Document:

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                                                                   EXHIBIT 10.1

                           CONSTRUCTION LOAN AGREEMENT

         In consideration of the mutual covenants and agreements contained
herein, Lender agrees to make and Borrower agrees to accept a loan in accordance
with and subject to the terms and conditions set forth herein.

                                    ARTICLE I

                        PARTICULAR TERMS AND DEFINITIONS

         1.1 "Account to Receive Advances" or "Account": That bank account on
deposit with Lender depository facilities which shall be designated by Borrower
or by the Agent to Request Advances as the account to which advances hereunder
may be made by Lender. Unless otherwise designated, this account shall be the
account of FREEDOM VILLAGE OF SUN CITY CENTER, LTD., A FLORIDA LIMITED
PARTNERSHIP.

         1.2 "Agent to Request Advances": Gregory L. Patterson and Robert
             Votteler.

         1.3 "Amount of Loan": $11,430,000

         1.4 "Architects" (collectively, "Architect"): No other Architect can be
             selected without the written approval of Lender:

             1.4.1  Site Work and Development:

                    Professional Engineering Resources, Inc. ("PEER")
                    9800 4th Street North, Suite 308
                    St. Petersburg, Florida  33702

             1.4.2  Building Construction:

                    Bessolo Design Group, Inc.
                    556 Central Avenue
                    St. Petersburg, Florida  33701

             1.4.3  Landscape Architect:

                    Swan Moody
                    1537 7th Avenue West
                    Bradenton, Florida  34205

         1.5 "Borrower" (the "Borrower"):

                    FREEDOM VILLAGE OF SUN CITY CENTER, LTD.,
                    A FLORIDA LIMITED PARTNERSHIP
                    111 Westwood Place, Suite 402
                    Brentwood, Tennessee 37027

         1.6 "Closing": The time of the execution and delivery hereof by
Borrower and Lender.

         1.7 "Commitment Fee": Sixty (60) basis points on the Future Advance
Loan (as hereinafter defined) shall be paid by Borrower upon execution of this
Agreement.

         1.8 "Contingency" or "Contingency Reserve": a minimum of three percent
(3%) of the total unspent "hard costs" as shown in the Budget.

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         1.9 "Contractor" or "General Contractor": Mike Carter Construction
Company whose address is 1227 9th Avenue West, Bradenton, Florida 34205. No
other contractor can be selected without the written approval of Lender.

         1.10 "Engineers" (collectively, "Engineer"): No other Engineer may be
selected without the written approval of Lender:

              1.10.1  Civil Engineer:

                      PEER
                      9800 4th Street North, Suite 308
                      St. Petersburg, Florida 33702

              1.10.2  Structural Engineer:

                      KEM Engineers, Inc.
                      556 Central Avenue
                      St. Petersburg, Florida 33701

              1.10.3  Mechanical, Plumbing and Fire Protection:

                      KEM Engineers, Inc.
                      556 Central Avenue
                      St. Petersburg, Florida 33701

              1.10.4  Electrical:

                      KEM Engineers, Inc.
                      556 Central Avenue
                      St. Petersburg, Florida 33701

         1.11 "Governmental Authority(ies)": The United States, the State of
Florida, County of Hillsborough and any political subdivision thereof, and any
agency, department, commission, board, bureau or instrumentality of any of them.

         1.12 "Guarantor":

                      AMERICAN RETIREMENT CORPORATION,
                      a Tennessee corporation
                      111 Westwood Place, Suite 402
                      Brentwood, Tennessee 37027

         1.13 "Improvements": A project consisting of Phase 2 of Plaza West
Health Center, consisting of 71 additional skilled nursing beds and associated
common areas, associated with a retirement community known as "Freedom Village
at Sun City Center" located in Hillsborough County, Florida.

         1.15 "Interest Rate": As provided in the Note.

         1.16 "Interest Rate Hedge Agreement": Any indebtedness, liabilities or
obligations, now existing or hereafter arising, due or to become due, absolute
or contingent, of Borrower to Lender (or any affiliate of Lender) under any
arrangement with Lender (or any affiliate of Lender) whereby, directly or
indirectly, Borrower is entitled to receive from time to time periodic payments
calculated by applying either a floating or fixed rate of interest on a stated
notional amount in exchange for periodic payments made by Borrower calculated by
applying a floating or fixed rate of interest on the same notional amount and
shall include, without limitation, interest rates swaps, caps, floors, collars
and similar agreements.

         1.17 "Lender":

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              SUNTRUST BANK,
              a Georgia state chartered bank,
              successor by merger to SunTrust Bank, Tampa Bay
              Post Office Box 3303
              Tampa, Florida 33601-3303

         1.18 "Loan Documents": Any document or instrument submitted by or for
Borrower in connection with the Loan, including, but not limited to: Note,
Mortgage, this Construction Loan Agreement, Guaranty of Loan, Assignment of
Rents, Leases, Profits and Contracts, Assignment of Borrower's Interest in
Contract Documents, Guaranty of Completion, Security Agreement, Financing
Statement, Cross-Collateral and Cross-Default Agreement, Owner's Affidavits,
Title Insurance Binder or Policy, Survey, Site Plan, Plans and Specifications,
insurance policies, Opinion of Counsel, letters from any Governmental Authority
or provider of utilities or architect or engineer or other consultant, Terms
Letter, Construction Contract and an Interest Rate Hedge Agreement, if
applicable.

         1.19 "Loan Fund(s)" or "Loan": The amount equal to the face amount of
the Note to be advanced by Lender together with Borrower's Total Cash Equity, in
accordance with this Agreement, project budget (the "Project Budget") and the
loan funds schedule (the "Loan Fund(s) Schedule") marked Exhibit "A" and
attached hereto and made a part hereof. The Loan amends and restates the
Original Note (as hereinafter defined) with a $4,680,000 future advance made
under the Mortgage (as hereinafter defined) (the "Future Advance Loan").

         1.20 "Mortgage": The Mortgage Modification and Future Advance Agreement
of even date herewith made by Borrower to Lender to secure payment of the Note,
which modifies that certain Mortgage and Security Agreement dated December 2,
1999, and recorded as Instrument #1999370411 in Official Records Book 09946,
beginning at page 0372 of the Public Records of Hillsborough County, Florida,
made by Borrower to Lender to secure the payment of a certain Promissory Note
dated December 2, 1999, in the amount of $6,750,000 from Borrower in favor of
Lender (the "Original Note").

         1.21 "Note": The Amended and Restated Promissory Note of even date
herewith (and any other note executed hereafter under the future advances
provision of the Mortgage) in the amount of ELEVEN MILLION FOUR HUNDRED THIRTY
THOUSAND DOLLARS ($11,430,000), made by Borrower to Lender, which Note amends
and restates the indebtedness of the Original Note with the Future Advance Loan.

         1.22 "Owner/Contractor Agreement" or "Construction Contract": Those
certain construction contracts and addenda between Borrower and the Contractor
now existing or entered into in the future for the construction of the
Improvements.

         1.23 "Plans and Specifications": Plans and Specifications and all
amendments and modifications thereof furnished to and approved by Lender as
hereinafter provided (the term shall include the final plans and specifications
for segments of the Improvements).

         1.24 "Premises," "Property" or "Project": The property encumbered by
the Mortgage, as more particularly described in Exhibit "B" attached hereto. The
real property upon which the Improvements are to be constructed is described on
Exhibit "B" and is hereinafter referred to as the "SNF Site."

         1.25 "Representative Inspector": Lender shall retain Wedding,
Stephenson & Ibarguen, whose address is 300 1st Avenue South, St. Petersburg,
Florida 33701, at Borrower's expense to be its Representative Inspector.

         1.26 "Requirement of Governmental Authority": Any law, ordinance,
order, rule, building code or regulation of a Governmental Authority which
affects or governs the use of the Premises or any construction thereon.

         1.27 "Survey": That certain survey last certified by the Surveyor as of
December 1, 1999.

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         1.28 "Surveyor: John C. Brendla & Associates whose address is 4015 82nd
Avenue N., Pinellas Park, Florida 33781. No other surveyor can be selected
without written approval of Lender.

         1.29 "Term" or "Loan Term": From the date of closing of the Loan until
December 2, 2002.

         1.30 "Terms Letter": That certain letter dated February 17, 2000, as
amended by the Loan Documents, from Ruden, McClosky, Smith, Schuster & Russell,
P.A., as agent for Lender, to Gregory L. Patterson, Esq., as agent for Borrower.

         1.31 "Title Insurance Commitment": That certain commitment for title
insurance issued by STEWART TITLE GUARANTY COMPANY bearing number
C-9912-2031501.

         1.32 "Title Insurer": Stewart Title Guaranty Company
                               c/o Gregory L. Patterson, Esq.
                               Authorized Agent
                               1401 Manatee Avenue West
                               Suite 800
                               Drawer 27
                               Bradenton, Florida 34205.

                                   ARTICLE II

                   REPRESENTATIONS AND WARRANTIES OF BORROWER

         2.1 Borrower represents and warrants that:

             2.1.1 The Plans and Specifications are satisfactory to Borrower and
have been approved by the beneficiary of any restrictive covenant to which the
Premises may be subject and by any Governmental Authority whose approval is
required; all construction or development has been and shall be performed within
the perimeter of the Premises and in accordance with the Plans and
Specifications, appropriate set back requirements, any restrictive covenants and
the requirements of any Governmental Authority; and the anticipated use to which
the Improvements will be put will comply with all requirements of Governmental
Authorities and any restrictive covenants to which the Premises may be subject.

             2.1.2 The financial statements heretofore delivered to Lender are
true and correct in all respects, have been prepared in accordance with
generally accepted accounting principles, consistently applied, and fairly
present the respective financial conditions of Borrower and Guarantor as of the
respective dates thereof, no material adverse change has occurred in the
financial conditions reflected therein since the respective dates thereof and no
additional borrowings have been made by Borrower since the date thereof other
than the borrowing contemplated hereby or otherwise approved by Lender. All
other information submitted by Borrower or Guarantor in support of the
application for the Loan is true and correct as of the date of this Agreement,
and no material adverse change has occurred.

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               2.1.3 There are no actions, suits or proceedings pending or, to
the knowledge of the undersigned, threatened against or affecting Borrower or
the Property or the Guarantor named in the Loan Documents, or involving the
validity or enforceability of the Mortgage or the priority of the lien thereof,
at law or in equity, or before or by any Governmental Authority, except actions,
suits or proceedings fully covered by insurance or which, if adversely
determined, would not substantially impair the ability of the Borrower or the
Guarantor to pay when due any amounts which may become payable in respect of the
Note; and to the Borrower's knowledge it is not in default with respect to any
order, writ, injunction, decree or demand of any court or any governmental
authority.

               2.1.4 The consummation of the transactions hereby contemplated
and performance of this Agreement will not result in any breach of, or
constitute a default under, any deed to secure debt, mortgage, deed of trust,
indenture, security agreement, lease, bank loan or credit agreement, partnership
agreement, operating agreement, articles of incorporation, or other instruments
to which Borrower is a party or by which it may be bound or affected.

               2.1.5 All utility services and facilities necessary for the
construction or development of the Improvements and the operation thereof for
their intended purpose are available at the boundaries of the Premises,
including water supply, storm and sanitary sewer facilities, gas, electric and
telephone facilities and Borrower has the right before, during, and after
construction to connect all utility services without restriction.

               2.1.6 Except for the contracts for the Improvements entered
into by Borrower and Architect, Contractor and Engineer, Borrower has made no
contract or arrangement of any kind, the performance of which by the other party
thereto would give rise to a lien or claim of lien on the Premises.

               2.1.7 At the time of the execution and delivery of the Loan
Documents, the recording of the Mortgage and the execution and delivery of this
Agreement, no work has been done on Improvements or on the Premises by Borrower
or on behalf of or under Borrower, and no materials have been placed or
furnished on the Premises, except for work performed and materials provided in
connection with that certain Notice of Recommencement described in the Title
Insurance Commitment (the "Notice of Recommencement"), all of which liens
related to said Notice of Recommencement shall be subordinate to the lien of the
Mortgage. At the closing of the Loan, the Title Insurance Commitment will be
endorsed or "marked up" by the Title Insurer to reflect that the "gap" and the
"mechanic's lien" exceptions will be deleted from the Title Commitment (and
subsequent title policy).

               2.1.8 All roads necessary for ingress and egress to the Premises
and for the full utilization of the Improvements for their intended purposes
have either been completed or the necessary rights-of-way therefor have been
acquired by Borrower and all necessary steps have been taken by Borrower to
assure the complete construction and installation thereof.

               2.1.9 There is no default on the part of Borrower under this
Agreement, the Note, the Mortgage, or any other Loan Document, and no event has
occurred and is continuing which with notice or the passage of time or both
would constitute a default under any thereof.

               2.1.10 Except for the Notice of Recommencement, no Notice of
Commencement, as defined in Florida Statutes, Section 713.13, for construction
of the Improvements shall be recorded against the Property, prior to the
recording of the Mortgage and other applicable Loan Documents. The Notice of
Recommencement is reflected in the Title Insurance commitment as being
subordinate to the Mortgage.

               2.1.11 The Improvements, other than the installation of utility
and site work, shall be constructed in such a manner as to qualify for insurance
against flood damage under the federal flood insurance program and such
insurance shall be maintained at all times, unless waived in writing by Lender
in accordance with the Mortgage. The Representative Inspector shall certify to
Lender, upon request of Lender, at the expense of Borrower, that the minimum
floor elevations and other construction elements meet the minimum requirements
prescribed for Improvements constructed on the Premises under said program.

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               2.1.12 The Premises are in compliance with all, and are not in
violation of any, applicable federal, state or local statute, ordinance, order,
requirement, law, rule or regulation (including, but not limited to, building,
zoning, land use, or environmental laws) affecting the Premises.

               2.1.13 There is no plan, study or effort by any Governmental
Authority or any non-governmental person or agency which may adversely affect
the current or planned use of the Premises.

               2.1.14 No notice of violation of any applicable federal, state
or local statute, law, ordinance, rule, regulation, order or requirement, or of
any covenant, condition, restriction or easement affecting the Premises or with
respect to the use or occupancy of the Premises has been given by any
Governmental Authority having jurisdiction over the Premises or by any other
person entitled to enforce same.

               2.1.15 There are no encroachments onto the Premises of any
improvements on any adjoining real property, except as shown on the Survey.

               2.1.16 There is not (i) any intended public improvement which
may involve any charge being levied or assessed or which may result in the
creation of any lien upon the Premises, or (ii) any intended or proposed
federal, state or local statute, ordinance, order, requirement, law or
regulation (including, but not limited to, zoning changes) which may adversely
affect the current or planned use of the Premises, or (iii) any suit, action,
claim or legal administration, arbitration or other proceeding or governmental
investigation pending or, to the best knowledge of Borrower, threatened or
contemplated against or affecting the Premises nor, to the best of Borrower's
knowledge, is there any basis for any such matters.

               2.1.17 Except as set forth in Schedule 2.1.17 attached hereto,
Borrower has not subjected, and, except as otherwise may be provided in this
Agreement, will not subject or suffer to be subjected hereafter the Premises or
any portion thereof to any lease, sublease, tenancy, concession, license,
occupancy agreement or similar right (except in the ordinary course of
business), mortgage, lien, encumbrance, security interest, claim, charge,
equity, covenant, condition, restriction, easement, right-of-way or other matter
affecting the Premises or any portion thereof, and has not entered into, and,
except as otherwise may be provided in this Agreement or in the Title Insurance
Commitment, shall not enter into any agreement to do any of the above.

               2.1.18 Borrower is the entity described in Article I of this
Agreement and is duly formed, validly existing and in good standing under the
laws of the State of Florida and has all the power and authority to consummate
the transactions contemplated under this Agreement and in any and all other
agreements and instruments herein mentioned to which Borrower is a party.

               2.1.19 Borrower represents that no brokerage or other fee,
commission or compensation is due to anyone or is to be paid by Lender to
anyone, except as provided to Lender in writing or on the Settlement Statement
of even date. Borrower acknowledges and agrees that no fees, commissions or
other payments shall be paid to Borrower, Guarantor or any principals or
affiliates thereof without the prior written approval of Lender.

               2.1.20 All advances pursuant to the terms of this Agreement
will be utilized solely for commercial and business purposes and then only in
accordance with the provisions hereof.

               2.1.21 Borrower has obtained all permits or licenses necessary
to allow the construction of the Improvements in accordance with the Plans and
Specifications and all such permits and licenses are in full force and effect
and the fees therefor have been paid in full, except as set forth on Exhibit "C"
attached hereto, if any.

               2.1.22 Each request for an advance under this Agreement shall,
without a further writing of any kind, constitute (i) an affirmation that all of
the representations and warranties set forth in this Article II remain true and
correct as of the date thereof and, unless Lender is notified to the contrary
prior to the disbursement of the requested advance, will be true and correct on
the date thereof, and (ii) a representation and warranty that the information
set forth in each such request in accordance with the requirements of this
Agreement is true and correct.

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               2.1.23 The Premises are not now damaged or injured as a result
of any fire, explosion, accident, flood or other casualty.

               2.1.24 There is no existing, proposed or contemplated plan to
modify or realign any street or highway or any existing, proposed or
contemplated eminent domain proceeding that would result in the taking of all or
any part of the Premises or that would adversely affect the current or planned
use of the Premises.

               2.1.25 No defect or condition of the Premises or the soil or
geology thereof exists which will impair the planned use of the Premises.

               2.1.26 Borrower is indefeasibly seized of the Premises in fee
simple subject only to current taxes not yet due and such restrictive covenants
and restrictions, containing no right of reverter or forfeiture of title in case
of violation thereof, as would not in any manner affect the use of the Premises
contemplated by Borrower or for the construction of the Improvements strictly in
accordance with the Plans and Specifications.

               2.1.27 All proceeds of the Loan are for the reimbursement of
monies actually advanced by Borrower, or to pay existing or future claims for
services or materials, in connection with the development or construction of the
Improvements.

               2.1.28 There are no unemployment compensation or federal social
security taxes due and owing from Borrower and there are no liens under the
Employment Retirement Security Act of 1974, as amended, against the Premises,
whether real or personal, of Borrower.

               2.1.29 Borrower does not hold title to the Premises for the
benefit of any foreign national or contrary to any regulation or law of the
United States of America or of the state wherein the Premises are located
pertaining to the control of foreign funds, assets or property. No foreign
national has any fee simple ownership interest of any nature, direct or
indirect, in the Premises.

               2.1.30 Guarantor is duly formed, validly existing and in good
standing under the laws of the State of Tennessee and the State of Florida, and
is authorized to do business in the State of Florida, and has all the power and
authority to consummate the transactions contemplated under this Agreement and
in any and all other agreements and instruments herein mentioned to which
Guarantor is a party.

           2.2 Other terms not specifically defined in this Article II shall
have the meaning assigned to them specifically in this Agreement.

           2.3 Borrower acknowledges that (i) the aforesaid representations and
warranties are given to induce Lender to make the Loan and to fund the same,
(ii) Lender is relying and will continue to rely on the same in making and
funding the Loan, and (iii) the same shall survive any bankruptcy proceedings.

                                   ARTICLE III

                                    ADVANCES

           3.1 Borrower shall infuse cash equity, as subordinated capital, into
the Project in a total amount of approximately $3,232,000 (the "Borrower's Total
Cash Equity"). Borrower's Total Cash Equity shall be subject to verification by
Lender. Borrower's Total Cash Equity requirement equates to approximately
forty-one percent (41%) of the total budgeted cost for the Project (the "Project
Total Cost"). The Project Total Cost is budgeted at $7,912,000. At all times
during the Loan Term, the amount of the Loan shall not exceed fifty-nine percent
(59%) of the Project Total Cost. Additional cash equity may be needed in the
event of an increase in the Project Total Cost. Only upon infusion by Borrower
of Borrower's Total Cash Equity as verified by Lender in an amount of not less
than $3,232,000 shall any Loan Funds be expended for construction of the
Improvements. Except for cash infused into the Project by Borrower in excess of
the Borrower's Total Cash Equity or for liquid collateral pledged as security
for the Loan, the Loan shall be repaid in full prior to any repayment or
distribution of the Borrower's Total Cash Equity.

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         3.2 If any line item as shown on the Loan Funds Schedule is in excess
of the amounts as designated herein, Borrower will first reallocate dollars
available in the Contingency. To the extent funds in the Contingency are not
available, Borrower shall furnish such excess from its own funds prior to
closing or at any time thereafter, but in no event later than five (5) days from
the date of written notice by Lender to Borrower. Failure of Borrower to comply
herewith shall constitute an Event of Default, as such term is defined in the
Loan Documents. If any items are less than the amount designated herein upon
confirmation by the Representative Inspector of the proposed adjusted line item
amount, the difference between the amount shown and the actual amount shall be
added to the Contingency required by the Loan. All reallocations are subject to
Lender's approval which shall not be unreasonably withheld. In the event the
Project is complete (pursuant to the provisions of this Agreement), and the
Contingency Reserve contains funds which will not be utilized in the
construction of the Improvements for the Project, then Lender shall not be
required to disburse the Contingency to Borrower, but shall reduce (by the
amount of the then balance in the Contingency) the amount of Loan Funds
committed under the Loan.

         3.3 Lender's committing to fund the Loan is conditioned upon the
following:

             3.3.1 Not less than $3,232,000 of the Borrower's Total Cash
Equity has been infused by Borrower in cash, or as evidenced by receipts for
expenditures as approved by Lender.

             3.3.2 Borrower furnishes to Lender for review and approval all
contracts, plans and specifications, bonds, building permits, governmental
approvals, and such other documents or information related to the Improvements,
as may be requested by Lender.

             3.3.3 There being no Event of Default, not cured within the
applicable cure period, in the Loan.

         3.4 As set forth in the Project Budget, an interest reserve ("Interest
Reserve") in an amount as deemed necessary by Lender to secure periodic interest
payments due during the Loan Term shall be established. So long as there are
available funds in the Interest Reserve line item shown in the Project Budget,
Lender shall be obligated to make periodic payments of interest due under the
terms of the Loan Documents from the Interest Reserve. In the event the Interest
Reserve is depleted or there is a continuing default under the terms and
conditions of the Loan, Lender shall have no obligation whatsoever to make any
payments of interest due under the terms of the Loan Documents from the Interest
Reserve.

         3.5 [INTENTIONALLY DELETED.]

         3.6 Borrower shall have the right to reallocate funds from the
Contingency Reserve into the additional Interest Reserve, so long as the
following conditions are met:

             3.6.1 The Project Total Cost has remained at no less than
$7,912,000, or has been increased and an appropriate amount of equity has been
contributed by Borrower;

             3.6.2 The Contingency has remained at three percent (3%) of the
unspent hard costs of construction of the Project;

             3.6.3 There are sufficient funds available as reflected on the
Project Budget to complete the Project in accordance with the approved Plans and
Specifications; and

             3.6.4 There are no line items that are in excess of the percentage
of completion of the Project.

                   Upon the occurrence of the above conditions, Borrower shall
be allowed to reallocate funds from the Contingency to the Interest Reserve to
pay for the additional Interest Reserve as herein provided.

         3.7 The following provisions shall be applicable to the construction
of the Project:

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                  3.7.1 Pre-Construction: Lender's obligation to fund the Loan
is specifically conditioned upon the Representative Inspector's reviewing the
Plans and Specifications, the Construction Contract and the Architect's
agreement, together with all Change Orders (as hereinafter defined), the
schedule of values, surveys, utility commitments, soil tests and other tests,
studies and data relating to the construction of site improvements to determine
and verify that the Plans and Specifications are adequate, that the Project can
be completed for the estimated cost and is structurally sound.

                  3.7.2 During Construction: The Representative Inspector during
the construction of the Project, shall also be retained by Lender for purposes
of ensuring that the work has been completed in substantial compliance with the
Plans and Specifications, including all threshold inspections. The
Representative Inspector shall have access to the SNF Site and records at any
time during construction of the Project and after completion thereof.
Satisfactory certificates of the Representative Inspector shall be submitted to
Lender at least monthly.

                  3.7.3 Procedure: Disbursement of the Loan Funds is subject to
satisfactory periodic inspections and approval thereof by Lender. Such
inspections shall be solely and exclusively for the information and benefit of
Lender, and the Representative Inspector shall not be deemed an agent of
Borrower or Lender. Lender shall not be deemed a participant or joint venturer
in the construction of the Project for any purpose whatsoever. Borrower agrees
to pay Lender for the services of the Representative Inspector. In the event of
a disagreement as to the amount of work completed, or the Loan proceeds to be
disbursed, such determination shall be made in accordance with Lender's
estimate. The cost of reinspections occasioned for any reason whatsoever shall
be paid by Borrower.

                  3.7.4 Hold-Back Funds: In addition to the Retainage (as
hereinafter defined), Lender shall hold back an amount equal to ONE HUNDRED
THOUSAND DOLLARS ($100,000) (the "Hold-Back Funds"), which Hold-Back Funds shall
be retained by Lender in lieu of requiring Borrower to provide a performance and
unconditional payment bond insuring Lender and Borrower for the entire amount of
the Construction Contract, and which Hold-Back Funds shall be disbursed by
Lender to Borrower at the time of disbursement of the Retainage, as set forth
herein.

                  3.7.5 Change Orders: All change orders ("Change Order(s)") in
excess of TWENTY-FIVE THOUSAND DOLLARS ($25,000) individually, or FIFTY THOUSAND
DOLLARS ($50,000) cumulatively, or any costs overruns, and those which, at the
discretion of Lender, materially change the Plans and Specifications previously
submitted and approved, shall be approved by Lender and Lender's Representative
Inspector prior to any work or payment thereon. All Change Orders requiring
approval shall be approved or disapproved by Lender within ten (10) days of
receipt of the applicable Change Order and all documentation relating thereto.
Failure to notify Lender within ten (10) days shall be an Event of Default under
the Loan Documents. The funding of Change Orders increasing the cost shall be
from the Contingency Reserve to the extent excess funds are available in the
Contingency Reserve (as reflected in the Project Budget). Any Change Order
reducing costs shall increase the Contingency Reserve by the amount of the
Change Order. Borrower agrees to maintain the Contingency Reserve at least three
percent (3%) of the unspent hard costs as specified on the monthly construction
draw schedule. Any Change Orders which increase costs, and which cannot be
funded from the Contingency Reserve in accordance with the foregoing provisions
must be paid by Borrower into an interest bearing account to be disbursed by
Lender prior to continuing disbursement of Loan Funds.

                  3.7.6 Construction Completion: Borrower shall have met
prerequisites for funding and shall continue construction of the Improvements
without interruption until completion, which shall be no later than December 2,
2000 (the "Completion Date").

                  3.7.7 Disbursement Procedures: The Loan Funds shall be
disbursed in accordance with the cost breakdown approved by Lender subject to
and in accordance with the following provisions:

                        3.7.7.1 Until fifty percent (50%) completion of the hard
costs as reflected on the Project Budget has been achieved on the Project (the
"50% Completion Threshold"), the proceeds of the Loan shall be disbursed by
Lender to Borrower, the General Contractor, subcontractors or materialmen at the
option of Lender, or to the Title Insurer equal to ninety percent (90%) of the
costs of material and labor in place and stored (if in accordance with the
provisions of this Agreement). The ten percent (10%) holdback (the

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<PAGE>   10

"Retainage") will only be disbursed upon the completion of the Project as
defined herein. After the 50% Completion Threshold has been met, no additional
Retainage will be required.

                        3.7.7.2 Lender shall fund directly to Borrower unless
an Event of Default occurs under the Loan Documents, upon which occurrence
Lender shall have the option, but not the obligation, subject to consent of the
Surety, to fund directly to the General Contractor, subcontractors or
materialmen at the option of Lender, or to the Title Insurer.

                        3.7.7.3 Lender shall issue all monthly draw amounts
pertaining to the Construction Contract by deposit to the Account, joint check
or wire transfer, at Lender's discretion.

                        3.7.7.4 As a condition to funding under the Loan,
Borrower shall be in compliance with the provisions of Section 3.3 of this
Agreement.

                        3.7.7.5 As a condition to each disbursement under the
Loan, Borrower shall:

                                3.7.7.5.1 Not be in default as to the terms and
conditions of this Agreement or any of the Loan Documents.

                                3.7.7.5.2 Supply a certificate from the
Representative Inspector certifying that the Improvements have been completed to
date in accordance with Plans and Specifications (including all threshold
requirements) as approved by Lender to the degree of completion as represented
by the request for payment application, disbursement of Loan proceeds, and
Change Orders, which certificate shall be based upon a visual monthly inspection
by said person making the certificate. Upon receipt of the certification, Lender
shall employ its Representative Inspector to examine the Project to determine
that the stage of completion is as represented. Borrower agrees to pay Lender
for the services of such inspector for disbursing such Loan proceeds.

                                3.7.7.5.3 Supply partial waivers of lien duly
executed by subcontractors and suppliers who have performed work, which waivers
shall be attached to the certificate, described as aforesaid with respect to the
monthly disbursement. The monthly waivers of lien for the first draw requests
shall be attached, if applicable, and thereafter each monthly draw request shall
have attached the waivers for the draw requests submitted thirty (30) days prior
to the current draw request.

                                3.7.7.5.4 Supply affidavits of Borrower and
General Contractor confirming that all subcontractors, laborers and materialmen
who have furnished services or materials have been paid as set forth in the
previous draw request submitted thirty (30) days prior to the current draw
request.

                                3.7.7.5.5 Supply a re-certification or update
of title by the Title Insurer updating title to within seven (7) days of the
date of such disbursement prior to the date of such disbursement. Said
re-certification or update will show no claims or liens which could or would
constitute a cloud on Lender's secured position established by the Mortgage, and
that the amount of the requested advance will be covered by the Title Insurance
Policy.

                                3.7.7.5.6 If the Property is in a flood zone or
is later determined to be in a flood zone, as determined by Lender utilizing the
Federal Emergency Management Flood Insurance Rate Map, prior to funding for the
foundation of the Project, Lender shall receive a tie-in survey and an
application for flood insurance policy, in form reasonably acceptable to Lender
or its counsel. Flood insurance in the amount of the Loan or the minimum
required by federal law, whichever is the greater, shall be provided to Lender
with a copy of the flood insurance policy within thirty (30) days of
application.

                                3.7.7.5.7 Provide Lender with an updated Project
Budget identifying each draw request, in a form acceptable to Lender.

                                3.7.7.5.8 Provide Lender evidence that
Borrower's Total Cash Equity has been infused into the Project for construction
of the Improvements, which evidence shall include paid receipts verifying all
expenditures in excess of $5,000.

                                       10
<PAGE>   11

               3.7.7.6 Borrower shall not make more than one (1) request for
an advance per calendar month under the Loan. Disbursement requests shall be
funded within ten (10) working days after submission by Borrower to Lender of
all of the above documentation for all non-disputed payments. In the event any
payments are in dispute, then Lender and Borrower agree to be governed by the
decision of the Representative Inspector.

               3.7.7.7 Lender shall advance Loan Funds for materials stored
on site so long as: (1) Lender is satisfied that the stored materials are
adequately protected and insured against fire, theft, inclement weather; and (2)
said materials will be utilized in the construction of the applicable Building
in the Project in the next sixty (60) days from the date of the draw request (as
certified by the Representative Inspector); provided however, Lender shall
advance Loan Funds for electrical and plumbing materials stored on site for a
period of ninety (90) days or such other period as approved by Lender under the
same terms and conditions.

               3.7.7.8 Report of the Representative Inspector confirming: (i)
that construction or development has progressed to the stage of completion as
indicated in the draw request; (ii) construction is in accordance with the
plans, specifications and any modifications thereto which have been approved by
Lender; and (iii) there are no structural defects or other matters which could
or would adversely affect the Premises or the Improvements thereon, or the use
thereof as represented to Lender.

               3.7.7.9 Each request for an advance by Borrower shall constitute
an affirmation that the warranties and representations contained in Article II
of this Agreement remain true and correct and that no breach of the covenants
contained in Article IV of this Agreement has occurred as of the date of the
advance, unless Lender is notified to the contrary prior to the disbursement of
the requested advance.

         3.7.8 As a condition precedent to the disbursement of the Retainage,
the following requirements must be met:

               3.7.8.1 The General Contractor and the Representative Inspector
must certify that the Improvements to be constructed under the Loan are fully
completed in accordance with the Plans and Specifications approved by Lender and
in accordance with all local, state and federal laws, statutes, rules,
regulations and ordinances (specifically including the Americans with
Disabilities Act of 1990, if applicable) of the Governmental Authorities having
jurisdiction over the Property and the Improvements are ready for occupancy and
that direct connection has been made to all appropriate utility facilities. If
changes have been made in the Plans and Specifications which materially reduce
the cost of construction or utility value of the Improvements, Lender reserves
the right to delete said amount and reallocate the line items of the Project
Budget. Borrower shall have a right to reallocate the line items of the Project
Budget with the prior written approval of Lender, said approval not to be
unreasonably withheld.

               3.7.8.2 Borrower shall provide not less than four (4) photographs
of the Improvements clearly showing the applicable Improvements from all main
directions so as to reveal the Improvements as completed when viewed as a
composite.

               3.7.8.3 A completion perimeter and "as-built" survey, approved
by Lender and Title Insurer locating all Improvements and all easements on the
SNF Site, with a certification that no encroachments exist on the applicable
Improvements on the SNF Site and that all building setback requirements have
been complied with, and indicating the location of access to the SNF Site, and
all visible or recorded easements or restrictive covenants. Said survey shall be
certified for the benefit of Lender, Lender's Counsel, Borrower and Title
Insurer and shall be in a form acceptable to Lender.

               3.7.8.4 Receipt by Lender of a final mechanic's lien affidavit
of Borrower and General Contractor in a form as required by Lender and the Title
Insurer that all persons who have supplied labor and material with respect to
the Project have been paid in full or are listed to be paid, and having attached
thereto either recordable individual final releases of lien from all such
persons, firms or corporations having been paid or conditional final releases
from those listed as to be paid.

                                       11
<PAGE>   12

               3.7.8.5 Supply a re-certification or update of title by the
Title Insurer updating title to within one (1) day of the date of such
disbursement prior to the date of such disbursement.

               3.7.8.6 Satisfactory evidence that all necessary certificates
required by any agency, including certificates of occupancy, authority or board,
governmental or otherwise, have been obtained.

               3.7.8.7 Proof of hazard insurance coverage in the amount of the
 Loan by an insurance carrier acceptable to Lender.

               3.7.8.8 Satisfactory evidence that all permits, licenses or other
evidence of compliance with any Requirements of any Governmental Authority
necessary for the use of the Premises and Improvements contemplated in the Plans
and Specifications has been obtained.

               3.7.8.9 Upon request by Lender, supply an inventory of the
personal property collateral as defined in the Mortgage, which inventory shall
specifically describe the collateral by make, model, and serial number insofar
as possible.

               3.7.8.10 Upon Borrower's satisfying the requirements set forth in
Sections 3.7.8.1 through 3.7.8.9, Improvements shall be deemed substantially
completed. Lender shall have the right but not the obligation to have checks
paid jointly to Borrower, Contractor and those listed as "to be paid" in the
Final Contractor's Affidavit.

           3.8 All advances are to be made at the principal office of Lender,
or at such other place as Lender may designate.

           3.9 By execution of this Agreement, Borrower authorizes Lender to
make advances upon the request of the Agent to Request Advances to the Account
to Receive Advances and Borrower agrees that: (i) Lender is not acting as agent
or trustee for Borrower; (ii) Lender will not be held accountable for any
advance made in good faith; (iii) all advances made prior to receipt of written
notice of revocation shall be deemed advances made in good faith; and (iv)
revocation of the agency by Borrower can be accomplished only by written notice
to Lender.

           3.10 By execution of this Agreement, Borrower further authorizes
Lender, at Lender's option, to make advances directly to any subcontractors of
the Contractor and to advance to itself sums required to pay interest from any
Interest Reserve set forth in the Project Budget for the preceding month. No
further direction or authorization from Borrower shall be necessary to warrant
such direct advances and all such advances shall satisfy pro tanto the
obligations of Lender hereunder and shall be secured by the Mortgage as fully as
if made to Borrower.

           3.11 Lender's obligation to disburse shall be contingent upon the
zoning and land use classification consistent with the proposed use of Loan
Funds as represented by Borrower, as well as all approvals required in the event
the Project is considered a development of regional impact ("DRI") as set forth
in Section 380.06, Florida Statutes.

           3.12 Notwithstanding anything contained herein to the contrary,
Borrower acknowledges and agrees that if after a Certificate of Occupancy has
been issued for the Improvements, and said Improvements have not achieved a
"move-in fill rate" of not less than two (2) residents per month (the "Move-In
Fill Rate"), measured quarterly from the date the Certificate of Occupancy is
issued, Borrower shall reduce the outstanding principal balance of the Loan by
an amount equal to $1,000,000, which amount shall be paid to Lender on or before
the date that the next monthly payment is due under the Note. Borrower further
acknowledges and agrees that in the event the Improvements fail to achieve the
Move-In Fill Rate for two (2) consecutive quarters at any time during the Loan
Term, Borrower shall reduce the outstanding principal balance of the Loan by an
additional amount equal to $1,000,000, which additional amount shall be paid to
Lender on or before the date that the next monthly payment is due under the
Note. Borrower and Lender agree that once the Move-In Fill Rate has been
achieved in accordance with the provisions of this paragraph, Borrower may apply
to Lender for a re-advance in the same amount (up to a maximum of $2,000,000) as
the Borrower has reduced the principal balance of the Loan pursuant to the
provisions of this Section 3.12. Lender agrees to consider said

                                       12
<PAGE>   13

request in accordance with the current underwriting criteria of the Lender, but
said determination to advance further amounts under the Loan shall be made by
Lender in its sole and absolute discretion.

                                   ARTICLE IV

                              COVENANTS OF BORROWER

      Borrower covenants with Lender as follows:

      4.1 Except as set forth in Schedule 2.1.17 attached hereto, Borrower will
not convey or encumber the Premises in any way without the prior written consent
of Lender. The lien and security interest of the Lender set forth in the Loan
Documents shall be released in accordance with the terms and conditions of this
Agreement and the Mortgage.

      4.2 Subsequent to the date of this Agreement, all easements affecting the
Premises shall be submitted to Lender for its approval prior to the execution
thereof by Borrower, accompanied by a certified legal description and survey
showing the location thereof.

      4.3 Borrower will comply promptly with any requirement of any Governmental
Authority.

      4.4 Borrower will cause the Mortgage to be recorded among the Public
Records of Hillsborough County, and the title searched subsequent to the date of
the execution and recordation of the Mortgage. Upon such search being completed,
Borrower shall cause to be issued to Lender the Title Insurance Policy with the
premium therefor fully prepaid, showing the Mortgage to have been recorded and
insuring that the Mortgage is a valid lien having a priority as stated in the
Title Insurance Commitment, and that Borrower is vested with a fee simple title
to the Premises, free and clear of all exceptions whatsoever, except (i) the
Mortgage, (ii) the current ad valorem real property taxes not yet due and
payable, and (iii) such limitations and restrictions as may be acceptable to
Lender and as are set forth on the Title Insurance Commitment, and that the
Title Insurer insures Lender, its participants, transferees or its assigns, to
the full amount of the Note and for all advances made or to be made under the
Note without exceptions as to mechanics' or materialmen's liens, rights or
claims of parties in possession not shown by the public records, encroachments,
overlaps, boundary line disputes or other matters of survey, easements, or
claims of easement, not shown by public records, or otherwise or lack of a right
of access to and from the Premises. All costs and expenses in connection with
the issuance of the Title Insurance Policy shall be the obligation of Borrower
and not of Lender.

      4.5 Borrower will furnish to Lender, as often as requested, budgets and
revisions of budgets of Borrower showing the estimated cost of construction or
development of the Improvements and the amount of funds required at any given
time to complete and pay for such construction or development.

      4.6 Borrower shall permit Lender or its agents at any time during the
period of this Agreement, to inspect all books, contracts, subcontracts, and
records of Borrower and Contractor (including general and subcontractors
involved in any on-site and off-site work) relating to the Premises.

      4.7 Borrower shall submit to Lender, if demanded by Lender and within five
(5) days after demand, a written summary of all on-site and off-site
Improvements remaining to be completed, together with the itemized costs
thereof, executed and verified by Borrower and Contractor.

      4.8 Borrower will permit Lender or the Representative Inspector to enter
upon the Premises, inspect the Improvements and all materials to be used in the
construction thereof, and to examine all detailed plans and shop drawings which
are or may be kept at the construction site and will cooperate and cause the
Contractor to cooperate with the Representative Inspector to enable him to
perform his functions hereunder.

      4.9 Borrower will pay all costs and expenses required to satisfy the
conditions of this Agreement. Without limitation of the generality of the
foregoing, Borrower will pay: (i) all taxes and recording expenses, including
all intangible and stamp taxes, if any; (ii) all fees and commissions lawfully
due to brokers in connection with this transaction; (iii) reasonable legal fees
and expenses of Lender's counsel and Participant

                                       13
<PAGE>   14

Lender's counsel as set forth in the Terms Letter; (iv) title insurance
premiums; and (v) fees to the Representative Inspector.

      4.10 Borrower will cause the development and construction of the
Improvements to be prosecuted with diligence and continuity and will complete
the same in accordance with the Plans and Specifications, free and clear of
liens or claims of liens for materials supplied and for labor or services
performed in connection with the construction of the applicable Improvements.

      4.11 Borrower will cause all conditions hereof to be satisfied to the
extent it is within its power to do so.

      4.12 Borrower will receive the advances to be made under the Future
Advance Loan and will hold the same as a trust fund for the purpose of paying
the costs of construction of the Improvements as shown on the Project Budget and
for no other purpose.

      4.13 In the event Lender is named in any legal or equitable action arising
out of, connected with, or in any way relating to the Loan, Borrower and
Guarantor shall jointly and severally indemnify Lender for, and hold Lender
fully harmless from, any and all damages, losses, liabilities, reasonable costs,
and other reasonable expenses, including reasonable attorneys' fees, resulting
from or arising out of such action; provided, however, the provisions of this
paragraph shall not apply to any action caused by the gross negligence of Lender
(as determined by a final non-appealable order of a court of competent
jurisdiction). This indemnification shall survive the repayment of the Loan and
the exercise by Lender of any of its rights or remedies under the Loan
Documents.

      4.14 In addition to the indemnification described above, Borrower and
Guarantor shall indemnify Lender against any liability arising out of the
existence of toxic or hazardous material, substance or waste on the Property or
the breach of any applicable environmental laws and regulations, in accordance
with the Environmental Compliance and Indemnity Agreement dated December 2,
1999, executed by Borrower and Guarantor in favor of Lender. This
indemnification shall survive the repayment of the Loan and the exercise by
Lender of any of its rights or remedies under the Loan Documents.

      Lender shall be entitled to contact all applicable regulatory agencies, at
any time, to confirm Borrower's adherence to the provisions of this Agreement,
and to the Loan Documents. Lender, during the term of the Loan, at Lender's sole
option, may require that all violations of law with respect to toxic or
hazardous material, substance or waste be corrected, and that Borrower shall
obtain all necessary environmental permits before Lender shall be obligated to
make any advances on the Loan. Borrower covenants and agrees to abide by all
applicable governmental, directives, rules and regulations pertaining to the
correction of all violations with respect to toxic or hazardous material,
substance or waste. Lender shall also have the option to require appropriate
title insurance, in an amount determined by it, if available, to cover potential
toxic or hazardous material, substance or waste liens.

      4.15 Borrower will deliver to Lender, on demand, any contracts, bills of
sale, statements, receipted vouchers or agreements, under which Borrower claims
title to any materials, fixtures or articles incorporated in the Improvements or
subject to the lien of the Mortgage or any other Loan Document.

      4.16 Borrower will, upon demand of the Representative Inspector, correct
any defect in the Improvements or any departure from the Plans and
Specifications not approved by it. The advance of any Loan Funds shall not
constitute a waiver of Lender's right to require compliance with this covenant
with respect to any such defects or departures from the Plans and Specifications
not theretofore discovered by, or called to the attention of, the Representative
Inspector.

      4.17 Borrower will comply with all restrictive covenants affecting the
Premises.

      4.18 Lender may apply amounts due hereunder to the satisfaction of the
conditions hereof, and amounts so applied shall be part of the Loan and shall be
secured by the Mortgage and other Loan Documents.

                                       14
<PAGE>   15

      4.19 Borrower warrants that all construction and Improvements will only be
performed by contractors and subcontractors duly licensed and that, upon request
by Lender, copies of all contracts with such contractors and subcontractors will
be promptly furnished to Lender, and will not be amended without Lender's
consent.

      4.20 Borrower will not make any changes to the Plans and Specifications
involving a cumulative cost change without the prior written consent of Lender
and all Change Orders for work in excess of TWENTY-FIVE THOUSAND DOLLARS
($25,000), individually, or FIFTY THOUSAND DOLLARS ($50,000) cumulatively, or
any costs overruns, and those which, at the discretion of Lender, materially
change the plans or specifications previously submitted and approved, shall be
approved by Lender and Lender's Representative Inspector prior to any work or
payment thereon. Borrower's ability to make any changes to the Plans and
Specifications shall not be limited or impaired by Lender's refusal to approve
or fund said Change Order(s) in accordance with this Agreement.

      4.21 Borrower will maintain, during the construction of the Premises,
"completed value" builder's risk insurance covering fire, extended coverage,
vandalism and malicious mischief in an amount equal to one hundred percent
(100%) of the cost of the Improvements showing Lender as Loss Payee and public
liability insurance with $3,000,000 single limit coverage. Said policy shall
include a rider indicating that the proceeds of the policy shall be payable to
Lender up to the amount of the indebtedness due under the Note. Borrower shall
obtain such other insurance coverage (including flood insurance) as may
reasonably be required by Lender and as required under the Mortgage and other
Loan Documents. All insurance policies shall be written on companies
satisfactory to Lender and shall contain the agreement of the insurer to give
not less than thirty (30) days prior notice to Lender in the event of
cancellation or a material change in the coverage. All such insurance shall
contain provisions allowing completion of the construction contemplated by this
Agreement and shall cover materials on the site. The original policy or policies
shall be in the possession of Lender no later than the commencement of
construction or development and Borrower shall pay the premium therefor before,
or simultaneously with, the payment of the first advance from the Loan Fund. An
insurance certificate may be substituted for the policies when such alternate is
considered by Lender to be acceptable.

      4.22 Borrower will comply with all land use, building, subdivision,
zoning, Occupational Safety and Health Administration, environmental, pollution,
sales practices laws and similar laws, rules, ordinances and regulations
promulgated by any Governmental Authority and applicable to the Premises, its
development and construction of Improvements and the sale or operation thereof.
Borrower shall obtain and deliver to Lender the originals or certified true
copies of all subdivision, building, zoning, use, environmental and other
permits required. In the event such building, subdivision, zoning, use,
environmental or other permits, or any of them, are revoked or subjected to
attack by action before any court, administrative agency or other body having
jurisdiction, Borrower shall take (and diligently pursue) any and all
administrative or judicial action as to reinstate any of said revoked permits or
defend any action before any court, administrative agency or other body having
jurisdiction (collectively, the "Borrower's Actions"). Anything herein to the
contrary notwithstanding Borrower's Actions shall not adversely affect:

         4.22.1 the licenses, certificates and permits from Governmental
Authorities for the operation of the Project;

         4.22.2 the Project Budget, but if so, Borrower shall fund to Lender
all additional costs for the Project at the time of the delay; and

         4.22.3 the ability of Borrower to complete the Improvements on or
before the Completion Date.

However, should Borrower not initiate and diligently pursue Borrower's Actions,
Lender may, at its discretion, withhold advances hereunder and also, at Lender's
discretion, the Loan made pursuant to the Loan Documents shall become
immediately due and payable.

      4.23 Borrower will, upon demand of Lender, correct any structural defect
in the Improvements or any substantive departure from the Plans or
Specifications not approved by Lender but which was required to have been
approved by Lender. The advance of any of the Loan Funds shall not constitute a
waiver of Lender's

                                       15
<PAGE>   16

right to require compliance with this covenant with respect to any such defects
or departures from the Plans or Specifications not theretofore discovered by or
called to the attention of Lender.

      4.24 If at any time counsel for Lender is of the opinion that any
disbursement of the Loan is not secured or will or may not be secured by the
Mortgage and other Loan Documents as a lien on the Premises and Improvements
having a priority as stated in the Mortgage and Title Insurance Policy, or if it
becomes aware of a title defect in the Premises not disclosed by the Title
Insurance Policy or Title Insurance Commitment, then Borrower shall, within ten
(10) days after the mailing of written opinion by Lender, do all things and
matters necessary to assure, to the satisfaction of counsel for Lender, that any
disbursement previously made hereunder or to be further made hereunder is
secured or will be secured by the Mortgage as a lien on the Premises and
Improvements having a priority as stated in the Mortgage, and Lender, at its
option, may decline to make further disbursements hereunder until Lender has
received such assurance.

      4.25 Borrower shall furnish to Lender from time to time as and when
required by Lender, evidence satisfactory to Lender that Borrower or Contractor
have or can obtain all necessary materials as and when required for the
completion of development or construction as the case may be in accordance with
the Plans and Specifications prior to the Completion Date and at costs in
accordance with the Project Budget. Lender shall be the sole judge of the
sufficiency of such evidence and the furnishing thereof acceptable to Lender
shall be a condition precedent to the making of any advance.

      4.26 If, at any time pending or during the disbursement of the Loan Funds,
it appears that the net proceeds of the Loan Funds remaining undisbursed will be
insufficient to complete all of the Improvements in accordance with the Plans,
Specifications and Project Budget and to pay for all labor, material and costs,
Borrower shall deposit in the Account to Receive Advances, upon Lender's demand,
additional monies which shall, when added to the undisbursed proceeds of the
Loan, be sufficient to complete and pay for the costs and expenses in connection
with the Improvements. The amount so deposited shall be disbursed to pay for the
Improvements before any additional proceeds of the Loan of Lender are paid out.

      4.27 Borrower shall not disburse to the Contractor or to any persons
furnishing work or materials to the Premises or for the development or
construction of the Improvements a total sum of more than ninety percent (90%)
of the contract price (as defined in, Florida Statutes, Section 713.01(3)), on
the first fifty percent (50%) of the contract price or the last payment due
under any such contract if such payment is greater than ninety-five percent
(95%) of the contract price, until completion by the Contractor and delivery to
Lender of the Contractor's affidavits and other affidavits or documents required
pursuant to Florida Statutes, Section 713.06(3)(d) and 713.05 respectively.

      4.28 Borrower agrees to forward to Lender any notice, order,
correspondence or information within ten (10) days of receipt thereof by
Borrower which might affect the availability of off-site sewer or water
facilities to the Premises, or the capacity of any such facility to handle the
contemplated needs of the Premises. Within ten (10) days thereafter, if so
requested by Lender, Borrower shall submit evidence to Lender of the remedial
action deemed necessary to provide adequate off-site sewer and water facilities,
and as soon as possible shall provide detailed plans and specifications
therefor. Whatever other arrangements deemed necessary by Lender, including
additional construction of private sewer treatment facilities, shall be
undertaken by Borrower at the expense of Borrower, and Lender shall not be
obligated to make any further disbursements from the Loan Fund until sufficient
arrangements have been made and plans submitted in writing to and approved in
writing by all appropriate Governmental Authorities and by Lender. Borrower
shall, after such approval by Lender, diligently prosecute the accomplishment
and construction of the remedial action contemplated herein. Lender shall not be
obligated to make any Loan disbursements for the compliance of any of the
provisions contained in this subparagraph. Failure to comply with any of
Borrower's obligations in this regard shall constitute a default hereunder and
under the Mortgage, and in such event, at Lender's option, the entire principal
balance secured by said Mortgage, together with all interest accrued thereon,
shall become immediately due and payable in full.

      4.29 Borrower shall not amend any of the documents relating to the Project
(the "Project Documents"), or any covenants, restrictions or conditions ("Deed
Restrictions") (individually and collectively referred to as "Regime Documents")
without the prior written reasonable approval by Lender and Lender's counsel.

                                       16
<PAGE>   17

      4.30 Borrower shall comply with all requirements upon development and
sales prescribed in the Terms Letter and the Mortgage, as applicable, and
regulations related thereto, including any state and federal securities laws,
state and federal interstate and intrastate sales practices laws and regulations
and any federal and state fair trade practices, as well as any local laws
governing the Premises, as now existing or hereafter amended, and further
warrants that all Regime Documents that are required to be approved by any
Governmental Authorities have been (or will be) approved by said Governmental
Authorities. Borrower shall further comply with all of the applicable
requirements to meet all legal requirements for licensing certifications and
requirements by any and all governing bodies as it relates to the operation of a
skilled nursing home, including, but not limited to, Florida Statutes, Chapter
408 (specifically, Sections 408.031 to 408.045, commonly known as the "Health
Facility and Services Development Act"), and Florida Statutes, Section
201.02(1).

      4.31 To remove by payment or bond of a surety company or letter of credit
acceptable to Lender, any construction or laborer's claim or lien or any other
lien or encumbrance filed against the Premises within ten (10) days from date of
filing thereof.

      4.32 To make no assignment for benefit of creditors and to permit no
petition in bankruptcy or insolvency, arrangement or reorganization proceedings
under any chapter of the Federal Bankruptcy Code to be filed against or a
receiver to be appointed for Borrower or the Premises; provided, however, this
provision shall not be construed as limiting Lender's right to appoint a
receiver as more particularly provided in the Mortgage.

      4.33 To pay all taxes and assessments against said Premises in accordance
with the terms of the Mortgage, and to furnish to Lender, no later than November
30 of each tax year, paid tax receipts for the Premises.

      4.34 Borrower and Guarantor shall submit an affidavit of tax status to the
effect that it has duly filed all federal, state and local tax returns and
reports of all other governmental agencies having jurisdiction, with respect to
taxes imposed upon it or upon its income, properties, franchises or operations;
that all such returns and reports are correct and complete in all respects and
were prepared in compliance with all applicable provisions of the Internal
Revenue Code of 1954 as amended, and the regulations thereunder, and all
applicable federal, state and local statutes and the regulations thereunder; and
that except as otherwise disclosed in the affidavit, Borrower shall certify that
all such taxes shown on such returns or reports have been paid to the extent
that such taxes have become due, and that none of such federal, state and local
tax returns and reports were filed on a consolidated basis. Said affidavits
shall be furnished to Lender by Borrower on or before April 15th of each year
during the term of the Loan, unless Lender is furnished with notice prior to
that date of any extension whereupon said affidavit shall be furnished to Lender
on or before said extension date.

      4.35 All pledged accounts of Borrower related to the Project shall be
maintained by Lender.

      4.36 Except as set forth in Schedule 2.1.17 attached hereto, Borrower
shall not grant or reserve or acquire any easement to or from any person or
entity on, over, under or appurtenant to the Property for ingress and egress, or
other access, either permanent or temporary, for vehicular traffic, pedestrian
traffic, installation, construction, utilities, telephone or any other purpose
or use absent the prior written consent of Lender (which consent shall not be
unreasonably withheld) to such easement and the approval of Lender of the form
and substance of the documentation to be used for said creation of same. No
general or blanket easement for utilities, telephone or any other purpose will
be acceptable and Lender must be provided with a certified survey meeting the
requirements set forth hereinabove locating the easement as proposed.

      4.37 No Declaration of Condominium, covenants, restrictions or conditions
for a homeowners association, or other regime documents (collectively, the
"Regime Documents") will be recorded against the Property until said Regime
Documents have been approved by Lender's counsel, in writing, as to the form and
as to the inclusion of sufficient provisions for the protection of Lender and
until Borrower has submitted to Lender a letter from a title insurance company
satisfactory to Lender stating that it has reviewed said Regime Documents and
that said Regime Documents will not affect the first lien priority of the
Mortgage. Any Regime Documents recorded will provide that in the event Lender
forecloses or otherwise comes into possession of

                                       17
<PAGE>   18

ownership of the Premises, Lender will have all rights and privileges of
Borrower and that Lender shall not be liable for any past due assessments or for
any assessments while Lender remains the owner of the Property and that Lender
shall not be subject to any restrictions on the sale or leasing of the Property.
Any Regime Documents shall contain a covenant by the Borrower to cause the
condominium or homeowners association to keep the Premises insured for the
benefit of Lender. Any amendment to the Regime Documents must be approved in
writing by Lender's counsel prior to recordation, which approval shall not be
unreasonably withheld or delayed. Borrower shall comply with all requirements
upon development and sales prescribed in the Terms Letter, Mortgage and
applicable laws and regulations, including any state and federal securities
laws, state and federal interstate and intrastate sales practices laws and
regulations and any federal and state fair trade practices, as well as any local
laws governing the Premises, as now existing or hereafter amended.

      4.38 For the Project, Lender shall have the right to order, at Borrower's
expense, an appraisal prepared in full compliance with the Financial Institution
Reform Recovery and Enforcement Act of 1989 ("FIRREA") and rules promulgated
thereunder and the appraisal standards of Lender, which sets forth, among other
things, the use of the Property upon which the appraisal is based, a legal
description of the Property appraised, the existing zoning/land use
classification of the Property, detailed information concerning comparable sales
in the use of the Property compared, the fair market value of the estate of
Borrower in the Property at Closing, the value of any proposed improvement and
the projected market value of the Property if improved as proposed. Lender shall
require that the appraisal substantiates that the amount of the Loan does not
exceed seventy-nine percent (79%) of the market value of the SNF Site, as
improved with the Improvements constructed or to be constructed thereon, and
which market value shall be not less than FOURTEEN MILLION FIVE HUNDRED THOUSAND
DOLLARS ($14,500,000). An "as complete market value" uses discounted cash from
calculations for valuation purposes. Notwithstanding Borrower's authorizing
Lender to order said appraisal, the costs of said appraisal shall be paid by
Borrower prior to engagement of the appraiser.

      4.39 Upon request of Lender, Borrower and Guarantor agree to furnish
updated financial statements and, if applicable, operating statements for the
Property, including semi-annual balance sheets and income statements on Borrower
and Guarantor as well as quarterly reviews of the financial status of each
project in which Borrower and Guarantor have an ownership interest. The form of
any such updated financial statements shall be the same as the financial
statements previously submitted to Lender (with only the year-end statements
require to be audited) by Borrower and Guarantor in connection with the Loan.
Within one hundred twenty (120) days after the fiscal year end of Guarantor,
commencing with fiscal year 2000, Guarantor shall furnish Lender an annual
certified public accountant prepared audited financial statement for Guarantor
for said fiscal year, and such other financial documents or information that may
be required to be furnished by Guarantor in connection with that certain Amended
Unlimited Continuing Guaranty Agreement executed by Guarantor in connection with
the Loan. No later than March 1 of each year of the Loan Term, Borrower shall
furnish Lender an annual financial statement (internally generated), certified
to Lender by an officer of Borrower and in form and content acceptable to
Lender. Lender shall have no obligation to fund the Loan if there is any
material adverse change in the financial position of Borrower or Guarantor from
that reflected in the financial statements, tax returns and other data
previously submitted to Lender, or if any information previously submitted to
Lender proves to be false. Lender shall have no liability to any party
whatsoever for such failure to fund.

      4.40 Borrower shall not further encumber any of the collateral securing
the Loan without prior written approval of Lender, which approval will not be
unreasonably withheld. There shall be no UCC-1 financing statements in effect,
other than those filed and recorded by Lender or those filed and recorded for
equipment financing provided by other lenders, which statements name the
Borrower or Guarantor as debtor and which pertain to any rights in tangible and
intangible personal property situated on or pertaining to said Collateral.

      4.41 As of the date of this Agreement, the following persons or entities
own the following partnership interests in Borrower:

           ARC Freedom, Inc.                   55%
           ARC SCC, Inc.                       45%

      No material changes in the ownership of Borrower shall occur without the
prior written consent of Lender, which consent shall not be unreasonably
withheld. No partner of Borrower shall withdraw from Borrower or

                                       18
<PAGE>   19

otherwise sell or assign any partnership interest without the prior written
consent of Lender, which consent shall not be unreasonably withheld.

      4.42 Borrower and Guarantor hereby acknowledge and agree that any and all
debts, obligations and liabilities of Borrower and Guarantor to the partners of
Borrower, shareholders of Guarantor, or affiliates of Borrower or Guarantor, or
both, whether absolute or contingent, due or to become due, now existing or
hereafter arising, or whether direct or acquired by transfer, assignment or
otherwise, shall at all times during the Loan Term be subordinate to the Loan.
Notwithstanding anything contained herein to the contrary, so long as Borrower
is not in default under the Loan Documents, Borrower shall have the right to
make distributions and to pay management fees to Guarantor in connection with
the management agreement between Borrower and Guarantor, which distributions and
management fees shall at all times during the Loan Term be subordinate to the
Loan.

      4.43 Borrower has fully implemented its plan (the "Y2K Plan") which
ensured that Borrower's software and hardware systems which impact or affect in
any material way the business operations of Borrower are Year 2000 compliant and
Ready (as hereinafter defined). As used herein, "Year 2000 Compliant and Ready"
means that Borrower's hardware and software systems with respect to the
operation of its business and general business plan will: (i) handle date
information involving any and all dates before, during and/or after January 1,
2000, including accepting input, providing output and performing date
calculations in whole or in part; (ii) operate accurately without interruption
on and in respect of any and all dates before, during or after January 1, 2000,
and without any change in performance; (iii) respond to and process two digit
year input without creating any ambiguity as to the century; and (iv) store and
provide date input information without creating any ambiguity as to the century.

      4.44 Borrower acknowledges and agrees that Lender shall have an exclusive
first right to provide financing to Borrower for any other financing related to
further development of the SNF Site.

      4.45 Subject to the release provisions set forth in that certain Letter
Agreement dated of even date herewith by and between Borrower and Lender,
Borrower and Guarantor acknowledge and agree that the Loan and the loan
evidenced by that certain Renewal Revolving Line of Credit Note executed October
4, 1999, with an effective date of September 1, 1998, in the original principal
amount of $3,000,000 by Borrower in favor of Lender (the "Golfview Note") are
cross-collateralized and cross-defaulted so that any default under any Loan
Document will also be an Event of Default under the loan documents executed in
connection with the Golfview Note, and any default under the loan documents
executed in connection with the Golfview Note, will be an Event of Default under
the Loan Documents.

      4.46 Borrower shall not amend, restate or otherwise modify or revise the
Limited Partnership Agreement of Borrower without the prior written consent of
Lender.

                                    ARTICLE V

                                EVENTS OF DEFAULT

      Borrower and Lender acknowledge and agree that unless specifically set
forth herein to the contrary, Borrower shall have fifteen (15) days without
notice in which to cure a monetary default under the Loan Documents and thirty
(30) days (which Lender in its sole reasonable discretion may extend at its
option) with notice in which to cure a non-monetary default; provided, however,
that for non-monetary defaults which cannot be cured within thirty (30) days,
Lender shall, in its reasonable discretion, extend the cure period so long as
Borrower is diligently working to cure the non-monetary default and said
non-monetary default is cured within sixty (60) days or such greater period of
time as may be approved by Lender in writing. For purposes hereof, "monetary
default" shall be construed to include all payments of money as required under
the Note and Loan Documents, such as payment of interest, principal, taxes, and
such other sums. The term "non-monetary default" shall be construed to include
all other defaults under this Agreement, the Mortgage, and any other Loan
Document, other than the payment of money as required under the Note and related
Loan Documents. The following shall constitute events of default ("Events of
Default" or "Default") hereunder:

      5.1 If Borrower fails to comply with any of the covenants made by it in
this Agreement.

                                       19
<PAGE>   20

      5.2 if at any time Borrower or any Guarantor shall be in default under the
terms of the Note, Mortgage, or of any other Loan Document and such monetary or
non-monetary default is not cured within the applicable cure period, if any.

      5.3 if at any time any representation or warranty made by Borrower herein
shall be incorrect.

      5.4 if there is substantial abandonment of work upon the construction of
the Improvements to be erected upon the Property for a period of fifteen (15)
consecutive days, or a cumulative period of thirty (30) total days, not
including weekends, legal holidays, or days to which Lender has consented in
advance in writing, Lender may, at its option, declare this Loan Agreement to be
in default and may, in addition to Lender's other rights and remedies arising
from such default, enter into and upon the Premises and complete the
construction of the Improvements; Borrower hereby granting to Lender full power
and authority to make such entry and to enter into such contracts or
arrangements that may be considered necessary by Lender to complete such
Improvements; and any sums expended by Lender in connection with such completion
shall be added to the principal amount of the Note and be secured by the
Mortgage and together shall be payable by Borrower on demand with interest at
the rate as specified in the Note; provided, however, that Lender shall not
declare a default for any said abandonment of construction so long as the
Improvements shall be completed by Borrower on or before the Completion Date.

      5.5 if Lender or its representatives or the Representative Inspector shall
not be permitted, at all reasonable times, to enter upon the Premises, inspect
the Improvements and the construction thereof and all materials, fixtures and
articles used or to be used in the construction and to examine all detailed
plans, shop drawings and specifications which relate to the Improvements, or if
Borrower shall fail to furnish to Lender or its authorized representative, when
requested, copies of such plans, drawings and specifications.

      5.6 if any of the materials, fixtures or articles used in the
construction of the Improvements or the appurtenances thereto, or to be used in
the operation thereof, are not in accordance with the Plans and Specifications
as approved by Lender.

      5.7 if Borrower executes any conditional purchase contract, security
agreement, chattel mortgage or other instrument creating a security interest in
any materials, fixtures or articles intended to be incorporated in the
Improvements or the appurtenances thereto, or in any articles of personal
property placed in the Improvements, or files or permits the filing of a
financing statement publishing notice of such security interest, or if any of
such materials, fixtures or articles not be purchased so that the ownership
thereof will vest unconditionally in Borrower, free from encumbrances on
delivery at the Premises, or if Borrower does not produce to Lender upon demand
the contracts, bills of sale, statements, receipted vouchers or agreements, or
any of them, under which Borrower claims title to such materials, fixtures and
articles.

      5.8 if Borrower does not disclose to Lender and the Representative
Inspector, upon demand, the names of all persons with whom Borrower has
contracted or intends to contract for the construction of the Improvements or
for the furnishing of labor or materials therefor, or when so required by Lender
fails to obtain the approval by Lender of such persons.

      5.9 if the applicable Improvements, in the exclusive judgment of the
Representative Inspector, cannot be completed on or before the Completion Date.

      5.10 if Borrower is unable to satisfy any condition to its right to the
receipt of an advance hereunder, for a period in excess of thirty (30) days.

      5.11 subject to the sole discretion of Lender, if at any time Borrower or
Guarantor shall be in default under the terms or conditions of any loan of
$5,000,000 or more from any other lender and such monetary or non-monetary
default is not cured within the earlier of ninety (90) days from the date of any
said default or expiration of any applicable cure period, if any.

                                       20
<PAGE>   21

                                   ARTICLE VI

                                    REMEDIES

      6.1 Remedies upon any Event of Default:

         6.1.1 Upon default on the part of Borrower and prior to the expiration
of any applicable cure period hereunder, Lender shall have the absolute right,
at its option and election, to withhold further advances hereunder;

         6.1.2 Upon the occurrence of any Event of Default and after the
expiration of any applicable cure period or, upon the occurrence of an Event of
Default having no cure period:

               6.1.2.1 Lender shall have the absolute right, at its option
and election, to: (i) cancel this Agreement with or without notice to Borrower;
(ii) institute appropriate proceedings to specifically enforce performance
hereunder; (iii) take immediate possession of the Premises, as well as all other
property to which title is held by Borrower, as is necessary to fully complete
all on-site and off-site Improvements contemplated to be developed or
constructed under this Agreement; (iv) be entitled to receive all of the
proceeds of any sale of the Premises, or any part thereof, otherwise permitted
under the terms of this Agreement; (v) appoint a receiver, as a matter of strict
right without regard to the solvency of Borrower, for the purposes of preserving
the Premises or preventing waste or to protect all rights accruing to Lender by
virtue of this Agreement and of the Mortgage and, expressly, to make any and all
further Improvements, whether on-site or off-site, as may be determined by
Lender for the purpose of completing the development in accordance with this
Agreement (all expenses incurred in connection with the appointment of a
receiver, or in protecting, preserving, or improving the Premises, shall be
chargeable against Borrower and shall be enforced as a lien against Borrower's
property); and (vi) accelerate the maturity of the indebtedness evidenced by the
Mortgage and Note and demand payment of the principal sums due thereunder, with
interest, advances, and costs, and, in default of said payment or any part
thereof, to foreclose and enforce collection of such payment by foreclosure or
other appropriate action in any court of competent jurisdiction.

               6.1.2.2 Lender shall have the absolute right to apply any
balance of the Loan Funds (including any Interest Reserve account) as a payment
toward the indebtedness evidenced by the Mortgage and Note, and no other party,
whether contractor, materialmen, laborer, subcontractor, or supplier, shall have
any interest in the Loan Funds so applied and shall not have any right to
garnish, require, or compel payment thereof toward discharge or satisfaction of
any claim or lien which they or any of them have or may have for work performed
or materials supplied in connection with the development of or construction on
the Premises. Lender, at its sole option and discretion, may make any advances
so long as any Event of Default shall exist without thereby (i) waiving its
right to demand payment in full of the indebtedness of Borrower to Lender or of
the Guarantor to Lender or to institute foreclosure proceedings, (ii) becoming
liable to make any other or further advances or (iii) being deemed to have
waived the matter constituting or creating an Event of Default.

               6.1.2.3 Lender may, at its option but without any obligation
to do so, enter into and upon the Premises and complete the construction or
development of the applicable Improvements for which construction has commenced,
Borrower hereby giving to Lender full power and authority to make such entry and
to enter into such contracts or arrangements as may be necessary to complete the
Improvements. If Lender enters upon the Premises and undertakes the completion
of construction or development of the Improvements, Lender shall be entitled to
have any of the proceeds of the Loan Funds disbursed to it or under its
direction in the payment of bills theretofore or thereafter contracted in
connection with said construction or development work or in protection and
preservation of the Premises. In addition, it is agreed that Lender may, at its
option but without any obligation to do so, expend funds in completing the
Improvements and protecting and preserving the Premises, and any funds when so
expended including the costs of all professional services employed by Lender in
its sole discretion shall be added to the principal of the Loan even though the
advance of such additional funds might cause the principal amount of the Loan to
exceed the Amount of the Loan; and the same, together with interest thereon at
the rate of interest for payments which are delinquent as specified in the Note
shall be secured by the lien of the Mortgage and shall be payable by Borrower on
demand.

      6.2 Nonexclusive Remedies: The aforesaid remedies and any other legal or
equitable remedies and rights of Lender shall be cumulative and not exclusive
and Lender shall have the absolute right to resort

                                       21
<PAGE>   22

to any one or more, or all of said remedies upon the occurrence and continuation
of an Event of Default after the expiration of any applicable grace period, if
any.

      6.3 Lender Attorney-in-Fact: Borrower hereby constitutes and appoints
Lender its true and lawful attorney-in-fact (to be exercised in the Event of
Default) with full power of substitution to complete the applicable Improvements
for which construction has commenced as set forth in this Agreement in the name
of Borrower or Lender, and hereby empowers said attorney or attorneys as
follows: to use any funds of Borrower including any balance which may be held in
escrow and any funds which may remain unadvanced hereunder for the purpose of
completing the Improvements in the manner called for by the Plans and
Specifications; to protect and preserve the Premises; to make such additions and
changes and corrections in the Plans and Specifications as Lender may deem
necessary in its sole discretion; to employ such contractors, subcontractors,
agents, architects and inspectors as shall be required for said purposes; to
pay, settle or compromise all existing bills and claims which are or may be
liens against the Premises, or as may be necessary or desirable for the
completion of the work, or the clearance of title; to execute all applications
and certificates in the name of Borrower or Lender which may be required by any
construction contract and to do any and every act which Borrower might do in its
own behalf. It is understood and agreed that this power of attorney shall be
deemed to be a power coupled with an interest which cannot be revoked. Said
attorney-in-fact shall also have power to prosecute and defend all actions or
proceedings in connection with the construction or development of the
Improvements and to take such action and require such performance as is deemed
necessary.

                                   ARTICLE VII

                               GENERAL CONDITIONS

      The following conditions shall be applicable throughout the term of this
Agreement:

      7.1 No advance of Loan proceeds hereunder shall constitute a waiver of any
of the provisions of the Terms Letter or the obligations set forth herein, nor,
in the event Borrower is unable to satisfy any such provision or condition,
shall any such waiver have the effect of precluding Lender from thereafter
declaring such inability to be an Event of Default as hereinabove provided.

      7.2 All proceedings taken in connection with the transactions provided for
herein, all surveys, appraisals and documents required or contemplated by the
Terms Letter or this Agreement, and the persons responsible for the execution
and preparation thereof, the Owner/Contractor Agreement, Guarantor, and insurers
and the form of all leases, guarantees and policies of insurance must be
satisfactory to Lender, and Lender's counsel shall have received copies of all
documents which they may have requested in connection therewith.

      7.3 In the event of any conflict between the terms of this Agreement and
the Owner/Contractor Agreement, it shall be deemed that the terms of this
Agreement shall prevail.

      7.4 Any condition of this Agreement which requires the submission of
evidence of the existence or non-existence of a specified fact or facts, Lender
shall, at all times, be free independently to establish to its satisfaction and
in its absolute discretion such existence or non-existence.

      7.5 All conditions of the obligations of Lender to make advances hereunder
are imposed solely and exclusively for the benefit of Lender and its assigns and
no other person shall have standing to require satisfaction of such conditions
in accordance with their terms or be entitled to assume that Lender will refuse
to make advances in the absence of strict compliance with any or all thereof and
no other persons shall, under any circumstances, be deemed to be a beneficiary
of such conditions, any or all of which may be freely waived in whole or in part
by Lender at any time if in its sole discretion it deems it advisable to do so.

      7.6 Any notice to be given or to be served upon any party hereto in
connection with this Agreement must be in writing and may be given by certified
or registered mail and shall be deemed to have been given and received on the
third business day after a certified or registered letter containing such
notice, properly addressed, with postage prepaid, is deposited in the United
States mails; and if given otherwise than by certified

                                       22
<PAGE>   23

or registered mail, it shall be deemed to have been given when delivered to and
received by the party to whom it is addressed. Such notices shall be given to
Borrower, Guarantor, and Lender hereto at the addresses set forth in Article I
hereof. Any party hereto may at any time by giving five (5) days' written notice
to the other party hereto, designate any other party or address in substitution
of any foregoing party or address to which such notice shall be given.

      7.7 Neither this Agreement nor any provision hereof may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought.

      7.8 The remedies herein provided shall be in addition to and not in
substitution for the rights and remedies which would otherwise be vested in
Lender in any Loan Document or other agreement or in law or equity, all of which
rights and remedies are specifically reserved by Lender. The remedies herein
provided or otherwise available to Lender shall be cumulative and may be
exercised concurrently. The failure to exercise any of the remedies herein
provided shall not constitute a waiver thereof, nor shall use of any of the
remedies hereby provided prevent the subsequent or concurrent resort to any
other remedy or remedies. It is intended that this clause shall be broadly
construed so that all remedies herein provided for or otherwise available to
Lender shall continue and be available to Lender until all sums due it by reason
of this Agreement have been paid to it in full and all obligations incurred by
it in connection with the construction or operation of the Improvements have
been fully discharged without loss or damage to Lender.

      7.9 Lender is not a partner with Borrower or any other party in the
construction or development, operation or use of the Improvements. Lender shall
not in any way be liable or responsible by reason of the provisions hereof, or
otherwise, for the payment of any claims growing out of the operation of any
Improvements.

      7.10 The Mortgage and other Loan Documents (to the extent they create
security interests) shall constitute security for all moneys advanced by Lender
and all obligations incurred by Lender under this Agreement, including, without
limitation, funds advanced and obligations incurred by Lender in excess of the
Terms Letter, advanced or incurred by Lender pursuant to the authority of this
Agreement; and all such moneys advanced and obligations incurred shall
constitute a lien upon the Premises secured by the Mortgage and Loan Documents,
and recovery therefor may be had by Lender upon the Mortgage, in addition to all
other remedies herein granted to Lender.

      7.11 Notwithstanding any provision herein or in any other of the Loan
Documents, the total liability of Borrower or Guarantor, for any payments of
interest or in the nature of interest shall be as set forth in the Note.

      7.12 In the event that at any time the lien or security of the Mortgage or
other security given to Lender pursuant to this Agreement is in jeopardy, or in
the event that at any time the validity of any Governmental Authority's permit
relating to the Premises, the Improvements or the operation thereof is
questioned by a proceeding before any board, commission, court or other
authority having jurisdiction, Borrower shall commence Borrower's Actions in
accordance with and subject to the provisions of Article IV of this Agreement.

      7.13 In this Agreement, whenever the context so requires, the neuter
gender includes the feminine or masculine, as the case may be, and the singular
number includes the plural.

      7.14 The terms, conditions, covenants, agreements, powers, privileges,
notices and authorizations herein contained shall extend to, be binding upon and
available for the heirs, executors, administrators, successors and, to the
extent permitted hereunder, to the assigns of each of the respective parties
hereof. Notwithstanding the foregoing, Borrower shall not assign or transfer
voluntarily or by operation of law, or otherwise dispose of this Agreement, or
any rights in the Terms Letter, or any moneys, property or funds deposited with
Lender. An assignment or transfer in violation of this provision shall be
invalid, and an assignment or transfer by operation of law shall be deemed to be
an invalid transfer.

                                       23
<PAGE>   24

      7.15 This Agreement and each transaction consummated hereunder shall be
deemed to be made under the laws of the State of Florida and shall be construed
in accordance with and governed by the laws of such state.

      7.16 The Loan Documents executed in connection with this transaction shall
be read together and the provisions of each shall be deemed supplemental and not
in conflict with each other; however, in the event a court of competent
jurisdiction determines that a direct and unreconcilable conflict exists, the
provisions of the Note and Mortgage shall prevail over the other documents.

      7.17 Borrower agrees to borrow and Lender agrees to lend the full amount
of the Loan subject to the terms and conditions contained in the Loan Documents.
Neither party hereto is aware of any default under the Loan Documents or of any
present state of facts which but for notice or passage of time would constitute
any event of default.

      7.18 In the event Lender is named in any legal or equitable action arising
out of, connected with, or in any way relating to the Loan, Borrower and
Guarantor, shall jointly and severally indemnify Lender for, and hold Lender
fully harmless from, any and all damages, losses, liabilities, reasonable costs,
and other reasonable expenses, including reasonable attorneys' fees, resulting
from or arising out of such action. Anything herein to the contrary
notwithstanding, the provisions of this Paragraph shall not apply to any action
caused by the negligence of Lender (as determined by a final non-appealable
order of a court of competent jurisdiction).

      7.19 In the event Guarantor makes an assignment for the benefit of
creditors or permits a petition in bankruptcy or insolvency, arrangement or
reorganization proceedings under any chapter of the Federal Bankruptcy Code to
be filed against or a receiver to be appointed for Guarantor, Guarantor shall
utilize its best efforts to prevent Borrower and any general partner of Borrower
from becoming a party to any bankruptcy proceedings or otherwise becoming
involved in such bankruptcy proceedings to the extent that said involvement
adversely impacts the ability of Borrower or the general partner of Borrower to
comply with the terms or conditions of the Loan Documents.

      7.20 Borrower hereby instructs, authorizes, and directs Lender to deduct
from any Interest Reserve required by Lender in the Project Budget, in
accordance with the payment terms of the Note, or at such other times as may be
determined by Lender, all accrued interest, purchase or extension discounts or
other Loan charges or amounts due to Lender under the provisions of the Loan;
provided, however, in the event, at any time or from time to time, there are
insufficient funds in the Interest Reserve for Lender to make the payments, as
aforesaid, Borrower agrees to make all such payments to Lender from Borrower's
own funds; and, provided further that if an Event of Default has occurred and is
continuing, Lender need not disburse any of the proceeds of the Loan for
interest even though there may remain sums in the Loan allocated to interest and
the failure to disburse same will cause Borrower to be in default in the payment
of interest.

      7.21 It is specifically agreed that time is of the essence of this
Agreement.

      7.22 Each party executing this Agreement in a representative capacity
acknowledges, warrants, and represents that each is an official representative
of the corporation or partnership in whose name each executed this Agreement and
that each possesses full and complete right and has been authorized and directed
to bind said corporation or partnership to the full and faithful performance of
all conditions, terms, provisions, covenants and warranties as contained in this
Agreement and the Loan Documents.

      7.23 Borrower acknowledges that Lender is relying solely on the financial
and development ability of Borrower and its principals in granting and funding
the Loan; and, therefore, Borrower shall have no right (i) to assign (any
assignment by operation of law shall be deemed for the purposes of this
Agreement an assignment by Borrower) any rights under the Terms Letter, this
Agreement or the moneys due hereunder or (ii) to convey (except such conveyances
as are permitted pursuant to the Loan Documents, including Schedule 2.1.17
attached hereto), assign, mortgage, pledge, or encumber any part of the Premises
without the prior written consent of Lender as required under the terms of the
Mortgage. Borrower shall not change Title Insurer, Contractor or Architect, if
any, without Lender's prior written consent.

                                       24
<PAGE>   25

      7.24 Lender may, from time to time, assign in whole or in part, or issue
participation interests, in and to all of its rights and interests under the
Terms Letter, this Agreement, the Note and Mortgage, other Loan Documents and
any guarantees of the obligations of Borrower to Lender. In such event, this
Agreement shall continue to apply to the Loan, the Note, Mortgage and all Loan
Documents. Lender agrees to give Borrower notice of any such assignment;
provided, however, the failure of Lender to give such notice shall not affect
the validity of any such assignment or any obligations of Borrower under this
Agreement, the Note, the Mortgage or any other of the Loan Documents. Lender may
disclose to any participant or prospective participant any information or other
data or material in Lender's possession relating to Borrower, the Loan or the
Guarantor without the consent of or notice to Borrower or the Guarantor. In the
event of such assignment, it shall be deemed to have been made pursuant to the
terms of this Agreement and not to be in modification hereof and any advances
made by any such assignee shall be evidenced and secured by the Note, Mortgage
and other Loan Documents. Borrower acknowledges that any payments made by it in
partial or complete discharge of the Loan to any agent other than the owner and
holder of the Mortgage and Note of record, as recorded among the Public Records
of Hillsborough County, shall constitute a payment to Borrower's agent and not
to the owner and holder of the Note or its agent. In this regard, it is
understood that until the payment is actually in the possession of Lender or its
assigns, as the case may be, who at that time is the owner and holder of record
of the Mortgage and Note, said payment shall be deemed not to have been properly
made, and Lender shall not be required to release or discharge the Mortgage, the
Note, or any of the Premises in satisfaction of the obligation pursuant to the
provisions of the Mortgage and the Note.

      7.25 Borrower will pay the fees and commissions of real estate or mortgage
brokers, if any, in this transaction and Borrower agrees to indemnify and hold
Lender harmless from claims of brokers arising by reason of the execution of
this Agreement or the consummation of the transaction contemplated hereby and
from all costs, including attorneys' fees, in defending against any such claims.

      7.26 Lender may, at any time and from time to time, waive or not insist on
strict compliance with any one or more of the provisions contained in this
Agreement, or in any of the other Loan Documents, but any such waiver or
non-insistence shall be deemed to be made pursuant to the terms of this
Agreement, and not in modification of any of the Loan Documents. Any waiver or
non-insistence in any instance or under any particular circumstance shall not be
considered a waiver or non-insistence of such provision in any other instance or
any other circumstance or as creating a requirement that Lender must, as the
result of a previous waiver or non-insistence, thereafter give notice to
Borrower that it does not intend to give a further waiver or not insist upon
strict performance of a previously waived or non-insisted upon provision before
Lender can exercise any rights or remedies under this Agreement, or in any of
the other Loan Documents or before an Event of Default can occur, whether
occasioned by the provision previously waived or not insisted upon or otherwise,
or as establishing a course of dealing for interpreting the expressions and
other conduct between Lender and Borrower.

      7.27 Each party hereto acknowledges full understanding of the provisions
of this Agreement, and that there are no verbal promises, covenants,
understandings or agreements made in connection with this Agreement, and that
this Agreement may be modified only by a duly and properly executed covenant in
writing, signed by the parties hereto and duly witnessed.

      7.28 Wherever any of the provisions or determinations of this Agreement
might call for a matter of opinion, Lender (or its assigns) shall be the sole
and exclusive judge and determiner of the provisions calling for such opinion
and Lender's decision with respect to any of said provisions shall be conclusive
and binding upon all parties to said Agreement.

      7.29 In the event any one or more of the provisions contained in this
Agreement shall for any reason be held to be unenforceable in any respect, such
unenforceability shall not affect any other provision of this Agreement, but
this Agreement shall be construed as if such unenforceable provision had never
been contained herein.

      7.30 Wherever in this Agreement the consent of Lender is required before
an act or event can take place, Lender agrees that, in such cases, its consent
shall not be unreasonably withheld unless otherwise provided under the provision
hereof requiring consent.

                                       25
<PAGE>   26

      7.31 No action shall be commenced by Borrower for any claim against Lender
under the terms of this Agreement unless a notice specifically setting forth the
claim of Borrower shall have been given to Lender within fifteen (15) days after
the occurrence of the event which Borrower alleges gave rise to such claim, and
failure to give such notice shall constitute a waiver of any such claim.

         If Lender shall be in breach of Lender's obligations under this
Agreement by reason of failure to make an advance as Lender is required to do
under the terms hereof, Borrower's sole remedies on account thereof shall be:

           7.31.1 to compel Lender to make the advance which is determined
wrongfully to have been withheld (upon the making of which, the same shall be
treated as any other advance pursuant to the terms of this Agreement); and

           7.31.2 to recover damages, except for punitive damages, against
Lender as a result of the above described actions by Lender.

      7.32 LENDER, BORROWER AND GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH,
OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
LENDER'S ENTERING INTO THIS AGREEMENT.

      7.33 Lender shall have the right hereafter and until completion of
construction to publicize and advertise in any manner Lender's participation as
a construction lender. This includes, but is not limited to, the right to post
and display in a prominent location signs on or about the Property and its
improvements. All signage shall be in accordance with applicable governmental
regulations and ordinances.

      7.34 The Exhibits attached to this Agreement are an integral part hereof
and are hereby incorporated into and included in the term this Agreement.

      7.35 This Agreement may be executed in any number of counterparts, all of
which, taken together, shall constitute one and the same instrument, and any of
the parties hereto may execute this Agreement by signing at such counterpart.

      7.36 Anything herein to the contrary notwithstanding, in the event
Borrower is prevented from performing the obligations of this Agreement as a
result of fire, unusual delay in transportation, adverse weather conditions not
reasonably anticipated, unavoidable casualties, or any causes beyond Borrower's
control, then the performance of Borrower hereunder shall be extended by the
number of days delay as a result of the above causes; subject, however, to the
condition that the applicable extension shall not adversely affect:

           7.36.1 the licenses, certificates and permits from Governmental
Authorities for the operation of the Project;

           7.36.2 the Project Budget, but if so, Borrower shall fund to Lender
all additional costs for the Project at the time of the delay; and

           7.36.3 the ability of Borrower to complete the Improvements on or
before the Completion Date.

      IN WITNESS WHEREOF, Lender and Borrower have hereunto set their hands and
seals this 17th day of March, 2000.

WITNESSES:                       FREEDOM VILLAGE OF SUN CITY CENTER, LTD.,
                                 a Florida limited partnership

                                       26

<PAGE>   27

------------------------      By: ARC FREEDOM, INC., a Tennessee
                                  corporation, authorized to transact business
                                  in the State of Florida, its sole General
                                  Partner
------------------------
                                  By:  /s/ George T. Hicks
                                     -------------------------------------------
                                     George T. Hicks, Executive Vice President

                                                   (Corporate Seal)

                                                                     "Borrower"

WITNESSES:                    AMERICAN RETIREMENT CORPORATION,
                              a Tennessee corporation, authorized to transact
                              business in the State of Florida, successor by
                              merger to FREEDOM GROUP, INC., a Florida
                              corporation

                              By:  /s/ George T. Hicks
------------------------         -----------------------------------------------
                                 George T. Hicks, Executive Vice President

                                                   (Corporate Seal)
------------------------

                                                                     "Guarantor"

                                       27
<PAGE>   28

WITNESSES:                         SUNTRUST BANK,
                                   a Georgia state chartered bank, successor by
                                   merger to SunTrust Bank, Tampa Bay

                                   By: /s/ Bruce Williams
------------------------              ------------------------------------------
                                            BRUCE WILLIAMS
                                            Senior Vice President

                                                                        "Lender"
------------------------

                                       28
<PAGE>   29

                                   EXHIBIT "A"

                     PROJECT BUDGET AND LOAN FUNDS SCHEDULE

                                       29
<PAGE>   30

                                 SCHEDULE 2.1.17

Lender acknowledges that Borrower and Lifepath Hospice ("Lifepath Hospice") have
been negotiating for the conveyance, for no consideration, of a portion of the
Property to Lifepath Hospice, which portion of Property is depicted as the
"Proposed Hospice Building" on that certain Site Plan, identified as Project
Number 98-960, prepared by PEER (the "Hospice Property"). The parties agree that
so long as Borrower is not in default under the Loan Documents, Borrower shall
have the right to convey said Hospice Property to Lifepath Hospice and to grant
such easements on, over, under or appurtenant to the Property for ingress,
egress or access as may be necessary for Lifepath Hospice's contemplated use of
the Hospice Property. Lender shall release the Hospice Property from the lien of
the Mortgage and shall consent to the granting of any said easements so long as
Borrower provides Lender with copies of any and all conveyance documents to be
executed by Borrower in connection with said conveyance or easements and such
other documents or information as may be requested by Lender, the form and
substance of which documents and information shall be subject to Lender's prior
approval, which approval shall not be unreasonably withheld, and so long as
Borrower pays any and all costs incurred by Lender in connection with said
conveyance and easements, including Lender's attorney's fees.

                                       30<PAGE>   1

                                                                  EXHIBIT 10.2

This instrument was prepared by and        |
after recordation should be returned to:   |
                                           |
Thomas A. Hanson, Esquire                  |
Carlton Fields                             |
222 Lakeview Avenue                        |
Suite 1400                                 |
West Palm Beach, FL  33401                 |
                                           |
                                           |
___________________SPACE ABOVE THIS LINE FOR RECORDER'S USE_____________________

                   REAL ESTATE MORTGAGE AND SECURITY AGREEMENT

This REAL ESTATE MORTGAGE AND SECURITY AGREEMENT ("Mortgage") is made and
entered into as of May 8, 2000, by LAKE SEMINOLE SQUARE MANAGEMENT COMPANY,
INC., A TENNESSEE CORPORATION and FREEDOM GROUP-LAKE SEMINOLE SQUARE, INC., A
TENNESSEE CORPORATION, (collectively "Mortgagor") to AID ASSOCIATION FOR
LUTHERANS, A WISCONSIN CORPORATION ("Mortgagee"):

                                  A. RECITALS.

      1. Mortgagor is indebted to Mortgagee, as evidenced by a Mortgage Note
("Note") of even date, in the aggregate principal sum of Twelve Million and
No/100 Dollars ($12,000,000.00), both principal and interest of the Note being
payable at the office of Mortgagee as more specifically set forth therein.

      2. Mortgagor and Mortgagee desire and intend that the Note be secured by
(1) this Mortgage; (2) Assignment of Rents and Leases; (3) Financing Statements;
and (4) other and sundry documents and agreements. This Mortgage and all other
documents and agreements given as security for the Note are referred to
collectively as the "Loan Documents" and singularly as a "Loan Document."

                               B. GRANTING CLAUSE.

To secure the payment of the principal, interest, and premium, if any, on the
Note and to secure the performance by Mortgagor of each and every term,
covenant, agreement and condition contained in the Note and the Loan Documents,
Mortgagor does hereby mortgage, warrant, convey and grant a security interest
unto Mortgagee, its successors and assigns, forever, all and singular, in the
following described properties:

1.    The real estate ("Land") described and set forth in Exhibit A which is
      attached to and hereby made a part of this Mortgage and all of Mortgagor's
      rights as the successor in interest to the "Developer," as defined in the
      Declaration of Condominium identified on Exhibit A hereto, as amended from
      time to time (the

<PAGE>   2

      "Declaration") together with any greater or other estate or interest in
      the Land hereafter acquired by Mortgagor due to the termination of life
      estate interest therein or otherwise;

2.    All right, title, and interest of Mortgagor, now or at any time hereafter
      existing, in and to all highways, roads, streets, alleys and other public
      and private thoroughfares, bordering on or adjacent to the Land, together
      with all right, title, and interest of Mortgagor to the Land lying within
      such highways, roads, streets, alleys, and other public and private
      thoroughfares and all heretofore or hereafter vacated highways, roads,
      streets, alleys and public and private thoroughfares and all strips and
      gores adjoining or within the Land or any part thereof;

3.    All of Mortgagor's right, title and interest as an owner of the
      Condominium units described in Exhibit A hereto in all buildings,
      structures, improvements, plants, works, and fixtures now or at any time
      hereafter located on the land which is subject to the Declaration and,
      without any further act, all articles of personal property now or
      hereafter owned or leased by Mortgagor used in connection with the Land
      and such buildings, structures, improvements, plants, works and fixtures,
      all extensions, additions, renewals, betterments, substitutions, and
      replacements thereof;

4.    All rights, privileges, permits, licenses, easements, consents, tenements,
      hereditaments, and appurtenances now or at any time hereafter belonging to
      or in any wise appertaining to the Land or to any property now or at any
      time hereafter comprising a part of the property subject to this Mortgage;
      and all right, title and interest of Mortgagor, whether now or at any time
      hereafter existing, in all reversions and remainders to the Land and such
      other property, and all leases, subleases, rents, income, issues, profits,
      royalties, and revenues derived from, concerning or belonging to such
      Land, life estate interests in the Land and other property subject to this
      Mortgage or any part thereof;

5.    Any and all proceeds of the conversion, whether voluntary or involuntary,
      of all or any part of the Land and other property and interests subject to
      this Mortgage into cash or liquidated claims, including without limitation
      by reason of specification, proceeds of insurance and condemnation awards;

6.    All causes of action and recoveries for any damage, loss or diminution in
      value of the Premises; and

7.    All other personal property identified in Exhibit B set forth hereto.

Any reference herein to the "Premises" shall be deemed to apply to the
above-described Land and all other property, interests and items covered by this
Granting Clause, unless

                                       2
<PAGE>   3

the context shall require otherwise but shall exclude all life estate interests
which are "Permitted Exceptions," as hereinafter defined, or which may hereafter
be sold by Mortgagor pursuant to the provisions of this Mortgage. Any reference
herein to the "Collateral" shall be deemed to apply to personalty located on the
Premises.

                                 C. WARRANTIES.

Mortgagor hereby warrants to and covenants with Mortgagee, its successors and
assigns, that:

1.    Mortgagor has good and indefeasible title to the Premises in fee simple,
      free and clear of all liens, charges, and encumbrances whatever except
      those specifically set forth in the lender's title insurance policy
      delivered to Mortgagee with this Mortgage which have been approved in
      writing by Mortgagee and the rights of life estate residents pursuant to
      their repurchase agreements and Lake Seminole Square Club Membership
      Agreements and the rights of residents in the assisted care facilities
      located within what is described as condominium unit B on Exhibit A hereto
      (collectively, the "Continuing Obligations") (the "Permitted
      Encumbrances");

2.    Mortgagor has the full right and authority to execute and deliver to
      Mortgagee the Note and the Loan Documents;

3.    Mortgagor has taken all action required by law or otherwise necessary to
      make the Note and Loan Documents the valid, binding, and legal obligations
      of Mortgagor; and

4.    The lien and security interest created by this Mortgage are and will be
      kept a first lien and security interest upon the Premises, except for the
      Permitted Encumbrances, and Mortgagor will forever warrant and defend the
      same to Mortgagee, its successors and assigns, against any and all claims
      and demands whatever.

Provided always, and upon the express condition that if all of the principal,
interest and premium, if any, on the Note shall be paid and discharged in
accordance with the terms and conditions therein contained, and if all other
agreements and obligations of Mortgagor under the Note, the Loan Documents, and
all other agreements between Mortgagor and Mortgagee whether now or at any time
hereafter existing, shall be discharged in accordance with the terms and
conditions therein and herein expressed, then these presents to be void,
otherwise this Mortgage to remain in full force and effect.

                                       3
<PAGE>   4

                                   ARTICLE I
                             COVENANTS OF MORTGAGOR

Mortgagor does hereby covenant and agree with Mortgagee, its successors and
assigns, as follows:

1.1   PAYMENT. Mortgagor shall duly and punctually pay the principal, interest,
      and premium, if any, on the Note hereby secured, when and as the same
      shall become due and payable in accordance with the terms thereof, and
      shall duly and punctually perform and observe all of the terms, covenants,
      and conditions to be performed or observed by Mortgagor in the Note and
      the Loan Documents.

1.2   SECURITY. All of the Premises shall stand as security for the Note and for
      the performance or observance by Mortgagor of the terms, covenants, and
      agreements to be performed or observed by Mortgagor in the Note, the Loan
      Documents, and all other agreements between Mortgagor and Mortgagee
      whether now or at any time hereafter existing, and the lien and security
      interest hereof, subject only to the exceptions herein noted, is and shall
      be a valid and continuing first lien and security interest upon all of the
      Premises. From time to time upon the request by Mortgagee, Mortgagor
      shall, at its expense, execute and deliver such supplemental mortgages,
      security agreements, additional assignments of leases and any further
      conveyances and instruments as may, in the reasonable opinion of
      Mortgagee, be necessary or desirable in order to effectuate, continue and
      preserve the lien and security interest created by this Mortgage and the
      Loan Documents and the priority thereof upon all the Premises and to make
      subject to the lien hereof any property hereafter to be subjected to the
      lien of this Mortgage.

1.3   NEGATIVE COVENANTS. So long as any indebtedness secured hereby remains
      unpaid, Mortgagor covenants and agrees with Mortgagee that it will not,
      directly or indirectly, without the prior written consent of Mortgagee:

      LIENS. Create, permit to exist, or assume any mortgage, pledge, or other
      lien or encumbrance upon the Premises or any part thereof or any interest
      therein other than (1) the Mortgage lien and security interest of
      Mortgagee created by the Loan Documents; and (2) the Permitted
      Encumbrances, or

      VOTING UNDER THE DECLARATION. Vote pursuant to the rights established in
      the Declaration or the related articles of incorporation or bylaws adopted
      in connection therewith, to amend the Declaration or to abandon or
      terminate the Condominium created by the Declaration; permit the consent
      to any mortgages on life estate interests in the Land.

                                       4
<PAGE>   5

      DISPOSITIONS. Sell, transfer, assign, convey, or otherwise dispose of in
      any manner, whether voluntarily or involuntarily, by operation of law or
      otherwise, the Premises or any part thereof or any interest therein. For
      purposes of this subparagraph, a sale of the Premises shall mean (1) any
      transfer or other alteration in any interest which any member, general
      partner or shareholder holds (directly or indirectly) in Mortgagor or in
      any entity which holds an interest in Mortgagor (excluding transfers of
      shares of American Retirement Corporation, a Tennessee corporation ("ARC")
      which is the ultimate parent company of Mortgagor), including any transfer
      of any membership interests, general partnership interests or controlling
      shares of any limited liability company, partnership or corporate
      Mortgagor (except a corporate trustee) to any person or persons other than
      those holding such interests or shares (i) on the date this Mortgage is
      executed, with regard to any limited liability company, partnership or
      corporate Mortgagor, or (ii) on the date of a permitted assignment of the
      beneficial interest in Mortgagor, with regard to a successor limited
      liability company, partnership or corporate Mortgagor in the event of such
      a permitted assignment; (2) any termination of partnership or corporate
      existence by any limited liability company, partnership or corporate
      Mortgagor; and (3) any grant of an option to purchase, an installment
      sales contract or land contract.

      Notwithstanding any provisions in this Mortgage to the contrary, Mortgagee
      will permit Mortgagor to sell and/or re-sell life estates in the
      residential portion of the Premises in the ordinary course of its business
      during the term hereof, if Mortgagee is satisfied, in its sole discretion
      exercised in good faith, that: (1) the use of the Premises will not change
      and (2) the loan secured hereby is not in default and no event has
      occurred which if left uncured would result in an Event of Default (as
      defined in the Note). Mortgagor shall provide prompt notice to Mortgagee
      of all such sales and, provided such sales are permitted pursuant to the
      foregoing provisions, Mortgagee shall promptly execute partial releases of
      this Mortgage with respect to such life estate interests upon receipt from
      Mortgagor of a written request therefor accompanied by information
      satisfactory to the Mortgagee concerning the material terms of such sale
      and a review fee of $100.00 for each sale.

1.4   AFFIRMATIVE COVENANTS. So long as all or any part of the principal,
      interest, premium, or any other amount due Mortgagee under the Note, any
      of the Loan Documents or any other agreement between Mortgagor and
      Mortgagee whether now or at any time hereafter existing, remains
      outstanding and unpaid, Mortgagor hereby further covenants and agrees that
      it shall:

      PROPERTY TAXES. Pay and discharge all taxes, assessments and governmental
      charges of every character lawfully imposed upon the Premises, and
      Mortgagor shall not suffer any of the Premises to be sold or forfeited for
      any tax, special assessment, governmental charge or claim whatsoever.
      Promptly following payment of taxes, assessments and governmental
      impositions upon the Premises,

                                       5
<PAGE>   6

      Mortgagor shall deliver to Mortgagee a copy of the bill therefor showing
      payment thereof.

      LIENS. Pay and discharge all claims for labor, materials, or supplies,
      which if unpaid, might by law become a lien or charge against the
      Premises.

      MORTGAGE TAXES. Pay and discharge all taxes, assessments, and governmental
      charges of every character whatever that may be levied upon or on account
      of this Mortgage or the indebtedness secured hereby whether levied against
      Mortgagor or otherwise. In the event payment by Mortgagor of any tax,
      assessment or charge referred to in the foregoing sentence would result in
      the payment of interest in excess of the rate permitted by law then
      Mortgagee may, at its option, (i) declare the entire principal balance of
      the indebtedness secured hereby, together with interest thereon, to be due
      and payable immediately, without notice, or (ii) pay that amount or
      portion of such tax, assessment or governmental charge as renders payment
      of the balance thereof by Mortgagor not in excess of the interest rate
      permitted by law, in which event Mortgagor shall pay the balance of such
      tax, assessment or governmental charge.

      DEPOSITS. Pay to Mortgagee monthly, in addition to each payment required
      under the Note, a sum equivalent to one-twelfth (1/12) of the amount
      estimated by Mortgagee to be sufficient to enable Mortgagee to pay, at
      least thirty (30) days before they become due, all taxes, assessments and
      other similar charges levied against the Premises. Mortgagee shall not be
      required to hold such sums in segregated accounts, and no interest shall
      be payable by Mortgagee to Mortgagor with respect to any amounts paid by
      Mortgagor pursuant to this subparagraph. Upon demand by Mortgagee,
      Mortgagor shall deliver and pay over to Mortgagee such additional sums as
      are necessary to satisfy any deficiency in the amount necessary to enable
      Mortgagee to fully pay any of the items hereinabove mentioned before the
      same become due. In the event of an Event of Default, or any default by
      Mortgagor in the performance of any terms, covenants, or conditions
      contained herein, in the Note, or in any of the Loan Documents, Mortgagee
      may apply against the indebtedness secured hereby, in such manner as
      Mortgagee may determine, any funds of Mortgagor then held by Mortgagee
      under this subparagraph. In the event of a sale of the Premises (excluding
      sales of life estate interests permitted hereby), any funds on deposit
      with Mortgagee automatically, and without the necessity of further notice
      or written assignment, shall be transferred and held thereafter for the
      account of the new owner to be applied in accordance with this paragraph;
      provided, however, no sale of the Premises shall be made subject to this
      Mortgage without Mortgagor first obtaining the prior written consent of
      Mortgagee as herein required.

                                       6
<PAGE>   7

      MAINTENANCE, WASTE, USE. Maintain, preserve, and keep the Premises and all
      parts thereof, in good repair, working order and condition, and from time
      to time make all needful and proper repairs, renewals and replacements
      thereto so as at all times to maintain the efficiency thereof. Mortgagor
      shall abstain from and will not suffer the commission of waste on the
      Premises and will promptly notify Mortgagee in writing of the occurrence
      of any loss or damage to the Premises. Mortgagor shall not materially
      alter the buildings, improvements, fixtures, equipment, machinery or other
      property now or hereafter upon the Land comprising the Premises, or remove
      the same therefrom, or permit any tenant or other person to do so, without
      the written consent of Mortgagee. Mortgagor will, at its sole cost and
      expense, promptly remove, or cause the removal of, any and all hazardous
      or toxic substances or wastes or solid wastes or the effects thereof at
      any time identified as being on, in, under, or affecting the Premises
      which in the sole and good faith judgment of Mortgagee lessen the value of
      the Premises. Mortgagor will not permit any portion of the Premises to be
      used for any unlawful purpose or for any purpose other than that for which
      the same is now being used or intended to be used, as represented in
      writing by Mortgagor to Mortgagee. Mortgagor will comply promptly with all
      laws, statutes, ordinances, regulations, rules and orders of all public
      authorities having jurisdiction thereof and with all covenants, agreements
      and restrictions relating to the Premises or the use, occupancy and
      maintenance thereof. Mortgagee shall have the right at any time, and from
      time to time, to enter the Premises for the purpose of inspecting the
      same. Nonpayment of any taxes, assessments or other governmental charges
      levied or assessed upon the Premises, or any part thereof, shall
      constitute waste.

      SURVEY OF INDEPENDENT INSPECTOR. Allow Mortgagee, at any time and from
      time to time, based upon a good faith reason or purpose, to engage an
      independent inspector to survey the adequacy of the maintenance of the
      Premises. If such maintenance is found to be inadequate, such inspector
      shall determine the estimated cost of such repairs and replacements
      necessary to protect and preserve the rentability and useability of the
      said Premises. In such event, at the option of Mortgagee and within
      fifteen (15) days after written demand therefor, a sum equal to the amount
      of such estimated cost shall thereupon become due and payable by Mortgagor
      to be applied upon the indebtedness unless within such period Mortgagor,
      at its own cost and expense, shall have completed or shall have commenced
      and thereafter with diligence, completes such repairs and replacements. In
      such event, Mortgagor shall also reimburse Mortgagee the cost of such
      survey, the same being secured hereby. If the survey determines such
      maintenance to be adequate, then the cost therefor shall be at the expense
      of Mortgagee.

                                       7
<PAGE>   8

      CONDUCT OF BUSINESS. Do or cause to be done all things necessary to
      preserve and keep in full force and effect its legal existence and all
      licenses, rights, and privileges necessary for the conduct of its business
      and comply with all valid and applicable statutes, laws, rules, and
      regulations.

      INSURANCE. Mortgagor shall keep the Premises (which for the purpose of
      this subsection Insurance and the subsection Restoration shall include all
      of the common and limited common elements of the buildings which are part
      of the condominium created by the Declaration) insured against loss or
      damage by fire, tornado, windstorm and extended coverage perils and such
      other hazards as may reasonably be required by Mortgagee, for the full
      replacement value, including without limitation on the generality of the
      foregoing, war damage insurance whenever in the opinion of Mortgagee such
      protection is necessary and is available from an agency of the United
      States of America. Mortgagor shall also provide liability insurance with
      such limits for personal injury and death and property damage as Mortgagee
      may require in the minimum amount of Two Million and No/100 Dollars
      ($2,000,000.00) per occurrence. Mortgagor shall also procure and keep in
      force with responsible insurers, insurance in such amounts as may be
      determined by Mortgagee to cover loss, total or partial, of rentals and
      other revenues derived from the Premises for a period of at least twelve
      (12) months as required by Mortgagee in the minimum amount of Six Million
      and No/100 Dollars ($6,000,000.00). All policies of insurance to be
      furnished hereunder shall be in forms, amounts, and with insurance
      companies satisfactory to Mortgagee, with the New York standard mortgagee
      clause endorsement attached to all policies in favor of and in form
      satisfactory to Mortgagee, including a provision requiring that the
      coverage evidenced thereby shall not be terminated or materially modified
      without thirty (30) days' prior written notice to Mortgagee. Mortgagor
      shall deliver all policies, including additional and renewal policies,
      together with evidence of payment of premiums thereon, to Mortgagee, and
      in the case of insurance about to expire, shall deliver renewal policies
      not less than thirty (30) days prior to their respective dates of
      expiration. The provisions in this subsection, Insurance, in the next
      subsection, Adjustment of Losses with Insurer and Application of Proceeds
      of Insurance and in Section 3.2 hereof shall be controlling between
      Mortgagor and Mortgagee and Mortgagor shall comply with such provisions of
      this Mortgage, notwithstanding any provisions to the contrary in the
      Declaration.

      ADJUSTMENT OF LOSSES WITH INSURER AND APPLICATION OF PROCEEDS OF
      INSURANCE. Give immediate notice to Mortgagee in the event of any loss or
      damage covered by insurance required to be carried hereunder. Mortgagee
      may thereupon make proof of such loss or damage, if the same is not
      promptly made by Mortgagor. All proceeds of insurance, in the event of
      such loss or damage, shall be payable to Mortgagee and any affected
      insurance company is authorized and directed to make

                                       8
<PAGE>   9

      payment thereof directly to Mortgagee. Mortgagee is authorized and
      empowered to settle, adjust, or compromise any claims for loss, damage, or
      destruction, under any such policy or policies of insurance. Mortgagee
      shall give written notice within a reasonable time to Mortgagor of any
      such adjustment or compromise. The power granted hereby shall be deemed to
      be coupled with an interest and to be irrevocable.

      In the event of damage or destruction if (a) there is projected annual net
      operating income from the leases remaining in full force and effect after
      such damage or destruction to equal one hundred twenty percent (120%) of
      the sum of the annual principal and interest payments of the Note, the
      annual taxes and assessments and the insurance premiums, (b) during the
      period of repair, there is sufficient rental income including rental
      abatement insurance which is sufficient to pay scheduled principal and
      interest payments on the Note and sufficient to comply with the other
      provisions of this section, (c) the insurance proceeds are insufficient to
      pay off the outstanding balance of the Note, (d) restoration and repair is
      reasonably estimated to be concluded at least three (3) months prior to
      the maturity of the Note or at least three (3) months prior to any date
      the Note may be called due and payable, (e) the insurers do not deny
      liability as to the insureds, and (f) there is no breach or default under
      the terms of the Note or the Loan Documents, such proceeds, after
      deducting therefrom any expenses incurred in the collection thereof, shall
      be used to reimburse Mortgagor for the cost of the rebuilding or
      restoration of buildings or improvements on said Premises. The buildings
      and improvements shall be so restored or rebuilt as to be of at least
      equal value and substantially the same character as prior to such damage
      or destruction. In the event Mortgagor is entitled to reimbursement out of
      insurance proceeds, such proceeds shall be made available, from time to
      time, upon Mortgagee being furnished with satisfactory evidence of the
      estimated cost of completion thereof and with such architect's
      certificates, waivers of lien, contractors' sworn statements and other
      evidence of cost and of payments as Mortgagee may reasonably require and
      approve. If the estimated cost of the work exceeds One Hundred Thousand
      and No/100 Dollars ($100,000.00) Mortgagee shall also be furnished with
      all plans and specifications for such rebuilding or restoration as
      Mortgagee may reasonably require and approve. No payment made prior to the
      final completion of the work shall exceed ninety percent (90%) of the
      value of the work performed from time to time, and at all times the
      undisbursed balance of said proceeds remaining in the hands of Mortgagee
      shall be at least sufficient to pay for the cost of completion of the work
      free and clear of liens. If the amount of such insurance proceeds is
      insufficient to cover the cost of building or restoration, Mortgagor shall
      pay such cost in excess of the insurance proceeds before being entitled to
      any reimbursement out of the insurance proceeds. Any surplus which may
      remain out of the insurance proceeds after payment of such cost of repair
      or rebuilding shall, at the option of Mortgagee,

                                       9
<PAGE>   10

      be applied on account of the indebtedness (whether then due or not)
      secured hereby. In the event Mortgagor is not entitled to reimbursement
      out of such proceeds, then, at the option of Mortgagee, such proceeds
      shall be applied without prepayment premium in payment or reduction of the
      indebtedness secured hereby, whether due or not.

      FINANCIAL STATEMENTS. Deliver without expense to Mortgagee, within ninety
      (90) days after the end of Mortgagor's fiscal year, copies of a detailed
      statement of income and expenses of Mortgagor, ARC (within one hundred
      twenty (120) days after the end of its fiscal year), the Premises and the
      Lake Seminole Square Condominium Association, Inc., a Florida corporation
      (the "Association"), containing a balance sheet as at the close of such
      fiscal year and an income statement for such fiscal year, which shall be
      in the form and contain information of the type customary in businesses of
      the kind conducted by Mortgagor and shall be prepared in accordance with
      generally accepted accounting principles consistently applied throughout
      the periods involved, and shall be in reasonable detail and be certified
      by Mortgagor (and by an independent certified public accountant of
      recognized standing as to ARC) and which must show a solvent condition for
      all entities involved. Such financial statements shall include a current
      rent roll of the Premises and a current schedule of all residential life
      estate owners showing by unit number the then current amount of refundable
      deposit, certified by Mortgagor, showing, with respect to each tenant, the
      name of the tenant, the space occupied, the date and term of such lease,
      the amount of annual rental, percentage rental (if any) and additional
      rental, and all renewal, purchase and termination options. Where the
      leases require tenant to furnish financial statements, Mortgagor shall
      cause similar financial statements to be furnished to Mortgagee for all
      such tenants of the Premises, or any portion thereof, and all guarantors
      of any lease(s) of the Premises, or any portion thereof. Mortgagor shall
      deliver to Mortgagee, on an annual basis copies of all federal and state
      examination reports with respect to the Premises promptly after receipt
      thereof and, with reasonable promptness, such other data and information
      as Mortgagee may reasonably request.

      PAYMENT OF OBLIGATIONS. Pay all sums, the failure to pay which may result
      in the imposition of a lien, charge or encumbrance on all or any portion
      of the Premises or which may result in conferring upon a tenant of any
      part of the Premises a right to recover such sums as prepaid rent or to
      deduct such sums from future rental payments.

      OPERATION OF PREMISES. At all times operate the Premises in a sound and
      efficient manner and not acquire any fixtures, equipment, furnishings or
      other property covered, or intended to be covered, by the Loan Documents
      subject to any lien, charge or encumbrance taking precedence over the lien
      of this Mortgage.

                                       10
<PAGE>   11

      FURTHER INSTRUMENTS. Execute, acknowledge, deliver, and cause to be
      recorded or filed in the manner and place required by any present or
      future law any instrument that may be requested by Mortgagee, to publish
      notice, protect or continue the lien of the Loan Documents or the interest
      of Mortgagee in the Premises, and Mortgagor will pay or cause to be paid
      (i) all filing and recording taxes and fees incident to each filing and
      recording, (ii) all expenses incurred by Mortgagee in connection with the
      preparation, execution, and acknowledgment of all such instruments, other
      taxes, duties, imposts, assessments, and charges arising out of or in
      connection with the execution and delivery of such instruments.

      COMPLIANCE WITH AGREEMENTS. Perform and comply with all of the terms,
      covenants, and conditions to be performed and complied with by Mortgagor
      under the Note, the Loan Documents and all other agreements now or at any
      time hereafter existing between Mortgagor and Mortgagee.

      TENANT DEPOSITS. Hold in trust, in a manner approved by Mortgagee, all
      sums received by Mortgagor from any firm, corporation, person, or persons
      as security for the performance of the terms, covenants, or conditions
      contained in any lease or agreement for the use or occupancy of the
      Premises or any part thereof.

      COMPLIANCE WITH LEASES. Promptly observe and perform all covenants,
      conditions, and agreements contained in any lease or leases or other
      agreements now or hereafter affecting or relating to the Premises, or any
      portion thereof, on the part of Mortgagor to be observed and performed
      including the Continuing Obligations; enforce the observance and
      performance of all covenants, conditions, and agreements by other parties
      to such leases and agreements; not accept any prepayment of rent or any
      installments of rent under such leases for more than one (1) month in
      advance; furnish to Mortgagee a copy of such lease or agreement, forthwith
      upon its execution; and do or cause to be done all things necessary to
      preserve, intact and unencumbered, any and all easements, appurtenances,
      and other interests and rights in favor of or constituting any portion of
      the Premises. It is understood and agreed that all rents and revenues
      deriving from or arising from the Premises received by Mortgagor are to be
      held by Mortgagor as a trust fund to be used first for payments required
      and due under the Note and legitimate operating expenses of the Premises
      and any excess may be retained by Mortgagor.

      RESTORATION. If any of the Premises shall be damaged or destroyed, in
      whole or in part, by fire or other casualty or by taking in condemnation
      proceedings or the exercise of any right of eminent domain, then promptly
      restore, replace, or rebuild the same to as nearly as possible the value,
      quality, and condition, they were in immediately prior to such fire or
      other casualty or taking, with such alterations or changes as may be
      approved in writing by Mortgagee; provided, however, if Mortgagee has no
      obligation under the Adjustment of Losses with Insurers and

                                       11
<PAGE>   12

      Application of Proceeds of Insurance portion of this Section 1.4 to make
      insurance or condemnation proceeds available for such purpose, and
      Mortgagee does not otherwise elect to make any such proceeds so available,
      Mortgagor's obligations under this Restoration provision shall not include
      the obligation referred to above but only an obligation to make such
      repairs as are necessary to make the remaining undamaged portion of such
      improvements (if any) useable for their intended purpose.

      PROPERTY MANAGEMENT. Any management company involved with the management
      of the Premises and any management contracts relating to the Premises
      including, without limitation, agreements with the Association concerning
      maintenance and repair of the Premises and property of life estate
      interest owners (and any amendments thereto) must be acceptable to
      Mortgagee in its sole discretion. Any management agreement shall provide
      that it shall be terminable upon not more than thirty (30) days' notice at
      Mortgagee's option in the event of an occurrence of an Event of Default
      and be subordinate to Mortgagee's rights under the Note and Loan
      Documents.

1.5   ANTI-FORFEITURE. Mortgagor hereby represents and warrants to Mortgagee
      that there has not been committed by Mortgagor or any other person
      involved with the Premises any act or omission affording the federal
      government or any state or local government the right of forfeiture as
      against the Premises or any part thereof or any monies paid in performance
      of Mortgagor's obligations under the Note or under any of the other Loan
      Documents. Mortgagor hereby covenants and agrees not to commit, permit or
      suffer to exist any act or omission affording such right of forfeiture. In
      furtherance thereof, Mortgagor hereby indemnifies Mortgagee and agrees to
      defend and hold Mortgagee harmless from and against any loss, damage or
      injury by reason of the breach of the covenants and agreements or the
      warranties and representations set forth in this Section 1.5. Without
      limiting the generality of the foregoing, the filing of formal charges or
      the commencement of proceedings against Mortgagor, Mortgagee or all or any
      part of the Premises under any federal or state law for which forfeiture
      of the Premises or any part thereof or of any monies paid in performance
      of Mortgagor's obligations under the Loan Documents is a potential result,
      shall, at the election of Mortgagee, constitute an Event of Default
      hereunder without notice or opportunity to cure.

1.6   AMERICANS WITH DISABILITIES ACT. Mortgagor hereby represents to Mortgagee
      that the Premises are in full compliance with the Americans with
      Disabilities Act (the "ADA Act") and all regulations promulgated
      thereunder. Mortgagor hereby covenants and agrees not to permit, commit or
      suffer to exist any condition which might result in a violation to the ADA
      Act, and if any such condition should occur to immediately remedy any such
      condition. Mortgagor hereby indemnifies and

                                       12
<PAGE>   13

      agrees to defend and hold Mortgagee harmless from and against any loss,
      cost or damage by reason of the breach of the covenants, agreements and
      indemnities set forth in this Section 1.6.

1.7   CURE OF MORTGAGOR'S DEFAULT. If Mortgagor shall fail to comply with any of
      the terms, covenants, and agreements contained herein or in the Note or
      any of the Loan Documents, then Mortgagee may (but shall not be obligated
      to do so) without further demand upon Mortgagor and without waiving or
      releasing Mortgagor from any such obligation, remedy such default for the
      account of Mortgagor. Mortgagor agrees to repay, upon demand by Mortgagee,
      all sums advanced by Mortgagee to remedy such default, together with
      interest at the rate at which interest accrues on amounts due under the
      Note after the same become due. All such sums, together with interest as
      aforesaid, shall become additional indebtedness secured by the Mortgage.
      No such payment by Mortgagee shall be deemed to relieve Mortgagor from any
      default hereunder.

      Mortgagee is hereby authorized, in the place and stead of Mortgagor,
      relating to taxes, assessments, water rents and charges, sewer rents and
      charges and other governmental or municipal charges, fines, impositions or
      liens asserted against the Premises to make such payments according to any
      bill, statement or estimate procured from the appropriate public office
      without inquiry into the accuracy of the bill, statement or estimate or
      into the validity of any tax, assessment, sale, forfeiture, tax lien or
      title or claim thereof. Relating to any apparent or threatened adverse
      title, lien, statement of lien, encumbrance, claim or charge, Mortgagee,
      acting reasonably, shall be the sole judge of the legality or validity of
      same. Mortgagee may do so whenever, in its judgment and discretion, such
      advance or advances shall seem necessary or desirable to protect the full
      security intended to be created by this instrument.

                                   ARTICLE II
                           EVENTS OF DEFAULT: REMEDIES

2.1   EVENTS OF DEFAULT; ACCELERATION. If any Event of Default as defined in the
      Note shall occur, then Mortgagee may, by written notice to Mortgagor,
      declare the then outstanding principal of the Note to be forthwith due and
      payable, and upon such declaration, the principal, together with interest
      accrued thereon and to the extent permitted by law, any premium which is
      then payable on the Note upon a prepayment of principal, shall become due
      and payable forthwith at the place of payment specified in the Note,
      anything in this Mortgage or in the Note to the contrary notwithstanding.
      In addition, Mortgagee may proceed to protect and enforce its rights under
      the Note, and/or any of the Loan Documents, by foreclosure proceedings as
      against all or any part of the Premises, without regard to the situs of
      such property, by either suit in equity, action at law, or other

                                       13
<PAGE>   14

      appropriate proceedings, including actions for the specific performance of
      any covenant or agreement contained in this Mortgage or in the Note or in
      aid of the exercise of any power granted in this Mortgage or in the Note,
      or in any of the Loan Documents, or may proceed in any other manner to
      enforce the payment of the Note and any other legal or equitable right of
      Mortgagee and of the legal holder of the Note.

2.2   RECEIVER. It is expressly understood and agreed by Mortgagor that, at any
      time after an Event of Default, Mortgagee shall be entitled to as a matter
      of right, without notice and without giving bond to Mortgagor, or anyone
      claiming under it, without regard to the solvency or insolvency of
      Mortgagor or any person liable for any indebtedness hereby secured or to
      the value of the Premises or occupancy hereof as a homestead, to have
      itself appointed as a "Mortgagee in Possession" or have a receiver
      appointed of all or any part of the Premises and of the earnings, income,
      rents, issues, and profits thereof, pending such proceedings, with such
      powers as the court making such appointment shall confer, and Mortgagor
      does hereby irrevocably consent to such appointment.

2.3   POSSESSION BY MORTGAGEE. Upon the happening of an Event of Default, then
      and in every such case Mortgagee, either itself or by its agents or
      attorneys, may, in its discretion, enter upon and take possession of the
      Premises, or any part or parts thereof, and may exclude Mortgagor and its
      agents and employees wholly therefrom, and having and holding the same,
      Mortgagee may use, operate, manage, and control the Premises or any part
      thereof, and conduct the business thereof, either personally or by
      superintendents, managers, agents, employees and attorneys, and from time
      to time, by purchase, repair or construction, may maintain and restore and
      may insure and keep insured, the buildings, structures, improvements,
      fixtures, and other property, real and personal, comprising the Premises.
      After paying the expense of operating the Premises, including a reasonable
      commission, Mortgagee shall apply the moneys arising therefrom to the
      amount then due on the Note.

2.4   SALE BY MORTGAGEE. Any real estate or any interest or estate therein sold
      pursuant to any court order or decree obtained pursuant to the Mortgage
      shall be sold in one parcel, as an entirety, or in such parcels and in
      such manner or order as Mortgagee, in its sole discretion, may elect, to
      the maximum extent permitted by the laws of the state in which the
      Premises are situated and Mortgagee recognizes and agrees that the
      purchaser at any such sale shall be required to observe the Continuing
      Obligations, as defined in Section C (1) Warranties hereof, provided those
      Continuing Obligations do not differ in any material respect (without
      Mortgagee's written consent) from those which exist on the date hereof.

                                       14
<PAGE>   15

2.5   PURCHASE BY MORTGAGEE. In the case of any sale of the Premises pursuant to
      any judgment or decree of any court or at public auction or otherwise in
      connection with the enforcement of any of the terms of this Mortgage,
      Mortgagee, its successors or assigns, may become the purchaser, and for
      the purpose of making settlement for or payment of the purchase price,
      shall be entitled to deliver over and use the Note and any claims for
      interest accrued and unpaid thereon, together with all other sums, with
      interest, advanced and unpaid hereunder, in order that there may be
      credited as paid on the purchase price the sum then due under the Note
      including principal and interest thereon and all other sums with interest,
      advanced and unpaid hereunder. Specifically, but not as a limitation, on
      foreclosure of this Mortgage there shall be included in the computation of
      the amount due the amount of a reasonable fee for legal services
      (including, without limitation, the allocated costs for services of
      Mortgagee's in-house counsel) rendered to Mortgagee in connection with the
      foreclosure proceedings and other collection efforts, including the
      reasonable costs of an environmental audit of the Premises, an engineering
      report, as well as costs of title evidence, appraisals and all
      disbursements, allowances, and costs provided by law.

      Mortgagor agrees that to the extent Mortgagor is entitled to present
      competent evidence of the fair market value of the Premises as of the date
      of foreclosure or in connection with a bankruptcy proceeding affecting
      Mortgagor and/or the Premises, the following shall be considered competent
      evidence for the fact finder's determination of the fair market value of
      the Premises as of the date of the foreclosure sale:

            (i) the Premises shall be valued in an "as is" condition as of the
            date of the foreclosure sale, without any assumption or expectation
            that the Premises will be repaired or improved in any manner before
            a resale of the Premises after foreclosure;

            (ii) the valuation shall be based upon an assumption that the
            foreclosure purchaser desires a prompt resale of the Premises for
            cash promptly (but no later than twelve (12) months) following the
            foreclosure sale;

            (iii) all expenses to be incurred when the purchaser at the
            foreclosure sale resells the Premises, including reasonable closing
            costs customarily borne by the seller in a commercial real estate
            transaction, should be taken into account in such valuation,
            including, without limitation, brokerage commissions, title
            insurance, a survey of the Premises, tax prorations, attorneys'
            fees, and marketing costs;

                                       15
<PAGE>   16

            (iv) the gross fair market value of the Premises shall be further
            discounted to account for any estimated holding costs associated
            with maintaining the Premises pending sale, including, without
            limitation, utilities expenses, property management fees, taxes and
            assessments (to the extent not accounted for in (iii) above), and
            other maintenance expenses; and

            (v) any expert opinion testimony given or considered in connection
            with a determination of the fair market value of the Premises must
            be given by persons having at least five (5) years experience in
            appraising similarly improved property in the vicinity where the
            Premises is located and being actively engaged therein at the time
            of such testimony.

2.6   PAYMENT OF INDEBTEDNESS AND OTHER EXPENSES. In any case in which Mortgagee
      has the right to sell the Premises or to institute foreclosure
      proceedings, Mortgagor agrees to pay to Mortgagee the whole amount of
      principal and interest then due and payable and, to the extent permitted
      by law, prepayment premium, if any, with interest on overdue principal and
      interest at the rate specified in the Note from the date the same become
      payable whether by lapse of time, acceleration or otherwise. In the event
      Mortgagee commences any proceeding to foreclose this Mortgage or any other
      suit in equity, action at law or other appropriate proceeding to enforce
      its rights under the Note or any of the Loan Documents, Mortgagor
      covenants and agrees to pay to Mortgagee all costs and expenses (including
      actual attorneys' fees) paid or incurred by Mortgagee in connection
      therewith, which costs and expenses may be included in any judgment in
      Mortgagee's favor in any such suit, action or proceeding.

2.7   REMEDIES CUMULATIVE. No remedy herein conferred upon or otherwise
      available to Mortgagee is intended to be or shall be construed to be
      exclusive of any other remedy or remedies; but each and every such remedy
      shall be cumulative and shall be in addition to every other remedy given
      hereunder and under any of the Loan Documents and now or hereafter
      existing at law or in equity or by statute. No delay or omission to
      exercise any right or power accruing upon any default shall impair any
      such right or power, or shall be construed to be a waiver of any such
      default, or an acquiescence therein; nor shall the giving, taking or
      enforcement of any other or additional security, collateral or guaranty
      for the payment of the indebtedness secured under this Mortgage operate to
      prejudice, waive or affect the security of this Mortgage or any rights,
      powers or remedies hereunder; nor shall Mortgagee be required to first
      look to, enforce, or exhaust any such other or additional security,
      collateral, or guaranty.

                                       16
<PAGE>   17

2.8   WAIVER OF RIGHTS. To the extent that such rights may then be lawfully
      waived, Mortgagor hereby covenants that it will not at any time insist
      upon or plead, or in any manner whatever claim or take any benefit or
      advantage of, (i) any exemptions, stay or extension or moratorium law now
      or at any time hereafter in force; (ii) any law now or hereafter in force
      providing for the valuation or appraisement of the Premises or any part
      thereof prior to any sale or sales thereof to be made pursuant to any
      provisions herein contained, or pursuant to the decree, judgment or order
      of any court of competent jurisdiction; (iii) any law now or at any time
      hereafter made or enacted granting a right to redeem the property so sold
      or any part thereof; (iv) all rights of marshaling; and (v) any right to
      trial by jury of any claim or issue arising hereunder or in connection
      herewith. To the extent permitted by law, Mortgagor expressly waives for
      itself and on behalf of each and every person acquiring any interest in or
      title to the Premises or any part thereof, subsequent to the date of this
      Mortgage, all benefit and advantage of any such law or laws; and covenants
      that it will not invoke or utilize any such law or laws or otherwise
      hinder, delay or impede the execution of any power herein granted and
      delegated to Mortgagee, but will suffer and permit the execution of every
      such power as though no such law or laws had been made or enacted.

2.9   INDULGENCES BY MORTGAGEE. In the event that Mortgagee (a) grants any
      extension of time or forbearance with respect to the payment of any
      indebtedness secured by this Mortgage; (b) takes other or additional
      security for the payment thereof; (c) waives or fails to exercise any
      right granted herein or under the Note or any of the Loan Documents; (d)
      grants any release, with or without consideration, of the whole or any
      part of the security held for the payment of the debt secured hereby or
      the release of any person liable for payment of such debt; (e) amends or
      modifies in any respect any of the terms and provisions hereof or of the
      Note (including substitution of another note(s)) or any of the Loan
      Documents; then and in any such event, such act or omission to act shall
      not, unless otherwise agreed in writing by Mortgagee, release Mortgagor,
      or any co-makers, sureties, guarantors, shareholders, under any covenant
      of the Note or any Loan Document, nor preclude Mortgagee from exercising
      any right, power, or privilege herein granted or intended to be granted in
      the event of any other default then made or any subsequent default or
      Event of Default, and without in any way impairing or affecting the lien
      or priority of this Mortgage or of any Loan Document.

2.10  APPLICATION OF PROCEEDS. The proceeds of any sale or sales of the Premises
      or any part thereof pursuant to this Article II shall be applied in the
      following order:

                                       17
<PAGE>   18

            (a) To the payment of all costs of the sale and the foreclosure
            proceedings, including actual attorneys' fees and the cost of title
            searches, abstracts, surveys, engineering reports, appraisals and
            environmental investigations;

            (b) To the payment of all other expenses of Mortgagee, including all
            moneys expended by Mortgagee and all other amounts payable by
            Mortgagor to Mortgagee hereunder or under the Loan Documents, with
            interest thereon; and all taxes, assessments or liens superior to
            the lien thereof;

            (c) To the payment of the principal, interest and premium, if any,
            on the Note;

            (d) To the payment of any other sums owed by Mortgagor to Mortgagee;
            and

            (e) To the payment of the surplus, if any, to Mortgagor or to
            whomsoever shall be entitled thereto.

2.11  ABANDONMENT OF PROCEEDINGS. In case Mortgagee shall have proceeded to
      enforce any right under this Mortgage by foreclosure, sale, entry or
      otherwise, and such proceedings shall have been discontinued or abandoned
      for any reason or shall have been determined adversely, then, and in every
      such case, Mortgagor and Mortgagee shall be restored to their former
      positions and rights hereunder with respect to the Premises subject to the
      lien hereof.

2.12  PARTIAL PAYMENTS. Acceptance by Mortgagee of any payment which is less
      than payment in full of all amounts due and payable at the time of such
      payment shall not constitute a waiver of Mortgagee's right to demand
      payment of the balance due, or any other rights of Mortgagee at that time
      or any subsequent time.

2.13  TENDER OF PAYMENT AFTER ACCELERATION. In case, after legal proceedings are
      instituted to foreclose the lien of this Mortgage, tender is made of the
      entire indebtedness due hereunder, Mortgagee shall be entitled to
      reimbursement for expenses incurred in connection with legal proceedings,
      including such expenditures as are enumerated above, and if the Note
      provides for a "prepayment privilege fee" at the time tender of payment is
      made, then the amount necessary to pay the loan in full shall include the
      prepayment privilege fee in addition to all expenses, and such expenses
      and prepayment privilege fee shall be so much additional indebtedness
      secured by this Mortgage, and no such suit or proceedings shall be
      dismissed or otherwise disposed of until such fees, expenses, and charges
      shall have been paid in full.

                                       18
<PAGE>   19

                                  ARTICLE III
                     POSSESSION AND RELEASE OF THE PREMISES

3.1   RELEASE AND REPLACEMENT OF EQUIPMENT. Mortgagor may, without obtaining any
      release from Mortgagee, sell or otherwise dispose of, free from the lien
      of this Mortgage, any of the Premises described in Paragraph (3) of the
      Granting Clause hereof which may have become obsolete, inadequate, worn
      out, or otherwise unsuitable or unnecessary for use in connection with the
      Premises, provided, however, that Mortgagor shall have theretofore and
      since the date hereof acquired replacements therefor (in such manner as
      shall extend to Mortgagee a first lien or security interest therein)
      which, while not being necessarily of the same character, will be of
      comparable value and efficiency.

3.2   CONDEMNATION. If all or any part of the Premises is damaged, taken, or
      acquired, either temporarily or permanently, in any condemnation
      proceeding, by exercise of the right of eminent domain, by sale in lieu of
      condemnation or eminent domain, or by the alteration of the grade of any
      street affecting the said Premises, the amount of any award or other
      payment for such taking or damages made in consideration thereof, to the
      extent of the full amount of the then remaining unpaid indebtedness
      secured hereby, is hereby assigned to Mortgagee, who is empowered to
      collect and receive the same and to give proper receipts therefor in the
      name of Mortgagor, and the same shall be paid forthwith to Mortgagee. Any
      award or payment so received by Mortgagee may, at the option of Mortgagee,
      be retained and applied, in whole or in part, to the indebtedness secured
      hereby (whether or not then due and payable), in such manner as Mortgagee
      may determine except as specifically limited hereinafter, or released, in
      whole or in part, to Mortgagor for the purpose of altering, restoring, or
      rebuilding any remaining part of the Premises which may have been altered,
      damaged, or destroyed as the result of such taking, alteration, or
      proceeding, but Mortgagee shall not be obligated to see to the application
      of any amounts so released. Any applicable prepayment fee provided for by
      law which results from the application of the award to the prepayment of
      the indebtedness shall be paid as part of the award and not in addition
      thereto. Until such time as such award or other payment is actually
      received by Mortgagee and applied to the indebtedness secured hereby and
      Mortgagee has agreed in writing to a reduction of the monthly payments,
      Mortgagor shall continue paying the constant monthly payment for principal
      and interest on the unpaid principal balance of the Note at the rate of
      interest therein specified.

3.3   SATISFACTION OF MORTGAGE. Whenever Mortgagor shall pay or cause to be paid
      the entire principal, interest and premium, if any, due and to become due
      upon the Note, and shall have performed and observed all of the terms,
      covenants, and conditions by it to be performed or observed under the
      Note, this Mortgage,

                                       19
<PAGE>   20

      and all other agreements now or at any time hereafter existing between
      Mortgagor and Mortgagee, then and in such event the Premises shall revert
      to Mortgagor; and Mortgagee shall forthwith execute and deliver to
      Mortgagor an appropriate instrument of release, satisfaction and
      discharge.

                                   ARTICLE IV
                               SECURITY AGREEMENT

This Mortgage is hereby deemed to be as well a Security Agreement for the
purpose of creating hereby a security interest securing the indebtedness.
Without derogating any of the provisions of this Mortgage, Mortgagor by this
Mortgage:

(a)   grants to Mortgagee a security interest in all of Mortgagor's right, title
      and interest in and to all Collateral and fixtures, together with all
      additions, accessions and substitutions and all similar property hereafter
      acquired and used or obtained for use on, or in connection with the
      Premises. The proceeds of said Collateral and fixtures are intended to be
      secured hereby; however, such intent shall never constitute an express or
      implied consent on the part of Mortgagee to the sale of any or all
      Collateral or fixtures;

(b)   agrees that the security interest hereby granted by this Mortgage shall
      secure the payment of the indebtedness specifically described and shall
      also secure payment of any future debt or advancement owing by Mortgagor
      to Mortgagee with respect to the Premises;

(c)   agrees not to sell, convey, mortgage or grant a security interest in, or
      otherwise dispose of or encumber, any of the Collateral or fixtures or any
      of Mortgagor's right, title or interest therein without first securing
      Mortgagee's written consent unless such Collateral or fixture is replaced
      with Collateral or fixtures of comparable value and efficiency (in such
      manner as shall extend to Mortgagee a first lien or security interest
      therein); and Mortgagee may, at its sole option, require Mortgagor to
      apply the proceeds from the disposition of Collateral or fixtures in
      reduction of the indebtedness secured hereby;

(d)   agrees that if Mortgagor's rights in the Collateral are voluntarily or
      involuntarily transferred, whether by sale, creation of a security
      interest, attachment, levy, garnishment or other judicial process, without
      the written consent of Mortgagee, such transfer constitutes an Event of
      Default by Mortgagor under the terms of this Mortgage provided, that
      notwithstanding any provision of this Mortgage to the contrary, Mortgagor
      may create security interests in vehicles and office equipment including
      computer equipment purchased after the date hereof in an amount not to
      exceed $150,000.00.;

                                       20
<PAGE>   21

(e)   agrees that upon or after the occurrence of any Event of Default
      hereunder, Mortgagee may, with or without notice to Mortgagor, exercise
      its rights to declare all indebtedness secured by the security interest
      created hereby immediately due and payable, in which case Mortgagee shall
      have all rights and remedies granted by law and more particularly the
      Uniform Commercial Code as enacted in Florida;

(f)   agrees, to the extent permitted by law and without limiting any rights and
      privileges herein granted to Mortgagee, that Mortgagee may dispose of any
      or all of the Collateral at the same time and place upon giving the same
      notice provided for in this Mortgage, and in the same manner as provided
      under the terms and conditions of this Mortgage; and

(g)   authorizes Mortgagee to file, in the jurisdiction where this Mortgage will
      be given effect, or in such other jurisdiction as filing may be required
      to perfect the security interest granted hereunder, financing statements
      including renewal or confirmation thereof, covering the Collateral; and at
      the request of Mortgagee, Mortgagor will join Mortgagee in executing one
      or more such financing statements including amendment, renewal or
      confirmation thereof, pursuant to the Uniform Commercial Code as enacted
      in Florida in a form satisfactory to Mortgagee, and will pay the cost of
      filing the same in all public offices at any time and from time to time
      wherever Mortgagee deems filing or recording of any financing statements
      including renewal or confirmation thereof or of this instrument to be
      desirable or necessary.

                                   ARTICLE V
                                  MISCELLANEOUS

5.1   SEVERABILITY. If any term, covenant, or condition of the Note or any Loan
      Document, or the application thereof to any person or circumstance shall,
      to any extent, be invalid or unenforceable, the remainder of the Note, and
      the Loan Documents, and the application of such term, covenant, or
      condition to persons or circumstances other than those as to which it is
      held invalid or unenforceable, shall not be affected thereby and each
      term, covenant, or condition of the Note and the Loan Documents shall be
      valid and be enforced to the fullest extent permitted by law.

5.2   COUNTERPARTS. This Mortgage may be simultaneously executed in any number
      of counterparts, and all said counterparts executed and delivered, each as
      an original, shall constitute but one and the same instrument.

5.3   SUBROGATION. Mortgagee shall be subrogated to all liens, although released
      of record, which are paid out of the proceeds of the Note or other
      indebtedness secured by this Mortgage.

                                       21
<PAGE>   22

5.4   NOTICES. Whenever in this Mortgage it shall be required or permitted that
      notice be given by any party to the other, such notice shall be in
      writing, and any notice so sent shall be deemed to have been given on the
      date that the same is deposited in the United States mail, postage
      prepaid. Notices shall be addressed to Mortgagee at 4321 North Ballard
      Road, Appleton, Wisconsin 54919, Attention Investment Department, and to
      Mortgagor at the address set forth below its signature or at such other
      address as either party may from time to time designate in writing in lieu
      thereof.

5.5   CHANGE IN TAXATION OF MORTGAGES. In the event of the passage, after the
      date of this Mortgage, of any law deducting from the value of the real
      property comprising the Premises, for the purpose of taxation, any lien
      thereon, or changing in any way the laws now in force for the taxation of
      mortgages, deeds of trust, or debts secured thereby, for state or local
      purposes, or the manner of the operation of any such taxes so as to affect
      the interest of Mortgagee, then in such event, Mortgagor shall bear and
      pay the full amount of such taxes, provided, however, that if for any
      reason payment by Mortgagor of any such taxes would be unlawful, or if the
      payment thereof would constitute usury or render the loan or indebtedness
      secured hereby wholly or partially usurious under any of the terms or
      provisions of the Note, the Mortgage or otherwise, Mortgagee may, at its
      option, declare the whole sum secured by this Mortgage with interest
      thereon to be immediately due and payable, without a prepayment fee, or
      Mortgagee may, at its option, pay that amount or portion of such taxes as
      renders the loan or indebtedness secured hereby unlawful or usurious, in
      which event Mortgagor shall concurrently therewith pay the remaining
      lawful and non-usurious portion or balance of said taxes.

5.6   NO EXCESS INTEREST. If any charge in the nature of interest provided for
      herein, in the Note, or in any instrument evidencing indebtedness secured
      hereby shall result, because of the monthly reduction of principal or for
      any reason at any time during the life of the Note, in an effective rate
      of interest which, for any month, transcends the limit of the usury or any
      other law(s) applicable to the loan evidenced by the Note, then all sums
      in excess of those lawfully collectible as interest for the period in
      question shall, without further agreement of notice between or by any
      party hereto, be applied upon principal immediately upon receipt of such
      moneys by the holder of the Note, with the same force and effect as if
      Mortgagor had specifically designated such extra sums to be so applied to
      principal and the holder of the Note had agreed to accept such extra
      payment(s) as a premium-free prepayment. In no event shall any agreed to
      or actual exaction as consideration for the loan evidenced by the Note
      transcend the limits imposed or provided by the law applicable to this
      transaction for the use or detention of money or for the forbearance in
      seeking its collection.

                                       22
<PAGE>   23

5.7   WAIVERS BY MORTGAGOR. To the fullest extent permitted by applicable law,
      Mortgagor, for itself, its successors and assigns, and each and every
      person with any interest in the Premises, or any part thereof, whether now
      owned or hereafter acquired, hereby waives notice of maturity, demand,
      presentment for payment, diligence in collection, and notice of
      non-payment and protest; hereby consents and agrees to any extension of
      time, whether one or more, for the payment thereof and/or to any and all
      renewals thereof; and hereby consents and agrees that Mortgagee may amend
      the terms thereof, may release all or any part of the security for the
      payment thereof, and may release any party liable for the payment thereof,
      without, in any event, affecting the terms or effect of this Mortgage or
      the obligations or liabilities hereunder of Mortgagor, its successors or
      assigns, or any person with any interest in the Premises, or any part
      thereof, whether now owned or hereafter acquired.

5.8   ADDITIONAL INSTRUMENTS. Mortgagor, from time to time, within fifteen (15)
      days after request by Mortgagee, shall execute, acknowledge, and deliver
      to Mortgagee such mortgages, chattel mortgages, security agreements, or
      other similar security instruments, in form and substance satisfactory to
      Mortgagee, covering all property of any kind, whatsoever, owned by
      Mortgagor or in which Mortgagor may have any interest which, in the sole
      opinion of Mortgagee, is essential to the operation of the property
      covered by this Mortgage. Neither a request so made by Mortgagee, nor the
      failure of Mortgagee to make such a request, shall be construed as a
      release of such property, or any part thereof, from the lien of this
      Mortgage, it being understood and agreed that this covenant and any such
      chattel mortgage, security agreement, or other similar security
      instrument, delivered to Mortgagee, are cumulative and given as additional
      security.

5.9   APPLICABLE LAW. This Mortgage shall be interpreted in accordance with and,
      in all respects, governed by the internal laws of the State of Florida.

5.10  EXPENSES OF MORTGAGEE.

      (a)   If Mortgagee is made a party to any suit or proceeding by reason of
            the interest of Mortgagee in the Premises, or if the Note or any
            Loan Document is placed in the hands of an attorney or attorneys to
            defend or enforce any rights of Mortgagee, then Mortgagor shall
            reimburse Mortgagee for all costs and expenses, including by way of
            representation only, actual attorneys' fees, travel and lodging
            expenses, recording fees, incurred by Mortgagee in connection
            therewith. All amounts incurred by Mortgagee hereunder shall be
            secured hereby and shall be due and payable by Mortgagor to
            Mortgagee forthwith on demand, with interest

                                       23
<PAGE>   24

            thereon at the rate at which interest accrues on amounts due under
            the Note after the same became due.

      (b)   In the event Mortgagor initiates any request to Mortgagee for (a)
            changes to this Mortgage or any collateral documents thereto, (b)
            releases of any part of the Premises or other property upon which a
            security interest has been given to secure the indebtedness, or (c)
            any other waivers, opinions or other documentary changes (other than
            a satisfaction or assignment of the Mortgage at maturity or in
            connection with a permitted prepayment), then Mortgagor shall
            reimburse Mortgagee for any actual legal fees and expenses incurred
            by Mortgagee in connection with the preparation and review of such
            documentation. The need for legal review and preparation of
            documentation shall be in the unrestricted discretion of Mortgagee.

5.11  SUCCESSORS OF MORTGAGOR. In the event of the sale or transfer of all or
      any part of the Premises (excluding the sale of life estate interests
      permitted herein), by operation of law or otherwise and regardless of
      whether or not such sale or transfer constitutes an Event of Default,
      Mortgagee is authorized and empowered to deal with the transferee with
      reference to this Mortgage, the Premises, or the debt secured hereby, or
      with reference to any of the terms or conditions contained herein, as
      fully and to the same extent as it might deal with Mortgagor and without
      in any way releasing or discharging any liabilities of Mortgagor hereunder
      or under the Note or the Loan Documents.

5.12  ESTOPPEL CERTIFICATES. Mortgagor, upon request of Mortgagee, shall, from
      time to time, certify to Mortgagee or to any proposed assignee of this
      Mortgage, by an instrument in form satisfactory to Mortgagee, duly
      acknowledged, the amount then owing on the sums secured hereby and the
      date on which interest hereon has been paid and whether any offsets or
      defenses exist against payment thereof or performance of any obligation of
      Mortgagor under the Note, this Mortgage, or any of the Loan Documents,
      within five (5) days if such request is made personally, or within ten
      (10) days if such request is made by mail. Mortgagee and any proposed
      assignee of this Mortgage shall have the right to rely on any such
      certification.

5.13  AMENDMENT. Neither this Mortgage nor any term, covenant, or condition
      contained herein may be amended, modified, or terminated, except by an
      agreement in writing, signed by the party against whom enforcement of the
      amendment, modification, or termination is sought.

5.14  CONSTRUCTION. By execution of this Mortgage, Mortgagor acknowledges that
      both parties participated in the drafting of the documents, and agrees
      that the Note, this Mortgage, and the Loan Documents shall be construed
      without regard

                                       24
<PAGE>   25

      to any presumption or rule requiring construction against the party
      causing such instruments to be drafted. The headings and captions
      contained in this Mortgage are solely for convenience of reference and
      shall not affect its interpretation. All terms and words used in this
      Mortgage, whether singular or plural and regardless of the gender thereof,
      shall be deemed to include any other number and any other gender as the
      context may require.

5.15  RECEIPT BY MORTGAGOR. Mortgagor hereby acknowledges that a full, true, and
      complete copy of this Mortgage (including Exhibits A and B hereto) was
      delivered to and received by it on the date of actual execution hereof by
      Mortgagor, as set forth below.

5.16  NO PARTNERSHIP - THIRD PARTIES. Nothing contained in the Note or Mortgage
      shall be construed in a manner to create any relationship between
      Mortgagor and Mortgagee other than the relationship of borrower and lender
      and Mortgagor and Mortgagee shall not be considered partners or
      co-venturers for any purpose. The terms and provisions of the Note and
      this Mortgage are for the benefit of Mortgagor, Mortgagee and their
      respective successors, assigns, endorsees and transferees and all persons
      claiming under or through them, and no other person shall have any right
      or cause of action on account thereof.

5.17  RIGHT TO CONTEST. Mortgagor shall have the right to contest in good faith
      the validity or amount of any tax assessment or lien arising from any work
      performed at or materials furnished to the premises which right, however,
      is conditional upon (i) such contest having the effect of preventing the
      collection of the tax, assessment or lien so contested and the sale or
      forfeiture of the premises or any part thereof or interest therein to
      satisfy the same, (ii) Mortgagor giving Mortgagee written notice of its
      intention to contest the same in a timely manner, which, with respect to
      any contested tax or assessment, shall mean before any such tax,
      assessment or lien has been increased by any penalties or costs, and with
      respect to any contested mechanic's lien claim, shall mean within thirty
      (30) days after Mortgagor receives actual notice of the filing thereof,
      (iii) Mortgagor making and thereafter maintaining with Mortgagee or such
      other depository as Mortgagee may designate, a deposit of cash (or United
      States government securities, in discount form, or other security as may,
      in Mortgagee's sole discretion, be acceptable to Mortgagee, and in either
      case having a present value equal to the amount herein specified) in an
      amount no less than One Hundred Fifty Percent (150%) of the amount which,
      in Mortgagee's reasonable opinion, determined from time to time, shall be
      sufficient to pay in full such contested tax, assessment or lien and
      penalties, costs and interest that may become due thereon in the event of
      a final determination thereof adverse to Mortgagor or in the event
      Mortgagor fails to prosecute such contest as herein required, or in lieu
      thereof, Mortgagor providing to Mortgagee title insurance over

                                       25
<PAGE>   26

      such matters in form and substance reasonably acceptable to Mortgagee, and
      (iv) Mortgagor diligently prosecuting such contest by appropriate legal
      proceedings. In the event Mortgagor shall fail to prosecute such contest
      with reasonable diligence or shall fail to maintain sufficient funds, or
      other security as aforesaid, on deposit as hereinabove provided, Mortgagee
      may, at its option, liquidate the securities deposited with Mortgagee, and
      apply the proceeds thereof and other monies deposited with Mortgagee in
      payment of, or on account of, such taxes, assessments, or liens or any
      portion thereof then unpaid, including the payment of all penalties and
      interest thereon.

5.18  FUTURE ADVANCES. It is agreed that this Mortgage shall also secure such
      future or additional advances for construction, improvements,
      preservation, maintenance and operation of the Premises and the security
      for the loan as may be made by Mortgagee, whether such future advances are
      obligatory or are to be made at Mortgagee's option to Mortgagor, or its
      successor in title, for any purpose, provided that all those advances are
      to be made within twenty (20) years from the date of this Mortgage, or
      within such lesser period of time as may be provided hereafter by law as a
      prerequisite for the sufficiency of actual notice or record notice of the
      optional future or additional advances as against the rights of creditors
      or subsequent purchasers for valuable consideration, to the same extent as
      if such future advances were made on the date hereof. The total amount of
      indebtedness secured by this Mortgage may decrease or increase from time
      to time, but the total unpaid balance so secured at any one time shall not
      exceed twice the face amount of the Note, and any disbursements made for
      the payment of taxes, levies or insurance on the Premises.

IN WITNESS WHEREOF, Mortgagor has caused these presents, to be duly executed,
sealed, and delivered in ____________, Florida, as of the day and year first
above written.

WITNESSES:

                                         LAKE SEMINOLE SQUARE MANAGEMENT
                                         COMPANY, INC., A TENNESSEE CORPORATION

----------------------------------
Signature                                By:
                                            ------------------------------------
----------------------------------
Printed Name                             Its:
                                             -----------------------------------
----------------------------------
Signature

                                         FREEDOM GROUP-LAKE SEMINOLE SQUARE,
                                         INC., A TENNESSEE CORPORATION
----------------------------------
Printed Name

                                       26
<PAGE>   27

----------------------------------
Signature                                By:
                                            ------------------------------------

----------------------------------
Printed Name                             Its:
                                             -----------------------------------
----------------------------------
Signature
                                         Address for both:
----------------------------------                  c/o American Retirement
Printed Name                                        Corporation
                                                    111 Westwood Drive
                                                    Suite 402
                                                    Brentwood, Tennessee  37027

                                       27
<PAGE>   28

STATE OF TENNESSEE

COUNTY OF
         -----------------

         The foregoing instrument was acknowledged before me this _____ day of
May, 2000, by _______________________(name), as _________________(title) of Lake
Seminole Square Management Company, Inc., a Tennessee corporation, on behalf of
the corporation. He/She [please check as applicable] /______/ is personally
known to me, or has produced /______/ his/her (state) driver's license, or
/______/ his/her _____________________________(type of identification) as
identification.

                                        ----------------------------------------
                                                    (Signature)

                                        ----------------------------------------
                                                   (Printed Name)

(AFFIX NOTARIAL SEAL)                    NOTARY PUBLIC, STATE OF TENNESSEE

                                        ----------------------------------------
                                            (Commission Expiration Date)

                                        ----------------------------------------
                                               (Serial Number, If Any)

                                       28
<PAGE>   29

STATE OF TENNESSEE

COUNTY OF
         ------------------

         The foregoing instrument was acknowledged before me this _____ day of
May, 2000, by _______________________ (name), as _______________(title) of
Freedom Group - Lake Seminole Square, Inc., a Tennessee corporation, on behalf
of the corporation. He/She [please check as applicable] /______/ is personally
known to me, or has produced /______/ his/her (state) driver's license, or
/______/ his/her ___________________ (type of identification) as identification.

                                       -----------------------------------------
                                                  (Signature)

                                       -----------------------------------------
                                                 (Printed Name)

(AFFIX NOTARIAL SEAL)                   NOTARY PUBLIC, STATE OF TENNESSEE

                                       -----------------------------------------
                                           (Commission Expiration Date)

                                       -----------------------------------------
                                              (Serial Number, If Any)

                                       29
<PAGE>   30

                                    EXHIBIT A

                               [LEGAL DESCRIPTION]

<PAGE>   31

                                    EXHIBIT B

All of Mortgagor's right, title and interest as an owner of the condominium
units described in Exhibit A hereto, in and to all building materials, fixtures,
equipment and other personal property to be incorporated into any improvements
constructed on the Premises and all goods, materials, supplies, fixtures,
equipment, machinery, furniture and furnishings and other personal property that
are now or may hereafter be appropriated for use on (whether such items are
stored on the Premises or elsewhere), located on, or used in connection with,
the Premises; together with all Mortgagor's right, title and interest in and to
all rents, issues and profits, and all inventory, accounts, accounts receivable,
contract rights, all accounts arising from the operation of the Premises,
franchise agreements, Lake Seminole Square Club Membership Agreements, assisted
living residency and care agreements, all other contracts and agreements
concerning the provision of services to owners of life estates in any portion of
the Premises or residing in assisted care facilities thereon, licenses and
rights, including rights in any condominium association existing with respect to
any and all portions of the Premises, general intangibles, chattel paper,
instruments, documents, notes, drafts, letters of credit, insurance policies,
premium refunds and deposits, insurance and condemnation awards and proceeds,
refunds and deposits returned by utility, cleaning, maintenance and repair and
equipment rental companies and other companies providing services to the
Premises and government agencies, tradenames, trademarks and service marks
(subject, however, to any franchise or license agreements relating thereto),
arising from or related to the Premises and any business conducted on the
Premises; and all replacements and substitutions for, or additions to, all
products and proceeds of, and all books, records, files and electronic data
relating to, any of the foregoing.

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