Document:

<PAGE>
                                                                    Exhibit 10.1

                                 PROMISSORY NOTE

$ 18,500,000.00                                            Nashville, Tennessee
                                                           As of June_____,2002

         FOR VALUE RECEIVED, the undersigned ARC SANTA CATALINA REAL ESTATE
HOLDINGS, LLC, a Delaware limited liability company, having an address at 111
Westwood Place, Suite 200, Brentwood, Tennessee 37027 (the "Borrower"), hereby
promises to pay to the order of GMAC COMMERCIAL MORTGAGE CORPORATION, a
California corporation, having an address at 200 Winner Road, Horsham,
Pennsylvania 19044-8015 (the "Lender"), its successors and assigns as holder of
this Note or, if this Note has then been endorsed "to bearer," to the bearer of
this Note (the Lender, its said successors and assigns, and any such bearer,
being hereinafter sometimes referred to collectively as the "Holder"), at the
Lender's said address or at such other place or to such other person as may be
designated in writing to the Borrower by the Lender, the principal sum of
Eighteen Million Five Hundred Thousand and No/100 Dollars ($18,500,000.00) (the
"Loan"), pursuant to the terms of a certain loan agreement of even date herewith
by and between Borrower and Lender (the "Loan Agreement"), together with
interest on the unpaid balance thereof at the rate hereinafter set forth.

         ON THE TERMS AND SUBJECT TO THE CONDITIONS which are hereinafter set
forth:

         Section 1.   Interest Rate and Payment Dates.

         1.1      Initial Rate and Initial Payment. Interest shall accrue on the
outstanding balance of the principal amount outstanding hereunder from time to
time from and after the date hereof at the rate of _______________% per annum
until the first Rate Adjustment Date (as defined below). On each successive Rate
Adjustment Date, the rate of interest at which interest accrues shall be
adjusted to the then applicable Note Rate (as defined below). Interest for the
period beginning on the date of this Note and ending on and including the last
day of the month in which this Note is dated shall be payable on the date
hereof. Interest shall be paid in arrears and shall be computed on the basis of
a 360-day year and actual number of days elapsed for any whole or partial month
in which interest on the loan is being calculated and shall be charged on the
principal balance outstanding from time to time.

         1.2      Rate Adjustment Date and Payment Adjustment Dates. The Note
Rate shall be adjusted on the dates (each being a "Rate Adjustment Date")
described in this paragraph. The first Rate Adjustment Date shall be July 1,
2002, and subsequent Rate Adjustment Dates shall fall on the first day of each
subsequent month thereafter. The first payment adjustment date shall be August
1, 2002, and subsequent payment adjustment dates shall fall on the first day of
each calendar month thereafter during the term of the Loan.

         1.3      Default Interest Rate. If the Borrower fails to make any
payment of principal, interest or fees on the date on which such payment becomes
due and payable (including applicable grace

<PAGE>

periods) whether at maturity or by acceleration or on any other date, such
payment shall accrue interest from the date on which such payment was due (and
not the date of the payment default) until paid at the fluctuating rate
("Default Rate") which is the lesser of (a) five (5) percentage points above the
then applicable Note Rate (as defined below) and (b) the maximum rate of
interest permitted by applicable law.

         1.4      Note Rate. The "Note Rate" shall mean four percent (4%) per
annum plus the greater of (a) three and one-quarter percent (3.25%) per annum or
(b) the average of London Interbank Offered Rates ("LIBOR") for a term of one
month determined solely by Holder as of each Rate Adjustment Date in the manner
set forth below; provided, however, that in no event shall the Note Rate exceed
the maximum rate of interest permitted by applicable law: on each Rate
Adjustment Date, Holder will obtain the one month LIBOR (in U.S. Dollar
deposits) from the appropriate Bloomberg display page available as of the close
of business announced on the last business day of the month immediately
preceding the Rate Adjustment Date. In the event Bloomberg ceases publication or
ceases to publish the one month LIBOR, Holder shall select a comparable
publication to determine the one month LIBOR and provide notice thereof to
Borrower. LIBOR may or may not be the lowest rate based upon the market for U.S.
Dollar deposits in the London Interbank Eurodollar Market at which Holder prices
loans on the date on which the Note Rate is determined by Holder as set forth
above.

         1.5      Note Rate Adjustments. This Note shall bear interest at the
rate set forth above or at the applicable Note Rate until a new Note Rate is
determined on each Rate Adjustment Date in accordance with the provisions
hereof; provided, however, that, if Holder at any time determines, in the sole
but reasonable exercise of its discretion, that it has miscalculated the amount
of the monthly payment of principal and/or interest (whether because of a
miscalculation of the Note Rate or otherwise), then Holder shall give notice to
Borrower of the corrected amount of such monthly payment (and the corrected
amount of the Note Rate, if applicable) and (a) if the corrected amount of such
monthly payment represents an increase thereof, then Borrower shall, within ten
(10) calendar days thereafter, pay to Holder any sums that Borrower would have
otherwise been obligated under this Note to pay to Holder had the amount of such
monthly payment not been miscalculated, or (b) if the corrected amount of such
monthly payment represents a decrease thereof and Borrower is not otherwise in
breach or default under any of the terms and provisions of the Note or the Loan
Agreement, then Borrower shall, within (10) calendar days thereafter be paid the
sums that Borrower would not have otherwise been obligated to pay to Holder had
the amount of such monthly payment not been miscalculated.

         1.6      LIBOR Unascertainable. If (a) on any date on which the Note
Rate would otherwise be set, Holder shall have determined in good faith (which
determination shall be conclusive) that (i) adequate and reasonable means do not
exist for ascertaining the one month LIBOR, or (ii) a contingency has occurred
which materially and adversely affects the London Interbank Eurodollar Market at
which Holder prices loans on the date on which the Note Rate is determined by
Holder as set forth above, or (b) at any time Holder shall have determined in
good faith (which determination shall be conclusive) that the making,
maintenance or funding of any part of the Loan has been made impracticable or
unlawful by compliance by Holder in good faith with any law or guideline or

                                       2

<PAGE>

interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof or with any request or
directive of any such governmental authority (whether or not having the force of
law) then, and in any such event, Holder may notify Borrower of such
determination. Upon such date as shall be specified in such notice (which shall
not be earlier than the date such notice is given) the obligation of Holder to
charge interest to Borrower at the Note Rate shall be suspended until Holder
shall have later notified Borrower of Holder's determination in good faith
(which determination shall be conclusive) that the circumstances giving rise to
such previous determination no longer exist.

         1.7      U.S. Treasury Securities. If Holder notifies Borrower of a
determination under subsection 1.6 hereof for purposes of calculating the Note
Rate, the one month LIBOR shall automatically be converted to the "Index" of the
weekly average yield on United States Treasury Securities adjusted to a constant
maturity of one year, as made available by the Federal Reserve Board 45 days
prior to the Rate Adjustment Date.

         1.8      Reimbursement for Increased Costs. If any law or guideline or
interpretation or application thereof by any governmental authority charged with
the interpretation or administration thereof or compliance with any request or
directive of any governmental authority (whether or not having the force of law)
now existing or hereafter adopted (a) subjects Holder to any tax or changes the
basis of taxation with respect to this Note, the Loan or payments by Borrower of
principal, interest or other amounts due from Borrower hereunder or thereunder
(except for taxes on the overall assets, overall net income or overall gross
receipts of Holder imposed as a result of a present or former connection between
the jurisdiction of the governmental authority imposing such tax on Holder,
provided, that this exclusion shall not apply to a connection arising solely
from Holder having executed, delivered, performed its obligations under or
received a payment under, or enforced any of the Loan Documents (as defined in
Section 8.1.1 below)), or (b) imposes upon Holder any other condition or expense
with respect to this Note, the Loan or its making, maintenance or funding of any
part of the Loan or any security therefor, and the result of any of the
foregoing is to increase the cost to, reduce the income receivable by, or impose
any expense (including, without limitation, loss of margin) upon Holder with
respect to the Note, or the making, maintenance or funding of any part of the
Loan, by an amount which Holder deems to be material, Holder may from time to
time notify Borrower of the amount determined in good faith (using any averaging
and attribution methods) by Holder (which determination shall be conclusive) to
be necessary to compensate Holder for such increase, reduction or imposition
and, if Borrower is by law prohibited from paying any such amount, Holder may
elect to declare the unpaid principal balance hereof and all interest accrued
thereon immediately due and payable. Such amount shall be due and payable by
Borrower to Holder seven (7) days after such notice is given.

         Section 2.   Payments. Commencing on August 1, 2002, and continuing on
the first day of each calendar month thereafter through and including the
Maturity Date (defined below), monthly payments of principal and interest shall
adjust monthly and be made in such amount, taking into account the then
effective Note Rate, as is sufficient to fully amortize the unpaid principal
balance of the Loan on the date that is twenty-five (25) years after the first
Rate Adjustment Date.

                                       3

<PAGE>

         Section 3.   Application of Payments. Payments made by Borrower on
account hereof shall be applied, first, toward any Late Fees (hereinafter
defined) or other fees and charges due hereunder, second, toward payment of any
interest due at the Default Rate, third, toward payment of any interest due at
the then applicable Note Rate set forth in Section 1.4 above, and fourth,
toward payment of principal. Notwithstanding the foregoing, if any advances made
by Holder under the terms of any instruments securing this Note have not been
repaid, any payments made may, at the option of Holder, be applied, first, to
repay such advances, and interest thereon, with the balance, if any, applied as
set forth in the preceding sentence.

         Section 4.   Maturity.

         4.1      Maturity Date. Anything in this Note to the contrary
notwithstanding, the entire unpaid balance of the principal amount hereof and
all interest accrued thereon, to and including the Maturity Date (as defined
below) (including interest accruing at the Default Rate), and all Late Fees (as
defined below) shall, unless sooner paid, and except to the extent that payment
thereof is sooner accelerated, be and become due and payable on July 1, 2007
(the "Maturity Date"). Notwithstanding anything contained herein, if repayment
of the Loan is funded from the proceeds of any refinancing of the Loan pursuant
to which Holder does not receive a contractually agreed upon sum for the
arrangement thereof, then Borrower shall pay to Holder a repayment premium equal
to one-half of one percent (0.5%) of the outstanding principal balance of the
Loan (which balance shall be calculated exclusive of any voluntary partial
prepayments), unless Holder elects not to refinance the Loan (which premium
shall be in lieu of and not in addition to any premium payable pursuant to
Section 5 hereof).

         Section 5.   Prepayment. Prepayment of the Loan in full shall be
permitted at any time after the eighteenth (18th) month after the date of this
Note and through the remaining term of the term of the Loan without penalty,
upon not less than thirty (30) and not greater than forty (40) days prior
written notice to Lender specifying the date on which prepayment is to be made.
Partial prepayments of the Loan shall not be permitted at any time. Any such
prepayment shall be credited, first, toward any Late Fees due hereunder, second,
toward payment of any interest due at the Default Rate, third, toward payment of
any interest due hereunder at the Note Rate, and, fourth, toward payment of
principal; provided, however, that if any advances made by Holder under the
terms of any instruments securing this Note have not been repaid, any payments
made may, at the option of Holder, be applied, first, to repay such advances,
and interest thereon, with the balance, if any, applied as set forth in the
preceding sentence. Notwithstanding anything contained herein, if such
prepayment set forth herein is funded from the proceeds of any refinancing of
the Loan pursuant to which the Holder does not receive a contractually agreed
upon sum for the arrangement thereof, then Borrower shall pay to Holder a
prepayment premium (a) during the first three (3) years of the Loan term, equal
to one percent (1%) of the outstanding principal balance of the Loan (which
balance shall be calculated exclusive of any voluntary partial prepayments), and
(b) at any time after the first three (3) years of the Loan term, equal to
one-half of one percent (0.5%) of the outstanding principal balance of the Loan
(which balance shall be calculated exclusive of any voluntary partial
prepayments), unless, in either case, Holder elects not to refinance the Loan
(which premium shall be in lieu of and not in addition to any premium payable
pursuant to Section 4.1 hereof).

                                       4

<PAGE>

         Section 6.   Method of Payment. Each payment of the Loan Obligations
(as defined in the Loan Agreement) shall be paid directly to the Holder in
lawful tender of the United States of America. Each such payment shall be paid
by 1:00 p.m. Horsham, Pennsylvania, time on the date such payment is due, except
if such date is not a Business Day (as defined in the Loan Agreement) such
payment shall then be due on the first Business Day after such date. Any payment
received after 1:00 p.m. Horsham, Pennsylvania, time shall be deemed to have
been received on the immediately following Business Day.

         Section 7.   Security. The debt evidenced by this Note is to be secured
by, among other things, (a) a Deed of Trust and Security Agreement (the
"Mortgage") of even date herewith by and between Borrower and Holder, and
intended to be recorded in the land records of Pima County, Arizona, and
covering all of that real property in Pima County, Arizona, which is described
in Exhibit "A" thereto (the "Property"), (b) a Lessee Security Agreement of even
date herewith by and between ARC Santa Catalina, Inc., a Tennessee corporation
("Lessee") and Holder, and (c) a Payment and Performance Guaranty Agreement of
even date herewith (the "Guaranty Agreement"), given by American Retirement
Corporation, a Tennessee corporation ("Guarantor"), for the benefit of Holder.

         Section 8.   Default.

         8.1      Events of Default. Anything in this Note to the contrary
notwithstanding, on the occurrence of any of the following events (each of which
is hereinafter referred to as an "Event of Default"), the Holder may, in the
exercise of its sole and absolute discretion, accelerate the debt evidenced by
this Note, in which event the entire outstanding principal balance and all
interest and fees accrued thereon shall immediately be and become due and
payable without further notice:

                  8.1.1    Failure to Pay or Perform. If (a) the Borrower fails
in making any payment to the Holder of any or all sums due hereunder within ten
(10) days after such payment becomes due or on the Maturity Date or (b) there
exists an uncured default under any other document or instrument evidencing or
securing the Loan (collectively, the "Loan Documents") which has been executed
by Borrower, Lessee, Manager (as that term is defined in the Mortgage), and/or
Guarantor, and such default is not cured within the grace or cure period, if
any, provided in any of such Loan Documents.

                  8.1.2    Bankruptcy.

                           (a)     If the Borrower, Lessee, Manager or Guarantor
(i) applies for or consents to the appointment of a receiver, trustee or
liquidator of the Borrower, Lessee, Manager or Guarantor, as the case may be, or
of all or a substantial part of its assets, (ii) files a voluntary petition in
bankruptcy, or admits in writing its inability to pay its debts as they come
due, (iii) makes an assignment for the benefit of creditors, (iv) files a
petition or an answer seeking a reorganization or an arrangement with creditors
or seeking to take advantage of any insolvency law, (v) performs any other act
of bankruptcy, or (vi) files an answer admitting the material allegations of a
petition filed against the Borrower, Lessee, Manager or Guarantor in any
bankruptcy, reorganization or insolvency proceeding; or

                                       5

<PAGE>

                           (b)     if (i) an order, judgment or decree is
entered by any court of competent jurisdiction adjudicating the Borrower,
Lessee, Manager or Guarantor a bankrupt or an insolvent, or approving a
receiver, trustee or liquidator of the Borrower, Lessee, Manager or Guarantor or
of all or a substantial part of its assets, or (ii) there otherwise commences
with respect to the Borrower, Lessee, Manager or Guarantor or any of its assets
any proceeding under any bankruptcy, reorganization, arrangement, insolvency,
readjustment, receivership or like law or statute, and if such order, judgment,
decree or proceeding continues unstayed for any period of sixty (60) consecutive
days after the expiration of any stay thereof.

                  8.1.3    Judgments. A final judgment shall be rendered by a
court of law or equity against Borrower, Lessee, Manager or Guarantor in excess
of $25,000.00, and the same shall remain undischarged for a period of thirty
(30) days, unless such judgment is either (i) fully covered by collectible
insurance and such insurer has within such period acknowledged such coverage in
writing, or (ii) although not fully covered by insurance, enforcement of such
judgment has been effectively stayed, such judgment is being contested or
appealed by appropriate proceedings and Borrower, Lessee, Manager or Guarantor
as the case may be, has established reserves adequate for payment of the
reasonably estimated probable liability in the event such entity is ultimately
unsuccessful in such contest or appeal, and evidence thereof is provided to
Holder.

         8.2      No Impairment of Rights. Nothing in this Section shall be
deemed in any way to alter or impair any right which Holder has under this Note
or the Mortgage, or any of the other Loan Documents or at law or in equity, to
accelerate such debt on the occurrence of any other Event of Default provided
herein or therein.

         8.3      Late Fees. Without limiting the generality of the foregoing
provisions of this Section, if any payment of interest or principal is not made
prior to ten (10) days after the date on which it becomes due, the Borrower
shall thereupon automatically become obligated immediately to pay to the Holder
a late charge equal to the lesser of five percent (5%) of the amount of such
payment or the maximum amount permitted by applicable law ("Late Fees") to
defray the expenses incurred by Holder in handling and processing such
delinquent payment and to compensate Holder for the loss of use of such
delinquent payment, which sum shall be due and payable immediately thereupon.

         Section 9.   Costs of Enforcement. Borrower shall pay to Holder on
demand by the latter the amount of any and all commercially reasonable expenses
incurred by Holder (a) in enforcing its rights hereunder or under the Mortgage
and/or the Loan Documents, (b) as the result of a default by Borrower in
performing its obligations under this Note, including but not limited to the
commercially reasonable expense of collecting any amount owed hereunder, and of
any and all commercially reasonable attorneys' fees incurred by Holder in
connection with such default, whether suit be brought or not, or (c) in
protecting the security hereof. Such expenses shall be added to the principal
amount hereof, shall be secured by the Mortgage and shall accrue interest at the
Default Rate.

         Section 10.  Borrower's Waiver of Certain Rights. Each of Borrower and
any endorser, guarantor or surety hereby waives the exercise of any and all
exemption rights which it holds at law or in equity with respect to the debt
evidenced by this Note, and of any and all rights which it holds at law or

                                       6

<PAGE>

in equity to require any valuation, appraisal or marshalling, or to have or
receive any presentment, protest, demand and notice of dishonor, protest, demand
and nonpayment as a condition to Holder's exercise of any of its rights under
this Note or the Loan Documents.

         Section 11.  Extensions. The Maturity Date and/or any other date by
which any payment is required to be made hereunder may be extended by Holder
from time to time in the exercise of its sole discretion, without in any way
altering or impairing Borrower's or Guarantor's liability hereunder.

         Section 12.  General.

         12.1     Applicable Law. This Note shall be given effect and construed
by application of the laws of the State of Arizona (without regard to the
principles thereof governing conflicts of laws), and any action or proceeding
arising hereunder, and each of Holder and Borrower submits (and waives all
rights to object) to non-exclusive personal jurisdiction in the State of
Arizona, for the enforcement of any and all obligations under the Loan Documents
except that if any such action or proceeding arises under the Constitution, laws
or treaties of the United States of America, or if there is a diversity of
citizenship between the parties thereto, so that it is to be brought in a United
States District Court, it shall be brought in the United States District Court
for the District of Arizona or any successor federal court having original
jurisdiction.

         12.2     Headings. The headings of the Sections, subsections,
paragraphs and subparagraphs hereof are provided herein for and only for
convenience of reference, and shall not be considered in construing their
contents.

         12.3     Construction As used herein, (a) the term "person" means a
natural person, a trustee, a corporation, a limited liability company, a
partnership and any other form of legal entity, and (b) all references made (i)
in the neuter, masculine or feminine gender shall be deemed to have been made in
all such genders, (ii) in the singular or plural number shall be deemed to have
been made, respectively, in the plural or singular number as well, and (iii) to
any Section, subsection, paragraph or subparagraph shall, unless therein
expressly indicated to the contrary, be deemed to have been made to such
Section, subsection, paragraph or subparagraph of this Note.

         12.4     Severability. No determination by any court, governmental
body or otherwise that any provision of this Note or any amendment hereof is
invalid or unenforceable in any instance shall affect the validity or
enforceability of (a) any other such provision or (b) such provision in any
circumstance not controlled by such determination. Each such provision shall be
valid and enforceable to the fullest extent allowed by, and shall be construed
wherever possible as being consistent with, applicable law.

         12.5     No Waiver. Holder shall not be deemed to have waived the
exercise of any right which it holds hereunder unless such waiver is made
expressly and in writing. No delay or omission by Holder in exercising any such
right (and no allowance by Holder to Borrower of an opportunity to cure a
default in performing its obligations hereunder) shall be deemed a waiver of its
future exercise. No such waiver made as to any instance involving the exercise
of any such right shall be deemed a waiver as to any other such instance, or any
other such right. Further, acceptance by Holder of all or any portion of

                                       7

<PAGE>

any sum payable under, or partial performance of any covenant of, this Note, the
Mortgage or any of the other Loan Documents, whether before, on, or after the
due date of such payment or performance, shall not be a waiver of Holder's right
either to require prompt and full payment and performance when due of all other
sums payable or obligations due thereunder or hereunder or to exercise any of
Holder's rights and remedies hereunder or thereunder.

         12.6     WAIVER OF JURY TRIAL; SERVICE OF PROCESS; COURT COSTS. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO WHICH BORROWER AND HOLDER MAY BE PARTIES ARISING OUT OF,
IN CONNECTION WITH, OR IN ANY WAY PERTAINING TO, THIS NOTE AND/OR ANY OF THE
OTHER LOAN DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A
WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY BORROWER, UPON
CONSULTATION WITH COUNSEL OF BORROWER'S CHOICE, AND BORROWER HEREBY REPRESENTS
THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO
INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS
EFFECT. BORROWER FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN
THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL
COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL. BORROWER HEREBY IRREVOCABLY DESIGNATES
CORPORATION SERVICE OF 818 EAST OSBORN ROAD, PHOENIX, ARIZONA 85014, AND ITS
SUCCESSORS IN OFFICE, AS THE TRUE AND LAWFUL ATTORNEY OF BORROWER FOR THE
PURPOSE OF RECEIVING SERVICE OF ALL LEGAL NOTICES AND PROCESS ISSUED BY ANY
COURT IN THE STATE OF ARIZONA AS WELL AS SERVICE OF ALL PLEADINGS AND OTHER
DOCUMENTS RELATED TO ANY LEGAL PROCEEDING OR ACTION ARISING OUT OF THIS NOTE.
BORROWER AGREES THAT SERVICE UPON SAID CORPORATION SERVICE SHALL BE VALID
REGARDLESS OF BORROWER'S WHEREABOUTS AT THE TIME OF SUCH SERVICE AND REGARDLESS
OF WHETHER BORROWER RECEIVES A COPY OF SUCH SERVICE, PROVIDED THAT HOLDER SHALL
HAVE MAILED A COPY TO BORROWER IN ACCORDANCE WITH THE NOTICE PROVISIONS HEREIN.
BORROWER AGREES TO PAY ALL COURT COSTS AND REASONABLE ATTORNEY'S FEES INCURRED
BY HOLDER IN CONNECTION WITH ENFORCING ANY PROVISION OF THIS NOTE.
NOTWITHSTANDING THE FOREGOING, HOLDER AGREES TO USE REASONABLE EFFORTS TO
PROVIDE BORROWER WITH NOTICE OF THE FILING OF ANY LAWSUIT BY HOLDER AGAINST
BORROWER.

                                       8

<PAGE>

         12.7     Offset. Upon the occurrence of an Event of Default, Holder may
set-off against any principal and interest owing hereunder, any and all credits,
money, stocks, bonds or other security or property of any nature whatsoever on
deposit with, or held by, or in the possession of, Holder, to the credit of or
for the account of Borrower, without notice to or consent of Borrower or
Guarantor.

         12.8     Non-Exclusivity of Rights and Remedies. None of the rights and
remedies herein conferred upon or reserved to Holder is intended to be exclusive
of any other right or remedy contained herein or in any of the other Loan
Documents and each and every such right and remedy shall be cumulative and
concurrent, and may be enforced separately, successively or together, and may be
exercised from time to time as often as may be deemed necessary or desirable by
Holder.

         12.9     Incorporation by Reference. All of the agreements, conditions,
covenants and provisions contained in each of the Loan Documents are hereby made
a part of this Note to the same extent and with the same force and effect as if
they were fully set forth herein. Borrower covenants and agrees to keep and
perform, or cause to be kept and performed, all such agreements, conditions,
covenants and provisions strictly in accordance with their terms.

         12.10    Joint and Several Liability. If Borrower consists of more
than one person and/or entity, each such person and/or entity agrees that its
liability hereunder is joint and several.

         12.11    Business Purpose. Borrower represents and warrants that the
Loan evidenced by this Note is being obtained solely for the purpose of
acquiring or carrying on a business, professional or commercial activity and is
not for personal, agricultural, family or household purposes.

         12.12    Interest Limitation; Usury.

                           (a)     Notwithstanding anything to the contrary
contained herein or in the Mortgage or in any other of the Loan Documents, the
effective rate of interest on the obligation evidenced by this Note shall not
exceed the lawful maximum rate of interest permitted to be paid. Without
limiting the generality of the foregoing, in the event that the interest charged
hereunder results in an effective rate of interest higher than that lawfully
permitted to be paid, then such charges shall be reduced by the sum sufficient
to result in an effective rate of interest permitted and any amount which would
exceed the highest lawful rate already received and held by Holder shall be
applied to a reduction of principal and not to the payment of interest. Borrower
agrees that for the purpose of determining highest rate permitted by law, any
non-principal payment (including, without limitation, Late Fees and other fees)
shall be deemed, to the extent permitted by law, to be an expense, fee or
premium rather than interest.

                           (b)    It is the intent of Borrower and Lender in the
execution and performance of this Note, the Loan Agreement and the other Loan
Documents to contract in strict compliance with applicable usury laws, including
conflicts of law concepts, governing the Loan, including such applicable laws of
the State of Arizona and the United States of America from time to time in
effect. In furtherance thereof, Lender and Borrower stipulate and agree that
none of the terms and provisions contained in this Note, the Loan Agreement or
the other Loan Documents shall ever be

                                       9

<PAGE>

construed to create a contract to pay, as consideration for the use, forbearance
or detention of money, interest at a rate in excess of the maximum rate of
interest allowed to be charged by applicable law (the "Maximum Rate"), and that
for purposes hereof "interest" shall include the aggregate of all charges which
constitute interest under such laws that are contracted for, charged or received
under this Note, the Loan Agreement and the other Loan Documents and in the
event that, notwithstanding the foregoing, under any circumstances the aggregate
amounts taken, reserved, charged, received or paid on the Loan, including
amounts which by applicable law are deemed interest, would exceed the Maximum
Rate, then such excess shall be deemed to be a mistake, and Lender shall credit
the same on the principal of this Note (or if this Note shall have been paid in
full, refund said excess to Borrower), In the event that the maturity of this
Note is accelerated by reason of any election of the holder thereof resulting
from any Event of Default under this Note, the Loan Agreement or any of the
other Loan Documents, or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never include
more than the Maximum Rate, and excess interest, if any, provided for in this
Note, the Loan Agreement or otherwise shall be canceled automatically as of the
date of such acceleration or prepayment and, if theretofore paid, shall be
credited on this Note (or if this Note shall have been paid in full, refunded to
Borrower). In determining whether or not the interest paid or payable under any
specific contingencies exceeds the Maximum Rate, Borrower and Lender shall, to
the maximum extent permitted under applicable law, amortize, prorate, allocate
and spread in equal parts during the period of the full stated term of this Note
all amounts considered to be interest under applicable law at any time
contracted for, charged, received or reserved in connection with the Loan. The
provisions of this paragraph shall control over all other provisions of this
Note, the Loan Agreement or the other Loan Documents which may be in apparent
conflict herewith.

         12.13    Modification. This Note may be modified, amended, discharged
or waived only by an agreement in writing signed by the party against whom
enforcement of such modification, amendment, discharge or waiver is sought.

         12.14    Time of the Essence. Time is strictly of the essence of this
Note.

         12.15    Negotiable Instrument. To the extent permitted by applicable
law, Borrower agrees that this Note shall be deemed a negotiable instrument,
even though this Note may not otherwise qualify, under applicable law, absent
this paragraph, as a negotiable instrument.

         12.16    Interest Rate After Judgment. If judgment is entered against
Borrower on this Note, the amount of the judgment entered (which may include
principal, interest, fees, Late Fees and costs) shall bear interest at the
Default Rate, to be determined on the date of the entry of the judgment.

         12.17    Relationship. Borrower and Holder intend that the relationship
between them shall be solely that of creditor and debtor. Nothing contained in
this Note or in any of the other Loan Documents shall be deemed or construed to
create a partnership, tenancy-in-common, joint tenancy, joint venture or
co-ownership by or between Borrower and Holder.

         12.18    WAIVER OF AUTOMATIC STAY. TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, BORROWER HEREBY AGREES THAT, IN CONSIDERATION OF

                                       10

<PAGE>

LENDER'S AGREEMENT TO MAKE THE LOAN AND IN RECOGNITION THAT THE FOLLOWING
COVENANT IS A MATERIAL INDUCEMENT FOR LENDER TO MAKE THE LOAN, IN THE EVENT THAT
BORROWER SHALL (A) FILE WITH ANY BANKRUPTCY COURT OF COMPETENT JURISDICTION OR
BE THE SUBJECT OF ANY PETITION UNDER ANY SECTION OR CHAPTER OF TITLE 11 OF THE
UNITED STATES CODE, AS AMENDED ("BANKRUPTCY CODE"), OR SIMILAR LAW OR STATUTE;
(B) BE THE SUBJECT OF ANY ORDER FOR RELIEF ISSUED UNDER THE BANKRUPTCY CODE OR
SIMILAR LAW OR STATUTE; (C) FILE OR BE THE SUBJECT OF ANY PETITION SEEKING ANY
REORGANIZATION, ARRANGEMENT, COMPOSITION, READJUSTMENT, LIQUIDATION,
DISSOLUTION, OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL OR STATE ACT
OR LAW RELATING TO BANKRUPTCY, INSOLVENCY, OR OTHER RELIEF FOR DEBTORS; (D) HAVE
SOUGHT OR CONSENTED TO OR ACQUIESCED IN THE APPOINTMENT OF ANY TRUSTEE,
RECEIVER, CONSERVATOR, OR LIQUIDATOR; OR (E) BE THE SUBJECT OF AN ORDER,
JUDGMENT OR DECREE ENTERED BY ANY COURT OF COMPETENT JURISDICTION APPROVING A
PETITION FILED AGAINST ANY BORROWER FOR ANY REORGANIZATION, ARRANGEMENT,
COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY
PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO BANKRUPTCY, INSOLVENCY
OR RELIEF FOR DEBTORS, THEN, SUBJECT TO COURT APPROVAL, HOLDER SHALL THEREUPON
BE ENTITLED AND BORROWER HEREBY IRREVOCABLY CONSENTS TO, AND WILL NOT CONTEST,
AND AGREES TO STIPULATE TO RELIEF FROM ANY AUTOMATIC STAY OR OTHER INJUNCTION
IMPOSED BY SECTION 362 OF THE BANKRUPTCY CODE, OR SIMILAR LAW OR STATUTE
(INCLUDING, WITHOUT LIMITATION, RELIEF FROM ANY EXCLUSIVE PERIOD SET FORTH IN
SECTION 1121 OF THE BANKRUPTCY CODE) OR OTHERWISE, ON OR AGAINST THE EXERCISE OF
THE RIGHTS AND REMEDIES OTHERWISE AVAILABLE TO HOLDER AS PROVIDED IN THE LOAN
DOCUMENTS, AND AS OTHERWISE PROVIDED BY LAW, AND BORROWER HEREBY IRREVOCABLY
WAIVES ITS RIGHTS TO OBJECT TO SUCH RELIEF.

         12.19    Acknowledgment By Guarantor. Guarantor has acknowledged this
Note below for purposes of confirming its obligations all as more specifically
set forth in the Guaranty Agreement.

                         [SIGNATURES BEGIN ON NEXT PAGE]

                                       11

<PAGE>

         IN WITNESS WHEREOF, Borrower has executed and sealed this Note or
caused it to be executed and sealed on its behalf by its duly authorized
representatives, the day and year first above written, and the obligations under
this Note shall be binding upon Borrower's successors and assigns.

                                    BORROWER:

                                    ARC SANTA CATALINA REAL ESTATE
                                    HOLDINGS, LLC, a Delaware limited liability
                                    company

                                    By:________________________________________
                                        Name:
                                        Title:

                                    ACKNOWLEDGED BY GUARANTOR:

                                    AMERICAN RETIREMENT CORPORATION, a
                                    Tennessee corporation

                                    By:________________________________________
                                        George Hicks
                                        Executive Vice President

                                       12<PAGE>
                                                                    EXHIBIT 10.2

                       MASTER LEASE AND SECURITY AGREEMENT
                                    (POOL 1)

                                 BY AND BETWEEN

                 THE ENTITIES LISTED AS LANDLORD ON SCHEDULE 1,

                                  AS "LANDLORD"

                                       AND

                  THE ENTITIES LISTED AS TENANT ON SCHEDULE 1,

                                   AS "TENANT"

                               DATED: JULY 9, 2002

<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                Page
<S>                                                                             <C>
1.       Term......................................................................3

1.1      Term......................................................................3

1.2      Renewal Terms.............................................................3

2.       Rent......................................................................3

2.1      Initial Term Minimum Rent.................................................3

2.2      Renewal Term Minimum Rent.................................................5

2.3      Initial Term Additional Rent..............................................7

2.4      Renewal Term Additional Rent..............................................8

2.5      Total Rent................................................................8

2.6      Proration for Partial Periods; Payment Dates; Other Adjustment............9

2.7      Absolute Net Lease........................................................9

3.       Taxes, Assessments and Other Charges; Ground Lease.......................10

3.1      Tenant's Obligations.....................................................10

3.2      Proration................................................................10

3.3      Right to Protest.........................................................10

3.4      Tax Bills................................................................10

3.5      Other Charges............................................................10

3.6      Impound..................................................................10

3.7      San Antonio Ground Lease.................................................11

4.       Insurance................................................................13

4.1      General Insurance Requirements...........................................13

4.2      Fire and Other Casualty..................................................14

4.3      Public Liability.........................................................15

4.4      Professional Liability Insurance.........................................15

4.5      Workers Compensation.....................................................15

4.6      Boiler Insurance.........................................................15

4.7      Business Interruption Insurance..........................................15

4.8      Deductible Amounts.......................................................15

4.9      Ground Lease Requirements................................................15

4.10     Reimbursement of Landlord's Insurance Costs..............................15

5.       Use, Maintenance and Alteration of the Premises..........................16

5.1      Tenant's Maintenance Obligations.........................................16
</TABLE>

                                       i

<PAGE>
<TABLE>
<S>                                                                               <C>
5.2      Regulatory Compliance....................................................17

5.3      Permitted Use............................................................18

5.4      Tenant Repurchase Obligation.............................................18

5.5      No Liens; Permitted Contests.............................................18

5.6      Alterations by Tenant....................................................18

5.7      Capital Improvements Funded by Landlord..................................19

5.8      Compliance With IRS Guidelines...........................................19

6.       Condition And Title Of Premises; Right of First Offer....................20

6.1      Condition and Title of Premises..........................................20

6.2      Right of First Offer to Purchase Premises................................20

7.       Landlord and Tenant Personal Property....................................22

7.1      Tenant Personal Property.................................................22

7.2      Landlord's Security Interest.............................................23

7.3      Financing Statements.....................................................23

7.4      Intangible Property......................................................24

8.       Representations And Warranties...........................................24

8.1      Due Authorization And Execution..........................................24

8.2      Due Organization.........................................................24

8.3      No Breach of Other Agreements............................................24

9.       Financial, Management and Regulatory Reports.............................25

9.1      Monthly Facility Reports.................................................25

9.2      Quarterly Financial Statements...........................................25

9.3      Annual Financial Statement...............................................25

9.4      Accounting Principles....................................................25

9.5      Regulatory Reports.......................................................25

9.6      Additional Information...................................................26

10.      Events of Default and Landlord's Remedies................................26

10.1     Events of Default........................................................26

10.2     Remedies.................................................................28

10.3     Receivership.............................................................29

10.4     Late Charges; Default Interest...........................................29

10.5     Remedies Cumulative; No Waiver...........................................30

10.6     Performance of Tenant's Obligations by Landlord..........................30

11.      Collateral for Lease Obligations.........................................30
</TABLE>

                                       ii

<PAGE>
<TABLE>
<S>                                                                               <C>
12.      Damage by Fire or Other Casualty.........................................32

12.1     Reconstruction Using Insurance...........................................32

12.2     Surplus Proceeds.........................................................32

12.3     No Rent Abatement........................................................32

12.4     End of Term..............................................................32

13.      Condemnation.............................................................32

13.1     Complete Taking..........................................................32

13.2     Partial Taking...........................................................32

13.3     Lease Remains in Effect..................................................33

14.      Provisions on Termination of Term........................................33

14.1     Surrender of Possession..................................................33

14.2     Removal of Personal Property.............................................33

14.3     Title to Personal Property Not Removed...................................33

14.4     Management of Premises...................................................33

14.5     Correction of Deficiencies...............................................34

15.      Notices and Demands......................................................34

16.      Right of Entry; Examination of Records...................................35

17.      Landlord May Grant Liens.................................................35

18.      Quiet Enjoyment..........................................................35

19.      Applicable Law...........................................................35

20.      Preservation of Gross Revenues...........................................36

21.      Hazardous Materials......................................................37

21.1     Hazardous Material Covenants.............................................37

21.2     Tenant Notices to Landlord...............................................37

21.3     Extension of Term........................................................38

21.4     Participation in Hazardous Materials Claims..............................38

21.5     Environmental Activities.................................................38

21.6     Hazardous Materials......................................................38

21.7     Hazardous Materials Claims...............................................39

21.8     Hazardous Materials Laws.................................................39

22.      Assignment and Subletting................................................39

23.      Indemnification..........................................................40

24.      Holding Over.............................................................41

25.      Estoppel Certificates....................................................41
</TABLE>

                                      iii
<PAGE>
<TABLE>
<S>                                                                               <C>
26.      Conveyance by Landlord...................................................41

27.      Waiver of Jury Trial.....................................................41

28.      Attorneys' Fees..........................................................41

29.      Severability.............................................................41

30.      Counterparts.............................................................42

31.      Binding Effect...........................................................42

32.      Waiver and Subrogation...................................................42

33.      Memorandum of Lease......................................................42

34.      Incorporation of Recitals and Attachments................................42

35.      Titles and Headings......................................................42

36.      Nature of Relationship; Usury Savings Clause.............................42

37.      Joint and Several........................................................42

38.      Survival of Representations, Warranties and Covenants....................42

39.      Interpretation...........................................................42
</TABLE>

SCHEDULE 1 - LANDLORD AND TENANT ENTITIES
SCHEDULE 2 - DESCRIPTIONS OF FACILITIES
SCHEDULE 3 - LANDLORD PERSONAL PROPERTY

EXHIBIT A - LEGAL DESCRIPTIONS OF FACILITIES
EXHIBIT B - APPRAISAL PROCESS
EXHIBIT C - PERMITTED EXCEPTIONS
EXHIBIT D - EXEMPTED PROPERTIES

                                       iv

<PAGE>

                       MASTER LEASE AND SECURITY AGREEMENT
                                    (POOL 1)

         THIS MASTER LEASE AND SECURITY AGREEMENT (POOL 1) (the "LEASE") is made
and entered into as of the 9th day of July, 2002 by and between the entities
listed as Landlord on Schedule 1 (collectively, "LANDLORD"), and the entities
listed as Tenant on Schedule 1 (collectively, "TENANT").

                               W I T N E S S E T H

         WHEREAS, each entity comprising Landlord is the owner or ground lessee,
respectively, of those certain real properties, all improvements thereon and all
appurtenances thereto (collectively, the "FACILITIES"), as located, described
and identified on Schedule 2, the legal descriptions of which are attached as
Exhibit A;

         WHEREAS, each of the Facilities is presently utilized as a personal
care, independent living or memory impaired assisted living facility (as so
utilized, a "PERSONAL CARE FACILITY"), each duly licensed for a specified number
of units, all as located, described and identified on Schedule 2;

         WHEREAS, each entity comprising Landlord is also the owner,
respectively, of that certain furniture, machinery, equipment, appliances,
fixtures and other personal property used in connection with the Facilities as
described on Schedule 3 (collectively, the "LANDLORD PERSONAL PROPERTY" and,
together with the Facilities, the "PREMISES");

         WHEREAS, Landlord desires to lease the Premises to Tenant, and Tenant
desires to lease the Premises from Landlord; and

         WHEREAS, Landlord or certain Affiliates of Landlord, as landlord
(collectively, the "POOL 2 LANDLORD"), and Tenant or certain Affiliates of
Tenant, as tenant (collectively, the "POOL 2 TENANT"), have entered into that
certain Master Lease and Security Agreement (Pool 2) of even date herewith (the
"POOL 2 LEASE");

         WHEREAS, Landlord, Pool 2 Landlord, Tenant and Pool 2 Tenant have
entered into that certain Letter of Credit Agreement of even date herewith (the
"LC AGREEMENT") pursuant to which Tenant and Pool 2 Tenant shall post with
Landlord and Pool 2 Landlord a letter or letters of credit as partial collateral
for the performance of Tenant's and Pool 2 Tenant's obligations under this Lease
and the Pool 2 Lease, respectively; and

         WHEREAS, American Retirement Corporation, a Tennessee corporation (in
such capacity, "Guarantor"), has agreed to guarantee to Landlord and to Pool 2
Landlord, respectively, Tenant's obligations under this Lease and Pool 2
Tenant's obligations under the Pool 2 Lease pursuant to that certain Guaranty of
Master Lease and Security Agreements and Letter of Credit Agreement of even date
herewith (the "GUARANTY").

<PAGE>

                                A G R E E M E N T

         NOW THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein, Landlord hereby leases and lets unto Tenant the
Premises for the term and upon the conditions and provisions hereinafter set
forth.

                          RECOGNITION OF MASTER LEASE;
                            WAIVER OF CERTAIN RIGHTS

         Tenant and Guarantor each acknowledge and agree that this Lease
constitutes a single, indivisible lease of the entire Premises, and the Premises
constitutes a single economic unit. The Minimum Rent, Additional Rent other
amounts payable hereunder and all other provisions contained herein have been
negotiated and agreed upon based on the intent to lease the entirety of the
Premises as a single and inseparable transaction, and such Minimum Rent,
Additional Rent other amounts and other provisions would have been materially
different had the parties intended to enter into separate leases or a divisible
lease. Any Event of Default under this Lease shall constitute an Event of
Default as to the entire Premises.

         Tenant and Guarantor each further acknowledge and agree that Landlord
is entering into this Master Lease as an accommodation to Tenant and Guarantor
as described in the Master Agreement (as defined in Section 10.1.2). Each of the
entities comprising Tenant and Guarantor, in order to induce Landlord to enter
into this Lease, to the extent permitted by law:

         A. Agrees, acknowledges and is forever estopped from asserting to the
contrary that the statements set forth in the first sentence of this Section are
true, correct and complete;

         B. Agrees, acknowledges and is forever estopped from asserting to the
contrary that this Lease is a new and de novo lease, separate and distinct from
any other lease between any of the entities comprising Tenant and any of the
entities comprising Landlord that may have existed prior to the date hereof.

         C. Agrees, acknowledges and is forever estopped from asserting to the
contrary that this Lease is a single lease pursuant to which the collective
Premises are demised as a whole to Tenant;

         D. Agrees, acknowledges and is forever estopped from asserting to the
contrary that if, notwithstanding the provisions of this Section, this Lease
were to be determined or found to be in any proceeding, action or arbitration
under state or federal bankruptcy, insolvency, debtor-relief or other applicable
laws to constitute multiple leases demising multiple properties, such multiple
leases could not, by the debtor, trustee, or any other party, be selectively or
individually assumed or rejected;

         E. Forever knowingly waives and relinquishes any and all rights under
or benefits of the provisions of the Federal Bankruptcy Code Section 365 (11
U.S.C. ss. 365), or any successor or replacement thereof or any analogous state
law, to selectively or individually assume or reject the multiple leases
comprising this Lease following a determination or finding in the nature of that
described in the foregoing Section D.

                                       2
<PAGE>

         1.   TERM.

              1.1 TERM. The term of this Lease shall commence as of July 9, 2002
and shall end on June 30, 2014 (the "INITIAL TERM") unless extended pursuant to
Section 1.2 or earlier terminated in accordance with the provisions hereof. The
Initial Term and all Renewal Terms are referred to collectively as the "TERM".

              1.2 RENEWAL TERMS. The Term may be extended for four (4) separate
renewal terms (each a "RENEWAL TERM") of ten (10) years each, upon the
satisfaction of all of the following terms and conditions:

                  1.2.1 Not more than ten (10) business days before or after the
         date which is fifteen (15) months prior to the end of the then current
         Term, Tenant shall give Landlord written notice that Tenant desires to
         exercise its right to extend the then current Term for one (1) Renewal
         Term.

                  1.2.2 There shall be (a) no Event of Default (as defined in
         Section 10 below) under this Lease and (b) no "Event of Default" (as
         defined in the Pool 2 Lease), if the Pool 2 Lease is still then in
         effect, in each case either on the date of Tenant's notice to Landlord
         pursuant to Section 1.2.1 above, or on the last day of the then current
         Term.

                  1.2.3 Concurrently with the commencement of each Renewal Term,
         the Security Deposit and Collateral Amount (as defined in Section 11.1)
         shall be increased to an amount equal to (a) if the Pool 2 Lease is
         then still in effect, thirty-eight percent (38%) of the sum of the
         annual Minimum Rent in effect during such Renewal Term and the "Minimum
         Rent" then payable under the Pool 2 Lease (but in no event less than
         the Security Deposit and Collateral Amount in effect immediately prior
         to the commencement of such Renewal Term), or (b) if the Pool 2 Lease
         is not then still in effect, thirty-five percent (35%) of the annual
         Minimum Rent in effect during such Renewal Term (but in no event less
         than the Security Deposit and Collateral Amount in effect immediately
         prior to the commencement of such Renewal Term).

                  1.2.4 All other provisions of this Lease shall remain in full
         force and effect and shall continuously apply throughout the Renewal
         Term(s).

         2.   RENT. During the Initial Term and all Renewal Terms, minimum rent
("MINIMUM RENT") and additional rent ("ADDITIONAL RENT") shall accrue and/or be
paid by Tenant to Landlord by wire transfer as set forth in this Section 2.
Additionally, Ground Rent (as defined in Section 3.7) shall accrue and be paid
by Tenant to Landlord by wire transfer in accordance with Section 3.7.

              2.1 INITIAL TERM MINIMUM RENT. During the Initial Term, Tenant
shall pay to Landlord Minimum Rent of (a) Nine Million Six Hundred Ninety
Thousand Dollars ($9,690,000) annually for each Lease Year through and including
the Lease Year ending June 30, 2011, and (b) Nine Million Five Hundred Four
Thousand Dollars ($9,504,000) annually for each Lease Year thereafter, plus, in
any Lease Year in which due, Development Rent (as

                                       3
<PAGE>

defined below) as provided in Section 2.1.3. Such Minimum Rent with respect to
each month shall be paid by wire transfer in advance and in equal monthly
installments of (x) Eight Hundred Seven Thousand Five Hundred Dollars ($807,500)
for each month in each Lease Year through and including the Lease Year ending
June 30, 2011, and (y) Seven Hundred Ninety-Two Thousand Dollars ($792,000) for
each month in each Lease Year thereafter, plus any Development Rent then due
pursuant to Section 2.1.3, on the first business day of each such calendar
month.

                  2.1.1 CONSTRUCTION PERIOD MINIMUM RENT. During the Initial
         Term, but prior to Substantial Completion (as defined in the
         Development Addendum (Park Regency) (as defined in Section 5.7)), in
         addition to the other rent described in Section 2.1, Construction
         Period Minimum Rent shall accrue as follows:

                        (i) Landlord shall determine the twenty (20) day average
         10 year United States Treasury rate (the "TREASURY RATE") in effect on
         the first (1st) business day of each calendar month before Substantial
         Completion occurs;

                        (ii) During each calendar month until Substantial
         Completion occurs, Construction Period Minimum Rent shall accrue but
         shall not be paid. "CONSTRUCTION PERIOD MINIMUM RENT" shall be equal
         to:

                             (A) (1) All advances made under the Development
         Addendum (Park Regency) plus (2) all previously accrued but unpaid
         Construction Period Minimum Rent, multiplied by,

                             (B) a rate equal to one twelfth (1/12) of the sum
         of (x) the Treasury Rate in effect for the applicable month, plus (y)
         ________________ (___) basis points, provided that such sum shall not
         be less than eleven percent (11%) nor more than thirteen percent (13%);

                        (iii) The accrual of Construction Period Minimum Rent
         calculated under this Section 2.1.1 with respect to advances made other
         than on the first (1st) day of a calendar month shall be prorated in
         the month in which such advances are made on the basis of a thirty (30)
         day month and actual days elapsed.

                  2.1.2 POST-CONSTRUCTION MINIMUM RENT. On the day on which
         Substantial Completion occurs (the "RESET DATE"), the monthly
         Construction Period Minimum Rent with respect to the total of (A) all
         advances under the Development Addendum (Park Regency) plus (B) all
         accrued but unpaid Construction Period Minimum Rent under Section 2.1
         (such total being, collectively, the "PARK REGENCY ADDITIONAL
         INVESTMENT") shall be reset at an amount (the "INITIAL TERM
         POST-CONSTRUCTION MINIMUM RENT") equal to one-twelfth (1/12) of the
         product of (I) the Park Regency Additional Investment, times (II) a
         rate (the "PARK REGENCY RATE") equal to ________________________ (___)
         basis points over the Treasury Rate in effect on the Reset Date,
         provided that such rate shall not be less than eleven percent (11%) nor
         more than thirteen

                                       4
<PAGE>

         (13%) percent. If the Reset Date occurs on other than the first (1st)
         day of a calendar month, such rent shall be prorated in the month in
         which the Reset Date occurs on the basis of a thirty (30) day month and
         actual days elapsed.

                  2.1.3 DEFERRAL PERIOD.

                  (i) The Initial Term Post-Construction Minimum Rent shall
         accrue but not be paid until one hundred eighty (180) days after the
         Reset Date. The total amount which accrues during such one hundred
         eighty (180) day period is referred to herein as the "DEFERRED RENT
         AMOUNT" and such one hundred eighty (180) day period is referred to as
         the "DEFERRAL PERIOD";

                  (ii) Commencing on the Payment Commencement Date (as defined
         below) and on the first (1st) business day of each calendar month
         thereafter during the Initial Term, the Minimum Rent payable pursuant
         to Section 2.1 during the Initial Term shall include the Initial Term
         Post-Construction Minimum Rent and the Amortizing Payment (as defined
         below). As used herein, (A) the "PAYMENT COMMENCEMENT DATE" shall mean
         the first (1st) business day of the calendar month immediately
         following the expiration of the Deferral Period, and (B) "DEVELOPMENT
         RENT" shall mean, collectively, Initial Term Post-Construction Minimum
         Rent and the Amortizing Payment. If the Reset Date falls on other than
         the first (1st) business day of a calendar month, on the Payment
         Commencement Date Tenant shall also pay a prorated amount of Initial
         Term Post-Construction Minimum Rent for the period from the end of the
         Deferral Period to the Payment Commencement Date, based on a thirty
         (30) day month and actual days elapsed;

                  (iii) As used herein, the "AMORTIZING PAYMENT" shall mean the
         amount equal to the quotient resulting from (A) the Deferred Rent
         Amount, divided by (B) the number of calendar months remaining after
         the end of the Deferral Period through the end of the Initial Term;

                  (iv) Therefore, during the Initial Term but before the end of
         the Deferral Period, there shall be no Development Rent payable by
         Tenant; and

                  (v) After the end of the Deferral Period and continuing for
         the remainder of the Initial Term, monthly Minimum Rent payable by
         Tenant shall consist of, and the definition of "Minimum Rent" shall
         include, Minimum Rent payable pursuant to Section 2.1 and Development
         Rent payable pursuant to Section 2.1.3.

         2.2  RENEWAL TERM MINIMUM RENT. The Minimum Rent for each Renewal Term
shall be expressed as an annual amount but shall be payable in advance in equal
monthly installments by wire transfer on the first business day of each calendar
month. Such annual Minimum Rent shall be equal to the product of:

                  2.2.1 The lesser of (i) the Adjusted Fair Market Value of the
         Premises (as such term is defined in Section 2.2.4 below) on the date
         of Tenant's notice of

                                       5
<PAGE>

         exercise pursuant to Section 1.2.1 or (ii) Landlord's Adjusted
         Investment in the Premises (as defined in Section 2.2.5 below); and

                  2.2.2 A percentage equal to three hundred (300) basis points
         over the twenty (20) day average 10 year United States Treasury rate in
         effect on the date of Tenant's notice of exercise pursuant to Section
         1.2.1. In the event that the unavailability of United States Treasury
         securities causes the foregoing calculation, or any other similar
         calculation described in this Lease, to be impracticable, a substitute
         therefor, reasonably acceptable to Landlord and Tenant, shall be used
         for such purposes.

                  2.2.3 Notwithstanding the foregoing, in no event shall the
         Minimum Rent for the first (1st) Lease Year of the first (1st) Renewal
         Term exceed one hundred twenty-five percent (125%) of the Total Rent
         payable in the last Lease Year of the Initial Term, and in no event
         shall the Minimum Rent for the first (1st) Lease Year of any Renewal
         Term other than the first Renewal Term exceed one hundred twenty-five
         percent (125%) of the Total Rent payable in the last Lease Year of the
         immediately preceding Renewal Term. Furthermore, in no event shall the
         Minimum Rent for the first Renewal Term be less than one hundred
         percent (100%) of the Total Rent payable during the last Lease Year of
         the Initial Term, and in no event shall the Minimum Rent for any
         Renewal Term other than the first Renewal Term be less than one hundred
         percent (100%) of the Total Rent payable during the last Lease Year of
         the immediately preceding Renewal Term.

                  2.2.4 As used herein, the "ADJUSTED FAIR MARKET VALUE" of the
         Premises shall mean fair market value as determined under this Lease
         with the following adjustments: (i) excluding the enterprise value of
         any home health agency operated by Tenant out of space in the Premises
         but including the fair rental value of such space; and (ii) minus the
         value of any capital improvements to the Premises paid for by Tenant
         and not funded by Landlord under Section 5.7 below.

                  2.2.5 As used herein, "LANDLORD'S ADJUSTED INVESTMENT" in the
         Premises shall mean Landlord's Original Investment (as hereinafter
         defined in this Section 2.2.5) multiplied at the end of each Lease Year
         by a percentage equal to one hundred percent (100%) plus one-half
         (1/2) of the CPI Increase (as defined in Section 2.2.6 below) for such
         Lease Year. As used herein, "LANDLORD'S ORIGINAL INVESTMENT" shall mean
         Ninety-Nine Million Sixty-One Thousand Four Hundred Twenty Dollars
         ($99,061,420) as increased by (A) any amount paid by Landlord pursuant
         to Section 5.7 below (including the Park Regency Additional
         Investment), and as decreased by (B) any net award paid to Landlord
         pursuant to Section 13.2 below, any portion thereof allocable to any
         Facility sold to Tenant pursuant to Section 5.4 or otherwise, all as
         applicable and as may be otherwise increased or decreased pursuant to
         any other provision of the Lease.

                  2.2.6 As used herein, "CPI" shall be defined as the Consumer
         Price Index for All Urban Wage Earners and Clerical Workers, United
         States Average,

                                       6
<PAGE>

         Subgroup "All Items" (1982 - 1984 = 100), as published by the United
         States Department of Labor, Bureau of Labor Statistics, or similar
         index if the same becomes available. The "CPI INCREASE" shall be
         calculated annually by comparing the CPI in effect on the first
         calendar day of the immediately preceding Lease Year to the first
         calendar day of the then current Lease Year.

If within ten (10) days of the date of Tenant's notice of exercise pursuant to
Section 1.2.1, Landlord and Tenant are unable to agree on the Adjusted Fair
Market Value of the Premises for purposes of this calculation, such Adjusted
Fair Market Value shall be established by the appraisal process described on
Exhibit B attached hereto. The Minimum Rent for the applicable Renewal Term must
be finally determined by such appraisal process on or before a date ninety (90)
days after Tenant's notice of exercise pursuant to Section 1.2.1 or Tenant shall
lose its right to extend the Term. Landlord and Tenant acknowledge and agree
that this Section is designed to establish a fair market Minimum Rent for the
Premises during the applicable Renewal Terms.

         2.3  INITIAL TERM ADDITIONAL RENT.

                  2.3.1 Commencing with the first Lease Year of the Initial Term
         and continuing thereafter during the Initial Term, Tenant agrees to pay
         Additional Rent to Landlord on a quarterly basis in arrears within
         forty-five (45) days after the end of each quarter of the applicable
         Lease Year; provided, however, if such payment date falls on a weekend
         or federal holiday, Tenant shall make such payment on the first
         business day immediately preceding such payment date. Such Additional
         Rent shall be equal to fifteen percent (15%) of the amount by which the
         Gross Revenues for the applicable quarter exceed one-fourth (1/4) of
         Gross Revenues for the Base Year. Concurrently with each quarterly
         payment of Additional Rent, Tenant shall deliver to Landlord in a form
         mutually agreed upon by Landlord and Tenant, a certificate, certified
         by an officer or general partner of Tenant, as applicable, setting
         forth the Gross Revenues for the applicable quarter and the final
         calculation of Additional Rent due with respect to such quarter.

                  2.3.2 "GROSS REVENUES" shall be calculated according to GAAP
         and shall be defined as all revenues generated by the operation,
         sublease and/or use of the Premises in any way, excluding (i)
         contractual allowances during the Term for billings not paid by or
         received from the appropriate governmental agencies or third party
         providers; (ii) all proper patient billing credits and adjustments
         according to GAAP relating to health care accounting; and (iii)
         federal, state or local sales or excise taxes and any tax based upon or
         measured by said 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.

                  2.3.3 "LEASE YEAR" shall be defined as the twelve (12) month
         periods commencing on July 1 and ending on June 30 of each year of the
         Term.

                  2.3.4 The "BASE YEAR" shall mean with respect to the Initial
         Term, the twelve (12) month period commencing on July 1, 2001 and
         ending on June 30,

                                       7
<PAGE>

         2002, with Gross Revenues for such Base Year being agreed to equal the
         amount of Twenty-Nine Million Two Hundred Thirty-Six Thousand Dollars
         ($29,236,000). The "BASE YEAR" with respect to any Renewal Term, shall
         mean the first Lease Year of such Renewal Term.

         2.4  RENEWAL TERM ADDITIONAL RENT. Except for the Base Year of any
Renewal Term, Tenant shall pay Additional Rent to Landlord on a quarterly basis
in arrears within forty-five (45) days after the end of each quarter of each
Lease Year during any Renewal Term; provided, however, if such payment date
falls on a weekend or federal holiday, Tenant shall make such payment on the
first business day immediately preceding such payment date. The Additional Rent
shall be calculated as provided in Section 2.3 except that the Base Year for the
purposes of determining such Additional Rent shall be the first Lease Year of
the applicable Renewal Term.

         2.5  TOTAL RENT.

                  2.5.1 Except to the extent provided to the contrary in the
         immediately succeeding sentence, for all purposes of calculating and
         paying Minimum Rent and Additional Rent under this Lease, the total of
         the Minimum Rent and Additional Rent ("TOTAL RENT") payable by Tenant
         in any quarter of any Lease Year will not be less than the Total Rent
         paid by Tenant for the immediately preceding quarterly period.
         Notwithstanding the foregoing, Total Rent payable by Tenant with
         respect to the first (1st) quarter of the Lease Year commencing July 1,
         2011 will not be less than the difference obtained by subtracting the
         sum of Forty-Six Thousand Five Hundred Dollars ($46,500) plus three (3)
         times the Amortizing Payment from the Total Rent paid by Tenant for the
         immediately preceding quarterly period.

                  2.5.2 Notwithstanding any of the other terms of this Section
         2, but subject to Section 2.5.3 below, the Total Rent due during each
         Lease Year shall not increase from one Lease Year to the next by an
         amount in excess of (i) two and one-half percent (2.5%), multiplied by
         (ii) the difference obtained by subtracting the sum of (x) the Annual
         Constant (as defined below), plus (y) the Amortizing Payment times the
         number of months, if any, for which the Amortizing Payment was made
         during the Lease Year from the Total Rent due during the immediately
         preceding Lease Year (the "ANNUAL RENT CAP"). For purposes of applying
         the Annual Rent Cap to the quarterly installments of Additional Rent
         due under Section 2.3.1, the Total Rent due during each quarter of any
         Lease Year shall not increase by an amount in excess of one-fourth
         (1/4) of the Annual Rent Cap for the then applicable Lease Year. As
         used herein, the "ANNUAL CONSTANT" shall mean (a) the amount of One
         Hundred Eighty-Six Thousand Dollars ($186,000) for each Lease Year
         through and including the Lease Year ending June 30, 2011, and (b) the
         amount of Zero Dollars ($0) for each Lease Year thereafter.

                                       8
<PAGE>

                  2.5.3 The terms of Section 2.5.2 above shall have no
         applicability in determining the calculation of the Minimum Rent due
         during the first Lease Year of any Renewal Term.

                  2.5.4 To the extent that Section 2.5.2 above operates to limit
         the Total Rent due for any Lease Year, the amount of rent which would
         have otherwise been paid or payable by Tenant will be carried forward
         on a cumulative basis and will be paid by Tenant to Landlord in any
         subsequent Lease Year (other than the first (1st) Lease Year of a
         Renewal Term) to the extent that the Total Rent due for such subsequent
         Lease Year is less than the Annual Rent Cap or the Renewal Annual Rent
         Cap, as applicable.

                  2.5.5 For the purpose of comparing the Total Rent due during
         each quarter of any Lease Year to the Total Rent due in the immediately
         preceding quarterly period pursuant to this Section 2.5, the increase
         in Minimum Rent by reason of any disbursement by Landlord pursuant to
         Section 5.7 of this Lease or pursuant to the Development Addendum (Park
         Regency) shall be treated as follows: (i) for the purpose of comparing
         the Total Rent in the quarterly period in which such disbursement is
         made against the Total Rent due in the immediately preceding quarter,
         such increase in Minimum Rent shall be ignored, and (ii) for the
         purpose of comparing the Total Rent in the quarterly period in which
         such disbursement is made to the Total Rent due in the following
         quarter, such increase in Minimum Rent shall be deemed effective on the
         first day of the quarterly period in which the disbursement is made.

         2.6  PRORATION FOR PARTIAL PERIODS; PAYMENT DATES; OTHER ADJUSTMENT.
The rent for any month during the Term which begins or ends on other than the
first or last calendar day of a calendar month shall be prorated based on actual
days elapsed. If any payment of Rent or other amounts hereunder falls due on a
day other than a business day, such payment shall be due on the last business
day immediately preceding such payment date.

         2.7  ABSOLUTE NET LEASE.

                  2.7.1 GENERALLY. All rent payments shall be absolutely net to
         the Landlord free of taxes (other than federal or state income taxes
         calculated on the net income of Landlord), assessments, utility
         charges, operating expenses, refurnishings, insurance premiums or any
         other charge or expense in connection with the Premises. All expenses
         and charges, whether for upkeep, maintenance, repair, refurnishing,
         refurbishing, restoration, replacement, insurance premiums, real estate
         or other property taxes, utilities, and other operating or other
         charges of a like nature or otherwise, shall be paid by Tenant. This
         provision is not in derogation of the specific provisions of this
         Lease, but in expansion thereof and as an indication of the general
         intention of the parties hereto. Tenant shall continue to perform its
         obligations under this Lease even if Tenant claims that Tenant has been
         damaged by any act or omission of Landlord. Therefore, Tenant shall at
         all times remain obligated under this Lease without any right of
         set-off, counterclaim, abatement, deduction, reduction or defense of
         any kind. Tenant's

                                       9
<PAGE>

         sole right to recover damages against Landlord by reason of a breach or
         alleged breach of Landlord's obligations under this Lease shall be to
         prove such damages in a separate action against Landlord.

                  2.7.2 SALES TAX. Tenant hereby agrees to pay any and all sales
         or use taxes (and any interest or penalties related thereto) at any
         time assessed by any governmental entity against (i) Landlord, with
         respect to the Landlord's purchase of any portion of the Premises from
         Guarantor or any affiliate of Guarantor, or (ii) Tenant, with respect
         to Tenant's operation of any Facility, including, without limitation,
         any lease of personal property at any time entered into by and between
         Landlord and Tenant. Tenant further agrees to indemnify Landlord
         against and/or reimburse Landlord for the amount of any such taxes
         actually paid by or assessed against Landlord regardless of the reason
         for any such payment or assessment. Any failure to make such
         reimbursement shall constitute an Event of Default under this Lease.

         3.   TAXES, ASSESSMENTS AND OTHER CHARGES; GROUND LEASE:

              3.1 TENANT'S OBLIGATIONS. Subject to Section 3.6, Tenant agrees to
pay and discharge (including the filing of all required returns) any and all
taxes (including but not limited to real estate and personal property taxes,
business and occupational license taxes, ad valorem sales, use, single business,
gross receipts, transaction privilege, franchise, rent or other excise taxes,
but excluding federal or state income taxes calculated on the net income of
Landlord), and other assessments levied or assessed against the Premises or any
interest therein during the Term, prior to delinquency or imposition of any
fine, penalty, interest or other cost.

              3.2 PRORATION. At the end of the Term, all such taxes and
assessments under Section 3.1 shall be prorated.

              3.3 RIGHT TO PROTEST. Landlord and/or Tenant shall have the right,
but not the obligation, to protest the amount or payment of any real or personal
property taxes or assessments levied against the Premises; provided that in the
event of any protest by Tenant, Landlord shall not incur any expense because of
any such protest, Tenant shall diligently and continuously prosecute any such
protest and notwithstanding such protest Tenant shall pay any tax, assessment or
other charge before the imposition of any penalty or interest.

              3.4 TAX BILLS. Landlord shall promptly forward to Tenant copies of
all tax bills and payment receipts relating to the Premises received by
Landlord.

              3.5 OTHER CHARGES. Tenant agrees to pay and discharge, punctually
as and when the same shall become due and payable without penalty, all
electricity, gas, garbage collection, cable television, telephone, water, sewer,
and other utilities costs and all other charges, obligations or deposits
assessed against the Premises during the Term.

              3.6 IMPOUND. Tenant shall deposit with Landlord at the time of
each payment of an installment of Minimum Rent, one-twelfth (1/12) of the amount
sufficient to discharge the annual amount of real property taxes and assessments
secured by a lien encumbering any portion of the Premises as and when they
become due. Such amounts shall be

                                       10
<PAGE>

held by Landlord not in trust and not as an agent of Tenant, and shall be
applied to the payment of the obligations with respect to which the amounts were
deposited. Tenant acknowledges that the impounding of such funds in the escrow
described herein shall constitute a true escrow, and that Tenant has no, and
hereby waives any, interest in or right or title to any funds escrowed pursuant
to this Section 3.6, whether legal, equitable, beneficial or otherwise, except
that Tenant shall be entitled to enforce Landlord's obligations hereunder with
respect to such escrow. If at any time within thirty (30) days prior to the due
date of any of the aforementioned obligations the amounts then on deposit
therefor shall be insufficient for the payment of such obligation in full,
Tenant shall within ten (10) days after demand, deposit the amount of the
deficiency with Landlord. If the amounts deposited are in excess of the actual
obligations for which they were deposited, Landlord shall hold the same in a
reserve account, not in trust, and reduce proportionately the required monthly
deposits for the ensuing Lease Year; provided that any such excess with respect
to the final Lease Year of the Term shall be refunded to Tenant within thirty
(30) days of the end of the Term. Tenant shall deliver to Landlord, or
Landlord's agent if so directed by Landlord, all tax bills, bond and assessment
statements, as soon as the same are received by Tenant. If Landlord sells or
assigns this Lease, Landlord shall transfer all amounts deposited by Tenant
pursuant to this Section 3.6 to the purchaser or assignee, and Landlord shall
thereafter be released from all responsibility related to, and shall have no
further liability for the application of, such deposits, and to the extent
Landlord transfers such amounts, Tenant shall look solely to such purchaser or
assignee for such application and for all responsibility related to such
deposits. Except during the continuance of an Event of Default, cash amounts
deposited by Tenant with Landlord pursuant to this Section 3.6 shall accrue
interest for the benefit of Tenant at the annual rate of ten percent (10%).
Provided that no Event of Default is then continuing, such interest shall be
paid by Landlord to Tenant on a quarterly basis in arrears.

              3.7 SAN ANTONIO GROUND LEASE.

                  3.7.1 Tenant acknowledges that, as a part of the transaction
         involving Landlord's acquisition of certain of the Facilities
         comprising the Premises, Tenant has requested that one of the entities
         comprising Landlord, NH Texas Properties Limited Partnership, a Texas
         limited partnership ("NHTP"), assume that certain Ground Lease
         Agreement dated as of January 14, 2000 by and between One Towers Park
         Lane Cooperative Company, a Texas association incorporated under the
         Texas Cooperative Associate Act, as lessor (the "GROUND LESSOR"), and
         ARC Parklane, Inc., a Tennessee corporation, as lessee (the "GROUND
         LESSEE"), for the Facility described on Schedule 2 as the Parklane West
         Facility (San Antonio, Texas), as amended by that certain First
         Amendment to Ground Lease Agreement dated February 17, 2000, by and
         between Ground Lessor and Ground Lessee (as may be further amended,
         modified or revised after the date hereof, the "GROUND LEASE").
         Landlord and Tenant expressly acknowledge that (a) by assuming Ground
         Lessee's obligations under the Ground Lease, Landlord has not assumed
         any obligations under that certain Letter Amendment to Ground Lease
         dated January 1, 2000 by and between Ground Lessor and Ground Lessee
         (the "LETTER AMENDMENT"), and (b) as used herein, the term "Ground
         Lease" shall not include the Letter Amendment. In consideration
         thereof, and as additional Rent payable hereunder, Tenant shall pay to
         Landlord by wire transfer, at the time of and with each payment of
         Minimum Rent, the amount of Ground Rent to be paid to the

                                       11
<PAGE>

         Ground Lessor in such month. As used herein, "GROUND RENT" shall mean,
         collectively, all rent and other costs, charges, expenses, assessments
         or impositions to be paid by the lessee under the Ground Lease
         Documents. Without in any way limiting Tenant's obligations to make
         such payments in accordance with this Section 3.7.1, or any other right
         or remedy that may be available to Landlord at law, in equity or under
         this Lease, if Tenant fails to make any required payment of Ground Rent
         to Landlord, and Landlord nonetheless makes the corresponding payment
         of rent or other amount under the Ground Lease Documents to the Ground
         Lessor, the amount of such payment, together with any late charges or
         interest that may be payable in connection therewith, shall accrue
         interest in the manner provided in Section 10.6 until paid by Tenant.
         As used herein, "GROUND LEASE DOCUMENTS" shall mean, individually and
         collectively, (1) the Ground Lease, (2) that certain Occupancy
         Agreement entered into as of January 1, 2000 by and between Ground
         Lessor and Ground Lessee, (3) that certain Reciprocal Easement and
         Operating Agreement dated as of January 1, 2000, as amended by that
         certain First Amendment to Reciprocal Easement and Operating Agreement
         dated February 17, 2000, each by and between Ground Lessor and Ground
         Lessee, (4) that certain Ground Lessor Estoppel Certificate and
         Consent, and Agreement Concerning Lease Documents, dated as of even
         date herewith, by and between NHTP and Ground Lessor, in each case as
         amended, modified or revised after the date hereof.

                  3.7.2 Without limitation of any other provision contained in
         this Lease or in any of the Ground Lease Documents, Tenant further
         covenants and agrees to fully perform and discharge, at the times and
         in the manner required thereunder, all of the undertakings, obligations
         and responsibilities of the ground lessee under each of the Ground
         Lease Documents, including all reporting, regulatory, indemnity,
         environmental and maintenance obligations, except to the extent that
         any such undertakings, obligations and responsibilities are the express
         obligation of Landlord pursuant to Section 3.7.3 below. Tenant shall
         notify Landlord in writing of any default by Tenant or the Ground
         Lessor in the performance or observance of any terms, covenants or
         conditions on the part of Tenant or the Ground Lessor, respectively, to
         be performed or observed under any of the Ground Lease Documents
         immediately upon Tenant obtaining knowledge of such default. Tenant and
         Landlord each shall, immediately upon receipt thereof, deliver to the
         other party a copy of each notice given by the Ground Lessor or any
         other person concerning any of the Ground Lease Documents and received
         by Tenant or Landlord, as applicable.

                  3.7.3 Landlord agrees that, except during the continuance of
         any Event of Default or any default or breach by Tenant under any of
         the Ground Lease Documents, Landlord covenants to pay to the Ground
         Lessor the Ground Rent as and when due under the Ground Lease Documents
         and agrees that it shall not enter into any termination of the Ground
         Lease Documents or, to the extent that the same would materially and
         adversely impair Tenant's rights and benefits under the Ground Lease
         Documents, any modification or amendment thereof, except to the extent
         required by applicable law. At no cost or expense to itself,

                                       12
<PAGE>

         Landlord will, except during the continuance of any Event of Default or
         any default or breach by Tenant under any of the Ground Lease
         Documents, reasonably cooperate with Tenant (a) to fulfill any
         reporting or similar requirements under the Ground Lease Documents that
         could not reasonably be performed by Tenant in the absence of such
         cooperation, (b) to seek any approvals of or waivers from the Ground
         Lessor that Tenant may reasonably request, as determined by Landlord in
         its reasonable discretion, and (c) to make any election or grant any
         consent or approval that, in accordance with the terms thereof, may be
         made by the ground lessee under any of the Ground Lease Documents as
         Tenant may reasonably request, as determined by Landlord in its
         reasonable discretion.

                  3.7.4 At all times during the Term that the Ground Lease
         remains in force and effect, this Lease shall be deemed to be a
         sublease of the Parklane West Facility by Landlord to Tenant subject to
         the Ground Lease. Provided that no Event of Default then exists,
         concurrently with any termination of the Ground Lease during the Term
         in connection with Landlord's acquisition of fee ownership of the
         Leased Premises (as defined in the Ground Lease), this Lease shall
         become a prime lease of the Parklane West Facility by Landlord to
         Tenant.

                  3.7.5 As an inducement to Landlord to accept the assignment of
         the Ground Lease Documents, Tenant represents and warrants to Landlord
         as follows: (a) each of the Ground Lease Documents is in full force and
         effect and, immediately prior to the assignment thereof to Landlord,
         was the valid and binding obligation of both the Ground Lessor and the
         Ground Lessee; (b) the Ground Lease Documents have not been amended,
         revised, restated or otherwise modified; (c) all rent and other charges
         due to be paid by Ground Lessee under the Ground Lease Documents
         through the date of this Lease have been paid in full; and (d)
         immediately prior to the assignment thereof to Landlord, there were no
         breaches or defaults by Ground Lessee, nor to the best of Tenant's
         knowledge by the Ground Lessor, under any of the Ground Lease
         Documents, nor did any state of facts or circumstance exist that, with
         the giving of notice or the passing of time would constitute such a
         breach or default.

         4.   INSURANCE.

              4.1 GENERAL INSURANCE REQUIREMENTS. All insurance provided for
in this Lease shall be maintained under valid and enforceable policies issued by
insurers of recognized responsibility, approved to do business in the State in
which the applicable Facility is located having a general policyholders rating
of not less than "A-" and a financial rating of not less than "VIII" in the then
most current Best's Insurance Report. Any and all policies of insurance required
under this Lease shall name the Landlord as an additional insured, shall be
primary and non-contributory with any insurance that Landlord may maintain in
connection with the Premises, and shall be on an "occurrence" basis, or on a
"claims-made" basis upon Landlord's prior written consent, which consent shall
not be unreasonably withheld at such times as the applicable insurance is not
available on an "occurrence" basis at commercially reasonable rates, as
reasonably determined by Landlord; provided, however, the proceeds of any
business

                                       13
<PAGE>

interruption policy shall be payable to Tenant without relieving Tenant in any
way of its obligation to pay rent under this Lease. With respect to any
insurance policy maintained by Tenant in accordance with this Section 4.1 that
is on a "claims-made" basis: (a) any renewal or replacement of such policy shall
show as its prior acts/retroactive or continuity date the first date of
claims-made coverage under the policy being renewed or replaced; (b) if such
policy is cancelled or not renewed and is not concurrently replaced with a
policy providing insurance on an "occurrence" basis with "full prior acts"
coverage, Tenant shall obtain effective as of such cancellation or non-renewal
an "extended reporting provision option" (or "tail" coverage) for a minimum of
three (3) years; and (c) if such policy is replaced by any policy providing
coverage on an "occurrence" basis, such replacement policy shall contain a "full
prior acts" provision. In addition, Landlord shall be shown as the loss payable
beneficiary under the casualty insurance policy maintained by Tenant pursuant to
Section 4.2. All policies of insurance required herein may be in the form of
"blanket" or "umbrella" type policies which shall name the Landlord and Tenant
as their interests may appear and allocate to each Facility the full amount of
insurance required hereunder. Original policies or satisfactory certificates
from the insurers evidencing the existence of all policies of insurance required
by this Lease and showing the interest of the Landlord shall be filed with the
Landlord prior to the commencement of the Term and shall provide that the
subject policy may not be canceled except upon not less than ten (10) days prior
written notice to Landlord. If Landlord is provided with a certificate, upon
Landlord's request Tenant shall provide Landlord with a complete copy of the
insurance policy evidenced by such certificate within thirty (30) days of the
commencement of the Term. Originals of the renewal policies or certificates
therefor from the insurers evidencing the existence thereof shall be deposited
with Landlord upon renewal of the applicable policies. If Landlord is provided
with a certificate for a renewal policy, upon Landlord's request Tenant shall
deliver a copy of the complete renewal policy to Landlord within thirty (30)
days of the expiration of the replaced policy. Any claims under any policies of
insurance described in this Lease shall be adjudicated by and at the expense of
the Tenant or of its insurance carrier, but shall be subject to joint control of
Tenant and Landlord.

              4.2 FIRE AND OTHER CASUALTY. Tenant shall keep each Facility
insured against loss or damage from all causes under standard "all risk"
property insurance coverage, without exclusion for fire, lightning, windstorm
(including hurricane coverage), explosion, smoke damage, vehicle damage,
sprinkler leakage, flood, vandalism, earthquake, malicious mischief or any other
risk as is normally covered under an extended coverage endorsement, in the
amounts that are not less than the full insurable value of the applicable
Facility including all equipment and personal property (whether or not Landlord
Personal Property) used in the operation of the such Facility; provided,
however, that the amount of such insurance in respect of the required flood and
earthquake coverage may be limited, at Tenant's option, to Five Million Dollars
($5,000,000). The term "FULL INSURABLE VALUE" as used in this Lease shall mean
the actual replacement value of the applicable Facility (including all
improvements) and every portion thereof, including the cost of compliance with
changes in zoning and building codes and other laws and regulations, demolition
and debris removal and increased cost of construction. In addition, the casualty
insurance required under this Section 4.2 will include an agreed amount
endorsement such that the insurance carrier has accepted the amount of coverage
and has agreed that there will be no co-insurance penalty.

                                       14
<PAGE>

              4.3 PUBLIC LIABILITY. Tenant shall maintain comprehensive general
public liability insurance coverage (including products liability coverage)
against claims for bodily injury, death or property damage occurring on, in or
about each Facility and the adjoining sidewalks and passageways, such insurance
to include a broad form endorsement and to afford protection to Landlord and
Tenant of not less than One Million Dollars ($1,000,000) with respect to bodily
injury or death to any one person, not less than Five Million Dollars
($5,000,000) with respect to any one accident, and not less than One Million
Dollars ($1,000,000) with respect to property damage; provided, that Landlord
shall have the right at any time hereafter to require such higher limits as may
be reasonable and customary for transactions and properties that are similar to
the applicable Facility and that are located in the area thereof.

              4.4 PROFESSIONAL LIABILITY INSURANCE. Tenant shall maintain with
respect to each Facility insurance against liability imposed by law upon Tenant
for damages on account of professional services rendered or which should have
been rendered by Tenant or any person for which acts Tenant is legally liable on
account of injury, sickness or disease, including death at any time resulting
therefrom, and including damages allowed for loss of service, in a minimum
amount of One Million Dollars ($1,000,000) for each claim and Five Million
Dollars ($5,000,000) in the aggregate.

              4.5 WORKERS COMPENSATION. Tenant shall comply with all legal
requirements regarding worker's compensation, including any requirement to
maintain worker's compensation insurance against claims for injuries sustained
by Tenant's employees in the course of their employment.

              4.6 BOILER INSURANCE. Tenant shall maintain with respect to each
Facility boiler and pressure vessel insurance, including an endorsement for
boiler business interruption insurance, on any fixtures or equipment which are
capable of bursting or exploding, in an amount not less than Five Million
Dollars ($5,000,000) for damage to property, bodily injury or death resulting
from such perils.

              4.7 BUSINESS INTERRUPTION INSURANCE. Tenant shall maintain with
respect to each Facility, at its expense, business interruption and extra
expense insurance insuring a period of not less than six (6) months.

              4.8 DEDUCTIBLE AMOUNTS. The policies of insurance which Tenant is
required to provide under this Lease will not have deductibles or self-insured
retentions in excess of One Hundred Thousand Dollars ($100,000), or such higher
amount as may be commercially reasonable under applicable circumstances, as
reasonably determined by Landlord.

              4.9 GROUND LEASE REQUIREMENTS. The insurance maintained by Tenant
with respect to the Parklane West Facility shall comply with both the provisions
of the Ground Lease concerning insurance and the provisions of this Section 4.

              4.10 REIMBURSEMENT OF LANDLORD'S INSURANCE COSTS. During any Lease
Year or portion thereof in which Tenant in not in compliance with the other
provisions of this Section 4, Tenant shall reimburse Landlord, within ten (10)
days of Landlord's demand therefor, for the costs of the premiums of the general
liability and environmental insurance policies

                                       15
<PAGE>

maintained by Landlord, or contributions to self-insurance in lieu thereof, in
connection with the Premises, which amount shall not exceed in any Lease Year
the amount of Twenty-Five Thousand Dollars ($25,000) (or Fifty Thousand Dollars
($50,000) when aggregated with such amounts as may be due under the Pool 2
Lease), as adjusted at the end of each Lease Year for increases in the CPI since
the date of this Lease. Tenant shall have no right to receive any proceeds or
other benefits from any such insurance. The foregoing shall not in any way imply
that Landlord shall, or impose any duty on Landlord to: (a) waive any Event of
Default that may arise as a result of Tenant's failure to comply with the other
provisions of this Section 4, or (b) obtain or maintain any such general
liability or environmental insurance with respect to the Premises.

         5.   USE, MAINTENANCE AND ALTERATION OF THE PREMISES.

              5.1 TENANT'S MAINTENANCE OBLIGATIONS.

                  5.1.1 Tenant will keep and maintain the Premises in good
         appearance, repair and condition and maintain proper housekeeping.
         Tenant shall promptly make or cause to be made all repairs, interior
         and exterior, structural and nonstructural, ordinary and extraordinary,
         foreseen and unforeseen, necessary to keep each Facility in good and
         lawful order and condition and in substantial compliance with all
         applicable requirements for the licensing of the Personal Care
         Facilities in the State in which such Facility is located and
         certification for participation in Medicare and Medicaid (or any
         successor programs) as currently exist or as are obtained by Tenant at
         a later date or as otherwise required under all applicable local, state
         and federal laws.

                  5.1.2 As part of Tenant's obligations under this Section 5.1,
         Tenant shall be responsible to maintain, repair and replace all
         Landlord Personal Property and all Tenant Personal Property (as defined
         in Section 7.1 below) in good condition, ordinary wear and tear
         excepted, consistent with prudent industry practice as applicable to
         the Personal Care Facilities.

                  5.1.3 Without limiting Tenant's obligations to maintain the
         Premises under this Lease, within thirty (30) days of the end of each
         Lease Year starting with the end of the fourth (4th) Lease Year, Tenant
         shall provide Landlord with evidence satisfactory to Landlord in the
         reasonable exercise of Landlord's discretion that Tenant has in such
         Lease Year and the two (2) immediately preceding Lease Years spent on
         Repair Expenditures for each Facility an annual average amount of at
         least Two Hundred Dollars ($200) per unit per year as such amount is
         adjusted annually at the end of each Lease Year for increases in the
         CPI from the date hereof. The term "REPAIR EXPENDITURES" is defined to
         mean repairs or modifications to the Facility which have the effect of
         maintaining the competitive position of the Facility in its respective
         marketplace. Non-exclusive examples of Repair Expenditures are
         replacement wallpaper, tiles, window coverings, lighting fixtures,
         painting, landscaping, carpeting, architectural adornments, common area
         amenities and the like. It is expressly understood that capital
         improvements or repairs (such as but not limited to repairs or
         replacements

                                       16
<PAGE>

         to the structural elements, equipment, fixtures, appliances, parking
         area, or the roof or to the electrical, plumbing, HVAC or other
         mechanical or structural systems in the Facility) and any advances
         under Section 5.7 shall not be considered to be Repair Expenditures. If
         Tenant fails to make at least the above amount of Repair Expenditures,
         Tenant shall promptly on demand from Landlord (but in no event more
         than five (5) days) pay to Landlord the applicable shortfall in Repair
         Expenditures. Such funds shall be the sole property of Landlord and
         Landlord may in its sole discretion provide such funds to Tenant to
         correct the shortfall in Repair Expenditures or may simply retain such
         funds as supplemental rent hereunder.

              5.2 REGULATORY COMPLIANCE.

                  5.2.1 Tenant and each Facility shall comply in all material
         respects with all federal, state and local licensing and other laws and
         regulations applicable to the Personal Care Facilities as well as with
         the certification requirements of Medicare and Medicaid (or any
         successor program) that are obtained by Tenant. Further, Tenant shall
         ensure that each Facility continues to be licensed and operated as a
         Personal Care Facility with a licensed and operating capacity as set
         forth on Schedule 2, fully certified for participation in Medicare and
         Medicaid (or any successor program) that are obtained by Tenant
         throughout the Term and at the time the Premises are returned to
         Landlord at the termination thereof, all without any suspension,
         revocation, decertification, material penalty or material limitation.
         Further, Tenant shall not commit any act or omission that would in any
         way violate any certificate of occupancy affecting any Facility.
         Without limiting the generality of the foregoing, Tenant shall be
         responsible to obtain all licenses and certificates of occupancy for
         each Facility upon completion of any construction thereto in order to
         operate such Facility for its intended use in compliance with
         applicable legal and regulatory requirements.

                  5.2.2 During the Term, all inspection fees, costs and charges
         associated with a change of any licensure or certification shall be
         borne solely by Tenant. Tenant shall at its sole cost make any
         additions or alterations to any Facility necessitated by, or imposed in
         connection with, a change of ownership inspection survey for the
         transfer of operation of such Facility from Tenant or Tenant's assignee
         or subtenant to Landlord or Landlord's designee at the expiration or
         earlier termination of the Term in accordance herewith.

                  5.2.3 If Tenant elects to participate in Medicare or Medicaid
         (or any successor program), Tenant shall comply in all material
         respects with the requirements to participate in such programs.
         However, it shall not be a default under this Lease if Tenant
         voluntarily for its own business reasons elects to discontinue its
         participation in such programs so long as at the time of such
         discontinuance there is no ongoing proceeding by the applicable
         regulatory authority to decertify Tenant and so long as Tenant at the
         time of such discontinuance is not in material default of any material
         requirement of any such program.

                                       17
<PAGE>

              5.3 PERMITTED USE. Tenant shall continuously use and occupy each
Facility during the Term solely as a Personal Care Facility licensed and
operated as set forth in the Lease, with the number of beds or units set forth
on Schedule 2.

              5.4 TENANT REPURCHASE OBLIGATION. In the event of an Event of
Default arising from Tenant's failure to comply with Section 5.3 and during the
pendency thereof, or if an Event of Default occurs and is continuing because the
license of any Facility is revoked, suspended or materially limited for any of
the uses included in the definition of Personal Care Facilities, then in
addition to Landlord's other rights and remedies under this Lease, Landlord
shall have the right to put the applicable Facility to Tenant. If Landlord
exercises such right, Tenant shall purchase the applicable Facility from
Landlord for a cash price equal to the greater of the Adjusted Fair Market Value
of the applicable Facility or the portion of the Landlord's Original Investment
applicable to such Facility on the date of Landlord's notice of exercise. Such
Adjusted Fair Market Value shall be as agreed between Landlord and Tenant.
However, failing such agreement within ten (10) days of Landlord's notice of
exercise under this Section, such Adjusted Fair Market Value shall be determined
by the appraisal process set forth in Exhibit B attached hereto. Within ninety
(90) days of Landlord's exercise of its put under this Section 5.4, such
purchase shall be consummated utilizing an escrow at a national title company
selected by Landlord. Such escrow shall be documented on such title company's
standard sale escrow instructions without representations or warranties and
without any due diligence or other contingencies in favor of the buyer. Tenant
shall pay all costs of such sale transaction. At the close of such sale,
Landlord shall deliver to Tenant title to the applicable Facility subject only
to the applicable title exceptions shown on Exhibit C attached hereto. Upon the
consummation of the sale of any Facility pursuant to this Section 5.4,
Landlord's Original Investment and Minimum Rent shall be reduced by the
respective amount thereof attributable to such Facility. For purposes of this
Section 5.4, (a) the "purchase of the applicable Facility" or like terminology
with respect to the Parklane West Facility shall mean a sale and assignment by
Landlord to Tenant of the leasehold estate under the Ground Lease and the
"Facilities" (as defined in the Ground Lease) and other improvements on the
"Leased Premises" (also as defined in the Ground Lease) that are then owned by
Landlord, and (b) the purchase price to be paid by Tenant to Landlord for the
property described in the foregoing clause (a) shall be the portion of the
Landlord's Original Investment applicable to the Parklane West Facility on the
date of Landlord's notice of exercise.

              5.5 NO LIENS; PERMITTED CONTESTS. Tenant shall not cause or permit
any liens, levies or attachments to be placed or assessed against any portion of
the Premises or the operation thereof for any reason. However, Tenant shall be
permitted in good faith and at its expense to contest the existence, amount or
validity of any lien upon any portion of the Premises by appropriate proceedings
sufficient to prevent the collection or other realization of the lien or claim
so contested, as well as the sale, forfeiture or loss of any of the Premises or
any rent to satisfy the same. Tenant shall provide Landlord with security
satisfactory to Landlord in Landlord's reasonable judgment to assure the
foregoing. Each contest permitted by this Section 5.5 shall be promptly and
diligently prosecuted to a final conclusion by Tenant.

              5.6 ALTERATIONS BY TENANT. Subject to Section 5.8, Tenant shall
have the right of altering, improving, replacing, modifying or expanding the
facilities, equipment or appliances in each Facility from time to time as it may
determine is desirable for the continuing

                                       18
<PAGE>

and proper use and maintenance of the Premises under this Lease; provided,
however, that any alterations, improvements, replacements, expansions or
modifications to any single Facility in excess of Two Hundred Thousand Dollars
($200,000) in any rolling twelve (12) month period shall require the prior
written consent of the Landlord; provided, further, that the aggregate cost of
tenant-funded improvements for any single Facility cannot exceed ten percent
(10%) of Landlord's Original Investment therefor without securing the prior
written consent of Landlord. Any amounts funded by Tenant as necessitated by
damage to the Premises by casualty or condemnation shall not count towards the
foregoing calculation. The cost of all alterations, improvements, replacements,
modifications, expansions or other purchases, covered by this Section 5.6,
whether undertaken as an on-going licensing, Medicare or Medicaid (or any
successor program) requirement (if applicable) or other regulatory requirement
or otherwise shall be borne solely and exclusively by Tenant (unless funded by
Landlord under Section 5.7) and shall immediately become a part of the Premises
and the property of the Landlord subject to the terms and conditions of this
Lease. All work done in connection therewith shall be done in a good and
workmanlike manner and in compliance with all existing codes and regulations
pertaining to the applicable Facility and shall comply with the requirements of
insurance policies required under this Lease. In the event any items of any
Facility have become inadequate, obsolete or worn out or require replacement (by
direction of any regulatory body or otherwise), Tenant shall remove such items
and exchange or replace the same at Tenant's sole cost and the same shall become
part of the Premises and property of the Landlord.

              5.7 CAPITAL IMPROVEMENTS FUNDED BY LANDLORD. In the event Tenant
desires to make a capital improvement or a related series of capital
improvements to any Facility and if Tenant desires that Landlord fund the same,
Landlord shall, in its discretion and without obligation, within thirty (30)
days of Tenants' written request therefor, consider Tenant's request to fund
such capital improvements. In addition to the foregoing, and on the terms and
conditions set forth herein and in the Development Addendum (Park Regency) (as
defined below), Landlord agrees to fund up to Four Million Dollars ($4,000,000)
to Tenant for capital improvements to be made to the Facility described on
Schedule 2 as the Park Regency Facility. Such funding shall be made pursuant to
that certain "Development Addendum" of even date herewith between Landlord and
Tenant (the "DEVELOPMENT ADDENDUM (PARK REGENCY)"), which is incorporated
herein. Each and every capital improvement funded by Landlord under this Section
shall immediately become a part of the Premises and shall belong to Landlord
subject to the terms and conditions of this Lease. If Landlord funds any capital
improvements, Landlord's Original Investment shall be increased for all purposes
under this Lease by the amount of the funds provided by Landlord for capital
improvements.

              5.8 COMPLIANCE WITH IRS GUIDELINES. Any improvement or
modification to the Premises shall satisfy the requirements set forth in
Sections 4(4).02 and .03 of Revenue Procedure 75-21, 1975-1 C.B. 715, as
modified by Revenue Procedure 79-48, 1979-2 C.B. 529. Landlord reserves the
right to refuse to consent to any improvement or modification to the Premises
if, in its judgment, such improvement or modification does not meet the
foregoing requirements.

                                       19
<PAGE>

         6.   CONDITION AND TITLE OF PREMISES; RIGHT OF FIRST OFFER.

              6.1 CONDITION AND TITLE OF PREMISES. Tenant acknowledges that it
is presently engaged (or has hired a consultant or manager that is presently
engaged) in the operation of Personal Care Facilities in the States in which the
Facilities are located and has expertise (or has hired a consultant or manager
that has expertise) in senior housing, independent living, personal care,
skilled and intermediate nursing, subacute care and dementia care. Tenant has
thoroughly investigated the Premises and has selected the Premises to its own
specifications. Tenant accepts the Premises for use as Personal Care Facilities
under this Lease on an "AS IS, WHERE IS, WITH ALL FAULTS" basis and will assume
all responsibility and cost for the correction of any observed or unobserved
deficiencies or violations. In making its decision to enter into this Lease,
Tenant has not relied on any representations or warranties, express or implied,
of any kind from Landlord. Notwithstanding any other provision of this Lease to
the contrary, Tenant accepts the Premises in their present condition, AS IS,
WHERE IS, WITH ALL FAULTS, and without any representations or warranties
whatsoever, express or implied, including, without limitation, any express or
implied representations or warranties as to the fitness, use, suitability, or
condition of the Premises. Tenant hereby represents and warrants to Landlord
that Tenant is thoroughly familiar with the Premises and the condition thereof,
that Tenant is relying on Tenant's own personal knowledge of the condition of
the Premises, that neither Landlord nor any person or entity acting or allegedly
acting for or on behalf of Landlord or any other person or entity having or
claiming any interest in the Premises has made any representations, warranties,
agreements, statements, or expressions of opinions in any way or manner
whatsoever related to, connected with, or concerning the Premises, the condition
of the Premises, or any other fact or circumstance whatsoever on which Tenant is
relying, and, to the maximum extent not prohibited by applicable law, Tenant
hereby releases and discharges Landlord and all other persons and entities
having or claiming any interest in the Premises from all liability, damages,
costs, and expenses of every kind and nature whatsoever in any way or manner
arising out of, connected with, related to, or emanating from the condition of
the Premises at any time during the Term of this Lease. Tenant has examined the
condition of title to the Premises prior to the execution and delivery of this
Lease and has found the same to be satisfactory.

              6.2 RIGHT OF FIRST OFFER TO PURCHASE PREMISES.

                  6.2.1 Tenant shall have the right of first offer to purchase
         the Premises upon the terms and conditions set forth in this Section
         6.2; provided, however, Tenant shall not have the right to exercise its
         rights under this Section 6.2 if any Event of Default has occurred and
         is continuing as of any of the following dates: (i) the date on which
         Landlord delivers an Offering Notice to Tenant pursuant to Section
         6.2.2(i), or (ii) the date of Tenant's delivery of an Exercise Notice
         pursuant to Section 6.2.2(ii), or (iii) or the closing date established
         to consummate the purchase of the Premises pursuant to Section
         6.2.2(iii).

                  6.2.2 If during the Term Landlord receives a bona fide offer
         to purchase the Premises, or any portion thereof (the "OFFERED
         PROPERTY"), from any person or entity other than an Affiliate of
         Landlord (as such term is defined in Section

                                       20
<PAGE>

         10.1.4 below), Landlord and Tenant shall take the following steps if
         Landlord has determined to accept such offer:

                        (i) Landlord shall give written notice to Tenant of its
         intention to accept such offer, which notice shall set forth the price,
         terms and conditions contained in the offer to purchase the Offered
         Property which Landlord intends to accept ("OFFERING NOTICE");

                        (ii) Within fifteen (15) days after receipt of an
         Offering Notice, Tenant shall either (A) deliver to Landlord written
         notice that Tenant does not desire to purchase the Offered Property on
         the terms set forth in the Offering Notice, or (B) deliver to Landlord
         written notice of Tenant's desire to exercise its right to purchase the
         Offered Property on the terms set forth in the Offering Notice pursuant
         to this Section 6.2 ("EXERCISE NOTICE");

                        (iii) If Tenant delivers an Exercise Notice within such
         fifteen (15) day period, Landlord as seller and Tenant as buyer shall
         immediately open an escrow to consummate such purchase at a national
         title company selected by Landlord in its reasonable discretion on the
         following terms: (A) the form of such instructions to be then signed by
         Landlord and Tenant shall be such title company's standard sale escrow
         instructions and, notwithstanding anything set forth in the Offering
         Notice to the contrary, shall not provide for any representations or
         warranties by Landlord as seller or for any due diligence or other
         contingencies in favor of Tenant as buyer, (B) the purchase price shall
         be payable in cash by Tenant or on such other terms as are set forth in
         the Offering Notice with escrow to close on or before the date set
         forth in the Offering Notice, (C) transaction costs shall be paid as
         set forth in the Offering Notice, (D) at close, Landlord shall deliver
         title to the Offered Property subject only to the applicable title
         exceptions shown on Exhibit C attached hereto, (E) the sale escrow
         instructions shall provide for an earnest money deposit in the amount
         set forth in the Offering Notice and shall provide that such deposit
         may be retained by Landlord as liquidated damages in the event of any
         breach by Tenant of the terms of the escrow instructions (provided,
         however, such liquidated damages shall relate only to Landlord's
         damages by reason of a breach of the escrow instructions and shall in
         no way liquidate or limit Landlord's damages by reason of a breach of
         this Lease), and (F) the escrow instructions shall otherwise be in form
         and substance reasonably satisfactory to Landlord. If Tenant fails to
         close the escrow for any reason other than a breach by Landlord, then
         Landlord shall have the right at its option (to be exercised in
         Landlord's sole discretion) to either declare such breach to be a
         default under this Lease (as to which the cure period shall,
         notwithstanding anything else in this Lease, be ten (10) calendar days
         after notice by Landlord, after which an Event of Default shall exist),
         or Landlord may elect to pursue all remedies available to Landlord
         against Tenant under the escrow instructions or under applicable law.

                        (iv) If within the fifteen (15) day period following
         Landlord's delivery of an Offering Notice, Tenant either delivers to
         Landlord the notice set

                                       21
<PAGE>

         forth in Section 6.2.2 (ii)(A) or fails to deliver either of the
         notices set forth in Section 6.2.2(ii), then for a period of nine (9)
         months following the expiration of such fifteen (15) day period
         Landlord shall be free to sell the Offered Property on the terms set
         forth in the Offering Notice or on any other revised terms deemed
         appropriate by Landlord in its sole discretion; provided, however, if
         such other revised terms include a price that is more than ten percent
         (10%) below the price set forth in the Offering Notice, then prior to
         completing any sale on such revised terms Landlord shall notify Tenant
         of such revised offering terms. During the five (5) business day period
         after receipt by Tenant of such notice, Tenant shall have the right (to
         be exercised if at all by Tenant's execution of escrow instructions and
         deposit of earnest money under Section 6.2.2 (iii) within such five (5)
         business day period) to require that Landlord sell the Offered Property
         to Tenant on such revised offering terms. If Tenant fails to timely
         exercise its right as required by the preceding proviso, Landlord shall
         be free to sell the Offered Property to a third party on the revised
         offering terms.

                        (v) If at the end of the nine (9) month period described
         in Section 6.2.1(iv), Landlord has not sold the Offered Property, then
         Landlord shall again be required to comply with the provisions of this
         Section 6.2 if Landlord desires to accept a third party offer to
         purchase the Offered Property.

                        (vi) If an escrow is opened pursuant to Section
         6.2.2(iii) and such escrow fails to close by reason of Tenant's
         default, in addition to all of the other rights and remedies of
         Landlord with respect to such breach, Landlord shall thereafter be free
         to sell the Premises or any portion thereof to any Person on any terms
         whatsoever without being required to comply with this Section 6.2.

                        (vii) If Landlord has hypothecated its interest in the
         Premises, this Section 6.2 shall not apply to any judicial or
         non-judicial sale of the Premises in connection with any foreclosure
         action or proceeding by the lender, or to any deed in lieu of such
         foreclosure.

                        (viii) Upon the consummation of the sale of any Offered
         Property pursuant to this Section 6.2, Landlord's Original Investment
         and Minimum Rent shall be reduced by the respective amount thereof
         attributable to such Offered Property.

         7.   LANDLORD AND TENANT PERSONAL PROPERTY.

              7.1 TENANT PERSONAL PROPERTY. Tenant shall install, affix or
assemble or place on each Facility all items of furniture, fixtures, equipment
and supplies not included as Landlord Personal Property as Tenant reasonably
considers to be appropriate for Tenant's use of the Premises as contemplated by
this Lease (the "TENANT PERSONAL PROPERTY"). Tenant shall provide and maintain
during the entire Term all Tenant Personal Property as shall be necessary in
order to operate each Facility in compliance with all requirements set forth in
this Lease. All Tenant Personal Property shall be and shall remain the property
of Tenant and may be removed by Tenant upon the expiration of the Term. However,
if there is any Event of Default which is

                                       22
<PAGE>

continuing, Tenant will not remove the Tenant Personal Property from the
Premises and will on demand from Landlord, convey (subject to any existing
security interest thereon) the Tenant Personal Property to Landlord by executing
a bill of sale in a form reasonably required by Landlord. Upon any such
conveyance of Tenant Personal Property to Landlord, the amount owing by Tenant
to Landlord by reason of the applicable Event of Default shall be reduced by the
fair market value of such Tenant Personal Property, net of any associated debt
assumed by Landlord. Such fair market value shall be established by agreement of
the parties, but failing such agreement, within ten (10) days of request by any
party, such fair market value shall be established by the appraisal process set
forth in Exhibit B. In any event, Tenant will repair all damage to the Premises
caused by any removal of the Tenant Personal Property.

              7.2 LANDLORD'S SECURITY INTEREST.

                  7.2.1 The parties intend that if Tenant defaults under this
         Lease, Landlord will control the Tenant Personal Property and the
         Intangible Property (as defined in Section 7.4 below) so that Landlord
         or its designee can operate or re-let each Facility intact for use as a
         Personal Care Facility.

                  7.2.2 Therefore, to implement the intention of the parties,
         and for the purpose of securing the payment and performance of Tenant's
         obligations under this Lease, Tenant, as debtor, hereby grants to
         Landlord, as secured party, a security interest in and an express
         contractual lien upon, all of Tenant's right, title and interest in and
         to the Tenant Personal Property and in and to the Intangible Property
         and any and all products and proceeds thereof, in which Tenant now owns
         or hereafter acquires an interest or right, including any leased Tenant
         Personal Property. This Lease constitutes a security agreement covering
         all such Tenant Personal Property and the Intangible Property. The
         security interest granted to Landlord in this Section 7.2.2 is intended
         by Landlord and Tenant to be subordinate to any security interest
         granted in connection with the financing or leasing of all or any
         portion of the Tenant Personal Property so long as the lessor or
         financier of such Tenant Personal Property agrees to give Landlord
         written notice of any default by Tenant under the terms of such lease
         or financing arrangement, to give Landlord a reasonable time following
         such notice to cure any such default and to consent to Landlord's
         written assumption of such lease or financing arrangement upon
         Landlord's curing of any defaults thereunder. This security agreement
         and the security interest created herein shall survive the termination
         of this Lease if such termination results from the occurrence of an
         Event of Default.

                  7.2.3 Notwithstanding the foregoing, in no event will
         Landlord's security interest extend to any of Tenant's motor vehicles,
         proprietary software or systems, operating manuals or the tradenames
         "American Retirement Corporation," "ARC," "Homewood" or any derivation
         thereof.

              7.3 FINANCING STATEMENTS. If required by Landlord at any time
during the Term, Tenant will execute and deliver to Landlord, in form reasonably
satisfactory to Landlord, additional security agreements, financing statements,
fixture filings and such other documents as

                                       23
<PAGE>

Landlord may reasonably require to perfect or continue the perfection of
Landlord's security interest in the Tenant Personal Property and the Intangible
Property and any and all products and proceeds thereof now owned or hereafter
acquired by Tenant. Tenant shall pay all fees and costs that Landlord may incur
in filing such documents in public offices and in obtaining such record searches
as Landlord may reasonably require. In the event Tenant fails to execute any
financing statements or other documents for the perfection or continuation of
Landlord's security interest, Tenant hereby appoints Landlord as its true and
lawful attorney-in-fact to execute any such documents on its behalf, which power
of attorney shall be irrevocable and is deemed to be coupled with an interest.

              7.4 INTANGIBLE PROPERTY. The term "INTANGIBLE PROPERTY" means
documents, chattel paper, contract rights, residency agreements, management
agreements, medical records, patient files, confidential patient materials,
general intangibles, choses in action, now owned or hereafter acquired by Tenant
(including any right to any refund of any taxes or other charges heretofore or
hereafter paid to any governmental authority) arising from or in connection with
Tenant's operation or use of the Premises; all licenses and permits now owned or
hereinafter acquired by Tenant, necessary or desirable for Tenant's use of the
Premises under this Lease, including without limitation, if applicable, any
certificate of need or other similar certificate; and the right to use any trade
or other name now or hereafter associated with the operation of the Premises by
Tenant, including, without limitation, the names "Lakeway," "Parklane West,"
"Pinegate," "Willowbrook," "Pearland," "Park Regency," "Shadowlake," "Trinity
Towers" and "Spring Shadows," but excluding any corporate names or logos used by
Tenant. For purposes of this Lease, the term "Intangible Property" shall not
include accounts receivable, negotiable instruments, rights to payment from
third parties, security deposits, utility deposits, proprietary software,
training manuals, or general corporate trademarks, service marks, logos,
insignia, books or records of Tenant, or the tradenames "American Retirement
Corporation," "ARC," "Homewood" or any derivation thereof.

         8.   REPRESENTATIONS AND WARRANTIES. Landlord and Tenant do hereby each
for itself represent and warrant to each other as follows:

              8.1 DUE AUTHORIZATION AND EXECUTION. This Lease and all
agreements, instruments and documents executed or to be executed in connection
herewith by either Landlord or Tenant were duly authorized and shall be binding
upon the party that executed and delivered the same.

              8.2 DUE ORGANIZATION. Landlord and Tenant are duly organized,
validly existing and in good standing under the laws of the State of their
respective formations and are duly authorized and qualified to do all things
required of the applicable party under this Lease within the States in which the
Facilities are located.

              8.3 NO BREACH OF OTHER AGREEMENTS. Neither this Lease nor any
agreement, document or instrument executed or to be executed in connection
herewith, violates the terms of any other agreement to which either Landlord or
Tenant is a party where such violation would have a material adverse effect.

                                       24
<PAGE>

         9.   FINANCIAL, MANAGEMENT AND REGULATORY REPORTS.

              9.1 MONTHLY FACILITY REPORTS. Within thirty (30) days after the
end of each calendar month during the Term, Tenant shall prepare and deliver
monthly financial reports to Landlord consisting of a balance sheet and income
statement prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"), and a summary of significant operating statistics
(including but not limited to total patient days, total number of beds and
occupancy and payor mix) concerning the business conducted at each Facility.
These reports will be accompanied by a statement signed by the President, Chief
Financial Officer, Principal Accounting Officer, Controller, Executive Vice
President for Corporate Development, Executive Vice President for Development
Services, or other officer of Tenant as approved by Landlord in writing in its
sole discretion, affirming that said reports are true and correct in all
material respects and do not fail to disclose any material adverse information,
all after due inquiry ("OFFICER'S CERTIFICATE").

              9.2 QUARTERLY FINANCIAL STATEMENTS. Within forty-five (45) days of
the end of each of the first three quarters of the fiscal year of Tenant, Tenant
shall deliver to Landlord the unaudited quarterly consolidated financial
statements of Guarantor and Tenant prepared in accordance with GAAP accompanied
by an Officer's Certificate.

              9.3 ANNUAL FINANCIAL STATEMENT. Within ninety (90) days of the
fiscal year end of Guarantor and Tenant, Tenant shall deliver to Landlord the
annual consolidated financial statement of Tenant and Guarantor prepared in
accordance with GAAP and audited by a certified public accounting firm
reasonably acceptable to Landlord. Notwithstanding any of the other terms of
this Section 9.3, if Tenant or Guarantor becomes subject to any reporting
requirements of the Securities and Exchange Commission (the "SEC") during the
Term, Tenant shall deliver to Landlord within five (5) days of delivery to the
SEC such reports as are delivered to the SEC pursuant to applicable security
laws.

              9.4 ACCOUNTING PRINCIPLES. All of the reports and statements
required hereby shall be prepared in accordance with GAAP.

              9.5 REGULATORY REPORTS. In addition, Tenant shall within five (5)
business days of receipt thereof deliver to Landlord all federal, state and
local licensing and reimbursement certification surveys, inspection and other
reports received by Tenant as to the Premises or any portion thereof and the
operation of business thereon, including, without limitation, state department
of human services licensing surveys, Medicare and Medicaid (and successor
programs) certification surveys (if applicable) and life safety code reports.
Within five (5) business days of receipt thereof, Tenant shall give Landlord
written notice of any violation of any federal, state or local licensing or
reimbursement certification statute or regulation including without limitation
Medicare and Medicaid or successor programs (if applicable to the Premises or
any portion thereof), any suspension, termination or restriction placed upon
Tenant or the Premises or any portion thereof, the operation of business thereon
or the ability to admit residents, or any violation of any other permit,
approval or certification in connection with the Premises or any portion thereof
or its business, by any federal, state or local authority including without
limitation Medicare and Medicaid or successor programs if applicable to the
Premises or any portion thereof.

                                       25
<PAGE>

              9.6 ADDITIONAL INFORMATION. Within ten (10) days of Landlord's
request therefor, which may be made from time to time and at any time during the
Term, Tenant shall also deliver such other information, reports or statements as
Landlord may reasonably request.

         10.  EVENTS OF DEFAULT AND LANDLORD'S REMEDIES.

              10.1 EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an event of default on the part of Tenant hereunder ("EVENT OF
DEFAULT"):

                  10.1.1 The failure to pay within ten (10) calendar days of the
         date when due any Minimum Rent, Additional Rent or other monetary
         amount due hereunder, including without limitation any taxes or
         assessments required of Tenant (or impounds therefor), under this
         Lease;

                  10.1.2 The occurrence of an "Event of Default" (as defined in
         the Pool 2 Lease), or a material breach: (a) by Tenant of any
         representation or warranty in this Lease, (b) by Guarantor of any
         representation or warranty in, or other obligation under, the Guaranty,
         or (c) by Tenant or Guarantor of any representation or warranty in, or
         other obligation under, the LC Agreement or that certain Agreement to
         Enter into Master Leases and Termination of Leases dated as of even
         date herewith by and among Landlord, Tenant and Guarantor (the "MASTER
         AGREEMENT");

                  10.1.3 A material default by Tenant (or any Affiliate of
         Tenant) ("AFFILIATE" being defined to mean, with respect to any person
         or entity, any other person or entity which controls, is controlled by
         or is under common control with the first person or entity) under any
         other material obligation other than this Lease owed by Tenant (or any
         Affiliate of Tenant) to Landlord or any Affiliate of Landlord
         (including without limitation any financing agreement or any other
         lease), which default is not cured within any applicable cure period
         provided in the documentation for such obligation; or, a material
         default by Guarantor (or any Affiliate of Guarantor ) under any
         material obligation other than this Lease or the Guaranty owed by
         Guarantor (or any Affiliate of Guarantor) to Landlord or any Affiliate
         of Landlord (including without limitation any financing agreement or
         any other lease), which default is not cured within any applicable cure
         period provided in the documentation for such obligation;

                  10.1.4 A material default by Tenant with respect to any
         material obligation under any other lease or financing agreement with
         any other party, which default is not cured within any applicable cure
         period provided in the documentation for such obligation;

                  10.1.5 Any material misstatement or omission of any material
         fact in any written report, notice or communication from senior
         management of Tenant or Guarantor to Landlord with respect to Tenant,
         Guarantor, or the Premises or any portion thereof;

                                       26
<PAGE>

                  10.1.6 Any change (voluntary or involuntary, by operation of
         law or otherwise) in the person, persons, entity or entities which
         ultimately exert effective control over the management of the affairs
         of Tenant or Guarantor as of the date hereof except as permitted in
         Section 22.2 below;

                  10.1.7 An assignment by Tenant or Guarantor of all or
         substantially all of its property for the benefit of creditors;

                  10.1.8 The appointment of a receiver, trustee, or liquidator
         for Tenant or Guarantor, or any of the property of Tenant or Guarantor,
         if within three (3) business days of such appointment Tenant or
         Guarantor does not inform Landlord in writing that Tenant or Guarantor
         intends to cause such appointment to be discharged or Tenant or
         Guarantor does not thereafter diligently prosecute such discharge to
         completion within sixty (60) days after the date of such appointment;

                  10.1.9 The filing by Tenant or Guarantor of a voluntary
         petition under any federal bankruptcy law or under the law of any state
         to be adjudicated as bankrupt or for any arrangement or other debtor's
         relief, or in the alternative, if any such petition is involuntarily
         filed against Tenant or Guarantor by any other party and Tenant or
         Guarantor does not within three (3) business days of any such filing
         inform Landlord in writing of the intent by Tenant or Guarantor to
         cause such petition to be dismissed, if Tenant or Guarantor does not
         thereafter diligently prosecute such dismissal, or if such filing is
         not dismissed within ninety (90) days after filing thereof;

                  10.1.10 The failure to perform or comply in any material
         respect with any other term or provision of this Lease (other than
         those provisions set forth in Sections 10.1.1 through 10.1.9 above, or
         Section 10.1.11 below), not requiring the payment of money, including,
         without limitation, the failure to comply with the provisions hereof
         pertaining to the use, operation and maintenance of the Premises (or
         any portion thereof) or the breach of any representation or warranty of
         Tenant in this Lease; provided, however, the default described in this
         Section 10.1.10 is curable and shall be deemed cured, if: (i) within
         five (5) business days of Tenant's receipt of a notice of default from
         Landlord, Tenant gives Landlord notice of its intent to cure such
         default; and (ii) Tenant cures such default within thirty (30) days
         after such notice from Landlord, unless such default cannot with due
         diligence be cured within a period of thirty (30) days because of the
         nature of the default or delays beyond the control of Tenant, and cure
         after such thirty (30) day period will not have a material and adverse
         effect upon all or any portion of the Premises, in which case such
         default shall not constitute an Event of Default if Tenant uses its
         best efforts to cure such default by promptly commencing and diligently
         pursuing such cure to the completion thereof, provided, however, no
         such default shall continue for more than one hundred twenty (120) days
         from Tenant's receipt of a notice of default from Landlord;

                  10.1.11 There shall be (a) no cure period in the event of the
         breach by Tenant of (i) the obligation to provide replacement policies
         of insurance as

                                       27
<PAGE>

         required in Section 4.1 above, (ii) the provisions of Section 20 below,
         or (iii) the provisions of Section 22 below with respect to assignments
         and other related matters, and (b) a cure period of ten (10) days
         following Landlord's notice of any breach by Tenant to provide any
         financial or other information required pursuant to Section 9 above;
         and

                  10.1.12 All notice and cure periods provided herein shall run
         concurrently with any notice or cure periods provided by applicable
         law.

              10.2 REMEDIES. Upon the occurrence of an Event of Default and
during the pendency thereof, Landlord may exercise all rights and remedies under
this Lease and applicable law available to a lessor of real and personal
property in the event of a default by its lessee, and as to the Tenant Personal
Property and Intangible Property all remedies granted under the laws of any
applicable State to a secured party under its Uniform Commercial Code. Without
limiting the foregoing, Landlord shall have the right to do any of the
following:

                  10.2.1 Sue for the specific performance of any covenant of
         Tenant under this Lease as to which Tenant is in breach;

                  10.2.2 Upon compliance with the requirements of applicable law
         and to the extent allowed thereunder, Landlord may do any of the
         following: enter upon the Premises, terminate this Lease, dispossess
         Tenant from the Premises and/or collect money damages by reason of
         Tenant's breach, including without limitation all rent which would have
         accrued after such termination and all obligations and liabilities of
         Tenant under this Lease which survive the termination of the Term;

                  10.2.3 Elect to leave this Lease in place and sue for rent
         and/or other money damages as the same come due;

                  10.2.4 Before or after repossession of the Premises pursuant
         to Section 10.2.2, and whether or not this Lease has been terminated,
         Landlord shall have the right (but shall be under no obligation except
         to the extent required by applicable law) to relet any portion of the
         Premises to such tenant or tenants, for such term or terms (which may
         be greater or less than the remaining balance of the Term), for such
         rent, or such conditions (which may include concessions or free rent)
         and for such uses, as Landlord, in its absolute discretion, may
         determine, and Landlord may collect and receive any rents payable by
         reason of such reletting. Landlord shall have no duty to mitigate
         damages unless required by applicable law and shall not be responsible
         or liable for any failure to relet any of the Premises or for any
         failure to collect any rent due upon any such reletting. Tenant agrees
         to pay Landlord, immediately upon demand, all expenses incurred by
         Landlord in obtaining possession and in reletting any of the Premises,
         including fees, commissions and costs of attorneys, architects, agents
         and brokers;

                  10.2.5 Sell the Tenant Personal Property in a non-judicial
         foreclosure sale;

                                       28
<PAGE>

                  10.2.6 Revoke any waiver or deferral given by Landlord of any
         Minimum Rent or Additional Rent or other amount payable hereunder, and
         immediately thereafter all such deferred or waived amounts shall become
         immediately due and payable. The foregoing shall not be construed to
         mean that Landlord is under any obligation whatsoever to consider or
         grant any such deferral or waiver to Tenant.

                  10.2.7 For the purpose of calculating rent loss damages
         payable to Landlord, Additional Rent for all periods after an Event of
         Default shall be calculated based on a two and one half percent (2.5%)
         annual increase of the Additional Rent in effect at the end of the
         calendar quarter most recently ended before the applicable Event of
         Default.

              10.3 RECEIVERSHIP. Tenant acknowledges that one of the rights and
remedies available to Landlord under applicable law is to secure a
court-appointed receiver to take possession of the Premises or any portion
thereof, to collect the rents, issues, profits and income of the Premises or any
portion thereof, and to manage the operation of the Premises or any portion
thereof. Tenant further acknowledges that the revocation, suspension or material
limitation of the certification of the Premises or any portion thereof for
provider status under Medicare or Medicaid (or successor programs) as currently
exist or as are obtained by Tenant at a later date and/or the revocation,
suspension or material limitation of the license of the Premises or any portion
thereof as Personal Care Facilities for the number of beds and units shown in
Schedule 2 under the laws of the State in which the applicable Facility is
located will materially and irreparably impair the value of Landlord's
investment in the Premises. Therefore, in the event of any such revocation,
suspension or material limitation, and in addition to any other right or remedy
of Landlord under this Lease, Tenant hereby consents to the appointment of such
a receiver to enter upon and take possession of the Premises or any portion
thereof, to manage the operation of the Premises or any portion thereof, to
collect and disburse all rents, issues, profits and income generated thereby and
to preserve or replace to the extent possible the licenses and provider
certifications of the Premises required for the operation of the Personal Care
Facilities or to otherwise substitute the licensee or provider thereof. The
receiver shall be entitled to a reasonable fee for its services as a receiver.
All such fees and other expenses of the receivership estate shall be added to
the monthly rent due to Landlord under this Lease. Tenant hereby irrevocably
stipulates to the appointment of a receiver under such circumstances and for
such purposes and agrees not to contest such appointment.

              10.4 LATE CHARGES; DEFAULT INTEREST. Tenant acknowledges that the
late payment of any Minimum Rent, Additional Rent, or any other monetary amount
due hereunder will cause Landlord to lose the use of such money and incur costs
and expenses not contemplated under this Lease, including, without limitation,
administrative and collection costs and processing and accounting expenses, the
exact amount of which is extremely difficult to ascertain. Therefore, if any
installment of Minimum Rent, Additional Rent or any other monetary amount due
hereunder (including any amount to be impounded) is not paid within five (5)
calendar days after the due date for such payment, then Tenant shall thereafter
pay to Landlord on demand (a) a late charge equal to five percent (5%) of the
amount of any installment of Minimum Rent, Additional Rent or other amount not
paid on the due date, together with (b) interest on all such amounts (including
the late charge) at the rate of the lesser of the Agreed

                                       29
<PAGE>

Rate or the highest rate that may be collected pursuant to applicable law,
accruing from the due date of such payment until receipt by Landlord of such
payment and all late charges and interest thereon then due. As used herein,
"AGREED RATE" shall mean six percent (6%) plus the "prime rate" then in effect
as published from time to time in the Wall Street Journal (the "PRIME RATE").
Landlord and Tenant agree that this late charge and default interest represents
a reasonable estimate of such costs and expenses and is fair compensation to
Landlord for the loss suffered from such nonpayment by Tenant.

              10.5 REMEDIES CUMULATIVE; NO WAIVER. No right or remedy herein
conferred upon or reserved to Landlord is intended to be exclusive of any other
right or remedy, and each and every right and remedy shall be cumulative and in
addition to any other right or remedy given hereunder or now or hereafter
existing at law or in equity. No failure of Landlord to insist at any time upon
the strict performance of any provision of this Lease or to exercise any option,
right, power or remedy contained in this Lease shall be construed as a waiver,
modification or relinquishment thereof as to any similar or different breach
(future or otherwise) by Tenant. A receipt by Landlord of any rent or other sum
due hereunder (including any late charge) with knowledge of the breach of any
provision contained in this Lease shall not be deemed a waiver of such breach,
and no waiver by Landlord of any provision of this Lease shall be deemed to have
been made unless expressed in a writing signed by Landlord.

              10.6 PERFORMANCE OF TENANT'S OBLIGATIONS BY LANDLORD. If Tenant at
any time shall fail to make any payment or perform any act on its part required
to be made or performed under this Lease, then Landlord may, without waiving or
releasing Tenant from any obligations or default of Tenant hereunder, make any
such payment or perform any such act for the account and at the expense of
Tenant, and may enter upon the Premises for the purpose of taking all such
action thereon as may be reasonably necessary therefor. No such entry shall be
deemed an eviction of Tenant. All reasonable sums so paid by Landlord and all
necessary and incidental costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred in connection with the
performance of any such act by Landlord, together with interest at the rate of
the Prime Rate plus 5% (or if said interest rate is violative of any applicable
statute or law, then the maximum interest rate allowable) from the date of the
making of such payment or the incurring of such costs and expenses by Landlord,
shall be payable by Tenant to Landlord on demand.

         11.  COLLATERAL FOR LEASE OBLIGATIONS.

              11.1 In accordance with the provisions of this Section 11 and the
provisions of the LC Agreement, Tenant shall maintain with Landlord cash (the
"SECURITY DEPOSIT") securing Tenant's faithful performance of its obligations
under this Lease and the Pool 2 Lease, Letters of Credit (as defined in the LC
Agreement) as partial collateral for the Lease and the Pool 2 Lease obligations
or a combination thereof (collectively, the "SECURITY DEPOSIT AND COLLATERAL").
Each Letter of Credit shall be in the form set forth in, and shall otherwise be
in compliance with the terms of, the LC Agreement. Neither Letters of Credit,
nor any proceeds from any draw on any Letter of Credit (except to the extent
such proceeds are not applied to any Event of Default as permitted hereunder or
under the LC Agreement), shall constitute a security deposit or any part of the
Security Deposit hereunder. The amount of the Security Deposit (including the
cash proceeds from any draw on any Letter of Credit to the extent not applied to
any Event of Default

                                       30
<PAGE>
as permitted hereunder or under the LC Agreement) and the aggregate undrawn
face amounts of all Letters of Credit comprising the Security Deposit and
Collateral (the "SECURITY DEPOSIT AND COLLATERAL AMOUNT") shall at all times
during the Term be equal to, in the aggregate but without duplication of the
requirements under Section 11 of the Pool 2 Lease, Seven Million Six Thousand
Dollars ($7,006,000), as may be increased from time to time in accordance with
Section 1.2.3 or in connection with Landlord's funding of any additional
improvements pursuant to Section 5.7. Upon Substantial Completion (as defined in
the Development Addendum (Park Regency)), the Security Deposit and Collateral
Amount shall be increased by fifty percent (50%) of the amount obtained by
multiplying the Park Regency Additional Investment by the Park Regency Rate. In
the event that the Pool 2 Lease is terminated during the Term of this Lease, the
Security Deposit and Collateral Amount shall be reduced to an amount equal to
the Security Deposit and Collateral Amount then in effect, multiplied by a
fraction, the denominator of which is the aggregate amount of Landlord's
Adjusted Investment and "Landlord's Adjusted Investment" (as defined in the Pool
2 Lease), and the numerator of which is the Landlord's Adjusted Investment.

              11.2 Landlord may apply the Security Deposit and Collateral (cash
from the Security Deposit and proceeds of any draw on a Letter of Credit), in
whole or in part, against any Event of Default (including an "Event of Default"
as defined in the Pool 2 Lease), or as otherwise permitted in this Lease or any
Letter Credit. If Landlord so applies all or any portion of the Security Deposit
and Collateral, Tenant shall, within three (3) days of such application by
Landlord and without the requirement of notice or demand by Landlord, deposit
cash or post additional Letters of Credit such that the total amount of cash and
undrawn face amounts of Letters of Credit comprising the Security Deposit and
Collateral is equal to the Security Deposit and Collateral Amount. Any proceeds
from any draw on any Letter of Credit shall be held by Landlord as part of the
Security Deposit and Collateral until the same are applied by Landlord as
provided herein. Landlord shall not be deemed a trustee as to any cash portion
of the Security Deposit and Collateral and shall have the right to commingle any
such cash with its own or other funds. Except during the continuance of any
Event of Default, interest on the cash held as the Security Deposit shall be
paid by Landlord to Tenant on a quarterly basis in arrears (i) if Landlord
segregates such cash from its general funds, at the average rate earned in such
period on Landlord's cash and cash equivalent investments, and (ii) if Landlord
does not segregate such cash from its general funds, at the average cost of
funds for Landlord for short term borrowings for such period. In the event
Tenant has fully complied with the terms of this Lease and no Event of Default
then exists, any remaining portion of the Security Deposit and Collateral then
held by Landlord shall be returned to Tenant within thirty (30) days after the
expiration of the Term; provided, however, that Landlord shall have the right to
draw on such Security Deposit or Letters of Credit for cleaning and repairing
the Premises if Tenant shall fail to deliver the Premises at the termination or
expiration of this Lease in a neat and clean condition and in as good a
condition as existed at the date of possession and occupancy of same, ordinary
wear and tear only excepted. From time to time at Tenant's option following
reasonable advance notice to Landlord, Tenant may replace any cash portion of
the Security Deposit and Collateral with Letters of Credit and may replace any
Letters of Credit constituting a part of the Security Deposit and Collateral
with a cash deposit of like amount, so long as in any such event the total
amount of the Security Deposit and Collateral is equal to the Security Deposit
and Collateral Amount. Upon Tenant providing any additional Letter of Credit to
Landlord pursuant to this Section 11, Landlord and Tenant shall enter into an
amendment to the Letter of Credit Agreement or a

                                       31
<PAGE>

further agreement substantially in the form of the Letter of Credit Agreement
with respect to such additional letter of credit.

         12.  DAMAGE BY FIRE OR OTHER CASUALTY.

              12.1 RECONSTRUCTION USING INSURANCE. In the event of the damage or
destruction of any portion of the Premises, Tenant shall forthwith notify
Landlord and diligently repair or reconstruct the same to a like or better
condition than existed prior to such damage or destruction. Any net insurance
proceeds payable with respect to the casualty shall be used for the repair or
reconstruction of the applicable Facility pursuant to reasonable disbursement
controls in favor of Landlord. If such proceeds are insufficient for such
purposes, Tenant shall provide the required additional funds.

              12.2 SURPLUS PROCEEDS. If there remains any surplus of insurance
proceeds after the completion of the repair or reconstruction of the applicable
portion of the Premises to Landlord's reasonable satisfaction, such surplus
shall belong to and be paid to Tenant.

              12.3 NO RENT ABATEMENT. The rent payable under this Lease shall
not abate by reason of any damage or destruction of the Premises by reason of an
insured or uninsured casualty. Tenant hereby waives all rights under applicable
law to abate, reduce or offset rent by reason of such damage or destruction.

              12.4 END OF TERM. Notwithstanding any other provision of this
Section 12, if any Facility is more than fifty percent (50%) destroyed (measured
by square footage) by casualty during the last six (6) months of the Initial
Term or any Renewal Term, Tenant may terminate this Lease by written notice to
Landlord delivered within thirty (30) days after the date of such casualty, in
which event Landlord shall retain all insurance proceeds. The foregoing shall in
no way limit or otherwise affect any right or remedy available to Landlord for
Tenant's failure to maintain such insurance as may be required under this Lease.

         13.  CONDEMNATION.

              13.1 COMPLETE TAKING. If during the Term all or substantially all
of any Facility is taken or condemned by any competent public or quasi-public
authority, then Tenant may, at Tenant's election, made within thirty (30) days
of such taking by condemnation, terminate this Lease with respect to the
affected Facility only, and the current Minimum Rent and Additional Rent shall
be equitably rated as of the date of such termination. The award payable upon
such taking shall be allocated between Landlord and Tenant as so allocated by
the taking authority. In the absence of such allocation by the taking authority,
the award shall be allocated to Landlord in an amount equal to the applicable
portion of Landlord's Original Investment, and then, to the extent of any
surplus, as agreed by Landlord and Tenant. Failing such agreement within thirty
(30) days after the effective date of such taking, the award shall be allocated
between Landlord and Tenant pursuant to the appraisal procedure described on
Exhibit B attached hereto. Landlord's Original Investment will be reduced for
all purposes under this Lease by reason of any award paid to Landlord under this
Section 13.1.

              13.2 PARTIAL TAKING. In the event such condemnation proceeding or
right of eminent domain results in a taking of less than all or substantially
all of any Facility, the

                                       32
<PAGE>

Minimum Rent and Additional Rental thereto shall be abated to the same extent as
the diminution in the fair market value of the Facility affected by reason of
the condemnation. Such diminution in the fair market value shall be as agreed
between Landlord and Tenant, but failing such agreement within thirty (30) days
of the effective date of the condemnation the same will be determined by
appraisal pursuant to Exhibit B attached hereto. Landlord shall be entitled to
receive and retain any and all awards for the partial taking and damage and
Tenant shall not be entitled to receive or retain any such award for any reason.
Landlord's Original Investment will be reduced for all purposes under this Lease
by reason of any award paid to Landlord under this Section 13.2.

              13.3 LEASE REMAINS IN EFFECT. Except as provided above, this Lease
shall not terminate and shall remain in full force and effect in the event of a
taking or condemnation of the Premises, or any portion thereof, and Tenant
hereby waives all rights under applicable law to abate, reduce or offset rent by
reason of such taking.

         14.  PROVISIONS ON TERMINATION OF TERM.

              14.1 SURRENDER OF POSSESSION. Tenant shall, on or before the last
day of the Term, or upon earlier termination of this Lease (except with respect
to any portion of the Premises that Tenant has purchased pursuant to any
provision of this Lease), surrender to Landlord the Premises (including all
resident charts and records along with appropriate resident consents) in good
condition and repair, excepting only (i) ordinary wear and tear, (ii) any damage
caused by condemnation pursuant to Section 13.1 above, or (iii) any damage
caused by fire or other casualty resulting in the termination of the Lease
pursuant to Section 12.4 above.

              14.2 REMOVAL OF PERSONAL PROPERTY. If Tenant is not then in
default hereunder Tenant shall have the right in connection with the surrender
of the Premises to remove from the Premises all Tenant Personal Property but not
the Landlord Personal Property (including the Landlord Personal Property
replaced by Tenant or required by any applicable state or any other governmental
entity to operate the Premises for the purpose set forth in Section 5.3 above).
Any such removal shall be done in a workmanlike manner leaving the Premises in
good and presentable condition and appearance, including repair of any damage
caused by such removal. At the end of the Term or upon the earlier termination
of this Lease, (except with respect to any portion of the Premises that Tenant
has purchased pursuant to any provision of this Lease), Tenant shall return the
Premises to Landlord with the Landlord Personal Property (or replacements
thereof) in the same condition and utility as was delivered to Tenant at the
commencement of the Term, normal wear and tear excepted.

              14.3 TITLE TO PERSONAL PROPERTY NOT REMOVED. Title to any of
Tenant Personal Property which is not removed by Tenant upon the expiration of
the Term shall, at Landlord's election, vest in Landlord; provided, however,
that Landlord may remove and dispose at Tenant's expense of any or all of such
Tenant Personal Property which is not so removed by Tenant without obligation or
accounting to the Tenant.

              14.4 MANAGEMENT OF PREMISES. Upon the expiration or earlier
termination of the Term (except with respect to any portion of the Premises that
Tenant has purchased pursuant to any provision of this Lease), Landlord or its
designee, upon written notice to Tenant, may

                                       33
<PAGE>

elect to assume the responsibilities and obligations for the management and
operation of the Premises and Tenant agrees to cooperate fully with Landlord or
its designee to accomplish the transfer of such management and operation without
interrupting the operation of the Premises. Tenant shall not commit any act or
be remiss in the undertaking of any act that would jeopardize any licensure or
certification of the facility, and Tenant shall comply with all requests for an
orderly transfer of the Personal Care Facilities licenses, Medicare and Medicaid
(or any successor program) certifications and possession at the time of any such
surrender. Upon the expiration or earlier termination of the Term, Tenant shall
promptly deliver copies of all of Tenant's books and records relating to the
Premises and its operations to Landlord.

              14.5 CORRECTION OF DEFICIENCIES. Upon termination or cancellation
of this Lease, Tenant shall indemnify Landlord for any loss, damage, cost or
expense incurred by Landlord to correct all deficiencies of a physical nature
identified by the governmental agency responsible for licensing Personal Care
Facilities in the state in which the applicable Facility is located, local
health, fire and safety agencies or any other government agency or Medicare or
Medicaid (or any successor program) providers in the course of the change of
ownership inspection and audit.

         15.  NOTICES AND DEMANDS. All notices and demands, certificates,
requests, consents, approvals, and other similar instruments under this Lease
shall be in writing and shall be deemed to have been properly given upon actual
receipt thereof or within two (2) business days of being placed in the United
States certified or registered mail, return receipt requested, postage prepaid
(a) if to Tenant, addressed to:

                                        American Retirement Corporation
                                        111 Westwood Place, Suite 402
                                        Brentwood, Tennessee 37027
                                        Attention: Mr. W.E. Sheriff
                                        Facsimile: (615) 221-2269

              with a copy to:           Bass, Berry & Sims PLC
                                        315 Deaderick Street, Suite 2700
                                        Nashville, Tennessee 37238-3001
                                        Attention: T. Andrew Smith, Esq.
                                        Facsimile: (615) 742-2766

or at such other address as Tenant from time to time may have designated by
written notice to Landlord; (b) if to Landlord, addressed to:

                                        c/o Nationwide Health Properties, Inc.
                                        610 Newport Center Drive, Suite 1150
                                        Newport Beach, California  92660
                                        Attention: General Counsel
                                        Fax No. (949) 759-6887

                                       34
<PAGE>

            with a copy to:           O'Melveny & Myers LLP
                                      610 Newport Center Drive, Suite 1700
                                      Newport Beach, California  92660
                                      Attention: Real Estate Department Chairman
                                      Fax No. (949) 823-6994

or at such address as Landlord may from time to time have designated by written
notice to Tenant. Refusal to accept delivery shall be deemed delivery. If Tenant
is not an individual, notice may be made to any senior officer, general partner
or principal thereof. Notice to any one co-Tenant shall be deemed notice to all
co-Tenants.

         16.  RIGHT OF ENTRY; EXAMINATION OF RECORDS. Landlord and its
representative may enter any portion of the Premises at any reasonable time
after reasonable notice to Tenant for the purpose of inspecting the Premises for
any reason including, without limitation, Tenant's default under this Lease, or
to exhibit any portion of the Premises for sale, lease or mortgage financing, or
posting notices of default, or non-responsibility under any mechanic's or
materialman's lien law or to otherwise inspect any portion of the Premises for
compliance with the terms of this Lease. Any such entry shall not unreasonably
interfere with residents, resident care, or any other of Tenant's operations.
During normal business hours, Tenant will permit Landlord and Landlord's
representatives, inspectors and consultants to examine all contracts, books and
records relating to Tenant's operations at any portion of the Premises, whether
kept at the Premises or at some other location, including, without limitation,
Tenant's financial records.

         17.  LANDLORD MAY GRANT LIENS. Without the consent of Tenant, Landlord
may, subject to the terms and conditions set forth below in this Section 17,
from time to time, directly or indirectly, create or otherwise cause to exist
any lien, encumbrance or title retention agreement ("ENCUMBRANCE") upon the
Premises, or any portion thereof or interest therein (including this Lease),
whether to secure any borrowing or other means of financing or refinancing or
otherwise. Any such Encumbrance shall provide that it is subject to the rights
of Tenant under this Lease, and shall further provide that so long as no Event
of Default shall have occurred under this Lease, Tenant's occupancy hereunder,
including but without limitation Tenant's right of quiet enjoyment provided in
Section 18, shall not be disturbed in the event any such lienholder or any other
person takes possession of the Premises through foreclosure proceeding or
otherwise. Upon the request of Landlord, Tenant shall subordinate this Lease to
the lien of a new Encumbrance on the Premises, on the condition that the
proposed lender agrees not to disturb Tenant's rights under this Lease so long
as Tenant is not in default hereunder.

         18.  QUIET ENJOYMENT. So long as there is no Event of Default which is
existing and continuing by Tenant, Landlord covenants and agrees that Tenant
shall peaceably and quietly have, hold and enjoy the Premises for the Term, free
of any claim or other action not caused or created by Tenant (excepting,
however, intrusion of Tenant's quiet enjoyment occasioned by condemnation or
destruction of the property as referred to in Section 12 and 13 hereof).

         19.  APPLICABLE LAW. This Lease shall be governed by and construed in
accordance with the internal laws of the State of California without regard to
the conflict of laws rules of such State. Notwithstanding the foregoing, the
parties agree that:

                                       35
<PAGE>

              19.1 The law of the State in which each Facility is located (each
a "SITUS STATE") shall govern procedures for enforcing, in the respective Situs
State, provisional and other remedies directly related to such Facility and
related personal property as may be required pursuant to the law of such Situs
State, including without limitation the appointment of a receiver; and

              19.2 The law of the Situs State also applies to the extent, but
only to the extent, necessary to create, perfect and foreclose the security
interests and liens created under this Lease.

         20.  PRESERVATION OF GROSS REVENUES.

              20.1 Tenant acknowledges that a fair return to Landlord on its
investment in the Premises is dependent, in part, on the concentration on each
Facility comprising the Premises during the Term of the Personal Care Facilities
business of Tenant and its Affiliates in the geographical area of such Facility.
Tenant further acknowledges that the diversion of resident care activities from
any Facility comprising the Premises to other facilities owned or operated by
Tenant or its Affiliates will have a material adverse impact on the value and
utility of the Premises.

                  20.1.1 Therefore, Tenant agrees that during the Term, and for
         a period of one (1) year thereafter (except with respect to any portion
         of the Premises that Tenant has purchased pursuant to any provision of
         this Lease), neither Tenant nor any of its Affiliates shall, without
         the prior written consent of Landlord, operate, own, participate in or
         otherwise receive revenues from any other facility or institution
         providing services or similar goods to those provided on or in
         connection with the Facilities comprising the Premises and the
         permitted use (including each use included in the definition of
         Personal Care Facilities) thereof as contemplated under this Lease,
         within a four (4) mile radius of any Facility; provided, however the
         facilities listed on Exhibit D attached hereto which are either in
         existence or under development as of the date hereof are exempted from
         the operation of this Section 20.1.1.

                  20.1.2 In addition, Tenant hereby covenants and agrees that
         for a period of one year following the expiration or earlier
         termination of this Lease (except with respect to any portion of the
         Premises that Tenant has purchased pursuant to any provision of this
         Lease), neither Tenant nor any of its Affiliates shall, without prior
         written consent of Landlord, hire, engage or otherwise employ any
         management or supervisory personnel working on or in connection with
         any Facility, except at facilities exempted from the operation of
         Section 20.1.1. This Section 20.1.2 does not apply to corporate
         managers and multi-facility employees to the extent such managers and
         employees are employed at other facilities operated by Tenant or an
         Affiliate of Tenant.

              20.2 Notwithstanding the foregoing, Landlord acknowledges that
Tenant operates certain home health agencies and offers certain therapy services
out of its offices on the Premises. Section 20.1.1 does not apply to such home
health activities or therapy services operated by the Tenant or an Affiliate of
Tenant out of the Premises.

                                       36
<PAGE>

              20.3 Except as required for medically appropriate reasons, prior
to and after Lease termination, neither Tenant nor any of its Affiliates will
recommend or solicit the removal or transfer of any resident from any Facility
to any other facility. Tenant hereby specifically acknowledges and agrees that
the temporal, geographical and other restrictions contained in this Section 20
are reasonable and necessary to protect the business and prospects of Landlord,
and that the enforcement of the provisions of this Section 20 will not work an
undue hardship on Tenant. Tenant further agrees that in the event either the
length of time, geographical or any other restrictions, or portion thereof, set
forth in this Section 20 is overly restrictive and unenforceable in any court
proceeding, the court may reduce or modify such restrictions, but only to the
extent necessary, to those which it deems reasonable and enforceable under the
circumstances, and the parties agree that the restrictions of this Section 20
will remain in full force and effect as reduced or modified. Tenant further
agrees and acknowledges that Landlord does not have an adequate remedy at law
for the breach or threatened breach by Tenant of the covenants contained in this
Section 20, and Tenant therefore specifically agrees that Landlord may, in
addition to other remedies which may be available to Landlord hereunder, file a
suit in equity to enjoin Tenant from such breach or threatened breach, without
the necessity of posting any bond. Tenant further agrees, in the event that any
provision of this Section 20 is held to be invalid or against public policy, the
remaining provisions of this Section 20 and the remainder of this Lease shall
not be affected thereby.

         21.  HAZARDOUS MATERIALS.

              21.1 HAZARDOUS MATERIAL COVENANTS. Tenant's use of the Premises
shall comply in all material respects with all Hazardous Materials Laws. In the
event any Environmental Activities occur or are suspected to have occurred in
violation in any material respect of any Hazardous Materials Laws or if Tenant
has received any Hazardous Materials Claim against any portion of the Premises,
Tenant shall promptly obtain all permits and approvals necessary to remedy any
such actual or suspected problem through the removal of Hazardous Materials or
otherwise, and upon Landlord's approval of the remediation plan, remedy any such
problem to the satisfaction of Landlord, in accordance with all Hazardous
Materials Laws and good business practices.

              21.2 TENANT NOTICES TO LANDLORD. Tenant shall immediately advise
Landlord in writing of:

                  21.2.1 Any Environmental Activities in violation of any
         Hazardous Materials Laws,

                  21.2.2 Any Hazardous Materials Claims against Tenant or any
         portion of the Premises,

                  21.2.3 Any remedial action taken by Tenant in response to any
         Hazardous Materials Claims or any Hazardous Materials on, under or
         about any portion of the Premises in violation of any Hazardous
         Materials Laws,

                                       37
<PAGE>

                  21.2.4 Tenant's discovery of any occurrence or condition on or
         in the vicinity of any portion of the Premises that materially increase
         the risk that any portion of the Premises will be exposed to Hazardous
         Materials,

                  21.2.5 All communications to or from Tenant, any governmental
         authority or any other person relating to Hazardous Materials Laws or
         Hazardous Materials Claims with respect to any portion of the Premises,
         including copies thereof.

              21.3 EXTENSION OF TERM. Notwithstanding any other provision of
this Lease, in the event any Hazardous Materials are discovered on, under or
about any portion of the Premises in violation of any Hazardous Materials Law,
the Term shall be automatically extended and this Lease shall remain in full
force and effect until the earlier to occur of the completion of all remedial
action or monitoring, as approved by Landlord in its reasonable discretion, in
accordance in all material respects with all Hazardous Materials Laws, or the
date specified in a written notice from Landlord to Tenant terminating this
Lease (which date may be subsequent to the date upon which the Term was to have
expired).

              21.4 PARTICIPATION IN HAZARDOUS MATERIALS CLAIMS. Landlord shall
have the right, at Tenant's sole cost and expense and with counsel chosen by
Landlord, to join and participate in, as a party if it so elects, any legal
proceedings or actions initiated in connection with any Hazardous Materials
Claims.

              21.5 ENVIRONMENTAL ACTIVITIES shall mean the use, generation,
transportation, handling, discharge, production, treatment, storage, release or
disposal of any Hazardous Materials at any time to or from any portion of the
Premises or located on or present on or under any portion of the Premises.
Nothing contained in the foregoing or elsewhere in this Section 21 is intended
to, nor shall it, limit the liability of Tenant, if any, to Landlord with
respect to any representation or warranty given by Tenant to Landlord with
respect to Hazardous Materials or environmental matters generally as set forth
in any other agreement between any entity comprising Landlord and any entity
comprising Tenant.

              21.6 HAZARDOUS MATERIALS shall mean (i) any petroleum products
and/or by-products (including any fraction thereof), flammable substances,
explosives, radioactive materials, hazardous or toxic wastes, substances or
materials, known carcinogens or any other materials, contaminants or pollutants
which pose a hazard to any portion of the Premises or to persons on or about any
portion of the Premises or cause any portion of the Premises to be in violation
of any Hazardous Materials Laws; (ii) asbestos in any form which is friable;
(iii) urea formaldehyde in foam insulation or any other form; (iv) transformers
or other equipment which contain dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty (50) parts per million or any other
more restrictive standard then prevailing; (v) medical wastes and biohazards;
(vi) radon gas; (vii) underground storage tanks which pose a hazard to any
portion of the Premises or to persons on or about any portion of the Premises or
cause any portion of the Premises to be in violation of any Hazardous Materials
Laws; (viii) anything that qualifies as a "Hazardous Waste," "Hazardous
Substances," "Hazardous Material" or the like under any applicable law, and;
(ix) any other chemical, material or substance, exposure to which is prohibited,
limited or regulated by any governmental authority or may or could pose a hazard
to

                                       38
<PAGE>

the health and safety of the occupants of any portion of the Premises or the
owners and/or occupants of property adjacent to or surrounding any portion of
the Premises.

              21.7 HAZARDOUS MATERIALS CLAIMS shall mean any and all
enforcement, clean-up, removal or other governmental or regulatory actions or
orders threatened, instituted or completed pursuant to any Hazardous Material
Laws, together with all claims made or threatened by any third party against any
portion of the Premises, Landlord or Tenant relating to damage, contribution,
cost recovery compensation, loss or injury resulting from any Hazardous
Materials.

              21.8 HAZARDOUS MATERIALS LAWS shall mean any laws, ordinances,
regulations, rules, orders, guidelines or policies relating to the environment,
health and safety, Environmental Activities, Hazardous Materials, air and water
quality, waste disposal and other environmental matters, if the failure to
comply with the same does or would have a material adverse effect on any portion
of the Premises or the operation thereof.

         22.  ASSIGNMENT AND SUBLETTING.

              22.1 Tenant shall not, without the prior written consent of
Landlord, which may be withheld at Landlord's sole discretion, voluntarily or
involuntarily assign or hypothecate this Lease or any interest herein or sublet
the Premises or any part thereof. For the purposes of this Lease, a management
or similar agreement shall be considered to be an assignment of this Lease by
Tenant. Any of the foregoing acts without such consent shall be void but shall,
at the option of Landlord in its sole discretion, constitute an Event of Default
giving rise to Landlord's right, among other things, to terminate this Lease.
Without limiting the foregoing, this Lease shall not, nor shall any interest of
Tenant herein, be assigned or encumbered by operation of law without the prior
written consent of Landlord which may be withheld at Landlord's sole discretion.

              22.2 Notwithstanding the foregoing, the following may be done
without Landlord's consent:

                  22.2.1 Tenant may assign this Lease or sublet the Premises or
         any portion thereof to Guarantor, to a Successor (as such term is
         defined below) or to a wholly-owned subsidiary of Guarantor, provided
         that (i) such Successor, subsidiary or Guarantor fully assumes the
         obligations of Tenant under this Lease, (ii) Tenant remains fully
         liable under this Lease, (iii) the use of the Premises remains
         unchanged, and (iv) no such assignment or sublease shall be valid and
         no such subsidiary, Successor or Guarantor shall take possession of the
         Premises until an executed counterpart of such assignment or sublease
         has been delivered to Landlord;

                  22.2.2 Guarantor, a Successor or a wholly-owned subsidiary of
         Guarantor may acquire all of the outstanding equity interests of any
         entity comprising Tenant (or any partners, shareholders, members or
         other persons owning equity interests in such entity, directly or
         indirectly), provided that (i) Tenant remains fully liable under this
         Lease, (ii) the use of the Premises remains unchanged, and (iii) prior
         written notice of such acquisition of equity interests has been
         delivered to Landlord.

                                       39
<PAGE>

              22.3 Anything contained in this Lease to the contrary
notwithstanding, Tenant shall not sublet the Premises on any basis such that the
rental to be paid by the sublessee thereunder would be based, in whole or in
part, on either the income or profits derived by the business activities of the
sublessee, or any other formula, such that any portion of the sublease rental
received by Landlord would fail to qualify as "rents from real property" within
the meaning of Section 856(d) of the U.S. Internal Revenue Code, or any similar
or successor provision thereto.

              22.4 For the purpose of this Lease, the transfer, assignment,
sale, hypothecation or other disposition of any partnership, stock or other
ownership interest in any entity comprising Tenant that results in a change in
the Person (as hereinafter defined), which ultimately exerts effective Control
(as hereinafter defined) over the management of the affairs of any entity
comprising Tenant as of the date hereof, shall be deemed to be an assignment of
the Lease. For purposes herein, "CONTROL" shall mean, as applied to any
individual, partnership, association, corporation or other entity (collectively,
"PERSON"), the possession, directly or indirectly, of the power to direct the
management and policies of that Person, whether through ownership, voting
control, by contract or otherwise.

              22.5 Notwithstanding anything to the contrary contained in
Section 22.1, none of the following shall be deemed to be an assignment of the
Lease: (i) an initial public offering ("IPO") of Guarantor or any Successor
thereto, or (ii) any secondary public offering(s) of Guarantor or any Successor
thereto, or (iii) subsequent to an IPO by Guarantor or any Successor thereto,
and so long as Guarantor or its Successor is a publicly-traded entity on a
national exchange, a change in the Person or Persons exercising Control of
Guarantor or its Successor or any public trading of Guarantor stock, or (iv) a
lease of a unit or bed to a resident of the Premises in the ordinary course of
Tenant's business.

              22.6 As used herein, a "SUCCESSOR" is any entity which succeeds to
materially all of the assets, operations and business of Guarantor by merger or
reorganization and which is Controlled by the same Person or Persons as Control
Guarantor prior to such merger or reorganization.

         23.  INDEMNIFICATION. To the fullest extent permitted by law, Tenant
agrees to protect, indemnify, defend and save harmless Landlord, its directors,
officers, shareholders, agents and employees from and against any and all
foreseeable or unforeseeable liability, expense loss, costs, deficiency, fine,
penalty, or damage (including without limitation punitive or consequential
damages) of any kind or nature, including reasonable attorneys' fees, from any
suits, claims or demands, on account of any matter or thing, action or failure
to act arising out of or in connection with this Lease (including, without
limitation, the breach by Tenant of any of its obligations hereunder), the
Ground Lease, any portion of the Premises, or the operations of Tenant on any
portion of the Premises, including without limitation all Environmental
Activities on any portion of the Premises, all Hazardous Materials Claims or any
violation by Tenant of a Hazardous Materials Law with respect to any portion of
the Premises. Upon receiving knowledge of any suit, claim or demand asserted by
a third party that Landlord believes is covered by this indemnity, Landlord
shall give Tenant notice of the matter. Tenant shall defend Landlord against
such matter at Tenant's sole cost and expense with legal counsel satisfactory to
Landlord. Landlord may elect to defend the matter with its own counsel at
Tenant's expense.

                                       40
<PAGE>

         24.  HOLDING OVER. If Tenant shall for any reason remain in possession
of any portion of the Premises after the expiration or earlier termination of
this Lease, such possession shall be a month-to-month tenancy during which time
Tenant shall pay as rental each month, 1 1/2 times the aggregate of the monthly
Minimum Rent for the entire Premises payable with respect to the last Lease Year
plus Additional Rent allocable to the month (based on the Additional Rent in
effect as of the end of the most recently ended calendar quarter), all
additional charges accruing during the month and all other sums, if any, payable
by Tenant pursuant to the provisions of this Lease with respect to the Premises.
Nothing contained herein shall constitute the consent, express or implied, of
Landlord to the holding over of Tenant after the expiration or earlier
termination of this Lease, nor shall anything contained herein be deemed to
limit Landlord's remedies pursuant to this Lease or otherwise available to
Landlord at law or in equity.

         25.  ESTOPPEL CERTIFICATES. Tenant shall, at any time upon not less
than five (5) days prior written request by Landlord, execute, acknowledge and
deliver to Landlord or its designee a statement in writing, executed by an
officer or general partner of Tenant, certifying that this Lease is unmodified
and in full force and effect (or, if there have been any modifications, that
this Lease is in full force and effect as modified, and setting forth such
modifications), the dates to which Minimum Rent, Additional Rent and additional
charges hereunder have been paid, certifying that no default by either Landlord
or Tenant exists hereunder or specifying each such default and as to other
matters as Landlord may reasonably request.

         26.  CONVEYANCE BY LANDLORD. If Landlord or any successor owner of the
Premises shall convey any portion of the Premises in accordance with the terms
hereof, Landlord or such successor owner 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 such
portion of the Premises and all such future liabilities and obligations shall
thereupon be binding upon the new owner.

         27.  WAIVER OF JURY TRIAL. Landlord and Tenant hereby waive any rights
to trial by jury in any action, proceedings or counterclaim brought by either of
the parties against the other in connection with any matter whatsoever arising
out of or in any way connected with this Lease, including, without limitation,
the relationship of Landlord and Tenant, Tenant's use and occupancy of the
Premises, or any claim of injury or damage relating to the foregoing or the
enforcement of any remedy hereunder.

         28.  ATTORNEYS' FEES. If Landlord or Tenant brings any action to
interpret or enforce this Lease, or for damages for any alleged breach hereof,
the prevailing party in any such action shall be entitled to reasonable
attorneys' fees and costs as awarded by the court in addition to all other
recovery, damages and costs.

         29.  SEVERABILITY. In the event any part or provision of the Lease
shall be determined to be invalid or enforceable, the remaining portion of this
Lease shall nevertheless continue in full force and effect.

                                       41
<PAGE>

         30.  COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.

         31. BINDING EFFECT. Subject to the provisions of Section 22 above, this
Lease shall be binding upon and inure to the benefit of Landlord and Tenant and
their respective heirs, personal representatives, successors in interest and
assigns.

         32.  WAIVER AND SUBROGATION. Landlord and Tenant hereby waive to each
other all rights of subrogation which any insurance carrier, or either of them,
may have as to the Landlord or Tenant by reason of any provision in any policy
of insurance issued to Landlord or Tenant, provided such waiver does not thereby
invalidate the policy of insurance.

         33.  MEMORANDUM OF LEASE. Landlord and Tenant shall, promptly upon the
request of either, enter into short form memoranda of the Lease, in form
suitable for recording under the laws of the State in which the Facilities are
located in which reference to this Lease shall be made. The party requesting
such recordation shall pay all costs and expenses of preparing and recording
such memoranda of this Lease.

         34.  INCORPORATION OF RECITALS AND ATTACHMENTS. The recitals and
exhibits, schedules, addenda and other attachments to this Lease are hereby
incorporated into this Lease and made a part hereof.

         35.  TITLES AND HEADINGS. The titles and headings of sections of this
Lease are intended for convenience only and shall not in any way affect the
meaning or construction of any provision of this Lease.

         36.  NATURE OF RELATIONSHIP; USURY SAVINGS CLAUSE. The parties intend
that their relationship shall be that of lessor and lessee only. Nothing
contained in this Lease shall be deemed or construed to constitute an extension
of credit by Landlord to Tenant, nor shall this Lease be deemed to be a
partnership or venture agreement between Landlord and Tenant. Notwithstanding
the foregoing, in the event any payment made to Landlord hereunder is deemed to
violate any applicable laws regarding usury, the portion of any payment deemed
to be usurious shall be held by Landlord to pay the future obligations of Tenant
as such obligations arise and, in the event Tenant discharges and performs all
obligations hereunder, such funds will be reimbursed to Tenant upon the
expiration of the Term. No interest shall be paid on any such funds held by
Landlord.

         37.  JOINT AND SEVERAL. If more than one person or entity is the Tenant
hereunder, the liability and obligations of such persons or entities under this
Lease shall be joint and several.

         38.  SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All of the
obligations, representations, warranties and covenants of Tenant under this
Lease shall survive the expiration or earlier termination of the Term.

         39.  INTERPRETATION. Both Landlord and Tenant have been represented by
counsel and this Lease has been freely and fairly negotiated. Consequently, all
provisions of this Lease shall

                                       42
<PAGE>

be interpreted according to their fair meaning and shall not be strictly
construed against any party.

                            [SIGNATURES ON NEXT PAGE]

                                       43
<PAGE>

         Executed as of the date indicated above.

                               TENANT:

                               ARC PINEGATE, L.P.,
                               a Tennessee limited partnership

                               By:  AMERICAN RETIREMENT CORPORATION,
                                    a Tennessee corporation,
                                    its general partner

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

                               ARC PEARLAND, L.P.,
                               a Tennessee limited partnership

                               By:  AMERICAN RETIREMENT CORPORATION,
                                    a Tennessee corporation,
                                    its general partner

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

                                      S-1
<PAGE>

                               TRINITY TOWERS LIMITED PARTNERSHIP,
                               a Tennessee limited partnership

                               By:  ARC CORPUS CHRISTI, INC.,
                                    a Tennessee corporation,
                                    its general partner

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

                               ARC LAKEWAY, L.P.,
                               a Tennessee limited partnership

                               By:  AMERICAN RETIREMENT CORPORATION,
                                    a Tennessee corporation,
                                    its general partner

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

                               ARC SPRING SHADOW, L.P.,
                               a Tennessee limited partnership

                               By:  AMERICAN RETIREMENT CORPORATION,
                                    a Tennessee corporation,
                                    its general partner

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

                               ARC SHADOWLAKE, L.P.,
                               a Tennessee limited partnership

                               By:  AMERICAN RETIREMENT CORPORATION,
                                    a Tennessee corporation,
                                    its general partner

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

                                       S-2
<PAGE>

                               ARC WILLOWBROOK, L.P.,
                               a Tennessee limited partnership

                               By:  AMERICAN RETIREMENT CORPORATION,
                                    a Tennessee corporation,
                                    its general partner

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

                               ARC PARK REGENCY, INC.,
                               a Tennessee corporation

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

                               ARC PARKLANE, INC.,
                               a Tennessee corporation

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

                                      S-3
<PAGE>

                               LANDLORD:

                               NATIONWIDE HEALTH PROPERTIES, INC.,
                               a Maryland corporation

                               By:
                                  -----------------------------------------
                                  Donald D. Bradley
                                  Senior Vice President and General Counsel

                               NH TEXAS PROPERTIES LIMITED PARTNERSHIP,
                               a Texas limited partnership

                               By:   MLD TEXAS CORPORATION,
                                     a Texas corporation

                                     By:
                                        ----------------------------------------
                                          Donald D. Bradley
                                          Senior Vice President, General Counsel
                                          and Secretary

                                      S-4

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00045-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00045-of-00352.parquet"}]]