
care facility located and operated on the Land.

        "Facility Mortgage" shall mean any encumbrance placed upon the Leased
Property as referenced in Article 19.

        "Fiscal Quarter" shall mean the first, second, third and fourth
three-month period (each consisting of three Accounting Periods) during each
Fiscal Year.

        "Fiscal Year" shall mean Tenant's Fiscal Year which as of the
Commencement Date begins on January 1 and ends on December 31 in each calendar
year. Any partial Fiscal Year between the Commencement Date and the commencement
of the first full Fiscal Year (except with respect to the calculation and
payment of Minimum Rent as referenced in Section 3.1 of this Agreement), shall
constitute a separate Fiscal Year. A partial Fiscal Year between the end of the
last full Fiscal Year and the termination of this Agreement shall also
constitute a separate Fiscal Year. If Tenant's Fiscal Year is changed in the
future, appropriate adjustments to this Agreement's reporting and accounting
procedures shall be made; provided, however, that no such change or adjustment
shall alter the Term of this Agreement or in any way reduce the distribution of
Percentage Rent or other payments due hereunder. Each full Fiscal Year shall
consist of twelve Accounting Periods.

        "Force Majeure Event" means any circumstance which is not in the
reasonable control of either party hereto, caused by any of the following:
strikes, lockouts; acts of God; civil commotion; fire or any other casualty;
governmental action; or other similar cause or circumstance which is not in the
reasonable control of either party hereto. Neither lack of financing nor general
economic and/or market factors is a Force Majeure Event.

        "GAAP" shall mean generally accepted accounting principles consistently
applied.

        "Guarantor" shall mean American Retirement Corporation, a Tennessee
corporation ("Guarantor").

        "Government Agencies" shall mean any legislative body, court, agency,
authority, board (including, without limitation, health and long term care,
environmental protection, planning and zoning), bureau, commission, department,
office or instrumentality of any nature whatsoever of any governmental or
quasi-governmental unit of the United States or the State or any county or any
political subdivision of any of the foregoing, whether now or hereafter in
existence, having jurisdiction over Tenant or the Leased Property or any portion
thereof or the skilled nursing, assisted living and dementia care facility
operated thereon.

        "Hazardous Substances" shall mean any substance:

                (a) the presence of which requires or may hereafter require
        notification, investigation or remediation under any federal, state or
        local statute, regulation, rule, ordinance, order, action or policy; or

                (b) which is or becomes defined as a "hazardous waste",
        "hazardous material" or "hazardous substance" or "pollutant" or
        "contaminant" under any present or future federal, state

                                       5
<PAGE>

        or local statute, regulation, rule or ordinance or amendments thereto
        including, without limitation, the Comprehensive Environmental Response,
        Compensation and Liability Act (42 U.S.C. et seq.) and the Resource
        Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.) and the
        regulations promulgated thereunder; or

                (c) which is toxic, explosive, corrosive, flammable, infectious,
        radioactive, carcinogenic, mutagenic or otherwise hazardous and is or
        becomes regulated by any governmental authority, agency, department,
        commission, board, agency or instrumentality of the United States, any
        state of the United States, or any political subdivision thereof; or

                (d) the presence of which on the Leased Property causes or
        materially threatens to cause an unlawful nuisance upon the Leased
        Property or to adjacent properties or poses or materially threatens to
        pose a hazard to the Leased Property or to the health or safety of
        persons on or about the Leased Property; or

                (e) without limitation, which contains gasoline, diesel fuel or
        other petroleum hydrocarbons or volatile organic compounds; or

                (f) without limitation, which contains polychlorinated biphenyls
        (PCBs) or asbestos or urea formaldehyde foam insulation; or

                (g) without limitation, which contains or emits radioactive
        particles, waves or material; or

                (h) without limitation, constitutes materials which are now or
        may hereafter be subject to regulation pursuant to the Material Waste
        Tracking Act of 1988, or any Applicable Laws promulgated by any
        Government Agencies.

        "Immediate Family" shall mean, with respect to any individual, such
individual's spouse, parents, brothers, sisters, children (natural or adopted),
stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law,
sisters-in-law, nephews and nieces.

        "Indebtedness" shall mean all obligations, contingent or otherwise,
which in accordance with GAAP should be reflected on the obligor's balance sheet
as liabilities.

        "Initial Landlord P&E" shall mean and refer to all P&E of any kind or
description which are located on or in the Leased Improvements as of the
Commencement Date, including without limitation those items enumerated on
Exhibit "I" attached hereto and made a part hereof, but specifically excluding
any specific items of Tenant's Personal Property identified on Exhibit "J"
attached hereto and made a part hereof.

        "Initial Term" shall have the meaning given such term in Section 2.3.

        "Insurance Requirements" shall mean all terms of any insurance policy
required by this Agreement and all requirements of the issuer of any such policy
and all orders, rules and regulations and any other requirements of the National
Board of Fire Underwriters (or any other body exercising similar functions)
binding upon Landlord, Tenant or the Leased Property.

                                       6
<PAGE>

        "Inventories" shall mean all inventories, as such term is customarily
used and defined in its most broad and inclusive sense including, but not
limited to, all inventories of food, beverages and other consumables held by
Tenant for sale or use at or from the Leased Property or the Facility, and soap,
cleaning supplies, paper supplies, operating supplies, china, glassware, silver,
linen, uniforms, building and maintenance supplies, spare parts and attic stock,
medical supplies, drugs and all other such goods, wares and merchandise held by
Tenant for sale to or for consumption by residents or patients of the Leased
Property or the Facility and all such other goods returned to or repossessed by
Tenant.

        "Land" shall have the meaning given such term in Section 2.1(a).

        "Landlord" shall have the meaning given such term in the preambles to
this Agreement and shall include its successors and assigns.

        "Landlord's Original Investment" shall mean the sum of Seventeen Million
Eight Hundred Sixty-Five Thousand Three Hundred Seventy-Five and NO/100 Dollars
($17,865,375.00), which represents, for purposes of this Lease, Landlord's total
acquisition and transactional costs incurred in acquiring the Leased Property.

        "Lease" shall mean this Lease Agreement, including all Exhibits hereto,
as it and they may be amended or restated from time to time as herein provided.

        "Lease Year" shall mean any Fiscal Year during the Term and any partial
Fiscal Year at the beginning or end of the Term.

        "Leased Improvements" shall have the meaning given such term in Section
2.1(b).

        "Leased Intangible Property" shall mean all transferable or assignable
(a) governmental permits, including licenses and authorizations, required for
the construction, ownership and operation of the Leased Improvements, including
without limitation, certificates of need, certificates of authority,
certificates of occupancy, building permits, signage permits, site use
approvals, zoning certificates, environmental and land use permits and any and
all necessary approvals from state or local authorities and other approvals
granted by any public body or by any private party pursuant to a recorded
instrument relating to such Leased Improvements or the Land; (b) development
rights, trade names, telephone exchange numbers identified with the Leased
Property, if any (specifically excluding, however, any specific items of
Tenant's Personal Property identified on Exhibit "J" hereto); and (c)
certificates, licenses, warranties and guarantees and contracts other than such
permits, operating permits, certificates, licenses and approvals which are to
held by, or transferred to, the Tenant in order to permit the Tenant to operate
such Leased Improvements properly and in accordance with the terms of this
Agreement.

        "Leased Property" shall have the meaning given such term in Section 2.1.

        "Legal Requirements" shall mean all federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting the Leased Property or the
maintenance, construction, alteration or operation thereof, whether now or
hereafter enacted or in existence, including, without limitation, (a) all
permits, licenses, authorizations,

                                       7
<PAGE>

certificates and regulations necessary to operate the Leased Property for its
Permitted Use, (b) all covenants, agreements, declarations, restrictions and
encumbrances contained in any instruments at any time in force affecting the
Leased Property or to which Tenant has consented or which are required to be
granted pursuant to Applicable Laws, including those which may (i) require
material repairs, modifications or alterations in or to the Leased Property or
(ii) in any way materially and adversely affect the use and enjoyment thereof,
but excluding any requirements arising as a result of Landlord's status as a
real estate investment trust, and (c) Applicable Laws.

        "Lien" shall mean any mortgage, security interest, pledge, collateral
assignment, or other encumbrance, lien or charge of any kind, or any transfer of
property or assets for the payment of Indebtedness or performance of any other
obligation in priority to payment of the obligor's general creditors.

        "Major Alterations" shall have the meaning given such term in Section
6.2.2.

        "Major Violation" shall mean any violation of Applicable Laws relating
to the use, operation or maintenance of the Facility or to the care of residents
which presents an imminent danger to the residents or guests of the Facility or
a substantial probability that death or serious harm would result therefrom.

        "Minimum Rent" shall mean annual rent as set forth in Section 3.2,
subject to prorations and adjustments as set forth in Section 3.2.

        "Minimum Rent Coverage" shall mean the quotient, expressed as a ratio,
of (i) the total Cash Available for Lease Payments during the Calculation Period
divided by the (ii) total Minimum Rent paid under this Agreement for the Leased
Property during such Calculation Period.

        "Minor Alterations" shall have the meaning given such term in Section
6.2.1.

        "Mortgagee" shall mean the holder of any Facility Mortgage.

        "Notice" shall mean a notice given in accordance with Section 21.10.

        "Opening Date" shall mean the date on which the Facility first opened
for business to the general public.

        "Overdue Rate" shall mean, on any date, a per annum rate of interest
equal to the lesser of (i) fifteen percent (15%) or (ii) the maximum rate then
permitted under applicable law.

        "P&E" shall mean all items of personal property, as defined under the
Model Uniform Commercial Code, including, but not limited to: (a) all equipment,
machinery, fixtures, and other items of property, now or hereafter 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, all of
which, to the maximum extent permitted by law, are hereby deemed by the parties
hereto to constitute real estate, together with all replacements, modifications,
alterations and additions

                                       8
<PAGE>

thereto; (b) all furniture, furnishings, movable walls or partitions, computers
or trade fixtures or other personal property of any kind or description used or
useful in Tenant's business on or in the Leased Improvements, and located on or
in the Leased Improvements, and all modifications, replacements, alterations and
additions to such personal property; (c) all linen, china, glassware, tableware,
uniforms and similar items, whether used in connection with public space or
tenant rooms; and (d) "Property and Equipment," "P&E," and "FF&E" (as such terms
are customarily used and defined in the most broad and inclusive sense), as well
as all other items included within the category of Inventory; and all including,
without limitation, the Initial Landlord P&E, but not including, however, any
item of Tenant's Personal Property identified in Exhibit "J" hereto.

        "P&E Replacements" shall mean all items purchased with funds from the
Reserve established under Article 5 of this Lease and all other items of P&E
added and used at the Leased Property during the Term of this Lease, together
with all leasehold improvements made by Tenant during the Term of this Lease to
the extent not constituting real property affixed to the Land, whether purchased
from the Reserve or with other funds of Tenant, all subject to disposal and
further replacement at the end of their useful lives.

        "Parent" shall mean, with respect to any Person, any Person which
directly, or indirectly through one or more Subsidiaries or Affiliated Persons,
(i) owns more than fifty percent (50%) of the voting or beneficial interest in,
or (ii) otherwise has the right or power (whether by contract, through ownership
of securities or otherwise) to control, such Person.

        "Percentage Rent" shall have the meaning given such term in Section 3.3.

        "Permits" means all licenses, permits and certificates used or useful in
connection with the ownership, operation, use or occupancy of the Leased
Property or the Facility, including, without limitation, business licenses,
state department of public health and environment licenses, licenses required by
long term care facilities, licenses required by personal care boarding homes,
food service licenses, licenses to conduct business, certificates of need and
all such other permits, licenses and rights, obtained from any governmental,
quasi-governmental or private person or entity whatsoever.

        "Permitted Encumbrances" shall mean all rights, restrictions, and
easements of record set forth on Schedule B to the applicable owner's title
insurance policy issued to Landlord for the Land, plus any other such
encumbrances as may have been consented to in writing by Landlord from time to
time.

        "Permitted Renovations" shall have the meaning given that term in
Section 6.2.

        "Permitted Use" shall mean any use of the Leased Property permitted
pursuant to Section 4.1.1.

        "Person" shall mean any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.

        "Property Expenses" shall mean those expenses more particularly
described on Exhibit "H" attached hereto.

        "Proscribed Area" shall have the meaning given such term in Section 4.3.

                                       9
<PAGE>

        "Reimbursement Contracts" means all third party reimbursement contracts
for the Facility which are now or hereafter in effect with respect to residents
or patients qualifying for coverage under the same, including private insurance
agreements, Medicare and Medicaid and any successor program or other similar
reimbursement program and/or private insurance agreements.

        "Rent" shall mean, collectively, Minimum Rent, Percentage Rent and
Additional Rent.

        "Reserve" shall have the meaning given such term in Section 5.2.

        "Reserve Estimate" shall have the meaning given such term in Section
5.2.

        "Reserve Expenditures" shall have the meaning given such term in Section
5.2.

        "SEC" shall mean the Securities and Exchange Commission.

        "Security Deposit" shall have the meaning given such term in Section
3.10.

        "Shortfall" shall mean, for any Accounting Period, the amount, if any,
by which (i) all Minimum Rent paid by Tenant (or payable pursuant to the terms
of this Agreement, whichever is greater) plus all Property Expenses paid during
such Accounting Period, exceeds (ii) the total amount of Total Facility Revenue
derived from the Leased Property during such Accounting Period. The Shortfall
for any Accounting Period shall in no event be less than zero.

        "Shortfall Amount Funded" shall mean, for any period, the cumulative
amount of any and all Shortfalls funded by or on behalf of Tenant during such
period.

        "Shortfall Forecast" shall mean, for each Calculation Period beginning
during the Term of the Lease until such time, if ever, as the Shortfall Reserve
Requirement shall no longer apply, the cumulative sum of any and all forecasted
Shortfalls as estimated in good faith and certified to Landlord by Tenant and
approved by Landlord for such Calculation Period in accordance with Section 3.9.

        "Shortfall Reserve Period" shall mean the period commencing with the
Commencement Date and ending only at such time as the Shortfall Reserve
Requirement is no longer applicable as provided in Section 3.9.

        "Shortfall Reserve Requirement" shall at any time mean the greater of
(a) one hundred and twenty-five percent (125%) of the Shortfall Forecast, if
any, for the then current and following three (3) Fiscal Quarters (calculated as
of the commencement of the then-current Fiscal Quarter), less the amount of any
Shortfall Amount Funded during the current Fiscal Quarter; or (b) three hundred
percent (300%) of the Shortfall, if any, during the most recent Accounting
Period.

        "Single Purpose Entity" shall have the meaning given such term in
Exhibit "F" attached hereto.

        "State" shall mean the State in which the Facility is located.

        "Subsidiary" shall mean, with respect to any Person, any Entity in which
such Person directly, or indirectly through one or more Subsidiaries or
Affiliated Persons, (a) owns more than fifty percent

                                       10
<PAGE>

(50%) of the voting or beneficial interest or (b) which such Person otherwise
has the right or power to control (whether by contract, through ownership of
securities or otherwise).

        "Tax and Insurance Account" shall have the meaning given such term in
Section 8.3.

        "Tax and Insurance Escrow Amount" shall have the meaning given such term
in Section 8.3.

        "Tenant" shall be the entity identified in the preamble to this
Agreement and shall include its successors and assigns expressly permitted
hereunder.

        "Tenant Shortfall Reserve" shall have the meaning given such term in
Section 3.9.

        "Tenant's Personal Property" shall mean any specific items of P&E listed
in Exhibit "J" to this Lease, or replacements for such items or items within any
specific categories of P&E listed in Exhibit "J" to this Lease which hereafter
are acquired by Tenant with its own funds after the Commencement Date and
located at the Leased Property (but not including any property purchased with
funds from the Reserve established under Section 5.2).

        "Term" shall mean, collectively, the Initial Term and the Extended
Terms, unless sooner terminated pursuant to the provisions of this Agreement.

        "Threshold" shall mean the sum of Total Facility Revenue for the twelve
(12) Accounting Periods ending on the end of the thirty-sixth (36th) full
Accounting Period following the Commencement Date.

        "Total Facility Revenue" shall mean, for the applicable period of time,
but without duplication, all gross revenues and receipts of every kind derived
by or for the benefit of Tenant, or its Affiliated Persons from operating or
causing the operation of the Leased Property and all parts thereof, including,
but not limited to: income from both cash and credit transactions (after
reasonable deductions for bad debts and discounts for prompt or cash payments
and refunds) from rental or subleasing of every kind; entrance fees, fees for
health care and personal care services, license, lease and concession fees and
rentals, off premises catering, if any, and parking (not including gross
receipts of licensees, lessees and concessionaires); income from vending
machines; health club membership fees; food and beverage sales; wholesale and
retail sales of merchandise (other than proceeds from the sale of furnishings,
fixtures and equipment no longer necessary to the operation of the Facility,
which shall be deposited in the Reserve) and service charges, to the extent not
distributed to employees at the Facility as gratuities; provided, however, that
Total Facility Revenue shall not include the following: gratuities to Facility
employees; federal, state or municipal excise, sales, occupancy, use or similar
taxes collected directly from residents or included as part of the sales price
of any goods or services; insurance proceeds; any proceeds from any sale of the
Leased Property or from the refinancing of any debt encumbering the Leased
Property; proceeds from the disposition of furnishings, fixture and equipment no
longer necessary for the operation of the Facility; and interest which accrues
on amounts deposited in the Reserve.

        "Unsuitable for Its Permitted Use" shall mean a state or condition of
the Leased Property such that following any damage or destruction involving the
Leased Property, the Leased Property cannot be operated in the reasonable
judgement of Landlord (after conferring with Tenant) on a commercially

                                       11
<PAGE>

practicable basis for its Permitted Use and it cannot reasonably be expected to
be restored to substantially the same condition as existed before such damage or
destruction and as is otherwise required by Article 12 within (i) twelve (12)
months following such damage or destruction, or (ii) eighteen (18) months
following such damage or destruction in the event that Tenant has extended the
term of the business income insurance to pay at least eighteen (18) months Rent
for the benefit of Landlord or provides other reasonably acceptable security for
any uninsured portion of the eighteen (18) months Rent.

                                   ARTICLE 2

                            LEASED PROPERTY AND TERM

        2.1 Leased Property. Upon and subject to the terms and conditions
hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord all of Landlord's right, title and interest in and to all of the
following (collectively, the "Leased Property"):

                (a) all that certain tract, piece and parcel of land, as more
        particularly described in Exhibit "A", attached hereto and made a part
        hereof (the "Land");

                (b) the Facility, all buildings, structures and other
        improvements of every kind, including without limitation all roofs,
        plumbing systems, electric systems and HVAC systems, roadways,
        alleyways, parking areas, sidewalks, curbs, connecting tunnels, utility
        pipes, conduits and lines (on-site and off-site) appurtenant to or
        presently situated upon the Land (collectively, the "Leased
        Improvements");

                (c) all easements, rights and appurtenances relating to the Land
        and the Leased Improvements;

                (d) all P&E and Inventory;

                (e) all moveable machinery, equipment, furniture, furnishings,
        moveable walls or partitions, computers or trade fixtures located on or
        in the Leased Improvements, and all modifications, replacements,
        alterations and additions to such property, but specifically excluding
        all items included within the category of Tenant's Personal Property;

                (f) all of the Leased Intangible Property;

                (g) any and all subleases of space in the Leased Improvements to
        subtenants thereof; and

                (h) All other property and interests in property conveyed or
        assigned to Landlord pursuant to the Real Estate Purchase and Sale
        Agreement governing the sale and conveyance of the Leased Property from
        Guarantor to Landlord dated as of February 11, 2002 (the "Purchase
        Agreement").

                                       12
<PAGE>

        2.2 Condition of Leased Property. Tenant acknowledges and agrees that
the Leased Property is and shall be leased by Landlord to Tenant and from
Landlord by Tenant in its present "as is" condition, subject to the existing
state of title and all applicable legal or governmental requirements, and
Landlord makes absolutely no representations or warranties whatsoever with
respect to the Leased Property or the condition thereof. Tenant acknowledges
that Landlord has not investigated and does not warrant or represent to Tenant
that the Leased Property is fit for the purposes intended by Tenant or for any
other purpose or purposes whatsoever, and Tenant acknowledges that the Leased
Property is to be leased to Tenant in its existing condition, i.e., "as-is", and
"where-is", without any representation or warranty as to habitability or fitness
for any particular purpose, on and as of the Commencement Date. Tenant
represents and acknowledges that all permits, licenses and approvals required by
any governmental or quasi-governmental, body, department, commission, board,
bureau, instrumentality or officer, or otherwise appropriate with respect to the
construction, operation, leasing, maintenance or use of the Leased Property or
any part thereof, have been issued, are past all appeals periods and are valid
and in full force and effect and that no provision, condition or limitation of
any of the same has been breached or violated. Tenant acknowledges that Tenant
shall be solely responsible for any and all actions, repairs, permits, approvals
and costs required for the rehabilitation, renovation, use, occupancy and
operation of the Leased Property in accordance with applicable governmental
requirements, foreseen or unforeseen, including, without limitation, all
governmental charges and fees, if any, which may be due or payable to applicable
authorities. Tenant agrees that, by leasing the Leased Property, Tenant warrants
and represents that Tenant has examined and approved all things concerning the
Leased Property which Tenant deems material to Tenant's leasing and use of the
Leased Property. Tenant further acknowledges and agrees that (a) neither
Landlord nor any agent of Landlord has made any representation or warranty,
express or implied, concerning the Leased Property or which have induced Tenant
to execute this Agreement and (b) any other representations and warranties are
expressly disclaimed by Landlord.

        2.3 Initial Term. The initial term of this Agreement (the "Initial
Term") shall commence on the Commencement Date and shall terminate and expire at
11:59 p.m. on the last calendar day of the month on which the fifteenth (15th)
annual anniversary of the Commencement Date shall occur.

        2.4 Extended Term. Tenant shall have and is hereby granted two (2)
option(s) to extend this Agreement for an additional five (5) years each
(individually an "Extended Term"), upon the same terms, covenants, conditions
and rental as set forth herein; provided there exists no continuing Event of
Default hereunder, or Default which Tenant has had an opportunity but failed to
cure as provided hereunder, during any applicable cure hereunder at the
commencement of the respective Extended Term. Tenant may exercise each such five
(5) year option successively by giving written notice to Landlord not less than
twelve (12) months nor more than eighteen (18) months prior to the respective
expiration of the Initial Term of this Agreement or of the then applicable
Extended Term. Should Tenant fail to give Landlord such timely written notice
during the required period, all remaining rights of renewal shall automatically
expire.

        2.5 Yield Up. Tenant shall, on or before the last day of the Term or
upon the sooner termination thereof, peaceably and quietly surrender and deliver
to Landlord the Leased Property, including, without limitation, all Leased
Improvements and P&E and all additions thereto and replacements thereof made
from time to time during the Term, together with and including without
limitation the P&E Replacements, in good order, condition and repair, reasonable
wear and tear

                                       13
<PAGE>

excepted, and free and clear of all liens and encumbrances (other than Permitted
Encumbrances, liens or encumbrances in favor of or granted by Landlord, and any
other encumbrances expressly permitted under the terms of this Agreement).
Tenant acknowledges that both the Initial Landlord P&E described on Exhibit "I"
attached hereto and consumable items of Inventory located at the Leased Property
as of the Commencement Date may be completely consumed and/or otherwise disposed
of in the course of operation of the Leased Property during the Term of this
Agreement. Tenant agrees that, at the expiration or earlier termination of this
Agreement, at Landlord's option: (i) Tenant shall fully restore the Initial
Landlord P&E, inclusive with and after consideration of all P&E Replacements
which will become the property of Landlord, to at least the approximate types
and amounts (with reasonably equivalent value) as shown on Exhibit "I", and
shall fully restore an adequate supply of Inventory consistent with the full
stocking levels to be maintained by Tenant pursuant to Section 4.6 of this Lease
(or a full thirty days supply, which ever is greater), or (ii) Landlord shall
deduct the then-current value of amounts needed to fully restore the required
P&E and Inventory, as aforesaid, to the extent that this sum exceeds the Reserve
amount to be transferred to Landlord under Section 5.2.6 hereof, from the
Security Deposit.

                                   ARTICLE 3

                                      RENT

        3.1 Rent. Tenant shall pay, in lawful money of the United States of
America which shall be legal tender for the payment of public and private debts,
without offset, abatement, demand or deduction (unless otherwise expressly
provided in this Agreement), Rent to Landlord during the Term at the address to
which notices to Landlord are to be given or to such other party or to such
other address as Landlord may designate from time to time by written notice to
Tenant. All payments to Landlord shall be made by wire transfer of immediately
available federal funds or by other means acceptable to Landlord in its sole
discretion and all such payments shall, upon receipt by Landlord, be and remain
the sole and absolute property of Landlord. If Landlord shall at any time accept
any such Rent or other sums after the same shall become due and payable, or any
partial payment of Rent, such acceptance shall not excuse a delay upon
subsequent occasions, or constitute or be construed as a waiver of any of
Landlord's rights hereunder.

        3.2 Minimum Rent. Tenant shall pay annual base minimum rent ("Minimum
Rent") to Landlord in equal installments in advance, on the first (1st) Business
Day of each Accounting Period; provided, however, that the first payment of
Minimum Rent shall be payable on the Commencement Date. Further, if applicable,
the first payment of Minimum Rent and the last payment of Minimum Rent shall be
prorated on a per diem basis provided, however, that for purposes of Minimum
Rent, any prorated payment for any partial Accounting Period prior to the first
full Accounting Period shall be prorated based upon the installment of Minimum
Rent payable for the first full Accounting Period, and any prorated Rent at the
end of the Term shall be prorated based upon the installment of Minimum Rent
payable for the last full Accounting Period.

                3.2.1 Calculation of Initial Term Minimum Rent. Subject to
        proration as set forth above, Tenant shall pay Minimum Rent during each
        Accounting Year of the Initial Term of this Agreement in the amounts set
        forth on Exhibit "B" attached hereto and made a part hereof.

                                       14
<PAGE>

                3.2.2 Calculation of Extended Term Minimum Rent. Subject to
        proration as set forth above, Tenant shall pay Minimum Rent under this
        Agreement during the first Accounting Year of each Extended Term in an
        amount equal to the greater of:

                        (a) two and five-tenths percent (2.5%) over the amount
                of Minimum Rent due in the immediately preceding Accounting
                Year; or

                        (b) the product of the fair market value of the Leased
                Property on the date of Tenant's Notice of exercise pursuant to
                Section 2.4, times ten percent (10.00%).

        Minimum Rent for each Accounting Year after the first Accounting Year in
        an Extended Term shall increase by two percent (2%) over the amount of
        Minimum Rent due in the immediately preceding Accounting Year.

        If within ten (10) days of the date of Tenant's Notice of exercise
        pursuant to Section 2.4, Landlord and Tenant are unable to agree on the
        fair market value of the Premises for purposes of this calculation, such
        fair market value shall be established by the appraisal process
        described on Exhibit "C" attached hereto. Landlord and Tenant
        acknowledge and agree that this Section is designed to establish a fair
        market Minimum Rent for the Leased Property during each applicable
        Extended Term. In the event that the Minimum Rent for the applicable
        Extended Term is not finally determined by such appraisal process prior
        to the commencement of the Extended Term, then in such event until such
        amount is finally determined the Tenant shall pay to Landlord as
        "Interim Rent" for the Extended Term an amount equal to one hundred
        twenty-five percent (125%) of the established Minimum Rent as of the end
        of the Accounting Year immediately preceding the Extended Term until
        such appraisal process and any dispute relating thereto is finally
        resolved. In such an event, the amount of any differential between the
        Interim Rent and Minimum Rent established shall, if resulting in an
        underpayment, be paid by Tenant to Landlord within fifteen (15) days, or
        if resulting in an overpayment be credited by Landlord against the next
        installment(s) of Rent coming due hereunder.

        3.3 Percentage Rent. In addition to and not in lieu of Minimum Rent,
Tenant shall pay percentage rent ("Percentage Rent") to Landlord for each Fiscal
Year or portion thereof. Installments of Percentage Rent shall be due and
payable in arrears within thirty (30) days after the end of each Fiscal Quarter
of the Term hereof, based upon Total Facility Revenue for such Fiscal Quarter
and an allocation of one-quarter of the Threshold amount to each such Fiscal
Quarter; provided, however, that no Percentage Rent shall be payable hereunder
with respect to the initial portion of the Term ending on the end of the
thirty-sixth (36th) full Accounting Period following the Commencement Date.
Along with each Percentage Rent payment Tenant shall submit to Landlord an
unaudited (but certified by a duly authorized officer of Tenant) statement
showing a detailed breakdown of the calculation of Percentage Rent for that
Fiscal Quarter and Fiscal Year-to-date on a cumulative basis. Percentage Rent
for any partial Fiscal Quarter in the final Fiscal Year shall be prorated
proportionately. Tenant's obligation to pay Percentage Rent for the Fiscal
Quarter which includes the date of termination of this Agreement shall survive
the termination hereof.

                3.3.1 Calculation of Percentage Rent. Subject to proration as
        set forth above, Tenant shall pay Percentage Rent in respect of each
        Fiscal Year under this Agreement equal to (a) ten percent (10%) of the
        Total Facility Revenue for such Fiscal Year in excess of the Threshold,

                                       15
<PAGE>

        less (b) the amount by which annual Minimum Rent in the Fiscal Year for
        which Percentage Rent is being calculated exceeds the amount of annual
        Minimum Rent due for the first (1st) Accounting Year under this
        Agreement.

                3.3.2 Annual Reconciliation of Percentage Rent. Tenant shall, no
        later than ninety (90) days following the end of each Fiscal Year during
        the Term hereof furnish to Landlord for such Fiscal Year a complete
        statement (the "Annual Operations Statement") certified true and correct
        by the Chief Financial Officer of Tenant and the Chief Financial Officer
        of the Guarantor, setting forth, with respect to such Fiscal Year in
        reasonable detail the Total Facility Revenue derived by or for the
        benefit of Tenant in respect of such Fiscal Year. If the Annual
        Operations Statement for any Fiscal Year indicates that the aggregate of
        the installment payments theretofore made with respect to such Fiscal
        Year pursuant to Section 3.3.1 exceeds the Percentage Rent due for such
        Fiscal Year, Landlord shall credit such overpayment against the next
        installment or installments of Minimum Rent falling due (or will pay the
        amount of such overpayment to Tenant if this Agreement shall have
        terminated other than by reason of Tenant's default or if Landlord so
        elects to do so). If, on the other hand, the Annual Operations Statement
        indicates that the aggregate of the installment payments theretofore
        made with respect to such Fiscal Year is less than the Percentage Rent
        due for such Fiscal Year then Tenant shall pay the balance or excess, as
        the case may be, together with interest thereon determined as set forth
        below in this paragraph, to Landlord concurrently with the submission of
        the Annual Operations Statement. Interest shall accrue on payments
        pursuant to this paragraph at the Disbursement Rate from the date when
        first due and payable until the date when the adjusted amount is fully
        paid in the manner as set forth above, except to the extent of de
        minimus adjustments of not more than ten percent (10%) of the amount
        initially paid resulting from the calculation method used or
        unintentional errors which could not reasonably have been avoided by
        reasonable care and diligence.

                3.3.3 Landlord Audit of Annual Operations Statement.
        Notwithstanding the foregoing, Landlord at its own expense, except as
        provided hereinbelow, shall have the right, exercisable by Notice to
        Tenant given within 270 days after receipt of the applicable Annual
        Operations Statement, by its accountants or representatives, to commence
        within such 270 day period an audit of the information set forth in such
        Annual Operations Statement and, in connection with such audit, to
        examine all of Tenant's books and records with respect thereto
        (including supporting data and sales and excise tax returns); provided,
        however, if Landlord reasonably believes Tenant has intentionally
        misrepresented Total Facility Revenue on any such Annual Operations
        Statement, the said 270 day period shall commence to run on the date
        Landlord obtains credible evidence that Tenant has intentionally
        misrepresented Total Facility Revenue on any such Annual Operations
        Statement. If Landlord does not commence an audit with such 270 day
        period, such Annual Operations Statement shall be deemed to be accepted
        by Landlord as correct. Landlord shall use commercially reasonable
        efforts to complete any such audit as soon as practicable. If such audit
        discloses a deficiency in the payment of Percentage Rent, Tenant shall
        forthwith pay to Landlord the amount of the deficiency, together with
        interest at the Disbursement Rate from the date such payment should have
        been made to the date of payment therefore. If such deficiency is more
        than three percent (3%) of the Total Facility Revenue reported by Tenant
        for such Fiscal Year, Tenant shall also pay the costs of such audit and
        examination.

                                       16
<PAGE>

        3.4 Additional Charges. In addition to the Minimum Rent and Percentage
Rent payable hereunder, Tenant shall pay to the appropriate parties and
discharge as and when due and payable hereunder the following (collectively the
"Additional Charges"):

                3.4.1 Taxes and Assessments. Tenant shall pay or cause to be
        paid all taxes and assessments required to be paid pursuant to Article
        8.

                3.4.2 Utility Charges. Tenant shall be liable for and shall
        promptly pay directly to the utility company all deposits, charges and
        fees (together with any applicable taxes or assessments thereon) when
        due for water, gas, electricity, air conditioning, heat, septic, sewer,
        refuse collection, telephone and any other utility charges, impact fees,
        or similar items in connection with the use or occupancy of the Leased
        Property. Landlord shall not be responsible or liable in any way
        whatsoever for the quality, quantity, impairment, interruption,
        stoppage, or other interference with any utility service, including,
        without limitation, water, air conditioning, heat, gas, electric current
        for light and power, telephone, or any other utility service provided to
        or serving the Leased Property. No interruption, termination or
        cessation of utility services shall relieve Tenant of its duties and
        obligations pursuant to this Agreement, including, without limitation,
        its obligation to pay all Rent as and when the same shall be due
        hereunder.

                3.4.3 Insurance Premiums. Tenant shall pay or cause to be paid
        all premiums for the insurance coverage required to be maintained
        pursuant to Article 9.

                3.4.4 Licenses and Permits. Tenant shall pay or cause to be paid
        all fees, dues and charges of any kind which are necessary in order to
        acquire and keep in effect and good standing all licenses and permits
        required for operation of the Leased Property in accordance with the
        terms of Article 4.

                3.4.5 Sales Tax. Simultaneously with each payment of Rent and
        Additional Charges hereunder, Tenant shall pay to Landlord the amount of
        any applicable sales, use, excise or similar or other tax on any such
        Rent and Additional Charges, whether the same be levied, imposed or
        assessed by the State in which the Leased Property is located or any
        Governmental Agencies, but specifically excluding any income taxes
        imposed on Landlord's net income. Landlord shall, upon written request
        by Tenant, provide to Tenant on an annual basis such reasonable
        information in Landlord's possession or control as shall be necessary to
        enable Tenant to pay such tax.

                3.4.6 Other Charges. Tenant shall pay or cause to be paid all
        other amounts, liabilities and obligations arising in connection with
        the Leased Property except those obligations expressly stated not to be
        an obligation of Tenant pursuant to this Agreement.

                3.4.7 Penalties and Interest. Tenant shall pay or cause to be
        paid every fine, penalty, interest and cost which may be added for
        non-payment or late payment of the items referenced in this Section 3.4.

                                       17
<PAGE>

        Tenant shall prepare and file at its expense, to the extent required or
permitted by Applicable Laws, all tax returns and other reports in respect of
any Additional Charge as may be required by Governmental Agencies.

        3.5 Landlord Advances. Except as specifically provided otherwise in this
Agreement, if Tenant does not pay or discharge all Additional Charges, and
provide proof of payment if requested by Landlord, at least fifteen (15) days
prior to delinquency, Landlord shall have the right but not the obligation to
pay such Additional Charges on behalf of Tenant. If Landlord shall make any such
expenditure for which Tenant is responsible or liable under this Agreement, or
if Tenant shall become obligated to Landlord under this Agreement for any other
sum besides Minimum Rent or Percentage Rent as hereinabove provided, the amount
thereof shall be deemed to constitute "Additional Rent" and shall be due and
payable by Tenant to Landlord, together with interest at the Overdue Rate and
all applicable sales or other taxes thereon, if any, simultaneously with the
next succeeding monthly installment of Minimum Rent or at such other time as may
be expressly provided in this Agreement for the payment of the same.

        3.6 Late Payment of Rent. If Tenant fails to make any payment of Rent on
or before the fifth business day after the date such payment is due and payable,
Tenant shall pay to Landlord an administrative late charge of five percent (5%)
of the amount of such payment. In addition, such past due payment shall bear
interest at the Overdue Rate from the date first due until paid. Such late
charge and interest shall constitute Additional Rent and shall be due and
payable with the next installment of Rent due hereunder.

        3.7 Net Lease. Landlord and Tenant acknowledge and agree that both
parties intend that this Agreement shall be and constitute what is generally
referred to in the real estate industry as a "triple net" or "absolute net"
lease, such that Tenant shall be obligated hereunder to pay all costs and
expenses incurred with respect to, and associated with, the Leased Property and
all personal property thereon and therein and the business operated thereon and
therein, including, without limitation, all taxes and assessments, utility
charges, insurance costs, maintenance costs and repair, replacement and
restoration expenses (all as more particularly herein provided), together with
any and all other assessments, charges, costs and expenses of any kind or nature
whatsoever related to, or associated with, the Leased Property and the business
operated thereon and therein, other than Landlord's financing costs and expenses
and related debt service; provided, however, that Landlord shall nonetheless be
obligated to pay Landlord's personal income taxes with respect to the Rent and
other amounts received by Landlord under this Agreement. Except as expressly
hereinabove provided, Landlord shall bear no cost or expense of any type or
nature with respect to, or associated with, the Leased Property. Except to the
extent otherwise expressly provided in this Agreement, it is agreed and intended
that Rent payable hereunder by Tenant shall be paid without notice, demand,
counterclaim, set-off, deduction or defense and without abatement, suspension,
deferment, diminution or reduction and that Tenant's obligation to pay Rent
throughout the Term and any applicable Extended Term is absolute and
unconditional and the respective obligations and liabilities of Tenant and
Landlord hereunder shall in no way be released, discharged or otherwise affected
for any reason, including without limitation: (a) any defect in the condition,
merchantability, design, quality or fitness for use of the Leased Property or
any part thereof, or the failure of the Leased Property to comply with
Applicable Laws, including any inability to occupy or use the Leased Property by
reason of such non-compliance; (b) any damage to, removal, abandonment, salvage,
loss, condemnation, theft, scrapping or destruction of or any requisition or

                                       18
<PAGE>

taking of the Leased Property or any part thereof, or any environmental
condition on the Leased Property or any property in the vicinity of the Leased
Property; (c) any restriction, prevention or curtailment of or interference with
any use of the Leased Property or any part thereof, including eviction; (d) any
defect in title to or rights to the Leased Property or any lien on such title or
rights to the Leased Property; (e) any change, waiver, extension, indulgence or
other action or omission or breach in respect of any obligation or liability of
or by any Person; (f) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceedings relating to
Tenant or any other Person or any action taken with respect to this Agreement by
any trustee or receiver of Tenant or any other Person or by any court, in any
such proceedings; (g) any right or claim that Tenant has or might have against
any Person, including, without limitation, Landlord or any vendor, manufacturer
or contractor of or for the Leased Property (other than a claim resulting from
any willful misconduct or gross negligence of Landlord); (h) any failure on the
part of Landlord or any other Person to perform or comply with any of the terms
of this Agreement, or of any other agreement; (i) any invalidity,
unenforceability, rejection or disaffirmance of this Agreement by operation of
law or otherwise against or by Tenant or any provision hereof; (j) the
impossibility of performance by Tenant or Landlord, or both; (k) any action by
any court, administrative agency or other Government Agencies; (l) any
interference, interruption or cessation in the use, possession or quiet
enjoyment of the Leased Property or otherwise; or (m) any other occurrence
whatsoever whether similar or dissimilar to the foregoing, whether foreseeable
or unforeseeable, and whether or not Tenant shall have notice or knowledge of
any of the foregoing. Except as specifically set forth in this Agreement, this
Agreement shall be non-cancellable by Tenant for any reason whatsoever and,
except as expressly provided in this Agreement Tenant, to the extent now or
hereafter permitted by Applicable Laws, waives all rights now or hereafter
conferred by statute or otherwise to quit, terminate or surrender this Agreement
or to any diminution, abatement or reduction of Rent payable hereunder. Except
as specifically set forth in this Agreement, under no circumstances or
conditions shall Landlord be expected or required to make any payment of any
kind hereunder or have any obligations with respect to the use, possession,
control, maintenance, alteration, rebuilding, replacing, repair, restoration or
operation of all or any part of the Leased Property, so long as the Leased
Property or any part thereof is subject to this Agreement, and Tenant expressly
waives the right to perform any such action at the expense of Landlord pursuant
to any law.

        3.8 No Abatement of Rent. No abatement, diminution or reduction (a) of
Rent, charges or other compensation, or (b) of Tenant's other obligations
hereunder shall be allowed to Tenant or any person claiming under Tenant, under
any circumstances or for any reason whatsoever and to the maximum extent
permitted by law, Tenant hereby waives the application of any local or state
statutes, land rules, regulations or ordinance providing to the contrary.

        3.9 Tenant Shortfall Reserve Requirement. Tenant shall, commencing with
the Commencement Date and at all times required by this Section 3.9, maintain a
minimum liquid net worth (i.e., a net worth in cash or other available cash
equivalent funds of Tenant, and not of any other Person, acceptable to and
approved by Landlord and maintained in such bank accounts or other investments
or accounts as are approved in advance by Landlord) at all times equal to the
amount of the Shortfall Reserve Requirement (the "Tenant Shortfall Reserve").
Subject to the rights and security interests of Landlord as provided herein, the
Tenant shall continue to be the owner of and shall be entitled to all interest,
proceeds and profits of the Tenant Shortfall Reserve. For purposes hereof the

                                       19
<PAGE>

initial amount of the Tenant Shortfall Reserve has been established by the
parties as One Hundred Ninety-Seven Thousand Eight Hundred Seventeen and No/100
Dollars ($197,817.00).

                3.9.1 Disbursements from the Shortfall Reserve. Provided that no
        uncured Default shall exist and the Lease is in good standing in all
        respects, and Landlord has approved and verified in its reasonable
        discretion the most recently updated Shortfall Reserve Requirement and
        the existence and amount of the Tenant Shortfall Reserve:

                        (a) Tenant may, from time to time and at its option,
                withdraw or disburse sums from the Shortfall Reserve to cover
                (or reimburse Tenant or its designee for) Shortfall Amounts
                Funded since the commencement of the then-current Fiscal Quarter
                so long as (a) contemporaneously with such withdrawal or
                disbursement Tenant delivers written notice thereof to Landlord,
                and (b) the withdrawal or disbursement of funds does not cause
                the amount of the Tenant Shortfall Reserve to fall below the
                Shortfall Reserve Requirement; and

                        (b) any amount of the Tenant Shortfall Reserve in excess
                of the Shortfall Reserve Requirement, as determined hereunder,
                may be withdrawn by Tenant at any time so long as Tenant
                provides contemporaneous written notice of such withdrawal to
                Landlord.

                3.9.2 Reporting and Calculation of the Shortfall Reserve
        Requirement. Throughout the Shortfall Reserve Period, in addition to
        other financial information to be reported to Landlord hereunder Tenant
        shall provide to Landlord, on or before the tenth (10th) day of each
        Accounting Period, updated evidence of the existence and amount of the
        Tenant Shortfall Reserve as herein required, as of the last day of the
        prior Accounting Period, in the form of bank account ledgers and
        statements, together with (a) a statement, certified by the Chief
        Financial Officer of Tenant, of the amount of the Shortfall for the
        immediately preceding Accounting Period and the Shortfall Reserve
        Requirement amount as of the first day of the current Accounting Period
        as calculated by Tenant; (b) evidence that the Tenant Shortfall Reserve
        has been increased, if necessary, to equal the full amount of the
        updated Shortfall Reserve Requirement; and (c) such other documentation
        reasonably requested by Landlord to evidence the foregoing. In addition,
        no more than twenty (20) and not less than ten (10) days prior to the
        commencement of each Fiscal Quarter during the Shortfall Reserve Period
        the Tenant shall provide to Landlord an updated pro forma income
        statement/revenue and expense budget for the following four Fiscal
        Quarters, prepared on a cash basis, all in a form approved in writing by
        Landlord as sufficient to provide a reasonable Shortfall Forecast of
        potential Shortfalls during such Calculation Period.

                3.9.3 Term of the Shortfall Reserve Requirement. The Tenant
        Shortfall Reserve Requirement shall remain in full force and effect
        until the earlier to occur of (a) the last day of the first Calculation
        Period during which the Minimum Rent Coverage averages 1.10 to 1 or
        higher, or the last calendar day of the month on which the second (2nd)
        annual anniversary of the Commencement Date shall occur, whichever is
        later, or (b) the day on which a termination of this Agreement occurs
        pursuant to the terms hereof, other than a termination due to an Event
        of Default by Tenant; but thereafter shall terminate, and be of no
        further force or effect (in

                                       20
<PAGE>

        which event the balance of the Tenant Shortfall Reserve shall be
        disbursed to or at the direction of Tenant).

        3.10 Tenant Security Deposit. On the Commencement Date Tenant shall
deposit with Landlord in cash the sum of Seven Hundred Fourteen Thousand Six
Hundred Fifteen and No/100 Dollars ($714,615.00), as a security deposit (the
"Security Deposit"), for Tenant's faithful performance of all of Tenant's
obligations under this Agreement. If Tenant fails to pay Rent or Additional
Charges due hereunder, fails to fund Reserve Expenditures which exceed available
funds in the Reserve, or otherwise defaults with respect to any provision of
this Agreement, then in addition to and not exclusive of any other remedies
available under this Agreement, Landlord may use, apply or retain all or any
portion of the Security Deposit for the payment of any Rent, the funding of
Additional Charges or Reserve Expenditures or other charges in default, or for
the payment of any sum to which Landlord may become obligated by reason of
Tenant's default. If Landlord so uses or applies all or any portion of the
Security Deposit, Tenant shall, within five (5) days after written demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to the full amount of the Security Deposit. Landlord shall not
be required to keep the Security Deposit separate from its general accounts. If
Tenant performs all of Tenant's obligations hereunder, at the expiration of the
Term, and after Tenant has vacated the Leased Property, the Security Deposit, or
so much thereof as has not been applied or used by Landlord as provided in this
Agreement, shall be returned to Tenant, without payment of interest or other
increment for its use. No trust relationship is created herein between Landlord
and Tenant with respect to the Security Deposit. The Security Deposit shall be
paid by Tenant to Landlord upon the Commencement Date.

        3.11 Security for all ARC-Related Leases. Tenant acknowledges that the
Security Deposit constitutes security for the faithful observance and
performance by Tenant of all the terms, covenants and conditions of this
Agreement and of all ARC-Related Leases (whether now in effect or entered into
in the future) to be observed and performed. If any Event of Default shall occur
and be continuing under this Agreement, Landlord may, at its option and without
prejudice to any other remedy which Landlord may have on account thereof,
appropriate and apply, first, the amount of the Security Deposit in accordance
with the terms set forth herein and, second, the amount of any other security
deposits under all ARC-Related Leases (herein the "Collective Security Deposit")
as may be necessary to compensate Landlord toward the payment of the Rent or
other sums due Landlord under this Agreement as a result of such breach by
Tenant. Additionally, Landlord may, if any Event of Default shall occur and be
continuing under any other ARC-Related Lease, appropriate and apply the Security
Deposit after first applying the security deposit under such other ARC-Related
Lease that is in default. It is understood and agreed that neither the Security
Deposit nor the Collective Security Deposit is to be considered as prepaid rent,
nor shall damages be limited to the amount of the Collective Security Deposit.

        3.12 Security Agreement. Tenant hereby grants to Landlord a security
interest in the Security Deposit, Tenant Shortfall Reserve and the Reserve as
set forth below, as security for all obligations of the Guarantor and as further
security for Tenant's obligations to Landlord hereunder, and agrees to execute
and deliver all such instruments as may be required by Landlord to evidence and
perfect these security interests.

                                       21
<PAGE>

                                   ARTICLE 4

                USE OF THE LEASED PROPERTY; CONFLICTING BUSINESS

        4.1 Permitted Use.

                4.1.1 Permitted Use. Tenant covenants and agrees that it shall,
        throughout the Term of this Agreement, continuously use and occupy the
        Leased Property solely and exclusively as a first class licensed skilled
        nursing, assisted living and dementia care facility, and for such other
        uses as may be necessary or incidental to such use (such as services
        provided directly to residents by Tenant or under Service Licenses, as
        such term is defined below), with appropriate amenities for the same and
        for no other purpose without interruption except for minimum necessary
        interruptions in respect to portions of the Leased Property for periods
        provided herein for repairs, renovations, replacements and rebuilding
        all of which shall be carried out pursuant to, and in accordance with
        the applicable provisions of this Agreement (the foregoing being
        referred to as the "Permitted Use"). Without the prior written consent
        of the Landlord, no Affiliated Person of Tenant may be a subtenant or
        concessionaire in the Leased Property, provided however that Landlord
        hereby consents and agrees that a qualified and fully-insured Affiliated
        Person of Tenant may provide therapy and therapy-related services at the
        Facility for customary and appropriate charges. No use shall be made or
        permitted to be made of the Leased Property and no acts shall be done
        thereon which will cause the cancellation of any insurance policy
        covering the Leased Property or any part thereof (unless another
        adequate policy is available), nor shall Tenant sell or otherwise
        provide or permit to be kept, used or sold in or about the Leased
        Property any article which may be prohibited by law or by the standard
        form of fire insurance policies, or any other insurance policies
        required to be carried hereunder, or fire underwriter's regulations.
        Tenant shall, at its sole cost, comply with all Insurance Requirements.
        Tenant shall not take or omit to take any action, the taking or omission
        of which materially impairs the value or the usefulness of the Leased
        Property or any part thereof for its Permitted Use, or causes the Leased
        Premises to no longer be considered a first class facility.

                4.1.2 Necessary Approvals. Tenant shall maintain in good
        standing all Permits and approvals necessary to use and operate, for its
        Permitted Use, the Leased Property and the Facility located thereon
        under Applicable Law and shall provide to Landlord a copy of Tenant's
        federal, state and Medicare survey regarding the Facility, and such
        other information or documents pertaining to said approvals. Landlord
        shall at no cost or liability to Landlord cooperate with Tenant in this
        regard, limited to executing all applications and consents required to
        be signed by Landlord in order for Tenant to obtain and maintain such
        approvals.

                4.1.3 Lawful Use, Etc. Tenant shall not use or suffer or permit
        the use of the Leased Property or Tenant's Personal Property, if any,
        for any unlawful purpose. Tenant shall not commit or suffer to be
        committed any waste on the Leased Property, or in the Facility, nor
        shall Tenant cause or permit any unlawful nuisance thereon or therein.
        Tenant shall not suffer nor permit the Leased Property, or any portion
        thereof, to be used in such a manner as (i) might reasonably impair
        Landlord's title thereto or to any portion thereof, or (ii) might
        reasonably

                                       22
<PAGE>

        allow a claim or claims for adverse usage or adverse possession by the
        public, as such, or of implied dedication of the Leased Property or any
        portion thereof.

                4.1.4 Compliance with Legal Requirements. Tenant shall at all
        times at its sole cost and expense, keep and maintain the Leased
        Property in compliance with all Legal Requirements. Tenant agrees to
        give Landlord Notice of any notices, orders or other communications
        relating to Legal Requirements affecting the Leased Property which is or
        are enacted, passed, promulgated, made, issued or adopted, a copy of
        which is served upon, or received by, Tenant, or a copy of which is
        posted on or fastened or attached to the Leased Property, within ten
        (10) business days after service, receipt, posting, fastening or
        attaching. At the same time, the Tenant will inform Landlord as to the
        work or steps which Tenant proposes to do or take in order to comply
        therewith.

        4.2 Environmental Matters. Except as permitted by Applicable Law, Tenant
shall at all times during the Term keep the Leased Property free of Hazardous
Substances. Neither Tenant nor any of its employees, agents, invitees,
licensees, contractors, guests, or subtenants (if permitted) shall use,
generate, manufacture, refine, treat, process, produce, store, deposit, handle,
transport, release, or dispose of Hazardous Substances in, on or about the
Leased Property or the groundwater thereof, in violation of any federal, state
or municipal law, decision, statute, rule, ordinance or regulation currently in
existence or hereafter enacted or rendered. Tenant shall give Landlord prompt
Notice of any claim received by Tenant from any person, entity, or Governmental
Agencies that a release or disposal of Hazardous Substances has occurred on the
Leased Property or the groundwater thereof.

        Tenant shall not discharge or permit to be discharged into any septic
facility or sanitary sewer system serving the Leased Property any toxic or
hazardous sewage or waste other than that which is permitted by Applicable Law
or which is normal domestic waste water for the type of business contemplated by
this Agreement to be conducted by Tenant on, in or from the Leased Property. Any
toxic or hazardous sewage or waste which is produced or generated in connection
with the use or operation of the Leased Property shall be handled and disposed
of as required by and in compliance with all applicable local, state and federal
laws, ordinances and rules or regulations or shall be pre-treated to the level
of domestic wastewater prior to discharge into any septic facility or sanitary
sewer system serving the Leased Property.

        4.3 Conflicting Businesses Prohibited. Landlord and Tenant hereby
recognize and acknowledge (a) that the Minimum Rent and the Percentage Rent
payable by Tenant to Landlord under this Agreement have been established at the
levels specified in this Agreement upon the premise and with the expectation
that the Minimum Rent and Percentage Rent may determine the market value of the
Leased Property and constitute a material consideration for Landlord's
willingness to execute this Agreement and thereby lease and demise the Leased
Property to Tenant, and (b) that the operation, management, franchising or
ownership by Tenant or an Affiliated Person of Tenant of another Facility of the
Permitted Use as specified in Section 4.1.1 above (such other Facility being
referred to herein as a "Conflicting Business") within a ten (10) mile radius of
the Leased Property (the "Proscribed Area") will tend to result in a decrease in
the amount of Total Facility Revenue which would otherwise reasonably be
expected to be made upon, within and from the Leased Property and thereby result
in a reduction of the market value of the Leased Property and a reduction in the
Rent which would otherwise be received by Landlord pursuant to this Agreement in
the absence of the operation of a

                                       23
<PAGE>

Conflicting Business by Tenant or any such Affiliated Person of Tenant within
the Proscribed Area. Accordingly, Tenant on behalf of itself and such Affiliated
Persons, agrees that during the Term of this Agreement neither Tenant, nor any
Affiliated Person of Tenant shall open, develop, operate, manage, franchise,
own, lease or have any other interest in a Conflicting Business within the
Proscribed Area. In the event of a breach of this covenant, Landlord shall have
the right to terminate this Agreement and retain the Security Deposit, and
pursue any other remedy at law available to Landlord, including injunctive
relief, or in lieu thereof but not in addition thereto, Landlord may, at its
election, require that forty percent (40%) of all revenues (calculated in the
same manner as if such revenues were Total Facility Revenue) of such Conflicting
Business opened, operated, managed, leased, developed or owned by Tenant or any
affiliated person of Tenant as defined in this Section within the Proscribed
Area be included in the amount of Total Facility Revenue made from the Leased
Property for purposes of the determination and calculation of the Percentage
Rent due from Tenant to Landlord under this Agreement (i.e., as though such
Total Facility Revenue of the Conflicting Business had actually been made upon,
within and from the Leased Property). If Landlord so elects, all provisions of
Article 17 of this Agreement relating to Tenant's maintenance and submission to
Landlord of books, records and statements shall be applicable to all books,
records and statements pertaining to any such Conflicting Businesses. Further,
Tenant agrees that Tenant's sole business shall be to lease, and Tenant shall
not incur any expenses or liability related to any business or activity other
than leasing and operating, the Leased Property and other premises owned or
hereinafter owned by Landlord or its Affiliated Persons pursuant to terms
acceptable to Landlord and Tenant. Landlord will not unreasonably withhold its
consent to a waiver of this Conflicting Business restriction for any Conflicting
Business which is approximately five (5) or more miles away so long as Landlord
is provided with evidence reasonably acceptable to it that the proposed
Conflicting Business is not likely to draw from the demographic base otherwise
available to support full occupancy of the Facility and/or a revenue protection
agreement acceptable to Landlord with respect to adverse affects on Facility
occupancy or residents tied to the Facility's identified demographic base served
at the Conflicting Business.

        4.4 Continuous Operations. Tenant shall continuously operate the Leased
Property and maintain sufficient skilled staff and employees, either directly or
through a qualified manager approved by Landlord, and shall maintain adequate
levels and quality of Tenant's Personal Property, to operate the Leased Property
as a first class skilled nursing, assisted living and dementia care facility as
herein required at its sole cost and expense throughout the entire Term of this
Agreement.

        4.5 Compliance With Restrictions, Etc. Tenant, at its expense, shall
comply with all restrictive covenants and other title exceptions affecting the
Leased Property as of the date of this Lease and comply with and perform all of
the obligations set forth in the same to the extent that the same are applicable
to the Leased Property or to the extent that the same would, if not complied
with or perform, impair or prevent the continued use, occupancy and operation of
the Leased Property for the purposes set forth in this Agreement. Further, in
addition to Tenant's payment obligations under this Agreement, Tenant shall pay
all sums charged, levied or assessed under any restrictive covenants,
declaration, reciprocal easement agreement or other title exceptions, equipment
leases, leases and all other agreements affecting the Leased Property as of the
date of this Lease promptly as the same become due and shall promptly furnish
Landlord evidence of payment thereof.

        4.6 Standard of Operation. Throughout the Term of this Agreement, Tenant
shall continuously operate the Leased Property in full compliance with the terms
hereof in a manner consistent with the

                                       24
<PAGE>

level of operation of a national, first class skilled nursing, assisted living
and dementia care facility, including without limitation, the following:

                (a) to maintain the standard of care for the residents/patients
        of the Facility at all times at a level necessary to ensure quality care
        for the residents/patients of the Facility in accordance with customary
        and prudent industry standards;

                (b) to operate the Facility in a prudent manner and in
        compliance with applicable laws and regulations relating thereto and
        cause all Permits, Reimbursement Contracts and any other agreements
        necessary for the use and operation of the Facility or as may be
        necessary for participation in applicable reimbursement programs;

                (c) to maintain sufficient P&E and Inventories, and Tenant
        Personal Property, of types and quantities at the Facility to enable
        Tenant adequately to perform operations of the Facility; and

                (d) to keep all Leased Improvements and P&E located on or used
        or useful in connection with the Facility in good repair, working order
        and condition, reasonable wear and tear excepted, and from time to time
        make all needed and proper repairs, renewals, replacements, additions
        and improvements thereto to keep the same in good operating condition.

                (e) to maintain sufficient working capital to operate the Leased
        Premises as a first class facility (working capital shall mean assets
        which are reasonably necessary and used for the day to day operation of
        the Leased Premises, including, without limitation, amounts sufficient
        for the maintenance of change and petty cash funds, amounts deposited in
        operating bank accounts, receivables, prepaid expenses, and funds
        required to maintain Inventories and pay all operating expenses as they
        become due, less accounts payable and accrued current liabilities).

                (f) to operate and use the Leased Premises to a standard
        consistent with national chain first class skilled nursing, assisted
        living and dementia care facilities at least equal to or better in
        quality than skilled nursing, assisted living and dementia care
        facilities operated by Guarantor and its Affiliated Persons at the
        Commencement Date, and to operate the Facility only under the
        Guarantor's name, trademarks, logos and service marks, with all required
        licenses and permits for such operation, if any.

                (g) To follow and conform to all of the same operating,
        employment, marketing, insurance, risk management and management
        standards and practices employed at first class skilled nursing,
        assisted living and dementia care facilities operated by Guarantor and
        its Affiliated Persons.

                (h) Recruit, train and employ appropriate personnel, or retain
        management services from Guarantor or other qualified operator or
        service-provider approved by Landlord for same.

                                       25
<PAGE>

                (i) Provide prompt written notice to Guarantor and to Landlord
        of material or extraordinary developments, lawsuits, violation of any
        Legal Requirements and fines relating to the use and operation of the
        Facility.

        Throughout the term of the Lease, Tenant shall continuously operate the
Leased Property as a national, first-class skilled nursing, assisted living and
dementia care facility in the manner set forth above, and to a standard
consistent with national chain, first-class skilled nursing, assisted living and
dementia care facilities at least equal to or better in quality than skilled
nursing, assisted living and dementia care facilities operated currently by
Guarantor under Guarantor's name, trademarks, logos and service marks. Tenant
shall endeavor and use its best efforts to maximize Total Facility Revenue for
the Leased Property. Tenant shall further provide, or cause to be provided, all
group services, facilities and benefits generally available to a national chain,
first-class skilled nursing, assisted living and dementia care facilities of a
similar type operated elsewhere by Guarantor or any successor to Guarantor (or
by other national operators of first class skilled nursing, assisted living and
dementia care facilities, such as those operated by Marriott Senior Living
Services).

        4.7 Resident Agreements and Service Licenses. Tenant shall comply in all
material respects with the terms and provisions of each agreement and
undertaking entered into with or provided to the residents of the Facility
("Resident Agreements"), including without limitation to fulfill or cause to be
fulfilled all undertakings and representations regarding the use, condition and
operation of the Facility and services to provided the residents and the
standards and services of and benefits to be provided by the Guarantor and its
Affiliated Persons. In addition, Tenant shall comply in all material respects
with the terms and conditions of any contract or license entered into with
respect to the provision of services to the residents at the Facility ("Service
Licenses").

        4.8 Standards, Not Control. Landlord and Tenant stipulate and agree that
Tenant is obligated to undertake such actions as are reasonably necessary to
properly achieve the highest standard of operation for the Facility as set forth
herein, and that although Landlord shall have the right to undertake all
enforcement rights as provided herein in the event that the required standard of
operation is not maintained by Tenant, the means and methods used and actions
taken to operate the Facility are within the sole control and election of
Tenant, and are not specified by or under the control of Landlord. Accordingly,
Landlord shall have no responsibility for any action taken by Tenant in order to
manage or operate the Facility.

        4.9 Survival. As to conditions and uses of Tenant existing or occurring
prior to the expiration or sooner termination of this Agreement, the provisions
of this Section 4 shall survive the expiration or sooner termination of this
Agreement to extent of any ongoing effects on Landlord or its successors with
respect to the Facility (specifically including the prohibitions relating to
conflicting businesses under Section 4.3.

                                       26
<PAGE>

                                   ARTICLE 5

                             MAINTENANCE AND REPAIRS

        5.1 Tenant's Obligations. Tenant shall, at its sole cost and expense,
keep the Leased Property in good order and repair, and shall promptly make all
necessary and appropriate repairs and replacements thereto of every kind and
nature, whether interior or exterior, structural or nonstructural, ordinary or
extraordinary, foreseen or unforeseen or arising by reason of a condition
existing prior to the commencement of the Term and whether or not necessitated
by wear, tear, obsolescence or defects, latent or otherwise, and shall use all
reasonable precautions to prevent damage or injury. All repairs shall be made in
a good, workmanlike manner, consistent with the industry standards for like
skilled nursing, assisted living and dementia care facilities in like locales,
in accordance with all applicable federal, state and local statutes, ordinances,
by-laws, codes, rules and regulations relating to any such work. In addition,
Tenant shall also, at its sole cost and expense, put, keep, replace and maintain
Tenant's Personal Property in good repair and in good, safe and substantial
order, howsoever the necessity or desirability for repairs may occur, and
whether or not necessitated by wear, tear, obsolescence or defects. Tenant may
at any time and from time to time remove and dispose of any of Tenant's Personal
Property which has become obsolete or unfit for use or which is no longer useful
in the operation of the Facility's business conducted by Tenant on the Leased
Property; provided, however, that Tenant's Personal Property so disposed of
shall be promptly replaced with other Tenant's Personal Property not necessarily
of the same character, but of at least equal usefulness and quality as, and
having a value at least equal to the value of, those disposed of, and in any
event in accordance with and in compliance with the standards required by and
the provisions of this Agreement. Tenant shall further at all times maintain the
Leased Property, including the grounds and landscaping, in an aesthetically
pleasing manner.

        Tenant shall be responsible for and shall pay all costs and expenses of
the "Property Owner/Developer" associated with the reconfiguration of any
roadways and entranceways as contemplated by the ARC Assisted Living Facilities
Final Development Plan recorded in the public records of Arapahoe County,
Colorado on April 22, 1998 at Reception Number A8058374.

        Tenant shall be responsible for and shall pay all costs and expenses
associated with maintaining that certain letter of credit in the amount of
Twenty One Thousand Six Hundred and No/100 Dollars ($21,600.00), or an
acceptable renewal or replacement letter of credit, naming the City of Greenwood
Village, Colorado as the beneficiary, securing the performance of certain
landscaping obligations of American Retirement Corporation, and more
particularly described in the letter from Shaw Flippen, Senior Vice President -
Development/Construction, American Retirement Corporation to Heather Day of the
Community Development Department, Greenwood Village Colorado dated October 25,
1999 to the extent that, and for so long as, such letter of credit is required
by the City of Greenwood Village.

        5.2 Reserve.

                5.2.1 Tenant shall establish an interest bearing reserve account
        (the "Reserve") in a bank designated by Tenant and approved by Landlord.
        All interest earned on the Reserve shall be added to and remain a part
        of the Reserve. Both Tenant and Landlord shall be signatories on the
        Reserve, provided only one signature shall be required to withdraw funds
        and Landlord

                                       27
<PAGE>

        agrees that so long as Tenant is not in default hereunder, Landlord
        shall not be required to sign on any checks and Landlord shall not
        withdraw any funds from such account. Upon the occurrence and
        continuation of any Default or Event of Default hereunder the Tenant
        signatory party shall no longer be an authorized signatory on the
        Reserve account. Such account shall be established in Landlord's name
        and control for the benefit of Tenant and shall not include or
        contemplate "overdraft protection" and Tenant shall not request or
        attempt to draw or draft any funds which are not actually on deposit in
        such account. The purpose of the Reserve is to cover the cost of the
        following, to the extent carried out in accordance with this Agreement
        (collectively, "Reserve Expenditures"):

                        (a) Replacements (including P&E Replacements), renewals
                and additions to the P&E at the Facility; and

                        (b) repairs, alterations, improvements, renewals,
                replacements and additions, whether routine, non-routine or
                major, to the Leased Improvements, including without limitation
                those which are normally capitalized under GAAP such as repairs,
                alterations, improvements, renewals, replacements and additions
                to the structure, the exterior facade, the mechanical,
                electrical, heating, ventilating, air conditioning, plumbing and
                vertical transportation elements of the Leased Improvements,
                which expenditures Tenant believes should be made for the Leased
                Property for the following Fiscal Year.

                5.2.2 Commencing with the Commencement Date and continuing
        throughout the Term, Tenant shall on the last day of each Accounting
        Period during the Term, transfer into the Reserve an amount equal to the
        Applicable Reserve Percentage of Total Facility Revenues for such
        Accounting Period (based upon estimates of Total Facility Revenue if
        necessary, to be adjusted as soon as Tenant has had an opportunity to
        confirm actual Total Facility Revenue). At the time Tenant provides
        Landlord the documentation described in Section 3.3, Tenant shall also
        deliver to Landlord a statement setting forth the total amount of
        deposits made to and expenditures from the Reserve for the preceding
        Fiscal Year.

                5.2.3 On or before December 1 of each Fiscal Year, Tenant shall
        prepare an estimate (the "Reserve Estimate") of Reserve Expenditures
        anticipated during the ensuing Fiscal Year and shall submit such Reserve
        Estimate to Landlord for its review. Such Reserve Estimate shall reflect
        by line item the projected budget for Reserve Expenditures for the
        Leased Property and assumptions on the basis of which such line items
        were prepared in narrative form if necessary, including separate budget
        items for all projected expenditures for replacements, substitutions and
        additions to Tenant's Personal Property. Tenant shall provide to
        Landlord reasonable additional detail, information and assumptions used
        in the preparation of the Reserve Estimate as requested by Landlord and
        shall also submit to Landlord with the Reserve Estimate good faith
        longer-range projections of planned Reserve Expenditures for an
        additional three (3) Fiscal Years. Tenant shall review the Reserve
        Estimate with Landlord, and subject to Landlord's approval, Tenant shall
        implement such Reserve Estimate for the successive Fiscal Year (during
        which it shall, if approved by Landlord, be referred to as the "Approved
        Reserve Estimate"). In addition, Landlord shall have the right to
        disapprove any expenditures to be made pursuant to the Reserve Estimate
        which are not in compliance with Applicable Laws. Further, Landlord's
        approval of any expenditure pursuant to the Reserve Estimate shall not
        be,

                                       28
<PAGE>

        or be deemed to be, an assumption by Landlord of any liability in
        connection with the expenditures made. Pending resolution of any
        dispute, the specific disputed item of the Reserve Estimate shall be
        suspended and replaced for the Fiscal Year in question by an amount
        equal to the lesser of (a) that proposed by Tenant for such Fiscal Year
        or (b) such budget item for the Fiscal Year prior thereto. Tenant shall
        not make any expenditures from the Reserve, nor shall Tenant deviate
        from the Approved Reserve Estimate without the prior approval of
        Landlord, except in the case of emergency where immediate action is
        necessary to prevent imminent danger to person or property.

                5.2.4 Tenant shall, consistent with the Approved Reserve
        Estimate, from time to time make Reserve Expenditures from the Reserve
        as it reasonably deems necessary in accordance with Section 5.2.1 and
        Section 5.2.3. Tenant shall provide to Landlord, within thirty (30) days
        after the end of each Fiscal Quarter, an itemized statement setting
        forth Reserve Expenditures made to date during the Fiscal Year.

                5.2.5 In the event Reserve Expenditures not set forth in the
        Approved Reserve Estimate are required (i) as a result of Legal
        Requirements or are otherwise required for the continued safe and
        orderly operation of the Leased Property, (ii) due to an emergency
        threatening the Leased Property, its residents, patients, guests,
        invitees or employees, or (iii) because the continuation of a given
        condition will subject Tenant or Landlord to civil or criminal
        liability, Landlord agrees that it will not unreasonably withhold its
        approval of such expenditures.

                5.2.6 All interest earned on the Reserve shall be added to and
        become a part thereof, and all property purchased with funds from the
        Reserve shall be and remain the property of Tenant until the end of the
        Term of the Lease or earlier expiration or termination of this Agreement
        (subject to Landlord's lien rights hereunder), at which time all P&E at
        the Leased Property, including without limitation all P&E Replacements
        or other items purchased with funds from the Reserve (but not including
        Tenant's Personal Property except as specifically provided herein) shall
        be and become the sole property of Landlord. All funds in the Reserve
        shall be and remain the property of Tenant throughout the Lease Term,
        subject to the control rights and liens and security interests of
        Landlord, but following expiration or earlier termination of this
        Agreement and payment in full on all contracts entered into prior to
        such expiration or termination for work to be done or furniture,
        furnishings, fixtures and equipment to be supplied in accordance with
        this Section 5.2 out of the Reserve, ownership of the Reserve shall be
        transferred from Tenant to Landlord except (provided Tenant is not in
        Default at the time of termination) to the extent of the amount, if any,
        by which Tenant's cumulative cash expenditures on P&E used solely at the
        Leased Property (not including any of Tenant's Personal Property which
        is not used at the Leased Property throughout the useful life thereof),
        less all amounts received upon any disposition thereof, exceeds the
        cumulative amount deposited by Tenant into the Reserve. It is understood
        and agreed that the Reserve pursuant to this Agreement shall be
        maintained and used solely in connection with the Leased Property.

                5.2.7 If Landlord wishes to grant a security interest in or
        create another encumbrance on its interest in the Reserve in connection
        with a Facility Mortgage, all or any part of the existing or future
        funds therein, or any general intangible in connection therewith, the

                                       29
<PAGE>

        instrument granting such security interest or creating such other
        encumbrance shall expressly provide that such security interest or
        encumbrance is prior in right to the rights of Tenant with respect to
        the Reserve as set forth herein, provided that the same is subject to a
        Tenant non-disturbance agreement as provided herein and the Mortgagee
        thereunder agrees to be responsible to Tenant and to properly disburse
        all amounts of the Reserve received by it for use and disposition as
        provided herein.

                5.2.8 If, at any time, funds in the Reserve shall be
        insufficient or are reasonably projected by Tenant to be insufficient
        for necessary and permitted expenditures thereof or funding is necessary
        for Reserve Expenditures, Tenant shall give Landlord Notice thereof,
        which Notice shall set forth, in reasonable detail, the nature of the
        required or permitted action and the estimated cost thereof, and Tenant
        shall thereafter fund such additional Reserve Expenditures.

                                   ARTICLE 6

                               IMPROVEMENTS, ETC.

        6.1 Prohibition. Except for work funded by Reserve Expenditures and
Minor Alterations as hereinafter expressly provided in Section 6.2, no portion
of the Leased Property shall be demolished, removed or altered by Tenant in any
manner whatsoever without the prior written consent and approval of Landlord.
Notwithstanding the foregoing, however, Tenant shall be entitled and obligated
to undertake all alterations to the Leased Property required by any Legal
Requirements and, in such event, Tenant shall comply with the provisions of
Section 6.2 below.

        6.2 Permitted Renovations. The activities permitted pursuant to Section
6.2.1 and Section 6.2.2 below shall collectively constitute "Permitted
Renovations".

                6.2.1 Minor Alterations. Landlord acknowledges that certain
        minor, alterations and renovations may be undertaken by Tenant from time
        to time ("Minor Alterations"). Landlord hereby agrees that Tenant shall
        be entitled to perform such Minor Alterations on or about the Leased
        Improvements; provided, however, that the cost of the same shall not
        exceed $20,000.00 and the same shall not weaken or impair the structural
        strength of the Leased Improvements, or alter their exterior design or
        appearance, materially impair the use of any of the service facilities
        located in, or fundamentally affect the character or suitability of, the
        Leased Improvements for the Permitted Use specified in Section 4.1.1
        above or materially lessen or impair their value.

                6.2.2 Additions, Expansions and Structural Alterations. Except
        as expressly permitted in Section 6.1 and Section 6.2.1 above, nothing
        in this Article 6 or elsewhere in this Agreement shall be deemed to
        authorize Tenant to construct and erect any additions to or expansions
        of the Leased Improvements, or perform any alterations of a structural
        nature whatsoever (collectively referred to herein as the "Major
        Alterations"); it being understood that Tenant may do so only with the
        prior written consent and approval of Landlord, which consent and
        approval may be withheld by Landlord in its sole and absolute discretion
        and may be conditioned upon the

                                       30
<PAGE>

        payment by Tenant to Landlord of all reasonable costs incurred by
        Landlord in evaluating the same.

        6.3 Conditions to Reserve Expenditures, Permitted Renovations and Major
Alterations. In connection with any Reserve Expenditures, Permitted Renovations
or Major Alterations of the Leased Property the following conditions shall be
met, to wit:

                (a) Before the commencement of any such work, plans and
        specifications therefor or a detailed itemization thereof prepared by a
        licensed architect approved by Landlord or other design professional
        appropriate under the circumstances approved by Landlord and Tenant
        shall be furnished to Landlord for its review and approval. Such
        approval shall not constitute Landlord's agreement that the plans and
        specification are in compliance with Applicable Laws or an assumption by
        Landlord of any liability in connection with the renovation work
        contemplated thereby.

                (b) Before the commencement of any such work Tenant shall obtain
        the approval thereof by all Governmental Agencies having or claiming
        jurisdiction of or over the Leased Property, and with any public utility
        companies having an interest therein. In connection with any such work
        Tenant shall comply with all Legal Requirements and Applicable Laws, of
        all other Governmental Agencies having or claiming jurisdiction of or
        over the Leased Property and of all their respective departments,
        bureaus and offices, and with the requirements and regulations, if any,
        of such public utilities, of the insurance underwriting board or
        insurance inspection bureau having or claiming jurisdiction, or any
        other body exercising similar functions, and of all insurance companies
        then writing policies covering the Leased Property or any part thereof.

                (c) Tenant represents and warrants to Landlord that all such
        work will be performed in a good and workmanlike manner and in
        accordance with the plans and specifications therefor approved by
        Landlord, the terms, provisions and conditions of this Agreement and all
        governmental requirements.

                (d) Landlord shall have the right, at Tenant's expense, to
        inspect any such work at all times during normal working hours using
        such inspector(s) as it may deem necessary so long as such inspections
        do not unreasonably interfere with Tenant's work (but Landlord shall not
        thereby assume any responsibility for the proper performance of the work
        in accordance with the terms of this Agreement, nor any liability
        arising from the improper performance thereof).

                (e) All such work shall be performed free of any liens on
        Landlord's fee simple interest on or Tenant's leasehold interest in the
        Leased Property.

                (f) Upon substantial completion of any such work, Tenant shall
        procure a certificate of occupancy or other final approvals, if
        applicable, from the appropriate Governmental Agencies and provide
        copies of same to Landlord.

                                       31
<PAGE>

                (g) Tenant shall, and hereby agrees to, indemnify and save and
        hold Landlord and its Affiliated Parties harmless from and against and
        reimburse Landlord for any and all loss, damage, cost, liability, fee
        and expense (including, without limitation, reasonable attorney's fees
        based upon service rendered at hourly rates) incurred by or asserted
        against Landlord which is occasioned by or results, directly or
        indirectly, from any such work conducted upon the Leased Property;
        whether or not the same is caused by, or is the fault of Tenant or any
        agent, employee, manager, contractor, subcontractor, laborer, supplier,
        materialman or any other third party; but Tenant shall not be obligated
        to indemnify Landlord from any loss as aforesaid caused by Landlord's
        gross negligence or willful misconduct.

        6.4 Salvage. Other than Tenant's Personal Property, all materials which
are scrapped or removed in connection with maintenance and repair performed
pursuant to Article 5 and the making of Permitted Renovations pursuant to
Article 6 shall be disposed of by Tenant and the net proceeds thereof, if any,
shall be deposited in the Reserve.

                                   ARTICLE 7

                    LANDLORD'S INTEREST NOT SUBJECT TO LIENS

        7.1 Liens, Generally. Tenant shall not, directly or indirectly, create
or cause to be imposed, claimed or filed upon the Leased Property, or Tenant's
assets, properties or income or any portion thereof, or upon the interest of
Landlord therein, any Lien of any nature whatsoever. If, because of any act or
omission of Tenant, any such Lien shall be imposed, claimed or filed by any
party whosoever or whatsoever, Tenant shall, at its sole cost and expense, cause
the same to be promptly (and in no event later than thirty (30) days following
receipt of notice of such Lien) fully paid and satisfied or otherwise promptly
discharged of record (by bonding or otherwise) and Tenant shall indemnify and
save and hold Landlord harmless from and against any and all costs, liabilities,
suits, penalties, claims and demands whatsoever, and from and against any and
all reasonable attorney's fees, at both trial and all appellate levels,
resulting or on account thereof and therefrom. In the event that Tenant shall
fail to comply with the foregoing provisions of this Section 7, Landlord shall
have the option, but not the obligation, of paying, satisfying or otherwise
discharging (by bonding or otherwise) such Lien and Tenant agrees to reimburse
Landlord, upon demand and as Additional Rent, for all sums so paid and for all
costs and expenses incurred by Landlord in connection therewith, together with
interest thereon, until paid.

        7.2 Construction or Mechanics Liens. Landlord's interest in the Leased
Property shall not be subjected to Liens of any nature by reason of Tenant's
construction, alteration, renovation, repair, restoration, replacement or
reconstruction of any improvements on or in the Leased Property, or by reason of
any other act or omission of Tenant (or of any person claiming by, through or
under Tenant) including, but not limited to, construction, mechanics' and
materialmen's liens. All persons dealing with Tenant are hereby placed on notice
that such persons shall not look to Landlord or to Landlord's credit or assets
(including Landlord's interest in the Leased Property) for payment or
satisfaction of any obligations incurred in connection with the construction,
alteration, renovation, repair, restoration, replacement or reconstruction
thereof by or on behalf of Tenant. Tenant has no power, right or authority to
subject Landlord's interest in the Leased Property to any construction,
mechanic's or

                                       32
<PAGE>

materialmen's lien or claim of lien. If a Lien, a claim of lien or an order for
the payment of money shall be imposed against the Leased Property on account of
work performed, or alleged to have been performed, for or on behalf of Tenant,
Tenant shall, within thirty (30) days after written notice of the imposition of
such Lien, claim or order, cause the Leased Property to be released therefrom by
the payment of the obligation secured thereby or by furnishing a bond or by any
other method prescribed or permitted by law. If a Lien is released, Tenant shall
thereupon furnish Landlord with a written instrument of release which has been
recorded or filed in the appropriate office of land records of the County in
which the Leased Property is located, and otherwise sufficient to establish the
release as a matter of record. Before commencing any work relating to
alterations, additions, or improvements affecting the Leased Property, Tenant
shall notify Landlord in writing of the expected date of commencement thereof.
Landlord shall then have the right at any time and from time to time to post and
maintain on the Land and Improvements such notices as Landlord reasonably deems
necessary to protect the Leased Property and Landlord from mechanics' liens,
materialmen's liens, or any other liens. In any event, Tenant shall pay when due
all claims for labor or materials furnished to or for Tenant at or for use in
the Land and Improvements. Tenant shall not permit any mechanics' or
materialmen's liens to be levied against the Leased Property for any labor or
material furnished to Tenant or claimed to have been furnished to Tenant or to
Tenant's agents or contractors in connection with work of any character
performed or claimed to have been performed on the Land or the Improvements by
or at the direction of Tenant, and shall immediately cause the release of any
such liens as provided hereinabove.

        7.3 Contest of Liens. Tenant may, at its option, contest the validity of
any Lien or claim of lien if Tenant shall have first posted an appropriate and
sufficient bond in favor of the claimant or paid the appropriate sum into court,
if permitted by and in strict compliance with Applicable Laws, and thereby
obtained the release of the Leased Property from such Lien. If judgment is
obtained by the claimant under any Lien, Tenant shall pay the same immediately
after such judgment shall have become final and the time for appeal therefrom
has expired without appeal having been taken. Tenant shall, at its own expense,
using counsel reasonably approved by Landlord, diligently defend the interests
of Tenant and Landlord in any and all such suits; provided, however, that
Landlord may, nonetheless, at its election and expense, engage its own counsel
and assert its own defenses, in which event Tenant shall cooperate with Landlord
and make available to Landlord all information and data which Landlord deems
necessary or desirable for such defense.

        7.4 Notices of Commencement of Construction. If required by the laws of
the State in which the Leased Property is located, prior to commencement by
Tenant of any work on the Leased Property which shall have been previously
permitted by Landlord as provided in this Agreement, Tenant shall record or file
a notice of the commencement of such work or similar notice required by
Applicable Law (the "Notice of Commencement") in the land records of the County
in which the Leased Property is located, identifying Tenant as the party for
whom such work is being performed, stating such other matters as may be required
by law and requiring the service of copies of all notices, Liens or claims of
lien upon Landlord. Any such Notice of Commencement shall clearly reflect that
the interest of Tenant in the Leased Property is that of a leasehold estate and
shall also clearly reflect that the interest of Landlord as the fee simple owner
of the Leased Property shall not be subject to construction, mechanics or
materialmen's liens on account of the work which is the subject of such Notice
of Commencement. A copy of any such Notice of Commencement shall be furnished to
and approved by Landlord and its attorneys prior to the recording or filing
thereof, as aforesaid.

                                       33
<PAGE>

                                   ARTICLE 8

                              TAXES AND ASSESSMENTS

        8.1 Obligation to Pay Taxes and Assessments. Throughout the entire Term,
Tenant shall bear, pay and discharge as Additional Charges and not later than
the last day on which payment may be made without penalty or interest, any and
all taxes, assessments, charges, levies, fees (including, without limitation,
license, permit, inspection, authorization and similar fees) and other
impositions and charges of every kind and nature whatsoever, extraordinary as
well as ordinary, foreseen or unforeseen, and each and every installment thereof
which shall or may during or with respect to the Term hereof be charged, laid,
levied, assessed, or imposed upon, or arise in connection with, the use,
occupancy, operation or possession of the Leased Property or any part thereof or
the business conducted thereon, including, without limitation, ad valorem real
and personal property taxes, all taxes charged, laid, levied, assessed or
imposed in lieu of or in addition to any of the foregoing by virtue of all
present or future laws, ordinances, requirements, orders, directions, rules or
regulations of Governmental Agencies, and all assessments and charges imposed
pursuant to the Permitted Encumbrances or other documents of record affecting
title to the Leased Property (provided however that such documents have been
approved by Tenant, which approval shall not unreasonably be withheld, delayed
or conditioned provided that the same are appropriate and reasonably necessary
in connection with the normal and ordinary course of ownership and use of the
Facility), whether or not such Additional Charges become due and payable during
or after the Term. Notwithstanding the foregoing, Tenant shall not be
responsible for Additional Charges due and payable after the expiration of the
Term to the extent that the same relate and apply interests and benefits
accruing to Landlord after the Lease Term. Upon payment, Tenant shall promptly
furnish to Landlord satisfactory evidence of the payment of all such taxes,
assessments, impositions or charges. Tenant shall have no right to approve, nor
shall Tenant be obligated for any amounts due by virtue of, any Facility
Mortgage or other documents relating to indebtedness of Landlord.

        8.2 Tenant's Right to Contest Taxes. Notwithstanding the foregoing,
Tenant shall have the right, after prior written notice to Landlord, to contest
at its own expense the amount and validity of any taxes affecting the Leased
Property by appropriate proceedings under Applicable Law conducted in good faith
and with due diligence and to postpone or defer payment thereof, provided and so
long as:

                (a) Such proceedings shall operate to suspend the collection of
        such taxes with respect to the Leased Property;

                (b) Neither the Leased Property nor any part thereof would be in
        immediate danger of being forfeited or lost by reason of such
        proceedings, postponement or deferment; and

                (c) Tenant shall have furnished Landlord with security for
        payment of the contested taxes which is satisfactory to Landlord, and,
        in the event that the preconditions set forth in (a) and (b) above are
        no longer met, Landlord shall have the right to draw upon such security
        to pay and discharge the taxes in question and any liens against the
        Leased Property arising thereunder.

                                       34
<PAGE>

        8.3 Tax and Insurance Escrow Account. In the event Tenant fails to
timely pay any tax, assessment, imposition or charge required to be paid by
Tenant pursuant to Section 8.1, Landlord shall have the right, by written notice
to Tenant effective as of the date of such notice, to require Tenant to pay or
cause to be paid into a separate account (the "Tax and Insurance Account") to be
established by Tenant with a lending institution designated by Landlord (which
Tax and Insurance Account shall not be removed from such lending institution
without the express prior approval of Landlord), and which Landlord may draw
upon, a reserve amount sufficient to discharge the obligations of Tenant under
Section 8.1 and Article 9 hereof (other than worker's compensation insurance
premiums) with respect to real estate taxes and insurance premiums for the
applicable Fiscal Year as and when they become due (such amounts, the "Tax and
Insurance Escrow Amount"). During each month commencing with the first full
calendar month following the receipt of said notice from Landlord, Tenant shall
deposit into the Tax and Insurance Account one twelfth of the Tax and Insurance
Escrow Amount so that as each installment of insurance premiums and real estate
taxes becomes due and payable, there are sufficient funds in the Tax and
Insurance Account to pay the same. If the amount of such insurance premiums and
real estate taxes has not been definitively ascertained by Tenant at the time
when any such monthly deposit is to be paid, Landlord shall require payment of
the Tax and Insurance Escrow Amount based upon the amount of premiums and real
estate taxes paid for the preceding year, subject to adjustment as and when the
amount of such premiums and real estate taxes are ascertained by Tenant. The Tax
and Insurance Escrow Amount in the Tax and Insurance Account shall be and
constitute additional security for the performance of Tenant's obligations
hereunder and shall be subject to Landlord's security interest therein and
shall, if there are sufficient funds in escrow, be used to pay taxes and
insurance premiums when due. Landlord and Tenant shall execute such
documentation as may be necessary to create and maintain Landlord's security
interest in the Tax and Insurance Account.

                                   ARTICLE 9

                                    INSURANCE

        9.1 General Insurance Requirements. Tenant shall, at all times during
the Term and at any other time Tenant shall be in possession of the Leased
Property, keep the Leased Property and all property located therein or thereon,
insured against the following risks in the following amounts:

        (a) "All-risk" property insurance (and to the extent applicable,
Builder's Risk Insurance) on the Leased Improvements and all items of business
personal property, including but not limited to signs, awnings, canopies,
gazebos, fences and retaining walls, and all P&E, including without limitation,
insurance against loss or damage from the perils under "All Risk" (Special)
form, including but not limited to the following: fire, windstorm, sprinkler
leakage, vandalism and malicious mischief, water damage, explosion of steam
boilers, pressure vessels and other similar apparatus, and other hazards
generally included under extended coverage, all in an amount equal to one
hundred percent (100%) of the replacement value of the Leased Improvements
(excluding excavation and foundation costs), business personal property and P&E,
without a co-insurance provision, and shall include an Agreed Value endorsement;

                                       35
<PAGE>

        (b) Ordinance or Law Coverage with limits of not less than the Leased
Improvements for Coverage A (Loss to the undamaged portion of the building),
limits not less than $500,000.00 for Coverage B (Demolition Cost Coverage), and
limits not less than $500,000.00 for Coverage C (Increased Cost of Construction
Coverage);

        (c) Business income insurance to be written on "Special Form" (and on
"Earthquake" and "Flood" forms if such insurance for those risks is required)
including "Extra Expense", without a provision for co-insurance, including an
amount sufficient to pay at least twelve (12) months of Rent for the benefit of
Landlord, as its interest may appear, and at least twelve (12) months of "Net
Operating Income" less Rent for the benefit of Tenant;

        (d) Occurrence form commercial general liability insurance, including
bodily injury and property damage, liquor liability (if applicable), fire legal
liability, contractual liability and independent contractor's hazard and
completed operations coverage in an amount not less than $1,000,000.00 per
occurrence and $2,000,000.00 per location, aggregate;

        (e) Umbrella liability coverage which shall be on a following form for
the General Liability, Automobile Liability, Employers' Liability, Malpractice
and Liquor Liability (if applicable), with limits in a minimum amount of not
less than $15,000,000.00 per occurrence/aggregate;

        (f) Malpractice insurance/professional liability insurance in an amount
not less than $5,000,000.00 for each person and each occurrence to cover the
professional medical care providers working on the Leased Property;

        (g) Flood insurance (if the Leased Property is located in whole or in
part within an area identified as an area having special flood hazards under the
National Flood Insurance Program) for the full (100%) replacement value of the
improvements and all items of business personal property or any greater amount
as may be required by the National Flood Insurance Program;

        (h) Worker's compensation coverage for all persons employed by Tenant on
the Leased Property with statutory limits, and Employers' Liability insurance in
an amount of at least $1,000,000.00 per accident/disease;

        (i) Business auto liability insurance, including owned, non-owned and
hired vehicles for combined single limit of bodily injury and property damage of
not less than $1,000,000.00 per occurrence;

        (j) [Intentionally Omitted];

        (k) "Earthquake" insurance, if the Leased Property is currently, or at
any time in the future, located within a major earthquake disaster area, in
amount, and in such form and substance and with such limits and deductibles as
are satisfactory to Landlord; and

        (l) Crime insurance covering employee theft in an amount not less than
$1,500,000.

        (m) Such additional insurance or increased insurance limits as may be
reasonably required, from time to time, by Landlord (including, without
limitation, any mortgage, security agreement or

                                       36
<PAGE>

other financing permitted hereunder and then affecting the Leased Property, as
well as any declaration, ground lease or easement agreement affecting the Leased
Property), or any Mortgagee, provided the same is customarily carried by a
majority of comparable skilled nursing, assisted living and dementia care
facilities in the area.

Without limiting the generality of the foregoing Section 9.1(m), the required
commercial liability insurance and umbrella liability coverage limits and
deductible amounts pertaining thereto as set forth in this Article 9 shall in no
event provide less coverage (lower limits or higher deductibles) than the
"Comparable Insurance Coverage" carried on any of the other skilled nursing,
assisted living and dementia care facilities leased or owned by Tenant and
Guarantor and their Affiliated Persons, and the insurance coverage for the
Leased Property shall immediately be increased by Tenant to equal any greater or
increased "Comparable Insurance Coverage" carried or obtained for such other
facilities. For purposes of the foregoing, "Comparable Insurance Coverage" shall
mean insurance coverage levels adjusted for relevant variations in risk and
insurability characteristics between the insured facilities being compared,
including without limitation consideration of variations in insurance coverages
carried by Guarantor and its Affiliated Persons between different insurance
markets (states or other jurisdictional subdivisions) where insured risks or
insurance pricing or availability varies materially. Tenant shall use all
reasonable efforts to obtain increased umbrella liability coverage of not less
than $50,000,000 per occurrence/aggregate, and decreased liability insurance
deductibles, at such time as the same can be obtained at commercially reasonable
or economically feasible rates for the Lease Property. Until such increased
coverages are obtained the Tenant shall provide to Landlord a thorough annual
update and review of the overall liability insurance coverage program and
strategy for Tenant and Guarantor and their Affiliated Persons, which shall
include an analysis of market rates for the current and desired liability
insurance coverages. In addition, Tenant shall have the right to provide
commercial general liability insurance coverage on a "claims made" basis, so
long as the general liability insurance coverages otherwise required hereunder
are maintained or continued in existence at all times throughout the Lease Term
for all periods that Tenant or its Affiliates have had any ownership or use of
the Leased Property, and evidence thereof has been provided to Landlord.

        9.2 Waiver of Subrogation. Landlord and Tenant agree that with respect
to any property loss which is covered by insurance then being carried by
Landlord or Tenant, respectively, the party carrying such insurance and
suffering said loss releases the other of and from any and all claims with
respect to such loss; and they further agree that their respective insurance
companies shall have no right of subrogation against the other on account
thereof.

        9.3 General Provisions. The Facility's allocated chargeback/deductible
for general liability insurance shall not exceed $1,000,000 for skilled nursing
and assisted living and $1,000,000 for Memory Impaired, to the extent
commercially available, and $350,000.00 for workmen's compensation insurance, to
the extent commercially available, unless any greater amounts are agreeable to
both Landlord and Tenant. The Facility's property insurance deductible shall not
exceed $25,000.00 unless such greater amount is agreeable to both Landlord and
Tenant, or if a higher deductible for high hazard risks (i.e., wind or flood) is
mandated by the insurance carrier. All insurance policies pursuant to this
Article 9 shall be issued by insurance carriers having a general policy holder's
rating of no less than A-/VII in Best's latest rating guide, and shall contain
clauses or endorsements to the effect that (a) Landlord shall not be liable for
any insurance premiums thereon or subject to any assessments thereunder, and (b)
the coverages provided thereby will be primary and any insurance

                                       37
<PAGE>

carried by any additional insured shall be excess and non-contributory to the
extent of the indemnification obligation pursuant to Section 9.5 below. All such
policies described in Section 9.1 shall name Landlord, CRC and CNL Retirement
and any Mortgagee whose name and address has been provided to Tenant as
additional insureds, loss payees, or mortgagees, as their interests may appear
and to the extent of their indemnity. All loss adjustments shall be payable as
provided in Article 10. Tenant shall deliver certificates thereof to Landlord
prior to their effective date (and, with respect to any renewal policy, no less
than thirty (30) days prior to the expiration of the existing policy), which
certificates shall state the nature and level of coverage reported thereby, as
well as the amount of the applicable deductible. Upon Landlord's request,
duplicate original copies of all insurance policies to be obtained by Tenant
shall be provided to Landlord by Tenant. All such policies shall provide
Landlord (and any Mortgagee whose name and address has been provided to Tenant
if required by the same) thirty (30) days prior written notice of any material
change or cancellation of such policy.

         In the event Tenant shall fail to effect such insurance as herein
required, to pay the premiums therefor or to deliver such certificates to
Landlord or any Mortgagee at the times required, Landlord shall have the right,
but not the obligation, subject to the provisions of Section 12.4, to acquire
such insurance and pay the premiums therefor, which amounts shall be payable to
Landlord, upon demand, as Additional Rent, together with interest accrued
thereon at the Overdue Rate from the date such payment is made until (but
excluding) the date repaid.

        9.4 Blanket Policy. Notwithstanding anything to the contrary contained
in this Article 9, Tenant's obligation to maintain the insurance herein required
may be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant, so long as such policies otherwise
meet all requirements under this Article 9.

        9.5 Indemnification of Landlord. Except as expressly provided herein,
Tenant shall protect, indemnify and hold harmless Landlord for, from and against
all liabilities, obligations, claims, damages, penalties, causes of action,
costs and reasonable expenses (including, without limitation, reasonable
attorneys' fees), to the maximum extent permitted by law, imposed upon or
incurred by or asserted against Landlord by reason of: (a) any accident, injury
to or death of persons or loss of or damage to property of third parties
occurring on or about the Leased Property or adjoining sidewalks or rights of
way under Tenant's control, and (b) any use, misuse, condition, management,
maintenance or repair by Tenant or anyone claiming under Tenant of the Leased
Property or Tenant's Personal Property or any litigation, proceeding or claim by
Governmental Agencies relating to such use, misuse, condition, management,
maintenance, or repair thereof to which Landlord is made a party; provided,
however, that Tenant's obligations hereunder shall not apply to any liability,
obligation, claim, damage, penalty, cause of action, cost or expense arising
from any gross negligence or willful misconduct of Landlord, its employees,
agents, contractors or invitees. Any such claim, action or proceeding asserted
or instituted against Landlord covered under this indemnity shall be defended by
counsel selected by Tenant and reasonably acceptable to Landlord, at Tenant's
expense. Notwithstanding the foregoing, indemnification with respect to
Hazardous Substances is governed by Section 4.3. The obligations of Tenant under
this Section 9.5 shall survive the expiration or any early termination of this
Agreement.

                                       38
<PAGE>

                                   ARTICLE 10

                                    CASUALTY

        10.1 Restoration and Repair. If during the Term the Leased Property
shall be totally or partially destroyed and thereby rendered Unsuitable for Its
Permitted Use, Tenant shall give Landlord prompt Notice thereof. Either Landlord
or Tenant may, by the giving of Notice thereof to the other party within sixty
(60) days after such casualty occurs, terminate this Agreement, whereupon
Landlord shall be entitled to retain the insurance proceeds payable on account
of such damage and Tenant shall pay to Landlord the amount of any deductible.
Tenant further expressly acknowledges, understands and agrees that in the event
that the Agreement is terminated as aforesaid, Landlord may settle any insurance
claims and Tenant shall, upon request of Landlord, cooperate in any such
settlement. If during the Term, the Leased Property shall be destroyed or
damaged in whole or in part by fire, windstorm or any other cause whatsoever,
but the Leased Property either (i) is not rendered Unsuitable for Its Permitted
Use or (ii) is rendered Unsuitable for Its Permitted Use but neither Landlord
nor Tenant terminate this Agreement in the manner provided above, then, Tenant
shall give Landlord immediate Notice thereof and Tenant shall, subject to the
provisions of Section 10.2 below, repair, reconstruct and replace the Leased
Property, or the portion thereof so destroyed or damaged, at least to the extent
of the value and character thereof existing immediately prior to such occurrence
and in compliance with all Legal Requirements, including any alterations to the
Leased Property required to be made by any Governmental Agencies due to any
changes in code or building regulations (which Tenant acknowledges may increase
the replacement value of the Leased Property which Tenant will then be required
to insure, due to any changes in code or building regulations). All such
restoration work shall be started as promptly as practicable and diligently
completed at Tenant's sole cost and expense (using available insurance
proceeds). Tenant shall, however, immediately take such action as is necessary
to assure that the Leased Property (or any portion thereof), does not constitute
a nuisance or otherwise present or constitute a health or safety hazard.
Notwithstanding the foregoing the Tenant shall have the right to elect not to
repair any material casualty damage (estimated to cost greater than $250,000 to
repair) occurring within twelve (12) months prior to the scheduled expiration of
the then-current Term, provided and on the condition that: (i) Tenant promptly
pays to Landlord the full amount of all deductibles applying to the insured
loss, as well as of all uninsured amounts thereof, and Landlord or its Mortgagee
also receive and retain all insurance proceeds; (ii) Tenant has provided
adequate assurance that applicable business interruption insurance will continue
to be available through the end of the then-current Term to cover all resulting
loss of income or else adequate security therefor as requested by Landlord; and
(iii) Tenant, at Tenant's sole cost and expense, properly secures and protects
and preserves any damaged portion of the Facility in such a fashion as to insure
the safety of all Facility Residents, guest, invitees and others (to the extent
that such persons are reasonably expected to continue to occupy or come upon the
relevant portions of the Leased Property), and the value of the affected
improvements.

        10.2 Escrow and Disbursement of Insurance Proceeds. If this Agreement is
not otherwise terminated pursuant to Section 10.1, then in the event of a
casualty resulting in a loss to the Leased Improvements and/or P&E in an amount
greater than FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) (as determined by an
architect or engineer selected by Landlord), the proceeds of all insurance
policies maintained by Tenant shall be deposited in Landlord's name in an escrow
account at

                                       39
<PAGE>

a bank or other financial institution designated by Landlord, and shall be used
by Tenant for the repair, reconstruction or restoration of the Leased Property
to its original condition. Tenant shall, at the time of establishment of such
escrow account and from time to time thereafter until said work shall have been
completed and paid for, furnish Landlord with adequate evidence acceptable to
Landlord that at all times the undisbursed portion of the escrowed insurance
proceeds, together with any funds made available by Tenant, is sufficient to pay
for the repair, reconstruction or restoration in its entirety. Landlord may, at
its option, require, prior to advancement of said escrowed insurance proceeds
(i) approval of plans and specifications by an architect or other design
professional appropriate under the circumstances and approved by Landlord and
Tenant (which approval shall not be unreasonably withheld or delayed), (ii)
general contractors' estimates, (iii) architect's certificates, (iv)
unconditional lien waivers of general contractors, if available, (v) evidence of
approval by all Governmental Agencies and other regulatory bodies whose approval
is required, and (vi) such other terms as a Mortgagee or lender of Landlord may
reasonably require. The escrowed insurance proceeds shall be disbursed by
Landlord, not more than monthly, upon (i) certification of the architect or
engineer selected by Landlord and having supervision of the work that such
amounts are the amounts paid or payable for the repair, reconstruction or
restoration and (ii) submittal by Tenant of a written requisition and
substantiation therefor on AIA Forms G702 and G703 (or on such other form or
forms as may be reasonably acceptable to Landlord). Tenant shall obtain, and
make available to Landlord, receipted bills and, upon completion of said work,
full and final waivers of lien. In the event of a casualty resulting in a loss
payment for the Leased Improvements in an amount equal to or less than the
amount stated above, the proceeds shall be paid to Tenant, and shall be applied
towards repair, reconstruction and restoration. Any and all loss adjustments
with respect to losses payable hereunder shall require the prior written consent
of Landlord. All salvage resulting from any risk covered by insurance shall
belong to Tenant, provided any rights to the same have been waived by the
insurer. In addition, notwithstanding anything in this Agreement to the
contrary, Tenant shall be strictly liable and solely responsible for the amount
of any deductible and shall pay for all repairs, reconstruction or alterations
up to the full amount of such deductible (and provide evidence of such payment
to Landlord by documentation reasonably acceptable to Landlord) before any
insurance proceeds are used for repairs, reconstruction or alterations.

        10.3 No Abatement of Rent. Unless terminated in accordance with the
provisions of Section 10.1 above, this Agreement shall remain in full force and
effect and Tenant's obligation to make all payments of Rent and to pay all
Additional Charges as and when required under this Agreement shall remain
unabated during the Term notwithstanding any casualty to the Leased Property
(provided that Landlord shall credit against such payments any amounts paid to
Landlord as a consequence of such damage under any business interruption
insurance obtained by Tenant hereunder). The provisions of this Article 10 shall
be considered an express agreement governing any event of casualty involving the
Leased Property and, to the maximum extent permitted by law, Tenant hereby
waives the application of any local or state statute, law, rule, regulation or
ordinance in effect during the Term which provides for such abatement.

        10.4 Tenant's Property and Business Interruption Insurance. All
insurance proceeds payable by reason of any loss of or damage to any of Tenant's
Personal Property and the business interruption insurance maintained for the
benefit of Tenant shall be paid to Tenant; provided, however, no such payments
shall diminish or reduce the insurance payments otherwise payable to or for the
benefit of Landlord hereunder.

                                       40
<PAGE>

        10.5 Restoration of Tenant's Property. If Tenant is required to restore
the Leased Property as hereinabove provided, Tenant shall either (i) restore all
alterations and improvements made by Tenant and Tenant's Personal Property, or
(ii) replace such alterations and improvements and Tenant's Personal Property
with improvements or items of the same or better quality and utility in the
operation of the Leased Property.

        10.6 Waiver. Tenant hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction of the Leased Property
and agrees that its rights shall be limited to those set forth in Section 10.1.

                                   ARTICLE 11

                                  CONDEMNATION

        11.1 Total Condemnation, Etc. If the whole of the Leased Property shall
be taken or condemned for any public or quasi-public use or purpose, by right of
eminent domain or by purchase in lieu thereof, or if a substantial portion of
the Leased Property shall be so taken or condemned that the portion or portions
remaining is or are not sufficient and suitable, in the mutual reasonable
judgment of Landlord and Tenant, for the continued operation thereof as required
herein, so as to effectively render the Leased Property Unsuitable for its
Intended Use, then this Agreement and the Term hereby granted shall cease and
terminate (without prejudice to Landlord's and Tenant's respective rights to an
award under Section 11.3 below), as of the date on which the Condemnor takes
possession and all Rent shall be paid by Tenant to Landlord up to that date or
refunded by Landlord to Tenant if Rent has previously been paid by Tenant beyond
that date.

        11.2 Partial Condemnation. If a portion of the Leased Property is taken,
and the portion or portions remaining can, in the mutual reasonable judgment of
Landlord and Tenant, be adapted and used for the conduct of Tenant's business
operation in accordance with the terms of this Agreement, such that the Leased
Property is not effectively rendered Unsuitable for its Intended Use, then the
Tenant shall, utilizing condemnation proceeds paid to Landlord from the
Condemnor, promptly restore the remaining portion or portions thereof to a
condition comparable to their condition at the time of such taking or
condemnation, less the portion or portions lost by the taking, and this
Agreement shall continue in full force and effect except that the Rent payable
hereunder shall, if necessary, be equitably adjusted to take into account the
proportionate reduction in the number of licensed beds or living units located
on the Leased Property as a result of the taking.

        11.3 Disbursement of Award. The entire award for the Leased Property or
the portion or portions thereof so taken shall be apportioned between Landlord
and Tenant as follows: (a) if this Agreement terminates due to a taking or
condemnation, Landlord shall be entitled to the entire award; provided, however,
that any portion of the award expressly made for the taking of Tenant's
leasehold interest in the Leased Property, loss of business during the remainder
of the Term, and the taking of Tenant's Personal Property shall be the sole
property of and payable to Tenant, and (b) if this Agreement does not terminate
due to such taking or condemnation, Tenant shall be entitled to the award to the
extent required for restoration of the Leased Property, and Landlord shall be
entitled to the balance of the award not applied to restoration. In any
condemnation proceedings, Landlord and

                                       41
<PAGE>

Tenant shall each seek its own award in conformity herewith, at its own expense.
If this Agreement does not terminate due to a taking or condemnation, Tenant
shall, with due diligence, restore the remaining portion or portions of the
Leased Property in the manner hereinabove provided. In such event, the proceeds
of the award to be applied to restoration shall be deposited with a bank or
financial institution designated by Landlord as if such award were insurance
proceeds, and the amount so deposited will thereafter be treated in the same
manner as insurance proceeds are to be treated under Section 10.2 of this
Agreement until the restoration has been completed and Tenant has been
reimbursed for all the costs and expenses thereof. If the award is insufficient
to pay for the restoration, Tenant shall be responsible for the remaining cost
and expense of such restoration.

        11.4 No Abatement of Rent. This Agreement shall remain in full force and
effect and Tenant's obligation to make all payments of Rent and to pay all other
charges as and when required under this Agreement shall remain unabated during
the Term notwithstanding any Condemnation involving the Leased Property. The
provisions of this Article 11 shall be considered an express agreement governing
any Condemnation involving the Leased Property and, to the maximum extent
permitted by law, no local or State statute, law, rule, regulation or ordinance
in effect during the Term which provides for such abatement shall have any
application in such case.

        11.5 Disputes. If Landlord and Tenant cannot agree in respect of any
matters to be determined under this Article, a determination shall be requested
of the court having jurisdiction over the taking or condemnation; provided,
however, that if said court will not accept such matters for determination,
either party may have the matters determined by a court otherwise having
jurisdiction over the parties.

                                   ARTICLE 12

                              DEFAULTS AND REMEDIES

        12.1 Events of Default. Each of the following events shall be an Event
of Default hereunder by Tenant and shall constitute a breach of this Agreement:

                (a) If Tenant shall fail to (i) pay, when due, any Rent or any
        Additional Charge due hereunder; (ii) fully fund and maintain the Tenant
        Shortfall Reserve as required by Section 3.10.1; (iii) fully fund and
        maintain the Security Deposit as required by Section 3.11; or (iv) fully
        fund and maintain the Reserve and fund all Reserve Expenditures as
        required by Section 5.2, and such failure in each such event shall
        continue for a period of five (5) days after such amounts become due and
        payable.

                (b) If Tenant shall violate or fail to comply with or perform
        any other term, provision, covenant, agreement or condition to be
        performed or observed by Tenant under this Agreement which is not
        otherwise identified in this Section 12.1, and such violation or failure
        shall continue for a period of thirty (30) days after written notice
        thereof from Landlord; provided, however, if such violation or failure
        is incapable of cure by Tenant within such thirty (30) days after
        Tenant's diligent and continuous efforts to cure the same, Tenant shall
        have an additional period of sixty (60) days to cure the same.

                                       42
<PAGE>

                (c) If any assignment, transfer, sublease or encumbrance shall
        be made or deemed to be made that is in violation of the provisions of
        this Agreement.

                (d) If Tenant shall cease the actual and continuous operation of
        the business contemplated by this Agreement to be conducted by Tenant
        upon the Leased Property (and such cessation is not the result of
        casualty, condemnation or renovation and accompanying restoration or is
        not otherwise permitted by Landlord or is not the result of a legal
        requirement or during an emergency); or if Tenant shall vacate, desert
        or abandon the Leased Property; or if the Leased Property shall become
        empty and unoccupied; or if the Leased Property or Leased Improvements
        are used or are permitted to be used for any purpose, or for the conduct
        of any activity, other than the Permitted Use.

                (e) If, at any time during the Term of this Agreement, Tenant or
        Guarantor shall file in any court, pursuant to any statute of either the
        United States or of any State, a petition in bankruptcy or insolvency,
        or for reorganization or arrangement, or for the appointment of a
        receiver or trustee of all or any portion of Tenant's or Guarantor's
        property, including, without limitation, the leasehold interest in the
        Leased Property, or if Tenant or Guarantor shall make an assignment for
        the benefit of its creditors or petitions for or enters into an
        arrangement with its creditors.

                (f) If, at any time during the Term of this Agreement, there
        shall be filed against Tenant or Guarantor in any court pursuant to any
        statute of the United States or of any State, a petition in bankruptcy
        or insolvency, or for reorganization, or for the appointment of a
        receiver or trustee of all or a portion of Tenant's or Guarantor's
        property, including, without limitation, the leasehold interest in the
        Leased Property, and any such proceeding against Tenant or Guarantor
        shall not be dismissed within sixty (60) days following the commencement
        thereof.

                (g) If Tenant's leasehold interest in the Leased Property or any
        property therein (including without limitation Tenant's Personal
        Property and the P&E Replacements) shall be seized under any levy,
        execution, attachment or other process of court where the same shall not
        be vacated or stayed on appeal or otherwise within thirty (30) days
        thereafter, or if Tenant's leasehold interest in the Leased Property is
        sold by judicial sale and such sale is not vacated, set aside or stayed
        on appeal or otherwise within thirty (30) days thereafter.

                (h) If any of the Facility's Permits material to the Facility's
        operation for its Permitted Use are at any time suspended and the
        suspension is not stayed pending appeal within five (5) days, or
        voluntarily terminated without the prior written consent of Landlord.

                (i) If any Governmental Agencies having jurisdiction over the
        operation of the Facility removes ten percent (10%) or more of the total
        number of patients or residents located in the Facility at the time of
        such removal.

                (j) If Tenant voluntarily transfers ten (10) or more patients or
        residents located in the Facility in any one (1) year period (except as
        necessitated by a casualty), provided that any such transfer to a
        different type of care facility as a result of such patient's or
        resident's special needs that cannot be met at the Facility shall not be
        deemed a voluntary transfer.

                                       43
<PAGE>

                (k) If Tenant fails to give notice to Landlord not later than
        ten (10) days after Tenant's receipt of any fine notice from any
        Government Agency relating to a Major Violation at the Facility.

                (l) If Tenant fails to notify Landlord within twenty-four (24)
        hours after receipt of any notice from any Governmental Agency
        terminating or suspending or reflecting a material risk of an imminent
        termination or suspension, of any material Permit relating to the
        Facility.

                (m) If Tenant fails during the Term of this Lease to cure or
        abate any Major Violation occurring during the Term that is claimed by
        any Governmental Agency of any law, order, ordinance, rule or regulation
        pertaining to the operation of the Facility, and within the time
        permitted by such authority for such cure or abatement.

                (n) The failure of Tenant to correct, within the time deadlines
        set by any Governmental Agency, any deficiency which would result in the
        following actions by such agency with respect to the Facility:

                        (i) a termination of any Reimbursement Contract or any
                Permit material to the operation of the Facility; or

                        (ii) the issuance of a stop placement order or ban on
                new admissions generally.

                (o) If a final unappealable determination is made by applicable
        state authorities of the revocation or limitation of any Permit required
        for the lawful operation of the Leased Property in accordance with its
        Permitted Use or there occurs the loss or material limitation of any
        Permit under any other circumstances under which Tenant is required to
        cease its operation of the Leased Property in accordance with its
        Permitted Use at the time of such loss or limitation.

                (p) If Tenant or the Facility should be assessed fines or
        penalties by any state health or licensing agency having jurisdiction
        over such Persons or the Facility in excess of $25,000.00 in any Fiscal
        Year.

                (q) If Tenant or Guarantor or an Affiliated Person of Tenant or
        Guarantor shall default under any other ARC-Related Lease (whether now
        in effect or entered into in the future) and shall fail to cure such
        default in the time period provided for in that lease.

                (r) If Guarantor shall default under the Guaranty and any such
        default shall remain uncured through any applicable notice and cure
        period thereunder.

        12.2 Remedies on Default. If any of the Events of Default hereinabove
specified shall occur, Landlord, at any time thereafter, shall have and may
exercise any of the following rights and remedies:

                (a) Landlord may, pursuant to written notice thereof to Tenant,
        immediately terminate this Agreement and, peaceably or pursuant to
        appropriate legal proceedings, re-enter,

                                       44
<PAGE>

        retake and resume possession of the Leased Property for Landlord's own
        account without liability for trespass (Tenant hereby waiving any right
        to notice or hearing prior to such taking of possession by Landlord)
        and, for Tenant's breach of and default under this Agreement, recover
        immediately from Tenant any and all sums and damages due or in existence
        at the time of such termination, including, without limitation, (i) all
        Rent and other sums, charges, payments, costs and expenses agreed and/or
        required to be paid by Tenant to Landlord hereunder prior to such
        termination, (ii) all costs and expenses of Landlord in connection with
        the recovery of possession of the Leased Property, including reasonable
        attorney's fees based upon services rendered at hourly rates and court
        costs, and (iii) all costs and expenses of Landlord in connection with
        any reletting or attempted reletting of the Leased Property or any part
        or parts thereof, including, without limitation, brokerage fees,
        advertising costs, reasonable attorney's fees based upon services
        rendered at hourly rates based upon service rendered at hourly rates and
        the cost of any alterations or repairs or tenant improvements which may
        be reasonably required to so relet the Leased Property, or any part or
        parts thereof.

                (b) Landlord may, pursuant to any prior notice required by law,
        and without terminating this Agreement, peaceably or pursuant to
        appropriate legal proceedings, re-enter, retake and resume possession of
        the Leased Property for the account of Tenant, make such alterations of
        and repairs and improvements to the Leased Property as may be reasonably
        necessary in order to relet the same or any part or parts thereof and,
        directly or through a qualified management or operating company which
        may include an Affiliated Person of Landlord, operate and manage the
        Leased Property, and relet or attempt to relet the Leased Property or
        any part or parts thereof for such term or terms (which may be for a
        term or terms extending beyond the Term of this Agreement), at such
        rents and upon such other terms and provisions as Landlord, in its sole
        discretion, may deem advisable. If Landlord takes possession and control
        of the Leased Property and operates the same, Tenant shall, for so long
        as Landlord is actively operating the Leased Property, have no
        obligation to operate the Leased Property but agrees that Landlord, any
        contract manager or operator, or any new tenant or sublessee may, to the
        extent permitted by law, operate the Facility under Tenant's Permits,
        including its Medicaid and Medicare provider agreements, if any, until
        same are issued in the name of the Landlord or the new manager/operator
        or tenant or sublessee, as applicable. If Landlord relets or attempts to
        relet the Leased Property, or obtains a contract manager or operator for
        the Leased Property, Landlord shall at its sole discretion determine the
        terms and provisions of any new lease or sublease, or management or
        operating agreement, and whether or not a particular proposed manager or
        operator, or new tenant or sublessee, is acceptable to Landlord. Upon
        any such reletting, or the operation of the Leased Property by a
        contract manager or operator, all rents or incomes received by the
        Landlord from such reletting or otherwise from the operation of the
        Leased Property shall be applied, (i) first, to the payment of all costs
        and expenses of recovering possession of the Leased Property, (ii)
        second, to the payment of any costs and expenses of such reletting and
        or operation, including brokerage fees, advertising costs, reasonable
        attorney's fees based upon service rendered at hourly rates, a
        management fee of between five percent (5%) and ten percent (10%) of the
        gross revenues generated, and the cost of any alterations and repairs
        reasonably required for such reletting or operation of the Leased
        Property; (iii) third, to the payment of any indebtedness, other than
        Rent, due hereunder from Tenant to the Landlord, (iv) fourth, to the
        payment of all Rent and other sums due and unpaid hereunder, and (v)
        fifth, the residue, if any, shall be held by the

                                       45
<PAGE>

        Landlord and applied in payment of future Rent as the same may become
        due and payable hereunder. If the rents received from such reletting or
        net income from the operation of the Leased Property during any period
        shall be less than the Rents and Additional Charges required to be paid
        during that period by the Tenant hereunder, Tenant shall promptly pay
        any such deficiency to the Landlord and failing the prompt payment
        thereof by Tenant to Landlord, Landlord shall immediately be entitled to
        institute legal proceedings for the recovery and collection of the same.
        Such deficiency shall be calculated and paid at the time each payment of
        Minimum Rent, Percentage Rent or any other sum shall otherwise become
        due under this Agreement, or, at the option of Landlord, at the end of
        the Term of this Agreement. Landlord shall, in addition, be immediately
        entitled to sue for and otherwise recover from Tenant any other damages
        occasioned by or resulting from any abandonment of the Leased Property
        or other breach of or default under this Agreement other than a default
        in the payment of Rent. No such re-entry, retaking or resumption of
        possession of the Leased Property by the Landlord for the account of
        Tenant shall be construed as an election on the part of Landlord to
        terminate this Agreement unless a written notice of such intention shall
        be given to the Tenant or unless the termination of this Agreement be
        decreed by a court of competent jurisdiction. Notwithstanding any such
        re-entry and reletting or attempted reletting of the Leased Property or
        any part or parts thereof for the account of Tenant without termination,
        Landlord may at any time thereafter, upon written notice to Tenant,
        elect to terminate this Agreement or pursue any other remedy available
        to Landlord for Tenant's previous breach of or default under this
        Agreement.

                (c) Landlord may, without re-entering, retaking or resuming
        possession of the Leased Property, sue for all Rent and all other sums,
        charges, payments, costs and expenses due from Tenant to Landlord
        hereunder (discounted to present value) either: (i) as they become due
        under this Agreement, taking into account that Tenant's right and option
        to pay the Rent hereunder on a monthly basis in any particular Fiscal
        Year is conditioned upon the absence of a Default on Tenant's part in
        the performance of its obligations under this Agreement, or (ii) at
        Landlord's option, accelerate the maturity and due date of the whole or
        any part of the Rent for the entire then-remaining unexpired balance of
        the Term of this Agreement, as well as all other sums, charges,
        payments, costs and expenses required to be paid by Tenant to Landlord
        hereunder, including, without limitation, damages for breach or default
        of Tenant's obligations hereunder in existence at the time of such
        acceleration, such that all sums due and payable under this Agreement
        shall, following such acceleration, be treated as being and, in fact, be
        due and payable in advance as of the date of such acceleration. Landlord
        may then proceed to recover and collect all such unpaid Rent and other
        sums so sued for from Tenant by distress, levy, execution or otherwise.
        Regardless of which of the foregoing alternative remedies is chosen by
        Landlord under this subparagraph (c), Landlord shall not be required to
        relet the Leased Property nor exercise any other right granted to
        Landlord pursuant to this Agreement, nor, except as may be required by
        Applicable Laws, shall Landlord be under any obligation to minimize or
        mitigate Landlord's damages or Tenant's loss as a result of Tenant's
        breach of or default under this Agreement. Notwithstanding the
        foregoing, following such time as Landlord may obtain possession of the
        Leased Property, Landlord or its successor Landlord at the time of any
        Lease termination, shall continue to make the Leased Property available
        for lease, on an "as is" basis, and shall turn over the net proceeds
        thereof to Tenant to the extent actually received by Landlord in respect
        of any time period for which Landlord shall have received the full

                                       46
<PAGE>

        amount of Rent payable with respect thereto (albeit perhaps on a basis
        reasonably discounted for the time value of money or present-value
        basis).

                (d) Landlord may, in addition to any other remedies provided
        herein, enter upon the Leased Property or any portion thereof and take
        possession of (i) any and all of Tenant's Personal Property, if any,
        (ii) Tenant's books and records necessary to operate the Leased
        Property, and (iii) all the bank accounts concerning, or established
        for, the Leased Property, without liability for trespass or conversion
        (Tenant hereby waiving any right to notice or hearing prior to such
        taking of possession by Landlord) and sell the same by public or private
        sale, after giving Tenant reasonable notice of the time and place of any
        public or private sale, at which sale Landlord or its assigns may
        purchase all or any portion of Tenant's Personal Property, if any,
        unless otherwise prevented by law. Unless otherwise provided by law and
        without intending to exclude any other manner of giving Tenant
        reasonable notice, the requirement of reasonable notice shall be met if
        such notice is given at least ten (10) days before the date of sale. The
        proceeds from any such disposition, less all expenses incurred in
        connection with the taking of possession, holding and selling of such
        Property (including reasonable attorneys' fees based upon services
        rendered at hourly rates) shall be credited against Rent which is due
        hereunder.

                (e) Tenant acknowledges that one of the rights and remedies
        available to Landlord under Applicable Law is to apply to a court of
        competent jurisdiction for the appointment of a receiver to collect the
        rents, issues, profits and income of the Leased Property and to manage
        the operation of the Leased Property. Tenant hereby further acknowledges
        that the revocation, suspension or material limitation of the
        certification of the Leased Property for provider status under Medicare
        or Medicaid (or successor programs) and/or the revocation, suspension or
        material limitation of the license of the Leased Property as an skilled
        nursing, assisted living and dementia care facility under the laws of
        the State will materially and irreparably impair the value of Landlord's
        investment in the Leased Property. Therefore, in any of such events, and
        in addition to any other right or remedy of Landlord under this
        Agreement, Landlord may petition any appropriate court for appointment
        of a receiver to manage the operation of the Leased Property (or any
        portion thereof as to which Tenant has suffered the revocation,
        suspension or material limitation of any license), to collect and
        disburse all rents, issues, profits and income generated thereby and to
        preserve or replace to the extent possible the operating license and
        provider certification of the Leased Property or to otherwise substitute
        the licensee or provider thereof. The receiver shall be entitled to a
        reasonable fee for his services as receiver. All such fees and other
        expenses of the receivership estate shall be payable as Additional
        Charges under this Agreement. Tenant hereby irrevocably stipulates to
        the appointment of a receiver under such circumstances and for such
        purposes and agrees not to contest such appointment.

                (f) In addition to the remedies hereinabove specified and
        enumerated, Landlord shall have and may exercise the right to invoke any
        other remedies allowed at law or in equity as if the remedies of
        re-entry, unlawful detainer proceedings and other remedies were not
        herein provided. Accordingly, the mention in this Agreement of any
        particular remedy shall not preclude Landlord from having or exercising
        any other remedy at law or in equity. Nothing herein contained shall be
        construed as precluding the Landlord from having or exercising such

                                       47
<PAGE>

        lawful remedies as may be and become necessary in order to preserve the
        Landlord's right or the interest of the Landlord in the Leased Property
        and in this Agreement, even before the expiration of any notice periods
        provided for in this Agreement, if under the particular circumstances
        then existing the allowance of such notice periods will prejudice or
        will endanger the rights and estate of the Landlord in this Agreement
        and in the Leased Property. In addition, any provision of this Agreement
        to the contrary notwithstanding, no provision of this Agreement shall
        delay or otherwise limit Landlord's right to seek injunctive relief or
        Tenant's obligation to comply with any such injunctive relief.

        12.3 Application of Funds. Any payments received by Landlord under any
of the provisions of this Agreement during the existence or continuance of any
Event of Default (and any payment made to Landlord rather than Tenant due to the
existence of any Event of Default) shall be applied to Tenant's current and past
due obligations under this Agreement in such order as Landlord may determine or
as may be prescribed by the laws of the State.

        12.4 Landlord's Right to Cure Tenant's Default. If Tenant shall default
in the performance of any term, provisions, covenant or condition on its part to
be performed hereunder, Landlord may, but shall have no obligation to perform
the same for the account and at the expense of Tenant. If, at any time and by
reason of such default, Landlord is compelled to pay, or elects to pay, any sum
of money or do any act which will require the payment of any sum of money, or is
compelled to incur any expense in the enforcement of its rights hereunder or
otherwise, such sum or sums, together with interest thereon at the Overdue Rate
shall be deemed Additional Rent hereunder and shall be repaid to Landlord by
Tenant promptly when billed therefor, and Landlord shall have all the same
rights and remedies in respect thereof as Landlord has in respect of the rents
herein reserved.

        12.5 Landlord's Lien. Landlord shall have at all times during the Term
of this Agreement, a valid lien for all rents and other sums of money becoming
due hereunder from Tenant, upon all goods, accounts, wares, merchandise,
inventory, furniture, fixtures, equipment, vehicles and other personal property
and effects of Tenant situated in or upon the Leased Property, including
Tenant's Personal Property and any interest of Tenant in P&E Replacements, but
specifically excluding the trade names "ARC," "American Retirement Corporation,"
"Heritage Club," or any derivation or replacement thereof or addition thereto
applied by Affiliated Persons of Guarantor to other facilities, and such
property shall not be removed therefrom except in accordance with the terms of
this Agreement without the approval and consent of Landlord until all arrearages
in Rent as well as any and all other sums of money then due to Landlord
hereunder shall first have been paid and discharged in full. Alternatively, the
lien hereby granted may be foreclosed in the manner and form provided by law for
foreclosure of security interests or in any other manner and form provided by
law. The statutory lien for Rent, if any, is not hereby waived and the express
contractual lien herein granted is in addition thereto and supplementary
thereto. Tenant agrees to execute and deliver to Landlord from time to time
during the Term of this Agreement such Financing Statements as may be required
by Landlord in order to perfect the Landlord's lien provided herein or granted
or created by state law. Tenant further agrees that during an Event of Default,
Tenant shall not make any distributions to its shareholders, partners, members
or other owners and any such distributions shall be considered and deemed to be
fraudulent and preferential and subordinate to Landlord's claim for Rent and
other sums hereunder.

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<PAGE>

                                   ARTICLE 13

                                  HOLDING OVER

        If Tenant or any other person or party shall remain in possession of the
Leased Property or any part thereof following the expiration of the Term or
earlier termination of this Agreement without an agreement in writing between
Landlord and Tenant with respect thereto, the person or party remaining in
possession shall be deemed to be a tenant at sufferance, and during any such
holdover, the Rent payable under this Agreement by such tenant at sufferance
shall be double the rate or rates in effect immediately prior to the expiration
of the Term or earlier termination of this Agreement. In no event, however,
shall such holding over be deemed or construed to be or constitute a renewal or
extension of this Agreement.

                                   ARTICLE 14

                     LIABILITY OF LANDLORD; INDEMNIFICATION

        14.1 Liability of Landlord. Landlord and its affiliates shall not be
liable to Tenant, its employees, agents, invitees, licensees, customers,
clients, residents and their respective family members or guests for any damage,
injury, loss, compensation or claim, including, but not limited to, claims for
the interruption of or loss to Tenant's business, based on, arising out of or
resulting from any cause whatsoever (other than Landlord's gross negligence or
willful misconduct), including, but not limited to: (a) repairs to any portion
of the Leased Property; (b) interruption in Tenant's use of the Leased Property;
(c) any accident or damage resulting from the use or operation (by Landlord,
Tenant or any other person or persons) of any equipment within the Leased
Property, including without limitation, heating, cooling, electrical or plumbing
equipment or apparatus; (d) the termination of this Agreement by reason of the
condemnation or destruction of the Leased Property in accordance with the
provisions of this Agreement; (e) any fire, robbery, theft, mysterious
disappearance or other casualty; (f) the actions of any other person or persons;
and (g) any leakage or seepage in or from any part or portion of the Leased
Property, whether from water, rain or other precipitation that may leak into, or
flow from, any part of the Leased Property, or from drains, pipes or plumbing
fixtures in the Leased Improvements. Any goods, property or personal effects
stored or placed by the Tenant or its employees in or about the Leased Property
including Tenant's Personal Property, shall be at the sole risk of the Tenant.

        14.2 Indemnification of Landlord. Tenant shall defend, indemnify and
save and hold Landlord harmless from and against any and all liabilities,
obligations, losses, damages, injunctions, suits, actions, fines, penalties,
claims, demands, costs and expenses of every kind or nature, including
reasonable attorneys' fees and court costs, incurred by Landlord, arising
directly or indirectly from or out of: (a) any failure by Tenant to perform any
of the terms, provisions, covenants or conditions of this Agreement, on Tenant's
part to be performed including but not limited to the payment of any fee, cost
or expense which Tenant is obligated to pay and discharge hereunder, (b) any
accident, injury or damage which shall happen at, in or upon the Leased
Property, however occurring; (c) any matter or thing growing out of the
condition, occupation, maintenance, alteration, repair, use or operation by any
person of the Leased Property, or any part thereof, or the operation of the
business contemplated by

                                       49
<PAGE>

this Agreement to be conducted thereon, thereat, therein, or therefrom; (d) any
failure of Tenant to comply with the Legal Requirements; (e) any contamination
of the Leased Property, or the groundwaters thereof, arising on or after the
date Tenant takes possession of the Leased Property and occasioned by the use,
transportation, storage, spillage or discharge thereon, therein or therefrom of
any toxic or hazardous chemicals, compounds, materials or substances, whether by
Tenant or by any agent or invitee of Tenant; (f) any discharge of toxic or
hazardous sewage or waste materials from the Leased Property into any septic
facility or sanitary sewer system serving the Leased Property arising on or
after the date Tenant takes possession of the Leased Property, whether by Tenant
or by any agent of Tenant; (g) any fines, penalties, or refunds due and payable
to Medicare or Medicaid arising out of the operation of the Leased Property by
Tenant; or (h) any other act or omission of Tenant, its employees, agents,
invitees, customers, licensees or contractors, provided, however, Tenant shall
not be liable for or be obligated to indemnify Landlord from and against any
damages resulting from Landlord's gross negligence or willful misconduct.

        THE INDEMNIFICATION OF LANDLORD HEREUNDER IS INTENDED TO AND SHALL
        EXPRESSLY INCLUDE INDEMNIFICATION AGAINST LANDLORD'S OWN NEGLIGENCE,
        UNLESS SPECIFICALLY OTHERWISE PROVIDED.

        Tenant's indemnity obligations under this Article and elsewhere in this
Agreement arising prior to the termination or permitted assignment of this
Agreement shall survive any such termination or assignment.

        14.3 Notice of Claim or Suit. Tenant shall promptly notify Landlord of
any claim, action, proceeding or suit instituted or threatened against Tenant or
Landlord of which Tenant receives notice or of which Tenant acquires knowledge.
In the event Landlord is made a party to any action for damages or other relief
against which Tenant has indemnified Landlord, as aforesaid, Tenant shall at its
own expense using counsel reasonably approved by Landlord, diligently defend
Landlord, pay all costs in such litigation or, at Landlord's option, and
expense, Landlord may nonetheless engage its own counsel in connection with its
own defense or settlement of said litigation in which event Tenant shall
cooperate with Landlord and make available to Landlord all information and data
which Landlord deems necessary or desirable for such defense. In the event
Landlord is required to secure its own counsel due to a conflict in the
interests of Tenant and Landlord in any action for damages or other relief
against which Tenant has indemnified Landlord, Tenant shall pay all of
Landlord's costs in such litigation. Tenant is required to approve a settlement
agreement for any such claim or suit as requested by Landlord and which is
consistent with applicable insurance company requirements, unless Tenant posts a
bond or other security acceptable to Landlord for any potentially uninsured
liability amounts.

        14.4 Limitation on Liability of Landlord. In the event Tenant is awarded
a money judgment against Landlord, Tenant's sole recourse for satisfaction of
such judgment shall be limited to execution against the Landlord's interest in
the Leased Property. In no event shall any partner, member, officer, director,
stockholder or shareholder of Landlord or any partner thereof or Affiliated
Person or Subsidiary thereof, be personally liable for the obligations of
Landlord hereunder.

                                       50
<PAGE>

                                   ARTICLE 15

                           REIT AND UBTI REQUIREMENTS

        Tenant understands that, in order for Landlord to qualify as a real
estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"), the following requirements must be satisfied. The parties
intend that amounts to be paid by Tenant hereunder and received or accrued,
directly or indirectly, by Landlord with respect to the Leased Property
(including any rents attributable to personal property that is leased with
respect thereto) will qualify as "rents from real property" (within the meaning
of Code Section 856(d) and Section 512(b)(3)), and that neither party will take,
or permit to take, any action that would cause any amount received by the
Landlord under this Agreement to fail to qualify as such under the Code.
Consistent with this intent, the parties agree that:

        15.1 Limitations on Rents Attributable to Personal Property. "Rents
attributable to any personal property" leased to the Tenant cannot exceed
fifteen percent (15%) of the total rent received or accrued by Landlord under
this Agreement for the Fiscal Year of the Landlord. Consistent therewith, the
average of the adjusted tax bases of the personal property (within the meaning
set forth in Section 1.512(b)-1(c)(3)(ii) of the applicable Treasury
Regulations) that is leased to Tenant with respect to the Leased Property at the
beginning and end of a Fiscal Year cannot exceed fifteen percent (15%) of the
average of the aggregate adjusted tax bases of the real and personal property
comprising such Leased Property that is leased to Tenant under such lease at the
beginning and end of such Fiscal Year (the "REIT Personal Property Limitation").
If Landlord reasonably anticipates that the REIT Personal Property Limitation
will be exceeded with respect to the Leased Property for any Fiscal Year,
Landlord shall notify Tenant, and Landlord and Tenant shall negotiate in good
faith the purchase by Tenant of items of personal property anticipated by
Landlord to be in excess of the Personal Property Limitation. Provided, however,
that Tenant's responsibility to purchase such personal property will be offset
by Landlord in some mutually agreeable manner, which would not result in the
Landlord earning income which would constitute "unrelated business taxable
income" within the meaning of Section 512 of the Code, if the Landlord was a
"qualified trust" within the meaning of Section 856(h)(3)(E) of the Code.

        15.2 Basis for Sublease Rent Restricted. Tenant cannot sublet the
property that is leased to it by Landlord, or enter into any similar
arrangement, on any basis such that the rental or other amounts paid by the
sublessee thereunder would be based, in whole or in part, on either (a) the net
income or profits derived by the business activities of the sublessee or (b) any
other formula such that any portion of the rent paid by Tenant to Landlord would
fail to qualify as "rent from real property" within the meaning of Section
856(d) and Section 512(b)(3) of the Code and regulations promulgated thereunder.

        15.3 Landlord Affiliate Subleases Restricted. Anything to the contrary
in this Agreement notwithstanding, Tenant shall not sublease the Leased Property
to, or enter into any similar arrangement with, any person in which Landlord
owns, directly or indirectly, a ten percent (10%) or more interest, with the
meaning of Section 856(d)(2)(B) of the Code, and any such action shall be deemed
void ab initio. Anything to the contrary in this Agreement notwithstanding,
Tenant shall not

                                       51
<PAGE>

sublease the Leased Property to, or enter into any similar arrangement with, any
Person that Landlord would be deemed to control within the meaning of Section
512 (b)(13) of the Code.

        15.4 Landlord Interests in Tenant Restricted. Anything to the contrary
in this Agreement notwithstanding, neither party shall take, or permit to take,
any action that would cause Landlord to own, directly or indirectly, a ten
percent (10%) or greater interest in the Tenant within the meaning of Section
856(d)(2)(B) of the Code, and any similar or successor provision thereto, and
any such action shall be deemed void ab initio. In addition, anything to the
contrary in this Agreement notwithstanding, Tenant shall not take or permit to
take, any action that would cause Landlord to own, directly or indirectly, such
interest in Tenant such that amounts received from Tenant would represent
amounts received from a controlled entity within the meaning of Section
512(b)(13) of the Code.

        15.5 Rents from Personal Property Restricted. Rents attributable to
personal property within the meaning of Treasury Regulation Section
1.512(b)-1(c)(3)(ii) that is leased to Tenant with respect to the Leased
Property will not exceed 10 percent (10%) of the total Rents per year (the "UBTI
Personal Property Limitation"). If Landlord reasonably anticipates that the UBTI
Personal Property Limitation will be exceeded with respect to the Leased
Property for any Fiscal Year, Landlord shall notify Tenant, and Landlord and
Tenant shall negotiate in good faith the purchase by Tenant of items of personal
property anticipated by Landlord to be in excess of the UBTI Personal Property
Limitation; provided, However, that Tenant's responsibility to purchase such
personal property will be offset by Landlord in some mutually agreeable manner
which will not result in the Landlord earning income which would constitute
"unrelated business taxable income" within the meaning of Section 512 of the
Code if the Landlord was a "qualified trust" within the meaning of Section
856(h)(3)(E) of the Code.

        15.6 Landlord Services. Any services provided by, or on behalf of,
Landlord will not prevent any amounts received or accrued from qualifying as
"Rents from real property" (within the meaning of Section 856(d)(2) or Section
512(b)(3) of the Code).

        15.7 Certain Subtenants Prohibited. Anything to the contrary in this
Agreement notwithstanding, Tenant shall not sublease the Leased Property to, or
enter into any similar arrangement with, any Person that would be described in
Section 514(c)(9)(B)(iii) or (iv) of the Code.

        15.8 Future Amendment. Tenant hereby agrees to amend this Article 15
from time to time as Landlord deems necessary or desirable in order to
effectuate the intent hereof.

                                   ARTICLE 16

                            SUBLETTING AND ASSIGNMENT

        16.1 Transfers Prohibited Without Consent. Tenant shall not, without the
prior written consent of Landlord in each instance which may be withheld in
Landlord's sole opinion and discretion, sell, assign or otherwise transfer this
Agreement, or Tenant's interest in the Leased Property together with all
interests of Tenant in all property of any nature located and used at the Leased
Property (including without limitation Tenant's Personal Property and the P&E
Replacements), in whole or in part, or any rights or interest which Tenant may
have under this Agreement, or sublet any part of the

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<PAGE>

Leased Property, or grant or permit any lien or encumbrance on or security
interest in Tenant's interest in this Agreement; notwithstanding the foregoing,
Tenant shall be permitted to grant sublease, rental or other occupancy rights in
the Facility to individual residents in connection with the operation of the
Leased Property in accordance with the Permitted Use. Notwithstanding the
foregoing, Tenant may sell, assign or otherwise transfer this Agreement, or
Tenant's interest in the Leased Property, in whole but not in part, without the
consent of the Landlord, to an Affiliated Person or to Guarantor provided (i)
Tenant gives Landlord prior written notice of such sale or assignment, (ii)
Tenant shall remain liable under this Agreement for the remaining Term, and
(iii) such assignee or purchaser shall continue to operate the Leased Premises
as a first class skilled nursing, assisted living and dementia care facility
consistent with other skilled nursing, assisted living and dementia care
facilities being operated by Guarantor and its Affiliated Persons.

         Landlord shall not, without the prior written consent of Tenant in each
instance which may be withheld in Tenant's sole opinion and discretion, sell,
assign or otherwise transfer this Agreement, or Landlord's interest in the
Leased Property, in whole or in part, or any rights or interest which Landlord
may have under this Agreement, either directly or indirectly in the form of a
Facility Mortgage as contemplated under Article 19 hereof, to a direct
competitor of Tenant or Guarantor. In the event that a direct competitor of
Tenant or Guarantor becomes a Mortgagee of the Leased Property the subordination
provisions of Section 19.1 shall not apply.

        16.2 Indirect Transfer Prohibited Without Consent. A sale, assignment,
pledge, transfer, exchange or other disposition of (a) the stock of Tenant or
any general partner interest in Tenant or (b) any interest of a member or
members of Tenant which results in a change or transfer of management or control
of Tenant, or a merger, consolidation or other combination of Tenant with
another entity which results in a change or transfer of management or control of
Tenant, shall be deemed an assignment hereunder and shall be subject to Section
16.1 hereof. For purposes hereof, exchange or transfer of management or control
or effective control, shall mean a transfer of 50% or more of the economic
benefit of, or Control of, any such entity.

        16.3 Adequate Assurances. Without limiting any of the foregoing
provisions of this Article, if, pursuant to the U.S. Bankruptcy Code, as the
same may be amended from time to time, Tenant is permitted to assign or
otherwise transfer its rights and obligations under this Agreement in disregard
of the restrictions contained in this Article, the assignee shall be deemed to
agree to provide adequate assurance to Landlord (a) that any Percentage Rent
shall not decline substantially after the date of such assignment, (b) of the
continued use of the Leased Property solely in accordance with the Permitted Use
thereof, (c) of the continuous operation of the business in the Leased Property
in strict accordance with the requirements of Article 4 hereof, and (d) of such
other matters as Landlord may reasonably require at the time of such assumption
or assignment. Without limiting the generality of the foregoing, adequate
assurance shall include the requirement that any such assignee shall have a net
worth (exclusive of good will) of not less than the aggregate of the Rent due
and payable for the previous Fiscal Year and is or can be licensed to operate
the Facility by the appropriate Governmental Agencies. Such assignee shall
expressly assume this Agreement by an agreement in recordable form, an original
counterpart of which shall be delivered to Landlord prior to an assignment of
the Agreement.

         Any approval of such successor Tenant shall not affect or alter
Landlord's approval rights of each manager of the Leased Property.

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                                   ARTICLE 17

                 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS

        17.1 Estoppel Certificates. Tenant shall from time to time, within
fifteen (15) days after request by Landlord and without charge, give a Tenant
Estoppel Certificate in the form (or substantially the form) attached hereto as
Exhibit "D" and containing such other matters as may be reasonably requested by
Landlord to any person, firm or corporation specified by Landlord.

        17.2 Monthly Financial Statements. Throughout the Term of this
Agreement, Tenant shall prepare and deliver to Landlord at or prior to the end
of each month during the Term hereof, an income (or profit and loss) statement
and operating balance sheet showing the results of the operation of the Leased
Property for the immediately preceding month and for the Fiscal Year to date.
This information shall be provided to Landlord under a complete financial
statement for the Facility which shall be delivered prior to the end of the next
following month, in the form customarily provided in the industry and approved
in advance by the Landlord, and which shall: (a) be taken from the books and
records maintained by Tenant, Guarantor and any manager in the form specified
herein; (b) follow a consistent form as approved in advance in writing by
Landlord; and (c) indicate variances from budgeted results for each line item
against the Tenant's budget for the Leased Property for such Fiscal Year. The
aforesaid financial statements shall be accompanied by an Officer's Certificate
which, for purposes hereof shall mean a Certificate of the Chief Financial
Officer of Tenant, and of Guarantor's Chief Financial Officer, in which such
Officer shall certify (a) that such statements have been properly prepared in
accordance with GAAP and are true, correct and complete in all material respects
and fairly present the consolidated financial condition of the Tenant at and as
of the dates thereof and the results of its operations for the period covered
thereby, and (b) that no Event of Default has occurred and is continuing
hereunder.

        17.3 Annual Financial Statements. Tenant shall deliver to Landlord
within ninety (90) days after the end of each Fiscal Year, a profit and loss
statement, balance sheet and statement of cash flow certified by an independent
certified public accountant who is actively engaged in the practice of his
profession and who is acceptable to Landlord (which statement shall also be
certified by an officer, partner or member in Tenant) together with copies of
all reports and communications furnished to Guarantor, Tenant's other Affiliated
Persons or any manager of the Leased Property, showing results from the
operation of the Leased Property during such Fiscal Year, and reasons for
material variations from the approved budget for such year. Tenant shall also
deliver to Landlord at Landlord's expense at any time and from time to time,
upon not less than twenty (20) days notice from Landlord, any financial
statements or other financial reporting information required to be filed by
Landlord with the SEC or any other governmental authority or required pursuant
to any order issued by any Governmental Agencies or arbitrator in any litigation
to which Landlord is a party for purposes of compliance therewith. The financial
statements required herein are in addition to the statements required under
Section 3.3.2 hereof. Notwithstanding the foregoing, in the event that Tenant's
financial records are not otherwise being reviewed or audited by an independent
certified public accountant then the Landlord will accept financial statements
certified true and correct by the Chief Financial Officer of Tenant and by the
Guarantor's Chief Financial Officer.

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<PAGE>

        17.4 Records. Tenant shall keep and maintain at all times in accordance
with GAAP (separate and apart from its other books, records and accounts)
complete and accurate up-to-date books and records adequate to reflect clearly
and correctly the results of operations of the Leased Property, on an accrual
basis, including but not limited to, each calculation of Percentage Rent. Such
books and records shall be kept and maintained at the Leased Property or
Tenant's principal office in Nashville, Tennessee. Landlord or its
representatives shall have, at all reasonable times during normal business
hours, reasonable access, on reasonable advance notice, to examine and copy the
books and records pertaining to the Leased Property and the Tenant Shortfall
Reserve. Such books and records shall be available for at least four (4) years
after the applicable quarterly calculation of Percentage Rent for Landlord's
inspection, copying, review and audit at Landlord's expense during reasonable
business hours and upon reasonable notice for the purpose of verifying the
accuracy of Tenant's calculation of Percentage Rent.

        17.5 General Operations Budget. In addition to the Reserve Estimate,
Tenant shall furnish to Landlord, on or before December 1 of each Fiscal Year
proposed annual budgets in a form satisfactory to Landlord and consistent with
the then standards for the same brand of skilled nursing, assisted living and
dementia care facilities as the Facility setting forth projected income and
costs and expenses projected to be incurred by Tenant in managing, leasing,
maintaining and operating the Facility during the following Fiscal Year.

        17.6 Quarterly Meetings. At Landlord's request, Tenant shall make the
Tenant's property management team and the executive officers of Tenant available
to meet with Landlord on a quarterly basis to discuss the Reserve Estimate, the
annual budgets and any other items related to the operation of the Facility,
which Landlord wishes to discuss. Tenant agrees to give good faith consideration
to any suggestions or requests that Landlord may have.

                                   ARTICLE 18

                           LANDLORD'S RIGHT TO INSPECT

        Landlord, Mortgagee and their agents shall have the right to enter upon
the Leased Property or any portion thereof at any reasonable time to inspect the
same, including but not limited to, the operation, sanitation, safety,
maintenance and use of the same, or any portions of the same and to assure
itself that Tenant is in full compliance with its obligations under this
Agreement (but Landlord and Mortgagee shall not thereby assume any
responsibility for the performance of any of Tenant's obligations hereunder, nor
any liability arising from the improper performance thereof). In making any such
inspections, neither Landlord nor Mortgagee shall unduly interrupt or interfere
with the conduct of Tenant's business.

                                       55
<PAGE>

                                   ARTICLE 19

                               FACILITY MORTGAGES

        19.1 Subordination. This Agreement, Tenant's interest hereunder and
Tenant's leasehold interest in and to the Leased Property are hereby agreed by
Tenant to be and are hereby made junior, inferior, subordinate and subject in
right, title, interest, lien, encumbrance, priority and all other respects to
any mortgage or mortgages and security interests now or hereafter in force and
effect upon or encumbering Landlord's interest in the Leased Property, or any
portion thereof, and to all collateral assignments by Landlord to any third
party or parties of any of Landlord's rights under this Agreement or the rents,
issues and profits thereof or therefrom as security for any liability or
indebtedness, direct, indirect or contingent, of Landlord to such third party or
parties, and to all future modifications, extensions, renewals, consolidations
and replacements of, and all amendments and supplements to any such mortgage,
mortgages or assignments, and upon recording of any such mortgage, mortgages or
assignments, the same shall be deemed to be prior in dignity, lien and
encumbrance to this Agreement, Tenant's interest hereunder and Tenant's
leasehold interest in and to the Leased Property irrespective of the dates of
execution, delivery or recordation of any such mortgage, mortgages or
assignments (such mortgages, mortgages, security interests, assignments,
modifications, extensions, renewals, amendments, supplements and replacement
being a "Facility Mortgage"). The subordination of this Lease shall be upon the
express condition that the validity of this Lease shall be recognized by the
Mortgagee, and that, notwithstanding any default by the mortgagor, with respect
to such mortgage, Tenant's possession and right of use under this Lease in and
to the Leased Property (including rights to have insurance and condemnation
proceeds made available for proper reconstruction of the Leased Property) shall
not be disturbed by such Mortgagee unless and until Tenant shall breach any of
the provisions hereof and this Lease or Tenant's right to possession hereunder
shall have been terminated or shall be terminable in accordance with the
provisions of this Lease. The foregoing subordination and non-disturbance
provisions of this Section shall be automatic and self-operative without the
necessity of the execution of any further instrument or agreement of
subordination on the part of Tenant. Tenant acknowledges and agrees that
notwithstanding the foregoing automatic subordination, if Landlord or Mortgagee
shall request that Tenant execute and deliver any further instrument or
agreement of subordination of this Agreement or Tenant's interest hereunder or
Tenant's leasehold interest in the Leased Property to any such Facility
Mortgage, in confirmation or furtherance of or in addition to the foregoing
subordination provisions of this Section, Tenant shall promptly execute and
deliver the same to the requesting party (provided that such instrument or
agreement also reflects the non-disturbance provisions set forth above).
Further, Tenant agrees that it will, from time to time, execute such
documentation as may be requested by Landlord and any Mortgagee (a) to assist
Landlord and such Mortgagee in establishing or perfecting any security interest
in Landlord's interest in the Reserve and the funds therein; and (b) to
facilitate or allow Landlord to encumber the Leased Property as herein
contemplated. If, within thirty (30) days following Tenant's receipt of a
written request by Landlord or the holder or proposed holder of any such
Facility Mortgage, Tenant shall fail or refuse or shall have not executed any
such further instrument or agreement of subordination, for whatever reason,
Tenant shall be in breach and default of its obligation to do so and of this
Agreement and Landlord shall be entitled thereupon to exercise any and all
remedies available to Landlord pursuant to this Agreement or otherwise provided
by law.

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<PAGE>

        19.2 Attornment. Tenant shall and hereby agrees to attorn, and be bound
under all of the terms, provisions, covenants and conditions of this Agreement,
to any successor of the interest of Landlord under this Agreement for the
balance of the Term of this Agreement remaining at the time of the succession of
such interest to such successor. In particular, in the event that any
proceedings are brought for the foreclosure of any Facility Mortgage, Tenant
shall attorn to the purchaser at any such foreclosure sale and recognize such
purchaser as Landlord under this Agreement. Tenant agrees that neither the
purchaser at any such foreclosure sale nor the foreclosing Mortgagee or holder
of any such Facility Mortgage shall have any liability for any act or omission
of Landlord, be subject to any offsets or defenses which Tenant may have as
claims against Landlord, or be bound by any advance rents which may have been
paid by Tenant to Landlord for more than the current period in which such rents
come due.

        19.3 Rights of Mortgagees and Assignees. Provided Landlord has given
Tenant notice thereof, any Mortgagee shall have the right to unilateral
enjoyment, exercise or control over the rights, remedies, powers and interests
of Landlord hereunder, or otherwise arising under Applicable Law, as assigned or
granted to such Mortgagee by Landlord or as provided in any Facility Mortgage.
At the time of giving any notice of default to Landlord, Tenant shall mail or
deliver to any Mortgagee of whom Tenant has notice, a copy of any such notice.
No notice of default or termination of this Agreement by Tenant shall be
effective until each Mortgagee shall have been furnished a copy of such notice
by Tenant. In the event Landlord fails to cure any default by it under this
Agreement, the Mortgagee shall have, at its option, a period of thirty (30) days
after expiration of any cure period of Landlord within which to remedy such
default of Landlord or to cause such default to be remedied. In the event that
the Mortgagee elects to cure any such default by Landlord, then Tenant shall
accept such performance on the part of such Mortgagee as though the same had
been performed by Landlord, and for such purpose Tenant hereby authorizes any
Mortgagee to enter upon the Leased Property to the extent necessary to exercise
any of Landlord's rights, powers and duties under this Agreement. If, in the
event of any default by Landlord which is reasonably capable of being cured by a
Mortgagee, the Mortgagee promptly commences and diligently pursues to cure the
default, then Tenant will not terminate this Agreement or cease to perform any
of its obligations under this Agreement so long as the Mortgagee is, with due
diligence, engaged in the curing of such default.

                                   ARTICLE 20

                         ADDITIONAL COVENANTS OF TENANT

        20.1 Conduct of Business. Tenant shall not engage in any business other
than the leasing and operation of the Leased Property for the Permitted Use and
activities incidental thereto, including without limitation the delivery of
services to the Facility residents under the Service Licenses or otherwise, and
shall do or cause to be done all things necessary to preserve, renew and keep in
full force and effect and in good standing its corporate existence and its
rights and licenses necessary to conduct such business. Promptly upon receipt of
same, Tenant shall provide Landlord with copies of all licenses, licensure and
certification surveys and related plans of correction, and notices of corrective
action required, of loss of licensure or certification of the Facility, or of
any limits imposed upon admissions to the Facility.

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<PAGE>

        20.2 Additional Covenants of Tenant. In addition to the other covenants
and representations of Tenant herein and in this Agreement, Tenant hereby
covenants, acknowledges and agrees that Tenant shall:

                (a) Not guaranty any obligation of any Person other than the
        tenant under any ARC-Related Lease;

                (b) Pay or cause to be paid all lawful claims for labor and
        rents with respect to the Leased Property;

                (c) Pay or cause to be paid all trade payables;

                (d) Not declare, order, pay or make, directly or indirectly, any
        Distribution or any payments to any members or Affiliated Persons as to
        Tenant (including payments in the ordinary course of business and
        payments pursuant to any management agreements with any such Affiliate),
        or set apart any sum of property therefor, or agree to do so, if, at the
        time of such proposed action or immediately after giving effect thereto,
        any Event of Default shall exist;

                (e) Except as otherwise permitted by this Agreement, not sell,
        lease (as lessor or sublessor), transfer or otherwise dispose of or
        abandon, all or any material portion of its assets or business to any
        Person, or sell, lease, transfer or otherwise dispose of or abandon any
        of Tenant's Personal Property, provided, however, Tenant may dispose of
        portions of Tenant's Personal Property which have become inadequate,
        obsolete, worn-out, unsuitable, undesirable or unnecessary, provided
        substitute equipment or fixtures having equal or greater value and
        utility have been provided.

                (f) Provide and maintain throughout the Term, all Tenant's
        Personal Property and P&E Replacements as shall be necessary in order to
        operate the Leased Property in compliance with applicable legal
        requirements and insurance requirements and otherwise in accordance with
        customarily practice in the industry for the Permitted Use. If, from and
        after the Commencement Date, Tenant acquires an interest in any items of
        tangible personal property (other than motor vehicles) on, or in
        connection with the Leased Property which belong to anyone other than
        Tenant, Tenant shall require the agreement permitting such use to
        provide that Landlord or its designee may assume Tenant's rights and
        obligations under such agreement upon the termination of this Agreement
        and any assumption of management or operation of the Leased Property by
        Landlord or its designee.

                (g) Deliver to Landlord within thirty (30) days after receipt of
        or after modification thereof, copies of all licenses authorizing Tenant
        to operate the Leased Property for its Permitted Use.

                (h) Undertake a risk management analysis and report regarding
        the operation of the Facility annually for compliance with all
        Applicable Laws governing the ongoing use and operation of the Facility
        for the Permitted Use and provide Landlord with a copy of the report and
        any other results of the analysis.

                                       58
<PAGE>

                (i) Give prompt notice to Landlord of any litigation or any
        administrative proceeding involving Tenant, Landlord or the Leased
        Property of which Tenant has notice or actual knowledge and which
        involves a potential uninsured liability equal to or greater than
        $100,000.00 or which, in Tenant's reasonable opinion, may otherwise
        result in any material adverse change in the business, operations,
        property, prospects, results of operation or conditions, financial or
        otherwise, of Tenant or the Facility.

                (j) Not, except as approved in writing by Landlord, either
        directly or indirectly, for itself, or through, or on behalf of, or in
        connection with any Person, divert or attempt to divert any business or
        customer of the Leased Property to any competitor, by direct or indirect
        inducement or otherwise, or do or perform, directly or indirectly, any
        other act injurious or prejudicial to the good will associated with the
        Landlord or the Leased Property.

                (k) Except for liabilities incurred in the ordinary course of
        business, not create, incur, assume or guarantee, or permit to exist or
        become or remain liable directly or indirectly upon, any Indebtedness
        except Indebtedness of Tenant to Landlord (or, if unsecured and
        expressly subject to the terms of this Agreement and Landlord's interest
        hereunder, and payable solely out of excess cash flow after payment of
        all Rent hereunder, to Tenant's shareholders, partners or members, as
        applicable). Tenant further agrees that the obligee in respect of any
        such Indebtedness shall agree in writing, in form and substance
        satisfactory to Landlord that (w) the payment of such Indebtedness shall
        be expressly subordinated in all respects to all of Tenant's obligations
        under this Agreement, (x) no remedies may be exercised by the obligee
        with respect to enforcement or collection of such Indebtedness until
        such time as this Agreement shall be terminated and all of Tenant's
        obligations hereunder shall have been discharged in full; (y) such
        Indebtedness shall not be assigned by the obligee to any other party;
        and (z) the obligee shall not initiate or join in any bankruptcy
        proceedings against Tenant. As used in this Section 20.2(k) (and
        notwithstanding any other definition of Indebtedness herein),
        Indebtedness shall mean all obligations, contingent or otherwise, to pay
        or repay monies irrespective of whether, in accordance with GAAP, such
        obligations should be reflected on the obligor's balance sheet as debt.

        20.3 Tenant a Single Purpose Entity. Tenant represents, agrees and
warrants that Tenant is, and throughout the Term will remain, a Single Purpose
Entity as described and contemplated on Exhibit "F" hereof. Notwithstanding the
foregoing, the Landlord agrees that the requirements for an Independent Director
or Independent Member thereunder shall not apply so long as Tenant is an
Affiliated Person of Guarantor.

        20.4 Intentionally Omitted.

                                   ARTICLE 21

                                  MISCELLANEOUS

        21.1 Limitation on Payment of Rent. All agreements between Landlord and
Tenant herein are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of Rent, or otherwise, shall the
Rent or any other amounts payable to Landlord under this

                                       59
<PAGE>

Agreement exceed the maximum permissible under Applicable Laws, the benefit of
which may be asserted by Tenant as a defense, and if, from any circumstance
whatsoever, fulfillment of any provision of this Agreement, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, or if from any circumstances Landlord should ever
receive as fulfillment of such provision such an excessive amount, then, ipso
facto, the amount which would be excessive shall be applied to the reduction of
the installment(s) of Minimum Rent next due and not to the payment of such
excessive amount. This provision shall control every other provision of this
Agreement and any other agreements between Landlord and Tenant.

        21.2 No Waiver. No release, discharge or waiver of any provision hereof
shall be enforceable against or binding upon Landlord or Tenant unless in
writing and executed by Landlord or Tenant, as the case may be. Neither the
failure of Landlord or Tenant to insist upon a strict performance of any of the
terms, provisions, covenants, agreements and conditions hereof, nor the
acceptance of any Rent by Landlord with knowledge of a breach of this Agreement
by Tenant in the performance of its obligations hereunder, or the following of
any practice or custom at variance with the terms hereof, shall be deemed or
constitute a waiver of any rights or remedies that Landlord or Tenant may have
or a waiver of any subsequent breach or default in any of such terms,
provisions, covenants, agreements and conditions or the waiver of the right to
demand exact compliance with the terms hereof.

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

        21.4 Severability. Any clause, sentence, paragraph, section or provision
of this Agreement held by a court of competent jurisdiction to be invalid,
illegal or ineffective shall not impair, invalidate or nullify the remainder of
this Agreement, but rather the effect thereof shall be confined to the clause,
sentence, paragraph, section or provision so held to be invalid, illegal or
ineffective, and this Agreement shall be construed as if such invalid, illegal
or ineffective provisions had never been contained therein.

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

        21.6 No Merger of Title. It is expressly acknowledged and agreed that it
is the intent of the parties that there shall be no merger of this Agreement or
of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly, this Agreement or the
leasehold estate created hereby and the fee estate or ground landlord's interest
in the Leased Property.

                                       60
<PAGE>

        21.7 Tenant's Representations. In addition to any other representation
or warranty set forth herein and as an inducement to Landlord to enter into this
Agreement, Tenant hereby represents and warrants to Landlord as follows:

                (a) Tenant is a corporation duly organized and validly existing
        and in good standing under the laws of the State of Tennessee. Tenant
        has all requisite power and authority under the laws of the State of
        Tennessee and the laws of the State of Colorado and its articles of
        incorporation, by-laws, or other charter documents to enter into and
        perform its obligations under this Agreement and to consummate the
        transactions contemplated hereby. Tenant is duly authorized to transact
        business in any jurisdiction in which the nature of the business
        conducted by it requires such qualification.

                (b) Tenant has taken all necessary action to authorize the
        execution, delivery and performance of this Agreement, and upon the
        execution and delivery of any document to be delivered by Tenant, prior
        to the date hereof, such document shall constitute the valid and binding
        obligation and agreement of Tenant, enforceable against Tenant in
        accordance with its terms, except as such enforceability may be limited
        by bankruptcy, insolvency, reorganization, moratorium or similar laws of
        general application affecting the rights and remedies of creditors and
        except to the extent that the availability of equitable relief may be
        subject to the discretion of the court before which any proceeding may
        be brought.

                (c) There are no judgments presently outstanding and unsatisfied
        against Tenant or any of its properties, and neither Tenant nor any of
        its properties are involved in any material litigation at law or in
        equity or any proceeding before any court, or by or before any
        governmental or administrative agency, which litigation or proceeding
        could materially adversely affect Tenant, and no such material
        litigation or proceeding is, to the knowledge of Tenant, threatened
        against Tenant and no investigation looking toward such a proceeding has
        begun or is contemplated.

                (d) To the knowledge of Tenant, neither this Agreement nor any
        other document, certificate or statement furnished to Landlord by or on
        behalf of Tenant in connection with the transaction contemplated herein
        contains any untrue statement of a material fact or omits to state a
        material fact necessary in order to make the statements contained herein
        or therein not misleading. To the knowledge of Tenant there is no fact
        or condition which materially and adversely affects the business,
        operations, affairs, properties or condition of Tenant which has not
        been set forth in this Agreement or in other documents, certificates or
        statements furnished to Landlord in connection with the transaction
        contemplated hereby.

                (e) Tenant hereby represents to Landlord that, in the reasonable
        opinion of Tenant, the Leased Property and the Leased Improvements
        therein are adequately furnished and contain adequate P&E and
        Inventories consistent with the amount of P&E and Inventories which is
        customarily maintained in a skilled nursing, assisted living and
        dementia care facility of the type and character of the Leased Property
        as otherwise required to operate the Leased Property in a manner
        contemplated by this Agreement and in compliance with all legal
        requirements.

                                       61
<PAGE>

                (f) Tenant acknowledges that Tenant's failure or repeated delays
        in making prompt payment in accordance with the terms of any agreement,
        leases, invoices or statements for purchase or lease of P&E, Inventories
        or other goods or services will be detrimental to the reputation of
        Landlord and Tenant.

                (g) All employees of Tenant are solely employees of Tenant and
        not Landlord. Tenant is not Landlord's agent for any purpose in regard
        to Tenant's employees or otherwise. Further, Tenant expressly
        acknowledges and agrees that Landlord does not exercise any direction or
        control over the employment policies or employment decisions of Tenant.

                (h) Tenant has not (i) made any contributions, payments or gifts
        to or for the private use of any governmental official, employee or
        agent where either the payment or the purpose of such contribution,
        payment or gift is illegal under the laws of the United States or the
        jurisdiction in which made, (ii) established or maintained any
        unrecorded fund or asset for any purpose or made any false or artificial
        entries on its books, (iii) given or received any payments or other
        forms of remuneration in connection with the referral of patients which
        would violate the Medicare/Medicaid Anti-kickback Law, Section 1128(b)
        of the Social Security Act, 42 U.S.C. Section 1320a-7b(b), the federal
        physician self-referral law, 42 U.S.C. Section 1395 nn, or any analogous
        state statute or (iv) made any payments to any person with the intention
        or understanding that any part of such payment was to be used for any
        purpose other than that described in the documents supporting the
        payment. Tenant shall not take any such actions during the Term of this
        Agreement.

                (i) Tenant has not knowingly filed or failed to correct any
        claims for payment or cost reports with Medicare or Medicaid that are
        not true and correct in all material respects and, to Tenant's
        knowledge, no refunds or overpayments from either Medicare or Medicaid
        are due and owing.

                (j) Tenant's equity is directly and (if applicable) indirectly
        owned as shown on Exhibit "G". Tenant shall promptly provide to
        Landlord, upon the occurrence thereof but in any event not more than
        fifteen (15) days following a written request therefor, written notice
        of any change in the executive officers, directors, shareholders,
        partners, and/or members of Tenant, as applicable to Tenant's formation
        and structure, and of any change in the respective interests in Tenant
        held by each of such Persons.

        21.8 Quiet Enjoyment. Landlord covenants and agrees that so long as
Tenant shall timely pay all rents due to Landlord from Tenant hereunder and
keep, observe and perform all covenants, promises and agreements on Tenant's
part to be kept, observed and performed hereunder, Tenant shall and may
peacefully and quietly have, hold and occupy the Leased Property free of any
interference from Landlord or any Person claiming by, through or under Landlord;
subject, however, and nevertheless to the terms, provisions and conditions of
this Agreement, the Permitted Encumbrances, any other documents affecting record
title to or the use and occupancy of the Leased Property immediately prior to
the conveyance thereof to Landlord on or about the date hereof, and documents
affecting title to the Leased Property approved by Tenant. Landlord shall not,
without the prior written approval of Tenant, enter into or record any document
which purports to or which by its terms will materially and adversely affect the
Tenant, Tenant's use and enjoyment of the Leased Property or

                                       62
<PAGE>

Tenant's rights under this Agreement (such approval not to be unreasonably
withheld, delayed or conditioned provided that the same is appropriate and
reasonably necessary in connection with the normal and ordinary course of
ownership and use of the Facility).

        21.9 Recordation of Memorandum of Lease. At either party's option, a
short form memorandum of this Agreement, in the form attached hereto as Exhibit
"E" shall be recorded or filed among the appropriate land records of the County
in which the Leased Property is located, and Tenant shall pay the transfer and
all recording costs associated therewith. In the event of a discrepancy between
the provisions of this Agreement and such short form memorandum thereof, the
provisions of this Agreement shall prevail.

        21.10 Notices. (a) Any and all notices, demands, consents, approvals,
offers, elections and other communications required or permitted under this
Agreement shall be deemed adequately given if in writing and the same shall be
delivered either in hand, by telecopier with written acknowledgment of receipt,
or by mail or Federal Express or similar expedited commercial carrier, addressed
to the recipient of the notice, postpaid and registered or certified with return
receipt requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).

                (b) All notices required or permitted to be sent hereunder shall
        be deemed to have been given for all purposes of this Agreement upon the
        date of acknowledged receipt, in the case of a notice by telecopier,
        and, in all other cases, upon the date of receipt or refusal, except
        that whenever under this Agreement a notice is either received on a day
        which is not a Business Day or is required to be delivered on or before
        a specific day which is not a Business Day, the day of receipt or
        required delivery shall automatically be extended to the next Business
        Day.

                (c) All such notices shall be addressed,

        if to Landlord to:

                    CNL Retirement - AM/Colorado, LP
                    CNL Center at City Commons
                    450 South Orange Avenue
                    Orlando, FL  32801
                    Attn: Mr. Phillip M. Anderson, Jr.
                          or Chief Operating Officer
                    [Telecopier No. (407) 835-3232]

         with a copy to:

                    Lowndes, Drosdick, Doster, Kantor and Reed, P.A.
                    215 North Eola Drive
                    P.O. Box 2809
                    Orlando, FL  32809
                    Attn: Scott C. Thompson, Esq.
                    [Telecopier No. (407) 843-4444]

                                       63
<PAGE>

         if to Tenant to:

                    ARC Greenwood Village, Inc.
                    111 Westwood Place, Suite 402,
                    Brentwood, Tennessee 37027
                    Phone:     (615) 221-2250
                    Fax:       (615) 221-2269
                    Attn:  Mr. George Hicks, Chief Financial Officer

         with a copy to:

                    Bass, Berry & Sims PLC
                    315 Deaderick Street, Suite 2700
                    Nashville, Tennessee 37238
                    Attn: T. Andrew Smith, Esquire
                    Phone: (615) 742-6200
                    Fax: (615) 742-2766

                (d) By notice given as herein provided, the parties hereto and
        their respective successors and assigns shall have the right from time
        to time and at any time during the term of this Agreement to change
        their respective addresses effective upon receipt by the other parties
        of such notice and each shall have the right to specify as its address
        any other address within the United States of America.

        21.11 Construction; Nonrecourse. Anything contained in this Agreement to
the contrary notwithstanding, all claims against, and liabilities of, Tenant or
Landlord arising prior to any date of termination or expiration of this
Agreement with respect to the Leased Property shall survive such termination or
expiration. Each term or provision of this Agreement to be performed by Tenant
shall be construed as an independent covenant and condition. Time is of the
essence with respect to the performance by Tenant of its obligations under this
Agreement, including, without limitation, obligations for the payment of money.
Except as otherwise set forth in this Agreement, any obligations arising prior
to the expiration or sooner termination of this Agreement of Tenant (including
without limitation, any monetary, repair and indemnification obligations) and
Landlord shall survive the expiration or sooner termination of this Agreement.
In addition, solely with respect to Landlord, nothing contained in this
Agreement shall be construed to create or impose any liabilities or obligations
and no such liabilities or obligations shall be imposed on any of the
shareholders, beneficial owners, direct or indirect, officers, directors,
trustees, employees or agents of Landlord or Tenant for the payment or
performance of the obligations or liabilities of Landlord hereunder. The parties
have participated jointly in the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.

        21.12 Counterparts; Headings. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but which, when
taken together, shall constitute but one instrument and shall become effective
as of the date hereof when copies hereof, which, when taken together, bear the
signatures of each of the parties hereto shall have been signed. Captions and

                                       64
<PAGE>

headings in this Agreement are for purposes of reference only and shall in no
way define, limit or describe the scope or intent of, or otherwise affect, the
provisions of this Agreement.

        21.13 Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State in which the Leased Property is
located.

        21.14 Right to Make Agreement. Each party warrants, with respect to
itself, that neither the execution and delivery of this Agreement, nor the
compliance with the terms and provisions hereof, shall violate any provision of
any law, or any judgment, writ, injunction, order or decree of any court or
Governmental Authority; nor result in or constitute a breach or default under or
the creation of any lien, charge or encumbrance upon any of its property or
assets under, any indenture, mortgage, deed of trust, contract, other commitment
or restriction to which it is a party or by which it is bound; nor require any
consent, vote or approval which has not been given or taken, or at the time of
the transaction involved shall not have been given or taken. Each party
covenants that it has and will continue to have throughout the term of this
Agreement and any extensions thereof, the full right to enter into this
Agreement and perform its obligations hereunder.

        21.15 Brokerage. Landlord and Tenant hereby represent and warrant to
each other that they have not engaged, employed or utilized the services of any
business or real estate brokers, salesmen, agents or finders in the initiation,
negotiation or consummation of the business and real estate transaction
reflected in this Agreement. On the basis of such representation and warranty,
each party shall and hereby agrees to indemnify and save and hold the other
party harmless from and against the payment of any commissions or fees to or
claims for commissions or fees by any real estate or business broker, salesman,
agent or finder resulting from or arising out of any actions taken or agreements
made by them with respect to the business and real estate transaction reflected
in this Agreement.

        21.16 No Partnership or Joint Venture. Landlord shall not, by virtue of
this Agreement, in any way or for any purpose, be deemed to be a partner of
Tenant in the conduct of Tenant's business upon, within or from the Leased
Property or otherwise, or a joint venturer or a member of a joint enterprise
with Tenant.

        21.17 Entire Agreement. This Agreement contains the entire agreement
between the parties and, except as otherwise provided herein, can only be
changed, modified, amended or terminated by an instrument in writing executed by
the parties. It is mutually acknowledged and agreed by Landlord and Tenant that
there are no verbal agreements, representations, warranties or other
understandings affecting the same; and that Tenant hereby waives, as a material
part of the consideration hereof, all claims against Landlord for rescission,
damages or any other form of relief by reason of any alleged covenant, warranty,
representation, agreement or understanding not contained in this Agreement.

        21.18 Costs and Attorneys' Fees. In addition to Landlord's rights under
Sections 12.2 and 14.2, if either party shall bring an action to recover any sum
due hereunder, or for any breach hereunder, and shall obtain a judgment or
decree in its favor, the court may award to such prevailing party its reasonable
costs and reasonable attorney's fees based upon service rendered at hourly
rates, specifically including reasonable attorney's fees incurred in connection
with any appeals (whether or not taxable as such by law). Landlord shall also be
entitled to recover its reasonable attorney's fees based upon service rendered
at hourly rates and costs incurred in any bankruptcy action filed by or against
Tenant, including, without limitation, those incurred in seeking relief from the
automatic stay,

                                       65
<PAGE>

in dealing with the assumption or rejection of this Agreement, in any adversary
proceeding, and in the preparation and filing of any proof of claim.

        21.19 Approval of Landlord. Whenever Tenant is required under this
Agreement to do anything to meet the satisfaction or judgement of Landlord, the
reasonable satisfaction or judgement of Landlord shall be deemed sufficient. The
foregoing provision of this Section shall not apply in any instance where the
provisions of this Agreement expressly state that the provisions of this Section
do not apply or where the provisions of this Agreement expressly state that such
consent, approval or satisfaction are subject to the sole and absolute
discretion or judgement of Landlord, and in each such instance Landlord's
approval or consent may be unreasonably withheld or unreasonable satisfaction or
judgement may be exercised by Landlord.

        21.20 Successors and Assigns. The agreements, terms, provisions,
covenants and conditions contained in this Agreement shall be binding upon and
inure to the benefit of Landlord and Tenant and, to the extent permitted herein,
their respective successors and assigns.

        21.21 Waiver of Jury Trial. TENANT AND LANDLORD HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAWS, THE RIGHT EITHER OF THEM OR THEIR HEIRS, PERSONAL
REPRESENTATIVES, SUCCESSORS OR ASSIGNS MAY HAVE TO A TRIAL BY JURY IN RESPECT TO
ANY LITIGATION PROCEEDINGS OR COUNTERCLAIM, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT TO LANDLORD'S
ACCEPTING THIS AGREEMENT.

        21.22 Treatment of Lease. Landlord and Tenant each agree to treat this
Agreement as a true lease for tax purposes and as an operating lease for
generally accepted accounting principles.

        21.23 Transfer of Licenses. Upon the expiration or sooner termination of
this Agreement, Tenant shall use its best efforts to transfer and assign to
Landlord or its designee or assist Landlord or its designee in obtaining
transfer or assignment of all Leased Intangible Property, including without
limitation and together with any contracts, licenses (including without
limitation all licenses identified as part of the Initial Tenant Personal
Property and any replacements thereof and additions thereto), permits,
development rights, trade names (except for trade names as included within the
Initial Tenant Personal Property), telephone exchange numbers identified with
the Leased Property, approvals and certificates and all other intangible rights,
benefits and privileges of any kind or character with respect to the Leased
Property, useful or required for the then operation of the Leased Property
(except for proprietary software as included within the Initial Tenant Personal
Property). If requested by Landlord and to the extent permitted by law the
Tenant shall provide a collateral assignment of such licenses and other
intangible rights as further security for Tenant's obligations hereunder.

        21.24 Tenant's Personal Property. Upon the expiration or sooner
termination of the Term of this Agreement, Landlord may, in its sole and
absolute discretion, elect to either (i) give Tenant Notice that Tenant shall be
required, within ten (10) Business Days after such expiration or termination, to

                                       66
<PAGE>

remove all of Tenant's Personal Property from the Leased Property, or (ii) pay
Tenant's book value of such Tenant's Personal Property (not including, however,
trade names and proprietary software listed as part of the Initial Tenant
Personal Property, which shall remain the sole property of Tenant). Failure of
Landlord to make such election shall be deemed an election to proceed in
accordance with clause (ii) preceding.

        21.25 Landlord's Representations. Landlord hereby represents and
warrants to Tenant as follows:

                (a) Landlord is a limited partnership duly organized and validly
        existing and in good standing under the laws of the State of Delaware.
        Landlord has all requisite power and authority under the laws of the
        State of Delaware and its charter documents to enter into and perform
        its obligations under this Agreement and to consummate the transactions
        contemplated hereby.

                (b) Landlord has taken all necessary action to authorize the
        execution, delivery and performance of this Agreement, and upon the
        execution and delivery hereof, this Agreement shall constitute the valid
        and binding agreement of Landlord.

        21.26 Guaranty of Lease. The Landlord has entered into this Lease in
reliance upon the Unconditional Guaranty of Payment and Performance by the
Guarantor in favor of Landlord dated of even date herewith (the "Guaranty"),
pursuant to which the Guarantor has unconditionally guaranteed all of the
obligations of the Tenant under this Lease, including without limitation the
covenants of Tenant in Sections 4.4 and Section 4.6 hereof, and all of the
additional covenants of Tenant in Article 20 hereof.

        21.27 Guaranty of ARC-Related Leases. The obligations of each tenant
under each ARC-Related Lease (whether now in effect or entered into in the
future) also shall be and are hereby unconditionally guaranteed by Tenant.
Tenant agrees that its guaranty of the ARC-Related Leases hereunder shall be a
material inducement for the execution of each ARC-Related Lease, is and shall be
a guaranty of payment and performance and not of collection solely, and shall be
effective in accordance with the terms and conditions of the Guaranty, which are
incorporated herein by this reference. Notwithstanding the foregoing, and the
automatic and unconditional guaranty of all ARC-Related Leases hereunder, Tenant
shall upon request of the Landlord or its Affiliated Persons promptly execute
and deliver a separate Unconditional Guaranty of Payment and Performance with
respect to each ARC-Related Lease.

        IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the date above first written.

                      [SIGNATURES APPEAR ON FOLLOWING PAGE]

                                       67
<PAGE>

                             LANDLORD:

                             CNL RETIREMENT - AM/COLORADO LP, a
                             Delaware limited partnership

                             By: CNL RETIREMENT - GP/COLORADO CORP.,
                                   a Delaware corporation, its general partner

                                   By:  /s/ Phillip M. Anderson
                                        --------------------------------------

                                   Printed name: Phillip M. Anderson

                                   Title: Executive Vice President

                                            (CORPORATE SEAL)

                             TENANT:

                             ARC GREENWOOD VILLAGE, INC.,
                             a Tennessee corporation

                             By:      /s/ R. C. Roadman
                                      -----------------------------------

                             Printed name: Ross C. Roadman
                             Title: SVP

                             NOTICE: THIS AGREEMENT CONTAINS WAIVERS AND
                             INDEMNITIES BY THE TENANT OF THE LANDLORD'S OWN
                             NEGLIGENCE.

                                       68
<PAGE>

                                   EXHIBIT "A"

                                    The Land

BLOCK A, SOUTHTECH SUBDIVISION FILING NO. 1, A SUBDIVISION SITUATED IN THE
SOUTHWEST QUARTER OF SECTION 22, TOWNSHIP 5 SOUTH, RANGE 67 WEST OF THE SIXTH
P.M.,
COUNTY OF ARAPAHOE
STATE OF COLORADO,

EXCEPT THAT PORTION CONVEYED IN DEED RECORDED SEPTEMBER 8, 1983 IN BOOK 3962 AT
PAGE 630; AND

EXCEPT THAT PORTION CONVEYED TO THE CITY OF GREENWOOD VILLAGE IN DEED RECORDED
FEBRUARY 14, 1994 IN BOOK 7412 AT PAGE 139; AND

EXCEPT THAT PORTION CONVEYED TO THE CITY OF GREENWOOD VILLAGE, COLORADO BY QUIT
CLAIM DEED RECORDED APRIL 17, 1998 AT RECEPTION NUMBER A8055896;

BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCING AT THE SOUTHWEST CORNER OF THE NORTHWEST 1/4 OF THE SOUTHWEST 1/4 OF
SECTION 22, TOWNSHIP 5 SOUTH, RANGE 67 WEST OF THE 6TH P.M., FROM WHICH THE
NORTHWEST CORNER OF THE SOUTHWEST 1/4 OF SECTION 22 BEARS NORTH
00 degrees 00'00" EAST WITH ALL BEARINGS BEING REFERENCED THERETO:
THENCE NORTH 89 degrees 45'33" EAST A DISTANCE OF 1322.65 FEET:
THENCE NORTH 89 degrees 47'30" EAST A DISTANCE 40 FEET:
THENCE NORTH 00 degrees 01'51" EAST A DISTANCE 40 FEET TO THE SOUTHWEST CORNER
OF BLOCK A, SOUTHTECH SUBDIVISION FILING 1;
THENCE NORTH 00 degrees 01'51" EAST A DISTANCE 621.69 FEET ALONG THE WEST LINE
OF SAID BLOCK A;
THENCE CONTINUING WITH SAID BLOCK A, NORTH 89 degrees 45'29" EAST A DISTANCE 20
FEET, TO THE TRUE POINT OF BEGINNING;

THENCE CONTINUING WITH SAID BLOCK A, NORTH 89 degrees 45'29" EAST A DISTANCE
601.90 FEET;
THENCE WITH THE COMMON BOUNDARY OF SAID BLOCK A AND CASTLEWOOD COURT, A
SUBDIVISION RECORDED AT RECEPTION NUMBER 94106725, ARAPAHOE COUNTY RECORDS, THE
FOLLOWING THREE COURSES:
SOUTH 00 degrees 03'20" WEST A DISTANCE 331.03 FEET;
SOUTH 89 degrees 46'30" WEST A DISTANCE 315.85 FEET;
SOUTH 00 degrees 02'49" WEST A DISTANCE 201.54 FEET;
THENCE DEPARTING THE EAST LINE OF SAID BLOCK A, SOUTH 89 degrees 47'30" WEST A
DISTANCE 8.69 FEET ALONG THE NORTH LINE OF THAT PARCEL CONVEYED TO THE CITY OF
GREENWOOD VILLAGE AT RECEPTION NUMBER A8055896;
THENCE WITH THAT PARCEL CONVEYED TO THE CITY OF GREENWOOD VILLAGE AT BOOK 7412
PAGE 139 THE FOLLOWING TWO COURSES:
ALONG A CURVE TO THE RIGHT WHOSE RADIUS BEARS NORTH 29 degrees 09'28" EAST A
DISTANCE OF 540 FEET, WHOSE DELTA IS 60 degrees 52'25" AND WHOSE LENGTH IS
573.72 FEET TO A POINT OF TANGENCY; THENCE NORTH 00 degrees 01'51" EAST A
DISTANCE 59.44 FEET TO THE TRUE POINT OF BEGINNING.

CONTAINING 5.023 ACRES, MORE OR LESS.

                                      A-1
<PAGE>
                                   EXHIBIT "B"

                            Initial Term Minimum Rent

         The amount of Minimum Rent due during the Initial Term(1) is as
         follows:

         For Accounting Year 1      -       $1,786,537.50;

         Commencing with the 2nd Accounting Year, and on the first day of each
         Accounting Year thereafter during the Initial Term, Minimum Rent shall
         increase by two percent (2%) over the Minimum Rent owing in the
         immediately preceding Accounting Year. Accordingly, the Minimum Rent
         owing from the 2nd Accounting Year through the end of the Initial Term
         of this Agreement shall be as follows:

         For Accounting Year 2      -       $1,822,268.25;

         For Accounting Year 3      -       $1,858,713.62;

         For Accounting Year 4      -       $1,895,887.89;

         For Accounting Year 5      -       $1,933,805.65;

         For Accounting Year 6      -       $1,972,481.76;

         For Accounting Year 7      -       $2,011,931.39;

         For Accounting Year 8      -       $2,052,170.02;

         For Accounting Year 9      -       $2,093,213.42;

         For Accounting Year 10     -       $2,135,077.69;

         For Accounting Year 11     -       $2,177,779.24;

         For Accounting Year 12     -       $2,221,334.83;

         For Accounting Year 13     -       $2,265,761.53;

         For Accounting Year 14     -       $2,311,076.76;

         For Accounting Year 15     -       $2,357,298.29.

--------
(1)  Absent and assuming no increase in respect of any Earn Out Payment under
     the Earn Out Agreement with American Retirement Corporation

                                      B-1
<PAGE>

                                   EXHIBIT "C"

                                Appraisal Process

         If Landlord and Tenant are unable to agree upon the fair market value
of the Leased Property within any relevant period provided in this Agreement,
each shall within ten (10) days after written demand by the other select one MAI
Appraiser to participate in the determination of fair market value. Within ten
(10) days of such selection, the MAI Appraisers so selected by Landlord and
Tenant shall select a third MAI Appraiser. The three (3) selected MAI Appraisers
shall each determine the fair market value of the Leased Property within thirty
(30) days of the selection of the third appraiser. To the extent consistent with
sound appraisal practices as then existing at the time of any such appraisal,
and if requested by Landlord, such appraisal, shall be made on a basis
consistent with the basis on which the Leased Property was appraised at the time
of its acquisition by Landlord. Tenant shall pay the fees and expenses of any
MAI Appraiser retained pursuant to this Exhibit.

         In the event either Landlord or Tenant fails to select a MAI Appraiser
within the time period set forth in the foregoing paragraph, the MAI Appraiser
selected by the other party shall alone determine the fair market value of the
Leased Property in accordance with the provisions of this Exhibit and the fair
market value so determined shall be binding upon Landlord and Tenant.

         In the event the MAI Appraisers selected by Landlord and Tenant are
unable to agree upon a third MAI Appraiser within the time period set forth in
the first paragraph of this Exhibit, either Landlord or Tenant shall have the
right to apply at Tenant's expense to the presiding judge of the court of
original trial jurisdiction in the county in which the Leased Property is
located to name the third MAI Appraiser.

         Within five (5) days after completion of the third MAI Appraiser's
appraisal, all three MAI Appraisers shall meet and a majority of the MAI
Appraisers shall attempt to determine the fair market value of the Leased
Property. If a majority are unable to determine the fair market value at such
meeting, the three appraisals shall be added together and their total divided by
three. The resulting quotient shall be the fair market value of the Leased
Property. If, however, either or both of the low appraisal or the high appraisal
are more than ten percent (10%) lower or higher than the middle appraisal, any
such lower or higher appraisal shall be disregarded. If only one appraisal is
disregarded, the remaining two appraisals shall be added together and their
total divided by two, and the resulting quotient shall be such fair market
value. If both the lower appraisal and the higher appraisal are disregarded as
provided herein, the middle appraisal shall be such fair market value. In any
event, the result of the foregoing appraisal process shall be final and binding.

         "MAI APPRAISER" shall mean an appraiser licensed or otherwise qualified
to do business in the State and who has substantial experience in performing
appraisals of facilities similar to the Leased Property and is certified as a
member of the American Institute of Real Estate Appraisers or certified as a
SRPA by the Society of Real Estate Appraisers, or, if such organizations no
longer exist or certify appraisers, such successor organization or such other
organization as is approved by Landlord.

                                      C-1
<PAGE>

                                   EXHIBIT "D"

                           Tenant Estoppel Certificate

         THIS TENANT'S ESTOPPEL CERTIFICATE ("Certificate") is given this __ day
of ___, 20___ by ___________ ("Tenant") in favor of _____________________, a
__________, with principal office and place of business at __________________
_________ ("Beneficiary").

                                    RECITALS:

A. Pursuant to the terms and conditions of that certain Lease Agreement
("Lease") dated ________, ___________________________ ("Landlord") leased to
Tenant certain real property in ______ County, _____ ("Leased Property"), which
Leased Property are more particularly described in the Lease.

B. Pursuant to the terms and conditions of the Lease, the Beneficiary has
requested that the Tenant execute and deliver this Certificate with respect to
the Lease.

        NOW, THEREFORE, in consideration of the above Leased Property, the
Tenant hereby makes the following statements for the benefit of the Assignee:

        1. The copy of the Lease attached hereto and made a part hereof as
Exhibit "A" is a true, correct and complete copy of the Lease, which Lease is in
full force and effect as of the date hereof, and has not been modified or
amended.

        2. The Lease sets forth the entire agreement between the Landlord and
the Tenant relating to the leasing of the Leased Property, and there are no
other agreements, written or oral, relating to the leasing of the Leased
Property.

        3. There exists no uncured or outstanding defaults or events of default
under the Lease, or events which, with the passage of time, and the giving of
notice, or both, would be a default or event of default under the Lease.

        4. No notice of termination has been given by Landlord or Tenant with
respect to the Lease.

        5. All payments due the Landlord under the Lease through and including
the date hereof have been made, including the monthly installment of Minimum
Rent (as defined in the Lease) for the period of ______________ to
________________ in the amount of $___________.

        6. As of the date hereof, the annual Minimum Rent under the Lease is
$__________.

        7. Percentage Rent (as defined in the Lease) has been paid through and
including the Fiscal Year ending ______________.

        8. There are no disputes between the Landlord and the Tenant with
respect to any rental due under the Lease or with respect to any provision of
the Lease.

        9. Notwithstanding any provisions of the Lease to the contrary, the
Tenant hereby consents to the collateral assignment of the Lease by the Landlord
to the Beneficiary, and agrees that no terms and conditions of the Lease shall
be altered, amended or changed as a result of such assignment.

        10. The Tenant hereby agrees that from and after the date hereof copies
of all notices which Tenant is required to deliver to the Landlord under the
Lease with respect to defaults,

                                       D-1
<PAGE>

events of default or failure to perform by the Landlord under the Lease, shall
be delivered to Beneficiary at the following address:

                                ----------------
                                ----------------
                                ----------------
                                ----------------

        11. The Tenant represents and warrants that (a) all improvements
constructed on the Leased Property have been approved and accepted by Tenant,
(b) all utility sources and utility companies which service the Leased Property
have been approved and accepted by Tenant and utility service is available to
the Leased Property, (c) Tenant is in occupancy of the Leased Property pursuant
to the Lease, and (d) Tenant has no offsets, counterclaims or defenses with
respect to its obligations under the Lease.

        12. The Tenant understands and acknowledges that Beneficiary is relying
upon the representations set forth in this Certificate, and may rely thereon in
connection with the collateral assignment of the Lease to Beneficiary.

        IN TESTIMONY WHEREOF, witness the signature of the Tenant as of the day
and year first set forth above.

                                       -----------------------------------------

                                       By:
                                            ------------------------------------
                                       Name:
                                              ----------------------------------
                                       Title:
                                               ---------------------------------

STATE OF _______
COUNTY OF _______

         The foregoing instrument was acknowledged before me this ___ day of
_____, 20___ by _________________, as _________________ of ____________, a
____________, on behalf of the _________. He/she is personally known to me or
has produced ________ as identification.

                                         _____________________________________
                                         Notary Public
                                         Printed Name:________________________
expires: _______________

                                                      (NOTARY SEAL)

                                      D-2
<PAGE>

                                   EXHIBIT "E"

                               Memorandum of Lease

        THIS MEMORANDUM OF LEASE, entered into as of this ____ day of _________,
20___, by and between __________________________________________, whose address
is 450 South Orange Avenue, Orlando, Florida 32801, as Landlord, and___________
_________, a ______________, whose address is ________________________________,
as Tenant.

                                 W I T N E S E T H:
                                 -----------------

        THAT, Landlord and Tenant have heretofore entered into a certain Lease
Agreement dated ____________, 20___ (the "Lease") covering certain Leased
Property consisting of, among other things, certain real property located in
______ County, ______, more particularly described on Exhibit "A" attached
hereto upon which there is constructed and located certain improvements
(together the "Leased Property"), and

        WHEREAS, it is the desire of both Landlord and Tenant to memorialize the
Lease and set forth certain pertinent data with respect thereto.

        NOW THEREFORE, with respect to the Lease, Landlord and Tenant hereby
acknowledge and agree as follows:

        1. Demise. The Leased Property have been and are hereby demised, let and
leased by Landlord to Tenant, and taken and accepted by Tenant from Landlord,
all pursuant to and in accordance with the Lease.

        2. Term. The initial Term of the Lease is from __________, 2001, until
__________, 2016. Tenant has the right, privilege and option to renew and extend
the initial Term of the Lease for up to two (2) additional periods of five (5)
years each, subject to the provisions and conditions of the Lease.

        3. Possession. Landlord has delivered possession of the Leased Property
to Tenant and Tenant has accepted delivery and taken possession of the Leased
Property from Landlord in the "as is" condition of the Leased Property on the
Commencement Date.

        4. Liens on Landlord's Interest Prohibited. By the terms of the Lease,
Landlord's interest in the Leased Property may not be subjected to liens of any
nature by reason of Tenant's construction, alteration, repair, restoration,
replacement or reconstruction of any improvements on or in the Leased Property,
including those arising in connection with or as an incident to the renovation
of the improvements located on the Leased Property, or by reason of any other
act or omission of Tenant (or of any person claiming by, through or under
Tenant) including, but not limited to, construction, mechanics' and
materialmen's liens. Accordingly, all persons dealing with Tenant are hereby
placed on notice that such persons shall not look to Landlord or to Landlord's
credit or assets (including Landlord's interest in the Leased Property) for
payment or satisfaction of any obligations incurred in connection with the
construction, alteration, repair, restoration, renovation, replacement or
reconstruction thereof by or on behalf of Tenant. Tenant

                                       E-1
<PAGE>

has no power, right or authority to subject Landlord's interest in the Leased
Property to any construction, mechanic's or materialmen's lien or claim of lien.

        5. Subordination and Attornment. The Lease specifically provides that
the Lease and Tenant's leasehold interest in and to the Leased Property are
junior, inferior, subordinate and subject in all respects to any mortgage or
mortgages now or hereafter in force and effect upon or encumbering the Leased
Property or any portion thereof, and that Tenant shall, and has agreed to,
attorn to any successor of the interest of Landlord under the Lease, including
the purchaser at any foreclosure sale occasioned by the foreclosure of any such
mortgage or mortgages, for the balance of the Term of the Lease remaining at the
time of the succession of such interest to such successor. Such subordination
shall be upon the express condition that the validity of this Lease shall be
recognized by the mortgagee, and that, notwithstanding any default by the
mortgagor, with respect to such mortgage, Tenant's possession and right of use
under this Lease in and to the Premises (including rights to have insurance and
condemnation proceeds made available for proper reconstruction of the Premises)
shall not be disturbed by such mortgagee unless and until Tenant shall breach
any of the provisions hereof and this Lease or Tenant's right to possession
hereunder shall have been terminated in accordance with the provisions of this
Lease.

        6. Inconsistent Provisions. The provisions of this Memorandum constitute
only a general description of the content of the Lease with respect to matters
set forth herein. Accordingly, third parties are advised that the provisions of
the Lease itself shall be controlling with respect to all matters set forth
herein. In the event of any discrepancy between the provisions of the Lease and
this Memorandum, the provisions of the Lease shall take precedence and prevail
over the provisions of this Memorandum.

        7. Termination of Lease. All rights of Tenant shall terminate upon the
expiration or earlier termination of the Lease, which may be evidenced by a
written notice of such expiration or termination recorded or filed by Landlord
among the appropriate land records of the County in which the Leased Property is
located.

                     [SIGNATURES APPEAR ON FOLLOWING PAGES]

                                      E-2
<PAGE>

        IN WITNESS WHEREOF, Landlord and Tenant have caused this Memorandum of
Lease to be duly executed on or as of the day and year first above written.

Signed, sealed and delivered
in the presence of:                                                          , a
                                       --------------------------------------

                                       -----------------------------------------

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

                                                      (CORPORATE SEAL)

                                                         "LANDLORD"

                                                                             , a
                                       --------------------------------------

                                       -----------------------------------------

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

                                                           "TENANT"

STATE OF _______________
COUNTY OF _____________

         The foregoing instrument was acknowledged before me this _____ day of
_______________, 20___ by ____________________, as _________ of
____________________, a ______________________, on behalf of the _____________.
He/she is personally known to me or has produced _______________________ as
identification.

                                       -----------------------------------------
                                       Notary Public
                                       Notary Public, State of
                                                               -----------------
                                       Commission #:
                                                    ----------------------------
                                       My commission expires:
                                                             -------------------

                                                         (NOTARY SEAL)

                                       E-3
<PAGE>

STATE OF __________
COUNTY OF __________

         The foregoing instrument was acknowledged before me this _____ day of
_______________, 20___, by ___________________, as ______________ of
___________________, a _______________________, on behalf of the _____________.
He/she is personally known to me or has produced _______________________ as
identification.

                                     -----------------------------------------
                                     Notary Public
                                     Notary Public, State of _________________
                                     Commission No.:  ________________________
                                     My Commission Expires:  _________________

                                                       (SEAL)

                                      E-4
<PAGE>

                                   EXHIBIT "F"

                       Single Purpose Entity Requirements

        Tenant or its assignee shall throughout the Term hereof do all things
necessary to continue to be and remain a Single Purpose Entity (including
without limitation, if Tenant is a partnership, insuring that each General
Partner of Tenant, continues as a Single Purpose Entity and shall not amend its
Articles of Organization or Operating Agreement (or if Tenant is a corporation,
Tenant shall not amend its Articles of Incorporation or Bylaws, or if Tenant is
a partnership, Tenant shall prevent any general partner from amending such
general partner's Articles of Organization or Bylaws or other formation
documents). For purposes hereof, Single Purpose Entity shall mean a Person,
other than an individual, which (a) is formed, organized or reorganized solely
for the purpose of holding, directly, the leasehold interest in the Leased
Property, (b) does not engage in any business unrelated to the Leased Property
and the operation and management thereof, (c) has not and will not have any
assets other than those related to its interest in the Leased Property and has
not and will not have any indebtedness other than incurred in the ordinary
course of business and paid pursuant to the terms of financing applicable to
such trade payables and indebtedness expressly authorized in Section 20.2(f) of
the Agreement, (d) maintains its own separate books and records and its own
accounts, in each case which are separate and apart from the books and records
of any other Person, (e) holds itself out as being a Person separate and apart
from any other Person, (f) does not and will not commingle its funds or assets
with those of any other Person, (g) conducts its own business in its own name,
(h) maintains separate financial statements, (i) pays its own liabilities out of
its own funds, (j) observes all limited liability company formalities,
partnership formalities or corporate formalities, as applicable, (k) maintains
an arm's-length relationship with its Affiliated Persons, (l) pays the salaries
of its own employees and maintains a sufficient number of employees in light of
its contemplated business operation, (m) does not guarantee or otherwise
obligate itself with respect to the debts of any other Person or hold out its
credit as being available to satisfy the obligations of any other Person except
as required or expressly authorized under the Agreement, (n) does not acquire
obligations or securities of its partners, members or shareholders, (o)
allocates fairly and reasonably shared expenses, including without limitation,
any overhead for shared office space, (if any), (p) uses separate stationary,
invoices and checks, (q) except as required or expressly authorized under the
Agreement, does not and will not pledge its assets for the benefit of any Person
other than Landlord or make any loans or advances to any other Person, (r) does
and will correct any known misunderstanding regarding its separate identity, (s)
maintains adequate capital in light of its contemplated business operations, and
(t) has and will have an Operating Agreement, partnership agreement, certificate
of incorporation or other organization document which complies with the
standards and requirements for a Single Purpose Entity set by Rating Agencies
(as hereinafter defined) as of the date hereof applicable to a limited liability
company, partnership or corporation, as applicable. In addition, if such Person
is a limited liability company, (i) the managing member shall be a corporation
or limited liability company (or if a partnership, shall have as its sole
general partner a corporation or limited liability company) that is a Single
Purpose Entity whose organization documents shall comply with the standards and
requirements for a Single Purpose Entity set by the Rating Agencies as of the
date hereof applicable to such managing members, (ii) its Articles of
Organization, Certificate of Formation and/or Operating Agreement, as
applicable, shall provide that such entity will dissolve only upon the
bankruptcy of the managing member, (iii) if such Person has

                                       F-1
<PAGE>

more than one managing member, at least one member shall be a corporation or
limited liability company that qualifies as a Single Purpose Entity and the
Organization Documents shall provide that such Person shall continue (and not
dissolve) for so long as a solvent managing member exists (iv) such corporate
member or limited liability company shall conform to the requirements hereof for
Persons that are corporations or limited liability company and (v) such Person
shall have at least one Independent Member. In addition, if such Person is a
partnership, (a) all general partners of such Person shall be Single Purpose
Entities whose organizational documents shall comply with the standards and
requirements for a Single Purpose Entity set by the Rating Agencies as of the
date hereof applicable to such general partners, (b) if such Person has more
than one general partner, then the organization documents shall provide that
such Person shall continue (and not dissolve) for so long as a solvent general
partner exists. In addition, if such Person is a corporation, then at all times,
(i) such Person shall have at least one Independent Director, and (ii) Board of
Directors of such Person may not take any action relating to such Person's
bankruptcy, dissolution or status as a Single Purpose Entity without the
unanimous affirmative vote of 100% of the members of the Board of Directors
unless all of the directors, including the Independent Director shall have
participated in such vote. In addition, such Person which is formed or organized
solely for the purpose of holding, directly, the leasehold interest in the
Leased Property (i) without the unanimous consent of all of the partners,
directors or members, as applicable, has not and will not with respect to itself
or any other single purpose entity that owns an interest in the Leased Property
in which it has a direct or indirect legal or beneficial interest (a) seek or
consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator, custodian or other similar official for itself for all or any
portion of its properties, or (b) take any action which might cause it to become
insolvent, (ii) has held and will hold its assets in its own name, (iii) has and
will maintain its financial statements, accounting records and other entity
documents separate and apart form any other Person, and (iv) has not and will
not identify its partners, members or shareholders or any of its affiliates of
any of them as a division or part of it. For purposes hereof, "Rating Agencies"
shall mean any three of the following: Standards & Poor's Rating Services, a
division of the McGraw-Hill Companies, Inc., Duff and Phelps Credit Rating Co.,
Moody's Investors Services, Inc. and Fitch Investors Services, L.P. or if any
such corporation shall for any reason no longer perform the functions of a
securities rating agency, any other nationally recognized statistical rating
agency designated by Landlord. In addition, for purposes hereof, "Independent
Director" or "Independent Member" shall mean an individual appointed by CT
Corporation System, AMACAR Group, L.L.C., CSC Special Services or similar
corporate service or an individual reasonably satisfactory to Landlord, who in
any case shall not have been at the time of such individual's appointment, and
may not have been at any time during the preceding two years (i) a shareholder
of, or an officer or employee of, or a member or manager of Tenant or any of its
respective shareholders, subsidiaries or Affiliated Persons, (ii) a customer of,
or supplier to Tenant or any member, manager or general partner or any of its
respective shareholders, subsidiaries or Affiliated Persons, (iii) a Person or
other entity controlling any such shareholder, supplier, customer, member or
manager, or (iv) a member of the immediate family of any such shareholder,
officer, employee, supplier, customer, member or manager or of any other
director of Tenant or any general partner thereof.

        In addition to the foregoing, and consistent with the Single Purpose
Entity requirements hereof, Tenant covenants and agrees that throughout the Term
hereof, Tenant shall not voluntarily file or consent to the filing of a petition
for bankruptcy, insolvency, reorganization,

                                       F-2
<PAGE>

assignment for the benefit of creditors or similar proceedings under any federal
or state bankruptcy, insolvency, reorganization or other similar law or
otherwise seek any relief under any laws relating to the relief of debts or the
protection of debtors generally, without the unanimous consent of its
manager(s), which shall at all times include the affirmative consent of the
Independent Director, and if Tenant is a partnership without the unanimous
consent of its general partners (including the unanimous consent of the
directors of the corporate general partners or shareholders as the case may be
which shall at all times include the consent of the Independent Director).

                                      F-3
<PAGE>

                                   EXHIBIT "G"

                             Tenant Equity Ownership

ARC Greenwood Village, Inc. is a wholly-owned subsidiary of American Retirement
Corporation

                                      G-1
<PAGE>

                                   EXHIBIT "H"

                                Property Expenses

        The term "Property Expenses" shall mean for the requisite period the sum
of the following items:

        8. the cost of sales, including without limitation, compensation, fringe
benefits, payroll taxes and other costs relating to employees of Tenant (the
foregoing costs shall not include salaries and other employee costs of executive
personnel of Tenant who do not work at the Leased Property on a regular basis;
except that the foregoing costs shall include the allocable portion of the
salary and other employee costs of any general manager or other supervisory
personnel (not including regional vice presidents or regional sales people)
assigned to a "cluster" of skilled nursing, assisted living and dementia care
facilities which includes the Leased Property);

        9. departmental expenses incurred at departments within the Leased
Property; administrative and general expenses; the cost of marketing incurred by
the Leased Property; advertising and business promotion incurred by the Leased
Property; heat, light, and power; and computer line charges;

        10. the cost of Inventories and P&E consumed in the operation of the
Leased Property;

        11. a reasonable reserve for uncollectible accounts receivable as
determined by the Tenant;

        12. all costs and fees of independent professionals or other third
parties who are retained by Tenant to perform services required or permitted
hereunder;

        13. all costs and fees of technical consultants and operational experts
who are retained or employed by Tenant for specialized services (including,
without limitation, quality assurance inspectors) and the cost of attendance by
employees of the Leased Property at training and manpower development programs
sponsored by Tenant;

        14. Additional Charges as referenced in Section 3.4 of the Agreement;

        15. payments made into the Reserve pursuant to Section 5.2 of the
Agreement;

        16. management fees paid to any approved manager and such other costs
and expenses incurred by an approved manager as are specifically provided for
under any approved management agreement or are otherwise reasonably necessary
for the proper and efficient operating of the Leased Property;

        17. the term "Property Expenses" shall not include (a) debt service
payments pursuant to any Facility Mortgage, (b) payments pursuant to equipment
leases or other forms of financing obtained for the Tenant's Personal Property,
(c) rental payments pursuant to any ground lease of the Land, (d) any
indebtedness of Tenant, or (e) any employee claim which is not covered by
insurance and where the basis of such employee claim is conduct by Tenant or its
manager which is (i) a substantial violation of the standards of responsible
labor relations as generally practiced

                                      H-1
<PAGE>

by prudent owners or operators of similar retirement community operations in the
state in which the Facility is situated, and (ii) not the isolated act of
individual employees, but rather is a direct result of corporate policies of
Tenant or any manager. Neither revenues from the Facility, nor any disbursement
from the Reserve or the Tenant Shortfall Reserve, shall be used by Tenant to pay
the amounts not constituting Property Expenses under clauses 9(b), 9(c), 9(d) or
9(e) above.

Notwithstanding the foregoing definition of "Property Expenses," the financial
and other informational reports and statements to be provided pursuant to the
Lease may be provided by Tenant consistent with Tenant's standard information
reporting practices, provided that any omitted or varying item under such
practices is identified and separately scheduled as adjustments if necessary to
determine any financial or economic amount relevant to the Lease or if otherwise
requested in writing by Landlord.

                                      H-2
<PAGE>

                                   EXHIBIT "I"

                              Initial Landlord P&E

                                      I-1
<PAGE>

                                   EXHIBIT "J"

                        Initial Tenant Personal Property

(b)     The right to use the tradename "ARC," "American Retirement Corporation,"
        and "Heritage Club," and any variations thereof;

(c)     Skilled Nursing, assisted living and Alzheimer's/dementia care licenses,
        and any liquor licenses;

(d)     Any vans, cars or other motor vehicles; and

(e)     Any proprietary software of Tenant and its Affiliated Persons not
        including, however, information and data relating to the Leased Property
        and the ownership, operation and occupancy thereof, which information
        and data shall remain available to Landlord at all times during and be
        transferred to Landlord immediately upon the expiration or any early
        termination of the Lease Term.

                                      K-1

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