Document:

MASTER LEASE

                                 MULTIPLE LESSEE
                               MULTIPLE FACILITIES

                       STERLING ACQUISITION CORP., LESSOR

                                       AND

                     DIVERSICARE LEASING CORPORATION, LESSEE

                            DATED: November 8, 2000
                           (effective October 1, 2000)

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                                TABLE OF CONTENTS

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                                                               Page

RECITALS..........................................................................................................1

ARTICLE I.........................................................................................................1
         1.1      Lease...........................................................................................1
         1.2      Term............................................................................................2
         1.3      Option to Renew.................................................................................2

ARTICLE II........................................................................................................3
         2.1      Definitions.....................................................................................3

ARTICLE III......................................................................................................25
         3.1      Base Rent; Monthly Installments................................................................25
         3.2      Additional Charges.............................................................................26
         3.3      Late Charge....................................................................................26
         3.4      Net Lease......................................................................................26
         3.5      Payments In The Event of a Rent Adjustment.....................................................27

ARTICLE IV.......................................................................................................27
         4.1      Payment of Impositions.........................................................................27
         4.2      Notice of Impositions..........................................................................28
         4.3      Adjustment of Impositions......................................................................28
         4.4      Utility Charges................................................................................28
         4.5      Insurance Premiums.............................................................................28

ARTICLE V........................................................................................................29
         5.1      No Termination, Abatement, etc.................................................................29

ARTICLE VI.......................................................................................................29
         6.1      Ownership of the Leased Properties.............................................................29
         6.2      Lessor's Personal Property.....................................................................30
         6.3      Lessee's Personal Property.....................................................................30
         6.4      Grant of Security Interest in Lessee's Personal Property and Accounts..........................31

ARTICLE VII......................................................................................................31
         7.1      Condition of the Leased Properties.............................................................31
         7.2      Use of the Leased Properties...................................................................32
         7.3      Certain Environmental Matters..................................................................32

ARTICLE VIII.....................................................................................................37
         8.1      Compliance with Legal and Insurance Requirements...............................................37
         8.2      Certain Covenants..............................................................................37
         8.4      Management Agreements..........................................................................40
         8.5      Other Facilities...............................................................................40
         8.6      Separateness...................................................................................40
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ARTICLE IX.......................................................................................................41
         9.1      Maintenance and Repair.........................................................................41
         9.2      Encroachments, Restrictions, etc...............................................................42

ARTICLE X........................................................................................................43
         10.1     Construction of Alterations and Additions to the Leased Properties.............................43

ARTICLE XI.......................................................................................................44
         11.1     Liens..........................................................................................44

ARTICLE XII......................................................................................................44
         12.1     Permitted Contests.............................................................................44
         12.2     Lessor's Requirement for Deposits..............................................................45

ARTICLE XIII.....................................................................................................45
         13.1     General Insurance Requirements.................................................................45
         13.2     Risks to be Insured............................................................................46
         13.3     Payment of Premiums; Copies of Policies; Certificates..........................................47
         13.4     Premium Deposits...............................................................................48
         13.5     Umbrella Policies..............................................................................48
         13.6     Additional Insurance...........................................................................48
         13.7     No Liability; Waiver of Subrogation............................................................48
         13.8     Increase in Limits.............................................................................48
         13.9     Blanket Policy.................................................................................48
         13.10    No Separate Insurance..........................................................................49

ARTICLE XIV......................................................................................................49
         14.1     Insurance Proceeds.............................................................................49
         14.2     Restoration in the Event of Damage or Destruction..............................................50
         14.3     Restoration of Lessee's Property...............................................................50
         14.4     No Abatement of Rent...........................................................................50
         14.5     Waiver.........................................................................................50
         14.7     Disbursement of Insurance Proceeds Equal to or Greater Than The Approval Threshold.............50
         14.8     Net Proceeds Paid to Facility Mortgagee........................................................52

ARTICLE XV.......................................................................................................53
         15.1     Total Taking or Other Taking with Leased Property Rendered Unsuitable for Its
                      Primary Intended Use.......................................................................53
         15.2     Allocation of Award............................................................................54
         15.3     Partial Taking.................................................................................54
         15.4     Temporary Taking...............................................................................54
         15.5     Awards Paid to Facility Mortgagee..............................................................55
<PAGE>

ARTICLE XVI......................................................................................................56
         16.1     Lessor's Rights Upon an Event of Default.......................................................56
         16.2     Certain Remedies...............................................................................56
         16.3     Damages........................................................................................56
         16.4     ...............................................................................................57
         16.5     Waiver.........................................................................................57
         16.6     Application of Funds...........................................................................57
         16.7     Bankruptcy.....................................................................................58

ARTICLE XVII.....................................................................................................58
         17.1     Lessor's Right to Cure Lessee's Default........................................................58

ARTICLE XVIII....................................................................................................59
         18.1     Holding Over...................................................................................59
         18.2     Indemnity......................................................................................59

ARTICLE XIX......................................................................................................59
         19.1     Subordination..................................................................................59
         19.2     Attornment.....................................................................................60
         19.3     Lessee's Certificate...........................................................................60

ARTICLE XX.......................................................................................................60
         20.1     Risk of Loss...................................................................................60

ARTICLE XXI......................................................................................................61
         21.1     Indemnification................................................................................61

ARTICLE XXII.....................................................................................................62
         22.1     General Prohibition against Transfers..........................................................62
         22.2     Subordination and Attornment...................................................................62
         22.3     Sublease Limitation............................................................................62

ARTICLE XXIII....................................................................................................63
         23.1     Officer's Certificates and Financial Statements................................................63
         23.2     Public Offering Information....................................................................65

ARTICLE XXIV.....................................................................................................66
         24.1     Lessor's Right to Inspect......................................................................66

ARTICLE XXV......................................................................................................66
         25.1     No Waiver......................................................................................66

ARTICLE XXVI.....................................................................................................66
         26.1     Remedies Cumulative............................................................................66
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ARTICLE XXVII....................................................................................................66
         27.1     Acceptance of Surrender........................................................................66

ARTICLE XXIII....................................................................................................66
         28.1     No Merger of Title.............................................................................66
         28.2     No Partnership.................................................................................67

ARTICLE XXIX.....................................................................................................67
         29.1     Conveyance by Lessor...........................................................................67

ARTICLE XXX......................................................................................................67
         30.1     Quiet Enjoyment................................................................................67

ARTICLE XXXI.....................................................................................................67
         31.1     Notices........................................................................................67

ARTICLE XXXII....................................................................................................68
         32.1     Appraisers.....................................................................................68

ARTICLE XXXIII...................................................................................................70
         33.1     Breach by Lessor...............................................................................70
         33.2     Compliance With Facility Mortgage..............................................................70

ARTICLE XXXIV....................................................................................................70
         34.1     Disposition of Personal Property on Termination; Lessor's Option to Purchase...................70
         34.2     Facility Trade Names...........................................................................71
         34.3     Transfer of Operational Control of the Facilities..............................................71
         34.4     Intangibles and Personal Property..............................................................73

ARTICLE XXXV.....................................................................................................73
         35.1     Arbitration....................................................................................73

ARTICLE XXXVI....................................................................................................74
         36.1     Miscellaneous..................................................................................74

ARTICLE XXXVII...................................................................................................76
         37.1     Commissions....................................................................................76

ARTICLE XXXVIII..................................................................................................76
         38.1     Memorandum or Short Form of Lease..............................................................76

ARTICLE XXXIX....................................................................................................76
         39.3     Application of Security Deposit................................................................77
         39.4     Transfer of Security Deposit...................................................................78

EXHIBIT A.......................................................................................................A-1
         DESCRIPTION OF LAND....................................................................................A-1

EXHIBIT B.......................................................................................................B-1
         PERMITTED ENCUMBRANCES.................................................................................B-1

EXHIBIT C.......................................................................................................C-1
         LESSEE'S CERTIFICATE...................................................................................C-1

EXHIBIT D.......................................................................................................D-1
         MEMORANDUM OR SHORT FORM OF LEASE......................................................................D-1

SCHEDULE A Excluded Personal Property of Lessee.................................................................S-1
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                 CONSOLIDATED AMENDED AND RESTATED MASTER LEASE

         THIS  CONSOLIDATED  AMENDED AND  RESTATED  MASTER  LEASE  ("Lease")  is
executed and  delivered as of this 8th day of  November,  2000,  effective as of
October 1, 2000,  and is  entered  into by (i)  STERLING  ACQUISITION  CORP.,  a
Kentucky corporation ("Lessor"),  the address of which is 900 Victors Way, Suite
350, Ann Arbor,  Michigan 48108, and (ii)  DIVERSICARE  LEASING  CORPORATION,  a
Tennessee  corporation,  the address of which is 277 Mallory Station Road, Suite
130, Franklin, Tennessee 37067 ("Lessee").

                                    RECITALS

         The  circumstances  underlying the execution and delivery of this Lease
are as follows:

         A.  Capitalized  terms used and not otherwise  defined  herein have the
respective meanings given them in Article II, below.

         B. The parties hereto are parties to the Existing Leases. Prior hereto,
all of the lessor's interests in the Existing Leases have been consolidated into
Lessor,  and all of the  lessee's  interests  in the  Existing  Leases have been
consolidated into Lessee.

         C. The  parties  hereto wish to amend,  restate,  and  consolidate  the
Existing Leases on the terms and conditions set forth herein.

         NOW THEREFORE Lessor and Lessee agree as follows:

                                    ARTICLE I

         1.1 Lease. Upon and subject to the terms and conditions hereinafter set
forth,  Lessor  leases to Lessee  the  Leased  Properties  located  in  Alabama,
Arkansas,  Florida,  Kentucky, Ohio, Tennessee, and West Virginia and comprising
the   Facilities   described   on  Exhibits  A-  1  through  A-28  (the  "Leased
Properties").

         The Existing  Leases are hereby amended,  restated and  consolidated in
their  entirety as set forth in this Lease to provide for the continued  leasing
of the Leased  Properties by Lessee.  From and after the Commencement  Date, the
leasing of the  Leased  Properties  by Lessee  from  Lessor,  and the rights and
obligations  of the parties with respect  thereto,  shall be  determined  as set
forth and described in this Lease.  However, the lessees and lessors pursuant to
the Existing Leases are only released from those  obligations under the Existing
Leases  only  to the  extent  set  forth  in the  Settlement  and  Restructuring
Agreement.

<PAGE>

         The Leased Properties are leased subject to all covenants,  conditions,
restrictions,  easements  and other  matters  affecting  each  Leased  Property,
whether or not of record, including the Permitted Encumbrances and other matters
which would be  disclosed by an  inspection  of the Leased  Properties  or by an
accurate  survey  thereof,  provided,  however,  that  the  foregoing  will  not
materially  interfere  with the Primary  Intended Use of the Leased  Property by
Lessee as set forth in this Lease.

         This Lease  constitutes one indivisible  lease of the Leased Properties
to multiple  tenants,  and not separate  leases  governed by similar terms.  The
Leased Properties  constitute one economic unit, and the Base Rent and all other
provisions  have been  negotiated  and agreed to based on a demise of all of the
Leased Properties as a single, composite, inseparable transaction and would have
been  substantially  different  had  separate  leases or a divisible  lease been
intended.  Except as expressly  provided herein for specific,  isolated purposes
(and then only to the extent expressly otherwise stated), all provisions of this
Lease apply equally and  uniformly to all the Leased  Properties as one unit. An
Event of Default with  respect to any Leased  Property is an Event of Default as
to all of the Leased Properties.  The parties intend that the provisions of this
Lease shall at all times be  construed,  interpreted  and applied so as to carry
out their  mutual  objective  to create an  indivisible  lease of all the Leased
Properties and, in particular but without  limitation,  that for purposes of any
assumption,  rejection or assignment of this Lease under 11 U.S.C.  365, this is
one indivisible and non-severable  lease and executory contract dealing with one
legal and economic  unit which must be assumed,  rejected or assigned as a whole
with respect to all (and only all) the Leased Properties covered hereby.

         1.2 Term. The initial term of this Lease ("Initial  Term") shall be ten
(10) Lease Years. The Initial Term shall commence on the  Commencement  Date and
end on the  Initial  Term  Expiration  Date,  subject to renewal as set forth in
Section 1.3, below.

         1.3 Option to Renew.  Lessee is hereby  granted one (1) option to renew
this Lease for an additional,  successive  period of ten (10) Lease Years, for a
maximum  Term if such option is  exercised  of twenty (20) Lease  Years,  on the
following terms and conditions:  (a) the option to renew is exercisable  only by
Notice to Lessor at least  three  hundred  sixty-five  (365)  days  prior to the
expiration of the Initial Term;  (b) the absence of any Event of Default both at
the time a renewal option is exercised and at the commencement of a Renewal Term
is a condition  precedent  to any renewal of the Term;  and (c) during a Renewal
Term,  all of the terms and  conditions of this Lease shall remain in full force
and effect.

         1.4 Saving Provisions. If Lessee fails to notify Lessor of the exercise
of the extension option which Lessee has the right to exercise  hereunder within
the required time, its option to extend shall nevertheless remain full force and
effect for a period of fifteen (15) days after Notice from Lessor  subsequent to
the required time setting forth the  expiration  date of this Lease and advising
Lessee that Notice of  extension  has not been  received.  The right to renew as
thereby  extended  shall  expire on the close of business on the  fifteenth  day
after Notice, and may be thereafter not be exercised by Lessee.
<PAGE>

                                   ARTICLE II

         2.1  Definitions.  For all purposes of this Lease,  except as otherwise
expressly  provided  or unless the  context  otherwise  requires,  (i) the terms
defined in this Article  have the meanings  assigned to them in this Article and
include  the  plural  as well as the  singular,  (ii) all  accounting  terms not
otherwise  defined herein have the meanings  assigned to them in accordance with
GAAP as at the time applicable, (iii) all references in this Lease to designated
"Articles,"  "Sections" and other  subdivisions are to the designated  Articles,
Sections  and other  subdivisions  of this Lease,  and (iv) the words  "herein,"
"hereof" and  "hereunder"  and other words of similar import refer to this Lease
as a whole and not to any particular Article, Section or other subdivision.

                  Additional   Charges:   All  Impositions  and  other  amounts,
liabilities  and  obligations  which Lessee  assumes or agrees to pay under this
Lease, including, without limitation, the Annual Site Inspection Fee.

                  Adjustment  Date:  October 1, 2003,  and each  October 1
thereafter  throughout  the Term of this Lease.

                  Advocat: Advocat, Inc., a Delaware corporation.

                  Advocat Concentration Account: As defined in the Settlement
and Restructuring Agreement.

                  Affiliate:  Any Person which, directly or indirectly, Controls
or is Controlled by or is under common Control with another Person.

                  AmSouth: AmSouth Bank.

                  AmSouth Loan Documents:  The documents evidencing and securing
the  indebtedness  of Advocat  and its  Affiliates  to AmSouth as of the date of
execution and delivery of this Lease.

                  Annual  Site  Inspection  Fee:  An annual fee of One  Thousand
Dollars  ($1,000.00)  for each Facility  included  within the Leased  Properties
actually  inspected  by  Lessor  during  each  Lease  Year  throughout  the Term
beginning  with the Second (2nd) Lease Year which shall be paid by Lessee within
thirty (30) days after receipt by Lessee of an invoice therefor  together with a
copy of the complete site  inspection  report made with respect to each Facility
for which payment is requested.

                  Approval Threshold:  One Hundred Fifty Thousand Dollars
($150,000.00).

                  Assessment:   Any   governmental   assessment  on  the  Leased
Properties or any part thereof for public or private  improvements  or benefits,
whether or not  commenced or  completed  prior to the date hereof and whether or
not to be completed within the Term.
<PAGE>

                  Assumed Indebtedness: Any indebtedness or other obligations of
third  parties  from whom Lessor has  acquired  any Leased  Property,  expressly
assumed in writing by Lessor,  and  existing at the time of  acquisition  of the
Leased Property secured by a mortgage, deed of trust or other security agreement
to which Lessor's title to the Leased Properties is subject.

                  Award:  All  compensation,  sums or anything of value awarded,
 paid or received in  connection with a total or partial Taking.

                  Base Rent:

                  (A) During the Initial Term, the Base Rent shall be:

                         (1) For the first (1st) Lease Year,  Ten Million  Eight
                    Hundred Seventy Five Thousand Dollars ($10,875,000.00);

                         (2) For the second (2nd) Lease Year,  Ten Million Eight
                    Hundred Seventy Five Thousand Dollars ($10,875,000.00);

                         (3) For the third (3rd) Lease Year, Eleven Million Five
                    Hundred Thousand Dollars ($11,500,000.00);

                         (4) For each of the fourth (4th)  through  tenth (10th)
                    Lease  Years,  the lesser of (i) the Base Rent for the third
                    (3rd) Lease Year increased by a percentage  equal to two (2)
                    times the percentage  increase in the CPI (if positive) from
                    the  commencement  date of the third (3rd) Lease Year to the
                    Adjustment  Date in each of the fourth (4th)  through  tenth
                    (10th) Lease Years,  as  applicable  and (ii) the  following
                    amounts for each Lease Year:

                               Lease Year                         Base Rent
                               ----------                         ---------
                                    4                            $11,845,000
                                    5                            $12,200,350
                                    6                            $12,566,360
                                    7                            $12,943,351
                                    8                            $13.331.651
                                    9                            $13,731,601
                                    10                           $14,143,549

         Under no  circumstances  will the Base Rent in any  Lease  Year be less
         than the Base Rent during the preceding Lease Year.

                  (B) During the Renewal Term, the Base Rent shall be:

                           (1) For the first Lease Year of the Renewal Term, the
                  greater  of (a) the Base Rent  during the tenth  (10th)  Lease
                  Year of the Initial  Term and (b) the Fair Market Rent for the
                  Leased  Properties  on the first day of such  Renewal  Term as
                  agreed  upon  by  Lessor  and  Lessee,  or,  if  prior  to the

<PAGE>

                  commencement  of the Renewal Term they are unable to agree, as
                  determined  by an appraisal  pursuant to Article XXXII of this
                  Lease;  provided,  however,  that the Base  Rent for the first
                  Lease Year of the  Renewal  Term shall not exceed one  hundred
                  ten  percent  (110%)  of the  Base  Rent  for the  Lease  Year
                  immediately  preceding the  commencement  of the Renewal Term;
                  and

                           (2) For each of the second  (2nd)  through  the tenth
                  (10th) Lease Years during the Renewal Term,  the lesser of (i)
                  the Base Rent for the first  (1st)  Lease Year of the  Renewal
                  Term,  increased  by a  percentage  equal to two (2) times the
                  percentage   increase  in  the  CPI  (if  positive)  from  the
                  commencement  date of the Renewal Term to the Adjustment  Date
                  in each of the second (2nd)  through tenth (10th) Lease Years,
                  as applicable (the "Adjustment Date"), and (ii) the product of
                  the Base Rent during the first (1st) Lease Year of the Renewal
                  Term and the following percentage:

                             Lease Year During            Applicable Percentage
                               Renewal Term               ---------------------
                               ------------
                                      2                          1.03%
                                      3                          1.061%
                                      4                          1.093%
                                      5                          1.126%
                                      6                          1.159%
                                      7                          1.194%
                                      8                          1.23%
                                      9                          1.267%
                                     10                          1.305%

                  Under no  circumstances  will the Base Rent in any Lease  Year
                  during the Renewal  Term be less than the Base Rent during the
                  preceding Lease Year.

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

                  Capital Expenditures Reserve Account: As defined in Section
8.3.1.

                  Capitalization Rate:  Nine percent (9%) (See Section 15.3).

                  Capitalized  Leases:  Leases that in  accordance  with GAAP
are  required to be  capitalized  for financial reporting purposes.

                  Capitalized   Lease   Obligations:   All   obligations   under
Capitalized  Leases  the  amount  of the  indebtedness  for  which  shall be the
capitalized amount of such obligations determined in accordance with GAAP.
<PAGE>

                  Casualty/Condemnation  Reduction  Percentage:  The  percentage
obtained by dividing the Retained Amount by the Investment Amount.

                  Citation:  Any  operational or physical  plant  deficiency set
forth in writing with respect to a Facility by any governmental  body or agency,
or Medicare intermediary, having regulatory oversight over a Facility, Lessee or
Manager,  with  respect to which the scope and  severity of the penalty for such
deficiency,  if not cured,  is one or more of the following:  loss of licensure,
decertification of a Facility from participation in the Medicare and/or Medicaid
programs,  appointment  of a  temporary  manager  or denial of  payment  for new
admissions.

                  Clean-Up: The investigation, removal, restoration, remediation
and/or elimination of, or other response to, Contamination,  in each case to the
satisfaction of all  governmental  agencies having  jurisdiction,  in compliance
with or as may be required by Environmental Laws.

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

                  Commencement Date: October 1, 2000, even though this Lease has
been executed  subsequent  thereto.  Base Rent and other payments made by Lessee
under the Existing  Leases  attributable  to the period on and after  October 1,
2000 and prior to the date of  execution  of this Lease shall be applied to Base
Rent and other payments due hereunder.

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

                  Consolidated Financial Statement:

                  (a)  For  each  quarter  during  Lessee's  fiscal  year,  on a
consolidated  basis for  Lessee,  (i) a statement  of  earnings  for the current
period and  fiscal  year to the end of such  period,  with a  comparison  to the
corresponding  figures for the corresponding period in the preceding fiscal year
from the  beginning  of the fiscal  year to the end of such  period,  and (ii) a
balance  sheet  as  of  the  end  of  the  period,  with  a  comparison  to  the
corresponding  figures for the corresponding period in the preceding fiscal year
from the beginning of the fiscal year to the end of such period.

                  (b) For  Lessee's  fiscal  year,  the  Consolidated  Financial
Statement  shall be a  financial  report  for  Lessee on a  consolidated  basis,
reviewed  by a "big  five"  accounting  firm or any  other  firm of  independent
certified public  accountants  reasonably  acceptable to Lessor,  containing the
Lessee's  balance sheet as of the end of that year, its related profit and loss,
a statement of shareholder's equity for that year, a statement of cash flows for
that year, and such comments and financial  details as are customarily  included
in reports of like character. Lessor shall have the right upon reasonable Notice
to Lessee to cause any such  Consolidated  Financial  Statement to be audited at
Lessor's  expense by certified  public  accountants  selected by Lessor.  Lessee

<PAGE>

shall  cooperate in any such audit and shall  provide the  auditors  selected by
Lessor  with access to and the  opportunity  to copy at  Lessor's  expense  such
books,  records and other  materials as such auditors may reasonably  request in
order to perform their audit.

                  (c) For  Advocat's  fiscal year,  the  Consolidated  Financial
Statements  shall  be an  audited  financial  report  prepared  by a "big  five"
accounting firm or any other firm of independent  certified  public  accountants
reasonably  acceptable to Lessor,  containing  Advocat's balance sheet as of the
end of that year,  its related  profit and loss,  a statement  of  shareholder's
equity for that year, a statement of cash flows for that year, and such comments
and financial  details as are customarily  included in reports of like character
and the opinion of the certified  public  accountants  as to the fairness of the
statements therein.

                  Construction Funds: The Net Proceeds and such additional funds
as may be  deposited  with  Lessor  by  Lessee  pursuant  to  Section  14.6  for
restoration or repair work pursuant to this Lease.

                  Contamination:  The presence, Release or threatened Release of
any  Hazardous   Substance  at  the  Leased   Properties  in  violation  of  any
Environmental  Law,  or in a quantity  that  would give rise to any  affirmative
Clean-Up obligations under an Environmental Law, including,  but not limited to,
the  existence  of any  injury or  potential  injury to public  health,  safety,
natural  resources  or  the  environment  associated  therewith,  or  any  other
environmental  condition at, in, about, under or migrating from or to the Leased
Properties.

                  Control (and its corollaries "Controlled by" and "under common
Control with"):  Possession,  directly or indirectly,  of the power to direct or
cause the  direction of the  management  and  policies of a Person,  through the
ownership of voting securities, partnership interests or other equity interests,
or by any other device.

                  CPI or Consumer Price Index: As of any date, the United States
Department of Labor, Bureau of Labor Statistics Revised Consumer Price Index for
All Urban Consumers  (1982=84=100),  U.S. City Average,  All Items,  or, if that
index is not  available at the time in question,  the index  designated  by such
Department  as the  successor  to  such  index,  and if  there  is no  index  so
designated,  an  index  for an area  in the  United  States  that  most  closely
corresponds to the entire United  States,  published by such  Department,  or if
none,  by any other  instrumentality  of the United  States,  calculated in this
Lease as the CPI  attributable to the month three months prior to the applicable
date herein (e.g.,  the CPI used to calculate the  adjustment in Base Rent as of
October 1, 2005, shall be the CPI for the month of July,  2005,  compared to the
CPI for the month of July, 2002).

                  Coverage Ratio: For any period, the ratio of EBITDARM divided
by Debt Service.

                  Current Ratio: At any period, Lessee's Current Assets divided
by Lessee's Current Liabilities.
<PAGE>

                  Date of Taking:  The date on which the Condemnor has the right
to  possession  of the  Leased  Property  that is the  subject  of the Taking or
Partial Taking.

                  Debt: As of any date, all (a) obligations of a Person, whether
current  or  long-term,  that in  accordance  with GAAP  should be  included  as
liabilities on such Person's balance sheet; (b) Capitalized Lease Obligations of
such Person;  (c) obligations of others for which that Person is liable directly
or  indirectly,  by way of  guaranty  (whether by direct  guaranty,  suretyship,
discount,  endorsement,  take-or-pay agreement, agreement to purchase or advance
or keep in funds  or  other  agreement  having  the  effect  of a  guaranty)  or
otherwise;  (d) liabilities  and  obligations  secured by liens of any assets of
that Person,  whether or not those  liabilities or  obligations  are recourse to
that Person;  and (e)  liabilities of that Person,  direct or  contingent,  with
respect to letters of credit  issued for the account of that Person or others or
with respect to bankers acceptances created for that Person.

                  Debt  Service:  With respect to any fiscal period of a Person,
the sum of (a) all interest due on Debt during the period  (other than  interest
imputed,  pursuant to GAAP, on any Capitalized Lease Obligations and interest on
Debt that comprises Purchase Money Financing),  (b) all payments of principal of
Debt  required  to be made  during  the  period  and (c) all Rent due during the
period.

                  Distribution:  Any  payment  or  distribution  of  cash or any
assets of Lessee or a Sublessee to one or more  shareholders of Lessee or to any
Affiliate of Lessee,  whether in the form of a dividend, a fee for management in
excess of the fee required by the terms of a Management Agreement, a payment for
services rendered (except as provided in the next sentence), a reimbursement for
overhead incurred on behalf of Lessee, or a payment on any debt required by this
Lease to be subordinated to the rights of Lessee. Notwithstanding the foregoing,
none of the  following are a  Distribution:  (i) payment of the fee permitted by
the terms of the Management  Agreement,  (ii) any payment pursuant to a contract
with an  Affiliate  of Lessee or  Sublessee  which  contract  is upon  terms and
conditions  that are fair  and  substantially  similar  to those  that  would be
available  on an arm's  length  basis,  and  (iii)  reimbursement  by  Lessee or
Sublessee to an Affiliate for third party  expenses  (but not overhead)  paid by
the Affiliate on behalf of or which are fairly allocable to Lessee or Sublessee.

                  DLC:  Diversicare Leasing Corporation, a Tennessee corporation
and a Lessee herein.

                  EBITDARM:  For any period, the sum of (a) Net Income of Lessee
arising solely from the operation of the Facilities  during the period,  and (b)
the amounts  deducted in  computing  the Net Income of Lessee for the period for
(i) depreciation.  (ii) amortization,  (iii) Base Rent, (iv) interest (including
payments in the nature of interest under Capitalized  Leases and interest on any
Purchase  Money  Financing),  (v) income  taxes (or,  if greater,  income  taxes
actually paid during the period) and (vi) management fees.

                  Encumbrance: Any mortgage, deed of trust, lien, encumbrance or
other matter affecting title to the Leased Properties, or any portion thereof or
interest  therein,  securing  any  borrowing  or  other  means of  financing  or
refinancing.
<PAGE>

                  Environmental  Audit:  A  written  certificate,  in  form  and
substance   satisfactory  to  Lessor,   from  an  environmental   consulting  or
engineering   firm  acceptable  to  Lessor,   which  states  that  there  is  no
Contamination  on the  Leased  Properties  and that the  Leased  Properties  are
otherwise in strict compliance with Environmental Laws.

                  Environmental Documents:  Each and every (i) document received
by Lessee or any Affiliate from, or submitted by Lessee or any Affiliate to, the
United States Environmental  Protection Agency and/or any other federal,  state,
county  or  municipal   agency   responsible   for  enforcing  or   implementing
Environmental  Laws with respect to the condition of the Leased  Properties,  or
Lessee's operations at the Leased Properties; and (ii) review, audit, report, or
other analysis data pertaining to environmental  conditions,  including, but not
limited to, the presence or absence of Hazardous Substances, at, in, or under or
with  respect to the Leased  Properties  that have been  prepared  by, for or on
behalf of Lessee.

                  Environmental   Laws:  All  federal,   state  and  local  laws
(including,  without  limitation,  common  law),  statutes,  codes,  ordinances,
regulations,  rules,  orders,  permits or  decrees of the United  States and the
States (or any political  subdivision  thereof) in which any Leased  Property is
located  relating  to  the  introduction,  emission,  discharge  or  Release  of
Hazardous  Substances into the indoor or outdoor environment  (including without
limitation, air, surface water, groundwater, land or soil) or otherwise relating
to  the  manufacture,   processing,   distribution,   use,  treatment,  storage,
transportation, disposal, or Release of Hazardous Substances; or the Clean-Up of
Contamination, all as are now or may hereinafter be in effect.

                  Event of Default:  The occurrence of any of the following:

                  (a) Lessee  fails to pay or cause to be paid the Rent when due
and payable and such failure is not cured by Lessee  within a period of five (5)
days after Notice thereof from Lessor, provided that Lessee shall be entitled to
such Notice and may avail  itself of such cure period no more than two (2) times
in any calendar year;

                  (b) Lessee,  on a petition in bankruptcy  filed against it, is
adjudicated a bankrupt or has an order for relief thereunder entered against it,
or a court of  competent  jurisdiction  enters an order or decree  appointing  a
receiver of Lessee or any Guarantor or of the whole or substantially  all of its
property, or approving a petition filed against Lessee seeking reorganization or
arrangement of Lessee under the federal  bankruptcy laws or any other applicable
law or statute of the United  States of America or any state  thereof,  and such
judgment,  order or decree is not  vacated or set aside or stayed  within  sixty
(60)  days  from  the  date of the  entry  thereof,  subject  to the  applicable
provisions of the Bankruptcy Code (11 USC ss.101 et. seq.) and to the provisions
of Section 16.7, below;

                  (c)  Lessee:  (i) Admits in writing its  inability  to pay its
debts  generally as they become due,  (ii) files a petition in  bankruptcy  or a
petition  to take  advantage  of any  insolvency  law,  (iii)  makes  a  general
assignment for the benefit of its creditors, (iv) consents to the appointment of
a receiver of itself or of the whole or any substantial part of its property, or

<PAGE>

(v) files a petition or answer seeking  reorganization  or arrangement under the
Federal  bankruptcy  laws or any other  applicable  law or statute of the United
States of America or any state thereof,  subject to the applicable provisions of
the  Bankruptcy  Code (11 USC ss.101 et. seq.) and to the  provisions of Section
16.7, below;

                  (d)  Lessee is  finally  liquidated  or  dissolved,  or begins
proceedings  toward such  liquidation or dissolution,  or has filed against it a
petition or other  proceeding  to cause it to be liquidated or dissolved and the
proceeding is not dismissed within thirty (30) days thereafter, or Lessee in any
manner  permits  the sale or  divestiture  of  substantially  all of its  assets
necessary or related to the use and operation of the Leased Properties;

                  (e) The estate or interest of Lessee in the Leased  Properties
or any part thereof is levied upon or attached in any proceeding and the same is
not vacated or discharged  within thirty (30) days thereafter  (unless Lessee is
in the process of contesting such lien or attachment in good faith in accordance
with Article XII hereof);

                  (f) Lessee  voluntarily ceases operation of any Facility for a
period in excess of five (5) Business Days except upon prior Notice to, and with
the  express  prior  written  consent  of  Lessor  pursuant  to the terms of the
Settlement and Restructuring  Agreement or other written agreement of the Lessor
and Lessee,  or as the  unavoidable  consequence  of damage or  destruction as a
result of a casualty, or a Partial or total Taking;

                  (g) Any  representation  or  warranty  made by  Lessee  in the
Settlement and  Restructuring  Agreement,  the Stock  Issuance and  Subscription
Agreement, or in the certificates delivered in connection therewith proves to be
untrue when made in any material  respect,  Lessor is  materially  and adversely
affected  thereby,  and Lessee fails  within  thirty (30) days after Notice from
Lessor  thereof to cure such  condition by  terminating  such adverse effect and
making Lessor whole for any damage suffered therefrom, or, if with due diligence
such cure cannot be effected  within  thirty (30) days,  if Lessee has failed to
commence to cure the same within the thirty  (30) days or failed  thereafter  to
proceed promptly and with due diligence to cure such condition and complete such
cure  prior to the time that such  condition  causes a default  in any  Facility
Mortgage  or any other  lease to which  Lessee is subject  and prior to the time
that the same  results in civil or criminal  penalties  to Lessor,  Lessee,  any
Affiliates of either or the Leased Properties;

                  (h) Lessee (or, if applicable, any Sublessee or Manager):

                           (i)      has its license to operate any Facility as a
                                    provider   of  health   care   services   in
                                    accordance  with its  Primary  Intended  Use
                                    suspended  or  revoked,  or its  right to so
                                    operate a Facility suspended, and the effect
                                    of  such  suspension  or  revocation  is not
                                    stayed or cured  within  three (3)  Business
                                    Days of Lessee's first knowledge thereof;
<PAGE>

                           (ii)     has its right to accept patients  suspended,
                                    and the effect is not stayed or cured within
                                    thirty (30) days of Lessee's first knowledge
                                    thereof;

                           (iii)    receives  a  Citation   with  respect  to  a
                                    Facility  and  fails to cure  the  condition
                                    that is the subject of the  Citation  within
                                    the period of time required for such cure by
                                    the  issuer of the  Citation  or, if longer,
                                    the  period  of time set  forth in a Plan of
                                    Correction  accepted  by the  issuer  of the
                                    Citation;

Notwithstanding  the foregoing,  the conditions  described in the Subsection (h)
shall not be an Event of Default if such  conditions at any time are  applicable
to two (2) or fewer  Facilities,  and if Lessee  complies with the provisions of
Section 39.2 relating to increasing the Security Deposit.

                  (i) Lessee  defaults,  or permits a default (which default was
not  exclusively  in Lessor's  control)  under any  Facility  Mortgage,  related
documents  or  obligations  thereunder  which  default  is not cured  within any
applicable cure period provided for therein;

                  (j) A default occurs under any Guaranty,  which default is not
cured within the applicable cure period, if any;

                  (k) A Transfer occurs without the prior written consent
of Lessor;

                  (l) A default  occurs  under  the  Security  Agreement,  which
default is not cured within the applicable cure period, if any;

                  (m) A default occurs under the  Settlement  and  Restructuring
Agreement, which default is not cured within the applicable cure period, if any;

                  (n) Advocat fails to begin paying interest on the Subordinated
Note, fails to begin paying cash dividends on the Preferred Stock (as defined in
the Settlement and  Restructuring  Agreement) or defaults  beyond any applicable
notice and cure period in its  obligations  under the  Subordinated  Note or the
instruments governing the Preferred Stock.

                  (o) A  default  occurs  under  the  Subordinated  Note,  which
default is not cured within the applicable cure period, if any;

                  (p) A default occurs under the Stock Issuance and Subscription
Agreement, which default is not cured within the applicable cure period, if any;

                  (q) A default  by  Lessee  occurs  under  any  other  contract
affecting any Facility or Lessee,  which default  results in a material  adverse
affect on any  Facility  or Lessee,  and which  default is not cured  within the
applicable time period, if any;
<PAGE>

                  (r) Any  "Triggering  Event"  occurs  under  the  terms of the
Settlement and Restructuring Agreement;

                  (s)  Lessee or an  Affiliate  of Lessee  defaults  beyond  any
applicable grace period in the payment of any material amount or the performance
of any  material  act  required of Lessee or such  Affiliate by the terms of any
other lease or other  agreement  between  Lessee or such Affiliate and Lessor or
any Affiliate of Lessor;

                  (t)  Lessee  fails to  observe  or  perform  any  other  term,
covenant  or  condition  of this  Lease and the  failure  is not cured by Lessee
within a period of thirty (30) days after Notice thereof from Lessor, unless the
failure  cannot with due diligence be cured within a period of thirty (30) days,
in which case such failure shall not be deemed an Event of Default if and for so
long as Lessee proceeds  promptly and with due diligence to cure the failure and
completes  the cure  prior to the time  that the same  causes a  default  in any
Facility  Mortgage  and  prior to the time  that  the same  results  in civil or
criminal penalties to Lessor,  Lessee, any Affiliates of either or to the Leased
Properties; or

                  (u) Lessee  breaches any of the covenants set forth in Article
VIII  hereof and the breach is not cured  within a period of the  shorter of (i)
thirty (30) days after the Notice  thereof  from  Lessor,  and (ii) fifteen (15)
days  following the date of delivery of a  certificate  pursuant to Section 23.1
(i) or 23.1 (ii).
Lessor,  at Lessor's sole  discretion,  may deliver Notice to Lessee electing to
not treat a default as an Event of Default hereunder.

                  Executive Officer: The Chairman of the Board of Directors, the
Chief Executive Officer,  the Chief Operating Officer,  the President,  any Vice
President  and the  Secretary  of any  corporation,  a  general  partner  of any
partnership  and a managing member of any limited  liability  company upon which
service of a Notice is to be made.

                  Existing  Leases:  (i) That certain  Master Lease dated August
14, 1992 by and between Diversicare Corporation of America, Inc., as lessee, and
Omega  Healthcare  Investors,  Inc.,  as lessor  covering  nineteen  (19) of the
Facilities  located in Tennessee,  Arkansas and Alabama,  as amended by Consent,
Assignment  and Amendment  Agreement  dated May 10, 1994 and First  Amendment to
Master Lease dated as of March 3,1999,  the lessee's  interest in which has been
assigned  to and assumed by Lessee and the  lessor's  interest in which has been
acquired by the lessor herein; and

                  (ii) That certain  Master Lease dated  December 1, 1994 by and
between  Sterling  Health Care  Management,  Inc.,  a Kentucky  corporation,  as
lessee,  and the Lessor  herein,  as lessor,  covering six (6) of the Facilities
located in Kentucky  and Ohio,  as amended by First  Amendment  to Master  Lease
dated as of March 3, 1999,  the lessee's  interest in which has been assigned to
and assumed by Lessee; and

                  (iii) That certain  Master  Sublease dated December 1, 1994 by
and between Sterling Health Care Management,  Inc., a Kentucky  corporation,  as
sublessee, and OS Leasing Company, as sublessor and as lessee under an Overlease
with  Sterling  Acquisition  Corp.  II,  as  lessor,  covering  one  (1)  of the

<PAGE>

Facilities  located in Ohio,  as amended by First  Amendment to Master  Sublease
dated as of March 3, 1999,  the Lessee's  interest in which has been assigned to
and  assumed by Lessee and the  sublessor's  interest  in which,  as well as the
lessor's  interest under the Overlease,  has been acquired by the Lessor herein;
and

                  (iv) That certain  Master Lease dated  February 1, 1997 by and
between  Sterling Health Care Management,  Inc., as lessee,  and Lessor here, as
lessor,  covering the two (2) Facilities located in West Virginia, as amended by
First Amendment to Master Lease dated as of August 10, 2000.

                  Expiration  Date:  The Initial Term  Expiration  Date or the
Renewal  Term  Expiration  Date,  as applicable.

                  Facility(ies):   Each  health  care   facility  on  the  Land,
including the Leased Property associated with such Facility,  and together,  all
such facilities on the Leased Properties.

                  Facility  Mortgage:  Any  mortgage,  deed of  trust  or  other
security  agreement placed upon any or all of the Leased Properties and of which
Notice  together with a copy of such  mortgage,  deed of trust or other security
agreement has been provided to Lessee,  which with the express,  prior,  written
consent  of Lessor is a lien upon any or all of the Leased  Properties,  whether
such lien secures an Assumed Indebtedness or another obligation or obligations.

                  Facility Mortgagee: The secured party to a Facility Mortgage.

                  Facility  Trade Names:  The name(s) under which the Facilities
have done  business  during the Term.  The  Facility  Trade  Names in use by the
Facilities on the Commencement Date are set forth on attached Exhibit A.

                  Fair Market  Rent:  The rent that,  at the  relevant  time,  a
Facility  would  most  probably  command  in the open  market,  under a lease on
substantially  the same terms and conditions as are set forth in this Lease with
a lessee  unrelated to Lessor having  experience  and a reputation in the health
care  industry and a credit  standing  reasonably  equivalent to that of Lessee,
and, if this Lease is guaranteed, with such lease being guaranteed by guarantors
having a net worth at least equal to that of  Guarantors,  with evidence of such
rent  being the rent that is being  asked and  agreed to at such time  under any
leases of facilities comparable to such Facility being entered into at such time
in which the lessees and lease guarantors meet the  qualifications  set forth in
this  sentence.  Fair Market Rent shall be  determined  in  accordance  with the
appraisal procedure set forth in Article XXXII or in such other manner as may be
mutually acceptable to Lessor and Lessee.

                  Fair Market Value:  The fair market value of a Facility at the
relevant  time (i) assuming  the same is  unencumbered  by this Lease,  and (ii)
determined in accordance with the appraisal procedure set forth in Article XXXII
or in such other manner as may be mutually acceptable to Lessor and Lessee.
<PAGE>

                  Fixtures:  Collectively,  all permanently  affixed  equipment,
machinery, fixtures, and other items of real and/or personal property (excluding
Lessor's Personal Property), including all components thereof, now and hereafter
located  in,  on or used in  connection  with,  and  permanently  affixed  to or
incorporated into the Leased Improvements,  including,  without limitation,  all
furnaces, boilers, heaters, electrical equipment,  heating, plumbing,  lighting,
ventilating, refrigerating, incineration, air and water pollution control, waste
disposal,  air-cooling and  air-conditioning  systems and apparatus  (other than
individual  units),  sprinkler systems and fire and theft protection  equipment,
built-in  oxygen  and  vacuum   systems,   towers  and  other  devices  for  the
transmission  of radio,  television  and  other  signals,  all of which,  to the
greatest  extent  permitted by law, are hereby  deemed by the parties  hereto to
constitute  real  estate,   together  with  all   replacements,   modifications,
alterations and additions thereto.
<PAGE>

                  Force Majeure:  An event or condition  beyond the control of a
Person, including without limitation a flood, earthquake, or other Act of God; a
fire or other  casualty  resulting in a complete or partial  destruction  of the
Facility in question; a war, revolution,  riot, civil insurrection or commotion,
terrorism,  or vandalism;  unusual governmental action, delay,  restriction,  or
regulation  not  reasonably to be expected;  a contractor  or supplier  delay or
failure in performance (not arising from a failure to pay any undisputed  amount
due), or a delay in the delivery of essential equipment or materials; bankruptcy
or other insolvency of a contractor, subcontractor, or construction manager (not
an Affiliate of the party claiming Force Majeure); a strike,  slowdown, or other
similar  labor  action;  or any other  similar  event or  condition  beyond  the
reasonable  control of the party  claiming  that Force  Majeure is  delaying  or
preventing  such party from timely and fully  performing its  obligations  under
this Lease; provided that in any such event, the party claiming the existence of
Force  Majeure  shall have  given the other  party  Notice of such claim  within
fifteen (15) days after becoming aware thereof,  and if the party claiming Force
Majeure shall fail to give such Notice, then the event or condition shall not be
considered  Force Majeure for any period preceding the date such Notice shall be
given. No lack of funds shall be construed as Force Majeure.

                  GAAP:  Generally accepted accounting principles in effect at
the time in question.

                  Gross Revenues: All revenues received or receivable from or by
reason of the  operation  of the  Facilities,  or any  other  use of the  Leased
Properties,  including  without  limitation  all  patient  revenues  received or
receivable  for the use of or otherwise by reason of all rooms,  beds, and other
facilities  provided,  meals  served,  services  performed,  space or facilities
subleased or goods sold on the Leased  Properties and, except as provided below,
any consideration  received for any sublease,  license or other arrangement with
an  unrelated  third party in  possession,  or using,  any portion of the Leased
Properties. Gross Revenues shall not, however, include:

                  (i) revenue from  professional  fees or charges by  physicians
         when and to the extent such charges are paid over to such physicians or
         are  accompanied  by  separate  charges  for use of a  Facility  or any
         portion thereof,
<PAGE>

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

                  (iii) contractual allowances and reasonable reserves (relating
         to any period  during the Term) for  billings  not paid by or  received
         from the appropriate  governmental  agencies,  third party providers or
         other payors,

                  (iv)  all  proper  patient  billing  credits  and  adjustments
         according  to  generally  accepted  accounting  principles  relating to
         health care accounting, and

<PAGE>

                  (v) federal,  state or local sales or excise taxes and any tax
         based upon or  measured  by said  revenues  which is added to or made a
         part of the amount  billed to the  patient or other  recipient  of such
         services  or  goods,   whether   included  in  the  billing  or  stated
         separately.

         If any of the Leased Properties or any part thereof is subleased,  or a
license  permitting the use thereof is granted to an Affiliate of Lessee,  Gross
Revenues  shall include all revenues  received or receivable by the sublessee or
licensee  from  its use of the  Leased  Properties  and any  rent or  equivalent
payment by the sublessee or licensee  received or receivable by Lessee from such
sublease or licensee shall be excluded from Gross Revenues  (provided,  however,
that in the case of a  sublease  of  space  for the  placement  or  erection  of
antennae or similar device,  the rent or equivalent payment shall be included in
Gross Revenues).

                  Guarantor(s):  Advocat,  Diversicare Management Services  Co.,
a  Tennessee  corporation,  and Advocat Finance, Inc., a Delaware corporation.

                  Guaranty: The Amended and Restated Guaranty of even date
herewith executed by the Guarantors.

                  Hazardous  Substance:   Any  dangerous,   toxic  or  hazardous
material,  substance,  pollutant,  contaminant,  chemical,  or waste (including,
without  limitation,  medical waste) defined,  listed or described as such under
any  Environmental  Law,  including,  without  limitation,  petroleum  products,
asbestos and PCBs.

                  Impositions:   Collectively,  all  taxes  (including,  without
limitation, all capital stock and franchise taxes of Lessor, and all ad valorem,
sales and use, single business, gross receipts,  transaction privilege,  rent or
similar taxes to the extent the same are assessed against Lessor on the basis of
its  interest  in the Leased  Property),  assessments  (including  Assessments),
ground rents, water, sewer or other rents and charges, excises, tax levies, fees
(including, without limitation,  license, permit, inspection,  authorization and
similar fees), and all other governmental  charges, in each case whether general
or special,  ordinary or  extraordinary,  or  foreseen or  unforeseen,  of every
character  in respect  of the  Leased  Properties  or the  businesses  conducted
thereon  by  Lessee  and/or  the Rent  (including  all  interest  and  penalties
thereon),  which at any time  prior to,  during or in respect of the Term may be
assessed or imposed on or in respect of or be a lien upon (i) Lessor or Lessor's

<PAGE>

interest  in the  Leased  Properties,  (ii) the  Leased  Properties  or any part
thereof or any rent therefrom or any estate,  right,  title or interest therein,
(iii) any occupancy, operation, use or possession of, or sales from, or activity
conducted on, or in connection with the Leased  Properties or the leasing or use
of the Leased Properties or any part thereof, or (iv) the Rent;  notwithstanding
the foregoing,  Impositions shall not include: (i) except as provided above, any
tax  imposed  on  Lessor's  gross  and/or  net  income   whether   generally  or
specifically  arising  in  connection  with the Leased  Properties,  or (ii) any
transfer  or other tax  imposed  with  respect  to the sale,  exchange  or other
disposition  by Lessor  of the  Leased  Properties  or any part  thereof  or the
proceeds thereof.  If a tax is assessed against Lessor in part based on Lessor's
interest in the Leased  Property and in part based on Lessor's  gross and/or net
income, the portion of the tax which is based on Lessor's interest in the Leased
Property shall be treated as an Imposition.

                  Initial Term:     As defined in Section 1.2 hereof.

                  Initial Term Expiration Date: September 30, 2010

                  Insurance  Requirements:  All  terms of any  insurance  policy
required  by this  Lease  and all requirements of the issuer of any such policy.

                  Intercreditor  Agreement:  Intercreditor  Agreement of even
date  herewith by and between Lessor and AmSouth.

                  Investigation:  Any soil and chemical test or any other
environmental investigation,  examination or analysis.

                  Investment  Amount:  $96,635,048.00,  increased by a
percentage equal to the percentage  increase in the CPI from the Commencement
Date through the applicable Proceeds Date.

                  Judgment Date: The date on which a judgment is entered against
Lessee  which  establishes,  without the  possibility  of appeal,  the amount of
liquidated damages to which Lessor is entitled hereunder.

                  Land:    The real property described in Exhibits A-1 through
A-28 attached hereto.

                  Lease:  As defined in the Preamble.

                  Lease Year: October 1, 2000 through September 30, 2001, and
each twelve month period thereafter.

                  Leased Improvements:  Collectively, all buildings, structures,
Fixtures and other  improvements  of every kind on the Land  including,  but not
limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits
and lines (on-site and off-site), parking areas and roadways appurtenant to such
buildings and structures.
<PAGE>

                  Leased  Property:  The portion of the Land on which a Facility
is located,  the legal  description of which is set forth beneath the Facility's
name on Exhibits A-1 through A-28,  the Leased  Improvements  on such portion of
the Land,  the Related  Rights  with  respect to such  portion of the Land,  and
Lessor's Personal Property with respect to such Facility.

                  Leased  Properties:  All of the Land, Leased  Improvements,
Related Rights and Lessor's Personal Property.

                  Legal Requirements:  All federal, state, county, municipal and
other  governmental  statutes,   laws,  rules,  orders,  waivers,   regulations,
ordinances,  judgments,  decrees and injunctions affecting the Leased Properties
or any portion thereof,  Lessee's Personal Property or the construction,  use or
alteration thereof, including but not limited to the Americans with Disabilities
Act, whether enacted and in force before, after or on the Commencement Date, and
including  any which may (i)  require  repairs,  modifications,  alterations  or
additions  in or to any  portion  or all of the  Facilities,  or (ii) in any way
adversely affect the use and enjoyment  thereof,  and all permits,  licenses and
authorizations and regulations  relating thereto including,  but not limited to,
those relating to existing health care licenses,  those  authorizing the current
number of  licensed  beds and the level of  services  delivered  from the Leased
Properties,  and  all  covenants,  agreements,   restrictions  and  encumbrances
contained in any  instruments,  either of record or known to Lessee  (other than
encumbrances  created by Lessor without the consent of Lessee),  in force at any
time during the Term.

                  Lessee: The Lessee under this Lease from time to time, subject
to Section 22.1.

                  Lessee's Certificate:  A statement in writing in substantially
the form of  Exhibit  C  attached  hereto  (with  such  changes  thereto  as may
reasonably be requested by the person relying on such certificate).

                  Lessee's Current Assets: At any date, all assets of Lessee and
Sublessees  that, on a  consolidated  basis in conformity  with GAAP,  should be
carried as current assets on the balance sheet of Lessee at such date.

                  Lessee's Current Liabilities:  At any date, all liabilities of
Lessee and  Sublessees  that, on a consolidated  basis in conformity  with GAAP,
should be carried as current  liabilities on the balance sheet of Lessee at such
date.

                  Lessee's Personal Property:  Personal Property owned or leased
by Lessee  that is not  included  within the  definition  of  Lessor's  Personal
Property  but is used by Lessee in the  operation of the  Facilities,  including
Personal Property provided by Lessee in compliance with Section 6.3 hereof.

                  Lessor's  Future Rent Loss:  An amount equal to the Rent which
would have been payable by Lessee from and after the Liquidated  Damages Payment
Date through the Expiration Date had the Lease not been terminated.

<PAGE>

                  Lessor's  Interim Rent Loss: An amount equal to the Rent which
would have been payable by Lessee from the Termination Date through the Judgment
Date had the Lease not been  terminated  (including  interest  and late  charges
determined on the basis of the date or dates on which Lessor's Interim Rent Loss
is actually paid by Lessee).

                  Lessor's  Monthly Rent Loss: For any month, an amount equal to
the  installment of Rent which would have been due in such month under the Lease
if it had not been terminated, plus, if such amount is not paid on or before the
day of the month on which such  installment  of Rent  would  have been due,  the
amount of interest and late charges thereon which would also have been due under
the Lease.

                  Lessor's   Personal   Property:   All  Personal  Property  and
intangibles, if any, now or hereafter owned by Lessor, together with any and all
replacements  thereof,  and all Personal  Property that pursuant to the terms of
the Lease becomes the property of Lessor during the Term.

                  Liquidated  Damages  Payment  Date:  The date on which  Lessee
pays Lessor all of the  liquidated damages for which it is liable under Article
XVI.

                  Management  Agreement:  Any agreement  pursuant to which
management of a Facility is delegated by Lessee to any person not an employee of
Lessee or to any other related or unrelated party.

                  Manager:  The Person to which management of the operation of a
Facility  is  delegated  pursuant  to  a  Management  Agreement,  which  at  the
Commencement   Date  is  Diversicare   Management   Services  Co.,  a  Tennessee
corporation.

                  Minimum Qualified Capital Expenditures: As defined in Section
8.3.2.

                  Net Income: For any period, the net income (or loss) of Lessee
and its subsidiaries for such period,  determined on a consolidated basis and in
accordance  with GAAP,  provided,  however,  that  Lessee's Net Income shall not
include:

                  (a)      any  after-tax  gains  or  losses   attributable  to
                           returned  surplus  assets  of  any pension-benefit
                           plan;

                  (b)      any extraordinary gains or nonrecurring gains;

                  (c)      any gains or losses  realized  upon the sale or other
                           disposition   of  property   which  is  not  sold  or
                           otherwise  disposed  of in  the  ordinary  course  of
                           business;

                  (d)      any gains or losses  realized  upon the sale or other
                           disposition of any capital stock of any Person;

                  (e)      any gains from the disposal of a discontinued
                           business;
<PAGE>

                  (f)      the cumulative effect on prior years of any change in
                           an accounting principle;

                  (g)      the income or loss of any Person  acquired  by Lessee
                           or an Affiliate in a pooling of interests transaction
                           for any period prior to the date of such acquisition;

                  (h)      the income  from any sale of assets in which the book
                           value of such  assets  had been the book value of any
                           Person acquired in a pooling-of-interests transaction
                           prior to the date such Person  became an Affiliate of
                           Lessee;

                  (i)      the  income  (or loss) of any  Person  (other  than a
                           subsidiary)   in  which   Lessee  has  an   ownership
                           interest;  provided,  however,  that (i) Lessee's Net
                           Income shall include amounts in respect of the income
                           of such  Person  when  actually  received  in cash by
                           Lessee   in  the  form  of   dividends   or   similar
                           distributions  and (ii)  Lessee's Net Income shall be
                           reduced by the aggregate  amount of all  investments,
                           regardless  of the form  thereof,  made by  Lessee in
                           such Person for the purpose of funding any deficit or
                           loss of such Person;

                  (j)      the  income of Lessee to the  extent  the  payment of
                           such income is not  permitted,  whether on account of
                           any law,  statute,  judgment,  decree or governmental
                           order, rule or regulation applicable to such Lessee;

                  (k)      all amounts included in computing such net income (or
                           loss) in respect of the  write-up of any asset or the
                           write-down  of any Debt at less than face value after
                           the  later  of the  Commencement  Date or the date on
                           which such asset or Debt was first properly  included
                           on Lessee's balance sheet.

                  (l)      the reduction in income tax expense resulting from an
                           increase  in a  deferred  income tax asset due to the
                           anticipation of future income tax benefits; or

                  (m)      the reduction in income tax expense resulting from an
                           increase  in a  deferred  income  tax asset or from a
                           decrease in a deferred  income tax liability due to a
                           change in a statutory tax rate.

                  Net  Proceeds:  All  proceeds,  net of any costs  incurred  by
Lessor in obtaining  such  proceeds,  payable by reason of any loss or damage to
any Leased  Property  under any policy of insurance  required by Article XIII of
this Lease  (including any proceeds with respect to Lessee's  Personal  Property
that  Lessee is  required  or elects to restore or replace  pursuant  to Section
14.3) or paid by a  Condemnor  for the Taking of any of all or any  portion of a
Leased Property.
<PAGE>

                  Net  Reletting  Proceeds:  Proceeds  of the  reletting  of any
portion  of the  Leased  Property received by Lessor, net of Reletting Costs.

                  New Sub: As defined in the Settlement and Restructuring
Agreement.

                  Notice: A notice given in accordance with Article XXXI hereof.

                  Notice of  Termination:  A Notice from Lessor that it is
terminating  this Lease by reason of an Event of Default.

                  Officer's  Certificate:  If for a  corporation,  a certificate
signed by one or more  officers of the  corporation  authorized  to do so by the
bylaws of such corporation or a resolution of the Board of Directors thereof; if
for a  partnership,  limited  liability  company or any other kind of entity,  a
certificate  signed by a Person having the authority to so act on behalf of such
entity.

                  Omega: Omega Healthcare Investors, Inc., a Maryland
corporation.

                  Overdue Rate: On any date,  the interest rate that is equal to
three and one-half  percent (3 1/2%) (three  hundred  fifty (350) basis  points)
above  the  Prime  Rate,  but in no event  greater  than the  maximum  rate then
permitted under applicable law.

                  Partial  Taking:  A taking  of less than the  entire  fee of a
Leased Property that either (i) does not render the Leased  Property  Unsuitable
for its  Primary  Use,  or (ii)  renders a Leased  Property  Unsuitable  for its
Primary  Intended Use, but neither Lessor nor Lessee elects  pursuant to Section
15.1 hereof to terminate this Lease.

                  Payment Date:  Any due date for the payment of the
installments  of Base Rent or for the payment of Additional Charges or any other
amount required to be paid by Lessee hereunder.

                  Permitted Encumbrances: Encumbrances listed on attached
Exhibit B.

                  Person: Any natural person, trust,  partnership,  corporation,
joint venture,  limited liability company or other legal entity.

                  Personal  Property:  All  machinery,   equipment,   furniture,
furnishings,   movable  walls  or  partitions,  computers  (and  all  associated
software),  trade fixtures and other personal property (but excluding consumable
inventory  and  supplies  owned by Lessee)  used in  connection  with the Leased
Properties, together with all replacements and alterations thereof and additions
thereto,  except items,  if any,  included  within the definition of Fixtures or
Leased Improvements.

                  Present  Value:  The value of future  payments,  determined by
discounting each such payment at a rate equal to the yield on the specified date
on securities  issued by the United  States  Treasury  (bills,  notes and bonds)
maturing  on the date  closest to the date such future  payment  would have been
due.
<PAGE>

                  Primary  Intended Use: Skilled nursing  facilities,  except as
specifically set forth on Schedule B attached hereto.

                  Prime Rate:  On any date,  an interest rate equal to the prime
rate  published  by the Wall Street  Journal,  but in no event  greater than the
maximum rate then  permitted  under  applicable  law. If the Wall Street Journal
ceases to be in  existence,  or for any  reason no longer  publishes  such prime
rate,  the Prime  Rate  shall be the rate  announced  as its prime rate by Fleet
Bank,  and if such bank no longer  exists or does not  announce  a prime rate at
such time,  the Prime Rate shall be the rate of interest  announced as its prime
rate by a national bank selected by Lessor.

                  Proceeding:  Any action,  proposal or investigation by any
agency or entity,  or any complaint to such agency or entity.

                  Proceeds Date: Any date upon which Lessor or a Facility
Mortgagee receives a Retained Amount.

                  Purchase Money Financing:  Any financing  provided by a Person
to Lessee in  connection  with the  acquisition  of  Personal  Property  used in
connection with the operation of a Facility,  whether by way of installment sale
or otherwise.

                  Qualified   Capital   Expenditures:  Expenditures  capitalized
on  the  books  of  Lessee  for alterations,  renovations,  repairs and
replacements  to the Facilities  including  without  limitation any of the
following:

                  Replacement of furniture,  fixtures and  equipment,  including
                  refrigerators,  ranges,  major appliances,  bathroom fixtures,
                  doors (exterior and interior),  central air  conditioning  and
                  heating  systems  (including  cooling  towers,  water chilling
                  units,  furnaces,  boilers and fuel  storage  tanks) and major
                  replacement  of  siding;  major roof  replacements,  including
                  major replacements of gutters, down spouts, eaves and soffits;
                  major  repairs  and  replacements  of  plumbing  and  sanitary
                  systems;   overhaul  of  elevator  systems;   major  repaving,
                  resurfacing  and  sealcoating  of sidewalks,  parking lots and
                  driveways;   repainting  of  entire  building  exterior;   but
                  excluding  additions,  normal  maintenance  and  repairs.  For
                  purposes  of  this  definition,  "additions"  shall  mean  any
                  expansion of a Facility,  including the  construction of a new
                  wing or a new story on an existing Facility.

                  Regulatory  Actions:  Any  claim,  demand,  notice,  action or
proceeding  brought,  threatened or initiated by any  governmental  authority in
connection with any Environmental Law,  including,  without  limitation,  civil,
criminal and  administrative  proceedings,  whether or not the remedy  sought is
costs, damages, equitable remedies, penalties or expenses.
<PAGE>

                  Related  Rights:  All  easements,  rights and  appurtenances
relating to the Land and the Leased Improvements.

                  Release: The intentional or unintentional  spilling,  leaking,
dumping,  pouring,  emptying,   seeping,   disposing,   discharging,   emitting,
depositing,  injecting,  leaching, escaping, abandoning, or any other release or
threatened release, however defined, of any Hazardous Substance.

                  Reletting  Costs:  Expenses  incurred by Lessor in  connection
with the  reletting of the Leased  Properties in whole or in part after an Event
of Default, including without limitation attorneys' fees and expenses, brokerage
fees and expenses,  marketing  expenses and the cost of repairs and  renovations
reasonably required for such reletting.

                  Renewal Term: A period for which the Term is renewed in
accordance with Section 1.3.

                  Renewal Term Expiration Date: September 30, 2020.

                  Rent:  Collectively, the Base Rent and Additional Charges.

                  Replacement  Cost:  As to each  Leased  Property,  the  actual
replacement cost of such Leased  Improvements,  Fixtures and Personal  Property,
including  an  increased  cost  of  construction  endorsement,  less  exclusions
provided  in  the  standard  form  of  fire  insurance  policy.  In  all  events
Replacement Cost shall be an amount sufficient that neither Lessor nor Lessee is
deemed to be a co-insurer of the Leased Property in question.  Lessor shall have
the right from time to time, but no more  frequently  than once in any period of
three  (3)  consecutive   Lease  Years,  to  have  Replacement  Cost  reasonably
redetermined  by the fire  insurance  company which is then carrying the largest
amount of fire insurance on the Leased Properties,  which determination shall be
final and  binding on the parties  hereto,  and upon such  determination  Lessee
shall forthwith increase,  but not decrease, the amount of the insurance carried
pursuant to Section 13.2.1 to the amount so determined,  subject to the approval
of any  Facility  Mortgagee.  Lessee  shall pay the fee,  if any, of the insurer
making such determination.

                  Retained  Amount:  An amount  equal to either (a) Net Proceeds
received by Lessor and/or a Facility  Mortgagee pursuant to the terms of Article
14 of  this  Lease,  if  such  Net  Proceeds  are  not  made  available  for the
restoration  of the Leased  Property or (b) an Award received by Lessor and/or a
Facility  Mortgagee  pursuant to Article 15 of this Lease,  if such Award is not
made available to the Lessee for the restoration of the Leased Property.

                  SEC:  Securities and Exchange Commission.

                  Security  Agreement:  The  Security  Agreement  dated as of
the date  hereof  between  Lessor  as secured party and Lessee as debtor.
<PAGE>

                  Security  Deposit:  Three Hundred Forty Thousand Three Hundred
Four and 35/100  Dollars  ($340,304.35),  delivered and held in accordance  with
Article XXXIX hereof.

                  Settlement and Restructuring  Agreement:  The Settlement and
Restructuring Agreement of even date herewith by and among Lessee, the
Guarantors, Sterling Health Care Management, Inc., Lessor, and Omega.

                  Special Project Capital Expenditures: As defined in Section
8.3.1.

                  State(s): The State or States in which the Leased Properties
are located.

                  Stock  Issuance and  Subscription  Agreement:  The Stock
Issuance and  Subscription  Agreement of even date herewith by and between
Advocat and Omega.

                  Stressed  Coverage Ratio: For any period, a fraction,  (1) the
numerator of which is EBITDARM,  less the sum of (a) Minimum  Qualified  Capital
Expenditures  and (b) management  fees, and (2) the denominator of which is Debt
Service.

                  Subordinated Note: The Subordinated Note of even date herewith
from  Advocat to Omega in the  original  principal  amount of One Million  Seven
Hundred Thousand and 00/100 Dollars ($1,700,000.00).

                  Sublessee: A permitted sublessee of Lessee pursuant to the
conditions of Section 22.4

                  Taken: Conveyed pursuant to a Taking.

                  Taking:  A taking or voluntary  conveyance  during the Term of
all or part of a Leased  Property,  or any  interest  therein or right  accruing
thereto or use thereof,  as the result of, or in settlement of any  condemnation
or other eminent domain proceeding  affecting the Leased Property whether or not
the same shall have actually been commenced.

                  Term:    Collectively,  the Initial Term plus the Renewal Ter1
or Renewal Terms, if any,  subject to earlier termination pursuant to the
provisions hereof.

                  Termination Date:  The date on which a Notice of Termination
is given.

                  Third  Party   Claims:   Any  claims,   actions,   demands  or
proceedings  (other than Regulatory  Actions) howsoever based (including without
limitation  those based on negligence,  trespass,  strict  liability,  nuisance,
toxic tort or detriment to health  welfare or  property)  due to  Contamination,
whether or not the  remedy  sought is costs,  damages,  penalties  or  expenses,
brought by any person or entity other than a governmental agency.

                  Transfer: The (a) assignment,  mortgaging or other encumbering
of  all or any  part  of  Lessee's  interest  in  this  Lease  or in the  Leased
Properties,  or (b) subletting of the whole or any part of any Leased  Property,
or (c) entering  into of any  Management  Agreement or other  arrangement  under
which any  Facility is operated by or licensed to be operated by an entity other

<PAGE>

than  Lessee,  or (d) merger,  consolidation  or  reorganization  of a corporate
Lessee or Manager  (except,  for Manager  only, to an  Affiliate),  or the sale,
issuance, or transfer,  cumulatively or in one transaction,  of any voting stock
of Lessee or Manager (except,  for Manager only, to an Affiliate) by Persons who
are  stockholders  of record of Lessee,  which results in a change of Control of
Lessee or Manager  (except,  for Manager  only, to an  Affiliate),  or (e) sale,
issuance or transfer,  cumulatively or in one transaction,  of any interest,  or
the termination of any interest, in Lessee or Manager (except, for Manager only,
to an Affiliate),  if Lessee or such Manager,  is a joint venture,  partnership,
limited  liability  company or other  association,  which results in a change of
Control of such joint venture, partnership or other association.

                  Transferee:  An  assignee,  subtenant  or other  occupant  of
a  Leased  Property  pursuant  to a Transfer.

                  Triggering Event: As defined in the Settlement and
Restructuring Agreement.

                  Unsuitable for Its Primary  Intended Use: A state or condition
of a Facility such that by reason of damage or destruction, or a Partial Taking,
the  Facility  cannot be operated on a  commercially  practicable  basis for its
Primary  Intended Use, taking into account,  among other relevant  factors,  the
number of usable beds permitted by applicable law and regulation in the Facility
after the damage or destruction or Partial Taking, the square footage damaged or
Taken and the estimated  revenue impact of such damage or destruction or Partial
Taking.

                                   ARTICLE III

         3.1 Base Rent; Monthly Installments.  In addition to all other payments
to be made by Lessee under this Lease,  Lessee shall pay Lessor the Base Rent in
lawful  money of the  United  States of  America  which is legal  tender for the
payment of public and private debts, in advance,  in equal,  consecutive monthly
installments, each of which shall be in an amount equal to one-twelfth (1/12) of
the Base Rent payable for the Lease Year in which such  installment  is payable.
The first  installment of Base Rent shall be payable on the  Commencement  Date,
together  with a prorated  amount of Base Rent for the period  from  November 1,
2000 until the fifteenth (15th) day of November, 2000. Thereafter,  installments
of Base Rent shall be payable on the fifteenth (15th) day of each calendar month
during the Term.  Base Rent shall be paid to Lessor,  or to such other Person as
Lessor from time to time may designate by Notice to Lessee,  by wire transfer of
immediately available federal funds to the bank account designated in writing by
Lessor.  If Lessor directs Lessee to pay any Base Rent or Additional  Charges to
any Person other than Lessor,  Lessee shall send to Lessor  simultaneously  with
such payment a copy of the transmittal  letter or invoice and check whereby such
payment is made, or such other evidence of such payment as Lessor may require.
<PAGE>

         3.2 Additional  Charges. In addition to the Base Rent, Lessee will also
pay as and when due (a) the Annual Site  Inspection  Fee and (b) all  Additional
Charges.

         3.3 Late Charge. If any Rent payable to Lessor is not paid when due and
such  failure  is not  cured by Lessee  within a period  of five (5) days  after
Notice  thereof  from  Lessor,  provided  that Lessee  shall be entitled to such
Notice  and may avail  itself of such cure  period no more than two (2) times in
any calendar year, Lessee shall pay Lessor on demand, as an Additional Charge, a
late charge  equal to the greater of (i) two percent (2%) of the amount not paid
when due and (ii) any and all charges,  expenses,  fees or penalties  imposed on
Lessor by a Facility Mortgagee for late payment,  and in addition,  if such Rent
(including  the late charge) is not paid within  thirty (30) days of the date on
which  such  Rent was due,  interest  thereon  at the  Overdue  Rate  from  such
thirtieth (30th) day until such Rent (including the late charge and interest) is
paid in full.

         3.4      Net Lease.

                  3.4.1 The Rent shall be paid absolutely net to Lessor, so that
this Lease shall  yield to Lessor the full amount of the Rent  payable to Lessor
hereunder throughout the Term, subject only to any provisions of the Lease which
expressly provide for adjustment or abatement of Rent or other charges.

                  3.4.2 If Lessor  commences any  proceedings for non-payment of
Rent,  Lessee will not interpose any  counterclaim or cross complaint or similar
pleading of any nature or  description in such  proceedings  unless Lessee would
lose or waive such claim by the  failure to assert it, but Lessee does not waive
any  rights to assert  such claim in a separate  action  brought by Lessee.  The
covenants to pay Rent are independent covenants,  and Lessee shall have no right
to hold back,  offset or fail to pay any Rent because of any alleged  default by
Lessor or for any other reason whatsoever.

<PAGE>
         3.5 Payments In The Event of a Rent Adjustment. In the event this Lease
provides  for  adjustment  of  the  Base  Rent  on any  basis  that  requires  a
determination of Base Rent which cannot be made on or before the due date of the
first  installment  of Base Rent  following the  Adjustment  Date,  Lessee shall
continue  to pay the Base Rent at the rate  previously  in effect  until  Lessor
gives Lessee Notice of its  determination  of the adjusted Base Rent.  Upon such
determination,  the  Base  Rent  shall  be  retroactively  adjusted  as  of  the
Adjustment  Date.  On or before  the  second  (2nd)  Payment  Date for Base Rent
following  receipt by Lessee of Lessor's Notice of the adjustment,  Lessee shall
make an  additional  payment of Base Rent in such  amount as will bring the Base
Rent, as adjusted,  current on or before such second (2nd)  Payment  Date,  plus
interest on the amount of such additional  payment (i.e. the difference  between
the monthly  installment  of Base Rent  before and after the  increase as of the
Adjustment  Date,  divided by thirty (30) and  multiplied  by the number of days
between the Adjustment Date and the date of payment by Lessee) at the Prime Rate
from the  Adjustment  Date  through  the date of such  additional  payment,  and
thereafter Lessee shall pay the adjusted Base Rent in  correspondingly  adjusted
monthly  installments  until the Base Rent is next adjusted as required  herein.
This Section 3.5 shall survive the  expiration or termination of this Lease with
respect  to any  adjustment  which is not known or fully  paid as of the date of
expiration or termination.

<PAGE>

                                   ARTICLE IV

         4.1  Payment  of  Impositions.  Subject  to  Article  XII  relating  to
permitted  contests,  Lessee will pay all Impositions before any fine,  penalty,
interest or cost is added for non-payment,  such payments to be made directly to
the taxing authorities where feasible, and will promptly, upon request,  furnish
to Lessor copies of official  receipts or other  satisfactory  proof  evidencing
such  payments.  If at the option of the taxpayer any Imposition may lawfully be
paid in  installments,  Lessee  may pay the  same in the  required  installments
provided it also pays any and all interest due thereon as and when due.

         Lessor shall,  to the extent  required or permitted by applicable  law,
prepare and file all tax returns and reports as may be required by  governmental
authorities  in respect of Lessor's net income,  gross  receipts,  sale and use,
single business,  transaction privilege,  rent, ad valorem,  franchise taxes and
taxes on its capital stock. Lessee shall, to the extent required or permitted by
applicable law,  prepare and file as and when required all other tax returns and
reports  required by governmental  authorities  with respect to all Impositions.
Lessor and Lessee shall each,  upon  request,  provide the other with such data,
including without limitation cost and depreciation  records, as is maintained by
the party to whom the request is made as is  necessary  to prepare any  required
returns and reports. If any provision of any Facility Mortgage requires deposits
for payment of  Impositions,  Lessee shall  either pay the required  deposits to
Lessor monthly and Lessor shall make the required  deposits,  or, if directed in
writing to do so by Lessor, Lessee shall make such deposits directly.

         Lessee shall be entitled to receive and retain any refund from a taxing
authority  in  respect  of an  Imposition  paid by  Lessee if at the time of the
refund no Event of Default has  occurred and is  continuing,  but if an Event of
Default has occurred and is continuing  at the time of the refund,  Lessee shall
not be entitled  to receive or retain  such  refund and if and when  received by
Lessor such refund shall be applied as provided in Article XVI.

         In the event governmental  authorities classify any property covered by
this Lease as personal  property,  Lessee shall file all  personal  property tax
returns in such  jurisdictions  where it may  legally so file.  Where  Lessor is
legally required to file personal property tax returns,  Lessee will be provided
with  copies of  assessment  notices  in  sufficient  time for  Lessee to file a
protest.  Billings for  reimbursement  by Lessee to Lessor of personal  property
taxes shall be  accompanied  by copies of a bill  therefor and payments  thereof
which  identify the personal  property  with respect to which such  payments are
made.

         Lessee  may,  upon  Notice to and with the  prior  written  consent  of
Lessor, which consent shall not be unreasonably  withheld, at Lessee's sole cost
and expense,  protest, appeal, or institute such other proceedings as Lessee may
deem  appropriate  to effect a reduction  of real  estate or  personal  property
assessments and Lessor,  at Lessee's expense as aforesaid,  shall cooperate with
Lessee in such protest,  appeal, or other action. In any such proceeding brought
by Lessor, Lessee shall cooperate with Lessor at Lessee's sole cost and expense.
Lessee shall  reimburse  Lessor for Lessor's  direct costs of  cooperating  with
Lessee for such protest, appeal or other action.
<PAGE>

         4.2 Notice of Impositions. Lessor shall give prompt Notice to Lessee of
all  Impositions  payable by Lessee  hereunder  of which  Lessor at any time has
knowledge, but Lessor's failure to give any such Notice shall in no way diminish
Lessee's obligations  hereunder to pay such Impositions,  but such failure shall
obviate any default hereunder for a reasonable time after Lessee receives Notice
of any Imposition which it is obligated to pay.

         4.3 Adjustment of  Impositions.  Impositions  imposed in respect of the
tax-fiscal  period  during  which the Term ends shall be adjusted  and  prorated
between Lessor and Lessee, whether or not imposed before or after the expiration
of the Term or the earlier termination  thereof,  and Lessee's obligation to pay
its prorated share thereof shall survive such expiration or earlier termination.

         4.4 Utility  Charges.  Lessee will pay or cause to be paid when due all
charges for electricity, power, gas, oil, water and other utilities used in each
Leased Property  during the Term and imposed upon the Leased  Properties or upon
Lessor or Lessee with respect to the Leased Properties.

         4.5 Insurance  Premiums.  Lessee shall pay or cause to be paid when due
all premiums for the insurance  coverage  required to be maintained  pursuant to
Article XIII during the Term.

<PAGE>

                                    ARTICLE V

         5.1 No Termination,  Abatement,  etc. Except as otherwise  specifically
provided in this Lease,  Lessee shall not take any action without the consent of
Lessor to modify,  surrender or terminate  this Lease,  and shall not seek or be
entitled to any abatement,  deduction, deferment or reduction of Rent, or setoff
against  Rent.  Except as  otherwise  specifically  provided in this Lease,  the
respective  obligations  of Lessor and Lessee shall not be affected by reason of
(i) any damage to, or  destruction  of, the  Leased  Properties  or any  portion
thereof  from  whatever  cause or any  Taking of the  Leased  Properties  or any
portion  thereof,  other than any damage to or destruction of a Leased  Property
that  Lessee  conclusively  establishes  was caused  solely by Lessor;  (ii) the
lawful or unlawful  prohibition  of, or  restriction  upon,  Lessee's use of the
Leased Properties,  or any portion thereof, or the interference with such use by
any  Person  or by  reason  of  eviction  by  paramount  title,  other  than any
prohibition or restriction of use of a Leased Property that Lessee  conclusively
establishes  was solely  caused by Lessor;  (iii) any claim which  Lessee has or
might have against  Lessor or by reason of any default or breach of any warranty
by Lessor under this Lease or any other agreement  between Lessor and Lessee, or
to which  Lessor and Lessee are parties,  except  where such claims  result in a
termination  of this Lease,  (iv) any  bankruptcy,  insolvency,  reorganization,
composition,  readjustment,   liquidation,  dissolution,  winding  up  or  other
proceedings affecting Lessor or any assignee or transferee of Lessor, or (v) any
other cause whether  similar or dissimilar to any of the foregoing  other than a
discharge of Lessee from any such  obligations  as a matter of law. For purposes
of this Section 5.1, a matter shall be deemed to be conclusively  established by
Lessee if (a) Lessor agrees in writing or (b) (i) Lessee shall have given Lessor
Notice thereof and a time reasonable under the circumstances to cure any claimed
default of Lessor and (ii) Lessee  thereafter  establishes such contention in an
arbitration  proceeding  as provided for in Article  XXXV of this Lease.  Lessee
hereby specifically waives all rights,  arising from any occurrence  whatsoever,
which may now or hereafter be conferred upon it by law to (i) modify,  surrender
or  terminate  this  Lease or quit or  surrender  the Leased  Properties  or any
portion thereof, or (ii) entitle Lessee to any abatement,  reduction, suspension
or  deferment of the Rent or other sums  payable by Lessee  hereunder  except as
otherwise specifically provided in this Lease.

<PAGE>

                                   ARTICLE VI

         6.1 Ownership of the Leased  Properties.  Lessee  acknowledges that the
Leased  Properties are the property of Lessor and that Lessee has only the right
to the possession and use of the Leased Properties upon the terms and conditions
of this  Lease.  Lessee  will  not (i)  file  any  income  tax  return  or other
associated  documents;  (ii) file any other document with or submit any document
to any governmental body or authority;  (iii) enter into any written contractual
arrangement with any Person;  or (iv) release any Financial  Statements or other
financial  statements of Lessee,  in any case that take any position  other than
that  throughout  the Term  Lessor is the  owner of the  Leased  Properties  for
federal,  state and local income tax purposes and this Lease is a "true  lease,"
and an "operating lease" and not a "capital lease".
<PAGE>

         6.2 Lessor's Personal Property.  Lessee shall,  during the entire Term,
maintain all of Lessor's Personal  Property in good order,  condition and repair
as shall  be  necessary  in order to  operate  the  Facilities  for the  Primary
Intended Use in  compliance  with all  applicable  licensure  and  certification
requirements,  all applicable Legal Requirements and Insurance Requirements, and
customary  industry  practice  for the Primary  Intended  Use.  Lessee shall not
permit or suffer Lessor's Personal  Property to be subject to any lien,  charge,
encumbrance,  financing statement, contract of sale, equipment lessor's interest
or the like,  except for any  purchase  money  security  interest  or  equipment
lessor's interest expressly approved in advance,  in writing,  by Lessor. At the
expiration  or earlier  termination  of this  Lease,  all of  Lessor's  Personal
Property shall be surrendered to Lessor with the Leased  Properties at or before
the time of the surrender of the Leased Property in at least as good a condition
as at the  Commencement  Date  (or,  as to  replacements,  in at least as good a
condition as when placed in service at the Facilities)  except for ordinary wear
and tear.

         6.3  Lessee's  Personal  Property.  Lessee  shall  provide and maintain
during  the Term such  Personal  Property,  in  addition  to  Lessor's  Personal
Property,  as shall be  necessary  and  appropriate  in  order  to  operate  the
Facilities  for the Primary  Intended Use in  compliance  with all licensure and
certification requirements, in compliance with all applicable Legal Requirements
and Insurance  Requirements and otherwise in accordance with customary  practice
in the industry for the Primary  Intended Use  ("Lessee's  Personal  Property").
Except to the extent  specifically  allowed under Section  8.2.1.4,  without the
prior  written  consent  of  Lessor,  which  consent  shall not be  unreasonably
withheld,  Lessee shall not permit or suffer  Lessee's  Personal  Property to be
subject to any lien,  charge,  encumbrance,  financing  statement or contract of
sale or the like other than that  provided for in Section 6.4 below.  Except for
those items of Personal Property listed on Schedule A attached hereto,  upon the
expiration  of the Term or the earlier  termination  of this Lease,  without the
payment of any  additional  consideration  by Lessor,  Lessee shall be deemed to
have sold,  assigned,  transferred and conveyed to Lessor all of Lessee's right,
title and interest in and to any of Lessee's Personal Property that, in Lessor's
reasonable judgment, is necessary or integral to the Primary Intended Use of the
Facilities (or if some other use thereof has been approved by Lessor as required
herein,  such other use as is then being made by Lessee)  and,  as  provided  in
Section  34.1  hereof,  Lessor shall have the option to purchase any of Lessee's
Personal  Property that is not then necessary or integral to such use ("Lessee's
Incidental Personal  Property").  In connection with any Personal Property sold,
assigned,  transferred or conveyed to Lessor pursuant to the preceding sentence,
Lessor  shall  assume any lease or  equipment  financing  obligations  of Lessee
permitted under Section 8.2.1.4 hereof.  Without Lessor's prior written consent,
Lessee  shall  not  remove  Lessee's  Personal  Property  that  is in use at the
expiration or earlier  termination of the Term from the Leased  Properties until
such option to purchase has expired or been sooner  waived in writing by Lessor.
Any of Lessee's  Incidental  Personal  Property  that is not purchased by Lessor
pursuant to Section 34.1, together with the Personal Property listed on Schedule
A  attached  hereto,  may be removed by Lessee  upon the  expiration  or earlier
termination of this Lease, and, if not removed within twenty (20) days following
the  expiration  or  earlier  termination  of this  Lease,  shall be  considered
abandoned  by Lessee  and may be  appropriated,  sold,  destroyed  or  otherwise
disposed of by Lessor  without  giving notice  thereof to Lessee and without any

<PAGE>

payment to Lessee or any obligation to account therefor.  Lessee shall reimburse
Lessor  for any and all  expense  incurred  by  Lessor  in  disposing  of any of
Lessee's  Personal  Property  that Lessee may remove but within such twenty (20)
day period  fails to remove,  and shall  either at its own  expense  restore the
Leased Properties to the condition  required by Section 9.1.5,  including repair
of all damage to the Leased  Properties caused by the removal of any of Lessee's
Personal  Property,  or  reimburse  Lessor for any and all  expense  incurred by
Lessor for such restoration and repair. Lessor claims to own all of the Personal
Property (other than the items listed on Schedule A) now used in connection with
the  operation of the  Facilities.  Lessee claims to own certain of the Personal
Property  which it has purchased as  replacement  of certain  Personal  Property
owned  by  Lessor  at  the  commencement  of the  Existing  Leases  and  certain
additional  non-replacement Personal Property placed at the Facilities since the
commencement of the Existing Leases. Both parties agree that Lessor owned all of
the  Personal  Property at the  Facilities  at the time of  commencement  of the
Existing Leases, and that Lessee may use all of the Personal Property during the
Term.  Both parties  acknowledge  and agree that neither (i) the entry into this
Lease and related documents, nor (ii) their failure during the Term to insist on
resolution of their  disagreement  as to whether  Lessee now owns certain of the
Personal  Property shall prejudice their  respective  claims to ownership of the
Personal  Property  at the end of the  Term and  that  the  continuance  of this
disagreement shall not be an Event of Default under this Lease.

         6.4 Grant of  Security  Interest  in  Lessee's  Personal  Property  and
Accounts.  Lessee has concurrently  granted to Lessor a security interest in the
Collateral  as  defined  in the  Security  Agreement,  which  includes,  without
limitation,  Lessee's  Personal Property as defined herein and Lessee's Accounts
as defined in the Security Agreement.

                                   ARTICLE VII

         7.1 Condition of the Leased Properties.  Lessee acknowledges that prior
to the execution of this Lease,  Lessee has been operating the Leased Properties
pursuant to the Existing Leases, and that as a consequence, Lessee has knowledge
of the condition of the Leased  Properties  and has found the same to be in good
order and repair and satisfactory for its purposes hereunder.  Lessee is leasing
the Leased  Properties  "as is" in their  condition  on the  Commencement  Date.
Lessee waives any claim or action  against Lessor in respect of the condition of
the Leased  Properties.  LESSOR MAKES NO WARRANTY OR  REPRESENTATION  EXPRESS OR
IMPLIED, IN RESPECT OF ANY LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS
FITNESS  FOR USE,  DESIGN OR  CONDITION  FOR ANY  PARTICULAR  USE OR  PURPOSE OR
OTHERWISE AS TO THE QUALITY OF THE MATERIAL OR  WORKMANSHIP  THEREIN,  LATENT OR
PATENT,  IT BEING  AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE.  Lessee
further  acknowledges that throughout the Term Lessee is solely  responsible for
the condition of the Leased Properties.

         7.2 Use of the Leased  Properties.  Throughout  the Term Lessee  shall,
except if otherwise agreed to in writing by Lessor,  continuously use the Leased
Properties for the Primary  Intended Use and such other uses as may be necessary
or incidental thereto. Lessee shall not use the Leased Properties or any portion
thereof for any other use without the prior  written  consent of Lessor.  No use

<PAGE>

shall be made or permitted to be made of, or allowed in, the Leased  Properties,
and no acts  shall  be  done,  which  will  cause  the  cancellation  of,  or be
prohibited by, any insurance  policy covering the Leased  Properties or any part
thereof,  nor shall the Leased  Properties or Lessee's Personal Property be used
for any unlawful purpose.  Lessee shall not commit or suffer to be committed any
waste on the Leased  Properties,  or cause or permit any  nuisance  thereon,  or
suffer or permit the Leased  Properties  or any  portion  thereof,  or  Lessee's
Personal  Property,  to be used in such a manner as (i) might reasonably tend to
impair  Lessor's  (or  Lessee's,  as the case may be)  title  thereto  or to any
portion  thereof,  or (ii) may  reasonably  make  possible  a claim or claims of
adverse  usage or  adverse  possession  by the  public,  as such,  or of implied
dedication of the Leased  Properties or any portion  thereof.  Lessor  covenants
that  during  the  Term of this  Lease it will  cooperate  with  Lessee  and use
commercially  reasonable efforts, where necessary or required from Lessor as the
owner of the Leased Properties, to enable Lessee to obtain and maintain in force
and effect and good standing any licenses, permits, certifications, or approvals
needed  by  Lessee to use and  operate  each  Leased  Property  for its  Primary
Intended Use and will obtain and maintain in force and effect and good  standing
any licenses,  permits,  certificates,  or approvals,  including certificates of
need,  necessary  or  required to be owned and  maintained  by the owner of each
Leased  Property in order to use and operate the Leased Property for its Primary
Intended Use.

         7.3      Certain Environmental Matters.

                  (a) Prohibition  Against Use of Hazardous  Substances.  Lessee
         shall  not  permit,  conduct  or allow on the  Leased  Properties,  the
         generation,   introduction,   presence,   maintenance,   use,  receipt,
         acceptance,   treatment,   manufacture,    production,    installation,
         management,  storage,  disposal or release of any  Hazardous  Substance
         except for those types and quantities of Hazardous Substances necessary
         for and  ordinarily  associated  with the conduct of Lessee's  business
         which are used in full compliance with all Environmental Laws.

                  (b) Notice of Environmental Claims, Actions or Contaminations.
         Lessee shall notify Lessor,  in writing,  immediately  upon learning of
         any existing, pending or threatened: (a) investigation,  inquiry, claim
         or  action  by  any  governmental  authority  in  connection  with  any
         Environmental  Laws, (b) Third Party Claims,  (c)  Regulatory  Actions,
         and/or (id) Contamination of any portion of the Leased Properties

                  (c) Costs of Remedial  Actions with  Respect to  Environmental
         Matters.  If any investigation  and/or Clean-Up of Contamination or any
         other violation of Environmental  Law with respect to a Leased Property
         is required by any Environmental Law, Lessee shall complete, at its own
         expense,  such investigation  and/or Clean-Up or cause any other Person
         that  may  be  legally   responsible   therefore   to   complete   such
         investigation and/or Clean-Up.

                  (d) Delivery of Environmental Documents.  Lessee shall deliver
         to Lessor complete copies of any and all  Environmental  Documents that
         may now be in or at any time  hereafter  come  into the  possession  of
         Lessee.
<PAGE>

                  (e)  Environmental  Audit. At Lessee's  expense,  Lessee shall
         from time to time, upon and within thirty (30) days of Lessor's request
         therefor,  deliver  an  Environmental  Audit to  Lessor.  All tests and
         samplings   shall   be   conducted   using   generally   accepted   and
         scientifically  valid technology and  methodologies.  Lessee shall give
         the engineer or environmental  consultant  conducting the Environmental
         Audit  reasonable and complete  access to the Leased  Properties and to
         all records in the  possession of Lessee that may indicate the presence
         (whether  current  or past) of a Release or  threatened  Release of any
         Hazardous  Substances  on, in, under,  about and adjacent to any Leased
         Property.  Lessee  shall also  provide the  engineer  or  environmental
         consultant full access to and the opportunity to interview such persons
         as may be  employed in  connection  with the Leased  Properties  as the
         engineer or consultant deems appropriate.  However, Lessor shall not be
         entitled to request an Environmental Audit from Lessee unless (i) after
         the  Commencement  Date  there  have  been  changes,  modifications  or
         additions to  Environmental  Laws as applied to or affecting any of the
         Leased  Properties;  (ii ) a significant change in the condition of any
         of the Leased  Properties has occurred;  (iii) there are fewer than six
         (6) months  remaining  in the Term;  or (iv)  Lessor has  another  good
         reason  for  requesting  such  certificate  or  certificates.   If  the
         Environmental  Audit  discloses  the presence of  Contamination  or any
         noncompliance with Environmental Laws, Lessee shall immediately perform
         all of Lessee's  obligations  hereunder  with respect to such Hazardous
         Substances or noncompliance.

                  (f) Entry onto Leased Properties for Environmental Matters. If
         Lessee fails to provide an Environmental  Audit as and when required by
         Subparagraph (e) hereof,  in addition to Lessor's other remedies Lessee
         shall  permit  Lessor  from  time to time,  by its  employees,  agents,
         contractors or representatives, to enter upon the Leased Properties for
         the purpose of conducting such Investigations as Lessor may desire, the
         expense of which shall  promptly be paid or  reimbursed by Lessee as an
         Additional  Charge.  Lessor,  and its employees,  agents,  contractors,
         consultants   and/or   representatives,    shall   conduct   any   such
         Investigation  in a manner which does not  unreasonably  interfere with
         Lessee's  use of and  operations  on the  Leased  Properties  (however,
         reasonable  temporary  interference  with  such use and  operations  is
         permissible  if the  investigation  cannot  otherwise be reasonably and
         inexpensively  conducted).  Other than in an  emergency,  Lessor  shall
         provide  Lessee with prior  notice  before  entering  any of the Leased
         Properties to conduct such  Investigation,  and shall provide copies of
         any reports or results to Lessor,  and Lessee shall  cooperate fully in
         such Investigation.

                  (g)  Environmental  Matters Upon  Termination  of the Lease or
         Expiration of Term.  Upon the expiration or earlier  termination of the
         Term of this  Lease,  Lessee  shall cause the Leased  Properties  to be
         delivered free of any and all Regulatory Actions and Third Party Claims
         and otherwise in compliance  with all  Environmental  Laws with respect
         thereto,  and in a manner and condition that is reasonably  required to
         ensure that the then  present  use,  operation,  leasing,  development,
         construction,  alteration,  refinancing or sale of the Leased  Property
         shall not be restricted by any environmental  condition  existing as of
         the date of such expiration or earlier termination of the Term.
<PAGE>

                  (h) Compliance with  Environmental  Laws.  Lessee shall comply
         with, and cause its agents, servants and employees, to comply with, and
         shall use reasonable  efforts to cause each occupant and user of any of
         the Leased Properties,  and the agents,  servants and employees of such
         occupants and users,  to comply with each and every  Environmental  Law
         applicable to Lessee,  the Leased  Properties and each such occupant or
         user with respect to the Leased Properties.  Specifically,  but without
         limitation:

                           (i) Maintenance of Licenses and Permits. Lessee shall
                  obtain and maintain (and Lessee shall use  reasonable  efforts
                  to  cause  each  tenant,  occupant  and  user  to  obtain  and
                  maintain)  all  permits,  certificates,   licenses  and  other
                  consents   and   approvals    required   by   any   applicable
                  Environmental  Law from time to time with  respect  to Lessee,
                  each  and  every  part of the  Leased  Properties  and/or  the
                  conduct of any business at a Facility or related thereto;

                           (ii)     Contamination.  Lessee shall not cause,
                  suffer or permit any Contamination;

                           (iii) Clean-Up. If a Contamination occurs, the Lessee
                  promptly shall Clean-Up and remove any Hazardous  Substance or
                  cause the Clean-Up and the removal of any Hazardous  Substance
                  and  in  any  such  case  such  Clean-Up  and  removal  of the
                  Hazardous  Substance shall be effected to Lessor's  reasonable
                  satisfaction and in any event in strict compliance with and in
                  accordance with the provisions of the applicable Environmental
                  Laws;

                           (iv)  Discharge of Lien.  Within  twenty (20) days of
                  the date any lien is imposed against the Leased  Properties or
                  any part thereof  under any  Environmental  Law,  Lessee shall
                  cause  such  lien to be  discharged  (by  payment,  by bond or
                  otherwise to Lessor's absolute satisfaction);

                           (v) Notification of Lessor.  Within five (5) Business
                  Days after  receipt by Lessee of notice or discovery by Lessee
                  of any fact or circumstance  which might result in a breach or
                  violation  of any covenant or  agreement,  Lessee shall notify
                  Lessor in writing of such fact or circumstance; and

                           (vi)  Requests,  Orders and Notices.  Within five (5)
                  Business  Days after  receipt of any  request,  order or other
                  notice   relating   to  the   Leased   Properties   under  any
                  Environmental  Law,  Lessee  shall  forward a copy  thereof to
                  Lessor.
<PAGE>

                  (i) Environmental  Related Remedies.  In the event of a breach
         by Lessee  beyond any  applicable  notice  and/or  grace  period of its
         covenants  with respect to  environmental  matters,  Lessor may, in its
         sole  discretion,  do any one or more of the following (the exercise of
         one  right or remedy  hereunder  not  precluding  the  simultaneous  or
         subsequent exercise of any other right or remedy hereunder):

                           (i)      Cause a  Clean-Up.  Cause the  Clean-Up  of
                  any  Hazardous  Substance  or other environmental  condition
                  on or under  the  Leased  Properties,  or both,  at  Lessee's
                  cost and expense; or

                           (ii) Payment of Regulatory Damages.  Pay on behalf of
                  Lessee  any  damages,  costs,  fines or  penalties  imposed on
                  Lessee or Lessor as a result of any Regulatory Actions; or

                           (iii)  Payments  to  Discharge  Liens.  On  behalf of
                  Lessee, make any payment or perform any other act or cause any
                  act to be performed  which will prevent a lien in favor of any
                  federal,  state or local governmental authority from attaching
                  to the Leased  Properties or which will cause the discharge of
                  any lien then attached to the Leased Properties; or

                           (iv) Payment of Third Party  Damages.  Pay, on behalf
                  of Lessee,  any damages,  cost, fines or penalties  imposed on
                  Lessee as a result of any Third Party Claims; or

                           (v)  Demand  of  Payment.  Demand  that  Lessee  make
                  immediate  payment of all of the costs of such Clean-Up and/or
                  exercise  of the  remedies  set  forth  in  this  Section  7.2
                  incurred  by Lessor and not  theretofore  paid by Lessee as of
                  the date of such demand.

                  (j) Environmental Indemnification. Except to the extent caused
         by Lessor's  gross  negligence or wilful  misconduct,  Lessee shall and
         does hereby indemnify,  and shall defend and hold harmless Lessor,  its
         principals,  officers,  directors,  agents and employees  from each and
         every incurred and potential claim,  cause of action,  damage,  demand,
         obligation,  fine, laboratory fee, liability, loss, penalty, imposition
         settlement,  levy,  lien  removal,  litigation,  judgment,  proceeding,
         disbursement,  expense and/or cost  (including  without  limitation the
         cost of each and every Clean-Up),  however defined and of whatever kind
         or nature, known or unknown, foreseeable or unforeseeable,  contingent,
         incidental,  consequential or otherwise (including, but not limited to,
         attorneys' fees, consultants' fees, experts' fees and related expenses,
         capital,  operating and maintenance costs,  incurred in connection with
         (i) any  Investigation or monitoring of site  conditions,  and (ii) any
         Clean-Up  required  or  performed  by  any  federal,   state  or  local
         governmental  entity or performed by any other entity or person because
         of the presence of any Hazardous Substance, Release, threatened Release
         or any  Contamination  on,  in,  under  or  about  any  of  the  Leased
         Properties)  which may be asserted  against,  imposed  on,  suffered or
         incurred  by,  each and every  indemnitee  arising out of or in any way
         related to, or  allegedly  arising  out of or due to any  environmental
         matter that is created or first occurs during the Term of this Lease or
         which is caused by or at any time arises from Lessee's  and/or Lessee's
         related or affiliated predecessors-in-interest use and occupancy of the
         Leased  Properties  (whether under this Lease, the Existing Leases,  or
         otherwise),  including,  but  not  limited  to,  any one or more of the
         following:
<PAGE>

                           (i)      Release Damage or Liability.  The presence
                  of Contamination  in, on, at, under, or near a Leased Property
                  or migrating to a Leased Property from another location;

                           (ii)  Injuries.  All  injuries  to  health  or safety
                  (including  wrongful death), or to the environment,  by reason
                  of  environmental  matters  relating  to the  condition  of or
                  activities  past  or  present  on,  at,  in,  under  a  Leased
                  Property;

                           (iii) Violations of Law. All violations,  and alleged
                  violations,  of any  Environmental  Law  relating  to a Leased
                  Property or any  activity  on, in, at,  under or near a Leased
                  Property;

                           (iv)       Misrepresentation.       All      material
                  misrepresentations  relating to  environmental  matters in any
                  documents  or materials  furnished by Lessee to Lessor  and/or
                  its representatives in connection with the Lease;

                           (v) Event of Default. Each and every Event of Default
                  relating to environmental matters;

                           (vi)  Lawsuits.  Any  and  all  lawsuits  brought  or
                  threatened,   settlements   reached  and  governmental  orders
                  relating to any Hazardous Substances at, on, in, under or near
                  a  Leased   Property,   and  all   demands   of   governmental
                  authorities,  and all policies and  requirements  of Lessor's,
                  based upon or in any way related to any  Hazardous  Substances
                  at, on, in, under a Leased Property; and

                           (vii)  Presence of Liens.  All liens imposed upon any
                  of the Leased  Properties in favor of any governmental  entity
                  or any person as a result of the presence,  disposal,  release
                  or threat of release of Hazardous Substances at, on, in, from,
                  or under a Leased Property.

                  (k) Rights Cumulative and Survival.  The rights granted Lessor
         under this  Section  are in addition  to and not in  limitation  of any
         other rights or remedies  available  to Lessor  hereunder or allowed at
         law or in equity or rights of indemnification provided to Lessor in any
         agreement  pursuant  to  which  Lessor  purchased  any  of  the  Leased
         Property. The payment and indemnification obligations set forth in this
         Section 7.3 shall survive the expiration or earlier  termination of the
         Term of this Lease.

<PAGE>

                                  ARTICLE VIII

         8.1  Compliance  with  Legal and  Insurance  Requirements.  In its use,
maintenance,  operation and any alteration of the Leased Properties,  Lessee, at
its  expense,  will,  subject to the  provisions  of  Article  XII  relating  to
permitted  contests,  promptly  (i)  comply  with  all  Legal  Requirements  and
Insurance Requirements,  whether or not compliance therewith requires structural
changes in any of the Leased  Improvements  (which  structural  changes shall be
subject  to  Lessor's  prior  written  approval,  which  approval  shall  not be
unreasonably  withheld or delayed) or  interferes  with or prevents  the use and
enjoyment of the Leased Properties,  and (ii) procure,  maintain and comply with
all licenses, certificates of need, provider agreements and other authorizations
required for the use of the Leased  Properties  and Lessee's  Personal  Property
then  being  made,  and for the proper  erection,  installation,  operation  and
maintenance  of the Leased  Properties or any part thereof.  The judgment of any
court of  competent  jurisdiction,  or the  admission of Lessee in any action or
proceeding against Lessee, whether or not Lessor is a party thereto, that Lessee
has violated any such Legal  Requirements  or  Insurance  Requirements  shall be
conclusive of that fact as between Lessor and Lessee.

         8.2      Certain Covenants.

                  8.2.1    Certain Financial Covenants.

                  8.2.1.1    Limitation   of   Distributions.   From  and  after
the transfer of Lessee's  interest to New Sub as  contemplated by the Settlement
and Restructuring  Agreement,  and in the absence of any Triggering Event, Event
of Default,  or other  event that with  notice  and/or the passage of time would
become an Event of Default,  in or with respect to any Lease Year,  Lessee shall
not make any  Distributions,  unless all three (3) of the  following  conditions
have been met for the prior four (4) calendar  quarters and such conditions will
still be met following such payment or distribution: (1) Lessee's Coverage Ratio
for the preceding four (4) calendar quarters equals or exceeds 1.7; (2) Lessee's
Stressed  Coverage Ratio for the preceding four (4) calendar  quarters equals or
exceeds 1.25; and (3) if such  Distribution had been made on the last day of the
preceding month,  following such Distribution  Lessee's Current Ratio would have
equaled or exceeded 1.3. From and during a Triggering  Event,  Event of Default,
or other event that with notice and/or the passage of time would become an Event
of  Default,  Lessee  shall  not  make any  Distributions.  The  limitations  on
Distributions set forth in this Section 8.2.1.1 shall not prevent the deposit of
Lessee's  funds into the Advocat  Concentration  Account for the purposes and to
the extent  contemplated  by the Settlement and  Restructuring  Agreement.  This
Subsection is a limitation on Distributions, and Lessee's failure to comply with
one or more of the three (3)  conditions  set forth above shall not be a default
or Event of Default hereunder,  unless a Distribution is made during a period of
time when any one or more of such conditions is not satisfied.

                           8.2.1.2  Accounts  Receivable  Financing.  Except as
may be  expressly  provided  in the Settlement and Restructuring Agreement and
the Intercreditor  Agreement,  Lessee and/or  Sublessee  shall not pledge or
otherwise  encumber  any of the accounts receivable generated through the
operation of the Facilities to secure principal and interest on any Debt.
<PAGE>

                           8.2.1.3  Guarantees  Prohibited.  From and after the
transfer of  Lessee's  interest to New Sub as contemplated by the Settlement and
Restructuring  Agreement,  neither Lessee nor any Sublessee  shall  guarantee
any  indebtedness of any Affiliate or other third party, except those guarantees
for the benefit of AmSouth in effect as of the date hereof or as may be required
under the AmSouth Loan Documents.

                           8.2.1.4  Equipment  Financing.  The aggregate  amount
of  principal,  interest and lease payments due from Lessee and/or  Sublessee
with respect to any equipment  leases or financing secured by equipment utilized
in the operation of the  Facilities shall not at any time during the Term exceed
$609,000.00 in any one Lease Year.

         8.3      Required Capital Expenditures

                  8.3.1 Special  Project Capital  Expenditures.  Lessee shall at
                  its expense  before the end of the second Lease Year  complete
                  and pay for "Special Project Capital Expenditures" (as defined
                  in  the  Settlement  and   Restructuring   Agreement)  in  the
                  cumulative  amount of not less  than One  Million  and  No/100
                  Dollars  ($1,000,000.00).  As set forth in the  Settlement and
                  Restructuring  Agreement,  Lessee  shall  expend an amount not
                  less  than Two  Hundred  Fifty  Thousand  and  No/100  Dollars
                  ($250,000.00)  on or before June 30, 2001,  and shall  expend,
                  unless prevented from doing so by Force Majeure, not less than
                  Two Hundred Fifty Thousand and No/100  Dollars  ($250,000.00),
                  on  a  cumulative   basis,   during  each   six-month   period
                  thereafter,  through the date Lessee satisfies the requirement
                  of this  Section  8.3.1 to expend  $1,000,000.00  for  Special
                  Project  Capital  Expenditures.  To the extent Lessee fails to
                  expend  the  funds  within  the time  frames  required  by the
                  immediately  preceding  sentence,  a reserve account ("Capital
                  Expenditures  Reserve Account") shall be established to assure
                  the payment thereof, and on or before the fifteenth (15th) day
                  of the  month  following  a  six-month  period  in  which  the
                  required cumulative amount has not been expended, Lessee shall
                  deposit with Lessor, an amount equal to the unexpended amount,
                  less any funds already  deposited in the Capital  Expenditures
                  Reserve  Account.  Lessee  hereby  grants to Lessor a security
                  interest in such Capital  Expenditure  Reserve Account, as may
                  from time to time exist, to secure all of Lessee's obligations
                  under this Lease.  From and after an Event of Default,  Lessor
                  may apply the funds held in the  Capital  Expenditure  Reserve
                  Account in the same  manner as Lessor  may apply the  Security
                  Deposit in accordance with Section 39.2 below. To evidence its
                  compliance with the foregoing obligations, Lessee shall spend,
                  or have  plans  in  place  reasonably  acceptable  to Omega to
                  spend, for Special Project Capital  Expenditures at least Five
                  Hundred Thousand Dollars ($500,000.00) (on a cumulative basis)
                  by September 30, 2001 and shall spend,  or have plans in place
                  reasonably  acceptable to Omega to spend,  for Special Project
                  Capital   Expenditures   the  required  One  Million   Dollars
                  ($1,000,000.00) (on a cumulative basis) by May 31, 2002.

<PAGE>

                  8.3.2 Minimum Qualified Capital Expenditures.  Each Lease Year
                  Lessee shall  expend with  respect to each Leased  Facility at
                  least   Three   Hundred   Twenty   Five   Dollars    ($325.00)
                  per-licensed-bed for Qualified Capital Expenditures to improve
                  the applicable Facility,  which amount shall be increased each
                  Lease  Year,   beginning   with  the  second  Lease  Year,  in
                  proportion to increases in the CPI from the Commencement  Date
                  to  the   commencement  of  each  such  Lease  Year  ("Minimum
                  Qualified Capital Expenditures"). The parties acknowledge that
                  the amount  expended  by Lessee in  completion  of the Special
                  Project  Capital  Expenditures  shall  not be  offset  against
                  Lessee's  obligation  to fund the  Minimum  Qualified  Capital
                  Expenditures  set  forth  in this  Section  8.3.2.  If  Lessee
                  expends  with  respect to any  Facility  more than the Minimum
                  Qualified  Capital  Expenditures in any Lease Year, the excess
                  Minimum  Qualified  Capital  Expenditures  shall  be  credited
                  against  Lessee's  Minimum  Qualified   Capital   Expenditures
                  required  with  respect  to such  Facility  for the next Lease
                  Year, and if the amount of the credit exceeds Lessee's Minimum
                  Qualified Capital  Expenditures  required with respect to such
                  Facility  for the  next  Lease  Year,  such  excess  shall  be
                  credited   against   Lessee's   Minimum    Qualified   Capital
                  Expenditures  required  with respect to such  Facility for the
                  following Lease Years.  At least  annually,  at the request of
                  Lessor,  Lessor and Lessee shall review  capital  expenditures
                  budgets  and  reasonably  agree  on  modifications,   if  any,
                  required by changed  circumstances and the changed  conditions
                  of the Leased Properties.

         8.4 Management Agreements.  Lessee shall not enter into, amend, modify,
renew, replace or otherwise change the terms of any Management Agreement without
the prior  written  consent of Lessor as to the  identity of the Manager and the
terms  of  the  agreement,  which  consent  Lessor  may  withhold  in  its  sole
discretion, and in no event without the execution by Lessee, Manager and Lessor,
of an agreement, satisfactory to Lessor in form and substance, pursuant to which
Manager's  right to receive its management fee is subordinated to the obligation
of Lessee to pay the Rent to Lessor.  Lessor  hereby  consents to the  continued
management of the  Facilities by Diversicare  Management  Services Co. under its
current Management  Agreement with Lessee. In addition,  prior to the employment
of any Manager,  such Manager must execute a Consent and Agreement of Manager in
the form  attached  hereto as Exhibit E.  Notwithstanding  any of the  foregoing
terms of this  Section  8.4,  the annual  management  fee payable to any Manager
(other  than an  Affiliate  of Lessee)  during the term of this Lease  shall not
exceed five percent (5%) of Gross Revenues.

         8.5 Other  Facilities.  Neither  Lessee  nor any  Affiliate  shall own,
operate  or manage  any  nursing  home,  rest home,  assisted  living  facility,
subacute  facility,  retirement  center or similar health care facility within a
ten (10) mile radius of any Facility,  other than any Facility which is a Leased
Property  under this Lease or which  Lessee or any  Affiliate  of Lessee owns or
operates  as of the  Commencement  Date and set  forth on  Schedule  C  attached
hereto.

         8.6  Separateness.  Lessee  (from and after the  transfer  of  Lessee's
interest  to  New  Sub  as  contemplated  by the  Settlement  and  Restructuring
Agreement) shall:
<PAGE>

                  a.       Maintain records and books of account separate fro
                           those of any Affiliate.

                  b.       Conduct its own  business in its own names and not in
                           the name of any Affiliate  (except to the extent that
                           the  business of the  Facilities  may be conducted in
                           the name of the Manager).

                  c.       Maintain financial statements separate from any
                           Affiliate.

                  d.       Maintain any  contractual  relationship  with any and
                           all Affiliates, except upon terms and conditions that
                           are  fair and  substantially  similar  to those  that
                           would be available on an arm's length basis.

                  e.       Except for the benefit of AmSouth as set forth in the
                           Intercreditor  Agreement  or  as  otherwise  required
                           under the AmSouth Loan  Documents,  not  guarantee or
                           become  obligated  for the debts of any other entity,
                           including  any  Affiliate,  or hold  out its  credit,
                           jointly or severally,  as being  available to satisfy
                           the  obligations  of others,  except for  obligations
                           which   represent   Lessee's  or  Sublessee's   trade
                           payables or accrued  expenses  incurred by Manager in
                           the  ordinary  course of  owning  and  operating  the
                           Facilities.

                  f.       Except for the benefit of AmSouth as set forth in the
                           Intercreditor   Agreement,  not  pledge  its  assets,
                           jointly or  severally,  for the  benefit of any other
                           entity, including any Affiliate.

                  g.       Hold  itself out to the public as a legal  entity
                           separate from any Affiliates.

                  h.       At all times  cause its  Board of  Directors  to hold
                           appropriate meetings (or act by unanimous consent) to
                           authorize all appropriate  corporate actions,  and in
                           authorizing such actions, to observe all formalities.

                                   ARTICLE IX

         9.1      Maintenance and Repair.

                  9.1.1 Lessee, at its expense, will keep the Leased Properties,
and all landscaping,  private roadways,  sidewalks and curbs appurtenant thereto
which are under Lessee's  control and Lessee's  Personal  Property in good order
and repair, whether or not the need for such repairs arises out of Lessee's use,
any prior use,  the  elements  or the age of the Leased  Property or any portion
thereof,  or any cause  whatsoever  except the act or negligence of Lessor,  and
with  reasonable  promptness  shall make all necessary and  appropriate  repairs
thereto of every kind and nature,  whether  interior or exterior,  structural or
non-structural,  ordinary or extraordinary, foreseen or unforeseen or arising by

<PAGE>

reason of a condition  existing  prior to the  Commencement  Date  (concealed or
otherwise);  provided,  however,  that Lessee  shall be  permitted  to prosecute
claims against Lessor's predecessor in title for breach of any representation or
warranty  made to or on behalf of Lessor,  or for  latent  defects in any Leased
Property.  Lessee shall at all times maintain,  operate and otherwise manage the
Leased  Properties  on a  quality  basis  and in a  manner  consistent  with the
standards of the highest quality competing facilities in the market areas served
by  the  Leased  Properties.   All  repairs  shall,  to  the  extent  reasonably
achievable,  be at least  equivalent in quality to the original work or, subject
to the provisions of Paragraph  9.1.4,  below, the property to be repaired shall
be  replaced.  Lessee  will not take or omit to take any  action  the  taking or
omission of which might  materially  impair the value or the  usefulness  of the
Leased Properties or any parts thereof for the Primary Intended Use.

                  9.1.2 Lessor shall not under any  circumstances be required to
maintain,  build or rebuild any  improvements  on the Leased  Properties (or any
private  roadways,  sidewalks  or  curbs  appurtenant  thereto),  or to make any
repairs,  replacements,  alterations,  restorations or renewals of any nature or
description  to  the  Leased  Properties,  whether  ordinary  or  extraordinary,
structural  or  non-structural,  foreseen or  unforeseen,  or upon any adjoining
property,  whether to provide  lateral or other support or abate a nuisance,  or
otherwise,  or to make any  expenditure  whatsoever  with  respect  thereto,  in
connection  with this Lease.  Lessee hereby waives,  to the extent  permitted by
law, the right to make  repairs at the expense of Lessor  pursuant to any law in
effect at the time of the execution of this Lease or hereafter enacted.

                  9.1.3  Nothing  contained  in this Lease shall be construed as
(i) constituting the consent or request of Lessor,  expressed or implied, to any
contractor,  subcontractor,  laborer,  materialmen  or  vendor  to  or  for  the
performance of any labor or services or the furnishing of any materials or other
property for the construction,  alteration, addition, repair or demolition of or
to any Leased  Property or any part  thereof,  or (ii) giving  Lessee any right,
power or  permission to contract for or permit the  performance  of any labor or
services or the furnishing of any materials or other property in such fashion as
would  permit the making of any claim  against  Lessor in respect  thereof or to
make any  agreement  that may create,  or in any way be the basis for any right,
title,  interest,  lien, claim or other encumbrance upon the estate of Lessor in
the Leased  Properties,  or any portion thereof.  Lessor shall have the right to
give, record and post, as appropriate,  notices of non-responsibility  under any
mechanics' and construction lien laws now or hereafter existing.

                  9.1.4 Lessee shall, from time to time, promptly replace any of
the Leased Improvements or Lessor's Personal Property which (i) become worn out,
obsolete or unusable for the purpose for which  intended,  (ii) have been Taken,
or (iii)  have been  lost,  stolen,  damaged or  destroyed.  If any of  Lessor's
Personal  Property  requires  replacement as a result of damage,  theft, loss or
destruction  or a Taking,  then Lessee  shall be entitled to that portion of any
insurance  proceeds payable in respect thereof or any Award made therefore.  All
replacements  shall have a then value  (adjusted for  inflation)  and utility at
least equal to the value of the items replaced as of the date hereof in the case
of clause (i) above,  and immediately  prior to the events  specified in clauses
(ii) and (iii) above.  All replacements of Lessor's  Personal  Property shall be
owned by Lessor  and  become a part of the Leased  Properties  immediately  upon
their acquisition.  Lessee shall promptly repair all damage to a Leased Property
incurred in the course of such replacement.
<PAGE>

                  9.1.5 Lessee will, upon the expiration or prior termination of
the Term,  vacate and surrender the Leased Properties to Lessor in the condition
in which they were originally received from Lessor, in good operating condition,
ordinary wear and tear excepted, except as repaired,  rebuilt, restored, altered
or added to as permitted or required by the provisions of this Lease.

         9.2 Encroachments, Restrictions, etc. If any of the Leased Improvements
shall, at any time, encroach upon any property,  street or right-of-way adjacent
to the Leased Property,  or shall violate the agreements or conditions contained
in any lawful  restrictive  covenant  or other  agreement  affecting  the Leased
Property,  or any part  thereof,  or shall impair the rights of others under any
easement or right-of-way to which any Leased Property is subject,  then promptly
upon the  request of Lessor or at the behest of any person  affected by any such
encroachment,  violation or impairment, Lessee shall, at its expense, subject to
its right to contest the existence of any encroachment,  violation or impairment
as provided in Article  XII and in such case,  in the event of an adverse  final
determination,  either (i) obtain valid and effective  waivers or settlements of
all claims,  liabilities  and  damages  resulting  from each such  encroachment,
violation or impairment,  whether the same shall affect Lessor or Lessee or (ii)
make such changes in the Leased  Improvements,  and take such other actions,  as
Lessee in the good faith exercise of its judgment deems reasonably  practicable,
to remove such encroachment, and to end such violation or impairment, including,
if necessary, the alteration of any of the Leased Improvements, and in any event
take all such  actions as may be  necessary  in order to be able to continue the
operation of the Leased  Improvements for the Primary Intended Use substantially
in the manner and to the extent the Leased  Improvements  were operated prior to
the assertion of such violation, impairment or encroachment.

<PAGE>

                                    ARTICLE X

         10.1   Construction   of  Alterations   and  Additions  to  the  Leased
Properties.  Lessee  shall  not (a) make or  permit  to be made  any  structural
alterations,  improvements  or additions of or to the Leased  Properties  or any
part thereof,  or (b) materially alter the plumbing,  HVAC or electrical systems
thereon or (c) make any other  alterations,  improvements  or  additions  to any
Leased  Property  or any part  thereof,  the cost of which  exceeds  One Hundred
Thousand Dollars ($100,000.00),  unless and until Lessee has (a) caused complete
plans and specifications  therefor to have been prepared by a licensed architect
(or  licensed  plumbing  contractor  or  electrical  contractor  in the  case of
alterations to the plumbing, HVAC or electrical systems) and submitted to Lessor
at least  thirty (30)  Business  Days before the planned  start of  construction
thereof,  (b) obtained Lessor's written approval thereof and the approval of any
Facility  Mortgagee,   which  approval  shall  not  be  unreasonably   withheld,
conditioned  or delayed,  and if no response has been  received by Lessee within
thirty (30) Business Days after submission of the plans and  specifications  for
approval  then such  approval  shall be deemed to have been  given,  and (c), if
required to do so by Lessor,  provide  Lessor with  reasonable  assurance of the
payment of the cost of any such alterations,  improvements or additions,  in the
form of a bond, letter of credit or cash deposit.  If Lessor requires a deposit,
Lessor shall  retain and disburse the amount  deposited in the same manner as is
provided for  insurance  proceeds in Section  14.6. If the deposit is reasonably
determined by Lessor at any time to be  insufficient  for the  completion of the
alteration,  improvement  or  addition,  Lessee shall  immediately  increase the
deposit to the amount reasonably required by Lessor. Lessee shall be responsible
for the  completion  of such  improvements  in  accordance  with the  plans  and
specifications  approved by Lessor,  and shall promptly correct any failure with
respect thereto.

         Alterations  and   improvements   not  falling  within  the  categories
described in the first sentence of the preceding paragraph may be made by Lessee
without  the prior  approval  of Lessor,  but Lessee  shall give Lessor at least
fifteen (15)  Business  Days prior written  Notice of any such  alterations  and
improvements.

         All  alterations,  improvements and additions shall be constructed in a
first class, workmanlike,  manner, in compliance with all Insurance Requirements
and  Legal  Requirements,  be in  keeping  with  the  character  of  the  Leased
Properties and the area in which the Leased  Property in question is located and
be designed and constructed so that the value of the Leased  Properties will not
be diminished or and that the Primary Intended Use of the Leased Properties will
not be changed.  All  improvements,  alterations and additions shall immediately
become a part of the Leased Properties.

         Lessee shall have no claim against Lessor at any time in respect of the
cost or value of any such improvement, alteration or addition. There shall be no
adjustment  in the  Rent  by  reason  of any  such  improvement,  alteration  or
addition.  With  Lessor's  consent,  which shall not be  unreasonably  withheld,
expenditures  made by Lessee pursuant to this Article X, other than expenditures
for additions (as defined in the definition of Qualified Capital  Expenditures),
may be included as capital expenditures for purposes of inclusion in the capital
expenditures  budget for the  Facilities and for measuring  compliance  with the
obligations of Lessee set forth in Section 8.3 of this Lease.
<PAGE>

         In  connection   with  any  alteration   which  involves  the  removal,
demolition or  disturbance  of any  asbestos-containing  material,  Lessee shall
cause to be prepared at its expense a full  asbestos  assessment  applicable  to
such  alteration,  and shall carry out such asbestos  monitoring and maintenance
program as shall  reasonably  be required  thereafter in light of the results of
such assessment.

                                   ARTICLE XI

         11.1  Liens.  Subject to the  provisions  of Article  XII  relating  to
permitted  contests,  without  the consent of Lessor or as  expressly  permitted
elsewhere  herein,  Lessee will not  directly or  indirectly  create or allow to
remain  and will  promptly  discharge  at its  expense  any  lien,  encumbrance,
attachment,  title retention agreement or claim upon the Leased Properties,  and
any attachment,  levy,  claim or encumbrance in respect of the Rent,  except for
(i) Permitted  Encumbrances,  (ii)  restrictions,  liens and other  encumbrances
which are  consented to in writing by Lessor and any Facility  Mortgagee,  (iii)
liens for those taxes of Lessor which  Lessee is not required to pay  hereunder,
(iv) any  Facility  Mortgage,  (v) liens of  mechanics,  laborers,  materialmen,
suppliers  or  vendors  for sums  either  disputed,  not yet due,  or  contested
pursuant to Section 12.1 below,  and (vi) liens  created by the wrongful acts or
negligence of Lessor.

                                   ARTICLE XII

         12.1 Permitted  Contests.  Lessee, on its own or on Lessor's behalf (or
in Lessor's name),  but at Lessee's sole cost and expense,  shall have the right
to contest,  by appropriate legal  proceedings  conducted in good faith and with
due  diligence,  the  amount  or  validity  of any  real  or  personal  property
assessment, Imposition, Legal Requirement or Insurance Requirement, or any lien,
attachment,   levy,  encumbrance,   charge  or  claim  or  any  encroachment  or
restriction  burdening the Leased Property ("Claim"),  provided (a) prior Notice
of such contest is given to Lessor,  (b) the Leased  Properties  would not be in
any danger of being sold, forfeited or attached as a result of such contest, and
there is no risk to Lessor of a loss of or interruption in the payment of, Rent,
(c) in the  case  of an  unpaid  Imposition  or  Claim,  collection  thereof  is
suspended during the pendency of such contest, (d) in the case of a contest of a
Legal Requirement,  compliance may legally be delayed pending such contest. Upon
request  of Lessor,  Lessee  shall  provide a bond or letter of credit,  deposit
funds or assure Lessor in some other manner  reasonably  satisfactory  to Lessor
that  the  amount  to be  paid by  Lessee  that is the  subject  of a  contested
Imposition,  Legal Requirement,  Insurance  Requirement or Claim,  together with
interest and penalties,  if any, thereon, and any and all costs for which Lessee
is  responsible  will be paid if and when required  upon the  conclusion of such
contest. Lessee shall defend,  indemnify and save harmless Lessor from all costs
or expenses arising out of or in connection with any such contest, including but
not limited to attorneys' fees. If at any time Lessor reasonably determines that
payment of any  Imposition or Claim,  or compliance  with any Legal or Insurance
Requirement  being  contested by Lessee is necessary in order to prevent loss of
any of the Leased  Properties  or Rent or civil or criminal  penalties  or other
damage,  upon such prior Notice to Lessee as is reasonable in the  circumstances
Lessor  may pay such  amount,  require  Lessee  to  comply  with  such  Legal or
Insurance  Requirement  or take such other  action as it may deem  necessary  to

<PAGE>

prevent such loss or damage. If reasonably  necessary or legally required,  upon
Lessee's  written  request  Lessor,  at Lessee's  expense,  shall cooperate with
Lessee in a permitted  contest,  provided Lessee upon demand makes  arrangements
satisfactory to Lessor to assure the reimbursement of any and all Lessor's costs
incurred in cooperating with Lessee in such contest. Lessee shall be entitled to
any refunds of any claim,  and such charges and  penalties or interest  thereon,
which have been paid by Lessee or paid by Lessor  and for which  Lessor has been
fully reimbursed.

         12.2 Lessor's Requirement for Deposits.  Following an Event of Default,
Lessor,  in its sole discretion,  shall be entitled to require Lessee to deposit
with  Lessor  monthly,  at the time of its  payments  of Base  Rent,  a pro rata
portion  of  the  amounts  required  to  comply  with  Insurance   Requirements,
Impositions and Legal Requirements, and when such obligations become due, Lessor
shall pay them (to the extent of the deposit) upon Notice from Lessee requesting
such  payment.  In the event that  sufficient  funds have not been  deposited to
cover the amount of the  obligations due at least thirty (30) days in advance of
the due date,  Lessee shall  forthwith  deposit the same with Lessor upon Notice
from Lessor.  Lessor shall not be obligated to segregate  such  deposited  funds
from its other  funds,  or to pay Lessee any  interest on any deposit so held by
Lessor.  Upon an Event of Default,  any of the funds remaining on deposit may be
applied under this Lease in any manner and on such priority as may be determined
by Lessor.

                                  ARTICLE XIII

         13.1  General  Insurance  Requirements.  Lessee  shall  keep the Leased
Properties,  and all property located in or on the Leased Properties,  including
Lessor's  Personal  Property  and  Lessee's  Personal  Property,   insured  with
insurance meeting the following requirements: (a) all insurance shall be written
by companies  authorized to do insurance  business in the applicable  States and
having a rating classification of not less than A- and a financial size category
of "Class VII" or larger,  according to the then most recent issue of Best's Key
Rating Guide;  (b) all policies must name Lessor as an additional  insured,  and
name as an additional  insured any Facility  Mortgagee by way of a standard form
of mortgagee's loss payable  endorsement in use in the applicable  States and in
accordance  with any  such  other  requirements  as may be  established  by such
Facility  Mortgagee;  (c) casualty losses must be payable to Lessor or Lessee as
provided in Article XIV, and loss adjustments  shall require the written consent
of Lessor, any Facility Mortgagee and, provided no Event of Default has occurred
and is continuing at the time,  Lessee,  which consent shall not be unreasonably
withheld by either  Lessor or Lessee;  (d) each  insurer must agree that it will
give Lessor and any Facility Mortgagee at least thirty (30) days' written notice
before its policy  shall be  altered,  allowed  to expire or  canceled;  (e) the
amount of any  deductible  or retention  must be approved by Lessor prior to the
issuance  of any  policy,  which  approval  will not be  unreasonably  withheld,
conditioned  or delayed;  and (f) the form of all policies  shall be approved by
Lessor  and  any  Existing   Facility   Mortgagee,   whose  approval  shall  not
unreasonably  be withheld,  conditioned or delayed,  provided that such policies
conform to the requirements of this article XIII. Notwithstanding the foregoing,
Lessee  may  obtain  so-called  "umbrella"  policies,   comprehensive  liability
policies and  professional  liability  policies of insurance  from  non-admitted
surplus line carriers acceptable to Lessor.
<PAGE>

         13.2 Risks to be Insured.  The policies  covering the Leased Properties
and Lessee's Personal Property shall insure against the following risks:

                  13.2.1  Loss  or  damage  by  fire,  vandalism  and  malicious
mischief, earthquake, extended coverage perils commonly known as "Special Risk,"
and all physical loss perils  normally  included in such Special Risk insurance,
including but not limited to sprinkler  leakage,  in an amount not less than one
hundred percent (100%) of Replacement  Cost (provided that  earthquake  coverage
may have a sublimit coverage of $5,000,000.00);

                  13.2.2 Loss or damage by explosion of steam boilers,  pressure
vessels or similar  apparatus  in such amounts as may be required by Lessor from
time to time;

                  13.2.3 Business  interruption  insurance or a blanket earnings
and expense  coverage  endorsement  covering risk of loss during  reconstruction
necessitated  by the  occurrence  of any of the  hazards  described  in Sections
13.2.1 or 13.2.2 (but in no event for a period less than twelve (12)  months) in
an amount sufficient to prevent Lessor and Lessee from becoming a co-insurer;

                  13.2.4 Claims for personal  injury or property  damage under a
policy of commercial  general public liability  insurance with a combined single
limit per  occurrence in respect of bodily injury and death and property  damage
of One Million  Dollars  ($1,000,000.00),  and an aggregate  limitation of Three
Million   Dollars   ($3,000,000.00),   with  a  minimum   One   Million   Dollar
($1,000,000.00) excess policy, which insurance shall insure Lessee's contractual
liability to Lessor under the indemnity provisions of Article XXI of this Lease,
and if written on a "claims-made"  basis,  Lessee shall also provide  continuous
liability  coverage  for claims  arising  during the Term either by obtaining an
endorsement  providing for an extended reporting period reasonably acceptable to
Lessor in the event  such  policy is  canceled  or not  renewed  for any  reason
whatsoever,  or by obtaining "tail" insurance  coverage providing coverage for a
period of at least three (3) years beyond the expiration of the Term;

                  13.2.5 Claims arising out of malpractice in an amount not less
than Two Million Dollars ($2,000,000.00) for each person and for each occurrence
and, if written on a "claims-made"  basis,  Lessee shall also provide continuous
liability  coverage  for claims  arising  during the Term either by obtaining an
endorsement  providing for an extended reporting period reasonably acceptable to
Lessor in the event  such  policy is  canceled  or not  renewed  for any  reason
whatsoever,  or by obtaining "tail" insurance  coverage providing coverage for a
period of at least three (3) years beyond the expiration of the Term;

                  13.2.6  Flood  (with  respect  to any  portions  of the Leased
Properties located in whole or in part within a designated flood plain area) and
such other  hazards  and in such  amounts  as may be  customary  for  comparable
properties  in the area up to the maximum  limit that can be obtained  under the
Federal Flood Insurance Program;

                  13.2.7  During  such  time  as  Lessee  is  constructing   any
improvements,  (i) worker's  compensation  insurance  and  employers'  liability
insurance  covering all persons  employed in connection with the improvements in
statutory limits, (ii) builder's risk insurance,  completed value form, covering
all physical  loss, in an amount  satisfactory  to Lessor,  and (iii) such other

<PAGE>

insurance,  in such  amounts,  as Lessor  deems  necessary  to protect  Lessor's
interest  in the  Leased  Properties  from  any  act  or  omission  of  Lessee's
contractors or  subcontractors,  and  certificates of insurance  evidencing such
coverage,  in form satisfactory to Lessor, shall be presented to Lessor prior to
the commencement of construction of such improvements;

                  13.2.8 Primary automobile  liability  insurance with limits of
One Million Dollars  ($1,000,000.00) per occurrence each for owned and non-owned
and hired vehicles.

         13.3 Payment of  Premiums;  Copies of  Policies;  Certificates.  Lessee
shall pay when due all of the premiums for the insurance required by this Lease,
and shall  deliver  to Lessor  and to any  Facility  Mortgagee  requesting  such
evidence,  certificates  of  insurance in form  satisfactory  to Lessor and such
Facility Mortgagee. Satisfactory evidence of insurance required by this Lease or
certificates  thereof shall be delivered to Lessor prior to their effective date
(and,  with  respect  to  any  renewal  policy,  Lessee  will  use  commercially
reasonable efforts to provide the same within twenty (20) days but in all events
not less than five (5)  Business  Days prior to the  expiration  of the existing
policy)  with copies of such  policies to be provided as  available,  and in the
event of the failure of Lessee either to carry the required insurance or pay the
premiums therefor, or to deliver copies of policies or certificates to Lessor as
required, Lessor shall be entitled, but shall have no obligation, to obtain such
insurance  and pay the  premiums  therefor  when due,  which  premiums  shall be
repayable to Lessor upon written demand therefor as Additional Charges.

         13.4 Premium Deposits. If any provision of a Facility Mortgage requires
deposits of  premiums  for  insurance  to be made with the  Facility  Mortgagee,
Lessee  shall pay to Lessor  monthly  the  amounts  required  and  Lessor  shall
transfer  such amounts to the Facility  Mortgagee,  unless,  pursuant to written
direction  by Lessor,  Lessee  makes such  deposits  directly  with the Facility
Mortgagee.

         13.5 Umbrella  Policies.  If Lessee chooses to carry umbrella liability
coverage  to obtain the limits of  liability  required  under  this  Lease,  the
umbrella  policies  must  provide  coverage  in the same  manner as the  primary
commercial  general  liability policy and must contain no exclusions in addition
to, or limitations materially different than, those of the primary policy.

         13.6  Additional  Insurance.  In  addition to the  insurance  described
above, Lessee shall maintain such insurance as may be required from time to time
by any  Facility  Mortgagee,  and  shall at all  times  comply  with  all  Legal
Requirements with respect to worker's compensation insurance coverage.

         13.7  No  Liability;  Waiver  of  Subrogation.  Lessor  shall  have  no
liability to Lessee,  and, provided Lessee provides the insurance required of it
by this Lease,  Lessee  shall have no  liability  to Lessor,  regardless  of the
cause, for any loss or expense resulting from or in connection with damage to or
the  destruction  or other  loss of any Leased  Property  or  Lessee's  Personal
Property,  and neither  party will have any right or claim against the other for
any such loss or expense by way of subrogation. Each insurance policy carried by

<PAGE>

either  party  covering  any of the  Leased  Properties  and  Lessee's  Personal
Property,  including without limitation,  contents, fire and casualty insurance,
shall contain an express  waiver of any right of  subrogation on the part of the
insurer  against  the other  party.  Lessee  shall pay any  additional  costs or
charges for obtaining such waiver.

         13.8  Increase  in Limits.  From time to time,  but not more often than
once every two (2) years,  in the event that Lessor shall  reasonably  determine
that the limits of the commercial  general liability  insurance then carried are
insufficient, Lessor shall give Lessee Notice of acceptable increased limits for
such  insurance to be carried;  and Lessee  shall then obtain and maintain  such
insurance  with such  increased  limits  unless and until  further  increase  as
permitted  under the  provisions  of this  Section.  Lessor's  determination  of
increased  limits shall be  accompanied  by a description  of the basis for such
determination.

         13.9  Blanket  Policy.  Any  insurance  required  by this  Lease may be
provided by so-called blanket policies of insurance carried by Lessee, provided,
however,  that the coverage afforded Lessor thereby may not thereby be less than
or materially different from that which would be provided by a separate policies
meeting the  requirements of this Lease, and provided further that such policies
meet the requirements of all Facility Mortgages.

         13.10    No Separate Insurance.

                  13.10.1  Lessee shall not on its own initiative or pursuant to
the request or  requirement  of any third  party,  take out  separate  insurance
concurrent  in form or  contributing  in the event of loss with that required by
this  Lease,  to be  furnished  by, or which may  reasonably  be  required to be
furnished by, Lessee,  or increase the amount of any then existing  insurance by
securing an additional policy or additional policies,  unless all parties having
an insurable  interest in the subject matter of the insurance,  including in all
cases  Lessor and all  Facility  Mortgagees,  are named  therein  as  additional
insureds,  and losses are  payable  thereunder  in the same manner as losses are
payable under this Lease.

                  13.10.2 Nothing herein shall prohibit  Lessee,  upon Notice to
Lessor,  from (i) securing  insurance  required to be carried hereby with higher
limits of liability  than  required in this Lease,  or (ii)  securing  insurance
against risks not required to be insured  pursuant to this Lease, and as to such
insurance,  Lessor and any Facility  Mortgagee  need not be included  therein as
additional insureds, nor must losses thereunder be payable in the same manner as
losses are payable  under this Lease,  except to the extent  required to avoid a
default under a Facility Mortgage or any other encumbrance.

<PAGE>

                                   ARTICLE XIV

         14.1 Insurance Proceeds. Net Proceeds shall be paid to Lessor and held,
disbursed or retained by Lessor as provided herein.

                  14.1.1 Proceeds of Special Risk Insurance. If the Net Proceeds
         are less  than the  Approval  Threshold,  and no Event of  Default  has
         occurred and is continuing, Lessor shall pay the Net Proceeds to Lessee
         promptly after Lessor  receives the Net Proceeds and Lessee shall apply
         the Net Proceeds  solely to the  completion of the  restoration  of the
         damaged or destroyed  Leased  Property.  If the Net  Proceeds  equal or
         exceed the Approval Threshold, and no Event of Default has occurred and
         is continuing, the Net Proceeds shall be made available for restoration
         or repair as provided in Section 14.6.  Within fifteen (15) days of the
         receipt of the Net  Proceeds  of  Special  Risk  Insurance,  Lessor and
         Lessee shall agree as to the portion thereof,  if any,  attributable to
         the Lessee's Personal Property that Lessee is not required and does not
         elect to restore or replace, and if they cannot agree they shall submit
         the matter to  arbitration  pursuant to Article  XXXV  hereof,  and the
         portion  of the  proceeds  of such  Special  Risk  Insurance  agreed or
         determined by arbitration to be attributable  to the Lessee's  Personal
         Property  that Lessee is not  required and does not elect to restore or
         replace shall be paid to Lessee.

         14.2  Restoration in the Event of Damage or Destruction.  If all or any
portion of a Leased Property is damaged by fire or other casualty,  Lessee shall
(a) give Lessor  Notice of such damage or  destruction  within five (5) Business
Days of the  occurrence  thereof,  (b) within sixty (60) days of the  occurrence
commence the restoration of such Leased  Property and (c) thereafter  diligently
proceed to  complete  such  restoration  to  substantially  the same (or better)
condition  as such Leased  Property  was in  immediately  prior to the damage or
destruction as quickly as is reasonably possible,  but subject to Force Majeure,
in any event within two hundred forty (240) days of the  occurrence.  Regardless
of the  anticipated  cost  thereof,  if the  restoration  of a  Leased  Property
requires any  modification  of structural  elements,  prior to  commencing  such
modification  Lessee shall  obtain  Lessor's  written  approval of the plans and
specifications  therefor.  In performing  such  restoration or repair,  and as a
condition to Lessee's  obligation to restore or repair the Leased Property,  the
Net Proceeds payable with respect to such damage or destruction shall be paid or
disbursed to Lessee as provided in Section 14.1 or Section 14.7 hereof. If there
remains  any  surplus  of  Net  Proceeds  after  completion  of  the  repair  or
restoration  of the Leased  Property,  such surplus  shall belong and be paid to
Lessee.

         14.3 Restoration of Lessee's  Property.  Notwithstanding  the foregoing
terms of Section 14.1, all insurance  proceeds payable by reason of or damage to
any of Lessee's  Personal Property shall be paid to Lessee and Lessee shall hold
such  insurance  proceeds  in trust to pay the cost of  repairing  or  replacing
damaged Lessee's  Personal  Property.  If Lessee is required to restore a Leased
Property,  Lessee  shall also  concurrently  restore  any of  Lessee's  Personal
Property that is integral to the Primary Intended Use of such Leased Property at
the time of the damage or destruction.

         14.4 No Abatement of Rent. Absent termination of this Lease as provided
herein,  there shall be no  abatement  of Rent by reason of any damage to or the
partial or total destruction of any Leased Property.
<PAGE>

         14.5 Waiver.  Except as provided elsewhere in this Lease, Lessee hereby
waives any  statutory  or common law  rights of  termination  which may arise by
reason of any damage to or destruction of a Leased Property.

         14.6  Extension of Time Periods.  In the event that Lessee is unable to
complete any action  required by this  Article XIV in the time period  provided,
and Lessee establishes to the reasonable  satisfaction of Lessor that Lessee has
been acting in good faith and  diligently,  then Lessor  shall grant to Lessee a
reasonable  extension of time in which to complete the repair or  reconstruction
of any  damaged  Facility,  prior to the time that  Lessee  would  otherwise  be
required to repurchase such damaged Facility.

         14.7  Disbursement  of Insurance  Proceeds Equal to or Greater Than The
Approval Threshold.  If Lessee restores or repairs a Leased Property pursuant to
this  Article  XIV,  and if the  Net  Proceeds  equal  or  exceed  the  Approval
Threshold,  the restoration or repair and  disbursement of funds to Lessee shall
be in accordance with the following procedures:

                  (i) The  restoration  or repair work shall be done pursuant to
         plans  and   specifications   approved   by  Lessor  and  a   certified
         construction cost statement, to be obtained by Lessee from a contractor
         reasonably  acceptable  to  Lessor,  showing  the  total  cost  of  the
         restoration or repair; to the extent the cost exceeds the Net Proceeds,
         Lessee shall  deposit  with Lessor the amount of the excess  cost,  and
         Lessor shall disburse the funds so deposited in payment of the costs of
         restoration or repair before any disbursement of Net Proceeds.

                  (ii) Construction Funds shall be made available to Lessee upon
         request, no more frequently than monthly, as the restoration and repair
         work progresses,  pursuant to certificates of an architect  selected by
         Lessee that, in the judgment of Lessor, reasonably exercised, is highly
         qualified in the design and  construction of the type of Facility being
         repaired  and is  otherwise  reasonably  acceptable  to  Lessor,  which
         certificates  must be in form and  substance  reasonably  acceptable to
         Lessor. Payment of Construction Funds shall be subject to a ten percent
         (10%)  holdback  until the architect  certifies  that the work is fifty
         percent (50%)  complete,  after which,  so long as there is no Event of
         Default  under this Lease and so long as the architect  certifies  that
         work is proceeding in  accordance  with the schedule and budget,  there
         shall be no further retainage.

                  (iii) After the first disbursement to Lessee, sworn statements
         and  lien  waivers  in an  amount  at  least  equal  to the  amount  of
         Construction  Funds  previously  paid to Lessee  shall be  delivered to
         Lessor from all  contractors,  subcontractors  and  material  suppliers
         covering  all labor and  materials  furnished  through  the date of the
         previous disbursement.

                  (iv) Lessee  shall  deliver to Lessor  such other  evidence as
         Lessor may  reasonably  request  from time to time during the course of
         the restoration and repair, as to the progress of the work,  compliance
         with the approved plans and specifications, the cost of restoration and
         repair and the total  amount  needed to complete  the  restoration  and

<PAGE>

         repair,  and  showing  that  there  are no liens  against  such  Leased
         Property arising in connection with the restoration and repair and that
         the cost of the restoration and repair at least equals the total amount
         of Construction Funds then disbursed to Lessee hereunder.

                  (v) If the  Construction  Funds are at any time  determined by
         Lessor to be inadequate  for payment in full of all labor and materials
         for the restoration and repair, Lessee shall immediately pay the amount
         of the  deficiency to Lessor to be held and  disbursed as  Construction
         Funds prior to the  disbursement of any other  Construction  Funds then
         held by Lessor.

                  (vi) The  Construction  Funds  may be  disbursed  by Lessor to
         Lessee or to the  persons  entitled  to receive  payment  thereof  from
         Lessee,  and such  disbursement  in either case may be made directly or
         through a third  party  escrow  agent,  such as, but not  limited to, a
         title insurance  company,  or its agent, all as Lessor may determine in
         its sole discretion.  Provided Lessee is not in default hereunder,  any
         excess  Construction  Funds shall be paid to Lessee upon  completion of
         the restoration or repair.

                  (vii) If  Lessee  at any  time  fails to  promptly  and  fully
         perform the  conditions  and  covenants  set out in  subparagraphs  (i)
         through (vi) above,  and the failure is not  corrected  within ten (10)
         days of written Notice thereof,  or if during the restoration or repair
         an Event of  Default  occurs  hereunder,  Lessor  may,  at its  option,
         immediately  cease  making  any  further  payments  to  Lessee  for the
         restoration and repair.

                  (viii)  Lessor may  reimburse  itself out of the  Construction
         Funds  for  its  reasonable  expenses  incurred  in  administering  the
         Construction  Funds and  inspecting  the  restoration  and repair work,
         including without limitation attorneys' and other professional fees and
         escrow fees and expenses.

                  (ix) If damage or  destruction  shall occur  either (a) during
         the final Lease Year of the Initial  Term and Lessee has not  exercised
         its  option to extend the Term of this Lease  pursuant  to Section  1.3
         above or (b) during  the final  Lease Year of the  Renewal  Term,  then
         Lessor, at Lessor's sole option, may elect to terminate the Lease as to
         the affected Facility (in which case Lessee shall surrender  possession
         of the affected  Facility  and Lessee  shall  transfer to Lessor all of
         Lessee's  interest  in the  Facility,  including,  without  limitation,
         Lessee's  interest in the  licenses  pursuant to which the  Facility is
         then operated) and receive the Net Proceeds in lieu of Lessee restoring
         or repairing the damage or  destruction.  The election to terminate the
         Lease as to the affected Facility and receive the Net Proceeds pursuant
         to this  Section  14.7(ix)  must be  exercised  by  Lessor by Notice to
         Lessee on or prior to the tenth (10th) Business Day following  Lessor's
         receipt  of Notice of such  event of damage or  destruction.  If Lessor
         elects to terminate  the Lease as to the affected  Facility and receive
         the Net Proceeds in lieu of Lessee restoring or repairing the damage or
         destruction,  then, as of the Proceeds  Date,  the annual Base Rent due
         under this Lease  during the  remainder of the Term shall be reduced by
         an amount  equal to the  product of the annual Base Rent in effect from
         time to time and the Casualty/Condemnation Reduction Percentage.

<PAGE>

         14.8 Net Proceeds Paid to Facility Mortgagee.  Notwithstanding anything
herein  to the  contrary,  if any  Facility  Mortgagee  is  entitled  to any Net
Proceeds, or any portion thereof,  under the terms of any Facility Mortgage, the
Net Proceeds  shall be applied,  held and/or  disbursed in  accordance  with the
terms of the  Facility  Mortgage.  Lessor  shall  make  commercially  reasonable
efforts to cause the Net Proceeds to be applied to the restoration of the Leased
Property.  If the Facility  Mortgagee elects to apply the insurance  proceeds to
the  indebtedness  secured by the  Facility  Mortgage,  Lessee  shall either (i)
restore the Facility to substantially  the same (or better) condition as existed
immediately before the damage or destruction, or (ii) terminate this Lease as to
such Leased Property upon Notice to Lessor,  such termination to be effective as
of the  first  day of the  calendar  month  following  the later of (a) the date
Lessee  learns of the action of the Facility  Mortgagee or (b) fifteen (15) days
after the date Lessor  learns of the action of the  Facility  Mortgagee,  unless
within  fifteen (15) days of the notice from the Facility  Mortgagee  the Lessor
agrees to make  available to Lessee for  restoration  to or repair of the Leased
Property funds equal to the amount applied by the Facility Mortgagee. Unless the
damage or  destruction  is such as to  entitle  Lessor  or  Lessee to  otherwise
terminate  this Lease as to such  Facility  under this Article XIV and Lessor or
Lessee,  as the case may be, shall fail to elect to  terminate  this Lease as to
such  Facility,  in the time and in the manner  provided,  Lessor shall disburse
such funds to Lessee as provided in Section 14.7 of this Master Lease and Lessee
shall   restore  the  Leased   Property   (as  nearly  as  possible   under  the
circumstances)  to a complete  architectural  unit of the same general character
and condition as the Leased Property  existing  immediately prior to such damage
or destruction.

         In the event this Master Lease is so terminated as to such Facility (in
which case Lessee shall surrender possession of the affected Facility and Lessee
shall  transfer to Lessor all of Lessee's  interest in the Facility,  including,
without  limitation,  Lessee's  interest in the  licenses  pursuant to which the
Facility is then  operated),  as of the Proceeds  Date, the annual Base Rent due
under this Lease during the  remainder of the Term shall be reduced by an amount
equal to the product of the annual Base Rent in effect from time to time and the
Casualty/Condemnation Reduction Percentage.

                                   ARTICLE XV

         15.1  Total  Taking  or Other  Taking  with  Leased  Property  Rendered
Unsuitable  for Its Primary  Intended Use. If title to the fee of the whole of a
Leased Property is Taken,  this Lease shall cease and terminate as to the Leased
Property  Taken as of the Date of  Taking  by the  Condemnor  and Rent  shall be
apportioned  as of the  termination  date.  If title to the fee of less than the
whole of a Leased  Property  is  Taken,  but such  Leased  Property  is  thereby
rendered  Unsuitable for Its Primary  Intended Use, Lessee and Lessor shall each
have the option by written Notice to the other,  at any time prior to the taking
of possession by, or the date of vesting of title in, the  Condemnor,  whichever
first occurs, to terminate this Lease with respect to such Leased Property as of

<PAGE>

the date so determined,  in which event this Lease shall  thereupon so cease and
terminate as of the earlier of the date  specified in such Notice or the date on
which possession is taken by the Condemnor. If this Lease is so terminated as to
a Leased  Property  (in which case  Lessee  shall  surrender  possession  of the
affected  Facility and Lessee shall transfer to Lessor all of Lessee's  interest
in  the  Facility,  including,  without  limitation,  Lessee's  interest  in the
licenses  pursuant to which the Facility is then  operated),  as of the Proceeds
Date, the annual Base Rent due under this Lease during the remainder of the Term
shall be reduced by an amount  equal to the  product of the annual  Base Rent in
effect from time to time and the Casualty/Condemnation Reduction Percentage.

         15.2  Allocation of Award.  The total Award made with respect to all or
any portion of a Leased  Property or for loss of Rent,  or for loss of business,
shall be solely the property of and payable to Lessor. Nothing contained in this
lease will be deemed to create any  additional  interest  in Lessee,  or entitle
Lessee to any  payment  based on the value of the  unexpired  term or  so-called
"bonus value" to Lessee of this Lease. Any Award made for the taking of Lessee's
Personal Property,  or for removal and relocation expenses of Lessee in any such
proceedings  shall be payable to Lessee.  In any proceedings  with respect to an
Award,  Lessor and Lessee shall each seek its own Award in conformity  herewith,
at its own expense. Notwithstanding the foregoing, Lessee may pursue a claim for
loss of its business, provided that under the laws of the State, such claim will
not diminish the Award to Lessor.

         15.3 Partial Taking.  In the event of a Partial Taking,  Lessee, at its
own cost and expense,  shall within sixty (60) days of the taking of  possession
by, or the date of vesting of title in, the Condemnor,  whichever  first occurs,
commence  the  restoration  of  the  affected  Leased  Property  to  a  complete
architectural unit of the same general character and condition (as nearly as may
be possible under the circumstances) as existed immediately prior to the Partial
Taking, and complete such restoration with all reasonable  dispatch,  but in any
event, subject to Force Majeure, within two hundred forty (240) days of the date
on  which  such  Notice  is  given.  Lessor  shall  contribute  to the  cost  of
restoration  such  portion  of the  Award  as is made  therefor,  together  with
severance and other damages  awarded for Leased  Improvements  Taken;  provided,
however,  that the amount of such  contribution  shall not exceed such cost.  As
long as no Event of Default has occurred and is  continuing,  if such portion of
the Award is in an amount less than the Approval Threshold, Lessor shall pay the
same to Lessee upon  commencement  of such  restoration.  As long as no Event of
Default has  occurred and is  continuing,  if such portion of the Award is in an
amount equal to or greater than the Approval  Threshold,  Lessor shall make such
portion of the Award  available to Lessee in the manner provided in Section 14.6
with   respect  to  Net   Proceeds   in  excess  of  the   Approval   Threshold.
Notwithstanding  anything to the contrary  elsewhere  herein, if the Fair Market
Rent of the affected Leased Property is reduced by reason of the Partial Taking,
from and  after  the  date on which  possession  is taken by the  Condemnor  the
annualized  Base Rent shall be reduced by an amount  determined  by dividing the
portion of the Award made to Lessor  expressly for such reduction in Fair Market
Rent by the Capitalization Rate.

<PAGE>

         15.4 Temporary Taking. If there is a Taking of possession or the use of
all or part of a Leased  Property,  but the fee of such  Leased  Property is not
Taken in whole or in part,  until such Taking of possession or use continues for
more than six (6) months,  all the provisions of this Lease shall remain in full
force and effect and the entire  amount of any Award made for such Taking  shall
be paid  to  Lessee  provided  there  is then no  Event  of  Default.  Upon  the
termination of any such period of temporary use or occupancy, Lessee at its sole
cost and expense shall restore the affected Leased Property, as nearly as may be
reasonably possible, to the condition existing immediately prior to such Taking.
If any  temporary  Taking  continues  for longer than six (6) months,  and fifty
percent  (50%) or more of the  patient  capacity  of the  affected  Facility  is
thereby rendered Unsuitable for Its Primary Use, such Taking shall be considered
a Total Taking governed by Section 15.1 and this Lease shall cease and terminate
as to the affected  Leased  Property  only as of the last day of the sixth (6th)
month,  but if less than fifty  percent  (50%) of the  patient  capacity of such
Facility is thereby  rendered  Unsuitable for Its Primary Use, Lessee and Lessor
shall each have the option by at least sixty (60) day's prior written  Notice to
the other,  at any time prior to the end of the temporary  taking,  to terminate
this  Lease as to the  affected  Leased  Property  of the date set forth in such
Notice,  and Lessee  shall be  entitled to any Award made for the period of such
temporary  Taking prior to the date of termination of the Lease.  Rent shall not
abate during the period of any temporary Taking.

         15.5 Awards Paid to Facility Mortgagee. Notwithstanding anything herein
to the  contrary,  if any  Facility  Mortgagee  is  entitled to any Award or any
portion  thereof,  under the terms of any Facility  Mortgage such Award shall be
applied,  held and/or  disbursed  in  accordance  with the terms of the Facility
Mortgage.   If  the  Facility  Mortgagee  elects  to  apply  the  Award  to  the
indebtedness  secured by the Facility  Mortgage:  (i) if the Award represents an
Award for  Partial  Taking as  described  in Section  15.3 above,  Lessee  shall
restore the affected Facility (as nearly as possible under the circumstances) to
a complete  architectural  unit of the same general  character  and condition as
that of the Facility  existing  immediately prior to such Taking; or (ii) if the
Award represents an Award for a Total Taking as described in Section 15.1 above,
Lessee  shall  transfer  to Lessor all of  Lessee's  interest  in the  Facility,
including,  without  limitation,  Lessee's  interest in the licenses pursuant to
which the Facility is then operated. In any such restoration or purchase, Lessee
shall  receive  full credit for any portion of any Award  retained by Lessor and
the  Facility  Mortgagee,  and as of the Proceeds  Date,  the Base Rent shall be
reduced by a percentage equal to the Casualty/Condemnation Reduction Percentage.

         15.6  Extension of Time Periods.  In the event that Lessee is unable to
complete any action required by this Article XV in the time period provided, and
Lessee establishes to the reasonable satisfaction of Lessor that Lessee has been
acting  in good  faith  and  diligently,  then  Lessor  shall  grant to Lessee a
reasonable  extension of time in which to complete the repair or  reconstruction
of any Facility subject to Taking, prior to the time that Lessee would otherwise
be required to repurchase such Facility subject to a Taking.

<PAGE>

                                   ARTICLE XVI

         16.1 Lessor's  Rights Upon an Event of Default.  If an Event of Default
shall  occur  Lessor  may  terminate  this  Lease by  giving  Lessee a Notice of
Termination in accordance  with the laws of the States in which each Facility is
located,  and in such event,  the Term shall end and all rights of Lessee  under
this  Lease  shall  cease on the  Termination  Date  specified  in the Notice of
Termination. In addition to Lessor's right to terminate this Lease, Lessor shall
have all other rights set forth in this Lease and all remedies  available at law
and in equity.

                  Lessee  shall,  to  the  extent   permitted  by  law,  pay  as
Additional  Charges all costs and  expenses  incurred by or on behalf of Lessor,
including, without limitation,  reasonable attorneys' fees and expenses (whether
or not litigation is commenced,  and if litigation is commenced,  including fees
and expenses incurred in appeals and  post-judgment  proceedings) as a result of
any default of Lessee  hereunder.  Lessor shall, to the extent permitted by law,
pay Lessee all costs and expenses incurred by or on behalf of Lessee, including,
without  limitation,  reasonable  attorneys'  fees and expenses  (whether or not
litigation is commenced,  and if  litigation  is commenced,  including  fees and
expenses incurred in appeals and  post-judgment  proceedings) as a result of any
default of Lessor hereunder.

                  No Event of Default  (other than a failure to make  payment of
money)  shall be  deemed  to exist if and for so long as  Lessee  is  unable  to
prevent such Event of Default  because of Force Majeure,  provided that upon the
cessation of such Force Majeure,  Lessee shall  forthwith  proceed to remedy the
action or condition  giving rise to such Event of Default  within the applicable
cure period as extended by such Force Majeure.

         16.2 Certain Remedies.  If an Event of Default shall occur,  whether or
not this Lease has been  terminated  pursuant to Section 16.1, if required to do
so by Lessor Lessee shall immediately  surrender the Leased Properties to Lessor
in the  condition  required by Section  9.1.5 and quit the same,  and Lessor may
enter upon and repossess the Leased  Properties  by  reasonable  force,  summary
proceedings, ejectment or otherwise, and may remove Lessee and all other persons
and any and all  personal  properties  from the  Leased  Properties,  subject to
rights of any residents or patients and to any Legal  Requirements.  In addition
to all other remedies set forth or referred to in this Article XVI, Lessor shall
have the right to  suspend  any  Management  Agreement  as to one or more or all
Facilities and to retain a manager of the affected Facility or all Facilities at
the  expense  of  Lessee,  such  manager  to  serve  for  such  term and at such
compensation   as  Lessor   reasonably   determines   is  necessary   under  the
circumstances.

         16.3 Damages.  Neither (i) the  termination  of this Lease  pursuant to
Section 16.1, (ii) the repossession of the Leased Properties,  (iii) the failure
of Lessor to relet  the  Leased  Properties,  (iv) the  reletting  of all or any
portion thereof, nor (v) the failure of Lessor to collect or receive any rentals
due  upon  such  any  reletting,  shall  relieve  Lessee  of its  liability  and
obligations  hereunder,  all  of  which  shall  survive  any  such  termination,

<PAGE>

repossession  or  reletting.  In the event this Lease is  terminated  by Lessor,
Lessee  shall  forthwith  pay to Lessor all Rent due and payable with respect to
the Leased Properties to and including the Termination  Date,  including without
limitation  all interest and late charges  payable under Section 3.3 hereof with
respect to any late payment of such Rent.  Lessee  shall also pay to Lessor,  as
liquidated damages, at Lessor's option, either:

         (A)      The sum of:
                  (i) Lessor's Interim Rent Loss,  minus Net Reletting  Proceeds
                  for such  period,  and minus the portion of  Lessor's  Interim
                  Rent Loss,  if any,  that Lessee prove could  reasonably  have
                  been mitigated by Lessor, plus

                  (ii) the Present Value on the Judgment Date of Lessor's Future
                  Rent Loss,  assuming the Cost of Living Index were to increase
                  four (4)  percentage  points per Lease Year from the  Judgment
                  Date through the Expiration  Date,  minus the Present Value on
                  the  Termination  Date of the portion of Lessor's  Future Rent
                  Loss that Lessee  proves  could  reasonably  be  mitigated  by
                  Lessor;
         or

         (B) Each month between the  Termination  Date and the Expiration  Date,
         Lessor's Monthly Rent Loss,  minus the Net Reletting  Proceeds for such
         month,  and minus the  portion,  if any, of Lessor's  Monthly Rent Loss
         that Lessee proves could reasonably have been avoided. Any suit brought
         to recover liquidated damages payable under this subsection "(B)" shall
         not  prejudice   Lessor's  right  to  collect  liquidated  damages  for
         subsequent months in a similar proceeding.

         16.4     Intentionally Omitted

         16.5  Waiver.  If this Lease is  terminated  pursuant to Section  16.1,
Lessee  waives,  to the extent  permitted  by  applicable  law, (i) any right of
reentry, repossession or redesignation, (ii) any right to a trial by jury in the
event of summary  proceedings  to enforce the remedies set forth in this Article
XVI,  and (iii) the  benefit  of any laws now or  hereafter  in force  exempting
property  from  liability  for rent or for debt.  Acceptance of Rent at any time
does not  prejudice or remove any right of Lessor as to any right or remedy.  No
course of conduct  shall be held to bar Lessor from literal  enforcement  of the
terms of this Lease.

         16.6 Application of Funds. Any payments received by Lessor under any of
the provisions of this Lease during the existence or continuance of any Event of
Default shall be applied to Lessee's  obligations  in the order which Lessor may
determine or as may be prescribed by law.

         16.7     Bankruptcy.

         (a)      Neither Lessee's interest in this Lease, nor any estate hereby
                  created  in  Lessee's  interest  nor any  interest  herein  or
                  therein, shall pass to any trustee or receiver or assignee for
                  the benefit of  creditors  or  otherwise  by operation of law,
                  except  as  may  specifically  be  provided  pursuant  to  the
                  Bankruptcy  Code (11 USC ss.101 et. seq.),  as the same may be
                  amended from time to time.
<PAGE>

         (b)      Rights and Obligations Under the Bankruptcy Code.

                    (1) Upon filing of a petition by or against Lessee under the
                    Bankruptcy    Code,     Lessee,    as    debtor    and    as
                    debtor-in-possession,  and any trustee who may be  appointed
                    with  respect  to the assets of or estate in  bankruptcy  of
                    Lessee,  agree to pay  monthly in  advance on the  fifteenth
                    (15th) day of each month, as reasonable compensation for the
                    use and occupancy of the Leased Premises, an amount equal to
                    all Rent due pursuant to this Lease.

                    (2) Included within and in addition to any other  conditions
                    or  obligations  imposed upon Lessee or its successor in the
                    event of the assumption  and/or  assignment of the Lease are
                    the  following:  (i) the cure of any  monetary  defaults and
                    reimbursement  of pecuniary loss within not more than thirty
                    (30) days of assumption and/or assignment;  (ii) the deposit
                    of an  additional  amount  equal to not less than  three (3)
                    months' Base Rent,  which amount is agreed to be a necessary
                    and  appropriate  deposit to secure  the future  performance
                    under  the  Lease  of  Lessee  or its  assignee;  (iii)  the
                    continued  use  of  the  Leased  Premises  for  the  Primary
                    Intended  Use;  and (iv) the prior  written  consent  of any
                    Facility Mortgagee.

                                  ARTICLE XVII

         17.1 Lessor's Right to Cure Lessee's  Default.  If Lessee fails to make
any  payment or perform  any act  required  to be made or  performed  under this
Lease,  and fails to cure the same  within any grace or cure  period  applicable
thereto,  upon such Notice as may be  expressly  required  herein (or, if Lessor
reasonably  determines  that the  giving of such  Notice  would risk loss to the
Leased  Properties  or cause damage to Lessor,  upon such Notice as is practical
under the  circumstances),  and without  waiving or releasing any  obligation of
Lessee,  Lessor may make such payment or perform such act for the account and at
the expense of Lessee,  and may, to the extent  permitted by law, enter upon the
Leased  Properties  for such  purpose  and take all such  action  thereon as, in
Lessor's sole opinion,  may be necessary or appropriate.  No such entry shall be
deemed an  eviction  of Lessee.  All amounts so paid by Lessor and all costs and
expenses  (including,   without  limitation,   reasonable  attorneys'  fees  and
expenses) so incurred,  together with the late charge and interest  provided for
in  Section  3.3  thereon,  shall be paid by Lessee to  Lessor  on  demand.  The
obligations  of Lessee  and rights of Lessor  contained  in this  Article  shall
survive the expiration or earlier termination of this Lease.

<PAGE>

                                  ARTICLE XVIII

         18.1 Holding Over. If Lessee remains in possession of all or any of the
Leased  Properties  after the  expiration of the Term or earlier  termination of
this Lease, such possession shall be as a month-to-month  tenant, and throughout
the period of such  possession  Lessee  shall pay as Rent for each month one and
one-half  (1 1/2) times the sum  of:(i)  one-twelfth  (1/12th)  of the Base Rent
payable during the Lease Year in which such  expiration or  termination  occurs,
plus (ii) all Additional  Charges accruing during the month,  plus (iii) any and
all other sums payable by Lessee  pursuant to this Lease.  During such period of
month-to-month  tenancy, Lessee shall be obligated to perform and observe all of
the terms,  covenants  and  conditions  of this Lease,  but shall have no rights
hereunder  other  than the  right,  to the  extent  given by  applicable  law to
month-to-month  tenancies,  to  continue  its  occupancy  and use of the  Leased
Properties until the  month-to-month  tenancy is terminated.  Nothing  contained
herein  shall  constitute  the  consent,  express or  implied,  of Lessor to the
holding  over of Lessee  after the  expiration  or earlier  termination  of this
Lease.

         18.2 Indemnity. If Lessee fails to surrender the Leased Properties in a
timely  manner and in accordance  with the  provisions of Section 9.1.5 upon the
expiration or termination of this Lease, in addition to any other liabilities to
Lessor accruing therefrom,  Lessee shall defend,  indemnify and hold Lessor, its
principals,  officers,  directors,  agents and  employees  harmless from loss or
liability  resulting  from  such  failure,   including,   without  limiting  the
generality  of the  foregoing,  loss of rental with  respect to any new lease in
which the rental payable  thereunder exceeds the Rent paid by Lessee pursuant to
this Lease during  Lessee's  hold-over and any claims by any proposed new tenant
founded on such failure.  The  provisions of this Section 18.2 shall survive the
expiration or termination of this Lease.

                                   ARTICLE XIX

         19.1  Subordination.  Upon  written  request  of Lessor,  any  Facility
Mortgagee,  or the beneficiary of any deed of trust of Lessor, Lessee will enter
into a written agreement  subordinating its rights pursuant to this Lease (i) to
the lien of any  mortgage,  deed of trust or the  interest of any lease in which
Lessor is the lessee and to all modifications, extensions, substitutions thereof
(or, at Lessor's option, agree to the subordination to this Lease of the lien of
said mortgage, deed of trust or the interest of any lease in which Lessor is the
lessee),  and (ii) to all advances made or hereafter to be made  thereunder.  In
connection   with  any  such  request,   Lessor  shall  provide  Lessee  with  a
"Non-Disturbance Agreement" reasonably acceptable to such mortgagee, beneficiary
or lessor  providing that if such mortgagee,  beneficiary or lessor acquires the
Leased  Properties by way of  foreclosure or deed in lieu of  foreclosure,  such
mortgagee, beneficiary or lessor will not disturb Lessee's possession under this
Lease and will  recognize  Lessee's  rights  hereunder  if and for so long as no
Event of Default has occurred  and is  continuing.  Lessee  agrees to consent to
amend this Lease as reasonably required by any Facility Mortgagee,  and shall be
deemed to have  unreasonably  withheld or delayed  its  consent if the  required
changes do not  materially  (i) alter the  economic  terms of this  Lease,  (ii)
diminish  the rights of Lessee,  or (iii)  increase the  obligations  of Lessee,
provided  that Lessee  shall also have  received the  non-disturbance  agreement
provided for in this Article.
<PAGE>

         19.2 Attornment. If any proceedings are brought for foreclosure,  or if
the power of sale is  exercised  under  any  mortgage  or deed of trust  made by
Lessor encumbering the Leased  Properties,  or if a lease in which Lessor is the
lessee is terminated,  Lessee shall attorn to the purchaser or lessor under such
lease upon any  foreclosure or deed in lieu thereof,  sale or lease  termination
and recognize  the purchaser or lessor as Lessor under this Lease,  provided the
purchaser or lessor acquires and accepts the Leased  Properties  subject to this
Lease.

         19.3 Lessee's  Certificate.  Lessee shall,  upon not less than ten (10)
days prior  Notice from  Lessor,  execute,  acknowledge  and deliver to Lessor a
Lessee's  Certificate  containing  then-current  facts.  It is intended that any
Lessee's Certificate delivered pursuant hereto may be relied upon by Lessor, any
prospective  tenant or  purchaser  of the Leased  Properties,  any  mortgagee or
prospective  mortgagee,  and by any other party who may reasonably  rely on such
statement. Lessee's failure to deliver the Lessee's Certificate within such time
shall  constitute an Event of Default.  In addition,  Lessee  hereby  authorizes
Lessor to execute and deliver a certificate  to the effect (if true) that Lessee
represents  and warrants that (i) this Lease is in full force and effect without
modification,  and  (ii)  Lessor  is  not in  breach  or  default  of any of its
obligations under this Lease.

                                   ARTICLE XX

         20.1 Risk of Loss.  During the Term, the risk of loss or of decrease in
the enjoyment and beneficial use of the Leased  Properties in consequence of the
damage or destruction thereof by fire, the elements,  casualties, thefts, riots,
wars or otherwise,  or in consequence of  foreclosures,  attachments,  levies or
executions  (other than those caused by Lessor and those claiming from,  through
or under Lessor) is assumed by Lessee,  and, in the absence of gross negligence,
willful  misconduct or material breach of this Lease by Lessor,  Lessor shall in
no event be  answerable  or  accountable  therefor  nor shall any of the  events
mentioned in this Section  entitle  Lessee to any  abatement of Rent,  except as
specifically provided in this Lease.

                                   ARTICLE XXI

         21.1 Indemnification. Notwithstanding the existence of any insurance or
self-insurance  provided for in Article XIII,  and without  regard to the policy
limits of any such insurance or self-insurance, Lessee shall protect, indemnify,
save harmless and defend Lessor, its principals,  officers, directors and agents
and employees from and against all liabilities,  obligations,  claims,  damages,
penalties, causes of action, costs and expenses (including,  without limitation,
reasonable  attorneys'  fees and  expenses),  to the  extent  permitted  by law,
imposed  upon or incurred by or  asserted  against  Lessor by reason of: (i) any
accident,  injury  to or death  of  persons  or loss of or  damage  to  property
occurring on or about the Leased  Properties or adjoining  sidewalks  during the
Term,  including  without  limitation any claims of  malpractice,  (ii) any use,
misuse,  non-use,  condition,  maintenance  or repair  by  Lessee of the  Leased

<PAGE>

Properties,  (iii) the failure to pay any  Impositions as herein  provided which
are the obligation of Lessee to pay pursuant to this Lease,  (iv) any failure on
the part of Lessee to perform or comply with any of the terms of this Lease, and
(v) the  nonperformance  of any  contractual  obligation,  express  or  implied,
assumed or undertaken by Lessee or any party in privity with Lessee with respect
to the Leased  Properties  or any  business  or other  activity  carried on with
respect to the Leased  Properties  during the Term or thereafter during any time
in  which  Lessee  or any  such  other  party  is in  possession  of the  Leased
Properties  or  thereafter  to the extent that any conduct by Lessee or any such
party  (or  failure  of such  conduct  thereby  if the  same  should  have  been
undertaken  during  such time of  possession  and leads to such  damage or loss)
causes such loss or claim. Any amounts which become payable by Lessee under this
Section shall be paid within ten (10) days after liability  therefor on the part
of Lessee is determined  by  litigation  or  otherwise,  and if not timely paid,
shall bear  interest  (to the extent  permitted by law) at the Overdue Rate from
the date of such  determination to the date of payment.  Nothing herein shall be
construed  as  indemnifying  Lessor  against its own grossly  negligent  acts or
omissions or willful misconduct.

         Lessor  shall  indemnify,  save  harmless  and defend  Lessee  from and
against all liabilities,  obligations,  claims,  damages,  penalties,  causes of
action,  costs and  expenses  imposed  upon or incurred  by or asserted  against
Lessee as a result of the gross negligence or willful misconduct of Lessor.

         Lessee's or Lessor's  liability for a breach of the  provisions of this
Article  arising  during the Term hereof shall survive any  termination  of this
Lease for three (3) years following any termination of this Lease, provided that
Lessee's  obligations to indemnify Lessor with respect to environmental  matters
shall continue for six (6) years after such termination.

<PAGE>

                                  ARTICLE XXII

         22.1 General Prohibition against Transfers.  Lessee acknowledges that a
significant  inducement  to Lessor to enter into this  Lease with  Lessee on the
terms set forth herein is the  combination  of financial  strength,  experience,
skill and reputation possessed by the Lessee named herein, the Person or Persons
in  Control  of  Lessee,  the  Guarantor(s)  (if  any)  and the  Manager  of the
Facilities on the  Commencement  Date,  together with  Lessee's  assurance  that
Lessor shall have the  unrestricted  right to approve or disapprove any proposed
Transfer. Therefore, there shall be no Transfer except as specifically permitted
by this Lease or  consented  to in advance by Lessor in writing.  Lessor  hereby
consents to the sublease of the Boone and Laurel  facilities to Sterling  Health
Care Management, Inc., a Kentucky corporation, for the purpose of continuing its
lease  of  those  facilities  under  the  Existing  Lease  applicable  to  those
facilities  which are been  consolidated,  amended and  restated as part of this
Lease. Lessee agrees that Lessor shall have the right to withhold its consent to
any  proposed  Transfer on the basis of  Lessor's  judgment as to the effect the
proposed  Transfer may have on the Facilities and the future  performance of the
obligations  of the Lessee under this Lease,  whether or not Lessee  agrees with
such judgment.  Any attempted  Transfer which is not  specifically  permitted by
this Lease or  consented  to by Lessor in  advance in writing  shall be null and
void and of no force and effect whatsoever.  In the event of a Transfer,  Lessor
may collect  Rent and other  charges from the  Transferee  and apply the amounts
collected  to the Rent and other  charges  herein  reserved,  but no Transfer or
collection  of Rent and other charges shall be deemed to be a waiver of Lessor's
rights to enforce  Lessee's  covenants or an  acceptance  of the  Transferee  as
Lessee,  or a release of the Lessee  named  herein from the  performance  of its
covenants.  Notwithstanding  any Transfer,  Lessee shall remain fully liable for
the  performance  of all terms,  covenants  and  provisions  of this Lease.  Any
violation of this Lease by any  Transferee  shall be deemed to be a violation of
this Lease by Lessee.

         22.2 Subordination and Attornment.  Lessee shall insert in any sublease
permitted by Lessor  provisions  to the effect that (i) such sublease is subject
and  subordinate  to all of the terms and  provisions  of this  Lease and to the
rights of Lessor hereunder,  (ii) if this Lease terminates before the expiration
of such sublease,  the sublessee thereunder will, at Lessor's option,  attorn to
Lessor and waive any right the  sublessee  may have to terminate the sublease or
to  surrender  possession  thereunder,  as a result of the  termination  of this
Lease,  and (iii) if the  sublessee  receives a written  Notice  from  Lessor or
Lessor's  assignee,  if any, stating that Lessee is in default under this Lease,
the sublessee  shall  thereafter be obligated to pay all rentals  accruing under
the  sublease  directly to the party  giving such  Notice,  or as such party may
direct,  which  payments  shall be credited  against the amounts owing by Lessee
under this Lease.

         22.3  Sublease  Limitation.  Anything  contained  in this  Lease to the
contrary notwithstanding,  even if a sublease of a Leased Property is permitted,
Lessee  shall not sublet such Leased  Property on any basis such that the rental
to be paid by the sublessee  thereunder  would be based, in whole or in part, on
either (i) the  income or profits  derived  by the  business  activities  of the
sublessee,  or (ii) any other  formula  such that any  portion  of the  sublease
rental  received by Lessor  would fail to qualify as "rents from real  property"

<PAGE>

within the meaning of Section  856(d) of the Code,  or any similar or  successor
provision  thereto.  The parties agree that this  paragraph  shall not be deemed
waived or modified  by  implication,  but may be waived or  modified  only by an
instrument in writing explicitly referring to this paragraph by number.

         22.4  Permitted  Sublease.  Lessee  shall be entitled  to sublease  any
Leased Property in its entirety to an Affiliate of Lessee upon Lessee's  written
acknowledgment,  provided  that (i) Lessee  submits an original copy of any such
sublease to Lessor for its reasonable approval and written  acknowledgment prior
to the date of commencement of same, which such sublease shall  memorialize that
the  sublessee  shall  be  fully  liable  for  the  performance  of  all  of the
obligations  of Lessee  under this Lease with  respect to such Leased  Property;
(ii)  subject  to the  rights  and  priorities  set  forth in the  Intercreditor
Agreement,  each sublessee shall jointly and severally  guaranty the obligations
of Lessee  under the Lease;  (iii)  Lessor  shall be provided  security  for the
performance  by each sublessee of its  obligations  reasonably  satisfactory  to
Lessor, which security shall include, without limitation,  subject to the rights
and priorities set forth in the Intercreditor  Agreement,  a pledge of the stock
of or other  membership  interest of Lessee in each sublessee,  an assignment of
the  sublease,  and a security  interest in sublessee  `s Personal  Property and
Accounts  as required  of Lessee  pursuant to Section 6.4 hereof;  (iv) the sole
asset of any such sublessee shall be its interest in the  contemplated  sublease
and  Lessee's  Personal  Property  relating to such  Facility(ies);  and (v) the
sublessee  shall be a  wholly-owned  subsidiary  of Lessee.  Lessee shall notify
Lessor at least thirty (30) days in advance of the date on which Lessee  desires
to make  such  sublease.  Lessee  shall  reimburse  Lessor  for the  actual  and
reasonable  legal fees actually  incurred by Lessor in connection  with Lessee's
request.  Lessee shall provide  Lessor with a copy of the proposed  sublease and
such information as Lessor reasonably requests concerning the proposed sublessee
to  allow  Lessor  to make an  informed  judgment  as to  whether  the  sublease
satisfies  the  provisions  of this  Section  22.5 and to  obtain  the  security
provided for herein.

                                  ARTICLE XXIII

         23.1  Officer's  Certificates  and Financial  Statements.  Lessee shall
furnish (or as appropriate cause each Guarantor to furnish) to Lessor:

                  (i) Within ninety (90) days after the end of each of Advocat's
         fiscal years:  (a)  Consolidated  Financial  Statements  for the Lessee
         (from  and  after  the  transfer  of  Lessee's  interest  to New Sub as
         contemplated  by  the  Settlement  and  Restructuring   Agreement)  and
         Advocat,  (b) separate financial statements for each of the Facilities,
         in each case  certified by an financial  officer of Lessee;  and (c) an
         Officer's  Certificate stating that to the best knowledge and belief of
         such officer after making due inquiry,  Lessee is not in default in the
         performance  or  observance  of any of the terms of this  Lease,  or if
         Lessee is in default, specifying all such defaults, the nature thereof,
         and the steps being taken to remedy the same.

                  (ii)  Within  forty-five  (45)  days  after the end of each of
         Advocat's  quarters,   quarterly   consolidated  financial  reports  of
         Advocat,  together with an Officer's  Certificate that Lessee is not in

<PAGE>

         default  of any  covenant  set  forth in  Section  8 of this  Lease and
         Guarantor is not in default of any covenant  under the Guaranty,  or if
         Lessee or Guarantor is in default,  specifying all such  defaults,  the
         nature thereof, and the steps being taken to remedy the same;

                  (iii)  Within  forty-five  (45) days  after the end of each of
         Advocat's  quarters,  a  quarterly  Financial  Statement  from  Advocat
         (provided,  however,  that such quarterly Financial Statements need not
         be certified by a certified public  accountant,  but shall be certified
         by Advocat to be complete and accurate);

                  (iv) Within thirty-five (35) days after the end of each month,
         monthly financial reports for each Facility with detailed statements of
         income  and  expense  and  detailed  operational  statistics  regarding
         occupancy  rates,  patient  mix  and  patient  rates  by  type  for the
         Facility;

                  (v) A copy of  each  cost  report  filed  with a  governmental
         agency for any Facility;

                  (vi) Within  fifteen  (15) days after they are  required to be
         filed  with the SEC,  copies of any annual or  quarterly  report and of
         information, documents and other reports (or copies of such portions of
         any of the foregoing as the SEC may by rules and regulations prescribe)
         which  Advocat is required to file with the SEC  pursuant to Section 13
         or 15(d) of the Securities Exchange Act of 1934;

                  (vii) Within thirty (30) days of Lessee's or Manager's receipt
         thereof,  copies of surveys  performed by the appropriate  governmental
         agencies  for  licensing  or  certification  purposes,  and any plan of
         correction thereto as approved by the appropriate  governmental  agency
         for any Facility.

                  (viii) Immediate  Notice to Lessor of any action,  proposal or
         investigation  by any agency or entity,  or complaint to such agency or
         entity,  known to Lessee, the result of which could be to (i) modify in
         a way adverse to Lessee or revoke or suspend or  terminate,  or fail to
         renew or fully  continue  in  effect,  any  license or  certificate  or
         operating authority pursuant to which Lessee carries on any part of the
         Primary  Intended  Use of any  Facility,  or (ii)  suspend,  terminate,
         adversely modify, or fail to renew or fully continue in effect any cost
         reimbursement   or  cost  sharing  program  by  any  state  or  federal
         governmental agency,  including but not limited to Medicaid or Medicare
         or  any  successor  or  substitute  therefor,  or  seek  return  of  or
         reimbursement for any funds previously advanced or paid pursuant to any
         such  program,  or (iii)  impose  any bed hold,  limitation  on patient
         admission  or  similar  restriction  on any  Leased  Property,  or (iv)
         prosecute  any party with  respect to the  operation of any activity on
         any Leased  Property  or enjoin any party or seek any civil  penalty in
         excess of Ten Thousand Dollars ($10,000.00) in respect thereof;

                  (ix) As soon as it is prepared  in each Lease Year,  a capital
         and  operating  budget for the  Facilities  for that and the  following
         Lease Year;
<PAGE>

                  (x)  With  reasonable   promptness,   such  other  information
         respecting  the  financial  condition  and  affairs  of Lessee  and the
         Facilities  as  Lessor  may  reasonably   request  from  time  to  time
         including,  without  limitation,  any such other  information as may be
         available to the administration of the Leased Properties; and

                  (xi) At times reasonably  required by Lessor, and upon request
         as  appropriate,  such additional  information and unaudited  quarterly
         financial  information  concerning the Leased  Properties and Lessee as
         Lessor may require for its  on-going  filings with the  Securities  and
         Exchange Commission,  under both the Securities Act of 1933, as amended
         and the Securities Exchange Act of 1934, as amended, including, but not
         limited to 10-Q Quarterly Reports, 10-K Annual Reports and registration
         statements to be filed by Lessor during the Term of this Lease.

         Lessor's right to the statements  referred to in Subparagraph (x) shall
be subject to any  prohibitions  or  limitations  on disclosure of any such data
under applicable laws or regulations,  including,  without limitation,  any duly
enacted  "Patients' Bill of Rights" or any similar  legislation,  including such
limitations  as  may  be  necessary  to  preserve  the  confidentiality  of  the
Facility-patient  relationship  and the  physician-patient  privilege.  Further,
except for statements or information which are already public,  Lessor shall not
disclose the  contents of any such  statement,  except to a Facility  Mortgagee,
proposed  Facility  Mortgagee,  lender of  Lessor,  proposed  Lender of  Lessor,
prospective investor, prospective purchaser, or Lessor's attorneys,  accountants
or agents, and except as permitted in Section 23.2.

         23.2  Public  Offering  Information.  Lessee  specifically  agrees that
Lessor  may  include  financial  information  and  information   concerning  the
operation of the  Facilities  that does not violate the  confidentiality  of the
facility-patient   relationship  and  the   physician-patient   privilege  under
applicable laws, in offering memoranda or prospectus, or similar publications in
connection  with  syndications  or public  offerings of Lessor's  securities  or
interests,  and any other reporting  requirements  under applicable  Federal and
State Laws, including those of any successor to Lessor. Lessee agrees to provide
such  other  reasonable  information  necessary  with  respect to Lessee and the
Leased  Properties  to  facilitate  a  public  offering  or to  satisfy  SEC  or
regulatory disclosure requirements. Lessor shall provide to Lessee a copy of any
information  prepared  by Lessor to so be  published  and  Lessee  shall  have a
reasonable  period of time (not to exceed three (3) Business Days) after receipt
of such information to notify Lessor of any corrections.  Lessor shall reimburse
Lessee for its out-of-pocket costs to its qualified public accountants for their
services in  connection  with such public  offering  information  and interim or
"stub" financial  information and "comfort letters" required pursuant to Section
23.1 (xi) as requested by Lessor.
<PAGE>

                                  ARTICLE XXIV

         24.1  Lessor's  Right to Inspect.  Lessee shall  permit  Lessor and its
authorized  representatives  to inspect the Leased  Properties and the books and
records of Lessee and/or Sublessees  relating to the operation of the Facilities
during normal business hours at any time without Notice subject to any security,
health,  safety  or  confidentiality  requirements  any  governmental  agency or
insurance  requirement  relating to the Leased Properties,  or imposed by law or
applicable regulations.

                                   ARTICLE XXV

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

                                  ARTICLE XXVI

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

                                  ARTICLE XXVII

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

<PAGE>

                                  ARTICLE XXVIII

         28.1 No Merger of Title.  There  shall be no merger of this Lease or of
the leasehold  estate created hereby by reason of the fact that the same person,
firm,  corporation  or  other  entity  may  acquire,  own or hold,  directly  or
indirectly,  (i) this  Lease  or the  leasehold  estate  created  hereby  or any
interest in this Lease or such leasehold estate,  and (ii) the fee estate in the
Leased Properties.
<PAGE>

         28.2 No Partnership.  Nothing contained in this Lease will be deemed or
construed to create a partnership or joint venture  between Lessor and Lessee or
to cause either party to be  responsible in any way for the debts or obligations
of the other or any other party,  it being the intention of the parties that the
only relationship hereunder is that of Lessor and Lessee.

                                  ARTICLE XXIX

         29.1  Conveyance  by Lessor.  If Lessor or any  successor  owner of the
Leased  Properties  conveys the Leased  Properties  other than as security for a
debt,  and the grantee or transferee of the Leased  Properties  shall  expressly
assume all  obligations of Lessor  hereunder  arising or accruing from and after
the date of such conveyance, Lessor or such successor owner, as the case may be,
shall  thereupon be released  from all future  liabilities  and  obligations  of
Lessor  under this Lease  arising  or  accruing  from and after the date of such
conveyance or other  transfer and all such future  liabilities  and  obligations
shall thereupon be binding upon the new owner.

                                   ARTICLE XXX

         30.1 Quiet Enjoyment. So long as Lessee pays all Rent as it becomes due
and complies  with all of the terms of this Lease and  performs its  obligations
hereunder,  Lessee shall  peaceably and quietly have,  hold and enjoy the Leased
Properties  for the Term,  free of any claim or other action by Lessor or anyone
claiming by, through or under Lessor, but subject to the Permitted  Encumbrances
and all liens and encumbrances hereafter provided for in this Lease or consented
to by Lessee.  Except as otherwise  provided in this Lease, no failure by Lessor
to comply with the  foregoing  covenant  will give Lessee any right to cancel or
terminate this Lease or abate, reduce or make a deduction from or offset against
the Rent or any other sum payable  under this  Lease,  or to fail to perform any
other obligation of Lessee.  Lessee shall,  however, have the right, by separate
and  independent  action,  to pursue any claim it may have  against  Lessor as a
result of a breach by Lessor of the  covenant of quiet  enjoyment  contained  in
this Section.

                                  ARTICLE XXXI

         31.1 Notices. Any notice, request or other communication to be given by
any party  hereunder  shall be in  writing  and shall be sent by  registered  or
certified mail, postage prepaid,  or by hand delivery or facsimile  transmission
to the following address:

                  To Lessee:            Diversicare Leasing Corp.
                                        c/o Advocat, Inc.
                                        277 Mallory Station Road, Suite 130
                                        Franklin, TN 37067
                                        Attn: Chief Financial Officer
                                        Telephone No.: (615) 771-7575
                                        Facsimile No.: (615) 771-7409
<PAGE>

                  With copy to          Harwell Howard Hyne Gabbert
                                          & Manner, P.C.
                  (which shall not      315 Deaderick Street, Suite 1800
                  constitute notice):   Nashville, TN 37238
                                        Attn: J. Mark Manner
                                        Telephone No.: (615) 256-0500
                                        Facsimile No.: (615) 251-1057

                  To Lessor:            Omega Healthcare Investors, Inc.
                                        900 Victors Way, Suite 350
                                        Ann Arbor, Michigan 48108
                                        Attn.: F. Scott Kellman and
                                               Susan Allene Kovach
                                        Telephone No.: (734) 887-0200
                                        Facsimile No.: (734) 887-0201

                  With copy to          Dykema Gossett PLLC
                  (which shall not      39577 Woodward Ave., Suite 300
                  constitute notice):   Bloomfield Hills, Michigan 48304
                                        Attn: Fred J. Fechheimer
                                        Telephone No.: (248) 203-0743
                                        Facsimile No.: (248) 203-0763

or to such other address as either party may hereafter  designate.  Notice shall
be deemed to have been given on the date of delivery if such delivery is made on
a Business Day, or if not, on the first Business Day after delivery. If delivery
is refused,  Notice shall be deemed to have been given on the date  delivery was
first  attempted.  Notice sent by facsimile  transmission  shall be deemed given
upon confirmation that such Notice was received at the number specified above or
in a Notice to the sender. If Lessee has vacated the Leased Properties, Lessor's
Notice may be posted on the door of a Leased Property.

<PAGE>

                                  ARTICLE XXXII

         32.1 Appraisers. If it becomes necessary to determine Fair Market Value
or Fair  Market Rent for any purpose  under this  Lease,  the party  required or
permitted to give Notice of such  required  determination  shall  include in the
Notice the name of a person  selected to act as appraiser on its behalf.  Within
ten (10) days after such  Notice,  the party  receiving  such Notice  shall give
Notice to the other party of its  selection  of a person to act as  appraiser on
its behalf. The appraisers thus appointed,  each of whom must be a member of the
Appraisal Institute (or any successor  organization  thereto) and experienced in
appraising  facilities used for purposes  similar to the Primary Intended Use of
the Facilities,  shall, within forty-five (45) days after the date of the Notice
appointing  the first  appraiser,  proceed to  appraise  the Leased  Property or
Leased  Properties,  as the case may be, to  determine  the Fair Market Value or
Fair Market Rent thereof as of the relevant  date (giving  effect to the impact,
if any, of inflation  between the date of their decision and the relevant date);
provided,  however, that if only one appraiser has been so appointed,  or if two
appraisers  have been so  appointed  but only one such  appraiser  has made such
determination within fifty (50) days after the date of the Notice appointing the
first  appraiser,  then the  determination  of such appraiser shall be final and
binding upon the parties. To the extent consistent with sound appraisal practice
at the  time of any  such  appraisal,  such  appraisal  shall be made on a basis
consistent with the basis on which the Leased Property or Leased Properties were
appraised  for  purposes of  determining  its Fair  Market  Value at the time of
Lessor's  acquisition  thereof.  If two appraisers  have been appointed and have
made their  determinations  within the  respective  requisite  periods set forth
above,  and if the difference  between the amounts so determined does not exceed
ten percent (10%) of the lesser of such  amounts,  then the Fair Market Value or

<PAGE>

Fair Market Rent shall be an amount equal to fifty  percent  (50%) of the sum of
the amounts so determined.  If the difference  between the amounts so determined
exceeds  ten  percent  (10%)  of the  lesser  of such  amounts,  then  such  two
appraisers shall within twenty (20) days appoint a third  appraiser.  If no such
appraiser is appointed  within such twenty (20) days or within  ninety (90) days
of the date of the Notice appointing the first appraiser,  whichever is earlier,
either Lessor or Lessee may apply to any court having  jurisdiction to have such
appointment  made  by  such  court.  Any  appraiser  appointed  by the  original
appraisers  or by such court shall be  instructed  to determine  the Fair Market
Value or Fair Market Rent within  forty-five (45) days after appointment of such
appraiser.  The  determination  of the appraiser  which differs most in terms of
dollar  amount  from the  determinations  of the other two  appraisers  shall be
excluded, and the average of the remaining two determinations shall be final and
binding  upon Lessor and Lessee as the Fair Market  Value or Fair Market Rent of
the Leased Property or Leased Properties, as the case may be. If the Fair Market
Rent is being  determined  for more  than one  year,  the Fair  Market  Rent may
include  such annual  increases,  if any, as the  appraisers  determine to be in
accordance with the terms of this Lease.

         This  provision  for  determining  by appraisal  shall be  specifically
enforceable to the extent such remedy is available under applicable law, and any
determination  hereunder  shall be final and binding upon the parties  except as
otherwise  provided by  applicable  law,  and  judgment may be entered upon such
determination in a court of competent jurisdiction. Lessor and Lessee shall each
pay the fees and  expenses of the  appraiser  appointed by it and each shall pay
one-half of the fees and  expenses of the third  appraiser  and  one-half of all
other costs and expenses incurred in connection with each appraisal.

                                 ARTICLE XXXIII

         33.1  Breach by  Lessor.  Lessor  shall not be in breach of this  Lease
unless  Lessor  fails to observe or perform any term,  covenant or  condition of
this Lease on its part to be performed  and such failure  continues for a period
of thirty  (30) days  after  written  Notice  specifying  such  failure  and the
necessary  curative  action is received by Lessor  from  Lessee.  If the failure
cannot with due  diligence  be cured  within a period of thirty  (30) days,  the
failure  shall not be deemed to continue if Lessor,  within said thirty (30) day
period,  proceeds  promptly  and with due  diligence  to cure  the  failure  and
diligently  completes the curing thereof.  The time within which Lessor shall be
obligated  to cure any such  failure  shall also be subject to extension of time
due to Force Majeure.

         33.2 Compliance With Facility  Mortgage.  Except for payments due under
any  Facility  Mortgage  (which  shall be the  responsibility  of the  Mortgagor
thereunder),  Lessee  covenants  and  agrees  that it will  duly and  punctually
observe,  perform and comply  with all of the terms,  covenants  and  conditions
(including,  without  limitation,  covenants  requiring the keeping of books and
records and  delivery of  financial  statements  and other  information)  of any
Facility  Mortgage as to which Lessee has been given Notice and that it will not
directly or indirectly, do any act or suffer or permit any condition or thing to
occur, which would or might constitute a default under a Facility Mortgage as to
which  Lessee  has been given  Notice.  Anything  in this Lease to the  contrary
notwithstanding,  if the time for  performance  of any act required of Lessee by
the terms of a Facility  Mortgage  as to which  Lessee has been given  Notice is
shorter  than the time  allowed  by this  Lease for  performance  of such act by
Lessee,  then Lessee shall perform such act within the time limits  specified in
such Facility Mortgage.

                                  ARTICLE XXXIV

         34.1 Disposition of Personal  Property on Termination;  Lessor's Option
to Purchase.  Upon the expiration or earlier  termination of this Lease,  Lessee
shall  immediately  surrender,  turn over and  deliver  to Lessor,  without  the
payment of any additional  consideration by Lessor,  all Personal  Property then
located on or at or used in the operation of the Leased  Properties,  other than
Lessee's  Incidental Personal Property and the items of Personal Property listed
on Schedule A attached hereto. Upon Lessor's request,  Lessee shall, without any
charge or cost to Lessor,  execute  and  deliver  to Lessor  such bills of sale,
assignments or other instruments necessary,  appropriate or reasonably requested
by  Lessor  to  establish  Lessor's  ownership  of such  Personal  Property.  In
addition,  Lessor  shall have the option on the terms  hereinafter  set forth to
purchase all (but not less than all) of Lessee's  Incidental  Personal  Property
(specifically  excluding,  the items set forth on  Schedule  A), if any,  at the

<PAGE>

expiration or  termination  of this Lease,  for an amount equal to the then book
value thereof  (acquisition  cost less accumulated  depreciation on the books of
Lessee pertaining  thereto),  subject to, and with appropriate  credits for, any
obligations  owing from Lessee to Lessor and for the then  outstanding  balances
owing  on all  equipment  leases,  conditional  sale  contracts  and  any  other
encumbrances  to which such  Lessee's  Personal  Property is  subject.  Lessor's
option shall be  exercised  by Notice to Lessee no more than one hundred  eighty
(180) days, nor less than ninety (90) days, before the expiration of the Initial
Term or, if the Term is renewed as provided herein, before the expiration of the
last Renewal Term,  unless this Lease is terminated prior to its expiration date
by  reason of an Event of  Default,  in which  event  Lessor's  option  shall be
exercised not more than thirty (30) days after the  Termination  Date.  Lessor's
option shall  terminate  upon  Lessee's  purchase of the Leased  Properties.  If
Lessee  does not  receive  Lessor's  Notice  exercising  its  option  before the
expiration of the relevant required time period, Lessee shall give Lessor Notice
thereof and Lessor's option shall continue in full force and effect for a period
of thirty (30) days after such  Notice  from  Lessee.  If Lessor  exercises  its
option,  Lessee shall,  in exchange for Lessor's  payment of the purchase price,
deliver the purchased Lessee's Personal Property to Lessor, together with a bill
of sale and such other  documents as Lessor may  reasonably  request in order to
carry out the  purchase,  and the purchase  shall be closed by such delivery and
such payment on the date set by Lessor in its Notice of exercise.

         34.2  Facility  Trade Names.  If this Lease is  terminated  pursuant to
Section  16.1 or Lessor  exercises  its  option to  purchase  Lessee's  Personal
Property  pursuant to Section  34.1,  Lessee shall be deemed to have assigned to
Lessor the right to use the  Facility  Trade  Names in the  markets in which the
Facilities are located,  and Lessee shall not after any such termination use the
Facility  Trade  Names in the same  market in which any  Facility  is located in
connection with any business that competes with such Facility provided, however,
that nothing  contained in this Section 34.2 grants  Lessor any right to use the
name "Diversicare" for any Leased Property or Facility.

         34.3 Transfer of Operational  Control of the  Facilities.  Lessee shall
cooperate fully in transferring  operational control of the Facilities to Lessor
or Lessor's  nominee if the Term expires  without renewal or purchase by Lessee,
or this Lease is  terminated  upon the  occurrence of an Event of Default or for
any other  reason,  and  shall  use its  reasonable  best  efforts  to cause the
business conducted at the Facilities to continue without  interruption.  To that
end,  pending  completion  of the  transfer  of the  operational  control of the
Facilities to Lessor or its nominee:

                  (i) Lessee will not terminate the  employment of any employees
         without just cause,  or change any salaries,  provided,  however,  that
         without  the  advance  written  consent  of  Lessor  Lessee  may  grant
         pre-announced  wage increases of which Lessor has knowledge,  increases
         required  by  written  employment   agreements  and  normal  raises  to
         non-officers  at regular  review  dates;  and Lessee  will not hire any
         additional  employees  except in good faith in the  ordinary  course of
         business;

                  (ii) Lessee will provide all necessary  information  requested
         by Lessor or its nominee for the  preparation and filing of any and all
         necessary  applications  or  notifications  of  any  federal  or  state
         governmental  authority  having  jurisdiction  over  a  change  in  the
         operational  control  of the  Facilities,  and  any  other  information
         reasonably  required to effect an orderly  transfer of the  Facilities,
         and Lessee will use its best efforts to cause all operating health care
         licenses to be transferred to Lessor or to Lessor's nominee;

                  (iii)  Lessee  shall use its best efforts to keep the business
         and organization of the Facilities intact and to preserve for Lessor or
         its nominee the goodwill of the suppliers, distributors,  residents and
         others  having  business  relations  with  Lessee  with  respect to the
         Facilities;

                  (iv)  Lessee  shall  engage  only  in  transactions  or  other
         activities  with  respect to the  Facilities  which are in the ordinary
         course of its business and shall  perform all  maintenance  and repairs
         reasonably  necessary to keep the Facilities in satisfactory  operating
         condition and repair, and shall maintain the supplies and foodstuffs at
         levels  which are  consistent  and in  compliance  with all health care
         regulations,  and shall not sell or remove any personal property except
         in the ordinary course of business and in accordance with the terms and
         conditions of this Lease;
<PAGE>

                  (v) Lessee shall  provide  Lessor or its nominee with full and
         complete  information  regarding  the employees of the  Facilities  and
         shall  reimburse  Lessor or its  nominee  for all  outstanding  accrued
         employee  benefits,  including accrued  vacation,  sick and holiday pay
         calculated on a true accrual basis, including all earned and a prorated
         portion of all unearned benefits;

                  (vi)  Lessee   shall  use  its  best  efforts  to  obtain  the
         acknowledgment  and the consent of any  creditor,  lessor or sublessor,
         mortgagee,  beneficiary  of a  deed  of  trust  or  security  agreement
         affecting the real and personal properties of Lessee or any other party
         whose  acknowledgment  and/or  consent  would be required  because of a
         change in the  operational  control of the  Facilities  and transfer of
         personal  property.  The consent must be in form,  scope and  substance
         satisfactory to Lessor or its nominee,  including,  without limitation,
         an  acknowledgment in respect to all such contracts,  leases,  deeds of
         trust, mortgage,  security agreements,  or other agreements that Lessee
         and  all  predecessors  or  successors-in-interest  thereto  are not in
         default in respect  thereto,  that no condition known to the consenting
         party  exists  which  with the  giving of notice or lapse of time would
         result in such a default, and, if requested,  affirmatively  consenting
         to the change in the operational control of the Facilities;

                  (vii) Lessee shall not  encourage the transfer of any patients
         from the Facilities;

                  (viii) Lessee consents to Lessor,  or its nominee,  seeking to
         employ any on-site employees of the Facilities,  but neither Lessor nor
         its nominee  shall have any  obligation  to employ any employees of the
         Facilities;

                  (ix) To more fully preserve and protect  Lessor's rights under
         this Section,  Lessee does hereby make,  constitute  and appoint Lessor
         its true and lawful attorney-in-fact, for it and in its name, place and
         stead to execute and deliver all such instruments and documents, and to
         do all such other acts and things,  as Lessor may deem to be  necessary
         or  desirable to protect and  preserve  the rights  granted  under this
         Section, including, without limitation, the preparation,  execution and
         filing  with the Board of Health (or  similar  agency) of each State or
         any and all required "Letters of  Responsibility" or similar documents.
         Lessee  hereby grants to Lessor the full power and authority to appoint
         one or more  substitutes  to  perform  any of the acts  that  Lessor is
         authorized to perform  under this Section,  with a right to revoke such
         appointment of substitution at Lessor's pleasure. The power of attorney
         granted  pursuant  to this  Section is  coupled  with an  interest  and
         therefore is irrevocable.  Any person dealing with Lessor may rely upon
         the  representation of Lessor relating to any authority granted by this
         power of attorney,  including the intended scope of the authority,  and
         may  accept  the  written  certificate  of Lessor  that  this  power of
         attorney is in full force and effect.  Photographic  or other facsimile
         reproductions  of this  executed  Lease  may be made and  delivered  by
         Lessor,  and may be relied  upon by any  person  to the same  extent as
         though the copy were an original.  Anyone who acts in reliance upon any
         representation or certificate of Lessor, or upon a reproduction of this
         Lease,  shall not be liable for  permitting  Lessor to perform  any act
         pursuant  to this power of  attorney.  Notwithstanding  the  foregoing,
         Lessor  covenants with Lessee that Lessor shall refrain from exercising
         the power of attorney  granted hereby except in the case of an Event of
         Default  hereunder  or in the event of a default,  which,  in  Lessor's
         reasonable  judgment,  may lead to the  suspension or revocation of any
         license of Lessee or of any sublessee.

         34.4  Intangibles  and  Personal  Property.  Notwithstanding  any other
provision  of this Lease but  subject to Section 6.4  relating  to the  security
interest  in favor of  Lessor,  Lessor's  Personal  Property  shall not  include
goodwill nor shall it include any other  intangible  personal  property  that is
severable  from  Lessor's  "interests  in real  property"  within the meaning of
Section 856(d) of the Code, or any similar or successor provision thereto.

<PAGE>

                                  ARTICLE XXXV

         35.1 Arbitration. Except with respect to the payment of Rent under this
Lease and any  proceedings  to recover  possession  of one or more of the Leased
Properties,  in case any controversy arises between the parties hereto as to any
of the provisions of this Lease or the performance  thereof, and the parties are
unable to settle the controversy by agreement or as otherwise  provided  herein,
the  controversy  shall be  decided by  arbitration.  The  arbitration  shall be
conducted  by three  arbitrators  selected  in  accordance  with the  rules  and
procedures  of  the  American  Arbitration  Association.  The  decision  of  the
arbitrators  shall be final and binding,  and judgment may be entered thereon in
any court of competent jurisdiction. The decision shall set forth in writing the
basis for the  decision.  In rendering the decision and award,  the  arbitrators
shall not add to,  subtract  from,  or otherwise  modify the  provisions of this
Lease. The expense of the arbitration shall be divided between Lessor and Lessee
unless  otherwise  specified in the award.  Each party in interest shall pay the
fees and expenses of its own counsel.  The arbitration shall be conducted in Ann
Arbor,  Michigan.  In any arbitration,  the parties shall be entitled to conduct
discovery in the same manner as permitted under Federal Rules of Civil Procedure
26 through 37, as amended. No provision in this Article shall limit the right of
any party to this Agreement to obtain  provisional or ancillary  remedies from a
court of competent  jurisdiction  before,  after,  or during the pendency of any
arbitration,  and the exercise of such remedies does not  constitute a waiver of
the right of either party to arbitration.

                                  ARTICLE XXXVI

         36.1     Miscellaneous.

                  36.1.1  Survival,  Choice of law.  Anything  contained in this
Lease to the contrary  notwithstanding,  all claims against, and liabilities of,
Lessee or Lessor  arising prior to the date of expiration or termination of this
Lease shall survive such expiration or termination.  If any term or provision of
this Lease or any  application  thereof is held  invalid or  unenforceable,  the
remainder  of this Lease and any other  application  of such term or  provisions
shall not be affected thereby. If any late charges provided for in any provision
of this Lease are based upon a rate in excess of the maximum  rate  permitted by
applicable  law,  the  parties  agree  that such  charges  shall be fixed at the
maximum  permissible  rate.  Neither this Lease nor any provision  hereof may be
changed, waived, discharged or terminated except by an instrument in writing and
in recordable form signed by Lessor and Lessee.  All the terms and provisions of
this Lease shall be binding upon and inure to the benefit of the parties  hereto
and their respective  successors and assigns. The headings in this Lease are for
convenience  of  reference  only and  shall not limit or  otherwise  affect  the
meaning hereof. This Lease shall be governed by and construed in accordance with
the laws of the  state of  Michigan,  as to all  matters  other  than (i)  those
matters  relating to the  enforcement  or exercise of any  possessory or summary
remedies of Lessor under this Lease,  which shall be governed by the laws of the
applicable  State or States and (ii) matters which under  applicable  procedural
conflicts of laws rules require the application of laws of another State.

         LESSEE  CONSENTS  TO IN  PERSONAM  JURISDICTION  BEFORE  THE  STATE AND
FEDERAL  COURTS OF THE STATES OF MICHIGAN  AND EACH STATE IN WHICH A FACILITY IS
LOCATED,  AND AGREES THAT ALL DISPUTES CONCERNING THIS AGREEMENT BE HEARD IN THE
STATE AND FEDERAL COURTS LOCATED IN THE STATES OF MICHIGAN OR ANY STATE IN WHICH
A FACILITY IS  LOCATED.  LESSEE  AGREES THAT  SERVICE OF PROCESS MAY BE EFFECTED
UPON IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATES OF MICHIGAN OR
ANY STATE IN WHICH A FACILITY IS LOCATED AND IRREVOCABLY WAIVES ANY OBJECTION TO
VENUE IN THE STATE AND  FEDERAL  COURTS OF THE  STATES OF  MICHIGAN  OR ANY SUCH
STATE.

                  36.1.2 Limitation on Recovery.  Lessee  specifically agrees to
look solely to Lessor's  interest in the Leased  Properties  for recovery of any
judgment  from  Lessor,  it  being  specifically   agreed  that  no  constituent
shareholder,  officer or director of Lessor shall ever be personally  liable for
any such judgment or for the payment of any monetary  obligation to Lessee.  The
provision contained in the foregoing sentence is not intended to, and shall not,
limit any right that Lessee might  otherwise  have to obtain  injunctive  relief
against  Lessor or Lessor's  successors  in interest or any action not involving
the personal liability of Lessor (original or successor). Furthermore, except as
otherwise expressly provided herein,  Lessor (original or successor) shall never
be liable to Lessee for any indirect or consequential damages suffered by Lessee
from  whatever  cause.  Lessor agrees to look solely to the assets of Lessee and
not to any director,  officer or shareholder  (other than Guarantor  pursuant to
the  Guaranty)  of Lessee  for  payment of Lessee  for  payment of any  monetary
obligation to Lessor or for recovery of any judgment from Lessee.
<PAGE>

                  36.1.3  Waivers.  Lessee  waives any  defense by reason of any
disability of Lessee,  and waives any other defense based on the  termination of
Lessee's  (including  Lessee's  successor's)  liability  from any cause.  Lessee
waives all  presentments,  demands for performance,  notices of  nonperformance,
protests,  notices of protest,  notices of dishonor,  and notices of acceptance,
and waives all  notices  of the  existence,  creation,  or  incurring  of new or
additional obligations.

                  36.1.4 Consents. Whenever the consent or approval of Lessor or
Lessee is required  hereunder,  Lessor or Lessee may in its sole  discretion and
without reason withhold that consent or approval unless  otherwise  specifically
provided.

                  36.1.5   Counterparts.  This Lease may be executed in separate
counterparts,  each of which shall be  considered  an original  when each party
has  executed and delivered to the other one or more copies of this Lease.

                  36.1.6   Options  Personal.  The renewal options granted to
Lessee in this Lease are granted solely to Lessee and are not assignable or
transferrable  except in connection with a Transfer permitted in Article XXII.

                  36.1.7  Rights  Cumulative.  Except as provided  herein to the
contrary,  the respective  rights and remedies of the parties  specified in this
Lease  shall be  cumulative  and in  addition  to any  rights and  remedies  not
specified in this Lease.

                  36.1.8  Entire  Agreement.   There  are  no  oral  or  written
agreements or  representations  between the parties hereto affecting this Lease.
This  Lease   supersedes   and  cancels  any  and  all  previous   negotiations,
arrangements, representations, brochures, agreements and understandings, if any,
between Lessor and Lessee.

                  36.1.9  Amendments in Writing.  No provision of this Lease may
be amended except by an agreement in writing signed by Lessor and Lessee.

                  36.1.10  Severability.  If any  provision of this Lease or the
application of such  provision to any person,  entity or  circumstance  is found
invalid  or   unenforceable   by  a  court  of  competent   jurisdiction,   such
determination  shall not affect the other provisions of this Lease and all other
provisions of this Lease shall be deemed valid and enforceable.

                  36.1.11  Time of the Essence.  Except for the delivery of
possession  of the  Facilities  to Lessee,  time is of the essence of all
provisions of this Lease of which time is an element.

                                 ARTICLE XXXVII

         37.1  Commissions.  Lessor or Lessee each  represent and warrant to the
other that no real estate commission,  finder's fee or the like is due and owing
to any person in  connection  with this  Lease.  Lessor and Lessee each agree to
save, indemnify and hold the other harmless from and against any and all claims,
liabilities  or  obligations  for  brokerage,  finder's  fees  or  the  like  in
connection with this Lease or the transactions  contemplated hereby, asserted by
any  person on the basis of any  statement  or act  alleged to have been made or
taken by that party.

                                 ARTICLE XXXVIII

         38.1  Memorandum  or Short  Form of Lease.  Lessor  and  Lessee  shall,
promptly  upon the request of either,  enter into a Memorandum  or Short Form of
this  Lease,  substantially  in  the  form  of  attached  Exhibit  D  with  such
modifications as may be appropriate under the laws and customs of the States and
in the  customary  form  suitable  for  recording  under the laws of each of the
States.  Lessee shall pay all costs and expenses of recording such memorandum or
short form of this Lease.

<PAGE>

                                  ARTICLE XXXIX

         39.1 Security Deposit.  Lessor  acknowledges that it holds the Security
Deposit in the form of cash.  Lessor shall continue to hold the Security Deposit
as security  for the full and faithful  performance  by Lessee of each and every
term,  provision,  covenant and  condition of this Lease.  The Security  Deposit
shall be deposited by Lessor into an account  which shall earn  interest for the
benefit of  Lessee,  which cash  shall  remain on  deposit  as  security  and be
available to Lessor as provided in this Article.  The Security Deposit shall not
be considered an advance  payment of Rent (or of any other sum payable to Lessee
under  this  Lease) or a measure  of  Lessor's  damages  in case of a default by
Lessee.  The Security  Deposit shall not be considered a trust fund,  and Lessee
expressly  acknowledges  and agrees that Lessor is not acting as a trustee or in
any  fiduciary   capacity  in  controlling   or  using  the  Security   Deposit.
Notwithstanding  the  foregoing,  Lessor shall  maintain  the  Security  Deposit
separate and apart from  Lessor's  general  and/or other  funds.  Provided  that
Lessee is not then in default,  Lessor shall  disburse to Lessee the earnings on
the  Security  Deposit on a quarterly  basis.  The  Security  Deposit,  less any
portion  thereof applied as provided in Section 39.2 shall be returned to Lessee
within  sixty  (60)  days  following  the  expiration  of the  Term  or  earlier
termination of this Lease. Lessee may satisfy the Security Deposit obligation by
providing one or more letters of credit,  subject to the  following  conditions:
(a) Lessor shall  reasonable  approve the form of any proposed letter of credit;
and (b) Lessee shall execute a letter of credit  agreement in a form  acceptable
to Lessor, in Lessor's sole discretion.

         39.2 Additional  Security Deposit.  If a Facility is affected by any of
the  conditions  described in  Subsection  (h) under the  definition of Event of
Default,  and such  condition  continues  beyond  the  shorter of (i) the period
during which Lessor is in good faith appealing such  condition,  and (ii) ninety
(90) days,  then Lessee shall increase the amount of the Security  Deposit.  The
increase ("Increase") shall be in an amount equal to the fair market value which
the  affected  Facility  would  have  if  none of the  conditions  described  in
Subsection  (h) existed  with  respect to that  Facility and if the Facility had
licensed  beds equal to the number of  licensed  beds in the  Facility as of the
Effective Date, an occupancy rate equal to the State average  occupancy rate for
facilities  utilized  for the Primary  Intended  Use of the  Facility,  less the
actual fair market value of the Facility.  If the parties  cannot agree upon the
amount of the  Increase,  the  amount of the  Increase  shall be  determined  in
accordance with the arbitration procedures set forth in Article XXXV. Lessee may
fund the Increase in equal monthly installments beginning on the first (1st) day
of the first (1st) month  following  the end of the time periods set forth above
and ending on the  earlier of (i) three (3) years  thereafter,  and (ii) two (2)
years prior to the end of the Term; provided, however, that if the obligation to
fund occurs  during the last two (2) years of the Term,  the  Increase  shall be
funded immediately. If an Increase has been funded, the Facility is subsequently
no longer  affected by any of the  conditions  described in Subsection  (h), the
Facility has been reopened, and no Event of Default is continuing,  the Increase
shall be returned to Lessee.  Pending an agreement  between Lessor and Lessee as
to the amount of the Increase, Lessee will fund the Increase based upon Lessee's
good faith estimate of the amount thereof.

         39.3 Application of Security Deposit.  If Lessee defaults in respect of
any of the terms, provisions, covenants and conditions of this Lease, including,
but not  limited  to,  payment  of any Rent and other  sums of money  payable by
Lessee, Lessor may, but shall not be required to, in addition to and not in lieu
of any other rights and remedies  available to Lessor use, apply all or any part
of the Security Deposit to the payment of any sum in default,  or any other sum,
including  but not limited to, any damages or deficiency in reletting the Leased
Properties,  which  Lessor  may  expend  or be  required  to expend by reason of
Lessee's default.  Whenever,  and as often as, Lessor has applied any portion of
the Security Deposit to cure Lessee's default  hereunder,  Lessee shall,  within
ten (10) days after Notice from  Lessor,  deposit  additional  money with Lessor
sufficient  to  restore  the  Security  Deposit  to the full  amount  originally
provided or paid,  and Lessee's  failure to do so shall  constitute  an Event of
Default hereunder without any further Notice.

         39.4  Transfer of Security  Deposit.  If Lessor  transfers its interest
under this Lease, Lessor shall assign the Security Deposit to the new lessor and
thereafter Lessor shall have no further liability for the return of the Security
Deposit,  and Lessee  agrees to look  solely to the new lessor for the return of
the Security  Deposit.  The provisions of the preceding  sentence shall apply to
every  transfer or  assignment  of Lessor's  interest  under this Lease.  Lessee
agrees that it will not assign or encumber or attempt to assign or encumber  the
Security  Deposit and that Lessor,  its successors  and assigns,  may return the
Security Deposit to the last Lessee in possession at the last address for Notice
given by such  Lessee  and that  Lessor  shall  thereafter  be  relieved  of any
liability  therefor,  regardless of one or more assignments of this Lease or any
such actual or attempted assignment or encumbrances of the Security Deposit.

                             SIGNATURE PAGES FOLLOW

<PAGE>

         IN WITNESS WHEREOF,  the parties have executed this Lease by their duly
authorized officers as of the date first above written.

                                        LESSOR:

                                        STERLING ACQUISITION CORP., a Kentucky
                                        corporation

                                        By: /s/ Susan A. Kovach
                                            -------------------------

                                        Name: Susan A. Kovach
                                        Title: Vice President

                                        LESSEE:

                                        DIVERSICARE LEASING CORPORATION,
                                        a Tennessee corporation

                                        By: /s/ James F. Mills, Jr.
                                            -------------------------

                                        Name: James F. Mills, Jr.
                                        Title: Senior Vice President

<PAGE>

THE STATE OF  TENNESSEE                      )
                                             :ss
COUNTY OF   DAVIDSON                         )

     This  instrument  was  acknowledged  before me on the 8th day of  November,
2000, by Susan A. Kovach,  the Vice President of Sterling  Acquisition  Corp., a
Delaware corporation, on behalf of the corporation

Andrea Neiderland
Notary Public
Davidson, County, Tennessee
My commission expires: March 23, 2002

THE STATE OF TENNESSEE            )
                                  :ss
COUNTY OF    DAVIDSON             )

     This  instrument  was  acknowledged  before me on the 8th day of  November,
2000, by James F. Mills,  Jr., the Senior Vice President of Diversicare  Leasing
Corporation, a Tennessee corporation, on behalf of the corporation

Andrea Neiderland
Notary Public
Davidson, County, Tennessee
My commission expires:  March 23, 2002

<PAGE>

                            LIST OF EXHIBITS TO LEASE

Exhibit A - Description of Land

Exhibit B - Permitted Encumbrances

Exhibit C - Form of Lessee's Certificate

Exhibit D - Form of Memorandum and Short Form of Lease

Exhibit E - Form of Consent and Agreement of Manager

                           LIST OF SCHEDULES TO LEASE

Schedule A - Excluded Personal Property of Lessee

Schedule B - Exceptions to Permitted Use

Schedule C - Excepted Facilities to Radius Restriction

<PAGE>

                                    EXHIBIT A

                               DESCRIPTION OF LAND

<PAGE>

                                    EXHIBIT B

                             PERMITTED ENCUMBRANCES

<PAGE>

                                    EXHIBIT C

                          FORM OF LESSEE'S CERTIFICATE

The  undersigned  ("Lessee")  under that certain Lease (the "Lease") dated 199 -
and made with , a ("Lessor"), hereby certifies:

         1. That it is Lessee under the Lease;  that attached  hereto as Exhibit
"A" is a true and correct copy of the Lease; that the Lease is now in full force
and effect and has not been amended, modified or assigned except as disclosed or
included in Exhibit "A";  and that the Lease  constitutes  the entire  agreement
between Lessor and Lessee.

         2. That there exist no defenses or offsets to enforcement of the Lease;
that there are, as of the date  hereof,  no breaches or uncured  defaults on the
part of Lessee or, to the best of Lessee's  knowledge,  Lessor  thereunder;  and
that Lessee has no notice or knowledge of any prior  assignment,  hypothecation,
subletting or other transfer of Lessor's interest in the Lease.

         3. That the Base Rent for the first  Lease Year under this Lease is $ .
All Rent which is due has been paid, and there are no unpaid Additional  Charges
owing by Lessee  under the  Lease as of the date  hereof.  No Base Rent or other
items (including without limitation  security deposit and any impound account or
funds)  have  been  paid by Lessee in  advance  under the Lease  except  for the
security deposit held by Lessor [in the form of an irrevocable letter of credit]
in the amount of $******* and the monthly  installment  of Base Rent that became
due on .

         4. That Lessee has no claim against Lessor for any security deposit,
impound account or prepaid Rent except as provided in paragraph 3 of this
Certificate.

         5. That there are no actions,  whether voluntary or otherwise,  pending
against the  undersigned  under the bankruptcy  laws of the United States or any
state thereof,  nor has Lessee nor, to the best of Lessee's knowledge has Lessor
begun any action, or given or received any notice for the purpose of termination
of the Lease.

         6. That there are, as of the date hereof, no breaches or uncured
defaults on the part of Lessee under any other agreement executed in connection
with the Lease.

         7. This  Certificate  has been requested by Lessor  pursuant to Section
19.3 of this Lease and for the benefit of ("Relying   Party"). The Relying Party
is entitled to rely on the statements of Lessee contained in this certificate.

         8. All capitalized  terms used herein and not defined herein shall have
the meanings for such terms set forth in the Lease.

Dated:   _____, 199_                LESSEE:

                                            By:

<PAGE>

                                    EXHIBIT D

                    FORM OF MEMORANDUM OR SHORT FORM OF LEASE

             MEMORANDUM OF CONSOLIDATED, AMENDED AND RESTATED LEASE

         THIS MEMORANDUM OF CONSOLIDATED,  AMENDED AND RESTATED LEASE,  made and
entered  into as of November  _____,  2000 by and between  Sterling  Acquisition
Corp.,  a  Kentucky  corporation,  having  its  principal  office  at c/o  Omega
Healthcare  Investors,  Inc.,  900 Victors Way,  Suite 350, Ann Arbor,  Michigan
48108 as Lessor and Diversicare Leasing Corp., a Tennessee  corporation,  having
its principal office at c/o Advocat,  Inc., 277 Mallory Station Road, Suite 130,
Franklin, Tennessee 37067 as Lessee with respect to the real property identified
in Exhibit "A" attached hereto and located in Phenix City, Alabama.

                                   WITNESSETH:

1. Omega  Healthcare  Investors,  Inc., a Maryland  corporation  and Diversicare
Corporation  of America,  a Delaware  corporation,  entered  into a Master Lease
dated  August 11, 1992 (the  "Original  Lease"),  as evidenced by the Short Form
Lease dated August 11, 1992 and recorded on _____________  in Book  ____________
at Page _________ in the Office of ___________________________.

2. Lessor and Lessee, as the  successors-in-interest to the Original Lease, have
entered  into a  Consolidated,  Amended and  Restated  Master Lease of even date
herewith (the "Amended Lease").

<PAGE>

3. For and in  consideration  of the  rents  reserved  and the  other  covenants
contained in the Amended Lease,  Lessor has and does hereby continue to lease to
Lessee,  and Lessee has and does hereby  continue to take and rent from  Lessor,
all of  Lessor's  rights  and  interest  in and to the  parcel of real  property
described  in Exhibit "A" and the  improvements,  fixtures,  personal  and other
property  included within the definition of "Leased  Properties" as set forth in
the Lease.

4. The  Initial  Term of the  Amended  Lease is  approximately  ten (10)  years,
commencing October 1, 2000 (the "Commencement Date") and ending on September 30,
2012.

5. As more particularly provided in the Amended Lease, Lessee may elect to renew
the original term for one (1) ten (10) year optional  renewal periods  ("Renewal
Terms")  for a maximum  term,  if  exercised,  of twenty  (20)  years  after the
Commencement Date.

6. This  instrument is executed and recorded for the purpose of giving notice of
Lessee's interest in the Leased Properties and giving notice of the existence of
the Lease,  to which  reference  is made for a full  statement  of the terms and
conditions thereof. The respective addresses of the parties hereto are:

                  Lessee:

                               Diversicare Leasing Corp.
                               c/o Advocat, Inc.
                               277 Mallory Station Road, Suite 130
                               Franklin, Tennessee 37067
                               Attn: Chief Financial Officer
                               Telephone:   (615) 771-7575
                               Telecopier:  (615) 771-7409

                  Lessor:

                               Sterling Acquisition Corp.
                               c/o Omega Healthcare Investors, Inc.
                               900 Victors Way, Suite 350
                               Ann Arbor, Michigan 48108
                               Attn.: F. Scott Kellman and Susan Allene Kovach
                               Telephone:   (734) 887-0200
                               Telecopier:  (734) 887-0201

<PAGE>

         IN WITNESS WHEREOF,  the parties have caused this instrument to be
executed by their duly authorized  officer or officers and general partners,  as
applicable,  all as of the day and date first above written.

LESSOR:                                       LESSEE:

STERLING ACQUISITION CORP.,                   DIVERSICARE LEASING CORP.,
a Kentucky corporation                        a Tennessee corporation

By:                                            By:
    --------------------                            --------------------------
Name:                                           Name:
Its:                                            Its:

<PAGE>

STATE OF MICHIGAN              )
                               )SS
COUNTY OF WASHTENAW            )

         On this _____ day of October,  2000, before me,  __________________,  a
Notary Public  within and for the County and State  aforesaid,  duly  qualified,
commissioned and acting, appeared in person the within named Susan A. Kovach, to
me  personally  well  known,  who stated that they were the Vice  President,  of
STERLING ACQUISITION CORP., a Kentucky corporation,  and were duly authorized in
their respective  capacities to execute the foregoing  Memorandum of Amended and
Restated Lease for and in the name and behalf of said  corporation,  and further
stated and  acknowledged  that they had so signed,  executed and delivered  said
Memorandum  of  Amended  and  Restated  Lease  in the  capacities  and  for  the
consideration and purposed therein mentioned and set forth.

         IN TESTIMONY  WHEREOF, I have hereunto set my hand and official seal on
this _____ day of October, 2000.
                                            -------------------------------
                                            Notary Public

                                            (NOTARY SEAL)

                                            My commission expires:__________

STATE OF _______________ )
                         )SS
COUNTY OF _____________  )

         On this _____ day of October,  2000, before me,  __________________,  a
Notary Public  within and for the County and State  aforesaid,  duly  qualified,
commissioned and acting, appeared in person the within named  _________________,
to me personally well known,  who stated that they were the  __________________,
of DIVERSICARE LEASING CORP., a Tennessee corporation,  and were duly authorized
in their  respective  capacities to execute the foregoing  Memorandum of Amended
and  Restated  Lease  for and in the name and  behalf of said  corporation,  and
further stated and acknowledged that they had so signed,  executed and delivered
said  Memorandum  of Amended and Restated  Lease in the  capacities  and for the
consideration and purposed therein mentioned and set forth.

         IN TESTIMONY  WHEREOF, I have hereunto set my hand and official seal on
this _____ day of October, 2000.
                                            -------------------------------
                                            Notary Public

                                            (NOTARY SEAL)

                                            My commission expires:__________

<PAGE>

                                   SCHEDULE A

                      Excluded Personal Property of Lessee

1.       Lessee's continuous quality improvement program, manuals and materials;
         management  information  systems;  policy,  procedure  and  educational
         manuals and materials and similar proprietary property.

2.       Computer  hardware,  and related equipment which is integrated with the
         computer system maintained by Advocat, and computer software, provided,
         however,  that Lessee shall cause all data that is reasonably necessary
         for the  continuing  operation  of one or more of the  Facilities,  and
         which may be accessed  through such  computers or software,  to be made
         available to Lessor in a reasonably  accessible  form without  material
         cost to Lessee.Exhibit 10.2

                                LICENSE AGREEMENT

      THIS Agreement,  dated May 4, 2000, is between Kenside Investments Limited
("Licensor"),  a company  incorporated in the British Virgin Islands,  and Alloy
Steel International,  Inc. ("Licensee"),  a Delaware (U.S.) corporation having a
principal place of business  located at 42 Mercantile Way Malaga,  P.O. Box 3087
Malaga D C 6945, Western Australia.

                                    RECITALS

A.    Licensor owns certain Patent Rights and  Technology  Rights related to the
      Arcoplate Process.

B.    Licensor desires to have the Patent Rights and Technology Rights developed
      and used for the benefit of Licensee.

C.    Licensee  wishes to obtain from  Licensor an exclusive  license to develop
      and market the  Arcoplate  Process  and  commercially  exploit the Patents
      worldwide,   excluding  the  United   States,   and  the  right  to  grant
      sub-licenses.

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

1.    EFFECTIVE DATE

      This Agreement is effective May 4, 2000 ("Effective Date").

2.    DEFINITIONS

      As  used  in  this  Agreement,  the  following  terms  have  the  meanings
indicated:

      2.1   "Affiliate"  means  any  business  entity  more  than  50%  owned by
            Licensee,  any business entity which owns more than 50% of Licensee,
            or any  business  entity  that is more than 50% owned by a  business
            entity that owns more than 50% of Licensee.

      2.2   "Licensed Field" means  Technology  Rights,  as defined herein,  and
            Particulars  of  Patents  and Patent  Applications,  as set forth in
            Schedule A, annexed hereto.

      2.3   "Methods" means information contained in test reports, operating and
            testing procedures,  shop practices,  instruction  manuals,  bill of
            materials, tables of operating conditions and the like including all
            other know how and confidential  information  whatsoever relating in
            any way to the Arcoplate Process, including, but not limited to, the
            right to use certain technologies  associated with the foregoing:

            1.    Methods  of   hardening,   heating,   cooling  and   providing
                  uniformity and stress relief;

            2.    Methods of bonding;

            3.    Computer control and quality supervision;

            4.    Composition  of powder alloy  constituents  comprising the raw
                  alloy powder used as the medium in the  Arcoplate  Process for
                  the manufacture of products

<PAGE>

                  using the Arcoplate Process; and

            5.    Details of the  metallurgical and chemical formula utilized to
                  manufacture products through the Arcoplate Process.

      2.4   "Licensed Product" means any product sold by Licensee comprising the
            Arcoplate Process pursuant to this Agreement.

      2.5   "Arcoplate  Process" means inventions and discoveries covered by the
            Patent Rights or Technology Rights within Licensed Field.

      2.6   "Licensed Territory" means worldwide, excluding the United States.

      2.7   "Net Sales" means the gross  revenues  received by Licensee from the
            Sale of Licensed Products less sales and/or use taxes actually paid,
            import and/or export duties actually paid,  outbound  transportation
            prepaid or allowed,  and amounts  allowed or credited due to returns
            (not to exceed the original billing or invoice amount).

      2.8   "Patent   Rights"  means   Licensor's   rights  in   information  or
            discoveries covered by patents and/or patent  applications,  whether
            domestic   or   foreign,    and   all   divisions,    continuations,
            continuations-in-part,   reissues,   reexaminations   or  extensions
            thereof, and any letters patent that issue thereon,  which name Gene
            Kostecki as either  sole or joint  inventor  ("Inventor")  and which
            relate to the manufacture, use or sale of Arcoplate.

      2.9   "Sale or Sold"  means the  transfer  or  disposition  of a  Licensed
            Product for value to a party other than Licensee.

      2.10  "Technology   Rights"   means   Licensor's   rights   in   technical
            information, know-how, processes, procedures, compositions, devices,
            methods,  formulas,   protocols,   techniques,   software,  designs,
            drawings or data created by Gene Kostecki, either solely or jointly,
            which are not covered by Patent  Rights but which are  necessary for
            practicing the invention covered by Patent Rights.

3.    WARRANTY

      3.1   Licensee  understands  and  acknowledges  that  Licensor,   by  this
            Agreement,  makes no representation as to the operability or fitness
            for  any  use,  safety,  efficacy,   ability  to  obtain  regulatory
            approval,  patentability,  and/or breadth of the Arcoplate  Process.
            Licensor,  by this  Agreement,  also makes no  representation  as to
            whether  there are any patents now held,  or which will be held,  by
            others or by Licensor in the Licensed Field,  nor does Licensor make
            any representation that the inventions contained in Patent Rights do
            not  infringe  any  other  patents  now held or that will be held by
            others or by Licensor.

      3.2   Licensee,  by execution hereof,  acknowledges,  covenants and agrees
            that it has not been  induced in any way by  Licensor  to enter into
            this Agreement,  and further warrants and represents that (i) it has
            conducted  sufficient  due  diligence  with respect to all items and
            issues pertaining to this Article 3 and all other matters pertaining
            to this  Agreement;  and (ii)  Licensee has adequate  knowledge  and
            expertise, or has utilized knowledgeable and expert consultants,  to
            adequately conduct the due diligence, and agrees to accept all risks
            inherent herein.

<PAGE>

4.    LICENSE

      4.1   Licensor   hereby  grants  to  Licensee  an  exclusive   license  to
            manufacture,  have  manufactured,  market,  distribute  and/or  sell
            Licensed  Products  within  the  Licensed  Territory  for use within
            Licensed Field.  This grant is subject to the payment by Licensee to
            Licensor of all consideration as provided herein.

      4.2   Licensee  may extend the  license  granted  herein to any  Affiliate
            consistent with this Agreement.

      4.3   Licensee may grant sub-licenses consistent with this Agreement.

5.    INSTRUCTION IN METHODS

      5.1   At the request of Licensee,  Licensor  will arrange for the personal
            instruction in the Methods by a qualified person on the staff of the
            Licensor for the training of trainees of Licensee at the premises of
            Licensee.

      5.2   The  Licensor's  obligation  to send  skilled  persons  to  Licensee
            whether  for the  purpose  of  assisting  in  start-up  or to render
            assistance at Licensee's premises after start-up shall be limited to
            such  reasonable  number of persons of such rank as to cause minimum
            interference with the Licensor's  operations and current commitments
            consistent with satisfying the reasonable needs of Licensee.

      5.3   Licensee's trainees will be given adequate  opportunity to study the
            Methods and Patent  Rights and will be  permitted  to make notes and
            sketches.

      5.4   For each  person sent by Licensor  for the  purposes of  instruction
            and/or assistance to the premises of Licensee, Licensee shall pay to
            Licensor  for the period of his absence from  Licensor's  premises a
            sum to cover such  person's  salary and  pension  contribution,  the
            value of "fringe" or other  benefits,  and expenses  attributable to
            the  visit  including  travel,  accommodation,  food and  incidental
            expenses.

      5.5   The Methods shall remain the property of Licensor.

6.    PAYMENTS AND REPORTS

      6.1   In  consideration  of rights  granted by Licensor to Licensee  under
            this Agreement, Licensee will pay Licensor the following:

            A.    A sum equal to 2% of Net Sales for the Licensed  Products sold
                  by Licensee, calculated at the end of each Quarter and payable
                  within fifteen (15) days of the end of the relevant Quarter by
                  electronic  bank  transfer  (or by any  other  means  mutually
                  agreed upon) to the  designated  account of Licensor,  without
                  deduction for the cost of transmission; and

            2.    A sum  calculated in accordance  with clause 6.1(A) in respect
                  to the Net Sales derived by every sub-licensee of Licensee.

      6.2   During  the  Term  of  this  Agreement  and  for 1 year  thereafter,
            Licensee agrees to keep complete and accurate records of its and its
            sub-licensees'  Sales and Net Sales of Licensed  Products  under the
            license granted in this Agreement in sufficient detail to

<PAGE>

            enable the sums payable hereunder to be determined.  Licensee agrees
            to permit Licensor or its representatives, at Licensor's expense, to
            periodically examine its books,  ledgers, and records during regular
            business  hours for the  purpose of and to the extent  necessary  to
            verify any report required under this Agreement.

      6.3   Sales  to  any  Affiliate  of  Licensee  of  the  Licensed  Products
            manufactured  by  Licensee  shall  not be deemed to be sales for the
            purposes  of the  calculation  of sums  due  hereunder  unless  such
            associated  company uses the Licensed Product  commercially in which
            case they shall be deemed  sales at the price at which the  Licensed
            Products  are  currently  sold  by  Licensee  to  other  persons  in
            transactions  negotiated  at  arm's  length.  Provided  that if such
            associated  company or Affiliate  resells the  Licensed  Products to
            third  parties on which  payments to the Licensor  have been made, a
            sum on such sales shall be payable to the Licensor calculated on the
            sales  price  due  to  such  associated   company  or  Affiliate  as
            hereinbefore  provided for sales in the ordinary  course of business
            by Licensee.

7.    COMMON STOCK: EQUITY OWNERSHIP

      7.1   In  consideration  of the rights  granted to Licensee by Licensor in
            this  Agreement,  Licensee will,  upon execution of this  Agreement,
            issue Licensor  4,760,000 fully paid,  non-assessable  shares of its
            common stock, at $0.01par value. The stock certificates representing
            the shares  issuable upon exercise of the purchase right hereof will
            bear a  restrictive  legend  indicating  that  such  shares  are not
            registered under the Securities Act of 1933, as amended (the "Act"),
            and  none  of  such  securities  may  be  offered,   sold,  pledged,
            hypothecated,  assigned  or  transferred  except (i)  pursuant  to a
            registration  statement under the Act which has become effective and
            is current with  respect to such  securities  or (ii)  pursuant to a
            specific  exemption from registration  under the Act but only upon a
            Holder hereof first having  obtained the written  opinion of counsel
            to the Company.

8.    TERM AND TERMINATION

      8.1   The term of this  Agreement  is from the  Effective  Date and  shall
            continue in force for 25 years thereafter. Licensee shall have three
            options to extend this Agreement for further terms of ten (10) years
            each on the same terms as this Agreement  (other than this option to
            extend) if the Licensee  gives written notice of intention to extend
            at least 120 days in advance of the end of the initial period or the
            extended  period as applicable and there is no unremedied  breach of
            this  Agreement by the Licensee at the end of the initial  period or
            the extended period as applicable.

      8.2   This Agreement will earlier terminate:

            A.    automatically if Licensee becomes bankrupt or insolvent and/or
                  if the  business  of  Licensee  is  placed  in the  hands of a
                  receiver,  assignee,  or trustee,  whether by voluntary act of
                  Licensee or otherwise; or

            B.    upon 30 days written notice from Licensor if Licensee breaches
                  or defaults on its  obligation  to make  payments  (if any are
                  due) or reports,  in  accordance  with the terms of Article 6,
                  unless,  before  the end of the 30 day  period,  Licensee  has
                  cured the default or breach and so notifies Licensor,  stating
                  the

<PAGE>

                  manner of the cure; or

            C.    upon 45 days written  notice if Licensee  breaches or defaults
                  on any other obligation under this Agreement,  unless,  before
                  the end of the 45 day period,  Licensee  has cured the default
                  or breach or  commencing to cure such default or breach is not
                  capable of being  cured  during  such  period and so  notifies
                  Licensor, stating the manner of the cure; or

            D.    at any time by mutual written  agreement  between Licensee and
                  Licensor,  upon 180 days  written  notice to all  parties  and
                  subject to any terms herein which survive termination.

      8.3   If this Agreement is terminated  for any cause,  nothing herein will
            be construed to release either party of any obligation matured prior
            to the effective date of the termination;

9.    INFRINGEMENT BY THIRD PARTIES

      9.1   Licensor,  at its own expense,  must enforce any patent  exclusively
            licensed  hereunder  against   infringement  by  third  parties.  If
            Licensor  does not file suit  against a  substantial  infringer of a
            patent within six (6) months of knowledge thereof, then Licensee may
            enforce  any  patent  licensed  hereunder  on behalf  of itself  and
            Licensor.  However,  in the event that damages are obtained in favor
            of each of the  parties  or in  favor  of  Licensor  in a sum  which
            includes  losses  suffered  by  Licensee  in  any  such  action  for
            infringement, they shall share the costs of such action in so far as
            they are not fully recovered from the infringer in the proportion in
            which  they  share  the  said   damages.   If  the  award  does  not
            discriminate  between  the parties on the matter of damages or costs
            and either  party can show that the losses  which it  suffered  from
            such  infringement  exceeded the losses of the other party, it shall
            be entitled to a proportionately  higher share of the damages on its
            agreeing to bear a  proportionately  higher  share of the costs.  In
            this paragraph, expense or expenditure means only reasonable expense
            or expenditure on fees for legal representation, for the services of
            patent agents and reasonable incidental matters.

      9.2   In any infringement suit or dispute,  the parties agree to cooperate
            fully  with each  other.  At the  request  and  expense of the party
            bringing  suit,  the other party will permit  access to all relevant
            personnel,  records, papers, information,  samples, specimens, etc.,
            during regular business hours.

      9.3   If Licensor and Licensee  agree or are advised by counsel that prior
            to the  institution  of  proceedings  for  infringement  the  patent
            specification should be amended, Licensor shall, at its own expense,
            apply to amend the  specification.  The amendments  shall be jointly
            agreed by the  parties  and their  legal  advisors  and  approved by
            patent counsel whose fees shall be shared equally by the parties.

10.   ASSIGNMENT

      Except in  connection  with the sale of  substantially  all of  Licensee's
      assets to a third party,  this  Agreement  may not be assigned by Licensee
      except by an  affiliate  without the prior  written  consent of  Licensor,
      which will not be unreasonably withheld.

<PAGE>

11.   PATENT MARKING

      Licensee must permanently and legibly mark all products and  documentation
      manufactured  or sold by it under this  Agreement  with a patent notice as
      may be permitted or required under Title 35, United States Code.

12.   INDEMNIFICATION

      Licensee agrees to hold harmless and indemnify  Licensor and its officers,
      employees  and agents from and against any claims,  demands,  or causes of
      action  whatsoever,  including without limitation those arising on account
      of any  injury or death of  persons  or damage to  property  caused by, or
      arising out of, or resulting from, the exercise or practice of the license
      granted   hereunder  by  Licensee,   its  Affiliates  or  their  officers,
      employees, agents or representatives.

13.   CONFIDENTIAL INFORMATION AND PUBLICATION

      13.1  Licensor and Licensee each agree that all  information  contained in
            documents  marked  "confidential"  and forwarded to one by the other
            (i) be  received  in  strict  confidence,  (ii) be used only for the
            purposes  of this  Agreement,  and  (iii)  not be  disclosed  by the
            recipient party,  its agents or employees  without the prior written
            consent of the other party,  except to the extent that the recipient
            party can establish competent written proof that such information:

            A.    was in the public domain at the time of disclosure;

            B.    later  became  part of the  public  domain  through  no act or
                  omission  of the  recipient  party,  it's  employees,  agents,
                  successors or assigns;

            C.    was lawfully disclosed to the recipient party by a third party
                  having the right to disclose it;

            D.    was  already  known  by the  recipient  party  at the  time of
                  disclosure;

            E.    was independently developed by the recipient; or

            F.    is required by law or regulation to be disclosed.

      13.2  Each party's  obligation of confidence  hereunder shall be fulfilled
            by using at least the same  degree  of care  with the other  party's
            confidential  information as it uses to protect its own confidential
            information.  This obligation shall exist while this Agreement is in
            force and for a period of three (3) years thereafter.

<PAGE>

14.   PATENTS AND INVENTIONS

      14.1  If after  consultation  with  Licensee,  both  parties  agree that a
            patent  application should be filed for the Arcoplate process and/or
            identified aspects of the Arcoplate  Process,  Licensor will prepare
            and file the appropriate patent applications,  and Licensor will pay
            the  cost  of  searching,   preparing,   filing,   prosecuting   and
            maintaining  same.  If Licensor  notifies  Licensee that it does not
            intend to pay the cost of an  application,  or if Licensor  does not
            respond or make an effort to agree with Licensee on the  disposition
            of  rights  in the  subject  invention,  then  Licensee  may file an
            application  at its own expense and Licensor  will have no rights to
            the invention.  Licensor will provide  Licensee a copy of any patent
            application,  as well as copies of any  documents  received or filed
            with the respective patent office during the prosecution thereof.

      14.2  During the term of the Agreement, Licensor shall procure the payment
            of all renewal fees,  registration fees and the carrying out of such
            acts and things as may be  necessary  to  maintain  the  Patents and
            shall,  if  requested,  produce to  Licensee  the  receipt  for such
            renewal  fees or other  evidence  of  renewal  at least one (1) week
            prior to the last day for renewing such patents and in default shall
            recognize  the right of  Licensee to pay the same and to be credited
            with the cost thereof.

      14.3  Licensor agrees and undertakes, during the term of the Agreement:

            a.    not to allow any Patent or  Application  to be abandoned or to
                  lapse; and

            b.    not to allow the specification of any Patent or Application to
                  be amended  or  re-filed  within  the scope of this  agreement
                  without the consent of the other party, but such consent shall
                  not be unreasonably withheld or delayed.

15.   GOVERNING LAW

      15.1  The terms and  provisions  herein  contained and all the disputes or
            claims relating to this Agreement shall be governed by,  interpreted
            and  construed in  accordance  with the internal  laws of the United
            States of America and the State of New York,  without  reference  to
            its conflict of laws principles.

16.   GENERAL

      16.1  This Agreement constitutes the entire and only agreement between the
            parties for the Arcoplate Process and all other prior  negotiations,
            representations,   agreements,  and  understandings  are  superseded
            hereby. No agreements altering or supplementing the terms hereof may
            be made except by a written document signed by both parties.

      16.2  Any notice  required  by this  Agreement  must be given by  prepaid,
            first class, certified mail, return receipt requested, at such other
            addresses  as may be given from time to time under the terms of this
            notice provision.

      16.3  Licensee and Licensor must comply with all applicable federal, state
            and local laws and  regulations  in connection  with its  activities
            pursuant to this Agreement.

      16.5  Failure of  Licensor  and/or  Licensee to enforce a right under this
            Agreement  will not act as a waiver of that right or the  ability to
            later  assert  that  right  relative  to  the  particular  situation
            involved.

      16.6  Headings are included herein for  convenience  only and shall not be
            used to construe

<PAGE>

            this Agreement.

      16.7  If any  part  of  this  Agreement  is for  any  reason  found  to be
            unenforceable, all other parts nevertheless remain enforceable.

IN  WITNESS   WHEREOF,   parties  hereto  have  caused  their  duly   authorized
representatives to execute this Agreement.

Kenside Investments Limited                Alloy Steel International, Inc.

By _________________________________       By___________________________________

Name:_______________________________       Name:________________________________

________________________________________________________________________________

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