Document:

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                                                                    Exhibit 10.5

                                                               [Tucson, Arizona]
                                                              [Denver, Colorado]
                                                             [Seminole, Florida]
                                                      [Sun City Center, Florida]
                                                           [Lexington, Kentucky]
                                                             [Holland, Michigan]
                                                      [Brandywine, Pennsylvania]
                                                                 [Austin, Texas]
                                                              [Ft. Worth, Texas]

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                              M A S T E R  L E A S E

                                     between

                     Fort Austin Real Estate Holdings, LLC;
                  ARC Santa Catalina Real Estate Holdings, LLC;
                  ARC Richmond Place Real Estate Holdings, LLC;
                     ARC Holland Real Estate Holdings, LLC;
                 ARC Sun City Center Real Estate Holdings, LLC;
             ARC Lake Seminole Square Real Estate Holdings, LLC; and
                    ARC Brandywine Real Estate Holdings, LLC

             collectively, as their interests may appear, as Lessor

                                       AND

                        Fort Austin Limited Partnership;
                            ARC Santa Catalina, Inc.;
                            ARC Richmond Place, Inc.;
                      Freedom Village of Holland, Michigan;
                    Freedom Village of Sun City Center, Ltd.;
                 Lake Seminole Square Management Company, Inc.;
                  Freedom Group-Lake Seminole Square, Inc.; and
                               ARC Brandywine, LLC

                collectively and jointly and severally, as Lessee

                         Dated as of September 30, 2002

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<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<S>          <C>                                                                                                  <C>
ARTICLE I.......................................................................................................  1
      1.1    Leased Property; Term..............................................................................  1

ARTICLE II......................................................................................................  2
             2.1    Definitions.................................................................................  2

ARTICLE III.....................................................................................................  5
      3.1    Rent...............................................................................................  5
      3.2    Quarterly Calculation and Payment of Additional Rent; Annual Reconciliation........................  5
      3.3    Confirmation of Allocated Additional Rent..........................................................  5
      3.4    Additional Charges.................................................................................  5
      3.5    Late Payment of Rent...............................................................................  5
      3.6    Net Lease..........................................................................................  5
      3.7    Separate Account...................................................................................  5

ARTICLE IV......................................................................................................  5
      4.1    Impositions........................................................................................  5
      4.2    Utility Charges....................................................................................  5
      4.3    Insurance Premiums.................................................................................  5
      4.4    Impound Account....................................................................................  5
      4.5    Tax Service........................................................................................  5

ARTICLE V.......................................................................................................  5
      5.1    No Termination, Abatement, etc.....................................................................  5
      5.2    Termination with Respect to Fewer than All of the Facilities.......................................  5

ARTICLE VI......................................................................................................  5
      6.1    Ownership of the Leased Property...................................................................  5
      6.2    Personal Property..................................................................................  5
      6.3    Transfer of Personal Property and Capital Additions to Lessor......................................  5

ARTICLE VII.....................................................................................................  5
      7.1    Condition of the Leased Property...................................................................  5
      7.2    Use of the Leased Property.........................................................................  5
      7.3    Lessor to Grant Easements, etc.....................................................................  5
      7.4    Preservation of Facility Value.....................................................................  5

ARTICLE VIII....................................................................................................  5
      8.1    Compliance with Legal and Insurance Requirements, Instruments, etc.................................  5

ARTICLE IX......................................................................................................  5
      9.1    Maintenance and Repair.............................................................................  5
      9.2    Encroachments, Restrictions, Mineral Leases, etc...................................................  5

ARTICLE X.......................................................................................................  5
      10.1   Construction of Capital Additions and Other Alterations to the Leased Property.....................  5
      10.2   Construction Requirements for all Alterations......................................................  5
</TABLE>

                                       i

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<TABLE>
<S>          <C>                                                                                                  <C>
ARTICLE XI......................................................................................................  5
      11.1   Liens..............................................................................................  5

ARTICLE XII.....................................................................................................  5
      12.1   Permitted Contests.................................................................................  5

ARTICLE XIII....................................................................................................  5
      13.1   General Insurance Requirements.....................................................................  5
      13.2   Replacement Cost...................................................................................  5
      13.3   Additional Insurance...............................................................................  5
      13.4   Waiver of Subrogation..............................................................................  5
      13.5   Policy Requirements................................................................................  5
      13.6   Increase in Limits.................................................................................  5
      13.7   Blanket Policies and Policies Covering Multiple Locations..........................................  5
      13.8   No Separate Insurance..............................................................................  5

ARTICLE XIV.....................................................................................................  5
      14.1   Insurance Proceeds.................................................................................  5
      14.2   Insured Casualty...................................................................................  5
      14.3   Uninsured Casualty.................................................................................  5
      14.4   No Abatement of Rent...............................................................................  5
      14.5   Waiver.............................................................................................  5

ARTICLE XV......................................................................................................  5
      15.1   Condemnation.......................................................................................  5

ARTICLE XVI.....................................................................................................  5
      16.1   Events of Default..................................................................................  5
      16.2   Certain Remedies...................................................................................  5
      16.3   Damages............................................................................................  5
      16.4   Receiver...........................................................................................  5
      16.5   Lessee's Obligation to Purchase....................................................................  5
      16.6   Waiver.............................................................................................  5
      16.7   Application of Funds...............................................................................  5
      16.8   Facility Operating Deficiencies....................................................................  5
      16.9   [Intentionally Omitted]............................................................................  5
      16.10  Lessor's Security Interest.........................................................................  5

ARTICLE XVII....................................................................................................  5
      17.1   Lessor's Right to Cure Lessee's Default............................................................  5

ARTICLE XVIII...................................................................................................  5
      18.1   Purchase of the Leased Property....................................................................  5

ARTICLE XIX.....................................................................................................  5
      19.1   Renewal Terms......................................................................................  5
      19.2   Lessor's Rights of Renewal and Early Termination...................................................  5

ARTICLE XX......................................................................................................  5
      20.1   Holding Over.......................................................................................  5
</TABLE>

                                       ii

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<TABLE>
<S>          <C>                                                                                                  <C>
ARTICLE XXI.....................................................................................................  5
      21.1   Letters of Credit..................................................................................  5
      21.2   Times for Obtaining Letters of Credit..............................................................  5
      21.3   Uses of Letters of Credit..........................................................................  5
      21.4   Reduction in Letter of Credit Amount...............................................................  5
      21.5   Treatment of Funds Drawn Under Letters of Credit...................................................  5

ARTICLE XXII....................................................................................................  5
      22.1   Risk of Loss.......................................................................................  5

ARTICLE XXIII...................................................................................................  5
      23.1   General Indemnification............................................................................  5

ARTICLE XXIV....................................................................................................  5
      24.1   Transfers..........................................................................................  5

ARTICLE XXV.....................................................................................................  5
      25.1   Officer's Certificates and Financial Statements....................................................  5

ARTICLE XXVI....................................................................................................  5
      26.1   Lessor's Right to Inspect and Show the Leased Property and Capital Additions.......................  5

ARTICLE XXVII...................................................................................................  5
      27.1   No Waiver..........................................................................................  5

ARTICLE XXVIII..................................................................................................  5
      28.1   Remedies Cumulative................................................................................  5

ARTICLE XXIX....................................................................................................  5
      29.1   Acceptance of Surrender............................................................................  5

ARTICLE XXX.....................................................................................................  5
      30.1   No Merger..........................................................................................  5

ARTICLE XXXI....................................................................................................  5
      31.1   Conveyance by Lessor...............................................................................  5
      31.2   New Lease..........................................................................................  5

ARTICLE XXXII...................................................................................................  5
      32.1   Quiet Enjoyment....................................................................................  5

ARTICLE XXXIII..................................................................................................  5
      33.1   Notices............................................................................................  5

ARTICLE XXXIV...................................................................................................  5
      34.1   Appraiser..........................................................................................  5

ARTICLE XXXV....................................................................................................  5
      35.1   [Intentionally Omitted]............................................................................  5

ARTICLE XXXVI...................................................................................................  5
      36.1   Lessor May Grant Liens.............................................................................  5
      36.2   Attornment.........................................................................................  5
</TABLE>

                                      iii

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<TABLE>
<S>          <C>                                                                                                  <C>
ARTICLE XXXVII..................................................................................................  5
      37.1   Hazardous Substances...............................................................................  5
      37.2   Notices............................................................................................  5
      37.3   Remediation........................................................................................  5
      37.4   Indemnity..........................................................................................  5
      37.5   Environmental Inspection...........................................................................  5

ARTICLE XXXVIII.................................................................................................  5
      38.1   Memorandum of Lease................................................................................  5

ARTICLE XXXIX...................................................................................................  5
      39.1   Sale of Assets.....................................................................................  5

ARTICLE XL......................................................................................................  5
      40.1   [Intentionally Omitted]............................................................................  5

ARTICLE XLI.....................................................................................................  5
      41.1   Authority..........................................................................................  5

ARTICLE XLII....................................................................................................  5
      42.1   Attorneys' Fees....................................................................................  5

ARTICLE XLIII...................................................................................................  5
      43.1   Brokers............................................................................................  5

ARTICLE XLIV....................................................................................................  5
      44.1   Submission to Arbitration..........................................................................  5

ARTICLE XLV.....................................................................................................  5
      45.1   Miscellaneous......................................................................................  5

ARTICLE XLVI....................................................................................................  5
      46.1   Provisions Relating to Master Lease................................................................  5
      46.2   Provisions Relating to Tax Treatment of Lease......................................................  5

ARTICLE XLVII...................................................................................................  5
      47.1   Covenants with Respect to Operations and Fundamental Changes of Lessee.............................  5
</TABLE>

                                       iv

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Exhibit A-1   Legal Description of the Tucson Facility
Exhibit A-2   Legal Description of the Denver Facility
Exhibit A-3   Legal Description of the Seminole Facility
Exhibit A-4   Legal Description of the Sun City Facility
Exhibit A-5   Legal Description of the Lexington Facility
Exhibit A-6   Legal Description of the Holland Facility
Exhibit A-7   Legal Description of the Brandywine Facility
Exhibit A-8   Legal Description of the Austin Facility
Exhibit A-9   Legal Description of the Ft. Worth Facility
Exhibit B     List of Facilities, Facility Description and Primary Intended
              Use, Initial Monthly Allocated Minimum Rent, and Allocated
              Value
Exhibit C     List of Lessor's Personal Property
Exhibit D     Form of Letter of Credit
Exhibit E     Schedule of Insurance Deductible Limits
Exhibit F     List of Existing Facilities Within Ten Mile Radius
Exhibit G     Base Gross Revenues for each Facility
Exhibit H     List of Existing Facility Mortgagees and Lessors for each
              Facility
Exhibit I     Intentionally Omitted
Exhibit J     Intentionally Omitted
Exhibit K     Notice Addresses for Lessee and Lessor
Exhibit L     Example of Cost of Funds Calculation
Exhibit M     Commercial Occupancy Arrangements
Exhibit N     List of Permitted Management Agreements
Exhibit O     List of Master Trust Documents

Addendum

                                       v

<PAGE>

                                  MASTER LEASE

         THIS MASTER LEASE ("Lease") is dated as of September __, 2002, and is
between Fort Austin Real Estate Holdings, LLC, a Delaware limited liability
company; ARC Santa Catalina Real Estate Holdings, LLC, a Delaware limited
liability company; ARC Richmond Place Real Estate Holdings, LLC, a Delaware
limited liability company; ARC Holland Real Estate Holdings, LLC, a Delaware
limited liability company; ARC Sun City Center Real Estate Holdings, LLC, a
Delaware limited liability company; ARC Lake Seminole Square Real Estate
Holdings, LLC, a Delaware limited liability company; and ARC Brandywine Real
Estate Holdings, LLC, a Delaware limited liability company (collectively, as
their interests may appear, "Lessor"), on the one hand, and Fort Austin Limited
Partnership, a Texas limited partnership; ARC Santa Catalina, Inc., a Tennessee
corporation; ARC Richmond Place, Inc., a Delaware corporation; Freedom Village
of Holland, Michigan, a Michigan general partnership; Freedom Village of Sun
City Center, Ltd., a Florida limited partnership; Lake Seminole Square
Management Company, Inc., a Tennessee corporation; Freedom Group-Lake Seminole
Square, Inc., a Tennessee corporation; and ARC Brandywine, LLC, a Tennessee
limited liability company (collectively and jointly and severally, "Lessee"), on
the other hand.

                                   ARTICLE I.

         1.1      Leased Property; Term.

                  Upon and subject to the terms and conditions hereinafter set
forth, Lessor leases to Lessee and Lessee leases from Lessor all of Lessor's
rights and interests in and to the following (collectively the "Leased
Property"):

                  (a)      the real property or properties described in
Exhibits A-1 through A-10 attached hereto (collectively, the "Land");

                  (b)      all buildings, structures, Fixtures (as hereinafter
defined) and other improvements of every kind now or hereafter located on the
Land, including alleyways and connecting tunnels, sidewalks, utility pipes,
conduits and lines (on-site and off-site to the extent Lessor has obtained any
interest in the same), parking areas and roadways appurtenant to such buildings
and structures and Capital Additions funded by Lessor (collectively, the "Leased
Improvements");

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

                  (d)      all equipment, machinery, fixtures, and other items
of real and/or personal property, including all components thereof, now and
hereafter located in, on or used in connection with and permanently affixed to
or incorporated into the Leased Improvements, including all furnaces, boilers,
heaters, electrical equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control, waste disposal,
air-cooling and air-conditioning systems, apparatus, sprinkler systems, fire and
theft protection equipment, and built-in oxygen and vacuum systems (if any), all
of which, to the greatest extent permitted by law, are hereby deemed to
constitute real estate, together with all replacements, modifications,
alterations and additions thereto (collectively, the "Fixtures"); and

<PAGE>

                  (e)      the machinery, equipment, furniture and other
personal property described on Exhibit C attached hereto, together with all
replacements, modifications, alterations and substitutes therefor (whether or
not constituting an upgrade) (collectively, "Lessor's Personal Property").

         SUBJECT, HOWEVER, to the easements, encumbrances, covenants, conditions
and restrictions and other matters which affect the Leased Property as of the
date hereof or the Commencement Date or which are created thereafter as
permitted hereunder to have and to hold for (1) the Fixed Term (as defined
below), and (2) the Extended Terms provided for in Article XIX unless this Lease
is earlier terminated as hereinafter provided. Upon any change in the Minimum
Rent in accordance with the provisions of Section 3.1 below or otherwise
pursuant to this Lease, Landlord may prepare and request, and Tenant shall
execute an amendment to this Lease confirming such matters.

                                  ARTICLE II.

         2.1      Definitions. For all purposes of this Lease, except as
otherwise expressly provided or unless the context otherwise requires, (i) the
terms defined in this Article have the meanings assigned to them in this Article
and include the plural as well as the singular; (ii) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
GAAP as at the time applicable; (iii) all references in this Lease to designated
"Articles," "Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of this Lease; (iv) the word "including" shall
have the same meaning as the phrase "including, without limitation," and other
similar phrases; and (v) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Lease as a whole and not to any particular
Article, Section or other subdivision:

         Addendum: The Addendum attached to this Lease, which is incorporated
herein by reference.

         Additional Charges: As defined in Article III.

         Additional Rent: The sum of all Allocated Additional Rent for all
Facilities payable under this Lease.

         Adjusted CPI Increase: The percentage increase (rounded to the nearest
basis point), if any, in (i) the Cost of Living Index published for the month
which is two (2) months prior to the commencement of the applicable Lease Year,
over (ii) the Cost of Living Index published for the month which is two (2)
months prior to the commencement of the immediately prior Lease Year; provided,
however, that in no event shall the Adjusted CPI Increase for any Lease Year be
less than two percent (2%) or more than four percent (4%).

         Affiliate: Any Person which, directly or indirectly (including through
one or more intermediaries), controls or is controlled by or is under common
control with any other Person, including any Subsidiary of a Person. For
purposes of this definition, the definition of "Controlling Person" below, and
Article XXIV below, the term "control" (including the correlative meanings of
the terms "controlled by" and "under common control with"), as used with respect
to any Person, shall mean the possession, directly or indirectly (including
through

                                       2

<PAGE>

one or more intermediaries), of the power to direct or cause the direction of
the management and policies of such Person, through the ownership or control of
voting securities, partnership interests or other equity interests or otherwise.
Without limiting the generality of the foregoing, when used with respect to any
corporation, the term "Affiliate" shall also include (i) any Person which owns,
directly or indirectly (including through one or more intermediaries), Fifty
Percent (50%) or more of any class of voting security or equity interests of
such corporation, (ii) any Subsidiary of such corporation and (iii) any
Subsidiary of a Person described in clause (i). Notwithstanding the foregoing,
ARC shall not be deemed to have "control" of another non-publicly traded Person,
unless ARC possesses, directly or indirectly (including through one or more
intermediaries), (1) at least thirty percent (30%) of the ownership or control
of voting securities, partnership interests or other equity interests or
otherwise of such Person, and (2) the power to direct or cause the direction of
the management and policies of such Person; provided, however, that ARC shall at
all times be deemed to "control" (w) any limited partnership in which ARC or any
other Affiliate of ARC is the general partner, (x) any limited liability company
in which ARC or any other Affiliate of ARC is the managing member or has the
ability to elect or appoint a majority the board of managers, (y) any business
trust for which ARC or any other Affiliate of ARC is the trustee, and (z) any
corporation in which ARC or any other Affiliate of ARC has the ability to elect
or appoint a majority of the board of directors, in each case regardless of the
percentage of ownership of such entity.

         Allocated Additional Rent: With respect to each Facility, the amount of
Additional Rent payable under this Lease attributable to such Facility.

         Allocated Base Minimum Rent: With respect to each Facility, an amount
equal to the initial monthly Allocated Minimum Rent set forth on Exhibit B
attached hereto that relates to such Facility, without regard to any future
increase in such Allocated Minimum Rent as provided herein.

         Allocated Minimum Rent: The amount of Minimum Rent allocated to such
Facility as determined by Section 3.1.1 and Exhibit B attached hereto, as
increased, from time to time, pursuant to Section 3.1.2 and 3.1.3.

         Allocated Value: With respect to each Facility, the "Allocated Value"
related to such Facility as set forth on Exhibit B attached hereto.

         Applicable Percentage: The following percentages for the applicable
Lease Years:

             Second (2nd) Lease Year:  20%
             Third (3rd) Lease Year:   25%
             Fourth (4th) Lease Year:  30%
             Fifth (5th) Lease Year:   35%

         Appraiser: As defined in Article XXXIV.

         ARC: American Retirement Corporation, a Tennessee corporation, and its
permitted successors.

                                       3

<PAGE>

         ARCPI: ARCPI Holdings, Inc., a Delaware corporation, successor by
merger to ARCPI Holdings, Inc., a Tennessee corporation.

         Award: All compensation, sums or anything of value awarded, paid or
received on a total or partial Condemnation.

         Bankruptcy Code: The United Stated Bankruptcy Code (11 U.S.C. [sec] 101
et seq.), and any successor statute or legislation thereto.

         Base Gross Revenues: Base Gross Revenues for each Facility for each
Lease Year shall be as set forth on Exhibit G attached hereto. Base Gross
Revenues for each Facility for any partial Lease Year shall be determined by
multiplying the applicable Base Gross Revenues for such Facility for a full
Lease Year by a fraction, the numerator of which is the number of days in the
partial Lease Year and the denominator of which is 365.

         Base Period: The period commencing on that date which is fifteen (15)
months prior to the date any appraisal of any Facility is made pursuant to the
provisions of Article XXXIV and ending on the date which is three (3) months
prior to the date any such appraisal of such Facility is made.

         BLS: Bureau of Labor Statistics, U.S. Department of Labor.

         Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which national banks in the City of New York, New York are
authorized, or obligated, by law or executive order, to close.

         Capital Additions: With respect to any Facility, one or more new
buildings, or one or more additional structures annexed to any portion of any of
the Leased Improvements of such Facility, or the material expansion of existing
improvements, which are constructed on any parcel or portion of the Land of such
Facility during the Term including the construction of a new wing or new story,
or the repair, replacement, restoration, remodeling or rebuilding of the
existing Leased Improvements of such Facility or any portion thereof where the
purpose and effect of such work is to provide a functionally new facility in
order to provide services not previously offered in such Facility.

         Capital Addition Costs: The costs of any Capital Addition made to the
Leased Property whether paid for by Lessee or Lessor, including (i) all permit
fees and other costs imposed by any governmental authority, the cost of site
preparation, the cost of construction including materials and labor, the cost of
supervision and related design, engineering and architectural services, the cost
of any fixtures, and if and to the extent approved by Lessor, the cost of
construction financing; (ii) fees paid to obtain necessary licenses and
certificates; (iii) if and to the extent approved by Lessor in writing and 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; (iv) the cost of insurance, real estate taxes, water and sewage
charges and other carrying charges for such Capital Addition during
construction; (v) the cost of title insurance; (vi) reasonable fees and expenses
of legal counsel; (vii) filing, registration and recording taxes and fees;
(viii)

                                       4

<PAGE>

documentary stamp and similar taxes; and (ix) all reasonable costs and expenses
of Lessor and any Person which has committed to finance the Capital Addition,
including (a) the reasonable fees and expenses of their respective legal
counsel; (b) printing expenses; (c) filing, registration and recording taxes and
fees; (d) documentary stamp and similar taxes; (e) title insurance charges and
appraisal fees; (f) rating agency fees; and (g) commitment fees charged by any
Person advancing or offering to advance any portion of the financing for such
Capital Addition.

         Code: The Internal Revenue Code of 1986, as amended.

         Collateral: As defined in Section 16.10.1.

         Commencement Date: The date hereof, which date is the same as the
Funding Date.

         Commercial Occupancy Arrangement: Any commercial (as opposed to
resident or patient) Occupancy Arrangement.

         Common Stock: HCPI's Common Stock, par value $1.00 per share, as listed
and currently traded on the New York Stock Exchange.

         Condemnation: The exercise of any governmental power, whether by legal
proceedings or otherwise, by a Condemnor or a voluntary sale or transfer by
Lessor to any Condemnor, either under threat of condemnation or while legal
proceedings for condemnation are pending.

         Condemnor: Any public or quasi-public authority, or private corporation
or individual, having the power of Condemnation.

         Consolidated Financials: For any fiscal year or other accounting period
for any Person and its consolidated Subsidiaries, statements of earnings and
retained earnings and of changes in financial position for such period and for
the period from the beginning of the respective fiscal year to the end of such
period and the related balance sheet as of the end of such period, together with
the notes thereto, all in reasonable detail and setting forth in comparative
form the corresponding figures for the corresponding period in the preceding
fiscal year, and prepared in accordance with GAAP.

         Consolidated Net Worth: At any time, the sum of the following for any
Person and its consolidated Subsidiaries, on a consolidated basis determined in
accordance with GAAP:

                  (i)      the amount of capital or stated capital (after
         deducting the cost of any shares, if applicable, held in its treasury),
         plus

                  (ii)     the amount of capital surplus and retained earnings
         (or, in the case of a capital surplus or retained earnings deficit,
         minus the amount of such deficit), minus

                  (iii)    the sum of the following (without duplication of
         deductions in respect of items already deducted in arriving at surplus
         and retained earnings): (a) unamortized debt discount and expense; and
         (b) any write-up in book value of assets

                                       5

<PAGE>

         resulting from a revaluation thereof subsequent to the most recent
         Consolidated Financials prior to the date hereof, excluding, however,
         any (i) net write-up in value of foreign currency in accordance with
         GAAP, (ii) write-up resulting from a reversal of a reserve for bad
         debts or depreciation, and (iii) write-up resulting from a change in
         methods of accounting for inventory.

         Controlling Person: Any (i) Person(s) which, directly or indirectly
(including through one or more intermediaries), controls Lessee and would be
deemed an Affiliate of Lessee, including any partners, shareholders, principals,
members, trustees and/or beneficiaries of any such Person(s) to the extent the
same control Lessee and would be deemed an Affiliate of Lessee, and (ii)
Person(s) which controls, directly or indirectly (including through one or more
intermediaries), any other Controlling Person(s) and which would be deemed an
Affiliate of any such Controlling Person(s).

         Cost of Funds: HCPI's cost of funds, which shall be equal to fifty
percent (50%) of the sum of (a) the average of the Daily Dividend Yield for the
ten (10) Business Day period immediately preceding and including the Date of
Determination, plus (b) the Ten Year Borrowing Cost as of the Date of
Determination. By way of example only, an illustration of the calculations
determining "Cost of Funds" is set forth in Exhibit L attached hereto.

         Cost of Living Index: The Consumer Price Index for All Urban Consumers,
U.S. City Average (1982-1984 = 100), published by the BLS, or such other renamed
index. If the BLS changes the publication frequency of the Cost of Living Index
so that a Cost of Living Index is not available to make a cost-of-living
adjustment as specified herein, the cost-of-living adjustment shall be based on
the percentage difference between the Cost of Living Index for the closest
preceding month for which a Cost of Living Index is available and the Cost of
Living Index for the comparison month as required by this Lease. If the BLS
changes the base reference period for the Cost of Living Index from 1982-84 =
100, the cost-of-living adjustment shall be determined with the use of such
conversion formula or table as may be published by the BLS. If the BLS otherwise
substantially revises, or ceases publication of the Cost of Living Index, then a
substitute index for determining cost-of-living adjustments, issued by the BLS
or by a reliable governmental or other nonpartisan publication, shall be
reasonably selected by Lessor.

         Daily Dividend Yield: As of any Business Day, the Daily Dividend Yield
shall be equal to the quotient of (a) the product of (i) four (4), times (ii)
the dividend per share of Common Stock most recently declared by the Board of
Directors of HCPI, divided by (b) the closing share price of the Common Stock as
reported by the New York Stock Exchange for such Business Day, carried out to
four decimal places.

         Date of Determination: The date on which any Prepayment Premium is paid
to any Facility Mortgagee.

         Date of Taking: The date the Condemnor has the right to possession of
the property being condemned.

         Encumbrance: As defined in Section 36.1.

         Environmental Costs: As defined in Article XXXVII.

                                       6

<PAGE>

         Environmental Laws: Environmental Laws shall mean any and all federal,
state, municipal and local laws, statutes, ordinances, rules, regulations,
guidances, policies, orders, decrees, judgments, whether statutory or common
law, as amended from time to time, now or hereafter in effect, or promulgated,
pertaining to the environment, public health and safety and industrial hygiene,
including the use, generation, manufacture, production, storage, release,
discharge, disposal, handling, treatment, removal, decontamination, clean-up,
transportation or regulation of any Hazardous Substance, including the Clean Air
Act, the Clean Water Act, the Toxic Substances Control Act, the Comprehensive
Environmental Response Compensation and Liability Act, the Resource Conservation
and Recovery Act, the Federal Insecticide, Fungicide, and Rodenticide Act, the
Safe Drinking Water Act and the Occupational Safety and Health Act.

         Event of Default: As defined in Article XVI.

         Extended Term(s): As defined in Article XIX.

         Facility: Each facility being (and to be) operated or proposed to be
operated on the Leased Property, together with any Capital Additions, as
described on Exhibit B attached hereto and incorporated herein by this reference
(collectively, the "Facilities"). Each Facility is also individually referred to
herein by the name set forth on Exhibit B attached hereto and incorporated
herein by this reference.

         Facility Mortgage: As defined in Article XIII.

         Facility Mortgagee: As defined in Article XIII; provided, however, that
with respect to any matter relating to a particular Facility (including any
matter in which the consent or approval of a Facility Mortgagee is required in
connection with any such matter relating to a particular Facility), as used
herein, "Facility Mortgagee" shall mean only the Facility Mortgagee for such
Facility. As of the Commencement Date, the "Facility Mortgagee" for each
Facility shall be as set forth on Exhibit H attached hereto.

         Facility Operating Deficiency: With respect to any Facility, (i) a
deficiency in the conduct of the operation of such Facility which results in the
imposition of a stop placement order or a notice of the proposed decertification
of such Facility from participation in Medicare, Medicaid or other governmental
reimbursement programs or of the non-renewal or termination of such Facility's
Medicare, Medicaid or other governmental reimbursement provider agreement, or
(ii) receipt of any notice from any governmental agency terminating or
suspending or reflecting a material risk of imminent termination or suspension,
of any material license or certification relating to any Facility.

         Fair Market Rental: With respect to each Facility, the fair market
rental value of the Leased Property and all Capital Additions of such Facility,
or applicable portion(s) thereof, (including any appropriate periodic
escalations therein) determined in accordance with the appraisal procedures set
forth in Article XXXIV, assuming the same is exposed on the open market at the
time of the appraisal and taking into account, among other relevant factors, the
income generated from the Leased Property and all Capital Additions of such
Facility, or applicable portion(s) thereof, but specifically excluding brokerage
commissions and other Lessor payments that do not directly inure to the benefit
of lessees.

                                       7

<PAGE>

         Fair Market Value: With respect to each Facility, the fair market value
of the Leased Property and all Capital Additions of such Facility, or applicable
portion(s) thereof, determined in accordance with the appraisal procedures set
forth in Article XXXIV and this definition. Fair Market Value shall be obtained
by assuming that the Leased Property and all Capital Additions of such Facility,
or applicable portion(s) thereof, is unencumbered by this Lease. Fair Market
Value shall also be the higher value obtained by valuing the Leased Property and
all Capital Additions of such Facility, or applicable portion(s) thereof, for
their highest and best use or as a fully-permitted Facility operated in
accordance with the provisions of this Lease. In addition, the following
specific matters shall be factored in or out, as appropriate, in determining
Fair Market Value:

                  (i)      The negative value of (a) any deferred maintenance or
         other items of repair or replacement of the Leased Property or any
         Capital Additions of such Facility, (b) any then current or prior
         licensure or certification violations and/or admissions holds and (c)
         any other breach or failure of Lessee to perform or observe its
         obligations hereunder shall not be taken into account; rather, the
         Leased Property and all Capital Additions of such Facility shall be
         deemed to be in the condition required by this Lease (i.e., reasonably
         good order and repair) and Lessee shall at all times be deemed to have
         operated the Facility in compliance with and to have performed all
         obligations of the Lessee under this Lease.

                  (ii)     The occupancy level of the applicable Facility shall
         be deemed to be the greatest of (a) the occupancy level as of the date
         any appraisal of such Facility is performed in accordance with the
         provisions of Article XXXIV, (b) the average occupancy level during the
         Base Period (unless such average occupancy level during the Base Period
         is higher than the average occupancy level as of the time such
         appraisal is performed, and such discrepancy in average occupancy level
         is caused by circumstances beyond Lessee's control, in which event this
         clause (b) shall not apply and the average occupancy level of the
         applicable Facility for this subsection (ii) shall be the greater of
         (a) or (c) herein), or (c) the average occupancy level for facilities
         similar to such Facility in the same general geographic area as of the
         date any appraisal of such Facility is performed in accordance with the
         provisions of Article XXXIV.

                  (iii)    If the applicable Facility's Primary Intended Use
         includes a mixed use, then whichever of the following produces the
         highest positive value shall be taken into account: (a) the resident
         mix, patient mix, case mix, and/or diagnostic related group or acuity
         mix, as applicable, as of the date any appraisal of such Facility is
         performed in accordance with the provisions of Article XXXIV, or (b)
         the average of such mix during the Base Period.

         Finally, in determining Fair Market Value in connection with a sale or
transfer of the Leased Property and all Capital Additions of a Facility pursuant
to the terms of this Lease, the positive or negative effect on the value of the
Leased Property and all Capital Additions or applicable portion(s) thereof
attributable to such factors as the interest rate, amortization schedule,
maturity date, prepayment penalty and other terms and conditions of any
Encumbrance placed thereon by Lessor which will not be removed at or prior to
the date of such sale or transfer shall be taken into account.

                                       8

<PAGE>

         Final Brandywine Extended Term: As defined in Article XIX.

         Fixed Term: The period of time commencing on the Commencement Date and
ending at 11:59 p.m. Los Angeles time on the expiration of the fifteenth (15th)
Lease Year.

         Fixtures: As defined in Article I, and with respect to each Facility,
the Fixtures relating to such Facility.

         Funding Date: As defined in the HCPI Loan Documents.

         GAAP: Generally accepted accounting principles.

         Gross Revenues: With respect to each Facility, all revenues received or
receivable from or by reason of the operation of such Facility or any other use
of the Leased Property of such Facility, Lessee's Personal Property and Capital
Additions including all revenues received or receivable for the use of or
otherwise attributable to units, rooms, beds and other facilities provided,
meals served, services performed (including ancillary services), space or
facilities subleased or goods sold on or from the Leased Property and Capital
Additions of such Facility and the amortization of Entrance Fees (as defined in
the Addendum) related to the Facilities, all determined in accordance with GAAP;
provided, however, that Gross Revenues shall not include:

         (i) non-operating revenues such as interest income or income from the
sale of assets not sold in the ordinary course of business;

         (ii) 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;

         (iii) all proper patient billing credits and adjustments according to
GAAP relating to health care accounting; and

         (iv) federal, state or local excise taxes and any tax based upon 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.

         Gross Revenues for each Lease Year of such Facility shall include all
cost report settlement amounts received in or payable during such Lease Year in
accordance with GAAP relating to health care accounting, regardless of the year
to which such settlement amounts are applicable; provided, however, that to the
extent settlement amounts are applicable to years, or portions thereof, prior to
the Commencement Date, such settlement amounts shall not be included in Gross
Revenues for the Lease Year of such Facility in which such settlement amounts
are received or paid. Gross Revenues shall also include (x) the Gross Revenues
of any Occupant under a Commercial Occupancy Arrangement (i.e., the Gross
Revenues generated from the operations conducted on or from such subleased,
licensed or other used or occupied portion of the Leased Property and all
Capital Additions of such Facility shall be included directly in the Gross
Revenues) if all or any portion of the rent received or receivable by Lessee
from or under such Commercial Occupancy Arrangement is based on net income of
such

                                       9

<PAGE>

Occupant or would otherwise 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 (in which event the rent received or receivable by Lessee from or under
such Commercial Occupancy Arrangement shall be excluded from Gross Revenues), or
(y) the rent received or receivable by Lessee from or under such Commercial
Occupancy Arrangement, if no portion of the rent received or receivable by
Lessee from or under such Commercial Occupancy Arrangement is based on net
income of such Occupant and such rent qualifies as "rents from real property"
within the meaning of Section 856(d) of the Code, or any similar or successor
provision thereto (in which event the Gross Revenues of such Occupant shall be
excluded from Gross Revenues herein).

         Guarantor: ARCPI, and any future guarantor of Lessee's obligations
pursuant to this Lease.

         Guaranty: The Guaranty of even date herewith executed by ARCPI, as a
Guarantor, and any future written guaranty of Lessee's obligations hereunder
executed by a Guarantor.

         Handling: As defined in Article XXXVII.

         Hazardous Substances: Collectively, any petroleum, petroleum product or
byproduct or any substance, material or waste regulated or listed pursuant to
any Environmental Law.

         HCPI: Health Care Property Investors, Inc., a Maryland corporation, and
its successors and assigns.

         HCPI Loan Agreement: That certain Loan Agreement dated as of August 14,
2002 by and between HCPI, as lender, and ARCPI, as borrower, as the same may be
amended, modified or supplemented from time to time in accordance with the terms
thereof.

         HCPI Loan Documents: Collectively, the HCPI Loan Agreement, and all of
the other documents included within the definition of "Loan Documents" in the
HCPI Loan Agreement, as the same may be amended, modified or supplemented from
time to time in accordance with the terms thereof.

         Impositions: Collectively, all taxes, including capital stock,
franchise and other state taxes of Lessor (and, if Lessor is an Affiliate of
HCPI, of HCPI as a result of its investment in or ownership of (whether direct
or indirect) in such Lessor), ad valorem, sales, use, single business, gross
receipts, transaction privilege, rent or similar taxes; assessments including
assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not to be completed within the
Term; ground rents; water, sewer and other utility levies and charges; excise
tax levies; fees including license, permit, inspection, authorization and
similar fees; and all other governmental charges, in each case whether general
or special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Property, any Capital Additions and/or the
Rent and all interest and penalties thereon attributable to any failure in
payment by Lessee which at any time prior to, during or in respect of the Term
hereof may be assessed or imposed on or in respect of or be a lien upon (i)
Lessor or Lessor's interest in the Leased Property or any Capital Additions,
(ii) the

                                       10

<PAGE>

Leased Property, any Capital Additions or any parts thereof or any rent
therefrom or any estate, right, title or interest therein, or (iii) any
occupancy, operation, use or possession of, or sales from or activity conducted
on or in connection with the Leased Property, any Capital Additions or the
leasing or use of the Leased Property, any Capital Additions or any parts
thereof; provided, however, that nothing contained in this Lease shall be
construed to require Lessee to pay (a) any tax based on net income (whether
denominated as a franchise or capital stock or other tax) imposed on Lessor or
any other Person (including on HCPI, if HCPI is not the Lessor hereunder), (b)
any transfer, or net revenue tax of Lessor or any other Person except Lessee and
its successors, (c) any tax imposed with respect to the sale, exchange or other
disposition by Lessor of any Leased Property, any Capital Additions or the
proceeds thereof, (d) any recording taxes, indebtedness taxes or other taxes
imposed with respect to or in connection with any of the Facility Mortgages;
provided, however, that any recording taxes, indebtedness taxes or other taxes
imposed with respect to or in connection with any of the Initial Facility
Mortgages that are Master Trust Documents (as defined in the Addendum) shall be
included in this definition of "Impositions") or (e) except as expressly
provided elsewhere in this Lease, any principal or interest on any indebtedness
on the Leased Property for which Lessor is the obligor, except to the extent
that any tax, assessment, tax levy or charge, of the type described in any of
clauses (a), (b), (c) or (d) above is levied, assessed or imposed in lieu of or
as or as a substitute for any tax, assessment, levy or charge which is otherwise
included in this definition of an "Imposition."

         Incremental Amount: As defined in Section 3.1.3.

         Incremental Gross Revenues: With respect to each Facility, the positive
amount, if any, by which the Gross Revenues for such Facility during the then
current Lease Year or partial Lease Year exceeds the Base Gross Revenues for
such Facility.

         Initial Facility Mortgages: The Facility Mortgages set forth on Exhibit
H attached hereto, together with any amendments, renewals or extensions thereof.

         Insurance Requirements: The terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy and of any
insurance board, association, organization or company necessary for the
maintenance of any such policy.

         Intangible Property: All accounts, proceeds of accounts, rents,
profits, income or revenues derived from the use of rooms or other space within
the Leased Property or the providing of services in or from the Leased Property
and all Capital Additions; documents, chattel paper, instruments, contract
rights, deposit accounts, general intangibles, commercial tort claims, causes of
action, now owned or hereafter acquired by Lessee (including any right to any
refund of any Impositions) arising from or in connection with Lessee's operation
or use of the Leased Property and all Capital Additions; all licenses and
permits now owned or hereinafter acquired by Lessee, which are necessary or
desirable for Lessee's use of the Leased Property and all Capital Additions for
the Primary Intended Use, including, if applicable, any certificate of need or
similar certificate; the right to use any trade name or other name associated
with the Facility; and any and all third-party provider agreements (including
Medicare and Medicaid).

         Land: As defined in Article I, and, with respect to each Facility, the
Land (as defined in Article I) relating to such Facility.

                                       11

<PAGE>

         Lease: As defined in the preamble.

         Lease Year: Each period of twelve (12) full calendar months from and
after the Commencement Date, unless the Commencement Date is a day other than
the first (1st) day of a calendar month, in which case the first Lease Year
shall be the period commencing on the Commencement Date and ending on the last
day of the twelfth (12th) month following the month in which the Commencement
Date occurs and each subsequent Lease Year shall be each period of twelve (12)
full calendar months after the last day of the prior Lease Year; provided,
however, that the last Lease Year during the Term may be a period of less than
twelve (12) full calendar months and shall end on the last day of the Term.

         Leased Improvements: As defined in Article I, and, with respect to each
Facility, the Leased Improvements (as defined in Article I) of such Facility

         Leased Property: As defined in Article I, and, with respect to each
Facility, the Leased Property (as defined in Article I) of such Facility.

         Leasehold FMV: With respect to each Facility, the fair market value of
Lessee's leasehold interest relating to such Facility if exposed on the open
market taking into account, among other relevant factors, the income generated
from the Leased Property and Capital Additions for such Facility, determined by
appraisal in accordance with the appraisal procedures set forth in Article
XXXIV.

         Legal Requirements: (i) All federal, state, county, municipal and other
governmental statutes, laws (including common law and Environmental Laws),
rules, policies, guidance, codes, orders, regulations, ordinances, permits,
licenses, covenants, conditions, restrictions, judgments, decrees and
injunctions, including those affecting the Leased Property, Lessee's Personal
Property and all Capital Additions or the construction, use or alteration
thereof, whether now or hereafter enacted and in force, including any which may
(A) require repairs, modifications or alterations in or to the Leased Property,
Lessee's Personal Property and all Capital Additions, (B) in any way adversely
affect the use and enjoyment thereof, or (C) regulate the transport, handling,
use, storage or disposal or require the cleanup or other treatment of any
Hazardous Substance, and (ii) all covenants, agreements, restrictions, and
encumbrances either now or hereafter of record or known to Lessee (other than
encumbrances created by Lessor without the consent of Lessee except as otherwise
expressly permitted hereunder) affecting the Leased Property.

         Lender: Initially, HCPI in its capacity as lender under the HCPI Loan
Agreement, and also its successors and assigns as lender under the HCPI Loan
Agreement.

         Lessee: As defined in the preamble; provided, however, that it is
agreed and understood by all parties hereto that, with respect to each Facility,
only the License Holder with respect to such Facility shall be entitled to
operate or maintain such Facility, and in no event shall any Lessee other than
the applicable License Holder with respect to such Facility be entitled to
operate or maintain such Facility or take other actions with respect to such
Facility to the extent that such operations or the taking of such actions would
violate the licensure requirements or other laws or regulations of any
governmental authority with respect to such

                                       12

<PAGE>

Facility. Notwithstanding the foregoing, nothing herein shall affect the joint
and several liability of the Lessees.

         Lessee's Personal Property: With respect to each Facility, the Personal
Property other than Lessor's Personal Property relating to such Facility.

         Lessee's Proprietary Software: As defined in Section 6.3.

         Lessee's Trademarks: As defined in Section 6.3.

         Lessor: As defined in the preamble; provided, however, that with
respect to any matter as it relates to a particular Facility (including, but not
limited to, any matter in which Lessor's consent or approval is required for a
particular Facility), as used herein, "Lessor" shall mean only that Lessor which
is the fee owner of such Facility. As of the date hereof, the "Lessor" for each
Facility is as set forth on Exhibit H attached hereto.

         Lessor's Personal Property: As defined in Article I, and, with respect
to each Facility, Lessor's Personal Property (as defined in Article I) relating
to such Facility.

         Letter of Credit Amount: For each Lease Year, an amount equal to
one-third (1/3) of the sum of (i) the then annual total Minimum Rent, and (ii)
Lessor's estimate of the total annual Additional Rent, in each case, payable
under this Lease for such Lease Year; provided, however, that if and for so long
as ARCPI has delivered to HCPI and HCPI is holding a "Permitted Letter of
Credit" (as defined in the HCPI Loan Documents) with respect to the Working
Capital Reserve Account (as defined in the HCPI Loan Documents) or with respect
to the Repair and Replacement Reserve Account (as defined in the HCPI Loan
Documents) in accordance with the HCPI Loan Documents, the then "Letter of
Credit Amount" hereunder shall be reduced by the amount of such Permitted Letter
of Credit being held by HCPI under the HCPI Loan Documents with respect to the
Working Capital Reserve Account and the Repair and Replacement Reserve Account.

         Letter of Credit Date: As defined in Section 21.2.

         License Holder: With respect to any Facility, the Lessee that holds all
permits, licenses, approvals, entitlements and other authorizations issued by
governmental authorities necessary to operate such Facility for its Primary
Intended Use.

         Management Consent Agreement: That certain Agreement and Consent of
Lessor to Management Engagement dated as of September 30, 2002 by and between
Lessor, Lessee and ARC Management, LLC.

         Master Sublease: With respect to any Facility, a Master Sublease (as
defined in Article XXIV) of such Facility.

         Minimum Rent: The sum of Allocated Minimum Rent for all Facilities
payable under this Lease.

                                       13

<PAGE>

         Minimum Repurchase Price: With respect to each Facility at any given
time, the sum of (i) the Allocated Value with respect to such Facility plus
(ii) any Capital Addition Costs funded by Lessor with respect to such Facility.

         New Lease: As defined in Section 31.2.1.

         New Lease Effective Date: As defined in Section 31.2.1.

         Occupancy Arrangement: Any sublease, license or other arrangement with
a Person for the right to use, occupy or possess any portion of the Leased
Property and/or any Capital Additions.

         Occupant: Any Person having rights of use, occupancy or possession
under an Occupancy Arrangement.

         Officer's Certificate: A certificate of Lessee signed by an officer
authorized to so sign by its board of directors or by-laws or by equivalent
governing documents or managers.

         Operating Reserve Account: As defined in Section 4.6.

         Overdue Rate: On any date, a rate equal to Two Percent (2%) above the
Prime Rate, but in no event greater than the maximum rate then permitted under
applicable law.

         Payment Date: Any due date for the payment of the installments of
Minimum Rent, Additional Rent or any other sums payable under this Lease.

         Person: Any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other form of entity.

         Personal Property: With respect to each Facility, all machinery,
furniture and equipment, including phone systems and computers, trade fixtures,
inventory (including raw materials, work in process and finished goods),
supplies and other personal property used or useful in the use of the Leased
Property and Capital Additions of such Facility for their Primary Intended Use,
other than Fixtures.

         Prepayment Lease Rate: Four hundred (400) basis points above the Cost
of Funds.

         Prepayment Premium: Any prepayment premium, prepayment penalty or other
similar amount due in connection with a prepayment (whether partial or in full)
or by the purchase by the Lender of any Initial Facility Mortgage.

         Primary Intended Use: With respect to each Facility, the Primary
Intended Use set forth on Exhibit B attached hereto and incorporated herein by
this reference with respect to such Facility and such other uses necessary or
incidental to such use.

         Prime Rate: On any date, a rate equal to the annual rate on such date
announced by the Bank of New York (or its successors) to be its prime, base or
reference rate for 90-day

                                       14

<PAGE>

unsecured loans to its corporate borrowers of the highest credit standing but in
no event greater than the maximum rate then permitted under applicable law. If
the Bank of New York (or its successors) discontinues its use of such prime,
base or reference rate or ceases to exist, Lessor shall designate the prime,
base or reference rate of another state or federally chartered bank based in New
York to be used for the purpose of calculating the Prime Rate hereunder.

         Put Event: With respect to any Facility, an Event of Default hereunder
(i.e., after any applicable notice and cure period provided for in Section 16.1)
arising out of any of the following at any time during the Term:

         (i) Lessee's failure to obtain and maintain all licenses,
authorizations, certifications and approvals needed to use and operate the
Leased Property of such Facility and all Capital Additions thereon, for such
Facility's Primary Intended Use in accordance with all Legal Requirements and
all Insurance Requirements including obtaining and maintaining all applicable
health care licenses, certificates of need and Medicare and/or Medicaid
certifications;

         (ii) Lessee's failure to use and continuously operate or cause to be
used and continuously operated the entirety of the Leased Property of such
Facility and all improvements thereon for its Primary Intended Use; and/or

         (iii) Lessee's failure to cure any material violation of any Legal
Requirements relating to any Hazardous Substances in, on, under or about the
Leased Property of such Facility or to effect any repair, closure,
detoxification, decontamination or other remediation required by any applicable
Legal Requirements with respect to any Hazardous Substances in, on, under or
about the Leased Property of such Facility.

         Notwithstanding that Lessor and Lessee have specifically defined a "Put
Event" for the limited purpose of setting forth the circumstances under which
Lessor shall be entitled to the remedy set forth in Section 16.5, in no event
shall this definition derogate the materiality of any other Event of Default
(including any Event of Default which does not constitute a Put Event) or
otherwise limit Lessor's rights and remedies upon the occurrence of any such
Event of Default, including those rights and remedies set forth in Sections
16.2, 16.3, 16.4, 16.8 and/or 16.10.

         Quarter: During each applicable Lease Year, the first three (3)
calendar month period commencing on the first (1st) day of such Lease Year and
each subsequent three (3) calendar month period within such Lease Year;
provided, however, that the last Quarter during the Term may be a period of less
than three (3) calendar months and shall end on the last day of the Term;
provided, further, that if the Commencement Date is a day other than the first
(1st) day of a calendar month, the first Quarter shall be the period commencing
on the Commencement Date and ending on the last day of the second (2nd) month
following the month in which the Commencement Date occurs.

         Related Rights: As defined in Article I, and, with respect to each
Facility, the Related Rights of such Facility.

         Rent: Collectively, Minimum Rent, Additional Rent, Additional Charges
and all other amounts payable under this Lease.

                                       15

<PAGE>

         Sale of Business: A Transfer of the type described in any of clauses
(iv), (v) or (vi) of Section 24.1.1 below, unless such Transfer involves only
the stock, memberships, equity interests and/or assets of Lessee and Lessee has
no substantial assets other than (a) its interest in the Leased Property and any
Capital Additions pursuant to this Lease, (b) the business and operations on the
Leased Property and any Capital Additions and (c) Lessee's Personal Property.

         SEC: Securities and Exchange Commission.

         Separated Property: As defined in Section 31.2.

         State: With respect to each Facility, the State or Commonwealth in
which the Leased Property for such Facility is located.

         Subsidiaries: Corporations, partnerships, limited liability companies,
business trusts or other legal entities with respect to which a Person owns,
directly or indirectly (including through one or more intermediaries), more than
fifty percent (50%) of the voting stock or partnership, membership or other
equity interest, respectively.

         Ten Year Borrowing Cost: As of any Business Day, the "Ten Year
Borrowing Cost" shall mean HCPI's good faith determination (evidenced by a
certificate of the Chief Financial Officer of HCPI) of the effective interest
rate that would be payable by HCPI on ten (10) year bonds issued by HCPI on such
Business Day based upon quotes obtained by HCPI from a nationally recognized
investment banking or commercial banking firm selected by HCPI.

         Term: With respect to each Facility, the Fixed Term and any Extended
Terms of such Facility unless earlier terminated pursuant to the provisions
hereof.

         Transfer: As defined in Article XXIV.

         Transfer Consideration: With respect to any Transfer constituting a
Master Sublease (other than a Master Sublease entered into in connection with a
Sale of Business), "Transfer Consideration" shall mean Fifty Percent (50%) of
the positive remainder, if any, obtained by subtracting (x) the Allocated
Minimum Rent and the Allocated Additional Rent, payable by Lessee under this
Lease with respect to such Facility from (y) the Fair Market Rental of such
Facility, all determined on a monthly basis, prorating such Fair Market Rental,
Allocated Minimum Rent and the Allocated Additional Rent, as appropriate, if
less than all of such Facility is Master Subleased. Fifty Percent (50%) of such
remainder shall be paid by Lessee to Lessor monthly when the Allocated Minimum
Rent of such Facility is due; provided, however, that in no event shall the
total Transfer Consideration to which Lessor is entitled in connection with any
such Master Sublease exceed the total consideration given directly or indirectly
(including through one or more intermediaries) to Lessee, to any Controlling
Person(s) or to any other Person in exchange for, in connection with, related to
or arising out of the transaction(s) as to which such Master Sublease is a part.
With respect to any other Transfer (i.e., a Transfer other than pursuant to a
Master Sublease, but including a Master Sublease which is part of a Sale of
Business) "Transfer Consideration" shall mean Fifty Percent (50%) of the
Leasehold FMV. Lessee acknowledges and agrees that the terms under which Lessor
is entitled to the payment of Transfer Consideration pursuant to this Lease and
the amount thereof has been freely negotiated and represents a fair and
equitable division with Lessor of the consideration payable in

                                       16

<PAGE>

connection with a Transfer taking into account, among other things, Lessor's
investment in the Leased Property, the terms of this Lease and the inherent
risks of owning and leasing real property. As used herein, the term
"consideration" shall mean and include money, services, property and other
things of value, including payment of costs, cancellation or forgiveness of
indebtedness, discounts, rebates, barter and the like.

         Unsuitable for Its Primary Intended Use: With respect to each Facility,
a state or condition of such Facility such that by reason of damage or
destruction or Condemnation, in the good faith judgment of Lessor and Lessee,
such Facility cannot be operated on a commercially practicable basis for its
Primary Intended Use.

                                  ARTICLE III.

         3.1      Rent. Lessee shall pay to Lessor in lawful money of the United
States of America which shall be legal tender for the payment of public and
private debts, without offset or deduction, the amounts set forth hereinafter as
Minimum Rent and Additional Rent during the Term. Payments of Minimum Rent and
Additional Rent shall be made by wire transfer of funds initiated by Lessee to
Lessor's account or to such other Person as Lessor from time to time may
designate in writing. Lessee shall pay to Lessor Minimum Rent monthly, in
advance on or before the first (1st) day of each calendar month. The first
monthly payment of Minimum Rent shall be payable on the Commencement Date
(prorated as to any partial calendar month at the beginning of the Term). The
Additional Rent shall be paid as and when required pursuant to Section 3.2
below.

                  3.1.1    Allocated Minimum Rent. Subject to any upward
adjustments as set forth in Section 3.1.4 below, for the period from the
Commencement Date and through and including the expiration of the first (1st)
Lease Year of Term, Lessee shall pay monthly "Allocated Base Minimum Rent" for
all of the Facilities in the amount as set forth on Exhibit B attached hereto
and incorporated herein by this reference.

                  3.1.2    Allocated Minimum Rent Increases. Subject to any
further upward adjustments as set forth in Section 3.1.4 below, commencing upon
the expiration of the first (1st) Lease Year of the Term and upon the expiration
of each Lease Year thereafter during the applicable Term (including the Extended
Terms, if any), the then current monthly "Allocated Minimum Rent" for each
Facility shall be adjusted to an amount equal to one-twelfth (1/12) of the
amount equal to the product of (a) the sum of (i) annual Allocated Minimum Rent
paid or payable for such Facility for the immediately prior Lease Year, plus
(ii) the total Allocated Additional Rent paid or payable for such Facility for
the immediately prior Lease Year (if any), times (b) the sum of (x) one (1),
plus (y) the applicable Adjusted CPI Increase (expressed as a decimal) for such
Lease Year; provided, however, that notwithstanding the foregoing, the
"Allocated Minimum Rent" during the Six Year Extended Term for the Brandywine
Facility shall be as determined pursuant to the second paragraph of this Section
3.1.2 below. When the new monthly "Allocated Minimum Rent" for each Facility for
a Lease Year or partial Lease Year is determined, Lessor shall give Lessee
notice to that effect indicating how the new monthly Allocated Minimum Rent
figure was computed. If any adjustment provided for herein for any Facility
shall not have been made as of the commencement of the Lease Year for which
applicable, Lessee shall continue to pay monthly Allocated Minimum Rent for such
Facility at the last rate applicable until Lessee receives Lessor's notice as to
such adjustment. Within ten

                                       17

<PAGE>

(10) days after Lessee's receipt of Lessor's notice, Lessee shall pay to Lessor
an amount equal to the new monthly Allocated Minimum Rent for such Facility
times the number of months from the commencement of the then current Lease Year
to the date of receipt of Lessor's notice, less the aggregate amount paid by
Lessee on account of monthly Allocated Minimum Rent for such Facility the same
period. Thereafter, Lessee shall pay monthly Allocated Minimum Rent for such
Facility at the new rate set forth in Lessor's notice.

         Allocated Minimum Rent for the Brandywine Facility during the Six Year
Extended Term shall be equal to the Fair Market Rental of the Brandywine
Facility; provided, however, that if Fair Market Rental shall not have been
determined as of the commencement of the Six Year Extended Term, then Lessee
shall continue to pay monthly Allocated Minimum Rent for the Brandywine Facility
at the last rate applicable until Fair Market Rental is determined. If the Fair
Market Rental for the Six Year Extended Term is higher than the monthly
Allocated Minimum Rent for the Brandywine Facility in effect immediately prior
to the commencement of the Six Year Extended Term, then within ten (10) days
after Lessee's receipt of Lessor's notice, Lessee shall pay to Lessor an amount
equal to the new monthly Allocated Minimum Rent for the Brandywine Facility
times the number of months from the commencement of the Six Year Extended Term
to the date of such determination,, less the aggregate amount paid by Lessee on
account of monthly Allocated Minimum Rent for the Brandywine Facility for the
same period. Thereafter, Lessee shall pay monthly "Allocated Minimum Rent" for
the Brandywine Facility at Fair Market Rental as so determined. If the Fair
Market Rental for the Six Year Extended Term is less than the monthly Allocated
Minimum Rent for the Brandywine Facility in effect immediately prior to the
commencement of the Six Year Extended Term, then the amount paid by Lessee in
excess thereof shall be credited against the next monthly Allocated Minimum Rent
coming due following the date Fair Market Rental is determined.

         3.1.3    Additional Rent. In addition to Minimum Rent, Lessee shall,
commencing with the first Quarter of the second (2nd) Lease Year of the Fixed
Term and continuing through the expiration of the fifth (5th) Lease Year of the
Fixed Term, pay to Lessor annual Allocated Additional Rent for each Facility in
an amount equal to the positive amount, if any, by which the annual Incremental
Amount for such Facility for such Lease Year exceeds the then current annual
Allocated Minimum Rent for such Facility for the same Lease Year. There shall be
no Additional Rent due and payable with respect to any Lease Year after the
fifth (5th) Lease Year of the Fixed Term. The annual "Incremental Amount" for
each Facility for each applicable Lease Year shall be the sum of (a) the product
of the Applicable Percentage for such Lease Year, times the Incremental Gross
Revenues for such Facility for such Lease Year, and (b) the annual Allocated
Base Minimum Rent for such Facility.

         3.1.4    Increase in Minimum Rent By Reason of a Prepayment Premium. If
(x) any Payment Party (as defined below) pays (whether directly or indirectly)
any Prepayment Premium with respect to any Initial Facility Mortgage of a
Facility, and (y) such Payment Party is not reimbursed in full for such
Prepayment Premium by Lessee within fifteen (15) days after demand by such
Payment Party, then the then monthly Allocated Minimum Rent for such Facility
shall be increased, effective as of the Date of Determination, by an amount
equal to one-twelfth (1/12) of the product of (a) the Prepayment Lease Rate
times (b) the amount of such Prepayment Premium so paid by a Payment Party. In
such event, Lessor shall determine the new

                                       18

<PAGE>

monthly "Allocated Minimum Rent" for such Facility pursuant to this Section
3.1.4, and Lessor shall give Lessee notice thereof and shall indicate in such
notice how the new monthly Allocated Minimum Rent amount for such Facility was
computed. Within ten (10) days after Lessee's receipt of Lessor's notice, Lessee
shall pay to Lessor an amount equal to the new monthly Allocated Minimum Rent
for such Facility times the number of months from the Date of Determination to
the date of receipt of Lessor's notice (prorated for any partial month), less
the aggregate amount paid by Lessee on account of monthly Allocated Minimum Rent
for such Facility the same period. Thereafter, Lessee shall pay monthly
Allocated Minimum Rent for such Facility at the new rate set forth in Lessor's
notice. A "Payment Party" shall mean either (i) Lender, (ii) an Affiliate of
Lender (other than Lessor, unless Lessor is a "Payment Party" by virtue of
subsections (iii) or (iv) below), (iii) Lessor, if the interest in such Lessor
which has been pledged as security to Lender is owned (whether directly or
indirectly, and irrespective of how such ownership is acquired) by Lender or an
Affiliate of Lender, or (iv) Lessor, if the interest in such Lessor which has
been pledged as security to Lender such Lessor will be owned (whether directly
or indirectly, and irrespective of how such ownership is acquired) by Lender or
an Affiliate of Lender immediately following any Prepayment Premium.

         3.2      Quarterly Calculation and Payment of Additional Rent; Annual
Reconciliation.

                  3.2.1    During each Lease Year in which Additional Rent is
payable, Lessee shall calculate and pay Additional Rent quarterly, in arrears,
for the portion of the entire Lease Year, on a cumulative basis, up to the end
of the Quarter then most recently ended, less the Additional Rent already paid
and attributable to such Lease Year. If at the time any calculation on account
of Additional Rent is to be made the applicable Gross Revenues with respect to
any Facility are not yet available, Lessee shall use its best estimate of the
applicable Gross Revenues for such Facility. Each quarterly payment of
Additional Rent shall be delivered to Lessor, together with an Officer's
Certificate setting forth the calculation thereof, on or before the last
Business Day of the calendar month immediately following the end of the
corresponding Quarter.

                  3.2.2    Within sixty (60) days after the end of each Lease
Year in which Additional Rent is payable, Lessee shall deliver to Lessor an
Officer's Certificate setting forth the Gross Revenues with respect to each
Facility for such Lease Year. As soon as practicable following receipt by Lessor
of such Certificate, Lessor shall determine the Allocated Additional Rent for
each Facility for such Lease Year and give Lessee notice of the same together
with the calculations upon which the Allocated Additional Rent was based. With
respect to each Facility, if such Allocated Additional Rent exceeds the sum of
the quarterly payments of Allocated Additional Rent previously paid by Lessee
with respect to such Lease Year, Lessee shall forthwith pay such deficiency to
Lessor. If such Allocated Additional Rent for such Lease Year is less than the
amount previously paid by Lessee with respect thereto, Lessor shall, at Lessee's
option, either (i) remit to Lessee its check in an amount equal to such
difference, or (ii) credit such difference against the quarterly payments of
Allocated Additional Rent next coming due for such Facility.

                  3.2.3    With respect to each Facility, any difference between
the annual Allocated Additional Rent for any Lease Year as shown in said
Officer's Certificate and the total

                                       19

<PAGE>

amount of quarterly payments for such Lease Year previously paid by Lessee,
whether in favor of Lessor or Lessee, shall bear interest from the last Business
Day of such Lease Year until the amount of such difference shall be paid or
otherwise discharged, at a rate equal to the rate payable on 90-day U.S.
Treasury Bills in effect as of the last Business Day of such Lease Year.

                  3.2.4    If the expiration or earlier termination of the Term
is a day other than the last day of a Lease Year and Allocated Additional Rent
was payable with respect to such Lease Year, then the amount of the last
quarterly installment of Allocated Additional Rent shall be paid pro rata on the
basis of the actual number of days in such Lease Year.

                  3.2.5    If the expiration or earlier termination of the Term
is during a year in which Allocated Additional Rent was payable, then as soon as
practicable after such expiration or earlier termination, a final reconciliation
of Allocated Additional Rent shall be made with respect to each Facility taking
into account, among other relevant adjustments, any unresolved contractual
allowances which relate to Gross Revenues with respect to such Facility accrued
prior to such expiration or termination; provided that if the final
reconciliation has not been made within six (6) months of such expiration or
termination, then a final reconciliation shall be made at that time based on all
available relevant information, including Lessee's good faith best estimate of
the amount of any unresolved contractual allowances.

         3.3 Confirmation of Allocated Additional Rent. Lessee shall utilize, or
cause to be utilized, an accounting system for the Leased Property and all
Capital Additions in accordance with its usual and customary practices and in
accordance with GAAP which will accurately record all Gross Revenues for each
Facility and Lessee shall retain for at least seven (7) years after the
expiration of each Lease Year in which Additional Rent is payable reasonably
adequate records conforming to such accounting system showing all Gross Revenues
for such Lease Year for each Facility. Lessor, at its own expense except as
provided hereinbelow, shall have the right from time to time (upon reasonable
notice, and in no event more than once per year) by its accountants or
representatives (so long as such accountants and representatives are not hired
on a contingency basis), to review and/or audit the information set forth in the
Officer's Certificate referred to in Section 3.2 and in connection with such
review and/or audit to examine Lessee's records with respect thereto (including
supporting data and sales tax returns) subject to any prohibitions or
limitations on disclosure of any such data under applicable law or regulations
including any duly enacted "Patients' Bill of Rights" or similar legislation, or
as may be necessary to preserve the confidentiality of the Facility-patient
relationship and the physician-patient privilege. If any such review and/or
audit discloses a deficiency in the payment of Allocated Additional Rent for any
Facility, Lessee shall forthwith pay to Lessor the amount of the deficiency
together with interest thereon at the Overdue Rate compounded monthly from the
date when said payment should have been made to the date of payment thereof. If
any such review and/or audit discloses that the Gross Revenues actually received
by Lessee for any Lease Year exceed those reported by Lessee by more than Two
Percent (2%), Lessee shall pay the reasonable costs of such review and/or audit.
If any review and/or audit discloses an overpayment in the payment of Allocated
Additional Rent for any Facility, Lessor shall credit Lessee such overpayment
against payments of Allocated Minimum Rent and/or Allocated Additional Rent next
coming due for such Facility. Any proprietary information

                                       20

<PAGE>

obtained by Lessor pursuant to such review and/or audit shall be treated as
confidential, except that such information may be used, subject to appropriate
confidentiality safeguards, in any litigation or arbitration proceedings between
the parties and except further that Lessor may disclose such information to
prospective lenders or purchasers.

         3.4      Additional Charges. In addition to the Minimum Rent and
Additional Rent, (i) Lessee shall also pay and discharge as and when due and
payable all other amounts, liabilities, obligations and Impositions which Lessee
assumes or agrees to pay under this Lease; and (ii) in the event of any failure
on the part of Lessee to pay any of those items referred to in clause (i) above,
Lessee shall also promptly pay and discharge every fine, penalty, interest and
cost which may be added for non-payment or late payment of such items (the items
referred to in clauses (i) and (ii) above being referred to herein collectively
as the "Additional Charges"), and Lessor 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 Charges as in
the case of non-payment of the Minimum Rent.

         3.5      Late Payment of Rent.

                  (a)      LESSEE HEREBY ACKNOWLEDGES THAT LATE PAYMENT BY
LESSEE TO LESSOR OF RENT WILL CAUSE LESSOR TO INCUR COSTS NOT CONTEMPLATED
HEREUNDER, THE EXACT AMOUNT OF WHICH IS PRESENTLY ANTICIPATED TO BE EXTREMELY
DIFFICULT TO ASCERTAIN. SUCH COSTS MAY INCLUDE PROCESSING AND ACCOUNTING CHARGES
AND LATE CHARGES WHICH MAY BE IMPOSED ON LESSOR BY THE TERMS OF ANY LOAN
AGREEMENT AND OTHER EXPENSES OF A SIMILAR OR DISSIMILAR NATURE. ACCORDINGLY, IF
ANY INSTALLMENT OF RENT OTHER THAN ADDITIONAL CHARGES PAYABLE TO A PERSON OTHER
THAN LESSOR SHALL NOT BE PAID WITHIN THREE (3) BUSINESS DAYS AFTER ITS DUE DATE,
LESSEE WILL PAY LESSOR ON DEMAND A LATE CHARGE EQUAL TO THE LESSER OF (I) FIVE
PERCENT (5%) OF THE AMOUNT OF SUCH INSTALLMENT OR (II) THE MAXIMUM AMOUNT
PERMITTED BY LAW. THE PARTIES AGREE THAT THIS LATE CHARGE REPRESENTS A FAIR AND
REASONABLE ESTIMATE OF THE COSTS THAT LESSOR WILL INCUR BY REASON OF LATE
PAYMENT BY LESSEE. THE PARTIES FURTHER AGREE THAT SUCH LATE CHARGE IS RENT AND
NOT INTEREST AND SUCH ASSESSMENT DOES NOT CONSTITUTE A LENDER OR
BORROWER/CREDITOR RELATIONSHIP BETWEEN LESSOR AND LESSEE. IN ADDITION, THE
AMOUNT UNPAID, INCLUDING ANY LATE CHARGES, SHALL BEAR INTEREST AT THE OVERDUE
RATE COMPOUNDED MONTHLY FROM THE DUE DATE OF SUCH INSTALLMENT TO THE DATE OF
PAYMENT THEREOF, AND LESSEE SHALL PAY SUCH INTEREST TO LESSOR ON DEMAND. THE
PAYMENT OF SUCH LATE CHARGE OR SUCH INTEREST SHALL NOT CONSTITUTE WAIVER OF, NOR
EXCUSE OR CURE, ANY DEFAULT UNDER THIS LEASE, NOR PREVENT LESSOR FROM EXERCISING
ANY OTHER RIGHTS AND REMEDIES AVAILABLE TO LESSOR.

                        Lessor's Initials: _________________

                        Lessee's Initials: _________________

                                       21

<PAGE>

                  (b)      If Lessee shall, during any six (6) month period, be
more than five (5) Business Days delinquent in the payment of any Rent due and
payable by Lessee to Lessor hereunder on three (3) or more occasions then,
notwithstanding anything herein to the contrary, Lessor may, by written notice
to Lessee, elect to require Lessee to pay all Minimum Rent payable hereunder
quarterly in advance. Such right of Lessor shall be in addition to and not in
lieu of any other right of remedy available to Lessor hereunder or at law on
account of an Event of Default by Lessee hereunder.

         3.6      Net Lease. This Lease is and is intended to be what is
commonly referred to as a "net, net, net" or "triple net" lease. The Rent shall
be paid absolutely net to Lessor, so that this Lease shall yield to Lessor the
full amount or benefit (as applicable) of the installments of Minimum Rent,
Additional Rent and Additional Charges throughout the Term.

         3.7      Separate Account. Lessee shall deposit the gross receipts of
each Facility into a separate, segregated bank account, and Lessee shall provide
copies of all bank statements of such account to Lessor upon Lessor's request.

                                  ARTICLE IV.

         4.1      Impositions.

                  4.1.1    Subject to Article XII relating to permitted
contests, Lessee shall pay, or cause to be paid, all Impositions before any
fine, penalty, interest or cost may be added for nonpayment. Lessee shall make
such payments directly to the taxing authorities where feasible, and promptly
furnish to Lessor copies of official receipts or other satisfactory proof
evidencing such payments. Lessee's obligation to pay Impositions shall be
absolutely fixed upon the date such Impositions become a lien upon the Leased
Property, any Capital Additions or any part(s) thereof. If any 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, Lessee may pay
the same, and any accrued interest on the unpaid balance of such Imposition, in
installments as the same respectively become due and before any fine, penalty,
premium, further interest or cost may be added thereto.

                  4.1.2    Lessor shall prepare and file all tax returns and
reports as may be required by Legal Requirements with respect to Lessor's net
income, gross receipts, franchise taxes and taxes on its capital stock, and
Lessee shall prepare and file all other tax returns and reports as may be
required by Legal Requirements with respect to or relating to the Leased
Property, all Capital Additions and Lessee's Personal Property.

                  4.1.3    Any refund due from any taxing authority in respect
of any Imposition paid by Lessee shall be paid over to or retained by Lessee if
no Event of Default shall have occurred hereunder and be continuing. Any other
refund shall be paid over to or retained by Lessor and applied to the payment of
Lessee's obligations under this Lease in such order of priority as Lessor shall
determine.

                  4.1.4    Lessor and Lessee 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

                                       22

<PAGE>

Property and all Capital Additions as may be necessary to prepare any
required returns and reports. If any property covered by this Lease is
classified as personal property for tax purposes, Lessee shall file all personal
property tax returns in such jurisdictions where it must legally so file.
Lessor, to the extent it possesses the same, and Lessee, to the extent it
possesses the same, shall provide the other party, upon request, with cost and
depreciation records necessary for filing returns for any property so classified
as personal property. Where Lessor is legally required to file personal property
tax returns and to the extent practicable, Lessee shall be provided with copies
of assessment notices indicating a value in excess of the reported value in
sufficient time for Lessee to file a protest.

                  4.1.5    Lessee may, upon notice to Lessor, at Lessee's option
and at Lessee's sole cost and expense, protest, appeal, or institute such other
proceedings as Lessee may deem appropriate to effect a reduction of real estate
or personal property assessments and Lessor, at Lessee's expense as aforesaid,
shall reasonably cooperate with Lessee in such protest, appeal, or other action
but at no cost or expense to Lessor. Billings for reimbursement by Lessee to
Lessor of personal property or real property taxes shall be accompanied by
copies of a bill therefor and payments thereof which identify the personal
property or real property with respect to which such payments are made.

                  4.1.6    Lessor shall give prompt notice to Lessee of all
Impositions payable by Lessee hereunder of which Lessor has knowledge, but
Lessor's failure to give any such notice shall in no way diminish Lessee's
obligations hereunder to pay such Impositions.

                  4.1.7    Impositions imposed or assessed in respect of the
tax-fiscal period during which the Term terminates with respect to any Facility
shall be adjusted and prorated between Lessor and Lessee with respect to such
Facility, whether or not such Imposition is imposed or assessed before or after
such termination, and Lessee's obligation to pay its prorated share thereof
shall survive such termination with respect to such Facility.

         4.2      Utility Charges. Lessee shall pay or cause to be paid all
charges for electricity, power, gas, oil, water and other utilities used in the
Leased Property and all Capital Additions. Lessee shall also pay or reimburse
Lessor for all costs and expenses of any kind whatsoever which at any time with
respect to the Term hereof may be imposed against Lessor by reason of any of the
covenants, conditions and/or restrictions affecting the Leased Property, any
Capital Additions and/or any part(s) thereof, or with respect to easements,
licenses or other rights over, across or with respect to any adjacent or other
property which benefits the Leased Property and/or any Capital Additions,
including any and all costs and expenses associated with any utility, drainage
and parking easements; provided, however, that Lessee shall not be responsible
for any such charges arising out of any matters of record which were voluntarily
created or imposed by Lessor after the Commencement Date (as opposed to being
created or imposed after the Commencement Date without the consent or appeal of
Lessor, whether pursuant to governmental action, or other), unless created or
imposed with the approval or at the written request of Lessee.

         4.3      Insurance Premiums. Lessee shall pay or cause to be paid all
premiums for the insurance coverage required to be maintained by Lessee
hereunder.

                                       23

<PAGE>

         4.4      Impound Account. If Lessee shall fail to timely pay
Impositions relating to real estate taxes more than two (2) times during the
Term (except by reason of a permitted contest of such Imposition pursuant to
Section 12.1 hereof), Lessee shall deposit, at the time of any payment of
Minimum Rent, an amount equal to one-twelfth of Lessee's estimated annual
Impositions relating to real estate taxes, of every kind and nature, required
pursuant to Section 4.1 into an impound account as directed by Lessor. Such
amounts shall be applied to the payment of the obligations in respect of which
said amounts were deposited in such order of priority as Lessor shall determine,
on or before the respective dates on which the same or any of them would become
delinquent. The cost of administering such impound account shall be paid by
Lessee. Nothing in this Section 4.4 shall be deemed to affect any right or
remedy of Lessor hereunder.

         4.5      Tax Service. If Lessee shall fail to timely pay Impositions
more than two (2) times during the Term, Lessee shall, at its sole cost and
expense, cause to be furnished to Lessor a tax reporting service, to be
designated by Lessor, covering the Leased Property and all Capital Additions.
Notwithstanding the foregoing, for so long as Lessee shall be impounding taxes
with or at the direction of Lessor pursuant to Section 4.4 above, the provision
of this Section 4.5 shall be waived.

         4.6      Initial Facility Mortgages. Notwithstanding anything to the
contrary contained in this Lease, during the Term of this Lease, Lessee shall be
solely responsible and hereby covenants to fund and maintain any and all
impound, escrow or other reserve or similar accounts required under any Initial
Facility Mortgage as security for or otherwise relating to any operating
expenses of the Facility, including any capital repair or replacement reserves
and/or impounds or escrow accounts for Impositions or insurance premiums (each
an "Operating Reserve Account"), but excluding any so-called debt service or
loan payment sinking funds required under any such Initial Facility Mortgage and
excluding any such accounts (or modified requirements with respect to any
existing Operating Reserve Account) required by virtue of any amendment to the
Initial Facility Mortgages after the date hereof unless (i) Lessee consents in
writing to such amendments, which consent shall not be unreasonably withheld, or
(ii) such account(s) required by virtue of any such amendment(s) do not
materially increase Lessee's monetary obligations under this Section 4.6. During
the Term of this Lease and provided that no Event of Default shall have occurred
and be continuing hereunder, Lessee shall, subject to the terms and conditions
of such Operating Reserve Account and the requirements of the Facility
Mortgagee(s) under such Initial Facility Mortgages, have access to and the right
to apply or use (including for reimbursement) to the same extent of Lessor all
monies held in each such Operating Reserve Account for the purposes and subject
to the limitations for which such Operating Reserve Account is maintained;
Lessor agrees to reasonably cooperate with Lessee in connection therewith. The
right of Lessee to use and apply such Operating Reserve Account monies in
accordance with the foregoing shall also apply to any monies currently held or
maintained in an Operating Reserve Account as of the date hereof, regardless
whether originally funded by Lessor or Lessee.

                                   ARTICLE V.

         5.1      No Termination, Abatement, etc. Except as otherwise
specifically provided in this Lease, Lessee shall remain bound by this Lease in
accordance with its terms and

                                       24

<PAGE>

shall not seek or be entitled to any abatement, deduction, deferment or
reduction of Rent, or set-off against the Rent. Except as expressly set forth in
this Lease, the respective obligations of Lessor and Lessee shall not be
affected by reason of (i) any damage to or destruction of the Leased Property,
any Capital Additions and/or any part(s) thereof from whatever cause and/or any
Condemnation of the Leased Property, any Capital Additions and/or any part(s)
thereof; (ii) the lawful or unlawful prohibition of, or restriction upon,
Lessee's use of the Leased Property, any Capital Additions and/or any part(s)
thereof, or the interference with such use by any Person or by reason of
eviction by paramount title; (iii) any claim that Lessee has or might have
against Lessor by reason of any default or breach of any warranty by Lessor
hereunder or under any other agreement between Lessor and Lessee or to which
Lessor and Lessee are parties; (iv) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Lessor or any assignee or transferee of Lessor; or (v) for
any other cause, whether similar or dissimilar to any of the foregoing, other
than a discharge of Lessee from any such obligations as a matter of law. Lessee
hereby specifically waives all rights arising from any occurrence whatsoever
which may now or hereafter be conferred upon it by law (a) to modify, surrender
or terminate this Lease or quit or surrender the Leased Property, any Capital
Additions and/or any part(s) thereof; or (b) which may entitle Lessee to any
abatement, reduction, suspension or deferment of the Rent or other sums payable
by Lessee hereunder, except as otherwise specifically provided in this Lease.
The obligations of Lessor and Lessee hereunder shall be separate and independent
covenants and agreements and the Rent and all other sums payable by Lessee
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 or by termination of this Lease other than by reason of an Event of
Default.

         5.2      Termination with Respect to Fewer than All of the Facilities.
Wherever in this Lease the action of terminating the Lease with respect to a
Facility (or action of similar import) is discussed, such action shall mean the
termination of Lessee's rights in and to the Leased Property relating to such
Facility. Notwithstanding anything in this Lease to the contrary, if this Lease
shall be terminated by Lessor or Lessee pursuant to rights granted hereunder
with respect to any Facility, or if this Lease shall otherwise expire or
terminate with respect to only one or more Facilities, (a) such termination or
expiration shall not affect the applicable Term of this Lease with respect to
the balance of the Facilities not so terminated by Lessor or expired, (b) this
Lease shall continue in full force and effect with respect to each other such
Facility, except that the total Rent payable hereunder shall be reduced by the
amount of Allocated Minimum Rent and Allocated Additional Rent with respect to
such Facility as to which this Lease has so terminated or expired, subject,
however, to Lessor's right, in the event of a termination because of an Event of
Default, to recover damages with respect to any such Facility as to which this
Lease has been terminated as provided in Article XVI, and (c) in no event shall
such termination or expiration impair, diminish or otherwise affect the
liability of the remaining Lessees, who shall remain jointly and severally
liable under this Lease.

                                  ARTICLE VI.

         6.1      Ownership of the Leased Property. Lessee acknowledges that the
Leased Property is the property of Lessor and that Lessee has only the right to
the exclusive possession and use of the Leased Property upon the terms and
conditions of this Lease. Upon the expiration

                                       25

<PAGE>

or earlier termination of this Lease with respect to any Facility Lessee shall,
at its expense, repair and restore the Leased Property relating to such Facility
to the condition required by Section 9.1.4.

         6.2      Personal Property. During the Term, Lessee shall, as necessary
and 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 Lessee's Personal
Property and replacements thereof which shall be the property of and owned by
Lessee. Except as provided in Sections 6.3 and 16.10, Lessor shall have no
rights to Lessee's Personal Property during the Term. With respect to each
Facility, Lessee shall provide and maintain during the entire Term applicable to
such Facility all Personal Property necessary in order to operate such Facility
in compliance with all licensure and certification requirements, all Legal
Requirements and all Insurance Requirements and otherwise in accordance with
customary practice in the industry for the Primary Intended Use. In addition,
Lessee shall be permitted to replace, modify, alter or substitute any of
Lessor's Personal Property that has become obsolete or worn out with personal
property of equal or better quality. Any such replacements, modifications,
alterations or substitutions (whether or not upgrades thereof) shall become
Lessor's Personal Property.

         6.3      Transfer of Personal Property and Capital Additions to Lessor.
Upon the expiration or earlier termination of this Lease with respect to a
Facility (unless such termination is the result of Lessee's purchase of such
Facility), all Capital Additions not owned by Lessor and Lessee's Personal
Property (including all motor vehicles (if any) owned by Lessee used to
transport residents/patients) relating to such Facility shall become the
property of Lessor, free of any encumbrance, and Lessee shall execute all
documents and take any actions reasonably necessary to evidence such ownership
and discharge any encumbrance. Notwithstanding anything to the contrary in this
Lease, upon the expiration or earlier termination of this Lease with respect to
any Facility, Lessor shall not be obligated to reimburse Lessee for any
replacements, rebuildings, alterations, additions, substitutions, and/or
improvements that are surrendered as part of or with the Leased Property or
Capital Additions of such Facility. For purposes of this Section 6.3 only,
"Lessee's Personal Property" shall not include (i) any of Lessee's rights to the
trade names or trademarks in "Homewood," "Homewood Residence," "American
Retirement Corporation," "ARC," or any derivative thereof (collectively,
"Lessee's Trademarks"), (ii) any of Lessee's proprietary software ("Lessee's
Proprietary Software") or (iii) any accounts receivable or cash held by Lessee.

                                  ARTICLE VII.

         7.1      Condition of the Leased Property. Lessee acknowledges receipt
and delivery of possession of the Leased Property and confirms that Lessee has
examined and otherwise has knowledge of the condition of the Leased Property
prior to the execution and delivery of this Lease and has found the same to be
in good order and repair, free from Hazardous Substances not in compliance with
Legal Requirements, and satisfactory for its purposes hereunder. Regardless,
however, of any examination or inspection made by Lessee and whether or not any
patent or latent defect or condition was revealed or discovered thereby, Lessee
is leasing the Leased Property "AS IS" in its present condition. Lessee waives
any claim or action against Lessor in respect of the condition of the Leased
Property including any defects or adverse conditions not discovered or otherwise
known by Lessee as of the date hereof.

                                       26

<PAGE>

LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF
THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO THE
NATURE OR QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, OR THE EXISTENCE OF
ANY HAZARDOUS SUBSTANCE, IT BEING AGREED THAT ALL SUCH RISKS, LATENT OR PATENT,
ARE TO BE BORNE SOLELY BY LESSEE INCLUDING ALL RESPONSIBILITY AND LIABILITY FOR
ANY ENVIRONMENTAL REMEDIATION AND COMPLIANCE WITH ALL ENVIRONMENTAL LAWS.

         7.2      Use of the Leased Property.

                  7.2.1    Lessee covenants that it will obtain and maintain all
authorizations and approvals needed to use and operate the Leased Property, all
Capital Additions and each Facility for such Facility's respective Primary
Intended Use and any other use conducted on the Leased Property and any Capital
Additions as may be permitted from time to time hereunder in accordance with
Legal Requirements including applicable licenses, provider agreements, permits,
and Medicare and/or Medicaid certification.

                  7.2.2    Lessee shall use or cause to be used the Leased
Property, all Capital Additions and the improvements thereon of each Facility
for the Primary Intended Use of such Facility. Lessee shall not use the Leased
Property, any Capital Additions or any part(s) thereof for any other use without
the prior written consent of Lessor, which consent Lessor may withhold in its
sole discretion.

                  7.2.3    Lessee shall operate continuously the entire Leased
Property and all Capital Additions of each Facility in accordance with the
Primary Intended Use of such Facility. Lessee shall devote the entirety of each
Facility and all Capital Additions to the Primary Intended Use, except for areas
reasonably required for office, storage space or ancillary service uses
incidental to the Primary Intended Use. Lessee shall not modify the services
offered or take any other action (e.g., removing patients or residents from a
Facility or directing patients or residents, or prospective patients or
residents, to another facility) if such modification of services or the taking
of such action would materially reduce Gross Revenues or the Fair Market Value
of any Facility. Lessee shall at all times maintain an adequate staff for the
service of its residents and/or patients, in each case assuming an occupancy
and/or use level for each Facility which is not less than the average occupancy
and/or use level for similar facilities in the State. Lessee shall employ its
best judgment, efforts and abilities to operate the entirety of each Facility in
such a manner so as to enhance the reputation and attractiveness of each
Facility.

                  7.2.4    Lessee shall conduct its business at each Facility in
conformity with the highest standards of patient or resident care practice
provided in similar facilities in the State.

                  7.2.5    Lessee shall not commit or suffer to be committed any
waste on the Leased Property and/or on or to any Capital Additions or cause or
permit any nuisance to exist thereon or with respect thereto.

                                       27

<PAGE>

                  7.2.6    Lessee shall neither suffer nor permit the Leased
Property, any Capital Additions, or any part(s) thereof, or Lessee's Personal
Property, to be used in such a manner as (i) might reasonably tend to impair
Lessor's title thereto or to any portion thereof or (ii) may make possible a
claim of adverse use or possession, or an implied dedication of the Leased
Property, any Capital Additions or any part(s) thereof.

                  7.2.7    For purposes of computing Incremental Gross Revenues
for any Facility for any Lease Year or other period during which Lessee is in
breach or violation of any of the covenants set forth in Sections 7.2.1 through
7.2.4, Lessee's Gross Revenues for such Facility for Lease Year or other period
shall be deemed to be the greater of Lessee's Gross Revenues for such Facility
for (i) such Lease Year or other period, or (ii) the highest Gross Revenues for
such Facility for any prior Lease Year or any corresponding period of any prior
Lease Year, as applicable, as determined by Lessor.

                  7.2.8    There shall be no change of any License Holder for
any Facility without Lessor's prior written consent, which consent may be given
or withheld in Lessor's sole and absolute discretion.

         7.3      Lessor to Grant Easements, etc. Lessor shall, from time to
time so long as no Event of Default has occurred and is continuing, at the
request of Lessee and at Lessee's cost and expense, but subject to the approval
of Lessor, which approval shall not be unreasonably withheld or delayed (i)
grant easements and other rights in the nature of easements; (ii) release
existing easements or other rights in the nature of easements which are for the
benefit of the Leased Property; (iii) dedicate or transfer unimproved portions
of the Leased Property for road, highway or other public purposes; (iv) execute
petitions to have the Leased Property annexed to any municipal corporation or
utility district; (v) execute amendments to any covenants, conditions and
restrictions affecting the Leased Property; and (vi) execute and deliver to any
Person any instrument appropriate to confirm or effect such grants, releases,
dedications and transfers to the extent of its interest in the Leased Property,
but only upon delivery to Lessor of an Officer's Certificate stating that such
grant release, dedication, transfer, petition or amendment is not detrimental to
the proper conduct of the business of Lessee on the Leased Property and does not
materially reduce the value of the Leased Property. Except as set forth in
Section 36.1 with respect to granting monetary Encumbrances, or unless otherwise
requested by Lessee, Lessor shall not grant any easements or impose any
covenants, conditions or restrictions on the Leased Property without Lessee's
consent, which consent shall not be unreasonably withheld.

         7.4      Preservation of Facility Value. Lessee acknowledges that a
fair return to Lessor on its investment in the Leased Property of each Facility
is dependent, in part, on the concentration on the Leased Property and all
Capital Additions of such Facility during the Term of the assisted living
facility and the core community business of Lessee and its Affiliates in the
geographical area of such Facility. Lessee further acknowledges that diversion
of residents and/or patients, as applicable, from any Facility to other
facilities or institutions and/or reemployment by Lessee of management or
supervisory personnel working at any Facility following the expiration or
earlier termination of this Lease at other facilities or institutions owned,
operated or managed, whether directly or indirectly, by Lessee or its Affiliates
could

                                       28

<PAGE>

have a material adverse impact on the value and utility of the Leased Property
and all Capital Additions. Accordingly, Lessor and Lessee agree as follows:

                  7.4.1    During the Term and for a period of one (1) year
thereafter, neither Lessee nor any of its Affiliates, directly or indirectly,
shall operate, own, manage or have any interest in or otherwise participate in
or receive revenues from any other facility or institution providing services or
goods similar to those provided in connection with any Facility and its Primary
Intended Use, within a ten (10) mile radius outward from the outside boundary of
such Facility. All distances shall be measured on a straight line rather than on
a driving distance basis. In the event that any portion of such other facility
or institution is located within such restricted area the entire facility or
institution shall be deemed located within such restricted area. Without
limiting Lessor's remedies, if Lessee should violate the covenant contained in
this Section during the Term of the Lease with respect to any Facility, Lessor
may, at its option, include the Gross Revenues of such other facility or
institution in such restricted area in the Gross Revenues from such Facility for
the purpose of computing Incremental Gross Revenues hereunder for such Facility.
If Lessor so elects, all of the provisions of Article III hereof shall be
applicable to all records pertaining to such facility or institution.
Notwithstanding the foregoing, this Section 7.4.1 shall not apply to any of
those facilities currently owned and/or operated by Lessee or an Affiliate of
Lessee located within such ten (10) mile radius and set forth on Exhibit F
hereto.

                  7.4.2    For a period of two (2) years following the Term,
neither Lessee nor any of its Affiliates shall, without the prior written
consent of Lessor, which consent may be given or withheld in Lessor's sole
discretion, hire, engage or otherwise employ any management or supervisory
personnel working solely on or solely in connection with any Facility.

                  7.4.3    Except as required for medically appropriate reasons
and except as may be necessary in connection with a casualty, prior to and after
the expiration or earlier termination of this Lease with respect to any or all
of the Facilities, Lessee shall not recommend or solicit the removal or transfer
of more than ten (10) residents or patients from any Facility to any other
facility or institution in any Lease Year.

                                 ARTICLE VIII.

         8.1      Compliance with Legal and Insurance Requirements, Instruments,
etc. Subject to Article XII regarding permitted contests, Lessee, at its
expense, shall promptly (i) comply with all Legal Requirements and Insurance
Requirements regarding the use, operation, maintenance, repair and restoration
of the Leased Property, Lessee's Personal Property and all Capital Additions
whether or not compliance therewith may require structural changes in any of the
Leased Improvements or any Capital Additions or interfere with the use and
enjoyment of the Leased Property and (ii) procure, maintain and comply with all
licenses, certificates of need, provider agreements and other authorizations
required for the use of the Leased Property, Lessee's Personal Property and all
Capital Additions for the applicable Primary Intended Use and any other use of
the Leased Property, Lessee's Personal Property and all Capital Additions then
being made, and for the proper erection, installation, operation and maintenance
of the Leased Property, Lessee's Personal Property and all Capital Additions.
If, after thirty (30) days of receiving notice from Lessor, Lessee fails to
comply with the provisions

                                       29

<PAGE>

of this Section 8.1, Lessor may, but shall not be obligated to, enter upon the
Leased Property and all Capital Additions and take such actions and incur such
costs and expenses to effect such compliance as it deems advisable to protect
its interest in the Leased Property and all Capital Additions, and Lessee shall
reimburse Lessor for all costs and expenses incurred by Lessor in connection
with such actions. Lessee covenants and agrees that the Leased Property,
Lessee's Personal Property and all Capital Additions shall not be used for any
unlawful purpose.

                                  ARTICLE IX.

         9.1      Maintenance and Repair.

                  9.1.1    Lessee, at its expense, shall maintain the Leased
Property, and every portion thereof, Lessee's Personal Property and all Capital
Additions, and all private roadways, sidewalks and curbs appurtenant to the
Leased Property, and which are under Lessee's control in good order and repair
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of the Leased Property, Lessee's Personal
Property and all Capital Additions, and, with reasonable promptness, make all
necessary and appropriate repairs thereto of every kind and nature, including
those necessary to comply with changes in any Legal Requirements, whether
interior or exterior, structural or non-structural, ordinary or extraordinary,
foreseen or unforeseen or arising by reason of a condition existing prior to the
Commencement Date. All repairs shall be at least equivalent in quality to the
original work. Lessee will not take or omit to take any action the taking or
omission of which might materially impair the value or the usefulness of the
Leased Property, any Capital Additions, or any part(s) thereof for the Primary
Intended Use. Lessor shall assign to Lessee the benefit of any warranties
relating to the Leased Property to the extent such benefit may be assigned by
Lessor without loss of the benefit of the same to Lessor, and Lessor shall use
reasonable efforts to assist Lessee in enforcing any such warranties at no
out-of-pocket cost to Lessor.

                  9.1.2    Lessor shall not under any circumstances be required
to (i) build or rebuild any improvements on the Leased Property or any Capital
Additions; (ii) make any repairs, replacements, alterations, restorations or
renewals of any nature to the Leased Property, whether ordinary or
extraordinary, structural or non-structural, foreseen or unforeseen, or to make
any expenditure whatsoever with respect thereto; or (iii) maintain the Leased
Property or any Capital Additions in any way. Lessee hereby waives, to the
extent permitted by law, the right to make repairs at the expense of Lessor
pursuant to any law in effect at the time of the execution of this Lease or
hereafter enacted.

                  9.1.3    Nothing contained in this Lease and no action or
inaction by Lessor shall be construed as (i) constituting the consent or request
of Lessor, expressed or implied, to any contractor, subcontractor, laborer,
materialman 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, any Capital
Additions or any part(s) thereof; or (ii) giving Lessee 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 Lessor in respect thereof or to make any
agreement that may create, or in any way be the basis for, any right, title,

                                       30

<PAGE>

interest, lien, claim or other encumbrance upon the estate of Lessor in the
Leased Property, any Capital Additions or any part(s) thereof.

                  9.1.4    Unless Lessor shall convey any of the Leased Property
to Lessee pursuant to the provisions of this Lease, Lessee shall, upon the
expiration or earlier termination of the Term, vacate and surrender the Leased
Property, Lessee's Personal Property, and all Capital Additions to Lessor in the
condition in which the Leased Property was originally received from Lessor and
Lessee's Personal Property and any Capital Additions were originally introduced
to each Facility, except as repaired, rebuilt, restored, altered or added to as
permitted or required by the provisions of this Lease and except for ordinary
wear and tear.

         9.2      Encroachments, Restrictions, Mineral Leases, etc. If any of
the Leased Improvements or Capital Additions shall, at any time, encroach upon
any property, street or right-of-way, or shall violate any restrictive covenant
or other agreement affecting the Leased Property, any Capital Additions or any
parts thereof, or shall impair the rights of others under any easement or
right-of-way to which the Leased Property is subject, or the use of the Leased
Property or any Capital Additions is impaired, limited or interfered with by
reason of the exercise of the right of surface entry or any other provision of a
lease or reservation of any oil, gas, water or other minerals, then promptly
upon the request of Lessor, Lessee, at its sole cost and expense, but subject to
its right to contest the existence of any such encroachment, violation or
impairment, shall protect, indemnify, save harmless and defend Lessor from and
against all losses, liabilities, obligations, claims, damages, penalties, causes
of action, costs and expenses (including reasonable attorneys', consultants' and
experts' fees and expenses) based on or arising by reason of any such
encroachment, violation or impairment. In the event of an adverse final
determination with respect to any such encroachment, violation or impairment by
a court or regulatory authority having jurisdiction with respect thereto, Lessee
shall either (i) obtain valid and effective waivers or settlements of all
claims, liabilities and damages resulting from each such encroachment, violation
or impairment, whether the same shall affect Lessor or Lessee; or (ii) make such
changes in the Leased Improvements and any Capital Addition, and take such other
actions, as Lessee in the good faith exercise of its judgment deems reasonably
practicable, to remove such encroachment or to end such violation or impairment,
including, if necessary, the alteration of any of the Leased Improvements or any
Capital Addition, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Leased Improvements and any
Capital Addition for the Primary Intended Use substantially in the manner and to
the extent the Leased Improvements and Capital Additions were operated prior to
the assertion of such encroachment, violation or impairment. Lessee's
obligations under this Section 9.2 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, to the extent the recovery thereof is not necessary to
compensate Lessor for any damages incurred by any such encroachment, violation
or impairment, Lessee shall be entitled to a credit for any sums recovered by
Lessor under any such policy of title or other insurance.

                                   ARTICLE X.

         10.1     Construction of Capital Additions and Other Alterations to the
Leased Property. Without the prior written consent of Lessor, which consent may
be given or withheld in Lessor's sole and absolute discretion, Lessee shall not
(a) make any Capital Additions on or

                                       31

<PAGE>

structural alterations to the Leased Property, (b) enlarge or reduce the size of
any Facility or otherwise materially alter or affect (other than repair and
replacement thereof) any main Facility systems, including any main plumbing,
electrical or heating, ventilating and air conditioning systems of any Facility
and/or (c) make any Capital Additions or other alterations which would tie in or
connect with any improvements on property adjacent to the Land. Lessee may,
without Lessor's prior written consent, make any alterations, additions, or
improvements (collectively, "alterations") to the Leased Property if such
alterations are not of the type described in either clause (a), (b) or (c)
above, so long as in each case: (i) the same do not (A) decrease the value of
the Leased Property, (B) affect the exterior appearance of the Leased Property,
or (C) adversely affect the structural components of the Leased Improvements or
the main electrical, mechanical, plumbing or ventilating and air conditioning
systems for any Facility, (ii) the same are consistent in terms of style,
quality and workmanship to the original Leased Improvements and Fixtures, (iii)
the same are constructed and performed in accordance with the provisions of
Section 10.2 below and (iv) the cost thereof does not exceed, in the aggregate,
$200,000.00 for any twelve (12) month period with respect to any single
Facility. Any other alterations (i.e., other than alterations described in
clauses (a), (b) or (c) above, and other than alterations which meet the
foregoing requirements of clauses (i), (ii), (iii) and (iv) above) shall be
subject to Lessor's prior written consent, which consent shall not be
unreasonably withheld. To the extent Lessor's prior written consent shall be
required in connection with any alterations or Capital Additions, Lessor may
impose such conditions thereon in connection with its approval thereof as Lessor
in its sole but reasonable judgment deems appropriate. Notwithstanding the
foregoing, Lessor agrees that painting, landscaping, and replacement of floor,
wall and window coverings shall be deemed alterations which do not require
Lessor's consent, regardless of the cost thereof, so long as the same meet the
requirements of clauses (ii) and (iii) above.

         10.2     Construction Requirements for all Alterations. Whether or not
Lessor's review and approval is required, for all Capital Additions and other
alterations of the Leased Property, the following shall apply (except to the
extent Lessor reasonably determines that, because of the nature or extent of the
alteration, any such requirement is not applicable):

                  (a)      Such construction shall not commence until Lessee
shall have procured and paid for all municipal and other governmental permits
and authorizations required therefor, and Lessor shall join in the application
for such permits or authorizations whenever such action is necessary; provided,
however, that (i) any such joinder shall be at no cost or expense to Lessor; and
(ii) any plans required to be filed in connection with any such application
which require the approval of Lessor as hereinabove provided shall have been so
approved by Lessor;

                  (b)      Such construction shall not, and Lessee's licensed
architect or engineer shall certify to Lessor that such construction shall not,
impair the structural strength of any component of the applicable Facility or
overburden the electrical, water, plumbing, HVAC or other building systems of
any such component;

                  (c)      Lessee's licensed architect or engineer shall certify
to Lessor that the detailed plans and specifications conform to and comply with
all Insurance Requirements and all applicable building, subdivision and zoning
codes, laws, ordinances, regulations and other

                                       32

<PAGE>

Legal Requirements imposed by all governmental authorities having jurisdiction
over the Leased Property;

                  (d)      Such construction shall, when completed, be of such a
character as not to decrease the value of the Leased Property as it was
immediately before such Capital Addition;

                  (e)      During and following completion of such construction,
the parking which is located in the applicable Facility or on the Land relating
to such Facility shall remain adequate for the operation of such Facility for
its Primary Intended Use and in no event shall such parking be less than that
which was or is required by law; provided, however, with Lessor's prior consent
and at no additional expense to Lessor, (i) to the extent additional parking is
not already a part of a Capital Addition, Lessee may construct additional
parking on the Land relating to such Facility; or (ii) Lessee may acquire
off-site parking to serve such Facility as long as such parking shall be
dedicated to, or otherwise made available to serve, such Facility;

                  (f)      All work done in connection with such construction
shall be done promptly and in a good and workmanlike manner using first-class
materials and in conformity with all Legal Requirements;

                  (g)      Promptly following the completion of such
construction, Lessee shall deliver to Lessor "as built" drawings of such
addition, certified as accurate by the licensed architect or engineer selected
by Lessee to supervise such work; and

                  (h)      If by reason of the construction thereof, a new or
revised Certificate of Occupancy for any component of such Facility is required,
Lessee shall obtain and furnish a copy of the same to Lessor promptly upon
completion thereof.

                                  ARTICLE XI.

         11.1    Liens. Subject to the provisions of Article XII relating to
permitted contests, Lessee will not directly or indirectly create or allow to
remain and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Property or any
Capital Additions or any attachment, levy, claim or encumbrance in respect of
the Rent, excluding, however, (i) this Lease; (ii) the matters that exist as of
the Commencement Date; (iii) restrictions, liens and other encumbrances which
are consented to in writing by Lessor, or any easements granted pursuant to the
provisions of Section 7.3; (iv) liens for Impositions which Lessee is not
required to pay hereunder; (v) subleases permitted by Article XXIV; (vi) liens
for Impositions not yet delinquent; (vii) liens of mechanics, laborers,
materialmen, suppliers or vendors for amounts not yet due; (viii) any liens
which are the responsibility of Lessor pursuant to the provisions of
Article XXXVI; (ix) any judgment liens against Lessor for amounts which are not
otherwise the responsibility of Lessee; and (x) any other matters created by
Lessor which are not otherwise the responsibility of Lessee.

                                  ARTICLE XII.

         12.1    Permitted Contests. Lessee, upon prior written notice to
Lessor, on its own or in Lessor's name, at Lessee's expense, may contest, by
appropriate legal proceedings

                                       33

<PAGE>

conducted in good faith and with due diligence, the amount, validity or
application, in whole or in part, of any licensure or certification decision,
Imposition, Legal Requirement, Insurance Requirement, lien, attachment, levy,
encumbrance, charge or claim; subject, however, to the further requirement that
(i) in the case of an unpaid Imposition, lien, attachment, levy, encumbrance,
charge or claim, the commencement and continuation of such proceedings shall
suspend the collection thereof from Lessor and from the Leased Property or any
Capital Additions; (ii) neither the Leased Property nor any Capital Additions,
the Rent therefrom nor any part or interest in either thereof would be in any
danger of being sold, forfeited, attached or lost pending the outcome of such
proceedings; (iii) in the case of a Legal Requirement, neither Lessor nor Lessee
would be in any danger of civil or criminal liability for failure to comply
therewith pending the outcome of such proceedings; (iv) if any such contest
shall involve a sum of money or potential loss in excess of Fifty Thousand
Dollars ($50,000), upon request of Lessor, Lessee shall deliver to Lessor and
its counsel an opinion of legal counsel reasonably acceptable to Lessor to the
effect set forth in clauses (i), (ii) and (iii) above, to the extent applicable;
(v) in the case of a Legal Requirement, Imposition, lien, encumbrance or charge,
Lessee shall give such reasonable security as may be required by Lessor to
insure ultimate payment of the same and to prevent any sale or forfeiture of the
Leased Property or any Capital Additions or the Rent by reason of such
nonpayment or noncompliance; and (vi) in the case of an Insurance Requirement,
the coverage required by Article XIII shall be maintained. If any such contest
is finally resolved against Lessor or Lessee, Lessee shall promptly pay the
amount required to be paid, together with all interest and penalties accrued
thereon, or comply with the applicable Legal Requirement or Insurance
Requirement. Lessor, at Lessee's expense, shall execute and deliver to Lessee
such authorizations and other documents as may reasonably be required in any
such contest, and, if reasonably requested by Lessee or if Lessor so desires,
Lessor shall join as a party therein. The provisions of this Article XII shall
not be construed to permit Lessee to contest the payment of Rent or any other
amount payable by Lessee to Lessor hereunder. Lessee shall indemnify, defend,
protect and save Lessor harmless from and against any liability, cost or expense
of any kind that may be imposed upon Lessor in connection with any such contest
and any loss resulting therefrom.

                                 ARTICLE XIII.

         13.1     General Insurance Requirements. During the Term, Lessee shall
at all times keep the Leased Property, and all property located in or on the
Leased Property, including all Capital Additions, the Fixtures and the Personal
Property, insured with the kinds and amounts of insurance described below. Each
element of the insurance described in this Article shall be maintained with
respect to the Leased Property of each Facility and the Personal Property and
operations thereon. This insurance shall be written by companies authorized to
do insurance business in the State in which the Leased Property is located. All
liability type policies must name Lessor as an "additional insured." All
property, loss of rental and business interruption type policies shall name
Lessor as "loss payee." Losses shall be payable to Lessor and/or Lessee as
provided in Article XIV. In addition, the policies, as appropriate, shall name
as an "additional insured" or "loss payee" the holder of any mortgage, deed of
trust or other security agreement ("Facility Mortgagee") securing any
indebtedness or any other Encumbrance placed on any Leased Property in
accordance with the provisions of Article XXXVI ("Facility Mortgage") by way of
a standard form of mortgagee's loss payable endorsement; provided, however, that
Lessor delivers the name and address of any such Facility Mortgagee to Lessee.
Any loss

                                       34

<PAGE>

adjustment shall require the written consent of Lessor, Lessee, and each
Facility Mortgagee. Evidence of insurance shall be deposited with Lessor and, if
requested, with any Facility Mortgagee(s). The policies shall insure against the
following risks with respect to each Facility:

                  13.1.1   Loss or damage by fire, vandalism and malicious
mischief, extended coverage perils commonly known as special form perils,
earthquake (including earth movement), sinkhole and windstorm in an amount not
less than the insurable value on a replacement cost basis (as defined below in
Section 13.2) and including a building ordinance coverage endorsement;

                  13.1.2   Loss or damage by explosion of steam boilers,
pressure vessels or similar apparatus, now or hereafter installed in each
Facility, in such limits with respect to any one accident as may be reasonably
requested by Lessor from time to time;

                  13.1.3   Flood (when the Leased Property of a Facility is
located in whole or in part within a designated 100-year flood plain area) and
such other hazards and in such amounts as may be customary for comparable
properties in the area;

                  13.1.4   Loss of rental value in an amount not less than
twelve (12) months' Rent payable hereunder or business interruption in an amount
not less than twelve (12) months of income and normal operating expenses
including payroll and Rent payable hereunder with an endorsement extending the
period of indemnity by at least ninety (90) days (Building Ordinance - Increased
Period of Restoration Endorsement) necessitated by the occurrence of any of the
hazards described in Sections 13.1.1, 13.1.2 or 13.1.3; and

                  13.1.5   (a) Bodily injury or property damage under a policy
of commercial general liability insurance (including broad form property damage
and broad form contractual liability) and (b) medical professional liability,
with amounts not less than Five Million and No/100 Dollars ($5,000,000.00) per
occurrence and Twenty-Five Million and No/100 Dollars ($25,000,000) in the
annual aggregate.

With respect to the insurance referenced in Section 13.1.5 (general liability
and medical professional liability), Lessee shall be permitted to use a claims
made policy form rather than an occurrence based policy form; provided, however,
that any such claims made policy must include therein the right to purchase a
"tail" that insures against so-called "incurred but not reported claims" for a
period of not less than two (2) years (or, if available, three (3) years)
following the expiration of such claims made policy. Upon the expiration of any
such claims made policy, Lessee shall either (i) purchase a two (2) year "tail"
policy covering any so-called "incurred but not reported claims" during the
prior policy period (or, if available, a three (3) year "tail" policy covering
any so-called "incurred but not reported claims") during the prior policy
period, or (ii) provide other insurance covering "incurred but not reported
claims" for such prior policy period for a period of not less than two (2) years
(or, if available, three (3) years) thereafter in form satisfactory to Lessor.

         13.2     Replacement Cost. The term "replacement cost" shall mean the
actual replacement cost of the insured property from time to time with new
materials and workmanship of like kind and quality. If either party believes
that the replacement cost has increased or

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<PAGE>

decreased at any time during the Term, it shall have the right to have such
replacement cost redetermined by an impartial national insurance company
reasonably acceptable to both parties (the "impartial appraiser"). The party
desiring to have the replacement cost so redetermined shall forthwith, on
receipt of such determination by the impartial appraiser, give written notice
thereof to the other party hereto. The determination of the impartial appraiser
shall be final and binding on the parties hereto, and Lessee shall forthwith
increase or decrease the amount of the insurance carried pursuant to this
Article to the amount so determined by the impartial appraiser. Each party shall
pay one-half (1/2) of the fee, if any, of the impartial appraiser. If Lessee has
made improvements to the Leased Property, including any Capital Additions,
Lessor may at Lessee's expense have the replacement cost redetermined at any
time after such improvements are made, regardless of when the replacement cost
was last determined.

         13.3     Additional Insurance. In addition to the insurance described
above, Lessee shall maintain such additional insurance as may be reasonably
required from time to time by any Lessor and shall further at all times maintain
adequate workers' compensation coverage and any other coverage required by Legal
Requirements for all Persons employed by Lessee on the Leased Property and any
Capital Additions in accordance with Legal Requirements.

         13.4     Waiver of Subrogation. All insurance policies carried by
either party covering the Leased Property and any Capital Additions and Lessee's
Personal Property including contents, fire and casualty insurance, shall
expressly waive any right of subrogation on the part of the insurer against the
other party. Each party waives any claims it has against the other party to the
extent such claim is covered by insurance.

         13.5     Policy Requirements. All of the policies of insurance referred
to in this Article shall be written in form satisfactory to Lessor and by
insurance companies with a policyholder rating of "A" and a financial rating of
"X" in the most recent version of Best's Key Rating Guide. Additionally, except
as otherwise provided in this Lease, all of the insurance referred to in this
Article shall be on an occurrence (rather than a claims-made) basis. Lessee
shall pay all of the premiums therefor, and deliver such policies or
certificates thereof to Lessor prior to their effective date (and with respect
to any renewal policy, shall deliver to Lessor's reasonable satisfaction,
evidence of renewal at least five (5) days prior to the expiration of the
existing policy), and in the event of the failure of Lessee either to effect
such insurance in the names herein called for or to pay the premiums therefor,
or to deliver such policies or certificates thereof to Lessor, at the times
required, Lessor shall be entitled, but shall have no obligation, to effect such
insurance and pay the premiums therefor, in which event the cost thereof,
together with interest thereon at the Overdue Rate, shall be repayable to Lessor
upon demand therefor. Each insurer shall agree, by endorsement on the policy or
policies issued by it, or by independent instrument furnished to Lessor, that it
will give to Lessor thirty (30) days' written notice before the policy or
policies in question shall be materially altered, allowed to expire or canceled.
Each policy shall have a deductible or deductibles, if any, which are no greater
than those normally maintained for similar facilities in the State of similar
size, financial condition, resident mix and number; provided, however, that in
no event shall the deductibles for any medical professional liability policies
or general liability policies exceed the amounts set forth on Exhibit E attached
hereto and made a part hereof.

                                       36

<PAGE>

         13.6     Increase in Limits. If either party shall at any time believe
the limits of the insurance required hereunder to be either excessive or
insufficient, the parties shall endeavor to agree in writing on the proper and
reasonable limits for such insurance to be carried and such insurance shall
thereafter be carried with the limits thus agreed on until further change
pursuant to the provisions of this Section. If the parties shall be unable to
agree thereon, the proper and reasonable limits for such insurance to be carried
shall be determined by an impartial third party reasonably selected by Lessor
and Lessee. Nothing herein shall permit the amount of insurance to be reduced
below the amount or amounts required by any of the Facility Mortgagees.

         13.7     Blanket Policies and Policies Covering Multiple Locations.
Notwithstanding anything to the contrary contained in this Article, Lessee's
obligations to carry the casualty insurance provided for herein may be brought
within the coverage of a blanket policy or policies of insurance carried and
maintained by Lessee; provided, however, that the coverage afforded Lessor will
not be reduced or diminished or otherwise be different from that which would
exist under a separate policy for each Facility meeting all other requirements
of this Lease by reason of the use of such blanket policy of insurance, and
provided further that the requirements of this Article XIII are otherwise
satisfied. For any liability policies covering one or more of the Facilities or
any other facilities in addition to the Facilities, Lessor may require excess
limits as Lessor reasonably determines.

         13.8     No Separate Insurance. Lessee shall not, on Lessee's own
initiative or pursuant to the request or requirement of any third party, (i)
take out separate insurance concurrent in form or contributing in the event of
loss with that required in this Article to be furnished by, or which may
reasonably be required to be furnished by, Lessee or (ii) increase the amounts
of any then existing insurance by securing an additional policy or additional
policies, unless all parties having an insurable interest in the subject matter
of the insurance, including in all cases Lessor and all Facility Mortgagees, are
included therein as additional insured and the loss is payable under such
insurance in the same manner as losses are payable under this Lease. Lessee
shall immediately notify Lessor of the taking out of any such separate insurance
or of the increasing of any of the amounts of the then existing insurance by
securing an additional policy or additional policies.

                                  ARTICLE XIV.

         14.1     Insurance Proceeds. All proceeds payable by reason of any loss
or damage to the Leased Property, any Capital Additions or any part(s) or
portion(s) thereof, under any policy of insurance required to be carried
hereunder shall be paid to Lessor and made available by Lessor to Lessee from
time to time for the reasonable costs of reconstruction or repair, as the case
may be, of any damage to or destruction of the Leased Property, any Capital
Additions or any part(s) or portion(s) thereof. Any excess proceeds of such
insurance remaining after the completion of (and payment for) the restoration or
reconstruction of the Leased Property and any Capital Additions (or in the event
neither Lessor nor Lessee is required or elects to repair and restore, all such
insurance proceeds) shall be retained by Lessor except as otherwise specifically
provided below in this Article XIV. All salvage resulting from any risk covered
by insurance shall belong to Lessor. If a Facility Mortgagee requires that any
insurance proceeds be applied towards the repayment of Lessor's debt (rather
than for restoration or reconstruction of the Leased Property and any Capital
Additions), then Lessor shall furnish Lessee with the

                                       37

<PAGE>

amount of funds which otherwise would have been made available to Lessee but for
such actions of such Facility Mortgagee and such funds shall be used by Lessee
for restoration or reconstruction of the Leased Property and Capital Additions.

         14.2     Insured Casualty.

                  14.2.1   If the Leased Property and/or any Capital Additions
of a Facility are damaged or destroyed from a risk covered by insurance carried
by Lessee such that such Facility thereby is rendered Unsuitable for its Primary
Intended Use, Lessee shall either (i) restore such Leased Property and such
Capital Additions to substantially the same condition as existed immediately
before such damage or destruction, or (ii) offer to acquire the Leased Property
of such Facility from Lessor for a purchase price equal to the greater of (y)
the Minimum Repurchase Price of such Facility or (z) the Fair Market Value of
such Facility immediately prior to such damage or destruction. If Lessor does
not accept Lessee's offer to so purchase the Leased Property of such Facility
within 45 days, Lessee may either withdraw such offer and proceed to restore the
Leased Property of such Facility to substantially the same condition as existed
immediately before such damage or destruction or terminate the Lease with
respect to such Facility in which event Lessor shall be entitled to retain the
insurance proceeds payable on account of such casualty.

                  14.2.2   If the Leased Property and/or any Capital Additions
of a Facility are damaged from a risk covered by insurance carried by Lessee,
but such Facility is not thereby rendered Unsuitable for its Primary Intended
Use, Lessee shall restore such Leased Property and such Capital Additions to
substantially the same condition as existed immediately before such damage. Such
damage shall not terminate this Lease; provided, however, that if Lessee cannot
within a reasonable time after diligent efforts obtain the necessary government
approvals needed to restore and operate such Facility for its Primary Intended
Use, Lessee may offer to purchase the Leased Property of such Facility for a
purchase price equal to the greater of the Minimum Repurchase Price of such
Facility or the Fair Market Value of such Facility immediately prior to such
damage. If Lessee shall make such offer and Lessor does not accept the same
within 45 days, Lessee may either withdraw such offer and proceed to restore the
Leased Property of such Facility to substantially the same condition as existed
immediately before such damage or destruction, or terminate the Lease with
respect to such Facility, in which event Lessor shall be entitled to retain the
insurance proceeds.

                  14.2.3   If the cost of the repair or restoration exceeds the
amount of proceeds received by Lessor from the insurance required to be carried
hereunder, Lessee shall contribute any excess amounts needed to restore such
Facility. Such difference shall be paid by Lessee to Lessor together with any
other insurance proceeds, for application to the cost of repair and restoration.

                  14.2.4   If Lessor accepts Lessee's offer to purchase the
Leased Property of a Facility, this Lease shall terminate as to such Facility
upon payment of the purchase price and Lessor shall remit to Lessee all
insurance proceeds pertaining to the Leased Property of such Facility received
by Lessor, including any amounts applied by a Facility Mortgagee to Lessor's
debt.

                                       38

<PAGE>

         14.3     Uninsured Casualty. If the Leased Property and/or any Capital
Additions of a Facility are damaged or destroyed from a risk not covered by
insurance carried by Lessee and not required to be covered by insurance by
Lessee as provided herein, such that such Facility thereby is rendered
Unsuitable for its Primary Intended Use, Lessee shall either (i) restore such
Leased Property and such Capital Additions to substantially the same condition
as existed immediately before such damage or destruction, or (ii) offer to
acquire the Leased Property of such Facility from Lessor for a purchase price
equal to the greater of (y) the Minimum Repurchase Price of such Facility or
(z) the Fair Market Value of such Facility immediately prior to such damage or
destruction. If Lessor does not accept Lessee's offer to so purchase the Leased
Property of such Facility within 45 days, Lessee may either withdraw such offer
and proceed to restore the Leased Property of such Facility to substantially the
same condition as existed immediately before such damage or destruction or
terminate the Lease with respect to such Facility.

                  14.3.2   If the Leased Property and/or any Capital Additions
of a Facility are damaged from a risk not covered by insurance carried by Lessee
and not required to be covered by insurance by Lessee as provided herein, but
such Facility is not thereby rendered Unsuitable for its Primary Intended Use,
Lessee shall restore such Leased Property and such Capital Additions to
substantially the same condition as existed immediately before such damage. Such
damage shall not terminate this Lease; provided, however, that if Lessee cannot
within a reasonable time after diligent efforts obtain the necessary government
approvals needed to restore and operate such Facility for its Primary Intended
Use, Lessee may offer to purchase the Leased Property of such Facility for a
purchase price equal to the greater of the Minimum Repurchase Price of such
Facility or the Fair Market Value of such Facility immediately prior to such
damage. If Lessee shall make such offer and Lessor does not accept the same
within 45 days, Lessee may either withdraw such offer and proceed to restore the
Leased Property of such Facility to substantially the same condition as existed
immediately before such damage or destruction, or terminate the Lease with
respect to such Facility.

                  14.3.3   If Lessor accepts Lessee's offer to purchase the
Leased Property of a Facility, this Lease shall terminate as to such Facility
upon payment of the purchase price.

         14.4     No Abatement of Rent. This Lease shall remain in full force
and effect and Lessee's obligation to pay the Rent and all other charges
required by this Lease shall remain unabated during the period required for
adjusting insurance, satisfying Legal Requirements, repair and restoration. All
proceeds payable by reason of any loss of rental or business interruption under
any policy of insurance required to be carried by Lessee hereunder shall be paid
to Lessor and, provided that no Event of Default has occurred and is continuing,
Lessor shall (a) apply, on a monthly basis, all such proceeds paid by reason of
loss of rental towards Lessee's obligation to pay Rent, and (b) make available
to Lessee for Lessee's operating costs (e.g., payment of salaries, taxes, etc.),
on a monthly basis, all such proceeds paid by reason of business interruption.
Any excess proceeds of such insurance remaining after such rent and operating
costs have been paid shall be delivered to Lessee.

         14.5     Waiver. Lessee waives any statutory rights of termination
which may arise by reason of any damage or destruction of the Leased Property
and/or any Capital Additions.

                                       39

<PAGE>

                                  ARTICLE XV.

         15.1     Condemnation.

                  15.1.1   Total Taking. If the Leased Property and any Capital
Additions of a Facility are totally and permanently taken by Condemnation, this
Lease shall terminate with respect to such Facility as of the day before the
Date of Taking.

                  15.1.2   Partial Taking. If a portion of the Leased Property
and any Capital Additions is taken by Condemnation, this Lease shall remain in
effect if such Facility is not thereby rendered Unsuitable for Its Primary
Intended Use (except that this Lease shall terminate with respect to the portion
of the Leased Property so taken), but if such Facility is thereby rendered
Unsuitable for its Primary Intended Use, this Lease shall terminate with respect
to such Facility as of the day before the Date of Taking. In the event of any
such partial taking in which the Lease is not so terminated and such partial
taking affects the building of such Facility (as opposed to components of the
Facility such as parking, landscaping, sidewalks, etc.), Allocated Minimum Rent
for such Facility shall be adjusted in a manner that is fair, just and equitable
to both Lessor and Lessee, based upon, among other relevant factors, the loss of
beds or units, if any, in such Facility.

                  15.1.3   Restoration. If there is a partial taking of the
Leased Property and any Capital Additions and this Lease remains in full force
and effect pursuant to Section 15.1.2, Lessor shall make available to Lessee the
portion of the Award necessary and specifically identified or allocated for
restoration of the Leased Property and any such Capital Additions and Lessee
shall accomplish all necessary restoration whether or not the amount provided or
allocated by the Condemnor for restoration is sufficient. If a Facility
Mortgagee requires that the entire Award or any portion thereof be applied
towards the repayment of Lessor's debt (rather than as set forth in this Section
15.1.3), then Lessor shall furnish Lessee with the amount of funds which
otherwise would have been made available to Lessee pursuant to this Section
15.1.3.

                  15.1.4   Award-Distribution. Subject to Section 15.1.3 above,
the entire Award shall belong to and be paid to Lessor, except that Lessee shall
be entitled to receive from the Award, if and to the extent such Award
specifically includes such item, lost profits value and moving expenses,
provided, that in any event (except in the case of a partial Condemnation)
Lessor shall receive from the Award, subject to the rights of the Facility
Mortgagees, no less than the greater of the Fair Market Value of the applicable
Facility prior to the institution of the Condemnation or the Minimum Repurchase
Price of the applicable Facility. For a partial Condemnation, Lessor shall
receive the entire Award, subject to the rights of the Facility Mortgagees, and
subject to Section 15.1.3 above, and the "Minimum Repurchase Price" of a
Facility shall be reduced by the Award payable to Lessor (less any portion of
such Award made available by Lessor for restoration of such Facility).

                  15.1.5   Temporary Taking. The taking of the Leased Property,
any Capital Additions and/or any part(s) thereof, shall constitute a taking by
Condemnation only when the use and occupancy by the taking authority has
continued for longer than 180 consecutive days.

                                       40

<PAGE>

During any shorter period, which shall be a temporary taking, all the provisions
of this Lease shall remain in full force and effect and the Award allocable to
the Term shall be paid to Lessee.

                  15.1.6   Sale Under Threat of Condemnation. A sale by Lessor
to any Condemnor, either under threat of Condemnation or while Condemnation
proceedings are pending, shall be deemed a Condemnation for purposes of this
Lease. Subject to Lessee's consent, which shall not be unreasonably withheld,
Lessor may, without any obligation to Lessee, agree to sell and/or convey to any
Condemnor all or any portion of the Leased Property free from this Lease and the
rights of Lessee hereunder without first requiring that any action or proceeding
be instituted or pursued to judgment.

                                  ARTICLE XVI.

         16.1     Events of Default. Any one or more of the following shall
constitute an "Event of Default":

                  (a)      a default shall occur under any other lease or other
agreement or instrument, now or hereafter with or in favor of Lessor or any
Affiliate of Lessor and made by or with Lessee or any Affiliate of Lessee where
the default is not cured within any applicable grace period set forth therein;

                  (b)      a default shall occur under any New Lease hereafter
with or in favor of Lessor or any Affiliate of Lessor and made by or with Lessee
or any Affiliate of Lessee where the default is not cured within any applicable
grace period set forth therein;

                  (c)      Lessee shall fail to pay any installment of Rent when
the same becomes due and payable and such failure is not cured by Lessee within
a period of five (5) days after notice thereof from Lessor; provided, however,
that such notice shall be in lieu of and not in addition to any notice required
under applicable law;

                  (d)      Lessee shall fail to obtain a letter of credit as
required by Article XXI;

                  (e)      except as otherwise specifically provided for in this
Section 16.1, if Lessee shall fail to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by Lessee
within thirty (30) days after notice thereof from Lessor, unless such failure
cannot with due diligence be cured within a period of thirty (30) days, in which
case such failure shall not be deemed to be an Event of Default if Lessee
proceeds promptly and with due diligence to cure the failure and diligently
completes the curing thereof; provided, however, that such notice shall be in
lieu of and not in addition to any notice required under applicable law;

                  (f)      Lessee or any Guarantor shall:

                           (i)     admit in writing its inability to pay its
         debts generally as they become due,

                                       41

<PAGE>

                           (ii)    file a petition in bankruptcy or a petition
         to take advantage of any insolvency act,

                           (iii)   make an 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;

                  (g)      Lessee or any Guarantor shall be adjudicated as
bankrupt or a court of competent jurisdiction shall enter an order or decree
appointing, without the consent of Lessee, a receiver of Lessee or of the whole
or substantially all of its property, or approving a petition filed against it
seeking reorganization or arrangement of Lessee under the Federal bankruptcy
laws 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 or stayed within sixty (60) days from the date of the entry thereof;

                  (h)      Lessee or any Guarantor shall be liquidated or
dissolved, or shall begin proceedings toward such liquidation or dissolution, or
shall, in any manner, permit the sale or divestiture of substantially all its
assets (except to the extent such a sale is expressly permitted hereunder);

                  (i)      the estate or interest of Lessee in the Leased
Property, any Capital Additions or any part(s) thereof shall be levied upon or
attached in any proceeding and the same shall not be vacated or discharged
within the later of ninety (90) days after commencement thereof or thirty (30)
days after receipt by Lessee of notice thereof from Lessor; provided, however,
that such notice shall be in lieu of and not in addition to any notice required
under applicable law;

                  (j)      any Transfer occurs in violation of the provisions of
Article XXIV;

                  (k)      any of the representations or warranties made by
Lessee or any Guarantor in the Guaranty or otherwise proves to be untrue when
made in any material respect which materially and adversely affects Lessor;

                  (l)      any Facility's applicable license or third-party
provider reimbursement agreements material to such Facility's operation for its
Primary Intended Use are at any time terminated or revoked or suspended for more
than twenty (20) consecutive days;

                  (m)      with respect to any Facility containing skilled
nursing beds, (i) any local, state or federal agency having jurisdiction over
the operation of any such Facility removes the greater of (x) ten (10) or more
patients or residents located in such Facility, or (y) ten percent (10%) or more
of the patients or residents located in such Facility, (ii) any local, state or
federal agency having jurisdiction over any such Facility reduces the number of
licensed beds for such Facility by more than the greater of (x) ten (10) beds,
or (y) ten percent (10%) in the aggregate

                                       42

<PAGE>

from that number set forth on Exhibit B attached hereto, (iii) Lessee
voluntarily reduces the number of licensed beds for any Facility by more than
the greater of (x) five (5) beds or (y) five percent (5%) from that number set
forth on Exhibit B attached hereto (provided that Lessee shall be permitted to
voluntarily reduce the number of licensed beds for any Facility by up to the
greater of (x) ten (10) beds or (y) ten percent (10%) from that number set forth
on Exhibit B attached hereto if Lessee obtains Lessor's prior written approval,
which approval shall not be unreasonably withheld), or (iv) Lessee voluntarily
removes from service (so-called "bed banking") any licensed beds for any such
Facility;

                  (n)      with respect to any Facility containing assisted
living units, any local, state or federal agency having jurisdiction over the
operation of any such Facility removes the greater of (x) ten (10) patients or
residents located in such Facility, or (y) ten percent (10%) or more of the
patients or residents located in such Facility;

                  (o)      Lessee fails to give notice to Lessor not later than
ten (10) days after any notice, claim or demand from any governmental authority
or any officer acting on behalf thereof, of any material violation of any Legal
Requirement with respect to the operation of any Facility. For purposes of this
subsection (o) hereof, a "material violation" shall mean a violation of any such
Legal Requirement that is reasonably likely to (i) have a material adverse
effect on Lessee's operations in such Facility or (ii) impose any liability on
Lessor;

                  (p)      Lessee fails to cure or abate any material violation
(except for violations being contested by Lessee pursuant to Article XII hereof)
occurring during the Term that is claimed by any governmental authority, or any
officer acting on behalf thereof, of any law, order, ordinance, rule or
regulation pertaining to the operation of any Facility, and within the time
permitted by such authority for such cure or abatement. For purposes of this
subsection (p) hereof, a "material violation" shall mean a violation of any such
law, order, ordinance, rule or regulation that is reasonably likely to (i) have
a material adverse effect on Lessee's operations in such Facility or (ii) impose
any liability on Lessor;

                  (q)      Lessee fails to notify Lessor within twenty-four (24)
hours after receipt of any notice from any governmental agency terminating or
suspending or reflecting a material risk of imminent termination or suspension,
of any material license or certification relating to any Facility;

                  (r)      any proceedings are instituted against Lessee by any
governmental authority which are reasonably likely to result in (i) the
revocation of any license granted to Lessee that is material to the operation of
any Facility, (ii) the decertification of any Facility from participation in the
Medicare or Medicaid reimbursement program if participation in such programs is
material to the operation of such Facility, or (iii) the issuance of a stop
placement order against Lessee;

                  (s)      any default and acceleration of any indebtedness of
borrowed money in excess of $100,000.00 of Lessee, Guarantor or any Affiliate of
Lessee or Guarantor has occurred;

                  (t)      any default shall occur under any Guaranty;

                                       43

<PAGE>

                  (u)      Lessee or its Affiliates, as applicable, shall fail
to comply with the provisions of Section 48.1 below; and

                  (v)      any default beyond any applicable cure periods under
that certain Master Lease dated March 29, 2002 by and between HCPI and Texas HCP
Holding, L.P., a Delaware limited partnership, collectively, as lessor, and ARC
Richmond Heights, LLC, a Tennessee liability company, ARC Shavano, L.P., a
Tennessee limited partnership, ARC Delray Beach, LLC, a Tennessee limited
liability company, ARC Victoria, L.P., a Tennessee limited partnership, ARC
Carriage Club of Jacksonville, Inc., a Tennessee corporation, and ARC Post Oak,
L.P., a Tennessee limited partnership collectively, and jointly and severally,
as lessee (including any amendments, modifications and/or restatements thereof
by HCPI and/or an Affiliate of HCPI, as lessor, and an Affiliate of ARCPI, as
lessee).

         Notwithstanding the foregoing, an event of default under the HCPI Loan
Documents shall not in and of itself constitute an "Event of Default" under
Section 16.1 of this Lease; provided, however, an "Event of Default" under this
Lease shall constitute an event of default under the HCPI Loan Documents, as
more particularly set forth in the HCPI Loan Documents.

         16.2     Certain Remedies. If an Event of Default shall have occurred,
Lessor may terminate this Lease with respect to any one or more (including all,
if so elected by Lessor) of the Facilities, regardless of whether such Event of
Default emanated primarily from a single Facility, by giving Lessee notice of
such termination and the Term shall terminate and all rights of Lessee under
this Lease shall cease with respect to all such Facilities as to which Lessor
has elected to so terminate this Lease. Lessor shall have all rights at law and
in equity available to Lessor as a result of any Event of Default. Lessee shall
pay as Additional Charges all costs and expenses incurred by or on behalf of
Lessor, including reasonable attorneys' fees and expenses, as a result of any
Event of Default hereunder. If an Event of Default shall have occurred and be
continuing, whether or not this Lease has been terminated with respect to any
one or more (including all, if so elected by Lessor) of the Facilities pursuant
to this Section 16.2, Lessee shall, to the extent permitted by law, if required
by Lessor so to do, immediately surrender to Lessor possession of the Leased
Property and any Capital Additions of the Facilities as to which Lessor has so
elected to terminate this Lease and quit the same and Lessor may enter upon and
repossess such Leased Property and such Capital Additions by reasonable force,
summary proceedings, ejectment or otherwise, and may remove Lessee and all other
Persons and any of Lessee's Personal Property from such Leased Property and such
Capital Additions.

         16.3     Damages. The (i) termination of this Lease with respect to any
one or more (including all, if so elected by Lessor) of the Facilities; (ii)
repossession of the Leased Property of one or more (including all, if so elected
by Lessor) of the Facilities and Capital Additions of any Facility; (iii)
failure of Lessor, notwithstanding reasonable good faith efforts, to relet the
Leased Property of any Facility; (iv) reletting of all or any portion of the
Leased Property of any Facility; or (v) failure or inability of Lessor to
collect or receive any rentals due upon any such reletting, shall not relieve
Lessee of its liabilities and obligations hereunder, all of which shall survive
any such termination, repossession or reletting. If any such termination occurs,
Lessee shall forthwith pay to Lessor all Rent (including all monthly Allocated
Minimum Rent and Allocated Additional Rent) due and payable with respect to the
Leased Property of

                                       44

<PAGE>

each such Facility as to which this Lease has terminated to and including the
date of such termination. Thereafter, following any such termination, Lessee
shall forthwith pay to Lessor, at Lessor's option, as and for liquidated and
agreed current damages for an Event of Default by Lessee with respect to each
Facility (including all, if applicable) as to which this Lease has been so
terminated, the sum of:

                  (a)      the worth at the time of award of the unpaid Rent
(including all monthly Allocated Minimum Rent and Allocated Additional Rent)
which had been earned at the time of termination with respect to the terminated
Facility,

                  (b)      the worth at the time of award of the amount by which
the unpaid Rent (including all monthly Allocated Minimum Rent and Allocated
Additional Rent) which would have been earned after termination with respect to
the terminated Facility until the time of award exceeds the amount of such
rental loss that Lessee proves could have been reasonably avoided,

                  (c)      the worth at the time of award of the amount by which
the unpaid Rent (including all monthly Allocated Minimum Rent and Allocated
Additional Rent) for the balance of the then current Term (not including any
Extended Terms that have not yet been exercised, but including any Extended Term
which has been exercised but has not yet commenced) after the time of award
exceeds the amount of such rental loss that Lessee proves could be reasonably
avoided, plus

                  (d)      any other amount necessary to compensate Lessor for
all the detriment proximately caused by Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom with respect to such Facility.

As used in clauses (a) and (b) above, the "worth at the time of award" shall be
computed by allowing interest at the Overdue Rate. As used in clause (c) above,
the "worth at the time of award" shall be computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus One Percent (1%). For purposes of determining worth at the time of
the award, Allocated Additional Rent that would have been payable for the
remainder of the period in which Additional Rent is payable hereunder shall be
deemed to be the greater of (y) the Allocated Additional Rent for the then
current Lease Year or, if not determinable, the immediately preceding Lease
Year; and (z) such other amount as Lessor shall demonstrate could reasonably
have been earned.

         Alternatively, if Lessor does not elect to terminate this Lease with
respect to any one or more (including all, if applicable) Facilities, then
Lessee shall pay to Lessor, at Lessor's option, as and for agreed damages for
such Event of Default without termination of Lessee's right to possession of the
Leased Property and any Capital Additions or any portion thereof of such
Facility(ies), each installment of said Rent (including the monthly Allocated
Minimum Rent and Allocated Additional Rent) and other sums payable by Lessee to
Lessor under this Lease as the same becomes due and payable with respect to the
Leased Property of each such Facility, together with interest at the Overdue
Rate from the date when due until paid, and Lessor may enforce, by action or
otherwise, any other term or covenant of this Lease.

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<PAGE>

         16.4     Receiver. Upon the occurrence of an Event of Default, and upon
commencement of proceedings to enforce the rights of Lessor hereunder, Lessor
shall be entitled, as a matter of right, to the appointment of a receiver or
receivers acceptable to Lessor of the Leased Property and any Capital Additions
of the revenues, earnings, income, products and profits thereof, pending the
outcome of such proceedings, with such powers as the court making such
appointment shall confer.

         16.5     Lessee's Obligation to Purchase. Upon the occurrence of a Put
Event with respect to any Facility, Lessor shall be entitled to require Lessee
to purchase the Leased Property of such Facility on the first Minimum Rent
Payment Date occurring not less than thirty (30) days after the date specified
in a notice from Lessor requiring such purchase for an amount equal to the
greater of (i) the Fair Market Value of such Facility, or (ii) the Minimum
Repurchase Price of such Facility, plus, in either event, all Rent then due and
payable (excluding the installment of monthly Allocated Minimum Rent due on the
purchase date) with respect to such Facility as of the date of such purchase. If
Lessor exercises such right, Lessor shall convey the Leased Property of such
Facility to Lessee on the date fixed therefor in accordance with the provisions
of Article XVIII upon receipt of the purchase price therefor and this Lease
shall thereupon terminate with respect to such Facility. Any purchase by Lessee
of the Leased Property of a Facility pursuant to this Section shall be in lieu
of the damages specified in Section 16.3 with respect to such Facility.

         16.6     Waiver. If Lessor initiates judicial proceedings or if this
Lease is terminated by Lessor pursuant to this Article with respect to a
Facility, Lessee waives, to the extent permitted by applicable law, (i) any
right of redemption, re-entry or repossession; and (ii) the benefit of any laws
now or hereafter in force exempting property from liability for rent or for
debt.

         16.7     Application of Funds. Any payments received by Lessor under
any of the provisions of this Lease during the existence or continuance of any
Event of Default which are made to Lessor rather than Lessee due to the
existence of an Event of Default (including all rentals received as a result of
any reletting) shall be applied to Lessee's obligations in the order which
Lessor may determine or as may be prescribed by the laws of the State in which
the applicable Facility is located.

         16.8     Facility Operating Deficiencies. On notice or request therefor
by Lessor to Lessee, upon the occurrence of a Facility Operating Deficiency with
respect to a Facility specified with particularity in Lessor's notice, and for a
period equal to the greater of six (6) months or the time necessary fully to
remedy the Facility Operating Deficiency, Lessee shall engage the services of a
management company, unaffiliated with Lessee and approved by Lessor, to assume
responsibility for management of such Facility for the purpose of taking all
steps reasonably necessary to remedy the Facility Operating Deficiency(ies).
Pursuant to a written agreement among the management company, Lessee and Lessor,
the management company will have complete responsibility for operation of such
Facility, subject to Lessee's retaining only such power and authority as shall
be required by the State as the minimum level of power and authority to be
possessed by the licensed operator of a facility of the type of such Facility in
the State. The management company shall provide the following services:

                                       46

<PAGE>

                  (a)      furnish an on-site, full-time licensed administrator
and controller approved by Lessor who shall be an employee of the management
company;

                  (b)      take all steps reasonably necessary to keep such
Facility fully licensed by the State, certified as a provider under applicable
government reimbursement programs and duly accredited by applicable agencies and
bodies;

                  (c)      perform all of Lessee's obligations hereunder with
respect to maintenance and repair of such Facility;

                  (d)      conduct at the onset of the management company's
engagement, and monthly thereafter, reviews and/or audits of operations at such
Facility in at least the following departments and services: patient and
resident care, activities and therapy, dietary, medical records, drugs and
medicines, supplies, housekeeping and maintenance, and report the results of
such reviews and/or audits in writing to Lessor no later than five (5) days
after the end of each calendar month;

                  (e)      immediately upon receipt thereof, deliver to Lessor
by overnight courier copies of all communications received from any regulatory
agency with respect to such Facility; and

                  (f)      with respect to the Facility Operating
Deficiency(ies) which gave rise to the request to Lessee to engage the
management company, prepare and deliver to Lessor within five (5) days after the
commencement of the management company's responsibilities at such Facility a
comprehensive written report of the nature and extent of the Facility Operating
Deficiency(ies) and advise Lessor orally by telephone no later than noon local
time on each Friday thereafter as to steps being taken by the management company
to remedy the same and the status of any threatened or actual governmental
administrative action with respect thereto.

         The management company shall have complete access to such Facility, its
records, offices and facilities, in order that it may carry out its duties. If
Lessee shall fail to designate a management company acceptable to Lessor within
five (5) days after receipt of the notice of request therefor, Lessor may
designate such management company by further notice to Lessee. Lessee shall be
responsible for payment of all fees and expenses reasonably charged and incurred
by the management company in carrying out its duties, provided that the
management fee chargeable by a management company designated by Lessor, as
hereinabove provided, shall not exceed Seven Percent (7%) of such Facility's
Gross Revenues.

         16.9     [Intentionally Omitted].

         16.10    Lessor's Security Interest. The parties intend that if an
Event of Default occurs under this Lease, Lessor will control Lessee's Personal
Property and the Intangible Property so that Lessor or its designee or nominee
can operate or re-let each Facility intact for its Primary Intended Use.
Accordingly, to implement such intention, and for the purpose of securing the
payment and performance obligations of Lessee hereunder, Lessor and Lessee agree
as follows:

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<PAGE>

                  16.10.1   Lessee, as debtor, hereby grants to Lessor, as
secured party, a security interest and an express contractual lien upon all of
Lessee's right, title and interest in and to Lessee's Personal Property and in
and to the Intangible Property and any and all products, rents, proceeds and
profits thereof in which Lessee now owns or hereafter acquires an interest or
right, including any leased Lessee's Personal Property (collectively, the
"Collateral"); provided, however, that "Collateral" shall not include Lessee's
Trademarks or Lessee's Proprietary Software. This Lease constitutes a security
agreement covering all such Lessee's Personal Property and the Intangible
Property. The security interest granted to Lessor with respect to Lessee's
Personal Property in this Section 16.10 is intended by Lessor and Lessee to be
subordinate to any security interest granted in connection with the Facility
Mortgages or in connection with the financing or leasing of all or any portion
of the Lessee's Personal Property so long as the lessor or financier of such
Lessee's Personal Property agrees to give Lessor written notice of any default
by Lessee under the terms of such lease or financing arrangement, to give Lessor
a reasonable time following such notice to cure any such default and consents to
Lessor's written assumption of such lease or financing arrangement upon Lessor's
curing of any such defaults.

                  16.10.2  Lessee hereby authorizes Lessor to file such
financing statements, continuation statements and other documents as may be
necessary or desirable to perfect or continue the perfection of Lessor's
security interest in the Collateral. In addition, if required by Lessor at any
time during the Term, Lessee shall execute and deliver to Lessor, in form
reasonably satisfactory to Lessor, additional security agreements, financing
statements, fixture filings and such other documents as Lessor may reasonably
require to perfect or continue the perfection of Lessor's security interest in
the Collateral. In the event Lessee fails to execute any financing statement or
other documents for the perfection or continuation of Lessor's security
interest, Lessee hereby appoints Lessor as its true and lawful attorney-in-fact
to execute any such documents on its behalf, which power of attorney shall be
irrevocable and is deemed to be coupled with an interest.

                  16.10.3  Lessee will give Lessor at least thirty (30) days'
prior written notice of any change in Lessee's name, identity, jurisdiction of
organization or corporate structure. With respect to any such change, Lessee
will promptly execute and deliver such instruments, documents and notices and
take such actions, as Lessor deems necessary or desirable to create, perfect and
protect the security interests of Lessor in the Collateral.

                  16.10.4  Upon the occurrence of an Event of Default, Lessor
shall be entitled to exercise any and all rights or remedies available to a
secured party under the Uniform Commercial Code, or available to a lessor under
the laws of the State, with respect to Lessee's Personal Property and the
Intangible Property, including the right to sell the same at public or private
sale.

                                 ARTICLE XVII.

         17.1     Lessor's Right to Cure Lessee's Default. If Lessee shall fail
to make any payment or to perform any act required to be made or performed
hereunder within fifteen (15) days after written demand by Lessor (except in
case of emergencies), Lessor, without waiving or releasing any obligation or
default, may, but shall be under no obligation to, make such payment

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<PAGE>

or perform such act for the account and at the expense of Lessee, and may, to
the extent permitted by law, enter upon the Leased Property and any Capital
Additions for such purpose and take all such action thereon as, in Lessor's
opinion, may be necessary or appropriate therefor. No such entry shall be deemed
an eviction of Lessee. All sums so paid by Lessor and all costs and expenses,
including reasonable attorneys' fees and expenses, so incurred, together with
interest thereon at the Overdue Rate from the date on which such sums or
expenses are paid or incurred by Lessor, shall be paid by Lessee to Lessor on
demand.

                                 ARTICLE XVIII.

         18.1     Purchase of the Leased Property. If Lessee purchases the
Leased Property of any Facility from Lessor pursuant to any provisions of this
Lease, Lessor shall, upon receipt from Lessee of the applicable purchase price,
together with full payment of any unpaid Rent due and payable with respect to
any period ending on or before the date of the purchase, deliver to Lessee an
appropriate special or limited warranty deed (or, for the Holland Facility, a
covenant deed) conveying the entire interest of Lessor in and to such Leased
Property to Lessee free and clear of all encumbrances other than (i) those that
Lessee has agreed hereunder to pay or discharge; (ii) those mortgage liens, if
any, which Lessee has agreed in writing to accept and to take title subject to;
(iii) those liens and encumbrances which were in effect on the date of
conveyance of such Leased Property to Lessor; and (iv) any other encumbrances
permitted hereunder to be imposed on such Leased Property. The difference
between the applicable purchase price and the total of the encumbrances assumed
or taken subject to shall be paid to Lessor or as Lessor may direct in
immediately available funds. All expenses of such conveyance, including the cost
of title insurance, attorneys' fees incurred by Lessor in connection with such
conveyance and release, transfer taxes and recording and escrow fees, shall be
paid by Lessee.

                                  ARTICLE XIX.

         19.1     Renewal Terms. Provided that no Event of Default has occurred
and is continuing, either at the date of exercise or upon the commencement of an
Extended Term (as hereunder defined), then Lessee shall have the right to renew
this Lease with respect to the Leased Property of all (but not less than all) of
the Facilities for two (2) ten year renewal terms (each an "Extended Term");
provided, however, that the second ten (10) year Extended Term for the
Brandywine Facility shall be split into one (1) four year Extended Term (the
"Four Year Extended Term") and one (1) six year Extended Term (the "Six Year
Extended Term"). Lessee shall exercise its renewal options in this Section 19.1,
if at all, by (i) giving written notice to Lessor of such renewal not less than
fifteen (15) months and not more than eighteen (18) months prior to the
expiration of the then applicable current Term and (ii) delivering to Lessor
concurrent with such notice a reaffirmation of the Guaranty executed by
Guarantor stating, in substance, that Guarantor's obligations under the Guaranty
shall extend to this Lease, as extended by the applicable Extended Term. In
addition, (a) the renewal option for the Four Year Extended Term may only be
exercised concurrently with the renewal option for the second Extended Term for
all Facilities; and (b) the renewal option for the second Extended Term for all
Facilities may only be exercised concurrently with the renewal option for the
Four Year Extended Term. Notwithstanding the foregoing, nothing herein shall
obligate Lessee to exercise the renewal option for the Six Year Extended Term,
and in no event shall the failure of Lessee to

                                       49

<PAGE>

exercise the Six year Extended Term affect the validity of the prior exercise by
Lessee of any Extended Terms related to the other Facilities. During each
Extended Term, all of the terms and conditions of this Lease shall continue in
full force and effect. In the event that Lessee fails to exercise its option for
an Extended Term in the manner herein provided, such option shall lapse along
with all options for subsequent Extended Terms.

         Notwithstanding anything to the contrary in this Section 19.1, Lessor,
in its sole discretion, may waive the condition to Lessee's right to renew this
Lease that no Event of Default have occurred or be continuing, and the same may
not be used by Lessee as a means to negate the effectiveness of Lessee's
exercise of its renewal right for such Extended Term.

         19.2     Lessor's Rights of Renewal and Early Termination. In order to
facilitate the transfer of the operations of the Facilities to a third party
and/or to locate a replacement lessee, Lessor shall have the one time right with
respect to each Facility to either (i) terminate this Lease with respect to any
Facility up to four (4) months early or (ii) extend the Term of this Lease with
respect to such Facility for up to one (1) year. Such right of early termination
shall be exercised by Lessor, if at all, by written notice from Lessor to Lessee
given not less than sixty (60) days prior to the date Lessor desires to
terminate this Lease with respect to such Facility and stating the date of such
termination (which date shall not be earlier than four (4) months prior to the
expiration of the Term). In the event that Lessor shall exercise such right of
early termination within the time and in the manner herein provided, this Lease
shall terminate with respect to the specified Facility on the date of
termination specified in Lessor's notice. Such right of extension shall be
exercised by Lessor, if at all, by written notice from Lessor to Lessee given
not less than four (4) months prior to the expiration of the Term and stating
the date through which Lessor is extending the Term of this Lease for such
Facility (which date shall not be later than one (1) year after the originally
scheduled expiration date). In the event that Lessor shall exercise such right
of extension, all of the terms and conditions of this Lease shall continue in
full force and effect with respect to each Facility as to which Lessor has
elected to so extend the applicable Term pursuant to this Section 19.2, and
Lessee shall continue to pay Rent applicable to such Facility for and during
such extension period at the same Allocated Minimum Rent and Allocated
Additional Rent, rates as were in effect upon the expiration of the originally
scheduled Term for such Facility; provided, however, that Lessor shall have the
right to terminate this Lease with respect to such Facility during any such
extension period upon not less than sixty (60) days prior written notice to
Lessee. In such event, this Lease, as previously extended, shall terminate with
respect to such Facility upon the date specified in Lessor's notice of
termination.

                                  ARTICLE XX.

         20.1     Holding Over. Except as provided in Section 19.2, if Lessee
shall for any reason remain in possession of the Leased Property and/or any
Capital Additions of a Facility after the expiration or earlier termination of
the Term, such possession shall be as a month-to-month tenant during which time
Lessee shall pay as Rent for such Facility each month One Hundred Fifty Percent
(150%) of the sum of (i) monthly Allocated Minimum Rent applicable to the prior
Lease Year for such Facility, plus (ii) one-twelfth of the aggregate Allocated
Additional Rent payable applicable to the prior Lease Year with respect to such
Facility (if any), together with all Additional Charges and all other sums
payable by Lessee

                                       50

<PAGE>

pursuant to this Lease with respect to such Facility. During such period of
month-to-month tenancy, Lessee shall be obligated to perform and observe all of
the terms, covenants and conditions of this Lease, but shall have no rights
hereunder other than the right, to the extent given by law to month-to-month
tenancies, to continue its occupancy and use of the Leased Property and/or any
Capital Additions of such Facility. Nothing contained herein shall constitute
the consent, express or implied, of Lessor to the holding over of Lessee after
the expiration or earlier termination of this Lease.

                                  ARTICLE XXI.

         21.1     Letters of Credit. Commencing upon the first day of the fifth
(5th) Lease Year and continuing for sixty (60) days after the expiration or
earlier termination of this Lease, Lessee shall obtain one or more letters of
credit totaling, in the aggregate, the Letter of Credit Amount from one or more
financial institution(s) reasonably satisfactory to Lessor but in any event with
(a) not less than $100 Million in net current assets, (b) a financial rating of
not less than 60 as rated by Sheshunoff Information Services, Inc. (or any
equivalent rating thereto from any successor or substitute rating service
selected by Lessor) and (c) an investment grade rating from each of Standard and
Poors Corporation and Moody's Investors Service, naming Lessor as beneficiary to
secure Lessee's obligations hereunder and Lessee's and any Affiliate of Lessee's
obligations under any other lease or other agreement or instrument with or in
favor of Lessor or any Affiliate of Lessor, at the times and for the purposes
set forth below. Each letter of credit shall be in substantially the form of
Exhibit D hereto. Each letter of credit shall be for a term of not less than one
(1) year and irrevocable during that term. Each letter of credit shall provide
that it will be honored upon a signed statement by Lessor that Lessor is
entitled to draw upon any letter of credit under this Lease, and shall require
no signature or statement from any party other than Lessor. No notice to Lessee
shall be required to enable Lessor to draw upon the letter of credit. Each
letter of credit shall also provide that following the honor of any drafts in an
amount less than the aggregate amount of the letter of credit, the financial
institution shall return the original letter of credit to Lessor and Lessor's
rights as to the remaining amount of the letter of credit will not be
extinguished. In the event of a transfer of Lessor's interest in the Leased
Property, Lessor shall transfer the letter of credit to the transferee and
thereupon shall, without any further agreement between the parties, be released
by Lessee from all liability therefor, and it is agreed that the provisions
hereof shall apply to every transfer or assignment of the letter of credit to a
new Lessor. Lessor's rights in and to such letters of credit may be assigned as
security in connection with a Facility Mortgage. If the financial institution
from which Lessee has obtained a letter of credit shall admit in writing its
inability to pay its debts generally as they become due, file a petition in
bankruptcy or a petition to take advantage of any insolvency act, make an
assignment for the benefit of its creditors consent to the appointment of a
receiver of itself or of the whole or any substantial part of its property, or
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, then Lessee shall obtain a replacement
letter of credit within thirty (30) days of such act from another financial
institution reasonably satisfactory to Lessor, but in any event meeting the
above requirements.

         21.2     Times for Obtaining Letters of Credit. The initial letters of
credit shall be obtained and delivered to Lessor on or prior to the commencement
of the fifth (5th) Lease Year. The letters of credit covering subsequent periods
(or renewals of the then existing letters of

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<PAGE>

credit) shall be obtained and delivered to Lessor not less than thirty (30) days
prior to the expiration of the then existing letter of credit ("Letter of Credit
Date"). The term for each such letter of credit shall begin no later than the
expiration date of the previous letter of credit and shall comply with all
requirements of this Article XXI.

         21.3     Uses of Letters of Credit. Lessor shall have the right to draw
upon a letter of credit up to its full amount whenever (a) an Event of Default
hereunder has occurred, (b) an event of default beyond applicable notice and
cure periods under any other lease or agreement between Lessor or an Affiliate
of Lessor and Lessee or an Affiliate of Lessee or under any other letter of
credit, guaranty, mortgage, deed of trust, or other instrument now or hereafter
executed by Lessee or an Affiliate of Lessee in favor of Lessor or an Affiliate
of Lessor has occurred; provided, however, that a default under the HCPI Loan
Documents shall be specifically excluded from this Section 21.3(b), or (c) an
event or circumstance has occurred which with notice or passage of time, or
both, would constitute an Event of Default hereunder or an event of default
under any such other lease, agreement, letter of credit, guaranty, mortgage,
deed of trust or other instrument, but for the fact that transmittal of such
notice is barred by applicable debtor relief law. In addition, if Lessee fails
to obtain a satisfactory letter of credit (or renewal of an existing letter of
credit) prior to the applicable Letter of Credit Date, Lessor may draw upon the
full amount of the then existing letter of credit without giving any notice or
time to cure to Lessee. No such draw shall (i) cure or constitute a waiver of an
Event of Default, (ii) be deemed to fix or determine the amounts to which Lessor
is entitled to recover under this Lease or otherwise, or (iii) be deemed to
limit or waive Lessor's right to pursue any remedies provided for in this Lease.
If all or any portion of a letter of credit is drawn against by Lessor, Lessee
shall, within two (2) business days after demand by Lessor, cause the issuer of
such letter of credit to issue Lessor, at Lessee's expense, a replacement or
supplementary letter of credit in substantially the form attached hereto as
Exhibit D such that at all times during the Term, Lessor shall have the ability
to draw on one or more letters of credit totaling, in the aggregate, the amount
required pursuant to Section 21.1.

         21.4     Reduction in Letter of Credit Amount. If Lessee purchases any
Facility, or if this Lease is terminated or expires with respect to any Facility
(other than by reason of an Event of Default), the Letter of Credit Amount shall
be reduced by an amount equal to the product of (a) the then existing Letter of
Credit Amount, times (b) a fraction, the numerator of which is the then existing
Allocated Minimum Rent and Allocated Additional Rent (if any) for the Facility
being purchased by Lessee or for which this Lease has been terminated or
expired, as applicable, and the denominator of which is the then existing total
Minimum Rent and Additional Rent (if any) payable for all Facilities (including
the Facility being purchased by Lessee, or the Facility with respect to which
this Lease has been terminated or expired).

         21.5     Treatment of Funds Drawn Under Letters of Credit. If Lessor
draws upon a letter of credit and the amount drawn exceeds the damages or losses
that Lessor has suffered or reasonably expects to suffer by reason of the Event
of Default or other reason, then Lessor shall remit such excess to Lessee upon
the first to occur (i) the date the amount of damages to which Lessor is
entitled to recover on account of such Event of Default or otherwise is
determined, whether by a final, non-appealable judgment of a court or arbitrator
of competent jurisdiction or by a written settlement executed Lessor and Lessee
or (ii) the receipt by Lessor of the replacement or supplementary letter of
credit provided for in Section 21.3 above. Upon written

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<PAGE>

request from Lessee, Lessor shall certify in writing to the issuer of the
replacement or supplementary letter of credit provided for in Section 21.3 to
the effect that, upon receipt by Lessor of such replacement or supplementary
letter of credit, Lessor shall deliver to such issuer any such excess drawing
under the letter of credit(s) for which such replacement or supplementary letter
of credit is being delivered.

                                 ARTICLE XXII.

         22.1     Risk of Loss. The risk of loss or of decrease in the enjoyment
and beneficial use of the Leased Property and any Capital Additions as a
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures,
attachments, levies or executions (other than by Lessor and Persons claiming
from, through or under Lessor) is assumed by Lessee, and no such event shall
entitle Lessee to any abatement of Rent.

                                 ARTICLE XXIII.

         23.1     General Indemnification. In addition to the other indemnities
contained herein, and notwithstanding the existence of any insurance carried by
or for the benefit of Lessor or Lessee, and without regard to the policy limits
of any such insurance, Lessee shall protect, indemnify, save harmless and defend
Lessor from and against all liabilities, obligations, claims, damages penalties,
causes of action, costs and expenses, including reasonable attorneys',
consultants' and experts' fees and expenses, imposed upon or incurred by or
asserted against Lessor by reason of: (i) any accident, injury to or death of
Persons or loss of or damage to property occurring on or about the Leased
Property, or any Capital Additions or adjoining sidewalks thereto; (ii) any use,
misuse, non-use, condition, maintenance or repair by Lessee of the Leased
Property or any Capital Additions; (iii) any failure on the part of Lessee to
perform or comply with any of the terms of this Lease; (iv) the non-performance
of any of the terms and provisions of any and all existing and future subleases
of the Leased Property or any Capital Additions to be performed by any party
thereunder; (v) any claim for malpractice, negligence or misconduct committed by
any Person on or working from the Leased Property or any Capital Additions; and
(vi) the violation of any Legal Requirement. Any amounts which become payable by
Lessee under this Article shall be paid within ten (10) days after liability
therefor is determined by litigation or otherwise, and if not timely paid shall
bear interest at the Overdue Rate from the date of such determination to the
date of payment. Lessee, at its sole cost and expense, shall contest, resist and
defend any such claim, action or proceeding asserted or instituted against
Lessor or may compromise or otherwise dispose of the same as Lessee sees fit;
provided, however, that any legal counsel selected by Lessee to defend Lessor
shall be reasonably satisfactory to Lessor. All indemnification covenants are
intended to apply to losses, damages, injuries, claims, etc. incurred directly
by the indemnified parties and their property, as well as by the indemnifying
party or third party, and their property. For purposes of this Article XXIII,
any acts or omissions of Lessee, or by employees, agents, assignees,
contractors, subcontractors or others acting for or on behalf of Lessee (whether
or not they are negligent, intentional, willful or unlawful), shall be strictly
attributable to Lessee. It is understood and agreed that payment shall not be a
condition precedent to enforcement of the foregoing indemnification obligations.

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<PAGE>

                                 ARTICLE XXIV.

         24.1     Transfers.

                  24.1.1   Prohibition. Lessee shall not, without Lessor's prior
written consent, which may be withheld in Lessor's sole and absolute discretion,
either directly or indirectly or through one or more step transactions or tiered
transactions, voluntarily or by operation of law, (i) assign, convey, sell,
pledge, mortgage, hypothecate or otherwise encumber, transfer or dispose of all
or any part of this Lease or Lessee's leasehold estate hereunder (except in
connection with a Initial Facility Mortgage or as provided in Section 48.6 of
the Addendum), (ii) Master Sublease all or any part of the Leased Property
and/or any Capital Additions of such Facility, (iii) engage the services of any
Person for the management or operation of all or any part of the Leased Property
and/or any Capital Additions of such Facility, except as set forth on Exhibit N
attached hereto and as consented to in the Management Consent Agreements, (iv)
convey, sell, assign, transfer or dispose of any stock or partnership,
membership or other interests (whether equity or otherwise) in Lessee (which
shall include any conveyance, sale, assignment, transfer or disposition of any
stock or partnership, membership or other interests (whether equity or
otherwise) in any Controlling Person(s)), if such conveyance, sale, assignment,
transfer or disposition results, directly or indirectly, in a change in control
of Lessee (or in any Controlling Person(s)), (v) dissolve, merge or consolidate
Lessee (which shall include any dissolution, merger or consolidation of any
Controlling Person) with any other Person, if such dissolution, merger or
consolidation, directly or indirectly, results in a change in control of Lessee
or in any Controlling Person(s), (vi) sell, convey, assign, or otherwise
transfer all or substantially all of the assets of Lessee (which shall include
any sale, conveyance, assignment, or other transfer of all or substantially all
of the assets of any Controlling Person(s)), (vii) sell, convey, assign, or
otherwise transfer any of the assets of Lessee (which shall include any sale,
conveyance, assignment, or other transfer of any of the assets of any
Controlling Person) if the Consolidated Net Worth of Lessee (or such Controlling
Person, as the case may be) immediately following such transaction is not at
least equal to seventy-five percent (75%) of the Consolidated Net Worth of
Lessee (or such Controlling Person) immediately prior to such transaction, or
(viii) enter into or permit to be entered into any agreement or arrangement to
do any of the foregoing or to grant any option or other right to any Person to
do any of the foregoing (each of the aforesaid acts referred to in clauses (i)
through (viii) being referred to herein as a "Transfer"). Any Commercial
Occupancy Arrangement with respect to more than Ten Percent (10%) of any
Facility in the aggregate to any Person and/or its Affiliates, directly or
indirectly, or through one or more step transactions or tiered transactions,
shall be deemed to be a "Master Sublease" hereunder. Notwithstanding anything
herein to the contrary, Lessee may enter into (a) non-Commercial Occupancy
Arrangements with residents or patients of any facility, and (b) any Commercial
Occupancy Arrangement that does not constitute a Master Sublease with respect to
any Facility (provided that all such Commercial Occupancy Arrangements comply
with Sections 24.1.3 and 24.1.7 herein), all without Lessor's consent, and such
actions shall not be considered a "Transfer" hereunder (but shall constitute a
"Transfer" for purposes of Section 24.1.7). For any Commercial Occupancy
Arrangement transaction not requiring the consent of Lessor hereunder (i.e., a
Commercial Occupancy Arrangement not constituting a Master Sublease), Lessee
shall, within ten (10) days of entering into any such Commercial Occupancy
Arrangement, notify Lessor of the existence of such Commercial Occupancy
Arrangement and the identity of the Occupant and supply Lessor with a copy of
the agreement relating to such

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<PAGE>

Commercial Occupancy Arrangement and any other related documentation, materials
or information reasonably requested by Lessor.

                  24.1.2   Consent and Transfer Consideration.

                           24.1.2.1  Prior to any Transfer, Lessee shall first
notify Lessor of its desire to do so and shall submit in writing to Lessor: (i)
the name of the proposed Occupant, assignee, manager or other transferee; (ii)
the terms and provisions of the Transfer, including any agreements in connection
therewith; and (iii) such financial information as Lessor reasonably may request
concerning the proposed Occupant, assignee, manager or other transferee. Lessor
may, as a condition to granting such consent, which consent may be given or
withheld in the sole and absolute discretion of Lessor, and in addition to any
other conditions imposed by Lessor, require that the obligations of any
Occupant, assignee, manager or other transferee which is an Affiliate of another
Person be guaranteed by its parent or Controlling Person and that any Guaranty
of this Lease be reaffirmed by any Guarantor notwithstanding such Transfer.

                           24.1.2.2  In connection with any Transfer, Lessor
shall be entitled to receive the applicable Transfer Consideration.`

                           24.1.2.3  The consent by Lessor to any Transfer shall
not constitute a consent to any subsequent Transfer or to any subsequent or
successive Transfer. Any purported or attempted Transfer contrary to the
provisions of this Article shall be void and, at the option of Lessor, shall
terminate this Lease.

                  24.1.3   Attornment and Related Matters. Any Commercial
Occupancy Arrangement (whether or not the same constitutes a Master Sublease)
shall be expressly subject and subordinate to all applicable terms and
conditions of this Lease and provide that upon the expiration or earlier
termination of this Lease Lessor, at its option and without any obligation to do
so, may require any Occupant to attorn to Lessor, in which event Lessor shall
undertake the obligations of Lessee, as sublessor, licensor or otherwise under
such Commercial Occupancy Arrangement from the time of the exercise of such
option to the termination of such Commercial Occupancy Arrangement; provided,
however, that in such case Lessor shall not be liable for any prepaid rents,
fees or other charges or for any prepaid security deposits paid by such Occupant
to Lessee or for any other prior defaults of Lessee under such Commercial
Occupancy Arrangement. In the event that Lessor shall not require such
attornment with respect to any Commercial Occupancy Arrangement, then such
Occupancy Arrangement shall automatically terminate upon the expiration or
earlier termination of this Lease, including any early termination by mutual
agreement of Lessor and Lessee. In addition, any such Commercial Occupancy
Arrangement shall provide that in the event that the Occupant or other
transferee receives a written notice from Lessor stating that an Event of
Default has occurred, or that an event or circumstance has occurred which with
notice or passage of time, or both, would constitute an Event of Default
hereunder, but for the fact that the transmittal of such notice is barred by
applicable debtor relief law, such Occupant or other transferee thereafter shall
without further consent or instruction of Lessee pay all rentals accruing under
such Commercial Occupancy Arrangement directly to Lessor or as Lessor may
direct; provided however that (i) as and to the extent that the amounts so paid
to Lessor, together with other amounts paid to or received by Lessor on account
of this Lease, exceed the amounts then due Lessor from Lessee under this

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Lease, the excess shall be promptly remitted to Lessee, and (ii) at such time as
the Event of Default has been cured and this Lease reinstated (if ever), Lessor
shall notify and direct the Occupant(s) in writing to resume making payments of
rentals under their Commercial Occupancy Arrangement(s) directly to Lessee or as
Lessee may direct. Any such rentals collected from such Occupant or other
transferee by Lessor shall be credited against the amounts owing by Lessee under
this Lease in such order of priority as Lessor shall reasonably determine.
Furthermore, any Commercial Occupancy Arrangement or other agreement regarding a
Transfer shall expressly provide that the Occupant, assignee, manager or other
transferee shall furnish Lessor with such financial, operational and other
information about the physical condition of the applicable Facility, including
the information required by Section 25.1.2 herein, as Lessor may request from
time to time. Notwithstanding the foregoing, Lessor acknowledges that the
Commercial Occupancy Arrangements set forth on Exhibit M currently exist and do
not include the provisions required by this Section 24.1.3; provided, however,
that if any such Commercial Occupancy Arrangements are modified or amended, then
the provisions required by this Section 24.1.3 shall be included in such
modification or amendment

                  24.1.4   Assignment of Lessee's Rights Against Occupant Under
a Master Sublease. If Lessor shall consent to a Master Sublease, then the
written instrument of consent, executed and acknowledged by Lessor, Lessee and
the Occupant thereunder, shall contain a provision substantially similar to the
following:

                           (i)     Lessee and such Occupant hereby agree that,
         if such Occupant shall be in default of any of its obligations under
         the Master Sublease, which default also constitutes an Event of Default
         by Lessee under this Lease, then Lessor shall be permitted to avail
         itself of all of the rights and remedies available to Lessee against
         such Occupant in connection therewith.

                           (ii)    Without limiting the generality of the
         foregoing, Lessor shall be permitted (by assignment of a cause of
         action or otherwise) to institute an action or proceeding against such
         Occupant in the name of Lessee in order to enforce Lessee's rights
         under the Master Sublease, and also shall be permitted to take all
         ancillary actions (e.g., serve default notices and demands) in the name
         of Lessee as Lessor reasonably shall determine to be necessary.

                           (iii)   Lessee agrees to cooperate with Lessor, and
         to execute such documents as shall be reasonably necessary, in
         connection with the implementation of the foregoing rights of Lessor.

                           (iv)    Lessee expressly acknowledges and agrees that
         the exercise by Lessor of any of the foregoing rights and remedies
         shall not constitute an election of remedies, and shall not in any way
         impair Lessor's entitlement to pursue other rights and remedies
         directly against Lessee.

                  24.1.5 Costs. Lessee shall reimburse Lessor for Lessor's
actual costs and expenses incurred in conjunction with the processing and
documentation of any request to Transfer, including attorneys', architects',
engineers' or other consultants' fees whether or not such Transfer is actually
consummated.

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<PAGE>

                  24.1.6   No Release of Lessee's Obligations. No Transfer shall
relieve Lessee of its obligation to pay the Rent and to perform all of the other
obligations to be performed by Lessee hereunder. The liability of Lessee named
herein and any immediate and remote successor in interest of Lessee (i.e., by
means of any Transfer), and the due performance of the obligations of this Lease
on Lessee's part to be performed or observed, shall not in any way be
discharged, released or impaired by any (i) agreement which modifies any of the
rights or obligations of the parties under this Lease, (ii) stipulation which
extends the time within which an obligation under this Lease is to be performed,
(iii) waiver of the performance of an obligation required under this Lease, or
(iv) failure to enforce any of the obligations set forth in this Lease. If any
Occupant, assignee, manager or other transferee defaults in any performance due
hereunder, Lessor may proceed directly against the Lessee named herein and/or
any immediate and remote successor in interest of Lessee without exhausting its
remedies against such Occupant, assignee, manager or other transferee.

                  24.1.7   REIT Protection. Anything contained in this Lease to
the contrary notwithstanding, (i) no Transfer shall be consummated on any basis
such that the rental or other amounts to be paid by the Occupant, assignee,
manager or other transferee thereunder would be based, in whole or in part, on
the income or profits derived by the business activities of the Occupant,
assignee, manager or other transferee; (ii) Lessee shall not furnish or render
any services to an Occupant, assignee, manager or other transferee with respect
to whom Transfer Consideration is required to be paid or manage or operate the
Leased Property and/or any Capital Additions so Transferred with respect to
which Transfer Consideration is being paid; (iii) Lessee shall not consummate a
Transfer with any Person in which Lessor or HCPI owns an interest, directly or
indirectly (by applying constructive ownership rules set forth in Section
856(d)(5) of the Code); and (iv) Lessee shall not consummate a Transfer with any
Person or in any manner which could cause any portion of the amounts received by
Lessor pursuant to this Lease or any Occupancy Arrangement to 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 or which could cause any other income
of Lessor or HCPI to fail to qualify as income described in Section 856(c)(2) of
the Code.

                  24.1.8   Transfers In Bankruptcy. In the event of a Transfer
pursuant to the provisions of the Bankruptcy Code, all consideration payable or
otherwise to be delivered in connection with such Transfer shall be paid or
delivered to Lessor, shall be and remain the exclusive property of Lessor and
shall not constitute property of Lessee or of the estate of Lessee within the
meaning of the Bankruptcy Code. Any consideration constituting Lessor's property
pursuant to the immediately preceding sentence and not paid or delivered to
Lessor shall be held in trust for the benefit of Lessor and be promptly paid or
delivered to Lessor. For purposes of this Section 24.1.8, the term
"consideration" shall mean and include money, services, property and any other
thing of value such as payment of costs, cancellation or forgiveness of
indebtedness, discounts, rebates, barter and the like. If any such consideration
is in a form other than cash (such as in kind, equity interests, indebtedness
earn-outs, or other deferred payments, consulting or management fees, etc.),
Lessor shall be entitled to receive in cash the then present fair market value
of such consideration.

                  24.1.9   Public Trading of ARC Stock. So long as the common
stock of ARC is listed for trading on the American Stock Exchange or the New
York Stock Exchange or

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authorized for quotation on the NASDAQ National Market, the transfer or exchange
of such stock over such exchange or market shall not be deemed a Transfer
hereunder unless the same (whether in one transaction or in any step or series
of transactions) results, directly or indirectly, in a change in control of
Lessee or such Controlling Person(s) (including pursuant to a tender or similar
offer to acquire the outstanding and issued securities of Lessee or such
Controlling Person(s)).

                                  ARTICLE XXV.

         25.1     Officer's Certificates and Financial Statements.

                  25.1.1   Officer's Certificate. At any time and from time to
time upon Lessee's receipt of not less than ten (10) days' prior written request
by Lessor, Lessee shall furnish to Lessor an Officer's Certificate certifying
(i) 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; (ii) the dates to which the Rent has been paid; (iii) whether or
not, to the best knowledge of Lessee, Lessor is in default in the performance of
any covenant, agreement or condition contained in this Lease and, if so,
specifying each such default of which Lessee may have knowledge; and (iv)
responses to such other questions or statements of fact as Lessor, any ground or
underlying lessor, any purchaser or any current or prospective Facility
Mortgagee shall reasonably request. Lessee's failure to deliver such statement
within such time shall constitute an acknowledgment by Lessee that (x) this
Lease is unmodified and in full force and effect except as may be represented to
the contrary by Lessor; (y) Lessor is not in default in the performance of any
covenant, agreement or condition contained in this Lease; and (z) the other
matters set forth in such request, if any, are true and correct. Any such
certificate furnished pursuant to this Article may be relied upon by Lessor and
any current or prospective Facility Mortgagee, ground or underlying lessor or
purchaser of the Leased Property or any portion thereof.

                  25.1.2   Statements. Lessee shall furnish the following
statements to Lessor:

                  (a)      within 120 days after the end of Lessee's and ARC's
fiscal years, (i) a copy of the unaudited balance sheets of Lessee and ARCPI and
audited consolidated balance sheets of ARC and its consolidated Subsidiaries as
of the end of such fiscal year, (ii) related audited consolidated statements of
income, changes in common stock and other stockholders' equity and statement of
cash flows of ARC and its consolidated Subsidiaries for such fiscal year, and
(iii) related unaudited statements of income, changes in common stock and other
stock holders' equity and statement of cash flows of Lessee and ARCPI (if any),
prepared in accordance with GAAP applied on a basis consistently maintained
throughout the period involved (such consolidated financial statements of ARC to
be certified by nationally recognized certified public accountants);

                  (b)      within 120 days after the end of each of Lessee's and
Guarantor's fiscal years, and together with the annual audit report furnished in
accordance with clause (a) above, an Officer's Certificate stating that to the
best of the signer's knowledge and belief after making due inquiry, Lessee is
not in default in the performance or observance of any of the terms

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of this Lease, or if Lessee shall be in default, specifying all such defaults,
the nature thereof, and the steps being taken to remedy the same;

                  (c)      within thirty (30) days after the end of each of the
first twelve (12) months of the Term and the last eighteen (18) months of the
Term, all consolidated financial reports that Lessor may reasonably request
containing, among other things, detailed statements of income and detailed
operational statistics regarding occupancy rates, patient and resident mix and
patient and resident rates by type for each Facility; and otherwise within
thirty (30) days after the end of each of Lessee's quarters, all quarterly
consolidated financial reports Lessee may reasonably request containing, among
other things, detailed statements of income and detailed operational statistics
regarding occupancy rates, patient and resident mix and patient and resident
rates by type for each Facility;

                  (d)      within thirty (30) days after filing, a copy of each
cost report filed with the appropriate governmental agency for each Facility;

                  (e)      within thirty (30) days after they are required to be
filed with the SEC, copies of any annual reports and of information, documents
and other reports, or copies of such portions of any of the foregoing as the SEC
may prescribe, which ARC is required to file with the SEC pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934;

                  (f)      immediately upon Lessee's receipt thereof, copies of
all written communications received by Lessee from any regulatory agency
relating to (i) surveys of each Facility for purposes of licensure, Medicare and
Medicaid certification and accreditation and (ii) any proceeding, formal or
informal, with respect to cited deficiencies with respect to services and
activities provided and performed at each Facility, including patient and
resident care, patient and resident activities, patient and resident therapy,
dietary, medical records, drugs and medicines, supplies, housekeeping and
maintenance, or the condition of each Facility, and involving an actual or
threatened warning, imposition of a fine or a penalty, or suspension,
termination or revocation of any Facility's license to be operated in accordance
with its Primary Intended Use;

                  (g)      [intentionally omitted];

                  (h)      immediately upon Lessee's receipt thereof, copies of
all claims, reports, complaints, notices, warnings or asserted violations
relating in any way to the Leased Property or any Capital Additions or Lessee's
use thereof; and

                  (i)      with reasonable promptness, such other information
respecting (i) the financial and operational condition and affairs of Lessee,
any Guarantor and each Facility, (ii) the physical condition of the Leased
Property and any Capital Additions and (iii) any suspected Transfer, including
the then equity or voting ownership in Lessee or in any Controlling Person(s),
in each case as Lessor may reasonably request, in the form of a questionnaire or
otherwise, from time to time.

         Notwithstanding the foregoing, if HCPI or an Affiliate of HCPI does not
own any interest (whether direct or indirect) in Lessor, Lessee shall not be
required to provide Lessor with the statements set forth in subsections (a) and
(e) above; provided, however, that the foregoing

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<PAGE>

shall not be deemed or construed to limit or otherwise modify any requirements
of ARCPI under the HCPI Loan Documents, including any obligations of ARCPI
thereunder to deliver the financial and other instruments required by such
subsections (a) and (c) above to HCPI as and when required under the HCPI Loan
Documents.

                  25.1.3   Charges. Lessee acknowledges that the failure to
furnish Lessor with any of the certificates or statements required by this
Article XXV will cause Lessor to incur costs and expenses not contemplated
hereunder, the exact amount of which is presently anticipated to be extremely
difficult to ascertain. Accordingly, if Lessee fails to furnish Lessor with any
of the certificates or statements required by this Article XXV more than two (2)
times in any given Lease Year, Lessee shall pay to Lessor, as an Additional
Charge, upon demand $1,000 for each subsequent failure to provide any of such
certificates or statements occurring in such Lease Year. The parties agree that
this charge represents a fair and reasonable estimate of the costs that Lessor
will incur by reason of Lessee's failure to furnish Lessor with such
certificates and statements.

                                 ARTICLE XXVI.

         26.1     Lessor's Right to Inspect and Show the Leased Property and
Capital Additions. Lessee shall permit Lessor and its authorized
representatives, upon reasonable prior notice, to (i) inspect the Leased
Property and any Capital Additions and (ii) exhibit the same to prospective
purchasers and lenders, and during the last twelve (12) months of the Term
applicable to each portion of the Leased Property and Capital Additions, to
prospective lessees or managers, in each instance during usual business hours
and subject to any reasonable security, health, safety or confidentiality
requirements of Lessee or any Legal Requirement or Insurance Requirement. Lessee
shall cooperate with Lessor in exhibiting the Leased Property and any Capital
Additions to prospective purchasers, lenders, lessees and managers.

                                 ARTICLE XXVII.

         27.1     No Waiver. No failure by Lessor to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
hereunder and no acceptance of full or partial payment of Rent during the
continuance of any default or Event of Default shall constitute a waiver of any
such breach or of any such term. 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.

                                ARTICLE XXVIII.

         28.1     Remedies Cumulative. Each legal, equitable or contractual
right, power and remedy of Lessor 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 Lessor of any one or more of such rights, powers and remedies
shall not preclude the simultaneous or subsequent exercise by Lessor of any or
all of such other rights, powers and remedies.

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                                 ARTICLE XXIX.

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

                                  ARTICLE XXX.

         30.1     No Merger. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same Person may
acquire, own or hold, directly or indirectly, (i) this Lease or the leasehold
estate created hereby or any interest in this Lease or such leasehold estate and
(ii) the fee estate in the Leased Property.

                                 ARTICLE XXXI.

         31.1     Conveyance by Lessor. Lessor may, without the consent or
approval of Lessee, sell, transfer, assign, convey or otherwise dispose of any
or all of the Leased Property, subject, however, to this Lease. If Lessor or any
successor owner of the Leased Property shall sell, transfer, assign, convey or
otherwise dispose of the Leased Property other than as security for a debt and
if Lessor delivers all letters of credit to such transferee, Lessor or such
successor owner, as the case may be, shall thereupon be released from all future
liabilities and obligations of Lessor with respect to such Leased Property under
this Lease arising or accruing from and after the date of such sale, transfer,
assignment or other disposition and all such future liabilities and obligations
with respect to such Leased Property shall thereupon be binding upon such
purchaser, grantee, assignee or transferee. In the event of any such sale,
transfer, assignment, conveyance or other disposition (other than as security
for a debt) of less than all of the Leased Property then subject to this Lease,
the provisions of Section 31.2 hereof shall apply.

         31.2     New Lease. Any Lessor shall have the right, at any time and
from time to time during the Term for any purpose, by written notice to Lessee,
to require Lessee to execute an amendment to this Lease whereby the Leased
Property of one or more Facilities owned by such Lessor (individually, a
"Separated Property" or collectively, the "Separated Properties") is separated
and removed from this Lease, and to simultaneously execute a substitute lease
with respect to such Separated Property(ies), in which case:

                  31.2.1   the Lessor that is the owner of such Separated
Property and the Lessee that is the License Holder with respect to the Separated
Property shall execute a new lease (the "New Lease") for such Separated
Property(ies), effective as of the date specified in Section 31.2.3 below (the
"New Lease Effective Date"), in the same form and substance as this Lease, but
with such changes thereto as necessary to reflect the separation of the
Separated Property(ies) from the balance of the Leased Property, including
specifically the following:

                  (a)      The total monthly Minimum Rent payable under such New
Lease shall be the total applicable monthly Allocated Minimum Rent with respect
to such Separated Property(ies);

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<PAGE>

                  (b)      All Minimum Rent rental escalations under the New
Lease shall be at the times and in the amounts set forth in this Lease for
Minimum Rent increases;

                  (c)      The "Additional Rent" payable under such New Lease
shall be the Allocated Additional Rent for such Facility; and

                  (d)      (i) The New Lease shall provide that the lessee
thereunder shall be responsible for the payment, performance and satisfaction of
all duties, obligations and liabilities arising under this Lease, insofar as
they relate to the Separated Property(ies), that were not paid, performed and
satisfied in full prior to the effective date of the New Lease, (ii) the
remaining Lessee under this Lease shall remain responsible for the payment,
performance and satisfaction of the aforesaid duties, obligations and
liabilities as they relate to the Separated Property(ies) not paid, performed
and satisfied in full prior to the effective date of such New Lease), and (iii)
the lessee under the New Lease shall be released from any duties, obligations
and liabilities under this Lease as to the balance of the Leased Property (i.e.,
all Leased Property other than the Separated Property(ies)) first accruing after
the effective date of the New Lease.

                  31.2.2   Lessor and Lessee shall also execute an amendment to
this Lease effective as of the New Lease Effective Date reflecting the
separation of the Separated Property(ies) from the balance of the Leased
Property and making such modifications to this Lease as are necessitated
thereby.

                  31.2.3   In the case of any New Lease that is entered into in
accordance with this Section 31.2 such New Lease shall be effective on the date
which is the earlier of (i) the date the New Lease is fully executed and
delivered by the parties thereto and (ii) the date specified in the written
notice from Lessor to Lessee requiring a New Lease as described above, which
date shall be no sooner than ten (10) days after the date such notice is issued.

                  31.2.4   The amendment contemplated in Section 31.2.2 above
and the New Lease shall be such that the obligations of the lessees under this
Lease (as amended) and the New Lease shall not be greater or less than the
obligations of Lessee under this Lease (prior to such amendment) and the rights
and entitlements of such lessees under this Lease (as amended) and the New Lease
shall not be less than the rights and entitlements of Lessee under this Lease
(prior to such amendment).

                  31.2.5   Lessee's obligation to provide letters of credit in
accordance with Article 21 of this Lease shall be segregated so that (a) the
applicable Lessee shall be required to provide a letter of credit pursuant to
the New Lease, on the same terms and conditions as set forth in this Lease,
except that "Letter of Credit Amount" under the New Lease shall mean an amount
equal to the then existing Letter of Credit Amount under this Lease (prior to
the amendment contemplated in Section 31.2.2 above), times a fraction, the
numerator of which is the then existing annual Allocated Minimum Rent for the
Separated Propert(ies), and the denominator of which is the then existing total
annual Minimum Rent payable for all Facilities (including the Separated
Propert(ies)), and (b) the "Letter of Credit Amount" under this Lease (as
amended) shall be reduced by the "Letter of Credit Amount" for the New Lease
determined in accordance with subsection (a) above.

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                  31.2.6   Lessee and Lessor shall take such actions and execute
and deliver such documents, including without limitation the New Lease and an
amendment to this Lease, as are reasonably necessary and appropriate to
effectuate the provisions and intent of this Section 31.2.

                  31.2.7   Each party shall bear its own costs and expenses in
connection with any New Lease entered into in accordance with this Section 31.2.

                                 ARTICLE XXXII.

         32.1     Quiet Enjoyment. So long as Lessee shall pay the Rent as the
same becomes due and shall fully comply with all of the terms of this Lease and
fully perform its obligations hereunder, Lessee shall peaceably and quietly
have, hold and enjoy the Leased Property for the Term, free of any claim or
other action by Lessor or anyone claiming by, through or under Lessor, but
subject to all liens and encumbrances of record as of the date hereof, or the
Commencement Date or created thereafter as permitted hereunder or thereafter
consented to by Lessee.

                                ARTICLE XXXIII.

         33.1     Notices. Any notice, consent, approval, demand or other
communication required or permitted to be given hereunder (a "notice") must be
in writing and may be served personally or by U.S. Mail. If served by U.S. Mail,
it shall be addressed as follows:

         If to Lessor:                      As set forth on Exhibit K

         with copies to:                    Latham & Watkins
                                            650 Town Center Drive, Suite 2000
                                            Costa Mesa, California  92626
                                            Attn:  David C. Meckler, Esq.
                                            Fax:   (714) 755-8290

                                            Bass, Berry & Sims PLC
                                            AmSouth Center
                                            315 Deaderick Street, Suite 2700
                                            Nashville, Tennessee 37238-0002
                                            Attn:  D. Mark Sheets, Esq.
                                            Fax:   (615) 742-2758

         If to Lessee:                      As set forth on Exhibit K

         with a copy to:                    Bass, Berry & Sims PLC
                                            AmSouth Center
                                            315 Deaderick Street, Suite 2700
                                            Nashville, Tennessee 37238-0002
                                            Attn:  D. Mark Sheets, Esq.
                                            Fax:   (615) 742-2758

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Any notice which is personally served shall be effective upon the date of
service; any notice given by U.S. Mail shall be deemed effectively given, if
deposited in the United States Mail, registered or certified with return receipt
requested, postage prepaid and addressed as provided above, on the date of
receipt, refusal or non-delivery indicated on the return receipt. In lieu of
notice by U.S. Mail, either party may send notices by facsimile or by a
nationally recognized overnight courier service which provides written proof of
delivery (such as U.P.S. or Federal Express). Any notice sent by facsimile shall
be effective upon confirmation of receipt in legible form, provided that an
original of such facsimile is also sent to the intended addressee by another
method approved in this Section 33.1, and any notice sent by a nationally
recognized overnight courier shall be effective on the date of delivery to the
party at its address specified above as set forth in the courier's delivery
receipt. Either party may, by notice to the other from time to time in the
manner herein provided, specify a different address for notice purposes.

                                 ARTICLE XXXIV.

         34.1     Appraiser. If it becomes necessary to determine the Fair
Market Value, or Fair Market Rental of any Facility for any purpose of this
Lease or the Leasehold FMV for purposes of determining any Transfer
Consideration payable to Lessor in connection with a Sale of Business pursuant
to this Lease, the same shall be determined by an independent appraisal firm, in
which one or more of the members, officers or principals of such firm are
Members of the Appraisal Institute (or any successor organization thereto), as
may be reasonably selected by Lessor and approved by Lessee (the "Appraiser").
Lessor shall cause such Appraiser to determine the Fair Market Value, Fair
Market Rental, or Leasehold FMV of such Facility as of the relevant date (giving
effect to the impact, if any, of inflation from the date of the Appraiser's
decision to the relevant date) and the determination of such Appraiser shall be
final and binding upon the parties. A written report of such Appraiser shall be
delivered and addressed to each of Lessor and Lessee. To the extent consistent
with sound appraisal practice as then existing at the time of any such
appraisal, an appraisal of Fair Market Value for purposes of this Lease shall
take into account and shall give appropriate consideration to all three
customary methods of appraisal (i.e., the cost approach, the sales comparison
approach and the income approach), and no one method or approach shall be deemed
conclusive simply by reason of the nature of Lessor's business or because such
approach may have been used for purposes of determining the fair market value of
the applicable Facility at the time of acquisition thereof by Lessor. This
provision for determination by appraisal shall be specifically enforceable to
the extent such remedy is available under applicable law, and any determination
hereunder shall be final and binding upon the parties except as otherwise
provided by applicable law. Lessor and Lessee shall each pay one-half (1/2) of
the fees and expenses of the Appraiser and one-half (1/2) of all other costs and
expenses incurred in connection with such appraisal. If Lessor and Lessee are
unable to agree upon the Appraiser within fifteen (15) days after Lessor
notifies Lessee of the identity of Lessor's selected Appraiser, then the
following shall apply:

                  34.1.1   Within fifteen (15) days after Lessee's receipt of
Lessor's selected Appraiser, Lessee shall by notice to Lessor appoint a second
Appraiser meeting the requirements set forth above to act on its behalf. In such
event, the Appraisers thus appointed shall, within sixty (60) days after the
date of Lessor's notice of its originally selected Appraiser, proceed to
determine the Fair Market Value, Fair Market Rental, or Leasehold FMV of such
Facility as of the relevant date (giving effect to the impact, if any, of
inflation from the date of their decision to

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the relevant date); provided, however, that if Lessee fails to appoint its
Appraiser within the time permitted, or if two Appraisers shall have been so
appointed but only one such Appraiser shall have made such determination within
such sixty (60) day period, then the determination of such sole Appraiser shall
be final and binding upon the parties.

                  34.1.2   If the two Appraisers shall have been appointed and
shall have made their determinations within the respective requisite periods set
forth above and if the difference between the amounts so determined shall not
exceed ten percent (10%) of the lesser of such amounts then the Fair Market
Value, Fair Market Rental, or Leasehold FMV of such Facility shall be an amount
equal to fifty percent (50%) of the sum of the amounts so determined. If the
difference between the amounts so determined shall exceed ten percent (10%) of
the lesser of such amounts, then such two Appraisers shall have twenty (20) days
to appoint a third Appraiser meeting the above requirements, but if such
Appraisers fail to do so, then either party may request the CPR or AAA (as such
terms are defined in Article XLIV) or any successor organization(s) thereto to
appoint an Appraiser meeting the above requirements within twenty (20) days of
such request, and both parties shall be bound by any appointment so made within
such twenty (20) day period. If no such Appraiser shall have been appointed
within such twenty (20) days or within one hundred five (105) days of the
original request for a determination of Fair Market Value, Fair Market Rental,
or Leasehold FMV of such Facility, whichever is earlier, either Lessor or Lessee
may apply to any court having jurisdiction to have such appointment made by such
court. Any Appraiser appointed by the original Appraisers, by the CPR or AAA or
by such court shall be instructed to determine the Fair Market Value, Fair
Market Rental, or Leasehold FMV of such Facility within thirty (30) days after
appointment of such Appraiser.

                  34.1.3   The determination of the Appraiser which differs most
in terms of dollar amount from the determinations of the other two Appraisers
shall be excluded, and fifty percent (50%) of the sum of the remaining two
determinations shall be final and binding upon Lessor and Lessee as the Fair
Market Value, Fair Market Rental, or Leasehold FMV of such Facility. This
provision for determination by appraisal shall be specifically enforceable to
the extent such remedy is available under applicable law, and any determination
hereunder shall be final and binding upon the parties except as otherwise
provided by applicable law.

If the foregoing two (2) or three (3) Appraiser system is utilized, then Lessor
and Lessee shall each pay the fees and expenses of the Appraiser appointed by it
and each shall pay one-half (1/2) of the fees and expenses of any third
Appraiser.

                                 ARTICLE XXXV.

         35.1     [Intentionally Omitted]

                                 ARTICLE XXXVI.

         36.1     Lessor May Grant Liens. Without the consent of Lessee, Lessor
may, from time to time, directly or indirectly, create or otherwise cause to
exist any ground lease, mortgage, trust deed, lien, encumbrance or title
retention agreement (collectively, an "Encumbrance") upon the Leased Property
and any Capital Additions or any part(s) or portion(s) thereof or interests
therein. This Lease is and at all times shall be subject and subordinate to any

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such Encumbrance which may now or hereafter affect the Leased Property and/or
any such Capital Additions and to all renewals, modifications, consolidations,
replacements and extensions thereof; provided, however, that (other than with
respect to the Initial Facility Mortgages) the subjection and subordination of
this Lease and Lessee's leasehold interest hereunder to any Encumbrance shall be
conditioned upon the execution by the holder of such Encumbrance and delivery to
Lessee of a non-disturbance and attornment agreement which provides that so long
as no Event of Default has occurred and is continuing, the holder of such
Encumbrance shall not disturb Lessee's leasehold interest or possession of the
Leased Property in accordance with the terms hereof, or any of Lessee's rights,
privileges and options hereunder. This clause shall be self-operative and no
further instrument of subordination shall be required; provided, however, that
in confirmation of such subordination, Lessee shall execute promptly any
certificate or document that Lessor or any ground or underlying lessor,
mortgagee or beneficiary may reasonably request for such purposes. If, in
connection with obtaining financing or refinancing for the Leased Property
and/or any such Capital Additions, a Facility Mortgagee or prospective Facility
Mortgagee shall request reasonable modifications to this Lease as a condition to
such financing or refinancing, Lessee shall not unreasonably withhold or delay
its consent thereto.

         36.2     Attornment. If Lessor's interest in the Leased Property and/or
any Capital Additions is sold or conveyed upon the exercise of any remedy
provided for in any Facility Mortgage, or otherwise by operation of law:
(i) Lessee shall attorn to and recognize the new owner as Lessee's Lessor under
this Lease or enter into a new lease substantially in the form of this Lease
with the new owner, and Lessee shall take such actions to confirm the foregoing
within ten (10) days after request; and (ii) the new owner shall not be
(a) liable for any act or omission of Lessor under this Lease occurring prior to
such sale or conveyance, or (b) subject to any offset, abatement or reduction of
rent because of any default of Lessor under this Lease occurring prior to such
sale or conveyance.

                                ARTICLE XXXVII.

         37.1     Hazardous Substances. Lessee shall not allow any Hazardous
Substance to be located, stored, disposed of, released or discharged in, on,
under or about the Leased Property or incorporated in any Facility; provided,
however, that Hazardous Substances may be brought, kept, used or disposed of in,
on or about the Leased Property or any Capital Additions in quantities and for
purposes similar to those brought, kept, used or disposed of in, on or about
similar facilities used for purposes similar to the Primary Intended Use and
which are brought, kept, used and disposed of in strict compliance with Legal
Requirements. Lessee shall not allow the Leased Property or any Capital
Additions to be used as a waste disposal site or, except as permitted in the
immediately preceding sentence, for the manufacturing, handling, storage,
distribution or disposal of any Hazardous Substance.

         37.2     Notices. Lessee shall provide to Lessor promptly, and in any
event immediately upon Lessee's receipt thereof, a copy of any notice, or
notification with respect to, (i) any violation of a Legal Requirement relating
to Hazardous Substances located in, on, or under the Leased Property or any
Capital Additions or any adjacent property thereto; (ii) any enforcement,
cleanup, removal, or other governmental or regulatory action instituted,
completed or threatened with respect to the Leased Property or any Capital
Additions; (iii) any claim made

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or threatened by any Person against Lessee or the Leased Property or any Capital
Additions relating to damage, contribution, cost recovery, compensation, loss,
or injury resulting from or claimed to result from any Hazardous Substance; and
(iv) any reports made to any federal, state or local environmental agency
arising out of or in connection with any Hazardous Substance in, on, under or
removed from the Leased Property or any Capital Additions, including any
complaints, notices, warnings or asserted violations in connection therewith.

         37.3     Remediation. If Lessee becomes aware of a violation of any
Legal Requirement relating to any Hazardous Substance in, on, under or about the
Leased Property or any Capital Additions or any adjacent property thereto, or if
Lessee, Lessor or the Leased Property or any Capital Additions becomes subject
to any order of any federal, state or local agency to repair, close, detoxify,
decontaminate or otherwise remediate the Leased Property and any Capital
Additions, Lessee shall immediately notify Lessor of such event and, at its sole
cost and expense, cure such violation or effect such repair, closure,
detoxification, decontamination or other remediation; provided, however, that
Lessee shall not be required to cure any violation or effect any repair,
closure, detoxification, decontamination or other remediation on any adjacent
property unless such violation is caused by Lessee or the source of any such
violation emanated from the Leased Property, whether prior to or during the
Term. If Lessee fails to implement and diligently pursue any such cure, repair,
closure, detoxification, decontamination or other remediation, Lessor shall have
the right, but not the obligation, to carry out such action and to recover from
Lessee all of Lessor's costs and expenses incurred in connection therewith.

         37.4     Indemnity. Lessee shall indemnify, defend, protect, save, hold
harmless, and reimburse Lessor for, from and against any and all costs, losses
(including, losses of use or economic benefit or diminution in value),
liabilities, damages, assessments, lawsuits, deficiencies, demands, claims and
expenses (collectively, "Environmental Costs") (whether or not arising out of
third-party claims and regardless of whether liability without fault is imposed,
or sought to be imposed, on Lessor) incurred in connection with, arising out of,
resulting from or incident to, directly or indirectly, before or during the Term
(i) the production, use, generation, storage, treatment, transporting, disposal,
discharge, release or other handling or disposition of any Hazardous Substances
from, in, on or about the Leased Property or any Capital Additions
(collectively, "Handling"), including the effects of such Handling of any
Hazardous Substances on any Person or property within or outside the boundaries
of the Leased Property or any Capital Additions, (ii) the presence of any
Hazardous Substances in, on, under or about the Leased Property or any Capital
Additions and (iii) the violation of any Legal Requirements (including
Environmental Laws). "Environmental Costs" include interest, costs of response,
removal, remedial action, containment, cleanup, investigation, design,
engineering and construction, damages (including actual, consequential and
punitive damages) for personal injuries and for injury to, destruction of or
loss of property or natural resources, relocation or replacement costs,
penalties, fines, charges or expenses, attorney's fees, expert fees,
consultation fees, and court costs, and all amounts paid in investigating,
defending or settling any of the foregoing.

         Without limiting the scope or generality of the foregoing, Lessee
expressly agrees to reimburse Lessor for any and all costs and expenses incurred
by Lessor:

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                  (a)      In investigating any and all matters relating to the
Handling of any Hazardous Substances, in, on, from, under or about the Leased
Property or any Capital Additions;

                  (b)      In bringing the Leased Property or any Capital
Additions into compliance with all Legal Requirements; and

                  (c)      Removing, treating, storing, transporting,
cleaning-up and/or disposing of any Hazardous Substances used, stored,
generated, released or disposed of in, on, from, under or about the Leased
Property or any Capital Additions or offsite.

         If any claim is made hereunder, Lessee agrees to pay such claim
promptly, and in any event to pay such claim within thirty (30) calendar days
after receipt by Lessee of notice thereof. If any such claim is not so paid and
Lessor is ultimately found or agrees to be responsible therefore, Lessee agrees
also to pay interest on the amount paid from the date of the first notice of
such claim, at the Overdue Rate.

         37.5     Environmental Inspection. If Lessor reasonably believes the
Leased Property to be in violation of applicable Environmental Laws, then (a)
Lessor shall have the right, from time to time, and upon not less than five (5)
days' written notice to Lessee, except in the case of an emergency in which
event no notice shall be required, to conduct an inspection of the Leased
Property and all Capital Additions to determine the existence or presence of
Hazardous Substances on or about the Leased Property or any such Capital
Additions, (b) Lessor shall have the right to enter and inspect the Leased
Property and all Capital Additions, conduct any testing, sampling and analyses
it deems necessary and shall have the right to inspect materials brought into
the Leased Property or any such Capital Additions, (c) Lessor may, in its
discretion, retain such experts to conduct the inspection, perform the tests
referred to herein, and to prepare a written report in connection therewith, and
(d) all costs and expenses incurred by Lessor under this Section shall be paid
on demand as Additional Charges by Lessee to Lessor. Failure to conduct an
environmental inspection or to detect unfavorable conditions if such inspection
is conducted shall in no fashion be intended as a release of any liability for
environmental conditions subsequently determined to be associated with or to
have occurred during Lessee's tenancy. Lessee shall remain liable for any
environmental condition related to or having occurred during its tenancy
regardless of when such conditions are discovered and regardless of whether or
not Lessor conducts an environmental inspection at the termination of this
Lease. The obligations set forth in this Article shall survive the expiration or
earlier termination of the Lease.

                                ARTICLE XXXVIII.

         38.1     Memorandum of Lease. Lessor and Lessee shall, promptly upon
the request of either, enter into one or more short form memoranda of this
Lease, each in form suitable for recording under the laws of the applicable
State. Lessee shall pay all costs and expenses of recording any such memoranda
and shall fully cooperate with Lessor in removing from record any such memoranda
upon the expiration or earlier termination of the Term with respect to the
applicable Facility.

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                                 ARTICLE XXXIX.

         39.1   Sale of Assets. Notwithstanding any other provision of this
Lease, Lessor shall not be required to (i) sell or transfer the Leased Property,
or any portion thereof, which is a real estate asset as defined in Section
856(c)(5)(B), or functionally equivalent successor provision, of the Code, to
Lessee if HCPI's counsel advises Lessor that such sale or transfer may not be a
sale of property described in Section 857(b)(6)(C), or functionally equivalent
successor provision, of the Code or (ii) sell or transfer the Leased Property,
or any portion thereof, to Lessee if HCPI's counsel advises Lessor that such
sale or transfer could result in an unacceptable amount of gross income for
purposes of the Ninety-Five percent (95%) gross income test contained in Section
856(c)(2), or functionally equivalent successor provision, of the Code. If
Lessee has the right or obligation to purchase the property pursuant to the
terms herein, and if Lessor determines not to sell such property pursuant to the
above sentence, then Lessee shall purchase such property, upon and subject to
all applicable terms and conditions set forth in this Lease, including the
provisions of Article XXXV, at such time as the transaction, upon the advice of
HCPI's counsel, would be a sale of property (to the extent the Leased Property
is a real estate asset) described in Section 857(b)(6)(C), or functionally
equivalent successor provision, of the Code, and would not result in an
unacceptable amount of gross income to HCPI for purposes of the Ninety-Five
Percent (95%) gross income test contained in Section 856(c)(2), or functionally
equivalent successor provision of the Code and until such time Lessee shall
lease the Leased Property and all Capital Additions from Lessor at the lesser of
(i) Fair Market Rental or (ii) the then current Allocated Minimum Rent and
Allocated Additional Rent for such Leased Property under this Lease.

                                  ARTICLE XL.

         40.1     [Intentionally Omitted].

                                  ARTICLE XLI.

         41.1     Authority. If Lessee is a corporation, limited liability
company, trust, or partnership, Lessee, and each individual executing this Lease
on behalf of Lessee, represent and warrant that each is duly authorized to
execute and deliver this Lease on behalf of Lessee and shall concurrently with
the execution and delivery of this Lease to Lessor deliver to Lessor evidence of
such authority satisfactory to Lessor.

                                 ARTICLE XLII.

         42.1     Attorneys' Fees. If Lessor or Lessee brings an action or other
proceeding (including an arbitration pursuant to Article XLIV) against the other
to enforce any of the terms, covenants or conditions hereof or any instrument
executed pursuant to this Lease, or by reason of any breach or default hereunder
or thereunder, the party prevailing in any such action or proceeding and any
appeal thereupon shall be paid all of its costs and reasonable attorneys' fees
incurred therein. In addition to the foregoing and other provisions of this
Lease that specifically require Lessee to reimburse, pay or indemnify against
Lessor's attorneys' fees, Lessee shall pay, as Additional Charges, all of
Lessor's reasonable attorneys' fees incurred in connection with the
administration or enforcement of this Lease, including attorneys' fees incurred
in connection

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with Lessee's exercise of its option to purchase the Leased Property or the
renewal of this Lease for any Extended Term, the review of any letters of
credit, the review, negotiation or documentation of any subletting, assignment,
or management arrangement or any consent requested in connection therewith, and
the collection of past due Rent.

                                 ARTICLE XLIII.

         43.1     Brokers. Lessee warrants that it has not had any contact or
dealings with any Person or real estate broker which would give rise to the
payment of any fee or brokerage commission in connection with this Lease, and
Lessee shall indemnify, protect, hold harmless and defend Lessor from and
against any liability with respect to any fee or brokerage commission arising
out of any act or omission of Lessee. Lessor warrants that it has not had any
contact or dealings with any Person or real estate broker which would give rise
to the payment of any fee or brokerage commission in connection with this Lease,
and Lessor shall indemnify, protect, hold harmless and defend Lessee from and
against any liability with respect to any fee or brokerage commission arising
out of any act or omission of Lessor.

                                 ARTICLE XLIV.

         44.1     Submission to Arbitration.

                  44.1.1 Except as provided in Section 44.1.2 below, any
controversy, dispute or claim of whatsoever nature arising out of, in connection
with, or in relation to the interpretation, performance or breach of this Lease,
including any claim based on contract, tort or statute, shall be determined by
final and binding, confidential arbitration in accordance with the then current
CPR Institute for Dispute Resolution Rules for Non-Administered Arbitration of
Business Disputes ("CPR"), by a sole arbitrator mutually selected by Lessor and
Lessee from among the CPR Panel of Distinguished Neutrals; provided, however,
that if the CPR (or any successor organization thereto) no longer exists, then
such arbitration shall be administered by the American Arbitration Association
("AAA") in accordance with its then-existing Commercial Arbitration Rules, and
the sole arbitrator shall be selected in accordance with such AAA rules. Any
arbitration hereunder shall be governed by the United States Arbitration Act, 9
U.S.C. 1-16 (or any successor legislation thereto), and judgment upon the award
rendered by the arbitrator may be entered by any state or federal court having
jurisdiction thereof. If Lessor and Lessee are not able to agree on an
arbitrator, then an arbitrator shall be appointed by the CPR or AAA upon
application by either party. Neither Lessor, Lessee nor the arbitrator shall
disclose the existence, content or results of any arbitration hereunder without
the prior written consent of all parties; provided, however, that either party
may disclose the existence, content or results of any such arbitration to its
partners, officers, directors, employees, agents, attorneys and accountants and
to any other Person to whom disclosure is required by applicable Legal
Requirements, including pursuant to an order of a court of competent
jurisdiction, or as may be necessary to enforce the same. Unless otherwise
agreed by the parties, any arbitration hereunder shall be held at a neutral
location selected by the arbitrator in the major metropolitan area in the State
closest in proximity to the Leased Property. The cost of the arbitrator and the
expenses relating to the arbitration (exclusive of legal fees) shall be borne
equally by Lessor and Lessee unless otherwise specified in the award of the
arbitrator. Such fees and costs paid or payable to the arbitrator shall be
included in "costs and reasonable attorneys' fees" for purposes of Article XLII
and the arbitrator

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shall specifically have the power to award to the prevailing party pursuant to
such Article XLII such party's costs and expenses incurred in such arbitration,
including fees and costs paid to the arbitrator.

                  44.1.2   The provisions of this Article XLIV shall not apply
to:

                  (a)      Any unlawful detainer or other similar summary or
expedited proceeding for ejectment or recovery of possession of the Leased
Property and Capital Additions of any Facility instituted by Lessor in
accordance with applicable Legal Requirements as the result of an Event of
Default or alleged Event of Default by Lessee pursuant to this Lease, and any
compulsory counterclaim of Lessee with respect thereto. In addition, if
permitted by applicable Legal Requirements, Lessor shall be entitled in
connection with any such proceeding to seek any damages to which it is entitled
at law, including those set forth in Article XVI.

                  (b)      Any specific controversy, dispute, question or issue
as to which this Lease specifically provides another method of determining such
controversy, dispute, question or issue and provides that a determination
pursuant to such method is final and binding, unless both Lessor and Lessee
agree in writing to waive such procedure and proceed instead pursuant to this
Article XLIV.

                  (c)      Any request or application for an order or decree
granting any provisional or ancillary remedy (such as a temporary restraining
order or injunction) with respect to any right or obligation of either party to
this Lease, and any preliminary determination of the underlying controversy,
dispute, question or issue as is required to determine whether or not to grant
such relief. A final and binding determination of such underlying controversy,
dispute, question or issue shall be made by an arbitration conducted pursuant to
this Article XLIV after an appropriate transfer or reference to the arbitrator
selected pursuant to this Article XLIV upon motion or application of either
party hereto. Any ancillary or provisional relief which is granted pursuant to
this clause (c) shall continue in effect pending an arbitration determination
and entry of judgment thereon pursuant to this Article XLIV.

                                  ARTICLE XLV.

         45.1     Miscellaneous.

                  45.1.1   Survival. Anything contained in this Lease to the
contrary notwithstanding, all claims against, and liabilities and indemnities
of, Lessee or Lessor arising prior to the expiration or earlier termination of
the Term shall survive such expiration or termination. In addition, all claims
against, and all liabilities and indemnities hereunder of Lessee shall continue
in full force and effect and in favor of the Lessor named herein and its
successors and assigns, notwithstanding any conveyance of the Leased Property to
Lessee.

                  45.1.2   Severability. If any term or provision of this Lease
or any application thereof shall be held invalid or unenforceable, the remainder
of this Lease and any other application of such term or provision shall not be
affected thereby.

                  45.1.3   Non-Recourse. Lessee specifically agrees to look
solely to the Leased Property (and any proceeds thereof) for recovery of any
judgment from Lessor. It is

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specifically agreed that no constituent partner in Lessor or officer, director
or employee of Lessor shall ever be personally liable for any such judgment or
for the payment of any monetary obligation to Lessee. The provision contained in
the foregoing sentence is not intended to, and shall not, limit any right that
Lessee might otherwise have to obtain injunctive relief against Lessor, or any
action not involving the personal liability of Lessor. Furthermore, except as
otherwise expressly provided herein, in no event shall Lessor ever be liable to
Lessee for any indirect or consequential damages suffered by Lessee from
whatever cause.

                  45.1.4   Licenses and Operation Transfer Agreements. Upon the
expiration or earlier termination of the Term applicable to any Facility (unless
such Facility has been purchased by Lessee), Lessee shall use its best efforts
to transfer to Lessor or Lessor's nominee such Facility in a fully operational
condition and shall cooperate with Lessor or Lessor's designee or nominee in
connection with the processing by Lessor or Lessor's designee or nominee of any
applications for all licenses, operating permits and other governmental
authorization, all contracts, including contracts with governmental or
quasi-governmental entities, Entrance Fee Agreements (as defined in the Addendum
attached hereto), business records, data, patient and resident records, patient
and resident trust accounts, liquid and operating reserves required to be
maintained in connection with the Entrance Fees (as defined in the Addendum
attached hereto) which may be necessary or useful for the operation of such
Facility; provided that the costs and expenses of any such transfer or the
processing of any such application shall be paid by Lessor or Lessor's designee
or nominee. Lessee shall not commit any act or be remiss in the undertaking of
any act that would jeopardize the licensure or certification of such Facility,
and Lessee shall comply with all reasonable requests for an orderly transfer of
the same upon the expiration or early termination of the Term applicable to such
Facility. Without limiting the generality of the foregoing, if requested by
Lessor or a proposed replacement operator for such Facility, Lessee hereby
agrees to enter into a reasonable operations transfer agreement with such
replacement operator as is customary in the transfer to a new operator of the
operations of a facility similar to such Facility. Lessee shall not unreasonably
withhold, condition or delay its consent to entering into any interim subleases
or management agreements as may be necessary to effectuate an early transfer of
the operations of such Facility prior to the time that such replacement operator
holds all licenses and permits from all applicable governmental authorities with
jurisdiction necessary to operate such Facility for its Primary Intended Use. In
addition, upon request, Lessee shall promptly deliver copies of all books and
records relating to the Leased Property and all Capital Additions of such
Facility and operations thereon to Lessor or Lessor's designee or nominee.
Lessee shall indemnify, defend, protect and hold harmless Lessor from and
against any loss, damage, cost or expense incurred by Lessor or Lessor's
designee or nominee in connection with the correction of any and all
deficiencies of a physical nature identified by any governmental authority
responsible for licensing the Leased Property and all Capital Additions in the
course of any change of ownership inspection and audit.

                  45.1.5   Successors and Assigns. This Lease shall be binding
upon Lessor and its successors and assigns and, subject to the provisions of
Article XXIV, upon Lessee and its successors and assigns.

                  45.1.6   Termination Date. If this Lease is terminated by
Lessor or Lessee under any provision hereof with respect to any one or more
(including all, if applicable) of the

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Facilities, and upon the expiration of the Term applicable to a Facility
(collectively, the "termination date"), the following shall pertain:

                  (a)      Lessee shall vacate and surrender the Leased
Property, Lessee's Personal Property and all Capital Additions relating to the
applicable Facility to Lessor in the condition required by Section 9.1.4. Prior
to such vacation and surrender, Lessee shall remove any items which Lessee is
permitted or required to remove hereunder. Lessee shall, at Lessee's cost,
repair any damage to such Leased Property, any Lessee's Personal Property, and
any Capital Additions caused by such vacation and/or removal of any items which
Lessee is required or permitted hereunder to remove. Any items which Lessee is
permitted to remove but fails to remove prior to the surrender to Lessor of such
Leased Property, Lessee's Personal Property and Capital Additions shall be
deemed abandoned by Lessee, and Lessor may retain or dispose of the same as
Lessor sees fit without claim by Lessee thereto or to any proceeds thereof. If
Lessor elects to remove and dispose of any such items abandoned by Lessee, the
cost of such removal and disposal shall be an Additional Charge payable by
Lessee to Lessor upon demand.

                  (b)      Without limiting the provisions of Section 45.1.1
above, upon any such termination or expiration of this Lease with respect to a
Facility, the following shall pertain:

                           (i)     Lessee agrees to defend, protect, indemnify,
         defend and hold harmless Lessor from and against any and all claims,
         costs, losses, expenses, damages, actions, and causes of action for
         which Lessee is responsible under this Lease (including Lessee's
         indemnification obligations under Articles XXIII and XXXVII) and which
         accrue or have accrued on or before the termination date.

                           (ii)    Lessee shall remain liable for the cost of
         all utilities used in or at the Leased Property and any Capital
         Additions relating to such Facility through the termination date and
         accrued and unpaid, whether or not then billed, as of the termination
         date until full payment thereof by Lessee. Lessee shall obtain directly
         from the companies providing such services closing statements for all
         services rendered through the termination date and shall promptly pay
         the same. If any utility statement with respect to such Leased Property
         and any Capital Additions includes charges for a period partially prior
         to and partially subsequent to the termination date, such charges shall
         be prorated as between Lessor and Lessee, with Lessee responsible for
         the portion thereof (based upon a fraction the numerator of which is
         the number of days of service on such statement through the termination
         date and the denominator of which is the total number of days of
         service on such statement) through the termination date and Lessor
         shall be responsible for the balance. The party receiving any such
         statement which requires proration hereunder shall promptly pay such
         statement and the other party shall, within ten (10) days after receipt
         of a copy of such statement, remit to the party paying the statement
         any amount for which such other party is responsible hereunder.

                           (iii)   Lessee shall remain responsible for any and
         all Impositions imposed against the Leased Property, the Personal
         Property and any Capital Additions with a lien date prior to the
         termination date (irrespective of the date of billing therefor) and for
         its pro rata share of any Impositions imposed in respect of the
         tax-fiscal period during which the Term terminates as provided in
         Section 4.1.7, and Lessee shall

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<PAGE>

         indemnify and hold Lessor harmless with respect to any claims for such
         Impositions or resulting from nonpayment thereof.

                           (iv)    Lessee shall (y) execute all documents and
         take any actions reasonably necessary to (1) cause the transfer to
         Lessor of all of Lessee's Personal Property and any Capital Additions
         not owned by Lessor, as provided in Section 6.3, in each case free of
         any encumbrance, as provided in Section 6.3 and (2) remove this Lease
         and/or any memorandum hereof as a matter affecting title to the Leased
         Property as provided in Article XXXVIII and (z) comply with its
         covenants set forth in Section 45.1.4.

                           (v)     Lessee shall observe any covenant or
         agreement of Lessee in this Lease which is intended to or expressly
         provides that it shall survive the expiration or sooner termination of
         this Lease.

                  45.1.7   Governing Law. THIS LEASE WAS NEGOTIATED IN THE STATE
OF CALIFORNIA, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO
THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY. ACCORDINGLY, IN
ALL RESPECTS THIS LEASE (AND ANY AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF)
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA (WITHOUT REGARD OF PRINCIPLES OR
CONFLICTS OF LAW) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA,
EXCEPT THAT ALL PROVISIONS HEREOF RELATING TO THE CREATION OF THE LEASEHOLD
ESTATE AND ALL REMEDIES SET FORTH IN ARTICLE XVI RELATING TO RECOVERY OF
POSSESSION OF THE LEASED PROPERTY OF ANY FACILITY (SUCH AS AN ACTION FOR
UNLAWFUL DETAINER OR OTHER SIMILAR ACTION) SHALL BE CONSTRUED AND ENFORCED
ACCORDING TO, AND GOVERNED BY, THE LAWS OF THE STATE IN WHICH THE LEASED
PROPERTY OF SUCH FACILITY IS LOCATED.

                  45.1.8   Waiver of Trial by Jury. EACH OF LESSOR AND LESSEE
ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO
ITS RIGHTS TO TRIAL BY JURY UNDER THE CONSTITUTION OF THE UNITED STATES, THE
STATE OF CALIFORNIA AND THE STATES IN WHICH THE LEASED PROPERTY OF ANY OF THE
FACILITIES IS LOCATED. EACH OF LESSOR AND LESSEE HEREBY EXPRESSLY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i)
ARISING UNDER THIS LEASE (OR ANY AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF)
OR (ii) IN ANY MANNER CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF
LESSOR AND LESSEE WITH RESPECT TO THIS LEASE (OR ANY AGREEMENT FORMED PURSUANT
TO THE TERMS HEREOF) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO,
IN EACH CASE WHETHER NOW EXISTING OR HEREINAFTER ARISING, AND WHETHER SOUNDING
IN CONTRACT OR TORT OR OTHERWISE; EACH OF LESSOR AND LESSEE HEREBY AGREES AND
CONSENTS

                                       74

<PAGE>

THAT, SUBJECT TO ARTICLE XLIV, ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND THAT EITHER PARTY MAY FILE
A COPY OF THIS SECTION WITH ANY COURT AS CONCLUSIVE EVIDENCE OF THE CONSENT OF
EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

                       LESSOR'S INITIALS: ________________

                       LESSEE'S INITIALS: ________________

                  45.1.9   Lessee Counterclaim and Equitable Remedies. Lessee
hereby waives the right to interpose counterclaim (other than compulsory
counterclaims) in any summary proceeding instituted by Lessor against Lessee in
any court or in any action instituted by Lessor in any court for unpaid Rent
under this Lease. In the event that Lessee claims or asserts that Lessor has
violated or failed to perform a covenant of Lessor not to unreasonably withhold
or delay Lessor's consent or approval hereunder, or in any case where Lessor's
reasonableness in exercising its judgment is in issue, Lessee's sole remedy
shall be an action for specific performance, declaratory judgment or injunction,
and in no event shall Lessee be entitled to any monetary damages for a breach of
such covenant, and in no event shall Lessee claim or assert any claims for
monetary damages in any action or by way of set-off defense or counterclaim, and
Lessee hereby specifically waives the right to any monetary damages or other
remedies in connection with any such claim or assertion.

                  45.1.10  Entire Agreement. This Lease, the Addendum, the
Exhibits hereto and thereto and such other documents as are contemplated
hereunder or thereunder, constitutes the entire agreement of the parties with
respect to the subject matter hereof, and may not be changed or modified except
by an agreement in writing signed by the parties. Lessor and Lessee hereby agree
that all prior or contemporaneous oral understandings, agreements or
negotiations relative to the leasing of the Leased Property are merged into and
revoked by this Lease.

                  45.1.11  Headings. All titles and headings to sections,
subsections, paragraphs or other divisions of this Lease are only for the
convenience of the parties and shall not be construed to have any effect or
meaning with respect to the other contents of such sections, subsections,
paragraphs or other divisions, such other content being controlling as to the
agreement among the parties hereto.

                  45.1.12  Counterparts. This Lease may be executed in any
number of counterparts, each of which shall be a valid and binding original, but
all of which together shall constitute one and the same instrument.

                  45.1.13  Joint and Several. If more than one Person is the
Lessee under this Lease, the liability of such Persons under this Lease shall be
joint and several.

                  45.1.14  Interpretation. Both Lessor and Lessee have been
represented by counsel and this Lease and every provision hereof has been freely
and fairly

                                       75

<PAGE>

negotiated. Consequently, all provisions of this Lease shall be interpreted
according to their fair meaning and shall not be strictly construed against any
party.

                  45.1.15  Time of Essence. Time is of the essence of this Lease
and each provision hereof in which time of performance is established.

                  45.1.16  Force Majeure. In the event that either Lessor or
Lessee is delayed in performing its respective obligations pursuant to this
Lease by any cause beyond the reasonable control of the party required to
perform such obligation, the time period for performing such obligation shall be
extended by a period of time equal to the period of the delay. For purposes of
this Lease:

                  (a)      A cause shall be beyond the reasonable control of a
party to this Lease when such cause would affect any person similarly situated
(such as power outage, labor strike, Act of God or trucker's strike) but shall
not be beyond the reasonable control of such party when peculiar to such party
(such as financial inability or failure to order long lead time material
sufficiently in advance).

                  (b)      This Section shall not apply to any obligation to pay
money or otherwise perform any financial obligation hereunder.

                  (c)      In the event of any occurrence which a party believes
constitutes a cause beyond the reasonable control of such party and which will
delay any performance by such party, such party shall promptly in writing notify
the other party of the occurrence and nature of such cause, the anticipated
period of delay and the steps being taken by such party to mitigate the effects
of such delay. Failure to give such notice promptly, shall deem such occurrence
or event not to be a cause beyond the reasonable control of such party.

                  45.1.17  Further Assurances. The parties agree to promptly
sign all documents reasonably requested to give effect to the provisions of this
Lease.

                  45.1.18  Third Party Beneficiaries. The provisions of this
Lease are for the benefit of Lessor and Lessee only; provided, however that HCPI
shall be a third party beneficiary as to the provisions in favor of Lessor,
including, but not limited to, any rights and remedies of Lessor under this
Lease. Other than as set forth in this Section 45.1.18, the provisions of this
Lease are not for the benefit of any third party, and no third party shall have
the right to enforce the provisions of this Lease.

                  45.1.19  Amended and Restated. If there is a lease currently
in effect for all or any portion of the Leased Property between Lessor or an
Affiliate of Lessor, on the one hand, and Lessee or an Affiliate of Lessee on
the other hand (a "Prior Lease"), this Lease shall amend and restate such Prior
Lease, and such Prior Lease shall be of no further force and effect.

                                 ARTICLE XLVI.

         46.1     Provisions Relating to Master Lease. Lessor and Lessee hereby
acknowledge and agree that, except as otherwise expressly provided herein to the
contrary, this

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<PAGE>

Lease is and the parties intend the same for all purposes to be treated as a
single, integrated and indivisible agreement. Lessee acknowledges that in order
to induce Lessor to lease the Leased Property of each Facility to Lessee and as
a condition thereto, Lessor insisted that the parties execute this Lease
covering all of the Facilities in a single, integrated and indivisible
agreement.

         46.2     Provisions Relating to Tax Treatment of Lease. Lessor and
Lessee hereby acknowledge and agree that this Lease shall be treated as an
operating lease for all purposes and not as a synthetic lease, financing lease
or loan, and that Lessor shall be entitled to all the benefits of ownership of
the Leased Property, including depreciation for all federal, state and local tax
purposes.

                                 ARTICLE XLVII.

         47.1     Covenants with Respect to Operations and Fundamental Changes
of Lessee. Each Lessee hereby represents, warrants and covenants as of the date
hereof and until the expiration or earlier termination of this Lease, that such
Lessee:

                  (a)      will not amend, modify or otherwise change its
partnership certificate, partnership agreement, articles of incorporation,
bylaws, certificate of formation, limited liability company agreement, operating
agreement, articles of organization, or other formation agreement or document,
as applicable, in any material term or manner, or in a manner which adversely
affects Lessee's existence as a single purpose entity without the prior written
consent of Lessor;

                  (b)      will not permit any partner, limited or general,
member or shareholder of Lessee, as applicable, amend, modify or otherwise
change such Lessee's partnership certificate, partnership agreement, articles of
incorporation, bylaws, certificate of formation, limited liability company
agreement, operating agreement, articles of organization, or other formation
agreement or document, as applicable, in any material term or manner, or in a
manner which adversely affects Lessee's existence as a single purpose entity
without the prior written consent of Lessor;

                  (c)      to the full extent permitted by law, will not
liquidate or dissolve (or suffer any liquidation or dissolution), or enter into
any transaction of merger or consolidation, or acquire by purchase or otherwise
all or substantially all the business or assets of, or any stock or other
evidence of beneficial ownership of, any entity without the prior written
consent of Lessor; provided, however, that Fort Austin Limited Partnership shall
be permitted to own membership interests in the Fleetwood Entity (as defined in
the HCPI Loan Agreement) and incidental personal property necessary for the
ownership of such membership interests;

                  (d)      except in connection with the Initial Facility
Mortgages and the indebtedness secured thereby, has not and will not guarantee,
pledge its assets for the benefit of, or otherwise become liable, on or in
connection with, any obligation of any other Person without the prior written
consent of Lessor;

                  (e)      does not own and will not own any asset other than
(i) its leasehold interest in the applicable Leased Property and (ii) incidental
personal property necessary for the operation of the applicable Leased Property
without the prior written consent of Lessor;

                                       77

<PAGE>

provided, however, that Fort Austin Limited Partnership shall be permitted to
own membership interests in the Fleetwood Entity (as defined in the HCPI Loan
Agreement) and incidental personal property necessary for the ownership of such
membership interests;

                  (f)      is not engaged and will not engage, either directly
or indirectly, in any business other than the lease, management and operation of
the applicable Leased Property without the prior written consent of Lessor;

                  (g)      has maintained and will maintain an arm's length
relationship with its Affiliates and its shareholders and any other parties
furnishing services to it;

                  (h)      except in connection with the Initial Facility
Mortgages and the indebtedness secured thereby, has not incurred and will not
incur any debt, secured or unsecured, direct or contingent (including
guaranteeing any obligation) (other than accounts payable incurred in the
ordinary course of business, equipment leases not exceeding One Hundred Thousand
Dollars ($100,000) per Facility, and the Vehicle Subleases (as defined in the
HCPI Loan Documents) or any other motor vehicle leases or subleases to provide
for the lease of motor vehicles upon the expiration of the Vehicle Subleases so
long as the vehicles covered thereby are reasonably necessary for the operation
of the Facilities for the Primary Intended Use and the amounts payable under
such motor vehicle subleases are commercially reasonable);

                  (i)      has not made and will not make any loans or advances
to any third party (including any Affiliate) other than loans and advances
permitted pursuant to Section 5.4(f) of the HCPI Loan Agreement, without the
prior written consent of Lessor;

                  (j)      is and will be solvent and pay its own liabilities,
indebtedness and obligations of any kind, including administrative expenses,
from its assets as the same shall become due;

                  (k)      has done or caused to be done and will do all things
necessary to preserve its existence, and will observe all formalities applicable
to it and will do all things necessary to maintain its identity as an entity
separate and distinct from its Affiliates;

                  (l)      will conduct and operate its business in its own name
and as presently conducted and operated;

                  (m)      will maintain financial statements, books and records
and bank accounts separate from those of its Affiliates, including, without
limitation, its general partners, shareholders or members, as applicable;
provided, however, that Lessee may be included in consolidated financial
statements of another person, provided that such consolidated financial
statements contain a note indicating that Lessee is a separate legal entity and
Lessee's assets and liabilities are neither available to pay the debts of the
consolidated entity nor constitute obligations of the consolidated entity and
that the consolidated entity is not liable for any of the liabilities of such
Lessee;

                  (n)      will be, and at all times will hold itself out to the
public as, a legal entity separate and distinct from any other entity
(including, without limitation, any Affiliate or any partner, member or
shareholder of Lessee);

                                       78

<PAGE>

                  (o)      will file its own tax returns (except to the extent
it is treated as a division of another taxpayer for tax purposes) and pay any
taxes so required to be paid under applicable law; provided, however, that so
long as Lessee's tax liability and its income and expenses are readily
determinable based on a review of Lessee's books and records, it may file
consolidated tax returns (provided that Lessee shall maintain sufficient books
and records to determine its separate tax obligations for any particular
reporting periods);

                  (p)      will maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and character and
in light of its contemplated business operations;

                  (q)      will not commingle the funds and other assets of
Lessee with those of any general partner, shareholder, member, Affiliate,
principal or any other Person;

                  (r)      has and will maintain its assets in such a manner
that it is not costly or difficult to segregate, ascertain or identify its
individual assets from those of any Affiliate or any other Person;

                  (s)      does not and will not hold itself out to be
responsible for the debts or obligations of any other Person, except in
connection with the Initial Facility Mortgages;

                  (t)      will pay any liabilities out of its own funds,
including salaries of its employees, not out of the funds of any Affiliate;

                  (u)      will use stationery, invoices, and checks separate
from its Affiliates;

                  (v)      will not do any act which would make it impossible to
carry on the ordinary business of Lessee;

                  (w)      will not hold title to Lessee's assets other than in
Lessee's name;

                  (x)      will deposit all of its funds in checking accounts,
savings accounts, time deposits or certificates of deposit in its own name or
invest such funds in its own name;

                  (y)      will correct any known misunderstanding regarding its
separate identity;

                  (z)      will participate in the fair and reasonable
allocation of any and all overhead expenses and other common expenses for
facilities, goods or services provided to multiple entities;

                  (aa)     will establish and maintain an office through which
its business is conducted separate and apart from that of its Affiliates
(including the other Lessees); provided, however, that nothing herein shall be
construed so as to prevent Lessee from having office space at the same address
as any other Affiliate, so long as the costs and expenses associated with such
office space are allocated as set forth in paragraph (z) above;

                                       79

<PAGE>

                  (bb)     will maintain a separate telephone number from that
of its Affiliates or any other entity (provided, however, that any Lessee that
is a limited or general partnership shall be permitted to have the same
telephone number as its general partner(s));

                  (cc)     has not and will not institute proceedings to be
adjudicated bankrupt or insolvent; or consent to the institution of bankruptcy
or insolvency proceedings against it; or file a petition seeking, or consent to,
reorganization or relief under any applicable federal or state law relating to
bankruptcy; or consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Lessee or a substantial
part of Lessee's property; or make any assignment for the benefit of creditors;
or admit in writing its inability to pay its debts generally as they become due;
or take any action in furtherance of any such action;

                  (dd)     [intentionally omitted]

                  (ee)     [intentionally omitted]

                  (ff)     without limiting the provisions of Section 7.2.8
above, has obtained and will maintain, for each Leased Property for which such
Lessee is the License Holder, all consents, licenses, permits, approvals or
authorizations from governmental authorities or third parties that are necessary
for the operation of such Leased Property for its Primary Intended Use,
including all health care licenses and permits.

                  Notwithstanding anything herein to the contrary, each Lessee
may, from time to time, (i) make lawful distributions in accordance with
applicable law or loans on an arm's length basis to its affiliates subject to
the provisions of paragraph (p) above, or (ii) obtain loans on an arm's length
basis or lawful capital contributions in accordance with applicable law from its
affiliates to the extent necessary to satisfy its obligations as they become
due; provided, however, that all such transactions are accurately reflected in
the books and records of such Lessee and each of its applicable affiliates.

                                [Signature pages follow]

                                       80

<PAGE>

         IN WITNESS WHEREOF, the parties have caused this Lease to be executed
and attested by their respective officers thereunto duly authorized.

                                                    "Lessor"

WITNESSED:                    FORT AUSTIN REAL ESTATE HOLDINGS, LLC,
                              a Delaware limited liability company

_________________________
Witness                       By:______________________________________________
                              Title:___________________________________________
_________________________
Witness

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

_________________________
Witness                       By:______________________________________________
                              Title:___________________________________________
_________________________
Witness

WITNESSED:                    ARC RICHMOND PLACE REAL ESTATE HOLDINGS,
                              LLC, a Delaware limited liability company

_________________________
Witness                       By:______________________________________________
                              Title:___________________________________________
_________________________
Witness

WITNESSED:                    ARC HOLLAND REAL ESTATE HOLDINGS,
                              LLC, a Delaware limited liability company

_________________________
Witness                       By:______________________________________________
                              Title:___________________________________________
_________________________
Witness

                              [Signature pages continue]

<PAGE>

WITNESSED:                    ARC SUN CITY CENTER REAL ESTATE HOLDINGS,
                              LLC, a Delaware limited liability company

_________________________
Witness                       By:______________________________________________
                              Title:___________________________________________
_________________________
Witness

WITNESSED:                    ARC LAKE SEMINOLE SQUARE REAL ESTATE HOLDINGS,
                              LLC, a Delaware limited liability company

_________________________
Witness                       By:______________________________________________
                              Title:___________________________________________
_________________________
Witness

WITNESSED:                    ARC BRANDYWINE REAL ESTATE HOLDINGS,
                              LLC, a Delaware limited liability company

_________________________
Witness                       By:______________________________________________
                              Title:___________________________________________
_________________________
Witness

                                       2

<PAGE>

                                                    "Lessee"

WITNESSED:                    FORT AUSTIN LIMITED PARTNERSHIP, a Texas limited
                              partnership

_________________________     By:   ARC Fort Austin Properties, LLC, its general
Witness                             partner

_________________________           By:________________________________________
Witness                             Title:_____________________________________

WITNESSED:                    ARC SANTA CATALINA, INC., a Tennessee corporation

_________________________     By:______________________________________________
Witness                       Title:___________________________________________

_________________________
Witness

                              [Signature pages continue]

                                       3

<PAGE>

WITNESSED:                    ARC RICHMOND PLACE, INC., a Delaware corporation

_________________________     By:______________________________________________
Witness                       Title:___________________________________________

_________________________
Witness

WITNESSED:                    FREEDOM VILLAGE OF HOLLAND, MICHIGAN, a
                              Michigan general partnership

_________________________     By:   ARC Freedom, LLC, managing partner
Witness

_________________________           By:________________________________________
Witness                             Title:_____________________________________

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

_________________________     By:   ARC Freedom, LLC, managing partner
Witness

_________________________           By:________________________________________
Witness                             Title:_____________________________________

WITNESSED:                    LAKE SEMINOLE SQUARE MANAGEMENT
                              COMPANY, INC., a Tennessee corporation

_________________________
Witness                       By:______________________________________________
                              Title:___________________________________________

_________________________
Witness

                              [Signature pages continue]

                                       4

<PAGE>

WITNESSED:                    FREEDOM GROUP-LAKE SEMINOLE SQUARE, INC., a
                              Tennessee corporation

_________________________
Witness                       By:______________________________________________
                              Title:___________________________________________
_________________________
Witness

WITNESSED:                    ARC BRANDYWINE, LLC, a Tennessee limited liability
                              company

_________________________
Witness                       By:______________________________________________
                              Title:___________________________________________
_________________________
Witness

                                       5<PAGE>
                                                                    Exhibit 10.1

                           AMENDMENT NO. 1 AND WAIVER

                         Dated as of September 27, 2002

                                       to

                  FIFTH AMENDED AND RESTATED CREDIT AGREEMENT

                           Dated as of July 12, 2002

                  This Amendment No. 1 and Waiver (this "Amendment") dated as
of September 27, 2002 is entered into among TMAS/ASI, INC., an Arkansas
corporation formerly known as Aerocell Structures, Inc. ("Aerocell"), TRIAD
INTERNATIONAL MAINTENANCE CORPORATION, a Delaware corporation ("TIMCO"),
AIRCRAFT INTERIOR DESIGN, INC., a Florida corporation ("Design"), and TIMCO
ENGINE CENTER, INC., a Delaware corporation ("Engine Center") (Aerocell, TIMCO,
Design and Engine Center being collectively referred to as the "Borrowers"),
and TIMCO AVIATION SERVICES, INC., a Delaware corporation ("Parent"), AVIATION
SALES DISTRIBUTION SERVICES COMPANY, a Delaware corporation ("Distribution"),
AVS/M-2, INC., a Delaware corporation ("Kratz-Wilde"), WHITEHALL CORPORATION, a
Delaware corporation ("Whitehall"), AVS/M-3, INC., an Arizona corporation
("Apex"), AVS/CAI, INC., a Florida corporation ("Caribe"), AVIATION SALES
LEASING COMPANY, a Delaware corporation ("Leasing"), AVIATION SALES PROPERTY
MANAGEMENT CORP., a Delaware corporation ("Property Management"), AVS/M-1,
INC., a Delaware corporation ("Manufacturing"), AVSRE, L.P., a Delaware limited
partnership ("AVSRE"), HYDROSCIENCE, INC., a Texas corporation
("Hydroscience"), and TIMCO ENGINEERED SYSTEMS, INC., a Delaware corporation
("Engineered Systems") (Parent, Distribution, Kratz-Wilde, Whitehall, Apex,
Caribe, Leasing, Property Management, Manufacturing, AVSRE, Hydroscience and
Engineered Systems being collectively referred to as the "Guarantors"), the
"Lenders" (as defined in the Credit Agreement identified below) a party hereto
and Citicorp USA, Inc., in its capacity as agent for the Lenders and the
"Issuing Banks" (as defined in the Credit Agreement identified below) (in such
capacity, the "Agent"). Capitalized terms used herein without definition are
used herein as defined in the Credit Agreement.

                            PRELIMINARY STATEMENTS:

                  WHEREAS, Borrowers, Parent, the Agent and certain financial
institutions, as Lenders and Issuing Banks, are parties to that certain Fifth
Amended and Restated Credit Agreement dated as of July 12, 2002 (as amended,
supplemented or otherwise modified through the date hereof, the "Credit
Agreement");

                  WHEREAS, the Parent and Borrowers have requested certain
amendments to the Credit Agreement, and a waiver of rights and remedies of the
Agent and the Lenders with respect to the occurrence of certain Events of
Default;

                  WHEREAS, the Agent and the Lenders have agreed to amend the
Credit Agreement in certain respects and grant the requested waiver, in each
case on the terms and conditions set forth herein;

<PAGE>

                  NOW, THEREFORE, the parties hereto hereby agree as follows:

         SECTION  1. Amendment to the Credit Agreement. Upon the "Amendment
Effective Date" (as defined in Section 3 below), the definition of "Eligible
Receivables" in Section 1.01 of the Credit Agreement is hereby amended as
follows:

         1.1      Clause (xvii) thereof is amended and restated in its entirety
                  to read as follows:

                  "(xvii) the account debtor is (A) United Airlines (or any
                  Affiliate thereof) to the extent the Receivables owing from
                  such account debtor equal or exceed thirty-one percent (31%)
                  of the Borrowers' aggregate Receivables or (B) United Parcel
                  Service (or any Affiliate thereof) to the extent the
                  Receivables owing from such account debtor equal or exceed
                  fifty percent (50%) of the Borrowers' aggregate Receivables;
                  or

         1.2      Clause (xix) thereof is amended and restated in its entirety
                  to read as follows:

                  "(xix) the account debtor is a Person other than (A) United
                  Airlines (or any Affiliate thereof) or (B) United Parcel
                  Service (or any Affiliate thereof), to the extent the
                  Receivables owing from such account debtor equal or exceed
                  twenty-five percent (25%) of the Borrowers' aggregate
                  Receivables; or"

         SECTION  2. Waivers.

         2.1      Upon the Amendment Effective Date, the Requisite Lenders
hereby waive the rights and remedies arising under the Credit Agreement in
respect of (and solely in respect of):

                  (a)      the failure of the Parent to file its Form 10-Q with
         the Commission for the Fiscal Quarter ending June 30, 2002, and of the
         Borrowers to deliver to the Agent and the Lenders the monthly and
         quarterly reports required under Sections 8.01(a) and 8.01(b) of the
         Credit Agreement (the "June 30 Reports") within 55 days after the end
         of such Fiscal Quarter; provided that the Parent's Form 10-Q shall be
         filed with the Commission, and the June 30 Reports shall be delivered
         to the Agent and the Lenders, no later than September 3, 2002;

                  (b)      the failure of Aerocell to notify the Agent within
         the time period required under Section 10.14(a)(i) of the Credit
         Agreement that Aerocell changed its corporate name from "Aerocell
         Structures, Inc." to "TMAS/ASI, Inc."; and

                  (c)      the Event of Default arising under Section
         12.01(e)(ii) due to the "Event of Default" under the TROL Documents
         resulting from the matters addressed by Sections 2.1(a) and 2.1(b) of
         this Amendment.

         2.2      Upon the Amendment Effective Date, the Requisite Lenders
hereby waive the requirements under Section 4.01(b)(i)(A)(III) with respect to
the Property of AVSRE, L.P. permitted to be sold under Section 10.02(a)
consisting of unimproved land containing approximately 1.55 acres, and being
located on the east side of Grissom Lane, north of Nova Drive in Dallas, Texas
which is to be sold simultaneously with Property of AVSRE, L.P. on Nova Drive

                                       2
<PAGE>

in Dallas, Texas permitted to be sold under Section 10.02(b) of the Credit
Agreement; provided that the agreement(s) required to be delivered under
Section 4.01(b)(i)(A)(III) of the Credit Agreement are delivered to the Agent
at least one (1) Business Day prior the consummation of such sale and are in
substantially the form of the draft agreement(s) provided to the Agent prior to
the date hereof.

         SECTION  3. Conditions Precedent. This Amendment shall become
effective as of the date hereof (the "Amendment Effective Date") upon the
satisfaction of the following conditions precedent:

         3.1      The Agent shall have received:

                  (a)      a facsimile or original executed copy of this
         Amendment executed by the Parent, each Borrower, the Guarantors, the
         Requisite Lenders and the Agent;

                  (b)      corporate resolutions of the Parent, Borrowers and
         Guarantors authorizing the execution and delivery of this Amendment
         and all instruments and documents required to be executed and
         delivered in connection herewith;

                  (c)      the written consent of the obligee parties to the
         TROL Documents to the terms of this Amendment;

                  (d)      an executed copy of a waiver under the TROL
         Documents addressing the matters addressed by Sections 2.1(a) and
         2.1(b) of this Amendment, in form and substance satisfactory to the
         Agent; and

                  (e)      payment of the expenses of the Agent in the amount
         identified on Exhibit A attached hereto and made part hereof.

         3.2      After giving effect to this Amendment and except as otherwise
described in this Amendment,

                  (a)      no "Potential Event of Default" or "Event of
         Default" shall have occurred and be continuing under the terms of the
         Credit Agreement, TROL Documents, Indenture under which the Senior
         Subordinated Notes have been issued, or BofA Note, in each instance,
         as amended or supplemented through the date of this Amendment, and no
         "Change of Control" (as defined in such Indenture) shall have
         occurred,

                  (b)      no holder of the Senior Subordinated Notes, the
         trustee under the Indenture under which the Senior Subordinated Notes
         were issued, any obligee under the TROL Documents (or Person acting on
         any such obligee's behalf) or any other agent or lender under any
         credit facility for the Borrowers or Guarantors shall have commenced
         the exercise of any remedies with respect to any default or event of
         default with respect thereto.

                                       3
<PAGE>

         SECTION  4. Representations and Warranties; Reaffirmation.

         4.1      Parent and each of the Borrowers hereby represents and
warrants that this Amendment and the Credit Agreement as previously executed
and delivered and as amended hereby constitute legal, valid and binding
obligations of the Parent and the Borrowers and are enforceable against the
Parent and the Borrowers in accordance with their terms.

         4.2      After giving effect to this Amendment, no Event of Default or
Potential Event of Default exists (other than the Events of Default which are
identified in Section 2 of this Amendment) or would result from any of the
transactions contemplated by this Amendment. No event of default or default has
occurred and is continuing under the terms of (a) any of the TROL Documents,
(b) under any of the agreements and documents executed with respect to the
Senior Subordinated Notes or under which the Senior Subordinated Notes have
been issued, or (c) under any of the agreements and documents executed with
respect to the BofA Note.

         4.3      Parent, each of the Borrowers and each of the Guarantors
hereby reaffirm all covenants, representations and warranties made by it, and
all Obligations owing by it, pursuant to the Credit Agreement (to the extent
the same are not amended hereby), the Notes and the other Loan Documents to
which it is a party and agree that all such covenants, representations and
warranties shall be deemed to have been remade as of the date this Amendment
becomes effective (unless a representation and warranty is stated to be given
on and as of a specific date, in which case such representation and warranty
shall be true, correct and complete as of such date).

         SECTION  5. Reference to and Effect on the Credit Agreement.

         5.1      Upon the effectiveness of this Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import shall mean and be a reference to the Credit Agreement, as
amended hereby, each reference to the Credit Agreement in any other document,
instrument or agreement executed and/or delivered in connection with the Credit
Agreement shall mean and be a reference to the Credit Agreement as amended
hereby.

         5.2      Except as specifically amended or agreed above, the Credit
Agreement, the Notes and all other Loan Documents shall remain in full force
and effect and are hereby ratified and confirmed.

         5.3      The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of any Lender or
Issuing Bank or the Agent under the Credit Agreement, the Notes or any of the
other Loan Documents, nor constitute a waiver of any provision contained
therein, except as specifically set forth herein.

         SECTION  6. Execution in Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.

                                       4
<PAGE>

         SECTION  7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.

         SECTION  8. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of
this Amendment for any other purpose.

                  [Remainder of Page Intentionally Left Blank]

                                       5
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
as of the date first above written.

Agent and Lenders:
------------------

CITICORP USA, INC.,                        SALOMON BROTHERS HOLDING COMPANY INC.
as Agent and as a Lender

By: /s/ Keith R. Gerding                   By:
   ------------------------                   ---------------------------
     Name:  Keith R. Gerding                    Name:
     Title: Vice President                      Title:

UPS CAPITAL CORPORATION                    ARK CLO 2000-1, LIMITED
                                           By: Patriarch Partners, LLC,
                                               its Collateral Manager

By: /s/ Scott Mower                        By:  /s/ Lynn Tilton
   ------------------------                   ---------------------------
     Name:  Scott Mower                          Name:  Lynn Tilton
     Title: Managing Director                    Title: Authorized Signatory

<PAGE>

Borrowers:
----------

TMAS/ASI, INC. (formerly known as Aerocell       TRIAD INTERNATIONAL MAINTENANCE
 Structures, Inc.)                               CORPORATION

By: /s/ Timothy D. Nolan                         By: /s/ Timothy D. Nolan
   ----------------------------                     --------------------------
     Name:   Timothy D. Nolan                         Name:  Timothy D. Nolan
     Title:  Treasurer                                Title: Treasurer

AIRCRAFT INTERIOR DESIGN, INC.                   TIMCO ENGINE CENTER, INC.

By: /s/ Timothy D. Nolan                         By: /s/ Timothy D. Nolan
   ----------------------------                     --------------------------
     Name:   Timothy D. Nolan                         Name:  Timothy D. Nolan
     Title:  Treasurer                                Title: Treasurer

<PAGE>

Guarantors:
-----------

TIMCO AVIATION SERVICES, INC.             AVIATION SALES DISTRIBUTION
                                          SERVICES COMPANY

By: /s/ Timothy D. Nolan                         By: /s/ Timothy D. Nolan
   ----------------------------                     --------------------------
     Name:   Timothy D. Nolan                         Name:  Timothy D. Nolan
     Title:  Treasurer                                Title: Treasurer

AVS/M-2, INC.                           WHITEHALL CORPORATION

By: /s/ Timothy D. Nolan                         By: /s/ Timothy D. Nolan
   ----------------------------                     --------------------------
     Name:   Timothy D. Nolan                         Name:  Timothy D. Nolan
     Title:  Treasurer                                Title: Treasurer

AVS/M-3, INC.                           AVS/CAI, INC.

By: /s/ Timothy D. Nolan                         By: /s/ Timothy D. Nolan
   ----------------------------                     --------------------------
     Name:   Timothy D. Nolan                         Name:  Timothy D. Nolan
     Title:  Treasurer                                Title: Treasurer

AVIATION SALES LEASING COMPANY          AVIATION SALES PROPERTY MANAGEMENT CORP.

By: /s/ Timothy D. Nolan                         By: /s/ Timothy D. Nolan
   ----------------------------                     --------------------------
     Name:   Timothy D. Nolan                         Name:  Timothy D. Nolan
     Title:  Treasurer                                Title: Treasurer

AVS/M-1, INC.                           AVSRE, L.P.
                                        By: Aviation Sales Property Management
                                            Corp. as General Partner

By: /s/ Timothy D. Nolan                         By: /s/ Timothy D. Nolan
   ----------------------------                     --------------------------
     Name:   Timothy D. Nolan                         Name:  Timothy D. Nolan
     Title:  Treasurer                                Title: Treasurer

HYDROSCIENCE, INC.                      TIMCO ENGINEERED SYSTEMS, INC.

By: /s/ Timothy D. Nolan                         By: /s/ Timothy D. Nolan
   ----------------------------                     --------------------------
     Name:   Timothy D. Nolan                         Name:  Timothy D. Nolan
     Title:  Treasurer                                Title: Treasurer

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