Document:

EXHIBIT 10.7

                      AMENDED AND RESTATED LEASE AGREEMENT

                           DATED AS OF JANUARY 1, 2000
                   (originally dated as of February 11, 1994)

                                 BY AND BETWEEN

                             HRES1 PROPERTIES TRUST
                                  AS LANDLORD,

                                       AND

                          IHS ACQUISITION NO. 135, INC.
                                    AS TENANT

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                                                 TABLE OF CONTENTS

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ARTICLE 1         DEFINITIONS...................................................................................2
                  1.1      "Additional Rent"....................................................................2
                  1.2      "Affiliated Person"..................................................................2
                  1.3      "Assumed Indebtedness"...............................................................2
                  1.4      "Award"..............................................................................3
                  1.5      "Bankruptcy Code"....................................................................3
                  1.6      "Bankruptcy Court"...................................................................3
                  1.7      "Base Rate"..........................................................................3
                  1.8      "Business Day".......................................................................3
                  1.9      "Capital Addition"...................................................................3
                  1.10     "Capital Additions Cost".............................................................3
                  1.11     "Capital Expenditure"................................................................4
                  1.12     "Cases"..............................................................................4
                  1.13     "Cash Adjustment"....................................................................4
                  1.14     "Claims".............................................................................4
                  1.15     "Code"...............................................................................4
                  1.16     "Commencement Date"..................................................................4
                  1.17     "Condemnation".......................................................................4
                  1.18     "Condemnor"..........................................................................4
                  1.19     "Consolidated Financials"............................................................4
                  1.20     "Control"............................................................................4
                  1.21     "Date of Taking".....................................................................5
                  1.22     "Default"............................................................................5
                  1.23     "Encumbrance"........................................................................5
                  1.24     "Entity".............................................................................5
                  1.25     "Environmental Laws".................................................................5
                  1.26     "Environmental Notice"...............................................................5
                  1.27     "Environmental Obligation"...........................................................5
                  1.28     "Event of Default"...................................................................5
                  1.29     "Extended Terms".....................................................................5
                  1.30     "Facility"...........................................................................5
                  1.31     "Facility Mortgage"..................................................................5
                  1.32     "Facility Mortgagee".................................................................5
                  1.33     "Facility Trade Names"...............................................................5
                  1.34     "Fair Market Added Value"............................................................5
                  1.35     "Fair Market Rental".................................................................5
                  1.36     "Fair Market Value"..................................................................6
                  1.37     "Fair Market Value Purchase Price"...................................................6
                  1.38     "Fiscal Year"........................................................................6
                  1.39     "Fixed Term".........................................................................6
                  1.40     "Fixtures"...........................................................................6
                  1.41     "Guarantor"..........................................................................6
                  1.42     "Guaranty"...........................................................................6

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                                                 TABLE OF CONTENTS
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                  1.43     "Hazardous Substances"...............................................................6
                  1.44     "IHS Entity".........................................................................6
                  1.45     "Immediate Family"...................................................................6
                  1.46     "Impositions"........................................................................6
                  1.47     "Index"..............................................................................7
                  1.48     "Initiating Party"...................................................................7
                  1.49     "Insurance Requirements".............................................................7
                  1.50     "Land"...............................................................................7
                  1.51     "Landlord"...........................................................................7
                  1.52     "Landlord Default"...................................................................7
                  1.53     "Lease"..............................................................................7
                  1.54     "Leased Improvements"................................................................7
                  1.55     "Leased Personal Property"...........................................................7
                  1.56     "Leased Property"....................................................................7
                  1.57     "Legal Requirements".................................................................8
                  1.58     "Lending Institution"................................................................8
                  1.59     "Minimum Rent".......................................................................8
                  1.60     "Minimum Repurchase Price"...........................................................8
                  1.61     "Net Patient Revenues"...............................................................8
                  1.62     "Non-Capital Additions"..............................................................9
                  1.63     "Officer's Certificate"..............................................................9
                  1.64     "Orders".............................................................................9
                  1.65     "Overdue Rate".......................................................................9
                  1.66     "Parent".............................................................................9
                  1.67     "Permitted Encumbrances"............................................................10
                  1.68     "Person"............................................................................10
                  1.69     "Primary Intended Use"..............................................................10
                  1.70     "Qualified Appraiser"...............................................................10
                  1.71     "Records"...........................................................................10
                  1.72     "Rent"..............................................................................10
                  1.73     "Responding Party"..................................................................10
                  1.74     "SEC"...............................................................................10
                  1.75     "Settlement Agreement"..............................................................10
                  1.76     "Settlement Document"...............................................................10
                  1.77     "State".............................................................................10
                  1.78     "Subsidiary"........................................................................10
                  1.79     "Substitute Properties".............................................................10
                  1.80     "Substitution Date".................................................................10
                  1.81     "Successor Landlord"................................................................10
                  1.82     "Superior Lease"....................................................................10
                  1.83     "Superior Landlord".................................................................10
                  1.84     "Superior Mortgage".................................................................10

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                                                 TABLE OF CONTENTS
                                                    (continued)
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                  1.85     "Superior Mortgage".................................................................10
                  1.86     "Tenant"............................................................................10
                  1.87     "Tenant's Personal Property"........................................................11
                  1.88     "Term"..............................................................................11
                  1.89     "Test Rate".........................................................................11
                  1.90     "Trustees"..........................................................................11
                  1.91     "Unavoidable Delays"................................................................11
                  1.92     "Unsuitable for Its Primary Intended Use"...........................................11

ARTICLE 2         PREMISES AND TERM............................................................................11
                  2.1      Premises............................................................................11
                  2.2      Condition of Premises...............................................................12
                  2.3      Fixed Term..........................................................................13
                  2.4      Extended Terms......................................................................13

ARTICLE 3         RENT.........................................................................................13
                  3.1      Rent................................................................................13
                  3.2      Late Payment of Rent................................................................15
                  3.3      Net Lease...........................................................................15
                  3.4      No Termination, Abatement, Etc......................................................15

ARTICLE 4         USE OF THE LEASED PROPERTY...................................................................16
                  4.1      Permitted Use.......................................................................16
                  4.2      Compliance with Legal and Insurance Requirements, Instruments, Etc..................17
                  4.3      Compliance with Medicaid and Medicare Requirements..................................17
                  4.4      Environmental Matters...............................................................17

ARTICLE 5         MAINTENANCE AND REPAIRS, ETC.................................................................18
                  5.1      Maintenance and Repair..............................................................18
                  5.2      Capital Expenditure Cost Sharing....................................................18
                  5.3      Tenant's Personal Property..........................................................19
                  5.4      Yield Up............................................................................19
                  5.5      Encroachments, Restrictions, Etc....................................................19

ARTICLE 6         CAPITAL ADDITIONS, ETC.......................................................................20
                  6.1      Construction of Capital Additions to the Leased Property............................20
                  6.2      Capital Additions Financed by Tenant................................................21
                  6.3      Information Regarding Capital Additions.............................................22
                  6.4      Non-Capital Additions...............................................................23
                  6.5      Salvage.............................................................................24

ARTICLE 7         LIENS........................................................................................24
                  7.1      Liens...............................................................................24

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                                                 TABLE OF CONTENTS
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                  7.2      Landlord's Lien.....................................................................24
                  7.3      Mechanic's Liens....................................................................25

ARTICLE 8         PERMITTED CONTESTS...........................................................................25

ARTICLE 9         INSURANCE AND INDEMNIFICATION................................................................26
                  9.1      General Insurance Requirements......................................................26
                  9.2      Waiver of Subrogation...............................................................27
                  9.3      Form Satisfactory, Etc..............................................................27
                  9.4      No Separate Insurance...............................................................27
                  9.5      Indemnification of Landlord.........................................................28
                  9.6      Indemnification of Tenant...........................................................28

ARTICLE 10        CASUALTY.....................................................................................28
                  10.1     Insurance Proceeds..................................................................28
                  10.2     Reconstruction in the Event of Damage or Destruction................................28
                  10.3     Insufficient Insurance Proceeds.....................................................30
                  10.4     Disbursement of Proceeds............................................................30
                  10.5     Tenant's Property...................................................................30
                  10.6     Restoration of Tenant's Property....................................................31
                  10.7     No Abatement of Rent................................................................31
                  10.8     Damage Near End of Term.............................................................31

ARTICLE 11        CONDEMNATION.................................................................................31
                  11.1     Total Condemnation..................................................................31
                  11.2     Partial Condemnation................................................................31
                  11.3     Temporary Condemnation..............................................................32
                  11.4     Tenant's Option.....................................................................32
                  11.5     Allocation of Award.................................................................32
                  11.6     Abatement Procedures................................................................32

ARTICLE 12        DEFAULTS AND REMEDIES........................................................................33
                  12.1     Events of Default...................................................................33
                  12.2     Remedies............................................................................35
                  12.3     Waiver..............................................................................36
                  12.4     Application of Funds................................................................37
                  12.5     Landlord's Right to Cure Tenant's Default...........................................37
                  12.6     Trade Names.........................................................................37

ARTICLE 13        HOLDING OVER.................................................................................37

ARTICLE 14        LANDLORD'S DEFAULT...........................................................................38

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                                                 TABLE OF CONTENTS
                                                    (continued)
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ARTICLE 15        PURCHASE OF PREMISES.........................................................................38

ARTICLE 16        SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY.............................................39
                  16.1     Tenant's Substitution Option........................................................39
                  16.2     Substitution Procedures.............................................................39
                  16.3     Conditions to Substitution..........................................................41
                  16.4     Conveyance to Tenant................................................................42
                  16.5     Expenses............................................................................42

ARTICLE 17        SUBLETTING AND ASSIGNMENT....................................................................43
                  17.1     Subletting and Assignment...........................................................43
                  17.2     Required Sublease Provisions........................................................44
                  17.3     Sublease Limitation.................................................................44
                  17.4     Assignment and Subletting Procedure.................................................45

ARTICLE 18        CERTIFICATES AND FINANCIAL STATEMENTS........................................................45
                  18.1     Estoppel Certificates...............................................................45
                  18.2     Financial Statements................................................................45
                  18.3     General Operations..................................................................46

ARTICLE 19        LANDLORD ACCESS..............................................................................46
                  19.1     Landlord's Right to Inspect.........................................................46
                  19.2     Landlord's Option to Purchase the Tenant's Personal Property: Transfer of Licenses..46

ARTICLE 20        APPRAISAL....................................................................................47
                  20.1     Appraisal Procedure.................................................................47

ARTICLE 21        MORTGAGES....................................................................................47
                  21.1     Landlord May Grant Liens............................................................47
                  21.2     Subordination of Lease..............................................................48
                  21.3     Notice to Mortgagee and Ground Landlord.............................................49

ARTICLE 22        ADDITIONAL COVENANTS OF TENANT...............................................................49
                  22.1     Notice of Change of Name, Administrator, Etc........................................49
                  22.2     Notice of Litigation, Potential Event of Default, Etc...............................49
                  22.3     Distributions, Payments to Affiliated Persons, Etc..................................50

ARTICLE 23        MISCELLANEOUS................................................................................50
                  23.1     No Waiver...........................................................................50
                  23.2     Remedies Cumulative.................................................................50
                  23.3     Acceptance of Surrender.............................................................50
                  23.4     No Merger of Title..................................................................50

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                  23.5     Conveyance by Landlord..............................................................51
                  23.6     Quiet Enjoyment.....................................................................51
                  23.7     Landlord's Liability................................................................51
                  23.8     Landlord's Consent..................................................................51
                  23.9     Memorandum of Lease.................................................................52
                  23.10    Notices.............................................................................52
                  23.11    Construction........................................................................53
                  23.12    Governing Law.......................................................................53
                  23.13    Consent to Jurisdiction.............................................................54

EXHIBITS
A - Permitted Encumbrances
B - The Land

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                      AMENDED AND RESTATED LEASE AGREEMENT

         THIS AMENDED AND RESTATED LEASE AGREEMENT, dated as of January 1, 2000,
is made by and between HRES1 PROPERTIES TRUST, a Maryland real estate investment
trust,  as  landlord  ("Landlord"),  having its  principal  office at 400 Centre
Street,  Newton,  Massachusetts,  and IHS  ACQUISITION  135,  INC.,  a  Delaware
corporation, as tenant ("Tenant"), having its principal office at The Highlands,
910 Ridgebrook Road, Sparks, Maryland.

                               W I T N E S S E T H

         WHEREAS,  Landlord and Tenant are parties to a Lease Agreement dated as
of February 11, 1994, as amended (the "Original Lease"), originally between HRPT
Properties  Trust  (f/k/a  "Health  and  Rehabilitation  Properties  Trust"),  a
Maryland  real  estate  investment  trust  ("HRPT"),  as  landlord,  and Horizon
Healthcare Corporation, a Delaware corporation ("Horizon"), as tenant;

         WHEREAS,  Landlord  has  succeeded  to the interest of HRPT as landlord
under the original Lease and is the record and beneficial  owner of the title to
the Land, the Leased  Improvements  and the Fixtures (each as defined in Section
2.1 hereof);

         WHEREAS,  pursuant to an  Assignment  and  Assumption  of Real Property
Lease  dated as of  December  31,  1997 by and  between  Horizon/CMS  Healthcare
Corporation  (the successor to Horizon),  as assignor,  and IHS  Acquisition No.
151, Inc., a Delaware corporation ("IHS 151"), as assignee, IHS 151 acquired all
right,  title and  interest  of  Horizon/CMS  Healthcare  Corporation  under the
Original Lease;

         WHEREAS, pursuant to a Consent, Assumption and Guaranty Agreement dated
as of December 31, 1997 (the "IHS Consent")  among  Integrated  Health  Services
Inc., a Delaware Corporation  ("IHS"),  Tenant and certain other subsidiaries of
IHS,   HealthSouth   Corporation,   Horizon,   HRPT  and  Indemnity   Collection
Corporation,  IHS and IHS 151  assumed  the  obligations  of  Horizon  under the
Original Lease;

         WHEREAS,  pursuant to an  Assignment  and  Assumption  of Real Property
Lease dated as of December  31,  1997 by and between IHS 151, as  assignor,  and
Tenant,  as assignee,  Tenant acquired all right,  title and interest of IHS 151
under the Original Lease;

         WHEREAS,  Landlord alleges that by a notice dated January 25, 2000, the
Original  Lease  was  terminated  by  virtue  of an Event of  Default  under the
Original Lease;

         WHEREAS,  on  February 3, 2000,  IHS and  certain of its  subsidiaries,
including  Tenant,  filed  voluntary  petitions  for relief  (collectively,  the
"Cases")  under chapter 11 of the United States  Bankruptcy  Code,  ss.ss.101 et
seq. (the  "Bankruptcy  Code") with the United States  Bankruptcy  Court for the
District of Delaware (the "Bankruptcy Court");

         WHEREAS,  IHS and Tenant are continuing to operate their businesses and
manage  their  respective  properties  as   debtors-in-possession   pursuant  to
ss.ss.1107 and 1108 of the Bankruptcy Code; and
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         WHEREAS,  pursuant to, and in accordance  with, a Settlement  Agreement
dated as of April 11, 2000, as amended,  among,  inter alia,  IHS,  Landlord and
Tenant (the "Settlement Agreement"),  Landlord has agreed to rescind its alleged
termination of the Original Lease,  Landlord and Tenant have agreed to amend and
restate the Original  Lease as set forth herein,  and IHS has agreed to guaranty
the obligations of Tenant hereunder pursuant to a Guaranty dated as of even date
herewith by IHS in favor of Landlord (as amended,  modified or supplemented from
time to time, the "Guaranty");

         NOW, THEREFORE, in consideration of the mutual covenants herein contain
and  other  good and  valuable  consideration,  the  mutual  receipt  and  legal
sufficiency of which are hereby  acknowledged,  Landlord and Tenant hereby agree
to amend and restate the Original Lease in full to read as follows:

                                   ARTICLE 1

                                   DEFINITIONS

         Each  reference  in this Lease to any of the  following  terms shall be
construed to incorporate the  definitions  hereinafter set forth and include the
plural as well as the  singular.  All  accounting  terms not  otherwise  defined
herein shall have the meanings  assigned to them in  accordance  with  generally
accepted accounting principles.

         "Added  Value  Percentage"  shall  mean,  with  respect to any  Capital
Addition financed by Tenant hereunder,  a percentage bearing the same proportion
to total Net Patient  Revenues for the entire  Leased  Property  (including  all
Capital Additions) as the Fair Market Added Value of such Capital Addition bears
to the Fair Market Value of the entire Leased  Property  (including  all Capital
Additions)  immediately  after  completion of such Capital  Addition.  The Added
Value Percentage for Capital Additions financed by Tenant shall remain in effect
until any subsequent Capital Addition financed by Tenant is completed.

         1.1 "Additional Rent" shall have the meaning given such term in Section
3.1.2.

         1.2 "Affiliated  Person" shall mean, with respect to any Person, (a) in
the  case of any  such  Person  which  is a  partnership,  any  partner  in such
partnership;  (b) in the case of any such  Person  which is a limited  liability
company,  any member of such company;  (c) any other Person which is a Parent, a
Subsidiary,  or a  Subsidiary  of a Parent  of the  Persons  referred  to in the
preceding  clauses  (a) and (b);  (d) any other  Person  otherwise  directly  or
indirectly  controlling  or under common control with such Person or one or more
of the Persons  referred to in the  preceding  clauses (a), (b) and (c); and (e)
any other Person who is a member of the  Immediate  Family of such Person or any
Person referred to in the preceding clauses (a) through (d).

         1.3  "Assumed  Indebtedness"  shall  mean  any  indebtedness  or  other
obligations  existing  at the time of  acquisition  of the  Leased  Property  by
Landlord  secured  by a  mortgage,  deed of trust or  other  security  agreement
creating  a lien  on the  Leased  Property  and  assumed  by  Landlord,  and any
indebtedness  resulting  from the  refinancing  thereof,  and/or any  subsequent
indebtedness resulting from Landlord's financing of, or Landlord's reimbursement
of Tenant's

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financing of, any Capital  Additions during the Term, except any indebtedness or
other obligations of Tenant not assumed by Landlord prior to or during the Term.

         1.4 "Award" shall mean all  compensation,  sums or other value awarded,
paid or  received  by virtue of a total or  partial  Condemnation  of the Leased
Property  (after  deduction of all  reasonable  legal fees and other  reasonable
costs and expenses  incurred by Landlord in connection  with  obtaining any such
award).

         1.5  "Bankruptcy  Code" shall have the  meaning  given such term in the
recitals.

         1.6  "Bankruptcy  Court" shall have the meaning  given such term in the
recitals.

         1.7 "Base Rate" shall mean the rate of interest,  determined  daily and
expressed as a percentage,  announced by Citibank,  N.A., in New York, New York,
from time to time, as Citibank,  N.A.'s "base rate" or "prime rate",  so-called,
or, if at any time Citibank,  N.A.  ceases to announce such a rate, as announced
by the  largest  national  or state  chartered  banking  institution  other than
Citibank,  N.A.  then  having  its  principal  office in New York,  New York and
announcing  such a rate.  If at any time neither  Citibank,  N.A. nor any of the
five largest other national or state chartered banking institutions having their
principal  offices in New York,  New York is  announcing  such a floating  rate,
"Base Rate" shall mean a rate of interest,  determined  daily,  which is two (2)
percentage  points above the 14-day  moving  average  closing  trading  price of
90-day Treasury Bills.

         1.8 "Business Day" shall mean any day other than Saturday,  Sunday,  or
any other day on which banking institutions in The Commonwealth of Massachusetts
or in New York, New York are authorized by law or executive action to close.

         1.9 "Capital Addition" shall mean one or more new buildings,  or one or
more  additional  structures  annexed  to any  portion  of  any  of  the  Leased
Improvements,  or the  material  expansion of existing  improvements,  which are
constructed on any parcel or portion of the Land during the Term, including, but
not limited to, the  construction of a new wing or new story,  the renovation of
existing  improvements on the Leased Property in order to provide a functionally
new  facility  needed  to  provide  services  not  previously  offered,  or  any
expansion,  construction,  renovation or conversion in order to increase the bed
capacity of the Facility, to change the purpose for which such beds are utilized
or to improve the quality of the Facility.

         1.10  "Capital  Additions  Cost"  shall  mean the  cost of any  Capital
Addition proposed to be made by Tenant,  whether paid for by Tenant or Landlord.
Such cost shall include (a) the cost of  construction  of the Capital  Addition,
including,  site preparation and  improvement,  materials,  labor,  supervision,
developer and administrative  fees, legal fees, and related design,  engineering
and architectural  services,  the cost of any fixtures, the cost of construction
financing  (including,  but not  limited  to,  capitalized  interest)  and other
miscellaneous  costs  approved  by  Landlord,  (b) if agreed to by  Landlord  in
writing,  in advance,  the cost of any land  contiguous  to the Leased  Property
which is to become a part of the Leased  Property  purchased  for the purpose of
placing  thereon the Capital  Addition or any portion  thereof or for  providing
means of access thereto, or parking facilities  therefor,  including the cost of
surveying  the same,  (c) the cost of insurance,  real estate  taxes,  water and
sewage  charges and other  carrying  charges for such  Capital  Addition

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during  construction,  (d) title insurance  charges,  (e) reasonable  attorneys,
fees, (f) filing and  registration  fees and recording  taxes,  (g)  documentary
stamp or transfer taxes, and (h) all actual and reasonable costs and expenses of
Landlord and any Lending Institution  committed to finance the Capital Addition,
including  but not limited to, (i)  reasonable  attorneys,  fees,  (ii) printing
expenses,  (iii)  filing,  registration  and  recording  taxes  and  fees,  (iv)
documentary  stamp or transfer taxes, (v) title insurance  charges and appraisal
fees, (vi) rating agency fees, and (vii) loan commitment fees.

         1.11 "Capital  Expenditure" shall mean any single required improvement,
alteration,  replacement or repair of the Leased Property,  or any part thereof,
(a) having a cost in excess of One Hundred Thousand Dollars ($100,000.00) (which
amount shall be increased  each year of the Lease by the product  determined  by
multiplying such amount by the percentage increase in the Index), and (b) having
a useful  life in excess of the longer of (i) twelve  (12)  months,  or (ii) the
remaining  period of the  Term,  except  capital  improvements  necessitated  by
destruction or Condemnation of the Leased Property, or any portion thereof.

         1.12 "Cases" shall have the meaning given such term in the recitals.

         1.13  "Cash  Adjustment"  shall  have the  meaning  given  such term in
Section 16.3(d).

         1.14 "Claims" shall have the meaning given such term in Article 8.

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

         1.16 "Commencement Date" shall mean January 1, 2000.

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

         1.18 "Condemnor"  shall mean any public or quasi-public  authority,  or
private corporation or individual having the power of Condemnation.

         1.19 "Consolidated Financials" shall mean, for any Fiscal Year or other
accounting period of Tenant, a statement of earnings prepared in accordance with
generally accepted accounting principles,  consistently applied, and in the form
consistently prepared by Tenant.

         1.20 "Control" and any variations  thereof shall mean,  with respect to
any Person,  the possession,  directly or indirectly,  of the power to direct or
cause the direction of the management  and policies of such Person,  through the
ownership of voting securities, partnership interests or other equity interests.

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         1.21 "Date of Taking"  shall mean the date the  Condemnor has the right
to possession of the Leased Property, or any portion thereof, in connection with
a Condemnation.

         1.22  "Default"  shall mean any event,  act or omission  which with the
giving of notice and/or lapse of time could constitute an Event of Default.

         1.23  "Encumbrance"  shall have the meaning  given such term in Section
21.1.

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

         1.25 "Environmental  Laws" shall mean all applicable Federal,  state or
local statutes, laws, ordinances, rules and regulations,  licensing requirements
or conditions,  whether now existing or hereafter arising, relating to Hazardous
Substances.

         1.26  "Environmental  Notice" shall have the meaning given such term in
Section 4.4.

         1.27 "Environmental  Obligation" shall mean any cost, expense,  loss or
damage arising under any  Environmental  Law or in connection with any Hazardous
Substance.

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

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

         1.30 "Facility"  shall mean the licensed nursing home being operated on
the Leased Property.

         1.31  "Facility  Mortgage"  shall mean any  mortgage,  deed of trust or
other  security  agreement  securing  any  Assumed  Indebtedness  or  any  other
encumbrance placed upon the Leased Property in accordance with Article 21.

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

         1.33  "Facility  Trade  Names"  shall mean any of the names under which
Tenant operates, or has operated, the Facility at any time during the Term.

         1.34 "Fair  Market Added Value" shall mean the Fair Market Value of the
Leased Property  (including all Capital Additions) less the Fair Market Value of
the Leased Property determined as if no Capital Additions financed by Tenant had
been constructed.

         1.35 "Fair Market  Rental" shall mean the rental which a willing tenant
not  compelled to rent would pay a willing  landlord not  compelled to lease for
the use and occupancy of the Leased Property,  or applicable portion thereof, on
the terms and conditions of this Lease, for the term in question, and determined
in accordance  with the appraisal  procedures set forth in Article 20 or in such
other manner as shall be mutually acceptable to Landlord and Tenant.

                                      -5-
<PAGE>

         1.36 "Fair Market Value" shall mean the price that a willing buyer riot
compelled to buy would pay a willing seller not compelled to sell for the Leased
Property, (a) assuming the same is unencumbered by this Lease, (b) determined in
accordance  with the  appraisal  procedures  set forth in  Article 20 or in such
other  manner as shall be  mutually  acceptable  to  Landlord  and  Tenant,  (c)
assuming such seller shall pay the closing costs  generally  paid by a seller of
real property in the state in which such property is located and that such buyer
shall pay closing costs  generally paid by a buyer of real property in the state
in which such property is located, and (d) not taking into account any reduction
in value  resulting  from any  indebtedness  to which such  property is subject,
except  the  positive  or  negative   effect  on  the  value  of  such  property
attributable  to  the  interest  rate,  amortization  schedule,  maturity  date,
prepayment  penalty and other terms and  conditions  of any lien or  encumbrance
which is not removed at or prior to the closing of the  transaction  as to which
such Fair Market Value determination is being made.

         1.37 "Fair  Market  Value  Purchase  Price"  shall mean the Fair Market
Value of the Leased Property less the Fair Market Added Value.

         1.38  "Fiscal  Year"  shall mean each  twelve  (12) month  period  from
January 1 to December 31.

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

         1.40  "Fixtures"  shall  have the  meaning  given  such term in Section
2.1(d).

         1.41  "Guarantor"  shall  mean  Integrated  Health  Services,  Inc.,  a
Delaware corporation.

         1.42 "Guaranty" shall have the meaning given such term in the recitals.

         1.43 "Hazardous Substances" shall mean hazardous substances (as defined
by the Comprehensive Environmental Response,  Compensation and Liability Act, as
now in effect or as hereafter from time to time amended),  hazardous  wastes (as
defined by the Resource  Conservation  and Recovery  Act, as now in effect or as
hereafter from time to time amended),  any hazardous waste, hazardous substance,
pollutant or contaminant,  oils, radioactive materials,  asbestos in any form or
condition,  or any pollutant or  contaminant  or  hazardous,  dangerous or toxic
chemicals,  materials or substances  within the meaning of any other  applicable
Federal,  state or local law, regulation,  ordinance or requirements relating to
or imposing liability or standards of conduct concerning any hazardous, toxic or
dangerous waste, substance or materials,  all as now in effect or hereafter from
time to time amended.

         1.44  "IHS  Entity"  shall  have the  meaning  given  such  term in the
Settlement Agreement.

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

         1.46 "Impositions" shall mean all taxes,  assessments,  and ad valorem,
sales, and use, single business, gross receipts,  transaction privilege, rent or
similar taxes as the same are imposed on either  Landlord or Tenant with respect
to the Leased Property and/or the business

                                      -6-
<PAGE>

conducted  thereon by Tenant and other charges and impositions  (including,  but
not limited to,  fire  protection  service  fees and  similar  charges)  levied,
assessed or imposed at any time during the Term by any  governmental  authority,
upon or against the Leased  Property,  or taxes in lieu thereof,  and additional
types of taxes to  supplement  real  estate  taxes due to legal  limits  imposed
thereon.  If, at any time  during the Term,  any tax or excise on rents or other
taxes,  however described,  are levied or assessed against Landlord with respect
to the rent reserved hereunder, either wholly or, partially in substitution for,
or in addition to, real estate taxes assessed or levied on the Leased  Property,
such tax or excise on rents shall be included in Impositions; provided, however,
that Impositions shall not include franchise,  estate, inheritance,  succession,
capital levy,  transfer,  income or excess  profits taxes  assessed on Landlord.
Impositions shall include any estimated payment,  whether voluntary or required,
made by  Landlord  on  account  of a fiscal  tax period for which the actual and
final  amount  of  taxes  for  such  period  has  not  been  determined  by  the
governmental authority as of the date of any such estimated payment.

         1.47 "Index"  shall mean the Consumer  Price Index,  Urban Wage Earners
and  Clerical  Workers,  All Items,  Base  1982-84=100.  The Index is  presently
published by the Bureau of Labor  Statistics of the United States  Department of
Labor.  In the event  publication  of the Index ceases,  the  computation of the
Minimum  Rent due from Tenant or other  amount  during each year with respect to
which the Index is to be applied  shall be  computed  upon the basis of whatever
index  published by the United  States  Department of Labor at that time is most
nearly  comparable  as a measure  of general  changes  in price  levels in urban
areas.  In the  event  the  Index  ceases  to use  1982-84=100  as the  basis of
calculation,  then the Index shall be converted to the amount(s) that would have
resulted had the manner of  calculating  the Index in effect at the date of this
Lease not been altered.

         1.48  "Initiating  Party"  shall  have the  meaning  given such term in
Section 20.1.

         1.49  "Insurance  Requirements"  shall mean all terms of any  insurance
policy  required  by this Lease and all  requirements  of the issuer of any such
policy.

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

         1.51 "Landlord" shall have the meaning given such term in the preambles
to this Lease.

         1.52  "Landlord  Default"  shall  have the  meaning  given such term in
Article 14.

         1.53  "Lease"  shall mean this Amended and  Restated  Lease  Agreement,
including  Exhibits A and B hereto,  as it and they may be amended  from time to
time as herein provided.

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

         1.55 "Leased Personal  Property" shall have the meaning given such term
in Section 2.1(e).

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

                                      -7-
<PAGE>

         1.57  "Legal  Requirements"  shall  mean all  federal,  state,  county,
municipal and other governmental  statutes,  laws, rules,  orders,  regulations,
ordinances,  judgments, decrees and injunctions,  including, but not limited to,
Environmental   Laws,   affecting  the  Leased  Property  or  the   maintenance,
construction,  use or  alteration  thereof,  whether now or  hereafter  enacted,
including those which may (a) require  repairs,  modifications or alterations in
or to the Leased  Property  or any portion  thereof or (b) in any way  adversely
affect  the  use  and  enjoyment   thereof,   and  all  permits,   licenses  and
authorizations and regulations relating thereto, and all covenants,  agreements,
restrictions and encumbrances contained in any instruments,  either of record or
known to Tenant (other than encumbrances hereinafter created by Landlord without
the consent of Tenant), at any time in force affecting the Leased Property.

         1.58 "Lending Institution" shall mean any insurance company,  federally
insured commercial or savings bank,  national banking  association,  savings and
loan  association,  employees,  welfare,  pension or retirement  fund or system,
corporate profit sharing or pension trust, college or university, or real estate
investment trust,  including any corporation qualified to be treated for federal
tax purposes as a real estate investment  trust,  having a net worth of at least
$10,000,000.

         1.59 "Minimum  Rent" shall mean  $100,000 per month,  provided that (i)
commencing  January  1,  2004,  and  on the  first  day of  each  calendar  year
thereafter during the Fixed Term, the amount of each installment of Minimum Rent
shall be adjusted to be equal to the product of (x) Minimum  Rent as at December
31 of the prior year multiplied by (y) 1.0 plus the percentage  increase (not in
excess of 2%) in the Index as reported  for  December  31st of the prior year as
compared to the Index as reported  for January 1st of such prior year,  and (ii)
commencing the first  anniversary of the first day of each Extended Term, and on
the first day of each calendar year  thereafter  during such Extended  Term, the
amount of each  installment of Minimum Rent shall be adjusted to be equal to the
product  of (x)  Minimum  Rent as at  December  31st of the  prior  year of such
Extended Term (as determined in accordance  with Section 2.4 hereof)  multiplied
by (y) 1.0 plus the  percentage  increase  (not in excess of 2%) in the Index as
reported for December  31st of the prior year of such  Extended Term as compared
to the Index as reported for January 1st of such prior year.

         1.60  "Minimum  Repurchase  Price"  shall  mean  that  portion  of  the
aggregate  purchase price of the Leased  Property paid by Landlord in cash or in
kind, plus the aggregate of unpaid principal balance of all encumbrances against
the Leased Property at the time of purchase thereof by Tenant,  plus any amounts
paid by Landlord to reduce the  principal  balance of any Assumed  Indebtedness,
less all  proceeds  received  by  Landlord  from any  refinancing  of the Leased
Property (after payment of the debt refinanced and net of any costs and expenses
incurred in connection with such  refinancing,  including,  without  limitation,
loan points,  commitment  fees and  commissions)  and less the net amount (after
deduction of all reasonable legal fees and other costs and expenses,  including,
without limitation, expert witness fees, incurred by Landlord in connection with
obtaining  any such award) of all awards  received by Landlord  from any partial
Condemnation of the Leased Property or any portion thereof which are not applied
to restoration.

         1.61  "Net  Patient  Revenues"  shall  mean all  revenues  received  or
receivable  from or by reason of the operation of the  Facility,  or any portion
thereof,  or any other  use of the  Leased  Property,  or any  portion  thereof,
including,  without limitation,  all patient revenues received or

                                      -8-
<PAGE>

receivable  for the use of or otherwise  by reason of all rooms,  beds and other
facilities  provided,  meals  served,  services  performed,  space or facilities
subleased  or  goods  sold  on the  Leased  Property,  or any  portion  thereof,
including,   without  limitation,  and  except  as  provided  below,  any  other
arrangements with third parties relating to the possession or use of any portion
of any portion of the Leased Property;  provided,  however, Net Patient Revenues
shall not include:  (a) revenue from  professional fees or charges by physicians
and providers (other than Tenant or Tenant's  employees) of ancillary  services,
when  and to the  extent  such  charges  are  paid  over to such  physicians  or
providers of ancillary  services,  or are separately  billed and not included in
comprehensive fees; (b) nonoperating  revenues such as interest income or income
from the sale of  assets  not  sold in the  ordinary  course  of  business;  (c)
contractual allowances (relating to any period during the Term) for billings not
paid by or received from the  appropriate  governmental  agencies or third party
providers;  (d) allowances according to generally accepted accounting principles
for uncollectible  accounts,  including credit card accounts and charity care or
other  administrative  discounts;  (e) all proper  patient  billing  credits and
adjustments  according to generally accepted  accounting  principles relating to
health care  accounting;  (f) federal,  state or local sales or excise taxes and
any tax based on or measured by such  revenues  which is added to or made a part
of the amount  billed to the  patient or other  recipient  of such  services  or
goods,  whether  included  in the  billing or stated  separately;  (g)  provider
discounts  for hospital or other  medical  facility  utilization  contracts  and
credit card discounts;  (h) revenues  attributable to Capital Additions financed
by Tenant as provided in Section  6.2;  (i)  revenues  attributable  to services
actually provided off the Leased Property, such as home health care; and (j) any
amounts  actually  paid by Tenant  for the cost of any  federal,  state or local
governmental  programs imposed  specially to provide or finance indigent patient
care. To the extent the Leased  Property or any portion  thereof is subleased by
Tenant,  Net  Patient  Revenues  shall  include  (x)  the Net  Patient  Revenues
generated from the operations  conducted on such subleased portion of the Leased
Property  and (y) the rent  received or  receivable  by Tenant from or under any
such sublease to the extent such rent is not based on Net Patient  Revenues and,
therefore,  has not  already  been  included in the  calculation  of Net Patient
Revenues pursuant to clause (x) preceding.

         1.62 "Non-Capital  Additions" shall have the meaning given such term in
Section 6.4.

         1.63  "Officer's  Certificate"  shall mean a certificate  signed by the
chief financial  officer or another officer of Tenant authorized by the board of
directors or by-laws of Tenant, or any other Person whose power and authority to
act has been so authorized.

         1.64  "Orders"  shall mean,  collectively,  the Approval  Order and the
Licensure Order, as such terms are defined in the Settlement Agreement.

         1.65  "Overdue  Rate" shall mean a rate equal to the lesser of the Base
Rate plus four percent (4%) and the maximum rate then permitted under applicable
law.

         1.66 "Parent" shall mean, with respect to any Person,  any Person which
owns directly, or indirectly,  through one or more Subsidiaries,  twenty percent
(20%) or more of the voting or beneficial  interests in such Person or otherwise
Controls such Person.

                                      -9-
<PAGE>

         1.67  "Permitted  Encumbrances"  shall  mean the  matters  set forth in
Exhibit A, attached hereto and made a part hereof.

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

         1.69  "Primary  Intended Use" shall have the meaning given such term in
Section 4.1.1.

         1.70 "Qualified Appraiser" shall mean any disinterested person who is a
member in good standing of the American  Institute of Real Estate  Appraisers or
the American  Society of Real Estate  Counselors  (or the successor to either of
such  organizations)  and who has had not less than ten (10) years experience in
appraising and valuing, commercial buildings in the State.

         1.71 "Records" shall have the meaning given such term in Section 7.2.

         1.72 "Rent" shall mean,  collectively,  the Minimum Rent and Additional
Rent.

         1.73  "Responding  Party"  shall  have the  meaning  given such term in
Section 20.1.

         1.74 "SEC" shall mean the Securities and Exchange Commission.

         1.75  "Settlement  Agreement" shall have the meaning given such term in
the recitals.

         1.76  "Settlement  Document"  shall have the meaning given such term in
the Settlement Agreement.

         1.77 "State" shall mean the Commonwealth of Pennsylvania.

         1.78 "Subsidiary" shall mean, with respect to any Person, any Entity in
which such  Person  shall  own,  directly  or  indirectly,  through  one or more
Subsidiaries, twenty percent (20%) or more of the voting or beneficial interests
or any other entity Controlled by such Person.

         1.79 "Substitute  Properties" shall have the meaning given such term in
Section 16.1.

         1.80  "Substitution  Date"  shall have the  meaning  given such term in
Section 16.1.

         1.81  "Successor  Landlord"  shall have the meaning  given such term in
Section 21.2.

         1.82 "Superior Lease" shall have the meaning given such term in Section
21.2.

         1.83  "Superior  Landlord"  shall have the  meaning  given such term in
Section 21.2.

         1.84  "Superior  Mortgage"  shall have the  meaning  given such term in
Section 21.2.

         1.85  "Superior  Mortgage"  shall have the  meaning  given such term in
Section 21.2.

         1.86  "Tenant"  shall have the meaning given such term in the preambles
to this Lease.

                                      -10-
<PAGE>

         1.87  "Tenant's  Personal  Property"  shall mean all motor vehicles and
consumable  inventory and supplies,  furniture,  equipment and machinery and all
other  personal  property  of Tenant  located on the Leased  Property or used in
Tenant's  business on the Leased Property and all  modifications,  replacements,
alterations  and  additions  to the Leased  Personal  Property  installed at the
expense  of Tenant,  other than any items  included  within  the  definition  of
Fixtures or Leased Personal Property and expressly  excluding  Tenant's accounts
receivable.

         1.88 "Term" shall mean,  collectively,  the Fixed Term and any Extended
Terms,  to the extent properly  exercised  pursuant to the provisions of Section
2.4, unless sooner terminated pursuant to the provisions of this Lease.

         1.89 "Test Rate"  shall mean the minimum  interest  rate  necessary  to
avoid imputation of original issue discount income under Sections 483 or 1272 of
the Code or any similar provision.

         1.90 "Trustees" shall mean the trustees of Landlord.

         1.91 "Unavoidable Delays" shall mean delays due to strikes,  lock-outs,
inability  to  procure  materials,  power  failure,  acts of  God,  governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty or other
causes beyond the reasonable  control of the party responsible for performing an
obligation  hereunder,  but in no event to exceed sixty (60) days so long as the
affected party shall use reasonable efforts to alleviate the cause of such delay
and thereafter promptly perform such obligation;  provided, however, that (x) in
no event shall  Tenant's  obligation to pay the Rent be affected by  Unavoidable
Delays,  and (y) in no event  shall  lack of funds be deemed a cause  beyond the
control of either party.

         1.92  "Unsuitable  for Its Primary  Intended Use" shall mean a state or
condition of the  Facility  such that by reason of damage or  destruction,  or a
partial  Condemnation,  in the good  faith  judgment  of  Landlord  and  Tenant,
reasonably  exercised,  the  Facility  cannot  be  operated  on  a  commercially
practicable basis for its Primary Intended Use taking into account,  among other
relevant  factors,  the number of usable beds, the amount of square footage,  or
revenues affected by such damage or destruction or partial taking.

                                   ARTICLE 2

                                PREMISES AND TERM

         2.1 Premises.  Upon and subject to the terms and conditions  herein set
forth,  Landlord  leases to Tenant and Tenant  leases from  Landlord  all of the
following (collectively, the "Leased Property").

                  (a) those certain  tracts,  pieces and parcels of land as more
         particularly  described in Exhibit B,  attached  hereto and made a part
         hereof (collectively, the "Land");

                  (b) all buildings, structures, Fixtures and other improvements
         of every kind, including,  but not limited to, alleyways and connecting
         tunnels,  sidewalks,  utility  pipes,  conduits and lines  (on-site and
         off-site), parking areas and roadways appurtenant to such

                                      -11-
<PAGE>

         buildings and structures  presently  situated upon the Land and Capital
         Additions   financed   by   Landlord    (collectively,    the   "Leased
         Improvements");

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

                  (d) all  equipment,  machinery,  fixtures  and other  items of
         property,  now or hereafter permanently affixed to or incorporated into
         the Leased Improvements,  including,  without limitation, all furnaces,
         boilers, heaters,  electrical equipment,  heating, plumbing,  lighting,
         ventilating,  refrigerating,  incineration,  air  and  water  pollution
         control,  waste disposal,  air-cooling and airconditioning  systems and
         apparatus,  sprinkler systems and fire and theft protection  equipment,
         all of which,  to the  greatest  extent  permitted  by law,  are hereby
         deemed by the parties hereto to constitute  real estate,  together with
         all replacements, modifications, alterations and additions thereto, but
         specifically  excluding  all items  included  within  the  category  of
         Tenant's Personal Property (collectively, the "Fixtures");

                  (e) all machinery, equipment, furniture, furnishings, moveable
         walls or  partitions,  computers  or trade  fixtures or other  personal
         property  used or  useful  in  Tenant's  business  on or in the  Leased
         Improvements,  and  located  on or in the  Leased  Improvements  on the
         Commencement  Date,  except items, if any, included within the category
         of Fixtures,  but specifically  excluding all items included within the
         category  of  Tenant's  Personal  Property  (collectively  the  "Leased
         Personal Property"); and

                  (f) all  existing  leases  of space  (including  any  security
         deposits held pursuant thereto),  if any, in the Leased Improvements to
         tenants thereof.

         2.2 Condition of Premises.  On the  Commencement  Date,  Landlord shall
deliver  and  Tenant  shall  accept the Leased  Property  in "as is"  condition,
subject to the rights of parties in  possession,  the  existing  state of title,
including all covenants, conditions,  restrictions,  easements and other matters
of record, all applicable Legal Requirements, the lien of financing instruments,
mortgages  and deeds of trust,  and such  other  matters  which  would have been
disclosed by an inspection  of the Leased  Property and the record title thereto
or by an accurate survey thereof.  LANDLORD MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS OR  IMPLIED,  IN RESPECT OF THE  LEASED  PROPERTY  OR ANY PART  THEREOF,
EITHER AS THE FITNESS FOR USE,  DESIGN OR CONDITION  FOR ANY  PARTICULAR  USE OR
PURPOSE OR OTHERWISE,  AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN,
LATENT OR PATENT, WITH RESPECT TO THE LEASED PROPERTY OR ANY PORTION THEREOF, OR
AS TO TITLE,  IT BEING  AGREED THAT ALL SUCH RISKS SHALL BE BORNE BY TENANT.  To
the extent permitted by law, however,  Landlord grants and assigns to Tenant all
of Landlord's  rights to proceed  against any  predecessor  in title (other than
HRPT) for breaches of warranties or representations or for latent defects in the
Leased Property.  Landlord shall cooperate with Tenant in the prosecution of any
such claims,  in  Landlord's  or Tenant's  name,  all at Tenant's  sole cost and
expense. Tenant shall indemnify, and hold harmless Landlord from and against any
loss, cost, damage or liability (including attorneys, fees) incurred by Landlord
in connection with such cooperation.

                                      -12-
<PAGE>

         2.3 Fixed Term. The initial term of this Lease (the "Fixed Term") shall
commence on the date hereof and, unless sooner terminated in accordance with the
terms and conditions of this Lease, shall expire on December 31, 2010.

         2.4 Extended  Terms.  Provided no Event of Default  shall have occurred
and be  continuing,  Tenant  shall  have the right to extend  the Fixed Term for
three additional periods of ten (10) years each (each, an "Extended Term").

         Each Extended Term shall  commence on the day succeeding the expiration
of the Fixed Term or the preceding  Extended Term, as the case may be, and shall
end on the day immediately  preceding the tenth  anniversary of the commencement
of such Extended Term. All of the terms,  covenants and provisions of this Lease
shall apply to each such Extended Term, except that (a) the Minimum Rent for the
first year of each  Extended  Term shall be the greater of (x) the Minimum  Rent
payable  during the last year of the Fixed Term (for the first Extended Term) or
the last year of the  immediately  preceding  Extended  Term (for the second and
third  Extended  Terms),  as the case may be, and (y) the Fair Market Rental for
the Leased Property determined as of the commencement of such Extended Term, and
(b) Tenant  shall have no further  right to extend the Term beyond the  Extended
Terms  hereinabove  provided.  If Tenant  shall elect to exercise  either of the
aforesaid options,  it shall do so by giving Landlord written notice thereof not
later than one (1) year prior to the expiration of the then current term of this
Lease (Fixed or Extended,  as applicable);  it being  understood and agreed that
time is of the  essence  with  respect to the giving of such  notice.  If Tenant
shall fail to give any such notice, this Lease shall automatically  terminate at
the end of the term then in effect  and Tenant  shall have no further  option to
extend the term of this Lease.  If Tenant shall give such notice,  the extension
of this Lease shall be  automatically  effected,  without the  execution  of any
additional documents.

                                   ARTICLE 3

                                      RENT

         3.1 Rent.  Tenant shall pay to Landlord,  by check or wire  transfer of
immediately  available  federal  funds,  as Tenant  may elect,  without  offset,
abatement,  demand or  deduction,  Minimum Rent and  Additional  Rent during the
Term, as herein provided.

              3.1.1 Minimum Rent. Tenant shall pay Minimum Rent in equal monthly
installments,  in  advance,  on the first day of each and every  calendar  month
during  the  Term;  provided  that,  notwithstanding  the  foregoing,  the first
installment  of Minimum Rent shall be paid on the Closing Date,  shall cover the
period from the Commencement  Date to the end of the calendar month in which the
Closing Date occurs (the "Initial  Period"),  and shall be in an amount equal to
the product of (x)  $100,000  multiplied  by (y) the number of  calendar  months
during the Initial Period. Minimum Rent for any partial month shall be pro-rated
on a daily basis.

              3.1.2  Additional  Rent. In addition to the Minimum  Rent,  Tenant
shall  pay  and  discharge  as and  when  due and  payable  all  other  amounts,
liabilities,  obligations and Impositions  which Tenant assumes or agrees to pay
under this Lease (collectively,  "Additional Rent"),  including, but not limited
to the following:

                                      -13-
<PAGE>

                  (A)  Impositions.  Subject to Article 8, Tenant  shall pay, or
         cause to be paid, all Impositions before any fine, penalty, interest or
         cost may be added for non-payment, such payments to be made directly to
         the  taxing  authorities  where  feasible,  and  shall  promptly,  upon
         request,  furnish to  Landlord  copies of  official  receipts  or other
         satisfactory  proof  evidencing  such payments.  If any such Imposition
         may, at the option of the  taxpayer,  lawfully be paid in  installments
         (whether or not  interest  shall  accrue on the unpaid  balance of such
         Imposition),  Tenant may  exercise  the option to pay the same (and any
         accrued   interest  on  the  unpaid  balance  of  such  Imposition)  in
         installments and, in such event, shall pay such installments during the
         Term as the same become  due,  and before any fine,  penalty,  premium,
         further  interest  or  cost  may be  added  thereto.  Landlord,  at its
         expense,  shall, to the extent required or permitted by applicable law,
         prepare and file all tax returns in respect of  Landlord's  net income,
         gross receipts, sales and use, single business,  transaction privilege,
         rent, ad valorem,  franchise taxes and taxes on its capital stock,  and
         Tenant,  at its expense,  shall, to the extent required or permitted by
         applicable laws and regulations, prepare and file all other tax returns
         and  reports  in  respect  of any  Imposition  as may  be  required  by
         governmental  authorities.  If any refund  shall be due from any taxing
         authority in respect of any Imposition  paid by Tenant,  the same shall
         be paid over to or retained by Tenant if no Event of Default shall have
         occurred and be continuing.  Landlord and Tenant shall, upon request of
         the other,  provide such data as is maintained by the party to whom the
         request is made with respect to the Leased Property as may be necessary
         to prepare any required returns and reports.  In the event governmental
         authorities  classify  any  property  covered by this Lease as personal
         property,  Tenant shall file all personal  property tax returns in such
         jurisdictions  where it may legally so file.  Each party shall,  to the
         extent it possesses the same,  provide the other,  upon  request,  with
         cost and  depreciation  records  necessary  for filing  returns for any
         property so classified as personal property.  Where Landlord is legally
         required to file personal property tax returns,  Landlord shall provide
         Tenant with copies of assessment  notices in sufficient time for Tenant
         to file a protest.  All  Impositions  assessed  against  such  personal
         property  shall be  (irrespective  of whether  Landlord or Tenant shall
         file the  relevant  return)  paid by Tenant not later than  thirty (30)
         days  prior to the  last  date on  which  the same may be made  without
         interest or penalty.

                  Landlord  shall give  prompt  written  notice to Tenant of all
         Impositions  payable by Tenant  hereunder of which Landlord at any time
         has knowledge;  provided,  however, Landlord's failure to give any such
         notice shall in no way diminish  Tenant's  obligation  hereunder to pay
         such Impositions.

                  Impositions imposed in respect of the tax-fiscal period during
         which  the Term  terminates  shall be  prorated  between  Landlord  and
         Tenant,  whether or not such Imposition is imposed before or after such
         termination.

                  (B) Utility Charges.  Tenant shall pay or cause to be paid all
         charges for  electricity,  power,  gas, oil, water and other  utilities
         used at the Leased Property during the Term.

                                      -14-
<PAGE>

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

                  (D) Other  Charges.  Tenant  shall pay or cause to be paid all
         other  amounts,  liabilities  and  obligations  which Tenant assumes or
         agrees to pay under this Lease.

         3.2 Late  Payment  of  Rent.  If any  installment  of  Minimum  Rent or
Additional Rent (but only as to those items of Additional Rent which are payable
directly to Landlord) shall not be paid when due, Tenant shall pay Landlord,  on
demand,  as  Additional  Rent,  a late charge (to the extent  permitted  by law)
computed,  during  the first ten (10) days such  payment  is  delinquent  at the
greater of the Base Rate and eleven and one-half  percent (11.5%) per annum and,
thereafter, at the Overdue Rate on the amount of such installment, from the date
such installment was due until the date paid. To the extent that Tenant pays any
Additional Rent directly to Landlord  pursuant to any requirement of this Lease,
Tenant shall be relieved of its  obligation to pay such  Additional  Rent to the
entity to which they would otherwise be due.

         In the event of any failure by Tenant to pay any  Additional  Rent when
due, Tenant shall promptly pay and discharge,  as Additional  Rent,  every fine,
penalty, interest and cost which may be added for non-payment or late payment of
such items.  Landlord shall have all legal,  equitable and  contractual  rights,
powers and remedies  provided either in this Lease or by statute or otherwise in
the case of non-payment of the Additional  Rent as in the case of non-payment of
the Minimum Rent.

         3.3 Net Lease.  The Rent shall be absolutely  net to Landlord,  so that
this Lease  shall  yield to  Landlord  the full  amount of the  installments  of
Minimum  Rent and  Additional  Rent  throughout  the Term,  subject to any other
provisions of this Lease which expressly  provide for adjustment or abatement of
Rent or other charges.

         3.4 No Termination,  Abatement,  Etc. Except as otherwise  specifically
provided in this Lease,  Tenant,  to the maximum extent  permitted by law, shall
remain bound by this Lease in  accordance  with its terms and shall neither take
any action without the consent of Landlord to modify, surrender or terminate the
same,  nor seek,  nor I be entitled to any  abatement,  deduction,  deferment or
reduction of the Rent,  or set-off  against the Rent,  nor shall the  respective
obligations  of Landlord and Tenant be  otherwise  affected by reason of (a) any
damage to, or destruction  of, the Leased  Property or any portion  thereof from
whatever cause or any Condemnation;  (b) the lawful or unlawful  prohibition of,
or restriction upon Tenant's use of the Leased Property, or any portion thereof,
or the  interference  with such use by any  Person or by reason of  eviction  by
paramount  title; (c) any claim which Tenant may have against Landlord by reason
of  any  Landlord  Default;  (d)  any  bankruptcy,  insolvency,  reorganization,
composition,  readjustment,   liquidation,  dissolution,  winding  up  or  other
proceedings affecting Landlord or any assignee or transferee of Landlord; or (e)
for any other  cause  whether  similar or  dissimilar  to any of the  foregoing.
Tenant hereby waives all rights  arising from any occurrence  whatsoever,  which
may now or  hereafter  be  conferred  upon  it by law to  modify,  surrender  or
terminate  this Lease or quit or  surrender  the Leased  Property or any portion
thereof or which may entitle Tenant to any abatement,  reduction,  suspension or
deferment of the Rent or other sums payable or other

                                      -15-
<PAGE>

obligations   to  be  performed  by  Tenant   hereunder,   except  as  otherwise
specifically  provided in this Lease.  The  obligations  of Landlord  and Tenant
hereunder  shall be separate and  independent  covenants and  agreements and the
Rent and all other sums payable by Tenant hereunder shall continue to be payable
in all  events  unless  the  obligations  to pay the same  shall  be  terminated
pursuant to the express provisions of this Lease.

                                   ARTICLE 4

                           USE OF THE LEASED PROPERTY

         4.1 Permitted Use.

              4.1.1 Primary  Intended Use.  Tenant shall use or cause to be used
the Leased Property as a nursing home or subacute facility and/or other facility
offering any higher level health care services and for such other uses as may be
necessary or incidental thereto (the particular use to which the Leased Property
is put at any particular time, its "Primary Intended Use"). Tenant shall not use
the Leased Property or any portion  thereof for other than its Primary  Intended
Use without the prior  written  consent of Landlord,  which consent shall not be
unreasonably withheld or delayed; provided, however, that such consent shall not
be deemed to be unreasonably withheld if, in the reasonable opinion of Landlord,
the proposed use will  significantly  alter the  character or purpose or detract
from the value or operating  efficiency of the Leased Property or  significantly
impair the  revenue-producing  capability  of the Leased  Property or  adversely
affect the ability of Tenant to comply with this Lease.  No use shall be made or
permitted  to be made of the Leased  Property  and no acts shall be done thereon
which will cause the  cancellation  of any insurance  policy covering the Leased
Property or any part  thereof,  nor shall  Tenant sell or  otherwise  provide to
residents or patients  therein,  or permit to be kept,  used or sold in or about
the Leased Property, or any portion thereof, any article which may be prohibited
by law or by  the  standard  form  of  fire  insurance  policies,  or any  other
insurance  policies  required  to be carried  hereunder,  or fire  underwriter's
regulations.

              4.1.2  Necessary  Approvals.  Tenant  shall  proceed  with all due
diligence  and  exercise  best  efforts to obtain  and  maintain  all  approvals
necessary  to use and  operate  the Leased  Property  and the  Facility  for the
Primary Intended Use under applicable local,  state and federal law and, without
limiting the generality of the foregoing, shall use its best efforts to maintain
appropriate certifications for reimbursement licensure.

              4.1.3 No Actions  Impairing Value,  Etc. Tenant shall not take, or
omit to take, any action,  the taking or omission of which may materially impair
the value or the usefulness of the Leased Property for the Primary Intended Use.

              4.1.4  Lawful Use,  Etc.  Tenant shall not use or suffer or permit
the use of the Leased Property and Tenant's  Personal  Property for any unlawful
purpose.  Tenant  shall not  commit or suffer to be  committed  any waste on the
Leased  Property or the Facility,  nor shall Tenant cause or permit any nuisance
thereon or therein.  Tenant shall neither suffer nor permit the Leased  Property
or any portion thereof,  including any Capital Addition, whether or not financed
by Landlord, or Tenant's Personal Property, to be used in such a manner as might
reasonably  tend to impair  Landlord's  (or Tenant's,  as the case may be) title
thereto or to any

                                      -16-
<PAGE>

portion thereof,  or may reasonably make possible any claim for adverse usage or
adverse  possession  by the public,  as such,  or of implied  dedication  of the
Leased Property or any portion thereof.

         4.2 Compliance with Legal and Insurance Requirements, Instruments, Etc.
Subject to the  provisions  of Article 8,  Tenant,  at its sole  expense,  shall
promptly (i) comply with all Legal  Requirements  and Insurance  Requirements in
respect of the use, operation,  maintenance,  repair, alteration and restoration
of the  Leased  Property  and  Tenant's  Personal  Property,  and (ii)  procure,
maintain  and  comply  with  all  appropriate  licenses,  certificates  of need,
permits,  provider agreements and other  authorizations  required for any use of
the Leased Property and Tenant's  Personal Property then being made, and for the
proper erection, installation,  operation and maintenance of the Leased Property
or any part thereof, including, without limitation, any Capital Additions.

         4.3 Compliance with Medicaid and Medicare  Requirements.  Tenant shall,
at its sole cost and expense,  make whatever  improvements (capital or ordinary)
as are required to conform the Leased  Property to such  standards as may,  from
time to time, be required by Federal  Medicare (Title 18) or Medicaid (Title 19)
skilled and/or intermediate care nursing programs,  if applicable,  or any other
applicable  programs or  legislation,  or capital  improvements  required by any
other  governmental  agency having  jurisdiction  over the Leased  Property as a
condition  of the  continued  operation  of the Leased  Property for the Primary
Intended Use.

         4.4 Environmental Matters.  Tenant shall not store, spill upon, dispose
of or transfer to or from the Leased  Property any Hazardous  Substance,  except
that  Tenant  may  store,  transfer  and  dispose  of  Hazardous  Substances  in
compliance  with all  Environmental  Laws.  Tenant  shall  maintain  the  Leased
Property at all times free of any  Hazardous  Substance  (except such  Hazardous
Substances as are maintained in compliance with all Environmental  Laws). Tenant
shall  promptly:  (a) notify  Landlord in writing of any change in the nature or
extent of such Hazardous Substances maintained,  (b) transmit to Landlord a copy
of any report which is required to be filed with respect to the Leased  Property
pursuant to any  Environmental  Law,  (c)  transmit  to  Landlord  copies of any
citations,  orders,  notices or other  governmental  communications  received by
Tenant or its agents or  representatives  with  respect  thereto  (collectively,
"Environmental  Notice"),  (d) observe and comply with any and all Environmental
Laws relating to the use,  maintenance and disposal of Hazardous  Substances and
all  orders or  directives  from any  officials  court or  agency  of  competent
jurisdiction  relating  to the use or  maintenance  or  requiring  the  removal,
treatment,  containment or other disposition  thereof,  and (e) pay or otherwise
dispose of any fine, charge or Imposition  related thereto,  unless Tenant shall
contest the same in accordance with Article 8.

         If at any  time  prior  to the  termination  of this  Lease,  Hazardous
Substances are discovered on the Leased  Property,  Tenant hereby agrees to take
all actions,  and to incur any and all expenses,  as may be reasonably necessary
and as may be  required  by any  municipal,  State or  Federal  agency  or other
governmental entity or agency having jurisdiction  thereof,  (a) to clean up and
remove from and about the Leased Property all Hazardous  Substances thereon, (b)
to contain,  and prevent any further  release or threat of release of  Hazardous
Substances  on or about the Leased  Property  and (c) to  eliminate  any further
release  or threat of  release of  Hazardous  Substances  on or about the Leased
Property.

                                      -17-
<PAGE>

         Tenant shall  indemnify  and hold  harmless  Landlord and each Facility
Mortgagee  from and  against  all  liabilities,  obligations,  claims,  damages,
penalties,  costs  and  expenses  (including,  without  limitation,   reasonable
attorney's fees and expenses) imposed upon,  incurred by or asserted against any
of them by reason of any failure by Tenant or any Person  claiming  under Tenant
to perform or comply with any of the terms of this Section 4.4.

                                   ARTICLE 5

                          MAINTENANCE AND REPAIRS, ETC.

         5.1 Maintenance and Repair.

              5.1.1  Tenant's  Obligations.  Tenant shall,  at its sole cost and
expense, keep the Leased Property and all private roadways,  sidewalks and curbs
appurtenant  thereto (and Tenant's Personal  Property) in good order and repair,
reasonable  wear and tear  excepted  (whether  or not the need for such  repairs
occurs as a result of Tenant's  use,  any prior use,  the elements or the age of
the Leased Property or Tenant's Personal Property, or any portion thereof),  and
shall  promptly  make all  necessary and  appropriate  repairs and  replacements
thereto of every kind and nature,  whether  interior or exterior,  structural or
nonstructural,  ordinary or extraordinary,  foreseen or unforeseen or arising by
reason of a condition  existing prior to the commencement of the Term (concealed
or  otherwise).  All  repairs  shall be at least  equivalent  in  quality to the
original work.

              5.1.2  Landlord's  Obligations.  Landlord  shall  not,  under  any
circumstances,  be required to build or rebuild  any  improvement  on the Leased
Property,  or to make any repairs,  replacements,  alterations,  restorations or
renewals of any nature or description to the Leased  Property,  whether ordinary
or extraordinary,  structural or non-structural,  foreseen or unforeseen,  or to
make any expenditure  whatsoever with respect  thereto,  in connection with this
Lease,  or to maintain the Leased  Property in any way,  except as  specifically
provided herein. Tenant hereby waives, to the extent permitted by law, the right
to make repairs at the expense of Landlord  pursuant to any law in effect at the
time of the execution of this Lease or hereafter  enacted.  Landlord  shall have
the right to give, record and post, as appropriate, notices of nonresponsibility
under any mechanic's lien laws now or hereafter existing.

         5.2 Capital  Expenditure Cost Sharing.  Replacement of or major repairs
to all  structural or mechanical  systems shall be undertaken by Tenant,  at its
sole cost and  expense in the  exercise  of its  reasonable  business  judgment,
pursuant to and in accordance with plans and specifications  approved in advance
by Landlord;  provided,  however,  that if the useful life of any improvement or
repair for which a Capital Expenditure is made extends beyond the termination of
the Term (other than any early  termination  resulting from the occurrence of an
Event of Default),  provided Tenant shall have obtained Landlord's prior written
consent  with respect to the making  thereof,  the cost of such  replacement  or
repair shall be apportioned  between  Landlord and Tenant so that Landlord shall
pay for that portion of the useful life of such item  occurring on or after such
termination  date.  Landlord  shall have no obligation  to reimburse  Tenant for
Landlord's share of the cost of such replacement or repair until the date of the
termination of this Lease.  Notwithstanding  the foregoing,  Landlord  agrees to
make any such payment to Tenant  within sixty (60) days after  Tenant's  written
request therefor.

                                      -18-
<PAGE>

         5.3  Tenant's  Personal  Property.  Tenant may (and  shall as  provided
hereinbelow), at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of Tenant's Personal
Property,  and Tenant may, subject to the conditions set forth below, remove the
same upon the expiration or sooner termination of the Term. Tenant shall provide
and maintain during the entire Term all such Tenant's Personal Property as shall
be necessary in order to operate the Facility in  compliance  with all licensure
and  certification  requirements,  applicable  Legal  Requirements and Insurance
Requirements and otherwise in accordance with customary practice in the industry
for the Primary Intended Use. All of Tenant's  Personal  Property not removed by
Tenant on or prior to the expiration or earlier  termination of this Lease shall
be considered  abandoned by Tenant and may be appropriated,  sold,  destroyed or
otherwise  disposed of by Landlord  without the necessity of first giving notice
thereof to Tenant,  without any payment to Tenant and without any  obligation to
account therefor.  Tenant shall, at its expense,  restore the Leased Property to
the  condition  required by Section 5.4,  including  repair of all damage to the
Leased Property  caused by the removal of Tenant's  Personal  Property,  whether
effected by Tenant or Landlord.

         If Tenant uses any item of tangible personal property (other than motor
vehicles) on, or in connection with, the Leased Property which belongs to anyone
other than Tenant,  Tenant  shall use its best efforts to require the  agreement
permitting such use to provide that Landlord or its designee may assume Tenant's
rights under such agreement  upon  management of the Facility by Landlord or its
designee.

         5.4 Yield Up. Upon the expiration or sooner  termination of this Lease,
Tenant  shall  vacate and  surrender  the Leased  Property  to  Landlord  in the
condition in which the Leased Property was on the Commencement  Date,  except as
repaired, rebuilt, restored, altered or added to as permitted or required by the
provisions of this Lease, ordinary wear and tear excepted.

         In addition,  upon the expiration or earlier termination of this Lease,
Tenant shall, at Landlord's reasonable cost and expense, use its best efforts to
transfer to and cooperate with Landlord or Landlord's nominee in connection with
the processing of all  applications  for licenses,  operating  permits and other
governmental  authorizations  and  all  contracts,   including,  contracts  with
governmental  or  quasi-governmental  entities,  which may be necessary  for the
operation of the Facility.  If requested by Landlord,  Tenant shall  continue to
manage  the  Facility  after  the  termination  of  this  Lease  and for so long
thereafter as is necessary to obtain all necessary  licenses,  operating permits
and other  governmental  authorizations,  on such reasonable  terms (which shall
include an agreement to reimburse Tenant for its reasonable  out-of-pocket costs
and expenses and reasonable administrative costs) as Landlord shall request.

         5.5 Encroachments, Restrictions, Etc. If any of the Leased Improvements
shall, at Any time, encroach upon any property,  street or right-of-way adjacent
to the Leased Property,  or shall violate the agreements or conditions contained
in any lawful  restrictive  covenant  or other  agreement  affecting  the Leased
Property,  or any part  thereof,  or shall impair the rights of others under any
easement or  right-of-way  to which the Leased  Property  is  subject,  upon the
request  of  Landlord  or of  any  person  affected  by any  such  encroachment,
violation or impairment,  Tenant shall, at its sole cost and expense, subject to
its right to contest the existence of any encroachment,  violation or impairment
and in such case,  in the event of an adverse  final  determination,  either (a)
obtain,  in form and  substance  satisfactory  to Landlord,  valid and

                                      -19-
<PAGE>

effective  waivers  or  settlements  of  all  claims,  liabilities  and  damages
resulting from each such encroachment, violation or impairment, whether the same
shall affect Landlord or Tenant,  or (b), subject to Landlord's  approval (which
shall not be unreasonably withheld or delayed),  make such changes in the Leased
Improvements and take such other actions,  as Tenant, in the good faith exercise
of its judgment, deems reasonably practicable, to remove such encroachment,  and
to end such violation or impairment,  including, if necessary, the alteration of
any of the Leased  Improvements  and, in any event, take all such actions as may
be  necessary  in  order  to  ensure  the  continued  operation  of  the  Leased
Improvements for the Primary Intended Use substantially in the manner and to the
extent the Leased  Improvements  were  operated  prior to the  assertion of such
violation,  impairment or  encroachment.  Any such  alteration  shall be made in
conformity  with  the  applicable  requirements  of  this  Article  5.  Tenant's
obligations  under this  Section 5.5 shall be in addition to and shall in no way
discharge or diminish any obligation of any insurer under any policy of title or
other  insurance and Tenant shall be entitled to a credit for any sums recovered
by Landlord under any such policy of title or other insurance.

                                   ARTICLE 6

                             CAPITAL ADDITIONS, ETC.

         6.1 Construction of Capital Additions to the Leased Property.  Provided
no Event of Default shall have occurred and be continuing, Tenant shall have the
right,  subject to obtaining  Landlord's  prior written  consent  (which consent
shall not be  unreasonably  withheld or delayed),  upon and subject to the terms
and conditions set forth below, to construct or install Capital Additions on the
Leased  Property.  Landlord's  consent  shall not be  deemed to be  unreasonably
withheld if such Capital  Addition  will  significantly  alter the  character or
purpose   or   detract   from  the  value  or   operating   efficiency   or  the
revenue-producing  capability of the Leased  Property,  or adversely  affect the
ability of Tenant to comply with this Lease. Any withholding of consent shall be
express and shall be effected  within thirty (30) days after receipt by Landlord
of such documents or information as Landlord may reasonably  require,  notice of
which  requirements  shall be sent to  Tenant  within  thirty  (30)  days  after
Tenant's  request.  Failure to give notice of the  withholding  of such  consent
within such thirty (30) day period shall be deemed approval. Prior to commencing
construction  of any Capital  Addition,  Tenant  shall  submit to  Landlord,  in
writing,  a proposal  setting forth, in reasonable  detail any proposed  Capital
Addition and shall provide Landlord with such plans and specifications, permits,
licenses,  contracts  and other  information  concerning  the  proposed  Capital
Addition as Landlord may reasonably request.  Without limiting the generality of
the foregoing,  such proposal shall indicate the  approximate  projected cost of
constructing such Capital Addition,  the use or uses to which it will be put and
a good faith  estimate of the change,  if any, in the Net Patient  Revenues that
Tenant  anticipates will result from such Capital Addition.  Prior to commencing
construction  of any Capital  Addition,  Tenant  shall  request in writing  that
Landlord provide funds to pay for such Capital  Addition.  If, within sixty (60)
days after  receipt of such  request,  Landlord  shall not elect to provide such
financing on terms  reasonably  acceptable to Tenant (and,  for purposes of this
Section 6.1, the failure of Landlord to respond  within such 60 day period shall
be deemed an election not to provide such  funding),  the  provisions of Section
6.2 shall apply.  Landlord's  notice of its  election to provide such  financing
shall set forth the terms and conditions of such proposed  financing,  including
the terms of any  amendment to this Lease  (including,  without  limitation,  an
increase  in  Minimum  Rent to  compensate  Landlord  for the  additional  funds
advanced). In no event shall the

                                      -20-
<PAGE>

portion of the  projected  Capital  Additions  Cost  comprised of land,  if any,
materials,  labor charges and fixtures be less than eighty  percent (80%) of the
total amount of such cost.  Tenant may withdraw its request by written notice to
Landlord at any time before Tenant's written  acceptance of Landlord's terms and
conditions.  If Landlord declines to finance a Capital Addition or if Landlord's
proposed  financing  terms are  unacceptable  to Tenant,  Tenant may solicit and
negotiate a commitment for such financing from another Person, provided Landlord
shall approve all the terms and  conditions of such  financing  (which  approval
shall not be  unreasonably  withheld or delayed).  If Landlord shall finance the
proposed Capital Addition, Tenant shall pay to Landlord, as Additional Rent, all
reasonable  costs and  expenses  paid or incurred  by  Landlord  and any Lending
Institution  which has committed to provide  financing for such Capital Addition
to  Landlord in  connection  therewith,  including,  but not limited to, (a) the
reasonable  attorneys,  fees and expenses,  (b) all printing  expenses,  (c) all
filing,  registration and recording taxes and fees, (d) documentary stamp taxes,
(e) title  insurance  charges,  appraisal  fees, and rating agency fees, and (f)
commitment fees.

         No Capital  Addition  shall be made which  would tie in or connect  any
Leased  Improvement  or any  Leased  Property  with any  other  improvements  on
property  adjacent to such Leased Property (and not part of the Land) including,
without  limitation,  tie-ins of buildings  or other  structures  or  utilities,
unless Tenant shall have obtained the prior written approval of Landlord,  which
approval may be withheld by Landlord in Landlord's sole discretion.  Any Capital
Additions shall, upon the expiration or sooner termination of this Lease, become
the property of  Landlord,  free and clear of all  encumbrances,  subject to the
provisions of Section 6.2.

         6.2  Capital  Additions  Financed by Tenant.  Provided  that Tenant has
obtained the prior written  consent of Landlord in each instance (which approval
shall not be unreasonably withheld or delayed), Tenant may arrange for financing
for Capital Additions from third party lenders;  provided however,  that (i) the
terms  and  conditions  of any such  financing  shall be  subject  to the  prior
approval of Landlord and (ii) any security  interests in any property of Tenant,
including, without limitation, the Leased Property, shall be expressly and fully
subordinated  to this  Lease  and to the  interest  of  Landlord  in the  Leased
Property  and to the  rights of any  Facility  Mortgagee.  If,  pursuant  to the
provisions of this Lease,  Tenant provides or arranges financing with respect to
any  Capital  Addition,  this Lease shall be and hereby is amended to provide as
follows:

                  (a) There shall be no adjustment in the Minimum Rent by reason
         of any such Capital Addition.

                  (b) Upon the  expiration or earlier  termination of this Lease
         (but if this Lease is terminated by reason of an Event of Default, only
         after  Landlord  is  fully   compensated  for  all  damages   resulting
         therefrom),  Landlord shall compensate Tenant for all Capital Additions
         financed  by  Tenant  in  any  of  the  following  ways  determined  in
         Landlord's sole discretion:

         (i)      By purchasing  such Capital  Additions from Tenant for cash in
                  the amount of the then Fair Market Added Value of such Capital
                  Additions;

                                      -21-
<PAGE>

         (ii)     By purchasing such Capital Additions from Tenant by delivering
                  to Tenant  Landlord's  purchase money  promissory  note in the
                  amount of the Fair Market Added Value, which note shall be due
                  and payable as to both  principal  and  interest on the second
                  anniversary   of  the  making   thereof,   shall  be  on  then
                  commercially  reasonable  terms  and  shall  be  secured  by a
                  mortgage on the Leased  Property  and such  Capital  Additions
                  subject to all  existing  mortgages  and  encumbrances  on the
                  Leased Property and such Capital Additions at the time of such
                  purchase;

         (iii)    By assigning to Tenant the right to receive an amount equal to
                  the Added Value  Percentage  (determined as of the date of the
                  expiration or earlier  termination  of this Lease) of all rent
                  and  other  consideration  receivable  by  Landlord  under any
                  re-letting  or other  disposition  of the Leased  Property and
                  such Capital  Additions,  after  deducting  from such rent all
                  costs and  expenses  incurred by Landlord in  connection  with
                  such  re-letting or other  disposition of the Leased  Property
                  and such  Capital  Additions  and all  costs and  expenses  of
                  operating and maintaining the Leased Property and such Capital
                  Additions  during the term of any such new lease which are not
                  borne by the tenant  thereunder,  with the  provisions of this
                  Section  6.2(c) to  remain  in effect  until the sale or other
                  final  disposition  of the Leased  Property  and such  Capital
                  Additions,  at which time the Fair Market  Added Value of such
                  Capital  Addition shall be immediately  due and payable,  such
                  obligation to be secured by a mortgage on the Leased  Property
                  and such Capital Additions,  subject to all existing mortgages
                  and  encumbrances  on the Leased  Property at the time of such
                  purchase and assignment; or

         (iv)     By making such other  arrangement  regarding such compensation
                  as shall be mutually acceptable to Landlord and Tenant.

         6.3 Information  Regarding Capital Additions.  Regardless of the source
of financing of any proposed  Capital  Addition,  Tenant shall provide  Landlord
with such information as Landlord may from time to time reasonably  request with
respect to such Capital Addition, including, without limitation, the following:

                  (a)  Evidence  that such  Capital  Addition  will be, and upon
         completion  has  been,  completed  in  compliance  with the  applicable
         requirements   of  State  and  federal  law  with  respect  to  capital
         expenditures for nursing facilities;

                  (b) Upon  completion of such Capital  Addition,  a copy of the
         certificate of occupancy for the Facility updated, if required;

                  (c) Such information, certificates, licenses, permits or other
         documents  necessary  to confirm  that  Tenant  will be able to use the
         Capital Addition upon completion thereof in accordance with the Primary
         intended Use, including all required federal, State or local government
         licenses and approvals;

                                      -22-
<PAGE>

                  (d) An Officer's  Certificate and a certificate  from Tenant's
         architect  setting  forth,  in  reasonable  detail,  the  projected (or
         actual,  if  available)  Capital  Additions  Cost and invoices and lien
         waivers from Tenant's contractors for such work;

                  (e) A deed  conveying to Landlord  title to any land  acquired
         for the purpose of constructing  the Capital Addition free and clear of
         any liens or encumbrances,  except those approved by Landlord and, upon
         completion of the Capital  Addition,  a final  as-built  survey thereof
         reasonably satisfactory to Landlord;

                  (f) Endorsements to any outstanding  policy of title insurance
         covering the Leased Property or commitments  therefor,  satisfactory in
         form and  substance  to  Landlord,  (i)  updating  the same without any
         additional  exceptions  except  as  approved  by  Landlord,   and  (ii)
         increasing  the coverage  thereof by an amount equal to the Fair Market
         Value of the  Capital  Addition  (except to the  extent  covered by the
         owner's  policy of title  insurance  referred  to in  subparagraph  (g)
         below);

                  (g) If  appropriate,  (i) an owner's policy of title insurance
         insuring fee simple title to any land conveyed to Landlord  pursuant to
         subparagraph (e) above,  free and clear of all liens and  encumbrances,
         except those approved by Landlord,  and (ii) a lender's policy of title
         insurance,  reasonably  satisfactory  in form and substance to Landlord
         and the  Lending  Institution  advancing  any  portion  of the  Capital
         Additions Cost;

                  (h)  An  appraisal  of  the  Leased  Property  by a  Qualified
         Appraiser, acceptable to Landlord, and an Officer's Certificate stating
         that the value of the Leased  Property  upon  completion of the Capital
         Addition   exceeds  the  Fair  Market  Value   thereof   prior  to  the
         commencement of such Capital Addition by an amount not less than 80% of
         the Capital Additions Cost; and

                  (i) Prints of architectural and engineering  drawings relating
         to such  Capital  Addition  and  such  other  certificates,  documents,
         opinions  of counsel,  appraisals,  surveys,  certified  copies of duly
         adopted resolutions of the board of directors of Tenant authorizing the
         execution  and  delivery of any lease  amendment  or other  instruments
         reasonably required by Landlord and any Lending  Institution  advancing
         or reimbursing Tenant for any portion of the Capital Additions Cost.

         6.4  Non-Capital  Additions.  Tenant shall have the right,  at Tenant's
sole cost and expense,  to make additions,  modifications or improvements to the
Leased Property which are not Capital Additions  ("Non-capital  Additions") from
time to time as Tenant, in its reasonable discretion, may deem desirable for the
Primary  Intended Use,  provided  that such action will not adversely  alter the
character  or  purpose  or  detract  from the  value,  operating  efficiency  or
revenue-producing  capability of the Leased  Property,  or adversely  affect the
ability  of  Tenant  to  comply  with the  provisions  of this  Lease.  All such
Non-Capital  Additions  shall,- upon  expiration or earlier  termination of this
Lease, become the property of Landlord, free and clear of all encumbrances other
than Permitted Encumbrances.

                                      -23-
<PAGE>

         6.5 Salvage.  All materials which are scrapped or removed in connection
with the making of either  Capital  Additions  or repairs  required by Article 5
shall be the property of the party paying or providing  the  financing  for such
work.

                                   ARTICLE 7

                                      LIENS

         7.1  Liens.  Subject  to  Article 8,  Tenant  shall  not,  directly  or
indirectly,  create or allow to  remain  and shall  promptly  discharge,  at its
expense, any lien, encumbrance,  attachment,  title retention agreement or claim
upon the Leased  Property  or any  attachment,  levy,  claim or  encumbrance  in
respect of the Rent, other than (a) this Lease, (b) the Permitted  Encumbrances,
(c) restrictions, liens and other encumbrances which are consented to in writing
by Landlord,  (d) liens for those taxes of Landlord which Tenant is not required
to pay  hereunder,  (e)  subleases  permitted  by  Article  17,  (f)  liens  for
Impositions or for sums resulting from  noncompliance with Legal Requirements so
long as (i) the same are not yet  payable,  or (ii) are payable  without fine or
penalty and such liens are being  contested  in  accordance  with Article 8, (g)
liens of  mechanics,  laborers,  material  men,  suppliers  or vendors  for sums
disputed,  provided  that (i) the  payment of such sums  shall not be  postponed
under any related contract for more than sixty (60) days after the completion of
the  action  giving  rise to such  lien and a  reserve  or  another  appropriate
provision  as  shall  be  required  by  law  or  generally  accepted  accounting
principles  shall  have been made  therefor,  and (ii) any such  liens are being
contested  in  accordance  with  Article  8,  and (h) any  liens  which  are the
responsibility of Landlord pursuant to Article 21.

         7.2 Landlord's  Lien. In addition to any statutory  landlord's lien and
in order to secure  payment of the Rent and all other sums payable  hereunder by
Tenant,  and to secure  payment of any lose,  cost or damage which  Landlord may
suffer by reason of Tenant's  breach of this Lease,  Tenant  hereby  grants unto
Landlord a security  interest in and an express  contractual  lien upon Tenant's
Personal  Property (except motor vehicles sold from time to time in the ordinary
course of Tenant's operations), and all ledger sheets, files, records, documents
and instruments  (including,  without limitation,  computer programs,  tapes and
related  electronic data  processing)  relating to the operation of the Facility
(collectively,  the "Records") and all proceeds therefrom; and Tenant's Personal
Property  shall not be removed from the Leased  Property  without the Landlord's
prior written consent, unless no Default or Event of Default shall have occurred
and be continuing.

         Upon Landlord's  request,  Tenant shall execute and deliver to Landlord
security  agreements and financing  statements in form sufficient to perfect the
security  interests of Landlord in Tenant's  Personal  Property and the proceeds
thereof in accordance  with the provisions of the  applicable  laws of the State
and otherwise in form and substance reasonably satisfactory to Landlord.  Tenant
hereby grants Landlord an irrevocable limited power of attorney, coupled with an
interest,  to execute all such financing  statements in Tenant's name, place and
stead. The security interest herein granted is in addition to any statutory lien
for the Rent.

         Landlord  agrees,  at Tenant's  request,  to execute such  documents as
Tenant may reasonably  require to subordinate the lien granted  pursuant to this
Section 7.2 in Tenant's

                                      -24-
<PAGE>

Personal  Property  (but not the  Records)  to the lien of any Person  providing
purchase money financing with respect thereto.

         7.3  Mechanic's  Liens.  Except as  permitted  with  respect to Capital
Additions, nothing contained in this Lease and no action or inaction by Landlord
shall be  construed  as (a)  constituting  the  consent or request of  Landlord,
expressed or implied, to any contractor, subcontractor, laborer, material man or
vendor to or for the  performance  of any labor or services or the furnishing of
any  materials or other  property for the  construction,  alteration,  addition,
repair or  demolition of or to the Leased  Property or any part thereof,  or (b)
giving  Tenant any right,  power or  permission,  to contract  for or permit the
performance of any labor or services or the furnishing of any materials or other
property  in such  fashion  as would  permit  the  making of any  claim  against
Landlord in respect thereof or to make any agreement that may create,  or in any
way  be the  basis  for  any  right,  title,  interest,  lien,  claim  or  other
encumbrance upon the Leased Property, or any portion thereof.

                                   ARTICLE 8

                               PERMITTED CONTESTS

         Tenant  shall have the right to contest  the amount or  validity of any
Imposition,  Legal Requirement,  Insurance Requirement,  lien, attachment, levy,
encumbrance,  charge  or claim  (collectively  "Claims")  by  appropriate  legal
proceedings  conducted in good faith and with due  diligence,  provided that (a)
the foregoing shall in no way be construed as relieving,  modifying or extending
Tenant's obligation to pay any Claims as finally determined or prior to the time
the Leased Property may be sold in satisfaction  thereof, (b) such contest shall
not cause  Landlord  or Tenant to be in default  under any  mortgage  or deed of
trust  encumbering the Leased  Property or any interest  therein or result in or
reasonably be expected to result in a lien attaching to the Leased Property, and
(c) Tenant shall indemnify and hold harmless Landlord from and against any cost,
claim,  damage,  penalty  or  expense,  including  reasonable  attorneys'  fees,
incurred  by Landlord  in  connection  therewith  or as a result  thereof.  Upon
Landlord's  request,  Tenant shall either (a) provide a bond or other  assurance
reasonably  satisfactory  to  Landlord  that all  Claims  which may be  assessed
against the Leased  Property,  together with all interest and penalties  thereon
will be paid, or (b) deposit within the time otherwise required for payment with
a bank or trust company, as trustee, as security for the payment of such Claims,
an amount  sufficient  to pay the same,  together with interest and penalties in
connection  therewith  and all Claims which may be assessed  against or become a
Claim against the Leased Property,  or any part thereof,  in connection with any
such contest.  Tenant shall  furnish  Landlord and any Facility  Mortgagee  with
reasonable evidence of such deposit within five (5) days after request therefor.
Landlord agrees to join in any such proceedings if required legally to prosecute
such contest; provided, however, that Landlord shall not thereby be subjected to
any liability therefor  (including,  for the payment of any costs or expenses in
connection therewith).  Tenant shall be entitled to any refund of any Claims and
such charges and penalties or interest thereon which have been paid by Tenant or
paid by Landlord and for which Landlord has been fully reimbursed by Tenant.  If
Tenant  shall  fail (a) to pay any  Claims  when due,  (b) to  provide  security
therefor as provided in this  Article 8, or (c) to  prosecute  any such  contest
diligently  and in good faith,  Landlord may, upon  reasonable  notice to Tenant
(which notice may be oral and shall not be required if Landlord shall  determine
the same is not  practicable),  pay such  charges,  together  with  interest and

                                      -25-
<PAGE>

penalties  due  with  respect  thereto,  and  Tenant  shall  reimburse  Landlord
therefor, upon demand, as Additional Rent.

                                   ARTICLE 9

                          INSURANCE AND INDEMNIFICATION

         9.1 General  Insurance  Requirements.  Tenant shall at all times during
the  Term  and any  other  time  Tenant  shall be in  possession  of the  Leased
Property, keep the Leased Property, and all property located in or on the Leased
Property, including Tenant's Personal Property, insured against the risks in the
amounts as follows:

                  (a) Commercial general liability  insurance,  including bodily
         injury and property damage (in the broadest form  available,  including
         broad form contractual  liability,  fire legal liability,  products and
         completed  operations  coverage) and healthcare  facility  professional
         liability  insurance,  under  which  Tenant is named as an insured  and
         Landlord and any Facility Mortgagee are named as additional insureds as
         their interests may appear,  in an amount which shall be at least equal
         to $1,000,000 per occurrence  with respect to bodily injury  liability,
         property  damage  liability  or  professional  liability,  and umbrella
         coverage of all such claims in an amount not less than $10,000,000;

                  (b)  "All-risk"  property  insurance on a  "replacement  cost"
         basis (including boiler and machinery) with the usual extended coverage
         endorsements (including increased costs of construction, demolition and
         ordinance or law)  covering the Leased  Property and Tenant's  Personal
         Property;

                  (c)  Business  interruption  and  loss of (i)  rent or  rental
         income  under a rental value  insurance  policy  covering  risk of loss
         during the lesser of the first twelve (12) months of  reconstruction or
         (ii) the actual reconstruction period necessitated by the occurrence of
         any of the hazards described in paragraph (b) above, in such amounts as
         may be customary for comparable properties in the area and in an amount
         sufficient to prevent Landlord or Tenant from becoming a co-insurer;

                  (d) Flood (if the Leased Property which is located in whole or
         in part within a  designated  flood plain area) and such other  hazards
         and in such amounts as may be customary  for  comparable  properties in
         the  area,   provided   the  same  is  available  at  rates  which  are
         economically  practical in relation to the risks covered, as determined
         by  Tenant  and  approved  by  Landlord,  which  approval  shall not be
         unreasonably withheld or delayed;

                  (e) Worker's  compensation  insurance coverage for all persons
         employed by Tenant on the Leased  Property  with  statutory  limits and
         otherwise  with  limits  of  and  provisions  in  accordance  with  the
         requirements of applicable local, state and federal law, and employer's
         liability  insurance  in such  amounts  as  necessary  to  satisfy  the
         aforementioned underlying insurance requirements; and

                                      -26-
<PAGE>

                  (f) Such additional  insurance as may be reasonably  required,
         from time to time, by Landlord or any Facility Mortgagee.

         9.2 Waiver of  Subrogation.  Landlord and Tenant agree that (insofar as
and to the extent that such agreement may be effective  without  invalidating or
making it impossible to secure  insurance  coverage from  responsible  insurance
companies  doing  business in the State) with respect to any property loss which
is covered by  insurance  then being  carried by  Landlord or Tenant or would be
covered by  insurance  if  insurance  were  maintained  in  accordance  with the
applicable  provisions  of this Lease,  respectively,  the party  carrying  such
insurance  and  suffering  said loss  releases the other of and from any and all
claims with respect to such loss;  and they further agree that their  respective
insurance  companies  shall have no right of  subrogation  against  the other on
account thereof,  even though extra premium may result  therefrom.  In the event
that any extra  premium  is  payable  by  Tenant as a result of this  provision,
Landlord shall not be liable for reimbursement to Tenant for such extra premium.

         9.3 Form  Satisfactory,  Etc. All policies of insurance  required under
this Article 9 shall be written in a form  reasonably  satisfactory  to Landlord
and written by insurance companies authorized to do business in the State, which
insurance companies shall be reasonably  satisfactory to Landlord.  All policies
of insurance required under this Article 9 shall include no deductible in excess
of $250,000 and (with the exception of the insurance  described in paragraph (e)
of Section 9.1) shall name  Landlord and any  Facility  Mortgagee as  additional
insureds,  as their interests may appear. Losses shall be payable to Landlord or
Tenant as provided in Article 10. Any loss adjustment  shall require the written
consent of Landlord,  Tenant and each Facility Mortgagee.  Evidence of insurance
shall be deposited  with  Landlord and, if  requested,  any Facility  Mortgagee.
Tenant shall pay all insurance  premiums,  and deliver  policies or certificates
thereof to Landlord  prior to their  effective  date (and,  with  respect to any
renewal policy,  five (5) days prior to the expiration of the existing  policy),
and in the event  Tenant  shall fail either to effect such  insurance  as herein
required,  to pay  the  premiums  therefor  or,  to  deliver  such  policies  or
certificates to Landlord at the times  required.  Landlord shall have the right,
but not the obligation,  to effect such insurance and pay the premiums therefor,
which amounts  shall be payable to Landlord,  upon demand,  as Additional  Rent,
together  with  interest  accrued  thereon  at the Base  Rate from the date such
payment is made until the date repaid.  All such policies shall provide Landlord
(and any  Facility  Mortgagee,  if required by the same)  thirty (30) days prior
written notice of any  cancellation or non-renewal of such policy (except in the
event of any  cancellation or non-renewal  for non-payment of premium,  in which
case such policy shall provide for ten (10) days prior written notice thereof).

         9.4  No  Separate  Insurance.   Tenant  shall  not  take  out  separate
insurance,  concurrent  in form or  contributing  in the event of loss with that
required by Sections 9.1(b),  (c) and (d) or increase the amount of any existing
insurance by securing an additional  policy or additional  policies,  unless all
parties having an insurable  interest in the subject  matter of such  insurance,
including,  Landlord  and all  Facility  Mortgagees,  are  included  therein  as
additional  insureds,  and the loss is payable under such  insurance in the same
manner as losses are payable  under this Lease.  In the event  Tenant shall take
out any such  separate  insurance  or  increase  any of the  amounts of the then
existing insurance, Tenant shall give Landlord prompt written notice thereof.

                                      -27-
<PAGE>

         9.5  Indemnification  of  Landlord.  Tenant  shall  indemnify  and hold
harmless  Landlord  from  and  against  all  liabilities,  obligations,  claims,
damages,  penalties,  causes of action, costs and expenses  (including,  without
limitation, reasonable attorneys' fees), to the maximum extent permitted by law,
imposed upon or incurred by or asserted  against  Landlord by reason of: (a) any
accident,  injury  to or death  of  persons  or loss of or  damage  to  property
occurring  on or about the Leased  Property or adjoining  sidewalks,  including,
without limitation,  any claims of malpractice,  (b) any past, present or future
use, misuse, non-use, condition, management,  maintenance or repair by Tenant or
anyone  claiming  under  Tenant of the  Leased  Property  or  Tenant's  Personal
Property or any  litigation,  proceeding  or claim by  governmental  entities or
other third parties to which Landlord is made a party or participant  related to
the Leased Property or Tenant's Personal Property or such use, misuse,  non-use,
condition,  management,  maintenance,  or repair thereof  including,  failure to
perform  obligations (other than Condemnation  proceedings) to which Landlord is
made a party,  (c) any  Impositions  (which are the obligations of Tenant to pay
pursuant to the applicable provisions of this Lease), and (d) any failure on the
part of Tenant or anyone  claiming under Tenant to perform or comply with any of
the terms of this Lease. Tenant shall pay all amounts payable under this Section
9.5 within ten (10) days after demand  therefor,  and if not timely  paid,  such
amounts shall bear  interest at the overdue rate from the date of  determination
to the date of payment. Tenant, at its expense, shall contest, resist and defend
any such claim,  action or proceeding asserted or instituted against Landlord or
may compromise or otherwise dispose of the same as Tenant sees fit.

         9.6  Indemnification  of  Tenant.  Landlord  shall  indemnify  and hold
harmless Tenant from and against all liabilities,  obligations, claims, damages,
penalties,  causes of action,  costs and expenses imposed upon or incurred by or
asserted  against  Tenant  as a  result  of  the  gross  negligence  or  willful
misconduct of Landlord.

                                   ARTICLE 10

                                    CASUALTY

         10.1 Insurance Proceeds.  All proceeds payable by reason of any loss or
damage to the Leased Property and insured under any policy of insurance required
by  Article  9 shall be paid to  Landlord  and held in trust by  Landlord  in an
interest-bearing  account  (subject to the provisions of Section 10.2) and shall
be paid  out by  Landlord  from  time  to  time  for  the  reasonable  costs  of
reconstruction  or  repair  of the  Leased  Property  necessitated  by damage or
destruction.  Any excess proceeds of insurance remaining after the completion of
the  restoration  shall be paid to Tenant.  In the event  neither  Landlord  nor
Tenant is required or elects to restore  the Leased  Property  and this Lease is
terminated  without purchase or substitution by Tenant pursuant to Section 10.2,
all  insurance  proceeds  therefrom  shall be retained by Landlord.  All salvage
resulting  from any risk covered by insurance  shall belong to Landlord,  except
any salvage related to Capital Additions paid for by Tenant or Tenant's Personal
Property shall belong to Tenant.

         10.2 Reconstruction in the Event of Damage or Destruction.

              10.2.1  Material  Damage or  Destruction  of  Premises.  Except as
provided in Section 10.8,  if,  during the Term,  the Leased  Property  shall be
totally or  partially  damaged or  destroyed  by fire or other  casualty and the
Facility is thereby  rendered  Unsuitable for Its Primary

                                      -28-
<PAGE>

Intended Use, Tenant shall, at Tenant's option, exercisable by written notice to
Landlord  within thirty (30) days after the date of such damage or  destruction,
elect either (a) to restore the Facility to substantially  the same condition as
existed  immediately  before such damage or destruction,  or (b) to offer (i) to
purchase the Leased  Property  from  Landlord for a purchase  price equal to the
greater of the Minimum  Repurchase Price or the Fair Market Value Purchase Price
of the Leased Property immediately prior to such damage or destruction,  or (ii)
to  substitute  a new property for the Leased  Property in  accordance  with the
provisions of Article 16.  Failure of Tenant to give Landlord  written notice of
any such  election  within  such  30-day  period  shall be deemed an election by
Tenant to restore the Facility.  In the event Tenant shall proceed in accordance
with  clause  (b)  preceding  and  Landlord  does not accept  Tenant's  offer to
purchase  the Leased  Property or  substitute  another  property  for the Leased
Property  within  thirty  (30) days after  receipt of Tenant's  notice  thereof,
Tenant may either (a)  withdraw  such offer and proceed  promptly to restore the
Facility to substantially the same conditions as existed  immediately before the
damage or  destruction,  or (b) terminate this Lease without  further  liability
hereunder and Landlord  shall be entitled to retain the insurance  proceeds.  In
the event Tenant shall acquire the Leased  Property or substitute a new property
therefor, the insurance proceeds payable on account of such damage shall be Paid
to Tenant.

              10.2.2  Partial  Damage  or  Destruction.  Except as  provided  in
Section  10.8,  if, during the Term,  all or any portion of the Leased  Property
shall be  totally  or  partially  destroyed  by fire or other  casualty  and the
Facility is not thereby rendered Unsuitable for its Primary Intended Use, Tenant
shall  promptly  restore the  Facility to  substantially  the same  condition as
existed immediately before such damage or destruction;  provided,  however, that
if Tenant cannot,  using  diligent  efforts,  obtain all  government  approvals,
including building permits,  licenses,  conditional use permits and certificates
of need, necessary to perform all required repair and restoration and to operate
the Facility for its Primary  Intended Use in  substantially  the same manner as
existed  immediately  prior to such  damage or  destruction  within one  hundred
eighty (180) days after the date of such fire or casualty,  Tenant shall, within
thirty (30) days thereafter elect, by written notice to Landlord,  either (a) to
substitute a new property or  properties  for the Leased  Property in accordance
with the  provisions  of Article 16, or (b) purchase  the Leased  Property for a
purchase price equal to the greater of the then Minimum  Repurchase Price or the
Fair Market Value Purchase  Price of the Leased  Property  immediately  prior to
such damage or  destruction.  Failure of Tenant to give such notice  within such
period  shall be deemed an election by Tenant to purchase  the Leased  Property.
Within thirty (30) days after receipt of Tenant's  notice,  Landlord  shall give
Tenant  written  notice as to whether  Landlord  accepts such offer.  Failure of
Landlord to give such  notice  shall be deemed an election by Landlord to accept
Tenant's  offer.  If Landlord  shall reject such offer,  Tenant shall elect,  by
written notice to Landlord, given within thirty (30) days thereafter, either (a)
to withdraw such offer, in which event this Lease shall remain in full force and
effect  with and  Tenant  shall  proceed  to  restore  the  Facility  as soon as
reasonably   practicable  to   substantially   the  same  condition  as  existed
immediately  before such damage or  destruction,  or (b)  terminate  this Lease.
Failure of Tenant to give such  notice  within  such  period  shall be deemed an
election by Tenant to restore the Leased Property.

         In the event  Landlord  shall  accept  Tenant's  offer to purchase  the
Leased Property, this Lease shall terminate with respect thereto upon payment of
the  purchase  price.  In the event  Landlord  shall  accept  Tenant's  offer to
substitute a new property or properties,  this Lease shall

                                      -29-
<PAGE>

be deemed  modified to  substitute  such new  property  for the Leased  Property
(effective as of the date of such  substitution  pursuant to Article 16) and all
insurance  proceeds  pertaining to the Leased  Property shall be paid to Tenant.
Landlord and Tenant shall promptly  execute  appropriate  instruments to confirm
the foregoing, although the failure to do so shall not affect this Lease.

         10.3  Insufficient  Insurance  Proceeds.  If the cost of the  repair or
restoration  exceeds  the amount of  insurance  proceeds  received  by  Landlord
pursuant to Article 9, Tenant  shall  contribute  any excess  amounts  needed to
complete such  restoration.  Such difference shall be paid by Tenant to Landlord
and held by Landlord in trust in an interest bearing account,  together with any
other insurance proceeds,  for application to the cost of repair and restoration
in accordance with Section 10.4.

         10.4  Disbursement  of  Proceeds.  In the event  Tenant is  required to
restore the Leased Property  pursuant to Sections 10.1 or 10.2, Tenant shall, at
its sole cost and expense, commence promptly and continue diligently to perform,
or cause to be performed,  the repair and  restoration of the Leased Property so
as to restore the Leased Property in full compliance with all Legal Requirements
and otherwise in compliance with any other applicable  provisions of this Lease,
so that the Leased Property shall be at least equal in value and general utility
to  its  general  utility  and  value   immediately  prior  to  such  damage  or
destruction.  Subject to the terms hereof,  Landlord shall advance the insurance
proceeds (other than proceeds of business interruption  insurance which shall be
advanced as provided  below) and the amounts paid to it pursuant to Section 10.3
to Tenant  regularly  during the repair and  restoration  period so as to permit
payment for the cost of such restoration and repair.  Any such advances shall be
for not less than $50,000 (or such lesser amount as equals the entire balance of
the repair and restoration  costs) and Tenant shall submit to Landlord a written
requisition and  substantiation  therefor on AIA Forms G702 and G703 (or on such
other form or forms as may be  acceptable  to  Landlord).  Landlord  may, at its
option,  condition  advancement of such insurance  proceeds and other amounts on
(i) the absence of any Default (as to which Landlord has given notice to Tenant)
or Event of  Default,  (ii) its  approval  of  plans  and  specifications  of an
architect  satisfactory  to Landlord  (which  approval shall not be unreasonably
withheld or delayed),  (iii) general  contractors,  estimates,  (iv) architect's
certificates,  (v)  unconditional  lien  waivers  of general  contractors,  (vi)
evidence of approval by all governmental authorities and other regulatory bodies
whose  approval is required and (vii) such other  certificates  as Landlord may,
from time to time, reasonably require. Provided no Default (as to which Landlord
has given notice to Tenant) or Event of Default has occurred and is  continuing,
on the first day of each  calendar  month  during  which  proceeds  of  business
interruption  insurance are  disbursed to Landlord  under the policy of business
interruption insurance maintained pursuant to Article 9, Landlord shall disburse
proceeds of business interruption insurance received by it to Tenant upon notice
from Tenant  accompanied by a certification from Tenant that such moneys will be
used for costs or expenses of owning or operating the Leased Property.

         Landlord's obligation to disburse insurance proceeds under this Article
10 shall be subject to the release of such  proceeds by any Facility  Mortgagee.

         10.5 Tenant's Property. All insurance proceeds payable by reason of any
loss of or damage to any of  Tenant's  Personal  Property  or Capital  Additions
financed by Tenant shall be

                                      -30-
<PAGE>

paid to Tenant and Tenant  shall hold such  proceeds in trust to pay the cost of
repairing or replacing  damaged Tenant's  Personal Property or Capital Additions
paid for or financed by Tenant.

         10.6 Restoration of Tenant's  Property.  If Tenant shall be required or
elect to restore the Facility as  hereinabove  provided  Tenant shall either (a)
restore all  alterations  and  improvements  made by Tenant,  Tenant's  Personal
Property  and all  Capital  Additions  paid for or  financed  by Tenant,  or (b)
replace such alterations and improvements,  Tenant's Personal  Property,  and/or
Capital  Additions with  improvements or items of the same or better quality and
utility in the operation of the Facility.

         10.7 No Abatement  of Rent.  Unless this Lease shall be  terminated  as
herein provided,  during the first twelve (12) months of any period required for
repair or  restoration,  this  Lease  shall  remain in full force and effect and
Tenant's  obligation  to  make  rental  payments  and to pay all  other  charges
required by this Lease shall remain unabated during the Term notwithstanding any
damage affecting the Leased Property. Thereafter, payments of Minimum Rent shall
be adjusted in the manner provided in Section 11.6.

         10.8 Damage Near End of Term.  Notwithstanding  any  provisions of this
Article 10 to the  contrary,  if (a) damage to or  destruction  of the  Facility
occurs  during  the last  twelve  (12)  months of the Term,  (b)  Tenant has not
elected  to extend  the Term,  (c) no Default  (as to which  Landlord  has given
notice to Tenant) or Event of Default shall have occurred and be continuing, and
(d) such damage or destruction  cannot be fully repaired and restored within one
hundred eighty (180) days immediately  following the date of loss,  Tenant shall
have the right to terminate  this Lease by the giving of written  notice thereof
to  Landlord  within  thirty  (30) days after the date of  casualty.  Failure of
Tenant  to give  such  notice  within  such 30 day  period  shall be a waiver of
Tenant's right to terminate this Lease pursuant to this section.

                                   ARTICLE 11

                                  CONDEMNATION

         11.1 Total  Condemnation.  If the whole of the Leased Property shall be
taken by Condemnation,  this Lease shall terminate as of the Date of Taking.  In
the event a Condemnation of less than the whole of the Leased  Property  renders
the Leased Property Unsuitable for Its Primary Intended Use, Tenant and Landlord
shall each have the option,  by written  notice to the other,  given at any time
prior to the date title vests in a third party,  to  terminate  this Lease as of
the Date of Taking, whereupon this Lease shall terminate as of such date.

         11.2 Partial Condemnation.  In the event of a Condemnation of less than
the whole of the Leased Property such that Leased Property is still suitable for
its Primary Intended Use, or if neither Tenant nor Landlord shall terminate this
Lease as provided in Section 11.1, Tenant, at its sole cost and expense,  shall,
with  all  reasonable  dispatch,  restore  the  untaken  portion  of the  Leased
Improvements  so that such  Leased  Improvements  shall  constitute  a  complete
architectural unit of the same general character and condition (as nearly as may
be  possible  under  the  circumstances)  as the  Leased  Improvements  existing
immediately  prior  to such  Condemnation.  Landlord  shall,  subject  to and in
accordance  with the  applicable  provisions of

                                      -31-
<PAGE>

Section  10.4,  contribute  to the cost of  restoration  that  part of its Award
allocable  to such  restoration.  In such  event,  the  Minimum  Rent  shall  be
permanently reduced as set forth in Section 11.6.

         11.3 Temporary Condemnation. In the event of any temporary Condemnation
of all or any part of the Leased Property or Tenant's interest under this Lease,
this Lease shall  continue in full force and effect and Tenant shall continue to
pay,  in the manner and on the terms  herein  specified,  the full amount of the
Rent. To the extent reasonably practicable, Tenant shall continue to perform and
observe all of the other terms and conditions  thereof, on the part of Tenant to
be  performed  and  observed.  The  entire  amount  of any  Award  made for such
temporary Taking or Condemnation  allocable to the Term,  whether paid by way of
damages,  rent or otherwise,  shall be paid to Tenant.  Tenant  shall,  upon the
termination of any such period of temporary  Condemnation,  at its sole cost and
expense  (but only to the extent of the Award  payable to  Tenant),  restore the
Leased Property as nearly as may be reasonably  possible,  to the condition that
existed immediately prior to such Condemnation,  unless such period of temporary
use or occupancy  shall extend beyond the  expiration of the Term, in which case
Tenant shall not be required to make such restoration.

         11.4 Tenant's Option.  In the event of the termination of this Lease as
provided in Section 11.1,  Tenant shall have the right,  exercisable  by written
notice to Landlord  given  within  thirty  (30) days after  receipt by Tenant of
notice of  Condemnation,  to elect  (a) to  acquire  the  Leased  Property  from
Landlord  for a purchase  price equal to the  greater of its Minimum  Repurchase
Price or the Fair Market Value Purchase Price of the Leased Property immediately
prior  to  such  Condemnation,   in  which  event,  upon  the  closing  of  such
acquisition,  Tenant shall have the right to receive the entire Award, or (b) to
substitute a new property  therefor in accordance with the provisions of Article
16, in which event Tenant shall receive the entire  Award.  Failure of Tenant to
give such notice  within such 30-day period shall be deemed a waiver of Tenant's
rights  pursuant to this Section 11.4. In the event Landlord  shall,  by written
notice to Tenant  given  within  thirty  (30) days  after  receipt  of  Tenant's
election  notice,  reject  Tenant's offer so to purchase or  substitute,  Tenant
shall restore the Leased Property to substantially the same condition as existed
immediately   before  such   Condemnation  in  accordance  with  the  applicable
provisions of this Lease and, in such event,  Landlord shall,  subject to and in
accordance  with the  applicable  provisions of Section 10.4,  contribute to the
cost of restoration that part of its Award allocable to such restoration.

         11.5 Allocation of Award.  Except as provided in the second sentence of
this Section  11.5,  the total Award shall be solely the property of and payable
to Landlord.  Any portion of the Award made for the taking of Tenant's leasehold
interest  in the Leased  Property,  Capital  Additions  paid for or  financed by
Tenant,  loss of business at the Leased  Property  during the  remainder  of the
Term,  the  taking of  Tenant's  Personal  Property,  or  Tenant's  removal  and
relocation  expenses shall be the sole property of and payable to Tenant. In any
Condemnation  proceedings,  Landlord and Tenant shall each seek its own Award in
conformity herewith, at its own expense.

         11.6 Abatement  Procedures.  In the event of a partial  Condemnation as
described in Section 11.2, this Lease shall not terminate,  but the Minimum Rent
shall be abated in the manner and to the extent that is fair, just and equitable
to both Tenant and Landlord,  taking into

                                      -32-
<PAGE>

consideration,  among other  relevant  factors,  the number of usable beds,  the
amount of square footage,  or the revenues affected by such partial or temporary
taking or damage or destruction. If Landlord and Tenant are unable to agree upon
the amount of such abatement within thirty (30) days after such  Condemnation or
damage,  the matter may be  submitted  by either  party to a court of  competent
jurisdiction  for  resolution  or, if the  parties  so agree,  the matter may be
submitted by the parties for resolution by  arbitration  in accordance  with the
rules of the American Arbitration Association.

                                   ARTICLE 12

                              DEFAULTS AND REMEDIES

         12.1  Events  of  Default.  The  occurrence  of any  one or more of the
following events shall constitute an "Event of Default" under this Lease:

                  (a) If Tenant  shall  fail to make any  payment of Rent or any
         other sum payable  hereunder  when due and such failure shall  continue
         for ten (10) days after written notice thereof;

                  (b) If Tenant  shall fail to  observe  any term,  covenant  or
         condition  set forth in Section 9 of this Lease and such failure  shall
         continue for ten (10) days after written notice thereof;

                  (c) If  Tenant  or the  Guarantor  shall  fail to  observe  or
         perform any other term,  covenant or  condition  of this Lease and such
         failure  shall  continue  for  thirty  (30) days after  written  notice
         thereof;  provided,  however,  if any such  failure,  not involving the
         payment of money, cannot with due diligence be cured within such thirty
         (30) day  period,  an Event of  Default  shall  not be  deemed  to have
         occurred  for such  additional  period  (not to exceed  120 days in the
         aggregate)  required  to cure the same so long as Tenant  or  Guarantor
         commences  sure cure within such thirty (30) day period and  thereafter
         diligently prosecutes such cure to completion;

                  (d) If, following confirmation of a plan of reorganization for
         Tenant or Guarantor, as applicable,

                           (A)  Tenant or  Guarantor  shall (i) admit in writing
                  its  inability,  or be unable,  to pay its debts  generally as
                  they  become  due;  (ii) file a petition  in  bankruptcy  or a
                  petition to take advantage of any insolvency law; (iii) make a
                  general  assignment  for the  benefit of its  creditors;  (iv)
                  consent to the  appointment  of a receiver of itself or of the
                  whole or any substantial  part of its property;  or (v) file a
                  petition or answer seeking reorganization or arrangement under
                  the federal  bankruptcy  laws or any other  applicable  law or
                  statute of the United States of America or any state  thereof;
                  or

                           (B)  Tenant  or  Guarantor  shall  be  adjudicated  a
                  bankrupt or shall have an order for relief thereunder  entered
                  against it or a court of competent jurisdiction shall enter an
                  order or decree  appointing  a receiver for it or of the

                                      -33-
<PAGE>

                  whole or  substantially  all of its  property,  or approving a
                  petition   filed   against   it  seeking   reorganization   or
                  arrangement of Tenant or Guarantor  under the Bankruptcy  Code
                  or any other applicable law or statute of the United States of
                  America  or any state  thereof,  and such  judgment,  order or
                  decree  shall not be  vacated or set aside  within  sixty (60)
                  days from the date of entry thereof;

                           (e) If Tenant or  Guarantor  shall be  liquidated  or
                  dissolved,  or shall begin proceedings toward such liquidation
                  or  dissolution,  or,  in  any  manner,  permit  the  sale  or
                  divestiture of substantially all of its assets;

                           (f) If the estate or interest of Tenant in the Leased
                  Property or any part thereof  shall be levied upon or attached
                  in any  proceeding  and  the  same  shall  not be  vacated  or
                  discharged within thirty (30) days after commencement  thereof
                  (unless Tenant shall be contesting  such lien or attachment in
                  accordance with Article 8);

                           (g) If,  except as a result of  damage,  destruction,
                  strikes,  lock-outs  or a partial  or  complete  Condemnation,
                  Tenant  shall  voluntarily  cease  operations  on  the  Leased
                  Property for a period in excess of thirty (30) days; or

                           (h) If any  representation  or  warranty of Tenant or
                  Guarantor  and  contained in this Lease or the Guaranty  shall
                  prove to be untrue in any  material  respect  on the date when
                  made which materially and adversely affects Landlord,  and the
                  same shall not be cured within  ninety (90) days after written
                  notice thereof;

                           (i) If the Cases of the Tenant or Guarantor  shall be
                  dismissed  or  converted  to a  Case  under  Chapter  7 of the
                  Bankruptcy Code; or a trustee under Chapter 7 or Chapter 11 of
                  the Bankruptcy Code, a responsible officer or an examiner with
                  enlarged  powers  relating to the  operation  of the  business
                  (powers beyond those set forth in ss.1106(a)(3) and (4) of the
                  Bankruptcy Code) under ss.1106(b) of the Bankruptcy Code shall
                  be  appointed  in any of the Cases of the Tenant or  Guarantor
                  and the order appointing such trustee,  responsible officer or
                  examiner shall not be reversed or vacated within 60 days after
                  the entry thereof; or

                           (j) If an  order  of the  Bankruptcy  Court  shall be
                  entered  reversing,  amending,  supplementing,  staying  for a
                  period in excess of 10 days,  vacating or otherwise  modifying
                  the Orders in a manner that is materially adverse to Landlord.

         Upon the occurrence of any Event of Default,  and without further order
of or application to the Bankruptcy Court,  Landlord and the agents and servants
of Landlord  lawfully  may, in addition to and not in derogation of any remedies
for any preceding  breach of covenant,  immediately  or at any time  thereafter,
without  demand or notice  and with or  without  process  of law  (forcibly,  if
necessary),  enter into and upon the Leased  Property or any part thereof in the
name of the whole or mail a notice  of  termination  addressed  to  Tenant,  and
repossess the same and expel Tenant and those  claiming  through or under Tenant
and remove its and their effects (forcibly, if necessary),  without being deemed
guilty of any manner of trespass and without  prejudice  to any  remedies  which
might  otherwise be used for arrears of rent or prior  breach of covenant,  and,
upon such entry or mailing as  aforesaid,  this Lease  shall  terminate,  Tenant
hereby

                                      -34-
<PAGE>

waiving  all  statutory  rights  to  the  Leased  Property  (including,  without
limitation,  rights of  redemption,  if any,  to the extent  such  rights may be
lawfully  waived) and Landlord,  without  notice to Tenant,  may store  Tenant's
effects,  and those of any person claiming through or under Tenant,  at Tenant's
sole  expense and risk,  and, if  Landlord so elects,  may sell such  effects at
public  auction or private sale and apply the net proceeds to the payment of all
sums due to Landlord from Tenant,  if any, and pay over the balance,  if any, to
Tenant.  In addition,  subject solely to the terms of the Orders,  the automatic
stay  provided in ss.362 of the  Bankruptcy  Code shall be deemed  automatically
vacated without further action or order of the Bankruptcy Court and the Landlord
shall be entitled to exercise all of its  respective  rights and remedies  under
this Lease Agreement and the Guaranty, including, without limitation, all rights
and remedies with respect to the Tenant's Personal Property and Guarantor.

         Upon the  occurrence of an Event of Default,  Landlord may, in addition
to any other remedies  provided herein,  enter upon the Leased Property and take
possession of any and all of Tenant's Personal Property and the Records (subject
to any  prohibitions  or limitations to disclosure of any such data as described
in Section  3.1.2(d)) on the Leased Property,  without liability for trespass or
conversion  (Tenant  hereby waiving any right to notice or hearing prior to such
taking of  possession  by Landlord) and sell the same at public or private sale,
after  giving  Tenant  reasonable  notice of the time and place of any public or
private  sale,  at which sale  Landlord or its assigns may  purchase  all or any
portion of such Personal  Property  unless  otherwise  prohibited by law. Unless
otherwise  provided by law, and without intending to exclude any other manner of
giving Tenant reasonable  notice,  the requirement of reasonable notice shall be
met if such notice is given in the manner  prescribed in this Lease at least ten
(10) days before the day of sale. The proceeds from any such  disposition,  less
all expenses  incurred in connection with the taking of possession,  holding and
selling  of such  property  (including,  reasonable  attorneys,  fees)  shall be
deducted from the proceeds of such sale.  Any surplus shall be paid to Tenant or
as otherwise required by law and Tenant shall pay any deficiency to Landlord, as
Additional Rent, upon demand.

         The automatic stay provided in ss.362 of the  Bankruptcy  Code shall be
modified so as to permit Landlord to deliver notices of default to Tenant and/or
Guarantor pursuant to the appropriate paragraphs of Section 12.1 and to take all
other  actions  provided  for  above  without  further  action  or  order of the
Bankruptcy Court.

         12.2  Remedies.  In the event of any  termination  pursuant  to Section
12.1,  Tenant shall pay the Rent and other charges  payable  hereunder up to the
time of such termination and,  thereafter,  Tenant,  until the end of what would
have been the Term of this Lease in the absence of such termination, and whether
or not the Leased  Property,  or any portion  thereof,  shall have been  re-let,
shall be liable to Landlord for, and shall pay to Landlord,  as current damages,
the Rent and other charges which would be payable hereunder for the remainder of
the Term had such  termination not occurred,  less the net proceeds,  if any, of
any reletting of the Leased Property, after deducting all expenses in connection
with such re-letting,  including,  without  limitation,  all repossession costs,
brokerage commissions, legal expenses, attorneys' fees, advertising, expenses of
employees,  alteration  costs and expenses of  preparation  for such  reletting.
Tenant shall pay such current  damages to Landlord  monthly on the days on which
the Minimum  Rent would have been  payable  hereunder if this Lease had not been
terminated.

                                      -35-
<PAGE>

         At any time after such termination,  whether or not Landlord shall have
collected any such current  damages,  as liquidated final damages and in lieu of
all such current damages beyond the date of such demand, at Landlord's election,
Tenant shall pay to Landlord  either (a) an amount equal to the excess,  if any,
of the Rent and other charges which would be payable  hereunder from the date of
such demand (assuming that, for the purposes of this paragraph,  annual payments
by Tenant on account of Impositions  would be the same as payments  required for
the  immediately  preceding  twelve  calendar  months,  or if less  than  twelve
calendar months have expired since the Commencement  Date, the payments required
for such lesser period  projected to an annual amount shall be determined in the
manner set forth above) for what would be the then  unexpired term of this Lease
if the same remained in effect, over the Fair Market Rental for the same period,
or (b) an amount  equal to the  lesser of (i) the Rent and  other  charges  that
would have been payable for the balance of the Term had it not been  terminated,
or (ii) the  aggregate  of the  Minimum  Rent and other  charges  accrued in the
twelve (12) months ended next prior to such termination  (without  reduction for
any free rent or other  concession or abatement).  In the event this Lease is so
terminated  prior the  expiration  of the  first,  full  year of the  Term,  the
liquidated  damages  which  Landlord  may elect to  recover  pursuant  to clause
(b)(ii)  of this  paragraph  shall  be  calculated  as if such  termination  had
occurred on the first anniversary of the Commencement Date. Nothing contained in
this Lease shall, however, limit or prejudice the right of Landlord to prove and
obtain in  proceedings  for  bankruptcy  or  insolvency  an amount  equal to the
maximum  allowed by any  statute or rule of law in effect at the time when,  and
governing the proceedings in which, the damages are to be proved, whether or not
the  amount be  greater  than,  equal to, or less than the amount of the loss or
damages referred to above.

         In case of any Event of Default, re-entry, expiration and dispossession
by summary proceedings or otherwise,  Landlord may (a) relet the Leased Property
or any part or parts thereof, either in the name of Landlord or otherwise, for a
term or terms which may at Landlord's  option,  be equal to, less than or exceed
the period which would  otherwise have  constituted  the balance of the Term and
may  grant  concessions  or free  rent to the  extent  that  Landlord  considers
advisable  and  necessary  to relet the same,  and (b) may make such  reasonable
alterations,  repairs and decorations in the Leased Property as Landlord, in its
sole  judgment,  considers  advisable and necessary for the purpose of reletting
the Leased Property; and the making of such alterations, repairs and decorations
shall not operate or be construed to release Tenant from liability  hereunder as
aforesaid.  Landlord  shall in no  event be  liable  in any way  whatsoever  for
failure to relet the Leased Property,  or any portion thereof,  or, in the event
that the Leased  Property  is relet,  for failure to collect the rent under such
reletting.  To the fullest  extent  permitted by law,  Tenant  hereby  expressly
waives any and all rights of redemption granted under any present or future laws
in the  event of  Tenant  being  evicted  or  dispossessed,  or in the  event of
Landlord obtaining possession of the Leased Property, by reason of the violation
by Tenant of any of the covenants and conditions of this Lease.

         12.3 Waiver.  If this Lease is  terminated  pursuant to Section 12.1 or
12.2, Tenant waives, to the extent permitted by law, (a) any right to a trial by
jury in the event of summary  proceedings  to enforce the  remedies set forth in
this  Article  12,  and (b) the  benefit of any laws now or  hereafter  in force
exempting property from liability for rent or for debt.

         WITHOUT LIMITING THE EFFECT OR GENERALITY OF OTHER WAIVERS PROVIDED FOR
IN THIS LEASE,  TENANT EXPRESSLY  WAIVES

                                      -36-
<PAGE>

THOSE  BENEFITS  CONFERRED  ON TENANTS BY ACT NO.  20,  APPROVED  APRIL 6, 1951,
ENTITLED  "THE  LANDLORD  AND  TENANT ACT OF 1951",  AS  AMENDED,  WHICH  GOVERN
REQUIREMENTS OF NOTICE TO VACATE THE LEASED PREMISES IN THE EVENT OF ANY DEFAULT
OR AT THE END OF THE TERM AND  REQUIREMENTS  REGARDING  SECURITY  DEPOSITS,  THE
RETURN THEREOF AND THE ACCOUNTING AND DELIVERY OF INTEREST THEREON.

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

         12.5 Landlord's Right to Cure Tenant's Default.  If an Event of Default
shall have occurred and be continuing,  Landlord, after written notice to Tenant
(provided  that no such notice  shall be required if Landlord  shall  reasonably
determine immediate action is necessary to protect person or property),  without
waiving or releasing any obligation of Tenant,  and without waiving or releasing
any  Event  of  Default,  may  (but  shall  not be  obligated  to),  at any time
thereafter,  make such  payment or perform  such act for the  account and at the
expense  of Tenant,  and may,  to the extent  permitted  by law,  enter upon the
Leased  Property,  or any portion  thereof,  for such  purpose and take all such
action  thereon as, in  Landlord's  opinion,  may be  necessary  or  appropriate
therefor, including, the management of the Facility by Landlord or its designee,
and  Tenant  hereby  irrevocably  appoints,  in the  event of such  election  by
Landlord,  Landlord or its  designee as manager of the Facility and its attorney
in fact for such purpose, irrevocably and coupled with an interest, in the name,
place  and  stead  of  Tenant.  All  costs  and  expenses  (including,   without
limitation,  reasonable  attorneys,  fees)  incurred by  Landlord in  connection
therewith,  together with interest  thereon (to the extent  permitted by law) at
the  Overdue  Rate from the date such sums are paid by  Landlord  until  repaid,
shall be paid by Tenant to Landlord, on demand.

         12.6 Trade Names. If this Lease is terminated for any reason,  Landlord
shall, upon the request of Tenant, cause the name of the business conducted upon
the Leased  Property to be changed to a name other than a Facility Trade Name or
any  approximation or abbreviation  thereof and sufficiently  dissimilar to such
name as to be unlikely to cause  confusion  with such name;  provided,  however,
that Tenant shall not thereafter use a Facility Trade Name in the same market in
which the Facility is located in connection with any business that competes with
the Facility.

                                   ARTICLE 13

                                  HOLDING OVER

         Any holding  over by Tenant after the  expiration  of the Term shall be
treated as a daily  tenancy at  sufferance  at a rate equal to two (2) times the
Minimum  Rent then in effect  plus  Additional  Rent and  other  charges  herein
provided  (prorated  on a daily  basis).  Tenant  shall also pay to Landlord all
damages, direct and/or consequential (foreseeable and unforeseeable),

                                      -37-
<PAGE>

sustained by reason of any such holding over. otherwise, such holding over shall
be on the  terms  and  conditions  set  forth  in  this  Lease,  to  the  extent
applicable.

                                   ARTICLE 14

                               LANDLORD'S DEFAULT

         If Landlord  shall default in the  performance  or observance of any of
its  covenants or  obligations  set forth in this Lease and such  default  shall
continue for a period of thirty (30) days after written notice thereof,  or such
additional  period as may be reasonably  required to correct the same (except if
such default shall constitute an immediate threat to life or property,  five (5)
Business  Days) Tenant may declare the  occurrence of a "Landlord  Default" by a
second notice to Landlord.  Thereafter,  Tenant may forthwith cure the same and,
subject to the provisions of the following paragraph, invoice Landlord for costs
and expenses (including  reasonable attorneys' fees and court costs) incurred by
Tenant in  curing  the  same,  together  with  interest  from the date  Landlord
receives Tenant's  invoice,  at a rate equal to the Base Rate. Tenant shall have
no right to terminate  this Lease for any default by Landlord  hereunder  and no
right, for any such default, to offset or counterclaim against any rent or other
charges due hereunder.

         If Landlord  shall in good faith dispute the occurrence of any Landlord
Default and Landlord, before the expiration of the applicable cure period, shall
give written notice thereof to Tenant,  setting forth, in reasonable detail, the
basis  therefor,  no  Landlord  Default  shall be  deemed to have  occurred  and
Landlord  shall have no  obligation  with respect  thereto  until final  adverse
determination  thereof.  If Tenant and Landlord  shall fail,  in good faith,  to
resolve the dispute  within  five (5) days after  Landlord's  notice of dispute,
either may submit the matter to arbitration  for  resolution in accordance  with
the commercial arbitration rules of the American Arbitration  Association.  Such
arbitration  shall be final and  binding on  Landlord  and  Tenant and  judgment
thereon may be entered into any court of competent jurisdiction. Within five (5)
days after  submission  to  arbitration,  Landlord  and Tenant  shall submit all
information  required  for such  arbitration  and shall  take all other  actions
required for such arbitration to proceed and the arbitrators shall be instructed
to render a  determination  as soon as possible  and in any event not later than
thirty (30) days after submission.

                                   ARTICLE 15

                              PURCHASE OF PREMISES

         In the event Tenant shall  purchase the Leased  Property  from Landlord
pursuant to any of the terms of this Lease,  Landlord  shall,  upon receipt from
Tenant of the  applicable  purchase  price,  together  with full  payment of any
unpaid Rent and other  charges due and payable with respect to any period ending
on or before  the date of the  purchase,  deliver  to  Tenant a title  insurance
policy,  together with an appropriate deed or other  instruments,  conveying the
entire  interest of Landlord in and to the Leased  Property to Tenant,  free and
clear of all  encumbrances  other than (a) those Tenant has agreed  hereunder to
pay or discharge, (b) those liens, if any, which Tenant has agreed in writing to
accept and take title  subject to, (c) the Permitted  Encumbrances,  and (d) any
other  encumbrances  permitted to be imposed on the Leased Property (x) pursuant
to the terms of this Lease or (y)  otherwise  permitted to be imposed  under the

                                      -38-
<PAGE>

provisions  of Section 21.1 which are assumable at no cost to Tenant or to which
Tenant may take  subject  without  cost to Tenant.  The  difference  between the
applicable  purchase  price and the total of the  encumbrances  assumed or taken
subject to shall be paid in cash to  Landlord  or as  Landlord  may  direct,  in
federal or other immediately available funds. The closing of any such sale shall
be contingent upon and subject to Tenant's  obtaining all required  governmental
consents  and  approvals  for such  transfer  and if such sale  shall fail to be
consummated  by reason of the  inability of Tenant to obtain all such  approvals
and consents, any options to extend the Term of this Lease which otherwise would
have expired  during the escrow  period of such proposed sale shall be deemed to
remain in effect for 30 days after  termination  thereof.  All  expenses of such
conveyance,  including,  without  limitation,  the cost of title  examination or
standard coverage title insurance,  usually paid by a purchaser of real property
in the State shall be paid by Tenant;  all expenses of such  conveyance  usually
paid by a seller of real property in the State shall be paid by Landlord.

                                   ARTICLE 16

                SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY

         16.1  Tenant's  Substitution  Option.  Provided  (a) in the good  faith
judgment of Tenant,  the Leased Property shall become Unsuitable for its Primary
Intended  Use,  (b) no Default or Event of Default  shall have  occurred  and be
continuing,  and (c) not less than one (1) year shall remain in the Term, Tenant
shall have the right,  subject to the  conditions  set forth in this Article 16,
upon not less than  thirty  (30) days  prior  written  notice  to  Landlord,  to
substitute one or more properties (collectively,  the "Substitute Properties" or
individually,  "Substitute  Property") on the date specified in such notice (the
"Substitution  Date");  provided,  however,  that if Tenant is required by court
order or  administrative  action to divest or  otherwise  dispose  of the Leased
Property  in less than  thirty  (30) days and Tenant  shall have given  Landlord
prior written  notice of the filing of such court or  administrative  action and
kept Landlord reasonably  apprised of the status thereof,  the time period shall
be shortened  appropriately  to meet the reasonable  needs of Tenant,  but in no
event less than ten (10)  Business  Days after the  receipt by  Landlord of such
notice. Such notice shall include (a) an Officer's Certificate, setting forth in
reasonable   detail  the  reason(s)  for  the   substitution  and  the  proposed
Substitution  Date, and (b) designate not less than two properties (or groups of
properties),  each of which  properties (or groups of properties)  shall provide
Landlord  with a yield  (i.e.,  annual  return on its  equity in such  property)
substantially  equivalent  to Landlord's  yield from the Leased  Property at the
time of such proposed  substitution  (or in the case of substitution  because of
damage  or  destruction,   the  yield   immediately  prior  to  such  damage  or
destruction)  and as reasonably  projected over the remaining Term of this Lease
(and giving effect to projected residual values).

         16.2 Substitution Procedures.

                  (a) If  Tenant  shall  initiate  a  substitution  pursuant  to
         Section 16.1 or 16.2,  Landlord shall have a period of thirty (30) days
         within which to review the designated  properties  and such  additional
         information  and either accept or reject the  Substitute  Properties so
         presented, unless Tenant is required by a court order or administrative
         action to divest or otherwise  dispose of the Leased  Property within a
         shorter time  period,  in which case the time period shall be shortened
         appropriately to meet the reasonable

                                      -39-
<PAGE>

         needs of Tenant,  but in no event  shall such  period be less than five
         (5) Business Days after  Landlord's  actual receipt of Tenant's  notice
         (subject to further  extension for any period of time in which Landlord
         is not  timely  provided  with  the  information  provided  for in this
         Section  16.3 and Section  16.4  below).  Landlord and Tenant shall use
         good faith efforts to agree on a Substitute Property.

                  (b) In the event  that,  on or before  the  expiration  of the
         applicable  time period for  Landlord's  review,  Landlord has rejected
         both of the  Substitute  Properties so presented,  Tenant shall,  for a
         period of sixty (60) days after the expiration of such period, have the
         right to terminate this Lease,  by the giving of written notice thereof
         to Landlord, accompanied by an offer to purchase the Leased Property on
         the date set forth in such  notice,  but in no event  less than  ninety
         (90) days thereafter,  for a purchase price equal to the greater of the
         then Fair Market Value Purchase Price or the Minimum  Repurchase Price,
         and,  subject  to the  provisions  of  Article  15,  this  Lease  shall
         terminate on such purchase date.

                  (c) Landlord shall not unreasonably withhold its consent to an
         offer by Tenant to  substitute  a property as set forth in this Article
         provided (i) Landlord  shall  determine the  Substitute  Property shall
         provide  Landlord with a yield  substantially  equivalent to Landlord's
         yield from the Leased Property  immediately before such substitution or
         such damage or  destruction,  as the case may be, and as projected over
         the  remainder  of the  Term and (ii) the  delivery  of an  opinion  of
         counsel  for  Landlord  confirming  that  (w) the  substitution  of the
         Substitute Property for the Leased Property will qualify as an exchange
         solely of property of a like-kind  under  Section 1031 of the Code,  in
         which, generally, except for "boot", no gain or loss will be recognized
         by Landlord, (x) the substitution will not result in ordinary recapture
         income to Landlord  pursuant to Section  1250(d)(4)  of the Code or any
         other  provision  of the  Code,  (y) the  substitution  will  result in
         income, if any, to Landlord of a type described in Section 856(c)(2) or
         (3) of the Code and will not result in income of the types described in
         Section  856(c)(4)  of the  Code or  result  in the tax  imposed  under
         Section 857(b)(6) of the Code, and (z) the substitution,  together with
         all  other  substitutions  made or  requested  by  Tenant of all or any
         portion of the Leased  Property  during the relevant time period,  will
         not  jeopardize  the   qualification  of  Landlord  as  a  real  estate
         investment trust under Sections 856-860 of the Code.

                  (d) In the  event  that  the  then  Fair  Market  Value of the
         Substitute  Property  or  group  of  Substitute  Properties  minus  the
         encumbrances assumed by Landlord, or as to which Landlord will take the
         Substitute  Property or group of Substitute  Properties  subject, as of
         the Substitution Date is greater than the then Fair Market Value of the
         Leased  Property  minus the  encumbrances  assumed by Tenant,  or as to
         which the  Tenant  will take the  Leased  Property  subject,  as of the
         Substitution  Date (or in the case of damage or  destruction,  the Fair
         Market Value immediately prior to such damage or destruction), Landlord
         shall pay to Tenant an amount equal to the  difference,  subject to the
         limitation  set  forth  below;  in the  event  that  such  value of the
         Substitute Property or group of Substitute Properties is less than such
         value of the Leased  Property,  Tenant  shall pay to Landlord an amount
         equal to the  difference,  subject to the  limitation  set forth below;
         provided,  however,  neither  Landlord nor Tenant shall be obligated to
         consummate such  substitution if such party would be required to make a
         payment  (the  "Cash

                                      -40-
<PAGE>

         Adjustment")  to the other in excess of an amount equal to five percent
         (5%) of the Fair Market Value of the Leased Property.

                  (e) The  Rent  for  such  Substitute  Property  shall,  in all
         respects,  provide  Landlord  with a yield (i.e.,  annual return on its
         equity in such property)  substantially  equivalent to Landlord's yield
         from the Leased  Property at the time of such  substitution  (or in the
         case of  substitution  because  of  damage  or  destruction  the  yield
         immediately  prior to such  damage or  destruction)  and as  reasonably
         projected  over  the  remaining  Term,  taking  into  account  the Cash
         Adjustment paid or received by Landlord and any other relevant factors,
         as reasonably determined by Landlord.

                  (f) The Minimum  Repurchase  Price of the Substitute  Property
         shall be an amount equal to the Minimum  Repurchase Price of the Leased
         Property (i) increased by any Cash Adjustment paid by Landlord pursuant
         to paragraph (d) above,  or (ii) decreased by any Cash  Adjustment paid
         by Tenant pursuant to paragraph (d) above.

         16.3  Conditions  to  Substitution.   On  the  Substitution  Date,  the
Substitute Property shall become the Leased Property hereunder, upon delivery by
Tenant to Landlord of the following:

                  (a)  an  Officer's   Certificate   certifying   that  (i)  the
         Substitute  Property  has been  accepted by Tenant for all  purposes of
         this Lease and there has been no  material  damage to the  improvements
         located  thereon,  nor is any  Condemnation  pending or threatened with
         respect   thereto;   (ii)  all   appropriate   permits,   licenses  and
         certificates (including, but not limited to, a permanent, unconditional
         certificate  of occupancy and all  certificates  of need,  licenses and
         provider  agreements)  which are  necessary  to  permit  the use of the
         Substitute  Property in  accordance  with the  provisions of this Lease
         have been  obtained  and are in full  force  and  effect;  (iii)  under
         applicable zoning and use laws, ordinances,  rules and regulations, the
         Substitute  Property may be used for the purposes  contemplated by this
         Lease  and all  necessary  subdivision  approvals,  if any,  have  been
         obtained;   (iv)  there  are  no  mechanics,   or  materialmen's  liens
         outstanding  or  threatened  to the  knowledge  of Tenant  against  the
         Substitute   Property   arising  out  of  or  in  connection  with  the
         construction  of the  improvements  thereon,  other  than  those  being
         contested by Tenant pursuant to Article 8; (v) to the best knowledge of
         Tenant,  there  exists no Default or Event of Default,  and no defense,
         offset or claim with respect to any sums  payable by Tenant  hereunder;
         and (vi) any exceptions to Landlord's title to the Substitute  Property
         do not  materially  interfere  with the intended use of the  Substitute
         Property by Tenant;

                  (b) a deed with full  warranties  or assignment of a leasehold
         estate with full warranties (as applicable) conveying to Landlord title
         to the Substitute Property free and clear of any liens or encumbrances,
         except those approved by Landlord;

                  (c) an amendment duly executed,  acknowledged and delivered by
         Tenant, in form and substance  satisfactory to Landlord,  amending this
         Lease to correct the legal  description of the Land and make such other
         changes   herein  as  may  be  necessary  or   appropriate   under  the
         circumstances;

                                      -41-
<PAGE>

                  (d)  counterparts  of  a  standard  owner's  or  lessee's  (as
         applicable) policy of title insurance covering the Substitute  Property
         (or a valid, binding,  unconditional commitment therefor),  dated as of
         the  Substitution  Date, in current form and including  mechanics'  and
         materialmen's  lien coverage,  issued to Landlord by a title  insurance
         company and in the form  reasonably  satisfactory  to  Landlord,  which
         policy shall (i) insure (x) Landlord's fee title or leasehold estate to
         the Substitute  Property,  subject to no liens or  encumbrances  except
         those approved by Landlord and (y) that any restrictions  affecting the
         Substitute  Property  have not been  violated;  (ii) be in an amount at
         least equal to the Fair Market Value of the  Substitute  Property;  and
         (iii) contain such affirmative coverage  endorsements as Landlord shall
         reasonably request;

                  (e)  certificates  of insurance with respect to the Substitute
         Property fulfilling the requirements of Article 9;

                  (f)  current  appraisals  or other  evidence  satisfactory  to
         Landlord,  in its sole  discretion,  as to the then current Fair Market
         Values and the projected  residual values of such  Substitute  Property
         and the Leased Property as to which such substitution is being made;

                  (g) all  available  revenue  data  relating to the  Substitute
         Property  for the period from the date of opening  for  business of the
         Facility  on such  Substitute  Property  to the date of  Tenant's  most
         recent  Fiscal  Year  end or for  the  most  recent  three  (3)  years,
         whichever is less; and

                  (h) such other  certificates,  documents,  opinions of counsel
         and other instruments as may be reasonably required by Landlord.

         16.4 Conveyance to Tenant.  On the  Substitution  Date,  Landlord shall
convey  the Leased  Property  to Tenant in  accordance  with the  provisions  of
Article 15 (except as to payment of any expenses in connection  therewith  which
shall be governed by Section  16.6) upon either (a) payment in cash  therefor or
(b) conveyance to Landlord of the Substitute Property, as appropriate.

         16.5  Expenses.  Tenant shall pay or cause to be paid,  on demand,  all
reasonable  costs and expenses paid or incurred by Landlord in  connection  with
the substitution and conveyance of the Leased Property and Substitute  Property,
including,  but not limited to, (a) reasonable fees and expenses of counsel, (b)
all printing  expenses,  (c) the amount of filing,  registration  and  recording
taxes and fees,  (d) the cost of preparing  and  recording,  if  appropriate,  a
release of the Leased Property from the lien of any mortgage,  (e) brokers, fees
and commissions,  (f) documentary  stamp and transfer taxes, (g) title insurance
charges and premiums, and (h) escrow fees.

                                      -42-
<PAGE>

                                   ARTICLE 17

                            SUBLETTING AND ASSIGNMENT

         17.1 Subletting and Assignment.  Except as hereinafter provided, Tenant
shall not assign, mortgage, pledge, hypothecate,  encumber or otherwise transfer
this Lease or sublease  (which  term shall be deemed to include the  granting of
concessions and licenses and the like) all or any part of the Leased Property or
suffer or permit this Lease or the leasehold  estate hereby created or any other
rights arising under this Lease to be assigned, transferred, mortgaged, pledged,
hypothecated  or  encumbered,   in  whole  or  in  part,  whether   voluntarily,
involuntarily  or by  operation  of law, or permit the use or  occupancy  of the
Leased  Property  by anyone  other than  Tenant,  or the Leased  Property  to be
offered  or  advertised  for  assignment  or  subletting  except as  hereinafter
provided.  For purposes of this Section  17.1, an assignment of this Lease shall
be deemed to  include  any  transaction  pursuant  to which  Tenant is merged or
consolidated  with another entity or pursuant to which all or substantially  all
of Tenant's assets are transferred to any other entity,  as if such  transaction
were an assignment of this Lease.

         If this Lease is assigned or if the Leased Property or any part thereof
are  sublet  (or  occupied  by anybody  other  than  Tenant  and its  employees)
Landlord,  after  default by Tenant  hereunder,  may collect the rents from such
assignee,  subtenant or  occupant,  as the case may be, and apply the net amount
collected to the Rent herein reserved,  but no such collection shall be deemed a
waiver of the provisions set forth in the first  paragraph of this Section 17.1,
the acceptance by Landlord of such assignee,  subtenant or occupant, as the case
may be, as a tenant,  or a release  of Tenant  from the  future  performance  by
Tenant of its covenants, agreements or obligations contained in this Lease.

         No  subletting  or  assignment  shall in any way impair the  continuing
primary  liability  of Tenant  hereunder,  and no consent to any  subletting  or
assignment  in a  particular  instance  shall be  deemed  to be a waiver  of the
obligation to obtain the  Landlord's  written  approval in the case of any other
subletting or assignment.  No assignment,  subletting or occupancy  shall affect
the Primary  Intended  Use.  Any  subletting,  assignment  or other  transfer of
Tenant's  interest in this Lease in  contravention of this Section 17.1 shall be
voidable at Landlord's option.

         Tenant shall have the right,  without the consent of  Landlord,  (A) to
assign  Tenant's  interest in this Lease to a corporation  or other entity which
shall (1) control,  (2) be under the control of, or (3) be under common  control
with the Tenant (the term  "control" and  "controlling"  as used herein shall be
deemed to mean ownership or control (direct or indirect) of more than 50% of the
outstanding  voting  stock  of a  corporation,  or an  equivalent  majority  and
controlling  interest  in  another  form of  entity)  (any such  entity  being a
"Related  Entity");  (B) to  sublease  all or part of the Leased  Property  to a
Related  Entity;  and  (C)  to  grant  concessions  and  licenses  (subject  and
subordinate  to this Lease and to the  matters to which the Lease is subject and
subordinate),  in the ordinary course of Tenant's business,  for portions of the
Leased Property to be used in connection with Tenant's Primary Intended Use.

         If  the  rent  and  other  sums  (including,  without  limitation,  the
reasonable  value of any  services  performed  by any  assignee or  subtenant in
consideration  of such assignment or sublease) either initially or over the term
of any assignment or sublease (excluding any

                                      -43-
<PAGE>

assignment  or  sublease  to a Related  Entity),  payable  by such  assignee  or
subtenant  on account of an  assignment  or sublease  exceed the Rent called for
hereunder  with  respect to the space  assigned or sublet,  Tenant  shall pay to
Landlord as Additional Rent one hundred percent (100%) of such excess net of the
costs and expenses incurred by Tenant in procuring such sublease payable monthly
at the time for payment Minimum Rent.

         17.2 Required Sublease  Provisions.  Any sublease of all or any portion
of the Leased  Property shall provide that it is subject and subordinate to this
Lease  and to the  matters  to  which  this  Lease is or  shall  be  subject  or
subordinate,  and that in the event of  termination  of this Lease or reentry or
dispossession  of Tenant by  Landlord  under this  Lease,  Landlord  may, at its
option,  take over all of the right,  title and interest of Tenant, as sublessor
under such sublease,  and such subtenant shall, at Landlord's option,  attorn to
Landlord pursuant to the then executory provisions of such sublease, except that
neither  Landlord  nor any  Facility  Mortgagee,  as holder of a mortgage  or as
Landlord under this Lease,  if such mortgagee  succeeds to that position,  shall
(a) be liable for any act or  omission  of Tenant  under such  sublease,  (b) be
subject to any credit, counterclaim, offset or defense which theretofore accrued
to such subtenant against Tenant,  (c) be bound by any previous  modification of
such  sublease or by any previous  prepayment of more than one (1) month's rent,
(d) be bound by any covenant of Tenant to undertake or complete any-construction
of the Leased  Property or any portion  thereof,  (e) be required to account for
any security  deposit of the subtenant other than any security  deposit actually
delivered  to Landlord  by Tenant,  (f) be bound by any  obligation  to make any
payment to such  subtenant or grant any credits,  except for services,  repairs,
maintenance  and  restoration  provided  for under the  sublease to be performed
after the date of such  attornment,  (g) be responsible  for any monies owing by
Tenant to the credit of such Subtenant,  or (h) be required to remove any person
occupying  the Leased  Property or any part  thereof;  and such  sublease  shall
provide that the subtenant thereunder shall, at the request of Landlord, execute
a  suitable  instrument  in  confirmation  of  such  agreement  to  attorn.  The
provisions of this paragraph  shall not be deemed a waiver of the provisions set
forth in the first paragraph of Section 17.1.

         17.3  Sublease  Limitation.  Anything  contained  in this  Lease to the
contrary notwithstanding, (a) Tenant shall not sublet the Leased Property on any
basis  such that the  rental  to be paid by the  sublessee  thereunder  would be
based,  in whole or in part, on either (i) the income or profits  derived by the
business  activities of the  sublessee,  or (ii) any other formula such that any
portion  of the  sublease  rental  would  fail to  qualify  as "rents  from real
property"  within the meaning of Section  856(d) of the Code,  or any similar or
successor  provision  thereto  and (b) Tenant  will  neither  assign  (including
through  merger or  consolidation)  or sublet the Leased  Property to any Person
performing  management or servicing  functions to, or on behalf of,  Landlord or
any  Affiliated  Person  thereof if either  Landlord  or its  Affiliated  Person
intends such Person to qualify as an "independent  contractor from whom" neither
Landlord  nor any  Affiliated  Person  thereof  "derives or receives any income"
within the meaning of Section 856 of the Code, nor will Tenant acquire any asset
or enter into any merger, consolidation or other transactions that would require
it to perform such functions in the capacity of a Person that either Landlord or
any Affiliated  Person thereof  intends to be an  "independent  contractor  from
whom"  neither  Landlord  nor any  Affiliated  Person  "derives or receives  any
income" within the meaning of Section 856 of the Code.

                                      -44-
<PAGE>

         17.4 Assignment and Subletting  Procedure.  Anything  contained in this
Lease to the contrary notwithstanding, if Tenant wishes to enter into a sublease
with  respect to any  portion of the Leased  Property or an  assignment  of this
Lease, Tenant shall give Landlord notice of such intent, which notice ("Tenant's
Notice")  shall  state,  in the event of a proposed  sublease,  the location and
amount of area  intended  to be  covered  by such  sublease  and the term of the
proposed  sublease,  the proposed effective date of such sublease or assignment,
and the  identity  of  such  proposed  subtenant  or  assignee  and  such  other
information  with respect thereto as Landlord may reasonably  require.  Landlord
shall not  unreasonably  withhold  its  consent to any  proposed  assignment  or
sublease,  and  Landlord  shall be  deemed  to have  consented  to any  proposed
assignment  or sublease  with a Related  Entity,  provided that in any such case
Tenant shall  deliver to Landlord a written  instrument,  in form and  substance
reasonably  satisfactory  to Landlord,  pursuant to which such  assignee  agrees
directly  with  Landlord  to be bound by all the  terms of this  Lease and to be
jointly and severally liable with Tenant for all of Tenant's  obligations  under
this Lease.

                                   ARTICLE 18

                      CERTIFICATES AND FINANCIAL STATEMENTS

         18.1 Estoppel Certificates. At any time and from time to time, upon not
less than  twenty  (20) days prior  written  notice by  Landlord,  Tenant  shall
furnish to  Landlord  an  Officer's  Certificate  certifying  that this Lease is
unmodified and in full force and effect (or that this Lease is in full force and
effect as modified and setting forth the  modifications),  the date to which the
Rent has been paid,  that,  to the best of Tenant's  knowledge  and belief after
making due inquiry, Tenant is not in default in the performance or observance of
any of the terms of this Lease and that no event exists which with the giving of
notice,  lapse of time, or both,  would  constitute a default  hereunder,  or if
Tenant  shall be in  default  or any  such  event  shall  exist,  specifying  in
reasonable  detail all such  defaults  or events,  and the steps  being taken to
remedy the same,  and such  additional  information  as Landlord may  reasonably
request.  Any such certificate  furnished pursuant to this section may be relied
upon by  Landlord  and any  prospective  purchaser  or  mortgagee  of the Leased
Property.

         18.2   Financial   Statements.   Tenant  shall  furnish  the  following
statements to Landlord:

                  (a) Within  forty-five (45) days after each of the first three
         quarters of each Fiscal Year, the most recent  Consolidated  Financials
         of Tenant,  together  with an Officer's  Certificate  certifying to the
         accuracy of such Consolidated Financials;

                  (b) Within one hundred twenty (120) days after the end of each
         Fiscal Year, the most recent Consolidated Financials of Tenant for such
         year, together with an Officer's Certificate certifying to the accuracy
         of such Consolidated Financials; and

                  (c) At any  time  and from  time to time  upon  not less  than
         twenty  (20)  business  days  notice from  Landlord,  any  Consolidated
         Financials or any other financial reporting  information required to be
         filed by Landlord with any securities and exchange commission,  the SEC
         or any  successor  agency,  or any  other  governmental  authority,  or
         required  pursuant  to  any  order  issued  by any  court  governmental
         authority or arbitrator in

                                      -45-
<PAGE>

         any litigation to which Landlord is a party, for purposes of compliance
         therewith,  but  only to the  extent  such  information  is  reasonably
         available and then all at the sole cost and expense of Landlord.

         18.3  General  Operations.  Tenant  covenants  and agrees to furnish to
Landlord:

              18.3.1  Reimbursement,  Licensure,  Etc.  Within  thirty (30) days
after  request  therefor by  Landlord  (but in each case only to the extent such
information  is  reasonably  available  and then at the sole cost and expense of
Landlord), copies of:

                  (A)  The  primary  operating  license  authorizing  Tenant  to
         operate the Facility for its Primary Intended Use;

                  (B) All  Medicare  and  Medicaid  certifications  and provider
         agreements with respect to the Facility;

                  (C) A Nursing Home  Administrator  License for the individuals
         employed in such capacity with respect to the Facility; and

                  (D) All reports of surveys, statements of deficiencies,  plans
         of  correction,  and  all  material  correspondence  relating  thereto,
         including,  without limitation, all reports and material correspondence
         concerning   compliance   with  or   enforcement   of   licensure   and
         Medicare/Medicaid requirements, including physical environment and Life
         Safety Code survey reports (excluding,  however,  correspondence  which
         may be subject to any attorney-client privilege).

                                   ARTICLE 19

                                 LANDLORD ACCESS

         19.1 Landlord's Right to Inspect.  Tenant shall permit Landlord and its
authorized  representatives to inspect the Leased Property during usual business
hours,  and to do and make such  repairs as Landlord is permitted or required to
make  pursuant  to the terms of this  Lease,  subject to any  security,  health,
safety or  patient or  business  confidentiality  requirements  of Tenant or any
governmental agency or Insurance  Requirement relating to the Leased Property or
imposed by law.

         19.2  Landlord's  Option to Purchase  the Tenant's  Personal  Property:
Transfer of Licenses.  Effective on not less than ninety (90) days' prior notice
given at any time within one hundred  eighty (180) days after the  expiration of
the Term (or such  shorter  period  as  shall be  appropriate  if this  Lease is
terminated  prior to its  expiration  date),  Landlord  shall have the option to
purchase all (but not less than all) of Tenant's Personal Property (except motor
vehicles), if any, at the expiration or termination of this Lease, for an amount
equal  to the  then  net  market  value  thereof  (current  replacement  cost as
determined  by  appraisal  less  accumulated   depreciation  on  Tenant's  books
pertaining thereto), subject to, and with appropriate price adjustments for, all
equipment  leases,  conditional sale contracts,  UCC-1 financing  statements and
other  encumbrances  to which  such  Personal  Property  is  subject;  provided,
however,  Landlord  shall not have the right to purchase any Facility Trade Name
or logo.

                                      -46-
<PAGE>

                                   ARTICLE 20

                                    APPRAISAL

         20.1  Appraisal  Procedure.  In the event that it becomes  necessary to
determine the Fair Market Value, Fair Market Value Purchase Price or Fair Market
Rental of the Leased  Property or a Substitute  Property for any purpose of this
Lease,  the  party  required  or  permitted  to give  notice  of  such  required
determination (the "Initiating  Party") shall include in such notice the name of
a designated Qualified Appraiser  (hereinafter defined) on its behalf. Within 10
days after notice,  the party  receiving  such notice (the  "Responding  Party")
shall, by written notice to the other, appoint a second Qualified Appraiser.  If
the Responding Party shall fail, neglect or refuse within said ten-day period to
designate another  appraiser willing so to act, the appraiser  designated by the
Initiating Party shall designate the second Qualified  Appraiser within ten (10)
days  thereafter.  The two  appraisers so designated  shall meet within ten (10)
days after the second  appraiser  is  designated,  and,  if within ten (10) days
after the second  appraiser is designated,  the two appraisers do not agree upon
the Fair Market Value,  Fair Market Value  Purchase Price or Fair Market Rental,
as the case may be, of the applicable  property as of the relevant date, the two
appraisers  shall  designate a third Qualified  Appraiser,  within ten (10) days
thereafter.  In the event that the two  appraisers  are unable to agree upon the
appointment  of a third  Qualified  Appraiser  within  such ten (10) day period,
either  Landlord or Tenant,  on behalf of both, may then request  appointment of
such appraiser the then president of the American  Arbitration  Association.  In
the event of a failure,  refusal or  inability  of any  appraiser  to act, a new
appraiser shall be appointed in his stead,  which  appointment  shall be made in
the same manner as hereinabove provided for the appointment of such appraiser so
failing,  refusing  or being  unable to act.  In the event  that all  appraisers
cannot agree upon such value ten (10) days as aforesaid,  each  appraiser  shall
submit his appraisal of such value to the other two  appraisers in writing,  and
such value shall be determined by calculating the average of the two numerically
closest (or, if the values are equidistant,  all three) values determined by the
three appraisers.

         The costs,  other than counsel fees, of such  appraisal  shall be borne
equally by the  parties.  Upon  determining  such value,  the  appraisers  shall
promptly  notify  Landlord and Tenant in writing of such  determination.  If any
party shall fail to appear at the  hearings  appointed  by the  appraisers,  the
appraisers may act in the absence of such party.

         The  determination of the board of appraisers (or the single additional
Qualified  Appraiser,  as  appropriate)  made in  accordance  with the foregoing
provisions shall be final and binding upon the parties,  such  determination may
be entered as an award in arbitration in a court of competent jurisdiction,  and
judgment thereon may be entered.

                                   ARTICLE 21

                                    MORTGAGES

         21.1 Landlord May Grant Liens. Without the consent of Tenant,  Landlord
may,  subject to the terms and conditions  set forth in this Section 21.1,  from
time to time,  directly or  indirectly,  create or otherwise  cause to exist any
lien,  encumbrance or title retention agreement  ("Encumbrance") upon the Leased
Property,  or any  portion  thereof or interest  therein,  whether to

                                      -47-
<PAGE>

secure any  borrowing  or other  means of  financing  or  refinancing.  Any such
Encumbrance,  other  than  one  the  proceeds  of  which  are  used  to  finance
construction  of a Capital  Addition  pursuant to the provisions of Sections 6.1
and 6,3,  shall  include  the  right to  prepay  (whether  or not  subject  to a
prepayment  penalty)  and shall  provide  (subject  to Section  21.2) that it is
subject to the rights of Tenant under this Lease.

         21.2  Subordination  of Lease.  Subject  to  Section  21.1 and the last
paragraph of this Section 21.2, this Lease, and all rights of Tenant  hereunder,
are and shall be subject and subordinate to any ground or master lease,  and all
renewals,  extensions,  modifications  and  replacements  thereof,  and  to  all
mortgages  and deeds of trust,  which may now or  hereafter  affect  the  Leased
Property or any improvements  thereon and/or any of such leases,  whether or not
such  mortgages or deeds of trust shall also cover other lands and/or  buildings
and/or leases, to each and every advance made or hereafter to be made under such
mortgages and deeds of trust, and to all renewals,  modifications,  replacements
and  extensions  of such  leases and such  mortgages  and deeds of trust and all
consolidations  of such  mortgages  and deeds of trust.  This  section  shall be
self-operative and no further instrument of subordination shall be required.  In
confirmation of such  subordination  Tenant shall promptly execute,  acknowledge
and deliver any instrument that Landlord, the lessor under any such lease or the
holder of any such mortgage or the trustee or  beneficiary  of any deed of trust
or any of their  respective  successors  in interest may  reasonably  request to
evidence  such  subordination.  Any  lease to which  this  Lease is, at the time
referred to, subject and subordinate is herein called  "Superior  Lease" and the
lessor of a Superior Lease or its successor in interest at the time referred to,
is herein called "Superior  Landlord" and any mortgage or deed of trust to which
this Lease is, at the time  referred  to,  subject  and  subordinate,  is herein
called "Superior Mortgage" and the holder,  trustee or beneficiary of a Superior
Mortgage is herein called "Superior Mortgagee".

         If any  Superior  Landlord  or  Superior  Mortgagee  or the  nominee or
designee of any Superior  Landlord or Superior  Mortgagee  shall  succeed to the
rights of Landlord under this Lease,  whether through  possession or foreclosure
action or delivery of a new lease or deed, or otherwise,  then at the request of
such  party  so  succeeding  to  Landlord's  rights  (herein  called  "Successor
Landlord")  and upon  such  Successor  Landlord's  written  agreement  to accept
Tenant's  attornment,  Tenant  shall  attorn  to and  recognize  such  Successor
Landlord as Tenant's  landlord under this Lease and shall  promptly  execute and
deliver any instrument  that such Successor  Landlord may reasonably  request to
evidence such attornment. Upon such attornment this Lease shall continue in full
force and effect as a direct  lease  between the  Successor  Landlord and Tenant
upon all of the terms,  conditions and covenants as are set forth in this Lease,
except that the  Successor  Landlord  (unless  formerly the landlord  under this
Lease or its nominee or  designee)  shall not be (a) liable in any way to Tenant
for any act or omission,  neglect or default on the, part of Landlord under this
Lease,  (b)  responsible  for any monies owing by or on deposit with Landlord to
the  credit  of  Tenant,  (c)  subject  to  any  counterclaim  or  setoff  which
theretofore accrued to Tenant against Landlord, (d) bound by any modification of
this Lease  subsequent  to such Superior  Lease or Mortgage,  or by any previous
prepayment  of Minimum Rent for more than one (1) month,  which was not approved
in writing by the  Superior  Landlord or the  Superior  Mortgagee  thereto,  (e)
liable to the Tenant  beyond the  Successor  Landlord's  interest  in the Leased
Property and the rents, income, receipts,  revenues,  issues and profits issuing
from the Leased Property,  (f) responsible for the performance of any work to be
done by the Landlord  under this Lease to render the Leased  Property  ready for
occupancy by Tenant,  or (g) required to

                                      -48-
<PAGE>

remove any person  occupying the Leased Property or any part thereof,  except if
such person claims by, through or under the Successor Landlord. Tenant agrees at
any time and from time to time to execute a suitable  instrument in confirmation
of Tenant's agreement to attorn, as aforesaid.

         Tenant's  obligation  to  subordinate  this Lease and  Tenant's  rights
hereunder to any Superior  Mortgage or Superior Lease shall be conditioned  upon
Landlord  obtaining  from  any  Superior  Mortgagee  or  Superior  Landlord,  an
agreement  which  shall be  executed by Tenant and such  Superior  Mortgagee  or
Superior  Landlord  which shall provide in substance that so long as no Event of
Default  exists as would  entitle  Landlord or any such  Superior  Mortgagee  or
Superior  Landlord to terminate  this Lease or would cause,  without any further
action  of  Landlord  or such  Superior  Mortgagee  or  Superior  Landlord,  the
termination of this Lease or would entitle  Landlord or such Superior  Mortgagee
or Superior Landlord to dispossess  Tenant,  this Lease shall not be terminated,
nor shall  Tenant's  use,  possession  or enjoyment of the Leased  Property,  in
accordance with the terms and provisions of this Lease, be interfered  with, nor
shall the  leasehold  estate  granted  by this  Lease be  affected  in any other
manner,  in any foreclosure or any action or proceeding  instituted  under or in
connection  with such Superior  Mortgage or Superior Lease, or in the event such
Superior  Mortgagee or Superior Landlord takes possession of the Leased Property
pursuant to any provisions of such Superior  Mortgage or Superior Lease,  unless
Landlord or such  Superior  Mortgagee or Superior  Landlord  would have had such
right of termination  pursuant to this Lease.  Such  agreement  shall be in form
customarily used by the holder of any such Superior Mortgage or Superior Lease.

         21.3 Notice to Mortgagee and Ground Landlord. Subsequent to the receipt
by Tenant of notice from any person,  firm or other entity that it is a Facility
Mortgagee,  or that it is the  ground  lessor  under a lease with  Landlord,  as
ground  lessee,  which  includes  the  Leased  Property  as part of the  demised
premises,  no notice from Tenant to Landlord shall be effective unless and until
a copy of the same is given to such Facility  Mortgagee or ground lessor and the
curing of any of Landlord's defaults by such Facility Mortgagee or ground lessor
shall be treated as performance by Landlord.

                                   ARTICLE 22

                         ADDITIONAL COVENANTS OF TENANT

         22.1 Notice of Change of Name,  Administrator,  Etc.  Tenant shall give
prompt notice to Landlord of any change in (a) the name (operating or otherwise)
of Tenant or the Facility,  (b) the individual  licensed as administrator of the
Facility,  (c) the number of beds in any bed  category for which the Facility is
licensed  or the  number of beds in any bed  category  available  for use at the
Facility (except for changes in the number of certified  distinct part beds made
for reimbursement  maximization purposes), and (d) the patient and/or child care
services that are offered at the Facility.

         22.2 Notice of  Litigation,  Potential  Event of Default,  Etc.  Tenant
shall give prompt  notice to Landlord of any  litigation  or any  administrative
proceeding to which it may hereafter  become a party which  involves a potential
liability  equal to or greater than $250,000,  or which may otherwise  result in
any material adverse change in the business,  operations,  property,

                                      -49-
<PAGE>

prospects,  results of operation or  condition,  financial or other,  of Tenant.
Forthwith upon Tenant obtaining knowledge of any Default or Event of Default, or
any event or  condition  that would be  required  to be  disclosed  in a current
report  filed by Tenant on Form 8-K or in Part II of a quarterly  report on Form
10-Q if Tenant were required to file such reports under the Securities  Exchange
Act, of 1934,  as amended,  Tenant shall give  Landlord  notice  thereof,  which
notice shall set forth in  reasonable  detail the nature and period of existence
thereof and what  action  Tenant has taken or is taking or proposes to take with
respect thereto.

         22.3 Distributions,  Payments to Affiliated  Persons,  Etc. Tenant will
not declare, order, pay or make, directly or indirectly, any distribution or any
payment  to any  Affiliated  Person  as to  Tenant  (including  payments  in the
ordinary course of business and payment  pursuant to management  agreements with
any such Affiliated Person) or set apart any sum or property therefor,  or agree
to do so, if, at the time of such proposed action,  or immediately  after giving
effect thereto,  any event or condition shall exist which  constitutes a Default
(as to which Landlord has given notice to Tenant) or an Event of Default.

                                   ARTICLE 23

                                  MISCELLANEOUS

         23.1 No Waiver.  No failure by  Landlord  or Tenant to insist  upon the
strict  performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach  thereof,  and no acceptance of full or partial payment
of rent during the continuance of any such breach,  shall constitute a waiver of
any such breach or of any such term.  To the extent  permitted by law, no waiver
of any breach  shall  affect or alter this Lease,  which shall  continue in full
force and effect with respect to any other then existing or subsequent breach.

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

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

         23.4 No Merger of Title.  There  shall be no merger of this Lease or of
the leasehold  estate created hereby by reason of the fact that the same person,
firm,  corporation  or  other  entity  may  acquire,  own or hold,  directly  or
indirectly (a) this Lease or the leasehold estate created hereby or any interest
in this  Lease  or such  leasehold  estate  and (b)  the fee  estate  or  ground
landlord's interest in the Leased Property.

                                      -50-
<PAGE>

         23.5 Conveyance by Landlord.  If Landlord or any successor owner of the
Leased  Property shall convey the Leased  Property in accordance  with the terms
hereof other than as security for a debt,  and the grantee or  transferee of the
Leased  Property shall expressly  assume all  obligations of Landlord  hereunder
arising or accruing  from and after the date of such  conveyance or transfer and
shall be reasonably capable of performing the obligations of Landlord hereunder,
Landlord  or such  successor  owner,  as the case  may be,  shall  thereupon  be
released from all future  liabilities  and  obligations  of Landlord  under this
Lease  arising or accruing  from and after the date of such  conveyance or other
transfer  as to  the  Leased  Property  and  all  such  future  liabilities  and
obligations shall thereupon be binding upon the new owner.

         23.6 Quiet Enjoyment.  So long as Tenant shall pay the Rent as the same
becomes due and shall  substantially  comply with all of the terms of this Lease
and perform its obligations hereunder,  Tenant shall peaceably and quietly have,
hold and enjoy the Leased  Property  for the Term  hereof,  free of any claim or
other action by Landlord or anyone claiming by, through or under  Landlord,  but
subject  to all  liens  and  encumbrances  of  record  as of the date  hereof or
hereafter consented to by Tenant. Except as otherwise provided in this Lease, no
failure by Landlord to comply with the foregoing  covenant shall give Tenant any
right to cancel or  terminate  this Lease or abate,  reduce or make a  deduction
from or offset against the Rent or any other sum payable under this Lease, or to
fail to perform any other obligation of Tenant  hereunder.  Notwithstanding  the
foregoing,  Tenant shall have the right, by separate and  independent  action to
pursue  any  claim it may have  against  Landlord  as a  result  of a breach  by
Landlord of the covenant of quiet enjoyment contained in this Section.

         23.7 Landlord's Liability.  THE DECLARATION OF TRUST OF LANDLORD, DATED
APRIL 2,  1999,  A COPY OF WHICH,  TOGETHER  WITH ALL  AMENDMENTS  THERETO  (THE
"DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND
TAXATION OF THE STATE OF  MARYLAND,  PROVIDES  THAT THE NAME  "HRES1  PROPERTIES
TRUST" REFERS TO THE TRUSTEES UNDER THE  DECLARATION  COLLECTIVELY  AS TRUSTEES,
BUT NOT INDIVIDUALLY OR PERSONALLY,  AND THAT NO TRUSTEE, OFFICER,  SHAREHOLDER,
EMPLOYEE OR AGENT OF LANDLORD SHALL BE HELD TO ANY PERSONAL  LIABILITY,  JOINTLY
OR SEVERALLY,  FOR ANY OBLIGATION OF, OR CLAIM  AGAINST,  LANDLORD.  ALL PERSONS
DEALING WITH  LANDLORD,  IN ANY WAY,  SHALL LOOK ONLY TO THE ASSETS OF LANDLORD,
FOR THE PAYMENT OF ANY SUM OR THE  PERFORMANCE OF ANY  OBLIGATION.  Tenant,  its
successors  and  assigns,  shall not assert  nor seek to  enforce  any claim for
breach of this Lease  against any of  Landlord's  assets  other than  Landlord's
interest in the Leased  Property and in the rents,  issues and profits  thereof,
and Tenant  agrees to look solely to such interest for the  satisfaction  of any
liability or claim  against  Landlord  under this Lease,  it being  specifically
agreed that in no event  whatsoever  shall  Landlord  (which term shall include,
without  limitation,  any general or limited partner,  trustees,  beneficiaries,
officers,  directors, or stockholders of Landlord) ever be personally liable for
any such liability.  In no event shall Landlord ever be liable to Tenant for any
indirect or consequential damages.

         23.8 Landlord's  Consent.  Where  provisions are made in this Lease for
Landlord's  consent  and  Landlord  shall fail or refuse to give such,  consent,
Tenant shall not be entitled to any damages for any  withholding  by Landlord of
its consent,  it being intended that Tenant's sole

                                      -51-
<PAGE>

remedy shall be an action for specific performance or injunction,  and that such
remedy  shall be  available  only in those cases where  Landlord  has  expressly
agreed in writing not to unreasonably withhold its consent.

         23.9 Memorandum of Lease. Neither Landlord nor Tenant shall record this
Lease. However,  Landlord and Tenant shall promptly, upon the request of either,
enter into a short form memorandum of this Lease, in form suitable for recording
under the laws of the State in which  reference  to this Lease,  and all options
contained  herein,  shall be made.  Tenant  shall pay all costs and  expenses of
recording such memorandum of this Lease.

         23.10 Notices.

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

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

                  (c) All such notices shall be addressed,

                           if to Landlord to it at:

                           c/o SENIOR HOUSING PROPERTIES TRUST
                           400 Centre Street
                           Newton, MA  02458
                           Telecopy no.:  (617) 796-8349
                           Attention:  President,

                           with copy to:

                           SULLIVAN & WORCESTER LLP
                           One Post Office Square
                           Boston, MA 02109
                           Telecopy no.:  (617) 338-2880
                           Attention:  Alexander A. Notopoulos, Jr. Esq.,

                                      -52-
<PAGE>

                           and if to any Tenant, to it:

                           c/o Integrated Health Services, Inc.
                           The Highlands
                           910 Ridgebrook Road
                           Sparks, MD 21152
                           Telecopy no.:  (410) 773-1020
                           Attention:  Daniel J. Booth, Senior Vice President,
                                        Finance

                           with a copy to:

                           Parker Chapin LLP
                           405 Lexington Avenue
                           New York, NY  10174
                           Telecopy no.:  (212) 704-6288
                           Attention:  Charles P. Greenman, Esq.

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

         23.11  Construction.  Anything  contained in this Lease to the contrary
notwithstanding,  all claims  against,  and  liabilities  of, Tenant or Landlord
arising  prior to any date of  termination  of this  Lease  shall  survive  such
termination.  If any term or provision of this Lease or any application  thereof
shall be invalid or  unenforceable,  the  remainder  of this Lease and any other
application  of such term or provisions  shall not be affected  thereby.  If any
late charges or any interest  rate  provided for in any  provision of this Lease
are based upon a rate in excess of, the maximum  rate  permitted  by  applicable
law,  the  parties  agree  that  such  charges  shall be  fixed  at the  maximum
permissible  rate.  Neither this Lease nor any provision  hereof may be changed,
waived,  discharged or terminated  except by an instrument in writing  signed by
the party to be  charged.  All the terms and  provisions  of this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors  and  assigns.  The  headings  in this Lease are for  convenience  of
reference only and shall not limit or otherwise affect the meaning hereof.  This
Lease  represents the entire agreement among the parties and amends and restates
the original Leases in their entirety. This Lease may not be amended or modified
in any respect except by the written agreement of Landlord and Tenant.  Landlord
and  Tenant  intend  that  this  Lease  shall be  construed  as a  post-petition
agreement of Tenant, notwithstanding that it is dated January 1, 2000.

         23.12  Governing  Law.  This  Lease  shall be  interpreted,  construed,
applied and  enforced in  accordance  with the laws of the State  applicable  to
contracts  between  residents  of the State which are to be  performed  entirely
within the State,  regardless  of (i) where this Lease is executed or delivered;
or (ii) where any payment or other performance required by this Lease is made or
required to be made;  or (iii) where any breach of any  provision  of this Lease
occurs,  or any cause of action otherwise  accrues;  or (iv) where any action or
other proceeding is instituted or pending;

                                      -53-
<PAGE>

or (v) the nationality,  citizenship,  domicile, principle place of business, or
jurisdiction of organization or  domestication of any party; or (vi) whether the
laws of the forum jurisdiction  otherwise would apply the laws of a jurisdiction
other than the State; or (vii) any combination of the foregoing.

         23.13  Consent to  Jurisdiction.  To the maximum  extent  permitted  by
applicable  law,  any action to enforce,  arising out of, or relating in any way
to, any of the  provisions  of this Lease may be brought and  prosecuted in such
court or courts  located in the State as is  provided  by law;  and the  parties
consent to the jurisdiction of said court or courts located in the State and, to
service of process by registered mail, return receipt requested, or by any other
manner provided by law.

                                      -54-
<PAGE>

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

                                     LANDLORD:

                                     HRES1 PROPERTIES TRUST

                                     BY:  /s/ Ajay Saini
                                          Its:  Treasurer

                                     TENANT:

                                     IHS ACQUISITION 135, INC.,
                                     a Delaware corporation

                                     By:  /s/ Daniel J. Booth
                                          Its (Vice) President

                                      -55-EXHIBIT 10.8

                  GUARANTY BY INTEGRATED HEALTH SERVICES, INC.

                  GUARANTY dated as of January 1, 2000 made by INTEGRATED HEALTH
SERVICES,  INC.,  a  Delaware  corporation   ("Guarantor")  in  favor  of  HRES1
PROPERTIES  TRUST, a Maryland real estate  investment  trust (with its successor
and assigns, "Landlord").

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

         WHEREAS,  Landlord  and IHS  Acquisition  No.  135,  Inc.,  a  Delaware
corporation  ("IHS 135") are parties to a Lease  Agreement  dated as of February
11, 1994, as amended (the "Original Lease"),  originally between HRPT Properties
Trust (f/k/a  "Health and  Rehabilitation  Properties  Trust"),  a Maryland real
estate  investment  trust  ("HRPT"),   as  landlord,   and  Horizon   Healthcare
Corporation, a Delaware corporation ("Horizon"), as tenant;

         WHEREAS,  Landlord  has  succeeded  to the interest of HRPT as landlord
under the Original Lease;

         WHEREAS,  pursuant to an  Assignment  and  Assumption  of Real Property
Lease  dated as of  December  31,  1997 by and  between  Horizon/CMS  Healthcare
Corporation  (the successor to Horizon),  as assignor,  and IHS  Acquisition No.
151, Inc., a Delaware corporation ("IHS 151"), as assignee, IHS 151 acquired all
right,  title and  interest  of  Horizon/CMS  Healthcare  Corporation  under the
Original Lease;

          WHEREAS,  pursuant to an  Assignment  and  Assumption of Real Property
Lease dated as of December 31, 1997 by and between IHS 151, as assignor, and IHS
135, as  assignee,  IHS 135  acquired  all right,  title and interest of IHS 151
under the Original Lease;

         WHEREAS, pursuant to a Consent, Assumption and Guaranty Agreement dated
as of December 31, 1997 (the "IHS Consent") among Guarantor, IHS 135 and certain
other  subsidiaries of Guarantor,  HealthSouth  Corporation,  Horizon,  HRPT and
Indemnity Collection Corporation,  Guarantor and IHS 135 assumed the obligations
of Horizon under the Original Lease;

         WHEREAS,  Landlord  claims that by a notice  dated  January  25,  2000,
Landlord notified IHS 135 that the Original Lease was terminated by virtue of an
Event of Default under the Original Lease;

         WHEREAS,   on   February  3,  2000,   Guarantor   and  certain  of  its
subsidiaries,   including  IHS  135,  filed   voluntary   petitions  for  relief
(collectively,  the "Cases")  under chapter 11 of the United  States  Bankruptcy
Code,  ss.ss.101  et  seq.  (the  "Bankruptcy  Code")  with  the  United  States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court");

         WHEREAS,  Guarantor  and  IHS  135  are  continuing  to  operate  their
businesses  and manage  their  respective  properties  as  debtors-in-possession
pursuant to ss.ss.1107 and 1108 of the Bankruptcy Code;
<PAGE>

         WHEREAS,  pursuant to, and in accordance  with, a Settlement  Agreement
dated as of April 11, 2000 among,  inter alia,  Guarantor,  Landlord and IHS 135
(as amended,  amended and restated,  modified or supplemented from time to time,
the  "Settlement  Agreement"),  Landlord  has  agreed  to  rescind  its  alleged
termination of the Original Lease, Landlord and IHS 135 have agreed to amend and
restate  the  Original  Lease as set  forth in an  Amended  and  Restated  Lease
Agreement  dated as of even date  herewith  (as amended,  amended and  restated,
modified or  supplemented  from time to time,  the "Lease")  between IHS 135 and
Landlord,  and Guarantor has agreed to guaranty the obligations of IHS 135 under
the Lease;

         NOW, THEREFORE, in consideration of the premises and for other good and
valuable   consideration,   the  receipt  and   adequacy  of  which  are  hereby
acknowledged, Guarantor hereby agrees with Landlord as follows:

1. Defined Terms.  Unless otherwise  defined herein,  terms which are defined in
the Lease and used herein are so used as so defined. In addition,  the following
terms shall have the meanings set forth below:

                  "Consolidated  Financials"  shall mean, for any fiscal year or
         other accounting period of Guarantor and its consolidated Subsidiaries,
         its annual Form 10-K and quarterly  Form 10-Q prepared  pursuant to the
         Securities  and  Exchange  Act  of  1934,  as  amended,  or  comparable
         financial statement.

                  "Lease Documents" shall mean, collectively,  the Lease and any
         sublease  or  assumption  of lease  entered  into by a  Related  Entity
         pursuant  to Article 17 of the Lease,  as any of the same may from time
         to time be amended, modified or supplemented.

                   "Material  Adverse Effect" means a material adverse effect on
         (a)  the  business,  operations,   property,  condition  (financial  or
         otherwise)  or prospects of Guarantor and its  Subsidiaries  taken as a
         whole,  (b) the ability of Guarantor to perform its  obligations  under
         this Guaranty,  or (c) the validity or enforceability of this Guaranty,
         or the rights of Landlord hereunder.

                  "Obligations"  shall mean the payment and  performance of each
         and every  obligation  and  liability  of Tenant  (and each of them) to
         Landlord  under any Lease  Document,  whether now existing or hereafter
         arising or created, joint or several,  direct or indirect,  absolute or
         contingent,  due or to become due, matured or unmatured,  liquidated or
         unliquidated,  arising by contract,  operation of law or otherwise, and
         including,  without  limitation,  all Minimum Rent and Additional  Rent
         under the Lease, and all fees and charges,  and all costs and expenses,
         payable under any Lease Document.

                   "Subsidiary"  shall mean any  corporation  of which more than
         fifty percent of the  outstanding  capital stock having ordinary voting
         power to elect a majority of the Board of Directors of such corporation
         (irrespective  of whether or not at the time capital stock of any other
         class or classes of such  corporation  shall or might have voting power
         upon the  occurrence  of any  contingency)  is at the time  directly or
         indirectly  owned by  Guarantor,  or  Guarantor  and one or more  other
         Subsidiaries, or by one or more Subsidiaries.

                                      -2-
<PAGE>

                  "Tenant"  shall mean and be a reference to each of IHS 135 and
         any  Related  Entity (as such term is  defined  in Section  17.1 of the
         Lease)  that is an  assignee  of IHS 135's  interest  in the Lease or a
         sublessee of any portion of the Leased Property from IHS 135.

2. Guaranty.  The Guarantor hereby unconditionally and irrevocably guarantees to
Landlord the prompt and complete  payment and  performance  by Tenant,  when due
(whether at stated maturity, by acceleration or otherwise),  of the Obligations.
The Guarantor further agrees to pay any and all reasonable expenses  (including,
without  limitation,  all  reasonable  fees  and  disbursements  of  counsel  to
Landlord)  which may be paid or incurred by  Landlord  in  enforcing  any of its
rights under this  Guaranty.  This  Guaranty is a guaranty of payment and not of
collectibility  and is absolute and in no way  conditional  or  contingent.  The
Guarantor's  liability hereunder is direct and unconditional and may be enforced
after nonpayment or nonperformance by Tenant of any Obligation without requiring
Landlord to resort to any other Person (including  without limitation Tenant) or
any other right, remedy or collateral.  This Guaranty shall remain in full force
and effect until the  Obligations  are paid in full following the termination of
all Lease Documents.

3. Costs and Expenses of Collection.  The Guarantor agrees, as principal obligor
and not as a  guarantor  only,  to pay to Landlord  forthwith  upon  demand,  in
immediately  available  funds,  all  reasonable  costs and expenses  (including,
without limitation, all court costs and all reasonable fees and disbursements of
counsel to  Landlord)  incurred or expended by Landlord in  connection  with the
enforcement  of this  Guaranty,  together with interest on such amounts from the
time such amounts  become due until  payment at the Overdue  Rate. It shall be a
condition of the  obligations of Guarantor to pay any fees and expenses  payable
by it under this  Guaranty  that  Landlord  shall have,  or shall have caused to
have,  provided Guarantor with a writing describing such fees and/or expenses in
reasonable detail.

4. Subrogation and Contribution.  Until the Obligations shall have been paid and
performed  in full  after  the  termination  of the Lease  Documents,  Guarantor
irrevocably  and  unconditionally  waives  any and all rights to which it may be
entitled,  by operation of law or otherwise,  to be subrogated,  with respect to
any payment  made by  Guarantor  hereunder,  to the rights of  Landlord  against
Tenant,  or otherwise to be  reimbursed,  indemnified or exonerated by Tenant in
respect thereof or to receive any payment,  in the nature of contribution or for
any other reason,  from any other guarantor of the  Obligations  with respect to
any payment made by Guarantor  hereunder.  Until the Obligations shall have been
paid and  performed  in full  after  the  termination  of the  Lease  Documents,
Guarantor  waives any defense it may have based upon any election of remedies by
Landlord which impairs  Guarantor's  subrogation rights or Guarantor's rights to
proceed against Tenant for reimbursement  (including without limitation any loss
of rights  Guarantor  may suffer by reason of any rights,  powers or remedies of
Tenant in connection with any  anti-deficiency  laws or any other laws limiting,
qualifying or discharging any  indebtedness to Landlord).  Until the Obligations
shall have been paid,  performed and satisfied in full after the  termination of
the Lease  Documents,  Guarantor  further waives any right to enforce any remedy
which  Landlord  now has or may in the future  have  against  Tenant,  any other
guarantor  or any other  Person and any benefit of, or any right to  participate
in, any security whatsoever now or in the future held by Landlord.

                                      -3-
<PAGE>

5.  Effect of  Bankruptcy  Stay.  If  acceleration  of the time for  payment  or
performance of any of the Obligations is stayed upon the insolvency,  bankruptcy
or reorganization  of Tenant or any other Person or otherwise,  all such amounts
otherwise  subject to  acceleration  shall  nonetheless  be payable by Guarantor
under this Guaranty forthwith upon demand.

6. Receipt of Lease Documents, etc. Guarantor confirms,  represents and warrants
to Landlord that (i) it has received true and complete  copies of all the Lease,
and has read the contents  thereof and  reviewed the same with legal  counsel of
its choice;  (ii) no representations or agreements of any kind have been made to
Guarantor  which would  limit or qualify in any way the terms of this  Guaranty;
(iii)   Landlord   has  made  no   representation   to   Guarantor   as  to  the
creditworthiness  of IHS 135; and (iv) Guarantor has established  adequate means
of obtaining from Tenant on a continuing basis  information  regarding  Tenant's
financial condition.  The Guarantor agrees to keep adequately informed from such
means of any  facts,  events,  or  circumstances  which  might in any way affect
Guarantor's  risks  under this  Guaranty,  and  Guarantor  further  agrees  that
Landlord  shall have no obligation to disclose to Guarantor any  information  or
documents acquired by Landlord in the course of its relationship with Tenant.

7.  Amendments,  etc.  with  Respect  to the  Obligations.  The  obligations  of
Guarantor  under this  Guaranty  shall  remain in full force and effect  without
regard to, and shall not be released, altered,  exhausted,  discharged or in any
way affected by any circumstance or condition  (whether or not Tenant shall have
any knowledge or notice thereof), including without limitation (a) any amendment
or modification of or supplement to any Lease Document, or any obligation,  duty
or agreement of Tenant or any other Person thereunder or in respect thereof; (b)
any  assignment or transfer in whole or in part of any of the  Obligations;  any
furnishing,  acceptance,  release,  nonperfection or invalidity of any direct or
indirect  security  or  guaranty  for any of the  Obligations;  (c) any  waiver,
consent, extension, renewal, indulgence,  settlement, compromise or other action
or  inaction  under or in  respect of any Lease  Document,  or any  exercise  or
nonexercise of any right,  remedy, power or privilege under or in respect of any
such instrument (whether by operation of law or otherwise);  (d) any bankruptcy,
insolvency, reorganization,  arrangement, readjustment, composition, liquidation
or similar proceeding with respect to Tenant or any other Person or any of their
respective  properties or creditors or any resulting release or discharge of any
Obligation  (including without limitation any rejection of any lease pursuant to
Section 365 of the Federal Bankruptcy Code); (e) any new or additional financing
arrangements  entered  into by Tenant or by any other Person on behalf of or for
the benefit of Tenant;  (f) the merger or  consolidation  of Tenant with or into
any other Person or of any other Person with or into Tenant;  (g) the  voluntary
or involuntary sale or other  disposition of all or substantially all the assets
of Tenant or any other  Person;  (h) the voluntary or  involuntary  liquidation,
dissolution or termination of Tenant or any other Person; (i) any failure on the
part of Tenant or any other  Person  (other  than  Landlord)  for any  reason to
perform or comply with any term of any Lease Document or any other agreement; or
(j) any other  act,  omission  or  occurrence  whatsoever,  whether  similar  or
dissimilar to the foregoing.  The Guarantor  authorizes each Tenant,  each other
guarantor  in  respect  of the  Obligations  and  Landlord  at any  time  in its
discretion,  as the  case  may  be,  to  alter  any of the  terms  of any of the
Obligations.

8.  Guarantor as Principal.  If for any reason (other than  Landlord's  material
default, negligence or willful misconduct), Tenant, or any of them, or any other
Person is under no legal obligation to discharge any Obligation, or if any other
moneys included in the Obligations have

                                      -4-
<PAGE>

become  unrecoverable  from  Tenant,  or any of them,  or any  other  Person  by
operation  of law or for  any  other  reason  (other  than  Landlord's  material
default, negligence or willful misconduct),  including,  without limitation, the
invalidity or irregularity in whole or in part of any Obligation or of any Lease
Document,  the legal  disability  of Tenant or any other  obligor  in respect of
Obligations,  any  discharge of or  limitation on the liability of Tenant or any
other  Person or any  limitation  on the  method or terms of  payment  under any
Obligation,  or of any Lease  Document,  which may now or hereafter be caused or
imposed in any manner whatsoever  (whether consensual or arising by operation of
law or  otherwise),  this Guaranty shall  nevertheless  remain in full force and
effect and shall be binding upon Guarantor to the same extent as if Guarantor at
all times had been the principal obligor on all Obligations.

9. Waiver of Demand, Notice, Etc. The Guarantor hereby waives, to the extent not
prohibited by applicable law, all presentments,  demands for performance, notice
of  nonperformance,  protests,  notices of  protests  and notices of dishonor in
connection with the Obligations or any Lease Document, including but not limited
to (a) notice of the  existence,  creation or incurring of any new or additional
obligation  or of any action or failure to act on the part of Tenant,  Landlord,
any  endorser or creditor of Tenant or any other  Person;  (b) any notice of any
indulgence,  extensions  or renewals  granted to any obligor with respect to the
Obligations;  (c) any  requirement of diligence or promptness in the enforcement
of rights  under any  Lease  Document,  or any  other  agreement  or  instrument
directly  or  indirectly  relating  thereto  or  to  the  Obligations;  (d)  any
enforcement of any present or future agreement or instrument  relating  directly
or indirectly  thereto or to the  Obligations;  (e) notice of any of the matters
referred to in  Paragraph 8 above;  (f) any defense of any kind which  Guarantor
may now have with respect to his liability  under this Guaranty  (other than the
defense  of  payment);  (g) any right to require  Landlord,  as a  condition  of
enforcement of this Guaranty,  to proceed  against Tenant or any other Person or
to proceed  against or exhaust any  security  held by Landlord at any time or to
pursue any other right or remedy in Landlord's power before  proceeding  against
Guarantor;  (h) any defense that may arise by reason of the incapacity,  lack of
authority,  death or disability of any other Person or Persons or the failure of
Landlord  to file or enforce a claim  against  the  estate  (in  administration,
bankruptcy,  or any other  proceeding)  of any other Person or Persons;  (i) any
defense based upon an election of remedies by Landlord;  (j) any defense arising
by reason of any "one  action" or  "anti-deficiency"  law or any other law which
may prevent Landlord from bringing any action, including a claim for deficiency,
against Guarantor,  before or after Landlord's commencement of completion of any
foreclosure action, either judicially or by exercise of a power of sale; (k) any
defense  based upon any lack of diligence by Landlord in the  collection  of any
Obligation;  (l) any duty on the part of Landlord to disclose to  Guarantor  any
facts  Landlord may now or hereafter  know about Tenant or any other  obligor in
respect of  Obligations;  (m) any defense arising because of an election made by
Landlord under Section  1111(b)(2) of the Federal  Bankruptcy  Code; and (n) any
defense based on any borrowing or grant of a security interest under Section 364
of the Federal Bankruptcy Code.  Guarantor  acknowledges and agrees that each of
the waivers set forth herein on the part of  Guarantor is made with  Guarantor's
full knowledge of the significance and consequences  thereof and that, under the
circumstances,  the waivers are reasonable.  If any such waiver is determined to
be contrary to applicable  law such waiver shall be effective only to the extent
not prohibited by such applicable law.

                                      -5-
<PAGE>

10.  Reinstatement.  This  Guaranty  shall  continue  to  be  effective,  or  be
reinstated,  as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
Landlord  upon  the   insolvency,   bankruptcy,   dissolution,   liquidation  or
reorganization  of  Tenant  or  upon  or as a  result  of the  appointment  of a
receiver,  intervenor  or  conservator  of, or trustee or similar  officer  for,
Tenant or any substantial part of its property, or otherwise, all as though such
payments had not been made.

11.  Payments.  The Guarantor hereby agrees that the Obligations will be paid to
Landlord  without  set-off  or  counterclaim  in U.S.  Dollars  at the office of
Landlord located at 400 Centre Street,  Newton,  Massachusetts 02458, or to such
other location as Landlord shall notify Guarantor.

12.  Covenants.  The Guarantor  hereby  covenants and agrees with Landlord that,
from and after the date of this Guaranty until the  Obligations are paid in full
and all Lease Documents have been terminated:

                  (a)  Notices.  The  Guarantor  shall  endeavor  to give prompt
notice to Landlord of any event which will,  or that may  reasonably be expected
to, result in a material adverse change in the financial  condition or operation
of  Guarantor  and its  Subsidiaries  taken as a whole,  provided,  however  the
Guarantor's  failure  to do so  shall  not  be  deemed  to be a  default  of the
Guarantor hereunder.

                  (b)  Financial  Statements.  The  Guarantor  shall furnish the
following statements to Landlord:

                           (i)  within  sixty  (60) days after each of the first
                  three quarters of any Fiscal Year, the Consolidated Financials
                  for such fiscal quarter; and

                           (ii) within one hundred  twenty  (120) days after the
                  end of each Fiscal Year, the Consolidated  Financials for such
                  Fiscal Year.

Landlord may at any time, and from time to time,  provide any lender to Landlord
with copies of any of the foregoing statements.

                  (c) Reports.  The Guarantor  shall cause the Tenant to provide
such  certificates,  reports and other  documents  required of it hereunder  and
under the Lease Documents.

                  (d) Legal  Existence.  The  Guarantor  shall do or cause to be
done all  things  necessary  to  preserve  and keep in full force and effect its
corporate existence (subject as provided in Paragraph 13(f) hereof).

                  (e) Merger; Sale of Assets, Etc. The Guarantor shall not enter
into any  transaction  of merger or  consolidation,  or  liquidate,  wind-up  or
dissolve itself (or suffer any  liquidation or  dissolution),  or convey,  sell,
lease,  sub-lease,  transfer or  otherwise  dispose of in one  transaction  or a
series of transactions,  all or substantially  all of its business,  property or
assets, whether now owned or hereafter acquired, except that Guarantor may merge
or consolidate with any Person, or convey,  transfer or lease  substantially all
of its assets so long as

                                      -6-
<PAGE>

the successor formed by such  consolidation  or the survivor of such merger,  if
not the Guarantor, or the Person that acquires by conveyance,  transfer or lease
substantially  all of the assets of Guarantor,  as the case may be, shall assume
the obligations of the Guarantor  hereunder to the same extent and with the same
effect as though such  corporation  was a party hereto and was named and defined
as the "Guarantor" herein.

13.  Severability.  Any  provision  of this  Guaranty  which  is  prohibited  or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render  unenforceable such provision in any
other jurisdiction.

14.  Additional  Guaranties.  This  Guaranty  shall be in  addition to any other
guaranty or other security for the  Obligations,  and it shall not be prejudiced
or  rendered  unenforceable  by the  invalidity  of any such other  guaranty  or
security.

15.  Paragraph  Headings.  The paragraph  headings used in this Guaranty are for
convenience of reference only and are not to affect the  construction  hereof or
be taken into consideration in the interpretation hereof.

16. No Waiver;  Cumulative Remedies,  Documentation of Expenses.  Landlord shall
not by any act (except by a written instrument pursuant to Paragraph 18 hereof),
delay, indulgence,  omission or otherwise, be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Default or in any breach of any of
the terms and  conditions  hereof.  No  failure  to  exercise,  nor any delay in
exercising,  on the part of Landlord,  any right,  power or privilege  hereunder
shall operate as a waiver thereof.  No single or partial  exercise of any right,
power or  privilege  hereunder  shall  preclude  any other or  further  exercise
thereof or the  exercise of any other  right,  power or  privilege.  A waiver by
Landlord  of any  right or remedy  hereunder  on any one  occasion  shall not be
construed as a bar to any right or remedy which Landlord would otherwise have on
any future occasion. The rights and remedies herein provided are cumulative, may
be  exercised  singly or  concurrently  and are not  exclusive  of any rights or
remedies provided by law.

17.  Waivers  and  Amendments;  Successors  and  Assigns.  None of the  terms or
provisions of this Guaranty may be waived,  amended,  supplemented  or otherwise
modified  except by a written  instrument  executed by Guarantor  and  Landlord,
provided  that any  provision  of this  Guaranty  may be waived by Landlord in a
letter or  agreement  executed by Landlord or by telecopy  from  Landlord.  This
Guaranty shall be binding upon the successors and assigns of Guarantor and shall
inure to the benefit of Landlord and its successors and assigns.

18. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION;  GOVERNING LAW. THE GUARANTOR
HEREBY  EXPRESSLY  WAIVES ANY RIGHT IT MAY NOW OR HEREAFTER HAVE TO A JURY TRIAL
IN ANY  SUIT,  ACTION OR  PROCEEDING  WHICH  ARISES  OUT OF OR BY REASON OF THIS
GUARANTY,  ANY  LEASE  DOCUMENT  OR THE  TRANSACTIONS  CONTEMPLATED  HEREBY  AND
THEREBY.

                                      -7-
<PAGE>

         BY ITS  EXECUTION  AND DELIVERY OF THIS  GUARANTY,  THE  GUARANTOR  (1)
ACCEPTS  FOR  ITSELF  AND IN  CONNECTION  WITH  ITS  PROPERTIES,  GENERALLY  AND
UNCONDITIONALLY,  THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT  JURISDICTION  IN  THE  STATE  OF NEW  YORK  IN ANY  ACTION,  SUIT  OR
PROCEEDING  OF ANY KIND  AGAINST  IT WHICH  ARISES  OUT OF OR BY  REASON OF THIS
GUARANTY, ANY LEASE DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY,
IN ADDITION TO ANY OTHER COURT IN WHICH SUCH ACTION,  SUIT OR PROCEEDING  MAY BE
BROUGHT; (2) IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED BY ANY SUCH
COURT IN ANY SUCH ACTION,  SUIT OR PROCEEDING IN WHICH IT SHALL HAVE BEEN SERVED
WITH PROCESS IN THE MANNER HEREINAFTER  PROVIDED;  AND (3) TO THE EXTENT THAT IT
MAY  LAWFULLY  DO SO,  WAIVES AND AGREES NOT TO ASSERT,  BY WAY OF MOTION,  AS A
DEFENSE OR OTHERWISE,  IN SUCH ACTION,  SUIT OR PROCEEDING  ANY CLAIM THAT IT IS
NOT PERSONALLY  SUBJECT TO THE JURISDICTION OF SUCH COURT,  THAT ITS PROPERTY IS
EXEMPT  OR  IMMUNE  FROM  ATTACHMENT  OR  EXECUTION,  THAT THE  ACTION,  SUIT OR
PROCEEDING  IS BROUGHT  IN AN  INCONVENIENT  FORUM OR THAT THE VENUE  THEREOF IS
IMPROPER.

         THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.

19. Notices.  All notices under this Guaranty shall be in writing,  and shall be
delivered by hand,  by a nationally  recognized  commercial  overnight  delivery
service,  by  first  class  mail  or  by  telecopy,   delivered,   addressed  or
transmitted, if to Landlord, at 400 Centre Street, Newton,  Massachusetts 02458,
Attention:  President  (telecopy  no.  617-796-8349),  with a copy to Sullivan &
Worcester LLP, One Post Office Square, Boston,  Massachusetts 02109,  Attention:
Alexander  A.  Notopoulos,  Jr.  Esq.  (telecopy  no.  617-338-2880),  and if to
Guarantor, at its address or telecopy number set out below its signature in this
Guaranty. Such notices shall be effective: in the case of hand deliveries,  when
received  and  acknowledged  in writing;  in the case of an  overnight  delivery
service,  on the next business day after being placed in the  possession of such
delivery  service,  with delivery  charges  prepaid;  in the case of mail,  five
business days after deposit in the postal system,  first class postage  prepaid;
and in the case of telecopy  notices,  the first business day following the date
when electronic  indication of receipt is received.  Either party may change its
address  and  telecopy  number  by  written  notice to the  other  delivered  in
accordance with the provisions of this Paragraph.

                                      -8-
<PAGE>

                  IN WITNESS  WHEREOF,  the undersigned has caused this Guaranty
to be duly executed and delivered as of the date first above written.

                               INTEGRATED HEALTH SERVICES, INC.

                               By /s/ Daniel J. Booth
                                  Name:   Daniel J. Booth
                                  Title:  Senior Vice President

                               Address for Notices:

                                 Integrated Health Services, Inc.
                                 The Highlands
                                 910 Ridgebrook Road
                                 Sparks, MD 21152
                                 Telecopy no.:  (410) 773-1020
                                 Attn:  Daniel J. Booth, Senior Vice President,
                                 Finance

                                 with a copy to:

                                 Parker Chapin LLP
                                 405 Lexington Avenue
                                 New York, NY  10174
                                 Telecopy no.:  212-704-6288
                                 Attention:  Charles P. Greenman, Esq.

                                      -9-

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