Document:

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                                                                    EXHIBIT 10.9

FHA FORM 92466

                            REGULATORY AGREEMENT FOR
                          MULTIFAMILY HOUSING PROJECTS

Project No.       123-22013

Mortgagee:        RED MORTGAGE CAPITAL, INC.

Amount of Mortgage Note:  $5,782,900.00                   Date: January 29, 2001

Mortgage:  Recorded:  State: Arizona   County:  Maricopa  Date: January 29, 2001
           Concurrently Herewith
           Book  ____________   Page  ____________  Instrument No.  ____________

         Originally endorsed for insurance under Section 232 pursuant to Section
223(f) of the National Housing Act.

         This Agreement entered into as of this 29th day of January, 2001,
between ARV CHANDLER VILLAS, LP, a California limited partnership whose address
is 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626, their
successors, heirs, and assigns (jointly and severally, hereinafter referred to
as Owners) and the undersigned Secretary of Housing and Urban Development and
his successors (hereinafter referred to as Secretary).

         In consideration of the endorsement for insurance by the Secretary of
the above described note or in consideration of the consent of the Secretary to
the transfer of the mortgaged property or the sale and conveyance of the
mortgaged property by the Secretary, and in order to comply with the
requirements of the National Housing Act, as amended, and the Regulations
adopted by the Secretary pursuant thereto, Owners agree for themselves, their
successors, heirs and assigns, that in connection with the mortgaged property
and the project operated thereon and so long as the contract of mortgage
insurance continues in effect, and during such further period of time as the
Secretary shall be the owner, holder or reinsurer of the mortgage, or during any
time the Secretary is obligated to insure a mortgage on the mortgage property:

         1.       Owners, except as limited by paragraph 17 hereof, assume and
                  agree to make promptly all payments due under the note and
                  mortgage.

         2.       (a) Owners shall establish or continue to maintain a reserve
                  fund for replacements by the allocation to such reserve fund
                  in a separate account with the mortgagee or in a safe and
                  responsible depository designated by the mortgagee,
                  concurrently with the beginning of payments towards
                  amortization of the principal of the mortgage insured or held
                  by the Secretary of an amount equal to $4,494.50 per month
                  ($3,320.17 for Realty and $1,174.33 for Major Movable
                  Equipment) unless a different date or amount is approved in
                  writing by the Secretary. An initial deposit to

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                  the Fund of $463,546.00 ($322,622.00 for Realty and
                  $140,924.00 for Major Movable Equipment) has been made. Such
                  fund, whether in the form of a cash deposit or invested in
                  obligations of, or fully guaranteed as to principal by, the
                  United States of America shall at all times be under the
                  control of the mortgagee. Disbursements from such fund,
                  whether for the purpose of effecting replacement of structural
                  elements and mechanical equipment of the project or for any
                  other purpose, may be made only after receiving the consent in
                  writing of the Secretary. In the event that the owner is
                  unable to make a mortgage note payment on the due date and
                  that payment cannot be made prior to the due day of the next
                  such installment or when the mortgagee has agreed to forgo
                  making an election to assign the mortgage to the Secretary
                  based on a monetary default, or to withdraw an election
                  already made, the Secretary is authorized to instruct the
                  mortgagee to withdraw funds from the reserve fund for
                  replacements to be applied to the mortgage payment in order to
                  prevent or cure the default. In addition, in the event of a
                  default in the terms of the mortgage, pursuant to which the
                  loan has been accelerated, the Secretary may apply or
                  authorize the application of the balance in such fund to the
                  amount due on the mortgage debt as accelerated.

                  (b) Where Owners are acquiring a project already subject to an
                  insured mortgage, the reserve fund for replacements to be
                  established will be equal to the amount due to be in such fund
                  under existing agreements or charter provisions at the time
                  Owners acquire such project, and payments hereunder shall
                  begin with the first payment due on the mortgage after
                  acquisition, unless some other method of establishing and
                  maintaining the fund is approved in writing by the Secretary.

         3.       Real property covered by the mortgage and this agreement is
                  described in Exhibit A attached hereto.

                  (This paragraph 4 is not applicable to cases insured under
                  Section 232).

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         5.       (a) If the mortgage is originally a Secretary-held purchase
                  money mortgage, or is originally endorsed for insurance under
                  any Section other than Sections 231 or 232 and is not designed
                  primarily for occupancy by elderly persons, Owners shall not
                  in selecting tenants discriminate against any person or
                  persons by reason of the fact that there are children in the
                  family.

                  (b) If the mortgage is originally endorsed for insurance under
                  Section 221, Owners shall in selecting tenants give to
                  displaced persons or families an absolute preference or
                  priority of occupancy which shall be accomplished as follows:

                           (1)       For a period of sixty (60) days from the
                                     date of original offering, unless a shorter
                                     period of time is approved in writing by
                                     the Secretary, all units shall be held for
                                     such preferred applicants, after which time
                                     any remaining unrented units may be rented
                                     to non-preferred applicants;

                           (2)       Thereafter, and on a continuing basis, such
                                     preferred applicants shall be given
                                     preference over non-preferred applicants in
                                     their placement on a waiting list to be
                                     maintained by the Owners; and

                           (3)       Through such further provisions agreed to
                                     in writing by the parties.

                  (c) Without the prior written approval of the Secretary not
                  more than 25% of the number of units in a project insured
                  under Section 231 shall be occupied by persons other than
                  elderly persons.

                  (d) All advertising or efforts to rent a project insured under
                  Section 231 shall reflect a bona fide effort of the Owners to
                  obtain occupancy by elderly persons.

         6.       Owners shall not without the prior written approval of the
                  Secretary:

                  (a) Convey, transfer, or encumber any of the mortgaged
                  property, or permit the conveyance, transfer or encumbrance of
                  such property.

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                  (b) Assign, transfer, dispose of, or encumber any personal
                  property of the project, including rents, or pay out any funds
                  except from surplus cash, except for reasonable operating
                  expenses and necessary repairs.

                  (c) Convey, assign, or transfer any beneficial interest in any
                  trust holding title to the property, or the interest of any
                  general partner in a partnership owning the property, or any
                  right to manage or receive the rents and profits from the
                  mortgaged property.

                  (d) Remodel, add to, reconstruct, or demolish any part of the
                  mortgaged property or subtract from any real or personal
                  property of the project.

                  (e) Make, or receive and retain, any distribution of assets or
                  any income of any kind of the project except surplus cash and
                  except on the following conditions:

                           (1)      All distributions shall be made only as of
                                    and after the end of a semiannual or annual
                                    fiscal period, and only as permitted by the
                                    law of the applicable jurisdiction;

                           (2)      No distribution shall be made from borrowed
                                    funds, prior to the completion of the
                                    project or when there is any default under
                                    this Agreement or under the note or
                                    mortgage;

                           (3)      Any distribution of any funds of the
                                    project, which the party receiving such
                                    funds is not entitled to retain hereunder,
                                    shall be held in trust separate and apart
                                    from any other funds; and

                           (4)      There shall have been compliance with all
                                    outstanding notices of requirements for
                                    proper maintenance of the project.

                  (f) Engage, except for natural persons, in any other business
                  or activity, including the operation of any other rental
                  project, or incur any liability or obligation not in
                  connection with the project.

                  (g) Require, as a condition of the occupancy or leasing of any
                  unit in the project, any consideration or deposit other than
                  the prepayment of the first month's rent plus a security
                  deposit in an amount not in excess of one month's rent to
                  guarantee the performance of the covenants of the lease. Any
                  funds collected as security deposits shall be kept separate
                  and apart from all other funds of the project in a trust
                  account the amount of which shall at all times equal or exceed
                  the aggregate of all outstanding obligations under said
                  account.

                  (h) Permit the use of the dwelling accommodations or nursing
                  facilities of the project for any purpose except the use which
                  was originally intended, or permit commercial use greater than
                  that originally approved by the Secretary.

         7.       Owners shall maintain the mortgaged premises, accommodations
                  and the grounds and equipment appurtenant thereto, in good
                  repair and condition. In the event all or

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                  any of the buildings covered by the mortgage shall be
                  destroyed or damaged by fire or other casualty, the money
                  derived from any insurance on the property shall be applied in
                  accordance with the terms of the mortgage.

         8.       Owners shall not file any petition in bankruptcy or for a
                  receiver or in insolvency or for reorganization or
                  composition, or make any assignment for the benefit of
                  creditors or to a trustee for creditors, or permit an
                  adjudication in bankruptcy or the taking possession of the
                  mortgaged property or any part thereof by a receiver or the
                  seizure and sale of the mortgaged property or any part hereof
                  under judicial process or pursuant to any power of sale, and
                  fail to have such adverse actions set aside within forty-five
                  (45) days.

         9.       (a) Any management contract entered into by Owners or any of
                  them involving the project shall contain a provision that, in
                  the event of default hereunder, it shall be subject to
                  termination without penalty upon written request by the
                  Secretary. Upon such request Owners shall immediately arrange
                  to terminate the contract within a period of not more than
                  thirty (30) days and shall make arrangements satisfactory to
                  the Secretary for continuing proper management of the project.

                  (b) Payment for services, supplies, or materials shall not
                  exceed the amount ordinarily paid for such services, supplies,
                  or materials in the area where the services are rendered or
                  the supplies or materials furnished.

                  (c) The mortgaged property, equipment, buildings, plans,
                  offices, apparatus, devices, books, contracts, records,
                  documents, and other papers relating thereto shall at all
                  times be maintained in reasonable condition for proper audit
                  and subject to examination and inspection at any reasonable
                  time by the Secretary or his duly authorized agents. Owners
                  shall keep copies of all written contracts or other
                  instruments which affect the mortgaged property, all or any of
                  which may be subject to inspection and examination by the
                  Secretary or his duly authorized agents.

                  (d) The books and accounts of the operations of the mortgaged
                  property and of the project shall be kept in accordance with
                  the requirements of the Secretary.

                  (e) Within sixty (60) days following the end of each fiscal
                  year the Secretary shall be furnished with a complete annual
                  financial report based upon an examination of the books and
                  records of mortgagor prepared in accordance with the
                  requirements of the Secretary, prepared and certified to by an
                  officer or responsible Owner and, when required by the
                  Secretary, prepared and certified by a Certified Public
                  Accountant, or other person acceptable to the Secretary.

                  (f) At the request of the Secretary, his agents, employees, or
                  attorneys, the Owners shall furnish monthly occupancy reports
                  and shall give specific answers to questions upon which
                  information is desired from time to time relative to income,
                  assets, liabilities, contracts, operation, and condition of
                  the property and the status of the insured mortgage.

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                  (g) All rents and other receipts of the project shall be
                  deposited in the name of the project in a financial
                  institution, whose deposits are insured by an agency of the
                  Federal Government. Such funds shall be withdrawn only in
                  accordance with the provisions of this Agreement for expenses
                  of the project or for distributions of surplus cash as
                  permitted by paragraph 6(e) above. Any Owner receiving funds
                  of the project other than by such distribution of surplus cash
                  shall immediately deposit such funds in the project bank
                  account and failing so to do in violation of this Agreement
                  shall hold such funds in trust. Any Owner receiving property
                  of the project in violation of this Agreement shall hold such
                  funds in trust. At such time as the Owners shall have lost
                  control and/or possession of the project, all funds held in
                  trust shall be delivered to the mortgagee to the extent that
                  the mortgage indebtedness has not been satisfied.

                  (h) If the mortgage is insured under Section 232:

                           1. The Owners or lessees shall at all times maintain
                           in full force and effect from the state or other
                           licensing authority such license as may be required
                           to operate the project as a nursing home and shall
                           not lease all or part of the project except on terms
                           approved by the Secretary.

                           2. The Owners shall suitably equip the project for
                           nursing home operations.

                           3. The Owners shall execute a Security Agreement and
                           Financing Statement (or other form of chattel lien)
                           upon all items of equipment, except as the Secretary
                           may exempt, which are not incorporated as security
                           for the insured mortgage. The Security Agreement and
                           Financing Statement shall constitute a first lien
                           upon such equipment and shall run in favor of the
                           mortgagee as additional security for the insured
                           mortgage.

                           4. The Owners will not alter, or suffer or permit the
                           alteration of, the nursing home license, bed
                           authority or other operating authority of the Project
                           without the advance written approval of the
                           Secretary. In the event that any such alteration is
                           proposed, upon learning of that event the Owners will
                           advise the Secretary promptly. The Owners will insert
                           the foregoing requirements into any operating lease
                           for the Project.

                           5. The Owners will not enter into, amend, or agree to
                           the assignment of, any operating lease for all or
                           part of the Project without the advance written
                           approval of, and on terms satisfactory to, the
                           Secretary.

                  (i) If the mortgage is insured under Section 231, Owners or
                  lessees shall at all times maintain in full force and effect
                  from the state or other licensing authority such license as
                  may be required to operate the project as housing for the
                  elderly.

         10.      Owners will comply with the provisions of any Federal, State,
                  or local law prohibiting discrimination in housing on the
                  grounds of race, color, religion or creed, sex, or national
                  origin, including Title VIII of the Civil Rights Act of 1968
                  (Public

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                  Law 90-284; 82 Stat. 73), as amended, Executive Order 11063,
                  and all requirements imposed by or pursuant to the regulations
                  of the Department of Housing and Urban Development
                  implementing these authorities (including 24 CFR Parts 100,
                  107 and 110, and Subparts I and M of Part 200).

         11.      Upon a violation of any of the above provisions of this
                  Agreement by Owners, the Secretary may give written notice
                  thereof, to Owners, by registered or certified mail, addressed
                  to the addresses stated in this Agreement, or such other
                  addresses as may subsequently, upon appropriate written notice
                  thereof to the Secretary, be designated by the Owners as their
                  legal business address. If such violation is not corrected to
                  the satisfaction of the Secretary within thirty (30) days
                  after the date such notice is mailed or within such further
                  time as the Secretary determines is necessary to correct the
                  violation, without further notice the Secretary may declare a
                  default under this Agreement effective on the date of such
                  declaration of default and upon such default the Secretary
                  may:

                  (a)      (i)      If the Secretary holds the note - declare
                                    the whole of said indebtedness immediately
                                    due and payable and then proceed with the
                                    foreclosure of the mortgage;

                           (ii)     If said note is not held by the Secretary -
                                    notify the holder of the note of such
                                    default and request holder to declare a
                                    default under the note and mortgage, and
                                    holder after receiving such notice and
                                    request, but not otherwise, at its option,
                                    may declare the whole indebtedness due, and
                                    thereupon proceed with foreclosure of the
                                    mortgage, or assign the note and mortgage to
                                    the Secretary as provided in the
                                    Regulations;

                  (b) Collect all rents and charges in connection with the
                  operation of the project and use such collections to pay the
                  Owners' obligations under this Agreement and under the note
                  and mortgage and the necessary expenses of preserving the
                  property and operating the project.

                  (c) Take possession of the project, bring any action necessary
                  to enforce any rights of the Owners growing out of the project
                  operation, and operate the project in accordance with the
                  terms of this Agreement until such time as the Secretary in
                  his discretion determines that the Owners are again in a
                  position to operate the project in accordance with the terms
                  of this Agreement and in compliance with the requirements of
                  the note and mortgage.

                  (d) Apply to any court, state or Federal, for specific
                  performance of this Agreement, for an injunction against any
                  violation of the Agreement, for the appointment of a receiver
                  to take over and operate the project in accordance with the
                  terms of the Agreement, or for such other relief as may be
                  appropriate, since the injury to the Secretary arising from a
                  default under any of the terms of this Agreement would be
                  irreparable and the amount of damage would be difficult to
                  ascertain.

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         12.      As security for the payment due under this Agreement to the
                  reserve fund for replacements, and to secure the Secretary
                  because of his liability under the endorsement of the note for
                  insurance, and as security for the other obligations under
                  this Agreement, the Owners respectively assign, pledge and
                  mortgage to the Secretary their rights to the rents, profits,
                  income and charges of whatsoever sort which they may receive
                  or be entitled to receive from the operation of the mortgaged
                  property, subject, however, to any assignment of rents in the
                  insured mortgage referred to herein. Until a default is
                  declared under this Agreement, however, permission is granted
                  to Owners to collect and retain under the provisions of this
                  Agreement such rents, profits, income, and charges, but upon
                  default this permission is terminated as to all rents due or
                  collected thereafter.

         13.      As used in this Agreement the term:

                  (a) "Mortgage" includes "Deed of Trust", "Chattel Mortgage",
                  "Security Instrument", and any other security for the note
                  identified herein, and endorsed for insurance or held by the
                  Secretary;

                  (b) "Mortgagee" refers to the holder of the mortgage
                  identified herein, its successors and assigns;

                  (c) "Owners" refers to the persons named in the first
                  paragraph hereof and designated as Owners, their successors,
                  heirs and assigns;

                  (d) "Mortgaged Property" includes all property, real, personal
                  or mixed, covered by the mortgage or mortgages securing the
                  note endorsed for insurance or held by the Secretary;

                  (e) "Project" includes the mortgaged property and all its
                  other assets of whatsoever nature or wheresoever situate, used
                  in or owned by the business conducted on said mortgaged
                  property, which business is providing housing and other
                  activities as are incidental thereto;

                  (f) "Surplus Cash" means any cash remaining after:

                           (1)      the payment of:

                                    (i)      All sums due or currently required
                                             to be paid under the terms of any
                                             mortgage or note insured or held by
                                             the Secretary;

                                    (ii)     All amounts required to be
                                             deposited in the reserve fund for
                                             replacements;

                                    (iii)    All obligations of the project
                                             other than the insured mortgage
                                             unless funds for payment are set
                                             aside or deferment of payment has
                                             been approved by the Secretary; and

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                           (2)      the segregation of:

                                    (i)      An amount equal to the aggregate of
                                             all special funds required to be
                                             maintained by the project; and

                                    (ii)     All tenant security deposits held.

                  (g) "Distribution" means any withdrawal or taking of cash or
                  any assets of the project, including the segregation of cash
                  or assets for subsequent withdrawal within the limitations of
                  Paragraph 6(e) hereof, and excluding payment for reasonable
                  expenses incident to the operation and maintenance of the
                  project.

                  (h) "Default" means a default declared by the Secretary when a
                  violation of this Agreement is not corrected to his
                  satisfaction within the time allowed by this Agreement or such
                  further time as may be allowed by the Secretary after written
                  notice;

                  (i) "Section" refers to a Section of the National Housing Act,
                  as amended.

                  (j) "Displaced persons or families" shall mean a family or
                  families, or a person, displaced from an urban renewal area,
                  or as the result of government action, or as a result of a
                  major disaster as determined by the President pursuant to the
                  Disaster Relief Act of 1970.

                  (k) "Elderly person" means any person, married or single, who
                  is sixty-two years of age or over.

         14.      This instrument shall bind, and the benefits shall inure to,
                  the respective Owners, their heirs, legal representatives,
                  executors, administrators, successors in office or interest,
                  and assigns, and to the Secretary and his successors so long
                  as the contract of mortgage insurance continues in effect, and
                  during such further time as the Secretary shall be the owner,
                  holder, or reinsurer of the mortgage, or obligated to reinsure
                  the mortgage.

         15.      Owners warrant that they have not, and will not, execute any
                  other agreement with provisions contradictory of, or in
                  opposition to, the provisions hereof, and that, in any event,
                  the requirements of this Agreement are paramount and
                  controlling as to the rights and obligations set forth and
                  supersede any other requirements in conflict therewith.

         16.      The invalidity of any clause, part or provision of this
                  Agreement shall not affect the validity or the remaining
                  portions thereof.

         17.      The following Owners: ARV Chandler Villas, L.P., and all
                  present and future general and limited partners thereof, do
                  not assume personal liability for payments due under the note
                  and mortgage, or for the payments to the reserve for
                  replacements, or for matters not under their control, provided
                  that said Owners shall remain liable under this Agreement only
                  with respect to the matters hereinafter stated; namely:

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                  (a) for funds or property of the project coming into their
                  hands which, by the provisions hereof, they are not entitled
                  to retain; and

                  (b) for their own acts and deeds or acts and deeds of others
                  which they have authorized in violation of the provisions
                  hereof.

(To be executed with formalities for recording a deed to real estate)

               [SIGNATURES AND NOTARIES APPEAR ON FOLLOWING PAGES]

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         All references herein to the terms "nursing home" or nursing homes"
shall mean and include the terms "assisted living facility" and "assisted living
facilities."

         See Rider I attached hereto and made a part hereof.

         IN WITNESS WHEREOF, the parties hereto have set their hands and seals
on the date first hereinabove written.

                            ARV CHANDLER VILLAS, L.P.
                            a California limited partnership

                            By:  American Retirement Villas Properties III, L.P.
                                 a California limited partnership
                                 General Partner

                                 By:   ARV Assisted Living, Inc.

                                       a Delaware corporation
                                       General Partner

                                 By:
                                        -------------------------------------
                                        Douglas Armstrong
                                        Vice President

                            SECRETARY OF HOUSING AND URBAN
                            DEVELOPMENT ACTING BY AND
                            THROUGH THE FEDERAL HOUSING
                            COMMISSIONER

                                 By:
                                        -----------------------------------
                                        Authorized Agent

<PAGE>   12
                                    -- 12 --

                                 ACKNOWLEDGMENTS

State of Arizona             ]
                             ]:  ss
County of Maricopa           ]

         Before me, ______________________________, of the State and County
aforementioned, personally appeared Douglas Armstrong, known to me (or
satisfactorily proven to me) to be the person who executed the foregoing
instrument and who, upon oath, acknowledged himself to be the Vice President of
ARV Assisted Living, Inc., a Delaware corporation, the General Partner of
American Retirement Villas Properties III, L.P., a California limited
partnership, the General Partner of ARV CHANDLER VILLAS, L.P., a California
limited partnership, and that he as such General Partner, executed the foregoing
instrument for the purposes therein contained, by signing his name on behalf of
the said ARV CHANDLER VILLAS, L.P.

         WITNESS my hand and seal, as of this ____ day of January ___, 2001.

                                          ______________________________________
[SEAL]                                                Notary Public

My Commission Expires:  ______________________________

State of Arizona             ]
                             ]:  ss
County of Maricopa           ]

         On this ___ day of January, 2001, before me personally appeared
____________________________ to me personally known, who, being by me duly
sworn, did say that he/she is the Authorized Agent of the SECRETARY OF HOUSING
AND URBAN DEVELOPMENT, who executed the foregoing instrument, and that said
instrument was signed and sealed on behalf of said SECRETARY OF HOUSING AND
URBAN DEVELOPMENT the day and year first above written for the purposes therein
contained.

         WITNESS my hand and seal, as of this ____ day of January ___, 2001.

                                          ______________________________________
[SEAL]                                                Notary Public

My Commission Expires:  ______________________________<PAGE>   1

                                                                   EXHIBIT 10.10

                               PURCHASE AGREEMENT
                             AND ESCROW INSTRUCTIONS

         This Purchase Agreement and Escrow Instructions (the "Agreement") is
made as of September 5, 2000 (the "Effective Date"), between ARVP III/BRADFORD
SQUARE, L.P., a California limited partnership ("Seller"), and VINTAGE SENIOR
HOUSING, LLC, a California limited liability company, or its assignee
(collectively, "Purchaser"), at Newport Beach, California.

         1.0 RECITALS.

                  1.1 Seller is the fee owner of that certain parcel of real
property (the "Real Property") that is improved with a 92-unit retirement
facility known as "Bradford Square" and all fixtures and other improvements
thereon or associated therewith (collectively, the "Improvements"), along with
certain related personal and intangible property. The Real Property is located
at 1180 N. Bradford, Placentia, CA 92670 and is more particularly described on
EXHIBIT "A" attached hereto. The Real Property is located in Orange County,
California (the "County").

                  1.2 Purchaser desires to acquire the Real Property and
Improvements and Seller is willing to sell the same to Purchaser on the terms
and conditions set forth in this Agreement.

         NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Seller and Purchaser hereby agree as follows:

         2.0 PURCHASE AND SALE. Subject to all of the terms and conditions of
this Agreement and for the consideration set forth, at the Closing (as defined
in Section 4.2), Seller shall convey to Purchaser or to Purchaser's assignee,
and Purchaser or its assignee shall purchase from Seller, all of the following
(collectively, the "Property"):

                  2.1 Real Property. The Real Property and the Improvements,
together with all easements, hereditaments and appurtenances thereto, subject
only to such easements and agreements and other matters of record as may have
been approved by Purchaser in accordance with Section 5.3 and the rights of
residents under residence agreements or occupancy agreements.

                  2.2 Personal Property. All of the personal property (the
"Personal Property") owned by Seller and located at, attached or appurtenant to,
or used in connection with, the operation or maintenance of the Real Property
and/or the Improvements, including, but not limited to, all fixtures, fittings,
furniture (including all equipment and furniture currently used in the office of
the building at the Improvements), appliances, tools, vehicles, equipment,
machinery, food and chattels, free and clear of any and all liens, claims and
mortgages but excluding any of the Personal Property owned by residents of the
Improvements. The Personal Property shall be listed in an inventory (the
"Inventory") and shall be delivered by Seller to Purchaser by a bill of sale at
the Closing. Personal property to be delivered shall exclude all "offsite"
accounting records including journals, ledgers, invoices, payroll, etc. The
portion of the furniture, furnishings, fixtures, linen, kitchen and other

                                       1
<PAGE>   2

equipment, vehicles, and other nonconsummable items with which the Real Property
is furnished and equipped not owned by Seller is held under various equipment
leases (the "Equipment Leases"). The Equipment Leases shall be listed on
SCHEDULE 2.2 and Seller shall transfer and assign its right, title and interest
under those Equipment Leases expressly assumed by Purchaser as provided
hereinbelow, by means of the Assignment of Equipment Leases referred to in
Section 12.2(d). Computer software which is licensed to Seller or ARV Assisted
Living, Inc. shall be excluded from the definition of Personal Property, but a
hard copy of all information thereon shall be delivered to Purchaser at or prior
to the Closing.

                  2.3 Residence Agreements. Seller's right, title and interest
in and under all leases, residence agreements or other agreements with residents
or other tenants occupying space in the Improvements (the "Residence
Agreements"), a summary of which, in the form of a rent roll, shall be listed on
SCHEDULE 2.3.

                  2.4 Service Contracts. Seller's right, title and interest in
and under those certain service, maintenance, management and other contracts
pertaining to the Property under which Seller is obligated (the "Service
Contracts"), subject to Seller's liability in connection therewith, listed on
SCHEDULE 2.4.

                  2.5 Intangibles. All other right, title and interest of Seller
(to the extent Seller has any rights therein) constituting part and parcel of
the Property including, but not limited to, trade names, logos, easements,
licenses, permits, air rights, certificates of occupancy, warranties, rights of
way, signs, trademarks, telephone listings and numbers, sewer agreements, water
line agreements, utility agreements, water rights and oil, gas and mineral
rights (collectively, "Intangibles").

         3.0 PURCHASE PRICE AND METHOD OF PAYMENT.

                  3.1 Purchase Price. The purchase price to be paid by Purchaser
to Seller for the Property (the "Purchase Price") is Eight Million Dollars
($8,000,000).

                  3.2 Method of Payment. The Purchase Price is payable as
follows:

                           (a) Initial Deposit. Upon opening of escrow,
Purchaser shall deliver Fifty Thousand Dollars ($50,000) ("Initial Deposit") to
Escrow Agent (defined in Section 4.1 below). Escrow Agent shall promptly place
and thereafter hold the Initial Deposit in an interest bearing account. If the
Closing occurs, the Initial Deposit (with interest) shall be paid to Seller and
credited against the Purchase Price.

                           (b) Additional Deposit. Upon delivery of the
Suitability Notice (defined in Section 6.2, Purchaser shall deposit an
additional Twenty-Five Thousand Dollars ($25,000) ("Additional Deposit") to
Escrow Agent. Escrow Agent shall promptly place and thereafter hold the
Additional Deposit in an interest bearing account. The Initial Deposit and the
Additional Deposit shall thereupon become nonrefundable (other than if Escrow
fails to close other than for Buyer's breach). If the Closing occurs, the
Additional Deposit (with interest) shall be paid to Seller and credited against
the Purchase Price.

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<PAGE>   3

                           (c) Balance. Purchaser shall pay to Seller through
Escrow Agent at Closing in immediately available funds the sum of Eight Million
Dollars ($8,000,000), minus the Initial Deposit, Additional Deposit and interest
thereon, and plus (or minus) the net amount of all costs, expenses, adjustments
and prorations to be debited (or credited) to Purchaser pursuant to this
Agreement.

                  3.3 Additional Units. If, within five (5) years of the
Closing, Purchaser elects to build additional units on the property and
Purchaser commences construction on the additional units, Seller will be
entitled to a payment from Purchaser equal to $5,000 multiplied by the number of
units to be built in a new structure. The payment to Seller will be due and
payable within ten (10) days of the issuance of building permits to Purchaser by
the City of Placentia. Purchaser shall notify Seller in writing of any
application it shall file for building permit(s) to construct such additional
units, and of the issuance thereof.

         4.0 ESCROW.

                  4.1 Opening of Escrow. Within one (1) business day after
mutual execution of this Agreement, Seller and Purchaser shall open an escrow
(the "Escrow") with Fidelity National Title Insurance Company in Newport Beach,
California (the "Escrow Agent"), through which the purchase and sale of the
Property shall be consummated. A fully executed copy of this Agreement shall be
deposited with Escrow Agent, duly executed by Seller, Purchaser and Escrow
Agent, and Escrow Agent is hereby authorized and instructed to deliver, pursuant
to the terms of this Agreement, the documents and monies to be deposited into
the Escrow. Escrow Agent's standard form escrow agreement shall, to the extent
consistent with the terms hereof, inure to the benefit of Escrow Agent. On the
date of receipt of such duly executed copy of this Agreement, Escrow Agent shall
notify Seller and Purchaser of the opening of Escrow as of such date of receipt.

                  4.2 Closing of Escrow. Escrow shall close on or before the
date forty-five (45) days after the day Buyer delivers the Suitability Notice
(defined in Section 6.2 below) to Seller (the "Outside Date"). If the Closing
fails to occur by the Outside Date by reason of Purchaser's failure to comply
with its obligations hereunder, the costs relating to the issuance of the Title
Commitment referred to in Section 5.1 hereof and Escrow Agent's cancellation
fees, if any, shall be paid by Purchaser. Notwithstanding the foregoing, if the
Closing fails to occur because of Seller's failure to comply with its
obligations hereunder, such costs shall be borne by Seller. In any event, each
party shall bear its own incidental costs and expenses, including, but not
limited to, legal and accounting fees and travel expenses. The term "Closing" as
used herein shall be deemed to be the date upon which the respective conditions
precedent to Purchaser's and Seller's obligation to close escrow and have been
satisfied, the Grant Deed (the "Deed") is recorded in the Official Records of
the County (the "Official Records"), and the net proceeds of sale are held by
Escrow Agent and delivered to Seller.

         5.0 TITLE MATTERS.

                  5.1 Title Commitment. As soon as practicable after the
Effective Date, but in no event later than ten (10) days after the Effective
Date, Escrow Agent shall deliver or shall cause to be delivered to Purchaser a
preliminary report covering the Real Property and the Improvements

                                       3
<PAGE>   4

together with true copies of all documents evidencing matters of record shown as
exceptions to title thereon, and a map showing all easements plotted thereon,
(the "Title Commitment"), issued by the title division of Escrow Agent (the
"Title Division").

                  5.2 Survey. Seller shall deliver to Buyer promptly after the
Effective Date a copy of any existing as-built survey of the Real Property or,
if none is available, certify the lack of same to Buyer. Within the Due
Diligence Review Period (defined in Section 6.2 below), Purchaser shall obtain
at Purchaser's expense an as-built ALTA survey of the Real Property (the
"Survey") in form acceptable to the Title Company, showing the location of all
buildings thereon and in such detail as is necessary for the Title Company to
remove any survey exception from the Title Policy, and the location of any and
all easements and rights of way to which the Real Property is subject.

                  5.3 Right to Disapprove. Purchaser shall have the right to
object to any exceptions in the Title Commitment or the Survey (the "Disclosed
Exceptions") by giving notice to Seller within ten (10) days after receipt
thereof by Purchaser. Any Disclosed Exceptions Purchaser does not disapprove
within that review period shall be deemed approved. If Purchaser disapproves of
any Disclosed Exception, Seller shall have the lesser of thirty (30) days or
until the Closing to cure or remove any one or more of the same. If Seller,
after using its reasonable best efforts, does not remove all disapproved
Disclosed Exceptions, then Purchaser shall have the right to terminate this
Agreement and receive a refund of the Initial Deposit (plus interest), by giving
written notice of termination to Seller within five (5) days following receipt
of Seller's notice of inability to remove some or all of the disapproved
Disclosed Exceptions. Failure of Purchaser to give written notice within the
five (5) day period shall be deemed a waiver by Purchaser of Purchaser's right
to terminate the Agreement pursuant to this Section and Purchaser agrees to
accept title subject to such unremoved disapproved Disclosed Exceptions.

                  5.4 Existing Encumbrance Payoffs. If at the Closing date there
are any liens, assessments or encumbrances that Seller is obligated to pay and
discharge, Escrow Agent may use any portion of the Purchase Price to satisfy the
same, provided Seller either (i) delivers to Escrow Agent at the Closing title
instruments in recordable form sufficient to satisfy such liens, assessments or
encumbrances of record, together with the cost of recording or filing such
instruments, or, (ii) if Seller has made arrangements with Escrow Agent before
the Closing, Seller shall deposit sufficient monies with Escrow Agent to ensure
that such satisfactions are obtained and recorded and the Title Policy
(hereinafter defined) is issued either free of any such liens, assessments and
encumbrances, or with insurance against any loss or damage that Purchaser may
suffer as a result thereof, including, but not limited to, the enforcement of
same.

                  5.5 Title Policy. The Title Policy to be issued by (Fidelity
National Title Insurance Company) shall be an ALTA owner's policy with such
endorsements as Purchaser may reasonably require and liability in the amount of
the Purchase Price less any amount allocated to the Personal Property, showing
fee title to the Real Property and the Improvements as vested in Purchaser, or
in Purchaser's assignee or nominee, subject only to the following permitted
exceptions ("Permitted Exceptions"): (i) a lien for real estate taxes and
assessments on the Real Property not yet delinquent; (ii) purchase money
financing liens, if any, on the property securing the Equipment Leases
identified on SCHEDULE 2.2; (iii) all liens, easements, encumbrances or other
title exceptions identified in the Title Commitment, other than the disapproved
Disclosed Exceptions; (iv) such other

                                       4
<PAGE>   5

exceptions as may be approved in writing by Purchaser prior to the Closing; and
(v) acts of Purchaser or its representatives.

         6.0 DELIVERY OF INFORMATION AND DUE DILIGENCE REVIEW.

                  6.1 Due Diligence Information. Except as otherwise
specifically provided herein, within ten (10) business days after the Effective
Date, Seller shall. at Seller's expense, deliver or cause to be delivered to
Purchaser all of the documents and information identified in EXHIBIT "B"
attached (to the extent available and in the Seller's possession) hereto (the
"Due Diligence Information").

                  6.2 Due Diligence Review. Purchaser, at Purchaser's sole cost
and expense, shall conduct a due diligence review (the "Due Diligence Review")
of the Property to determine its suitability for Purchaser's intended use. In
this regard, Purchaser and its representatives shall have the right at
reasonable times and upon reasonable notice to Seller, and subject to the rights
of existing residents, to enter upon the Real Property at Purchaser's own cost
and expense for the purpose of viewing the Real Property and performing other
studies and inspections (including, without limitation, structural, mechanical,
soils, seismic, hazardous/toxic and feasibility/economic studies). Purchaser
shall hold Seller harmless from any liability resulting from Purchaser's entry
onto the Real Property. Purchaser shall also determine during the Due Diligence
Review, the probability of obtaining all necessary licenses to operate the
Property. Purchaser shall complete the Due Diligence Review within thirty (30)
days after the Effective Date (the "Due Diligence Review Period"). In the event
this Agreement is terminated pursuant to this Section, Purchaser agrees to
deliver to Seller, without warranty of any kind, copies of inspection reports,
appraisals, and environmental audits and surveys, if any, received by Purchaser
with respect to the Real Property prior to termination of this Agreement. If the
Due Diligence Review indicates, in Purchaser's sole discretion and judgment,
that the Property is suitable for Purchaser's intended use, Purchaser shall so
notify Seller and Escrow Agent in writing (the "Suitability Notice") within the
Due Diligence Review Period. If Purchaser fails to give a Suitability Notice or
gives a non-suitability notice within the Due Diligence Review Period, this
Agreement shall terminate and Escrow Agent shall immediately return the Initial
Deposit (with interest) to Purchaser. Seller hereby certifies that it has
delivered to Purchaser all of the items listed on EXHIBIT "B".

                  6.3 Review of Service Contracts and Equipment Leases. Within
ten (10) days after the Effective Date, Seller shall furnish Purchaser with
copies of all Service Contracts and Equipment Leases pertaining to the Property
listed on SCHEDULE 2.2 and SCHEDULE 2.4. As of the Closing, Purchaser shall
assume all of the Equipment Leases; in the event, however, that any Equipment
Lease cannot be assumed, Purchaser shall purchase the personal property subject
to the particular Equipment Lease pursuant to the terms of said Equipment Lease.
On or before the expiration of the Due Diligence Review Period, Purchaser shall
notify Seller in writing of Purchaser's approval and willingness to assume or
its disapproval of each Service Contract. Seller shall terminate any Service
Contract disapproved by Purchaser, effective as of the Closing Date, or as soon
as possible thereafter as permitted under the provisions of the subject Service
Contract. If by the terms of the disapproved Service Contract Seller has no
right to terminate the same on or prior to Closing, or if any fee or other
compensation is due thereunder as a result of such termination, Purchaser shall
be required at Closing to assume all obligations thereunder until the effective
date of

                                       5
<PAGE>   6

the termination and to assume the obligation to pay or to reimburse Seller for
the payment of the termination charge.

         7.0 PROPERTY OPERATION DURING ESCROW.

                  7.1 Operation, Management and Maintenance. Seller shall,
through and including the Closing and at Seller's sole cost and expense, (1)
keep all existing insurance policies affecting the Property or any portion
thereof in full force and effect or replace with comparable coverage, (2) use
due diligence and its best efforts to keep in full force and effect and/or renew
all applicable licenses and permits, (3) provide all services and continue to
operate, manage and maintain the Property (including mechanical equipment of
every kind used in the operation thereof) in such condition so that the Property
shall be in the same condition on the Closing as on the date hereof, reasonable
wear and tear excepted, (4) comply with all governmental regulations, and (5)
keep Purchaser timely advised of any single repair or improvement required to
keep the Property in such condition as aforesaid and which costs in excess of
Five Thousand Dollars ($5,000.00).

                  7.2 Residence Agreements. Without Purchaser's prior written
consent, Seller shall not hereafter (1) modify, extend or otherwise change any
of the terms, covenants or conditions of the Residence Agreements, or (2) except
for Residence Agreements entered into in the ordinary course of business on
Seller's standard agreement form and at Seller's standard rate and terms, enter
into new agreements or any other obligations or agreements affecting the
Property, or (3) terminate any of the Residence Agreements, unless the resident
thereunder has materially defaulted. Seller shall not accept from any of the
residents payment of rent more than two months in advance or apply any security
deposit to rent due from any continuing resident. Nothing contained herein shall
restrict Seller's right to enter into month-to-month Residence Agreements or
grant month-to-month extensions of existing Residence Agreements in the ordinary
course of business at rates generally consistent with those reflected in the
rent roll.

                  7.3 Service Contracts. Seller may enter into Service Contracts
or extend existing Service Contracts which are to be assumed by Purchaser in the
ordinary course of business so long as such Service Contracts can be terminated,
without penalty or payment by Purchaser or Purchaser's assignee upon thirty (30)
days or less notice. Except as provided in the preceding sentence, Seller shall
not extend, renew, modify or replace any of the Service Contracts without
Purchaser's prior written consent, which shall not be unreasonably withheld. If
Purchaser does not disapprove any Seller request regarding a Service Contract
within five (5) business days of such request, Purchaser shall be deemed to have
approved such request.

                  7.4 Alterations. Seller will not make any material alterations
to the Property, or remove any of the Personal Property therefrom (unless the
Personal Property so removed is simultaneously replaced with Personal Property
of similar or better quality and utility).

                  7.5 Vacant Space. All debris shall be removed from any vacant
units and the apartments shall be in a market ready (i.e. ready for occupancy
within three (3) days) condition.

                  7.6 Bills and Leasing Commissions. Seller shall pay in full,
before the Closing, all charges, bills and invoices for utilities, labor, goods,
materials and services of any kind relating to

                                       6
<PAGE>   7

the Property for the period up to the Closing. Any alterations, installations,
decorations and other work required to be performed under the Residence
Agreements will be completed and paid for in full by the Closing. Any brokerage
fee or similar commission which is or will become due and payable in connection
with any Residence Agreement has been or will be paid by Seller before the
Closing; provided, however, that Seller will not pay said costs, fees or
commissions for prospective residents moving in subsequent to the Closing Date.

                  7.7 Notice of Changes. Seller shall promptly notify Purchaser
of any material change in any condition concerning the Property or of any event
or circumstance which makes any representation or warranty of Seller under this
Agreement untrue or misleading, or any covenant of Purchaser under this
Agreement incapable or less likely of being performed; however, Seller's
obligation to provide such notice to Purchaser shall in no way relieve Seller of
any liability for its breach of any of Seller's representations, warranties or
covenants under this Agreement.

         8.0 TERMINATION OF EMPLOYEES. An entity affiliated with Seller is
managing the Property and employs all personnel necessary to effectively manage
the Property. Before Closing, Seller shall take all measures necessary to effect
the termination of each employee at the Closing. Purchaser, or an affiliate,
shall become the property manager after the Closing, and may hire most of the
employees pursuant to Section 14.8 of this Agreement.

         9.0 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE ESCROW.
Purchaser's obligation to consummate the transactions contemplated hereby is
subject to the following conditions, each of which is for Purchaser's sole
benefit and may be waived by Purchaser only in writing at its sole option:

                  9.1 Representations and Warranties True at Closing. Seller's
representations and warranties in this Agreement, including but not limited to
those in Section 16 below, shall be true on the date of Closing.

                  9.2 Delivery of Instruments and Information. Seller shall have
delivered the instruments and information required under Section 6.0 above to be
delivered by Seller as, when and in the manner set forth therein.

                  9.3 Compliance with this Agreement. Seller shall have
performed and complied with all agreements and conditions Seller is required to
perform under this Agreement on or before the Closing.

                  9.4 Purchaser Approvals. Purchaser shall have affirmatively
approved in writing those matters set forth in Sections 5.0 and 6.0, and shall
have issued a Suitability Notice.

                  9.5 Title Policy. The Title Division shall be ready, willing
and able to issue the Title Policy, subject only to the Permitted Exceptions,
required by Section 5.5.

                  9.6 Change in Condition. Subject to the provisions of Sections
19.2 and 19.3 hereof, there shall exist no damage, destruction or condemnation
of the Property before Closing.

                                       7
<PAGE>   8

                  9.7 Failure to Satisfy Obligations. If Seller fails to satisfy
the obligations set forth in Subsections 9.1, 9.2, 9.3, 9.5 and 9.6 above,
before Closing, Purchaser shall be entitled to terminate this Agreement and
receive an immediate refund of the Initial Deposit (with interest).

         10.0 CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE ESCROW.
Seller's obligation to consummate the transactions contemplated hereby is
subject to the following conditions, each of which is for Seller's sole benefit
and may be waived solely by Seller only in writing, and at its sole option:

                  10.1 Representations and Warranties True at Closing.
Purchaser's representations and warranties in this Agreement, or in any
certificate or document signed by Purchaser pursuant to the provisions hereof,
shall be true on and as of Closing.

                  10.2 Compliance with This Agreement. Purchaser shall have
performed and complied with all agreements and conditions Purchaser is required
to perform under this Agreement on or before Closing.

                  10.3 Approvals. Seller's obligation to close the transaction
shall be further subject to: (i) obtaining approval of the transaction from the
Board of Directors of ARV Assisted Living, Inc. and (ii) obtaining approval of
the transaction from the limited partner of Seller, written documentation of
each of which shall be delivered to Purchaser within thirty (30) days of the
Effective Date.

         11.0 ESCROW CANCELLATION OR TERMINATION.

                  11.1 Cancellation Before Removal of all Contingencies. All
cost to be borne by the respective parties who incurred said cost except title
company cancellation charges to be paid by Seller.

                  11.2 Cancellation After Removal of all Contingencies.

                           (a) Purchaser's Failure. If escrow fails to close
because of Purchaser's default after delivery of the Suitability Notice, Seller
may at its option, terminate this Agreement and the escrow by giving written
notice to Purchaser and escrow holder. Escrow shall thereupon be canceled, all
documents shall be returned to the respective parties who deposited them and
Purchaser shall pay all title and escrow cancellation charges. In addition, the
parties agree that based on the circumstances now existing, known or unknown, it
would be excessively costly and impractical to establish Seller's damages if
escrow does not close as a result of Purchaser's default and it would therefore
be reasonable to award Seller liquidated damages in the amount of the Initial
Deposit and Additional Deposit (plus interest) specified in Section 3.2. By
their respective initials set forth below, the parties agree that Seller may
retain the Initial Deposit and Additional Deposit (plus interest) as its
reasonable liquidated damages if escrow does not close as a result of
Purchaser's default. Seller's retention of such amount shall be in lieu of any
other relief, right or remedy, at law or in equity, to which Seller might
otherwise be entitled by reason of Purchaser's default that results in escrow
failing to close.

                                      -----------                ---------------
                                      Purchaser                  Seller

                                       8
<PAGE>   9

                           (b) Seller's Failure. If and only if Purchaser has
complied with each and every provision of this Agreement including deposit of
purchase price to escrow and Seller defaults under this Agreement, Purchaser's
remedy shall be an action for damages, including but not limited to lost
profits, arising by reason of Seller's Default, or an action for specific
performance of this Agreement.

         12.0 CLOSING PROCEDURE.

                  12.1 Purchaser's Deliveries. At least one (1) business day
before the date of Closing, or as required by escrow agent, Purchaser shall
deliver the following documents and funds to Escrow Agent:

                           (a) The balance of the Purchase Price in the manner
set forth in Section 3.2(c);

                           (b) A counterpart of the Interim Lease (if
applicable), signed by Purchaser as landlord, in the form described in Section
18.0 below;

                           (c) A counterpart of the Interim Management Agreement
(if applicable), signed by Purchaser as property manager;

                           (d) Such other documents as may be required in
connection with the closing of this transaction;

                           (e) Such funds as may be necessary to comply with
Purchaser's obligations hereunder regarding prorations, costs and expenses;

                           (f) Resolutions of Purchaser or Purchaser's assignee,
authorizing consummation of the transaction; and

                           (g) Signed counterparts of the documents referenced
in Section 12.2 (c), (d) and (e).

                  12.2 Seller's Deliveries. At least three (3) business days
before the date of Closing, Seller shall deliver the following documents and
funds to Escrow Agent:

                           (a) The Deed in the form of EXHIBIT "C" attached
hereto, duly executed and acknowledged by Seller, and a separate declaration of
documentary transfer tax in form satisfactory to Escrow Agent;

                                        9
<PAGE>   10

                           (b) A duly executed Bill of Sale in favor of
Purchaser in the form of EXHIBIT "D" attached hereto;

                           (c) A duly executed Assignment of Service Contracts
in the form of EXHIBIT "E" attached hereto;

                           (d) A duly executed Assignment of Equipment Leases in
the form EXHIBIT "F" attached hereto;

                           (e) A duly executed Assignment of Residence
Agreements in the form of EXHIBIT "G" attached hereto;

                           (f) A duly executed certification of non-foreign
status and California Franchise Tax Board Form 590 in the form of EXHIBIT "H"
attached hereto;

                           (g) Such other documents as may be required in
connection with the closing of this transaction;

                           (h) To the extent that the same are not credited
against the Purchase Price, the security deposits (and accrued interest owed to
residents, if any);

                           (i) An original or copy of each of the Service
Contracts;

                           (j) An original of each of the Residence Agreements
together with a certified rent roll;

                           (k) Any information reasonably required to enable
Purchaser to take possession of the Property upon Closing;

                           (l) A closing certificate stating that all
representations of Seller set forth in Section 16.0 hereof, except for facts
that occurred or were discovered after the date of this Agreement, which shall
be identified in such certificate, are true and correct as of the date of
Closing;

                           (m) Notices to each of the residents and occupants of
the Property of the transfer of the Property to Purchaser;

                           (n) Notices to each of Seller's employees of the
transfer of the Property to the Purchaser;

                           (o) Such funds as may be necessary to comply with
Seller's obligations hereunder regarding prorations, costs, expenses and
assignment of security deposits;

                           (p) A counterpart of the Interim Lease (if
applicable), signed by Seller as resident; and

                                       10
<PAGE>   11

                           (q) A counterpart of the Interim Management Agreement
(if applicable), signed by Seller as resident.

                  12.3 Title Agent's Duties. Upon receipt of all of the
foregoing, Escrow Agent shall instruct the Title Division to record the Deed in
the Official Records and to issue the Title Policy.

         13.0 COSTS AND PRORATIONS.

                  13.1 General. All revenues of the Property and all operating
expenses that vary based upon the actual operations of the Property shall be
prorated as of 6:00 a.m. on the date of Closing (the "Operations Cutoff Time")
in accordance with the provisions set forth below. All operating expenses which
are fixed and are typically billed on a periodic basis and are capable of
proration on a per diem basis (e.g., insurance, property taxes, etc.) shall be
prorated as of 12:00 midnight immediately before the Closing (the "Per Diem
Cutoff Time") in accordance with the provisions set forth below. Any
apportionments and prorations not expressly provided for above shall be made in
accordance with customary practice in the County. Purchaser and Seller shall
jointly prepare a tentative written proration statement before the Closing. Any
adjustments to the Purchase Price and/or cash to be funded into Escrow or paid
as of the Closing, subject to adjustment pursuant to the Operations Settlement
(defined in Section 14.0 below), shall be effected by an increase in the amount
to be funded by Purchaser into Escrow and a corresponding increase in the amount
to be disbursed to Seller (if the prorations result in a net credit to the
Seller) or by a decrease in the amount to be funded by Purchaser into Escrow and
a corresponding decrease in the amount to be disbursed to Seller (if the
prorations result in a net credit to the Purchaser). Any such adjustments not
determined or not agreed upon as of the Closing shall be paid by Purchaser to
Seller, or by Seller to Purchaser, as the case may be, in cash within seven (7)
calendar days after demand. A copy of the schedule of adjustments to the
proration statement as agreed upon by Purchaser and Seller shall be delivered to
Escrow Holder before the Closing.

                  13.2 Inventory. The Purchase Price shall include all Personal
Property on hand at the Real Property as of the Operations Cutoff Time
(including open and unopened items) normally inventoried at the Property on a
monthly or quarterly basis including, but not limited to, all glass, china,
linen and silver, all food and beverages, all medical, pharmaceutical and
operating supplies, as well as all other personal property, furniture, fixtures
and equipment which is new and unused (in unopened packaging or otherwise)
located at the Real Property as of the Operations Cutoff Time as determined by
Purchaser and Seller pursuant to an inventory to be conducted by Purchaser and
Seller between 8:00 p.m., California time, of the evening immediately before the
Operations Cutoff Time, and 8:00 a.m., California time, immediately after the
Operations Cutoff Time, a copy of which inventory shall be attached to the Bill
of Sale.

                  13.3 Closing Statement. Escrow Holder shall prepare an
estimated closing statement on or before the Closing Date (the "Closing
Statement"), which will reflect all of the cash adjustments as a result of the
prorations to be made as of the Closing.

         14.0 OPERATIONS SETTLEMENT. Purchaser's and Seller's accountants shall
prorate revenues of the Property as well as all variable operating expenses as
of the Operations

                                       11
<PAGE>   12

Cutoff Time and/or the Per Diem Cutoff Time, as the case may be, and the results
thereof together with a statement of cash in hand in the Property's operating
accounts, and other cash accounts maintained by the Seller concerning the
Property (the "House Funds") shall be set forth in a final accounting of the
prorations to be specified in the Closing Statement, subject to the following:

         14.1 Taxes. All general real estate and ad valorem personal property
taxes and assessments shall be prorated as of the Per Diem Cutoff Time using the
latest available tax rates and assessments. Seller shall be responsible for all
general real estate and ad valorem personal property taxes and all special taxes
or assessments accruing concerning the Property for all periods before the Per
Diem Cutoff Time and Purchaser shall be responsible for all such taxes and
assessments accruing after the Per Diem Cutoff Time. Any tax refunds or rebates
occurring or accruing before the Per Diem Cutoff Time which apply to periods
before the Per Diem Cutoff Time shall remain the property of Seller. If after
the Closing it becomes apparent that the amount of real estate taxes for the
Property was or becomes higher or lower than the amount that was used for
apportionment as of the Closing (whether by reason of a change in either the
asset value of the Property or the applicable tax rates or otherwise excepting
reassessment based on this ownership change), real estate taxes shall be
re-prorated and Seller or Purchaser, as the case may be, shall pay to the other
within seven (7) calendar days after demand, any amount owed to the other as a
result thereof.

         14.2 Utilities. Seller shall terminate all light, power and other
utilities for the Property, effective as the Close of Escrow. Utility meters
will be read, to the extent that the utility company will do so, during the
daylight hours on the calendar day immediately before the Closing, with charges
accruing before the Operations Cutoff Time paid by Seller and charges accruing
thereafter paid by Purchaser. Prepaid utility charges shall be prorated on the
Closing Statement. Charges for utilities which are unmetered, or charges for the
meters which have not been read by the Closing, will be prorated between
Purchaser and Seller as of the Operations Cutoff Time, and an adjustment to any
determinations made by the utility companies necessary to reflect actual
operations as of the Operations Cutoff Time if reasonably estimatable or, if not
after the Closing based upon utility billings received after the Closing in
which case Seller or Purchaser, as appropriate, shall, upon receipt, submit a
copy of the utility billings for any such charges to the other party and such
party shall pay its pro rata share of such charges to the party requesting
payment within seven (7) calendar days alter the date of any such request.
Seller shall be credited and Purchaser debited for all deposits previously made
by Seller which the utility company in question will apply to Purchaser's
account. Purchaser shall be responsible for replacing and/or paying, on or
before the Closing, all deposits which will not be applied by utility companies
for Purchaser's account or which are otherwise required by utility companies in
order to continue service at the Property for periods after the Operations
Cutoff Time and shall take any other action and make any other payments required
to assure uninterrupted availability of utilities at the Property for all
periods after the Closing. Purchaser agrees that as of or after the Closing, all
utility deposits previously made by Seller which are not applied to Purchaser's
account may be refunded directly to Seller by the utility company holding same.

         14.3 Residence Agreements, Service Contracts, and Equipment Leases. All
accrued income and expenses concerning the Residence Agreements, Service
Contracts and Equipment Leases which continue to affect the Property after the
Closing will be prorated as of the Per Diem Cutoff Time. Purchaser shall receive
a credit for the amount of any prepaid rents, security

                                       12
<PAGE>   13

deposits, or other deposits previously paid to Seller and not applied to
delinquent rents or otherwise as provided under the Residence Agreements as of
the Closing. Seller shall receive a credit for the amount of any prepaid
expenses under any Service Contracts. Rent, whether paid or payable by residents
or occupants under the Residence Agreements shall be prorated between Purchaser
and Seller as of the Per Diem Cutoff Time on an accrued basis. Rent payments
received after the Closing shall be applied first to rent then due and the
balance, if any, shall be remitted to Seller pursuant to Section 14.6.

                  14.4 Reservations. Purchaser will honor all reservation
agreements and deposits for dates after the Closing. Purchaser authorizes Seller
to continue to accept reservations for units and beds at the Property for
periods after the Closing provided the terms and conditions of the reservations
are in the ordinary course of' Seller's business, and Purchaser agrees to honor
all such reservations in accordance with their terms. Any pre-Closing deposits
made to Seller concerning confirmed reservations for dates after the Closing
will be credited to Purchaser. Any post-Closing deposits received by Seller
concerning confirmed reservations for dates after the Closing shall be forwarded
to Purchaser upon Seller's receipt.

                  14.5 House Funds. All house funds on hand at the Operations
Cutoff Time shall be credited to Seller and debited to Purchaser. All accounts
in which House Funds are maintained shall be transferred by Seller to Purchaser
upon the Closing pursuant to an assignment of such accounts and execution by the
parties of new account signature cards, or by transfer to new accounts opened by
Purchaser for such purpose.

                  14.6 Accounts Receivable. All accounts receivable, whether due
or accruing from private pay residents, or other third party payors, shall
remain the property of Seller. To the extent that Purchaser receives payment for
any accounts receivable following the Closing, Purchaser shall remit the same to
Seller within thirty (30) days after receipt thereof. The determination of the
accounts receivable shall be made as of the Closing to the extent known. Seller
shall have the right, following the Closing, to maintain its efforts to collect
its accounts receivable.

                  14.7 Accounts Payable and Expenses. Subject to Section 13.0,
all accrued but unpaid accounts payable and expenses relating to operations of
the Property (i.e., accounts payable and expenses arising from items not a part
of inventory (e.g., energy, utilities, insurance, trade association dues,
subscriptions, etc.) or services provided (e.g., by employees, independent
contractors, professionals and other consultants, by vendors pursuant to service
contracts, etc.) before the Closing shall be paid by Seller. Notwithstanding
anything to the contrary, there shall be no proration of prepaid advertising.
The determination of the accounts payable shall be made as of the Closing to the
extent known. Prepaid expenses concerning all such items as of the Closing shall
be credited to Seller. All accounts payable and expenses relating to operations
of the Property after the Closing will be paid by Purchaser.

                  14.8 Employees. Periodic employee compensation, accrued
vacation pay and other employee benefits to which employees of the Seller's
management company, ARV Assisted Living, Inc., a Delaware corporation
(hereinafter "ARV"), are entitled shall be paid by Seller or ARV, as applicable,
to those employees upon closing. Most of ARV's employees may, at Purchaser's
option, be hired by Purchaser in the same capacity of employment and at the same
level

                                       13
<PAGE>   14

of compensation or other benefits enjoyed by such employees as of the closing.
Seller shall be fully responsible for any severance obligations and liabilities
of Seller's and/or Seller's employees, and Seller shall indemnify, defend and
hold harmless Purchaser concerning all claims related thereto.

         15.0 CLOSING EXPENSES. The Closing expenses shall be paid as follows:

                  15.1 Seller's Share. Seller shall pay: (i) the cost of an
owner's CLTA standard coverage title policy without extended coverage or special
endorsements; (ii) documentary transfer tax imposed on the conveyance of title
to the Property to Purchaser; (and (iii) one-half (1/2) of Escrow Agent's fee.

                  15.2 Purchaser's Share. Purchaser shall pay: (i) the cost of
the Title Policy in excess of the amount paid by Seller under Section 15.1(i),
including any extended coverage or special endorsements; (ii) any sales taxes
owing in connection with the transfer of the Personal Property as contemplated
by this Agreement; (iii) the cost of recording the Deed; and (iv) one-half (1/2)
of Escrow Agent's fee.

                  15.3 Other. All other Closing fees and expenses, including,
but not limited to, the parties' legal expenses, accounting and consulting fees,
and other incidental expenses in connection with this transaction shall be borne
by the party incurring same.

         16.0 SELLER'S REPRESENTATIONS AND COVENANTS. Seller hereby makes the
following representations and covenants:

                  16.1 Due Organization. Seller is duly organized, validly
existing and in good standing under California law and has the full power and
authority to conduct its business as it is now being conducted in California.

                  16.2 Due Authority. Seller has the legal power, right and
authority to enter into this Agreement and the instruments referenced herein,
and to consummate the transaction contemplated hereby.

                  16.3 Requisite Actions. All requisite action (corporate,
trust, partnership or otherwise) has been taken by Seller in connection with
entering into this Agreement, the instruments referenced herein, and the
consummation of the transaction contemplated hereby. No consent of any partner,
shareholder, creditor, investor, judicial or administrative body, governmental
authority (except as required under Section 18.0) or other party is required.

                  16.4 Individual Capacity. The individuals executing this
Agreement and the instruments referenced herein on behalf of Seller and Seller's
partners, have the legal power, right, and actual authority to bind Seller to
the terms and conditions hereof and thereof.

                  16.5 Enforceability. This Agreement and all documents required
hereby to be executed by Seller are and shall be valid, legally binding
obligations of and enforceable against Seller in accordance with their terms.

                                       14
<PAGE>   15

                  16.6 No Defaults. Executing and delivering this Agreement and
documents referenced herein, incurring the obligations set forth herein,
consummating the transaction contemplated herein, and complying with the terms
of this Agreement and the documents referenced herein do not conflict with or
result in the material breach of any terms, conditions or provisions of, or
constitute a default under the partnership agreement of Seller or Seller's
general partner, American Retirement Villas Properties III, L.P.

                  16.7 Pending or Threatened Actions. There are no pending or,
to the best of Seller's knowledge, contemplated actions, suits, arbitrations,
claims, hearings or proceedings, at law or in equity, affecting all or any
portion of the Property or in which Seller is or will be a party by reason of
Sellers ownership of the Property. Seller does not know of the existence of any
threatened or contemplated actions, claims, hearings or proceedings or of the
existence of any facts which might give rise to such actions, claims or
proceedings.

                  16.8 Hazardous Materials. To the best of Seller's knowledge,
there has been no production, disposal or storage on, beneath the surface of, or
nearby the Property of any hazardous materials or other toxic substance by
Seller or any previous owner, or any other activity which could have toxic
results, and there is no proceeding or inquiry by any governmental authority
with respect thereto, other than cleaning materials used in the ordinary course
of business for cleaning and maintaining the Property. Seller shall indemnify
and hold Purchaser harmless from any and all losses, costs (including without
limitation attorneys' fees), or liabilities arising out of or incurred in
connection with the untruth or inaccuracy of Seller's representations in this
subsection. The term "hazardous materials" means any hazardous or toxic
substance which is regulated by any local governmental authority, the State of
California and/or the United States government.

                  16.9 Documents Delivered. All instruments, documents, lists,
schedules and items required to be delivered to Purchaser hereunder will fairly
present the information set forth in a manner that is not misleading and will be
true, complete and correct in all material respects on the date of delivery and
upon the Closing, as they may be updated, modified or supplemented in accordance
with this Agreement.

                  16.10 Residence Agreements. The Residence Agreements are in
full force and effect strictly according to the terms set forth therein. There
are no uncured defaults on the part of Seller, as landlord, and, to the best of
Seller's knowledge, by residents under the Residence Agreements and no resident
has asserted, or has any defense to, offsets or claims against rent payable or
obligations under its Residence Agreement. All of the landlord's obligations
under the Residence Agreements which accrue before the Closing have been
performed. Seller has no reason to believe that any resident is or may become
unable or unwilling to perform any or all of such resident's obligations under
its Residence Agreement. To the best of Seller's knowledge, no claim,
controversy, dispute, quarrel or disagreement exists between any resident and
Seller. Seller has made no representations to residents regarding the condition
of the premises covered by any Residence Agreement or the compliance of the
premises with any applicable governmental regulations, except as expressly set
forth in the Residence Agreements.

                  16.11 Employment Arrangements. There are no employment
contracts, operating agreements, management contracts, listing agreements,
consulting agreements, union contracts, labor

                                       15
<PAGE>   16

agreements, pension plans, profit sharing plans or employee benefit plans which
relate to the Property, other than delivered to Purchaser pursuant to this
Agreement.

                  16.12 Effect of Changes. Upon notification of any fact that
could materially change any of the representations contained herein, Purchaser
shall have the option of (1) waiving the breach that would be caused by such
change, (2) agreeing with Seller to adjust the terms hereof to compensate
Purchaser for such change (although Seller may refuse to make such agreement in
its sole and absolute discretion), or (3) terminating this Agreement without
prejudice to any further legal or equitable rights or remedies against Seller
and/or the Property.

                  16.13 As-Is Condition. Except as otherwise expressly provided
in this Section 16, Seller disclaims the making of any representations or
warranties, express or implied, regarding the Property or matters affecting the
Property, including, without limitation, the physical condition of the Property,
title to or the boundaries of the Real Property, soil condition, hazardous waste
or other environmental matters, compliance with building, health, safety, land
use, and zoning laws, regulations and orders, structural and other engineering
characteristics, or budgets and financial projections for the operation of the
Property. Moreover, Purchaser acknowledges that (i) Seller did not develop or
construct the Property; (ii) Purchaser has entered into this Agreement with the
intention of making and relying on its own investigation of the physical,
environmental, economic and legal conditions of the Property; and (iii)
Purchaser is not relying on any statements, representations, or warranties,
other than those specifically set forth in this Section 16, made by Seller or
anyone acting or claiming to act on Seller's behalf concerning the Property, and
that Purchaser shall purchase the Property in its "as is" condition on the
Closing Date and assumes the risk that adverse physical, environmental, economic
or legal conditions may exist.

         17.0 PURCHASER'S REPRESENTATIONS. Purchaser hereby makes the following
representations:

                  17.1 Due Organization. Purchaser is duly organized, validly
existing and in good standing under California law and has the full power and
authority to conduct its business as it is now being conducted.

                  17.2 Due Authority. Purchaser has full legal power and
authority to enter into and perform this Agreement in accordance with its terms.

                  17.3 Enforceability. This Agreement constitutes the valid and
binding obligation of Purchaser, enforceable in accordance with its terms,
except as such enforcement may be affected by bankruptcy, insolvency and other
laws affecting the rights of creditors generally.

                  17.4 No Defaults. The execution, delivery and performance of
this Agreement and all documents in connection therewith are not in
contravention of or in conflict with any agreement or undertaking to which
Purchaser is a party or by which Purchaser may be bound or affected.

                  17.5 Requisite Actions. The execution and delivery of this
Agreement and the payment and performance by Purchaser of its payments and
obligations hereunder require no further

                                       16
<PAGE>   17

action or approval for this Agreement to be a binding and enforceable obligation
of Purchaser and all such actions have been duly taken by Purchaser.

         18.0 LICENSES.

                  18.1 License Transfer or Issuance. Purchaser shall be fully
responsible for and shall pay all costs and fees required to be paid in
connection with the transfer or issuance of any and all licenses and permits
required for the operation of the Property, and shall pay all transfer and
license application fees in connection therewith, as well as applying for and
obtaining any and all new licenses, permits, certificates and/or approvals
necessary or appropriate in connection with the operation of the Property and
the consummation of the purchase and sale of the Property. Purchaser shall
diligently prosecute its applications in accordance with the rules and
procedures set forth under applicable law. Seller shall use its best efforts to
assist Purchaser in obtaining the transfer or issuance of such licenses,
permits, certificates and approvals.

                  18.2 Interim Lease. It may not be possible to complete the
foregoing license and permit transfers or issuances before the Closing and some
or all of the licenses and permits may not be capable of transfer. However, the
transfer and/or issuance of such licenses, permits, certificates and/or
approvals (and/or any other licenses, permits, certificates and/or approvals)
shall not be a condition precedent to Purchaser's obligations under this
Agreement, nor to the Closing and Purchaser shall remain fully obligated to
perform all of its obligations hereunder and to Close the Escrow even if such
licenses, permits, certificates and approvals have not been transferred or
issued to Purchaser before Closing for any reason whatsoever, including
Purchaser's inability to qualify for the transfer or issuance of any such
licenses or permits. To the extent that the necessary licenses and permits are
not obtained by transfer by Closing, for a period of one hundred eighty (180)
days after the Closing Date, Seller and Purchaser shall operate the property
pursuant to an Interim Lease (the "Interim Lease"), and an interim property
management agreement (the "Interim Management Agreement") in the form and
content approved by the parties during the Due Diligence Review Period. The
parties shall execute the Interim Lease and Interim Management Agreement not
later than the Closing. The Interim Lease and Interim Management Agreement shall
terminate upon the earlier of one hundred eighty (180) days after the Closing or
issuance by the appropriate governmental agency of the appropriate license(s)
and permit(s). The Interim Lease will be entered into solely for the purpose of
maintaining Seller's licenses for the Property for the term of the Interim
Lease. During the term of the Interim Lease, Purchaser shall indemnify Seller as
provided in Section 19.8 of this Agreement, and shall use its reasonable best
and diligent efforts to apply for and obtain a new operating license.

         19.0 GENERAL COVENANTS AND AGREEMENTS OF PURCHASER AND SELLER.

                  19.1 Delivery of Possession. Possession of the Property shall
be delivered to Purchaser upon Closing, subject to the rights of residents in
possession.

                                       17
<PAGE>   18

                  19.2 Damage to or Destruction of Property Before Closing. If
the Property sustains damage caused by fire or other casualty before Closing
that is insured and that would cost One Hundred Thousand Dollars ($100,000) or
more to repair, or if any uninsured loss or casualty occurs, either Seller or
Purchaser may elect to terminate this Agreement by written notice to the other
within fifteen (15) days after notice of such event, or at Closing, whichever is
earlier. If neither Seller nor Purchaser so elects to terminate its obligations
under this Agreement, or if the loss or casualty would cost less than One
Hundred Thousand Dollars ($100,000) to repair and Seller has insurance coverage
reasonably satisfactory to Purchaser, the Closing shall take place as provided
herein without abatement of the Purchase Price, and there shall be assigned to
Purchaser at Closing all of Seller's interest in and to the insurance proceeds
that may be payable to Seller on account of such occurrence and Seller shall
have no obligation of repair or replacement. If an uninsured loss or casualty
occurs and neither party elects to terminate its obligations under this
Agreement as aforesaid, Purchaser shall receive a credit at Closing against the
Purchase Price in an amount equal to the cost of repairing or restoring the loss
or casualty in question.

                  19.3 Condemnation of Property Before Closing. Seller shall
immediately advise Purchaser if the Property or any part thereof becomes the
subject of a condemnation proceeding before Closing. If such condemnation
occurs, Purchaser shall have the option to (i) take title in accordance with the
terms and conditions of this Agreement and permit Seller to negotiate with the
condemning authority and receive the condemnation award, reducing the Purchase
Price by the amount thereof received or receivable by Seller, or (ii) take title
in accordance with the terms and conditions of this Agreement and negotiate with
the condemning authority for the condemnation award and receive the benefits
thereof without affecting the Purchase Price, or (iii) terminate this Agreement
and its obligations hereunder, in which event all sums theretofore paid to
Seller or to Escrow Agent hereunder shall be returned to Purchaser. Notice of
the exercise of such option hereunder shall be in writing, delivered to Seller
at the address set forth in Section 20.7 of this Agreement (or such other
address as Seller may have theretofore designated in writing) at least two (2)
days before Closing.

                  19.4 Failure to Close. Except as otherwise provided in this
Agreement, if Closing does not occur for any reason whatsoever, and after the
parties shall have conformed to the requirements set forth in this Agreement,
the parties shall, upon the request of either party, execute and deliver mutual
general release agreements concerning any claims in connection with the
transactions contemplated by this Agreement and evidencing the termination of
this Agreement.

                  19.5 Time of Essence. Time is of the essence concerning the
obligations of the parties hereunder. All modifications of time for performance
must be specific, in writing and signed by the parties.

                  19.6 Assignability. Purchaser may assign its interest
hereunder without Seller's prior written consent; however, such assignment shall
not be effective as to Seller until close of escrow and shall not relieve
Purchaser of any liability hereunder without Seller's prior written consent,
which consent shall not be unreasonably withheld.

                  19.7 Waivers, Amendments and Modifications. Waivers,
amendments or modifications of any term or condition of this Agreement must be
in writing signed by the party

                                       18
<PAGE>   19

against whom such waiver is sought to be enforced. No waiver by any party of any
breach hereunder shall be deemed a waiver of any other or subsequent breach.

                  19.8 Indemnification. Seller shall indemnify and hold
Purchaser harmless from and against any and all loss, cost, damage, claim,
liability or expense, including court costs and reasonable attorneys' fees,
which may be asserted against or incurred or suffered by Purchaser from time to
time by reason of or in connection with (i) the material inaccuracy or material
breach of any of the representations, warranties, or covenants made by Seller
herein, (ii) any injury or damage or claim of injury or damage of any kind
whatsoever, including death, to persons or property, including employees of
Seller (unless caused by Purchaser), occasioned in or about the Property before
Closing, including, but not limited to, the existence of any hazardous materials
located thereon, and (iii) any claim by any partner of American Retirement
Villas Properties III, L.P., (the "Partnership"), the general partner of Seller,
of breach of such Partnership's limited partnership agreement (or any other
claim arising out of or relating to such document) arising out of the
involvement, if any, of Gary L. Davidson as a part of Purchaser or Purchaser's
assignee. Purchaser shall indemnify and hold Seller harmless from and against
any and all loss, damage, claim of damage, liability or expense, including costs
and reasonable attorneys' fees, which may be asserted against or incurred or
suffered by Seller from time to time by reason of or in connection with (i) the
material inaccuracy or material breach of any of the representations,
warranties, or covenants made by Purchaser herein, or (ii) injury or damage or
claim of injury or damage of any kind whatsoever, including death, to persons or
property, including employees of Purchaser (unless caused by Seller), occasioned
in or about the Property on or after the Closing. These covenants shall survive
Closing. Upon demand each party shall cooperate in defending any such action
which may be filed against the other, with defending party responsible for
actual cost.

         20.0 MISCELLANEOUS PROVISIONS.

                  20.1 Successors and Assigns. Subject to the provisions hereof,
the terms and provisions hereof shall be binding upon and inure to the benefit
of the successors and assigns of the parties.

                  20.2 Meaning of Terms. When necessary herein, all terms used
in the singular shall apply to the plural, and vice versa; and all terms used in
the masculine shall apply to the neuter and feminine genders.

                  20.3 Entire Agreement. This Agreement is the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior agreements between the parties concerning the same. No claim of waiver,
modification, consent or acquiescence concerning any of the provisions of this
Agreement shall be made against either party, except on the basis of a written
instrument executed by or on behalf of such party.

                  20.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.

                                       19
<PAGE>   20

                  20.5 Section Headings. The Section headings in this Agreement
are inserted solely for convenience of reference and are not a part of and are
not intended to govern, limit or aid in the construction of any term or
provision hereof.

                  20.6 Attorneys' Fees. If either Seller or Purchaser obtains
legal counsel or brings an action against the other by reason of the breach of
any covenant, provision or condition hereof, or otherwise arising out of this
Agreement, the unsuccessful party shall pay to the prevailing party reasonable
attorneys' fees, paralegal fees, and reasonable costs, which shall be payable
whether or not any action is prosecuted to judgment. The term "prevailing party"
shall include, without limitation, a party who obtains legal counsel or brings
an action against the other by reason of the other's breach or default and
obtains substantially the relief sought, whether by compromise. settlement or
judgment.

                  20.7 Notices. All notices, requests, demands, and other
communications required or permitted to be given under this Agreement shall be
given in writing (at the addresses set forth below) by any of the following
means (i) personal service (including delivery by overnight courier); (ii)
electronic communication, whether by telex, telegram or telecopying (if
confirmed in writing sent by registered or certified, first class mail, return
receipt requested); or (iii) registered or certified, first class mail, return
receipt requested. Such addresses may be changed by notice to the other parties
given in the same manner as provided above. Any notice, demand or request sent
pursuant to either (i) or (ii) hereof shall be deemed received upon such
personal service or upon dispatch by electronic means, and, if sent pursuant to
(iii) shall be deemed received three (3) days after deposit in the mail:

                     Seller:          ARVP III/Bradford Square, L.P.
                                      c/o ARV Assisted Living, Inc.
                                      245 Fischer Avenue, D-1
                                      Costa Mesa, CA 92626-0236
                                      Attn: Abdo Khoury
                                      Phone:  (714) 435-4357
                                      Facsimile: (714) 751-1743

                     With a copy to:  Douglas Armstrong
                                      c/o ARV Assisted Living, Inc.
                                      245 Fischer Avenue, D-1
                                      Costa Mesa, CA 92626-0236
                                      Phone:  (714) 435-4327
                                      Facsimile: (714) 435-7110

                     Purchaser:       Vintage Senior Housing, LLC
                                      350 San Miguel Drive, Suite 300
                                      Newport Beach, CA 92660
                                      Attn.:  Eric K. Davidson
                                      Phone:  (949) 719-4082
                                      Facsimile:  (949) 640-2794

                                       20
<PAGE>   21

                     With a copy to:  The Busch Firm
                                      2532 Dupont Drive
                                      Irvine, CA 92612
                                      Attention:  Sheila M. Muldoon
                                      Phone:  (949) 474-7368, Ext. 108
                                      Facsimile:  (949) 474-7732
                                      Efax:  (425) 740-7978

                     Escrow Agent:    Fidelity National Title Insurance Company
                                      1300 Dove Street, #310
                                      Newport Beach, CA 92660
                                      Attention:  Patty Beverly
                                      Phone:  (949) 622-4911
                                      Facsimile:  (949) 477-6835

                  20.8 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance is determined to be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.

                  20.9 Further Assurances. Each party agrees to do all acts and
things and to make, execute and deliver such written instruments as are
reasonably necessary to carry out the terms and provisions of this Agreement.
This provision shall survive Closing.

                  20.10 Other Parties. Nothing in this Agreement shall be
construed as giving any person, firm, corporation or other entity, other than
the parties hereto, their successors and permitted assigns, any right, remedy or
claim under or concerning this Agreement or any provision hereof.

                  20.11 Confidentiality. Because it is in Seller's and
Purchaser's best interests to keep this Agreement and all information concerning
the Property confidential until the Closing, neither of them shall take any
action nor conduct itself in any fashion that would disclose any aspect of the
contemplated transaction to site employees or other third parties unrelated to
Purchaser's acquisition or intended ownership and operation of the Property.
Purchaser and Seller representatives shall meet with key project employees and
inform them that an analysis is being made to determine the feasibility of the
investment in the property without explaining the percentage of investment
contemplated.

                  20.12 Counterparts. This Agreement may be executed to any
number of counterparts. each of which so executed shall be deemed an original;
such counterparts shall together constitutes but one agreement.

                  20.13 No Brokers. Each party to this Agreement warrants and
represents to the other that, in connection with the transactions herein
contemplated, such party has dealt with no other person in the capacity of a
broker, finder, or like function or capacity giving rise, by reason of such
party's conduct, to a claim to a commission or fee payable to such person.
Seller and Purchaser

                                       21
<PAGE>   22

agree that each will indemnify, defend, and hold the other harmless from the
claims of any broker, finder or other person claiming to be entitled to
compensation in connection with this Agreement or in connection with the sale of
the Property.

                  20.14 Announcements. Seller and Purchaser shall consult with
each other in advance with regard to all press releases and other announcements
issued at or prior to the Close of Escrow and, except as may be required by
applicable laws of the applicable rules and regulations of any governmental
agency or stock exchange, neither Seller nor Purchaser shall issue any such
press release or other publicity prior to the Close of Escrow without the prior
consent of the other party.

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.

                               "SELLER"

                        ARVP III/BRADFORD SQUARE, L.P.,
                        a California limited partnership

                        By:    American Retirement Villas Properties III, L.P.,
                               a California limited partnership

                               By:      ARV Assisted Living, Inc.,
                                          a Delaware corporation

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

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

                       [SIGNATURES CONTINUE ON NEXT PAGE]

                                       22
<PAGE>   23

                                                     "PURCHASER"

                                         VINTAGE SENIOR HOUSING, LLC,
                                         a California limited liability company

                                         By:
                                                  -----------------------------
                                                  Eric K. Davidson
                                         Its:     Manager

                                         By:
                                                  -----------------------------
                                                  Brian J. Flornes
                                         Its:     Manager

Agreed and Accepted:

Escrow Agent: Fidelity National Title Insurance Company

By:
    -----------------------------
Name: Patty Beverly
Title:
       --------------------------
Date:
      ---------------------------
Escrow No.
           ----------------------

EXHIBITS:

EXHIBIT "A"    DESCRIPTION OF PROPERTY - TO BE PROVIDED BY SELLER
EXHIBIT "B"    DUE DILIGENCE ACQUISITION CHECKLIST - ATTACHED
EXHIBIT "C"    DEED - FORM TO BE PROVIDED AT CLOSING
EXHIBIT "D"    BILL OF SALE
EXHIBIT "E"    ASSIGNMENT OF SERVICE CONTRACTS
EXHIBIT "F"    ASSIGNMENT OF EQUIPMENT LEASES
EXHIBIT "G"    ASSIGNMENT OF RESIDENCE AGREEMENTS - TO BE PROVIDED BY SELLER
EXHIBIT "H"    CERTIFICATION OF NON-FOREIGN STATUS AND CALIFORNIA FTB FORM 590

SCHEDULES:

2.2            EQUIPMENT LEASES - TO BE PROVIDED BY SELLER
2.3            RENT ROLL - TO BE PROVIDED BY SELLER
2.4            SERVICE CONTRACTS - TO BE PROVIDED BY SELLER

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<PAGE>   24

                                    EXHIBIT B
                                       TO
                               PURCHASE AGREEMENT
                       DUE DILIGENCE ACQUISITION CHECKLIST

         (to be made available to Purchaser to the extent available and
                           in the Seller's possession)

GENERAL DATA

Facility address
Facility phone and fax
Full name of facility
Full name of Seller
Land area (acres)
Number of units
Total building square feet
Unit mix with square footage
Partnership Agreement for Seller
Partnership Agreement for American Retirement Villas Properties III, L.P.

EMPLOYEE ITEMS

Employee manual and benefit package description
Employment Contracts
History and experience of key personnel
Job descriptions for all positions
Latest health, dental and life insurance breakdowns
List of employees with accrued vacation and sick pay or other accrued leave
Organizational Chart
Payroll records include SS#'s (last 2 months)
Positions not filled or in process of being filled, hours worked and pay rate
Worker's compensation rates/premium calculations and litigation records

FACILITY ITEMS

Brochures
Building plans and specifications
Bus/van registration, title and maintenance logs
Certificates of Occupancy
Description of any and all lawsuits or claims in progress
Equipment Leasing Contracts
Inventory - food

                                       24
<PAGE>   25

Inventory - personal property
Operating Manuals and Warranties for physical plant equipment
Service and Maintenance Contracts
Summary of Capital Improvements since 1995
Title Report/Commitment
Vendor list
Zoning letters or materials
Environmental Report(s) on the Property
Survey(s) of the Property
Appraisal(s) of the Property

FINANCIAL ITEMS

Dietary statistics (number of meals served and per plate food cost)
Operating Statements (current and last 2 years)
Proformas/Budgets
Property tax notices and bills (2 years)
Summary of all insurance policies and insurance company contracts
Utility invoices (2 years)
1999 and year to date General Ledger

INSURANCE ITEMS

Area of each building
Estimated annual payroll
Estimated annual rental income
Estimated building replacement cost
Estimated contents replacement cost
Number of buildings
Number of employees
Number of licensed beds
Number of stories
Number of units
Roof material
Smoke detectors
Sprinklered
Type of construction
Year built

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LICENSURE ITEMS

Current licenses and permits
Food license
Inspection reports, fire, etc. (2 years)

RESIDENT RELATED ITEMS

Agreements with home health or therapy provider agencies
Agreements with placement agencies
Current rent roll (specifying resident name, unit, original occupancy date,
residence agreement termination date, current monthly payment and list of
services received)
List of all delinquent resident accounts
List of security deposits
Move-in reservation, unit, anticipated date, security deposit and rental rate
Move-out notices, anticipated date, unit moving, rental rate and reason for move
Multi-week master menu/sample daily menu
Number of residents at each level of Assisted Living
Rental rates per room type
Services and rates
Standard Residency Agreement and Access to all Residency Agreements

                                       26

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