Document:

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                                                                    EXHIBIT 10.1

                                                               EXECUTION VERSION

                                  $112,750,000

                                 LOAN AGREEMENT

                           Dated as of August 14, 2002

                                     Between

                              ARCPI HOLDINGS, INC.,

                            a Tennessee corporation,

                                  as Borrower;

                                       and

                      HEALTH CARE PROPERTY INVESTORS, INC.,

                             a Maryland corporation,

                                   as Lender.

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                                TABLE OF CONTENTS

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ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS.......................................................................1
         Section 1.1       Certain Defined Terms..................................................................1
         Section 1.2       Accounting Terms......................................................................18
         Section 1.3       Other Definitional Provisions.........................................................18

ARTICLE II. AMOUNTS AND TERMS OF LOAN............................................................................18
         Section 2.1       Making the Loan.......................................................................19
                  (a)      The Loan..............................................................................19
                  (b)      The Note..............................................................................19
                  (c)      Funding the Loan......................................................................19
         Section 2.2       Interest..............................................................................19
                  (a)      Interest Rate.........................................................................19
                  (b)      Default Interest......................................................................19
         Section 2.3       Mandatory Payments....................................................................19
                  (a)      Quarterly Payments....................................................................19
                  (b)      Maturity Date.........................................................................20
                  (c)      Payment Following Change of Control...................................................20
         Section 2.4       Voluntary Prepayments.................................................................20
                  (a)      No Prepayment Prior to Third Anniversary..............................................20
                  (b)      Full Prepayment.......................................................................20
                  (c)      Partial Prepayment....................................................................20
                  (d)      Yield Maintenance Premium.............................................................21
         Section 2.5       Payments and Computations.............................................................21
                  (a)      Payments..............................................................................21
                  (b)      Computations..........................................................................21
                  (c)      Payment on Business Day...............................................................21
         Section 2.6       Right of First Offer to Finance.......................................................21
                  (a)      Request to Provide Offer to Finance...................................................21
                  (b)      Election to Finance...................................................................22
                  (c)      No Election...........................................................................22
                  (d)      Borrower's Election to Finance........................................................22
         Section 2.7       Taxes.................................................................................22
                  (a)      Net Payments..........................................................................22
                  (b)      Payment of Other Taxes................................................................23
                  (c)      Indemnification.......................................................................23
                  (d)      Evidence of Payments..................................................................23
                  (e)      Survival..............................................................................23

ARTICLE III. CONDITIONS..........................................................................................23
         Section 3.1       Initial Conditions....................................................................23
                  (a)      Representation and Warranties.........................................................23
                  (b)      No Default............................................................................23
                  (c)      Payment of Fees and Expenses..........................................................24
                  (d)      No Adverse Change.....................................................................24
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                  (e)      Loan Documents........................................................................24
                  (f)      Borrower Corporate Documents..........................................................24
                  (g)      Financial Statements..................................................................24
                  (h)      Legal Opinions........................................................................25
                  (i)      Governmental Consents.................................................................25
                  (j)      Minimum Net Operating Income..........................................................25
                  (k)      Minimum EBITDA........................................................................25
                  (l)      Officers Certificate..................................................................25
                  (m)      Documents and other Evidence Satisfactory to Lender...................................26
                  (n)      Borrower Governing Documents..........................................................26
         Section 3.2       Funding Conditions....................................................................26
                  (a)      Representation and Warranties.........................................................26
                  (b)      No Default............................................................................26
                  (c)      Payment of Fees and Expenses..........................................................26
                  (d)      No Adverse Change.....................................................................26
                  (e)      Loan Documents........................................................................26
                  (f)      Master Lease Documents................................................................27
                  (g)      Borrower Corporate Documents..........................................................27
                  (h)      Property Owner Organizational Documents...............................................28
                  (i)      Property Operator Organizational Documents............................................28
                  (j)      Real Property Deliveries..............................................................30
                  (k)      HCPI Equity Investment................................................................32
                  (l)      Health Care Licenses..................................................................32
                  (m)      Condemnation; Casualty................................................................33
                  (n)      Financial Statements..................................................................33
                  (o)      Other Document Deliveries.............................................................33
                  (p)      Legal Opinions........................................................................33
                  (q)      Governmental Consents.................................................................34
                  (r)      Insurance Coverage....................................................................34
                  (s)      Corporate and Governmental Approvals..................................................34
                  (t)      Required Hedging Agreement............................................................34
                  (u)      Minimum Net Operating Income..........................................................34
                  (v)      Occupancy and EBITDAR.................................................................34
                  (w)      No Liability for Facility.............................................................35
                  (x)      Appraised Value.......................................................................35
                  (y)      Exchange Offer........................................................................35
                  (z)      New ARC Securities Documents..........................................................35
                  (aa)     Refinancings..........................................................................35
                  (bb)     Escrow Deposit........................................................................35
                  (cc)     Somerby Purchase Option...............................................................36
                  (dd)     Termination of Retired Officers Right of First Refusal................................36
                  (ee)     Amendment to HCPI Lease...............................................................36
                  (ff)     Reimbursement Obligation..............................................................36
                  (gg)     Vehicle Sublease......................................................................36
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                  (hh)     Compliance with Zoning Laws...........................................................36
                  (ii)     Officers Certificate..................................................................37
                  (jj)     Documents and other Evidence Satisfactory to Lender...................................37

ARTICLE IV. REPRESENTATIONS AND WARRANTIES.......................................................................37
         Section 4.1       Representations and Warranties of Borrower............................................37
                  (a)      Organization..........................................................................37
                  (b)      Power and Authority...................................................................37
                  (c)      Due Authorization.....................................................................37
                  (d)      Binding and Enforceable...............................................................38
                  (e)      Subsidiaries..........................................................................38
                  (f)      No Indebtedness.......................................................................38
                  (g)      No Liens..............................................................................39
                  (h)      No Defaults...........................................................................39
                  (i)      No Conflicts or Restrictions..........................................................39
                  (j)      Governmental Approval.................................................................39
                  (k)      Litigation............................................................................39
                  (l)      Financial Information.................................................................39
                  (m)      Material Adverse Change...............................................................39
                  (n)      Compliance............................................................................40
                  (o)      Payment of Taxes......................................................................40
                  (p)      Security Interests....................................................................40
                  (q)      Title to Property.....................................................................40
                  (r)      Real Property Matters.................................................................40
                  (s)      Conduct of Business...................................................................41
                  (t)      Investment Company....................................................................42
                  (u)      Margin Stock..........................................................................42
                  (v)      Registration of the Note..............................................................42
                  (w)      Environmental Laws....................................................................42
                  (x)      ERISA Compliance......................................................................43
                  (y)      Restrictions on Dividends.............................................................44
                  (z)      Solvency..............................................................................44
                  (aa)     Labor Disputes........................................................................44
                  (bb)     Master Lease Document Default.........................................................44
                  (cc)     Full Disclosure.......................................................................44
                  (dd)     Health Care Permits...................................................................45
                  (ee)     Compliance with Legal Requirements....................................................45
                  (ff)     Retired Officers Documents............................................................46

ARTICLE V. COVENANTS OF BORROWER.................................................................................46
         Section 5.1       Financial Covenants...................................................................46
                  (a)      First Mortgage Outstanding Principal Amount...........................................46
                  (b)      Minimum Operating Income..............................................................47
                  (c)      Minimum Debt Service Coverage Ratio...................................................47
                  (d)      Maximum Accounts Payable Period.......................................................47
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         Section 5.2       Reporting Covenants...................................................................47
                  (a)      Monthly Statements....................................................................47
                  (b)      Quarterly Financial Statements........................................................48
                  (c)      Annual Financial Statements...........................................................48
                  (d)      Annual Budgets........................................................................49
                  (e)      Census Reports........................................................................49
                  (f)      Compliance Certificate................................................................49
                  (g)      Change of Name or Location............................................................50
                  (h)      Management Letter.....................................................................50
                  (i)      Tax Returns...........................................................................50
                  (j)      Notice of Default.....................................................................50
                  (k)      Notice of Litigation..................................................................50
                  (l)      Security Holder Materials and SEC Filings.............................................50
                  (m)      ERISA Notices.........................................................................50
                  (n)      Environmental Notices.................................................................51
                  (o)      Health Care Permit Violation..........................................................52
                  (p)      Notice of Material Event or Circumstance..............................................52
                  (q)      Other Information.....................................................................52
         Section 5.3       Affirmative Covenants.................................................................52
                  (a)      Preservation of Corporate Existence, Etc..............................................52
                  (b)      Maintenance of Property and Assets....................................................52
                  (c)      Insurance.............................................................................53
                  (d)      Compliance With Laws..................................................................53
                  (e)      Payment of Obligations................................................................53
                  (f)      Use of Proceeds.......................................................................53
                  (g)      Inspection of Property and Books and Records..........................................53
                  (h)      Further Assurances....................................................................54
                  (i)      Disclosure Updates....................................................................54
                  (j)      Environmental Laws....................................................................54
                  (k)      Health Care Permits and Approvals.....................................................56
                  (l)      Compliance With ERISA.................................................................56
                  (m)      Operating Account.....................................................................56
                  (n)      Reserve Accounts......................................................................57
                  (o)      Separateness Covenants................................................................62
                  (p)      Certain Property Operators Treated as Corporations....................................64
                  (q)      Impound Accounts......................................................................64
                  (r)      Subordination of Management Agreements................................................64
                  (s)      Board Attendance......................................................................64
                  (t)      Release of Lien on Somerby Purchase Option............................................65
                  (u)      Vehicle Sublease......................................................................65
                  (v)      Reimbursement Obligation..............................................................65
                  (w)      Consent to Acquisition of First Mortgage..............................................65
         Section 5.4       Negative Covenants....................................................................65
                  (a)      Liens.................................................................................65
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                  (b)      Limitation on Indebtedness............................................................66
                  (c)      Limitation on Contingent Obligations..................................................67
                  (d)      Restricted Payments...................................................................67
                  (e)      Consolidation, Merger, Sale of Assets.................................................68
                  (f)      Loans and Investments.................................................................69
                  (g)      Conduct of Business...................................................................70
                  (h)      Transactions With Affiliates..........................................................71
                  (i)      Amendments to Corporate Documents.....................................................71
                  (j)      Health Care Permits and Approvals.....................................................71
                  (k)      Accounting Changes....................................................................71
                  (l)      Amendment to and Refinancing of First Mortgages.......................................71
                  (m)      Sale and Leaseback Transactions.......................................................72
                  (n)      Separateness Covenants................................................................73
                  (o)      Tax Status............................................................................75
         Section 5.5       REIT Protections......................................................................75

ARTICLE VI. EVENTS OF DEFAULT....................................................................................76
         Section 6.1       Events of Default.....................................................................76
                  (a)      Non-Payment of Principal, Interest or Other Amounts...................................76
                  (b)      First Mortgage Loan Documents.........................................................76
                  (c)      HCPI Lease............................................................................77
                  (d)      Representations and Warranties........................................................77
                  (e)      Financial and Negative Covenants......................................................77
                  (f)      Reporting and Affirmative Covenants...................................................77
                  (g)      Other Covenants.......................................................................77
                  (h)      Bankruptcy............................................................................77
                  (i)      Judgments.............................................................................77
                  (j)      Transaction Documents.................................................................78
                  (k)      Collateral Documents..................................................................78
                  (l)      ERISA.................................................................................78
                  (m)      Other Indebtedness....................................................................78
                  (n)      Leases................................................................................78
         Section 6.2       Rights Not Exclusive..................................................................78

ARTICLE VII. MISCELLANEOUS.......................................................................................79
         Section 7.1       Collateral Matters....................................................................79
         Section 7.2       Amendments............................................................................79
         Section 7.3       Notices...............................................................................79
         Section 7.4       No Waiver; Remedies...................................................................80
         Section 7.5       Costs, Expenses and Taxes.............................................................80
                  (a)      General Costs and Expenses............................................................80
                  (b)      Survival..............................................................................80
         Section 7.6       Right of Set-off......................................................................80
         Section 7.7       Indemnity.............................................................................81
                  (a)      Indemnity.............................................................................81
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                  (b)      Limitation............................................................................81
                  (c)      Survival..............................................................................81
         Section 7.8       Limited Recourse......................................................................81
                  (a)      Limitation on Recourse................................................................81
                  (b)      Exceptions to Limitation..............................................................82
                  (c)      Full Recourse.........................................................................82
         Section 7.9       Binding Effect........................................................................83
         Section 7.10      GOVERNING LAW.........................................................................83
         Section 7.11      WAIVER OF JURY TRIAL..................................................................84
         Section 7.12      Confidentiality.......................................................................84
         Section 7.13      Limitation of Liability...............................................................84
         Section 7.14      Entire Agreement......................................................................85
         Section 7.15      Execution in Counterparts.............................................................85

LIST OF EXHIBITS
         Exhibit A       Form of Note
         Exhibit B       Form of Borrower Pledge Agreement
         Exhibit C       Form of Reserve Account Security Agreement
         Exhibit D       Form of ARC SC Pledge Agreement
         Exhibit E       Form of Negative Pledge Agreement
         Exhibit F       Form of Separateness Covenant Certificate
         Exhibit G       Form of Compliance Certificate
         Exhibit H       Reviewed Facility Budgets

LIST OF SCHEDULES
         Schedule I                 List of Facilities, Property Owners, Property Operators and First Mortgage Lenders
         Schedule II                List of Entrance Fee Facilities
         Schedule III               List of Master Trust Documents
         Schedule 2.3(b)            Sample Loan Balance
         Schedule 3.2(bb)           List of Refinancing Transactions
         Schedule 4.1(e)            List of Permitted Subsidiaries
         Schedule 4.1(f)            List of Existing Indebtedness
         Schedule 4.1(g)            List of Existing Liens
         Schedule 4.1(j)            List of Required Government Approvals
         Schedule 4.1(r)            List of Real Estate
         Schedule 4.1(w)            List of Environmental Reports
         Schedule 4.1(aa)           List of Collective Bargaining Agreements and Other Labor Contracts
         Schedule 5.4(c)(ii)        List of Existing Contingent Obligations
         Schedule 5.4(g)(iv)        List of Facilities Leased from HCPI
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                                 LOAN AGREEMENT

                  This LOAN AGREEMENT, dated as of August 14, 2002, is made by
and between ARCPI Holdings, Inc., a Tennessee corporation, as Borrower; and
HEALTH CARE PROPERTY INVESTORS, INC., a Maryland corporation, as Lender.

                                    Recitals

                  A.       Borrower has requested that Lender make a loan to
Borrower in the aggregate principal amount of One Hundred Twelve Million Seven
Hundred Fifty Thousand Dollars ($112,750,000.00).

                  B.       Lender is willing to make the loan on the terms and
conditions set forth herein.

                                    Agreement

                  NOW, THEREFORE, in consideration of the foregoing Recitals and
the mutual covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

                                   ARTICLE I.
                        DEFINITIONS AND ACCOUNTING TERMS

         Section 1.1       Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:

                  "Adjusted Net Operating Income" means, for any period, (i) Net
Operating Income of Borrower for such period minus (ii) a capital reserve equal
to the product of (A) $33.33 times (B) the average number of units in the
Facilities during such period times (C) the number of months in such period.

                  "Affiliate" of a specified Person means any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the Person specified. For purposes
of the foregoing, "control," "controlled by" and "under common control with"
with respect to any Person means (i) the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or by contract
or otherwise, or (ii) the ownership of more than 10 percent of the voting
securities of, or other equity interests in, such Person.

                  "Agreement" means this Loan Agreement, dated as of August 14,
2002 among Borrower and Lender.

                  "Anniversary Date" means each anniversary of the Closing Date.

                  "ARC" means American Retirement Corporation, a Tennessee
corporation.

                                       1
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                  "ARC Brandywine Holdings" means ARC Brandywine Real Estate
Holdings, LLC, a Tennessee limited liability company.

                  "ARC Equity Owners" means the owners (other than the General
Partners) of the equity interests of the Property Operators and the HCPI Lessees
identified on Schedule 4.1(e).

                  "ARC Fleetwood Entities" means ARC Fleetwood, LLC, a Tennessee
limited liability company, and CRICFW One, LLC, a Delaware limited liability
company.

                  "ARC Freedom" means ARC Freedom, Inc., a Tennessee corporation

                  "ARC General Partners" means the general partners of the
Property Operators and the HCPI Lessees identified on Schedule 4.1(e).

                  "ARC Santa Catalina" means ARC Santa Catalina Real Estate
Holdings, LLC, a Delaware limited liability company.

                  "ARC SC Holdings" means ARC SC Holdings, LLC, a Delaware
limited liability company.

                  "ARC SC Pledge Agreement" has the meaning provided in Section
3.2(e)(ii).

                  "ARC SC Pledged Interests" means the equity interests in ARC
Santa Catalina to be pledged as security pursuant to the ARC SC Pledge
Agreement.

                  "ARC Wilora Assisted Living" means ARC Wilora Assisted Living,
LLC, a Tennessee limited liability company.

                  "ARC Wilora Lake" means ARC Wilora Lake, Inc., a Tennessee
corporation.

                  "Authorized Officer" means the chief executive officer, the
president, the chief financial officer, the secretary or the treasurer of
Borrower.

                  "Borrower" means ARCPI Holdings, Inc., a Tennessee
corporation.

                  "Borrower Pledge Agreement" has the meaning provided in
Section 3.2(e)(i).

                  "Borrower Pledged Interests" means the equity interests in the
Property Owners that are direct Subsidiaries of Borrower and ARC SC Holdings to
be pledged as security pursuant to the Borrower Pledge Agreement.

                  "Business Day" means any day except a Saturday or Sunday or a
day when commercial banks are authorized or required by law to be closed in Los
Angeles, California.

                  "Capital Additions" has the meaning provided in the Master
Lease.

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                  "Capital Lease Obligations" means, with respect to any Person,
any and all lease obligations of such Person and its Subsidiaries on a
consolidated basis that, in accordance with GAAP, have been or are required to
be capitalized on the books of such Person and its Subsidiaries.

                  "Cash Equivalents" means: (i) securities issued or fully
guaranteed or insured by the United States government or any agency thereof and
backed by the full faith and credit of the United States having a maturity of
not more than 1 year from the date of acquisition; (ii) marketable direct
obligations issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing
within 1 year from the date of acquisition thereof and, at the time of
acquisition, rated A by S&P or A by Moody's; (iii) certificates of deposit, time
deposits, Eurodollar time deposits, or bankers' acceptances having in each case
a tenor of not more than 1 year, issued by an United States commercial bank
having combined capital and surplus of not less than $100,000,000 whose
short-term securities are rated at least A-1 by S&P or P-1 by Moody's; (iv)
certificates of deposit in an amount less than or equal to $100,000 in the
aggregate issued by any other bank insured by the Federal Deposit Insurance
Corporation; (v) commercial paper or bankers acceptances of an issuer rated at
least A-1 by S&P or P-1 by Moody's and, in either case, having a tenor of not
more than 1 year; and (vi) money market funds invested in one or more of the
foregoing.

                  "Change of Control" means the occurrence of any of the
following: (i) at any time, any person or group of persons (within the meaning
of Section 13(d) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") and the regulations promulgated thereunder) owns beneficially
(within the meaning of Rule 13d-3 promulgated by the Security and Exchange
Commission under the Exchange Act, or any successor or replacement regulation),
20% or more of the issued and outstanding shares of capital stock of ARC having
ordinary voting power for the election of directors of ARC; (ii) at any time, a
majority of the members of the board of directors of ARC shall not be Continuing
Directors; (iii) a majority of the directors who are Continuing Directors as of
any date shall resign within a 4-month period after such date; (iv) ARC shall
cease for any reason to own 100% of the outstanding ownership interest in
Borrower; (v) at any time prior to the Funding Date, Borrower shall cease for
any reason to own directly or indirectly 100% of the outstanding ownership
interest in each Property Owner (other than ARC Santa Catalina); (vi) at any
time after the Funding Date, Borrower shall cease for any reason to own directly
the percentage of the outstanding ownership interest in each Property Owner
(other than ARC Santa Catalina) which Borrower owns on the Funding Date after
giving effect to the HCPI Equity Investment; (vii) at any time after the Funding
Date, the HCPI Affiliates shall cease for any reason to own directly the
percentage of the outstanding ownership interest in each Property Owner (other
than ARC Santa Catalina) which Lender owns on the Funding Date after giving
effect to the HCPI Equity Investment; (viii) at any time prior to the Funding
Date, Borrower shall cease for any reason to own directly or indirectly 100% of
the outstanding ownership interest in ARC SC Holdings; (ix) at any time after
the Funding Date, Borrower shall cease for any reason to own directly the
percentage in ARC SC Holdings which Borrower owns on the Funding Date after
giving effect to the HCPI Equity Investment; (x) at any time after the Funding
Date, the HCPI Affiliates shall cease for any reason to own directly the
percentage of the outstanding ownership interest

                                       3
<PAGE>

in ARC SC Holdings which Lender owns on the Funding Date after giving effect to
the HCPI Equity Investment; (xi) ARC SC Holdings shall cease for any reason to
own directly 100% of the outstanding ownership interest in ARC Santa Catalina;
(xii) Borrower shall cease for any reason to own directly or indirectly 100% of
the outstanding ownership interest in each Property Operator; (xiii) Borrower
shall cease for any reason to own directly or indirectly 100% of the outstanding
ownership interest in each HCPI Lessee; or (xiv) from and after the Funding
Date, Borrower shall cease for any reason to own directly 100% of the
outstanding ownership interest in each of ARC Wilora Lake and ARC Wilora Lake
Assisted Living.

                  "Closing Date" means the date, not later than August 16, 2002,
on which all of the conditions precedent set forth in Section 3.1 are satisfied
or waived in writing by Lender.

                  "Code" means the Internal Revenue Code of 1986, as amended,
and any regulation promulgated thereunder.

                  "Collateral" means all property which is subject or is to
become subject to the security interests or Lien granted by any of the
Collateral Documents.

                  "Collateral Documents" means, collectively, the Borrower
Pledge Agreement, the ARC SC Pledge Agreement, the Reserve Account Security
Agreement, the Negative Pledge Agreements and all other security agreements,
collateral assignments and other instruments, documents and agreements at any
time delivered to Lender to create or evidence Liens to secure the Obligations
or any guaranty thereof, and any amendments, supplements, modifications,
renewals, replacements, consolidations, substitutions and extensions of any of
the foregoing.

                  "Compliance Certificate" has the meaning provided in Section
5.2(f).

                  "Condemnation" has the meaning provided in the Master Lease.

                  "Contingent Obligation" means, as applied to any Person, any
direct or indirect liability of that Person with respect to any Indebtedness,
lease, dividend, letter of credit or other obligation (the "primary obligation")
of another Person (the "primary obligor"), including any obligation of that
Person, whether or not contingent, (i) to purchase, repurchase or otherwise
acquire any such primary obligation or any property constituting direct or
indirect security therefor; or (ii) to advance or provide funds (A) for the
payment or discharge of any such primary obligation, or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency or any balance sheet item, level of income or financial
condition of the primary obligor; or (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation; or (iv) otherwise to assure or hold harmless the holder of any such
primary obligation against loss in respect thereof. The amount of any Contingent
Obligation of any Person shall be deemed to be an amount equal to the maximum
amount of such Person's liability with respect to the stated or determinable
amount of the primary obligation for which such Contingent Obligation is
incurred or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder).

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<PAGE>

                  "Continuing Director" means a director who (i) was a member of
the Board of Directors of ARC on the Closing Date, or (ii) was nominated to be a
member of the Board of Directors by a majority of the Continuing Directors then
in office to fill a vacancy left by death, retirement or voluntary resignation
of a director.

                  "Debt" means, as applied to any Person and in each case
determined on a consolidated basis in conformity with GAAP (without
duplication): (i) all obligations for borrowed money (whether by loan or the
issuance of debt securities or otherwise); (ii) all obligations evidenced by
bonds, debentures, notes, or other similar instruments; (iii) all Capital Lease
Obligations; (iv) all obligations or liabilities of others secured by a Lien on
any property or asset of such Person, irrespective of whether such obligation or
liability is assumed; (v) all obligations owed for all or any part of the
deferred purchase price of property, assets, or services that are due more than
12 months after the date of the incurrence of the obligation in respect thereto;
and (vi) all Unfunded Pension Liabilities of such Person or any of its
Subsidiaries.

                  "Debt Service Coverage Ratio" means, for any period, the ratio
obtained by dividing (i) Adjusted Net Operating Income for such period by (ii)
the sum of (A) the cash payments required on the Loan during such period plus
(B) the aggregate principal and interest payments on the First Mortgage Loans
during such period (excluding therefrom any principal paid in connection with a
Permitted Refinancing Loan or a Permitted Payoff) plus (C) the net payments, if
any, made on the Required Interest Hedge during such period plus (D) any
payments required to be made into the Sinking Fund Reserve Account during such
period.

                  "Default" means any event or condition which with notice, the
passage of time or both would constitute an Event of Default.

                  "Depository Bank" has the meanings provided in Section
5.3(m)(i).

                  "Distribution Date" means the third Business Day of each
calendar month from the Funding Date through the Maturity Date.

                  "DOL" means the United States Department of Labor or any
successor department or agency.

                  "Dollars" and "$" means United States dollars or such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts in the United States of
America.

                  "EBITDA" means, for any period for any Person, the sum of (i)
Net Income for such period, (ii) depreciation and amortization included in
calculating such Net Income, (iii) Interest Expense for such period, (iv) Tax
Expense for such period, in each case determined for such Person and its
Subsidiaries on a consolidated basis.

                  "EBITDAR" means, for any period, the sum of (i) EBITDA; and
(ii) the aggregate amount payable under all leases and rental agreements, in
each case determined for

                                       5
<PAGE>

such period for the Property Owners and the Property Operators on a consolidated
basis in accordance with GAAP.

                  "Enterprise Vehicle Master Lease" means the Master Equity
Lease Agreement, entered into the sixteenth day of November 2001, by and between
Enterprise Rent-A-Car Company of Tennessee, a Tennessee corporation, do business
as Enterprise Fleet Services and ARC.

                  "Entrance Fee Facility" means a Facility that is listed on
Schedule II.

                  "Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, licenses, authorizations and
permits of, and agreements with, any Governmental Authority, in each case
relating to environmental, health, safety and land use matters.

                  "Environmental Lien" means a Lien in favor of any Governmental
Authority for (a) any liability under Environmental Laws, or (b) damages arising
from, or costs incurred by such Governmental Authority in response to, a Release
or threatened Release of a Hazardous Substance into the environment.

                  "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any regulation promulgated thereunder.

                  "ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with Borrower or any of its Subsidiaries
within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and
(o) of the Code for purposes of provisions relating to Section 412 of the Code).

                  "ERISA Event" means (i) a Reportable Event with respect to a
Pension Plan, (ii) a withdrawal by Borrower or any ERISA Affiliate from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which it was
a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
cessation of operations which is treated as such a withdrawal under Section
4062(e) of ERISA, (iii) a complete or partial withdrawal by Borrower or any
ERISA Affiliate from a Multi-Employer Plan or notification that a Multi-Employer
Plan is in reorganization, (iv) the filing of a notice of intent to terminate,
the treatment of a Plan amendment as a termination under Section 4041 or 4041A
of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multi-Employer Plan, (v) the occurrence of an event or condition which
might reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any
Pension Plan or Multi-Employer Plan, or (vi) the imposition of any liability
under Title IV of ERISA, other than for PBGC premiums due but not delinquent
under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate.

                  "Event of Default" and "Events of Default" have the meanings
provided in Section 6.1.

                                       6
<PAGE>

                  "Exchange Offer" means the offer to exchange Old ARC
Debentures for New ARC Securities, as described in that certain Offering
Memorandum, dated August 14, 2002, for Exchange Offer for Outstanding 5 3/4%
Convertible Subordinated Debentures Due 2002.

                  "Exchange Warrant Documents" means the agreements and other
documents pursuant to which the Exchange Warrants are issues and all other
documents executed in connection with the issuance of the Exchange Warrants.

                  "Exchange Warrants" means the warrants to purchase ARC common
stock to be issued in connection with the Exchange Offer.

                  "Facility" means each facility being (and to be) operated or
proposed to be operated on the Leased Property (as defined in the Master Lease),
together with any Capital Additions (as defined in the Master Lease).
"Facilities" means, collectively, all of the Facilities. The Facilities are
identified on Schedule I.

                  "Fee Estate" means any fee estate in real property.

                  "Final Appraisal" has the meaning provided in Section
3.2(k)(iii).

                  "Finance," "Financed," "Finances," "Financing" and similar
terms shall mean the provision of financing to Borrower, its Subsidiaries and/or
its Affiliates whether in the form of a loan, a synthetic lease, a
sale-leaseback transaction, or similar or related financing structure, but shall
specifically exclude trade payables incurred in the ordinary course of business
consistent with past practices and Indebtedness permitted pursuant to Section
5.4(b)(iv), (vi), (vii) and (viii).

                  "Financing Transaction" has the meaning provided in Section
2.6.

                  "First Mortgage Lenders" means collectively (i) the lenders
identified on Part B of Schedule I to this Agreement and (ii) the Permitted
Refinancing Lenders, if any. "First Mortgage Lender" means, individually, any of
the First Mortgage Lenders.

                  "First Mortgage Loan Documents" means collectively all
documents evidencing or related to the First Mortgage Loans. "First Mortgage
Loan Document" means individually any of the First Mortgage Loan Documents.

                  "First Mortgage Loans" means collectively (i) the mortgage
loans identified on Schedule I to this Agreement and (ii) the Permitted
Refinancing Loans, if any. "First Mortgage Loan" means individually any of the
First Mortgage Loans.

                  "Flood Hazard Area" means an area designated by the Federal
Emergency Management Agency and/or the Secretary of Housing and Urban
Development as having special flood hazards.

                  "Fort Austin LP" means Fort Austin Limited Partnership, a
Texas limited partnership.

                                       7
<PAGE>

                  "Freedom Village Sun City" means Freedom Village of Sun City
Center, Ltd., a Florida limited partnership.

                  "Ft. Worth Facility" means the Facility identified as the Ft.
Worth Facility on Schedule I.

                  "Funding Date" has the meaning provided in Section 2.1(a).

                  "Funding Date Restructuring Plan" means the restructuring plan
of Borrower and its Subsidiaries, to be accomplished prior to the Funding Date,
such plan to be reasonably acceptable to Lender.

                  "GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accounts and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the accounting
profession), or in such other statements by such entity as may be in general use
by significant segments of the United States accounting profession, which are
applicable to the circumstances on the date of determination; provided that if
one or more changes in GAAP after the date hereof are required to be applied to
the then existing transactions, and such change or changes have a material
effect on the financial computations required under this Agreement, then as used
in this Agreement, GAAP means generally accepted accounting principles as in
effect prior to such change or changes.

                  "GECC Loan" means the $95,700,000 First Mortgage Loan to Fort
Austin Real Estate Holdings, LLC, a Tennessee limited liability company, by
General Electric Capital Corporation.

                  "Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

                  "Governmental Requirement" means any law, ordinance, order,
rule, regulation, decree or similar edict of a Governmental Authority.

                  "Gross Revenues" means, for any period for all the Facilities,
all revenues received or receivable during such period from or by reason of the
operation of the Facilities or any other use of the Leased Property (as defined
in the Master Lease) related to the Facilities, the Property Operators' Personal
Property (as defined in the Master Lease) and Capital Additions (as defined in
the Master Lease) related to the Facilities including all revenues received or
receivable for the use of or otherwise attributable to units, rooms, beds and
other facilities provided, meals served, services performed (including ancillary
services), space or facilities subleased or goods sold on or from the Leased
Property and Capital Additions related to the Facilities and the amortization of
entrance fees related to the Facilities, all determined in accordance with GAAP;
provided, however, that Gross Revenues shall not include: (i) non-operating
revenues such as interest income or income from the sale of assets not sold in
the ordinary course of business; (ii) contractual allowances (relating to any
period during the Term

                                       8
<PAGE>

(as defined in the Master Lease)) for billings not paid by or received from the
appropriate governmental agencies or third party providers; (iii) all proper
patient billing credits and adjustments according to GAAP relating to health
care accounting; and (iv) federal, state or local excise taxes and any tax based
upon or measured by such revenues which is added to or made a part of the amount
billed to the patient or other recipient of such services or goods, whether
included in the billing or stated separately. Gross Revenues for any period for
the Facilities shall include all cost report settlement amounts received in or
payable during such period in accordance with GAAP relating to health care
accounting, regardless of the period to which such settlement amounts are
applicable; provided, however, that to the extent settlement amounts are
applicable to periods, or portions thereof, prior to the Funding Date, such
settlement amounts shall not be included in Gross Revenues for the period in
which such settlement amounts are received or paid. Gross Revenues shall also
include (x) the Gross Revenues of any Occupant (as defined in the Master Lease)
under a Commercial Occupancy Arrangement (as defined in the Master Lease) (i.e.,
the Gross Revenues generated from the operations conducted on or from such
subleased, licensed or other used or occupied portion of the Leased Property and
all Capital Additions of the Facilities shall be included directly in the Gross
Revenues) if all or any portion of the rent received or receivable by the
Property Operators from or under such Commercial Occupancy Arrangement is based
on net income of such Occupant or would otherwise fail to qualify as "rents from
real property" within the meaning of Section 856(d) of the Code, or any similar
or successor provision thereto (in which event the rent received or receivable
by the Property Operators from or under such Commercial Occupancy Arrangement
shall be excluded from Gross Revenues), or (y) the rent received or receivable
by the Property Operators from or under such Commercial Occupancy Arrangement,
if no portion of the rent received or receivable by the Property Operators from
or under such Commercial Occupancy Arrangement is based on net income of such
Occupant and such rent qualifies as "rents from real property" within the
meaning of Section 856(d) of the Code, or any similar or successor provision
thereto (in which event the Gross Revenues of such Occupant shall be excluded
from Gross Revenues herein).

                  "Hazardous Substances" means, collectively, any petroleum,
petroleum product or byproduct or any substance, material or waste regulated or
listed pursuant to any Environmental Law.

                  "HCPI" means Health Care Property Investors, Inc., a Maryland
corporation.

                  "HCPI Affiliate" means HCPI or any Affiliate of HCPI.

                  "HCPI Equity Investment" means the equity investment in the
Property Owners made by HCPI as required pursuant to Section 3.2(l).

                  "HCPI Lease" means that certain Master Lease, dated as of
March 29, 2002, between HCPI and Texas HCP Holding, L.P., a Delaware limited
partnership, on the one hand; and the HCPI Lessees, on the other hand.

                  "HCPI Lease Documents" means the HCPI Lease and all other
guaranties and other agreements, documents and instruments delivered to Lender
by or on behalf of Borrower or any Affiliate of Borrower pursuant to or in
connection with the HCPI Lease.

                                       9
<PAGE>

                  "HCPI Leased Facilities" means, collectively, the facilities
leased from HCPI Lessor by the HCPI Lessees, as more specifically identified on
Schedule 5.4(g)(iv).

                  "HCPI Leased Facility" means, individually any of the HCPI
Leased Facilities.

                  "HCPI Lessees" means, collectively, ARC Carriage Club of
Jacksonville, Inc., a Tennessee corporation; ARC Delray Beach, LLC, a Tennessee
limited liability company; ARC Post Oak, L.P., a Tennessee limited partnership;
ARC Richmond Heights, LLC, a Tennessee limited liability company; ARC Shavano,
L.P., a Tennessee limited partnership; and ARC Victoria, L.P., a Tennessee
limited partnership.

                  "HCPI Lessor" means HCPI, HCPI's affiliates and/or their
successors-in-interest serving as lessor(s) under the HCPI Lease.

                  "HCPI Loan Reserve Account" has the meaning provided in
Section 5.3(n)(i)(E).

                  "Health Care Facility" means a facility which provides any
pharmaceutical products or any level of geriatric care, home health care,
medical care (including sub-acute care), assisted living service or
rehabilitative services, whether licensed as a skilled nursing facility,
intermediate care facility, personal care facility, hospital or pharmacy or any
products or services reasonably related thereto.

                  "Health Care Permit" means every accreditation, authorization,
certificate of need, license or permit that is required pursuant to applicable
federal, state or local law, rule, ordinance or authority to own, lease, operate
or manage a Facility or any Subsidiary of Borrower or an HCPI Lessee.

                  "Hedging Agreement" means (i) any foreign exchange contract,
currency swap agreement, futures contract, option contract, synthetic cap or
other similar agreement or arrangement designed to protect against fluctuations
in currency values; or (ii) any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement or other similar agreement or
arrangement which is designed to protect against fluctuations in interest rates.

                  "Indebtedness" means, as applied to any Person and in each
case determined on a consolidated basis in conformity with GAAP (without
duplication): (i) all Debt; (ii) all reimbursement obligations with respect to
surety bonds, letters of credit, bankers acceptances and similar instruments (in
each case, whether or not matured); (iii) all obligations (contingent or
otherwise) to purchase, retire or redeem any capital stock or any other equity
interest of such Person; (iv) all monetary obligations measured by, or
determined on the basis of, the value of any capital stock of such Person; (v)
all obligations, whether or not such obligations constitute Indebtedness
described in clauses (i) through (iv) above, secured by (or for which the holder
of the obligation has an existing right, contingent or otherwise, to be secured
by) any Lien upon or in property (including accounts and contract rights) owned
by such Person or any Subsidiary of such Person; (vi) Contingent Obligations;
and (vii) all monetary claims against Borrower or any Subsidiary of Borrower
under Hedging Agreements.

                                       10
<PAGE>

                  "Indemnified Liabilities" has the meaning provided in Section
7.7(a).

                  "Indemnified Person" has the meaning provided in Section
7.7(a).

                  "Intercreditor Agreement" and "Intercreditor Agreements" have
the meanings provided in Section 3.2(e)(iv).

                  "Interest Expense" means, for any period for any Person, the
interest expense (net of interest income) for such period of such Person and its
Subsidiaries on a consolidated basis, determined in conformity with GAAP.

                  "IRS" means the Internal Revenue Service and any successor
agency.

                  "Land" has the meaning provided in the Master Lease.

                  "Leased Property" has the meaning provided in the Master
Lease.

                  "Leasehold Estate" means any interest in real property which
is not a Fee Estate.

                  "Lender" means Health Care Property Investors, Inc., a
Maryland corporation, and its successors and assigns.

                  "Lien" means: (i) any interest in property securing an
obligation owed to, or a claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statute, or
contract, and including a security interest, charge, claim, or lien arising from
a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment,
deposit arrangement, agreement, security agreement, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes; (ii) to the
extent not included under clause (i), any reservation, exception, encroachment,
easement, right-of-way, covenant, condition, restriction, lease or other title
exception or encumbrance affecting property; and (iii) any contingent or other
agreement to provide any of the foregoing.

                  "Liquidity" means, as of any date of determination, the
unrestricted cash and Cash Equivalents of ARC and its Subsidiaries as of such
date of determination.

                  "Loan" has the meaning given in Section 2.1(a).

                  "Loan Documents" means this Agreement, the Note, the
Collateral Documents, the Intercreditor Agreements and all other guaranties and
other agreements, instruments and written indicia of the Obligations delivered
to Lender by or on behalf of Borrower or any other Loan Party pursuant to or in
connection with the transactions contemplated hereby.

                  "Loan Parties" means Borrower and the Property Owners.

                  "Master Lease" means that certain Master Lease, dated as of
the Funding Date, between the Property Owners, on the one hand, and the Property
Operators, on the other hand.

                                       11
<PAGE>

                  "Master Lease Documents" means the Master Lease and all other
guaranties and other agreements, documents and instruments delivered to Property
Owners or Lender by or on behalf of Borrower or any Affiliate of Borrower
pursuant to or in connection with the transactions contemplated by the Master
Lease.

                  "Master Trust Documents" means the agreements and documents
set forth in Schedule III.

                  "Master Trust Payments" means any amounts paid or payable
pursuant to the Master Trust Documents.

                  "Material Adverse Change" means (i) a material adverse change
in the business, properties, assets, nature of the assets, liabilities,
operations, prospects or condition (financial or otherwise) of (a) Borrower and
its Subsidiaries, taken as a whole; (b) any Facility; or (c) ARC and its
Subsidiaries, taken as a whole, in each case as compared with the business,
properties, assets, nature of the assets, liabilities, operations, prospects or
condition (financial or otherwise) of Borrower and its Subsidiaries, any
Facility or ARC and its Subsidiaries, as the case may be, as of June 30, 2002;
(ii) a material impairment after the Closing Date of the ability of Borrower or
any Affiliate of Borrower to perform under any Transaction Document to which it
is a party; or (iii) a material adverse change in the legality, validity,
binding effect or enforceability against any Loan Party or any Operating Company
of any Transaction Document to which it is a party.

                  "Material Adverse Effect" means (i) a material adverse effect
upon the business, properties, assets, nature of the assets, liabilities,
operations, prospects or condition (financial or otherwise) of (a) Borrower and
its Subsidiaries, taken as a whole; (b) any Facility; or (c) ARC and its
Subsidiaries, taken as a whole; (ii) a material impairment of the ability of
Borrower or any Affiliate of Borrower to perform under any Transaction Document
to which it is a party; or (iii) a material adverse effect upon the legality,
validity, binding effect or enforceability against any Loan Party or any
Operating Company of any Transaction Document to which it is a party.

                  "Maturity Date" means the date 5 years after the Funding Date.

                  "Moody's" means Moody's Investors Service, Inc. or any
successor thereto.

                  "Mortgage Payment Reserve Account" has the meaning provided in
Section 5.3(n)(i)(D).

                  "Multi-Employer Plan" means a multi-employer plan (as defined
in Section 4001(a)(3) of ERISA) which is, or was at any time during the current
year or the immediately preceding 6 years, contributed to by Borrower or any
ERISA Affiliate.

                  "Negative Pledge Agreements" and "Negative Pledge Agreement"
have the meanings provided in Section 3.2(e)(iii).

                                       12
<PAGE>

                  "Net Income" means, for any period for any Person, the net
income (exclusive of minority interests and extraordinary items) for such period
of such Person and its Subsidiaries on a consolidated basis, determined in
conformity with GAAP.

                  "Net Operating Income" means, for any period, (i) Gross
Revenues for such period minus (ii) the sum of (a) Operating Expenses for such
period plus (b) a management fee equal to the greater of (x) 5% times Gross
Revenues for such period and (y) the actual amount of management fees paid by
the Property Owners or the Property Operators for such period; provided that for
any Facility clause (y) of this definition shall not apply to any management
fees paid to an Affiliate of ARC with respect to such Facility so long as such
fees are paid pursuant to an agreement that specifically provides that such
management fee shall exceed 5% only during the period during which Borrower is
the owner of the Property Owner which owns such Facility.

                  "New ARC Securities" means, collectively, the New Series A ARC
Notes, the New Series B ARC Notes and the Exchange Warrants.

                  "New ARC Securities Documents" means, collectively, the New
Series A ARC Note Documents, the New Series B ARC Note Documents and the
Exchange Warrant Documents.

                  "New Series A ARC Note Documents" means the Indenture pursuant
to which the New Series A ARC Notes are issues and all other documents executed
in connection with the issuance of the New Series A ARC Notes.

                  "New Series B ARC Note Documents" means the Indenture pursuant
to which the New Series B ARC Notes are issues and all other documents executed
in connection with the issuance of the New Series B ARC Notes.

                  "New Series A ARC Notes" means the Series A Senior
Subordinated Notes due September 30, 2002.

                  "New Series B ARC Notes" means the Series B Senior
Subordinated Notes due September 30, 2009.

                  "Non-REIT Asset" has the meaning set forth in Section 5.5(c).

                  "Non-REIT Income" has the meaning set forth in Section 5.5(c).

                  "Note" has the meaning provided in Section 2.1(b).

                  "Obligations" means all present and future debts, obligations
and liabilities of Borrower of every type and description arising under or in
connection with this Agreement or any other Loan Document, due or to become due
to Lender or any other Person required to be indemnified under any Loan
Document, or any of their respective successors, transferees or assigns and
shall include (without limitation) (i) all liability for principal of and
interest on the

                                       13
<PAGE>

Loan; and (ii) all liability under the Loan Documents for any fees, taxes,
additional compensation, expense reimbursements and indemnification.

                  "Old ARC Debenture Indenture" means that certain Indenture,
dated as of September 29, 1997, by and between ARC and IBJ Schroder Bank and
Trust Company, a New York banking corporation, as trustee.

                  "Old ARC Debentures" means the $132,930,000 of 5 3/4%
Convertible Subordinated Debentures due October 1, 2002.

                  "Operating Expenses" means, for any period for the Facilities,
the operating expenses of the Facilities during such period, as determined in
accordance with GAAP.

                  "Other Permitted Subsidiaries" and "Other Permitted
Subsidiary" have the meanings provided in Section 3.2(j).

                  "Other Taxes" has the meaning provided in Section 2.7(b).

                  "Payment Date" means the third Business Day of each calendar
quarter from the Funding Date through the Maturity Date.

                  "PBGC" means the Pension Benefit Guaranty Corporation or any
Governmental Authority succeeding to the functions thereof.

                  "Pension Plan" means a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA which Borrower or any ERISA
Affiliate sponsors, maintains, or to which it makes, is making, or is obligated
to make contributions, or in the case of a Multi-Employer Plan has made
contributions at any time during the immediately preceding 6 plan years.

                  "Permitted Letter of Credit" means a letter of credit (i)
which is issued by a financial institution which is satisfactory to Lender in
its sole discretion and whose long-term debt is rated at least "A" by S&P and
"A2" by Moody's; (ii) which names Lender as the beneficiary; (iii) which
contains terms and provisions satisfactory to Lender in its sole discretion; and
(iv) with respect to which the Borrower has the reimbursement obligation (and
such reimbursement obligation is not guarantied by ARC or any Affiliate of ARC).

                  "Permitted Payoff" means the payment in full of all
obligations under, and the release of any Liens with respect to, a First
Mortgage Loan; provided that such payment was made in accordance with this
Agreement.

                  "Permitted Refinancing Loan" means, individually, any mortgage
loan which refinances a First Mortgage Loan and is consented to by Lender in
accordance with this Agreement. "Permitted Refinancing Loans" means,
collectively, all Permitted Refinancing Loans.

                                       14
<PAGE>

                  "Permitted Refinancing Lender" means, individually, a Person
that is a lender under a Permitted Refinancing Loan. "Permitted Refinancing
Lenders" means, collectively, all Permitted Refinancing Lenders.

                  "Permitted Subsidiaries" has the meaning provided in Section
4.1(e).

                  "Person" means an individual, partnership, limited liability
company, corporation (including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.

                  "Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA) which Borrower or any ERISA Affiliate sponsors or maintains or to
which Borrower or any ERISA Affiliate makes, is making, or is obligated to make
contributions and includes any Pension Plan.

                  "Primary Intended Use" has the meaning provided in the Master
Lease.

                  "Property Operators" means (i) at any time prior to the
Funding Date, the Persons identified on Schedule 4.1(e) as Property Operators
and (ii) on and after the Funding Date the Persons identified as Property
Operators on Part A of Schedule I.

                  "Property Owners" means (i) at any time prior to the Funding
Date, the Persons identified on Part A of Schedule 4.1(r) as Property Owners and
(ii) on and after the Funding Date, the Persons identified as Property Owners on
Part A of Schedule I.

                  "Real Property" means any Fee Estate or any Leasehold Estate.

                  "Reinvestment Rate" means, with respect to any prepayment of
the Loan, an amount equal to the yield on U.S. Treasuries issued with a term a
near to equal to the remaining term as the Loan as possible, such yield being
based on the bid price for such issue as published in the Wall Street Journal on
the date that is fourteen (14) days prior to the date of such prepayment (of, if
such bid price is not published on such date, the next preceding date on which
such bid price is so published) and converted to a monthly (not compounded)
nominal yield, such Reinvestment Rate to be determined by Lender.

                  "Release" means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Hazardous Substance into the indoor or outdoor environment or into or out of any
Real Property or other property, including the movement of Hazardous Substances
through or in the air, soil, surface water, groundwater or Real Property or
other property.

                  "Repair and Replacement Expenditures" has the meaning provided
in Section 5.3(n)(i)(A).

                  "Repair and Replacement Reserve Account" has the meaning
provided in Section 5.3(n)(i)(A).

                                       15
<PAGE>

                  "Reportable Event" shall mean any of the events set forth in
Section 4043(c) of ERISA or the regulations thereunder, a withdrawal from a plan
described in Section 4063 of ERISA or a cessation of operations described in
Section 4062(e) of ERISA.

                  "Required Interest Hedge" has the meaning provided in Section
3.2(u).

                  "Reserve Account Security Agreement" has the meanings provided
in Section 3.2(e)(v).

                  "Reserve Accounts" and "Reserve Account" has the meaning
provided in Section 5.3(n)(i).

                  "Retired Officers Corporation" means Retired Officers
Corporation, a Florida not-for-profit corporation.

                  "Retired Officers Documents" means, collectively, the Retired
Officers Marketing Agreement and the Retired Officers Right of First Refusal.

                  "Retired Officers Land Corporation" means Retired Officers
Land Corporation, a Florida not-for-profit corporation.

                  "Retired Officers Marketing Agreement" means that certain
Marketing and Endorsement Agreement, executed as of the 30th day of June 1998,
by and between Freedom Village Sun City and Retired Officer's Corporation

                  "Retired Officers Right of First Refusal" means that certain
Agreement for Right of First Refusal, made and executed the 30th day of June
1998, by and between Freedom Village Sun City, Retired Officer's Corporation and
Retired Officers Land Corporation.

                  "Review Period" has the meaning provided in Section 2.6(b).

                  "Reviewed Budget" means the budget of the Facilities delivered
prior to the Closing Date and reviewed and accepted by Lender, a copy of which
is attached hereto as Exhibit H.

                  "Right of First Offer" has the meaning provided in Section
2.6.

                  "S&P" means Standard & Poors Corporation or any successor
thereto.

                  "Sinking Fund Reserve Account" has the meaning specified in
Section 5.3(n)(i)(C).

                  "Solvent" means, when used with respect to any Person, that at
the time of determination: (i) the assets of such Person, at a fair valuation,
are in excess of the total amount of its debts (including contingent
liabilities); (ii) the present fair saleable value of its assets is greater than
its probable liability on its existing debts as such debts become absolute and
matured; (iii) it is then able and expects to be able to pay its debts
(including contingent debts

                                       16
<PAGE>

and other commitments) as they mature; and (iv) it has capital sufficient to
carry on its business as conducted and as proposed to be conducted.

                  "Somerby Purchase Option" means purchase option of ARC on the
managed properties knows as the Somerby at Jones Farm and Somerby at University
Park.

                  "Subsidiary" means, with respect to any Person, any
corporation, association, partnership, joint venture or other business entity of
which 50% or more of the voting stock or other equity interests is owned or
controlled directly or indirectly by such Person, or one or more Subsidiaries of
such Person or a combination thereof.

                  "Tax Expense" means, for any period for any Person, charges
for taxes accrued during such period by such Person and its Subsidiaries on a
consolidated basis, determined in conformity with GAAP.

                  "Taxes" has the meaning provided in Section 2.7(a).

                  "Test Period" means (i) for any Distribution Date occurring on
any date from the Funding Date through and including February 1, 2003, the
period from August 1, 2002 to the last day of the calendar month commencing two
calendar months prior to such Distribution Date; and (ii) for any Distribution
Date thereafter, the period from the beginning of the applicable calendar year
through the last day of the calendar month commencing two calendar months prior
to such Distribution Date.

                  "Title Company" has the meaning provided in Section 3.2(k)(i).

                  "Title Policy" has the meaning provided in Section 3.2(k)(i).

                  "Transaction Document" means, collectively, the Loan Documents
and the Master Lease Documents.

                  "Unfunded Pension Liability" means the excess of a Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the current value
of that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the applicable
plan year.

                  "Unmatured Surviving Obligation" means, as of any date, an
Obligation which is contingent and unliquidated and not due and owing on such
date and which pursuant to provisions of this Agreement survives termination of
this Agreement and the repayment of the Loan, such as, for example, a contingent
and unliquidated indemnification obligation under Section 7.7.

                  "Vehicle Sublease" means a Vehicle Sublease in a form
reasonably acceptable to Lender.

                  "Working Capital" means, for any date, (a) the current assets
of Borrower and its Subsidiaries on a consolidated basis (excluding (i) any
loans made to ARC or any Affiliate of ARC and (ii) any cash or Cash Equivalents)
minus (b) the current liabilities of Borrower and

                                       17
<PAGE>

its Subsidiaries on a consolidated basis (excluding, however, the current
portion of long-term Indebtedness and the Master Trust Payments, but not
excluding other payments with respect to Entrance Fee Facilities), in each case
determined as of such date in accordance with GAAP.

                  "Working Capital Reserve Account" has the meaning provided in
Section 5.3(n)(i)(B).

         Section 1.2       Accounting Terms. Except where context otherwise
requires, all accounting terms not expressly defined herein shall be construed
and all financial computations required under this Agreement shall be made in
accordance with GAAP as then in effect.

         Section 1.3       Other Definitional Provisions.

                           (i)      Unless otherwise specified herein or
                  therein, all terms defined in this Agreement have the defined
                  meanings when used in any other Transaction Document or in any
                  certificate or other document made or delivered pursuant
                  hereto.

                           (ii)     The words "hereof," "herein," "hereunder,"
                  and words of similar import when used in this Agreement shall
                  refer to this Agreement as a whole and not to any particular
                  provision of this Agreement, and section, schedule and exhibit
                  references are to sections, schedules and exhibits to this
                  Agreement unless otherwise specified.

                           (iii)    The meaning of defined terms shall be
                  equally applicable to the singular and plural forms of the
                  defined terms.

                           (iv)     The term "including" is not limiting and
                  means "including without limitation."

                           (v)      In the computation of periods of time from a
                  specified date to a later specified date, the word "from"
                  means "from and including"; the words "to" and "until" each
                  mean "to but excluding"; and the word "through" means "to and
                  including."

                           (vi)     References to agreements and other documents
                  shall be deemed to include all subsequent amendments and other
                  modifications thereto that are permitted under this Agreement.

                           (vii)    References to statutes or regulations are to
                  be construed as including all statutory and regulatory
                  provisions consolidating, amending or replacing the statute or
                  regulation.

                           (viii)   The captions and headings of this Agreement
                  are for convenience of reference only and shall not affect the
                  construction of this Agreement.

                                  ARTICLE II.
                            AMOUNTS AND TERMS OF LOAN

                                       18
<PAGE>

         Section 2.1       Making the Loan.

                  (a)      The Loan. Lender agrees, subject to the terms and
conditions set forth in this Agreement, to make a loan to Borrower (the "Loan")
in the aggregate principal amount of $112,750,000 on any Business Day (the date
of the making of the Loan, the "Funding Date") after the Closing Date and on or
prior to September 30, 2002.

                  (b)      The Note. The Loan shall be evidenced by a Note (the
"Note"), substantially in the form of Exhibit A, in an original principal of
$112,750,000.

                  (c)      Funding the Loan. Upon fulfillment of the conditions
set forth in Section 3.2, Lender shall make the proceeds of the Loan available
to Borrower by transferring funds to an account within the United States, such
account to be designated by Borrower prior to the Funding Date.

         Section 2.2       Interest.

                  (a)      Interest Rate. Interest shall accrue on the unpaid
principal amount of the Loan from the Funding Date until the principal amount of
the Loan shall be paid in full, at a rate per annum equal to 19.5%.

                  (b)      Default Interest. For any period of time during which
an Event of Default has occurred and is continuing, the principal amount of the
Loan shall bear interest payable upon demand at a rate per annum equal to the
sum of (i) 2 percent plus (ii) the rate otherwise payable pursuant to Section
2.2(a), but not to exceed the maximum rate permitted by applicable law.

         Section 2.3       Mandatory Payments. Borrower agrees to make the
following payments on the Loan:

                  (a)      Quarterly Payments. On each Payment Date, Borrower
shall make a cash payment to Lender in an amount equal to the amount for such
Payment Date set forth in the following table:

<TABLE>
<CAPTION>
         Period                                                                        Interest Payment
         ------                                                                        ----------------
         <S>                                                                           <C>
         From the Funding Date through January 1, 2004                                    $2,536,875

         From April 1, 2004 through January 1, 2005                                       $2,693,125

         From April 1, 2005 through January 1, 2006                                       $2,849,374

         From April 1, 2006 through January 1, 2007                                       $3,005,624

         From April 1, 2007 through the Maturity Date                                     $3,161,873
</TABLE>

Any payment made pursuant to this Section 2.3 shall be applied first to accrued
and unpaid interest and then to the unpaid principal amount of the Loan. On each
Payment Date, any

                                       19
<PAGE>

interest which has accrued pursuant to Section 2.2(a) and is not paid pursuant
to this Section 2.3(a) shall be added to the principal amount of the Loan and
shall thereafter accrue interest at the rate provided in Section 2.2(a).

                  (b)      Maturity Date. On the Maturity Date, Borrower shall
pay the full outstanding principal amount of the Loan (including any principal
that was added to the Loan pursuant to Section 2.3(a)), all accrued and unpaid
interest on the Loan and all other Obligations then due and owing under this
Agreement or any other Loan Document. For the convenience of the parties hereto,
attached as Schedule 2.3(b) is a schedule showing the accrual of interest and
principal amounts for the loan on a timely basis and that the loan is funded on
October 1, 2002 assuming all payments are made.

                  (c)      Payment Following Change of Control. If within the
period commencing on the date of a Change of Control and ending 90 days after
written notice from Borrower to Lender of such Change of Control, Lender shall
request in writing that Borrower repay the Loan, then within 30 days after
delivery to Borrower of such written request, Borrower shall immediately repay
the full outstanding principal amount of the Loan (including any principal that
was added to the Loan pursuant to Section 2.3(a)), all accrued and unpaid
interest on the Loan and all other Obligations then due and owing under this
Agreement or any other Loan Document.

         Section 2.4       Voluntary Prepayments.

                  (a)      No Prepayment Prior to Third Anniversary. Borrower
may not, under any circumstance, prepay the Loan prior to the third anniversary
of the Funding Date.

                  (b)      Full Prepayment. After the third anniversary of the
Funding Date, Borrower may prepay the Loan in whole, but not in part. For any
such prepayment, Borrower shall provide Lender written notice of such prepayment
not later than thirty days prior to the date of such prepayment, and such
written notice must state that Borrower intends to prepay the Loan and must
provide the date on which such prepayment will be made. If such notice is given
Borrower shall, on the prepayment date set forth in such notice, prepay the full
outstanding principal amount of the Loan (including any principal that was added
to the Loan pursuant to Section 2.3(a)), all accrued and unpaid interest on the
Loan and all other Obligations then due and owing under this Agreement or any
other Loan Document.

                  (c)      Partial Prepayment. After the third anniversary of
the Funding Date, Borrower may with the approval of Lender (which approval may
be withheld in the sole and absolute discretion of Lender) make a partial
prepayment of the Loan; provided that such partial prepayments may not be
requested more frequently than quarterly and may not be requested for a
principal amount less than $20,000,000. For any such prepayment, Borrower shall
provide Lender written notice of such prepayment not later than thirty days
prior to the date of such prepayment, and such written notice must state that
Borrower desires to prepay the Loan and must provide the date on which such
prepayment will be made, if approved by Lender. If such notice is given and the
Lender approves such prepayment, Borrower shall, on the prepayment date set
forth in such notice, prepay the principal amount of the Loan approved

                                       20
<PAGE>

by Lender and all accrued and unpaid interest on such principal amount. No
partial payment hereunder shall reduce the amount of any payment required
pursuant to Section 2.3.

                  (d)      Yield Maintenance Premium. If, for any reason, the
Loan is involuntarily prepaid prior to the third anniversary of the Funding Date
(including, by reason of an acceleration following the occurrence of an Event of
Default), Borrower shall, concurrently with such prepayment, pay to Lender an
amount equal to the greater of (x) 1% and (y) the positive difference, if any,
between (i) the net present value of the remaining payments of principal and
interest (including the payment on the Maturity Date) discounted at the
Reinvestment Rate expressed in monthly terms (not compounded), determined one
Business Day prior to such prepayment, and (ii) the principal amount of the
Loan, as at the date of such prepayment.

         Section 2.5       Payments and Computations.

                  (a)      Payments. Except as provided in Section 2.6, Borrower
shall make each payment hereunder not later than 2:00 p.m. (Los Angeles,
California time) on the day when due in Dollars to Lender at its address
referred to in Section 7.3 in same day funds.

                  (b)      Computations. All computations of interest shall be
made by Lender on the basis of a year of 360 days, in each case for the actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest are payable.

                  (c)      Payment on Business Day. Whenever any payment under
this Agreement or the other Loan Documents shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of interest or fees, as the case may be.

         Section 2.6       Right of First Offer to Finance. So long as any
Obligation (other than an Unmatured Surviving Obligation) shall remain unpaid,
if Borrower or any of its Subsidiaries desires to Finance any of its Health Care
Facilities or other property (including to refinance any loan or other financing
arrangement of Borrower or any of its Subsidiaries), including any financing
done in the form of a sale/leaseback transaction (each such financing or
refinancing, a "Financing Transaction"), then Lender shall have a right of first
offer to Finance such Health Care Facility or other property or to refinance
such loan or other financing arrangement (such right, the "Right of First
Offer"). The Right of First Offer shall be continuing and shall not terminate
until the date Lender exercises such right and Finances such Financing
Transaction or elects not to provide a Lender Finance Proposal. The following
provisions shall govern such rights and such Financing:

                  (a)      Request to Provide Offer to Finance . For so long as
the Right of First Offer has not expired, for every Financing Transaction which
is proposed to be Financed in whole or in part by a third-party, Borrower shall
deliver to Lender a written request for Lender to provide a written proposal to
Finance a Financing Transaction. Such written request shall set forth the
property(ies) and/or construction plans which is (are) the subject of such
written request, the amount requested to be Financed, the requested term of the
loan or lease, the

                                       21
<PAGE>

collateral available to secure the loan, and such other information pertaining
to the terms and conditions of the proposed Financing as Lender may reasonably
request (each such written request to provide a written proposal containing the
foregoing information, a "Request to Provide Offer to Finance").

                  (b)      Election to Finance. Lender shall have twenty (20)
days from the date of receipt of the Request to Provide Offer to Finance (the
"Review Period") to determine whether or not Lender will provide a written
proposal to Finance. During the applicable Review Period, Borrower shall
cooperate and shall cause the applicable Subsidiary to cooperate with Lender and
shall use reasonable efforts to provide Lender with such further information as
Lender may reasonably require with respect to the applicable Request to Provide
Offer to Finance.

                  (c)      No Election. Lender shall be deemed to have declined
to exercise the Right of First Offer with respect to a Request to Provide Offer
to Finance if Lender fails to provide a written proposal to Finance (each such
proposal, a "Lender Finance Proposal") within the applicable Review Period).
Each Lender Finance Proposal shall contain the material terms under which Lender
proposes to provide the proposed Financing, including the amount to be Financed,
the term of the loan or lease, as applicable, the interest rate or lease rate,
as applicable, the amounts and schedule of principal and interest payments or
rental amounts, as applicable, the terms of any prepayment or yield maintenance
provisions, any loan recourse provisions, any "due on" provisions and related
transfer restrictions, the collateral to secure the loan, whether or not a
guaranty of the loan or lease is required, any cross-default or
cross-collateralization provisions and any fees and other costs to be charged in
connection with the proposed Financing.

                  (d)      Borrower's Election to Finance. With respect to each
Request to Provide Offer to Finance, if Lender declines (or is deemed to have
declined its right) to provide a Lender Finance Proposal, Borrower and/or the
applicable Subsidiary may elect to Finance such Finance Transaction with any
third party provided, however, that Borrower or the applicable Subsidiary shall
have closed escrow with respect to such Finance Transaction within six (6)
months after the expiration of the applicable Review Period. With respect to
each Request to Provide Offer to Finance, if Lender provides a Finance Proposal
then Borrower and/or the applicable Subsidiary may Finance such Finance
Transaction with any third party only if (i) such Finance Transaction is
consummated on financing terms and conditions less favorable to such third party
than those set forth in such Lender Finance Proposal, and (ii) Borrower or the
applicable Subsidiary shall have closed escrow with respect to such Finance
Transaction within six (6) months after the expiration of the applicable Review
Period. If, within either such six (6) month period, Borrower or the applicable
Subsidiary fails to close such Finance Transaction in accordance with the terms
set forth in this Section 2.6(e), then the Right of First Offer with respect to
such Finance Transaction shall be reinstated, and Lender shall have the review
and financing rights for such Finance Transaction as set forth in this Section
2.6.

         Section 2.7       Taxes.

                  (a)      Net Payments. Any and all payments by Borrower under
this Agreement and the other Loan Documents shall be made free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all

                                       22
<PAGE>

liabilities with respect thereto, excluding, any taxes imposed on Lender's net
income or net worth (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
If Borrower shall be required by law to deduct any Taxes from or in respect of
any sum payable under this Agreement or any other Loan Document to Lender, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.7) Lender receives an amount equal to the sum it would have
received had no such deductions been made; (ii) Borrower shall make such
deductions; and (iii) Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.

                  (b)      Payment of Other Taxes. In addition, Borrower agrees
to pay any present or future stamp or documentary taxes or any other excise or
property taxes, charges or similar levies which arise from any payment made
under this Agreement or any other Loan Document or from the execution, delivery
or registration of, or otherwise with respect to, this Agreement or any other
Loan Documents, provided Borrower shall not be required to pay any tax based on
Lender's net income or net worth (all such non-excluded taxes or other items
hereinafter referred to as "Other Taxes").

                  (c)      Indemnification. Borrower will indemnify Lender for
the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.7) paid by
Lender and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be made within 5 days
from the date Lender makes written demand therefor.

                  (d)      Evidence of Payments. Within 30 days after the date
of any payment of Taxes, Borrower will furnish to Lender, at its address
referred to in Section 7.3, the original or a certified copy of a receipt
evidencing payment thereof.

                  (e)      Survival. Without prejudice to the survival of any
other agreement of Borrower hereunder, the agreements and obligations of
Borrower contained in this Section 2.7 shall survive the termination of this
Agreement.

                                  ARTICLE III.
                                   CONDITIONS

         Section 3.1       Initial Conditions. The effectiveness of the
obligation of Lender under this Agreement is subject to the satisfaction of each
of the following conditions unless waived in writing by Lender:

                  (a)      Representation and Warranties. Each of the
representations and warranties contained in this Agreement and in each of the
other Transaction Documents shall be true and correct in all material respects
on and as of the Closing Date.

                  (b)      No Default. No event shall have occurred and be
continuing which constitutes a Default or Event of Default.

                                       23
<PAGE>

                  (c)      Payment of Fees and Expenses. All fees and expenses
of Lender (including fees and disbursements of counsel to Lender) due and
payable on or prior to the Closing Date under this Agreement shall have been
paid.

                  (d)      No Adverse Change. There shall not have been any
Material Adverse Change.

                  (e)      Loan Documents. Borrower shall have delivered to
Lender each of the following:

                           (i)      this Agreement duly executed by Borrower and
                  Lender; and

                           (ii)     the Note duly executed by Borrower.

                  (f)      Borrower Corporate Documents. Borrower shall have
delivered to Lender each of the following:

                           (i)      the certificate of incorporation of
                  Borrower, certified by the Secretary of State of Tennessee,
                  dated as of a date not more than 10 days prior to the Closing
                  Date;

                           (ii)     a good standing certificate dated as of a
                  recent date for Borrower from the Secretary of State of (x)
                  Tennessee and (y) each other jurisdiction where Borrower is
                  qualified to do business, in each case, dated as of a date not
                  more than 10 days prior to the Closing Date;

                           (iii)    a certificate of the Secretary of Borrower,
                  dated as of the Closing Date, certifying as to;

                                    (A)      the certificate of incorporation of
                           Borrower as in effect on the Closing Date;

                                    (B)      the bylaws of Borrower as in effect
                           on the Closing Date;

                                    (C)      the resolutions of the Board of
                           Directors of Borrower approving each Transaction
                           Document to which it is a party, and of all documents
                           evidencing other necessary corporate or
                           organizational action and governmental approvals, if
                           any, with respect to each such Transaction Document;
                           and

                                    (D)      the names and true signatures of
                           the officers of Borrower authorized to sign each
                           Transaction Document to which it is a party and the
                           other documents to be delivered hereunder.

                  (g)      Financial Statements. Borrower shall have delivered
to Lender each of the following (each of which shall be satisfactory to Lender):

                                       24
<PAGE>

                           (i)      a copy of the audited financial statements
                  of ARC and its Subsidiaries on a consolidated basis for the
                  fiscal year ended December 31, 2001, certified by KPMG LLP;

                           (ii)     a copy of the unaudited financial statements
                  of ARC and its Subsidiaries on a consolidated basis for each
                  fiscal quarter ending after December 31, 2001 and more than 45
                  days prior to the Closing Date;

                           (iii)    a copy of the pro forma unaudited financial
                  statements of Borrower and its Subsidiaries on a consolidated
                  basis for the fiscal year ended December 31, 2001;

                           (iv)     a copy of the pro forma unaudited financial
                  statements of Borrower and its Subsidiaries on a consolidated
                  basis for each fiscal quarter ending after December 31, 2001
                  and more than 45 days prior to the Closing Date;

                           (v)      unaudited operating statements for each
                  Facility showing the Net Operating Income for such Facility
                  for the trailing twelve-month period ended December 31, 2001;
                  and

                           (vi)     unaudited operating statements for each
                  Facility showing the Net Operating Income for such Facility
                  for the trailing twelve month periods ended on the last day of
                  each month ending after March 2002 and more than 10 Business
                  Days prior to the Closing Date.

                  (h)      Legal Opinions. Borrower shall have delivered to
Lender an opinion of Bass, Berry & Sims PLC, counsel for Borrower and the other
Loan Parties, in form and substance satisfactory to Lender.

                  (i)      Governmental Consents. Each Loan Party and each
Property Operator shall have obtained all consents, approvals and authorizations
required from any Governmental Authority in connection with execution, delivery
and performance of their respective obligations under this Agreement and the
other Transaction Documents.

                  (j)      Minimum Net Operating Income. The sum of the Net
Operating Income for all Facilities for the trailing twelve months ended June
30, 2002 is not less than $31,600,000.

                  (k)      Minimum EBITDA. The occupancy and the EBITDAR of the
Property Owners, as a whole, must reasonably be within Reviewed Budget for the
one-month periods, and for the fiscal year-to-date periods, ending on the last
day of each calendar month ending after February 2002 and more than 10 Business
Days prior to the Closing Date.

                  (l)      Officers Certificate. Borrower shall have delivered
to Lender a certificate dated as of the Closing Date and signed by the Chairman,
Chief Executive Officer or Chief Financial Officer of Borrower, certifying that,
as of the Closing Date, (w) the

                                       25

<PAGE>

representations and warranties contained in this Agreement and each of the other
Transaction Documents are true and correct on and as of the Closing Date, as
though made on and as of such date; (x) no Event of Default or Default has
occurred and is continuing; (y) there has been no Material Adverse Change; and
(z) each of the other conditions precedent to the Closing Date has been
satisfied.

                  (m)      Documents and other Evidence Satisfactory to Lender.
The documents, agreements and evidence deliver by Borrower to Lender pursuant to
this Section 3.1 shall be satisfactory in all respects to Lender.

                  (n)      Borrower Governing Documents. All the organizational
documents of Borrower delivered pursuant to Section 3.1(f) shall be satisfactory
to Lender.

         Section 3.2       Funding Conditions. The obligation of Lender to make
the Loan is subject to the satisfaction of each of the following conditions
unless waived in writing by Lender:

                  (a)      Representation and Warranties. Each of the
representations and warranties contained in this Agreement and in each of the
other Transaction Documents shall be true and correct in all material respects
on and as of the Funding Date, before and after giving effect to the Loan and to
the application of the proceeds of the Loan.

                  (b)      No Default. No event shall have occurred and be
continuing, or shall result from the Loan or from the application of the
proceeds of the Loan, which constitutes a Default or Event of Default.

                  (c)      Payment of Fees and Expenses. All fees and expenses
of Lender (including fees and disbursements of counsel to Lender) due and
payable on or prior to the Funding Date under this Agreement shall have been
paid.

                  (d)      No Adverse Change. There shall not have been any
Material Adverse Change.

                  (e)      Loan Documents. Borrower shall have delivered to
Lender each of the following:

                           (i)      a pledge agreement, in substantially the
                  form of Exhibit B (the "Borrower Pledge Agreement"), duly
                  executed by Borrower and Lender, together with certificates
                  representing the Borrower Pledged Interests identified in Part
                  A of Schedule I to the Borrower Pledge Agreement, accompanied
                  by undated transfer documents executed in blank;

                           (ii)     a pledge agreement, in substantially the
                  form of Exhibit D (the "ARC SC Pledge Agreement"), duly
                  executed by ARC SC Holdings and Lender, together with
                  certificates representing the ARC SC Pledged Interests
                  identified in Part A of Schedule I to the ARC SC Pledge
                  Agreement, accompanied by undated transfer documents executed
                  in blank;

                                       26

<PAGE>

                           (iii)    a Negative Pledge Agreement, in
                  substantially the form of Exhibit E (collectively, the
                  "Negative Pledge Agreements", and individually a "Negative
                  Pledge Agreement"), duly executed by each Property Owner and
                  Lender;

                           (iv)     an intercreditor agreement, with each of the
                  First Mortgage Lenders, in form and substance satisfactory to
                  Lender (collectively, the "Intercreditor Agreements", and
                  individually an "Intercreditor Agreement"), duly executed by
                  each First Mortgage Lender and Lender;

                           (v)      a reserve account security agreement, in
                  substantially the form of Exhibit C (the "Reserve Account
                  Security Agreement"), duly executed by Borrower and Lender;

                           (vi)     a control agreement, in form and substance
                  reasonably acceptable to Lender, duly executed by the
                  Depository Bank and Lender;

                           (vii)    evidence that the Negative Pledge Agreements
                  have each been recorded in the appropriate real property
                  recording offices; and

                           (viii)   evidence that the financing statements
                  referred to in the opinion of counsel delivered pursuant to
                  Section 3.2(q) have been filed in the offices identified
                  therein.

                  (f)      Master Lease Documents. Borrower shall have delivered
to Lender certified copies of the Master Lease Documents.

                  (g)      Borrower Corporate Documents. Borrower shall have
delivered to Lender each of the following:

                           (i)      the certificate of incorporation of
                  Borrower, certified by the Secretary of State of Delaware,
                  dated as of a date not more than 10 days prior to the Funding
                  Date;

                           (ii)     a good standing certificate dated as of a
                  recent date for Borrower from the Secretary of State of (x)
                  Delaware and (y) each other jurisdiction where Borrower is
                  qualified to do business, in each case, dated as of a date not
                  more than 10 days prior to the Funding Date;

                           (iii)    a certificate of the Secretary of Borrower,
                  dated as of the Funding Date, certifying as to;

                                    (A)      the certificate of incorporation of
                           Borrower as in effect on the Funding Date;

                                    (B)      the bylaws of Borrower as in effect
                           on the Funding Date;

                                       27

<PAGE>

                                    (C)      the resolutions of the Board of
                           Directors of Borrower approving each Transaction
                           Document to which it is a party, and of all documents
                           evidencing other necessary corporate or
                           organizational action and governmental approvals, if
                           any, with respect to each such Transaction Document;
                           and

                                    (D)      the names and true signatures of
                           the officers of Borrower authorized to sign each
                           Transaction Document to which it is a party and the
                           other documents to be delivered hereunder.

                  (h)      Property Owner Organizational Documents. Borrower
shall have delivered to Lender each of the following:

                           (i)      the articles of organization or certificate
                  of formation, as applicable, of each Property Owner, certified
                  by the Secretary of State of the jurisdiction in which each
                  such Property Owner is formed, dated as of a date not more
                  than 10 days prior to the Funding Date;

                           (ii)     a good standing certificate dated as of a
                  recent date for each Property Owner from the Secretary of
                  State of (x) the jurisdiction in which each such Property
                  Owner is formed and (y) each other jurisdiction where such
                  Property Owner is qualified to do business, in each case,
                  dated as of a date not more than 10 days prior to the Funding
                  Date;

                           (iii)    a certificate of the Secretary of each
                  Property Owner, dated as of the Funding Date, certifying as
                  to;

                                    (A)      the articles of organization or
                  certificate of formation, as applicable, of such Property
                  Owner as in effect on the Funding Date;

                                    (B)      the limited liability company
                  agreement or operating agreement, as applicable, of such
                  Property Owner as in effect on the Funding Date;

                                    (C)      resolutions of the Board of
                  Governors or Board of Managers, as applicable, of such
                  Property Owner approving each Transaction Document to which it
                  is a party, and of all documents evidencing other necessary
                  corporate or organizational action and governmental approvals,
                  if any, with respect to each such Transaction Document; and

                                    (D)      the names and true signatures of
                  the officers of each such Property Owner authorized to sign
                  each Transaction Document to which it is a party and the other
                  documents to be delivered hereunder.

                  (i)      Property Operator Organizational Documents. Borrower
shall have delivered to Lender each of the following:

                                       28

<PAGE>

                           (i)      the charter, certificate of incorporation,
                  articles of organization or certificate of limited
                  partnership, as applicable, of each Property Operator,
                  certified by the Secretary of State of the jurisdiction in
                  which each such Property Operator is formed, dated as of a
                  date not more than 10 days prior to the Funding Date;

                           (ii)     a good standing certificate dated as of a
                  recent date for each Property Operator from the Secretary of
                  State of (x) the jurisdiction in which each such Property
                  Operator is formed and (y) each other jurisdiction where such
                  Property Operator is qualified to do business, in each case,
                  dated as of a date not more than 10 days prior to the Funding
                  Date;

                           (iii)    a certificate of the Secretary or general
                  partner, as applicable, of each Property Operator, dated as of
                  the Funding Date, certifying as to;

                                    (A)      the charter, certificate of
                           incorporation, articles of organization or
                           certificate of limited partnership, as applicable, of
                           such Property Operator as in effect on the Funding
                           Date;

                                    (B)      the bylaws, operating agreement or
                           partnership agreement, as applicable, of such
                           Property Operator as in effect on the Funding Date;

                                    (C)      resolutions of the Board of
                           Directors, Board of Governors or general partner, as
                           applicable, of such Property Operator approving the
                           Transaction Documents to which such Property Operator
                           is a party, and of all documents evidencing other
                           necessary corporate or organizational action and
                           governmental approvals, if any, with respect to the
                           Transaction Documents; and

                                    (D)      the names and true signatures of
                           the officers of each such Property Operator or the
                           general partner of such Property Operator, as
                           applicable, authorized to sign the Transaction
                           Documents to which such Property Operator is a party
                           and the other documents to be delivered thereunder or
                           hereunder.

                  (j)      Other Permitted Subsidiary Organizational Documents.
Borrower shall have delivered to Lender each of the following for each Permitted
Subsidiary (other than a Property Owner, a Property Operator and any ARC
Fleetwood Entity) (collectively, the "Other Permitted Subsidiaries", and
individually, an "Other Permitted Subsidiary"):

                           (i)      the charter, certificate of incorporation,
                  articles of organization or certificate of limited
                  partnership, as applicable, of each Other Permitted
                  Subsidiary, certified by the Secretary of State of the
                  jurisdiction in which each such Other Permitted Subsidiary is
                  formed, dated as of a date not more than 10 days prior to the
                  Funding Date;

                                       29

<PAGE>

                           (ii)     a good standing certificate dated as of a
                  recent date for each Other Permitted Subsidiary from the
                  Secretary of State of (x) the jurisdiction in which each such
                  Other Permitted Subsidiary is formed and (y) each other
                  jurisdiction where such Other Permitted Subsidiary is
                  qualified to do business, in each case, dated as of a date not
                  more than 10 days prior to the Funding Date;

                           (iii)    a certificate of the Secretary or general
                  partner, as applicable, of each Other Permitted Subsidiary,
                  dated as of the Funding Date, certifying as to;

                                    (A)      the charter, certificate of
                           incorporation, articles of organization or
                           certificate of limited partnership, as applicable, of
                           such Other Permitted Subsidiary as in effect on the
                           Funding Date;

                                    (B)      the bylaws, operating agreement or
                           partnership agreement, as applicable, of such Other
                           Permitted Subsidiary as in effect on the Funding
                           Date;

                                    (C)      resolutions of the Board of
                           Directors, Board of Governors or general partner, as
                           applicable, of such Other Permitted Subsidiary
                           approving the Transaction Documents to which such
                           Other Permitted Subsidiary is a party, and of all
                           documents evidencing other necessary corporate or
                           organizational action and governmental approvals, if
                           any, with respect to the Transaction Documents; and

                                    (D)      the names and true signatures of
                           the officers of each such Other Permitted Subsidiary
                           or the general partner of such Other Permitted
                           Subsidiary, as applicable, authorized to sign the
                           Transaction Documents to which such Other Permitted
                           Subsidiary is a party and the other documents to be
                           delivered thereunder or hereunder.

                  (k)      Real Property Deliveries. Borrower shall have
delivered to Lender each of the following for each Facility:

                           (i)      The current owner's policy of title
                  insurance issued by a title company acceptable to Lender (the
                  "Title Company") showing good and indefeasible title to such
                  Facility in fee simple vested in the Property Owner for such
                  Facility and subject only to (x) liens for taxes, assessments
                  and governmental charges not yet past due and payable or
                  delinquent and (y) such other title exceptions as Lender may
                  approve, in its sole and absolute discretion. Such policy (the
                  "Title Policy"), when issued, shall:

                                    (A)      be in current ALTA extended
                           coverage owner's form (but without a general
                           exception for creditors' rights);

                                    (B)      be issued in an amount not less
                           than the value of such Facility, as set forth in the
                           Final Appraisals;

                                       30

<PAGE>

                                    (C)      include endorsements 100 (no
                           violations, etc., modified for an owner), 103.7
                           (access), 116.1 (survey accuracy), and 123.2
                           (zoning-improved property), and a non-imputation
                           endorsement or the equivalents thereof available in
                           the applicable State, and such other endorsements as
                           Lender may reasonably require; and

                                    (D)      insure (i) that any conditions,
                           covenants and restrictions affecting such Facility
                           have not been violated and that a future violation
                           thereof will not result in a forfeiture or reversion
                           of title; (ii) if obtainable, that all streets
                           adjoining such Facility have been completed,
                           dedicated and accepted for public maintenance and use
                           by the appropriate governmental authorities and that
                           such Facility have access to public streets; (iii)
                           that local zoning ordinances, general plans and all
                           other applicable land use regulations and all private
                           covenants, conditions and restrictions, if any,
                           permit the transfer and use of such Facility (and
                           reconstruction and resumption of use of such Facility
                           in the event of damage or destruction thereof or
                           cessation of use thereof) for all uses contemplated
                           by the Master Lease as a matter of right for an
                           unlimited time period, and specifically not merely as
                           a legal non-conforming use or any other legal status
                           which would by its terms or by operation of law limit
                           the duration of such use or the right to rebuild and
                           resume use of such Facility for all uses contemplated
                           by the Master Lease in the event of damage,
                           destruction or cessation of use of such Facility for
                           any reason; and (iv) over and against all parties in
                           possession except the current occupants thereof.

                           (ii)     either (x) a final "as-built" ALTA survey of
                  such Facility completed in accordance with the Minimum
                  Standard Detail requirements for ALTA/ACSM Land Title Surveys,
                  with additional Title A survey requirements, jointly
                  established and adopted by ALTA and ACSM in 1999 that meet the
                  requirements of a Class A Survey as defined therein, certified
                  within 90 days of the Funding Date or (y) such other form of
                  title survey which is in form and substance satisfactory to
                  Lender in its sole and absolute discretion. Such survey shall:

                                    (A)      be certified to Lender, Property
                           Owner and the Title Company as being true and
                           accurate, which such certification shall include the
                           acreage of such Facility and a statement that such
                           Facility is not located in a Flood Hazard Area;

                                    (B)      identify thereon all telephone,
                           water, sewage, electricity, gas and other utility
                           facilities to the points of connection; and

                                    (C)      show no encroachments onto or
                           conflicts with any adjacent property other than
                           pursuant to easements appurtenant to such Facility or
                           such other agreements with the affected landowner
                           approved by Lender and which are, in turn, insured
                           under the Title Policy;

                                       31

<PAGE>

                           (iii)    a final appraisal of such Facility,
                  performed by a firm selected or approved by Lender
                  (individually, a "Final Appraisal" and collectively, the
                  "Final Appraisals"), each such Appraisal to be in form and
                  substance satisfactory to Lender;

                           (iv)     copies of the First Mortgage Loan Documents
                  for such Facility, all such documents to be satisfactory to
                  Lender;

                           (v)      evidence satisfactory to Lender that the Ft.
                  Worth Facility is a separate legal lot or parcel; and

                           (vi)     information, satisfactory to Lender, with
                  respect to the amount of the real property taxes with respect
                  to the Ft. Worth Facility and any real property that is a part
                  of the same tax parcel as the Ft. Worth Facility.

                  (l)      HCPI Equity Investment. HCPI shall have purchased a
9.8% equity interest in the Property Owners (other than ARC Santa Catalina) and
a 9.8% equity interest in ARC SC Holdings for a cash amount of not less than
$12,250,000, which purchase shall be pursuant to that certain Contribution
Agreement dated as of the date hereof, which shall be in form and substance
satisfactory to Lender. Borrower, ARC SC Holdings and the Property Owners shall
have executed any and all documents, agreements and certificates required in
connection with the HCPI Equity Investment, and after giving effect to the HCPI
Equity Investment and the application of the proceeds from such HCPI Equity
Investment (each of which shall occur on the Funding Date prior to the funding
of the Loan), Borrower and HCPI shall be the only members of the Property Owners
(other than ARC Santa Catalina) and of ARC SC Holdings.

                  (m)      Health Care Licenses. With respect to each Facility,
Borrower shall have delivered to Lender with respect to such Facility evidence
satisfactory to Lender that (i) such Facility and/or the Property Operator for
such Facility holds all licenses, permits, accreditations, authorizations and
certifications from all applicable Governmental Authorities required for the
operation thereof for its Primary Intended Use and for all other uses (if any)
contemplated under the Master Lease, including the applicable licenses
(collectively, the "Health Care Licenses") from the Florida Agency for
Healthcare Administration, the Kentucky Cabinet for Health Services, the Texas
Department of Human Services, the Michigan Department of Consumer and Industry
Services, the Pennsylvania Department of Health, the Colorado Department of
Health and Environment and each other state authority having jurisdiction over
the Facilities (collectively, the "Issuing Agencies"); (ii) such Facility is not
subject to, or threatened with, any hold on admissions or other sanction and
there are no outstanding, or threatened, notices of deficiency resulting from
any survey of such Facility which have not been fully responded to with an
acceptable plan of correction with which such Facility is being operated in
compliance; and (iii) such Facility and/or the Property Operator for such
Facility is, to the extent applicable, (A) duly certified as a provider under
the Medicare and Medicaid programs and (B) in compliance in all material
respects with all Governmental Requirements, including rules and regulations
relating to Medicare/Medicaid fraud and abuse practices, and all insurance
requirements.

                                       32

<PAGE>

                  (n)      Condemnation; Casualty. No Condemnation shall be
pending or threatened with respect to any Facility and no casualty shall have
occurred with respect to any Facility or any portion thereof.

                  (o)      Financial Statements. Borrower shall have delivered
to Lender each of the following:

                           (i)      a copy of the unaudited financial statements
                  of ARC and its Subsidiaries on a consolidated basis for each
                  fiscal quarter ending after June 30, 2002 and more than 45
                  days prior to the Funding Date;

                           (ii)     a copy of the pro forma unaudited financial
                  statements of Borrower and its Subsidiaries on a consolidated
                  basis for each fiscal quarter ending after June 30, 2002 and
                  more than 45 days prior to the Funding Date;

                           (iii)    unaudited operating statements for each
                  Facility showing the Net Operating Income for such Facility
                  for the trailing twelve-month period ended December 31, 2001;
                  and

                           (iv)     unaudited operating statements for each
                  Facility showing the Net Operating Income for such Facility
                  for the trailing twelve month periods ended on the last day of
                  each month ending after July 2002 and more than 10 Business
                  Days prior to the Funding Date.

         (p)      Other Document Deliveries. Borrower shall have delivered to
Lender each of the following:

                           (i)      Written disclosure, for Lender's review, of
                  all pending or threatened litigation or governmental
                  proceedings seeking to enjoin, challenge or collect material
                  damages in connection with ARC, Borrower, any Subsidiary of
                  ARC or Borrower or any Facility;

                           (ii)     All documents evidencing or otherwise
                  related to the contributions of assets to the Property Owners
                  and the Property Operators, which documents shall be
                  satisfactory to Lender; and

                           (iii)    All documents, agreements and other
                  instruments executed in connection with the Funding Date
                  Restructuring Plan, which documents, agreements and other
                  instruments shall be reasonably satisfactory to Lender.

         (q)      Legal Opinions. Borrower shall have delivered to Lender each
of the following:

                           (i)      an opinion of Bass, Berry & Sims PLC,
                  counsel for Borrower and the other Loan Parties, in form and
                  substance satisfactory to Lender;

                                       33

<PAGE>

                           (ii)     an opinion, in form and substance
                  satisfactory to Lender, of New York counsel for Borrower and
                  the other Loan Parties, such counsel to be acceptable to
                  Lender;

                           (iii)    an opinion of special local counsel to each
                  Property Owner, in form and substance satisfactory to Lender;

                           (iv)     an opinion with respect to the Master Lease,
                  in form and substance satisfactory to Lender, of counsel for
                  each Property Owner and each Property Operator, such counsel
                  to be acceptable to Lender;

                           (v)      a substantive non-consolidation opinion
                  (with respect to substantive consolidation of Borrower or any
                  Property Owner with ARC) from Bass, Berry & Sims PLC, counsel
                  for Borrower and the other Loan Parties, in form and substance
                  satisfactory to Lender; and

                           (vi)     such other opinions as Lender may reasonably
                  request.

                  (r)      Governmental Consents. Each Loan Party and each
Property Operator shall have obtained all consents, approvals and authorizations
required from any Governmental Authority in connection with execution, delivery
and performance of their respective obligations under this Agreement and the
other Transaction Documents.

                  (s)      Insurance Coverage. Borrower shall have delivered to
Lender evidence that Borrower and each other Loan Party has in place the
insurance coverage required by this Agreement and that Lender, as Lender under
this Agreement, has been named an additional insured on all insurance policies
of Borrower or any of its Subsidiaries.

                  (t)      Corporate and Governmental Approvals. Borrower shall
have delivered to Lender all documents evidencing other necessary corporate
action and governmental approvals, if any, with respect to this Agreement, the
other Transaction Documents and the Collateral Documents.

                  (u)      Required Hedging Agreement. Borrower shall have
delivered Lender evidence reasonably satisfactory to Lender that Borrower has
purchased an interest rate cap agreement (the "Required Interest Hedge") from an
institution rated AA or better by S&P, such Required Interest Hedge to be for
the term of the Loan, and to provide for a maximum interest rate of 9.75% on the
principal amount of the GECC Loan.

                  (v)      Minimum Net Operating Income. The sum of the Net
Operating Income for all Facilities for the trailing twelve months ended as of
each month after June 30, 2002 and more than 10 days prior to the Funding Date
is not less than $31,600,000.

                  (w)      Occupancy and EBITDAR. The occupancy and the EBITDAR
of the Facilities, as a whole, must reasonably be within Reviewed Budget for the
one-month periods, and for the fiscal year-to-date periods, ending on the last
day of each calendar month ending after June 2002 and more than 10 days prior to
the Funding Date.

                                       34

<PAGE>

                  (x)      No Liability for Facility. Borrower shall have
delivered to Lender evidence that no Property Owner is subject to liability for
the operations at the Facility owned by such Property Owner.

                  (y)      Appraised Value. The aggregate appraised value of all
of the Facilities (as indicated in the Final Appraisals) shall be sufficient, in
Lender's opinion, to support and adequately secure the Loan.

                  (z)      Exchange Offer.

                           (i)      Pursuant to the Exchange Offer and the New
                  ARC Securities Documents, not less than 75% of the Old ARC
                  Debentures shall have been exchanged for the New ARC
                  Debentures as described in the Exchange Offer.

                           (ii)     The terms and conditions of the New ARC
                  Securities and all of the New ARC Securities Documents shall
                  be satisfactory to Lender.

                           (iii)    The aggregate principal amount of the New
                  Series A ARC Notes shall not exceed $105,920,286 and the
                  aggregate principal amount of the New Series B ARC Notes shall
                  not exceed $23,993,865.

                           (iv)     The New Series B ARC Notes shall (x) have a
                  maturity date that is not earlier than six months after the
                  Maturity Date, (y) not require any principal payments or
                  sinking fund payments prior to the date six months after the
                  Maturity Date and (z) have other terms and conditions
                  acceptable to Lender.

                  (aa)     New ARC Securities Documents. ARC shall have
delivered to Lender certified copies of all the New ARC Securities Documents.

                  (bb)     Refinancings. ARC shall have (i) completed, in a
manner satisfactory to Lender, each of the refinancing transactions set forth on
Schedule 3.2(bb) (collectively, the "Refinancing Transactions"); (ii) pursuant
to the Refinancing Transactions, refinanced or extended each of the loans on the
properties listed in Schedule 3.2(bb) so that the maturity date for each of such
loans shall be no earlier than December 31, 2003; (iii) sufficient Liquidity
(after giving effect to the funding of the Loan) to repay the old ARC Debentures
at maturity; and (iv) Liquidity (after giving effect to the funding of the Loan)
minus the principal amount of the old ARC Debentures outstanding after giving
effect to the Exchange Offer in an amount sufficient to pay the principal amount
of the old ARC Debentures plus interest thereon through and including the
maturity date thereof plus interest thereon through and including the maturity
date thereof shall be not less than $24,000,000.

                  (cc)     Escrow Deposit. Borrower shall have deposited the
proceeds of the Loan into an escrow account with a financial institution
satisfactory to Lender, and subject to an escrow agreement satisfactory to
Lender, which escrow agreement shall provide that such proceeds can be applied
solely to redeem the ARC Debentures.

                                       35

<PAGE>

                  (dd)     Somerby Purchase Option. ARC shall have either (i)
consummated a sale of the Somerby Purchase Option or (ii) contributed the
Somberby Purchase Option to Borrower in a manner and pursuant to documentation
satisfactory to Lender. Borrower shall have provided Lender a Lien on the
Sumerby Purchase Option pursuant to documentation acceptable to Lender.

                  (ee)     Termination of Retired Officers Right of First
Refusal. Borrower or Freedom Village Sun City shall have delivered an executed
agreement (in form and substance satisfactory to Lender) providing that if
Lender becomes the owner of Property Owner that owns the Facility operated by
Freedom Village Sun City, whether pursuant to a judicial foreclosure, a UCC
commercial sale, an assignment in lieu of either of the foregoing or otherwise
(i) the parties to the Retired Officers Documents shall have no further rights
under (x) the Retired Officers Right of Refusal (including any rights that may
have accrued as a result of Lender becoming such owner) or (y) any provision of
any of the other Retired Officers Documents which give Retired Officers
Corporation or Retired Officers Land Corporation any rights that are triggered
solely as a result of Lender becoming the owner of all of the equity interest in
any Property Owner or that would require any consent from Retired Officers
Corporation and/or Retired Officers Land Corporation and (ii) the Retired
Officers Right of First Refusal shall immediately, and without any further
action by any Person, terminate and be of no further force and effect.

                  (ff)     Amendment to HCPI Lease. Each of the parties thereto
shall have executed and delivered an amendment to the HCPI Lease, which
amendment shall be in form and substance satisfactory to Lender, (i) modifying
the conditions precedent to the exercise of the Post Oak Purchase Option; (ii)
providing that an Event of Default hereunder shall not, by itself, constitute an
event of default under the HCPI Lease and (iii) releasing the ARC guaranty of
the HCPI Lease.

                  (gg)     Reimbursement Obligation. To the extent that any
letter of credit has been issued to support an obligation of Borrower or any
Subsidiary of Borrower, Borrower or such Subsidiary shall either (i) have the
direct reimbursement obligation with respect to such letter of credit or (ii)
have an intercompany reimbursement agreement with the ARC Subsidiary that has
the direct reimbursement obligation with respect to such letter of credit, which
shall in each event be in form and substance satisfactory to Lender.

                  (hh)     Vehicle Sublease. Each Permitted Subsidiary which is
a lessee under the Enterprise Vehicle Master Lease, shall have executed a
Vehicle Sublease with ARC, as the sublessor, and such Permitted Subsidiary, as
the sublessee.

                  (ii)     Compliance with Zoning Laws. With respect to each
Facility, Borrower shall have delivered to Lender with respect to such Facility
(i) copies of the applicable zoning ordinances and map marked to show the
location of such Facility and certified by an appropriate Governmental Authority
to be complete and accurate, and (ii) evidence satisfactory to Lender that such
zoning ordinances and the general plans/specific plans and all other land use
regulations of the applicable municipal jurisdictions and all covenants,
conditions and restrictions, if any, affecting such Facility permit the transfer
of such Facility and use thereof for its Primary Intended Use and for all other
uses (if any) contemplated under the Master

                                       36

<PAGE>

Lease (and reconstruction and resumption of use in the event of damage,
destruction, or cessation of use) as a matter of right for an unlimited time
period and not merely as a legal non-conforming use.

                  (jj)     Officers Certificate. Borrower shall have delivered
to Lender a certificate dated as of the Closing Date and signed by the Chairman,
Chief Executive Officer or Chief Financial Officer of Borrower, certifying that,
as of the Funding Date, (w) the representations and warranties contained in this
Agreement and each of the other Transaction Documents are true and correct on
and as of the Funding Date, as though made on and as of such date; (x) no Event
of Default or Default has occurred and is continuing; (y) there has been no
Material Adverse Change; and (z) each of the other conditions precedent to the
Funding Date has been satisfied.

                  (kk)     Documents and other Evidence Satisfactory to Lender.
The documents, agreements and evidence deliver by Borrower to Lender pursuant to
Section 3.1 and Section 3.2 shall be satisfactory in all respects to Lender.

                                  ARTICLE IV.
                         REPRESENTATIONS AND WARRANTIES

         Section 4.1       Representations and Warranties of Borrower. Borrower
represents and warrants as follows:

                  (a)      Organization. Each of the Loan Parties and the
Property Operators is duly organized and in good standing under the laws of the
jurisdiction where such Loan Party or Property Operator, as the case may be, is
organized and is duly qualified to do business in each jurisdiction where the
absence of such qualification could have a Material Adverse Effect.

                  (b)      Power and Authority. Each of the Loan Parties and the
Property Operators has the corporate or other organizational power: (i) to carry
on its business as now being conducted and as proposed to be conducted by it;
(ii) to execute, deliver and perform each Transaction Document to which it is a
party; and (iii) to take all action as may be necessary to consummate the
transactions contemplated thereunder.

                  (c)      Due Authorization. The execution, delivery and
performance by:

                           (i)      each of the Loan Parties of each Transaction
                  Document to which it is a party have been duly authorized by
                  all necessary corporate or other organizational action, and do
                  not contravene (A) such Loan Party's charter or bylaws or
                  other organizational documents or (B) any law or any
                  contractual restriction binding on or affecting such Loan
                  Party, and do not result in or require the creation of any
                  Lien upon or with respect to any of its respective properties
                  (other than Liens created pursuant to the Collateral
                  Documents);

                           (ii)     each of the Property Operators of each
                  Transaction Document to which it is a party have been duly
                  authorized by all necessary corporate or other organizational
                  action, and do not contravene (A) such Property Operator's

                                       37

<PAGE>

                  charter or bylaws or other organizational documents or (B) any
                  law or any contractual restriction binding on or affecting
                  such Property Operator, and do not result in or require the
                  creation of any Lien upon or with respect to any of its
                  respective properties.

                  (d)      Binding and Enforceable. This Agreement and each
other Transaction Document to which any Loan Party is a party has been duly
executed and delivered by such Loan Party and is a legally valid and binding
obligation of each such Loan Party enforceable against each such Loan Party in
accordance with its respective terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally and subject to the
availability of equitable remedies. Each Transaction Document to which any
Property Operator is a party has been duly executed and delivered by such
Property Operator and is a legally valid and binding obligation of each such
Property Operator enforceable against each such Property Operator in accordance
with its respective terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors' rights generally and subject to the availability of
equitable remedies.

                  (e)      Subsidiaries. Except as set forth in Part A of
Schedule 4.1(e), there are no direct or indirect Subsidiaries of Borrower on the
Closing Date. As of the Funding Date, Borrower owns directly or indirectly only
the following Subsidiaries and Investments (collectively, the "Permitted
Subsidiaries"):

                           (i)      the Property Owners;

                           (ii)     the Property Operators;

                           (iii)    the HCPI Lessees;

                           (iv)     the ARC General Partners;

                           (v)      the ARC Equity Owners;

                           (vi)     ARC SC Holdings;

                           (vii)    ARC Wilora Lake;

                           (viii)   ARC Wilora Assisted Living; and

                           (ix)     the ARC Fleetwood Entities.

Part B of Schedule 4.1(e) sets forth the ownership interests in each of the
Permitted Subsidiaries as of the Funding Date after giving effect to the HCPI
Equity Investment.

                  (f)      No Indebtedness. On the Closing Date, neither
Borrower nor any Subsidiary of Borrower is subject to any Indebtedness other
than Indebtedness identified on Schedule 4.1(f) and the Contingent Obligations
on Schedule 5.4(c). From and after the Closing

                                       38

<PAGE>

Date, neither Borrower nor any Subsidiary of Borrower is subject to any
Indebtedness other than Indebtedness permitted pursuant to Section 5.4(b).

                  (g)      No Liens. As of the Closing Date, there are no Liens
on assets of Borrower or any Subsidiary of Borrower, other than Liens securing
Indebtedness identified on Schedule 4.1(g). From and after the Closing Date,
there are no Liens on assets of Borrower or any Subsidiary of Borrower, other
than Liens permitted pursuant to Section 5.4(a).

                  (h)      No Defaults. No Default or Event of Default has
occurred and is continuing.

                  (i)      No Conflicts or Restrictions. The execution, delivery
and performance by each Loan Party and each Property Operator of each of the
Transaction Documents to which it is a party do not and will not (i) conflict
with, result in a breach of, or constitute (with or without notice or the lapse
of time or both) a default under, any material agreement, document or other
instrument of any Loan Party or Property Operator, as the case may be, or
binding on any Loan Party or Property Operator, as the case may be, or any
property of any Loan Party or Property Operator, as the case may be; or (ii)
result in or require the creation or imposition of any Lien upon any of the
property or assets of any Loan Party or Property Operator, as the case may be,
(other than Liens created pursuant to the Collateral Documents).

                  (j)      Governmental Approval. Except for those listed on
Schedule 4.1(j) (each of which has been duly obtained or made and is in full
force and effect), no authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority is required for the due
execution, delivery and performance by each Loan Party and each Property
Operator of any Transaction Document to which it is or will be a party.

                  (k)      Litigation. There is no pending or overtly threatened
action or proceeding affecting ARC or any Subsidiaries of ARC or Borrower or any
Subsidiaries of Borrower before any Governmental Authority which could
reasonably be expected to have a Material Adverse Effect or which purports to
affect the legality, validity or enforceability of this Agreement or any other
Transaction Document to which any Loan Party or any Property Operator is or will
be a party.

                  (l)      Financial Information. The financial statements
delivered to Lender pursuant to Section 3.1(g) and Section 3.2(p) and each of
the subsequent financial statements delivered to the Lender pursuant to Section
5.2(a), Section 5.2(b) or Section 5.2(c) fairly present the financial condition
of Borrower and its Subsidiaries or ARC and its Subsidiaries, as the case may
be, as at the date of such financial statements and the results of the
operations of Borrower and its Subsidiaries or ARC and its Subsidiaries, as the
case may be, for the period ended on such date, all in accordance with GAAP
consistently applied except, in the case of financial statements delivered
pursuant to Section 3.1(g)(ii), (iii), (iv), (v) or (vi) or Section 3.2(p)(i),
(ii), (iii), or (iv) or Section 5.2(a), Section 5.2(b) or Section 5.2(c)(iii),
(iv) or (v), for year-end adjustments and the lack of footnotes.

                  (m)      Material Adverse Change. There has been no Material
Adverse Change.

                                       39

<PAGE>

                  (n)      Compliance. Each Loan Party and each Property
Operator is in compliance in all material respects with all applicable laws,
rules, regulations.

                  (o)      Payment of Taxes. Borrower and each of its
Subsidiaries and ARC and each of its Subsidiaries have timely and accurately
filed all federal income tax returns and all other tax returns required to be
filed by each of them and have timely paid all taxes and assessments payable by
each of them which have become due, except to the extent that such taxes or
assessments are being contested in good faith by appropriate proceedings
diligently pursued, and as to which Borrower or its Subsidiaries or ARC and its
Subsidiaries, as the case may be, have established reserves acceptable to
Lender.

                  (p)      Security Interests. The provisions of each of the
Collateral Documents are effective to create in favor of Lender legal, valid,
and enforceable security interests in all right, title and interest of Borrower
in the Collateral described therein and Borrower has taken all action necessary
to perfect such security interests, to the extent they can be perfected by
delivery in pledge to Lender or by the filing of a financing statement.

                  (q)      Title to Property. Borrower, each Loan Party and each
Property Operator has good and indefeasible title to all properties reflected in
its books and records as being owned by each of them, free and clear of all
Liens other than Liens permitted pursuant to Section 5.4(a).

                  (r)      Real Property Matters.

                           (i)      Schedule 4.1(r) sets forth each Fee Estate
                  and each Leasehold Estate owned by Borrower or any Subsidiary
                  of Borrower. Part A of such Schedule 4.1(r) sets forth the
                  ownership in the Real Property as of the Closing Date. Part B
                  of such Schedule 4.1(r) sets forth the ownership in the Real
                  Property as of the Funding Date after giving effect to the
                  HCPI Equity Investment.

                           (ii)     Current local zoning ordinances, general
                  plans and other applicable land use regulations and all
                  private covenants, conditions and restrictions, if any,
                  affecting the Facilities, permit the use of the Facilities for
                  their Primary Intended Use (and reconstruction and resumption
                  of use in the event of damage, destruction, or cessation of
                  use) as a matter of right for an unlimited time period and not
                  merely as a legal non-conforming use.

                           (iii)    The Property Owner and/or Property Operator
                  for each Facility has obtained all material consents, permits,
                  licenses approvals or authorizations from Governmental
                  Authorities or other third parties which are necessary to
                  permit the use of such Facility for its Primary Intended Use
                  and for all uses contemplated under the Master Lease (if any),
                  and each Facility is in substantial compliance with all
                  applicable zoning ordinances.

                           (iv)     Each Property Operator's Medicare and
                  Medicaid participation agreements, if any, are in full force
                  and effect and no action has been taken to

                                       40

<PAGE>

                  revoke, cancel, suspend or modify any of such agreements; each
                  Property Operator's material provider contracts, if any,
                  including managed care contracts, are in full force and effect
                  and no action has been taken to revoke, cancel, suspend or
                  modify any such agreement, nor is there any basis for such
                  action; and reimbursement pursuant to the Medicare and
                  Medicaid participation agreements, if any, and any material
                  provider contract will not be adversely affected as a result
                  of the transactions contemplated hereby.

                           (v)      No Facility is located within an area of
                  special risk with respect to natural or man-made disasters or
                  hazards, including any Flood Hazard Area.

                           (vi)     There are no material adverse geological or
                  soil conditions affecting any Facility.

                           (vii)    All public utilities, including telephone,
                  gas, electric power, sanitary and storm sewer and water, are
                  available for connection at the boundaries of each Facility;
                  such utilities are adequate for the Primary Intended Use of
                  such Facility; and the means of ingress and egress, parking,
                  access to public streets and drainage facilities are adequate
                  for the Primary Intended Use of such Facility.

                           (viii)   Each Facility is a legal lot or parcel which
                  for all purposes may be mortgaged, conveyed and otherwise
                  dealt with as a separate parcel and taxed as a separate lot or
                  parcel; provided that (x) as of the Closing Date the real
                  property on which the Ft. Worth Facility is located is not a
                  separate legal lot or parcel, but can still be mortgaged,
                  conveyed and otherwise dealt with in all respects as if it
                  were a separate legal lot or parcel and (y) from and after the
                  Funding Date the Ft. Worth Facility shall include all real
                  property that is a part of the legal lot or parcel on which
                  the Ft. Worth Facility is located.

                           (ix)     No exception to title to and no interest in
                  any Facility will interfere in any material respect with the
                  use of the Leased Property for its Primary Intended Use.

                           (x)      The real property tax assessor's parcel
                  numbers for each Facility is as set forth on Schedule 4.1(r)

                           (xi)     Neither Borrower, any Subsidiary of Borrower
                  nor any Affiliate of Borrower have any interest in any
                  contiguous or adjacent property to any Facility other than
                  such property that is subject to a non compete agreement
                  acceptable to Lender.

                  (s)      Conduct of Business. Borrower and each Subsidiary of
Borrower is in compliance with Section 5.4(g).

                                       41

<PAGE>

                  (t)      Investment Company. Neither Borrower nor any other
Loan Party is an "investment company" or a company "controlled" by and
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.

                  (u)      Margin Stock. Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System), and no proceeds of the Loan will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.

                  (v)      Registration of the Note. It is not necessary to
register the Note under the Securities Act of 1933, as amended, or to qualify
this Agreement as an indenture under the Trust Indenture Act of 1939, as
amended.

                  (w)      Environmental Laws. Except as set forth in the
reports set forth on Schedule 4.1(w).

                           (i)      Borrower and its Subsidiaries have complied
                  in all material respects with all Environmental Laws and
                  neither Borrower nor any Subsidiary nor any of its presently
                  owned Real Property or presently conducted operations, nor its
                  previously owned Real Property or prior operations, is subject
                  to any current enforcement order from or liability agreement
                  with any Governmental Authority or private Person respecting
                  (x) compliance with any Environmental Law or (y) any potential
                  liabilities and costs or remedial action arising from the
                  Release or threatened Release of a Hazardous Substance.

                           (ii)     Borrower and its Subsidiaries have obtained
                  all material permits necessary for their current operations
                  under Environmental Laws, and all such permits are in good
                  standing and Borrower and its Subsidiaries are in substantial
                  compliance with all terms and conditions of such permits.

                           (iii)    Neither Borrower nor any of its
                  Subsidiaries, nor, to the best knowledge of Borrower, any
                  predecessors in interest, has in violation of applicable law
                  stored, treated or disposed of any hazardous waste.

                           (iv)     Neither Borrower nor any of its Subsidiaries
                  has received any summons, complaint, order or similar written
                  notice indicating that it is not currently in compliance with,
                  or that any Governmental Authority is investigating its
                  compliance with, any Environmental Laws or that it is or may
                  be liable to any other Person as a result of a Release or
                  threatened Release of a Hazardous Substance.

                           (v)      To the knowledge of Borrower, none of the
                  present or past operations of Borrower and its Subsidiaries is
                  the subject of any pending or threatened investigation by any
                  Governmental Authority evaluating whether any remedial action
                  is needed to respond to a Release or threatened Release of a
                  Hazardous Substance.

                                       42

<PAGE>

                           (vi)     There is not now, nor to the best knowledge
                  of Borrower has there ever been, on or in the Real Property
                  owned or operated by Borrower or any of its Subsidiaries:

                                    (A)      any underground storage tanks other
                           than those maintained and/or closed in compliance in
                           all material respects with applicable laws or surface
                           impoundments,

                                    (B)      any asbestos-containing material
                           that is friable, except such as has been removed or
                           encapsulated in compliance in all material respects
                           with Environmental Laws, or

                                    (C)      any polychlorinated biphenyls
                           (PCBs) used in hydraulic oils, electrical
                           transformers or other equipment, other than those
                           maintained in compliance in all material respects
                           with Environmental Laws.

                           (vii)    Neither Borrower nor any of its Subsidiaries
                  has filed any notice under any requirement of Environmental
                  Law reporting a spill or accidental and unpermitted Release or
                  discharge of a Hazardous Substance into the environment.

                           (viii)   Neither Borrower nor any of its Subsidiaries
                  has entered into any negotiations or settlement agreements
                  with any Person (including the prior owner of its property)
                  imposing material obligations or liabilities on Borrower or
                  any of its Subsidiaries with respect to any remedial action in
                  response to the Release of a Hazardous Substance or
                  environmentally related claim.

                           (ix)     No Environmental Lien has attached to the
                  Real Property owned or operated by Borrower or any of its
                  Subsidiaries.

                  (x)      ERISA Compliance.

                           (i)      Each Plan is in compliance in all material
                  respects with the applicable provisions of ERISA, the Code and
                  other federal or state law. Each Plan which is intended to
                  qualify under Section 401(a) of the Code either (i) has
                  received a favorable determination letter from the IRS or (ii)
                  uses a standardized prototype document, which prototype
                  document is subject to a determination letter from the IRS,
                  and, in each case, to the best knowledge of Borrower, nothing
                  has occurred with respect to any such Plan which would cause
                  the disqualification of such Plan. Borrower and each ERISA
                  Affiliate has made all required contributions to any Plan
                  subject to Section 412 of the Code, and no application for a
                  funding waiver or an extension of any amortization period
                  pursuant to Section 412 of the Code has been made with respect
                  to any Plan.

                           (ii)     There are no pending or, to the best
                  knowledge of Borrower, threatened claims, actions or lawsuits,
                  or action by any Governmental Authority,

                                       43

<PAGE>

                  with respect to any Plan. There has been no prohibited
                  transaction or violation of the fiduciary responsibility rules
                  with respect to any Plan.

                           (iii)    (A) No ERISA Event has occurred or is
                  reasonably expected to occur; (B) no Pension Plan has any
                  Unfunded Pension Liability; (C) neither Borrower nor any ERISA
                  Affiliate has incurred, or reasonably expects to incur, any
                  liability under Title IV of ERISA with respect to any Pension
                  Plan (other than premiums due and not delinquent under Section
                  4007 of ERISA); (D) neither Borrower nor any ERISA Affiliate
                  has incurred, or reasonably expects to incur, any liability
                  (and no event has occurred which, with the giving of notice
                  under Section 4219 of ERISA, would result in such liability)
                  under Section 4201 or 4243 of ERISA with respect to a
                  Multi-Employer Plan; and (E) neither Borrower nor any ERISA
                  Affiliate has engaged in a transaction that could be subject
                  to Section 4069 or 4212(c) of ERISA.

                  (y)      Restrictions on Dividends. Except for restrictions
contained in (i) the governing documents of each Permitted Subsidiary (other
than the Fleetwood Entities) delivered to Lender pursuant to Section 3.2(h),
3.2(i) or 3.2 (j); (ii) the governing documents of an HCPI Lessee as of the
Closing Date or (iii) the First Mortgage Loan Documents, no Subsidiary of
Borrower is subject to any agreement which restricts the ability of such
Subsidiary of Borrower to declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities to
its stockholders or other equity owners or to make any loan or advance to
Borrower or any other Subsidiary of Borrower.

                  (z)      Solvency. Each Loan Party and each Property Operator
is, and upon the incurrence of any Obligations by such Loan Party or Property
Operator, as the case may be, will be, Solvent.

                  (aa)     Labor Disputes. Except as set forth on Schedule
4.1(aa), (i) there is no collective bargaining agreement or other labor contract
covering employees of Borrower or any of its Subsidiaries, (ii) no such
collective bargaining agreement or other labor contract is scheduled to expire
during the term of this Agreement, (iii) no union or other labor organization is
seeking to organize, or to be recognized as, a collective bargaining unit of
employees of Borrower or any of its Subsidiaries or for any similar purpose, and
(iv) there is no pending or (to the best knowledge of the Borrower) threatened,
strike, work stoppage, material unfair labor practice claim, or other material
labor dispute against or affecting Borrower or its Subsidiaries or their
employees.

                  (bb)     Master Lease Document Default. No Property Owner or
Property Operator is in default of any provision of any Master Lease Document.

                  (cc)     Full Disclosure. None of the representations or
warranties made by Borrower or any Subsidiary in the Transaction Documents as of
the date such representations and warranties are made or deemed made, and none
of the statements contained in any exhibit, report, statement or certificate
furnished by or on behalf of Borrower or any Subsidiary in connection with the
Transaction Documents, contains any untrue statement of a material fact or omits
any material fact required to be stated therein or necessary to make the
statements made

                                       44

<PAGE>

therein, in light of the circumstances under which they are made, not misleading
as of the time when made or delivered.

                  (dd)     Health Care Permits.

                           (i)      Each Property Operator now has, and has no
                  reason to believe it will not be able to maintain in effect,
                  all Health Care Permits necessary for the lawful conduct of
                  its business or operations wherever now conducted and as
                  planned to be conducted, including the operation of the
                  Facility or Facilities operated by such Property Operator,
                  pursuant to all applicable laws, of all Governmental
                  Authorities having jurisdiction over such Property Operator or
                  over any part of its operations. All such Health Care Permits
                  are in full force and effect and have not been amended or
                  otherwise modified, rescinded, revoked or assigned. No
                  Property Operator is in default in any material respect under,
                  or in violation in any material respect of, any such Health
                  Care Permit, and to the best knowledge of Borrower, no event
                  has occurred, and no condition exists, which, with the giving
                  of notice, the passage of time, or both, could constitute a
                  default thereunder or a violation thereof, which default or
                  violation would (with the passage of time, notice or both)
                  result in the loss of any Health Care Permit which is
                  necessary to operate any Facility. Neither Borrower, any
                  Property Owner or any Property Operator, has received any
                  notice of any violation of applicable laws which could (with
                  the passage of time, notice or both) cause any of such Health
                  Care Permits to be modified, rescinded or revoked. No
                  condition exists or event has occurred which in itself or with
                  the giving of notice or the lapse of time, or both, could
                  result in the suspension, revocation, impairment, forfeiture
                  or non-renewal of any such Health Care Permit, and to the best
                  knowledge of Borrower, there is no claim challenging the
                  validity of any such Health Care Permit. The continuation,
                  validity and effectiveness of all such Health Care Permits are
                  not reasonably expected to be in any way adversely affected by
                  the transactions contemplated by this Agreement or any of the
                  other Transaction Documents.

                           (ii)     All Facilities are entitled to participate
                  in, and receive payment under, the appropriate Medicare,
                  Medicaid and related reimbursement programs, and any similar
                  state or local government-sponsored program, to the extent
                  that any Property Operator has decided to participate in any
                  such program, and to receive reimbursement from private and
                  commercial payers and health maintenance organizations to the
                  extent applicable thereto.

                  (ee)     Compliance with Legal Requirements. Each Property
Owner, each Property Operator and each Facility (i) is in compliance with
requirements of any Governmental Authority applicable to such Property Owner,
such Property Operator and/or such Facility, as the case may be, including
compliance with all permits, licenses and conditional use permits applicable to
such Property Owner, such Property Operator and/or such Facility, as the case
may be; and (ii) all insurance requirements applicable to such Property Owner,
such Property Operator and/or such Facility, as the case may be.

                                       45

<PAGE>

                  (ff)     Retired Officers Documents. Neither Borrower nor any
Subsidiary of Borrower has any agreement with Retired Officers Corporation or
Retired Officers Land Corporation other than the Retired Officers Documents, and
the agreement or agreements entered into in satisfaction of the requirements of
Section 3.2(ee).

                                   ARTICLE V.
                              COVENANTS OF BORROWER

         Section 5.1       Financial Covenants. So long as any Obligation (other
than an Unmatured Surviving Obligation) shall remain unpaid, unless Lender shall
otherwise consent in writing, Borrower will:

                  (a)      First Mortgage Outstanding Principal Amount. (x) Pay
down or cause the Property Owners to pay down the principal amount of the First
Mortgage Loans and/or (y) make deposits into the Sinking Fund Reserve Account so
that as of each date set forth below the outstanding principal amount of the
First Mortgage Loans on such date minus the then balance of the Sinking Fund
Reserve Account on such date is less than or equal to the amount set forth
opposite such date in the following table:

<TABLE>
<CAPTION>
                                Date                  Amount
                                ----                  ------
<S>                                                <C>
                         September 30, 2002        $170,951,143
                         December 31, 2002         $169,332,893
                         March 31, 2003            $167,714,643
                         June 30, 2003             $166,096,393
                         September 30, 2003        $164,478,143
                         December 31, 2003         $162,859,893
                         March 31, 2004            $161,241,643
                         June 30, 2004             $159,623,393
                         September 30, 2004        $158,005,143
                         December 31, 2004         $156,386,893
                         March 31, 2005            $154,768,643
                         June 30, 2005             $153,150,393
                         September 30, 2005        $151,532,143
                         December 31, 2005         $149,913,893
                         March 31, 2006            $148,295,643
                         June 30, 2006             $146,677,393
                         September 30, 2006        $145,059,143
                         December 31, 2006         $143,440,893
                         March 31, 2007            $141,822,643
                         June 30, 2007             $140,204,393
                         September 30, 2007        $138,586,143
</TABLE>

                                       46

<PAGE>

                  (b)      Minimum Operating Income. Maintain a Net Operating
Income, determined for each period identified in the table set forth below as of
the last day of such period, in an amount not less than the amount set forth in
the following table for such period:

<TABLE>
<CAPTION>
             Period                          Minimum Operating Income
             ------                          -------------------------
<S>                                          <C>
Four fiscal quarter period ending on               $31,600,000
the last day of each fiscal quarter
ending after the Closing Date and on
or prior to June 30, 2005

One fiscal quarter period ending on                $ 8,474,400
the last day of each fiscal quarter
ending after June 30, 2005 and on or
prior to June 30, 2006

One fiscal quarter period ending on                $ 8,672,400
the last day of each fiscal quarter
ending after June 30, 2006 and on or
prior to June 30, 2007
</TABLE>

                  (c)      Minimum Debt Service Coverage Ratio. Maintain a Debt
Service Coverage Ratio, determined as of the last day of each fiscal quarter, at
an amount not less than the amount set forth in the following table for the
applicable period:

<TABLE>
<CAPTION>
     Quarter Ended During Period                 Minimum Debt Service Coverage Ratio
     ---------------------------                 -----------------------------------
<S>                                              <C>
From Closing Date through June 30, 2003                        1.04
From July 1, 2003 through June 30, 2004                        1.05
From July 1, 2004 through June 30, 2005                        1.07
From July 1, 2005 through June 30, 2006                        1.14
From July 1, 2006 through June 30, 2007                        1.17
</TABLE>

                  (d)      Maximum Accounts Payable Period. Aggregate accounts
payable for Borrower and its Subsidiaries must be no more than 45 days old,
excluding any accounts payable being disputed in good faith.

         Section 5.2       Reporting Covenants. So long as any Obligation (other
than an Unmatured Surviving Obligation) shall remain unpaid, unless Lender shall
otherwise consent in writing, Borrower will, and will cause its Subsidiaries to
deliver to Lender:

                  (a)      Monthly Statements. As soon as available, and in any
event within 10 Business Days after the end of each fiscal month of Borrower:

                           (i)      the unaudited consolidated financial
                  statements of Borrower and its Subsidiaries and of ARC and its
                  Subsidiaries (including, for each, a balance sheet as of the
                  end of such fiscal month and a statement of income and
                  retained

                                       47

<PAGE>

                  earnings for such month and for the period commencing at the
                  end of the previous fiscal year and ending with the end of
                  such month), and, in the case of each statement of income,
                  setting forth comparable figures for the related periods in
                  the prior fiscal year and comparable budgeted figures for such
                  period, all of which shall be certified by the chief financial
                  officer of Borrower or ARC, as the case may be, subject to
                  normal year-end adjustments;

                           (ii)     An operating statement for such month for
                  each Property Owner;

                           (iii)    An operating statement for such month for
                  each Property Operator; and

                           (iv)     An operating statement for such month for
                  each HCPI Lessee.

         At the request of Lender, not later than 5 Business Days after delivery
         by Borrower of the statements referred to in this Section 5(a) shall
         arrange for a conference by the management of ARC to provide Lender a
         detailed briefing of the operations and activities of ARC and its
         Subsidiaries.

                  (b)      Quarterly Financial Statements. As soon as available,
and in any event within 45 days (90 days for the final fiscal quarter in each
fiscal year) after the end of each fiscal quarter of Borrower:

                           (i)      the unaudited consolidated financial
                  statements of Borrower and its Subsidiaries and of ARC and its
                  Subsidiaries (including, for each, a balance sheet as of the
                  end of such fiscal quarter, a statement of income and retained
                  earnings for such quarter and for the period commencing at the
                  end of the previous fiscal year and ending with the end of
                  such quarter and a cash flow statement for such quarter and
                  for the period commencing at the end of the previous calendar
                  year and ending with the end of such quarter), and, in the
                  case of each statement of income, setting forth comparable
                  figures for the related periods in the prior fiscal year and
                  comparable budgeted figures for such period, all of which
                  shall be certified by the chief financial officer of Borrower
                  or ARC, as the case may be, subject to normal year-end
                  adjustments;

                           (ii)     An operating statement for such quarter for
                  each Property Owner;

                           (iii)    An operating statement for such quarter for
                  each Property Operator; and

                           (iv)     An operating statement for such quarter for
                  each HCPI Lessee.

                  (c)      Annual Financial Statements. As soon as available,
and in any event within 90 days after the end of each fiscal year of Borrower:

                           (i)      the consolidated financial statements of
                  Borrower and its Subsidiaries and of ARC and its Subsidiaries
                  (including, for each, a balance

                                       48

<PAGE>

                  sheet as of the end of such fiscal year, a statement of income
                  and retained earnings for such year and for the period
                  commencing at the end of the previous fiscal year and ending
                  with the end of such year and a cash flow statement for such
                  year and for the period commencing at the end of the previous
                  calendar year and ending with the end of such year), and, in
                  the case of each statement of income, setting forth comparable
                  figures for the related periods in the prior fiscal year, all
                  of which shall be certified by KPMG LLP or other independent
                  public accountants acceptable to Lender, together with an
                  unqualified opinion of such accounting firm;

                           (ii)     for each statement of income delivered
                  pursuant to Section 5.2(c)(i), a statement setting forth
                  comparable budget figures for the applicable period;

                           (iii)    An operating statement for such year for
                  each Property Owner;

                           (iv)     An operating statement for such year for
                  each Property Operator; and

                           (v)      An operating statement for such year for
                  each HCPI Lessee.

                  (d)      Annual Budgets. As soon as available and in any event
within 30 days prior to the beginning of each fiscal year of Borrower, an
operating and capital budget for Borrower and its Subsidiaries and for ARC and
its Subsidiaries for such fiscal year; including, for each, a budgeted balance
sheet, statement of income and retained earnings and a cash flow statement for
such fiscal year and any such budget will be promptly updated and such update
delivered to Lender upon the occurrence of any material change to the budget or
to any of the assumptions made in preparing the budget.

                  (e)      Census Reports. As soon as available, and in any
event not later than 5 Business Days after the end of every other week
commencing with the week ended August 24, 2002, biweekly census reports for each
facility for ARC and its Subsidiaries.

                  (f)      Compliance Certificate. Together with the financial
statements delivered pursuant to Section 5.2(a), Section 5.2(b) or Section
5.2(c) each of the following:

                           (i)      a Separateness Covenant Certificate of an
                  Authorized Officer of Borrower in his or her capacity as an
                  officer (and not as an individual) and in substantially the
                  form of Exhibit F (the "Separateness Covenant Certificate"),
                  stating that, to the best of such officer's knowledge, during
                  such period, Borrower and each Subsidiary (other than the ARC
                  Fleetwood Entities) has observed or performed all of its
                  covenants and other agreements set forth in Section 5.3(o) and
                  Section 5.4(n); and

                           (ii)     a Compliance Certificate of an Authorized
                  Officer of Borrower in his or her capacity as an officer (and
                  not as an individual) and in substantially the form of Exhibit
                  G (the "Compliance Certificate"), stating that, to the best of

                                       49

<PAGE>

                  such officer's knowledge, during such period, each Loan Party
                  has observed or performed all of its covenants and other
                  agreements, and satisfied every condition contained in this
                  Agreement and all other Transaction Documents to be observed,
                  performed or satisfied by them, and that such officer has
                  obtained no knowledge of any Default or Event of Default
                  except as set forth in a notice delivered pursuant to Section
                  5.2(j).

                  (g)      Change of Name or Location. Any change in any Loan
Party's name, state of organization, locations of Collateral, or form of
organization, trade names under which it does business, in each case at least 30
days prior thereto.

                  (h)      Management Letter. As soon as available and in any
event within 15 days of receipt thereof, a copy of each management report and
management letter prepared for ARC, Borrower or any Subsidiary of Borrower by
any independent certified public accountants.

                  (i)      Tax Returns. Promptly after filing with the IRS, a
copy of each income tax return filed by ARC, Borrower or any Subsidiary of
Borrower.

                  (j)      Notice of Default. As soon as possible and in any
event within 10 Business Days after obtaining knowledge of each Default or Event
of Default continuing on the date of such statement, a statement of an
Authorized Officer of Borrower setting forth details of such Default or Event of
Default and the action which Borrower has taken and proposes to take with
respect thereto.

                  (k)      Notice of Litigation. As soon as possible and in any
event within 10 days of obtaining knowledge of the commencement of any action or
proceeding affecting ARC, Borrower or any of their respective Subsidiaries
before any court, governmental agency or arbitrator, which, if decided adversely
could reasonably be expected to have a Material Adverse Effect or which purports
to affect the legality, validity or enforceability of this Agreement or any
other Transaction Document to which any Loan Party or any Property Operator is a
party.

                  (l)      Security Holder Materials and SEC Filings. Promptly
after the sending or filing thereof, and in any event within 10 Business Days
after such sending or filing, copies of all reports which ARC or Borrower sends
to any of its security holders, and copies of all reports and registration
statements which ARC, Borrower or any Subsidiary of ARC or Borrower files with
the Securities and Exchange Commission or any national securities exchange.

                  (m)      ERISA Notices.

                           (i)      Within 10 Business Days after Borrower or
                  any ERISA Affiliate knows or has reason to know, that an ERISA
                  Event or a prohibited transaction (as defined in Sections 406
                  of ERISA and 4975 of the Code) has occurred, and, when known,
                  any action taken or threatened by the IRS, the DOL or the PBGC
                  with respect thereto.

                                       50

<PAGE>

                           (ii)     Upon request, or, in the event that such
                  filing reflects a significant change with respect to the
                  matters covered thereby, within 3 Business Days after the
                  filing thereof with the PBGC, the DOL or the IRS, as
                  applicable, copies of the following: (A) each annual report
                  (form 5500 series), including Schedule B thereto, filed with
                  the PBGC, the DOL or the IRS with respect to each Plan, (B) a
                  copy of each funding waiver request filed with the PBGC, the
                  DOL or the IRS with respect to any Plan and all communications
                  received by Borrower or any ERISA Affiliate from the PBGC, the
                  DOL or the IRS with respect to such request, and (C) a copy of
                  each other filing or notice filed with the PBGC, the DOL or
                  the IRS, with respect to each Plan by either Borrower or any
                  ERISA Affiliate.

                           (iii)    Upon request, copies of each actuarial
                  report for any Plan or Multi-Employer Plan and annual report
                  for any Multi-Employer Plan; and within 3 Business Days after
                  receipt thereof by Borrower or any ERISA Affiliate, copies of
                  the following: (A) any notices of the PBGC's intention to
                  terminate a Plan or to have a trustee appointed to administer
                  such Plan; (B) any favorable or unfavorable determination
                  letter from the IRS regarding the qualification of a Plan
                  under Section 401(a) of the Code; or (C) any notice from a
                  Multi-Employer Plan regarding the imposition of withdrawal
                  liability.

                           (iv)     Within 3 Business Days after the occurrence
                  thereof: (A) any changes in the benefits of any existing Plan
                  which materially increase the annual costs of Borrower and its
                  Subsidiaries with respect thereto or the establishment of any
                  new Plan or the commencement of contributions to any Plan to
                  which Borrower or any ERISA Affiliate was not previously
                  contributing; or (B) any failure by Borrower or any ERISA
                  Affiliate to make a required installment or any other required
                  payment under Section 412 of the Code on or before the due
                  date for such installment or payment.

                           (v)      Within 3 Business Days after Borrower or any
                  ERISA Affiliate knows or has reason to know that any of the
                  following events has or will occur: (A) a Multi-Employer Plan
                  has been or will be terminated; (B) the administrator or plan
                  sponsor of a Multi-Employer Plan intends to terminate a
                  Multi-Employer Plan; or (C) the PBGC has instituted or will
                  institute proceedings under Section 4042 of ERISA to terminate
                  a Multi-Employer Plan.

                  (n)      Environmental Notices. Promptly after receipt of:

                           (i)      Any notice of any violation by ARC, Borrower
                  or any Subsidiary of ARC or Borrower of any Environmental Law
                  which could reasonably be expected to have a Material Adverse
                  Effect or that any Governmental Authority has asserted in
                  writing that ARC, Borrower or any Subsidiary of ARC or
                  Borrower is not in compliance in any material respect with any
                  Environmental Law or is investigating the compliance with any
                  Environmental Law by ARC, Borrower or any Subsidiary of ARC or
                  Borrower.

                                       51

<PAGE>
                           (ii)     Any written notice that ARC, Borrower or any
                  Subsidiary of ARC or Borrower is or may be liable to any
                  Person as a result of the Release or threatened Release of any
                  Hazardous Substance or that ARC, Borrower or any Subsidiary of
                  ARC or Borrower is subject to investigation by any
                  Governmental Authority evaluating whether any remedial action
                  is needed to respond to the Release or threatened Release of
                  any Hazardous Substance.

                           (iii)    Any written notice of the imposition of any
                  Environmental Lien against any property of ARC, Borrower or
                  any Subsidiary of ARC or Borrower.

                  (o)      Health Care Permit Violation. As soon as possible,
and in any event within 5 Business Days (i) after obtaining knowledge thereof,
notice of the occurrence of any event that would (with the passage of time,
notice or both) be a default under or a violation of any Health Care Permit
necessary for the lawful conduct of the business or operations of any Loan Party
or any Property Operator, including the ownership and operation of the
Facilities; and (ii) after receipt thereof, any notice of any violation of
applicable laws which would (with the passage of time, notice or both) cause any
of the Health Care Permits referred to in clause (i) to be modified, rescinded
or revoked. Notwithstanding the foregoing to the contrary, Borrower shall not be
required to notify Lender of routine, customary inspection deficiencies that are
being remedied in the ordinary course consistent with past practices.

                  (p)      Notice of Material Event or Circumstance. As soon as
possible and in any event within 10 days of obtaining knowledge of such event or
circumstance, notice of any event or circumstance that could (with the passage
of time, notice or both) have a Material Adverse Effect.

                  (q)      Other Information. As soon as practicable after
request therefor, such other information respecting the condition or operations,
financial or otherwise, of Borrower or any Subsidiary of Borrower as Lender may
from time to time reasonably request.

         Section 5.3       Affirmative Covenants. So long as any Obligation
(other than an Unmatured Surviving Obligation) shall remain unpaid, unless
Lender shall otherwise consent in writing, Borrower will, and will cause each of
its Subsidiaries to:

                  (a)      Preservation of Corporate Existence, Etc. Preserve
and maintain in full force and effect (i) all material rights, privileges,
qualifications, permits, licenses and franchises reasonably necessary or
desirable in reimbursement programs and in the normal conduct of its business;
(ii) its corporate, partnership or limited liability company existence and good
standing under the laws of its state or jurisdiction of incorporation or
organization; and (iii) its good standing under the laws of each jurisdiction
where the character of its properties or the nature of its activities makes it
necessary for it to qualify to do business, except any jurisdiction where the
failure to be in good standing could not have a Material Adverse Effect.

                  (b)      Maintenance of Property and Assets. Maintain and
preserve all its property which is necessary for use in its business in good
working order and condition, ordinary wear and tear excepted and to use the
standard of care typical in the industry in the

                                       52

<PAGE>

operation of the Facilities in each case except where failure to do so would
have a Material Adverse Effect.

                  (c)      Insurance. Maintain insurance required pursuant to
the Master Lease; and, upon request of Lender, (i) furnish Lender a certificate
of an Authorized Officer (and, if requested by Lender, any insurance broker of
Borrower) setting forth the nature and extent of all insurance maintained by
Borrower and its Subsidiaries in accordance with this Section 5.3(c) (and which,
in the case of a certificate of a broker, was placed through such broker); (ii)
furnish Lender a certified copy of each policy of insurance maintained in
accordance with this Section 5.3(c); and (iii) cause Lender to be named as an
additional insured on all or any of such insurance.

                  (d)      Compliance With Laws. Comply in all material respects
with all applicable laws, rules, regulations and orders applicable to Borrower,
such Subsidiary or its respective property.

                  (e)      Payment of Obligations. Pay and discharge as the same
shall become due and payable:

                           (i)      all tax liabilities, assessments and
                  governmental charges or levies upon it or its properties or
                  assets; and

                           (ii)     all lawful claims which, if unpaid, would,
                  with the passage of time, notice or both, by law become a Lien
                  upon its property;

         except that any such item may be contested in good faith and when so
         contested may remain unpaid so long as (A) adequate reserves have been
         established in an amount sufficient to pay any such claims, accrued
         interest thereon and potential penalties or other costs relating
         thereto, or other adequate provision for the payment thereof shall have
         been made, (B) enforcement of the contested item is effectively stayed
         for the entire duration of such contest, and (C) any amount determined
         to be due, together with any interest or penalties thereon, is promptly
         paid after resolution of such contest.

                  (f)      Use of Proceeds. Use the proceeds of the Loan for
lawful general corporate purposes permitted under and in accordance with the
terms of this Agreement.

                  (g)      Inspection of Property and Books and Records.

                           (i)      Maintain proper books of record and account,
                  in which full, true and correct entries in conformity with
                  GAAP consistently applied shall be made of all financial
                  transactions and matters involving the assets and business of
                  Borrower and such Subsidiaries, and permit representatives of
                  Lender to visit and inspect any of their respective
                  properties, to examine their respective corporate, financial
                  and operating records and make copies thereof or abstracts
                  therefrom, and to discuss their respective affairs, finances
                  and accounts with their respective officers, employees and
                  independent public accountants, all at the expense of Borrower
                  and at such reasonable times during normal business

                                       53

<PAGE>

                  hours and as often as may be reasonably requested, upon
                  reasonable notice to Borrower; provided that unless a Default
                  or Event of Default shall have occurred and be continuing,
                  Borrower shall not be required to pay expenses for more than
                  two visits per fiscal year.

                           (ii)     Cause each Property Owner to permit Lender
                  and its authorized representatives, upon reasonable prior
                  notice, to inspect the Leased Property and any Capital
                  Additions of such Property Owner during usual business hours
                  and subject to any reasonable security, health, safety or
                  confidentiality requirements of such Property Owner or any
                  Legal Requirement or Insurance Requirement. Lessee shall
                  cooperate with Lessor in exhibiting the Leased Property and
                  any Capital Additions to prospective lenders and, if an Event
                  of Default has occurred and is continuing, prospective
                  purchasers, lessees and managers.

                  (h)      Further Assurances. Promptly upon reasonable request
by Lender, execute, acknowledge, deliver, file, re-file, register and
re-register, any and all such further acts, security agreements, assignments,
estoppel certificates, financing statements and continuations thereof,
termination statements, notices of assignment, transfers, certificates,
assurances and other instruments as Lender may require from time to time in
order (i) to carry out more effectively the purposes of this Agreement or any
other Loan Document; (ii) to subject to the Liens created by any of the
Collateral Documents to any of the properties, rights or interests covered
thereby; (iii) to perfect and maintain the validity, effectiveness and priority
of any of the Collateral Documents or any of the Liens intended to be created
thereby; and (iv) to better assure, convey, grant, assign, transfer, preserve,
protect and confirm to Lender the rights granted or now or hereafter intended to
be granted to the Lender under any Loan Document or under any other instrument
executed in connection therewith.

                  (i)      Disclosure Updates. Promptly and in no event later
than 5 Business Days after obtaining knowledge thereof, (i) notify Lender if any
written information, exhibits and reports furnished to Lender contained any
untrue statement of a material fact or omitted to state any material fact or any
fact necessary to make the statements contained therein not misleading in light
of the circumstances in which made; and (ii) correct any defect or error that
may be discovered therein or in any Transaction Document or in the execution,
acknowledgement, filing or recordation thereof.

                  (j)      Environmental Laws.

                           (i)      Conduct its business in compliance in all
                  material respects with all Environmental Laws applicable to
                  it, including those relating to the generation, handling,
                  use, storage, and disposal of any Hazardous Substance; take
                  prompt and appropriate action to respond to any material
                  non-compliance with Environmental Laws and shall regularly
                  report to Lender on such response.

                           (ii)     Without limiting the generality of the
                  foregoing, submit to Lender annually, commencing on the first
                  Anniversary Date, and on each Anniversary Date thereafter, an
                  update of the status of each material environmental compliance
                  or material liability issue, if any. Lender may request copies
                  of

                                       54

<PAGE>

                  technical reports prepared by Borrower or any of its
                  Subsidiaries and its communications with any Governmental
                  Authority to determine whether Borrower or any of its
                  Subsidiaries is proceeding reasonably to correct, cure or
                  contest in good faith any alleged material non-compliance or
                  material environmental liability. Borrower shall, at Lender's
                  request and at Borrower's expense, (i) retain an independent
                  environmental engineer acceptable to Lender to evaluate the
                  site, including tests if appropriate, where the material
                  non-compliance or alleged material non-compliance with
                  Environmental Laws has occurred and prepare and deliver to
                  Lender a report setting forth the results of such evaluation,
                  a proposed plan for responding to any environmental problems
                  described therein, and an estimate of the costs thereof, and
                  (ii) provide to Lender a supplemental report of such engineer
                  whenever the scope of the environmental problems, or the
                  response thereto or the estimated costs thereof, shall
                  increase in any material respect.

                           (iii)    Lender and its representatives will have the
                  right at any reasonable time to enter and visit the Real
                  Property owned or operated by Borrower or any Subsidiary of
                  Borrower and any other place where any property of any Loan
                  Party is located for the purposes of observing such Real
                  Property and, if Lender reasonably believes Borrower or any
                  Subsidiary of Borrower is not in compliance with this Section
                  5.3(j), taking and removing soil or groundwater samples, and
                  conducting tests on any part of the Real Property owned or
                  operated by Borrower or any Subsidiary of Borrower. Lender is
                  under no duty, however, to visit or observe the Real Property
                  or to conduct tests, and any such acts by Lender will be
                  solely for the purposes of protecting Lender's Liens and
                  preserving Lender's rights under the Transaction Documents. No
                  site visit, observation or testing by Lender will result in a
                  waiver of any default or impose any liability on Lender. In no
                  event will any site visit, observation or testing by Lender be
                  a representation that hazardous substances are or are not
                  present in, on or under the Real Property, or that there has
                  been or will be compliance with any Environmental Law. Neither
                  Borrower nor any of its Subsidiaries nor any other party is
                  entitled to rely on any site visit, observation or testing by
                  Lender. Lender owes no duty of care to protect Borrower or any
                  of its Subsidiaries or any other party against, or to inform
                  Borrower or any of its Subsidiaries or any other party of, any
                  hazardous substances or any other adverse condition affecting
                  the Real Property owned or operated by Borrower or any
                  Subsidiary of Borrower. Lender may in its discretion disclose
                  to Borrower or to any other party if so required by law any
                  report or findings made as a result of, or in connection with,
                  any site visit, observation or testing by Lender. Borrower
                  understands and agrees that Lender makes no warranty or
                  representation to any Loan Party or any other party regarding
                  the truth, accuracy or completeness of any such report or
                  findings that may be disclosed. Borrower also understands that
                  depending on the results of any site visit, observation or
                  testing by Lender and disclosed to Borrower, Borrower or its
                  Subsidiary may have a legal obligation to notify one or more
                  environmental agencies of the results, that such reporting
                  requirements are site-specific, and are to be evaluated

                                       55

<PAGE>

                  by Borrower or its Subsidiary without advice or assistance
                  from Lender. In each instance, Lender will give Borrower
                  reasonable notice before entering the Real Property owned or
                  operated by Borrower or any Subsidiary of Borrower or any
                  other place Lender is permitted to enter under this Section
                  5.3(j). Lender will make reasonable efforts to avoid
                  interfering with the use of the Real Property or any other
                  property in exercising any rights provided hereunder.

                  (k)      Health Care Permits and Approvals. Take all action
reasonably necessary (i) to maintain in full force and effect all Health Care
Permits reasonably necessary for the lawful conduct of its business or
operations wherever now conducted and as planned to be conducted, including the
ownership and operation of the Facilities, pursuant to all applicable laws, of
all Governmental Authorities having jurisdiction over any such Loan Party or
over any part of its operations; and (ii) to ensure that all of the Facilities
owned, leased, managed or operated by any Subsidiary of Borrower are entitled to
participate in, and receive payment under, the appropriate Medicare, Medicaid
and related reimbursement programs, and any similar state or local
government-sponsored program, to the extent that such Subsidiary has decided to
participate in any such program, and to receive reimbursement from private and
commercial payers and health maintenance organizations to the extent applicable
thereto, except (in each case) where a failure to do so could not have a
Material Adverse Effect.

                  (l)      Compliance With ERISA.

                           (i)      maintain each Plan in compliance in all
                  material respects with the applicable provisions of ERISA, the
                  Code and other federal or state law;

                           (ii)     cause each Plan which is qualified under
                  Section 401(a) of the Code to maintain such qualification;

                           (iii)    make all required contributions to any Plan
                  subject to Section 412 of the Code;

                           (iv)     not engage in a prohibited transaction or
                  violation of the fiduciary responsibility rules which
                  prohibited transaction or violation of fiduciary
                  responsibility rules, together with all other prohibited
                  transactions and violations of fiduciary responsibility rules;
                  and

                           (v)      not engage in a transaction that could be
                  subject to Section 4069 or 4212(c) of ERISA.

                  (m)      Operating Account.

                           (i)      On or prior to the Funding Date, Borrower
                  shall establish at a financial institution acceptable to
                  Lender (the "Depository Bank") an operating account (the
                  "Operating Account"). The Operating Account shall be in the
                  name of Borrower, but shall be subject to a control agreement
                  permitting Lender, at its election if an Event of Default has
                  occurred and is continuing, to assume exclusive control over
                  the Operating Account.

                                       56

<PAGE>

                           (ii)     All rents, issues and profits received by
                  any Property Owner (other than rents, issues and profits
                  required to be deposited with the holder of the First Mortgage
                  Loan Documents with respect to the Facility or Facilities of
                  such Property Owner) shall be deposited into the Operating
                  Account. In addition, all other payments to which any Property
                  Owner is entitled pursuant to the Master Lease, including,
                  insurance or condemnation proceeds, proceeds of any put
                  payment required pursuant to the Master Lease, shall also be
                  deposited into the Operating Account.

                           (iii)    So long as no Event of Default has occurred
                  and is continuing or will occur upon giving effect to the
                  application described below, funds in the Operating Account
                  may be applied by Borrower to make additional investments in
                  the Permitted Subsidiaries or for general corporate purposes
                  of Borrower; provided that Borrower may make dividend
                  payments, loans or other distributions to ARC only on a
                  Distribution Date and only if such payments or distributions
                  are permitted pursuant to this Loan Agreement and the other
                  Loan Documents.

                           (iv)     Lender and Borrower acknowledge that
                  Borrower, and not Lender, shall be treated as the owner of the
                  funds in the Operating Account for tax purposes, except to the
                  extent and at such time that Lender actually withdraws funds
                  from the Operating Account in accordance with this Section
                  5.3(m) and the Reserve Account Security Agreement.

                  (n)      Reserve Accounts.

                           (i)      On or prior to the Funding Date (or in the
                  case of the Working Capital Reserve Account, June 30, 2005),
                  Borrower shall establish at the Depository Bank the following
                  reserve accounts (collectively, the "Reserve Accounts," and
                  individually, a "Reserve Account"):

                                    (A)      a repair and replacement reserve
                           account (the "Repair and Replacement Reserve
                           Account") to be used in accordance with the
                           provisions of Section 5.4(n)(ii);

                                    (B)      a working capital reserve account
                           (the "Working Capital Reserve Account") to be used in
                           accordance with the provisions of Section
                           5.4(n)(iii);

                                    (C)      a sinking fund reserve account (the
                           "Sinking Fund Reserve Account") to be used in
                           accordance with the provisions of Section 5.4(n)(iv);

                                    (D)      a mortgage payment reserve account
                           (the "Mortgage Payment Reserve Account") to be used
                           in accordance with the provisions of Section
                           5.4(n)(v); and

                                       57

<PAGE>

                                    (E)      a HCPI loan payment reserve account
                           (the "HCPI Loan Reserve Account" to be used in
                           accordance with the provision of Section 5.4(n)(vi).

                  The Working Capital Reserve Account, the Sinking Fund Reserve
                  Account and the HCPI Loan Reserve Account shall be in the name
                  of Borrower, but Borrower hereby acknowledges and agrees, that
                  Lender, or at Lender's election, a servicing agent for Lender,
                  shall have exclusive control over the Working Capital Reserve
                  Account, the Sinking Fund Reserve Account and the HCPI Loan
                  Reserve Account, but the Working Capital Reserve Account, the
                  Sinking Fund Reserve Account and the HCPI Loan Reserve Account
                  shall be subject to, and Lender shall have only the rights
                  provided in, the provisions of this Agreement and the other
                  Loan Documents, including Section 5.3(n)(iii), (iv), (v) and
                  (vi) and the provisions of the Reserve Account Security
                  Agreement. The Repair and Replacement Reserve Account and the
                  Mortgage Payment Reserve Account shall be in the name of
                  Borrower, but shall be subject to a control agreement
                  permitting Lender, at its election if an Event of Default has
                  occurred, to assume exclusive control over the Repair and
                  Replacement Reserve Account and the Mortgage Payment Reserve
                  Account, but the Repair and Replacement Reserve Account and
                  the Mortgage Payment Reserve Account shall be subject to the
                  provisions of this Agreement and the other Loan Documents.
                  Until Lender assumes exclusive control, Borrower may issue
                  instructions with respect to the disbursement and use of funds
                  in the Repair and Replacement Reserve Account and the Mortgage
                  Payment Reserve Account, provided that such instructions are
                  in compliance with the provisions of this Agreement and the
                  other Loan Documents.

                           (ii)     On each Distribution Date, Borrower shall
                  make a deposit into the Repair and Replacement Reserve Account
                  for the Facilities in an amount equal to (A)(I) $33.33 times
                  (II) the number of units in the Facilities on the last day of
                  the calendar month commencing two calendar months prior to
                  such Distribution Date times (III) the number of calendar
                  months in the then current Test Period minus (B) the sum of
                  (I) the aggregate amount spent on repair, replacement and
                  renovation of the Facilities (but specifically excluding all
                  Capital Additions and day-to-day maintenance with respect to
                  the Facilities) (the "Repair and Replacement Expenditures")
                  made at the Facilities during the applicable Test Period plus
                  (II) the difference, if positive, between (x) the sum of (A)
                  the amount of all deposits made during the applicable Test
                  Period into a reserve account to be used for Repair and
                  Replacement Expenditures pursuant to the provisions of the
                  First Mortgage Loan Documents for the Facilities and (B) the
                  amount of deposits made during the applicable Test Period into
                  the Repair and Replacement Reserve Account and (y) the Repair
                  and Replacement Expenditures made during the applicable Test
                  Period. So long as no Default or Event of Default has occurred
                  and is continuing, Borrower may withdraw funds from the Repair
                  and Replacement Reserve to pay Repair and Replacement
                  Expenditures, provided that, if Lender so requests, Borrower
                  shall deliver to

                                       58

<PAGE>

                  Lender the following to the extent reasonably applicable: (w)
                  copies of paid invoices, receipts or other evidence
                  satisfactory to Lender, verifying the cost and payment of the
                  Repair and Replacement Expenditures; (x) copies of affidavits,
                  lien waivers or other evidence reasonably satisfactory to
                  Lender showing that all materialmen, laborers, subcontractors
                  and any other parties who might or could claim statutory or
                  common law liens and are furnishing or have furnished material
                  or labor to the applicable Facility have been paid all amounts
                  due for labor and materials furnished to such Facility; (y) a
                  certification from an inspecting architect, engineer or other
                  consultant acceptable to Lender (the "Work Inspector")
                  describing the completed Repair and Replacement Expenditures
                  and verifying the completion of the Repair and Replacement
                  Expenditures; and (z) a copy of a new (or amended) certificate
                  of occupancy for the portion of the Facility covered by such
                  Repair and Replacement Expenditures, if said new (or amended)
                  certificate of occupancy is required by law, or a
                  certification acceptable to Lender by the Work Inspector that
                  no new (or amended) certificate of occupancy is required.
                  Lender may, at Borrower's expense, make or cause to be made an
                  annual inspection at each Facility to determine the need, as
                  determined by Lender in its judgment, for further Repair and
                  Replacement Expenditures at such Facility (or at such other
                  times as Lender shall elect if a Default or Event of Default
                  has occurred and is continuing, in an emergency or in
                  connection with inspecting the Repair and Replacement
                  Expenditures). In the event that such inspection reveals that
                  further Repair and Replacement Expenditures on any Facility
                  are required in order to maintain the Facilities in compliance
                  with the Master Lease, Lender shall provide Borrower with a
                  written description of the required Repair and Replacement
                  Expenditures and Borrower shall complete, or cause the
                  applicable Property Owner or Property Operator to complete,
                  such Repair and Replacement Expenditures to the satisfaction
                  of Lender within 90 days after the receipt of such description
                  from Lender, or such later date as may be approved by Lender.

                           (iii)    On each Distribution Date occurring after
                  June 30, 2005, if the sum of (x) the Working Capital as of the
                  last day of the calendar month commencing two calendar months
                  prior to such Distribution Date plus (y) the amount, if any,
                  on deposit in the Working Capital Reserve Account on such
                  Distribution Date plus (z) the stated amount of any Permitted
                  Letter of Credit outstanding on such Distribution with respect
                  to the Working Capital Reserve Account, is less than the
                  amount set forth in the following table for the period
                  including the calendar month commencing two calendar months
                  prior to such Distribution Date (the "Required Working
                  Capital"), then Borrower shall make a deposit into the Working
                  Capital Reserve Account in an amount equal to the difference,
                  if positive, between (i) the Required Working Capital for such
                  calendar month minus (ii)(x) the Working Capital of Borrower
                  and its Subsidiaries as of the last day of such calendar month
                  plus (y) the amount, if any, on deposit in the Working Capital
                  Reserve Account on the applicable Distribution Date plus (z)
                  the stated amount of any Permitted Letter of Credit

                                       59

<PAGE>

                  outstanding on the applicable Distribution Date with respect
                  to the Working Capital Reserve Account:

<TABLE>
<CAPTION>
                      Fiscal Quarter Ending During Period              Required Working Capital
                      -----------------------------------              ------------------------
                    <S>                                                <C>
                    From June 30, 2005 to September 30, 2005                 $(3,750,000)
                    From October 1, 2005 to December 31, 2005                $(2,500,000)
                    From January 1, 2006 to March 31, 2006                   $(1,250,000)
                    Thereafter                                               $         0
</TABLE>

                  So long as no Default or Event of Default has occurred and is
                  continuing if, on any Distribution Date the sum of (x) the
                  balance in the Working Capital Reserve Account plus (y) the
                  stated amount of any Permitted Letter of Credit outstanding
                  with respect to the Working Capital Reserve Account plus (z)
                  the Working Capital of Borrower as of the last day of the
                  calendar month commencing two calendar months prior to such
                  Distribution Date, is in excess of (such excess, the "Working
                  Capital Excess") the Required Working Capital for the calendar
                  month ending immediately prior to such Distribution Date then,
                  on the written request from Borrower, Lender shall release
                  funds from the Working Capital Reserve Account or reduce the
                  stated amount of the Permitted Letter of Credit issued with
                  respect to the Working Capital Reserve Account in an amount
                  equal to the Working Capital Excess for such Distribution
                  Date.

                           (iv)     On each Distribution Date, if (A) the
                  difference (the "Net Mortgage Loan Balance") between (I) the
                  outstanding principal amount of the First Mortgage Loans as of
                  the last day of the calendar month ending immediately prior to
                  such Distribution Date minus (II) the sum of (x) the amount on
                  deposit in the Sinking Fund Reserve Account as of the last day
                  of such calendar month; (y) the scheduled principal payments
                  for the First Mortgage Loans for the period from the last day
                  of such calendar month through the end of the fiscal quarter
                  containing such Distribution Date; and (z) the stated amount
                  of any Permitted Letter of Credit outstanding with respect to
                  the Sinking Fund Reserve Account, is greater than (B) the
                  balance (the "Required Mortgage Loan Balance") required as of
                  the last day of the calendar quarter containing such
                  Distribution Date pursuant to Section 5.1(a), then Borrower
                  shall make a deposit into the Sinking Fund Reserve Account in
                  an amount sufficient to cause the Net Mortgage Loan Balance to
                  be less than or equal to the Required Mortgage Loan Balance in
                  each case, as of the last day of the calendar month ending
                  immediately prior to such Distribution Date. So long as no
                  Default or Event of Default has occurred and is continuing, on
                  any Distribution Date on which the sum of (x) the balance in
                  the Sinking Fund Reserve Account and (z) the stated amount of
                  any Permitted Letter of Credit outstanding with respect to the
                  Sinking Fund Reserve Account, is in excess of (such excess,
                  the "Mortgage Loan Balance Excess") the difference between (i)
                  the Required Mortgage Loan

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                  Balance minus (ii) the Net Mortgage Loan Balance in each case
                  for the calendar month ending immediately prior to such
                  Distribution Date, then Lender shall, on the written request
                  from Borrower, release funds from the Sinking Fund Reserve
                  Account or reduce the stated amount of the Permitted Letter of
                  Credit issued with respect to the Sinking Fund Reserve Account
                  in an amount equal to the Mortgage Loan Balance Excess for
                  such Distribution Date.

                           (v)      On each Distribution Date, Borrower shall
                  deposit into the Mortgage Payment Reserve Account an amount
                  equal to the difference, if positive between (i) the sum of
                  the required principal and interest payments for each First
                  Mortgage Loan that has a required payment prior to the next
                  subsequent Distribution Date minus (ii) the sum, for all First
                  Mortgage Loans that have required payments prior to the next
                  subsequent Distribution Date, of (x) the amount held by the
                  holders of such First Mortgage Loans for the payment of
                  principal and interest with respect to such First Mortgage
                  Loan and (y) the amount held by the Property Owners for the
                  payment of principal and interest with respect to such First
                  Mortgage Loans. Amounts in the Mortgage Payment Reserve
                  Account may only be used to make required payments on the
                  First Mortgage Loans on the date such payments are due.

                           (vi)     On each Distribution Date that is not a
                  Payment Date, Borrower shall deposit into the HCPI Loan
                  Reserve Account an amount equal to one-third of the payment
                  required under this Loan Agreement on the next Payment Date.
                  Amounts in the HCPI Loan Reserve Account may only be used to
                  make payments required under this Document on the first
                  Payment Date following the date of deposit of such amount into
                  the HCPI Loan Reserve Account.

                           (vii)    None of the Reserve Accounts shall, unless
                  otherwise explicitly required by applicable law, be or be
                  deemed to be escrow or trust funds, but, at Lender's option
                  and in Lender's discretion, may either be held in a separate
                  account or be commingled with the other Reserve Accounts. The
                  Reserve Accounts are solely for the protection of Lender and
                  entail no responsibility on Lender's part beyond the payment
                  of the respective items for which they are held following
                  receipt of bills, invoices or statements therefor in
                  accordance with the terms hereof and beyond the allowing of
                  due credit for the sums actually received. If an Event of
                  Default has occurred and is continuing, Lender may, but shall
                  not be obligated, to apply at any time the balance then
                  remaining in any or all of the Reserve Accounts against the
                  Obligations in whatever order Lender shall subjectively
                  determine. No such application of any or all of the Reserve
                  Accounts shall be deemed to cure any Event of Default. Upon
                  full payment of the Obligations in accordance with the terms
                  of the Loan Documents or at such earlier time as Lender may
                  elect, the balance of any or all of the Reserve Accounts then
                  in Lender's control shall be paid over to Borrower and no
                  other party shall have any right or claim thereto. Lender and
                  Borrower acknowledge that Borrower, and not Lender, shall be
                  treated as the owner of the funds in the Reserve Accounts for
                  tax purposes, except to the extent and at such

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                  time that Lender actually withdraws funds from a Reserve
                  Account in accordance with this Section 5.3(n) and the Reserve
                  Account Security Agreement.

                           (viii)   On any Distribution Date so long as no Event
                  of Default has occurred, Borrower may substitute a Permitted
                  Letter of Credit for any cash required to be maintained in a
                  Reserve Account, so long as after giving effect to such
                  substitution the stated amount of such Permitted Letter of
                  Credit plus amounts on deposit in the Reserve Account with
                  respect to which such Permitted Letter of Credit was issued
                  equals or exceed the amount required to be on deposit in such
                  Reserve Account. In addition, if, on any Distribution Date,
                  the amounts on deposit in any Reserve Account plus the stated
                  amount of the Permitted Letter of Credit issued with respect
                  to such Reserve Account exceeds the amount required to be on
                  deposit in such Reserve Account, upon the written request of
                  Borrower, cash in such Reserve Account in an amount equal to
                  such excess shall be released to Borrower. If no agreement for
                  a renewal or replacement of any Permitted Letter of Credit has
                  been made fifteen (15) days prior to the expiration of such
                  Permitted Letter of Credit, Lender may draw upon such
                  Permitted Letter of Credit and deposit such drawing in the
                  Reserve Account with respect to which such Permitted Letter of
                  Credit was issued.

                  (o)      Separateness Covenants.

                           (i)      maintain an arm's length relationship with
                  its Affiliates and its shareholders or other equity holders
                  and any other parties furnishing services to it, including,
                  but not limited to, the Permitted Subsidiaries;

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

                           (iii)    do all things necessary to preserve its
                  existence, and observe all formalities applicable to it, and
                  do all things necessary to maintain its identity as an entity
                  separate and distinct from the Permitted Subsidiaries and all
                  of its other Affiliates;

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

                           (v)      maintain financial statements, books and
                  records and bank accounts separate from those of its
                  Affiliates, including, without limitation, its shareholders or
                  other equity holders or any other Person; provided, however,
                  that Borrower or any Subsidiary may be included in
                  consolidated financial statements of another Person, provided
                  that such consolidated financial statements contain a note
                  indicating that Borrower or such Subsidiary, as the case may
                  be, is a separate legal entity and the assets and liabilities
                  of Borrower or such Subsidiary, as the case may be, neither
                  are available to pay the debts of

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                  the consolidated Person nor constitute obligations of the
                  consolidated Person and that the consolidated Person is not
                  liable for any of the liabilities of Borrower or such
                  Subsidiary, as the case may be;

                           (vi)     be, and at all times hold itself out to the
                  public as, a legal entity separate and distinct from any other
                  Person (including, without limitation, any Affiliate,
                  shareholder or other equity holder of Borrower or such
                  Subsidiary, or any Affiliate of any shareholder or other
                  equity holder of Borrower or such Subsidiary);

                           (vii)    file its own tax returns (except to the
                  extent it is treated as a division of another taxpayer for tax
                  purposes) and pay any taxes so required to be paid under
                  applicable law; provided, however, that so long as (x) the tax
                  liability of Borrower or any Subsidiary and its respective
                  income and expenses are readily determinable based on a review
                  of the books and records of Borrower or such Subsidiary, as
                  the case may be, and (y) Borrower or such Subsidiary, as the
                  case may be, maintains sufficient books and records to
                  determine its separate tax obligations for any particular
                  reporting periods, Borrower or any Subsidiary, as the case may
                  be, may file consolidated tax returns;

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

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

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

                           (xi)     use stationery, invoices, and checks
                  separate from its Affiliates, including the Permitted
                  Subsidiaries;

                           (xii)    deposit all of its funds in checking
                  accounts, savings accounts, time deposits or certificates of
                  deposit of Borrower or any Subsidiary in its own name or
                  invest such funds in its own name;

                           (xiii)   correct any known misunderstanding regarding
                  the separate identity of Borrower or any Subsidiary;

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

                           (xv)     establish and maintain an office through
                  which its business is conducted separate and apart from that
                  of the Permitted Subsidiaries or any other

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                  Affiliate; provided, however, that nothing herein shall be
                  construed so as to prevent Borrower or any Subsidiary from
                  having office space at the same address as any of the
                  Permitted Subsidiaries or any other Affiliate, so long as the
                  costs and expenses associated with such office space are
                  allocated as set forth in paragraph (xiv) above; and

                           (xvi)    maintain a separate telephone number from
                  that of the Permitted Subsidiaries or any other Affiliate
                  (except that (x) any Subsidiary that is a partnership may
                  maintain the same telephone number as its General Partner and
                  (y) any Subsidiary that is a General Partner may maintain the
                  same telephone number as the partnership for which it is the
                  general partner).

Notwithstanding anything herein to the contrary in this Section 5.3(o), (x) the
provisions of this Section 5.3(o) shall not apply to the ARC Fleetwood Entities
and (y) Borrower or any Subsidiary may, from time to time, (x) make lawful
distributions in accordance with applicable law or loans on an arm's length
basis to its Affiliates subject to the provisions of Section 5.3(o)(viii) above,
or (y) obtain loans on an arm's length basis or lawful capital contributions in
accordance with applicable law from its Affiliates to the extent necessary to
satisfy its obligations as they become due; provided, however, that all such
transactions are accurately reflected in the books and records of Borrower or
such Subsidiary, as the case may be, and each of its respective applicable
Affiliates.

                  (p)      Certain Property Operators Treated as Corporations.
Each of the Property Operators which operates an Entrance Fee Facility will be
an entity which is treated as a corporation or an association taxable as a
corporation for United States federal income tax purposes.

                  (q)      Impound Accounts. To the extent that any Property
Operator is required to maintain an impound account pursuant to Section 4.4 of
the Master Lease, Borrower shall cause the Property Owner with respect to the
Facility leased by such Property Operator to direct that such impound account to
be maintained with and subject to the control of Lender, and shall cause the
applicable Property Owner to execute such documents as shall be requested by
Lender with respect thereto.

                  (r)      Subordination of Management Agreements. To the extent
that any management fees are paid to ARC or any Affiliate of ARC with respect to
any Facility, Borrower shall cause, or shall cause the applicable Subsidiary of
Borrower to cause, ARC or such Affiliate of ARC to deliver an agreement, in form
and substance satisfactory to Lender, that the payment of such management fees
is subordinate to Borrower's obligations under Section 5.3(n) to make deposits
into the Reserve Accounts.

                  (s)      Board Attendance. Borrower shall at all times give
Lender notice of (in the same manner as notice is given to directors), and
permit one Person designated by Lender to attend as an observer all meetings of
Borrower's Board of

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Directors and all executive and other committee meetings of the Board of
Directors and shall provide to Lender the same information concerning Borrower,
and access thereto, provided to members of Borrower's Board of Directors and
such committees. The reasonable travel expenses incurred by any such designee of
Lender in attending any board or committee meetings shall be reimbursed by
Borrower.

                  (t)      Release of Lien on Somerby Purchase Option. Upon the
written request of Borrower delivered not less than 10 Business Days prior to
the closing of the sale of the Somerby Purchase Option in compliance with
Section 5.4(e)(vii), Lender shall, at the expense of Borrower, execute such
agreements, documents and other instruments as Borrower shall reasonably request
to release the Liens granted to Borrower on the Somerby Purchase Option.

                  (u)      Vehicle Sublease. From and after the Funding Date,
prior to any Subsidiary (other than the ARC Fleetwood Entities) operating or
using a vehicle which is covered by the Enterprise Vehicle Master Lease, such
Subsidiary shall have executed a Vehicle Sublease with respect to such vehicle
with ARC, as the sublessor, and such Permitted Subsidiary, as the sublessee.

                  (v)      Reimbursement Obligation. From and after the Funding
Date, no obligation of Borrower or any Subsidiary of Borrower shall be supported
by a letter of credit unless, Borrower or such Subsidiary shall either (i) have
the direct reimbursement obligation with respect to such letter of credit or
(ii) have an intercompany reimbursement agreement with the Person that has the
direct reimbursement obligation with respect to such letter of credit, which
shall in each event be in form and substance satisfactory to Lender.

                  (w)      Consent to Acquisition of First Mortgage.
Notwithstanding anything to the contrary in any First Mortgage Loan Document,
Borrower hereby consents, and shall cause any Property Owner with respect to
which Lender acquires the First Mortgage Loan to consent, to Lender becoming the
lender under any First Mortgage Loan.

         Section 5.4       Negative Covenants. So long as any Obligation (other
than an Unmatured Surviving Obligation) shall remain unpaid, unless Lender shall
otherwise consent in writing, Borrower will not, and will not cause or permit
any Subsidiary of Borrower to:

                  (a)      Liens. Directly or indirectly (x) make, create,
incur, assume or suffer to exist any Lien upon or with respect to any part of
its property or assets, whether now owned or hereafter acquired, or offer or
agree to do so; or (y) enter into any contract or agreement (other than the
First Mortgage Loan Documents) that in any way restricts the ability of Borrower
or such Subsidiary to make, create, incur, assume or suffer to exist any Lien
upon or with respect to any part of its property or assets, whether now owned or
hereafter acquired, other than the following:

                           (i)      any Lien created under any Loan Document;

                           (ii)     any Lien for taxes, fees, assessments or
                  other governmental charges which are not delinquent and remain
                  payable without penalty;

                           (iii)    any carriers', warehousemen's, mechanics',
                  landlords', materialmen's, repairmen's or other similar Lien
                  arising in the ordinary course

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                  of business, the underlying claim with respect to which is not
                  delinquent or remains payable without penalty;

                           (iv)     any Lien (other than a Lien imposed by
                  Environmental Laws or by ERISA) on the property of Borrower or
                  any of its Subsidiaries imposed by law, or pledges or deposits
                  required by law pursuant to worker's compensation,
                  unemployment insurance and other social security legislation;

                           (v)      any easement, defect, right-of-way,
                  restriction and other similar encumbrances incurred in the
                  ordinary course of business that do not interfere in any
                  material respect with the business of the Loan Party whose
                  asset is subject to such Lien;

                           (vi)     any Lien (other than Liens on the
                  Collateral) existing on the property of Borrower or its
                  Subsidiaries on the Closing Date and set forth in Schedule
                  4.1(g) securing Indebtedness permitted under Section
                  5.4(b)(ii);

                           (vii)    any Lien on equipment of any Subsidiary of
                  Borrower securing Indebtedness permitted under Section
                  5.4(b)(iv) and extensions, renewals, refinancings or
                  replacements thereof;

                           (viii)   any Lien on assets of Borrower (other than
                  Collateral and Borrower's ownership interest in the Permitted
                  Subsidiaries) securing Indebtedness permitted under Section
                  5.4(b)(vi);

                           (ix)     any Lien on assets of any ARC Fleetwood
                  Entity securing obligations of such ARC Fleetwood Entity; and

                           (x)      any Lien on assets of (x) any Property
                  Operator securing such Property Operator's obligations under
                  the Master Lease or (y) any HCPI Lessee securing such HCPI
                  Lessee's obligations under the HCPI Lease.

                  (b)      Limitation on Indebtedness. Directly or indirectly
create, incur, assume, guarantee, suffer to exist, or otherwise become or remain
directly or indirectly liable with respect to, any Indebtedness, except:

                           (i)      Indebtedness incurred pursuant to the Loan
                  Documents;

                           (ii)     Indebtedness existing on the Closing Date
                  and set forth in Part A of Schedule 4.1(f) and extensions,
                  renewals and replacements thereof made in compliance with the
                  terms of this Agreement;

                           (iii)    Contingent Obligations permitted pursuant to
                  Section 5.4(c);

                           (iv)     (x) Indebtedness existing on the Closing
                  Date and set forth in Part B of Schedule 4.1(f) and (y)
                  Capital Lease Obligations of, or purchase money Debt incurred
                  by, any Subsidiary of Borrower (other than a Property Owner)
                  incurred after the Closing Date for the purpose of financing
                  purchases by

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                  Borrower or such Subsidiary of equipment; provided that (A)
                  the security for any such Indebtedness is solely the assets
                  acquired with the proceeds of such Indebtedness; (B) such
                  Indebtedness contains no cross-default provisions; (C) such
                  Indebtedness contains no provision that permits acceleration
                  or modification of such Indebtedness upon a change in the
                  ownership of Borrower or the Subsidiary incurring such
                  Indebtedness; (D) such Indebtedness is not guaranteed by
                  Borrower or any Subsidiary of Borrower; (E) the aggregate
                  outstanding principal amount of such Indebtedness outstanding
                  at any one time shall not exceed $2,550,000;

                           (v)      the Required Interest Hedge;

                           (vi)     Indebtedness of Borrower which is a
                  reimbursement obligation with respect to any Permitted Letter
                  of Credit;

                           (vii)    any Indebtedness of any ARC Fleetwood
                  Entity;

                           (viii)   Indebtedness of Borrower or the applicable
                  Subsidiary set forth on Part C or Part D of Schedule 4.1(f);

                           (ix)     Indebtedness of any Subsidiary of Borrower
                  which is assumed or incurred in connection with and as a part
                  of the Funding Date Restructuring Plan, provided that such
                  Indebtedness shall be in amounts and subject to documentation
                  that is acceptable to Lender; and

                           (x)      additional Indebtedness of Borrower in an
                  aggregate outstanding principal amount outstanding at any one
                  time not in excess of $500,000.

Notwithstanding anything to the contrary contained in this Section 5.4(c), prior
to seeking any Indebtedness not outstanding on the Closing Date (other than
Indebtedness permitted pursuant to Section 5.4(c)(iv), (vi), (vii) and (viii)),
Borrower will or will cause the applicable Subsidiary to first offer to Lender
an opportunity to provide such Indebtedness pursuant to the provisions of
Section 2.6.

                  (c)      Limitation on Contingent Obligations. Directly or
indirectly create, incur, assume, guarantee, suffer to exist, or otherwise
become or remain directly or indirectly liable with respect to, any Contingent
Obligations, except:

                           (i)      Contingent Obligations incurred pursuant to
                  the Loan Documents;

                           (ii)     Contingent Obligations existing on the
                  Closing Date and set forth in Schedule 5.4(c)(ii) and
                  extensions, renewals and replacements thereof made in
                  compliance with the terms of this Agreement;

                           (iii)    Contingent Obligations of any ARC Fleetwood
                  Entity; and

                           (iv)     endorsements of checks for collection or
                  deposit in the ordinary course of business.

                  (d)      Restricted Payments. Directly or indirectly (x)
declare or make any dividend payment or other distribution of assets,
properties, cash, rights, obligations or securities on account of any shares of
any class of its capital stock, or purchase, redeem or

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otherwise acquire for value any shares of any class of capital stock or any
warrants, rights or options to acquire any such shares, now or hereafter
outstanding; or (y) enter into any agreement (other than the First Mortgage Loan
Documents) restricting the ability of Borrower or any Subsidiary of Borrower to
declare or make any dividend payment or other distribution of assets,
properties, cash, rights, obligations or securities to its stockholders or to
make any loan or advance to Borrower or another Subsidiary of Borrower, except
that:

                           (i)      Borrower may declare and make any dividend
                  payments or other distributions payable solely by Borrower in
                  common stock of Borrower or in warrants, rights or options to
                  acquire such common stock;

                           (ii)     any Subsidiary of Borrower may declare and
                  make any dividend payment or other distribution payable solely
                  to Borrower or any other wholly-owned direct or indirect
                  Subsidiary of Borrower;

                           (iii)    on any Distribution Date, Borrower may
                  declare or make any dividend payment or other distribution to
                  ARC of cash or any other property received in a sale permitted
                  pursuant to Section 5.4(e)(viii); provided that no Default or
                  Event of Default has occurred and is continuing; and

                           (iv)     on any Distribution Date, Borrower may
                  declare or make any dividend payment or other distribution of
                  cash to ARC; provided that (x) all payments of any kind and
                  all deposits into any Reserve Account required under the Loan
                  Documents on or prior to such Distribution Date shall have
                  been made and (y) no Default or Event of Default has occurred
                  and is continuing.

                  (e)      Consolidation, Merger, Sale of Assets. Wind up,
liquidate or dissolve its affairs, or enter into any transaction of merger or
consolidation or to directly or indirectly sell, assign, lease, convey, transfer
or otherwise dispose of (whether in one or a series of transactions) all or any
portion of its assets, business or property (including accounts and notes
receivable (with or without recourse) and equipment sale-leaseback transactions)
or enter into any agreement to do any of the foregoing except for:

                           (i)      Property Operators and HCPI Lessees may
                  lease or sell assets in the ordinary course of business,
                  consistent with past practices; provided that each such lease
                  or sale is consummated in compliance with the provisions of
                  the Master Lease;

                           (ii)     Property Operators and HCPI Lessees may
                  enter into sale and leaseback transactions which are permitted
                  pursuant to Section 5.4(b) and Section 5.4(m) and each such
                  transaction is consummated in compliance with the provisions
                  of the Master Lease;

                           (iii)    Property Operators and HCPI Lessees may
                  enter into transactions with respect to Real Property which
                  are permitted pursuant to Section 5.4(a)(v);

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                           (iv)     Property Operators may enter into the First
                  Mortgage Loan Documents;

                           (v)      Property Operators and HCPI Lessees may sell
                  inventory in the ordinary course of business, consistent with
                  past practices; provided that each such sale is consummated in
                  compliance with the provisions of the Master Lease;

                           (vi)     Property Operators, HCPI Lessees and the
                  other Permitted Subsidiaries may dispose of obsolete or
                  unnecessary personal property;

                           (vii)    Borrower may reincorporate in the State of
                  Delaware and may merge with or into a newly-formed company
                  created solely for the purpose of so reincorporating Borrower;

                           (viii)   any ARC Fleetwood Entity may lease or sell
                  assets and any owner of any interest in any ARC Fleetwood
                  Entity may enter into transactions solely with respect to such
                  interest;

                           (ix)     Borrower or any Subsidiary of Borrower may
                  transfer its assets in connection with and as a part of the
                  Funding Date Restructuring Plan; and

                           (x)      Borrower may sell the Somerby Purchase
                  Option to any Person that is not an Affiliate of Borrower for
                  fair market value.

                  (f)      Loans and Investments. Directly or indirectly
purchase, acquire, carry or maintain (or make any commitment to purchase,
acquire, carry or maintain) any capital stock, equity interest, Indebtedness,
obligations or other securities of or any interest in, any Person or any
business or assets or make any advance, loan, extension of credit or capital
contribution to or any other investment in any Person including any Affiliates
of Borrower, except for:

                           (i)      investments in cash or Cash Equivalents
                  provided that Property Owners may only invest in Cash
                  Equivalents described in clause (i) of the definition thereof;

                           (ii)     investments on the Closing Date by Borrower
                  in the Permitted Subsidiaries;

                           (iii)    other investments by Borrower or any other
                  Subsidiary of Borrower in an aggregate amount not to exceed at
                  any time $500,000;

                           (iv)     Borrower and any Subsidiary (other than a
                  Property Owner) may make loans to Affiliates of ARC; provided
                  that (i) any such loan is in the ordinary course of business
                  and on terms no less favorable to Borrower or the applicable
                  Subsidiary, as the case may be, making the loan than Borrower
                  or such Subsidiary, as the case may be, would obtain in a
                  comparable arm's-length transaction with a Person not an
                  Affiliate; and (ii) any such loan must comply

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<PAGE>

                  with applicable law and with the provisions of Section 5.3(o)
                  and Section 5.4(n); and

                           (v)      investments by any ARC Fleetwood Entity.

                  (g)      Conduct of Business. Engage in any business other
than the following:

                           (i)      for Borrower, the business of (x) acquiring
                  and holding shares of stock, partnership interests or
                  membership interests (as applicable) in the Permitted
                  Subsidiaries which are owned directly by Borrower as set forth
                  on Schedule 4.1(e); (y) guaranteeing the obligations of (A)
                  the HCPI Lessees under the HCPI Lease and the other documents
                  executed in connection with the HCPI Lease, all pursuant to
                  the HCPI Guaranty; and (B) the Property Owners identified on
                  Schedule I for the benefit of the First Mortgage Lenders
                  identified on such schedule; and (z) any other business
                  incidental thereto;

                           (ii)     for each of the Property Owners (other than
                  ARC Wilora Lake), the business of owning the Fee Estate with
                  respect to the Facility set forth opposite such Property
                  Owner's name on Schedule I;

                           (iii)    for each of the Property Operators (other
                  than ARC Wilora Lake and Fort Austin LP), the business of
                  operating the Facility set forth opposite such Property
                  Operator's name on Schedule I;

                           (iv)     for each of the HCPI Lessees, the business
                  of leasing the property related to, and operation of, the HCPI
                  Leased Facility set forth opposite such HCPI Lessee's name on
                  Schedule 5.4(g)(iv);

                           (v)      for each ARC General Partner (other than ARC
                  Freedom), the business of acquiring and holding the general
                  partnership interests in the Property Operator or HCPI Lessee
                  set forth opposite such ARC General Partner's name on Schedule
                  4.1(e);

                           (vi)     for each ARC Equity Owner (other than ARC
                  Freedom), the business of acquiring and holding shares of the
                  stock, partnership interests (other than general partner
                  interests) or membership interests (as applicable) in the
                  Property Operators or HCPI Lessees set forth opposite such ARC
                  Equity Owner's name on Schedule 4.1(e);

                           (vii)    for ARC SC Holdings, the business of
                  acquiring and holding the membership interests in ARC Santa
                  Catalina;

                           (viii)   for ARC Wilora Lake, (x) the business of
                  owning the Fee Estate set forth opposite ARC Wilora Lake's
                  name on Part C of Schedule I and (y) the business of operating
                  the facility located on such real property;

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                           (ix)     for ARC Wilora Assisted Living, the business
                  of operating the assisted living wing of the facility set
                  forth opposite ARC Wilora Lake's name on Part C of Schedule I;

                           (x)      for ARC Freedom, the business of acquiring
                  and holding the general partnership interests and other equity
                  interests in the Property Operators, the ARC Equity Owners and
                  the ARC General Partners set forth opposite ARC Freedom's name
                  on Part B of Schedule 4.1(e);

                           (xi)     for Fort Austin LP, (x) the business of
                  operating the Facility set forth opposite Fort Austin LP's
                  name on Schedule I; and (y) the business of owning acquiring
                  and holding the membership interests in the ARC Fleetwood
                  Entities set forth opposite Fort Austin LP's name on Schedule
                  4.1(e); and

                           (xii)    for the ARC Fleetwood Entities, the business
                  engaged in by such entities on the Closing Date.

                  (h)      Transactions With Affiliates. Enter or agree to enter
into any transaction with any Affiliate of ARC except in the ordinary course of
business and upon terms no less favorable to Borrower or such Subsidiary than
Borrower or such Subsidiary would obtain in a comparable arm's-length
transaction with a Person not an Affiliate.

                  (i)      Amendments to Corporate Documents. Amend, modify or
otherwise change the certificate or articles of incorporation, bylaws or other
organizational document of Borrower, any Property Owner, any Property Operator,
any HCPI Lessee, ARC Wilora Lake or ARC Wilora Assisted Living.

                  (j)      Health Care Permits and Approvals. Engage in any
activity that (i) constitutes or, with the passage of time, notice or both,
would result in a material default under or violation of, any such Health Care
Permit necessary for the lawful conduct of its business or operations; or (ii)
constitutes or, with the passage of time, notice or both, would result in the
loss by any Health Care Facility owned, leased, managed or operated by any
Property Operator of the right to participate in, and receive payment under, the
appropriate Medicare, Medicaid and related reimbursement programs, and any
similar state or local government-sponsored program, to the extent that such
Property Operator has decided to participate in any such program, and to receive
reimbursement from private and commercial payers and health maintenance
organizations to the extent applicable thereto.

                  (k)      Accounting Changes. Permit any change in the fiscal
year of Borrower or any Subsidiary or in any of the accounting procedures
maintained by Borrower or such Subsidiary as of the Closing Date (other than
changes required as a result of a change in GAAP).

                  (l)      Amendment to and Refinancing of First Mortgages.

                           (i)      Without the prior written consent of Lender
                  (which consent may be withheld or granted in Lender's sole and
                  absolute discretion), neither

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                  Borrower nor any of its Subsidiaries will agree to any
                  amendment to, or waive any of its rights under, any First
                  Mortgage Loan Document.

                           (ii)     Without limiting Lender's approval rights as
                  set forth in clause (i), in order to accommodate Borrower's
                  desire for a prompt approval of any transactions contemplated
                  to refinance a First Mortgage Loan (each a "Proposed
                  Refinancing Transaction"), Lender hereby agrees that it will
                  (x) respond to Borrower's written request for approval of a
                  Proposed Refinancing Transaction within 10 Business Days after
                  receipt by Lender of such written request and of each of the
                  following: (A) a summary of, or a term sheet reflecting, the
                  material terms of the Proposed Refinancing Transaction; and
                  (B) all other information requested by Lender with respect to
                  such Proposed Refinancing Transaction or the lender or lenders
                  with respect to such Proposed Refinancing Transaction and (y)
                  respond to Borrower's written request for approval of the
                  agreement or documents or documents proposed to be entered
                  into by Borrower or any Affiliate of Borrower into in
                  connection with such Proposed Refinancing Transaction within
                  10 Business Days after receipt by Lender of such written
                  request and of each of the following: (A) copies of all the
                  agreements or documents (including an Intercreditor Agreement
                  acceptable to Lender) proposed to be entered into by Borrower
                  or any Affiliate of Borrower into in connection with such
                  Proposed Refinancing Transaction and (B) all other information
                  requested by Lender with respect to such Proposed Refinancing
                  Transaction or the lender or lenders with respect to such
                  Proposed Refinancing Transaction. Borrower specifically
                  acknowledges that (A) Borrower may not request approval from
                  Lender of any Proposed Refinancing Transaction that would, on
                  a pro forma basis, cause Borrower to fail to comply with any
                  of the covenants contained in Section 5.1 of this Agreement
                  and (B) Lender's response to a request for approval of a
                  Proposed Refinancing Transaction may include conditions that
                  are required to be met in order for Lender to approve such
                  Proposed Refinancing Transaction. If any request for approval
                  provided pursuant to this Section 5.4(l)(ii) contains a clear
                  statement indicating that the request will be deemed approved
                  if no response is received from Lender within 10 Business
                  Days, then if Lender fails to respond to Borrower's written
                  request with such 10 Business Days, Lender shall be deemed to
                  have approved a Proposed Refinancing Transaction or the
                  agreements or documents proposed to be entered into by
                  Borrower or any Affiliate of Borrower into in connection with
                  such Proposed Refinancing Transaction, as the case may be.

                  (m)      Sale and Leaseback Transactions. Directly or
indirectly become, or permit any of its Subsidiaries to directly or indirectly
become or remain liable as lessee or as a guarantor or other surety with respect
to any lease of any property (whether real, personal or mixed), whether now
owned or hereafter acquired, (i) which Borrower or any of its Subsidiaries has
sold or transferred or is to sell or transfer to any other Person (including
Borrower or any of its Affiliates) or (ii) which Borrower or any of its
Subsidiaries intends to use for substantially the same purpose as any other
property which has been or is to be sold or transferred by such Loan Party to
any Person (including Borrower or any of its Affiliates) in connection with such

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lease; provided that any Subsidiary of Borrower (other than a Property Owner)
may become and remain liable as lessee, guarantor or other surety with respect
to any such lease with a Person (other than Borrower or any of its Affiliates)
if and to the extent that (x) such Subsidiary has, pursuant to Section 2.6,
offered Lender an opportunity to become the lessor of such lease prior to
offering such opportunity to any other Person; (y) after giving effect to such
lease, and the application of the proceeds of such lease, there is no Default or
Event of Default and (z) Borrower has provided Lender evidence satisfactory to
Lender that, after giving effect to such sale and leaseback transaction,
Borrower shall remain in compliance with its obligations under this Agreement
and the other Loan Documents.

                  (n)      Separateness Covenants.

                           (i)      amend, modify or otherwise change its
                  charter, bylaws or other organizational documents in any
                  material term or manner, or in a manner which adversely
                  affects the existence of Borrower or any such Subsidiary, as
                  the case may be, as a single purpose entity without the prior
                  written consent of Lender;

                           (ii)     permit any shareholder or other equity
                  holder of Borrower or any such Subsidiary to amend, modify or
                  otherwise change the charter, bylaws or other organizational
                  documents of Borrower or any such Subsidiary, as the case may
                  be, in any material term or manner, or in a manner which
                  adversely affects the existence of Borrower or any such
                  Subsidiary, as the case may be, as a single purpose entity
                  without the prior written consent of Lender;

                           (iii)    to the full extent permitted by law,
                  liquidate or dissolve (or suffer any liquidation or
                  dissolution), or enter into any transaction of merger or
                  consolidation, or acquire by purchase or otherwise all or
                  substantially all the business or assets of, or any stock or
                  other beneficial ownership of, any entity (other than the
                  Permitted Subsidiaries) without the prior written consent of
                  Lender;

                           (iv)     guarantee, pledge its assets for the benefit
                  of, hold its credit as being available to satisfy, or
                  otherwise become liable, on or in connection with, any
                  obligation of any other person (other than as permitted
                  pursuant to Section 5.4(c)(i) or (ii)) without the prior
                  written consent of Lender;

                           (v)      without the prior written consent of Lender,
                  own any asset other than (x) incidental personal property
                  necessary for compliance with the provisions of Section 5.3(o)
                  and this Section 5.4(n) and (y) (A) for the Borrower, (I) the
                  shares of stock, partnership interests and membership
                  interests in the Permitted Subsidiaries owned directly by
                  Borrower; and (II) incidental personal property necessary for
                  the ownership of the shares of stock, partnership interests
                  and membership interests in such Permitted Subsidiaries; (B)
                  for any Property Owners, the Fee Estate with respect to the
                  Facility set forth opposite such Property Owner's name on
                  Schedule I and other property designated as being owned by
                  such Property Owner pursuant to the Master Lease; (C) for any
                  Property Operators (other than Fort Austin LP), the assets
                  necessary for the

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                  business of operating the Facility set forth opposite such
                  Property Operator's name on Schedule I; (D) for any HCPI
                  Lessees, the assets necessary for the business of leasing the
                  property related to, and operation of, the HCPI Leased
                  Facility set forth opposite such HCPI Lessee's name on
                  Schedule 5.4(g)(iv); (E) for any ARC General Partner or ARC
                  Equity Owner, (I) the shares of stock, partnership interests
                  and membership interests in the Permitted Subsidiaries owned
                  directly by such ARC General Partner or ARC Equity Owner, as
                  the case may be; and (II) incidental personal property
                  necessary for the ownership of the shares of stock,
                  partnership interests and membership interests in such
                  Permitted Subsidiaries; (F) for ARC SC Holdings, (I) the
                  membership interests in ARC Santa Catalina; and (II)
                  incidental personal property necessary for the ownership of
                  such membership interests; (G) for ARC Wilora Lake, (I) the
                  Fee Estate set forth opposite ARC Wilora Lake's name on Part
                  of C of Schedule I; and (II) the assets necessary for the
                  business of operating the facility located on such Real
                  Property; (H) for ARC Wilora Assisted Living, the assets
                  necessary for the business of operating the assisted living
                  wing of the facility located on the Fee Estate set forth
                  opposite ARC Wilora Lake's name on Part of C of Schedule I;
                  and (I) for Fort Austin LP, (I) the assets necessary for the
                  business of operating the Facility set forth opposite Fort
                  Austin LP's name on Schedule I; (II) the membership interests
                  in the ARC Fleetwood Entity owned directly by Fort Austin LP;
                  and (III) incidental personal property necessary for the
                  ownership of the membership interests in such Fleetwood
                  Entity;

                           (vi)     engage, either directly or indirectly, in
                  any business other than the business permitted pursuant to
                  Section 5.4(g) for Borrower or such Subsidiary, as the case
                  may be, without the prior written consent of Lender;

                           (vii)    incur any debt, secured or unsecured, direct
                  or contingent (including guaranteeing any obligation) without
                  the prior written consent of Lender (other than accounts
                  payable incurred in the ordinary course of business and the
                  Indebtedness permitted pursuant to Section 5.4(b));

                           (viii)   make any loans or advances to any other
                  person or entity, including the Permitted Subsidiaries other
                  than loans or advances permitted pursuant to Section 5.4(f);

                           (ix)     commingle the funds and other assets of
                  Borrower or such Subsidiary, as the case may be, with those of
                  the Permitted Subsidiaries, any shareholder or other equity
                  holder, Affiliate or any other Person;

                           (x)      hold itself out to be responsible for the
                  debts or obligations of any other Person (other than (x)
                  Borrower's obligations under the HCPI Guaranty and (y) the
                  obligations of any ARC General Partner, in its capacity as a
                  general partner);

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<PAGE>

                           (xi)     do any act which would make it impossible
                  for Borrower or such Subsidiary, as the case may be, to carry
                  on the ordinary business of Borrower or such Subsidiary, as
                  the case may be; and

                           (xii)    hold title to the assets of Borrower or such
                  Subsidiary, as the case may be, other than in the name of
                  Borrower or such Subsidiary, as the case may be.

Notwithstanding anything herein to the contrary in this Section 5.4(n), (x) the
provisions of this Section 5.4(n) shall not apply to the ARC Fleetwood Entities
and (y) Borrower or any Subsidiary may, from time to time, (x) make lawful
distributions in accordance with applicable law or loans on an arm's length
basis to its Affiliates subject to the provisions of Section 5.3(o)(viii), or
(y) obtain loans on an arm's length basis or lawful capital contributions in
accordance with applicable law from its Affiliates to the extent necessary to
satisfy its obligations as they become due; provided, however, that all such
transactions are accurately reflected in the books and records of Borrower or
such Subsidiary, as the case may be, and each of its respective applicable
Affiliates.

                  (o)      Tax Status. No election shall be made with respect to
any Property Owner to have such Property Owner treated as an association taxable
as a corporation for tax purposes. No election shall be made with respect to any
Property Operator of an Entrance Fee Facility to have such Property Operator
treated as a disregarded entity for tax purposes.

         Section 5.5       REIT Protections.

                  (a)      Notwithstanding anything else to the contrary in this
Agreement, unless Lender shall otherwise consent in writing (which consent may
be withheld in Lender's sole and absolute discretion), Borrower shall not permit
any of the Property Owners to:

                           (i)      acquire any stock, loan or other debt or
                  equity securities of or make any advance to another issuer
                  (including an Affiliate of Borrower or any Subsidiary);

                           (ii)     enter into any lease which is not approved
                  by Lender or provide any services to any lessee;

                           (iii)    enter into any lease which provides for the
                  rental of personal property, except a lease which provide for
                  the rental of both personal property and real property and in
                  which the personal property accounts for less than 10% of the
                  total rent (as determined pursuant to Section 856(d)(1) of the
                  Code);

                           (iv)     derive income in any calendar year other
                  than from rent or interest on any bank time deposits, in
                  either case which is not based on net income or profits of the
                  lessee or bank, as the case may be, which would cause the
                  aggregate amount of such income earned by all Property Owners
                  to exceed $100,000 during such calendar year;

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<PAGE>

                           (v)      own any assets other than the Facilities,
                  cash, bank time deposits and receivables such as rent, which
                  arise in the ordinary course of its rental business; or

                           (vi)     sell, dispose, convey or otherwise transfer
                  any of its properties (or interests therein) in a manner that
                  fails to satisfy the requirements of the prohibited
                  transaction safe-harbor set forth in Section 857(b)(6)(C) of
                  the Code with respect to Lender and as if Lender became the
                  owner of such properties at the time the Loan was made.

                  (b)      Borrower shall, promptly upon Lender's request, make
available to Lender all data and information in the possession of Borrower or
any Subsidiary relating to Borrower, any Subsidiary or any of their respective
assets, which is determined by Lender to be necessary or helpful to monitor its
compliance with the REIT income and asset tests and other legal requirements
relating to the status of Lender as a REIT.

                  (c)      Notwithstanding anything to the contrary herein,
while Borrower shall not be required independently to determine whether any
transaction or arrangement would adversely affect Lender's ability to qualify as
a REIT or would result in a Property Owner holding any assets other than "real
estate assets" as defined in Section 856(c)(5)(B) of the Code ("Non-REIT
Assets") or generating income which would not qualify under Sections 856(c)(3)
of the Code ("Non-REIT Income") if Borrower or any Subsidiary has actual
knowledge, or is otherwise informed by Lender in the exercise of Lender's
reasonable judgment, that a transaction or arrangement could have an adverse
effect on Lender's ability to qualify as a REIT or could result in a Property
Owner holding Non-REIT Assets or generating Non-REIT Income, the Borrower or any
Subsidiary, as applicable, shall take such actions (or refrain from taking such
actions) as are required to protect Lender's REIT status or to avoid a Property
Owner's receipt of such Non-REIT Income and/or its ownership of such Non-REIT
Assets (as the case may be).

                                  ARTICLE VI.
                                EVENTS OF DEFAULT

         Section 6.1       Events of Default. If any of the following events
(each such occurrence an "Event of Default," and collectively, the "Events of
Default") shall occur:

                  (a)      Non-Payment of Principal, Interest or Other Amounts.
Borrower or any other Loan Party shall fail to pay (i) when due any principal of
the Loan, (ii) within 5 days of the date when due, any interest thereon or (iii)
within 5 days of the date when due, any other amount payable under this
Agreement or any other Loan Document;

                  (b)      First Mortgage Loan Documents. Any breach, default or
event of default shall occur and any applicable grace period shall have passed,
or any event shall occur or condition exist, under any First Mortgage Loan
Document if the effect thereof is to accelerate, or permit the holder or holders
of the First Mortgage Loan with respect to such First Mortgage Loan Document to
accelerate such First Mortgage Loan;

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<PAGE>

                  (c)      HCPI Lease. Any Affiliate of Borrower (including any
HCPI Lessee) shall (i) fail to pay when due any monetary obligation under the
HCPI Lease Documents or (ii) fail to perform or observe (giving effect to all
applicable cure periods) any material term, covenant or agreement contained in
the HCPI Lease Documents;

                  (d)      Representations and Warranties. Any representation or
warranty made by any Loan Party under or in connection with any Loan Document
shall prove to have been incorrect in any material respect when made;

                  (e)      Financial and Negative Covenants. Borrower shall fail
to perform or observe any term, covenant or agreement contained in Sections 5.1,
5.2(j), 5.3(m), 5.3(n), 5.3(o), or 5.4 of this Agreement;

                  (f)      Reporting and Affirmative Covenants. Borrower shall
fail to perform or observe any term, covenant or agreement contained in Sections
5.2 (other than Section 5.2(j)), 5.3(c), 5.3(e), 5.3(h), 5.3(i), 5.3(j), 5.3(k),
or 5.3(l) if such failure shall remain unremedied for five days after such
failure;

                  (g)      Other Covenants. Borrower or any Loan Party shall
fail to perform or observe any term, covenant or agreement contained in this
Agreement or any other Transaction Document (other than a default under
subsection (a), (b), (c), (d) or (e) of this Section 6.1) if such failure shall
remain unremedied for 30 days after the earlier of (i) the date Borrower or such
Loan Party obtains knowledge of such failure or (ii) the date Borrower receives
notice from Lender of such failure;

                  (h)      Bankruptcy. Borrower or any other Loan Party shall
generally not pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by or against
any Loan Party seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
either (i) such proceeding shall remain undismissed or unstayed for a period of
60 days; or (ii) any of the actions sought in such proceeding (including the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur; or any Loan Party shall take any corporate action to
authorize any of the actions set forth above in this Section 6.1(h);

                  (i)      Judgments. Any judgment or order for the payment of
money shall be rendered against any Loan Party and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order and not stayed for any period of 30 consecutive days; or (ii) there shall
be any period of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect;

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<PAGE>

                  (j)      Transaction Documents. Any Transaction Document shall
cease to be in full force and effect after delivery thereof, or any Loan Party
or Property Operator shall so state in writing;

                  (k)      Collateral Documents. The Collateral Documents, after
delivery thereof pursuant to this Agreement or any of the other Loan Documents,
shall for any reason (other than pursuant to the terms thereof) cease to create
a valid and enforceable security interest in, or the Lien created thereby shall
not be duly perfected as to, any Collateral purported to be covered thereby;

                  (l)      ERISA. (i) An ERISA Event shall occur with respect to
a Pension Plan or Multi-Employer Plan which has resulted or could reasonably be
expected to result in liability of Borrower or any ERISA Affiliate under Title
IV of ERISA to the Pension Plan, Multi-Employer Plan or the PBGC; (ii) the
aggregate amount of Unfunded Pension Liability among all Pension Plans at any
time exceeds $100,000; or (iii) Borrower or any ERISA Affiliate shall fail to
pay when due, after the expiration of any applicable grace period, any
installment payment with respect to its withdrawal liability under Section 4201
of ERISA under a Multi-Employer Plan;

                  (m)      Other Indebtedness. Borrower or any of its
Subsidiaries shall fail to pay when due any principal of or premium or interest
on Indebtedness; or any breach, default or event of default shall occur and any
applicable grace period shall have passed, or any event shall occur or condition
exist, under any Indebtedness if the effect thereof, is to accelerate or permit
the holder or holders of such Indebtedness to accelerate the maturity thereof;
or

                  (n)      Leases. Any breach, default or event of default shall
occur, or any event shall occur or condition exist, under any Master Lease
Document or any HCPI Lease Document; or the Master Lease or the HCPI Lease shall
be terminated for any reason,

then, and in any such event, Lender may declare the Note, all interest thereon
and all other amounts payable under any Loan Document to be forthwith due and
payable, whereupon the Note, all such interest and all such amounts shall become
and be forthwith due and payable (without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by
Borrower); provided, however, that in the event of an Event of Default with
respect to Borrower under Section 6.1(g), the Note, all such interest and all
such amounts shall automatically become and be due and payable (without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower).

         Section 6.2       Rights Not Exclusive. Subject to Section 7.8, the
rights provided for in this Agreement and the other Loan Documents are
cumulative and are not exclusive of any other rights, powers or privileges or
remedies provided by law or in equity, or under any other instrument, document
or agreement.

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                                  ARTICLE VII.
                                  MISCELLANEOUS

         Section 7.1       Collateral Matters. Lender is hereby irrevocably
authorized (but shall not be obligated), without the necessity of any notice to
or further consent from any Person, from time to time to take any action with
respect to any Collateral or Collateral Documents which may be necessary or
appropriate to perfect and keep perfected the Liens created in favor of Lender
pursuant to the Collateral Documents.

         Section 7.2       Amendments. No amendment or waiver of any provision
of this Agreement or the Notes, nor consent to any departure by Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Lender, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.

         Section 7.3       Notices. Any notice, consent, approval, demand or
other communication required or permitted to be given hereunder (a "notice")
must be in writing and may be served personally or by U.S. Mail. If served by
U.S. Mail, it shall be addressed as follows:

                     If to Borrower:      ARCPI Holdings, Inc.
                                          111 Westwood Place, Suite 200
                                          Brentwood, Tennessee 37027
                                          Attn: Bill Sheriff, CEO
                                          Fax: (615) 221-5284

                     with a copy to:      Bass, Berry & Sims PLC
                                          AmSouth Center
                                          315 Deaderick Street, Suite 2700
                                          Nashville, Tennessee 37238-0002
                                          Attn: T. Andrew Smith, Esq.
                                          Fax: (615) 742-2766

                     If to Lender:        Health Care Property Investors, Inc.
                                          4675 MacArthur Court, Suite 900
                                          Newport Beach, California 92660
                                          Attn: Legal Department
                                          Fax: (949) 221-0607

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

Any notice which is personally served shall be effective upon the date of
service; any notice given by U.S. Mail shall be deemed effectively given, if
deposited in the United States Mail, registered or certified with return receipt
requested, postage prepaid and addressed as provided

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above, on the date of receipt, refusal or non-delivery indicated on the return
receipt. In lieu of notice by U.S. Mail, either party may send notices by
facsimile or by a nationally recognized overnight courier service which provides
written proof of delivery (such as U.P.S. or Federal Express). Any notice sent
by facsimile shall be effective upon confirmation of receipt in legible form,
provided that an original of such facsimile is also sent to the intended
addressee by another method approved in this Section 7.3, and any notice sent by
a nationally recognized overnight courier shall be effective on the date of
delivery to the party at its address specified above as set forth in the
courier's delivery receipt. Either party may, by notice to the other from time
to time in the manner herein provided, specify a different address for notice
purposes.

         Section 7.4       No Waiver; Remedies. No failure on the part of Lender
to exercise, and no delay in exercising, any right under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.

         Section 7.5       Costs, Expenses and Taxes.

                  (a)      General Costs and Expenses. Borrower agrees to pay on
demand all costs and expenses of Lender in connection with the preparation,
execution, delivery, administration, modification and amendment of the
Transaction Documents and the other documents to be delivered under the
Transaction Documents, including the fees and out-of-pocket expenses of counsel
for Lender actually incurred with respect thereto and with respect to advising
Lender as to its rights and responsibilities under the Loan Documents. Borrower
further agrees to pay on demand all costs and expenses, if any (including
counsel fees and expenses) actually incurred, in connection with the enforcement
by Lender (whether through negotiations, legal proceedings or otherwise) of the
Loan Documents and the other documents to be delivered under the Loan Documents,
including counsel fees and expenses actually incurred in connection with the
enforcement of rights under this Section 7.5. In addition, Borrower shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution, delivery, filing and recording of the Loan
Documents and the other documents to be delivered under the Loan Documents, and
agrees to save Lender harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes.

                  (b)      Survival. The provisions of this Section 7.5 shall
survive the termination of this Agreement and the repayment of the Loan.

         Section 7.6       Right of Set-off. Subject to the provisions of
Section 7.8, Lender is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by Lender to or for the credit or the
account of Borrower against any and all of the obligations of Borrower now or
hereafter existing under any Transaction Document, whether or not Lender shall
have made any demand under this Agreement or such Note and although such
obligations may be unmatured. The

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rights of Lender under this Section 7.6 are in addition to other rights and
remedies (including other rights of set-off) which Lender may have.

         Section 7.7       Indemnity.

                  (a)      Indemnity. Borrower shall pay, indemnify, defend and
hold Lender and each of its directors, officers, employees, attorneys or agents
(each, an "Indemnified Person") harmless (to the fullest extent permitted by
law) from and against any and all claims, demands, suits, actions,
investigations, proceedings and damages, and all attorney's fees and
disbursements and other costs and expenses actually incurred in connection
therewith (as and when they are incurred and whether or not suit is brought), at
any time asserted against, imposed upon or incurred by any of them in connection
with or as a result of or related to the execution, delivery, enforcement,
performance and administration of this Agreement and any other Loan Documents or
the transactions contemplated herein, and with respect to any investigation,
litigation or proceeding related to this Agreement, any other Loan Document or
the Loan or the use of the proceeds thereof (whether or not any Indemnified
Person is a party thereto) any act, omission, event or circumstance in any
manner related thereto (all the foregoing, collectively, the "Indemnified
Liabilities").

                  (b)      Limitation. Borrower shall have no obligation to any
Indemnified Person under this Section 7.7 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person.

                  (c)      Survival. The provisions of this Section 7.7 shall
survive the termination of this Agreement and the repayment of the Loan.

         Section 7.8       Limited Recourse.

                  (a)      Limitation on Recourse. Notwithstanding anything
herein or in any other Loan Document to the contrary, subject to the
qualifications set forth in this Section 7.8, Lender agrees that (x) Borrower
shall be liable upon the indebtedness evidenced hereby and for the other
Obligations arising under the Loan Documents to the full extent (but only to the
extent) of the Collateral, (y) if an Event of Default occurs, any judicial or
other proceedings brought by Lender against Borrower shall be limited to the
preservation, enforcement and foreclosure, or any thereof, of the liens,
security titles, estates, assignments, rights and security interests now or at
any time hereafter securing the Obligations of Borrower and the other Loan
Parties under the Loan Documents, and no attachment, execution or other writ of
process shall be sought, issued or levied upon any assets, properties or funds
of Borrower, any other Loan Party, ARC or any Subsidiary of ARC other than the
Collateral (except with respect to the liability described below in this Section
7.8), and (z) in the event of a foreclosure of such liens, security titles,
estates, assignments, rights or security interests securing the Obligations of
Borrower and the other Loan Parties under the Loan Documents, no judgment for
any deficiency upon the indebtedness evidenced hereby shall be sought or
obtained by Lender against Borrower or any other Loan Party, except with respect
to any liability described below in this Section 7.8.

                                       81

<PAGE>

                  (b)      Exceptions to Limitation. Notwithstanding anything to
the contrary in Section 7.8(a), Borrower shall be fully and personally liable
and subject to legal action for any and all fees, costs, expenses, damages and
losses (including, without limitation, legal fees and costs) incurred or
suffered by Lender, resulting from relating to the following:

                           (i)      The misapplication or misappropriation by
                  Borrower, any other Loan Party, ARC or any Subsidiary of ARC
                  in violation of any provisions of the Loan Documents or the
                  Master Lease of any or all money collected, paid or received,
                  or to which, pursuant to the Loan Documents, Borrower, any
                  Loan Party or Lender is entitled to receive, relating to the
                  Loan, the Collateral or the Master Lease, including, but not
                  limited to, insurance proceeds, condemnation awards, lease
                  security and other deposits and rent;

                           (ii)     Rents, issues, profits and revenues of all
                  or any portion of the Collateral or the Facilities received or
                  applicable to a period after the occurrence of any Event of
                  Default which are not applied to pay, real estate taxes and
                  other charges, premiums on insurance policies required under
                  the Loan Documents and the other ordinary and necessary
                  expenses of owning and operating the Facilities;

                           (iii)    Waste committed on the Facilities or damage
                  to the Facilities as a result of intentional misconduct or
                  gross negligence or the removal of all or any property in
                  violation of the terms of the Loan Documents or the Master
                  Lease;

                           (iv)     The filing of any petition for bankruptcy,
                  reorganization or arrangement pursuant to state or federal
                  bankruptcy law, or any similar federal or state law, by ARC or
                  any Affiliate of ARC against Borrower, any Loan Party or any
                  Property Operator or if any proceeding seeking the dissolution
                  or liquidation of Borrower, any Loan Party or any Property
                  Operator shall be commenced by ARC or any Affiliate of ARC;

                           (v)      The failure by Borrower to obtain Lender's
                  prior written consent to any assignment, transfer or
                  conveyance of any portion of any Facility or any interest
                  therein that is not otherwise permitted pursuant to the Loan
                  Documents (other than an assignment, transfer or conveyance
                  covered by Section 7.8(c)(ii)); or

                           (vi)     The failure by Borrower or any Property
                  Owner to comply with the provisions of Section 5.3(o) or
                  Section 5.4(n).

                  (c)      Full Recourse. Notwithstanding anything to the
contrary in Section 7.8(a), if:

                           (i)      Borrower fails to obtain Lender's prior
                  written consent to any financing or refinancing by any
                  Property Owner or other Person of all or any of the
                  Facilities;

                                       82

<PAGE>

                           (ii)     except for assignments, transfers or
                  conveyances specifically permitted pursuant to the Loan
                  Documents, Borrower fails to obtain Lender's prior written
                  consent to any assignment, transfer or conveyance of (x)
                  interests in any of the Permitted Subsidiaries or (y) any
                  material portion of the real property interests in any
                  Facility;

                           (iii)    any petition for bankruptcy, reorganization
                  or arrangement pursuant to state or federal bankruptcy law, or
                  any similar federal or state law, shall be filed or consented
                  to, or acquiesced in by, Borrower, any Loan Party or any
                  Property Operator, or Borrower, any Loan Party or any Property
                  Operator seeks (or consents to, or acquiesces in) the
                  appointment of a receiver, liquidator or trustee, or any
                  proceeding for the dissolution or liquidation of Borrower, any
                  Loan Party or any Property Operator shall be instituted or
                  consented to, or acquiesced in by Borrower, any Loan Party or
                  any Property Operator; or

                           (iv)     any Fraud or intentional or grossly
                  negligent material misrepresentation or failure to disclose a
                  material fact (including, without limitation, with respect to
                  any such fraud, misrepresentation or failure to disclose in
                  any materials delivered to Lender) by Borrower, ARC or any
                  Affiliate of ARC or Borrower or by any other Person authorized
                  to make statements or representations on behalf of Borrower,
                  ARC or any Affiliate of ARC or Borrower in connection with the
                  Transaction Documents;

then (x) the Obligations shall be fully recourse to Borrower; and (y) Lender
shall not be deemed to have waived any right which Lender may have under Section
506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code as
same may be amended or replaced to file a claim for the full amount of the
Obligations or to require that all collateral shall continue to secure all of
the indebtedness owing to Lender in accordance with the Loan Documents.

         Section 7.9       Binding Effect. This Agreement shall become effective
when it shall have been executed by Borrower and Lender and thereafter shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns, except that (x) Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of Lender (which consent may be withheld or granted in Lender's
sole and absolute discretion) and (y) so long as no Event of Default has
occurred, Lender shall not have the right to assign its rights hereunder or any
interest herein to a Person that competes directly with Borrower or any
Subsidiary of Borrower without the prior written consent of Borrower (which
consent may be withheld or granted in Borrower's sole and absolute discretion).

         Section 7.10      GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH OF BORROWER AND LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS

                                       83

<PAGE>

PROPERTY, TO THE JURISDICTION OF THOSE COURTS. EACH OF BORROWER AND LENDER
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS MAY BE MADE BY ANY MEANS PERMITTED BY NEW YORK LAW.

         Section 7.11      WAIVER OF JURY TRIAL. BORROWER AND LENDER WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE, AND
AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL
WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH PARTY FURTHER AGREES THAT
ITS RIGHT TO A TRIAL BY JURY IS HEREBY WAIVED AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.

         Section 7.12      Confidentiality. Lender agrees that material,
non-public information regarding Borrower, its Subsidiaries, operations, assets,
and existing and contemplated business plans shall be treated by Lender in a
confidential manner, and shall not be disclosed by it to Persons who are not
parties to this Agreement, except: (i) to counsel for and other advisors,
accountants, and auditors to Lender; (ii) as may be required by statute,
decision, or judicial or administrative order, rule, or regulation; (iii) as may
be agreed to in advance by Borrower; (iv) as to any such information that is
generally available to the public; and (v) in connection with any assignment,
prospective assignment, sale, prospective sale, participation or prospective
participation of Lender's interests hereunder.

         Section 7.13      Limitation of Liability. No claim may be made by
Borrower, any Subsidiary of Borrower, or any Lender or the Affiliates,
directors, officers, employees, attorneys or agents of any of them for any
special, indirect, consequential or punitive damages in respect of any claim for
breach of contract or any other theory of liability arising out of or related to
the transactions contemplated by this Agreement or the other Loan Documents, or
any act, omission or event occurring in connection therewith, and Borrower, each
Subsidiary of Borrower, and Lender hereby waives, releases and agrees not to sue
upon any claim for any such damages, whether or not now accrued and whether or
not known or suspected to exist in its favor.

                                       84

<PAGE>

         Section 7.14      Entire Agreement. This Agreement, together with the
other Loan Documents, embodies the entire Agreement and understanding between
Borrower and Lender and supersedes all prior or contemporaneous agreements and
understandings of such persons, verbal or written, relating to the subject
matter hereof and thereof.

         Section 7.15      Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.

                     (remainder of page intentionally blank)

                                       85

<PAGE>

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

                                       ARCPI HOLDINGS, INC., a Tennessee
                                       corporation, as Borrower

                                       By: /s/ H. Todd Kaestner
                                          --------------------------------------
                                          Name: H. Todd Kaestner
                                               ---------------------------------
                                          Title: Executive Vice President
                                                --------------------------------

                                       HEALTH CARE PROPERTY INVESTORS,
                                       INC., a Maryland corporation, as Lender

                                       By: /s/ James G. Reynolds
                                          --------------------------------------
                                          Name: James G. Reynolds
                                               ---------------------------------
                                          Title: Executive Vice President
                                                --------------------------------

                                      S-1<PAGE>
                                                                   EXHIBIT 10.2
================================================================================

                             CONTRIBUTION AGREEMENT

                                 BY AND BETWEEN

                              ARCPI HOLDINGS, INC.,
                             A TENNESSEE CORPORATION

                                       AND

                        FORT AUSTIN LIMITED PARTNERSHIP,
                           A TEXAS LIMITED PARTNERSHIP

                            ARC SANTA CATALINA, INC.,
                             A TENNESSEE CORPORATION

                            ARC RICHMOND PLACE, INC.,
                             A DELAWARE CORPORATION

                      FREEDOM VILLAGE OF HOLLAND, MICHIGAN,
                         A MICHIGAN GENERAL PARTNERSHIP

                    FREEDOM VILLAGE OF SUN CITY CENTER, LTD.,
                          A FLORIDA LIMITED PARTNERSHIP

                 LAKE SEMINOLE SQUARE MANAGEMENT COMPANY, INC.,
                             A TENNESSEE CORPORATION

                    FREEDOM GROUP-LAKE SEMINOLE SQUARE, INC.,
                             A TENNESSEE CORPORATION

                              ARC BRANDYWINE, LLC,
                      A TENNESSEE LIMITED LIABILITY COMPANY

                                       AND

                      HEALTH CARE PROPERTY INVESTORS, INC.,
                             A MARYLAND CORPORATION

                             DATED: AUGUST 14, 2002

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

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                              <C>
1.       Contribution by HCPI and Redemption of the Contributing Subsidiaries.....................................2
         1.1      Contribution....................................................................................2
         1.2      Payment of the Contribution Amount..............................................................2
         1.3      Redemption......................................................................................2

2.       Closing..................................................................................................2

3.       Effective Date Opinion...................................................................................3

4.       Closing Deliveries.......................................................................................3
         4.1      Documents to be Delivered by ARCPI, the Contributing Subsidiaries and the Subject Companies.....3
         4.2      Documents and Monies to be Delivered by HCPI....................................................4

5.       Conditions to Closing....................................................................................5
         5.1      Conditions to Obligation of HCPI to Close.......................................................5
         5.2      Conditions to Obligation of ARCPI and the Contributing Subsidiaries to Close....................6

6.       Admission of HCPI as Member of Each Subject Company and Subsequent Redemption............................6

7.       Gross Asset Value, Net Asset Value and Capital Account Adjustments.......................................6

8.       Continuation.............................................................................................7

9.       Representations and Warranties of ARCPI and the Contributing Subsidiaries................................7
         9.1      Organization, Good Standing and Qualification...................................................7
         9.2      Power and Authority.............................................................................7
         9.3      Outstanding Membership Interests of the Subject Companies.......................................7
         9.4      Ownership.......................................................................................8
         9.5      Due Authorization, Execution and Delivery; Binding Obligations..................................8
         9.6      No Violation....................................................................................8
         9.7      No Defaults.....................................................................................9
         9.8      Conditions of HCPI Loan Agreement...............................................................9
         9.9      Books and Records...............................................................................9
         9.10     Business of the Subject Companies...............................................................9
         9.11     Subsidiaries....................................................................................9
         9.12     Consents........................................................................................9
         9.13     Brokers.........................................................................................9
         9.14     Taxes...........................................................................................9
         9.15     Litigation.....................................................................................10
         9.16     Legal Compliance...............................................................................10
         9.17     Undisclosed Liabilities........................................................................10
         9.18     Investment Company.............................................................................10
         9.19     Related Party Transactions.....................................................................10
</TABLE>

                                       i

<PAGE>

<TABLE>
<S>      <C>                                                                                                    <C>
         9.20     Full Disclosure................................................................................11
         9.21     Compliance with REIT Protections...............................................................11

10.      Representations and Warranties of HCPI..................................................................11
         10.1     HCPI's Organization............................................................................11
         10.2     Authorization of Agreement.....................................................................11
         10.3     No Violation...................................................................................11
         10.4     Litigation.....................................................................................12
         10.5     Investment Intent..............................................................................12

11.      Further Agreements of the Parties.......................................................................12
         11.1     Notices........................................................................................12
         11.2     Expenses.......................................................................................12

12.      Indemnification and Related Matters.....................................................................12
         12.1     Indemnification................................................................................12

13.      Miscellaneous...........................................................................................13
         13.1     Survival of Representations and Warranties and Covenants.......................................13
         13.2     Entire Agreement...............................................................................13
         13.3     GOVERNING LAW..................................................................................13
         13.4     WAIVER OF JURY TRIAL...........................................................................14
         13.5     Confidentiality................................................................................14
         13.6     Public Disclosure..............................................................................14
         13.7     Headings.......................................................................................15
         13.8     Notices........................................................................................15
         13.9     Separability...................................................................................16
         13.10    Attorneys' Fees................................................................................16
         13.11    Waiver.........................................................................................16
         13.12    Binding Effect; Assignment.....................................................................16
         13.13    Counterparts...................................................................................16
         13.14    No Third-Party Beneficiary.....................................................................16
         13.15    Exhibits 17
         13.16    Miscellaneous..................................................................................17
         13.17    Waiver.........................................................................................17
         13.18    Additional Acts................................................................................17
         13.19    No Presumption.................................................................................17
         13.20    Facsimile Signatures...........................................................................17
</TABLE>

                                       ii

<PAGE>

                             CONTRIBUTION AGREEMENT

                  This CONTRIBUTION Agreement (this "Agreement") is made and
entered into as of August 14, 2002 (the "Effective Date") between ARCPI
Holdings, Inc., a Tennessee corporation ("ARCPI"), ARCPI's direct and indirect
subsidiaries as set forth on Schedule A attached hereto (individually, a
"Contributing Subsidiary" and collectively the "Contributing Subsidiaries") and
Health Care Property Investors, Inc., a Maryland corporation ("HCPI").

                                    RECITALS

                  A.       Pursuant to a restructuring of ARCPI and its
subsidiaries, each Contributing Subsidiary will transfer certain real property
together with the improvement thereon and personal property associated therewith
(each, a "Property"), as set forth and described on Schedule A to a limited
liability company also set forth on Schedule A attached hereto (individually, a
"Subject Company" and collectively the "Subject Companies"), which Subject
Companies are currently formed or are anticipated to be formed by ARCPI. In
exchange for the transfer of the Property from a Contributing Subsidiary to a
Subject Company, each Subject Company will issue to the applicable Contributing
Subsidiary a membership interest in such Subject Company. Following the
Contributing Companies' receipt of the membership interests in the Subject
Companies, ARCPI will own One percent (1%) of the membership interests in the
Subject Companies. Thereafter, the Contributing Subsidiaries will distribute
Eighty-Nine and 2/10ths percent (89.2%) of such interests to ARCPI, such that
following such distribution, ARCPI will own Ninety and 2/10ths percent (90.2%)
of each Subject Company. Upon completion of the restructuring, ARCPI, together
with the applicable Contributing Subsidiary will be the sole members of each
Subject Company. The members' interests in each Subject Company, including,
without limitation, the members' interests in the profits and losses in each
Subject Company, the members' capital account in each Subject Company and the
members' rights, title, interests and obligations as the members in each Subject
Company shall be referred herein with respect to each Subject Company as the
"Membership Interests."

                  B.       HCPI desires to make a contribution to each Subject
Company in exchange for the issuance of the HCPI Membership Interest (as defined
below) in each Subject Company (the "Contribution"), as more particularly set
forth herein.

                  C.       Immediately following the Contribution, each
Contributing Subsidiary desires to have its entire Membership Interests in the
Subject Companies redeemed by the applicable Subject Company (the "Redemption").

                  D.       ARCPI and each Contributing Subsidiary will cause
each of the Subject Companies to accept HCPI's Contribution and to use only the
proceeds of the Contribution to fund the Redemption of the Contributing
Subsidiaries' entire Membership Interests.

                  E.       Upon receipt of the HCPI Membership Interest by HCPI
in each of the Subject Companies as set forth herein, HCPI desires to become a
member of each of the Subject Companies.

                  F.       In connection with the receipt of the HCPI Membership
Interest by HCPI in each of the Subject Companies, and effective immediately
following the Redemption, HCPI

<PAGE>

and ARCPI desire to amend and restate the limited liability company operating
agreements of each of the Subject Companies (each, an "Amended and Restated
Operating Agreement") to reflect, among other things, the admission of HCPI as a
member to each of the respective Subject Companies, a restatement of the
Adjusted Gross Asset Value (as defined below) of each of the Subject Companies'
assets for the purpose of maintaining capital accounts under the respective
Amended and Restated Operating Agreements, and an adjustment in the capital
accounts of ARCPI and HCPI in each of the Subject Companies to reflect such
restatement as a result of HCPI's Contribution and the Redemption.

                  G.       ARCPI is also the borrower and HCPI is also the
lender pursuant to that certain Loan Agreement of even date herewith (the "HCPI
Loan Agreement") pursuant to which HCPI, as lender, has agreed to make a loan
(the "HCPI Loan") to ARCPI in the original principal amount of One Hundred
Twelve Million Seven Hundred Fifty Thousand Dollars ($112,750,000) upon and
subject to the terms in the HCPI Loan Agreement and the other Loan Documents (as
defined in the HCPI Loan Agreement).

                                    AGREEMENT

         1.       Contribution by HCPI and Redemption of the Contributing
Subsidiaries.

                  1.1      Contribution. Subject to the terms and conditions of
this Agreement, at the Closing (as defined below), HCPI will contribute and
deliver to the Subject Companies, an amount in aggregate of Twelve Million Two
Hundred Fifty Thousand Dollars ($12,250,000) (the "Contribution Amount"). In
exchange for the Contribution Amount, ARCPI and the appropriate Contributing
Subsidiary will cause the appropriate Subject Company to issue, convey and
deliver to HCPI a Membership Interest in each Subject Company such that
immediately following the Redemption, HCPI will hold a Nine and 8/10ths percent
(9.8%) Membership Interest (the "HCPI Membership Interest") in each Subject
Company and ARCPI will hold a Ninety and 2/10ths percent (90.2%) Membership
Interest in each Subject Company, all subject to the terms of the Amended and
Restated Operating Agreements.

                  1.2      Payment of the Contribution Amount. The Contribution
Amount shall be paid at the Closing by wire transfer of immediately available
funds to accounts designated by ARCPI.

                  1.3      Redemption. Immediately following the Contribution by
HCPI, ARCPI, each Contributing Subsidiary and HCPI agree to cause each Subject
Company to use the portion of the Contribution Amount received by each Subject
Company to redeem each Contributing Subsidiary's entire Membership Interest in
the applicable Subject Company in full.

         2.       Closing. The contribution of the Contribution Amount,
Redemption and issuance of the HCPI Membership Interest in each Subject Company
shall occur in immediate succession (the "Closing") and shall take place at the
offices of Latham & Watkins, 650 Town Center Drive, 20th Floor, Costa Mesa,
California 92626 (or at such other place as the parties may agree in writing) on
the Funding Date (as defined in the HCPI Loan Agreement), and shall occur, if at
all, immediately prior to the funding of the HCPI Loan and at such time as all
conditions to the funding of the HCPI Loan have been satisfied. The date on
which the Closing is held is referred

                                       2

<PAGE>

to in this Agreement as the "Closing Date." At the Closing, the parties shall
execute and deliver the documents referred to in Section 4.

         3.       Effective Date Opinion. On the Effective Date, counsel for
ARCPI shall deliver an opinion, subject to customary qualifications and
limitations, as to (i) the power and authority of ARCPI and to execute and
deliver this Agreement and perform their obligations hereunder, (ii) the due
authorization, execution and delivery of this Agreement by ARCPI and (iii) the
enforceability of this Agreement against ARCPI.

         4.       Closing Deliveries.

                  4.1      Documents to be Delivered by ARCPI, the Contributing
Subsidiaries and the Subject Companies. At the Closing, ARCPI and the
Contributing Subsidiaries shall deliver, and shall cause the Subject Companies
to deliver, to HCPI the following:

                           (a)      an Amended and Restated Operating Agreement
for each Subject Company, in a form and substance reasonably acceptable to HCPI
and duly executed by ARCPI;

                           (b)      a certificate, dated as of the Closing Date,
executed by an officer of ARCPI certifying true, complete and effective copies
of (i) the resolutions of the board of directors of ARCPI, authorizing the
execution, delivery and performance of this Agreement and all agreements,
documents and instruments to be delivered pursuant to this Agreement (the
"Transaction Documents") to which ARCPI is a party, (ii) ARCPI's Articles of
Incorporation, (iii) ARCPI's Bylaws and (iv) resolutions of the board of
directors of ARCPI authorizing ARCPI in its capacity as a member of each of the
Subject Companies to approve the (y) issuance of the HCPI Membership Interests
and (z) the Redemption, by each of the Subject Companies;

                           (c)      certificates, dated as of the Closing Date,
executed by an officer, manager or general partner, as the case may be, of each
Contributing Subsidiary certifying true, complete and effective copies of the
(i) resolutions of the board of directors, management or general partners, as
the case may be, of such Contributing Subsidiary authorizing the execution,
delivery and performance of this Agreement and the Transaction Documents to
which the Contributing Subsidiary is a party, (ii) the applicable charter
documents of the Contributing Subsidiary and (iii) resolutions of the applicable
authorizing body of each of the Contributing Subsidiaries authorizing each of
the Contributing Subsidiaries in its capacity as a member of each of the
appropriate Subject Companies to approve (y) the issuance of the HCPI Membership
Interests and (z) the Redemption, by such Subject Company.

                           (d)      a certificate, dated as of the Closing Date,
executed by ARCPI in its capacity as a member of each Subject Company,
certifying true, complete and effective copies of (i) each Subject Company's
Articles of Organization and (ii) each Subject Company's Operating Agreement in
effect immediately prior to the Closing;

                           (e)      evidence reasonably satisfactory to HCPI
that the person or persons executing this Agreement, the Amended and Restated
Operating Agreement or any of the other Transaction Documents to be delivered by
or on behalf of ARCPI or the Contributing Subsidiaries at the Closing have full
right, power and authority to do so;

                                       3

<PAGE>

                           (f)      a certificate dated as of the Closing Date,
executed by officers of ARCPI and each of the Contributing Subsidiaries
certifying that the representations and warranties of ARCPI and the Contributing
Subsidiaries provided under Section 9 are true and correct and that ARCPI and
the Contributing Subsidiaries have performed and observed, in all material
respects, all covenants and agreements to be performed and observed by it under
this Agreement or any other Transaction Document as of the Closing Date;

                           (g)      an additional opinion of counsel to ARCPI
and the Contributing Subsidiaries subject to customary qualifications and
limitations, as to the matters set forth in Sections 9.1, 9.2 , 9.3, 9.4, 9.5
and, 9.6 in form and substance acceptable to HCPI;

                           (h)      date down certificates of good standing
dated as of the Closing Date for ARCPI, each Contributing Company and each
Subject Company and date down qualifications to do business, dated as of the
Closing Date, for each Subject Company in each jurisdiction in which such
Subject Company is qualified to do business or owns real property;

                           (i)      a schedule, acceptable to HCPI, designating,
with respect to each of the Subject Companies, the Adjusted Gross Asset Value,
the Adjusted Net Asset Value, HCPI's Adjusted Capital Account and ARCPI's
Adjusted Capital Account pursuant to Section 7 of this Agreement; and

                           (j)      an affidavit from each Contributing
Subsidiary, stating under penalty of perjury, such Contributing Subsidiary's
United States taxpayer identification number and that such Contributing
Subsidiary is not a foreign person pursuant to Section 1445(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code") and a comparable
affidavit satisfying applicable state and any other withholding requirements.

                  4.2      Documents and Monies to be Delivered by HCPI.  At the
Closing, HCPI shall deliver to ARCPI and the Contributing Subsidiaries the
following:

                           (a)      an Amended and Restated Operating Agreement
for each Subject Company, in form and substance reasonably acceptable to ARCPI
and the Contributing Subsidiaries and duly executed by HCPI;

                           (b)      a certificate, dated as of the Closing Date,
executed by an officer of HCPI certifying true, complete and effective copies of
(i) the resolutions of the board of directors of HCPI authorizing the execution,
delivery and performance of this Agreement and all Transaction Documents to
which HCPI is a party, (ii) HCPI's Articles of Restatement and (iii) HCPI's
Bylaws;

                           (c)      evidence reasonably satisfactory to ARCPI
that the person or persons executing this Agreement, the Amended and Restated
Operating Agreement or any of the other Transaction Documents to be delivered by
or on behalf of HCPI at the Closing have full right, power and authority to do
so;

                           (d)      a certificate dated as of the Closing Date,
executed by an officer of HCPI certifying that the representations and
warranties of HCPI provided under Section 9 are true and correct; and

                                       4

<PAGE>

                           (e)      the Contribution Amount, which amount shall
be paid by wire transfer of immediately available funds to accounts designated
by ARCPI.

         5.       Conditions to Closing.

                  5.1      Conditions to Obligation of HCPI to Close.

                           (a)      HCPI Loan.  All Conditions to the funding of
the HCPI Loan Agreement as set forth in Article III of the HCPI Loan Agreement
shall have been satisfied and the Funding Date shall be set to occur immediately
following the Closing hereunder.

                           (b)      Reformation of Subject Companies.  Each of
the Subject Companies shall have been reformed and organized as a limited
liability company under the laws of the State of Delaware to the extent not
already so organized, and shall be in good standing as a limited liability
company in the State of Delaware, and qualified to do business in each
jurisdiction in which it owns real property.

                           (c)      No Default. No event or circumstance shall
have occurred that would constitute by itself or with notice or lapse of time,
or both, an event of default by ARCPI or any affiliate of ARCPI under any lease,
agreement or other instrument now or hereafter made with or in favor of HCPI or
an affiliate of HCPI, including, without limitation, the HCPI Loan Agreement.

                           (d)      Performance and Delivery of Documents at
Closing. Each of ARCPI, the Contribution Subsidiaries and the Subject Companies
shall have performed each and all of the covenants and obligations required to
be performed by it and shall have delivered all documents required to be
delivered pursuant to Section 4.1 on or prior to the Closing.

                           (e)      UCC Search. HCPI shall have received and
approved UCC searches and real property lien searches against ARCPI, each
Contributing Company and each Subject Company showing no liens on any of ARCPI's
or the Contributing Companies' property or assets relating to the Subject
Companies and no liens on the Subject Companies' property other than as
disclosed in, or permitted by, the HCPI Loan Agreement or the schedules thereto.

                           (f)      Redemption. All conditions to the Redemption
shall have been satisfied and the Redemption shall be set to occur immediately
following the Closing herein.

                           (g)      REIT Protections. HCPI shall be satisfied in
its reasonable discretion that HCPI's ownership of the HCPI Membership Interest
in each of the Subject Companies would not adversely affect HCPI's ability to
qualify as a real estate investment trust ("REIT") qualifying under the Internal
Revenue Code of 1986, as amended (the "Code") Section 856, et seq.

                           (h)      Representations and Warranties; Officer's
Certificates. Each and all of the representations and warranties of ARCPI and
the Contributing Subsidiaries hereunder shall be true and correct on and as of
the Closing Date, as though given as of the Closing Date and ARCPI and the
Contributing Subsidiaries, pursuant to Section 4.1(f), shall have delivered to
HCPI an officer's certificate to that effect.

                                       5

<PAGE>

                  5.2      Conditions to Obligation of ARCPI and the
Contributing Subsidiaries to Close.

                           (a)      HCPI Loan. All Conditions to the HCPI Loan
Agreement as set forth in Article III of the HCPI Loan Agreement shall have been
satisfied and the Funding Date shall be set to occur immediately following the
Closing hereunder.

                           (b)      Performance and Delivery of Documents at
Closing. HCPI shall have performed each and all of the covenants and obligations
required to be performed by it and shall have delivered all documents required
to be delivered pursuant to Section 4.2 on or prior to the Closing.

                           (c)      Representations and Warranties; Officer's
Certificates. Each and all of the representations and warranties of HCPI
hereunder shall be true and correct on and as of the Closing Date, as though
given as of the Closing Date, and HCPI, pursuant to Section 4.2(d), shall have
delivered to ARCPI and the Contributing Subsidiaries an officer's certificates
to that effect.

         6.       Admission of HCPI as Member of Each Subject Company and
Subsequent Redemption.

                           (a)      Immediately upon receipt of the Contribution
Amount each of ARCPI and the Contributing Subsidiaries will cause the applicable
Subject Company to issue the HCPI Membership Interest and admit HCPI as a Member
to the applicable Subject Company.

                           (b)      Immediately following the contribution of
the Contribution Amount by HCPI, ARCPI, each Contributing Subsidiary and HCPI
agree to cause each Subject Company to redeem the Membership Interest of the
applicable Contributing Subsidiary using only the portion of the Contribution
Amount received by such Subject Company and, immediately following the
Redemption, cause each Contributing Subsidiary will withdraw as a member from
the applicable Subject Company.

                           (c)      HCPI and ARCPI will be the sole Members of
each Subject Company following the Redemption.

         7.       Gross Asset Value, Net Asset Value and Capital Account
Adjustments. For the purposes of maintaining capital accounts under the Amended
and Restated Operating Agreement for each Subject Company:

                           (a)      Immediately following the Redemption, the
Gross Asset Value (as defined in each Subject Company's respective operating
agreement) of each Subject Company's assets shall be adjusted as of the Closing
Date to cause the net asset value of such Subject Company's assets to be as set
forth in Section 7(b) below (the "Adjusted Gross Asset Value").

                           (b)      Immediately following the Redemption, the
aggregate net asset value (which is the Gross Asset Value after taking into
account each of the Subject Company's liabilities and secured debt) shall be One
Hundred and Twenty-Five Million Dollars ($125,000,000) and shall be allocated
among the Subject Companies as reasonably agreed by the

                                       6

<PAGE>

parties (the "Adjusted Net Asset Value"). For the purpose of maintaining capital
accounts under the respective Amended and Restated Operating Agreements of the
Subject Companies, the Contribution Amount shall be allocated among the HCPI
Membership Interests in the Subject Companies in proportion to the allocation of
Adjusted Net Asset Value among the Subject Companies.

                           (c)      Immediately following the Redemption, HCPI
and ARCPI agree that the capital accounts in each Subject Company shall be
correspondingly adjusted in accordance with Section 1.704-1(b)(2)(iv)(f) of the
Treasury Regulations promulgated under the Code in order that HCPI's capital
account shall be equal to an amount equivalent to Nine and 8/10ths Percent
(9.8%) of the Adjusted Net Asset Value of such Subject Company and ARCPI's
capital account shall be equal to an amount equivalent to Ninety and 2/10ths
Percent (90.2%) of the Adjusted Net Asset Value of such Subject Company (the
"Adjusted Capital Account").

         8.       Continuation. HCPI, ARCPI and the Contributing Subsidiaries
hereto agree that following the Closing each Subject Company is authorized to
and shall continue its business without dissolution.

         9.       Representations and Warranties of ARCPI and the Contributing
Subsidiaries. Except as disclosed in the disclosure schedule attached herewith
(the "Disclosure Schedule") by reference to the paragraph(s) below to which the
disclosure pertains (and not by reference to a specific subparagraph therein to
which a disclosure pertains), ARCPI and the Contributing Subsidiaries jointly
and severally represent and warrant to HCPI that the following statements are
and shall be true and correct on and as of the Effective Date and on and as of
the Closing Date (except as otherwise expressly set forth below):

                  9.1      Organization, Good Standing and Qualification. ARCPI
is duly incorporated, validly existing and in good standing under the laws of
the State of Tennessee. As of the Closing Date, ARCPI will be validly existing
and in good standing under the laws of the State of Delaware. Each of the
Contributing Subsidiaries and each of Subject Companies that has been formed, is
duly organized, validly existing and in good standing under the laws of its
state of organization. ARCPI, each Contributing Subsidiary and each Subject
Company is, or upon formation will be, qualified to do business in each
jurisdiction in which the nature of its business or the properties owned or
leased by it requires such qualification. As of the Closing Date each Subject
Company shall be duly organized, validly existing and in good standing under the
laws of the State of Delaware and shall be qualified to do business in each
jurisdiction where it owns real property.

                  9.2      Power and Authority. ARCPI, each of the Contributing
Subsidiaries and each of the Subject Companies have, or, with respect to the
Subject Companies, upon formation will have, the corporate or other
organizational power: (i) to carry on its business as now being conducted and as
proposed to be conducted by it; (ii) to execute, deliver and perform this
Agreement and the Transaction Documents to which it is a party; and (iii) to
take all action as may be necessary to consummate the transactions contemplated
hereunder or thereunder.

                  9.3      Outstanding Membership Interests of the Subject
Companies. All of the outstanding Membership Interests of the Subject Companies
have been, or upon formation of the

                                       7

<PAGE>

applicable Subject Company will be, duly authorized for issuance, validly issued
and not subject to pre-emptive rights. Except for this Agreement, there are no
outstanding options or rights of any kind to acquire any Membership Interests or
any securities convertible into any Membership Interests of the Subject
Companies, nor are there any obligations to issue any such options, rights or
securities. There are no restrictions of any kind on the transfer of membership
interest, except as may be imposed by applicable Federal and state securities
laws, the operating agreements of each of the Subject Companies and by the First
Mortgage Loan Documents (as defined in the HCPI Loan Agreement). HCPI and ARCPI
will be the sole Members of each Subject Company following the Redemption.

                  9.4      Ownership. All of the outstanding Membership
Interests are held free and clear of all restrictions on transfer, liens,
encumbrances, claims, security interests, warrants, purchase rights, options,
taxes and charges created by or under ARCPI, any Contributing Subsidiary or any
Subject Company or any of their affiliates or predecessors in interest. Neither
ARCPI, its Subsidiaries (as defined in the HCPI Loan Agreement), any
Contributing Subsidiary nor any of the Subject Companies is a party, or subject
to, any agreement or commitment, written or oral, granting any rights (voting or
otherwise) or options in or to such Membership Interests or any interest therein
or (except as set forth in the First Mortgage Loan Documents) imposing any
restrictions thereon. On the Closing, the HCPI Membership Interests shall be
conveyed to HCPI free and clear of all restrictions on transfer (except as set
forth in the First Mortgage Loan Documents or to be set forth in the Amended and
Restated Operating Agreement for each Subject Company), liens, encumbrances,
claims, security interests, warrants, purchase rights, options, taxes and
charges of any kind.

                  9.5      Due Authorization, Execution and Delivery; Binding
Obligations. This Agreement and the Transaction Documents have been duly
authorized, executed and delivered by ARCPI and the Contributing Subsidiaries.
This Agreement and the Transaction Documents are the legal, valid and binding
obligations of ARCPI and each of the Contributing Subsidiaries party thereto,
enforceable against ARCPI and each of the Contributing Subsidiaries party
thereto, in accordance with their respective terms except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or conveyance or similar law, relating to or limiting creditors' rights
generally or by equitable principles relating to enforceability and except as
rights of indemnity or contribution may be limited by Federal or state
securities or other law, or the public policy underlying such laws.

                  9.6      No Violation. The execution, delivery and performance
by ARCPI and each of the Contributing Subsidiaries of this Agreement and the
Transaction Documents, the issuance and delivery of the HCPI Membership
Interests, and the consummation of the transactions contemplated hereby and
thereby do not (i) violate or conflict with the Articles of Incorporation or
Bylaws, operating agreements or other charter or organization documents of
ARCPI, the Contributing Subsidiaries or the Subject Companies, (ii) as of the
Closing Date, conflict with, or result in the breach of, or termination of, or
constitute a default under (whether with notice or lapse of time or both), or
accelerate or permit the acceleration of the performance required by, any
indenture, loan or credit agreement, note, bond, mortgage, lien, lease,
agreement, commitment, permit, concession, franchise, or license or other
instrument, or any order, judgment or decree, to which ARCPI, the Contributing
Subsidiaries or any Subject Company is a party or by which ARCPI, the
Contributing Subsidiaries or any Subject Company

                                       8

<PAGE>

or any of their respective properties are bound, (iii) violate any material law,
rule, regulation or ordinance applicable to ARCPI, the Contributing Subsidiaries
or the Subject Companies (iv) violate any order, ruling, judgment or decree of
any court or other governmental agency binding on ARCPI, the Contributing
Subsidiaries or any Subject Company or the Membership Interests, or (v) result
in the creation of any lien, charge or encumbrance upon the Membership
Interests, properties or assets of ARCPI, the Contributing Subsidiaries or any
Subject Company.

                  9.7      No Defaults. As of the Closing Date, no event or
circumstance will have occurred that would constitute by itself or with notice
or lapse of time, or both, an event of default by ARCPI or any affiliate of
ARCPI, any Contributing Subsidiary or any Subject Company under any lease,
agreement or other instrument now or hereafter made with or in favor of HCPI or
an affiliate of HCPI, including, without limitation, the HCPI Loan Agreement.

                  9.8      Conditions of HCPI Loan Agreement. As of the Closing
Date, all Conditions to the funding of HCPI Loan Agreement as set forth in
Article III of the HCPI Loan Agreement will have been satisfied.

                  9.9      Books and Records. The Subject Companies' books and
records contain complete and accurate records in all material respects of all
meetings and other organizational actions of its members and committees thereof.

                  9.10     Business of the Subject Companies. The only activity
of Subject Companies has been the ownership and leasing of the Leased Property
(as defined in the HCPI Loan Agreement) and the activities related or incidental
thereto and (ii) the Subject Companies have no and never have had any employees.

                  9.11     Subsidiaries. With the exception of ARC Santa
Catalina Real Estate Holdings, LLC, which is a direct subsidiary ARC SC
Holdings, LLC, a Subject Company, there are no direct or indirect Subsidiaries
of any Subject Company and no Subject Company has any ownership interest, either
of record or beneficially, of any other person or entity.

                  9.12     Consents. The execution and delivery by ARCPI and
each Contributing Subsidiary of this Agreement, the sale, transfer and delivery
of the HCPI Membership Interests, and the consummation of the transactions
contemplated hereby, do not require any authorization, registration or filing
with, or consent or approval of, any Federal, state or other political
subdivision thereof, any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, or any
other person or entity, other than such authorization, consent or approval which
has been received by ARCPI and Contributing Subsidiaries prior to the Closing.

                  9.13     Brokers. With the exception of Cohen & Steers,
neither ARCPI nor the Contributing Subsidiaries has employed or utilized the
services of any broker or finder in connection with this Agreement, any of the
Transaction Documents or the transactions contemplated hereby or thereby. HCPI
and the Subject Companies shall have no liability for any fees due, any broker
or finder in connection with this Agreement, any of the Transaction Documents or
the transactions contemplated hereby or thereby.

                  9.14     Taxes.

                                       9

<PAGE>

                           (a)      ARCPI, the Contributing Subsidiaries and the
Subject Companies have timely and accurately filed all federal income tax
returns and all other tax returns required to be filed by each of them and have
timely paid all taxes and assessments payable by each of them which have become
due except to the extent that such taxes or assessments are being contested in
good faith by appropriate proceedings diligently pursued, and as to which ARCPI,
the Contributing Subsidiaries and the Subject Companies, as the case may be,
have established reserves acceptable to HCPI.

                           (b)      The Subject Companies are taxable as
partnerships for United States federal tax purposes and have not elected and
will not elect to be taxable as corporations for United States federal tax
purposes.

                  9.15     Litigation. There are no judicial or administrative
actions, proceedings or investigations pending that question the validity of
this Agreement or any action taken or to be taken by ARCPI, the Contributing
Subsidiaries or the Subject Companies in connection with this Agreement. There
is no litigation, proceeding or governmental investigation pending or any order,
injunction or decree outstanding, against ARCPI, the Contributing Subsidiaries
or the Subject Companies that, if adversely determined, would have a material
adverse effect upon ARCPI, the Contributing Subsidiaries or the Subject
Companies' ability to perform its obligations under this Agreement, under the
Loan Documents or under the Master Lease (as defined in the HCPI Loan
Agreement).

                  9.16     Legal Compliance. No action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
delivered or served against any Subject Company alleging any failure by the
Subject Company to comply with any laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof)
applicable to the Subject Company or its properties and there is no reasonable
basis for any suit, action, such proceeding, hearing, investigation, charge,
complaint, claim, demand or notice against any Subject Company based on such
non-compliance.

                  9.17     Undisclosed Liabilities. No Subject Company has any
liability or obligation (and, to the knowledge of ARCPI or any Contributing
Subsidiary, there is no reasonable basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any Subject Company giving rise to any liability or obligation), except for
liabilities or obligations (i) described in, or permitted by Section 4.1(f) as
scheduled on Schedule 4.1(f) of the HCPI Loan Agreement, (ii) described in a
policy of title insurance delivered to HCPI relating to the Subject Company's
real property, or (iii) under the Master Lease (as defined in the HCPI Loan
Agreement).

                  9.18     Investment Company.  Neither ARCPI, the Contributing
Subsidiaries nor any of the Subject Companies are an "investment company" or a
company "controlled" by and "investment company" within the meaning of the
Investment Company Act of 1940, as amended.

                  9.19     Related Party Transactions. Except for the Master
Lease (as defined in the HCPI Loan Agreement) and as permitted by the terms of
the HCPI Loan Agreement, the Subject

                                       10

<PAGE>

Companies are not a party to any transaction or arrangement with ARCPI, the
Contributing Subsidiaries or with any of the Subject Companies' members,
officers or directors, or any entity controlled by any of them, which relates to
or affects the ownership, lease or use or disposition of any assets, properties
or the operations of the Subject Companies or the sale, lease or use of goods or
services, or the loan of money or any extension of credit or guaranty, by or to
the Subject Companies.

                  9.20     Full Disclosure. None of the representations or
warranties made by ARCPI or the Contributing Subsidiaries in the Transaction
Documents as of the date such representations and warranties is made or deemed
made, and none of the statements contained in any exhibit, report, statement or
certificate furnished by or on behalf of ARCPI or the Contributing Subsidiaries
in connection with the Transaction Documents and none of the representations and
warranties in the HCPI Loan Agreement, contains any untrue statement of a
material fact or omits any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they are made, not misleading as of the time when made or delivered.

                  9.21     Compliance with REIT Protections. None of the Subject
Companies hold any assets other than "real estate assets" as defined in Section
856(c)(5)(B) of the Code, the incidental personal property associated with the
applicable "real estate assets," cash and cash items (including receivables) or
generate or expect to generate any material amount of income which would not
qualify under Sections 856(c)(3) and 856(d) of the Code.

         10.      Representations and Warranties of HCPI. HCPI represents and
warrants to ARCPI as follows:

                  10.1     HCPI's Organization. HCPI is a corporation duly
organized, validly existing and in good standing under the laws of Maryland and
has the full corporate power and authority to enter into and to perform this
Agreement.

                  10.2     Authorization of Agreement. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby by HCPI have been duly authorized by all necessary corporate
action of HCPI and this Agreement constitutes the valid and binding obligation
of HCPI enforceable against it in accordance with its terms, except to the
extent enforceability may be limited by bankruptcy, insolvency reorganization,
moratorium, fraudulent transfer or conveyance or similar law, relating to or
limiting creditors' rights generally or by equitable principles relating to
enforceability and except as rights of indemnity or contribution may be limited
by Federal or state securities or other law, or the public policy underlying
such laws.

                  10.3     No Violation. The execution, delivery and performance
of this Agreement by HCPI will not (i) violate or conflict with the articles of
restatement, bylaws or other constitutional documents of HCPI ; (ii) as of the
Closing Date, conflict with, or result in the breach or termination of, or
constitute a default under (whether with notice or lapse of time or both), or
accelerate or permit the acceleration of the performance required by, any
indenture, loan or credit agreement, note, bond, mortgage, lien, lease,
agreement, commitment or other instrument or any order, judgment or decree, to
which HCPI is a party or by which it or its

                                       11

<PAGE>

properties are bound; or (iii) constitute a violation of any material law, rule,
regulation, ordinance applicable to HCPI or (iv) violate any order, ruling,
writ, judgment or decree of any court or other governmental agency binding on
HCPI. No consent, approval or authorization of any governmental agency is
required on the part of HCPI in connection with the execution, delivery and
performance of this Agreement other than such consents, approval and
authorizations as have been obtained by HCPI on or prior to the Closing.

                  10.4     Litigation. There are no judicial or administrative
actions, proceedings or investigations pending that question the validity of
this Agreement or any action taken or to be taken by HCPI in connection with
this Agreement. There is no litigation, proceeding or governmental investigation
pending or any order, injunction or decree outstanding, against HCPI that, if
adversely determined, would have a material adverse effect upon HCPI's ability
to perform its obligations under this Agreement.

                  10.5     Investment Intent.  HCPI is acquiring the HCPI
Membership Interests for investment for its own account, not as a nominee or
agent, and not with the view to, or for resale in connection with, any
distribution thereof.

         11.      Further Agreements of the Parties.

                  11.1     Notices. Each party shall promptly notify the other
party in writing of, and furnish to such party any information that such party
may reasonably request with respect to, the occurrence of any event or the
existence of any state of facts that would (a) result in the party's
representations and warranties not being true, or (b) impair the party's ability
to perform its obligations under this Agreement.

                  11.2     Expenses. ARCPI and the Contributing Subsidiaries,
jointly and severally agree to pay on demand all costs and expenses of HCPI in
connection with the preparation, execution, delivery, modification and amendment
of this Agreement or any other Transaction Documents and the other documents to
be delivered under the Transaction Documents, including the fees and
out-of-pocket expenses of counsel for HCPI actually incurred with respect
thereto and with respect to advising HCPI as to its rights and responsibilities
under this Agreement or any other Transaction Document. In addition, ARCPI and
the Contributing Subsidiaries shall, jointly and severally pay any and all stamp
and other taxes payable or determined to be payable in connection with the
execution, delivery, filing and recording of the this Agreement or any
Transaction Document and the other documents to be delivered under this
Agreement or any other Transaction Document.

         12.      Indemnification and Related Matters.

                  12.1     Indemnification.

                           (a)      ARCPI and the Contributing Subsidiaries
agree to, jointly and severally indemnify and hold HCPI and its affiliates,
successors and any assigns of substantially all of their rights under this
Agreement (and their respective officers, directors, employees and agents)
harmless from and against all liabilities, losses, actions, suits, proceedings,
claims, demands, assessments, judgments, penalties, fines, damages, losses,
costs and expenses,

                                       12

<PAGE>

including reasonable consulting costs and attorneys' fees ("Damages") arising or
resulting from the following:

                                    (i)     a breach of any representation or
warranty on the part of ARCPI or the Contributing Subsidiaries under the terms
of this Agreement or any other Transaction Document to which it is a party;

                                    (ii)    nonfulfillment of or failure to
comply with, any agreement or covenant on the part of the Subject Companies,
ARCPI and/or the Contributing Subsidiaries under the terms of this Agreement or
any other Transaction Document to which they are a party and required to be
fulfilled or complied with by such parties after the Closing Date; and

                                    (iii)   for fees payable to Cohen & Steers
in connection with advisory services provided to ARCPI or the Contributing
Subsidiaries relating to the preparation, execution and delivery of this
Agreement or any other Transaction Document.

                           (b)      HCPI, agrees to indemnify and hold ARCPI and
the Contributing Subsidiaries and their affiliates, successors (and their
respective officers, directors, employees and agents) harmless from and against
all Damages arising or resulting from the following:

                                    (i)     a breach of any representation or
warranty on the part of HCPI under the terms of this Agreement or any other
Transaction Document to which HCPI is a party; and

                                    (ii)    non-fulfillment of or failure to
comply with, any agreement or covenant on the part of HCPI under the terms of
this Agreement or any other Transaction Document to which HCPI is a party and
required to be fulfilled or complied with by HCPI after the Closing Date.

         13.      Miscellaneous.

                  13.1     Survival of Representations and Warranties and
Covenants. All of the respective representations and warranties of ARCPI or the
Contributing Subsidiaries, on the one hand, and of HCPI, on the other hand, set
forth in this Agreement, the Transaction Documents or in such party's disclosure
schedule, or in any certificates delivered by such party on the Closing Date
pursuant hereto shall survive the Closing. The covenants of any party hereto
that cannot be or are not fully performed by such party on or prior to the
Closing Date shall survive the Closing until fully and finally performed.

                  13.2     Entire Agreement. This Agreement (with its Schedules
and Exhibits) and the other Transaction Documents contain, and is intended as, a
complete statement of all of the terms of the arrangements between the parties
with respect to the matters provided for, supersedes any previous agreements and
understandings between the parties with respect to those matters, and cannot be
changed or terminated orally.

                  13.3     GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS

                                       13

<PAGE>

AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH OF ARCPI AND THE CONTRIBUTING SUBSIDIARIES AND HCPI
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF
THOSE COURTS. EACH OF ARCPI AND THE CONTRIBUTING SUBSIDIARIES AND HCPI
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS MAY BE MADE BY ANY MEANS PERMITTED BY NEW YORK LAW.

                  13.4     WAIVER OF JURY TRIAL. ARCPI, THE CONTRIBUTING
Subsidiaries AND HCPI WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE, AND AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH
PARTY FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS HEREBY WAIVED AS TO
ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART,
TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
AND THE TRANSACTION DOCUMENTS.

                  13.5     Confidentiality. HCPI agrees that material,
non-public information regarding ARCPI, its Subsidiaries, operations, assets,
and existing and contemplated business plans shall be treated by HCPI in a
confidential manner, and shall not be disclosed by it to persons who are not
parties to this Agreement, except: (i) to counsel for and other advisors,
accountants, and auditors to HCPI ; (ii) as may be required by statute,
decision, or judicial or administrative order, rule, or regulation; (iii) as may
be agreed to in advance by ARCPI; (iv) as to any such information that is
generally available to the public; and (v) in connection with any assignment,
prospective assignment, sale, prospective sale, participation or prospective
participation of HCPI's interests hereunder.

                  13.6     Public Disclosure. Prior to and after the Closing,
any release to the public of information with respect to the sale contemplated
herein or any matters set forth in this Agreement or the Transaction Documents
will be made only in the form approved by HCPI except to the extent required by
applicable law or regulation. The provisions of this Section 13.6 shall survive
the Closing or any termination of this Agreement.

                                       14

<PAGE>

                  13.7     Headings. The section headings of this Agreement and
titles given to Schedules to this Agreement are for reference purposes only and
are to be given no effect in the construction or interpretation of this
Agreement.

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

                           If to ARCPI or the Contributing Subsidiaries:

                                            ARCPI Holdings, Inc.
                                            111 Westwood Place, Suite 200
                                            Brentwood, Tennessee 37027
                                            Attn:    Bill Sheriff, CEO
                                            Fax:     (615) 221-5284

                           with a copy to:

                                            Bass, Berry & Sims PLC
                                            AmSouth Center
                                            315 Deaderick Street, Suite 2700
                                            Nashville, Tennessee 37238-0002
                                            Attn:    T. Andrew Smith, Esq.
                                            Fax:     (615) 742-2760

                           If to HCPI:

                                            Health Care Property Investors, Inc.
                                            4675 MacArthur Court, Suite 900
                                            Newport Beach, California  92660
                                            Attn:    Legal Department
                                            Fax:     (949) 221-0607

                           with a copy to:

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

Any notice which is personally served shall be effective upon the date of
service; any notice given by U.S. Mail shall be deemed effectively given, if
deposited in the United States Mail, registered or certified with return receipt
requested, postage prepaid and addressed as provided above, on the date of
receipt, refusal or non-delivery indicated on the return receipt. In lieu of
notice by U.S. Mail, either party may send notices by facsimile or by a
nationally recognized overnight courier service which provides written proof of
delivery (such as U.P.S. or Federal

                                       15

<PAGE>

Express). Any notice sent by facsimile shall be effective upon confirmation of
receipt in legible form, provided that an original of such facsimile is also
sent to the intended addressee by another method approved in this Section 13.8,
and any notice sent by a nationally recognized overnight courier shall be
effective on the date of delivery to the party at its address specified above as
set forth in the courier's delivery receipt. Either party may, by notice to the
other from time to time in the manner herein provided, specify a different
address for notice purposes. It is understood that to the extent a Contributing
Subsidiary has a separate address from ARCPI, such Contributing Subsidiary will
provide written notice of such address to HCPI in accordance with the notice
provisions of this Section 13.8.

                  13.9     Separability. In the event that any provision hereof
would, under applicable law, be invalid or unenforceable in any respect, such
provision shall be construed by modifying or limiting it so as to be valid and
enforceable to the maximum extent compatible with, and permissible under,
applicable law. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement which shall remain in full force and effect.

                  13.10    Attorneys' Fees. If HCPI, ARCPI, or any of the
Contributing Subsidiaries brings an action at law or other proceeding against
the others to enforce any of the terms, covenants or conditions hereof or any
instrument executed pursuant to this Agreement, or by reason of any breach or
default hereunder or thereunder, the party prevailing in any such action or
proceeding and any appeal thereupon shall be paid all of its costs and
attorneys' fees by the other party to the proceeding.

                  13.11    Waiver. No delay in exercising any right or remedy
shall constitute a waiver thereof, and no waiver by HCPI, ARCPI, or any of the
Contributing Subsidiaries of a breach of any covenant of this Agreement shall be
construed as a waiver of any preceding or succeeding breach of the same or any
other covenant or condition of this Agreement.

                  13.12    Binding Effect; Assignment. This Agreement shall
become effective when it shall have been executed by ARCPI, the Contributing
Subsidiaries and HCPI and thereafter shall be binding upon and inure to the
benefit of ARCPI, the Contributing Subsidiaries and HCPI and their respective
successors and assigns, except that ARCPI and the Contributing Subsidiaries
shall not have the right to assign any of their rights hereunder or any interest
herein without the prior written consent of HCPI (which consent may be withheld
or granted in HCPI's sole and absolute discretion).

                  13.13    Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but which together shall
constitute one and the same Agreement.

                  13.14    No Third-Party Beneficiary. Except for the
indemnified parties pursuant to Section 12.1, the provisions of this Agreement
and the Transaction Documents to be executed and delivered at Closing are and
will be for the benefit of HCPI, ARCPI and the Contributing Subsidiaries only
and are not for the benefit of any third party; and, accordingly, no third party
shall have the right to enforce the provisions of this Agreement or the
Transaction Documents except, that the indemnified parties shall have the right
to enforce the provisions of Section 12.1 that are given in their favor.

                                       16

<PAGE>

                  13.15    Exhibits. The exhibits attached hereto are
incorporated herein by this reference for all purposes.

                  13.16    Miscellaneous. The headings inserted at the beginning
of each section of this Agreement are inserted for convenience only and do not
add to or subtract from the meaning of the contents of each section. All rights,
powers, and privileges conferred hereunder upon the parties shall be cumulative
but not restrictive to those given by law. Pronouns, wherever used herein, and
of whatever gender, shall include natural persons and corporations and
associations of every kind and character, and the singular shall include the
plural wherever and as often as may be appropriate. Time is of the essence of
each provision of this Agreement in which time is an element.

                  13.17    Waiver. Any party hereto may specifically waive any
breach of this Agreement or the Transaction Documents by any other party, but no
such waiver shall constitute a continuing waiver of similar or other breaches. A
waiving party may at any time, upon notice given in writing to the breaching
party, direct future compliance with the waived term or terms of this Agreement,
in which event the breaching party shall comply as directed from such time
forward.

                  13.18    Additional Acts. In addition to the acts contemplated
to be performed, executed and delivered by ARCPI, the Contributing Subsidiaries,
any Subject Company or HCPI pursuant to this Agreement, ARCPI, the Contributing
Subsidiaries and HCPI hereby agree to perform, execute and deliver or cause to
be performed, executed and delivered at or following the Closing any and all
further acts, deeds and assurances as HCPI, ARCPI or the Contributing
Subsidiaries may reasonably require to (i) evidence and vest in HCPI the
ownership of the HCPI Membership Interests, and (ii) consummate the transactions
contemplated hereunder and under the Transaction Documents.

                  13.19    No Presumption. HCPI, ARCPI and the Contributing
Subsidiaries and their attorneys have had full opportunity to review and
participate in the drafting of the final form of this Agreement and the
Transaction Documents. Accordingly, this Agreement and each Transaction Document
shall be construed without regard to any presumption or other rule of
construction against the party causing the agreement to be drafted.

                  13.20    Facsimile Signatures. In order to expedite the
transaction contemplated herein, telecopied signatures may be used in place of
original signatures on this Agreement or any Transaction Document. ARCPI, the
Contributing Subsidiaries and HCPI intend to be bound by the signatures on the
telecopied document, are aware that each other party will rely on the telecopied
signatures, and hereby waive any defenses to the enforcement of the terms of
this Agreement or any Transaction Document based on the form of signature.
Following any facsimile transmittal, each party shall promptly deliver the
original instrument by reputable overnight courier in accordance with the notice
provisions of this Agreement.

                                       17

<PAGE>

                IN WITNESS WHEREOF, this Contribution Agreement has been duly
executed by the parties as of the date first set forth above.

                                 ARCPI HOLDINGS, INC., a Tennessee corporation

                                 By: /s/ H. Todd Kaestner
                                    -------------------------------------------
                                    Name: H. Todd Kaestner
                                    Title: Executive Vice President

                                 THE CONTRIBUTING SUBSIDIARIES

                                 Fort Austin Limited Partnership, a
                                 Texas limited partnership

                                 By:      ARC Fort Austin Properties, Inc.,
                                          its General Partner

                                          By: /s/ H. Todd Kaestner
                                             ----------------------------------
                                             Name: H. Todd Kaestner
                                             Title: Executive Vice President

                                 ARC Santa Catalina, Inc., a Tennessee
                                 corporation

                                 By: /s/ H. Todd Kaestner
                                    -----------------------------------------
                                    Name: H. Todd Kaestner
                                    Title: Executive Vice President

<PAGE>

                                ARC Richmond Place, Inc., a Delaware corporation

                                By: /s/ H. Todd Kaestner
                                   --------------------------------------------
                                   Name: H. Todd Kaestner
                                   Title: Executive Vice President

                                FREEDOM VILLAGE OF HOLLAND,
                                MICHIGAN, a Michigan general partnership

                                By:  ARC Holland, Inc.,
                                     its General Partner

                                     By: /s/ H. Todd Kaestner
                                        ---------------------------------------
                                        Name: H. Todd Kaestner
                                        Title: Executive Vice President

                                By:  ARC Freedom, Inc.,
                                     its General Partner

                                     By: /s/ H. Todd Kaestner
                                        ---------------------------------------
                                        Name: H. Todd Kaestner
                                        Title: Executive Vice President

<PAGE>

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

                                 By:  ARC Freedom, Inc.,
                                      its General Partner

                                 By:  /s/ H. Todd Kaestner
                                      ----------------------------------------
                                      Name: H. Todd Kaestner
                                      Title: Executive Vice President

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

                                 By: /s/ H. Todd Kaestner
                                    ------------------------------------------
                                    Name: H. Todd Kaestner
                                    Title: Executive Vice President

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

                                 By: /s/ H. Todd Kaestner
                                    -------------------------------------------
                                    Name: H. Todd Kaestner
                                    Title: Executive Vice President

                                 ARC BRANDYWINE, LLC, a Tennessee limited
                                 liability company

                                 By: /s/ H. Todd Kaestner
                                    -------------------------------------------
                                    Name: H. Todd Kaestner
                                    Title: Executive Vice President

                                 HEALTH CARE PROPERTY INVESTORS, INC.,
                                 a Maryland corporation

                                 By: /s/ James G. Reynolds
                                    -------------------------------------------
                                    Name: James G. Reynolds
                                    Title: Executive Vice President

<PAGE>

                                   SCHEDULE A
            CONTRIBUTING SUBSIDIARIES, SUBJECT COMPANIES AND PROPERTY

<TABLE>
<CAPTION>
      CONTRIBUTING SUBSIDIARY                           PROPERTY                              SUBJECT COMPANY
-------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                                           <C>
Fort Austin Limited Partnership, a    1.   Retirement Center located in Austin,     Fort Austin Real Estate Holdings,
Texas limited partnership             Texas, consisting of 30 assisted living       LLC, a Tennessee limited liability
                                      facility units, 149 independent living        company
                                      units and 90 skilled nursing beds commonly
                                      known as "Summit at Westlake Hills."

                                      2. Retirement Center located in Denver,
                                      Colorado, consisting of 43 assisted living
                                      facility units, 176 independent living
                                      units and 17 memory enhanced (Alzheimers)
                                      units commonly known as "Park Place."

                                      3. Retirement Center located in Ft. Worth,
                                      Texas, consisting of 40 assisted living
                                      facility units, 214 independent living
                                      units and 122 skilled nursing beds
                                      commonly known as "Broadway Plaza."

ARC Santa Catalina, Inc., a           ARC SC Holdings, LLC (Subject Company) is       ARC SC Holdings, LLC, a Delaware
Tennessee corporation                 the sole member of ARC Santa Catalina Real      limited liability company
                                      Estate Holdings, LLC a Delaware limited
                                      liability company. ARC Santa Catalina,
                                      Inc, has transferred or will be
                                      transferring the following property to ARC
                                      Santa Catalina Real Estate Holdings, LLC:

                                      Retirement Center located in Tucson,
                                      Arizona, consisting of 70 assisted living
                                      facility units, 162 independent living
                                      units, 15 memory enhanced (Alzheimer's)
                                      units and 42 skilled nursing beds commonly
                                      known as "Santa Catalina."
</TABLE>

                                      A-1

<PAGE>

<TABLE>
<S>                                   <C>                                             <C>
ARC Richmond Place, Inc., a           Retirement Center located in Lexington,         ARC Richmond Place Real Estate
Delaware corporation                  Kentucky, consisting of 60 assisted living      Holdings, LLC, a Tennessee
                                      facility units, 178 independent living          limited liability company
                                      units and 20 memory enhanced (Alzheimer's)
                                      units commonly known as "Richmond Place."

Freedom Village of Holland,           Retirement Center located in Holland,           ARC Holland Real Estate Holdings,
Michigan, a Michigan general          Michigan, consisting of 74 assisted living      LLC, a Tennessee limited
partnership                           facility units, 332 independent living          liability company
                                      units, 29 memory enhanced (Alzheimer's),
                                      and 15 skilled nursing beds commonly known
                                      as "Freedom Village Holland."

Freedom Village of Sun City Center,   Retirement Center located in Sun City,          ARC Sun City Center Real Estate
Ltd., a Florida limited partnership   Florida, consisting of 26 assisted living       Holdings, LLC, a Tennessee
                                      facility units, 428 independent living          limited liability company
                                      units and 108 skilled nursing beds
                                      commonly known as "Freedom Plaza Florida."

Lake Seminole Square Management       Retirement Center located in Seminole,          ARC Lake Seminole Square Real
Company, Inc., a Tennessee            Florida, consisting of 33 assisted living       Estate Holdings, LLC, a Tennessee
corporation and Freedom Group-Lake    facility units and 306 independent living       limited liability company
Seminole Square, Inc., a Tennessee    units commonly known as "Lake Seminole
corporation                           Square."

ARC Brandywine, LLC, a Tennessee      Retirement Center located in Brandywine,        ARC Brandywine Real Estate
limited liability company             Pennsylvania, consisting of 15 assisted         Holdings, LLC, a Tennessee
                                      living facility units, 292 independent          limited liability company
                                      living units, 18 memory enhanced
                                      (Alzheimer's) units, and 47 skilled nursing
                                      beds, commonly known as "Freedom Village
                                      Brandywine."
</TABLE>

                                      A-2

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