THE FOLLOWING LEASE IS SUBSTANTIALLY THE SAME FOR THE PROPERTIES IN EL PASO, SAN ANTONIO AND SAN MARCOS WITH THE EXCEPTION OF THE LEASE PAYMENTS WHICH ARE AS FOLLOWS: EL PASO $66,693.00 PER MONTH SAN ANTONIO $74,503.00 PER MONTH SAN MARCOS $39,998.00...

THE FOLLOWING LEASE IS SUBSTANTIALLY THE SAME FOR
THE PROPERTIES IN EL PASO, SAN ANTONIO AND SAN
MARCOS WITH THE EXCEPTION OF THE LEASE PAYMENTS
WHICH ARE AS FOLLOWS:

EL PASO        $66,693.00 PER MONTH

SAN ANTONIO         $74,503.00 PER MONTH

SAN MARCOS          $39,998.00 PER MONTH





















































                       LEASE
                         
                (San Marcos, Texas)
                         
              TEXAS HCP HOLDING, L.P.
                         
                      Lessor
                         
                        AND
                         
      ESC III, L.P. D/B/A TEXAS-ESC III, L.P.
                         
                      Lessee
                         
             Dated as of April l, 1997































                       LEASE

     THIS LEASE ("Lease") is dated as of the 1st
day of April, 1997, and is between TEXAS HCP
HOLDING, L.P., a Delaware limited partnership
("Lessor") and ESC III, L.P. D/B/A TEXAS-ESC III,
L.P., a Washington limited partnership ("Lessee").

                    ARTICLE I.

     1.   LEASED PROPERTY; TERM

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

     (a) the real property described in Exhibit A
attached hereto (collectively, the "Land");

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

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

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

     (e) the machinery, equipment, furniture and
other personal property described on Exhibit B
attached hereto, together with all replacements
and substitutes therefor, (collectively, "Lessor's
Personal Property").

     SUBJECT, HOWEVER, to the easements,
encumbrances, covenants, conditions and
restrictions and other matters which affect the
Leased Property as of the date hereof or the
Commencement Date or created thereafter as
permitted hereunder to have and to hold for a
fixed term (the "Fixed Term") commencing on the
Commencement Date, as defined below, and ending at
11:59 p.m. Los Angeles time on the expiration of
the fifteenth (l5th) Lease Year, and the three (3)
Extended Terms provided for in Article XIX unless
this Lease is earlier terminated as hereinafter
provided. Promptly after the Commencement Date,
the parties shall execute an amendment to this
Lease in

                         1


substantially the form attached hereto as Exhibit
C to confirm certain matters; notwithstanding the
foregoing, the failure of Lessee to so execute and
deliver such amendment shall not affect Lessor's
determination of any such matters.

                    ARTICLE II.

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

     ADDED VALUE PERCENTAGE: As defined in Section
10.4.

     ADDITIONAL CHARGES: As defined in Article
III.

     ADDITIONAL RENT: As defined in Article III.

     AFFILIATE: Any Person which, directly or
indirectly, controls or is controlled by or is
under common control with any other Person. For
purposes of this definition,
"control" (including the correlative meanings of
the terms "controlled by" and "under common
control with"), as used with respect to any
Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the
direction of the management and policies of such
Person, through the ownership of voting
securities, partnership interests or other equity
interests. When used with respect to any
corporation, the term "Affiliate" shall also
include any Person which owns, directly or
indirectly, fifty percent (50%) or more of any
class of security of such corporation, but shall
exclude any affiliates of Xxxxxx X. Xxxx which but
for their relationship with Xxxxxx X. Xxxx would
not be considered affiliates of Emeritus
Corporation.

     APPRAISER: As defined in Article XXXIV.

     APPRECIATION AMOUNT: The amount, if any, by
which the Fair Market Value exceeds the Minimum
Repurchase Price of the Properties in the
aggregate as of the Outside Closing Date.

     ASSIGNMENT AGREEMENT: The agreement of even
date herewith by and between Lessor and Emeritus
Corporation relative to the acquisition by Lessor
of the Leased Property.

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

     BASE GROSS REVENUES: The Gross Revenues for
the second Lease Year.

                         2


      BASE PERIOD: The period commencing on that
date which is eighteen (18) months prior to the
date any appraisal of the Facility is made
pursuant to the provisions of Article XXXIV and
ending on the date which is six (6) months prior
to the date any such appraisal of the Facility is
made.

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

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

     CAPITAL ADDITIONS: One or more new buildings,
or one or more additional structures annexed to
any portion of any of the Leased Improvements,. or
the material expansion of existing improvements,
which are constructed on any parcel or portion of
the Land, during the Term, including construction
of a new wing or new story, or the renovation of
existing improvements on the Leased Property in
order to provide a functionally new facility
needed to provide services not previously offered.
The Capital Renovation Project shall be treated
for all purposes of this Lease as a "Capital
Addition," and all amounts advanced to Lessee, or
otherwise expended by Lessor with respect therein
shall be treated as "Capital Addition Costs"
funded by Lessor.

     CAPITAL ADDITION COSTS: The costs of any
Capital Addition made to the Leased Property
whether paid for by Lessee or Lessor, including
(i) all permit fees and other costs imposed by any
governmental authority, the cost of site
preparation, the cost of construction including
materials and labor, the cost of supervision and
related design, engineering and architectural
services, the cost of any fixtures, and if and to
the extent approved by Lessor, the cost of
construction financing; (ii) fees paid to obtain
necessary licenses and certificates; (iii) the
cost of any land contiguous to the Leased Property
which is to become a part of the Leased Property
purchased for the purpose of placing thereon the
Capital Addition or any portion thereof or for
providing means of access thereto, or parking
facilities therefor, including the cost of
surveying the same, but only to the extent
approved by Lessor in writing and in advance if
Lessor is funding such Capital Addition; (iv) the
cost of insurance, real estate taxes, water and
sewage charges and other carrying charges for such
Capital Addition during construction; (v)the cost
of title insurance; (vi) reasonable fees and
expenses of outside legal counsel; (vii) filing,
registration and recording taxes and fees; (viii)
documentary stamp and similar taxes; and (ix) all
reasonable costs and expenses of Lessor and any
Person which has committed to finance the Capital
Addition, including (a) the reasonable fees and
expenses of their respective outside legal
counsel; (b) printing expenses; (c) filing,
registration and recording taxes and fees; (d)
documentary stamp and similar taxes; (e) title
insurance charges and appraisal fees; (f) rating
agency fees; and (g) commitment fees charged by
any Person advancing or offering to advance any
portion of the financing for such Capital
Addition.

     CAPITAL RENOVATION PROJECT: As defined in
Section 10.3.

     CASH FLOW: The net income from the Facility,
determined on the basis of GAAP applied on a
consistent basis, plus the sum of (i) depreciation
and amortization expense; (ii) Rent and other
expenses payable hereunder, excluding, however,
Impositions; plus (iii) management fees; less the
sum of (y) a management fee allowance

                         3


of five percent (5%) of Gross Revenues for the
corresponding period plus (z) an annual Two
Hundred Dollar ($200) per unit reserve, pro-rated
for the corresponding period.

     CASH FLOW COVERAGE: For any period,
calculated as of the last day of the period, the
ratio of Cash Flow attributable to such period to
total Rent payable for such period under the
Lease.

     CLOSE OF ESCROW: As defined in Article XXXV.

     CLOSING DATE: As defined in the Assignment
Agreement.

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

     COMMENCEMENT DATE: The Closing Date.

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

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

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

     CONSOLIDATED NET WORTH: At any time, the sum
of the following for Lessee and its consolidated
Subsidiaries, on a consolidated basis determined
in accordance with GAAP:

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

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

     (iii) the sum of the following (without
duplication of deductions in respect of items
already deducted in arriving at surplus and
retained earnings): (a) unamortized debt discount
and expense; and (b) any write-up in book value of
assets resulting from a revaluation thereof
subsequent to the most recent Consolidated
Financials prior to the date hereof, excluding,
however, any (i) net write-up in value of foreign
currency in accordance with GAAP, (ii) write-up
resulting from a reversal of a reserve for bad
debts or depreciation, and (iii) write-up
resulting from a change in methods of accounting
for inventory.


                         4


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

     CPI RENT: An amount equal to the sum of (i)
the product of (y) a fraction, the numerator of
which is the Cost of Living Index for the first
month of the Lease Year for which CPI Rent is
being calculated minus the Cost of Living Index
for the first month of the preceding Lease Year,
and the denominator of which is the Cost of Living
Index for the first month of the preceding Lease
Year multiplied by (z) the sum of the prior Lease
Year's Minimum Rent (computed at the rate in
effect as of the last day of the prior Lease Year)
and Additional Rent and (ii) the prior Lease
Year's CPI Rent; provided, however, that, with the
exception of the second Lease Year with respect to
which no such limit shall apply, in no event will
the increase in CPI Rent from one Lease Year to
the next be greater than one and fifty one
hundredths percent (1.50%) of the sum of the prior
Lease Year's (a) Minimum Rent computed at the rate
in effect as of the last day of the prior Lease
Year and (b) Additional Rent or less than zero.
Date of Taking: The date the Condemnor has the
right to possession of the property being
condemned.

     EMERITUS CORPORATION: Emeritus Corporation, a
Washington corporation

     ENVIRONMENTAL COSTS: As defined in Article
XXXVII.

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

     ESCROW: As defined in Article XXXV.


                         5


     ESCROW HOLDER: As defined in Articles XXXV.

     EVENT OF DEFAULT: As defined in Article XVI.

     EXTENDED TERM(S): As defined in Article XIX.

     FACILITY: The 87 unit congregate care and
assisted living facility being operated on the
Leased Property.

     FACILITY MORTGAGE: As defined in Article
XIII.

     FACILITY MORTGAGEE: As defined in Article
XIII.

     FAIR MARKET ADDED VALUE: The Fair Market
Value (as hereinafter defined) of the Leased
Property (including all Capital Additions) less
the Fair Market Value of the Leased Property
determined as if no Capital Additions financed by
Lessee had been constructed.

     FAIR MARKET RENTAL: The fair market rental
value of the Leased Property, or applicable
portion thereof, based upon the Fair Market Value,
including any periodic increases therein,
determined in accordance with the appraisal
procedures set forth in Article XXXIV.

     FAIR MARKET VALUE: The fair market value of
the Leased Property, and all Capital Additions,
determined in accordance with the appraisal
procedures set forth in Article XXXIV. Fair Market
Value shall be the value obtained by assuming that
the Leased Property is encumbered by this Lease.
Further, in determining Fair Market Value the
positive or negative effect on the value of the
Leased Property attributable to the interest rate,
amortization schedule, maturity date, prepayment
penalty and other terms and conditions of any
encumbrance which will not be removed at or prior
to the date as of which such Fair Market Value
determination is being made shall be taken into
account. The Leased Property shall be valued at
its highest and best use which shall be presumed
to be as a fully-permitted Facility operated in
accordance with the provisions of this Lease. Fair
market value of the Leased Property shall not
include "going concern" or "business enterprise"
value attributable to factors other than the
highest and best use of the Leased Property. In
addition, except as provided in Section 16.9, the
following specific matters shall be factored in or
out, as appropriate, in determining Fair Market
Value:

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

     (ii) The occupancy level of the Facility
shall be deemed to be the average occupancy during
the Base Period.

                         6


     (iii) If the Facility's Primary Intended Use
includes a mixed use, then the average of such mix
during the Base Period shall be taken into
account.

     FIXED TERM: As defined in Article I.

     FIXTURES: As defined in Article I.

     GAAP: Generally accepted accounting
principles.

     GROSS REVENUES: All revenues received or
receivable from or by reason of the operation of
the Facility or any other use of the Leased
Property, Lessee's Personal Property and all
Capital Additions including all revenues received
or receivable for the use of or otherwise
attributable to units, rooms, beds and other
facilities provided, meals served, services
performed (including ancillary services), space or
facilities subleased or goods sold on or from the
Leased Property and all Capital Additions,
including, and except as provided below, any
consideration received under any commercial (as
opposed to resident or patient) subletting,
licensing or other arrangements with third parties
(a "Commercial Sublessee") relating to the
possession or use of any portion of the Leased
Property and all Capital Additions; provided,
however, that Gross Revenues shall not include:

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

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

     (iii) contractual allowances (relating to any
period during the Term of the Lease) for xxxxxxxx
not paid by or received from the appropriate
governmental agencies or third party providers;
and

     (iv) all proper patient billing credits and
adjustments according to generally accepted
accounting principles relating to health care
accounting.
Gross Revenues for each Lease Year shall reflect
all cost report settlement adjustments, whether
positive or negative, received in or payable
during such Lease Year in accordance with GAAP
relating to health care accounting, regardless of
the year that such settlement amounts are
applicable to; provided, however, that to the
extent settlement amounts are applicable to years,
or portions thereof, prior to the Commencement
Date, such settlement amounts shall not be
reflected in Gross Revenues for the Lease Year in
which such settlement amounts are received or
paid. Gross Revenues shall include the Gross
Revenues of any Commercial Sublessee with respect
to any applicable portion of the Leased Property
and/or any Capital Additions, i.e., the Gross
Revenues generated from the operations conducted
on or from such portion shall be included directly
in the Gross Revenues and the rent received or
receivable by Lessee from such Commercial
Sublessee shall be excluded from Gross Revenues
for such purpose.

     GUARANTOR: Emeritus Corporation.

                         7


     GUARANTY: The Guaranty of even date herewith
executed by Guarantor.

     HANDLING: As defined in Article XXXVII.

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

     HCPI: Health Care Property Investors, Inc., a
Maryland corporation.

     IMPOSITIONS: Collectively, all taxes,
including capital stock, franchise and other state
taxes of Lessor (or, if Lessor is not HCPI, of
HCPI as a result of its investment in Lessor), ad
valorem, sales, use, single business, gross
receipts, transaction privilege, rent or similar
taxes; assessments including assessments for
public improvements or benefits, whether or not
commenced or completed prior to the date hereof
and whether or not to be completed within the
Term; ground rents; water, sewer and other utility
levies and charges; excise tax levies; fees
including license, permit, inspection,
authorization and similar fees; and all other
governmental charges, in each case whether general
or special, ordinary or extraordinary, or foreseen
or unforeseen, of every character in respect of
the Leased Property and/or the Rent and all
interest and penalties thereon attributable to any
failure in payment by Lessee which at any time
prior to, during or in respect of the Term hereof
may be assessed or imposed on or in respect of or
be a lien upon (i) Lessor or Lessor's interest in
the Leased Property, (ii) the Leased Property or
any part thereof or any rent therefrom or any
estate, right, title or interest therein, or (iii)
any occupancy, operation, use or possession of, or
sales from or activity conducted on or in
connection with the Leased Property or the leasing
or use of the Leased Property or any part thereof;
provided, however, that nothing contained in this
Lease shall be construed to require Lessee to pay
(a) any tax based on net income (whether
denominated as a franchise or capital stock or
other tax) imposed on Lessor or any other Person,
(b) any transfer, or net revenue tax of Lessor or
any other Person except Lessee and its successors,
(c) any tax imposed with respect to the sale,
exchange or other disposition by Lessor of any
Leased Property or the proceeds thereof, or (d)
any principal or interest on any indebtedness on
the Leased Property owed to a Facility Mortgagee
for which Lessor is the obligor, except to the
extent that any tax, assessment, tax levy or
charge, which is otherwise included in this
definition, and. a tax, assessment, tax levy or
charge set forth in clause (a) or (b) is levied,
assessed or imposed in lieu thereof or as a
substitute therefor.

     INCREMENTAL GROSS REVENUES: The amount by
which the Gross Revenues for the current Lease
Year exceeds the Base Gross Revenues. The
Incremental Gross Revenues for any partial Lease
Year shall be the amount by which the Gross
Revenues for such partial Lease Year exceeds the
Base Gross Revenues for the corresponding period
of the second Lease Year.

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



                         8


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

     LAND: As defined in Article I.

     LEASE: As defined in the preamble.

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

     LEASED IMPROVEMENTS. Leased Property : Each
as defined in Article I.

     LEGAL REQUIREMENTS: All federal, state,
county, municipal and other governmental statutes,
laws (including common law and Environmental
Laws), rules, policies, guidance, codes, orders,
regulations, ordinances, permits, licenses,
covenants,
conditions, restrictions, judgments, decrees and
injunctions affecting either the Leased Property,
Lessee's Personal Property and all Capital
Additions or the construction, use or
alteration thereof, whether now or hereafter
enacted and in force, including any which may (i)
require repairs, modifications or alterations in
or to the Leased Property, Lessee's Personal
Property and all Capital Additions, (ii) in any
way adversely affect the use and enjoyment
thereof, or (iii) regulate the transport,
handling, use, storage or disposal or require the
cleanup or other treatment of any Hazardous
Substance.

     LESSEE: As defined in the preamble.

     LESSEE'S PERSONAL PROPERTY : The Personal
Property other than Lessor's Personal Property.

     LESSOR: As defined in the preamble.

     LESSOR'S PERSONAL PROPERTY: As defined in
Article I.



                         9


     LESSOR'S SHARED APPRECIATION AMOUNT: Lessor's
and its Affiliates' share of the Appreciation
Amount which shall be calculated as follows: (i)
first, Lessor and its Affiliates shall be
allocated the first dollars of the Appreciation
Amount until such dollars together with all
Minimum Rent and Additional Rent paid or payable
to Lessor and its Affiliates in the aggregate
under the Leases for the Properties to the Outside
Closing Date yield Lessor and its Affiliates an
annual internal rate of return on the Minimum
Repurchase Price of the Properties in the
aggregate equal to 13.80% (the "Internal Rate of
Return") and (ii) second, Lessor and its
Affiliates shall be allocated one-half of any
dollars remaining in the Appreciation Amount after
subtracting the portion of the Appreciation Amount
allocated to Lessor and its Affiliates in clause
(i) above.

     LETTER OF CREDIT DATE: As defined in Section
21.2.

     MINIMUM RENT: As defined in Article III.

     MINIMUM REPURCHASE PRICE: The purchase price
of the Leased Property at the time of acquisition
of the Leased Property by Lessor plus any Capital
Addition Costs funded by Lessor.

     OFFICER'S CERTIFICATE: A certificate of
Lessee signed by an officer authorized to so sign
by its board of directors or by-laws.

     OPENING DEPOSIT: As defined in Article XXXV.

     OUTSIDE CLOSING DATE: As defined in Article
XXXV.

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

     PAYMENT DATE: Any due date for the payment of
the installments of Minimum Rent, Additional Rent
or any other sums payable under this Lease.
     
     PERCENTAGE RENT: An amount equal to five
percent (5%) of Incremental Gross Revenues.

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

     PERSONAL PROPERTY: All machinery, furniture
and equipment, including phone systems and
computers, trade fixtures, inventory, supplies and
other personal property used or useful in the use
of the Leased Property for its Primary Intended
Use, other than Fixtures.

     PRIMARY INTENDED USE: Congregate care and
assisted living facility and such other uses
necessary or incidental to such uses.

     PRIME RATE: On any date, a rate equal to the
annual rate on such date announced by the Bank of
New York to be its prime, base or reference rate
for 90-day unsecured loans to its corporate
borrowers of the highest credit standing but in no
event

                        10


greater than the maximum rate then permitted under
applicable law. If the Bank of New York
discontinues its use of such prime, base or
reference rate or ceases to exist, Lessor shall
designate the prime, base or reference rate of
another state or federally chartered bank based in
New York to be used for the purpose of calculating
the Prime Rate hereunder.

     PRIORITY ENCUMBRANCES: As defined in Article
XXXVI.

     PROPERTIES: The E1 Paso Property, San Antonio
Property, and San Marcos Property, each as defined
in the Assignment Agreement.

     QUARTER: During each Lease Year, the first
three (3) calendar month period commencing on the
first (1st) day of such Lease Year and each
subsequent three (3) calendar month period within
such Lease Year; provided, however, that the last
Quarter during the Term may be a period of less
than three (3) calendar months and shall end on
the last day of the Term.
Charges.

     RENT: Collectively, the Minimum Rent,
Additional Rent and Additional
     
     SEC: Securities and Exchange Commission.

     SHARED APPRECIATION PURCHASE PRICE: The
Minimum Repurchase Price of the Properties in the
aggregate plus Lessor's Shared Appreciation
Amount.

     STATE: The State or Commonwealth in which the
Leased Property is located.

     SUBSIDIARIES: Corporations, limited liability
companies or partnerships, in which Lessee owns,
directly or indirectly, more than 50% of the
voting stock or partnership interest.

     TERM: Collectively, the Fixed Term and any
Extended Term(s), as the context may require,
unless earlier terminated.

     TRANSFER CONSIDERATION: As defined in Article
XXIV.

     UNAVOIDABLE DELAYS: Delays due to strike,
lockout, inability to procure materials, power
failure, act of God, governmental restriction,
enemy action, civil commotion, fire, unavoidable
casualty or other cause beyond the control of the
party responsible for performing an obligation
hereunder; provided, however, that a lack of funds
shall not be deemed a cause beyond the control of
either party hereto.

     UNSUITABLE FOR ITS PRIMARY INTENDED USE: A
state or condition of the Facility such that by
reason of damage or destruction or Condemnation,
in the good faith judgment of Lessor and Lessee,
the Facility cannot be operated on a commercially
practicable basis for its Primary Intended Use
taking into account, among other relevant factors,
the number of units and usable beds affected by
such damage or destruction or Condemnation.
                         
                         
                         
                        11


                   ARTICLE III.

     3.1 RENT. Lessee will pay to Lessor in lawful
money of the United States of America which shall
be legal tender for the payment of public and
private debts, without offset or deduction, the
amounts set forth hereinafter as Minimum Rent and
Additional Rent during the Term. Payments of
Minimum Rent shall be made by a prearranged
payment deposit through the Electronic Automated
Clearing House Network ("ACH") initiated by Lessee
to Lessor's account at an ACH member bank on the
first day of each calendar month. Payments of
Additional Rent shall be made at Lessor's address
set forth in Article XXXIII or at such other place
or to such other Person as Lessor from time to
time may designate in writing.

     3.1.1 MINIMUM RENT. Subject to upward
adjustment(s) with respect to the Capital
Renovation Project funded by Lessor as described
in Section 10.3 below, for the period from the
Commencement Date through the expiration of the
Fixed Term, Lessee shall pay to Lessor "Minimum
Rent" monthly, in advance on or before the first
day of each calendar month, in an amount equal to
$_________. The first monthly payment of Minimum
Rent shall be payable on the Commencement Date
(prorated as to any partial calendar month at the
beginning of the Term). Such monthly Minimum Rent
shall be increased from time to time on the date
of any payment or funding by Lessor on account of
the Capital Renovation Project pursuant to the
provisions of Section 10.3 by one-twelfth (1/l2th)
of the product of (a) the amount of the particular
payment or funding by Lessor, times (b) Three and
Fifty Hundredths Percent (3.50%) above the ten-
year U. S. Treasury Note Rate, published in the
Wall Street Journal on the date of such payment or
funding by Lessor and quoting the rate for the
immediately prior Business Day. If the ten-year
U.S. Treasury Note Rate is discontinued prior to
any such payment or funding by Lessor, then such
calculation shall be made instead using a
substitute rate selected by Lessor that is
comparable with the ten-year U.S. Treasury Note
rate. similarly, if the Wall Street Journal is
discontinued, a substitute publication selected by
Lessor shall be used. Such monthly Minimum Rent
payable for any month(s) during which an increase
in the Minimum Rent occurs by reason of any
payments or funding by Lessor on account of the
Capital Renovation Project, shall be prorated
based upon the number of days for which such
adjusted rental amounts apply. From time to time
at Lessor's request, Lessor and Lessee shall enter
into an amendment of this Lease in form acceptable
to Lessor to reflect the adjustment in the monthly
Minimum Rent payable hereunder by reason of any
such payments or fundings by Lessor on account of
the Capital Renovation Project. Failure of Lessee
to so execute and deliver any such amendment shall
not, however, affect the determination of the
monthly Minimum Rent payable hereunder. Minimum
Rent for the Extended Terms, if any, shall be
determined in accordance with the provisions of
Article XIX.

     3.1.2 ADDITIONAL RENT. In addition to the
Minimum Rent, Lessee shall, commencing with the
first Quarter of the second Lease Year and
continuing through the expiration of the Fixed
Term, pay to Lessor annual "Additional Rent. " For
the second Lease Year Additional Rent shall be
equal to three times CPI Rent, provided, however,
that Additional Rent for the second Lease Year
shall not exceed three percent (3%) of annual
Minimum Rent computed at the rate in effect as of
the first day of the second Lease Year. For the
third Lease Year and each Lease Year thereafter,
Additional Rent shall be equal to the sum of (i)
Percentage Rent and (ii) CPI Rent.


                        12


     3.2 QUARTERLY CALCULATION AND PAYMENT OF
ADDITIONAL RENT. Annual Reconciliation.

     3.2.1 Lessee shall calculate and pay
Additional Rent quarterly, in arrears, for the
portion of the entire Lease Year, on a cumulative
basis, up to the end of the Quarter then most
recently ended, less the Additional Rent already
paid and attributable to such Lease Year. If at
the time any calculation on account of Additional
Rent is to be made the applicable Gross Revenues
are not yet available, Lessee shall use its best
estimate of the applicable Gross Revenues. Each
quarterly payment of Additional Rent shall be
delivered to Lessor, together with an Officer's
Certificate setting forth the calculation thereof,
within thirty (30) days after the end of the
corresponding Quarter.

     3.2.2 Within ninety (90) days after the end
of each Lease Year, Lessee shall deliver to Lessor
an Officer's Certificate setting forth the Gross
Revenues for such Lease Year. As soon as
practicable following receipt by Lessor of such
Certificate, Lessor shall determine the Additional
Rent for such Lease Year and give Lessee notice of
the same together with the calculations upon which
the Additional Rent was based. If such Additional
Rent exceeds the sum of the quarterly payments of
Additional Rent previously paid by Lessee with
respect to such Lease Year, Lessee shall forthwith
pay such deficiency to Lessor. If such Additional
Rent for such Lease Year is less than the amount
previously paid by Lessee with respect thereto,
Lessor shall, at Lessee's option, either (i) remit
to Lessee its check in an amount equal to such
difference, or (ii) credit such difference against
the quarterly payments of Additional Rent next
coming due.

     3.2.3 Any difference between the annual
Additional Rent for any Lease Year as shown in
said Officer's Certificate and the total amount of
quarterly payments for such Lease Year previously
paid by Lessee, whether in favor of Lessor or
Lessee, shall bear interest at a rate equal to the
rate payable on 90-day U.S. Treasury Bills as of
the last Business Day of such Lease Year until the
amount of such difference shall be paid or
otherwise discharged.

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

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

     3.3 CONFIRMATION OF ADDITIONAL RENT. Lessee
shall utilize, or cause to be utilized, an
accounting system for the Leased Property in
accordance with its usual and customary practices
and in accordance with GAAP which will accurately
record all Gross Revenues and Lessee shall retain
for at least five (5) years after the expiration
of each Lease Year reasonably adequate records
conforming to such accounting system showing all
Gross Revenues for such Lease Year. Lessor, at its
own expense except as

                        13


provided hereinbelow, shall have the right from
time to time by its accountants or
representatives, to review and/or audit the
information set forth in the Officer's Certificate
referred to in Section 3.2 and in connection with
such review and/or audit to examine Lessee's
records with respect thereto (including supporting
data and sales tax returns) subject to any
prohibitions or limitations on disclosure of any
such date under applicable law or regulations
including any duly enacted Patients' Xxxx of
Rights or similar legislation, or as may be
necessary to preserve the confidentiality of the
Facility-patient relationship and the physician-
patient privilege. If any such review and/or audit
discloses a deficiency in the payment of
Additional Rent, Lessee shall forthwith pay to
Lessor the amount of the deficiency together with
interest thereon at the Overdue Rate compounded
monthly from the date when said payment should
have been made to the date of payment thereof;
provided, however, that any dispute concerning
such deficiency shall be resolved through an
arbitration proceeding reasonably approved by the
parties; provided, further, that as to any audit
that is commenced more than two (2) years after
the date Gross Revenues for any Lease Year are
reported by Lessee to Lessor, the deficiency, if
any, with respect to such Gross Revenues shall
bear interest as permitted herein only from the
date such determination of deficiency is made
unless such deficiency is the result of gross
negligence or wilful misconduct on the part of
Lessee. If any such review and/or audit discloses
that the Gross Revenues actually received by
Lessee for any Lease Year exceed those reported by
Lessee by more than two percent (2%a), Lessee
shall pay the costs of such review and/or audit.
Any proprietary information obtained by Lessor
pursuant to such review and/or audit shall be
treated as confidential, except that such
information may be used, subject to appropriate
confidentiality safeguards, in any litigation or
arbitration proceedings between the parties and
except further that Lessor may disclose such
information to prospective lenders or purchasers.

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

     3.5 LATE PAYMENT OF RENT. Lessee hereby
acknowledges that late payment by Lessee to Lessor
of Rent will cause Lessor to incur costs not
contemplated hereunder, the exact amount of which
is presently anticipated to be extremely difficult
to ascertain. Such costs may include processing
and accounting charges and late charges which may
be imposed on Lessor by the terms of any loan
agreement and other expenses of a similar or
dissimilar nature. Accordingly, if any installment
of Rent other than Additional Charges payable to a
Person other than Lessor shall not be paid within
three (3) Business Days after its due date, Lessee
will pay Lessor on demand a late charge equal to
the lesser of (i) the lesser of five percent (5 %)
or the maximum percentage permitted by applicable
law of the amount of such installment or (ii) the
maximum amount permitted by law. The parties agree
that this late charge represents a fair and
reasonable estimate of the costs that Lessor will
incur by reason of late payment by Lessee. The
parties further agree that such late charge is
Rent and not interest and such assessment does not
constitute a lender or borrower/creditor
relationship between Lessor

                        14


and Lessee. In addition, the amount unpaid,
including any late charges, shall bear interest at
the Overdue Rate compounded monthly from the due
date of such installment to the
date of payment thereof, and Lessee shall pay such
interest to Lessor on demand. The payment of such
late charge or such interest shall not constitute
waiver of, nor excuse or cure, any default under
this Lease, nor prevent Lessor from exercising any
other rights and remedies available to Lessor.

     3.6 NET LEASE. This Lease is and is intended
to be what is commonly referred to as a net, net,
net or 'triple net lease. The Rent shall be paid
absolutely net to Lessor, so that this Lease shall
yield to Lessor the full amount of the
installments of Minimum Rent, Additional Rent and
Additional Charges throughout the Term, all as
more fully set forth in Article IV and subject to
any other provisions of this Lease which expressly
provide for adjustment or abatement of Rent or
other charges.

                    ARTICLE IV.

     4.1 IMPOSITIONS.

     4.1.1 Subject to Article XII relating to
permitted contests, Lessee shall pay, or cause to
be paid, all Impositions before any fine, penalty,
interest or cost may be added for non-payment.
Lessee shall make such payments directly to the
taxing authorities where feasible, and promptly
furnish to Lessor copies of official receipts or
other satisfactory proof evidencing such payments.
Lessee's obligation to pay Impositions shall be
absolutely fixed upon the date such Impositions
become a lien upon the Leased Property or any part
thereof. If any Imposition may, at the option of
the taxpayer, lawfully be paid in installments,
whether or not interest shall accrue on the unpaid
balance of such Imposition, Lessee may pay the
same, and any accrued interest on the unpaid
balance of such Imposition, in installments as the
same respectively become due and before any fine,
penalty, premium, further interest or cost may be
added thereto.

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

     4.1.3 Any refund due from any taxing
authority in respect of any Imposition paid by
Lessee shall be paid over to or retained by Lessee
if no Event of Default shall have occurred
hereunder and be continuing. Any other refund
shall be paid over to or retained by Lessor.

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

                        15


value in sufficient time for Lessee to file a
protest.

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

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

     4.1.7 Impositions imposed in respect of the
tax-fiscal period during which the Term terminates
shall be adjusted and prorated between Lessor and
Lessee, whether or not such Imposition is imposed
before or after such termination.

     4.2 UTILITIES. Lessee shall pay or cause to
be paid all charges for electricity, power, gas,
oil, water and other utilities used in the Leased
Property and all Capital Additions thereto. Lessee
shall also pay or reimburse Lessor for all costs
and expenses of any kind whatsoever which at any
time with respect to the Term hereof may be
imposed against Lessor by reason of any of the
covenants, conditions and/or restrictions
affecting the Leased Property or any portion
thereof, or with respect to easements, licenses or
other rights over, across or with respect to any
adjacent or other property which benefits the
Leased Property, including any and all costs and
expenses associated with any utility, drainage and
parking easements.

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

     4.4 IMPOUND ACCOUNT. Lessor may, at its
option to be exercised by thirty (30) days'
written notice to Lessee, require Lessee to
deposit, at the time of any payment of Minimum
Rent, an amount equal to one-twelfth of Lessee's
estimated annual taxes, of every kind and nature,
required pursuant to Section 4.1 plus, if Lessee
fails to pay any insurance premium in a timely
manner as required by this Lease, one-twelfth of
Lessee's estimated annual insurance premiums
required pursuant to Section 4.3 into an impound
account as directed by Lessor. Such amounts shall
be applied to the payment of the obligations in
respect of which said amounts were deposited in
such order of priority as Lessor shall determine,
on or before the respective dates on which the
same or any of them would become delinquent. The
cost of administering such impound account shall
be paid by Lessee. Nothing in this Section 4.4
shall be deemed to affect any right or remedy of
Lessor hereunder.

     4.5 TAX SERVICE. If requested by Lessor,
Lessee shall, at its sole cost and expense, cause
to be furnished to Lessor a tax reporting service,
to be designated by Lessor, covering the Leased
Property.



                        16


                    ARTICLE V.

     5. NO TERMINATION ABATEMENT ETC. Except as
otherwise specifically provided in this Lease,
Lessee shall remain bound by this Lease in
accordance with its terms and shall not seek or be
entitled to any abatement, deduction, deferment or
reduction of Rent, or set-off against the Rent.
Except as otherwise specifically provided in this
Lease, the respective obligations of Lessor and
Lessee shall not be affected by reason of (i) any
damage to or destruction of the Leased Property or
any portion thereof from whatever cause or any
Condemnation of the Leased Property or any portion
thereof; (ii) other than a result of Lessor's
willful misconduct or gross negligence, the lawful
or unlawful prohibition of, or restriction upon,
Lessee's use of the Leased Property, or any
portion thereof, the interference with such use by
any Person or by reason of eviction by paramount
title; (iii) any claim that Lessee has or might
have against Lessor by reason of any default or
breach of any warranty by Lessor hereunder or
under any other agreement between Lessor and
Lessee or to which Lessor and Lessee are parties;
(iv) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation,
dissolution, winding up or other proceedings
affecting Lessor or any assignee or transferee of
Lessor; or (v) for any other cause, whether
similar or dissimilar to any of the foregoing,
other than a discharge of Lessee from any such
obligations as a matter of law. Lessee hereby
specifically waives all rights arising from any
occurrence whatsoever which may now or hereafter
be conferred upon it by law (a) to modify,
surrender or terminate this Lease or quit or
surrender the Leased Property or any portion
thereof; or (b) which may entitle Lessee to any
abatement, reduction, suspension or deferment of
the Rent or other sums payable by Lessee
hereunder, except as otherwise specifically
provided in this Lease; provided, however, nothing
in this sentence shall preclude Lessee from
bringing a separate action with respect to any
claims that Lessee may have arising out of any
wrongful conduct of Lessor and Lessee is not
waiving other rights and remedies not expressly
waived herein. The obligations of Lessor and
Lessee hereunder shall be separate and independent
covenants and agreements and the Rent and all
other sums payable by Lessee hereunder shall
continue to be payable in all events unless the
obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease
or by termination of this Lease other than by
reason of an Event of Default.

                    ARTICLE VI.

     6.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee
acknowledges that the Leased Property is the
property of Lessor and that Lessee has only the
right to the exclusive possession and use of the
Leased Property upon the terms and conditions of
this Lease. Lessee shall, at its expense, restore
the Leased Property to the condition required by
Section 9.1.4.

     6.2 PERSONAL PROPERTY. During the Term,
Lessee may, as necessary and at its expense,
install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements,
any items of Lessee's Personal Property and
replacements thereof which shall be the property
of and owned by Lessee. Except as provided in
Sections 6.3 and 16.10, Lessor shall have no
rights to Lessee's Personal Property. Lessee shall
provide and maintain during the entire Term all
Personal Property necessary in order to operate
the Facility in compliance with all licensure and
certification requirements, all Legal Requirements
and all Insurance Requirements and for the Primary
Intended Use and as required, in Lessee's prudent
business judgment, to meet the needs of residents
of the Facility.
                        17


     6.3 TRANSFER OF PERSONAL PROPERTY TO LESSOR.
Upon the expiration or earlier termination of this
Lease, Lessee's Personal Property which does not
provide a new function with respect to Lessor's
Personal Property shall become the property of
Lessor, free of any encumbrance and Lessee shall
execute all documents and take any actions
reasonably necessary to evidence such ownership
and discharge any encumbrance.

                   ARTICLE VII.

     7.1 CONDITION OF THE LEASED PROPERTY. Lessee
acknowledges receipt and delivery of possession of
the Leased Property and that Lessee has examined
and otherwise has knowledge of the condition of
the Leased Property prior to the execution and
delivery of this Lease and has found the same to
be in good order and repair, free from Hazardous
Substances not in compliance with Legal
Requirements (except as disclosed in the Phase I
Environmental Site Assessment (San Marcos), dated
March 17, 1997, prepared by VATC Associates Inc.
(the "Environmental Report")) and satisfactory for
its purposes hereunder. Regardless, however, of
any examination or inspection made by Lessee and
whether or not any patent or latent defect or
condition was revealed or discovered thereby,
Lessee is leasing the Leased Property "as is" in
its present condition. Lessee waives any claim or
action against Lessor in respect of the condition
of the Leased Property including any defects or
adverse conditions not discovered or otherwise
known by Lessee as of the date hereof. LESSOR
MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY
PART THEREOF, EITHER AS TO ITS FITNESS FOR USE,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR
PURPOSE OR OTHERWISE, OR AS TO THE NATURE OR
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, OR
THE EXISTENCE OF ANY HAZARDOUS SUBSTANCE, IT BEING
AGREED THAT ALL SUCH RISKS, LATENT OR PATENT, ARE
TO BE BORNE SOLELY BY LESSEE INCLUDING ALL
RESPONSIBILITY AND LIABILITY FOR ANY ENVIRONMENTAL
REMEDIATION AND COMPLIANCE WITH ALL ENVIRONMENTAL
LAWS.

     7.2 USE OF THE LEASED PROPERTY.
     
     7.2.1 Lessee covenants that it will obtain
and maintain all authorization and approvals
needed to use and operate the Leased Property and
the Facility for the Primary Intended Use and any
other use conducted on the Leased Property as may
be permitted from time to time hereunder in
accordance with Legal Requirements including
applicable licenses, provider agreements, permits,
and, if appropriate, Medicare and/or Medicaid
certification.

     7.2.2 Lessee shall use or cause to be used
the Leased Property and the improvements thereon
for their Primary Intended Use. Lessee shall not
use the Leased Property or any portion thereof or
any Capital Addition thereto for any other use
without the prior written consent of Lessor, which
consent Lessor may withhold in its sole
discretion.

     7.2.3 Lessee shall operate continuously the
Leased Property and all Capital Additions thereto
in accordance with its Primary Intended Use.
Lessee shall devote the entire Facility and all
Capital Additions thereto to the Primary Intended
Use, except for

                        18


areas reasonably required for office or storage
space uses incidental to the Primary Intended Use.
Lessee shall not modify the services offered or
take any other action (e.g., removing patients or
residents from the Facility or directing patients
or residents, or prospective patients or
residents, to another facility) which would
materially reduce Gross Revenues. Lessee shall at
all times maintain an adequate staff for the
service of its residents and/or patients. Lessee
shall employ its best judgment, efforts and
abilities to operate the Facility in such a manner
so as to maximize Gross Revenues and to enhance
the reputation and attractiveness of the Facility.

     7.2.4 Lessee shall conduct its business at
the Facility in conformity with prudent standards
of patient or resident care practice.

     7. 2. 5 Lessee shall not commit or suffer to
be committed any waste on the Leased Property or
any Capital Addition thereto or cause or permit
any nuisance thereon.

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

     7.2.7     For purposes of computing
Incremental Revenues for any Lease Year or other
period during which Lessee is in breach or
violation of any of the covenants set forth in
Sections 7.2. I through 7.2.4, Lessee's Gross
Revenues for such Lease Year or other period shall
be deemed to be the greater of Lessee's Gross
Revenues for (i) such Lease Year or other period,
or (ii) eighty-five percent (85%) of the average
Gross Revenues for the prior three (3) Lease Years
or any corresponding period of the prior three (3)
Lease Years, as applicable, as determined by
Lessor; provided however that during the first
three (3) Lease Years averaging shall take place
over the prior Lease Year(s).

     7.3 LESSOR TO GRANT EASEMENTS ETC. Lessor
shall, from time to time so long as no Event of
Default has occurred and is continuing, at the
request of Lessee and at Lessee's cost and
expense, but subject to the approval of Lessor,
which approval shall not be unreasonably withheld
or delayed (i) grant easements and other rights in
the nature of easements; (ii) release existing
easements or other rights in the nature of
easements which are for the benefit of the Leased
Property; (iii) dedicate or transfer unimproved
portions of the Leased Property for road, highway
or other public purposes; (iv) execute petitions
to have the Leased Property annexed to any
municipal corporation or utility district; (v)
execute amendments to any covenants, conditions
and restrictions affecting the Leased Property;
and (vi) execute and deliver to any Person any
instrument appropriate to confirm or effect such
grants, releases, dedications and transfers to the
extent of its interest in the Leased Property, but
only upon delivery to Lessor of an Officer's
Certificate stating that such grant release,
dedication, transfer, petition or amendment is not
detrimental to the proper conduct of the business
of Lessee on the Leased Property and does not
materially reduce the value of the Leased
Property.




                        21


     7.4 PRESERVATION OF GROSS REVENUES. Lessee
acknowledges that a fair return to Lessor on its
investment in the Leased Property is dependent, in
part, on the concentration on the Leased Property
during the Term of the congregate care and
assisted living business of Lessee and its
Affiliates in the geographical area of the Leased
Property. Lessee further acknowledges that
diversion of residents and/or patients, as
applicable, from the Facility to other facilities
or institutions owned, operated or managed,
whether directly or indirectly, by Lessee or its
Affiliates will have a material adverse impact on
the value and utility of the Leased Property.
Accordingly, Lessor and Lessee agree as follows:

     7.4.1 If, during the Term, either Lessee or
any of its Affiliates, directly or indirectly,
shall operate, own, manage or have any interest in
or otherwise participate in or receive revenues
from any other facility or institution providing
services or similar goods to those provided in
connection with the Facility and the Primary
Intended Use
(which Lessee did not operate, own, manage or have
any interest in on the Commencement Date), within
a ten (10) mile radius outward from the outside
boundary of the Leased Property, thereafter
Percentage Rent shall be determined using the
greater of the actual Gross Revenues in the
applicable Lease Year or eighty-five percent (85 %
) of the average Gross Revenues for the
immediately preceding three (3) Lease Years;
provided however that during the first three (3)
Lease Years averaging shall take place over the
prior Lease Year(s). All distances shall be
measured on a straight line rather than on a
driving distance basis. In the event that any
portion of such other facility or institution is
located within such restricted area the entire
facility or institution shall be deemed located
within such restricted area.

                   ARTICLE VIII

     8. COMPLIANCE WITH LEGAL AND INSURANCE
REQUIREMENTS, INSTRUMENTS, ETC. Subject to Article
XII regarding permitted contests, Lessee, at its
expense, shall promptly (i) comply with all Legal
Requirements and Insurance Requirements regarding
the use, operation, maintenance, .repair and
restoration of the Leased Property, Lessee's
Personal Property and all Capital Additions
whether or not compliance therewith may require
structural changes in any of the Leased
Improvements or Capital Additions thereto or
interfere with the use and enjoyment of the Leased
Property and (ii) procure, maintain and comply
with all licenses, certificates of need, provider
agreements (but only to the extent Lessee, in its
prudent business judgment, elects to participate
in the Medicare, Medicaid or other third party
payor programs) and other authorizations required
for the use of the Leased Property, Lessee's
Personal Property and all Capital Additions for
the Primary Intended Use and any other use of the
Leased Property, Lessee's Personal Property and
all Capital Additions then being made, and for the
proper erection, installation, operation and
maintenance of the Leased Property, Lessee's
Personal Property and all Capital Additions. In an
emergency or in the event of a breach by Lessee of
its obligations hereunder which is not cured
within any applicable cure period, Lessor may, but
shall not be obligated to, enter upon the Leased
Property and all Capital Additions thereto and
take such actions and incur such costs and
expenses to effect such compliance as it deems
advisable to protect its interest in the Leased
Property and Capital Additions thereto, and Lessee
shall reimburse Lessor for all costs and expenses
incurred by Lessor in connection with such
actions. Lessee covenants and agrees that the
Leased Property, Lessee's Personal Property and
all Capital Additions shall not be used for any
unlawful purpose.

                        20


                    ARTICLE IX.

     9.1 MAINTENANCE AND REPAIR

     9.1.1 Lessee, at its expense, shall maintain
the Leased Property, and every portion thereof,
Lessee's Personal Property and all Capital
Additions, and all private roadways, sidewalks and
curbs appurtenant to the Leased Property, and
which are under Lessee's control in good order and
repair whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use,
the elements or the age of the Leased Property,
Lessee s Personal Property or the Capital
Additions, and, with reasonable promptness, make
all necessary and appropriate repairs thereto of
every kind and nature, including, without
limitation, all repairs described in Section 9.1.6
within the time periods specified in Section
9.1.6, and those necessary to comply with changes
in any Legal Requirements, whether interior or
exterior, structural or non-structural, ordinary
or extraordinary, foreseen or unforeseen or
arising by reason of a condition existing prior
to. the Commencement Date. All repairs shall be at
least equivalent in quality to the original work.
Lessee will not take or omit to take any action
the taking or omission of which might materially
impair the value or the usefulness of the Leased
Property or any part thereof or any Capital
Addition thereto for its Primary Intended Use.

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

     9.1.3 Nothing contained in this Lease and no
action or inaction by Lessor shall be construed as
(i) constituting the consent or request of Lessor,
expressed or implied, to any contractor,
subcontractor, laborer, materialman or vendor to
or for the performance of any labor or services or
the furnishing of any materials or other property
for the construction, alteration, addition, repair
or demolition of or to the Leased Property or any
part thereof or any Capital Addition thereto; or
(ii) giving Lessee any right, power or permission
to contract for or permit the performance of any
labor or services or the furnishing of any
materials or other property in such fashion as
would permit the making of any claim against
Lessor in respect thereof or to make any agreement
that may create, or in any way be the basis for,
any right, title, interest, lien, claim or other
encumbrance upon the estate of Lessor in the
Leased Property, or any portion thereof or any
Capital Addition thereto.

     9.1.4     Unless Lessor shall convey any of
the Leased Property to Lessee pursuant to the
provisions of this Lease, Lessee shall, upon the
expiration or earlier termination of the Term,
vacate and surrender the Leased Property, Lessor's
Personal Property, the portion of Lessee's
Personal Property for which Lessor exercises its
option pursuant to Section 35.4, and all Capital
Additions to Lessor in the condition in which the
Leased Property and Lessor's Personal Property
were originally received from Lessor and Lessee's
Personal Property and Capital Additions were
originally introduced to the


                        21

                         
Facility, except as repaired, rebuilt, restored,
altered or added to as permitted or required by
the provisions of this Lease and except for
ordinary wear and tear.

     9.1.5     Without limiting Lessee's
obligations to maintain the Leased Property under
this Lease, within thirty (30) days of the end of
each Lease Year, Lessee shall provide Lessor with
evidence satisfactory to Lessor in the reasonable
exercise of Lessor's discretion that Lessee has in
such Lease Year spent at least $150 per living
unit as such amount is adjusted annually at the
end of each Lease Year for increases in the Cost
of Living Index for repair and maintenance of the
Facility excluding normal janitorial and cleaning.
If Lessee fails to make at least the above amount
of expenditures, Lessee shall promptly on demand
from Lessor (but in no event more than five days)
pay to Lessor the applicable shortfall in
expenditures. Such funds shall be the sole
property of Lessor and Lessor may in its sole
discretion provide such funds to Lessee to correct
the shortfall in expenditures or may simply retain
such funds as supplemental rent hereunder.

     9.1.6 Within the times set forth below,
Lessee shall do the following and shall provide to
Lessor evidence (including copies of invoices or
other receipts with respect to the work performed)
reasonably satisfactory to Lessor that the same
have been done which evidence shall specifically
identify that it is provided in order to satisfy
the requirements of this Section 9.1 of the Lease.
On or before July 31, 1997, Lessee shall complete
or cause to be completed the recommended work
items numbered 1, 5, 6, 8, 9, 10 and 11 described
under the caption "Recommended Work Items" in the
Engineering Report with respect to the Leased
Property, dated February 18, 1997, prepared by
Building Analytics.

     9.2 ENCROACHMENTS RESTRICTIONS MINERAL LEASES
ETC. If any of the Leased Improvements or Capital
Additions shall, at any time, encroach upon any
property, street or right-of-way, or shall violate
any restrictive covenant or other agreement
affecting the Leased Property, or any part thereof
or any Capital Addition thereto, or shall impair
the rights of others under any easement or right-
of-way to which the Leased Property is subject, or
the use of the Leased Property or any Capital
Addition thereto is impaired, limited or
interfered with by reason of the exercise of the
right of surface entry or any other provision of a
lease or reservation of any oil, gas, water or
other minerals, then promptly upon the request of
Lessor or any Person affected by any such
encroachment, violation or impairment, Lessee, at
its sole cost and expense, but subject to its
right to contest the existence of any such
encroachment, violation or impairment, shall
protect, indemnify, save harmless and defend
Lessor from and against all losses, liabilities,
obligations, claims, damages, penalties, causes of
action, costs and expenses (including reasonable
attorneys', consultants' and experts' fees and
expenses) based on or arising by reason of any
such encroachment, violation or impairment. In the
event of an adverse final determination with
respect to any such encroachment, violation or
impairment, Lessee shall either (i) obtain valid
and effective waivers or settlements of all
claims, liabilities and damages resulting from
each such encroachment, violation or impairment,
whether the same shall affect Lessor or Lessee; or
(ii) make such changes in the Leased Improvements
and any Capital Addition thereto, and take such
other actions, as Lessee in the good faith
exercise of its judgment deems reasonably
practicable, to remove such encroachment or to end
such violation or impairment, including, if
necessary, the alteration of any of the Leased
Improvements or any Capital Addition thereto, and
in any event take all such actions as may be
necessary in order to be able to continue the
operation of the Leased Improvements and any
Capital Addition thereto for

                        22


the Primary Intended Use substantially in the
manner and to the extent the Leased Improvements
and Capital Additions were operated prior to the
assertion of such encroachment, violation or
impairment. Lessee's obligations under this
Section 9.2 shall be in addition to and shall in
no way discharge or diminish any obligation of any
insurer under any policy of title or other
insurance and, to the extent the recovery thereof
is not necessary to compensate Lessor for any
damages incurred by any such encroachment,
violation or impairment, Lessee shall be entitled
to a credit for any sums recovered by Lessor under
any such policy of title or other insurance and
Lessor, upon request by Lessee, shall assign
Lessor's rights under such policies to Lessee
provided such assignment does not adversely affect
Lessor's rights under any such policy and provided
further that Lessee shall indemnify, defend,
protect and save Lessor harmless from and against
any liability, cost or expense of any kind that
may be imposed upon Lessor in connection with any
such assignment.

                    ARTICLE X.

     10. CONSTRUCTION OF CAPITAL ADDITIONS TO THE
LEASED PROPERTY.

     10.1 REQUESTS. No Capital Addition shall be
made which would tie in or connect any Leased
Improvements with any improvements on property
adjacent to the Land without Lessor's approval
which may be withheld in Lessor's sole and
absolute discretion. Except as provided above,
Lessee shall, without the consent of Lessor, have
the right to make a Capital Addition if the
Capital Addition Cost for such Capital Addition
project does not exceed $100,000. All other
Capital Additions (including the Capital
Renovation Project as provided in Section 10.3
below) shall be subject to Lessor's review and
approval which approval shall not be unreasonably
withheld. For any Capital Addition which does not
require the approval of Lessor, Lessee shall,
prior to commencing construction of such Capital
Addition, provide to Lessor a written description
of such Capital Addition and on an ongoing basis
supply Lessor with related documentation and
information as Lessor may reasonably request. If
Lessee desires to make a Capital Addition for
which Lessor's approval is required, Lessee shall
submit to Lessor in reasonable detail a general
description of the proposal, the projected cost of
construction and such plans and specifications,
permits, licenses, contracts and other information
concerning the proposal as Lessor may reasonably
request. Such description shall indicate the use
or uses to which such Capital Addition will be put
and the impact, if any, on current and forecasted
gross revenues and operating income attributable
thereto. It shall be reasonable for Lessor to
condition its approval of any Capital Addition
upon any or all of the following terms and
conditions:

     (a)  Such construction shall be effected
pursuant to detailed plans and specifications
approved by Lessor;

     (b)  Such construction shall be conducted
under the
supervision of a licensed architect or engineer
selected by Lessee and approved by Lessor;

     (c)  Lessee shall have procured or caused to
be procured a performance and payment bond for the
full value of such construction, which such bond
shall name Lessor as an additional obligee and
otherwise be in form and substance and issued by a
Person reasonably satisfactory to Lessor; and
                        23


     (d)  Such construction shall not be
undertaken unless Lessee demonstrates to the
reasonable satisfaction of Lessor the financial
ability to complete the construction without
adversely affecting its cash flow position or
financial viability.

     10.2 CONSTRUCTION REQUIREMENTS FOR ALL
CAPITAL ADDITIONS. Whether or not Lessor's review
and approval is required, for all Capital
Additions:

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

     (b)  Such construction shall not, and
Lessee's licensed architect or engineer shall
certify to Lessor that such construction shall
not, impair the structural strength of any
component of the Facility or overburden the
electrical, water, plumbin5, HVAC or other
building systems of any such component;

     (c)  Lessee's licensed architect or engineer
shall certify to Lessor that the detailed plans
and specifications conform to and comply with all
applicable building, subdivision and zoning codes,
laws ordinances and regulations imposed by all
governmental authorities having jurisdiction over
the Leased Property;

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

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

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

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



                        24


     10.3 FUNDING BY LESSOR.

     10.3.1 Lessee may request that Lessor fund a
Capital Addition, in which case Lessee shall
provide to Lessor any information about such
Capital Addition which Lessor may reasonably
request. Lessor may, but shall be under no
obligation to, provide the funds necessary to meet
the request. Within thirty (30) days of receipt of
a request to fund a proposed Capital Addition,
Lessor shall notify Lessee as to whether it will
fund the proposed Capital Addition and, if so, the
terms and conditions upon which it would do so,
including the terms of any amendment to this
Lease. Lessee shall have ten (10) days to accept
or reject Lessor's funding proposal. In no event
shall the portion of the projected Capital
Addition Cost comprised of land, if any,
materials, labor charges and fixtures be less than
ninety percent (90%) of the total amount of the
projected cost of such Capital Addition.
Notwithstanding the foregoing and provided that no
Event of Default exists and no event or condition
exists which with notice and/or passage of time
would constitute an Event of Default, Lessor shall
fund (or accrue, as applicable) an amount not to
exceed $250;000 for the Capital Renovation
Project; provided, however, that groundbreaking
for such Capital Renovation Project commences
within one year of the Commencement Date and
provided further that Lessor shall not be required
to fund any advances requested after the
expiration of two years following the Commencement
Date. As used herein, the term "Capital Renovation
Project" shall mean, subject to review and
approval (not to be unreasonably withheld) by
Lessor of a detailed budget therefor, the
renovation project described on Exhibit E attached
hereto and may include such other improvements to
the Facility as Lessee may hereafter propose
subject to Lessor's approval as provided in
Section 10.1 above. The modification to the
Minimum Rent attributable to any funds advanced or
accrued by Lessor on account of the Capital
Renovation Project shall be as set forth in
Article III.

     10.3.2 If Lessor agrees to fund a proposed
Capital Addition and Lessee accepts the terms
thereof, and with respect to the Capital
Renovation Project, Lessor shall periodically at
the request of Lessee, but no more frequently than
once per month, disburse such funds upon the
provision by Lessee of the following prior to any
such advance of funds:

     (a)  any information, certificates, licenses,
permits or documents requested by Lessor which are
necessary and obtainable. to confirm that Lessee
will be able to use the Capital Addition upon
completion thereof in accordance with the Primary
Intended Use, including all required federal,
state or local government licenses and approvals;

     (b)  an Officer's Certificate and, if
requested, a certificate from Lessee's architect,
setting forth in reasonable detail the projected
or actual Capital Addition Costs;

     (c)  an amendment to this Lease, in a form
prepared by Lessor and reasonably agreed to by
Lessee, providing for an increase in the Rent in
amounts as agreed upon by the parties hereto (in
the case of the Capital Renovation Project, as set
forth in Article III) and other provisions as may
be necessary or appropriate;

     (d)  a deed conveying title to Lessor to any
land acquired for the purpose of constructing the
Capital Addition free and clear of any liens or
encumbrances except those approved by Lessor, and
accompanied by an ALTA survey thereof satisfactory
to Lessor;

                        25


     (e)  for each advance, endorsements to any
outstanding policy of title insurance covering the
Leased Property or commitments therefor
satisfactory in form and substance to Lessor (i)
updating the same without any additional exception
except as may be approved by Lessor and (ii)
increasing the coverage thereof by an amount equal
to the Fair Market Value of the Capital Addition,
except to the extent covered by the owner's policy
of title insurance referred to in subparagraph
(f), below;

     (f)  if appropriate, an owner's policy of
title insurance insuring fee simple title to any
land conveyed to Lessor free and clear of all
liens and encumbrances except those that do not
materially affect the value of such land and do
not interfere with the use of the Leased Property
or are approved by Lessor;

     (g)  other than with respect to the Capital
Renovation Project, if requested by Lessor, a
M.A.I. appraisal of the Leased Property indicating
that the Fair Market Value of the Leased Property
upon completion of the Capital Addition will
exceed the Fair Market Value of the Leased
Property immediately prior thereto by an amount
not less than ninety-five percent (95 %) of the
cost of the Capital Addition; and

     (h)  such other billing statements, invoices,
certificates, endorsements, opinions, site
assessments, surveys, resolutions, ratification's,
lien releases and waivers and other instruments
and information reasonably required by Lessor.
     
     10.4. CAPITAL ADDITIONS FINANCED BY LESSEE.
If Lessee provides or arranges such financing,
this Lease shall be and hereby is amended to
provide as follows:

     (a)  Upon completion of any Capital Addition,
Gross Revenues attributable to any Capital
Additions financed by Lessee shall be excluded
from Gross Revenues of the Leased Property for
purposes of calculating Percentage Rent. The Gross
Revenues attributable to such Capital Addition and
all other Capital Additions, if any, financed by
Lessee, shall be deemed to be an amount which
bears the same proportion to the total Gross
Revenues from the entire Leased Property
(including all Capital Additions) as the Fair
Market Added Value of all said Capital Additions
financed by Lessee bears to the Fair Market Value
of the entire Leased Property (including all
Capital Additions) immediately after completion of
said Capital Addition. The above referenced
proportion of the Fair Market Added Value of
Capital Additions paid for by Lessee to the Fair
Market Value of the entire Leased Property
expressed as a percentage is referred to herein as
the "Added Value Percentage. " The Added Value
Percentage determined as provided above for
Capital Additions financed by Lessee shall remain
in effect until any subsequent Capital Addition
financed by Lessee or Lessor is completed.

     (b)  There shall be no adjustment in the
Minimum Rent or CPI Rent by reason of any such
Capital Addition.

     (c)  Upon the expiration or earlier
termination of this Lease, except by reason of the
default by Lessee hereunder, Lessor shall
compensate Lessee for all Capital Additions
financed by Lessee:

     (i) By purchasing such Capital Additions from
Lessee for cash in the amount of the then Fair
Market Added Value of such Capital Additions ; or
(ii) By such other arrangement regarding such
compensation as shall be mutually and reasonably
acceptable to Lessor and Lessee.
                        26


                    ARTICLE XI.

     11. LIENS. Subject to the provisions of
Article XII relating to permitted contests, Lessee
will not directly or indirectly create or allow to
remain and will promptly discharge at its expense
any lien, encumbrance, attachment, title retention
agreement or claim upon the Leased Property or any
Capital Addition thereto or any attachment, levy,
claim or encumbrance in respect of the Rent,
excluding, however, (i) this Lease; (ii) the
matters that existed as of the Commencement Date;
(iii) restrictions, liens and other encumbrances
which are consented to in writing by Lessor, or
any easements granted pursuant to the provisions
of Section 7.3; (iv) liens for Impositions which
Lessee is not required to pay hereunder; (v)
subleases permitted by Article XXIV; (vi) liens
for Impositions not yet delinquent; (vii) liens of
mechanics, laborers, materialmen, suppliers or
vendors for sums either disputed or not yet due,
provided that (1) the payment of such sums shall
not be postponed under any related contract for
more than sixty (60) days after the completion of
the action giving rise to such lien and such
reserve or other appropriate provisions as shall
be required by law or GAAP shall have been made
therefor or (2) any such liens are in the process
of being contested as permitted by Article XII;
(viii) any liens which are the responsibility of
Lessor pursuant to the provisions of Article
XXXVI; and (ix) liens related to equipment leases
for equipment which is used or useful in Lessee's
business on the Leased Property, provided that the
payment of any sums due under such equipment
leases shall either (1) be paid as and when due in
accordance with the terms thereof, or (2) be in
the process of being contested as permitted by
Article XII.

                   ARTICLE XII.

     12. PERMITTED CONTESTS. Lessee, upon prior
written notice to Lessor, on its own or in
Lessor's name, at Lessee's expense, may contest,
by appropriate legal proceedings conducted in good
faith and with due diligence, the amount, validity
or application, in whole or in part, of any
licensure or certification decision, Imposition,
Legal Requirement, Insurance Requirement, lien,
attachment, levy, encumbrance, charge or claim;
provided, however, that (i) in the case of an
unpaid Imposition, lien, attachment, levy,
encumbrance, charge or claim, the commencement and
continuation of such proceedings shall suspend the
collection thereof from Lessor and from the Leased
Property or any Capital Addition thereto; (ii)
neither the Leased Property or any Capital
Addition thereto, the Rent therefrom nor any part
or interest in either thereof would be in any
danger of being sold, forfeited, attached or lost
pending the outcome of such proceedings; (iii) in
the case of a Legal Requirement, neither Lessor
nor Lessee would be in any danger of civil or
criminal liability for failure to comply therewith
pending the outcome of such proceedings; (iv) if
any such contest shall involve a sum of money or
potential loss in excess of Fifty Thousand Dollars
($50,000), Lessee shall deliver to Lessor and its
counsel an opinion of legal counsel reasonably
acceptable to Lessor to the effect set forth in
clauses (i), (ii) and (iii) above, to the extent
applicable; (v) in the case of a Legal
Requirement, Imposition, lien, encumbrance or
charge, Lessee shall give such reasonable security
as may be required by Lessor to insure ultimate
payment of the same and to prevent any sale or
forfeiture of the Leased Property or any Capital
Addition thereto or the Rent by reason of such non-
payment or noncompliance; (vi) in the case of an
Insurance Requirement, the coverage required by
Article XIII shall be maintained; and (vii) if
such contest be finally resolved against Lessor or
Lessee, Lessee shall promptly pay the amount
required to be paid, together with all interest
and penalties

                        27


accrued thereon, or comply with the applicable
Legal Requirement or Insurance Requirement.
Lessor, at Lessee's expense, shall execute and
deliver to Lessee such authorizations and other
documents as may reasonably be required in any
such contest, and, if reasonably requested by
Lessee or if Lessor so desires, Lessor shall join
as a party therein. The provisions of this Article
X7I shall not be construed to permit Lessee to
contest the payment of Rent or any other amount
(other than Impositions or Additional Charges
which Lessee may from time to time be required to
impound with Lessor) payable by Lessee to Lessor
hereunder. Lessee shall indemnify, defend, protect
and save Lessor harmless from and against any
liability, cost or expense of any kind that may be
imposed upon Lessor in connection with any such
contest and any loss resulting therefrom.

                   ARTICLE X7II.

     13.1 GENERAL INSURANCE REQUIREMENTS. During
the Term, Lessee shall at all times keep the
Leased Property, and all property located in or on
the Leased Property, including Capital Additions,
the Fixtures and the Personal Property, insured
with the kinds and amounts of insurance described
below. This insurance shall be written by
companies authorized to do insurance business in
the State in which the Leased Property is located.
All liability type policies must name Lessor as an
"additional insured." All property policies shall
name Lessor as "loss payee. " All business
interruption policies shall name Lessor as "loss
payee" with respect to Rent only. Losses shall be
payable to Lessor and/or Lessee as provided in
Article XIV. In addition, the policies, as
appropriate, shall name as an "additional insured"
or "loss payee" the holder of any mortgage, deed
of trust or other security agreement ("Facility
Mortgagee") securing any indebtedness or any other
Encumbrance placed on the Leased Property in
accordance with the provisions of Article XXXVI
("Facility Mortgage") by way of a standard form of
mortgagee's loss payable endorsement. Any loss
adjustment shall require the written consent of
Lessor, Lessee, and each Facility Mortgagee unless
the amount of the loss is less than $10,000 in
which event no consent shall be required. Evidence
of insurance shall be deposited with Lessor and,
if requested, with any Facility Mortgagee(s). If
any provision of any Facility Mortgage requires
deposits of insurance to be made with such
Facility Mortgagee, Lessee shall either pay to
Lessor monthly the amounts required and Lessor
shall transfer such amounts to each Facility
Mortgagee, or, pursuant to written direction by
Lessor, Lessee shall make such deposits directly
with such Facility Mortgagee. The policies shall
insure against the following risks:

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

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

     13.1.3 Flood (when the Leased Property is
located in whole or in part within a designated
000-xxxx xxxxx xxxxx xxxx) and such other hazards
and in such amounts as may be customary for
comparable properties in the area;

                        28


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

     13.1. 5 Claims for personal injury or
property damage under a policy of comprehensive
general public liability insurance with amounts
not less than One Million and No/100 Dollars
($1,000,000.00) combined single limit and Three
Million No/100 Dollars ($3,000,000.00) in the
annual aggregate; and

     13.1.6 Medical professional liability with
amounts not less than One Million Dollars
($1,000,000) combined single limit and Three
Million Dollars ($3,000,000) in the annual
aggregate.

     13.2 REPLACEMENT COST. The term "replacement
cost" shall mean the actual replacement cost of
the insured property from time to time with new
materials and workmanship of like kind and
quality. If either party believes that the
replacement cost has increased or decreased at any
time during the Term, it shall have the right to
have such replacement cost redetermined by an
impartial national insurance company reasonably
acceptable to both parties (the "impartial
appraiser"). The party desiring to have the
replacement cost so redetermined shall forthwith,
on receipt of such determination by the impartial
appraiser, give written notice thereof to the
other party hereto. The determination of the
impartial appraiser shall be final and binding on
the parties hereto, and Lessee shall forthwith
increase or decrease the amount of the insurance
carried pursuant to this Article to the amount so
determined by the impartial appraiser. Each party
shall pay one-half (1/2) of the fee, if any, of
the impartial appraiser. If Lessee has made
improvements to the Leased Property, Lessor may at
Lessee's expense have the replacement cost
redetermined at any time after such improvements
are made, regardless of when the replacement cost
was last determined.

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

     13.4 WAIVER OF SUBROGATION. All insurance
policies carried by either party covering the
Leased Property and any Capital Addition thereto
and Lessee's Personal Property including contents,
fire and casualty insurance, shall expressly waive
any right of subrogation on the part of the
insurer against the other party. The parties
hereto agree that their policies will include such
waiver clause or endorsement so long as the same
are obtainable without extra cost, and in the
event of such an extra charge the other party, at
its election, may pay the same, but shall not be
obligated to do so. Each party waives any claims
it has against the other party to the extent such
claim is covered by insurance.



                        29


     13. 5 POLICY REQUIREMENTS. All of the
policies of insurance referred to in this Article
shall be written in form satisfactory to Lessor
and by insurance companies with a policyholder
rating of "A" and a financial rating of "X" in the
most recent version of Best's Key Rating Guide.
Lessee shall pay all of the premiums therefor, and
deliver such policies or certificates thereof to
Lessor prior to their effective date (and with
respect to any renewal policy, at least ten (10)
days prior to the expiration of the existing
policy), and in the event of the failure of Lessee
either to effect such insurance in the names
herein called for or to pay the premiums therefor,
or to deliver such policies or certificates
thereof to Lessor, at the times required, Lessor
shall be entitled, but shall have no obligation,
to effect such insurance and pay the premiums
therefor, in which event the cost thereof,
together with interest thereon at the Overdue
Rate, shall be repayable to Lessor upon demand
therefor. Each insurer shall agree, by endorsement
on the policy or policies issued by it, or by
independent instrument furnished to Lessor, that
it will give to Lessor ten (10) days' written
notice before the policy or policies in question
shall be altered, allowed to expire or cancelled.
Each property policy shall have a deductible or
deductibles, if any, which are no greater than
$5,000, unless such requirement is specifically
waived by Lessor. Each earthquake policy shall
have a deductible of ten percent of real property,
personal property and rental value limit at the
subject location, unless such requirement is
specifically waived by Lessor.

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

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

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

                        30


immediately notify Lessor of the taking out of any
such separate insurance or of the increasing of
any of the amounts of the then existing insurance
by securing an additional policy or additional
policies.

                   ARTICLE XIV.

     14.1 INSURANCE PROCEEDS. All proceeds payable
by reason of any loss or damage to the Leased
Property, or any portion thereof, under any policy
of insurance required to be carried hereunder
shall be paid to Lessor and made available by
Lessor to Lessee from time to time for the
reasonable costs of reconstruction or repair, as
the case may be, of any damage to or destruction
of the Leased Property, or any portion thereof;
provided, however, that if the total amount of
proceeds payable is $10,000 or less, the proceeds
shall be paid to Lessee and used for the repair of
any damage to the Leased Property. Any excess
proceeds of insurance remaining after the
completion of the restoration or reconstruction of
the Leased Property to substantially the same
condition as existed immediately before the damage
or destruction and with materials and workmanship
of like kind and quality and to Lessor's
reasonable satisfaction shall be remitted by
Lessor to Lessee free and clear upon completion of
any such repair and restoration except as
otherwise specifically provided below in this
Article XIV. In the event neither Lessor nor
Lessee is required or elects to repair and restore
the Leased Property, all such insurance proceeds
shall be retained by Lessor free and clear except
as otherwise specifically provided below in this
Article XIV. All salvage resulting from any risk
covered by insurance shall belong to Lessor.

     14.2 INSURED CASUALTY.

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

     14.2.2 If the Leased Property is damaged from
a risk covered by insurance carried by Lessee, but
the Facility is not thereby rendered Unsuitable
for its Primary Intended Use, Lessee shall restore
the Leased Property to substantially the same
condition as existed immediately before such
damage. Such damage shall not terminate this
Lease; provided, however, that if Lessee cannot
within a reasonable time after diligent efforts
obtain the necessary government approvals needed
to restore and operate the Facility for its
Primary Intended Use, Lessee may offer to purchase
the Leased Property for a purchase price equal to
the greater of the Minimum Repurchase Price or the
Fair Market Value immediately prior to such
damage. If Lessee shall make such offer and Lessor
does not accept the same, Lessee may either
withdraw such offer and proceed to restore the
Leased Property to substantially the same
condition as existed immediately before such
damage or destruction, or terminate the Lease, in
which event Lessor shall be entitled to retain the
insurance proceeds.
                        31


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

     14.2.4 If Lessor accepts Lessee's offer to
purchase the Leased Property, this Lease shall
terminate as to the Leased Property upon payment
of the purchase price and Lessor shall remit to
Lessee all insurance proceeds pertaining to the
Leased Property, including insurance proceeds
pertaining to Capital Additions and Lessee's
Personal Property, then held by Lessor.

     14.3 UNINSURED CASUALTY. If the Leased
Property is damaged or destroyed from a risk not
covered by insurance carried by Lessee, whether or
not such damage or destruction renders the Leased
Property Unsuitable for its Primary Intended Use,
Lessee at its expense shall restore the Leased
Property to substantially the same condition it
was in immediately before such damage or
destruction and such damage or destruction shall
not terminate this Lease; provided, however, that
if Lessee cannot within a reasonable time after
diligent efforts obtain the necessary government
approvals needed to restore and operate the
Facility for its Primary Intended Use, Lessee
shall purchase the Leased Property for a purchase
price equal to the greater of the Minimum
Repurchase Price or the Fair Market Value
immediately prior to such damage.

     14.4 NO ABATEMENT OF RENT. This Lease shall
remain in full force and effect and Lessee's
obligation to pay the Rent and all other charges
required by this Lease shall remain unabated
during the period required for adjusting
insurance, satisfying Legal Requirements, repair
and restoration.

     14.5 WAIVER. Lessee waives any statutory
rights of termination which may arise by reason of
any damage or destruction of the Leased Property.

     14.6 DAMAGE NEAR END OF TERM. If the damage
or destruction contemplated hereunder occurs
during the last year of the Fixed Term or any
Extended Term, as applicable, and Lessee
terminates any options it might then have to
purchase the Leased Property or extend the Term of
this Lease, Lessee may, in lieu of repairing and
restoring the Leased Property as contemplated
hereunder, terminate this Lease effective as of
the date of payment to Lessor of the greater of
(a) the insurance proceeds attributable to such
damage or destruction and (b) the cost to repair
such damage or destruction as reasonably estimated
by Lessor.
                         
                    ARTICLE XV.

     15. CONDEMNATION

     15.1 TOTAL TAKING. If the Leased Property is
totally and permanently taken by Condemnation,
this Lease shall terminate as of the day before
the Date of Taking.





                        32


     15.2 PARTIAL TAKING. If a portion of the
Leased Property is taken by Condemnation, this
Lease shall remain in effect if the Facility is
not thereby rendered
Unsuitable for Its Primary Intended Use, but if
the Facility is thereby rendered Unsuitable for
its Primary Intended Use, this Lease shall
terminate as of the day before the Date of Taking.

     15.3 RESTORATION. If there is a partial
taking of the Leased Property and this Lease
remains in full force and effect pursuant to
Section 15.2, Lessor shall make available to
Lessee the portion of the Award necessary and
specifically identified for restoration of the
Leased Property and Lessee shall accomplish all
necessary restoration whether or not the amount
provided by the condemnor for restoration is
sufficient.

     15.4 AWARD-DISTRIBUTION. The entire Award
shall belong to and be paid to Lessor, except
that, subject to the rights of the Facility
Mortgagees, Lessee shall be entitled to receive
from the Award, if and to the extent such Award
specifically includes such item, lost profits
value and moving expenses, provided, that in any
event Lessor shall receive from the Award, subject
to the rights of the Facility Mortgagees, no less
than the greater of the Fair Market Value prior to
the institution of the Condemnation or the Minimum
Repurchase Price.

     15.5 TEMPORARY TAKING. The taking of the
Leased Property, or any part thereof, shall
constitute a taking by Condemnation only when the
use and occupancy by the taking authority has
continued for longer than 180 consecutive days.
During any shorter period, which shall be a
temporary taking, all the provisions of this Lease
shall remain in full force and effect and the
Award allocable to the Term shall be paid to
Lessee.
                   ARTICLE XVI.

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

     (a)  a default shall occur under any other
lease or agreement, including the Assignment
Agreement, between Lessor or an Affiliate of
Lessor and Lessee or an Affiliate of Lessee, or
any letter of credit, guaranty, mortgage, deed of
trust, or other instrument executed by Lessee or
an Affiliate of Lessee in favor of Lessor or an
Affiliate of Lessor, in every case, whether now or
hereafter existing, where the default is not cured
within any applicable grace period set forth
therein;

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

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

     (d)  Provided that no other cure period is
specified under the terms of this Lease, if Lessee
shall fail to observe or perform any term,
covenant or condition of this Lease other than
those contained within this Section 16.1 and such
failure is not cured by Lessee within thirty (30)
days after notice thereof from Lessor, unless such
failure cannot with due diligence be cured within
a period of thirty (30) days, in which case such
failure

                        33


shall not be deemed to be an Event of Default if
Lessee proceeds promptly and with due diligence to
cure the failure and diligently completes the
curing thereof; provided, however, that such
notice shall be in lieu of and not in addition to
any notice required under applicable law;

     (e)  Lessee or any Guarantor shall:

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

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

     (iii) make an assignment for the benefit of
its creditors ,

     (iv) consent to the appointment of a receiver
of itself or of the whole or any substantial part
of its Property, or

     (v) file a petition or answer seeking
reorganization or arrangement under the Federal
bankruptcy laws or any other applicable law or
statute of the United States of America or any
state thereof;

     (f)  Lessee or any Guarantor shall be
adjudicated as bankrupt or a court of competent
jurisdiction shall enter an order or decree
appointing, without the consent of Lessee, a
receiver of Lessee or of the whole or
substantially all of its property, or approving a
petition filed against it seeking reorganization
or arrangement of Lessee under the Federal
bankruptcy laws or any other applicable law or
statute of the United States of America or any
state thereof, and such judgment, order or decree
shall not be vacated or set aside or stayed within
sixty (60) days from the date of the entry
thereof;

     (g)  Lessee or any Guarantor shall be
liquidated or dissolved, or shall begin
proceedings toward such liquidation or
dissolution, or shall, in any manner, permit the
sale or divestiture of substantially all its
assets;

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

     (i)  except as a result of damage,
destruction or Condemnation ,
Lessee voluntarily ceases operations on the Leased
Property for a period in excess of thirty (30)
days;

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




                        34


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

     (l)  any local, state or federal agency
having jurisdiction over the operation of the
Facility removes ten percent (10%) or more of the
patients or residents located in the Facility;

     (m)  Lessee voluntarily transfers, within any
12 month period, ten (10) or more residents
located in the Facility to any other facility in
which Lessee or any Affiliate of Lessee has any
ownership or other financial interest, including,
without limitation, fees earned under any
management agreement, provided that Lessee's
transfer of any patient to a different type of
care facility as a result of such patient's
special needs that cannot be met at the Facility
shall not be deemed a voluntary transfer;

     (n)  Lessee fails to give notice to Lessor
not later than ten (10) days after Lessee's
receipt thereof of any Class A or equivalent fine
notice from any governmental authority or officer
acting on behalf thereof relating to the Facility;

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

     (p)  Lessee fails to give notice to Lessor
not later than ten (10) days after any notice,
claim or demand from any governmental authority or
any officer acting on behalf thereof, of any
violation of any law, order, ordinance, rule or
regulation with respect to the operation of the
Facility;
     
     (q)  Lessee fails to cure or xxxxx any Class
A or equivalent violation occurring during the
Term that is claimed by any governmental
authority, or any officer acting on behalf
thereof, of any law, order, ordinance, rule or
regulation pertaining to the operation of the
Facility, and within the time permitted by such
authority for such cure or abatement;

     (r)  any proceedings are instituted against
Lessee by any governmental authority which are
reasonably likely to result in (i) the revocation
of any license granted to Lessee for the operation
of the Facility, (ii) if applicable, the
decertification of the Facility from participation
in the Medicare or Medicaid reimbursement program,
or (iii) the issuance of a stop placement order
with respect to the Facility, unless such
proceedings are actively resisted by Lessee and
dismissed within 60 days from their institution;

     (s)  any default and acceleration of any
recourse funded indebtedness of Lessee or any
recourse funded indebtedness of any Affiliate of
Lessee has occurred, and such funded indebtedness
has an unpaid principal balance of $1,000,000 or
more or such default and acceleration could
reasonably be expected to have a material adverse
impact on the financial condition or operations of
Lessee or any guarantor the obligations of Lessee
or an Affiliate of Lessee to Lessor or an
Affiliate of Lessor, including Guarantor; and


                        35


     (t)  any default which is not cured within
any applicable cure period shall occur under any
guaranty of Lessee's or an Affiliate of Lessee's
obligations to Lessor or an Affiliate of Lessor,
including the Guaranty, in every case, whether
such guaranty is now or hereafter existing.

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

     16.3 DAMAGES. (i) The termination of this
Lease; (ii) the repossession of the Leased
Property and any Capital Addition thereto; (iii)
the failure of Lessor, notwithstanding reasonable
good faith efforts, to relet the Leased Property;
(iv) the reletting of all or any portion of the
Leased Property; or (v) the inability of Lessor to
collect or receive any rentals due upon any such
reletting, shall not relieve Lessee of its
liabilities and obligations hereunder, all of
which shall survive any such termination,
repossession or reletting. If any such termination
occurs, Lessee shall forthwith pay to Lessor all
Rent due and payable with respect to the Leased
Property to and including the date of such
termination. Thereafter:
Lessee shall forthwith pay to Lessor, at Lessor's
option, as and for liquidated and agreed current
damages for Lessee's Default, either:

     (A) the sum of:

     (i) the worth at the time of award of the
unpaid Rent which had been earned at the time of
termination to the extent not previously paid by
Lessee under this Section 16.3,

     (ii) the worth at the time of award of the
amount by which the unpaid Rent which would have
been earned after termination until the time of
award exceeds the amount of such rental loss that
Lessee proves could have been reasonably avoided,

     (iii) the worth at the time of award of the
amount by which the unpaid Rent for the balance of
the Term after the time of award exceeds the
amount of such rental loss that Lessee proves
could be reasonably avoided, plus

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

                        36


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

or (B)

without termination of Lessee's right to
possession of the Leased Property, each
installment of said Rent and other sums payable by
Lessee to Lessor under the Lease as the same
becomes due and payable, together with interest at
the Overdue Rate from the date when due until
paid, and Lessor may enforce, by action or
otherwise, any other term or covenant of this
Lease.

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

     16.5 LESSEE'S OBLIGATION TO PURCHASE. If an
Event of Default shall have occurred, Lessor may
require Lessee to purchase the Leased Property on
the first Minimum Rent Payment Date occurring not
less than thirty (30) days after the date
specified in a notice from Lessor requiring such
purchase for an amount equal to the greater of (i)
the Fair Market Value, or (ii) the Minimum
Repurchase Price, plus, in either event, all Rent
then due and payable (excluding the installment of
Minimum Rent due on the purchase date). If Lessor
exercises such right, Lessor shall convey the
Leased Property to Lessee on the date fixed
therefor in accordance with the provisions of
Article XVIII upon receipt of the purchase price
therefor and this Lease shall thereupon terminate.
Any purchase by Lessee of the Leased Property
pursuant to this Section shall be in lieu of the
damages specified in Section 16. 3.

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

     16.7 APPLICATION OF FUNDS. Any payments
received by Lessor under any of the provisions of
this Lease during the existence or continuance of
any Event of Default which are made to Lessor
rather than Lessee due to the existence of an
Event of Default shall be applied to Lessee's
obligations in the order which Lessor may
reasonably determine or as may be prescribed by
the laws of the State.

     16. 8 RESERVED.

                        37


     16.9 RESERVED.

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

     16.10.1 Lessee, as debtor, hereby grants to
Lessor, as secured party, a security interest and
an express contractual lien upon all of Lessee's
right, title and interest in and to Lessee's
Personal Property and in and to the Intangible
Property and any and all-products, proceeds, rents
and profits thereof in which Lessee now owns or
hereafter acquires an interest or right, including
any leased Lessee's Personal Property. This Lease
constitutes a security agreement covering all such
Lessee's Personal Property and the Intangible
Property. The security interest granted to Lessor
with respect to Lessee's Personal Property in this
Section 16.10 is intended by Lessor and Lessee to
be subordinate to any security interest granted in
connection with the financing or leasing of all or
any portion of the Lessee's Personal Property so
long as Lessee uses its best efforts to secure an
agreement in Lessor's favor that the lessor or
financier of such Lessee's Personal Property
agrees to give Lessor written notice of any
default by Lessee under the terms of such lease or
financing arrangement, to give Lessor a reasonable
time following such notice to cure any such
default and consents to Lessor's written
assumption of such lease or financing arrangement
upon Lessor's curing of any such defaults. This
security agreement and the security interest
created herein shall survive the termination, but
not the expiration, of this Lease until such time
as Lessor has been fully compensated for all
damages resulting from such termination.
     
     16.10.2 If required by Lessor at any time
during the Term, Lessee shall execute and deliver
to Lessor, in form reasonably satisfactory to
Lessor, additional security agreements, financing
statements, fixture filings and such other
documents as Lessor may reasonably require to
perfect or continue the perfection of Lessor's
security interest in Lessee's Personal Property
and the Intangible Property and any and all
products and proceeds thereof now owned or
hereinafter acquired by Lessee. In the event
Lessee fails to execute any financing statement or
other documents for the perfection or continuation
of Lessor's security interest, Lessee hereby
appoints Lessor as its true and lawful attorney-in-
fact to execute any such documents on its behalf,
which power of attorney shall be irrevocable and
is deemed to be coupled with an interest.
16.10.3 Upon the occurrence of an Event of
Default, Lessor shall be entitled to exercise any
and all rights or remedies available to a secured
party under the Uniform Commercial Code, or
available to a lessor under the laws of the State,
with respect to Lessee's Personal Property and the
Intangible Property, including the right to sell
the same at public or private sale.

                   ARTICLE XVII.

     17. LESSOR'S RIGHT TO CURE LESSEE'S DEFAULT.
If Lessee shall fail to make any payment or to
perform any act required to be made or performed
hereunder, Lessor, without waiving or releasing
any obligation or default, may, but shall be under
no obligation to, make such payment or perform
such act for the account and at the

                        38


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

                  ARTICLE XVIII.

     18. PURCHASE OF THE LEASED PROPERTY. If
Lessee purchases the Leased Property from Lessor,
Lessor shall, upon receipt from Lessee of the
applicable purchase price, together with full
payment of any unpaid Rent due and payable with
respect to any period ending on or before the date
of the purchase, deliver to Lessee an appropriate
deed or other conveyance conveying the entire
interest of Lessor in and to the Leased Property
to Lessee free and clear of all encumbrances other
than (i) those that Lessee has agreed hereunder to
pay or discharge; (ii) those mortgage liens, if
any, which Lessee has agreed in writing to accept
and to take title subject to; (iii) those liens
and encumbrances which were in effect on the date
of conveyance of the Leased Property to Lessor;
and (iv) any other encumbrances permitted
hereunder to be imposed on the Leased Property
which are assumable at no cost to Lessee or to
which Lessee may take subject without cost to
Lessee; provided, however, that in no event shall
Lessee be obligated to assume or take subject to
any encumbrance with a principal balance in excess
of the applicable purchase or option price, and
provided further that where the purchase price is
equal to the Minimum Repurchase Price and if any
such encumbrance may not be removed without
penalty, the applicable purchase price shall be
increased or decreased by an amount equal to the
positive or negative effect on Fair Market Value
attributable to the interest rate, amortization
schedule, maturity date, prepayment penalty and
other terms and conditions of such encumbrance.
The difference between the applicable purchase
price and the total of the encumbrances assumed or
taken subject to shall be paid to Lessor or as
Lessor may direct in immediately available funds.
All expenses of such conveyance, including the
cost of title insurance, attorneys' fees incurred
by Lessor in connection with such conveyance and
release, transfer taxes and recording and escrow
fees, shall be paid by Lessee.

                   ARTICLE XIX.

     19. RENEWAL TERMS. Provided that Lessee
exercises its right to renew the lease for each of
the Properties in accordance with the respective
terms of the renewal option relating to each such
lease and provided that no Event of Default, or
event which, with notice or lapse of time or both,
would constitute an Event of Default, has occurred
and is continuing, either at the date of exercise
or upon the commencement of an Extended Term (as
hereunder defined), then Lessee shall have the
right to renew this Lease for three (3) five year
renewal terms (each, an "Extended Term), upon
giving written notice to Lessor of such renewal
not less than twelve (12) months and not more than
fifteen (15) months prior to the expiration of the
then current Fixed Term or Extended Term, as
applicable. During each Extended Term, all of the
terms and conditions of this Lease shall continue
in full force and effect except that the annual
Minimum Rent and Additional Rent for and during
such Extended Term shall be the greater of (a) the
then current annual Fair Market Rental for the
Leased Property and (b)

                        39


One Hundred and Three Percent (103%) of the annual
Minimum Rent and Additional Rent payable for the
last Lease Year of the immediately preceding Fixed
Term or Extended Term, as applicable.
Notwithstanding anything to the contrary in this
Article XIX, Lessor, in its sole discretion, may
waive the condition to Lessee's right to renew
this Lease that no Event of Default, or event
which, with notice or lapse of time or both, would
constitute an Event of Default, have occurred or
be continuing, and the same may not be used by
Lessee as a means to negate the effectiveness of
Lessee's exercise of its renewal right for such
Extended Term.

                    ARTICLE XX.

     20. HOLDING OVER. Except as provided in
Article XIX, if Lessee shall for any reason remain
in possession of the Leased Property after the
expiration or earlier termination of the Fixed
Term, such possession shall be as a month-to-month
tenant during which time Lessee shall pay as
Minimum Rent each month twice the sum of (i)
monthly Minimum Rent applicable to the prior Lease
Year, plus (ii) one-twelfth of the aggregate
Additional Rent payable applicable to the prior
Lease Year, together with all Additional Charges
and all other sums payable by Lessee pursuant to
this Lease. During such period of month-to-month
tenancy, Lessee shall be obligated to perform and
observe all of the terms, covenants and conditions
of this Lease, but shall have no rights hereunder
other than the right, to the extent given by law
to month-to-month tenancies, to continue its
occupancy and use of the Leased Property. Nothing
contained herein shall constitute the consent,
express or implied, of Lessor to the holding over
of Lessee after the expiration or earlier
termination of this Lease.

                   ARTICLE XXI.

     21.1 LETTERS OF CREDIT. During the entire
Term and for sixty (60) days after the expiration
or earlier termination of this Lease, Lessee shall
have obtained letters of credit from a financial
institution satisfactory to Lessor naming Lessor
as beneficiary to secure Lessee's obligations
hereunder and Lessee's and any Affiliate of
Lessee's obligations under any other lease or
other agreement or instrument with or in favor of
Lessor or any Affiliate of Lessor, at the times,
in the amounts and for the purposes set forth
below. Each letter of credit shall be in
substantially the form of Exhibit D hereto. Each
letter of credit shall be for a term of not less
than one (1) year and irrevocable during that
term. Each letter of credit shall provide that it
will be honored upon a signed statement by Lessor
that Lessor is entitled to draw upon the letter of
credit under this Lease, and shall require no
signature or statement from any party other than
Lessor. No notice to Lessee shall be required to
enable Lessor to draw upon the letter of credit.
Each letter of credit shall also provide that
following the honor of any drafts in an amount
less than the aggregate amount of the letter of
credit, the financial institution shall return the
original letter of credit to Lessor and Lessor's
rights as to the remaining amount of the letter of
credit will not be extinguished. In the event of a
transfer of Lessor's interest in the Leased
Property, Lessor shall have the right to transfer
the letter of credit to the transferee and
thereupon shall, without any further agreement
between the parties, be released by Lessee from
all liability therefor, and it is agreed that the
provisions hereof shall apply to every transfer or
assignment of the letter of credit to a new
Lessor. The letter of credit may be assigned as
security in connection with a Facility Mortgage.
If the financial institution from which Lessee has
obtained a letter of credit shall admit in writing
its inability to pay its debts generally as they
become due, file a petition in

                        40


bankruptcy or a petition to take advantage of any
insolvency act, make an assignment for the benefit
of its creditors consent to the appointment of a
receiver of itself or of the whole or any
substantial part of its property, or file a
petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or
any other applicable law or statute of the United
States of America or any state thereof, then
Lessee shall obtain a replacement letter of credit
within thirty (30) days of such act from another
financial institution satisfactory to Lessor.

     21.2 TIMES FOR OBTAINING LETTERS OF CREDIT.
The initial letter of credit shall be obtained and
delivered to Lessor prior to the execution and
delivery of this Lease. The letters of credit
covering subsequent periods shall be obtained and
delivered to Lessor not less than thirty (30) days
prior to the expiration of the then existing
letter of credit ("Letter of Credit Date"). The
term for each such letter of credit shall begin no
later than the expiration date of the previous
letter of credit.
     
     21. 3 AMOUNTS FOR LETTERS OF CREDIT.

     21. 3.1 Letters of credit shall be in an
amount equal to one-third of the sum of the annual
Minimum Rent plus Lessor's reasonable estimate of
the Additional Rent to be payable by Lessee for
the applicable Lease Year.

     21.3.2    Notwithstanding subsection 21.3.1
above, if for any eight (8) consecutive month
period during the Term the average Cash Flow
Coverage for the Facility equals or exceeds 1.25
and during such time period Lessee maintains a
Consolidated Net Worth in excess of Twenty Million
Dollars ($20,000,000), then Lessee shall be
entitled to reduce the amount of the letter of
credit for the then current and each subsequent
Lease Year by twenty-five percent (25%) of the
amount required by subsection 21.3. I above, and
if for any eight (8) consecutive month period
during the Term the average Cash Flow Coverage for
the Facility equals or exceeds 1.4 and during such
time period Lessee maintains a Consolidated Net
Worth in excess of Twenty Million Dollars
($20,000,000), then Lessee shall no longer be
required to supply a letter of credit pursuant to
this Lease; provided, however, that if, following
any such reduction in the amount or elimination of
the applicable letter of credit, the average Cash
Flow Coverage for the Facility for any three (3)
consecutive month period decreases below 1.4, then
Lessee shall again be required to provide a letter
of credit for the then current and each subsequent
Lease Year in an amount equal to seventy-five
percent (75% ) of the amount required by
subsection 21. 3.1 above and Lessee shall promptly
deliver to Lessor a letter of credit in the
readjusted amount, and if the average Cash Flow
Coverage for the Facility for any three (3)
consecutive month period decreases below 1.25 or
if at any time Lessee's Consolidated Net Worth
falls below Twenty Million Dollars ($20,000,000),
then Lessee shall again be required to provide a
letter of credit for the then current and each
subsequent Lease Year in an amount equal to that
required by subsection 21. 3.1 above and Lessee
shall promptly deliver to Lessor a letter of
credit in the readjusted amount; provided further
that following any such increase, the letter of
credit may be reduced, released and increased as
provided above.

     21.4 USES OF LETTERS OF CREDIT. Lessor shall
have the right to draw upon a letter of credit up
to its full amount whenever an Event of Default
has occurred or an event of default under any
other lease or agreement between Lessor or an
Affiliate of Lessor and Lessee or an Affiliate of
Lessee or any letter of credit, guaranty,
mortgage,

                        41


deed of trust, or other instrument executed by
Lessee or an Affiliate of Lessee in favor of
Lessor or an Affiliate of Lessor has occurred and
any applicable cure periods have expired; provided
further, if Lessee fails to obtain a satisfactory
letter of credit prior to the applicable Letter of
Credit Date, Lessor may draw upon the full amount
of the then existing letter of credit without
giving any notice or time to cure to Lessee. No
such draw shall (i) cure or constitute a waiver of
an Event of Default, (ii) be deemed to fix or
determine the amounts to which Lessor is entitled
to recover under this Lease or otherwise, or (iii)
be deemed to limit or waive Lessor's right to
pursue any remedies provided for in this Lease. If
all or any portion of a letter of credit is drawn
against by Lessor, Lessee shall, within two (2)
business days after demand by Lessor, order the
issuer of such letter of credit to issue Lessor,
at Lessee's expense, a replacement or
supplementary letter of credit in substantially
the form attached hereto as Exhibit D such that at
all times during the Term, Lessor shall have the
ability to draw on one or more letters of credit
totalling, in the aggregate, the amount required
pursuant to Section 21.3 and Lessor, upon the
receipt thereof, shall return any amounts drawn
down because of Lessee's failure to timely procure
a replacement or supplementary letter of credit
and held pending receipt of such replacement or
supplementary letter of credit. However, nothing
shall preclude Lessee from bringing a separate
action with respect to the matters governed by
this Section 21.4 and Lessee is not waiving other
rights and remedies not expressly waived with
respect to the matters governed by this Section
21.4.

                   ARTICLE XXII.

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

                  ARTICLE XXIII.

     23. GENERAL INDEMNIFICATION. In addition to
the other indemnities contained herein, and
notwithstanding the existence of any insurance
carried by or for the benefit of Lessor or Lessee,
and without regard to the policy limits of any
such insurance, Lessee shall protect, indemnify,
save harmless and defend Lessor from and against
all liabilities, obligations, claims, damages
penalties, causes of action, costs and expenses,
including reasonable attorneys', consultants' and
experts' fees and expenses, imposed upon or
incurred by or asserted against Lessor by reason
of: (i) any accident, injury to or death of
Persons or loss of or damage to property occurring
on or about the Leased Property or adjoining
sidewalks; (ii) any use, misuse, non-use,
condition, maintenance or repair by Lessee of the
Leased Property; (iii) any failure on the part of
Lessee to perform or comply with any of the terms
of this Lease; (iv) the non-performance of any of
the terms and provisions of any and all existing
and future subleases of the Leased Property to be
performed by any party thereunder; (v) any claim
for malpractice, negligence or misconduct
committed by any Person on or working from the
Leased Property; and (vi) the violation by Lessee
of any Legal Requirement. Any amounts which become
payable by Lessee under this Article shall be paid
within ten (10) days after liability therefor is
determined by litigation or otherwise, and if not
timely paid shall bear interest at the


                        42


Overdue Rate from the date of such determination
to the date of payment. Lessee, at its sole cost
and expense, shall contest, resist and defend any
such claim, action or proceeding asserted or
instituted against Lessor or may compromise or
otherwise dispose of the same as Lessee sees fit.
For purposes of this Article XXIII, any acts or
omissions of Lessee, or by employees, agents,
assignees, contractors, subcontractors or others
acting for or on behalf of Lessee (whether or not
they are negligent, intentional, willful or
unlawful), shall be strictly attributable to
Lessee.

     Lessor shall indemnify, save harmless and
defend Lessee from and against all liabilities,
obligations, claims, damages, penalties, causes of
action, costs and expenses, including, but not
limited to, reasonable attorneys' fees, imposed
upon or incurred by or asserted against Lessee as
a result of the gross negligence or wilful
misconduct of Lessor. Lessor, at its expense,
shall contest, resist, and defend any claim,
action or proceeding
asserted or instituted against Lessee with respect
to the foregoing or may compromise or otherwise
dispose of the same as Lessor sees fit. Any
amounts which become payable by Lessor under this
Section shall be paid within ten (10) days after
liability therefor on the part of Lessor is
determined by litigation or otherwise, and if not
timely paid shall bear a late charge (to the
extent permitted by law) at the Overdue Rate from
the date of such determination to the date of
payment.
                         
                   ARTICLE XXIV.

     24. SUBLETTING AND ASSIGNMENT.

     24.1 PROHIBITION. Lessee shall not, without
Lessor's prior written consent, which may be
withheld in Lessor's sole and absolute discretion,
voluntarily or by operation of law assign (which
term includes any sale, encumbering, pledge or
other transfer or hypothecation) this Lease,
master sublet all or any part of the Leased
Property or engage the services of any Person for
the management or operation of the Facility.
Lessee acknowledges that Lessor is relying upon
the expertise of Lessee in the operation of the.
Facility and that Lessor entered into this Lease
with the expectation that Lessee would remain in
and operate the Facility during the entire Term
and for that reason Lessor retains sole and
absolute discretion in approving or disapproving
any assignment or master sublease. If Lessee is a
corporation or partnership, any transfer of its
stock (other than a transfer of any of Lessee's
stock owned by Xxxxxx X. Xxxx for estate planning
purposes) or partnership interests (or the stock
or partnership interests of the entity(ies) that
controls Lessee) or any dissolution or merger or
consolidation of Lessee (or its controlling
entity(ies)) with any other entity, which results
in any Person (other than Xxxxxx X. Xxxx) and such
Person's Affiliates collectively owning greater
than twenty-five percent (25%) of the total
outstanding shares of any class of Lessee's stock
or partnership interests, or the sale or other
transfer of all or substantially all of the assets
of Lessee (or its controlling entity(ies)), shall
constitute an assignment of Lessee's interest in
this Lease within the meaning of this Article XXIV
and the provisions requiring consent contained
herein shall apply (provided, however, that the
foregoing provision regarding transfer of Lessee's
stock constituting an assignment shall not apply
if (i) Lessee's stock is publicly traded, and (ii)
Lessee's Consolidated Net Worth after such
transfer is not less than Lessee's Consolidated
Net Worth as of the Commencement Date). Any
sublease of more than ten percent (10%) of the
Facility to any Person or its Affiliates, in one
transaction or in a series of transactions, shall
be deemed to be a master sublease hereunder. For
any sublease transaction not requiring the consent
of Lessor hereunder,

                        43


Lessee shall, within ten (10) days of entering
into any such sublease, notify Lessor of the
existence of such sublease and the identity of the
sublessee and supply Lessor with a copy of the
sublease, any related documentation and any other
materials or information reasonably requested by
Lessor.

     24.1.1 Lessor will not unreasonably withhold
its written consent to an assignment of this Lease
to (A) any Person which acquires all or
substantially all of the
assets and business of Lessee by virtue of a
merger or consolidation of, with or into Lessee or
(B) any purchaser of 51 % or more of the
outstanding voting stock or partnership interest
of Lessee, if in Lessor's reasonable judgment such
assignee, together with any guarantor of such
assignee's obligations under this Lease, has (1) a
consolidated net worth equal to or greater than
Lessee's consolidated net worth at the time of the
proposed assignment or as of the Commencement
Date, whichever is greater, and (2) the
operational expertise and reputation at least
equal to that of Lessee at the time of the
proposed assignment or as of the Commencement
Date, whichever is greater.

     24.2 CONSENT. If Lessee desires at any time
to assign this Lease, to master sublet the
Facility or any portion thereof or engage the
services of any Person for the management or
operation of the Facility, it shall first notify
Lessor of its desire to do so and shall submit in
writing to Lessor: (i) the name of the proposed
master sublessee, assignee or manager; (ii) the
terms and provisions of the proposed master
sublease, assignment or management agreement; and
(iii) such financial information as Lessor
reasonably may request concerning the proposed
master sublessee, assignee or manager.

     24.2.1 Lessor may, as a condition to granting
such consent, require that the obligations of any
sublessee, assignee, or manager which is an
Affiliate of another Person be guaranteed by its
parent or controlling Person if (i) the
Consolidated Net Worth of Lessee would be
diminished as a result of any such assignment of
Lessee's interest described in this Article XXIV,
or (ii) the new controlling Person(s) would have a
consolidated net worth less than the Lessee's
consolidated net worth as of the Closing Date and
that any guaranty of this Lease be reaffirmed by
any Guarantor notwithstanding such subletting,
assignment or management arrangement. Any sublease
shall be expressly subject and subordinate to all
applicable terms and conditions of this Lease and
provide that Lessor, at its option and without any
obligation to do so, may require any sublessee to
attorn to Lessor, in which event Lessor shall
undertake the obligations of Lessee, as sublessor
under such sublease from the time of the exercise
of such option to the termination of such sublease
and in such case Lessor shall not be liable for
any prepaid rents or security deposit paid by such
sublessee to Lessee unless Lessor actually
receives the same from Lessee or for any other
prior defaults of Lessee under such sublease. In
the event that Lessor shall not require such
attornment with respect to any sublease, then such
sublease shall automatically terminate upon the
expiration or earlier termination of this Lease,
including any early termination by mutual
agreement of Lessor and Lessee. Furthermore, any
sublease, assignment or management agreement shall
expressly provide that the sublessee, assignee or
manager shall furnish Lessor with such financial
and operational information and information about
the physical condition of the Facility, including
the information required by Section 25.2 herein,
as Lessor may request from time to time.




                        44


     24.2.2 Lessor may, as a condition to its
consent to any such master subletting, require
Lessee to pay to Lessor one hundred percent (100%)
of all Transfer Consideration (defined below).
"Transfer Consideration" shall mean the positive
difference, if any, between the Fair Market Rental
and the Rent payable by Lessee determined on a
monthly basis, prorating the Rent, as appropriate,
if less than all of the Facility is sublet;
provided, however, in no event shall Lessor be
entitled to receive any amount in excess of the
amount Lessee is entitled to receive as a result
of the master sublease. The Transfer Consideration
for each month shall be paid by Lessee to Lessor
monthly when the Minimum Rent is due for the
duration of the master subletting.

     24.2.3 Lessor may, as a condition to its
consent to any assignment or management
arrangement, require Lessee to pay to Lessor upon
the effective date of such assignment or
management arrangement an amount equal to one
hundred percent (100%) of the gross fair market
value of Lessee's leasehold interest, which shall
be deemed to equal the Transfer Consideration for
the remaining Term of the Lease assuming all
renewal options are exercised and there is no
early termination of the Lease and Lessor shall
refund any amounts attributable to renewal options
if they subsequently are not exercised with
interest thereon at the Prime Rate; provided,
however, in no event shall Lessor be entitled to
receive any amount in excess of the amount Lessee
is entitled to
receive as a result of the assignment or
management agreement.

     24.2.4 The consent by Lessor to any
assignment, master subletting or management
arrangement shall not constitute a consent to any
subsequent assignment, master subletting or
management arrangement by Lessee or to any
subsequent or successive assignment, master
subletting or management arrangement by the master
sublessee, assignee or manager. Any purported or
attempted assignment, sublease, management
agreement or other permission to use the Facility
contrary to the provisions of this Article shall
be void and, at the option of Lessor, shall
terminate this Lease.

     24.2.5 Notwithstanding the preceding, Lessee
may sublease or assign the Lease to an Affiliate
of Lessee without the written consent of Lessor
and Lessee shall not be required to pay any
Transfer Consideration to Lessor as a result of
such sublease or assignment to an Affiliate, but
such sublease or assignment of the Lease from
Lessee to an Affiliate of Lessee will not relieve
Lessee from its obligations under the Lease or any
Guarantor from its obligations under any guaranty
of this Lease.

     24.3 COSTS. Lessee shall reimburse Lessor for
Lessor's reasonable costs and expenses incurred in
conjunction with the processing and documentation
of any assignment, master subletting or management
arrangement, including reasonable attorneys',
architects', engineers' or other consultants' fees
whether or not such master sublease, assignment or
management agreement is actually consummated.

     24.4 NO RELEASE OF LESSEE'S OBLIGATIONS. No
assignment, subletting or management agreement
shall relieve Lessee of its obligation to pay the
Rent and to perform all of the other obligations
to be performed by Lessee hereunder. The liability
of Lessee named herein and any immediate and
remote successor in interest of Lessee (by
assignment or otherwise), and the due performance
of the obligations of this Lease on Lessee's part
to be performed or observed, shall not in any way
be discharged, released or impaired by any (i)
agreement which modifies any of the rights or
obligations of the parties under this Lease, (ii)
stipulation which extends the time within which an

                        45


obligation under this Lease is to be performed,
(iii) waiver of the performance of an obligation
required under this Lease, or (iv) failure to
enforce any of the obligations set forth in this
Lease.

     24.5 ASSIGNMENT OF LESSEE'S RIGHTS AGAINST
SUBLESSEE. If Lessor shall consent to a master
subletting, then the written instrument of
consent, executed and acknowledged by Lessor,
Lessee and sublessee, shall contain a provision
substantially similar to the following:

     (i)  Lessee and sublessee hereby agree that,
if sublessee shall be in default of any obligation
to Lessee under the sublease, which default also
constitutes a default by Lessee under the Lease,
then Lessor shall be permitted to avail itself of
all of the rights and remedies available to Lessee
in connection therewith.

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

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

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

     24. 6 RESERVED

     24.7 REIT PROTECTION. Anything contained in
this Lease to the contrary notwithstanding, Lessee
shall not (i) sublet, assign or enter into a
management arrangement for the Leased Property on
any basis such that the rental or other amounts to
be paid by the sublessee, assignee or manager
thereunder would be based, in whole or in part, on
the income or profits derived by the business
activities of the sublessee, assignee or manager;
(ii) furnish or render any services to the
sublessee, assignee or manager or manage or
operate the Leased Property so subleased, assigned
or managed; (iii) sublet, assign or enter into a
management arrangement for the Leased Property to
any Person in which Lessee or Lessor owns an
interest, directly or indirectly (by applying
constructive ownership rules set forth in Section
856(d)(5) of the Code); or (iv) sublet, assign or
enter into a management arrangement for the Leased
Property in any other manner which could cause any
portion of the amounts received by Lessor pursuant
to this Lease or any sublease to fail to qualify
as "rents from real property" within the meaning
of Section 856(d) of the Code, or any similar or
successor provision thereto or which could cause
any other income of Lessor to fail to qualify as
income described in Section 856(c)(2) of the Code.



                        46


     24.8 PREPAID RENT. Lessee shall not require
or accept prepayment for more than three (3)
months' use of individual units or rooms of the
Facility. Amounts charged to residents for
individual units or rooms shall not be materially
less than fair market value.

                   ARTICLE XXV.

     25. OFFICER'S CERTIFICATES AND FINANCIAL
STATEMENTS

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

     25.2 STATEMENTS. Lessee shall furnish the
following statements to Lessor:

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

     (b)  within 120 days after the end of
Lessee's fiscal years, and together with the
annual audit report furnished in accordance with
clause (a) above, an Officer's Certificate stating
that to the best of the signer's knowledge and
belief after making due inquiry, Lessee is not in
default in the performance or observance of any of
the terms of this Lease, or if Lessee shall be in
default, specifying all such defaults, the nature
thereof, and the steps being taken to remedy the
same;

     (c)  within thirty (30) days after the end of
each month for those months occurring from the
Commencement Date to three months after the first
month in which the average Cash Flow Coverage for
the Facility equals or exceeds 1.3 for such month,
all consolidated financial reports Lessee produces
for reporting purposes and detailed statements of
income and detailed operational statistics
regarding occupancy rates,

                        47


patient and resident mix and patient ai>d resident
rates by type for the Facility; and thereafter
within sixty (60) days after the end of each of
Lessee's quarters, all quarterly consolidated
financial reports Lessee produces for reporting
purposes and detailed statements of income and
detailed operational statistics regarding
occupancy rates, patient and resident mix and
patient and resident rates by type for the
Facility;

     (d)  within 120 days after the end of each of
Lessee's fiscal years, a copy of each cost report,
if any, filed with the appropriate governmental
agency for the Facility;

     (e)  within thirty (30) days after they are
required to be filed with the SEC, copies of any
annual reports and of information, documents and
other reports, or copies of such portions of any
of the foregoing as the SEC may prescribe, which
Lessee is required to file with the SEC pursuant
to Section 13 or 15(d) of the Securities Exchange
Act of 1934;
     
     (f)  within three (3) Business Days after
Lessee's receipt thereof, copies of all written
communications received by Lessee from any
regulatory agency relating to (i) surveys of the
Facility for purposes of licensure, Medicare and
Medicaid certification and accreditation and (ii)
any proceeding, formal or informal, with respect
to cited deficiencies with respect to services and
activities provided and performed at the Facility,
including patient and resident care, patient and
resident activities, patient and resident therapy,
dietary, medical records, drugs and medicines,
supplies, housekeeping and maintenance, or the
condition of the Facility, and involvin5 an actual
or threatened warning, imposition of a fine or a
penalty, or suspension, termination or revocation
of the Facility's license to be operated in
accordance with its Primary Intended Use;

     (g)  to the extent reasonably obtainable by
Lessee, within 120 days after the end of each
fiscal year of the financial institution issuing
the letter of credit required under Article XXI, a
copy of the audited consolidated balance sheets of
such financial institution as of the end of such
fiscal year, and related unaudited consolidated
statements of income, changes in common stock and
other stockholders equity and changes in the
financial position of such financial institution
and its consolidated subsidiaries for each such
fiscal year, prepared in accordance with generally
accepted accounting principles applied on a basis
consistently maintained throughout the period
involved, such consolidated financial statements
to be certified by nationally recognized certified
public accountants;

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

     (i)  with reasonable promptness, such other
information respecting the financial and
operational condition and affairs of Lessee and
the Facility and the physical condition of the
Leased Property and any Capital Addition thereto
as Lessor may reasonably request, in the form of a
questionnaire or otherwise, from time to time.

     25. 3 CHARGES. Lessee acknowledges that the
failure to furnish Lessor with any of the
certificates or statements required by this
Article XXV will cause Lessor to incur costs and
expenses not contemplated hereunder, the exact
amount of which is presently anticipated to be
extremely difficult to ascertain. Accordingly, if
Lessee fails to

                        48


furnish Lessor with any of the certificates or
statements required by this Article XXV, Lessee
shall pay to Lessor upon demand $1,000 for each
such failure as Additional Charges. The parties
agree that this charge represents a fair and
reasonable estimate of the costs that Lessor will
incur by reason of Lessee's failure to furnish
Lessor with such certificates and statements.

                   ARTICLE XXVI.

     26. LESSOR'S RIGHT TO INSPECT. Lessee shall
permit Lessor and its authorized representatives
to inspect the Leased Property and any Capital
Addition thereto during usual business hours and
on reasonable notice subject to any security,
health, safety or confidentiality requirements of
Lessee or any Legal Requirement or Insurance
Requirement.

                  ARTICLE XXVII.

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

                  ARTICLE XXVIII.

     28. REMEDIES CUMULATIVE. Each legal,
equitable or contractual right, power and remedy
of Lessor now or hereafter provided either in this
Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition
to every other right, power and remedy and the
exercise or beginning of the exercise by Lessor of
any one or more of such rights, powers and
remedies shall not preclude the simultaneous or
subsequent exercise by Lessor of any or all of
such other rights, powers and remedies.

                   ARTICLE XXIX.

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

                   ARTICLE XXX.

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




                        49


                   ARTICLE XXXI.

     31. CONVEYANCE BY LESSOR. If Lessor or any
successor owner of the Leased Property shall
convey the Leased Property other than as security
for a debt, Lessor or such successor owner, as the
case may be, shall thereupon be released from all
future liabilities and obligations of the Lessor
under this Lease arising or accruing from and
after the date of such conveyance or other
transfer and all such future liabilities and
obligations shall thereupon be binding upon the
new owner.

                  ARTICLE XXXII.

     32. QUIET ENJOYMENT. So long as Lessee shall
pay the Rent as the same becomes due and shall
fully comply with all of the terms of this Lease
and fully perform its obligations hereunder,
Lessee shall peaceably and quietly have, hold and
enjoy the Leased Property for the Term, free of
any claim or other action by Lessor or anyone
claiming by, through or under Lessor, but subject
to all liens and encumbrances of record as of the
date hereof, or the Commencement Date or created
thereafter as permitted hereunder or thereafter
consented to by Lessee. No failure by Lessor to
comply with the foregoing covenant shall give
Lessee any right to cancel or terminate this Lease
or xxxxx, reduce or make a deduction from or
offset against the Rent or any other sum payable
under this Lease, or to fail to perform any other
obligation of Lessee hereunder. Notwithstanding
the foregoing, Lessee shall have the right, by
separate and independent action to pursue any
claim it may have against Lessor as a result of a
breach by Lessor of the covenant of quiet
enjoyment contained in this Article.

                  ARTICLE XXXIII.

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

     If to Lessor:       Texas HCP Holding, L.P.
                    00000 Xxxxxxxx Xxxxxxxxx
                    Xxxxx 0000
                    Xxx Xxxxxxx, Xxxxxxxxxx 00000
                    Attn: Legal Department
                    Fax: (000) 000-0000

     with a copy to:          Xxxxxx & Xxxxxxx
                    000 Xxxx Xxxxx Xxxxxx, Xxxxx
               0000
                    Xxx Xxxxxxx, Xxxxxxxxxx 00000
                    Attn: Xxxxx X. Xxxx, Esq.
                    Fax: (000) 000-0000







                        50


     If to Lessee:       ESC III, L.P.
                    Market Place One
                    0000 Xxxxxxx Xxxxxx Xxxxx 000
                    Xxxxxxx, Xxxxxxxxxx 00000
                    Attn: Xxxxxxx Xxxxxxxxxx
                    Fax : (000) 000-0000

     with a copy to:          The Xxxxxxxxx Group
                    0000 Xxxxxx Xxx. , Xxxxx 000
                    Xxxxxxx, Xxxxxxxxxx 00000
                    Attn: Xxxxx X. Xxxxxxxxx, Esq.
                    Fax: (000) 000-0000


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

                  ARTICLE XXXIV.

     34. APPRAISER. If it becomes necessary to
determine the Fair Market Value or Fair Market
Rental for any purpose of this Lease, the same
shall be determined by Valuation Counselors, or in
the event Valuation Counselors no longer exists
upon the date the same is to be determined, any
other nationally recognized appraisal firm, in
which one or more of the members, officers or
principals of such firm are members of the
American Institute of Real Estate Appraisers (or
any successor organization thereto), as may be
selected by Lessor in writing to Lessee (the
"Appraiser"). Lessor shall cause such Appraiser to
determine the Fair Market Value or Fair Market
Rental as of the relevant date (giving effect to
the impact, if any, of inflation from the date of
the Appraiser's decision to the relevant date) and
the determination of such Appraiser shall be final
and binding upon the parties. If the Facility had
reached stabilized operations prior to the
Commencement Date, to the extent consistent with
sound appraisal practice as then existing at the
time of any such appraisal, an appraisal for Fair
Market Value shall be made on a basis consistent
with the basis on which the Leased Property was
appraised for purposes of determining its fair
market value at the time the Leased Property was
acquired by Lessor. This provision for
determination by appraisal shall be specifically
enforceable to the extent such remedy is available
under applicable law, and any determination
hereunder shall be final and binding upon the
parties except as otherwise provided by applicable
law. Lessor and Lessee shall each pay one-half of
the fees and expenses of the Appraiser and one-
half of all other cost and expenses incurred in
connection with such appraisal.

                        51


                   ARTICLE XXXV.

     35.1 LESSEE'S OPTION TO PURCHASE THE LEASED
PROPERTY. Provided no Event of Default, or event
which, with notice or lapse of time or both, would
constitute an Event of Default, has occurred and
is continuing hereunder, Lessee shall have the
option to purchase the Leased Property upon the
expiration of the Fixed Term and each Extended
Term at the Shared Appreciation Purchase Price,
calculated as of the Outside Closing Date,
provided that Lessee or one of its Affiliates
exercises its option to purchase each of the
Properties in accordance with the respective terms
of the option relating to each such property.
Lessee may exercise such option to purchase the
Leased Property by opening an escrow (the
"Escrow") with and by depositing a copy of this
Lease with a national title company reasonably
acceptable to Lessor ("Escrow Holder") and giving
written notice to Lessor of such deposit with
Escrow Holder no earlier than fifteen (15) months
and not less than twelve (12) months prior to the
expiration of the Fixed Term or the Extended Term,
as applicable. If Lessee shall not be entitled to
exercise such option (e.g., by reason of an Event
of Default) or shall be entitled to exercise the
same but shall fail to do so within the time and
in the manner herein provided, such option shall
lapse and thereafter not be exercisable by Lessee.
No failure by Lessor to notify Lessee of any
defect in any attempted exercise of the foregoing
option shall be deemed a waiver by Lessor of the
right to insist upon Lessee's exercise of such
option in strict accordance with the provisions
hereof. Not less than six (6) months prior to the
expiration of the Fixed Term or the Extended Term,
as applicable, Lessee shall deposit one and one-
half percent of the Minimum Repurchase Price of
the Properties in the aggregate (the "Opening
Deposit") with Escrow Holder. In the event that
Lessee shall properly and timely exercise such
option and make the Opening Deposit, then such
transaction shall be consummated on or within ten
(10) days after the expiration of the Fixed Term
or Extended Term, as applicable (the "Outside
Closing Date").

     35.2 DEFAULTS

     35.2.1 LIQUIDATED DAMAGES. IF, FOLLOWING A
VALID AND PROPER EXERCISE OF THE FOREGOING OPTION,
LESSEE FAILS TO COMPLETE THE PURCHASE OF THE
LEASED PROPERTY AND SUCH FAILURE CONSTITUTES A
BREACH HEREOF, THEN LESSOR, AT ITS OPTION, MAY
TERMINATE THE PURCHASE CONTRACT FORMED BY LESSEE'S
EXERCISE OF SUCH OPTION AND THE ESCROW BY GIVING
WRITTEN NOTICE TO LESSEE AND ESCROW HOLDER AND,
THEREUPON, THE ESCROW SHALL BE CANCELLED, ALL
DOCUMENTS SHALL BE RETURNED TO THE RESPECTIVE
PARTIES WHO DEPOSITED THE SAME, AND LESSEE SHALL
PAY ALL TITLE AND ESCROW CANCELLATION CHARGES AND
ALL OF LESSOR'S REASONABLE ATTORNEYS' FEES AND
COSTS. IN ADDITION, LESSOR AND LESSEE AGREE THAT,
BASED ON THE CIRCUMSTANCES NOW EXISTING, KNOWN OR
UNKNOWN, IT WOULD BE EXCESSIVELY COSTLY AND
IMPRACTICABLE TO ESTABLISH LESSOR'S DAMAGES BY
REASON OF LESSEE'S DEFAULT RESULTING IN A FAILURE
OF THE ESCROW TO CLOSE, AND, THEREFORE, LESSOR AND
LESSEE AGREE THAT IT WOULD BE REASONABLE TO AWARD
LESSOR LIQUIDATED DAMAGES IN THE AMOUNT OF THE
OPENING DEPOSIT PLUS ANY ACCRUED INTEREST ON THE
OPENING DEPOSIT. BY THEIR RESPECTIVE INITIALS SET
FORTH BELOW,

                        52


LESSOR AND LESSEE ACKNOWLEDGE AND AGREE THAT THE
OPENING DEPOSIT, PLUS ANY INTEREST ACCRUED ON THE
OPENING DEPOSIT, TOGETHER WITH PAYMENT OF LESSOR'S
LEGAL FEES AND COSTS, IS REASONABLE AS LIQUIDATED
DAMAGES FOR A DEFAULT OF LESSEE UNDER THE PURCHASE
CONTRACT FORMED BY LESSEE'S EXERCISE OF SUCH
OPTION THAT RESULTS IN A FAILURE OF THE ESCROW TO
CLOSE AND SHALL BE IN LIEU OF ANY OTHER RELIEF,
RIGHT OR REMEDY, AT LAW OR IN EQUITY, TO WHICH
LESSOR MIGHT OTHERWISE BE ENTITLED BY REASON OF A
LESSEE'S DEFAULT THAT RESULTS IN A FAILURE OF THE
ESCROW TO CLOSE, BUT NOTHING CONTAINED HEREIN
SHALL LIMIT LESSOR'S RIGHTS AND REMEDIES FOR
LESSEE'S DEFAULT OCCURRING AFTER THE CLOSE OF
ESCROW OR FOR LESSEE'S DEFAULT UNDER THIS LEASE.
ESCROW HOLDER IS HEREBY AUTHORIZED AND INSTRUCTED
TO RELEASE THE OPENING DEPOSIT PLUS ACCRUED
INTEREST THEREON TO LESSOR UPON THE DELIVERY OF
UNILATERAL WRITTEN INSTRUCTIONS THEREOF TO ESCROW
HOLDER BY LESSOR, AND ESCROW HOLDER IS HEREBY
RELIEVED OF ALL LIABILITY THEREFOR. IF LESSEE
ATTEMPTS TO INTERFERE WITH THE RELEASE OF ANY SUCH
SUMS BY ESCROW HOLDER TO LESSOR, OR COMMENCES ANY
ACTION AGAINST LESSOR OR THE LEASED PROPERTY
ARISING OUT OF THIS ARTICLE, THEN LESSOR SHALL NOT
BE LIMITED IN THE AMOUNT OF DAMAGES IT MAY RECOVER
FROM LESSEE.

     35.2.2 OTHER DEFAULTS. A default under any
other lease or other agreement, including any
purchase contract formed upon exercise of any
other option, between Lessor or any Affiliate of
Lessor and Lessee or any Affiliate of Lessee where
such default is not cured within the applicable
time period, if any, shall be deemed a default
under this Article XXXV and the purchase contract
formed upon proper exercise by Lessee of the
option herein provided, entitling Lessor, as
seller, at its option, to terminate such purchase
contract and the Escrow and upon any such
termination the Opening Deposit plus all accrued
interest shall be paid over to Lessee.

     35.3 ESCROW PROVISIONS.

     35.3.1 OPENING OF ESCROW. Escrow shall be
deemed open when the Opening Deposit and a copy of
this Lease are delivered to Escrow Holder.

     35.3.2 GENERAL AND SUPPLEMENTAL INSTRUCTIONS.
Lessee and Lessor each shall execute, deliver and
be bound by such further escrow instructions or
other instruments as may be reasonably requested
by the other party or by Escrow Holder from time
to time, so long as the same are consistent with
the provisions of this Lease.

     35.3.3 DISPOSITION OF OPENING DEPOSITS.
Escrow Holder shall hold the Opening Deposit in
interest-bearing accounts. All interest earned on
the Opening Deposit
shall accrue to Lessee's benefit unless Lessor is
entitled thereto under Section 35.2.1. The Opening
Deposit plus interest thereon shall be (i) applied
against the purchase price (as herein determined)
if Escrow closes, (ii) returned to Lessee in full
if Escrow does not close for any reason other than
Lessee's default, or (iii) be paid to Lessor as
nonrefundable liquidated damages under Section
35.2.1, if Escrow fails to close under the
provisions of hereof as a result of Lessee's
default.

                        53


     35.3.4 CLOSING FUNDS. At least one (1)
business day before the Close of Escrow (as
hereinafter defined), Escrow Holder shall
calculate and Lessee shall wire cash into Escrow
(using wiring instructions reasonably satisfactory
to Escrow Holder) in an
amount which, when added to the Opening Deposit
and all accrued interest shall equal the purchase
price for the Leased Property plus any other sums
payable by Lessee pursuant to the provisions
hereof.

     35.3.5 CLOSE OF ESCROW. Escrow shall close on
the Outside Closing Date. The term "Close of
Escrow" as used in this Article shall mean the
time and date that an appropriate deed or other
conveyance document conveying Lessor's entire
interest in the Leased Property, subject to the
permitted liens and encumbrances described in
Article XVIII hereof, is recorded in appropriate
records of the county in which the Leased Property
is located. The Outside Closing Date shall not be
extended for any reason.

     35.3.6 CLOSING COSTS. The closing costs of
consummating the purchase of the Leased Property
shall be paid by Lessee as provided in Article
XVIII.
35.3-7 Assurances. At any time prior to Close of
Escrow, Lessor may request and Lessee shall
provide reasonable assurances that it will be able
to consummate the purchase of the Leased Property,
including that Lessee has a firm, written
commitment from a reputable lending institution to
finance such purchase and/or has sufficient
liquidity to pay any balance of the purchase price
owing by Lessee on the date of the Close of
Escrow; provided, however, that in no event shall
Lessee be entitled to exercise such option
conditioned upon Lessee obtaining any such
financing.

     35.4 LESSOR'S OPTION TO PURCHASE THE LESSEE'S
PERSONAL PROPERTY. Effective on not less than
ninety (90) days prior written notice, or such
shorter notice as shall be appropriate if this
Lease is terminated prior to its expiration date,
Lessor shall have the option to purchase some or
all of Lessee's Personal Property which does
provide a new function with respect to Lessor's
Personal Property, at the expiration or
termination of this Lease, for an amount equal to
the then net book value thereof as shown on
Lessee's books, subject to, and with appropriate
price adjustments for, all equipment leases,
conditional sale contracts, UCC-1 financing
statements and other encumbrances to which such
personal property is subject.

                  ARTICLE XXXVI.

     36.1 LESSOR MAY GRANT LIENS. Without the
consent of Lessee, Lessor may, from time to time,
directly or indirectly, create or otherwise cause
to exist any lien, encumbrance or title retention
agreement upon the Leased Property, or any portion
thereof or interest therein, whether to secure any
borrowing or other means of financing or
refinancing. This Lease is and at all times shall
be subject and subordinate to any ground or
underlying leases, mortgages, deeds of trust or
like encumbrances (collectively, "Priority
Encumbrances"), which may now or hereafter affect
the Leased Property and to all renewals,
modifications, consolidations, replacements and
extensions of any such lease, mortgage, deed of
trust or like encumbrance; provided, however, that
the subjection and subordination of this Lease and
Lessee's leasehold interest hereunder to any
Priority Encumbrance shall be conditioned upon the
execution by the holder of each Priority
Encumbrance and delivery to Lessee of a non-
disturbance and attornment agreement which
provides that so long as no default has occurred
and is continuing beyond the period of time
allowed for the remedy thereof under the terms of
this Lease,

                        54


the holder of such Priority Encumbrance (i) shall
not disturb either Lessee's leasehold interest or
possession of the Leased Property in accordance
with the terms hereof, or any of its rights,
privileges and options, (ii) shall permit
application of all proceeds of
insurance and all Awards and payments in
connection with the taking of all or any portion
of the Leased Property in accordance with the
provisions of Articles XIV and XV of this Lease,
(iii) waives all Priority Encumbrance rights or
interests in any of Lessee's Personal Property,
and (iv) shall execute a release of such rights,
privileges, options and all liens and claims that
the holder of such Priority Encumbrance may have
in the Leased Property upon payment of the
purchase price therefor in the event Lessee
exercises any of its options or rights to purchase
the Leased Property provided in this Lease. In
connection with the foregoing and at the request
of Lessor, Lessee shall promptly execute a
reasonable subordination, non-disturbance and
attornment agreement which will incorporate the
terms set forth in the preceding sentence. Except
for the documents described in the preceding
sentences, this clause shall be self-operative and
no further instrument of subordination shall be
required by any ground or underlying lessor or by
any mortgagee or beneficiary, affecting any lease
or the Leased Property. In confirmation of such
subordination, Lessee shall execute promptly any
certificate that Lessor may request for such
purposes.

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

                  ARTICLE XXXVII.

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

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

                        55


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

     37.3 REMEDIATION. If Lessee becomes aware of
a violation of any Legal Requirement relating to
any Hazardous Substance in, on, under or about the
Leased Property or any adjacent property, or if
Lessee, Lessor or the Leased Property becomes
subject to any order of any federal, state or
local agency to repair, close, detoxify,
decontaminate or otherwise remediate the Leased
Property, Lessee shall immediately notify Lessor
of such event and, at its sole cost and expense,
cure such violation or effect such repair,
closure, detoxification, decontamination or other
remediation provided, however, that Lessee s
obligation to remediate with respect to any
adjacent property shall only apply if such
contamination of the adjacent property poses a
material threat (risk) to the Leased Property,
including the value thereof. If Lessee fails to
implement and diligently pursue any such cure,
repair, closure, detoxification, decontamination
or other remediation, Lessor shall have the right,
but not the obligation, to carry out such action
and to recover from Lessee all of Lessor's costs
and expenses incurred in connection therewith.

     37.4 INDEMNITY. Lessee shall indemnify,
defend, protect, save, hold harmless, and
reimburse Lessor for, from and against any and all
costs, losses (including, losses of use or
economic benefit or diminution in value),
liabilities, damages, assessments, lawsuits,
deficiencies, demands, claims and expenses
(collectively, "Environmental Costs") (whether or
not arising out of third-party claims and
regardless of whether liability without fault is
imposed, or sought to be imposed, on Lessor)
incurred in connection with, arising out of,
resulting from or incident to, directly or
indirectly, before or during (but not after) the
Term or such portion thereof durin5 which the
Leased Property is leased to Lessee (i) the
production, use, generation, storage, treatment,
transporting, disposal, discharge, release or
other handling or disposition of any Hazardous
Substances from, in, on or about the Leased
Property (collectively, "Handling"), including the
effects of such Handling of any Hazardous
Substances on any Person or property within or
outside the boundaries of the Leased Property,
(ii) the presence of any Hazardous Substances in,
on, under or about the Leased Property and (iii)
the violation of any Environmental Law.
"Environmental Costs" include interest, costs of
response, removal, remedial action, containment,
cleanup, investigation, design, engineering and
construction, damages (including actual,
consequential and punitive damages) for personal
injuries and for injury to, destruction of or loss
of property or natural resources, relocation or
replacement costs, penalties, fines, charges or
expenses, attorney's fees, expert fees,
consultation fees, and court costs, and all
amounts paid in investigating, defending or
settling any of the foregoing.

     Without limiting the scope or generality of
the foregoing, Lessee expressly agrees to
reimburse Lessor for any and all costs and
expenses incurred by Lessor in connection with,
arising out of, resulting from or incident to,
directly or indirectly, before or during (but not
after) the Term or such portion thereof during
which the Leased Property is leased to Lessee of
the following:

     
     
                        56

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

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

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

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

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

                 ARTICLE XXXVIII.

     38. MEMORANDUM OF LEASE. Lessor and Lessee
shall, promptly upon the request of either, enter
into a short form memorandum of this Lease, in
form suitable for recording under the laws of the
State. Lessee shall- pay all costs and expenses of
recording any such memorandum and shall fully
cooperate with Lessor in removing from record any
such memorandum upon the expiration or earlier
termination of the Term.

                  ARTICLE XXXIX.




                        57


     39. SALE OF ASSETS. Notwithstanding any other
provision of this Lease, Lessor shall not be
required to (i) sell or transfer the Leased
Property, or any portion thereof, which is a real
estate asset as defined in Section 856(c)(6)(B),
or functionally equivalent successor provision, of
the Code, to Lessee if Lessor's counsel advises
Lessor that such sale or transfer may not be a
sale of property described in Section
857(b)(6)(C), or functionally equivalent successor
provision, of the Code or (ii) sell or transfer
the Leased Property, or any portion thereof, to
Lessee if Lessor's counsel advises Lessor that
such sale or transfer could result in an
unacceptable amount of gross income for purposes
of the ninety five percent (95%) gross income test
contained in Section 856(c)(2), or functionally
equivalent successor provision, of the Code. If
Lessee has the obligation to purchase the property
pursuant to the terms herein, and if Lessor
determines not to sell such property pursuant to
the above sentence, then Lessee shall purchase
such property, upon and subject to all applicable
terms and conditions set forth in this Lease,
including the provisions of Article XXXV, at such
time, but in no event later than two years after
the date on which Lessee would have been obligated
to purchase the Leased Property, as the
transaction, upon the advice of Lessor's counsel,
would be a sale of property (to the extent the
Leased Property is a real estate asset) described
in Section 857(b)(6)(C), or functionally
equivalent successor provision, of the Code, and
would not result in an unacceptable amount of
gross income for purposes of the ninety five
percent (95%) gross income test contained in
Section 856(c)(2), or functionally equivalent
successor provision of the Code and until such
time Lessee shall lease the Leased Property from
Lessor at the Fair Market Rental determined in
accordance with Article XXXIV; provided, however,
that if Lessee's obligation to purchase arises
pursuant to Section 16.5, and if the events giving
rise to the Event of Default for which Lessor
exercised its right to put the Leased Property to
Lessee pursuant to Section 16.5 has been cured
prior to the time Lessor determines to sell the
Leased Property, then this Lease shall continue in
full force and effect as if such Event of Default
had not occurred. If Lessee has the right to
purchase the property pursuant to the terms
herein, and if Lessor determines not to sell such
property pursuant to the above sentence, Lessee's
right, if any, to purchase any or all of such
property shall, upon notice to Lessor that Lessee
intends to continue such right, continue and be
exercisable, upon and subject to all applicable
terms and conditions set forth in this Lease,
including the provisions of Article XXXV, at such
time, but in no event later than two years after
Lessee gives written notice to Lessor of Lessee's
intention to exercise its right to purchase the
Leased Property, as the transaction, upon the
advice of Lessor's counsel, would be a sale of
property (to the extent the Leased Property is a
real estate asset) described in Section
857(b)(6)(C), or functionally equivalent successor
provision, of the Code, and would not result in an
unacceptable amount of gross income for purposes
of the ninety five percent (95 % ) gross income
test contained in Section 856(c)(2), or
functionally equivalent successor provision of the
Code and until such time Lessee shall lease the
Leased Property from Lessor at the Fair Market
Rental determined in accordance with Article
XXXIV.

                    ARTICLE XL.

     40. SUBDIVISION. If the Land is in excess of
that which is required to operate the Leased
Property in accordance with its Primary Intended
Use at the maximum occupancy of the Facility,
Lessor may subdivide the Land and amend this Lease
and the legal description attached hereto as
Exhibit A such that the Land contains only so much
of the Land as is necessary to operate the Leased
Property in accordance with its Primary Intended
Use at the maximum occupancy of the Facility. If
Lessor subdivides the Land,

                        58


Lessee shall have the right to an appropriate
abatement of Rent payable and of the purchase
price payable in the event that Lessee exercises
its option to purchase the Leased Property
pursuant to Article XXXV and the right to
reasonably adjust any other obligations of either
party accordingly. After any such subdivision
Lessee shall have no rights to any land which is
no longer part of the Leased Property and Lessor
may sell, lease or develop any land which is no
longer part of the Leased Property, provided that
Lessor may not use such land for the operation of
a facility providing adult congregate care and
assisted living services, and provided further
that Lessor may not sell or lease
such land to a third party that Lessor knows
intends to use such land for the development of a
facility providing adult congregate care and
assisted living services. If Lessor elects to
subdivide the Land Lessee shall cooperate with
Lessor and take all actions reasonably requested
by Lessor to effect such subdivision.

                   ARTICLE XLI.

     41. AUTHORITY. If Lessee is a corporation,
trust, or partnership, Lessee, and each individual
executing this Lease on behalf of Lessee,
represent and warrant that each is duly authorized
to execute and deliver this Lease on behalf of
Lessee and shall within thirty (30) days after
execution of this Lease deliver to Lessor evidence
of such authority satisfactory to Lessor.
                   ARTICLE XLII.

     42. ATTORNEYS' FEES. If Lessor or Lessee
brings an action or other proceeding against the
other to enforce any of the terms, covenants or
conditions hereof or any instrument executed
pursuant to this Lease, or by reason of any breach
or default hereunder or thereunder, the party
prevailing in any such action or proceeding and
any appeal thereupon shall be paid all of its
costs and reasonable outside attorneys' fees
incurred therein. In addition to the foregoing and
other provisions of this Lease that specifically
require Lessee to reimburse, pay or indemnify
against Lessor's attorneys' fees, Lessee shall
pay, as Additional Charges, all of Lessor's
reasonable outside attorneys' fees incurred in
connection with the administration or enforcement
of this Lease, including attorneys' fees incurred
in connection with Lessee's exercise of its option
to purchase the Leased Property or the renewal of
this Lease for any Extended Term, the review of
any letters of credit, the review, negotiation or
documentation of any subletting, assignment, or
management arrangement or any consent requested in
connection therewith, and the collection of past
due Rent.

                  ARTICLE XLIII.

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


                        59


                   ARTICLE XLIV.

     44. MISCELLANEOUS

     44.1 SURVIVAL. Anything contained in this
Lease to the contrary notwithstanding, all claims
against, and liabilities and indemnities of,
Lessee or Lessor arising prior to the expiration
or earlier termination of the Term shall survive
such expiration or termination.

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

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

     44.4 LICENSES. Upon the expiration or earlier
termination of the Term, Lessee shall use its best
efforts to transfer to Lessor or Lessor's nominee
and shall cooperate with Lessor or Lessor's
designee or nominee in connection with the
processing by Lessor or Lessor's designee or
nominee of any applications for all licenses,
operating permits and other governmental
authorization, all contracts, including contracts
with governmental or quasi-governmental entities,
business records, data, patient and resident
records, and patient and resident trust accounts,
which may be necessary or useful for the operation
of the Facility; provided that the costs and
expenses of any such transfer or the processing of
any such application shall be paid by Lessor or
Lessor's designee or nominee. Lessee shall not
commit any act or be remiss in the undertaking of
any act that would jeopardize the licensure or
certification of the Facility, and Lessee shall
comply with all requests for an orderly transfer
of the same upon the expiration or early
termination of the Term. In addition, upon
request, Lessee shall promptly deliver copies of
all books and records relating to the Leased
Property and its operation to Lessor or Lessor's
designee or nominee but Lessee shall not be
required to deliver corporate financial records or
proprietary materials. Lessee shall indemnify,
defend, protect and hold harmless Lessor from and
against any loss, damage, cost or expense incurred
by Lessor or Lessor's designee or nominee in
connection with the correction of any and all
deficiencies of a physical nature identified by
any governmental authority responsible for
licensing the Leased Property in the course of any
change of ownership inspection and audit and
previously identified during the Term by such
governmental authority.

     44.5 SUCCESSORS AND ASSIGNS. This Lease shall
be binding upon Lessor and its successors and
assigns and, subject to the provisions of Article
XXIV, upon Lessee and its successors and assigns.



                        60


     44.6 GOVERNING LAW. THIS LEASE (AND ANY
AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF)
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
(WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW)
AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. Lessee and Lessor each hereby (i)
irrevocably submit to the jurisdiction of the
State and federal courts of the State and consent
to service of process in any legal proceedings
arising out of, or in connection with, this Lease
(or any agreement formed pursuant to the terms
hereof, by any means authorized by applicable law;
(ii) irrevocably waive, to the fullest extent
permitted by law, any objection to which such
party may now or hereinafter
have to the lying or to the laying of venue of any
litigation arising out of, in connection with,
this Lease (or any agreement formed pursuant to
the terms hereof, brought in the State courts of
Xxxx County, Texas, or in the United States
District Court for the district in which such
County is located; and (iii) irrevocably waive any
claim in any litigation brought in any such court
that the same has been brought in an inconvenient
forum.

     44.7 WAIVER OF TRIAL BY JURY. EACH OF LESSOR
AND LESSEE ACKNOWLEDGES THAT IT HAS HAD THE ADVICE
OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS
RIGHTS TO TRIAL BY JURY UNDER THE CONSTITUTION OF
THE UNITED STATES AND THE STATE. TO THE MAXIMUM
EXTENT PERMITTED BY APPLICABLE LAW, EACH OF LESSOR
AND LESSEE HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (i) ARISING UNDER THIS LEASE (OR
ANY AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF)
OR (ii) IN ANY MANNER CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF LESSOR AND LESSEE
WITH RESPECT TO THIS LEASE (OR ANY AGREEMENT
FORMED PURSUANT TO THE TERMS HEREOF) OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH
CASE WHETHER NOW EXISTING OR HEREINAFTER ARISING,
AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE; EACH OF LESSOR AND LESSEE HEREBY AGREES
AND CONSENTS THAT, TO THE MAXIMUM EXTENT PERMITTED
BY APPLICABLE LAW, (A) ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A
COURT TRIAL WITHOUT A JURY, AND (B) EITHER PARTY
MAY FILE A COPY OF THIS SECTION WITH ANY COURT AS
CONCLUSIVE EVIDENCE OF THE CONSENT OF EACH SUCH
PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

     44. 8 RESERVED.

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


                        61


     44.10 HEADINGS. All titles and headings to
sections, subsections paragraph 5 plus or other
divisions of this Lease are only for the
convenience of the parties and shall not be
construed to have any effect or meaning with
respect to the other contents of such sections,
subsections, paragraphs or other divisions, such
other content being controlling
as to the agreement among the parties hereto.

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

     44.12     JOINT AND SEVERAL. If more than one
Person is the Lessee under this Lease, the
liability of such Persons under this Lease shall
be joint and several.

     44.13 INTERPRETATION. Both Lessor and Lessee
have been represented by counsel and this Lease
and every provision hereof has been freely and
fairly negotiated. Consequently, all provisions of
this Lease shall be interpreted according to their
fair meaning and shall not be strictly construed
against any party.

     44.14 TIME OF ESSENCE. Time is of the essence
of this Lease and each provision hereof in which
time of performance is established.

     44.15 FURTHER ASSURANCES. The parties agree
to promptly sign all documents reasonably
requested to give effect to the provisions of this
Lease.

     IN WITNESS WHEREOF, the parties have caused
this Lease to be executed under seal by their duly
authorized officers as of the date first set forth
above.


     [CORPORATE SEAL]         LESSOR:

                         TEXAS HCP HOLDING, L.P.,
a
ATTEST:                  Delaware limited
partnership

                         By:  TEXAS HCP G.P.,
INC., a
                                 Delaware
corporation
                                 Its: General
Partner
/s/ Xxxxx X. Xxxxx
-----------------------------------------------
------------------------------------Secretary
                                 By:  /s/ Xxxxxxx
X. Xxxxxxxxxx

------------------------------------------
                                 Name:  Xxxxxxx X.
Xxxxxxxxxx
                                 Title:
President








                        62


STATE OF WASHINGTON

COUNTY OF KING

     This 31st day of March, 1997, personally came
before me, Xxxxxxx X. Xxxxxxxxxx who, being  by me
duly sworn, says that he is President of ESC X.X.
XX, INC., a Washington corporation, that the seal
affixed to the foregoing instrument in writing is
the corporate seal of said Corporation, and that
said writing was signed and sealed by him, in
behalf of said Corporation, by its authority duly
given.  And the said President acknowledged the
said writing to be the act and deed of said
Corporation.


/s/ Xxxxxxxxx X. Xxxxxxx

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

NOTARY PUBLIC

[NOTARY SEAL]

My Commission expires:
          3-30-99
------------------------------































                        63