Document:

<PAGE>

                                                                  Exhibit 10.14

===============================================================================

                                     FORM OF

                      COMPOSITE COPY OF OPERATING AGREEMENT
                       AS AMENDED THROUGH DECEMBER 13, 2001

                                     BETWEEN

                   [OWNER OF APPLICABLE RETIREMENT COMMUNITY]

                                    ("OWNER")

                                       AND

                      MARRIOTT SENIOR LIVING SERVICES, INC.

                                  ("OPERATOR")

                                       FOR

                         [NAME OF RETIREMENT COMMUNITY]

                        MARRIOTT SENIOR LIVING COMMUNITY

                                  [CITY, STATE]

                             EFFECTIVE AS OF [DATE]

===============================================================================

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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                             PAGE
<S>                   <C>                                                                                    <C>
ARTICLE 1             DEFINITION OF TERMS.........................................................................1
         Section 1.01               Definition Of Terms...........................................................1

ARTICLE 2             APPOINTMENT OF OPERATOR....................................................................15
         Section 2.01               Appointment; Exclusive License...............................................15
         Section 2.02               Authority of Operator; Right of Possession...................................15
         Section 2.03               Management Functions.........................................................15
         Section 2.04               Limitations on Authority of Operator.........................................18
         Section 2.05               Title Encumbrances...........................................................19
         Section 2.06               Licenses and Permits.........................................................20
         Section 2.07               Credit.......................................................................20
         Section 2.08               Representations and Warranties of Owner......................................20
         Section 2.09               Representations and Warranties of Operator...................................21

ARTICLE 3             OWNERSHIP OF RETIREMENT COMMUNITY..........................................................21
         Section 3.01               Ownership of Retirement Community............................................21

ARTICLE 4             TERM.......................................................................................22
         Section 4.01               Term.........................................................................22
         Section 4.02               Actions to be Taken Upon Termination.........................................22
         Section 4.03               Performance Termination......................................................23
         Section 4.04               Owner's Termination Option...................................................25

ARTICLE 5             COMPENSATION OF OPERATOR...................................................................25
         Section 5.01               Base Fee, Incentive Fee and Bonus Fee........................................26

ARTICLE 6             FINANCING OF THE RETIREMENT COMMUNITY......................................................26
         Section 6.01               Amendments of Management Agreement...........................................26
         Section 6.02               Notice and Opportunity to Cure...............................................27
         Section 6.03               Assignment of Management Agreement...........................................28
         Section 6.04               Subordination of Management Agreement........................................28
         Section 6.05               Non-Disturbance Agreement....................................................29
         Section 6.06               Attornment...................................................................29
         Section 6.07               No Modification or Termination of Agreement..................................30
         Section 6.08               Owner's Right to Finance the Retirement Community............................30
         Section 6.09               Sale/Leaseback Transactions..................................................31
         Section 6.10               REIT Transactions............................................................31
         Section 6.11               Covenant to Pay Debt Service.................................................32

ARTICLE 7             WORKING CAPITAL AND FIXED ASSET SUPPLIES...................................................32
         Section 7.01               Working Capital..............................................................33
         Section 7.02               Fixed Asset Supplies.........................................................33

ARTICLE 8             REPAIRS, MAINTENANCE AND REPLACEMENTS......................................................33
         Section 8.01               Routine Repairs and Maintenance..............................................33
         Section 8.02               FF&E Reserve.................................................................34
</TABLE>

                                       i

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                               TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                                                             PAGE
<S>                   <C>                                                                                    <C>
         Section 8.03               Building Alterations, Improvements, Renewals, and
                                    Replacements.................................................................37
         Section 8.04               Liens........................................................................38
         Section 8.05               Ownership of Replacements....................................................38

ARTICLE 9             BOOKKEEPING AND BANK ACCOUNTS................................................................
         Section 9.01               Books and Records............................................................39
         Section 9.02               Retirement Community Accounts, Expenditures..................................40
         Section 9.03               Annual Operating Projection..................................................41
         Section 9.04               Operating Losses.............................................................42

ARTICLE 10            PROPRIETARY MARKS; TRADEMARK LICENSE;
                      INTELLECTUAL PROPERTY......................................................................42
         Section 10.01              Proprietary Marks............................................................42
         Section 10.02              Trademark License............................................................42
         Section 10.03              Purchase of Inventories and Fixed Asset Supplies.............................42
         Section 10.04              Computer Software and Equipment..............................................43
         Section 10.05              Intellectual Property........................................................43
         Section 10.06              Breach of Covenant...........................................................43

ARTICLE 11            POSSESSION AND USE OF RETIREMENT COMMUNITY.................................................43
         Section 11.01              Quiet Enjoyment..............................................................43
         Section 11.02              Use..........................................................................44
         Section 11.03              Central Administrative Services..............................................44
         Section 11.04              Owner's Right to Inspect.....................................................45
         Section 11.05              Indemnity....................................................................45

ARTICLE 12            INSURANCE..................................................................................46
         Section 12.01              Interim Insurance............................................................46
         Section 12.02              Property and Operational Insurance...........................................46
         Section 12.03              General Insurance Provisions.................................................47
         Section 12.04              Cost and Expense.............................................................48
         Section 12.05              Owner's Option to Obtain Certain Insurance...................................48

ARTICLE 13            TAXES......................................................................................49
         Section 13.01              Real Estate and Personal Property Taxes......................................49

ARTICLE 14            RETIREMENT COMMUNITY EMPLOYEES.............................................................50
         Section 14.01              Employees....................................................................50

ARTICLE 15            DAMAGE, CONDEMNATION AND FORCE MAJEURE.....................................................52
         Section 15.01              Damage and Repair............................................................52
         Section 15.02              Condemnation.................................................................53
         Section 15.03              Force Majeure................................................................53

ARTICLE 16            DEFAULTS...................................................................................54
         Section 16.01              Definition of "Default"......................................................54
</TABLE>

                                       ii

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                               TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                                                             PAGE
<S>                   <C>                                                                                    <C>
         Section 16.02              Definition of "Event of Default".............................................55
         Section 16.03              Remedies Upon an Event of Default............................................55
         Section 16.04              Operator's Right to Specific Performance for Owner's
                                    Wrongful Termination.........................................................56
         Section 16.05              Owner's Estate...............................................................57

ARTICLE 17            ASSIGNMENT.................................................................................57
         Section 17.01              Assignment...................................................................57

ARTICLE 18            SALE OF THE RETIREMENT COMMUNITY...........................................................58
         Section 18.01              Sale of the Retirement Community.............................................58
         Section 18.02              Assumption Agreement of Successor Owner......................................61

ARTICLE 19            MISCELLANEOUS..............................................................................61
         Section 19.01              Right to Make Agreement......................................................61
         Section 19.02              Consents.....................................................................62
         Section 19.03              Relationship Between the Parties.............................................62
         Section 19.04              Confidentiality..............................................................62
         Section 19.05              Applicable Law...............................................................63
         Section 19.06              Covenants Running with the Land; Recordation.................................63
         Section 19.07              Headings.....................................................................63
         Section 19.08              Notices......................................................................63
         Section 19.09              Environmental Matters........................................................64
         Section 19.10              Estoppel Certificates........................................................65
         Section 19.11              Arbitration..................................................................65
         Section 19.12              Affiliates...................................................................66
         Section 19.13              Equity and Debt Offerings....................................................66
         Section 19.14              Restriction on Operator......................................................67
         Section 19.15              Entire Agreement.............................................................69
         Section 19.16              Waiver.......................................................................69
         Section 19.17              Partial Invalidity...........................................................69
         Section 19.18              Construction.................................................................69
</TABLE>

EXHIBITS

EXHIBIT A.........Legal Description of the Land

EXHIBIT B.........Existing Title Encumbrances

EXHIBIT C.........Pro Forma Fees

EXHIBIT D.........Owner's Initial Cost

                                      iii

<PAGE>

                               OPERATING AGREEMENT

         THIS OPERATING AGREEMENT ("Agreement") is effective as of the 21st day
of June, 1997 ("Effective Date"), by [Name and address of owner] ("Owner"), and
MARRIOTT SENIOR LIVING SERVICES, INC. ("Operator"), a Delaware corporation, with
a mailing address at 10400 Fernwood Road, Bethesda, Maryland 20817.

                                R E C I T A L S :

         A. Owner, a wholly-owned subsidiary of CCC Financing Limited, L.P.
("CCC") (f k a FRP Financing Limited, L.P.), is the owner of the Retirement
Community (as hereinafter defined) commonly known as [name of Retirement
Community], located in [City, State];

         B. Operator is in the business of managing and operating senior living
residence facilities and communities;

         C. Operator is the owner of the Proprietary Marks that are used to
identify retirement communities in the Marriott Retirement Community System;

         D. Operator desires to assure itself that it will be able to conduct
and enhance its business at Owner's Retirement Community by obtaining from Owner
an irrevocable (but subject in every respect to all of the provisions of this
Agreement, including those providing for termination prior to the expiration of
the full Term) license to operate Operator's business in Owner's Retirement
Community;

         E. Owner desires to assure that it will have the benefit of Operator's
experience, services and Proprietary Marks in establishing, enhancing and
maintaining a successful Retirement Community.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:

                                   ARTICLE 1
                               DEFINITION OF TERMS

SECTION 1.01  DEFINITION OF TERMS

              The following terms when used in this Agreement shall have the
meanings indicated:

              "ACCOUNTING PERIOD" means the four (4) week accounting periods
having the same beginning and ending dates as Operator's four (4) week
accounting periods, except that an Accounting Period may occasionally contain
five (5) weeks when necessary to conform Operator's accounting system to the
calendar. In the event that the Effective Date is not the first day of
Operator's four (4) week accounting periods, the first Accounting Period under
this Agreement shall consist of the first four (4) week accounting period of
Operator commencing after the Effective Date and the period from the Effective
Date until the commencement of such first four (4) week accounting period.

                                       1
<PAGE>

         "ADDITIONAL INVESTED CAPITAL" shall mean the cumulative total, as of
any given date during the Term, of the following: (i) any contribution made by
Owner pursuant to Section 7.01A (provided that Additional Invested Capital shall
be decreased by any return to Owner of excess Working Capital pursuant to
Section 7.01B); (ii) any expenditures made by Owner pursuant to Section 8.03,
and any expenditures by Owner pursuant to Section 19.09; (iii) any contributions
by Owner to the FF&E Reserve (beyond the funding described in Section 8.02B),
other than those contributions which are reimbursed to Owner under Section
8.02F; (iv) consideration paid and reasonable costs incurred by Owner or any
Affiliate of Owner in connection with the purchase of any interest (direct or
indirect) held in Owner by any party which is not an Affiliate of Owner; and (v)
Expansion Payments paid pursuant to the Expansion Agreement or Stock Purchase
Agreement, and (vi) any additional amounts advanced or funded by Owner pursuant
to this Agreement which do not constitute Owner Deductions.

         "AFFILIATE" means any individual or entity directly or indirectly
through one or more intermediaries, controlling, controlled by or under common
control with a party. The term "control," as used in the immediately preceding
sentence, means, with respect to a corporation, the right to the exercise,
directly or indirectly, of more than fifty percent (50%) of the voting rights
attributable to the shares of the controlled corporation, and, with respect to
an entity that is not a corporation, the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of the
controlled entity.

         "AGREEMENT" shall mean this Operating Agreement as the same may be
amended from time to time.

         "AGREEMENT YEAR" shall mean an annual period; the first Agreement Year
shall commence on the Effective Date and each subsequent Agreement Year shall
commence on the succeeding anniversaries of the Effective Date.

         "ANNUAL FINANCIAL REPORT" shall have the meaning specified in Section
9.01.

         "ANNUAL OPERATING PROJECTION" shall have the meaning set forth in
Section 9.03.

         "AREA A" shall have the meaning set forth in Section 19.14D.

         "AREA B" shall have the meaning set forth in Section 19.14D.

         "BASE FEE" shall have the meaning set forth in Section 5.01A.

         "BONUS FEE" shall have the meaning set forth in Section 5.01B.

         "BUILDING ESTIMATE" shall have the meaning set forth in Section 8.03A.

         "BUSINESS DAY(S)" means Monday through Friday except for New Year's
Day, President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, and Christmas Day.

         "CANCELED TERM" shall have the meaning set forth in Section 4.04.

                                       2
<PAGE>

         "CAPITAL EXPENDITURES" shall have the meaning set forth in Section
8.03A.

         "CAPITALIZATION MULTIPLE" shall mean the number ten (10).

         "CASE GOODS" means furniture and furnishings used in the Retirement
Community, including, without limitation: chairs, beds, chests, headboards,
desks, lamps, tables, television sets, mirrors, pictures, wall decorations and
similar items.

         "CENTRAL ADMINISTRATIVE SERVICES" shall have the meaning set forth in
Section 11.03.

         "CENTRAL ADMINISTRATIVE SERVICES FEE" shall have the meaning set forth
in Section 11.03.

         "CONSUMER PRICE INDEX" or "CPI" means the Consumer Price Index from
time to time issued by the United States Government Bureau of Labor Statistics
for Urban Wage Earners and Clerical Workers, All Items, for the United States of
America (1982-84=100), or if the aforesaid Consumer Price Index is not at such
time so prepared and published, any comparable index selected by Owner and
reasonably satisfactory to Operator (a "Substitute Index") then prepared and
published by an agency of the Government of the United States, appropriately
adjusted for changes in the manner in which such index is prepared and/or year
upon which such index is based. Any dispute regarding the selection of the
Substitute Index or the adjustments to be made thereto shall be settled by
arbitration in accordance with Section 19.11. Except as otherwise expressly
stated herein, when a number or amount is required to be "adjusted by the
Consumer Price Index", or similar terminology, such adjustment shall be equal to
the percentage increase or decrease (except that for purposes of this Agreement,
the Consumer Price Index shall not be reduced below its level as of the
Effective Date) in the Consumer Price Index which is issued for the month in
which such adjustment is to be made (or, if the Consumer Price Index for such
month is not yet publicly available, the Consumer Price Index for the most
recent month for which the Consumer Price Index is publicly available) as
compared to the Consumer Price Index which was issued for the prior month in
which the Effective Date occurred unless another base month is indicated herein.

         "COVERAGE RATIO" shall mean the number one and one-quarter (1.25), or
one and two-tenths (1.2) in the case of a mortgage issued or insured by an
agency of the United States Government, or Fannie Mae or Freddie Mac or lending
institutions established by the federal government.

         "CURE NOTICE" shall have the meaning set forth in Section 4.03B.

         "DAY(S)" means one or more calendar days(s).

         "DEBT SERVICE" means all installments of principal and interest
required to be made under any Secured Loan or any replacement thereof.

         "EFFECTIVE DATE" shall have the meaning set forth in the Preamble.

                                       3
<PAGE>

         "EMPLOYEE CLAIMS" means any and all claims (including all fines,
judgments, penalties, costs, Litigation and/or arbitration expenses, attorneys'
fees and expenses, and costs of settlement with respect to any such claim) by
any employee or employees of Operator against Owner or Operator with respect to
the employment at the Retirement Community of such employee or employees.
"Employee Claims" shall include, without limitation, the following: (i) claims
which are eventually resolved by arbitration, by Litigation or by settlement;
(ii) claims which also involve allegations that any applicable
employment-related contracts affecting the employees at the Retirement Community
have been breached; and (iii) claims which involve allegations that one or more
of the Employment Laws has been violated; provided, however, that "Employee
Claims" shall not include claims for worker compensation benefits (which shall
be governed by Article 12 hereof) or for unemployment benefits.

         "EMPLOYMENT LAWS" means any federal, state or local law (including the
common law), statute, ordinance, rule, regulation, order or directive with
respect to employment, conditions of employment, benefits, compensation, or
termination of employment that currently exists or may exist at any time during
the Term of this Agreement, including, but not limited to, Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Workers
Adjustment and Retraining Act, the Occupational Safety and Health Act, the
Immigration Reform and Control Act of 1986, the Polygraph Protection Act of 1988
and the Americans With Disabilities Act of 1990.

         "ENVIRONMENTAL LAWS" shall mean: (i) the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601 ET SEQ., as
now or hereafter amended, and the Resource Conservation and Recovery Act of
1976, as now or hereafter amended; (ii) the regulations promulgated thereunder,
from time to time; and (iii) all federal, state and local laws, rules and
regulations (now or hereafter in effect) dealing with the use, generation,
treatment, management, storage, disposal or abatement of Hazardous Materials or
protection of human health or the environment.

         "EVENT OF DEFAULT" shall have the meaning set forth in Section 16.02.

         "EXISTING MORTGAGE" shall mean the Mortgages listed on Exhibit D, but
for purposes of this Agreement shall not include any amendments or modifications
thereof that would materially adversely affect the interests of Operator after
the Effective Date.

         "EXISTING TITLE ENCUMBRANCES" shall have the meaning set forth in
Section 2.05A.

         "EXPANSION AGREEMENT" means that certain Expansion Agreement of even
date herewith between Owner and Marriott Senior Living Services, Inc.

         "EXPANSION UNITS" shall have the meaning set forth in the Expansion
Agreement between the parties of even date herewith.

         "EXTENDED TERM" shall have the meaning set forth in Section 4.01.

         "FF&E" means furniture, furnishings, fixtures, Soft Goods, Case Goods,
vehicles and equipment (including, but not limited to, telephone systems,
facsimile machines,

                                       4
<PAGE>

communications and computer systems hardware) but shall not include Fixed Asset
Supplies or any Software.

         "FF&E ESTIMATE" shall have the meaning set forth in Section 8.02C.

         "FF&E RESERVE" shall have the meaning set forth in Section 8.02A.

         "FF&E RESERVE PAYMENT" shall have the meaning set forth in Section
8.02B.

         "FIRST MORTGAGE" shall mean any Mortgage which is a first lien on the
Retirement Community having priority over all other Mortgages that may then
encumber the Retirement Community.

         "FISCAL YEAR" means Operator's Fiscal Year which now ends at midnight
on the Friday closest to December 31 in each calendar year; the new Fiscal Year
begins on the Saturday immediately following said Friday. Any partial Fiscal
Year between the Effective Date and the commencement of the first full Fiscal
Year shall constitute a separate Fiscal Year. A partial Fiscal Year between the
end of the last full Fiscal Year and the Termination of this Agreement shall,
for purposes of this Agreement, constitute a separate Fiscal Year. If Operator's
Fiscal Year is changed in the future, appropriate adjustment to this Agreement's
reporting and accounting procedures shall be made upon mutual consent of Owner
and Operator; provided, however, that no such change or adjustment shall alter
the Term of this Agreement or in any way reduce the distributions of Operating
Profit or other payments due Owner hereunder, and Operator shall bear (not as an
Operating Expense) any incidental accounting costs imposed on Owner necessitated
by any such change in Operator's Fiscal Year. Fiscal Year shall not include any
portion of a Fiscal Year prior to the Effective Date or after the Termination of
this Agreement.

         "FIXED ASSET SUPPLIES" means supply items included within "Property and
Equipment" under the Uniform System of Accounts, including linen, china,
glassware, silver, uniforms, and similar items.

         "FORCE MAJEURE" means acts of God, acts of war, civil disturbance,
governmental action (including the revocation or refusal to grant licenses or
permits, where such revocation or refusal is not due to the fault of the
party whose performance is to be excused for reasons of Force Majeure),
strikes, lockouts, fire, unavoidable casualties or any other causes beyond
the reasonable control of either party.

         "FORECLOSURE" shall mean any exercise of the remedies available to a
Holder, upon a default under the Secured Loan held by such Holder, which results
in a transfer of title to or possession of the Retirement Community. The term
"Foreclosure" shall include, without limitation, any one or more of the
following events, if they occur in connection with a default under a Secured
Loan: (i) a transfer by judicial foreclosure or exercise of a power of sale;
(ii) a transfer by deed in lieu of foreclosure; (iii) the appointment by a court
of a receiver to assume possession of the Retirement Community; (iv) a transfer
of either ownership or control of the Owner, by exercise of a stock pledge or
otherwise; (v) if title to the Retirement Community is held by a tenant under a
ground lease, an assignment of the tenant's interest in such ground lease; or
(vi) any similar judicial or non-judicial exercise of the remedies held by the
Holder.

                                       5
<PAGE>

         "FORECLOSURE DATE" shall mean the date on which title to or possession
of the Retirement Community is transferred by means of a Foreclosure.

         "FUTURE TITLE ENCUMBRANCE" shall have the meaning set forth in Section
2.05B.

         "GAAP" means Generally Accepted Accounting Principles as adopted by the
American Institute of Certified Public Accountants.

         "GROSS REVENUES" shall mean, for each Accounting Period, all revenues
and receipts of every kind derived by Owner from operating the Retirement
Community and all departments and parts thereof, including, but not limited to:
income (from both cash and credit transactions) from monthly occupancy fees
(including the amortized portion of the "endowment" or like one-time payments
received under "lifecare" or like contracts with residents), health care fees
and ancillary services fees received pursuant to various agreements with
residents of the Retirement Community; income from food and beverage, and
catering sales; income from vending machines; and proceeds, if any, from
business interruption or other loss of income insurance, all determined in
accordance with GAAP; provided, however, that Gross Revenues shall not include:
(i) gratuities to employees at the Retirement Community; (ii) federal, state or
municipal excise, sales or use taxes or similar taxes imposed at the point of
sale and collected directly from residents or guests of the Retirement Community
or included as part of the sales price of any goods or services; (iii) proceeds
from the sale of FF&E and any other capital asset; (iv) interest received or
accrued with respect to the monies in any operating or reserve accounts of the
Retirement Community; (v) any cash refunds, rebates or discounts to residents of
the Retirement Community, or cash discounts and credits of a similar nature,
given, paid or returned in the course of obtaining Gross Revenues or components
thereof; (vi) proceeds from any Sale of the Retirement Community, or any other
capital transaction; (vii) proceeds of any financing transaction affecting the
Retirement Community; (viii) any endowment or like one-time payments received
under lifecare or like contracts with residents, except as specifically set
forth above in this paragraph; (ix) security deposits until such time as the
same are applied to rent and other charges due and payable; (x) awards of
damages, settlement proceeds and other payments received by Owner in respect of
any Litigation; (xi) proceeds of any condemnation; (xii) proceeds of any
casualty insurance, other than loss of rents or business interruption insurance;
(xiii) any Shortfall Payment made by Operator to Owner pursuant to Section
4.03B; and (xiv) payments under any policy of title insurance.

         "HAZARDOUS MATERIALS" shall have the meaning set forth in Section
19.09D hereof.

         "HOLDER" means any holder, from time to time, of any Secured Loan.

         "IMPOSITIONS" means all real estate and personal property taxes,
levies, assessments and similar charges (other than those which are specifically
excluded pursuant to Section 13.01B) including, without limitation, the
following: all water, sewer or similar fees, rents, rates, charges, excises or
levies; vault license fees or rentals; license fees; permit fees; inspection
fees and other authorization fees and other governmental charges of any kind or
nature whatsoever, whether general or special, ordinary or extraordinary,
foreseen or unforeseen, or hereinafter levied or assessed of every character
(including all interest and penalties thereon), which at any time during or in
respect of the Term of this Agreement may be assessed, levied,

                                       6
<PAGE>

confirmed or imposed on Owner or Operator with respect to the Retirement
Community or the operation thereof, or otherwise in respect of or be a lien upon
the Retirement Community (including, without limitation on any of the FF&E,
Inventories or Fixed Asset Supplies now or hereafter located therein).
Impositions shall not include any income or franchise taxes payable by Owner or
Operator.

         "INCENTIVE FEE" shall have the meaning set forth in Section 5.01A.

         "INITIAL TERM" shall have the meaning set forth in Section 4.01.

         "INTELLECTUAL PROPERTY" means: (i) all Software; and (ii) all manuals,
instructions, policies, procedures and directives issued by Operator to its
employees at the Retirement Community regarding the procedures and techniques to
be used in operating the Retirement Community.

         "INTERIM REPORT" shall have the meaning specified in Section 9.01C.

         "INVENTORIES" means "Inventories" as defined by GAAP, such as
provisions in storerooms, refrigerators, pantries and kitchens; medical
supplies; other merchandise intended for sale; fuel; mechanical supplies;
stationery; and other expensed supplies and similar items.

         "LAND" means the land described in Exhibit A.

         "LEGAL REQUIREMENT" means any federal, state or local law, code, rule,
ordinance, regulation or order of any governmental authority having jurisdiction
over the business or operation of the Retirement Community or the matters which
are the subject of this Agreement, including any resident care or health care,
building, zoning or use laws, ordinances, regulations or orders, environmental
protection laws and fire department rules.

         "LICENSE(S)" means any license, permit, decree, act, order,
authorization or other approval (including Medicare/Medicaid certification to
the extent applicable) or instrument which is necessary in order to operate the
Retirement Community in accordance with Legal Requirements or pursuant to the
Marriott Standards and otherwise in accordance with this Agreement.

         "LITIGATION" means: (i) any cause of action commenced in a federal,
state or local court; or (ii) any claim brought before an administrative agency
or body (for example, without limitation, employment discrimination claims)
relating to the Retirement Community and/or the ownership and/or operation
thereof.

         "MANAGEMENT ANALYSIS REPORT" shall mean a relatively brief, narrative
report on the state of business and affairs of the Retirement Community,
prepared on an annual basis by Operator and delivered to Owner at the time of
delivery of the Annual Financial Report, which shall include a narrative
description regarding the preceding Fiscal Year of: (i) the Retirement
Community's operating performance, including significant variations from the
Annual Operating Projection and (ii) an analysis of any significant variation of
the actual resident fees and occupancy from what was set forth in the Annual
Operating Projection.

                                       7
<PAGE>

         "MARRIOTT RETIREMENT COMMUNITY SYSTEM" means at any particular time the
entire system or group of full service (that is consisting of both independent
living and health care accommodations and services) retirement communities then
owned and/or operated or managed by Operator (or one or more of its Affiliates),
under the "Marriott" name.

         "MARRIOTT STANDARDS" means from time to time both the operational
standards (for example, staffing levels, accounting and fiscal management,
resident care and health care policies and procedures, accounting and financial
reporting policies and procedures) and the physical standards (for example,
quality of FF&E, frequency of FF&E replacement) that are then generally and
consistently (but not necessarily, absolutely or without exception) applied at
or to retirement communities in the Marriott Retirement Community System which
are of comparable size, age and market orientation as the Retirement Community,
(provided, however, that the Marriott Standards shall in no event be lower than
(i) what is required, from time-to-time during the Term, by Legal Requirements,
or (ii) the operational and physical standards, as of the date in question, of
comparable retirement communities in the quality segment of the retirement
communities industry in the state in which the Retirement Community is located).

         "MORTGAGE" means any mortgage, deed of trust, or deed to secure debt or
other security instrument recorded against the Project as security for a Secured
Loan.

         "MORTGAGEE" means the Holder, from time to time, of a Mortgage or any
replacement of a Mortgage.

         "NET OPERATING PROFIT" means Operating Profit less Owner's Priority.

         "NON-DISTURBANCE AGREEMENT" shall mean an agreement, in recordable form
in the jurisdiction in which the Retirement Community is located, executed and
delivered by a Holder (which agreement shall by its terms be binding upon all
assignees of such Holder), for the benefit of Operator, pursuant to which, in
the event such Holder (or its assignee) comes into possession of or acquires
title to the Retirement Community as a result of a Foreclosure, such Holder (and
its assignees) shall (x) recognize Operator's rights under this Agreement, and
(y) shall not name Operator as a party in any Foreclosure action or proceeding,
and (z) shall not disturb Operator in its right to continue to manage the
Retirement Community pursuant to this Agreement; provided, however, that at such
time, (i) this Agreement has not expired or otherwise been earlier terminated in
accordance with its terms, and (ii) there are no outstanding Events of Default
by Operator, and (iii) no material event has occurred and no material condition
exists which, after notice or the passage of time or both, would entitle Owner
to terminate this Agreement (excluding events which would constitute an Event of
Default, which are to be governed exclusively by clause (ii) hereof).

         "OPERATING EXPENSE(S)" means any or all, as the context requires, of
the following:

         1. All costs of operating the Retirement Community incurred in
accordance with this Agreement, including, without limitation, all salaries,
wages, fringe benefits, payroll taxes and other costs related to Retirement
Community employees, Employee Claims (except to the extent specifically set
forth to the contrary in Section 14.01), all departmental expenses,

                                       8
<PAGE>

administrative and general expenses, the cost of Retirement Community
advertising and business promotion, heat, light, power, electricity, gas,
telephone, cable and other utilities, and routine repairs, maintenance and minor
alterations treated as Operating Expenses under Section 8.01;

         2. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of the Retirement Community;

         3. A reasonable reserve for uncollectible accounts receivable as
determined by Operator;

         4. All reasonable costs and fees of audit, legal, technical and other
independent professionals or other third parties who are retained by Operator to
perform services required or permitted hereunder; provided Operator will notify
Owner at lease thirty (30) Days in advance of any proposed expenditure under
this paragraph 4 which is in excess of Fifty Thousand Dollars ($50,000.00) (to
be adjusted by the CPI) and which was not specifically identified in the Annual
Operating Projection; and Operator shall consider in good faith any comments
which Owner may have with respect to such proposed expenditure; and provided,
further, that if such expenditure involves immediately-needed repair work to the
Retirement Community or if immediate action is otherwise required, the
above-described requirement regarding thirty (30) Days' prior notice shall be
modified to require whatever notice period is reasonable under the
circumstances;

         5. The reasonable cost and expense of technical consultants and
operational experts who are employees of Operator or one of its Affiliates, and
who perform specialized services in connection with non-routine Retirement
Community work; provided, however, that the costs and expenses so incurred shall
only be Operating Expenses to the extent such costs and expenses are reasonable
and competitively priced, as compared to similar work done by outside
consultants or experts; and provided, further, that Operator will notify Owner
at least thirty (30) Days in advance of any proposed expenditure under this
paragraph 5 which is in excess of Fifty Thousand Dollars ($50,000.00) (to be
adjusted by CPI) and which is not specifically identified in the Annual
Operating Projection, and Operator shall consider in good faith any comments
which Owner may have with respect to such proposed expenditure; and provided,
further, that if such expenditure involves immediately-needed repair work to the
Retirement Community or if immediate action is otherwise required, the
above-described requirement regarding thirty (30) Days' prior notice shall be
modified to require whatever notice period is reasonable under the
circumstances;

         6. Costs and expenses for preparation of Medicare and Medicaid cost
reports and billing submissions;

         7. The Base Fee and the Bonus Fee, if any;

         8. Subject to the limitation set forth below in this definition, the
Central Administrative Services Fee;

         9. Insurance costs and expenses as provided in Sections 12.04 and
12.05;

         10. All Impositions assessed against the Retirement Community;

                                       9
<PAGE>

         11. Payments (other than the lump-sum contribution provided for in
Section 8.02F2) into the FF&E Reserve pursuant to Section 8.02;

         12. Such other non-capital costs and expenses incurred by Operator as
are specifically provided for elsewhere in this Agreement or are otherwise
reasonably necessary for the proper and efficient operation of the Retirement
Community in accordance with the Marriott Standards; all as determined in
accordance with GAAP;

         13. The reimbursement to Owner of the amount of any Owner Deductions;
and

         14. Lease payments for any equipment lease to the extent set forth in
Section 8.02D. It is understood that the term "Operating Expenses" shall not
include: (i) Debt Service payments pursuant to any Secured Loan or any other
loans or borrowings of Owner; nor (ii) except as set forth above, payments
pursuant to equipment leases or other forms of financing obtained for the FF&E
located in or connected with the Retirement Community (such payments shall be
paid out of the FF&E Reserve in accordance with Section 8.02), nor (iii) rental
payments pursuant to any ground lease, nor (iv) any other payments which are
designated as Owner's responsibility under any of the provisions of this
Agreement and which are not Owner Deductions, all of which shall be paid by
Owner from its own funds, and not from Gross Revenues nor from the FF&E Reserve.
Unless otherwise specifically set forth in this Agreement, all the costs and
expenses of the Retirement Community shall be Operating Expenses. Commencing
with the second (2nd) Agreement Year and continuing thereafter until the earlier
of (i) the end of the seventh (7th) Agreement Year, or (ii) the date on which
the ratio of Operating Profit, to the Owner's Priority amount for any
consecutive thirteen (13) Accounting Periods equals or exceeds
one-and-one-quarter (1.25) (but in no event prior to the end of the fourth (4th)
Agreement Year), fifty percent (50%) of the Central Administrative Services Fee
shall be paid as an Operating Expense and fifty percent (50%) shall be paid (and
to the extent paid shall constitute an Operating Expense) only after Owner
receives Owner's Priority for the subject Fiscal Year, and only to the extent of
Operating Profit remaining after payment of the Owner's Priority.

         "OPERATING PROFIT" shall mean for each Fiscal Year, the excess of Gross
Revenues over Operating Expenses for such Fiscal Year.

         "OPERATING LOSS" shall mean for each Fiscal Year, a negative Operating
Profit; that is, an excess of Operating Expenses over Gross Revenues.

         "OPERATOR" shall have the meaning set forth in the Preamble.

         "OWNER" shall have the meaning set forth in the Preamble.

         "OWNER DEDUCTION(S)" shall mean amounts paid by Owner with respect to:
(i) reasonable third party out-of-pocket costs of any negotiations or Litigation
with respect to any contest of Impositions, (ii) fees and expenses of technical
consultants and operational experts which are retained by Owner, with the
approval of Operator, to give advice with respect to the operation of the
Retirement Community, and (iii) any other amount which under this Agreement

                                       10
<PAGE>

constitutes an Owner Deduction. The amount of any Owner Deductions paid by Owner
shall be reimbursed to Owner (as an Operating Expense) in the Fiscal Year in
which they were paid.

         "OWNER'S INITIAL COST" shall have the meaning set forth in Exhibit D.

         "OWNER'S INVESTMENT" shall mean the sum total, as of any given point in
time during the Term, of: (i) the Owner's Initial Cost; plus (ii) any Additional
Invested Capital expended by Owner; provided that each expenditure of Additional
Invested Capital shall be added to the Owner's Investment (with respect to the
Fiscal Year or Fiscal Years during which such expenditure(s) occurred) on a pro
rata basis, beginning with the first full Accounting Period after such
expenditures occurred, and thereafter over the remainder of the then current
Fiscal Year.

         "OWNER'S PREFERRED RETURN" shall mean ten and three-quarters percent
(10.75%) through Fiscal Year 1999, eleven percent (11%) for Fiscal Years 2000
through 2003, and eleven and one-half percent (11.5%) thereafter for the
remainder of the Term.

         "OWNER'S PRIORITY" shall mean, with respect to any Fiscal Year (or
partial Fiscal Year), an amount sufficient to provide to Owner, a simple,
non-compounded, non-cumulative return for such Fiscal Year (or partial Fiscal
Year) on Owner's Investment during such Fiscal Year (or partial Fiscal Year) at
an annual rate equal to Owner's Preferred Return for such Fiscal Year (or
partial Fiscal Year). In the event that the amount of Owner's Investment varies
during such Fiscal Year (or partial Fiscal Year), Owner's Investment for such
Fiscal Year (or partial Fiscal Year) shall be based upon the weighted daily
average of Owner's Investment during such Fiscal Year (or partial Fiscal Year).

         "PRIME RATE" means the "prime rate" as published in the "Money Rates"
section of THE WALL STREET JOURNAL; however, if such rate is, at any time during
the Term, no longer so published, the term "Prime Rate" means the average of the
prime interest rates which are announced, from time to time, by the three (3)
largest banks (by assets) headquartered in the United States which publish a
"prime rate."

         "PROJECT" means the Retirement Community.

         "PROPRIETARY MARKS" means all trademarks, trade names, symbols, logos,
slogans, designs, insignia, emblems, devices, service marks and distinctive
designs of buildings and signs, or combinations thereof, which are used to
identify retirement communities in the Marriott Retirement Community System or
of any other Operator under this Agreement. The term "Proprietary Marks" shall
also include all trade names, trademarks, symbols, logos, designs, etc., which
are used in connection with the operation of the Retirement Community during the
Term. The term "Proprietary Marks" shall include all present and future
Proprietary Marks, whether they are now or hereafter owned by Operator or any of
its Affiliates, and whether or not they are registered under the laws of the
United States or any other country. The names "Marriott", "Forum" and "Marriott
Retirement Community", and any of the foregoing used in conjunction with other
words or names, are examples of Proprietary Marks.

         "PROSPECTUS" shall have the meaning set forth in Section 19.13.

                                       11
<PAGE>

         "QUALIFIED LENDER" shall mean any Holder, from time to time, of any
Qualified Loan with respect to which Operator has received a written notice
(pursuant to Section 19.08 of this Agreement) stating: (i) the name and address
of such Holder; and (ii) that such Holder is a "Qualified Lender" pursuant to
the terms of this Agreement.

         "QUALIFIED LOAN" shall mean any Secured Loan in which the initial
principal amount, as of the date such Secured Loan is incurred, when added to
the current principal balance of all existing Secured Loans as of that date, is
less than or equal to the greater of the following:

         (i)   seventy-five percent (75%) of Owner's Investment, or eighty-five
               percent (85%) in the case of a mortgage issued or insured by an
               agency of the United States Government, or Fannie Mae or Freddie
               Mac or lending institutions established by the federal
               government; or

         (ii)  the result obtained by (a) dividing the Operating Profit for the
               thirteen (13) most recent full Accounting Periods by the Coverage
               Ratio; then, (b) multiplying the result of clause (a) by the
               Capitalization Multiple; or

         (iii) the existing balance of any Secured Loans encumbering the
               Retirement Community immediately prior to the date of the
               incurrence of such Qualified Loan, plus the existing balance of
               any expansion payment debt arising under either the Stock
               Purchase Agreement or the Expansion Agreement plus commercially
               reasonable Transaction Costs associated with such refinancing up
               to an amount equal to four percent (4%) of the principal amount
               of such Qualified Loan.

         In addition, regardless of whether or not the above test set forth in
clauses (i), (ii) and (iii) is satisfied, (a) the existing (as of the Effective
Date) balance of any Secured Loan which is secured by a Mortgage shall be deemed
to be a "Qualified Loan"; and (b) any Secured Loan which is secured by a
Mortgage and with respect to which Operator, in it sole discretion, shall have
given its written approval shall be deemed to be a "Qualified Loan" (provided
that an approval by Operator that a given Secured Loan shall be deemed to be a
Qualified Loan hereunder shall only apply to the specific retirement communities
which are described in such approval, and shall not be deemed to be an approval
with respect to other retirement communities, regardless of whether such Secured
Loan by its terms permits the substitution or addition of such other retirement
communities as security for such Secured Loan).

         "REIT TRANSACTION" shall have the meaning set forth in Section 6.10.

         "REQUIRED CAPITAL EXPENDITURES" shall have the meaning set forth in
Section 8.03A.

         "RETIREMENT COMMUNITY" means the retirement community which Owner owns
at the location specified in the Recitals; the term "Retirement Community" shall
include the Land, the improvements now or hereafter situated on the Land, and
all FF&E, Fixed Asset Supplies and Inventories installed therein.

                                       12
<PAGE>

         "RETIREMENT COMMUNITY RETENTION" shall have the meaning set forth in
Section 12.03F hereof.

         "ROI CAPITAL EXPENDITURES" shall mean such Capital Expenditures as are
required, in Operator's reasonable judgment, to keep the Retirement Community in
a competitive, efficient and economical operating condition (which Operator
shall substantiate by demonstrating a reasonable return on the proposed
investment to be made by Owner), in accordance with the Marriott Standards;
provided that the term "ROI Capital Expenditures" shall in no event include
expenditures which are within the definition of Required Capital Expenditures.

         "SALE OF THE RETIREMENT COMMUNITY" means any sale, assignment, transfer
or other disposition, for value or otherwise, voluntary or involuntary, of
Owner's title (or any part thereof) to the Retirement Community or the Land
(either fee or leasehold title, as the case may be). For purposes of this
Agreement, a Sale of the Retirement Community shall also include: (i) a lease
(or sublease) of the entire Retirement Community or Land; and (ii) any sale,
assignment, transfer, or other disposition, for value or otherwise, voluntary or
involuntary, in a single transaction or a series of related transactions, of the
controlling interest in Owner. If Owner is a corporation, the phrase
"controlling interest" means the right to exercise, directly or indirectly, more
than fifty percent (50%) of the voting rights attributable to the shares of
Owner (through ownership of such shares or by contract). If Owner is not a
corporation, the phrase "controlling interest" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of Owner. For purposes of this Agreement, a Sale of the Retirement
Community shall exclude: (i) any condemnation, expropriation of, or injurious
happening to the Retirement Community or any part thereof or interest therein;
(ii) the recovery by Owner of damage awards or insurance proceeds in connection
with any casualty or title insurance claim, (iii) any Foreclosure, (iv) any
Title Encumbrance, (v) any sale, assignment, transfer or other disposition by
Owner of title (fee, leasehold or otherwise) to the Retirement Community to an
Affiliate of Owner, and (vi) any transfer of a controlling interest in Owner to
an Affiliate of Owner.

         "SALE/LEASEBACK TRANSACTION" shall have the meaning set forth in
Section 6.09 below.

         "SECURED LOAN" means and includes: (i) any indebtedness of Owner
secured by a Mortgage encumbering the Retirement Community or all or any part of
Owner's interest therein; and (ii) all amendments, modifications, supplements
and extensions of such indebtedness. The total balance of all Secured Loans as
of June 21, 1997, shall have the meaning set forth in Exhibit D.

         "SECURED LOAN ACCELERATION" shall mean the acceleration of the
indebtedness incurred pursuant to any Secured Loan, as a result of a default
under the terms and conditions of such Secured Loan.

         "SETTLEMENT THRESHOLD AMOUNT" shall mean the greater of (i) One Hundred
Thousand Dollars ($100,000.00) (as adjusted by the CPI); or (ii) a dollar amount
(to be re-determined whenever reasonably necessary) equal to the highest amount
paid in a representative sampling of Employee Claims which have been settled
within the preceding twelve (12) months,

                                       13
<PAGE>

where each of such settlements can be reasonably characterized as being (i)
within the normal course of business at the Retirement Community, and (ii)
within the range of similar settlements at other retirement communities
comparable to the Retirement Community. Any dispute between the parties as to
the appropriate amount under clause (ii) of the preceding sentence shall be
submitted to arbitration under Section 19.11.

         "SHORTFALL PAYMENT" shall have the meaning set forth in Section 4.03B.

         "SIMILAR PROPERTY" means a full-service, retirement community offering
the continuum of care, that is, independent living (predominantly)
accommodations, assisted living accommodations, licensed nursing accommodations
and associated community, recreational and health care services.

         "SOFT GOODS" means all fabric, textile and flexible plastic products
(not including items which are classified as "Fixed Asset Supplies" under the
Uniform System of Accounts) which are used in furnishing the Retirement
Community, including, without limitation: carpeting, drapes, bedspreads, wall
and floor coverings, mats, shower curtains and similar items.

         "SOFTWARE" means all computer software and accompanying documentation
(including all future upgrades, enhancements, additions, substitutions and
modifications thereof), other than computer software which is commercially
available, which are used by Operator in connection with its operations at the
Retirement Community.

         "STOCK PURCHASE AGREEMENT" means that certain Stock Purchase Agreement
of even date herewith between Host Marriott Corporation and Marriott Senior
Living Services, Inc.

         "SUBSEQUENT OWNER" mean any individual or entity which acquires title
to a possession of the Retirement Community at or through a Foreclosure.

         "TERM" means the Initial Term plus any Extended Term.

         "TERMINATION" means the expiration or sooner cessation of this
Agreement.

         "THRESHOLD AMOUNT" shall have the meaning set forth in Section 4.03A1.

         "TITLE ENCUMBRANCE" means any covenant, easement, condition,
restriction or agreement affecting title to the Retirement Community and
recorded among the land records of the jurisdiction in which the Retirement
Community is situated, but not including any Mortgage.

         "UNIFORM SYSTEM OF ACCOUNTS" shall mean the Uniform System of Accounts
for Hotels, Eighth Revised Edition, 1986, as published by the Hotel Association
of New York City, Inc.

         "WORKING CAPITAL" means assets which are reasonably necessary and used
for the day-to-day operation of the Retirement Community's business, including,
without limitation, amounts sufficient for the maintenance of change and petty
cash funds, amounts deposited in operating bank accounts, receivables, prepaid
expenses, and funds required to maintain

                                       14
<PAGE>

Inventories and pay all Operating Expenses as they become due, less accounts
payable and accrued current liabilities.

                                   ARTICLE 2
                             APPOINTMENT OF OPERATOR

SECTION 2.01 APPOINTMENT; EXCLUSIVE LICENSE

         Owner hereby authorizes and engages Operator to act as the exclusive
operator and manager of the Retirement Community during the Term, with an
exclusive license to operate its retirement community business within the
Retirement Community and with exclusive responsibility and complete and full
control and discretion in the operation, direction, management and supervision
of the Retirement Community, subject only to the limitations expressed herein,
all in accordance with Marriott Standards. Operator accepts said appointment and
agrees to operate and manage the Retirement Community during the Term of this
Agreement in accordance with the terms and conditions set forth hereinafter. The
performance of all activities by Operator hereunder shall be for the account of
Owner.

SECTION 2.02 AUTHORITY OF OPERATOR; RIGHT OF POSSESSION

         A. Retirement Community operations shall be under the exclusive
supervision and control of Operator which, except as otherwise specifically
provided in this Agreement, shall be responsible for the proper and efficient
operation of the Retirement Community. Subject to the terms of this Agreement,
Operator shall have discretion and control, free from interference, interruption
or disturbance from Owner or those claiming by, through or under Owner, in all
matters relating to management and operation of the Retirement Community,
including, without limitation, the following: fees and charges for providing
accommodations, food services, health care services, and related services to
residents and their guests; supervision of resident care; health care policies;
credit policies; food and beverage services; employment policies; executing,
modifying and terminating leases, licenses and concessions and agreements for
commercial space within the Retirement Community and the provision of services
to residents to the Retirement Community; receipt, holding and disbursement of
funds; maintenance of bank accounts; procurement of inventories, supplies and
services; promotion and publicity; and, generally, all activities necessary for
operation of the Retirement Community.

         B. Operator shall have during the term of this Agreement the exclusive
right of possession of the management office within the Retirement Community and
those areas of the Retirement Community designed for exclusive possession by the
operator of the Retirement Community.

SECTION 2.03 MANAGEMENT FUNCTIONS

         A. In accordance with Marriott Standards and the other requirements
imposed by this Agreement, Operator shall, in connection with the Retirement
Community, perform each of the following functions:

            1. Obtain and keep in full force and effect, either in its own name
on behalf of Owner or in Owner's name, as may be required by the Legal
Requirements, any and all

                                       15
<PAGE>

Licenses necessary for the operation of the Retirement Community, to the extent
the same is within the control of Operator (or, if same is not within the
control of Operator, Operator shall use all due diligence and reasonable efforts
to obtain and keep same in full force and effect);

            2. Recruit, employ, supervise, direct and discharge all of the
employees at the Retirement Community;

            3. Establish and revise, as necessary, resident care and health care
policies and procedures and general administrative policies and procedures,
including policies and procedures for the control of revenue and expenditures,
for the purchasing of supplies and services, for the control of credit, and for
the scheduling of maintenance, and verify that the foregoing policies and
procedures are implemented in a sound manner in accordance with Marriott
Standards;

            4. Plan, execute, and supervise repairs and maintenance at the
Retirement Community;

            5. Procure such food stuffs, supplies, equipment, furniture and
fixtures (including, FF&E, Fixed Asset Supplies and Inventories), and
third-party services as are necessary to keep, operate and maintain the
Retirement Community in accordance with Marriott Standards;

            6. Maintain the operating accounts and pay all Operating Expenses to
the extent funds are available;

            7. Prepare and deliver the statements, projections and reports as
are specified herein;

            8. Establish prices, rates and charges for services provided at the
Retirement Community;

            9. Negotiate, enter into, and administer licenses, concession
agreements and/or agreements with third-party providers of services to residents
at the Retirement Community;

            10. Provide the Central Administrative Services;

            11. Provide, or cause to be provided, risk management services
relating to the types of insurance required to be obtained or provided by
Operator under this Agreement, provided that the costs and expenses of providing
such services are to be paid as described in Section 12.04;

            12. Reasonably cooperate with Owner concerning disputes with any
Holder, contests of Impositions and Legal Requirements, adjustments of insurance
claims and condemnation awards, and any other Litigation arising in connection
with the Retirement Community;

                                       16
<PAGE>

            13. Reasonably cooperate (provided that Operator shall not be
obligated to enter into any amendments of this Agreement (except as set forth in
Article 6)) with Owner in any attempt(s) by Owner to effectuate a Sale of the
Retirement Community, either directly or through transfers or sales of ownership
interests in Owner (provided that nothing herein shall affect the provisions of
Section 6.05), or to obtain any Secured Loan or other financing, or to purchase
the interests of any equity holders in Owner or the fee interest in the
Retirement Community. Such cooperation shall include, without limitation: (i)
answering any reasonable questions by prospective purchasers, Holders and
lenders; (ii) preparing lists and schedules of leases, concessions, Fixed Asset
Supplies, Inventories, and similar items; and (iii) making such certifications
and representations to Owner, to such purchasers, to such Holders and lenders,
regarding the Retirement Community and the operation thereof, as Owner may
reasonably request (taking into account the extent of Operator's control and
responsibility provided for hereunder). Owner shall promptly reimburse Operator,
from its own funds and not as an Operating Expense, for the reasonable costs and
expenses incurred by Operator in connection with any actions necessary to comply
with the requirements of this Section, provided that such actions are not
otherwise required under other provisions of this Agreement.

            14. Arrange for and supervise public relations and advertising, and
prepare and implement annual marketing plans;

            15. Endeavor to manage the timing of expenditures to replenish
Inventories, Fixed Asset Supplies, payments on accounts payable and collections
of accounts receivable, so as to avoid or minimize any cash deficits with
respect to Retirement Community operations, which deficits would otherwise
require additional funding of Working Capital by Owner;

            16. Maintain the Retirement Community in good repair and condition;

            17. See to the performance of all covenants, duties and obligations
of Owner and Operator pursuant to all agreements with residents;

            18. Negotiate, execute, administer, renew and/or cancel agreements
with residents of the Retirement Community (either in its name or, as agent for
Owner, in Owner's name, as the case may be, in order to comply with Legal
Requirements and the applicable Licenses) for the services to be rendered to
such residents at the Retirement Community;

            19. Subject to Owner's prior approval, institute and prosecute such
legal actions against third parties, and settle compromise and/or release such
actions, as necessary and prudent for the successful operation of the Retirement
Community;

            20. Exercise its reasonable best efforts to give Owner as early
notice as is practicable of all extraordinary developments with respect to the
operation of the Retirement Community, including, but not limited to, Operator's
forecast of the need for any additional Working Capital or other cash
requirements;

            21. Comply with all provisions in any Existing Mortgage which are by
their terms applicable to the operation of the Retirement Community, provided
that with respect to any Mortgage, the provisions in question do not amend or
affect the Operator's rights or obligations under this Agreement;

                                       17
<PAGE>

            22. Comply with all Legal Requirements to the extent the same is
within the control of Operator (or, if same is not within the control of
Operator, Operator shall use all due diligence and reasonable efforts to so
comply), subject to Sections 2.03B and 11.02B; and

            23. Promptly notify Owner of receipt by Operator of any notice of a
violation of any Legal Requirements, and formulate and implement an appropriate
plan of correction.

         B. The parties understand that certain deficiencies or situations of
non-compliance with various Legal Requirements (such as building codes, OSHA,
ADA, health care regulations and the like) are likely to occur from time to time
in the normal course of business operations. Such occurrences will not otherwise
constitute a Default by Operator hereunder, if same resulted from Owner's action
or inaction either in breach hereunder or of any applicable Legal Requirement,
or so long as all of the following conditions are satisfied: (i) they are not
materially beyond the general experience of similar retirement community
operations in the quality tier of retirement communities (but if the quality
tier then does not include twenty (20) or more communities, then the comparison
shall be against all similar retirement community operations) in the state in
which the Retirement Community is located, in terms of scope, seriousness, or
frequency, (ii) Operator takes all reasonable actions in a timely manner to cure
such deficiencies or situations of non-compliance, and (iii) they do not cause
the revocation, termination or suspension of any material License. The costs of
curing such deficiencies or circumstances of non-compliance shall constitute
Operating Expenses unless incurred by reason of Operator's willful failure,
gross negligence, or Default hereunder, in which event such costs shall be borne
by Operator and Operator shall indemnify and hold harmless Owner in respect of
any such costs (including any penalties and fines for non-compliance). If
Operator or Owner shall receive written notice from any governmental authority
that such authority intends, or may exercise its right, to revoke, terminate or
suspend any material License unless such deficiencies or circumstances are
corrected, then during the thirty (30) Day period prior to the earliest possible
effective date for such revocation, termination, or suspension, Owner shall have
the right to enter onto the Community and to take such action as may be
reasonably necessary to remedy or correct such deficiencies or circumstances,
and the costs thereof shall constitute Operating Expenses.

SECTION 2.04 LIMITATIONS ON AUTHORITY OF OPERATOR

         Notwithstanding anything contained in this Agreement to the contrary
(unless otherwise stated in this Section 2.04), and in addition to the various
other provisions of this Agreement which prohibit Operator from taking certain
actions or which allow certain actions only if Owner's consent thereto has been
obtained, Operator shall not, without the prior written approval of Owner, which
approval Owner may withhold in its sole discretion, perform any of the following
actions on behalf of Owner:

            1. Acquire any land or interest therein;

            2. Acquire any capital assets or interest therein except: (i) items
in the approved Building Estimate; and (ii) FF&E, Fixed Asset Supplies and
Inventories (to the extent the same constitute capital assets) in the ordinary
course of business as expressly provided for in this Agreement;

                                       18
<PAGE>

            3. Finance, refinance or mortgage any portion of the Retirement
Community or the revenue due to Owner therefrom;

            4. Sell (other than dispositions of FF&E, Fixed Asset Supplies and
Inventories in the ordinary course of business as expressly provided for in this
Agreement), lease (other than as expressly provided for in this Agreement), or
otherwise transfer, or pledge or place any lien or encumbrance on, any part of
the Retirement Community;

            5. In the event of a total or partial condemnation, consent to any
award or participate in any condemnation proceeding, except as expressly
provided for in this Agreement;

            6. Enter into, modify or terminate any lease, concession or license
or other agreement, otherwise permitted under Section 2.02 if (i) a
non-Retirement Community related use is involved, (ii) the term of the proposed
agreement will exceed the lesser of five (5) years or the remaining Term, or
(iii) the proposed agreement involves the exclusive use of more than fifteen
hundred (1,500) square feet within the Retirement Community. For this purpose, a
"non-Retirement Community use" shall mean any use which is not ultimately for
the primary benefit of residents of the Retirement Community;

            7. Adjust any claim or settle any Litigation which: (i) is not
covered by any of the insurance policies described in Article 12 and is not an
Employee Claim, and which would result in an Operating Expense or payment in
excess of Twenty Five Thousand Dollars ($25,000.00) in any Fiscal Year, or One
Hundred Thousand Dollars ($100,000.00) in any Fiscal Year in the aggregate for
all such claims, both as adjusted by the CPI; or (ii) would impose on Owner any
material liability or obligation other than the payment of money, or would
require Owner to make any material admission; or

            8. Adjust any claim, under the applicable property insurance
policies, regarding injury or damage to the Retirement Community or its
contents, where the estimated cost of restoration is in excess of One Hundred
Thousand Dollars ($100,000.00), as adjusted by the CPI.

SECTION 2.05 TITLE ENCUMBRANCES

         A. As of the Effective Date, a title report of the Retirement Community
has shown that there are no Title Encumbrances other than those identified in
Exhibit B attached hereto ("Existing Title Encumbrances"). Operator hereby gives
its consent to all Existing Title Encumbrances. All costs, expenses and charges
which are imposed on the Retirement Community under the Existing Title
Encumbrances shall be paid from Gross Revenues as Operating Expenses.

         B. Title Encumbrances which are entered into, or become encumbrances on
the Retirement Community and/or the Land, after the Effective Date shall be
referred to in this Agreement as "Future Title Encumbrances." Owner agrees that
it will give Operator written notice of its intention to execute any Future
Title Encumbrances, such notice to be reasonably in advance of the execution
thereof. Owner covenants that, during the Term of this Agreement, there will not
be (unless Operator has given its prior written consent thereto) any Future
Title Encumbrances affecting the Land or the Retirement Community unless
Operator consents

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<PAGE>

thereto, which consent shall not be unreasonably withheld by Operator, and which
consent shall not be required, if such Future Title Encumbrance (i) would not
impose any material financial obligations on the Retirement Community; (ii)
would not prohibit or limit Operator from operating the Retirement Community,
including dining and other facilities customarily a part of or related to a
similar retirement community, in accordance with the Marriott Standards; and
(iii) would not allow Retirement Community facilities (for example, parking
spaces) to be used by persons other than residents, invitees or employees of the
Retirement Community.

         C. All financial obligations imposed on Owner or on Operator or on the
Retirement Community pursuant to any Future Title Encumbrances shall be paid by
Owner from its own funds, and not from Gross Revenues or from the FF&E Reserve,
unless Operator has given its prior written consent to such Future Title
Encumbrance, or unless such consent of Operator is not required under Section
2.05B.

SECTION 2.06 LICENSES AND PERMITS

         Owner agrees upon request by Operator to sign promptly and without
charge applications for Licenses, permits or other instruments necessary for
operation of the Retirement Community and to provide such information and
perform such acts relative to the ownership of the Retirement Community as are
required by law, regulation or governmental practice in order for Operator to
obtain and/or maintain any License, permit, instrument, certificate,
certification or approval with respect to the proper operation of the Retirement
Community. Costs incurred by Owner in complying with this Section 2.06 shall
constitute an Owner's Deduction.

SECTION 2.07 CREDIT

         In no event shall either party borrow money in the name of, or pledge
the credit of, the other.

SECTION 2.08 REPRESENTATIONS AND WARRANTIES OF OWNER

         A. Owner represents and warrants to Operator as follows:

            1. Owner is in good standing under the laws of the state in which it
is organized, and has full power and authority to own its properties, is duly
qualified or licensed to do business as a foreign corporation in the
jurisdiction in which the Retirement Community is located, and has obtained or
will exercise reasonable efforts to obtain and maintain all material Licenses to
own the Retirement Community as it is operated on the Effective Date in
accordance with the terms of this Agreement.

            2. Owner has full power and authority to enter into this Agreement
and to carry out its obligations set forth herein. Owner has taken all action
required by law, its organizational documents, or otherwise to be taken to
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement is a valid and binding
agreement of Owner enforceable in accordance with its terms, except that such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditor's rights,
and the remedy of specific

                                       20
<PAGE>

performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.

SECTION 2.09 REPRESENTATIONS AND WARRANTIES OF OPERATOR

         A. Operator represents and warrants to Owner as follows:

            1. Operator is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has full cooperate power
and authority to own its properties, is duly qualified or licensed to do
business as a foreign corporation in the jurisdiction in which the Retirement
Community is located, and has obtained all material Licenses to manage or
operate the Retirement Community as it is operated on the Effective Date in
accordance with the terms of this Agreement.

            2. Operator has full power and authority to enter into this
Agreement and to carry out its obligations to set forth herein. Operator has
taken all action required by law, its Articles of Incorporation, its Bylaws,
or otherwise to be taken to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby. This
Agreement is a valid and binding agreement of Operator enforceable in
accordance with its terms, except that such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditor's rights, and the remedy of
specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.

                                   ARTICLE 3
                        OWNERSHIP OF RETIREMENT COMMUNITY

SECTION 3.01 OWNERSHIP OF RETIREMENT COMMUNITY

         A. Owner hereby covenants that throughout the Term of this Agreement,
it will use commercially reasonable efforts to have, keep and maintain good and
marketable fee title to the Retirement Community, free and clear of any and all
liens, encumbrances or other charges, except for the following:

            1. Mortgages which are given to secure any one or more Secured Loans
provided that Owner has complied with the provisions of Article 6;

            2. Liens for Impositions or other public charges not yet due or
which are being contested in good faith; and

            3. Existing Title Encumbrances and Future Title Encumbrances
permitted pursuant to Section 2.05 of this Agreement.

         B. Owner shall pay and discharge, at or prior to the due date, any and
all installments of principal and interest due and payable upon any Secured Loan
encumbering the Retirement Community. Operator shall have no liability for the
payment of any debt service or other costs

                                       21
<PAGE>

or payments of whatever nature due with respect to any Secured Loans or the
Retirement Community and any such liability shall be solely that of Owner.

                                   ARTICLE 4
                                      TERM

SECTION 4.01 TERM

         The "Term" shall consist of an "Initial Term" and the "Extended Term".
The "Initial Term" shall begin on the Effective Date, and, unless sooner
terminated, shall continue until the expiration of the thirtieth (30th)
Agreement Year. The Term shall thereafter be extended by Operator, at its option
(on the same terms and conditions contained herein) for one additional period of
five (5) Agreement Years ("Extended Term"), provided that (i) such extension
option, if exercised, shall be void and of no effect unless, for the last three
(3) Agreement Years of the Initial Term, Owner received an average annual return
on the actual level of Owner's Investment (adjusted for seventy-five percent
(75%) of CPI), of at least eleven and one-half percent (11.5%), and (ii) as of
the date of Operator's notice of exercise, and as of the last day of the Initial
Term, there are no outstanding Events of Default by Operator. If Operator elects
to exercise this option to extend, it shall give written notice to that effect
to Owner, pursuant to Section 19.08, not more than twenty-four (24) months and
not less than twelve (12) months prior to the expiration of the Initial Term.

SECTION 4.02 ACTIONS TO BE TAKEN UPON TERMINATION

         Upon any Termination of this Agreement, the following shall be
applicable:

         A. Operator shall, within sixty (60) Days after Termination of this
Agreement, prepare and deliver to Owner a final accounting statement with
respect to the Retirement Community, which, to the extent appropriate, satisfies
the requirements of an Annual Financial Report, along with a statement of any
sums due from one party to the other pursuant hereto, dated as of the date of
Termination. Within thirty (30) Days after the receipt by Owner of such final
accounting statement, the parties will make whatever cash adjustments are
necessary pursuant to such final statement. The cost of preparing such final
accounting statement shall be an Operating Expense, unless the Termination
occurs as a result of a default by either party, in which case the defaulting
party shall pay such cost. Operator and Owner acknowledge that there may be
certain adjustments for which the information is not available at the time of
the final accounting and the parties agree to readjust such amounts and make the
necessary cash adjustments when such information becomes available; provided,
however, that (unless and except for ongoing disputes of which each party has
received notice or refunds or underpayments of Impositions) all accounts shall
be deemed final one hundred and eighty (180) Days after Termination;

         B. As of the date of the final accounting referred to in Section 4.02A,
Operator shall release and transfer to Owner (or to any purchaser as may be
provided herein) any funds then remaining in the FF&E Reserve and any other of
Owner's funds which are held or controlled by Operator with respect to the
Retirement Community with the exception of funds to be held in escrow pursuant
to Sections 12.04 and 14.01G and otherwise in accordance herewith;

                                       22
<PAGE>

         C. Operator shall make available to Owner such books and records
respecting the Retirement Community (including those from prior years, subject
to Operator's reasonable records retention policies) as will be needed by Owner
to prepare the accounting statements, in accordance with GAAP consistently
applied, for the Retirement Community for the year in which the Termination
occurs and for any subsequent year. If such books and records are contained in
Software, Operator shall provide suitable hard-copy of said information to
Owner, but shall not be required to turn over said Software to Owner. Such books
and records shall not include: (i) employee records which must remain
confidential either under applicable law or under reasonable system-wide
corporate policies of Operator; or (ii) any Intellectual Property;

         D. Operator shall (to the extent permitted by law) assign to Owner or
to the new operator all operating licenses and permits for the Retirement
Community which have been issued in Operator's name; provided that if Operator
has expended any of its own funds in the acquisition of any of such licenses or
permits, Owner shall reimburse Operator therefor if it has not done so already;

         E. Upon Termination, Owner shall adopt a new name for the Property that
does not include the "Forum" mark or a confusingly similar term and shall take
steps to change the name of the property to the new name and to eliminate all
use of the "Forum" mark in connection with the Property including but not
limited to: acquisition of any required name changes or governmental approvals;
replacement of all signage, collateral, fixtures, furnishing, equipment,
advertising materials, stationery, supplies, forms or other articles that
display the "Forum" mark; and notification of any telephone, facsimile or other
business directory (including any Internet site or register). Owner shall have a
phase-out period of two (2) years from the date of termination or expiration of
this Operating Agreement to complete its transition to the new property name.
During the two (2) year phase-out period, Owner shall pursue in good faith the
gradual discontinuance of the "Forum" mark and may exhaust any inventory of
items existing as of the date of termination or expiration of this Operating
Agreement which contain or display the "Forum" mark, but Owner may not order or
develop any additional material which contain or display the "Forum" mark during
the phase-out period, or at any time after the termination or expiration of this
Operating Agreement. Upon expiration of the phase-out period, Owner shall make
no further use whatsoever of the "Forum" mark, including distribution or display
of any materials bearing the "Forum" mark;

         F. Operator shall cooperate with Owner in effecting a smooth transition
of operations at the Retirement Community to Owner or Owner's designee; and

         G. The provisions of this Section 4.02 shall survive any Termination.

SECTION 4.03 PERFORMANCE TERMINATION

         A. Subject to the provisions of Section 4.03 B below, Owner shall have
the option to terminate this Agreement if:

            1. With respect to each of any two (2) consecutive Fiscal Years
during the Term commencing with Fiscal Year 2004, Operating Profit is less than
eight percent (8%) of the Owner's Investment (the "Threshold Amount"); and

                                       23

<PAGE>

            2. The fact that the Retirement Community is not meeting the test
set forth in Section 4.03A1 is not the result of either: (i) a Force Majeure; or
(ii) any major renovation of the Retirement Community.

         B. Such option to terminate shall be exercised by serving written
notice thereof on Operator no later than sixty (60) Days after the receipt by
Owner of the Annual Financial Report for the second (2nd) of the two (2) Fiscal
Years referred to in Section 4.03A1. If Operator does not elect to avoid such
Termination pursuant to Section 4.03B below, this Agreement shall terminate as
of the end of the fourth (4th) full Accounting Period following the date on
which Operator receives Owner's written notice of its intent to terminate this
Agreement; provided that such period of time shall be extended as required by
applicable Legal Requirements pertaining to the termination of the employment of
the employees at the Retirement Community. Owner's failure to exercise its right
to terminate this Agreement pursuant to Section 4.03A with respect to any given
Fiscal Year shall not be deemed an estoppel or waiver of Owner's right to
terminate this Agreement with respect to subsequent Fiscal Years to which this
Section 4.03A may apply.

            1. Upon receipt of a written notice of Termination sent by Owner to
Operator pursuant to Section 4.03B, Operator shall have the option, to be
exercised by written notice (the "Cure Notice") to Owner within sixty (60) Days
after receipt of said Termination notice from Owner, to avoid such Termination
by electing either (i) to pay to Owner an amount equal to the difference between
the Threshold Amount for the two consecutive Fiscal Years that gave rise to the
Cure Notice and the Operating Profit for the same two consecutive Fiscal Years
(the "Shortfall Payment"), or (ii) to reduce the Base Fee payable to Operator
pursuant to Section 5.01B during the two (2) full Fiscal Years immediately
following the two (2) Fiscal Years referred to in Section 4.03A1 from five
percent (5%) of Gross Revenues to two percent (2%) of Gross Revenues. In the
event Operator elects to avoid such Termination by sending to Owner a Cure
Notice, the two consecutive Fiscal Years referred to in Section 4.03A1 with
respect to which such election was made shall thereafter not be treated, for
purposes of subsequent elections by Owner pursuant to Section 4.03A, as Fiscal
Years in which the circumstances described in Section 4.03A1 have occurred. If
Operator exercises such option to send to Owner a Cure Notice, then any Owner's
election to terminate this Agreement under Section 4.03 shall be canceled and of
no force or effect and this Agreement shall not terminate. The preceding
sentence, however, shall not affect the right of Owner, as to each subsequent
Fiscal Year to which Section 4.03A applies, to again elect to terminate this
Agreement, pursuant to the provisions of Section 4.03A.

            2. Upon receipt of a second written notice of Termination sent by
Owner to Operator pursuant to Section 4.03B, Operator shall have the option, to
be exercised by written notice (the "Second Cure Notice") to Owner within sixty
(60) Days after receipt of such Termination notice from Owner, to avoid such
Termination by electing to reduce the Base Fee payable to Operator pursuant to
Section 5.01B during the two (2) full Fiscal Years immediately following the two
(2) Fiscal Years referred to in Section 4.03A1 from five percent (5%) of Gross
Revenues to two percent (2%) of Gross Revenues. In the event Operator elects to
avoid such Termination by sending to Owner a Second Cure Notice, the two
consecutive Fiscal Years referred to in Section 4.03A1 with respect to which
such election was made shall thereafter not be treated, for purposes of
subsequent elections by Owner pursuant to Section 4.03A, as Fiscal Years in
which the circumstances described in Section 4.03A1 have occurred. If Operator

                                       24
<PAGE>

exercises such option to send Owner a Second Cure Notice, then any Owner's
election to terminate this Agreement under Section 4.03 shall be canceled and of
no force or effect and this Agreement shall not terminate. The preceding
sentence, however, shall not affect the right of Owner, as to each subsequent
Fiscal Year to which Section 4.03A applies to again elect to terminate this
Agreement, pursuant to the provisions of Section 4.03A.

            3. In the event that for any Fiscal Year Operator reduces the Base
Fee pursuant to Section 4.03B1 or 2, then in calculating Operating Expenses for
such Fiscal Year for purposes of determining the Incentive Fee and other
compensation to Operator, such reduction shall not be taken into account and the
Base Fee shall be deemed to be five percent (5%) of Gross Revenues.

            4. Upon receipt of a third written notice of Termination sent by
Owner to Operator pursuant to Section 4.03A, then notwithstanding the provisions
of Section 4.03B1 and 2, Operator shall have no options to prevent such
Termination as set forth in such Sections.

            5. If Operator does not exercise (or is unable to exercise) its
option to send a Cure Notice or a Second Cure Notice, then this Agreement shall
be terminated as of the date set forth in Section 4.03B. Notwithstanding the
foregoing, the provisions of Section 4.03B1 and 4.03B2 shall cease to apply and
Operator shall not have the right to deliver any further Cure Notices after such
time that Operator has delivered a Cure Notice on two (2) separate occasions.

SECTION 4.04 OWNER'S TERMINATION OPTION

         Owner shall have the option to terminate this Operating Agreement prior
to the expiration of the Term otherwise specified in Section 4.01, (i) by giving
Operator at least one hundred twenty (120) Days prior notice, and (ii) by, and
upon, the payment to Operator of the termination fee (the "Termination Fee")
herein specified. The Termination Fee shall be determined by (i) taking the
average, annual, total of the Central Administrative Services Fee, the Base Fee,
and the Incentive Fee paid to Operator for the immediately preceding three (3)
Fiscal Years, or if less than three (3) such Fiscal Years have been completed,
the pro-forma fees set forth on Exhibit C shall be substituted for that portion
of the three (3) year period for which actual figures are not available, (ii)
increasing said dollar amount annually by the average increase in the CPI for
the preceding three (3) years, for the "Canceled Term", and (iii) discounting
the resulting annual amounts to their net present value using a discount rate
equal to the then current U.S. Treasury rate for a period most comparable to the
number of years remaining in the Canceled Term. For this purpose, the "Canceled
Term" means the lesser of (i) the number of years remaining in the Initial Term,
plus the Extended Term if Operator has exercised its extension right prior to
the date of Owner's termination notice, or (ii) fifteen (15) years. Owner's
right to terminate this Agreement as set forth in this Section 4.04 shall be in
addition to, and not in lieu of, Owner's right to terminate this Agreement as
set forth in any other provision of this Agreement, (ii) shall not be subject to
the options of Operator set forth in Section 4.03B, and (iii) may be exercised
by Owner irrespective of whether a Default or Event of Default exists on the
part of Owner.

                                   ARTICLE 5
                            COMPENSATION OF OPERATOR

                                       25
<PAGE>

SECTION 5.01 BASE FEE, INCENTIVE FEE AND BONUS FEE

         A. In consideration of services to be performed hereunder, Operator
shall receive during each Fiscal Year (or portion thereof) on a non-cumulative
basis, a base fee (the "Base Fee") and an incentive fee (the "Incentive Fee") as
provided below.

            1. The Base Fee shall be an amount equal to five percent (5%) of
Gross Revenues, and shall constitute an Operating Expense.

            2. The Incentive Fee shall be an amount equal to twenty percent
(20%) of Net Operating Profit for such Fiscal Year.

         B. As further consideration for the services to be performed hereunder,
Operator shall receive for the Fiscal Year 1998, a bonus fee (the "Bonus Fee")
to wit, if Operating Profit for the Fiscal Year 1998 exceeds $______________)
(the "Bonus Threshold"), Operator shall receive a Bonus Fee, payable only from
and to the extent of any excess of Operating Profit over the Bonus Threshold,
equal to one percent (1%) of Gross Revenues.

                                   ARTICLE 6
                      FINANCING OF THE RETIREMENT COMMUNITY

SECTION 6.01 AMENDMENTS OF MANAGEMENT AGREEMENT

         A. If requested by any Qualified Lender or prospective Qualified
Lender, Operator agrees to execute and deliver any amendment of this Agreement
which is reasonably required by such Qualified Lender or prospective Qualified
Lender, provided that Operator shall be under no obligation to amend this
Agreement if the result of such amendment would be: (i) to reduce, defer or
delay the amount of any payment to be made to Operator hereunder; (ii) to
materially increase Operator's obligations under this Agreement; (iii) to change
the Term of this Agreement; (iv) to cause the Retirement Community to be
operated other than pursuant to the Marriott Standards; (v) to amend materially
either Section 8.02 or Article 14; or (vi) to otherwise materially affect
Operator's rights and/or obligations under this Agreement. Any such amendment
shall take effect as of the funding of such Qualified Loan.

         B. In addition to the provisions of Section 6.01 A, if a Qualified
Lender or prospective Qualified Lender requests that Operator enter into an
amendment of this Agreement, and if such amendment would impose additional
duties (for example, an increase in the reporting requirements or in the
record-keeping requirements, or adding the obligation to prepare parallel
accounting statements using a different fiscal year) on Operator or would
otherwise adversely affect Operator's rights under this Agreement, but not to
the degree described in clauses (i) through (vi) of Section 6.01A, Operator
hereby agrees that it will execute and deliver such requested amendment of this
Agreement, provided that Owner compensates Operator for the additional burden
imposed by such amendment. It is understood that the word "burden", as used in
the preceding sentence, shall encompass not only additional work to be performed
by Operator, but also the adverse effect on the Incentive Management Fee which
would be caused by requiring increased services by third parties. Any dispute as
to whether Operator is entitled to any compensation pursuant to this Section
6.01B, or as to the amount of such compensation, shall be resolved by
arbitration pursuant to Section 19.11.

                                       26
<PAGE>

         C. Proposed amendments to this Agreement which are requested by any
Qualified Lender or prospective Qualified Lender, and which would affect the
insurance provisions set forth in Article 12, shall be governed exclusively by
Article 12.

         D. Notwithstanding any other provision of this Agreement, Operator
shall continue to provide the necessary information regarding the operation of
the Retirement Community (in such form as may be required by any Qualified Loan
existing as of the Effective Date) so that Owner may comply with all reporting,
accounting and similar obligations imposed by any Qualified Loan existing as of
the Effective Date, without any additional fee or compensation, and upon request
from time-to-time shall provide such explanations and back-up as may be
reasonably requested.

SECTION 6.02 NOTICE AND OPPORTUNITY TO CURE

         A. In the event of (i) a Default by Owner in the performance or
observance of any of the terms and conditions of this Agreement, or (ii) any
other occurrence which entitles Operator to terminate this Agreement, and in the
event that Operator gives written notice thereof to Owner pursuant to Article 16
of this Agreement, Operator shall also give a duplicate copy (herein referred to
as the "First Notice") of such notice to each Qualified Lender, at the address
previously provided to Operator. Any such notice will be sent in the manner
described in Section 19.09 hereof. In addition, in the event that such Default
is not cured within the applicable cure period under Article 16 of this
Agreement, and Operator intends to exercise its remedy of terminating this
Agreement, Operator shall send a second notice (the "Second Notice") to each
Qualified Lender, to the same address and in the same manner applicable to the
First Notice, stating Operator's intention to terminate this Agreement. Operator
shall forbear from taking any action to terminate this Agreement for a period of
thirty (30) Days after the service of the First Notice, and for an additional
period of thirty (30) Days after the service of the Second Notice (if such
Second Notice is required, as set forth above).

         B. In the event of a Default by Owner under the provisions of this
Agreement, Operator agrees to accept performance by any Qualified Lender with
the same force and effect as if same were performed by Owner, in accordance with
the provisions and within the cure periods prescribed in this Agreement (except
that each Qualified Lender shall have such additional cure periods, not
available to Owner, as are set forth in this Section 6.02).

         C. No notice given by Operator to Owner shall be effective as a notice
under Article 16 of this Agreement unless the applicable duplicate notice to
each Qualified Lender which is required under Section 6.02A (either the First
Notice or the Second Notice, as the case may be) has been given. It is
understood that any failure by Operator to give such a duplicate notice (either
the First Notice or the Second Notice, as the case may be) to any Qualified
Lender shall not itself be a Default by Operator under this Agreement, but
rather shall operate only to void the effectiveness of any such notice by
Operator to Owner under Article 16 of this Agreement.

         D. Except as specifically limited by this Section 6.02, nothing herein
shall preclude Operator from exercising any of its rights or remedies against
Owner with respect to any Default by Owner under this Agreement.

                                       27
<PAGE>

SECTION 6.03 ASSIGNMENT OF MANAGEMENT AGREEMENT

         Owner shall have the right to collaterally assign to any Qualified
Lender, as additional security for the indebtedness evidenced by a Qualified
Loan, all of Owner's right, title and interest in and to this Agreement,
including the right to all distributions payable to Owner hereunder. If,
pursuant to any such assignment (or subsequent loan documentation entered into
between Owner and a Qualified Lender with a similar purpose), and provided that
Operator has previously received a copy of such assignment and such subsequent
documentation, Operator may receive (from time to time) a notice or notices from
such Qualified Lender directing Operator to pay to such Qualified Lender
subsequent distributions under Section 9.01C of this Agreement which would
otherwise be payable to Owner, Operator shall comply with any such notice.
Operator shall continue to make payments in compliance with any such notice from
such Qualified Lender until Operator receives written instructions to the
contrary from such Qualified Lender. Owner hereby gives its consent to any such
payments by Operator to such Qualified Lender which are in compliance with any
such notice. The foregoing consent by Owner shall be deemed to be irrevocable
until the entire Qualified Loan has been discharged, as evidenced either by the
recordation of a satisfaction or release executed by such Qualified Lender, or
by the delivery of a written statement to that effect from such Qualified Lender
to Operator. Operator shall comply with the direction set forth in any such
notice without any necessity to investigate why such Qualified Lender sent such
notice, or to confirm whether or not Owner is in fact in default under the terms
of such Qualified Loan. If Operator receives such notices from more than one
Qualified Lender, Operator shall (at its option) either (i) comply with the
provisions of the notice sent by the Qualified Lender whose Qualified Loan has
the senior lien priority, or (ii) institute Litigation for a declaratory
judgment to determine to whom payments under this Agreement shall be made (in
which case, the costs and expenses of such Litigation, including attorneys'
fees, shall be Operating Expenses).

SECTION 6.04 SUBORDINATION OF MANAGEMENT AGREEMENT

         A. This Agreement, and Operator's right to continue to manage and
operate the Retirement Community pursuant to this Agreement, are and shall be
subject and subordinate to the lien of any Qualified Loan (i.e., upon a
Foreclosure of any such Qualified Loan, such Qualified Lender, at its option,
unless it has otherwise agreed to the contrary in a Non-Disturbance Agreement,
shall have the right to terminate this Agreement). Notwithstanding the
foregoing, during the Term of this Agreement, all debt service (including
increased or accelerated payments after a default) payable with respect to any
Qualified Loan shall be paid exclusively from Owner's portion of Operating
Profit.

         B. Section 6.04A is intended to be, and is, fully effective and
binding, as between Operator and any such Qualified Lender; however, Operator
agrees to execute such confirmatory documentation (in recordable form in the
jurisdiction in which the Retirement Community is located) as such Qualified
Lender shall reasonably request.

         C. Notwithstanding the possible termination of this Agreement which is
set forth in the foregoing provisions of this Section 6.04, it is understood
that, until such time as this Agreement is validly terminated either (i)
pursuant to the applicable provision of this Agreement, or (ii) pursuant to a
Foreclosure of a Qualified Loan (assuming that such termination does not

                                       28
<PAGE>

breach any binding Non-Disturbance Agreement), the Holder of each Qualified Loan
will not disturb any of the rights of Operator under this Agreement to operate
the Retirement Community in accordance with this Agreement (including the right
of Operator to collect all Gross Revenues and to make expenditures in accordance
with this Agreement).

SECTION 6.05 NON-DISTURBANCE AGREEMENT

         A. Owner agrees that, in connection with the obtaining by Owner of any
Secured Loan or Secured Loans, from time to time, Owner will use good faith
reasonable efforts to obtain a Non-Disturbance Agreement from each Holder or
Holders. The phrase "good faith reasonable efforts" shall be determined by
reference to the following: (i) normal loan underwriting procedures and
practices (including those practices relating to non-disturbance agreements)
which are generally being implemented by entities which are making loans similar
to such Secured Loan, as of that point in time; and (ii) the concessions which
Operator is, as of that point in time, reasonably prepared to make in order to
satisfy the objectives of lenders in connection with the lender-manager
relationship after a Foreclosure. In no event, however, shall the failure of
Owner to obtain such a Non-Disturbance Agreement affect or modify any of the
responsibilities of Operator toward Qualified Lenders which are contained
elsewhere in this Article 6.

         B. Notwithstanding Section 6.05 A, Owner agrees that, prior to or
contemporaneously with obtaining any Qualified Loan, it will obtain from each
prospective Holder or Holders thereof a Non-Disturbance Agreement pursuant to
which Operator's rights under this Agreement will not be disturbed as a result
of a loan default stemming from non-monetary factors which (i) relate to Owner
and do not relate solely to the Retirement Community, and (ii) are not Defaults
by Operator under Article 16 of this Agreement. Furthermore, such
Non-Disturbance Agreement shall provide that in the event of a monetary default
by Owner under a Secured Loan(s), prior to and as a condition of any resulting
Foreclosure, the Holder(s) shall provide Operator with written notice of Owner's
monetary default and, thereafter, afford Operator an opportunity to cure such
monetary default within a reasonable time period, and the Holder(s) shall accept
such performance by Operator in place of performance by Owner. If Owner desires
to obtain a Qualified Loan, Operator, on written request from Owner, shall
promptly identify those provisions in the proposed loan documents which fall
within the categories described in clauses (i) and (ii) above, and Operator
shall otherwise assist in expediting the preparation of an agreement between the
prospective Holder(s) and Operator which will implement the provisions of this
Section 6.05B.

         C. In the event Operator elects to cure a monetary default by Owner
under a Secured Loan(s), pursuant to the provisions of a Non-Disturbance
Agreement (and otherwise pursuant to the provisions of subparagraph 6.05B
above), all such payments made by Operator shall constitute a loan to Owner and
shall accrue interest at a rate equal to the Prime Rate (compounded annually)
and shall be repaid to Operator out of first available Operating Profit due
Owner after deducting that portion of the Operating Profit necessary to pay then
current Debt Service.

SECTION 6.06 ATTORNMENT

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<PAGE>

         A. Operator agrees that, subject to the provisions of Section 6.06B,
upon a Foreclosure of any Qualified Loan, provided that this Agreement has not
expired or otherwise been earlier terminated in accordance with its terms,
Operator shall attorn to any Subsequent Owner and shall remain bound by all of
the terms, covenants and conditions of this Agreement for the balance of the
remaining Term (including any Renewal Terms) with the same force and effect as
if such Subsequent Owner were the "Owner" under this Agreement; provided,
however, that Operator shall be under no such obligation to so attorn, and, to
the contrary, shall thereupon have the right to terminate this Agreement on
thirty (30) Days' prior written notice to both Owner and such Subsequent Owner:
(i) if such Subsequent Owner would not qualify as a permitted transferee under
Section 18.01A of this Agreement; or (ii) unless such Subsequent Owner, within
twenty (20) Days after the Foreclosure Date (or, in the event such Subsequent
Owner acquires title to the Retirement Community after the Foreclosure Date,
within twenty (20) Days after the date of such acquisition of title to the
Retirement Community), assumes all of the obligations of the "Owner" under this
Agreement which arise from and after the Foreclosure Date (or such later date of
acquisition of title to the Retirement Community), pursuant to a written
assumption agreement which shall be delivered to Operator. Upon the written
request of any Qualified Lender, Operator shall periodically execute and deliver
a statement, in a form reasonably satisfactory to such Qualified Lender,
reaffirming Operator's obligation to attorn as set forth in this Section 6.06A.

         B. It is understood by the parties that, in view of the fact that a
Qualified Lender will have the right to terminate this Agreement on a
Foreclosure under the provisions of Section 6.04, Operator has an interest in
being informed, within a reasonable period of time after a Secured Loan
Acceleration, of whether or not such Qualified Lender intends to exercise such
right of termination. Accordingly, if, by no later than that date (the
"Post-Foreclosure Decision Date") which is ninety (90) Days after the date of
any Secured Loan Acceleration, Operator has not received a Non-Disturbance
Agreement executed by the Holder of such Secured Loan, Operator shall, as of the
Post- Foreclosure Decision Date and thereafter, no longer be under any
obligation to attorn (pursuant to the provisions of Section 6.06 A) with respect
to any Foreclosure of that Secured Loan, and Operator shall have the option to
terminate this Agreement, by written notice to both Owner and the Holder of each
existing Qualified Loan, at any time within the sixty (60) Day period
immediately following the Post-Foreclosure Decision Date.

SECTION 6.07 NO MODIFICATION OR TERMINATION OF AGREEMENT

         If the documents evidencing and securing a Qualified Loan require the
consent of the Qualified Lender to any amendment or modification of this
Agreement which materially affects such Qualified Lender, no such amendment or
modification of this Agreement shall be binding or effective unless such
Qualified Lender shall have consented in writing thereto.

SECTION 6.08 OWNER'S RIGHT TO FINANCE THE RETIREMENT COMMUNITY

         Owner shall have the right, from time to time, without Operator's prior
consent or approval, to obtain Qualified Loans, and to encumber the Retirement
Community with Mortgages securing such Qualified Loans. Owner shall not, without
the prior consent of Operator, have the right to obtain Secured Loans which are
not Qualified Loans.

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<PAGE>

SECTION 6.09 SALE/LEASEBACK TRANSACTIONS

         Any single transaction or related series of transactions in which (i)
Owner's interest in the Retirement Community is sold or transferred by the then
Owner ("Seller") to a buyer ("Buyer"), and (ii) the Buyer (as "landlord") leases
the Retirement Community to the Seller (as "tenant"), is hereby defined as a
"Sale/leaseback Transaction". With respect to each Sale/leaseback Transaction
during the Term of this Agreement, the following provisions will apply: (a) the
sale or transfer of the Retirement Community will be considered a Sale of the
Retirement Community; however, the Seller (as tenant under the aforesaid lease),
not the Buyer, shall thereafter be treated as the "Owner" for purposes of this
Agreement; (b) the purchase price will not be a Secured Loan, but any mortgage
financing placed (either at the time of the transaction or later) on the Buyer's
interest in the Retirement Community will be treated as a Secured Loan, and the
proceeds of each such Secured Loan will be aggregated with all outstanding
Secured Loans, which encumber either the Buyer's interest in the Retirement
Community or the Seller's leasehold interest in the Retirement Community, for
purposes of determining whether a given Secured Loan qualifies as a Qualified
Loan; (c) payments pursuant to such lease shall not be treated as Operating
Expenses, except for Impositions and similar items which would have been treated
as Operating Expenses in the absence of such Sale/leaseback Transaction; and (d)
all subsequent sales, transfers or assignments of either Buyer's interest in the
Retirement Community or Seller's interest in the Retirement Community will be
treated as Sales of the Retirement Community. Owner will not enter into any
Sale/leaseback Transaction unless Operator and the proposed Buyer have
previously executed a mutually satisfactory attornment agreement pursuant to
which, as of the date of the termination of Seller's leasehold interest, the
provisions of this Agreement will (unless there has been an Event of Default or
other event entitling either party to terminate this Agreement) be binding both
on Operator and on Buyer (as the successor "Owner"); such attornment agreement
will also contain an immediately-effective provision which will incorporate the
terms of Section 6.06 of this Agreement, binding both on Operator and on Buyer.

SECTION 6.10 REIT TRANSACTIONS

         Any single transaction or related series of transactions pursuant to
which (i) Owner by election, reorganization, merger, consolidation, stock
transfer, transfer of title to the Retirement Community or otherwise) is or
becomes a "Real Estate Investment Trust" or "Qualified REIT Subsidiary," or the
partner in a partnership in which the general partner is a "Real Estate
Investment Trust" or "Qualified REIT Subsidiary," as such terms are defined in
the Internal Revenue Code of 1986 ("Code"), and (ii) in connection therewith,
Owner, as landlord ("Landlord"), enters into a lease ("Operating Lease") of all
or substantially all of the Retirement Community to an operating company
("Tenant"), and transfers to the Tenant certain non-real estate assets (such as
FF&E) included within the Retirement Community, shall constitute a "REIT"
Transaction." With respect to each REIT Transaction during the Term of this
Agreement, the following provisions shall apply:

         A. The reorganization, merger, consolidation, stock transfer, or
transfer of title to the Retirement Community shall, to the extent the same
constitutes a Sale of the Retirement Community, be subject to all requirements
of Article 18; however, from and after the

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<PAGE>

consummation of the REIT Transaction, the Tenant, not the Landlord, shall be
treated as the "Owner" for purposes of this Agreement.

         B. Any consideration paid in connection with the REIT Transaction shall
not constitute a Secured Loan, but any mortgage financing placed (either at the
time of the REIT Transaction or later) on the Landlord's interest in the
Retirement Community will be treated as a Secured Loan, and the proceeds of each
such Secured Loan will be aggregated with all outstanding Secured Loans, which
encumber either the Landlord's interest in the Retirement Community or the
Tenant's leasehold interest in the Retirement Community, for the purposes of
determining whether a given Secured Loan qualifies as a Qualified Loan.

         C. Payments pursuant to the Operating Lease shall not be treated as
Operating Expenses, except for Impositions and similar items which would have
been treated as Operating Expenses in the absence of such REIT Transaction.

         D. All subsequent sales, transfers or assignments of either the
Landlord's interest in the Retirement Community of the Tenant's leasehold
interest in the Retirement Community will be treated as a Sale of the Retirement
Community, to the extent applicable.

         E. Owner will not enter into any REIT Transaction unless on or before
consummation of the REIT Transaction, Operator and the proposed Landlord execute
a mutually satisfactory attornment agreement pursuant to which, as of the date
of termination of the Operating Lease, the provisions of this Agreement will
(unless there has been an Event of Default or other event entitling either party
to terminate this Agreement) be binding both on Operator and on Landlord (as the
successor "Owner"); such attornment agreement will also contain an immediately
effective provision which will incorporate the terms of the Section 6.06 of this
Agreement, binding on both Operator and on Landlord.

         F. If requested by the Landlord or Tenant, Operator agrees to execute
and deliver any amendment to this Agreement which is reasonably required for the
REIT Transaction to comply with the requirements of the Code, provided that
Operator shall be under no obligation to amend this Agreement if the result of
such amendment would be: (i) to reduce, defer or delay the amount of any payment
to be made to Operator hereunder; (ii) to materially increase Operator's
obligations under this Agreement; (iii) to change the Term of this Agreement;
(iv) to cause the Retirement Community to be operated other than pursuant to the
Marriott Standards; (v) to amend materially either Section 8.02 or Article 14;
or (vi) to otherwise materially affect Operator's rights and/or obligations
under this Agreement. Any such amendment shall take effect as of the
consummation of the REIT Transaction.

SECTION 6.11 COVENANT TO PAY DEBT SERVICE

         Notwithstanding anything contained herein to the contrary, Owner
covenants that during the Term of this Agreement, Owner shall first apply all
Owner's Priority and Net Operating Profit to the payment of Debt Service.

                                   ARTICLE 7
                    WORKING CAPITAL AND FIXED ASSET SUPPLIES

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<PAGE>

SECTION 7.01 WORKING CAPITAL

         A. As of the Effective Date, Owner has provided the funds necessary to
supply the Retirement Community with Working Capital in an amount mutually
approved by Owner and Operator, and Owner shall from time to time thereafter
promptly advance, upon request of Operator, any additional funds necessary to
maintain Working Capital at levels generally consistent with the Marriott
Standards, and as reasonably determined by Operator to be necessary to satisfy
the needs of the Retirement Community as its operation may from time to time
require, or that may be necessary, by reason of delays in collecting accounts
receivable or otherwise, for the Retirement Community to have sufficient cash on
hand to pay its accounts payable and meet its cash expenditures when the timing
of collection of accounts receivable and other funds will be insufficient to
meet the Retirement Community's cash requirements. Any such request by Operator
shall be accompanied by a detailed explanation of the reasons for the request.
If Owner fails to respond to any such request within sixty (60) Days after
Owner's receipt thereof, Operator shall be entitled, at its option, without
affecting other remedies which may be available pursuant to Article 16, to
either: (i) deduct the necessary additional Working Capital from any funds that
are then payable or may thereafter become payable to Owner hereunder; or (ii)
unless prohibited by any Secured Loan, lend Owner the necessary additional
Working Capital from Operator's own funds, which loan will bear interest at the
Prime Rate (compounded annually), and will be secured by a security interest
(subordinated to any Secured Loan) encumbering all Working Capital previously or
thereafter provided by either Owner or Operator, and will be repaid from any
subsequent distributions to Owner pursuant to the terms of this Agreement.

         B. Operator will manage the Working Capital of the Retirement Community
prudently and in accordance with the Marriott Standards. Operator shall review
and analyze the Working Capital needs of the Retirement Community on an annual
basis. If Operator reasonably determines that there is excess Working Capital,
such excess shall be returned to Owner.

         C. Working Capital provided by Owner pursuant to this Section 7.01
shall remain the property of Owner throughout the Term of this Agreement. Upon
Termination, Owner shall retain any of its unused Working Capital.

SECTION 7.02 FIXED ASSET SUPPLIES

         Prior to the Effective Date, Owner has supplied the Retirement
Community with Fixed Asset Supplies. In the event that any additional funds are
necessary to maintain Fixed Asset Supplies at levels determined by Operator to
be necessary to operate the Retirement Community in accordance with the Marriott
Standards, such funds shall be provided from Gross Revenues and treated as an
Operating Expense. Fixed Asset Supplies shall remain the property of Owner
throughout the Term of this Agreement, except for Fixed Asset Supplies purchased
by Operator pursuant to Section 10.03.

                                   ARTICLE 8
                      REPAIRS, MAINTENANCE AND REPLACEMENTS

SECTION 8.01 ROUTINE REPAIRS AND MAINTENANCE

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<PAGE>

         A. Operator shall maintain the Retirement Community in good repair and
condition and in conformity with Legal Requirements and Marriott Standards and
shall make or cause to be made such routine and preventative maintenance,
repairs and minor alterations, the cost of which can be expensed under GAAP, as
it, from time to time, deems necessary for such purposes. The cost of such
maintenance, repairs and alterations shall be paid from Gross Revenues and shall
be treated as an Operating Expense in determining Operating Profit.

         B. Operator shall (pursuant to a schedule which shall be subject to the
reasonable approval of both Owner and Operator) arrange for and coordinate
routine and other appropriate inspections of the structure, exterior facade,
roof, parking areas, and other significant physical components of the Retirement
Community, and of the mechanical, electrical, heating, ventilating, air
conditioning, plumbing, and vertical transportation elements of the Retirement
Community. The costs of such inspections shall be treated as Operating Expenses.

         C. Operator shall submit to Owner (at the same time as the submission
of the Annual Operating Projection) a signed copy of an annual report
summarizing all significant preventative maintenance activities (including
repairs, alterations and inspections conducted at the Retirement Community) on
all building components of the Retirement Community during the previous twelve
(12) calendar months.

SECTION 8.02 FF&E RESERVE

         A. Operator shall establish a reserve account (the "FF&E Reserve") in a
bank designated by Operator and approved by Owner (which approval shall not be
unreasonably withheld) to cover the cost of:

            1. Replacements and renewals to the Retirement Community's FF&E and

            2. Certain routine repairs and maintenance to the Retirement
Community building which are normally capitalized under GAAP such as exterior
and interior repainting, resurfacing building walls, floors, roofs and parking
areas, and replacing folding walls and the like, but which are not major
repairs, alterations, improvements, renewals or replacements to the Retirement
Community building's structure or exterior facade or to its mechanical,
electrical, heating, ventilating, air conditioning, plumbing or vertical
transportation systems, the cost of which shall be governed exclusively by
Section 8.03.

         B. Throughout the Term, Operator shall transfer into the FF&E Reserve
the amounts required in Section 8.02E and F (the "FF&E Reserve Payment"). All
amounts transferred into the FF&E Reserve shall be paid from Gross Revenues and
shall constitute Operating Expenses.

         C. Each year, at the same time as Operator submits the Annual Operating
Projection, Operator shall prepare an estimate (the "FF&E Estimate") of the
expenditures necessary for (i) replacements and renewals to the Retirement
Community's FF&E, and (ii) repairs to the Retirement Community of the nature
described in Section 8.02A2, during the ensuing Fiscal Year, and shall submit
such FF&E Estimate to Owner for its review. Operator shall also prepare
tentative forecasts of such expenditures with regard to the four (4) subsequent
Fiscal Years. Operator will at all times give good faith consideration to
Owner's suggestions regarding any FF&E Estimate. In the event such forecasts
project a deficit in the FF&E Reserve at some point

                                       34
<PAGE>

during the current Fiscal Year or during such four (4) subsequent Fiscal Years,
Owner and Operator will work together in good faith to prepare alternative
forecasts for such Fiscal Years which will reduce or eliminate such deficit, but
also take into account the needs of the Retirement Community during such periods
of time. All expenditures from the FF&E Reserve will be (as to both the amount
of each such expenditure and timing thereof) both reasonable and necessary,
given the objective that the Retirement Community will be maintained and
operated in accordance with the Marriott Standards.

         D. Operator shall from time to time make such (1) replacements and
renewals to the Retirement Community's FF&E, and (2) repairs to the Retirement
Community of the nature described in Section 8.02A2, as it deems necessary,
provided that Operator shall not expend more than the balance in the FF&E
Reserve without the prior approval of Owner. Operator will endeavor to follow
the applicable FF&E Estimate, but shall be entitled to depart therefrom, in its
reasonable discretion, provided that: (A) such departures from the applicable
FF&E Estimate result from circumstances which could not reasonably have been
foreseen at the time of the submission of such FF&E Estimate; and (B) such
departures from the applicable FF&E Estimate result from circumstances which
require prompt repair and/or replacement or are necessary to comply with Legal
Requirements; and (C) Operator has submitted to Owner a revised FF&E Estimate
setting forth and explaining such departures. At the end of each Fiscal Year,
any amounts remaining in the FF&E Reserve shall be retained in the FF&E Reserve,
and shall be carried forward to the next Fiscal Year. Upon a Sale of the
Retirement Community, funds in the FF&E Reserve will not be affected (or, if
withdrawn, will be replaced as set forth in Section 18.01G), and all
dispositions of such funds (both before and after such Sale of the Retirement
Community) will continue to be made exclusively pursuant to the provisions of
this Agreement. Proceeds from the sale of FF&E no longer necessary to the
operation of the Retirement Community shall be deposited in the FF&E Reserve, as
shall any interest which accrues on amounts placed in the FF&E Reserve. Neither
(i) proceeds from the disposition of FF&E, nor (ii) interest which accrues on
amounts held in the FF&E Reserve, shall either (x) result in any reduction in
the required contributions to the FF&E Reserve set forth in subsection B above,
or (y) be included in Gross Revenues. The only items of FF&E which Operator is
authorized to lease (rather than purchase) shall be telephones, office equipment
(such as copiers and the like), and shuttle vans. If Operator enters into a
lease described in the preceding sentence, Operator shall give Owner notice of
such lease either prior to or promptly after entering into such lease. Lease
payments with respect to telephones and office equipment shall be Operating
Expenses; lease payments with respect to shuttle vans shall be paid from the
FF&E Reserve. If Operator proposes that items of FF&E other than telephones and
office equipment or shuttle vans should be leased rather than purchased,
Operator shall submit such proposal (which proposal shall include, without
limitation, an indication as to whether the rental which is owed under such
lease will be treated as an Operating Expense or paid from the FF&E Reserve) to
Owner for Owner's approval (not to be unreasonably withheld). In connection with
the foregoing, it is understood that the failure of a Qualified Lender to
approve such leasing proposal shall justify Owner in withholding its approval
thereof, regardless of whether withholding such approval would otherwise be
deemed to be unreasonable.

         E. The amount of the FF&E Reserve Payment shall be determined as
follows:

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<PAGE>

            1. Two and sixty-five one hundredths percent (2.65%) of Gross
Revenues during the period from the Effective Date to the expiration of the
Fiscal Year 2002;

            2. Two and eighty-five one hundredths percent (2.85%) of Gross
Revenues during the period from the first day of the Fiscal Year 2003 to the
last day of the Fiscal Year 2007;

            3. Three and one-half percent (3.5%) of Gross Revenues during the
period from the first day of Fiscal Year 2008 to the last day of the Term.

         F. The percentage contribution for the FF&E Reserve which is described
in Section 8.02E is an estimate based upon Operator's prior experience with
other comparable retirement communities. As the Retirement Community ages, this
percentage may not be sufficient to keep the FF&E Reserve at the levels
necessary to make the replacements and renewals to the Retirement Community's
FF&E, or to make the repairs to the Retirement Community of the nature described
in Section 8.02A2, which are required to maintain the Retirement Community in
accordance with the Marriott Standards. If any FF&E Estimate which is prepared
in accordance with Section 8.02C would require funding in excess of the
applicable percentage of Gross Revenues which is set forth in Section 8.02E
above, Owner may either:

            1. Agree to increase the percentages of Gross Revenues set forth in
Section 8.02E up to the level set forth in such FF&E Estimate, in order to
provide the additional funds required, such increases to be treated as Operating
Expenses, or

            2. Make a lump-sum contribution to the FF&E Reserve in the necessary
amount (in which case such lump-sum contribution plus interest (at the Prime
Rate plus one percentage point (1%) per annum), shall be reimbursed to Owner
from Gross Revenues in equal installments over the period of the next five (5)
calendar years beginning as of the date of such contribution, and such
installment repayments shall be an Operating Expense).

         If Owner elects not to agree to either option 1 or option 2 above (or
Owner does not respond with respect to either option) within thirty (30) Days
after the submission of such FF&E Estimate (or, if Owner has elected option 2,
if Owner fails to fund the required amount within a sixty (60) Day period after
the date of such election), Operator shall be entitled, at its option, to
terminate this Agreement upon one hundred and twenty (120) Days' written notice
to Owner (with a copy to each Qualified Lender); however, such failure by Owner
shall not be deemed a Default by Owner under Article 16, and Operator shall not
be entitled to any remedies with respect to such failure other than such
termination of this Agreement. If Operator so elects to terminate this
Agreement, it shall notify Owner of such election within the sixty (60) Day
period following either: (x) the date of receipt of Owner's election not to
agree to either option 1 or option 2 above, or the expiration of the aforesaid
thirty (30) Day period without Owner making an election with respect to either
option; or (y) if Owner has elected option 2, the date of the expiration of the
aforesaid sixty (60) Day period without Owner funding the required amount.
However, if Owner elects not to fund an FF&E Estimate that is specifically
needed to meet Legal Requirements, such failure shall constitute a Default under
Article 16 and Operator shall have recourse to all the remedies therein
specified.

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<PAGE>

SECTION 8.03 BUILDING ALTERATIONS, IMPROVEMENTS, RENEWALS, AND REPLACEMENTS

         A. Operator shall prepare an annual estimate (the "Building Estimate")
of the expenditures necessary for major repairs, alterations, improvements,
renewals and replacements to the structure or exterior facade of the Retirement
Community, or to the mechanical, electrical, heating, ventilating, air
conditioning, plumbing, or vertical transportation elements of the Retirement
Community (the foregoing expenditures, together with all other repair and
maintenance expenditures which are classified as capital expenditures under
GAAP, shall be collectively referred to as "Capital Expenditures"). Operator
shall submit each such Building Estimate to Owner for its approval at the same
time the Annual Operating Projection is submitted. Except with respect to the
items described in Section 8.02A2, Operator shall not make any Capital
Expenditures without the prior written consent of Owner. Owner shall not
unreasonably withhold its consent with respect to Capital Expenditures which are
required by reason of any Legal Requirement, or required under Operator's
current life-safety standards (provided that, in order for any such life-safety
standards to be "required" within the meaning of this Section 8.03A, such
standards must be both required and in the process of being implemented at a
majority of the retirement communities which are comparable to the Retirement
Community then either owned or operated by Operator), or otherwise required for
the continued safety of residents or prevention of material damage to property,
including the removal of Hazardous Materials in compliance with all
Environmental Laws pursuant to Section 19.09. All Capital Expenditures which are
described in the preceding sentence shall be referred to in this Agreement as
"Required Capital Expenditures".

         B. In the event of (x) an emergency threatening the Retirement
Community, its guests, invitees or employees, or (y) the receipt by Operator of
a governmental order or other Legal Requirement regarding any Required Capital
Expenditures, Operator shall give Owner notice thereof within five (5) Business
Days thereafter or sooner if circumstances reasonably warrant. Operator shall
then be authorized (but not obligated) to take appropriate remedial action
without receiving Owner's prior consent as follows: (i) in an emergency
threatening the Retirement Community, its guests, invitees or employees; or (ii)
if the continuation of the given condition could (in Operator's reasonable
judgment) subject Operator and/or Owner to either criminal or more than DE
minimis civil liability, and Owner has either failed to remedy the situation or
has failed to take appropriate legal action to stay the effectiveness of any
applicable Legal Requirement. Operator shall cooperate with Owner in the pursuit
of any such action and shall have the right to participate therein. Owner shall
reimburse Operator for any costs incurred by Operator in connection with any
such remedial action within thirty (30) Days after Owner's receipt of notice
from Operator of the amount of such costs.

         C. The cost of all Capital Expenditures (including the expenses
incurred by either Owner or Operator in connection with any civil or criminal
proceeding described above, but not including costs of those Capital
Expenditures which are described in Section 8.02A2 hereof) shall be borne solely
by Owner, and shall not be paid from Gross Revenues or from the FF&E Reserve.

         D. The failure of Owner to either (i) approve and provide funding for
any proposed Required Capital Expenditure, within thirty Days (30) after
Operator's request therefor, or (ii) in the case of any Legal Requirement which
is described in Section 8.03B, comply therewith or to

                                       37
<PAGE>

stay the effectiveness of such Legal Requirement during the period of any
contesting thereof, shall be a Default by Owner. In such event, Operator shall
be entitled (without affecting its other remedies under Article 16) to terminate
this Agreement upon ninety (90) Days' written notice to Owner (with a copy to
each Qualified Lender); provided, however, that Operator shall have the right to
stipulate such shorter period of time as may be appropriate, given the time
periods which are mandated by Legal Requirements, as described in Section 8.03A
or B, or given Operator's good faith concerns about its own civil and/or
criminal liability.

         E. Operator shall have the right, from time-to-time, to set forth in
any Building Estimate the recommendations of Operator regarding proposed ROI
Capital Expenditures. Notwithstanding the provisions of Section 8.03C to the
contrary, the cost of all ROI Capital Expenditures shall be paid, to the extent
reasonably possible (given the requirement, set forth in Section 8.02, that the
balance in the FF&E Reserve be maintained in accordance with the Marriott
Standards) from the FF&E Reserve, and Owner shall pay such costs from its own
funds only to the extent there are not adequate funds for such purpose in the
FF&E Reserve. Expenditures which are, pursuant to the preceding sentence, made
from the FF&E Reserve shall not be treated as Additional Invested Capital. Any
failure of Owner to approve and provide funding for any ROI Capital
Expenditures, or any other Capital Expenditures (not including those Capital
Expenditures which are described in Section 8.02A2 hereof) which are not
Required Capital Expenditures, within sixty (60) Days after Operator's request
therefor, shall not be a Default by Owner but shall entitle Operator to
terminate this Agreement. Such Termination shall be evidenced by a written
notice to Owner (with a copy to each Qualified Lender), which notice shall be
delivered to Owner no later than ninety (90) Days after the expiration of the
sixty (60) Day period described in the preceding sentence. The effective date of
such Termination shall be the date stated by Operator in such notice, provided
that such effective date shall be no less than one hundred eighty (180) Days,
and no more than three hundred sixty (360) Days, after the date of such notice.

SECTION 8.04 LIENS

         Operator and Owner shall use their best efforts to prevent any liens
from being filed against the Retirement Community which arise from any
maintenance, repairs, alterations, improvements, renewals or replacements in or
to the Retirement Community. They shall cooperate fully in obtaining the release
of any such liens, and the cost thereof, if the lien was not occasioned by the
fault of either party, shall be treated the same as the cost of the matter to
which it relates. If the lien arises as a result of the fault of either party,
then the party at fault shall bear the cost of obtaining the lien release.

SECTION 8.05 OWNERSHIP OF REPLACEMENTS

         All repairs, alterations, improvements, renewals or replacements made
pursuant to this Article 8 shall be the property of Owner. Subject to the
provisions of this Article 8 and Section 18.01G, the funds in the FF&E Reserve
shall be the property of Owner.

                                   ARTICLE 9
                          BOOKKEEPING AND BANK ACCOUNTS

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<PAGE>

SECTION 9.01 BOOKS AND RECORDS

         A. Books of control and account shall be kept on the accrual basis and
in all material respects in accordance with GAAP, with the exceptions provided
in this Agreement. Owner may at reasonable intervals during Operator's normal
business hours examine, copy (including copying any such records contained in
Software), and audit such records. Within seventy-five (75) Days after the end
of each Fiscal Year, Operator shall furnish Owner a financial report in
reasonable detail summarizing the operations of the Retirement Community for
such Fiscal Year and, including a certificate of Operator's chief accounting
officer certifying that such year-end statement is true and correct (the "Annual
Financial Report"). The parties shall, within thirty (30) Business Days after
the receipt of such statement, make any adjustments needed because of the final
figures set forth in the Annual Financial Report, or send a notice of disputed
items or matters in appropriate detail. Final adjustments, if any, will be made
at the time any disputed items or matters are resolved by the parties. If Owner
desires, at its own expense, to audit the Annual Financial Report and supporting
records, Owner shall begin such audit as soon as reasonably possible following
its receipt thereof and shall complete such audit as soon as reasonably possible
thereafter. If Owner does not make an audit or does not otherwise raise disputed
items as aforesaid, then such Annual Financial Report shall be deemed to be
conclusively accepted by Owner as being correct, and Owner shall have no further
right to challenge the correctness of the Annual Financial Report thereafter,
except in the event of fraud by Operator and except as set forth in Section
9.01B. If any audit by Owner discloses an overpayment of any amounts to
Operator, Operator shall promptly pay Owner such amounts found to be due, plus
interest thereon (at the Prime Rate plus one percentage point (1%) per annum)
from the date such amounts should originally have been paid. If, however, the
audit discloses that Operator has not received any amounts due it, Owner shall
pay Operator such amounts, plus interest thereon (at the Prime Rate plus one
percentage point (1%) per annum) from the date such amounts should originally
have been paid. Any dispute concerning the correctness of an audit shall be
settled as provided in Section 19.11.

         B. If Owner's audit discloses an overpayment in the total payment of
amounts due Operator for any Fiscal Year so audited that is in excess of five
percent (5%), Owner may audit the Retirement Community operations and supporting
records for the three (3) preceding Fiscal Years. The costs of such audits shall
be borne by Operator and not be treated as an Operating Expense. Any error or
dispute with respect thereto shall be handled as set forth in Section 9.01A.

         C. By the twentieth (20th) Day after the end of each Accounting Period,
Operator shall furnish to Owner and, if required by Owner, to any Holder and to
the lessor under any existing lease, a report ("Interim Report") for the
immediately preceding Accounting Period, including the following:

            1. A statement of the actual and budgeted Gross Revenue, Operating
Expenses, and Operating Profit for the Accounting Period and for the
"year-to-date";

            2. A cash flow report;

            3. An aged schedule of accounts receivable;

                                       39
<PAGE>

            4. An analysis of escrow deposits and a cash reconciliation;

            5. An itemized list of all fee delinquencies as of the twentieth
(20th) Day of the current month; and

            6. An occupancy report.

         With each Interim Report Operator shall transfer any interim amounts of
Operating Profit due Owner and shall retain any interim Base Fee and Incentive
Fee, if any, due Operator. A final reconciliation and transfer of funds due
Owner and Operator shall be made at the end of each Fiscal Year prior to issuing
the Annual Financial Report, based upon the Operating Profit, Base Fee, Bonus
Fee, CAS Fee and Incentive Fee for the entire Fiscal Year. It is the intention
hereof that Owner receive with respect to each Fiscal Year during the Term the
Operating Profit for such Fiscal Year less the Incentive Fee for such Fiscal
Year and that all computations of Operating Profit, Operating Loss, Base Fee,
Bonus Fee, CAS Fee and Incentive Fee shall be made based upon the entire Fiscal
Year so that any interim payments to Owner or Operator hereunder shall be
subject to final adjustment based upon the results for the entire Fiscal Year.
Each quarterly Interim Report will be accompanied by a statement, by either the
local or regional controller of the Retirement Community, that, to the best of
his or her knowledge and belief, and subject to routine year-end audit
adjustments, such Interim Report is true and correct in all material respects.

         D. Operator shall, on an annual basis, at the time of the delivery of
the Annual Operating Projection, prepare and deliver to Owner the Management
Analysis Report. In addition, Operator shall, in connection with an impending
Sale of the Retirement Community or commitment by a Holder to make a Secured
Loan, within thirty (30) Days after written request therefor from Owner, prepare
and deliver to Owner an updated Management Analysis Report describing
significant changes since the effective date of the most recent Management
Analysis Report.

         E. For purposes of calculating the Operator's fees for any given Fiscal
Year, Operating Profits shall not include adjustments for either refunds or
additional payments of Impositions relating to any prior Fiscal Years. In the
event such refunds or additional payments occur, the Operating Profit with
respect to the prior Fiscal Years in which such Impositions accrued shall be
recalculated to show such refund or additional payment; if the fees with respect
to such prior Fiscal Years are either increased or decreased as a result of such
recalculation of Operating Profit, the party which owes money to the other party
shall promptly pay the amount owed.

SECTION 9.02 RETIREMENT COMMUNITY ACCOUNTS, EXPENDITURES

         A. All funds derived from operation of the Retirement Community shall
be deposited by Operator in Retirement Community bank accounts in a bank
designated by Operator and approved by Owner, which approval shall not be
unreasonably withheld. Withdrawals from said accounts shall be made by
representatives of Operator whose signatures have been authorized. Such accounts
shall be separate from all other accounts maintained by Operator, and Operator
shall not commingle in such accounts funds derived from any source other than
the operation of

                                       40
<PAGE>

the Retirement Community without prior consent of Owner. Reasonable petty cash
funds shall be maintained at the Retirement Community.

         B. All Operating Expenses shall be paid by Operator and Operator shall
have the right to apply Gross Revenues or Working Capital provided by Owner
pursuant to Section 7.01 for such purpose. Operator shall not be required to
make any payment of amounts that are not Operating Expenses except out of funds
provided by Owner.

SECTION 9.03 ANNUAL OPERATING PROJECTION

         A. Forty-five (45) Days prior to the beginning of each Fiscal Year,
Operator shall submit to Owner a projection (the "Annual Operating Projection")
of the estimated financial results of the operation of the Retirement Community
during the next Fiscal Year. Such projection shall project the estimated Gross
Revenues, Operating Expenses, and Operating Profit for the forthcoming Fiscal
Year for the Retirement Community, taking into account the Retirement
Community's market area. In preparing the Annual Operating Projection for each
Fiscal Year, Operator's goal will be the maximization of the long-term Operating
Profit of the Retirement Community, in keeping with the Marriott Standards,
Legal Requirements, and the general standards of the retirement industry for
similar quality-tier properties. Operator shall consult with Owner with respect
to the Annual Operating Projection and shall at all times give good faith
consideration to Owner's suggestion regarding the same, but shall not be
required to obtain Owner's approval thereof, except that Owner shall have the
right to approve the Annual Operating Projection, which approval shall not be
unreasonably delayed or denied, in the event that Owner's Priority was not paid
for the prior Fiscal Year or is not forecasted to be reached in the current
Fiscal Year or is not forecasted to be reached in the Annual Operating
Projection for the following Fiscal Year that has been submitted to Owner.

         B. If Owner's approval of the Annual Operating Projection is required
pursuant to Section 9.03A and if Owner fails to approve the Annual Operating
Projection prepared by Operator pursuant to Section 9.03A prior to the first Day
of the Fiscal Year in question, Operator shall commence the operations of the
Retirement Community for said Fiscal Year, and continue such operations until
Owner's approval is obtained, under a provisional Annual Operating Projection
which shall consist of the actual financial results of the immediately preceding
Fiscal Year, with projected Operating Expenses adjusted by the CPI, and with
further reasonable adjustments as necessary to comply with any Legal
Requirements or respond to known cost increases or any extraordinary
circumstances that Operator has good reason to anticipate in the subject Fiscal
Year.

         C. Operator shall use its best efforts to adhere to the Annual
Operating Projection. It is understood, however, that the Annual Operating
Projection is only a projection by Operator of estimated results and that
various circumstances such as, but not limited to, the costs of labor, material,
services and supplies, casualty, operation of law, or economic and market
conditions may make achievement of the Annual Operating Projection impracticable
or not obtainable. Accordingly, Operator shall be under no obligation to achieve
any of the results shown in the Annual Operating Projection, and Operator shall
be entitled to depart therefrom due to such circumstances, provided that nothing
herein shall be deemed to authorize Operator to take any action prohibited by
this Agreement to reduce Operator's other obligations hereunder.

                                       41
<PAGE>

         D. Operator shall notify Owner of any significant variations from the
Annual Operating Projection promptly after Operator learns of the same, but in
not event later than the date on which Operator is required to give Owner the
Interim Report covering the period in which such variation occurs. Any such
notice shall set forth in reasonable detail the nature, extent and, if known by
Operator, the cause of such variation, and recommendations of appropriate
actions, either to correct the variation or to prevent or minimize its
occurrence or effect. Owner and Operator shall, at Owner's request, meet to
review such variations and discuss appropriate action with respect thereto.

SECTION 9.04 OPERATING LOSSES

         Owner shall be solely responsible for any Operating Losses.

                                   ARTICLE 10
           PROPRIETARY MARKS; TRADEMARK LICENSE; INTELLECTUAL PROPERTY

SECTION 10.01 PROPRIETARY MARKS

         The Proprietary Marks shall in all events remain the exclusive property
of Operator, and nothing contained herein shall confer on Owner the right to use
the Proprietary Marks. Except as provided in Section 10.03, upon Termination,
any use of or right to use the Proprietary Marks by Owner shall cease forthwith
and Owner shall promptly remove from the Retirement Community any signs or
similar items which contain the Proprietary Marks, provided that Operator shall
bear the cost of removal if such Termination was pursuant to Article 16. The
right to use such Proprietary Marks belongs exclusively to Operator, and the use
thereof inures to the benefit of Operator whether or not the same are registered
and regardless of the source of the same.

SECTION 10.02 TRADEMARK LICENSE

         In consideration of the rights granted to Operator in this Operating
Agreement, Operator grants to Owner a non-exclusive right and license,
"Trademark License", to use the "Forum" mark solely as part of the name of the
Retirement Community as an identifier for the term of this Operating Agreement.
Owner is not permitted to use the "Forum" mark in connection with the
identification or operation of any other business or property, or at any other
location, except as may otherwise be provided in other Operating Agreements
between Operator and Owner. Owner acknowledges and agrees that Operator is the
owner of all right, title and interest in and to the "Forum" mark and the
goodwill associated with and symbolized by that mark, the Owner's use of the
"Forum" mark pursuant to this Trademark License shall not give Owner any
ownership, apart from this Trademark License, to the "Forum" mark, and that all
goodwill arising from Owner's use of the "Forum" mark shall inure solely to
Operator's benefit.

         This Trademark License shall immediately terminate (but subject to the
provisions of Section 4.02E) upon termination or expiration of this Operating
Agreement.

SECTION 10.03 PURCHASE OF INVENTORIES AND FIXED ASSET SUPPLIES

         Upon Termination, Operator shall have the option, to be exercised
within thirty (30) Days after Termination, to purchase, at their then book
value, any items of the Retirement

                                       42
<PAGE>

Community's Inventories and Fixed Asset Supplies as may be marked with the
Proprietary Marks subject to Section 4.02E. In the event Operator does not
exercise such option, Owner agrees that it will use any such items not so
purchased exclusively in connection with the Retirement Community until they are
consumed.

SECTION 10.04 COMPUTER SOFTWARE AND EQUIPMENT

         A. All Software is and shall remain the exclusive property of Operator
or one of its Affiliates (or the licensor of such Software, as the case may be),
and Owner shall have no right to use, or to copy, any Software.

         B. Upon Termination, Operator shall have the right to remove from the
Retirement Community, without compensation to Owner, all Software. Furthermore,
upon Termination, Operator shall be entitled to remove from the Retirement
Community any computer equipment which is utilized as part of a centralized
operations control or property management system of Operator or is otherwise
considered proprietary by Operator, or (ii) any other computer equipment
utilized as part of a centralized system that is owned by Operator or a third
party other than Owner. If any of such removed computer equipment is owned by
Owner, Operator shall reimburse Owner for the book value of such equipment and
shall repair any damage caused by the removal of such computer equipment.

         C. Upon Termination, Operator shall have the right to remove from the
Retirement Community without compensation to Owner, any computer software
(including upgrades and replacements) owned or licensed by Operator, or any of
its Affiliates.

SECTION 10.05 INTELLECTUAL PROPERTY

         All Intellectual Property shall at all times be proprietary to Operator
or its Affiliates, and shall be the exclusive property of Operator or its
Affiliates. During the Term of this Agreement, Operator shall be entitled to
take all reasonable steps to ensure that the Intellectual Property remains
confidential and is not disclosed to anyone other than Operator's employees at
the Retirement Community. Upon Termination, all Intellectual Property shall be
removed from the Retirement Community by Operator, without compensation to
Owner.

SECTION 10.06 BREACH OF COVENANT

         Operator and/or its affiliated companies shall be entitled, in case of
any breach of the covenants of Article 10 by Owner or others claiming through
it, to injunctive relief and to any other right or remedy available at law.
Article 10 shall survive Termination.

                                   ARTICLE 11
                   POSSESSION AND USE OF RETIREMENT COMMUNITY

SECTION 11.01 QUIET ENJOYMENT

         Owner covenants that, so long as Owner has not terminated this
Agreement by reason of (i) an Event of Default by Operator under Article 16 of
this Agreement; or (ii) the exercise by Owner of any right of Owner to terminate
this Agreement under any other Section of

                                       43
<PAGE>

this Agreement, Operator shall quietly hold, occupy and enjoy the Retirement
Community throughout the Term hereof free from hindrance or ejection by Owner or
other party claiming under, through or by right of Owner (except as may be
otherwise set forth in Section 6.04). Owner agrees to pay and discharge any
payments and charges and, at its expense, to prosecute all appropriate actions,
judicial or otherwise, necessary to assure such free and quiet occupation.
Nothing set forth in the preceding sentence, however, shall be deemed to create
a recourse obligation by Owner to pay any payment or charge pursuant to a
contract which is non-recourse to Owner.

SECTION 11.02 USE

         A. Operator shall use the Retirement Community solely for the operation
of a Retirement Community pursuant to the Marriott Standards and for all
activities in connection therewith which are customary and usual to such an
operation.

         Operator shall comply with and abide by all Legal Requirements
pertaining to the operation of the Retirement Community, provided that: (i) all
costs and expenses (other than those which are specifically described in clauses
(ii), (iii) or (iv) of this Section 11.02B) of such compliance shall be paid
from Gross Revenues as Operating Expenses; (ii) all costs and expenses of
compliance with Environmental Laws shall be paid as set forth in Section 19.09;
(iii) all costs and expenses of compliance with the Legal Requirements which are
described in Section 8.03A shall be paid as set forth in Section 8.03; (iv)
certain costs and expenses are to be borne by Operator and not paid as Operating
Expenses, as and to the extent set forth in Section 2.03B; and (v) Operator
shall have the right, but not the obligation, in its reasonable discretion, to
contest or oppose, by appropriate proceedings, any such Legal Requirements
(provided that the consent of Owner, not to be unreasonably withheld, shall be
obtained prior to instituting any such proceedings which involve Owner's
ownership interest in the Retirement Community in a material manner); the
reasonable expenses of any such contest shall be paid from Gross Revenues as
Operating Expenses.

SECTION 11.03 CENTRAL ADMINISTRATIVE SERVICES

         A. Operator will, commencing with the Effective Date and thereafter
during the Term of this Agreement, cause to be furnished to the Retirement
Community certain central administrative services ("Central Administrative
Services") which are furnished generally on a central or regional basis to other
Retirement Communities in the Marriott Retirement Community System and which
benefit each retirement community as a participant in the Marriott Retirement
Community System. Central Administrative Services shall include: marketing and
public relations services; human resources program development; information
systems support and development; centralized computer payroll and accounting
services. In lieu of reimbursement to Operator for any of such Central
Administrative Services, Operator shall be paid, as an Operating Expense, the
amount (the "Central Administrative Services Fee") set forth in Section 11.03B,
and none of the costs incurred by Operator in providing any Central
Administrative Service shall be treated as an Operating Expense. The Central
Administrative Services Fee shall be paid to Operator at the end of each
Accounting Period and shall be based on the Gross Revenues earned during the
previous Accounting Period, subject to final adjustment based upon the results
for the entire Fiscal Year.

                                       44

<PAGE>

         B. Subject to the last paragraph in the definition of Operating
Expenses, the Central Administrative Services Fee shall be equal to (i) zero
percent (0%) of Gross Revenues for the first thirteen (13) Accounting Periods
following the Effective Date, and (ii) two percent (2%) of Gross Revenues
thereafter for the remainder of the Term.

SECTION 11.04 OWNER'S RIGHT TO INSPECT

         Owner or its agents shall have access to the Retirement Community at
any and all reasonable times for the purpose of inspection or showing the
Retirement Community to prospective purchasers, investors, tenants, or
mortgagees.

SECTION 11.05 INDEMNITY

         A. Operator shall indemnify and hold harmless Owner (and any officer,
director, employee, advisor, partner or shareholder of Owner) in respect of,
and, at Owner's request, shall defend any action, cause of action, suit, debt,
cost, expense (including without limitation reasonable attorneys' fees), claim
or demand whatsoever brought or asserted by any third person whomsoever, at law
or in equity, arising by reason of: (i) liabilities stemming from general
corporate matters of Operator or its Affiliates, to the extent the same are not
directly and primarily related to the Retirement Community; (ii) infringement
and other claims relating to the Proprietary Marks; (iii) if Operator fails to
maintain insurance coverage that it is required to maintain pursuant to this
Agreement, the excess of the amount of any liability or loss that would have
been covered over the amount of any applicable deductible; and (iv) the bad
faith or willful misconduct of Operator or its Affiliates, or any of their
employees, servants or agents or other persons for whom they are responsible,
result in a claim for bodily injury, death or property damage occurring on, in
or in conjunction with the business of the Retirement Community, to the extent
that such claim exceeds the insurance proceeds (including Retirement Community
Retentions) which are available to pay such claim.

         B. If any claim, action or proceeding is made or brought against Owner,
against which claim, action or proceeding Operator shall be obligated to
indemnify pursuant to the terms of this Agreement, then, upon demand by Owner,
Operator, at its sole cost and expense, shall resist or defend such claim,
action or proceeding (in Owner's name, if necessary), using such attorneys as
Owner shall approve, which approval shall not be unreasonably withheld. If, in
Owner's reasonable opinion, (i) there exists a conflict of interest which would
make it inadvisable to be represented by counsel for Operator, or (ii) there are
legal defenses available to Operator that are different from or inconsistent
with those available to Owner, or (iii) there are claims at issue which are not
covered by Operator's insurance, Owner shall be entitled to retain its own
attorneys, and Operator shall pay the reasonable fees and disbursements of such
attorneys.

         C. Matters with respect to which Operator has specifically agreed to
indemnify Owner under other provisions of this Agreement are to be treated
exclusively under such other provisions and not under this Section 11.05.

         D. Payments made by Operator pursuant to this Section 11.05 shall be
from Operator's own funds and shall not constitute Operating Expenses.

                                       45
<PAGE>

                                   ARTICLE 12
                                    INSURANCE

SECTION 12.01 INTERIM INSURANCE

              [Intentionally omitted]

SECTION 12.02 PROPERTY AND OPERATIONAL INSURANCE

         Operator shall, commencing with the Effective Date and thereafter
during the Term of this Agreement, procure and maintain, either with insurance
companies of recognized responsibility or by legally qualifying itself as a self
insurer, a minimum of the following insurance:

         A. Property insurance on the Retirement Community and contents against
loss or damage by fire, lightning and all other risks covered by the usual
extended coverage endorsement, all in an amount not less than one hundred
percent (100%) of the replacement cost thereof (excluding the cost of
foundations and excavations);

         B. Boiler and machinery insurance against loss or damage from explosion
of boilers or pressure vessels to the extent applicable to the Retirement
Community;

         C. Business interruption insurance covering loss of profits and
necessary continuing expenses for interruptions caused by any occurrence covered
by the insurance referred to in Section 12.02 A and B, which shall be of a type
and in such amounts (but such coverage shall in no event be for less than one
(1) year) as are generally established by Operator at similar retirement
communities it owns, leases or manages under the Marriott name in the United
States;

         D. General liability insurance against claims for bodily injury, death
or property damage occurring on, in, or in conjunction with the business of the
Retirement Community, and automobile liability insurance on vehicles operated in
conjunction with the Retirement Community, with a combined single limit for each
occurrence of not less than One Hundred Million Dollars ($100,000,000);
representatives of Operator and Owner shall meet, at Owner's request, at
intervals of approximately once every five (5) years, to review the adequacy of
such limit;

         E. Employment Practices Liability Insurance, and Workers' compensation
and employer's liability insurance as may be required under applicable laws
covering all of Operator's employees at the Retirement Community;

         F. Fidelity bonds, with reasonable limits to be determined by Operator,
covering its employees in job classifications normally bonded in other similar
retirement communities it leases or manages under the Marriott name in the
United States or as otherwise required by law, and comprehensive crime insurance
to the extent Operator and Owner mutually agree it is necessary for the
Retirement Community; and

                                       46
<PAGE>

         G. Such other insurance in amounts as Operator and Owner, in their
reasonable judgment, mutually deem advisable for protection against claims,
liabilities and losses arising out of or connected with the operation of the
Retirement Community.

SECTION 12.03 GENERAL INSURANCE PROVISIONS

         A. All insurance described in Section 12.02 may be obtained by Operator
by endorsement or equivalent means under its blanket insurance policies,
provided that such blanket policies substantially fulfill the requirements
specified herein. Upon the request of either Owner or any Qualified Lender,
representatives of the requesting party shall be entitled to examine, at
Operator's corporate headquarters, all insurance policies maintained by Operator
regarding the Retirement Community.

         B. Operator may self insure or otherwise retain such risks or portions
thereof as it does with respect to other similar retirement communities it owns,
leases or manages under the Marriott name in the United States.

         C. All policies of insurance required under Section 12.02 shall be
carried in the name of Operator. The policies required under Sections 12.02A, B,
C and D shall include the Owner as an additional insured. Upon notice by the
Owner, Operator shall also have the policies required under Sections 12.02A, B,
C and D include any Qualified Lender as an additional insured. Any property
losses thereunder shall be payable to the respective parties as their interests
may appear. Any Mortgage on the Retirement Community shall contain provisions to
the effect that proceeds of the insurance policies required to be carried under
Section 12.02A and B shall, with respect to any casualty involving less than
twenty-five percent (25%) of the replacement cost of the Retirement Community,
be available for repair and restoration of the Retirement Community. However,
any Qualified Lender shall be entitled to impose reasonable conditions on the
disbursement of insurance proceeds for repair and/or restoration of the
Retirement Community that are imposed solely for the purpose of assuring that
such proceeds will be properly applied for the purpose of repair and restoration
or that the amount of such proceeds (together with any other funds that Owner
agrees to make available) is sufficient at all times to complete such repair and
restoration.

         D. Operator shall deliver to the Owner and to each Qualified Lender
requested by Owner certificates of insurance with respect to all policies so
procured and, in the case of insurance policies about to expire, shall deliver
certificates with respect to the renewal thereof.

         E. All certificates of insurance provided for under Article XII shall,
to the extent obtainable, state that the insurance shall not be canceled or
materially changed without at least thirty (30) Days' prior written notice to
the certification holder.

         F. The term "Retirement Community Retention" shall mean the amount of
any loss or reserve under Operator's blanket insurance or self-insurance
programs which is allocated to the Retirement Community, not to exceed the
higher of (a) the maximum per occurrence limit established for similar
retirement communities participating in such programs, or (b) the insurance
policy deductible on any loss which may fall within high hazard classifications
as mandated by the insurer (e.g., earthquake, flood, windstorm on coastal
properties, etc.). If the

                                       47
<PAGE>

Retirement Community is not a participant under Operator's blanket insurance or
self-insurance programs, "Retirement Community Retention" shall mean the amount
of any loss or reserve allocated to the Retirement Community, not to exceed the
insurance policy deductible.

SECTION 12.04 COST AND EXPENSE

         Insurance premiums and any other costs or expenses with respect to the
insurance or self-insurance required under Section 12.02, including any
Retirement Community Retention, shall be paid from Gross Revenues as Operating
Expenses. To the extent that such costs or expenses include reimbursement by
Operator of its own costs or expenses, or those of one of its Affiliates, such
costs or expenses shall be generally competitive (as calculated over the Term of
this Agreement) with costs and expenses of non-affiliated entities providing
similar services. Such premiums and costs shall be allocated on an equitable
basis to the retirement communities participating under Operator's blanket
insurance or self-insurance programs. Any reserves, losses, costs or expenses
which are uninsured (unless required to be insured under Section 12.02) shall be
treated as a cost of insurance and shall be Operating Expenses. Upon
Termination, an escrow fund in an amount reasonably acceptable to Operator shall
be established from Gross Revenues (or, if Gross Revenues are not sufficient,
with funds provided by Owner) to cover the amount of any Retirement Community
Retention and all other costs which will eventually have to be paid by either
Owner or Operator with respect to pending or contingent claims, including those
which arise after Termination for causes arising during the Term of this
Agreement. Upon the final disposition of all such pending or contingent claims,
any unexpended funds remaining in such escrow shall be paid to Owner, and
Operating Profit for the final Fiscal Year shall be recalculated as a result of
any claims paid and Operator and Owner shall each pay the other such amounts as
may be required as a result of such adjustment.

SECTION 12.05 OWNER'S OPTION TO OBTAIN CERTAIN INSURANCE

         Owner may, at its option, by written notice to Operator which shall be
delivered no later than ninety (90) Days prior to the natural expiration of the
insurance policies which Operator has obtained pursuant to Section 12.02 A, B
and C, procure and maintain the insurance specified in Section 12.02A, B and C
(in which case Operator shall allow such policies obtained by it under Section
12.02A, B, and C to expire), subject to the following terms and conditions:

         A. All such policies of insurance shall be carried in the name of
Owner, with Operator named as an additional insured. Any property losses
thereunder shall be payable to the respective parties as their interests may
appear. The documentation with respect to each Secured Loan shall contain
provisions to the effect that proceeds of the insurance policies required to
be carried under Section 12.02A and B shall be available for repair and
restoration of the Retirement Community, to the extent required pursuant to
Section 12.03C. However, any Holder of such Secured Loan shall be entitled to
impose reasonable conditions on the disbursement of insurance proceeds for
the repair and/or restoration of the Retirement Community, including a
demonstration by Owner and/or Operator that the amount of such proceeds
(together with other funds Owner agrees to make available) is sufficient for
such purpose.

                                       48
<PAGE>

         B. Owner shall deliver to Operator certificates of insurance with
respect to all policies so procured and, in the case of insurance policies about
to expire, shall deliver certificates with respect to the renewal thereof.

         C. All such certificates of insurance shall, to the extent obtainable,
state that the insurance shall not be canceled or materially changed without at
least thirty (30) Days' prior written notice to the certificate holder.

         D. Premiums for such insurance coverage shall be treated as Operating
Expenses, provided that if the cost of such insurance procured by Owner exceeds
the cost of Operator's comparable coverage by more than ten percent (10%), all
such excess costs shall be the sole responsibility of Owner and shall not be an
Operating Expense.

         E. Should Owner exercise its option to procure the insurance described
in this Section 12.05, Owner hereby waives its rights of recovery from Operator
or any of its Affiliates (and their respective directors, officers,
shareholders, agents and employees) for loss or damage to the Retirement
Community, and any resultant interruption of business.

         F. Should Owner exercise its right to obtain the insurance described in
this Section 12.05, Owner acknowledges that Operator is under no obligation to
thereafter include the Retirement Community in its blanket insurance program
(with respect to the coverage described in Section 12.02A, B and C) for the
balance of the Term of this Agreement. However, upon a Sale of the Retirement
Community, a successor Owner shall have the right, notwithstanding the fact that
the previous Owner may have obtained insurance in accordance with this Section
12.05, to have the Retirement Community included in Operator's blanket insurance
program (provided that the Retirement Community, as of that point in time,
satisfies the applicable criteria for admission to such program, as established
by the program's insurance carriers) by making a written request to Operator for
such inclusion not later than thirty (30) Days after the date on which such
party becomes the Owner.

         G. All insurance procured by Owner hereunder shall be obtained from
reputable insurance companies reasonably acceptable to Operator.

                                   ARTICLE 13
                                      TAXES

SECTION 13.01 REAL ESTATE AND PERSONAL PROPERTY TAXES

         A. Except as specifically set forth in subsection B below, all
Impositions which accrue during the Term of this Agreement (or are properly
allocable to such Term under GAAP) shall be paid by Operator from Gross
Revenues, as an Operating Expense, before any fine, penalty, or interest is
added thereto or lien placed upon the Retirement Community or the Agreement,
unless payment thereof is stayed. Owner shall within five (5) business Days
after the receipt of any invoice, bill, assessment, notice or other
correspondence relating to any Imposition, furnish Operator with a copy thereof.
Operator shall, within the earlier of thirty (30) Days of payment or five (5)
business Days following written demand by Owner, furnish Owner with copies of
official tax bills and assessments which Operator has received, and evidence of
payment or contest thereof. Either Owner or Operator (in which case each party
agrees to sign

                                       49
<PAGE>

the required applications and otherwise cooperate with the other party in
expediting the matter) may initiate proceedings to contest any Imposition, and
all reasonable costs of any negotiations or proceedings with respect to any such
contest shall be paid from Gross Revenues and shall be an Operating Expense in
determining Operating Profit; provided, however, that neither party shall have
the right to expend in excess of Five Thousand Dollars ($5,000) (to be adjusted
by the CPI) with respect to any such negotiations or proceedings without the
consent of the other party.

         B. The word "Impositions", as used in this Agreement, shall not include
any franchise, corporate, estate, inheritance, succession, capital levy or
transfer tax imposed on Owner, or any income tax imposed on any income of Owner
(including distributions to Owner pursuant to Section 9.01 hereof), all of which
shall be paid solely by Owner, not from Gross Revenues nor from the FF&E
Reserve.

         C. Owner shall have the right to require Operator to establish an
escrow account (with either any Qualified Lender or another entity reasonably
acceptable to both Owner and Operator) from which Impositions will be paid.
Payments into such escrow account will be Operating Expenses. Any interest which
accrues on amounts deposited in such escrow account shall not constitute Gross
Revenue and be added to the balance in such escrow account and used to pay
Impositions.

                                   ARTICLE 14
                         RETIREMENT COMMUNITY EMPLOYEES

SECTION 14.01 EMPLOYEES

         A. All personnel employed at the Retirement Community shall be the
employees of Operator. Subject to the provisions of this Agreement, Operator
shall have absolute discretion to hire, promote, supervise, direct, train and
discharge all employees at the Retirement Community, to fix their compensation
and, generally, establish and maintain all policies relating to employment;
provided, however, that (i) all of the foregoing shall be in accordance with the
Marriott Standards, and (ii) Operator shall not enter into any written
employment agreements with any person which purport to bind the Owner and/or
purport to be effective regardless of a Termination, without obtaining Owner's
prior consent which may be withheld in Owner's sole discretion. Operator and
Owner shall each comply with all Legal Requirements regarding labor relations;
if either Operator or Owner shall be required, pursuant to any such Legal
Requirement, to recognize a labor union or to enter into collective bargaining
with a labor union, the party so required shall promptly notify the other party
pursuant to Section 19.08. Operator and Owner shall comply with all requirements
under any collective bargaining agreements binding upon each of them during the
Term. All costs and expenses of such compliance shall be Operating Expenses.

         B. No person shall be given gratuitous accommodations or services
without prior joint approval of Owner and Operator except in accordance with
usual practices of the Operator with respect to its employees visiting the
Retirement Community in the normal course of business.

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<PAGE>

         C. Any proposed settlement of any Employee Claim where the amount
proposed to be offered to the employee by Operator is in excess of the
Settlement Threshold Amount shall be jointly approved by Operator and Owner. In
addition, Operator shall give Owner a written notice (pursuant to Section 19.08)
of any settlement of any Employee Claim where the settlement amount is below the
Settlement Threshold Amount, but is in excess of Fifty Thousand Dollars
($50,000.00) (said dollar amount to be adjusted by the CPI). Any dispute between
Owner and Operator as to whether Operator's settlement recommendation is
reasonable, where such proposed settlement is in excess of the Settlement
Threshold Amount, shall be resolved by arbitration under Section 19.11 hereof;
provided that Operator shall have the right to settle any Employee Claim (prior
to the arbitration on the reasonableness of the settlement, as described in this
sentence) based on Operator's recommendation, which shall be Operator's
reasonable estimate, in good faith, by using: (i) funds from Gross Revenues (as
an Operating Expense) up to the amount of Owner's settlement recommendation,
which shall be Owner's reasonable estimate, in good faith, and (ii) Operator's
own funds to the extent Operator's recommendation exceeds the amount described
in subparagraph (i) above. Following the settlement of such Employee Claim, the
parties will arbitrate under Section 19.11 the issue of whether Operator's
settlement recommendation was reasonable under the circumstances. If the
arbitrators decide that Operator's recommendation was reasonable, Operator shall
be entitled to reimburse itself from Gross Revenues (as an Operating Expense) in
the amount of the funds advanced under subparagraph (ii) above, together with
accrued interest thereon at the Prime Rate. If the arbitrators decide that
Operator's settlement recommendation was not reasonable, then Operator shall not
be entitled to any reimbursement of the amounts advanced by it under
subparagraph (ii) above, nor to accrued interest thereon.

         D. Operator shall pay from its own funds, and not from Gross Revenues,
any Employee Claim which is not covered by insurance as set forth in this
Agreement, where the basis of such Employee Claim is conduct by Operator which
(i) is a substantial violation of the standards of responsible labor relations
as generally practiced by prudent owners or operators of similar retirement
community operations in the quality tier of retirement communities (but if the
quality tier then does not include twenty (20) or more communities, then the
comparison shall be against all similar retirement community operations) in the
state in which the Retirement Community is situated, and (ii) is not the
isolated act of individual employees, but rather is a direct result of corporate
policies of Operator which either encourage or fail to discourage such conduct.
In addition, Operator shall indemnify, defend and hold harmless Owner from and
against any fines or judgments arising out of such conduct, and all Litigation
expenses (including reasonable attorneys' fees and expenses) incurred in
connection therewith. Any dispute between Owner and Operator as to whether or
not certain conduct by Operator is not in accordance with the aforesaid
standards shall be resolved by arbitration under Section 19.11 hereof. It is the
intention of the parties that the arbitration proceedings described in the
preceding sentence shall be conducted independently of any arbitration
proceedings with respect to such Employee Claim pursuant to the applicable union
contract and/or pursuant to Section 14.01C of this Agreement.

         E. With respect to all Litigation or arbitration involving Employee
Claims in which both Operator and Owner are involved as actual or potential
defendants, Operator shall have exclusive and complete responsibility (subject
to the rights of Owner to approve certain settlements, as set forth in Section
14.01C) for the resolution of such Employee Claims. In the event that any
Employee Claim is made against Owner, but not against Operator, Owner shall

                                       51
<PAGE>

give notice to Operator of the Employee Claim in a timely manner so as to avoid
any prejudice to the defense of the Employee Claim, provided that Operator shall
in all events be so notified within twenty (20) Days after the date such
Employee Claim is made against Owner. Operator will thereafter assume exclusive
and complete responsibility for the resolution of such Employee Claim.

         F. It is the understanding of the parties that payments made in the
normal course of business to any union pension fund, on behalf of the unionized
employees (if any) at the Retirement Community, shall be paid from Gross
Revenues as Operating Expenses.

         G. At Termination, other than by reason of a Default of Operator
hereunder, an escrow fund shall be established from Gross Revenues (or, if Gross
Revenues or are not sufficient, with funds provided by Owner) to reimburse
Operator for all costs and expenses reasonably anticipated to be incurred by
Operator such as reasonable transfer costs, or severance pay, unemployment
compensation and other employee liability costs arising out of either the
transfer or termination of employment of Operator's employees at the Retirement
Community, as the case may be. Upon the final payment of such costs, any
unexpended funds remaining in such escrow (i) shall be paid to Owner if Owner or
the FF&E Reserve had provided such funds or (ii) if such funds had been paid
from Gross Revenues, shall be distributed between Owner and Operator in the same
manner as such funds would have been distributed if such funds had been included
in Operating Profit for the Fiscal Year in which such Termination occurs, and
Operating Profit for the final Fiscal Year shall be recalculated as a result of
payment of such costs, and Operator and Owner shall each pay to the other such
amounts as may be required as a result of such adjustment.

         H. Operator (and not Owner) shall have the exclusive power to hire,
dismiss or transfer the general manager of the Retirement Community, provided,
however, that Operator shall keep Owner reasonably informed and shall give Owner
the opportunity to participate in the process with respect to any such hiring,
dismissal or transfer, as follows:

            1. Owner shall be given a reasonable prior notice, circumstances
permitting, of any proposed hiring, dismissal or transfer of the general
manager.

            2. Prior to any dismissal or transfer of the general manager, Owner
shall be notified and Owner shall be advised of the reason for such proposed
dismissal or transfer of the general manager and of the qualifications of any
proposed replacement manager. Owner shall be given a reasonable opportunity to
interview the proposed replacement general manager. Operator shall consider in
good faith the opinions and requests of Owner with respect to such matters and,
if Operator elects not to implement any such request, Operator shall explain its
decision to Owner in reasonable detail.

                                   ARTICLE 15
                     DAMAGE, CONDEMNATION AND FORCE MAJEURE

SECTION 15.01 DAMAGE AND REPAIR

         If, during the Term hereof, the Retirement Community is damaged or
destroyed by fire, casualty or other cause, Owner shall, at its cost and expense
and with all reasonable

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<PAGE>

diligence, to the extent that proceeds from the insurance described in Section
12.02 are available (subject to the provisions of any Mortgage encumbering the
Retirement Community, but with the limitations described in Section 12.03) for
such purpose, repair or replace the damaged or destroyed portion of the
Retirement Community substantially to the same condition as existed previously.
Proceeds from the insurance described in Section 12.01 shall be applied to such
repairs or replacements. However, Owner shall not be obligated to so repair or
replace the damaged or destroyed portion of the Retirement Community if one or
more of the following is true: (i) the Retirement Community is so badly damaged
or destroyed that it cannot reasonably be repaired or replaced within one (1)
year of either the date of the casualty or such later date as is covered by
business interruption insurance described under Article 12; (ii) the loss, if
uninsured, is greater than One Hundred Thousand Dollars ($100,000.00); or (iii)
the cost of the repair and restoration work exceeds Five Million Dollars
($5,000,000) and the remainder of the Term is less than ten (10) years. If Owner
elects not to repair or replace the damaged portion of the Retirement Community
for one or more of the foregoing reasons, it shall so notify Operator by written
notice within sixty (60) Days after the date of the casualty. If Owner does not
so notify Operator, Owner shall promptly commence and complete the repairing,
rebuilding or replacement so that the Retirement Community shall be
substantially the same as it was prior to such damage or destruction. If Owner
is not obligated to so repair or replace the damaged or destroyed portion of the
Retirement Community as aforesaid and elects not to so repair or replace, either
party may terminate this Agreement upon sixty (60) Days notice.

SECTION 15.02 CONDEMNATION

         A. In the event all or substantially all of the Retirement Community
shall be taken in any eminent domain, condemnation, compulsory acquisition, or
similar proceeding by any competent authority for any public or quasi-public use
or purpose, or in the event a portion of the Retirement Community shall be so
taken, but the result is that it is unreasonable to continue to operate the
Retirement Community, this Agreement shall terminate effective as of the date of
such taking or similar proceeding.

         B. In the event a portion of the Retirement Community shall be taken by
the events described in Section 15.02A, or the entire Retirement Community is
affected but on a temporary basis, and the result is not to make it unreasonable
to continue to operate the Retirement Community, this Agreement shall not
terminate. However, so much of any award for any such partial taking or
condemnation as shall be necessary to render the Retirement Community equivalent
to its condition prior to such event shall be used for such purpose; the balance
of such award, if any, shall be fairly and equitably apportioned between Owner
and Operator in accordance with their respective interests.

         C. In the event of any proceeding described in Section 15.02 A or B and
Owner and Operator cannot agree on a fair and equitable apportionment of any
such award, the dispute shall be decided in accordance with Section 19.11. For
this purpose, any award or compensation received by any Holder shall be deemed
to be an award or compensation received by Owner.

SECTION 15.03 FORCE MAJEURE

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<PAGE>

         A. The expiration, withdrawal or revocation of any License which is
material to the operation of the Retirement Community in accordance with the
Marriott Standards, where such expiration, withdrawal or revocation: (i) is not
due to the Default of either Operator or Owner; and (ii) is not otherwise within
the reasonable control of either Operator or Owner, shall not be an Event of
Default under Article 16 of this Agreement. Operator and Owner shall each, in
good faith, use all commercially reasonable efforts (including the diligent
pursuit of all available appeals), during the period of one hundred twenty (120)
Days after the date of such withdrawal or revocation, to have such License
reinstated. If, notwithstanding such efforts, such License is not reinstated
prior to the expiration of the aforesaid period of one hundred twenty (120)
Days, either Owner or Operator shall have the right, at its option, to terminate
this Agreement upon no less than sixty (60) Days' notice to the other party;
provided, however, that the terminating party must deliver such notice of
Termination to the other party by no later than ninety (90) Days after the
expiration of such one hundred twenty (120) Day period; and provided further,
that no such Termination shall be effective if, prior to the effective date of
such Termination, such License is reinstated or such expiration, withdrawal or
revocation of such License is stayed.

         B. If an order, judgment or directive by a court or administrative body
is issued, in connection with any Litigation involving Owner, which restricts or
prevents Operator, in a material adverse manner, from operating the Retirement
Community in accordance with the Marriott Standards, and which, in Operator's
reasonable opinion, will have a significant adverse effect upon operations of
the Retirement Community, Operator shall be entitled, at its option, to
terminate this Agreement upon sixty (60) Days' written notice; provided,
however, that Operator shall (if it so elects) deliver such notice of
Termination to Owner by no later than ninety (90) Days after Operator receives
written notice of the issuance of such order, judgment or directive (or, if such
order, judgment or directive is appealed, within ninety (90) Days after Operator
receives written notice of the final disposition of such appeal).

                                   ARTICLE 16
                                    DEFAULTS

SECTION 16.01 DEFINITION OF "DEFAULT"

         Any one or more of the following shall constitute a "Default," to the
extent permitted by applicable law:

         A. The commencement by either party of any proceeding under any
bankruptcy, reorganization, readjustment of debt, dissolution or liquidation law
or statute or an assignment for the benefit of creditors or application for the
appointment of a trustee or receiver for a substantial part of its assets or if
a petition is filed against it for any such purpose which petition is not timely
controverted.

         B. The consent to an involuntary petition in bankruptcy or the failure
to vacate, within ninety (90) Days from the date of entry thereof, any order
approving any involuntary petition by either party;

         C. The entering of an order, judgment or decree by any court of
competent jurisdiction, on the application of a creditor, adjudicating either
party as bankrupt or insolvent or

                                       54
<PAGE>

approving a petition seeking reorganization or appointing a receiver, trustee,
or liquidator of all or a substantial part of such party's assets, and such
order, judgment or decree's continuing to be unstayed and in effect for any
period of ninety (90) Days;

         D. Any "Default" which is specifically designated as such under any
provision of this Agreement;

         E. The failure of either party to make any payment required to be made
in accordance with the terms of this Agreement, as of the due date which is
specified in this Agreement; and

         F. The failure of either party to perform, keep or fulfill any of the
other covenants, undertakings, obligations or conditions set forth in this
Agreement.

SECTION 16.02 DEFINITION OF "EVENT OF DEFAULT"

         A. Upon the occurrence of any Default by either party hereto
(hereinafter referred to as the "defaulting party") under Section 16.01A, B, and
C, such Default shall immediately and automatically, without the necessity of
any notice to the defaulting party, be deemed an "Event of Default" under this
Agreement.

         B. Upon the occurrence of any Default by either party hereto under
Section 16.01E, such Default shall be deemed an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within ten (10)
Business Days after written notice from the non-defaulting party demanding such
cure.

         Upon the occurrence of any Default by either party hereto under Section
16.01D and F, such Default shall be deemed an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within thirty (30)
Days after written notice from the non-defaulting party demanding such cure, or
if the Default is such that it cannot reasonably be cured within said thirty
(30) Day period, if the defaulting party fails to commence the cure of such
Default within said thirty (30) Day period or fails to diligently pursue such
efforts to completion.

         Upon the occurrence of any Default by Operator with respect to its
obligations under Section 2.03A1 resulting in the suspension or revocation of a
material License, such Default shall be deemed an "Event of Default" under this
Agreement if Operator fails to obtain reinstatement of such License, either (i)
within sixty (60) Days after the date of the relevant suspension(s) or
revocation, or (ii) if Operator had received from the appropriate regulatory
authorities at least thirty (30) Days prior written notice of the impending
suspension or revocation, then within thirty (30) Days after the relevant
suspension or revocation.

SECTION 16.03 REMEDIES UPON AN EVENT OF DEFAULT

         A. Upon the occurrence of an Event of Default, the non-defaulting party
shall have the right to pursue any one or more of the following courses of
action: (i) in the event of a material breach by the defaulting party of its
obligations under this Agreement, to terminate this Agreement by written notice
to the defaulting party, which Termination shall be effective as of

                                       55
<PAGE>

the effective date which is set forth in said notice, provided that said
effective date shall be at least thirty (30) Days after the date of said notice;
provided that, if the defaulting party is the employer of all or a substantial
portion of the employees at the Retirement Community, the foregoing period of
thirty (30) Days shall be extended to seventy five (75) Days (or such longer
period of time as may be necessary under applicable federal, state or local laws
pertaining to termination of employment); (ii) to institute forthwith any and
all proceedings permitted by law or at equity, including, without limitation,
actions for specific performance and/or damages; and (iii) to avail itself of
any one or more of the other remedies described in this Section 16.03.

         B. Upon the occurrence of a Default by either party under the
provisions of Section 16.01E, the amount owed to the non-defaulting party shall
accrue interest, at the Prime Rate, from and after the date on which such
payment was originally due to the non-defaulting party.

         C. The rights granted hereunder are intended to be cumulative, and
shall not be in substitution for, but shall be in addition to, any and all
rights and remedies available to the non-defaulting party (including, without
limitation, injunctive relief and damages) by reason of applicable provisions of
law or equity.

SECTION 16.04 OPERATOR'S RIGHT TO SPECIFIC PERFORMANCE FOR OWNER'S WRONGFUL
TERMINATION

         Owner hereby acknowledges that (i) Operator has an interest in this
Agreement beyond the fees that Operator will earn pursuant to the provisions of
this Agreement, (ii) the termination of this Agreement by Owner when Owner is
not entitled to terminate this Agreement pursuant to the provisions of this
Agreement will be injurious to Operator's business conducted beyond Owner's
Retirement Community, and will damage Operator's Proprietary Marks, (iii)
Operator's Proprietary Marks are unique, Operator's exclusive rights of
possession under Section 2.02B are unique, the Retirement Community is unique
and Operator is entitled to an exclusive license to operate Operator's business
at the Retirement Community and to promote Operator's Proprietary Marks at the
Retirement Community, which license is irrevocable except pursuant to the
express provisions of this Agreement, (iv) it would be impossible to calculate
the damages that Operator would sustain if Owner terminated this Agreement when
Owner is not entitled to terminate this Agreement pursuant to the provisions of
this Agreement, and (v) the remedy of specific performance of Owner's
obligations under this Agreement is fair, equitable and practicable.
Accordingly, Owner agrees that (i) Owner shall not exercise any legal power that
it may have to breach this Agreement by terminating, or purporting to terminate,
this Agreement, except where this Agreement (including without limitation
Sections 4.03, 4.04 and Article 16) expressly permits such termination, and
Owner hereby surrenders and releases any such legal power, and (ii) Owner
consents to the issuance by a court of competent jurisdiction of injunctive
relief prohibiting Owner from terminating, or purporting to terminate, this
Agreement or from evicting Operator from the Retirement Community, except where
this Agreement (including without limitation Sections 4.03, 4.04 and Article 16)
expressly permits such termination, and Owner consents to the grant by a court
of competent jurisdiction of specific performance of the obligations of Owner
under this Agreement. Nothing set forth in this Section 16.04 modifies any right
of Owner to terminate this Agreement as expressly set forth in this Agreement
(including without limitation Sections 4.03, 4.04 and Article 16).

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<PAGE>

SECTION 16.05 OWNER'S ESTATE

         Notwithstanding any other provisions of this Agreement, in the event of
any Event of Default by Owner pursuant to the terms of this Agreement, Operator
shall look only to Owner's estate and interest in the Retirement Community
(which shall, for this purpose, include but not be limited to, (i) amounts
deposited in the FF&E Reserve, and (ii) accounts receivable) for the
satisfaction of a money judgment against Owner resulting from such Event of
Default, and no other property or assets of Owner, or of its partners, officers,
directors, shareholders or principals, shall be subject to levy, execution or
other enforcement procedure for the satisfaction of such judgment. Operator's
right to look to Owner's estate and interests in the Retirement Community for
satisfaction of such a money judgment against Owner shall survive Termination
and shall not be affected by any one or more Sales of the Retirement Community.
Nothing contained in this Section 16.05 shall be deemed to affect or diminish
Operator's remedies under this Article 16 other than money damages against Owner
(including, without limitation, Termination of this Agreement).

                                   ARTICLE 17
                                   ASSIGNMENT

SECTION 17.01 ASSIGNMENT

         A. Operator shall not assign or transfer its interest in this Agreement
without the prior written consent of Owner, such consent to be granted or
withheld in Owner's sole discretion; provided, however, that Operator shall have
the right, without such consent, (but following written notice to Owner), to (1)
assign its interest in this Agreement to an unrelated third party operator
provided that the following conditions are met: (a) the third party operator is
known in the community as a reputable operator of retirement communities; (b)
the third party operator is in good standing, authorized to do business in the
relevant state, and assumes the Operator obligations by an appropriate writing
(upon delivery of which, assignor is released from all further obligations under
the Agreement); (c) the third party operator has the capacity to perform the
duties and responsibilities of Operator under this Agreement; and (d) the
assignment is part of a transaction or series of transactions by the Marriott
Parties to dispose of all or substantially all the assets of MSLS (in the event
of such an assignment, the Operator, at its expense, may remove any signs or
similar items which contain the Proprietary Marks which include the word
"Marriott" in them, and the Retirement Community may be operated under the
assignees Proprietary Marks); (2) assign its interest in this Agreement to any
of its Affiliates, and any such Affiliate shall be deemed to be the Operator for
the purposes of this Agreement, and (3) sublease shops or grant licenses or
concessions at the Retirement Community so long as the terms of any such
sublease, licenses or concessions do not exceed the Term of this Agreement and
are otherwise consistent with the requirements of this Agreement. In the event
of such assignment by Operator of its interest in this Agreement to an
Affiliate, the Operator which is named in the Preamble to this Agreement: (i)
shall be automatically be deemed to guarantee the performance of such Affiliate
under this Agreement; (ii) shall, at the request of Owner, execute a guaranty,
in form and substance reasonably satisfactory to both parties, of the
performance of such Affiliate under this Agreement (provided that the failure of
Owner to obtain an executed guaranty pursuant to this clause (ii) shall not
affect the validity or enforceability of the guaranty which is automatically
created pursuant to clause (i); and provided further, that, when Owner

                                       57
<PAGE>

does so receive an executed guaranty pursuant to this clause (ii), such executed
guaranty shall be deemed to have superseded the guaranty in clause (i) above);
and (iii) shall make available to such Affiliate, in connection with the
performance by such Affiliate under this Agreement, Operator's skill, facilities
and resources.

         B. Owner shall not assign or transfer its interest in this Agreement
other than (i) in connection with a Sale of the Retirement Community which
complies with the provisions of Article 18 hereof, or (ii) as set forth in
Section 17.01C.

         C. Nothing contained herein shall prevent (i) the collateral assignment
of this Agreement by Owner as security for any Mortgage which complies with the
provisions of Article 6; or (ii) the transfer of this Agreement in connection
with a merger or consolidation or a sale of all or substantially all of the
assets of either party, provided that (x) if such transfer is by Owner, the
provisions of Article 18 hereof shall, if applicable, be complied with, and (y)
if such transfer is by Operator, such transfer is being done as a part of a
merger or consolidation or a sale, disposition or other conveyance of all or
substantially all of the assets of Operator.

         D. In the event either party consents to an assignment of this
Agreement by the other, no further assignment shall be made without the express
consent in writing of such party, unless such assignment may otherwise be made
without such consent pursuant to the terms of this Agreement.

         E. An assignment (either voluntarily or by operation of law) by Owner
of its interest in this Agreement shall not relieve Owner from its obligations
under this Agreement which accrued prior to the date of such assignment, but
shall relieve Owner of such obligations accruing after such date, if the
assignment complies with Section 17.01 and if Operator has received an
assumption agreement executed by the assignee (in form and substance reasonably
satisfactory to Operator) pursuant to which such assignee assumes all
obligations liabilities of Owner accruing under this Agreement from and after
the date of assignment. An assignment (either voluntarily or by operation of
law) by Operator of its interest in this Agreement shall not relieve Operator
from its obligations under this Agreement, unless Owner so agrees in writing,
such agreement to be granted or withheld in Owner's sole discretion.

         F. Subject to the provisions of this Article 17, the terms and
conditions of this Agreement shall inure to the benefit of, and be binding upon,
the respective successors, heirs, legal representatives, or assigns of each of
the parties hereto.

                                   ARTICLE 18
                        SALE OF THE RETIREMENT COMMUNITY

SECTION 18.01 SALE OF THE RETIREMENT COMMUNITY

         A. Owner shall not enter into any Sale of the Retirement Community
to any individual or entity which: (i) does not, in Operator's reasonable
judgment, have sufficient financial resources and liquidity to fulfill
Owner's obligations under this Agreement; (ii) is known in the community as
being of bad moral character, or is in control of or controlled by any one or
more persons who have been convicted of a felony involving turpitude in any
state or

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<PAGE>

federal court, or whose reputation would otherwise result in the cancellation
of, or failure to issue or renew, any License; (iii) is a competitor or
significant potential competitor of Operator (defined below); or (iv) does not
accept the full assignment of the Owner's Liabilities under this Agreement
accruing from and after the date of sale and recognize the continuing presence
at, and operation of, the Retirement Community by Operator pursuant to this
Agreement. An individual or entity shall not be deemed to be in the business of
operating retirement communities in competition with Operator solely by virtue
of: (x) the ownership of such retirement communities, either directly or
indirectly through subsidiaries, affiliates and partnerships; or (y) holding a
mortgage or mortgages secured by one or more retirement communities.
Furthermore, the phrase "a competitor or significant potential competitor of
Operator" means any individual or entity (either directly or through an
Affiliate) which (i) operates or manages (as distinguished from owning) a
nursing home, assisted living facility, home health care agency, retirement
community or health care facility, which, in the aggregate contain more than (a)
1,000 units or beds if such sale occurs between the Effective Date and the first
day of 2003, or (b) 1,500 units or beds if such sale occurs during 2003 through
2007, or (c) 2,000 units or beds if such sale occurs on or after January 1,
2008; and (ii) has a net worth in excess of seventy million dollars
($70,000,000.00).

         B. If at the time of a Sale of the Retirement Community, Operator has
certified to Owner that Owner has failed to pay a specific sum that is due and
payable by Owner hereunder, then net proceeds of the Sale, in an amount, as
available, equal to the sum owed shall be placed in escrow pending either
payment or resolution of the dispute. The insufficiency of the net proceeds to
pay the full amount due and payable shall not affect Owner's right to consummate
such sale of the Retirement Community. This Section 18.01B shall not be
enforceable against Owner if, at the time of the Sale of the Retirement
Community, Crestline Capital Corporation ("Crestline"), directly or through an
affiliate, owns Owner, and Crestline confirms to Operator in writing that
Crestline will assume responsibility for such amounts to the extent that such
amounts are ultimately determined to be due and payable.

         C. Notwithstanding the foregoing, if Owner or an Affiliate of Owner is
a corporation or other entity whose shares are listed on a public stock
exchange, and if a Sale of the Retirement Community occurs as a result of
purchases of such shares, through such public stock exchange, in sufficient
quantities to cause a transfer of the "controlling interest" in Owner (as
described in the definition of "Sale of the Retirement Community"), and if such
Sale of the Retirement Community is not in compliance with the provisions of
this Section 18.01A, Operator shall have the right, at its option, to terminate
this Agreement by written notice to Owner, but such non-compliance with Section
18.01A shall not be an Event of Default nor shall it subject Owner to claims for
damages by Operator pursuant to Article 16.

         D. If Owner desires to enter into a Sale of the Retirement Community
with a third party, Owner shall give written notice thereof to Operator, stating
the name of the prospective purchaser. Such notice shall include appropriate
information relating to such prospective purchaser demonstrating compliance with
the provisions of Section 18.01A; if Operator reasonably requests additional
information, Owner shall promptly furnish such information to Operator. Within
thirty (30) Days after the date of receipt of Owner's written notice and such
other information, Operator shall elect, by written notice to Owner, one of the
following alternatives:

                                       59
<PAGE>

            1. To consent to such Sale of the Retirement Community and to the
assignment of this Agreement to such purchaser, provided that concurrently with
the finalization thereof the purchaser shall, by appropriate instrument
reasonably satisfactory to Operator, assume all of Owner's obligations hereunder
accruing from and after the date of sale. An executed copy of such assumption
agreement shall be delivered to Operator.

            2. If such Sale of the Retirement Community would not comply with
the provisions of Section 18.01A hereof, to terminate this Agreement by written
notice from Operator to Owner. Such notice will set an effective date for such
Termination not earlier than thirty (30) Days, nor more than one hundred twenty
(120) Days, following the date of the giving of such notice. Operator shall have
the right to change such effective date of Termination to coincide with the date
of the finalization of the proposed Sale of Retirement Community. At Operator's
election, said notice of Termination shall not be effective if such Sale of the
Retirement Community is not finalized. If such Termination by Operator results
from a Default by Owner under Section 18.01A, such Termination shall not relieve
Owner of liability to Operator for such Default.

         E. If Operator shall fail to elect any of the above alternatives set
forth in Section 18.01D within said thirty (30) Day period, the same shall be
conclusively deemed to constitute an election and consent under Section 18.01D1,
and the provisions thereof shall prevail as if Operator had consented in writing
thereto. Any proposed Sale of the Retirement Community of which notice has been
given by Owner to Operator under Section 18.01D must be consummated within one
hundred eighty (180) Days following the giving of such notice, or such longer
period as may be necessary so long as Owner is diligently working in good faith
to effectuate the Sale. Failing such consummation, such notice, and any response
thereto given by Operator, shall be null and void and all of the provisions of
Sections 18.01C and D must again be complied with before Owner shall have the
right to consummate a Sale of the Retirement Community upon the terms contained
in said notice, or otherwise.

         F. In connection with the possibility of a Sale of the Retirement
Community achieved by means of a transfer of the controlling interest in Owner,
Owner, from time to time, upon written request of Operator, shall (unless Owner
is a publicly-traded entity registered under the Securities Act of 1934) furnish
Operator with a list of the names and addresses of the owners of the capital
stock (but only those owners which hold an ownership interest of thirty percent
(30%) or more), or the partnership interests (both the General Partner and any
limited partner holding an interest of thirty percent (30%) or more), or other
proprietary ownership interests in Owner. In connection with obtaining and
maintaining any material License, Owner shall provide such information regarding
its owners as may be required. Operator shall treat such information as
confidential pursuant to Section 19.04.

         G. It is understood that no Sale of the Retirement Community (which is
otherwise in compliance with the provisions of this Article 18) shall reduce or
otherwise affect : (i) the current level of Working Capital; (ii) the current
amount deposited in the FF&E Reserve; or (iii) any of the operational bank
accounts maintained by Operator pursuant to this Agreement. If, in connection
with any Sale of the Retirement Community, the selling Owner intends to
withdraw, for its own use, any of the cash deposits described in the preceding
sentence, the selling Owner must obtain the contractual obligation of the buying
Owner to replenish those deposits (in the

                                       60
<PAGE>

identical amounts) immediately upon such withdrawal and the selling Owner shall
not be entitled to withdraw any of such deposits unless and until the buying
Owner has replenished such deposits in the amount withdrawn by the selling
Owner. The obligations described in this Section 18.01G shall survive such Sale
of the Retirement Community and shall survive Termination.

         H. Operator shall have the right to terminate this Agreement, on thirty
(30) Days written notice, if title to or possession of the Retirement Community
is transferred either by Owner in breach of the provisions of Section 18.01A, or
by judicial or administrative process (including, without limitation, a
Foreclosure, or a sale pursuant to an order of a bankruptcy court, or a sale by
a court-appointed receiver) to an individual or entity which would not qualify
as a permitted transferee under clause (i), (ii) or (iii) of Section 18.01A,
regardless of whether or not such transfer is the voluntary action of the
transferring Owner, or whether (under applicable law) the Owner is in fact the
transferor; provided, however, that Operator shall not have the right to so
terminate this Agreement based on the assertion that a Holder fails to so
qualify as a permitted transferee under said clauses (i), (ii) or (iii) of
Section 18.01A.

         I. In the event of any sale or transfer to an Affiliate of Owner, such
sale or transfer shall be subject to this Agreement and such Affiliate shall
assume all of the obligations of Owner under this Agreement.

SECTION 18.02 ASSUMPTION AGREEMENT OF SUCCESSOR OWNER

         In the event of any Sale of the Retirement Community, the purchaser
shall, prior to finalization of such Sale of the Retirement Community, execute
and deliver to Operator a written instrument reasonably satisfactory to Operator
pursuant to which such purchaser assumes all of Owner's obligations hereunder
accruing from and after the date of sale. By accepting a deed conveying the
Retirement Community to any grantee thereunder, the grantee under such deed
shall be deemed to have assumed all obligations of Owner under this Agreement
accruing from and after the date of sale, whether or not such grantee executes
and delivers to Operator a written assumption agreement.

                                   ARTICLE 19
                                  MISCELLANEOUS

SECTION 19.01 RIGHT TO MAKE AGREEMENT

         A. Each party warrants, with respect to itself, that to the best of its
knowledge, (i) neither the execution of this Agreement nor the finalization of
the transactions contemplated hereby shall violate any provision of law or
judgment, writ, injunction, order or decree of any court or governmental
authority having jurisdiction over it; (ii) result in or constitute a breach or
default under any indenture, contract, other commitment or restriction to which
it is a party or by which it is bound; or (iii) require any consent, vote or
approval which has not been taken, or at the time of the transaction involved
shall not have been given or taken. Each party covenants that it has and will
continue to have throughout the Term of this Agreement and any extensions
thereof, the full right to enter into this Agreement and perform its obligations
hereunder.

                                       61
<PAGE>

         B. Each party agrees that it will, at its own expense, on or before the
Effective Date, provide: (i) certified copies of the applicable resolutions of
its board of directors (if it is a corporation), or written authorization by all
stockholders, or members (if it is a limited liability company) or written
authorization by all general partners (if it is a partnership) or other
appropriate documentation establishing its authority to execute this Agreement;
and (ii) such opinions of counsel (which may be provided by house counsel of
Operator or Marriott International, Inc. or Host Marriott Corporation) as the
other party shall reasonably request regarding the matters described in this
Section 19.01.

         C. Each party (the "Indemnifying Party") hereby agrees to indemnify,
defend and hold harmless the other party from all expenses (including attorneys'
fees), losses, claims, and damages stemming from any action by any third party
alleging: (i) such a breach or default by the Indemnifying Party under any
indenture, contract, commitment or restriction; (ii) the failure of the
Indemnifying Party to obtain such consent, vote or approval; or (iii) that the
Indemnifying Party does not have the full right and authority to enter into this
Agreement and perform its obligations hereunder.

SECTION 19.02 CONSENTS

         Wherever in this Agreement the consent or approval of Owner or Operator
is required, unless otherwise expressly provided, such consent or approval shall
not be unreasonably withheld, shall be in writing and shall be executed by a
duly authorized officer or agent of the party granting such consent or approval.
Unless otherwise expressly provided, if either Owner or Operator fails to
respond within thirty (30) Days to a request by the other party for a consent or
approval, such consent or approval shall be deemed to have been given.

SECTION 19.03 RELATIONSHIP BETWEEN THE PARTIES

         The relationship between Owner and Operator pursuant to this Agreement
shall be that of Owner with an independent contractor, provided, however, that
with respect to those specific and limited circumstances in which (i) Operator
is holding funds for the account of Owner, and (ii) Operator is required to act
as agent for Owner with respect to agreements with residents pursuant to
Licenses and/or Legal Requirements, the relationship between Owner and Operator
shall be that of principal and agent. Neither this Agreement nor any agreement
nor any agreements, instruments, documents or transactions contemplated hereby
shall in any respect be interpreted, deemed or construed as making Operator a
partner or joint venturer with Owner or as creating any similar relationship or
entity, and each party agrees that it will not make any contrary assertion,
contention, claim or counterclaim in any action, suit or other legal proceedings
involving the other.

SECTION 19.04 CONFIDENTIALITY

         The parties hereto agree that the matters set forth in this Agreement
are strictly confidential, each party will make every effort to ensure that the
information is not disclosed to any outside person or entities (including the
press) without the written consent of the other party, provided, that such
consent will not be required with respect to (i) legally required filing and
other disclosures mandated by Legal Requirements, (ii) in the case of Owner,
disclosure to any

                                       62
<PAGE>

Holder, prospective Holder, investor, purchaser of the Retirement Community or
prospective purchaser of the Retirement Community, and (iii) in the case of
either party, disclosure to any rating agencies, lenders, stock analysts, banks,
accountants, and other like professionals.

SECTION 19.05 APPLICABLE LAW

         This Agreement shall be construed under and shall be governed by the
laws of the State of Maryland.

SECTION 19.06 COVENANTS RUNNING WITH THE LAND; RECORDATION

         The terms and provisions of this Agreement shall run with the land
described in Exhibit A, and with Owner's interest therein, and shall be binding
upon all successors to, and assignees or transferees of, such interest, provided
that no such successor, assignee or transferee shall have any liability for
obligations of Owner for the period preceding or following such successor's,
assignee's or transferee's ownership of the Retirement Community. Upon request
of either party, the parties shall execute an appropriate memorandum of this
Agreement in recordable form and the requesting party, at its sole cost and
expense, may cause the same to be recorded in the jurisdiction where the
Retirement Community is located. Immediately upon request of Owner following any
termination of this Agreement, Operator shall execute, acknowledge and record
such release or termination statement as may be required to release such
memorandum. In the event that Operator shall fail to so immediately execute,
acknowledge and record such release or termination statement, Operator hereby
appoints Owner as its attorney-in-fact to execute, acknowledge and record the
same, and all costs incurred by Owner in connection therewith (including
reasonable attorneys' fees) shall be reimbursed by Operator. Such
power-of-attorney shall be deemed coupled with an interest and irrevocable.

SECTION 19.07 HEADINGS

         Headings of Articles and Sections are inserted only for convenience and
in no way limit the scope of the particular Articles or Sections to which they
refer.

SECTION 19.08 NOTICES

         Notices, statements and other communications to be given under the
terms of this Agreement shall be in writing and delivered either by hand, a
nationally recognized overnight courier or sent by certified or registered mail,
postage prepaid, return receipt requested:

                  TO OWNER:

                  -------------------------------------------

                  -------------------------------------------

                  -------------------------------------------

                  -------------------------------------------

                  -------------------------------------------

                  -------------------------------------------

                  TO OPERATOR:

                                       63
<PAGE>

                  Marriott Senior Living Services, Inc.
                  10400 Fernwood Road
                  Bethesda, Maryland 20817
                  Attn:  Chief Financial Officer

                  COPY TO:

                  Marriott International, Inc.
                  10400 Fernwood Road
                  Bethesda, Maryland 20817
                  Attn:  General Counsel

or at such other address as is from time to time designated by the party
receiving the notice. Any such notice which is properly given, as described
above, shall be deemed to have been received as of the date of delivery to the
addressee in the case of hand delivery, or, in all other cases, on the date when
the return receipt or courier service confirmation indicates delivery was made
to the addressee or acceptance of delivery was refused by the addressee.

SECTION 19.09 ENVIRONMENTAL MATTERS

         A. Operator shall indemnify, defend and hold Owner and its Affiliates
(and their respective directors, officers, shareholders, employees and agents)
harmless from and against all loss, cost, liability and damage (including,
without limitation, engineers' and attorneys' fees and expenses, and the cost of
Litigation) arising from the placing, discharge, leakage, use and storage of
Hazardous Materials in violation of applicable Environmental Laws, on or in the
Retirement Community by Operator's employees, representatives or agents during
the Term of this Agreement. Operator shall only bring on the Land such Hazardous
Materials as are needed in the normal course of business of the Retirement
Community.

         B. In the event of the discovery of Hazardous Materials on or in the
Retirement Community during the Term of this Agreement, Owner shall (except to
the extent such removal is Operator's responsibility pursuant to Section 19.09A)
promptly remove (if required by applicable Environmental Law) such Hazardous
Materials, together with all contaminated soil and containers, and shall
otherwise remedy the problem in accordance with all Environmental Laws. Owner
shall (except to the extent that the removal of such Hazardous Materials is
Operator's responsibility pursuant to Section 19.09A) indemnify, defend and hold
Operator and its Affiliates (and their respective directors, officers,
shareholders, employees and agents) harmless from and against all loss, cost,
liability and damage (including, without limitation, engineers' and attorneys'
fees and expenses, and the cost of Litigation) arising from the presence of
Hazardous Materials on or in the Retirement Community.

         C. All costs and expenses of the removal of Hazardous Materials from
the Retirement Community pursuant to Section 19.09B, and of the aforesaid
compliance with all Environmental Laws, and any amounts paid to Operator
pursuant to the indemnity set forth in the last sentence of Section 19.09B,
shall be paid by Owner from its own funds, not as an Operating Expense or from
the FF&E Reserve, shall be treated as an expenditure by Owner pursuant to
Section 8.03, and shall be counted in determining Owner's Additional Investment.

                                       64
<PAGE>

         D. The term "Hazardous Materials" means and include any substance or
material containing one or more of any of the following: "hazardous material",
"hazardous waste", "hazardous substance", "regulated substance", "petroleum",
"pollutant", "contaminant", or "asbestos" as such terms are defined in any
applicable Environmental Law in such concentration(s) or amount(s) as may impose
clean-up, removal, monitoring or other responsibility under any applicable
Environmental Law, or which may present a significant risk of harm to residents,
invitees or employees of the Retirement Community.

SECTION 19.10 ESTOPPEL CERTIFICATES

         Each party to this Agreement shall at any time and from time to time,
upon not less than thirty (30) Days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (i) certifying that this Agreement is
unmodified and in full force and effect (or if there have been modifications,
that the same, as modified, is in full force and effect and stating the
modifications); (ii) stating whether or not to the best knowledge of the
certifying party: (x) there is a continuing Default by the non-certifying party
in the performance or observance of any covenant, agreement or condition
contained in this Agreement; or (y) there shall have occurred any event which,
with the giving of notice or passage of time or both, would become such a
Default, and, if so, specifying each such Default or occurrence of which the
certifying party may have knowledge; and (iii) stating such other information as
the non-certifying party may reasonably request. Such statement shall be binding
upon the certifying party and may be relied upon by the non-certifying party
and/or such third party specified by the non-certifying party as aforesaid. The
obligations set forth in this Section 19.10 shall survive Termination (that is,
each party shall, on request, within the time period described above, execute
and deliver to the non-certifying party and to any such third party a statement
certifying that this Agreement has been terminated).

SECTION 19.11 ARBITRATION

         A. In the event of a dispute between Owner and Operator with respect to
any issue of fact specifically mentioned herein as a matter to be decided by
arbitration, such dispute shall be determined by arbitration as provided in this
Section 19.11.

         B. Disputes shall be resolved in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then pertaining. The
decision of the arbitrators shall be binding, final and conclusive on the
parties.

         C. Owner and Operator shall each appoint and pay all fees of a fit and
impartial person as arbitrator with at least ten (10) years' recent professional
experience in the general subject matter of the dispute. Notice of such
appointment shall be sent in writing by each party to the other, and the
arbitrators so appointed, in the event of their failure to agree within thirty
(30) Days after the appointment of the second arbitrator upon the matter so
submitted, shall appoint a third arbitrator. If either Owner or Operator shall
fail to appoint an arbitrator, as aforesaid, for a period of twenty (20) Days
after written notice from the other party to make such appointment, then the
arbitrator appointed by the party having made such appointment shall appoint a
second arbitrator and the two so appointed shall, in the event of their failure
to agree

                                       65
<PAGE>

upon any decision within thirty (30) Days thereafter, appoint a third
arbitrator. If such arbitrators fail to agree upon a third arbitrator within
forty five (45) Days after the appointment of the second arbitrator, then such
third arbitrator shall be appointed by the American Arbitration Association from
its qualified panel of arbitrators, and shall be a person having at least ten
(10) years' recent professional experience as to the subject matter in question.
The fees of the third arbitrator and the expenses incident to the proceedings
shall be borne equally between Owner and Operator, unless the arbitrators decide
otherwise. The fees of respective counsel engaged by the parties, and the fees
of expert witnesses and other witnesses called for the parties, shall be paid by
the respective party engaging such counsel or calling or engaging such
witnesses.

         D. The decision of the arbitrators shall be rendered within thirty (30)
Days after appointment of the third arbitrator. Such decision shall be in
writing and in duplicate, one counterpart thereof to be delivered to Owner and
one to Operator. A judgment of a court of competent jurisdiction may be entered
upon the award of the arbitrators in accordance with the rules and statutes
applicable thereto then obtaining.

SECTION 19.12 AFFILIATES

         Except as otherwise specifically set forth in this Agreement, Operator
shall be entitled to contract with one or more of its Affiliates to provide
goods and/or services to the Retirement Community only if the prices and/or fees
paid to any such Affiliate are competitive with the prices and/or fees then
currently being paid to reputable and qualified parties which are not Affiliates
of Operator. In determining, pursuant to the foregoing sentence, whether such
prices and/or fees are competitive, the goods and/or services which are being
purchased shall be grouped in reasonable categories, rather than being compared
item by item.

SECTION 19.13 EQUITY AND DEBT OFFERINGS

         No reference to Operator or to any of its Affiliates will be made in
any prospectus, private placement memorandum, offering circular or offering
documentation related thereto (herein collectively referred to as the
"Prospectus"), issued by Owner or one of its Affiliates, which is designed to
interest potential investors or lenders in the Retirement Community, unless
Operator has previously received a copy of all such references. However,
regardless of whether Operator does or does not so receive a copy of all such
references, neither Operator nor any of its Affiliates will be deemed a sponsor
of the offering described in any such Prospectus, nor will it have any
responsibility for the Prospectus, and the Prospectus will so state. Unless
Operator agrees in advance, the Prospectus will not include: (i) any Proprietary
Marks (provided that the Prospectus may identify the name of the Retirement
Community even if such name is a Proprietary Mark); or (ii) except as required
by applicable securities laws, the text of this Agreement. Owner shall be
entitled, however, to include in such Prospectus an accurate summary of this
Agreement. If there are no Legal Requirements pursuant to which such information
must be publicly disclosed, appropriate measures shall be taken to ensure that
entities or individuals receiving such Prospectus shall acknowledge the
confidentiality of such information. Owner shall indemnify, defend and hold
Operator and its Affiliates (and their respective directors, officers,
shareholders, employees and agents) harmless from and against all loss, costs,
liability and damage (including attorneys' fees and expenses, and the cost of
Litigation) arising out of any Prospectus or the offering described therein.

                                       66
<PAGE>

SECTION 19.14 RESTRICTION ON OPERATOR

         A. Subject to the other provisions of this Section 19.14, Operator and
its Affiliates shall not be prohibited or restricted from developing, owning,
operating, leasing, managing, financing, or franchising other retirement
communities or businesses.

         B. During the first seven (7) Agreement Years neither Operator nor any
of its Affiliates shall (directly or indirectly) construct, own, operate,
manage, lease, finance, or franchise (or participate in any of the foregoing
activities) a Similar Property in either Area A or Area B, except that;

            1. Operator or any Affiliate may so own, operate, manage, lease, or
franchise a Similar Property in Area B (but not Area A) if such Similar Property
was in operation on the Effective Date and the average total occupancy at the
Retirement Community has been at least ninety-three percent (93%) for the six
(6) months immediately preceding any notice (identifying the subject site) from
Operator to Owner that it intends to proceed with an activity permitted by this
subparagraph 1, which notice shall be given at least thirty (30) Days prior to
the date on which Operator intends to proceed (the "B1 Notice"), provided,
however, that, if Operator does not execute a binding contract to purchase,
operate, manage, lease or franchise such a Similar Property within twelve (12)
months after giving a B1 Notice, then a new such B1 Notice will be required
before Operator can proceed with any further activities pursuant to this
subparagraph 1, and

            2. At any time following one (1) year after the last to occur of (i)
the first Agreement Year, or (ii) completion of all Expansion Units undertaken
at the Retirement Community, Operator or any Affiliate may construct, own,
operate, manage, lease, or franchise a Similar Property within Area B (but not
Area A) if the average total occupancy at the Retirement Community has been at
least ninety-three percent (93%) during the six (6) months immediately preceding
any notice (identifying the subject site) from Operator to Owner that it intends
to proceed with an activity permitted by this subparagraph 2, which notice shall
be given at least thirty (30) Days prior to the date on which Operator intends
to proceed (the "B2 Notice"), provided, however, that, if, after giving a B2
Notice, Operator should either fail to proceed or, having initiated action to
proceed, should cease such actions -- in either case for a period of ninety (90)
Days or more, then a new B2 Notice will be required before Operator can either
continue the original action or proceed with any new actions pursuant to this
subparagraph 2. Notwithstanding the foregoing, if Operator elects not to
undertake the completion of substantially all of the Expansion Units by either
providing written notice to Owner of its election or by operation of the
expiration of the Option set forth in the Expansion Agreement and Owner elects
to undertake the Expansion Units within nine (9) months of such notice or
expiration, Operator or an Affiliate shall not construct, own, operate, manage,
lease or franchise a Similar Property within Area B until the occurrence of: (i)
the second anniversary of the earlier to occur of (x) the Option set forth in
the Expansion Agreement has expired and, (y) delivery of notice to Owner that
Operator elects not to undertake the completion of the Expansion Units; and (ii)
the occupancy test set forth in the immediate preceding sentence has been met.

         For purposes of this Section 19.14B, the words and phrases
...."proceed", "proceed with actions", "actions", and "activities", refer, in the
broadest reasonable sense, to all customary

                                       67
<PAGE>

and usual actions, plans, investigations, preparations, negotiations, studies,
and the like in connection with the planning for, designing of, financing (both
debt and equity) of, site acquisition for, construction of, land use approvals
for, all permitting and approval processes for, and all other related activities
with respect to the development of (by the way of purchase, lease, franchise,
operation or management) such a Similar Property.

         C. The restrictions set forth in Section 19.14B shall not apply to any
construction, ownership, operation, management, leasing or franchising by
Operator or its Affiliates of a Similar Property, if Operator's involvement with
such Similar Property resulted from a chain acquisition, that is, the
acquisition (whether by stock or asset purchase of either real property
interests or contract rights) by Operator or an Affiliate of five (5) or more
communities or facilities in a single transaction. However, if (i) any such
acquisition results in more than twelve (12) Similar Properties located in
either this or other Areas A as designated in this Agreement and similar
operating agreements between Operator and Host Marriott Corporation or one or
more of its Affiliates, in the aggregate, or (ii) more than one such Similar
Property is located in any one such Area A; then Operator (or its Affiliate as
needs be), at Owner's request, will, within two (2) years of the date of such
chain acquisition, divest itself of the ownership, operation, development,
leasing, franchising, and/or management of all such Similar Properties (with
Operator choosing which particular Similar Properties are to be disposed of) in
excess of the twelve (12) facility limitation specified in clause (i)
immediately above, and/or the one facility limitation specified in clause (ii)
immediately above.

         D. For the purposes of this Section 19.14, Area A shall include all of
the real property located within a two and one-half (2.5) mile radius of the
Retirement Community; and Area B shall include all of the real property located
beyond a two and one-half (2.5) mile radius, but within a five (5) mile radius
of the Retirement Community. In each case the radius shall be measured from the
main entrance of the Retirement Community. A Similar Property shall be deemed to
be within either Area A or B if more than twenty (20) percent of the square feet
of land area of the real estate parcel on which it is located lies within either
Area A or B. If a Similar Property falls within both Areas, it shall be
considered to be within Area A.

         E. The parties agree that the period of restriction and the
geographical area of restriction imposed upon MSLS in this Section 19.14 are
fair and reasonable and are reasonably required for the protection of Owner. If
the provisions of this Section 19.14 relating to the area of restriction or the
period of restriction shall be deemed to exceed the maximum areas or period
which a court having jurisdiction over the matter would deem enforceable, such
area or period shall, for purposes of this Agreement, be deemed to be the
maximum area or period which such court would deem valid and enforceable.

         F. The parties agree that irreparable damage would occur in the event
any of the provisions of this Section 19.14 were not to be performed in
accordance with the terms hereof, and that their remedy at law for any breach of
the other party's obligations hereunder would be inadequate. The parties agree
and consent that, in addition to any other rights or remedies that may be
available at law or in equity, temporary and permanent injunctive relief may be
granted in any proceeding which may be brought to enforce this Section 19.14
without the necessity of proof of actual damage.

                                       68
<PAGE>

SECTION 19.15 ENTIRE AGREEMENT

         This Agreement, together with other writings signed by the parties
which are expressly stated to be supplemental hereto and together with any
instruments to be executed and delivered pursuant to this Agreement, constitutes
the entire agreement between the parties with respect to the subject matter of
this Agreement and supersedes all prior understandings and writings and may be
changed only by a writing signed by both parties hereto.

SECTION 19.16 WAIVER

         The failure of either party to insist upon a strict performance of any
of the terms or provisions of this Agreement, or to exercise any option, right
or remedy herein contained, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.

SECTION 19.17 PARTIAL INVALIDITY

         If any portion of this Agreement shall be declared invalid by order,
decree or judgment of a court, this Agreement shall be construed as if such
portion had not been inserted herein except when such construction would operate
as an undue hardship on Operator or Owner, or constitute a substantial deviation
from the general intent and purpose of said parties as reflected in this
Agreement.

SECTION 19.18 CONSTRUCTION

         No provisions of this Agreement shall be construed in favor of, or
against, any particular party by reason of any presumption with respect to the
drafting of this Agreement; both parties, being represented by counsel, having
fully participated in the negotiation of this instrument.

                                       69
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the Effective Date.

ATTEST:                                      OWNER:

                                             [OWNER]
---------------------------------

                                             By:
                                                -------------------------------
                                                Printed Name:
                                                             ------------------

                                                Its:

ATTEST:                                      OPERATOR:

---------------------------------            MARRIOTT SENIOR LIVING
                                             SERVICES, INC.

                                             By:
                                                -------------------------------
                                                Printed Name:
                                                             ------------------

                                                Its:

                                       70
<PAGE>

                                JOINDER OF PARTY

         For the purpose of inducing Owner to enter into this Agreement,
Marriott International, Inc. for itself and its Affiliates, hereby agrees to be
directly bound, as a party, to the provisions of Section 19.14 of the above
Agreement, but not to any of the other terms and conditions of the Agreement.

         IN WITNESS WHEREOF, Marriott International, Inc. has executed this
JOINDER OF PARTY as of the Effective Date.

ATTEST:                                MARRIOTT INTERNATIONAL, INC.

                                       By:
---------------------------               -------------------------------------
                                          Printed Name:
                                                       ------------------------

                                          Its:

                                       71
<PAGE>

                                    EXHIBIT A
                      [LIST APPLICABLE DESCRIPTION OF LAND]

<PAGE>

                                    EXHIBIT B
                       [LIST EXISTING TITLE ENCUMBRANCES]

<PAGE>

                                    EXHIBIT C
                 PRO FORMA FEES @ [NAME OF RETIREMENT COMMUNITY]

<TABLE>
<S>                       <C>                        <C>               <C>                <C>
                              Pd. 7-Pd. 13
     FY                         1997 FY                 1998 FY          1999 FY                 2000
------------              ---------------------      --------------    -----------        -----------------
                          (Partial)

$----------               $----------                $----------       $----------
</TABLE>

<PAGE>

                                    EXHIBIT D
              OWNER'S INITIAL COST @ [NAME OF RETIREMENT COMMUNITY]

                                  INITIAL COST

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Exhibit 10.5  

STORAGE TECHNOLOGY CORPORATION

FLEXIBLE OPTION PLAN

DECEMBER 2001  

 
 

TABLE OF CONTENTS    
  

	 
	 	 
	 	 
	 	 

	I.	 	ESTABLISHMENT OF THE PLAN	 	1
	
II.	
 	

PURPOSE	
 	

1
	
III.	
 	

DEFINITIONS	
 	

1
	 	 	1.	 	Bonus Compensation	 	1
	 	 	2.	 	Code	 	1
	 	 	3.	 	Committee	 	1
	 	 	4.	 	Compensation Reduction Option	 	1
	 	 	5.	 	Disability	 	1
	 	 	6.	 	Discretionary Option	 	2
	 	 	7.	 	Dollar Value	 	2
	 	 	8.	 	Entry Date	 	2
	 	 	9.	 	Exercise	 	2
	 	 	10.	 	Exercise Price	 	2
	 	 	11.	 	Fair Market Value	 	2
	 	 	12.	 	Immediate Family Member	 	2
	 	 	13.	 	Intrinsic Value	 	2
	 	 	14.	 	Mutual Fund Shares	 	2
	 	 	15.	 	Nonrecurring Compensation	 	2
	 	 	16.	 	Option	 	2
	 	 	17.	 	Option Agreement	 	2
	 	 	18.	 	Participant	 	2
	 	 	19.	 	Plan	 	3
	 	 	20.	 	Plan Administrator	 	3
	 	 	21.	 	Plan Year	 	3
	 	 	22.	 	Retirement	 	3
	 	 	23.	 	Salary Compensation	 	3
	 	 	24.	 	Share	 	3
	 	 	25.	 	Termination from Employment	 	3
	 	 	26.	 	Termination for Cause	 	3
	
IV.	
 	

ADMINISTRATION	
 	

3
	 	 	1.	 	General Provision	 	3
	 	 	2.	 	Granting of Options	 	3
	 	 	3.	 	Selection of Shares	 	4
	 	 	4.	 	Modification of Options	 	4
	 	 	5.	 	Interpretation	 	4
	
V.	
 	

OPTION AGREEMENTS	
 	

4
	
VI.	
 	

COMPENSATION REDUCTION OPTION AWARDS	
 	

5
	 	 	1.	 	Salary Compensation Reduction Election	 	5
	 	 	2.	 	Bonus Compensation Reduction Election	 	5
	 	 	3.	 	Nonrecurring Compensation Reduction Election	 	5
	 	 	4.	 	Excess Deferral Election	 	5
	 	 	5.	 	Company Matching Contribution	 	6
	 	 	6.	 	Credited Earnings	 	7
	 	 	7.	 	Grant of Options	 	7
	 	 	8.	 	Option Formula	 	7
	 	 	9.	 	Exercise Price	 	8
	 	 	10.	 	Vesting of Compensation Reduction Options	 	8
	 	 	11.	 	Exchange of Shares	 	8
	 	 	12.	 	Termination from Employment	 	8

	
VII.	
 	

DISCRETIONARY OPTION AWARDS	
 	

8
	 	 	1.	 	Grant of Discretionary Options	 	8
	 	 	2.	 	Exercise Price of Discretionary Options	 	8
	 	 	3.	 	Vesting of Discretionary Options	 	8
	 	 	4.	 	Exchange of Shares	 	8
	
VIII.	
 	

EXERCISE OF OPTIONS	
 	

9
	 	 	1.	 	Exercise Period for Options	 	9
	 	 	2.	 	Notice of Exercise	 	9
	 	 	3.	 	Payment by Participant	 	9
	 	 	4.	 	Cashless Exercise	 	9
	 	 	5.	 	Tax Withholding	 	10
	 	 	6.	 	Cancellation of Options	 	10
	 	 	7.	 	Plan Expenses	 	10
	
IX.	
 	

NONTRANSFERABILITY	
 	

10
	
X.	
 	

AMENDMENT OR TERMINATION OF THE PLAN	
 	

10
	
XI.	
 	

TIME FOR GRANTING OPTIONS	
 	

11
	
XII.	
 	

UNFUNDED PLAN	
 	

11
	
XIII.	
 	

TRUST PROVISIONS	
 	

11
	
XIV.	
 	

LIMITATION OF RIGHTS	
 	

11
	
XV.	
 	

LIABILITY	
 	

12
	
XVI.	
 	

NOTICES	
 	

12
	
XVII.	
 	

GOVERNING LAW	
 	

12
	
XVIII.	
 	

EFFECTIVE DATE	
 	

12

   STORAGE TECHNOLOGY CORPORATION

FLEXIBLE OPTION PLAN

DECEMBER 2001  

I.    ESTABLISHMENT OF THE PLAN  

The
Storage Technology Corporation Flexible Option Plan (the "Plan") is hereby established by Storage Technology Corporation, a Delaware Corporation ("StorageTek" or "Company"), to award certain key
executives of StorageTek and its subsidiaries or affiliated companies, (collectively, the "Companies") with Options to purchase Shares of selected mutual funds as more particularly described below.
The Plan does not replace or supercede any similar benefits plan as may have been established previously. 

II.    PURPOSE  

The
purpose of the Plan is to attract and retain participating key executives of the Companies by providing an opportunity for such executives to defer the taxation of their compensation from the
Companies. In addition, the Companies intend that this Plan shall provide the eligible employees with deferred compensation benefits in addition to the benefits provided under the Storage Technology
Corporation Employees Profit-Sharing and Thrift Plan ("Thrift Plan") or other similar plans in cases where benefits under the Thrift Plan or such other plans may be limited by applicable provisions of
the Internal Revenue Code of 1986, as amended. This Plan is intended to satisfy StorageTek's obligation to implement a special deferred compensation arrangement pursuant to Section 13(a) of
that certain CEO Employment Agreement, dated as of July 11, 2000, by and between StorageTek and Patrick Martin. The Options granted under the Plan are not incentive stock options within the
meaning of Section 422 of the Code. 

III.  DEFINITIONS  

	1.
	Bonus Compensation. The amount of annual cash bonus compensation paid to an employee of the Companies.

	2.
	Code. The Internal Revenue Code of 1986, as amended.

	3.
	Committee. The Human Resources and Compensation Committee of the Board of Directors of StorageTek. Any or all powers and discretion
vested in the Committee under the Plan may be exercised by the Board of Directors of StorageTek or by any other committee of the Board of Directors so authorized by it.

	4.
	Compensation Reduction Option. An Option granted to a Participant by the Companies under Part VI of the Plan.

	5.
	Disability. "Disability" means that the Participant has been unable to substantially perform his or her duties as an employee of the
Companies as the result of incapacity due to physical or mental illness for a period of twenty-six weeks after its commencement, as determined by a medical doctor selected by the
StorageTek and that Participant. If the parties cannot agree on a medical doctor, each party shall select a medical doctor and the two doctors shall select a third, who shall be the approved medical
doctor for this purpose.

	6.
	Discretionary Option. An Option granted to a Participant by the Companies under Part VII of the Plan.

	7.
	Dollar Value. The dollar amount awarded to the Participant by the Committee in accordance with the Plan. 

1

 

	8.
	Entry Date. In addition to the first day of each Plan Year, quarterly, i.e., the first day of the fourth (4th),
seventh

(7th) and tenth (10th) months of each Plan Year.

	9.
	Exercise. The act of redeeming the Option in accordance with the terms and conditions imposed by this instrument and the Option
Agreement.

	10.
	Exercise Price. The amount the Participant is required to pay in order to Exercise the Option.

	11.
	Fair Market Value. The trading price of a Share as of the close of business of the recognized securities exchange on which the Share is
traded. In the event that the Share is not traded on a recognized securities exchange, the Fair Market Value will be determined by the Committee.

	12.
	Immediate Family Member. The spouse, parent, child or grandchild of the Participant or such other family member as approved by the
Committee.

	13.
	Intrinsic Value. The value equal to the Fair Market Value of the Shares underlying an Option, less the Exercise Price of the Option.

	14.
	Mutual Fund Shares. Shares of certain investment companies registered under the Investment Company Act of 1940.

	15.
	Nonrecurring Compensation. The amount of certain nonrecurring cash compensation, such as sign-on or other special bonuses,
paid to an employee of the Companies that is not Bonus Compensation or Salary Compensation.

	16.
	Option. The contract right granted by the Companies to the Participant to purchase Shares in the future at the Exercise Price as
determined in accordance with Parts VI and VII of the Plan.

	17.
	Option Agreement. The written document evidencing the Participant's Option rights. The Option Agreement shall contain the individual
terms and conditions of the grant and shall provide for the Participant's initial investment allocation among types of Shares.

	18.
	Participant. A key executive of the Companies selected by the Committee.

	19.
	Plan. The Storage Technology Corporation Flexible Option Plan.

	20.
	Plan Administrator. The Committee or the individual specifically designated by the Committee to administer the Plan on the Committee's
behalf.

	21.
	Plan Year. The initial Plan Year will be the period beginning January 1, 2002 and ending December 31, 2002. Subsequent
Plan Years will be years beginning January 1 and ending December 31.

	22.
	Retirement. The date the Participant reaches the age of 65 years.

	23.
	Salary Compensation. The amount of cash salary compensation paid to an employee of the Companies.

	24.
	Share. The underlying Mutual Fund Share for which an Option is granted, as selected by the Participant pursuant to the Option
Agreement. The Committee shall make an appropriate adjustment to an Option which is granted for Shares in the event of any dividend, whether ordinary or capital, stock split, share exchange, merger,
recapitalization, or any other event occurring with respect to the underlying Shares subsequent to the date of grant. At the Committee's discretion, such adjustment may occur through modification or
replacement of the original Option(s) with new Option(s), provided that the new Option(s) shall have an Intrinsic Value equal to that of the original Option(s) immediately before modification or
replacement. 

2

 

	25.
	Termination from Employment. The cessation of the Participant's employment with the Companies.

	26.
	Termination for Cause. The termination of the Participant's employment with the Companies for "Cause." If the Participant has entered
into an employment agreement with the Companies that defines cause, such definition shall be used for purposes of the Plan for that Participant. Otherwise, "Cause" shall mean that (i) the
Participant is convicted of a felony involving moral turpitude or involving fraud against the Companies, or (ii) the Participant is guilty of willful gross neglect or willful gross misconduct
in carrying out his or her duties as an employee, resulting, in either case, in material economic harm to the Companies, unless the Participant believed in good faith that such action or
non-action was in or not opposed to the best interests of the Companies. 

IV.  ADMINISTRATION  

	1.
	General Provision. The Committee shall supervise and administer the Plan. The Committee shall from time to time designate the key
employees of the Companies who may be granted Options under the Plan.

	2.
	Granting of Options. The Committee, in its sole discretion and in accordance with the Plan, shall determine the number of Options that
will be awarded and shall determine the Dollar Value of the award. Each award shall be evidenced by an Option Agreement that shall contain the individual terms and conditions governing the Option
grant. In making these determinations, the Committee shall take into account the nature of the services rendered by the Participant and shall consider the Participant's role in fulfilling the
long-term, strategic goals of the Companies.

	3.
	Selection of Shares. The Committee shall have the sole discretion with respect to the selection of the Shares available for allocation
by the Participant. The Participant shall have the sole discretion to make the allocations among the Shares which the Committee has selected.

	4.
	Modification of Options. The Committee may from time to time modify, extend, or renew outstanding Options granted under the Plan,
whether or not vested and whether or not exercisable. The Committee may also from time to time revoke such Options and grant new Options in substitution thereof; provided, however, that no such action
may be taken without the consent of the Participant if it would alter or impair any of the Participant's rights under the Options granted previously to the Participant, unless (i) such action
is deemed necessary by the Committee for compliance with any applicable law or regulation to which the Companies are subject; (ii) such action is deemed necessary by the Committee to prevent
the compensation of the Participant from exceeding reasonable compensation limits, or (iii) to accelerate the Exercise date of an Option, in which case the Committee shall also accelerate the
expiration date in proportion to the acceleration of the Exercise date. 

No
revocation shall apply to Options which have been exercised before the date of the Committee's action, except that the Committee has ten (10) days after the Exercise date in which to revoke
an Option if done pursuant to (ii) above. In such event, the Companies shall refund the Exercise Price to the Participant, who shall be required to surrender the Shares acquired. 

	5.
	Interpretation. The Committee is authorized to interpret the Plan and may from time to time adopt such rules and regulations, consistent
with the provisions of the Plan, as it may deem necessary to carry out the terms of the Plan. All questions of interpretation of the Plan or of any Options issued under it shall be determined by the
Committee, and that determination shall be final and binding upon all persons having an interest in the Plan. 

3

 

V.    OPTION AGREEMENTS  

Each
Option shall be evidenced by an Option Agreement between the Participant and the Companies which shall contain such terms and conditions as may be approved by the Committee in its sole
discretion. The terms and conditions of the respective Option Agreements need not be identical. 

VI.  COMPENSATION REDUCTION AND COMPANY MATCHING OPTION AWARDS  

	1.
	Salary Compensation Reduction Election. If the Companies so elect, a Participant may file with the Plan Administrator for purposes of
the Plan, and prior to the beginning of each Plan Year, an irrevocable election to receive Options in lieu of all or part of such Participant's Salary Compensation that would otherwise have been
payable in the Plan Year; provided, however, the amount of Salary Compensation so reduced in any Plan Year shall not in any event exceed the Salary Compensation attributable to services rendered by
the Participant for such Plan Year. Such election may be changed during such Plan Year by filing a change of election with the Plan Administrator, but any such change in election will not become
effective until the next Entry Date which occurs at least thirty (30) days after the filing of such change of election. New Participants may make such election at any time prior to the next
Entry Date, to be effective as of the next Entry Date. The minimum Salary Compensation reduction shall be the greater of $2,500 or 5% of a Participant's Salary Compensation for such Plan Year. The
maximum Salary Compensation reduction shall be 100% of a Participant's Salary Compensation for such Plan Year.

	2.
	Bonus Compensation Reduction Election. If the Companies so elect, a Participant may file with the Plan Administrator for purposes of the
Plan, and prior to the beginning of each Plan Year, an irrevocable election to receive Options in lieu of all or part of such Participant's Bonus Compensation that would otherwise have been payable in
the Plan Year; provided, however, the amount of Bonus Compensation so reduced in any Plan Year shall not in any event exceed the Bonus Compensation attributable to services rendered by the
Participant. The minimum Bonus Compensation reduction shall be $2,500 of a Participant's Bonus Compensation for such Plan Year. The maximum Bonus Compensation reduction shall be 100% of a
Participant's Bonus Compensation for such Plan Year.

	3.
	Nonrecurring Compensation Reduction Election. If the Companies so elect, a Participant may file with the Plan Administrator for purposes
of the Plan, and at least thirty (30) days prior to scheduled receipt, an irrevocable election to receive Options in lieu of all or part of such Participant's Nonrecurring Compensation that
would otherwise have been payable in the Plan Year; provided, however, the amount of Nonrecurring Compensation so reduced in any Plan Year shall not in any event exceed the Nonrecurring Compensation
attributable to services rendered by the Participant. The minimum Nonrecurring Compensation reduction shall be $2,500 of a Participant's Nonrecurring Compensation for such Plan Year. The maximum
Nonrecurring Compensation reduction shall be 100% of a Participant's Nonrecurring Compensation for such Plan Year.

	4.
	Excess Deferral Election. If the Companies so elect, a Participant may file with the Plan Administrator for purposes of the Plan, and
prior to the beginning of each Plan Year, an irrevocable election to receive Options in lieu of that part of such Participant's Salary and Bonus Compensation that would otherwise have been contributed
to the Thrift Plan pursuant to the Participant's election under the Thrift Plan and which are limited pursuant to section 402(g) of the Code. Additionally, a Participant may elect to receive
Options in lieu of the entire amount, if any, of any distributions from the Thrift Plan which may become payable to the Participant in order to satisfy the limitations of section 401(k) of the
Code. Such 

4

 

election
may be changed during such Plan Year by filing a change of election with the Plan Administrator, but any such change in election will not become effective until the next Entry Date which
occurs at least thirty (30) days after the filing of such change of election. New Participants may make such election at any time prior to the next Entry Date, to be effective as of the next
Entry Date. Options received under this Section 4 shall be treated as Compensation Reduction Options for purposes of the remainder of this Part VI. 

	5.
	Company Matching Contribution. If a Participant is contributing under the Thrift Plan for a Plan Year, the Companies shall contribute to
the Plan on behalf of the Participant for each Plan Year an amount equal to the Company Matching Contributions and Company Discretionary Contributions (as defined in the Thrift Plan) that would have
been made on the Participant's behalf and allocated to his account under the Thrift Plan for such Plan Year, but which could not be made because of any limitations imposed by the Thrift Plan pursuant
to the Code, including, but not limited to, the following:

	(a)
	any
reduction in Company Matching Contributions under the Thrift Plan attributable either to a limitation of the Participant's contributions under the Thrift Plan pursuant to
section 401(k) of the Code or limitations imposed on the Company Matching Contributions under the Thrift Plan pursuant to section 401(m) of the Code,

	(b)
	the
limitations contained in section 402(g) of the Code,

	(c)
	any
reduction that occurs as a result of the application of the compensation limitations contained in section 401(a)(17) of the Code, and

	(d)
	any
reduction that occurs as a result of the application of the limitations contained in section 415 of the Code. 

In
addition, the Companies shall contribute to the Plan on behalf of the Participant for each Plan Year an amount equal to the amount of any forfeitures that would have been allocated to the
Participant for such Plan Year under the Thrift Plan, determined in the same manner as set forth above. 

All
such amounts of Company Matching Contributions shall be contributed to the Plan on behalf of the Participant as of the date or dates such amounts would have been credited to his account(s) in the
Thrift Plan if such amounts had in fact been credited to his account(s) in the Thrift Plan (or as soon thereafter as administratively practicable), and such amounts shall be treated as additional
amounts of Salary Compensation withheld by the Companies from the Participant for purposes of the remainder of this Part VI. 

	6.
	Credited Earnings. Amounts of Salary Compensation, Bonus Compensation and Nonrecurring Compensation withheld from the Participant and/or
contributed to the Plan by the Companies on behalf of the Participant and in accordance with the terms of the Plan shall be deposited into an interest-bearing account until Options are granted with
respect to such amounts in accordance with the provisions of this Part VI. Any interest earned with respect to such amounts will be treated as additional amounts of Salary Compensation withheld
by the Companies from the Participant for purposes of the remainder of this Part VI.

	7.
	Grant of Options.

	(a)
	Compensation Reduction. Compensation Reduction Options shall be granted throughout the Plan Year. The Salary Compensation of a
Participant who has filed an election for a Salary Reduction Option shall be reduced in the applicable pay period. The Bonus Compensation of a Participant who has filed an election for a Bonus
Reduction Option shall be reduced in the period in which it would have been paid. 

5

 

	(b)
	Dividend Equivalent. A Dividend Equivalent shall mean an amount equal in value to dividends or distributions made on Mutual Fund Shares
subject to Options under the Plan. Dividend Equivalents will be treated as additional Compensation Reduction Options as under Subsection 7.(a) above.

	(c)
	Dollar Value of Options. The Dollar Value of Compensation Reduction Options shall be the dollar amount of Salary Compensation, Bonus
Compensation and Nonrecurring Compensation withheld from the Participant by the Companies, as elected by the Participant to acquire Compensation Reduction Options under the Plan. Compensation
Reduction Options shall only be granted with an initial Dollar Value of at least $2,500 at the date of grant of such Option.

	(d)
	Frequency of Option grants. Options shall only be granted once per month and subject to other limitations provided herein. 

	8.
	Option Formula. The Committee will grant an Option for each Share. The number of Shares shall be determined in accordance with the
following formula: 

Dollar Value / (Fair Market Value * 0.75) = Number of Shares

If
the Participant selects more than one Mutual Fund Share, the formula shall be computed for each Mutual Fund Share based on the Dollar Value multiplied by the percentage selected for each Share. For
purposes of this Section 8, Fair Market Value shall be determined at the date of grant. 

	9.
	Exercise Price. The Exercise Price of each Option shall be equal to the greater of twenty-five percent (25%) of the Fair
Market Value of the underlying Shares as of the date of grant or twenty-five percent (25%) of the Fair Market Value of the underlying Shares as of the date of Exercise.

	10.
	Vesting of Compensation Reduction Options. Compensation Reduction Options will immediately become vested upon the granting of such
Options.

	11.
	Exchange of Shares. The Participant shall be entitled to change the investment allocation of Shares for which a Compensation Reduction
Option is granted no more than once per Plan Year, to be effective at the beginning of the following Plan Year, in which event an appropriate adjustment shall be made to such Option. This exchange
shall be permitted at times designated by the Committee.

	12.
	Termination from Employment. In the case of a Termination from Employment of the Participant for any reason, the Companies will refund
to the Participant, as soon as administratively practicable, but not to exceed thirty (30) business days, amounts of Salary Compensation, Bonus Compensation and Nonrecurring Compensation which
have been withheld by the Companies from the Participant or contributed to the Plan on behalf of the Participant but not yet exchanged for Options, including amounts of Credited Earnings earned
thereon. Such refunded amounts of Salary Compensation, Bonus
Compensation and Nonrecurring Compensation may be reduced by the Companies in order to satisfy any federal, state or local withholding tax obligation which may arise in connection with such refund. 

VII. DISCRETIONARY OPTION AWARDS  

	1.
	Grant of Discretionary Options. The Committee may grant Discretionary Options to Participants on such terms and conditions as the
Committee may determine in its sole discretion, including, but not limited to, vesting and exercise period. The Option Agreement shall contain the individual terms and conditions governing the Option
grant. The grant of 

6

 

Discretionary
Options will not require a Participant to reduce Salary Compensation, Bonus Compensation or Nonrecurring Compensation. 

	2.
	Exercise Price of Discretionary Options. The Exercise Price for Shares issued under each Discretionary Option shall be determined by the
Committee in its sole discretion and may be less than the Fair Market Value of such Shares at the date of grant of such Option. However, in no event shall the exercise price be less than
twenty-five percent (25%) of the Fair Market Value of such Shares.

	3.
	Vesting of Discretionary Options. Discretionary Options will vest as specified in the Option Agreement for each Participant.

	4.
	Exchange of Shares. The Participant shall be entitled to change the investment allocation of Shares for which a Discretionary Option is
granted no more than once per Plan Year, to be effective at the beginning of the following Plan Year, in which event an appropriate adjustment shall be made to such Option. This exchange shall be
permitted at times designated by the Committee. 

VIII.    EXERCISE OF OPTIONS  

	1.
	Exercise Period for Options. The Participant may Exercise Options, to the extent vested, on the first business day of each month, but no
sooner than six (6) months from the date of grant, unless otherwise expiring. A vested Option shall automatically cease to be exercisable after the first to occur of:

	(a)
	the
expiration of fifteen (15) years from the date upon which such Option was granted;

	(b)
	in
the case of Termination from Employment of the Participant by reason of death or Disability, the expiration of two (2) years after Termination from Employment;

	(c)
	in
the case of Termination from Employment of the Participant after reaching Retirement, the expiration of five (5) years from the date upon which such Option was granted;

	(d)
	in
the case of a Termination from Employment of the Participant initiated by the Companies, the expiration of two (2) years after Termination from Employment; or

	(e)
	notwithstanding
any provision to the contrary in an Option Agreement, in the case of a voluntary Termination from Employment of the Participant initiated by the Participant or
Termination for Cause initiated by the Companies, the expiration of ninety (90) days after Termination from Employment or Termination for Cause, as the case may be. 

	2.
	Notice of Exercise. The Participant may Exercise an Option by delivering to the Plan Administrator a written notice specifying the
number of Shares to be purchased.

	3.
	Payment by Participant. Full payment of the Exercise Price for the Shares must be received from the Participant within three
(3) business days after providing the notice to the Plan Administrator.

	4.
	Cashless Exercise. Notwithstanding Section 3 above, the Committee may, in its sole discretion and subject to such rules as it may
adopt, permit the Participant to elect to satisfy, in whole or in part, the payment of the Exercise Price by having an independent broker retain Shares (or their cash equivalent) that would otherwise
be distributed (or paid) to the Participant in connection with the Exercise.

	5.
	Tax Withholding. The Companies shall have the right to deduct from any payment due to the Participant all amounts necessary for the
payment of taxes required by law, or as may be 

7

 

necessary in the sole judgment of the Committee to satisfy all federal, state, and/or local tax laws. To the extent authorized under existing laws, the Committee may allow the Participant to make
such tax remittance through cash or a personal check. In addition, the Committee may, in its sole discretion and subject to such rules as it may adopt, permit the Participant to satisfy, in whole or
in part, the payment of any applicable tax obligation by having the Companies retain Shares (or their cash equivalent) that would otherwise be distributed (or paid) to the Participant in connection
with the Exercise. 

	6.
	Cancellation of Options. In the event of any Termination from Employment of the Participant initiated by the Participant or Termination
for Cause initiated by the Companies, and at any time within ninety (90) days of such Termination from Employment of the Participant or Termination for Cause, the Companies may, at the sole
discretion of the Committee, make a payment in cash to the Participant equal to the Intrinsic Value of all vested Options in exchange for the Participant's surrender of the right to purchase Shares
under an Option.

	7.
	Plan Expenses. All expenses of administering the Plan shall be borne by the Companies. 

IX.  NONTRANSFERABILITY  

No
Option shall be transferable by the Participant except by will or by the laws of descent and distribution or, upon the consent of the Committee, pursuant to a gift of any vested Options to the
Participant's Immediate Family Member(s), whether directly or indirectly or by means of a trust, partnership, or otherwise. There may be consideration paid for such transfer, subject to approval by
the Committee at the Committee's sole discretion, and the Option Agreement pursuant to which such Options are granted must expressly provide for the transferability in a manner consistent with this
Part IX, and subsequent transfers of transferred Options shall be prohibited. Any transfer or purported transfer in violation of this paragraph shall be void and of no effect. All Options shall
be exercisable during the Participant's lifetime only by the Participant or by the guardian or legal representative of the Participant or by any person to whom an Option is transferred according to
this Part IX. In this Part IX, references to the Participant include the guardian and legal representative of the Participant. If the Participant transfers an Option pursuant to a gift
to the Participant's Immediate Family Member(s), then the Immediate Family Member(s) may not exercise such Option until after the expiration of sixty (60) days following the effective date of
transfer. 

X.    AMENDMENT OR TERMINATION OF THE PLAN  

StorageTek
in its sole discretion may terminate the Plan at any time. The Committee shall have the right to alter or amend the Plan or any part thereof from time to time; provided that no change in
any Option theretofore granted may be made which would impair the rights of the Participant without the consent of the Participant other than those rights to modify or revoke Options given to the
Committee under Part IV, Section 4. 

XI.  TIME FOR GRANTING OPTIONS  

Except
with respect to Options then outstanding, if not sooner terminated under the provisions of Parts VIII or X, the Plan shall terminate upon and no further Options shall be granted after the
expiration of twenty (20) years from the effective date of the Plan. 

XII. UNFUNDED PLAN  

Insofar
as it provides for Option grants or rights thereto, this Plan shall be unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended, and the Code. The
Shares subject to Options hereunder may be acquired by StorageTek in its name or otherwise. 

8

 

Any Shares so acquired will be the property of StorageTek and will be subject to the general creditors of StorageTek. 

XIII.    TRUST PROVISIONS  

A
trust shall be established to hold all cash and property contributed by the Companies. Except as otherwise provided in this Part XIII and Part X, the trust shall be irrevocable and no
portion of the trust fund shall be used for any purpose other than for fulfilling the provisions of this Plan and the payment of expenses of the Plan and trust. 

The
trust is intended to be a grantor trust, within the meaning of section 671 of the Code, of which StorageTek is the grantor, and this Plan shall be construed in accordance with such intent.
Notwithstanding any other provision of this Plan, the trust fund shall remain the property of StorageTek and be subject to the claims of its creditors in the event that StorageTek is insolvent. No
Participant will have any priority claim on the trust fund or any security interest or other right superior to the rights of a general creditor of StorageTek. 

XIV. LIMITATION OF RIGHTS  

Neither
the Plan, the granting of an Option, nor any other action taken pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that the Companies
will retain the services of the Participant for any period of time, or at any particular rate of compensation. 

Nothing
in the Plan shall be construed to give any employee of the Companies any right to be granted an Option. 

A
Participant shall have no rights as a shareholder with respect to the Shares covered by his or her Options until the date of the issuance to him or her of evidence of ownership of the Shares. 

XV.  LIABILITY  

No
member of the Board of Directors of StorageTek or the Committee shall be liable for any action taken or decision made in good faith relating to the Plan. The liability of the Companies under the
Plan for any Option granted hereunder is limited to the obligations set forth under the Plan and the accompanying Option Agreement, and nothing herein contained shall be construed to impose any
liability on the Companies in favor of the Participant with respect to any loss, cost, or expense which the Participant may incur in connection with or arising out of any transaction in connection
therewith. The obligation of the Companies to pay any benefit under the Plan shall be unfunded and unsecured, and any payments under the Plan shall be made to the Participant as a general creditor of
the Companies from the general assets of the Companies in accordance with Parts XII and XIII, above. 

XVI. NOTICES  

Any
notice or other communication required or permitted to be given under this instrument shall be deemed given when faxed, or sent by registered or certified mail or by express courier, postage
prepaid, addressed to the party to whom notice is to be given at such party's last known address. Any notice to the Companies must be addressed to the designated Plan Administrator. Any time limit
within which the receiving party must respond or act will begin to run upon the date of receipt of such notice. The date on which such notice becomes effective and binding will be the date of receipt
of such notice. 

9

 

XVII.    GOVERNING LAW  

This
Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware and construed and enforced accordingly. 

XVIII.    EFFECTIVE DATE  

The
Plan shall have an effective date of January 1, 2002. 

IN
WITNESS WHEREOF, Storage Technology Corporation has approved and adopted this Plan as of December 14, 2001, but effective as of the date indicated in Part XVIII above. 

	AGREED TO BY:	 	 
	 	 	 
	
Signature 	 	
Date
	 	 	 
	
Title	 	 

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