Document:

EXHIBIT 10.1

CONFIDENTIAL:  THIS  DOCUMENT IS PROVIDED FOR  SETTLEMENT  PURPOSES  ONLY AND IS
SUBJECT TO THE  PROTECTIONS  OF FEDERAL  RULE OF  EVIDENCE  408 AND ALL  SIMILAR
PROVISIONS AND SUPPORTING AUTHORITIES.

                              SETTLEMENT AGREEMENT

         THIS SETTLEMENT  AGREEMENT  (this  "Agreement") is made as of this 20th
day of March, 2000, by and among (a) SENIOR HOUSING PROPERTIES TRUST, a Maryland
real estate  investment  trust ("SNH") and its wholly-owned  subsidiary,  SPTMNR
PROPERTIES TRUST, a Maryland real estate  investment trust ("SPTMNR"),  (b) FIVE
STAR  QUALITY  CARE,  INC.,  a Delaware  corporation  (the "New  Manager"),  (c)
SHOPCO-AZ, LLC, SHOPCO-CA, LLC, SHOPCO-COLORADO, LLC and SHOPCO-WI, LLC, each of
which is a Delaware limited liability company (collectively, the "New Operators"
and,  together  with SNH,  SPTMNR and the New  Manager,  collectively,  the "SNH
Entities"),  and (d) MARINER POST-ACUTE  NETWORK,  INC., a Delaware  corporation
(f/k/a Paragon Health  Network,  Inc.)  ("Mariner"),  GRANCARE,  INC. (f/k/a New
GranCare,  Inc.), a Delaware corporation ("GranCare"),  AMS PROPERTIES,  INC., a
Delaware  corporation  ("AMS  Properties") and GCI HEALTH CARE CENTERS,  INC., a
Delaware  corporation  ("GCIHCC"  and,  together with Mariner,  GranCare and AMS
Properties, collectively, the "Mariner Entities").

                                   WITNESSETH:

         WHEREAS,  SPTMNR is the owner of all of the real  property,  buildings,
plant and equipment and certain of the personal property used in connection with
the  operation  of various  health care and health care related  facilities  (as
further defined and described herein, the "Facilities"); and

         WHEREAS, pursuant to the Master Lease (this and other capitalized terms
used and not otherwise  defined  herein shall have the meanings given such terms
in Article 1 hereof), SPTMNR leases the Facilities to AMS Properties and GCIHCC;
and

         WHEREAS,  pursuant to the Christopher East Note, AMS Properties  agreed
to pay to SPTMNR certain amounts as further described therein; and

         WHEREAS,  pursuant to the GranCare Guaranties,  GranCare guaranteed the
payment  and  performance  of each and every  obligation  and  liability  of AMS
Properties and GCIHCC (each of which is a  wholly-owned  subsidiary of GranCare)
to SPTMNR; and

         WHEREAS,  pursuant  to the Mariner  Guaranty,  Mariner  guaranteed  the
payment and  performance of each and every  obligation and liability of GranCare
(a wholly-owned subsidiary of Mariner), AMS Properties and GCIHCC to SPTMNR; and

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         WHEREAS,  pursuant to that certain Collateral Pledge Agreement dated as
of October 31, 1997, Mariner secured the Mariner Guaranty with $15,000,000.00 in
cash (the "Security Deposit"); and

         WHEREAS,  pursuant  to that  certain  Amended and  Restated  HRP Shares
Pledge Agreement, dated as of June 30, 1992 by AMS Properties (the "Share Pledge
Agreement"),  AMS reaffirmed its pledge of 1,000,000 common shares of beneficial
interest,   $.01  par  value,  of  HRPT  Properties   Trust  (f/k/a  Health  and
Rehabilitation  Properties  Trust),  a Maryland  real  estate  investment  trust
("HRP"),  which  pledge  also  extends to 100,000  common  shares of  beneficial
interest,  $.01 par value,  of SNH which were  distributed as a distribution  in
respect of such HRP shares (collectively,  the "Pledged Shares"),  which Pledged
Shares are  currently  held by REIT  Management  &  Research,  Inc.,  a Delaware
corporation and the successor in interest to HRPT Advisors, Inc. ("RMR") as such
pledgeholder; and

         WHEREAS,  the Mariner  Entities have filed  voluntary  petitions  under
Chapter 11 of the United States Bankruptcy Code, 11 U.S.C.ss.ss.101 et. seq., as
amended  (the  "Bankruptcy  Code") on January  18, 2000 (the  "Petition  Date"),
before the United  States  Bankruptcy  Court for the  District of Delaware  (the
"Court"), Case Nos. 00113 through 00214 (collectively, the "Cases"), which Cases
are currently pending and are being jointly administered; and

         WHEREAS,  the Mariner  Entities wish to liquidate  and terminate  their
obligations  to the SNH  Entities  under the  Existing  Documents  in an orderly
fashion, and to cease operating and/or managing the Retained Facilities, and, in
furtherance  thereof,  the Mariner  Entities have  requested  that,  among other
things,  the SNH Entities accept the surrender of the Master Lease and convey to
the Mariner Entities all of the SNH Entities'  right,  title and interest in and
to the Transferred Facilities; and

         WHEREAS,  the SNH Entities  are willing to accept the  surrender of the
Master Lease and to convey to the Mariner Entities all of their right, title and
interest in and to the Transferred  Facilities,  subject to, and upon, the terms
and conditions set forth herein.

         NOW  THEREFORE,  in  consideration  of  the  premises  and  the  mutual
covenants  and  agreements  herein  contained,  and for other good and  valuable
consideration,  the receipt and adequacy of which are hereby  acknowledged,  the
parties hereto hereby agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

         1.1 The following  capitalized  terms shall have the meanings set forth
below:

         "Agreement"  shall  mean  this  Settlement  Agreement,   including  all
Appendices,  Schedules and Exhibits thereto,  as it and they may be amended from
time to time as herein provided.

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

         "Christopher East Note" shall mean a Promissory Note, dated as of March
28, 1992,  made by AMS  Properties,  in favor of HRP, in the original  principal
amount of $1,250,000.

         "Consumables"  shall mean, with respect to any Facility,  all inventory
and consumables, including, without limitation, food, central supplies, unopened
linens and  housekeeping  supplies and other  consumables,  customarily  used or
consumed in the day-to-day operation of such Facility.

         "Contracts" shall mean, with respect to any Facility,  each instrument,
contract and agreement to which the Mariner Operator of such Facility is a party
that directly  benefits,  relates to or affects (i) such  Facility,  or (ii) the
operation of or the provision of services in conjunction with such Facility.

         "Cross-Default/Cross-Collateralization   Agreement"   shall  mean  that
certain  Guaranty,  Cross-Default and  Cross-Collateralization  Agreement by AMS
Properties  and  GCIHCC,  dated  as of June 30,  1992,  pursuant  to  which  AMS
Properties and GCIHCC cross-defaulted,  cross-collateralized and guaranteed each
other's obligations to SPTMNR.

         "Employee  Accruals"  shall mean,  with  respect to any  Facility,  all
Employee  Benefits  which have been or would have been  earned,  accrued  and/or
payable in accordance with existing employee benefit plans, or shall be or would
be earned,  accrued and/or payable in accordance with existing  employee benefit
plans, but which remain unpaid with respect to or for any period ending prior to
the Effective Time.

         "Employee  Benefits"  shall mean,  with  respect to any  Facility,  all
wages, salary,  health insurance coverage,  disability coverage,  severance pay,
withholding,  social security or other employment taxes,  vacation and sick pay,
bonuses,   commissions,   pensions,   profit  sharing,  stock  option  or  other
arrangements or other fringe benefits or other employee benefit plans, practices
or  arrangements,  whether  written  or oral,  covering  any  present  or former
employee of such Facility as of the moment preceding the Effective Time, whether
or not yet payable.

         "Facility"  shall mean,  as the context may require,  any or all of the
Retained Facilities, the Subleased Facilities and the Transferred Facilities.

         "Fresno Facility" shall mean that certain Facility having an address of
577 South Peach Avenue, Fresno, California.

         "Fresno Sublease" shall mean a Sublease,  dated March 31, 1993, between
AMS  Properties,  as  sublandlord,  and Covenant  Care,  Inc.,  as subtenant and
successor by assignment from Pleasant Care Corporation.

                                      -3-
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         "Governmental Authority" shall mean all agencies, authorities,  bodies,
boards, commissions, courts, instrumentalities,  legislatures and offices of any
nature  whatsoever,  of any government  unit or political  subdivision,  whether
federal, state, county, district,  municipal, city or otherwise, and whether now
or hereafter in existence.

         "GranCare  Guaranties"  shall  mean,  collectively,   various  guaranty
agreements,  including,  without  limitation,  a certain  guaranty,  dated as of
October  31,  1997,  pursuant  to which  GranCare  guaranteed  the  payment  and
performance  of each and every  obligation  and liability of AMS  Properties and
GCIHCC (each of which is a wholly-owned subsidiary of GranCare) to SPTMNR.

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

         "Mariner Entities'  Guaranties" shall mean, as the context may require,
any or all of the Cross-Default/Cross-Collateralization  Agreement, the GranCare
Guaranties and the Mariner Guaranty.

         "Mariner  Guaranty"  shall  mean  that  certain  guaranty,  dated as of
October  31,  1997,  pursuant  to  which  Mariner  guaranteed  the  payment  and
performance  of  each  and  every   obligation  and  liability  of  GranCare  (a
wholly-owned subsidiary of Mariner), AMS Properties and GCIHCC to SPTMNR.

         "Mariner  Operator"  shall  mean,  with  respect to any  Facility,  the
Mariner  Entity  that  operates  such  Facility  and holds the  Permits for such
Facility as of the Effective Time.

         "Master  Lease" shall mean that certain  master lease to which  SPTMNR,
AMS Properties and GCIHCC are parties, which Master Lease is comprised of: (i) a
Master Lease Document General Terms and Conditions dated as of December 28, 1990
and  entered  into by and between HRP and AMS  Properties;  (ii) a Master  Lease
Document General Terms and Conditions dated as of June 30, 1992 and entered into
by and between HRP and GCIHCC; (iii) twenty-six (26) facility lease supplements,
some of which are dated as of December 28,  1990,  some of which are dated as of
March 27,  1992,  some of which are dated June 30,  1992 and others of which are
dated as of June  29,  1998,  all as  entered  into  pursuant  to the  documents
described    in    preceding    clauses    (i)   and   (ii);    and   (iv)   the
Cross-Default/Cross-Collateralization Agreement, all as amended to date.

         "Permits"  shall mean,  with  respect to any  Facility,  all  licenses,
approvals,   certificates   of  need,   determinations   of  need,   franchises,
accreditations,   certificates,  certifications,  consents,  permits  and  other
authorizations  benefiting,  relating  to or  affecting  the  operation  of such

                                      -4-
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Facility or the  operation of programs or  provision of services in  conjunction
with such Facility,  issued by or entered into with any Governmental  Authority,
Third Party Payor or accreditation  body  (including,  without  limitation,  the
Provider Agreements), and all renewals, replacements and substitutions therefor.

         "Permitted  Encumbrances" shall mean, with respect to any Facility, all
Permitted  Personal  Property  Encumbrances  and  all  Permitted  Real  Property
Encumbrances for such Facility.

         "Permitted Personal Property Encumbrances" shall mean, (i) with respect
to any personal  property present at or used in connection with the operation of
any  Transferred  Facility,  any and all security  interests and liens affecting
such personal  property other than those arising by,  through or under,  any SNH
Entity  (except that those  security  interests and liens arising by, through or
under,  any SNH  Entity  as a result  of a Mariner  Entity's  failure  to pay or
perform  any  obligation  required  to be paid by it as lessee  under the Master
Lease  prior  to  the  Effective  Time  shall  be  Permitted  Personal  Property
Encumbrances), and (ii) with respect to any personal property present at or used
in  connection  with the  operation of any  Retained  Facility,  those  security
interests and liens listed in Schedule 1.1.1 attached  hereto (and  specifically
excluding,  without  limitation,  any security  interests  and liens arising by,
through or under any Mariner  Entity,  or which has been granted by order of the
Court).

         "Permitted Real Property  Encumbrances" shall mean, (i) with respect to
the real property and the improvements at each Transferred Facility, any and all
liens and encumbrances  affecting such real estate and  improvements  other than
those arising by, through or under,  any SNH Entity (except that those liens and
encumbrances  arising  by,  through  or under any SNH  Entity as a result of any
Mariner Entity's failure to pay or perform any obligation required to be paid by
it as lessee  under the  Master  Lease  prior to the  Effective  Time  (such as,
without limitation,  the obligation to pay real estate taxes thereunder),  shall
be  Permitted  Real  Property  Encumbrances),  and (ii) with respect to the real
property  and  the  improvements  at any  Retained  Facility,  those  liens  and
encumbrances  affecting such real property and improvements existing at the time
the  applicable  SNH Entity  acquired  title to such Retained  Facility or those
liens and encumbrances arising by, through or under, any SNH Entity (except that
those liens and  encumbrances  arising by,  through or under any SNH Entity as a
result of any Mariner Entity's failure to pay or perform any obligation required
to be paid by it as lessee  under the Master Lease prior to the  Effective  Date
(such  as,  without  limitation,   the  obligation  to  pay  real  estate  taxes
thereunder)),  and specifically excluding,  without limitation,  those liens and
encumbrances arising by, through or under any Mariner Entity, or which have been
granted by order of the Court.

         "Person" shall mean all individuals,  corporations, general and limited
partnerships,  limited  liability  companies,  stock companies or  associations,
joint ventures,  unincorporated  associations,  companies,  trusts, banks, trust
companies,  land trusts,  business  trusts,  Governmental  Authorities and other
entities of every kind and nature.

                                      -5-
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         "Pre-Closing Obligations" shall mean, with respect to any Facility, all
debts, liabilities and obligations,  whether known or unknown,  absolute, mature
or not yet due, liquidated or non-liquidated, contingent, non-contingent, direct
or  indirect or  otherwise  (including,  without  limitation,  payroll,  accrued
vacation and other  employee  benefits and  obligations  and all other  accrued,
vested and unpaid obligations of any kind and all Employee Accruals) relating to
such Facility,  and/or arising under any Permits or Contracts or under any other
agreements or  instruments  (including  under  Provider  Agreements or otherwise
under Third Party Payor Programs), or relating to the management or operation of
such Facility, or arising out of the acts or omissions of any Mariner Entity, in
each case arising out of or attributable to conditions or events occurring prior
to the Effective Time  (including,  without  limitation,  those  obligations and
liabilities described in Section 10.4 hereof).

         "Provider  Agreements"  shall mean,  with respect to any Facility,  all
participation,  provider and reimbursement  agreements or arrangements in effect
for the benefit of or relating to or affecting the operation of any Facility, or
the  operation  of programs or provision  of services  therein,  relating to any
right of  payment  or other  claim  arising  out of or in  connection  with such
Facility's participation in any Third Party Payor Program.

         "Retained  Facility"  shall  mean,  collectively,  the health  care and
health care  related  facilities  described  in  Schedule  1.1.2  hereto,  which
facilities shall be retained by SPTMNR pursuant to this Agreement.

         "Settlement  Documents"  shall mean,  collectively,  this Agreement and
each agreement,  undertaking or instrument  delivered  pursuant to Article 3 and
Article 6 hereof.

         "South Dakota  Facilities"  shall mean that certain  Facility having an
address of 3600 S. Norton, Sioux Falls, South Dakota, together with that certain
Facility  located at 15th and Michigan  and/or 1251  Arizona SW in Huron,  South
Dakota.

         "South  Dakota  Subleases"  shall mean,  collectively,  (i) a Sublease,
dated as of March 31, 1994,  between GCIHCC,  as sublandlord,  and  HealthQuest,
Inc.,  as  subtenant,  and (ii) a  Sublease,  dated as of May 1,  1994,  between
GCIHCC, as sublandlord, and HealthQuest, Inc., as subtenant.

         "Subleased  Facilities" shall mean,  collectively,  the health care and
health care  related  facilities  described  in  Schedule  1.1.3  hereto,  which
facilities are currently  subleased by AMS Properties or GCIHCC  pursuant to the
Subleases.

         "Subleases"  shall mean, as the context may require,  any or all of the
Fresno Sublease and the South Dakota Subleases.

         "Subtenants"  shall  mean  (i) with  respect  to the  Fresno  Facility,
Covenant  Care,  Inc.,  and (ii) with  respect to the South  Dakota  Facilities,
HealthQuest, Inc.

         "Third Party Payor  Programs" shall mean all third party payor programs
in which any Facility  participates,  including,  without limitation,  Medicare,
Medicaid,  CHAMPUS, Blue

                                      -6-
<PAGE>

Cross and/or Blue Shield,  TriCare,  managed care plans, other private insurance
programs, workers compensation and employee assistance programs.

         "Third Party Payors" shall mean Medicare, Medicaid, CHAMPUS, Blue Cross
and/or  Blue  Shield,  TriCare,  private  insurers  and any other  Person  which
maintains Third Party Payor Programs.

         "Transferred Facilities" shall mean, collectively,  the health care and
health care  related  facilities  described  in  Schedule  1.1.4  hereto,  which
facilities  shall be transferred by SPTMNR to the Mariner  Entities  pursuant to
this Agreement.

         1.2 The  following  terms  shall  have the  meanings  set  forth in the
sections of this Agreement referred to below:

Defined Term:                                               Defined In:
AMS Properties                                              Introduction
Account Transfer Time                                       Section 10.3
Agreed Deficiency                                           Section 4.1
Agreement                                                   Introduction
Approval Order                                              Section 2.2
Bankruptcy Code                                             Recitals
Cases                                                       Recitals
Chase                                                       Section 6.15
Court                                                       Recitals
Damages                                                     Section 10.5
Effective Time                                              Section 5.1
Exchange Act                                                Section 13.8
Existing A/R Accounts                                       Section 10.3
Existing Documents                                          Section 2.1
Existing Mariner Obligations                                Section 2.1
Facilities                                                  Recitals
GCIHCC                                                      Recitals
GranCare                                                    Introduction
HRP                                                         Recitals
Indemnitee                                                  Section 10.5
Interim Management Agreement                                Section 3.5
Interim Occupancy Agreement                                 Section 3.5
Mariner                                                     Introduction
Mariner Entities                                            Introduction
NYSE Requirements                                           Section 13.8
New A/R Accounts                                            Section 10.3
New Manager                                                 Introduction
New Operators                                               Introduction
Outside Effective Time                                      Section 5.1
Petition Date                                               Recitals

                                      -7-
<PAGE>

Pledged Shares                                              Recitals
Post-Effective A/R                                          Section 10.3
RMR                                                         Recitals
SNH                                                         Introduction
SNH Declaration                                             Section 13.10
SNH Entities                                                Introduction
SPTMNR                                                      Introduction
SPTMNR Declaration                                          Section 13.11
Security Deposit                                            Recitals
Share Pledge Agreement                                      Recitals
Title Commitments                                           Section 7.5
Transaction Approval Motion                                 Section 2.2
Transferred Facilities                                      Recitals
Transferred Real Estate                                     Section 3.6
True-Up Time                                                Section 10.2.2

                                    ARTICLE 2

                          ACKNOWLEDGMENT OF OBLIGATIONS

         2.1  Mariner   Obligations.   Each  of  the  Mariner   Entities  hereby
acknowledges  that,  subject to the  effect of the  filing of the  Cases,  it is
unconditionally  liable  to  SPTMNR  for the  full  and  immediate  payment  and
performance of each of the  obligations  under the terms of the Master Lease and
the other  documents,  instruments and agreements  listed in Schedule 2.1 hereto
(collectively,  the "Existing Documents"), plus all charges that may arise under
the various  documents  executed  or  delivered  by any of the Mariner  Entities
evidencing  or  relating  to such  obligations,  plus all  costs  of  collection
incurred  in  connection  with  such  obligations  by the SNH  Entities  and the
reasonable  fees  and  expenses  incurred  by  attorneys  for the  SNH  Entities
(hereinafter  all such  obligations  are  referred to as the  "Existing  Mariner
Obligations"),  and  that  none  of  the  Mariner  Entities  has  any  defenses,
counterclaims or set-offs with respect to the full and immediate  payment of any
or all of the Existing Mariner  Obligations other than as may arise by reason of
the filing of the Cases.

         2.2 Court Approval.  Promptly following  execution of this Agreement by
all parties and otherwise within fifteen (15) Business Days after such date, the
Mariner Entities will file a motion with the Court seeking  authority to proceed
with the  transactions  and other matters  provided for in this  Agreement  (the
"Transaction  Approval  Motion"),  together  with a proposed  form of order (the
"Approval  Order") and the Approval  Order shall be in a form,  and include such
provisions,  as the SNH Entities and the Mariner  Entities may deem  appropriate
under the circumstances.

                                      -8-
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                                    ARTICLE 3

                   TRANSACTIONS TO OCCUR AT THE EFFECTIVE TIME

         At the Effective  Time,  the parties  hereto shall effect the following
transactions:

         3.1 Surrender of Master Lease.  AMS Properties and GCIHCC shall assume,
assign  and  surrender  to the New  Operator  designated  by  SPTMNR  all of AMS
Properties' and GCIHCC's  right,  title and interest in, to and under the Master
Lease,  and such New  Operator  shall  accept  such  assignment  and  surrender,
whereupon all of AMS Properties' and GCIHCC's rights and obligations  thereunder
(and the  rights and  obligations  of the  Mariner  Entities  under the  Mariner
Entities'   Guaranties)  shall  terminate.   All  cure  payments   allocable  to
pre-Petition Date periods will be waived.

         3.2 Transfer of Personal  Property,  Etc. AMS Properties  and/or GCIHCC
(as  applicable)  shall,  whether by assignment or by assumption and assignment,
assign to the New Operator  designated  by SPTMNR all of their right,  title and
interest in and to any  tangible and  associated  intangible  personal  property
(including, without limitation, all furniture, furnishings,  fixtures, equipment
(not including cash and account  receivables  but including any  Consumables and
computer  equipment)  and,  subject to and upon the terms and  conditions of any
applicable  licensing  agreements with respect  thereto,  all software and other
software  licenses  used in the  normal  course of  business  operations  at the
Retained  Facilities.  The SNH Entities  acknowledge and agree that the terms of
certain site  licenses  entered into between the Mariner  Entities and Microsoft
Corporation and other software  licenses for  non-proprietary  software prohibit
the assignment  and transfer of those licenses to the SNH Entities.  The Mariner
Entities and the SNH Entities further agree to enter into licensing  agreements,
in a form and substance  reasonably  satisfactory to both parties, to permit the
SNH  Entities  to use and  operate  certain  clinical  software  which  has been
internally  developed by the Mariner  Entities to assist in the operation of the
Retained Facilities including, without limitation, those software programs which
are used to track the Minimum Data Set of Medicaid  Statistics  for each patient
in the Retained Facilities.

         3.3.  Transfer of Contracts and Permits.  AMS Properties  and/or GCIHCC
(as  applicable)  shall  assume and  assign,  set over and  transfer  to the New
Manager or New Operator all of their right, title and interest in and to (i) all
of the Subleases  (other than the right,  title and interest of GCIHCC in and to
the Tenant  Purchase and Sale Agreement  referred to in each of the South Dakota
Subleases,  or in and to any promissory note delivered by any Subtenant pursuant
thereto or otherwise  delivered in connection with any such Subleases),  (ii) to
the extent  permitted  by law,  all of the Permits  with respect to the Retained
Facilities that the New Manager or the New Operators elect to assume,  and (iii)
all of the  Contracts  with  respect  to the  Retained  Facilities  that the New
Manager or the New Operators elect to assume as provided in Section 10.7 hereof,
but specifically  excluding,  in each of the immediately  preceding clauses (i),
(ii)  and  (iii)  any  Pre-Closing  Obligations  (except,  in  the  case  of the
Contracts, as otherwise provided in Section 10.7 hereof).

                                      -9-
<PAGE>

         3.4 Transfer and Release of Certain  Collateral.  The Mariner  Entities
shall transfer and assign to SPTMNR,  all of their right,  title and interest in
and to (a) the  Security  Deposit  and (b) the Pledged  Shares and the  proceeds
thereof,  and the SNH Entities shall release to GranCare,  free and clear of all
liens, claims and encumbrances  arising by, through or under any SNH Entity, any
pledges of any stock of AMS  Properties or GCIHCC or other  collateral  securing
the Master Lease or any related guaranties,  including,  without limitation, any
interest in accounts receivable arising prior to the Effective Time.

         3.5 Interim  Management and Interim Occupancy  Agreements.  The Mariner
Operators  shall  enter  into  an  interim  management  agreement  (an  "Interim
Management  Agreement"),  substantially  in the form attached as Schedule  3.5-A
hereto,  with  respect to the  Retained  Facilities  with the New Manager  under
which,  to the  extent  and  subject to the  limitations  imposed by  applicable
licensure and certificate or determination  of need laws and  regulations,  each
Mariner Operator shall agree to perform certain  management  services  described
therein with respect to the operation of the Retained Facilities and, subject to
the control and direction of the Mariner Operators,  as current  licensees,  the
New Manager may assume  responsibility  for  certain of such  services,  pending
receipt  by the New  Manager  and/or  New  Operator,  as the case may be, of all
licenses,  certificates,  permits  and  approvals  necessary  to  assume  direct
operating  control of such Retained  Facility.  The Mariner Operators also shall
enter into an interim occupancy  agreement (an "Interim  Occupancy  Agreement"),
substantially  in the form attached at Schedule  3.5-B  hereto,  with respect to
each of the Retained  Facilities with the appropriate New Operator,  which shall
provide that during the term of such Interim Occupancy  Agreement,  such Mariner
Operator shall  continue to occupy such Retained  Facility and have such control
over such Retained Facility as is necessary to comply with applicable  licensure
and certificate of need statutes and regulations.

         3.6  Conveyance of  Transferred  Facilities.  Each SNH Entity shall (i)
convey all of its respective  right,  title and interest,  if any, in and to the
parcels  of  real  property   described  in  Schedule  3.6,  together  with  all
improvements  thereon  (collectively,  the  "Transferred  Real Estate"),  to AMS
Properties  or its designee,  and (ii) transfer and assign to AMS  Properties or
its  designee  all of its  right,  title  and  interest,  if any,  in and to all
tangible and  incorporated  intangible  personal  property  (including,  without
limitation,  all furniture,  furnishings,  fixtures and equipment) present at or
used in  connection  with the operation of the nursing  facility  located on the
Transferred  Real Estate,  in each case free and clear of all liens,  claims and
encumbrances,   except  Permitted  Encumbrances.   All  deeds,  bills  of  sale,
assignments  and other  instruments of transfer or releases  necessary to effect
such   conveyances   shall   expressly   state   that  they  are  made   without
representations  and  warranties,  express or implied,  except as expressly  set
forth in this Agreement.

         3.7 Bankruptcy Code Provisions.  Each of the transactions  provided for
in Sections 3.1,  3.2,  3.3, 3.4 and 3.5 shall be completed in  accordance  with
Sections 105, 363(b),  (f), and (m), and 365 and 1146(c) of the Bankruptcy Code,
as applicable,  and the provisions of the Approval Order,  with the SNH Entities
receiving the full benefits and  protections of such sections and the provisions
of the Approval Order.

                                      -10-
<PAGE>

                                    ARTICLE 4

                                  CONSIDERATION

         4.1  Consideration.  In  consideration  of the transfers and agreements
described  in  Article  3  hereof,  the SNH  Entities  agree,  effective  at the
Effective Time, the  obligations of the Mariner  Entities for the payment of all
amounts due and to become due under the Master Lease, the Christopher East Note,
the GranCare  Guaranties and the Mariner  Guaranty,  in each case as of the date
hereof, are reduced to $1,200,000.00 in the aggregate (such amount, as it may be
further reduced in accordance with the Interim Management Agreement, the "Agreed
Deficiency").  Except  for the  payment of the Agreed  Deficiency,  and  without
limiting the obligations of the Mariner  Entities  hereunder and under the other
Settlement  Documents,  all of the  past,  present  or  future  liabilities  and
obligations of each of the Mariner  Entities under the Existing  Documents shall
terminate.

                                    ARTICLE 5

                                     CLOSING

         5.1  Closing.  The  closing of the  transactions  contemplated  by this
Agreement  shall be held at the offices of Sullivan &  Worcester  LLP,  One Post
Office Square,  Boston,  Massachusetts  02109,  or at such other location as the
parties may agree upon in writing,  at 10:00 a.m., local time, on April 12, 2000
(the "Effective Time"); provided, however that, in the event that the conditions
set forth in Article 6 hereof shall not be satisfied as of the  Effective  Time,
the SNH  Entities  shall  have the right,  by notice in  writing to the  Mariner
Entities,  to extend the Effective Time from time to time to no later than 10:00
a.m., local time, on July 1, 2000 (the "Outside  Effective  Time"),  in order to
satisfy  such  conditions,  or in the  event  that the  conditions  set forth in
Article 7 hereof shall not be satisfied as of the  Effective  Time,  the Mariner
Entities  shall have the right,  by notice in  writing to the SNH  Entities,  to
extend  the  Effective  Time  from  time to time to no later  than  the  Outside
Effective Time in order to satisfy such conditions.

                                    ARTICLE 6

               CONDITIONS PRECEDENT TO OBLIGATIONS OF SNH ENTITIES

         The  obligation  of the SNH  Entities to  consummate  the  transactions
contemplated by this Agreement  shall be subject to the  satisfaction of each of
the conditions set forth in this Article 6. The determination that any condition
set forth in this Article 6 has been satisfied or has not been  satisfied  shall
be made by the SNH Entities in their sole discretion (unless otherwise expressly
provided herein, such as in Section 6.2 and Section 6.12 hereof).

         6.1  Trustee  Approval.  This  Agreement  and each of the  transactions
contemplated hereby shall have been approved by the Board of Trustees of SNH and
by each of the  "Independent  Trustees" of SNH. The Independent  Trustees of SNH
are those  trustees who are

                                      -11-
<PAGE>

not affiliated  with RMR. The SNH Entities shall notify the Mariner  Entities if
the Board of Trustees  or any of the  "Independent  Trustees"  do not approve of
this  Agreement and each of the  transactions  contemplated  hereby on or before
March 31, 2000.

         6.2  Documentation.  All  documentation  evidencing or implementing the
transactions  contemplated  by this  Agreement  must be in  form  and  substance
reasonably satisfactory to the SNH Entities and their counsel.

         6.3 Lien  Reports.  With  respect to each of the  Retained  Facilities,
SPTMNR shall have received a  satisfactory  lien report  showing that, as of the
Effective  Time, such Retained  Facility is not subject to any liens,  claims or
encumbrances other than the Permitted Encumbrances.

         6.4 Receipt of Certain  Permits and  Approvals.  The SNH Entities shall
have received all necessary  Permits and approvals  from all federal,  state and
local  regulatory  agencies  to enable  them to: (a) accept the  assignment  and
surrender of the Master Lease; (b) enter into the Interim  Management  Agreement
and the Interim Occupancy Agreements with the Mariner Operators; and (c) do such
other acts and enter into such other agreements as are necessary or desirable to
carry out the intents and purposes of this Agreement.

         6.5  Due  Diligence.   The  SNH  Entities  shall  have  completed  such
investigation and received such documentation and other assurances as they shall
deem necessary, in their sole discretion, to assure themselves that there are no
material  impediments  to the  receipt  by the  SNH  Entities  of all  licenses,
certificates,  permits  and  approvals  necessary  to lease and to  operate,  as
licensee,  and to  manage,  as  manager,  the  Retained  Facilities  as they are
currently   operated,   and  to  receive  Medicare  and  Medicaid   payments  or
reimbursements for services provided at each Retained Facility.

         6.6  Reports  and  Surveys.  With  respect  to  each  of  the  Retained
Facilities,  the SNH Entities  shall have  received  such  reports,  surveys and
opinions as they shall have determined are necessary or desirable, including the
following: updated title reports, licensure and Medicare/Medicaid survey reports
and  updated  appraisals;   each  such  report,  survey  and  opinion  shall  be
satisfactory to the SNH Entities in their sole discretion.

         6.7 No Litigation.  Except as disclosed on Schedule 6.7 (and other than
the Cases),  there shall be no investigation,  audit,  governmental  proceeding,
suit or other  litigation,  pending or threatened,  seeking to, or the effect of
which would be to, enjoin,  prevent or delay  consummation  of the  transactions
contemplated by this Agreement,  attach or place a lien on any of the Facilities
or any personal property or accounts receivable  associated  therewith or have a
reasonable  likelihood  of  resulting  in a material  reduction  of Third  Party
Payments thereto, by withholding, offset, recoupment or reduction of prospective
rates of payment, revoke, condition or limit any Permit or approval necessary to
the  operation   thereof,   or  which  would  otherwise   adversely  affect  the
consummation of the transactions  contemplated  herein or interfere with any SNH
Entity's  ownership,   lease,  use,  enjoyment  or  operation  of  the  Retained
Facilities.

                                      -12-
<PAGE>

         6.8 No Default.  Consummation of the transactions  contemplated in this
Agreement shall not constitute, nor with the passage of time or giving of notice
or both result in, a default or event of default under any agreement,  contract,
indenture,  Permit,  instrument  or  understanding  to which any of the  Mariner
Entities  or any of their  subsidiaries  is a party or by which it or any of its
properties  is bound and which is  enforceable  against the Mariner  Entities in
their capacity as debtors in possession.

         6.9  True  and  Complete   Representation.   All   representations  and
warranties of each of the Mariner  Entities  hereunder and under the  Settlement
Documents shall be true, complete and correct in all material respects as of the
date hereof and as of the Effective Time.

         6.10  Employment  Matters.  The SNH  Entities  shall have  reviewed and
approved the contracts and agreements listed in Schedule 9.15 hereof.

         6.11 Condition of Retained Facilities. Neither any asset to be conveyed
or  transferred  to any SNH Entity  pursuant to this  Agreement nor the business
conducted at any of the Retained  Facilities shall have been adversely  affected
in any  material  way from the date  hereof to the  Effective  Time,  including,
without limitation:  by (a) any actual or threatened  interference with use; (b)
fire or  other  casualty  or  condemnation;  (c)  pending  or  threatened  loss,
revocation,  restriction  or  limitation,  including,  without  limitation,  any
pending or threatened  loss,  revocation,  restriction  or  limitation  which is
stayed pursuant to an order of the Bankruptcy  Court,  of any material  license,
certification or Permit; or (d) any other material  operational matter.  Between
the date  hereof  and the  Effective  Time,  each SNH  Entity and its agents and
consultants  shall  have been  given  all  reasonable  access  to each  Retained
Facility  to  perform  such   investigations  and  due  diligence  as  it  deems
appropriate  to determine  whether each condition  precedent to its  obligations
hereunder has been satisfied.

         6.12  Opinions.  The SNH  Entities  and each New  Operator  shall  have
received  such  opinions  of  counsel  for the  Mariner  Entities  as they shall
reasonably request.

         6.13 Approval  Order.  The Court shall have entered the Approval  Order
and (a) no court of competent  jurisdiction  shall have entered an order staying
the Approval Order pending appeal, or, in the event a stay of the Approval Order
shall  have been  entered,  then the stay shall  have been  terminated;  (b) all
appeal  periods  shall  have  expired  with no appeal  having  been taken or all
appeals  shall  have been  dismissed,  or the  Approval  Order  shall  have been
affirmed,  by final order no longer subject to appeal; or (c) if appealed,  such
appeal shall have otherwise been settled or resolved to the  satisfaction of the
SNH Entities or this condition  shall have been waived by the SNH Entities.  The
Approval  Order  as  entered  by  the  Court  shall  contain  no   modifications
unacceptable  to  the  SNH  Entities  and  shall  include,  without  limitation,
provisions as follows:

                  (i)  Findings  determining  that  notice  of  the  Transaction
                  Approval  Motion and hearing  thereon have been adequate under
                  the circumstances;

                                      -13-
<PAGE>

                  (ii) Findings that the SNH Entities are good faith  purchasers
                  pursuant to 11 U.S.C.ss.363(m);

                  (iii) Findings that the consideration  provided to the Mariner
                  Entities by the SNH Entities is adequate;

                  (iv) Findings that proceeding with those matters  provided for
                  in  the  Agreement  is in the  best  interest  of the  Mariner
                  Entities and their respective creditors;

                  (v) Finding that Schedule 9.16,  updated as appropriate,  is a
                  complete list of Employee Accruals;

                  (vi) Ordering that the transfer of the Retained Facilities and
                  personal  property  present at or used in connection  with the
                  operation of the Retained  Facilities is free and clear of all
                  liens, claims,  encumbrances and interests pursuant to Section
                  363(f)  of the  Bankruptcy  Code,  except  for  the  Permitted
                  Encumbrances;

                  (vii) Ordering that the transactions pursuant to the terms and
                  conditions  set forth in this  Agreement  are  approved in all
                  respects pursuant to Sections 363(b),  363(f),  365(b), 365(f)
                  and 1146(c) of the Bankruptcy Code, and otherwise;

                  (viii)  Ordering  that all Medicare and Medicaid  payments for
                  services on or after the  Effective  Time shall be received by
                  the respective  Mariner  Entities and delivered by each to the
                  SNH Entities free and clear of any liens, claims, encumbrances
                  or interests;

                  (ix) Ordering that none of the SNH Entities or their  nominees
                  shall have any liability for any  Pre-Closing  Obligations  or
                  other obligations of any Mariner Entity or their affiliates or
                  subsidiaries  (except  as  otherwise  expressly  provided  for
                  herein); and

                  (x) Ordering  that,  in  consideration  of, and upon,  the SNH
                  Entities' or their  nominees'  assuming the  obligation to pay
                  the Employee  Accruals,  the Mariner Entities shall pay to the
                  SNH Entities the cash equivalent of such Employee Accruals.

         6.14 Notice.  Within a reasonable  time  following  the filing with the
Court of the Approval  Motion,  and prior to the hearing and relevant  objection
date, the Mariner Entities shall have served notice of the Transaction  Approval
Motion in a form  acceptable  to the SNH Entities  upon those  persons  mutually
designated  by both parties and shall  publish the notice in such  newspapers as
mutually  designated by both parties.  The Mariner  Entities shall pay the costs
incurred in connection with providing notice to  mutually-designated  parties as
aforesaid and the Mariner  Entities and the SNH Entities shall each pay half the
costs for publishing notices in mutually-designated  newspapers as aforesaid. In
addition,  to the extent that the SNH

                                      -14-
<PAGE>

Entities shall request that any  additional  parties be served any such notices,
or that any such notices be published in any additional newspapers,  the Mariner
Entities  shall  cooperate with the SNH Entities to accomplish the same, and the
SNH Entities shall pay for all such costs in connection therewith.

         6.15  Chase/Lender  Approval.  The SNH  Entities  shall  have  received
evidence  satisfactory to them that the Chase Manhattan Bank, in its capacity as
collateral agent for the Mariner Entities'  pre-petition  senior secured lenders
and as agent for the  Mariner  Entities'  debtor in  possession  lenders (in its
capacities  as  the  collateral  agent  and  the  debtor  in  possession  agent,
respectively,  "Chase"),  has  consented  to, or agreed  not to object  to,  the
transactions contemplated under this Agreement and all related documents.

         6.16  Hart-Scott-Rodino.  There shall be no filing  required  under the
Hart-Scott-Rodino  Antitrust  Improvements Act of 1976, as amended,  relating to
the consummation of the transactions  contemplated by this Agreement or, if such
a filing is required,  all applicable  consents shall have been obtained and the
Mariner  Entities  shall have  agreed to pay all  reasonable  costs  incurred in
connection with such filing.

                                    ARTICLE 7

         CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE MARINER ENTITIES

         The obligation of each Mariner  Entity to consummate  the  transactions
contemplated by this Agreement  shall be subject to the  satisfaction of each of
the conditions set forth in this Article 7. The determination that any condition
set forth in this Article 7 has been satisfied or has not been  satisfied  shall
be made by the  Mariner  Entities  in their sole  discretion  (unless  otherwise
expressly provided herein, such as in Section 7.2 hereof).

         7.1  Receipt  of  Certain  Permits.  The  Mariner  Entities  shall have
received all Permits from all federal,  state and local  regulatory  agencies to
enable  them to: (a)  surrender  the Master  Lease;  (b) enter into the  Interim
Management   Agreement  and  the  Interim  Occupancy  Agreements  with  the  New
Operators;  and (c) do such other acts and enter into such other  agreements  as
are  necessary  or  desirable  to carry out the  intents  and  purposes  of this
Agreement.

         7.2  Documentation.  All  documentation  evidencing or implementing the
transactions  contemplated  by this  Agreement  shall be in form  and  substance
reasonably satisfactory to the Mariner Entities and their counsel.

         7.3  No  Litigation.  There  shall  be no  investigation,  governmental
proceeding,  suit or other litigation  pending or threatened  seeking to, or the
effect  of which  would be to,  enjoin,  prevent  or delay  consummation  of the
transactions contemplated by this Agreement.

         7.4 Lien Reports.  With respect to each of the Transferred  Facilities,
Mariner shall have received a  satisfactory  lien report showing that, as of the
Effective Time, such Transferred

                                      -15-
<PAGE>

Facility  is not  subject to any liens,  claims or  encumbrances  other than the
Permitted Encumbrances.

         7.5 Title  Commitments.  The Mariner Entities shall have obtained title
commitments (the "Title Commitments") committing to insure, at prevailing market
rates,  subject to standard  exceptions but subject to no special exceptions for
(a) liens or encumbrances  arising by or through  SPTMNR,  SNH, HRP or any other
subsidiary  of SNH or HRP (other than those  consented to by Mariner or that are
Permitted Encumbrances) or (b) mortgages, deeds of trust, attachments or similar
liens securing payment obligations arising by or through SPTMNR, SNH, HRP or any
other   subsidiary   of  SNH  or  HRP  (other  than  those  that  are  Permitted
Encumbrances).

         7.6  True  and  Complete   Representations.   All  representations  and
warranties  of the SNH  Entities  shall be true,  complete  and  correct  in all
material respects as of the date hereof and as of the Effective Time.

         7.7 Approval Order.  The condition set forth in Section 6.13 shall have
been satisfied.

         7.8  Chase/Lender  Approval.  The Mariner  Entities shall have received
evidence  satisfactory  to them that  Chase has  consented  to, or agreed not to
object to, the  transactions  contemplated  under this Agreement and all related
documents.

         7.9  Hart-Scott-Rodino.  There  shall be no filing  required  under the
Hart-Scott-Rodino  Antitrust  Improvements Act of 1976, as amended,  relating to
the consummation of the transactions  contemplated by this Agreement or, if such
a filing is required,  all applicable  consents shall have been obtained and the
Mariner  Entities  shall have  agreed to pay all  reasonable  costs  incurred in
connection with such filing.

                                    ARTICLE 8

                 REPRESENTATIONS AND WARRANTIES OF SNH ENTITIES

         8.1 Reliance. Each of the SNH Entities,  jointly and severally,  hereby
makes the  representations  and  warranties set forth in this Article 8. Each of
the SNH Entities  expressly  acknowledges and agrees that,  notwithstanding  any
provision to the contrary in this or in any other agreement between or among the
parties:  (a) Mariner, AMS Properties,  GCI and their respective  affiliates are
relying,  may rely and are and shall be  justified  in relying on the  following
representations  and  warranties in entering  into this  Agreement and the other
agreements  and  instruments  referred  to in,  contemplated  by, or executed in
connection with this Agreement and the other Settlement  Documents;  (b) each of
the  following  representations  and  warranties  is made to induce the  Mariner
Entities  and their  respective  affiliates  to enter  into and  consummate  the
transactions contemplated by this Agreement and the other agreements referred to
in or contemplated  by this Agreement and the other  Settlement  Documents,  and
their   respective   affiliates,   are  and  shall  be  beneficiaries  of  these
representations  and warranties;  and (c) each of the following  representations
and  warranties  shall be a  continuing  representation  and

                                      -16-
<PAGE>

warranty and shall survive the closing of the transactions  contemplated by this
Agreement,   the  execution  of  any  Settlement   Documents,   and  performance
thereunder.

         8.2  Organization.  SPTMNR  is a  real  estate  investment  trust  duly
organized,  validly existing and in good standing under the laws of the State of
Maryland.  SPTMNR has all requisite power and authority to carry on its business
as such business is presently  being  conducted and,  subject to approval of its
Board  of  Trustees,  to  enter  into  this  Agreement  and  to  consummate  the
transactions contemplated hereby.

         8.3  Authorization.  The  execution,  delivery and  performance of this
Agreement and each other  Settlement  Document and all  transfers,  conveyances,
surrenders of leases,  assignments and deliveries  provided for herein have been
duly authorized by all necessary corporate,  partnership and stockholder action.
This  Agreement  has been duly executed by each SNH Entity and  constitutes  the
valid and binding obligation of each SNH Entity,  enforceable in accordance with
its terms.

         8.4 Successor to HRP.  SPTMNR is the successor in interest to HRP under
the Master Lease and the Existing Documents, it has assumed all of HRP's rights,
duties and obligations under the Master Lease and the Existing Documents and HRP
no longer has any rights or claims thereunder.

         8.5  Brokerage.  The SNH  Entities  have not used the  services  of any
broker  or finder  in  connection  with the  transactions  contemplated  by this
Agreement and they will  indemnify  and hold harmless the Mariner  Entities from
and against all claims,  actions,  causes of action, costs, expenses,  including
attorneys' fees, and liabilities  arising in or out of, or related to any broker
or finder claiming any compensation or fee by reason of an alleged  agreement or
understanding with any of the SNH Entities.

         8.6 No Actions.  There are no actions,  proceedings,  investigations or
audits pending or threatened  against any of the SNH Entities,  before or by any
court,  arbitrator,  administrative agency or other Governmental Authority which
are expected, in the reasonable judgment of the executive officers of any of the
SNH  Entities,  to materially  and adversely  affect the assets or the financial
condition or operations  of any of the SNH  Entities,  or their ability to carry
out the transactions contemplated in this Agreement.

         8.7  TRANSFERRED  FACILITIES  CONVEYED  "AS IS".  THE MARINER  ENTITIES
ACKNOWLEDGE  THAT THE  TRANSFERRED  REAL ESTATE BEING CONVEYED OR TRANSFERRED TO
AMS PROPERTIES OR ITS DESIGNEE  HEREUNDER IS BEING CONVEYED AND  TRANSFERRED "AS
IS, WHERE IS" WITHOUT REPRESENTATION OR WARRANTY,  EXPRESS OR IMPLIED, AS TO THE
CONDITION,  TITLE,  DESIGN,  MERCHANTABILITY OR FITNESS FOR USE OF SUCH PROPERTY
AND NO SNH  ENTITY  HAS  MADE,  OR SHALL  BE  DEEMED  TO HAVE  MADE,  ANY  OTHER
REPRESENTATION OR WARRANTY,  OTHER THAN AS EXPRESSLY SET FORTH IN THIS AGREEMENT
OR ANY  OTHER  SETTLEMENT  DOCUMENT.  Without  limiting  the  generality  of the
foregoing, except for representations and

                                      -17-
<PAGE>

warranties  expressly  set forth in this  Agreement  or in any other  Settlement
Document,  the  transactions  contemplated  by this  Agreement  are  without any
statutory, express or implied warranty, representation,  agreement, statement or
expression  of opinion  on the part of any SNH Entity of or with  respect to (i)
the condition or title of the assets or any aspect thereof,  including,  without
limitation,  any  and all  statutory,  express  or  implied  representations  or
warranties related to suitability for habitation, merchantability or fitness for
a  particular  use or  purpose,  (ii) the  nature or  quality  of  construction,
structural design or engineering of the improvements  located on the Transferred
Real  Estate,  (iii) the  quality  of the  labor or  materials  included  in the
improvements  located on the Transferred Real Estate,  (iv) the soil conditions,
drainage,  topographical features,  flora, fauna or other conditions of or which
affect the  Transferred  Real Estate,  (v) any conditions at or which affect the
Transferred Real Estate with respect to any particular use, purpose  development
potential or otherwise, (vi) area, size, shape, configuration, location, access,
capacity, quantity, quality, cash flow, expenses, value, condition, make, model,
composition,    accuracy,    completeness,     applicability,     assignability,
enforceability,  exclusivity,  usefulness,  authenticity  or  amount,  (vii) any
statutory,  express,  or implied,  representations  or warranties created by any
affirmation of fact or promise, by any description of the assets or by operation
of law, (viii) any  environmental,  structural,  or other condition or hazard or
the absence thereof heretofore, now, or hereafter affecting in any manner any of
the Transferred Real Estate,  and (ix) all other  statutory,  express or implied
representations and warranties whatsoever.

                                    ARTICLE 9

             REPRESENTATIONS AND WARRANTIES OF THE MARINER ENTITIES

         9.1  Reliance.  Each of the Mariner  Entities,  jointly and  severally,
hereby makes the  representations  and  warranties  set forth in this Article 9.
Each  of  the  Mariner   Entities   expressly   acknowledges  and  agrees  that,
notwithstanding  any provision to the contrary in this or in any other agreement
between or among the parties,  the New Manager  and/or any New Operator or their
respective affiliates:  (a) SPTMNR, the New Manager, each New Operator and their
respective  affiliates  are relying,  may rely and are and shall be justified in
relying on the following  representations  and  warranties in entering into this
Agreement and the other agreements and instruments  referred to in, contemplated
by, or executed  in  connection  with this  Agreement  and the other  Settlement
Documents;  (b) each of the following  representations and warranties is made to
induce  the SNH  Entities  and their  respective  affiliates  to enter  into and
consummate  the  transactions  contemplated  by this  Agreement  and  the  other
agreements  referred  to in or  contemplated  by this  Agreement  and the  other
Settlement  Documents,  and  their  respective  affiliates,  are  and  shall  be
beneficiaries  of  these  representations  and  warranties;  and (c) each of the
following  representations  and warranties shall be a continuing  representation
and warranty and shall survive the closing of the  transactions  contemplated by
this  Agreement,  the execution of any  Settlement  Documents,  and  performance
thereunder.

         9.2 Organization.  Each of the Mariner Entities is a corporation,  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of the
jurisdiction of its  incorporation.  Subject to the entry of the Approval Order,
each of the  Mariner  Entities  has full  power,

                                      -18-
<PAGE>

authority and legal right to execute,  deliver and perform under this Agreement,
to enter into the Interim Occupancy Agreements, Interim Management Agreement and
the other Settlement  Documents and to take all other actions necessary to carry
out the intents and purposes of this Agreement.

         9.3  Authorization.  The  execution,  delivery and  performance of this
Agreement and each other  Settlement  Document and all  transfers,  conveyances,
surrenders of leases,  assignments and deliveries  provided for herein have been
duly authorized by all necessary corporate,  partnership and stockholder action.
This Agreement has been duly executed by each Mariner Entity and, subject to the
entry of the Approval  Order,  constitutes  the valid and binding  obligation of
each Mariner Entity, enforceable in accordance with its terms.

         9.4 No  Liabilities.  None of the Mariner  Entities has any liabilities
which would  impair or encumber  title to, or  materially  adversely  affect the
Retained Facilities or their operations,  whether absolute, contingent or fixed,
liquidated or unliquidated, matured or not yet due, of any nature, including tax
liabilities,  other than liquidated,  noncontingent  liabilities incurred by the
Mariner Entities in the ordinary course of their businesses. Each of the Mariner
Entities  has (a) filed all tax  returns  which it is  required  to file and (b)
paid,  or  simultaneously  with the closing will have paid,  any taxes levied or
assessed against it or any of its assets, or under any judgment,  order, decree,
or a  regulation  of any  court,  arbitrator,  administrative  agency  or  other
Governmental  Authority to which it may be subject which would, in each case, or
in the aggregate, adversely affect the assets, business, prospects, operation or
financial condition of any Retained Facility after the Effective Time.

         9.5 Personal  Property.  The Mariner  Entities own all the tangible and
intangible  personal property necessary to operate each Retained Facility (other
than those assets  subject to personal  property  leases  (complete and accurate
copies of which shall be provided to the SNH Entities for review within  fifteen
(15)  Business  Days of the  execution  hereof) and the tangible and  intangible
personal property necessary to operate the Subleased Facilities,  which personal
property is owned by the Subtenants at the Subleased Facilities) with the number
of beds, and providing such services, as are described in Schedule 9.5, free and
clear of all liens, encumbrances, charges, restrictions,  conditions and adverse
claims  of  any  kind  or  nature,   except  for  Permitted   Personal  Property
Encumbrances.  The  Consumables  located  at each  Retained  Facility  as of the
Effective Date and included in the personal  property  being  transferred by the
Mariner  Entities  pursuant to Section 3.2 are sufficient for at least three (3)
days' operations at such Retained Facility as currently operated,  which reserve
is typical and otherwise in accordance  with sound  business and care  practices
for such Retained Facilities.

         9.6  Required  Consents.   No  material  consent,   approval  or  other
authorization  of, or  registration,  declaration  or filing with,  any court or
governmental  agency or  commission  which has not been  heretofore  obtained or
which will not be obtained  prior to the Effective  Time is required for the due
execution,  delivery or performance  of this Agreement and the other  Settlement
Documents,  the  assignments  and  conveyances  contemplated  hereby  or for the
validity or enforceability thereof against any of the Mariner Entities.

                                      -19-
<PAGE>

         9.7 No Third Party Payor Actions. To the best of their knowledge, there
are  no  actions,  proceedings,  investigations  or  audits  claims,  orders  or
settlement agreements pending or threatened against any of the Mariner Entities,
before or by any court, arbitrator,  administrative agency or other Governmental
Authority or Third Party Payor or its agent, including,  without limitation, any
action, proceeding,  investigation, audit, claim, order, or settlement agreement
likely to result in a Third Party  Payor  suspending,  withholding,  or reducing
payments to any of the  Facilities  for services  after the  Effective  Time, in
order to recoup,  offset,  or  otherwise  secure for  overpayments  or penalties
claimed  to be owed by a Mariner  Entity,  or to secure  the  payment  of fines,
penalties, interest, or other costs in connection therewith, which are expected,
in the  reasonable  judgment  of the  executive  officers  of any of the Mariner
Entities,  to  materially  and  adversely  affect  the  assets or the  financial
condition  or  operations  of any of the  Retained  Facilities,  or the  Mariner
Entities' ability to carry out the transactions  contemplated in this Agreement,
and except as otherwise  disclosed in writing to the SNH Entities within fifteen
(15) Business Days of the execution hereof.

         9.8 No Violations.  The execution and delivery of this  Agreement,  the
compliance with the provisions  hereof and the  consummation of the transactions
herein  contemplated by each of the Mariner  Entities,  will not result in (a) a
breach or violation of (i) any material law or  governmental  rule or regulation
now in effect and applicable to any of the Mariner Entities,  (ii) any provision
of the Articles of Organization, Certificate of Incorporation, or By-laws of any
of the  Mariner  Entities,  (iii) any  judgment,  order or decree of any  court,
arbitrator,  administrative agency or other Governmental  Authority binding upon
any of the Mariner  Entities,  (iv) any  agreement or instrument to which any of
the  Mariner  Entities  is a party  and by which  it is  bound  as a  debtor  in
possession or by which it or any of its properties is bound, or (b) the creation
of any lien, claim or encumbrance  (other than the Permitted  Encumbrances) upon
any of the Retained Facilities.

         9.9  Condition  of  Retained  Facilities.  As to each  of the  Retained
Facilities  (but,  in the case of the Subleased  Facilities,  to the best of the
knowledge of the Mariner  Entities (as such Subleased  Facilities  are, and have
been, operated by the Subtenants)):

                  (a) Each  Retained  Facility and its  operation and use are in
         compliance with all material municipal, county, state and federal laws,
         regulations,  ordinances,  standards and orders and with all municipal,
         health,  building and zoning laws and regulations  (including,  without
         limitation, the fire safety code) where the failure to comply therewith
         could  reasonably be anticipated  to have a material  adverse effect on
         the business, property, condition (financial or otherwise) or operation
         of the  Retained  Facility  as it is  presently  being  operated or the
         ability to obtain any Necessary License (as such term is defined in the
         Interim Management Agreement);

                  (b) There are no outstanding  material  deficiencies  cited by
         any  Governmental  Authority  having  jurisdiction  over  any  Retained
         Facility requiring  conformity to any applicable  statute,  regulation,
         ordinance or bylaw  pertaining to the type of facility  presently being
         operated;

                                      -20-
<PAGE>

                  (c) No  claim,  requirement  or  demand  has been  made by any
         licensing or certifying agency supervising or having authority over any
         Retained  Facility to  construct or install  improvements  to or on, or
         otherwise  alter or  redesign,  such  Retained  Facility  or to provide
         additional  furniture,  fixtures,  equipment  or  Consumables  so as to
         conform to or comply with any existing law, code or standard  which has
         not been fully satisfied prior to the date hereof;

                  (d) There exists no material  defect or deficiency with regard
         to  the  structure,  soil,  fixtures,   plumbing,  septic,  electrical,
         mechanical  or other  systems  of any  Retained  Facility  which  would
         materially impair the use or value of such Retained Facility,  and each
         Retained  Facility  is in good  repair  and  working  order  and is not
         subject to any substantial deferred maintenance; there is no termite or
         other  infestation  at any  Retained  Facility  and  there is not earth
         subsidence or earth  movement  affecting  any Retained  Facility or the
         property on which it is situated; and

                  (e)  Except as set forth in  Schedule  9.9(e),  each  Retained
         Facility is duly and properly  licensed under all  applicable  federal,
         state and local laws,  ordinances  and  regulations  and in conformance
         with all insurance  requirements  and requirements of Third Party Payor
         Programs,  and holds all other  Permits and approvals  issued,  and has
         satisfied all eligibility and other similar  requirements  imposed,  by
         hospital, health or similar regulatory bodies,  administrative agencies
         or other governmental bodies,  agencies or officials, or that relate to
         all  Third  Party  Payor  Programs  or other  private  or  governmental
         programs  for the  reimbursement  or  payment  of health  care costs or
         charges to provide the  services and operate the number of beds at such
         Retained  Facility as described in Schedule 9.5 in the ordinary  course
         of business  consistent  with past  practices.  Other than the Approval
         Order and the Chase  consents  required as provided in Section 6.13 and
         Section 6.15 hereof,  no consents,  approvals or other  authorizations,
         registrations,  declarations  or filings,  except those with respect to
         which  application has heretofore been made and received,  or will have
         been so received by the Effective  Time,  are required for the transfer
         of  the  property  to the  SNH  Entities  and  the  other  transactions
         contemplated by this Agreement,  including, without limitation, Article
         3, Article 4 and Article 10 hereof,  and for the Approval Order.  There
         is no action  pending  or  recommended  or  threatened  by any state or
         federal agency having jurisdiction thereof,  either to revoke, withdraw
         or suspend any license to operate any Retained  Facility,  nor is there
         any decision or threat, or action, pending,  recommended or threatened,
         not to renew or to revoke any  Medicare  or Medicaid  certification  or
         Provider Agreements related to any Retained Facility,  or any action of
         any other  type  which  would  have a  material  adverse  effect on any
         Retained  Facility,   its  operations  or  business.  No  liability  or
         obligations with respect to any matters referred to herein is being, or
         shall be deemed to have been, assumed by SPTMNR or by any SNH Entity.

                  (f) As to the  property  on which each  Retained  Facility  is
         located:

                           (i) the Mariner Entities have not received any notice
                  that any buildings and  improvements  on the property have not
                  been  constructed in

                                      -21-
<PAGE>

                  compliance  with  the   requirements  of  all  material  laws,
                  ordinances,  rules,  regulations  and  restrictions  of record
                  applicable  thereto, or that any bills for labor and materials
                  in connection with the construction thereof have not been paid
                  in full or provided for;

                           (ii)  there  has  been  no  material  damage  to  the
                  buildings  and   improvements   on  the   property,   and  all
                  improvements are insured for full replacement value;

                           (iii) all public  utilities or adequate and complying
                  private septic systems,  including, but not limited to, water,
                  sewer,  gas and  electricity,  to the extent necessary for the
                  operation  of the  property,  are  available  to  service  the
                  property  and  are  adequate  for  the  intended  use  of  the
                  property;

                           (iv) all Permits  which are  necessary  to permit the
                  use of the property in accordance  with the provisions of this
                  Agreement and the transactions  contemplated thereby have been
                  obtained and are in full force and effect,  and there has been
                  no actual or claimed  violations  of the terms and  conditions
                  thereof;

                           (v)  to the  best  of the  knowledge  of the  Mariner
                  Entities, no Hazardous Substance,  including,  but not limited
                  to, asbestos,  PCB's or ureaformaldehyde,  has been generated,
                  released  into,  stored or deposited  over,  upon or below the
                  property,  into any water  systems on or below the  surface of
                  the property,  or in any  structures  located on the property,
                  including,  without limitation, the Retained Facilities,  from
                  any sources  whatsoever,  except  such as are used,  stored or
                  disposed of in full compliance  with all applicable  statutes,
                  regulations and rules pertaining thereto; and

                           (vi) no Mariner  Entity has entered into,  nor is the
                  property subject to, any option, lease, claim for occupancy or
                  other  agreement  other than as contemplated by this Agreement
                  (other than the Subleases).

         9.10 Non-Foreign Status. No Mariner Entity is a "foreign person" within
the meaning of Section 1445(f) of the Internal Revenue Code.

         9.11  Filing of Reports and Claims.  Each of the Mariner  Entities  has
filed with all  applicable  Third Party Payor Programs all required cost reports
and claims for payment with respect to each of the Retained Facilities. All such
reports  and claims for  payment  have been  prepared  and  retained in material
compliance  with all applicable  governmental  and program  statutes,  rules and
regulations and are true and correct in all material  respects.  All services to
which such cost  reports and claims  relate  have been at all times  provided in
material compliance with all applicable governmental and program statutes, rules
and  regulations.  The Mariner  Entities have retained all records  necessary to
document that all facility  services have been provided as claimed.  Each of the
Mariner Entities has paid or simultaneously with the Closing shall have paid any
liabilities  assessed  against  it or any of its  assets  under any

                                      -22-
<PAGE>

regulation,  claim, settlement agreement,  judgment, order, decree or regulation
of any  administrative  agency,  Third Party Payor,  Third Party Payor  Program,
court or arbitrator to which it may be subject, in each case, to the extent that
such liabilities are enforceable  against the Mariner Entities in their capacity
as debtors in possession.

         9.12 Patient Trust  Accounts.  There are no  deficiencies in any of the
Patient Trust  Accounts held for the benefit of residents of any of the Retained
Facilities. Each Mariner Entity has at all times properly prepared and filed all
accountings for Patient Trust Accounts  required by applicable law or reconciled
and rectified any improperly prepared or filed accountings.

         9.13 List of Patients.  On or prior to the Effective  Time, each of the
Mariner  Entities  shall  provide the SNH Entities with an accurate and complete
list of the  residents  of each of the  Retained  Facilities  and the Persons or
Third Party Payor Programs responsible for payment of their charges.

         9.14  Contracts.  No  Mariner  Entity  is a party  to,  and none of the
Retained  Facilities  is  subject  in any way to,  any  contract,  agreement  or
arrangement,  written  or oral with any other  Mariner  Entity,  any  directors,
partners,  shareholders  or officers of any Mariner  Entity,  any  affiliate  or
subsidiary of any Mariner  Entity,  any third party  affiliated  with any of the
foregoing, or with any employees,  consultants, advisors or agents of any of the
foregoing,  with respect to: (i) any plan,  contract,  agreement or arrangement,
written  or  oral,   providing   for  bonuses,   pensions,   options,   deferred
compensation,  termination or severance pay, retirement payments, profit sharing
or the like that could  create any  liability or  obligation  for any of the SNH
Entities;  (ii) any contract or agreement  involving any joint venture or profit
sharing  arrangement with respect to any Retained Facility;  (iii) any option or
right  of  first  refusal  with  respect  to any  Retained  Facility;  (iv)  any
noncompetition  agreement or similar restrictive  covenant;  (v) any contract or
agreement entered into outside the ordinary course of business and affecting the
assets,  business,  prospects,  operation or financial condition of any Retained
Facility that is enforceable  against the Mariner  Entities in their capacity as
debtors in possession.

         9.15 Labor Unions,  Etc. Except as set forth in Schedule 9.15,  neither
any Mariner  Entity,  nor any  Retained  Facility is a party to any  contract or
agreement  with  a  labor  union,   including  without  limitation,   collective
bargaining  or  employment  agreements,  or  any  agreements  that  contain  any
severance or termination pay liabilities that is enforceable against the Mariner
Entities in their capacity as debtors in possession.

         9.16 Employment  Matters.  Except as set forth in Schedule 9.16,  there
are no wages, salaries,  vacation,  holiday, sick pay or severance pay due or to
become due any  employee of any Mariner  Entity  relating to, or arising out of,
such employee's  employment at any Retained Facility prior to the Effective Time
that is enforceable against the Mariner Entities in their capacity as debtors in
possession.

                                      -23-
<PAGE>

         9.17 No  Litigation.  Except  for the Cases,  there is no suit,  claim,
action,   or  legal,   administrative,   arbitration  or  other   proceeding  or
governmental or Third Party Payor investigation or audit pending, or to the best
knowledge of each Mariner  Entity,  threatened by or against any Mariner Entity,
or any of the  Facilities,  and no event or  condition of any  character,  which
could  prevent  the  consummation  of  the  transactions  contemplated  by  this
Agreement or adversely affect the SNH Entities' use or enjoyment of the Retained
Facilities or diminish the value of such  properties  has, to the best knowledge
of each of the Mariner Entities, occurred; and there are no judgments,  decrees,
orders,  ruling,  writs or  injunctions,  against any Mariner Entity which could
adversely  affect the  operations  or finances of the Retained  Facilities,  the
property on which each is situated, or the transactions contemplated herein.

         9.18  Insurance.  Each Mariner  Entity has  maintained  or caused to be
maintained  insurance  since  commencement  of its  operations  at  each  of the
Retained  Facilities,  without any interruption of coverage,  against liability,
loss  or  casualty  on all  aspects  of  each  Retained  Facility's  operations,
including, but not limited to, its assets, personnel,  employees, and residents,
as well as  appropriate  malpractice  insurance.  The insurance  policies  which
currently provide the foregoing  insurance  coverage are listed and described in
Schedule 9.18.

         9.19 Subleases.  To the best of the knowledge of the Mariner  Entities,
(i) no Mariner  Entity has received any notice from any Subtenant  purporting to
exercise any right to renew or extend the term of any Sublease, (ii) the list of
Subleases and other  documents  contained in Schedule  9.19  attached  hereto is
true, complete and accurate, includes all amendments thereto and constitutes the
entire  agreement  between the Mariner  Entities and the Subtenants  thereunder,
including,  without  limitation,  any financing  agreements  and all  agreements
entered into between the Mariner  Entities and the Subtenants and any promissory
notes  executed and  delivered in  connection  therewith,  and (iii) the Mariner
Entities have provided the SNH Entities with complete and accurate copies of all
documents  and  correspondence  relating  to the  Subleases  that  are in  their
possession.

         9.20 Brokerage. Each of the Mariner Entities represents that it has not
used the services of any broker or finder in  connection  with the  transactions
contemplated  by this Agreement and each of the Mariner  Entities will indemnify
and hold harmless the SNH Entities from and against all claims,  actions, causes
of action, costs,  expenses,  including attorneys' fees, and liabilities arising
in or out of, or related to any broker or finder  claiming any  compensation  or
fee by reason of an alleged  agreement or understanding  with any of the Mariner
Entities.

         9.21 Knowledge and Expertise.  Each of the Mariner Entities  represents
that it has the knowledge  and  expertise in financial  and business  matters to
enable it to evaluate the risks and merits of the  transactions  contemplated by
this Agreement.

                                      -24-
<PAGE>

                                   ARTICLE 10

              CERTAIN MATTERS RELATING TO TRANSITION OF PROPERTIES

         10.1 Employees; Employee Benefits.

         10.1.1 After the Effective Time and subject to the terms of the Interim
Management  Agreement,  the Mariner Entities shall employ qualified nursing home
administrators who shall be responsible for the functional  day-to-day operation
of the  Retained  Facilities  and  supervision  of  personnel  at  the  Retained
Facilities,  as well  as all  on-site  professional,  custodial,  food  service,
cleaning,   maintenance,   clerical,   secretarial,   bookkeeping,   management,
collection,  and other  employees for the day-to-day  operations of the Retained
Facilities.  All such  administrators  and other personnel shall be employees of
the Mariner Entities.

         Notwithstanding  the foregoing,  the New Manager shall offer employment
to all or substantially  all of the qualified  nursing home  administrators  and
other  employees at the Retained  Facilities as soon after the Effective Time as
is reasonably practicable.  The Mariner Entities acknowledge that the ability of
the New Manager to make any such offer is contingent  upon the  employees  being
employable  under state and Federal law and may be subject to the New Operators'
or New Manager's receipt of all licenses,  permits,  approvals,  authorizations,
provider  agreements,  and  certificates  and  determinations  of  need  as  are
necessary for the New Operators and the New Manager to operate the Facilities as
licensees and to receive  Medicare and Medicaid  reimbursement  for the services
provided  therein,  and that in any event the New  Manager  will  first  have to
implement an appropriate  accounting and payroll function.  The Mariner Entities
further  acknowledge that the New Manager may not hire all such employees on the
same date or at the same time. The Mariner  Entities agree to cooperate with the
New  Manager in  connection  with such offers of  employment  and to release any
personnel  to  whom  the New  Manager  offers  employment  from  any  employment
agreements,  non-competition,  non-solicitation and non-disclosure agreements or
common law obligations relating to their employment with the Mariner Entities to
which they may be a party or subject.

         10.1.2  Payroll and payroll  related  costs shall be prorated as of the
Effective Time.

         In addition, the Mariner Entities shall pay to the New Manager for each
Facility an amount of cash  equivalent to all Employee  Accruals with respect to
such Retained Facility at the Effective Time and, in connection  therewith,  the
SNH Entities shall assume the Mariner Entities' obligation to pay the same.

         AMS Properties,  GCIHCC, or the New Manager,  as the case may be, shall
pay all payroll and payroll related costs, and maintain, prepare and process all
employee  payroll records and tax withholding  filings,  relating to, or arising
out of, any employee's employment from and after the Effective Date, as provided
in the Interim Management Agreement.

                                      -25-
<PAGE>

         The  Mariner  Operator  of  each  Retained  Facility  shall,  as of the
Effective Time,  deliver to the New Manager all personnel  records for employees
at such Retained Facility.  Each Mariner Operator shall have the right to retain
copies  of any  files  which  are  delivered  to the New  Manager.  The  Mariner
Operators,  the New  Operators  and the New  Manager,  as the case may be,  each
further  acknowledge  and agree that, in order to facilitate the  application of
the proration  provisions of this Section 10.1, they shall generate  terminating
payrolls and make  corresponding  payments to employees with respect thereto for
each  Retained  Facility  on both the  Effective  Date and the date that the New
Manager  shall hire all or  substantially  all of the employees at such Retained
Facility.

         10.2 Prorations.

                  10.2.1  Revenues and expenses  pertaining to Contracts (to the
extent  applicable),  utility  charges  for the  billing  period  in  which  the
Effective Time occurs,  prepaid expenses,  real estate taxes, municipal charges,
payroll,  Employee  Accruals and Employee  Benefits and other  related  items of
revenue or expense  attributable  to any  Retained  Facility  shall be  prorated
between the Mariner  Operator  for such  Retained  Facility and the relevant New
Operator as of the Effective Time. In general,  such prorations shall be made so
as to reimburse such Mariner  Operator for prepaid expense items,  and to charge
the relevant  Mariner Operator for prepaid revenue items, to the extent that the
same are attributable to periods after the Effective Time.

                  10.2.2  All  such  prorations  shall  be made on the  basis of
actual days elapsed in the relevant  accounting or revenue period and (i) in the
case of utility charges, real estate taxes, municipal charges, payroll, Employee
Accruals and Employee  Benefits,  shall be calculated  and paid at the Effective
Time as provided  in Section  10.2.3  hereof,  based on  invoices,  remittances,
statements and other information available with respect to such charges, and, if
such invoices,  remittances,  statements and other information are not available
with  respect to such  charges,  on  estimates  based on prior  charges for such
items,  (ii) in the case of all Contracts (to the extent  applicable)  and other
items of revenue or expense  attributable  to any  Retained  Facility,  shall be
calculated  and paid on the date that is the sixtieth  (60th) day (the  "True-Up
Time") after the Effective Time, as provided in Section 10.2.3 hereof,  based on
invoices,  remittances,  statements  and other  information  then available with
respect to such charges,  and, if such  invoices,  remittances,  statements  and
other  information  continue to be unavailable with respect to such charges,  on
estimates  based on prior  charges for such items,  and (iii) to the extent that
any  prorations for payments and charges  outlined in the preceding  clauses (i)
and (ii) are based on estimates, the SNH Entities and the Mariner Entities agree
to reconcile the  estimates for such items against the actual costs  therefor by
no later than  September  30, 2000.  The SNH  Entities and the Mariner  Entities
agree  that the  calculation  of the  proration  at the  True-Up  Time  shall be
performed by Ernst & Young U.S.  LLP and that they shall each pay fifty  percent
(50%) of the cost therefor. Notwithstanding anything contained in this Agreement
to the contrary, the SNH Entities shall be obligated to make payment for amounts
it collects on account of any prorations paid to the SNH Entities by the Mariner
Entities in accordance with this Section 10.2.

                  10.2.3 The  accounts of the Mariner  Entities and SNH Entities
created pursuant hereto shall be netted against each other. If (i) the result is
a net positive balance for the

                                      -26-
<PAGE>

Mariner Entities,  the SNH Entities shall pay to the Mariner Entities the amount
of such  balance by  corporate  check,  and (ii) if the result is a net positive
balance  for the SNH  Entities,  the  Mariner  Entities  shall pay to SPTMNR the
amount of such balance by corporate check.

                  10.2.4  There  shall  be no  prorations  with  respect  to the
Transferred  Facilities  (other  than with  respect  to rent and  other  amounts
payable  under the  Master  Lease),  as all such  expenses  with  respect to the
Transferred  Facilities are the  responsibility of the Mariner Entities prior to
the Effective Time, as lessee under the Master Lease,  and thereafter,  as owner
of the Transferred Facilities.

         10.3 Accounts  Receivable.  From and after the Effective  Time, (i) the
New Operators shall, to the extent permitted by applicable law, own all accounts
receivable  which  relate  to or arise  out of  services  provided  by or at the
Retained Facilities from or after the Effective Time (the "Post-Effective A/R"),
(ii)  the  Mariner   Operators   shall  make  and  effect   collections  of  all
Post-Effective  A/R,  (iii)  the  Mariner  Operators  shall  establish  new bank
accounts (the "New A/R  Accounts") in the name of each Mariner  Operator at such
local banks to be agreed upon by the SNH Entities and the Mariner Entities,  and
shall  instruct all Third Party Payors and other Persons that  directly  deposit
monies into the existing  bank  accounts  (the  "Existing  A/R  Accounts")  with
respect to the Retained Facilities to terminate such direct deposit and commence
depositing such monies into the New A/R Accounts from and after the date that is
sixty (60) days after the  Effective  Time (the "Account  Transfer  Time") or as
soon as is  practicable  thereafter  (and the Mariner  Entities  shall take such
further  action as may be reasonably  necessary to cause such Third Party Payors
and other Persons to comply with such  instructions  so that all  Post-Effective
A/R are deposited into the New A/R Accounts from and after the Account  Transfer
Time or as soon as is practicable thereafter),  (iv) the Mariner Operators shall
continue to endorse and deposit all monies,  checks, drafts or other instruments
or items  received as payment  for any  Post-Effective  A/R with  respect to any
Facility into the Existing A/R Accounts until the Account Transfer Time, (v) the
Mariner Operators shall endorse and deposit all monies,  checks, drafts or other
instruments  or items  received as payment for any  Post-Effective  A/R from and
after the Account Transfer Time into the New A/R Accounts,  (vi) within five (5)
days of the New Operators request therefor (but no sooner than the SNH Licensing
Date),  the Mariner  Operators  shall assign,  set over and transfer the New A/R
Accounts to the New Operators, and (vii) the Mariner Entities shall disburse all
proceeds  attributable  to  Post-Effective  A/R  deposited  in the  Existing A/R
Accounts or the New A/R  Accounts or  otherwise  received or held by the Mariner
Entities to the SNH  Entities  (or to such other  Person as the SNH Entities may
direct) within five (5) days of the Mariner Entities' receipt thereof.

         The SNH Entities and the Mariner  Entities  acknowledge  and agree that
(i) the Mariner  Entities  shall continue to own all accounts  receivable  which
relate to or arise out of  services  provided by or at the  Retained  Facilities
prior to the Effective Time (the "Pre-Effective A/R"), (ii) the Mariner Entities
shall be entitled  to retain all  proceeds  attributable  to  Pre-Effective  A/R
deposited  in the  Existing  A/R  Accounts or the New A/R  Accounts or otherwise
received  or held by the  Mariner  Entities,  and (iii) the SNH  Entities  shall
disburse  to the  Mariner  Entities  (or to

                                      -27-
<PAGE>

such other Person as the Mariner Entities may direct) all such Pre-Effective A/R
within five (5) days of the SNH Entities' receipt thereof.

         10.4 No Assumption  of  Liabilities.  Notwithstanding  anything in this
Agreement or elsewhere to the  contrary,  no SNH Entity is assuming,  and no SNH
Entity shall be  responsible  for, any  liability of any kind or nature  whether
known or unknown, absolute, mature or not yet due, liquidated or non-liquidated,
contingent,  non-contingent,  direct or  indirect or  otherwise,  of any Mariner
Entity or any other person for:

                  (a) Any costs or  expenses,  including,  but not  limited  to,
         legal fees, accounting fees, consulting and financing costs incurred by
         any Mariner Entity in negotiating this Agreement or in consummating the
         transactions contemplated hereby;

                  (b) Any claim as a result of any injury to any person  arising
         out of the  rendering  of or failure to render  services by any Mariner
         Entity or its or his employees,  agents or representatives or any other
         person  performing  services for or on behalf of any Mariner Entity (i)
         with respect to the Retained  Facilities,  prior to the Effective  Time
         and,  subject to, and upon the terms and  conditions  contained  in the
         Interim Management  Agreement,  after the Effective Time, and (ii) with
         respect to the  Transferred  Facilities or any other  operations of the
         Mariner Entities (except as otherwise expressly set forth herein), both
         prior to, and after, the Effective Time;

                  (c) Any liability to set off or recoupment  (including set off
         or recoupment against  Post-Effective Time accounts  receivable) by any
         Third Party Payor by reason of any contractual claim, settlement, order
         or  judgment   retroactively   adjusting   the   amounts   payable  for
         reimbursement purposes or recovering overpayments made or requiring the
         payment of fines,  penalties or damages,  or  reduction of  prospective
         payments to any Facility or  interest,  with respect to, or based upon,
         the  services  rendered by any Mariner  Entity (i) with  respect to the
         Retained  Facilities,  prior to the Effective Time and, subject to, and
         upon the terms  and  conditions  contained  in the  Interim  Management
         Agreement,  after the  Effective  Time,  and (ii) with  respect  to the
         Transferred  Facilities  or other  operations  of the Mariner  Entities
         (except as otherwise  expressly set forth  herein),  both prior to, and
         after, the Effective Time, including  liabilities that are subject to a
         stay ordered by the Court and liabilities that may be collected against
         the New Operator under state or Federal law;

                  (d) Any taxes owed by any Mariner Entity,  including,  but not
         limited  to, any  investment  tax  recapture,  depreciation  recapture,
         employer taxes such as F.I.C.A.  and F.U.T.A.,  any sales or use taxes,
         any personal  property taxes,  any  withholding  taxes and any workers'
         compensation or unemployment  insurance premiums or adjustments and, in
         the case of any Mariner  Entity's  employees or any of its  affiliates'
         employees,  relating to, or arising out of, such employee's  employment
         at any Retained  Facility prior to the Effective Time; and with respect
         to the  Transferred  Facilities  or  other  operations  of the  Mariner
         Entities, both prior to, and after, the Effective Time;

                                      -28-
<PAGE>

                  (e) Any claim by any employee of any Mariner Entity for wages,
         salary,  vacation,  holiday,  sick pay,  welfare,  or fringe  benefits,
         relating to, or arising out of, such employee's employment prior to the
         Effective Time,  except for those Employee  Accruals assumed by the New
         Manager  pursuant  to  Section  10.1  hereof  and with  respect  to the
         Transferred  Facilities  or other  operations  of the Mariner  Entities
         (except as otherwise  expressly set forth  herein),  both prior to, and
         after, the Effective Time;

                  (f)  Any  claim  arising  under  any  instrument,   agreement,
         indenture,  contract or  understanding to which any Mariner Entity is a
         party or by which  it or any of its  property  is  bound,  unless  such
         instrument,   agreement,   indenture,   contract  or  understanding  is
         explicitly  described  and  affirmed and assumed by the SNH Entities in
         this  Agreement  or is  otherwise  expressly  affirmed  and  assumed by
         separate instrument in writing executed by SPTMNR; or

                  (g) Any claim,  order or judgment otherwise arising out of the
         operation of any Facility or other  operations of the Mariner  Entities
         (except  as  otherwise  expressly  set forth  herein  but  specifically
         including any claim,  order or judgment  arising  under any  applicable
         Federal,  state  or  local  statutes,   laws,  ordinances,   rules  and
         regulations,  licensing  requirements or conditions (including Medicare
         or Medicaid  requirements or conditions,  and  environmental  laws), or
         involving the imposition of any lien under any applicable law), in each
         case to the extent  arising or  attributable  to  conditions  or events
         occurring prior to the Effective  Time,  and,  subject to, and upon the
         terms and  conditions  contained in the Interim  Management  Agreement,
         after the  Effective  Time,  and (ii) with  respect to the  Transferred
         Facilities  or other  operations  of the  Mariner  Entities  (except as
         otherwise  expressly set forth herein),  both prior to, and after,  the
         Effective Time.

         10.5  Indemnification.  Without  limiting  any of the  foregoing,  each
Mariner Entity agrees,  on a joint and several basis,  to indemnify,  defend and
hold  harmless,  the SNH Entities,  and their  respective  officers,  employees,
directors,  trustees,  managers, members, consultants and advisors, any of their
respective successors or assigns (individually an "Indemnitee") from and against
the following (collectively,  "Damages"): (i) all Pre-Closing Obligations or any
contravention or  non-compliance  with the Approval Order, and associated claims
or liability, and all other liabilities,  losses, damages, costs and expenses of
any kind (including,  without limitation,  the reasonable fees and disbursements
of  counsel  for  the  SNH  Entities  in  connection  with  any   investigative,
administrative  or  judicial  proceeding  arising  out of the  operation  of any
Facility or other operations of the Mariner Entities (including any violation or
alleged  violation of any and all applicable  Federal,  state or local statutes,
laws, ordinances,  rules and regulations,  licensing requirements or conditions,
or involving the imposition of any lien under any such applicable law)) prior to
the Effective Time or for any contravention or non-compliance  with the Approval
Order, (ii) any and all liabilities,  losses, damages, costs and expenses of any
kind arising out of either a breach, default,  contravention,  non-compliance by
any Mariner Entity of its obligations under this Agreement or the Approval Order
(including  the  failure  of any  representation  by any  Mariner  Entity  to be
accurate and complete on the date when made or deemed made),  or the enforcement
of such  obligations,  and (iii) the existence,  prior to the Effective Time, of
any Hazardous  Substance  on, in, or under any Retained  Facility (to the

                                      -29-
<PAGE>

extent provided for in the Master Lease). The SNH Entities shall, in addition to
any other rights,  be entitled to payment in compensation  for any of the above,
holding allowed administrative period claims for all such payments due thereon.

         10.6 Post-Effective Time Liabilities (Retained Facilities). Each of the
SNH Entities  acknowledges  and agrees that,  subject to, and upon the terms and
conditions contained in the Interim Management Agreement, the New Manager and/or
the New  Operators  shall  indemnify  the Mariner  Entities from and against all
costs,  expenses and liabilities  arising out of the operation,  maintenance and
management of the Retained Facilities after the Effective Time, except for those
costs,  expenses and liabilities  arising out of the gross negligence or willful
misconduct of any of the Mariner Entities.

         10.7 Financial  Records,  Etc. Each of the SNH Entities and the Mariner
Entities  agree that they shall provide such other party access to the books and
records and other financial information maintained by such party with respect to
the operation of the  Facilities  (both before and after the Effective  Time) as
such party may reasonably  request.  The Mariner  Entities shall provide the SNH
Entities and their  accountants  with such  certifications  with respect to such
financial  information  as the SNH  Entities  may from  time to time  reasonably
request.

         10.8 Contracts. The Mariner Entities acknowledge that the New Operators
may desire to assume certain of the Contracts and, in connection therewith,  the
Mariner  Entities agree that they shall (i) within fifteen (15) Business Days of
the  execution  hereof,  provide the SNH  Entities  with a complete  list of the
Contracts  and  the  status  thereof  (including,  without  limitation,  amounts
outstanding under such Contracts  (including those amounts  outstanding prior to
the  Petition  Date)),  (ii)  assist in the New  Operators'  evaluation  of such
Contracts by providing  such  information  as the New  Operators' may reasonably
request  regarding the contracting  party's  performance  thereunder,  and (iii)
subject to Bankruptcy  Court Approval,  assume and assign any Contracts that the
New Operators may elect to have the Mariner  Entities assume and assign to them,
provided  that in no event shall any Mariner  Entity be required to pay any cure
amounts,  or incur  any  additional  obligations,  under  any such  Contract  in
connection with such assumption and assignment beyond those enforceable  against
the  Mariner  Entities  in their  capacity  as debtors in  possession  (it being
intended by the  parties  hereto  that if the New  Operators  elect to cause the
Mariner  Entities to assume and assign any such Contract in accordance with this
Section  10.7,  the New Operators  will pay any cure amounts  required to effect
such assumption and assignment).

         10.9  Survival.  The  provisions  of this Article 10 shall  survive the
Closing hereunder.

                                   ARTICLE 11

                   DAMAGE TO PROPERTY FROM CASUALTY OR TAKING

         11.1 In the event of any  casualty or damage to any  Facility  prior to
the  Effective  Time (which shall not be fully  restored  prior to the Effective
Time),  all sums recovered on

                                      -30-
<PAGE>

account of such insurance shall be held in trust for the benefit of and in order
to be paid over to, and all sums  recoverable  on such account shall be assigned
to, the  appropriate SNH Entity or Mariner Entity at the Effective Time. The SNH
Entity and the Mariner Entity which owns,  leases or manages such Facility shall
execute and deliver such further instruments of assignment of insurance proceeds
and other documents (including,  without limitation,  appropriate endorsement of
checks)  as any SNH Entity or  Mariner  Entity may from time to time  reasonably
request in order to make such insurance  proceeds  payable to such SNH Entity or
Mariner Entity.

         11.2 In the event that prior to the  Effective  Time any portion of any
Retained  Facility  shall be taken or shall be  threatened  with a taking by any
exercise of the right of eminent domain, or any portion of any Retained Facility
shall  sustain any direct or  consequential  damage for which the owner  thereof
shall be entitled to compensation by any public  authority,  the appropriate SNH
Entity shall be entitled to bring any suit in connection with recovery  therefor
in the name of such SNH Entity or, if applicable,  any Mariner Entity,  or both,
and all sums  received  on  account  of any such  taking  or  damages  and or an
assignment  of all the  owner's  rights to  collect  damages  therefor  shall be
delivered  to the  appropriate  SNH Entity  together  with the  delivery  of the
Transaction  Documents.  The Mariner  Entities  shall  execute and deliver  such
further instruments of assignment and such other documents  (including,  without
limitation,  appropriate endorsements of checks and pleadings) as any SNH Entity
may from time to time reasonably request in connection with the foregoing.

         11.3 In the event that prior to the  Effective  Time any portion of any
Transferred  Facility shall be taken or shall be threatened with a taking by any
exercise  of the right of eminent  domain,  or any  portion  of any  Transferred
Facility  shall sustain any direct or  consequential  damage for which the owner
thereof  shall  be  entitled  to  compensation  by  any  public  authority,  the
appropriate  Mariner  Entity  shall be entitled to bring any suit in  connection
with recovery therefor in the name of such Mariner Entity or, if applicable, any
SNH  Entity,  or both,  and all sums  received  on account of any such taking or
damages  and or an  assignment  of all the  owner's  rights to  collect  damages
therefor shall be delivered to the appropriate  Mariner Entity together with the
delivery  of the  Transaction  Documents.  The SNH  Entities  shall  execute and
deliver  such  further  instruments  of  assignment  and  such  other  documents
(including,   without  limitation,   appropriate   endorsements  of  checks  and
pleadings)  as any Mariner  Entity may from time to time  reasonably  request in
connection with the foregoing.

                                   ARTICLE 12

                                    RELEASES

         12.1 Release of SNH  Entities.  Subject to, and in  consideration  for,
each SNH Entity entering into this Agreement and  consummating  the transactions
contemplated  hereby,  each Mariner Entity shall release and forever  discharge,
each SNH Entity and their respective successors,  assigns, agents, shareholders,
directors,   officers,   employees,   agents,  attorneys,  parent  corporations,
subsidiary corporations, affiliated corporations,  affiliates, and each of them,
from  any and all  claims,  debts,  liabilities,  demands,  obligations,  costs,
expenses, actions

                                      -31-
<PAGE>

and causes of action, of every nature and description, whether known or unknown,
absolute,  mature,  or not yet due,  liquidated or  non-liquidated,  contingent,
non-contingent,  direct or indirect or otherwise,  which any Mariner  Entity now
has or at any time may hold, by reason of any matter,  cause or thing  occurred,
done,  omitted or suffered to be done on or prior to the  Effective  Time.  Each
Mariner  Entity waives the benefits of any law,  which may provide in substance:
"A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of  executing  the  release,  which if
known by him must have materially affected his settlement with the debtor." Each
Mariner  Entity  understands  that the facts which it believes to be true at the
time of  making  the  release  provided  for  herein  may  later  turn out to be
different than it believes now or at the time of granting such release, and that
information which is not now or then known or suspected may later be discovered.
Each Mariner  Entity accepts this  possibility,  and each Mariner Entity assumes
the risk of the facts  turning out to be  different  and new  information  being
discovered; and each Mariner Entity further agrees that the release provided for
herein  shall in all  respects  continue  to be  effective  and not  subject  to
termination  or  rescission  because of any  difference in such facts or any new
information.

         Notwithstanding anything to the contrary contained in this Section 14.1
or  otherwise,  this release  shall only be effective on and as of the Effective
Time and specifically  only upon the  consummation of the transactions  provided
for in this Agreement and not otherwise.

         None of the  Mariner  Entities  is  releasing  any SNH Entity  from any
claims, debts, liabilities,  demands,  obligations,  costs, expenses, actions or
causes of action arising out of this Agreement,  any Settlement  Document or the
transactions  contemplated  hereby, or otherwise,  except as expressly  provided
herein.

         12.2 Release of Mariner Entities.  Subject to, and in consideration for
each  Mariner  Entity  entering  into  this  Agreement  and   consummating   the
transactions  contemplated  hereby,  each SNH Entity  shall  release and forever
discharge each Mariner Entity and their respective successors,  assigns, agents,
shareholders,   directors,   officers,   employees,  agents,  attorneys,  parent
corporations, subsidiary corporations, affiliated corporations,  affiliates, and
each of them, from any and all claims, debts, liabilities, demands, obligations,
costs, expenses,  actions and causes of action, of every nature and description,
whether known or unknown,  which any SNH Entity now has or at any time may hold,
by reason of any matter,  cause or thing occurred,  done, omitted or suffered to
be done on or prior to the Effective  Time.  Each SNH Entity waives the benefits
of any law, which may provide in substance:  "A general  release does not extend
to claims which the  creditor  does not know or suspect to exist in his favor at
the time of executing  the release,  which if known by him must have  materially
affected his settlement with the debtor." Each SNH Entity  understands  that the
facts which it  believes  to be true at the time of making the release  provided
for herein may later turn out to be  different  than it  believes  now or at the
time of granting such  release,  and that  information  which is not now or then
known or  suspected  may  later be  discovered.  Each SNH  Entity  accepts  this
possibility, and each SNH Entity assumes the risk of the facts turning out to be
different and new  information  being  discovered;  and each SNH Entity  further
agrees that the release provided for herein shall in all

                                      -32-
<PAGE>

respects  continue to be effective and not subject to  termination or rescission
because of any difference in such facts or any new information.

         Notwithstanding anything to the contrary contained in this Section 14.2
or  otherwise,  this release  shall only be effective on and as of the Effective
Time and specifically  only upon the  consummation of the transactions  provided
for in this Agreement and not otherwise.

         None of the SNH  Entities  is  releasing  any  Mariner  Entity from any
claims, debts, liabilities,  demands,  obligations,  costs, expenses, actions or
causes of action arising out of this Agreement,  any Settlement  Document or the
transactions  contemplated  hereby, or otherwise,  except as expressly  provided
herein.

         12.3 No  Further  Commitments  by SNH  Entities.  Each  Mariner  Entity
further  acknowledges that, from and after the Effective Time, no SNH Entity has
any existing commitments, obligations or agreements to advance credits or loans,
or to lease property,  or make financial or other  accommodations to any Mariner
Entity,  except  as may be  specifically  set  forth  in this  Agreement  or the
Settlement Documents.

                                   ARTICLE 13

                               GENERAL PROVISIONS

         13.1 MUTUAL  WAIVER OF RIGHT TO JURY TRIAL.  EACH PARTY  HERETO  HEREBY
WAIVES  THE  RIGHT TO TRIAL BY JURY IN ANY  ACTION  OR  PROCEEDING  BASED  UPON,
ARISING OUT OF, OR IN ANY WAY  RELATING  TO: (I) THIS  AGREEMENT,  OR ANY OF THE
AGREEMENTS,  INSTRUMENTS  OR  DOCUMENTS  REFERRED  TO HEREIN;  OR (II) ANY OTHER
PRESENT OR FUTURE  INSTRUMENT  OR AGREEMENT  BETWEEN OR AMONG THEM; OR (III) ANY
CONDUCT,  ACTS OR  OMISSIONS  OF ANY  PARTY  HERETO  OR ANY OF THEIR  DIRECTORS,
TRUSTEES, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED
WITH THEM; IN EACH OF THE FOREGOING CASES,  WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.

         13.2  Survival.  Except as otherwise  provided by this  Agreement,  all
covenants,  agreements,  representations  and  warranties  made by each  Mariner
Entity or SNH  Entity  herein  and in all  certificates  and  other  instruments
delivered pursuant to this Agreement shall survive the execution and delivery of
the deeds to the  Transferred  Facilities  and the  closing of the  transactions
contemplated  hereby,  and the Mariner  Entities  shall be and remain liable for
breaches of the provisions of this Agreement,  the Interim Management  Agreement
and the Interim  Occupancy  Agreements,  contravention  of the Approval Order or
otherwise  for the  period  including  the  greater  of one (1) year or the last
administrative claims bar date that is established by order of the Court (except
that the SNH Entities shall in all events remain liable to the Mariner  Entities
for the amount of any  deductible  or  self-insured  retention  amounts  paid or
payable  under Section  5.1(a) of the Interim  Management  Agreement  until such
deductible or  self-insured  retention  amounts shall have been paid). If and to
the extent the  Mariner  Entities

                                      -33-
<PAGE>

shall emerge from the Cases pursuant to a confirmed plan of reorganization prior
to the expiration of such period, then the obligations  provided herein shall be
a continuing  obligation of the reorganized Mariner Entities for the duration of
such period and any plan confirmed in the Cases shall so provide.

         13.3 Notices. All notices,  demands and other communications  hereunder
shall be in  writing  and  delivered,  telegraphed  or mailed  (by  first  class
registered or certified mail, postage prepaid) addressed as follows:

                  (a)      if to an SNH Entity:

                           c/o SENIOR HOUSING PROPERTIES TRUST
                           400 Centre Street
                           Newton, MA  02458
                           Attention: Treasurer

                  (b)      with copy to:

                           SULLIVAN & WORCESTER LLP
                           One Post Office Square
                           Boston, MA 02109
                           Attention:  Nancy S. Grodberg, Esq.

                  (c)      if to any Mariner Entity:

                           MARINER POST-ACUTE NETWORK, INC.
                           One Ravinia Drive
                           Atlanta, GA 30346
                           Attention:  Associate General Counsel

                  (d)      with a copy to:

                           Powell, Goldstein, Frazer & Murphy LLP
                           191 Peachtree Street
                           Atlanta, GA 30303
                           Attention:  Douglas S. Gosden, Esq.

or to such other  address as may  hereafter be  designated by any party for such
other purpose, and shall be effective upon receipt if hand delivered or upon the
expiration of the fifth business day after the day of mailing.

         13.4 Governing Law. This Agreement  shall be governed by,  interpreted,
construed,  applied and enforced in accordance  with the Bankruptcy Code and the
laws of the  Commonwealth  of  Massachusetts  applicable  to  contracts  between
residents  of the

                                      -34-
<PAGE>

Commonwealth  of  Massachusetts  which are to be performed  entirely  within the
Commonwealth  of  Massachusetts,  regardless  of (i)  where  this  Agreement  is
executed or delivered;  or (ii) where any payment or other performance  required
by this  Agreement is made or required to be made;  or (iii) where any breach of
any  provision  of this  Agreement  occurs,  or any  cause of  action  otherwise
accrues;  or (iv) where any action or other proceeding is instituted or pending;
or (v) the nationality,  citizenship,  domicile,  principal place of business or
jurisdiction of organization or  domestication of any party; or (vi) whether the
laws  of  the  forum  jurisdiction   otherwise  would  apply  the  laws  of  the
jurisdiction  other  than  the  Commonwealth  of  Massachusetts;  or  (vii)  any
combination of the foregoing.

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

         13.5 Successors and Assigns.  This Agreement shall be binding upon each
party thereto and its successors and assigns.  The rights and obligations of any
party  hereto  under this  Agreement  may not be  assigned  by any party  hereto
without the prior written consent of each of the parties hereto.

         13.6 Entire  Agreement.  This  Agreement,  together  with the  exhibits
hereto and such other documents as are referred to herein, constitute the entire
agreement of the parties in respect of the subject matter described herein,  and
may not be changed or modified  except by an agreement in writing  signed by the
parties hereto.

         13.7 Severability.  In case any one or more of the provisions contained
in this Agreement  should be invalid,  illegal or  unenforceable in any respect,
the validity,  legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired  thereby and the
Agreement  shall thereupon be reformed and construed and enforced to the maximum
extent permitted by law.

         13.8  Attorneys'   Fees.  If  any  legal  action  is  brought  for  the
enforcement of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
the  successful  or  prevailing  party or parties  shall be  entitled to recover
attorneys' fees and other costs incurred in that action in addition to any other
relief to which it or they may be entitled.

         13.9 Non-Disclosure.  Until this Agreement is publicly announced by SNH
(i) the  Mariner  Entities,  the SNH  Entities,  and  each  of  their  officers,
directors,  employees, agents, consultants and advisors, shall keep confidential
all terms hereof and information contained herein (except to the extent required
either (a) in  connection  with the  satisfaction  of the  conditions  contained
herein  (including,  without  limitation,  providing  such  information  to  its
creditors and their  advisors),  (b) by the Securities  Exchange Act of 1934, as
amended,  and the

                                      -35-
<PAGE>

rules and  regulations  promulgated  thereunder  (the  "Exchange  Act"),  or (c)
reporting  requirements,   if  any,  of  the  New  York  Stock  Exchange  ("NYSE
Requirements")), and (ii) neither any Mariner Entity nor any persons or entities
affiliated with any of them or their  officers,  directors,  employees,  agents,
consultants  and advisors  (within the meaning of Rule 405 under the  Securities
Act of 1933, as amended) shall trade in SNH's stock.  In addition,  each Mariner
Entity  and each SNH  Entity  shall  obtain  the  approval  of Mariner or SPTMNR
(respectively),  which approval  shall not be  unreasonably  withheld,  prior to
making any public  announcements  concerning this Agreement or the  transactions
contemplated  hereby.  Each Mariner Entity,  however,  acknowledges that SNH may
disclose  the  existence of this  Agreement  and the  transactions  contemplated
hereby in appropriate  public filings under the Exchange Act, or pursuant to the
NYSE Requirements,  and each Mariner Entity further agrees that it shall provide
such financial  statements as are available to such Mariner Entity, as SNH shall
determine  necessary  for SNH to comply with  reporting  requirements  under the
Exchange Act or NYSE Requirements, if any, with respect to this transaction.

         13.10 Required  Disclosure.  Notwithstanding  Section 13.8 hereof, each
party  hereby may and shall give all required  notices of the  existence of this
Agreement and the pending  consummation of the transactions  contemplated hereby
to any and all appropriate governmental agencies..

         13.11  LIMITATION ON LIABILITY.  THE DECLARATION OF TRUST OF SNH, DATED
DECEMBER 16, 1998, A COPY OF WHICH,  TOGETHER WITH ALL  AMENDMENTS  THERETO (THE
"SNH DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS
AND TAXATION OF THE STATE OF MARYLAND,  PROVIDES  THAT THE NAME "SENIOR  HOUSING
PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE SNH DECLARATION  COLLECTIVELY
AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY,  AND THAT NO TRUSTEE,  OFFICER,
SHAREHOLDER,  EMPLOYEE OR AGENT OF SNH SHALL BE HELD TO ANY PERSONAL  LIABILITY,
JOINTLY OR SEVERALLY,  FOR ANY OBLIGATION OF, OR CLAIM AGAINST, SNH. ALL PERSONS
DEALING  WITH SNH,  IN ANY WAY,  SHALL LOOK ONLY TO THE  ASSETS OF SNH,  FOR THE
PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

         13.12  LIMITATION ON  LIABILITY.  THE  DECLARATION  OF TRUST OF SPTMNR,
DATED JANUARY 14, 1999, A COPY OF WHICH,  TOGETHER WITH ALL  AMENDMENTS  THERETO
(THE "SPTMNR  DECLARATION"),  IS DULY FILED IN THE OFFICE OF THE  DEPARTMENT  OF
ASSESSMENTS  AND  TAXATION  OF THE  STATE OF  MARYLAND,  PROVIDES  THAT THE NAME
"SPTMNR  PROPERTIES  TRUST" REFERS TO THE TRUSTEES UNDER THE SPTMNR  DECLARATION
COLLECTIVELY  AS  TRUSTEES,  BUT NOT  INDIVIDUALLY  OR  PERSONALLY,  AND THAT NO
TRUSTEE, OFFICER, SHAREHOLDER,  EMPLOYEE OR AGENT OF SPTMNR SHALL BE HELD TO ANY
PERSONAL  LIABILITY,  JOINTLY  OR  SEVERALLY,  FOR ANY  OBLIGATION  OF, OR CLAIM
AGAINST, SPTMNR. ALL PERSONS DEALING WITH SPTMNR, IN ANY WAY, SHALL LOOK ONLY TO
THE  ASSETS OF SPTMNR,  FOR THE  PAYMENT  OF ANY SUM OR THE  PERFORMANCE  OF ANY
OBLIGATION.

                                      -36-
<PAGE>

         13.13 Costs and Expenses.  The Mariner  Entities  shall pay any and all
costs and expenses  incurred by the SNH Entities as a result of or in connection
with the transactions contemplated by this Agreement (other than attorneys' fees
of the SNH Entities),  regardless of whether such  transactions are consummated,
including,  without limitation,  (i) all taxes,  including,  without limitation,
documentary transfer taxes,  documentary stamp taxes, mortgage taxes, intangible
taxes,  sales and similar  taxes  applicable  to the  transactions  contemplated
herein together with interest and penalties,  if any, thereon, but excluding any
income  taxes of the SNH  Entities,  and (ii) all costs  relating to  surrender,
assignnment and conveyances contemplated hereby, including,  without limitation,
title  reports,  all costs  relating  to owner's  or  lender's  title  insurance
commitments and policies, and all costs and charges related to recording fees.

         13.14  Confidentiality.  The  parties  agree not to  disclose or permit
their  respective  representatives,  attorneys,  auditors or agents to disclose,
except as may be required by law or  performance  hereunder,  any  confidential,
non-public  information  of the  others  which  is  obtained  by any of  them in
connection with the transactions contemplated by this Agreement.

         13.15 Reservation of Rights. Each party hereto acknowledges that it and
the other parties hereto have entered into this Agreement in order to settle and
compromise  certain  potential  claims  between  them and  that  the  execution,
delivery  and  performance  of this  Agreement  by the parties  hereto is not an
admission of any party's obligations or liabilities whatsoever. This document is
subject to the  protections  of Federal  Rule of  Evidence  408 and all  similar
provisions and supporting authorities.

         13.16  Third  Party   Beneficiaries.   This  Agreement  and  all  other
instruments  executed and delivered in  connection  herewith are not intended to
benefit any third parties, including,  without limitation, any such parties that
may have claims against any of the Mariner Entities.

                                      -37-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written and their  respective  seals to
be hereunto affixed and attested by their respective duly authorized officers.

                           SENIOR HOUSING PROPERTIES TRUST,
                           a Maryland real estate investment trust

                           By: /s/ Ajay Saini
                               David J. Hegarty, President
                               Ajay Saini, Treasurer and Chief Financial Officer

                           SPTMNR PROPERTIES TRUST,
                           a Maryland real estate investment trust

                           By: /s/ Ajay Saini
                               David J. Hegarty, President
                               Ajay Saini, Treasurer and Chief Financial Officer

                           FIVE STAR QUALITY CARE, INC.,
                           a Delaware corporation

                           By: /s/ Ajay Saini
                               Ajay Saini, Treasurer and Assistant Secretary

                           SHOPCO-AZ, LLC,
                           a Delaware limited liability company

                           By:  SENIOR HOUSING PROPERTIES TRUST,
                                a Maryland real estate investment trust,
                                   its Member

                                By: /s/ Ajay Saini
                                    David J. Hegarty, President
                                    Ajay Saini, Treasurer and
                                       Chief Financial Officer

                                      -38-
<PAGE>

                           SHOPCO-CA, LLC,
                           a Delaware limited liability company

                           By:  SENIOR HOUSING PROPERTIES TRUST,
                                a Maryland real estate investment trust,
                                   its Member

                                By: /s/ Ajay Saini
                                    David J. Hegarty, President
                                    Ajay Saini, Treasurer and
                                       Chief Financial Officer

                           SHOPCO-COLORADO, LLC,
                           a Delaware limited liability company

                           By:  SENIOR HOUSING PROPERTIES TRUST,
                                a Maryland real estate investment trust,
                                   its Member

                                By: /s/ Ajay Saini
                                    David J. Hegarty, President
                                    Ajay Saini, Treasurer and
                                       Chief Financial Officer

                           SHOPCO-WI, LLC,
                           a Delaware limited liability company

                           By:  SENIOR HOUSING PROPERTIES TRUST,
                                a Maryland real estate investment trust,
                                   its Member

                                By: /s/ Ajay Saini
                                    David J. Hegarty, President
                                    Ajay Saini, Treasurer and
                                       Chief Financial Officer

                                      -39-
<PAGE>

                           MARINER POST-ACUTE NETWORK, INC.
                           (f/k/a Paragon Health Network, Inc.),
                           a Delaware corporation

                           By: /s/ Todd Andrews
                               Name: Todd Andrews
                               Its: Vice President

                           GRANCARE, INC.
                           (f/k/a New GranCare, Inc.),
                           a Delaware corporation

                           By: /s/ Todd Andrews
                               Name: Todd Andrews
                               Its: Vice President

                           AMS PROPERTIES, INC.,
                           a Delaware corporation

                           By: /s/ Todd Andrews
                               Name: Todd Andrews
                               Its: Vice President

                           GCI HEALTH CARE CENTERS, INC,
                           a Delaware corporation

                           By: /s/ Todd Andrews
                               Name: Todd Andrews
                               Its: Vice President

                                      -40-
<PAGE>
                                 SCHEDULE 1.1.1

                    PERMITTED PERSONAL PROPERTY ENCUMBRANCES

                                      None.

<PAGE>
<TABLE>
<CAPTION>
                                             SCHEDULE 1.1.2

                                          RETAINED FACILITIES

                  Property Name                           Property Address                      Tenant
-----------------------------------------------------------------------------------------------------------
<S>                                                <C>                                     <C>

Cedars Health Care Center                           1599 Ingalls Street                     AMS Properties
                                                    Lakewood, CO

Cherrelyn Manor Nursing Home                        5555 South Elati                        AMS Properties
                                                    Littleton, CO

Christopher East Health Care Center                 1132 East Knapp Street                  AMS Properties
                                                    Milwaukee, WI 53202

Greentree Health Care Center                        70 Greentree Road                       AMS Properties
                                                    Clintonville, WI 54929

La Mesa Healthcare Center                           2470 S. Arizona Avenue                  GCIHCC
                                                    Yuma, AZ 85364

La Salette Health Care & Rehabilitation Center      537 E. Fulton                           GCIHCC
                                                    Stockton, CA 95204

Lancaster Health Care Center                        1642 West Avenue "J"                    AMS Properties
                                                    Lancaster, CA

Northwest Health Care Center                        7800 West Fond du Lac Avenue            AMS Properties
                                                    Milwaukee, WI 53218

Pine Manor Health Care Center                       East Side of County Y Highway           AMS Properties
                                                    Embarrass (Clintonville), WI

River Hills West Health Care Center                 321 Riverside Drive                     AMS Properties
                                                    Pewaukee, WI 53072

Sunny Hill Health Care Center                       4325 Nakoma Road                        AMS Properties
                                                    Madison, WI

Sunquest Village of Yuma                            265 East 24th Street                    GCIHCC
                                                    Yuma, AZ 85364

Thousand Oaks Health Care Center                    93 West Avenida de los Arobules         AMS Properties
                                                    Thousand Oaks, CA 91360

Van Nuys Health Care Center                         6835 Hazeltine Avenue                   AMS Properties
                                                    Van Nuys, CA 91405

Village Green Nursing Home                          2932 North 14th Street                  GCIHCC
                                                    Phoenix, AZ 85094

Virginia Health Care Center                         1471 Waukesha Avenue                    AMS Properties
                                                    Waukesha, WI

Woodland Health Care Center                         18740 W. Bluemound Road                 AMS Properties
                                                    Brookfield, WI

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                             SCHEDULE 1.1.3

                                          SUBLEASED FACILITIES

                Property Name                                Property Address                        Tenant
-------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                      <C>                        <C>
Huron Nursing Home:                             1251 Arizona SW          15th & Michigan            GCIHCC
Sunquest Village                                Huron, SD 57530          Huron, SD 57350

Southridge Health Care Center:                  3600 S. Norton                                      GCIHCC
Mom & Dad's Health Care Center                  Sioux Falls, SD 57105

Pacific Gardens Nursing and Rehabilitation      577 South Peach Street                              AMS Properties
Center: Pleasant Care                           Fresno, CA

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                             SCHEDULE 1.1.4

                                         TRANSFERRED FACILITIES

                Property Name                       Property Address                           Tenant
---------------------------------------------------------------------------------------------------------------
<S>                                            <C>                                         <C>
Brian Centers-Carbarrus                         250 Bishop Lane                             AMS Properties
                                                Concord, NC 28025

Brian Centers-Wilson                            2501 Downing Street Extension               AMS Properties
                                                Wilson, NC 53702

Brian Centers-Winston-Salem                     6000 Brian Center Lane                      AMS Properties
                                                Winston-Salem, NC 47106

Flagship Health Care Center                     466 Flagship Road                           AMS Properties
                                                Newport Beach, CA

Tarzana Health Care Center                      5640 Reseda Avenue (5650 Reseda Road)       AMS Properties
                                                Tarzana, CA
</TABLE>

<PAGE>
                                  SCHEDULE 2.1

                               EXISTING DOCUMENTS

1.   A Master Lease comprised of: (i) a Master Lease Document  General Terms and
     Conditions  dated as of December  28, 1990 and entered  into by and between
     Health and Retirement  Properties Trust ("HRP"),  and AMS Properties,  Inc.
     ("AMS  Properties");  (ii)  a  Master  Lease  Document  General  Terms  and
     Conditions  dated as of June 30, 1992 and  entered  into by and between HRP
     and GCI  Health  Care  Centers,  Inc.  ("GCIHCC");  (iii)  twenty-six  (26)
     facility  lease  supplements,  some of which are dated as of  December  28,
     1990, some of which are dated as of March 27, 1992, some of which are dated
     June 30,  1992 and  others of which are dated as of June 29,  1998,  all as
     entered into pursuant to the documents  described in preceding  clauses (i)
     and (ii);  and (iv)  Guaranty,  Cross-Default  and  Cross-Collateralization
     Agreement by AMS Properties and GCIHCC, dated as of June 30, 1992, pursuant
     to which AMS  Properties and GCIHCC  cross-defaulted,  cross-collateralized
     and  guaranteed  each other's  obligations to HRP., all as amended to date,
     pursuant to which AMS and GCIHCC lease  twenty-six (26) health care related
     facilities (the "Leased Facilities").

2.   A  Guaranty,  dated  as of  December  28,  1990,  from  GranCare,  Inc.,  a
     __________________ corporation ("Old GranCare") in favor of HRP pursuant to
     which all obligations of AMS Properties are guaranteed; the obligations and
     liabilities  under such Guaranty  having been assumed by GranCare,  Inc., a
     Delaware corporation ("GranCare"), pursuant to the Assumption Agreement.

3.   Memoranda of Lease,  each dated as of December 28, 1990,  March 27, 1992 or
     June 30, 1992 and recorded  with the  Registry of Deeds of the  appropriate
     county with respect to each Leased Facility.

4.   UCC Financing  Statements by AMS  Properties,  showing AMS  Properties,  as
     lessee, and HRP, as lessor, filed with the appropriate State and County UCC
     filing office with respect to each Leased Facility.

5.   An Amended and Restated HRP Shares Pledge  Agreement,  dated as of June 30,
     1992, between HRP and AMS Properties,  pursuant to which AMS Properties has
     pledged  certain of its shares of HRP to HRP to secure its  obligations  to
     HRP;

6.   An Amended and Restated Voting Trust  Agreement,  dated as of June 30, 1992
     from AMS  Properties  to HRPT  Advisors,  Inc., as voting  trustee,  with a
     Voting Trust Certificate and Stock Power attached thereto.

7.   A Security Agreement,  dated as of December 28, 1990 from AMS Properties to
     HRP,  granting  HRP a  security  interest  in all now owned  and  hereafter
     acquired tangible personal property and all accounts  receivable,  contract
     rights and general intangibles of AMS Properties.

8.   A Collateral Assignment of Contracts and Permits,  dated as of December 28,
     1990 from AMS Properties to HRP, assigning to HRP all contracts and permits
     of AMS Properties.
<PAGE>

9.   UCC Financing  Statements/Fixture  Filings by AMS  Properties,  showing AMS
     Properties,   as  debtor,  and  HRP,  as  secured  party,  filed  with  the
     appropriate  UCC filing  office  and  registries  of deeds to  perfect  the
     interests  of HRP as a  secured  creditor  under the  security  instruments
     referred to above.

10.  An Amended and Restated  Renovation  Funding  Agreement dated as of January
     13, 1992, between AMS Properties and HRP.

11.  A Renovation Loan Agreement, dated as of March 28, 1992, by and between AMS
     Properties  and  HRP  relating  to  certain  renovations  to be made at the
     Christopher East Health Care Center, Milwaukee, Wisconsin.

12.  A Promissory  Note,  dated as of March 28, 1992, in the original  principal
     amount of $1,250,000, executed by AMS Properties and accepted by HRP.

13.  A Security Agreement, dated as of March 28, 1992, made by AMS Properties in
     favor of HRP.

14.  A Pledge  Agreement  dated as of December 28, 1990,  as  supplemented  by a
     Pledge  Agreement  Supplement  dated  as of  December  29,  1993,  from Old
     GranCare  (as  successor  to AMS) to HRP  pursuant  to which all  shares of
     capital  stock  of  AMS  Properties  are  pledged  to  HRP,  together  with
     certificates  relating  to the  AMS  Properties  shares  and  stock  powers
     relating to such shares;  the obligations and liabilities under such Pledge
     Agreement and Pledge Agreement  Supplement  having been assumed by GranCare
     pursuant to the Assumption Agreement.

15.  A Subordination  Agreement dated as of December 28, 1990 among Old GranCare
     as  subordinate  creditor,  AMS  Properties  as  debtor,  and HRP as senior
     creditor;   the  obligations  and  liabilities  under  such   Subordination
     Agreement  having  been  assumed by  GranCare  pursuant  to the  Assumption
     Agreement.

16.  A  Subordination  Agreement  dated as of  December  28,  1990  among HMI as
     subordinate creditor, AMS Properties as debtor and HRP as senior creditor.

17.  A  Subordination  Agreement  dated as of December  28, 1990 among AMS Green
     Tree as  subordinate  creditor,  AMS Properties as debtor and HRP as senior
     creditor.

18.  A  Subordination  Agreement  dated as of December  28, 1990 among Am-Cal as
     subordinate creditor, AMS Properties as debtor and HRP as senior creditor.

19.  A Consent  Letter dated March 31, 1995 by HRP and consented to by GranCare,
     AMS Properties and GCIHCC re: Subleases.

20.  An  Assignment  of Sublease  Documents  dated  March 31,  1995  between AMS
     Properties and HRP.

21.  An  Assignment  of Leases and Rents dated March 31, 1995 by AMS  Properties
     re: Subleases.

22.  A Rescission  Agreement and Amendment to Transaction  Documents dated as of
     October 1, 1994 among Old GranCare, AMS Properties, GCIHCC and HRP.

                                      -ii-

<PAGE>

23.  An Assumption Agreement by New GranCare, Inc. in favor of HRP.

24.  A Letter Agreement dated April 25, 1992, from HRP to GranCare,  accepted by
     GranCare.

25.  A  Guaranty,  dated as of June 30,  1992 from Old  GranCare in favor of HRP
     pursuant to which all  obligations of AMS Properties  are  guaranteed;  the
     obligations  and  liabilities  under such  Guaranty  having been assumed by
     GranCare pursuant to the Assumption Agreement referenced below.

26.  A  Security  Agreement,  dated as of June 30,  1992,  from  GCIHCC  to HRP,
     granting HRP a security  interest in all tangible and  intangible  personal
     property and including all accounts receivable, contract rights and general
     intangibles.

27.  An  Assignment  of  Contracts,  Licenses and Permits,  dated as of June 30,
     1992,  from GCIHCC to HRP,  assigning to HRP, all  contracts,  licenses and
     permits used in connection with the operation of the Facilities.

28.  A Pledge Agreement,  dated as of June 30, 1992 Date, from GranCare pursuant
     to which all of the capital stock of GCIHCC (the "GCIHCC Stock") is pledged
     to HRP to secure the obligations of GCIHCC.

29.  A Stock Power relating to GCIHCC Stock.

30.  A  Subordination  Agreement dated as of June 30, 1992 among Old GranCare as
     subordinate  creditor,  GCIHCC as debtor,  and HRP as senior creditor;  the
     obligations and liabilities under such Subordination  Agreement having been
     assumed by GranCare pursuant to the Assumption Agreement.

31.  A  Subordination  Agreement,  dated  as of  June  30,  1992,  among  AMS as
     subordinated  creditor,  GCI as the  debtor  and  HRP as  senior  creditor,
     pursuant to which all  obligations of GCIHCC to the  subordinated  creditor
     are subordinated.

32.  A Representation Letter and Indemnification Agreement, dated June 30, 1992,
     from Old GranCare,  AMS and GCI, with respect to, inter alia, the continued
     effectiveness  of the  representations  and warranties made by GranCare and
     GCI in, and the absence of any Defaults under, the Transaction Documents.

33.  A Consent  Letter  dated  March 31,  1995 by HRP and  consented  to by GCI,
     GranCare and AMS re: HealthQuest Subleases.

34.  An  Assignment of Sublease  Documents  dated March 31, 1995 between GCI and
     HRP re: HealthQuest Subleases.

35.  An  Assignment  of  Leases  and  Rents  dated  March  31,  1995  by GCI re:
     HealthQuest Subleases.

36.  A Rescission  Agreement and Amendment to Transaction  Documents dated as of
     October 1, 1994 among GranCare, AMS, GCI and HRP.

                                     -iii-
<PAGE>

                                 SCHEDULE 3.5-A

                      FORM OF INTERIM MANAGEMENT AGREEMENT

<PAGE>

                          INTERIM MANAGEMENT AGREEMENT

         THIS INTERIM MANAGEMENT  AGREEMENT (this "Agreement") is made this ____
day of __________ , 2000,  among Mariner  Post-Acute  Network,  Inc., a Delaware
corporation  (formerly known as Paragon Health Network,  Inc.) ("Mariner"),  AMS
Properties,  Inc., a Delaware  corporation ("AMS  Properties"),  GCI Health Care
Centers,   Inc.,  a  Delaware  corporation  ("GCIHCC"  and,  together  with  AMS
Properties,  collectively,  the "Mariner  Licensees"),  the  entities  listed on
Schedule  A  hereto,  each of  which is a  Delaware  limited  liability  company
(collectively,  the "Proposed SNH Licensees"), and Five Star Quality Care, Inc.,
a Delaware corporation (the "Manager").

                              W I T N E S S E T H:

         WHEREAS,  SPTMNR  Properties  Trust, a Maryland real estate  investment
trust ("SPTMNR"), is the owner of all of the real property, buildings, plant and
equipment  and certain of the  personal  property  used in  connection  with the
operation of the skilled nursing,  intermediate  care or residential  facilities
listed on Schedule B (each a "Facility" and collectively, the "Facilities"); and

         WHEREAS,   SPTMNR  currently  leases  the  Facilities  to  the  Mariner
Licensees; and

         WHEREAS,  the  Mariner  Licensees  hold the  licenses  to  operate  the
Facilities; and

         WHEREAS, pursuant to a Settlement Agreement, dated as of March __, 2000
(the  "Settlement  Agreement"),  among Mariner,  the Mariner  Licensees,  Senior
Housing  Properties  Trust,  a Maryland real estate  investment  trust  ("SNH"),
SPTMNR,  the Proposed SNH Licensees and the Manager,  the Mariner Licensees have
requested SPTMNR, and SPTMNR has agreed, to accept a surrender (through SPTMNR's
designees the Proposed SNH Licensees),  of the Mariner  Licensees'  lease of the
Facilities,  subject to, and upon, the terms and conditions  contained  therein;
and

         WHEREAS,  in  connection  therewith,  the  Proposed SNH  Licensees  are
submitting  the  applications,  filings  and other  documentation  necessary  to
receive all governmental licenses, permits, approvals, authorizations,  provider
agreements and certificates and determinations of need in order for the Proposed
SNH Licensees to operate the Facilities as licensees and to receive Medicare and
Medicaid  reimbursement  for  the  services  provided  therein  (such  licenses,
permits,  approvals,  authorizations,  provider agreements, and certificates and
determinations of need are hereafter  referred to individually,  as a "Necessary
License" and collectively, as the "Necessary Licenses"); and

         WHEREAS, the Proposed SNH Licensees and the Mariner Licensees desire to
enter into certain arrangements  regarding the management of the Facilities and,
more  specifically,  to  provide  for  the  Mariner  Licensees  to  operate  the
Facilities  pending,  and in  anticipation  of, the receipt by the  Proposed SNH
Licensees  or the  Manager  of the  Necessary  Licenses  (the  date on which any
Proposed SNH  Licensee or the Manager  shall have  received  all such  Necessary
<PAGE>

Licenses with respect to a Facility being referred to herein as such  Facility's
"SNH  Licensing  Date"),  and to consult and  cooperate  with the  Proposed  SNH
Licensees' designee, the Manager, in connection therewith;

         NOW,  THEREFORE,  for and in consideration of the premises,  the mutual
covenants  and  agreements   herein   contained  and  other  good  and  valuable
consideration,  the receipt and adequacy of which are hereby  acknowledged,  the
parties hereto agree as follows:

1. Mariner Licensee; Interim Occupancy Agreements.  Each Facility shall continue
to be operated  subject to the  direction  and control of the  relevant  Mariner
Licensee until such Facility's SNH Licensing Date and, in connection  therewith,
each  such  Mariner  Licensee  (i)  shall  retain  ultimate  authority  over the
business, policies, operations and assets of the Facility, (ii) shall remain the
responsible  licensee of such Facility and, as such, be fully liable and legally
accountable  at all  times to all  patients,  governmental  agencies  and  third
parties for all patient care and funds,  and all other  aspects of the operation
and  maintenance  of the  Facility,  and (iii) shall  perform  those general and
specific duties described in Sections 2 and 3 hereof.

         In  order  to  permit  the   foregoing,   each  Mariner   Licensee  is,
simultaneously   herewith,   entering  into  an  Interim   Occupancy   Agreement
(collectively,  the  "Occupancy  Agreements"),  [in the form attached  hereto as
Schedule C,] with the  relevant  Proposed  SNH  Licensee,  pursuant to which the
Proposed SNH Licensee  shall grant to such Mariner  Licensee the right to occupy
such  Facility  and use  certain  related  personal  property  for  purposes  of
exercising its rights, duties and obligations hereunder.

         The Mariner Licensees, the Proposed SNH Licensees and the Manager agree
that,  subject in all events to the  provisions  of the first  paragraph of this
Section 1, the SNH  Proposed  Licensees  or the  Manager  may from time to time,
notify the Mariner  Licensees that the Manager is prepared to provide any one or
more of those  services  (the  "Designated  Services")  designated in Schedule D
attached hereto (the "Designated Services Schedule"), with respect to any one or
more of the  Facilities,  and from and after the date  specified in such notice,
the Mariner  Licensee shall delegate to Manager and the Manager shall assume and
perform  such  Designated  Services.  The Mariner  Licensees,  the  Proposed SNH
Licensees and the Manager shall  reasonably  cooperate in the  transition of the
responsibility  for such  Designated  Service(s) to the Manager,  subject to the
continued  authority  and  responsibility  of the Mariner  Licensee  referred to
herein.

         The Mariner  Licensees,  the  Proposed  SNH  Licensees  and the Manager
acknowledge  and agree that the Mariner  Licensees have agreed in this Agreement
that the Mariner  Licensees may continue to provide  certain  services after the
SNH Licensing  Date. The Mariner  Licensees,  the Proposed SNH Licensees and the
Manager acknowledge and agree,  however,  that, from and after the SNH Licensing
Date with respect to a Facility, the relevant Proposed SNH Licensee shall direct
and control the operations of such Facility and, in connection therewith,  shall
have ultimate authority over the business, policies, operation and assets of the
Facility and be the responsible licensee of such Facility and, as such, be fully
liable and legally  accountable  at all times to all patients  and  governmental
agencies for all patient care and funds at such Facility,  and all other aspects
of the operation and maintenance of such Facility.

                                      -2-
<PAGE>

2.  General  Duties.  The  Mariner  Licensees  shall  manage and  supervise  the
day-to-day  operation of the Facilities with the objective of providing  skilled
nursing, intermediate care and residential services to patients and residents of
the Facilities and to carry out general management functions with respect to the
Facilities,  including,  but  not  limited  to,  the  following:  supervise  the
performance  of  all  administrative  functions  as  may  be  necessary  in  the
management and operation of the Facilities; select, hire or contract for, train,
supervise,  monitor the  performance  of, and  terminate or fire,  all personnel
involved in the  administration  and  day-to-day  operations of the  Facilities,
including,  without limitation,  professional  personnel,  custodial,  cleaning,
maintenance,  and other operational  personnel,  and secretarial and bookkeeping
personnel;  provide accounting,  billing,  purchasing and bill payment functions
for the Facilities;  maintain  systems of accounts and supervise the maintenance
of ledgers and other primary  accounting records with respect to the Facilities;
supervise the financial  affairs of the Facilities;  establish and supervise the
implementation  of operating  budgets,  and establish and  administer  financial
controls  over the  operations  and  management of the  Facilities;  develop and
establish  financial  standards  and  norms  by which  the  income,  costs,  and
operations of the Facilities may be evaluated;  operate, maintain and administer
the information management systems of the Facilities; maintain patients' medical
records  in  accordance  with all  applicable  state and  Federal  requirements;
furnish reports and economic and statistical data in connection with or relative
to the management of the Facilities in order to comply with  applicable laws and
regulations;   represent  the  Facilities  in  their  dealings  with  regulatory
authorities,  patients,  personnel, agents for collection,  insurers and, at the
request  of the  Proposed  SNH  Licensees,  creditors;  prepare  and  file  with
applicable state Medicaid programs and the Medicare program and all other public
and private  third party  reimbursement  programs  (collectively,  "third  party
payors") all required  cost reports;  administer  trust funds for the benefit of
residents  of the  Facilities  and prepare and file all  accounts for such funds
required by applicable law; maintain listings of all residents of the Facilities
and the persons or third party payors  responsible for their charges;  on behalf
of the SNH  Entities,  disburse  and  collect  the  funds of the  Facilities  in
accordance  with the  provisions  of Section 9.1  hereof,  and pay the debts and
fulfill the obligations of the Facilities  incurred  subsequent to the Effective
Time (as hereafter defined);  market the services of the Facilities;  manage and
supervise  the  admission  and  discharge  of residents as required by state and
Federal  laws;  and  generally  see  to the  operations  and  management  of the
Facilities, the marketing of their services, planning for future operations, and
the establishment and implementation of policies for the Facilities.

3. Specific  Duties.  The Mariner  Licensees  shall have the following  specific
duties:

         3.1  Employees.  The Mariner  Licensees  shall recruit,  evaluate,  and
select qualified  nursing home  administrators  who shall be responsible for the
functional  operation  of the  Facilities  and  supervision  of personnel at the
Facilities,  on a  day-to-day  basis,  as  well  as  all  on-site  professional,
custodial,  food  service,   cleaning,   maintenance,   clerical,   secretarial,
bookkeeping,  management,  collection,  and other  employees for the  day-to-day
operations of the Facilities.  Such  administrators and all such other personnel
shall be employees of the Mariner  Licensees,  and, subject to the provisions of
Section 5 hereof  (providing  for the Proposed SNH Licensees to pay expenses set
forth in the Expense Statement  (including,  without limitation,  those expenses
specified   in  Section   5.1(a))   the  Mariner   Licensees   shall  have  full
responsibility for payment of their wages,  salaries, and other compensation and
benefits.  The Mariner Licensees shall establish such personnel  policies,  wage
structures,  and  staff  schedules  as they

                                      -3-
<PAGE>

deem  necessary  and advisable in accordance  with  applicable  law. The Mariner
Licensees shall have authority to continue to employ and to discharge employees.
The Mariner  Licensees  shall  maintain  payroll  records and shall  prepare and
process employee  payrolls,  and returns of withholding taxes in accordance with
current payroll schedules in place at each Facility.

         Anything  in this  Section  3.1 to the  contrary  notwithstanding,  the
Manager  shall offer  employment  to all or  substantially  all of the qualified
nursing home  administrators and other employees at the Facilities as soon after
the  Effective  Time  as  is  reasonably  practicable.   The  Mariner  Licensees
acknowledge that the ability of the Manager to make any such offer is contingent
upon the  employees  being  employable  under  state and  Federal law and may be
subject  to the  Proposed  SNH  Licensees'  and  the  Manager's  receipt  of all
licenses,   permits,   approvals,   authorizations,   provider  agreements,  and
certificates  and  determinations  of need as are necessary for the Proposed SNH
Licensees and the Manager to operate the  Facilities as licensees and to receive
Medicare and Medicaid  reimbursement for the services provided therein, and that
in any event the Manager will first have to implement an appropriate  accounting
and payroll function. The Mariner Licensees further acknowledge that the Manager
may not hire all  such  employees  on the  same  date or at the same  time.  The
Mariner  Licensees  agree to cooperate with the Manager in connection  with such
offers of  employment  and to release any  personnel to whom the Manager  offers
employment from any employment agreements, non-competition, non-solicitation and
non-disclosure agreements or common law obligations relating to their employment
with the Mariner Licensees to which they may be a party or subject.

         3.2  Purchasing.  The Mariner  Licensees  shall  (subject to Section 5)
purchase,  in the name, and for the account, of the Proposed SNH Licensees,  all
necessary  supplies,  foodstuffs,  materials,  appliances,  tools, and equipment
customarily used in the operation of the Facilities. The Mariner Licensees shall
use  commercially  reasonable  efforts to limit purchasing costs and to maintain
such costs at a level  reasonably  calculated to allow the Facilities to operate
profitably.  The Mariner Licensees may, but shall not be obligated to, make such
purchases in bulk under a centralized  purchasing system established by them for
other facilities under their operation or management in order to minimize costs.
The Mariner Licensees shall arrange contracts for electricity,  gas,  telephone,
and any other utility or service  necessary to the operation of the  Facilities,
in each case in the name,  and for the account,  of the Proposed SNH  Licensees.
The Mariner  Licensees  shall, on their own behalf and/or on behalf of the owner
of the buildings and real  property in and on which the  Facilities  are located
(the  "Real  Property  Owner"),  contract  for and  supervise  the making of any
necessary  repairs,  alterations,  and improvements to the Facilities,  provided
that in the case of any repair,  alteration  or  improvement,  the cost of which
exceeds  $5,000,  the Mariner  Licensees  shall obtain the prior approval of the
Proposed  SNH  Licensee/Manager,  except  that no such prior  approval  shall be
required if the  expenditure is made under  circumstances  reasonably  requiring
emergency action. The Mariner Licensees shall prepare such  certifications as to
expenses incurred in the operation of the Facilities as may be required in order
to comply with applicable law and regulations,  including,  without  limitation,
law and regulations applicable to preparation and submission of cost reports.

         3.3 Bookkeeping.  The Mariner  Licensees shall establish and maintain a
record and bookkeeping system for the operation and conduct of the Facilities in
accordance with generally accepted accounting principles.  Full books of account
with entries of all receipts and

                                      -4-
<PAGE>

expenditures of the Facilities  shall be open for inspection by  representatives
of Proposed SNH Licensees and Manager upon  reasonable  notice and at reasonable
times.

         3.4 Financial  Reports.  The Mariner  Licensees  shall:  (a) as soon as
reasonably  possible  after the close of each  calendar  month,  furnish  to the
Proposed  SNH  Licensee  and Manager a statement of income for the month and for
the year to date, together with a detailed statement of billings, cash receipts,
cash disbursements,  accounts payable and accounts receivable (in hard copy and,
to the extent possible, in electronic format); (b) in the event the Proposed SNH
Licensee or Mariner  Licensee is required by applicable law,  regulations or the
provisions  of any  material  contract  to which it is a party or by which it is
bound or at such other time as the  Proposed  SNH  Licensees  may elect in their
reasonable  discretion,  to  conduct  an  audit  of  the  Facilities'  financial
performance,  make available all books and records of the Facilities on a timely
basis and cooperate fully with any auditors or accountants  selected by Proposed
SNH  Licensee;  (c) as soon as  reasonably  possible  after  the  close  of each
applicable  reporting period for rate setting  purposes,  and not later than the
applicable  deadline,  prepare and submit a cost report for each  Facility  (and
including in any event,  any short-year  cost report required to be submitted by
the  Mariner  Licensee  or  Proposed  SNH  Licensee),   showing  the  costs  and
expenditures  relating  to  resident  care for  such  Facility  and  such  other
information as is required by the applicable governmental  authority,  each such
report being in all material respects  (including as to form) in compliance with
the requirements of such applicable  governmental  authority;  and (d) cooperate
with and furnish  information  to each  Proposed  SNH  Licensee and Manager in a
timely  manner  in  connection  with the  preparation  of  applications  by such
Proposed SNH Licensee for any Necessary Licenses with respect to the Facilities.

         3.5 Marketing.  The Mariner Licensees shall use commercially reasonable
efforts  to market the  services  of the  Facilities  in order to  maintain  the
patient  or  resident  census  at the  Facilities  in such  numbers  and of such
categories  as, in the Mariner  Licensees'  judgment,  will tend to maintain the
financial  stability of the Facilities and to ensure  compliance with applicable
laws,  regulations,  orders and  judgments  applicable  to the  Facilities.  The
Mariner  Licensees  may design and  implement  programs with third party payors,
such as insurance companies,  federal agencies and state and local agencies, for
services to  patients on a contract  basis,  for the  purpose of  improving  the
financial stability of the Facilities.

         3.6 Liaison  with  Agencies.  In  consultation  with the  Proposed  SNH
Licensees  and Manager,  the Mariner  Licensees  shall appear in,  prosecute and
defend all formal and informal  proceedings  before any and all local, state and
federal agencies which regulate the Facilities.  Each of the Mariner  Licensees,
the Proposed SNH Licensees and Manager shall  promptly  inform the others of the
commencement  of any such  proceedings  known to it  which  may have a  material
impact upon the operation of the  Facilities or which affect  reimbursement  for
services provided in or by the Facilities, including challenging any findings of
violations or the creation of a duty to correct.

         3.7  Insurance.   The  Mariner  Entities  shall  obtain  on  behalf  of
themselves, the Proposed SNH Licensees, the Manager and the Real Property Owners
for each Facility, as their interests may appear, all customary liability,  fire
and  extended  coverage,  professional  or  malpractice  liability  and worker's
compensation insurance covering the Facilities, any equipment used in connection
with the Facilities,  the Facilities'  employees,  and the Mariner Entities, the

                                      -5-
<PAGE>

Proposed  SNH  Licensees,  the  Manager  and the Real  Property  Owners for each
Facility,  as  their  interests  may  appear,  in such  amounts  and  with  such
deductibles and other provisions as may be reasonably agreed upon by the Mariner
Entities, the Proposed SNH Licensees, the Manager and the Real Property Owners.

         3.8  Technical  and  Professional  Services.  The Mariner  Entities may
secure such engineering, legal, and other specialized technical and professional
services as may be necessary to advise or to represent the Mariner Entities, the
Proposed  SNH  Licensees,  the  Manager  and the Real  Property  Owners for each
Facility,  in  connection  with  any  matter  involving  or  arising  out of the
operation of the Facilities or the conduct of the Facilities.

         3.9  Necessary  Licenses.  Upon  receipt by the  relevant  Proposed SNH
Licensee or the Manager of the  Necessary  Licenses  with respect to a Facility,
the  Proposed  SNH  Licensee  or the  Manager  shall give the  relevant  Mariner
Licensee prompt written notice.

         3.10 Collections, Accounts, Disbursements and Termination Accounting.

                  (a) Billing.  The Mariner  Licensees  shall prepare and submit
bills for all moneys owing,  whether from  patients or third party  payors,  for
services  provided by or at the Facilities at any time,  whether prior to ______
o'clock p.m. on [day preceding the Closing] (the "Effective  Time") or after the
Effective Time.

                  (b) Collection of Accounts  Receivable.  The Mariner Licensees
acknowledge  that,  from and after the  Effective  Time,  (i) the  Proposed  SNH
Licensees  shall,  to the extent  permitted by applicable  law, own all accounts
receivable  which  relate  to or arise  out of  services  provided  by or at the
Facilities from or after the Effective Time (the "Post-Effective A/R"), (ii) the
Mariner Licensees shall make and effect collections of all  Post-Effective  A/R,
(iii) the Mariner  Licensees  shall  establish  new bank  accounts (the "New A/R
Accounts") in the name of each Mariner Licensee at such local banks to be agreed
upon by the Proposed SNH Licensees and the Mariner Licensees, and shall instruct
all Third  Party  Payors and other  Persons  (as such  terms are  defined in the
Settlement  Agreement)  that  directly  deposit  monies into the  existing  bank
accounts (the "Existing A/R Accounts")  with respect to the Retained  Facilities
to terminate  such direct deposit and commence  depositing  such monies into the
New A/R  Accounts  from and  after the date  that is sixty  (60) days  after the
Effective  Time  (the  "Account  Transfer  Time")  or as soon as is  practicable
thereafter  (and the Mariner  Licensees shall take such further action as may be
reasonably  necessary  to cause such  Third  Party  Payors and other  Persons to
comply with such instructions so that all  Post-Effective A/R are deposited into
the New A/R Accounts  from and after the Account  Transfer Time or as soon as is
practicable  thereafter),  (iv) the Mariner  Licensees shall continue to endorse
and deposit all monies, checks, drafts or other instruments or items received as
payment  for any  Post-Effective  A/R  with  respect  to any  Facility  into the
Existing A/R Accounts until the Account Transfer Time, (v) the Mariner Licensees
shall endorse and deposit all monies,  checks,  drafts or other  instruments  or
items received as payment for any  Post-Effective A/R from and after the Account
Transfer  Time  into  the New A/R  Accounts,  (vi)  within  five (5) days of the
applicable  Proposed SNH  Licensee's  request  therefor  (but no sooner than the
applicable SNH Licensing Date), the Mariner Licensees shall assign, set over and
transfer  the New A/R  Accounts to the  Proposed  SNH  Licensees,  and (vii) the
Mariner Licensees shall disburse all proceeds attributable to Post-Effective A/R
deposited  in the  Existing  A/R

                                      -6-
<PAGE>

Accounts or the New A/R  Accounts or  otherwise  received or held by the Mariner
Licensees to the Proposed SNH Licensees (or to such other Person as the Proposed
SNH Licensees may direct) within five (5) days of the Mariner Licensees' receipt
thereof.

         The SNH Entities and the Mariner  Licensees  acknowledge and agree that
(i) the Mariner  Licensees shall continue to own all accounts  receivable  which
relate to or arise out of services provided by or at the Facilities prior to the
Effective Time (the  "Pre-Effective  A/R"),  (ii) the Mariner Licensees shall be
entitled to retain all proceeds  attributable to Pre-Effective  A/R deposited in
the Existing A/R Accounts or the New A/R Accounts or otherwise  received or held
by the Mariner Licensees, and (iii) the Proposed SNH Licensees shall disburse to
the Mariner  Licensees  (or to such other  Person as the Mariner  Licensees  may
direct) all such  Pre-Effective  A/R within five (5) days of the SNH  Licensees'
receipt thereof.

                  (c) Books and Records. During the term of this Agreement,  the
Mariner  Licensees  shall keep  accurate and  complete  books and records of all
receipts  with respect to all  billing,  accounts  receivable,  all deposits and
other transactions  whether to the Existing A/R Accounts,  the New A/R Accounts,
or to other checking  accounts,  which books and records shall be made available
to the SNH Licensees and the Manager upon request, and after termination of this
Agreement  shall make such  books and  records  available  to the  Proposed  SNH
Licensees  and the Manager to the extent  necessary  to enable the  Proposed SNH
Licensee  and the Manager to comply with all  applicable  laws and  regulations,
including  regulations governing preparation and submission of cost reports. The
Mariner  Licensees  shall  timely  prepare  and  file  any  cost  reports  which
applicable laws and regulations  require that they file after the termination of
this Agreement.

         3.11 Patient  Trust  Accounts.  At such time as a Proposed SNH Licensee
has received all Necessary Licenses with respect to a Facility and has given the
Mariner  Licensee  notice as provided in Section 3.9, the Mariner  Licensee will
transfer the patient  trust  accounts  held for the benefit of residents of such
Facility  to the  Proposed  SNH  Licensee,  together  with  all  records  and an
accounting regarding such accounts.

4. Fee.  The  Mariner  Licensees  shall  earn,  for  services  rendered  by them
hereunder, a servicer fee (the "Fee") on a  Facility-by-Facility  basis for each
calendar  month  during  the term of this  Agreement  in an amount  equal to the
lesser of (i) five  percent (5%) of net patient  revenues (as defined  below) of
such Facility for such month and (ii) an amount  calculated by  multiplying  (A)
the sum of the Designated Services  Percentages,  as specified in the Designated
Services  Schedule,  attributable to the Designated  Services being performed by
the  applicable  Mariner  Licensee  at such  Facility  for such month by (B) the
amount of net patient revenues of such Facility for such month.

         Until  the  Agreed  Deficiency  shall  have been  reduced  to zero (0),
payment of the Fee shall be made by  dollar-for-dollar  reduction of the Reduced
Deficiency   (as  such   term  is   defined   in  the   Settlement   Agreement).
Notwithstanding anything to the contrary contained in this Section 4, in each of
the first  three (3) months of the term  hereof,  the Fee earned by the  Mariner
Licensees  hereunder  shall be not less than Four  Hundred  Thousand  ($400,000)
(regardless  of the amount of net patient  revenues at the  Facilities  for such
month or whether  the  Manager  shall have  elected to

                                      -7-
<PAGE>

discontinue the Mariner  Licensees'  provision of any services  specified herein
during such period).

         As used in this Agreement,  "net patient  revenues" shall mean, for any
period,  the aggregate  amount of all revenues  (determined  in accordance  with
generally accepted accounting principals, consistently applied), received by, or
by reason of the operation of, such Facility  during such period,  but excluding
(a) revenues from  professional  fees or charges by physicians and  unaffiliated
providers of ancillary  services to the extent such charges are paid over to, or
separately   billed  by,  such  physicians  and  unaffiliated   providers,   (b)
non-operating  revenues, (c) revenues attributable to services provided off-site
to  non-patients,  and (d) all  revenues,  if any,  attributable  to child  care
services provided  primarily to employees of such Facilities,  but in all events
excluding any revenues  generated for services  provided to patients referred by
any Mariner Entity.

5. Expenses.

         5.1  During  the  period  from and after  the  Effective  Time to,  but
excluding,  the date of termination of this  Agreement,  for each Facility,  the
Mariner Licensee shall provide the Proposed SNH Licensees and the Manager with a
weekly  statement of expenses of the type listed below to the extent incurred in
the  operation  and  management  of such  Facility  (the  "Expense  Statements")
accompanied by such  documentation  as the Proposed SNH Licensee and the Manager
shall reasonably request:

                  (a)  salary  and  expenses  (including,   without  limitation,
payroll taxes, workers'  compensation,  costs of employee benefit plans (or such
portion thereof as is properly allocable to such Facility),  travel,  insurance,
and  fidelity  bonds)  of  employees  at  such  Facility,   including,   without
limitation, administrative,  professional, custodial, food service, cleaning and
maintenance, operational, secretarial and bookkeeping personnel;

                  (b) all supplies and  equipment  necessary  and  desirable for
operation  of the such  Facility  as a skilled  nursing,  intermediate  care and
residential  facility;  food; fuel; kitchen and food service equipment;  linens;
beds; furniture; clothing and all other supplies and equipment used in supplying
services to patients;

                  (c) expenses connected directly or indirectly with the design,
acquisition,  disposition,  lease, occupancy, ownership or operation of real and
personal  property  devoted,  used or consumed in the business of such Facility,
including,  without  limitation,  maintenance,  repair,  and  improvement of the
Facilities,  and premiums,  deductibles and self-insured  retention amounts with
respect to insurance (including,  without limitation,  the insurance required to
be obtained  pursuant to Section 3.7 hereof  (except  that the premiums for such
insurance shall be allocated among the facilities  covered thereby on such basis
as the Mariner Licensees deem commercially appropriate based on their experience
in such matters and reasonable business judgment, including an assessment by the
Mariner Licensees of the differing risk profiles  associated with the facilities
and business of the Mariner  Licensees,  on the one hand, and the Facilities and
the business of the Proposed SNH Licensees, on the other)); and

                                      -8-
<PAGE>

                  (d) all other costs,  expenses and liabilities  arising out of
the operation, maintenance and management of the Facilities,  including, without
limitation,  fees of  professionals  engaged to fulfill the  Mariner  Licensees'
obligations  under  Section 3.6 and Section  3.8,  but  excluding  those  costs,
expenses  and  liabilities  arising  out of any such  Mariner  Licensee's  gross
negligence or willful misconduct.

         5.2 The following  expenses of the Mariner  Licensees  shall be for the
sole account of the Mariner  Licensees and shall not be subject to reimbursement
hereunder: (a) overhead and ordinary administrative expenses, salary (including,
without  limitation,  payroll taxes,  workers'  compensation,  costs of employee
benefit plans,  travel,  insurance and fidelity bonds) of financial,  accounting
and other  personnel  employed by the Mariner  Licensees to provide  centralized
billing,  collection,  bill  paying,  accounting,  record  keeping,  information
management,  purchasing, personnel and policy planning services to any Facility,
it being understood that in no event shall the salary of the  administrator of a
Facility be an expense of the Mariner  Licensees;  and (b) any losses,  cost and
expenses under Section 11(a).

         5.3 The Proposed SNH  Licensees  shall cause the Manager to establish a
bank  account  under its name and control and to deposit and  maintain a minimum
balance therein of $100,000.  The Mariner Licensees shall have signing authority
with respect to such account and weekly, upon approval of the Expense Statement,
the Manager  shall fund such account with an amount  sufficient  (over and above
the  minimum  balance) to fund and for the  purpose of paying the  expenses  set
forth in the Expense  Statement.  If any Mariner Licensee advances its own funds
for any approved  Expense  Statement  expense,  the Manager and the Proposed SNH
Licensees shall promptly reimburse such Mariner Licensee therefor.

         5.4 Each Proposed SNH Licensee of each Facility shall pay the Manager a
monthly management fee (the "Manager's Fee") for each Facility, payable prior to
the __ day following the end of each calendar month during the term hereof,  (i)
for the first two (2) months of the term hereof, in an amount equal to the costs
and expenses actually incurred by the Manager in connection with the performance
of its duties hereunder  during such calendar month, and (ii) thereafter,  in an
amount equal to 4.5% of net patient revenues for such Facility for such calendar
month.

6. Access to Records. For the time and to the extent required by applicable law,
including, without limitation, Section 1861(v)(1)(I) of the Social Security Act,
the Mariner Licensees shall retain, and shall permit the Comptroller  General of
the United States, the U.S.  Department of Health and Human Services,  and their
respective  duly   authorized   representatives,   and  duly  authorized   state
representatives,  access to  examine  or copy  this  Agreement  and such  books,
documents,  and  records as are  reasonably  necessary  to verify the nature and
extent of goods and  services  supplied  and the costs of the goods and services
supplied,  and the  payments  claimed  under  this  Agreement.  In the event any
Mariner Licensee provides any of its services under this Agreement pursuant to a
subcontract and if (i) the services  provided pursuant to the subcontract have a
value or cost of  $10,000 or more over a twelve  (12) month  period and (ii) the
subcontract is with a related  organization,  then such Mariner  Licensee agrees
that the  subcontract  shall  contain a clause  requiring the  subcontractor  to
retain  and allow  access to its  records on the same  terms and  conditions  as
required by such Mariner Licensee.

                                      -9-
<PAGE>

7. Duty of Mariner  Licensees;  Prohibited  Transactions.  The Mariner Licensees
shall render the  services  called for  hereunder in good faith.  Other than the
Fee, none of the Mariner  Licensees or any person,  firm or  corporation  which,
directly or indirectly owns or controls,  is owned or controlled by, or is under
direct or indirect common ownership or control with the Mariner Licensees or any
person  related by blood or marriage  within the third degree to persons in such
control  (an   "Affiliate"),   shall  receive  any   remuneration   (other  than
reimbursements and other payments expressly provided for herein), whether direct
or  indirect,  for any  purchases  of goods or  services  made on  behalf of the
Mariner  Licensees,  the Proposed SNH Licensees or the Manager,  and none of the
Mariner  Licensees or any of their Affiliates shall markup,  increase the price,
or obtain any premium for goods or services purchased by any Mariner Licensee on
behalf  of or for  the  benefit  of the  Mariner  Licensees,  the  Proposed  SNH
Licensees or the Manager.

8.  Relationship  of Parties.  No party to this  Agreement is a partner or joint
venturer  with any other party,  and nothing  herein shall be construed so as to
make  them  such  partners  or  joint  venturers  or  impose  on any of them any
liability as partners or joint venturers.

9. Term and Termination.

         9.1 The term of this Agreement shall commence at the Effective Time and
shall continue in full force for twelve (12) months unless earlier terminated as
provided below, and thereafter, from month to month thereafter unless terminated
upon not less than thirty (30) days' prior written  notice from the Proposed SNH
Licensees or the Mariner Licensees to the other.

         Subject to the  provisions of the first  paragraph in Section 1 of this
Agreement,  the Proposed SNH Licensees shall have the further right from time to
time to require the Mariner  Licensees' to  discontinue  provision of any or all
services  hereunder  to any one or more of the  Facilities  upon not  less  than
thirty (30) days' prior written notice to the relevant Mariner Licensee.

         If there is a final adverse determination with respect to any Necessary
Licenses,  provided  that the  Proposed SNH Licensee  shall have  exhausted  all
appeals with respect thereto, this Agreement shall terminate with respect to the
Facility(ies) which would be affected.

         9.2 From and after the effective  date of termination of this Agreement
in accordance  with Section 9.1, the Mariner  Licensees shall not be entitled to
compensation  for  further   services   hereunder  (and,  in  the  case  of  the
discontinuation  of services at a Facility in accordance  with Section 9.1, from
and after the effective date of such discontinuance, the Mariner Licensees shall
not be  entitled  to  compensation  for further  services  with  respect to such
Facility).  Upon termination or  discontinuance,  the relevant Mariner Licensees
shall forthwith:

                  (a)  pay  over  to the  relevant  Proposed  SNH  Licensee  all
collections of Post-Effective  A/R received by the Mariner Licensees pursuant to
this Agreement;

                  (b) deliver to the  relevant  Proposed SNH  Licensees  and the
Manager a full accounting,  including a statement showing all payments collected
by it and a statement of all money held by it, covering the period following the
date of the last accounting furnished to them; and

                                      -10-
<PAGE>

                  (c) deliver to the  relevant  Proposed SNH  Licensees  and the
Manager,  as the  case  may  be,  all  property  and  documents  of any of  them
(including,  without limitation,  health care and other patient records) then in
the custody of the Mariner Licensee(s).

10. Notices. All notices and other  communications  provided for hereunder shall
be in writing  (including  telecopy  communication)  and mailed,  telecopied  or
delivered addressed as follows:

                  (a)      if to the Manager:

                           Five Star Quality Care, Inc.
                           400 Centre Street
                           Newton, MA  02458
                           Attention:  Treasurer
                           Telecopy No.:  617-796-8349

                  (b)      with copy to:

                           Sullivan & Worcester LLP
                           One Post Office Square
                           Boston, MA 02109
                           Attention:  Nancy S. Grodberg, Esq.
                           Telecopy No.:  617-338-2880

                  (c)      if to the Mariner Licensees:

                           AMS Properties, Inc.
                           On Ravinia Drive, Suite 1500
                           Atlanta, Georgia 30346
                           Attention:  Associate General Counsel
                           Telecopy No. 770-698-8199

                           and to:

                           GCI Health Care Centers, Inc.
                           One Ravinia Drive, Suite 1500
                           Atlanta, Georgia  30346
                           Attention:  Associate General Counsel
                           Telecopy No. 770-698-8199

                  (d)      If to the Proposed SNH Licensees:

                           SHOPCO-AZ, LLC
                           400 Centre Street
                           Newton, MA  02458
                           Attention:  Treasurer
                           Telecopy No.:  617-796-8349

                           SHOPCO-CA, LLC

                                      -11-
<PAGE>

                           400 Centre Street
                           Newton, MA  02458
                           Attention:  Treasurer
                           Telecopy No.:  617-796-8349

                           SHOPCO-COLORADO, LLC
                           400 Centre Street
                           Newton, MA  02458
                           Attention:  Treasurer
                           Telecopy No.:  617-796-8349

                           SHOPCO-WI, LLC
                           400 Centre Street
                           Newton, MA  02458
                           Attention:  Treasurer
                           Telecopy No.:  617-796-8349

or to such other  address as may  hereafter be  designated by any party for such
other  purpose,  and shall be  effective  upon receipt if hand  delivered,  when
telecopied,  if  transmitted  by telecopier or upon the  expiration of the fifth
Business Day after being deposited in the mails, if mailed.

11.      Indemnification.

                  (a) Mariner Licensees' Indemnification. The Mariner Licensees,
jointly and severally,  shall  protect,  indemnify and hold harmless each of the
Proposed SNH  Licensees,  the Manager and their  respective  agents,  employees,
officers,  directors,  partners,  members,  trustees,  attorneys,  successors or
assigns  (hereafter the "SNH  Indemnitees," and when referred to singly, an "SNH
Indemnitee")  for,  from and  against any and all debts,  obligations,  damages,
penalties,  liabilities,  liens, claims, causes of action, administrative orders
or notices, costs, fines, penalties or expenses (including,  without limitation,
reasonable attorney's fees and expenses actually incurred) to the maximum extent
permitted by law imposed upon,  incurred by or asserted  against any  Indemnitee
and arising in  connection  with any act,  omission or obligation of any Mariner
Licensee  hereunder,  under its Interim  Occupancy  Agreement,  or  otherwise in
connection with the Mariner Licensees' activities in operating or overseeing the
operation of any of the  Facilities.  The Mariner  Licensees,  at their expense,
shall contest,  resist and defend any such claim,  action or proceeding asserted
or instituted  against any SNH Indemnitee or may compromise or otherwise dispose
of the same,  with the relevant SNH  Indemnitee's  prior written  consent (which
consent may not be unreasonably withheld or delayed).

                  (b) Proposed SNH Licensees' and Manager's Indemnification. The
Proposed  SNH  Licensees  and the Manager  (collectively  referred to as the SNH
Indemnitors),  jointly and severally, shall protect, indemnify and hold harmless
each of the Mariner Licensees and their respective agents, employees,  officers,
directors,  partners,  members,  trustees,  attorneys,  successors  and  assigns
(hereafter  the  "Mariner  Indemnitees"  and when  referred to singly,  "Mariner
Indemnitee")  for,  from and  against any and all debts,  obligations,  damages,
penalties,  liabilities,  liens, claims, causes of action, administrative orders
or notices, costs, fines, penalties, or expenses (including, without limitation,
reasonable attorney's fees and expenses actually

                                      -12-
<PAGE>

incurred) to the maximum  extent  permitted by law imposed upon,  incurred by or
asserted against any Mariner  Indemnitee and arising in connection with any act,
omission  or  obligation  of any SNH  Indemnitor  hereunder,  under the  Interim
Occupancy  Agreements,   or  otherwise  in  connection  with  the  SNH  Parties'
activities  in operating or overseeing  the operation of any of the  Facilities.
The SNH Parties',  at their expense,  shall contest,  resist and defend any such
claim,   action  or  proceeding  asserted  or  instituted  against  any  Mariner
Indemnitee or may compromise or otherwise dispose of the same, with the relevant
Mariner  Licensee's prior written consent (which consent may not be unreasonably
withheld or delayed).

         The provisions of this Section 11 shall survive the termination of this
Agreement.

12.      Miscellaneous.

         12.1 This  Agreement  shall not be changed,  modified,  terminated,  or
discharged in whole or in part except by an instrument in writing signed by each
of the parties hereto or their respective successors or assigns.

         12.2  Non-Assignability.  This  Agreement  shall not be assigned by any
party without the consent of the other party and this Agreement shall be binding
upon and shall inure to the benefit of consented to successors and assigns.

         12.3 Governing Law. This Agreement  shall be governed by,  interpreted,
construed,  applied and enforced in accordance with the laws of the Commonwealth
of Massachusetts  applicable to contracts  between residents of the Commonwealth
of Massachusetts  which are to be performed  entirely within the Commonwealth of
Massachusetts,  regardless of (i) where this Agreement is executed or delivered;
or (ii) where any payment or other  performance  required by this  Agreement  is
made or required to be made;  or (iii) where any breach of any provision of this
Agreement  occurs, or any cause of action otherwise  accrues;  or (iv) where any
action or other  proceeding is instituted  or pending;  or (v) the  nationality,
citizenship,   domicile,   principal   place  of  business  or  jurisdiction  of
organization  or  domestication  of any party;  or (vi)  whether the laws of the
forum jurisdiction otherwise would apply the laws of the jurisdiction other than
the Commonwealth of Massachusetts; or (vii) any combination of the foregoing.

         12.4  Entire  Agreement.  This  Agreement,   together  with  the  other
agreements  contemplated  by,  referred  to in, or  contemplated  by  agreements
referred to herein,  together  constitute  the entire  agreement  of the parties
hereto with respect to the subject  matter  hereof and  supersede and cancel any
preexisting agreements with respect to such subject matter.

         12.5  Attorney's  Fees and  Costs.  If any  action is  brought  for the
enforcement  of this  Agreement,  or because of a  dispute,  breach,  default or
misrepresentation  in connection  with any of the provisions of this  Agreement,
the prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs  incurred in that action in addition to any other relief to which it
may be entitled.

         12.6 Confidentiality. The parties agree not to disclose or permit their
respective representatives, attorneys, auditors or agents to disclose, except as
may be required by law or performance  hereunder,  any  confidential  non-public
information  of the others which is obtained by any of them in  connection  with
the transactions contemplated by this Agreement.

                                      -13-
<PAGE>

         12.7 Cooperation;  Commercially  Reasonable Efforts.  The parties shall
cooperate in good faith in connection with all actions to be taken to consummate
the  transactions  contemplated  by,  and to enforce  the rights  created by and
perform the  responsibilities  imposed by, this Agreement and in order to assure
compliance  with  Federal,  state and local  laws,  rules and  regulations.  The
parties agree to execute such  amendments,  modifications or supplements to this
Agreement or any other  agreements  between or among any of the parties  hereto,
necessary or appropriate to assure such compliance.

         12.8  Responsibility  for Compliance  with Law. During the term of this
Agreement,  each  Mariner  Licensee  will  keep in full  force  and  effect  all
licenses,   permits,   approvals,   authorizations,   provider  agreements,  and
certificates or  determinations  of need necessary for such Mariner  Licensee to
occupy  and  operate  its  Facilities  and  to  receive  Medicare  and  Medicaid
reimbursement  for  services  provided  therein and the Mariner  Licensees  will
cooperate  with  Proposed  SNH  Licensees  in  connection  with the Proposed SNH
Licensees  obtaining  provider  agreements  to ensure there is no period  during
which  neither a Mariner  Licensee  nor a Proposed  SNH  Licensee is entitled to
reimbursement for services provided at the Facilities.

         12.9 Bankruptcy Court Authorization.  Mariner and the Mariner Licensees
shall  seek  authorization  from the  United  States  Bankruptcy  Court  for the
District of Delaware in order to proceed with those matters provided herein,  in
conjunction  with the  authorization  sought for proceeding  with the Settlement
Agreement.  The  form  of  order  providing  authorization  shall  be in a  form
acceptable to SPTMNR, the Proposed SNH Licensees and the Manager.

                                      -14-
<PAGE>

         IN WITNESS  WHEREOF,  the  parties  have caused  this  Agreement  to be
executed under seal by their duly  authorized  officers as of the date first set
forth above.

                             MARINER POST-ACUTE NETWORK, INC.

                             By:________________________________
                                      Its (Vice) President

                             AMS PROPERTIES, INC.

                             By:________________________________
                                      Its (Vice) President

                             GCI HEALTH CARE CENTERS, INC.

                             By:________________________________
                                      Its (Vice) President

                             SHOPCO-AZ, LLC

                             By:________________________________
                                      Its (Vice) President

                             SHOPCO-CA, LLC

                             By:________________________________
                                      Its (Vice) President

                             SHOPCO-COLORADO, LLC

                             By:________________________________
                                      Its (Vice) President

                                      -15-
<PAGE>

                             SHOPCO-WI, LLC

                             By:________________________________
                                      Its (Vice) President

                             FIVE STAR QUALITY CARE, INC.

                             By:_______________________
                                      Its (Vice) President

                                      -16-
<PAGE>

                                   SCHEDULE A

                             PROPOSED SNH LICENSEES

1.      SHOPCO-AZ LLC, a Delaware limited liability company.

2.      SHOPCO-CA LLC, a Delaware limited liability company.

3.      SHOPCO-COLORADO LLC, a Delaware limited liability company.

4.      SHOPCO-WI LLC, a Delaware limited liability company.

<PAGE>
<TABLE>
<CAPTION>

                                                  SCHEDULE B

                                                  FACILITIES

                  Property Name                      Property Address                          Tenant
-------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                                    <C>
Cedars Health Care Center                           1599 Ingalls Street                     AMS Properties
                                                    Lakewood, CO

Cherrelyn Manor Nursing Home                        5555 South Elati                        AMS Properties
                                                    Littleton, CO

Christopher East Health Care Center                 1132 East Knapp Street                  AMS Properties
                                                    Milwaukee, WI 53202

Greentree Health Care Center                        70 Greentree Road                       AMS Properties
                                                    Clintonville, WI 54929

La Mesa Health Care Center                          2470 S. Arizona Avenue                  GCIHCC
                                                    Yuma, AZ 85364

La Salette Health Care & Rehabilitation Center      537 E. Fulton                           GCIHCC
                                                    Stockton, CA 95204

Lancaster Health Care Center                        1642 West Avenue "J"                    AMS Properties
                                                    Lancaster, CA

Northwest Health Care Center                        7800 West Fond du Lac Avenue            AMS Properties
                                                    Milwaukee, WI 53218

Pine Manor Health Care Center                       East Side of County Y Highway           AMS Properties
                                                    Embarrass (Clintonville), WI

River Hills West Health Care Center                 321 Riverside Drive                     AMS Properties
                                                    Pewaukee, WI 53072

Sunny Hill Health Care Center                       4325 Nakoma Road                        AMS Properties
                                                    Madison, WI

Sunquest Village of Yuma                            265 East 24th Street                    GCIHCC
                                                    Yuma, AZ 85364

Thousand Oaks Health Care Center                    93 West Avenida de los Arobules         AMS Properties
                                                    Thousand Oaks, CA 91360

Van Nuys Health Care Center                         6835 Hazeltine Avenue                   AMS Properties
                                                    Van Nuys, CA 91405

Village Green Nursing Home                          2932 North 14th Street                  GCIHCC
                                                    Phoenix, AZ 85094

Virginia Health Care Center                         1471 Waukesha Avenue                    AMS Properties
                                                    Waukesha, WI

Woodland Health Care Center                         18740 W. Bluemound Road                 AMS Properties
                                                    Brookfield, WI
</TABLE>

<PAGE>

                                   SCHEDULE C

                           FORM OF OCCUPANCY AGREEMENT

                               See attached copy.

               [See Schedule 3.5-B to the Settlement Agreement.]

<PAGE>

                                   SCHEDULE D

                               Designated Services

     Information Technology Support                              1.0%

            Reimbursement                                        0.5%

Accounts Payable and Payroll Processing                          1.5%

   Facility, Regional and Clinical                               2.0%
   (Quality Assurance) Operations

<PAGE>

                                 SCHEDULE 3.5-B

                       FORM OF INTERIM OCCUPANCY AGREEMENT

<PAGE>

                           INTERIM OCCUPANCY AGREEMENT

         This Interim Occupancy  Agreement (this "Interim Occupancy  Agreement")
is made this ___ day of 2000,  between [insert name of applicable New Operator],
a Delaware  corporation  ("Sublessor"),  and [insert name of applicable  Mariner
Licensee], a Delaware corporation ("Sublessee").

                                   WITNESSETH

         WHEREAS,  SPTMNR  Properties  Trust, a Maryland real estate  investment
trust  ("SPTMNR"),  and Sublessor are parties to an Amended and Restated  Master
Lease  Agreement,  dated as of  ____________  ___,  ______ (the  "Lease"),  with
respect to the skilled  nursing  facility  known as "[insert  name of facility]"
(the "Facility"); and

         WHEREAS,  SPTMNR,  Sublessor,  Sublessee and various other parties have
entered into a Settlement  Agreement (the "Settlement  Agreement"),  pursuant to
which  Sublessee has agreed to manage the operation of the Facility on the terms
contained therein and in an Interim Management  Agreement,  dated as of the date
hereof (the "Interim  Management  Agreement"),  between Sublessor and Sublessee;
and

         WHEREAS, in order to accomplish the foregoing,  Sublessor has agreed to
sublease the Facility to Sublessee on the terms contained herein;

         NOW THEREFORE, in consideration of the premises, and for other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged by the parties hereto,  the parties hereto,  intending to be bound,
hereby agree as follows:

         1. Sublease.  Upon and subject to the terms and conditions  hereinafter
set forth,  Sublessor  subleases to  Sublessee,  and  Sublessee  subleases  from
Sublessor,  all of  Sublessor's  right,  title and  interest  in,  to,  under or
relating  to the  real  property,  improvements,  fixtures  and  related  rights
constituting  the  Facility  (the  "Demised   Premises"),   including,   without
limitation,  any leasehold rights of Sublessor  relating to the use or occupancy
thereto,  and  Sublessor  agrees that  Sublessee  has and will  continue to have
throughout the term of this Interim  Occupancy  Agreement,  the right to use and
occupy the Demised Premises as the licensed operator of the Facility.

         2. Term. The term of this Interim Occupancy Agreement shall commence on
the  date  hereof,  and  shall  end on the  earlier  of (i) the  date  on  which
Sublessee's  obligation to provide services in connection with the management of
the operation of the Facility under the Interim Management  Agreement shall have
expired  or been  terminated  pursuant  to the  terms  thereof  and (ii) the SNH
Licensing Date (as defined in the Interim Management  Agreement).  Sublessor and
Sublessee acknowledge that under the Interim Management Agreement, Sublessor may
terminate Sublessee's provision of one or more services thereunder,  and that if
Sublessor shall elect to do so, this Interim Occupancy Agreement shall remain in
effect  notwithstanding  such termination  until Sublessor shall have elected to
terminate  Sublessee's  provision of all services  under the Interim  Management
Agreement with respect to the Facility.
<PAGE>

         3.  Rent.  Sublessee  shall pay to  Sublessor  as the rent  under  this
Interim Occupancy Agreement (the "Rent"),  all net patient revenues derived from
the  operation  of the  Facility  during  the  term  of this  Interim  Occupancy
Agreement  to the extent such net patient  revenues  are  actually  collected by
Sublessee.  Except as expressly set forth in the preceding  sentence,  Sublessee
shall  have no  obligation  to pay any  amounts or perform  any  obligations  in
respect of this Interim Occupancy Agreement;  it being the purpose and intent of
Sublessor and Sublessee that this Interim  Occupancy  Agreement is a gross lease
and  that  except  for  the  payment  of  the  Rent,  all  costs,  fees,  taxes,
impositions,  utility  charges,  repairs,  alterations,  restorations,  charges,
expenses,  reimbursements  and  obligations of every kind and manner  whatsoever
relating to the Demised  Premises  which may arise or become due during or after
the term of this Interim  Occupancy  Agreement,  shall be paid and discharged by
Sublessor.

         4.  Surrender  of  Possession.  At the end of the term of this  Interim
Occupancy Agreement, Sublessee shall surrender the Facility to Sublessor and, if
Sublessee shall fail to do so, Sublessee shall be a tenant-at-sufferance subject
to all of the terms of this Interim  Occupancy  Agreement except that Rent shall
be twice the Rent in effect  immediately  prior to the expiration or termination
hereof.  Sublessee  shall be liable for all damages  incurred by  Sublessor as a
result of such holding over.

         5. No Subletting or  Assignment.  Sublessee  shall not sublet or assign
any or all of the Facility  without the prior  consent of  Sublessor;  provided,
however,  that the  foregoing  shall not be deemed to  prohibit  Sublessee  from
permitting  patients or residents to occupy the Facility in the ordinary  course
of Sublessee's business.

         6. Notices.  All notices  required or permitted  hereunder  shall be in
writing and shall be deemed to be properly  given when  personally  delivered to
the party  entitled to receive the notice or on the date of actual  receipt,  if
sent by  certified  or  registered  mail,  postage  prepaid  and return  receipt
requested,  or one  business  day  after  being  sent by  nationally  recognized
overnight courier service,  properly  addressed and postage prepaid to the party
entitled to receive such notice at the address stated below:

If to the Sublessor:                ____________________
                                    400 Centre Street
                                    Newton, MA 02458
                                    Attention: Treasurer

with a copy to:                     Sullivan & Worcester LLP
                                    One Post Office Square
                                    Boston, MA 02109
                                    Attention:  Nancy S. Grodberg, Esq.

If to the Sublessee:                ____________________
                                    One Ravinia Drive, Suite 1500
                                    Atlanta, GA 30346
                                    Attention:  Associate General Counsel

                                      -2-
<PAGE>

with a copy to:                     Powell, Goldstein, Frazier & Murphy
                                    191 Peachtree Street
                                    Atlanta, GA 30308
                                    Attention:  Douglas S. Gosden, Esq.

7.      Miscellaneous.

                  (a) All the  terms and  provision  of this  Interim  Occupancy
Agreement  shall be binding upon and inure to the benefit of the parties  hereto
and their respective  successors and permitted  assigns.  Neither party shall be
entitled to assign its rights or  obligations  under this  Sublease  without the
prior consent of the other party hereto.

                  (b) The headings in this Interim  Occupancy  Agreement are for
convenience of reference only and shall not limit or otherwise  affect the terms
hereof.

                  (c) This Interim Occupancy  Agreement shall be governed by and
construed  in  accordance  with the  internal  laws of the  State  in which  the
Facility  is  located,  without  giving  effect  to  contrary  conflicts  of law
principles.

                  (d)  This  Interim  Occupancy  Agreement  may be  executed  in
separate counterparts, each of which shall be considered an original, and all of
which, when taken together, shall constitute one and the same instrument.

                  (e) This Interim Occupancy Agreement  (including the Schedules
and Exhibits  hereto),  and the other  documents  and  instruments  specifically
provided for herein and therein,  contain the entire  understanding  between the
parties  concerning  the  subject  matter  hereof  and  thereof,  and  except as
expressly provided for herein or therein, supersede all prior understandings and
agreements  whether  oral or written,  between  them with respect to the subject
matter hereof and thereof.

                  (f) Neither this Interim Occupancy Agreement nor any provision
hereof may be changed, waived,  discharged or terminated except by an instrument
in writing signed by Sublessor and Sublease.

                  (g) Any  rights or  remedies  that any party  hereto  may have
under this Interim  Occupancy  Agreement with respect to any matter shall not be
deemed to be such  party's  exclusive  rights or remedies  with  respect to such
matter  arising  out of the  Settlement  Agreement  (or  any of the  Transaction
Documents  referred  to  therein),  and any party may  exercise  its  rights and
remedies under this Interim Occupancy Agreement or the Settlement  Agreement (or
any of the Transaction Documents referred to therein) concurrently with any such
other rights or  remedies,  or in any order that it  determines  in its sole and
absolute discretion.

                            [SIGNATURES ON NEXT PAGE]

                                      -3-
<PAGE>

         IN WITNESS  WHEREOF,  the parties  have caused this  Interim  Occupancy
Agreement to be executed and  delivered by their  respective  officers  hereunto
duly authorized.

SUBLESSOR:                                     SUBLESSEE:

[insert name of applicable New Operator]       [insert name of Mariner Licensee]

By:___________________________                  By:___________________________
Its: _________________________                  Its: _________________________

<PAGE>

                                  SCHEDULE 3.6

                             TRANSFERRED REAL ESTATE

         [This schedule contains legal descriptions of real property.]

<PAGE>

                                  SCHEDULE 6.7

                                   LITIGATION

                                   [Omitted.]

<PAGE>
<TABLE>
<CAPTION>

                                                     SCHEDULE 9.5

                                                  BEDS AND SERVICES

                Property Name                         Beds                             Services
--------------------------------------------------------------------------------------------------------------------

<S>                                                 <C>          <C>
Cedars Health Care Center                            175/14       Skilled Nursing Facility/Assisted Living Facility

Cherrelyn Manor Health Care Center                    230         Skilled Nursing Facility

Christopher East Health Care Center                   215         Skilled Nursing Facility

Greentree Health Care Center                           69         Skilled Nursing Facility

La Mesa Health Care Center                            128         Skilled Nursing Facility

La Salette Health Care and Rehab. Center              120         Skilled Nursing Facility

Lancaster Health Care Center                           99         Skilled Nursing Facility

Northwest Health Care Center                          101         Skilled Nursing Facility

Pine Manor Health Care Center                        83/25        Skilled Nursing Facility/Facility for Dev. Disabled

River Hills West Health Care Center                   237         Skilled Nursing Facility

Sunny Hill Health Care Center                          73         Skilled Nursing Facility

Sunquest Village of Yuma                               80         Assisted Living Facility

Thousand Oaks Health Care Center                      124         Skilled Nursing Facility

Van Nuys Health Care Center                            58         Skilled Nursing Facility

Village Green Health Care Center                      127         Skilled Nursing Facility

Virginia Health Care Center                           105         Skilled Nursing Facility

Woodland Health Care Center                           226         Skilled Nursing Facility

</TABLE>

<PAGE>

                                  SCHEDULE 9.15

                       LABOR UNION CONTRACTS OR AGREEMENTS

1.       Contract Agreement,  dated as of May 1, 1998, between Local 150 Service
         Employees   International  Union  AFL-CIO-CLC  and  Mariner  Post-Acute
         Network,  Inc.  d/b/a The  Shores  Health  and  Rehabilitation  Center,
         Northwest Healthcare Center, Christopher East Health and Rehabilitation
         Center, and Park Manor Heathcare Center and Healthcare  Services Group,
         Inc., a Contractor.

2.       Collective  Bargaining  Agreement,  dated May 1, 1998,  between Mariner
         Post Acute  Network,  d/b/a River Hills West  Nursing Home and District
         1199W/United Professionals for Quality Health Care, SEIU, AFL-CIO.

<PAGE>

                                  SCHEDULE 9.16

                                EMPLOYEE ACCRUALS

                                   [Omitted.]

<PAGE>

                                  SCHEDULE 9.18

                               INSURANCE POLICIES

                                   [Omitted.]

<PAGE>

                                  SCHEDULE 9.19

                          SUBLEASES AND OTHER DOCUMENTS

Fresno Sublease Documents

         Pleasant Care Corporation

1.       Tenant Purchase and Sale Agreement,  dated March 31, 1993, by and among
         GCI  Properties,  Inc.("GCI  Properties"),  AMS Properties and Pleasant
         Care Corporation ("Pleasant Care") (Exhibits A through H missing).

2.       Sublease   Agreement,   dated  March  31,  1993,  by  and  between  AMS
         Properties, as sublessor, and Pleasant Care, as subtenant.

3.       Assignment and Assumption of Contracts,  dated as of March 31, 1993, by
         AMS Properties (Exhibit A missing).

4.       Bill of Sale,  dated  March 31,  1993,  by AMS  Properties  (Exhibit  A
         missing).

5.       Temporary  Management  Agreement,  dated as of March 31,  1993,  by and
         between AMS Properties and Pleasant Care.

6.       Management/Transition  Agreement,  dated as of March 31,  1993,  by and
         between AMS Properties and Pleasant Care.

7.       Security  Agreement,  dated as of March 31, 1993, by and among Pleasant
         Care and GCI Properties, AMS Properties and GranCare.

8.       Guaranty, dated as of March 31, 1993, by Emanuel I. Bernabe in favor of
         GCI Properties, AMS Properties and GranCare.

9.       UCC-1  Financing  Statement,  dated March 31, 1993, by Pleasant Care in
         favor of GCI Properties, AMS Properties and GranCare.

10.      Assignment  of Leases and  Rents,  dated as of March 31,  1993,  by AMS
         Properties to HRPT.

11.      Assignment  of Sublease  Documents,  dated as of March 31, 1993, by AMS
         Properties, GCI Properties, and GranCare to HRPT.

12.      Memorandum  of Sublease,  made as of March 31, 1993, by and between AMS
         Properties and Pleasant Care.

13.      UCC-1 Financing Statement (undated) by GCI Properties in favor of HRPT,
         as assignee.

14.      UCC-2  Financing  Statement  by  Pleasant  Care in favor  of  HRPT,  as
         assignee.

<PAGE>
         Covenant Care California, Inc.

1.       Assignment  and  Assumption of Sublease,  Consent,  Waiver and Estoppel
         Agreement,  dated as of  January  13,  1995,  by and  among  HRPT,  AMS
         Properties, Pleasant Care and Covenant Care California, Inc. ("Covenant
         Care").

2.       Assignment of Sublease Documents,  dated as of January 13, 1995, by AMS
         Properties to HRPT.

3.       Letter  Agreement,  dated as of January 13,  1995,  between  HRPT,  AMS
         Properties,  GranCare and GCIHCC re:  Transfer  from  Pleasant  Care to
         Covenant Care of Rights as Sublessee under Sublease,  dated as of March
         31, 1993.

4.       Memorandum of Sublease, dated as of January 13, 1995.

5.       UCC-1 Financing Statement, notarized January 11, 1995, by Covenant Care
         in favor of AMS Properties.

6.       UCC-2 Financing Statement, notarized January 11, 1995, by Covenant Care
         in favor of AMS Properties and HRPT, as assignee

South Dakota Sublease Documents

         HealthQuest,  Inc.  (Southridge  Health Care  Center/Mom & Dad's Health
         Care Center)

1.       Tenant Purchase and Sale Agreement,  dated as of March 31, 1994, by and
         between GCIHCC and HealthQuest, Inc. ("HealthQuest").

2.       Sublease,  dated  as of March  31,  1994,  by and  between  GCIHCC  and
         HealthQuest.

3.       Transition  Agreement  dated as of March 31, 1994 by and between GCIHCC
         and HealthQuest.

4.       Amended and Restated Security Agreement,  made as of March 31, 1994, by
         and between GCIHCC and HealthQuest.

5.       Assignment and Assumption of Contracts,  dated as of March 31, 1994, by
         GCIHCC to HealthQuest.

6.       Bill of Sale, dated as of March 31, 1994 by GCIHCC.

7.       Amended and Restated  Promissory  Note,  dated as of March 31, 1994, by
         HealthQuest in favor of GCIHCC in the amount of $1,190,000.00.

8.       Promissory Note, dated as of March 31, 1994, by HealthQuest in favor of
         GCIHCC in the amount of $450,000.00.

9.       Amended and Restated  Guaranty of Joseph M.  Higdon,  dated as of March
         31, 1994.

                                      -ii-
<PAGE>

10.      Omnibus First Amendment  Agreement,  dated as of April 15, 1994, by and
         between GCIHCC and HealthQuest.

11.      UCC-1 Financing  Statement by HealthQuest d/b/a Mom & Dad's Home Health
         Care Center in favor of GCIHCC.

         HealthQuest (Huron Nursing Home/Sunquest Village)

1.       Tenant Purchase and Sale Agreement,  dated as of April 29, 1994, by and
         between GCIHCC and HealthQuest.

2.       Sublease,  dated  as  of  May  1,  1994,  by  and  between  GCIHCC  and
         HealthQuest.

3.       Transition Agreement, dated as of April 29, 1994, by and between GCIHCC
         and HealthQuest.

4.       Security  Agreement,  made as of May 1, 1994, by and between GCIHCC and
         HealthQuest.

5.       Assignment  and  Assumption of  Contracts,  dated as of May 1, 1994, by
         GCIHCC to HealthQuest.

6.       Bill of Sale, dated as of May 1, 1994, by GCIHCC.

7.       Secured  Promissory  Note,  dated as of May 1, 1994, by  HealthQuest in
         favor of GCIHCC in the amount of $240,000.00.

8.       Secured  Promissory  Note,  dated as of May 1, 1994, by  HealthQuest in
         favor of GCIHCC in the amount of $1,360,000.00.

9.       Secured  Promissory  Note,  dated as of May 1, 1994, by  HealthQuest in
         favor of GCIHCC in the amount of $450,000.00.

10.      Guaranty of Joseph M. Higdon, dated as of May 1, 1994.

11.      UCC-1  Financing  Statement by HealthQuest  d/b/a  Sunquest  Village of
         Huron and d/b/a Huron Nursing Home in favor of GCIHCC.

                                     -iii-EXHIBIT 10.2

                              SETTLEMENT AGREEMENT

     This SETTLEMENT AGREEMENT made this 11th day of April 2000, by and among:

                  (a) SENIOR  HOUSING  PROPERTIES  TRUST, a Maryland real estate
         investment  trust  ("SNH") and its  wholly-owned  subsidiaries,  SPTIHS
         PROPERTIES TRUST ("SPTIHS"), HRES1 PROPERTIES TRUST ("HRES1") and HRES2
         PROPERTIES  TRUST  ("HRES2"),  each a Maryland  real estate  investment
         trust;

                  (b)  SHOPCO-COLORADO,  LLC, SHOPCO-CT,  LLC,  SHOPCO-GA,  LLC,
         SHOPCO-IA,   LLC,  SHOPCO-KS,  LLC,  SHOPCO-MA,  LLC,  SHOPCO-MI,  LLC,
         SHOPCO-MO,  LLC,  SHOPCO-NE,  LLC, and SHOPCO-WY,  LLC, each a Delaware
         limited liability company (collectively, the "New LLC Operators");

                  (c) SNH-NEBRASKA,  INC.,  SNH-IOWA,  INC.,  SNH-MASSACHUSETTS,
         INC. and SNH-MICHIGAN, INC., each a Delaware corporation (collectively,
         the "New Corporate Operators");

                  (d) FIVE STAR QUALITY CARE, INC., a Delaware  corporation (the
         "New Manager");

                  (e) ADVISORS  HEALTHCARE GROUP,  INC., a Delaware  corporation
         (f/k/a "Connecticut Subacute Corporation II") ("Advisors," and together
         with  SNH,  SPTIHS,  HRES1,  HRES2,  the  New  LLC  Operators,  the New
         Corporate  Operators  and  the  New  Manager,  collectively,  the  "SNH
         Entities");

                  (f) INTEGRATED HEALTH SERVICES,  INC., a Delaware  corporation
         ("IHS");

                  (g) the following  wholly-owned  subsidiaries of IHS (the "IHS
         Subsidiaries"): COMMUNITY CARE OF AMERICA, INC., a Delaware corporation
         ("CCA"), ECA HOLDINGS, INC., a Delaware corporation ("ECA"),  COMMUNITY
         CARE OF NEBRASKA,  INC., a Delaware corporation  ("CCN"),  W.S.T. CARE,
         INC., a Nebraska corporation ("WST") and QUALITY CARE OF LYONS, INC., a
         Nebraska  corporation  ("Lyons",  and  together  with CCN and WST,  the
         "SPTIHS  Mortgagors"),  CCA ACQUISITION I, INC., a Delaware corporation
         ("CCAA"),  MARIETTA/SCC,  INC.,  a  Georgia  corporation  ("Marietta"),
         GLENWOOD/SCC,  INC., a Georgia  corporation  ("Glenwood"),  DUBLIN/SCC,
         INC., a Georgia corporation ("Dublin"),  and COLLEGE PARK/SCC,  INC., a
         Georgia corporation ("College Park"), and IHS ACQUISITION NO. 108, INC.
         ("IHS 108"), IHS ACQUISITION NO. 112, INC. ("IHS 112"), IHS ACQUISITION
         NO. 113, INC. ("IHS 113"),  IHS  ACQUISITION NO. 135, INC. ("IHS 135"),
         IHS  ACQUISITION  NO. 148, INC. ("IHS 148"),  IHS  ACQUISITION NO. 152,
         INC.  ("IHS 152"),  IHS  ACQUISITION  NO. 153,  INC.  ("IHS 153"),  IHS
         ACQUISITION  154, INC. ("IHS 154"), IHS ACQUISITION NO. 155, INC. ("IHS
         155") and IHS  ACQUISITION  NO. 175, INC. ("IHS 175"),  each a Delaware
         corporation (collectively, the "IHS Acquisition Subsidiaries"); and
<PAGE>

                  (h) INTEGRATED HEALTH SERVICES AT GRANDVIEW CARE CENTER, INC.,
         a Delaware corporation,  ECA PROPERTIES,  INC., a Delaware corporation,
         CCA OF MIDWEST,  INC.,  a Delaware  corporation,  and  QUALITY  CARE OF
         COLUMBUS,  INC., a Nebraska corporation (together with ECA, IHS 148 and
         CCN, collectively,  the "New Property Owners" and together with IHS and
         the  IHS  Subsidiaries,   collectively,   the  "IHS  Entities"  or  the
         "Debtors"), each a wholly-owned Subsidiary of IHS.

                                   WITNESSETH:

         WHEREAS,  SPTIHS, HRES1 and HRES2 are the respective owners of the real
property,  buildings,  plant and equipment and certain of the personal  property
used in connection with the operation of the health care and health care related
facilities  described in Appendix 1 hereto as the SPTIHS Leased  Facilities (the
"SPTIHS  Leased  Facilities"),  the HRES1 Leased  Facilities  (the "HRES1 Leased
Facilities") and the HRES2 Leased Facilities (the "HRES2 Leased Facilities," and
together  with the SPTIHS  Leased  Facilities  and the HRES1 Leased  Facilities,
collectively, the "Leased Facilities"), respectively; and

         WHEREAS,  SPTIHS leased the SPTIHS Leased Facilities to ECA,  Marietta,
Glenwood,  Dublin and College Park (the "SPTIHS Tenants")  pursuant to the lease
agreement  described  in  Appendix 2 hereto as the "SPTIHS  Lease" (the  "SPTIHS
Lease");  HRES1 leased the HRES1 Leased  Facilities  to  Horizon/CMS  Healthcare
Corporation,  f/k/a  Horizon  Healthcare  Corporation,  a  Delaware  corporation
("Horizon")  pursuant to the lease  described  in Appendix 2 with respect to the
HRES1 Leased Facility  located in Canonsburg,  Pennsylvania  (the  "Pennsylvania
Facility) and Horizon has assigned the HRES1 Lease for the Pennsylvania Facility
to IHS 135;  HRES1  leased the  remaining  HRES1  Leased  Facilities  to Horizon
pursuant to the lease  agreements  described  in Appendix 2 hereto as the "HRES1
Lease"  (collectively,  together  with  the  HRES1  Lease  with  respect  to the
Pennsylvania   Facility,  the  "HRES1  Lease")  and  Horizon  has  entered  into
management  agreements (the "HRES1  Management  Agreements") with respect to the
remaining  HRES1  Leased  Facilities  with IHS 152, IHS 153, IHS 154 and IHS 155
(together with IHS 135, collectively, the "HRES1 Tenants," and together with IHS
135 and the SPTIHS Tenants,  collectively  the "IHS Tenants");  and HRES2 leased
the HRES2 Leased  Facilities  to Advisors,  as tenant,  as an  accommodation  to
Horizon, and Advisors in turn entered into certain Management  Agreements,  each
dated as of February  11,  1994,  as amended to date  (collectively,  the "HRES2
Management  Agreements")  pursuant  to which IHS 175 (as  successor  to Horizon)
agreed to act as Manager of the HRES2 Leased Facilities; and

         WHEREAS,  each of SPTIHS and HRES1 holds first  mortgages  and security
interests (the "SPTIHS  Mortgages" and the "HRES1  Mortgages,"  respectively) in
all of the real property,  buildings,  plant and equipment and substantially all
personal  property used in connection  with the operation of the health care and
health care  related  facilities  described  in Appendix 1 hereto as the "SPTIHS
Mortgaged  Facilities"  (the  "SPTIHS  Mortgaged  Facilities")  and  the  "HRES1
Mortgaged  Facilities" (the "HRES1 Mortgaged  Facilities," and together with the
SPTIHS  Mortgaged  Facilities,  collectively,  the "Mortgaged  Facilities";  the
Mortgaged  Facilities  and the Leased  Facilities,  collectively,  the "Existing
Facilities"),  respectively,  securing  certain  promissory  notes  described in
Appendix 2 hereto as the "SPTIHS  Mortgage

                                      -2-
<PAGE>

Notes" (the "SPTIHS  Mortgage Notes") by the SPTIHS  Mortgagors  parties thereto
and  certain  promissory  notes  described  in  Appendix  2 hereto as the "HRES1
Mortgage  Notes"  (the "HRES1  Mortgage  Notes,"  and  together  with the SPTIHS
Mortgage Notes,  collectively the "Mortgage  Notes") by IHS 113, IHS 112 and IHS
108  (collectively,  the  "HRES1  Mortgagors,"  and  together  with  the  SPTIHS
Mortgagors, collectively, the "IHS Mortgagors"); and

         WHEREAS,  IHS has guaranteed to SPTIHS,  HRES1,  HRES2 and Advisors the
prompt and complete  payment and  performance of the various  obligations of the
IHS  Subsidiaries  to SPTIHS,  HRES1,  HRES2 and  Advisors  pursuant  to various
guaranty  agreements  described  in  Appendix  2 hereto as the "IHS  Guaranties"
(collectively, the "IHS Guaranties"); and

         WHEREAS, the SNH Entities claim that by notices dated January 25, 2000,
HRES1  notified  certain  of the IHS  Entities  that the  HRES1  Lease as to the
Pennsylvania  Facility was terminated by virtue of an Event of Default under the
HRES1 Lease and that SPTIHS notified certain of the IHS Entities that the SPTIHS
Lease was terminated by virtue of an Event of Default under the SPTIHS Lease;

         WHEREAS,  pursuant to that certain  letter  dated  January 25, 2000 and
addressed to Lyons, WST and CCN, SPTIHS exercised its option to purchase certain
Nebraska  Facilities under the Right of First Refusal and Option Agreement dated
as of September 24, 1997 among SPTIHS (as  successor in interest to HRPT),  CCN,
WST and Lyons; and

         WHEREAS,  on February 2, 2000 (the  "Petition  Date"),  each of the IHS
Entities filed voluntary petitions for relief (collectively,  the "Cases") under
Chapter 11 of the United States Bankruptcy Code,  ss.ss.101 et seq. (the "Code")
with the United  States  Bankruptcy  Court for the  District  of  Delaware  (the
"Court"); and

         WHEREAS,  the IHS Entities are  continuing to operate their  respective
businesses  and manage  their  respective  properties  as  debtors-in-possession
pursuant to ss.ss.1107 and 1108 of the Code; and

         WHEREAS,  the  obligations  of the IHS  Entities  with  respect to each
Existing  Facility under the various  agreements or instruments  entered into by
the various  IHS  Entities  with or for the benefit of the various SNH  Entities
prior to the date hereof,  including the agreements and instruments  referred to
above (excluding the HRES1 Management  Agreements,  collectively,  the "Existing
Documents") or otherwise under applicable law,  constitute a substantial  burden
on the financial and administrative  resources of the IHS Entities,  and the IHS
Entities have concluded that these burdens substantially outweigh any advantages
to be had by  continuing  to operate each such  Existing  Facility in accordance
with the Existing Documents; based on this conclusion, the IHS Entities propose,
among other things,  to cease operating and/or managing the Existing  Facilities
(except for the Pennsylvania  Facility and the HRES1 Mortgaged  Property located
at  Slidell,   Louisiana  (the  "Slidell  Facility"))  and  to  liquidate  their
obligations to the SNH Entities in an orderly  fashion,  in each case subject to
the terms and conditions set forth herein; and

         WHEREAS,  the SNH  Entities  are  willing  to agree  to such  proposal,
subject to the terms and conditions set forth herein;

                                      -3-
<PAGE>

         NOW  THEREFORE,  in  consideration  of  the  premises  and  the  mutual
covenants  and  agreements  herein  contained,  and for other good and  valuable
consideration,  the receipt and adequacy of which are hereby  acknowledged,  the
parties hereto hereby agree as follows:

                                   ARTICLE 1

                                   DEFINITIONS

         1.1  Definitions.  The  following  capitalized  terms  shall  have  the
meanings set forth below:

         "Agreement"  shall  mean  this  Settlement  Agreement,   including  all
Appendices,  Schedules and Exhibits thereto,  as it and they may be amended from
time to time as herein provided.

         "Assigned  Contracts"  shall mean, on the Closing  Date,  the Contracts
listed  on  Schedule  1.1A  hereto,  and any  Existing  Document  to the  extent
contemplated  to be assigned to an SNH Entity pursuant to Section 3.2. Such term
shall also  include  all other  Contracts  subsequently  designated  pursuant to
Section 7.6.

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

         "Consumables"  shall mean, with respect to any Facility,  all inventory
and consumables, including, without limitation, food, central supplies, unopened
linens and  housekeeping  supplies and other  consumables,  customarily  used or
consumed in the day-to-day operation of such Facility.

         "Contracts" shall mean, with respect to each Facility, each instrument,
contract and  agreement  to which the IHS  Operator of such  Facility is a party
that benefits,  relates to or affects such Facility,  or the operation of or the
provision of services in  conjunction  with such  Facility  (including,  without
limitation, Provider Agreements).

         "Data"  shall mean data and records  related to the  operation  of each
Transfer Facility, including employee information,  vendor information,  general
ledger  transactions,   payroll  transactions,  chart  of  accounts,  peoplesoft
database  structures and tables,  report definitions and all records,  including
medical records, of patients or residents of the Transfer  Facilities,  that are
embodied or contained in the format or media  associated  with the  Intellectual
Property or in the general corporate information systems of the IHS Entities.

         "Employee  Benefits"  shall mean,  with  respect to any  Facility,  all
wages, salary,  health insurance coverage,  disability coverage,  severance pay,
withholding,  social security or other employment taxes,  vacation and sick pay,
bonuses,   commissions,   pensions,   profit  sharing,  stock  option  or  other
arrangements or other fringe benefits or other employee benefit plans, practices
or  arrangements,  whether  written  or oral,  covering  any  present  or former
employee of such Facility as of the moment preceding the Effective Time, whether
or not yet payable.

                                      -4-
<PAGE>

         "Excluded Assets" shall mean, with respect to each Facility:  all cash,
bank accounts,  bonds,  security deposits and cash equivalents  maintained at or
for the account of such Facility;  all accounts receivable arising from services
rendered prior to the Effective Time; insurance policies and insurance contracts
and all prepaid  expenses;  all Proprietary  Information  (other than Data); the
right to use the name "Integrated  Health  Services," "IHS" or "Symphony" or any
derivation  thereof in its name; any personal  property of any IHS Entity (other
than books and  records  and Data) that are in the  ordinary  course of business
located  at  the  corporate  offices  of IHS at  910  Ridgebrook  Road,  Sparks,
Maryland;  any employee benefit plans or insurance  coverage provided by any IHS
Entity; any claims against third parties,  including  insurance  companies,  for
reimbursement,   indemnification   or  under  any  warranties  with  respect  to
Pre-Effective  Time  Obligations  or with respect to any asset or properties not
being conveyed or  relinquished to an SNH Entity as provided  hereunder;  use of
the  acquisition,  accounting,  legal,  management  information  service,  human
resource,  risk management and other corporate  functions provided by IHS to any
of the IHS Entities  (other than, in each case,  Data);  tax refunds,  if any in
respect of tax periods  ending on or prior to the  Effective  Time;  the capital
stock of any IHS Entity;  and the minute  books,  stock  record  books and stock
ledgers of each IHS Entity and any other books,  records or other data  relating
solely to Excluded Assets or Pre-Effective Time Obligations (other than, in each
case, Data).

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

         "Governmental Authority" shall mean all agencies, authorities,  bodies,
boards, commissions, courts, instrumentalities,  legislatures and offices of any
nature  whatsoever,  of any government  unit or political  subdivision,  whether
federal, state, county, district,  municipal, city or otherwise, and whether now
or hereafter in existence.

         "HealthSouth"   shall   mean   HealthSouth   Corporation,   a  Delaware
corporation.

         "IHS  Operator"  shall  mean,  with  respect to any  Facility,  the IHS
Tenant,  the IHS  Mortgagor,  the New Property Owner or IHS 175 that operates or
manages such Facility immediately prior to the Effective Time.

         "Intellectual  Property" means the software  applications  described on
Schedule 1.1C hereto including the Data imbedded therein.

         "Knowledge" shall mean, with respect to any IHS Entity, only the actual
knowledge of Dan Booth or his  successor as Senior Vice  President,  Finance (or
successor  office) of IHS, any regional vice president (or successor  office) of
IHS with authority over a region that includes any Facility  owned,  operated or
managed prior to the Effective Time by such IHS Entity, and the administrator of
such Facility.

         "Material  Adverse Effect" shall mean a material  adverse effect on (a)
the business,  operations, assets, property, condition (financial or otherwise),
after the Effective Time, of any Facility being returned,  conveyed or otherwise
relinquished to an SNH Entity pursuant to this Agreement,  (b) the  consummation
of the  transactions  contemplated  hereby  or  (c)  the  enforceability  of any
material provision of any Settlement Document.

                                      -5-
<PAGE>

         "Permits"  shall mean,  with  respect to any  Facility,  all  licenses,
approvals,   certificates   of  need,   determinations   of  need,   franchises,
accreditations,   certificates,  certifications,  consents,  permits  and  other
authorizations  benefiting,  relating  to or  affecting  the  operation  of such
Facility or the  operation of programs or  provision of services in  conjunction
with such Facility,  issued by or entered into with any Governmental  Authority,
Third Party Payor or  accreditation  body,  and all renewals,  replacements  and
substitutions therefor (excluding, however, Provider Agreements).

         "Permitted  Encumbrances" shall mean, with respect to the real property
and the improvements at each Facility, those liens and encumbrances of record on
February  2,  2000,  including,  without  limitation,  those  disclosed  in  the
marked-up title  commitments or title policies or reports (the "Title  Reports")
issued by the Title  Company to the SNH  Entities on or prior to such date,  but
excluding  in  any  event  (a)  any  such  lien,  claim,  security  interest  or
encumbrance arising under any instrument,  agreement, indenture or understanding
for the benefit of any IHS Entity or any  affiliate  thereof,  or which has been
granted by Order of the  Court,  (b) any  encumbrance  listed on  Schedule  1.1B
hereto,  or (c) any such lien,  claim,  security  interest or encumbrance  first
appearing of record after  February 2, 2000.  Real estate taxes for the Transfer
Facilities   (other   than  the  five  (5)   Transfer   Facilities   located  in
Massachusetts)  shall be  apportioned  between  the parties at the Closing as of
February 2, 2000.

         "Person" shall mean all individuals,  corporations, general and limited
partnerships,  limited  liability  companies,  stock companies or  associations,
joint ventures,  unincorporated  associations,  companies,  trusts, banks, trust
companies,  land trusts,  business  trusts,  Governmental  Authorities and other
entities of every kind and nature.

         "Pre-Effective  Time  Obligations"  shall  mean,  with  respect  to any
Facility,  all debts,  liabilities  and  obligations,  whether known or unknown,
absolute,  mature  or not yet due,  liquidated  or  non-liquidated,  contingent,
non-contingent, direct or indirect or otherwise, relating to any Facility and/or
arising  under  any  Permits  or  Contracts  or under any  other  agreements  or
instruments  (including under Provider Agreements or otherwise under Third Party
Payor Programs),  or relating to the management or operation of any Facility, or
arising out of the acts or omissions of any IHS Entity, in each case only to the
extent arising out of or  attributable  to conditions or events  occurring or in
existence  prior to the  Effective  Time,  including,  without  limitation,  the
following:

                  (a)  except to the  extent  specifically  provided  in Section
         10.14,  any costs or expenses  (including,  but not  limited to,  legal
         fees,  accounting fees, consulting and financing costs) incurred by any
         IHS  Entity  in  negotiating  this  Agreement  or in  consummating  the
         transactions contemplated hereby; or

                  (b) any claim as a result of any injury to any person suffered
         at any Facility or in  connection  with the rendering of or the failure
         to  render  services  by any IHS  Entity  or its  employees,  agents or
         representatives  or any  other  person  performing  services  for or on
         behalf of any IHS Entity, prior to the Effective Time; or

                  (c) any liability to, or set off or recoupment  (including set
         off or recoupment against  post-Effective Time accounts receivable) by,
         any Third Party Payor arising out

                                      -6-
<PAGE>

         of events or  conditions  (including an alleged  overpayment  under any
         Third  Party  Payor  Program)  that  occurred  or existed  prior to the
         Effective Time; or

                  (d)  except to the  extent  specifically  provided  in Section
         10.14, any taxes owed by any IHS Entity, including, but not limited to,
         any investment tax recapture,  depreciation  recapture,  employer taxes
         such as FICA and FUTA, any sales or use taxes, any personal property or
         real  property   taxes,   any   withholding   taxes  and  any  workers'
         compensation or unemployment insurance premiums or adjustments; or

                  (e) any claim by any employee of any IHS Entity at or prior to
         the Effective  Time for wages,  salary,  vacation,  holiday,  sick pay,
         welfare  or  fringe   benefits,   and  all  other  accrued  and  unpaid
         obligations of any kind and all Employee Benefits; or

                  (f) any claim  arising  prior to the  Effective  Time,  to the
         extent  arising  under any  instrument,  agreement,  indenture,  lease,
         contract  or  understanding  to which  any IHS  Entity is a party or by
         which  it or he or any of its or his  property  is  bound  (except  for
         obligations arising and to the extent attributable to periods after the
         Effective Time under Assigned Contracts); or

                  (g) any claim  otherwise  arising out of the  operation of any
         Facility  (including  any claim,  order or judgment  arising  under any
         applicable Federal, state or local statutes,  laws,  ordinances,  rules
         and  regulations,   licensing  requirements  or  conditions  (including
         Medicare or Medicaid  requirements  or  conditions,  and  environmental
         laws),  or  involving  the  imposition  of  any  lien  under  any  such
         applicable   law),  in  each  case  only  to  the  extent   arising  or
         attributable  to conditions or events  occurring prior to the Effective
         Time.

         "Proprietary  Information"  shall mean all  operating  manuals  and all
software  applications,  including  the  Intellectual  Property and the software
applications described on Schedule 1.1C hereto.

         "Provider  Agreements"  shall mean,  with respect to any Facility,  all
participation,  provider and reimbursement  agreements or arrangements in effect
for the benefit of or relating to or affecting the operation of any Facility, or
the  operation  of programs or provision  of services  therein,  relating to any
right of  payment  or other  claim  arising  out of or in  connection  with such
Facility's participation in any Third Party Payor Program.

         "Settlement  Documents"  shall mean,  collectively,  this Agreement and
each  agreement,  undertaking  or  instrument  delivered  pursuant  to Article 3
hereof.

         "Third Party Payor  Programs" shall mean all third party payor programs
in which any Facility  participates,  including,  without limitation,  Medicare,
Medicaid,  CHAMPUS,  TRICARE, Blue Cross and/or Blue Shield, managed care plans,
other private insurance programs,  workers  compensation and employee assistance
programs.

         "Third Party Payors" shall mean Medicare,  Medicaid,  CHAMPUS, TRICARE,
Blue Cross  and/or Blue  Shield,  private  insurers  and any other  Person which
maintains Third Party Payor Programs.

                                      -7-
<PAGE>

         "Title Company" means Lawyers Title Insurance Company.

         "Transfer Facilities" shall mean,  collectively,  the Leased Facilities
(except for the Pennsylvania Facility), the Mortgaged Facilities (except for the
Slidell Facility) and the New Facilities.

         1.2 Other Defined  Terms.  The following  terms shall have the meanings
set forth in the sections of this Agreement referred to below:

Defined Term                                                Defined In:
------------                                                -----------
Advisors                                                    Caption
Approval Order                                              ARTICLE 2
Assigning HRES1 Tenants                                     ss.3.2.2
Cases                                                       Recitals
CCA                                                         Caption
CCAA                                                        Caption
CCN                                                         Caption
Closing                                                     ss.3.1
Closing Date                                                ss.3.1
College Park                                                Caption
Code                                                        Recitals
Court                                                       Recitals
Debtors                                                     Caption
Dublin                                                      Caption
ECA                                                         Caption
ECAP                                                        Caption
Effective Time                                              ss.3.1
Existing Documents                                          Recitals
Existing Facilities                                         Recitals
Facilities                                                  ss.3.2.6
foreign person                                              ss.5.6
Glenwood                                                    Caption
Horizon                                                     Recitals
HRES1                                                       Caption
HRES2                                                       Caption
HRES2 Management Agreements                                 Recitals
HRES1 Leased Facilities                                     Recitals
HRES1 Leases                                                Recitals
HRES1 Mortgage Notes                                        Recitals
HRES1 Mortgaged Facilities                                  Recitals
HRES1 Mortgages                                             Recitals
HRES2 Leased Facilities                                     Recitals
IHS                                                         Caption
IHS 108                                                     Caption
IHS 112                                                     Caption
IHS 113                                                     Caption
IHS 135                                                     Caption

                                      -8-
<PAGE>

Defined Term                                                Defined In:
------------                                                -----------
IHS 148                                                     Caption
IHS 152                                                     Caption
IHS 153                                                     Caption
IHS 154                                                     Caption
IHS 155                                                     Caption
IHS 175                                                     Caption
IHS Entities                                                Caption
IHS Releasees                                               ss.9.2
IHS Mortgagor                                               Caption
IHS Subsidiaries                                            Caption
IHS Tenant                                                  Recitals
Interim Sublease Agreement                                  ss.3.2.14
Leased Facilities                                           Recitals
Management and Servicing Agreement                          ss.3.2.14
Marietta                                                    Caption
Mortgage Notes                                              Recitals
Mortgaged Facilities                                        Recitals
New Corporate Operators                                     Caption
New Facilities                                              ss.3.2.6
New LLC Operators                                           Caption
New Manager                                                 Caption
New Property Owners                                         Caption
New Pennsylvania Guaranty                                   ss.3.2.8
New Pennsylvania Lease                                      ss.3.2.8
New Properties                                              ss.3.2.6
New Real Estate                                             ss.3.2.6
Pennsylvania Facility                                       Recitals
Pennsylvania Modification                                   ss.3.2.8
Petition Date                                               Recitals
Slidell Facility                                            Recitals
SNH                                                         Caption
SNH Entities                                                Caption
SNH Releasees                                               ss.9.1
SPTIHS                                                      Caption
SPTIHS Leased Facilities                                    Recitals
SPTIHS Leases                                               Recitals
SPTIHS Mortgage Notes                                       Recitals
SPTIHS Mortgages                                            Recitals
SPTIHS Mortgaged Facilities                                 Recitals
SPTIHS Mortgagors                                           Caption
SPTIHS Tenants                                              Recitals
Transaction Approval Motion                                 ARTICLE 2
WST                                                         Caption

                                      -9-
<PAGE>

                                   ARTICLE 2

                             APPROVAL OF TRANSACTION

         Within ten (10) Business Days following the execution of this Agreement
by all parties,  the IHS Entities  will file a motion with the Court,  in a form
acceptable to both the SNH Entities and the IHS Entities,  seeking  authority to
proceed with the  transactions  and other matters provided for in this Agreement
(the "Transaction  Approval Motion"),  together with a proposed form of order in
the form annexed hereto as Exhibit A (the "Approval Order").  The Approval Order
shall be in the form annexed hereto and shall include such additional provisions
as the SNH Entities and IHS Entities may mutually agree.

                                   ARTICLE 3

                   TRANSACTIONS TO OCCUR AT THE EFFECTIVE TIME

         3.1 Closing Date. The closing of the transactions  contemplated by this
Agreement (the "Closing")  shall occur on the second Business Day (said date, as
it may be extended pursuant to the provisions of this Agreement, herein referred
to as the "Closing Date")  following the first day (which shall not in any event
be later than  sixty days from the date  hereof,  except as  expressly  provided
herein or unless  otherwise  agreed in writing by the SNH  Entities  and the IHS
Entities) on which (i) all of the  conditions set forth in Section 6.1 have been
satisfied  (or waived by the SNH Entities)  and (ii) all of the  conditions  set
forth in Section 6.2 have been  satisfied (or waived by the IHS  Entities).  The
Closing shall be effective at 12:01 A.M. (Boston time) (the "Effective Time") on
the day  following  the Closing  Date. In the event that on the Closing Date the
SNH Entities  shall have any  objections  or other grounds for refusing to close
this  transaction,  and if the SNH Entities shall be unwilling to waive the same
and to close this transaction  without  modification of the terms and provisions
hereof and without allowance of any kind, the IHS Entities shall have the right,
at the IHS Entities' sole election, either (a) use their reasonable,  good faith
efforts to remove,  remedy or comply with such  objections or other grounds,  or
(b) to cancel this Agreement. In the event of the IHS Entities' election to take
action to remove,  remedy or comply with such  objections or other grounds,  the
IHS Entities shall be entitled to one or more  adjournments  of the Closing Date
for one or more  periods not to exceed  thirty (30) days in the  aggregate,  and
such Closing Date shall be adjourned to a date specified by the IHS Entities not
beyond such thirty (30) day period,  provided the IHS  Entities  continue to use
their  reasonable,  good faith  efforts  during such  period.  If for any reason
whatsoever the IHS Entities  shall not have succeeded in removing,  remedying or
complying  with such  objections  or other  grounds  at the  expiration  of such
adjournments,  or at such time prior thereto as the IHS Entities  determine that
they will not be able to  satisfy  same,  the IHS  Entities  shall  give the SNH
Entities  written notice thereof and the SNH Entities may elect (within five (5)
Business Days of receipt of such written  notice),  by written notice to the IHS
Entities, to consummate this transaction without satisfaction of, and subject to
such objection or other grounds. If the SNH Entities shall still be unwilling to
waive the same and to close this transaction  without  modification of the terms
and provisions hereof and without allowance of any kind, this Agreement shall be
and be  deemed  to be  cancelled.  In the  event  of the  cancellation  of  this
Agreement  under any of the  circumstances  referred  to and as provided in this
Article,  this Agreement shall cease,  terminate and come to an end, and

                                      -10-
<PAGE>

neither party hereto shall have any rights,  obligations or liabilities  against
or to the other  hereunder.  In no event shall the IHS  Entities be required to,
and nothing  herein  contained  shall  obligate the IHS Entities to,  expend any
money or bring any action or proceeding or otherwise incur any costs or expenses
in order to cure any purported defect or objection or to fulfill any condition.

         3.2 Transfers and  Conveyances.  The parties  hereto shall complete the
following transactions at the Closing:

                  3.2.1 Each SPTIHS Tenant shall assign or assume and assign, as
applicable,  to the New LLC  Operator  designated  by SPTIHS all of such  SPTIHS
Tenant's  right,  title and interest  in, to and under the SPTIHS  Leases to the
extent they may be in effect and consent to the  termination  of its prior right
to occupy the SPTIHS  Leased  Facilities;  SPTIHS shall consent to such transfer
and shall release the SPTIHS Tenants from all liabilities and obligations  under
the SPTIHS Leases and such occupancy,  and such consent and release shall be set
forth in such transfer document and shall be executed by SPTIHS.

                  3.2.2  Each of IHS  152,  IHS  153,  IHS 154 and IHS 155  (the
"Assigning HRES1 Tenants") shall assign or assume and assign, as applicable,  to
the New LLC Operator  designated by HRES1 all of such  Assigning  HRES1 Tenant's
right,  title and  interest in, to and under the HRES1 Leases and consent to the
termination  of its prior  right to occupy the HRES1  Leased  Facilities.  HRES1
shall consent to such  transfer and shall  release the  Assigning  HRES1 Tenants
(but  not  HealthSouth,   Horizon  or  their  respective  affiliates)  from  all
liabilities and obligations under the HRES1 Leases and such occupancy,  and such
consent and release  shall be set forth in such  transfer  document and shall be
executed by HRES1.

                  3.2.3 IHS 175 shall  assign to Advisors or its designee all of
IHS 175's  right,  title  and  interest  in,  to and under the HRES2  Management
Agreements and all promissory notes of Advisors delivered thereunder.

                  3.2.4 Each SPTIHS  Tenant and IHS 175 (i) shall  transfer  and
assign to SPTIHS or HRES2,  the New LLC Operator or other entity  designated  by
it, as the case may be, all right,  title and interest of such IHS Entity in and
to all tangible personal property (including, without limitation, all furniture,
furnishings,  fixtures,  equipment and  Consumables)  present at or used at each
Leased Facility in connection with the operation of each Leased Facility that it
leases or manages, and to all intangible personal property  incorporated in such
tangible  personal  property,  and (ii) shall  transfer  and assign to SPTIHS or
HRES2,  the New LLC Operator or other entity  designated  by it, as the case may
be,  all  right,  title  and  interest  of such IHS  Entity in and to all of the
Assigned  Contracts  and Permits  with  respect to such Leased  Facility (to the
extent permitted by law); provided that the property being transferred  pursuant
to this  Section  3.2.4 shall not include  Excluded  Assets in  existence on the
Closing Date or any Pre-Effective Time Obligations.

                  3.2.5 Each IHS Mortgagor (except for IHS 108) shall (i) convey
all of its right, title and interest in and to each Mortgaged Facility to SPTIHS
or  HRES1,  or the New LLC  Operator  designated  by it,  as the case may be, by
quit-claim deed in lieu of  foreclosure,  and (ii) transfer and assign to SPTIHS
or HRES1, or to such New LLC Operator,  as the case may be,

                                      -11-
<PAGE>

(A) all right,  title and interest of such IHS  Mortgagor in and to all tangible
personal property (including,  without limitation,  all furniture,  furnishings,
fixtures,  equipment  and  Consumables)  present  at or  used  at the  Mortgaged
Facility in connection with the operation of such Mortgaged Facility, and to all
intangible  personal property  incorporated in such tangible personal  property,
and (B) all right, title and interest of such IHS Mortgagor in and to all of the
Assigned  Contracts and Permits with respect to such Mortgaged  Facility (to the
extent permitted by law); provided that the property being transferred  pursuant
to this  Section  3.2.5 shall not include  Excluded  Assets in  existence on the
Closing Date or any Pre-Effective Time Obligations.

                  3.2.6  Each of the New  Property  Owners  (i) shall  convey by
quitclaim  deed all of its right,  title and  interest  in and to the parcels of
real  property  described  in Schedule  3.2.6  hereto,  together  with the lease
described in Schedule 3.2.6A hereto, and together with all improvements  thereon
(collectively,  the "New Properties") to the appropriate New Corporate  Operator
designated by the SNH Entities,  and (ii)  excluding IHS 148, shall transfer and
assign to the  designated  New  Corporate  Operator,  (A) all  right,  title and
interest of such New  Property  Owner in and to all tangible  personal  property
(including, without limitation, all furniture, furnishings,  fixtures, equipment
and Consumables)  present at or used at each New Property in connection with the
operation  of the  nursing  facility  located at such New  Property,  and to all
intangible  personal property  incorporated in such tangible personal  property,
and (B) all right,  title and interest of such New Property  Owner in and to all
of the  Assigned  Contracts  and Permits  with  respect to the  operation of the
nursing  facility  located at such New Property (to the extent permitted by law)
((i) and (ii), collectively, the "New Facilities, and together with the Existing
Facilities,  collectively,  the "Facilities");  provided that the property being
transferred  pursuant  to  pursuant  to this  Section  3.2.6  shall not  include
Excluded  Assets in  existence  on the Closing  Date or any  Pre-Effective  Time
Obligations.

                  3.2.7 Satisfaction and Discharge of Mortgage Debt. HRES1 shall
acknowledge  and agree to the  satisfaction  and discharge of the debt under the
promissory  note dated as of January  28,  1995 and shall  release  its lien and
security  interest in and to the HRES1  Mortgaged  Facility  located at Slidell,
Louisiana.

                  3.2.8  New  Pennsylvania   Lease.   HRES1  shall  rescind  its
termination of the HRES1 Lease for the Pennsylvania  Facility, and HRES1 and IHS
135 shall enter into an amendment and restatement of such lease agreement, to be
effective  as of  January  1,  2000,  in the form of  Exhibit  B-1  hereto  (the
"Pennsylvania  Modification,"  such lease  agreement,  as so modified,  the "New
Pennsylvania  Lease"),  and IHS shall deliver a guaranty of the New Pennsylvania
Lease in the form of Exhibit B-2 hereto (the "New  Pennsylvania  Guaranty").  On
the Closing Date,  (i) IHS 135 shall pay HRES1(by  wire transfer of  immediately
available  funds to an  account  designated  by HRES1  in  writing  prior to the
Closing  Date),  any  installment of Minimum Rent then due and payable under the
New Pennsylvania  Lease (to the extent not previously paid), and (ii) each party
to the New  Pennsylvania  Lease shall deliver an estoppel  certificate  to other
party thereto in form reasonably acceptable to such other party.

                  3.2.9 Documentation,  Etc. All of the assignments,  transfers,
conveyances and agreements contemplated by this Section 3.2 shall be effected or
evidenced by such deeds,  bills of sale,  assignments  and other  instruments of
transfer or release, and by such agreements, as are

                                      -12-
<PAGE>

in the form agreed to by the parties  hereto  prior to the date hereof and shall
state  that they are made  without  representations  and  warranties  express or
implied,  except as expressly  provided in this Agreement.  All deeds,  bills of
sale,  assignments  and other  instruments of transfer or releases  necessary to
effect such assignments, transfers, conveyances and agreements shall be recorded
or filed by the SNH  Entities at their sole cost and  expense.  The SNH Entities
shall have the  benefits of Code  ss.1146 to the extent  granted in the Approval
Order.

                  3.2.10  Excluded  Assets.   Notwithstanding  anything  to  the
contrary contained in this Agreement or any other Settlement  Document,  none of
the  Excluded  Assets are being  transferred,  conveyed  or  assigned to any SNH
Entity.  SNH may make a copy of any operating manuals and procedures  ("Copies")
provided  that all  references  to any IHS Entities are removed from such Copies
and any use of such Copies or the information  contained therein shall be at the
sole cost and risk of the SNH  Entities.  The SNH Entities  shall  indemnify and
hold the IHS  Entities  harmless  from and  against  all  costs,  expenses,  and
liabilities (including reasonable attorneys' fees and disbursements) arising out
of or  resulting  from  any  use of such  Copies  or the  information  contained
therein.

                  3.2.11  Facilities  Conveyed  "As  Is".  EACH  OF THE  PARTIES
ACKNOWLEDGES  THAT THE PROPERTY BEING CONVEYED OR TRANSFERRED TO IT HEREUNDER IS
BEING  CONVEYED  OR  TRANSFERRED  "AS IS,  WHERE IS" WITHOUT  REPRESENTATION  OR
WARRANTY,   EXPRESS  OR   IMPLIED,   AS  TO  THE   CONDITION,   TITLE,   DESIGN,
MERCHANTABILITY OR FITNESS FOR USE OF SUCH PROPERTY, AND NEITHER PARTY HAS MADE,
OR SHALL BE DEEMED TO HAVE MADE, ANY OTHER REPRESENTATION OR WARRANTIES, IN EACH
CASE OTHER THAN AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR ANY OTHER SETTLEMENT
DOCUMENT.  Without  limiting the  generality  of the  foregoing,  except for the
representations  and warranties  expressly set forth in this Agreement or in any
other Settlement Document,  the transactions  contemplated by this Agreement are
without any statutory, express or implied warranty,  representation,  agreement,
statement or  expression  of opinion of or with respect to (i) the  condition or
title of the assets or any aspect thereof,  including,  without limitation,  any
and all statutory,  express or implied  representations or warranties related to
suitability for habitation,  merchantability, or fitness for a particular use or
purpose,  (ii) the nature or  quality of  construction,  structural  design,  or
engineering  of the  Improvements,  (iii) the quality of the labor or  materials
included in the Improvements, (iv) the soil conditions,  drainage, topographical
features,  flora,  fauna, or other conditions of or which affect the assets, (v)
any conditions at or which affect the assets with respect to any particular use,
purpose,   development  potential,   or  otherwise,   (vi)  area,  size,  shape,
configuration,   location,  access,  capacity,  quantity,  quality,  cash  flow,
expenses, value, condition,  make, model, composition,  accuracy,  completeness,
applicability,    assignability,    enforceability,   exclusivity,   usefulness,
authenticity,   or   amount,   (vii)  any   statutory,   express,   or   implied
representations or warranties created by any affirmation of fact or promise,  by
any description of the assets or by operation of law, (viii) any  environmental,
botanical, zoological, hydrological, geological, meteorological,  structural, or
other condition or hazard or the absence thereof  heretofore,  now, or hereafter
affecting in any manner any of the assets, and (ix) all other statutory, express
or  implied   representations  and  warranties  whatsoever.   The  parties  each
acknowledge  that it has the  knowledge  and expertise in financial and business
matters  that  enable it to  evaluate  the merits and risks of the  transactions
contemplated by this Agreement.

                                      -13-
<PAGE>

                  3.2.12  Bankruptcy Code  Provisions.  Each of the transactions
provided for in Sections 3.2.1 through  3.2.6,  shall be completed in accordance
with  Code  ss.ss.105,  363(b),  (f) and (m),  365(b)  and (f) and  1146(c),  as
applicable,  and the  provisions  of the Approval  Order,  with the SNH Entities
receiving the full benefits and  protections of such sections and the provisions
of the Approval  Order.  Notwithstanding  any  provisions  of the Code,  the IHS
Entities shall not be required to cure any default, provide any assurances, make
any payment or to incur any cost,  expense or liability in order to complete any
of such  transactions.  Any  assumptions  made by any IHS Entity of any Existing
Document (but not the New Pennsylvania  Lease or any other Settlement  Document)
in order to satisfy the  conditions  set forth in this Article 3 shall be deemed
released pursuant to Section 9.2.

                  3.2.13  Assigned  Contract  and Cure  Payments.  If and to the
extent any performance or payments may be required in order to cure any defaults
as a  condition  to the  assumption  and/or  assignment  of any of the  Assigned
Contracts,  at the Closing the SNH Entities  shall perform  and/or pay for or to
the appropriate  non-IHS Entity contracting party such acts and/or sums (if any)
as shall be required to cure any default as a condition to the assumption and/or
assignment of any Assigned Contract.

                  3.2.14   Management   and   Servicing   Agreement;   Servicing
Agreement;  Interim  Sublease  Agreement.  (a) IHS and each IHS Entity that is a
licensee of any Transfer Facility,  jointly,  as "Servicer" and the relevant IHS
Operators shall enter into a management and servicing agreement (the "Management
and Servicing Agreement") with the New Manager,  Advisors and certain of the New
LLC  Operators  and New  Corporate  Operators,  in the form of  Exhibit C hereto
covering all of the  Transfer  Facilities  (except for the  Transfer  Facilities
located in Massachusetts);  and (b) each IHS Operator that is a licensee of such
a Transfer Facility shall enter into an interim sublease  agreement (an "Interim
Sublease  Agreement") with respect to such Facility with the appropriate New LLC
Operator or New Corporate Operator, in the form of Exhibit D.

         3.3 Payments in Respect of Operating Results. In lieu of the payment of
rent under the Existing Leases for the Transfer Facilities,  and the payment for
use and occupancy pursuant to the Code, for the period from the Petition Date to
the  Closing  Date,  IHS shall pay SNH on the  Closing  Date an amount  equal to
$500,000  multiplied by (y) the number of months (or portion thereof) during the
period from and  including  February 2, 2000 to but  excluding the Closing Date.
Such payment shall be made by wire transfer of immediately available funds to an
account designated by SNH in writing prior to the Closing Date.

         3.4 Release and  Discharge  of IHS  Entities  Liabilities.  The parties
hereto agree that,  subject to the  completion of the transfers and  conveyances
described in Section  3.2, the  execution  and delivery of the  instruments  and
agreements described in Section 3.2.14, and the payment pursuant to Section 3.3,
and without  limiting the provisions of ARTICLE 9, each IHS Entity and any third
party or Person (other than HealthSouth, Horizon or their respective affiliates)
are  released  from all  obligations,  liabilities  and  indebtedness  under the
Existing  Documents (other than the New  Pennsylvania  Lease) in each case as of
the Effective  Time, and that all of its rights  thereunder  (other than the New
Pennsylvania Lease) are terminated and extinguished, and that, as to each of the
IHS Entities  (but not as to the entities to which such  Existing  Documents may
have been assigned as provided herein or to which any properties

                                      -14-
<PAGE>

subject to any of the Existing  Documents  have been conveyed or  transferred or
any third parties) each of the Existing  Documents are released,  discharged and
satisfied.  On the Closing Date, each of the SNH Entities and IHS Entities shall
execute and deliver a general  release in favor of the other parties and each of
its respective affiliates, which releases shall contain the provisions set forth
in Section 9.2 or 9.1, as the case may be, and be in the form attached hereto as
Exhibit E.  Notwithstanding  the foregoing,  the SNH Entities  expressly reserve
their  right to pursue any and all rights and  remedies  available  to them with
respect to any obligations, liabilities or indebtedness of such third parties or
Persons provided that the SNH Entities shall indemnify and hold harmless the IHS
Entities  from and  against any and all costs and  expenses  incurred by the IHS
Entities in connection  therewith,  including,  without  limitation,  reasonable
legal fees and expenses but expressly  excluding any costs and expenses incurred
in  connection  with the SNH  Entities'  pursuit of any such rights and remedies
against HealthSouth, Horizon or their affiliates.

         3.5  Rescission of Option  Exercise.  Effective at the Effective  Time,
SPTIHS shall be deemed to have rescinded its exercise, effected pursuant to that
certain  letter dated January 25, 2000 and  addressed to Lyons,  WST and CCN, of
its option to  purchase  certain  Nebraska  Facilities  under the Right of First
Refusal and Option  Agreement  dated as of  September  24, 1997 among SPTIHS (as
successor in interest to HRPT), CCN, WST and Lyons.

                                   ARTICLE 4

                 REPRESENTATIONS AND WARRANTIES OF SNH ENTITIES

         Each SNH Entity  hereby  represents  and warrants  (provided  that only
HRES1 gives the representation set forth in Section 4.4), solely as to itself as
set forth in this  ARTICLE  4, in each  case as of the  Closing  Date.  Each SNH
Entity expressly acknowledges and agrees that,  notwithstanding any provision to
the  contrary  in this or in any other  agreement  between or among the  parties
and/or its  affiliates,  each of the following  representations  and  warranties
shall be a continuing  representation and warranty and shall survive the closing
of the transactions  contemplated by this Agreement and performance  thereunder,
as provided in Section 10.9 below.

         4.1  Existence.  Such SNH  Entity is a real  estate  investment  trust,
limited liability company or corporation duly organized, validly existing and in
good standing under the laws of the state of its  organization.  Such SNH Entity
has all requisite  power and authority to carry on its business as such business
is presently  being conducted and to enter into this Agreement and to consummate
the transactions contemplated hereby.

         4.2 Authorization, Etc. The execution, delivery and performance by such
SNH  Entity  of this  Agreement  and  each  other  Settlement  Document  and all
releases, consents,  transfers,  conveyances,  surrenders of leases, assignments
and deliveries  provided for herein by such SNH Entity have been duly authorized
by all necessary real estate  investment  trust,  limited  liability  company or
corporate  action as the case may be. This  Agreement  has been duly executed by
such SNH Entity and  constitutes  the valid and binding  obligation  of such SNH
Entity,   enforceable  in  accordance   with  its  terms,   except  as  (i)  the
enforceability thereof may be limited by bankruptcy, reorganization, insolvency,
moratorium or other laws of general

                                      -15-
<PAGE>

applicability affecting the enforcement of creditors' or secured parties' rights
or  debtors'  obligations  generally,  and (ii)  the  availability  of  specific
performance or other equitable  remedies may be limited by equitable  principles
of general  applicability  (whether such matter is considered in a proceeding at
law or in equity).

         4.3  Brokers.  Such SNH Entity has not used the  services of or had any
dealings  with  any  broker  or  finder  in  connection  with  the  transactions
contemplated  by this  Agreement  and such SNH Entity  will  indemnify  and hold
harmless  the IHS  Entities  from and  against all  claims,  actions,  causes of
action, costs,  expenses,  including attorneys' fees, and liabilities arising in
or out of, or related to any broker or finder  with whom such SNH Entity has had
any  dealings  or  made  any  agreements  or  used  any  services  claiming  any
compensation or fee by reason of an alleged agreement or understanding with such
SNH Entity.

         4.4 Slidell  Facility.  HRES1 has not assigned or transferred the HRES1
Mortgage on the Slidell  Facility,  and shall not assign such Mortgage  prior to
the Effective Time.

                                   ARTICLE 5

                         REPRESENTATIONS AND WARRANTIES
                               OF THE IHS ENTITIES

         Each  IHS  Entity,   severally  and  not  jointly,   hereby  makes  the
representations  and  warranties  set forth in this ARTICLE 5 in each case as of
the  Closing  Date.  Each IHS Entity  expressly  acknowledges  and agrees  that,
notwithstanding  any provision to the contrary in this or in any other agreement
between  or among the  parties  and/or  its  affiliates,  each of the  following
representations and warranties shall be a continuing representation and warranty
and shall survive the closing of the transactions contemplated by this Agreement
and performance thereunder, as provided in Section 10.9, below.

         5.1 Organization, Etc. Such IHS Entity is a corporation, duly organized
and validly  existing under the laws of the  jurisdiction of its  incorporation.
Provided  the  conditions  set forth in  Sections  6.1.1 and  6.2.3  hereof  are
satisfied, such IHS Entity has full power, authority and legal right to execute,
deliver and perform  under this  Agreement,  to  transfer  its right,  title and
interest in its  Facility or  Facilities  to SPTIHS or HRES1,  to enter into the
Settlement  Documents  to which  it is a party  and to take  all  other  actions
necessary to carry out the intents and purposes of this Agreement.

         5.2 Authorization, Etc. The execution, delivery and performance of this
Agreement  and  each  other  Settlement  Document  by such  IHS  Entity  and all
transfers,  conveyances,   surrenders  of  leases,  assignments  and  deliveries
provided  for  herein  by such IHS  Entity  have  been  duly  authorized  by all
necessary  corporate and stockholder  action of such IHS Entity.  This Agreement
and each other Settlement  Document to which such IHS Entity is a party has been
duly  executed by such IHS Entity,  and  provided  the  conditions  set forth in
Sections 6.1.5 and 6.2.3 hereof are satisfied, constitutes the valid and binding
obligation of such IHS Entity, enforceable in accordance with its terms.

                                      -16-
<PAGE>

         5.3 Personal Property-New  Property Owners. Such IHS Entity,  excluding
IHS 148,  if a New  Property  Owner,  owns all the  tangible  personal  property
present at or used at its New Property (on the Petition Date) in connection with
the operation of the nursing facility located at such New Property, and owns all
intangible personal property  incorporated in such tangible personal property on
the Petition  Date (except,  with respect to both such  tangible and  intangible
personal  property,  for Excluded Assets,  property  rented,  leased or licensed
under any Contract  (copies of which,  to the extent  material to such Facility,
have been  furnished to SNH prior to the date hereof),  and property  owned by a
pharmacy or other third party engaged in operations at the Facility (pursuant to
Contracts,  copies  of  which  have  been  furnished  to SNH  prior  to the date
hereof)).  The Consumables located at each New Facility as of the Effective Time
and  included in the  personal  property  being  transferred  by such IHS Entity
pursuant to Section 3.2.6 are (to such IHS Entity's Knowledge)  sufficient under
applicable law to permit such Facility to be operated as currently operated. All
such  tangible  and  intangible  personal  property  owned  by such  IHS  Entity
(excluding  IHS 148) and existing at the New  Facility as of the  Petition  Date
remains at the New  Facility  except for those used and replaced in the ordinary
course of business and Excluded Assets.

         5.4  Personal  Property - Tenants and IHS 175.  Such IHS Entity,  if an
SPTIHS Tenant or IHS 175, owns all the tangible personal property present at, or
used at its  Leased  Facility  (on the  Petition  Date) in  connection  with the
operation of such Leased  Facility,  and owns all intangible  personal  property
incorporated  in such tangible  personal  property on the Petition Date (except,
with  respect  to both such  tangible  and  intangible  personal  property,  for
Excluded Assets,  property rented, leased or licensed under any Contract (copies
of which,  to the extent  material to such Facility,  have been furnished to SNH
prior to the date hereof), and property owned by a pharmacy or other third party
engaged in  operations at the Facility  (pursuant to Contracts,  copies of which
have been furnished to SNH prior to the date hereof)).  The Consumables  located
at each such  Facility as of the  Effective  Time and  included in the  personal
property being  transferred by such IHS Entity pursuant to Section 3.2.4 are (to
such IHS Entity's  Knowledge)  sufficient  under  applicable  law to permit such
Facility to be operated as currently operated.  All such tangible and intangible
personal property owned by such IHS Entity and existing at each such Facility as
of the Petition Date remains at such Facility except for those used and replaced
in the ordinary course of business and Excluded Assets.

         5.5  Personal  Property - IHS  Mortgagors.  Such IHS Entity,  if an IHS
Mortgagor (other than IHS 108) owns all the tangible  personal  property present
at or used at its Mortgaged  Facility (on the Petition Date) in connection  with
the  operation of such  Mortgaged  Facility,  and owns all  intangible  personal
property  incorporated in such tangible  personal  property on the Petition Date
(except,  with respect to both such tangible and intangible  personal  property,
for Excluded  Assets,  property  rented,  leased or licensed  under any Contract
(copies of which, to the extent material to such Mortgaged  Facility,  have been
furnished to SNH prior to the date hereof),  and property owned by a pharmacy or
other third party engaged in operations at such Mortgaged  Facility (pursuant to
Contracts,  copies  of  which  have  been  furnished  to SNH  prior  to the date
hereof)).  The  Consumables  located at each such  Mortgaged  Facility as of the
Effective Time and included in the personal  property being  transferred by such
IHS  Entity  pursuant  to  Section  3.2.5 are (to such IHS  Entity's  Knowledge)
sufficient  under  applicable  law to permit  such  Facility  to be  operated as
currently operated.  All such tangible and intangible personal property owned by
such IHS Entity and  existing  at each such  Facility  as of the  Petition

                                      -17-
<PAGE>

Date remains at such Facility except for those used and replaced in the ordinary
course of business and Excluded Assets.

         5.6  Licensing,  Etc.  Excluding  the  Transfer  Facilities  located in
Massachusetts,  each  Facility  operated  or  managed by such IHS Entity has the
applicable  healthcare  licenses  required under all applicable  state and local
laws,  ordinances  and  regulations in order to provide the services and operate
the number of beds at such  Facility  that are  described in Schedule 5.6 in the
ordinary course of business consistent with past practices.

         5.7  FIRPTA.  Such IHS  Entity is not a  "foreign  person"  within  the
meaning of Section 1445(f) of the Internal Revenue Code.

         5.8  Decrees,  Etc.  There are no decrees,  orders,  rulings,  writs or
injunctions  issued by any governmental or municipal  authority  binding on such
IHS Entity or its Facilities  and issued against IHS or any of its  subsidiaries
that enjoins or prohibits the transactions contemplated hereby.

         5.9 No  Broker.  Such IHS  Entity  represents  that it has not used the
services of or had any dealings with any broker or finder in connection with the
transactions  contemplated  by this  Agreement  and that  such IHS  Entity  will
indemnify  and hold  harmless  each of the SNH  Entities  from and  against  all
claims, actions,  causes of action, costs, expenses,  including attorneys' fees,
and  liabilities  arising in or out of, or related to any broker or finder  with
whom such IHS Entity has had any  dealings  or made any  agreements  or used any
services,  claiming any compensation or fee by reason of an alleged agreement or
understanding with such IHS Entity.

         5.10 No  Assignment of Existing  Documents.  No IHS Entity party to any
SPTIHS Lease,  HRES1 Lease or the HRES2  Management  Agreements  being assigned,
conveyed or transferred  to any SNH Entity  pursuant to Section 3.2 has assigned
such  Lease or  HRES2  Management  Agreement  to any  other  Person  (except  as
contemplated in Section 7.4).

                                   ARTICLE 6

                              CONDITIONS PRECEDENT

         6.1 Conditions Precedent To Obligations Of SNH Entities. The obligation
of the  SNH  Entities  to  consummate  the  transactions  contemplated  by  this
Agreement  shall be subject to the  satisfaction  of each of the  conditions set
forth in this Section 6.1.

                  6.1.1  Each  of  the  SNH  Entities  and  IHS   Entities,   as
applicable,   shall  have  received  all  Permits  (if  any)  from  Governmental
Authorities  necessary  to permit  (a) the  consummation  of the  transfers  and
conveyances  contemplated  under Section 3.2; and (b) the execution and delivery
of, and the performance of the  obligations of the various  parties under,  this
Agreement,   the  Management  and  Servicing  Agreement,  the  Interim  Sublease
Agreements and the other Settlement Documents.

                  6.1.2 There  shall be no  investigation,  audit,  governmental
proceeding, suit or other litigation,  pending or threatened, seeking to, or the
effect of which, if obtained, would be

                                      -18-
<PAGE>

to, enjoin,  prevent or delay  consummation of the transactions  contemplated by
this  Agreement,  or revoke,  condition  or limit any Permit  necessary  for the
operation of any of the Transfer Facilities, or which could otherwise reasonably
be expected to have a Material Adverse Effect.

                  6.1.3 All  representations  and  warranties of each of the IHS
Entities  hereunder and under the Settlement  Documents shall be true,  complete
and correct in all material respects at the Closing.  Each IHS Entity shall have
complied with all of its agreements and  obligations to be effected on or before
the Closing Date under Article 3 and elsewhere under this Agreement.

                  6.1.4  The   appropriate  SNH  Entities  shall  have  received
confirmation  by the Title  Company that it is prepared to issue title  policies
(or,  in the case of any  Leased  Property,  endorsements  to  existing  owner's
policies in favor of such SNH Entity)  insuring title to the real property which
is  included  in the  Transfer  Facilities  free  from  all  liens,  claims  and
encumbrances other than Permitted Encumbrances.

                  6.1.5 The Court shall have entered the Approval  Order and (a)
no court of  competent  jurisdiction  shall have  entered an order  staying  the
Approval  Order pending  appeal,  or, in the event a stay of the Approval  Order
shall have been entered,  then the stay shall have been  terminated;  and either
(b) all appeal  periods  shall have expired with no appeal  having been taken or
all  appeals  shall  have been  dismissed  by final  order no longer  subject to
appeal;  or (c) if appealed,  such appeal shall have  otherwise  been settled or
resolved to the satisfaction of the SNH Entities. The Approval Order shall be in
the form of Exhibit A and shall contain no modification  unacceptable to the SNH
Entities.

                  6.1.6  No   suspension   or   revocation   of  the   right  to
reimbursement under the Medicare and Medicaid programs for services performed at
any  Transfer  Facility is in effect on the Closing  Date,  and the SNH Entities
shall have received a certificate  signed on behalf of IHS by a duly  authorized
officer thereof  certifying that, to the Knowledge of the IHS Entities,  no such
suspension or revocation is in effect on the Closing Date.

                  6.1.7 At the Closing,  CCN shall convey by quitclaim  deed all
of its right, title and interest in and to the parcel of real property described
in Schedule  6.1.7 hereto as the Aurora Parcel,  together with all  improvements
thereon,  to the  appropriate  New  Corporate  Operator  designated  by the  SNH
Entities,  and such SNH  Entity  shall  have  received  confirmation  by the SNH
Entities' title insurance company that it is prepared to issue a title insurance
policy  insuring  title to said real  property  free from all liens,  claims and
encumbrances other than Permitted Encumbrances.

         6.2 Conditions Precedent to Obligations of IHS Entities. The obligation
of the  IHS  Entities  to  consummate  the  transactions  contemplated  by  this
Agreement  shall be subject to the  satisfaction  of each of the  conditions set
forth in this Section 6.2.

                  6.2.1 There  shall be no  investigation,  audit,  governmental
proceeding, suit or other litigation,  pending or threatened, seeking to, or the
effect  of which  would be to,  enjoin,  prevent  or delay  consummation  of the
transactions contemplated by this Agreement.

                                      -19-
<PAGE>

                  6.2.2 All  representations  and  warranties of each of the SNH
Entities  hereunder and under the Settlement  Documents shall be true,  complete
and correct in all material respects at the Closing.  Each SNH Entity shall have
complied with all of its agreements and  obligations to be effected on or before
the Closing Date under Article 3 and elsewhere under this Agreement.

                  6.2.3 The Court shall have entered the Approval  Order and (a)
no court of  competent  jurisdiction  shall have  entered an order  staying  the
Approval  Order pending  appeal,  or, in the event a stay of the Approval  Order
shall have been entered,  then the stay shall have been  terminated;  and either
(b) all appeal  periods  shall have expired with no appeal  having been taken or
all  appeals  shall  have been  dismissed  by final  order no longer  subject to
appeal;  or (c) if appealed,  such appeal shall have  otherwise  been settled or
resolved to the satisfaction of the IHS Entities. The Approval Order shall be in
the form of Exhibit A and shall contain no modification  unacceptable to the IHS
Entities.

                                   ARTICLE 7

                            COVENANTS OF IHS ENTITIES

         7.1 As soon as  possible  following  the  filing  with the Court of the
Approval Motion, and prior to the hearing and relevant objection date, IHS shall
serve Notice of the Approval Motion in a form mutually acceptable to SNH and IHS
upon such categories of Persons holding claims (as defined in Code ss.101(5)) in
the Cases as are  designated by the SNH  Entities,  shall publish such Notice of
the  Approval  Motion  once  in such  newspapers  as are  designated  by SNH and
approved by the Court, and shall post such Notice  prominently at each Facility.
SNH agrees to  reimburse  the IHS  Entities  for 50% of the out-of  pocket costs
incurred by the IHS Entities in serving  such Notice of the  Approval  Motion on
Persons holding claims in the Cases and in publishing such Notice.

         7.2 At any  time and  from  time to time  during  the  period  from the
Effective Time to the fifth (5th)  anniversary  thereof,  each IHS Entity agrees
that,  upon not less than twenty (20) business days' notice from any SNH Entity,
such IHS  Entity  shall (i) use  reasonable  commercial  efforts,  at no cost or
expense  to any IHS  Entity,  to furnish  any  financial  reporting  information
reasonably  requested by any SNH Entity,  and (ii) grant such SNH Entity and its
accountants and other  representatives  reasonable access during normal business
hours,  at no cost or expense to any IHS  Entity,  to all books,  contracts  and
records of such IHS  Entity,  in each case,  to the extent such  information  or
access is necessary  to obtain  information  of a nature which is not  otherwise
available to the SNH Entities,  and (A) relates to the ownership or operation of
any  Transfer  Facility  prior to the  Effective  Time and (B) is  necessary  to
complete  filings  to be made by such  SNH  Entity  or its  affiliates  with the
Securities  and  Exchange  Commission,  or any  successor  agency,  or any other
governmental authority.

         7.3 The IHS Entities  agree that if any master lease  agreements  under
which any material personal property or Intellectual Property used at any of the
Leased  Facilities  (excluding  the  Pennsylvania  Facility)  is provided on the
Effective  Date remain in effect after the Effective  Date, the SNH Entities may
utilize the benefits  thereof for so long as such

                                      -20-
<PAGE>

agreements  remain in effect,  provided  such use is  permitted  pursuant to the
terms of such agreements.

         7.4 On or prior to the Closing Date, IHS  Acquisition  No. 151, Inc., a
Delaware  corporation,  shall convey all of its right, title and interest in and
to the  HRES1  Lease of the  Pennsylvania  Facility  to IHS 135  pursuant  to an
assignment  agreement in the form attached  hereto as Exhibit F, and HRES1 shall
consent to such  assignment and join in the same for purposes of evidencing such
consent.

         7.5 The SNH Entities shall, at all reasonable  times after the Closing,
have  reasonable  access  to the Data.  The IHS  Entities  shall,  at no cost or
expense to the IHS Entities, cooperate with the SNH Entities in their request to
obtain their own licenses for the software applications listed in Schedule 1.1C.
If the SNH  Entities are unable to obtain such  licenses or determine  that they
wish to use other  applications in their operation of any Transfer  Facility the
IHS Entities shall, at no cost or expense to any IHS Entity,  cooperate with the
SNH Entities in their  effecting  the  transfer  and  migration of the Data with
respect to such Transfer Facility to such other applications.

         7.6 The SNH Entities may from time to time after the  execution  hereof
(but no later  than  sixty  (60) days after the  Closing  Date),  designate,  by
written notice to IHS, certain  Contracts  (other than the Provider  Agreements,
Contracts  which  affect or relate to the  Pennsylvania  Facility,  the  Slidell
Facility or any other facility that is not a Transfer  Facility or the Contracts
that have expired or terminated in accordance  with their terms) for  assumption
by the IHS Entities and assignment to an SNH Entity,  and the IHS Entities agree
that they shall,  upon receipt of such written  notice (but not earlier than the
date of Closing),  subject to the IHS Entities'  approval,  which approval shall
not be  unreasonably  withheld,  conditioned or delayed,  and to Court approval,
promptly  assume and assign such  designated  Contracts to the  appropriate  SNH
Entities  designated  in such notice.  The IHS Entities  agree to assist,  at no
out-of-pocket  cost or expense to the IHS  Entities,  the SNH  Entities in their
evaluation of the Contracts for possible  assignment and assumption by providing
such  information  as the SNH  Entities may  reasonably  request  regarding  the
contracting  parties'  performance   thereunder.   If  and  to  the  extent  any
performance  or  payments  may be  required  in order to cure any  defaults as a
condition  to  the  assumption  and/or  assignment  of any  of  such  designated
Contracts,  on the effective  date of such  assignment  and  assumption  the SNH
Entities shall perform and/or pay for and/or to the  appropriate  non-IHS Entity
contracting  party such acts  and/or  sums (if any) as shall be required to cure
any default as a  condition  to the  assumption  and/or  assignment  of any such
Contract.  The SNH  Entities and the IHS  Entities  shall  cooperate to identify
those  Contracts to be assumed and assigned  pursuant to the  provisions of this
Section  7.6 and IHS  may,  if it so  elects,  take all  such  action  as may be
necessary  to reject any  Contract  that is not  designated  to be  assumed  and
assigned pursuant to the provisions of this Section 7.6 as soon as is reasonably
possible  after  notice  thereof  by the SNH  Entities  to IHS and  upon the IHS
Entities  receipt of notice  that a Contract  is not to be  assigned  to the SNH
Entities, such Contracts shall no longer be deemed Contracts for the purposes of
this Section 7.6 or for the  purposes of Section  4.1(d) of the  Management  and
Services Agreement.

         Each of the  transactions  provided for in this  Section 7.6,  shall be
completed in accordance with Code ss.ss.105, 363(b), (f) and (m), 365(b) and (f)
and 1146(c),  as applicable,

                                      -21-
<PAGE>

and the provisions of the Approval  Order,  with the SNH Entities  receiving the
full  benefits  and  protections  of such  sections  and the  provisions  of the
Approval  Order.  Notwithstanding  any  provisions of the Code, the IHS Entities
shall not be required to cure any  default,  provide  any  assurances,  make any
payment or to incur any cost,  expense or  liability in order to complete any of
such transactions.

                                   ARTICLE 8

                   DAMAGE TO PROPERTY FROM CASUALTY OR TAKING

         8.1 In the event of any  casualty  or damage to any  Transfer  Facility
after February 2, 2000 but prior to the Effective Time (which shall not be fully
restored  prior to the  Effective  Time),  all sums  recovered on account of any
insurance with respect  thereto shall be held in trust for the benefit of and in
order to be paid over to,  and all sums  recoverable  on such  account  shall be
assigned to, the  appropriate  SNH Entity at the Effective  Time. The IHS Entity
which owns,  leases or manages  such  Facility  shall  execute and deliver  such
further  instruments  of  assignment of insurance  proceeds and other  documents
(including,  without limitation,  appropriate  endorsement of checks) as any SNH
Entity may from time to time reasonably  request in order to make such insurance
proceeds payable to such SNH Entity.

         8.2 In the event that after February 2, 2000 but prior to the Effective
Time any portion of any Transfer  Facility shall be taken by any exercise of the
right of eminent  domain,  or any  portion of such  Facility  shall  sustain any
direct or consequential  damage for which any SNH Entity or the IHS Entity which
owns,  leases or manages such Facility shall be entitled to  compensation by any
public  authority,  such IHS Entity shall permit the  appropriate  SNH Entity to
bring any suit in  connection  with  recovery  therefor  in the name of such IHS
Entity  or the  appropriate  SNH  Entity,  or both,  and  shall  deliver  to the
appropriate  SNH  Entity,  together  with  the deed to such  Facility,  all sums
received on account of any such taking or damages  and/or an  assignment  of all
the  owner's  rights to collect  damages  therefor.  The IHS Entity  which owns,
leases  or  manages  such  Facility  shall  execute  and  deliver  such  further
instruments  of  assignment  and  such  other  documents   (including,   without
limitation,  appropriate endorsements of checks and pleadings) as any SNH Entity
may from time to time reasonably request.

                                   ARTICLE 9

                                    RELEASES

         9.1 IHS Release.  Effective  at the  Effective  Time,  each IHS Entity,
hereby  releases and forever  discharges each SNH Entity,  and their  respective
successors,  assigns,  agents,  shareholders,  directors,  officers,  employees,
agents,  attorneys,  parent corporations,  subsidiary  corporations,  affiliated
corporations,  affiliates, and each of them (collectively, the "SNH Releasees"),
from  any and all  claims,  debts,  liabilities,  demands,  obligations,  costs,
expenses,  actions and causes of action, of every nature and description,  known
and  unknown,  whether or not  related  to the  subject  matter of the  Existing
Documents,  which any IHS Entity  now has or at any time may hold,  by reason of
any matter, cause or thing occurred,  done, omitted or suffered to be done on or
prior to the  Effective  Time;  provided  that this release shall not release or
otherwise affect or limit any claims, debts, liabilities,  demands, obligations,
costs, expenses,  actions and causes of action against any SNH Entity under this
Agreement or any other

                                      -22-
<PAGE>

Settlement  Document.  Each IHS Entity waives the benefits of any law, which may
provide in  substance:  "A general  release  does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of executing
the release,  which if known by him must have materially affected his settlement
with the debtor." Each IHS Entity  understands  that the facts which it believes
to be true at the time of making the release  provided for herein may later turn
out to be different than it now believes,  and that information which is not now
known or  suspected  may  later be  discovered.  Each IHS  Entity  accepts  this
possibility, and each IHS Entity assumes the risk of the facts turning out to be
different and new  information  being  discovered;  and each IHS Entity  further
agrees that the release provided for herein shall in all respects continue to be
effective  -- and not  subject  to  termination  or  rescission  because  of any
difference  in such facts or any new  information.  None of the IHS  Entities is
releasing  any  SNH  Entity  from  any  claims,  debts,  liabilities,   demands,
obligations,  costs,  expenses,  actions or causes of action except as expressly
provided herein or in any other Settlement  Document,  and the obligations under
the Settlement Documents are specifically  excluded from this release.  Each IHS
Entity  further  acknowledges  that,  from and after the Effective  Time, no SNH
Entity  has any  existing  commitments,  obligations  or  agreements  to advance
credits  or  loans,   or  to  lease   property,   or  make  financial  or  other
accommodations  to any IHS Entity,  except as may be  specifically  set forth in
this  Agreement  or the other  Settlement  Documents.  The IHS  Entities  hereby
represent,  warrant and  covenant,  jointly and  severally,  that the  foregoing
release and  discharge is given on behalf of and shall be  enforceable  against,
each of the IHS Releasees (as hereinafter defined).

         9.2 SNH  Release.  Effective  at the  Effective  Time,  each SNH Entity
hereby  releases and forever  discharges each IHS Entity,  and their  respective
successors,  assigns,  agents,  shareholders,  directors,  officers,  employees,
agents,  attorneys,  parent corporations,  subsidiary  corporations,  affiliated
corporations,  affiliates, and each of them (collectively, the "IHS Releasees"),
from  any and all  claims,  debts,  liabilities,  demands,  obligations,  costs,
expenses,  actions and causes of action, of every nature and description,  known
and  unknown,  whether or not  related  to the  subject  matter of the  Existing
Documents,  which any SNH Entity  now has or at any time may hold,  by reason of
any matter, cause or thing occurred,  done, omitted or suffered to be done prior
to the Effective Time; provided that this release shall not release or otherwise
affect or limit any claims, debts,  liabilities,  demands,  obligations,  costs,
expenses,  actions and causes of action  against  (i) any IHS Entity  under this
Agreement or any other Settlement Document or (ii) HealthSouth, Horizon or their
respective  affiliates (as such term is defined in Rule 12b-2  promulgated under
the  Securities  Exchange Act of 1934,  as amended).  Each SNH Entity waives the
benefits of any law, which may provide in substance: "A general release does not
extend to claims  which the  creditor  does not know or  suspect to exist in his
favor at the time of  executing  the  release,  which if known by him must  have
materially affected his settlement with the debtor." Each SNH Entity understands
that the facts  which it  believes  to be true at the time of making the release
provided for herein may later turn out to be different than it now believes, and
that  information  which is not now known or suspected may later be  discovered.
Each SNH Entity accepts this  possibility,  and each SNH Entity assumes the risk
of the facts turning out to be different and new information  being  discovered;
and each SNH Entity further agrees that the release provided for herein shall in
all  respects  continue to be  effective  -- and not subject to  termination  or
rescission because of any difference in such facts or any new information.  None
of the SNH  Entities  is  releasing  any IHS  Entity  from  any  claims,  debts,
liabilities,  demands, obligations, costs, expenses, actions or causes of action

                                      -23-
<PAGE>

except as expressly provided herein or in any other Settlement  Document and the
obligations under the Settlement Documents are specifically  excluded.  Each SNH
Entity  further  acknowledges  that,  from and after the Effective  Time, no IHS
Entity  has any  existing  commitments,  obligations  or  agreements  to advance
credits  or  loans,   or  to  lease   property,   or  make  financial  or  other
accommodations  to any SNH Entity,  except as may be  specifically  set forth in
this  Agreement  or any  other  Settlement  Document.  The SNH  Entities  hereby
represent,  warrant and  covenant,  jointly and  severally,  that the  foregoing
release and  discharge is given on behalf of and shall be  enforceable  against,
each of the SNH Releasees.

         9.3 No Assignment. The SNH Entities and the IHS Entities each represent
and warrant to the others that they have not assigned or transferred  any of the
claims or other items which are the  subject of the  releases  set forth in this
Agreement or any Settlement Documents.

                                   ARTICLE 10

                               GENERAL PROVISIONS

         10.1 No Assumption  of  Liabilities.  Notwithstanding  anything in this
Agreement or elsewhere  to the  contrary,  no SNH Entity is assuming or shall be
responsible for payment of any Pre-Effective Time Obligation.

         10.2 Survival of Representations,  Etc. Except as otherwise provided by
this Agreement, all covenants,  agreements,  representations and warranties made
by each IHS  Entity  or SNH  Entity  herein  and in all  certificates  and other
instruments delivered pursuant to this Agreement shall survive the execution and
delivery of the deeds and the other instruments of transfer and assignment,  and
the closing of the transactions, contemplated hereby.

         10.3  Notices.  All  notices  and  other  communications  provided  for
hereunder shall be in writing  (including  telecopy  communication)  and mailed,
sent by recognized overnight delivery service, telecopied or delivered addressed
as follows:

                (a)  if to an SNH Entity:

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

               (b)  with copy to:

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

               (c)  if to any IHS Entity:

                                  -24-
<PAGE>

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

               (d)  with a copy to:

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

or to such other  address as may  hereafter be  designated by any party for such
purpose.  Each such  notice  shall be  effective  (i) upon  receipt  and written
acknowledgment,  if hand  delivered,  (ii) upon the first Business Day following
the day when  telecopied,  if  transmitted  by  telecopier,  (iii) upon the next
Business Day after being  placed in the  possession  of a  recognized  overnight
delivery service,  if sent by a recognized  overnight delivery service,  or (iv)
upon the  expiration  of the fifth  Business  Day after being  deposited  in the
mails, if mailed.

         10.4 Successors and Assigns.  This Agreement shall be binding upon each
party  thereto,  its  successors and assigns and in the case of the IHS Entities
any trustee  which may be appointed in its Cases or upon the  conversion  of the
Cases to  Chapter 7 under the Code.  The  rights  and  obligations  of any party
hereto under this  Agreement may not be assigned by such party without the prior
written consent of each other party hereto.

         10.5 Governing Law. THIS AGREEMENT  SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

         10.6 Amendments in Writing. This Agreement,  together with the exhibits
hereto and such other documents as are referred to herein, constitute the entire
agreement of the parties in respect of the subject matter described herein,  and
may not be changed or modified  except by an agreement in writing  signed by the
parties hereto. There have been no representations, warranties or covenants made
by any party to this  Agreement to any other party to this  Agreement  except as
expressly set forth in this Agreement or any Settlement Document.

         10.7 Severability.  In case any one or more of the provisions contained
in this Agreement  should be invalid,  illegal or  unenforceable in any respect,
the validity,  legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired  thereby and the
Agreement  shall thereupon be reformed and construed and enforced to the maximum
extent permitted by law.

         10.8  Costs of  Enforcement;  Nature of Claim;  Exclusive  and  Limited
Remedies.  If any legal action is brought for the  enforcement of this Agreement
or the  Approval  Order,  or  because of an alleged  dispute,  breach,  default,
misrepresentation, non-compliance or contravention in connection with any of the
provisions of this Agreement or the Approval

                                      -25-
<PAGE>

Order,  the  successful  or  prevailing  party or parties  shall be  entitled to
recover  attorneys'  fees and other costs incurred in that action in addition to
any other  relief to which it or they may be  entitled.  The sole and  exclusive
recourse of any SNH Entity against any IHS Entity to enforce this Agreement, any
other  Settlement  Document or the Approval  Order,  or in  connection  with any
dispute,  breach, default or misrepresentation,  non-compliance or contravention
in connection with any of the provisions of this Agreement, any other Settlement
Document or the Approval Order (and all costs of  enforcement)  shall be limited
to a  post-petition  administrative  period claim pursuant to Code ss.503(b) and
ss.507(a)(1)  for  money  damages  only  (and  not for  recission  or any  other
equitable  remedy) in the Cases (provided that this Section 10.8 shall not limit
the remedies  available to the Landlord under the New Pennsylvania  Lease or the
New  Pennsylvania  Guaranty).  This  limitation  shall have no effect on the SNH
Entities'  rights and remedies  against  third  parties  except as  specifically
provided herein.

         10.9 Survival. Except as otherwise provided by this Agreement or in any
other  Settlement  Document,  all  covenants,  agreements,  representations  and
warranties made by each IHS Entity or SNH Entity herein and in all  certificates
and other  instruments  delivered  pursuant to this Agreement  shall survive the
closing  of the  transactions  contemplated  hereby  but  only  until  the  last
administrative  bar date  established by order of the Court and of which the SNH
Entities shall have received  timely  notice,  and the IHS Entities shall be and
remain  liable for breaches of the  provisions  of this  Agreement and the other
Settlement Documents until the last administrative bar date established by order
of the Court and of which the SNH Entities  shall have  received  timely  notice
(except that this Section 10.9 shall not, in any event, limit the obligations of
the parties to the New Pennsylvania Lease or the New Pennsylvania Guaranty).

         10.10 Notices to Regulators,  Etc. Each party hereby may and shall give
all  required  notices  of the  existence  of this  Agreement  and  the  pending
consummation of the transactions  contemplated hereby to any and all appropriate
Governmental Authorities. The parties shall cooperate with each other to effect,
at the earliest  practicable date, the transfer or reissuance to the appropriate
New LLC Operator,  New Corporate Operator or other SNH Entity of all Permits and
Provider  Agreements  currently  held by an IHS Entity or affiliate  thereof and
pertaining to a Transfer Facility.

         10.11 No Third Party  Rights.  Unless  expressly  stated  herein to the
contrary, nothing in this Agreement or in any other Settlement Document, whether
express or implied,  is  intended  to confer any rights or remedies  under or by
reason of this Agreement or any other  Settlement  Document on any Persons other
than the parties hereto and their respective legal  representatives,  successors
and permitted  assigns.  It is expressly  understood  that each person or entity
that is  being  released  pursuant  to this  Agreement  shall  be a third  party
beneficiary entitled to enforce such release on his or her own behalf. Except as
expressly provided in this Agreement or in any other Settlement Document nothing
herein or  therein  is  intended  to  relieve or  discharge  the  obligation  or
liability of any third Persons to any party to this Agreement (including without
limitation,  the obligations  and  liabilities of HealthSouth,  Horizon or their
respective  affiliates to any SNH Entity or  Advisors),  nor shall any provision
give any third  Persons any right of  subrogation  or action over or against any
party to this Agreement or any other Settlement Document.

                                      -26-
<PAGE>

         10.12 Reservation of Rights. Each party hereto acknowledges that it and
the other parties hereto have entered into this Agreement in order to settle and
compromise  certain  potential  claims  between  them and  that  the  execution,
delivery  and  performance  of this  Agreement  by the parties  hereto is not an
admission of any party's obligations or liabilities whatsoever. This document is
subject to the  protections  of Federal  Rule of  Evidence  408 and all  similar
provisions and supporting authorities.

         10.13  Declarations of Trust.  THE DECLARATION OF TRUST OF EACH OF SNH,
SPTIHS,  HRES1 AND HRES2, A COPY OF WHICH,  TOGETHER WITH ALL AMENDMENTS THERETO
(EACH A  "DECLARATION"),  IS DULY  FILED  IN THE  OFFICE  OF THE  DEPARTMENT  OF
ASSESSMENTS  AND  TAXATION  OF THE  STATE OF  MARYLAND,  PROVIDES  THAT THE NAME
"SENIOR HOUSING  PROPERTIES TRUST," "SPTIHS PROPERTIES TRUST," "HRES1 PROPERTIES
TRUST" AND "HRES2 PROPERTIES  TRUST," AS THE CASE MAY BE, REFERS TO THE TRUSTEES
UNDER EACH SUCH  DECLARATION  COLLECTIVELY AS TRUSTEES,  BUT NOT INDIVIDUALLY OR
PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF SNH,
SPTIHS,  HRES1  OR  HRES2,  AS THE CASE  MAY BE,  SHALL BE HELD TO ANY  PERSONAL
LIABILITY,  JOINTLY OR SEVERALLY,  FOR ANY OBLIGATION OF, OR CLAIM AGAINST, SNH,
SPTIHS,  HRES1 OR HRES2. ALL PERSONS DEALING WITH SNH, SPTIHS, HRES1 OR HRES2 IN
ANY  WAY,  SHALL  LOOK  ONLY TO THE  ASSETS  OF SNH,  SPTIHS,  HRES1  OR  HRES2,
RESPECTIVELY, FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

         10.14  Expenses.  Each party to this Agreement  shall pay its own costs
and  expenses  incurred as a result of or in  connection  with the  transactions
contemplated  by this  Agreement,  regardless of whether such  transactions  are
consummated;  provided  that  the SNH  Entities  agree to pay all  transfer  and
recording taxes and fees (including  sales, use and similar taxes) in connection
with all lease  assignments and title conveyances or transfers of all properties
being conveyed, transferred or relinquished to the SNH Entities.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written and their  respective  seals to
be hereunto affixed and attested by their respective duly authorized officers.

                     SENIOR HOUSING PROPERTIES TRUST, a Maryland
                     real estate investment trust

                     By: /s/ Ajay Saini
                              Its:

                     SPTIHS PROPERTIES TRUST, a Maryland real estate
                     investment trust

                                   -27-
<PAGE>

                     By: /s/ Ajay Saini
                              Its:

                     HRES1 PROPERTIES TRUST, a Maryland real estate
                     investment trust

                     By: /s/ Ajay Saini
                              Its:

                     HRES2 PROPERTIES TRUST, a Maryland real estate
                     investment trust

                     By: /s/ Ajay Saini
                              Its:

                     SHOPCO-COLORADO, LLC
                     SHOPCO-CT, LLC
                     SHOPCO-GA, LLC
                     SHOPCO-IA, LLC
                     SHOPCO-KS, LLC
                     SHOPCO-MA, LLC
                     SHOPCO-MI, LLC
                     SHOPCO-MO, LLC
                     SHOPCO-NE, LLC
                     SHOPCO-WY, LLC, each a Delaware limited liability company

                     By: /s/ Ajay Saini
                              Its:

                     SNH-NEBRASKA, INC.
                     SNH-IOWA, INC.
                     SNH-MASSACHUSETTS, INC. and
                     SNH-MICHIGAN, INC., each a Delaware corporation

                     By: /s/ Ajay Saini
                              Its:

                     ADVISORS HEALTHCARE GROUP, INC., a Delaware
                     corporation

                                      -28-
<PAGE>

                     By: /s/ Donald J. Buckley
                              Its: President

                     FIVE STAR QUALITY CARE, INC., a Delaware
                     corporation

                     By: /s/ Ajay Saini
                              Its:

                     INTEGRATED HEALTH SERVICES, INC.

                      By: /s/  Daniel J. Booth
                          Its: Senior Vice President

                      COMMUNITY CARE OF AMERICA, INC.
                      ECA HOLDINGS, INC.
                      COMMUNITY CARE OF NEBRASKA, INC.
                      W.S.T. CARE, INC.
                      QUALITY CARE OF LYONS, INC.
                      CCA ACQUISITION I, INC.
                      MARIETTA/SCC, INC.
                      GLENWOOD/SCC, INC.
                      DUBLIN/SCC, INC.
                      COLLEGE PARK/SCC, INC.
                      IHS ACQUISITION NO. 108, INC.
                      IHS ACQUISITION NO. 112, INC.
                      IHS ACQUISITION NO. 113, INC.
                      IHS ACQUISITION NO. 135, INC.
                      IHS ACQUISITION NO. 148, INC.
                      IHS ACQUISITION NO. 152, INC.
                      IHS ACQUISITION NO. 153, INC.
                      IHS ACQUISITION NO. 154, INC.
                      IHS ACQUISITION NO. 155, INC.
                      IHS ACQUISITION NO. 175, INC.
                      INTEGRATED HEALTH SERVICES AT  GRANDVIEW CARE CENTER, INC.
                      ECA PROPERTIES, INC.
                      CCA OF MIDWEST, INC.
                      QUALITY CARE OF COLUMBUS, INC.

                      By: /s/ Daniel J. Booth
                          Its: Senior Vice President

                                      -29-
<PAGE>
<TABLE>
<CAPTION>

                                                     APPENDIX 1

                                              SPTIHS Leased Facilities

Name of Facility                       Address
------------------------------------   ----------------------------------------------------------------------------
<S>                                   <C>
Integrated Health Services @ Canon     ECA Holdings, Inc. dba Integrated Health Services at Canon City
City, Canon City, CO1                  515 Fairview Street, Canon City, CO 81212

Integrated Health Services @ Springs   ECA Holdings, Inc. dba Integrated Health Services at Springs Village
Village, Colorado Springs, CO          110 W. Van Buren, Colorado Springs, CO 80907

Integrated Health Services @ Delta,    ECA Holdings, Inc. dba Integrated Health Services at Delta
Delta, CO                              2050 South Main Street, Delta, CO 81416

Integrated Health Services @ Mantey    ECA Holdings, Inc. dba Integrated Health Services at Mantey Heights
Heights, Grand Junction, CO            2825 Patterson Road, Grand Junction, CO 81506

Integrated Health Services @ LaVilla   ECA Holdings, Inc. dba Integrated Health Services at LaVilla Grande
Grande, Grand Junction, CO             2501 Little Bookcliff Drive, Grand Junction, CO 81501

College Park Health Care Center,       College Park/SCC, Inc. dba College Park Health Care Center
College Park, GA                       1765 Temple Avenue, College Park, GA 30337

Community Care of America at Dublin,   Dublin/SCC, Inc. dba IHS of Dublin
Dublin, GA                             606 Simmons Street, Box 549, Dublin, GA 31040

Community Care of America @            Marietta/SCC, Inc. dba Community Care of America at Marietta
Marietta, Marietta, GA                 1480 Sandtown Road, Marietta, GA 30060

Community Care of America @ Conner,    Glenwood/SCC, Inc. dba Community Care of America at Conner
Glenwood, GA                           303 Fifth Street, P.O. Box 618, Glenwood, GA 30428

Integrated Health Services of          ECA Holdings, Inc. dba Integrated Health Services of Clarinda
Clarinda, Clarinda, IA                 600 Manor Drive, Clarinda, IA 51632

Integrated Health Services of          ECA Holdings, Inc. dba Integrated Health Services of Council Bluffs South
Council Bluffs South, Council          34 Northcrest Drive, Council Bluffs, IA 51501
Bluffs, IA

Integrated Health Services @           ECA Holdings, Inc. dba Integrated Health Services at Mediapolis
Mediapolis, Mediapolis, IA             608 Prairie Street, Mediapolis, IA 52637

Integrated Health Services of          ECA Holdings, Inc. dba Integrated Health Services of Winterset
Winterset, Winterset, IA1              1015 West Summit, Winterset, IA 50273

IHS at Pacific Place, Pacific          ECA Holdings, Inc. dba Integrated Health Services at Pacific Place
Junction, IA                           20937 Hwy. 385 West, Pacific Junction, IA 51561

IHS of Woodhaven, Ellinwood, KS        ECA Holdings, Inc. dba IHS of Woodhaven
                                       510 W. 7th Street, Ellinwood, KS 67526

IHS @ Tarkio,                          ECA Holdings, Inc. dba IHS at Tarkio
Tarkio, MO                             300 Cedar Street, Tarkio, MO 64491

Wedgewood Care Center, Grand Island,   ECA Holdings, Inc. dba Wedgewood Care Center
NE                                     800 Stoeger Drive, Grand Island, NE 68803

IHS @ Laramie,                         ECA Holdings, Inc. dba IHS at Laramie
Laramie, WY                            503 South 18th St., Laramie, WY 82070

Community Care of America @ Worland,   ECA Holdings, Inc. dba Community Care of America at Worland
Worland, WY1                           1901 Howell, Worland, WY 82401
<FN>
1      Two properties are located at each of these locations.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                              HRES1 Leased Facilities

Name of Facility                       Address
------------------------------------   ----------------------------------------------------------------------------
<S>                                   <C>
Greenery Rehabilitation Center,        Horizon/CMS Healthcare Corporation dba Greenery Rehabilitation Center
Brighton, MA                           99-111 Chestnut Hill Avenue, Brighton, MA 02135

Greenery Rehabilitation & Skilled      Horizon/CMS Healthcare Corporation dba Greenery Rehabilitation and Skilled
Nursing Center of Middleboro,          Nursing Center of Middleboro
Middleboro, MA                         P.O. Box 1330, Isaac Street, Middleboro, MA 02346

Greenery Rehabilitation and Skilled    Horizon/CMS Healthcare Corporation dba Greenery Rehabilitation and Skilled
Nursing Center of Hyannis, Hyannis,    Nursing Center of Hyannis
MA                                     89 Lewis Bay Road, Hyannis, MA 02601

Greenery Extended Care Center          Horizon/CMS Healthcare Corporation dba Greenery Extended Care Center
Worcester, MA                          59 Acton Street, Worcester, MA 01604

IHS Greenery of Canonsburg,            IHS Acquisition No 135, Inc. dba IHS Greenery of Canonsburg
Canonsburg, PA                         2200 Hill Church Houston Road, Canonsburg, PA 15317

<CAPTION>

                                              HRES2 Leased Facilities

Name of Facility                       Address
------------------------------------   ----------------------------------------------------------------------------
<S>                                   <C>
Clifton House Rehabilitation Center,   Advisors Healthcare Group, Inc. dba Clifton House Rehabilitation Center
New Haven, CT                          181 Clifton Street, New Haven, CT 06513

Greenery Rehabilitation Center @       Advisors Healthcare Group, Inc. dba Greenery Rehabilitation Center at
Waterbury, Waterbury, CT               Waterbury
                                       177 Whitewood Road, Waterbury, CT 06708

Greenery Extended Care Center @        Advisors Healthcare Group, Inc. dba Greenery Extended Care Center at
Cheshire, Cheshire, CT                 Cheshire
                                       50 Hazel Drive, Cheshire, CT 06410

<CAPTION>
                                            SPTIHS Mortgaged Facilities

Name of Facility                       Address
------------------------------------   ----------------------------------------------------------------------------
<S>                                   <C>
Integrated Health Services @ Lyons,    Quality Care of Lyons, Inc. dba Integrated Health Services at Lyons
Lyons, NE                              1035 Diamond Street, Lyons, NE 68038

Integrated Health Services @           W.S.T. Care, Inc. dba Integrated Health Services at Milford
Milford, Milford, NE                   P.O. Box D, 1100 W. First Street, Milford, NE 68405

Integrated Health Services of          Community Care of Nebraska, Inc. dba Integrated Health Services of Waverly
Waverly, Waverly, NE                   P.O. Box 160, 11041 N. 137th Street, Waverly, NE 68462

Ainsworth Care Center,                 Community Care of Nebraska, Inc. dba Ainsworth Care Center
Ainsworth, NE                          143 N. Fullerton Street, Ainsworth, NE 69210

Integrated Health Services @           Community Care of Nebraska, Inc. dba Integrated Health Services at Ashland
Ashland, Ashland, NE                   1700 Furnas Street, Ashland, NE 68003

Blue Hill Care Center, Blue Hill, NE   Community Care of Nebraska, Inc. dba Blue Hill Care Center
                                       P.O. Box 156, 414 N. Wilson, Blue Hill, NE 68930

Integrated Health Services @ Gretna,   Community Care of Nebraska, Inc. dba Integrated Health Services at Gretna
Gretna, NE                             700 Highway 6, Gretna, NE 68028

Integrated Health Services @           Community Care of Nebraska, Inc. dba Integrated Health Services at
Sutherland, Sutherland, NE             Sutherland
                                       P.O. Box 307, 333 Maple Street, Sutherland, NE 69165

                                                        -2-
<PAGE>
<CAPTION>

Name of Facility                       Address
------------------------------------   ----------------------------------------------------------------------------
<S>                                   <C>
Integrated Health Services @ Edgar,    Community Care of Nebraska, Inc. dba Integrated Health Services at Edgar
Edgar, NE                              RR 1 Box 83A, 106 5th Street, Edgar, NE 68935
-------------------------------------- ----------------------------------------------------------------------------
<CAPTION>

                                             HRES1 Mortgaged Facilities

Name of Facility                       Address
------------------------------------   ----------------------------------------------------------------------------
<S>                                   <C>
Integrated Health Services of          Integrated Health Services of Slidell Rehabilitation Center
Slidell Rehabilitation Center,         1400 W. Lindberg Drive, Slidell, LA 70458  No DBA.
Slidell, LA

Farmington Health Care Center,         IHS Acquisition No. 112, Inc. dba Farmington Health Care Center
Farmington, MI                         34225 Grand River, Farmington, MI 48335-3512

Integrated Health Services of          IHS Acquisition No. 113, Inc. dba Integrated Health Services of Michigan
Michigan @ Howell, Howell, MI          at Howell
                                       3003 W. Grand River Avenue, Howell, MI 48843-8539
</TABLE>

                                                        -3-
<PAGE>
                                   APPENDIX 2

                               Existing Documents

I.       IHS Tenants

1.       SPTIHS Lease:

         A.       Amended,  Restated and  Consolidated  Master  Lease  Document,
                  dated as of September  24,  1997,  between  SPTIHS  Properties
                  Trust (as  successor in interest to HRPT),  as  Landlord,  and
                  ECA, Marietta/SCC,  Inc., Glenwood/SCC, Inc., Dublin/SCC, Inc.
                  and College Park/SCC, Inc. (the "SPTIHS Tenants"), as Tenants.

         Applicable to:

         Leased Properties from 1993 Transaction:  La Ville-Grand Junction,  CO;
         Grand Junction,  CO;  Clarinda,  IA;  Mediapolis,  IA;  Winterset,  IA;
         Tarkio, MO; Worland, WY; Laramie, WY (the "1993 Leased Properties").

         Leased Properties from 1995 Transaction:  Gentry South-Council  Bluffs,
         IA; Grand Island,  NE; Pacific  Junction,  IA; Elinwood,  KS (the "1995
         Leased Properties").

         Leased Properties from 1996 Transaction:  Marietta,  GA; Glenwood,  GA;
         Dublin, GA; College Park, GA (the "1996 Leased Properties").

         Leased  Properties  from 1997  Transaction:  Canon City,  CO;  Colorado
         Springs, CO; Delta, CO (the "1997 Leased Properties").

         B.       Leases,  each dated as of December 30,  1993,  between HRPT as
                  Landlord and ECA as Tenant, for each 1993 Leased Property,  as
                  amended by:

                  (i)  Amendment  to 1993 Master  Lease  Document  and  Facility
                  Leases dated as of July 16, 1996; and

                  (ii) Second  Amendment to 1993  Facility  Leases,  dated as of
                  September 24, 1997.

         C.       Facility Leases,  each dated as of April 1, 1995, between HRPT
                  as Landlord and ECA as Tenant,  for each 1995 Leased Property,
                  as amended by:

                  (i)  Amendment  to 1995 Master  Lease  Document  and  Facility
                  Leases dated as of July 16, 1996; and

                  (ii) Second  Amendment to 1995  Facility  Leases,  dated as of
                  September 24, 1997.
<PAGE>

         D.       Facility Leases,  each dated as of May 10, 1996,  between HRPT
                  as Landlord  and the Georgia  Subsidiaries  as Tenant for each
                  1996 Leased Property, as amended by:

                  (i)  Amendment  to 1996 Master  Lease  Document  and  Facility
                  Leases dated as of July 16, 1996, between HRPT and the Georgia
                  Subsidiaries; and

                  (ii) Amendment to 1996 Facility Leases,  dated as of September
                  24, 1997, between HRPT and the Georgia Subsidiaries.

         E.       Facility Leases,  each dated as of September 24, 1997, between
                  HRPT and ECA for each 1997 Leased Property.

2.       HRES1 Leases:

         A.       Lease  Agreements each dated as of February 11, 1994,  between
                  HRES1  Properties  Trust (as  successor  in  interest  to HRPT
                  Properties Trust), as Landlord, and Horizon.

         Applicable to: Brighton, MA; Middleboro, MA; Hyannis MA; Worcester, MA;
         Canonsburg, PA.

                                      -2-
<PAGE>

II.      Management Agreements:

1.       HRES2  Lease:  Lease  Agreements,  each dated as of February  11, 1994,
         between  HRES2  Properties  Trust (as  successor  in  interest  to HRPT
         Properties  Trust),  as  Landlord,  and  Advisors  (formerly  known  as
         Connecticut Subacute Corporation II) as Tenant, as amended to date.

         Applicable to: New Haven, CT; Waterbury,  CT; Cheshire,  CT (the "HRES2
         Leased Facilities").

2.       Management Agreement:  Management Agreements, each dated as of February
         11, 1994,  between  Advisors and IHS 175 (as successor to Horizon),  as
         amended to date.

         Applicable to the HRES2 Leased Facilities.

III.     Mortgage Notes

1.       SPTIHS Mortgages:1

         A.       Amended  and  Restated   Promissory   Note  (effective  as  of
                  September 24, 1997) originally dated December 30, 1993, in the
                  principal amount of $6,000,000, by Community Care of Nebraska,
                  Inc.  ("CCN")  for the  benefit  of SPTIHS  (as  successor  in
                  interest to HRPT).

         B.       Amended  and  Restated   Promissory   Note  (effective  as  of
                  September  24, 1997),  originally  dated April 1, 1995, in the
                  principal  amount of $2,045,000  made by CCN and W.S.T.  Care,
                  Inc., a Nebraska  corporation and Quality Care of Lyons, Inc.,
                  a Nebraska  corporation and together with WST, for the benefit
                  of SPTIHS (as successor in interest to HRPT).

         C.       Amended  and  Restated   Promissory   Note  (effective  as  of
                  September  24, 1997),  originally  dated April 1, 1995, in the
                  principal  amount of $2,833,300 made by the SPTIHS  Mortgagors
                  to SPTIHS (as successor in interest to HRPT).

         D.       Amended  and  Restated   Promissory   Note  (effective  as  of
                  September  24, 1997),  originally  dated July 16, 1996, in the
                  principal  amount of $6,500,000 made by the SPTIHS  Mortgagors
                  to SPTIHS (as successor in interest to HRPT).

         E.       Deed(s) of Trust and Construction Security Agreement, dated as
                  of  December  30,  1993  made by CCN in  favor of  SPTIHS  (as
                  successor  in interest  to HRPT) (with  respect to property in
                  Ainsworth, Ashland, Blue Hill, Gretna, Sutherland and Waverly,
                  NE), as amended by:

                  (i) First  Amendments  dated as of April 1,  1995
--------
1        Applicable to: Lyons,  NE; Milford,  NE; Waverly,  NE;  Ainsworth,  NE;
         Ashland, NE; Blue Hill, NE; Gretna, NE; Sutherland, NE; Edgar, NE.

                                      -3-
<PAGE>

                  (ii) Second Amendments dated as of July 16, 1996
                  (iii) Third Amendments dated as of September 24, 1997

         F.       Deed of Trust, dated as of April 1, 1995, made by WST in favor
                  of SPTIHS (as  successor  in  interest to HRPT)  (relating  to
                  property at Milford, NE), as amended by:

                  (i)      Amendment dated as of July 16, 1996
                  (ii)     Second Amendment dated as of September 24, 1997

         G.       Deed of  Trust,  dated as of April 1,  1995,  made by Lyons in
                  favor of SPTIHS (as  successor in interest to HRPT)  (relating
                  to property at Lyons, NE), as amended by:

                  (i)      Amendment dated as of July 16, 1996
                  (ii)     Second Amendment dated as of September 24, 1997

2.       HRES1 Mortgage Notes:2

         A.       Mortgage  and Security  Agreement,  by IHS 112 and IHS 113 (as
                  successors  to Horizon) to HRES1 (as  successor in interest to
                  HRPT), dated November 29, 1993, effective February 11, 1994.

         B.       Mortgage and Security  Agreement,  by IHS 108 (as successor to
                  Horizon) to HRES1 (as  successor  in interest to HRPT),  dated
                  January 28, 1995, effective December 31, 1994.

         C.       Assignment  of Leases  and  Rents,  from  Horizon to HRES1 (as
                  successor in interest to HRPT), dated February 11, 1994.

         D.       Assignment  of Leases and Rents,  dated  January  28, 1995 and
                  effective  as of December  31,  1994,  made by Horizon for the
                  benefit of HRES1 (as successor in interest to HRPT).

         E.       Promissory Note in the original principal amount of $5,100,000
                  from  Horizon to HRES1 (as  successor  in  interest  to HRPT),
                  dated February 11, 1994.

         F.       Promissory Note in the original principal amount of $4,300,000
                  from  Horizon to HRES1 (as  successor  in  interest  to HRPT),
                  dated February 11, 1994.

         G.       Promissory  Note,  dated January 28, 1995, and effective as of
                  December 31, 1994,  made by Horizon to HRES1 (as  successor in
                  interest  to  HRPT)  in  the  original   principal  amount  of
                  $19,500,000.

IV.      IHS Guaranties

---------
2        Applicable to: Howell, MI; Farmington, MI; Slidell, LA.

                                      -4-
<PAGE>

1.       Consent,  Assumption  and Guaranty  Agreement  dated as of December 31,
         1997 by and among (i) Integrated Health Services,  Inc.  ("IHS"),  (ii)
         IHS  Acquisition  No. 108,  Inc.,  IHS  Acquisition  No. 112, Inc., IHS
         Acquisition   No.  113,  Inc.,  IHS  Acquisition  No.  135,  Inc.,  IHS
         Acquisition   No.  148,  Inc.,  IHS  Acquisition  No.  152,  Inc.,  IHS
         Acquisition   No.  153,  Inc.,  IHS  Acquisition  No.  154,  Inc.,  IHS
         Acquisition  No. 155, Inc. and IHS  Acquisition  No. 175,  Inc.,  (iii)
         HealthSouth  Corporation  ("HealthSouth"),  (iv) Horizon, (v) HRPT, and
         (vi) Indemnity Collection Corporation ("ICC")

2.       Guaranty by IHS dated as of September 24, 1997.

3.       Amended,  Restated and Consolidated  Cross Guaranty,  Cross Default and
         Cross  Collateralization  Agreement,  dated as of  September  24, 1997,
         among  Community Care of America,  Inc.  ("CCA"),  ECA, ECA Properties,
         Inc.  ("ECAP"),  ECA  Holdings  II,  Inc.  ("New  ECA"),  CCN,  the CCN
         Subsidiaries,   CCA   Acquisition   I,  Inc.   ("CCAA"),   the  Georgia
         Subsidiaries, and HRPT.

4.       Guaranties  (2), each dated as of December 30, 1993,  from CCA in favor
         of HRPT.

5.       Guaranties  (2),  each dated as of December 30, 1993,  from  MeritWest,
         Inc. ("MeritWest") in favor of HRPT.

6.       Guaranties (2), each dated as of December 30, 1993, from MTC West, Inc.
         ("MTC") in favor of HRPT.

7.       Guaranty dated as of December 30, 1993, from ECA in favor of HRPT.

8.       Guaranty  dated as of April 1, 1995,  from CCA in favor of HRPT, of ECA
         obligations.

9.       Guaranty  dated as of April 1, 1995,  from CCA in favor of HRPT, of CCN
         and CCN Subsidiary obligations.

10.      Guaranty  dated as of April 1, 1995,  from ECA in favor of HRPT, of CCN
         and CCN Subsidiary obligations.

11.      Guaranty  dated as of May 10, 1996 by CCA in favor of HRPT, of CCAA and
         Georgia Subsidiary obligations.

12.      Guaranty  dated as of May 10, 1996 by CCAA in favor of HRPT, of Georgia
         Subsidiary obligations.

                                      -5-

<PAGE>

                                  SCHEDULE 1.1A

                           List of Assigned Contracts.

                                   [Omitted.]

<PAGE>

                                  SCHEDULE 1.1B

           Real Property Encumbrances to be Released prior to Closing

<PAGE>
                                    Delta, CO

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                  Bethesda Care
                               Grand Junction, CO

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                 LaVilla Grande
                               Grand Junction, CO

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                              Colorado Springs, CO

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

Statement  of lien  claimed  by Nexera  in the  amount of  $5,625,  recorded  in
Reception No. 2000013600.

<PAGE>

                                 Canon City, CO

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                College Park, GA

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

UCC-1 Financing  Statement No.  60199701802,  having College  Park/SCC,  Inc. as
Debtor and  NationsBank,  National  Association  (South),  as Agent,  as Secured
party,  filed for record January 28, 1997, at 10:38 a.m.,  Central Filing System
of Georgia.

<PAGE>

                                   Dublin, GA

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                  Marietta, GA

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                  Glenwood, GA

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                  Winterset, IA

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                  Clarinda, IA

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

[Mechanics'  Lien filed November 7, 1996 as LN-LN 100044 by Crain  Construction,
Inc. in the amount of $18,845, plus interest.]

<PAGE>

                                 Mediapolis, IA

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                               Council Bluffs, IA

                        Real Property Encumbrances to be

                            Released Prior to Closing

1.       Real estate taxes and water and sewer charges delinquent as of February
         2, 2000.

<PAGE>

                              Pacific Junction, IA

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                  Ellinwood, KS

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                   Tarkio, MO

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                Grand Island, NE

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                   Laramie, WY

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                   Worland, WY

                        Real Property Encumbrances to be

                            Released Prior to Closing

                             Civil Action No. 990016

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                    Lyons, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Deed of Trust from Quality  Care of Lyons,  Inc. for the benefit of IHS
         Financial  Holdings,  Inc. in the amount of  $5,000,000  dated July 18,
         1997 and recorded in Book 102 of Mortgages, Page 723.

2.       Taxes for the second half of 1998 totalling $6,747.04 plus interest and
         penalties.  Tax Sale  Certificate #9, purchased March 6, 2000 by AAM US
         Bank.

3.       Real estate taxes and water and sewer charges delinquent as of February
         2, 2000.

4.       UCC Financing Statement No. 999878947 dated 11/13/98 to MLC Group, Inc.

<PAGE>

                                  Ainsworth, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Real estate taxes and water and sewer charges delinquent as of February
         2, 2000.

2.       Deed of Trust  dated  July 18,  1997,  and filed for record on July 15,
         1997,  in Book 70 of  Mortgages  at page  356 of the  records  of Brown
         County,  Nebraska,  wherein  Community  Care of  Nebraska,  a  Delaware
         corporation,  conveys  said real  estate in trust with power of sale in
         favor of First  American  Title  Insurance  Company,  Trustee,  for the
         benefit of IHS Financial  Holdings,  Inc., a Delaware  corporation,  in
         consideration  of a line of  credit  in the  principal  amount of up to
         $5,000,000.00.

<PAGE>

                                   Ashland, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Deed of Trust in the amount of  $5,000,000  dated July 18, 1997 in Book
         212, Page 820 from Community Care of Nebraska,  Inc. for the benefit of
         IHS Financial Holdings, Inc.

2.       Real estate taxes and water and sewer charges delinquent as of February
         2, 2000.

3.       Construction  Lien in the amount of $475,  Book 242,  Page 70, filed by
         Commercial Flooring Systems, Inc.

4.       Construction  Lien in the amount of $895,  Book 242,  Page 75, filed by
         Commercial Flooring Systems, Inc.

<PAGE>

                                  Blue Hill, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Deed of Trust from Community Care of Nebraska,  Inc. for the benefit of
         IHS  Financial  Holdings,  Inc.,  dated July 18,  1997 in the amount of
         $5,000,000 and recorded in Book 97, Page 1188

2.       Real estate taxes and water and sewer charges delinquent as of February
         2, 2000.

<PAGE>

                                   Gretna, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Deed of Trust from Community Care of Nebraska,  Inc. for the benefit of
         IHS  Financial  Holdings,  Inc.  dated  July 18,  1997 in the amount of
         $5,000,000 recorded as Instrument no. 97-15776.

2.       Real estate taxes and water and sewer charges delinquent as of February
         2,2000.

<PAGE>

                                 Sutherland, NE

                    Real Property Encumbrances to be Released
                                Prior to Closing

1.       Deed of Trust from Community Care of Nebraska,  Inc. for the benefit of
         IHS  Financial  Holdings,  Inc.,  dated July 18, 1997 in the  principal
         amount of $5,000,000, recorded in Book 559, Page 140.

2.       Real estate taxes and water and sewer charges delinquent as of February
         2,2000.

<PAGE>

                                   Waverly, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Deed of Trust from Community Care of Nebraska,  Inc. for the benefit of
         IHS  Financial  Holdings,  Inc.,  dated July 18,  1997 in the amount of
         $5,000,000, recorded as Instrument No. 97-29466.

2.       Real estate taxes and water and sewer charges delinquent as of February
         2,2000.

<PAGE>

                                   Milford, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Deed of Trust from W.S.T.  Care,  Inc. for the benefit of IHS Financial
         Holdings,  Inc.  in the amount of  $5,000,000  dated July 18,  1997 and
         recorded in Book 238, Page 195.

2.       Real estate taxes and water and sewer charges delinquent as of February
         2,2000.

<PAGE>

                                  Brighton, MA

                        Real Property Encumbrances to be

                            Released Prior to Closing

                                      None

<PAGE>

                                  Worcester, MA

                        Real Property Encumbrances to be

                            Released Prior to Closing

                                      None

<PAGE>

                                 Middleboro, MA

                        Real Property Encumbrances to be

                            Released Prior to Closing

                                      None

<PAGE>

                                   Hyannis, MA

                        Real Property Encumbrances to be

                            Released Prior to Closing

                                      None

<PAGE>

                                 Canonsburg, PA

                     Real Estate Encumbrances to be Released
                                Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                   Howell, MI

                    Real Property Encumbrances to be Released
                                Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                 Farmington, MI

                    Real Property Encumbrances to be Released
                                Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                  New Haven, CT

                        Real Property Encumbrances to be

                            Released Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                  Waterbury, CT

                        Real Property Encumbrances to be

                            Released Prior to Closing

                      1998 Tax Lien in Volume 295, Page 46.

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                  Cheshire, CT

                        Real Property Encumbrances to be

                            Released Prior to Closing

Certificate of Sewer Lien recorded March 26, 1998 in Volume 1265, Page 71.

Real estate taxes and water and sewer charges delinquent as of February 2, 2000.

<PAGE>

                                 N. Andover, MA

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Massachusetts Excise Tax Lien.

2.       Real estate taxes and water and sewer charges delinquent as of February
         2,2000.

<PAGE>

                                 Des Moines, IA

                     Real Estate Encumbrances to be Released
                                Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2,2000.

<PAGE>

                           Glenwood (Park Place) Iowa

                     Real Estate Encumbrances to be Released
                                Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2,2000.

<PAGE>

                                    Utica, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Deed of Trust from Community Care of Nebraska,  Inc. for the benefit of
         IHS Financial Holdings,  Inc. dated July 18, 1997 recorded in Book 238,
         Page 218.

2.       Real estate taxes and water and sewer charges delinquent as of February
         2,2000.

3.       Mechanics Lien to Jorad, Inc. in the amount of $2,456.15 dated December
         3, 1999 in Book 7, Page 685.

<PAGE>

                                   Palmer, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Deed of Trust and  Security  Agreement  dated July 19, 1997 from CCA of
         Midwest,  Inc.  to  IHS  Financial  Holdings,  Inc.  in the  amount  of
         $5,000,000 recorded in Book 120, Page 234.

2.       Real estate taxes and water and sewer charges delinquent as of February
         2,2000.

<PAGE>

                                   Exeter, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Deed of Trust from Community Care of Nebraska,  Inc. for the benefit of
         IHS  Financial  Holdings,  Inc.,  dated July 18,  1997 in the amount of
         $5,000,000 recorded in Mortgage Book 146, Page 17.

2.       Real estate taxes and water and sewer charges delinquent as of February
         2,2000.

<PAGE>

                                Central City, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Real estate taxes and water and sewer charges delinquent as of February
         2,2000.

<PAGE>

                                  Columbus, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Real estate taxes and water and sewer charges delinquent as of February
         2,2000.

2.       Deed of Trust from Quality  Care of  Columbus,  Inc. for the benefit of
         IHS  Financial  Holdings,  Inc.  dated  July 18,  1997 in the amount of
         $5,000,000 in Book 376, Page 203.

<PAGE>

                                    Edgar, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Deed of Trust from Community Care of Nebraska,  Inc. for the benefit of
         IHS  Financial  Holdings,  Inc.,  dated July 18,  1997 in the amount of
         $5,000,000 recorded in Mortgage Book 174, Page 21.

2.       Real estate taxes and water and sewer charges delinquent as of February
         2,2000.

<PAGE>

                                  Campbell, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

Real estate taxes and water and sewer charges delinquent as of February 2,2000.

<PAGE>

                                   Aurora, NE

                     Real Estate Encumbrances to be Released
                                Prior to Closing

1.       Deed of Trust from Community Care of Nebraska,  Inc. for the benefit of
         HIS Financial Holdings,  Inc., July 18, 1997 recorded in Book 168, Page
         21.

2.       Real estate taxes and water and sewer charges delinquent as of February
         2,2000.

<PAGE>

                                  SCHEDULE 1.1C

                          Standard System Configuration

Number             Hardware                         Related Software
-------------------------------------------------------------------------------

1     Sprint CSU

1     Cisco 1601 Router

1     HP 10MB Manageable Ethernet Hub

1     Emulux Terminal/Printer Server 8 or 16 Hub

5     Wyse60 Terminals

3     PCs Win95                        MS Office 97, Internet Explorer 4.01, PC
                                       Anywhere v8, Norton v4.02, Powerterm 5.2

2     HP Personal Laser Printers       PC connect

2     HP 4000N Laserjet Printer        Jet Direct Network Card

1     PC                               Kronos, DOS

1     Standalone Modem

1     Okidata 321 Printer

1     Okidata 395 Printer

1     Kronos Time Clock

1     HP LCII or LC III Server         SCO Openserver 5.04 AFPS for LAN

1     Backup Server Modem

1     APC 1400 UPS                     Parachute Plus for Unix v4.2.2

             Software                              Description
-------------------------------------------------------------------------------

Achieve (v7.312)                        MDS, care plans, physician orders,
                                        resident trust, billing and AR

IBM Passport (v2.R1LE)                  Claims processing

Kronos (v7B.06 TKC for DOS)             Time and attendance

RFW (v4.3A SR5)                         Misc. charge capture via barcode

Menutracker (v02.10.00)                 Dietary meal management

MS Office 97                            Word, Excel, and Powerpoint

<PAGE>

                                 SCHEDULE 3.2.6

                          Description of New Properties

[This schedule  contains legal  descriptions of real property located in Central
City, NE, Campbell,  NE, Columbus,  NE, Exeter,  NE, Palmer,  NE, Utica, NE, Des
Moines, IA, Park Place/Glenwood, IA, N. Andover, MA.]

<PAGE>
                                 SCHEDULE 3.2.6A

1.       Lease dated March 15, 1999 between IHS  Acquisition  No. 148,  Inc., as
         Landlord, and Horizon/CMS Healthcare  Corporation,  as Tenant (relating
         to No. Andover, MA facility).

<PAGE>
<TABLE>
<CAPTION>

                                              SCHEDULE 5.6

                                                Licenses

                                        SPTIHS Leased Facilities

Name of Facility                       Beds            Services
----------------                       ----            --------
<S>                                   <C>             <C>
Integrated Health Services @ Canon     85              Skilled Nursing Facility
City, Canon City, CO1                  48 units        Apartments

Integrated Health Services @ Delta,    90              Skilled Nursing Facility
Delta, CO                              6               Personal Care Boarding Home

Integrated Health Services @ LaVilla   96              Skilled Nursing Facility
Grande, Grand Junction, CO

Integrated Health Services @ Mantey    82              Skilled Nursing Facility
Heights, Grand Junction, CO

Integrated Health Services @ Springs   100             Skilled Nursing Facility
Village, Colorado Springs, CO

College Park Health Care Center,       100             Skilled Nursing Facility
College Park, GA

Community Care of America @ Conner,    62              Skilled Nursing Facility
Glenwood, GA

Community Care of America at Dublin,   130             Skilled Nursing Facility
Dublin, GA

Community Care of America @            109             Skilled Nursing Facility
Marietta, Marietta, GA

Integrated Health Services of          117             Skilled Nursing Facility
Clarinda, Clarinda, IA

Integrated Health Services of          62              Skilled Nursing Facility
Council Bluffs South, Council
Bluffs, IA

Integrated Health Services @           62              Skilled Nursing Facility
Mediapolis, Mediapolis, IA

IHS at Pacific Place, Pacific          12              Intermediate Care Facility for Mentally Retarded
Junction, IA

Integrated Health Services of          80              Skilled Nursing Facility
Winterset, Winterset, IA1              19              Residential Care Facility
                                       19 units        Apartments

IHS of Woodhaven,                      54              Skilled Nursing Facility
Ellinwood, KS

IHS @ Tarkio,                          95              Skilled Nursing Facility
Tarkio, MO

Wedgewood Care Center,                 74              Skilled Nursing Facility
Grand Island, NE

IHS @ Laramie,                         144             Skilled Nursing Facility
Laramie, WY

Community Care of America @ Worland,   87              Skilled Nursing Facility
Worland, WY1                           13 units        Apartments
<FN>
1      Two properties are located at each of these locations.
</FN>
</TABLE>

<PAGE>

                             HRES1 Leased Facilities

Name of Facility                       Beds            Services
----------------                       ----            --------
Greenery Rehabilitation Center,        201             Skilled Nursing Facility
Brighton, MA

Greenery Rehabilitation & Skilled      124             Skilled Nursing Facility
Nursing Center of Middleboro,
Middleboro, MA

Greenery Rehabilitation and Skilled    142             Skilled Nursing Facility
Nursing Center of Hyannis, Hyannis,
MA

Greenery Extended Care Center          173             Skilled Nursing Facility
Worcester, MA

IHS Greenery of Canonsburg,            140             Skilled Nursing Facility
Canonsburg, PA

                             HRES2 Leased Facilities

Name of Facility                       Beds            Services
----------------                       ----            --------

Clifton House Rehabilitation Center,   195             Skilled Nursing Facility
New Haven, CT

Greenery Rehabilitation Center @       180             Skilled Nursing Facility
Waterbury, Waterbury, CT

Greenery Extended Care Center @        210             Skilled Nursing Facility
Cheshire, Cheshire, CT

                           SPTIHS Mortgaged Facilities

Name of Facility                       Beds            Services
----------------                       ----            --------

Ainsworth Care Center, Ainsworth, NE   50              Skilled Nursing Facility

IHS @ Ashland,                         101             Skilled Nursing Facility
Ashland, NE

Blue Hill Care Center,                 68              Skilled Nursing Facility
Blue Hill, NE

IHS @ Edgar,                           54              Skilled Nursing Facility
Edgar, NE

IHS @ Gretna,                          63              Skilled Nursing Facility
Gretna, NE

IHS @ Lyons,                           82              Skilled Nursing Facility
Lyons, NE

IHS @ Milford,                         60              Skilled Nursing Facility
Milford, NE

IHS @ Sutherland,                      62              Skilled Nursing Facility
Sutherland, NE

IHS of Waverly,                        51              Skilled Nursing Facility
Waverly, NE

                                      -2-
<PAGE>

                           HRES1 Mortgaged Facilities

Name of Facility                       Beds      Services
----------------                       ----      --------
Farmington Health Care Center          153       Nursing Home (Long Term Care)
Farmington, MI

IHS of Michigan at Howell              176       Nursing Home (Long Term Care)
Howell, MI

                                 New Facilities

Name of Facility                       Beds       Services
----------------                       ----       --------
Grandview Manor                        45         Skilled Nursing Facility
Campbell, NE  68932

Integrated Health Services of          70         Skilled Nursing Facility
Central City
Central City, NE  68826

Mory's Haven                           48         Skilled Nursing Facility
Columbus, NE  68601

Exeter Care Center                     56         Skilled Nursing Facility
Exeter, NE  68351

IHS at Palmer                          35         Nursing Facility
Palmer, NE  68864

Utica Community Center                 41         Skilled Nursing Facility
Utica, NE  68456

Integrated Health Services of Iowa     93         Skilled Nursing Facility
at Des Moines
Des Moines, IA  50316

IHS at Park Place                      128        Intermediate care facility
Glenwood, IA  51534                               for mentally retarded

Greenery Extended Care Center at       122        Skilled nursing facility
North Andover
North Andover, MA  01845

                                      -3-
<PAGE>
                                 SCHEDULE 6.1.7

                                 Aurora Parcel

[This schedule  contains a legal description of real property located in Aurora,
NE.]
<PAGE>
                                   EXHIBIT A

[This exhibit contains a copy of the filing made in the United States Bankruptcy
Court for the District of Delaware in re Integrated  Health  Services,  Inc., et
al.]
<PAGE>
                                  EXHIBIT B-1
                           PENNSYLVANIA MODIFICATION

                                                              S&W DRAFT 04/05/00

                      AMENDED AND RESTATED LEASE AGREEMENT

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

                                 BY AND BETWEEN

                             HRES1 PROPERTIES TRUST
                                  AS LANDLORD,

                                       AND

                          IHS ACQUISITION NO. 135, INC.
                                    AS TENANT

<PAGE>

                      AMENDED AND RESTATED LEASE AGREEMENT

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

                               W I T N E S S E T H

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

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

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

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

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

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

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

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

<PAGE>

         WHEREAS,  pursuant to, and in accordance  with, a Settlement  Agreement
dated as of March __, 2000  among,  inter alia,  IHS,  Landlord  and Tenant (the
"Settlement Agreement"),  Landlord has agreed to rescind its alleged termination
of the Original Lease,  Landlord and Tenant have agreed to amend and restate the
Original  Lease  as set  forth  herein,  and  IHS has  agreed  to  guaranty  the
obligations  of Tenant  hereunder  pursuant to a Guaranty  dated as of even date
herewith by IHS in favor of Landlord (as amended,  modified or supplemented from
time to time, the "Guaranty");

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

                                   ARTICLE 1

                                   DEFINITIONS

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

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

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

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

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

                                      -2-
<PAGE>

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

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

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

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

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

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

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

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

                                      -3-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                      -4-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      -5-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                      -6-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                      -7-
<PAGE>

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

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

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

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

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

                                      -8-
<PAGE>

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

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

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

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

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

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

                                      -9-
<PAGE>

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

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

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

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

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

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

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

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

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

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

         1.77 "State" shall mean the Commonwealth of Pennsylvania.

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

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

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

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

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

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

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

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

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

                                      -10-
<PAGE>

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

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

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

         1.90 "Trustees" shall mean the trustees of Landlord.

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

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

                                    ARTICLE 2

                                PREMISES AND TERM

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

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

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

                                      -11-
<PAGE>

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

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

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

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

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

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

                                      -12-
<PAGE>

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

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

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

                                   ARTICLE 3

                                      RENT

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

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

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

                                      -13-
<PAGE>

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

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

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

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

                                      -14-
<PAGE>

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

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

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

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

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

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

                                      -15-
<PAGE>

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

                                   ARTICLE 4

                           USE OF THE LEASED PROPERTY

         4.1 Permitted Use.

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

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

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

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

                                      -16-
<PAGE>

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

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

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

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

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

                                      -17-
<PAGE>

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

                                   ARTICLE 5

                          MAINTENANCE AND REPAIRS, ETC.

         5.1 Maintenance and Repair.

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

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

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

                                      -18-
<PAGE>

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

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

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

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

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

                                      -19-
<PAGE>

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

                                   ARTICLE 6

                             CAPITAL ADDITIONS, ETC.

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

                                      -20-
<PAGE>

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

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

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

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

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

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

                                      -21-
<PAGE>

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

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

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

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

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

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

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

                                      -22-
<PAGE>

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

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

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

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

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

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

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

                                      -23-
<PAGE>

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

                                   ARTICLE 7

                                      LIENS

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

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

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

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

                                      -24-
<PAGE>

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

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

                                   ARTICLE 8

                               PERMITTED CONTESTS

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

                                      -25-
<PAGE>

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

                                   ARTICLE 9

                          INSURANCE AND INDEMNIFICATION

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

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

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

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

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

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

                                      -26-
<PAGE>

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

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

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

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

                                      -27-
<PAGE>

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

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

                                   ARTICLE 10

                                    CASUALTY

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

         10.2 Reconstruction in the Event of Damage or Destruction.

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

                                      -28-
<PAGE>

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

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

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

                                      -29-
<PAGE>

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

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

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

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

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

                                      -30-
<PAGE>

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

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

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

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

                                   ARTICLE 11

                                  CONDEMNATION

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

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

                                      -31-
<PAGE>

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

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

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

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

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

                                      -32-
<PAGE>

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

                                   ARTICLE 12

                              DEFAULTS AND REMEDIES

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

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

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

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

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

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

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

                                      -33-
<PAGE>

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

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

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

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

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

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

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

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

                                      -34-
<PAGE>

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

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

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

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

                                      -35-
<PAGE>

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

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

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

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

                                      -36-
<PAGE>

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

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

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

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

                                   ARTICLE 13

                                  HOLDING OVER

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

                                      -37-
<PAGE>

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

                                   ARTICLE 14

                               LANDLORD'S DEFAULT

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

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

                                   ARTICLE 15

                              PURCHASE OF PREMISES

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

                                      -38-
<PAGE>

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

                                   ARTICLE 16

                SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY

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

         16.2 Substitution Procedures.

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

                                      -39-
<PAGE>

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

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

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

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

                                      -40-
<PAGE>

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

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

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

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

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

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

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

                                      -41-
<PAGE>

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

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

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

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

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

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

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

                                      -42-
<PAGE>

                                   ARTICLE 17

                            SUBLETTING AND ASSIGNMENT

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

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

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

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

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

                                      -43-
<PAGE>

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

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

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

                                      -44-
<PAGE>

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

                                   ARTICLE 18

                      CERTIFICATES AND FINANCIAL STATEMENTS

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

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

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

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

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

                                      -45-
<PAGE>

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

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

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

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

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

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

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

                                   ARTICLE 19

                                 LANDLORD ACCESS

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

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

                                      -46-
<PAGE>

                                   ARTICLE 20

                                    APPRAISAL

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

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

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

                                   ARTICLE 21

                                    MORTGAGES

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

                                      -47-
<PAGE>

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

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

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

                                      -48-
<PAGE>

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

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

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

                                   ARTICLE 22

                         ADDITIONAL COVENANTS OF TENANT

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

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

                                      -49-
<PAGE>

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

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

                                   ARTICLE 23

                                  MISCELLANEOUS

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

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

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

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

                                      -50-
<PAGE>

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

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

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

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

                                      -51-
<PAGE>

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

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

         23.10 Notices.

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

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

                  (c) All such notices shall be addressed,

                           if to Landlord to it at:

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

                           with copy to:

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

                                      -52-
<PAGE>

                           and if to any Tenant, to it:

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

                           with a copy to:

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

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

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

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

                                      -53-
<PAGE>

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

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

                                      -54-
<PAGE>

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

                                    LANDLORD:

                                    HRES1 PROPERTIES TRUST

                                    BY:_________________________________
                                           Its:______________________________

                                     TENANT:

                                     IHS ACQUISITION 135, INC.,
                                     a Delaware corporation

                                     By: _________________________________
                                             Its (Vice) President

                                      -55-
<PAGE>

<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
                                                                                                             Page

<S>                                                                                                            <C>
EXHIBITS
A - Permitted Encumbrances
B - The Land

<PAGE>

<CAPTION>

                                TABLE OF CONTENTS
                                                                                                             Page

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

                                       -i-
<PAGE>

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

                                      -ii-
<PAGE>

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

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

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

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

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

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

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

                                      -iii-
<PAGE>

                  7.2      Landlord's Lien.....................................................................24
                  7.3      Mechanic's Liens....................................................................25

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

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

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

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

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

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

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

                                      -iv-
<PAGE>

ARTICLE 15        PURCHASE OF PREMISES.........................................................................38

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

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

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

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

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

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

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

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

                                      -v-
<PAGE>

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

                                      -vi-

<PAGE>
                                 EXHIBIT B-2
                           NEW PENNSYLVANIA GUARANTY

                                                              S&W DRAFT 03/13/00

                  GUARANTY BY INTEGRATED HEALTH SERVICES, INC.

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

                                      -2-
<PAGE>

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

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

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

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

                                      -3-
<PAGE>

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

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

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

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

                                      -4-
<PAGE>

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

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

                                      -5-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                      -6-
<PAGE>

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

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

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

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

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

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

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

                                      -7-
<PAGE>

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

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

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

                                      -8-
<PAGE>

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

                                    INTEGRATED HEALTH SERVICES, INC.

                                    By_________________________________
                                       Name:
                                       Title:

                                    Address for Notices:

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

                                      with a copy to:

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

                                       -9-

<PAGE>
                                 EXHIBIT C

                                                              S&W DRAFT 04/07/00

                       MANAGEMENT AND SERVICING AGREEMENT

         THIS MANAGEMENT AND SERVICING AGREEMENT (this "Agreement") is made this
____ day of __________ 2000, among INTEGRATED HEALTH SERVICES,  INC., a Delaware
corporation  ("IHS"),  the entities  identified on the signature pages hereto as
"IHS  Licensees"  (collectively,  the "IHS Licensees" and together with IHS, the
"Relevant  IHS  Entities,"  and  in  their  capacity  as  "Servicer"  hereunder,
"Servicer"),  SENIOR HOUSING PROPERTIES TRUST, a Maryland real estate investment
trust ("SNH"), FIVE STAR QUALITY CARE, INC., a Delaware corporation ("Manager"),
the entities  identified on the signature  pages hereto as "Proposed  Operators"
(collectively, the "Proposed Operators"), and ADVISORS HEALTHCARE GROUP, INC., a
Delaware corporation (f/k/a "Connecticut  Subacute Corporation II") ("Advisors",
and together with the IHS Licensees, collectively, the "Licensees").

                              W I T N E S S E T H:

         WHEREAS,  each of the IHS Licensees  holds a license to operate each of
the skilled nursing,  intermediate care or residential  facilities identified on
Schedule A-1 as being licensed to it (the "IHS Facilities"),  and Advisors holds
a license to operate  the  skilled  nursing,  intermediate  care or  residential
facilities listed on Schedule A-2 (the "Advisors  Facilities," together with the
IHS Facilities, collectively, the "Facilities"); and

         WHEREAS,  Servicer has, prior to the date hereof,  provided  management
services  of the  nature  set forth in  Sections  1 and 2 hereof for each of the
Facilities; and

         WHEREAS,  Manager  has agreed to provide  management  services  to each
Proposed Operator and Advisors with respect to each of the Facilities; and

         WHEREAS, each of the Proposed Operators and Advisors leases, as tenant,
the Facilities identified as being leased by it on Schedule A; and

         WHEREAS, each of the IHS Licensees has entered into an Interim Sublease
Agreement  dated  as  of  even  date  herewith   (collectively,   the  "Sublease
Agreements")  with the  relevant  Proposed  Operator  pursuant to which such IHS
Licensee, as subtenant of such Proposed Operator, occupies its IHS Facility; and

         WHEREAS,  each IHS  Licensee  wishes to  delegate  to  Manager  certain
authority  and  responsibility  to  manage  its  IHS  Facility,  pending  and in
anticipation of receipt by the appropriate Proposed Operator of the licenses and
determinations  of need and  suitability  of the types  listed on  Schedule  B-1
necessary  for the  Proposed  Operator to operate  such IHS Facility as licensee
(individually, a "Necessary License" and collectively, the "Necessary Licenses,"
and together with all provider agreements and certifications of the types listed
on Schedule B-2  necessary  for such  Proposed  Operator of such IHS Facility to
receive Medicare and Medicaid  reimbursement  for the services provided therein,
individually, a "License" and collectively, the "Licenses"); and

<PAGE>

         WHEREAS,  Advisors wishes to delegate to Manager certain  authority and
responsibility  to manage  each of the  Advisors  Facilities  and each  Proposed
Operator  wishes to  delegate  to Manager,  following  receipt of all  Necessary
Licenses with respect thereto,  certain  authority and  responsibility to manage
each of its IHS  Facilities  (the term "Relevant  Licensee"  shall mean (a) with
respect to any  Advisors  Facility,  Advisors,  and (b) with  respect to any IHS
Facility (i) the IHS Licensee for such IHS Facility  prior to the receipt of all
Necessary Licenses for such IHS Facility and (ii) the Proposed Operator for such
IHS Facility after the receipt of all Necessary Licenses for such IHS Facility);
and

         WHEREAS,  Manager is willing to assume such responsibilities,  provided
that it is permitted to delegate to Servicer,  and that Servicer assume, certain
authority and responsibility to manage the Facilities; and

         WHEREAS,   Servicer   is  willing   to  assume   such   authority   and
responsibility, all on the terms and conditions set forth herein;

         NOW,  THEREFORE,  for and in consideration of the premises,  the mutual
covenants  and  agreements   herein   contained  and  other  good  and  valuable
consideration,  the receipt and adequacy of which are hereby  acknowledged,  the
parties hereto agree as follows:

1.  General  Duties.  To the fullest  extent  permitted by  applicable  law, and
subject to the control and  direction  of the  Relevant  Licensees,  each of the
Licensees and Proposed  Operators  hereby  engages  Manager,  and Manager hereby
delegates  to Servicer  (subject to the  assumption  by Manager of the duties of
Servicer  as  provided in the last  sentence  of this  Section 1), and  Servicer
hereby  assumes  (subject as provided in the last sentence of this Section 1 and
as provided in Section  8.1),  the  responsibility  to manage and  supervise the
day-to day operation of the Facilities  with the objective of providing  skilled
nursing, intermediate care and residential services to patients and residents of
the Facilities and to carry out general management functions with respect to the
Facilities,  including,  but  not  limited  to,  the  following:  supervise  the
performance  of  all  administrative  functions  as  may  be  necessary  in  the
management and operation of the  Facilities;  select,  hire,  train,  supervise,
monitor the performance of, and terminate or fire, all personnel involved in the
administration and day-to-day operations of the Facilities,  including,  without
limitation,  professional personnel, custodial, cleaning, maintenance, and other
operational  personnel,  and  secretarial  and  bookkeeping  personnel;  provide
accounting,  billing,  purchasing and bill payment functions for the Facilities;
establish systems of accounts and supervise the maintenance of ledgers and other
primary  accounting  records  by  personnel  of the  Facilities;  supervise  the
financial affairs of the Facilities;  establish and supervise the implementation
of operating budgets,  and establish and administer  financial controls over the
operations and  management of the  Facilities;  develop and establish  financial
standards and norms by which the income, costs, and operations of the Facilities
may be evaluated;  serve as advisor and  consultant  in  connection  with policy
decisions  to be  made  by the  Relevant  Licensee;  to  operate,  maintain  and
administer the information  management  systems of the  Facilities;  prepare and
furnish reports and economic and statistical data in connection with or relative
to the  management of the  Facilities  to the Relevant  Licensee as the Relevant
Licensee  may request in order to comply with  applicable  law and  regulations;
represent the Facilities in its dealings with  creditors,  patients,  personnel,
agents for collection and insurers; file with applicable state Medicaid programs
and  the  Medicare  programs  and all  other  public  and  private  third  party

                                      -2-
<PAGE>

reimbursement programs (collectively,  "third party payors") all required claims
for  payment  and cost  reports;  administer  trust  funds  for the  benefit  of
residents  of the  Facilities  and prepare and file all  accounts for such funds
required by applicable law; maintain listings of all residents of the Facilities
and the persons or third party  payors  responsible  for their  charges;  act as
agent  for  Relevant  Licensee  in  disbursing  or  collecting  the funds of the
Facilities,  and in paying  the  debts and  fulfilling  the  obligations  of the
Facilities  incurred  subsequent to the Effective  Time (as hereafter  defined);
market the services of the  Facilities;  and generally see to the operations and
management  of the  Facilities,  the marketing of their  services,  planning for
future operations,  and the establishment and implementation of policies for the
Facilities.  In addition,  each of the Licensees and Proposed  Operators  hereby
engage  Manager  to  secure  such  engineering,  legal,  and  other  specialized
technical  and  professional  services  as  may be  necessary  to  advise  or to
represent the  Licensees and Proposed  Operators for each Facility in connection
with any matter  involving or arising out of the operation of the  Facilities or
the conduct of the  Facilities.  Manager shall,  at all times during the term of
this Agreement keep Servicer  reasonably informed as to any matters with respect
to which any such  engineering,  legal or other  services  are retained and with
respect to the advice  rendered and actions  taken with respect to such matters.
Servicer is neither  authorized nor obligated to perform such functions.  If, as
provided  in Section  8.2  hereof,  Manager  advises  Servicer  in writing  that
Servicer  may  discontinue  the  provision of certain  described  services to be
provided by Servicer under this Section 1 and/or Section 2 hereof, Manager shall
automatically be deemed to have assumed full  responsibility  for providing such
services  to the  Relevant  Licensee  under the  terms of this  Section 1 and/or
Section 2 as if Manager were the "Servicer" referred to herein or therein.

2. Specific  Duties.  To the fullest  extent  permitted by  applicable  law, and
subject to the control  and  direction  of the  Relevant  Licensee,  and without
limiting the  generality  of the  foregoing,  Servicer  shall have the following
specific duties:

         2.1 Employees. Servicer shall recruit, evaluate, and select, subject to
such review by Relevant  Licensee  as shall be  required by  applicable  law and
regulations,  qualified nursing home administrators who shall be responsible for
the functional  operation of the Facilities and  supervision of personnel at the
Facilities,  on a  day-to-day  basis,  as  well  as  all  on-site  professional,
custodial,  food  service,   cleaning,   maintenance,   clerical,   secretarial,
bookkeeping,  management, collection, and other administrative personnel for the
day-to-day  operations  of  the  Facilities  (collectively,  "Personnel").  Such
Personnel  shall be employees of Servicer  (subject to the following  sentence),
provided  Manager,  Advisors and the Proposed  Operator of the relevant Facility
shall have full responsibility for payment of their wages,  salaries,  and other
compensation  and benefits  (in  accordance  with  Section 4).  Anything in this
Section 2.1 to the contrary  notwithstanding,  Manager shall offer employment to
all such  Personnel  at or as soon  after the  Effective  Time as is  reasonably
practicable, but not later than sixty (60) days after the Effective Time, in any
event.  Servicer shall establish such personnel policies,  wage structures,  and
staff  schedules  as  it  deems  necessary  and  advisable  in  accordance  with
applicable  law.  Servicer shall have authority to hire and discharge  employees
who,  immediately  prior to the Effective Time, were employed at the Facilities.
Servicer  shall  maintain  payroll  records and shall prepare weekly and monthly
payrolls,  and returns of  withholding  taxes.  Servicer  acknowledges  that the
ability  of  Manager  to make any such  offer may be  subject  to receipt of the
Necessary  Licenses and that in any event,  Manager will first have to implement
an appropriate  accounting and payroll  function.  Servicer  agrees to cooperate
with Manager in  connection  with

                                      -3-
<PAGE>

such offers of employment  and to release any  Personnel to whom Manager  offers
employment from any employment agreements, non-competition, non-solicitation and
non-disclosure  agreements or common law  obligations to which they may be party
or  subject.   Notwithstanding  anything  to  the  contrary  contained  in  this
Agreement, Servicer shall have no liability whatsoever to or with respect to any
of the  Personnel  or by reason of any  actions  taken or  omitted by any of the
Personnel,  in each case relating to any period on or after the  Effective  Time
(regardless  of the fact  that the  Personnel  may be  employees  of  Servicer).
Notwithstanding  anything  to the  contrary  contained  in this  Agreement,  the
Manager  shall not be required or permitted to offer  employment  at any time to
any person then employed as a member of the IHS corporate  staff ("IHS Corporate
Staff")  (excluding,  however,  regional  vice  presidents  and their staff (the
"RVPs")  as to which  Manager  has  provided  reasonable  prior  notice to IHS),
without  the  prior  consent  of IHS  (which  consent  will not be  unreasonably
withheld).  If IHS  shall  consent  to the  making  of any such  offer,  it will
cooperate with Manager with respect  thereto,  and if any such member of the IHS
Corporate Staff or any RVP shall become an employee of any SNH Entity, he or she
shall be deemed to belong to Personnel.

         2.2  Purchasing.   Servicer  shall  (subject  to  Section  4)  purchase
substantially all necessary supplies, foodstuffs,  materials, appliances, tools,
and  equipment  customarily  used in the operation of the  Facilities.  Servicer
shall use  commercially  reasonable  efforts  to limit  purchasing  costs and to
maintain such costs at a level reasonably  calculated to allow the Facilities to
operate  profitably.  Servicer  may,  but shall not be  obligated  to, make such
purchases in bulk under a centralized  purchasing  system  established by it for
other facilities under its management in order to minimize costs. Servicer shall
arrange  contracts for  electricity,  gas,  telephone,  and any other utility or
service necessary to the operation of the Facilities.  Servicer shall, on behalf
of the Proposed  Operator and/or the owner of the buildings and real property in
and on which the Facilities are located (the "Real  Property  Owner"),  contract
for  and  supervise  the  making  of any  necessary  repairs,  alterations,  and
improvements  to the  Facilities,  provided  that  in the  case  of any  repair,
alteration or  improvement,  the cost of which exceeds  $5,000,  Servicer  shall
obtain the prior approval of Manager and the Relevant  Licensee,  except that no
such  prior  approval  shall  be  required  if the  expenditure  is  made  under
circumstances  reasonably  requiring  emergency  action.  Without  limiting  the
provisions of Sections 2.4 and 4, Servicer shall,  upon written request,  submit
to the Proposed Operator and Licensee such certification as to expenses incurred
in the operation of the Facilities as may be reasonably required by the Proposed
Operator or Licensee in order to comply  with  applicable  law and  regulations,
including, without limitation, law and regulations applicable to preparation and
submission of cost reports.

         2.3  Bookkeeping.  Servicer  shall  establish and maintain a record and
bookkeeping system for the operation and conduct of the Facilities in accordance
with  generally  accepted  accounting  principles.  Full books of  account  with
entries of all receipts and  expenditures  of the  Facilities  shall be open for
inspection by  representatives  of Licensee,  Manager and Proposed Operator upon
reasonable  notice and at reasonable  times, to the extent required by Licensee,
Manager  or  Proposed  Operator  in  order to  comply  with  applicable  law and
regulations,  including,  without limitation,  law and regulations applicable to
preparation and submission of cost reports.

                                      -4-
<PAGE>

         2.4  Financial  Reports.  Servicer  shall:  (a) as soon  as  reasonably
possible  after  the close of each  calendar  month  (and as soon as  reasonably
possible after the  termination of the obligations of the Relevant IHS Entities,
as Servicer,  in accordance  with Section 8.1) furnish to the Relevant  Licensee
and Manager a statement of income for the month (or portion thereof) and for the
year  to  date,  together  with a  detailed  statement  of  billings,  receipts,
disbursements,  accounts payable and accounts  receivable;  (b) in the event the
Relevant  Licensee is required by applicable law,  regulations or the provisions
of any  material  contract  to  which  it is a party  or by which it is bound to
conduct or submit to an audit of the Facilities'  financial performance relative
to the period during which Servicer  performed  services  under this  Agreement,
make  available  all books and records of the  Facilities  on a timely basis and
cooperate  fully with any  auditors or  accountants  designated  by the Relevant
Licensee;  (c) as soon as reasonably possible after the close of each applicable
reporting  period for rate setting  purposes,  and not later than the applicable
deadline, prepare for submission by the Relevant Licensee a cost report for each
Facility (and including in any event,  any short-year cost report required to be
submitted  by the IHS  Licensee  after  receipt of the  Necessary  Licenses  and
provider   agreements  by  the  Proposed   Operator),   showing  the  costs  and
expenditures  relating  to  resident  care for  such  Facility  and  such  other
information as is required by the applicable governmental authority, such report
being in all material  respects  (including as to form) in  compliance  with the
requirements of such applicable governmental  authority;  and (d) cooperate with
and furnish information to each Proposed Operator and Manager in a timely manner
in connection with the preparation of applications by such Proposed Operator for
any  Licenses  with  respect  to  the  Facilities.  Servicer  shall  supply  all
information,  reports,  forms and data required to be provided by it pursuant to
this Section 2.4 in electronic or hard copy form (and, in the case of clause (a)
above,  if such  information  and data are provided in hard copy form,  Servicer
shall provide such  information to Manager in electronic form also, if available
in the ordinary course),  as determined by Servicer consistent with its ordinary
practice, unless applicable law shall require that any such information, report,
form or data be submitted in a particular  form, in which case,  Servicer  shall
comply with such applicable law.

         The provisions of paragraphs (b), (c) and (d) of this Section 2.4 shall
survive the  termination  of the  obligation  of the  Relevant  IHS  Entities as
Servicer under Section 8.1, to the extent such  provisions  relate to the period
prior to such termination.

         2.5 Marketing.  Servicer shall use commercially  reasonable  efforts to
market the  services  of the  Facilities  in order to  maintain  the  patient or
resident  census at the Facilities in such numbers and of such categories as, in
Servicer's  judgment,  will tend to  maintain  the  financial  stability  of the
Facilities and to ensure compliance with laws, regulations, orders and judgments
applicable to the  Facilities.  Servicer may design and implement  programs with
third party payors, such as insurance companies,  federal agencies and state and
local agencies, for services to patients on a contract basis, for the purpose of
improving the financial stability of the Facilities.

         2.6 Notices of  Proceedings.  Each of  Servicer,  Manager and  Relevant
Licensee shall promptly  inform the others of the  commencement of any formal or
informal  investigations  or  proceedings  known to it before any and all local,
state and federal  agencies which purport to regulate any Facility to the extent
such proceeding may have a material impact upon the operation of any Facility.

                                      -5-
<PAGE>

         2.7 Insurance.

                  (a)  Manager  shall  obtain on behalf of itself and  Servicer,
         Licensee,  Proposed  Operator  and the Real  Property  Owners  for each
         Facility, as their interests may appear,  commercial general liability,
         all risk property,  professional or malpractice  liability and worker's
         compensation  insurance covering the Facilities,  any equipment used in
         connection with the  Facilities,  the Personnel and any other employees
         located at the Facilities, and Manager, Servicer,  Licensees,  Proposed
         Operator  and the Real  Property  Owners  for each  Facility,  as their
         interests may appear, in such amounts and with such deductibles as are,
         in  each  case,  described  in  Schedule  2.7  hereto,  and  with  such
         additional provisions or coverage as may be determined by Manager.

                  (b) All  insurance  provided  under this  Section 2.7 shall be
         issued by insurance companies with an A.M. Best Rating of not less than
         A-VI and that are licensed and qualified to do business in the state of
         operation of the relevant Facility.

                  (c)  Notwithstanding the provisions for deductibles in Section
         2.7,  it is  understood  and  agreed  that the  policies  of  insurance
         provided  for in this Section 2.7 may contain  deductible  or retention
         provisions  in such amounts as are  maintained  with respect to similar
         type facilities in the industry.  In addition to premiums,  Manager and
         SNH shall be responsible for all  deductibles,  retentions,  collateral
         and expenses associated with such insurance.

                  (d) Each of the policies of liability insurance referred to in
         this Section 2.7 (including the umbrella coverage,  and, for as long as
         any Personnel  remain  employees of any Relevant IHS Entity,  workman's
         compensation  insurance)  shall name IHS,  Servicer and each applicable
         IHS  Licensee  as an insured or  additional  insured,  as  appropriate.
         Manager shall provide  Servicer with a Certificate  of Insurance at the
         Effective Time naming IHS, Servicer and each applicable IHS Licensee as
         an  insured  or  additional  insured  with  respect  to such  liability
         insurance,  as  appropriate,  and  within  two  Business  Days  of  any
         subsequent request. Manager shall notify Servicer at least (30) days in
         advance of a cancellation or expiration of such policies. It is further
         understood  that Manager shall provide all  necessary  risk  management
         services.

         2.8 Collections, Accounts, Disbursements and Termination Accounting.

                  (a) Billing.  Servicer  shall prepare and submit bills for all
         moneys owing to the Relevant  Licensee,  whether from patients or third
         party  payors,  for services  provided by or at the  Facilities  at any
         time,  whether  prior to 12:01 A.M.  (Boston time) on the day following
         the Closing (the "Effective Time") or after the Effective Time.

                  (b) Collection of Accounts Receivable.

                  (i) Each IHS Licensee  and  Relevant  IHS Entity  acknowledges
         that,  pursuant to the provisions of the Settlement  Agreement dated as
         of April __, 2000 among, inter alia, Integrated Health Services,  Inc.,
         SNH,  SPTIHS  Properties  Trust,   HRES1  Properties  Trust  and  HRES2
         Properties   Trust,  each  a  Maryland  real  estate  investment  trust
         ("SPTIHS," "HRES1" and "HRES2,"  respectively),  Manager,  the Proposed
         Operators

                                      -6-
<PAGE>

         and the Licensees (the "Settlement Agreement"),  the Proposed Operators
         (to the  extent  permitted  by  applicable  law) and  Advisors  own all
         accounts  receivable to the extent arising from services provided by or
         at  its   respective   Facility   after   the   Effective   Time   (the
         "Post-Effective  Time Receivables").  Servicer is hereby authorized and
         directed  to make and effect  collections  of all  Post-Effective  Time
         Receivables.  With respect to all such  Post-Effective Time Receivables
         with respect to any Facility that are owed by a Medicaid program or the
         Medicare  program  or other  federal or state  programs  (collectively,
         "Government  Receivables")  and that are  payable  under  the  existing
         Provider Agreements of any Licensee, Servicer shall endorse and deposit
         into the  Licensee  bank account for such  Facility  under the name and
         control of the Licensee for such Facility (a "Licensee  Account"),  any
         and all monies,  checks,  drafts or other instruments or items received
         as  payment  for  such  Government  Receivables.  With  respect  to all
         Post-Effective Time Receivables with respect to any Facility other than
         Government Receivables  (collectively,  "Other Receivables"),  Servicer
         shall, subject to paragraph (ii) below, endorse and deposit into a bank
         account  under the name and  control of the  Proposed  Operator of such
         Facility  that  is  designated  in  writing  from  time  to time by the
         Proposed  Operator (each a "Proposed  Operator  Account"),  any and all
         monies,  checks,  drafts  or other  instruments  or items  received  as
         payment for such Other  Receivables.  Each IHS Licensee or Relevant IHS
         Entity that receives any proceeds of  Post-Effective  Time  Receivables
         with  respect to any  Facility,  whether  as a deposit in the  relevant
         Licensee  Account  or  otherwise,  and  whether  such  proceeds  are of
         Government Receivables or Other Receivables, acknowledges that, subject
         to paragraph  (ii) below,  it has no right to use any such proceeds for
         any purpose,  and shall hold any and all such proceeds in trust for the
         Proposed Operator of such Facility or Advisors, as the case may be, and
         shall prior to the close of business  on the  Business  Day on which it
         receives such amount,  cause such funds to be paid into the  applicable
         Proposed  Operator Account for the account of the Proposed  Operator or
         the  Licensee  Account  of  Advisors,  as the case  may be.  As soon as
         practicable  after the Effective  Time,  Servicer  shall (to the extent
         permitted by law)  instruct  account  debtors of each  Facility to make
         payment directly into the relevant  Proposed  Operator Account for such
         IHS Facility and the Licensee Account of Advisors,  as the case may be.
         During the term of this  Agreement,  Servicer  shall keep  accurate and
         complete books and records of all receipts with respect to all billing,
         accounts receivable,  all deposits and other transactions affecting any
         Post-Effective  Time Receivable  whether to the Licensee  Account,  the
         Proposed  Operator Account or to other checking  accounts,  which books
         and records shall be made available to Licensee,  Proposed Operator and
         Manager upon request,  and after  termination of this  Agreement  shall
         make such books and records available to Licensee, Manager and Proposed
         Operator  to the  extent  necessary  to enable  Licensee,  Manager  and
         Proposed  Operator to comply with all applicable laws and  regulations,
         including regulations governing  preparation,  submission and audits of
         cost reports. If any amount shall be collected within the first 60 days
         after  the  Effective   Time  from  an  account   debtor  that  is  not
         identifiable,  using reasonable best efforts,  as being in payment of a
         Post-Effective  Time  Receivable,  then  100% of such  amount  shall be
         deemed to have been collected in respect of an account  receivable that
         was due to the  Servicer  or an IHS  Licensee  in respect  of  services
         provided  prior to the  Effective  Time (and the  Servicer  or such IHS
         Licensee   shall  be  permitted  to  retain  such   proceeds,   without
         limitation).  If any amount shall be

                                      -7-
<PAGE>

         collected  during the  period  from the 61st to the 120th day after the
         Effective Time from an account debtor that is not  identifiable,  using
         reasonable best efforts,  as being in payment of a Post-Effective  Time
         Receivable,  then 50% of such  amount  shall  be  deemed  to have  been
         collected  in  respect  of an  account  receivable  that was due to the
         Servicer or an IHS  Licensee in respect of services  provided  prior to
         the  Effective  Time (and the  Servicer or such IHS  Licensee  shall be
         permitted to retain such proceeds  without  limitation),  and the other
         50% of such amount shall be deemed to have been collected in respect of
         a Post-Effective  Time Receivable (and such Proposed  Operator shall be
         permitted to retain such proceeds  without  limitation).  If any amount
         shall be collected after the 120th day after the Effective Time from an
         account debtor that is not identifiable, using reasonable best efforts,
         as being in payment of a Post-Effective  Time Receivable,  then 100% of
         such  amount  shall be deemed to have been  collected  in  respect of a
         Post-Effective  Time  Receivable  (and the Proposed  Operator  shall be
         permitted  to retain such  proceeds,  without  limitation).  Each party
         hereto agrees to provide  written notice to each other party hereto not
         affiliated  with it,  promptly  following the last Business Day of each
         calendar  month,  if such  party has  received  a payment  during  such
         calendar month that is not identifiable, using reasonable best efforts,
         as being in payment of a Post-Effective  Time Receivable.  Such written
         notice shall set out the amount of the payment and the person or entity
         that  made  the  payment.  If and to the  extent  that  Manager  or any
         Proposed  Operator or any of their respective  affiliates shall collect
         any account  receivable  owned (or deemed to be owned) by any  Relevant
         IHS Entity,  such person or entity shall immediately pay such amount to
         such  Relevant IHS Entity,  and until such payment is so made,  Manager
         shall hold such  amount in trust for the benefit of such  Relevant  IHS
         Entity.

                  (ii)  Notwithstanding  anything to the  contrary  contained in
         this  Agreement,  if the Manager,  SNH, or any Proposed  Operator shall
         fail to make any payment to the Servicer or any IHS  Licensee  pursuant
         to Section 4 hereof when and as due in accordance  with Section 4, then
         Servicer and such IHS Licensee  shall be entitled to collect and retain
         any amounts due in respect of  Post-Effective  Time  Receivables to the
         extent necessary to offset such amount due under Section 4. Servicer or
         the applicable  IHS Licensee  shall promptly  notify the Manager of any
         such offset.  The rights and remedies of Servicer and the IHS Licensees
         under this  paragraph  (ii) shall be in  addition  to, and shall not be
         exclusive  of, any other  rights or remedies  that may be  available to
         Servicer or the IHS Licensee under this Agreement,  any other agreement
         between the  parties,  at law, in equity,  or  otherwise,  all of which
         rights may be exercised concurrently or in any order or priority.

                  (iii)  IHS  shall  cause  exclusive  control  of the  Licensee
         Account for the Facilities  located in Connecticut to be transferred to
         Advisors effective as of the Closing Date.

                  (c) Reduction Claims.

                  (i) If and to the extent that there  shall be a  reduction  (a
         "Reduction") in the amount to be paid on any account  receivable due to
         any IHS  Licensee  by a Medicaid  program or the  Medicare  program for
         services rendered at any Facility from and after the

                                      -8-
<PAGE>

         Effective  Time (an  "IHS  Government  Receivable")  by  reason  of any
         withholding,  freeze, restriction, offset or recoupment applied against
         such IHS Government  Receivable for an amount payable by any IHS Entity
         to the  applicable  Third  Party  Payor (as such term is defined in the
         Settlement  Agreement) with respect to services provided on or prior to
         the Effective  Time (a  "Pre-Effective  Date Third Party Payor Claim"),
         then the SNH  Entities  shall have a claim  against the IHS Entities (a
         "Reduction Claim") that is: (1) in the amount of the Reduction; and (2)
         of equal  priority to the priority that would have been accorded to the
         Pre-Effective  Date  Third  Party  Payor  Claim  in the  IHS  Entities'
         bankruptcies,  under  bankruptcy or other  applicable law, or if and to
         the extent the Third Party Payor is not subject to the  jurisdiction of
         the Court or limited in its recourse by the filing of the Case (as such
         term is defined in the Settlement Agreement),  such other rights as the
         Third Party Payor may exercise.

                  (ii) The Manager shall give notice of any Reduction Claim (the
         "Manager's Notice") to the Senior Vice  President-Finance  of IHS, with
         such Manager's  Notice to set forth the amount of such  Reduction,  the
         basis for the Pre-Effective Date Third Party Payor Claim (to the extent
         known to Manager),  and the Reduction  Claim that the Manager  believes
         that is  payable  by the IHS  Entities  to the  SNH  Entities.  The IHS
         Entities  shall then have thirty (30) days from the date of the receipt
         of the  Manager's  Notice to pay the amount of the Reduction to the SNH
         Entities.  The payment by the IHS Entities of any amount in  accordance
         with the preceding  sentence shall be without prejudice to the right of
         the IHS Entities to dispute, at any time, the SNH Entities' entitlement
         to any such payment, as follows:

                           (A) If the IHS Entities shall dispute the Third Party
                  Payor's  basis for the  Pre-Effective  Date Third  Party Payor
                  Claim or the amount of such  Pre-Effective  Date  Third  Party
                  Payor  Claim,  then the  applicable  IHS Entity shall have the
                  sole  authority to dispute or settle such  Pre-Effective  Date
                  Third Party Payor Claim,  and the IHS Entities  shall bear the
                  costs and expenses of such  efforts.  The SNH  Entities  shall
                  cooperate in all reasonable  respects with the IHS Entities in
                  connection with the IHS Entities' efforts to resolve or settle
                  such  dispute.   Notwithstanding   anything  to  the  contrary
                  contained  in  this  Agreement  or  in  any  other  Settlement
                  Document,  the IHS Entities  shall be deemed to own (and shall
                  be entitled to collect,  retain and/or  assign) any funds that
                  are collected in respect of any Pre-Effective Date Third Party
                  Payor Claim  disputed in  accordance  with this clause (A). If
                  any SNH  Entity  shall  collect  any  such  amount,  it  shall
                  immediately pay such amount to the applicable IHS Entity.

                           (B) If the IHS Entities  shall  dispute the amount or
                  priority of the Reduction Claim to which the Manager  believes
                  the SNH Entities are entitled in  accordance  with  subsection
                  (c)(i) above, then the parties shall  immediately  submit such
                  dispute  to  binding   arbitration  in  accordance   with  the
                  Commercial  Arbitration  Rules  then in force of the  American
                  Arbitration Association,  and judgment upon the award rendered
                  by the  arbitrator(s)  may be  entered  in  any  court  having
                  jurisdiction  thereof. The SNH Entities shall forthwith return
                  to the  applicable  IHS Entity any amount that the  arbitrator
                  determines  to be in  excess  of the  amount  to which the SNH
                  Entities were entitled in accordance  with  subsection  (c)(i)
                  above.

                                      -9-
<PAGE>

                  In any such dispute, the prevailing party shall be entitled to
                  reimbursement  of its related  costs and  expenses,  including
                  reasonable attorney's fees. Moreover, if it is determined that
                  the SNH Entities  asserted a Reduction  Claim in excess of the
                  amount to which they were entitled, they shall be obligated to
                  pay to the  applicable  IHS Entity  interest on such excess at
                  the rate of eight  percent  (8%) per annum  from the date such
                  amount was paid to the SNH Entities until the date paid by the
                  SNH Entities to the applicable IHS Entity.

                  (d) The  provisions of paragraphs  (b) and (c) of this Section
         2.8 shall survive the  termination  of the  obligations of the Relevant
         IHS Entities under Section 8.

         2.9 Patient-Trust Accounts. At such time as a Proposed Operator for any
Facility has all Necessary  Licenses,  Servicer and the applicable Licensee will
transfer  the patient  trust  accounts  held for the benefit of residents of the
relevant  Facility  to  the  Proposed   Operator  of  that  Facility.   Promptly
thereafter,  Servicer and the applicable  Licensee will furnish to such Proposed
Operator  current bank statements  with respect to such accounts.  Such Proposed
Operator shall thereupon  assume all liabilities  arising  thereunder other than
liabilities for acts or omissions by the Licensee prior to the Effective Time or
arising out of gross  negligence  or willful  misconduct of Servicer or Licensee
after the Effective Time.

3. Servicer Consideration.  The Relevant IHS Entities have agreed to perform the
services that are  contemplated  to be rendered by them  hereunder as "Servicer"
during the five (5) month period provided in Section 8.1 and as "Servicer" under
the Servicing  Agreement dated as of even date among SNH,  Manager,  IHS and IHS
152 (the "Other Servicing  Agreement"),  in consideration of the release by SNH,
SPTIHS,  HRES1,  HRES2,  Advisors  and the other SNH Entities (as defined in the
Settlement  Agreement)  of their  claims  against  Servicer  and the  other  IHS
Entities (as defined in the Settlement  Agreement) under the Existing  Documents
(as defined in the Settlement  Agreement) pursuant to the Settlement  Agreement.
Such releases shall not be affected if, during the first five (5) full months of
the term of this Agreement,  Manager advises Servicer,  pursuant to Section 8.2,
to  discontinue  provision of any portion of the  services  provided by Servicer
hereunder  or if any  Facility  is sold or its  operation  discontinued  for any
reason whatsoever.

4. Expenses.

         4.1 For purposes of this Agreement, "Expenses" shall mean, liabilities,
costs and expenses of the type listed below to the extent incurred in connection
with the  operation and  management  of such Facility in the ordinary  course of
business after the Effective Time:

                  (a) salary and related costs (including,  without  limitation,
         payroll taxes, workers' compensation,  costs of employee benefit plans,
         travel,  insurance,  and fidelity bonds) of Personnel at such Facility,
         including, without limitation, administrative, professional, custodial,
         food service,  cleaning and maintenance,  operational,  secretarial and
         bookkeeping personnel (collectively, "Payroll Expenses");

                  (b) the cost of all supplies and  equipment  necessary for the
         continued  operation of such  Existing  Facility as a skilled  nursing,
         intermediate  care and for

                                      -10-
<PAGE>

         residential facility in the ordinary course of its business,  including
         without  limitation,  the  cost  of all  pharmaceuticals,  food,  fuel,
         kitchen and food service equipment,  linens, beds, furniture,  clothing
         and other supplies and equipment used in supplying services to patients
         in the ordinary course;

                  (c) expenses  attributable to the maintenance and operation of
         real and personal property  devoted,  used or consumed in the operation
         of such Facility in the ordinary course, including, without limitation,
         expenses  incurred in connection  with  maintenance  and repair of such
         Facility,  and  insurance  premiums,  deductibles  and  retentions  for
         insurance obtained pursuant to Section 2.7;

                  (d) all  liabilities  incurred  after the Effective Time under
         any  Contracts  (as such term is defined in the  Settlement  Agreement)
         that any IHS  Entity  is  required  not to reject  in  accordance  with
         Section 7.6 of the Settlement Agreement (but specifically excluding any
         Pre-Effective  Time  Obligations  (as  such  term  is  defined  in  the
         Settlement Agreement)); and

                  (e) all other costs,  expenses and liabilities  arising out of
         the ownership, operation, maintenance and management of the Facilities,
         including,  without  limitation,  real  estate,  income and other taxes
         payable in connection  with the operation of the Facilities  (the costs
         and expenses  referred to in  paragraphs  (b), (c), (d) and (e) hereof,
         collectively, "A/P Expenses");

provided,  however,  that the following expenses of the Relevant IHS Entities as
"Servicer" hereunder shall be for the sole account of the Relevant IHS Entities,
shall not be subject to  reimbursement  hereunder,  and shall be deemed excluded
from the term  "Expenses":  (i) the Relevant IHS Entities  overhead and ordinary
administrative  expenses,  and salary (including,  without  limitation,  payroll
taxes, workers' compensation, costs of employee benefit plans, travel, insurance
and fidelity bonds) of financial, accounting and other personnel employed by the
Relevant IHS Entities  (other than  Personnel) to provide  centralized  billing,
collection,  bill paying,  accounting,  record keeping,  information management,
purchasing,  personnel and policy  planning  services to any Facility,  it being
understood  that in no event  shall  the  salary  or other  compensation  of any
Personnel be an expense of Servicer;  (ii) the cost of obtaining and maintaining
insurance  outside of that described in Section 2.7; and (iii) any loss, cost or
expense for which Servicer is liable under Section 10.

         4.2 SNH, Manager,  Advisors and the Proposed Operators shall be jointly
and severally liable for the payment and satisfaction of all Expenses,  when and
as the same shall become due in accordance with the terms hereof. In furtherance
thereof, Manager shall establish separate bank accounts ("Expense Accounts") for
Payroll  Expense and A/P Expense  under its name and  control,  with  respect to
which  Servicer  shall have signing  authority in order to pay Expenses.  At the
close  of the last  Business  Day of each  calendar  week  (commencing  with the
calendar week in which the Closing Date occurs),  Servicer shall provide Manager
with a check  register  showing the payee  name,  the amount of such check (with
deductions, if any), the payee code and the check number for each check drawn on
the Expense Accounts during such week. On the day preceding the Closing Date and
at the  close  of  business  on the  last  Business  Day of each  calendar  week
thereafter,   Servicer  shall  provide  Manager  with  a  statement  (the  "Cash

                                      -11-
<PAGE>

Projection")  setting  forth the  aggregate  Dollar  amount of the  checks  that
Servicer  then  expects to draw on the  Expense  Accounts  during the  following
calendar  week  (the  projected  Dollar  amount  for such  following  week,  the
"Projected Cash  Requirement") and setting forth the amount to be deposited into
the Expense Accounts in accordance with the following sentence.  By the close of
business on the Closing Date and on the second  Business  Day of such  following
calendar  week,  SNH or the Proposed  Operators  shall  deposit into the Expense
Accounts  such amounts as shall be necessary so that the  Aggregate  Balance (as
hereinafter defined) of the Expense Accounts on such Business Day shall at least
equal the sum of: (x) the Projected Cash  Requirement  for the current  calendar
week plus (y) $1,000,000.  As used herein,  the term  "Aggregate  Balance" shall
mean,  as of the date of  determination,  the sum of all  amounts  deposited  in
either Expense  Account,  less the aggregate dollar amount of all checks written
on either  Expense  Account and  reflected  in the check  registers  theretofore
furnished  to  Manager  (whether  or not such  checks  have  been paid from such
Expense  Accounts).  The monies so deposited  by SNH or the  Proposed  Operators
shall be allocated  between the two Expense Accounts as Servicer may direct from
time to time, based on its Cash Projections. Servicer shall provide Manager with
a list of its payee  codes (with  descriptions  identifying  these  codes) on or
prior to the Closing Date, and shall  promptly  inform Manager of any subsequent
modifications  thereto.  The Servicer shall promptly  reimburse the SNH Entities
for any amounts paid out of the Expense  Accounts to satisfy  obligations of any
IHS Entity that are not  required to be paid by any SNH Entity  pursuant to this
Agreement or the Settlement  Agreement or any other of the Settlement  Documents
(as such term is defined in the Settlement Agreement).  Nothing contained in the
foregoing  sentence  shall be deemed to permit the  Servicer to use funds in the
Expense  Accounts to satisfy its own obligations  except to the extent expressly
provided in this Agreement. The provisions of the first sentence of this Section
4.2 shall survive the termination of this Agreement.

         4.3 The parties  acknowledge that Servicer and the Licensees shall have
no obligation to advance any funds on behalf of any of the  Facilities,  Manager
or the  Proposed  Operators.  If  Servicer  does  advance  its own funds for any
Expense,  SNH and the  Proposed  Operators  shall  promptly  reimburse  Servicer
therefor.  Moreover,  Manager  and SNH assume all risk of loss to third  parties
arising out of the failure to make any payment of any Expense. The provisions of
this Section 4.3 shall survive the termination of this Agreement.

         4.4 Each Proposed Operator of each Facility shall pay Manager a monthly
management fee (the "Manager's Fee") for each Facility,  payable prior to the __
day following the end of each calendar month during the term hereof, (i) for the
first two (2) months of the term  thereof,  in an amount  equal to the costs and
expenses  incurred by the Manager in connection  with the performance by Manager
of its duties hereunder  during such calendar month, and (ii) thereafter,  in an
amount equal to 4.5% of net patient revenues for such Facility for such calendar
month.

5. Access to Records, Etc.

         5.1 For the time and to the extent required by applicable law, Servicer
shall retain, and shall permit the Comptroller General of the United States, the
U.S. Department of Health and Human Services and duly authorized state agencies,
and their respective duly authorized  representatives  access to examine or copy
this Agreement and such books, documents, and records as are necessary to verify
the  nature  and  extent  of the  costs  of the  services  supplied  under

                                      -12-
<PAGE>

this  Agreement.  In the event Servicer  provides any of its services under this
Agreement pursuant to a subcontract and if (i) the services provided pursuant to
the subcontract have a value or cost of $10,000 or more over a twelve (12) month
period and (ii) the  subcontract is with a related  organization,  then Servicer
agrees that the subcontract  shall contain a clause requiring the  subcontractor
to retain and allow  access to its records on the same terms and  conditions  as
required  by  Servicer.  This  provision  shall be null and  void  should  it be
determined  that  Section  1861(v)(1)(I)  of  the  Social  Security  Act  is not
applicable to this  Agreement.  The provisions of this Section 5.1 shall survive
the  termination  of the  obligations  of the  Relevant IHS Entities as Servicer
under Section 8.1.

         5.2 For the time and to the extent required by applicable law,  Manager
shall retain, and shall permit the Comptroller General of the United States, the
U.S.  Department of Health and Human Services and duly authorized state agencies
and their respective duly authorized  representatives  access to examine or copy
this Agreement and such books, documents, and records as are necessary to verify
the  nature  and  extent  of the  costs  of the  services  supplied  under  this
Agreement.  In  the  event  Manager  provides  any of its  services  under  this
Agreement pursuant to a subcontract and if (i) the services provided pursuant to
the subcontract have a value or cost of $10,000 or more over a twelve (12) month
period and (ii) the  subcontract  is with a related  organization,  then Manager
agrees that the subcontract  shall contain a clause requiring the  subcontractor
to retain and allow  access to its records on the same terms and  conditions  as
required  by  Manager.  This  provision  shall  be null and  void  should  it be
determined  that  Section  1861(v)(1)(I)  of  the  Social  Security  Act  is not
applicable to this Agreement.

         5.3 As soon as reasonably  possible  after the close of each  reporting
period for rate setting  purposes,  and not later than the applicable  deadline,
the Relevant IHS Entities  shall prepare for  submission  by the IHS  Licensees,
Medicare and/or Medicaid cost reports, as applicable,  for each Facility for the
reporting  period  during which such IHS  Licensee  provided  facility  services
(regardless  whether such services  were provided  before or after the Effective
Date)  showing the costs and  expenditures  relating  to resident  care for such
Facility  and  such  other   information   as  is  required  by  the  applicable
governmental authority, such report being in all material respects (including as
to form) in compliance with the  requirements  of such  applicable  governmental
authority.  The provisions of this Section 5.3 shall survive the  termination of
the obligations of the Relevant IHS Entities as Servicer under Section 8.1.

         5.4 The  Proposed  Operators  agree to use their best efforts to obtain
all  Necessary  Licenses  as  promptly as  possible,  and to use all  reasonable
efforts to obtain all other Licenses as promptly as possible.  Upon receipt by a
Proposed  Operator of the  Necessary  Licenses  with respect to an IHS Facility,
Manager shall give Servicer and each IHS Licensee prompt written notice thereof.

         5.5 Subject to the provisions of Section 12.10 hereof,  each of the IHS
Licensees  and Servicer  agrees to  cooperate  with the Manager and the Proposed
Operators in their efforts to obtain all Licenses,  such cooperation to include,
without  limitation,  the IHS Licensees  taking all action that is necessary and
reasonable  to  ensure  that  there is no period  during  which  neither  an IHS
Licensee  nor a Proposed  Operator  is entitled to  reimbursement  for  services
provided at the Facilities.  Without  limiting the foregoing,  each Relevant IHS
Entity and IHS  Licensee  agrees to use all  reasonable  efforts to assist  each
Proposed  Operator in obtaining  all Licenses as soon as

                                      - 13 -
<PAGE>

possible.  Such efforts shall include (i) (to the extent required as a condition
to the issuance of any License with respect to any Facility) the preparation and
filing of terminating cost reports with respect to the Facility in compliance in
all material  respects with  applicable  law,  (ii) promptly  furnishing to such
Proposed Operator,  upon its request,  all information and materials required to
be (or that any governmental agency or official has requested be) furnished as a
condition to or in connection  with the issuance of any Licenses  (including any
financial,  census and staffing data, information regarding special services and
programs,  Life Safety Code Waivers and other waiver history,  facility plans of
correction and  compliance  status,  to the extent  required or requested by the
applicable  agency or  official),  in each case to the extent  available to such
Relevant IHS Entity or IHS Licensee or  Affiliate  thereof,  (iii) the filing of
such  notices and  documents  with such  agencies or officials as such agency or
official may require or request. Notwithstanding the foregoing, the SNH Entities
shall promptly  reimburse the IHS Licensees and the Servicer for all third-party
out-of-pocket  costs and expenses  incurred in connection with this Section 5.5,
including,  without  limitation,  reasonable  attorneys' fees and expenses.  The
provisions of this Section 5.5 shall survive the  termination of the obligations
of the Relevant IHS Entities and IHS Licensees under Section 8.

         5.6 Each party hereto  agrees to comply in all material  respects  with
all provisions of federal and state law applicable to it in connection  with the
operation of the Facilities.

6. Duty of Servicer; Indemnity; Prohibited Transactions.

         6.1 Servicer  shall render the  services  called for  hereunder in good
faith.

         6.2 SNH,  Manager,  Advisors  and the Proposed  Operators,  jointly and
severally,  agree to indemnify and hold Servicer, IHS and each subsidiary of IHS
and  their  respective  shareholders,  officers,  directors,  advisors,  agents,
representatives  and employees (each an "Indemnified  Party")  harmless from and
against all Damages (as hereinafter  defined),  arising out of (i) any action or
omission of Servicer in  connection  with the  provision of services  under this
Agreement  taken or omitted to be taken in good faith after the Effective  Time,
(ii) any injury to any person  suffered at any Facility,  or the rendering of or
the  failure to render  services  by, any  Personnel,  Manager,  Advisors or any
Proposed Operator or their respective  employees,  agents or  representatives or
any other person  performing  services for or on behalf of Manager,  Advisors or
any Proposed  Operator  (including,  without  limitation,  any obligations under
Section 1 above),  or the operation of any Facility  after the  Effective  Time,
(iii) the employment or termination of any of the Personnel  after the Effective
Time,  including  without  limitation,   any  wages,  salaries,  payroll  taxes,
reimbursements,  sick pay, paid time off or other vacation  benefits,  severance
and all other  compensation and benefits  incurred,  earned or accrued after the
Effective  Time,  whether  under any  agreement,  benefit  plan or as imposed by
applicable law, (iv) arising out of any action taken or omitted by any Personnel
after the Effective  Time, or (v) arising out of any failure to make any payment
when due  under  Section  4 above or any  refusal  to  approve  any  payment  in
accordance  with Section 4 above;  provided that no  Indemnified  Party shall be
entitled to  indemnification  for any action taken or omitted to be taken to the
extent  resulting  from  such  Indemnified  Party's  gross  negligence,  willful
misconduct or fraud, provided further that it is understood that the actions and
omissions of the Personnel shall not be deemed to be the actions or omissions of
any IHS Entity,  notwithstanding  that such Personnel may be employees of an IHS
Entity or under the supervision of any IHS Entity. The term "Damages" shall mean
all

                                      -14-
<PAGE>

actual monetary and  non-consequential  losses,  damages,  liabilities,  claims,
demands,   penalties,   judgments,  costs  and  expenses,   including,   without
limitation,  reasonable legal fees,  suffered by an Indemnified Party, but shall
not, in any event,  include any Pre-Effective Time Obligation (as defined in the
Settlement  Agreement).  The  provisions  of this Section 6.2 shall  survive the
termination of this Agreement.

         6.3  Neither  Servicer  nor  any  person,  firm or  corporation  which,
directly or indirectly owns or controls,  is owned or controlled by, or is under
direct or  indirect  common  ownership  or control  with  Servicer or any person
related by blood or marriage  within the third degree to persons in such control
(an  "Affiliate"),  shall receive any remuneration  (other than  reimbursement),
whether  direct or  indirect,  for any  purchases  of goods or services  made on
behalf of the Relevant Licensee,  the Proposed Operator or Manager,  and neither
Servicer nor any  Affiliate  shall  markup,  increase  the price,  or obtain any
premium  for goods or  services  purchased  by  Servicer on behalf of or for the
benefit of Relevant Licensee, Proposed Operator or Manager.

7.  Relationship  of Parties.  No party to this  Agreement is a partner or joint
venturer  with any other party,  and nothing  herein shall be construed so as to
make  them  such  partners  or  joint  venturers  or  impose  on any of them any
liability as partners or joint venturers.

8. Term and Termination.

         8.1 Unless the Relevant IHS Entities shall  otherwise agree in writing,
on the five-month  anniversary of the date hereof, their obligations as Servicer
hereunder shall be deemed to have been satisfied, terminated and discontinued in
full,  and  Manager  shall be  deemed  to have  assumed  responsibility  for the
performance  thereof.  Servicer and Manager  agree to negotiate any extension of
such five month period in good faith;  provided that in no event shall  Servicer
be required to negotiate any  extension to perform any services  after the first
anniversary of the Effective Time.

         8.2 It is the intention of Manager to assume responsibility for many of
the services  provided by Servicer and  described in Sections 1 and 2 during the
term of this Agreement.  In connection  therewith,  at any time and from time to
time after the date hereof, Manager may advise Servicer, by written notice, that
Servicer may  discontinue  the provision of certain  services  described in such
notice,   in  which  event   Manager  shall  be  deemed  to  have  assumed  full
responsibility  for  providing  such service  hereunder in lieu of Servicer (but
such  discontinuance  of services  shall not  constitute a  termination  of this
Agreement or affect the release referred to in Section 3 above).

         8.3 Subject to the provisions of Section 8.1 that limit the obligations
of Servicer under this  Agreement,  the term of this Agreement shall commence at
the  Effective  Time and shall  terminate  on the [___  anniversary  of the date
hereof;  provided  that  the  term  hereof  shall  automatically  renew  for  an
additional  term of one year,  unless  Manager or SNH shall have given the other
parties hereto written  notice,  not later than 90 days prior to the last day of
the existing term, of its intent to terminate this  Agreement,  effective at the
end of the existing term]. Notwithstanding anything to the contrary contained in
this Agreement or any Sublease,  on such date (a "Sublease Termination Date") as
any IHS Licensee  shall  receive  written  notice from Manager under Section 5.4
confirming  that the Necessary  Licenses  shall have been obtained by a

                                      -15-
<PAGE>

Proposed  Operator with respect to any IHS Facility,  all of the  obligations of
the applicable IHS Licensee under this Agreement  (other than in its capacity as
"Servicer",  subject to  Section  8.1 above and the last  sentence  of Section 1
above) and the  applicable  Sublease  shall  terminate  with respect to such IHS
Facility.  After the first  anniversary of the Effective Time,  Manager shall be
obligated  to pay a fee  (the  "Sublease  Extension  Fee") to IHS at the rate of
$2,000  per  month  per State in which  the  Sublease  Termination  Date has not
occurred with respect to all IHS  Facilities in such State;  provided,  however,
that until the Sublease Termination Date shall have occurred with respect to all
of the IHS Facilities,  the minimum Sublease  Extension Fee shall be at the rate
of $10,000 per month. Notwithstanding anything to the contrary contained in this
Agreement or any Sublease,  each IHS Licensee shall have the right,  at any time
after the first  anniversary of the Effective Time, to terminate the obligations
of such IHS  Licensee  under this  Agreement  and each  applicable  Sublease (by
giving  notice of such  termination  to the Manager) on the earlier to occur of:
(x) the last  administrative bar date established by order of the Court (as such
term is defined in the Settlement Agreement) and of which the SNH Entities shall
have received  timely  notice,  and (y) the second  anniversary of the Effective
Time.  Notwithstanding  the foregoing,  if Manager shall receive  written notice
from  the  applicable  governmental  licensing  authority  with  respect  to the
Necessary  Licenses for any IHS Facility  that the  Proposed  Operator  shall be
denied any Necessary  License with respect to such IHS  Facility,  then such IHS
Facility shall not  thereafter be included for purposes of  determining  whether
any  Sublease  Extension  Fee shall be payable.  If the Manager or the  Proposed
Operator shall be in default of their  obligations  hereunder to Servicer or the
IHS  Licensees  for more than 30 days  after  written  notice  thereof  from the
Servicer or the IHS  Licensees  to Manager and the Proposed  Operator,  then the
Servicer  and/or the IHS Licensees shall be entitled to terminate this Agreement
and/or any of the Sublease Agreements.

         8.4 Upon the effective date of  termination  of the  obligations of the
Relevant IHS Entities, as Servicer, in accordance with Section 8.1, the Relevant
IHS Entities shall forthwith:

                  (a) pay  over to the  relevant  Proposed  Operator  all  money
         collected  pursuant to this Agreement owned by the Proposed Operator or
         to which the Proposed  Operator is otherwise  entitled pursuant to this
         Agreement or the Settlement Agreement;

                  (b) deliver to Manager, the Relevant Licensee and the Proposed
         Operator a full accounting for all monies then held by the Relevant IHS
         Entities; and

                  (c)  deliver to  Manager,  the  Relevant  Licensee or Proposed
         Operator, as the case may be, all property and documents of any of them
         then in the custody of the Relevant IHS Entity.

9. Notices. All notices and other communications provided for hereunder shall be
in  writing  (including  telecopy  communication)  and  mailed,   telecopied  or
delivered addressed as follows:

                  (a) if to SNH or any Proposed Operator, to it at:

                           400 Centre Street
                           Newton, MA  02458
                           Telecopy no.:  (617) 796-8349

                                      -16-
<PAGE>

                           Attention:  President

                  (b) with copy to:

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

                  (c) if to Manager, to it at:

                           400 Centre Street
                           Newton, MA 02458
                           Telecopy no.:  (617) 332-2261
                           Attention:  Treasurer

                  (d) if to any Relevant IHS Entity or any IHS  Licensee,  to it
         at:

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

                  (e) with a copy to:

                           Parker Chapin LLP
                           The Chrysler Building
                           405 Lexington Avenue
                           New York, NY  10174
                           Telecopy no.:  (212) 704-6137
                           Attention:  Charles P. Greenman, Esq.

                           and to

                           Blass & Driggs
                           461 Fifth Avenue
                           New York, NY  10017
                           Telecopy no.:  (212) 447-5428
                           Attention:  Andrew S. Bogen, Esq.

or to such other  address as may  hereafter be  designated by any party for such
purpose.  Each such  notice  shall be  effective  (i) upon  receipt  and written
acknowledgment,  if hand  delivered,  (ii) upon the first Business Day following
the day when  telecopied,  if  transmitted  by  telecopier,  (iii) upon the next
Business Day after being  placed in the  possession  of a  recognized  overnight

                                      -17-
<PAGE>

delivery service,  if sent by a recognized  overnight delivery service,  or (iv)
upon the  expiration  of the fifth  Business  Day after being  deposited  in the
mails, if mailed.

10.  Liability of IHS Entity.  No IHS Entity shall have any liability for breach
of any of its obligations  under this Agreement,  except for breaches  resulting
from  fraud,  bad  faith,  gross  negligence  or  willful  misconduct;  it being
understood  that the actions and omissions of the Personnel  shall not be deemed
to be the  actions or  omissions  of any IHS Entity,  notwithstanding  that such
Personnel may be employees of an IHS Entity or under the  supervision of any IHS
Entity.  The  liability  of  Servicer  shall  survive  the  termination  of this
Agreement.

11. Proprietary Material. The Manager and the Proposed Operators acknowledge and
agree that the Proprietary Property (as defined in the Settlement  Agreement) is
and shall remain (along with any corresponding copyrights or similar rights) the
sole  property of Servicer  and shall not at any time be directly or  indirectly
used, distributed, disclosed, copied or otherwise employed by the Manager or any
Proposed  Operator,  except in the  provision  of the  services by the  Servicer
during  the  term  of  this  Agreement  or to  the  extent  contemplated  by the
Settlement  Agreement.  Upon termination of this Agreement,  the Manager and the
Proposed Operators shall return to the Servicer all such Proprietary Property in
their  possession  or control,  and use their best  efforts to ensure that their
employees  have not  retained  any  Proprietary  Property  and upon  request  by
Servicer,  confirm  compliance with the foregoing in writing.  The provisions of
this Section 11 shall survive the termination of this Agreement.

12. Miscellaneous.

         12.1  Amendments.  This  Agreement  shall  not  be  changed,  modified,
terminated, or discharged in whole or in part except by an instrument in writing
signed by each of the parties hereto or their respective successors or assigns.

         12.2  Non-Assignability.  This  Agreement  shall not be assigned by any
party without the consent of each other party hereto,  and this Agreement  shall
be binding upon and shall inure to the benefit of consented  to  successors  and
assigns.

         12.3  GOVERNING  LAW.  THE  PROVISIONS  OF  THIS  AGREEMENT   SHALL  BE
CONSTRUED,  INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.

         12.4  Entire  Agreement.  This  Agreement,   together  with  the  other
agreements  contemplated  by,  referred  to in, or  contemplated  by  agreements
referred to herein,  together  constitute  the entire  agreement  of the parties
hereto with respect to the subject  matter  hereof and  supersede and cancel any
preexisting agreements with respect to such subject matter.

         12.5  Headings.  The  headings of the various  articles,  sections  and
subsections  of this Agreement have been inserted for the purpose of convenience
of reference  only,  are not a part of this Agreement and shall not be deemed in
any manner to modify, explain, enlarge or restrict any of the provisions of this
Agreement.

         12.6  Attorney's  Fees and  Costs.  If any  action is  brought  for the
enforcement  of this  Agreement,  or because of a  dispute,  breach,  default or
misrepresentation  in connection  with any

                                      -18-
<PAGE>

of the provisions of this Agreement,  the prevailing  party shall be entitled to
recover  reasonable  attorneys'  fees and other costs incurred in that action in
addition to any other relief to which it may be entitled.

         12.7 Confidentiality. The parties agree not to disclose or permit their
respective representatives, attorneys, auditors or agents to disclose, except as
may be required by law or performance  hereunder,  any  confidential  non-public
information  of the others which is obtained by any of them in  connection  with
the transactions contemplated by this Agreement.

         12.8 Cooperation;  Commercially  Reasonable Efforts.  The parties shall
cooperate in good faith in connection with all actions to be taken to consummate
the  transactions  contemplated  by,  and to enforce  the rights  created by and
perform the responsibilities imposed by, this Agreement.

         12.9   Counterparts.   This   Agreement  may  be  executed  in  several
counterparts,  each of which shall be deemed an original,  but such counterparts
together shall constitute one and the same instrument.

         12.10  Responsibility  for Compliance with Law, Etc. During the term of
this Agreement, each Relevant Licensee will use reasonable commercial efforts to
keep in full force and effect all licenses, permits, approvals,  authorizations,
provider  agreements,  and certificates or  determinations of need necessary for
such  Relevant  Licensee  to occupy and operate  its  Facilities  and to receive
Medicare   and   Medicaid   reimbursement   for   services   provided   therein.
Notwithstanding  anything to the  contrary  contained  in this  Agreement or the
Settlement  Agreement,  each of the SNH Entities agrees and acknowledges that no
IHS Licensee  shall be obligated to assume  and/or  assign to any SNH Entity any
Medicare  or  Medicaid  provider  numbers  or  agreements;   provided  that  the
applicable  IHS Licensees  shall use their  commercially  reasonable  efforts to
maintain  such  provider  agreements  and numbers  until they no longer hold the
applicable licenses (so long as maintaining such provider agreements and numbers
do not require  that the IHS  Licensees  assume  such  provider  agreements  and
numbers). The SNH Entities are assuming all risk arising out of their failure to
obtain Medicare and/or Medicaid  provider  numbers or agreements with respect to
any Facilities.  SNH,  Manager and each Proposed  Operator jointly and severally
agree to indemnify each IHS Licensee and Relevant IHS Entity against all Damages
incurred  by such  IHS  Licensee  or  Relevant  IHS  Entity  arising  out of the
discharge from any IHS Facility of any Medicare or Medicaid  beneficiary who was
a resident or patient of such IHS  Facility  immediately  prior to the time that
the  applicable  IHS  Licensee  ceases to hold a Medicare or Medicaid  number or
provider agreement,  resulting from the applicable Proposed Operator's inability
to timely  obtain a Medicare or Medicaid  provider  number or agreement  (to the
extent that such failure to obtain such provider number or agreement was not due
to the act or omission of any IHS Entity).  The provisions of this Section 12.10
shall survive the termination of this Agreement.

         12.11 THE  DECLARATION OF TRUST OF SNH, DATED DECEMBER 16, 1998, A COPY
OF WHICH,  TOGETHER WITH ALL  AMENDMENTS  THERETO (THE  "DECLARATION"),  IS DULY
FILED IN THE OFFICE OF THE DEPARTMENT OF  ASSESSMENTS  AND TAXATION OF THE STATE
OF MARYLAND,  PROVIDES THAT THE NAME "SENIOR HOUSING PROPERTIES TRUST" REFERS TO
THE  TRUSTEES

                                      -19-
<PAGE>

UNDER  THE  DECLARATION  COLLECTIVELY  AS  TRUSTEES,  BUT  NOT  INDIVIDUALLY  OR
PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER,  EMPLOYEE OR AGENT OF SNH
SHALL  BE  HELD  TO ANY  PERSONAL  LIABILITY,  JOINTLY  OR  SEVERALLY,  FOR  ANY
OBLIGATION OF, OR CLAIM AGAINST,  SNH. ALL PERSONS DEALING WITH SNH, IN ANY WAY,
SHALL  LOOK  ONLY TO THE  ASSETS  OF  SNH,  FOR  THE  PAYMENT  OF ANY SUM OR THE
PERFORMANCE OF ANY OBLIGATION.

                                      -20-
<PAGE>

         IN WITNESS  WHEREOF,  the  parties  have caused  this  Agreement  to be
executed under seal by their duly  authorized  officers as of the date first set
forth above.

                                    SERVICER:

                                    INTEGRATED HEALTH SERVICES, INC., a Delaware
                                    Corporation

                                    By:
                                             Its:

                                    IHS LICENSEES:

                                    ECA HOLDINGS, INC., a Delaware corporation
                                    COMMUNITY CARE OF NEBRASKA, INC., a Delaware
                                      corporation,
                                    W.S.T. CARE, INC., a Nebraska corporation
                                    QUALITY CARE OF LYONS, INC., a Nebraska
                                      corporation
                                    CCA OF MIDWEST, INC., a Delaware corporation
                                    INTEGRATED HEALTH SERVICE AT  GRANDVIEW CARE
                                      CENTER, INC., a Delaware corporation
                                    QUALITY CARE OF COLUMBUS, INC., a Nebraska
                                      corporation
                                    MARIETTA/SCC, INC., a Georgia corporation
                                    GLENWOOD/SCC, INC., a Georgia corporation
                                    DUBLIN/SCC, INC., a Georgia corporation
                                    COLLEGE PARK/SCC, INC., a Georgia
                                      corporation
                                    IHS ACQUISITION NO. 112, INC., a Delaware
                                      corporation
                                    IHS ACQUISITION NO. 113, INC., a Delaware
                                      corporation
                                    IHS ACQUISITION NO. 175, INC., a Delaware
                                      corporation

                                    By:
                                          Its: [Vice] President

                                      -21-
<PAGE>

                                    SNH:

                                    SENIOR HOUSING PROPERTIES TRUST, a Maryland
                                    real estate investment trust

                                    By:
                                          Its:

                                    MANAGER:

                                    FIVE STAR QUALITY CARE, INC., a Delaware
                                      corporation

                                    By:
                                          Its (Vice) President

                                      -22-
<PAGE>

                                    PROPOSED OPERATORS:

                                    SHOPCO-COLORADO, LLC
                                    SHOPCO-CT, LLC
                                    SHOPCO-GA, LLC
                                    SHOPCO-IA, LLC
                                    SHOPCO-KS, LLC
                                    SHOPCO-MI, LLC
                                    SHOPCO-MO, LLC
                                    SHOPCO-NE, LLC
                                    SHOPCO-WY, LLC, each a Delaware limited
                                    liability company

                                    By:
                                          Its:

                                    SNH-NEBRASKA, INC.,
                                    SNH-IOWA, INC.,
                                    SNH-MICHIGAN, INC., each a Delaware
                                    corporation

                                    By:
                                          Its:

                                    ADVISORS:

                                    ADVISORS HEALTHCARE GROUP, INC, a
                                    Delaware corporation

                                    By:
                                          Its:

                                      -23-
<PAGE>

                                  Schedule A-1

<TABLE>
<CAPTION>
                                 IHS Facilities

------------------------------------------------------------------------ ------------------ --------------------------
                               Facility                                      Licensee           Proposed Operator
------------------------------------------------------------------------ ------------------ --------------------------
<S>                                                                      <C>                <C>
Integrated Health Services at Canon City                                   ECA Holdings,      Shopco-Colorado, LLC
515 Fairview Street                                                        Inc. ("ECA")         ("Colorado LLC")
Canon City, CO 81212
------------------------------------------------------------------------ ------------------ --------------------------
Integrated Health Services at Springs Village                                   ECA               Colorado LLC
110 W. Van Buren
Colorado Springs, CO 80907
------------------------------------------------------------------------ ------------------ --------------------------
Integrated Health Services at Delta                                             ECA               Colorado LLC
2050 South Main Street
Delta, CO 81416
------------------------------------------------------------------------ ------------------ --------------------------
Integrated Health Services at Mantey Heights                                    ECA               Colorado LLC
2823 Patterson Road
Grand Junction, CO 81506
------------------------------------------------------------------------ ------------------ --------------------------
Integrated Health Services at LaVilla Grande                                 ECA (DBA,            Colorado LLC
2501 Little Bookcliff Drive                                                 Integrated
Grand Junction, CO 81501                                                  Health Services
                                                                            at LaVilla
                                                                              Grande)
------------------------------------------------------------------------ ------------------ --------------------------
College Park Health Care Center                                            College Park/         Shopco-GA, LLC
1765 Temple Avenue                                                           SCC, Inc.             ("GA LLC")
College Park, GA 30337
------------------------------------------------------------------------ ------------------ --------------------------
Community Care of America at Dublin                                      Dublin/SCC, Inc.            GA LLC
606 Simmons Street, Box 549
Dublin, GA 31040
------------------------------------------------------------------------ ------------------ --------------------------
Community Care of America at Conner                                          Glenwood/               GA LLC
303 Fifth Street, P.O. Box 618                                               SCC, Inc.
Glenwood, GA 30428
------------------------------------------------------------------------ ------------------ --------------------------
Community Care of America at Marietta                                        Marietta/               GA LLC
1480 Sandtown Road                                                           SCC, Inc.
Marietta, GA 30060
------------------------------------------------------------------------ ------------------ --------------------------
Integrated Health Services of Clarinda                                          ECA               Shopco-IA LLC
600 Manor Drive                                                                                    ("IA LLC")
Clarinda, IA 51632
------------------------------------------------------------------------ ------------------ --------------------------
Integrated Health Services of Council Bluffs South                              ECA                  IA LLC
34 Northcrest Drive
------------------------------------------------------------------------ ------------------ --------------------------

<PAGE>

<CAPTION>
------------------------------------------------------------------------ ------------------ --------------------------
                               Facility                                      Licensee           Proposed Operator
------------------------------------------------------------------------ ------------------ --------------------------
<S>                                                                      <C>                <C>
Council Bluffs, IA 51501
------------------------------------------------------------------------ ------------------ --------------------------
Integrated Health Services at Mediapolis                                        ECA                  IA LLC
608 Prairie Street
Mediapolis, IA 52637
------------------------------------------------------------------------ ------------------ --------------------------
IHS at Pacific Place                                                            ECA                  IA LLC
20937 Hwy. 385 West
Pacific Junction, IA 51561
------------------------------------------------------------------------ ------------------ --------------------------
Integrated Health Services of Winterset                                         ECA                  IA LLC
1015 West Summit
Winterset, IA 50273
------------------------------------------------------------------------ ------------------ --------------------------
Integrated Health Services of Iowa at Des Moines                            Integrated           SNH-IOWA, Inc.
2348 E. Ninth Street                                                     Health Services,          ("IA INC.")
Des Moines, IA 50316                                                           Inc.
------------------------------------------------------------------------ ------------------ --------------------------
IHS at Park Place                                                               ECA                  IA INC
114 East Green Street
Glenwood, IA 51534
------------------------------------------------------------------------ ------------------ --------------------------
IHS of Woodhaven                                                                ECA              Shopco-KS, LLC
510 W. 7th Street
Ellinwood, KS 67526
------------------------------------------------------------------------ ------------------ --------------------------
Farmington Health Care Center                                             IHS Acquisition        Shopco-MI, LLC
34225 Grand River                                                          No. 112, Inc.           ("MI LLC")
Farmington, MI 48335-3512
------------------------------------------------------------------------ ------------------ --------------------------
IHS of Michigan at Howell                                                       IHS                  MI LLC
3003 W. Grand River Avenue                                                Acquisition No.
Howell, MI 48843-8539                                                        113, Inc.
------------------------------------------------------------------------ ------------------ --------------------------
IHS at Tarkio                                                                   ECA              Shopco-MO, LLC
300 Cedar Street
Tarkio, MO 64491
------------------------------------------------------------------------ ------------------ --------------------------
Ainsworth Care Center                                                     Community Care         Shopco-NE, LLC
143 N. Fullerton Street                                                  of Nebraska, Inc.         ("NE LLC")
Ainsworth, NE 69210                                                           ("CCN")
------------------------------------------------------------------------ ------------------ --------------------------
IHS at Ashland                                                                  CCN                  NE LLC
1700 Furnas Street
Ashland, NE 68003
------------------------------------------------------------------------ ------------------ --------------------------

                                      -2-
<PAGE>

<CAPTION>
------------------------------------------------------------------------ ------------------ --------------------------
                               Facility                                      Licensee           Proposed Operator
------------------------------------------------------------------------ ------------------ --------------------------
<S>                                                                      <C>                <C>
Blue Hill Care Center                                                           CCN                  NE LLC
P.O. Box 156, 414 N. Wilson
Blue Hill, NE 68930
------------------------------------------------------------------------ ------------------ --------------------------
IHS at Edgar                                                                   CCN.                  NE INC
RR 1 Box 83A, 106 5th Street
Edgar, NE 68935
------------------------------------------------------------------------ ------------------ --------------------------
Wedgewood Care Center                                                           ECA                  NE LLC
800 Stoeger Drive
Grand Island, NE 68803
------------------------------------------------------------------------ ------------------ --------------------------
IHS at Gretna                                                                   CCN                  NE LLC
700 Highway 6
Gretna, NE 68028
------------------------------------------------------------------------ ------------------ --------------------------
IHS at Lyons                                                              Quality Care of            NE LLC
1035 Diamond Street                                                         Lyons, Inc.
Lyons, NE 68038
------------------------------------------------------------------------ ------------------ --------------------------
IHS at Milford                                                             W.S.T. Care,              NE LLC
P.O. Box D, 1100 W. First Street                                               Inc.
Milford, NE 68405
------------------------------------------------------------------------ ------------------ --------------------------
IHS at Sutherland                                                               CCN                  NE LLC
P.O. Box 307, 333 Maple Street
Sutherland, NE 69165
------------------------------------------------------------------------ ------------------ --------------------------
IHS of Waverly                                                                  CCN                  NE LLC
P.O. Box 160, 11041 N. 137th Street
Waverly, NE 68462
------------------------------------------------------------------------ ------------------ --------------------------
Grandview Manor                                                           ECA Properties,         SNH-Nebraska
Broad Street & Highway 4                                                       Inc.                ("NE INC")
Campbell, NE 68932
------------------------------------------------------------------------ ------------------ --------------------------
Integrated Health Services of Central City                                Quality Care of            NE INC
2720 South 17th Avenue                                                       Columbus,
Central City, NE 68826                                                         Inc.
------------------------------------------------------------------------ ------------------ --------------------------
Mory's Haven                                                              Quality Care of            NE INC
1112 Fifteenth Street                                                     Columbus, Inc.
Columbus, NE 68601
------------------------------------------------------------------------ ------------------ --------------------------
Exeter Care Center                                                              CCN                  NE INC
425 South Empire Avenue, P.O. Box 59
Exeter, NE 68351
------------------------------------------------------------------------ ------------------ --------------------------

                                      -3-
<PAGE>

<CAPTION>
------------------------------------------------------------------------ ------------------ --------------------------
                               Facility                                      Licensee           Proposed Operator
------------------------------------------------------------------------ ------------------ --------------------------
<S>                                                                      <C>                <C>
IHS at Palmer                                                             CCA of Midwest,            NE INC
RR #2, Box 28A                                                                 Inc.
Palmer, NE 68864
------------------------------------------------------------------------ ------------------ --------------------------
Utica Community Center                                                          CCN                  NE INC
1350 Centennial Avenue
Utica, NE 68456
------------------------------------------------------------------------ ------------------ --------------------------
IHS at Laramie                                                                  ECA              Shopco-WY, LLC
503 South 18th Street                                                                              ("WY LLC")
Laramie, WY 82070
------------------------------------------------------------------------ ------------------ --------------------------
Community Care of America at Worland                                            ECA                  WY LLC
1901 Howell
Worland, WY 82401
------------------------------------------------------------------------ ------------------ --------------------------
</TABLE>

                                      -4-
<PAGE>

                                  Schedule A-2

<TABLE>
<CAPTION>
                               Advisors Facilities

---------------------------------------------------------- ------------------------------------------------------------
                        Facility                                                    Licensee
---------------------------------------------------------- ------------------------------------------------------------
<S>                                                        <C>
Clifton House Rehabilitation Center                        Advisors Healthcare Group, Inc.
181 Clifton Street, New Haven, CT 06513                    (195 bed chronic and convalescent nursing home)
---------------------------------------------------------- ------------------------------------------------------------
Greenery Rehabilitation Center at Waterbury                Advisors Healthcare Group, Inc.
177 Whitewood Road, Waterbury, CT 06708                    (180 bed chronic and convalescent nursing home)
---------------------------------------------------------- ------------------------------------------------------------
Greenery Extended Care Center at Cheshire                  Advisors Healthcare Group, Inc.
50 Hazel Drive, Cheshire, CT 06410                         (210 bed chronic and convalescent nursing home)
---------------------------------------------------------- ------------------------------------------------------------
</TABLE>

                                      -5-
<PAGE>
                                   Schedule B

<TABLE>
<CAPTION>
                               Necessary Licenses

--------------------------------------------------------------- ------------------------------------------------------
                           Facility                                              Necessary Licenses
--------------------------------------------------------------- ------------------------------------------------------
<S>                                                             <C>
Integrated Health Services at Canon City                        License to Operate an 85-bed Long-Term Care Facility
515 Fairview Street
Canon City, CO 81212
--------------------------------------------------------------- ------------------------------------------------------
Integrated Health Services at Springs Village                   License to Operate a 100-bed Long-Term Care Facility
110 W. Van Buren
Colorado Springs, CO 80907
--------------------------------------------------------------- ------------------------------------------------------
Integrated Health Services at Delta                             License to Operate a 90-bed Long-Term Care Facility
2050 South Main Street                                          License to Operate a 6-bed Personal Care Boarding
Delta, CO 81416                                                 Home
--------------------------------------------------------------- ------------------------------------------------------
Integrated Health Services at Mantey Heights                    License to Operate an 82-bed Long-Term Care Facility
2825 Patterson Road
Grand Junction, CO 81506
--------------------------------------------------------------- ------------------------------------------------------
Integrated Health Services at LaVilla Grande                    License to Operate a 96-bed Long-Term Care Facility
2501 Little Bookcliff Drive
Grand Junction, CO 81501
--------------------------------------------------------------- ------------------------------------------------------
College Park Health Care Center                                 Permit to Operate a 100-bed Nursing Home
1765 Temple Avenue
College Park, GA 30337
--------------------------------------------------------------- ------------------------------------------------------
Community Care of America at Dublin                             Permit to Operate a 130-bed Nursing Home
606 Simmons Street, Box 549
Dublin, GA 31040
--------------------------------------------------------------- ------------------------------------------------------
Community Care of America at Conner                             Permit to Operate a 62-bed Nursing Home
303 Fifth Street, P.O. Box 618
Glenwood, GA 30428
--------------------------------------------------------------- ------------------------------------------------------
Community Care of America at Marietta                           Permit to Operate a 109-bed Nursing Home
1480 Sandtown Road
Marietta, GA 30060
--------------------------------------------------------------- ------------------------------------------------------
Integrated Health Services of Clarinda                          License to Operate a 117-bed Nursing Facility
600 Manor Drive
Clarinda, IA 51632
--------------------------------------------------------------- ------------------------------------------------------
Integrated Health Services of Council Bluffs South              License to Operate a 62-bed Nursing Facility
34 Northcrest Drive
Council Bluffs, IA 51501
--------------------------------------------------------------- ------------------------------------------------------
Integrated Health Services at Mediapolis                        License to Operate a 62-bed Nursing Facility
608 Prairie Street
Mediapolis, IA 52637
--------------------------------------------------------------- ------------------------------------------------------

                                      -1-
<PAGE>

<CAPTION>
--------------------------------------------------------------- ------------------------------------------------------
                           Facility                                              Necessary Licenses
--------------------------------------------------------------- ------------------------------------------------------
<S>                                                             <C>
IHS at Pacific Place                                            License to Operate a 12-bed Intermediate Care
20937 Hwy. 385 West                                             Facility for the Mentally Retarded
Pacific Junction, IA 51561
--------------------------------------------------------------- ------------------------------------------------------
Integrated Health Services of Winterset                         License to Operate an 80-bed Nursing Facility
1015 West Summit                                                License to Operate a 19-bed Residential Care Facility
Winterset, IA 50273
--------------------------------------------------------------- ------------------------------------------------------
Integrated Health Services of Iowa at Des Moines                License to Operate a 93-bed Nursing Facility
2348 E. Ninth Street
Des Moines, IA 50316
--------------------------------------------------------------- ------------------------------------------------------
IHS at Park Place                                               License to Operate a 128-bed Intermediate Care
114 East Green Street                                           Facility for the Mentally Retarded
Glenwood, IA 51534
--------------------------------------------------------------- ------------------------------------------------------
IHS of Woodhaven                                                License to Operate a 54-bed Adult Care Home
510 W. 7th Street
Ellinwood, KS 67526
--------------------------------------------------------------- ------------------------------------------------------
Farmington Health Care Center                                   Certificate of Need
34225 Grand River                                               License to Operate a 153-bed Nursing Home (Long Term
Farmington, MI 48335-3512                                       Care)
--------------------------------------------------------------- ------------------------------------------------------
IHS of Michigan at Howell                                       Certificate of Need
3003 W. Grand River Avenue                                      License to Operate a 176-bed Nursing Home (Long Term
Howell, MI 48843-8539                                           Care)
--------------------------------------------------------------- ------------------------------------------------------
IHS at Tarkio                                                   License to Operate a 95-bed Skilled Nursing Facility
300 Cedar Street
Tarkio, MO 64491
--------------------------------------------------------------- ------------------------------------------------------
Ainsworth Care Center                                           License to Operate a 50-bed Skilled Nursing Facility
143 N. Fullerton Street                                         (Distinct Part) (Outpatient PT/Rehab)
Ainsworth, NE 69210
--------------------------------------------------------------- ------------------------------------------------------
IHS at Ashland                                                  License to Operate a 101-bed Skilled Nursing/NSG
1700 Furnas Street                                              Facility (Distinct Part)
Ashland, NE 68003                                               (Outpatient PT/Rehab, Alzheimer Unit)
--------------------------------------------------------------- ------------------------------------------------------
Blue Hill Care Center                                           License to Operate a 68-bed Skilled Nursing/NSG
P.O. Box 156                                                    Facility (Distinct part)(Alzheimer Unit)
414 N. Wilson
Blue Hill, NE 68930
--------------------------------------------------------------- ------------------------------------------------------
IHS at Edgar                                                    License to Operate a 54-bed Skilled Nursing/NSG
RR 1 Box 83A                                                    Facility (Distinct Part)
106 5th Street
Edgar, NE 68935
--------------------------------------------------------------- ------------------------------------------------------
Wedgewood Care Center                                           License to Operate a 74-bed Skilled Nursing/NSG
800 Stoeger Drive                                               Facility (Outpatient Rehab, Alzheimer Unit)
Grand Island, NE 68803
--------------------------------------------------------------- ------------------------------------------------------

                                      -2-
<PAGE>

<CAPTION>
--------------------------------------------------------------- ------------------------------------------------------
                           Facility                                              Necessary Licenses
--------------------------------------------------------------- ------------------------------------------------------
<S>                                                             <C>
IHS at Gretna                                                   License to Operate a 63-bed Skilled Nursing Facility
700 Highway 6
Gretna, NE 68028
--------------------------------------------------------------- ------------------------------------------------------
IHS at Lyons                                                    License to Operate an 82-bed Skilled Nursing Facility
1035 Diamond Street
Lyons, NE 68038
--------------------------------------------------------------- ------------------------------------------------------
IHS at Milford                                                  License to Operate a 60-bed Skilled Nursing/NSG
P.O. Box D                                                      Facility (Distinct Part)
1100 W. First Street
Milford, NE 68405
--------------------------------------------------------------- ------------------------------------------------------
IHS at Sutherland                                               License to Operate a 62-bed Skilled Nursing/NSG
P.O. Box 307                                                    Facility (Distinct Part)
333 Maple Street                                                (Alzheimer Unit)
Sutherland, NE 69165
--------------------------------------------------------------- ------------------------------------------------------
IHS of Waverly                                                  License to Operate a 51-bed Skilled Nursing Facility
P.O. Box 160
11041 N. 137th Street
Waverly, NE 68462
--------------------------------------------------------------- ------------------------------------------------------
Grandview Manor                                                 License to Operate a 45-bed Skilled Nursing Facility
Broad Street & Highway 4
Campbell, NE 68932
--------------------------------------------------------------- ------------------------------------------------------
Integrated Health Services of Central City                      License to Operate a 70-bed Skilled Nursing
2720 South 17th Avenue                                          Facility/Nursing Facility Distinct Part
Central City, NE 68826
--------------------------------------------------------------- ------------------------------------------------------
Mory's Haven                                                    License to Operate a 48-bed Skilled Nursing Facility
1112 Fifteenth Street                                           Dual
Columbus, NE 68601
--------------------------------------------------------------- ------------------------------------------------------
Exeter Care Center                                              License to Operate a 56-bed Skilled Nursing
425 South Empire Avenue                                         Facility/Nursing Facility Distinct Part
P.O. Box 59
Exeter, NE 68351
--------------------------------------------------------------- ------------------------------------------------------
IHS at Palmer                                                   License to Operate a 35-bed Nursing Facility
RR #2, Box 28A
Palmer, NE 68864
--------------------------------------------------------------- ------------------------------------------------------
Utica Community Care Center                                     License to Operate a 41-bed Skilled Nursing Facility
1350 Centennial Avenue                                          Dual
Utica NE 68456
--------------------------------------------------------------- ------------------------------------------------------
IHS at Laramie                                                  License to Operate a 144-bed Nursing Care Facility
503 South 18th St.
Laramie, WY 82070
--------------------------------------------------------------- ------------------------------------------------------

                                      -3-
<PAGE>

<CAPTION>
--------------------------------------------------------------- ------------------------------------------------------
                           Facility                                              Necessary Licenses
--------------------------------------------------------------- ------------------------------------------------------
<S>                                                             <C>
Community Care of America at Worland                            License to Operate an 87-bed Nursing Facility
1901 Howell
Worland, WY 82401
--------------------------------------------------------------- ------------------------------------------------------
</TABLE>

                                      -4-
<PAGE>
                                  Schedule B-2

<TABLE>
<CAPTION>
                                 Other Licenses

---------------------------------------------------------------- -----------------------------------------------------
                           Facility                                                 Other Licenses
---------------------------------------------------------------- -----------------------------------------------------
<S>                                                              <C>
Integrated Health Services at Canon City                         Medicare/Medicaid certification
515 Fairview Street                                              Medicare provider agreement
Canon City, CO 81212                                             Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Integrated Health Services at Springs Village                    Medicare/Medicaid certification
110 W. Van Buren                                                 Medicare provider agreement
Colorado Springs, CO 80907                                       Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Integrated Health Services at Delta                              Medicare/Medicaid certification
2050 South Main Street                                           Medicare provider agreement
Delta, CO 81416                                                  Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Integrated Health Services at Mantey Heights                     Medicare/Medicaid certification
2823 Patterson Road                                              Medicare provider agreement
Grand Junction, CO 81506                                         Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Integrated  Health  Services at LaVilla Grande                   Medicare/Medicaid  certification
2501 Little Bookcliff Drive                                      Medicare provider agreement
Grand Junction, CO 81501                                         Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
College Park Health Care Center                                  Medicare/Medicaid certification
1765 Temple Avenue                                               Medicare provider agreement
College Park, GA 30337                                           Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Community Care of America at  Dublin                             Medicare/Medicaid certification
606 Simmons Street, Box 549                                      Medicare provider agreement
Dublin, GA 31040                                                 Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Community Care of America at Conner                              Medicare/Medicaid certification
303 Fifth Street, P.O. Box 618                                   Medicare provider agreement
Glenwood, GA 30428                                               Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Community Care of America at Marietta                            Medicare/Medicaid certification
1480 Sandtown Road                                               Medicare provider agreement
Marietta, GA 30060                                               Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Integrated Health Services of Clarinda                           Medicare/Medicaid certification
600 Manor Drive                                                  Medicare provider agreement
Clarinda, IA 51632                                               Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Integrated Health Services of Council Bluffs South               Medicare/Medicaid certification
34 Northcrest Drive                                              Medicare provider agreement
Council Bluffs, IA 51501                                         Medicaid provider agreement
----------------------------------------------------------------- ----------------------------------------------------
Integrated Health Services at Mediapolis                         Medicare/Medicaid certification
608 Prairie Street                                               Medicare provider agreement
Mediapolis, IA 52637                                             Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
IHS at Pacific Place                                             Medicaid certification
20937 Hwy. 385 West                                              Medicaid provider agreement
Pacific Junction, IA 51561
---------------------------------------------------------------- -----------------------------------------------------

                                      -1-
<PAGE>

<CAPTION>
---------------------------------------------------------------- -----------------------------------------------------
                           Facility                                                 Other Licenses
---------------------------------------------------------------- -----------------------------------------------------
<S>                                                              <C>
Integrated Health Services of Winterset                          Medicare/Medicaid certification
1015 West Summit                                                 Medicare provider agreement
Winterset, IA 50273                                              Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Integrated Health Services of Iowa at Des Moines                 Medicare/Medicaid certification
2348 E. Ninth Street                                             Medicare provider agreement
Des Moines, IA 50316                                             Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
IHS at Park Place                                                Medicaid certification
114 East Green Street                                            Medicaid provider agreement
Glenwood, IA 51534
---------------------------------------------------------------- -----------------------------------------------------
IHS of Woodhaven                                                 Medicare/Medicaid certification
510 W. 7th Street                                                Medicare provider agreement
Ellinwood, KS 67526                                              Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Farmington Health Care Center                                    Medicare/Medicaid certification
34225 Grand River                                                Medicare provider agreement
Farmington, MI 48335-3512                                        Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
IHS of Michigan at Howell                                        Medicare/Medicaid certification
3003 W. Grand River Avenue                                       Medicare provider agreement
Howell, MI 48843-8539                                            Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
IHS at Tarkio                                                    Medicare/Medicaid certification
300 Cedar Street                                                 Medicare provider agreement
Tarkio, MO 64491                                                 Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Ainsworth Care Center                                            Medicare/Medicaid certification
143 N. Fullerton Street                                          Medicare provider agreement
Ainsworth, NE 69210                                              Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
IHS at Ashland                                                   Medicare/Medicaid certification
1700 Furnas Street                                               Medicare provider agreement
Ashland, NE 68003                                                Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Blue Hill Care Center                                            Medicare/Medicaid certification
P.O. Box 156                                                     Medicare provider agreement
414 N. Wilson                                                    Medicaid provider agreement
Blue Hill, NE 68930
---------------------------------------------------------------- -----------------------------------------------------
IHS at Edgar                                                     Medicare/Medicaid certification
RR 1 Box 83A                                                     Medicare provider agreement
106 5th Street                                                   Medicaid provider agreement
Edgar, NE 68935
---------------------------------------------------------------- -----------------------------------------------------
Wedgewood Care Center                                            Medicare/Medicaid certification
800 Stoeger Drive                                                Medicare provider agreement
Grand Island, NE 68803                                           Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
IHS at Gretna                                                    Medicare/Medicaid certification
700 Highway 6                                                    Medicare provider agreement
Gretna, NE 68028                                                 Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------

                                      -2-
<PAGE>

<CAPTION>
---------------------------------------------------------------- -----------------------------------------------------
                           Facility                                                 Other Licenses
---------------------------------------------------------------- -----------------------------------------------------
<S>                                                              <C>
IHS at Lyons                                                     Medicare/Medicaid certification
1035 Diamond Street                                              Medicare provider agreement
Lyons, NE 68038                                                  Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
IHS at Milford                                                   Medicare/Medicaid certification
P.O. Box D                                                       Medicare provider agreement
1100 W. First Street                                             Medicaid provider agreement
Milford, NE 68405
---------------------------------------------------------------- -----------------------------------------------------
IHS at Sutherland                                                Medicare/Medicaid certification
P.O. Box 307                                                     Medicare provider agreement
333 Maple Street                                                 Medicaid provider agreement
Sutherland, NE 69165
---------------------------------------------------------------- -----------------------------------------------------
IHS of Waverly                                                   Medicare/Medicaid certification
P.O. Box 160                                                     Medicare provider agreement
11041 N. 137th Street                                            Medicaid provider agreement
Waverly, NE 68462
---------------------------------------------------------------- -----------------------------------------------------
Grandview Manor                                                  Medicare/Medicaid certification
Broad Street & Highway 4                                         Medicare provider agreement
Campbell, NE 68932                                               Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Integrated Health Services of Central City                       Medicare/Medicaid  certification
2720 South 17th Avenue                                           Medicare provider agreement
Central City, NE 68826                                           Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Mory's Haven                                                     Medicare/Medicaid certification
1112 Fifteenth Street                                            Medicare provider agreement
Columbus, NE 68601                                               Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Exeter Care Center                                               Medicare/Medicaid certification
425 South Empire Avenue                                          Medicare provider agreement
P.O. Box 59                                                      Medicaid provider agreement
Exeter, NE 68351
---------------------------------------------------------------- -----------------------------------------------------
IHS at Palmer                                                    Medicaid certification
RR #2, Box 28A                                                   Medicaid provider agreement
Palmer, NE 68864
---------------------------------------------------------------- -----------------------------------------------------
Utica Community Center                                           Medicare/Medicaid certification
1350 Centennial Avenue                                           Medicare provider agreement
Utica NE 68456                                                   Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
IHS at Laramie                                                   Medicare/Medicaid certification
503 South 18th St.                                               Medicare provider agreement
Laramie, WY 82070                                                Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------
Community Care of America at Worland                             Medicare/Medicaid certification
1901 Howell                                                      Medicare provider agreement
Worland, WY 82401                                                Medicaid provider agreement
---------------------------------------------------------------- -----------------------------------------------------

                                      -3-
<PAGE>

<CAPTION>
---------------------------------------------------------------- -----------------------------------------------------
                           Facility                                                 Other Licenses
---------------------------------------------------------------- -----------------------------------------------------
<S>                                                              <C>
---------------------------------------------------------------- -----------------------------------------------------
</TABLE>

                                      -4-
<PAGE>

                                                                    Schedule 2.7

<TABLE>
<CAPTION>
                                    Insurance

---------------------------------------- -------------------------------------- --------------------------------------
             Coverage Type                              Limits                               Deductible
---------------------------------------- -------------------------------------- --------------------------------------
<S>                                      <C>                                    <C>
All Risk Property  (bldg & contents)                 $140,000,000                              $10,000
---------------------------------------- -------------------------------------- --------------------------------------
All Risk Property (BI)                                $82,000,000                              $10,000
---------------------------------------- -------------------------------------- --------------------------------------
General/Professional Liability                   $1,000,000/$3,000,000                         $50,000
---------------------------------------- -------------------------------------- --------------------------------------
Workers' Comp                                          Statutory                                  0
---------------------------------------- -------------------------------------- --------------------------------------
Umbrella                                       $10,000,000 per location                          NA
---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>

<PAGE>

                                                                     EXHIBIT D

                       [INSERT NAME OF FACILITY] SUBLEASE*

         This Sublease*  (this  "Sublease"*)  is dated as of [insert  Settlement
closing  date]  ,  2000  and is  entered  into by and  between  [insert  name of
applicable Proposed Operator],  a corporation with an address at ("Sublessor"*),
and [insert name of applicable licensee],  a corporation with an address at (the
"Sublessee"*).

                                    RECITALS

         A.  [insert  name  of  owner  of  the  real  property],  a  corporation
("Lessor") and Sublessor are parties to a Lease  Agreement (the "Lease"),  dated
as of , with respect to the skilled  nursing  facility known as "[insert name of
facility]" (the "Facility").

         B.  Sublessee has agreed,  as an  accommodation  to the  Sublessor,  to
sublease the Facility from the Sublessor on the terms and  conditions  contained
herein,  and  [insert  name of SNH entity that will  manage the  Facility]  (the
"Manager")  has agreed to manage the  operation  of the  Facility  pursuant to a
Management and Servicing Agreement (the "Management Agreement"), dated as of the
date hereof, between the Manager and Sublessee.

         C.  Sublessee  has agreed,  pursuant to the  Management  Agreement,  to
perform, on behalf of the Manager,  certain of the services of the Manager under
the Management Agreement.

         D. Concurrently herewith the Sublessor,  Sublessee, Manager and various
other  parties  are  entering  into  a  Settlement  Agreement  (the  "Settlement
Agreement"),  pursuant to which, among other things,  Sublessee is assigning all
of its  right,  title and  interest  in, to and under a the Lease to  Sublessor.
Capitalized  terms used herein and not otherwise  defined herein are used herein
with the meanings ascribed to such terms in the Settlement Agreement.

         NOW THEREFORE, in consideration of the premises, and for other good and
valuable  consideration,   the  receipt  and  sufficiency  of  which  is  hereby
acknowledged by the parties hereto,  the parties hereto,  intending to be bound,
hereby agree as follows:

         1. Sublease.  Upon and subject to the terms and conditions  hereinafter
set forth,  Sublessor  subleases to  Sublessee,  and  Sublessee  subleases  from
Sublessor all of Sublessor's right, title and interest in, to, under or relating
to the real property, improvements, fixtures and related rights constituting the
Facility (the "Demised Premises"),  including, without limitation, any leasehold
rights of the  Sublessor  relating to the use or  occupancy  thereto.  Sublessor
represents,  warrants and covenants that Sublessee has and will continue to have
throughout  the term of this  Sublease,  the right to use and occupy the Demised
Premises as the licensed operator of the Facility.
<PAGE>

         2.       Term.

                  (a) The  term of this  Sublease  shall  commence  on the  date
hereof and shall end on the date specified in the Management Agreement.

         3.  Rent;  Limitation  on Other  Obligations.  Sublessee  shall have no
obligation to pay any rent or other amounts under this  Sublease,  and Sublessee
shall have no obligation to perform any obligations in respect of this Sublease;
it being the purpose and intent of the Sublessor  and Sublessee  that all costs,
fees, taxes, impositions,  utility charges, repairs, alterations,  restorations,
charges,  expenses,  reimbursements  and  obligations  of every  kind and manner
whatsoever  relating to the Demised Premises which arise or become due during or
after the term of this Sublease,  shall be paid and discharged by Sublessor. All
financial risk of operating the Facility  during the term of this Sublease shall
be borne entirely by Sublessor,  including without  limitation,  the risk of any
condemnation  or eminent  domain  proceeding or of any fire or other casualty or
damage to or destruction of any or all of the Facility.

         4.  Surrender of  Possession.  At the end of the term of this Sublease,
Sublessee  shall  surrender the Facility to Sublessor.  Upon  termination of the
term of this  Sublease,  Sublessor  shall  immediately  provide an  operator  to
succeed Sublessee as operator who meets all  qualifications to obtain, and shall
have,  all  licenses,   permits,   approvals  and  consents  of  all  applicable
governmental  authorities necessary to operate the Facility so that, among other
things, all residents and patients at the Facility shall, at no cost, expense or
liability to Sublessee,  have  continuous care in accordance with all applicable
laws.  Sublessor  shall indemnify and hold harmless each  Indemnified  Party (as
such term is defined in the Settlement  Agreement)  from and against any and all
Damages (as such term is defined in the Settlement Agreement) arising out of any
breach  of the  foregoing  provision.  The  provisions  of this  Section 4 shall
survive the termination or expiration of the term of this Sublease.

         5. No Subletting or  Assignment.  Sublessee  shall not sublet or assign
any or all of the Facility  without the prior  consent of  Sublessor;  provided,
however,  that the  foregoing  shall not be deemed to  prohibit  Sublessee  from
permitting  patients or residents to occupy the Facility in the ordinary  course
of Sublessee's business.

         6. Appointment of Manager. Sublessor agrees that Sublessee shall engage
Manager to manage the Facility.

         7. Notices.  All notices  required or permitted  hereunder  shall be in
writing and shall be deemed to be properly  given when  personally  delivered to
the party  entitled to receive the notice or on the date of actual  receipt,  if
sent by  certified  or  registered  mail,  postage  prepaid  and return  receipt
requested,  or one  business  day  after  being  sent by  nationally  recognized
overnight courier service,  properly  addressed and postage prepaid to the party
entitled to receive such notice at the address stated below:

If to the Sublessor:
                           ---------------------------------
                           ---------------------------------
                           ---------------------------------
                           Attention:

                                      -2-
<PAGE>

with a copy to:
                           ---------------------------------
                           ---------------------------------
                           ---------------------------------
                           Attention:

If to the Sublessee:       [                               ]
                           c/o Integrated Health Services, Inc.
                           The Highlands,
                           910 Ridgebrook Road,
                           Sparks, Maryland  21152
                           Attention: Daniel J. Booth, Senior Vice President
                                        and Marshall A. Elkins, General Counsel

With a copy to:            Blass & Driggs
                           461 Fifth Avenue, 19th Floor
                           New York, New York  10017
                           Attn:  Andrew S. Bogen, Esq.

         8.       Miscellaneous.

                  (a) All the  terms and  provision  of this  Sublease  shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.  Neither party shall be entitled to assign its
rights or obligations under this Sublease without the prior consent of the other
party hereto.

                  (b) The  headings  in this  Sublease  are for  convenience  of
reference only and shall not limit or otherwise affect the terms hereof.

                  (c)  This  Sublease  shall be  governed  by and  construed  in
accordance with the internal laws of the State in which the Facility is located,
without giving effect to contrary conflicts of law principles.

                  (d) This  Sublease  may be executed in separate  counterparts,
each of which shall be  considered  an  original,  and all of which,  when taken
together, shall constitute one and the same instrument.

                  (e)  This  Sublease  (including  the  Schedules  and  Exhibits
hereto),  and the other  documents  and  instruments  specifically  provided for
herein  and  therein,  contain  the entire  understanding  between  the  parties
concerning  the  subject  matter  hereof and  thereof,  and except as  expressly
provided  for  herein  or  therein,   supersede  all  prior  understandings  and
agreements  whether  oral or written,  between  them with respect to the subject
matter hereof and thereof.

                  (f) Neither  this  Sublease  nor any  provision  hereof may be
changed,  waived,  discharged or  terminated  except by an instrument in writing
signed by Sublessor and Sublessee.

                  (g) Any  rights or  remedies  that any party  hereto  may have
under this  Sublease  with  respect to any matter shall not be deemed to be such
party's  exclusive rights or remedies with respect to such matter arising out of
the  Settlement  Agreement  (or any of the  Transaction

                                      -3-
<PAGE>

Documents  referred  to  therein),  and any party may  exercise  its  rights and
remedies  under  this  Sublease  or  the  Settlement  Agreement  (or  any of the
Transaction Documents referred to therein) concurrently with any such other such
rights or remedies,  or in any order that it determines in its sole and absolute
discretion.

                            [SIGNATURES ON NEXT PAGE]

                                      -4-

<PAGE>

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

Sublessor:                                 Sublessee:

[insert name of applicable                 [insert name of applicable licensee]
Proposed Operator]

  By:                                         By:
     ------------------------                    ------------------------

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

*Note that if the Proposed  Operator will be the owner (as opposed to lessee) of
the  property,  then the  applicable  agreement  will be a Lease  (rather than a
Sublease),  and  the  parties  will  be  defined  as the  "Lessor"  (instead  of
"Sublessor") and "Lessee" (instead of "Sublessee").

                                      -5-
<PAGE>

                                                                    EXHIBIT E-1
                                   SNH Release

         Reference  is made to that  certain  Settlement  Agreement  dated as of
April __, 2000 (the "Settlement Agreement") among, inter alia, Integrated Health
Services, Inc. and the other IHS Entities referred to therein and Senior Housing
Properties  Trust and the other SNH  Entities  referred  to  therein.  The terms
defined in the Settlement  Agreement are used herein as therein defined,  unless
otherwise defined herein.

         Each SNH Entity hereby releases and forever discharges each IHS Entity,
and their  respective  successors,  assigns,  agents,  shareholders,  directors,
officers,   employees,   agents,  attorneys,  parent  corporations,   subsidiary
corporations,  affiliated corporations,  affiliates,  and each of them, from any
and all claims,  debts,  liabilities,  demands,  obligations,  costs,  expenses,
actions  and  causes of  action,  of every  nature  and  description,  known and
unknown, whether or not related to the subject matter of the Existing Documents,
which any SNH Entity now has or at any time may hold,  by reason of any  matter,
cause or thing  occurred,  done,  omitted  or  suffered  to be done prior to the
Effective Time; provided that this release shall not release or otherwise affect
or limit any claims, debts, liabilities,  demands, obligations, costs, expenses,
actions  and causes of action  against (i) any IHS Entity  under the  Settlement
Agreement or any other Settlement Document or (ii) HealthSouth, Horizon or their
respective  affiliates (as such term is defined in Rule 12b-2  promulgated under
the  Securities  Exchange Act of 1934,  as amended).  Each SNH Entity waives the
benefits of any law, which may provide in substance: "A general release does not
extend to claims  which the  creditor  does not know or  suspect to exist in his
favor at the time of  executing  the  release,  which if known by him must  have
materially affected his settlement with the debtor." Each SNH Entity understands
that the facts  which it  believes  to be true at the time of making the release
provided for herein may later turn out to be different than it now believes, and
that  information  which is not now known or suspected may later be  discovered.
Each SNH Entity accepts this  possibility,  and each SNH Entity assumes the risk
of the facts turning out to be different and new information  being  discovered.
Each SNH Entity further agrees that the release provided for herein shall in all
respects  continue  to be  effective  --  and  not  subject  to  termination  or
rescission because of any difference in such facts or any new information.  None
of the SNH  Entities  is  releasing  any IHS  Entity  from  any  claims,  debts,
liabilities,  demands, obligations, costs, expenses, actions or causes of action
except as expressly provided herein or in any other Settlement  Document and the
obligations under the Settlement Documents are specifically  excluded.  Each SNH
Entity  further  acknowledges  that,  from and after the Effective  Time, no IHS
Entity  has any  existing  commitments,  obligations  or  agreements  to advance
credits  or  loans,   or  to  lease   property,   or  make  financial  or  other
accommodations to any SNH Entity, except as may be specifically set forth in the
Settlement Agreement or any other Settlement  Document.  The SNH Entities hereby
represent,  warrant and  covenant,  jointly and  severally,  that the  foregoing
release and  discharge is given on behalf of and shall be  enforceable  against,
each  of  the  SNH  Entities,  their  respective  successors,  assigns,  agents,
shareholders,   directors,   officers,   employees,  agents,  attorneys,  parent
corporations, subsidiary corporations, affiliated corporations, and affiliates.

         THE  DECLARATION  OF TRUST OF EACH OF SNH,  SPTIHS,  HRES1 AND HRES2, A
COPY OF WHICH,  TOGETHER WITH ALL AMENDMENTS THERETO (EACH A "DECLARATION"),  IS
DULY FILED IN THE OFFICE OF THE  DEPARTMENT OF

<PAGE>

ASSESSMENTS  AND  TAXATION  OF THE  STATE OF  MARYLAND,  PROVIDES  THAT THE NAME
"SENIOR HOUSING  PROPERTIES TRUST," "SPTIHS PROPERTIES TRUST," "HRES1 PROPERTIES
TRUST" AND "HRES2 PROPERTIES  TRUST," AS THE CASE MAY BE, REFERS TO THE TRUSTEES
UNDER EACH SUCH  DECLARATION  COLLECTIVELY AS TRUSTEES,  BUT NOT INDIVIDUALLY OR
PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF SNH,
SPTIHS,  HRES1  OR  HRES2,  AS THE CASE  MAY BE,  SHALL BE HELD TO ANY  PERSONAL
LIABILITY,  JOINTLY OR SEVERALLY,  FOR ANY OBLIGATION OF, OR CLAIM AGAINST, SNH,
SPTIHS,  HRES1 OR HRES2. ALL PERSONS DEALING WITH SNH, SPTIHS, HRES1 OR HRES2 IN
ANY  WAY,  SHALL  LOOK  ONLY TO THE  ASSETS  OF SNH,  SPTIHS,  HRES1  OR  HRES2,
RESPECTIVELY, FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

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

                                      -2-

<PAGE>

         IN WITNESS WHEREOF, each of the undersigned have caused this Release to
be executed under seal by their duly authorized  officers as of ________________
2000.

                     SENIOR HOUSING PROPERTIES TRUST, a Maryland
                     real estate investment trust

                     By:
                              Its:

                     SPTIHS PROPERTIES TRUST, a Maryland real estate
                     investment trust

                     By:
                              Its:

                     HRES1 PROPERTIES TRUST, a Maryland real estate
                     investment trust

                     By:
                              Its:

                     HRES2 PROPERTIES TRUST, a Maryland real estate
                     investment trust

                     By:
                              Its:

                                      -3-
<PAGE>

                     SHOPCO-COLORADO, LLC
                     SHOPCO-CT, LLC
                     SHOPCO-GA, LLC
                     SHOPCO-IA, LLC
                     SHOPCO-KS, LLC
                     SHOPCO-MA, LLC
                     SHOPCO-MI, LLC
                     SHOPCO-MO, LLC
                     SHOPCO-NE, LLC
                     SHOPCO-WY, LLC, each a Delaware limited liability company

                     By:
                              Its:

                     SNH-NEBRASKA, INC.
                     SNH-IOWA, INC.
                     SNH-MASSACHUSETTS, INC. and
                     SNH-MICHIGAN, INC., each a Delaware corporation

                     By:
                              Its:

                     ADVISORS HEALTHCARE GROUP, INC., a Delaware
                     corporation

                     By:
                              Its:

                     FIVE STAR QUALITY CARE, INC., a Delaware
                     corporation

                     By:
                              Its:

                                      -4-

<PAGE>
                                                                     EXHIBIT E-2

                                   IHS Release

         Reference  is made to that  certain  Settlement  Agreement  dated as of
April __, 2000 (the "Settlement Agreement") among, inter alia, Integrated Health
Services, Inc. and the other IHS Entities referred to therein and Senior Housing
Properties  Trust and the other SNH  Entities  referred  to  therein.  The terms
defined in the Settlement  Agreement are used herein as therein defined,  unless
otherwise defined herein.

         Each IHS Entity hereby releases and forever discharges each SNH Entity,
and their  respective  successors,  assigns,  agents,  shareholders,  directors,
officers,   employees,   agents,  attorneys,  parent  corporations,   subsidiary
corporations,  affiliated corporations,  affiliates,  and each of them, from any
and all claims,  debts,  liabilities,  demands,  obligations,  costs,  expenses,
actions  and  causes of  action,  of every  nature  and  description,  known and
unknown, whether or not related to the subject matter of the Existing Documents,
which any IHS Entity now has or at any time may hold,  by reason of any  matter,
cause or thing occurred, done, omitted or suffered to be done on or prior to the
Effective Time; provided that this release shall not release or otherwise affect
or limit any claims, debts, liabilities,  demands, obligations, costs, expenses,
actions  and  causes of  action  against  any SNH  Entity  under the  Settlement
Agreement or any other Settlement Document.  Each IHS Entity waives the benefits
of any law, which may provide in substance:  "A general  release does not extend
to claims which the  creditor  does not know or suspect to exist in his favor at
the time of executing  the release,  which if known by him must have  materially
affected his settlement with the debtor." Each IHS Entity  understands  that the
facts which it  believes  to be true at the time of making the release  provided
for herein may later turn out to be  different  than it now  believes,  and that
information  which is not now known or suspected may later be  discovered.  Each
IHS Entity accepts this possibility, and each IHS Entity assumes the risk of the
facts turning out to be different and new information being discovered. Each IHS
Entity further agrees that the release provided for herein shall in all respects
continue to be effective -- and not subject to termination or rescission because
of any difference in such facts or any new information. None of the IHS Entities
is  releasing  any SNH Entity  from any  claims,  debts,  liabilities,  demands,
obligations,  costs,  expenses,  actions or causes of action except as expressly
provided herein or in any other Settlement  Document,  and the obligations under
the Settlement Documents are specifically  excluded from this release.  Each IHS
Entity  further  acknowledges  that,  from and after the Effective  Time, no SNH
Entity  has any  existing  commitments,  obligations  or  agreements  to advance
credits  or  loans,   or  to  lease   property,   or  make  financial  or  other
accommodations to any IHS Entity, except as may be specifically set forth in the
Settlement Agreement or the other Settlement Documents.  The IHS Entities hereby
represent,  warrant and  covenant,  jointly and  severally,  that the  foregoing
release and  discharge  is given on behalf of and shall be  enforceable  against
each IHS Entity, their respective  successors,  assigns,  agents,  shareholders,
directors,   officers,   employees,   agents,  attorneys,  parent  corporations,
subsidiary corporations, affiliated corporations, and affiliates.

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

<PAGE>

         IN WITNESS WHEREOF, each of the undersigned have caused this Release to
be executed under seal by their duly authorized  officers as of ________________
2000.

                      INTEGRATED HEALTH SERVICES, INC.

                      By:
                               Its:

                      COMMUNITY CARE OF AMERICA, INC.
                      ECA HOLDINGS, INC.
                      COMMUNITY CARE OF NEBRASKA, INC.
                      W.S.T. CARE, INC.
                      QUALITY CARE OF LYONS, INC.
                      CCA ACQUISITION I, INC.
                      MARIETTA/SCC, INC.
                      GLENWOOD/SCC, INC.
                      DUBLIN/SCC, INC.
                      COLLEGE PARK/SCC, INC.
                      IHS ACQUISITION NO. 108, INC.
                      IHS ACQUISITION NO. 112, INC.
                      IHS ACQUISITION NO. 113, INC.
                      IHS ACQUISITION NO. 135, INC.
                      IHS ACQUISITION NO. 148, INC.
                      IHS ACQUISITION NO. 152, INC.
                      IHS ACQUISITION NO. 153, INC.
                      IHS ACQUISITION NO. 154, INC.
                      IHS ACQUISITION NO. 155, INC.
                      IHS ACQUISITION NO. 175, INC.
                      INTEGRATED HEALTH SERVICES AT  GRANDVIEW CARE CENTER, INC.
                      ECA PROPERTIES, INC.
                      CCA OF MIDWEST, INC.
                      QUALITY CARE OF COLUMBUS, INC.

                      By:
                               Its:

<PAGE>
                                   EXHIBIT F

                          ASSIGNMENT AND ASSUMPTION OF
                              REAL PROPERTY LEASE

                                   [Omitted.]

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