CAPITAL SENIOR LIVING CORP, S-1, 1997-08-12

CAPITAL SENIOR LIVING CORP
S-1, 1997-08-12

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<PAGE> 1

As filed with the Securities and Exchange Commission on August 12, 1997

REGISTRATION NO. 333-__________
- --------------------------------------------------------------------------------

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

CAPITAL SENIOR LIVING CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 8361 75-2678809
(State or other jurisdiction of (Primary industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)

DAVID R. BRICKMAN, ESQ.
CAPITAL SENIOR LIVING CORPORATION
14160 DALLAS PARKWAY, SUITE 300 14160 DALLAS PARKWAY, SUITE 300
DALLAS, TEXAS 75240 DALLAS, TEXAS 75240
(972) 770-5600 (972) 770-5600
(Address, including zip code, and telephone number, (Name, address, including zip code,
including area code, of registrant's principal and telephone number, including
executive offices and principal place of business) area code, of agent for service)
</TABLE>

---------------
Copies to:

<TABLE>
<S> <C>
L. STEVEN LESHIN, ESQ. Robert E. King, Jr., Esq.
JENKENS & GILCHRIST, A PROFESSIONAL CORPORATION Rogers & Wells
1445 ROSS AVENUE, SUITE 3200 200 Park Avenue
DALLAS, TEXAS 75202 New York, New York 10166
(214) 855-4500 (212) 878-8000

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
---------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

---------------
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
===============================================================================================================================
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK, $.01 PAR VALUE 10,350,000 SHARES $13.00 $134,550,000 $40,772.73
===============================================================================================================================
</TABLE>
(1) Includes 1,350,000 shares that may be purchased by the Underwriters to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.

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

<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

PROSPECTUS SUBJECT TO COMPLETION, DATED AUGUST 12, 1997
9,000,000 SHARES

CAPITAL SENIOR LIVING CORPORATION
[LOGO]
COMMON STOCK

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

Capital Senior Living Corporation (the "Company") is the second largest
provider of senior living services in the United States. The Company currently
owns interests in and/or operates 33 communities in 17 states with a capacity
of approximately 5,000 residents, including 17 communities in which it owns
interests, 15 communities that it manages for third parties pursuant to
multi-year management contracts and one community that it leases from a third
party.

All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being offered by the Company. See
"Use of Proceeds." Prior to the Offering, there has been no public market for
the Common Stock. It is currently estimated that the initial public offering
price will be between $11.00 and $13.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price. At the request of the Company, up to 450,000 shares of
Common Stock have been reserved for sale in the Offering to certain
individuals, including directors and employees of the Company, members of their
families, and other persons having business relationships with the Company.
See "Underwriting." Application will be made to have the Common Stock approved
for listing on the New York Stock Exchange under the symbol " ."

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

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=========================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share . . . . . . . . . . . . $ $ $
- ---------------------------------------------------------------------------------------------------------
Total (3) . . . . . . . . . . . . $ $ $
=========================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering, estimated at $
payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to
purchase up to 1,350,000 additional shares of Common Stock on
the same terms and conditions as set forth above, solely to cover
over-allotments, if any. If such option is exercised in full,
the Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will total $ , $
, and $ , respectively. See "Underwriting."

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

The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
Underwriters and to certain further conditions. It is expected that delivery
of the shares will be made at the offices of Lehman Brothers Inc., in New York,
New York on or about , 1997.

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

LEHMAN BROTHERS J.C. BRADFORD & CO. SMITH BARNEY INC.

, 1997
<PAGE> 3
Inside cover page to include:

- Company logo
- map of U.S. showing locations of the Company's owned, managed and
leased communities
- exterior photos of the Veranda Club and Independence Village
- interior photos of Veranda Club and Independence Village
- photos of residents engaging in activities
- photos of construction projects

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK TO COVER A
SYNDICATE SHORT POSITION IN THE COMMON STOCK FOR THE PURPOSE OF MAINTAINING THE
PRICE OF THE COMMON STOCK AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE> 4
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless indicated otherwise or the context
suggests otherwise, references in this Prospectus to the "Company" mean Capital
Senior Living Corporation and its subsidiaries and predecessor entities and the
Acquired Assets (as defined herein). Unless otherwise indicated, the
information in this Prospectus assumes: (i) the completion of the
reorganization of the Company and related transactions (the "Formation," as
more specifically described under "The Company--Formation Transactions")
simultaneously with the completion of the Offering; (ii) no exercise of the
Underwriters' over-allotment option; and (iii) an initial public offering price
of $12.00 per share (which represents the mid-point of the range set forth on
the cover page of this Prospectus and which affects the number of shares and
the amount of proceeds to be received by the parties in the Formation
Transactions and the calculation of the net proceeds from the Offering). See
"The Company--Formation Transactions" and "Underwriting."

THE COMPANY

The Company is the second largest provider of senior living services in
the United States in terms of 1996 resident capacity, according to the Assisted
Living Federation of America's Annual Largest Provider Survey. The Company
currently owns interests in and/or operates 33 communities in 17 states with a
capacity of approximately 5,000 residents, including 17 communities in which it
owns interests, 15 communities that it manages for third parties pursuant to
multi-year management contracts and one community that it leases from a third
party. The Company is currently developing 17 new communities which will have
a capacity of approximately 3,130 residents and is expanding 12 existing
communities to accommodate 994 additional residents. The Company also operates
one home health care agency. Approximately 93% of the Company's revenues and
reimbursable expenses are derived from private pay sources. At June 30, 1997,
communities which the Company operates and in which it owns interests had an
occupancy rate of approximately 95%, its managed communities had an occupancy
rate of approximately 95%, and its leased community had an occupancy rate of
approximately 95%. The Company and its predecessors have provided senior
living services since 1990.

The senior living services industry encompasses a broad and diverse range
of living accommodations and health care services that are provided primarily
to persons 65 years of age or older. For the elderly who require limited
services, care in independent living ("IL") residences, supplemented at times
by home health care, offers a viable option. Most independent living
residences and retirement centers typically offer community living together
with a basic services package consisting of meals, housekeeping, laundry,
security, transportation, social and recreational activities and health care
monitoring. As a senior's need for assistance increases, care in an assisted
living ("AL") residence is often preferable and more cost-effective than
home-based care or nursing home care. Typically, assisted living represents a
combination of housing and 24-hour a day personal support services designed to
aid elderly residents with activities of daily life ("ADLs"), such as
ambulation, bathing, dressing, eating, grooming, personal hygiene and
monitoring or assistance with medications. Certain assisted living residences
may also provide assistance to residents with low acuity medical needs, or may
offer higher levels of personal assistance for incontinent residents or
residents with Alzheimer's disease or other cognitive or physical frailties.
Generally, assisted living residents require higher levels of care than
residents of independent living residences and retirement living centers, but
require lower levels of care than patients in skilled nursing ("SN")
facilities. For seniors who need the constant attention of a skilled nurse or
medical practitioner, a skilled nursing facility may be required.

The Company believes that the senior living services industry will
require large capital infusions over the next 30 years to meet the growing
demand for senior living facilities. The National Investment Conference has
estimated that gross capital expenditures for the senior living marketplace
will grow from $86 billion in 1996 to $126 billion in 2005 and to $490 billion
in 2030, in order to accommodate increasing demand for senior living services.

The Company's operating philosophy emphasizes a "continuum of care" which
integrates independent living, assisted living, skilled nursing and home health
care and provides senior citizens with the opportunity to "age in place." The
Company is a fully integrated senior living services organization, with
internal capabilities to operate, expand, develop, and acquire "purpose-built"
senior living communities (i.e., communities designed for the efficient
delivery of senior living services). The Company believes that its size,
national scope and comprehensive information systems provide it with economies
of scale in its operations and a platform for future growth. The Company
anticipates that these factors will position it to capitalize on emerging
trends in the senior living services industry and provide it with a competitive
advantage.

The Company has built a senior management team that it believes is one of
the most experienced in the acquisition, development, and operation of senior
living communities. The Company was founded by its co-chairmen Jeffrey L. Beck
and James A. Stroud, who together have 35 years of experience in the
residential and senior living services industries. The Company's eight
executive officers have an average of 17 years of industry experience. In
addition, the Company's 14 executive, regional and district officers have an
average of 14 years of industry experience, and its 26 on-site executive
directors have an average of 12 years of industry experience. The Company's
senior management will own approximately 51% of the outstanding shares of
Common Stock after giving effect to the Offering.

3
<PAGE> 5
The Company has distinguished itself from many of its competitors because
it has been profitable in each quarter since 1992. The Company's management
team has created substantial value through the intensive management of its
communities. From 1992 through 1996, the Company achieved a compounded annual
growth rate in net operating income before depreciation and amortization of
15.4% for the nine senior living communities in which the Company owned
interests and operated during that period. During the same period, revenues
for such communities increased by a compounded annual growth rate of 5.4%,
while expenses for such communities increased by a compounded annual growth
rate of 2.9%.

GROWTH STRATEGIES

The Company believes its current operations throughout the United States
provide an established foundation for continued growth and that it has
implemented the systems and attracted the personnel necessary to support its
future growth plans. The Company plans to continue its growth principally
through the following strategies:

o Expand Existing Communities. The Company plans to expand certain of
its existing communities to include additional independent living and
assisted living residences (including special programs and living
units for residents with Alzheimer's and other cognitive and physical
frailties), and skilled nursing beds. The Company believes that the
incremental returns on expansion projects are attractive because they
enable the Company to spread the fixed costs associated with a single
location over more units and to capitalize on a community's existing
market presence. Moreover, expansions provide the Company with more
flexible capacity to accommodate residents as they "age in place."

The Company currently has 12 expansion projects which it expects to
complete in 1998 and 1999, representing an aggregate increase in
capacity of 994 residents. The Company or its strategic partners
have purchased the land associated with six of the planned expansion
projects, with an additional six parcels under contract to be
acquired.

o Develop New Communities. The Company's senior management has
developed in excess of $350 million of senior living communities. In
selected markets, the Company is developing new senior living
communities that are designed to provide a quality lifestyle that is
attractive to a large segment of the senior population. Markets are
chosen based on a variety of factors, including demographic and
economic factors, the supply of existing or potential senior living
communities, as well as potential economies of scale that the Company
may achieve through the clustering of communities in a given region.
The Company plans to develop new communities, including its
proprietary "Product 2000" communities, which will be designed to
provide middle-income seniors with amenities comparable to
communities with higher resident fee structures. The Company plans
to develop these communities for its own account, as well as in
alliances with for-profit and not-for-profit organizations.

The Company has commenced development of 17 senior living communities
which are expected to be completed by 1999. Of these 17 new
communities, 11 will be Product 2000 communities (with an expected
capacity of approximately 1,496 residents). The Product 2000
communities will be developed pursuant to an arrangement with an
affiliate under which the affiliate will fund the construction and
lease-up costs and will pay the Company a fee for development and
management services. The Company will have options to purchase or
lease the Product 2000 communities upon their completion. See
"Certain Transactions -- Tri-Point Development Agreement." In
addition, six senior living communities are expected to be developed
in strategic alliances with third parties (with an expected capacity
of approximately 1,694 residents). The Company or its strategic
partners have purchased the land associated with four of the planned
development projects, with an additional two parcels under contract
to be acquired.

The Company has executed a joint venture agreement pursuant to which
it will form an entity to develop and operate senior living
communities in major cities in the Peoples Republic of China. The
Company currently expects that, following its initial development of
senior living communities in China, the joint venture will sell
individual units in the communities to prospective residents, and the
Company will retain the operating responsibilities and management fees
associated with such communities.

o Pursue Strategic Acquisitions. The Company believes that the
fragmented nature of the senior living services industry, combined
with the Company's financial resources, national presence and
extensive industry relationships, should provide it with ample
acquisition opportunities. The Company intends to continue to: (i)
increase its ownership interests in certain communities in which it
already possesses an interest; (ii) pursue single or portfolio
acquisitions of senior living communities; and (iii) pursue strategic
acquisitions of other senior living companies as the industry
consolidates.

o Expand Home Health Care Services. The Company plans to establish or
acquire additional home health care agencies to permit it to expand
the range of services that it offers at its senior living
communities. In addition, home health care services are planned to
be offered in many of the Company's newly-developed communities and
expanded communities. The Company currently intends to establish
approximately five new home health care agencies at its owned
communities by the fourth quarter of 1998.

4
<PAGE> 6
The Company believes that it will have significant capacity to fund
additional growth by virtue of its capital structure. Upon completion of the
Offering, the Company's ratio of debt-to-total market capitalization (i.e.,
total indebtedness divided by the sum of total indebtedness plus the market
value of outstanding Common Stock) will be approximately 3%, and at June 30,
1997, on a pro forma basis after giving effect to the Offering, the Company
would have had cash and cash equivalents of approximately $23.7 million.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company . . . . . . . . . . 9,000,000
shares

Common Stock to be outstanding after the Offering . . . 18,367,347
shares(1)

Use of proceeds . . . . . . . . . . . . . . . . . . . . To complete the
Formation Transactions;
to fund development
activities; to fund the
potential acquisition of
additional interests in
the Company's existing
senior living
communities; and for
general corporate
purposes, including
working capital.
See "Use of Proceeds."

Proposed New York Stock Exchange symbol . . . . . . . .
</TABLE>

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

(1) Does not include shares of Common Stock
reserved for issuance pursuant to outstanding stock options under the
Company's 1997 Omnibus Stock and Incentive Plan (the "1997 Stock
Incentive Plan "), which options are exercisable at the initial public
offering price. See "Management--Compensation Pursuant to Plans--1997
Stock Incentive Plan" and "Description of Capital Stock."

5
<PAGE> 7
SUMMARY FINANCIAL DATA

The following sets forth summary combined financial and operating information
for the Company: (i) on a historical basis for each of the periods and dates
indicated; and (ii) on a pro forma basis for each of the periods and dates
indicated. The following information should be read in conjunction with the
financial statements and notes thereto of the Company included elsewhere in
this Prospectus. The historical financial information for the Company as of
and for the fiscal years ended December 31, 1996, 1995 and 1994 has been
derived from the Company's historical financial statements audited by Ernst &
Young LLP, independent auditors, whose report with respect thereto is included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
Six Months ended June 30, Year ended December 31,
------------------------------------- ---------------------------------------------
1997 Pro Forma(1) 1997 1996 1996 Pro Forma(1) 1996 1995 1994
-------------- ------- ------ -------------- ------- ------- -------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
Resident and health care
revenue $10,428 $10,428 $6,955 $16,662 $13,692 $13,238 $12,761
Rental and lease income 2,158 2,158 648 5,691 1,101 1,231 1,235
Unaffiliated management
services revenue 949 949 53 801 801 - -
Affiliated management
services revenue 701 701 1,419 1,753 2,708 2,778 3,113
Development fees 370 370 - 674 673 - -
Other 461 461 438 924 924 871 800
------- ------- ------ ------- ------- ------- -------
Total revenues 15,067 15,067 9,513 26,505 19,899 18,118 17,909
------- ------- ------ ------- ------- ------- -------
Expenses:
Operating expenses 8,080 8,080 5,394 13,526 10,798 10,287 10,142
General and administrative
expenses(2) 2,000 3,933 2,465 4,967 5,493 4,364 4,595
Depreciation and
amortization 1,144 950 779 3,050 1,481 1,776 1,707
------- ------- ------ ------- ------- ------- -------
Total expenses 11,224 12,963 8,638 21,543 17,772 16,427 16,444
------- ------- ------ ------- ------- ------- -------
Income from operations 3,843 2,104 875 4,962 2,127 1,691 1,465
Other income (expense):
Interest income 722 794 206 362 432 368 122
Interest expense (344) (419) (75) (966) (221) (278) (261)
Gain on sale of
properties(3) - - - 825 438 - -
Equity in earnings on
investments - - 398 - 459 - -
Other - - 26 (72) 42 - (16)
------- ------- ------ ------- ------- ------- -------
Income before income taxes and
minority interest in
combined partnerships 4,221 2,479 1,430 5,111 3,277 1,781 1,310
Provision for income taxes(4) - - - - - (18) (130)
------- ------- ------ ------- ------- ------- -------
Income before minority interest
in combined partnerships 4,221 2,479 1,430 5,111 3,277 1,763 1,180
Minority interest in combined
partnerships (395) (1,266) (650) (527) (1,224) (760) (634)
------- ------- ------ ------- ------- ------- -------
Net income $3,826 $1,213 $780 $4,584 $2,053 $1,003 $546
======= ======= ====== ======= ======= ======= =======
Pro Forma Net Income
(unaudited):(5)
Net income $3,826 $1,213 $4,584 $2,053
Pro forma income taxes (1,511) (479) (1,811) (811)
------- ------- ------- -------
Pro forma net income $2,315 $734 $2,773 $1,242
======= ======= ======= =======
Pro forma net income per share
data:
Pro forma net income per
share $0.13 $0.15
======= =======

Shares used in computing pro
forma net income per
share(1) 18,367 18,367
======= =======
</TABLE>

<TABLE>
<CAPTION>
At June 30, 1997 At December 31,
------------------------- ----------------------------------
Pro Forma(1) Historical 1996 1995 1994
--------- ----------- ----------- ------------ --------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 23,677 $13,199 $10,819 $10,017 $8,799
Working capital 22,839 5,138 9,567 6,784 5,938
Total assets 86,485 56,634 33,203 29,747 29,913
Long-term debt, including
current portion 6,946 13,613 666 2,687 2,192
Equity 66,777 18,789 17,201 14,447 12,495
</TABLE>

6
<PAGE> 8

- --------------------------
(1) Gives effect to the consummation of the Offering and the completion of
the Formation Transactions (as more specifically described under
"Prospectus Summary--The Offering," "The Company -- Formation
Transactions," and "Use of Proceeds") as if they had occurred on
January 1, 1996 for the statement of income data and on June 30, 1997 for
the balance sheet data.
(2) General and administrative expenses include officers' salaries of
$2,600,000 and $1,658,000 for the six months ended June 30, 1997 and
1996, respectively, and $3,372,000, $2,976,000 and $3,443,000 for the
years ended December 31, 1996, 1995 and 1994, respectively. These
amounts are primarily comprised of salaries and bonuses paid to the
founders and were based in part on Federal income tax regulations
regarding distributions of closely held corporations and S corporations.
After the Offering, these Federal income tax regulations will no longer
apply to the Company and the pro forma amounts include approximately
$378,000 and $189,000 for founders' salaries and bonuses for the year
ended December 31, 1996 and the six months ended June 30, 1997,
respectively, which are based on the founders' employment agreements.
See "Management -- Employment Agreements."
(3) The historical statement of income for the year ended December 31, 1996
includes a gain of $438,000 on the sale of two multi-family rental
properties on November 1, 1996. The pro forma statement of income for the
year ended December 31, 1996 also includes the sale of one community on
May 1, 1996 which resulted in: (i) a gain of $387,000 representing the
difference between the carrying value of the community and the sales
proceeds; and (ii) an extraordinary gain of $953,000 (which is not
reflected in the pro forma statement).
(4) A provision for income taxes was recorded by the Company from inception
through February 1, 1995. No provision for income taxes has been
recorded after February 1, 1995 as the operating companies included in
the historical combined financial statements are S corporations or
partnerships and accordingly are not subject to income taxes.
(5) The provision for income taxes to arrive at pro forma net income assumes
a combined Federal and state effective income tax rate of 39.5%.
(6) Includes communities in which the Company owns interests and which it
operates, and communities in which the Company owns interests and which
are operated by third parties under leases which were in place when the
Company acquired its interests. See "Business -- Operating Communities."
(7) The Company has managed this community from September 1, 1996 through
May 31, 1997 and acquired a leashold interest in it effective June 1,
1997.
(8) Occupancy rates are based on the ratio of occupied units to total
available units for independent and assisted living residences, and
occupied beds to available beds on a per diem basis for skilled nursing
beds as of the end of each period.
(9) Does not include communities owned by the Company and leased to third
parties pursuant to leases under which the Company receives rent
regardless of whether the units are occupied. See "Business -- Operating
Communities."
(10) Does not include occupancy information on Buckner Westminster Place
and Buckner Haven. See "Business -- Operating Communities."

7
<PAGE> 9
RISK FACTORS

An investment in the Common Stock involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained in this Prospectus before making a
decision to purchase Common Stock in the Offering.

NO ASSURANCE AS TO ABILITY TO MANAGE GROWTH

The Company intends to expand its operations through the development,
expansion and acquisition of senior living communities, as well as through the
expansion of the Company's home health care services. The success of the
Company's growth strategy will depend, in large part, on its ability to
effectively operate such communities or home health care agencies, as to which
there can be no assurance. The Company's growth plans will also place
significant demands on the Company's management and operating personnel. The
Company's ability to manage its future growth effectively will require it to
continue to attract, retain, train, motivate, and manage key employees. If the
Company is unable to manage its growth effectively, its business, results of
operations, and financial condition may be adversely affected. See
"Business--Growth Strategies" and "Management--Executive Officers, Directors
and Key Employees."

NO ASSURANCE AS TO ABILITY TO DEVELOP AND EXPAND ADDITIONAL SENIOR LIVING
COMMUNITIES

An integral component of the Company's growth strategy is to develop,
expand and acquire senior living communities. As part of its growth strategy,
the Company is currently developing 17 new senior living communities, with an
estimated aggregate capacity for 3,130 residents, and is expanding 12 existing
senior living communities to add capacity to accommodate an additional 994
residents. The Company's ability to successfully develop and expand senior
living communities will depend on a number of factors, including, but not
limited to, the Company's ability to acquire suitable development sites at
reasonable prices; the Company's success in obtaining necessary zoning,
licensing, and other required governmental permits and authorizations; and the
Company's ability to control construction costs and accurately project
completion schedules. In addition, the Company's development and expansion
plans are subject to numerous factors over which it has little or no control,
including competition for developable properties; shortages of labor or
materials; changes in applicable laws or regulations or their enforcement; the
failure of general contractors or subcontractors to perform under their
contracts; strikes; and adverse weather conditions. As a result of these
factors, there can be no assurance that the Company will not experience
construction delays, that it will be successful in developing and constructing
currently planned or additional senior living communities, or that any
developed senior living communities will be economically successful. If the
Company's development and expansion schedule is delayed, the Company's growth
plans could be adversely affected. Additionally, the Company anticipates that
the development and expansion of senior living communities may involve a
substantial commitment of capital for a significant period of time until the
communities are operating and producing revenue, the consequence of which could
be an adverse impact on the Company's liquidity. In addition, there can be no
assurance that once operating, such communities will be profitable. See
"Business--Growth Strategies."

RISKS IN ACQUISITIONS OF COMMUNITIES AND COMPLEMENTARY BUSINESSES; DIFFICULTIES
OF INTEGRATION

The Company may make strategic acquisitions of senior living
communities (which may include a variety of independent living, assisted
living, and skilled nursing communities), home health care agencies, and other
properties or businesses that are complementary to the Company's operations and
growth strategy. The acquisition of existing communities or other businesses
involves a number of risks. Existing communities available for acquisition
frequently serve or target different markets than those presently served by the
Company. The Company may also determine that renovations of acquired
communities and changes in staff and operating management personnel are
necessary to successfully integrate such communities or businesses into the
Company's existing operations. The costs incurred to reposition or renovate
newly acquired communities may not be recovered by the Company. In undertaking
acquisitions, the Company also may be adversely impacted by unforeseen
liabilities attributable to the prior operators of such communities or
businesses, against whom the Company may have little or no recourse. The
success of the Company's acquisition strategy will be determined by numerous
factors, including the Company's ability to identify suitable acquisition
candidates; the competition for such acquisitions; the purchase price; the
requirement to make operational or structural changes and improvements; the
financial performance of the communities or businesses after acquisition; the
Company's ability to finance the acquisitions; and the Company's ability to
integrate effectively any acquired communities or businesses into the Company's
management, information, and operating systems. There can be no assurance that
the Company's acquisition of senior living communities and complementary
properties and businesses will be completed at the rate currently expected, if
at all, or, if completed, that any acquired communities or businesses will be
successfully integrated into the Company's operations.

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OFFERING TO BENEFIT EXISTING STOCKHOLDERS; CONFLICTS OF INTEREST

Simultaneously with the completion of the Offering, the Company will
complete the Formation Transactions, which will benefit the existing
stockholders of the Company. The Company will use a substantial portion of the
net proceeds of the Offering to complete the Formation Transactions and repay
the Formation Note (as defined herein). At the mid-point, low end and high
end of the price range set forth on the cover page of this Prospectus, the
principal amount of the Formation Note would be $14.7 million, $10.5 million,
and $18.8 million, respectively. The Formation Transactions were not the
result of arms' length negotiations. Although the price to be paid by the
Company for certain of the assets to be acquired in the Formation Transactions
from a related party was based on a third-party appraisal of the estimated
value of those assets, the consideration to be paid to the Company's existing
stockholders in exchange for the contribution of certain other assets to be
acquired in the Formation Transactions was not based upon a third-party
appraisal of those assets. There can be no assurance that the value of any of
the assets acquired or contributed in the Formation Transactions are equivalent
to the consideration to be paid by the Company. See "The Company--Formation
Transactions," "Use of Proceeds," and "Certain Transactions."

The Company expects to continue to be a party to certain transactions
with affiliates, as described in "Certain Transactions." The Company has
implemented a policy requiring any material transaction (or series of related
transactions) between the Company and related parties to be approved by a
majority of the directors who have no beneficial or economic interest in such
related party upon such directors' determination that the terms of the
transaction are no less favorable to the Company than those that could have
been obtained from third parties. See "Management--Executive Officers,
Directors and Key Employees" and "Certain Transactions--Policy of the Board of
Directors."

RISKS ASSOCIATED WITH THIRD-PARTY MANAGEMENT BUSINESS

The Company currently manages 15 senior living communities for third
parties pursuant to multi-year management contracts. The management contracts
have terms of between four and 15 years. While the management contracts are
generally terminable by the community owner only for cause, in certain cases
the community owner may terminate the contract upon 30 days' notice to the
Company in the event of a sale of the community. In those contracts which are
terminable in the event of a sale of the community, the Company has certain
rights to offer to purchase the community. See "Business--Third-Party
Management Contracts."

CONTROL BY MANAGEMENT AND CERTAIN STOCKHOLDERS

Upon completion of the Offering, the Company's officers and directors
and entities controlled by them will, collectively, beneficially own
approximately 51% of the outstanding shares of Common Stock (approximately 48%
if the Underwriters' over-allotment option is exercised in full). Accordingly,
such persons will have the ability, by voting their shares in concert, to
control the election of the Company's Board of Directors and the outcome of all
other matters submitted to the Company's stockholders. Furthermore, such
influence could deter any unsolicited acquisition of the Company and,
consequently, adversely affect the market price of the Common Stock. See
"Principal Stockholders."

INCREASING COMPETITION

The senior living services industry is highly competitive, and the
Company expects that all segments of the industry will become increasingly
competitive in the future. The Company competes with other companies providing
independent living, assisted living, skilled nursing, home health care, and
other similar services and care alternatives. Although the Company believes
there is a need for senior living communities in the markets where the Company
is operating and developing residences, the Company expects that competition
will increase from existing competitors and new market entrants, some of whom
may have substantially greater financial resources than the Company. In
addition, some of the Company's competitors operate on a not-for-profit basis
or as charitable organizations and have the ability to finance capital
expenditures on a tax-exempt basis or through the receipt of charitable
contributions, neither of which are available to the Company, except indirectly
through its alliances with not-for-profit organizations. Furthermore, if the
development of new senior living communities (particularly given the current
rapid pace of development of new senior living communities) outpaces the demand
for such communities in the markets in which the Company has or is developing
senior living communities, such markets may become saturated. An oversupply of
such communities in the Company's markets could cause the Company to experience
decreased occupancy, reduced operating margins, and lower profitability. See
"Business--Competition."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent on the services of its executive officers
(particularly the Company's Co-Chairman and Chief Executive Officer, Jeffrey L.
Beck, and the Company's Co-Chairman and Chief Operating Officer, James A.
Stroud) for the management of the Company. The loss by the Company of certain
of its executive officers and the inability to attract

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and retain qualified management personnel could adversely affect the Company's
business, financial condition, and results of operations. In particular,
certain matters regarding Mr. Strond may impact his ability to continue to
serve as an employee of the Company. See "Management--Executive Officers,
Directors and Key Employees."

COMMUNITY MANAGEMENT, STAFFING, AND LABOR COSTS

The Company competes with other providers of senior living and health
care services with respect to attracting and retaining qualified management
personnel responsible for the day-to-day operations of each of the Company's
communities and skilled technical personnel responsible for providing resident
care. A shortage of nurses or trained personnel may require the Company to
enhance its wage and benefits package in order to compete in the hiring and
retention of such personnel or to hire more expensive temporary personnel. The
Company will also be dependent on the available labor pool of semi-skilled and
unskilled employees in each of the markets in which it operates. No assurance
can be given that the Company's labor costs will not increase, or that, if they
do increase, they can be matched by corresponding increases in rates charged to
residents. Any significant failure by the Company to attract and retain
qualified management and staff personnel, to control its labor costs, or to
pass on any increased labor costs to residents through rate increases could
have a material adverse effect on the Company's business, financial condition,
and results of operations.

DEPENDENCE ON PRIVATE PAY RESIDENTS

Approximately 95% of the Company's total revenues and reimbursable
expenses for the year ended December 31, 1996, and approximately 93% of the
Company's total revenues and reimbursable expenses for the six months ended
June 30, 1997, were attributable to private pay sources. For the same periods,
approximately 5% and 7% respectively, of the Company's revenues and
reimbursable expenses were attributable to reimbursements from Medicare and
Medicaid. The Company expects to continue to rely primarily on the ability of
residents to pay for the Company's services from their own or familial
financial resources. Inflation or other circumstances that adversely affect the
ability of the elderly to pay for the Company's services could have a material
adverse effect on the Company's business, financial condition, and results of
operations.

NEED FOR ADDITIONAL FINANCING; EXPOSURE TO RISING INTEREST RATES

The Company's ability to meet its growth objectives will depend, in
part, on its ability to obtain additional financing on acceptable terms from
available financing sources, including the use of off balance sheet financing.
There can be no assurance that such financing will be available or that, if
available, future debt instruments will not also include covenants restricting
the Company's ability to incur additional debt. Moreover, raising additional
funds through the issuance of equity securities could cause existing
stockholders to experience further dilution and could adversely affect the
market price of the Common Stock. There can be no assurance that the Company
will be successful in securing additional financing, that adequate financing
will be available and, if available, will be on terms that are acceptable to
the Company, or that off balance sheet financing will be available. The
Company's inability to obtain additional financing on acceptable terms could
delay or eliminate some or all of the Company's growth plans.

Future indebtedness, including amounts available under the LBHI Loan
(which bears interest at the 30-day LIBOR rate plus 0.50%), and lease
obligations may be based on floating interest rates prevailing from time to
time. Therefore, increases in prevailing interest rates could increase the
Company's interest or lease payment obligations and could have a material
adverse effect on the Company's business, financial condition, and results of
operations.

GOVERNMENT REGULATION AND THE BURDENS OF COMPLIANCE

Federal and state governments regulate various aspects of the
Company's business. The development and operation of health care facilities
and the provision of health care services are subject to federal, state, and
local licensure, certification, and inspection laws that regulate, among other
matters, the number of licensed beds, the provision of services, the
distribution of pharmaceuticals, billing practices and policies, equipment,
staffing (including professional licensing), operating policies and procedures,
fire prevention measures, environmental matters, and compliance with building
and safety codes. Failure to comply with these laws and regulations could
result in the denial of reimbursement, the imposition of fines, temporary
suspension of admission of new patients, suspension or decertification from
the Medicare program, restrictions on the ability to acquire new communities or
expand existing communities, and, in extreme cases, the revocation of a
community's license or closure of a community. There can be no assurance that
federal, state, or local governments will not impose additional restrictions on
the Company's activities that could materially adversely affect the Company.

Many states, including several of the states in which the Company
currently operates, control the supply of licensed skilled nursing beds and
home health care agencies through certificate of need ("CON") programs. In
those states, approval is required for the construction of new health care
communities, the addition of licensed beds, and certain capital expenditures at
such communities, as well as the opening of a home health care agency. To the
extent that a CON or other similar approval is required for the acquisition or
construction of new communities, the expansion of the number of licensed beds,
services, or existing communities, or the opening of a home health care agency,
the Company could be adversely affected by the failure

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or inability to obtain such approval, changes in the standards applicable for
such approval, and possible delays and expenses associated with obtaining such
approval. In addition, in most states, the reduction of the number of licensed
beds or the closure of a community requires the approval of the appropriate
state regulatory agency and, if the Company were to seek to reduce the number
of licensed beds at, or to close, a community, the Company could be adversely
affected by a failure to obtain or a delay in obtaining such approval.

Federal and state anti-remuneration laws, such as "anti-kickback"
laws, govern certain financial arrangements among health care providers and
others who may be in a position to refer or recommend patients to such
providers. These laws prohibit, among other things, certain direct and
indirect payments that are intended to induce the referral of patients to, the
arranging for services by, or the recommending of, a particular provider of
health care items or services. Federal anti-kickback laws have been broadly
interpreted to apply to certain contractual relationships between health care
providers and sources of patient referral. Similar state laws vary, are
sometimes vague, and seldom have been interpreted by courts or regulatory
agencies. Violation of these laws can result in loss of licensure, civil and
criminal penalties, and exclusion of health care providers or suppliers from
participation in Medicare and Medicaid programs. There can be no assurance
that such laws will be interpreted in a manner consistent with the practices of
the Company.

Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain federal requirements related
to access and use by disabled persons. A number of additional federal, state,
and local laws exist that also may require modifications to existing and
planned communities to create access to the properties by disabled persons.
Although the Company believes that its communities are substantially in
compliance with present requirements or are exempt therefrom, if required
changes involve a greater expenditure than anticipated or must be made on a
more accelerated basis than anticipated, additional costs would be incurred by
the Company. Further legislation may impose additional burdens or restrictions
with respect to access by disabled persons, the costs of compliance with which
could be substantial. See "Business - Government Regulation."

RISKS OF CHINESE OPERATIONS

In addition to normal investment risks, the Company's joint venture
activities in China are subject to certain risks that are unique to that
country. The value of the Company's interests in China may be affected
adversely by significant political, social, and legal uncertainties in China. A
change in the policies of the Chinese government, including, changes in laws or
regulations, or the interpretation thereof, taxation, restrictions on currency
conversion, the imposition of exchange controls or price controls, or the
expropriation of private or foreign business or property interests, could
adversely affect the Company's interests in China. In addition, the Chinese
currency is not freely convertible into United States dollars. Foreign
investment enterprises are permitted to maintain up to a maximum amount of
foreign exchange in their own foreign exchange account in China with respect to
their regular foreign exchange revenue items. Foreign investment enterprises
are required to sell any foreign exchange revenue beyond the prescribed maximum
amount either to authorized foreign exchange banks or though swap centers in
exchange for Chinese currency. There is no assurance that, even if converted to
United States dollars, the Company will be able to repatriate any earnings from
Chinese operations. Additionally, there is no assurance that the Chinese
currency will not be subject to devaluation or depreciation or that shortages
in the availability of foreign currency will not develop. The value of the
Company's investments and profitability of its operations in China may be
materially adversely affected by devaluation of the Chinese currency.

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POTENTIAL FOR ENVIRONMENTAL LIABILITY

Under various federal, state, and local environmental laws,
ordinances, and regulations, a current or previous owner or operator of real
estate may be required to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property, and may be held
liable to a governmental entity or to third parties for property damage and for
investigation and clean up costs incurred by such parties in connection with
the contamination. Such laws typically impose clean-up responsibility and
liability without regard to whether the owner knew of or caused the presence of
the contaminants, and liability under such laws has been interpreted to be
joint and several unless the harm is divisible and there is a reasonable basis
for allocation of responsibility. The costs of investigation, remediation, or
removal of such substances may be substantial, and the presence of such
substances, or the failure to properly remediate such property, may adversely
affect the owner's ability to sell or lease such property or to borrow using
such property as collateral. In addition, some environmental laws create a
lien on the contaminated site in favor of the government for damages and costs
it incurs in connection with the contamination. Persons who arrange for the
disposal or treatment of hazardous or toxic substances also may be liable for
the costs of removal or remediation of such substances at the disposal or
treatment facility, whether or not such facility is owned or operated by such
person. Finally, the owner of a site may be subject to common law claims by
third parties based on damages and costs resulting from environmental
contamination emanating from a site. The Company believes that there is no
asbestos in the properties owned or operated by it. The Company will have
completed Phase I environmental audits of the communities in which the Company
owns interests prior to consummation of the Offering. The Company is not
currently aware of any material environmental liabilities that exist with
respect to these communities.

LIABILITY AND INSURANCE

The provision of personal and health care services entails an inherent
risk of liability. In recent years, participants in the senior living services
industry have become subject to an increasing number of lawsuits alleging
negligence or related legal theories, many of which involve large claims and
result in the incurrence of significant defense costs. Moreover, senior living
communities offer residents a greater degree of independence in their daily
living. This increased level of independence may subject the resident and the
Company to certain risks that would be reduced in more institutionalized
settings. The Company currently maintains insurance in amounts it believes are
comparable to that maintained by other senior living companies based on the
nature of the risks, its historical experience, and industry standards. There
can be no assurance, however, that claims in excess of the Company's insurance
or claims not covered by the Company's insurance, such as claims for punitive
damages, will not arise. A claim against the Company not covered by, or in
excess of, the Company's insurance could have a material adverse effect upon
the Company. In addition, the Company's insurance policies must be renewed
annually. There can be no assurance that the Company will be able to obtain
liability insurance in the future or that, if such insurance is available, it
will be available on acceptable economic terms. See "Business--Insurance and
Legal Proceedings."

EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") and the Company's Bylaws (the "Bylaws"), as well as Delaware
corporate law, contain certain provisions that could have the effect of making
it more difficult for a third party to acquire, or discouraging a third party
from attempting to acquire, control of the Company. These provisions could
limit the price that certain investors might be willing to pay in the future
for shares of Common Stock. Certain of these provisions allow the Company to
issue, without stockholder approval, preferred stock having rights senior to
those of the Common Stock. Other provisions impose various procedural and
other requirements, including advance notice and super-majority voting
provisions, that could make it more difficult for stockholders to effect
certain corporate actions. In addition, the Company's Board of Directors is
divided into three classes, each of which serves for a staggered three-year
term, which may make it more difficult for a third party to gain control of the
Board of Directors. As a Delaware corporation, the Company is subject to
Section 203 of the Delaware General Corporation Law which, in general, prevents
an "interested stockholder" (defined generally as a person owning 15% or more
of a corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) for three years following the date such person became
an interested stockholder unless certain conditions are satisfied.

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SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market
following the Offering, or the perception that such sales could occur, could
adversely affect the prevailing market price of the Common Stock. Upon
completion of the Offering, the Company will have 18,367,347 shares of Common
Stock outstanding. Of these shares, the 9,000,000 shares sold in the Offering
will be freely tradeable without restriction or limitation under the Securities
Act of 1933, as amended (the "Securities Act"), except for shares purchased by
"affiliates" of the Company, as such term is defined in Rule 144 promulgated
under the Securities Act. The remaining 9,367,347 shares, including the shares
issued in the Formation Transactions, will be "restricted securities" within
the meaning of Rule 144 and may not be resold in the public markets unless
registered under the Securities Act or pursuant to an exemption, such as the
safe harbor provided by Rule 144. The Company and all directors and executive
officers of the Company (who in the aggregate will beneficially own 9,367,347
shares of Common Stock) and all of its stockholders will agree prior to the
Offering, subject to certain exceptions, not to offer, sell, or otherwise
dispose of any Common Stock for a period of 180 days after the date hereof,
without the written consent of Lehman Brothers Inc. ("Lehman Brothers"). See
"Principal Stockholders" and "Shares Eligible For Future Sale."

The Company intends to file a registration statement under the
Securities Act to register the issuance of an aggregate of 1,565,000 shares
under the Company's 1997 Stock Incentive Plan. See "Management -- Compensation
Pursuant to Plans -- 1997 Stock Incentive Plan" and "Shares Eligible For
Future Sale."

ABSENCE OF PRIOR PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF MARKET PRICE

Prior to the Offering, there has been no public trading market for the
Common Stock. The public offering price for the Common Stock will be
determined by negotiations among the Company and the Underwriters based upon
several factors and will not necessarily bear any relationship to the Company's
assets, book value, results of operations, net worth, or any other generally
accepted criteria of value, and should not be considered as indicative of the
actual value of the Company. See "Underwriting." Although application to have
the Common Stock approved for listing on the New York Stock Exchange ("NYSE")
will be made, there can be no assurance that such approval will be granted or
that, if granted, an active trading market will develop or be sustained after
the Offering. To the extent that an active trading market does develop,
factors such as quarterly variations in the Company's financial results,
announcements by the Company or others, general market conditions, or certain
regulatory pronouncements may cause the market price of the Common Stock to
fluctuate substantially. There can be no assurance that the Common Stock can
be resold at or above the initial public offering price.

DILUTION

Purchasers of the Common Stock offered hereby will experience
immediate and substantial dilution in the amount of $8.38 per share in the pro
forma net tangible book value of their shares of Common Stock, based upon the
assumed initial public offering price of $12.00 per share. See "Dilution."

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THE COMPANY

GENERAL

The Company is the second largest provider of senior living services
in the United States in terms of 1996 resident capacity, according to the
Assisted Living Federation of America's Annual Largest Provider Survey. The
Company currently owns interests in and/or operates 33 communities in 17 states
with a capacity of approximately 5,000 residents, including 17 communities in
which it owns interests, 15 communities that it manages for third parties
pursuant to multi-year management contracts and one community that it leases
from a third party. The Company is currently developing 17 new communities
which will have a capacity of approximately 3,130 residents and is expanding
12 existing communities to accommodate 994 additional residents. The Company
also operates one home health care agency. Approximately 93% of the Company's
revenues and reimbursable expenses are derived from private pay sources. At
June 30, 1997, communities which the Company operates and in which it owns
interests had an occupancy rate of approximately 95%, its managed communities
had an occupancy rate of approximately 95%, and its leased community had an
occupancy rate of approximately 95%. The Company and its predecessors have
provided senior living services since 1990.

The senior living services industry encompasses a broad and diverse
range of living accommodations and health care services that are provided
primarily to persons 65 years of age or older. For the elderly who require
limited services, care in independent living ("IL") residences, supplemented at
times by home health care, offers a viable option. Most independent living
residences and retirement centers typically offer community living together
with a basic services package consisting of meals, housekeeping, laundry,
security, transportation, social and recreational activities and health care
monitoring. As a senior's need for assistance increases, care in an assisted
living ("AL") residence is often preferable and more cost-effective than
home-based care or nursing home care. Typically, assisted living represents a
combination of housing and 24-hour a day personal support services designed to
aid elderly residents with activities of daily life ("ADLs"), such as
ambulation, bathing, dressing, eating, grooming, personal hygiene and
monitoring or assistance with medications. Certain assisted living residences
may also provide assistance to residents with low acuity medical needs, or may
offer higher levels of personal assistance for incontinent residents or
residents with Alzheimer's disease or other cognitive or physical frailties.
Generally, assisted living residents require higher levels of care than
residents of independent living residences and retirement living centers, but
require lower levels of care than patients in skilled nursing ("SN")
facilities. For seniors who need the constant attention of a skilled nurse or
medical practitioner, a skilled nursing facility may be required.

The Company's operating philosophy emphasizes a "continuum of care"
which integrates independent living, assisted living, skilled nursing and home
health care and provides senior citizens with the opportunity to "age in
place." The Company is a fully integrated senior living services organization,
with internal capabilities to operate, expand, develop, and acquire
"purpose-built" senior living communities (i.e., communities designed for the
efficient delivery of senior living services). The Company believes that its
size, national scope and comprehensive information systems provide it with
economies of scale in its operations and a platform for future growth. The
Company anticipates that these factors will position it to capitalize on
emerging trends in the senior living services industry and provide it with a
competitive advantage.

The Company has built a senior management team that it believes is one
of the most experienced in the acquisition, development, and operation of
senior living communities. The Company was founded by its co-chairmen Jeffrey
L. Beck and James A. Stroud, who together have 35 years of experience in the
residential and senior living services industries. The Company's eight
executive officers have an average of 17 years of industry experience. In
addition, the Company's 14 executive, regional and district officers have an
average of 14 years of industry experience, and its 26 on-site executive
directors have an average of 12 years of industry experience. The Company's
senior management will own approximately 51% of the outstanding shares of
Common Stock after giving effect to the Offering.

The Company has distinguished itself from many of its competitors
because it has been profitable in each quarter since 1992. The Company's
management team has created substantial value through the intensive management
of its communities. From 1992 through 1996, the Company achieved a compounded
annual growth rate in net operating income before depreciation and amortization
of 15.4% for the nine communities in which the Company owned interests and
operated during that period. During the same period, revenues for such
communities increased by a compounded annual growth rate of 5.4%, while
expenses for such communities increased by a compounded annual growth rate of
2.9%.

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GROWTH STRATEGIES

The Company believes its current operations throughout the United
States provide an established foundation for continued growth and that it has
implemented the systems and attracted the personnel necessary to support its
future growth plans. The Company plans to continue its growth principally
through the following strategies:

o Expand Existing Communities. The Company plans to expand
certain of its existing communities to include additional
independent living and assisted living residences (including
special programs and living units for residents with
Alzheimer's and other cognitive and physical frailties), and
skilled nursing beds. The Company believes that the
incremental returns on expansion projects are attractive
because they enable the Company to spread the fixed costs
associated with a single location over more units and to
capitalize on a community's existing market presence.
Moreover, expansions provide the Company with more flexible
capacity to accommodate residents as they "age in place."

The Company currently has 12 expansion projects which it
expects to complete in 1998 and 1999, representing an
aggregate increase in capacity of 994 residents. The Company
or its strategic partners have purchased the land associated
with six of the planned expansion projects, with an additional
six parcels under contract to be acquired.

o Develop New Communities. The Company's senior management has
developed in excess of $350 million of senior living
communities. In selected markets, the Company is developing
new senior living communities that are designed to provide a
quality lifestyle that is attractive to a large segment of the
senior population. Markets are chosen based on a variety of
factors, including demographic and economic factors, the
supply of existing or potential senior living communities, as
well as potential economies of scale that the Company may
achieve through the clustering of communities in a given
region. The Company plans to develop new communities,
including its proprietary "Product 2000" communities, which
will be designed to provide middle-income seniors with
amenities comparable to communities with higher resident fee
structures. The Company plans to develop these communities
for its own account, as well as in alliances with for-profit
and not-for-profit organizations.

The Company has commenced development of 17 senior living
communities which are expected to be completed by 1999. Of
these 17 new communities, 11 will be Product 2000 communities
(with an expected capacity of approximately 1,496 residents).
The Product 2000 communities will be developed pursuant to an
arrangement with an affiliate under which the affiliate will
fund the construction and lease-up costs and will pay the
Company a fee for development and management services. The
Company will have options to purchase or lease the Product
2000 communities upon their completion. See "Certain
Transactions -- Tri-Point Development Agreement." In
addition, six senior living communities are expected to be
developed in strategic alliances with third parties (with an
expected capacity of approximately 1,694 residents). The
Company or its strategic partners have purchased the land
associated with four of the planned development projects with
an additional two parcels under contract to be acquired.

The Company has executed a joint venture agreement pursuant to
which it will form an entity to develop and operate senior
living communities in major cities in the Peoples Republic of
China. The Company currently expects that, following its
initial development of senior living communities in China, the
joint venture will sell individual units in the communities to
prospective residents, and the Company will retain the
operating responsibilities and management fees associated with
such communities.

o Pursue Strategic Acquisitions. The Company believes that the
fragmented nature of the senior living services industry,
combined with the Company's financial resources, national
presence and extensive industry relationships, should provide
it with ample acquisition opportunities. The Company intends
to continue to: (i) increase its ownership interests in
certain communities in which it already possesses an ownership
interest; (ii) pursue single or portfolio acquisitions of
senior living communities; and (iii) pursue strategic
acquisitions of other senior living companies as the industry
consolidates.

o Expand Home Health Care Services. The Company plans to
establish or acquire additional home health care agencies to
permit it to expand the range of services that it offers at
its senior living communities. In addition, home health care
services are planned to be offered in many of the Company's
newly-developed communities and expanded communities. The
Company currently intends to establish approximately five new
home health care agencies at its owned communities by the
fourth quarter of 1998.

15
<PAGE> 17
The Company believes that it will have significant capacity to fund
additional growth by virtue of its capital structure. Upon completion of the
Offering, the Company's ratio of debt-to-total market capitalization (i.e.,
total indebtedness divided by the sum of total indebtedness plus the market
value of outstanding Common Stock) will be approximately 3%, and at June 30,
1997, on a pro forma basis after giving effect to the Offering, the Company
would have had cash and cash equivalents of approximately $23.7 million.

The Company was incorporated under the laws of the State of Delaware
in October 1996. The Company's principal executive offices are located at
14160 Dallas Parkway, Suite 300, Dallas, Texas 75240, and its telephone number
at that address is (972) 770-5600.

FORMATION TRANSACTIONS

The Company was incorporated in October 1996 in anticipation of the
Offering. Simultaneously with the consummation of the Offering, the Company, the
Company's founders, Messrs. Beck and Stroud, Lawrence A. Cohen, Vice Chairman
and Chief Financial Officer of the Company, and affiliates of Messrs. Beck and
Stroud will complete a series of transactions (the "Formation Transactions")
that will result in the reorganization of the Company (the "Formation").

As part of the Formation Transactions, Messrs. Beck and Stroud (and
their affiliates) will contribute all of the capital stock of Capital Senior
Living, Inc., Capital Senior Management 1, Inc., Capital Senior Management 2,
Inc., Capital Senior Development, Inc., and, with Lawrence A. Cohen, of Quality
Home Care, Inc. (the "Contributed Entities") to the Company in exchange for the
issuance of 7,687,347 shares of Common Stock and the issuance of separate notes
to Messrs. Beck, Stroud and Cohen in the aggregate principal amount of $14.7
million (collectively, the "Formation Note"). The number of shares of Common
Stock to be issued and the principal amount of the Formation Note were
established by Messrs. Beck and Stroud and the Company in connection with the
Formation based on an assessment of the value of the Contributed Entities and
the value of the Acquired Assets. The Formation Note will be repaid from net
proceeds of the Offering. Such repayment received by Messrs. Beck and Stroud
will in turn be used by them to pay tax obligations which they will incur in
connection with the Formation. The primary assets of the Contributed Entities
consist of third-party management contracts, development contracts and a home
health care agency. See "Risk Factors--Offering to Benefit Existing
Stockholders; Conflicts of Interest."

Also as part of the Formation Transactions, the Company will purchase
substantially all of the assets (the "Acquired Assets"), other than working
capital items, of Capital Senior Living Communities, L.P., a Delaware limited
partnership ("CSLC"), for the assumption of approximately $70.0 million of debt
(the "Asset Acquisition"). The purchase price to be paid for the Acquired
Assets will be equal to the appraised value derived by a third-party appraisal.
The Acquired Assets of CSLC are: (i) four senior living communities located in
Cottonwood, Arizona, Indianapolis, Indiana, Merrillville, Indiana and Canton,
Ohio; (ii) approximately 55% of the limited partner interests in HealthCare
Properties, L.P., a Delaware limited partnership ("HCP"); and (iii)
approximately 30% of the aggregate principal amount of certain notes (the "NHP
Notes") issued by NHP Retirement Housing Partners I, L.P., a Delaware a limited
partnership ("NHP"). The primary assets of HCP consist of: (i) approximately
$9.5 million in cash and cash equivalents at June 30, 1997; (ii) four physical
rehabilitation facilities located in Orlando, Florida, Nashville, Tennessee,
Lancaster, South Carolina, and Martin, Tennessee; and (iii) four skilled
nursing communities located in Evansville, Indiana, Cambridge, Massachusetts,
Fort Worth, Texas, and Austin, Texas. The outstanding principal amount of all
of the NHP Notes at June 30, 1997 was $42.7 million. The NHP Notes accrue
interest at a rate of 13% per annum, pay cash interest at a rate of 7% per
annum, are secured by substantially all of the assets of NHP, and mature on
December 31, 2001. The primary assets of NHP consist of five senior living
communities located in Buffalo, New York, Sacramento, California (two
communities), Detroit, Michigan, and Boca Raton, Florida. Messrs. Beck and
Stroud control approximately 67% of the limited partnership interests in CSLC
and will seek to liquidate CSLC following completion of the Formation
Transactions.

16
<PAGE> 18
CSLC, HCP and NHP are limited partnerships required to file periodic
reports under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The general partner of CSLC is Retirement Living Communities, an
Indiana limited partnership, which is beneficially owned by Messrs. Beck and
Stroud. The general partner of HCP and NHP is Capital Realty Group Senior
Housing, Inc. ("Senior Housing"), an entity beneficially owned by Mr. Beck and
Mr. Stroud. The general partners of CSLC, HCP and NHP will remain beneficially
owned by Messrs. Beck and Stroud after completion of the Formation
Transactions. As part of the Formation Transactions, the Company has received
a ten-year option to purchase all of the capital stock of Senior Housing for a
nominal amount, which it intends to exercise in 1998. Pending such exercise,
any fees received by Senior Housing from HCP or NHP will be assigned to the
Company. The debt to be assumed by the Company in the Asset Acquisition
consists of a $77.0 million mortgage loan commitment made on June 30, 1997 to
CSLC by Lehman Brothers Holdings, Inc. ("LBHI"), an affiliate of Lehman
Brothers (the "LBHI Loan"), of which $70.0 million was outstanding on July 1,
1997.

The Company intends to repay the LBHI Loan and the Formation Note out
of the net proceeds from the Offering. See "Use of Proceeds," "Risk
Factors--Offering to Benefit Existing Stockholders; Conflicts of Interest,"
"Certain Transactions--Organization of the Company," "--Formation Transactions,"
and "Underwriting."

USE OF PROCEEDS

The net proceeds from the sale of the Common Stock offered hereby are
estimated to be approximately $99.4 million (approximately $114.3 million if
the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $12.00 per share (the mid-point of the price
range shown on the cover page of this Prospectus) and after deduction of the
underwriting discounts and commissions and estimated offering expenses payable
by the Company.

The Company will use approximately $70.0 million of the net proceeds
of the Offering to retire the outstanding balance of the LBHI Loan. Borrowings
under the LBHI Loan bear interest at the 30-day LIBOR rate plus 0.50% and
mature on December 31, 1997. See "Certain Transactions -- LBHI Loan." The
Company expects to use the balance of the net proceeds remaining after
repayment of the LBHI Loan as follows: (i) $14.7 million to repay the
Formation Note; (ii) approximately $5.0 million to fund its anticipated
contribution and costs associated with its development alliances with
not-for-profit and for-profit organizations in the United States; (iii)
approximately $2.0 million to fund its anticipated contribution and costs
associated with its venture in China; and (iv) repayment of $1.2 million of
notes payable and accrued interest to the Company's founders and an affiliate.
The Company may use a portion of the remaining $6.5 million of net proceeds over
the next 12 to 18 months to purchase additional interests in the Company's
existing senior living communities, although there are no agreements or
commitments to do so. If not used to purchase such additional interests, such
net proceeds will be used for general corporate purposes, including working
capital.

Pending the use of the net proceeds as described above, the net
proceeds will be invested in short-term, investment-grade securities.

DIVIDEND POLICY

Following the Offering, it will be the policy of the Company's Board
of Directors to retain all future earnings to finance the operation and
expansion of the Company's business. Accordingly, the Company does not
anticipate declaring or paying cash dividends on the Common Stock in the
foreseeable future. The payment of cash dividends in the future will be at the
sole discretion of the Company's Board of Directors and will depend on, among
other things, the Company's earnings, operations, capital requirements,
financial condition, restrictions in then existing financing agreements, and
other factors deemed relevant by the Board of Directors.

Since the respective dates of their incorporation, the Contributed
Entities have elected to operate as S corporations under Subchapter S of the
Internal Revenue Code. As a result, the Contributed Entities' earnings for the
period commencing on the dates of their incorporation and ending on the day
preceding the date of termination of their S corporation status have been or
will be, as the case may be, taxed for Federal income tax purposes, with
certain exceptions, directly to the stockholders of the Contributed Entities.
The termination of the Contributed Entities' S corporation status will occur on
the date of the completion of the Offering. Commencing upon the completion of
the Offering, the Contributed Entities will no longer be treated as S
corporations and, accordingly, will be fully subject to Federal income taxes.

17
<PAGE> 19
CAPITALIZATION

The following table sets forth at June 30, 1997, the historical
capitalization of the Company and the pro forma capitalization as adjusted to
reflect: (i) the Offering; (ii) the funding and subsequent repayment of the
LBHI Loan; and (iii) the Formation Transactions. The table should be read in
conjunction with the Combined Financial Statements and the related notes
thereto, the "Pro Forma Combined Financial Statements," "The Company--Formation
Transactions," and "Use of Proceeds" contained elsewhere in this Prospectus.

<TABLE>
<CAPTION>
At June 30, 1997
--------------------------------------------

Actual As Adjusted
---------------- ----------------
(in thousands)
<S> <C> <C>
Long-term debt (including current portion) . . . . . . . $13,613 $ 6,946
------- -------
Minority interest in combined partnerships . . . . . . . 20,749 11,090
------- -------

Equity:
Partners' capital . . . . . . . . . . . . . . . . . . 19,370 -
------- --------

Preferred Stock, $.01 par value,
20,000,000 shares authorized; no shares
issued and outstanding . . . . . . . . . . . . . - -

Common Stock, $.01 par value,
100,000,000 shares authorized; 1,680,000
shares issued and outstanding, historical;
and 18,367,347 issued and outstanding,
as adjusted(1) . . . . . . . . . . . . . . . . . 17 184
Additional paid-in capital . . . . . . . . . . . . . . 27 67,191

Retained earnings (deficit) . . . . . . . . . . . . . (625) (598)
------- --------
Total equity . . . . . . . . . . . . . . . . . . . 18,789 66,777
------- --------

Total capitalization . . . . . . . . . . . . . . $53,151 $ 84,813
======= ========
</TABLE>

- ------------------------
(1) Excludes shares of Common Stock subject to options
expected to be granted pursuant to the Company's 1997 Stock Incentive
Plan as of the closing of the Offering, which options will be
exercisable at the initial public offering price. The Company has
reserved for issuance up to 1,565,000 shares of Common Stock
under its 1997 Stock Incentive Plan. See "Management--Compensation
Pursuant to Plans--1997 Stock Incentive Plan."

18
<PAGE> 20
DILUTION

The net tangible book value of the Company at June 30, 1997, was
approximately $18.4 million, or $1.97 per share of Common Stock. Net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding, which, for purposes of these calculations, is presumed to be
9,367,347 shares (which reflects 1,680,000 shares outstanding as of June 30,
1997, and 7,687,347 shares to be issued in the Formation Transactions). Pro
forma net tangible book value was calculated after giving effect to: (i) the
sale of the 9,000,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $12.00 per share, after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company; (ii) the Formation Transactions; and (iii) the application of a
portion of the estimated net proceeds to retire the Formation Note, the LBHI
Loan, and notes payable to the Company's founders and an affiliate. Pro forma
net tangible book value of the Company, after giving effect to the Offering and
the Formation Transactions, as of June 30, 1997 would have been approximately
$66.5 million, or $3.62 per share of Common Stock. This represents an
immediate increase in pro forma net tangible book value per share of $1.65 to
existing stockholders and an immediate dilution of $8.38 per share to
investors purchasing Common Stock in the Offering. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price . . . . . . . . . . . . . . . . . . . . $12.00

Net tangible book value after giving effect to the Formation
Transactions as of June 30, 1997 . . . . . . . . . . . . . . $1.97

Increase in net tangible book value attributable
to the Offering . . . . . . . . . . . . . . . . . . . . . . . 1.65
-----
Pro forma net tangible book value after giving effect to the Offering
and the Formation . . . . . . . . . . . . . . . . . . . . . . $ 3.62
------

Dilution to new investors in the Offering . . . . . . . . . . . . . . $ 8.38
======
</TABLE>

The following table summarizes the number of shares of Common Stock
issued by the Company, the total consideration paid to the Company, and the
average price per share by the existing stockholders and to be paid by the new
investors purchasing Common Stock in the Offering. For purposes of the total
consideration and average price per share paid by the existing stockholders,
the Company has based such valuation on the aggregate amount of capital of the
Contributed Entities, without deducting distributions paid to the stockholders
of the Contributed Entities.

<TABLE>
<CAPTION>
Shares Purchased Total Consideration AVERAGE
---------------- ------------------- PRICE
Number Percent Amount Percent PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders . . . 9,367,347 51.0% $ 43,358 - -

New investors . . . . . . . 9,000,000 49.0 108,000,000 100.0% $12.00
---------- ----- ------------ -----

Total . . . . . 18,367,347 100.0% $108,043,358 100.0%
========== ===== ============ =====

</TABLE>

The tables above exclude the effect of shares of Common
Stock subject to issuance pursuant to outstanding stock options under the
Company's 1997 Stock Incentive Plan. See "Management -- Compensation Pursuant
to Plans -- 1997 Stock Incentive Plan."

19
<PAGE> 21
SELECTED FINANCIAL DATA

The following table sets forth selected financial data, other data and
pro forma financial data of the Company. The selected financial data for the
years ended December 31, 1993 and 1992 are derived from the unaudited combined
financial statements of the Company. The selected financial data for the years
ended December 31, 1996, 1995 and 1994 are derived from the combined financial
statements of the Company, which financial statements have been audited by
Ernst & Young LLP, independent auditors. The combined financial statements as
of December 31, 1996 and 1995 and for each of the three years in the period
ended December 31, 1996, and the independent auditor's report thereon, are
included elsewhere in this Prospectus. The selected balance sheet data as of
June 30, 1997, and the statements of income for the six months ended June 30,
1997 and 1996, are derived from the unaudited combined financial statements of
the Company. In the opinion of the Company's management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months ended
June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. The information below should
be read in conjunction with, and are qualified in their entirety by, the
combined financial statements and related notes thereto, the "Pro Forma
Combined Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
Six Months ended June 30, Year ended December 31,
------------------------------------- ---------------------------------------------------------------
1997 Pro Forma(1) 1997 1996 1996 Pro Forma(1) 1996 1995 1994 1993 1992
-------------- ------- ------ -------------- ------- ------- ------- ------- -------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Income Data:
Revenues:
Resident and health
care revenue $10,428 $10,428 $6,955 $16,662 $13,692 $13,238 $12,761 $12,140 $11,361
Rental and lease income 2,158 2,158 648 5,691 1,101 1,231 1,235 1,175 1,055
Unaffiliated management
services revenue 949 949 53 801 801 - - - -
Affiliated management
services revenue 701 701 1,419 1,753 2,708 2,778 3,113 3,458 1,533
Development fees 370 370 - 674 673 - - - -
Other 461 461 438 924 924 871 800 1,022 1,141
------- ------- ------ ------- ------- ------- ------- ------- -------
Total revenues 15,067 15,067 9,513 26,505 19,899 18,118 17,909 17,795 15,090
------- ------- ------ ------- ------- ------- ------- ------- -------
Expenses:
Operating expenses 8,080 8,080 5,394 13,526 10,798 10,287 10,142 9,653 9,226
General and administrative
expenses(2) 2,000 3,933 2,465 4,967 5,493 4,364 4,595 5,406 3,783
Depreciation and
amortization 1,144 950 779 3,050 1,481 1,776 1,707 1,609 1,566
------- ------- ------ ------- ------- ------- ------- ------- -------
Total expenses 11,224 12,963 8,638 21,543 17,772 16,427 16,444 16,668 14,575
------- ------- ------ ------- ------- ------- ------- ------- -------
Income from operations 3,843 2,104 875 4,962 2,127 1,691 1,465 1,127 515
Other income (expense):
Interest income 722 794 206 362 432 368 122 89 73
Interest expense (344) (419) (75) (966) (221) (278) (261) (307) (293)
Gain on sale of
properties(3) - - - 825 438 - - - -
Equity in earnings on
investments - - 398 - 459 - - - -
Other - - 26 (72) 42 - (16) (20) -
------- ------- ------ ------- ------- ------- ------- ------- -------
Income before income taxes and
minority interest in combined
partnerships 4,122 2,479 1,430 5,111 3,277 1,781 1,310 889 295
(Provision) benefit for
income taxes(4) - - - - - (18) (130) 62 96
------- ------- ------ ------- ------- ------- ------- ------- -------
Income before minority interest
in combined partnerships 4,122 2,479 1,430 5,111 3,277 1,763 1,180 951 (292)
Minority interest in
combined partnerships (395) (1,266) (650) (212) (1,224) (760) (634) (572) (391)
------- ------- ------ ------- ------- ------- ------- ------- -------
Net income $ 3,826 $ 1,213 $ 780 $ 4,584 $ 2,053 $1,003 $546 $379 $94

Pro Forma Net Income Data
(unaudited):(5)
Net income $ 3,826 $ 1,213 $ 4,584 $ 2,053
Pro forma income taxes (1,511) (479) (1,811) (811)
------- ------- ------- -------
Pro forma net income $ 2,315 $ 734 $ 2,773 $ 1,242
======= ======= ======= ======
Pro forma net income per
share data:
Pro forma net income per
share $ 0.13 $ 0.15
======= =======

Shares used in computing pro
forma net income per share(1) 18,367 18,367
======= =======

</TABLE>

<TABLE>
<CAPTION>
At June 30, 1997 At December 31,
------------------------ ------------------------------------------------
Pro Forma(1) Historical 1996 1995 1994 1993 1992
--------- ---------- ------- -------- ------- ------- -------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $23,677 $13,199 $10,819 $10,017 $ 8,799 $ 2,065 $ 3,561
Working capital 22,839 5,138 9,567 6,784 5,938 48 2,889
Total assets 86,485 56,634 33,203 29,747 29,913 27,861 26,792
Long-term debt, including
current portion 6,946 13,613 666 2,687 2,192 2,556 3,361
Equity 66,777 18,789 17,201 14,447 12,495 10,631 10,130
</TABLE>

20
<PAGE> 22

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

(1) Gives effect to the consummation of the Offering and the completion of
the Formation Transactions (as more specifically described under
"Prospectus Summary--The Offering," "The Company -- Formation
Transactions," and "Use of Proceeds") as if they had occurred on
January 1, 1996 for the statement of income data and on June 30, 1997 for
the balance sheet data.
(2) General and administrative expenses include officers' salaries of
$2,600,000 and $1,658,000 for the six months ended June 30, 1997 and
1996, respectively, and $3,372,000, $2,976,000 and $3,443,000 for the
years ended December 31, 1996, 1995 and 1994, respectively. These
amounts are primarily comprised of salaries and bonuses paid to the
founders and were based in part on Federal income tax regulations
regarding distributions of closely held corporations and S corporations.
After the Offering, these Federal income tax regulations will no longer
apply to the Company and the pro forma amounts include approximately
$378,000 and $189,000 for founders' salaries and bonuses for the year
ended December 31, 1996 and the six months ended June 30, 1997,
respectively, which are based on the founders' employment agreements.
See "Management -- Employment Agreements."
(3) The historical statement of income for the year ended December 31, 1996
includes a gain of $438,000 on the sale of two multi-family rental
properties on November 1, 1996. The pro forma statement of income for the
year ended December 31, 1996 also includes the sale of one community on
May 1, 1996 which resulted in: (i) a gain of $387,000 representing the
difference between the carrying value of the community and the sales
proceeds; and (ii) an extraordinary gain of $953,000 (which is not
reflected in the pro forma statement).
(4) A provision for income taxes was recorded by the Company from inception
through February 1, 1995. No provision for income taxes has been
recorded after February 1, 1995 as the operating companies included in
the historical combined financial statements are S corporations or
partnerships and accordingly are not subject to income taxes.
(5) The provision for income taxes to arrive at pro forma net income assumes
a combined Federal and state effective income tax rate of 39.5%.
(6) Includes communities in which the Company owns interests and which it
operates, and communities in which the Company owns interests and which
are operated by third parties under leases which were in place when the
Company acquired its interests. See "Business -- Operating Communities."
(7) The Company has managed this community from September 1, 1996 through
May 31, 1997 and acquired a leasehold interest in it effective June 1,
1997.
(8) Occupancy rates are based on the ratio of occupied units to total
available units for independent and assisted living residences, and
occupied beds to available beds on a per diem basis for skilled nursing
beds as of the end of each period.
(9) Does not include communities owned by the Company and leased to third
parties pursuant to leases under which the Company receives rent
regardless of whether the units are occupied. See "Business -- Operating
Communities."
(10) Does not include occupancy information on Buckner Westminster Place and
Buckner Haven. See "Business -- Operating Communities."

21
<PAGE> 23

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion and analysis addresses the Company's results
of operations on an historical combined basis for the six months ended June 30,
1997 and 1996 and for the years ended December 31, 1996, 1995, and 1994. The
following should be read in conjunction with the Company's historical combined
financial statements and the summary and selected financial data and other
information contained elsewhere in this Prospectus.

The Company's historical financial statements include the combined
financial statements of Capital Senior Living Corporation, Capital Senior
Living, Inc., Quality Home Care, Inc., Capital Senior Development, Inc.,
Capital Senior Management 1, Inc. and Capital Senior Management 2, Inc. (the
"Contributed Entities"), CSLC, and, since January 1, 1997, HCP. The
Contributed Entities are owned and controlled 50% by James A. Stroud
(individually and through a trust) and 50% by Jeffrey L. Beck, except that
Lawrence A. Cohen is also a stockholder of Quality Home Care, Inc. In
addition, Messrs. Beck and Stroud or entities owned and controlled by them are
the managing general partners of CSLC and HCP.

Due to all of these entities being under the common control of
Messrs. Beck and Stroud, the Company's combined financial statements reflect
the assets and liabilities at their historical values and the accompanying
combined statements of income, equity, and cash flows reflect the combined
results for the periods indicated even though they have historically operated
as separate entities. The Formation Transactions will be accounted for at
historical cost in a manner similar to a pooling of interests to the extent of
the percentage ownership by Messrs. Beck and Stroud of the Company. Assets and
liabilities in CSLC and HCP will be recorded at fair value to the extent of any
minority interest.

From 1990 through June 30, 1997, the Company acquired interests in 17
communities and entered into an operating lease with respect to one community.
In 1996, the Company expanded its senior living management services by taking
over the management service contracts on 15 communities for four independent
third-party owners and commenced providing development and construction
management services for new residence properties in addition to adding a home
health care service agency.

During 1997, 1996, and 1995, CSLC made various purchases of limited
partnership interests in HCP, an affiliated partnership whose properties are
managed by the Company under management contracts. HCP owns and operates a
skilled nursing facility and owns and leases to third-party operators (under
triple net leases) three skilled nursing facilities and four physical
rehabilitation centers. During 1997, 1996, and 1995, CSLC paid $5,323,000,
$3,201,000, and $309,000, respectively, for partnership interests in HCP. CSLC
changed its method of accounting for its investment in HCP from the cost method
in 1995 to the equity method in 1996. As a result of additional purchases,
CSLC's ownership interest in HCP exceeded 50% on June 26, 1997. Accordingly,
this partial acquisition has been accounted for by the purchase method of
accounting and the assets, liabilities, minority interest, and the results of
operations of HCP have been consolidated in the Company's financial statements
since January 1, 1997.

During 1997, 1996, and 1995, CSLC made various purchases of
outstanding notes of NHP, an affiliated partnership whose properties are
managed by the Company under management contracts. NHP owns and operates five
senior living communities. As of June 30, 1997, CSLC has cumulatively paid
$9,620,000 for ownership of 27.9% of the outstanding NHP Notes. The NHP Notes
bear simple interest at 13% per annum and mature on December 31, 2001. Interest
is paid quarterly at a rate of 7%, with the remaining 6% interest deferred.
Prior to April 1997, CSLC did not accrue the deferred interest on the NHP Notes
due to uncertainties regarding their ultimate realization. Beginning April 1,
1997, CSLC began accruing a portion of the deferred interest income due to
improved NHP cash flows. Also, during 1996, CSLC paid $1,364 for a 3%
ownership of limited partnership interests in NHP.

The Company will continue to develop senior living communities and is
currently expanding 12 existing senior living communities. The development of
senior living communities typically involves a substantial commitment of
capital over a 12-month construction period during which time no revenues are
generated, followed by a 12-month lease-up period. The Company anticipates
that newly opened or expanded communities will operate at a loss during a
substantial portion of the lease-up period. See "--Liquidity and Capital
Resources" and "Risk Factors--No Assurance as to Ability to Develop and Expand
Additional Senior Living Communities." The Company's growth strategy may also
include the acquisition of senior living communities, home health care
agencies, and other properties or businesses that are complementary to the
Company's operations and growth strategy.

22
<PAGE> 24
RESULTS OF OPERATIONS

The following tables set forth for the periods indicated, selected
historical Statements of Income data in thousands of dollars and expressed as a
percentage of total revenues.

<TABLE>
<CAPTION>
Six Months Ended June 30, Year ended December 31,
------------------------------- -----------------------------------------------
1997 1996 1996 1995 1994
--------------- --------------- --------------- --------------- --------------
$ % $ % $ % $ % $ %
------- ------- ------- ------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Resident and health care
revenue $10,428 69.2% $6,955 73.1% $13,692 68.8 $13,238 73.1 $12,761 71.3%

Rental and lease income 2,158 14.3 648 6.8 1,101 5.5 1,231 6.8 1,235 6.9
Unaffiliated management services
revenue 949 6.3 53 0.6 801 4.0 - - - -
Affiliated management services
revenue 701 4.7 1,419 14.9 2,708 13.6 2,778 15.3 3,113 17.4
Development fees 370 2.5 - - 673 3.4 - - - -
Other 461 3.1 438 4.6 924 4.6 871 4.8 800 4.5
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
Total revenues 15,067 100.0 9,513 100.0 19,899 100.0 18,118 100.0 17,909 100.0
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
Expenses:
Operating expenses 8,080 53.6 5,394 56.7 10,798 54.3 10,287 56.8 10,142 56.6
General and administrative
expenses 3,933 26.2 2,465 25.9 5,493 27.6 4,364 24.1 4,595 25.7
Depreciation and amortization 950 6.3 779 8.2 1,481 7.4 1,776 9.8 1,707 9.5
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
Total expenses 12,963 86.0 8,638 90.8 17,772 89.3 16,427 90.7 16,444 91.8
------- ----- ------ ----- ------- ----- ------- ----- ------- -----

Income from operations 2,104 14.0 875 9.2 2,127 10.7 1,691 9.3 1,465 8.2
Other income (expense):
Interest income 794 5.3 206 2.2 432 2.2 368 2.0 122 0.7
Interest expense (419) (2.8) (75) (0.8) (221) (1.1) (278) (1.5) (261) (1.5)
Gain on sale of properties - - - - 438 2.2 - - - -
Equity in earnings on
investments - - 398 4.2 459 2.3 - - - -
Other - - 26 0.3 42 0.2 - - (16) (0.1)
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
Income before income taxes and
minority interest in combined
partnerships 2,479 16.5 1,430 15.0 3,277 16.5 1,781 9.8 1,310 7.3
Provision for income taxes - - - - - - (18) (0.1) (130) (0.7)
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
Income before minority interest in
combined partnerships 2,479 16.5 1,430 15.0 3,277 16.5 1,763 9.7 1,180 6.6
Minority interest in combined
partnerships (1,266) - (650) (6.8) (1,224) (6.2) (760) (4.2) (634) (3.6)
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
Net income $1,213 8.9% $ 780 8.2% $ 2,053 10.3% $ 1,003 5.5% $ 546 3.0%
------- ----- ------ ----- ------- ----- ------- ----- ------- -----
</TABLE>

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996

Revenues. Total revenues were $15,067,000 in the first six months of
1997 compared to $9,513,000 for the first six months of 1996, representing an
increase of $5,554,000, or 58.4%. The inclusion of HCP revenues in 1997 from
January 1, 1997 contributed $4,653,000 of the increase, as HCP was not
consolidated in 1996. Resident and health care revenue increased $3,473,000,
of which $2,495,000 is a result of the HCP consolidation, $715,000 is
improvement in CSLC's revenues due to recovery of additional billings previously
limited under the Medicare program for 1994 and $220,000 relates to the Maryland
Gardens facility leased on June 1, 1997. Rental and lease income increased
$1,510,000, of which $2,158,000 was due to the HCP consolidation, offset by
$648,000 due to the sale of CSLC's multifamily properties on November 1, 1996.
Unaffiliated management services revenue increased $896,000 due to 15
third-party management contracts added in the latter part of 1996 and one
contract added in the second quarter of 1997. Affiliated management services
revenue decreased by $718,000, of which $599,000 was due to the HCP
consolidation and $111,000 was due to the sale of an HCP managed property in May
1996. Development fees of $370,000 in 1997 is due to new development contract
management revenue for managing the development and construction of new
third-party owned senior living communities.

Expenses. Total expenses were $12,963,000 in the first six months of
1997 compared to $8,638,000 in 1996, representing an increase of $4,325,000, or
50.1%. The inclusion of HCP expenses from January 1, 1997 contributed
$3,190,000 of the increase . Operating expenses increased $2,271,000 as a
result of the HCP consolidation, $214,000 due to Maryland Gardens operating
expenses, and an increase in development expenses of $341,000 owing to
increased development operations. General and administrative expenses increased
$1,468,000, which was due to the HCP consolidation of $397,000, an increase in
officers salaries and bonuses of $942,000, and an increase in other general and
administrative expenses of $129,000, which is primarily the result of expanded
business operations and increased revenues. Depreciation and amortization
increased $171,000, of which $559,000 is related to the HCP consolidation, and
an increase

23
<PAGE> 25
in depreciation of $11,000 was related to office equipment additions, offset by
a $398,000 decrease in CSLC's depreciation associated with multi-family rental
properties sold on November 1, 1996.

Other income and expenses. Interest and other income increased
$562,000, primarily as a result of the HCP consolidation of $164,000 of other
income, and CSLC's increase in interest income of $398,000 associated with its
increased investment in NHP Notes and CSLC's beginning to accrue a portion of
the deferred interest on these notes. Interest expense increased $344,000,
primarily as a result of the HCP consolidation. Income from equity in earnings
on investments decreased $398,000 as a result of the consolidation of HCP on
January 1, 1997.

Minority interest. Minority interest in limited partnerships
increased $616,000 in the first six months of 1997 over that of the comparable
1996 period, with $395,000 of the increase a result of the consolidation of
HCP, coupled with improved earnings of CSLC of $1,028,000, offset by $807,000
due to a decrease in the weighted average minority interest in CSLC from 40.8%
in the first six months of 1996 to 34.5% in the first six months of 1997.

Net income. As a result of the foregoing factors, net income
increased $433,000 or 55.5% to $1,213,000 for the first six months of 1997 from
that of the comparable six-month period of 1996 of $780,000.

YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1995

Revenues. Total revenues were $19,899,000 in 1996 compared to
$18,118,000 in 1995, representing an increase of $1,781,000, or 9.8%. Resident
and health care revenue increased $454,000 as a result of $241,000 of 1996
revenues associated with the home health care business established in 1996 and
a $213,000 increase in CSLC's senior living and health care revenues caused
primarily by increased rates. Rental and lease income decreased $130,000 as a
result of the sale of CSLC's multi-family properties on November 1, 1996.
Unaffiliated management services revenue increased $801,000 due to the 15
third-party management contracts added in 1996. Affiliated management services
revenue decreased by $70,000, with $181,000 of the decrease a result of the
sale of two HCP managed properties in 1995 and 1996, offset by improved
occupancies in managed properties and an overall increase in management fees to
unconsolidated affiliates of $110,000. Development fees of $673,000 in 1996 is
due to new development contract management revenue for managing the development
and construction of new third-party owned senior living communities.

Expenses. Total expenses were $17,771,000 in 1996 compared to
$16,428,000 in 1995, representing an increase of $1,345,000, or 8.2%.
Operating expenses increased $512,000 as a result of $142,000 of expenses
associated with property development and $218,000 of expenses due to the
skilled nursing care businesses established in 1996, and a $150,000 increase in
expenses related to increased resident and health care revenues. General and
administrative expenses increased $1,129,000. This increase is due to an
increase in officers salaries and bonuses and a increase in other general and
administrative expenses of $733,000 which is primarily the result of expanded
business operations. Depreciation and amortization decreased $295,000 and is
primarily related to decreases in depreciation of $245,000 associated with
multi-family rental properties sold on November 1, 1996 and amortization of
deferred income associated with the equity method of accounting of acquired
interests in HCP in 1996 of $119,000, offset by a $69,000 increase in
amortization expense.

Other income and expenses. Interest and other income increased
$106,000 primarily as a result of increased income associated with investment
of cash reserves and interest received on CSLC's investment in the NHP Notes.
Interest expense decreased $57,000 primarily as a result of the retirement of
the mortgage loans associated with the properties sold on November 1, 1996.
Equity in earnings on investments was $459,000 in 1996 as a result of the
application of the equity method of accounting for CSLC's investment in HCP in
the first quarter of 1996. A gain of $438,000 was recorded on November 1, 1996
as a result of the sale of properties with no corresponding gains being
realized in 1995.

Provision for income taxes. Prior to February 1, 1995, one of the
Company's predecessor entities (Capital Senior Living, Inc.) incurred federal
and state income taxes. Effective February 1, 1995, Capital Senior Living,
Inc. became an S corporation and consequently, was not subject to income taxes
after February 1, 1995. CSLC and HCP are not subject to Federal income taxes
as the partners are responsible for their respective shares of partnership net
income or loss for income tax purposes and the companies owned by HCP did not
generate taxable income for Federal income tax purposes. As a result, the
provision for income taxes decreased from $18,000 in 1995 to no tax provision
in 1996.

Minority interest. Minority interest in combined partnerships
increased $464,000 in 1996 primarily as a result of increased earnings of CSLC
offset by a decrease in minority interest from 42.6% in 1995 to 37.2% in 1996.

Net income. As a result of the foregoing factors, net income
increased $1,050,000 or 104.7% to $2,053,000 for 1996 from $1,003,000 for 1995.

24
<PAGE> 26
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1994

Revenues. Total revenues were $18,118,000 in 1995 compared to
$17,909,000 in 1994, representing an increase of $209,000, or 1.2%. Resident
and health care revenue increased $477,000 as a result of increased rental
rates in the CSLC's properties. Affiliated management services revenue
decreased $335,000 and is comprised of: (i) a brokerage and sales commission
fee of $220,000 earned in April 1994 from an affiliate for assistance in the
sale of a real estate investment; (ii) reduced management fees of $179,000
earned from one HCP property which was placed in receivership on December 1,
1994 and subsequently transferred to the noteholder as an agreed upon
settlement on July 19, 1995; and (iii) a net overall increase in management
fees earned from affiliated properties of $65,000. Other income increased
$71,000 and was attributable to increased therapy income from Medicare.

Expenses. Total expenses were $16,427,000 in 1995 compared to
$16,444,000 in 1995, representing a decrease of $17,000. Operating expenses
increased $145,000 which is related to the increase in resident and health care
revenues. General and administrative expenses decreased $231,000, primarily as
a result of reduced officers salaries of $467,000 offset by overall increases
in other administrative expenses of $236,000.

Other income and expenses. Interest and other income increased
$262,000 primarily as a result of increased income associated with investment
of cash reserves and interest received on CSLC's investment in NHP Notes.
Interest expense increased $17,000 primarily as a result of the Company's
purchasing management contracts from an affiliate in exchange for a term loan
in February 1995, which increased interest expense $31,000, offset by a
decrease in mortgage interest expense of $14,000.

Provision for income taxes. As discussed above, the decrease in the
provision for income taxes in 1995 was due to the change in tax status.
Federal and state income taxes decreased from $130,000 in 1994 to $18,000 in
1995.

Minority interest. Minority interest in combined partnerships
increased $126,000 in 1995 as a result of the increased earnings of CSLC offset
by a decrease in minority interest from 48.5% in 1994 to 42.6% in 1995.

Net income. As a result of the foregoing factors, net income increased
$457,000 or 83.7% to $1,003,000 for 1995 from $546,000 for 1994.

LIQUIDITY AND CAPITAL RESOURCES

The Company has traditionally financed its activities primarily with
related party loans and cash flows from operations. Investments in start-up
costs, real estate and facilities have traditionally been financed with net
proceeds from private placements of equity interests, long-term mortgage
borrowing, and cash flows from operations.

Net cash provided by operating activities of $3,324,000 for the six
months ended June 30, 1997 increased $223,000 or 7.2% over that of the
comparable six months ended June 30, 1996, which was primarily comprised of an
increased cash flow created by improved earnings (after non-cash adjustments of
$1,604,000 offset by increases in net operating assets of $1,381,000). Net
cash provided by operating activities of $3,902,000 for the year ended December
31, 1996 increased $1,180,000 or 43.4% over that of the comparable year ended
December 31, 1995. This increase was primarily the result of increased cash
flow created by improved earnings (after non-cash adjustments, including a gain
on sale of properties of $438,000 and minority interest of $465,000 and change
in net operating assets of $908,000) of $272,000. Net cash provided by
operating activities of $2,722,000 for the year ended December 31, 1995
decreased $706,000 or 20.6% over that of the comparable year ended December 31,
1994. This decrease was primarily the result of increases in net operating
assets and payment of affiliate advances in 1995 of $889,000 offset by
increased cash flow created by improved earnings (after non cash adjustments
and minority interest) of $742,000.

Net cash used in investing activities of $5,723,000 for the six months
ended June 30, 1997 increased $2,901,000 or 102.8% over that of the comparable
six months ended June 30, 1996. This increase was comprised of an increase in
purchases of limited partnership interests in HCP of $2,562,000 (which is net
of acquired HCP cash of $8,995,000) combined with increases in capital
expenditures of $339,000. Net cash used in investing activities of $1,704,000
for the year ended December 31, 1996 increased $407,000 or 31.4% over that in
1995 of $1,297,000. This increase was comprised of an increase in purchases of
limited partnership interests in HCP of $2,505,000 combined with increases in
capital expenditures of $451,000 offset by the proceeds from the sale of the
Company's multi-family properties in November 1996 of $2,549,000. Net cash
used in investing activities of $1,297,000 for the year ended December 31, 1995
decreased $5,079,000 compared with net cash provided by investing activities of
$3,782,000 for the year ended December 31, 1994. This decrease was primarily
due to purchases of HCP limited partnership interests of $461,000, increases in
capital expenditures of $221,000, and the proceeds from sale of limited
partnership interests in 1994 of $4,400,000.

Net cash provided by financing activities of $4,778,000 for the six
months ended June 30, 1997 increased $5,569,000 or 704.0% over the net cash
used in financing activities of $791,000 for the comparable six months ended
June 30, 1996. This increase is primarily due to $6,000,000 of borrowings
under the Company's revolving loan and loans from

25
<PAGE> 27
related parties to finance additional purchases of NHP Notes and HCP limited
partnership interests during the six months ended June 30, 1997, offset by an
increase in CSLC's purchases of outstanding limited partnership interests from
minority partners for treasury purposes of $513,000. Net cash used in
financing activities of $1,396,000 for the year ended December 31, 1996
increased $1,189,000 or 574.4% over that of the net cash used in financing
activities of $207,000 for 1995. This increase is primarily due to CSLC's
purchases of outstanding limited partnership interests from minority partners
for treasury purposes of $1,262,000 in 1996; no such purchases occurred in
1995. Net cash used in financing activities of $207,000 for the year ended
December 31, 1995 decreased $269,000 or 56.5% over the net cash used in
financing activities of $476,000 for 1994. This decrease is primarily due to a
decrease in loan payments of $598,000 in 1995 offset by $203,000 in dividend
payments to shareholders in 1995 and a $126,000 decrease in other financing
activities in 1995.

At June 30, 1997, HCP was operating one of its properties and had
leased seven of its owned properties under triple net leases to third parties
until 2000 or 2001. Four of these properties are leased until year 2001 to
HealthSouth Rehabilitation Corp. ("HealthSouth") which provides acute spinal
injury intermediate care at these properties. HealthSouth closed one of these
facilities in 1994 and closed another facility in February of 1997 due to low
occupancy. HealthSouth has continued to make lease payments on a timely basis
for all four properties. Following termination of these leases, the Company
intends to convert and operate the facilities as assisted living and
Alzheimer's care facilities. These facilities are built in a campus-like
setting and are believed by the Company to be readily conducive to conversion
to senior living facilities. HCP's other facility leases are all current in
their lease obligations to HCP and, except for one property, are generating
sufficient cash flow from operations to fund their lease obligations to HCP.
The lessee for the remaining property continues to fund the deficit between the
required lease cash flow.

The Company expects that its current cash and net proceeds from the
Offering, together with cash flow from operations and the proceeds of
borrowings that it expects will be available to it, will be sufficient to meet
its operating requirements and to fund its anticipated growth through 1999.
The Company expects to use a wide variety of financing sources to fund its
future growth, including public and private debt and equity, conventional
mortgage financing, and unsecured bank financing, among other sources. There
can be no assurance that financing will be available on terms acceptable to the
Company. The Company is pursuing a working capital line of credit with a
financial institution in the anticipated amount of approximately $17.5 million.

In addition, the Company has entered into a development agreement with
Tri-Point, as described under "Certain Transactions--Tri-Point Development
Agreement," pursuant to which Tri-Point will employ its capital to develop
Product 2000 communities. The Company will have an option to purchase each
community at a price equal to fair market value (based upon a third-party
appraisal) and an option to lease each community at a fair market value rental.
The Company believes that the arrangement with Tri-Point provides it an
attractive mechanism to develop and lease new communities without employing its
own capital and which will not be dilutive to earnings during the development
and lease-up phases. Tri-Point has received and accepted commitments for loan
facilities aggregating up to $100.0 million to fund its development activities.

On June 30, 1997, CSLC entered into the $77.0 million LBHI Loan and
pledged its four communities and its investments in HCP and NHP as collateral.
The loan agreement matures December 31, 1997. On July 1, 1997, $70.0 became
outstanding under this loan agreement; $5.5 million was used to repay an
outstanding mortgage loan commitment, and $64.5 million was used to fund the
liquidity requirement under the loan agreement through the purchase of
three-month U.S. Treasury bills. The remaining $7.0 million may be used to
fund expenditures associated with the expansion of one of the Company's
communities. The U.S. Treasury bills were sold under a repurchase agreement
with a term equal to their maturity. It is expected that upon completion of
this Offering the repurchase agreement will be canceled and that the
outstanding debt under the loan agreement will be assumed by the Company and
will be repaid from net proceeds of this Offering. See "The Company --
Formation Transactions." Upon such repayment, the U.S. Treasury bills will
revert to CSLC. Interest costs are based on 30-day LIBOR plus 50 basis points.
The Company intends to retire this loan after completion of the Asset
Acquisition with net proceeds from the Offering. Should the Offering be
delayed beyond December 31, 1997, the Company believes that the U.S. Treasury
bills combined with CSLC's ability to borrow from conventional mortgage
financing sources will be sufficient to retire the LBHI Loan when due on
December 31, 1997.

At June 30, 1997, the Company had $1,166,000 of related party debt
outstanding, including $900,000 of demand notes due Messrs. Beck and Stroud on
December 31, 1997, and a $266,000 note payable to a related party with fixed
maturities of $65,091 extending through December 31, 2001. These notes, plus
accruded interest, will be repaid from the proceeds of the Offering. See "Use
of Proceeds."

IMPACT OF INFLATION

To date, inflation has not had a significant impact on the Company.
Inflation could, however, affect the Company's future revenues and results of
operations because of, among other things, the Company's dependence on senior
residents, many of whom rely primarily on fixed incomes to pay for the
Company's services. As a result, during inflationary periods, the Company may
not be able to increase resident service fees to account fully for increased
operating expenses. In structuring its fees, the Company attempts to
anticipate inflation levels, but there can be no assurance that the Company
will be able to anticipate fully or otherwise respond to any future
inflationary pressures.

26
<PAGE> 28
BUSINESS

INDUSTRY BACKGROUND

As a senior's need for assistance increases, care in an assisted
living residence is often preferable and more cost-effective than home-based
care or nursing home care. Typically, assisted living represents a combination
of housing and 24-hour a day personal support services designed to aid elderly
residents with ADLs, such as ambulation, bathing, dressing, eating, grooming,
personal hygiene, and monitoring or assistance with medications. Certain
assisted living residences may also provide assistance to residents with low
acuity medical needs, or may offer higher levels of personal assistance for
incontinent residents or residents with Alzheimer's disease or other cognitive
or physical frailties. Generally, assisted living residents require higher
levels of care than residents of independent living residences and retirement
living centers, but require lower levels of care than patients in skilled
nursing facilities. For seniors who need the constant attention of a skilled
nurse or medical practitioner, a skilled nursing facility may be required.

The senior living services industry is highly fragmented and
characterized by numerous small operators. Moreover, the scope of senior
living services varies substantially from one operator to another. Many
smaller senior living providers do not operate purpose-built residences, do not
have professional training for staff and provide only limited assistance with
ADLs. The Company believes that few senior living operators provide the
required comprehensive range of senior living services, such as dementia care
and other services designed to permit residents to "age in place" within the
community as they develop further physical or cognitive frailties.

The Company believes that a number of demographic, regulatory, and
other trends will contribute to the continued growth in the senior living
market, the Company's targeted market for future development and expansion,
including the following:

Consumer Preference

The Company believes that senior living communities are increasingly
becoming the setting preferred by prospective residents and their families for
the care of the elderly. Senior living offers residents greater independence
and allows them to "age in place" in a residential setting, which the Company
believes results in a higher quality of life than that experienced in more
institutional or clinical settings.

The likelihood of living alone increases with age. Most of this
increase is due to an aging population in which women outlive men. In 1993,
eight out of ten noninstitutionalized elderly who lived alone were women.
According to the United States Bureau of Census, based on 1993 data, for women
the likelihood of living alone increases from 32% for 65- to 74-year-olds to
57% for those women aged 85-and-older. Men show similar trends with 13% of the
65- to 74-year-olds living alone rising to 29% of the men aged 85 and older
living alone. Societal changes, such as rising divorce rates and the growing
numbers of persons choosing not to marry, have further increased the number of
Americans living alone. This growth in the number of elderly living alone has
resulted in an increasing demand for services that historically have been
provided by a spouse, other family members or live-in caregivers.

The table below shows the estimated breakdown of persons needing
assistance with ADLs as of 1990-1991.

27
<PAGE> 29
Percentage of Persons by Age Cohort Needing Assistance with
Everyday Activities: 1990-1991

[GRAPH]

Demographics

The primary market for the Company's senior living services is
comprised of persons aged 65 and older. This age group is one of the fastest
growing segments of the United States population and is expected to double by
the year 2030. According to United States Census Bureau information, the
segment of the population that is aged 75 and older is expected to increase
from approximately 13.2 million in 1990 to over 16.6 million by 2000, an
increase of 26%. The population of seniors aged 85 and over is expected to
increase from approximately 3.1 million in 1990 to over 4.3 million by 2000, an
increase of 39%. As the number of persons aged 65 and over continues to grow,
the Company believes that there will be corresponding increases in the number
of persons who need assistance with ADLs. According to the United States
General Accounting Office, as of 1990 there are approximately 6.5 million
people aged 65 and older in the United States who needed assistance with ADLs,
and the number of people needing such assistance is expected to double by the
year 2020. According to the Alzheimer's Association the number of persons
afflicted with Alzheimer's disease is expected to grow from the current 4.0
million to 14.0 million by the year 2050.

Restricted Supply of Nursing Beds

The majority of states in the United States have adopted Certificate
of Need or similar statutes generally requiring that, prior to the addition of
new beds, the addition of new services, or the making of certain capital
expenditures, a state agency must determine that a need exists for the new beds
or the proposed activities. The Company believes that this Certificate of Need
process tends to restrict the supply and availability of licensed nursing
facility beds. High construction costs, limitations on government
reimbursement for the full costs of construction, and start-up expenses also
act to constrain growth in the supply of such facilities. At the same time,
nursing facility operators are continuing to focus on improving

28
<PAGE> 30
occupancy and expanding services to subacute patients generally of a younger
age and requiring significantly higher levels of nursing care. As a result,
the Company believes that there has been a decrease in the number of skilled
nursing beds available to patients with lower acuity levels and that this trend
should increase the demand for the Company's senior living communities,
including particularly the Company's assisted living communities and skilled
nursing communities.

Cost-Containment Pressures

In response to rapidly rising health care costs, governmental and
private pay sources have adopted cost containment measures that have reduced
admissions and encouraged reduced lengths of stays in hospitals and other acute
care settings. The federal government had previously acted to curtail
increases in health care costs under Medicare by limiting acute care hospital
reimbursement for specific services to pre-established fixed amounts. Private
insurers have begun to limit reimbursement for medical services in general to
predetermined charges, and managed care organizations (such as health
maintenance organizations) are attempting to limit hospitalization costs by
negotiating for discounted rates for hospital and acute care services and by
monitoring and reducing hospital use. In response, hospitals are discharging
patients earlier and referring elderly patients, who may be too sick or frail
to manage their lives without assistance, to nursing homes and assisted living
residences where the cost of providing care is typically lower than hospital
care. In addition, third-party payors are increasingly becoming involved in
determining the appropriate health care settings for their insureds or clients,
based primarily on cost and quality of care. Based on industry data, the
annual cost per patient for skilled nursing care averages approximately
$40,000, in contrast to the average annual per patient cost for assisted living
care of approximately $26,000.

Senior Affluence

The average net worth of senior citizens is higher than non-senior
citizens, primarily as a result of accumulated equity through home ownership.
The Company believes that a substantial portion of the senior population thus
has significant resources available for their retirement and long-term care
needs. The Company's target population is comprised of moderate- to
upper-income seniors who have, either directly or indirectly through familial
support, the financial resources to pay for senior living communities,
including an assisted living alternative to traditional long- term care.

Reduced Reliance on Family Care

Historically, the family has been the primary provider of care for
seniors. The Company believes that the increase in the percentage of women in
the work force, the reduction of average family size, and the increased
mobility in society is reducing the role of the family as the traditional
caregiver for aging parents. The Company believes that these factors will make
it necessary for many seniors to look outside the family for assistance as they
age.

OPERATING STRATEGY

The Company's operating strategy is to provide high quality senior
living services at an affordable price to its residents, while achieving and
sustaining a strong, competitive position within its chosen markets, as well as
to continue to enhance the performance of its operations. The Company plans on
implementing its operating strategy principally through the following methods:

Continue to Provide Broad Range of High-Quality Personalized Care

Central to the Company's operating strategy is its focus on providing
high-quality care and services that are personalized and tailored to meet the
individual needs of each community resident. The Company's residences and
services are designed to provide a broad range of care that permits residents
to "age in place" as their needs change and as they develop further physical or
cognitive frailties. By creating an environment that maximizes resident
autonomy and provides individualized service programs, the Company seeks to
attract seniors at an earlier stage, before they need the higher level of care
provided in a skilled nursing facility. The Company also maintains a
comprehensive quality assurance program designed to ensure the satisfaction of
its residents and their family members. The Company conducts annual resident
satisfaction surveys. In 1996, the Company achieved a 96% approval rating from
its residents in a polling of its residents' satisfaction.

Offer Services Across a Range of Pricing Options

The Company's range of products and services is continually expanding
to meet the evolving needs of its residents. The Company has developed a menu
of products and service programs which may be further customized to serve both
the moderate and upper income markets of a particular targeted geographic area.
By offering a range of pricing options that are customized for each target
market, the Company believes that it can develop synergies, economies of scale,
and operating efficiencies in its efforts to serve a larger percentage of the
elderly population within a particular geographic market.

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<PAGE> 31
Maintain and Improve Occupancy Rates

The Company continually seeks to maintain and improve occupancy rates
by: (i) retaining residents as they "age in place" by extending optional care
and service programs; (ii) attracting new residents through the on-site
marketing program focus on residents and family members; and (iii) aggressively
seeking referrals from professional community outreach sources, including area
churches, senior social service programs, civic and business networks, as well
as the medical community.

Improve Operating Efficiencies

The Company will seek to improve operating efficiencies at its
communities by continuing to actively monitor and manage operating costs. By
having an established national portfolio of communities with regional
management in place, the Company believes it will be able to achieve operating
efficiencies through economies of scale and reduced corporate overhead, and
provide more effective management supervision and financial controls.

Emphasize Employee Training and Retention

The Company devotes special attention to the hiring, screening,
training, supervising, and retention of its employees and caregivers to ensure
that quality standards are achieved. In addition to the normal on-site
training, the Company conducts annual national management meetings and
encourages sharing of expertise among managers. The Company's commitment to
the total quality management concept is emphasized throughout its training
program. The Company believes its commitment to and emphasis on employee
training and retention differentiates the Company from many of its competitors.

Utilize Comprehensive Information Systems

The Company employs comprehensive proprietary information systems to
manage financial and operating data in connection with the management of its
communities. Utilizing its computerized systems, the Company is able to
collect and monitor on a regular basis key operating data for its communities.
Reports are routinely prepared and distributed to on-site, district and
regional managers for use in managing the profitability of the communities.
The Company's management information systems provide senior management with the
ability to identify emerging trends, monitor and control costs and develop
current pricing strategies.

CARE AND SERVICES PROGRAMS

The Company provides a wide array of senior living services to the
elderly at its communities, including independent living, assisted living (with
special programs and living units for residents with Alzheimer's and other
forms of dementia), skilled nursing, and home health care services. By
offering a variety of services and encouraging the active participation of the
resident and the resident's family and medical consultants, the Company is able
to customize its service plan to meet the specific needs and desires of each
resident. As a result, the Company believes that it is able to maximize
customer satisfaction and avoid the high cost of delivering unnecessary
services to residents.

Independent Living Services

The Company provides independent living services to seniors who do not
yet need assistance or support with ADLs, but who prefer the physical and
psychological comfort of a residential community that offers health care and
other services. The Company currently has ownership interests in nine
communities and manages an additional 14 communities which provide independent
living services, with an aggregate capacity for 1,607 and 1,913 residents,
respectively.

Independent living services provided by the Company include daily
meals, transportation, social and recreational activities, laundry,
housekeeping, security and health care monitoring. The Company also fosters
the wellness of its residents by offering health screenings (such as blood
pressure checks), periodic special services (such as influenza inoculations),
chronic disease management (such as diabetes with its attendant blood glucose
monitoring), dietary and similar programs, as well as ongoing exercise and
fitness classes. Classes are given by health care professionals to keep
residents informed about health and disease management. Subject to applicable
government regulation, personal care and medical services are available to
independent living residents through either the community staff or through the
Company's or independent home health care agencies. The Company's independent
living residents pay a fee ranging from $1,250 to $2,400 per month, in general,
depending on the specific community, program of services, size of the units,
and amenities offered. The Company's contracts with its independent living
residents are generally for a term of one year and are typically terminable by
the resident upon 30 days' notice.

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<PAGE> 32
Assisted Living and Memory Impaired Services

The Company offers a wide range of assisted living care and services
24 hours per day, including personal care services, support services, and
supplemental services. The Company currently has ownership interests in seven
communities, leases a community from a third party, and manages an additional
10 communities which provide assisted living services, with an aggregate
capacity for 219, 38, and 399 residents, respectively. The residents of the
Company's assisted living residences generally need help with some or all ADLs,
but do not require the more acute medical care traditionally given in nursing
homes. Upon admission to the Company's assisted living communities, and in
consultation with the resident, the resident's family and medical consultants,
each resident is assessed to determine his or her health status, including
functional abilities, and need for personal care services, and completes a
lifestyles assessment to determine the resident's preferences. From these
assessments, a care plan is developed for each resident to ensure that all
staff members who render care meet the specific needs and preferences of each
resident where possible. Each resident's care plan is reviewed periodically to
determine when a change in care is needed.

The Company has adopted a philosophy of assisted living care that
allows a resident to maintain a dignified independent lifestyle. Residents and
their families are encouraged to be partners in their care and to take as much
responsibility for their well being as possible. The basic types of assisted
living services offered by the Company include the following:

Personal Care Services. These services include assistance
with ADLs such as ambulation, bathing, dressing, eating, grooming,
personal hygiene, and monitoring or assistance with medications.

Support Services. These services include meals, assistance
with social and recreational activities, laundry services, general
housekeeping, maintenance services, and transportation services.

Supplemental Services. These services include extra
transportation services, personal maintenance, extra laundry services,
non-routine care services, and special care services, such as services
for residents with Alzheimer's and other forms of dementia. Certain
of these services require an extra charge in addition to the pricing
levels described below.

In pricing its services, the Company has developed the following three
levels or tiers of assisted living care:

o Level I typically provides for minimum levels of care and
service, for which the Company generally charges a monthly fee
per resident ranging from $1,750 to $1,900, depending upon
unit size and the project design type. Typically, Level I
residents need minimal assistance with ADLs.

o Level II provides for relatively higher levels and increased
frequency of care, for which the Company generally charges a
monthly fee per resident ranging from $1,900 to $2,250,
depending upon the unit size and the project design type.
Typically, Level II residents require moderate assistance with
ADLs and may need additional personal care, support, and
supplemental services.

o Level III provides for the highest level of care and service,
for which the Company generally charges a monthly fee per
resident ranging from $2,250 to $2,400, depending upon the
unit size and the project design type. Typically, Level III
residents are either very frail or impaired and utilize many
of the Company's services on a regular basis.

The Company maintains programs and special units at its assisted
living communities for residents with Alzheimer's and other forms of dementia,
which provide the attention, care, and services needed to help those residents
maintain a higher quality of life. Specialized services include assistance
with ADLs, behavior management, and a lifeskills based activities program, the
goal of which is to provide a normalized environment that supports residents'
remaining functional abilities. Whenever possible, residents assist with
meals, laundry, and housekeeping. Special units for residents with Alzheimer's
and other forms of dementia are located in a separate area of the community and
have their own dining facilities, resident lounge areas, and specially trained
staff. The special care areas are designed to allow residents the freedom to
ambulate as they wish while keeping them safely contained within a secure area
with a minimum of disruption to other residents. Special nutritional programs
are used to help ensure caloric intake is maintained in residents. Resident
fees for these special units are dependent on the size of the unit, the design
type, and the level of services provided.

Skilled Nursing Services

In its skilled nursing communities, the Company provides traditional
long-term care through 24-hour per day skilled nursing care by registered
nurses, licensed practical nurses, and certified nursing assistants. The
Company also offers a comprehensive range of restorative nursing and
rehabilitation services in its communities including, but not limited to,

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<PAGE> 33
physical, occupational, speech, and medical social services. The Company
currently has ownership interests in seven communities, leases a community, and
manages an additional community which provides nursing services, with an
aggregate capacity for 746, 60, and 60 residents, respectively.

Home Health Care

The Company currently provides home health care services to clients at
certain of its senior living communities through an on-site home health care
agency. The Company believes that the provision of home health care services
is an attractive adjunct to its independent living services because it allows
the Company to provide more services to its residents as they age in place and
increase the length of stay in the Company's communities. The services and
products that the Company provides through its home health care agency include:
(i) general and specialty nursing services to clients with long-term chronic
health conditions, permanent disabilities, terminal illnesses and
post-procedural needs; (ii) rehabilitative therapy services including physical,
occupational and speech therapy through outside contractors; (iii) personal
care services and assistance with ADLs; (iv) enhanced hospice care for clients
in the final phases of incurable disease; and (v) extensive monitoring and
educational services relative to respiratory care, medication administration,
medical equipment, and medical supplies. The Company intends to expand its
home health care service business to additional senior living communities and
to develop, acquire, or manage home health care service businesses at other
such communities. In addition, the Company will make available to residents
certain customized physician, dentistry, podiatry, and other health-related
services that may be offered by third-party providers. The Company may elect
to provide these services directly or through participation in managed care
networks.

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<PAGE> 34
OPERATING COMMUNITIES

The table below sets forth certain information with respect to the
independent, senior living, and continuum of care communities currently owned,
leased, and managed by the Company.

Resident Capacity(1) Commence- Occupancy Rate
------------------------ Owner- ment of -------------------
Community Location IL AL SN Total ship(2) Operations(3) 12-31-96 6-30-97
--------- -------- ----- ----- ----- ----- ------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OWNED:

Amberleigh . . . . . . . Buffalo, NY 365 29 - 394 30% 1/92 98% 96%

Atrium of Carmichael . . Sacramento, CA 156 - - 156 30% 1/92 98% 99%

Cambridge Nursing Home . Cambridge, MA - - 120 120 55% 7/93 94% 99%

Canton Regency . . . . . Canton, OH 164 34 50 248 100% 3/91 94% 98%

Cottonwood Village . . . Cottonwood, AZ 69 - - 69 100% 3/91 95% 100%

Crosswood Oaks . . . . . Sacramento, CA 127 - - 127 30% 1/92 86% 88%

Harrison at Eagle Valley Indianapolis, 138 - - 138 100% 3/91 83% 92%
IN

Heatherwood . . . . . . . Detroit, MI 188 - - 188 30% 1/92 81% 86%

Towne Centre . . . . . . Merrillville, 165 34 64 263 100% 3/91 92% 94%
IN

Veranda Club . . . . . . Boca Raton, FL 235 - - 235 30% 1/92 96% 93%
----- --- --- ----- --- ---
SUBTOTAL . . . . . . 1,607 97 234 1,938 92% 95%
--- ---
OWNED AND LEASED TO
OTHERS:

Cane Creek . . . . . . . Martin, TN - 8 36 44 55% 7/93 100%(4) 100%(4)

Cedarbrook . . . . . . . Nashville, TN - 42 - 42 55% 7/93 100%(4) 100%(4)

Crenshaw Creek . . . . . Lancaster, SC - 36 - 36 55% 7/93 100%(4) 100%(4)

Hearthstone . . . . . . . Austin, TX - - 120 120 55% 7/93 100%(4) 100%(4)

McCurdy . . . . . . . . . Evansville, IN - - 236 236 55% 7/93 100%(4) 100%(4)

Sandybrook . . . . . . . Orlando, FL - 36 - 36 55% 7/93 100%(4) 100%(4)

Trinity Hills . . . . . . Fort Worth, TX - - 120 120 55% 7/93 100%(4) 100%(4)
----- --- --- -----
SUBTOTAL . . . . . . - 122 512 634

LEASED FROM OTHERS:

Maryland Gardens(5) . . . Phoenix, AZ - 38 60 98 6/97 - 95%
----- --- --- -----
SUBTOTAL . . . . . . - 38 60 98

MANAGED:

Buckner Haven . . . . . . Houston, TX 16 69 60 145 4/97 (6) (6)

Buckner Westminster Place Longview, TX 117 - - 117 6/96 (7) (7)

Crown Pointe . . . . . . Omaha, NE 163 - - 163 8/96 100% 100%

Crown Villa . . . . . . . Omaha, NE - 73 - 73 8/96 97% 96%

Independence Village . . East Lansing, 162 - - 162 8/96 84% 92%
MI

Independence Village . . Peoria, IL 173 - - 173 8/96 93% 97%

Independence Village . . Raleigh, NC 155 22 - 177 8/96 100% 95%

Independence Village . . Winston-Salem, 145 16 - 161 8/96 93% 95%
NC

Overland Park Place . . . Kansas City, KS 126 25 - 151 8/96 96% 96%

The Palms . . . . . . . . Fort Myers, FL 235 20 - 255 8/96 100% 96%

Rio Las Palmas . . . . . Stockton, CA 142 50 - 192 8/96 87% 85%

Sedwick Plaza . . . . . . Wichita, KS 117 54 - 171 8/96 81% 95%

Villa at Riverwood . . . St. Louis, MO 140 - - 140 8/96 98% 95%

Villa Santa Barbara . . . Santa Barbara, 87 38 - 125 8/96 93% 94%
CA

West Shores . . . . . . . Hot Springs, AR 135 32 - 167 8/96 96% 98%
----- --- --- ----- --- ---
SUBTOTAL/AVERAGE . . 1,913 399 60 2,372 94% 95%
----- --- --- ----- --- ---
GRAND TOTAL . . . . . 3,520 656 866 5,042 93%(8) 95%(8)
===== === === ===== === ===
</TABLE>

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

33
<PAGE> 35
(1) Independent living (IL) residences, assisted living (AL) residences
(including areas dedicated to residents with Alzheimer's and other
forms of dementia), and skilled nursing (SN) beds.
(2) In the case of those communities shown as 30% owned by the Company,
this represents ownership of approximately 30% of the outstanding NHP
Notes. Based on appraised values, the aggregate principal and accrued
interest of the NHP Notes is believed to be comparable to the
appraised value of the NHP properties. In the case of those
communities shown as approximately 55% owned, this represents the
Company's ownership of approximately 55% of the limited partner
interests in HCP.
(3) Indicates the date on which the Company acquired each of its owned and
leased communities, or commenced operating its managed communities.
The Company operated certain of its communities pursuant to management
agreements prior to acquiring the communities.
(4) Represents communities owned by the Company and leased to third
parties pursuant to master leases under which the Company receives
rent regardless of whether the units are occupied. Does not represent
occupancy rate, but rather percentage of property leased pursuant to
the master lease. These leases were in place at the time the Company
acquired its interest in these communities.
(5) This community is leased pursuant to a 14-month operating lease
entered into by the Company on June 1, 1997, under which the Company
has an option to purchase the community.
(6) It is anticipated that this community will be closed in 1998 and the
residents transferred to Buckner Parkway Place upon its completion in
the first quarter of 1998.
(7) This community was in the initial lease-up phase during the periods
presented above.
(8) Excludes communities owned and leased to others.

THIRD-PARTY MANAGEMENT CONTRACTS

The Company is a party to two separate property management agreements
(the "ILM Management Agreements") with ILM I Lease Corporation and ILM II Lease
Corporation, corporations formed by ILM Senior Living, Inc. and ILM Senior
Living II, Inc. (collectively, "ILM") that operate 13 senior living
communities. The ILM Management Agreements commenced on July 29, 1996 and will
expire on December 31, 1999 and December 31, 2000, respectively, subject to
extension under certain circumstances, but not beyond July 29, 2001. Under the
terms of the ILM Management Agreements, the Company earns a base management fee
equal to 4% of the gross operating revenues of the facilities under management
(as defined), and is also eligible to receive an incentive management fee equal
to 25% of the amount by which the average monthly net cash flow of the
facilities (as defined) for the 12-month period ending on the last day of each
calendar month exceeds a specified base amount. The ILM Management Agreements
are terminable upon the sale of the related facilities, subject to the
Company's rights to offer to purchase the facilities. In the event of a sale,
the Company has the right to make the first and last offer with respect to the
purchase of the facilities subject to the ILM Management Agreements. The
Company earned a total of $549,000 and $637,000 under the two ILM Management
Agreements for the nine months ended May 31, 1997. See "Certain Transactions
- -- ILM Management Contracts."

The Company is also a party to two separate property management
agreements (the "Buckner Agreements") with Buckner Retirement Services, Inc.
("Buckner"), a not-for-profit corporation that operates two senior living
communities. The Buckner Agreements commenced on April 1, 1996 and 1997 and
expire on March 31, 2001 and 2002, respectively, except that either party may
terminate the agreements for cause under limited circumstances. Under the
terms of the Buckner Agreements, the Company earns a base management fee equal
to 5% of the gross revenues of the facility (as defined) or $5,000 per month,
whichever is greater. In the case of one of the two Buckner Agreements, the
Company is also entitled to a marketing lease-up fee of $500 for each unit at
the time it is initially occupied. Each agreement provides that the Company is
also eligible to receive an incentive fee equal to 25% of the excess cash flow
over budgeted amounts. Pursuant to the terms of the Buckner Agreements, the
Company has a right of first refusal with respect to purchasing the communities
subject to these agreements.

GROWTH STRATEGIES

The Company believes that the fragmented nature of the senior living
services industry and the limited capital resources available to many small,
private operators provide an attractive opportunity for the Company to expand
its existing base of senior living operations. The Company believes that its
current operations throughout the United States serve as the foundation on
which the Company can build senior living networks in targeted geographic
markets and thereby provide a broad range of high quality care in a
cost-efficient manner.

The following are the principal elements of the Company's growth
strategy:

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<PAGE> 36
Expand Existing Communities

The Company plans to expand certain of its existing communities to
include additional independent living, assisted living residences (including
special programs and living units for residents with Alzheimer's and other
forms of dementia), and, possibly skilled nursing beds. The Company currently
has one expansion project under construction and 11 expansion projects under
development, representing an aggregate increase in capacity to accommodate an
additional 994 residents. Of these 12 expansion projects, one is at a
community which is owned by the Company, four are at communities in which the
Company owns an interest and manages under multi-year agreements, and seven are
at communities which the Company manages for third parties. The costs of the
expansion of managed communities is borne by the community owner and not by the
Company. However, with respect to the four expansion projects in which the
Company has a partial ownership interest, the Company will manage the expansion
and have rights to lease and purchase the expansion facilities. The expansion
of existing senior living communities allows the Company to create operating
efficiencies and capitalize on its local presence, community familiarity, and
reputation in markets in which the Company currently operates.

The table below summarizes information regarding the expansion of
certain of the Company's existing senior living communities currently in
process.

EXPANSION PROJECTS:

Scheduled
COMMUNITY LOCATION Completion IL AL SN Total Status(1)
--------- -------- ---------- -- -- -- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Cottonwood Village . . . . . . . Cottonwood, AZ 1st half 1998 66 47 - 113 Construction

Hearthstone . . . . . . . . . . . Austin, TX 1st half 1998 - 50 - 50 Development

Buckner Westminister Village . . Longview, TX 1st half 1998 - 60 - 60 Development

Towne Centre . . . . . . . . . . Merrillville, IN 2nd half 1998 66 70 - 136 Development

Canton Regency . . . . . . . . . Canton, OH 2nd half 1998 100 30 - 130 Development

Independence Village . . . . . . Raleigh, NC 2nd half 1998 - 50 - 50 Development

West Shores . . . . . . . . . . . Hot Springs, AR 2nd half 1998 - 65 - 65 Development

The Palms . . . . . . . . . . . . Ft. Myers, FL 2nd half 1998 - 48 - 48 Development

Independence Village . . . . . . Peoria, IL 1st half 1999 46 30 - 76 Development

Crown Point/Crown Villa . . . . . Omaha, NE 1st half 1999 102 24 - 126 Development

Amberleigh . . . . . . . . . . . Buffalo, NY 1st half 1999 - 80 - 80 Development

Independence Village . . . . . . East Lansing, MI 2nd half 1999 - 60 - 60 Development
---- ---- ---- ----

TOTAL . . . . . . . . . . . . 380 614 - 994
=== === ===
</TABLE>

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

(1) "Development" indicates that development activities, such as site
surveys, preparation of architectural plans, or initiation of zoning
processes, have commenced (but construction has not commenced).
"Construction" indicates that construction activities, such as
ground-breaking activities, exterior construction, or interior build-out
have commenced.

Develop New Senior Living Communities

General. The Company intends to continue to expand its operations
through the development and construction of new senior living communities in
selected markets which provide a quality lifestyle that is affordable to a
large segment of seniors. The Company's national presence provides it with
extensive research and experience in various markets which serve as the basis
for the formulation of its development strategy in the selection of new
markets. The Company's development plan calls for the identification of
multiple markets in which construction can occur within the Company's targeted
time frame and budget. The Company has developed a list of target markets and
submarkets based upon local market conditions, the availability of development
sites and local construction capabilities, the existence of development
barriers to entry, the overall health and growth trends of the local economies,
and the presence of a significant elderly population.

The Company's senior management has extensive experience in real estate
development, having developed in excess of $350 million of senior living
communities. The Company has an integrated internal development approach
pursuant to which the Company's management and other personnel (including
designers and architects, market analysts, and construction managers) locate
sites for, develop, and open its communities. Personnel who are experienced in
site selection conduct extensive market and site-specific feasibility studies
prior to the Company's committing significant financial resources to new
projects. The Company believes it can rapidly expand its operations into new
markets and strengthen its presence within its existing markets utilizing its
existing residence models, such as the Product 2000 model.

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<PAGE> 37
Development with Tri-Point. Eleven of the 17 senior living communities
referred to in the table below will be Product 2000 communities, and will be
developed pursuant to an arrangement with Tri-Point, an affiliate of the
Company, under which Tri-Point will pay development and management fees to the
Company for development and management services and the Company will have
options to lease or purchase the communities upon their completion. Tri-Point
will be responsible for funding the construction and lease-up costs. These
communities will have an aggregate capacity for approximately 1,496 residents
at an aggregate estimated cost of completion and lease-up of approximately
$80.0 million to $100.0 million. The Product 2000 community model is designed
to provide middle income residents with a senior living community having
amenities typical of higher-priced communities through more efficient space
design, emphasizing common areas and providing more efficient layouts of the
living areas. See "Certain Transactions-Tri-Point Development Agreement."

The Product 2000 design may be configured in a number of different ways
thereby providing the Company with flexibility in adapting to a particular
geographic market, neighborhood, or site. In addition, the Product 2000 design
has been developed to facilitate the prompt, efficient, cost-effective delivery
of health care and personal services. Site requirements for the various
designs range from 4.5 to 6.0 acres. The Product 2000 design may also provide
for specially designed residential units, common areas, and dining rooms for
residents with Alzheimer's and other forms of dementia.

The Company believes that its designs meet the desire of many of its
residents to move into a new residence that approximates, as nearly as
possible, the comfort of their prior home. The Company also believes that its
designs achieve several other objectives, including: (i) lessening the trauma
of change for residents and their families; (ii) facilitating resident mobility
and caregiver access; (iii) enhancing operating efficiencies; (iv) enhancing
the Company's ability to match its products to targeted markets; and (v)
differentiating the Company from its competitors.

Development through Other Strategic Alliances. The Company has also
formed strategic alliances with for-profit and not-for-profit organizations
(such as Buckner Retirement Services, Inc.) to develop, lease-up and manage
additional communities while reducing the investment of, and associated risks
to, the Company. The Company's alliances are with established development
companies or not-for-profit owner/operators of senior living communities. Six
of the 17 senior living communities referred to in the table below will be
developed through strategic alliances. The for-profit entities generally
provide construction management experience, existing relationships with local
contractors, suppliers, and municipal authorities, knowledge of local and state
building codes and building laws, and assistance with site selection for new
communities. The not-for-profit organizations generally provide existing
relationships with church and other religious organizations, a community
reputation of caring for seniors, a tax-exempt status that permits tax- exempt
bond financing, and in certain instances, home health care services. The
Company contributes its operational and industry expertise, has had, in most
cases, leasing and management responsibilities for communities owned by these
organizations, as well as has the right of first refusal to acquire the
communities in most cases. Through June 30, 1997, the Company had one new
community with a 385-resident capacity under construction and six communities
with 1,445 resident capacity under development with these organizations. The
Company intends to continue to evaluate opportunities to form similar joint
ventures and strategic alliances in the future.

The Company is currently evaluating a number of potential development
projects. The table below summarizes information regarding those developments
which the Company expects to complete by 1999.

<TABLE>
<CAPTION>
Scheduled
LOCATION OF DEVELOPMENT PROJECTS: Completion IL AL SN Total Status(1)
---------- -- -- -- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Houston, TX . . . . . . . . . . 2nd half 1997 243 82 60 385 Construction

Fort Worth, TX . . . . . . . . . 2nd half 1998 136 - - 136 Development

Irving, TX . . . . . . . . . . . 2nd half 1998 136 - - 136 Development

Fort Worth, TX . . . . . . . . . 2nd half 1998 136 - - 136 Development

Jacksonville, FL . . . . . . . . 2nd half 1998 136 - - 136 Development

N. Richland Hills, TX . . . . . . 2nd half 1998 136 - - 136 Development

Jacksonville, FL . . . . . . . . 2nd half 1998 136 - - 136 Development

Shreveport, LA . . . . . . . . . 2nd half 1998 136 - - 136 Development

Brownwood, TX . . . . . . . . . 2nd half 1998 125 30 - 155 Development

Dallas, TX . . . . . . . . . . . 2nd half 1998 136 - - 136 Development

Stuart, FL . . . . . . . . . . . 2nd half 1998 136 - - 136 Development

Mesquite, TX . . . . . . . . . . 1st half 1999 136 - - 136 Development

Beaumont, TX . . . . . . . . . . 1st half 1999 156 54 30 240 Development

Oklahoma City, OK . . . . . . . . 1st half 1999 136 - - 136 Development

Trumbull, CT (2) . . . . . . . . 1st half 1999 120 30 - 150 Development

Dallas, TX (2) . . . . . . . . . 1st half 1999 270 40 - 310 Development

Georgetown, TX . . . . . . . . . 2nd half 1999 270 84 40 394 Development
----- --- --- -----
TOTAL . . . . . . . . . . . 2,680 320 130 3,130
===== === === =====

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

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<PAGE> 38
(1) "Development" indicates that development activities, such as site surveys,
preparation of architectural plans, or initiation of zoning processes,
have commenced (but construction has not commenced). "Construction"
indicates that construction activities, such as ground-breaking
activities, exterior construction, or interior build-out have commenced.

Development of Joint Venture Operations in China

The Company has recently entered into a joint venture agreement with New
World Development, Ltd. ("New World") for the purpose of investing, developing
and managing senior living communities in several cities in mainland China.
New World is a publicly traded property development company based in Hong Kong
that currently develops condominium and office projects in China. To date, New
World estimates that it has invested approximately $2.6 billion in real estate
ventures in China. Pursuant to the agreement with New World, the Company and
New World will form an entity which will develop and operate senior living
communities in major cities in China. New World will contribute its expertise
in constructing properties in China and will bear substantially of all of the
construction costs. The Company will be responsible for development of senior
living communities and for property management services. The Company currently
expects that following its initial development of senior living communities in
China, the joint venture will sell individual units in the communities to
prospective residents, and the Company will retain the operating
responsibilities in such communities. The Company's target cities currently
include Shanghai, Guangzhou and Beijing.

Pursue Strategic Acquisitions

The Company intends to continue to pursue single or portfolio acquisitions
of senior living communities and, to a lesser extent, other assisted living and
long-term care communities. Through strategic acquisitions, the Company plans
to enter new markets or acquire communities in existing markets as a means to
increase market share, augment existing clusters, strengthen its ability to
provide a broad range of care, and create operating efficiencies. As the
industry continues to consolidate, the Company believes that opportunities will
arise to acquire other senior living companies. The Company believes that the
current fragmented nature of the senior living industry, combined with the
Company's financial resources, national presence, and extensive contacts within
the industry, should provide it with the opportunity to evaluate a number of
potential acquisition opportunities. In reviewing acquisition opportunities,
the Company will consider, among other things, geographic location, competitive
climate, reputation and quality of management and communities, and the need for
renovation or improvement of the communities.

Develop and Acquire Additional Home Health Care Agencies

The Company intends to expand its home health care services by developing,
acquiring, and managing new home health care agencies and expanding its range
of existing home health care services. The Company currently anticipates that
its home health care agencies will be based at the Company's communities, and
will serve both the Company's communities and the surrounding area. The
Company believes that the expansion of its home health care services will
enhance its ability to provide a broad range of health care services, increase
its market visibility, augment the creation of senior living networks in
targeted areas, and further enhance efforts to coordinate with managed care
networks, increase company profitability, as well as aid in the maintaining of
current occupancy levels. The Company currently operates one home health care
agency, and intends to establish approximately five new home health care
agencies at its owned properties by the fourth quarter 1998.

Expand Referral Networks

The Company intends to continue to develop relationships (which, in
certain instances, may involve strategic alliances or joint ventures) with
local and regional hospital systems, managed care organizations, and other
referral sources to attract new residents to the Company's communities. The
Company believes that such arrangements or alliances, which could range from
joint marketing arrangements to priority transfer agreements, will enable it to
be strategically positioned within the Company's markets if, as the Company
believes, senior living programs become an integral part of the evolving health
care delivery system.

OPERATIONS

Centralized Management

The Company centralizes its corporate and other administrative functions
so that the community-based management and staff can focus their efforts on
resident care. The Company maintains centralized accounting, finance, human
resources,

37
<PAGE> 39
training, and other operational functions at its national corporate office in
Dallas, Texas. The Company's corporate office is generally responsible for:
(i) establishing Company-wide policies and procedures relating to, among other
things, resident care and operations; (ii) performing accounting functions;
(iii) developing employee training programs and materials; (iv) coordinating
human resources; (v) coordinating marketing functions; and (vi) providing
strategic direction. In addition, financing, development, construction and
acquisition activities, including feasibility and market studies, and community
design, development, and construction management, are conducted by the
Company's corporate offices.

The Company seeks to control operational expenses for each of its
communities through standardized management reporting and centralized controls
of capital expenditures, asset replacement tracking, and purchasing for larger
and more frequently used supplies. Community expenditures are monitored by
regional and district managers who are accountable for the resident
satisfaction and financial performance of the communities in their region.

Community-Based Management

An executive director manages the day-to-day operations at each senior
living community, including oversight of the quality of care, delivery of
resident services, and monitoring of financial performance, and is responsible
for all personnel, including food service, maintenance, activities, security,
assisted living, housekeeping, and, where applicable, nursing. In most cases,
each community also has department managers who direct the environmental
services, nursing or care services, business management functions, dining
services, activities, transportation, housekeeping, and marketing functions.

The assisted living and skilled nursing components of the senior living
communities are managed by licensed professionals, such as a nurse and/or a
licensed administrator. These licensed professionals have many of the same
operational responsibilities as the Company's executive directors, but their
primary responsibility is to oversee resident care. Many of the Company's
assisted living communities and some of its skilled nursing facilities are part
of a campus setting, which includes independent living. This campus
arrangement allows for cross-utilization of certain support personnel and
services, including administrative functions, which results in greater
operational efficiencies and lower costs than free-standing facilities.

The Company actively recruits personnel to maintain adequate staffing
levels at its existing communities as well as new staff for new or acquired
communities prior to opening. The Company has adopted comprehensive recruiting
and screening programs for management positions that utilize corporate office
team interviews and thorough background and reference checks. The Company
offers system-wide training and orientation for all of its employees at the
community level through a combination of Company-sponsored seminars and
conferences.

Home Health Management

The Company collects all home health care financial data through the use
of an electronic data system. This system gives senior management the ability
to identify emergency trends, monitor cost controls and develop current pricing
strategies. All accounting functions are performed at the corporate office.

The Company's home health care agency is managed under the auspices of the
executive director of the community where that agency is located and under the
direct control of an agency director who is a registered nurse. This director
and his or her team of registered nurses, licensed practical nurses, home
health care aides and various allied medical professionals focus on assessing
and subsequently managing the health care needs of residents in that senior
living community.

Quality Assurance

Quality assurance programs are coordinated and implemented by the
Company's corporate and regional staff. The Company's quality assurance is
targeted to achieve maximum resident and resident family member satisfaction
with the care and services delivered by the Company. The Company's primary
focus in quality control monitoring includes routine in-service training and
performance evaluations of care givers and other support employees. Additional
quality assurance measures include:

Resident and Resident Family Input. On a routine basis the Company
provides residents and family members the opportunity to provide valuable input
regarding the day-to-day delivery of services. On-site management at each
community has fostered and encouraged active resident councils and resident
committees who meet independently. These resident bodies meet with on-site
management on a monthly basis to offer input and suggestions to the quality and
delivery of services. Additionally, at each community the Company conducts
annual resident satisfaction surveys to further monitor the satisfaction levels
of both residents and family members. These surveys are sent directly to the
corporate headquarters for tabulation and distribution to on-site staff and
residents. For any departmental area of service scoring below a 90%, a plan of
correction is developed jointly by on-site, regional and corporate staff for
immediate implementation.

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<PAGE> 40
Regular Community Inspections. On a monthly basis a community inspection
is conducted by regional and/or corporate staff. Included as part of this
inspection is the monitoring of the overall appearance and maintenance of the
community interiors and grounds. The inspection also includes monitoring staff
professionalism and departmental reviews of maintenance, housekeeping,
activities, transportation, marketing, administration and food service as well
as health care, if applicable. The monthly inspection also includes the
observation of residents in their daily activities and community compliance
with government regulations.

Independent Service Evaluations. The Company engages the services of
outside professional independent consulting firms to evaluate various
components of the community operations. These services include "mystery
shops," competing community analysis, pricing recommendations and product
positioning. This provides management with valuable unbiased product and
service information. A plan of action regarding any areas requiring
improvement or change is implemented based on information received. At
communities where health care is delivered, these consulting service reviews
include the on-site handling of medications, record-keeping, and general
compliance with all governmental regulations.

Marketing

Each community is staffed by on-site marketing directors and additional
marketing staff depending on the community size. The primary focus of the
on-site marketing staff is to create awareness of the Company and its services
among prospective residents and family members, professional referral sources
and other key decision makers. The marketing efforts incorporate an aggressive
marketing plan to include monthly and annual goals for leasing, new lead
generation, prospect follow up, community outreach, and resident and family
referrals. Additionally, the marketing plan includes a calendar of promotional
events and a comprehensive media program. On-site marketing departments
perform a competing community assessment twice annually. Corporate and
regional marketing directors monitor the on-site marketing departments'
effectiveness and productivity on a monthly basis. Routine detailed marketing
department audits are performed on an annual basis or more frequently if deemed
necessary. Corporate and regional personnel assist in the development of
marketing strategies for each community and produce creative media, assist in
direct mail programs and necessary marketing collateral materials. Ongoing
sales training of on-site marketing staff is implemented by corporate and
regional marketing directors.

In the case of new development, the corporate and regional staff develop a
comprehensive community outreach program that is implemented at the start of
construction. A marketing pre-lease program is developed and on-site marketing
staff are hired and trained to begin the program implementation six to nine
months prior to the community opening. Extensive use of media to include
radio, television, print, direct mail and telemarketing is implemented during
this pre-lease phase.

After the community is opened and sustaining occupancy levels are
attained, the on-site marketing staff is more heavily focused on resident and
resident family referrals, as well as professional referrals. A maintenance
program of print media and direct mail is then implemented.

GOVERNMENT REGULATION

Changes in existing laws and regulations, adoption of new laws and
regulations and new interpretations of existing laws and regulations could have
a material effect on the Company's operations. Failure by the Company to
comply with applicable regulatory requirements could have a material adverse
effect on the Company's business, financial condition, and results of
operations. Accordingly, the Company monitors legal and regulatory
developments on local and national levels.

The health care industry is subject to extensive regulation and frequent
regulatory change. At this time, no federal laws or regulations specifically
regulate assisted or independent living residences. While a number of states
have not yet enacted specific assisted living regulations, the Company's
communities are subject to regulation, licensing, Certificate of Need and
permitting by state and local health and social service agencies and other
regulatory authorities. While such requirements vary from state to state, they
typically relate to staffing, physical design, required services, and resident
characteristics. The Company believes that such regulation will increase in
the future. In addition, health care providers are receiving increased
scrutiny under anti-trust laws as integration and consolidation of health care
delivery increases and affects competition. The Company's communities are also
subject to various zoning restrictions, local building codes, and other
ordinances, such as fire safety codes. Failure by the Company to comply with
applicable regulatory requirements could have a material adverse effect on the
Company's business, financial condition, and results of operations. Regulation
of the assisted living industry is evolving. The Company is unable to predict
the content of new regulations and their effect on its business. There can be
no assurance that the Company's operations will not be adversely affected by
regulatory developments.

The Company believes that its communities are in substantial compliance
with applicable regulatory requirements. However, in the ordinary course of
business, one or more of the Company's communities could be cited for
deficiencies.

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<PAGE> 41
In such cases, the appropriate corrective action would be taken. To the
Company's knowledge, no material regulatory actions are currently pending with
respect to any of the Company's communities.

Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state, and
local laws exist that also may require modifications to existing and planned
properties to permit access to the properties by disabled persons. While the
Company believes that its communities are substantially in compliance with
present requirements or are exempt therefrom, if required changes involve a
greater expenditure than anticipated or must be made on a more accelerated
basis than anticipated, additional costs would be incurred by the Company.
Further legislation may impose additional burdens or restrictions with respect
to access by disabled persons, the costs of compliance with which could be
substantial.

In addition, the Company is subject to various federal, state and local
environmental laws and regulations. Such laws and regulations often impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of hazardous or toxic substances. The costs of any required
remediation or removal of these substances could be substantial and the
liability of an owner or operator as to any property is generally not limited
under such laws and regulations and could exceed the property's value and the
aggregate assets of the owner or operator. The presence of these substances or
failure to remediate such contamination properly may also adversely affect the
owner's ability to sell or rent the property, or to borrow using the property
as collateral. Under these laws and regulations, an owner, operator or an
entity that arranges for the disposal of hazardous or toxic substances, such as
asbestos-containing materials, at a disposal site may also be liable for the
costs of any required remediation or removal of the hazardous or toxic
substances at the disposal site. In connection with the ownership or operation
of its properties, the Company could be liable for these costs, as well as
certain other costs, including governmental fines and injuries to persons or
properties. The Company will have completed Phase I environmental audits of
the communities in which the Company owns interests prior to consummation of
the Offering. The Company is not currently aware of any material environmental
liabilities that exist with respect to these communities.

The Company believes that the structure and composition of government, and
specifically health care, regulations will continue to change and, as a result,
regularly monitors developments in the law. The Company expects to modify its
agreements and operations from time to time as the business and regulatory
environments change. While the Company believes it will be able to structure
all its agreements and operations in accordance with applicable law, there can
be no assurance that its arrangements will not be successfully challenged.

COMPETITION

The senior living services industry is highly competitive, and the Company
expects that all segments of the industry will become increasingly competitive
in the future. Although there are a number of substantial companies active in
the senior living services industry, the industry continues to be very
fragmented and characterized by numerous small operators. The Company believes
that the primary competitive factors in the senior living services industry
are: (i) reputation for and commitment to a high quality of care; (ii) quality
of support services offered (such as home health care and food services); (iii)
price of services; (iv) physical appearance and amenities associated with the
communities; and (v) location. The Company competes with other companies
providing independent living, assisted living, skilled nursing, home health
care, and other similar service and care alternatives, some of whom may have
greater financial resources than the Company. Because seniors tend to choose
senior living communities near their homes, the Company's principal competitors
are other senior living and long-term care communities in the same geographic
areas as the Company's communities. The Company also competes with other
health care businesses with respect to attracting and retaining nurses,
technicians, aides, and other high quality professional and non-professional
employees and managers.

INSURANCE AND LEGAL PROCEEDINGS

The provision of personal and health care services entails an inherent
risk of liability. In recent years, participants in the senior living and
health care services industry have become subject to an increasing number of
lawsuits alleging negligence or related legal theories, many of which involve
large claims and result in the incurrence of significant defense costs. The
Company currently maintains property, liability, and professional medical
malpractice insurance policies for the Company's owned and managed communities
under a master insurance program in amounts and with such coverages and
deductibles that the Company believes are within normal industry standards
based upon the nature and risks of the Company's business. The Company also
has an umbrella excess liability protection policy in the amount of $10.0
million per location. There can be no assurance that a claim in excess of the
Company's insurance will not arise. A claim against the Company not covered
by, or in excess of, the Company's insurance could have a material adverse
effect upon the Company. In addition, the Company's insurance policies must be
renewed annually. There can be no assurance that the Company will be able to
obtain liability insurance in the future or that, if such insurance is
available, it will be available on acceptable terms.

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<PAGE> 42
Under various federal, state, and local environmental laws, ordinances,
and regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and clean
up costs. The Company is not aware of any environmental liability with respect
to any of its owned, leased, or managed communities that it believes would have
a material adverse effect on the Company's business, financial condition, or
results of operations. The Company believes that its communities are in
compliance in all material respects with all federal, state, and local laws,
ordinances, and regulations regarding hazardous or toxic substances or
petroleum products. The Company has not been notified by any governmental
authority, and is not otherwise aware of any material non-compliance,
liability, or claim relating to hazardous or toxic substances or petroleum
products in connection with any of the communities it currently operates.

The Company currently is not party to any legal proceeding that it
believes would have a material adverse effect on its business, financial
condition, or results of operations.

EMPLOYEES

As of June 30, 1997, the Company employed approximately 1,558 persons, of
which approximately 882 are full-time employees (approximately 32 of whom are
located at the Company's corporate offices) and 676 are part-time employees.
None of the Company's employees is currently represented by a labor union and
the Company is not aware of any union organizing activity among its employees.
The Company believes that its relationship with its employees is good.

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<PAGE> 43
MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The following table sets forth certain information concerning each of the
Company's executive officers, directors and key employees:

<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
--------------------------- --- -----------------------------------------
<S> <C> <C>
Jeffrey L. Beck . . . . . . 52 Co-Chairman and Chief Executive Officer

James A. Stroud . . . . . . 47 Co-Chairman, Chief Operating Officer,
and Secretary

Lawrence A. Cohen . . . . . 43 Vice Chairman and Chief Financial Officer

Keith N. Johannessen . . . 40 President

Rob L. Goodpaster . . . . . 44 Vice President - National Marketing

David W. Beathard . . . . . 40 Vice President - Operations

Charles W. Allison . . . . 48 Vice President - Development

David R. Brickman . . . . . 39 Vice President and General Counsel

Kathleen L. Granzberg . . . 36 Controller - Corporate

Robert F. Hollister . . . . 41 Controller - Property

Dr. Victor Nee . . . . . . 62 Director - Nominee

J. Frank Miller, III . . . 45 Director - Nominee
</TABLE>

Messrs. Nee and Miller have agreed to become members of the Board of
Directors of the Company effective upon completion of the Offering. Prior to
the consummation of the Offering, the Company will identify two additional
independent directors who will be appointed to the Board effective upon the
completion of the Offering.

JEFFREY L. BECK has served as a director and Chief Executive Officer
of the Company and its predecessors since January 1986. He currently serves as
Co-Chairman and Chief Executive Officer of the Company. Mr. Beck also serves
on the boards of various educational, religious and charitable organizations
and in varying capacities with several trade associations. Mr. Beck served as
Vice Chairman of the American Seniors Housing Association from 1992 to 1994,
and as Chairman from 1994 to 1996, and remains a member of its Executive Board,
and is a council member of the Urban Land Institute. Mr. Beck is Chairman of
the Board of Directors of United Texas Bank of Dallas and is Chairman and
President of Beck Properties Trophy Club.

JAMES A. STROUD has served as a director and Chief Operating Officer
of the Company and its predecessors since January 1986. He currently serves as
Co-Chairman and Chief Operating Officer of the Company. Mr. Stroud also serves
on the boards of various educational and charitable organizations, and in
varying capacities with several trade organizations, including as a member of
the Founder's Council and Board of Directors of the Assisted Living Federation
of America, and as Housing Commissioner, President-Elect, and as a member of
the Board of Directors of the National Association For Senior Living
Industries. Mr. Stroud also serves as an Advisory Group member to the National
Investment Conference. Mr. Stroud was a Founder of the Texas Assisted Living
Association and serves as a member of its Board of Directors. Mr. Stroud has
earned a Masters in Law, is a licensed attorney and is also a Certified Public
Accountant.

LAWRENCE A. COHEN has served as a director and Vice Chairman and Chief
Financial Officer of the Company since November 1996. From 1991 to 1996, Mr.
Cohen served as President and Chief Executive Officer of Paine Webber
Properties Incorporated, which controlled a real estate portfolio having a cost
basis of approximately $3.0 billion, including senior living facilities of
approximately $110.0 million. Mr. Cohen is also president and a member of the
boards of directors of ILM Senior Living, Inc. and ILM Senior Living II, Inc.,
and is a member of the boards of directors of ILM I Lease Corporation and ILM
II Lease Corporation. In addition, he serves as a member of the Corporate
Finance Committee and chairman of the Direct Participation Programs
Subcommittee of the NASD Regulation, Inc., and was a founding member of the

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<PAGE> 44
executive committee of the Board of the American Seniors Housing Association.
Mr. Cohen has earned a Masters in Law, is a licensed attorney and is also a
Certified Public Accountant. Mr. Cohen has had positions with businesses
involved in senior living for 12 years.

KEITH N. JOHANNESSEN has served as President of the Company and its
predecessors since May 1994, and previously served as Executive Vice-President
since May 1993. From 1992 to 1993, Mr. Johannessen served as Senior Manager in
the health care practice of Ernst & Young. From 1987 to 1992, Mr. Johannessen
was Executive Vice President of Oxford Retirement Services, Inc. Mr.
Johannessen has served on the State of the Industry and Model Assisted Living
Regulations Committees of the American Seniors Housing Association. Mr.
Johannessen has been active in operational aspects of senior housing for 19
years.

ROB L. GOODPASTER has served as Vice President - National Marketing of
the Company and its predecessors since December 1992. From 1990 to 1992, Mr.
Goodpaster was National Director for Marketing for Autumn American, an owner
and operator of senior housing facilities. Mr. Goodpaster is a member of the
Board of Directors of the National Association For Senior Living Industries.
Mr. Goodpaster has been active in the operational, development and marketing
aspects of senior housing for 21 years.

DAVID W. BEATHARD has served as Vice President-Operations of the
Company and its predecessors since August 1996. From 1991 to 1996, Mr.
Beathard owned and operated a consulting firm which provided operational,
marketing and feasibility consulting regarding senior housing facilities. Mr.
Beathard serves as a Designated Alternate member of the Board of Directors of
the Texas Assisted Living Association. Mr. Beathard has been active in the
operational, sales and marketing, and construction oversight aspects of senior
housing for 23 years.

CHARLES W. ALLISON has served as Vice President - Development of the
Company and its predecessors since December 1996. From 1995 to 1996, Mr.
Allison served as Vice President of Development with Greenbriar Corporation,
and from 1993 to 1995 as Regional Director of Development for Sterling House
Corporation, both of which are in the senior housing and health care development
and operational business. Mr. Allison has been active in site selection,
feasibility phase, design phase, and construction of senior housing properties
and multi-family commercial real estate for 29 years. Mr. Allison has earned a
Masters Degree in Business Administration.

DAVID R. BRICKMAN has served as Vice President and General Counsel of
the Company and its predecessors since July 1992. From 1989 to 1992, Mr.
Brickman served as in-house counsel with LifeCo Travel Management Company, a
corporation which provided travel services to U.S. corporations. Mr. Brickman
has earned a Masters of Business Administration and a Masters in Health
Administration. Mr. Brickman has either practiced law or performed in-house
counsel functions for 11 years.

KATHLEEN L. GRANZBERG, a Certified Public Accountant, has served as
the Corporate Controller for the Company and its predecessors since December
1991, and as Property Controller since 1987. Ms. Granzberg is a member of the
American Institute of Certified Public Accountants and is also a member of the
Texas Society of Certified Public Accountants.

ROBERT F. HOLLISTER, a Certified Public Accountant, has served as
Property Controller for the Company and its predecessors since April 1992.
From 1985 to 1992, Mr. Hollister was Chief Financial Officer and Controller of
Kavanaugh Securities, Inc., a NASD broker dealer. Mr. Hollister is a Certified
Financial Planner. Mr. Hollister is a member of the American Institute of
Certified Public Accountants and is also a member of the Texas Society of
Certified Public Accountants.

DR. VICTOR W. NEE, has been a Professor in the Department of Aerospace
and Mechanical Engineering at the University of Notre Dame since 1973. In
addition to his professorial duties, Dr. Nee served as Director of the Advanced
Technology Center at the University of Massachusetts, Dartmouth from 1993 to
1995, and as Director of the Advanced Engineering Research Laboratory at the
University of Notre Dame from 1991 to 1993. Dr. Nee received a Bachelors of
Science from the National Taiwan University in Civil Engineering and a Ph.D. in
Fluid Mechanics from The Johns Hopkins University. Dr. Nee holds international
positions as an advisor to governmental, educational and industrial
organizations in China. Dr. Nee has an ongoing relationship with New World and
will continue as Company's principal liaison with New World in connection with
the Company's China development operations.

J. FRANK MILLER, III, is currently the President and Chief Executive
Officer of JPI, the largest multi-family developer in the United States. Mr.
Miller has served in this capacity from 1989 to the present. Mr. Miller has
over 20 years of experience in real estate investment management and
development. As managing partner and president of JPI, he is responsible for
the ongoing operations of JPI's acquisitions, development, construction and
management activities and establishes and maintains JPI's financial
relationship. Mr. Miller was recognized as Builder of the Year for 1997 by
Multifamily Executive Magazine. Prior to joining JPI, Mr. Miller was President
of Southland Financial Corporation.

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<PAGE> 45
Mr. Stroud experienced personal difficulties in 1993 surrounding a
prolonged terminal illness of his daughter. In 1994, Mr. Stroud pled guilty
to felony charges of driving while intoxicated, and was sentenced to, among
other obligations, five years probation and after care obligations, and as a
result, a probated sentence in 1992 of convictions of driving while intoxicated
charges was extended. If Mr. Stroud were to be convicted of similar charges in
the future, the risk exists that he would be unable to continue his employment
with the Company. In 1993, Mr. Stroud pled guilty to misdemeanor possession of
marijuana and paid a minor fine. The Board of Directors has concluded that
these matters do not adversely affect his fitness to serve as an officer or
director of the Company.

COMMITTEES OF THE BOARD OF DIRECTORS

The Company's Board of Directors, which will consist of seven members
upon consummation of the Offering, is divided into three classes of as nearly
equal size as possible. At each annual meeting of stockholders, directors
constituting one class are elected for a three-year term. The terms of Messrs.
, , and will expire at the 1998 Annual
Meeting of Stockholders, the terms of Messrs. Cohen and will expire at the 1999
Annual Meeting of Stockholders, and the terms of Messrs. Beck and Stroud will
expire at the 2000 Annual Meeting of Stockholders. See "Description of Capital
Stock--Certain Charter and Bylaw Provisions."

The Board of Directors has established a policy of holding meetings on
a regular monthly basis and on other occasions when required by special
circumstances. Certain directors also devote their time and attention to the
Board's principal standing committees. The committees and their primary
functions are as follows:

Executive Committee. The members of the Executive Committee are
Messrs. Beck, Stroud and Cohen. The Executive Committee has been delegated all
of the powers of the Board of Directors to the extent permitted under the
Delaware General Corporation Law, other than those powers delegated to other
committees of the Board of Directors.

Audit Committee. The members of the Audit Committee will be Messrs.
, , and , all of whom are non-employee
directors. The Audit Committee, among other things, will make recommendations
concerning the engagement of independent auditors, reviews the results and scope
of the annual audit and other services provided by the Company's independent
auditors and reviews the adequacy of the Company's internal accounting controls.

Compensation Committee. The members of the Compensation Committee
will be Messrs. , , and ,
all of whom are non-employee directors. The Compensation Committee will make
recommendations to the full Board of Directors concerning salary and bonus
compensation and benefits for executive officers of the Company. The
Compensation Committee has the power and authority to take all actions and make
all determinations under the Company's 1997 Stock Incentive Plan, including the
grant of options thereunder.

EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning
the compensation paid to the Company's Chief Executive Officer and each of the
other three most highly compensated executive officers whose salary exceeded
$100,000 in 1996 for services rendered in all capacities to the Company for
fiscal 1996. All of the executive officers named below are referred to herein
as the "named executive officers."

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Annual Compensation
-----------------------------

Name and Principal Position(1) Salary Bonus
---------------------------------------------------- ----------- -------------
<S> <C> <C>
Jeffrey L. Beck . . . . . . . . . . . . . . . . . . $175,000(2) $1,483,300(2)
Co-Chairman and Chief Executive Officer

James A. Stroud . . . . . . . . . . . . . . . . . . $175,000(2) $1,483,300(2)
Co-Chairman, Chief Operating Officer, and
Secretary
Keith N. Johannessen . . . . . . . . . . . . . . . $128,750 $ 20,000
President

David R. Brickman . . . . . . . . . . . . . . . . . $ 85,000 $ 19,857
Vice President and General Counsel
</TABLE>

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

44
<PAGE> 46
(1) The Company has entered into an Employment Agreement with Mr. Lawrence
A. Cohen to be the chief financial officer of the Company. Pursuant
to the terms of such agreement, Mr. Cohen's annual salary will be
$250,000 plus a minimum annual bonus of 25% of Mr. Cohen's base
salary. See "--Employment Agreements."
(2) Following the consummation of the Offering, the annual salary of
Messrs. Beck and Stroud will be $175,000 each, subject to annual
adjustments and bonuses as approved by the Compensation Committee.
Bonus distributions in 1995 were paid based in part on Federal income
tax regulations relating to distributions of closely held corporations
and S corporations that will not apply to the Company after the
Offering. See note (2) to the table under "Selected Financial Data"
and "--Employment Agreements."

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with each of its
named executive officers. Messrs. Beck and Stroud entered into employment
agreements with the Company in May 1997; and Mr. Cohen, Mr. Brickman, and Mr.
Johannessen entered into employment agreements with the Company in November
1996. Messrs. Beck and Stroud's employment agreements contain terms that renew
annually for successive four-year periods, and the compensation thereunder
consists of a minimum base salary of $175,000 and a bonus that may be given at
the option of the Compensation Committee, in an amount that is at the
Compensation Committee's discretion. Mr. Cohen's employment agreement is for a
term of three years, and the compensation thereunder consists of a minimum
annual base salary of $250,000 and a minimum annual bonus of 25% of Mr. Cohen's
base salary. Messrs. Brickman and Johannessen's employment agreements are for
a term of three years and automatically extend for a two-year term on a
consecutive basis, and the compensation thereunder consists of an annual base
salary of $140,000 in the case of Mr. Johannessen, and $100,000 in the case of
Mr. Brickman, and an annual bonus as determined by the Board of Directors or
Compensation Committee. Included in each employment agreement is a covenant of
the employee not to compete with the Company during the term of his employment
and for a period of one year thereafter (two years in the case of Mr. Cohen).

Messrs. Beck and Stroud's employment agreements also provide that if
they are terminated by the Company other than for cause or for reasons of death
or disability or if they voluntarily resign for good reason, then the Company
will pay their base salary plus their minimum annual bonus for the balance of
the term of the agreement, but not less than two years (base salary plus
minimum annual bonus for three years if the termination is due to a Fundamental
Change, as defined therein). Mr. Cohen's employment agreement provides that if
Mr. Cohen is terminated by the Company other than for cause or for reasons of
death or disability or Mr. Cohen voluntarily resigns for good reason, then the
Company will pay to Mr. Cohen his base salary plus his minimum annual bonus for
the balance of the term of his employment agreement, but not less than one year
(base salary plus minimum annual bonus for two years if the termination is due
to a Fundamental Change, as defined therein). Messrs. Brickman and
Johannessen's employment agreements provide that if the employee is terminated
by the Company other than for cause or for reasons of death or disability or
the employee voluntarily resigns for good reason, then the Company will pay the
employee his base salary for the balance of the term of the employment
agreement, but in any event not to exceed two years, and not less than one year
from the date of notice of the termination.

Mr. Beck and Mr. Stroud's employment agreements also contain
provisions that allow them, in the event of their termination without cause, to
require the Company to register under the Securities Act the shares of Common
Stock that are owned by them on the date of their termination plus all shares
of Common Stock that they may acquire after their termination pursuant to the
exercise of options.

DIRECTOR COMPENSATION

Directors who are employees of the Company do not receive additional
compensation for serving as directors of the Company. Non-employee directors
are entitled to an annual retainer of $7,000 payable, in arrears, on the date
of each annual meeting of stockholders, commencing with the 1998 Annual Meeting
of Stockholders. Non-employee directors are also entitled to a fee of $500 for
each board meeting attended by such director, and $200 for each committee
meeting attended by such director that is not on the same day as a meeting of
the Board of Directors. All directors are entitled to reimbursement for their
actual out-of-pocket expenses incurred in connection with attending meetings.
In addition, non-employee directors receive options to purchase shares of
Common Stock in accordance with the provisions of the 1997 Stock Incentive
Plan. See "--Compensation Pursuant to Plans--1997 Stock Incentive Plan."

COMPENSATION PURSUANT TO PLANS

1997 Stock Incentive Plan

The Company has adopted the 1997 Omnibus Stock and Incentive Plan for
Capital Senior Living Corporation (the "1997 Stock Incentive Plan"). The Stock
Incentive Plan was approved by the Board of Directors and stockholders of the
Company in August 1997. Under the 1997 Stock Incentive Plan, the Compensation
Committee has the authority to grant to key employees and consultants of the
Company the following types of awards: (i) stock options in the form of
incentive stock options

45
<PAGE> 47
("ISO") or non-qualified stock options, or both; (ii) stock appreciation
rights; (iii) restricted stock; and/or (iv) other stock-based awards. Pursuant
to the 1997 Stock Incentive Plan, the maximum number of shares of Common Stock
which may be issued is 1,565,000 shares, plus shares which are reacquired
pursuant to the share repurchase plan. Under the share repurchase plan, which
is expressly set forth in the 1997 Stock Incentive Plan, shares may be
repurchased by the Company in the open market with the cash proceeds received
by the Company with respect to options exercised and shares (restricted) sold
under the 1997 Stock Incentive Plan, up to a maximum of 50% of the total shares
authorized for grant under the 1997 Stock Incentive Plan (determined by taking
into account any increase based on new issuance of shares, but without regard
to the share repurchase plan). The shares issued with respect to the 1997
Stock Incentive Plan may include authorized and unissued shares or treasury
shares. The maximum number of shares for which ISOs may be granted is
1,565,000. The maximum number of shares of Common Stock for which awards may
be made under the 1997 Stock Incentive Plan to an officer of the Company or
other person whose compensation may be subject to the limitations on
deductibility under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), is 100,000 during any single year. Any shares as to
which an option or other award expires, lapses unexpired, or is forfeited,
terminated, or canceled may become subject to a new option or other award. The
1997 Stock Incentive Plan will terminate on, and no award may be granted later
than, the tenth anniversary of the date of adoption of the 1997 Stock Incentive
Plan, but the exercise date of awards granted prior to such tenth anniversary
may extend beyond that date.

The 1997 Stock Incentive Plan provides for automatic grants of
non-qualified stock options to purchase shares of Common Stock to Outside
Directors. Options to purchase 9,000 shares of Common Stock have been
automatically granted to each person serving as an Outside Director as of the
consummation of the Offering at an exercise price equal to the initial public
offering price. If any person who was not previously a member of the Board of
Directors is elected or appointed an Outside Director following the
consummation of the Offering but prior to the date of the annual meeting of
stockholders of the Company in the year 2000, such Outside Director will
automatically be granted an option to purchase 7,000 shares of Common Stock if
such Outside Director's service begins prior to the second anniversary of the
Offering and 5,000 shares of Common Stock if such Outside Director's service
begins after the second anniversary of the Offering. The Board of Directors
may, in its discretion, increase or decrease the number of shares subject to
such option to reflect the extent to which such Outside Director's expected
service may exceed two years or may be less than one year. Such options shall
vest with respect to 3,000 shares on the date of the first annual meeting of
stockholders following the date of grant, 3,000 shares on the date of the
second annual meeting of stockholders following the date of grant, and any
remaining shares on the date of the third annual meeting of stockholders
following the date of grant.

On the date of each annual meeting of the stockholders of the Company
beginning with the annual meeting of stockholders held in the year 2000, unless
the 1997 Stock Incentive Plan has been terminated, each Outside Director who
will continue as a director following such meeting will receive an option to
purchase 3,000 shares of Common Stock. Such options will vest with respect to
all 3,000 shares on the date of the next annual meeting of stockholders. All
options automatically granted to an Outside Director will enable the optionee
to purchase shares of Common Stock at the fair market value of the Common Stock
on the date of grant. Outside Director optionees will not be able to transfer
or assign their options without the prior written consent of the Board of
Directors other than (i) transfers by the optionee to a member of his or her
immediate family or a trust for the benefit of the optionee or a member of his
or her immediate family, or (ii) transfers by will or by the laws of descent
and distribution. Options automatically granted to Outside Directors will have
a term of ten years from the date of grant. The exercise price may be paid in
cash, shares of Common Stock, or a combination thereof. The Board of Directors
has the discretion to reduce, but not increase, the number of shares awardable
to Outside Directors and to postpone, but not accelerate, the vesting of such
options.

ISOs and non-qualified stock options may be granted to employees for
such number of shares as the Board of Directors or Compensation Committee may
determine and may be granted alone, in conjunction with, or in tandem with
other awards under the 1997 Stock Incentive Plan or cash awards outside the
1997 Stock Incentive Plan. A stock option will be exercisable at such times
and subject to such terms and conditions as the Compensation Committee will
determine, but the term will be no more than ten years after the date of grant
(five years in the case of ISOs for certain 10% stockholders). The option
price for an ISO will not be less than 100% (110% in the case of certain 10%
stockholders) of the fair market value of the Common Stock as of the date of
grant. ISOs granted under the 1997 Stock Incentive Plan may not be transferred
or assigned other than by will or by the laws of descent and distribution.
Non-qualified stock options, restricted stock awards and stock appreciation
rights may not be transferred or assigned without the prior written consent of
the Compensation Committee, other than (i) transfer by the optionee to a member
of his or her immediate family or a trust for the benefit of the optionee or a
member of his or her immediate family, or (ii) transfers by will or by the laws
of descent and distribution.

Stock appreciation rights may be granted under the 1997 Stock Incentive
Plan alone, or in conjunction with all or part of a stock option. If issued in
conjunction with a stock option, it will be exercisable only when the
underlying stock option is exercisable and once a stock appreciation right has
been exercised, the related portion of the stock option underlying the stock
appreciation right will terminate. Upon the exercise of a stock appreciation
right, the Company will pay to the employee or consultant in cash, Common
Stock, or a combination thereof (the method of payment to be at the discretion
of the Compensation Committee), an amount equal to the excess of the fair
market value of the Common Stock on the exercise date over the option price,
multiplied by the number of stock appreciation rights being exercised.

46
<PAGE> 48
Restricted stock awards may be granted alone, in addition to, or in
tandem with, other awards under the 1997 Stock Incentive Plan or cash awards
made outside the 1997 Stock Incentive Plan. The provisions attendant to a
grant of restricted stock may vary from participant to participant. In making
an award of restricted stock, the Compensation Committee will determine the
periods during which the restricted stock is subject to forfeiture. During the
restriction period, the employee or consultant may not sell, transfer, pledge,
or assign the restricted stock, but will be entitled to vote the restricted
stock and to receive, at the election of the Compensation Committee, cash or
deferred dividends.

The Compensation Committee also may grant other types of awards such
as performance shares, convertible preferred stock, convertible debentures, or
other exchangeable securities that are valued, as a whole or in part, by
reference to or otherwise based on the Common Stock. These awards may be
granted alone, in addition to, or in tandem with stock options, stock
appreciation rights, restricted stock, or cash awards outside of the 1997 Stock
Incentive Plan. Awards will be made upon such terms and conditions as the
Compensation Committee may determine.

If there is a change in control or a potential change in control of
the Company (as defined in the 1997 Stock Incentive Plan), unless otherwise
determined by the Compensation Committee in its sole discretion, stock
appreciation rights and limited stock appreciation rights, and any stock
options which are not then exercisable, will become fully exercisable and
vested and the restrictions and deferral limitations applicable to restricted
stock and other stock- based awards may lapse and such shares and awards will
be deemed fully vested. Stock options, stock appreciation rights, limited
stock appreciation rights, restricted stock and other stock-based awards, will,
unless otherwise determined by the Compensation Committee in its sole
discretion, be cashed out on the basis of the change in control price (as
defined in the 1997 Stock Incentive Plan and as described below). The change in
control price will be the highest price per share paid in any transaction
reported on the NYSE or paid or offered to be paid in any bona fide transaction
relating to a change in control or potential change in control at any time
during the immediately preceding 60-day period, as determined by the
Compensation Committee.

Effective upon the completion of the Offering, the following directors
and named executive officers will be granted options to purchase shares of
Common Stock as set forth in the following table. The exercise price of each
option will be equal to the initial public offering price set forth on the
cover page of this Prospectus. Each such option will become exercisable over a
five-year period and will expire on the tenth anniversary of the date of grant.

<TABLE>
<CAPTION>
NAME NUMBER OF OPTION SHARES
<S> <C>

</TABLE>

CERTAIN TRANSACTIONS

ILM MANAGEMENT CONTRACTS

The Company is a party to two separate property management agreements
(the "ILM Management Agreements") with ILM I Lease Corporation and ILM II Lease
Corporation, two finite-life corporations formed by ILM Senior Living, Inc. and
ILM Senior Living II, Inc. (collectively, "ILM") that operate 13 senior living
communities. The ILM Management Agreements commenced on July 29, 1996 and
expire on December 31, 1999 and December 31, 2000, respectively, subject to
extension under certain circumstances, but not beyond July 29, 2001. Lawrence
A. Cohen is a director of ILM I Lease Corporation and ILM II Lease Corporation
and is the president and a director of ILM. Effective in November 1996, Mr.
Cohen was elected Vice Chairman and Chief Financial Officer of the Company.
The Company earned a total of $549,000 and $637,000 under the two ILM
Management Agreements for the nine months ended May 31, 1997. The Company has
an agreement with Mr. Cohen whereby he has agreed that, without the Company's
prior consent, he will not spend a significant portion of his time on matters
not related to his duties with the Company. See "Business--Third-Party
Management Contracts."

TRI-POINT DEVELOPMENT AGREEMENT

On July 1, 1997, the Company and Tri-Point Communities, L.P.
("Tri-Point"), a limited partnership owned by the Company's founders, Jeffrey
L. Beck and James A. Stroud and their affiliates, entered into a Development
and Management Agreement (the "Tri-Point Agreement") in connection with the
development and management of Product 2000 communities by the Company for
Tri-Point. The Company believes that the arrangement with Tri-Point provides
it with an attractive mechanism to develop and lease new communities without
employing its own capital and which will not be dilutive to earnings during the
development and lease-up phases. Further, the Company has the right and
expects to purchase communities developed by Tri-Point upon their completion
pursuant to a purchase option under the Tri-Point Agreement.

47
<PAGE> 49
Pursuant to the Tri-Point Agreement, upon the closing of the purchase
of the real estate by Tri-Point and the receipt of final, non-appealable zoning
approvals for the community to be developed, the parties expect to enter into a
development agreement for the construction of the community. The development
agreement provides for a development fee payable to the Company that the
Company expects will range between 4% and 7% of total project costs, depending
on the individual transaction and determined on the date of signing. Upon
completion of the construction of a community and pursuant to the development
agreement, the parties will enter into a management agreement, pursuant to
which the Company expects to earn a management fee equal to approximately 5% of
gross revenues and a lease-up fee equal to approximately $500 for each unit
leased and occupied. The Company believes that the development and management
fees to be paid to the Company approximate fair market fees. The Company
expects that each management agreement will have a 10-year term with a
five-year renewal option in favor of the Company. The Company will have an
option to purchase each community at a price equal to the then fair market
value (to be determined by a third-party appraisal). Each management agreement
is also expected to contain an option granting the Company the right to lease
each community at a rental rate equal to a negotiated percentage of total
project costs determined on the date of execution (the "Lease Option"). The
Lease Option will have an initial 10-year term and will grant the Company three
five-year fair market value renewal options. The Company has implemented a
policy requiring any material transaction (or series of related transactions)
between the Company and Tri-Point to be approved by all of the directors who
have no beneficial or economic interest in Tri-Point upon such directors'
determination that the terms of the transaction are no less favorable to the
Company than those that could have been obtained from third parties.

Tri-Point has received and accepted commitments for loan facilities
aggregating up to $100 million to fund its development activities.

PRIOR TRANSACTIONS INVOLVING CSLC, HCP AND NHP

Set forth below is a summary of prior transactions involving CSLC,
HCP, and NHP pursuant to which the founders of the Contributed Entities derived
economic benefits through their ownership of the Contributed Entities. As a
result of the Formation Transactions, the Company will succeed to the founders'
interests in these entities.

Project and Partnership Management

Capital Senior Living, Inc. ("CSL") (one of the Contributed Entities)
and until February 1, 1995, Capital Realty Group Senior Housing, Inc. ("Senior
Housing"), each an affiliate of Messrs. Beck and Stroud, have provided
community management services to CSLC, HCP and NHP pursuant to separate
management agreements and were paid management fees pursuant to the terms of
the management agreements. The management agreements provide for reimbursement
of all expenses of managing the communities owned by these entities, including
salaries of on-site managers and out-of-pocket expenses of CSL, and provide for
payment of a property management fee to CSL equal to 5% of the gross revenues
of each project. For the periods ended December 31, 1996, 1995 and 1994, and
the six months ended June 30, 1997, CSLC paid CSL and Senior Housing $987,104,
$986,877, $975,710, and $516,000 respectively, in property management fees for
managing the projects, and CSL and Senior Housing were paid $332,438 in 1996,
$430,329 in 1995 and $354,313 in 1994 and $179,000 in the six months ended June
30, 1997 for the reimbursement of expenses under the management agreements.
For the periods ended December 31, 1996, 1995 and 1994, and the six months
ended June 30, 1997, HCP paid CSL and Senior Housing $208,000, $252,000,
$472,000, and $170,000, respectively, in property management fees for managing
the projects, and was paid $256,000 in 1996, $235,000 in 1995 and $266,000 in
1994 and $86,000 in the six months ended June 30, 1997 for reimbursable
expenses under the management agreements. For the periods ended December 31,
1996, 1995 and 1994 and the six months ended June 30, 1997, NHP paid CSL and
Senior Housing $1,351,527, $1,326,188, $1,312,855 and $709,000, respectively in
management fees, dietary services fees and other operating expense
reimbursements related to services provided to NHP, and paid $3,816,530 in
1996, $3,925,369 in 1995, $3,858,879 in 1994 and $1,949,000 in the six months
ended June 30, 1997 for reimbursable expenses, including reimbursements for
salaries, related benefits and overhead reimbursements, under the management
agreements. Messrs. Beck and Stroud are the beneficial owners of all of the
capital stock of CSL and Senior Housing, and consequently, had an indirect
interest in such payments.

The general partners of CSLC, HCP and NHP are affiliates of Messrs.
Beck and Stroud. These general partners are not paid a fee for serving as such.
All property employees of each of CSLC, HCP and NHP are paid by an affiliate of
the general partner of these partnerships, which in turn is reimbursed by the
applicable partnership. Reimbursed gross payroll and health insurance premiums
paid by CSLC in 1996, 1995, 1994 and the six months ended June 30, 1997 was
$5,254,000, $5,213,000, $5,104,000, and $2,493,000, respectively. Reimbursed
gross payroll and health insurance premiums paid by HCP in 1996, 1995, 1994 and
the six months ended June 30, 1997 was $2,068,000, $2,491,000, $4,048,000, and
$1,548,000, respectively. Reimbursed gross payroll and health insurance
premiums paid by NHP in 1996, 1995, and the six months ended June 30, 1997 was
$3,817,000, $3,925,000, $3,859,000, and $1,744,000, respectively.

Transactions with CSLC

In connection with obtaining a $12 million mortgage loan for CSLC, an
affiliate of Messrs. Beck and Stroud received a 2% financing fee of $240,000 in
1994. In 1995, an affiliate of Messrs. Beck and Stroud received a 2% financing
fee of $110,000 in connection with increasing CSLC's mortgage loan commitment
from $12 million to $17.5 million. In

48
<PAGE> 50
connection with the extension of one of CSLC's mortgages, an affiliate of
Messrs. Beck and Stroud received $40,453 and $20,830 in 1996 and 1995,
respectively, as a financing fee.

In April 1996, an affiliate of Messrs. Beck and Stroud sold to CSLC
$1,269,000 of limited partnership interests in HCP at the then current fair
market value and recognized a $878,592 gain on such transaction.

Upon the sale by CSLC of the two communities in November 1996, an
affiliate of Messrs. Beck and Stroud received a $79,883 brokerage fee.

On December 10, 1996, CSLC entered into contract with Capital Senior
Development, Inc., an affiliate of Messrs. Beck and Stroud (one of the
Contributed Entities), to construct a 97 unit expansion of the Cottonwood
community, consisting of 49 units for independent living and 48 units for
assisted living. The budgeted cost for the expansion is approximately
$6,756,000.

Transactions with HCP

HCP may pay to Senior Housing or its affiliates, for services rendered
in connection with the sale of an HCP community, and shall be entitled to
receive the lesser of the following: (i) 3% of the sale price of HCP's
community or (ii) an amount not to exceed 50% of the standard real estate
commission. Amounts earned by Senior Housing in 1996 for the sale of HCP
communities were $66,000 and $92,250 in 1996 and 1995, respectively.

For property management services, Senior Housing or its affiliates are
entitled to receive leasing and property management fees. Since most of HCP's
communities have long-term, triple-net leases and others have independent fee
management engagements for most services, Senior Housing or its affiliates
received 1% of the monthly gross rental or operating revenues, totaling
approximately $72,000, $80,000, and $113,000 in 1996, 1995, and 1994,
respectively. Asset management fees paid to Senior Housing were approximately
$740,000, $712,000, and $731,000 in 1996, 1995, and 1994, respectively.

ORGANIZATION OF THE COMPANY

The Company was incorporated in October 1996 in anticipation of the
Offering. In connection with the organization of the Company, Messrs. Beck,
Stroud and Cohen contributed cash to the Company in the following amounts in
return for Common Stock in the Company as follows: Mr. Beck-- $5,600 paid for
560,000 shares; Mr. Stroud (through a trust)--$5,600 paid for 560,000 shares;
and Mr. Cohen-- $5,600 paid for 560,000 shares. In August 1997, Mr. Cohen
transferred 110,000 of his shares of Common Stock to Messrs. Beck and Stroud in
exchange for shares of capital stock of Quality Home Care, Inc., one of the
Contributed Entities. In connection with the organization of the Company, Mr.
Cohen entered into a certain stock purchase and shareholders' agreement (the
"Shareholders' Agreement") with Messrs. Beck and Stroud (through a trust)
pursuant to which Messrs. Beck and Stroud were granted rights of first refusal
and certain specified call rights. The Shareholders' Agreement will terminate
according to its terms upon the completion of the Offering. See "The
Company--Formation Transactions."

FORMATION TRANSACTIONS

In connection with the Formation Transactions, Messrs. Beck, Stroud
(and his affiliate), and Cohen will contribute the capital stock of the
Contributed Entities to the Company and will receive in exchange shares of
Common Stock and the issuance of the Formation Note, which will be repaid upon
completion of the Offering as set forth in the table below. See "Use of
Proceeds."

<TABLE>
<CAPTION>
NUMBER OF SHARES PROCEEDS FROM THE
NAME OF COMMON STOCK(1) FORMATION NOTE($)
---- --------------- -----------------
<S> <C> <C>
Jeffery L. Beck . . . . . . . . 3,843,673 $ 6,840,000

James A. Stroud . . . . . . . . 3,843,673 $ 6,840,000

Lawrence A. Cohen . . . . . . . - $ 1,000,000
</TABLE>

- -----------------------
(1) See Notes to "Principal Stockholders" for certain beneficial ownership
information.

49
<PAGE> 51
Also as part of the Formation Transactions, the Company will purchase
the Acquired Assets from CSLC for the assumption of the LBHI Loan, which will
be repaid promptly following the consummation of the Offering. Messrs. Beck
and Stroud (through a trust) beneficially own approximately 67% of the limited
partnership interests in CSLC and own the general partner of CSLC, and
consequently have an indirect interest in the debt assumption and repayment of
CSLC's debt through net proceeds of this Offering.

LBHI LOAN

On June 30, 1997, CSLC entered into a mortgage loan agreement with an
affiliate of Lehman Brothers, LBHI, pursuant to which LBHI agreed to make a
mortgage loan of $77.0 million to CSLC which is secured by four senior living
communities owned by CSLC and CSLC's investment in HCP and NHP. The loan
agreement matures on December 31, 1997. On July 1, 1997, $70.0 million was
outstanding under this loan agreement of which $5.5 million was used to repay
outstanding amounts under the Company's prior credit facility, and the balance
was used to purchase U.S. Treasury securities. The U.S. Treasury securities
were sold under a repurchase agreement with a term equal to their maturity. It
is expected that at consummation of the Offering, and as part of the Formation
Transactions, the Acquired Assets of CSLC will be acquired by the Company
through assumption of the LBHI Loan, the repurchase agreement will be canceled
and the LBHI loan will be repaid by the Company with net proceeds of the
Offering. The U.S. Treasury securities will revert to CSLC. Through their
ownership interests in CSLC, Messrs. Beck and Stroud will indirectly derive
financial benefits from CSLC's sale of the Acquired Assets to the Company and
the reversion of the U.S. Treasury securities to CSLC.

OTHER

During the years ended December 31, 1996 and 1995 and the six months
ended June 30, 1997, the Company was advanced $400,000, $250,000 and $500,000,
respectively, by Messrs. Beck and Stroud. Such funds were advanced pursuant to
separate demand notes bearing interest at 10% per annum. As of June 30, 1997,
$900,000 remains outstanding under such notes. In addition, at June 30, 1997,
the Company owed $266,481 to an affiliate of Messrs. Beck and Stroud pursuant
to a promissory note, dated February 1, 1995 in the original principal amount
of $467,164, bearing interest at 10% per annum and payable in seven annual
installments of $65,091 on December 31, plus accrued interest. This
indebtedness will be repaid by the Company upon completion of the Offering.
See "Use of Proceeds."

Jeffrey L. Beck is the chairman of the board and principal stockholder
of a bank where the majority of the Company's and CSLC, HCP and NHP's operating
cash accounts are maintained.

POLICY OF THE BOARD OF DIRECTORS

The Company has implemented a policy requiring any material
transaction (or series of related transactions) between the Company and related
parties to be approved by a majority of the directors (all of the directors in
the case of any such transaction between the Company and Tri-Point) who have
no beneficial or economic interest in such related party, upon such directors'
determination that the terms of the transaction are no less favorable to the
Company than those that could have been obtained from third parties. There can
be no assurance that these policies will always be successful in eliminating
the influence of conflicts of interest.

50
<PAGE> 52
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of June 30, 1997, after giving
effect to the 7,687,347 shares of Common Stock to be issued in the Formation
Transactions as described under "The Company--Formation Transactions," and as
adjusted to reflect the sale of the shares offered hereby, by: (i) each person
known by the Company to be the beneficial owner of more than five percent of
the Common Stock; (ii) each director, and persons nominated to become a
director, of the Company; (iii) each named executive officer of the Company;
and (iv) all executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
the Offering(1) the Offering(1)
---------------------- ------------------------
Name of Beneficial Owner Number Percent Number Percent
------------------------ ------ ------- ------ -------
<S> <C> <C> <C> <C>
Jeffrey L. Beck . . . . . . . . . . . 4,458,673 47.6 4,458,673 24.3

James A. Stroud(2) . . . . . . . . . . 4,458,674 47.6 4,458,674 24.3

Lawrence A. Cohen . . . . . . . . . . . 450,000 4.8 450,000 2.4

Executive officers as a group (11 9,367,347 100.0% 9,367,347 51.0%
persons) . . . . . . . . . . . . . . .
</TABLE>

- -------------------------------
* Less than one percent.

(1) Pursuant to Rule l3d-3 under the Exchange Act, a person has beneficial
ownership of any securities as to which such person, directly or
indirectly, through any contract, arrangement, undertaking,
relationship or otherwise has or shares voting power and/or investment
power and as to which such person has the right to acquire such voting
and/or investment power within 60 days. Percentage of beneficial
ownership as to any person as of a particular date is calculated by
dividing the number of shares beneficially owned by such person by the
sum of the number of shares outstanding as of such date and the number
of shares as to which such person has the right to acquire voting
and/or investment power within 60 days.

(2) Includes 4,366,843 shares beneficially owned by a family trust of
which Mr. Stroud is beneficiary.

51
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK

Upon completion of the Offering, the Company's authorized capital
stock will consist of 100,000,000 shares of Common Stock, par value $.01 per
share (the "Common Stock"), and 20,000,000 shares of Preferred Stock, par value
$.01 per share (the "Preferred Stock"). At June 30, 1997, after giving pro
forma effect to the Formation Transactions, there were outstanding 9,367,347
shares of Common Stock. All of the currently outstanding shares of Common
Stock are validly issued, fully paid and nonassessable under the Delaware
General Corporation Law (the "DGCL").

The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Amended and
Restated Certificate of Incorporation (the "Certificate") and by the provisions
of applicable law. A copy of the form of Certificate is included as an exhibit
to the Registration Statement of which this Prospectus is a part.

COMMON STOCK

Each holder of Common Stock is entitled to one vote for each share on
all matters submitted to a vote of stockholders. The Certificate does not
provide for cumulative voting, and accordingly, the holders of a majority of
the shares of Common Stock entitled to vote in any election of directors may
elect all of the directors standing for election. The Certificate provides
that whenever there is paid, or declared and set aside for payment, to the
holders of the outstanding shares of any class of stock having preference over
the Common Stock as to the payment of dividends, the full amount of dividends
and of sinking fund or retirement fund or other retirement payments, if any, to
which such holders are entitled, then dividends may be paid on the Common Stock
out of any assets legally available therefor, but only when and as declared by
the Board of Directors. The Certificate also provides that in the event of any
liquidation, dissolution or winding up of the Company, after there is paid to
or set aside for the holders of any class of stock having preference over the
Common Stock the full amount to which such holders are entitled, then the
holders of the Common Stock, shall be entitled, after payment or provision for
payment of all debts and liabilities of the Company, to receive the remaining
assets of the Company available for distribution, in cash or in kind. The
holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The rights, preferences and privileges of holders of Common
Stock will be subject to the rights of the holders of any shares of any series
of Preferred Stock that the Company may issue in the future.

PREFERRED STOCK

The Certificate provides that the Board of Directors of the Company is
authorized to issue Preferred Stock in series and to fix and state the voting
powers, full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special rights of the
shares of each such series and the qualifications, limitations and restrictions
thereof. Such action may be taken by the Board without stockholder approval.
Under the Certificate, each share of each series of Preferred Stock is to have
the same relative rights as, and be identical in all respects with, all other
shares of the same series. While providing flexibility in connection with
possible financings, acquisitions and other corporate purposes, the issuance of
Preferred Stock, among other things, could adversely affect the voting power of
the holders of Common Stock and, under certain circumstances, be used as a
means of discouraging, delaying or preventing a change in control of the
Company. There will be no shares of Preferred Stock outstanding upon
completion of the Offering and the Company has no present plan to issue shares
of its Preferred Stock.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Section 102(b)(7) of the DGCL authorizes corporations to limit or
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty of
care. Although Section 102(b)(7) does not change directors' duty of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. The Certificate limits the liability of directors to
the Company or its stockholders to the full extent permitted by Section 102(
b)(7). Specifically, directors of the Company are not personally liable for
monetary damages to the Company or its stockholders for breach of the
director's fiduciary duty as a director, except for liability: (i) for any
breach of the director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (iii) for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the DGCL; or (iv) for any transaction from which the director derived an
improper personal benefit.

To the maximum extent permitted by law, the Certificate provides for
mandatory indemnification of directors and officers of the Company against any
expense, liability and loss to which they may become subject, or which they may
incur as a result of being or having been a director or officer of the Company.
In addition, the Company must advance or reimburse directors and officers for
expenses incurred by them in connection with indemnifiable claims.

The Company also maintains directors' and officers' liability
insurance.

52
<PAGE> 54
CERTAIN CHARTER AND BYLAW PROVISIONS

Upon completion of the Offering, the Certificate and the Bylaws will
contain, among other things, certain provisions described below that may reduce
the likelihood of a change in the Board of Directors or voting control of the
Company without the consent of the Board of Directors. These provisions could
have the effect of discouraging, delaying or preventing tender offers or
takeover attempts that some or a majority of the stockholders might consider to
be in the stockholders' best interest, including offers or attempts that might
result in a premium over the market price for the Common Stock.

Classified Board. The number of directors of the Company shall be
such number as from time to time fixed by, or in the manner provided in, the
Bylaws within the range of a minimum of two and a maximum of eleven directors
specified in the Certificate. Pursuant to the Bylaws, the number of directors
within the range set forth in the Certificate shall be determined by resolution
of the Board passed by at least two-thirds of the directors then in office.
Directors are divided into three classes, each consisting of approximately
one-third of the total number of directors. The term of office of each class
is three years and expires in successive years at the time of the annual
meeting of stockholders.

Filling of Board Vacancies; Removal. Any vacancy occurring in the
Board of Directors, including any vacancy created by an increase in the number
of directors, shall be filled for the unexpired term by the concurring vote of
a majority of the directors then in office, whether or not a quorum, and any
director so chosen shall hold office for the remainder of the full term of the
class in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified.
Directors may only be removed with cause by the affirmative vote of the holders
of at least a majority of the outstanding shares of capital stock then entitled
to vote at an election of directors.

Other Constituencies. The Board of Directors, when evaluating any
offer, bid, proposal or similar communication of another party to: (i) make a
tender or exchange offer for any equity security of the Company; (ii) merge or
consolidate the Company with or into another corporation or corporations; or
(iii) purchase or otherwise acquire all or substantially all of the properties
and assets of the Company, shall, in connection with the exercise of its
judgment in determining what is in the best interests of the Company and its
stockholders, give due consideration to all relevant factors, including,
without limitation, the social, economic and regulatory effects on the Company,
on employees, providers and payors of the Company and its subsidiaries, on
residents and families served by the Company and its subsidiaries, on
operations of the Company's subsidiaries and on the communities in which the
Company and its subsidiaries operate or are located.

Stockholder Action by Unanimous Written Consent. Any action required
or permitted to be taken by the stockholders must be effected at a duly called
annual or special meeting of such holders and may not be effected by any
consent in writing by such holders, unless such consent is unanimous.

Call of Special Meeting. Special meetings of stockholders may be
called at any time but only by the Chairman of the Board, the President, by a
majority of the directors then in office or by stockholders possessing at least
25% of the voting power of the issued and outstanding voting stock entitled to
vote generally in the election of directors.

Bylaw Amendments. The stockholders may amend the Bylaws by the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of stock of the Company entitled to vote thereon. Directors may also
amend the Bylaws by a two-thirds vote of the directors then in office.

Certificate Amendments. Except as set forth in the Certificate or as
otherwise specifically required by law, no amendment of any provision of the
Certificate shall be made unless such amendment has been first proposed by the
Board of Directors upon the affirmative vote of at least two-thirds of the
directors then in office and thereafter approved by the affirmative vote of the
holders of at least a majority of the outstanding shares of stock of the
Company entitled to vote thereon; provided, however, if such amendment is to
the provisions described above or the provisions in the Certificate relating to
the authorized number of shares of Preferred Stock, Board authority to issue
Preferred Stock or the limitation on directors liability, such amendment must
be approved by the affirmative vote of the holders of at least two-thirds of
the outstanding shares of stock entitled to vote thereon.

Stockholder Nominations and Proposals. Notice of stockholder
proposals and director nominations must be timely given in writing to the
Secretary of the Company prior to the meeting at which the matters are to be
acted upon or the directors are to be elected. To be timely, notice must be
received at the principal offices of the Company not less than 60, nor more
than 90, days prior to the meeting of stockholders; provided, that if less than
70 days' notice or prior public disclosure of the date of the meeting is given
or made, notice by the stockholder to be timely must be so received not later
than the close of business on the 10th day following the day on which notice of
the date of the meeting was mailed or the day on which public disclosure was
made, whichever first occurs. The purpose of requiring advance notice is to
afford the Board of Directors an opportunity to consider the qualifications of
the proposed nominees or the merits of other stockholder proposals and, to the
extent deemed necessary or desirable by the Board of Directors, to inform
stockholders about those matters.

53
<PAGE> 55
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

Section 203 of the DGCL provides, in general, that a stockholder
acquiring more than 15% of the outstanding voting shares of a corporation
subject to the statute (an "Interested Stockholder"), but less than 85% of such
shares, may not engage in certain "Business Combinations" with the corporation
for a period of three years subsequent to the date on which the stockholder
became an Interested Stockholder unless: (i) prior to such date the
corporation's board of directors approved either the Business Combination or
the transaction in which the stockholder became an Interested Stockholder; or
(ii) the Business Combination is approved by the corporation's board of
directors and authorized by a vote of at least two-thirds of the outstanding
voting stock of the corporation not owned by the Interested Stockholder.

Section 203 defines the term "Business Combination" to encompass a
wide variety of transactions with or caused by an Interested Stockholder in
which the Interested Stockholder receives or could receive benefit on other
than a pro rata basis with other stockholders, including mergers, certain asset
sales, certain issuances of additional shares to the Interested Stockholder,
transactions with the corporation which increase the proportionate interest of
the Interested Stockholder or a transaction in which the Interested Stockholder
receives certain other benefits.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is .

54
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
18,367,347 shares of Common Stock. The 9,000,000 shares sold in the Offering
(or a maximum of 10,350,000 shares if the Underwriters' over-allotment option
is exercised in full) will be freely tradable without restriction or further
registration under the Securities Act, unless held by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act. The
remaining 9,367,347 shares outstanding are "restricted securities" as that term
is defined under Rule 144 and were issued by the Company in private
transactions in reliance upon one or more exemptions under the Securities Act.
Such restricted securities may be resold in a public distribution only if
registered under the Securities Act (which registration is contemplated with
respect to all of such restricted securities as described below) or pursuant to
an exemption therefrom, including Rule 144. Certain of the existing
stockholders and executive officers and directors of the Company have agreed,
subject to certain exceptions, that they will not sell any shares of Common
Stock prior to the expiration of 180 days from the date of this Prospectus
without the prior written consent of Lehman Brothers, subject to certain
exceptions.

In addition to the outstanding shares of Common Stock, the Company has
reserved for issuance 1,565,000 shares of Common Stock pursuant to the
Company's stock option programs, none of which will be exercisable until the
first anniversary of the Offering.

In general, under Rule 144 a person (or persons whose shares are
aggregated), including an affiliate of the Company, who has beneficially owned
restricted securities for at least one year is entitled to sell within any
three- month period a number of shares that does not exceed the greater of the
average weekly trading volume during the four calendar weeks preceding such
sale or 1% of the then outstanding shares of Common Stock, provided certain
manner of sale and notice requirements and requirements as to the availability
of current public information about the Company are satisfied. In addition,
affiliates of the Company must comply with the restrictions and requirements of
Rule 144, other than the one-year holding period, to sell shares of Common
Stock. A person who is deemed not to have been an "affiliate" of the Company
at any time during the 90 days preceding a sale by such person, and who has
beneficially owned such shares for at least two years, would be entitled to
sell such shares without regard to the volume limitations described above.

Subject to certain exceptions, the Company and all holders of
outstanding shares of Common Stock, including the executive officers of the
Company, and optionees holding options to purchase a total of shares of Common
Stock have agreed, subject to certain exceptions, with the Underwriters not to
sell or otherwise dispose of any shares of Common Stock, any options to
purchase Common Stock or any securities convertible into or exchangeable for
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Lehman Brothers.

55
<PAGE> 57
UNDERWRITING

The underwriters of the Offering (the "Underwriters"), for whom Lehman
Brothers Inc., J.C. Bradford & Co. and Smith Barney Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement (the form of which
is filed as an exhibit to the Registration Statement of which this Prospectus
forms a part) to purchase from the Company and the Company has agreed to sell
to each Underwriter, the aggregate number of shares of Common Stock set forth
below opposite the name of each such Underwriter.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ------

<S> <C>
Lehman Brothers Inc. . . . . . . . . . . . . . . . .

J.C. Bradford & Co. . . . . . . . . . . . . . . . .

Smith Barney Inc. . . . . . . . . . . . . . . . . .

---------
Total . . . . . . . . . . . . . . . . . . . . . . . 9,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
several Underwriters to purchase shares of Common Stock are subject to certain
conditions, and that if any of the shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all of the shares agreed
to be purchased by the Underwriters under the Underwriting Agreement must be so
purchased.

The Company has been advised that the Underwriters propose to offer
the shares of Common Stock directly to the public at the initial public
offering price set forth on the cover page of this Prospectus, and to certain
selected dealers who may include the Underwriters at such public offering price
less a selling concession not in excess of $
per share. The selected dealers may reallow a discount not in excess of $
per share to certain brokers or dealers. After the Offering, the public
offering price, the discount to selected dealers and the reallowance may be
changed by the Representatives.

The Company has granted to the Underwriters an option to purchase up
to an additional 1,350,000 shares of Common Stock at the public offering price
less the aggregate underwriting discounts and commissions shown on the cover
page of this Prospectus, solely to cover overallotments, if any. Such option
may be exercised at any time within 30 days after the date of the Underwriting
Agreement. To the extent that such option is exercised, each Underwriter will
be committed, subject to certain conditions, to purchase a number of additional
shares of Common Stock proportionate to such Underwriter's initial commitment
as indicated in the preceding table.

The Company has agreed that it will not, without the prior written
consent of Lehman Brothers Inc., offer for sale, contract to sell, sell or
otherwise dispose of (or enter into any transaction or device which is designed
to, or could be expected to, result in the disposition by any person at any
time in the future of), directly or indirectly, any shares of Common Stock
(other than shares offered hereby and shares issued pursuant to the 1997 Stock
Incentive Plan), or sell or grant options, rights or warrants with respect to
any shares of Common Stock (other than the grant of options pursuant to the
1997 Stock Incentive Plan), for a period of 180 days after the date of this
Prospectus.

In addition, certain directors and officers of the Company and their
affiliates have agreed that they will not, without the prior written consent of
the Company and Lehman Brothers Inc., subject to certain exceptions, offer for
sale, contract to sell, sell or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to, result in
the disposition by any person at any time in the future of), directly or
indirectly, any shares of Common Stock received by them in connection with the
Formation Transactions or the Offering, for an initial period of 180 days after
the date of this Prospectus.

56
<PAGE> 58
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to the payments they may be required to make in
respect thereto.

The Underwriters do not intend to confirm sales of Common Stock to any
account over which they exercise discretionary authority.

Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined through
negotiations between the Company and the Representatives. Among the factors to
be considered in such negotiations are the history of and the prospects for the
industry in which the Company competes, the past and present operations of the
Company, the historical results of operations of the Company, the prospects for
future earnings of the Company, the recent market prices of securities of
generally comparable companies, and the general condition of the securities
market at the time of the Offering. The initial price per share to the public
set forth on the cover page of this Prospectus should not, however, be
considered an indication of the actual value of the Common Stock. Such price
is subject to change as a result of market conditions and other factors.

Application will be made to list the shares of Common Stock on the
NYSE under the symbol " ."

Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with the offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described herein.

The Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the Representatives
purchase shares of Common Stock in the open market to reduce the Underwriters'
short position or to stabilize the price of the Common Stock, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.

In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resales of the security by purchasers in an
offering.

Neither the Company nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Common
Stock. In addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.

The Underwriters have reserved for sale at the public offering price
up to 450,000 shares of Common stock to directors, officers, employees and
consultants of the Company, their business affiliates and related parties who
have expressed an interest in purchasing shares. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase the reserved shares. Any reserved shares not so purchased
will be offered by the Underwriters to the general public on the same basis as
the others have been offered hereby.

In consideration of investment banking services provided by Lehman
Brothers Inc. in connection with the structuring of the Company and the
Formation Transactions, the Company will pay Lehman Brothers Inc. an advisory
and structuring fee equal to 0.75% of the gross proceeds of the Offering. Under
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (the "NASD"), when more than 10% of the net proceeds of a public offering
of equity securities are to be paid to members of the NASD or affiliates of
members participating in the offering, the price at which the equity securities
are distributed to the public must be no lower than that recommended by a
"qualified independent underwriter" meeting certain standards. Lehman Brothers
Inc. is a member of the NASD. Lehman Brothers Inc. will receive more than 10%
of the net proceeds from the Offering as the result of the use of such proceeds
to repay the LBHI Loan. See "Use of Proceeds." J.C. Bradford & Co. has agreed
to act as the qualified independent underwriter in connection with the
Offering, has participated in the preparation of this Prospectus and of the
Registration Statement of which this Prospectus forms a part and has exercised
the usual standard of due diligence with respect thereto. The price of the
Common Stock when sold will be no lower than that recommended by J.C. Bradford
& Co. The Company has agreed to indemnify J.C. Bradford & Co. against certain
liabilities under the Securities Act, or to contribute to payments which J.C.
Bradford & Co. may be required to make in respect thereof.

57
<PAGE> 59
LEGAL MATTERS

The validity of the Common Stock to be offered hereby will be passed
upon for the Company by Jenkens & Gilchrist, a Professional Corporation,
Dallas, Texas. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Rogers & Wells, New York, New York.

EXPERTS

The combined financial statements of Capital Senior Living Corporation
at December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

The consolidated financial statements of HealthCare Properties, L.P.
and Subsidiaries as of December 31, 1996 and 1995, and for each of the years in
the three-year period ended December 31, 1996, have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

The independent accountants of a predecessor to the Company for fiscal
1995 were Coopers & Lybrand LLP. Coopers & Lybrand LLP was replaced as the
independent auditors in May 1997. None of the reports of Coopers & Lybrand LLP
on the financial statements for either of fiscal 1994 or 1995 contained an
adverse opinion or a disclaimer of opinion, or was qualified as to uncertainty,
audit scope, or accounting principles. During the two most recent fiscal years
and the subsequent interim period preceding such dismissal, there were no
disagreements with Coopers & Lybrand LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.

In May 1997, Ernst & Young LLP was engaged as principal accountants
for the Company, among other things, to audit the financial statements of the
Company for fiscal 1996. The selection of Ernst & Young LLP, and the
replacement of Coopers & Lybrand LLP, was made by the Board of Directors.
Prior to its engagement, the Company did not consult with Ernst & Young LLP on
either the application of accounting principles to a completed or proposed
specific transaction, or the type of audit opinion that might be rendered on
the Company's or its predecessors' financial statements.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. As used herein, the term "Registration Statement" means
the initial Registration Statement and any and all amendments thereto. This
Prospectus omits certain information contained in the Registration Statement as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement, including the exhibits
thereto. Statements herein concerning the contents of any contract or other
document am not necessarily complete and in each instance reference is made to
such contract or other document filed with the Commission as an exhibit to the
Registration Statement, each such statement being qualified by and subject to
such reference in all respects.

As a result of the Offering, the Company will become subject to the
informational requirements of the Exchange Act, and in accordance therewith
will file reports and other information with the Commission. Reports,
registration statements, proxy statements, and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the Commission's Regional
Offices: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, New York, New York 10048. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Commission maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements, and other information regarding registrants
that file electronically with the Commission.

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

The Company intends to furnish holders of the Common Stock with annual
reports containing among other information, audited financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited, condensed financial information for the first three
quarters of each fiscal year. The Company also intends to furnish such other
reports as it may determine or as may be required by law.

58
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Combined Financial Statements of Capital Senior Living Corporation (unaudited):

Introduction to Pro Forma Combined Financial Statements . . . . . . . . . . . . . . . . F-2
Pro Forma Combined Balance Sheet - June 30, 1997 . . . . . . . . . . . . . . . . . . . . F-3

Pro Forma Combined Statements of Income - Six months ended June 30, 1997 and year ended
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4

Notes to Pro Forma Combined Financial Statements . . . . . . . . . . . . . . . . . . . F-6

Combined Financial Statements of Capital Senior Living Corporation:
Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . . . . . . . . . . F-13

Combined Balance Sheets - June 30, 1997 (unaudited) and
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14

Combined Statements of Income - Six months ended June 30, 1997 and
1996 (unaudited) and years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . F-15

Combined Statements of Equity - Six months ended June 30, 1997 (unaudited) and
years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . F-16
Combined Statements of Cash Flows - Six months ended June 30, 1997 and
1996 (unaudited) and years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . F-17

Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19

Consolidated Financial Statements of HealthCare Properties, L.P. and Subsidiaries

Report of KMPG Peat Marwick LLP, Independent Auditors. . . . . . . . . . . . . . . . . . . . F-40
Consolidated Balance Sheets - June 30, 1997 (unaudited) and December 31, 1996 and
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-41

Consolidated Statements of Operations - Six months ended June 30, 1997 and 1996
(unaudited) and years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . F-42

Consolidated Statements of Partnership Equity - Six months ended June 30, 1997 (unaudited)
and years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . F-43

Consolidated Statements of Cash Flows - Six months ended June 30, 1997 and 1996
(unaudited) and years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . F-44
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-45
</TABLE>

F-1
<PAGE> 61
INTRODUCTION TO PRO FORMA COMBINED FINANCIAL STATEMENTS

The unaudited Pro Forma Combined Balance Sheet as of June 30, 1997 and
unaudited Pro Forma Combined Statements of Income for the six months ended June
30, 1997 and the year ended December 31, 1996, represent the financial position
and results of operations of the Company for such periods giving effect to the
adjustments described in the accompanying notes, relating to the transactions
contemplated in connection with the Offering and the Formation Transactions, as
if the transactions had occurred as of June 30, 1997 for the unaudited Pro
Forma Combined Balance Sheet, and as of January 1, 1996 for the unaudited Pro
Forma Combined Statements of Income.

The unaudited Pro Forma Combined Balance Sheet and unaudited Pro Forma Combined
Statements of Income are presented for informational purposes only and do not
necessarily reflect the financial position or results of operations of the
Company which would have actually resulted had the Offering and Formation
Transactions occurred as of the dates indicated, or the future results of
operations of the Company. The unaudited Pro Forma Combined Balance Sheet and
unaudited Pro Forma Combined Statements of Income and the accompanying notes
should be read in conjunction with the historical combined financial statements
and the notes thereto of the Company, the consolidated financial statements and
the notes thereto of HCP, and "The Company-Formation Transactions" and "Use of
Proceeds" contained elsewhere in this Prospectus.

F-2
<PAGE> 62
CAPITAL SENIOR LIVING CORPORATION

PRO FORMA COMBINED BALANCE SHEET
(Unaudited)

ASSETS
<TABLE>
<CAPTION>
JUNE 30,1997
--------------------------------------------------
THE COMPANY PRO FORMA THE COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $13,198,573 [1] $10,478,364 $23,676,937
Cash, restricted 169,046 [2] (169,046) --
Accounts receivable, net 2,072,546 [2] (836,917) 1,235,629
Accounts receivable from affiliates 6,738 -- 6,738
Prepaid expenses and other assets 195,522 [2] (77,688) 117,834
Deferred income taxes -- [3] 27,780 27,780
----------- ----------- -----------
Total current assets 15,642,425 9,422,493 25,064,918

Property and equipment, net 30,991,942 [4] 9,750,587 40,742,529
Investments in limited partnerships 9,621,412 [5] 1,749,963 11,371,375
Management contract rights, net 267,523 -- 267,523
Deferred financing charges, net 72,828 [6] (72,828) --
Deferred income taxes -- [7] 9,000,000 9,000,000
Other assets 38,248 -- 38,248
----------- ----------- -----------
Total assets $56,634,378 $29,850,215 $86,484,593
=========== =========== ===========

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 951,847 [2] ($580,600) $ 371,247
Accrued expenses 2,204,371 [8] (1,232,470) 971,901
Current portion of notes payable to affiliates 965,091 [9] (965,091) --
Current portion of notes payable 555,849 -- 555,849
Mortgage note payable 5,500,000 [10] (5,500,000) --
Customer deposits 257,948 -- 257,948
Due to affiliates 69,355 -- 69,355
LBHI Loan -- [11] -- --
Formation Note -- [12] -- --
----------- ----------- -----------
Total current liabilities 10,504,461 (8,278,161) 2,226,300
Notes payable to affiliates, net of current portion 201,390 [9] (201,390) --
Notes payable, net of current portion 6,390,574 -- 6,390,574

Minority interest in combined partnerships 20,749,173 [13] (9,658,803) 11,090,370

Equity :
Partners' capital 19,370,768 [14] (19,370,768) --
Common stock 16,800 [15] 166,873 183,673
Additional paid in capital 26,558 [15] 67,164,684 67,191,242
Retained earnings (deficit) (625,346) [16] 27,780 (597,566)
----------- ----------- -----------
Total equity 18,788,780 47,988,569 66,777,349

----------- ----------- -----------
Total liabilities and equity $56,634,378 $29,850,215 $86,484,593
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these pro forma
combined financial statements.

F-3
<PAGE> 63
CAPITAL SENIOR LIVING CORPORATION

PRO FORMA COMBINED STATEMENT OF INCOME
(Unaudited)

<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
-------------------------------------------
THE COMPANY PRO FORMA THE COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Resident and health care revenue $10,427,471 $ -- $10,427,471
Rental and lease income 2,157,973 -- 2,157,973
Unaffiliated management services revenue 949,007 -- 949,007
Affiliated management services revenue 701,126 -- 701,126
Development fees 370,410 -- 370,410
Other income 461,410 -- 461,410
----------- ----------- -----------
Total revenues 15,067,397 -- 15,067,397
----------- ----------- -----------

Expenses:
Operating expenses 8,080,062 -- 8,080,062
General and administrative expenses 3,933,008 [1] (1,932,816) 2,000,192
Depreciation and amortization 949,954 [2] 193,403 1,143,357
----------- ----------- -----------
Total expenses 12,963,024 (1,739,413) 11,223,611
----------- ----------- -----------
Income from operations 2,104,373 1,739,413 3,843,786

Other income (expense):
Interest income 794,439 [3] (72,707) 721,732
Interest expense (419,397)[4] 75,574 (343,823)
----------- ----------- -----------
Income before income taxes and
minority interest in combined partnerships 2,479,415 1,742,280 4,221,695

Provision for income taxes -- [5] (1,511,362) (1,511,362)
----------- ----------- -----------

Income before minority interest in
combined partnerships 2,479,415 230,918 2,710,333

Minority interest in combined partnerships (1,266,026)[6] 870,564 (395,462)
----------- ----------- -----------
Net income $ 1,213,389 $ 1,101,482 $ 2,314,871
=========== =========== ===========

Pro forma net income per share $ 0.13
===========

Shares used in computing pro forma net income per share 18,367,347
===========
</TABLE>

The accompanying notes are an integral part of these pro forma combined
financial statements.

F-4
<PAGE> 64
CAPITAL SENIOR LIVING CORPORATION

PRO FORMA COMBINED STATEMENT OF INCOME
(Unaudited)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------
PRO FORMA ADJUSTMENTS
----------------------------
THE COMPANY HCP, L.P. OTHER PRO FORMA THE COMPANY
HISTORICAL [7] ADJUSTMENTS PRO FORMA
----------- ---------- ------------ -----------
<S> <C> <C> <C>
Revenues:
Resident and health care revenue $13,691,984 $2,969,991 $ -- $16,661,975
Rental and lease income 1,101,317 4,590,113 -- 5,691,430
Unaffiliated management services revenue 800,961 -- -- 800,961
Affiliated management services revenue 2,708,077 -- [8] (955,269) 1,752,808
Development fees 673,587 -- -- 673,587
Other income 923,700 -- -- 923,700
----------- ---------- ---------- -----------
Total revenues 19,899,626 7,560,104 (955,269) 26,504,461
----------- ---------- ---------- -----------

Expenses:
Operating expenses 10,798,431 2,727,909 -- 13,526,340
General and administrative expenses 5,492,873 2,457,884 [1] (2,983,869) 4,966,888
Depreciation and amortization 1,481,056 1,418,293 [2] 150,215 3,049,564
----------- ---------- ---------- -----------
Total expenses 17,772,360 6,604,086 (2,833,654) 21,542,792
----------- ---------- ---------- -----------
Income from operations 2,127,266 956,018 1,878,385 4,961,669

Other income (expense)
Interest income 432,342 239,215 [3] (309,277) 362,280
Interest expense (221,521) (784,092) [4] 39,093 (966,520)
Gain on sale of properties 437,819 387,617 -- 825,436
Equity in earnings on investments 458,992 -- [9] (458,992) --
Other 42,042 (114,107) -- (72,065)
----------- ---------- ---------- -----------
Income before income taxes and
minority interest in combined partnerships 3,276,940 684,651 1,149,209 5,110,800

Provision for income taxes -- -- [5] (1,810,529) (1,810,529)

Income before minority interest in
combined partnerships 3,276,940 684,651 (661,320) 3,300,271

Minority interest in combined partnerships (1,223,997) -- [6] 696,816 (527,181)
----------- ---------- ---------- -----------
Net income $ 2,052,943 $ 684,651 [10] $ 35,496 $ 2,773,090
=========== ========== ========== ===========

Pro forma net income per share $ 0.15
===========

Shares used in computing pro forma net income per share 18,367,347
===========

</TABLE>

The accompanying notes are an integral part of these pro
forma combined financial statements.

F-5
<PAGE> 65
CAPITAL SENIOR LIVING CORPORATION

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(unaudited)

1. BASIS OF PRESENTATION

The unaudited Pro Forma Combined Balance Sheet as of June 30, 1997 and
unaudited Pro Forma Combined Statements of Income for the six months ended June
30, 1997 and the year ended December 31, 1996, represent the financial position
and results of operations of the Company for such periods giving effect to the
adjustments described in the accompanying notes, relating to the transactions
contemplated in connection with the Offering and the Formation Transactions, as
if the transactions above had occurred as of June 30, 1997 for the unaudited
Pro Forma Combined Balance Sheet, and as of January 1, 1996 for the unaudited
Pro Forma Combined Statements of Income.

The transactions contemplated in connection with the contribution of all of the
capital stock of the Contributed Entities have been accounted for as an
exchange between entities under common control and, accordingly, have been
accounted for in a manner similar to a pooling of interests.

2. CSLC TRANSACTION

As part of the Formation Transactions, the Company will purchase substantially
all the assets, other than working capital items, of CSLC, for the assumption
of the LBHI Loan. This transaction has been accounted for as an exchange
between entities under common control and, accordingly, has been accounted for
in a manner similar to a pooling of interests to the extent of the common
ownership of CSLC. To the extent of the ownership of CSLC by unrelated third
parties, the net assets acquired have been adjusted to reflect the prorata
portion of their fair market value.

The assets of CSLC to be acquired include, but are not limited to, its interest
in HCP (55% at June 30, 1997), and its interest in the NHP Notes issued by NHP
(27.9% at June 30, 1997). The pro forma combined balance sheet as of June 30,
1997 reflects an allocation of the purchase price to CSLC's interests in HCP,
the NHP Notes and the NHP LP interests, based on CSLC's ownership as of June
30, 1997.

As a result of CSLC's increased ownership of HCP through June 30, 1997 of 55%,
HCP has been consolidated in the historical combined financial statements as
though a controlling financial interest in HCP had been acquired by CSLC at
January 1, 1997. During 1996, HCP was accounted for utilizing the equity method
of accounting. The pro forma results of operations for the year ended December
31, 1996 have been adjusted to consolidate HCP on a basis consistent with
operating results for June 30, 1997. CSLC's historical weighted average
ownership in HCP of 23% for the year ended December 31, 1996 was used in
consolidating HCP's operating results for the year ended December 31, 1996.

3. FINANCING TRANSACTION OF CSLC

On June 30, 1997, CSLC entered into a $77,000,000 mortgage loan agreement with
Lehman Brothers Holdings, Inc. (LBHI Loan) and pledged four retirement
communities and its investments in HCP and NHP as collateral. The loan
agreement matures December 31, 1997. On July 1, 1997, $70,000,000 was borrowed
under this loan agreement; $5,500,000 was used to repay an outstanding mortgage
loan commitment (prior credit facility) and $64,500,000 was used to fund the
liquidity requirement under the loan agreement through the purchase of
three-month U.S. Treasury bills. The U.S. Treasury bills were sold under a
repurchase agreement with a term equal to their maturity. It is expected that
upon completion of the Offering, the repurchase agreement will be canceled and
the outstanding debt under the loan agreement will be assumed by the Company
and repaid from the proceeds of the Offering. Upon such repayment, the U.S.
Treasury bills will revert to CSLC. Interest costs are based on 30-day LIBOR
plus 50 basis points.

F-6
<PAGE> 66
CAPITAL SENIOR LIVING CORPORATION

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (continued)
(unaudited)

4. BASIS OF VALUATION

Management of the Company is in the process of obtaining independent valuations
of partnership interests and individual assets being acquired from CSLC in the
Formation Transactions. The valuations currently reflected in the pro forma
combined financial statements are the best estimates of management. These
valuations will be subject to modification upon management obtaining valuation
information from a third party valuation firm.

5. PRO FORMA ADJUSTMENTS

The pro forma adjustments to the combined balance sheet and combined statements
of income, and related assumptions, are detailed below:

<TABLE>
<CAPTION>
PRO FORMA COMBINED BALANCE SHEET JUNE 30, 1997
-------------

<S> <C>
[1] Adjustments to reflect the net increase in cash and cash equivalents:
Proceeds from the issuance of 9,000,000 shares of common stock
assuming an initial Offering price of $12.00 per share $ 108,000,000
Payment of estimated fees and expenses related to the issuance of
common stock (8,640,000)
Proceeds received by CSLC under the LBHI Loan 70,000,000
Repayment of prior credit facility by CSLC (5,500,000)
Reduction for cash of $2,997,183 and cash equivalents of $64,500,000
which were not acquired by the Company from CSLC (67,497,183)
Repayment by the Company of LBHI Loan assumed in the purchase of
net assets from CSLC (70,000,000)
Repayment of the Formation Note (14,680,000)
Repayment of notes payable to affiliates including accrued interest (1,204,453)
-------------
$ 10,478,364
=============

[2] Adjustment to reflect the reduction for
certain working capital items of CSLC which
were not acquired or assumed by the Company

[3] Adjustment to reflect deferred income taxes
upon the transition from S corporation to C
corporation status as a result of the
Formation Transactions

[4] Adjustments to reflect the net increase in property and equipment:
Decrease in value of CSLC's investment in HCP based upon the fair market
value of the investment to the extent of the prorata portion of the
ownership of CSLC by unrelated third parties. (Purchase price of CSLC's
investment in HCP of $13,576,688 less the historical cost basis of
$13,582,655 multiplied by the 33.54% owned by unrelated third parties.) ($ 2,001)
Increase in value of CSLC's property and equipment acquired based upon the
fair market value of the assets to the extent of the prorata portion of the
ownership of CSLC by unrelated third parties. (Purchase price of net assets
acquired from CSLC, net of the investments in HCP and NHP, of
$41,584,362 less the historical cost basis of $12,506,878, multiplied by the
33.54% owned by unrelated third parties.) 9,752,588

-------------
$ 9,750,587
=============
</TABLE>

F-7
<PAGE> 67

CAPITAL SENIOR LIVING CORPORATION

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (continued)
(unaudited)

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------
<S> <C>
5. PRO FORMA ADJUSTMENTS (CONTINUED)

[5] Adjustment to reflect the increase in value
of the NHP Notes and NHP LP interests
acquired based upon the fair market value of
these assets to the extent of the prorata
portion of the ownership of CSLC by
unrelated third parties. (Purchase price of
$14,838,950 less historical cost basis of
$9,621,412 multiplied by the 33.54% owned by
unrelated third parties.)

[6] Adjustment to reflect the elimination of
deferred financing charges of CSLC as a
result of the repayment and termination of
the prior credit facility.

[7] Adjustment to establish a deferred tax asset
to the extent of the tax effected difference
between the recorded basis and tax basis of
CSLC assets acquired and liabilities
assumed.

[8] Adjustment to reflect the net decrease in accrued liabilities:
Reduction for accrued liabilities of CSLC which were not
acquired by the Company ($1,194,498)
Repayment of accrued interest on notes payable to affiliates (37,972)
-----------
($1,232,470)
===========

[9] Adjustment to reflect repayment of notes payable to affiliates.

[10] Adjustment to reflect repayment of prior credit facility by CSLC.

[11] Adjustment to reflect the LBHI Loan activity:
Recording of LBHI Loan by CSLC $70,000,000
Repayment of the LBHI Loan with Offering proceeds (70,000,000)
-----------
$ --
===========

[12] Adjustment to reflect the Formation Note activity:
Recording of the Formation Note $14,680,000
Repayment of the Formation Note with Offering proceeds (14,680,000)
-----------
$ --
===========

[13] Adjustment to reflect elimination of the
33.54% minority interest of CSLC upon the
acquisition of certain assets and assumption
of certain liabilities of CSLC.

[14] Adjustment to reclassify partners' capital
of CSLC to additional paid in capital upon
the acquisition of certain assets and
assumption of certain liabilities of CSLC.
</TABLE>

F-8
<PAGE> 68

CAPITAL SENIOR LIVING CORPORATION

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (continued)
(unaudited)

5. PRO FORMA ADJUSTMENTS (CONTINUED)

<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
<S> <C>
[15] Adjustments to reflect the net increase in common stock and additional
paid in capital:
Issuance of 9,000,000 shares of common stock in the Offering assuming
an initial public offering price of $12.00 per share $108,000,000
Payment of estimated fees and expenses related to the issuance of
common stock (8,640,000)
Issuance of the Formation Note (14,680,000)
Reduction of cash and other working capital
items of CSLC which were not acquired or
assumed by the Company (which includes
$64,500,000
of cash equivalents) (66,805,736)
Purchase accounting adjustments relating to the acquisition of CSLC
(increase in value of property and equipment
$9,750,587, increase in value of NHP Notes
and NHP LP interests $1,749,963,
establishment of deferred tax asset for tax
effected difference between recorded basis
and tax basis of assets acquired and
liabilities assumed of $9,000,000
and elimination of minority interest of $9,658,803) 30,159,353
Elimination of deferred financing charges as a result of the repayment of
the prior credit facility by CSLC (72,828)
Reclassification of partners' capital upon the acquisition of certain assets
and assumption of certain liabilities of CSLC 19,370,768
-----------
$67,331,557
===========

Common stock (increase of 16,687,347 shares of common stock at $ .01 par value
consisting of 9,000,000 shares issued in the Offering and 7,687,347
shares issued in the Formation Transactions, resulting in total outstanding
shares of 18,367,347) $166,873
Additional paid in capital 67,164,684
-----------
$67,331,557
===========

[16] Adjustment to reflect the decrease in the deficit upon recording deferred income
taxes arising as a result of the transition from S Corporation to C
Corporation status.
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENTS OF INCOME SIX MONTHS
ENDED JUNE 30, YEAR ENDED
1997 DECEMBER 31, 1996
----------- -----------------
<S> <C> <C>
[1] Adjustments to reflect the net decrease in general and administrative expenses:
Additional expenses related to operating a public entity consisting of
additional annual directors' and officers' liability insurance of $150,000
and additional annual expenses and professional fees of $500,000 $ 325,000 $ 650,000
Reduction of officers' salaries and bonuses resulting from new
employment contracts (2,257,816) (2,678,600)
Elimination of intercompany management fees -- (955,269)
----------- -----------
$(1,932,816) $(2,983,869)
=========== ===========
</TABLE>

F-9
<PAGE> 69

CAPITAL SENIOR LIVING CORPORATION

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (continued)
(unaudited)

5. Pro Forma Adjustments (continued)

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1997 1996
--------- ---------
<S> <C> <C>
[2] Adjustments to reflect the net increase in depreciation and amortization:
Addition of depreciation expense as a result of the purchase of CSLC $ 227,016 $ 454,032
Reduction of depreciation and amortization expense as a result of the
consolidation of HCP -- (312,271)
Elimination of amortization of financing charges as a result of the
repayment and termination of the prior credit facility by CSLC (33,613) (110,178)
Elimination of the amortization of deferred income related to CSLC's
change in method of accounting for its investment in HCP from the
cost to the equity method, as a result of the consolidation of HCP -- 118,632
--------- ---------
$ 193,403 $ 150,215
========= =========

[3] Adjustment to reflect the elimination of interest
income related to cash balances of CSLC not
acquired by the Company

The pro forma combined statements of income do not include any estimated
interest earned on approximately $10.5 million of cash and cash
equivalents arising from proceeds of the Offering. At a simple
interest rate of 5%, interest earned would be approximately $262,000
and $524,000 for the six month period ended June 30, 1997 and
for the year ended December 31, 1996, respectively. Additionally,
the pro forma combined statements of income do not reflect
estimated interest income on additional NHP Notes acquired by CSLC
through June 30, 1997. Had such NHP Notes been owned at January 1,
1996 interest earned would have been approximately $625,000 for
the six month period ended June 30, 1997 at a simple interest rate
of 10.5%, and approximately $833,000 for the year ended December 31, 1996 at
a simple interest rate of 7% (par value of NHP Notes of $11,900,000).
This interest income is approximately $77,000 and $730,000 higher than
reflected herein relative to the NHP Notes for the six month period ended
June 30, 1997 and the year ended December 31, 1996, respectively. The
10.5% and 7% rates utilized are reflective of the rates at which CSLC
was accruing interest income on the NHP Notes at June 30, 1997 and December
31, 1996, respectively

[4] Adjustment to reflect the net decrease in interest expense resulting from:
Repayment of the prior credit facility $ 42,524 $ --
Repayment of notes payable to affiliates 33,050 39,093
--------- ---------
$ 75,574 $ 39,093
========= =========
</TABLE>

F-10
<PAGE> 70

CAPITAL SENIOR LIVING CORPORATION

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (continued)
(unaudited)

5. PRO FORMA ADJUSTMENTS (CONTINUED)

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
[5] Adjustment to reflect the federal and state income tax expense
associated with operating as a C corporation using an
effective rate of 39.5%

[6] Adjustment to reflect the decrease in the minority interest in combined
partnerships:
Elimination of the minority interest of CSLC upon the acquisition of
certain assets and assumption of certain liabilities of CSLC $ 870,564 $ 1,223,997
Recording of minority interest of HCP (utilizing the weighted average
of 77%) for the year ended December 31, 1996, upon
consolidation with CSLC -- (527,181)
----------- -----------
$ 870,564 $ 696,816
=========== ===========
</TABLE>

[7] Adjustments to include the historical financial
statements of HCP as a result of CSLC's ownership
interest in HCP exceeding 50% (55% at June 30,
1997). For pro forma combined statement of income
purposes the 1996 extraordinary gain related to
the early extinguishment of debt in the amount of
$952,692 has not been included.

[8] Adjustment to reflect the elimination of intercompany
management fees.

[9] Adjustment to eliminate equity in earnings on
investments due to the consolidation of HCP upon
CSLC's ownership interest in HCP exceeding 50%
(55% at June 30, 1997).

[10] In the fourth quarter of 1996, CSLC sold two
multi-family properties, Silver Lakes and Lake
Ridge. Pro forma information for the year ended
December 31, 1996 includes the historical
financial results of these two properties and the
gain on the sale. Summary financial information
regarding the 1996 financial results of Silver
Lakes and Lake Ridge, including the gain on sale
are summarized below.

<TABLE>
<S> <C>
Revenues $ 1,101,317
Other income 70,592
Operating expenses (629,870)
General and administrative expenses (134,875)
Depreciation and amortization (235,121)
Interest income 22,431
Interest expense (183,908)
Gain on sale of properties 437,819
-----------
Income before income taxes $ 448,385
===========
</TABLE>

F-11
<PAGE> 71

CAPITAL SENIOR LIVING CORPORATION

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (continued)
(unaudited)

6. OTHER

F-12
<PAGE> 72

Report of Ernst & Young LLP, Independent Auditors

The Shareholders
Capital Senior Living Corporation

We have audited the accompanying combined balance sheets of Capital Senior
Living Corporation as of December 31, 1996 and 1995, and the related combined
statements of income, equity, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Capital Senior Living
Corporation as of December 31, 1996, and the results of its combined operations
and its combined cash flows for each of the three years in the period ended
December 31, 1996 and 1995, in conformity with generally accepted accounting
principles.

Ernst & Young LLP

Dallas, Texas
July 3, 1997

F-13
<PAGE> 73

Capital Senior Living Corporation

Combined Balance Sheets

<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996 1995
----------- ----------- -----------
(Unaudited)

<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $13,198,573 $10,818,512 $10,016,702
Cash, restricted 169,046 206,376 203,788
Accounts receivable, net (Note 13) 2,072,546 607,028 409,486
Accounts receivable from affiliates 6,738 90,075 148,886
Prepaid expenses and other 195,522 121,993 145,352
----------- ----------- -----------
Total current assets 15,642,425 11,843,984 10,924,214

Property and equipment, net (Note 3) 30,991,942 12,668,539 17,367,074
Investments in limited partnerships (Note 12) 9,621,412 8,275,920 896,405
Management contract rights, net (Note 2) 267,523 291,487 382,411
Deferred financing charges, net (Note 6) 72,828 106,440 173,665
Other assets 38,248 16,644 3,032
=========== =========== ===========
Total assets $56,634,378 $33,203,014 $29,746,801
=========== =========== ===========

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 951,847 $ 396,867 $ 311,539
Accrued expenses (Note 4) 2,204,371 1,084,686 1,177,916
Current portion of notes payable to affiliates (Note 5) 965,091 465,091 315,091
Current portion of notes payable (Note 6) 555,849 - 2,035,148
Mortgage loan payable (Note 6) 5,500,000 - -
Customer deposits 257,948 248,458 279,982
Due to affiliates 69,355 81,456 20,146
----------- ----------- -----------
Total current liabilities 10,504,461 2,276,558 4,139,822

Deferred income (Note 12) - 3,400,684 -
Notes payable to affiliates, net of current portion (Note 5) 201,390 201,390 336,982
Notes payable, net of current portion (Note 6) 6,390,574 - -
Minority interest in combined partnerships (Note 7) 20,749,173 10,123,858 10,822,619

Commitments and contingencies (Notes 10 and 14)

Equity (Note 7):
Partners' capital 19,370,768 17,257,778 14,655,669
Common stock, $.01 par value:
Authorized shares - 40,000,000
Issued and outstanding shares - 1,680,000 16,800 16,800 16,800
Additional paid-in capital 26,558 26,558 (13,242)
Retained earnings (deficit) (625,346) (100,612) (211,849)
----------- ----------- -----------
Total equity 18,788,780 17,200,524 14,447,378
----------- ----------- -----------
Total liabilities and equity $56,634,378 $33,203,014 $29,746,801
=========== =========== ===========
</TABLE>

See accompanying notes.

F-14
<PAGE> 74

Capital Senior Living Corporation

Combined Statements of Income

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER 31
1997 1996 1996 1995 1994
----------- ---------- ----------- ----------- -----------
(Unaudited)

<S> <C> <C> <C> <C> <C>
Revenues:
Resident and health care revenue $10,427,471 $6,954,867 $13,691,984 $13,237,891 $12,760,942
Rental and lease income 2,157,973 647,588 1,101,317 1,230,859 1,235,130
Unaffiliated management services 949,007 53,450 800,961 - -
revenue
Affiliated management services 701,126 1,418,564 2,708,077 2,778,644 3,112,685
revenue
Development fees 370,410 - 673,587 - -
Other 461,410 438,044 923,700 870,717 800,132
----------- ---------- ----------- ----------- -----------
Total revenues 15,067,397 9,512,513 19,899,626 18,118,111 17,908,889

Expenses:
Operating expenses 8,080,062 5,393,780 10,798,431 10,286,743 10,141,884
General and administrative expenses 3,933,008 2,464,578 5,492,873 4,363,707 4,594,982
(Note 15)
Depreciation and amortization 949,954 779,817 1,481,056 1,776,268 1,707,368
----------- ---------- ----------- ----------- -----------
Total expenses 12,963,024 8,638,175 17,772,360 16,426,718 16,444,234
----------- ---------- ----------- ----------- -----------

Income from operations 2,104,373 874,338 2,127,266 1,691,393 1,464,655

Other income (expense):
Interest income 794,439 206,184 432,342 367,715 121,768
Interest expense (419,397) (75,056) (221,521) (278,065) (260,903)
Gain on sale of properties - - 437,819 - -
Equity in earnings on investments - 398,508 458,992 - -
Other - 25,523 42,042 - (15,523)
----------- ---------- ----------- ----------- -----------
Income before income taxes and minority
interest in combined partnerships 2,479,415 1,429,497 3,276,940 1,781,043 1,309,997

Provision for income taxes (Note 8) - - - (18,242) (129,795)
----------- ---------- ----------- ----------- -----------
Income before minority interest in
combined partnerships 2,479,415 1,429,497 3,276,940 1,762,801 1,180,202
Minority interest in combined
partnerships (1,266,026) (649,592) (1,223,997) (759,407) (634,366)
----------- ---------- ----------- ----------- -----------
Net income $ 1,213,389 $ 779,905 $ 2,052,943 $ 1,003,394 $ 545,836
=========== ========== =========== =========== ============

Pro forma net income (Note 16):
Net income $ 1,213,389 $ 2,052,943
Pro forma income taxes (479,289) (810,912)
=========== ===========
Pro forma net income $ 734,100 $ 1,242,031
=========== ===========
</TABLE>

See accompanying notes.

F-15
<PAGE> 75
Capital Senior Living Corporation

Combined Statements of Equity

<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PARTNERS' COMMON STOCK PAID-IN EARNINGS
------------------------
CAPITAL SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
----------- --------- ------- -------- --------- -----------

<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994
(Notes 1 and 7) $10,352,228 1,680,000 $16,800 $(15,800) $ 277,450 $10,630,678
Capital contribution - - - 2,558 - 2,558
Purchase of BUCs (Note 7) 1,316,220 - - - - 1,316,220
Net income (loss) 589,548 - - - (43,712) 545,836
----------- --------- ------- -------- --------- -----------
Balance at December 31, 1994 12,257,996 1,680,000 16,800 (13,242) 233,738 12,495,292
Dividend upon acquisition
of management contract
rights (Note 1) - - - - (517,719) (517,719)
Purchase of BUCs (Note 7) 1,466,411 - - - - 1,466,411
Net income 931,262 - - - 72,132 1,003,394
----------- --------- ------- -------- --------- -----------
Balance at December 31, 1995 14,655,669 1,680,000 16,800 (13,242) (211,849) 14,447,378
Issuance of common stock
(Note 7) - - - 16,800 - 16,800
Capital contributions - - - 23,000 - 23,000
Purchase of BUCs (Note 7) 660,403 - - - - 660,403
Net income 1,941,706 - - - 111,237 2,052,943
----------- --------- ------- -------- --------- -----------
Balance at December 31, 1996 17,257,778 1,680,000 16,800 26,558 (100,612) 17,200,524
Purchase of BUCs (Note 7) 374,867 - - - - 374,867
Net income 1,738,123 - - - (524,734) 1,213,389
----------- --------- ------- -------- --------- -----------
Balance at June 30, 1997
(Unaudited) $19,370,768 1,680,000 $16,800 $ 26,558 $(625,346) $18,788,780
=========== ========= ======= ======== ========= ===========

</TABLE>

See accompanying notes.

F-16
<PAGE> 76
Capital Senior Living Corporation

Combined Statements of Cash Flows

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER 31
1997 1996 1996 1995 1994
----------- ---------- ----------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,213,389 $ 779,905 $ 2,052,943 $1,003,394 $ 545,836
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 891,410 741,181 1,397,258 1,632,371 1,581,794
Amortization 58,544 36,636 83,798 143,897 125,574
Deferred income tax benefit - - - - (49,235)
Non cash interest expense - - - 1,616 15,737
Minority interest in combined 1,266,026 649,592 1,223,997 759,407 634,366
partnerships
Equity in earnings on investments - (398,508) (458,992) - -
Gain on sale of properties - - (437,819) - -
Provision for bad debts - 16,500 22,312 71,098 -
Loss on sale of limited partnership - - - - 15,523
interests
Changes in operating assets and
liabilities:
Cash, restricted 37,330 - (2,588) (152,803) (1,604)
Accounts receivable (671,284) 77,063 (219,854) (215,233) 70,734
Accounts receivable from affiliates 83,337 (20,180) 58,811 (294,237) (25,482)
Prepaid expenses and other 11,766 5,802 23,359 (36,141) 20,584
Other assets (22,572) (7,801) (14,940) 6,766 (22,298)
Accounts payable 343,676 450,311 85,328 256,183 (102,911)
Accrued expenses 115,481 774,462 (5,402) (1,136,510) 472,391
Customer deposits 9,490 15,175 32,295 26,204 (3,311)
Due to affiliates (12,101) (20,146) 61,310 655,936 150,578
----------- ---------- ----------- ---------- ----------
Net cash provided by operating activities 3,324,492 3,101,992 3,901,816 2,721,948 3,428,276

INVESTING ACTIVITIES
Capital expenditures (562,255) (222,939) (851,732) (400,701) (182,729)
Proceeds from sale of properties - - 2,549,352 - -
Sale of limited partnership interests - - - - 4,400,000
Cash acquired upon acquisition of HCP 8,995,455 - - - -
Investments in limited partnerships (14,155,888) (2,599,228) (3,401,207) (896,405) (435,636)
----------- ---------- ----------- ---------- ----------
Net cash (used in) provided by investing
activities (5,722,688) (2,822,167) (1,703,587) (1,297,106) 3,781,635

</TABLE>

F-17
<PAGE> 77
Capital Senior Living Corporation

Combined Statements of Cash Flows (continued)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER 31
1997 1996 1996 1995 1994
---------- ----------- ----------- ----------- -----------
(Unaudited)

<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from notes payable $ - $ - $ - $ - $ 93,815
Repayments of notes payable (260,991) (24,982) (145,319) (58,565) (272,740)
Repayments of notes payable to affiliates - (320,490) (455,592) (65,091) (448,646)
Proceeds from notes payable to affiliates 500,000 - 470,000 250,000 248,646
Proceeds from mortgage note payable 5,500,000 - - - -
Issuance of common stock - - 16,800 - -
Capital contribution - 22,000 23,000 - 2,558
Repurchase of BUCs (960,752) (447,504) (1,262,355) - -
Deferred loan charges paid - (20,352) (42,953) (130,829) (99,596)
Cash portion of dividend (Note 1) - - - (202,698) -
---------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities 4,778,257 (791,328) (1,396,419) (207,183) (475,963)
---------- ----------- ----------- ----------- -----------

(Decrease) increase in cash and cash
equivalents 2,380,061 (511,503) 801,810 1,217,659 6,733,948
Cash and cash equivalents at beginning of
period 10,818,512 10,016,702 10,016,702 8,799,043 2,065,095
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $13,198,573 $ 9,505,199 $10,818,512 $10,016,702 $ 8,799,043
========== =========== =========== =========== ===========

SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 347,847 $ 112,959 $ 188,510 $ 276,062 $ 245,705
========== =========== =========== =========== ===========

Income taxes $ - $ - $ - $ 21,633 $ 155,876
========== =========== =========== =========== ===========

</TABLE>

See accompanying notes.

F-18
<PAGE> 78
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

1. ORGANIZATION, FORMATION AND PLANNED INITIAL PUBLIC OFFERING

Capital Senior Living Corporation, a Delaware corporation, was incorporated on
October 25, 1996. Capital Senior Living Corporation is owned by James A. Stroud
(through a trust), Jeffrey L. Beck, and Lawrence A. Cohen.

The accompanying financial statements include the combined financial statements
of Capital Senior Living Corporation (Corporation); Capital Senior Living
Communities, L.P. (CSLC); Capital Senior Living, Inc. (Living); Quality Home
Care, Inc. (Quality); Capital Senior Development, Inc. (Development); Capital
Senior Management 1, Inc. (Management 1); and Capital Senior Management 2, Inc.
(Management 2) (collectively referred to with Capital Senior Living Corporation
as the Company). CSLC includes the accounts of CSLC and its 99%-owned
subsidiary, Retirement Partnership, Ltd. and HealthCare Properties, L.P. (HCP)
(as of January 1, 1997). HCP includes the accounts of HCP and its wholly owned
subsidiaries, Danville Care, Inc., Foothills Care, Inc., Countryside Care,
Inc., Countryside Care, L.P., and Cambridge Nursing Home Limited Liability
Company. All intercompany balances and transactions have been eliminated in
combination.

The Company is a provider of senior living services. The Company owns, operates
and manages senior living communities.

The Company is currently planning the registration of its common stock for sale
in an initial public offering (Offering). Simultaneously with the closing of
the Offering, Corporation will acquire Living, Quality, Development, Management
1, and Management 2 (Formation) in exchange for common stock and a note payable
(Formation Note) to Jeffrey L. Beck and James A. Stroud or a related trust
(collectively, the Stockholders) and Lawrence A. Cohen. Additionally, the
Corporation will purchase certain assets and all of the business and retire
certain debt of CSLC; at June 30, 1997, these assets include a controlling
interest of 55% in HCP. After the all of above transactions, including the
Offering, the Stockholders will own 49% of the common stock of the Company
(assuming the underwriters do not exercise their over-allotment option). The
Stockholders and other members of management will own over 50% of the Company.

Due to all of these entities being under the common control of the Stockholders
for all periods presented, these combined financial statements reflect the
assets and liabilities at their historical values and the accompanying combined
statements of income, equity, and cash flows reflect the combined results for
the periods indicated even though they have historically operated as separate
entities. The Formation will be accounted for at historical cost in a manner
similar to a pooling of interests to the extent of the percentage ownership by
the Stockholders. Assets and liabilities in CSLC and HCP will be recorded at
fair value to the extent of any minority interest.

F-19
<PAGE> 79
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

1. ORGANIZATION, FORMATION AND PLANNED INITIAL PUBLIC OFFERING (CONTINUED)

As of June 30, 1997, CSLC had increased its ownership in HCP to 55%. In the
accompanying combined financial statements, HCP is consolidated as though a
controlling financial interest in HCP had been acquired by CSLC at January 1,
1997. At December 31, 1996 and 1995, CSLC owned approximately 31%, and 6% of
HCP's limited partner units, respectively. Preacquisition earnings for 1997
applicable to HCP are included in minority interest.

HCP is a Delaware limited partnership established for the purpose of acquiring,
leasing, and operating existing or newly constructed long-term health care
properties. One property is operated by HCP and seven properties are leased to
qualified operators who provide specialized health care services. Capital
Realty Group Senior Housing, Inc. (Housing), an entity controlled by the
Stockholders, is the general partner.

The general partner of CSLC is Retirement Living Communities, an Indiana
limited partnership (RLC). RLC is owned by James A. Stroud and Jeffrey L. Beck.
Additionally, CSLC has issued 1,264,000 Beneficial Unit Certificates (BUCs). At
June 30, 1997 and December 31, 1996 and 1995, BUCs outstanding were 1,117,692,
1,172,146, and 1,264,000, respectively. At June 30, 1997 and December 31, 1996,
1995, and 1994, James A. Stroud, Jeffrey L. Beck, and RLC collectively owned
66.5%, 63.4%, 57.4%, and 51.5% of the outstanding BUCs, respectively.

A description of the senior living communities now owned and operated by CSLC
is as follows:

Towne Centre Retirement Community (Towne Centre) - This project is located on a
15-acre site in Merrillville, Indiana, and includes a 148-unit senior living
community, a 34-bed assisted living unit which is licensed as residential, and
a 64-bed intermediate and skilled healthcare unit licensed under a
comprehensive license. The facility was approximately 92%, 95%, and 95%
occupied at December 31, 1996, 1995, and 1994, respectively.

Canton Regency Retirement Community (Canton Regency) - This project is located
on a 10-acre site in Canton, Ohio, and includes a 147-unit senior living
community, a 34-bed assisted living unit, and a 50-bed intermediate and skilled
healthcare unit licensed by the Ohio Department of Health. The facility was
approximately 94% occupied at December 31, 1996, 1995, and 1994.

Cottonwood Village Retirement Community (Cottonwood Village) - This project is
a 65-unit senior living community located on a 2-acre site in Cottonwood,
Arizona. The facility was approximately 95%, 100%, and 100% occupied at
December 31, 1996, 1995, and 1994, respectively.

F-20
<PAGE> 80
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

1. ORGANIZATION, FORMATION AND PLANNED INITIAL PUBLIC OFFERING (CONTINUED)

On December 10, 1996, the Company began development on a 97-unit expansion of
the Cottonwood facility, comprised of 49 units for independent living and 48
units for assisted living. The budgeted cost for the expansion is approximately
$7,000,000 and includes funding for kitchen and dining room renovation. The
Company intends to finance 100% of the costs and estimates completion by March
1998. As of December 31, 1996, costs incurred for construction were $280,946.

Harrison Retirement Community (Harrison) - This project is a 124-unit senior
living community located on a 4 1/2-acre site in Indianapolis, Indiana. The
facility was approximately 83%, 85%, and 90% occupied at December 31, 1996,
1995, and 1994, respectively.

On November 1, 1996, CSLC sold its two multi-family properties to a non-related
third party for a combined sales price of $4,793,000. This sale resulted in the
recognition of a $437,819 gain and net cash proceeds of $2,549,352 after
repayment of the related mortgage payable of $1,889,829.

Living, an S corporation, was incorporated on August 17, 1992, and completed
its initial issuance of shares in 1993. Living is owned 50% by James A. Stroud
(through a trust) and 50% by Jeffrey L. Beck.

Prior to February 1, 1995, Living's operations were limited to payroll services
provided to affiliated entities. On February 1, 1995, Living acquired 14
management contracts from Housing in exchange for a note payable to Housing of
$467,164. The acquisition was accounted for in a manner similar to that for a
pooling of interests. Accordingly, the management contracts were recorded at
Housing's historical basis and the financial statements were restated to
include the operations stemming from the management contracts for all periods
prior to the February 1, 1995 acquisition date. Effective February 1, 1995, a
dividend of $517,719 (including cash of $202,698) was recorded to eliminate the
carrying value of the net assets of the business stemming from the property
management contracts which were not acquired.

Quality, Development, Management 1, and Management 2, all S corporations, are
owned 50% by James A. Stroud (directly or through a trust) and 50% by Jeffrey
L. Beck.

F-21
<PAGE> 81
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Investments with original maturities of three months or less are considered to
be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the assets, which range from three to
31 years.

MANAGEMENT CONTRACT RIGHTS

Management contract rights are stated at cost and amortized on a straight-line
basis over their respective contract lives. Accumulated amortization for
management contract rights at June 30, 1997, and December 31, 1996 and 1995,
was $248,640, $224,676, and $178,507, respectively.

At each balance sheet date, the Company reviews the carrying value of its
management contract rights and property and equipment to determine if facts and
circumstances suggest that they may be impaired or that the amortization and
depreciation period may need to be changed. The Company considers external
factors relating to each intangible asset, including contract changes, local
market developments, and other publicly available information. If these
external factors indicate the intangible assets and property and equipment will
not be recoverable, the carrying value of the intangible assets and property
and equipment will be analyzed and adjusted accordingly. During 1996, 1995, and
1994, management contract rights of $44,755, $52,771, and $72,932,
respectively, were written off due to the termination of certain contracts
which has been reflected as additional amortization expense. The Company does
not believe there are any indicators that would require an adjustment to the
carrying value of the management contract rights or property and equipment or
their remaining useful lives as of June 30, 1997 or December 31, 1996.

INCOME TAXES

The Company accounts for income taxes under the liability method. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.

F-22
<PAGE> 82
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CSLC and HCP are partnerships and, consequently, are not subject to income
taxes. Taxable income or loss is directly allocated to the individual partners.
HCP's wholly-owned subsidiaries file federal corporate income tax returns. None
of these subsidiaries had significant net income for financial reporting or
income tax purposes in 1997. Accordingly, no provision has been made for income
taxes for these subsidiaries during 1997.

Living, Quality, Development, Management 1, and Management 2 are S corporations
and consequently, are not subject to income taxes. Thus, taxable income or loss
is directly allocated to the individual stockholders. Prior to February 1,
1995, Living was subject to federal and state income taxes.

Housing was part of a consolidated group for tax reporting purposes during the
period in which it owned the management contracts acquired by Living in
February 1995. Taxes were allocated to Housing during this period as if it were
a separate taxpayer. Current tax expense (benefit) was offset against the due
to affiliates balance and deferred tax assets and liabilities were recorded.
Cash paid for income taxes during the year ended December 31, 1994, included a
federal tax payment of $137,000 paid on behalf of this consolidated group.

REVENUE RECOGNITION

Resident and healthcare revenue is recognized at estimated net realizable
amounts due from residents in the period to which the rental and other services
relate.

Revenues from the Medicare and Medicaid programs accounted for less than 10%
each of the Company's net revenues for the year ended December 31, 1996. One
community is a provider of services under the Indiana Medicaid program.
Accordingly, the community is entitled to reimbursement under the foregoing
program at established rates which are lower than private pay rates. Patient
service revenue for Medicaid patients is recorded at the reimbursement rates as
the rates are set prospectively by the state upon the filing of an annual cost
report. Two communities are providers of services under the Medicare program
and are entitled to reimbursement under the foregoing programs in amounts
determined based on the filing of an annual cost report prepared in accordance
with Federal regulations, which reports are subject to audit and retroactive
adjustments in future periods. Revenue from the Medicare program is recorded at
established rates and adjusted for differences between such rates and estimated
amounts reimbursable from the program. Any differences between estimated and
actual reimbursements are included in operations in the year of settlement,
which have not been material. Under Federal regulations, Medicare
reimbursements to these facilities are limited to routine cost limits
determined on a geographical region. The Company has filed exception reports to
request

F-23
<PAGE> 83
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

reimbursement in excess of its routine cost limit for the years 1992, 1993, and
1994, as of December 31, 1996, and has recorded $310,000 in the six months
ended June 30, 1997, as a result of being granted exception requests for 1994.
There can be no assurance that an exception to a facility's routine cost limits
will be granted.

Laws and regulations governing the Medicare and Medicaid programs are complex
and subject to interpretation. The Company believes that it is in compliance
with all applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrongdoing. While
no such regulatory inquiries have been made, compliance with such laws and
regulations can be subject to future government review and interpretation as
well as significant regulatory action including fines, penalties, and exclusion
from the Medicare and Medicaid programs.

Management services revenue, resident and healthcare revenue, and development
fees are recognized when earned. Management services revenue relates to
providing certain management and administrative support services under
management contracts, which have terms expiring through 2002 and provide for
termination fees upon early cancellation. Development fees are billed in
accordance with the terms under a development agreement. Management services
revenue are shown net of reimbursed expenses. The reimbursed expenses to
affiliates were $6,462,046, $6,165,622, $12,683,838, $14,501,425, and
$15,772,798, for the six months ended June 30, 1997 and 1996, and the years
ended December 31, 1996, 1995, and 1994, respectively. Reimbursed expenses to
unaffiliated parties were $4,095,905, $34,780, $2,600,529, $-0-, and $-0-, for
the six months ended June 30, 1997 and 1996, and the years ended December 31,
1996, 1995, and 1994, respectively.

CREDIT RISK

The Company's receivables are generally due within 30 days. The Company does
not require collateral. Credit losses have been within management's
expectations, and management believes that the allowance for doubtful accounts
adequately provides for any expected losses.

ADVERTISING

Advertising expenses are expensed as incurred. Advertising expenses for the six
months ended June 30, 1997 and 1996 and the year ended December 31, 1996, 1995
and 1994 were $79,496, $109,792, $210,028, $223,862, and $230,270,
respectively.

F-24
<PAGE> 84
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued Statement No. 128, Earnings per
Share, effective for fiscal 1997, and Statement No. 130, Reporting
Comprehensive Income and Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information, both effective for fiscal 1998. Statement
No. 128 requires changes to the calculation of earnings per share. Statement
No. 130 requires reporting and display of comprehensive income and its
components in the financial statements. Statement No. 131 requires reporting
about operating segments and other disclosures about the business in its annual
and interim financial statements. The Company does not believe adoption of
these new Statements will have a material impact on its financial statements.

INTERIM FINANCIAL DATA (UNAUDITED)

The unaudited combined balance sheet as of June 30, 1997, the unaudited
combined statements of income and cash flows for the six months ended June 30,
1996 and 1997, and the unaudited combined statement of equity for the six
months ended June 30, 1997, include, in the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company's combined financial position, results of operations and
cash flows. The data disclosed in these notes to the combined financial
statements for these periods is unaudited. Operating results for the six month
period ended June 30, 1997, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997.

F-25
<PAGE> 85
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996 1995
----------- ----------- -----------
(Unaudited)

<S> <C> <C> <C>
Land $ 3,489,139 $ 879,723 $ 1,281,070
Land improvements 131,909 127,481 418,665
Buildings and building
improvements 29,063,612 13,562,383 17,586,575
Furniture and equipment 6,343,055 4,606,048 4,803,054
Construction in process 379,299 280,946 -
----------- ----------- -----------
39,407,014 19,456,581 24,089,364
Less accumulated depreciation
8,415,072 6,788,042 6,722,290
----------- ----------- -----------
Property and equipment, net $30,991,942 $12,668,539 $17,367,074
=========== =========== ===========
</TABLE>

4. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996 1995
----------- ----------- -----------
(Unaudited)

<S> <C> <C> <C>
Accrued salaries, bonuses,
and related expenses $ 408,596 $ 460,646 $ 466,050

Accrued property taxes 459,018 506,418 527,233
Third party settlements 216,951 - 123,000
Other 1,119,806 117,622 61,633
---------- ---------- ----------
$2,204,371 $1,084,686 $1,177,916
========== ========== ==========
</TABLE>

F-26
<PAGE> 86
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

5. NOTES PAYABLE TO AFFILIATES

Notes payable to affiliates consist of the following:

<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996 1995
--------- --------- ---------
(Unaudited)

<S> <C> <C> <C>
Demand notes payable to stockholders; principal and
interest at 10%; due December 31, 1997
$ 900,000 $ 400,000 $ -
Demand notes payable to stockholders. - - 250,000
Note payable to Housing; interest at 10%; payable in
seven annual installments of $65,091 on or before
December 31 of each year and in one final installment
of $6,117. 266,481 266,481 402,073
--------- --------- ---------
1,166,481 666,481 652,073
Less current portion 965,091 465,091 315,091
--------- --------- ---------

$ 201,390 $ 201,390 $ 336,982
========== ========= =========
</TABLE>

At December 31, 1996, the aggregate maturities of notes payable to affiliates
are as follows:

F-27
<PAGE> 87
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

6. NOTES PAYABLE AND MORTGAGE LOAN PAYABLE

Notes payable consists of the following:

<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996 1995
---------- --------- ----------
(Unaudited)
<S> <C> <C> <C>
HCP mortgage loans, bearing interest ranging from 6.8% to 10.75%; payable in
monthly installments of $101,092 including interest, secured by certain
properties of HCP.
$6,946,423 $ - $ -
Mortgage loan, bearing interest at 11%, secured by real estate. - - 2,035,148
---------- --------- ----------

Less current portion 555,849 - 2,035,148
---------- --------- ----------
$6,390,574 $ - $ -
========== ========= ==========
</TABLE>

On November 1, 1996, the mortgage loan was repaid upon sale of a multi-family
property.

On June 30, 1997, CSLC entered into a $77,000,000 mortgage loan agreement with
Lehman Brothers Holdings, Inc. and pledged the Cottonwood, Harrison, Towne
Centre, and Canton Regency senior living communities and its investments in HCP
and NHP Retirement Housing Partners I, L.P. (NHP) as collateral. The loan
agreement matures December 31, 1997. On July 1, 1997, $70,000,000 became
outstanding under this loan agreement; $5,500,000 was used to repay an
outstanding mortgage loan commitment (the prior credit facility) and
$64,500,000 was used to fund the liquidity requirement under the loan agreement
through the purchase of three-month U.S. Treasury bills. The U.S. Treasury
bills were sold under a repurchase agreement with a term equal to their
maturity. It is expected that upon completion of the Offering, the repurchase
agreement will be canceled and the outstanding debt under the loan agreement
will be assumed by the Corporation and repaid from the proceeds of the
Offering. Upon such repayment, the U.S. Treasury bills will revert to CSLC.
Interest costs are based on 30-day LIBOR plus 50 basis points.

CSLC's prior credit facility from a non-affiliated mortgage company was for
$17,500,000. CSLC borrowed $5,500,000 under this prior credit facility in 1997,
and repaid the loan on July 1, 1997.

F-28
<PAGE> 88
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

6. NOTES PAYABLE AND MORTGAGE LOAN PAYABLE (CONTINUED)

In connection with obtaining the prior credit facility, the Company incurred
$273,070 in deferred financing charges, which were amortized over the life of
the loan commitment using the straight-line method and written-off on July 1,
1997. Accumulated amortization was $200,551, $166,630 and $56,452 in 1997,
1996, and 1995, respectively. In connection with obtaining the loan agreement,
the Company incurred $80,000 in deferred financing charges on July 1, 1997.

HCP leases four of its properties under a master lease. The rentals under the
master lease provide additional security for two notes payable used to finance
two of the master lease properties. One of these notes is due December 1, 2001.
The other note for $686,542 was extended during 1997 to June 30, 1997. HCP is
currently negotiating the extension of this note until December 1, 2001.

7. EQUITY

On October 25, 1996, the Company issued 1,680,000 shares of $.01 par value
common stock for $16,800 in cash. For financial reporting purposes, as the
combined entities are under common control, the Company's common stock is
presented as outstanding as of January 1, 1994.

During 1996, Development, Management 1, Management 2, and Quality each issued
1,000 shares of $.01 par value common stock for $1,000. All shares authorized
are outstanding at December 31, 1996. At December 31, 1996 and 1995, Living has
1,000 shares of $.01 par value common stock authorized, issued, and
outstanding. The par value and associated paid-in capital are included in
additional paid-in capital in the accompanying financial statements.

Net operating income of CSLC, if distributed as determined by its general
partner in its sole discretion, is to be distributed 99% to the BUC holders and
1% to RLC until the BUC holders receive distributions equal to a cumulative
noncompounded annual return of 11% on their adjusted capital contributions.
Thereafter, remaining net operating income is distributed 90% to the BUC
holders and 10% to RLC. The general partner of CSLC has sole discretion in
determining cash distributions. There were no distributions for 1996, 1995, and
1994. Proceeds from the refinancing, sale, or other dispositions of CSLC
assets, less expenses directly attributable thereto (net residual proceeds),
will be distributed 100% to the BUC holders until the BUC holders have received
an amount equal to the sum of their adjusted capital contributions plus an
amount equal to a cumulative noncompounded annual return of 11% on their
adjusted capital contributions. All remaining net residual proceeds will be
distributed 100% to RLC until such amount equals 1% of all net residual
proceeds distributed to the BUC holders. Thereafter, any remaining net residual
proceeds will be distributed 90% to the BUC holders and 10% to RLC.

F-29
<PAGE> 89
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

7. EQUITY (CONTINUED)

Purchases of BUCs represent additional purchases by the Stockholders and are
accounted for at the book value of the BUCs and as an addition to partners'
capital and as a reduction in minority interest.

CSLC purchased 91,854 BUCs for $1,262,355 during 1996, at an average cost of
$13.74 per unit. These repurchase of BUCs have been reflected as a reduction in
minority interest at December 31, 1996.

Net income (loss) of HCP is generally allocated 98% to the limited partners and
2% to the general partner. The net income of HCP from the disposition of a
property is allocated: (i) to partners with deficit capital accounts on a pro
rata basis; (ii) to limited partners until they have been paid an amount equal
to the amount of their adjusted investment (as defined); (iii) to the limited
partners until they have been allocated income equal to their 12% Liquidation
Preference; and (iv) thereafter, 80% to the limited partners and 20% to the
general partner. The net loss of HCP from the disposition of a property is
allocated: (i) to partners with positive capital accounts on a pro rata basis
and (ii) thereafter, 98% to the limited partners and 2% to the general partner.
Distributions of available cash flow are generally distributed 98% to the
limited partners and 2% to the general partner, until the limited partners have
received an annual preferential distribution, as defined. Thereafter, available
cash flow is distributed 90% to the limited partners and 10% to the general
partner. No distributions were made in 1997.

8. INCOME TAXES

The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
--------- ------- --------

<S> <C> <C> <C>
Current:
Federal $ - $15,903 $156,077
State - 2,339 22,953
Deferred:
Federal - - (42,923)
State - - (6,312)
--------- ------- --------
$ - $18,242 $129,795
========= ======= ========
</TABLE>

F-30
<PAGE> 90
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

8. INCOME TAXES (CONTINUED)

The provision for income taxes differed from the amounts computed by applying
the U.S. federal income tax rate to income before provision for income taxes as
a result of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
------- ------- --------

<S> <C> <C> <C>
Computed tax expense $ - $15,903 $110,868
State income tax expense - 2,339 16,641
Other - - 2,286
------- ------- --------
$ - $18,242 $129,795
======= ======= ========
</TABLE>

No tax expense arose in 1997.

Upon completion of the initial public offering, the Company will accrue
deferred tax assets and liabilities arising from differences in book and tax
basis for the S corporations and partnerships.

CSLC

CSLC reports certain transactions differently for tax than for financial
statement purposes. A reconciliation between the financial statement net income
and the net income for tax purposes follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
---------- ---------- ----------

<S> <C> <C> <C>
CSLC net income $3,105,703 $1,630,669 $1,198,914
(Decrease) increase in vacation expense accrual (715) 10,766 6,350
Nondeductible bad debt expense 23,370 55,403 -
Other nondeductible expenses 1,250 1,253 1,250
Increase in workers compensation accrual 120 2,463 1,271
Excess of book over tax depreciation 101,069 347,376 170,485
Investment income accounted for under the equity
method for book and not tax (603,147) - -
Tax adjustment on sale of properties 268,068 - -
Prepaid rent recognized for book purposes - - (41,416)
Decrease in bad debt reserve - - (72,415)
Income (loss) from joint ventures 181,660 51,970 (62,523)
---------- ---------- ----------
Tax income $3,077,378 $2,099,900 $1,201,916
========== ========== ==========
</TABLE>

F-31
<PAGE> 91
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

8. INCOME TAXES (CONTINUED)

The tax basis of the partners' capital accounts are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
---------- -----------

<S> <C> <C>
General Partner $ 19,024 $ (11,602)
BUC Holders 22,285,615 20,515,980
----------- -----------
$22,304,639 $20,504,378
=========== ===========
</TABLE>

The basis of property and equipment, net of accumulated depreciation, for
Federal income tax purposes was $13,504,827 and $18,192,768 at December 31,
1996 and 1995, respectively.

In the event CSLC is taxed as a corporation because it is "publicly traded"
under Section 7704 of the Internal Revenue Code of 1986, then CSLC would be
taxed at corporate rates on all of its taxable income and distributions to the
BUC holders would be treated as fully taxable dividends to the extent of
current and accumulated earnings and profits, while distributions in excess of
current and accumulated earnings and profits would be treated as the nontaxable
return of capital to the extent of each BUC holder's basis in the BUCs. The
Company's management does not believe CSLC will be taxed as "publicly traded"
for fiscal 1996 based on its interpretation of Section 7704 and no provision
for income taxes has been reflected in the consolidated statements of income
for CSLC. No ruling has been requested from the Internal Revenue Service
regarding this matter and there can be no certainty as to the ultimate outcome
of this matter at this time.

HCP

The tax basis of the partners' capital accounts for HCP at December 31, 1996,
was $28,516,874.

Because many types of transactions are susceptible to varying interpretations
under federal and state income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
taxing authorities.

F-32
<PAGE> 92
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

9. RELATED PARTY TRANSACTIONS

Certain administrative and occupancy costs were incurred by an affiliate on
behalf of the Company. Total costs allocated to the Company were $390,925,
$219,294 $552,586, $351,387, and $202,718 for the six months ended June 30,
1997 and 1996 and the years ended December 31, 1996, 1995, and 1994,
respectively.

The Company pays premiums to a related party for employee medical coverage. The
related party insures the Company for any claims exceeding the premiums paid.
Accordingly, no amounts have been accrued at December 31, 1996, for claims
incurred but unpaid.

Upon sale of the multi-family properties in November 1996, an affiliate
received a $79,883 brokerage fee.

In addition, one of the Stockholders is chairman of the board of a bank where
the Company holds the majority of its operating cash accounts.

10. COMMITMENTS AND CONTINGENCIES

The Company had $56,376 and $53,788 in certificates of deposit at December 31,
1996 and 1995, respectively, restricted for utility deposits. The certificates
of deposit mature one year from the original purchase date.

In conjunction with CSLC'S prior credit facility, a compensating balance of
$150,000 was established with the mortgage company.

The CSLC senior living communities have entered into various contracts for
services. The contracts are for a duration of 5 years or less and are on a fee
basis as services are rendered. Future commitments on fixed cost contracts and
leases total $49,000.

The Company has pending claims incurred in the normal course of business which,
in the opinion of management, based on the advice of legal counsel, will not
have a material effect on the financial statements.

F-33
<PAGE> 93
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of financial instruments at December 31,
1996 and 1995, are as follows:

<TABLE>
<CAPTION>
1996 1995
----------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------

<S> <C> <C> <C> <C>
Cash and cash equivalents $10,818,512 $10,818,512 $10,016,702 $10,016,702
Cash, restricted 206,376 206,376 203,788 203,788
Investments in limited
partnerships, net of related
deferred income 4,875,236 6,348,776 896,405 887,228
Notes payable - - 2,035,148 2,035,148
Notes payable to affiliates 666,481 666,481 652,073 652,073
</TABLE>

The following methods and assumptions were used in estimating its fair value
disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the
balance sheet for cash and cash equivalents approximate fair value.

Investment in limited partnerships: The fair values are based on the
most recent purchase price.

Notes payable and notes payable to affiliates: The fair value of
notes payable is estimated using discounted cash flow analysis, based
on current incremental borrowing rates for similar types of borrowing
arrangements.

F-34
<PAGE> 94
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

12. INVESTMENTS IN LIMITED PARTNERSHIPS

The investments in limited partnerships balance consists of the following:

<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996 1995
---------- ---------- ---------
(Unaudited)
<S> <C> <C> <C>
HCP limited partnership interests
(including
deferred income and
equity in earnings) $ -- $7,487,818 $ 308,825
NHP pension notes 9,620,048 786,738 587,580
NHP limited partnership interests 1,364 1,364 --
---------- ---------- ---------
$9,621,412 $8,275,920 $ 896,405
========== ========== =========
</TABLE>

During 1996 and 1995, CSLC made various purchases of limited partnership
interests in HCP. During 1996 and 1995, CSLC paid $3,200,686 and $308,825,
respectively, for partnership interests in HCP and, as of December 31, 1996.
CSLC owned a 31% ownership in HCP. During 1997, CSLC made additional
investments in HCP limited partnership interests totaling $5,322,578 to bring
CSLC'S ownership of HCP limited partnership interests to 55% at June 30, 1997.

As a result, the Company changed its method of accounting for its investment in
HCP from the equity method to the consolidation of HCP in its financial
statements in 1997.

In the second quarter of 1996, CSLC purchased a 9.36% in limited partnership
interest in HCP from Housing. CSLC paid $1,269,077 to Housing, who recognized a
$878,592 gain on the transaction. As a result of this purchase, the Company
exceeded a 20% ownership in HCP and changed its method of accounting from the
cost method to the equity method. The change resulted in recognizing $3,519,315
of deferred income for the difference between cost and the underlying equity in
HCP, which is being amortized over 20 years. At June 30, 1997, the unamortized
deferred income was eliminated as a result of applying the purchase method of
accounting for CSLC's acquisition of HCP limited partnership units. At June 30,
1997, the allocation of purchase price to the assets and liabilities of HCP is
based on preliminary valuation information and management's estimates and will
be revised upon completion of the valuations. The fair value of CSLC'S
investment in HCP limited partnership interests is $5,171,626 at December 31,
1996, based on the most recent purchase price.

F-35
<PAGE> 95
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

12. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

Summary financial information regarding the financial position and results of
operations of HCP is summarized below.

<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------ ------------

<S> <C> <C>
Cash $ 8,995,455 $ 7,606,857
Property and equipment, net 22,112,619 25,251,255
Other assets 1,379,473 954,174
------------ ------------
Total assets $ 32,487,547 $ 33,812,286
============ ============

Liabilities $ 1,215,508 $ 1,609,403
Mortgage loans 7,207,414 9,775,601
Partnership capital 24,064,625 22,427,282
------------ ------------
Total liabilities and partnership capital $ 32,487,547 $ 33,812,286
============ ============
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
------------ ------------

<S> <C> <C>
Net revenue $ 7,560,104 $ 8,419,024
============ ============
Net income $ 1,637,343 $ 1,250,333
============ ============
</TABLE>

During 1996 and 1995, CSLC made various purchases of outstanding pension notes
of NHP (the NHP Notes). During 1996 and 1995, CSLC paid $199,158 and $587,580,
respectively, for purchases of NHP Notes. As of December 31, 1996, CSLC has
cumulatively paid $786,738 for an ownership of 4.2% of the outstanding NHP
Notes. NHP owns a portfolio of five independent senior living communities. The
pension notes bear simple interest at 13% per annum. Interest of 7% is paid
quarterly, with the remaining 6% interest deferred. Deferred interest and
principal matures on December 31, 2001. CSLC accrued the interest income on the
pension notes at 7% through December 31, 1996 and at 10.5% from April 1, 1997
through June 30, 1997, due to uncertainties regarding the ultimate realization
of the accrued interest. The ultimate realization of the NHP Notes is expected
to be based primarily upon the value of the underlying properties, which have
an appraised value in excess of the NHP Notes as of June 30, 1997. During 1996,
CSLC paid $1,364 for a 3.1% ownership of limited partnership interests in NHP.
Subsequent to year end and

F-36
<PAGE> 96
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

12. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

through June 30, 1997, CSLC disbursed $8,833,310 for an additional investment
in NHP Notes. These purchases bring CSLC's ownership of NHP notes to 27.9% at
June 30, 1997.

CSLC accounts for investments in NHP at cost and classifies them as held to
maturity. The fair value of the investments in NHP is $1,177,150 at December
31, 1996, based on the most recent purchase price.

Summary financial information regarding financial position and results of
operations of NHP as of June 30, 1997 and for the six months then ended and as
of December 31 and for the years then ended is summarized below.

<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996 1995
------------ ------------ ------------
(Unaudited)

<S> <C> <C> <C>
Cash $ 3,964,224 $ 4,017,181 $ 3,478,604
Property and equipment, net 49,547,718 50,171,241 51,260,763
Other assets 2,387,060 1,883,462 3,010,129
------------ ------------ ------------
Total assets $ 55,899,002 $ 56,071,884 $ 57,749,496
============ ============ ============

Pension notes $ 42,672,000 $ 42,672,000 $ 42,672,000
Interest payable 22,210,056 20,681,172 17,901,461
Other liabilities 1,273,719 1,154,823 1,976,344
Partnership deficit (10,256,773) (8,436,111) (4,800,309)
------------ ------------ ------------
Total liabilities and partnership deficit $ 55,899,002 $ 56,071,884 $ 57,749,496
============ ============ ============
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30 YEAR ENDED DECEMBER 31
1997 1996 1995
------------ ------------ ------------
(Unaudited)

<S> <C> <C> <C>
Net revenue $ 7,617,713 $ 14,488,099 $ 14,020,626
============ ============ ============

Net loss $ (1,790,269) $ (3,574,668) $ (3,690,549)
============ ============ ============
</TABLE>

F-37
<PAGE> 97
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

13. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The components of the allowance for doubtful accounts for the years ended
December 31, 1996, 1995, and 1994 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
--------- --------- ---------

<S> <C> <C> <C>
Balance at beginning of year $ 141,452 $ 86,049 $ 158,464
Provision for bad debts 22,312 71,098 --
Recoveries and other 1,058 (15,695) (72,415)
--------- --------- ---------
Balance at end of year $ 164,822 $ 141,452 $ 86,049
========= ========= =========
</TABLE>

14. LEASES

HCP leases its property and equipment to tenants under noncancelable operating
leases. The lease terms range from 9 to 12 years with options to renew for
additional five-year terms and options to purchase the leased property at the
current fair market value at the end of the initial lease term. The leases
generally provide for contingent rentals based on the performance of the
property. Contingent rentals aggregated $172,309 in 1997.

Minimum rentals for the next three years for leases are $3,971,328 per year,
subject to change based on changes in interest rates. Minimum rentals are
$3,761,262 and $2,858,619 for the years 2000 and 2001. There are no minimum
rentals thereafter. Property and equipment less accumulated depreciation
attributable to such rentals, amounted to $20,502,517 at January 1, 1997.

Four of HCP's properties are subject to a master lease with a single operator,
HealthSouth Rehabilitation Corp. (HealthSouth). This master lease, as amended,
contains a nine-year renewal option and provides for contingent rentals equal
to 4% of the revenue differential, as defined, effective January 30, 1997.

During 1994, HealthSouth closed HCP's Sandybrook facility. In February 1997,
HealthSouth closed the Cedarbrook facility. Despite these closures, HealthSouth
has continued making its full lease payments under the terms of the master
lease.

F-38
<PAGE> 98
Capital Senior Living Corporation

Notes to Combined Financial Statements (continued)

15. OFFICER'S SALARIES AND BONUSES

General and administrative expense includes officers' salaries and bonuses of
$2,600,490, $1,658,300, $3,371,887, $2,976,302, and $3,443,034 for the six
months ended June 30, 1997 and 1996 and the years ended December 31, 1996,
1995, and 1994.

16. PRO FORMA INCOME TAXES (UNAUDITED)

The income taxes on earnings of the S corporations and partnerships are the
responsibility of the Stockholders and partners. The pro forma adjustments
reflected on the statements of income assume these S corporations and
partnerships were subject to income taxes. Pro forma income tax expense has
been calculated using statutory federal and state tax rates, estimated at
39.5%.

F-39
<PAGE> 99
INDEPENDENT AUDITORS' REPORT

The Partners
HealthCare Properties, L.P.:

We have audited the accompanying consolidated balance sheets of HealthCare
Properties, L.P. and subsidiaries (a Delaware limited partnership) as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, partnership equity, and cash flows for each of the years in the
three-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HealthCare
Properties, L.P. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP

Dallas, Texas
February 7, 1997, except as to the fifth paragraph
of note 4, which is as of March 21, 1997

F-40
<PAGE> 100

HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Consolidated Balance Sheets

<TABLE>
<CAPTION>
June 30, December 31,
Assets 1997 1996 1995
----------- ----------- -----------
(Unaudited)

<S> <C> <C> <C>
Cash and cash equivalents $ 9,548,043 8,995,455 7,606,857

Accounts receivable, less allowance for doubtful accounts of
$4,255,655 at June 30, 1997 (Unaudited), $4,225,811 at
December 31, 1996 and $3,489,937 at December 31, 1995
(notes 6 and 9) 947,337 794,234 210,409

Prepaid expenses 72,723 85,295 129,714

Property and improvements, net (notes 3, 4 and 5) 21,469,109 22,112,619 25,251,255

Deferred charges, less accumulated amortization of $819,111 at
June 30, 1997 (Unaudited), $765,409 at December 31, 1996
and $734,146 at December 31, 1995 446,242 499,944 614,051
----------- ----------- -----------
$32,483,454 32,487,547 33,812,286
=========== =========== ===========

Liabilities and Partnership Equity

Accounts payable and accrued expenses (note 4) $ 820,991 1,004,204 1,526,209

Operating facility accounts payable 43,359 211,304 83,194

Mortgage loans payable - in default (note 4) -- -- 2,068,539

Mortgage loans payable (note 4) 6,946,423 7,207,414 7,707,062
----------- ----------- -----------
7,810,773 8,422,922 11,385,004
----------- ----------- -----------

Partnership equity (deficit):
Limited partners (4,172,457 units) 24,654,579 24,058,684 22,449,617
General partner 18,102 5,941 (22,335)
----------- ----------- -----------
24,672,681 24,064,625 22,427,282

Commitments and contingencies (note 4) ----------- ----------- -----------
$32,483,454 32,487,547 33,812,286
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-41
<PAGE> 101

HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Consolidated Statements of Operations

<TABLE>
<CAPTION>
Six months ended June 30, Year ended December 31,
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues (notes 5, 6 and 9):
Net patient service $ 2,495,295 786,239 2,969,991 3,268,800 6,698,751
Rental 2,157,973 2,448,668 4,590,113 5,100,085 5,296,655
Other income -- -- -- 50,139 579,075
----------- ----------- ----------- ----------- -----------
4,653,268 3,234,907 7,560,104 8,419,024 12,574,481
----------- ----------- ----------- ----------- -----------
Expenses:
Facility operating expenses 2,256,544 736,957 2,727,909 3,238,004 6,597,068
Depreciation 681,920 733,908 1,418,293 1,721,605 1,911,876
Fees to affiliates (note 7) 523,343 643,369 1,275,833 1,279,428 1,581,765
Bad debts 28,061 415,509 875,143 1,585,555 919,737
Lease default expenses 14,687 58,215 114,523 286,108 453,140
Administrative and other 306,768 75,903 192,385 114,625 222,055
----------- ----------- ----------- ----------- -----------
3,811,323 2,663,861 6,604,086 8,225,325 11,685,641
----------- ----------- ----------- ----------- -----------
Income from operations 841,945 571,046 956,018 193,699 888,840
----------- ----------- ----------- ----------- -----------

Other income (expense):
Interest income 163,635 114,541 239,215 185,650 102,511
Interest expense (343,823) (430,313) (784,092) (1,324,845) (1,645,647)
Amortization (53,701) (57,054) (114,107) (171,265) (195,782)
Gain (loss) on disposition of operating
properties, net (note 3) -- 387,528 387,617 (1,237,420) --
Loss due to reduction of carrying value of
operating properties (note 3) -- -- -- -- (2,185,381)
----------- ----------- ----------- ----------- -----------
(233,889) 14,702 (271,367) (2,547,880) (3,924,299)
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary item 608,056 585,748 684,651 (2,354,181) (3,035,459)
----------- ----------- ----------- ----------- -----------

Extraordinary gain on disposition of
operating properties (note 3) -- 952,692 952,692 3,604,514 --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 608,056 1,538,440 1,637,343 1,250,333 (3,035,459)
=========== =========== =========== =========== ===========

Allocation of net income (loss):
Limited partners $ 595,895 1,512,141 1,609,067 960,336 (2,974,750)
General partners 12,161 26,299 28,276 289,997 (60,709)
----------- ----------- ----------- ----------- -----------
$ 608,056 1,538,440 1,637,343 1,250,333 (3,035,459)
=========== =========== =========== =========== ===========

Per unit:
Income (loss) before extraordinary item .14 .13 .16 (.56) (.71)
Extraordinary gain -- .23 .23 .79 --
----------- ----------- ----------- ----------- -----------
Net income (loss) .14 .36 .39 .23 (.71)
=========== =========== =========== =========== ===========
Distributions -- -- --
=========== =========== =========== =========== ===========

Weighted average number of units 4,172,457 4,172,457 4,172,457 4,172,457 4,172,457
=========== =========== =========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-42
<PAGE> 102

HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Consolidated Statements of Partnership Equity

<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------ ------------ ------------
<S> <C> <C> <C>
Equity at December 31, 1993 $ 24,464,031 (251,623) 24,212,408

Net loss (2,974,750) (60,709) (3,035,459)
------------ ------------ ------------
Equity at December 31, 1994 21,489,281 (312,332) 21,176,949

Net income 960,336 289,997 1,250,333
------------ ------------ ------------
Equity at December 31, 1995 22,449,617 (22,335) 22,427,282

Net income 1,609,067 28,276 1,637,343
------------ ------------ ------------
Equity at December 31, 1996 24,058,684 5,941 24,064,625

Net income (Unaudited) 595,895 12,161 608,056
------------ ------------ ------------
Equity at June 30, 1997 (Unaudited) $ 24,654,579 18,102 24,672,681
============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-43
<PAGE> 103

HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
Six months ended June 30, Year ended December 31,
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 608,056 1,538,440 1,637,343 1,250,333 (3,035,459)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 735,621 790,962 1,532,400 1,892,870 2,107,658
Bad debts 28,061 415,509 875,143 1,585,555 919,737
(Gain) loss on disposition of operating
properties, net -- (387,528) (387,617) 1,237,420 --
Extraordinary gain on disposition of operating
properties -- (952,692) (952,692) (3,604,514) --
Loss due to reduction of carrying value of
operating properties -- -- -- -- 2,185,381
Changes in assets and liabilities, net of
effects of property dispositions:
Accounts receivable (181,164) (279,067) (1,458,968) (1,228,720) (850,301)
Prepaid expenses 12,572 34,118 43,647 39,406 (11,473)
Accounts payable and accrued expenses (351,158) 176,802 443,384 (89,940) 1,018,878
----------- ----------- ----------- ----------- -----------
Net cash provided by operating 851,988 1,336,544 1,732,640 1,082,410 2,334,421
----------- ----------- ----------- ----------- -----------
activities

Cash flows from investing activities:
Purchases of property and improvements (38,409) (10,655) (21,969) (760) (514,406)
Proceeds from sale of property -- 2,246,114 2,246,114 2,958,287 --
Cash forfeiture on disposition of property held in
receivership -- -- -- (67,969) --
----------- ----------- ----------- ----------- -----------

Net cash provided by (used in)
investing activities (38,409) 2,235,459 2,224,145 2,889,558 (514,406)
----------- ----------- ----------- ----------- -----------

Cash flows from financing activities - payments on
mortgage loans payable (260,991) (2,314,784) (2,568,187) (1,971,385) (444,352)
----------- ----------- ----------- ----------- -----------

Net increase in cash and cash equivalents 552,588 1,257,219 1,388,598 2,000,583 1,375,663
Cash and cash equivalents at beginning of year 8,995,455 7,606,857 7,606,857 5,606,274 4,230,611
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of year $ 9,548,043 8,864,076 8,995,455 7,606,857 5,606,274
=========== =========== =========== =========== ===========

Cash paid for interest $ 343,823 363,132 716,910 850,747 981,346
=========== =========== =========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-44

<PAGE> 104
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

June 30, 1997 (Unaudited) and December 31, 1996, 1995 and 1994

(1) General

HealthCare Properties, L.P., is a Delaware limited partnership
established for the purpose of acquiring, leasing and operating existing
or newly constructed long-term health care properties. These properties
are operated by the Partnership or are leased to qualified operators who
provide specialized health care services. Effective July 1, 1993,
Capital Realty Group Senior Housing, Inc. (CRG) became the sole general
partner of the Partnership. Effective February 1, 1995, Capital Senior
Living, Inc., (CSL), an affiliate of CRG became the managing agent for
the Partnership replacing CRG, which had been managing agent since July
1, 1992.

At December 31, 1995, CRG owned approximately 9% of the Partnership's
limited partner units. During 1996, Capital Senior Living Communities,
L.P. (CSLC), an affiliate of CRG, acquired CRG's 9% interest in the
Partnership. In addition, CSLC purchased approximately 24% and 16% of
the limited partner units from unaffiliated limited partners for the six
months ended June 30, 1997 (Unaudited) and the year ended December 31,
1996, respectively. At June 30, 1997 (Unaudited) and December 31, 1996
and 1995, CSLC owned approximately 55%, 31% and 6% of the Partnership's
limited partner units, respectively.

The consolidated financial statements as of and for the years ended
December 31, 1995 and 1994 include the accounts of the Partnership and
its wholly owned subsidiaries, Danville Care, Inc., Foothills Care,
Inc., Countryside Care, Inc. and Countryside Care, LP. In addition, the
consolidated financial statements as of and for the six months ended
June 30, 1997 (Unaudited) and the year ended December 31, 1996 include
the accounts of the Partnership's wholly owned subsidiary, Cambridge
Nursing Home Limited Liability Company (Cambridge LLC), which began
operating Cambridge Nursing Home effective August 1, 1996 (see note 6).
All significant intercompany accounts and transactions have been
eliminated in consolidation.

At June 30, 1997 (Unaudited) and December 31, 1996, 1995 and 1994, the
status of the Partnership's properties was as follows:

F-45
<PAGE> 105

HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
June 30,
1997 1996 1995 1994
----- ----- ----- -----
(Unaudited)
<S> <C> <C> <C> <C>
Leased to unaffiliated operators on a triple net basis 7 7 7 8

Operated by subsidiaries of the Partnership and
managed by CSL 1 1 1 2

Operated under bankruptcy and managed by CSL -- -- 1 1

Operated and managed under receivership by
an unaffiliated operator -- -- -- 1
----- ----- ----- -----
8 8 9 12
===== ===== ===== =====
</TABLE>

During 1996, one of the properties (Countryside) operated by a
subsidiary of the Partnership was sold to an unrelated third party.
Additionally, during 1996, the operations of the property (Cambridge)
previously operated under bankruptcy and managed by CSL were transferred
to Cambridge LLC. CSL continues to manage this property (see note 6).
During 1995, one of the Partnership's leased properties was sold to an
unrelated third party and the deeds for two of the Partnership's
operated properties were transferred to the noteholders in lieu of
foreclosure (see note 3).

In the opinion of management, the accompanying unaudited consolidated
financial statements as of June 30, 1997 and for the six months ended
June 30, 1997 and 1996, reflect all adjustments (all of which were
normal and recurring) which, in the opinion of management, are necessary
for a fair presentation of the consolidated financial position and
results of operations for the interim periods presented. The
consolidated results of operations for the six month period ended June
30, 1997 are not indicative of the results to be expected for the full
year.

(2) Summary of Significant Accounting Policies

Property and improvements are stated at cost. The Partnership adopted
the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. The
fair value is based on either the expected future cash flows discounted
at a rate which varies based on associated risk or an independent
third-party appraisal. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. Adoption
of this Statement did not have a material impact on the Partnership's
1996 financial position or results of operations.

F-46
<PAGE> 106
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives,
using declining-balance and straight-line methods, as follows: buildings
and improvements, 25 to 31 years; furniture, fixtures and equipment, 5
to 10 years.

The financial statements and federal income tax returns are prepared on
the accrual method of accounting and include only those assets and
liabilities and results of operations which relate to the business of
the Partnership and its wholly owned subsidiaries. No provision has been
made for federal and state income taxes since such taxes are the
responsibility of the individual partners. Although the Partnership's
subsidiaries file federal corporate income tax returns, none of the
subsidiaries had significant net income for financial reporting or
income tax purposes for the six months ended June 30, 1997 (Unaudited)
or the years ended December 31, 1996, 1995 or 1994. Accordingly, no
provision has been made for federal and state income taxes for these
subsidiaries for the six months ended June 30, 1997 (Unaudited) or the
years ended December 31, 1996, 1995 or 1994.

Net income (loss) of the Partnership and taxable income (loss) are
generally allocated 98% to the limited partners and 2% to the general
partner. The net income of the Partnership from the disposition of a
property is allocated (i) to partners with deficit capital accounts on a
pro rata basis (ii) to limited partners until they have been paid an
amount equal to the amount of their Adjusted Investment (iii) to the
limited partners until they have been allocated income equal to their
12% Liquidation Preference, and (iv) thereafter, 80% to the limited
partners and 20% to the general partner. The net loss of the Partnership
from the disposition of a property is allocated (i) to partners with
positive capital accounts on a pro rata basis and (ii) thereafter, 98%
to the limited partners and 2% to the general partner. Distributions of
available cash flow are generally distributed 98% to the limited
partners and 2% to the general partner, until the limited partners have
received an annual preferential distribution, as defined. Thereafter,
available cash flow is distributed 90% to the limited partners and 10%
to the general partner. No distributions were made during the six months
ended June 30, 1997 (Unaudited) or the years ended December 31, 1996,
1995 or 1994.

Deferred charges primarily represent initial fees and other costs
incurred in negotiating leases and mortgage loans payable. These costs
are being amortized using the straight-line method over the lives of the
related leases or mortgage loans.

Net patient service revenue is reported at the estimated net realizable
amounts due from residents, third-party payors, and others for service
rendered. Revenue under third-party payor agreements is subject to audit
and retroactive adjustment. Provisions for estimated third-party payor
settlements are provided in the period the related services are
rendered. Differences between the estimated amounts accrued and interim
and final settlements are reported in operations in the year of
settlement.

The Partnership records accounts receivable for contingent rentals and
past due rents only when circumstances indicate a substantial
probability of collection. Existing receivables are reserved to the
extent collection is deemed doubtful by the Partnership's management.
Deductions to the allowance for doubtful accounts were $156, $45,682,
$29,953 and $32,426 for the six months ended June 30, 1997 (Unaudited)
and the years ended December 31, 1996, 1995 and 1994, respectively.

F-47
<PAGE> 107
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

The Partnership classifies all highly liquid investments with original
maturities of three months or less as cash equivalents.

Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities to
prepare these consolidated financial statements. Actual results could
differ from those estimates.

(3) Property and Improvements

Property and improvements consist of:

<TABLE>
<CAPTION>
June 30, December 31
------------ ----------------------------
1997 1996 1995
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Land $ 3,145,803 3,145,803 3,570,802
Buildings and improvements 31,397,383 31,397,383 34,467,946
Furniture, fixtures and equipment 1,642,375 1,603,965 1,851,124
------------ ------------ ------------
36,185,561 36,147,151 39,889,872
Allowance for reduction in carrying value of
operating properties (2,185,381) (2,185,381) (3,026,898)
------------ ------------ ------------
34,000,180 33,961,770 36,862,974
Less accumulated depreciation 12,531,071 11,849,151 11,611,719
------------ ------------ ------------
$ 21,469,109 22,112,619 25,251,255
============ ============ ============
</TABLE>

The following is a summary of information for the individual Partnership
properties from inception of the Partnership through December 31, 1996. The
information presented includes furniture, fixtures and equipment which are
immaterial to the Partnership.

<TABLE>
<CAPTION>
Costs Capitalized
Initial Subsequent to
Cost to Partnership Acquisition Gross Amount at which Carried at Close of Period
--------------------------- -------------------- ---------------------------------------------------------
Buildings Buildings
and and Valuation
Description Land Improvements Improvements Land Improvements Allowance Total
----------- ---- ------------ ------------ ---- ------------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Cedarbrook $ 807,861 3,147,139 783,608 807,861 3,930,747 - 4,738,608
rehab facility
Nashville, TN

Cane Creek 97,560 3,902,440 225,118 97,560 4,127,558 - 4,225,118
rehab facility
Martin, TN

Crenshaw Creek 123,801 3,776,199 102,732 123,801 3,878,931 - 4,002,732
rehab facility
Lancaster, SC
</TABLE>

F-48
<PAGE> 108
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
Costs Capitalized
Initial Subsequent to
Cost to Partnership Acquisition Gross Amount at which Carried at Close of Period
--------------------------- -------------------- ---------------------------------------------------------
Buildings Buildings
and and Valuation
Description Land Improvements Improvements Land Improvements Allowance Total
- ------------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sandy Brook 563,072 3,636,928 128,434 563,072 3,765,362 -- 4,328,434
rehab facility
Mt. Dora, FL

Cambridge 497,470 4,602,530 101,771 497,470 4,704,301 (2,185,381) 3,016,390
nursing home
Cambridge, MA

Trinity Hills 300,000 2,400,000 26,152 300,000 2,426,152 -- 2,726,152
nursing home
Ft. Worth, TX

Hearthstone 756,039 2,868,961 116,365 756,039 2,985,326 -- 3,741,365
nursing home
Round Rock, TX

McCurdy -- 7,100,000 74,064 -- 7,174,064 -- 7,174,064
nursing home
Evansville, IN

Partnership assets
Dallas, TX -- -- 8,907 -- 8,907 -- 8,907
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total $ 3,145,803 31,434,197 1,567,151 3,145,803 33,001,348 (2,185,381) 33,961,770
============ ============ ============ ============ ============ ============ ============
</TABLE>

<TABLE>
<CAPTION>
Accumulated Date of Date Useful
Description Encumbrances Depreciation Construction Acquired Life
- ------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cedarbrook $ 899,029 1,555,502 1985 1987 25 - 31 years
rehab facility
Nashville, TN

Cane Creek 789,198 1,760,842 1985 1987 25 - 31 years
rehab facility
Martin, TN

Crenshaw Creek -- 1,401,146 1988 1988 25 - 31 years
rehab facility
Lancaster, SC

Sandy Brook -- 1,323,065 1985 1988 25 - 31 years
rehab facility
Mt. Dora, FL

Cambridge -- 1,410,785 1967 1990 25 - 31 years
nursing home
Cambridge, MA
</TABLE>

F-49
<PAGE> 109
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
Accumulated Date of Date Useful
Description Encumbrances Depreciation Construction Acquired Life
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Trinity Hills -- 1,077,225 1971 1988 25 - 31 years
nursing home
Ft. Worth, TX

Hearthstone 1,341,859 1,094,160 1988 1988 25 - 31 years
nursing home
Round Rock, TX

McCurdy 4,177,328 2,222,015 1916 1989 25 - 31 years
nursing home
Evansville, IN

Partnership assets -- 4,411 n/a 1991-1993 10 years
Dallas, TX
------------ ------------

Total $ 7,207,414 11,849,151
============ ============
</TABLE>

The following information is a summary of Partnership additions to and
deductions from property and improvements and accumulated depreciation for the
years ended December 31, 1996, 1995 and 1994. The information presented
includes furniture, fixtures and equipment which are immaterial to the
Partnership.

<TABLE>
<CAPTION>
Property and Improvements 1996 1995 1994
------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period $36,862,974 46,272,927 47,943,902

Additions during period:
Acquisitions -- -- 486,807
Improvements 21,969 760 27,599
----------- ----------- -----------
21,969 760 514,406

Deductions during period:
Cost of property sold 2,923,173 3,520,068 --
Cost of property transferred in lieu of foreclosure -- 5,890,645 --
Write-down in value of property -- -- 2,185,381
----------- ----------- -----------
Total deductions 2,923,173 9,410,713 2,185,381
----------- ----------- -----------

Balance at close of period $33,961,770 36,862,974 46,272,927
=========== =========== ===========
</TABLE>

F-50
<PAGE> 110
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accumulated Depreciation
Balance at beginning of period $11,611,719 12,576,670 10,664,794

Additions 1,418,293 1,721,605 1,911,876

Deductions during period:
Property sold 1,180,861 989,422 --
Property transferred in lieu of foreclosure -- 1,697,134 --
----------- ----------- -----------
Total deductions 1,180,861 2,686,556 --
----------- ----------- -----------

Balance at close of period $11,849,151 11,611,719 12,576,670
=========== =========== ===========
</TABLE>

The Federal income tax basis of the Partnership's property and improvements
at December 31, 1996 is $26,772,518.

The following property dispositions occurred during 1996 and 1995:

<TABLE>
<CAPTION>
Net property Mortgage
and loans Net Net gain on
improvements payable Other proceeds disposition
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1996:
Sale of Countryside
on May 1, 1996 $ 1,742,401 (2,068,539) (987,804) (26,367) 1,340,309
=========== =========== =========== =========== ===========

1995:
Sale of Heritage
Manor on July 5, 1995 $ 2,530,645 (1,500,000) 63,857 (1,458,287) 363,785

Deed transferred to noteholder in lieu of foreclosure:
Foothills 2,122,178 (2,360,895) (872,587) -- 1,111,304
Diablo/Tamarack 2,071,334 (2,160,787) (802,552) -- 892,005
----------- ----------- ----------- ----------- -----------
$ 6,724,157 (6,021,682) (1,611,282) (1,458,287) 2,367,094
=========== =========== =========== =========== ===========
</TABLE>

"Other" consists primarily of disposition costs, accrued interest
payable and deferred charges (prepaid loan fees).

The Countryside property was sold to an unrelated third-party investor
on May 1, 1996 for $2,246,114. The resulting net gain is comprised of
(1) an ordinary gain of $387,617 representing the difference between the

(Continued)

F-51
<PAGE> 111
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

carrying value of the property and the sales proceeds and (2) an
extraordinary gain of $952,692 representing the difference between the
agreed-upon cash settlement with the lender and the mortgage loan
payable including accrued interest payable.

The Heritage Manor property was sold on July 5, 1995 to an unrelated
third-party investor for $3,075,000. With the proceeds, the Partnership
paid the $1,500,000 mortgage loan balance. The resulting net gain of
$363,785 represents the difference between the carrying value of the
property and the sales proceeds.

The deed to the Diablo/Tamarack property was transferred to the
noteholder in lieu of foreclosure on July 31, 1995. The resulting net
gain is comprised of (1) an ordinary loss of $686,770 representing the
difference between the carrying value and the fair value of the property
and, (2) an extraordinary gain of $1,578,775 representing the difference
between the fair value of the property, and the mortgage loan payable
including accrued interest payable.

Effective December 1, 1994, the Foothills property was placed in
receivership. The deed to the property was subsequently transferred to
the noteholder in lieu of foreclosure on July 19, 1995. The resulting
net gain is comprised of (1) an ordinary loss of $914,435, representing
the difference between the carrying value and the fair value of the
property and, (2) an extraordinary gain of $2,025,739 representing the
difference between the fair value of the property, and the mortgage loan
payable including accrued interest payable.

In 1994, management concluded that the carrying value of its Cambridge
property exceeded its estimated fair value. As a result, in the fourth
quarter of 1994, this property, which had been carried at $4,185,381,
was written down to $2,000,000.

Combined operating results for Cambridge, Foothills, Countryside and
Diablo/Tamarack follows:

<TABLE>
<CAPTION>
June 30,
1997 1996 1995 1994
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net patient service revenue $ 2,422,262 2,969,991 3,268,800 6,698,751
----------- ----------- ----------- -----------

Facility operating expenses 2,219,577 2,727,909 3,238,004 6,597,068
Depreciation 100,231 248,134 275,815 369,401
Fees to affiliates 195,889 261,517 319,454 650,740
Bad debts 29,844 79,682 325,921 52,263
Lease default expenses 7,022 35,923 120,258 81,014
----------- ----------- ----------- -----------
2,552,563 3,353,165 4,279,452 7,750,486
----------- ----------- ----------- -----------
Loss from operations $ (130,301) (383,174) (1,010,652) (1,051,735)
=========== =========== =========== ===========
Interest expense $ -- 67,181 457,691 664,306
=========== =========== =========== ===========
</TABLE>

Operating results for the six months ended June 30, 1997 (Unaudited)
consist primarily of amounts at the Cambridge facility. 1996 operating
results consist of amounts at the Cambridge facility from August 1, 1996
through December 31, 1996 and at the Countryside facility from January
1, 1996 through April 30, 1996. Operating results consist of amounts at
the Countryside facility for the year ended December 31, 1995

(Continued)

F-52
<PAGE> 112
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

and at the Diablo/Tamarack facility from January 1, 1995 through July
31, 1995. 1994 operating results consist of amounts at the
Countryside and Diablo/Tamarack facilities for the year ended
December 31, 1994 and at the Foothills facility from January 1, 1994
through November 30, 1994.

(4) Mortgage Loans Payable

Mortgage loans payable consist of the following:

<TABLE>
<CAPTION>
June 30,
1997 1996 1995
---------- ---------- ----------
(Unaudited)

<S> <C> <C> <C>
Mortgage loans payable - in default (note 3) $ -- -- 2,068,539
Mortgage loans payable 6,946,423 7,207,414 7,707,062
---------- ---------- ----------
Total mortgage loans payable $6,946,423 7,207,414 9,775,601
========== ========== ==========
</TABLE>

Mortgage loans payable (including $5,621,906, $5,865,555 and $6,333,183
due to banks at June 30, 1997 (Unaudited), December 31, 1996 and 1995),
bear interest ranging from 6.8% to 10.75% at June 30, 1997 (Unaudited),
6.6% to 10.75% at December 31, 1996 and 6.8% to 10.75% at December 31,
1995. These notes are payable in monthly installments of $100,732 at
June 30, 1997 (Unaudited), $101,092 at December 31, 1996 and $94,618 at
December 31, 1995, including interest. The notes are secured by
properties with net book values aggregating $12,870,731, $13,246,635 and
$14,004,632 at June 30, 1997 (Unaudited), December 31, 1996 and 1995,
respectively. The notes range in maturity from 1997 to 2012.

Mortgage loans payable - in default, consisted of one loan at December
31, 1995, secured by the Countryside property. In 1996, the note secured
by the Countryside property was extinguished in connection with the
disposition of the property securing the note (see note 3). The note was
secured by property with net book value aggregating $1,779,852 at
December 31, 1995. The note was in default at December 31, 1995 because
of the Partnership's failure to make required debt service payments when
due and because of the failure of the former lessee to pay required
property taxes to the taxing authorities.

The Partnership had one mortgage loan aggregating $1,062,237 at December
31, 1995 that was in default as a result of not meeting a debt coverage
ratio, as defined. Despite this default, the lender waived this ratio
requirement through January 1, 1997. At December 31, 1996, the
Partnership met the debt coverage ratio. Accordingly, this loan balance
is classified as "mortgage loans payable" in the accompanying
consolidated balance sheets.

Accrued interest payable related to mortgage loans payable - in default
aggregated $766,972 at December 31, 1995.

The Partnership leases four of its properties under a master lease (see
note 6). The rentals under the master lease provide additional security
for two notes payable used to finance two of the master lease
properties. Both of these notes were callable by the lenders at any time
between January 1, 1993 and November 30, 1995; however, the lenders
agreed not to exercise their call rights prior to maturity on January
31, 1996 as

F-53
<PAGE> 113
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

long as the Partnership remained in compliance with the loan agreements.
One of the lenders agreed to extend the maturity date of its note to
December 1, 2001, pending completion of final loan documents. On March
21, 1997, the other lender agreed not to exercise its call rights until
June 30, 1997. The Partnership is currently negotiating the extension of
the note until December 1, 2001.

Presented below is a summary of required principal payments on mortgage
loans payable as of December 31, 1996. The note callable on June 30,
1997 is included in amounts due currently.

<TABLE>
<S> <C> <C>
1997 $ 2,568,389
1998 355,176
1999 385,309
2000 273,807
2001 178,193
2002 and thereafter 3,446,540
-----------
$ 7,207,414
===========
</TABLE>

(5) Leases

The Partnership leases its property and equipment to tenants under
noncancelable operating leases. The lease terms range from 9 to 12 years
with options to renew for additional five-year terms and options to
purchase the leased property at the current fair market value at the end
of the initial lease term. The leases generally provide for contingent
rentals based on the performance of the property. Contingent rentals
aggregated $172,309 for the six months ended June 30, 1997 (Unaudited),
$192,325, $165,042 and $173,541 for the years ended December 31, 1996,
1995 and 1994, respectively.

Minimum rentals for 1997, 1998 and 1999 for leases not in default are
$3,971,328 per year, subject to change based on changes in interest
rates. Minimum rentals are $3,761,262 and $2,858,619 for the years 2000
and 2001. There are no minimum rentals thereafter. Property and
improvements less accumulated depreciation attributable to such rentals,
amounted to $19,925,325, $20,502,517 and $21,671,891 at June 30, 1997
(Unaudited), December 31, 1996 and 1995, respectively.

(6) Lease Defaults

NCA Cambridge, Inc., the lessee of the Partnership's Cambridge Nursing
Home (Cambridge) property, petitioned for Chapter 11 bankruptcy
protection in 1992. In May 1993, CRG began operating Cambridge under the
control of the bankruptcy court pursuant to a settlement agreement with
the lessee; however, the results of operations of this property have not
been included in the Partnership's consolidated statements of operations
for the two years ended December 31, 1995 and from the period January 1,
1996 through July 31, 1996. On August 1, 1996, in accordance with the
approval of the bankruptcy court, the operations of Cambridge were
transferred to Cambridge LLC, a subsidiary of the Partnership,
effectively removing the operations of the property from the
jurisdiction of the bankruptcy court. Accordingly, the results of
operations of Cambridge are included in the 1996 consolidated statements
of operations for the period August 1, 1996 through December 31, 1996,
and for the six months ended June 30, 1997 (Unaudited).

F-54
<PAGE> 114
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

In connection with this property, the lessee was overpaid for services
to Medicaid patients during the period the lessee operated the property.
Based on certain interpretations of state regulations, the Partnership
could have been liable for approximately $1,400,000 in connection with
the recovery of these Medicaid overpayments. During 1995, the
Partnership entered into a settlement agreement with the state of
Massachusetts, approved by the bankruptcy court, whereby the $1,400,000
became a general, unsecured claim of the bankruptcy estate of NCA
Cambridge, Inc., which will be settled through bankruptcy court
proceedings. Additionally, as part of the settlement agreement with the
state, the Partnership agreed to loan NCA Cambridge, Inc. $590,000 to
pay outstanding real property taxes due on the Cambridge property. The
Partnership fully reserved for this receivable in 1995.

Four of the Partnership's properties are subject to a master lease with
a single operator, HealthSouth Rehabilitation Corp. (HealthSouth). This
master lease, as amended, contains a nine-year renewal option and
provides for contingent rentals equal to 4% of the revenue differential,
as defined, effective January 30, 1997. As of June 30, 1997 (Unaudited),
no contingent rentals have been accrued on the master lease.

During 1994, HealthSouth closed the Partnership's Sandybrook facility.
In February 1997, HealthSouth closed the Cedarbrook facility. Despite
these closures, HealthSouth has continued making its full lease payments
under the terms of the master lease.

The following summary consolidated financial data was obtained from the
December 31, 1996 Form 10-K of HealthSouth:

<TABLE>
<CAPTION>
(In Thousands)
December 31, December 31,
1996 1995
---------- ----------
<S> <C> <C>
Cash $ 148,028 152,244
Accounts receivable, net 510,567 409,150
Property and equipment, net 1,390,873 1,283,560
Intangible assets, net 1,049,658 873,911
Other assets 272,826 212,630
---------- ----------
Total assets $3,371,952 2,931,495
========== ==========

Long-term debt $1,450,620 1,356,489
Other liabilities 405,408 389,108
Stockholders' equity 1,515,924 1,185,898
---------- ----------
Total liabilities & stockholders' equity $3,371,952 2,931,495
========== ==========
</TABLE>

<TABLE>
<CAPTION>
(In Thousands)
Year Ended December 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net revenue $2,436,537 2,003,146 1,649,199
========== ========== ==========
Net income $ 220,818 92,521 88,083
========== ========== ==========
</TABLE>

F-55
<PAGE> 115
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

Delinquent rentals fully reserved by the Partnership as a result of
lease defaults approximated $393,000 in 1996 and $674,000 in 1995 and
1994.

Other income in 1994 primarily consists of $560,000 in recovered
administrative expenses owed the Partnership from the former operator of
two of the Partnership's properties.

(7) Related Party Transactions

Approximate fees paid to the general partner and affiliates of the
general partner are as follows:

<TABLE>
<CAPTION>
June 30,
1997 1996 1995 1994
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Asset management fees $ 222,000 740,000 712,000 731,000
Property management fees 170,000 208,000 252,000 472,000
Administrative and other expenses 86,000 256,000 235,000 266,000
General partner management fees 45,000 72,000 80,000 113,000
---------- ---------- ---------- ----------
$ 523,000 1,276,000 1,279,000 1,582,000
========== ========== ========== ==========
</TABLE>

A 50% partner in CRG is chairman of the board of a bank where the
Partnership holds the majority of its operating cash accounts.

In connection with the sale of Countryside in 1996, the general partner
was paid fees aggregating $66,000. In connection with the sale of
Heritage Manor in 1995, the general partner was paid fees aggregating
$92,250.

(8) Income Taxes

Reconciliation of financial statement basis partners' equity to federal
income tax basis partners' equity is as follows:

<TABLE>
<CAPTION>
Years ended December 31
------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Total partners' equity - financial statement
basis $ 24,064,625 22,427,282 21,176,949
Current year tax basis net earnings
over (under) financial statement basis (684,329) (2,942,675) 2,552,427
Cumulative tax basis net earnings over
financial statement basis 5,136,578 8,079,253 5,526,826
------------ ------------ ------------
Total partners' equity - federal income
tax basis $ 28,516,874 27,563,860 29,256,202
============ ============ ============
</TABLE>

F-56
<PAGE> 116
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

Because many types of transactions are susceptible to varying
interpretations under federal and state income tax laws and regulations,
the amounts reported above may be subject to change at a later date upon
final determination by the taxing authorities.

(9) Business and Credit Concentrations

The Partnership's eight facilities are located in the southeastern
United States, Texas, Indiana and Massachusetts. The four facilities
operated by HealthSouth (note 6) are located in the southeastern United
States and accounted for approximately $1,183,500 (25%), $2,367,000
(31%), $2,367,000 (28%) and $2,292,000 (18%) of Partnership revenues for
six months ended June 30, 1997 (Unaudited) and the years ended December
31, 1996, 1995 and 1994, respectively. One property leased to an
unaffiliated operator accounted for approximately $500,319 (11%),
$1,023,716 (14%) and $977,000 (12%) of Partnership revenues for six
months ended June 30, 1997 (Unaudited) and the years ended December 31,
1996 and 1995, respectively.

The Partnership also derives revenue from Medicaid programs funded by
the states of Colorado, California, Michigan and Massachusetts. The
Partnership derived 14% of its revenues from the Colorado state program
during 1994 and 15% and 11% of its revenues from the Michigan state
program in 1995 and 1994, respectively. The Partnership derived 29% of
its revenues from the state program in Massachusetts for the six months
ended June 30, 1997 (Unaudited), and 15% for the year ended December 31,
1996.

Receivables due from state Medicaid programs aggregated $473,522 at June
30, 1997 (Unaudited) and $438,350 and $116,933 at December 31, 1996 and
1995, respectively.

The Partnership does not require collateral or other security to support
financial instruments subject to credit risk.

(10) Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair
value of each class of financial instruments presented below.

(a) Cash and Cash Equivalents, Receivables and Payables

The carrying amount approximates fair value because of the short
maturity of these instruments.

(b) Mortgage Loans Payable

The fair value of the Partnership's mortgage loans payable is
calculated by discounting scheduled cash flows through maturity
using discount rates that are currently available to the Partnership
on other borrowings with similar risk and maturities. Issuance costs
and other expenses that would be incurred in an actual borrowing are
not reflected in this amount.

F-57
<PAGE> 117
HEALTHCARE PROPERTIES, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
Carrying value Fair value
-------------- ----------
<S> <C> <C>
Mortgage loans payable at June 30,
1997 (Unaudited) $6,946,423 7,222,306
========== ==========

Mortgage loans payable at December
31, 1996 $7,207,414 7,436,177
========== ==========
</TABLE>

F-58
<PAGE> 118
================================================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . 3
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Summary Financial Data . . . . . . . . . . . . . . . . . . . . . 6
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 17
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . 17
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 18
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . 47
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . 51
Description of Capital Stock . . . . . . . . . . . . . . . . . . 52
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . 55
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Additional Information . . . . . . . . . . . . . . . . . . . . . 58
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

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

Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.

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

9,000,000 SHARES

[LOGO]

CAPITAL SENIOR
LIVING CORPORATION

COMMON STOCK

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

PROSPECTUS
, 1997

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

LEHMAN BROTHERS
J.C. BRADFORD & CO.
SMITH BARNEY INC.

================================================================================
<PAGE> 119
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered hereby:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee . . . . . . . . . . $40,772.73
NASD filing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,955.00
New York Stock listing fee . . . . . . . . . . . . . . . . . . . . . . $ *
Printing and engraving costs . . . . . . . . . . . . . . . . . . . . . $ *
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . $ *
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . $ *
Blue Sky fees and expenses . . . . . . . . . . . . . . . . . . . . . . $ *
Registrar and Transfer Agent's fees . . . . . . . . . . . . . . . . . . $ *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
----------

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
======
</TABLE>

*To be provided by amendment

The Company will pay all of the expenses to be incurred in connection with
the issuance and distribution of the securities registered hereby.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS; LIMITATION OF LIABILITY
FOR MONETARY DAMAGES

Section 145(a) of the Delaware General Corporation Law of the State of
Delaware ("DGCL") provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no cause to believe his
conduct was unlawful.

Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above, against expenses
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine that despite the adjudication of liability, such person
is fairly and reasonably entitled to be indemnified for such expenses which the
court shall deem proper.

Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of an action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith, that
indemnification provided for by Section 145 of the DGCL shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise, against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under such Section 145.

The Company's Amended and Restated Certificate of Incorporation provides
that the Company shall indemnify certain persons, including officers,
directors, employees and agents, to the fullest extent permitted by Section 145
of the DGCL of the State of Delaware. Reference is made to the Amended and
Restated Certificate of Incorporation filed as Exhibit 3.1. The Company's
directors and officers are insured against losses arising from any claim
against them as such for wrongful acts or omission, subject to certain
limitations.

II-1
<PAGE> 120
Under Section 8(b) of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify officers, directors and
controlling persons of the Company against certain liabilities, including
liabilities under the Securities Act. Reference is made to the form of
Underwriting Agreement filed as Exhibit 1 hereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Information with respect to this Item is set forth in the prospectus
contained in the Registration Statement under the caption "The
Company--Formation Transactions," "Certain Transactions--Organization of the
Company" and "Certain Transactions--Formation Transactions," which information
is hereby incorporated by reference in this Item 15. The issuance therein
described of the Company's Common Stock to Messrs. Jeffrey L. Beck, James A.
Stroud (through a trust), and Lawrence A. Cohen in the Formation Transactions
in exchange for the Contributed Entities was carried out in reliance on the
exemption from registration contained in Section 4(2) of the Securities Act of
1933, as amended, pursuant to a binding written agreement entered into prior to
the filing of this Registration Statement. In connection with the organization
of the Company, on October 25, 1996, the Company issued 1,680,000 shares of its
Common Stock to Messrs. Beck, Stroud (through a trust) and Cohen for $16,800.
The shares were issued in equal amounts of 560,000 shares to each in
consideration for a cash payment by each of $5,600. Such issuance was made in
reliance on the exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

*1 Form of Underwriting Agreement

*3.1 Amended and Restated Certificate of Incorporation of the Registrant

*3.2 Bylaws of the Registrant

*4 Specimen certificate for Common Stock of the Registrant

*5 Opinion of Jenkens & Gilchrist, a Professional Corporation, with
respect to the legality of the securities being registered

10.1 Asset Purchase Agreement, dated as of July 8, 1997, by and between
Capital Senior Living Communities, L.P. and Capital Senior Living
Corporation

10.2 Contribution Agreement, dated as of August 1, 1997, by and among
Capital Senior Living Corporation, Jeffrey L. Beck, James A.
Stroud, Senior Living Trust, and Lawrence A. Cohen

10.3 Stock Purchase and Stockholders' Agreement, dated as of November 1,
1996, by and among Capital Senior Living Corporation, Jeffrey L.
Beck, Senior Living Trust, and Lawrence Cohen

10.4 Exchange Agreement, dated as of June 30, 1997, by and between
Lawrence A. Cohen and Jeffrey L. Beck

10.5 Exchange Agreement, dated as of June 30, 1997, by and among
Lawrence A. Cohen and James A. Stroud

*10.6 1997 Omnibus Stock and Incentive Plan

10.7 Senior Living Agreement, by and between Capital Senior Living, Inc.
and New World Development (China) Limited

10.8 Amended and Restated Loan Agreement, dated as of June 30, 1997, by
and between Lehman Brothers Holdings Inc., d/b/a Lehman capital, A
Division of Lehman Brothers Holdings Inc., and Capital Senior
Living Communities, L.P.

*10.9 Employment Agreement, dated as of May 7, 1997, by and between
Capital Senior Living, Inc. and Jeffrey L. Beck

*10.10 Employment Agreement, dated as of May 7, 1997, by and between
Capital Senior Living, Inc. and James A. Stroud

II-2
<PAGE> 121
10.11 Employment Agreement, dated as of November 1, 1996, by and between
Capital Senior Living Corporation and Lawrence A. Cohen

10.12 Employment Agreement, dated as of November 26, 1996, by and between
Capital Senior Living, Inc. and David R. Brickman

10.13 Employment Agreement, dated as of November 26, 1996, by and between
Capital Senior Living, Inc. and Keith N. Johannessen

10.14 Engagement Letter, dated as of June 30, 1997, by and between Lehman
Brothers Holdings Inc. D/B/A Lehman Capital, A Division of Lehman
Brothers Holdings Inc. and Capital Senior Living Corporation

10.15 Lease Agreement, dated as of June 1, 1997, by and between G&L
Gardens, LLC, as lessor, and Capital Senior Management 1, Inc., as
lessee

10.16 Pre-Opening Consulting Agreement, dated as of June 16, 1997, by and
between The Emmaus Calling, Inc., as owner, and Capital Senior
Management 1, Inc., as consultant

10.17 Management Agreement, dated as of February 1, 1995, by and between
Capital Senior Living Communities, L.P., as owner, and Capital
Senior Living, Inc., as manager, regarding Canton Regency
Retirement Community, in Canton, Ohio

10.18 Management Agreement, dated as of February 1, 1995, by and between
Capital Senior Living Communities, L.P., as owner, and Capital
Senior Living, Inc., as manager, regarding Cottonwood Village, in
Cottonwood, Arizona

10.19 Management Agreement, dated as of February 1, 1995, by and between
Capital Senior Living Communities, L.P., as owner, and Capital
Senior Living, Inc., as manager, regarding The Harrison At Eagle
Valley, in Indianapolis, Indiana

10.20 Management Agreement, dated as of February 1, 1995, by and between
Capital Senior Living Communities, L.P., as owner and Capital
Senior Living, Inc., as manager, regarding Towne Centre, in
Merrillville, Indiana

10.21 Management Agreement, dated as of August 1, 1996, by and between
Capital Senior Living, Inc., as manager, and Cambridge Nursing Home
Limited Liability Company, as lessee

10.22 Management Agreement, dated as of April 1, 1996, by and between
Buckner Retirement Services, Inc. and Capital Senior Management 1,
Inc.

10.23 Management Agreement, dated as of May 23, 1997, by and between The
Emmaus Calling, Inc., as owner, and Capital Senior Management 1,
Inc., as manager

10.24 Property Management Agreement, dated as of February 1, 1995, by and
between NHP Retirement Housing Partners I Limited Partnership, as
owner, and Capital Senior Living, Inc., as agent

10.25 Management Agreement, dated as of April 1, 1997, by and between
Buckner Retirement Services, Inc. and Capital Senior Management 1,
Inc.

10.26 Management Agreement, dated as of November 30, 1992, by and between
Capital Realty Group Senior Housing, Inc. d/b/a Capital Senior
Living, Inc., as manager, and Jacques-Miller Healthcare Properties,
L.P., as owner

10.27 Management Agreement, dated as of July 29, 1996, by and between ILM
I Lease Corporation, as owner, and Capital Senior Management 2,
Inc., as manager, and Capital Senior Living, Inc., as guarantor

10.28 Management Agreement, dated as of July 29, 1996, by and between ILM
II Lease Corporation, as owner, and Capital Senior Management 2,
Inc., as manager, and Capital Senior Living, Inc., as guarantor

*21 Subsidiaries of Registrant

II-3
<PAGE> 122
23.1 Consent of Ernst & Young LLP

23.2 Consent of KPMG Peat Marwick LLP

*23.3 Consent of Dr. Victor Nee to Nomination as Director

*23.4 Consent of J. Frank Miller, III to Nomination as Director

*23.5 Consent of Jenkens & Gilchrist, a Professional Corporation (to be
included in Exhibit 5)

24 Power of Attorney (contained on Page II-5)

(b) FINANCIAL STATEMENT SCHEDULES

Not applicable.

- ------------
*To be filed by amendment.

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Registrant
of expenses incurred or paid by a director, officer, or controlling person of
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the
Securities Act of 1933, each post- effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 123
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 12th day of August, 1997.

CAPITAL SENIOR LIVING CORPORATION

By: /s/ Jeffrey L. Beck
-------------------------------
Jeffrey L. Beck
Co-Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby appoints Jeffrey L. Beck and James
A. Stroud and each of them, any one of whom may act without the joinder of the
other, as his or her attorney-in-fact to sign on his behalf, individually and
in each capacity stated below, and to file all amendments and post-effective
amendments to this Registration Statement, which amendment or amendments may
make such changes in and additions to this Registration Statement as any such
attorney-in-fact may deem necessary or appropriate.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jeffrey L. Beck Co-Chairman of the Board, Chief August 12, 1997
- -------------------------- Executive Officer (Principal
Jeffrey L. Beck Executive Officer)

/s/ James A. Stroud Co-Chairman of the Board, Chief August 12, 1997
- -------------------------- Operating Officer
James A. Stroud

/s/ Lawrence A. Cohen Vice Chairman, Chief Financial August 12, 1997
- -------------------------- Officer (Principal Financial and
Lawrence A. Cohen Accounting officer)

</TABLE>

II-5
<PAGE> 124

EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
*1 Form of Underwriting Agreement

*3.1 Amended and Restated Certificate of Incorporation of the Registrant

*3.2 Bylaws of the Registrant

*4 Specimen certificate for Common Stock of the Registrant

*5 Opinion of Jenkens & Gilchrist, a Professional Corporation, with
respect to the legality of the securities being registered

10.1 Asset Purchase Agreement, dated as of July 8, 1997, by and between
Capital Senior Living Communities, L.P. and Capital Senior Living
Corporation

10.2 Contribution Agreement, dated as of August 1, 1997, by and among
Capital Senior Living Corporation, Jeffrey L. Beck, James A.
Stroud, Senior Living Trust, and Lawrence A. Cohen

10.3 Stock Purchase and Stockholders' Agreement, dated as of November 1,
1996, by and among Capital Senior Living Corporation, Jeffrey L.
Beck, Senior Living Trust, and Lawrence Cohen

10.4 Exchange Agreement, dated as of June 30, 1997, by and between
Lawrence A. Cohen and Jeffrey L. Beck

10.5 Exchange Agreement, dated as of June 30, 1997, by and among
Lawrence A. Cohen and James A. Stroud

*10.6 1997 Omnibus Stock and Incentive Plan

10.7 Senior Living Agreement, by and between Capital Senior Living, Inc.
and New World Development (China) Limited

*10.9 Employment Agreement, dated as of May 7, 1997, by and between
Capital Senior Living, Inc. and Jeffrey L. Beck

*10.10 Employment Agreement, dated as of May 7, 1997, by and between

10.11 Employment Agreement, dated as of November 1, 1996, by and between
Capital Senior Living Corporation and Lawrence A. Cohen

10.12 Employment Agreement, dated as of November 26, 1996, by and between
Capital Senior Living, Inc. and David R. Brickman

10.13 Employment Agreement, dated as of November 26, 1996, by and between
Capital Senior Living, Inc. and Keith N. Johannessen

10.15 Lease Agreement, dated as of June 1, 1997, by and between G&L
Gardens, LLC, as lessor, and Capital Senior Management 1, Inc., as
lessee

10.16 Pre-Opening Consulting Agreement, dated as of June 16, 1997, by and
between The Emmaus Calling, Inc., as owner, and Capital Senior
Management 1, Inc., as consultant

</TABLE>

<PAGE> 125
<TABLE>
<S> <C>
10.17 Management Agreement, dated as of February 1, 1995, by and between
Capital Senior Living Communities, L.P., as owner, and Capital
Senior Living, Inc., as manager, regarding Canton Regency
Retirement Community, in Canton, Ohio

10.21 Management Agreement, dated as of August 1, 1996, by and between
Capital Senior Living, Inc., as manager, and Cambridge Nursing Home
Limited Liability Company, as lessee

10.22 Management Agreement, dated as of April 1, 1996, by and between
Buckner Retirement Services, Inc. and Capital Senior Management 1,
Inc.

10.23 Management Agreement, dated as of May 23, 1997, by and between The
Emmaus Calling, Inc., as owner, and Capital Senior Management 1,
Inc., as manager

10.24 Property Management Agreement, dated as of February 1, 1995, by and
between NHP Retirement Housing Partners I Limited Partnership, as
owner, and Capital Senior Living, Inc., as agent

10.25 Management Agreement, dated as of April 1, 1997, by and between
Buckner Retirement Services, Inc. and Capital Senior Management 1,
Inc.

*21 Subsidiaries of Registrant

23.1 Consent of Ernst & Young LLP

23.2 Consent of KPMG Peat Marwick LLP

*23.3 Consent of Dr. Victor Nee to Nomination as Director

*23.4 Consent of J. Frank Miller, III to Nomination as Director

*23.5 Consent of Jenkens & Gilchrist, a Professional Corporation (to be
included in Exhibit 5)

24 Power of Attorney (contained on Page II-5)

(b) FINANCIAL STATEMENT SCHEDULES

Not applicable.
</TABLE>

- ------------
*To be filed by amendment.

<PAGE> 1
EXHIBIT 10.1

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the "Agreement"), made and entered into
as of this 8th day of July, 1997 (herein called the "Effective Date"), by and
among Capital Senior Living Communities, L.P., a Delaware limited partnership
("Seller") and Capital Senior Living Corporation, a Delaware corporation, and
its assigns ("Purchaser").

WITNESSETH:

WHEREAS, Seller is the owner of certain lots and parcels of land
situated in the States of Arizona, Indiana and Ohio, and more fully described
in Schedule A attached hereto (collectively referred to herein as the "Land");
and

WHEREAS, Seller is the owner of four (4) retirement communities which
include two (2) nursing home facilities located on the Land and listed in
Schedule B attached hereto (such facilities are sometimes referred to herein
separately as a "Facility" and collectively as the "Facilities"); and

WHEREAS, Seller desires to sell and Purchaser desires to purchase the
Land, the Facilities and certain other assets of Seller located on the Land or
used in or in connection with the operation of the Facilities all upon the
terms and conditions hereinafter set forth.

WHEREAS, In addition to the sale and purchase of the Facilities,
Seller desires to sell, assign and transfer and Purchaser desires to purchase
and assume all of Seller's right, title and interest in and to the limited
partnership units Seller owns in Healthcare Properties, L.P. ("HCP"), and the
pension notes and limited partnership units Seller owns in NHP Retirement
Housing Partners I, Limited Partnership ("NHP"), all upon the terms and
conditions hereinafter set forth.

NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, the parties hereto do hereby covenant and agree as
follows:

1. ACQUISITION OF ASSETS. Seller shall sell and deliver to Purchaser and
Purchaser shall purchase and accept from Seller, all of Seller's right, title,
benefit, and interest in and to the Land, Facilities and the assets (excluding
those assets listed on Schedule 1.1 hereto) of Seller used in or in connection
with the operation of the Facilities as of the Effective Date, together with
replacements thereof and additions thereto made between the Effective Date and
the Closing Date, together with Seller's right, title and interest in and to
the HCP partnership units and the NHP pension notes and limited partnership
units as hereinafter described (collectively referred to herein as the
"Assets"), including, without limitation, all assets described in the following
categories:

July 2, 1997
<PAGE> 2
1.1. The fee interest in the Land and the buildings (including
without limitation the Facilities), structures, erections, appurtenances,
easements, and improvements now thereon (collectively referred to herein as the
"Premises") and the fixtures belonging to Seller and used in connection
therewith including, if any, all venetian blinds, window shades, screens,
screen doors, storm windows and doors, awnings, shutters, furnaces, heaters,
heating equipment, stoves, ranges, oil and gas burners and fixtures appurtenant
thereto, hot water heaters, plumbing and bathroom fixtures, electric and other
lighting fixtures, mantels, outside television antennas, satellite dishes,
fences, gates, trees, shrubs, plants, air conditioning equipment, ventilators,
garbage disposers, dishwashers, washing machines, and driers.

1.2. All of the nursing home beds for which the Facilities are
licensed.

1.3. All vehicles, machinery, equipment, furniture, furnishings
and accessories of all kinds, whether owned or leased by Seller, used in
connection with the Facilities.

1.4. Seller's entire inventory used or maintained in connection
with the Facilities, including, but not limited to, food, pharmaceuticals,
drugs, cleaning materials, linens and medical and office supplies (the
"Inventory").

1.5. To the extent transferable under federal or state law, all
of the patient, medical, clinical, historical, financial, and personnel records
of the Facilities, and all of the operating manuals, procedures manuals,
training manuals, and other books and records used by Seller in operating the
Facilities.

1.6. To the extent transferable under state law, all licenses,
permits, certificates (including Certificates of Need of Seller) and franchises
necessary to operate and conduct the business of the Facilities and all waivers
of any requirements pertaining to such licenses, permits, certificates, and
franchises.

1.7. All good will, registered or unregistered trademarks, trade
or brand names, service marks and similar intangible property pertaining to the
Facilities.

1.8. The exclusive right to use the trade names of each of the
Facilities as set forth on Schedule 1.8 hereto or any variation thereof, as
part of the name or in connection with the Facilities or any part thereof.

1.9. All surveys, environmental reports, plans, specifications,
and architectural renderings of the Facilities in the possession or control of
Seller.

1.10. All right, title, and interest of Seller in and to Encore
Limited Partnership ("Encore") free and clear of all Liens and encumbrances.

1.11. All right, title, and interest of Seller (approximately
54%) in and to HCP free and clear of all Liens and encumbrances.

2 July 2, 1997
<PAGE> 3
1.12. All right, title, and interest of Seller (approximately
31%) in and to certain Pension Notes outstanding (approximately $64,000,000.00
in principal and accrued interest) and limited partnership units (approximately
3%) in NHP free and clear of all Liens and encumbrances.

Attached hereto as Schedule 1.2 is a comprehensive list (excluding the
assets described in Schedule 1.1 hereof) of the vehicles, fixtures, machinery,
equipment, furniture, and furnishings owned by Seller and used in or in
connection with the operation of the Facilities.

Attached hereto as Schedule 1.3 is a comprehensive list of all
material assets related to the operation of the Facilities which are leased by
Seller.

2. CONSIDERATION. In consideration of the sale and transfer by Seller
hereunder of the Assets to Purchaser and of the agreement herein by Seller to
perform each of its other obligations hereunder, Purchaser shall pay to Seller
an amount and assume from Seller certain liabilities, in each case as set forth
below:

2.1. Purchase Price. The aggregate purchase price for the
Assets shall be Seventy Million and 00/100 Dollars ($70,000,000.00), subject to
adjustment as provided in Section 2.1.2. herein, and to such other adjustments
as expressly set forth in this Agreement (herein referred to as the "Purchase
Price").

2.1.1. Purchase Price Allocation. Attached hereto as
Schedule 2.1.1 is an allocation of the Purchase Price among the
Assets. The Purchase Price allocation set forth in Schedule 2.1.1 is
made with the knowledge and understanding that it will be used by the
parties for all purposes including tax, reimbursement, and other
purposes. Each party agrees that it will report the transaction in
accordance with such allocation and that it will not take a position
inconsistent with such allocation except with the written consent of
the other party to this Agreement. Each party shall make available to
the other party all filings and reports required under Section 1060 of
the Code.

2.1.2. Appraised Value of Assets; Adjustment to
Purchase Price. An appraisal of the Assets shall be obtained by the
parties within the Inspection Period, as hereinafter defined, the cost
of which shall be paid by Seller, with fifty percent (50%) of the cost
thereof reimbursed to Seller by Purchaser at Closing (the
"Appraisals"). The Purchase Price for the Assets shall be adjusted,
either upward or downward, depending upon the results of the
Appraisals, provided, however, should the total adjustment in the
Purchase Price exceed, either in net reduction or net addition to the
Purchase Price, Ten Million and 00/100 Dollars ($10,000,000.00),
either party may, upon written notice to the other delivered on or
before (i) ten (10) days after receipt of the Appraisals or (ii) prior
to the date of the expiration of the Inspection Period, whichever date
is later, elect to cancel the Agreement. In such case, the Earnest
Money deposit shall be promptly returned to Purchaser and the parties
shall have no further obligation hereunder, except for those which
expressly survive any such termination. The parties shall agree upon
the

3 July 2, 1997
<PAGE> 4
appraiser or appraisers to be used and jointly draft instructions to
such appraisers describing the criteria to be followed in performing
and preparing the Appraisals.

2.1.3. Assumption of Seller's Mortgage Loan
Obligations. In addition to the Assumed Liabilities described in
Section 2.2 herein, and unless otherwise agreed by Seller and
Purchaser, Purchaser shall assume at Closing, Seller's current
mortgage debt to Lehman Brothers Holdings, Inc., d/b/a Lehman Capital,
a division of Lehman Brothers Holdings, Inc., in the principal sum of
$77,000,000.00 (the "Mortgage Debt") and take title to the Assets
subject to such debt, provided, however, that the outstanding
principal balance and accrued interest on such debt as of the Date of
Closing does not exceed the Purchase Price. To the extent that the
Debt as of the Date of Closing exceeds the Purchase Price, Seller
shall pay to Purchaser at Closing such excess amount of such Debt in
cash. Seller and Purchaser acknowledge and agree that the amount of
the Debt assumed by Purchaser at Closing shall be credited to
Purchaser against the Purchase Price.

2.2. Assumed Liabilities. Purchaser will assume from Seller at
Closing only the obligations and liabilities of Seller related to (i) the
ownership and operation of the Facilities which accrue or otherwise are to be
performed on or after Closing in respect of the contracts and agreements listed
in Schedule 2.2 attached hereto (collectively referred to herein as the
"Assumed Contracts"), in each case as in effect at Closing and solely to the
extent that the existence at or after Closing of such liabilities or
obligations does not constitute a breach of any representation or warranty made
by Seller herein or in connection herewith; (ii) proratable items which are not
yet due and payable by Seller prior to or at Closing and for which Purchaser
receives a credit at Closing; and (iii) obligations with respect to any
security deposits or patient trust funds held by Seller and transferred to
Purchaser on the Closing Date. Notwithstanding anything to the contrary
herein, or in any other writing delivered in connection herewith, nothing
herein or in any such other writing shall be construed to constitute the
assumption, express or implied, by Purchaser of any obligations or liability of
Seller or of any Affiliate thereof, except solely for the obligations and
liabilities expressly agreed to be assumed at Closing by Purchaser pursuant to
the first sentence of this Section 2.2. To the extent that any of the Assumed
Contracts are not assignable without the consent of a third party, this
Agreement shall not of itself constitute an assignment or an attempted
assignment of such Assumed Contracts if such assignment or attempted assignment
would constitute a breach thereof. Seller will use all reasonable efforts to
obtain the consent to the assignment to Purchaser of each such Assumed Contract
with respect to which such consent is required for such assignment.

3. DEPOSIT. Upon entering into this Agreement, Purchaser shall escrow
with Lawyers Title Insurance Company ("Escrow Agent") the sum of Ten Thousand
and 00/100 Dollars ($10,000.00), which sum (the "Deposit"), together with all
interest earned thereon, shall be held by Escrow Agent for Purchaser's benefit,
and either applied, returned or forfeited according to the terms of this
Agreement.

4 July 2, 1997
<PAGE> 5
4. TITLE REQUIREMENTS. Seller will deliver to Purchaser at Closing
(without exception) good and marketable title to all of the Assets (except
those Assets listed in Schedule 1.3 attached hereto to which Assets Seller
shall deliver a good and marketable leasehold interest therein) subject to the
following requirements:

At Closing, Seller shall convey the Premises (including without
limitation the Facilities) to Purchaser by special warranty deed, subject to no
Liens or encumbrances whatsoever, other than (i) real estate taxes and
assessments which are a lien but not yet due and payable at Closing, (ii)
zoning and building code ordinances and regulations which are applicable to the
Premises and have not been violated, (iii) encumbrances which are shown on the
surveys of the Premises prepared and/or updated as provided by this Agreement
which are acceptable to Purchaser, (iv) rights of tenants and patients
occupying beds in the Facilities on the Closing Date, and (v) those exceptions
to title referenced in the Title Commitments, as hereinafter defined, which are
accepted (or deemed accepted) by Purchaser (all of the foregoing collectively
referred to herein as the "Permitted Exceptions"). At Closing, Seller shall
convey to Purchaser the furniture, fixtures, machinery, equipment and Inventory
included in the Assets by bill of sale with warranty of title and shall assign
to Purchaser the leases of the Assets described in Schedule 1.3.

If, on or before the Closing Date, Seller shall fail for any reason to
remove or discharge any Lien or encumbrance on any Facility other than those
Liens or encumbrances included in Permitted Exceptions, Purchaser may elect, in
its sole discretion, to terminate this Agreement.

5. TITLE POLICY AND SURVEY. Within thirty (30) days after the Effective
Date, Seller, at its expense, shall furnish Purchaser with a preliminary binder
of title insurance ("Title Commitments") from Lawyers Title Insurance Company
and/or its authorized agents (the "Title Company") agreeing to insure title to
each Facility in the name of Purchaser in the full amount of the Purchase Price
allocated to the Land and Facilities as set forth in Schedule 2.1.1. Such
preliminary title insurance binders shall be issued in the most recently
approved ALTA form without exception, other than Permitted Exceptions.

The acceptability of title to each of the Premises shall be determined
by Purchaser, in its discretion, within the later to occur of: (i) twenty (20)
days after receipt of both the Title Commitment and the survey hereinafter
described, for such Premises or (ii) the expiration of the Inspection Period.
If any exceptions other than Permitted Exceptions are not cured by Seller
within twenty (20) days after receipt of notice thereof from Purchaser, or
thereafter waived by Purchaser, Purchaser may terminate this Agreement. In the
event Purchaser does not elect to terminate this Agreement, Purchaser and
Seller shall proceed with Closing, and the cost of curing title shall be offset
against the Purchase Price. The Title Commitments shall be attached hereto as
Schedule 5. At Closing, the Title Company shall issue Owner's Policies of
Title Insurance to Purchaser insuring Purchaser's fees simple title to the each
of the Premises free and clear of all matters other than the Permitted
Exceptions and deleting all standard exceptions. In connection therewith, on
or before Closing, Seller agrees to execute and deliver to the Title Company
all necessary certificates and affidavits to delete standard exceptions.

5 July 2, 1997
<PAGE> 6
Seller shall promptly deliver after the Effective Date to Purchaser
all survey, topographical and title information now in Seller's possession and
shall procure, at Seller's expense, within thirty (30) days after the Effective
Date, a current survey or recertification of the existing survey for each of
the Premises meeting the minimum standard and detail requirements for currently
approved ALTA Land Title Surveys and the requirements of the Title Company to
delete the standard "survey exceptions." Seller shall receive a credit or
otherwise be reimbursed at Closing by Purchaser for the costs paid by Seller to
obtain such current surveys and recertifications, as applicable.

6. SELLER'S COVENANTS, REPRESENTATIONS, AND WARRANTIES. As an inducement
to Purchaser entering into this Agreement, Seller makes the following
covenants, representations and warranties, in addition to those contained
elsewhere herein:

6.1. Corporate Matters.

6.1.1. Organization, Power, and Standing. Seller is a
limited partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware, and is qualified to
do business in each state in which it is now doing business, and has
all requisite partnership power and authority to execute, deliver, and
perform this Agreement, to carry on the business of the respective
Facilities as now conducted, to own, lease, or otherwise use its
respective Assets, and to consummate the transactions contemplated
hereby.

6.1.2. Authorization and Enforceability. This
Agreement has been duly authorized, executed, and delivered by Seller,
constitutes the legal, valid, and binding obligation of Seller and is
enforceable against Seller in accordance with its terms, except to the
extent such enforceability may be limited by bankruptcy,
reorganization, insolvency, or similar laws of general applicability
governing the enforcement of the rights of creditors or by the general
principles of equity (regardless of whether considered in a proceeding
at law or in equity).

6.1.3. Compliance with Charter Documents. The
execution, delivery, and performance of this Agreement by Seller and
the consummation by Seller of the transactions contemplated hereby
will not violate or conflict with or constitute a default under any
term of the Limited Partnership Agreement of Seller. Attached hereto
as Schedule 6.1.3 is a true and complete copy of the Limited
Partnership Agreement of Seller in effect as of the Effective Date.

6.1.4. No Breach, Etc.. The execution, delivery, and
performance of this Agreement by Seller will not conflict with or
result in a breach of or default by Seller under any term, condition,
or provision of any order, writ, injunction, decree, contract,
agreement, or instrument to which Seller is a party or subject or by
which Seller or the Assets are or may be bound; will not result in the
creation or imposition of any lien,

6 July 2, 1997
<PAGE> 7
charge, or encumbrance of any nature upon any of the Assets; and will
not give to others any interest or rights in, or with respect to, any
of the Assets.

6.2. Seller's Financial Statements. Attached as Schedule 6.2.1
are the financial statements of Seller for the years ending December 31, 1994,
December 31, 1995, and December 31, 1996, all of which have been audited by
Ernst & Young, LLP (the "Seller's Annual Financial Statements"). The Seller's
Annual Financial Statements (including the notes thereto) are, to the best of
Seller's knowledge, prepared in conformity with generally accepted accounting
principles. Seller shall deliver to Purchaser, Seller's unaudited financial
statements for the period from January 1, 1997, to the end of the month
immediately prior to the Effective Date.

6.3. Character of Operations, Compliance with Laws.

6.3.1. Compliance Generally. To the best of Seller's
knowledge, neither the execution and delivery of this Agreement by
Seller nor the consummation by Seller of any transaction contemplated
hereby does or will violate or give rise to any violations or default
under any Legal Requirement assuming (i) Purchaser secures all
necessary approvals from federal, state, and local governmental and
administrative agencies having jurisdiction thereof required for the
acquisition of the Facilities by Purchaser, and (ii) Purchaser and
Seller make any applicable filing required under the Hart-Scott-Rodino
Antitrust Improvements Act, 15 USC Section 18a and the regulations
promulgated thereunder. The Seller does not have actual knowledge
that the operation of the Facilities as heretofore or currently
conducted was or is in violation of, or that Seller is in default
under any Legal Requirement. Seller has not received any notice of
any impending order or requirement which would cause additional
expenditures to be made to bring the Premises and the Assets into
compliance with Legal Requirement. The sale of the Assets to
Purchaser is not subject to any bulk sales act.

6.3.2. No Bribes, Illegal Payments. Seller nor any
general partner of Seller, or, to the best of Seller's knowledge,
employee or agent of Seller, has directly or indirectly given or
agreed to give any gift, contribution, payment, or similar benefit to
any supplier, customer, governmental employee or other Person who was,
is, or may be in a position to help or hinder Seller or any Facility
(i) which could subject Seller or Purchaser to any damage or penalty
in any civil, criminal, or governmental litigation or proceeding, or
(ii) the non-continuation of which in the future could reasonably be
expected to result in a material adverse effect on the business,
operations, assets, prospects, or condition, financial or otherwise,
of the Facilities.

6.3.3. Seller' Licenses. Schedule 6.3.3 attached
hereto contains a true and complete list of all currently effective
licenses, permits, approvals, certificates of need, qualifications,
Medicaid and Medicare certifications and the like, which have been
issued to Seller by any governmental agency (whether federal, state,
local, or other) in connection with the ownership of the Assets and
the operation of the Facilities

7 July 2, 1997
<PAGE> 8
(collectively, "Seller's Licenses"). Seller's Licenses are all of the
licenses, permits, approvals, certificates of need, qualifications,
Medicaid and Medicare certifications and the like which are necessary
for the ownership and operation by Seller of the Assets, including
without limitation each of the Facilities. Seller's Licenses are in
full force and effect and no such License is conditional or
restricted.

6.3.4. Compliance of Facility with State Licensure,
Medicare and Medicaid Certification Requirements. Each Facility
currently meets, and as of the Closing Date shall meet, in all
respects, all standards and conditions for the operation and licensure
of skilled and intermediate care nursing facilities to the extent such
standards and conditions are applicable to such Facility and, if
eligible, for participation in the Medicare and Medicaid programs
under federal, state, and local governmental laws, rules, regulations,
guidelines, standards, and conditions, and is not subject to any
variances or waivers with respect to licensure or operational
requirements.

6.3.5. Returns, Reports, Etc.. All Medicare and
Medicaid cost reports and all sales and use tax returns necessary to
be filed by Seller with any governmental authorities on or prior to
the Effective Date, as well as those to be filed on or prior to the
Closing Date, have been, or will be, accurately completed in all
material respects. Seller has no obligations to the States in which
the Facilities are located for reimbursement of Medicaid depreciation
recapture liabilities or to the United States Government for Medicare
overpayment liabilities.

6.3.6. Work Order; Statements of Deficiencies. There
are no pending work orders or statements of deficiencies relating to
the Premises or any Facility which have been required or issued by any
state department of health or Medicare or Medicaid certification
agency, or any insurance company, police or fire department,
sanitation, health or work authorities or any other federal, state, or
municipal authority. Seller shall provide to Purchaser a copy of any
such work order or statement of deficiencies received by Seller after
the Effective Date within five (5) days after receipt thereof.

6.3.7. Environmental Matters. Seller is not subject to
any type of enforcement actions or compliance order for any violation
or alleged violation of any environmental laws, rules, standards, or
regulations relating to the Premises or any Facility, including, but
not limited to, those related to waste- management, air pollution
control, waste-water treatment or noise abatement. Seller has not
received any notice or citation for noncompliance by it with respect
to any of the foregoing relating to the Premises or any Facility. To
the best of Seller's knowledge:

(i) Seller has not been notified that
any person's health has nor may have been impaired
(including any past or present employee) as the result of
the use, existence, or disposal of Hazardous Materials or
Infectious Wastes on the Premises.

8 July 2, 1997
<PAGE> 9
(ii) All Infectious Wastes have been
stored, transported, and disposed of in accordance with all
laws and licensure and certification standards applicable
to Seller and the respective Facilities.

(iii) There are no underground fuel
storage tanks located at the Premises.

(iv) The Premises are not contaminated
with any Hazardous Materials or Infectious Waste and
neither Seller nor any of Seller's employees, agents,
licensees, or invitees have placed or permitted the
placement of any Hazardous Materials or Infectious Waste
in, on, or over the Premises; the Premises do not appear on
any state or Federal Comprehensive Environmental
Responsibility, Compensation and Liability Act, or Super
Fund lists as being classified as a hazardous waste site;
and the Premises have not been used as a plant or site
where Hazardous Materials or Infectious Waste was subjected
to treatment, storage, disposal, or recovery.

6.3.8. Litigation. Except as set forth on Schedule
6.3.8 attached hereto, there is no litigation, at law or in equity, or
any proceeding before or investigation by any federal, state, or
municipal court, board, or other governmental or administrative agency
or any arbitrator, against Seller in connection with the operation of
the Facilities or otherwise affecting the Assets, or questioning or
challenging the validity of this Agreement or actions to be taken
hereunder, pending or, to the best of Seller's knowledge, threatened,
involving a claim of $10,000 or more ($40,000 in the aggregate), nor
has Seller given notice to any insurers (for notice or adjustment
purposes) of any claim against Seller. No credit will be given Seller
at Closing for any litigation claims pending or threatened. No
judgment, decree, or order of any federal, state, or municipal court,
board, or other governmental or administrative agency or any
arbitrator (i) has been issued, to the best of Seller's knowledge,
against any Person other than Seller which could have any material
adverse effect on the business, operations, assets, prospects or
condition, financial or otherwise, of Seller or the operation of any
Facility, or (ii) has been issued against Seller.

6.4. ASSETS AND LIABILITIES.

6.4.1. Condition of Certain Assets. To the best
knowledge of Seller, all machinery and equipment included in the
Assets, including without limitation, all heating, air conditioning,
electrical and life safety equipment/systems installed on the
Premises, are in good working order, ordinary wear and tear excepted,
and the roofs of each Facility are in good repair, ordinary wear and
tear excepted.

6.4.2. Warranties and Guarantees. To the best
knowledge of Seller, Schedule 6.4.2 attached hereto contains true and
complete list of all written warranties and guarantees currently in
effect in connection with the buildings and other

9 July 2, 1997
<PAGE> 10
improvements on the Premises including by way of illustration, and not
by way of limitation, any warranties on the roofs of the buildings and
any warranties and guarantees in connection with any heating, air
conditioning, or other equipment in, or about said buildings or
improvements and any rights Seller may have against their general
contractors or their subcontractors (collectively, the "Warranties and
Guarantees"). Seller shall assign the Warranties and Guaranties to
Purchaser, at Closing, to the extent such Warranties and Guaranties
are transferable or assignable and Seller shall assist Purchaser is
enforcing such Warranties and Guarantees.

6.4.3. Inventory. All items of Inventory included in
the Assets consist and will consist of, as of Closing, items of a
quality customarily used by Seller in the ordinary course of the
business of its Facilities.

6.4.4. Trade Names. Seller has the right to use the
respective names of its Facilities as set forth in Schedule B attached
hereto in the market area of the respective Facilities, and Seller has
not licensed or entered into any agreement to permit any person or
entity to use such Facility name or any variation thereof. To
Seller's knowledge, the use of such Facility names by Seller does not,
and the use of such Facility names by Purchaser in the respective
market areas of each Facility in a manner consistent with Seller's
past practices will not, as of the Closing Date, conflict with any
rights to any similar name owned by any other person or entity known
to Seller.

6.4.5. Liabilities. Except as set forth in the
Schedules attached hereto, to the best knowledge of Seller, there are
no liabilities of Seller affecting the Assets, whether absolute,
contingent, or fixed, liquidated or unliquidated, matured or not yet
due, of any nature, including tax liabilities, other than (i)
liabilities expressly accounted for and disclosed in Seller's Annual
Financial Statements or Seller's unaudited financial statements, or
(ii) liquidated, non-contingent liabilities incurred by Seller in the
ordinary course of business since December 31, 1996.

6.4.6. Liens and Encumbrances. As of the Effective
Date, to the best knowledge of Seller, the Assets are not subject to
any Liens or encumbrances other than those Liens and encumbrances
included in the Permitted Exceptions, the personal property Permitted
Exceptions and such other Liens or encumbrances which shall be paid
and released at Closing. After giving effect to the transfer to
Purchaser at Closing, the Assets will not be subject to any Lien
except (i) any Lien included in the Permitted Exceptions and the
personal property Permitted Exceptions (ii) any Lien created by
Purchaser, if any, and (iii) any Lien insured against by title
insurance. If, subsequent to the Closing, any mechanics or other
lien, charge or order for the payment of money shall be filed against
the Assets or against Purchaser or its assigns, based upon any act or
omission of Seller, its agents, servants, or employees, or any
contractor or subcontractor connected with construction on the
Premises prior to Closing (whether or not such lien, charge, or order
shall be valid or enforceable as such), within thirty (30) days after
notice to Seller of the filing thereof, Seller shall take such action,
by bonding,

10 July 2, 1997
<PAGE> 11
deposit, payment or otherwise, as will remove and satisfy such lien of
record as against the Premises.

6.4.7. Taxes. To the best knowledge of Seller, all
taxes, excises and assessments against the Assets due and payable on
or before the Effective Date have been paid. As of Closing, there
will be no unpaid or outstanding taxes or assessments against the
Assets or any part thereof (except only taxes and assessments not yet
due and payable to be adjusted as of the Closing Date). To the best
knowledge of Seller, there are no agreements, waivers or other
arrangements providing for an extension of time with respect to the
assessment of any type of tax or deficiency against Seller with
respect to the Assets owned by Seller, nor are there any actions,
suits, proceedings, investigations, or claims for additional taxes and
assessments asserted by any taxing authority with respect to the
Assets owned by Seller of which Seller has notice.

6.4.8. Certain Real Estate Matters. There are no
pending real estate tax abatement actions or proceedings, there is no
unrepaired casualty damage to the Premises and there are no pending
or, to the best of Seller's knowledge, threatened eminent domain or
condemnation proceedings, with respect to the Premises. The Premises
are each located on various, separate, and independent tax parcels.

6.4.9. Trade Payables. Except as specifically provide
otherwise in this Agreement, Seller shall pay all of its trade
payables when and as due before and after the Closing.

6.4.10. Tenant and Patient Accounts. Except as set
forth in Schedule 6.4.10 attached hereto, as of the Effective Date, no
tenants or patients at any Facility (nor third-party payors
responsible for such patients) are delinquent in the payment of their
bills owed to Seller. At Closing, Seller shall provide Purchaser with
a update to Schedule 6.4.10 certified as of the Closing Date.

6.4.11. Encore. Seller owns a three percent (3%)
limited partnership interest in Encore.

6.4.12. HCP. Seller owns at least a fifty-four percent
(54%) limited partnership interest in HCP.

6.4.13. NHP. Seller owns at least thirty-one percent
(31%) interest in the outstanding Pension Notes and at least three
percent (3%) limited partner interest of NHP.

6.5. Contractual Matters.

6.5.1. Contracts. Schedule 6.5.1.1 attached hereto
contains a true and complete list of all material written contracts,
agreements, and leases (other than (i)

11 July 2, 1997
<PAGE> 12
material agreements described in Section 6.6.1 hereto (the "Labor
Contracts"); and (ii) occupancy agreements of each Facility (the
"Occupancy Agreements")), between Seller and any other person or
entity currently in effect in connection with the Premises or the
operation of the Facilities (together with the Labor Contracts and
Occupancy Agreements, collectively referred to herein as the
"Contracts"). Seller has heretofore delivered to Purchaser a true and
complete copy of each such Contract listed in Schedule 6.5.1.1. Each
Assumed Contract is in full force and effect, and, to the best of
Seller's knowledge, neither Seller nor any other party to any Assumed
Contract is in default of its respective obligations thereunder, and
to the best of Seller's knowledge, no event exists which, with notice
or passage of time, would become an event or default by Seller
thereunder.

6.5.2. Transactions with Affiliates. Except as set
forth in Schedule 6.5.2 attached hereto, no Affiliate of Seller is an
officer, director, employee, consultant, competitor, customer, or
supplier of, or is a party to any Contract with, Seller in connection
with any of the Facilities (collectively, "Affiliate Arrangements").
Unless Purchaser otherwise agrees in writing, Seller shall terminate
or cause to be terminated each such Affiliate Arrangement described in
Schedule 6.5.2 hereto on or before the Closing Date, provided,
however, that Purchaser hereby approves and consents to the continued
management and administration of the Facilities by Capital Senior
Living, Inc., an Affiliate of Seller. There are no trade names,
proprietary knowledge or licenses that any such Affiliate owns or is
licensed or otherwise has the right to use and which is necessary to
the operation of any Facility.

6.5.3. Occupancy Agreements. Attached as Schedule
6.5.3.1 hereto are true and complete copies of the current standard
forms of occupancy agreements entered into between Seller and tenants
or patients at each Facility (the "Occupancy Agreement Forms"). There
are no agreements under which tenants or patients entering any
Facility subsequent to the adoption by Seller of the applicable
Occupancy Agreement Form currently occupy all or any part of any
Facility which materially deviate from the Occupancy Agreement Forms.
There are no undisclosed amendments or agreements to such residency
agreements, nor any special rates, services, or concessions promised
by Seller to any residents or patients of any Facility except as
disclosed in Schedule 6.5.3.2 attached hereto.

6.5.4. Insurance. Attached as Schedule 6.5.4 hereto is
a list of all insurance coverage maintained by Seller as of the
Effective Date in connection with the Premises and the operation of
each Facility. All such insurance coverage is in full force and
effect (with no overdue premium) in the amounts set forth on Schedule
6.5.4. Seller agrees to maintain the insurance coverage listed in
Schedule 6.5.4 without material change thereto through the Closing
Date. Certificates evidencing such insurance coverage will be
supplied by Seller to Purchaser at Purchaser's request. Seller shall
promptly inform Purchaser of any non-renewal, material change,
cancellation, or replacement of any such insurance coverage prior to
Closing. In the event of any non-renewal, material change,

12 July 2, 1997
<PAGE> 13
or cancellation of the insurance coverage currently maintained by
Seller hereunder, Purchaser shall have the right during the period
prior to Closing to provide replacement insurance generally comparable
to the insurance coverage currently maintained by Seller, at the
Seller's expense, and to deduct the cost thereof from the Purchase
Price. All prepaid insurance policies shall be assigned to Purchaser
at Closing.

6.6. Labor Matters.

6.6.1. Employment Related Contracts. Seller has
provided to Purchaser all written employment agreements relating to
any employees of Seller and all written compensation, pension,
retirement, welfare, profit sharing, incentive, or other similar
written plans relating to any employee of Seller. Seller has also
advised Purchaser of all plans, agreements, arrangements, or practices
which constitute "fringe benefits" to any of the employees of Seller,
including, without limitation, group medical insurance, group life
insurance, disability insurance, and related benefits. A complete
list of all of the foregoing is attached hereto as Schedule 6.6.1.

6.6.2. Employee Compensation and Benefits. To the best
knowledge of Seller, attached hereto as Schedule 6.6.2 is a true and
complete list of all current employees of Seller, and their current
level of compensation, which list shall be true and correct as of the
Closing Date in all material respects except for those changes
specifically authorized by Section 8.1 hereof and except for the
addition or removal of employees in the ordinary course.

6.6.3. Labor Relations. To the best of Seller's
knowledge, no employee of Seller is currently part of any collective
bargaining unit or represented by any collective bargaining
representative, and no petition has been filed or proceeding
instituted by any such employee or group of employees with any labor
relations board seeking recognition of a bargaining representative.
There are no strikes, grievances, disputes, or controversies with
individual employees, except for disputes and controversies with
individual employees arising in the ordinary course of business
consistent with past experience which do not and will not,
individually or in the aggregate, have an adverse effect on the
business, operations, assets, prospects, or conditions, financial or
otherwise, of Seller, Purchaser, or the operation of the Facilities.
The Facility located in Merrillville, Indiana and commonly known as
"Towne Centre" has a union contract.

6.7. Other Representations.

6.7.1. Completeness and Accuracy of Contracts and
Documents. To the best of Seller's knowledge, all copies of contracts
and documents delivered by Seller to Purchaser in connection with the
transactions contemplated hereby are complete and accurate in all
respects, and no such contract or agreement has been amended or
modified in any respect.

13 July 2, 1997
<PAGE> 14
6.7.2. No Misrepresentations. To the best of Seller's
knowledge, Seller has not made an untrue statement of material fact in
any instrument, certification, or statement furnished to Purchaser,
nor has Seller omitted to state a material fact necessary to make the
statements contained herein or therein not misleading.

6.8. Seller's Covenants Regarding Transfer of Ownership
Approvals and Notice. Purchaser shall file all notices and other documents
with applicable federal, state, and local governmental authorities as required
under law to effect the transfer of ownership of the Facilities to Purchaser
and, to the extent applicable, the assignment to Purchaser of each currently
effective Medicare and Medicaid provider agreement and Seller's Licenses,
including without limitation, at least thirty (30) days prior to the Closing
Date, file with the Federal Trade Commission, to the extent required under the
Hart-Scott-Rodino Antitrust Improvements Act, 15 USC Section 18a and the
regulations promulgated thereunder, a "Notification and Report Form for Certain
Mergers and Acquisitions." Seller shall assist and cooperate with Purchaser
with all such filings and other action required to be taken by Purchaser to
accomplish the foregoing.

6.9. Finder's or Broker's Fee. Except for compensation payable
to the general partner (or affiliate) of Seller under its Limited Partnership
Agreement, Seller has not engaged in any conduct that has given or will give
rise to any liability for any fee, compensation, or reimbursement for expenses
to any agent, finder, or broker, either in the nature of a finder's fee or
otherwise, in connection with the transactions contemplated hereby.

6.10. Seller's Knowledge Defined. The representations and
warranties made to Purchaser by Seller in this Section 6 and elsewhere in this
Agreement are limited to the current actual knowledge of the executive
officers of the corporation which is the general partner of the partnership
which is the general partner of Seller, and the recertification required of
Seller at Closing shall likewise be qualified to the then current actual
knowledge of said officers.

7. PURCHASER'S COVENANTS, REPRESENTATIONS, AND WARRANTIES. As an
inducement to Seller entering into this Agreement, Purchaser makes only the
following covenants, representations, and warranties:

7.1. Organization, Power, and Standing. Purchaser is a
corporation duly organized and validly existing under the laws of the State of
Delaware, and has all requisite power to execute, deliver, and perform this
Agreement and to consummate the transactions contemplated hereby.

7.2. Authorization and Enforceability. This Agreement has been
duly authorized, executed, and delivered by Purchaser, constitutes the legal,
valid, and binding obligation of Purchaser, and is enforceable against
Purchaser in accordance with its terms, except to the extent such
enforceability may be limited by bankruptcy, reorganization, insolvency, or
similar laws of general applicability governing the enforcement of the rights
of creditors or by the general principles of equity (regardless of whether
considered in a proceeding at law or in equity).

14 July 2, 1997
<PAGE> 15
7.3. Compliance with Charter Documents. The execution,
delivery, and performance of this Agreement by Purchaser and the consummation
by Purchaser of the transactions contemplated hereby will not violate or
conflict with or constitute a default under any term of the Charter or By-laws
of Purchaser.

7.4. No Breach, Etc.. The execution, delivery, and performance
of this Agreement will not conflict with or result in a breach of or default by
Purchaser under any material terms, condition, or provision of any order, writ,
injunction, decree, contract, agreement, or instrument to which Purchaser is a
party or subject or by which it is bound.

7.5. Litigation. There is no litigation, at law or in equity,
or any proceeding before or investigation by any federal, state, or municipal
court, board of arbitrator, against Purchaser, pending or, to the best of
Purchaser's knowledge, threatened, which, if adversely determined, would have a
material effect on Purchaser.

7.6. Covenants Regarding Transfer of Ownership Approvals and
Notices. Purchaser shall file all applications and other documents with
applicable federal, state, and local governmental authorities as required under
law to effect the transfer of ownership of the Assets to Purchaser and the
assignment to Purchaser of each currently effective Medicare and Medicaid
provider agreement and Seller's Licenses. In addition, Purchaser, at least
thirty (30) days prior to the Closing Date, shall file with the Federal Trade
Commission, to the extent required under the Hart-Scott-Rodino Antitrust
Improvements Act, 15 USC Section 18a and the regulations promulgated
thereunder, a "Notification and Report Form for Certain Mergers and
Acquisitions."

7.7. Finder's or Broker's Fee. Purchaser has not engaged in any
conduct that has given or will give rise to any liability for any fee,
compensation, or reimbursement of expenses to any agent, finder, or broker,
either in the nature of a finder's fee or otherwise, in connection with the
transactions contemplated hereby.

7.8. Purchaser's Knowledge Defined. The representations and
warranties made to Seller by Purchaser in this Section 7 and elsewhere in this
Agreement are limited to the current actual knowledge of the chief executive
officers of Purchaser, and the recertification required of Purchaser at Closing
shall likewise be qualified to the then current actual knowledge of said
officers.

8. CERTAIN AGREEMENTS OF THE PARTIES.

8.1. Conduct of Seller Prior to Closing. Seller covenants and
agrees that, through the period prior to Closing: (i) the Assets, including
without limitation each Facility, shall be operated in the ordinary course of
business and in a manner consistent with Seller's past practice, and Seller
will use its best efforts to maintain existing levels of occupancy and payor
mix at each Facility; (ii) no sale, disposition, removal, or encumbrance of any
furniture, fixtures, or equipment located at the Premises, outside of the
ordinary course of business, shall

15 July 2, 1997
<PAGE> 16
be made without the written approval of Purchaser; (iii) except in accordance
with established practice and rates of increase, Seller shall not pay or
obligate itself to pay any bonus, pension, retirement, insurance, death, or
other form of incentive or special compensation to any employee, agent,
partner, or shareholder, or make any increase in rates of pay of any employees,
agents, partners, or shareholders without the written approval of Purchaser;
(iv) except for closing expenses contemplated by this Agreement as Seller's
obligation and the contemplated modification and/or refinancing of Seller's
current indebtedness, which indebtedness will be paid-off by Seller at closing,
no contract, agreement, lease, or other obligation providing for the payment of
consideration or the occurrence of indebtedness of more than Five Thousand
Dollars ($5,000) in any one instance, Ten Thousand Dollars ($10,000) in the
aggregate, shall be executed, entered into, or made by Seller in connection
with the operation of the Assets, without the written approval of Purchaser;
(v) no increase shall be made in the usual rates charged to tenants or patients
at the Facility without the written approval or Purchaser; (vi) Seller will
replace the Inventory used in the operation of the Facility as and when
required in the ordinary course of business and the quantity and quality of the
Inventory at Closing shall be substantially the same as exists on the Effective
Date; (vii) no order for equipment, machinery, furniture, furnishings, or
accessories which was placed by Seller prior to the Effective Date shall be
cancelled by Seller after the Effective Date without the written approval of
Purchaser; (viii) as soon as possible, but not less than twenty-four (24)
hours, prior to the submission of any plan of correction to any state licensure
or Medicaid or Medicare correction authorities, Seller shall submit a copy
thereof to Purchaser; (ix) Seller shall use its best efforts to preserve the
business operation of each Facility and to preserve for Purchaser the good will
of Seller's suppliers, the patients and tenants in each Facility, and others
having business relations with each Facility; (x) except as otherwise directed
by Purchaser, Seller shall use its best efforts to retain the services of each
Facility's current management-level and professional employees and to maintain
existing staffing patterns; and (xi) Seller shall not pay any sums to any
partner of Seller or any Affiliate of Seller except in the ordinary and
necessary course of the operations of the Facilities, provided, however, that
such payments are comparable to that which would be charged and received by a
non-affiliated business for the same or similar goods or services.

8.2. Preparation for Closing. Each party hereto shall use their
best efforts to assist the other to apply for and obtain any such permits,
licenses, authorization, and approvals required by the other party under
applicable federal, state, and local law in order to sell/purchase the Assets
and operate the Facilities as contemplated hereby, and complete this
transaction. Seller and Purchaser shall use their best efforts to bring about
the fulfillment of each of the conditions precedent to the obligations of the
other party set forth in this Agreement.

8.3. Prohibited Act. Seller will not merge or consolidate with
or into any other corporation, partnership, or trust, sell, lease, or otherwise
dispose of any of the assets (except in accordance with Section 8.1 hereof),
sell any additional partnership interests, liquidate, or dissolve, nor agree to
do any of the foregoing.

16 July 2, 1997
<PAGE> 17
8.4. Access to Premises and Information. On and prior to the
Closing Date, Seller shall permit Purchaser and the Purchaser's counsel,
accountants, engineers, consultants, and other authorized representatives
thereof to have full and complete access to the Premises and its documents,
books, and records to the extent the same are related to the transactions
contemplated hereunder and to make copies during normal business hours of such
financial and operating data and other information with respect to respective
businesses and properties as Purchaser or any of its authorized representations
shall reasonably request to the extent such data and information are related to
the transactions contemplated hereunder. Seller shall deliver such additional
information and copies of documents, books, and records relating to the
businesses and properties of Seller as may be reasonably requested by Purchaser
or any of its authorized representations. Except as expressly provided
otherwise in this Agreement, any investigation undertaken by Purchaser
hereunder shall not diminish Purchaser's right to rely on Seller's
representations and warranties.

8.5. Environmental Testing. Seller hereby grants to Purchaser
and its agents the right to enter upon the Premises at any reasonable time or
times after the Effective Date to conduct, at Purchaser's sole cost and
expense, such preliminary inspections, investigations, and tests as are
necessary to complete a Preliminary Environmental Site Assessment ("PESA") at
each Facility. If any such PESA shall indicate that any Hazardous Material may
be located at the Premises, Seller hereby grants to Purchaser and its agents
the right to conduct such additional inspections, investigations, and tests of
the Premises, including, without limitation, test borings, to determine
whether, in fact, any Hazardous Material is located at the Premises. In
connection with the conduct of such PESA's and any further testing warranted
thereby (collectively, the "Environmental Testing"), Purchaser agrees, at
Purchaser's sole cost and expense, to repair any damage to the Premises
resulting from such Environmental Testing. Purchaser shall hold confidential
the results of the Environmental Testing in the event Purchaser does not close
the transaction contemplated by this Agreement; provided, however, that in the
event any Hazardous Material is discovered at the Premises and Purchaser is
required by law to disclose such finding to governmental authorities, Purchaser
shall have the right to disclose such finding to such authorities without
liability to Purchaser; provided, further, that Purchaser shall disclose such
findings to Seller prior to their disclosure of such findings to any
governmental authorities.

8.6. Expenses of Transaction. Seller and Purchaser each agree
to be responsible for all fees of their respective attorneys for services
rendered in connection with this transaction and the same shall be paid outside
of Closing. Seller shall pay for all transfer taxes, revenue, excise, and
surtax charges, survey costs, conveyance, and recording fees, title examination
costs and owner's title insurance policy premiums in connection with the
transactions contemplated by this Agreement, provided however, that any
endorsements to the title insurance policy provided by Seller or additional
coverage beyond the Purchase Price shall be at the cost and sole expense of
Purchaser.

8.7. Further Assurances. Each of the parties hereto, both
before and after the Closing, upon the request from time to time of any other
party hereto and without further

17 July 2, 1997
<PAGE> 18
consideration, will do each and every act and thing as may be necessary or
reasonably requested to consummate the transactions contemplated hereby and to
effect an orderly transfer to Purchaser of the Assets and assumption by
Purchaser of the Assumed Contracts and the other assumed liabilities under
Section 2.2 hereof, including without limitation executing, acknowledging, and
delivering assurances, assignments, powers of attorney, and other documents and
instruments; furnishing information and copies of documents, books, and records
(including, without limitation, tax records); filing reports, returns,
applications, filings, and other documents and instruments with governmental
authorities; and cooperating with the other party hereto in exercising any
right or pursuing any claim, whether by litigation or otherwise, other than
rights and claims running against the party from whom or which such cooperation
is requested.

8.8. Use of Certain Brochures and Other Materials. Seller
hereby agrees that for a period of two (2) years after the Closing Date,
Purchaser shall be entitled to use any existing brochures and other printed
materials used in connection with the marketing and operation of the
Facilities.

8.9. Appraisals. Seller hereby grants to Purchaser and its
agents the right to enter upon the Premises at any reasonable time or times to
make, at Purchaser's sole cost and expense, to conduct and obtain the
Appraisals required in Section 2.1.2. herein.

8.10. Bankruptcy. If, prior to Closing, Seller or Purchaser
shall file a voluntary petition in bankruptcy or shall be adjudicated as
bankrupt or insolvent, or shall file any petition or answer so seeking or
acquiescing in any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief for itself under any present or
future federal, state, or other statute, law, or regulation relating to
bankruptcy, insolvency, or other relief for debtors; or shall seek or consent
to or acquiesce in the appointment of any trustee, receiver, or liquidator of
Seller or Purchaser or of all or any part of the Assets, or of any or all of
the royalties, revenues, rents, issues, or profits thereof, or shall make any
general assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become due ("Bankrupt"), then the
non-Bankrupt party may terminate this Agreement. If Purchaser consents in
writing to any of the foregoing actions taken by or against Seller, then
Purchaser shall waive the right to terminate the Agreement on account of this
Section 8.10.

8.11. Encore. Within fifteen (15) days after the Effective Date,
Seller shall deliver to Purchaser the Charter of Encore and its most recent
Form 10-K and 10Q; and on or before the Closing, Seller shall deliver to
Purchaser the consent of Encore to the transfer of Seller's interest in Encore
to Purchaser.

8.12 HCP. Within fifteen (15) days after the Effective Date,
Seller shall deliver to Purchaser the Charter of HCP and its most recent Form
10-K and 10Q; and on or before the Closing, Seller shall deliver to Purchaser
the consent of HCP to the transfer of Seller's interest in HCP to Purchaser.

18 July 2, 1997
<PAGE> 19
8.13 NHP. Within fifteen (15) days after the Effective Date,
Seller shall deliver to Purchaser the Charter and Trust Indenture of NHP and
its most recent Form 10-K and 10Q; and on or before the Closing, Seller shall
deliver to Purchaser the consent of NHP to the transfer of Seller's interest in
NHP to Purchaser.

9. INSPECTION PERIOD AND CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE.
Purchaser's obligation to purchase the Assets shall be subject to the
following:

9.1. Purchaser's Inspection Period. Subject to Section 9.2 below and
except has may be expressly provided to the contrary herein, Purchaser shall
have until August 31, 1997 (the "Inspection Period"), in which to conduct its
due diligence review and make its investigations and studies with respect to
the Assets as Purchaser deems appropriate, including, but not limited to,
Purchaser's review of the Seller's financial information, tenant and patient
information, Title Commitments, Surveys and environmental condition of the
Facilities, and to terminate this Agreement, by written notice to Seller, to be
received on or before the expiration of the Inspection Period, if Purchaser is
not, for any reason, satisfied with the Assets. If Purchaser fails to give
notice of such termination to be received by Seller on or before the expiration
of the Inspection Period, then Purchaser's rights under this Section 9.1 shall
be deemed to have been waived by Purchaser and this Agreement shall remain in
full force and effect without any longer being subject to this Section 9.1. If
Purchaser does give notice of termination, $100.00 of the Earnest Money shall
be paid to Seller solely for the rights granted Purchaser hereunder and the
balance of the Earnest Money shall be refunded to Purchaser by Title Company,
and the parties shall have no further rights or obligations hereunder, except
for those which expressly survive any such termination. Promptly after such
termination Purchaser shall provide to Seller, without charge, copies of any
reports, surveys, drawings or tests obtained by Purchaser with respect to the
Assets.

9.2. Conditions to Purchaser's Obligation to Close.
Notwithstanding anything to the contrary contained in Section 9.1, the
obligations of Purchaser at Closing to purchase the Assets and to assume the
Assumed Contracts and the other assumed liabilities under Section 2.2 hereof
are subject to the satisfaction, at or prior to Closing, of all of the
following conditions, compliance with which, or the occurrence of which, may be
waived in whole or in part by Purchaser:

9.2.1. Funding of Purchaser's Initial Public Offering.
The funding of Purchaser's Initial Public Offering ("IPO") of the
shares of stock of Purchaser. It being understood and agreed by
Seller that the completion and funding of the IPO is a condition
precedent to Purchaser's obligation to purchase the Assets as provided
in this Agreement.

9.2.2. Continued Accuracy of Representations and
Warranties. All representations and warranties of Seller contained in
this Agreement shall be true and correct in all respects as of Closing
with the same force and effect as if made at and as of Closing.

19 July 2, 1997
<PAGE> 20
9.2.3. Performance of Agreements. Seller shall have
performed and satisfied all covenants, agreements, and conditions
required by this Agreement to be performed or satisfied by it or prior
to Closing.

9.2.4. Closing Certificate. At Closing, Seller shall
furnish to Purchaser a certificate signed by a general partner of
Seller dated the Closing Date, to the effect that the conditions
specified in Section 9.2.2 and 9.2.3 hereof have been satisfied.

9.2.5. Licenses and Approvals. On or before Closing,
Purchaser shall have secured all approvals available to it prior to
Closing from the appropriate federal, state, and local governmental or
administrative agencies having jurisdiction thereof required to
conclude the proposed transfer of the Assets to Purchaser pursuant to
the terms of this Agreement, and providing, to the extent applicable,
for the continued operation by Purchaser of the Facilities on
substantially the same basis as Seller is currently operating the
same.

9.2.6. Legality; Material Adverse Change; No Change in
Law. Purchaser's purchase of and payment for the Assets and
assumption of the Assumed Contracts and other assumed liabilities
under Section 2.2 shall not be prohibited by any Legal Requirement.
No Legal Requirement shall have been enacted, nor shall any
legislation have been introduced in either house of the United States
Congress or of the legislature of those states in which the Facilities
are located, or favorably reported for passage to either house of the
United States Congress or of the legislature of such states or by any
committee thereof, nor shall have any investigation by any
governmental authority or administrative agency been commenced, nor
shall any decision of any court of competent jurisdiction have been
rendered, nor shall any order by any governmental authority or
administrative agency have been issued, nor shall any event have
occurred at any Facility, which materially and adversely affects,
restrains, prevents, or changes the transactions contemplated by this
Agreement, or has a material adverse effect on the business,
operations, assets, prospects, or condition, financial or otherwise,
of any Facility or of Seller.

9.2.7. Litigation. No action or proceeding shall have
been instituted at or prior to Closing before any court, arbitrator or
other governmental body, or instituted or threatened by any public
authority, pertaining to any Facility or the transfer of the Assets
and the assumption of the Assumed Contracts and the other assumed
liabilities under Section 2.2 hereof by Purchaser or any of the other
transactions contemplated hereby, the results of which action or
proceeding could prevent or make illegal the consummation of such
transactions, or which could otherwise have a material adverse effect
on the business, operations, assets, prospects, or condition,
financial or otherwise, of any Facility or of Seller.

20 July 2, 1997
<PAGE> 21
9.2.8. Opinion of Seller's Counsel. Purchaser shall
have received an opinion of Seller's independent legal counsel, dated
as of the Closing Date, addressed to Purchaser, in form and substance
reasonably satisfactory to Purchaser, to the effect that:

(1) Seller is a limited partnership
which is duly organized and validly existing under the laws
of the State of Delaware and has all the requisite
partnership power to own all of its assets and properties
and to carry on the business of the Facility owned by
Seller as presently conducted.

(2) The execution, delivery, and
performance by Seller of this Agreement and each of the
documents transferring or assigning title to the Assets to
be delivered by Seller to Purchaser at Closing have been
duly authorized by all requisite corporate or partnership
action of Seller. This Agreement and each of the documents
transferring or assigning title to the Assets to be
delivered by Seller to Purchaser at Closing constitute the
valid and binding obligation of Seller enforceable in
accordance with its terms, except as enforcement may be
limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws in effect
from time to time affecting the rights of creditors
generally and by the application of equitable principles.

(3) The execution, delivery, and
performance by Seller of this Agreement and the documents
transferring or assigning title of the Assets to be
delivered by Seller to Purchaser at Closing will not (i)
violate any provision of the Limited Partnership Agreement
of Seller, (ii) conflict with or result in any breach of or
default under any order, writ, injunction, decree,
agreement, or instrument of which counsel has knowledge by
which any of the Assets are bound, (iii) to counsel's
knowledge, result in the creation or imposition of any
lien, charge, or encumbrance of any nature upon any of the
Assets, (iv) give to others of whom counsel has knowledge
any property, contractual or security interest or rights
in, or with respect to any of the Assets, and, (v) give
others any right to terminate any agreement to which Seller
is a party or by which the Assets are benefitted, of which
counsel has knowledge.

Counsel may specify the state or states in which they are admitted to
practice, and that they are not admitted to the Bar in any other state
or experts in the law of any other state, provided, however, that if
such counsel shall not express any opinion as to the laws of the
states in which the Facilities are located, then Seller shall provide
an opinion of counsel located in such states.

9.2.9. Presence of Hazardous Material at the Premises.
The Environmental Testing, if undertaken by Purchaser, shall not have
revealed the presence of a material amount of any Hazardous Material
at the Premises. For purposes of this Section 9.2.9., the amount of
any Hazardous Material present at the Premises shall be

21 July 2, 1997
<PAGE> 22
deemed material if the reasonable estimated cost of removal and
disposal thereof, in accordance with all applicable laws and statutes,
as determined by a qualified environmental consultant reasonably
acceptable to Purchaser, exceeds Twenty Thousand Dollars ($20,000) in
the aggregate for all Facilities.

9.2.10. Schedules. As of the Effective Date, the
Schedules to be attached to and made a part of this Agreement have not
been prepared by Seller or reviewed by Purchaser. Seller shall
furnish all Schedules at least ten (10) days prior to the expiration
of the Inspection Period. If Purchaser is not satisfied with any
Schedule and if Seller is not willing to amend the Schedules to
satisfy Purchaser, then Purchaser may terminate this Agreement, and
the parties shall have no further rights or obligations hereunder,
except for those which expressly survive any such termination.

9.2.11. Title Policies. Pursuant to the Title
Commitments, the Title Company will have delivered to Purchaser as of
the Closing Date title policies in favor of Purchaser, as owner of the
Premises, insuring Purchaser's fee simple title to the Premises free
and clear of all matters other than the Permitted Exceptions and
deleting the standard exceptions.

10. CONDITIONS TO SELLER'S OBLIGATION TO CLOSE. The obligations of Seller
at Closing to sell the Assets and to assign the Assumed Contracts and the other
liabilities to be assumed by Purchaser pursuant to Section 2.2 hereof are
subject to the satisfaction at or prior to Closing, of all of the following
conditions, compliance with which, or the occurrence of which, may be waived in
whole or in part by Seller:

10.1. Representations, Warranties, and Covenants.

10.1.1. Continued Accuracy of Representations and
Warranties. All representations and warranties of Purchaser contained
in Section 7 of this Agreement shall be true and correct in all
material respects as of the Closing with the same force and effect as
if made at and as of the Closing.

10.1.2. Closing Certificate. At Closing, Purchaser
shall furnish to Seller a certificate signed by a duly authorized
corporate officer of Purchaser dated the Closing Date, to the effect
that the conditions specified in Section 10.1.1 hereof has been
satisfied.

10.2. Litigation. No action or proceeding shall have been
instituted at or prior to Closing before any court, arbitrator or other
governmental body, or instituted or threatened by any public authority,
pertaining to the transfer of the Assets and the assumption by Purchaser of the
Assumed Contracts and other liabilities to be assumed by Purchaser pursuant to
Section 2.2 hereof or any of the other transactions contemplated hereby, the
results of which action or proceeding would prohibit or make illegal the
consummation of such transactions.

22 July 2, 1997
<PAGE> 23
10.3. Licenses and Approvals. On or before Closing, Seller shall
have secured all approvals available to it prior to Closing from the
appropriate federal, state, and local governmental or administrative agencies
having jurisdiction thereof required to conclude the proposed transfer of the
Assets to Purchaser pursuant to the terms of this Agreement, and providing, to
the extent applicable, for the continued operation by Purchaser of the
Facilities on substantially the same basis as Seller is currently operating the
same.

10.4. Legality; Material Adverse Change; No Change in Law.
Seller's sale of the Assets and assignment of the Assumed Contracts and other
assumed liabilities under Section 2.2 to Purchaser shall not be prohibited by
any Legal Requirement. No Legal Requirement shall have been enacted, nor shall
any legislation have been introduced in either house of the United States
Congress or of the legislature of those states in which the Facilities are
located, or favorably reported for passage to either house of the United States
Congress or of the legislature of such states or by any committee thereof, nor
shall have any investigation by any governmental authority or administrative
agency been commenced, nor shall any decision of any court of competent
jurisdiction have been rendered, nor shall any order by any governmental
authority or administrative agency have been issued, nor shall any event have
occurred at any Facility, which materially and adversely affects, restrains,
prevents, or changes the transactions contemplated by this Agreement, or has a
material adverse effect on the business, operations, assets, prospects, or
condition, financial or otherwise, of any Facility or of Seller.

11. CLOSING.

11.1. Closing Date. The closing of the transaction contemplated
herein (the "Closing") shall be conducted at the offices of Seller in Dallas,
Texas, on or before the earlier to occur of November 30, 1997, or the date of
the funding of Purchaser's IPO (the "Closing Date").

11.2. Seller's Deliveries at Closing. At the Closing, Seller
shall execute (if applicable) and deliver to Purchaser:

(1) The Certificate described in Section
9.2.4 hereof.

(2) A Special Warranty Deed, a Bill of
Sale, an Assignment of Certain Tangible and Intangible
Assets, and Assignment and Assumption of Services
Agreement, an Assignment of Occupancy Agreements, an
Assignment of Leases, and an Assignment of Patient Trust
Accounts for each Facility, each in form agreeable to the
Purchaser, and any appropriate motor vehicle transfer
documents.

(3) The right to immediate possession of
the real property and all tangible personal property
included in the Assets.

(4) The opinion of counsel required
under Section 9.2.8 hereof.

23 July 2, 1997
<PAGE> 24
(5) A Certificate of Existence (or other
similar good standing certification) for Seller issued by
the Secretary of State of the state Seller's organization
and in each states in which Seller's Facilities are located
(dated within thirty (30) days of the Closing).

(6) A settlement statement for each
Facility as approved by the parties hereto.

(7) Partnership resolutions of Seller
authorizing it to undertake the transactions contemplated
by this Agreement and authorizing its signatories to
execute this Agreement and all other documents required to
effect the Closing, certified as of the Closing Date by an
officer or general partner of Seller as having been duly
adopted and being in full force and effect on the Closing
Date.

(8) IRS Form 8594 Asset Acquisition
Statement.

(9) The agreement regarding real estate
tax proration as provided in Section 11.4 hereof.

(10) FIRPTA (nonforeign) Certificate.

(11) An assignment of Seller's interest
in Encore and the consent thereto by Encore.

(12) An assignment of Seller's interest
in HCP and the consent thereto by HCP.

(13) An assignment of Seller's interest
in the NHP pension notes, limited partnership units and the
consent thereto by NHP.

(14) Such other documents as may be
required to fully perform the terms of this Agreement or
as may be required by any Legal Requirement.

11.3. Purchaser's Deliveries at Closing. At the Closing,
Purchaser shall execute (if applicable) and deliver:

(1) The Certificate described in Section
10.1.2 hereof.

(2) An Assignment and Assumption
Agreement for each Facility.

(3) A partnership or corporate
resolution from Purchaser authorizing the transactions
contemplated by this Agreement and authorizing its
signatories to execute this Agreement and all other
documents required to effect

24 July 2, 1997
<PAGE> 25
the Closing, certified as of the Closing Date by a general
partner or corporate officer of Purchaser as having been
duly adopted and being in full force and effect on the
Closing Date.

11.4. Real Estate and Personal Property Tax Prorations. Real
estate taxes and assessments and personal property taxes ("Taxes") shall be
prorated at the Closing based upon the last available tax duplicate, which
prorations shall thereafter be adjusted directly between Seller and Purchaser
based upon the actual amount of taxes for the year in which the Closing occurs,
promptly following receipt of the official statement therefor and notice
thereof by Purchaser to Seller. The proration agreement set forth herein shall
be incorporated into an agreement in form reasonably satisfactory to Purchaser
and Seller to be executed and delivered by each at Closing. All Taxes shall be
prorated on the accrual basis, Seller being responsible for all Taxes
applicable to the Closing Date regardless of whether such Taxes are then due
and payable.

11.5. Other Adjustment to Purchase Price and Prorations. All
expenses attributable to the operation of each Facility (measured on an accrual
basis) through 11:59 p.m. on the day before the Closing shall be paid for by
Seller. Thereafter, such expenses shall be paid for by Purchaser. All income
not received by Seller as of the Closing, including, but not limited to, all
payments under Occupancy Agreements, including Medicare and Medicaid
reimbursement and other insurance payments or advances shall be for Seller's
account and any amount collected from tenants or patients and third party
payors with accounts owing to Seller shall, if collected by Purchaser, be paid
over to Seller. Except as otherwise expressly provided in this Agreement,
Seller shall remain responsible for all accounts payable through 11:59 p.m. on
the day before the closing. As of the Closing, Seller shall calculate and pay
wages, payroll taxes, and any employee bonuses based upon attendance record or
other criteria accrued through 11:59 p.m. on the day before the Closing. In
effecting the proration, Seller shall be credited for items of expense paid for
as of the Closing Date. In addition, on or about the Closing, Seller shall
cause final utility meter readings to be made for all utilities serving the
Premises and Seller shall pay or cause to be paid all final bills rendered form
such meter readings. To the extent that all items of income and expenses to be
transferred, prorated, or assumed cannot be determined at the Closing, then
Seller and Purchaser shall cooperate with each other to revise the settlement
statements within thirty (30) days after Closing.

All prepaid rental and security deposits and other tenant or patient
funds held in trust by Seller shall be accounted for (including any interest
required on such funds) and transferred to Purchaser at Closing. Seller shall
furnish to Purchaser on or before the Closing a list, by Facility, of all
security and rent deposits and other patient and tenant funds held by Seller,
which list shall also indicate the rent status of each patient or tenant,
certified to by an officer of Seller, which list Seller warrants will be true
and correct. Upon transfer thereof at Closing, Purchaser agrees to maintain,
repay and/or return such security and rent deposits in accordance with the
terms and subject to the conditions and requirements under which they are now
being held by Seller and as imposed by applicable law or regulation.

25 July 2, 1997
<PAGE> 26
12. CASUALTY.

12.1. Major Damage. If the Premises, or a portion thereof, shall
be damaged or destroyed by reason of any casualty or other cause prior to the
Closing, Seller shall give Purchaser written notice of such damage or
destruction within ten (10) days of the occurrence thereof and in all events
prior to the Closing Date. Within twenty (20) days of the occurrence of such
damage or destruction, Seller shall submit to Purchaser Seller's reasonable
estimate of the cost to repair such damage or destruction and its estimate of
the loss of operating revenues due to such damage (collectively, "Seller's
Expense Estimate") and the basis for such estimate. If Seller's Expense
Estimate is equal to or in excess of Twenty Thousand Dollars ($20,000) ("Major
Damage") with respect to any Facility, then Purchaser, at Purchaser's option,
may either: (A) elect, within twenty (20) days after the determination of the
repair cost in accordance with Section 12.3 hereof, to terminate this
Agreement, and the parties shall have no further rights or obligations
hereunder, except for those which expressly survive any such termination; or
(B) proceed to complete the transactions contemplated under this Agreement and
be entitled to the insurance proceeds payable in the event of such damage or
destruction plus any deductible. If Purchaser does not make the election set
forth in subparagraph (A) above within the applicable twenty (20) day period,
then Purchaser shall be deemed to have elected option (B) set forth above.

12.2. Other Damage. If Seller's Expense Estimate is less than
Twenty Thousand Dollars ($20,000.00) for each Facility and such damage or
destruction is covered by Seller's insurance coverage, Seller shall pay such
applicable insurance proceeds, plus the amount of any applicable deductible, to
Purchaser at closing. If (i) such damage or destruction is not covered by
Seller's insurance coverage, or (ii) such insurance proceeds are insufficient
to cover the cost of repairing such damage or destruction and Seller does not
pay such deficiency to Purchaser at Closing, then the Purchase Price shall be
reduced by an amount equal to (A) the cost of restoring the Premises in the
case of subparagraph (i), or (B) the amount of such deficiency in the case of
subparagraph (ii).

12.3. Determination of Repair Cost. If Purchaser disagrees with
Seller's Expense Estimate, Purchaser shall give written notice of such dispute
to Seller within then (10) days after Seller submits Seller's Expense Estimate
to Purchaser. Upon receipt of such notice, Seller and Purchaser shall promptly
retain an appraiser acceptable to both Seller and Purchaser, the cost of such
appraisal being borne equally by Seller and Purchaser, and such appraiser shall
determine the cost of repairing such damage or destruction and the lost
operating revenues as a result thereof, which cost shall include all
professional fees incurred in connection therewith. Seller and Purchaser agree
that the determination by such appraiser of such costs shall be conclusive as
to both Seller and Purchaser.

13. CONDEMNATION. If, prior to the Closing Date, all or any portion of
the Premises shall be taken by any governmental authority under its power of
eminent domain, Purchaser shall have the option (to be exercised by written
notice given to Seller not later than twenty (20) business days following
Purchaser's receipt of notice of such taking) to:

(1) Accept the Assets on the Closing date without
any abatement or adjustment in the Purchase Price, in which event
Purchaser shall have the right to

26 July 2, 1997
<PAGE> 27
participate in any settlement or compromise with such taking authority
and Seller shall assign its rights in the condemnation award to the
Purchaser (or Purchaser shall receive the condemnation award from
Seller if it has already been paid before the Closing date); or

(2) If, and only if, in Purchaser's reasonable
opinion, any Facility subject to such taking cannot be operated in
substantially the same manner operated by Seller prior to such taking,
Purchaser may elect to terminate this Agreement, and the parties shall
have no further rights or obligations hereunder, except for those
which expressly survive any such termination.

If the Purchaser does not make the election set forth in subparagraph (2) above
within the applicable twenty (20) day period, then Purchaser shall be deemed to
have elected option (1) set forth above.

14. DEFAULT. In the event of a material misrepresentation by Seller in
this Agreement, or a material breach of any warranty or covenant in this
Agreement, or other default under this Agreement by Seller prior to Closing,
and Seller's failure to rectify such misrepresentation, breach or default
within ten (10) days after receipt of notice thereof from Purchaser, then
Purchaser shall have the right, upon written notice to Seller, to rescind this
Agreement and be entitled to such remedies as shall be provided by law,
including the recovery of attorneys' fees.

Seller acknowledges and agrees that the Assets are unique and not
available on the open market and that Purchaser will be seriously and
irreparably injured in the event this Agreement is not specifically performed
by Seller and the transactions contemplated hereby are not consummated. Both
parties further agree that it may be difficult and impractical to measure in
money the damages which will accrue by reason of a refusal by Seller to perform
their obligations under this Agreement. Therefore, Seller acknowledges and
agrees that, in lieu of rescission and recourse to such remedies as shall be
provided by law, Purchaser shall be entitled to specific performance of this
Agreement by Seller, and Seller hereby consents thereto. In the event that
Purchaser shall institute any actions specifically to enforce Seller's
performance under this Agreement, Seller hereby agrees to waive the defense
that Purchaser has an adequate remedy at law.

15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements of fact
contained in this Agreement, or in any certificate or other document delivered
by or on behalf of one party to this Agreement to the other pursuant to this
Agreement or in connection with the transaction contemplated hereby, shall be
deemed representations and warranties by such party making such statement of
fact. Each party understands that the other party has relied on each of said
representations and warranties in entering into this Agreement.
Notwithstanding any investigations made by or on behalf of Seller or Purchaser
or any distribution in liquidation, dissolution, or other voluntary or
involuntary act of Seller or Purchaser, the representations and warranties
contained in this Agreement shall survive the Closing for a period of 12 months
(except Section 6.3.5 which shall survive for 36 months) following the Closing
notwithstanding the execution and delivery of the documents transferring title
to the Assets to Purchaser or the consummation of the other transactions
contemplated herein, whereupon such representations and warranties shall become
unenforceable except to the extent that notice of a claim relating to such

27 July 2, 1997
<PAGE> 28
representations and warranties has been given pursuant to Section 16.3 hereof
prior to the expiration of such 12-month period.

16. INDEMNIFICATION PROVISIONS.

16.1. Indemnification of Purchaser. If the Closing occurs,
Seller shall defend, indemnify, and hold harmless Purchaser and any Affiliate
of Purchaser against all damages, punitive damages, civil and criminal monetary
penalties, losses and reasonable expenses, including any reasonable attorneys'
and other professional fees (hereinafter referred to collectively as
"Liabilities") in connection with any of the following matters:

16.1.1. Misrepresentation, Etc.. Any and all
Liabilities arising out of or related to any breach of the agreements,
representations, warranties, or covenants by Seller in this Agreement,
provided, however, that Purchaser's right to indemnification hereunder
for Liabilities arising out of or related to any breach of such
Seller's representations and warranties shall be limited to claims
asserted by Purchaser in accordance with Section 16.3 hereof during
the period during which said representations and warranties survive
the Closing provided under Section 15 hereof.

16.1.2. Audits, Investigations, Refund Obligations, and
Other Pre-Closing Liabilities. Any and all Liabilities arising out of
or related to any of the following: (i) any audit or investigation by
any governmental authority or administrative agency concerning the
operation of any Facility and other Assets owned by Seller prior to
the Closing or any amounts paid to Seller prior to the Closing; (ii)
any assessments, adjustments or offsets made against Purchaser or any
Facility and other Assets owned by Seller as a result of such an audit
or investigation or in connection with the recovery by such
governmental authority or administrative agency of any overpayments
made to Seller for services performed prior to Closing or any
depreciation recapture applicable to the period prior to Closing;
(iii) any reasonable costs of defense of, and any judgment against
Purchaser with respect to, any litigation relating to the operation of
the Assets owned by Seller prior to the Closing; (iv) any suit, claim,
or proceeding brought by any Person (including, without limitation,
any employee or former employee of Seller) of any nature seeking to
recover damages for personal injury, death, or property damage due or
alleged to be due to occurrences in connection with the operation of
the Assets owned by Seller prior to the Closing; and (v) any other
liability, damage, cost, claim, expense, or assessment asserted
against Purchaser or the Assets owned by Seller (other than those
liabilities specifically assumed by Purchaser pursuant to Section 2.2
hereof) as a result of, or with respect to Seller's ownership or
operation of the Assets prior to the Closing.

16.1.3. Indemnification Limitation. Anything contained
in this Section 16.1 to the contrary notwithstanding, the obligation
of Seller to indemnify Purchaser hereunder shall arise only at such
time as Purchaser shall have paid the cumulative sum of $10,000 as the
result of any matter or matters occurring under Sections 16.1.1 and
16.1.2 hereof, in which event the indemnity obligations of Seller
hereunder shall exist only to the extent that such payments, in the
aggregate, exceed the sum of $10,000. Seller shall have no obligation
to indemnify the Purchaser for any specific item which is covered by
the title insurance delivered to Purchaser at Closing.

28 July 2, 1997
<PAGE> 29
16.2. Indemnification of Seller. If the Closing occurs,
Purchaser shall defend, indemnify and hold harmless Seller and any Affiliate of
Seller against all Liabilities (as defined in Section 16.1 hereof) in
connection with any of the following matters:

16.2.1. Misrepresentations, Etc.. Any and all
Liabilities arising out of or related to any breach of the agreement,
representations, warranties or covenants of Purchaser in this
Agreement, provided, however, that Seller's right to indemnification
hereunder for Liabilities arising out of or related to any breach of
Purchaser's representations and warranties shall be limited to claims
asserted by Seller in accordance with Section 16.3 hereof during the
period during which said representations and warranties survive the
Closing as provided in Section 15 hereof.

16.2.2. Audits, Investigations and Other Post-Closing
Liabilities. Any and all Liabilities arising out of or related to any
of the following: (i) any audit or investigation by any governmental
authority or administrative agency concerning the operation of any
Facility and other Assets by Purchaser subsequent to the Closing or
any amounts paid to Purchaser subsequent thereto; (ii) any
assessments, adjustments or offsets made against Seller as a result of
any such audit or investigation; (iii) any reasonable costs of defense
of, and any judgment against Seller with respect to, any litigation
relating to the operation of the Assets by Purchaser subsequent to the
Closing; (iv) any suit, claim or proceeding brought by any Person of
any nature seeking to recover damages, for personal injury, death or
property damage due or alleged to be due to occurrences in connection
with the operation of the Assets subsequent to the Closing; and (v)
any other liability, damage, cost, claim, expense or assessment
asserted against Seller as a result of, or with respect to,
Purchaser's operation of the Assets subsequent to the Closing.

16.3. Notice and Defense of Claims. A party claiming
indemnification under this Agreement (the "Asserting Party") must promptly
notify in writing the party from which indemnification is sought (the
"Defending Party") of the nature and basis of such claim for indemnification.
If such claim relates to a claim, litigation or other action by a third party
against the Asserting Party, or any fixed or contingent liability to a third
party (a "Third Party Claim"), the Defending Party may elect to assume the
defense of the Third Party Claim within a reasonable time after receipt of the
notice referred to above at its own expense with counsel selected by the
Defending Party and approved by the Asserting Party, which approval shall not
be unreasonably withheld or delayed; provided, however, that if any claim for
indemnification under this Agreement is covered by the Defending Party's
applicable insurance coverage, then the assumption of such defense and the
selection of counsel shall be governed by the applicable insurance coverage.
Subject to the foregoing sentence, the Defending Party may not assume the
defense if the named parties to the Third Party Claim (including any impleaded
parties) include both the Defending Party and the Asserting Party and
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them, in which case the
Asserting Party shall have the right to employ counsel approved by the
Defending Party at the expense of the Defending Party. If the Defending Party,
or the Defending Party's applicable insurer, assumes the defense of the Third
Party Claim, the Defending Party shall not be liable for any fees and expenses
of counsel for the Asserting Party incurred thereafter in connection with the
Third Party Claim.

29 July 2, 1997
<PAGE> 30
17. DEFINITIONS. For purposes of this Agreement:

17.1. Cross Reference Table. The following terms defined
elsewhere in this Agreement in the Sections set forth below shall have the
respective meanings therein defined:

<TABLE>
<CAPTION>
Term Definition
---- ----------
<S> <C>
"Affiliate Arrangements" Section 6.5.2
"Agreement" Preamble
"Asserting Party" Section 16.3
"Assets" Section 1
"Assumed Contracts" Section 2.2
"Closing" Section 11.1
"Closing Date" Section 11.1
"Contracts" Section 6.5.1
"Defending Party" Section 16.3
"Deposit" Section 3
"Deposit Escrow Agreement" Section 3
"Effective Date" Preamble
"Environmental Testing" Section 8.5
"Facility"; "Facilities" Preamble
"Inspection Period" Section 9.1
"Inventory" Section 1.4
"Labor Contracts" Section 6.5.1
"Liabilities" Section 16.1
"Land" Preamble
"Major Damage" Section 12.1
"Multiple Facilities Agreement" Section 9.10
"Occupancy Agreement" Section 6.5.1
"Occupancy Agreement Form" Section 6.5.3
"Permitted Exceptions" Section 4
"PESA" Section 8.5
"Premises" Section 1.1
"Purchase Price" Section 2.1
"Seller" Preamble
"Seller's Annual Financial Statements" Section 6.2.1
"Seller's Interim Financial Statements" Section 6.2.1
"Seller's Licenses" Section 6.3.3
"Title Commitment" Section 5
"Title Company" Section 16.3
"Third Party Claim" Section 16.3
"Warranties & Guarantees" Section 6.4.2
</TABLE>

17.2. Affiliate. The term "Affiliate" shall mean (i) any Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with Seller (or other specified Person), (ii) any Person who is
or has been within five years of the time in question an officer, director or
direct or indirect beneficial holder of at least 5% of any class of the

30 July 2, 1997
<PAGE> 31
outstanding capital stock or partnership interest of Seller (or other specified
Person), (iii) any Person of which Seller (or other specified Person) or an
Affiliate (as defined in clause (ii) above) thereof shall, directly or
indirectly, beneficially own at least 5% of any class of outstanding capital
stock or other evidence of beneficial interest, and (iv) Members of the
Immediate family of any of the foregoing.

17.3. By-laws. The term "By-laws" shall mean all written rules,
regulations and by-laws, and all other documents (other than the Charter),
relating to the management, governance or internal regulation of a Person
(other than an individual) or interpretative of the Charter of such Person,
each as from time to time in effect.

17.4. Charter. The term "Charter" shall mean the certificate or
articles of incorporation or organization, statute, constitution, joint venture
or partnership agreement or articles or other charter documents of any Person
(other than an individual), each as from time to time in effect.

17.5. Code. The term "Code" shall mean the Federal Internal
Revenue Code of 1986 or any successor statute, and the rules and regulations
thereunder, and in the case of any referenced section of any such statute, rule
or regulation, any successor section thereto, collectively and as from time to
time amended and in effect.

17.6. Generally Accepted Accounting Principles. The term
"generally accepted accounting principles" shall mean generally accepted
accounting principles, as defined by the Financial Accounting Standards Board
and as applied by Seller in preparing the Financial Statements and consistently
followed.

17.7. Hazardous Materials. The term "Hazardous Materials" shall
mean (i) any pollutant, contaminant or hazardous substance (within the meaning
of such terms under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and any implementing
regulations) but excepting Infectious Wastes or (ii) any hazardous or toxic
substance or material within the meaning of any federal, state or local law
applicable to Seller or the Premises, but excepting Infectious Wastes.

17.8. Infectious Wastes. For purposes of each Facility, the term
"Infectious Wastes" shall mean such term as it is defined in the Legal
Requirements of the state in which the Facility is located.

17.9. Legal Requirement. The term "Legal Requirement" shall mean
any federal, state, local law, statute, standard, ordinance, code, order, rule,
regulation, resolution, promulgation, or any order, judgment or decree of any
court, arbitrator, tribunal or governmental authority, or any license,
franchise, permit or similar right granted under any of the foregoing, or any
similar provision having the force and effect of law.

17.10. Lien. The term "Lien" shall mean (i) any encumbrance,
mortgage, pledge, lien, charge or other security interest of any kind upon any
property or assets of any character, or upon the income or profits therefrom;
or (ii) any arrangement or agreement which prohibits the creation of such
encumbrances, mortgages, pledges, liens, charges or other security interests or

31 July 2, 1997
<PAGE> 32
which restricts transfer of capital stock (other than restrictions on transfer
imposed by applicable securities laws) or other property or assets.

17.11. Person. The term "Person" shall mean any individual,
partnership, corporation, association, trust, joint venture, unincorporated
organization, or entity, and any government, governmental department or agency
or political subdivision thereof.

18. MISCELLANEOUS

18.1. Headings. Section and subsection headings are not to be
considered part of this Agreement, are included solely for convenience, are not
intended to be full or accurate descriptions of the content thereof and shall
not affect the construction hereof.

18.2. Schedules; Exhibits; Contemplated Transactions. Schedules,
exhibits, agreements and documents referred to in this Agreement are an
integral part of this Agreement. For all purposes of this Agreement, the
transactions contemplated hereby shall be deemed to include, without
limitation, all transactions contemplated by any agreement entered into by
Seller and Purchaser at the Closing.

18.3. Severability. The provisions of this Agreement are
severable, and in the event that any provision hereof should, for any reason,
be held invalid or unenforceable in any respect, it shall not invalidate,
render unenforceable or otherwise affect any other provision hereof, and such
invalid or unenforceable provision shall be construed by limiting it so as to
be valid and enforceable to the maximum extent compatible with, and possible
under, applicable law.

18.4. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.

18.5. Knowledge of a Party. Whenever reference is made herein to
the knowledge or best knowledge of a party hereto, it is understood that the
party has made, or caused to be made by personnel or representatives reasonably
competent to determine the accuracy thereof (and the results thereof reported
to such party), an inquiry which is reasonably appropriate to determine the
accuracy of the statement in question. Whenever reference is made herein to a
person's "actual knowledge," it is understood that such Party shall be in
possession of information sufficient to form a belief as to the truth or
accuracy of the statement in question.

18.6. Entire Agreement. This Agreement, the Schedules and
Exhibits hereto, the agreements expressly referred to herein and any agreement
making specific reference to this Agreement embody the entire agreement and
understanding of the parties hereto with respect to the subject matter herein
contained, supersede all prior agreements and understandings relative to the
subject matter hereof. This Agreement may not be changed, modified, terminated
or discharged, in whole or in part (other than in accordance with the
respective terms hereof), except by writing executed by the parties hereto. No
waiver of any of the provisions or conditions of this Agreement or any of the
rights of a party hereto shall be effective or binding

32 July 2, 1997
<PAGE> 33
unless such waiver shall be in writing and signed by the party claimed to have
given or consented to such waiver.

18.7. Governing Law. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the state of Indiana.

19. ASSIGNMENT. Neither Seller's nor Purchaser's rights and obligations
hereunder shall be assignable without the express written consent of the other
party, except that Purchaser shall have the right to assign its interests
herein to an Affiliate of Purchaser.

20. NOTICES. All notices required to be given hereunder shall be given in
writing to the appropriate party or parties at the following addresses:

To Seller: Capital Senior Living Communities, L.P.
14160 Dallas Parkway, Suite 300
Dallas, TX 75240
Attn: James A. Stroud

33 July 2, 1997
<PAGE> 34
With a copy to: Jeffrey L. Beck
Capital Senior Living Communities, L.P.
14160 Dallas Parkway, Suite 300
Dallas, TX 75240

and David A. Shelton, Esq.
Lowe Gray Steele and Darko
111 Monument Circle, Suite 4600
Indianapolis, IN 46204-5146

To Purchaser: Capital Senior Living Corporation
14160 Dallas Parkway
Suite 300
Dallas, TX 75240
Attn: David R. Brickman, Vice President

With a copy to: Winston W. Walp II, Esq.
Jenkens & Gilchrist
1445 Ross Avenue, Suite 3200
Dallas, TX 75202-2799

or at such other place as such party may designate in writing to the other
party. All notices shall be delivered either in person or by registered mail,
return receipt requested, and shall be deemed to have been delivered, if in
person upon delivery thereof, or if by registered mail on the date shown on the
return receipt.

21. SUCCESSORS AND ASSIGNS. All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective transferees, delegatees, heirs, devisees,
successors and permitted assigns.

22. PUBLIC ANNOUNCEMENT. Press releases and other public announcements of
the transactions contemplated herein to be made by either party hereto shall be
subject to the prior review and approval of the other party hereto.

[Remainder of Page Intentionally Left Blank]

34 July 2, 1997
<PAGE> 35
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.

SELLER:

CAPITAL SENIOR LIVING COMMUNITIES, L.P., a
Delaware limited partnership

By: Retirement Living Communities, L.P., its
general Partner

By: Capital Retirement Group, Inc.,
its general Partner

By:
---------------------------------
Jeffrey L. Beck, Chief Executive
Officer

By:
---------------------------------
James A. Stroud, Chief Operating
Officer

PURCHASER:

CAPITAL SENIOR LIVING CORPORATION, a Delaware
corporation

By:
-------------------------------------------
David R. Brickman, Vice President

35 July 2, 1997
<PAGE> 36
Schedule A

Legal Description
(The Land)
<PAGE> 37
Schedule B

List of Facilities
(The Facilities)
<PAGE> 38
Schedule 1.1

Excluded Assets
<PAGE> 39
Schedule 1.2

List of Owned Assets
(Excluding the "Excluded Assets")
<PAGE> 40
Schedule 1.3

List of Leased Assets
<PAGE> 41
Schedule 1.8

List of Trade Names
<PAGE> 42
Schedule 2.1.1

Purchase Price Allocation
<PAGE> 43
Schedule 2.2

Assumed Contracts
<PAGE> 44
Schedule 5

Title Commitments
<PAGE> 45
Schedule 6.2.1

Seller's Financial Statements
<PAGE> 46
Schedule 6.3.3

Seller's Licenses
<PAGE> 47
Schedule 6.3.8

Litigation
<PAGE> 48
Schedule 6.4.2

Warranties and Guaranties
<PAGE> 49
Schedule 6.4.10

Delinquent Accounts
<PAGE> 50
Schedule 6.5.1.1

Material Contracts, Agreements and Leases
<PAGE> 51
Schedule 6.5.2

Affiliate Arrangements
<PAGE> 52
Schedule 6.5.3.1

Occupancy Agreement Forms
<PAGE> 53
Schedule 6.5.3.2

Special Occupancy Arrangements
<PAGE> 54
Schedule 6.5.4

List of all Insurance Coverage
<PAGE> 55
Schedule 6.6.1

Employment Contracts, Benefits and other Arrangements
<PAGE> 56
Schedule 6.6.2

List of Current Employees

<PAGE> 1
EXHIBIT 10.2

CONTRIBUTION AGREEMENT

THIS CONTRIBUTION AGREEMENT (the "Agreement") is entered into as of
August 1, 1997 by and among Capital Senior Living Corporation, a Delaware
corporation (the "Company"), Jeffrey L. Beck ("Beck"), James A. Stroud
("Stroud"), Senior Living Trust, a Texas trust ("Trust") and Lawrence A. Cohen
("Cohen"; Cohen together with Beck, Stroud and Trust are sometimes hereinafter
referred to as the "Shareholders").

RECITALS

A. The Shareholders are the owners of all of the issued and
outstanding shares of stock (collectively the "Subsidiaries Stock") of the
following corporations: Capital Senior Living, Inc., a Texas corporation,
Capital Senior Management 1, Inc., a Texas corporation, Capital Senior
Management 2, Inc., a Texas corporation, Capital Senior Development, Inc., a
Texas corporation and Quality Home Care, Inc., an Indiana corporation
(collectively, the "Subsidiaries").

B. The Company is investigating the feasibility and desirability of
conducting an underwritten initial public offering ("IPO") of its shares of
common stock. Pursuant to the IPO, which will constitute a qualified
underwriting transaction within the meaning of Treasury Regulations 1.351-
1(a)(3), members of the public (the "Public") will acquire common stock of the
Company from the underwriters in exchange for cash.

C. Simultaneously with the closing of the IPO, the Shareholders
desire to contribute the Subsidiaries Stock to the Company in exchange for the
promissory notes (collectively, the "Formation Note") and the common stock of
the Company set forth herein.

D. The contributions contemplated by this Agreement are intended to
qualify for tax-free treatment under Section 351(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), except that the Formation Note will be
"other property" or "boot" as described in Section 351(b) of the Code. For
purposes of Section 351, the transferors of property to the Company will
include the Shareholders and the Public (the "Transferors"). The Transferors
will own all the common stock of the Company immediately after the
contributions.

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

1. Agreement to Contribute Stock. Each of the Shareholders hereby
agrees to contribute to the Company simultaneously with the closing of the IPO
all of such Shareholders' right, title and interest in the shares of
Subsidiaries Stock in any of the Subsidiaries held by such Shareholder in
exchange for the shares of common stock of the Company and/or the Formation
Note set forth below.

2. Agreement of the Company to Issue Shares and Deliver Formation
Notes. The Company hereby agrees with the Shareholders, in consideration of
and simultaneous with the
<PAGE> 2
contribution of the Subsidiaries Stock described in Section 1 hereof, that the
Company will issue the following:

(a) To Beck, the Company will issue a number of shares of
common stock of the Company equal to the Specified Number (as hereinafter
defined) and a Formation Note in the amount of $12,925,000.00, the principal
amount of which shall be subject to adjustment as described below.

(b) To Stroud, the Company will issue a number of shares of
common stock of the Company equal to the Specified Number and a Formation Note
in the amount of $268,725.00, the principal amount of which shall be subject to
adjustment as described below.

(c) To Trust, the Company will issue a number of shares of
common stock of the Company equal to the Specified Number and a Formation Note
in the amount of $12,656,275.00, the principal amount of which shall be subject
to adjustment as described below.

(d) To Cohen, the Company will issue a Formation Note in the
amount of $1,250,000.00, the principal amount of which shall be subject to
adjustment as described below.

Each Formation Note shall not bear interest and shall be due and payable in
cash upon the closing of the IPO.

The "Specified Number" of shares of common stock to be issued pursuant
to clauses (a) through (c) above shall be determined separately for Beck,
Stroud and the Trust and such term shall mean that number of shares of common
stock of the Company derived by (i) multiplying the number of shares of common
stock of the Company to be outstanding immediately after the IPO, before giving
effect to the possible exercise of the underwriters' over-allotment option
granted in connection with the IPO, as shown in the prospectus for the IPO
contained in the Company's registration statement on Form S-1 at the time it is
declared effective by the Securities and Exchange Commission (the "Final
Prospectus") times the percentages set forth below opposite the names of Beck,
Stroud and the Trust and (ii) subtracting from the product derived in clause
(i) 615,000 shares of common stock in the case of Beck, 560,000 shares in the
case of the Trust, and 55,000 shares in the case of Stroud:

<TABLE>
<CAPTION>
Name Percentage
---- ----------
<S> <C>
Beck 24.27%
Stroud 0.500%
Trust 23.77%
</TABLE>

By way of illustration, and not in limitation of the foregoing, if the
Final Prospectus depicts 18,367,347 shares of common stock to be outstanding
after the Offering, before giving effect to the possible exercise of the
underwriters' over-allotment option, then Beck, Stroud and the Trust shall be
issued 3,843,673 shares, 36,830 shares and 3,806,843 shares of common stock,
respectively, such that, after such issuance, Beck, Stroud and the Trust shall
own (inclusive of the shares owned by them on the date hereof and the shares
issuable hereunder) a number of shares

2
<PAGE> 3
of common stock representing 24.27%, 0.500% and 23.77%, respectively, of the
shares of common stock to be outstanding immediately after completion of the
IPO (before giving effect to the possible exercise of the underwriters' over-
allotment option).

The aggregate of the principal amount of the Formation Notes has been
derived based upon (i) the anticipated receipt by the Company of total net
offering proceeds, after purchase of the Acquired Assets (as defined in the
Final Prospectus) for a price equal to the appraised value thereof and after
underwriting discounts and commissions and fees and expenses of the Offering,
of $54.2 million (the "Post-Acquisition Net Proceeds") times (ii) fifty percent
(50%). In the event that the Post-Acquisition Net Proceeds is less or greater
than $54.2 million, the aggregate of the principal amount of the Formation
Notes shall be reduced or increased, as the case may be, pursuant to this
formula, with the adjustment in the aggregate principal amount of the Formation
Notes to be allocated among the respective Formation Notes as follows: First,
in the event that the price of the common stock to the public in the IPO (as
shown on the cover of the Final Prospectus) (the "IPO Price") is more than or
less than $15.00 per share, the amount of the Formation Note to be issued to
Cohen under Section 2(d) shall be adjusted to a principal amount equal to the
product of 83,333 times the IPO Price; and second, the remaining adjustment in
the aggregate principal amount of the Formation Notes pursuant to this formula
shall be allocated proportionately among Beck, Stroud and the Trust based on
the stated principal amount of each Formation Note set forth in Section 2(a)
through (c).

3. Shares Fully Paid. The Company represents and covenants to the
Shareholders that the issuance of the shares of common stock of the Company
pursuant to this Agreement has been duly authorized and, when issued in
accordance with the terms of this Agreement, such shares will be validly
issued, fully paid and non-assessable, and free of preemptive rights.

4. Representations and Warranties of the Shareholders. Each
Shareholder, as to himself and the Subsidiaries Stock held by such Shareholder,
hereby:

(a) represents and warrants that (i) he has good and
marketable title to such Subsidiaries Stock, free and clear of any liens or
other encumbrances; and (ii) such Subsidiaries Stock has been duly authorized
and validly issued and is fully paid and nonassessable, and free of preemptive
rights;

(b) acknowledges that such Shareholder or his
representative(s) has had access to the same kind of information concerning the
Company that is required in a Registration Statement on Form S-1 filed under
the Securities Act of 1933, as amended (the "Act"), to the extent that the
Company possesses such information;

(c) acknowledges that it has been advised that the offer and
issuance of the shares of the Company have not been registered under the Act;

(d) represents and warrants that the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by such Shareholder will not (i) result in a violation of
or be in conflict with or constitute, with or without the passage of time or
giving of notice, a default under any instrument, judgment, order, writ, decree
or

3
<PAGE> 4
contract to which such Shareholder is subject, (ii) result in the creation of
any lien, charge or encumbrance upon any assets of such Shareholder, or (iii)
violate any law, rule or regulation applicable to such Shareholder; and

(e) represents and warrants that such Shareholder has the
power and authority to execute this Agreement and to consummate the
transactions contemplated hereby.

The Shareholders jointly represent and warrant that the Subsidiaries
Stock shall be all of the issued and outstanding shares of capital stock of the
Subsidiaries.

5. Additional Representations and Warranties. The Shareholders,
jointly and severally, further represent and warrant to the Company that the
following matters are true as of the date hereof and at Closing:

(a) Organization. Based on their review of the organizational
documents of the Subsidiaries and certificates of good standing and foreign
qualification from the relevant jurisdictions, (i) each of the Subsidiaries is
duly organized and validly existing and in good standing under the laws of the
state of its incorporation and has all requisite power and authority to own,
lease and operate its properties and assets as they are now owned, leased and
operated and carry on its business as now conducted and presently proposed to
be conducted; and (ii) each of the Subsidiaries is duly qualified, licensed or
admitted to do business and is in good standing in those jurisdictions in which
the ownership, use, or leasing of its assets and properties, or the conduct or
nature of its business makes such qualification, licensing or admission
necessary, except for failures to be so qualified, licensed or admitted and in
good standing individually or in the aggregate would not have a material
adverse effect on the assets, business, operations, income, condition
(financial or otherwise) or prospects of such Subsidiary (a "Material Adverse
Effect").

(b) Consents; Authority. No consent of any person, judicial
or administrative body, governmental or regulatory authority, or other party to
the execution, delivery and performance by the Shareholders of this Agreement
and their obligations hereunder is required.

(d) No Material Adverse Change. To the best of each
Shareholder's knowledge, since December 31, 1996, there has been no material
adverse change in the assets, properties, business, operations, income or
condition (financial or otherwise) of any Subsidiary, nor is any such change
threatened, nor has there been any damage, destruction or loss which could have
a Material Adverse Effect, whether or not covered by insurance.

(e) Contracts and Other Agreements. Each material contract
and other material agreements to which each of the Subsidiaries is a party and
which are utilized in the conduct of its business is valid, subsisting, in full
force and effect and binding upon each of the Subsidiaries, and, the
Shareholders have no knowledge that such material agreements are not binding
upon the other parties thereto in accordance with their terms and each of the
Subsidiaries has satisfied in

4
<PAGE> 5
full or provided for all of its liabilities and obligations thereunder
requiring performance prior to the date hereof in all material respects, is not
in default under any of them, nor does any condition exist that with notice or
lapse of time or both would constitute such a default.

(f) Financial Statements. The unaudited balance sheet of each
of the Subsidiaries as of June 30, 1997 and the related statements of income
for the period then ended, true and complete copies of which have heretofore
been delivered to the Company, present fairly, in all material respects, the
financial position of each of the Subsidiaries as of such date and the results
of operations of each of the Subsidiaries for the period then ended.

(g) Undisclosed Liabilities. Except as disclosed on Schedule
5(k), no Subsidiary has any liabilities whether or not of a kind required by
generally accepted accounting principles to be set forth on a financial
statement, other than (i) liabilities incurred since December 31, 1996 in the
ordinary course of business (none of which is a liability for breach of
contract, breach of warranty, tort, infringement, claim or lawsuit), or (ii)
liabilities disclosed and reflected as liabilities on the audited financial
statements of the Subsidiaries for the fiscal year ended December 31, 1996.

(h) Legal Proceedings. There are no outstanding orders by
which the Shareholders or the Subsidiaries or any of their securities, assets,
properties or businesses, as applicable are bound. There is no action or
proceeding pending or, to the knowledge of the Shareholders, threatened
(whether or not the defense thereof or liabilities in respect thereof are
covered by insurance) against or affecting the Subsidiaries or any of their
assets, properties or businesses, nor are there any facts which are likely to
give rise to any such action or proceeding which if adversely decided, would
have a Material Adverse Effect.

(i) Assets. The assets of the Subsidiaries will, as of the
Closing Date, enable the Subsidiaries to conduct their business in
substantially the same manner as it is being conducted on the date hereof.

(j) Employee Relations. No Subsidiary is a party to, and
there does not otherwise exist, any agreement with any labor organization, or
any collective bargaining or similar agreement with respect to employees of the
Subsidiaries. There are no complaints, grievances or arbitrations, employment-
related litigation, administrative proceedings or controversies either pending
or, to the best knowledge of the Shareholders, threatened, involving any
employee, applicant for employment, or former employee of any Subsidiary
against any Subsidiary.

(k) Licenses and Permits. The Subsidiaries possess all
material government permits, licenses, registrations and other governmental
consents and authorizations (federal, state, local and foreign) which are
necessary for the conduct of their business. All such permits are in full
force and effect and in good standing. No Subsidiary has received any notice
of any claim of revocation or any such permits nor has knowledge of any event
which might give rise to such a claim.

(l) Compliance with Laws. To the best of the Shareholders
knowledge, each of the Subsidiaries is in compliance in all material respect
with, and not in violation of any, and

5
<PAGE> 6
has not received any claim or notice that it is not in compliance in any
material respect with, or that it is in violation in any material respect of,
any law or order to which the Subsidiaries or any of their businesses,
operations, assets or properties (including the use and occupancy thereof) are
subject.

(m) United States Person. Each of the Shareholders is a
"United States Person" within the meaning of Section 1445(f)(3) of the Internal
Revenue Code of 1986, as amended, and shall execute and deliver an "Entity
Transferor" certification at Closing.

(n) Insurance. Each of the Subsidiaries is insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which it
is engaged.

6. Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall be held at the offices of Jenkens &
Gilchrist, 1445 Ross Avenue, Suite 3200, Dallas, Texas 75202, simultaneously
with the consummation of the IPO, at which time the transactions contemplated
hereby shall be deemed to be effective. At the Closing:

(a) The Shareholders shall deliver to the Company:

(i) certificates, duly endorsed for transfer,
representing the Subsidiaries Stock; and

(ii) such other documents as the Company shall
reasonably request.

(b) The Company shall issue and deliver to each of the
respective Shareholders:

(i) the Formation Notes set forth in Section 2 hereof,
and

(ii) as applicable, a certificate or certificates
representing the shares of common stock of the Company set forth in
Section 2 hereof.

7. Survival of Representations and Warranties; Obligation of
Shareholders to Indemnify.

(a) The representations and warranties of the Shareholders set
forth in Section 4 of this Agreement shall survive Closing. The
representations and warranties of the Shareholders set forth in Section 5 of
this Agreement shall survive Closing for a period of two years after the
Closing.

(b) Subject to Section 7(a), the Shareholders agree to
indemnify and hold harmless the Company, its directors, officers and agents (in
their capacity as such) from and against any costs and expenses (including,
without limitation, the reasonable fees, disbursements and other charges of
counsel) based upon, arising out of or otherwise in respect of any inaccuracy
in or any breach of any representations, warranty, covenant or agreement of the
Shareholders contained in this Agreement or the enforcement of this Agreement.

6
<PAGE> 7
(c) Notwithstanding anything contained herein to the contrary,
the representations and warranties set forth in Section 5 hereof made by Cohen
shall relate solely to Quality Home Care, Inc., and not to any of the other
Subsidiaries, and shall be several and not joint.

8. Repayment of Formation Notes. Immediately following the
consummation of the IPO, the Company shall repay the Formation Notes in full
from the net proceeds of the IPO.

9. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telecopied or
sent by recognized overnight courier. Any such notice shall be deemed given
when so delivered personally or telecopied or, if delivered by recognized
overnight courier, one day after the date of delivery to such courier, to the
attention of each of the parties at 14160 Dallas Parkway, Suite 300, Dallas,
Texas 75240. Any party may change such party's address for notice hereunder by
notice to the other parties in accordance with this Section 9.

10. Termination. This Agreement may be terminated at the election of
any party upon written notice to the other parties if the IPO shall not have
been consummated on or before December 31, 1997, or such later date as the
parties may hereafter agree and, if so terminated, no party shall have any
further liability or obligation hereunder.

11. Waivers and Amendments. This Agreement may be amended, modified,
superseded or canceled, and the terms and conditions hereof may be waived, only
by a written instrument signed by the parties or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right or remedy hereunder shall operate as a wavier thereof, nor shall any
waiver on the part or any party of any such right or remedy, nor any single or
partial exercise of any such right or remedy preclude any other or further
exercise thereof or the exercise of any other right or remedy.

12. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
agreements made and to be performed entirely within such state.

13. Assignment. This Agreement, and any rights or obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other parties.

14. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all such counterparts shall
together constitute one and the same instrument.

7
<PAGE> 8
IN WITNESS WHEREOF, each party hereto has executed or caused the
execution of this Agreement as of the date first above written.

CAPITAL SENIOR LIVING CORPORATION

By: /s/ Jeffrey L. Beck
------------------------------
Name: Jeffrey L. Beck
Title: Chief Executive Officer

/s/ Jeffrey L. Beck
-------------------------------------
JEFFREY L. BECK

/s/ James A. Stroud
-------------------------------------
JAMES A. STROUD

SENIOR LIVING TRUST

By: /s/ James A. Stroud
------------------------------
James A. Stroud

/s/ Lawrence A. Cohen
-------------------------------------
LAWRENCE A. COHEN

<PAGE> 1
EXHIBIT 10.3

STOCK PURCHASE AND
STOCKHOLDERS' AGREEMENT

THIS STOCK PURCHASE AND STOCKHOLDERS' AGREEMENT (this "Agreement"), is
entered into as of this 1st day of November, 1996, by and among Capital Senior
Living Corporation, a Delaware corporation (the "Company"), Jeffrey L. Beck, an
individual residing in Texas ("Beck"), Senior Living Trust, a Texas trust
("SLT"), and Lawrence Cohen, an individual residing in New York ("Cohen" and
with Beck and SLT, the "Stockholders").

RECITALS:

A. Each of the Stockholders is now or may hereafter be the owner
of shares of the Company's Common Stock, $.01 par value per share (the
"Shares," which shall include all Shares now owned or hereafter acquired by the
Stockholders and any options, warrants or securities convertible into Common
Stock now owned or hereafter acquired by the Stockholders).

B. Each of the Stockholders and the Company desire to be granted
the rights created herein.

NOW, THEREFORE, in consideration for the mutual promises and covenants
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the undersigned parties
hereto agree as follows:

I. PURCHASE AND SALE; CLOSING

1.1 AGREEMENT TO SELL AND PURCHASE. Upon the basis of the
representations and warranties and subject to the terms and conditions set
forth in this Agreement, each Stockholder agrees to purchase, and the Company
agrees to sell and issue to each Stockholder, for the consideration specified
in Section 1.2 hereof, 560,000 Shares.

1.2 PURCHASE PRICE; CLOSING. The aggregate purchase price for the
Shares to be purchased by each Stockholder shall be the sum of $.01 multiplied
by the number of Shares to be purchased by each Stockholder as set forth in
Section 1.1 hereof, and shall be payable by the delivery to the Company of each
Stockholder's check at the closing of the sale and purchase of the Shares to be
purchased by each Stockholder under this Agreement (the "Closing") which will
take place concurrently with the execution hereof.

1.3 DELIVERY OF STOCK. At the Closing, except for the Escrow
established in Section 5.2(d), the Company will deliver to each Stockholder
certificates representing the Shares being acquired by each Stockholder upon
payment of the purchase price for such Shares in accordance with the terms of
Section 1.2.
<PAGE> 2
II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to each Stockholder as follows:

2.1 DUE AUTHORIZATION. The Company has the requisite legal right
and power and all authority and approvals required to enter into, execute and
deliver this Agreement and to perform fully its obligations hereunder. This
Agreement has been duly executed and delivered and constitutes the valid and
binding obligation of the Company enforceable against it in accordance with its
terms.

2.2 DUE ORGANIZATION OF THE COMPANY. The Company is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware, and is qualified to do business in every state where the
nature and/or extent of its operations and/or property require such
qualification.

2.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 40,000,000 shares of Common Stock, $.01 par value per share, of
which the 1,680,000 shares of Common Stock issued hereunder are presently the
only validly issued and outstanding shares of the Company. Other than as
provided in Section 1.1 herein, there are no outstanding or existing
obligations or commitments, options, contracts, or conversion rights with
respect to the issuance of any of the Company's Common Stock, nor does the
Company have any obligations or commitments to create any such options,
contracts, commitments, or conversion rights.

III. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS

Each Stockholder, severally and not jointly, represents and warrants
to the Company and to each other Stockholder as follows:

3.1 DUE AUTHORIZATION. The Stockholder has the requisite legal
right and power and all authority and approvals required to enter into, execute
and deliver this Agreement and to perform fully his obligations hereunder.
This Agreement has been duly executed and delivered and constitutes the valid
and binding obligation of the Stockholder enforceable against him in accordance
with its terms.

3.2 SECURITIES ACT. The Stockholder understands that the Shares
acquired by him have not been registered under the Securities Act of 1933, as
amended (the "Securities Act") or registered or qualified under any state
securities laws, on the basis of a claim of exemption from the registration
requirements of the Securities Act and the registration or qualification
requirements of applicable state securities laws, and that said Shares cannot
be transferred unless they are subsequently registered under the Securities Act
and qualified and registered under applicable state securities laws or an
exemption from registration and qualification is available. The Stockholder is
acquiring the Shares solely for his own account and not with a view to or for
resale in connection with any distribution thereof within the meaning of the
Securities Act or any

2
<PAGE> 3

applicable state securities laws. The Stockholder is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act. The Stockholder understands that each certificate representing Shares
will bear appropriate state "blue sky" legends and a legend substantially to
the effect that:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION
THAT REGISTRATION IS NOT REQUIRED UNDER APPLICABLE SECURITIES LAWS."

3.3 SOPHISTICATED INVESTOR; INFORMATION. The Stockholder has such
knowledge and experience in financial and business matters in general, and in
investments of the type of the investment in the Company in particular, that
the Stockholder is capable of evaluating the merits and risks of the
prospective investment. The Stockholder's financial condition is such that the
Stockholder has no need for liquidity with respect to his investment in the
Company to satisfy any existing or contemplated undertaking or indebtedness.
The Stockholder is able to bear the economic risk of his investment in the
Company for an indefinite period of time, including the risk of losing all of
his investment. By reason of the Stockholder's knowledge and experience in
business and financial matters, the Stockholder has acquired the capacity to
protect his own interest in investments of this nature and is capable of
evaluating the risks, merits and other facets of this investment. The Company
has made available to the Stockholder such information regarding the Company,
its properties, and its business as the Stockholder has requested. The
Stockholder has been given the opportunity to request such additional
information as he requires in order to evaluate the merits and risks of this
investment and to ask questions of and receive satisfactory answers from
officers of the Company regarding the Company and the proposed investment by
the Stockholder in the Shares.

IV. CERTAIN AGREEMENTS REGARDING SHARES

4.1 RIGHT OF FIRST REFUSAL.

(a) In the event that Cohen (or his Permitted Transferees
(as defined herein)) proposes to transfer any of his Shares to other than a
Permitted Transferee, Cohen or his Permitted Transferees shall give the Company
written notice of the price, terms and conditions of the proposed sale. The
Company shall have fifteen (15) days from the date of receipt of any such
notice to agree to purchase up to all of such securities, for the price and
upon the terms and conditions specified in the notice, by delivering written
notice to Cohen or his Permitted Transferee stating therein the quantity of
securities to be purchased up to all of such securities.

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<PAGE> 4

(b) In the event that the Company determines not to
purchase all of the Shares that Cohen or his Permitted Transferees propose to
transfer within the fifteen (15) day period specified in Section 4.1(a) hereof,
Cohen or his Permitted Transferees shall then give the other Stockholders
(and/or such other Stockholders' Permitted Transferees) (collectively, the
"Eligible Offerees") written notice of the price, terms and conditions of the
proposed sale (which shall be the same price, terms and conditions specified in
the notice to the Company pursuant to Section 4.1(a) above). Each Eligible
Offeree shall have fifteen (15) days from the date of receipt of any such
notice to agree to purchase up to his or her Remaining Pro Rata Share (as
defined herein) of such securities, for the price and upon the terms and
conditions specified in the notice, by giving written notice to Cohen or his
Permitted Transferees stating therein the quantity of securities to be
purchased up to such person's Remaining Pro Rata Share. If any Eligible
Offeree fails to agree to purchase its full Remaining Pro Rata Share within
such fifteen (15) day period, Cohen or his Permitted Transferees selling such
Shares will give the Eligible Offerees who did so agree (the "Electing
Offerees") notice of the number of Shares which were not subscribed for. Such
notice may be by telephone if followed by written confirmation within two (2)
days. The Electing Offerees shall have five (5) days from the date of such
second notice to agree to purchase their Remaining Pro Rata Share (or such
greater amount as such Electing Offerees agree upon) of all or any part of the
securities not purchased by such other Eligible Offerees. For purposes of the
second election under this Section 4.1(b) shares held by Eligible Offerees
other than Electing Offerees shall be excluded from Section 6.6(b)(ii) for the
definition of a "Remaining Pro Rata Share."

(c) Notwithstanding anything to the contrary in this
Section 4.1, the Company and the Eligible Offerees may not in the aggregate
purchase less than all of the Shares proposed to be transferred pursuant to the
notice to the Company pursuant to Section 4.1(a) above.

(d) Subject to the provisions of Section 4.2, in the
event the Company and the Eligible Offerees fail to purchase all of the Shares
proposed to be transferred within the said fifteen (15) day period in the case
of the Company, plus the fifteen (15) day period and the five (5) day period
specified above in the case of the Eligible Offerees and Electing Offerees,
respectively, Cohen or his Permitted Transferees shall (i) give notice to all
Eligible Sellers (as defined herein) and (ii) have ninety (90) days thereafter
to sell the Shares proposed to be transferred at the price and upon the terms
and conditions no more favorable to the purchasers of such securities than
specified in the notice to the Company pursuant to Section 4.1(a) above. In
the event Cohen or his Permitted Transferees have not sold the securities
within said ninety (90) day period, Cohen or his Permitted Transferees shall
not thereafter sell any of their securities without first offering such
securities in the manner provided above.

4.2 RIGHT OF PARTICIPATION. Notwithstanding the foregoing Section
4.1, neither Cohen nor his Permitted Transferees (whether the first or a
subsequent Permitted Transferee) may sell, assign or transfer any of his Shares
until the remaining Stockholders (and/or such other Stockholders' Permitted
Transferees) (collectively, the "Eligible Sellers") shall have been given the
opportunity, exercisable within twenty (20) days from the date of notice to the
Eligible Sellers

4
<PAGE> 5

by Cohen or his Permitted Transferees, to sell to the proposed transferee or
transferees, upon the same terms and conditions offered to Cohen or his
Permitted Transferees, his Co-Sale Pro Rata Share (as defined herein) of the
Shares proposed to be sold. If an Eligible Seller fails to notify Cohen or his
Permitted Transferees within twenty (20) days after the notice given pursuant
hereto, he shall be deemed to have waived his right under this Section 4.2.
Any sale or transfer made pursuant to this Section 4.2 shall be consummated
within seventy (70) days of the date of the notice given pursuant to Section
4.1(d) above and shall be conditioned upon the agreement of the proposed
transferee or transferees that such proposed transferee or transferees will
purchase each Eligible Seller's Co-Sale Pro Rata Share of the Shares proposed
to be sold.

4.3 EXCEPTIONS. Notwithstanding anything in Section 4.1 and
Section 4.2 to the contrary, the restrictions set forth in Section 4.1 and
Section 4.2 shall not apply in the following case: Cohen may transfer any
Shares to a Permitted Transferee provided that such Permitted Transferee agrees
to be bound by this Agreement.

4.4 PROHIBITED STOCK SALES. Notwithstanding anything else to the
contrary in this Agreement, neither Cohen nor his Permitted Transferees shall
transfer any Shares to any person or entity determined by the other parties to
be a competitor of the Company.

4.5. LEGENDS. All certificates of Cohen or his Permitted
Transferees representing any Shares subject to the provisions of this Agreement
shall have endorsed thereon a legend to substantially the following effect:

"THE RIGHT TO SELL, TRANSFER OR OTHERWISE DISPOSE OF OR PLEDGE
THE SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN
RESTRICTIONS, WHICH INCLUDE CO-SALE AND RIGHT OF FIRST REFUSAL
RESTRICTIONS ON THE SALE OF THE SHARES, SET FORTH IN A STOCKHOLDERS'
AGREEMENT. A COPY OF SUCH AGREEMENT IS ON FILE AT THE CORPORATION'S
PRINCIPAL PLACE OF BUSINESS AND ITS REGISTERED OFFICE."

4.6. TRANSFER OF STOCK. The Company shall not: (a) permit any
transfer on its books of any Shares held by Cohen or his Permitted Transferees
which shall have been sold or transferred in violation of any of the provisions
set forth in this Agreement or (b) treat as an owner of such Shares or accord
the right to vote as an owner or to pay dividends to any transferee to whom
such Shares shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement.

V. OTHER AGREEMENTS REGARDING THE SHARES

5.1 CALL RIGHTS. If prior to the third anniversary of the date of
this Agreement the Company has not completed an initial public offering of its
Common Stock, the Company shall have the right to call ("Call") from Cohen or
his Permitted Transferees all or part of the Shares

5
<PAGE> 6

held by Cohen or his Permitted Transferees on the Call Date (as defined below)
(the "Call Securities") pursuant to the following terms:

(a) In the event the Company wishes to exercise its right
to Call the Call Securities, the Company shall notify Cohen or his Permitted
Transferees at least thirty (30) days prior to the effective Call Date of its
intention to exercise its Call right, the number of the Call Securities, and
its intended Call Date, which date shall be no more than one hundred twenty
(120) days from the date of the notice. For purposes of this Section 5.1, the
term "Call Date" shall mean each date on which the Company exercises its right
to Call pursuant to this Section 5.1, and the Company shall be deemed to have
exercised a Call right only upon the closing of such Call right as specified in
Section 5.1(c) hereto.

(b) The purchase price per share (the "Call Price") of
the Call Securities shall be equal to the Company's consolidated gross revenue
determined in accordance with generally accepted accounting principles for the
previous twelve (12) months multiplied by two (2), and then divided by the
total outstanding shares of Common Stock of the Company.

(c) On each Call Date, the Call closing shall occur at
the Company's principal office. At the Call closing, to the extent applicable,
Cohen or his Permitted Transferees shall deliver the Call Securities being
sold, duly endorsed in blank, accompanied by such supporting documents as may
be necessary to pass to the Company good title to the Call Securities, free and
clear of all liens, claims and encumbrances. In consideration therefor, the
Company shall deliver to Cohen or his Permitted Transferees payment, by
certified check, cashier's check or wire transfer, of the aggregate Call Price.

(d) For purposes hereof, an initial public offering of
the Company's Common Stock shall not be authorized and completed unless such
offering has been approved by the Stockholders holding at least a majority of
the issued and outstanding shares of the Company's Common Stock as well as any
other required approvals.

5.2 PARTIAL CALL RIGHTS. If on or prior to any of the dates
indicated below, the Company has not completed an initial public offering of
its Common Stock or has not completed a Private Sale (as defined in Section 5.6
hereof), the Company shall have the right to call ("Partial Call") from Cohen
and his Permitted Transferees the number of shares of the Company's Common
Stock ("Partial Call Securities") on the Partial Call Dates (as defined below)
pursuant to the following terms:

(a) The Company shall have the right to make a Partial
Call for up to the following number of Partial Call Securities on the dates
indicated below ("Partial Call Dates"):

6
<PAGE> 7

<TABLE>
<CAPTION>
Partial Call Dates Number of Partial Call Securities
------------------ ---------------------------------
<S> <C>
September 30, 1997 9260
December 31, 1997 9260
March 31, 1998 9260
June 30, 1998 9260
September 30, 1998 9260
December 31, 1998 9260
March 31, 1999 9260
June 30, 1999 9260
September 30, 1999 9253
</TABLE>

(b) In the event the Company wishes to exercise its right
to Partial Call the Partial Call Securities, the Company shall notify Cohen or
his Permitted Transferees at least ten (10) days prior to the Partial Call Date
of its intention to exercise its Partial Call right, the number of the Partial
Call Securities, and its intended closing date, which date shall be no more
than sixty (60) days from the date of the notice. For purposes of this Section
5.2, the Company shall be deemed to have exercised a Partial Call right only
upon the closing of such Partial Call right as specified in Section 5.2(d)
hereto.

(c) The purchase price per share (the "Partial Call
Price") of the Partial Call Securities shall be equal to the Company's
consolidated gross revenue determined in accordance with generally accepted
accounting principles for the previous twelve (12) months multiplied by two
(2), and then divided by the total outstanding shares of Common Stock of the
Company.

(d) On each closing date, the Call closing shall occur at
the Company's principal office. At the Call closing, to the extent applicable,
the escrow ("Escrow") established for such purposes (into which 83,333 Shares
shall be delivered by Cohen on the date hereof) shall deliver the Partial Call
Securities being sold, duly endorsed in blank, accompanied by such supporting
documents as may be necessary to pass to the Company good title to the Partial
Call Securities, free and clear of all liens, claims and encumbrances. In
consideration therefor, the Company shall deliver to Cohen or his Permitted
Transferees payment, by certified check, cashier's check or wire transfer, of
the aggregate Partial Call Price.

5.3 REGISTRATION RIGHTS.

(a) The first time that the Company decides to register
any of its Common Stock or securities convertible into or exchangeable for
Common Stock under the Securities Act on a form suitable for an offering for
cash, other than a registration solely to implement an employee benefit plan or
a transaction to which Rule 145 or any other similar rule of the Securities and
Exchange Commission (the "Commission") is applicable, the Company will promptly
give written notice to Cohen, and the Company will use best efforts to effect
the registration under the Securities Act of up to the number of Shares
remaining in the Escrow that Cohen requests be

7
<PAGE> 8

included in such registration by a written notice delivered to the Company
within fifteen (15) days after the notice given by the Company.

(b) If the registration involves an underwritten public
offering, the Company will not be required to register such Shares in excess of
the amount that the principal underwriter reasonably and in good faith
recommends may be included in such offering (a "Cutback"). If such a Cutback
occurs, the number of Shares that are entitled to be included in the
registration and underwriting shall first be allocated to the Company for
securities being sold for its own account and thereafter shall be allocated
among the holders requesting inclusion in the registration pro rata on the
basis of the number of shares each requesting holder requests be included bears
to the total number of shares of all requesting holders (other than the
Company) that have been requested to be included in such registration.

(c) If the Company elects to terminate any registration
filed under this Section 5.3, the Company will have no obligation to register
the securities sought to be included by Cohen or others in such registration.
In connection with a registration made by the Company pursuant to this Section
5.3, all expenses of the Company for such registration and offering and the
reasonable fees and expenses of not more than one independent counsel for
Cohen, not to exceed $5,000, will be borne by the Company (except that Cohen
will bear underwriting discounts and commissions attributable to his Shares
being registered and transfer taxes on Shares being sold by him).

5.4 ANTI-DILUTION RIGHTS. In the event the Company issues any
shares of Common Stock subsequent to the date of this Agreement, the Company
shall offer additional shares of Common Stock to each Stockholder to the
minimum extent necessary to allow each Stockholder to maintain ownership of at
least 2.8% of the issued and outstanding shares of Common Stock of the Company;
provided, however, the 2.8% minimum applicable to Cohen and his Permitted
Transferees shall be reduced by any shares purchased by the Company pursuant to
Section 5.2 hereof.

5.5 NO CAPITAL CONTRIBUTION OBLIGATION. Neither Beck nor SLT
shall have any obligation, either express or implied, to make any additional
contributions to the Company or to purchase any additional Shares of the
Company. Neither Beck nor SLT is representing or warranting any minimum amount
of capitalization or net worth of the Company, either now or in the future.

5.6. RIGHT TO SELL SHARES. In the event that Beck and SLT sell for
cash or promissory notes (but not including any stock received in a merger or
other combination) substantially all of their stock in the Company or in its
Designated Affiliates (as hereinafter defined) or receive a distribution of the
proceeds from a sale for cash or promissory notes (but not including any stock
received in a merger or other combination) of substantially all of the assets
of the Company or its Designated Affiliates before an initial public offering
of the Common Stock of the Company or its Designated Affiliates (a "Private
Sale"), Cohen shall have the right to sell his shares of

8
<PAGE> 9

Common Stock to the Company just prior to the closing of the Private Sale at a
price equal to five percent (5%) of the net proceeds of the Private Sale
received in cash or promissory notes, subject to proportionate reduction as
provided in Section 5.2 hereof. As used herein, "Designated Affiliate" of the
Company shall mean Capital Senior Living, Inc., Capital Senior Development,
Inc., Capital Senior Management 1, Inc., Capital Senior Management 2, Inc. or
other affiliated entities formed to provide similar services, such as Capital
Senior Management 3, Inc., and Quality Home Health Care, Inc.

VI. MISCELLANEOUS

6.1 ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements between or among the parties, whether written or oral, with respect
to the subject matter hereof.

6.2 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
agreements made and to be performed entirely within such state, without regard
to its conflicts of laws principles.

6.3 COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.

6.4 PARTIES BOUND. This Agreement shall be binding upon and inure
to the benefit of the Company, the Stockholders and their respective heirs,
administrators, legal representatives, successors, and assigns.

6.5 SEVERABILITY. In the event that any provision of this
Agreement is held be illegal, invalid or unenforceable under present or future
laws, then (a) such provision shall be fully severable and this Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable
provision were not a part hereof; (b) the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by
such illegal, invalid or unenforceable provision or by its severance from this
Agreement; and (c) there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and still be legal, valid and
enforceable.

6.6 DEFINITIONS.

(a) A "Permitted Transferee" shall mean a Stockholder's
or any Permitted Transferee's, as the case may be (and only upon the transfer
of any Shares to such person or trust), spouse and descendants (whether natural
or adopted), any spouses of such descendants, or any trust for the benefit of
such person or persons or any of the foregoing, provided that such Permitted
Transferee agrees to be bound by the terms of this Agreement.

9
<PAGE> 10

(b) A "Remaining Pro Rata Share" shall mean the ratio
that (i) the sum of the number of shares of Common Stock then held by each
Eligible Offeree and the number of shares of Common Stock issuable upon
exercise of any options and warrants and upon conversion of any convertible
stock then held by such Eligible Offeree bears to (ii) the sum of the total
number of shares of Common Stock then held by all Eligible Offerees and the
number of shares of Common Stock issuable upon exercise of any options and
warrants and upon conversion of all then outstanding convertible stock held by
all Eligible Offerees.

(c) A "Co-Sale Pro Rata Share" shall mean the ratio that
(i) the sum of the number of shares of Common Stock then held by the Eligible
Seller and the number of shares of Common Stock issuable upon exercise of any
options and warrants and upon conversion of any convertible stock then held by
such Eligible Seller bears to (ii) the sum of the total number of shares of
Common Stock then held by the Eligible Sellers and the number of shares of
Common Stock issuable upon exercise of any options and warrants and upon
conversion of all then outstanding convertible stock held by the Eligible
Sellers plus the number of shares of Common Stock then held by the Stockholder
or Permitted Transferee proposing to sell his Shares.

6.7 CHANGES IN STOCK. If, from time to time during the term of
this Agreement:

(a) there is a dividend of any security, stock split or
other change in the character or amount of any of the outstanding securities of
the Company, or

(b) there is any consolidation or merger immediately
following which stockholders of the Company hold more than 50% of the voting
equity securities of the surviving corporation,

then, in such event, any and all new, substituted or additional securities or
other property to which any Stockholder is entitled by reason of his ownership
of the Shares shall be immediately subject to the provisions of this Agreement
and be included in the word "Shares," as applicable, for all purposes of this
Agreement with the same force and effect as the Shares presently subject to
this Agreement and with respect to which such securities or property were
distributed.

6.8 TERMINATION. This Agreement shall terminate upon the earlier
to occur of:

(a) an agreement in writing by the Company and the
Stockholders (and/or their Permitted Transferees, as the case may be);

(b) the completion of an initial public offering of the
Common Stock of the Company; or

(c) the consolidation, merger (but only with respect to a
consolidation or merger pursuant to which stockholders of the Company
(determined prior to such consolidation or merger)

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<PAGE> 11

hold less than 50% of the voting equity of the surviving corporation) or sale
of all or substantially all of the assets of the Company.

6.9 AMENDMENT. Any provision of this Agreement may be amended or
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company and the Stockholders. Any amendment or waiver effected
in accordance with this Section 6.9 shall be binding upon each Stockholder,
each Permitted Transferee, and the Company.

6.10 SPECIFIC PERFORMANCE. The Company and the Stockholders agree
that the rights created by this Agreement are unique, and that the loss of any
such right is not susceptible to monetary quantification. Consequently, the
parties agree that an action for specific performance (including for temporary
and/or permanent injunctive relief) of the obligations created by this
Agreement is a proper remedy for the breach of the provisions of this
Agreement, without the necessity of proving actual damages. If the parties
hereto are forced to institute legal proceedings to enforce their rights in
accordance with the provisions of this Agreement, the prevailing party shall be
entitled to recover its reasonable expenses, including attorneys' fees, in
connection with any such action.

IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.

11
<PAGE> 12

CAPITAL SENIOR LIVING CORPORATION

By /s/ James A. Stroud
--------------------------------------
Name: James A. Stroud
-----------------------------------
Title: Chief Operating Officer
----------------------------------

/s/ Jeffrey L. Beck
----------------------------------------
Jeffrey L. Beck

SENIOR LIVING TRUST

By:
-------------------------------------
Trustee

/s/ Lawrence Cohen
----------------------------------------
Lawrence Cohen

<PAGE> 1

Exhibit 10.4

EXCHANGE AGREEMENT

Exchange Agreement ("Agreement") made effective this 30th day of June,
1997 by and among Lawrence Cohen, an individual residing at 41 Willow Road,
Woodsburgh, New York 11598 ("Cohen"), and Jeffrey L. Beck, with an address at
Capital Senior Living Corporation, 14160 Dallas Parkway, Suite 300, Dallas,
Texas 75240 ("Beck").

W I T N E S S E T H:

WHEREAS, Cohen desires to transfer and Beck desires to acquire
41,666.5 shares (the "Shares") of the capital stock of Capital Senior Living
Corporation, a Delaware corporation (the "Corporation"), owned by Cohen in
exchange for the Exchange Shares (as hereinafter defined) owned by Beck, on the
terms and subject to the conditions hereinafter set forth; and

NOW, THEREFORE, in consideration of the premises hereof and other good
and valuable consideration, and intending to be legally bound hereby, Cohen and
Beck hereby agrees as follows:

1. Exchange of Shares of the Corporation. Subject to the terms
and conditions hereof, Cohen hereby agrees to transfer, assign and convey to
Beck and Beck hereby agrees to accept from Cohen the Shares, and in exchange
therefor Beck agrees to transfer, assign and convey to Cohen the Exchange
Shares on the terms and conditions hereinafter set forth. At the Closing (as
hereinafter defined), Cohen will deliver the stock certificate representing the
Shares duly endorsed by Cohen to Beck.

2. Exchange of Exchange Shares. At the Closing, Beck shall
transfer, assign and convey to Cohen 75 shares (the "Exchange Shares") of the
capital stock of Quality Home Care, Inc., an Indiana corporation ("Quality
Home") owned by Beck in exchange for the Shares of the Corporation

1
<PAGE> 2
set forth in Section 1 hereof. At the Closing, Beck will deliver the stock
certificate representing the Exchange Shares duly endorsed by Beck to Cohen.

3. Adjustment in Number of Exchange Shares. Cohen and Beck
hereby acknowledge and agree that the number of Exchange Shares may be
increased or decreased immediately prior to an initial public offering of the
common stock of the Corporation to reflect the initial offering price of such
common stock of the Corporation in such initial public offering. The number of
Exchange Shares exchanged hereunder is intended to be valued in the formation
transaction immediately preceding such initial public offering at an amount
("Exchange Value") equal to 41,666.5 multiplied by an amount equal to the
initial public offering price of each share of the common stock of the
Corporation to be offered in such offering and therefor the number of Exchange
Shares shall be adjusted as necessary to equal the Exchange Value. Cohen and
Beck each agree to take such action as necessary to reflect any increase or
decrease in the number of Exchange Shares as provided herein.

4. Representations and Warranties Concerning the Transaction.

(a) REPRESENTATIONS AND WARRANTIES OF COHEN. Cohen
represents and warrants to Beck that the statements contained in this Section
4(a) are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were submitted for the date of this Agreement throughout this
Section 4(a)).

(i) AUTHORIZATION OF TRANSACTION. Cohen has full
power and authority to execute and deliver this Agreement and to perform his
obligations hereunder and this Agreement has been duly executed and delivered
by Cohen. This Agreement constitutes the valid and legally binding obligation
of Cohen, enforceable in accordance with its terms and conditions. To the best
of Cohen's knowledge, Cohen need not give any notice to, make any filing with,
or obtain any

2
<PAGE> 3
authorization, consent, or approval of, any government or governmental agency
or third party in order to consummate the transactions contemplated by this
Agreement, except for the Stock Purchase and Stockholders' Agreement entered
into as of the 1st day of November, 1996, by and among the Corporation, Senior
Living Trust ("Trust"), Beck and Cohen (the "Stockholder Agreement").

(ii) NONCONTRAVENTION. To the best of Cohen's
knowledge, neither the execution and the delivery of this Agreement by Cohen,
nor the consummation of the transactions contemplated hereby by Cohen, will (A)
violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental
agency, or court to which Cohen is subject, or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any part the right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, agreement or mortgage for borrowed money, instrument
of indebtedness, or other arrangement to which Cohen is a party or by which he
is bound or to which the Shares are subject, except for the Stockholder
Agreement.

(iii) SHARES. Cohen holds of record and owns
beneficially the Shares, free and clear of any restrictions on transfer,
claims, liens, security interests, encumbrances, options, warrants, rights,
contracts, calls, commitments, equities, and demands, except as set forth in
the Stockholder Agreement. Cohen is not a party to any option, warrant, right,
contract, call, put, or other agreement or commitment providing for the
disposition or acquisition of any capital stock of the Corporation, except as
set forth in the Stockholder Agreement. Upon payment for the Shares in
accordance with the terms hereof Beck will acquire good and clear title to all
of the Shares, all of which will be fully paid and non-assessable.

(b) REPRESENTATIONS AND WARRANTIES OF BECK. Beck
represents and warrants to Cohen that the statements contained in this Section
4(b) are correct and complete as of the date

3
<PAGE> 4
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section 4(b)).

(i) AUTHORIZATION OF TRANSACTION. Beck has full
power and authority to execute and deliver this Agreement and to perform his
obligations hereunder and this Agreement has been duly executed and delivered
by Beck. This Agreement constitutes the valid and legally binding obligation
of Beck, enforceable in accordance with its terms and conditions. To the best
of Beck's knowledge, Beck need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of, any government or
governmental agency or third party in order to consummate the transactions
contemplated by this Agreement.

(ii) NONCONTRAVENTION. To the best of Beck's
knowledge, neither the execution and the delivery of this Agreement by Beck,
nor the consummation of the transactions contemplated hereby by Beck, will (A)
violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental
agency, or court to which Beck is subject, or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, agreement or mortgage for borrowed money, instrument
of indebtedness, or other arrangement to which Beck is a party or by which it
is bound or to which any of its assets is subject.

(iii) EXCHANGE SHARES. Beck holds of record and
owns beneficially the Exchange Shares, free and clear of any restrictions on
transfer, claims, liens, security interest, encumbrances, option warrants,
rights, contracts, calls, commitments, equities and demands. Beck is not a
party to any option, warrant, right, contract, call, put, or other agreement or
commitment

4
<PAGE> 5
providing for the disposition or acquisition of any capital stock of Quality
Home. Upon payment for the Exchange Shares in accordance with the terms
hereof, Cohen will acquire good and clear title to all of the Exchange Shares,
all of which will be fully paid and non-assessable.

(c) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of Cohen and Beck
contained in this Agreement (or in any document delivered pursuant hereto)
shall survive the execution and delivery hereof and the Closing.

5. The Closing.

The closing ("Closing") shall take place effective as of June 30, 1997
("Closing Date").

6. Consent of Corporation and Other Shareholders.

Cohen and Beck acknowledge that the transfer of the Shares is subject
to restrictions set forth in the Stockholder Agreement. The Corporation,
Cohen, Beck and Trust hereby consent to the transfer of the Shares hereunder
and waive any rights whatsoever that the Corporation, Beck or Trust may have to
the Shares.

7. Initial Public Offering of the Corporation. If an initial
public offering of common stock of the Corporation is not completed by December
31, 1997, effective as of December 31, 1997, Cohen and Beck shall take all
actions necessary to have Cohen transfer, assign and convey back to Beck the
Exchange Shares and to have Beck transfer, assign and convey back to Cohen the
Shares.

8. Amendments to Stockholder Agreement. Section 5.3 of the
Stockholders Agreement concerning registration rights shall be deleted, except
that if the Shares and the Exchange Shares are reconveyed as provided in
Section 7 hereof, Section 5.3 of the Stockholder Agreement shall be
reinstituted and restored. Also, Section 5.4 of the Stockholder Agreement
provides anti-dilution rights to the stockholders. In recognition of the
exchange of shares set forth herein, the 2.8% minimum applicable to Cohen in
Section 5.4 shall be adjusted downward to take into account the

5
<PAGE> 6
Exchange Shares which Cohen is receiving hereunder, except that if the Shares
and the Exchange Shares are reconveyed as provided in Section 7 hereof, the
2.8% minimum applicable to Cohen in Section 5.4 shall be reinstituted and
restored.

9. General Provisions.

(a) This Agreement may be amended, modified or terminated
only by written instrument executed by all parties hereto.

(b) Any party hereto may at any time waive compliance by
the other with any covenants or conditions contained in this Agreement but only
by written instrument executed by the party waiving such compliance. No such
waiver, however, shall be deemed to constitute the waiver of any such covenant
or condition in any other circumstance or the waiver of any other covenant or
condition.

(c) If any provision of this Agreement shall finally be
determined to be unlawful, then such provision shall be deemed to be severed
from this Agreement and every other provision of this Agreement shall remain in
full force and effect.

(d) This Agreement is not intended to, and shall not,
create any rights in or confer any benefits upon any person other than the
parties hereto.

(e) The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rule of strict construction shall be applied against any party. The parties
intend that each representation, warranty, and covenant contained herein shall
have independent significance. If any party has breached any representation,
warranty, or covenant relating to the same subject matter as any other
representation, warranty or covenant (regardless of the relative levels of
specificity) which the party has not breached, it shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty or covenant.

6
<PAGE> 7
(f) All notices or other communications hereunder shall
be in writing and shall be deemed given on the date of delivery if delivered
personally or five days after deposit in a facility of the United States Post
Office if mailed by certified mail (return receipt requested) to the parties at
the addresses set forth above or at such other address as shall be specified by
like notice.

(g) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

(h) This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between Cohen and Beck, with respect to the subject matter hereof, except the
Stockholder Agreement and as specifically provided or otherwise referred to
herein. This Agreement shall be governed in all respects including validity,
interpretation and effect by the laws of the State of Delaware and shall be
binding upon and shall inure to the benefit of the parties hereto, their heirs,
administrators or executives, successors and assigns.

(i) The parties hereto agree that they will, from time to
time, execute and deliver any and all additional and supplemental instruments,
and do such other acts and things which may be reasonably necessary or
desirable to effect the purposes and intent of this Agreement, and the
consummation of the transactions contemplated hereby.

7
<PAGE> 8
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals the day and year first above stated.

/s/ LAWRENCE COHEN
--------------------------------------
Lawrence Cohen

/s/ JEFFREY L. BECK
--------------------------------------
Jeffrey L. Beck

Consented To:

Capital Senior Living Corporation

By: /s/ JEFFREY L. BECK
-----------------------------------
Jeffrey L. Beck

Senior Living Trust

By: /s/ TROY D. PHILLIPS
-----------------------------------
Troy D. Phillips, Trustee

<PAGE> 1

Exhibit 10.5

EXCHANGE AGREEMENT

Exchange Agreement ("Agreement") made effective this 30th day of June,
1997 by and among Lawrence Cohen, an individual residing at 41 Willow Road,
Woodsburgh, New York 11598 ("Cohen"), and James A. Stroud, with an address at
Capital Senior Living Corporation, 14160 Dallas Parkway, Suite 300, Dallas,
Texas 75240 ("Stroud").

W I T N E S S E T H:

WHEREAS, Cohen desires to transfer and Stroud desires to acquire
41,666.5 shares (the "Shares") of the capital stock of Capital Senior Living
Corporation, a Delaware corporation (the "Corporation"), owned by Cohen in
exchange for the Exchange Shares (as hereinafter defined) owned by Stroud, on
the terms and subject to the conditions hereinafter set forth; and

NOW, THEREFORE, in consideration of the premises hereof and other good
and valuable consideration, and intending to be legally bound hereby, Cohen and
Stroud hereby agrees as follows:

1. Exchange of Shares of the Corporation. Subject to the terms
and conditions hereof, Cohen hereby agrees to transfer, assign and convey to
Stroud and Stroud hereby agrees to accept from Cohen the Shares, and in
exchange therefor Stroud agrees to transfer, assign and convey to Cohen the
Exchange Shares on the terms and conditions hereinafter set forth. At the
Closing (as hereinafter defined), Cohen will deliver the stock certificate
representing the Shares duly endorsed by Cohen to Stroud.

2. Exchange of Exchange Shares. At the Closing, Stroud shall
transfer, assign and convey to Cohen 75 shares (the "Exchange Shares") of the
capital stock of Quality Home Care, Inc., an Indiana corporation ("Quality
Home") owned by Stroud in exchange for the Shares of the

1
<PAGE> 2
Corporation set forth in Section 1 hereof. At the Closing, Stroud will
deliver the stock certificate representing the Exchange Shares duly endorsed by
Stroud to Cohen.

3. Adjustment in Number of Exchange Shares. Cohen and Stroud
hereby acknowledge and agree that the number of Exchange Shares may be
increased or decreased immediately prior to an initial public offering of the
common stock of the Corporation to reflect the initial offering price of such
common stock of the Corporation in such initial public offering. The number of
Exchange Shares exchanged hereunder is intended to be valued in the formation
transaction immediately preceding such initial public offering at an amount
("Exchange Value") equal to 41,666.5 multiplied by an amount equal to the
initial public offering price of each share of the common stock of the
Corporation to be offered in such offering and therefor the number of Exchange
Shares shall be adjusted as necessary to equal the Exchange Value. Cohen and
Stroud each agree to take such action as necessary to reflect any increase or
decrease in the number of Exchange Shares as provided herein.

4. Representations and Warranties Concerning the Transaction.

(a) REPRESENTATIONS AND WARRANTIES OF COHEN. Cohen
represents and warrants to Stroud that the statements contained in this Section
4(a) are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were submitted for the date of this Agreement throughout this
Section 4(a)).

(iii) SHARES. Cohen holds of record and owns
beneficially the Shares, free and clear of any restrictions on transfer,
claims, liens, security interests, encumbrances, options, warrants, rights,
contracts, calls, commitments, equities, and demands, except as set forth in
the Stockholder Agreement. Cohen is not a party to any option, warrant, right,
contract, call, put, or other agreement or commitment providing for the
disposition or acquisition of any capital stock of the Corporation, except as
set forth in the Stockholder Agreement. Upon payment for the Shares in
accordance with the terms hereof Stroud will acquire good and clear title to
all of the Shares, all of which will be fully paid and non-assessable.

3
<PAGE> 4
(b) REPRESENTATIONS AND WARRANTIES OF STROUD. Stroud
represents and warrants to Cohen that the statements contained in this Section
4(b) are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout
this Section 4(b)).

(i) AUTHORIZATION OF TRANSACTION. Stroud has
full power and authority to execute and deliver this Agreement and to perform
his obligations hereunder and this Agreement has been duly executed and
delivered by Stroud. This Agreement constitutes the valid and legally binding
obligation of Stroud, enforceable in accordance with its terms and conditions.
To the best of Stroud's knowledge, Stroud need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of, any
government or governmental agency or third party in order to consummate the
transactions contemplated by this Agreement.

(ii) NONCONTRAVENTION. To the best of Stroud's
knowledge, neither the execution and the delivery of this Agreement by Stroud,
nor the consummation of the transactions contemplated hereby by Stroud, will
(A) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any government,
governmental agency, or court to which Stroud is subject, or (B) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any contract, agreement or mortgage for borrowed
money, instrument of indebtedness, or other arrangement to which Stroud is a
party or by which it is bound or to which any of its assets is subject.

(iii) EXCHANGE SHARES. Stroud holds of record and
owns beneficially the Exchange Shares, free and clear of any restrictions on
transfer, claims, liens, security interest,

4
<PAGE> 5
encumbrances, option warrants, rights, contracts, calls, commitments, equities
and demands. Stroud is not a party to any option, warrant, right, contract,
call, put, or other agreement or commitment providing for the disposition or
acquisition of any capital stock of Quality Home. Upon payment for the
Exchange Shares in accordance with the terms hereof, Cohen will acquire good
and clear title to all of the Exchange Shares, all of which will be fully paid
and non-assessable.

(c) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements of Cohen and Stroud
contained in this Agreement (or in any document delivered pursuant hereto)
shall survive the execution and delivery hereof and the Closing.

5. The Closing.

The closing ("Closing") shall take place effective as of June 30, 1997
("Closing Date").

6. Consent of Corporation and Other Shareholders.

Cohen and Stroud acknowledge that the transfer of the Shares is
subject to restrictions set forth in the Stockholder Agreement. The
Corporation, Cohen, Beck and Trust hereby consent to the transfer of the Shares
hereunder and waive any rights whatsoever that the Corporation, Beck or Trust
may have to the Shares.

7. Initial Public Offering of the Corporation. If an initial
public offering of common stock of the Corporation is not completed by December
31, 1997, effective as of December 31, 1997, Cohen and Stroud shall take all
actions necessary to have Cohen transfer, assign and convey back to Stroud the
Exchange Shares and to have Stroud transfer, assign and convey back to Cohen
the Shares.

5
<PAGE> 6
reinstituted and restored. Also, Section 5.4 of the Stockholder Agreement
provides anti-dilution rights to the stockholders. In recognition of the
exchange of shares set forth herein, the 2.8% minimum applicable to Cohen in
Section 5.4 shall be adjusted downward to take into account the Exchange Shares
which Cohen is receiving hereunder, except that if the Shares and the Exchange
Shares are reconveyed as provided in Section 7 hereof, the 2.8% minimum
applicable to Cohen in Section 5.4 shall be reinstituted and restored.

9. General Provisions.

(a) This Agreement may be amended, modified or terminated
only by written instrument executed by all parties hereto.

(d) This Agreement is not intended to, and shall not,
create any rights in or confer any benefits upon any person other than the
parties hereto.

6
<PAGE> 7
relating to the same subject matter as any other representation, warranty or
covenant (regardless of the relative levels of specificity) which the party has
not breached, it shall not detract from or mitigate the fact that the party is
in breach of the first representation, warranty or covenant.

(f) All notices or other communications hereunder shall
be in writing and shall be deemed given on the date of delivery if delivered
personally or five days after deposit in a facility of the United States Post
Office if mailed by certified mail (return receipt requested) to the parties at
the addresses set forth above or at such other address as shall be specified by
like notice.

(g) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

(h) This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between Cohen and Stroud, with respect to the subject matter hereof, except the
Stockholder Agreement and as specifically provided or otherwise referred to
herein. This Agreement shall be governed in all respects including validity,
interpretation and effect by the laws of the State of Delaware and shall be
binding upon and shall inure to the benefit of the parties hereto, their heirs,
administrators or executives, successors and assigns.

7
<PAGE> 8
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals the day and year first above stated.

/s/ LAWRENCE COHEN
--------------------------------------
Lawrence Cohen

/s/ JAMES A. STROUD
--------------------------------------
James A. Stroud

Consented To:

- -----------------------------------
Jeffrey L. Beck

Capital Senior Living Corporation

By:
--------------------------------
Jeffrey L. Beck

Senior Living Trust

By: /s/ TROY D. PHILLIPS
--------------------------------
Troy D. Phillips, Trustee

<PAGE> 1
Exhibit 10.7

SENIOR LIVING AGREEMENT

THIS SENIOR LIVING AGREEMENT ("Agreement") is made and entered into as
of _______________, 1997 by and between CAPITAL SENIOR LIVING, INC., a Texas
corporation, or is assigns (hereinafter called "CSL"), and NEW WORLD
DEVELOPMENT (CHINA) LIMITED, a Hong Kong company or its assigns (hereinafter
called "NWC").

RECITAL

WHEREAS, CSL and NWC wish to enter into an agreement whereby CSL and NWC
will jointly create an entity that will develop and operate senior living
projects in the People's Republic of China ("PRC").

NOW, THEREFORE, for and in consideration of the agreements contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, CSL and NWC hereby agree as follows:

1. Creation of NEWCO. CSL and NWC agree to form an entity to be
known as ___________________________ ("NEWCO") under the laws of the Cayman
Islands or such other nation as is mutually agreed to by CSL and NWC. The
parties hereto further agree that NEWCO shall have the following attributes:

(a) Duration. The period of NEWCO's duration shall be
perpetual.

(b) Principal Office. The principal office of NEWCO shall be
located in Hong Kong.

(c) Directors/Managers. The organizational document of NEWCO
shall name two (2) directors/managers from each of CSL and NWC. NEWCO's
organizational document and its constituent documents (referred to
herein as the "Constituent Documents") shall require that NWC shall have
majority control of NEWCO's director's positions.

(d) Unanimous Consent Required for Major Decisions. Unanimous
consent of the directors shall be required to make "major decisions."
Major decisions shall include the following:

(i) causing or permitting NEWCO to be a party to a
merger, consolidation, share exchange, or interest
exchange, or to convert into any other type of entity;

1
<PAGE> 2
(ii) causing or permitting NEWCO to incur debt or to
dispose of or encumber all or substantially all of
its assets;

(iii) approving capital budgets and operating budgets of
NEWCO;

(iv) causing or permitting NEWCO to enter into, cancel,
amend, or restate, or relinquish any material
rights under, any material contract or agreement;
and

(v) causing or permitting NEWCO to become bankrupt.

(e) Ownership Percentages. CSL shall own 49% and NWC shall
own 51% of NEWCO's equity. Such percentages are referred to herein as
"Ownership Percentages."

(f) Purpose. NEWCO's purpose shall be to develop and operate
senior living communities under the Homeowners Programme of the PRC,
which enable a group of independent elders to maintain their independent
life-style and at the same time enjoy family life with their children
and their families. Such senior living communities shall be located in
major PRC cities including, but not limited to, Guangzhou, Huizhou,
Wuhan, Bejing and Tianjin.

(g) Contributions. CSL and NWC shall agree to make pro rata
contributions to NEWCO upon the execution of NEWCO's Constituent
Documents.

(h) Distribution of Profits. CSL and NWC shall share NEWCO's
profits according to each party's Ownership Percentage.

2. Agreement Regarding Transfer of Ownership. CSL and NWC agree to
enter into an agreement (the "Ownership Agreement") whereby each will have a
right of first refusal to purchase the other's interest upon the other's
receipt of a bona fide offer for the same.

3. Agreement Regarding Day to Day Management of NEWCO. CSL and NWC
agree to enter into an agreement (the "Management Agreement") whereby CSL shall
provide management and operating services for the projects developed by NEWCO.

4. Agreement Regarding Expenses Related to Creation of NEWCO. All
costs and expenses, including attorney's fees, required for the formation and
organizing of NEWCO, shall be advanced by CSL and NWC according to each party's
Ownership Percentage. Each party agrees to bear its own costs that are related
to the negotiation of the terms of the Constituent Documents, the Ownership
Agreement and the Management Agreement.

5. Severability. A determination that any provision of this
Agreement is unenforceable or invalid shall not affect the enforceability or
validity of any other provision and

2
<PAGE> 3
any determination that the application of any provision of this Agreement to
any person or circumstance is illegal or unenforceable shall not affect the
enforceability or validity of such provision as it may apply to any other
persons or circumstances.

6. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All such counterparts shall be construed together and shall
constitute one instrument, but in making proof hereof it shall only be
necessary to produce one such counterpart.

7. Headings. The paragraph headings contained in this Agreement are
for convenience only and shall in no way enlarge or limit the scope or meaning
of the various and several paragraphs hereof.

8. Modification. This Agreement may only be modified by a written
instrument or instruments executed by the parties hereto. Any alleged
modification which is not so documented shall not be effective as to any party.

9. Entire Agreement. This Agreement constitutes the entire
understanding and agreement between CSL and NWC with respect to the
transactions contemplated herein and hereby supersedes all prior written or
oral understandings and agreements between CSL and NWC with respect thereto.

IN WITNESS WHEREOF, this Agreement is executed as of the date first
above written.

CAPITAL SENIOR LIVING, INC.,
a Texas corporation, or its assigns

By: /s/ Jeffrey L. Beck
----------------------------------
Name: Jeffrey L. Beck
Title: Chief Executive Officer

NEW WORLD DEVELOPMENT (CHINA)
LIMITED, a Hong Kong company or its
assigns

By: /s/ Douglas Chan
----------------------------------
Name: Douglas Chan
Title: Executive Director

<PAGE> 1
EXHIBIT 10.8

AMENDED AND RESTATED LOAN AGREEMENT

BETWEEN

LEHMAN BROTHERS HOLDINGS INC.,
D/B/A LEHMAN CAPITAL, A DIVISION OF
LEHMAN BROTHERS HOLDINGS, INC.

AND

CAPITAL SENIOR LIVING COMMUNITIES, L.P.

JUNE 30, 1997
<PAGE> 2
AMENDED AND RESTATED LOAN AGREEMENT
BETWEEN LEHMAN BROTHERS HOLDINGS INC.
D/B/A LEHMAN CAPITAL, A DIVISION OF
LEHMAN BROTHERS HOLDINGS INC.
AND
CAPITAL SENIOR LIVING COMMUNITIES, L.P.

<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Assignment of Landlord's Interest in Leases . . . . . . . . . . . 1
1.3 Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Canton Regency . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Cottonwood Village . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Debtor Relief Laws . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Existing Loan . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.10 Existing Loan Documents . . . . . . . . . . . . . . . . . . . . . 4
1.11 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 4
1.12 Financing Statements . . . . . . . . . . . . . . . . . . . . . . 4
1.13 Governmental Authority . . . . . . . . . . . . . . . . . . . . . 4
1.14 Governmental Requirements . . . . . . . . . . . . . . . . . . . . 4
1.15 The Harrison . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.16 HCP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.17 Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.18 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . 5
1.19 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.20 Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.21 Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.22 Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.23 Loan Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.24 Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.25 Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.26 NHP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.27 NHP Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.28 NHP Note Pledge . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.29 Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.30 Operators . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.31 Partnership Agreement . . . . . . . . . . . . . . . . . . . . . . 7
1.32 Partnership Interests . . . . . . . . . . . . . . . . . . . . . . 7
1.33 Partnership Pledge . . . . . . . . . . . . . . . . . . . . . . . 7
1.34 Partnership Properties . . . . . . . . . . . . . . . . . . . . . 7
1.35 Partnership Property Managers . . . . . . . . . . . . . . . . . . 7
</TABLE>

i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
1.36 Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.37 Repurchase Agreement . . . . . . . . . . . . . . . . . . . . . . 8
1.38 Security Agreement . . . . . . . . . . . . . . . . . . . . . . . 8
1.39 Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.40 Title Company . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.41 Title Insurance Policies . . . . . . . . . . . . . . . . . . . . 8
1.42 Towne Centre . . . . . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE 2. AGREEMENTS OF LENDER . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Commitment of Lender . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Interest on the Loan, Adjustment of Interest . . . . . . . . . . 8
2.3 Limitation on Aggregate Amount of Advances . . . . . . . . . . . 9
2.4 Conditions to Tranche B Advances . . . . . . . . . . . . . . . . 9
2.5 Tranche A Advances . . . . . . . . . . . . . . . . . . . . . . 10
2.6 Future Acquisition . . . . . . . . . . . . . . . . . . . . . . 10
2.7 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.8 Conditions Precedent for the Benefit of Lender . . . . . . . . 10
2.9 Payment Procedure . . . . . . . . . . . . . . . . . . . . . . . 11
2.10 Full Recourse . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.11 Release by Lender: Further Assurances . . . . . . . . . . . . . 11

ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BORROWER . . . . . . . . . . 11
3.1 Organization and Authority of Borrower and its General Partner. 11
3.2 Execution and Delivery of Loan Documents . . . . . . . . . . . 12
3.3 Information Supplied by Borrower . . . . . . . . . . . . . . . 12
3.4 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 12
3.5 Licenses, Permits . . . . . . . . . . . . . . . . . . . . . . . 12
3.6 No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.7 Access and Utilities . . . . . . . . . . . . . . . . . . . . . 13
3.8 Lien Potential . . . . . . . . . . . . . . . . . . . . . . . . 13
3.9 Complete Information . . . . . . . . . . . . . . . . . . . . . 13
3.10 Investment Company Act . . . . . . . . . . . . . . . . . . . . 13
3.11 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . 13
3.12 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . 13
3.13 Suits, Actions, etc. . . . . . . . . . . . . . . . . . . . . . 14
3.14 Title to the Property . . . . . . . . . . . . . . . . . . . . . 14
3.15 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . 14
3.16 Mortgage Debt . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.17 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.18 Illegal Activity . . . . . . . . . . . . . . . . . . . . . . . 14

ARTICLE 4. COVENANTS AND AGREEMENTS OF BORROWER . . . . . . . . . . 15
4.1 Compliance with Governmental Requirements . . . . . . . . . . . 15
4.2 Correction of Defects . . . . . . . . . . . . . . . . . . . . . 15
4.3 Underground Storage Tanks . . . . . . . . . . . . . . . . . . . 15
</TABLE>

ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
4.4 Inspection of the Property . . . . . . . . . . . . . . . . . 15
4.5 Notices by Governmental Authority Fire and Casualty
Losses. etc. . . . . . . . . . . . . . . . . . . . . . . . . 15
4.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.7 Additional Acts . . . . . . . . . . . . . . . . . . . . . . . 16
4.8 Inspection of Property, Books and Records . . . . . . . . . . 16
4.9 Defense of Actions . . . . . . . . . . . . . . . . . . . . . 16
4.10 Prohibition of Assignment or Debt . . . . . . . . . . . . . . 16
4.11 Payment of Claims . . . . . . . . . . . . . . . . . . . . . . 17
4.12 Restrictions and Annexation . . . . . . . . . . . . . . . . . 18
4.13 Current Financial Statements and 1OK's . . . . . . . . . . . 18
4.14 Tax Receipts . . . . . . . . . . . . . . . . . . . . . . . . 18
4.15 Quarterly Reports . . . . . . . . . . . . . . . . . . . . . . 18
4.16 Maintenance of Securities . . . . . . . . . . . . . . . . . . 18
4.17 Loan Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.18 Affiliated Transactions . . . . . . . . . . . . . . . . . . . 19
4.19 Distribution Prohibition . . . . . . . . . . . . . . . . . . 19
4.20 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.21 Maintenance of Insurance on Partnership Properties . . . . . 20

ARTICLE 5. RIGHTS AND REMEDIES OF LENDER . . . . . . . . . . . . . . . . 20
5.1 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . 20
5.2 Cessation of Advances . . . . . . . . . . . . . . . . . . . . 20
5.3 No Waiver or Exhaustion . . . . . . . . . . . . . . . . . . . 20

ARTICLE 6. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE 7. ENVIRONMENTAL COMPLIANCE . . . . . . . . . . . . . . . . . . 21

ARTICLE 8. GENERAL TERMS AND CONDITIONS . . . . . . . . . . . . . . . . 23
8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.2 Modifications . . . . . . . . . . . . . . . . . . . . . . . . 24
8.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . 24
8.4 Election of Remedies . . . . . . . . . . . . . . . . . . . . 24
8.5 Form and Substance . . . . . . . . . . . . . . . . . . . . . 24
8.6 No Third Party Beneficiary . . . . . . . . . . . . . . . . . 24
8.7 Number and Gender . . . . . . . . . . . . . . . . . . . . . . 24
8.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.9 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . 24
8.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 24
8.11 WAIVER OF TRIAL BY JURY . . . . . . . . . . . . . . . . . . . 25
8.12 No Joint Venture . . . . . . . . . . . . . . . . . . . . . . 25
8.13 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.14 Renewal, Modification and Restatement . . . . . . . . . . . . 25
</TABLE>

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<PAGE> 5

LIST OF EXHIBITS:

Exhibit "A" Legal description of the Land.

Exhibit "B" Form of Request for Advance.

Exhibit "C" Partnership Properties, Partnership Property Managers and Operators

Exhibit "D" Partnership Property Debt

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<PAGE> 6
AMENDED AND RESTATED LOAN AGREEMENT

THIS AMENDED AND RESTATED LOAN AGREEMENT (the "Loan Agreement") dated
as of June 30, 1997, is made by and between LEHMAN BROTHERS HOLDINGS INC.,
d/b/a/ LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC., ("Lender"),
whose address is 3 World Financial Center, New York, New York 10285 and CAPITAL
SENIOR LIVING COMMUNITIES, L.P., a Delaware limited partnership ("Borrower"),
whose address is 14160 Dallas Parkway, Dallas, Texas 75240 with respect to a
loan in the principal sum of $77,000,000.00.

RECITALS

A. Reference is made to (i) that certain Loan Agreement dated as
of July 29, 1994 (the "First Agreement") between Bank One Texas, N.A. ("Prior
Lender") and Borrower and (ii) that certain Restatement of Loan Agreement dated
as of June 30, 1995, between Prior Lender and Borrower (the "Second
Agreement"). Lender and Borrower desire to restate and otherwise amend the
First Agreement and the Second Agreement in accordance with the terms of this
Loan Agreement.

B. Lender and Borrower agree as follows:

ARTICLE 1.

DEFINITIONS

For purposes of this Loan Agreement, the following terms shall have
the respective meanings assigned to them.

1.1 Advances. The term "Advances" shall mean a disbursement by
Lender of any of the proceeds of the Loan, which shall be used solely for the
purposes set forth in Section 1.21 herein.

1.2 Assignment of Landlord's Interest in Leases. The term
"Assignment of Landlord's Interest in Leases" shall mean an assignment by
Borrower to Lender of Borrower's interest in all leases covering all or a part
of the Property and all rights derived therefrom.

1.3 Borrower. The term "Borrower" shall mean all parties named
Borrower in the first paragraph of this Loan Agreement and any and all
subsequent record owners of the Property.

1.4 Canton Regency. The term "Canton Regency" shall mean that
certain congregate community owned by Borrower in Canton, Ohio commonly known
as Canton Regency Retirement Community as further described in Exhibit "A".
<PAGE> 7
1.5 Code. The term "Code" shall mean the Uniform Commercial Code
as in force in the State of Texas.

1.6 Cottonwood Village. The term "Cottonwood Village" shall mean
that certain congregate community owned by Borrower in Cottonwood, Arizona
commonly known as Cottonwood Village Retirement Community as further described
on Exhibit "A".

1.7 Debtor Relief Laws. The term "Debtor Relief Laws" shall mean
any applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, insolvency, reorganization, or similar laws affecting the rights
or remedies of creditors generally, as in effect from time to time.

1.8 Event of Default. The term "Event of Default" shall mean the
occurrence of any one or more of the following.

(a) A failure by Borrower to make any payment of
principal or interest on the Note when due;

(b) A failure by Borrower to comply with any of the other
terms or conditions specified herein and the continuation of such
failure, for a period of ten (10) days following the earlier of
Borrower's actual knowledge or written notice to Borrower of such
failure.

(c) The incorrectness of any material representation or
warranty made by Borrower to Lender in this Loan Agreement, provided,
however, that if such incorrectness is capable of being cured,
Borrower shall have the right to cure such incorrectness for a period
of thirty (30) days after the earlier of Borrower's actual knowledge
of such incorrectness or written notice to Borrower of such
incorrectness;

(d) The failure by Borrower, HCP, NHP and/or the Property
and/or any Partnership Properties and Improvements to comply in any
material respect with any Governmental Requirements including, without
limitation, environmental laws, The Americans With Disabilities Act of
1990, The Judicial Fair Housing Act, and any other law, rule or
regulation mandating accessibility; and the continuation of such
failure for a period of thirty (30) days following the earlier of
Borrower's actual knowledge or written notice to Borrower of such
failure;

(e) An inability of Borrower to satisfy any condition
specified herein as precedent to the obligation of Lender to make an
Advance;

(f) In the event Jeffrey L. Beck and James A. Stroud:
fail to remain active in the management of Borrower; or their
individual beneficial interest in Borrower's general partner shall
decrease by more than ten percent (10%) of their current levels any
time during the term of the Loan;

2
<PAGE> 8
(g) Retirement Living Communities, L.P. should no longer
be the general partner of Borrower;

(h) The appointment of a receiver, trustee, conservator,
or liquidator of Borrower, HCP, NHP, any general partner of Borrower,
any of the Property, any of the Partnership Properties, or any other
property of Borrower, HCP or NHP and such appointment is not rescinded
within thirty (30) days following the appointment;

(i) The filing of any voluntary petition seeking an entry
of an order for relief as a debtor in a proceeding under the United
States Bankruptcy Code or seeking reorganization or rearrangement or
taking advantage of any Debtor Relief Laws, concerning Borrower, any
general partner of Borrower; Retirement Living Communities L.P.;
Capital Retirement Group, Inc.; Retirement Living Fiduciary Corp;
Retirement Partnership, Ltd.; Jeffrey L. Beck; James A. Stroud; HCP or
NHP; or the admitting of material allegations of a petition filed
against Borrower or any one or more of said parties, in any
bankruptcy, reorganization, insolvency, conservatorship, or similar
proceeding, or an admission in writing by Borrower, or any one or more
of said parties of an inability to pay its, his or their debts as they
become due;

(j) The filing of any involuntary petition seeking an
entry of an order for relief as a debtor in a proceeding under the
United States Bankruptcy Code or seeking reorganization or
rearrangement or taking advantage of any Debtor Relief Laws,
concerning Borrower, any general partner of Borrower; Retirement
Living Communities L.P.; Capital Retirement Group, Inc.; Retirement
Living Fiduciary Corp; Retirement Partnership, Ltd.; Jeffrey L. Beck;
James A. Stroud; HCP or NHP; and any such petition is not rescinded or
dismissed within thirty (30) days following such filing;

(k) The making of a general assignment for the benefit of
creditors by Borrower, any general partner of Borrower or HCP or NHP;

(l) There shall be a material adverse change in the
financial circumstances of Borrower, general partner of Borrower;
Retirement Living Communities L.P.; Capital Retirement Group, Inc.;
Retirement Living Fiduciary Corp; or HCP or NHP;

(m) Except as otherwise expressly permitted in the
Mortgage, any sale, exchange, assignment or other transfer or
conveyance of the Property or any interest therein or of any
Partnership Interest or interest therein, or of any Partnership
Properties or any interest therein or of any of the NHP Notes or any
interest therein;

(n) The termination or replacement of any Manager,
Operator or any Partnership Property Manager without Lender's prior
written approval;

(o) The occurrence of any default under the Repurchase
Agreement;

(p) The occurrence of any default under the Partnership
Pledges;

3
<PAGE> 9
(q) the occurrence of any default under the NHP Note
Pledge;

(r) the occurrence of any default under the NHP Notes;

(s) the subordination of the lien of the NHP Indenture or
any mortgage or deed of trust securing the NHP Indenture to any other
lien or encumbrance; or

(t) the occurrence of any default under any other Loan
Document beyond the expiration of any applicable grace or notice
periods.

1.9 Existing Loan. The term "Existing Loan" shall mean the "Loan"
as defined in the Second Agreement.

1.10 Existing Loan Documents. The term "Existing Loan Documents"
shall mean the "Loan Documents" as defined in the Second Agreement.

1.11 Financial Statements. The term "Financial Statements" shall
mean such audited and unaudited balance sheets, profit and loss statements,
reconciliations of capital and surplus, changes in financial condition,
schedules of sources and applications of funds, operating statements, with
respect to Borrower and the Property (Lender acknowledges that Financial
Statements with respect to the Property may be unaudited), and other financial
information of Borrower, as shall be reasonably required by Lender, from time
to time. All annual Financial Statements with respect to Borrower shall be
audited by a certified public accountant and certified by Borrower. All other
Financial Statement shall be certified by Borrower. All Financial Statements
shall be in form reasonably satisfactory to Lender using generally accepted
accounting principles, consistently applied.

1.12 Financing Statements. The term "Financing Statements" shall
mean the Form UCC-1 or other financing statements and finance filings, to be
filed in the appropriate offices for the perfection of a security interest in
any of the Property or Partnership Interests securing the Loan.

1.13 Governmental Authority. The term "Governmental Authority"
shall mean the United States, the state, the county, the city, or any other
political subdivision in which the Property is located, and any other political
subdivision, agency, or instrumentality exercising jurisdiction over Borrower,
HCP or NHP with respect to the Property or any Partnership Property.

1.14 Governmental Requirements. The term "Governmental
Requirements" shall mean all laws, ordinances, rules, and regulations of any
Governmental Authority applicable to Borrower, HCP, NHP, the Property or any
Partnership Property, including but not limited to those described above.

4
<PAGE> 10
1.15 The Harrison. The term "The Harrison" or "Eagle Valley" shall
mean that certain congregate care community owned by Borrower in Indianapolis,
Indiana known as The Harrison or Eagle Valley Retirement Community and as
further described on Exhibit "A".

1.16 HCP. The term "HCP" shall mean Healthcare Properties, L.P., a
Delaware limited partnership pursuant to that certain second amended and
restated limited partnership agreement of Healthcare Properties Inc. dated May
31, 1995.

1.17 Improvements. The term "Improvements" shall mean the
buildings, structures and other improvements located on the real property
constituting portions of the Property or any Partnership Property.

1.18 Insurance Policies. The term "Insurance Policies" shall mean
the insurance policies required pursuant to the terms of the Mortgage.

1.19 Land. The term "Land" shall mean those certain parcels or
tracts of the real property described on Exhibit "A" attached hereto and
incorporated herein by reference.

1.20 Lender. The term "Lender" shall mean the Lender named in the
first paragraph of this Loan Agreement and its successors and assigns.

1.21 Loan. The term "Loan" shall mean the Loan by Lender to
Borrower, in an amount not to exceed $77,000,000.00 to (i) pay or otherwise
take-out the Existing Loan and to take by assignment the Second Agreement and
the Existing Loan Documents from Bank One Texas, (ii) to fund amounts that may
be due from Borrower and that are not paid by Borrower under the Repurchase
Agreement in accordance with Section 2.5 of this Loan Agreement and (iii) to
fund amounts due in connection with the renovation and expansion of Cottonwood
Village in accordance with the development plan and use of proceeds schedule
delivered to and approved by Lender.

1.22 Loan Documents. The term "Loan Documents" shall mean this
Loan Agreement, the Mortgages (or deed of trust, security agreement and
assignment of rents, as the case may be), the Note, the Assignment of Leases,
the Security Agreement, the Repurchase Agreement, the Partnership Pledge, the
NHP Note Pledge, the Financing Statements, the Specific Assignment,
Subordination, and Attornment Agreement dated June 30, 1997 between Manager,
Borrower and Lender, and such other instruments evidencing, securing, or
pertaining to the First Agreement and the Second Agreement (as amended and
restated hereby) and the Loan as shall, from time to time, be executed and
delivered by Borrower, or any other party to Lender pursuant to this Loan
Agreement.

1.23 Loan Fees. The term "Loan Fees" is defined in Section 4.17.

1.24 Manager. The term "Manager" shall mean Capital Senior Living,
Inc.

5
<PAGE> 11
1.25 Mortgages. The term "Mortgages" shall mean: (i) that certain
Ohio Open-End Mortgage dated July 29, 1994 executed by Borrower as "Mortgagor"
benefitting Lender as "Mortgagee" concerning the Canton Regency as recorded in
Volume 1688, Page 222, Stark County Official Records, Stark County, Ohio as
modified and extended pursuant to that certain Modification and Extension of
Lien dated as of June 30, 1995 executed by Borrower and Bank One, as recorded
in Stark County Official Records, Stark County, Ohio (Instrument No. 95033519),
as further amended by that certain Second Modification and Extension of Lien
between Borrower and Lender, dated the date hereof and intended to be recorded
simultaneously with the execution of this Loan Agreement in the aforementioned
records; (ii) that certain Mortgage, Security Agreement, Assignment of Rents
and Fixture Filing dated July 29, 1994 executed by Borrower as "Mortgagor" to
the benefit of Lender as "Mortgagee" concerning Harrison, as recorded as
Instrument No. 94-119830, in the Office of the Recorder, Marion County, Indiana
as modified and extended pursuant to that certain Modification and Extension of
Lien dated as of June 30, 1995 executed by Borrower to the benefit of Bank One,
recorded as Instrument No. 95-0095291, in the Office of the Recorder, Marion
County, Indiana as further amended by that certain Second Modification and
Extension of Lien between Borrower and Lender, dated the date hereof and
intended to be recorded simultaneously with the execution of this Loan
Agreement in the aforementioned records; (iii) that certain Mortgage, Security
Agreement, Assignment of Rents and Fixture Filing dated July 29, 1994 executed
by Borrower as "Mortgagor" to the benefit of Lender as "Mortgagee" concerning
Towne Centre. as recorded as Instrument No. 94054609, in the Office of the
Recorder, of Lake County, Indiana as modified and extended pursuant to that
certain Modification and Extension of Lien dated as of June 30, 1995 executed
by Borrower and Bank One, recorded as Instrument No. 95041757, in the Office of
the Recorder, Lake County, Indiana, as further amended by that certain Second
Modification and Extension of Lien between Borrower and Lender, dated the date
hereof and intended to be recorded simultaneously with the execution of this
Loan Agreement in the aforementioned records; and (iv) that certain Deed of
Trust Assignment of Leases and Rents, Security Agreement and Financing
Statement dated July 29, 1994 executed by Borrower as "Trustor" to Lawyer's
Title of Arizona, Inc., an Arizona corporation, as Trustee for the benefit of
Lender concerning Cottonwood Village as recorded in Book 2875, Pages 128-152,
Official Records of Yavapai County, Arizona as modified and extended pursuant
to that certain Modification and Extension of Lien dated as of June 30, 1995
executed by Borrower and Bank One, recorded in Book 3049, Page 335, Office
Records, Yavapai County, Arizona, as further amended by that certain Second
Modification and Extension of Lien between Borrower and Lender, dated the date
hereof and intended to be recorded simultaneously with the execution of this
Loan Agreement in the aforementioned records. Each of the foregoing documents
are to secure payment of the Note and the payment and performance of all
obligations specified in the Mortgages and this Loan Agreement, and evidencing
a valid and enforceable first lien on the Property subject only to the matters
which Lender may approve as reflected in each Title Insurance Policy.

1.26 NHP. The term "NHP" shall mean NHP Retirement Housing
Partners I Limited Partnership, a Delaware limited partnership pursuant to that
certain third amended and restated agreement of limited partnership dated
September 23, 1986, as amended by that certain first amendment to third amended
and restated agreement of limited partnership dated January 23, 1995.

6
<PAGE> 12
1.27 NHP Notes. The term "NHP Notes" shall mean those certain NHP
Retirement Partners I 13% nonrecourse pension notes in the aggregate principal
amount of $11,925,500.00, made by NHP to Borrower pursuant to the terms of that
certain indenture dated September 17, 1986 between NHP and The National Bank of
Washington in the principal amount of $100,000,000.00 (the "NHP Indenture") and
secured by those certain mortgages and/or deeds of trust encumbering the
Partnership Properties owned by NHP and more particularly described in the NHP
Indenture.

1.28 NHP Note Pledge. The term "NHP Note Pledge" shall mean that
certain Security Agreement dated the date hereof between Borrower and Lender.

1.29 Note. The term "Note" shall mean that certain Promissory Note
dated of even date herewith, in the stated principal amount of $ 77,000,000.00,
executed by Borrower and payable to the order of Lender.

1.30 Operators. The term "Operators" shall mean those operating
lessees of the HCP Partnership Properties set forth opposite the applicable
Partnership Property on Exhibit C.

1.31 Partnership Agreement. The term "Partnership Agreement" shall
mean Borrower's limited partnership agreement under the Delaware Revised
Uniform Limited Partnership Act and the certificate of limited partnership
filed with the Secretary of State of Delaware on December 17, 1985, under
Borrower's former name Retirement Living Tax-Exempt Mortgage Fund Limited
Partnership, as amended.

1.32 Partnership Interests. The term "Partnership Interests" shall
mean the 47% limited partnership interest of Borrower in HCP together with all
commitments of Borrower to acquire additional limited partnership interests in
HCP.

1.33 Partnership Pledge. The term "Partnership Pledge" shall mean
that certain Assignment and Security Agreement dated the date hereof given by
Borrower to Lender with respect to Borrower's Partnership Interests in HCP.

1.34 Partnership Properties. The term "Partnership Properties"
shall mean those certain properties described on Exhibit C to this Loan
Agreement which are owned by HCP and NHP, as the case may be.

1.35 Partnership Property Managers. The term "Partnership Property
Managers" shall mean the property managers set forth opposite each Partnership
Property on Exhibit C to this Loan Agreement.

1.36 Property. "Property" shall mean collectively: Canton Regency,
Cottonwood Village, Harrison, and Towne Centre, as well as the Land and
Improvements and all other property (real and personal, fixture or otherwise)
related thereto constituting the "Mortgaged Property", as described in the
Mortgages, and the collateral described in the Security Agreement.

7
<PAGE> 13
1.37 Repurchase Agreement. The term "Repurchase Agreement" shall
mean that certain Master Repurchase Agreement dated as of the date hereof
between Borrower and Lehman Brothers Inc. ("Lehman") and each Transaction (as
defined in the Repurchase Agreement) entered into pursuant thereto and pursuant
to this Loan Agreement.

1.38 Security Agreement. The term "Security Agreement" shall mean
the certain Amended and Restated Security Agreement dated the date
hereof between Borrower and Lender.

1.39 Survey. The term "Survey" shall mean the most recent
certified as built ALTA survey of each of the retirement communities
constituting the Property and the Partnership Properties in Borrower's
possession satisfactory to Lender.

1.40 Title Company. The term "Title Company" shall mean Lawyers
Title Insurance Corporation.

1.41 Title Insurance Policies. The term "Title Insurance Policies"
shall mean the following policies of mortgage title insurance issued by Lawyers
Title Insurance corporation: (i) Policy Number 135-00497267 as endorsed
pursuant to that certain endorsement to title policy issued by the Title
Company as of the date hereof related to the Mortgage concerning Town Centre;
(ii) Policy Number 135-00-448982 related to the Mortgage concerning Canton
Regency as endorsed pursuant to that certain endorsement to title policy issued
by the Title Company as of the date hereof; (iii) Policy Number 135-00-547-933
related to the Mortgage concerning Cottonwood Village as endorsed pursuant to
that certain endorsement to title policy issued by the Title Company as of the
date hereof; and (iv) Policy Number 135-00-592912 related to the Mortgage
concerning The Harrison as endorsed pursuant to that certain endorsement to
title policy issued by the Title Company as of the date hereof .

1.42 Towne Centre. The term "Towne Centre" shall mean that certain
congregate care community owned by Borrower in Merrillville, Indiana commonly
known as Towne Centre Retirement Community as further described in Exhibit "A".

ARTICLE 2.

AGREEMENTS OF LENDER

2.1 Commitment of Lender. As of the date hereof, Lender has made
an initial Advance to Borrower of Tranche B (as defined in the Note) in the
amount of $5,640,238.20. Subject to the conditions hereof, and provided that an
Event of Default has not occurred, Lender will make further Advances to
Borrower of Tranche B and Tranche A in accordance with this Loan Agreement and
solely for the purposes set forth in Section 1.21.

2.2 Interest on the Loan, Adjustment of Interest. Interest on the
Loan, at the rate specified in the Note, shall be computed on the outstanding
balance of Advances and shall be computed with respect to each Advance only
from the date of such Advance. Since the term of

8
<PAGE> 14
the Loan may be reduced to less than the full stated term under various
circumstances, it is not possible at the time of execution of this Agreement to
determine whether interest charged under the Note together with other loan
charges constituting interest (herein called "Loan Financing Charges") will
exceed the maximum interest rate permitted by applicable law for the actual
term of the Loan. Therefore, the parties agree that at the end of the actual
term of the Loan (as it may be renewed or extended), the following calculations
will be made: (i) first, the Loan Fees (to the extent that they constitute
interest) shall be added to the interest charged, collected or received by
Lender under the Note, such total being hereinafter called the "Stated
Interest"; and (ii) second, the maximum amount of interest that may be charged
under applicable law(including, without limitation, Section 501 of the
Depository Institutions Deregulation and Monetary Control Act of 1980, Public
Law No. 96-221) for the actual term of the Loan on the principal balance
remaining unpaid from time to time shall be calculated. If the Stated Interest
exceeds the Maximum Interest (as defined in the Note), the amount of such
excess shall be credited to the principal amount of the Note or refunded
immediately to Borrower if such principal amount has theretofore been entirely
paid. In no event shall the amount of the Loan Fees together with the interest
charged, collected or received by Lender under the Note exceed the highest
interest rate permitted by applicable law for the actual term of the Loan.

2.3 Limitation on Aggregate Amount of Advances. In no event shall
Lender be required to make any Advances in which the aggregate will exceed
$77,000,000.00 or if the making of such Advance would cause Lender to violate
any law, rule or regulation to which Lender is subject limiting the amount that
may be advanced by Lender as contemplated in this Loan Agreement.

2.4 Conditions to Tranche B Advances. As a condition precedent to
each Advance of Tranche B (a "Tranche B Advance") hereunder, in addition to all
other requirements herein, Borrower must satisfy the following requirements
and, if required by Lender, deliver to Lender evidence of such satisfaction:

(a) Borrower shall deliver to Lender a Request for
Advance in the form attached hereto as Exhibit "B" at least three (3)
business days prior to the date such advance is to be made; in no
event may Borrower request an Advance after December 15, 1997;

(b) There shall then exist no Event of Default;

(c) The representations and warranties made in this Loan
Agreement and the other Loan Documents shall be true and correct on
and as of the date of each Tranche B Advance, with the same effect as
if made on that date;

(d) There shall be no material adverse change in or
modification of the financial condition of Borrower, HCP or NHP;'

(e) Each Tranche B Advance shall be in an amount equal to
at least $250,000.00;

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<PAGE> 15
(f) The maximum aggregate amount of Tranche B Advances
(other than the initial Tranche B Advance) shall be $7,000,000.00;
Borrower shall have no right to request, and Lender shall have no
obligation to readvance any sums that may be prepaid by Borrower.

(g) Lender shall have received satisfactory evidence
(which may include an endorsement to the Title Insurance Policies or a
lien search with respect to each Property and a lien search with
respect to the Partnership Properties) that there are no liens or
encumbrances on the Properties or the Partnership Properties other
than those approved by Lender as of the date hereof and contained in
the Title Insurance Policies issued to Lender as of the date hereof.

(h) Lehman is holding Securities pursuant to the
Repurchase Agreement in with a Market Value equal to or greater than
$64,500,000.00

2.5 Tranche A Advances. Borrower acknowledges that Lender is
obligated, whether or not an Event of Default exists under this Loan Agreement
or any other Loan Documents, to pay to Lehman any payments Borrower is required
to make pursuant to the Repurchase Agreement in the event of a failure by
Borrower to make such payments. Such obligation of Lender shall remain in full
force and effect, notwithstanding the occurrence or continuation of an Event of
Default under this Loan Agreement or any other Loan Documents, until all
indebtedness evidenced by the Note (including the obligations of Borrower under
the Repurchase Agreement) shall have been paid in full and the Repurchase
Agreement has been terminated. Borrower acknowledges that any such
disbursements shall constitute an obligatory Advance of a portion of Tranche A
under the Note (each such advance, a "Tranche A Advance"). In the event of
such payments by Lender, a Tranche A Advance shall be made simultaneously with,
and in the amount of such payment and Borrower shall commence paying interest
on such Tranche A Advance as provided in the Note. Borrower further
acknowledges and agrees that, except as set forth in this Section 2.5, Borrower
shall have no right to request an Advance of Tranche A, and that the maximum
aggregate amount of Tranche A Advances shall not exceed $64,500,000.00.

2.6 Future Acquisition. Borrower understands and agrees that so
long as Borrower has outstanding obligations to Lender related to the Loan,
Borrower shall not acquire any other retirement community, nursing home
facility, or other real estate property without the Lender's prior written
consent.

2.7 No Waiver. No Advance shall constitute a waiver of any
condition precedent to the obligation of Lender to make any further Advance or
preclude Lender from thereafter declaring the failure of Borrower to satisfy
such condition precedent to be an Event of Default.

2.8 Conditions Precedent for the Benefit of Lender. All
conditions precedent to the obligation of Lender to make any Advance are
imposed hereby solely for the benefit of Lender, and no other party may require
satisfaction of any such condition precedent or be entitled to assume that
Lender will refuse to make any Advance in the absence of strict compliance with
such

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<PAGE> 16
conditions precedent. All requirements of this Loan Agreement may be waived by
Lender, in whole or in part, at any time, in a writing signed by Lender.

2.9 Payment Procedure. All payments and prepayments made by
Borrower under the Note or this Loan Agreement shall be made to Lender at its
offices specified herein in immediately available funds before 2:00 p.m. New
York time, on the date that such payment is required to be made. Any payment
received and accepted by Lender after such time shall be considered for all
purposes (including the calculation of interest) to the extent permitted by
law, as having been made to Lender on the next following Business Day.

2.10 Full Recourse. The Loan is fully recourse to Borrower and
Borrower shall be fully liable for the indebtedness evidenced by the Note and
for the performance of all agreements in this Loan Agreement, the Mortgages and
the other Loan Documents.

2.11 Release by Lender: Further Assurances. Upon the satisfaction
of the Note and all other applicable obligations of Borrower arising under the
Loan Documents, including the payment in full of all principal, interest and
other sums due under the Note, the Loan Documents and the termination of the
Repurchase Agreement, Lender shall, at Borrower's cost and expense, promptly
take all necessary action, make all required deliveries and provide all release
documents and/or instruments required to terminate and release the collateral
security and liens provided by Borrower to secure the Loan. Further, Lender
agrees to cooperate with Borrower and, at Borrower's cost and expense, provide
such further documentation as may be reasonably required to better evidence,
confirm or acknowledge such release and termination of Lender's lien or
security rights and interests in and to the collateral security, it being
understood that the Loan may be repaid from proceeds arising from the sale of
such collateral security by Borrower in connection with the proposed initial
public offering by Capital Senior Living Corporation.

ARTICLE 3.

REPRESENTATIONS AND WARRANTIES OF BORROWER

Borrower hereby represents and warrants as follows:

3.1 Organization and Authority of Borrower and its General
Partner. Borrower is a duly organized, validly existing Delaware limited
partnership and in good standing under the applicable laws of Delaware, and is
qualified to do business and is in good standing in each state where its
business activities require such qualification, with full power and authority
to enter into this Agreement. Borrower's general partner, Retirement Living
Communities L.P., is an Indiana limited partnership in good standing under
applicable laws of Indiana and is qualified to do business and is in good
standing in each state where its business activities require such qualification
with full power and authority to enter into this Agreement. If the issuance of
any interest in Borrower, or in any constituent business entity of Borrower is
subject to any state or federal securities laws and/or the rules and
regulations of the Securities and Exchange Commission, each such issuance has
been and will be in compliance with all said laws and regulations to which it
is subject.

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<PAGE> 17
3.2 Execution and Delivery of Loan Documents. The execution and
delivery of the Loan Documents executed or delivered by Borrower, and the
consummation of the transactions contemplated thereby: (i) have been duly
authorized by all actions required under the ten-ns and provisions of their
governing instruments, and to the best of Borrower's knowledge, the laws of the
State of New York, and/or any applicable requirement of a Governmental
Authority; (ii) create legal, valid and binding obligations on Borrower; (iii)
do not require the approval or consent of any Governmental Authority having
jurisdiction over Borrower, or the property of Borrower; and (iv) with respect
to Borrower, and to the best of knowledge of Borrower with respect to HCP and
NHP, do not and will not constitute a violation of, or default under, (A) the
governing instruments of Borrower, of HCP or NHP, (B) any requirement of a
Governmental Authority applicable to Borrower, HCP or NHP, or (C) any mortgage,
indenture, agreement, commitment, or instrument to which Borrower, HCP or NHP
is a party or by which any of their assets are bound, nor create or cause to be
created any mortgage, lien, encumbrance, or charge against the assets of
Borrower other than those expressly permitted by the Loan Documents.

3.3 Information Supplied by Borrower. The Financial Statements of
Borrower; Retirement Living Communities, L.P.; Capital Retirement Group, Inc.;
HCP and NHP heretofore delivered to Under are true, complete and correct in all
material respects, have been prepared on a consistent basis and fairly and
accurately present the respective financial conditions of the subjects thereof
as of the respective dates thereof. No material adverse change has occurred
since the respective dates thereof. Borrower has delivered true and correct
copies of the federal income tax returns of Retirement Living Fiduciary Corp.

3.4 Compliance with Laws. To Borrower's knowledge, the use of the
Property and the Partnership Properties comply with all Government
Requirements, applicable zoning ordinances, regulations and restrictive
covenants affecting the Property, the Partnership Properties and all other
requirements of a Governmental Authority, and all requirements for such use
have been satisfied.

3.5 Licenses; Permits. Borrower represents and warrants to
Lender that, to Borrower's knowledge, all necessary licenses, permits and other
necessary certificates have been issued in Borrower's or Manager's name with
respect to the Property (or in HCP's or the Operator's name or NHP's or the
applicable Partnership Property Manager's name, as applicable, with respect to
the Partnership Properties) and Borrower and Manager (or HCP or the applicable
Operator, or NHP or the applicable Partnership Property Manager, as applicable,
with respect to the Partnership Properties) is in good standing with all
Governmental Authorities in connection with all nursing home beds required to
be licensed and other facilities constituting a portion of the Property or the
Partnership Properties. Borrower represents and warrants to Lender that no
health care or similar licenses or permits are required for the Partnership
Properties owned by NHP. Borrower further represents and warrants that all
necessary and applicable certificates of occupancy, permits and other
appropriate authorization and approval matters from Governmental Authorities
have been issued and are in existence with regard to the Property and the
Partnership Properties. Borrower will provide Lender copies of all regulatory
surveys and reports required

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<PAGE> 18
by Governmental Authorities for the nursing care facilities which Borrower, HCP
or NHP operates within 10 Business Days after Borrower's receipt thereof.

3.6 No Defaults. Borrower is not in default under any of the Loan
Documents, and no event has occurred which by notice, the passage of time or
otherwise would constitute an event of default under any of the Loan Documents.
None of Borrower, HCP or NHP is in default in the payment of any indebtedness
for borrowed money or under the terms and provisions of any agreement or
instrument evidencing any such indebtedness, and, to Borrower's knowledge, none
of Borrower, HCP or NHP is in default with respect to any order, writ,
injunction, decree or demand of any court or of any other requirement of a
Governmental Authority.

3.7 Access and Utilities. The Property and each Partnership
Property is in good condition and repair, is free of any material defects and
has adequate rights of access to public ways and all water, sanitary sewer and
storm drain facilities. All public utilities necessary or convenient to the
full use and enjoyment of the Property and each Partnership Property are
available at the boundaries of the Property and each Partnership Property and
same are in service. All roads necessary for the full utilization of the
Property and each Partnership Property for their intended purposes are present
or the necessary rights-of-way therefor have either been acquired.

3.8 Lien Potential. None of Borrower, HCP or NHP has made any
contract or arrangement of any kind which has given rise to (or the performance
of which by the other party thereto would give rise to) a lien or claim of lien
on the Property or the Partnership Properties or the Partnership Interests, or
other collateral covered by the Loan Documents, except for the collateral
documents executed in connection with the Loan and the NHP Notes.

3.9 Complete Information. No representation or warranty of
Borrower contained in any of the Loan Documents, and no statement contained in
any certificate, schedule, list, financial statement or other instrument
furnished to Lender by or on behalf of Borrower, HCP or NHP contains, or will
intentionally contain, any untrue statement of a material fact, or omits, or
will intentionally omit, to state a material fact necessary to make the
statements contained herein or therein not misleading. To Borrower's
knowledge, all information material to the transactions contemplated herein has
been expressly disclosed in writing by Borrower to Lender.

3.10 Investment Company Act. Borrower is not an investment company
as defined in the Investment Company Act of 1940, as amended.

3.11 Payment of Taxes. Borrower, HCP and NHP have filed all
federal, state and other tax returns and reports required to be filed, and has
paid all taxes as shown on said returns and reports and all assessments
received by it to the extent that such taxes and assessments have become due
(except to the extent that the same are being contested in good faith by
appropriate proceedings diligently prosecuted and as to which adequate reserves
have been set aside in conformity with generally accepted accounting
principles).

3.12 Intentionally Deleted.

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<PAGE> 19
3.13 Suits, Actions, etc. There are no actions, suits, or
proceedings pending or, to Borrower's knowledge, threatened in any court or
before or by any individual, entity or Governmental Authority against or
affecting Borrower; Retirement Living Communities L.P.; Capital Retirement
Group, Inc.; Retirement Living Fiduciary Corp.; HCP or NHP which could have a
material adverse effect on the ability of each of any such parties, as
applicable, to perform their respective obligations under the Loan Documents or
otherwise, or against or affecting the Property, the Partnership Properties or
the Partnership Interests, or involving the validity, enforceability, or
priority of any of the Loan Documents, at law or in equity. The consummation
of the transactions contemplated hereby, and the performance of any of the
terms and conditions hereof and of the other Loan Documents by Borrower, will
not result in a breach of, or constitute a default in, any mortgage, deed of
trust, lease, promissory note, loan agreement, credit agreement, partnership
agreement, or other agreement to which Borrower or any of the forenamed
entities is a party or by which Borrower, HCP or NHP may be bound.

3.14 Title to the Property. Borrower holds full legal and
equitable title to the Property subject only to title exceptions set forth in
the Title Insurance Policies. Borrower holds full legal and equitable title to
the Partnership Interests and the NHP Notes subject to no liens or
encumbrances. HCP and NHP hold full legal and equitable title to the
respective Partnership Properties subject only to such liens and encumbrances
approved by Lenders as of the date hereof.

3.15 ERISA Compliance.

(a) As of the date hereof and throughout the term of the
Loan, Borrower is not and will not be an "employee benefit plan" as
defined in Section 3(3) of ERISA, which is subject to Title I of
ERISA, and (ii) the assets of Borrower do not and will not constitute
"plan assets" of one or more such plans for purposes of Title I of
ERISA, and

(b) As of the date hereof and throughout the term of the
Loan (i) Borrower is not and will not be a "governmental plan" within
the meaning of Section 3(3) of ERISA and (ii) transactions by or with
Borrower are not and will not be subject to state statutes applicable
to Borrower regulating investments of and fiduciary obligations with
respect to governmental plans.

3.16 Mortgage Debt. There are no mortgages, deeds of trust, or
similar liens or encumbrances securing any debt on any of the Partnership
Properties other than the liens securing the NHP Notes or as set forth on
Exhibit D to this Loan Agreement.

3.17 Solvency. Each of Borrower, HCP and NHP are solvent as of
the date hereof.

3.18 Illegal Activity. No portion of the Property or the
Partnership Properties, the NHP Notes or the Partnership Interests have been
purchased with the proceeds of illegal activity.

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<PAGE> 20
ARTICLE 4.

COVENANTS AND AGREEMENTS OF BORROWER

Borrower hereby covenants and agrees as follows:

4.1 Compliance with Governmental Requirements. Borrower, HCP and
NHP shall timely comply in all material respects with all Governmental
Requirements and, if requested by Lender, deliver to Lender evidence of such
compliance.

4.2 Correction of Defects. Borrower shall correct or cause to be
corrected (a) any material defect in the Improvements, or (b) any encroachment
by any part of the Improvements or any other structure located on the Property
or any Partnership Property on any building line, easement, property line, or
restricted area.

4.3 Underground Storage Tanks. Borrower represents and warrants:
(i) Borrower has formally registered underground storage tanks ("UST's")
located at Towne Centre and Canton Regency with all Governmental Authorities;
(ii) the UST's are in full compliance with all Governmental Requirements; (iii)
to the best of Borrower's knowledge, the UST's do not leak and are in first
class condition; (iv) Borrower has conducted tightness tests on the UST's and
has provided or shall upon request provide Lender with copies of all such test
results, and shall comply with all future requirements, requests and
recommendations of Lender concerning the UST'S; (v) Borrower shall fully comply
with all future obligations and otherwise maintain said UST's in a manner so as
to comply with all future Governmental Requirements.

4.4 Inspection of the Property. Borrower shall permit, and shall
cause HCP and NHP to permit Lender, any Governmental Authority, and their
agents and representatives, to enter upon the Property or any Partnership
Property and any location for the purpose of inspection of the Property at all
reasonable times.

4.5 Notices by Governmental Authority Fire and Casualty Losses,
etc. Borrower shall timely comply with and promptly furnish, and cause HCP
and NHP to timely comply with and promptly furnish, to Lender true and complete
copies of any official notice or claim by any Governmental Authority pertaining
to the Property or any Partnership Property. Borrower shall promptly notify
Lender of any fire or other casualty or any notice of taking or eminent domain
action or proceeding affecting the Property or any Partnership Property.

4.6 Expenses. Whether or not the transactions contemplated under
this Loan Agreement and the Loan Documents shall be consummated, Borrower shall
pay all expenses in connection with such transactions, including, without
limitation, the cost and expenses of preparation of this Loan Agreement and of
any other document or instrument Lender considers necessary or appropriate with
respect to the Loan, the cost and expenses of or incident to the enforcement or
performance of and compliance with any of the provisions of this Loan Agreement
or any agreement or condition contained in any other document or instrument
required by Lender,

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<PAGE> 21
and any other costs and expenses related to the transactions contemplated under
this Loan Agreement. Furthermore, Borrower agrees to reimburse Lender for all
other expenses incurred by Lender associated with the due diligence examination
of the Property, the Partnership Properties, the NHP Notes and the Partnership
Interests, review of all materials and records presented to Lender, travel
expenses incurred for inspection of the Property, and the Partnership
Properties, reasonable attorney's fees incurred and other costs and expenses
related to the Loan.

4.7 Additional Acts. In addition to the acts recited herein and
contemplated to be performed, executed and/or delivered by Borrower, Borrower
hereby agrees, at any time, and from time to time, to perform, execute and/or
deliver to Lender any and all such further acts, additional instruments, or
further assurances as may be necessary or proper to (i) implement the intent of
the parties under this Loan Agreement; (ii) correct any errors in this Loan
Agreement or any other instrument relating thereto or any other Loan Document;
(iii) assure Lender a valid and direct first lien and prior first perfected
security interest under the Loan Documents or any of them on the Property
and/or the Partnership Interest; (iv) create, perfect, preserve, maintain and
protect the liens and security interests created or intended to be created by
the Loan Documents; and (v) provide the rights and remedies to Lender granted
or provided for by the Loan Documents.

4.8 Inspection of Property, Books and Records. Borrower shall
permit, and shall cause HCP and NHP to permit, Lender, at all reasonable times:
(i) to examine and inspect the Property and the Partnership Properties; and
(ii) examine, inspect and copy the books and records of Borrower pertaining to
the Loan, the Property, the Partnership Properties and all contracts,
statements, invoices, bills, and claims related thereto and the Partnership
Interests. All such books and records shall be kept and maintained in
accordance with generally accepted accounting principles.

4.9 Defense of Actions. Lender may (but shall not be obligated
to) commence, appear in, or defend any action or proceeding purporting to
affect the Loan, the Property, the Partnership Interests or the Partnership
Properties, or the respective rights and obligations of Lender and Borrower
pursuant to this Loan Agreement. Lender may (but shall not be obligated to)
pay all necessary expenses, including attorneys' fees and expenses incurred in
connection with such proceedings or actions, which Borrower agrees to repay to
Lender upon demand.

4.10 Prohibition of Assignment or Debt.

(a) Borrower shall not assign or encumber any interest in
the Property, the Partnership Interests, or the NHP Notes, or consent
to the encumbrance of an interest in Borrower's general partner
without the prior written consent of Lender, and the general partner
of Borrower shall not assign or encumber any interest in Borrower
without the prior written consent of Lender except sales of limited
partnership units in Borrower in the ordinary course of business.
Borrower shall not (i) incur any other debt or contingent liability
except as may be approved in writing by Lender; (ii) pledge any assets
belonging to Borrower except as may be approved by Lender; or (iii)
dispose of any asset (personal property or real property) belonging to
Borrower without the prior written consent of

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<PAGE> 22
Lender; provided, however, that with respect to the purchase of
inventory, supplies and equipment necessary for the day to day
operation of any one or more of the facilities comprising the
Property, and the purchase of any equipment necessary for the repair
and/or replacement of any equipment or improvement used or operated in
connection with any one or more of the facilities comprising the
Property, nothing herein shall prohibit such purchases, replacements
or dispositions or require Lender's approval; further provided
however, nothing herein is intended to revise or diminish Borrower's
rights stated in Section 2.5 above in connection with the acquisition
of other properties which meet the financial criteria set forth
therein. Borrower shall make no loans whatsoever to anyone without
the prior written consent of Lender.

(b) Neither HCP or NHP shall assign or encumber any
interest in the Partnership Properties without the prior written
consent of Lender. Neither HCP or NHP shall (i) incur any other debt
or contingent liability except as may be approved in writing by
Lender; (ii) any assets belonging to HCP or NHP except as may be
approved by Lender; or (iii) dispose of any asset (personal property
or real property) belonging to HCP or NHP without the prior written
consent of Lender; provided, however, that with respect to the
purchase of inventory, supplies and equipment necessary for the day to
day operation of any one or more of the facilities comprising the
Partnership Properties, and the purchase of any equipment necessary
for the repair and/or replacement of any equipment or improvement used
or operated in connection with any one or more of the facilities
comprising the Partnership Properties, nothing herein shall prohibit
such purchases, replacements or dispositions or require Lender's
approval. Neither HCP or NHP shall make any loans whatsoever to
anyone without the prior written consent of Lender.

(c) Without the prior written consent of Lender, Borrower
shall not enter into any merger or consolidation with, or sell, lease,
transfer or otherwise dispose of all or substantially all of its
assets to any entity.

(d) Borrower, HCP and NHP shall carry on and conduct
their business in substantially the same manner and substantially the
same field of enterprise as it is presently conducted.

4.11 Payment of Claims. Borrower, HCP or NHP shall promptly pay or
cause to be paid when due all costs and expenses incurred in connection with
the Property, the Partnership Properties and the Improvements, and Borrower,
HCP or NHP shall keep the Property and the Partnership Properties free and
clear of any liens, charges, or claims other than the lien of the Mortgage and
other liens approved in writing by Lender. Notwithstanding anything to the
contrary contained in this Loan Agreement, Borrower, HCP or NHP, provided such
entity does so in good faith and in diligent and continuous manner, may (a)
contest the validity or amount of any claim of any contractor, consultant, or
other person providing labor, materials, or services with respect to the
Property or the Partnership Properties, and (b) contest any tax or special
assessments levied by any Governmental Requirements, and such contest on the
part of Borrower, HCP or NHP shall not be a default hereunder and shall not
release Lender from its obligations to

17
<PAGE> 23
make Advances hereunder; provided, however, that during the pendency of any
such contest, Borrower, HCP or NHP, as applicable, shall furnish to Lender and
the Title Company an indemnity bond with a corporate surety satisfactory to
Lender and the Title Company, a new letter of credit issued by a financial
institution approved by Lender and the Title Company, or other security
acceptable to them, in an amount equal to twice the amount being contested plus
a reasonable additional sum to cover possible costs, interest, and penalties
and provided further that Borrower, HCP and NHP, as applicable, shall pay any
amount adjudged by a court of competent jurisdiction to be due, with all costs,
interest, and penalties thereon, before such judgment becomes a lien on the
Property or the Partnership Properties.

4.12 Restrictions and Annexation. Borrower shall not, and shall
not permit HCP or NHP to, impose any restrictive covenants or encumbrances
upon the Property or the Partnership Properties, execute or file any
subdivision plat affecting the Property or the Partnership Properties, take any
action whatsoever to convert the Property or the Partnership Properties or any
part thereof to a condominium or cooperative, or consent to any action taken by
any Governmental Authority without the prior written consent of Lender.

4.13 Current Financial Statements and 1OK's. Borrower shall
deliver to Lender current annual audited Financial Statements of Borrower,
along with a copy of any Form 10K filed with the Securities and Exchange
Commission within ninety (90) days after the end of Borrower's fiscal year. In
addition Borrower will promptly prepare and deliver, or cause to be prepared
and delivered, to Lender such other Financial Statements as Lender may from
time to time reasonably request.

4.14 Tax Receipts. Borrower shall furnish Lender with receipts, or
tax statements marked "Paid" to evidence the payment of all taxes levied on the
Property and the Partnership Properties on or before thirty (30) days prior to
the date such taxes become delinquent.

4.15 Quarterly Reports. Borrower will provide Lender with copies
of each Form 10-Q filed with the Securities and Exchange Commission, together
with quarterly unaudited Financial Statements, within 60 days of the end of
each calendar quarter.

4.16 Maintenance of Securities.

(a) At all times during the term of the Loan, Borrower
shall maintain Securities with a Market Value (as defined in the
Repurchase Agreement) of at least at least $64,500,000.00 in an
account maintained by Lehman pursuant to the Repurchase Agreement. On
the date hereof, Borrower shall sell and deliver to Lehman U.S.
Treasury issues (primary issue) ("U.S. Treasuries") with a maturity of
3 months, or such other U.S. Government obligations satisfactory to
Borrower and Lender with a maturity of less than 3 months, in either
case with a Market Value of at least $64,500,000.00, and enter into a
Repurchase Agreement with Lehman which provides for a Repurchase Date
on the date of such Securities' maturity. Unless the Loan has been
repaid in full as of each such Repurchase Date, Borrower shall on each
such Repurchase Date (i) repurchase the Securities pursuant to the
Repurchase Agreement, (ii) sell and deliver to Lehman

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<PAGE> 24
replacement U.S. Treasuries with a maturity equal to 3 months, or such
other U. S. Government obligations satisfactory to Borrower and Lender
with a maturity of less than 3 months, in either case with a Market
Value of at least $64,500,000.00, (iii) simultaneously enter into a
confirmation pursuant to the Repurchase Agreement with Lehman which
provides for a Repurchase Date on the date of such Securities'
maturity, and (iv) pay to Lehman a fee of $5,000.00 in connection with
the replacement of the Securities. Borrower and Lender agree and
acknowledge that all or a portion of the Repurchase Price may be used
by Lehman to purchase the replacement Securities.

(b) Borrower has collaterally assigned its interest in
the Repurchase Agreement to Lender as additional security for the
repayment of the Loan, and all payments due thereunder to Borrower,
whether as a result of the occurrence of an Event of Default under the
Repurchase Agreement or upon the Maturity Date, or otherwise, shall be
paid to Lender and applied to the payment of the indebtedness
evidenced by the Note in such order and priority as Lender may
determine in its sole discretion.

4.17 Loan Fees. On the date hereof, Borrower shall pay Lender an
administrative fee equal to $15,000.00.

4.18 Affiliated Transactions. Borrower agrees that all
transactions with third party entities will be fully negotiated and shall be on
an "arms-length" bona fide type basis. Although none of Borrower, HCP or NHP
is prohibited from entering into service agreements or other contracts with
affiliated entities, any such agreements shall be on competitive terms, and
shall otherwise be fair and equitable. Any agreement with a third party
affiliated entity (other than an agreement entered into in connection with an
initial public offering of Capital Senior Living, Inc. shall be subject to
review and approval by Lender and shall be subject to termination if same does
not meet with Lender's reasonable approval; provided however, Lender
acknowledges its consent and approval of management fees payable under the
management agreements approved by Lender as evidenced by the Specific
Assignment, Subordination and Attornment Agreement of June 30, 1997 between
Manager, Borrower and Lender.

4.19 Distribution Prohibition. Prior written approval from Lender
shall be required in connection with any proposed distribution by Borrower, to
any partner, investor, or other related affiliated entity except for the
reimbursement of actual expenses incurred and the payment of commissions and
fees to Borrower's general partner as provided for in the Partnership
Agreement.

4.20 ERISA.

(a) Borrower shall not engage in any transaction which
would cause any obligation, or action taken or to be taken, hereunder
(or the exercise by Lender of any of its rights under the Loan
Documents) to be a non-exempt (under a statutory or administrative
class exemption) prohibited transaction under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").

19
<PAGE> 25
(b) Borrower further covenants and agrees to deliver to
Under such certifications or other evidence from time to time
throughout the term of the Loan as requested by Under in its sole
discretion, that (i) Borrower is not an "employee benefit plan" as
defined in Section 3(3) of ERISA; (ii) Borrower is not subject to
state statutes regulating investments and fiduciary obligations with
respect to governmental plans; and (iii) one or more of the following
circumstances is true:

(A) Equity interests in Borrower are publicly
offered securities, within the meaning of 29 C.F.R. Section
2510.3-101(b)(2);

(B) Less than 25 percent of each outstanding
class of equity interests in Borrower are held by "benefit
plan investors" within the meaning of 29 C.F.R. Section
2510.3-101(f)(2); or

(C) Borrower qualifies as an "operating company"
or a "real estate operating company" within the meaning of 29
C.F.R. Section 2510.3-101(c) or (e) or an investment company
registered under The Investment Company Act of 1940.

4.21 Maintenance of Insurance on Partnership Properties. HCP shall
maintain insurance with respect to each of the Partnership Properties owned by
HCP that meets the requirements of the Insurance Policies set forth in the
Mortgages unless such Partnership Properties are subject to mortgage debt as
set forth in Exhibit D, in which case such insurance shall meet the
requirements contained in such mortgages, and NHP shall maintain the insurance
required pursuant to the NHP Indenture with respect to each Partnership
Property owned by NHP.

ARTICLE 5.

RIGHTS AND REMEDIES OF LENDER

5.1 Acceleration. Upon the occurrence of an Event of Default,
subject to the terms and conditions of the Note, Under may, at its option,
declare the Loan immediately due and payable without notice of any kind.

5.2 Cessation of Advances. Upon the occurrence of an Event of
Default, the obligation of Lender to disburse the Loan and all other
obligations of Lender hereunder shall, at Lender's option, immediately
terminate.

5.3 No Waiver or Exhaustion. No waiver by Lender of any of its
rights or remedies hereunder, in the other Loan Documents, or otherwise, shall
be considered a waiver of any other or subsequent right or remedy of Lender, no
delay or omission in the exercise or enforcement by Lender of any rights or
remedies shall ever be construed as a waiver of any right or remedy of Lender;
and no exercise or enforcement of any such rights or remedies shall ever be
held to exhaust any right or remedy of Lender.

20
<PAGE> 26
ARTICLE 6.

INDEMNIFICATION

Borrower agrees to and does hereby indemnify Lender and hold Lender
harmless as follows:

(a) against any and all claims, demands, causes of action, loss,
damage, liabilities, costs and expenses (including, without limitation,
reasonable attorneys' fees and court costs and settlement costs) ("Losses")
asserted against or incurred by Lender by reason of, arising out of, or in
connection with. the Loan, the Partnership Interests, the Partnership Pledges,
the Repurchase Agreement, the NHP Note Pledge, the NHP Notes and/or any
violation or breach by Borrower of any of the terms and provisions of the Loan
Documents, unless such claims, demands, causes of action, loss damages,
liabilities, costs or expenses result from the gross negligence or willful
misconduct of Lender.

(b) Borrower shall, at its sole cost and expense, protect, defend,
indemnify, release and hold harmless the Lender from and against any and all
Losses (including, without limitation, reasonable attorneys' fees and costs
incurred in the investigation, defense, and settlement of Losses incurred in
correcting any prohibited transaction or in the sale of a prohibited loan, and
in obtaining any individual prohibited transaction exemption under ERISA that
may be required, in Lender's sole discretion) that Lender may incur, directly
or indirectly, as a result of a default under Sections 3.15 or 4.20 of this
Loan Agreement or any other provision herein that relates to ERISA.

ARTICLE 7.

ENVIRONMENTAL COMPLIANCE

Borrower represents that, except for medical wastes generated and
removed in compliance with all environmental laws and in the ordinary course of
operation of the Property and the Partnership Properties, there are no toxic
wastes or other toxic or hazardous substances or materials being generated,
stored or otherwise used or held on, under or about the Property or the
Partnership Properties (save and except the fuel oil stored in the underground
storage tanks described herein related to Towne Centre and Canton Regency), or
being transported to, from or across the Property or the Partnership
Properties, by Borrower or, to Borrower's knowledge, any other person, and
Borrower shall at no time permit the same. Borrower represents that it has
not, and to Borrower's knowledge no other person or other entity has, released
or otherwise discharged any such wastes, substances or materials on, under or
about the Property or the Partnership Properties.. In the event that any such
wastes, substances or materials are hereafter found or otherwise exist on,
under or about the Property or the Partnership Properties, Borrower shall take
all necessary and appropriate actions and shall spend all necessary sums to
cause the same to be cleaned up and immediately removed, and Lender shall in no
event be liable or responsible for any costs or expenses incurred in so doing.
Borrower shall at all times observe and satisfy the

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<PAGE> 27
requirements of and maintain the Property and the Partnership Properties in
compliance with all federal, state and local environmental protection,
occupational, health and safety or similar laws, ordinances, restrictions,
licenses, and regulations, including but not limited to the Federal Water
Pollution Prevention and Control Act (33 U.S.C. Section 1251 et seq.), Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), Safe Drinking
Water Act (42 U.S.C. Section 300f u.), Toxic Substances Control Act (I 5 U.S.
C. Section 2601 et seq., the Clean Air Act (42 U.S.C. Section 7401 et seq.),
and Comprehensive Environmental Response of Compensation and Liability Act (42
U.S.C. Section 9601 et seq.). Should Borrower at any time default in or fail to
perform or observe any of its obligations under this Article 7, Lender shall
have the right, but not the duty, without limitation upon any of Lender's
rights pursuant thereto, to perform the same, and Borrower agrees to pay to
Lender, on demand, all costs and expenses incurred by Lender in connection
therewith, including without limitation reasonable attorneys' fees, together
with interest from the date of expenditure at the default rate specified in the
Note. Borrower hereby indemnities Lender and agrees to hold Lender harmless
from and against any loss incurred by or liability imposed on Lender by reason
of (i) Borrower's failure to perform or observe any of its obligations or
agreements under this Article 7, or (ii) any of its representations under this
Article 7, having been materially incorrect, including without limitation any
and all reasonable attorneys' fees and costs incurred in connection with any
lawsuit or court action, or any proceeding before or involving any state or
federal or other regulatory agency or other governmental agency. Borrower
further agrees that it shall indemnify, defend and hold Lender harmless from
and against any claim, action, suit, proceeding, loss, cost, damage, liability,
deficiency, fine, penalty, punitive damage or expense (including, without
limitation, reasonable attorneys' fees) resulting from, arising out of, or
based upon (i) the presence, release, use, generation, discharge, storage or
disposal of any hazardous or toxic wastes or materials on, under, in or about,
or the transportation of any such wastes to or from, the Property or the
Partnership Properties, or (ii) the violation, or alleged violation, of any
statute, ordinance, order, rule, regulation, permit, judgment or license
relating to the use, generation, release, discharge, storage, disposal or
transportation of hazardous or toxic wastes or materials on, under, in or
about, to or from, the Property or the Partnership Properties. This indemnity
shall include, without limitation, any damage, liability, fine, penalty,
punitive damage, cost or expense (including without limitation all
post-foreclosure cleanup and removal costs and expenses) arising from or out of
any claim, action, suit or proceeding for personal injury (including sickness,
disease or death), tangible or intangible property damage, compensation for
lost wages, business income, profits, or other economic loss, damage to the
natural resources or the environment, nuisance, pollution, contamination, leak,
spill, release or other adverse effect on the environment. The obligations of
Borrower and the rights of Lender under this Article 7 are in addition to and
not in substitution of the obligations of Borrower and rights of Lender under
the laws and regulations cited above in this Article 7, and any other similar
applicable laws. As used herein, the terms "toxic" or "hazardous" wastes,
substances or materials shall include, without limitation, all those so
designated and all those in any way regulated by any of the above-cited laws or
regulations, or any other present or future environmental or other similar laws
or regulations, as well as laboratory wastes, medical waste and biohazardous
waste, contaminated clothing, body fluids, contaminated medical instruments and
equipment, catheters, used bandages, gauzes, needles and other sharps.

22
<PAGE> 28
ARTICLE 8.

GENERAL TERMS AND CONDITIONS

8.1 Notices. All notices, demands requests, and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been given and received when presented personally or three (3)
business days after being deposited in a regularly maintained receptacle for
the United States Postal Service, postage prepaid, registered or certified,
return receipt requested, addressed to Borrower or Lender, as the case may be,
at the respective addresses set forth below or such other address as Borrower
or Lender may from time to time designate by written notice to the other as
herein required. The address for notices hereunder is:

Borrower: Capital Senior Living Communities, L.P.
c/o Capital Retirement Group Inc.
14160 Dallas Parkway
Dallas, Texas 75240
Attention: Mr. David R. Brickman
Telephone: (972) 770-5600
Facsimile: (972) 770-5666

with a copy to:

Lowe Gray Steele & Darko
111 Monument Circles Suite 4600
Indianapolis, Indiana 46204
Attention: Mr. David A. Shelton
Telephone: (317) 236-8020
Facsimile: (317) 236-6472

Lender: Lehman Brothers Holdings, Inc.
3 World Financial Center
New York, New York 10285
Attention: Ms. Allyson Bailey
Telephone: (212) 526-5849
Facsimile: (212) 526-5484

with a copy to: Hatfield Philips
Suite 2300 Marquis Two Tower
285 Peachtree Center Avenue
Atlanta, Georgia 30303
Attention: Mr. Greg Winchester
Telephone: (404) 420-5600
Facsimile: (404) 420-5610

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<PAGE> 29
8.2 Modifications. No provision of this Loan Agreement or the
other Loan Documents may be modified, waived, or terminated except by
instrument in writing executed by the party against whom a modification,
waiver, or termination is sought to be enforced.

8.3 Severability. In case any of the provisions of this Loan
Agreement shall for any reason be held to be invalid, illegal, or
unenforceable, such invalidity, illegality, or unenforceability shall not
affect any other provision hereof, and this Loan Agreement shall be construed
as if such invalid, illegal, or unenforceable provision had never been
contained herein.

8.4 Election of Remedies. Lender shall have all of the rights and
remedies granted in the Loan Documents and available at law or in equity, and
these same rights and remedies shall be cumulative and may be pursued
separately, successively, or concurrently against Borrower, or any property
covered under the Loan Documents at the sole discretion of Lender. The
exercise of, or failure to exercise, any of the same shall not constitute a
waiver or release thereof or of any other right or remedy, and the same shall
be nonexclusive.

8.5 Form and Substance. All documents, certificates, insurance
policies, and other items required under this Loan Agreement and the other Loan
Documents to be executed and/or delivered to Lender shall be in form and
substance satisfactory to Lender.

8.6 No Third Party Beneficiary. This Loan Agreement is for the
sole benefit of Lender, its successors and assigns, and Borrower, and is not
for the benefit of any third party.

8.7 Number and Gender. Whenever used herein the singular number
shall include the plural and the singular, and the use of any gender shall be
applicable to all genders. The duties, covenants, obligations, and warranties
of Borrower in this Loan Agreement shall be joint and several obligations of
Borrower, and of each Borrower, if more than one.

8.8 Captions. The captions, headings, and arrangements used in
this Loan Agreement are for convenience only and do not in any way affect,
limit, amplify, or modify the terms and provisions hereof.

8.9 APPLICABLE LAW. THIS LOAN AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE LAWS OF
THE UNITED STATES APPLICABLE TO TRANSACTIONS WITHIN SUCH STATE. THIS LOAN
AGREEMENT IS FULLY PERFORMABLE IN NEW YORK.

8.10 Entire Agreement. The Loan Documents constitute the entire
understanding and agreement between Borrower and Lender with respect to the
transactions arising in connection with the Loan and supersede all prior
written or oral understandings and agreements between Borrower and Lender with
respect to the matters addressed in the Loan Documents. Borrower hereby
acknowledges that, except as incorporated in writing in the Loan Documents,
there are not, and were not, and no persons are or were authorized by Lender to
make, any representations, understandings, stipulations, agreements or
promises, oral or written, with respect to the matters addressed in the Loan
Documents.

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<PAGE> 30
8.11 WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, BORROWER, AND LENDER EACH HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION
WITH THIS LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING
HEREUNDER OR THEREUNDER.

8.12 No Joint Venture. Notwithstanding anything to the contrary
herein contained, Lender, by entering into this Agreement or by taking any
action pursuant hereto, will not be deemed a partner or joint venturer with
Borrower, HCP or NHP.

8.13 Assignment. Lender hereby agrees that it shall not assign
this Loan Agreement or the other Loan Documents prior to the occurrence of an
Event of Default to any entity other than an affiliate of Lender without the
consent of Borrower.

8.14 Renewal, Modification and Restatement. This Loan Agreement is
being executed in renewal, modification and restatement of the First Agreement
and the Second Agreement, each executed by Borrower and Prior Lender. To the
extent the terms and provisions of this Loan Agreement conflict with or
otherwise contradict the terms and provisions of the First Agreement or the
Second Agreement, Borrower and Lender hereby agree that this Loan Agreement
shall be controlling.

THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

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<PAGE> 31
EXECUTED and DELIVERED as of the date first recited.

LENDER:

LEHMAN BROTHERS HOLDINGS INC.,
D/B/A LEHMAN CAPITAL,
A DIVISION OF LEHMAN BROTHERS
HOLDING INC.

By: /s/ JONATHAN EPSTEIN
---------------------------------------
Name: Jonathan Epstein
-------------------------------------
Title: Authorized Signatory
------------------------------------

BORROWER:

CAPITAL SENIOR LIVING COMMUNITIES,
L.P., a Delaware limited partnership

By: Retirement Living Communities, L.P.,
General Partner

By: Capital Retirement Group, Inc.,
General Partner

By: /s/ DAVID R. BRICKMAN
---------------------------------------
David R. Brickman
Vice President

26
<PAGE> 32
EXHIBIT "A"

I. CANTON REGENCY RETIREMENT COMMUNITY
CANTON, STARK COUNTY, OHIO

Parcel No. 1

Situated in the Township of Jackson, County of Stark, State of Ohio:

Known as and being a part of the Southeast Quarter Section 36,
Township-11 (Jackson Township), Range-9, Stark County, Ohio, and being
more particularly bounded and described as follows:

Beginning for the same at a point marked by a P.K. nail found at the
northeast comer of said Southeast Quarter of Section 36; Thence N 85
degrees 05' 26" W along a portion of the north line of said Southeast
Quarter Section 36, a distance of 840.17 feet to a point marked by an
iron bar found (said point also being defined as bearing S 85 degrees
05 (sic) 26" E - 704.62 feet with said quarter section line from a
point at the northwest comer of a (19.026 acre) tract of land formerly
owned by Petros Development, as described in Official Record Volume
257, Page 345), and being the true place of beginning for the tract of
land herein described, Thence S 04 degrees 19' 10" W along a common
line between the lands of Congregate Housing Partnership of Canton,
and said Petros Development, as described in Official Record Volume
412, Pace 820 in said Deed Record, a distance of 493.48 feet to a
point marked by an iron bar found, Thence S 85 degrees 05' 26" E
continuing along said common line, a distance of 76.18 feet to a point
marked by an iron bar set; Thence S 15 degrees 14' 46" E continuing
along said common line, a distance of 130.89 feet to a point marked by
an iron bar set on the north right-of-way line of 22nd Street N.W. -
60 feet wide, as dedicated in Plat Book 54, Page 106 in the Stark
County Records of Plats; Thence along a portion of the north
right-of-way line of said 22nd Street N.W. along the arc of a curve to
the left in a southwesterly direction, with said curve having a
central angle of 31 degrees 33' 21", a radius of 255.00 feet an arc
length of 140.45 feet, a distance of 140.45 feet to point marked by an
iron bar set on the east line of a 9.65 acre tract of land now or
formerly owned by Paul Wilson, as described in Deed Volume 2533, Page
640 in said Deed Records (last stated curve course has a chord bearing
and distance of S 58 degrees 58' 20" W - 138.71 feet); Thence N 04
degrees 37' 17" E along a portion of the east line of said Paul Wilson
tract, a distance of 104.38 feet to a point marked by an iron bar
found; Thence N 85 degrees 37' 21"W along the north line of said Paul
Wilson tract of land, a distance of 712.00 feet to a point marked by
an iron bar found on the east line of a tract of land now or formerly
owned by K.P.C. Associates, as recorded in Official Record Volume
669, Page 344 in Deed Records; Thence N 04 degrees 19' 10" E along a
portion of the east line of said K.P.C. Associates tract of land, and
along a portion of the east line of a tract of land now or formerly
owned by D. Shaheen. as recorded in Official Record Volume 278, page
374 in said deed records, a distance of 600.00 feet to a point marked
by a stone found on the north line of said Southeast Quarter Section
36; Thence S 85 degrees 05' 26" E along a portion

Exhibit "A" - 1
<PAGE> 33
of the north line of said Southeast Quarter Section 36, a distance of
704.62 feet to a point marked by an iron bar found and being the true
place of beginning and containing 10.009 acres of land more or less.

NOTE: Reference direction for the bearing system used in the above
description derived from Official Record Volume 257, Page 345, using
S. 04 degrees 40' 00" W for the east line of the Southeast Quarter
Section 36, Jackson Township.

Exhibit "A" - 2
<PAGE> 34
EXHIBIT "A"

II. COTTONWOOD VILLAGE RETIREMENT COMMUNITY
MERIDIAN, YAVAPAI COUNTY, ARIZONA

A portion of the Northwest one quarter of the Southwest one quarter of
Section 34, Township 16 North, Range 3 East of the Gila and Salt River
Base and Meridian, Yavapai County, Arizona, being more particularly
described as follows:

COMMENCING for reference at the West quarter comer of said Section 34;

thence North 89 degrees 13 minutes 11 seconds East along the East-West
mid-section line of said Section 34, a distance of 87.60 feet to a
point;

thence South 00 degrees 15 minutes 00 seconds East, a distance 48.00
feet to the South right of way line of Mingus Avenue and the East
right of way line of Willard Street;

thence North 89 degrees 13 minutes 11 seconds East along said
Southerly right of way line of Mingus Avenue, a distance of 401.51
feet to the TRUE POINT OF BEGINNING;

thence continuing North 89 degrees 13 minutes 11 seconds East along
said Southerly right of way line, a distance of 290.07 feet to a
point;

thence South 00 degrees 48 minutes 56 seconds East, a distance of
360.62 feet to a point;

thence South 89 degrees 42 minutes 40 seconds West, a distance of
238.69 feet to a point;

thence North 00 degrees 48 minutes 41 seconds West, a distance of
195.41 feet to a point;

thence South 89 degrees 05 minutes 15 seconds West, a distance of
51.40 feet to a point;

thence North 00 degrees 49 minutes 01 seconds West, a distance of
163.28 feet to the TRUE POINT OF BEGINNING.

Parcel No. 2:

A parcel of land located in the Northwest one-quarter of the Southwest
one-quarter of Section 34, Township 16 North, Range 3 East of the Gila
and Salt River Base and Meridian, Yavapai County, Arizona, being more
particularly described as follows:

COMMENCING for reference at the West quarter corner of said Section
34;

thence North 89 degrees 13 minutes 11 seconds East, along the
East-West mid-section line of said Section 34, a distance of 87.60
feet to a point;

Exhibit "A" - 3
<PAGE> 35
thence South 00 degrees 15 minutes 00 seconds East, a distance of
48.00 feet to a point on the Southerly right- of-way of East Mingus
Avenue and Easterly right-of-way of Willard Street;

thence North 89 degrees 13 minutes 11 seconds East, along the said
Southerly right-of-way line of East Mingus Avenue, a distance of
291.58 feet to the TRUE POINT OF BEGINNING.

Parcel No. 3:

A parcel of land located in the Southwest quarter of Section 34,
Township 16 North, Range 3 East of the Gila and Salt River Base and
Meridian, Yavapai County, Arizona, more particularly described as
follows:

COMMENCING at the Northwest corner of said Southwest quarter, from
which the Northeast corner of said Southwest quarter bears North 89
degrees, 13 minutes, 11 seconds, East, a distance of 2722.03 feet;
thence North 89 degrees, 13 minutes, 11 seconds, East, along the North
line of said Southwest quarter, a distance of 87.64 feet (87.60 feet -
record); thence South 00 degrees, 14 minutes, 29 seconds, East, a
distance of 48.02 feet (South 00 degrees, 15 minutes, 00 seconds,
East, 48.00 feet - record) to the TRUE POINT OF BEGINNING;

Thence North 89 degrees, 11 minutes, 56 seconds, East, a distance of
291.63 feet (North 89 degrees, 13 minutes, 11 seconds, East, 291.58
feet - record); thence South 00 degrees, 48 minutes, 43 seconds, East,
a distance of 357.23 feet (South 00 degrees, 49 minutes, 01 seconds,
East, 347.19 feet - records); thence South 89 degrees, 43 minutes, 33
seconds, West (South 89 degrees, 42 minutes, 00 seconds, West -
record), a distance of 295.18 feet; thence North 00 degrees, 14
minutes 29 seconds, West (North 00 degrees, 15 minutes, 00 seconds,
West - record), along the East line of South Willard Street, a
distance of 354.54 feet to the TRUE POINT OF BEGINNING.

EXCEPTING THEREFROM all oil, minerals, ores and metals of every kind,
as reserved in Deed recorded in Book 187 of Deeds, Page 331.

Exhibit "A" - 4
<PAGE> 36
EXHIBIT "A"

III. HARRISON RETIREMENT COMMUNITY
(A/K/A EAGLE VALLEY RETIREMENT COMMUNITY)
INDIANAPOLIS, MARION COUNTY, INDIANA

A part of the Southwest Quarter of Section 22, Township 16 North,
Range 2 East, in Marion County, Indiana, more particularly described
as follows:

Commencing at the Southeast comer of said Southwest Quarter; thence
North 86 degrees 48 minutes 04 seconds West, along the South line of
said Quarter, 940.56 feet to the centerline of U.S. Highway 136
(Crawfordsville Road); thence North 60 degrees 32 minutes 36 seconds
West, along said centerline, 140.65 feet to the point of beginning;
thence continuing North 60 degrees 32 minutes 36 seconds West along
said centerline, 579.99 feet; thence North 29 degrees 27 minutes 24
seconds East 344.21 feet, thence South 60 degrees 32 minutes 36
seconds East 556.19 feet to the centerline of Valley Farms Road;
thence South 25 degrees 30 minutes 00 seconds West, along said
centerline 345.04 feet, the point of beginning.

Exhibit "A" - 5
<PAGE> 37
EXHIBIT "A"

IV. TOWNE CENTRE RETIREMENT COMMUNITY (A/K/A MERRILLVILLE TOWN CENTER)
MERRILLVILLE, LAKE COUNTY, INDIANA

Parcel 1: Fee Simple

A Parcel of land in the South 1/2 of the Northeast 1/4 of Section 17,
Township 35 North, Range 8 West of the Second Principal Meridian, in
the Town of Merrillville, Lake County, Indiana, being more
particularly described as follows: Commencing at the Northeast comer
of said Section 17; thence South 0 degrees 04 minutes 02 seconds West
1,321.79 feet along the East line of said Section 17, to the Point of
Beginning, said point being the Northeast comer of the South half of
the Northeast Quarter of said Section 17; thence continuing along said
last mentioned course 1,321.79 feet to the Southeast comer of the
South half of the Northeast Quarter of said Section 17; thence North
89 degrees 46 minutes 13 seconds West 100.00 feet along the South line
of the South half of the Northeast Quarter of said Section 17; thence
North 00 degrees 04 minutes 02 seconds East 350.00 feet; thence North
89 degrees 46 minutes 13 seconds West 580.10 feet; thence North 39
degrees 00 minutes 00 seconds West 353.23 feet-, thence North 40
degrees 00 minutes 00 seconds East 907.81 feet to the North line of
the South half of the Northeast Quarter of said Section 17; thence
South 89 degrees 50 minutes 37 seconds East 320.00 feet along the
North line of the South half of the Northeast Quarter of said Section
17 to the Point of Beginning; less the 10-foot strip lying in the
right-of-way for 73rd Avenue along the southernmost boundary of such
Parcel 1.

Parcel 2. Fee Simple

A parcel of land in the South 1/2 of the Northeast 1/4 of Section 17,
Township 35 North, Range 8 West of the Second Principal Meridian, in
the Town of Merrillville, Lake County, Indiana, being more
particularly described as follows: Commencing at the Northeast comer
of said Section 17; thence South 0 degrees 04 minutes 02 seconds West
2,643.58 feet along the East line of said Section 17 to the Southeast
comer of the South 1/2 of the Northeast 1/4 of said Section 17; thence
North 89 degrees 46 minutes 13 seconds West 100.00 feet along the
South line of the South 1/2 of the Northeast 1/4 of said Section to
the Point of Beginning, thence continuing along said last mentioned
course 500.00 feet; thence North 0 degrees 04 minutes 02 seconds East
200.00 feet; thence North 28 degrees 00 minutes 00 seconds West 170.25
feet; thence South 89 degrees 46 minutes 13 seconds East 580.10 feet;
thence South 0 degrees 04 minutes 02 seconds West 350.00 feet to the
Point of Beginning, Excepting therefrom the South 10 feet.

Parcel 3. As to Easement Rights Only

Non-exclusive right of way and easement for access, utility and
drainage over and across the following described property: A parcel of
land in the South half of the Northeast

Exhibit "A" - 6
<PAGE> 38
quarter of Section 17, Township 35 North, Range 8 West of the Second
Principal Meridian, in the Town of Merrillville, Lake County, Indiana,
being more particularly described as follows: Commencing at the
Northeast comer of said Section 17; thence South 0 degrees 04 minutes
02 seconds West 2,643.58 feet along the East line of said Section 17
to the Southeast comer of the South half of the Northeast quarter of
said Section 17; thence North 89 degrees 46 minutes 13 seconds West
600.00 feet along the South line of the South half of the Northeast
quarter of said Section 17 to the Point of Beginning; thence
continuing along said last mentioned course 1,446.82 feet to a point
that is 600.00 feet East of the Southwest comer of the Northeast
quarter of said Section 17; thence North 0 degrees 00 minutes 00
seconds West 1,236.4 feet to the South line of the North 5 rods of the
West 80 rods of the said South half; thence South 89 degrees 50
minutes 37 seconds East 720.00 feet; thence North 0 degrees 00 minutes
00 seconds West 82.50 feet along the East line of the North 5 rods of
the West 80 rods; thence South 89 degrees 50 minutes 37 seconds East
1,008.32 feet along the North line of the South half of the Northeast
quarter of Section 17; thence South 40 degrees 00 minutes 00 seconds
West 907.81 feet; thence South 39 degrees 00 minutes 00 seconds East
353.23 feet; thence South 28 degrees 00 minutes 00 seconds East 170.25
feet; thence South 0 degrees 04 minutes 02 seconds West 200.00 feet to
the Point of Beginning.

As granted in a certain easement agreement dated October 9, 1985 and
recorded October 18, 1985 as Document No. 824907.

Exhibit "A" - 7
<PAGE> 39
EXHIBIT B

APPLICATION FOR ADVANCE

LENDER: Lehman Brothers Holdings Inc. REQUEST FOR
d/b/a Lehman Capital, a Division ADVANCE NO.
---------
of Lehman Brothers Holdings, Inc.

BORROWER: Capital Senior Living Communities, L.P.

AMOUNT:
DATE: , 19__
------------

(a) This application and the items accompanying this application
(which are incorporated herein for all purposes) are delivered pursuant to the
Amended and Restated Loan Agreement (the "Loan Agreement") dated as of June 30,
1997, between Lender and Borrower, and each of the defined terms of which has
the same meaning when used herein or in the attachments unless indicated
otherwise. Borrower hereby certifies to Lender that this application is true
and correct in all respects and that this application and every item
incorporated herein are genuine and in all respects what they purport and
appear to be, and Borrower agrees that Lender may rely upon same in making the
requested Advance.

(b) Borrower hereby requests to borrow the principal amount of
$___________ (the "Requested Advance",) from Lender, during normal banking
business hours on ____________, 19__ (which date is not less than three
Business Days hence), which when borrowed will cause the principal amount then
outstanding on the Note to be $____________________.

(c) On the date hereof, and at the time the Requested Advance is
to be made, (a) the representations and warranties made in all of the Loan
Documents and certificates delivered pursuant thereto are and will be true and
correct in all material respects, (b) no Default or Event of Default has or
will have occurred and is or will be continuing, (c) Borrower has performed all
acts required by the Loan Documents to have been previously performed by
Borrower, and (d) no material adverse change in the financial condition of
Borrower, HCP or NHP has occurred and is continuing on the date hereof.

(d) The purpose of this Requested Advance is:
----------------------

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

All proceeds of all previous Advances have been, and the proceeds of the
requested Advance will be, spent only for the purposes permitted by the Loan
Agreement and only for the purposes

Exhibit "B" - 1
<PAGE> 40
specified in all Applications for Advances, and accompanying items, heretofore
or herewith delivered to Lender.

AS A FURTHER CONDITION TO ANY REQUEST FOR ADVANCE, AND IN ORDER FOR SUCH
REQUEST TO BE EFFECTIVE, THE ORIGINAL SIGNATURES OF BOTH JEFFREY L. BECK AND
JAMES A. STROUD, THE CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER,
RESPECTIVELY, OF CAPITAL RETIREMENT GROUP, INC., THE GENERAL PARTNER OF
RETIREMENT LIVING COMMUNITEES, L.P. WHICH IS THE GENERAL PARTNER OF CAPITAL
SENIOR LIVING COMMUNITIES, L.P., MUST APPEAR BELOW.

Exhibit "B" - 2
<PAGE> 41

The address of Borrower for Borrower:
Notice is:
14160 Dallas Parkway CAPITAL SENIOR LIVING
Dallas, Texas 75240 COMMUNITIES, L.P.,
a Delaware limited partnership

By: Retirement Living Communities, L.P.

By: Capital Retirement Group, Inc.,
General Partner

By:
-----------------------------------------
Jeffrey L. Beck
Chief Executive Officer

By:
-----------------------------------------
James A. Stroud,
Chief Executive Officer

Exhibit "B" - 3
<PAGE> 42
EXHIBIT C

PARTNERSHIP PROPERTIES

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Partnership Operator (under
Owner Property Location Manager Operating Lease)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HCP Cambridge Cambridge, MA Capital Senior N/A
Living Inc.
- --------------------------------------------------------------------------------------------------------------
HCP Cane Creek Martin, TN N/A Health South, successor by
merger to Rebound, Inc.
- --------------------------------------------------------------------------------------------------------------
HCP Cedarbrook Nashville, TN N/A Health South, successor by
merger to Rebound, Inc.
- --------------------------------------------------------------------------------------------------------------
HCP Crenshaw Creek Lancaster, SC N/A Health South, successor by
merger to Rebound, Inc.
- --------------------------------------------------------------------------------------------------------------
HCP Sandybrook Mt. Dora, FL N/A Health South, successor by
merger to Rebound, Inc.
- --------------------------------------------------------------------------------------------------------------
HCP Hearthstone Round Rock, TX N/A ARA Living Center of Texas
- --------------------------------------------------------------------------------------------------------------
HCP McCurdy Evansville, IN N/A AmHealth Inc.
- --------------------------------------------------------------------------------------------------------------
HCP Trinity Mills Forth Worth, TX N/A Integrated Health
Services, successor by
merger to Arbor Living
Center
- --------------------------------------------------------------------------------------------------------------
NHP Amberleigh Williamsburgh, NY Capital Senior N/A
- --------------------------------------------------------------------------------------------------------------
NHP Atrium of Carmichael, CA Capital Senior N/A
Carmichael
- --------------------------------------------------------------------------------------------------------------
NHP Crosswood Oaks Citrus Heights, CA Capital Senior N/A
Living Inc.
- --------------------------------------------------------------------------------------------------------------
NHP Heatherwood Southfield, MI Capital Senior N/A
Living Inc.
- --------------------------------------------------------------------------------------------------------------
NHP Veranda Club Boca Raton, FL Capital Senior N/A
Living Inc.
- --------------------------------------------------------------------------------------------------------------
</TABLE>

Exhibit "C" - 1
<PAGE> 43
EXHIBIT D

PARTNERSHIP DEBT

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Mortgage Debt
(other than NHP Indenture)
-----------------------------------
Partnership Original Current Amount
Owner Property Location Amount Outstanding
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HCP Cambridge Cambridge, MA
- ------------------------------------------------------------------------------------------------
HCP Cane Creek Martin, TN $ 2,200,000 $ 987,966
- ------------------------------------------------------------------------------------------------
HCP Cedarbrook Nashville, TN $ 2,000,000 $ 1,062,237
- ------------------------------------------------------------------------------------------------
HCP Crenshaw Creek Lancaster, SC
- ------------------------------------------------------------------------------------------------
HCP Sandybrook Mt. Dora, FL $ 1,500,000 $ 1,377,879
- ------------------------------------------------------------------------------------------------
HCP Hearthstone Round Rock, TX $ 4,700,000 $ 4,282,980
- ------------------------------------------------------------------------------------------------
HCP McCurdy Evansville, IN
- ------------------------------------------------------------------------------------------------
HCP Trinity Mills Forth Worth, TX
- ------------------------------------------------------------------------------------------------
NHP Amberleigh Williamsburgh, NY
- ------------------------------------------------------------------------------------------------
NHP Atrium of Carmichael Carmichael, CA
- ------------------------------------------------------------------------------------------------
NHP Crosswood Oaks Citrus Heights, CA
- ------------------------------------------------------------------------------------------------
NHP Heatherwood Southfield, MI
- ------------------------------------------------------------------------------------------------
NHP Veranda Club Boca Raton, FL
- ------------------------------------------------------------------------------------------------
</TABLE>

Exhibit "D" - 1

<PAGE> 1

EXHIBIT 10.11

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on
the 1st day of November, 1996, by and between Capital Senior Living
Corporation, a Delaware corporation ("CSL" or "the Company"), and Lawrence A.
Cohen, an individual residing in the State of New York ("Employee"). The term
of this Agreement shall be deemed to have commenced as of November 1, 1996
("Employment Commencement Date").

1. Appointment, Title and Duties. CSL hereby employs Employee to
serve in the positions as assigned to him by its Board of Directors, which
currently shall be as its Chief Financial Officer and as the Vice Chairman of
its Board of Directors and a member of the Executive Committee of the Board.
In such capacity, Employee shall report to the Chief Executive Officer and
Chief Operating Officer of CSL and shall have such powers, duties and
responsibilities as are customarily assigned to the Chief Financial Officer and
Vice Chairman. In addition Employee shall have such other duties and
responsibilities as may reasonably be assigned to him by the Board of
Directors, including serving with the consent or at the request of CSL on the
board of directors of affiliated corporations.

2. Term of Agreement. The initial term of this Agreement shall
be for a three (3) year period ending on October 31, 1999. The term of this
Agreement may be extended by the mutual written consent of the Employee and
Company. This Agreement shall terminate upon the earlier of: (i) the date of
the voluntary resignation of Employee, (ii) the date of Employee's death or
determination of Employee's disability (as defined in Paragraph 6 below), (iii)
the date of notice by CSL to Employee that this Agreement is being terminated
by CSL whether "for cause" (as defined in Paragraph 6 below) or without cause,
(iv) upon the date a notice of intent to resign for "good reason" (as defined
in Paragraph 6 below) is delivered to the Company by Employee, or (v)
expiration of the term.

3. Acceptance of Position. Employee hereby accepts the positions
assigned by the Board of Directors, and agrees that during the term of this
Agreement he will faithfully perform his duties and will devote substantially
all of his business time to the business and affairs of CSL and will not
engage, for his own account or for the account of any other person or entity,
in any other business or enterprise except with the express written approval of
the Board of Directors of CSL. Employee may, at his sole discretion, (i) serve
as a director on the boards of directors of other entities, businesses and
enterprises he currently serves on, President/CEO of Paine Webber Independent
Living Mortgage Fund, Inc. and Paine Webber Independent Living Mortgage Inc. II
(to serve without salary, stock ownership or other form of compensation and (i)
for the first six (6) months, not to interfere with Employee's ability to
devote substantially all of his business time to the business and affairs of
CSL, and (ii) after the first six (6) months, not to exceed a per annum of
hours of work per month as agreed to by the Chief Executive Officer or Chief
Operating Officer, in their sole discretion) and as President/CEO of Retail
Property Investors, Inc. for a period of one (1) year from the date of this
Agreement, and (ii) make personal, passive investments. Employee agrees to
perform his duties faithfully, diligently and to the best of his ability, to
use his best efforts to advance the best interests of the Company at all times,
and to

<PAGE> 2
abide by all moral, ethical and lawful policies, guidelines, procedures,
instructions and orders given to him by the Company from time to time;
provided, however, that in no event shall Employee be required to move from the
New York City, New York area. The Company will provide an office either in New
York City or the immediate area. Employee shall spend a reasonable amount of
time in Dallas to conduct the affairs of the Company.

4. Salary and Benefits. During the term of this Agreement:

A) CSL shall pay to Employee a base salary at an annual
rate of not less that Two Hundred Fifty Thousand
Dollars ($250,000.00) per annum, paid in
approximately equal installments no less frequently
than semi-monthly. A minimum annual bonus of
twenty-five percent (25%) of Employee's base salary
shall be paid in quarterly installments, subject to
increase by the Compensation Committee of the
Company, starting with the Employment Commencement
Date. The Company shall deduct from Employee's
compensation and bonus all applicable local, state,
Federal or foreign taxes, including, but not limited
to, income tax, withholding tax, social security tax
and pension contributions (if any).

B) Employee shall participate in all health, retirement,
Company-paid insurance, sick leave, disability,
expense reimbursement and other benefit programs, if
any, which CSL makes available, in its sole
discretion, to its senior executives; however,
nothing herein shall be construed to obligate the
Company to establish or maintain any employee benefit
program. The Company may purchase and maintain in
force a death and disability insurance policy in an
amount at all times equal to not less than an amount
equal to Employee's annual base salary multiplied by
three (3). The Company shall be the beneficiary of
said policy and shall use said policy for the
purposes described in Paragraph 7(A)(i), below.
Reimbursement of Employee's reasonable and necessary
business expenses incurred in the pursuit of the
business of the Company or any of its affiliates
shall be made to Employee upon his presentation to
the Company of itemized bills, vouchers or
accountings prepared in conformance with applicable
regulations of the Internal Revenue Service and the
policies and guidelines of the Company.

C) Employee shall be entitled to reasonable vacation
time in an amount of four (4) weeks per year pursuant
to the Company's Corporate Policies and Procedures
Manual, provided that not more than two (2) weeks of
such vacation time may be taken consecutively without
prior notice to, and the consent of, the Compensation
Committee of the Board of Directors of CSL or, if
there is no Compensation Committee, the Board of
Directors.

5. Stock Options. Pursuant to the terms of CSL's 1997 Stock
Option Plan, if adopted, Employee shall be entitled to receive a certain number
of options to purchase the common stock

2
<PAGE> 3
of the Company. The number of options to be offered to Employee shall be
determined by the Board of Directors of CSL.

6. Certain Terms Defined. For purposes of this Agreement:

A) Employee shall be deemed to be disabled if a physical
or mental condition shall occur and persist which, in
the written opinion of two (2) licensed physicians,
has rendered Employee unable to perform the duties of
Chief Financial Officer, Vice Chairman and member of
the Board of Directors of CSL for a period of ninety
(90) calendar days or more, and which condition, in
the opinion of such physicians, is likely to continue
for an indefinite period of time, rendering Employee
unable to return to his duties for CSL. One (1) of
the two (2) physicians shall be selected in good
faith by the Board of Directors of CSL, and the other
of the two (2) physicians shall be selected in good
faith by Employee. In the event that the two (2)
physicians selected do not agree as to whether
Employee is disabled, as described above, then said
two (2) physicians shall mutually agree upon a third
(3rd) physician whose written opinion as to
Employee's condition shall be conclusive upon CSL and
Employee for purposes of this Agreement.

B) A termination of Employee's employment by CSL shall
be deemed to be "for cause" if it is based upon (i)
Employee is charged with and then convicted of any
misdemeanor or any felony involving personal
dishonesty, (ii) material disloyalty by Employee to
the Company, including but not limited to
embezzlement, or (iii) Employee's material failure or
refusal to perform his duties in accordance with this
Agreement.

C) A resignation by Employee shall not be deemed to be
voluntary, and shall be deemed to be a resignation
for "good reason" if it is based upon (i) a material
diminution in Employee's duties, base salary or
annual minimum bonus which is not part of an overall
diminution for all executive officers of the Company,
or (ii) a material breach by CSL of the Company's
obligations to Employee under this Agreement or under
the Company's Stock Option Plan, if adopted.

7. Certain Benefits and Obligations Upon Termination.

A) In the event that Employee's employment terminates
(i) because of death or disability, (ii) because CSL
has terminated Employee other than "for cause," as
described above, or (iii) because Employee has
voluntarily resigned for "good reason," as described
above, then,

i) CSL shall pay Employee in accordance with its
Corporate Policies and Procedures Manual his
base salary plus his minimum annual

3
<PAGE> 4
bonus for the balance of the term of this
Agreement, but not less than one (1) year
(base salary plus minimum annual bonus for
two (2) years if termination due to a
Fundamental Change) from the date of the
notice of termination, and Employee shall
retain all his Company stock options that are
vested; provided, however, the benefits
described in this Paragraph 7(A)(i) shall
terminate at such time as Employee materially
breaches the provisions of Paragraphs 7(D),
8, or 9 hereof. A Fundamental Change shall
be defined as a merger, consolidation or any
sale of all or substantially all of the
assets of the Company that requires the
consent or vote of the holders of common
stock where the Company is not the survivor
or in control;

ii) All accrued but unpaid or unused vacation,
sick pay and expense reimbursement shall be
calculated in accordance with CSL's Corporate
Policies and Procedures Manual.

B) In the event that Employee's employment terminates
for any other cause other than those set forth in
Paragraph 7(A), which can include but not be limited
to voluntary resignation without good reason,
termination by CSL "for cause," expiration of the
term of the Agreement, etc., then,

i) CSL shall pay Employee his base salary and
prorated minimum base bonus, up to and
through the date of termination;

ii) All accrued but unpaid or unused vacation,
sick pay and expense reimbursement shall be,
calculated in accordance with CSL's Corporate
Policies and Procedures Manual.

C) In the event that Employee's employment terminates by reason
of his death, all benefits provided in this Paragraph 7 shall
be paid to Employee's estate or as his executor or personal
representative shall direct, but payment may be deferred until
Employee's executor or personal representative has been
appointed and qualified pursuant to the law in effect in
Employee's jurisdiction of residence at the time of his death;

D) Following the termination for any reason of Employee's
employment, Employee shall not for himself or any third party,
directly or indirectly (i) divert or attempt to divert from
the Company or its affiliated companies any business of any
kind in which it is or has been engaged, including, without
limitation, the solicitation of, interference with, or
entering into any contract with any of its past or then
existing customers, and (ii) employ, solicit for employment,
or recommend for employment any person employed by the Company
or its affiliated companies during the period of such person's
employment and for a period of two (2) years thereafter.

4
<PAGE> 5
8. Confidentiality. Employee hereby acknowledges his
understanding that as a result of his employment by CSL, he will have access
to, and possession of, valuable and important confidential or proprietary data,
documents and information concerning CSL, its operations and its future plans.
Employee hereby agrees that he will not, either during the term of his
employment with CSL, or at any time before or after the term of his employment
with CSL, divulge or communicate to any person or entity, or direct any
employee or agent of CSL or of his to divulge or communicate to any person or
entity, or use to the detriment of CSL or for the benefit of any other person
or entity, or make or remove any copies of, such confidential information or
proprietary data or information, whether or not marked or otherwise identified
as confidential or secret. Upon any termination of this Agreement for any
reason whatsoever, Employee shall surrender to CSL any and all materials,
including but not limited to drawings, manuals, reports, documents, lists,
photographs, maps, surveys, plans, specifications, accountings and any and all
other materials relating to the Company or any of its business, including all
copies thereof, that Employee has in his possession, whether or not such
material was created or compiled by Employee, but excluding, however, personal
memorabilia belonging to Employee and notes taken by him as a member of the
Board of Directors. With the exception of such excluded items, materials,
etc., Employee acknowledges that all such material is solely the property of
CSL, and that Employee has no right, title or interest in or to such materials.
Notwithstanding anything to the contrary set forth in this Paragraph 8, the
Provisions of this Paragraph 8 shall not apply to information which: (i) is or
becomes generally available to the public other than as a result of disclosure
by Employee, or (ii) is already known to Employee as of the date of this
Agreement from sources other than CSI, or (iii) is required to be disclosed by
law or by regulatory or judicial process.

9. Non-Competition. Employee hereby agrees that for a period of
two (2) years after any termination for any reason whatsoever of this Agreement
and after the last payment to Employee provided for hereunder (except that such
period shall be coterminous with the time period Employee receives any
termination compensation as set forth in Paragraph 7(A) if such termination is
without cause and there has not been a Fundamental Change), he will not,
directly or indirectly, commence doing business, in any manner whatsoever,
which is in competition with all or any portion of the business of CSL in any
state in which CSL then operates, owns, or is in the process of developing more
than three (3) facilities. CSL hereby acknowledges and agrees that Employee's
ownership of a class of securities listed on a stock exchange or traded on the
over-the-counter market that represents five percent (5%) or less of the number
of shares of such class of securities then issued and outstanding shall not
constitute a violation of this Paragraph 9.

10. Work Product. The Employee agrees that all innovations,
improvements, developments, methods, designs, analyses, reports and all similar
or related information which relates to the Company's or any of its
subsidiaries' or affiliates' actual or anticipated business, or existing or
future products or services and which are conceived, developed or made by the
Employee while employed by the Company ("Work Product") belong to the Company
or such subsidiary or affiliate. The Employee will promptly disclose such Work
Product to the Board and perform all actions reasonably requested by the Board
(whether during or after the employment period) to establish and to confirm
such ownership (including, without limitation, assignments, consents, powers of
attorney and other instruments).

5
<PAGE> 6
11. Legal Action. In the event that any action or proceeding is
brought to enforce the terms and provisions of this Agreement, the prevailing
party shall be entitled to recover reasonable attorneys' fees and costs. In
the event of a breach or threatened breach by Employee of the provisions of
Paragraph 7(D), 8, 9, or 10, Employee and the Company agree that the Company,
shall, in addition to any other available remedies, be entitled to an
injunction restraining Employee from violating the terms of the applicable
Paragraph and that said injunction is appropriate and proper relief for such
violation.

12. Notices. All notices and other communications provided to
either party hereto under this Agreement shall be in writing and delivered by
hand delivery, overnight courier service or certified mail, return receipt
requested, to the party being notified at said party's address set forth
adjacent to said party's signature on this Agreement, or at such other address
as may be designated by a party in a notice to the other party given in
accordance with this Agreement. Notices given by hand delivery or overnight
courier service shall be deemed received on the date of delivery shown on the
courier's delivery receipt or log. Notices given by certified mail shall be
deemed received three (3) days after deposit in the U.S. Mail.

13. Construction. In construing this Agreement, if any portion of
this Agreement shall be found to be invalid or unenforceable, the remaining
terms and provisions of this Agreement shall be given effect to the maximum
extent permitted without considering the void, invalid or unenforceable
provision. In construing this Agreement, the singular shall include the
plural, the masculine shall include the feminine and neuter genders, as
appropriate, and no meaning or effect shall be given to the captions of the
paragraphs in this Agreement, which are inserted for convenience of reference
only.

14. Choice of Law; Survival. This Agreement shall be governed and
construed in accordance with the internal laws of the State of Texas without
resort to choice of law principles. The provisions of Paragraphs 7, 8, 9, and
10 shall survive the termination of this Agreement for any reason whatsoever.

15. Integration; Amendments. This is an integrated Agreement.
This Agreement constitutes and is intended as a final expression and a complete
and exclusive statement of the understanding and agreement of the, parties
hereto with respect to the subject matter of this Agreement. All negotiations,
discussions and writings between the parties hereto relating to the subject
matter of this Agreement are merged into this Agreement, and there are no
rights conferred, nor promises, agreements, conditions, undertakings,
warranties or representations, oral or written, expressed or implied, between
the undersigned parties as to such matters other than as specifically set forth
herein. No amendment or modification of or addendum to, this Agreement shall
be valid unless the same shall be in writing and signed by the parties hereto.
No waiver of any of the provisions of this Agreement shall be valid unless in
writing and signed by the party against whom it is sought to be enforced.

16. Binding Effect. This Agreement is binding upon and shall
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns; provided, however, that Employee shall
not be entitled to assign his interest in this Agreement

6
<PAGE> 7
(except for an assignment by operation of law to his estate), or any portion
hereof, or any rights hereunder, to any party. Any attempted assignment by
Employee in violation of this Paragraph 16 shall be null, void, ab initio and
of no effect of any kind or nature whatsoever.

17. Guaranty. The Company's obligations set forth in Sections 4
and 7 of this Agreement shall be guaranteed by Capital Senior Living, Inc. (the
"Guarantor"). The Guarantor guarantees the full and prompt payment of all
amounts payable by the Company set forth in Sections 4 and 7 which may become
due and arising as limited under and to Sections 4 and 7. Upon the Default by
the Company in payment of those obligations, and without further notice, or
without exhausting all remedies available to the, Employee against the Company,
the Guarantor shall perform the obligations described above. The Guarantor
shall have all rights of the Company hereunder regarding any event which would
result in a defense or claim hereunder, including but not limited to defenses,
notices, cure periods and any counterclaims.

IN WITNESS WHEREOF, the parties have executed this Agreement on the
date set forth above to be effective as of the date specified in the preamble
of this Agreement.

CAPITAL SENIOR LIVING CORPORATION,
a Delaware corporation

Address:
14160 Dallas Parkway, #300
Dallas, TX 75240 By: /s/ JAMES A. STROUD C.O.O.
-----------------------------------------
James A. Stroud, Chief Operating Officer

EMPLOYEE

Address:
41 Willow Road
Woodsburgh, NY 11598
/s/ LAWRENCE A. COHEN
--------------------------------------------
Lawrence A. Cohen

CAPITAL SENIOR LIVING, INC.,
a Texas corporation, signing for the
limited purpose set forth in Section 17.
Address:
14160 Dallas Parkway, #300
Dallas, TX 75240 By:/s/ JEFFREY L. BECK C.E.O.
-----------------------------------------
Jeffrey L. Beck, Chief Executive Officer

<PAGE> 1
EXHIBIT 10.12

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on
the 26th day of November, 1996, by and between Capital Senior
Living, Inc. a Texas corporation ("CSL" or "the Company"), and David R.
Brickman , an individual residing in the State of Texas ("Employee"). The term
of this Agreement shall be deemed to have commenced as of December 1 , 1996
("Employment Commencement Date").

1. APPOINTMENT, TITLE AND DUTIES. CSL hereby employs Employee to
serve in the position as assigned to him by the Board of Directors. In such
capacity, Employee shall report to the Chief Executive Officer and Chief
Operating Officer of CSL and shall have such powers, duties and
responsibilities as are customarily assigned to said position and as may be
otherwise assigned to him. In addition Employee shall have such other duties
and responsibilities as may reasonably be assigned to him by the Board of
Directors, including serving with the consent or at the request of CSL on the
board of directors or as an officer of entities affiliated with CSL
(collectively, the "Affiliates").

2. TERM OF AGREEMENT. The initial term of this Agreement shall be
for a three (3) year period ending on November 30 , 1999, however, the term of
this Agreement shall automatically be extended for a two (2) year term on a
consecutive basis. This Agreement shall terminate upon the earlier of: (i)
the date of the voluntary resignation of Employee, (ii) the date of Employee's
death or determination of Employee's disability (as defined in Paragraph 6
below), (iii) the date of notice by CSL to Employee that this Agreement is
being terminated by CSL whether "for cause" (as defined in Paragraph 6 below)
or without cause, or (iv) upon the date a notice of intent to resign for "good
reason" (as defined in Paragraph 6 below) is delivered to the Company by
Employee.

3. ACCEPTANCE OF POSITION. Employee hereby accepts the position
assigned by the Board of Directors and agrees that during the term of this
Agreement he will faithfully perform his duties and will devote substantially
all of his business time to the business and affairs of CSL and will not
engage, for his own account or for the account of any other person or entity,
in any other business or enterprise except with the express written approval of
the Board of Directors of CSL. Employee may, at his sole discretion, (i) serve
as a director on the boards of directors of other entities, businesses and
enterprises he currently serves on, and (ii) make personal, passive
investments. Employee agrees to perform his duties faithfully, diligently and
to the best of his ability, to use his best efforts to advance the best
interests of the Company at all times, and to abide by all moral, ethical and
lawful policies, guidelines, procedures, instructions and orders given to him
by the Company from time to time.

-1-
<PAGE> 2
4. SALARY AND BENEFITS. During the term of this Agreement:

A) CSL shall pay to Employee a base salary at an annual
rate of $100,000.00 per annum, paid in approximately
equal installments no less frequently than
semi-monthly. Employee shall receive a performance
and compensation review on Employee's anniversary
hire date. Employee shall be eligible for an annual
bonus, if available, as determined by the
Compensation Committee of the Board of Directors of
CSL or, if there is no Compensation Committee, the
Board of Directors. The Company shall deduct from
Employee's compensation and bonus, if any, all
applicable local, state, Federal or foreign taxes,
including, but not limited to, income tax,
withholding tax, social security tax and pension
contributions (if any).

B) Employee shall participate in all health, retirement,
Company-paid insurance, sick leave, disability,
expense reimbursement and other benefit programs, if
any, which CSL makes available, in its sole
discretion, to its senior executives; however,
nothing herein shall be construed to obligate the
Company to establish or maintain any employee benefit
program. The Company may purchase and maintain in
force a death and disability insurance policy in an
amount at all times equal to not less than an amount
equal to Employee's annual base salary multiplied by
two (2). The Company would be the beneficiary of
said policy and would use said policy for the
purposes described in Paragraph 7(A)(i), below.
Reimbursement of Employee's reasonable and necessary
business expenses incurred in the pursuit of the
business of the Company or any of its affiliates
shall be made to Employee upon his presentation to
the Company of itemized bills, vouchers or
accountings prepared in conformance with applicable
regulations of the Internal Revenue Service and the
policies and guidelines of the Company.

C) Employee shall be entitled to reasonable vacation
time in an amount of three (3) weeks per year
pursuant to the Company's Corporate Policies and
Procedures Manual, provided that not more than two
(2) weeks of such vacation time may be taken
consecutively without prior notice to, and the
consent of, the Compensation Committee of the Board
of Directors of CSL or, if there is no Compensation
Committee, the Board of Directors.

5. STOCK OPTIONS. Pursuant to the terms of CSL's 1997 Stock Option
Plan, if adopted, Employee shall be entitled to receive a certain number of
options, if available, to purchase the common stock of the Company. The number
of options to be offered to Employee shall be determined by the Board of
Directors of CSL.

-2-
<PAGE> 3
6. CERTAIN TERMS DEFINED. For purposes of this Agreement:

A) Employee shall be deemed to be disabled if a physical
or mental condition shall occur and persist which, in
the written opinion of two (2) licensed physicians,
has rendered Employee unable to perform his assigned
duties for CSL for a period of ninety (90)
consecutive calendar days or more, and which
condition, in the opinion of such physicians, is
likely to continue for an indefinite period of time,
rendering Employee unable to return to his duties for
CSL. One (1) of the two (2) physicians shall be
selected in good faith by the Board of Directors of
CSL, and the other of the two (2) physicians shall be
selected in good faith by Employee. In the event
that the two (2) physicians selected do not agree as
to whether Employee is disabled, as described above,
then said two (2) physicians shall mutually agree
upon a third (3rd) physician whose written opinion as
to Employee's condition shall be conclusive upon CSL
and Employee for purposes of this Agreement.

B) A termination of Employee's employment by CSL shall
be deemed to be "for cause" if it is based upon (i)
Employee is charged with and then convicted of any
misdemeanor or any felony involving personal
dishonesty, (ii) disloyalty by Employee to the
Company, including but not limited to embezzlement,
or (iii) Employee's failure or refusal to perform his
duties in accordance with this Agreement based on a
standard of reasonableness.

C) A resignation by Employee shall not be deemed to be
voluntary, and shall be deemed to be a resignation
for "good reason" if it is based upon (i) a material
diminution in Employee's base salary which is not
part of an overall diminution for all executive
officers of the Company, or (ii) a material breach by
CSL of the Company's obligations to Employee under
this Agreement or under the Company's Stock Option
Plan, if adopted.

7. CERTAIN BENEFITS AND OBLIGATIONS UPON TERMINATION.

A) In the event that Employee's employment terminates
(i) because of death or disability, (ii) because CSL
has terminated Employee other than "for cause" (as
described above), including a Fundamental Change and
if Employee has been continuously employed by CSL for
at least one year prior to the Fundamental Change as
described below, or (iii) because Employee has
voluntarily resigned for "good reason" as described
above, then,

i) CSL shall pay Employee in accordance with its
Corporate Policies and Procedures Manual his
base salary for the balance

-3-
<PAGE> 4
of the term of this Agreement, but not to
exceed two (2) years and not less than one
(1) year from the date of the notice of
termination, and Employee shall retain all
his Company stock options that are vested;
provided, however, the benefits described in
this Paragraph 7(A)(i) shall terminate at
such time as Employee materially breaches the
provisions of Paragraphs 7(D), 8, 9, or 10
hereof. A Fundamental Change shall be
defined as a merger, consolidation or any
sale of all or substantially all of the
assets of the Company that requires the
consent or vote of the holders of common
stock where the Company is not the survivor
or in control;

ii) All accrued but unpaid or unused vacation,
sick pay and expense reimbursement shall be
calculated in accordance with CSL's Corporate
Policies and Procedures Manual.

B) In the event that Employee's employment terminates for any
other cause other than those set forth in Paragraph 7(A),
(which can include voluntary resignation without good reason
or termination by CSL "for cause"), then,

i) CSL shall pay Employee his base salary up to
and through the date of termination;

ii) All accrued but unpaid or unused vacation,
sick pay and expense reimbursement shall be
calculated in accordance with CSL's Corporate
Policies and Procedures Manual.

D) Following the termination for any reason of Employee's
employment, Employee shall not for himself or any third party,
directly or indirectly (i) divert or attempt to divert from
the Company or its Affiliates any business of any kind in
which it is or has been engaged, including, without
limitation, the solicitation of, interference with, or
entering into any contract with any of its past or then
existing customers, and (ii) employ, solicit for employment,
or recommend for employment any person employed by the Company
or its Affiliates during the period of such person's
employment and for a period of two (2) years thereafter.

-4-
<PAGE> 5
8. CONFIDENTIALITY. Employee hereby acknowledges his understanding
that as a result of his employment by CSL, he will have access to, and
possession of, valuable and important confidential or proprietary data,
documents and information concerning CSL or its Affiliates, its operations and
its future plans. Employee hereby agrees that he will not, either during the
term of his employment with CSL, or at any time before or after the term of his
employment with CSL, divulge or communicate to any person or entity, or direct
any employee or agent of CSL or its Affiliates or of his to divulge or
communicate to any person or entity, or use to the detriment of CSL or its
Affiliates or for the benefit of any other person or entity, or make or remove
any copies of, such confidential information or proprietary data or
information, whether or not marked or otherwise identified as confidential or
secret. Upon any termination of this Agreement for any reason whatsoever,
Employee shall surrender to CSL or its Affiliates any and all materials,
including but not limited to drawings, manuals, reports, documents, lists,
photographs, maps, surveys, plans, specifications, accountings and any and all
other materials relating to the Company or any of its business, including all
copies thereof, that Employee has in his possession, whether or not such
material was created or compiled by Employee, but excluding, however, personal
memorabilia belonging to Employee and notes taken by him as a member of the
Board of Directors. With the exception of such excluded items, materials,
etc., Employee acknowledges that all such material is solely the property of
CSL or its Affiliates, and that Employee has no right, title or interest in or
to such materials. Notwithstanding anything to the contrary set forth in this
Paragraph 8, the Provisions of this Paragraph 8 shall not apply to information
which: (i) is or becomes generally available to the public other than as a
result of disclosure by Employee, or (ii) is already known to Employee as of
the date of this Agreement from sources other than CSL or its Affiliates, or
(iii) is required to be disclosed by law or by regulatory or judicial process.

10. WORK PRODUCT. The Employee agrees that all innovations,
improvements, developments, methods, designs, analyses, reports and all similar
or related information which relates to the Company's or any of its
subsidiaries' or Affiliates' actual or anticipated business, or existing or
future products or services and which are conceived, developed or made by the
Employee while employed by the Company or its Affiliates ("Work Product")
belong to the Company or such subsidiary or Affiliate. The Employee will
promptly disclose such Work

-5-
<PAGE> 6
Product to the Board and perform all actions reasonably requested by the Board
(whether during or after the employment period) to establish and to confirm
such ownership (including, without limitation, assignments, consents, powers of
attorney and other instruments).

11. LEGAL ACTION. In the event that any action or proceeding is
brought to enforce the terms and provisions of this Agreement, the prevailing
party shall be entitled to recover reasonable attorneys' fees and costs. In
the event of a breach or threatened breach by Employee of the provisions of
Paragraph 7(D), 8, 9, or 10, Employee and the Company agree that the Company,
shall, in addition to any other available remedies, be entitled to an
injunction restraining Employee from violating the terms of the applicable
Paragraph and that said injunction is appropriate and proper relief for such
violation.

12. NOTICES. All notices and other communications provided to either
party hereto under this Agreement shall be in writing and delivered by hand
delivery, overnight courier service or certified mail, return receipt
requested, to the party being notified at said party's address set forth
adjacent to said party's signature on this Agreement, or at such other address
as may be designated by a party in a notice to the other party given in
accordance with this Agreement. Notices given by hand delivery or overnight
courier service shall be deemed received on the date of delivery shown on the
courier's delivery receipt or log. Notices given by certified mail shall be
deemed received three (3) days after deposit in the U.S. Mail.

13. CONSTRUCTION. In construing this Agreement, if any portion of
this Agreement shall be found to be invalid or unenforceable, the remaining
terms and provisions of this Agreement shall be given effect to the maximum
extent permitted without considering the void, invalid or unenforceable
provision. In construing this Agreement, the singular shall include the
plural, the masculine shall include the feminine and neuter genders, as
appropriate, and no meaning or effect shall be given to the captions of the
paragraphs in this Agreement, which are inserted for convenience of reference
only.

14. CHOICE OF LAW; SURVIVAL. This Agreement shall be governed and
construed in accordance with the internal laws of the State of Texas without
resort to choice of law principles. The provisions of Paragraphs 7(A), (B),
(C), (D), 8, 9, and 10 shall survive the termination of this Agreement for any
reason whatsoever.

15. INTEGRATION; AMENDMENTS. This is an integrated Agreement. This
Agreement constitutes and is intended as a final expression and a complete and
exclusive statement of the understanding and agreement of the parties hereto
with respect to the subject matter of this Agreement. All negotiations,
discussions and writings between the parties hereto relating to the subject
matter of this Agreement are merged into this Agreement, and there are no
rights conferred, nor promises, agreements, conditions, undertakings,
warranties

-6-
<PAGE> 7
or representations, oral or written, expressed or implied, between the
undersigned parties as to such matters other than as specifically set forth
herein. No amendment or modification of or addendum to, this Agreement shall
be valid unless the same shall be in writing and signed by the parties hereto.
No waiver of any of the provisions of this Agreement shall be valid unless in
writing and signed by the party against whom it is sought to be enforced.

16. BINDING EFFECT. This Agreement is binding upon and shall inure
to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns; PROVIDED, HOWEVER, that Employee shall
not be entitled to assign his interest in this Agreement (except for an
assignment by operation of law to his estate), or any portion hereof, or any
rights hereunder, to any party. Any attempted assignment by Employee in
violation of this Paragraph 16 shall be null, void, ab initio and of no effect
of any kind or nature whatsoever.

IN WITNESS WHEREOF, the parties have executed this Agreement on the
date set forth above to be effective as of the date specified in the preamble
of this Agreement.

CAPITAL SENIOR LIVING, INC.
a Texas corporation

Address:
14160 Dallas Parkway, #300
Dallas, TX 75240 By: /s/ JAMES A. STROUD
-------------------------------------
James A. Stroud,
Chief Operating Officer

EMPLOYEE

Address:
6255 Northwest Highway, #211
Dallas, TX 75225 /s/ DAVID R. BRICKMAN
----------------------------------------

-7-

<PAGE> 1
EXHIBIT 10.13

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on
the 26th day of November, 1996, by and between Capital Senior Living, Inc. a
Texas corporation ("CSL" or "the Company"), and Keith N. Johannessen , an
individual residing in the State of Texas ("Employee"). The term of this
Agreement shall be deemed to have commenced as of December 1 , 1996
("Employment Commencement Date").

-1-
<PAGE> 2
4. SALARY AND BENEFITS. During the term of this Agreement:

A) CSL shall pay to Employee a base salary at an annual
rate of $140,000.00 per annum, paid in approximately
equal installments no less frequently than
semi-monthly. Employee shall receive a performance
and compensation review on Employee's anniversary
hire date. Employee shall be eligible for an annual
bonus, if available, as determined by the
Compensation Committee of the Board of Directors of
CSL or, if there is no Compensation Committee, the
Board of Directors. The Company shall deduct from
Employee's compensation and bonus, if any, all
applicable local, state, Federal or foreign taxes,
including, but not limited to, income tax,
withholding tax, social security tax and pension
contributions (if any).

B) Employee shall participate in all health, retirement,
Company-paid insurance, sick leave, disability,
expense reimbursement and other benefit programs, if
any, which CSL makes available, in its sole
discretion, to its senior executives; however,
nothing herein shall be construed to obligate the
Company to establish or maintain any employee benefit
program. The Company may purchase and maintain in
force a death and disability insurance policy in an
amount at all times equal to not less than an amount
equal to Employee's annual base salary multiplied by
two (2). The Company would be the beneficiary of
said policy and would use said policy for the
purposes described in Paragraph 7(A)(i), below.
Reimbursement of Employee's reasonable and necessary
business expenses incurred in the pursuit of the
business of the Company or any of its affiliates
shall be made to Employee upon his presentation to
the Company of itemized bills, vouchers or
accountings prepared in conformance with applicable
regulations of the Internal Revenue Service and the
policies and guidelines of the Company.

-2-
<PAGE> 3
6. CERTAIN TERMS DEFINED. For purposes of this Agreement:

A) Employee shall be deemed to be disabled if a physical
or mental condition shall occur and persist which, in
the written opinion of two (2) licensed physicians,
has rendered Employee unable to perform his assigned
duties for CSL for a period of ninety (90)
consecutive calendar days or more, and which
condition, in the opinion of such physicians, is
likely to continue for an indefinite period of time,
rendering Employee unable to return to his duties for
CSL. One (1) of the two (2) physicians shall be
selected in good faith by the Board of Directors of
CSL, and the other of the two (2) physicians shall be
selected in good faith by Employee. In the event
that the two (2) physicians selected do not agree as
to whether Employee is disabled, as described above,
then said two (2) physicians shall mutually agree
upon a third (3rd) physician whose written opinion as
to Employee's condition shall be conclusive upon CSL
and Employee for purposes of this Agreement.

B) A termination of Employee's employment by CSL shall
be deemed to be "for cause" if it is based upon (i)
Employee is charged with and then convicted of any
misdemeanor or any felony involving personal
dishonesty, (ii) disloyalty by Employee to the
Company, including but not limited to embezzlement,
or (iii) Employee's failure or refusal to perform his
duties in accordance with this Agreement based on a
standard of reasonableness.

C) A resignation by Employee shall not be deemed to be
voluntary, and shall be deemed to be a resignation
for "good reason" if it is based upon (i) a material
diminution in Employee's base salary which is not
part of an overall diminution for all executive
officers of the Company, or (ii) a material breach by
CSL of the Company's obligations to Employee under
this Agreement or under the Company's Stock Option
Plan, if adopted.

7. CERTAIN BENEFITS AND OBLIGATIONS UPON TERMINATION.

i) CSL shall pay Employee in accordance with its
Corporate Policies and Procedures Manual his
base salary for the balance

ii) All accrued but unpaid or unused vacation,
sick pay and expense reimbursement shall be
calculated in accordance with CSL's Corporate
Policies and Procedures Manual.

i) CSL shall pay Employee his base salary up to
and through the date of termination;

ii) All accrued but unpaid or unused vacation,
sick pay and expense reimbursement shall be
calculated in accordance with CSL's Corporate
Policies and Procedures Manual.

D) Following the termination for any reason of Employee's
employment, Employee shall not for himself or any third party,
directly or indirectly (i) divert or attempt to divert from
the Company or its Affiliates any business of any kind in
which it is or has been engaged, including, without
limitation, the solicitation of, interference with, or
entering into any contract with any of its past or then
existing customers, and (ii) employ, solicit for employment,
or recommend for employment any person employed by the Company
or its Affiliates during the period of such person's
employment and for a period of two (2) years thereafter.

9. NON-COMPETITION. Employee hereby agrees that for a period of one
(1) year after any termination for any reason whatsoever of this Agreement and
after the last payment to Employee provided for hereunder, he will not,
directly or indirectly, commence doing business, in any manner whatsoever,
which is in competition with all or any portion of the business of CSL or its
Affiliates in any state in which CSL or its Affiliates then operate, own, asset
manage, or is in the process of developing more than two (2) facilities. CSL
hereby acknowledges and agrees that Employee's ownership of a class of
securities listed on a stock exchange or traded on the over-the-counter market
that represents five percent (5%) or less of the number of shares of such class
of securities then issued and outstanding shall not constitute a violation of
this Paragraph 9. Notwithstanding anything to the contrary set forth in this
Paragraph 9, if Employee is terminated from employment by CSL "for cause" as
defined in Paragraph 6(B) or Employee voluntarily resigns, Employee shall not
be in violation of this Paragraph 9 if Employee accepts and works within the
one (1) year period at a position as an on-site administrator or on-site
executive director at a nursing or retirement facility for a salary equal to or
less than a comparable position at a comparable facility in the area.

-5-
<PAGE> 6
business, or existing or future products or services and which are conceived,
developed or made by the Employee while employed by the Company or its
Affiliates ("Work Product") belong to the Company or such subsidiary or
Affiliate. The Employee will promptly disclose such Work Product to the Board
and perform all actions reasonably requested by the Board (whether during or
after the employment period) to establish and to confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).

IN WITNESS WHEREOF, the parties have executed this Agreement on the
date set forth above to be effective as of the date specified in the preamble
of this Agreement.

CAPITAL SENIOR LIVING, INC.
a Texas corporation

Address:
14160 Dallas Parkway, #300
Dallas, TX 75240 By: /s/ JAMES A. STROUD
-------------------------------------
James A. Stroud,
Chief Operating Officer

EMPLOYEE

Address:
2507 Twelve Oaks Lane
Colleyville, TX 76034 /s/ KEITH JOHANNESSEN
----------------------------------------

-7-

<PAGE> 1

Exhibit 10.14

LEHMAN BROTHERS HOLDINGS INC.
3 World Financial Center
200 Vesey Street
New York, NY 10285

June 30, 1997

Capital Senior Living Corporation
14160 Dallas Parkway
Dallas, Texas 75240

Attention: David R. Brickman, Vice President

Re: Initial Public Offering

Gentlemen:

The purpose of this letter is to memorialize certain agreements
between Lehman Brothers Holdings Inc. D/B/A Lehman Capital, A Division of
Lehman Brothers Holdings Inc., ("Lehman"), and Capital Senior Living
Corporation ("Capital"), with respect to Capital's proposed initial public
offering.

For valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by Capital, Capital agrees to provide Lehman or an
affiliate of Lehman with the first option of acting as lead-manager and
book-runner for the initial pubic offering of Capital and/or any affiliate of
Capital (the "IPO"). The prospectus for the IPO shall be in Lehman's standard
format and typeface, and shall contain such terms and provisions as shall be
reasonably acceptable to Capital. Lehman's name will appear on the upper left
side of the listing of managers, and Lehman's name will appear as the first
underwriter listed vertically in the "Underwriting" section of the prospectus.
The prospectus cover will indicate that delivery of the offered shares is to be
made at Lehman's offices.

Lehman acknowledges that another investment banking firm may be
designated as a co-lead manager with Lehman in connection with the IPO but
Capital agrees that if Lehman accepts such option to act as a lead-manager and
book runner for the IPO, Lehman will be the sole book runner with respect to
the IPO. In the event that Lehman accepts such option to act as lead-manager
and book runner, Capital shall pay to Lehman an advisory fee equal to 0.75% of
the gross proceeds of the IPO, the gross spread shall be 6.25%, and Capital
shall, subject to its review and reasonable comment, enter into an underwriting
agreement with Lehman which agreement shall be in or based upon Lehman's
standard form of underwriting agreement.
<PAGE> 2
Notwithstanding the foregoing, Lehman shall be under no obligation to
act as lead manager or book runner.

Lehman may in its sole discretion elect to allocate all or a portion
of the fees payable hereunder to any of its affiliates.

In the event that Capital fails to give Lehman the first option to act
as lead manager and book-runner for the IPO, it shall be an Event of Default
under that certain amended and restated loan agreement dated June 30, 1997
between Lehman and Capital Senior Living Communities L.P.

This letter may not be amended or any provision hereof waived or
modified except by an agreement in writing signed by each of the parties
hereto. This letter shall be governed by, and construed in accordance with,
the laws of the State of New York.

ACCEPTANCE
If the foregoing correctly sets forth Lehman's understanding with
Capital, Capital should indicate their acceptance of the terms hereby by
signing in the appropriate space below and returning to Lehman the enclosed
duplicate original of this letter, whereupon this letter shall become a binding
agreement among Lehman and Capital.

LEHMAN BROTHERS HOLDINGS INC.

By: /s/ Jack E. Desens
------------------------------------
Name: Jack E. Desens
Title: Authorized Signatory
<PAGE> 3
AGREED to on this 30th day of June, 1997:

CAPITAL SENIOR LIVING CORPORATION

By: /s/ David R. Brickman
------------------------------------------
David R. Brickman
Vice President

AGREED to on this 30th day of June, 1997 solely for the
purpose of agreeing to the cross-default provision contained herein:

CAPITAL SENIOR LIVING COMMUNITIES, L.P.,
a Delaware limited partnership

By: Retirement Living Communities, L.P.

By: Capital Retirement Group, Inc.
General Partner

By: /s/ David R. Brickman
----------------------------------
David R. Brickman
Vice President

<PAGE> 1
EXHIBIT 10.15

LEASE AGREEMENT

THIS LEASE AGREEMENT made and entered into this 1st day of June, 1997, by and
between G&L Gardens, LLC., an Arizona Limited Liability Company the "Lessor",
and Capital Senior Management 1, Inc., a Texas Corporation, the "Lessee".

W I T N E S E T H

WHEREAS, Lessor owns a 98 bed Intermediate Care Nursing and Alzheimers facility
located in Phoenix, Arizona known as Maryland Gardens Care Center, which
together with any other improvements now hereafter located on the tract and all
easements, tenements, hereditament, buildings, appurtenances and any and all
furnishings, fixtures and equipment and supplies used in conjunction therewith
are hereinafter referred to as the "Leased Premises";

WHEREAS, the Lessor owns furnishings, furniture, equipment, fixtures and
supplies to be used in or about the Leased Premises which are enumerated on
Exhibit "A" (hereinafter collectively referred to as the "Personal Property");

WHEREAS, Lessee has agreed to lease the Leased Premises and Personal Property
from Lessor pursuant to the terms and conditions of this lease (the "Lease");

NOW, THEREFORE, in consideration of the rents hereinafter specified and the
covenants, terms and conditions hereinafter contained, the parties do hereby
agree as follows:

1. Leased Premises and Personal Property. Lessor, for and in
consideration of the rent, and covenants and agreements hereinafter
reserved, mentioned and contained on the part of the Lessee, its
successors and assigns, to be paid, kept and performed, does hereby
Lease unto Lessee the Leased Premises together with the Personal
Property to be used in and upon the Leased Premises for the term
hereinafter specified, for use and operation therein and thereon of a
nursing home and Alzheimers facility.

2. Term of Lease. The term of this Lease shall be for a period of
fourteen (14) months commencing on June 1, 1997, (the "Commencement
Date"), and shall expire at midnight on July 31, 1998, unless sooner
terminated as hereinafter provided.

3. Rent. Lessee shall pay to Lessor after payment of all expenses,
(including the monthly management fee) the monthly rental for the
Leased Premises (the "Rent") in the amount of $30,000 in June, July
and September, 1997, and $35,000 per month thereafter.
Notwithstanding the above, it is agreed that no

1
<PAGE> 2
rental payments will be due in August of 1997 and May of 1998. All
rent payments shall be paid by the fifth day of each month.

4. License and Certifications. Lessee will use its best efforts to take
all affirmative action required by all federal, state, county and
local governmental authorities having jurisdiction over Lessee, the
services it provides and the facilities it operates, to obtain,
maintain, and retain all necessary, and appropriate certificates,
licenses, and other approvals for operation of the Leased Premises.

5. Payment of Taxes and Assessments.

a. Generally. Lessee will pay or cause to be paid, all taxes and
assessments, which during the term of this Lease may have
been, or may be assessed, levied, confirmed, imposed upon and
become due and payable out of or in respect of, or become a
lien on the Leased Premises or any part thereof (hereinafter
collectively referred to as "Taxes and Assessments").
Notwithstanding the foregoing, Lessee will be under no
obligation, however, to pay interest or principal on any debt
of Lessor secured by the Property, any franchise or income tax
payable by Lessor (including income or similar tax on net
income of Lessor derived from this Lease), any gift,
inheritance, transfer estate or succession tax by reason of
any present or future law which may be enacted during the term
of this Lease.

b. Contest. Lessee shall have the right to contest the amount or
validity, in whole or in part, of any Taxes and Assessments by
appropriate proceedings diligently conducted in good faith.

6. Occupancy and Use of Premises.

a. Use of Premises. During the term of this Lease, the Leased
Premises shall be used and occupied by Lessee for an
Intermediate Care Nursing and Alzheimers Facility.

b. Status at Termination. Upon termination of this Lease for any
reason, Lessee will return to Lessor the Leased Premises and
transfer all applicable licenses and permits to Lessor.

7. Utilities. Lessee will contract in its own name and pay all charges
for water, gas, sewer, electricity, light, heat air conditioning,
power telephone, waste removal or other services used by, rendered or
supplied to Lessee in connection with the Leased Premises. However,
Lessee may contest any such utility charges.

2
<PAGE> 3
8. Insurance.

a. General Coverage Requirements. Lessee, at its sole cost and
expense, will insure and keep insured with responsible
insurance companies authorized to do business in the State in
which the Leased Premises is located, the Leased Premises and
all alterations, extension and improvements thereto and
replacements thereof, as well as all personal property of
Lessee located on the Leased Premises, against loss or damage
by fire and the risks contemplated within the extended
coverage endorsement (as such endorsement in the broadest form
may customarily be written in such jurisdiction from time to
time) and against such other risks as may be reasonably
required by Lessor or by any lender holding a mortgage
superior to this Lease, but in no event in an amount more than
the full insurable value of the Leased Premises, or an amount
which, if the Leased Premises were substantially or totally
destroyed, would provide sufficient proceeds to completely
repair or replace the Leased Premises, as such amounts may
change from time to time. Lessee will pay the premium for
such insurance as it becomes due and will deliver to Lessor
copies of all such policies of insurance as it becomes due and
will deliver to Lessor copies of all such policies of
insurance with due proof of payment of premiums at least ten
(10) days prior to expiration of the policies; provided,
however, at the commencement of the Initial Term of this
Lease, Lessee shall have the option to keep in force the fire
and other policies of Lessor, if any, then in force until
their respective expiration dates, and if kept in force, the
premiums for such policies will be prorated and adjusted
between Lessor and Lessee as of the date of the commencement
of the Initial Term of this Lease, and similar adjustment and
proration will be made in respect to any such policies taken
out by Lessee and in existence at the end of the term of this
Lease. All policies of fire and other insurance will be for
the benefit of, and with loss payable to Lessor, Lessee and
any lender holding a mortgage superior to this Lease, as their
interests may appear. The interest of any such lender will be
covered by the customary mortgagee endorsement used in the
jurisdiction in which the Leased Premises is located.

b. Specific Coverage Requirements. Lessee shall also, at
Lessee's sole cost and expense, cause to be issued and shall
maintain during the entire term of this Lease the following:

i. Lessee will carry and maintain at all times during
the term of this Lease insurance against claims for
personal injury or property damage under a policy of
general liability insurance or a combination of
General Liability and Commercial Umbrella Liability
policies in an amount of at least Three Million

3
<PAGE> 4
and No/100 dollars ($3,000,000.00) per occurrence and
One Hundred Thousand and No/100 Dollars ($100,000.00)
(but in no event less than the requirements of
Lessor's lenders) or the reasonable recommendations of
any qualified insurance consultant retained by
Lessor. Lessee will also carry adequate workmen's
compensation insurance and business interruption
insurance equal to one years rental payments.

ii. Lessee will carry and maintain at all times during
the term of this Lease professional liability or
"malpractice" insurance to the extent of not less
than Three Million Dollars ($3,000,000.00) per
occurrence, Three Million Dollars ($3,000,000.00) per
year.

iii. Lessee, at its sole cost and expense, will maintain
such other usual and customary polices of insurance
in such amounts as may be reasonably required by
Lessor's lenders, including but not limited to, any
automobile liability insurance, boiler insurance or
flood insurance required by said lenders; provided
that such insurance is available at commercially
reasonable rates.

c. Policy Requirements. All policies of insurance shall provide
that they shall not be canceled, terminated, reduced or
materially modified without at least thirty (30) days prior
written notice to Lessor and Lessee.

d. Delivery of Policies. The originals or binder of all
insurance policies required by this Article shall be delivered
to Lessor upon request.

9. Repairs and Maintenance.

a. Lessee's Duties to Repair. Throughout the term of this Lease,
Lessee, at its sole cost and expense, will keep and maintain,
or cause to be kept and maintained, the Leased Premises
(including the grounds) and the Personal Property in good
order and condition without waste and in a suitable state of
repair at least comparable to that which existed immediately
prior to the Commencement Date (ordinary wear and tear
excepted). However, Lessee shall not be responsible for any
maintenance and repairs which are not of a routine nature.
Instead, Lessor shall be responsible for all structural
repairs and replacements and material capital expenditures,
such as repairs and replacements to the building, roof, and
major mechanical systems, changes to the parking, grading and
other matters concerning the land on which the improvements
are located, and other non-routine repairs and replacements.
Additionally, Lessor shall fund the renovations listed under
Exhibit "B" under the time limits set forth in said Exhibit.

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b. Replacement of Personal Property. Lessee shall have the
right, at any time and from time to time, to remove and
dispose of any Personal Property which may have become
obsolete or unfit for use, or which is no longer useful in the
operation of the Leased Premises.

10. Alterations and Demolition. Lessee will not remove or demolish any
improvement or building which is part of the Leased Premises or any
portion thereof or allow it to be removed or demolished, without the
prior written consent of the Lessor, which consent shall not be
unreasonably withheld. Subject to the terms of any mortgage secured
by the Leased Premises, Lessee agrees that it will not make, authorize
or permit to be made, any changes or alterations in or to the Leased
Premise in excess of $20,000.00 without first obtaining the Lessor's
written consent thereto.

11. Discharge of Liens.

a. General. Lessee will not create or permit to be created or to
remain, and Lessee will discharge, any lien, encumbrance or
charge levied on account of any mechanic's, laborer's or
materialman's lien of any conditional sale, security agreement
or chattel mortgage, or otherwise, which might be or become a
lien, encumbrance or charge upon the Leased Premises or any
part thereof, or the income therefrom or the Personal
Property, for work or materials or Personal Property furnished
or supplied to, or claimed to have been supplied to or at the
request of Lessee.

b. Cure by Lessee. If any mechanic's laborer's, materialman's or
other lien caused or charged to Lessee shall at any time be
filed against the Leased Premises or Personal Property, Lessee
shall have the right to contest such lien or charge, provided,
Lessee within thirty (30) days after notice of the filing
thereof, will cause the same to be discharged or record or in
lieu thereof to secure Lessor against said lien by deposit
with Lessor of such security as may be reasonably demanded by
Lessor to protect against such lien.

12. Inspection of Premises by Lessor. At any time after twenty-four (24)
hours notice to Lessee, during reasonable business hours, Lessor
and/or its authorized representative shall have the right to enter
and inspect the Leased Premises. Lessor agrees that the person or
persons upon entering and inspecting the Leased Premises will cause as
little inconvenience to the Lessee as may reasonably be possible under
the circumstances.

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13. Condemnation.

a. Generally. Lessor and Lessee shall immediately notify the
other party as soon as either becomes aware of any attempt to
acquire by condemnation, as hereinafter defined, the entire
premises, or any portion thereof. As used in this section,
the word "Condemnation" and grammatical variations thereof
made to fit the grammatical usage, means any taking of any
interest in the premises or the improvements to the premises
by right to eminent domain or any purchase of any such
interest in lieu of such taking.

b. Termination on Entire Taking. In the event the entire
premises at any one facility is taken by Condemnation, the
Lease shall terminate with regard to that facility and expire
as of the date possession is taken. A partial taking of a
portion of any facility which is so extensive as to render the
remainder of the facility economically unsuitable for its
primary intended use under this Lease, in Lessee's reasonable
business judgment, shall be deemed an entire taking, and this
Lease shall terminate.

c. Restoration. If there is partial taking of the Leased
Premises and this Lease is not terminated pursuant to
Paragraph 12 (b), above, this Lease shall remain in full force
and effect and the Lessor, at its cost, shall accomplish all
necessary restoration to the extent reasonably practicable, up
to but not exceeding the amount of the award payable to Lessor
as a result of such taking.

14. Covenants, Warranties and Representations of Lessor.

a. Lessor covenants, warrants and represents that is has fee
simple title to the Leased Premises and the Personal Property,
free and clear of any and all liens, mortgages, claims, rights
of parties in possession and any other claims or rights except
as specifically set forth on Exhibit "C" attached hereto.

b. Lessor represents and warrants that there presently is no
claim or litigation pending or, to the best knowledge of
Lessor, threatened against Lessor or which would have the
effect of preventing or terminating this Lease or the quiet
enjoyment of the Leased Premises or the Personal Property by
the Lessee.

c. Lessor represents and warrants that it has the full power and
authority to enter into this Lease.

d. To the best of its actual knowledge, Lessor represents and
warrants that there presently exits in good standing such
licenses and permits as are

<PAGE> 7
necessary to operate this facility according to all applicable
federal and state statues and ordinances, including
specifically the Reimbursement Plan and all Medicare/Medicaid
regulations.

15. Covenants, Warranties, and Representations of Lessee.

a. Lessee represents and warrants that it has the full power and
authority to enter into this Lease.

b. Lessee covenants that it will promptly apply for such licenses
and permits as are necessary in order for it to operate the
Leased Premises in accordance with the Reimbursement Plan and
applicable Medicare/Medicaid regulations.

16. Events of Default. The following acts or events shall be deemed to be
an event of default (an "Event of Default"):

a. The failure by Lessee to pay when due any rental payment or
part thereof, under the provisions of the Lease, when such
failure shall continue for a period of thirty (30) days after
the due date thereof, and for a period of ten (10) business
days after written notice from Lessor;

b. The failure of Lessee to perform, or the violation by Lessee
of any material covenants, terms conditions or provisions of
this Lease, other than those relating to the payment of money
if such failure or violation shall not be cured within thirty
(30) days after notice thereof by Lessor to Lessee, unless
such failure by its nature cannot be cured within such thirty
(30) days in which case Lessee shall not be deemed in defaults
so long as Lessee commenced the cure of such failure within
such thirty (30) days and diligently prosecutes such cure to
completion;

c. The filing of Lessee of a voluntary petition in bankruptcy,
any adjudication that the Lessee is bankrupt, or the
appointment of a trustee or receiver of the properties of the
Lessee;

d. The abandonment of the Leased Premises by Lessee.

e. The failure of Lessor to perform, or the violation by Lessor
of any material covenants, terms conditions or provisions of
this Lease, if such failure or violation shall not be cured
within thirty (30) days after notice thereof by Lessee to
Lessor, unless such failure by its nature cannot be cured
within such thirty (30) days in which case Lessor shall not be
deemed in default so long as Lessor commenced the cure of such

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failure within such thirty (30) days and diligently prosecutes
such cure to completion;

17. Lessor's Remedies Upon Default.

a. Termination of Lease or Right of Possession. If an Event of
Default occurs on the part of the Lessee, Lessor may, if it so
elects, and as its sole and exclusive remedy, upon ten (10)
days prior written notice to Lessee of such election, and with
or without any demand whatsoever upon Lessee, forthwith
terminate this Lease and Lessee's right to possession of the
Leased Premises. Upon any such termination of this Lease,
Lessee shall vacate the Leased Premises immediately, and shall
quietly and peaceably deliver possession thereof to Lessor,
and Lessee hereby grants to Leased Premises in such event with
or without process of law and to repossess the Leased Premises
and Personal Property as the Lessor's former estate. In the
event of any such termination of this Lease or the Lessee's
right to occupy the Leased Premises, the Lessor shall again
have possession and enjoyment of the Leased Premises and
Personal Property to the extent as if this Lease had not been
made, and thereupon this Lease and everything herein contained
on the part of Lessee to be done and performed shall cease and
terminate.

b. Assignment of Licenses and Permits. In the event of any Event
of Default and if Lessor elects to terminate this Lease or to
terminate Lessee's right to possession of the Leased Premises,
then all licenses, certifications, permits and authorizations
issued by any governmental agency, body or authority in
connection with or relating to the Leased Premises and the
nursing home operated thereon shall be deemed as being
assigned to Lessor to the extent permitted by applicable state
and federal law. Lessee shall deliver all such subsequent
reimbursement checks for periods following the date of
termination to Lessor immediately upon receipt thereof by
Lessee. Lessor shall also have the right to continue to
utilize the telephone number and name used by Lessee in
connection with the operation of the nursing home located on
the Leased Premises. To the extent permitted by applicable
state and federal law, this Lease shall be deemed and
construed as an assignment for purposes of vesting in Lessor
all right, title and interest in and to (i) all licenses,
certifications, permits and authorizations obtained in
concoction with the operation of the nursing home located on
the Leased Premises and (ii) the name and telephone number
used in connection with the operation of the nursing home
located on the Leased Premises. Upon demand by Lessor, Lessee
hereby agrees to take such other action and execute such other

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documents as may be necessary in order to vest in Lessor all
right, title and interest to the items specified herein.

18. Lessor's Remedies Upon Default: If an Event of Default occurs on the
part of the Lessor, Lessee may, if it so elects, upon ten (10) days
prior written notice to Lessor of such election, and with or without
any demand whatsoever upon Lessor, forthwith terminate this Lease.
Lessor shall remain responsible for any management fees or other
expenses due and owing to Lessee as of the date of termination of the
Lease, including reasonable attorney fees if needed to collect such
fees.

19. Right of Termination.

Lessee shall have the right to terminate this Lease for any reason
upon thirty (30) day notice to Lessor.

20. Assignment.

a. Lessee. Except to an affiliate of Lessee, Lessee shall not
assign all or any part of Lessee's rights under this Lease
(including the option rights) or sublet the whole or any part
of the premises without the written consent of Lessor. Any
consent which may be given to Lessee shall not release Lessee
from its obligations under this Lease. If consent is once
given by Lessor assignment of this Lease, or any interest
therein, Lessor shall not be barred to refuse to consent to
any further assignment.

b. Lessor. Lessor shall have at all times the right to assign
its rights under this Lease, provided, however, that in the
event of such assignment Lessor shall also assign all sums
held on behalf of tenant, and all assignee shall assume
Lessor's obligations under the Lease.

21. Holdover. If Lessee shall occupy the Leased Premises with the consent
of Lessor after the expiration or other termination of this Lease and
rent is accepted, such occupancy and payment shall be construed as an
extension of this Lease for the terms of one (1) month only from the
date of expiration, and occupation and payment thereafter shall
operate to extend the terms of this Lease for but one (1) month at a
time unless other terms of such extensions are executed in writing
signed by the parties. In such event, if either Lessor or Lessee
desires to terminate said occupancy at the end of any month after the
expiration of this Lease, the party desiring to terminate the same
shall give the other party at least thirty (30) days written notice to
that effect.

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22. Miscellaneous.

a. Quiet Enjoyment. Lessee shall lawfully and quietly hold,
occupy and enjoy the Leased Premises during the term of this
Lease, without hindrance by Lessor or by any other person or
persons claiming under Lessor.

b. Attorney's Fees. In case litigation is instituted, arising
directly or indirectly out of this Agreement, the losing party
shall pay to the prevailing party its reasonable attorney's
fees, together with all expenses which may reasonably incur in
taking such action including, but not limited to, costs
incurred in searching records, the costs of title reports and
expert witness fees, and anticipated post judgment collection
services. If an appeal is taken from any judgment or decree
of the trial cost, the losing party shall pay the prevailing
party in the appeal its reasonable attorney's fees in such
appeal.

c. Estoppel Letter. Each party agrees that any time, and from
time to time, upon not less that ten (10) days prior written
request from the other party, to execute, acknowledge and
deliver to the other party a statement in writing, certifying
that this Lease is unmodified and in full force and effect (or
if there have been modifications, that the same is in full
force and effect a modified, and stating the modifications),
the dates to which the rent, taxes, and assessments, if any,
have been paid, the amount of any additional rent held by
Lessor, and whether the Lease is then in default or whether
any events have occurred which, with the giving of notice or
the passage of time, or both, could constitute a default
hereunder, it being intended that any such statement delivered
pursuant to this paragraph may be relied upon by any
prospective assignee, mortgage or purchase of the fee interest
in the Leased Premises or of this Lease.

d. Headings. The headings and titles in this Lease are inserted
only as a matter of convenience and for reference and in no
ways define, limit or describe the scope or intent of this
Lease, nor in any way affect this Lease.

e. Integration and Modifications. This Lease contains the entire
agreement between the parties and any executory agreement
hereafter made shall be ineffective to change, modify or
discharge it in whole or in part unless such executory
agreement is in writing and signed by the party against whom
enforcement of the change, modification or discharge is
sought. This Lease cannot be changed orally or terminated
orally.

f. Binding Effect. Except as otherwise herein expressly
provided, the covenants, conditions and agreements in this
Lease shall bind and insure to the benefit of the Lessor and
Lessee and their respective successors and assigns.

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g. Grammatical Changes. All nouns and pronouns and any
variations thereof shall be deemed to refer to the masculine,
feminine, neuter, singular or plural as the identity of the
person or persons, firm or firms, corporation or corporations,
entity or entities or any other thing or things may require.

h. Severability. If any term or provision of this Lease shall to
any extent be held invalid or unenforceable, the remaining
terms and provisions of this Lease shall not be affected
thereby, but each term and provision shall be valid and be
enforced to the fullest extent permitted by law.

i. Jurisdiction and Venue. The laws of Arizona shall govern this
validity, performance and enforcement of the Lease.

j. Financial Statements. Within thirty (30) days after the end
of each month, Lessee shall furnish to Lessor copies of
monthly financial statements for Leased Premises.

k. Indemnification. Lessee will indemnify, defend and hold
Lessor harmless from any liability, damages, costs and
expenses, including but not limited to reasonable attorney's
fees, from any gross negligence or willful misconduct by
Lessee. Lessor will indemnify, defend and hold Lessee
harmless from any liability, damages, costs and expenses,
including but not limited to reasonable attorneys' fees, for
anything relating to the Leased Premises which arises from the
gross negligence or willful misconduct of Lessor, its agents,
or employees.

23. Notices. All notices, demands or requests which may or are required
to be given by either party to the other shall be in writing and shall
be sent by United States certified mail, return receipt requested,
addressed to the other party hereto at the address set forth below:

If to Lessor: Mark Hamermesh
Senior Vice President
G&L Realty Corporation
439 N. Bedford Drive
Beverly Hills, CA 90210

If to Lessee: David R. Brickman
Vice President
Capital Senior Management I, Inc.
14160 Dallas Parkway, Suite 300
Dallas, TX 75240

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Any party may from time to time change such addresses by notifying all
other parties in writing by certified or registered mail, postage
prepaid, of the change. Notices mailed as set forth above shall be
deemed given and received forty eight (48) hours after such deposit in
the mail.

24. Prorates of Operations. Revenues and expenses of the Leased Premises
at the commencement and termination of the Lease shall accrue to the
benefit of the Leased Premises.

25. Right of First Refusal. Lessee shall have a right of first refusal to
match any bona fide offer of purchase received by, and acceptable to
Lessor. Lessor shall give to Lessee full details in writing of any
such offer which is acceptable to Lessor at least thirty (30) days
prior to the anticipated sale. Lessee shall have fourteen (14) days
from receipt of such notice in which to notify Lessor of its desire to
purchase the Leased Premises on the same terms and conditions as set
forth in the written notification. If Lessee does not exercise its
right to purchase the Leased Premises, Lessor shall have sixty (60)
days in which to complete such sale on the same terms as set forth in
the written notification. If Lessor shall sell the Leased Premises to
a third party as herein provided during the term of this Lease, Lessor
shall pay Lessee severance compensation in amount equal to the then
current monthly management fee times the number of months remaining in
the term of the Lease, but no greater than four months. For purposes
of this paragraph, the monthly management fee shall be 5% of gross
revenues.

26. Nonrecourse. This Agreement shall be nonrecourse to Lessee. The
preceding sentence shall not apply to any liability or obligation of
Lessee which results from or arises out of the gross negligence,
willful misconduct, misappropriation of funds or fraud of or by
Lessee. Additionally, no officer or director of Lessee shall have any
personal liability hereunder.

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IN WITNESS WHEREOF, the parties hereto have caused this Lease to be signed by
persons authorized to do so on behalf of each of them respectively the day and
year first above written.

LESSOR:
------

BY: /s/ MARK H. HAMERMESH
---------------------------------------------------
G & L Gardens, LLC

LESSEE:
------

BY: /s/ DAVID R. BRICKMAN, V.P.
---------------------------------------------------

<PAGE> 1
EXHIBIT 10.16

PRE-OPENING CONSULTING AGREEMENT

THIS PRE-OPENING CONSULTING AGREEMENT (the "Agreement") is made as of the
16th day of June, 1997, by and between The Emmaus Calling, Inc. ("Owner") and
Capital Senior Management 1, Inc. ("Consultant").

WHEREAS, Owner is engaged in the development, marketing, pre-leasing and
other pre-opening duties for a 104 unit assisted living facility located in
Mesquite, Texas (the "Facility") and

WHEREAS, Owner desires to employ Consultant to assist in the marketing and
pre-leasing of the Facility as well as assist in pre-opening and other
operational duties for the Facility during the term herein provided and
Consultant desires to accept such employment.

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

1. RENDITION OF SERVICES

The Consultant agrees to provide professional services to Owner in
accordance with the terms and conditions of this Agreement.

2. SCOPE OF SERVICES

During the term of this Agreement, Consultant shall provide consulting
services to Owner relating to the marketing, lease-up, pre-opening and
other operational activities for the Facility. These services shall
include the following:

A. Operational Services

1. Budget. Consultant shall provide the initial operating
budget within five (5) weeks of execution of this
Agreement.

2. Policy/Procedure Manuals. Consultant shall provide
assistance to Owner in development of policy/procedure
manuals and appropriate forms/systems developed by Owner
that may be required for each department.

3. Inventories. Consultant shall assist Owner in
determining initial equipment, smallwares, and supply and
food inventories for each department of the Facility.

4. Open House. Consultant will provide input/direction to
Owner in effective planning and implementation of the
"open house" festivities that will be performed by Owner.

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5. Hiring. Consultant shall provide assistance to Owner in
interviewing final candidates being considered for key
staff positions, such as Executive Director, (if
applicable), and Department Managers.

6. Financial Accounting Systems. Consultant shall review
and provide input regarding the financial accounting
systems to be purchased or utilized by Owner.

7. Resident Handbook. Consultant shall provide input and
direction to Owner in order for Owner to develop an
effective resident handbook.

8. Staffing Schedules. Consultant shall assist Owner in
determining staffing and hire dates during the
pre-opening process for specific personnel (i.e.,
Department Managers, Housekeepers, etc.).

9. Training. Consultant shall provide assistance to Owner
in determining staff training/orientation programs
provided by Owner.

10. Move-In Schedules. Consultant shall provide assistance
to Owner regarding move-in coordination performed by
Owner.

B. Marketing Services.

1. Marketing Plan. Consultant shall review, evaluate and
make recommendations with regard to the existing
marketing plan and budget. Such review will include
evaluation and analysis of the product, competition and
the Facility's position within the market.

2. Lead Generation. Consultant shall evaluate the existing
components of the Facility's lead generation and make
recommendations to create or improve these sources. The
sources include general advertising, signage (on and off
site), community outreach and public relations, resident
referral programs, special events, special promotions and
direct mail.

3. Brochures. Consultant shall assist the existing staff in
the development of brochures and collaterals for
marketing and lease-up of the Facility.

4. Model Apartments. Consultant shall assist in the
establishment of "model apartments" for the Facility.

5. Hiring and Training. Consultant shall provide input to
Owner in the selection and hiring of marketing staff and
shall also provide input with regard to staff training
and orientation. These responsibilities shall include
assistance in the identification of the Marketing
Director's key responsibilities, the Resident Liaison's
key responsibilities and the Executive Director's
marketing support role.

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6. Sales Policies and Procedures. Consultant will review,
evaluate and make recommendations regarding the
Facility's sales office functions, procedures and
policies.

7. Sales Strategy. Consultant will assist and make
recommendations to Owner with regard to the following
sales strategies: lead management, identifying sales
goals, telephone procedures and guidelines, sales closing
techniques, overcoming prospect's objections, and
procedures for touring the prospect's family and
advisors.

3. SCHEDULE AND TIME OF COMPLETION

This Agreement shall commence six (6) months before the issuance of the
Certificate of Occupancy for the Facility (estimated July 1, 1998), and
terminate on the later of August 31, 1998, or the receipt by Owner of a
Certificate of occupancy for the Facility from the appropriate
governmental officials (the "Term"). Due to the necessary time and
personnel commitment by Consultant, Owner agrees that it will not enter
into any discussions, negotiations or oral or written agreements with any
other consultant regarding the marketing and management of the Facility on
or before the expiration of the Term.

4. OWNERSHIP OF WORK

All reports, schedules and other materials prepared, or in the process of
being prepared, for the services to be performed by Consultant shall be
and are the property of Owner, and Owner shall be entitled to access
thereto, and copies thereof, during the progress of the work. Any such
remaining in the hands of the Consultant or in the hands of any
subcontractor upon completion or termination of the work shall be
forthwith delivered to Owner. If any materials are lost, damaged or
destroyed before final delivery to Owner, the Consultant shall replace
them at its own expense and the Consultant hereby assumes all risks of
loss, damage or destruction of or to such materials. The Consultant may
retain a copy of all material produced under this Agreement for its use in
its general business activities.

5. USE OF SUBCONTRACTORS

Consultant shall not subcontract any services to be performed by it under
this Agreement.

6. CHANGES

Owner may, at any time, by written order, make changes within the scope of
work and services described in this Agreement. If such changes cause an
increase in the budgeted cost of or the time required for performance of
the agreed upon work, an equitable adjustment as mutually agreed shall be
made regarding the compensation as set forth in Section 8. In the event
that Consultant encounters any unanticipated conditions or contingencies
that may affect the scope of work or services and result in an adjustment
in the amount of compensation specified herein, Consultant shall so advise
Owner immediately upon notice of such condition or contingency. The
written notice shall explain the circumstances giving rise to the

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unforeseen condition or contingency and shall set forth the proposed
adjustment in compensation resulting therefrom. Such notice shall be
given to Owner prior to the time that Consultant performs work or services
related to the proposed adjustment in compensation. Any and all pertinent
changes shall be expressed in a written supplement to this Agreement prior
to implementation of such changes.

7. RESPONSIBILITY; INDEMNIFICATION

Consultant and Owner shall indemnify, keep and save harmless the other
party to this Agreement, and its directors, officers, agents and employees
against any and all suits, claims or actions arising out of any injury to
persons or property that may occur, or that may be alleged to have
occurred, in the course of the performance of this Agreement by the
Consultant or Owner as applicable, caused by an act or omission of the
Consultant or Owner as applicable, or its employees, subcontractors or
agents. Consultant and Owner further agree to defend the other party to
this Agreement in any and all such actions, suits or claims and pay all
charges of attorneys and all other costs and expenses arising therefrom or
incurred in connection therewith; and if any judgment be rendered against
one party, or any of the other individuals enumerated above in such
action, then the other party shall, at its expense, satisfy and discharge
the same.

8. COMPENSATION

The Consultant agrees to perform the operational services included in
Section 2 for a sum of Four Thousand and No/100 Dollars ($4,000.00) per
month and the marketing services included in Section 2 for a sum of Four
Thousand and No/100 Dollars ($4,000.00) per month (collectively the
"Compensation"), payable on or before the tenth of each month. A
nonrefundable prepayment of two (2) months' fees shall be paid and deemed
earned by Consultant upon execution of this Agreement.

9. CONSULTANT'S STATUS

Neither the Consultant nor any party contracting with the Consultant shall
be deemed to be an agent or employee of Owner. The Consultant is and
shall be an independent contractor, and the legal relationship of any
person performing services for the Consultant shall be one solely between
said parties.

10. RECORDS

During the term of this Agreement, Consultant shall permit representatives
of Owner to have access to, examine and make copies, at Owner's expense,
of its books, records and documents relating to this Agreement at all
reasonable times.

11. CONSULTANT WARRANTIES

Owner makes no warranties, representations, or agreements, either express
or implied, beyond such as are explicitly stated herein.

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12. OWNER REPRESENTATIVE

Except when approval or other action is required to be given or taken by
the Board of Directors of Owner, the Owner shall designate which officer
or officers shall represent and act for Owner.

13. TERMINATION OF THIS AGREEMENT

A. Severance Compensation.

If Owner terminates the Agreement without cause prior to the
expiration of the Term or if Consultant terminates this Agreement
during the Term for cause as provided in Section 13 B2. below,
severance compensation in an amount equal to the monthly
Compensation times the number of months remaining in the Term shall
be paid to Consultant upon the effective date of termination. Any
such termination shall be effective upon the expiration of the
ninety (90) day period following the giving of the notice or on such
later date as may be specified in the notice.

B. Termination For Cause.

1. This Agreement may be terminated by Owner for cause for the
following reasons:

(a) In the event of material breach by Consultant of a
material term hereof, which breach is not cured within
thirty (30) days after notice by Owner and such failure
is the result of Consultant's willful misconduct, gross
negligence or unlawful act.

(b) In the event that a petition in bankruptcy is filed by
Consultant or its permitted assignee, or in the event
Consultant or its permitted assignee makes an assignment
for the benefit of creditors or takes advantage of an
insolvency act, by notice to Consultant or assignee, or
if manager becomes insolvent.

(c) In the event that (i) Consultant's or any permitted
assignee's corporate existence is dissolved and the
duties under this Agreement are not assumed by Consultant
or an affiliate of Consultant, (ii) Consultant or any
permitted assignee ceases to do business for any reason,
by notice to Consultant or such assignee and the duties
under this Agreement are not assumed by Consultant or
Consultant's Affiliate.

(d) In the event Owner reasonably determines the intended
project is not economically or commercially viable and
Owner abandons construction activities for a two year
time period.

2. This Agreement may be terminated by Consultant in the event
that Consultant fails to receive reimbursement of reimbursable
expenses or any compensation due Consultant pursuant to the
terms of this Agreement or any other compensation due

5
<PAGE> 6
Consultant, and such failure continues for a period of sixty
(60) days after Consultant's written notice thereof to Owner,
however, that this Agreement shall not be so terminated if
Owner pays Consultant all such expenses and compensation then
due and payable on or before the expiration of said sixty (60)
day period.

3. No termination of this Agreement shall affect any obligation
owning by either party hereto to the other which accrued prior
to the effective date of such termination.

C. Covenants Surviving Termination.

The termination of this Agreement shall not terminate the right of
Owner and Consultant to indemnification relating to events occurring
during the term of this Agreement under Section 7.

14. NOTICES

All communications relating to the day-to-day activities of the project
shall be exchanged between Owner and the Consultant.

All other notices and communications deemed by either party to be
necessary or desirable to be given to the other party shall be in writing
and may be given by personal delivery to a representative of the parties
or by mailing the same postage prepaid, addressed as follows:

If to OWNER: The Emmaus Calling, Inc.
7778 Willow Winds Court, Suite 135
Dallas, Texas 75230
Attention: Ms. Robbie Wittner

If to CONSULTANT: Capital Senior Management 1, Inc.
14160 Dallas Parkway, Suite 300
Dallas, Texas 75240
Attention: Keith N. Johannessen, President

The address to which mailings may be made may be changed from time to time
by notice mailed as described above. Any notice given by mail shall be
deemed given on the day after that on which it is deposited in the United
States Mail as provided above.

15. ARBITRATION

In the event of any dispute, claim or controversy of any kind between the
parties, concerning this Agreement or the termination of this Agreement,
the matter shall be submitted to arbitration in accordance with rules of
the American Arbitration Association, except that the selection of the
Arbitrator shall be done Selected Arbitrator. The parties jointly shall
agree on an arbitrator. If the parties are unable to agree, in good faith
within a reasonable time, on the selection of an arbitrator, either party
may request appoint of an arbitrator chosen by

6
<PAGE> 7
the American Arbitration Association who shall be the Selected Arbitrator.
Such arbitrator shall be limited in his decision to a choice between the
final position as requested by each party. Said arbitration shall be held
in Dallas/Fort Worth, Texas or such other place as is mutually agreeable.
The arbitration decision shall be final and binding on both parties unless
the arbitration is fraudulent or so grossly erroneous as to necessarily
imply bad faith. Costs of arbitration are to be shared by both parties
equally, provided that the arbitrator may choose to award the costs of
arbitration against the losing party if the arbitrator determined that the
final position urged by the losing party was not reasonable.

16. APPLICABLE LAW

This Agreement, its interpretation and all work performed thereunder,
shall be governed by the laws of the State of Texas.

17. BINDING ON SUCCESSORS

All of the terms, provisions and conditions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns and legal representatives.

18. CONFIDENTIALITY

The Parties recognize and acknowledge that during entry upon the
Facility or performance of services contemplated hereby Contractor/Owner,
as the case may be, may come into possession of information which
Owner/Contractor deems is secret, peculiar and proprietary in nature and
that the courtesy provided to Contractor as to any entry upon the
Facility, employment, ability to perform work, or the ability to perform
services for Owner and acceptance by Contractor of such employment is
subject to a mutual agreement between the Parties to keep certain items
and information confidential and not to divulge such to others.
Therefore, the Parties agree any and all information provided by Owner to
Contractor, and any information Contractor may come into possession of as
a result of their observations, work, discussions, or provision of goods
or services upon the Facility or to or for the benefit of Owner of
whatever nature ("Owner Information") is intended to be protected hereby.
Similarly, any and all information provided by Contractor to Owner
concerning Contractor's internal operations, management of Contractor's
facilities, or management by Contractor of third party facilities of
whatever nature ("Contractor Information") is intended to be protected
hereby. (Both Owner Information and Contractor Information may hereafter
be referred to collectively as the "Information"). The Information shall
include but not be limited to facilities, equipment, sources of
information, ideas, plans, proposals, inventions, formulae, client lists,
cost and pricing data, supplier lists, purchaser lists,
business/marketing/financial plans and summaries, and any and all other
information which may be protected hereby, and the Parties agree such
Information is the sole and absolute property of Owner/Contractor as the
case may be. For the purposes of this Agreement, the Information shall be
considered proprietary in nature, Trade Secrets, and/or have a competitive
value such that it may be protected. Accordingly, Contractor shall not
use, disclose, distribute, copy or release the Owner Information, in whole
or in part, to any

7
<PAGE> 8
person, company, firm, or other entity without the prior written consent
of Owner. Similarly, Owner shall not use, disclose, distribute, copy or
release the Contractor Information, in whole or in part, to any person,
company, firm, or other entity without the prior written consent of
Contractor. This section shall not apply to information which: (a) is or
becomes public knowledge through a source other than a party hereto or a
third party similarly placed under an obligation to keep such
confidential, and such party hereto is a recipient of such knowledge
through no fault of their own; (b) is or becomes lawfully available,
through no fault, request, or otherwise involving in any way a party
hereto, from a source other than a disclosing party hereto or a person or
entity similarly placed under an obligation of confidentiality; (c) is
disclosed by a party hereto with the other party's prior written approval;
(d) was in the party's possession or was known to such party, without an
obligation to keep it confidential, before such information was disclosed
to such party by the other party hereto; (e) is independently developed in
total by or for a party hereto without in any way reference to and
separate and apart from any information transmitted between the parties;
(f) is lawfully required to be given to a court of competent jurisdiction
or governmental agency, however this exception shall apply only to the
extent limited information must by law be disclosed with no other
alterative being available.

The Parties agree that any breach or threatened breach of this Agreement,
particularly with regard to this Article involving confidentiality and
non-competition by a party hereto may cause the other party(ies)
irreparable harm for which monetary damages may be inadequate. Each party
agrees, therefore, that any other party shall be entitled to an injunction
to restrain the breaching party from the breach or threatened breach of
this Agreement or any part thereof. Nothing herein shall be construed as
preventing a party hereto from pursuing any remedy at law or in equity for
any breach or threatened breach of this Agreement or any portion thereof.
This section shall survive the termination of this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the day and year first above written.

OWNER: CONSULTANT

THE EMMAUS CALLING, INC. CAPITAL SENIOR MANAGEMENT 1, INC.

BY: /s/ ROBBIE WITTNER BY: /s/ DAVID R. BRICKMAN
----------------------------- ---------------------------------
ITS: President ITS: Vice President
---------------------------- --------------------------------

<PAGE> 1
EXHIBIT 10.17

M A N A G E M E N T A G R E E M E N T

THIS AGREEMENT, made in Dallas, Texas, as of the 1st day of February,
1995, by and between:

Capital Senior Living Communities, L.P., a partnership organized and
existing under the laws of the State of Delaware, hereinafter referred to as
"Owner" and Capital Senior Living, Inc., a corporation organized and existing
under the laws of the State of Texas, hereinafter referred to as "Manager,"

WITNESSETH

WHEREAS, the Owner now owns a business commonly known as Canton
Regency Retirement Community, in the City of Canton, State of Ohio, hereinafter
called the "Home."

WHEREAS, the Owner desires to employ the Manager to act as general
manager of the Home, and the Manager is willing to accept such employment
subject to the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and of the terms and
conditions herein set forth, the parties hereto agree as follows:

EMPLOYMENT OF MANAGER

The Owner hereby appoints the Manager, and the Manager hereby accepts
the appointment as exclusive Manager of the Home.

TERM

The services of Manager shall commence on February 1, 1995, and shall
terminate nine (9) years from the date thereof, unless sooner terminated as
herein provided.

MANAGER'S DUTIES

During the term of this Agreement, which period is hereinafter
referred to as the "Operating Period," the Manager shall use its best efforts
in the management and operation of the business, services and sales of the Home
so that the Home and its services will be operated and maintained with the
maximum of benefit and in a first quality manner so that the Home shall remain
a first quality convalescent center. In pursuance of the foregoing, the
Manager shall perform the following services:

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<PAGE> 2
1. Use its reasonable efforts and due diligence in the renting of
all of the rooms and facilities to desirable tenants.

2. Employ, at the expense of the facility, such resident
administrator, assistant administrator, employees, agents, clerks at the Home
as may be required to continue the standard and quality of management and
operation at a level not lower than that heretofore maintained. The Manager
shall not be liable to the Owner or others for any act or omission on the part
of such employees unless the Manager has failed to use reasonable diligence in
their hiring, discharge or supervision so as to maintain a staff of qualified,
competent, and trustworthy employees. The Manager will negotiate on the
Owner's behalf with any labor union lawfully entitled to represent such
employees, but no collective bargaining agreement or labor contract resulting
from such negotiations shall be valid unless executed or approved by the Owner.
The Manager will not at any time enter into any agreement with any employee for
a period in excess of one (1) year or for compensation in excess of $50,000.00
per year without the consent in writing of the Owner. The Manager shall
procure and maintain adequate workman's compensation insurance in the name of
and at the expense of the facility covering all the facility employees.

3. Keep the facility and all furniture, furnishings and other
equipment therein and appurtenant thereto, in good repair.

4. Arrange for necessary alterations, decorations, replacements,
improvements, or changes in the Home and in the furniture, furnishings, and
other equipment therein and develop policies with respect to the installation
of new features to the extent that the financial obligations and resources of
the facility permit. All capital expenditures, other than minor repair and
maintenance, must be submitted to Owner for approval prior to expenditure.

5. Develop policies with respect to publicity for the purpose of
creating the greatest possible net income for the Home and place and supervise
all advertising and promotional material.

6. Arrange at the facility's expense for compliance with all
statutes, ordinances, laws, rules, regulations, orders and determinations
affecting or issued in connection with the Home by any governmental authority
having jurisdiction thereof.

7. Cause the Home to comply with all the terms, conditions and
obligations contained in any mortgage, lease, or other agreement executed by
the Owner which relates to the facility. The Owner shall promptly notify the
Manager of any such mortgage, lease or other agreement.

8. Deposit in a banking institution or institutions selected by
the Manager, and in accounts in the facility's name as agent for the Owner, all
monies furnished by the Owner

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<PAGE> 3
as working funds and all monies received by the Manager for or on behalf of the
Owner. The Manager shall pay on behalf of the Owner all accounts incurred
after the date hereof as required for the operations of the Home, all
assessments and charges of every kind imposed by any governmental authority
having jurisdiction and interest and penalties thereon, license fees, permit
fees and insurance appraisal fees; fines, penalties, and court disbursements
incurred in connection with the operation of the Home; premiums on policies of
insurance; all disbursements authorized by this Agreement; and any other
charge, item of expense, or other item which the Owner, in writing, authorizes
as an expense.

9. Receive, consider and handle the complaints of all tenants,
guests or users of any of the services or facilities of the Home and provide
copies upon written request to the Owner.

10. Institute in its own name or in the name of the Owner, at the
expense of the facility and with the approval of the Owner, any necessary legal
actions or proceedings.

11. Place at the reasonable disposal of the Owner its engineering,
maintenance, decorating, general purchasing, accounting, cost control,
taxation, insurance, publicity, advertising, labor relations, safety and
supervisory knowledge and abilities.

EXPENDITURES BY MANAGER

The Manager shall have power and authority to make all contracts and
disbursements necessary to carry out the duties conferred and imposed upon it
by this Agreement, including, but not limited to, the authority to pay for all
expenses of leasing, collection of rents, management, operations, maintenance
and insurance in accordance with a budget approved by the Owner.

ACCOUNTING SERVICES

The Manager shall establish and supervise all bookkeeping, accounting
and clerical services, including the maintenance of payroll records, incident
to the efficient operation and maintenance of the Home.

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<PAGE> 4
leases, tenants and prospective tenants and employees of the Home for the term
of this Agreement and any renewal terms hereof and any and all records existing
as of the commencement of this Agreement and other data and records pertaining
to or in any manner relating to the management and operation of the Home shall
at all times be safely kept and preserved and shall be the property of the
Owner, and upon the termination of this Agreement shall be retained by the
Owner.

Financial statements (including balance sheet, operating statement and
statement of cash flow) shall be provided to Owner within twenty-one (21) days
of month end.

All costs, penalties or expenses incurred by Owner by reason of
Manager's failure to comply with the terms of this section shall be borne
completely by Manager, and Manager shall hold Owner harmless for all such
costs, penalties and other expenses. Such costs, penalties or expenses shall
not include legal and lawful assessments owed to any governmental entity or
regulatory agency including overpayment by Medicaid or Medicare or assessments
to any governmental agency which were not paid by reason of a misinterpretation
or contested interpretation of any law or regulation. The Manager shall be
held responsible for any penalty assessed by reason of late payment unless the
Owner has concurred with the interpretation and actions of the Manager in
connection with the said payment. Said costs, penalties or expenses shall not
include any such expenses incurred by reason of Owner's negligence or delay of
payment occasioned by Owner.

ACCESS TO MANAGEMENT RECORDS

The Manager shall make available to all applicable governmental
authorities having jurisdiction or regulatory authority over or with respect to
the Home, including the Comptroller General, Secretary of Health and Human
Services or their designees, such contracts, books, documents and records
necessary to verify the costs of service contracts of $10,000.00 or more in a
twelve (12) month period as reported on Medicare cost reports.

The Manager shall preserve and maintain such contracts, books,
documents, and records during the term of this Agreement and any renewal term,
until the expiration of four (4) years after the services are furnished.

DEPOSIT OF COLLECTIONS

All monies collected by the Manager out of and from the operation of
the facility shall be deposited in appropriately designated and adequately
identified accounts in the name of the facility of Owner in one or more banks.
Out of such accounts, the Manager shall pay for all obligations and
expenditures necessary and properly incurred for and on account of the Owner in
the management and operation of the facility, including but not limited to
compensation of the Manager, insurance premiums, betterments, and improvements.
The Manager may keep on hand for the account of the Owner such a fund

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<PAGE> 5
as may be necessary, in the joint opinion of the Manager and Owner, to provide
for working cash for the operation of the facility. The Manager shall render
to the Owner or persons designated by the Owner any statements reasonably
required by the Owner.

DISBURSEMENT OF CASH FLOW

Cash flow, as calculated, shall be distributed to the Owner within
twenty-one (21) days following each month end. Cash flow to be distributed
shall be calculated at the close of each monthly accounting period, as follows:

Cash on hand and in bank - end of month
Current accounts receivable to be collected (within 30 days)
Less - current payables (to be paid within 30 days)

Less - reserve for working capital (if any)
Cash for distribution to Owner

MANAGER'S COMPENSATION

As compensation for the services to be rendered by the Manager during
the Operating Period, the Owner will pay the sum of five percent (5%) of gross
rental revenue.

As compensation for all accounting and consulting services provided by
the Manager, a charge of one dollar ($1.00) per resident day in the nursing
center and per occupied apartment day for the independent living facility shall
be paid. This amount shall be charged and paid in the following month.

The Owner will reimburse the Manager on a monthly basis for the actual
out-of-pocket costs of direct telephone and travel expenses incurred on
Partnership business, direct out-of-pocket fees, expenses and charges paid by
it to third parties for rendering legal, auditing, accounting, bookkeeping,
computer, printing and public relations services, expenses of preparing and
distributing reports to Limited Partners and BUC Holders, an allocable portion
of the salaries and fringe benefits of employees of the Manager who are not
partners of RLC, insurance premiums including premiums for liability insurance
which will cover the Owner, the cost of compliance with all state and federal
regulatory requirements and stock exchange or NASDAQ listing fees and charges,
and other payments to third parties for services rendered to the Partnership.
Any reimbursements pursuant to this provision shall not be in excess of the
lower of actual costs or the amount the Partnership would be required to pay
independent third parties for comparable services in the same geographic
location.

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<PAGE> 6
INSURANCE

The Manager shall advise the Owner in obtaining of insurance on the
Home and all furniture, furnishings, and equipment therein against all risks
usually covered in the care of similar properties, including, but without
limitation, fire, plate glass, repairs and omissions, liability and fidelity
insurance, Federal Civil Rights Liability insurance and all other usual
insurance (which shall also cover any liability of the Manager). It shall be
the joint responsibility of the Manger and the Owner to determine the limits
and extent of insurance coverage and to mutually agree upon an agency or
company and to provide copies of said insurance policies to individuals sent.
It shall be the Manager's duty to inform the Owner no less than thirty (30)
days prior to the expiration of any such insurance policy that such about to
expire and to advise the Owner in obtaining a renewal of said policy or seeking
coverage from a different insurance carrier. All policies of insurance shall
name the Owner, the Manager, and such other parties as may be required by the
provisions of any mortgage as the insured thereunder. All insurance shall be
obtained at the expense of the facility.

TERMINATION AND DAMAGES

This Agreement may be terminated at any time by mutual consent of the
parties if evidenced in writing. In addition, the Owner may terminate this
Agreement without penalty on sixty (60) days notice by the vote of the Majority
in Interest of the Limited Partners and the Buc Holders as defined in the
Amended and Restated Agreement Of Limited Partnership Of Owner. In the event
of Owner's termination of Manager pursuant to this paragraph, Owner shall be
liable to pay the Manager the accrued amounts due Manager pursuant to this
Agreement up to the day of termination, less the damages, if any, caused by any
such breach or violation of this Agreement by Manager. Therefore, the parties
agree that the liability of Manager for any breach or violation of this
Agreement or duties hereunder shall be limited to the actual management fee
received by Manager under this Agreement. Each party shall have all rights and
remedies available to them under applicable laws.

ATTORNEY FEES

In the event that it is necessary for either the Owner or the Manager
to maintain any lawsuit, action or proceeding upon this Agreement, or if any
appeal is taken therefrom, in connection with any controversy arising out of
this Agreement, the prevailing party shall be entitled to recover, in addition
to such other sums of money or performance due hereunder, such sums as the
Court may adjudge reasonable as attorney's fees in said suit, action,
proceeding or appeal.

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<PAGE> 7
CONTROLLING LAW

This Agreement shall be enforced and interpreted according to the laws
of the State of Indiana. If any provision of this Agreement is invalid,
illegal, or incapable of being enforced, other conditions of this Agreement
shall nevertheless remain in full force and effect with no provisions being
deemed dependent on any other provision unless so stated herein.

EXCLUSIVE APPLICATION

Nothing in this Agreement is intended or shall be construed to confer
upon or to give any person, firm, or corporation other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement. All terms and
conditions in this Agreement shall be for the sole and exclusive benefit of the
parties hereto.

NONASSIGNABILITY

This Agreement is not assignable by the Manager without the prior
written consent of the Owner.

NOTICE

All Notices required or permitted hereunder shall be addressed to the
respective parties at the address stated herein, unless either party notifies
the other party in writing of a different address. Notice shall be made by
certified mail, return receipt requested, and shall be deemed to have been
received by the addressee or an agent of the addressee as evidenced by the
return receipt. The addresses for notification may be changed upon written
notice.

BINDING EFFECT

This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, except as herein before
limited.

IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.

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<PAGE> 8
OWNER:

CAPITAL SENIOR LIVING COMMUNITIES, L.P.

BY: RETIREMENT LIVING COMMUNITIES, L.P.,
Its General Partner

BY: CAPITAL REALTY GROUP SENIOR HOUSING, INC.,
Its General Partner

BY: /s/ JEFFREY L. BECK
------------------------------------------------------
MANAGER:

CAPITAL SENIOR LIVING, INC.

BY: /s/ JAMES STROUD, COO
------------------------------------

-8-

<PAGE> 1
EXHIBIT 10.18

MANAGEMENT AGREEMENT

THIS AGREEMENT, made in Dallas, Texas, as of the 1st day of
February, 1995, by and between:

Capital Senior Living Communities, L.P., a partnership organized and
existing under the laws of the State of Delaware, hereinafter referred to as
'Owner' and Capital Senior Living, Inc., a corporation organized and existing
under the laws of the State of Texas, hereinafter referred to as "Manager,"

WITNESSETH

WHEREAS, the Owner now owns a business commonly known as Cottonwood
Village, in the City of Cottonwood, State of Arizona, hereinafter called the
"Home."

WHEREAS, the Owner desires to employ the Manager to act as general
manager of the Home, and the Manager is willing to accept such employment
subject to the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and of the terms and
conditions herein set forth, the parties hereto agree as follows:

EMPLOYMENT OF MANAGER

The Owner hereby appoints the Manager, and the Manager hereby accepts
the appointment as exclusive Manager of the Home.

TERM

The services of Manager shall commence on February 1, 1995 and shall
terminate nine (9) years from the date thereto, unless sooner terminated as
herein provided.

MANAGER'S DUTIES

During the term of this Agreement which period is hereinafter referred
to as the "Operating Period," the Manager shall use its best efforts in the
management and operation of the business, services and sales of the Home so
that the Home and its services will be operated and maintained with the maximum
of benefit and in a first quality manner so that the Home shall remain a first
quality convalescent center. In pursuance of the foregoing, the Manager shall
perform the following services:

-1-
<PAGE> 2

1. Use its reasonable efforts and due diligence in the renting of
all of the rooms and facilities to desirable tenants.

2. Employ, at the expense of the facility, such resident
administrator, assistant administrator, employees, agents, clerks at the Home
as may be required to continue the standard and quality of management and
operation at a level not lower than that heretofore maintained. The Manager
shall not be liable to the Owner or others for any act or omission on the part
of such employees unless the Manager has failed to use reasonable diligence in
their hiring, discharge or supervision so as to maintain a staff of qualified,
competent, and trustworthy employees. The Manager will negotiate on the
Owner's behalf with any labor union lawfully entitled to represent such
employees, but no collection bargaining agreement or labor contract resulting
from such negotiations shall be valid unless executed or approved by the Owner.
The Manager will not at any time enter into any agreement with any employee for
a period in excess of one (1) year or for compensation in excess of $50,000.00
per year without the consent in writing of the Owner. The Manager shall
procure and maintain adequate workman's compensation insurance in the name of
and at the expense of the facility covering all the facility employees.

3. Keep the facility and all furniture, furnishings and other
equipment therein, and appurtenant thereto, in good repair.

5. Develop policies with respect to publicity for the purpose of
creating the greatest possible net income for the Home and place and supervise
all advertising and promotional material.

6. Arrange at the facility's expense for compliance with all
statutes, or ordinances, laws, rules, regulations, orders and determinations
affecting or issued in connection with the Home by any governmental authority
having jurisdiction thereof.

8. Deposit in a banking institution or institutions selected by
the Manager, and in accounts in the facilities name as agent for the Owner, all
monies furnished by the Owner as working funds and all monies received by the
Manager for or on behalf of the Owner. The Manager shall pay on behalf of the
Owner all accounts incurred after the date hereof as required for the
operations of the Home, all assessments and charges of every kind imposed by
any

-2-
<PAGE> 3
governmental authority having jurisdiction and interest and penalties thereon,
license fees, permit fees and insurance appraisal fees; fines, penalties, and
court disbursements incurred in connection with the operation of the Home;
premium on policies of insurance; all disbursements authorized by this
Agreement; and any other charge, item of expense, or other item which the
Owner, in writing, authorizes as an expense.

9. Receive, consider and handle the complaints of all tenants,
guests or users of any of the services or facilities of the Home and provide
copies upon written request to the Owner.

10. Institute in its own name or in the name of the Owner,,at the
expense of the facility and with the approval of the Owner, any necessary legal
actions or proceedings.

11. Place at the reasonable disposal of the Owner its engineering,
maintenance, decorating, general purchasing, accounting, cost control taxation,
insurance, publicity, advertising, labor relations, safety and supervisory
knowledge and abilities.

EXPENDITURES BY MANAGER

ACCOUNTING SERVICES

The Manager shall maintain, for the Owner, proper and suitable records
and books of account in which there shall be properly recorded all receipts and
disbursements connected with the management and operation of the Home. The
Manager shall prepare and file (or cause to be prepared and filed) all
necessary reports with respect to withholding taxes, social security taxes,
unemployment insurance, disability insurance, the Fair Labor Standards Act, and
all other statements and reports pertaining to the labor employed on the
facility payroll in or about the Home. All books of account shall at all times
be open to the inspection and audit of any officer of the Owner or any duly
accredited and authorized representative of the Owner. All books, records,
bills, receipts, bank books, check books, check vouchers, correspondence,
lists, files, index cards, and books of account relating to leases, tenants and
prospective tenants and employees of the Home for the term of this Agreement
and any renewal terms hereof and any and all records pertaining to or in any
manner relating to the management and operation of the Home shall at all times
be safely kept and preserved and shall be the property of the Owner, and upon
the termination of this Agreement shall be retained by the Owner.

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<PAGE> 4
Financial statements (including balance sheet, operating statement and
statement of cash flow) shall be provided to Owner within twenty-one (21) days
of month end.

All costs, penalties or expenses incurred by Owner by reason of
Manager's failure to comply with the terms of this section shall be borne
completely by Manager, and Manager shall hold Owner harmless for all such
costs, penalties and other expenses. Such costs, penalties or expenses shall
not include legal and lawful assessments owed to any governmental entity or
regulatory agency including overpayment by Medicaid or Medicare or assessments
to any governmental agency which were not paid by reason of a misinterpretation
or contested interpretation of any law or regulation. The Manager shall be held
responsible for any penalty assessed by reason of late payment unless the Owner
has concurred with the interpretation and actions of the Manager in connection
with the said payment. Said costs, penalties or expenses shall not include any
such expenses incurred by reason of Owner's negligence or delay of payment
occasioned by Owner.

ACCESS TO MANAGEMENT RECORDS

The Manager shall make available to all applicable governmental
authorities having jurisdiction or regulatory authority over or with respect to
the Home, including the Comptroller General, Secretary of Health and Human
Services or their designees, such contracts, books, documents and records
necessary to verify the costs of service contracts of S10,000.00 or more in a
twelve (12) month period as reported on Medicare cost reports.

DEPOSIT OF COLLECTIONS

DISBURSEMENT OF CASH FLOW

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<PAGE> 5
Cash on hand and in bank - end of month
Current accounts receivable to be collected (within 30 days)
Less - current payables (to be paid within 30 days)

Less - reserve for working capital (if any)
Cash for distribution to Owner

MANAGER'S COMPENSATION

As compensation for the services to be rendered by the Manager during
the Operating Period, the Owner will pay the sum of five percent (5%) of gross
rental revenue.

As compensation for all accounting and consulting services provided by
the Manager, charge of one dollar ($1.00) per resident day in the nursing
center and per occupied apartment day for the independent living facility shall
be paid. This amount shall be charged and paid in the following month.

The Owner will reimburse the Manager on a monthly basis for the actual
out-of-pocket costs of direct telephone and travel expenses incurred on
Partnership business, direct out-of-pocket fees, expenses and charges paid by
it to third parties for rendering legal auditing, accounting, bookkeeping,
computer, printing and public relations services, expenses of preparing and
distributing reports to Limited Partners and BUC Holders, an allocable portion
of the salaries and fringe benefits of employees of the Manager who are not
partners of RLC, insurance premium, including premiums for liability insurance
which will cover the Owner, the cost of compliance with all state and federal
regulatory requirements and stock exchange or NASDAQ listing fees and charges,
and other payments to third parties for services rendered to the Partnership.
Any reimbursements pursuant to this provision shall not be in excess of the
lower of actual costs or the amount the Partnership would be required to pay
independent third parties for comparable services in the same geographic
location.

INSURANCE

The Manager shall advise the Owner in obtaining of insurance on the
Home and all furniture, furnishings, and equipment therein against all risks
usually covered in the care of similar properties, including, but without
limitation, fire, plate glass, repairs and omissions, liability and fidelity
insurance, Federal Civil Rights Liability insurance and all other usual
insurance (which shall also cover any liability of the Manager). It shall be
the joint responsibility of the Manager and the Owner to determine the limits
and extent of insurance coverage and to mutually agree upon an agency or
company and to provide copies of said insurance policies to individuals sent.
It shall be the Manager's duty to inform the Owner no less than thirty (30)
days prior to the expiration of any such insurance policy that such about to
expire and to advise the Owner in obtaining a renewal of said policy or seeking
coverage from a different insurance carrier. All policies of insurance shall
name the Owner, the Manager, and such other parties as may be required by the
provisions of any mortgage as the insured thereunder. All insurance shall be
obtained at the expense of the facility.

-5-
<PAGE> 6
TERMINATION AND DAMAGES

This Agreement may be terminated at any time by mutual consent of the
parties if evidenced in writing. In addition, the Owner may terminate this
Agreement without penalty on sixty (60) days notice by the vote of the Majority
in Interest of the Limited Partners, and the BUC Holders as defined in the
Amended and Restated Agreement Of Limited Partnership Of Owner. In the event
of Owner's termination of Manager pursuant to this paragraph, Owner shall be
liable to pay the Manager the accrued amounts due Manager pursuant to this
Agreement up to the day of termination, less the damages, if any, caused by any
such breach or violation of this Agreement by Manager. Therefore, the parties
agree that the liability of Manager for any breach or violation of this
Agreement or duties hereunder shall be limited to the actual management fee
received by Manager under this Agreement. Each party shall have all rights and
remedies available to them under applicable law.

ATTORNEY FEES

In the event that it is necessary for either the Owner or the Manager
to maintain any lawsuit, action or proceeding upon this Agreement or if any
appeal is taken therefrom, in connection with any controversy arising out of
this Agreement, the prevailing party shall be entitled to recover, in addition
to such other sums of money or performance due hereunder, such sums as the
Court may adjudge reasonable as attorney's fees in said suit, action,
proceeding or appeal.

CONTROLLING LAW

This Agreement shall be enforced and interpreted according to the laws
of the State of Indiana. If any provision of this Agreement is invalid,
illegal or incapable of being enforced, other conditions of this Agreement
shall nevertheless remain in full force and effect with no provisions being
deemed dependent on any other provision unless so stated herein.

EXCLUSIVE APPLICATION

NONASSIGNABILITY

This Agreement is not assignable by the Manager without the prior
written consent of the Owner.

-6-
<PAGE> 7
NOTICE

BINDING EFFECT

This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, except as herein before
limited.

IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.

OWNER:

CAPITAL SENIOR LIVING COMMUNITIES, L.P.

BY: RETIREMENT LIVING COMMUNITIES, L.P.,
Its General Partner

BY: CAPITAL REALTY GROUP SENIOR HOUSING, INC.,
Its General Partner

BY: /s/ Jeffrey L. Beck
-------------------------------------

MANAGER:

CAPITAL SENIOR LIVING, INC.

BY: /s/ James Stroud
------------------------------------------------------

-7-

<PAGE> 1
EXHIBIT 10.19

MANAGEMENT AGREEMENT

THIS AGREEMENT, made in Dallas, Texas, as of the 1st day of February,
1995, by and between:

WITNESSETH

WHEREAS, the Owner now owns a business commonly known as The Harrison
At Eagle Valley, in the City of Indianapolis, State of Indiana, hereinafter
called the "Home."

WHEREAS, the Owner desires to employ the Manager to act as general
manager of the Home, and the Manager is willing to accept such employment
subject to the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and of the terms and
conditions herein set forth, the parties hereto agree as follows:

EMPLOYMENT OF MANAGER

The Owner hereby appoints the Manager, and the Manager hereby accepts
the appointment as exclusive Manager of the Home.

TERM

The services of Manager shall commence on February 1, 1995 and shall
terminate nine (9) years from the date thereto, unless sooner terminated as
herein provided.

MANAGER'S DUTIES

-1-
<PAGE> 2

1. Use its reasonable efforts and due diligence in the renting of
all of the rooms and facilities to desirable tenants.

2. Employ, at the expense of the facility, such resident
administrator, assistant administrator, employees, agents, clerks at the Home
as may be required to continue the standard and quality of management and
operation at a level not lower than that heretofore maintained. The Manager
shall not be liable to the Owner or others for any act or omission on the part
of such employees unless the Manager has failed to use reasonable diligence in
their hiring, discharge or supervision so as to maintain a staff of qualified,
competent, and trustworthy employees. The Manager will negotiate on the
Owner's behalf with any labor union lawfully entitled to represent such
employees, but no collection bargaining agreement or labor contract resulting
from such negotiations shall be valid unless executed or approved by the Owner.
The Manager will not at any time enter into any agreement with any employee for
a period in excess of one (1) year or for compensation in excess of $50,000.00
per year without the consent in writing of the Owner. The Manager shall
procure and maintain adequate workman's compensation insurance in the name of
and at the expense of the facility covering all the facility employees.

3. Keep the facility and all furniture, furnishings and other
equipment therein, and appurtenant thereto, in good repair.

5. Develop policies with respect to publicity for the purpose of
creating the greatest possible net income for the Home and place and supervise
all advertising and promotional material.

9. Receive, consider and handle the complaints of all tenants,
guests or users of any of the services or facilities of the Home and provide
copies upon written request to the Owner.

10. Institute in its own name or in the name of the Owner,,at the
expense of the facility and with the approval of the Owner, any necessary legal
actions or proceedings.

EXPENDITURES BY MANAGER

ACCOUNTING SERVICES

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<PAGE> 4
Financial statements (including balance sheet, operating statement and
statement of cash flow) shall be provided to Owner within twenty-one (21) days
of month end.

All costs, penalties or expenses incurred by Owner by reason of
Manager's failure to comply with the terms of this section shall be borne
completely by Manager, and Manager shall hold Owner harmless for all such
costs, penalties and other expenses. Such costs, penalties or expenses shall
not include legal and lawful assessments owed to any governmental entity or
regulatory agency including overpayment by Medicaid or Medicare or assessments
to any governmental agency which were not paid by reason of a misinterpretation
or contested interpretation of any law or regulation. The Manager shall be held
responsible for any penalty assessed by reason of late payment unless the Owner
has concurred with the interpretation and actions of the Manager in connection
with the said payment. Said costs, penalties or expenses shall not include any
such expenses incurred by reason of Owner's negligence or delay of payment
occasioned by Owner.

ACCESS TO MANAGEMENT RECORDS

The Manager shall make available to all applicable governmental
authorities having jurisdiction or regulatory authority over or with respect to
the Home, including the Comptroller General, Secretary of Health and Human
Services or their designees, such contracts, books, documents and records
necessary to verify the costs of service contracts of S10,000.00 or more in a
twelve (12) month period as reported on Medicare cost reports.

DEPOSIT OF COLLECTIONS

DISBURSEMENT OF CASH FLOW

-4-
<PAGE> 5
Cash on hand and in bank - end of month
Current accounts receivable to be collected (within 30 days)
Less - current payables (to be paid within 30 days)

Less - reserve for working capital (if any)
Cash for distribution to Owner

MANAGER'S COMPENSATION

As compensation for the services to be rendered by the Manager during
the Operating Period, the Owner will pay the sum of five percent (5%) of gross
rental revenue.

The Owner will reimburse the Manager on a monthly basis for the actual
out-of-pocket costs of direct telephone and travel expenses incurred on
Partnership business, direct out-of-pocket fees, expenses and charges paid by
it to third parties for rendering legal auditing, accounting, bookkeeping,
computer, printing and public relations services, expenses of preparing and
distributing reports to Limited Partners and BUC Holders, an allocable portion
of the salaries and fringe benefits of employees of the Manager who are not
partners of RLC, insurance premium, including premiums for liability insurance
which will cover the Owner, the cost of compliance with all state and federal
regulatory requirements and stock exchange or NASDAQ listing fees and charges,
and other payments to third parties for services rendered to the Partnership.
Any reimbursements pursuant to this provision shall not be in excess of the
lower of actual costs or the amount the Partnership would be required to pay
independent third parties for comparable services in the same geographic
location.

INSURANCE

The Manager shall advise the Owner in obtaining of insurance on the
Home and all furniture, furnishings, and equipment therein against all risks
usually covered in the care of similar properties, including, but without
limitation, fire, plate glass, repairs and omissions, liability and fidelity
insurance, Federal Civil Rights Liability insurance and all other usual
insurance (which shall also cover any liability of the Manager). It shall be
the joint responsibility of the Manager and the Owner to determine the limits
and extent of insurance coverage and to mutually agree upon an agency or
company and to provide copies of said insurance policies to individuals sent.
It shall be the Manager's duty to inform the Owner no less than thirty (30)
days prior to the expiration of any such insurance policy that such about to
expire and to advise the Owner in obtaining a renewal of said policy or seeking
coverage from a different insurance carrier. All policies of insurance shall
name the Owner, the Manager, and such other parties as may be required by the
provisions of any mortgage as the insured thereunder. All insurance shall be
obtained at the expense of the facility.

-5-
<PAGE> 6
TERMINATION AND DAMAGES

This Agreement may be terminated at any time by mutual consent of the
parties if evidenced in writing. In addition, the Owner may terminate this
Agreement without penalty on sixty (60) days notice by the vote of the Majority
in Interest of the Limited Partners, and the BUC Holders as defined in the
Amended and Restated Agreement Of Limited Partnership Of Owner. In the event
of Owner's termination of Manager pursuant to this paragraph, Owner shall be
liable to pay the Manager the accrued amounts due Manager pursuant to this
Agreement up to the day of termination, less the damages, if any, caused by any
such breach or violation of this Agreement by Manager. Therefore, the parties
agree that the liability of Manager for any breach or violation of this
Agreement or duties hereunder shall be limited to the actual management fee
received by Manager under this Agreement. Each party shall have all rights and
remedies available to them under applicable laws.

ATTORNEY FEES

CONTROLLING LAW

EXCLUSIVE APPLICATION

NONASSIGNABILITY

This Agreement is not assignable by the Manager without the prior
written consent of the Owner.

-6-
<PAGE> 7
NOTICE

BINDING EFFECT

This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, except as herein before
limited.

IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.

OWNER:

CAPITAL SENIOR LIVING COMMUNITIES, L.P.

BY: RETIREMENT LIVING COMMUNITIES, L.P.,
Its General Partner

BY: CAPITAL REALTY GROUP SENIOR HOUSING, INC.,
Its General Partner

BY: /s/ Jeffrey L. Beck
-------------------------------

MANAGER:

CAPITAL SENIOR LIVING, INC.

BY: /s/ James Stroud, COO
----------------------------

-7-

<PAGE> 1
EXHIBIT 10.20

MANAGEMENT AGREEMENT

THIS AGREEMENT, made in Dallas, Texas, as of the 1st day of February,
1995, by and between:

WITNESSETH

WHEREAS, the Owner now owns a business commonly known as Towne Centre,
in the City of Merrillville, State of Indiana, hereinafter called the "Home."

WHEREAS, the Owner desires to employ the Manager to act as general
manager of the Home, and the Manager is willing to accept such employment
subject to the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and of the terms and
conditions herein set forth, the parties hereto agree as follows:

EMPLOYMENT OF MANAGER

The Owner hereby appoints the Manager, and the Manager hereby accepts
the appointment as exclusive Manager of the Home.

TERM

The services of Manager shall commence on February 1, 1995 and shall
terminate nine (9) years from the date thereto, unless sooner terminated as
herein provided.

MANAGER'S DUTIES

-1-
<PAGE> 2

1. Use its reasonable efforts and due diligence in the renting of
all of the rooms and facilities to desirable tenants.

2. Employ, at the expense of the facility, such resident
administrator, assistant administrator, employees, agents, clerks at the Home
as may be required to continue the standard and quality of management and
operation at a level not lower than that heretofore maintained. The Manager
shall not be liable to the Owner or others for any act or omission on the part
of such employees unless the Manager has failed to use reasonable diligence in
their hiring, discharge or supervision so as to maintain a staff of qualified,
competent, and trustworthy employees. The Manager will negotiate on the
Owner's behalf with any labor union lawfully entitled to represent such
employees, but no collection bargaining agreement or labor contract resulting
from such negotiations shall be valid unless executed or approved by the Owner.
The Manager will not at any time enter into any agreement with any employee for
a period in excess of one (1) year or for compensation in excess of $50,000.00
per year without the consent in writing of the Owner. The Manager shall
procure and maintain adequate workman's compensation insurance in the name of
and at the expense of the facility covering all the facility employees.

3. Keep the facility and all furniture, furnishings and other
equipment therein, and appurtenant thereto, in good repair.

5. Develop policies with respect to publicity for the purpose of
creating the greatest possible net income for the Home and place and supervise
all advertising and promotional material.

9. Receive, consider and handle the complaints of all tenants,
guests or users of any of the services or facilities of the Home and provide
copies upon written request to the Owner.

10. Institute in its own name or in the name of the Owner,,at the
expense of the facility and with the approval of the Owner, any necessary legal
actions or proceedings.

EXPENDITURES BY MANAGER

ACCOUNTING SERVICES

-3-
<PAGE> 4
Financial statements (including balance sheet, operating statement and
statement of cash flow) shall be provided to Owner within twenty-one (21) days
of month end.

All costs, penalties or expenses incurred by Owner by reason of
Manager's failure to comply with the terms of this section shall be borne
completely by Manager, and Manager shall hold Owner harmless for all such
costs, penalties and other expenses. Such costs, penalties or expenses shall
not include legal and lawful assessments owed to any governmental entity or
regulatory agency including overpayment by Medicaid or Medicare or assessments
to any governmental agency which were not paid by reason of a misinterpretation
or contested interpretation of any law or regulation. The Manager shall be held
responsible for any penalty assessed by reason of late payment unless the Owner
has concurred with the interpretation and actions of the Manager in connection
with the said payment. Said costs, penalties or expenses shall not include any
such expenses incurred by reason of Owner's negligence or delay of payment
occasioned by Owner.

ACCESS TO MANAGEMENT RECORDS

The Manager shall make available to all applicable governmental
authorities having jurisdiction or regulatory authority over or with respect to
the Home, including the Comptroller General, Secretary of Health and Human
Services or their designees, such contracts, books, documents and records
necessary to verify the costs of service contracts of S10,000.00 or more in a
twelve (12) month period as reported on Medicare cost reports.

DEPOSIT OF COLLECTIONS

DISBURSEMENT OF CASH FLOW

-4-
<PAGE> 5
Cash on hand and in bank - end of month
Current accounts receivable to be collected (within 30 days)
Less - current payables (to be paid within 30 days)

Less - reserve for working capital (if any)
Cash for distribution to Owner

MANAGER'S COMPENSATION

As compensation for the services to be rendered by the Manager during
the Operating Period, the Owner will pay the sum of five percent (5%) of gross
rental revenue.

The Owner will reimburse the Manager on a monthly basis for the actual
out-of-pocket costs of direct telephone and travel expenses incurred on
Partnership business, direct out-of-pocket fees, expenses and charges paid by
it to third parties for rendering legal auditing, accounting, bookkeeping,
computer, printing and public relations services, expenses of preparing and
distributing reports to Limited Partners and BUC Holders, an allocable portion
of the salaries and fringe benefits of employees of the Manager who are not
partners of RLC, insurance premium, including premiums for liability insurance
which will cover the Owner, the cost of compliance with all state and federal
regulatory requirements and stock exchange or NASDAQ listing fees and charges,
and other payments to third parties for services rendered to the Partnership.
Any reimbursements pursuant to this provision shall not be in excess of the
lower of actual costs or the amount the Partnership would be required to pay
independent third parties for comparable services in the same geographic
location.

INSURANCE

The Manager shall advise the Owner in obtaining of insurance on the
Home and all furniture, furnishings, and equipment therein against all risks
usually covered in the care of similar properties, including, but without
limitation, fire, plate glass, repairs and omissions, liability and fidelity
insurance, Federal Civil Rights Liability insurance and all other usual
insurance (which shall also cover any liability of the Manager). It shall be
the joint responsibility of the Manager and the Owner to determine the limits
and extent of insurance coverage and to mutually agree upon an agency or
company and to provide copies of said insurance policies to individuals sent.
It shall be the Manager's duty to inform the Owner no less than thirty (30)
days prior to the expiration of any such insurance policy that such about to
expire and to advise the Owner in obtaining a renewal of said policy or seeking
coverage from a different insurance carrier. All policies of insurance shall
name the Owner, the Manager, and such other parties as may be required by the
provisions of any mortgage as the insured thereunder. All insurance shall be
obtained at the expense of the facility.

-5-
<PAGE> 6
TERMINATION AND DAMAGES

This Agreement may be terminated at any time by mutual consent of the
parties if evidenced in writing. In addition, the Owner may terminate this
Agreement without penalty on sixty (60) days notice by the vote of the Majority
in Interest of the Limited Partners, and the BUC Holders as defined in the
Amended and Restated Agreement Of Limited Partnership Of Owner. In the event
of Owner's termination of Manager pursuant to this paragraph, Owner shall be
liable to pay the Manager the accrued amounts due Manager pursuant to this
Agreement up to the day of termination, less the damages, if any, caused by any
such breach or violation of this Agreement by Manager. Therefore, the parties
agree that the liability of Manager for any breach or violation of this
Agreement or duties hereunder shall be limited to the actual management fee
received by Manager under this Agreement. Each party shall have all rights and
remedies available to them under applicable laws.

ATTORNEY FEES

CONTROLLING LAW

EXCLUSIVE APPLICATION

NONASSIGNABILITY

This Agreement is not assignable by the Manager without the prior
written consent of the Owner.

-6-
<PAGE> 7
NOTICE

BINDING EFFECT

This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, except as herein before
limited.

IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.

OWNER:

CAPITAL SENIOR LIVING COMMUNITIES, L.P.

BY: RETIREMENT LIVING COMMUNITIES, L.P.,
Its General Partner

BY: CAPITAL REALTY GROUP SENIOR HOUSING, INC.,
Its General Partner

BY: /s/ Jeffrey L. Beck
-------------------------------

MANAGER:

CAPITAL SENIOR LIVING, INC.

BY: /s/ James Stroud, COO
----------------------------------

-7-

<PAGE> 1
EXHIBIT 10.21

NURSING HOME MANAGEMENT AGREEMENT
[CAMBRIDGE NURSING HOME, CAMBRIDGE]

This Management Agreement (the "Agreement") effective August 1, 1996,
between Capital Senior Living, Inc., a Texas Corporation ("Manager"), and
Cambridge Nursing Home Limited Liability Company, a Massachusetts limited
liability company ("Lessee").

WITNESSETH:

WHEREAS, Lessee leases that certain 119 bed facility (the "Facility")
located at 1 Russell Street, Cambridge, Massachusetts and commonly known as
Cambridge Nursing Home.

WHEREAS, Manager is an experienced and qualified manager in the field of
long-term care management; and

WHEREAS, Lessee desires to engage Manager, and Manager is willing, to
manage the Facility, pursuant to the terms and conditions set forth herein.

NOW THEREFORE, for and in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

1. Retention of Manager. Lessee hereby retains Manager to provide
management services in connection with the facility under the
terms and conditions set forth herein.

2. Responsibilities of Manager. During the Term, as defined below,
Manager shall provide the following management consulting and
advisory services to Lessee in connection with the operation of
the Facility.

A. Facility Administrator. Manager shall select and direct
the performance of the Facility Administrator, who shall
be responsible for the operation of the Facility and
execution on a daily basis of policies established by
Manager and Lessee in accordance with the Agreement.

B. Other Personnel. Manager shall recruit, select, train,
promote, and terminate the employment of all Facility
personnel, which personnel shall all be deemed to be
employees of Manager; establish the salary levels,
personnel policies and employee benefits with respect
thereto; and establish employee performance standards as
needed during the Term to ensure the efficient operation
of all departments within and services offered by the
Facility. All Facility personnel shall be the employees
of Manager. Manager will also be responsible for the
payment of employee payroll, benefits and related employee
expenses (including payroll taxes) as part of Facility
operating expenses (payable

-1-
<PAGE> 2
out of Facility funds) and the distribution of employee
income tax withholding forms at year end.

C. Fiscal Year: Budgets. The fiscal year for the Facility
shall be January 1 through December 31. Within
approximately 60 days following the date of this
Agreement, Manager shall review and modify the facility's
current operating budget and submit this revised budget to
Lessee for approval. In addition, at least forty-five
(45) days prior to the start of each fiscal year, Manager
shall prepare and submit to Lessee for its review and
approval, which approval shall not be unreasonably
withheld, and annual operating budget and an annual
capital expenditure budget for the following year
(collectively, the "Budgets"). Thereafter, Manager shall
be entitled to make or commit Lessee to make expenditures
which are reflected in the Budgets, as well as
expenditures which individually do not exceed 10% of the
amounts set forth therein for the applicable expense item
(the "Budget Threshold"). Except for emergency repairs
referred to in Section 2 (I), any unbudgeted expenditures
and/or expenditures in excess of the Budget Threshold
shall be subject to Lessee's approval, which shall not be
unreasonably withheld.

D. Bank Accounts: Payment of Facility Expenses: Distribution
of Facility Net Cash Flow. Manager shall utilize existing
accounts and maintain a checking account (s) in the name
of Lessee and/or the Facility, as appropriate, for the
benefit and account of Lessee in a bank of Manager's
selection and shall deposit therein all money received in
the course of the operation of the Facility. Manager
shall pay for the benefit of Lessee all expenses incurred
in the operation of the Facility, including, but not
limited to payment of Manager's fees and expenses
hereunder, payroll, benefits and related employee
expenses, repayment of working capital loans and the
interest thereon and Facility debt service payments, all
of which shall be paid by check drawn on such accounts.
Manager shall apply revenue derived from the operation of
the Facility in the following order:

i. Payment of Facility operating expenses (which shall
include any and all costs, expenses or fees
associated with the operation of the Facility),
including Manager's fees and other expenses set
forth in Section 4, but excluding debt service.

ii. Payment of Facility debt service expenses,
including working capital loans, if any.

iii. Deposit into bank account(s) to satisfy the
requirements of Section 8.

-2-
<PAGE> 3
iv. The balance of the cash to Lessee.

E. Operational Policies. Manager shall maintain all
operational policies necessary to establish and maintain
the operational standards appropriate for the nature of
the Facility.

F. Rent and Charges. Manager shall establish the schedules
of recommended rents and charges, including any and all
special charges for services rendered to the residents of
the Facility.

G. Information. Manager may develop any necessary
informational material, mass media releases and other
related publicity materials in connection with the
Facility.

H. Regulatory Compliance. Manager shall use its best efforts
to obtain and maintain in the name of Lessee or Manager,
as appropriate under applicable state law, and at the
expense of Lessee, all licenses, permits, qualifications
and approvals from any applicable governmental or
regulatory authority necessary for the lawful operation of
the Facility as a long-term care facility.

I. Capital Equipment and Improvement. Manager shall advise
Lessee as to capital equipment and Facility improvements
which are needed to maintain or upgrade the quality of the
Facility and said equipment, or to replace obsolete or
rundown equipment. Lessee shall review and act upon
Manager's recommendations as expeditiously as possible.
Manager shall not be liable for any cost or liability
which Lessee may incur in the event Lessee disregards
Manager's recommendations. Manager shall make all
necessary and approved repairs, replacements and
maintenance within the budgetary limits set forth in the
annual capital expenditure budget prepared by Manager
pursuant to Section 2 (C). Notwithstanding any contrary
provisions in this Agreement, Manager shall be entitled,
without Lessee's consent, to make or commit Lessee to make
unbudgeted expenditures and/or expenditures in excess of
the Budget Threshold for the purposes of emergency repairs
involving manifest danger to persons or property or
required to avoid suspension of any necessary service at
the Facility. However, in no instance shall these
unbudgeted expenditures exceed $5,000 without the prior
authorization of the owner.

J. Supplies and Non-Capital Equipment. Manager shall
purchase supplies and non-capital equipment needed to
operate the Facility within the budgetary limits set forth
in the annual operating budget prepared by Manager
pursuant to Section 2 (C).

-3-
<PAGE> 4
K. Ancillary Services. Manager shall negotiate for the
provision of necessary ancillary services through
qualified contractors and on an ongoing basis shall review
and analyze the performance of said ancillary services
contractors and, if necessary, shall negotiate additional
or alternative contractual arrangements therefor. If any
contracts for such services are with related parties to
the Manager they will not exceed the cost of similar
services that could be provided by an unrelated third
party.

L. Legal Matters. Manager and Lessee shall jointly agree on
appropriate legal counsel for matters pertaining to the
Facility. Lessee shall be responsible for all legal fees,
including allocated charges for internal counsel.

M. Bookkeeping and Accounting. Manager shall provide
bookkeeping and accounting procedures necessary for the
operation of the Facility and the preparation of proper
financial records. Bookkeeping and accounting procedures
and systems shall be in accordance with the operation
capital and cash programs developed by Manager, which
programs shall conform to generally accepted accounting
principles.

N. Collection of Accounts. Manager shall issue bills and
collect accounts and monies owed for services and
materials furnished by the Facility, and shall be entitled
to enforce the rights of Lessee of the Facility as
creditor under any contract of in connection with the
rendering of any service; provided, however, that any
expenses incurred by Manager in so doing shall be treated
as Facility operating expenses, which shall be payable out
of Facility funds.

O. Reports. Manager shall prepare and provide to Lessee the
following reports, which shall be due at Lessee's office
no later than the 15th of each month except where
otherwise stated. These reports shall reflect operations
at the Facility:

i. Daily cash receipts journal to be faxed to Lessee
on Friday of each week;

ii. Daily census reports to be faxed to Lessee on
Friday of each week;

iii. Management fee calculations to be faxed to Lessee
monthly on or before the 10th of the month;

iv. Balance sheet;

-4-
<PAGE> 5
v. Operating statement;

vi. Aging of accounts payable and aging of accounts
receivable that ties to the balance sheet;

vii. check register for the month;

viii. Any additional reasonable operational information
which may from time to time be specifically
requested by Lessee.

P. Insurance. Manager, on behalf and at the expense of
Lessee, shall obtain and maintain all such insurance
coverage, which shall include property damage insurance
covering the Facility and the furniture, fixtures and
equipment situated therein, and comprehensive general
liability and professional liability insurance, for the
protection of Lessee, Manager, Facility employees and
volunteers of the Facility. Notwithstanding the
foregoing, Lessee shall provide all employee health and
worker's compensation insurance for its employees. Any
changes in insurance carrier or coverage deemed necessary
by Manager shall be implemented only following review and
approval by Lessee.

3. Term. This Agreement shall become effective on the day the Lessee files
an application for licensure as a long term care facility with the
Division of Health Care Quality of the Massachusetts Department of
Public Health and thereby has the effect of license and shall continue
in full force and effect until August 1, 2005, hereinafter referred to as
the "Term", unless sooner terminated as provided in paragraph 9 below.

4. Management Fees. For services performed hereunder, Lessee shall pay to
Manager the following:

A. Management Fee. Commencing with the signing of this
Agreement, Lessee shall pay to Manager seven percent (7%)
of the Gross Revenues generated during the immediately
preceding month and shall be payable on the 15th day of
the month following that month in which revenues were
actually collected. "Gross Revenues" shall mean all
collected cash receipts generated by the Facility. If the
services of Manager commence or terminate other than on
the first day of a month, the compensation set forth in
the Section 4 (B) shall be prorated for the number of days
for which services are actually rendered.

B. Expense Reimbursement. Lessee shall reimburse Manager for
the following items:

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<PAGE> 6
i. Reasonable food, lodging and travel expenses for
service to the facility.

ii. general overhead and salaries [and other expenses
permitted by the Second Amended and Restated
Limited Partnership Agreement of HealthCare
Properties, L.P., a Delaware limited partnership,
dated as of May 31, 1995]

iii. Any other items set forth in this Agreement as
reimbursable items.

C. Late Charges. Lessee shall pay to Manager, to the extent
permitted by applicable law, interest on any amount owing
to Manager under this Agreement which is not paid when
due, for any period for which any of the same is overdue
(without regard to any grace period), at a rate equal to
the lesser of (i) four percent in excess of the rate
announced from time to time by Chase Manhattan Bank, N.A.
as its prime or reference rate, as such rate may change
from time to time, and (ii) the maximum rate of interest
permitted by applicable law.

D. Method of Payment. Lessee shall pay the amounts set forth
in Sections 4 (B) and (C) monthly, in advance, no later
than the fifteenth (15th) day of the month during which
such amounts are earned or paid. Manager shall be
entitled to disburse all such amounts to itself out of the
accounts provided for in Section 2 (D).

5. Proprietary Interest. The systems, methods, procedures and
controls employed by Manager and any written materials or
brochures developed by Manager to document the same shall not, at
any time, be utilized, distributed, copies or otherwise employed
or acquired for use outside of this Facility, except with
Manager's prior written consent, which Manager may withhold in
its sole discretion. Neither Lessee nor Lessee's designee shall
be entitled to utilize any written material or brochure outside
of this Facility which Manager may have developed to document
said systems, methods, procedures or controls.

6. No Guaranty of Profitability. Lessee acknowledges that Manager
does not guaranty that the Facility will be profitable.

7. Lessee Inspection. During the term, Lessee shall have the right,
upon request and at reasonable times, to inspect the Facility and
to inspect and/or audit all books and records pertaining to the
operation thereof.

8. Responsibility for Funding. Lessee shall make funds available
sufficient to fund payroll and all accounts payable on reasonable
terms in the account (s) referred to in Section 2 (D). These
funds shall be greater than or equal to the greater of

-6-
<PAGE> 7
(A) the sum of all current and unpaid invoices (both those
received and those pending), note or installment payments,
payrolls, rents, expenses, management fees and other charges
incident to the operation of the Facility which will become due
and payable within the next succeeding 45 days, and (B) such
amount as Manager, in its reasonable judgment, deems necessary
for the proper operation of, or improvements or repairs to, the
Facility.

9. Termination.

A. This Agreement may be terminated by the Lessee:

1. In the event of material breach by Manager
of a material term hereof, which breach is not cured
within 60 days after notice by the Lessee (unless Manager
is using commercially reasonable efforts to cure such
failure, in which case such period shall be extended for
one year) and such failure is the result of Manager's
willful misconduct, gross negligence, or unlawful act as
finally determined by a court having such jurisdiction
regarding such matter.

2. In the event that a petition in bankruptcy
is filed by Manager or its permitted assignee, or in the
event Manager or its permitted assignee makes an
assignment for the benefit of creditors or takes advantage
of an insolvency act, by notice to the manager or
assignee.

3. In the event that (i) Manager's or any
permitted assignee's corporate existence is dissolved and
the duties under this Agreement are not assumed by Manager
or Manager's Affiliate (ii) Manager or any permitted
assignee ceases to do business for any reason, by notice
to the Manager or such assignee, and the duties under this
Agreement are not assumed by Manager or Manager's
Affiliate.

B. This Agreement may be terminated by Manager in the event
that Manager fails to receive reimbursement of
reimbursable expenses or any compensation due Manager
pursuant to the terms of this Agreement, or any other
compensation due Manager, and such failure continues for a
period of 60 days after Managers written notice thereof to
Lessee. Manager may terminate this Agreement effective
immediately upon expiration of 60-day period without
further notice to Lessee; provided, however, that this
Agreement shall not be so terminated if the Lessee pay
Manager all such expenses and compensation then due and
payable on or before the expiration of said 60-day period.

-7-
<PAGE> 8
C. No termination of this Agreement shall affect any
obligation owing by either party hereto to the other which
accrued prior to the effective date of such termination.

D. Notwithstanding any earlier provisions, and as per Section
N, Number 8 of the Second Amended and Restated Limited
Partnership Agreement of HealthCare Properties, L.P. (the
"Partnership Agreement"), the Parties' agree that should
the Manager become an affiliated party (as defined in
Section B of the Partnership Agreement) with the General
Partners of HealthCare Properties, L.P., either Manager or
Lessee may terminate this Agreement on sixty (60) days
written notice; Provided however, that such cancellation
provision shall be deemed waived if Manager disassociates
itself from the General Partners during any such sixty
(60) day notice period. Alternatively, Manager may
successfully avoid the sixty (60) day cancellation clause
by assigning its management obligations to an unaffiliated
entity reasonably judged to be capable of fulfilling the
Partnership needs for such services.

10. Miscellaneous.

A. Disclaimer of Employment of Facility Employees. No person
employed by the Lessee will be an employee of Manager, and
Manager shall have no liability for payment of their
wages, payroll taxes and other expenses of employment.
All such persons will be employees of the Lessee, or,
pursuant to Section (K) hereof, independent contractors or
the employees or independent contractors.

B. Relationship of the Parties: Disclaimer of Liability:
Indemnification. The relationship of Manager to Lessee
shall be that of an independent contractor and all acts
performed by Manager Pursuant to this Agreement during the
Term shall be deemed to be performed in its capacity as an
independent contractor. Manager shall not be liable for
any loss, expense or liability incurred by or asserted
against Lessee, unless such loss, expense cost or
liability results from the gross negligence or willful
misconduct of Manager. Lessee shall indemnify and hold
Manager harmless from and against any and all loss,
expense, cost or liability incurred by or asserted against
Manager arising from or related to the Facility; provided,
however, that Lessee shall not be obligated to indemnify
Manager for any loss, expense, cost or liability which
results from Manager's gross negligence or willful
misconduct.

C. Employee Non-Solicitation. Recognizing the unique
services provided by employee of Manager, during the Term
and for a period of two (2) years after termination of
this Agreement, Lessee shall not directly or

-8-
<PAGE> 9
indirectly solicit or employ any employees of Manager to
become employees of Lessee without Manager's prior written
consent, which Manager may withhold in its sole
discretion. Likewise, Manager shall not directly or
indirectly solicit or employ any employees of Lessee to
become employees of Manager without Lessee's prior written
consent, which Lessee may withhold in its sole discretion.

D. Assignment: Binding Effect. This Agreement shall not be
assigned by either party without the prior written consent
of the other party, which consent shall not be
unreasonably withheld, Notwithstanding the foregoing,
Manager may assign its rights and obligations hereunder to
an entity controlling, controlled by or under common
control with Manager. This Agreement shall be binding
upon and insure to the benefit of the permitted successors
and assigns of the parties.

E. Notices. All notices required or permitted hereunder
shall be given in writing and shall be personally
delivered or be sent by registered or certified mail,
postage prepaid, to the following addresses or at such
other places as either party shall designate in writing:

If to Manager: Capital Realty Group Senior
Housing, Inc.
14160 Dallas Parkway
Suite 300
Dallas, Texas 75240
Attention: David R. Brickman

If to Lessee: Cambridge Nursing Home Limited
Liability Company
14160 Dallas Parkway
Suite 300
Dallas, Texas 75240
Attention: David R. Brickman

Mr. James A. Stroud
14160 Dallas Parkway
Suite 300
Dallas, Texas 75240

And in either instance a copy shall be sent to:

Alan S. Goldberg, Esq.
Goulston & Storrs
400 Atlantic Avenue
Boston, MA 02110-3333

-9-
<PAGE> 10
Notices shall be deemed effective upon receipt.

F. Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the subject
matter hereof and shall supersede all prior
understandings, agreements or arrangements, oral or
written, between the parties.

G. Amendment. This Agreement shall not be modified or
amended except by written instrument signed by both of the
parties.

H. Captions. The captions and headings used herein are for
convenience of reference only and shall not be construed
in any manner to limit or modify any of the terms hereof.

I. Attorney's Fees. In the event either party brings an
action to enforce this Agreement, the prevailing party in
such action shall be entitled to recover from the other
all costs incurred in connections therewith, including
reasonable attorney's fees. Reasonably attorney's fees
shall include reasonable charges allocated for internal
counsel.

J. Severability. In the event one or more of the provisions
of this Agreement is deemed to be invalid, illegal or
unenforceable in any respect under applicable laws, the
validity, legality and enforceability of the remaining
provisions hereof shall not, in any way, be impaired
thereby.

K. Representations. Each of the parties represents and
warrants to the other as follows:

i. The execution, delivery and performance of this
Agreement (a) are within the corporate and
partnership powers of the respective parties, (b)
have been duly authorized by all necessary
corporate or partnership action, and (c) do not and
will not (1) require any consent or approval by
stockholders or partners, or (2) violate any
provision of any law, rule, regulation, order,
writ, judgment, decree or award presently in effect
having applicability to the parties or the articles
of incorporation, bylaws, partnership or joint
venture agreements of the parties.

ii. This Agreement constitutes the valid and binding
obligations of Lessee and Manager, respectively,
enforceable in accordance with its terms.

-10-
<PAGE> 11
L. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all
of which together shall constitute but one and the same
instrument.

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

N. Access to Records, Cost Reports and Financial Statements.
Each of the parties hereby grant the other, and the
appropriate governmental agency access to all contracts,
books, documents and records necessary to verify the costs
of any contract between any subcontractor and any
Medicaid/Medicare provider in accordance with
state/federal statutory and/or regulatory requirements.

IN WITNESS WHEREOF, the parties have each caused the Agreement to be duly
executed by its duly authorized officer, as of the date first written above.

Lessee: CAMBRIDGE NURSING HOME LIMITED
LIABILITY COMPANY a Massachusetts
limited liability company

By: Cambridge Nursing Home, Inc., its
Managing Member

By: /s/ David R. Brickman
------------------------------
Its Vice President
---------------------------
Hereunto duly authorized

Manager: CAPITAL SENIOR LIVING, INC.

By: /s/ Keith Johnanessan
---------------------------------
Its President
------------------------------
Hereunto duly authorized

-11-

<PAGE> 1
Exhibit 10.22

MANAGEMENT AGREEMENT

THIS AGREEMENT entered into this 1st day of April, 1996, by and
between BUCKNER RETIREMENT SERVICES, INC., ("Buckner") a not-for-profit
corporation organized under the laws of the state of Texas, and CAPITAL SENIOR
MANAGEMENT 1, INC. ("Capital"), a for-profit corporation organized under the
laws of the state of Texas.

PREAMBLE

Buckner by this Agreement is engaging Capital to provide management
services relating to the operation of Buckner Westminster Place (the
"Facility"), a retirement community located in Longview, Texas. Capital has
management expertise and resources designed to assist in the development and
maintenance of quality service to residents of retirement communities on a
financially sound basis. Capital and Buckner share a commitment to make the
retirement years of residents as meaningful and comfortable as possible. Both
share the philosophy that the retirement environment should allow for and
encourage contained personal growth and independent living for the elderly, and
when independent living is no longer possible, then the same retirement
environment should have the flexibility to provide quality health care in the
midst of a high degree of understanding, compassion and companionship enhanced
by and based upon the prior years of residence in the same community.

This Agreement is founded on the following assumptions:

Buckner retains primary responsibility to:

a) Establish the policies of the Facility, and to plan for its
short-range and long-range goals.

b) Review and evaluate the performance of Capital in carrying
out the established policies and in attaining the goals
established by Buckner.
<PAGE> 2

c) Annually review and approve the budget.

d) Annually review the policies and goals which have been
established.

e) Provide Christian social service ministry from the Facility
that is resident and community-based.

Capital assumes primary responsibility to:

a) Implement the policies established by Buckner.

b) Supervise the day-to-day management of the Facility,
including all resident activities.

c) Provide to Buckner full, timely and accurate information
as to past operations.

d) Provide to Buckner projections and recommendations relating
to the future operations of the Facility.

The parties therefore agree as follows:

I. RESPONSIBILITIES OF CAPITAL

A. Recommend Policies. Capital shall recommend policies and
goals to be established by Buckner, and shall evaluate such
policies and goals on an ongoing basis.

B. Management Duties. Capital shall supervise the operation of
the Facility, provide management services, install operating
procedures and oversee day-to-day operations, all subject to
and in accordance with the budgets and policies, established
by Buckner.

C. Marketing Duties. Capital shall manage and supervise the
marketing program. Capital shall periodically review the
residence agreement and recommend changes thereof as and if
required.
<PAGE> 3
D. Employees. All Facility-based Employees, including the
administrative employees, shall be employees of Capital with
the exception of Buckner ministry-based employees. Capital
shall have sole authority over Facility-based Employees and
Non-Facility-based Employees who are directly responsible for
the Facility and all matters pertaining thereto and shall be
responsible for all actions and omissions of such employees
occurring pursuant to Capital's employee policy manual. All
costs of hiring, equipping and providing the services of
Facility-based Employees, including, but not limited to,
compensation, health insurance, employer liability insurance,
payroll taxes, bonding, workers' compensation insurance,
benefits and vacations shall be treated as an expense of
Capital to be reimbursed from the Facility operations if
sufficient to reimburse such expenses; if it is not
sufficient, such expenses shall be reimbursed by Buckner.

E. Operating Procedures. Capital shall develop, install and
maintain operating procedures, systems, and controls.

F. Facility Expansion. Capital shall make recommendations
regarding construction, remodeling or expansion of the
Facility.

G. Budgets. Capital shall prepare annual operating budgets for
revenue, expense and cash flow of the Facility, and a capital
expenditures budget. Budgets shall be prepared in advance of
each fiscal year. Cash flow projections shall accompany each
operating budget. It is to be understood that budgets are
only estimates and guidelines of future results and that
budget overruns may occur from time to time.

H. Financial Controls. Capital shall establish and maintain a
system of financial controls for the Facility.

3
<PAGE> 4
I. Monthly Financial Statements. Capital shall provide to
Buckner, on a monthly basis, financial statements and related
financial reports.

J. Marketing Reports. Capital shall, on a weekly and monthly
basis, provide sales and occupancy reports to Buckner, as well
as the results of the annual resident satisfaction survey.

K. Legal Counsel. Capital, at Facility expense, shall coordinate
with Buckner the utilization of legal counsel relating to
Facility operations.

L. Rental Collections and Disbursements. Capital shall collect
the revenues from the residents and, on behalf of Buckner,
deposit all such funds in a residential depository account at
a FDIC insured bank approved by Buckner. The style of the
account shall be in the name of the facility with designated
representatives from Buckner and Capital being the only
parties authorized to draw from said account.

On an as needed basis, Capital shall transfer the
funds from the above stated account into an Operating Expense
Account in the name of the facility. The account shall be in
a FDIC insured bank approved by Buckner. The style of the
account shall be in the name of the facility with designated
representatives from Buckner and Capital being the only
parties authorized to draw from said account. Capital shall
pay out of such Operating Expense Account all operating
expenses (including Capital's Management Fee and any other
sums due to Capital from Buckner), and all other sums properly
payable pursuant to any of the provisions of this Agreement.
Capital shall hold, remit or expend the balance of such funds,
if any, as Buckner may direct. These funds shall not be
co-mingled with funds from any other projects and/or
facilities managed and/or operated by Capital.

4
<PAGE> 5
M. Accounting Systems and Software. Capital shall provide to
Buckner, during the term of this Agreement, appropriate
on-site accounting systems and software, which shall include
complete accounting, bookkeeping and record keeping services
for the Facility, specifically including, but not limited to,
resident billings, accounts payable, accounts receivable,
general ledger and inventory records, and maintain demographic
information on the residents. Acquisition of software,
software maintenance and update charges will be budgeted
expenses of the Facility. Payroll processing may be delegated
to a third party, the cost of which be the responsibility of
the Facility.

II. BUCKNER'S RESPONSIBILITIES

A. Policies. Buckner shall establish the policies for the
Facility.

B. Goals. Buckner shall establish the short range and long range
goals of the Facility.

C. Budgets. Buckner shall review and approve budgets for the
operation of the Facility.

D. Capital's Performance. Buckner shall review and evaluate the
performance of Capital in carrying out the policies for the
Facility.

E. Legal Counsel. Buckner shall obtain legal counsel to perform
all necessary legal services relating to Buckner's ownership
of the Facility.

F. Audits. Buckner, at its discretion, may engage certified
public accountants to perform annual audits of the Facility as
well as prepare any other reports required for federal or
state regulatory agencies which require licensure and/or
certification. Every quarter, upon receipt of reasonable
notice to Capital, all financial records pertaining to the
facility will be open for inspection and review by Buckner's

5
<PAGE> 6
representatives. All labor and expense associated with such
review shall be borne by Buckner.

G. Directives. In order to assure proper coordination, Buckner
shall issue any directions concerning the operations of the
Facility only through the President or Vice President of
Capital.

H. Operating Reports. During the term of this Agreement, Buckner
shall, within fourteen (14) days of issuance, furnish to
Capital copies of any and all Facility-related reports,
including the annual audit (if any) as well as copies of the
minutes of all local advisory Board meetings, other than items
relating to the performance of Capital.

I. Advisory Board Meetings. During the term of this Agreement, a
representative of Capital shall be a member of the local
advisory board and attend any regular or special meeting of
the local advisory Board other than any part thereof involving
evaluation of the performance of Capital under this Agreement.
Buckner shall give Capital the same notice of local advisory
Board meetings as is required to be given to Board members.

J. Change of Residency Agreement. Buckner shall not change the
Residency Agreement without consulting with and seeking
approval of Capital, unless required to do so to comply with
any applicable law or regulation.

K. Decisions. Buckner shall examine documents submitted by
Capital and render decisions pertaining thereto promptly to
avoid unreasonable delay.

L. Uniform Accounts. Facility shall use the uniform chart of
accounts recommended by Capital.

6
<PAGE> 7
M. Furnishing Information. Buckner agrees at its expense to
install and maintain a computer terminal compatible with the
mainframe computer currently in use by Capital and to transmit
data to the Capital mainframe computer via telephone lines.

N. Right of First Refusal.

1. Buckner hereby grants to Capital a right of first
refusal in the event that Buckner decides to sell the
Facility during the initial term of this Agreement.
Buckner shall furnish Capital with a written copy of
the terms and conditions of the proposed sale, which
terms and conditions shall be certified by Buckner as
bona fide, and Capital shall have thirty (30) days
from the date of receipt of such written copy within
which to notify Buckner whether Capital desires to
exercise its rights of first refusal to purchase the
Facility on the same terms and conditions. If
Capital fails to notify Buckner of its desire to
exercise its right of first refusal within such
thirty (30) day period, Capital shall be deemed to
have not exercised its right of first refusal
hereunder.

2. If Capital exercises its right of first refusal,
Capital shall have an additional sixty (60) days
following expiration of the thirty (30) day notice
period within which to obtain financing to purchase
the Facility. Capital shall notify Buckner whether
it has obtained financing to purchase the Facility
within such sixty (60) day period. If Capital fails
to notify Buckner of its having obtained financing
within such sixty (60) day period, Capital shall be
deemed not to have obtained the requisite financing.

7
<PAGE> 8
3. If Capital gives timely notice of the exercise of its
right of first refusal and having obtained the
requisite financing to purchase the Facility, the
closing on the sale to Capital shall take place
within thirty (30) days after the expiration of the
sixty (60) day period on materially the same terms
and conditions as set forth in the bona fide offer;
provided, however, that Capital shall furnish Buckner
with a non-refundable deposit equal to five percent
(5%) of the purchase price, to be credited with
interest earned thereon against the purchase price at
the closing in order to extend the closing for such
thirty (30) day period.

4. If Capital fails to give timely notice of the
exercise of its right of first refusal or having
obtained the requisite financing to purchase the
Facility, Buckner shall be free to close on the sale
to the proposed purchaser, with the closing to take
place within one hundred eighty (180) days after the
failure of Capital to give timely notice, but only on
materially the same terms and conditions as set forth
in the bona fide offer. If such closing to the
proposed purchaser does not occur within such one
hundred eighty (180) day period or if the terms and
conditions of the proposed sale are not materially
the same as set forth in the bona fide offer, the
Facility may not be sold without Capital once again
being offered the right to exercise its right of
first refusal hereunder.

5. Any sale, Sub-lease, or assignment with respect to
the Facility, other than to Capital, shall be
expressly subject to the terms and provisions of this
Agreement and shall not relieve Buckner of its
liability or obligations

8
<PAGE> 9
hereunder, and Buckner shall cause any purchaser,
assignee, or sub-lessee to deliver to Capital written
acknowledgment of its agreement to perform hereunder
including the payment of the management fee described
herein. Buckner may at any time, without the consent
of Capital, subject its interest in the Facility or
any part thereof to the lien of one or more deeds of
trust, mortgages, or other security instruments, so
long as the mortgage and/or successor in interest
confirms its consent to be bound by the terms of this
Agreement within ten (10) days following Capital's
demand therefor; provided, however, that so long as
Buckner has no right to terminate this Agreement
because of the default of Capital hereunder; in the
event of any foreclosure or other proceeding under
any such deed or trust, mortgage, or other security
instruments to enforce the lien or security interest
thereby created, this Agreement shall continue in
full force and effect notwithstanding such
foreclosure or other proceedings.

III. INSURANCE.

A. Capital shall maintain, in full force and effect, at the
Facility's expense, the following insurance protecting Buckner
and Capital and their officers and employees:

1. Employee's fidelity insurance

2. Worker's compensation and employers liability
insurance

3. Professional liability insurance

9
<PAGE> 10
4. Comprehensive general public liability insurance and
overlying umbrella liability coverage against loss or
liability for damages for personal injury or death
occurring on, in or about the Facility.

Such policy or policies shall be written by a
responsible insurance company or companies
satisfactory to Buckner and in kind and amounts
satisfactory to Buckner. Certificates of insurance
showing compliance with the foregoing requirements
shall be furnished by Capital to Buckner.
Certificates shall state that the policy or policies
will not be canceled or altered without at least 30
days prior written notice to Buckner.

B. Buckner shall procure and maintain, in full force and effect,
at Buckner's expense the following insurance protecting
Buckner and Capital and their officers and employees:

1. Property Insurance for loss or damage by fire and
other perils insurable under the broad form of
extended coverage insurance available in the area
where the Facility is located, and improvements, and
contents thereof, constituting all or any portion of
the Facility.

2. Insurance for automobiles owned or hired by Buckner
or Capital and used in connection with the Facility.

Such policy or policies shall be written by a responsible
insurance company or companies satisfactory to Capital in kind
and amounts satisfactory to Capital. Certificates of
insurance showing compliance with the foregoing requirements
shall be furnished by Buckner to Capital. Certificates shall
state that the policy or

10
<PAGE> 11
policies will not be canceled or altered without at least 30
days prior written notice to Capital.

IV. TERM AND TERMINATION OF THIS AGREEMENT

A. Term and Termination Without Cause. This Agreement shall
commence on the date set forth on the first page hereof and
continue for a period of five (5) years, except that either
party may terminate this Agreement after the Fixed Term (as
hereinafter defined) by giving ninety (90) days written notice
to the other party. The Fixed Term shall be thirty-six (36)
months, except that if tax exempt financing is not utilized or
if the U.S. Treasury Department liberalizes its current
published advance ruling guidelines (Rev. Proc. 82-14, 1982-1
C.B. 459) to extend the period in which a management contract
may be non-terminable without adversely affecting the
tax-exempt status of bonds issued to finance the Facility to
which the management contract relates, and if, in the opinion
of bond counsel, such Treasury action applies to the bonds
issued to finance the Facility, then the Fixed Term shall be
the maximum period allowed for advance ruling purposes, but
not more than five (5) years. If Buckner terminates the
Agreement prior to the expiration of the Fixed Term or if
Capital terminates this Agreement during the Fixed Term for
cause as provided in Paragraph IV.B. below, severance
compensation in an amount equal to the then-current monthly
management fee times the number of months remaining in the
Fixed Term shall be paid to Capital upon the effective date of
termination. Any such termination shall be effective upon the
expiration of the ninety (90) day period following the giving
of the notice or on such later date as may be specified in the
notice.

11
<PAGE> 12
B. Termination for Cause.

1. This Agreement may be terminated by Buckner for cause
for the following reasons:

a) In the event of material breach by Capital of
a material term hereof, which breach is not
cured within sixty (60) days after notice by
Buckner and such failure is the result of
Capital's willful misconduct, gross
negligence, or unlawful act.

b) In the event that a petition in bankruptcy is
filed by Capital or its permitted assignee,
or in the event Capital or its permitted
assignee makes an assignment for the benefit
of creditors or takes advantage of an
insolvency act, by notice to Capital or
assignee.

c) In the event that (i) Capital's or any
permitted assignee's corporate existence is
dissolved and the duties under this Agreement
are not assumed by Capital or an affiliate of
Capital (ii) Capital or any permitted
assignee ceases to do business for any
reason, by notice to Capital or such
assignee, and the duties under this Agreement
are not assumed by Capital or Capital's
Affiliate.

d) In the event of a change of controlling
ownership interest in Capital or Capital
Senior Living, Inc. Controlling Ownership
shall be defined as a change of greater than
50% from the present 100% ownership of James
A. Stroud and Jeffrey L. Beck and affiliates
of which they control.

12
<PAGE> 13
2. This Agreement may be terminated by Capital in the
event that Capital fails to receive reimbursement of
reimbursable expenses or any compensation due Capital
pursuant to the terms of this Agreement, or any other
compensation due Capital, and such failure continues
for a period of sixty (60) days after Capital's
written notice thereof to Buckner; provided, however,
that this Agreement shall not be so terminated if
Buckner pays Capital all such expenses and
compensation then due and payable on or before the
expiration of said sixty-day period.

3. No termination of this Agreement shall affect any
obligation owing by either party hereto to the other
which accrued prior to the effective date of such
termination.

C. Covenants Surviving Termination. The termination of this
Agreement shall not terminate the right of Capital to
indemnification relating to events occurring during the term
of this Agreement under Article VI.L., and to protection of
its property rights under Article VI.B.

V. COMPENSATION

A. Operations Management and Marketing Lease-up Fees. Buckner
shall pay to Capital a fee in the amount set forth below,
payable on the fifteenth day of each month commencing with the
second month this Agreement is executed and ending on the last
day of the month after which this Agreement is terminated:

1. The amount to be paid monthly shall be the greater of
$5,000.00 per month or 5% of Gross Revenues generated
during the immediately proceeding month. "Gross
Revenues" shall be defined as gross monthly revenues
from

13
<PAGE> 14
the operation of the Facility. Gross Revenues shall
not include (i) security deposits received from
residents and, if applicable, interest accrued
thereon for the benefit of the residents until such
deposits or interest are accrued thereon for the
benefit of the residents until such deposits or
interest are applied for rental payments; (ii)
proceeds from the sale of depositions of all or any
part of such Facility; (iii) insurance proceeds
received by Buckner as a result of any insured loss
(except proceeds for rent loss insurance); (iv)
capital contributions made by any partner of Buckner;
(v) loans by Buckner; and (vi) proceeds from capital,
financing and any other transactions not in the
ordinary course of operation of such Facility. The
Monthly Management Fee for the facility shall be
payable monthly in arrears following calculations
thereof upon submission of a monthly statement for
such Facility from Capital. It is agreed between
Buckner and Capital that if the Gross Revenues of the
Facility are insufficient to pay all disbursements,
including the Monthly Management Fee, or any portion
thereof, then Buckner shall remain responsible for
such disbursements. It is further agreed between
Buckner and Capital that in no event will any
disbursement be made to Buckner from any Facility
Account until all accrued and unpaid fees to Capital
and repayments, if any, to Capital for Capital's
advancement of funds to cover any insufficiencies in
such Facility's Rental or Payroll Account have been
paid in full.

2. A marketing lease-up fee of $500.00 shall be paid for
each apartment unit and patio home at the time the
unit is initially occupied. This fee will be

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<PAGE> 15
applicable for only those units not leased as of the
date of the execution of this Agreement.

3. Buckner and Capital shall prepare a net income
projection for the start up period beginning April 1,
1996 and ending June 30, 1997 ("First Projection
Term"), in form similar to Exhibit A. Said
projection shall be approved by both parties in
writing. This projection shall not include any debt
service obligations or capital expenditure
obligations of the Facility. If, at the end of the
First Projection Term, Capital either exceeds
projected net positive income for the First
Projection Term or falls below the projected net
loss, Capital shall be entitled to receive 25% of
either the savings below the projected net loss or
the profits above the projected net positive income,
but not to exceed the amount paid under item 1 of
section V.A. for the First Projection Term. After
the First Projection Term ending June 30, 1997,
Buckner and Capital shall prepare a net income
projection for the next six (6) month period ending
December 31, 1997 ("Second Projection Term"). If, at
the end of the Second Projection Term Capital exceeds
the projected income, or falls below the projected
net loss for the said period, Capital shall be
entitled to retain 25% of either the savings below
the net loss or the amount of profit above the
projected net gain, but not to exceed the amount paid
under item 1 of section V.A. for the Second
Projection Term. Each year, subsequent to the Second
Projection Term, Buckner and Capital shall prepare,
on an annual basis, a net income projection beginning
January 1 of each year and ending December 31 of that
same year. If at the end of

15
<PAGE> 16
each year, Capital exceeds the projected annual
income number as of that year, or falls below the
projected loss for the year, Capital shall be
entitled to retain 25% of either the savings below
the net loss or the amount of profit above the
projected net gain, but not to exceed the amount paid
under item 1 of section V.A. for each subsequent
projection term.

B. Certain Expenses. In accordance with the Annual Budgets, the
Facility will reimburse Capital for the cost of reasonable
transportation, lodging and meal expenses for
non-Facility-based employees of Capital or its outside
consultants when traveling in connection with the performance
of the services being performed pursuant to this Agreement,
together with any reasonable long distance telephone expenses,
copying, mailing or express shipments, and other miscellaneous
out of pocket expenses that relate to the marketing and
management of the Facility. Relocation, education,
professional memberships and licensing expenses of the
Facility-based administrative employees, shall also be an
expense of the Facility.

VI. MISCELLANEOUS

A. Insurance-Subrogation. No indemnity shall be paid to the
other party under this Agreement where the claim, damage,
liability, loss or expense incurred was or was not required to
be insured against. Any insurance policies obtained by the
parties pursuant to this Agreement shall contain provisions or
have the effect of waiving any right of subrogation by the
insurer of one party against the other party or its insurer.

B. Property of Capital. Trade names, including the name "Buckner
Westminster Place," ideas and documents, forms, occupancy
development material, specifically

16
<PAGE> 17
for and related to Buckner Westminster Place shall be the
property of Buckner. Trade names, ideas and documents, forms
and occupancy development material, not directly related to
the Facility and supplied by Capital are to be considered
proprietary and will remain the property of Capital. Buckner
may use such materials which are the property of Capital and
information in the operation and management of the Facility,
as may be recommended by Capital, but may not use such
materials or information after termination of this Agreement
for the development or expansion of the Facility or for new
projects for itself or others without the written consent of
Capital.

C. Status of Parties. It is expressly understood and agreed that
Capital shall act as an independent contractor in the
performance of this Agreement. No provision hereof shall be
deemed or construed to create a partnership or a joint venture
between Buckner and Capital with respect to the Facility or
otherwise.

D. Additional Action. In order to carry out the intent and
spirit of this Agreement, Buckner and Capital will do all acts
and things necessary including the execution of other
agreements.

E. Entire Agreement. This Agreement sets forth the entire
Agreement between Capital and Buckner. Any change or
modification of this Agreement must be in writing and signed
by all parties hereto.

F. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their
successors and assigns.

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<PAGE> 18
G. Assignment, etc. Capital shall not, without Buckner's prior
written approval (which approval shall not be unreasonably
withheld), assign any of its rights or obligations under this
Agreement.

H. Governing Law. This Agreement, its interpretation, validity
and performance shall be governed by the laws of the State of
Texas.

I. No Personal Liability. This Agreement has been executed on
behalf of Buckner and Capital by their respective officers
solely in their representative capacities, and no officer,
director, agent, employee or attorney of Buckner or Capital
shall have any personal liability hereunder to any person.

J. Hiring Capital Employees. Without the prior written consent
of Capital, for a period of three years following termination
of this Agreement, Buckner will not employ or engage any
person who was a Capital employee assigned to the
administrative staff of the Facility at any time during the
last twelve (12) months of the term of this Agreement.

K. Conditions Beyond Control of Parties. Neither party shall be
held liable for failure to comply with any of the terms of
this Agreement when such failure has been caused solely by
fire, labor dispute, strike, war, insurrection, government
restrictions, force majeure, or act of God beyond the control
and without fault on the part of the party involved, provided
such party uses due diligence to remedy such default.
Circumstances are likely to arise from time to time which may
require that budgets be exceeded, and Capital shall not be
liable for budget overruns.

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<PAGE> 19
L. Indemnification. Buckner will indemnify and hold harmless
Capital from any and all liability arising incident to
Buckner's performance of its duties under this Agreement.
Capital will indemnify and hold harmless Buckner from any and
all liabilities arising incident to Capital's performance of
its duties under this Agreement.

Buckner shall also indemnify and hold Capital harmless against
any and all losses, costs or expenses incurred by Capital by
reason of, arising out of or in any way related to
noncompliance by the Facility with all applicable state,
federal and local laws, ordinances, rules and regulations
relating to the physical condition of the property of the
Facility, provided Capital shall promptly notify Buckner of
Capital's knowledge of any such noncompliance.

M. Arbitration. In the event of any dispute, claim or
controversy of any kind between the parties, concerning this
Agreement or the termination of this Agreement, the matter
shall be submitted to arbitration in accordance with rules of
the American Arbitration Association, except that the
selection of the Arbitrator shall be done Selected Arbitrator.
The parties jointly shall agree on an arbitrator. If the
parties are unable to agree, in good faith within a reasonable
time, on the selection of an arbitrator, either party may
request appointment of an arbitrator chosen by the American
Arbitration Association who shall be the Selected Arbitrator.
Such arbitrator shall be limited in his decision to a choice
between the final position as requested by each party. Said
arbitration shall be held in Dallas/Fort Worth, Texas, or such
other place as is mutually agreeable. The arbitration
decision shall

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<PAGE> 20
be final and binding on both parties unless the arbitration is
fraudulent or so grossly erroneous as to necessarily imply bad
faith. Costs of arbitration are to be shared by both parties
equally, provided that the arbitrator may choose to award the
costs of arbitration against the losing party if the
arbitrator determined that the final position urged by the
losing party was not reasonable.

BUCKNER RETIREMENT SERVICES, INC. CAPITAL SENIOR MANAGEMENT 1, INC.

By: /s/ Kennith S. Hall By: /s/ Keith Johannessen
------------------------------ ----------------------------------
(title) President/CEO (title) President
-------------------------- ------------------------------

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<PAGE> 21
AMENDMENT TO MANAGEMENT AGREEMENT

THIS AMENDMENT is incorporated into and made a part of the Management
Agreement dated April 1, 1996 ("the Agreement") between BUCKNER RETIREMENT
SERVICES, INC. ("Buckner"), a not-for-profit corporation organized under the
laws of the State of Texas, and CAPITAL SENIOR MANAGEMENT 1, INC. ("Capital"),
a for-profit corporation organized under the laws of the State of TEXAS.

Article IV, Section B, Item 1(d) of the Agreement is hereby amended by
adding the following to the end of the sentence:

. . . Notwithstanding the above, in the event that a public
offering of the stock of Capital Senior or Capital Senior
Living, Inc., the controlling ownership shall be defined as a
change of greater than an aggregate 30% ownership of James A.
Stroud and Jeffrey L. Beck and affiliates of which they
control as well as ownership of current management of Capital
Senior or Capital Senior Living, Inc.

Except as modified herein, all other terms and conditions of the
Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Amendment effective on this 16th day of April, 1996.

BUCKNER RETIREMENT SERVICES, INC. CAPITAL SENIOR MANAGEMENT 1, INC.

By: /s/ By: /s/ David R. Brickman
------------------------------ ------------------------------
Name Name

Senior Vice President Vice President
------------------------------ ------------------------------
Title Title

<PAGE> 1
EXHIBIT 10.23

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (the Agreement) entered into this 23rd day
of May, 1997 by and between The Emmaus Calling, Inc. ("Owner"), a
not-for-profit corporation organized under the laws of the state of Texas, and
Capital Senior Management 1, Inc., (Manager), a for-profit corporation
organized under the laws of the state of Texas.

PREAMBLE

Owner by this Agreement is engaging Manager to provide management
services relating to the operation of a 104 unit assisted living facility
located in Mesquite, Texas (the Facility), and

Manager and Owner share a commitment to make the retirement years of
residents as meaningful and comfortable as possible. Both share the philosophy
that the retirement environment should allow for and encourage contained
personal growth and independent living for the elderly, and when independent
living is no longer possible, then the same retirement environment should have
the flexibility to provide quality health care in the midst of a high degree of
understanding, compassion and companionship enhanced by and based upon the
prior years of residence in the same community.

This Agreement is founded on the following assumptions:

Owner retains primary responsibility to:

a. Establish the policies of the Facility and to plan
for its short-range and long-range goals.

b. Review and evaluate the performance of Manager in
carrying out the established policies and in
attaining the goals established by Owner.

c. Annually review and approve the budget.

d. Annually review the policies and goals which have
been established.

Manager assumes primary responsibility to:

a. Implement the policies established by Owner.

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<PAGE> 2
b. Supervise the day-to-day management of the Facility,
including all resident activities.

c. Provide to Owner full, timely and accurate
information as to past operations.

d. Provide to Owner budgets and recommendations relating
to the future operations of the Facility.

The parties therefore agree as follows:

I. RESPONSIBILITIES OF MANAGER

A. RECOMMENDED POLICIES. Manager shall recommend policies and
goals to be established by Owner and shall evaluate such
policies and goals on an ongoing basis.

B. MANAGEMENT DUTIES. Manager shall supervise the operation of
the Facility, provide management services, install operating
procedures and oversee day-to-day operations, all subject to
and in accordance with the budgets and policies established by
Owner.

C. MARKETING DUTIES. Manager shall manage and supervise the
marketing program. Manager shall periodically review the
residency agreement and recommend changes thereof as and if
required.

D. EMPLOYEES. All Facility-based Employees, including the
administrative employees, shall be employees of Manager.
Manager shall have sole authority over Facility-based
Employees and Non-Facility-based Employees who are directly
responsible for the Facility and all matters pertaining
thereto and shall be responsible for all actions and omissions
of such employees occurring pursuant to Manager's employee
policy manual. All costs of hiring, equipping and providing
the services of Facility-based Employees, including, but not
limited to, compensation, health insurance, employer liability
insurance, payroll taxes, bonding, workers' compensation
insurance, benefits and vacations shall be an expense of
Manager. To the extent the above-stated expenses are incurred
in accordance with the Facility budget or approved by Owner,
they shall be reimbursed from the Facility operations or Owner
as the case may be.

E. OPERATING PROCEDURES. Manager shall develop, install and
maintain operating procedures, systems and controls.

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<PAGE> 3
F. FACILITY EXPANSION. Manager shall make recommendations
regarding construction, remodeling or expansion of the
Facility.

G. BUDGETS. Manager shall prepare for review and approval by
Owner based on reasonable standards annual operating budgets
for revenue, expense and cash flow of the Facility and a
capital expenditures budget. Budgets shall be prepared in
advance of each fiscal year. Cash flow projections shall
accompany each operating budget. It is to be understood that
budgets are only estimates and guidelines of future results
and that budget overruns may occur from time to time.

H. FINANCIAL CONTROLS. Manager shall establish and maintain a
system of financial controls for the Facility.

I. MONTHLY FINANCIAL STATEMENTS. Manager shall provide to Owner,
on a monthly basis, financial statements and related financial
reports. Such statements and reports shall be provided by the
20th day after the end of the month. These reports shall be
in the form attached as Exhibit "A."

J. MARKETING REPORTS. Manager shall, on a monthly basis, provide
sales and occupancy reports to Owner, as well as the results
of the annual resident satisfaction survey.

K. LEGAL COUNSEL. Manager, at Facility expense, shall coordinate
with Owner the utilization of legal counsel relating to
Facility operations.

L. RENTAL COLLECTIONS AND DISBURSEMENTS. Manager shall collect
the revenues from the residents and, on behalf of Owner,
deposit all such funds in a residential depository account at
a FDIC insured bank approved by Owner. The style of the
account shall be in the name of the Facility with designated
representatives from Owner and Manager being the only parties
authorized to draw from said account.

On an as needed basis, Manager shall transfer the funds from
the above stated account into an Operating Expense Account in
the name of the Facility. The account shall be in a FDIC
insured bank approved by Owner. The style of the account
shall be in the name of the Facility with designated
representatives from Owner and Manager being the only parties
authorized to draw from said account. Manager shall pay out
of such Operating Expense Account all operating expenses for
which payment has been approved in accordance with the budget
or approved by Owner (including Manager's Management Fee and
any other sums due to Manager from Owner), and all other sums
properly payable pursuant to any of the provisions of this
Agreement. Manager shall hold, remit or expend the balance of
such funds, if any, as Owner may direct.

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<PAGE> 4
These funds shall not be co-mingled with funds from any other
projects and/or facilities managed and/or operated by Manager.

M. ACCOUNTING SYSTEMS AND SOFTWARE. Manager shall provide to
Owner, during the term of this Agreement, appropriate on-site
accounting systems and software, which shall include complete
accounting, bookkeeping and record keeping services for the
Facility, specifically including, but not limited to, resident
billings, accounts payable, accounts receivable, general
ledger and inventory records and maintain demographic
information on the residents. Acquisition of software for
Facility based operations, software maintenance and update
charges will be budgeted expenses of the Facility. Payroll
processing may be delegated to a third party, the cost of
which will be the responsibility of the Facility.

II. OWNER'S RESPONSIBILITIES

A. POLICIES. Owner shall establish the policies for the
Facility.

B. GOALS. Owner shall establish the short range and long range
goals of the Facility.

C. BUDGETS. Owner shall review and approve budgets for the
operation of the Facility.

D. MANAGER'S PERFORMANCE. Owner shall review and evaluate the
performance of Manager in carrying out the policies for the
Facility.

E. LEGAL COUNSEL. Owner shall obtain legal counsel to perform
all necessary legal services relating to Owner's ownership of
the Facility.

F. AUDITS. Owner, at its discretion, may engage certified public
accountants to perform annual audits of the Facility as well
as prepare any other reports required for federal or state
regulatory agencies which require licensure and/or
certification. Every quarter, upon receipt of reasonable
notice to Manager, all financial records pertaining to the
Facility will be open for inspection and review by Owner's
representatives. All labor and expense associated with such
review shall be borne by Owner.

G. DIRECTIVES. In order to assure proper coordination, Owner
shall issue any directions concerning the operations of the
Facility only through the President or Vice President of
Manager.

H. OPERATING REPORTS. During the term of this Agreement, Owner
shall, within fourteen (14) days of issuance, furnish to
Manager copies of any and all Facility-related reports,
including the annual audit (if any) as well

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<PAGE> 5
as copies of the minutes of all local advisory Board meetings,
other than items relating to the performance of Manager.

I. ADVISORY BOARD MEETINGS. If applicable, during the term of
this Agreement, a representative of Manager shall be a member
of the local advisory board and attend any regular or special
meeting of the local advisory Board other than any part
thereof involving evaluation of the performance of Manager
under this Agreement. Owner shall give Manager the same
notice of local advisory Board meetings as is required to be
given to Board members.

J. CHANGE OF RESIDENCY AGREEMENT. Owner shall not change the
Residency Agreement without consulting with and seeking
approval of Manager unless required to do so to comply with
any applicable law or regulation.

K. DECISIONS. Owner shall examine documents submitted by Manager
and render decisions pertaining thereto promptly to avoid
unreasonable delay.

L. UNIFORM ACCOUNTS. Facility shall use the uniform chart of
accounts recommended by Manager.

M. FURNISHING INFORMATION. Owner agrees at its expense to
install and maintain a computer terminal compatible with the
mainframe computer currently in use by Manager and to transmit
data to the Manager mainframe computer vial telephone lines.

N. RIGHT OF FIRST REFUSAL.

1. After the opening of the Facility, Owner hereby
grants to Manager a right of first refusal in the
event that Owner decides to sell the Facility during
the initial term of this Agreement. This right of
first refusal shall be effective only if this
Agreement is then in full operation and effect.
Owner shall furnish Manager with a written copy of
the terms and conditions of the proposed sale, which
terms and conditions shall be certified by Owner as
bona fide and Manager shall have thirty (30) days
from the date of receipt of such written copy within
which to notify Owner whether Manager desires to
exercise its rights of first refusal to purchase the
Facility on the same terms and conditions. If
Manager fails to notify Owner of its desire to
exercise its right of first refusal within such
thirty (30) day period, Manager shall be deemed to
have not exercised its right of first refusal
hereunder.

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<PAGE> 6
2. If Manager exercises its right of first refusal,
Manager shall have an additional sixty (60) days
following expiration of the thirty (30) day notice
period within which to obtain financing to purchase
the Facility. Manager shall notify Owner whether it
has obtained financing to purchase the Facility
within such sixty (60) day period. If Manager fails
to notify Owner of its having obtained financing
within such sixty (60) day period, Manager shall be
deemed not to have obtained the requisite financing.

3. If Manager gives timely notice of the exercise of its
right of first refusal and having obtained the
requisite financing to purchase the Facility, the
closing on the sale to Manager shall take place
within thirty (30) days after the expiration of the
sixty (60) day period on materially the same terms
and conditions as set forth in the bona fide offer;
provided, however, that Manager shall furnish Owner
with a non-refundable deposit equal to five percent
(5%) of the purchase price, to be credited with
interest earned thereon against the purchase price at
the closing in order to extend the closing for such
thirty (30) day period.

4. If Manager fails to give timely notice of the
exercise of its rights of first refusal or having
obtained the requisite financing to purchase the
Facility, Owner shall be free to close on the sale to
the proposed purchaser, with the closing to take
place within one hundred eighty (180) days after the
failure of Manager to give timely notice, but only on
materially the same terms and conditions as set forth
in the bona fide offer. If such closing to the
proposed purchaser does not occur within such one
hundred eighty (180) day period or if the terms and
conditions of the proposed sale are not materially
the same as set forth in the bona fide offer, the
Facility may not be sold without Manager once again
being offered the right to exercise its right of
first refusal hereunder.

Owner may at any time, without the consent of
Manager, subject its interest in the Facility or any
part thereof to the lien of one or more deeds of
trust, mortgages or other security instruments, so
long as the mortgage and/or successor in interest
confirms its consent to be bound by the terms of this
Agreement within ten (10) days following Manager's
demand therefor; provided, however, that so long as
Owner has no right to terminate this Agreement
because of the default of Manager hereunder; in the
event of any foreclosure or other proceeding under
any such deed or trust, mortgage or other security
instruments to enforce the lien or security interest
thereby created, this Agreement shall continue in
full force and effect notwithstanding such
foreclosure or other proceedings.

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<PAGE> 7
6. If Manager does not exercise its right of first
refusal, and if Owner sells, assigns or subleases the
Facility to a third party, Owner shall, upon the
effective date of termination, pay to Manager
severance compensation in an amount equal to the
present value of thirty percent (30%) of the then-
current monthly management fee times the number of
months remaining in the Fixed Term calculated at a
discount rate at eight percent (8%).

III. INSURANCE.

A. Manager shall maintain, in full force and effect, at the
Facility's expense, the following insurance protecting Owner
and Manager and their officers and employees:

1. Employee's fidelity insurance

2. Worker's compensation and employers liability
insurance

3. Professional liability insurance

4. Comprehensive general public liability insurance and
overlying umbrella liability coverage against loss or
liability for damages for personal injury or death
occurring on, in or about the Facility.

Such policy or policies shall be written by a responsible
insurance company or companies satisfactory to Owner and in
kind and amounts satisfactory to Owner. Certificates of
insurance showing compliance with the foregoing requirements
shall be furnished by Manager to Owner. Certificates shall
state that the policy or policies will not be canceled or
altered without at least 30 days prior written notice to
Owner.

B. Owner shall procure and maintain, in full force and effect, at
Owner's expense the following insurance protecting Owner
and Manager and their officers and employees:

2. Insurance for automobiles owned or hired by Owner
and used in connection with the Facility.

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<PAGE> 8
Such policy or policies shall be written by a
responsible insurance company or companies
satisfactory to Manager in kind and amounts
satisfactory to Manager. Certificates of insurance
showing compliance with the foregoing requirements
shall be furnished by Owner to Manager. Certificates
shall state that the policy or policies will not be
canceled or altered without at lease thirty (30) days
prior written notice to Manager.

IV. TERM AND TERMINATION OF THIS AGREEMENT.

A. TERM AND TERMINATION WITHOUT CAUSE. This Agreement shall
commence on the date set forth on the first page hereof and
continue for a period of the lesser of eighty percent (80%) of
the reasonably expected useful life of the Facility or fifteen
(15) years (the "Fixed Term"). If the U.S. Treasury
Department liberalizes its current published advance ruling
guidelines (Rev. Proc. 97-13) to extend the period in which a
management contract may be non-terminable without adversely
affecting the tax-exempt status of bonds issued to finance the
Facility to which the management contract relates, and if, in
the opinion of bond counsel, such Treasury action applies to
the bonds issued to finance the Facility, then the Fixed Term
shall be the maximum period allowed for advance ruling
purposes. Except as stated under Article II, Section N,
Number 6, if Owner terminates the Agreement prior to the
expiration of the Fixed Term without cause or if Manager
terminates this Agreement during the Fixed Term for cause as
provided in Paragraph IV. B. below, severance compensation in
an amount equal to the then-current monthly management fee
times the number of months remaining in the Fixed Term shall
be paid to Manager upon the effective date of termination.
Any such termination shall be effective upon the expiration of
the ninety (90) day period following the giving of the notice
or on such later date as may be specified in the notice.

B. TERMINATION FOR CAUSE.

1. This Agreement may be terminated by Owner for cause
for the following reasons:

a) In the event of material breach by Manager of
a material term hereof, which breach is not
cured within thirty (30) days after notice by
Owner and such failure is the result of
Manager's willful misconduct, gross
negligence or unlawful act.

b) In the event that a petition in bankruptcy is
filed by Manager or its permitted assignee,
or in the event Manager or its permitted
assignee makes an assignment for the benefit
of

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<PAGE> 9
creditors or takes advantage of an insolvency
act, by notice to Manager or assignee or if
Manager becomes insolvent.

c) In the event that (i) Manager's or any
permitted assignee's corporate existence is
dissolved and the duties under this Agreement
are not assumed by Manager or an affiliate of
Manager (ii), Manager or any permitted
assignee ceases to do business for any
reason, by notice to Manager or such assignee
and the duties under this Agreement are not
assumed by Manager or Manager's Affiliate.

d) At any time after 15 years of its execution,
with or without cause.

2. This Agreement may be terminated by Manager in the
event that Manager fails to receive reimbursement of
reimbursable expenses or any compensation due Manager
pursuant to the terms of this Agreement or any other
compensation due Manager, and such failure continues
for a period of sixty (60) days after Manager's
written notice thereof to Owner, however, that this
Agreement shall not be so terminated if Owner pays
Manager all such expenses and compensation then due
and payable on or before the expiration of said sixty
(60) day period.

3. No termination of this Agreement shall affect any
obligation owing by either party hereto to the other
which accrued prior to the effective date of such
termination.

C. COVENANTS SURVIVING TERMINATION. The termination of this
Agreement shall not terminate the right of Manager to
indemnification relating to events occurring during the term
of this Agreement under Article VI. L. and to protection of
its property rights under Article VI. B.

V. COMPENSATION

A. OPERATIONS MANAGEMENT FEES. Owner shall pay to Manager a fee
in the amount set forth below, payable on the fifteenth day of
each month commencing with the date of the first resident
move-in and ending on the last day of the month after which
this Agreement is terminated:

1. The amount to be paid monthly shall be Eight Thousand
And No/100 Dollars ($8,000.00) per month (the Monthly
Management Fee). The Monthly Management Fee shall be
increased yearly by the difference between the
Consumer Price Index for that year less

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<PAGE> 10
the Consumer Price Index for the year of completion.
The Monthly Management Fee for the Facility shall be
payable monthly in arrears following calculations
thereof upon submission of a monthly statement for
such Facility from Manager. It is agreed between
Owner and Manager that if the Gross Revenues of the
Facility are insufficient to pay all disbursements,
including the Monthly Management Fee or any portion
thereof, then Owner shall remain responsible for such
disbursements. It is further agreed between Owner
and Manager that in no event will any disbursement be
made to Owner from any Facility Account until all
accrued and unpaid fees to Manager and repayments, if
any, to Manager for Manager's advancement of funds to
cover any insufficiencies in such Facility's Rental
or Payroll Account have been paid in full.

2. A Productivity Award equal to $_______________ when
the gross monthly revenues from the Facility exceed
$_______________ for three (3) consecutive months.
In the event the Productivity Award is greater than
five percent (5%) of the total Monthly Management Fee
for that annual period, (I) it shall be reduced to
five percent (5%) of the total Monthly Management Fee
for that annual period and (ii) Manager shall be
eligible to receive a Productivity Award in the next
year (subject to the same five percent (5%)
limitation) if the gross monthly revenues from the
Facility exceed $________________ for three (3)
consecutive months in that next year.

B. CERTAIN EXPENSES. In accordance with the Annual Budgets, the
Facility will reimburse Manager for the cost of reasonable
transportation, lodging and meal expenses for
non-Facility-based employees of Manager or its outside
consultants when traveling in connection with the performance
of the services being performed pursuant to this Agreement,
together with any reasonable long distance telephone expenses,
copying, mailing or express shipments and other miscellaneous
out of pocket expenses that relate to the marketing and
management of the Facility. Relocation, education,
professional memberships and licensing expenses of the
Facility-based administrative employees shall also be an
expense of the Facility subject to Owner's approval.

VI. MISCELLANEOUS

A. INSURANCE-SUBROGATION. No indemnity shall be paid to the
other party under this Agreement where the claim, damage,
liability, loss or expense incurred was required to be insured
against by such other party. Any insurance policies obtained
by the parties pursuant to this Agreement shall contain

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provisions or have the effect of waiving any right of
subrogation by the insurer of one party against the other
party or its insurer.

B. PROPERTY OF MANAGER. Trade names, including the name
______________________, ideas and documents, forms, occupancy
development material, specifically for and related to the
Facility shall be the property of Owner. Trade names, ideas
and documents, forms and occupancy development material, not
directly related to the Facility and supplied by Manager are
to be considered proprietary and will remain the property of
Manager. Owner may use such materials which are the property
of Manager and information in the operation and management of
the Facility, as may be recommended by Manager, but may not
use such materials or information after termination of this
Agreement for the development or expansion of the Facility or
for new projects for itself or others without the written
consent of Manager.

C. STATUS OF PARTIES. It is expressly understood and agreed that
Manager shall act as an independent contractor in the
performance of this Agreement. No provision hereof shall be
deemed or construed to create a partnership or a joint venture
between Owner with respect to the Facility or otherwise.

D. ADDITIONAL ACTION. In order to carry out the intent and
spirit of this Agreement, Owner and Manager will do all acts
and things necessary including the execution of other
agreements.

E. ENTIRE AGREEMENT. This Agreement sets forth the entire
Agreement between Manager and Owner. Any change or
modification of this Agreement must be in writing and signed
by all parties hereto.

F. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their
successors and assigns.

G. ASSIGNMENT, ETC. Manager shall not, without Owner's prior
written approval (which approval shall not be unreasonably
withheld), assign any of its rights or obligations under this
Agreement.

H. GOVERNING LAW. This Agreement, its interpretation, validity
and performance shall be governed by the laws of the State of
Texas.

I. NO PERSONAL LIABILITY. This Agreement has been executed on
behalf of Owner and Manager by their respective officers
solely in their representative capacities and no officer,
director, agent, employee or attorney of Owner or Manager
shall have any personal liability hereunder to any person.

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J. NON-COMPETE. Without the prior written consent of Manager,
for a period of three years following termination of this
Agreement, Owner will not employ or engage any person who was
a Manager employee assigned to the administrative staff of the
Facility at any time during the last twelve (12) months of the
term of this Agreement. Additionally, neither Manager nor
Owner will operate, manage or develop any facilities within a
3 mile radius of the "Facility". This section shall not apply
to Owner upon sale of the Facility to a third party,
termination of the Agreement for cause by Owner.

K. CONDITIONS BEYOND CONTROL OF PARTIES. Neither party shall be
held liable for failure to comply with any of the terms of
this Agreement when such failure has been caused solely by
fire, labor dispute, strike, war, insurrection, government
restrictions, force majeure, or act of God beyond the control
and without fault on the part of the party involved, provided
such party uses due diligence to remedy such default.
Circumstances are likely to arise from time to time which may
require that budgets be exceeded, and Manager shall not be
liable for budget overruns.

L. INDEMNIFICATION. Owner will indemnify and hold harmless
Manager from any and all liability arising incident to Owner's
performance of its duties under this Agreement. Manager will
indemnify and hold harmless Owner from any and all liabilities
arising incident to Manager's performance of its duties under
this Agreement.

Owner shall also indemnify and hold Manager harmless against
any and all losses, costs or expenses incurred by Manager by
reason of, arising out of or in any way related to
noncompliance by the Facility with all applicable state,
federal and local laws, ordinances, rules and regulations
relating to the physical condition of the property of the
Facility, provided Manager shall promptly notify Owner of
Manager's knowledge of any such noncompliance.

M. ARBITRATION. In the event of any dispute, claim or
controversy of any kind between the parties, concerning this
Agreement or the termination of this Agreement, the matter
shall be submitted to arbitration in accordance with rules of
the American Arbitration Association, except that the
selection of the Arbitrator shall be done Selected Arbitrator.
The parties jointly shall agree on an arbitrator. If the
parties are unable to agree, in good faith within a reasonable
time, on the selection of an arbitrator, either party may
request appointment of an arbitrator chosen by the American
Arbitration Association who shall be the Selected Arbitrator.
Such arbitrator shall be limited in his decision to a choice
between the final position as requested by each party. Said
arbitration shall be held in Dallas/Ft. Worth, Texas or such
other place as is mutually agreeable. The arbitration
decision shall be final and binding on both parties unless

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the arbitration is fraudulent or so grossly erroneous as to
necessarily imply bad faith. Costs of arbitration are to be
shared by both parties equally, provided that the arbitrator
may choose to award the costs of arbitration against the
losing party if the arbitrator determined that the final
position urged by the losing party was not reasonable.

THE EMMAUS CALLING, INC. CAPITAL SENIOR MANAGEMENT 1, INC.
Owner Manager

By: /s/ ROBBIE L. WITTNER By: /s/ DAVID R. BRICKMAN
----------------------------- ----------------------------
Title: President Title: VP
----------------------------- ----------------------------

<PAGE> 1

Exhibit 10.24

PROPERTY MANAGEMENT AGREEMENT

This Agreement (herein so called) is made and entered into effective
as of February 1, 1995, between NHP RETIREMENT HOUSING PARTNERS I LIMITED
PARTNERSHIP, a Delaware limited ("Owner"), and CAPITAL SENIOR LIVING, INC., a
Texas corporation ("Agent").

1. Appointment and Acceptance. The Owner, on behalf of itself
appoints the Agent as exclusive agent to manage, operate, maintain, lease,
rent, and otherwise operate the properties more particularly described in
Schedule I of this Agreement (collectively, the "Projects" and individually, a
"Project"). Agent accepts the appointment, subject to the terms and conditions
set forth in this Agreement; and agrees to exert its reasonable efforts in
managing the property.

2. Definitions. The following terms and phrases are employed in
this Agreement. Subject to the terms and conditions of this Agreement, said
terms and phrases shall be deemed to have the respective meanings set forth
below wherever they appear in this Agreement.

(a) "Affiliate" means (i) any other person directly or
indirectly controlling or controlled by or under common control with
another person, (ii) a person owning, or controlling 10% or more of
the outstanding voting securities of such person or (iii) any officer,
director or partner of such person.

(b) "Management Plan" means a description of the general
policies and procedures to be followed in the management of a Project
including, but not limited to, the Operating Budget for such Project,
a form of lease, a list of Project employees, a list of services to be
provided and service standards and any amendment or amendments
thereto.

(c) "Marketing Plan" means a description of the general
policies and procedures, including any amendment or amendments
thereto, to be followed in the marketing of a Project, and including
an advertising budget.

(d) "Non-Project-based Employees" means employees of the
Agent other than Project-based Employees.

(e) "Operating Year" means each fiscal year, which shall
be on a calendar year basis, of the Projects.

(f) "Partnership Notes" means those 13% Nonrecourse
Pension Notes Due December 31, 2001, issued pursuant to the Trust
Indenture, not exceeding $42,672,000 in aggregate principal amount.

(g) "Payroll Account" means one or more bank accounts
established by Agent with a bank or financial institution whose
deposits are insured by an agency of the United States Government,
carried in Agent's name under Agent's Federal Employer (Tax)
<PAGE> 2
Identification Number, with the Agent having signatory authority, and
designated on record as "[Project Name] - Payroll Account." A Payroll
Account may be an interest or non-interest bearing account including,
without limitation, checking accounts, savings accounts, money market
accounts and certificates of deposit, as Agent deems advisable.

(h) "Principal Parties" means the Owner and the Agent.

(i) "Project Administrator" means the person designated
and selected by Agent to perform full-time supervisory management
services at the Project site.

(j) "Operating Budget" means the annual operating budget
for a Project prepared by Agent.

(k) "Project-based Employees" means all on-site employees
of a Project including, without Incitation, the Project Administrator.

(l) "Rental Agency Account" means one or more bank
accounts separated from all other accounts and funds established by
Agent with a bank or financial institution whose deposits are insured
by an agency of the United States Government, carried in Agent's name
under Agent's Federal Employer (Tax) Identification Number, with the
Agent and Owner having signature authority, and designated on record
as "[Project Name] Rental Agency Account." A Rental Agency Account may
be an interest or non-interest bearing account including, without
limitation, checking accounts, savings accounts, money market accounts
and certificates of deposit, as Agent deems advisable.

(m) "Trust Account" means one or more bank, accounts
separated from all other accounts and funds established by Agent with
a bank or financial institution selected by Agent in its sole
discretion whose deposits are insured by an agency of the United
States Government, carried in Agent's name under Agent's Federal
Employer (Tax) Identification Number, with Agent and Owner having
signature authority, and designated on record as "[Project Name] Trust
Account". A Trust Account must be an interest-bearing account
including, without limitation, checking accounts, savings accounts,
money market accounts and certificates of deposit, as Agent deems
advisable.

3. Management Plan. Except as otherwise provided in this
Agreement, Owner and Agent shall meet and confer from time to time, as
reasonably requested by Owner or Agent but no less than once a year, for the
sole purpose of reviewing the Management Plan for each Project and the policies
and procedures set forth therein. Agent shall deliver not later than sixty
(60) days prior to the end of the preceding Operating Year the entire
Management Plan for each subsequent Operating Year to Owner for Owner's review
and approval, which approval shall not be unreasonably withheld. Owner and
Agent may agree to amend the Management Plan from time to time, but any such
amendment shall be in writing signed by both Owner and Agent. The initial
Management Plans and any subsequent Management Plan and all amendments thereto
shall be deemed to be additional terms and conditions binding the Principal
Parties of this Agreement and shall be incorporated herein by reference as
though set forth herein in full, except that, should any

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<PAGE> 3
provisions of the initial Management Plan or any subsequent Management Plan and
all amendments thereto conflict with any terms, conditions, or provisions of
this Agreement, then this Agreement shall govern.

4. Marketing. Agent will use his discretion in marketing the
Projects subject to any limitations contained in the applicable Management Plan
and Marketing Plan. Ongoing advertising expenses within such limitations shall
be Project expenses payable out of the Rental Agency Accounts.

5. Rentals. The Agent will offer for rent and will use its
reasonable efforts to rent dwelling units and any other rental facilities in
the Projects. Incident thereto, the following provisions will apply:

(a) Agent will use its reasonable efforts to show the
premises to prospective tenants.

(b) Agent will use its reasonable efforts to take and
process applications for rentals. If an application is rejected by
Agent, the applicant will be told the reason for rejection, and the
rejected application, with reason for rejection noted thereon, will be
kept on file by Agent for one (1) year. A current list of prospective
tenants will be maintained.

(c) Subject to any limitations imposed by applicable law,
Agent will use its reasonable efforts to cause rental agreements to be
in a general form included in the applicable Management Plan, and

(i) all individual rental agreements relating to
dwelling units to be entered into by tenants shall be prepared
by Agent and executed by Agent in Agent's name identified
thereon as Agent for Owner.

(ii) all commercial and concession agreements, if
any, shall be negotiated by Agent, executed by Agent in
Agent's name identified thereon as agent for Owner.

(d) No resident may occupy space in any of the Projects
without an executed lease. No lease or lease renewal shall be entered
into for a term in excess of one year, subject to renewal.

(e) Agent shall prepare and provide to Owner, for Owner's
review and approval, which approval shall not be unreasonably
withheld, monthly rent and service package schedules showing minimum
rents and fees to be charged for dwelling units and other facilities
and services.

(f) Subject to any limitations imposed by law, Agent will
use its reasonable efforts to collect, deposit and disburse security
deposits, if required, in accordance with the terms of each tenant's
rental agreement. Security deposits will be deposited by Agent

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<PAGE> 4
in the respective Project's Trust Account. All such deposits,
together with accrued interest, if any, shall be disbursed as follows:

(i) first, in accordance with any applicable law;

(ii) second, in accordance with terms of any
written or oral agreement under which it was received; and

(iii) third, if any amount is remaining, to Owner
by disbursement to the respective Project's Rental Agency
Account at such times as Agent, in Agent's discretion, deems
appropriate.

Agent shall use its reasonable efforts to keep complete and accurate
records on the Trust Accounts identifying, among other things: (1)
what amount, or remaining portion thereof, of any principal deposit is
attributable to a particular tenant, tenancy or agreement; (2) if
required by law or any written agreement, what amount of interest or
remaining portion thereof, is attributable to said principal; and (3)
all disbursements.

6. Collection of Rents and other Receipts. Agent will use its
reasonable efforts to collect when due all rents, charges and other amounts
receivable for Owner's account in connection with the management and operation
of the Projects. Except for those amounts required to be deposited in the
Trust Accounts, such receipts shall be deposited in the Rental Agency Accounts.

7. Enforcement of Leases. Agent shall use its reasonable efforts
to secure compliance by each tenant with the terms of such tenant's lease.
Subject to the pertinent procedures prescribed in the applicable Management
Plan, Agent will lawfully terminate any tenancy when in the Agent's judgment
sufficient cause, including but not limited to nonpayment of rent, for such
termination occurs under the terms of the tenant's lease. For this purpose,
Agent is authorized to employ legal counsel to bring actions for eviction and
to execute notices to vacate and judicial pleadings incident to such actions;
provided, however, that Agent will use its reasonable efforts to keep Owner
informed as to the progress and status of such actions. Reasonable attorneys'
fees and other necessary costs incurred in connection with such action will be
paid out of the respective Rental Agency Account as Project expenses. Agent
shall have the authority to select one or more attorneys that may be engaged
for such purposes.

8. Maintenance and Repair. Subject to any limitation contained
in this Agreement or the Management Plans (including the operating Budgets for
the Projects), and any written limitations reasonably imposed by Owner, Agent
shall have full authority to maintain and repair the Projects and will use its
reasonable efforts to cause the Projects to be maintained and repaired in
accordance with the standards for a comparable apartment development in
counties and localities in which the respective Projects are located,
including, but not limited to, cleaning, painting, decorating, plumbing,
carpentry, masonry, electrical and elevator maintenance and repair work,
grounds care and such other maintenance and repair work as may be necessary.
Owner shall deliver to Agent, to the extent available and without
representation or warranty as to

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<PAGE> 5
their accuracy or any other matter related thereto, copies of all as-built
surveys of the Projects; as-built plans and specifications of the Projects
(marked to show changes); engineering, mechanical, electrical and plumbing
drawings and specifications of the Projects; and warranties, guarantees and
owners or operations manuals with respect to systems and equipment located in
the Projects.

In connection therewith, the following provisions will apply:

(a) Special attention will be given to preventive
maintenance, to the extent reasonably and financially feasible.

(b) Agent will use regular Project-based Employees
wherever, in Agent's reasonable judgment, possible. Agent, on behalf
of Owner, will contract with qualified independent contractors for
maintenance and repair work as in Agent's reasonable judgment,
appropriate.

(c) Agent will use its reasonable efforts to
systematically and promptly receive and investigate all service
requests from tenants, take such action thereon as may be justified
and will use its reasonable efforts to keep records of the same.
Emergency requests will be received and reasonably serviced on a
twenty- four hours-a-day, seven days-a-week basis.

(d) Subject to the terms and provisions of this Agreement
and the Management Plans (including the Operating Budgets for the
Projects), Agent is authorized to purchase for the account of each
Project all materials, equipment, tools, appliances, supplies and
service necessary, in Agent's reasonable judgment, for the proper
maintenance and repair of such Project.

(e) Agent will require that all maintenance and repairs
will be done in material compliance with known applicable building
codes and laws.

(f) Notwithstanding any of the foregoing provisions, the
prior approval of Owner, which shall not be unreasonably withheld,
will be required for any expenditure for maintenance and/or repair
which exceeds Five Thousand Dollars ($5,000.00) in any one instance
for labor, materials or otherwise, in connection with the maintenance
and repair of a Project, except for (i) recurring expenses within the
limits of the applicable Operating Budget, (ii) other expenses
provided for in such Operating Budget and (iii) emergency repairs
involving manifest danger to persons or property, or required to avoid
suspension of any necessary service to a Project. In the event of
such emergency repairs, Agent will inform Owner of the facts as
promptly as possible. In no event shall Agent use any funds set aside
in a replacement or similar reserve not designated for use in the
Operating Budget without first notifying Owner in writing of the
nature of such use and obtaining the prior written approval of Owner
to such use, which approval shall not be unreasonably withheld.

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<PAGE> 6
Except as otherwise provided by this Agreement, all expenditures for
maintenance and repair shall be Project expenses.

9. Utilities and Services. In accordance with the Management
Plans and the Operating Budgets, Agent will use its reasonable efforts to
arrange for all necessary utilities and services, including, but not limited
to, water, electricity, gas, sewage, trash disposal, vermin extermination,
cable television and telephone service. Agent will contract with the providers
of such services on behalf of Owner and will execute the contracts in Agent's
name, identified therein as Agent for Owner, as may be necessary to secure such
utilities and services. All the Costs for said services, including, without
limitation, deposits, hook-up and installation fees and service charges, shall
be Project expenses.

10. Employees.

(a) All Project-based Employees shall be employees of
Agent. Agent shall have sole authority over Project-based Employees
and Non-Project-based Employees who are directly responsible for the
Projects and all matters pertaining thereto and shall be responsible
for all actions and omissions of such employees occurring pursuant to
Agent's employee policy manuals. All costs of hiring, equipping and
providing the services of Project-based Employees and
Non-Project-based Employees who are directly responsible for the
Projects, including, but not limited to, compensation, health and
liability insurance, payroll taxes, bonding, workers' compensation
insurance, benefits and vacations shall be treated as an expense of
Agent to be reimbursed by Owner.

(b) Reasonable travel expenses incurred by
Non-Project-based Employees traveling between the Project and Agent's
offices, office supplies, overnight courier charges, long-distance
telephone charges and fidelity bond costs shall also be considered an
operating expense of the Project. Additionally, all allowable
expenses as stated under Section 10 of the Third Amended and Restated
Agreement of Limited Partnership for NHP Retirement Housing Partners
I, Limited Partnership shall be considered operating expenses of the
Project.

11. Disbursements from Accounts.

(a) Rental Agency Accounts:

(i) Agent will use its reasonable efforts to make
the following disbursements promptly when payable from the
funds collected and deposited by Agent in the applicable
Rental Agency Account and interest, if any, accrued thereon:

(A) Agent shall disburse to the Payroll
Account sufficient sums to reimburse all of Agent's
obligations associated with compensation of
Project-based Employees and Non-Project- based
Employees who are directly responsible for the
Projects, including, without limitation,

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<PAGE> 7
compensation, withholding taxes and assessments,
employer's contribution to taxes and assessments,
workers' compensation and disbursements for health
and other insurance and benefits, if any.

(B) All sums otherwise due and payable
by Owner as expenses of the Project incurred by Agent
under the terms of this Agreement, the applicable
Management Plan (including the Operating Budget for
such Project) and the applicable Marketing Plan,
including, without limitation, compensation and
reimbursements payable to Agent for Agent's services
hereunder, real estate and other property taxes and
all other fees, taxes, assessments and charges
relating to ownership, maintenance and operation of
such Project.

(C) To the extent financially feasible,
as determined by Agent, interest, principal and other
sums due and payable by Owner in connection with any
indebtedness secured by the Project or otherwise
related to the Project as set forth in the Operating
Budget.

(D) After payment of the aforementioned
items, the remaining balance, if any, shall be kept
in reserve for anticipated expenses, to the extent
deemed necessary or desirable by Agent and otherwise
shall be paid by Agent to Owner on the twentieth
(20th) day of each calendar month.

(ii) In the event that the balance in the Rental
Agency Account of any Project is at any time insufficient to
pay disbursements due and payable under this Subparagraph
11(a), Agent will inform Owner in writing of such fact. If
Owner advises Agent that the funds in the Partnership reserves
are not sufficient to cover such insufficiency, then Agent may
advance funds to cover such insufficiency from Agent's own
funds, or may elect immediately to terminate this Agreement.
If advanced by Agent, such funds shall be deemed to be an
interest bearing loan at prime plus four percent (4%) to such
Project to the extent of such insufficiency, and, shall be
repaid to Agent prior to any disbursement to Owner from the
Rental Agency Account or any other Project account.

(b) Payroll Accounts:

(i) From funds deposited in the Payroll Accounts
and interest, if any, accrued thereon, Agent will make the
following disbursements promptly when payable:

(A) Compensation due Project-based
Employees and Non-Project-based Employees who are
directly responsible for the Projects.

(B) Workers' compensation and employer's
payments with respect to withholding taxes and
assessments, including, but not limited to,

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employer's contributions with respect to
Project-based Employees, and Non-Project-based
Employees who are directly responsible for the
Projects and disbursements for health and other
insurance and benefits, if any.

(ii) In the event that the balance in the Payroll
Account of any Project is at any time insufficient to
pay any disbursements due and payable under this Subparagraph
11(b), Agent will draw sufficient funds out of such Rental
Agency Account to cover said expenses and, if there are
insufficient funds in such account from which to draw, Agent
will inform Owner in writing of such fact. If Owner advises
Agent that the funds in the Partnership's reserves are not
sufficient to cover such insufficiency, then Agent may advance
funds to cover such insufficiency from Agent's own funds, or
may elect immediately to terminate this Agreement. If
advanced by Agent, such funds shall be deemed to be an
interest bearing loan at prime plus four percent (4%) to such
Project to the extent of such insufficiency, and shall be
repaid to Agent prior to any disbursement to Owner from the
Rental Agency Account or any other Project account.

12. Budgets. Annual Operating Budgets for each Project will be
included in the Management Plan and will be subject to approval by Owner, which
approval shall not be unreasonably withheld. Except as permitted under
Subparagraph 8(f) above, annual disbursements for each type of operating
expenses itemized in the operating Budget will not exceed the amount authorized
by the approved Operating Budget. Agent will prepare a recommended Operating
Budget for each Operating Year during the term of this Agreement, in such form
as may be reasonably prescribed by Owner, and shall submit each such Operating
Budget with the Management Plan in accordance with the provisions of Paragraph
3 hereof. Owner will promptly inform Agent of changes, if any, in the approved
Operating Budget, and Agent will keep Owner informed of any anticipated
material deviation from the receipts or disbursements stated in the approved
Operating Budget; such changes and anticipated deviations shall be subject to
further approval by Owner, which approval shall not be unreasonably withheld.

13. Records and Reports. In addition to any other requirements
specified in the Management Plans or other provisions of this Agreement, Agent
will have the following responsibilities with respect to records and reports:

(a) Agent will establish and maintain a system of
records, including, but not limited to, rent records, insurance
policies (other than policies maintained by Owner), leases and
subleases, current certificates of insurance for contractors,
subcontractors and independent contractors, correspondence, receipted
vouchers, a resident profile and an employee profile (including the
names, addresses, home phone numbers, social security numbers and
other appropriate information for all Project-based Employees),
pertaining to the Projects or the operation thereof. All such
records, books and accounts will be subject to examination at
reasonable hours at Agent's home office by any authorized
representative of Owner, subject, however, to any laws or regulations
protecting the privacy or confidentiality of such information. Such
records will include resident income

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<PAGE> 9
verifications required by governmental agencies, if any are so
required by such agencies. All such records, books and accounts shall
be and remain the sole property of Owner.

(b) Agent will furnish such information (including
occupancy reports) as may be reasonably requested by Owner from time
to time with respect to the financial, physical or operational
condition of the Projects.

(c) By the twentieth day of each calendar month, Agent
will furnish Owner with statement of receipts and disbursements for
each Project during the previous month from each account detailing
receipts and disbursements for the month and the year-to-date and
comparing same to the budget for such Project established pursuant to
Paragraph 12 hereof. In the event Agent is unable to furnish Owner
with such statement as provided herein, Agent shall have an additional
15 days to furnish such statement to Owner.

(d) By the twentieth day of the calendar month following
each calendar quarter (i.e., April 20, July 20, October 20 and January
20), Agent will furnish Owner with an adjusted trial balance of each
of the Projects, on an accrual basis, as of the end of the preceding
calendar quarter, in form and detail reasonably agreed to by Agent and
Owner. In the event Agent is unable to furnish Owner with such
balance as provided herein, Agent shall have an additional 15 days to
furnish such balance to Owner.

(e) Except as otherwise provided in Paragraphs 10 and 24
of this Agreement, the overhead expenses of Agent's home office,
including but not limited to, equipment and transportation for Agent's
home office managerial personnel and compensation, benefits and other
related costs for Agent's non-Project-based Employees (except those
who are directly responsible for the Projects), will be borne by Agent
out of its own funds and will not be treated as Project expenses.

(f) Owner shall select a certified public accountant to
prepare an annual financial report of the Projects for each calendar
year based upon the preparer's examination of the books and records of
the Owner and the Agent, and a partnership United States Partnership
Return of Income (Form 1065) and related state returns for the
Project; Agent shall cooperate fully and promptly with such certified
public accountant. Such annual financial report shall be certified by
the preparer and the Agent and shall be delivered to the Owner within
ninety (90) days after the end of the Projects' fiscal year. All fees
and costs of the selected certified public accountant shall be a
Project expense. Except as otherwise provided herein, all corporate,
partnership and individual income tax returns for Owner are the sole
responsibility of Owner, except that the records and reports furnished
Owner by Agent shall be reasonably sufficient for these purposes.

14. Bids, Discounts, Rebates, Etc. Agent will use its reasonable
efforts to obtain contracts, materials, supplies, utilities and services on
terms deemed by Agent, in its reasonable judgment, to be fair and appropriate.
Agent is authorized to solicit bids, either formal or informal, for those items
which can be obtained from more than one source. Agent will use its reasonable
efforts to secure and credit to Owner all discounts, rebates and other
concessions or

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incentives earned in connection with the Project and all other transactions on
Owner's behalf. Agent will not enter into any contract or agreement which
provides, directly or indirectly, for any overhead, profit or mark-up payable
or otherwise allocable to Agent, without the prior approval of Owner except
Agent is authorized to provide therapy, home health care, assisted living,
rehabilitation services and other similar services at market rates in the
vicinities in which the Projects are located.

15. On-site Management Facilities. On-Site office facilities for
intermittent use by Agent's non-Project- based Employees and for the Project
Administration reasonably satisfactory to Agent shall be provided by Owner as
Project expenses.

16. Insurance. Owner will arrange for policies of insurance
against physical damage (such as fire with extended coverage endorsement,
boiler and machinery) and against liability for loss, damage or injury to
property or persons which might arise out of the occupancy, management,
operation or maintenance of the Projects, and such other policies of insurance,
including without limitation automobile insurance, as may reasonably be
necessary in connection with the Projects, and shall include Agent as an
additional insured on any such policies. Payment of any deductible amounts
with respect to any claims will be made from the applicable Project's Rental
Agency Account and will be treated as an operating expense of such Project.
Agent shall be entitled to 30 days' written notice prior to any cancellation of
any of such insurance policies. Agent will pay premiums for all such insurance
out of the applicable Project's Rental Agency Account, and such premiums will
be treated as operating expenses of such Project. Agent will pay any
deductible amounts with respect to any claims out of the applicable Project's
Rental Agency Account, and such payments will be treated as operating expenses
of such Project. Deductible amounts on insurance policies shall be determined
by Owner. Agent will use reasonable efforts to assist Owner in obtaining the
most favorable insurance rates possible, including, but not limited to,
requesting quotations, reviewing bids and comparing coverage variations. Agent
will be responsible for obtaining workers' compensation insurance for
Project-based Employees.

17. Claims Against Insurance. Agent shall use its reasonable
efforts to investigate and submit a written report to the insurance carrier or
its agent and Owner as to all accidents, claims for damage relating to the
ownership, operation and maintenance of the Projects, any damage to or
destruction of the Projects and the estimated costs of repair thereof, and
shall use its reasonable efforts to prepare and file with the insurance company
or its representative and Owner in a timely manner and otherwise as the
insurance company and/or Owner reasonably requires reports in connection
therewith. Agent shall use its reasonable efforts to take no action (such as
admission of liability) which might preclude Owner from obtaining any
protections provided by any policy held by Owner or which might prejudice the
defense in any legal proceeding involving Owner or any of the Projects, or
otherwise prevent Owner from protecting itself against any such claims, demands
or legal proceedings. Agent shall reasonably cooperate with Owner in the
defense or settling of any such claim, demand or legal proceeding arising out
of any policies, including the execution of proofs of loss, the adjustment of
losses, signing and collection of receipts and collection of money.

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18. Additional Insurance. As long as this Agreement is in effect,
Agent shall maintain workers' compensation coverage for Agent's Project-based
and Non-Project-based Employees in statutory amounts and employer's liability
coverage for Agent ($100,000.00 each accident, $100,000.00 disease limit per
employee, $500,000.00 disease policy limit). Such policies of insurance shall
provide for written notice to Owner of cancellation or nonrenewal of, or
material changes in, such insurance within 30 days thereof. Expenses Incurred
by Agent in connection with such insurance shall be treated as an expense of
the Project with respect to Project-based Employees, and with respect to
Non-Project-based Employees to the extent such Non-project-based Employees
render services to the Projects. Any additional insurance obtained by Agent
for their own account shall be at their own expense.

19. Fidelity Bond. Agent shall furnish for each Project, as a
Project expense, a fidelity bond against misapplication of Project funds, loss,
theft, embezzlement or other fraudulent acts on the part of agent or its
employees. The surety thereon shall be in an amount not less than the sum of
(i) monthly "Gross Receipts" (hereinafter defined) from the operation of such
Project based on the estimated year-end occupancy as set forth in the
applicable Management Plan and (ii) the maximum possible level of funds held as
security deposits based on the estimated year-end occupancy as set forth in
such Management Plan.

20. Agent's Professional Liability Coverage. Agent shall
maintain, as a Project expense, Professional Liability Coverage for Real Estate
Management Errors and omissions, providing coverage for Agent and its employees
in the amount of $2,000,000.00 per Project. Owner must be furnished evidence
of such coverage for the entire term of this Agreement and any renewal or
extension hereof.

21. Contractor's, Subcontractor's Insurance. Agent shall use its
reasonable efforts to require all contractors, subcontractors and independent
contractors entering upon any of the Projects to perform services, to have
insurance coverage, at the contractor's, subcontractor's or independent
contractor's expense, in the following minimum amounts:

(a) Workers' Compensations and Employer's Liability
statutory amount (Limit for employer's liability for $100,000.00 each
accident, $100,000.00 disease limit per employee, $500,000.00 disease
policy limit).

(b) Comprehensive General Liability in the amount of:

(i) $1,000,000.00 combined single limit for
bodily injury and property damage including Broad Form
Coverage Endorsement Extension, affording products and
completed operations and contractual liability coverage
(deleting XCU exclusions, if applicable); or

(ii) if the value of a contractor's,
subcontractor's or independent contractor's contract is in
excess of $1,000,000.00, Agent shall determine the appropriate
amount of insurance required in connection therewith prior to
the execution of such contract and shall advise Owner of such
insurance requirements.

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<PAGE> 12
(c) Comprehensive Auto Liability insurance covering the
use of all owned, nonowned and hired automobiles with bodily injury
and property damage limits of $1,000,000.00 combined single limit.

(d) Umbrella Liability following form coverage above
Workers' compensation and Employer's Liability, Comprehensive General
Liability and Comprehensive Automobile Liability as required above for
a minimum of $1,000,000.00 combined single limit for bodily injury and
property damage.

Agent shall use its reasonable efforts to keep on file current certificates of
insurance showing that each contractor and subcontractor is so insured,
providing for 30 days written notice of cancellation, nonrenewal or reduction
in policy limits below $1,000,000.00 and naming Owner and Agent as additional
insureds. Agent shall use its reasonable efforts to not permit any contractor,
subcontractor or independent contractor to enter upon any of the Projects to
perform services who has not provided Agent with such a certificate or
certificates of insurance, unless Agent has delivered a letter to Owner
requesting a waiver of any of the above requirements for such contractor,
subcontractor or independent contractor and has received Owner's written
approval of such waiver.

22. Compliance With Governmental Orders. Agent shall use its
reasonable efforts to comply promptly with any and all statues, regulations,
orders, building codes, zoning and licensing requirements, and other
requirements affecting the Projects, whether imposed by federal, state, county
or municipal authority, or other political subdivision, including but not
limited to, those statutes, regulations, orders, codes and requirements
respecting tenant security deposits. Nevertheless, Agent shall take no such
action so long as Owner is contesting, or has affirmed its intention to
contest, any such order or requirement. Agent will use its reasonable efforts
to notify Owner in writing of all notices of such orders or other requirements
within 48 hours from the time of their receipt. Upon the prior written consent
of Owner, Agent may appeal any requirement Agent deems unwarranted and Agent
may compromise or settle any dispute regarding such requirements.

23. Non-Discrimination. In the performance of its obligations
under this Agreement, the Agent will use its reasonable efforts to comply with
the provisions of any federal, state or local law prohibiting discrimination
in housing on the grounds of race, color, creed or national origin, including
Title VI of the Civil Rights Act of 1964 (Public Law 88-3452, 78 Stat. 241),
regulations issued pursuant to Executive Order 11063, and Title VII of the 1968
Civil Rights Act.

24. Agent's Compensation. Agent will be compensated for their
services under this Agreement by fees to be paid out of the Rental Agency
Accounts and such fees will be treated as Project expenses. Such fees will be
payable during the term of this Agreement and any extensions or renewals
thereof, prior to payments out of the Rental Agency Accounts of any other
Project expenses, in the amounts and on the dates set forth below.

12
<PAGE> 13
(a) A monthly management fee (the "Monthly Management
Fee") for each Project equal to the amount calculated pursuant to
Exhibit X hereto (specific percentages in Exhibit X shall refer to
percentages of Gross Receipts unless otherwise indicated), subject to
increase or decrease as provided below. For purposes hereof, the term
"Gross Receipts" shall mean gross monthly receipts of whatever kind or
nature collected by Agent from the operation of the Project, excluding
(i) security deposits received from residents and, if applicable,
interest accrued thereon for the benefit of the residents until such
deposits or interest are applied for rental payments; (ii)
reimbursements by residents for work done for particular residents;
(iii) proceeds from the sale or other disposition of all or any part
of such Project; (iv) insurance proceeds received by Owner as a result
of any insured loss (except proceeds for rent loss insurance); (v)
condemnation proceeds (except proceeds for lost rent); (vi) capital
contributions made by any partner of the Partnership; (vii) loans by
Owner or Agent; and (viii) proceeds from Capital, financing and any
other transactions not in the ordinary course of operation of such
Project. The Monthly Management Fee for each Project shall be payable
monthly in arrears in installments following calculation thereof upon
submission of a monthly statement for such Project from the Rental
Agency Account. Subject to the provisions of Paragraph 26 hereof, it
is agreed between Owner and Agent that if the Gross Receipts of any
Project are insufficient to pay all disbursements, including the
Monthly Management Fee, or any portion thereof, then Owner shall use
the Partnership reserves to make such disbursements. It is further
agreed between Owner and Agent that in no event will any disbursement
be made to Owner from any Project Account, until all accrued and
unpaid fees to Agent and repayments, if any, to Agent for Agent's
advancement of funds to cover any insufficiencies in the such
Project's Rental or Payroll Account have been paid in fall. Upon
termination of this Agreement pursuant to Paragraph 26, the parties
will prorate the Monthly Management Fee for each Project on a per diem
basis to the effective date of such cancellation or termination.

(b) A monthly fee for providing food services for each
Project, including the planning and provision of tenant meals (the
"Dietary Services Fee"), exclusive of reimbursed expenses, equal to
the amount calculated pursuant to Exhibit X hereto. In connection
with providing food services, Agent shall maintain and make available
to Owner upon reasonable notice sufficient records pertaining to food
service costs, including but not limited to invoices, delivery
receipts and payroll records.

25. Term. This Agreement shall become effective the day and year
first written above and shall continue in full force and effect until December
31, 2001, hereinafter referred to as the "Term," unless sooner terminated as
provided in Paragraph 26 below.

26. Termination. This Agreement shall continue in full force and
effect until expiration of the Term unless sooner terminated as follows:

(a) This Agreement may be terminated by the mutual
written consent of the Principal Parties.

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<PAGE> 14
(b) In the event Agent fails to receive reimbursement of
reimbursable expenses or any compensation due Agent pursuant to the
terms of this Agreement and such failure continues for a period of 60
days after Agent's written notice thereof to Owner, Agent may
terminate this Agreement effective immediately upon expiration of such
60-day period without further notice to Owner; provided, however, that
this Agreement shall not be so terminated if Owner pays Agent all such
expenses and compensation then due and payable on or before the
expiration of said 60-day period; provided, further, however, that
Agent may terminate this Agreement immediately in the event that Owner
fails to advance funds to cover an insufficiency in any Payroll
Account within three business days after Owner's receipt of written
notice that such insufficiency exists, as provided in Paragraph 11(b)
above.

(c) In the event that a petition in bankruptcy is filed
by Agent or its assignee or in the event Agent or its assignee makes
an assignment for the benefit of creditors or takes advantage of any
insolvency act, Owner may terminate this Agreement with notice to the
Agent.

(d) With regard to a Project, in the event that such
Project is sold by Owner, unless Owner sells such Project to an
affiliate of the Partnership.

(e) Agent shall fail to keep, observe or perform any
material covenant, agreement or provision of this Agreement to be
kept, observed or performed by Agent, and such default shall continue
for sixty (60) days after written notice thereof from Owner (unless
Agent is in good faith using commercially reasonable efforts to cure
such failure, in which case such period shall be extended for two
years).

(f) Misappropriation of funds held by Agent in trust for
Owner or any other fraudulent act committed by Agent and related to
the performance of Agent's obligations hereunder, but only if (i)
Jeffrey Beck or James Stroud are active participants in such
misappropriation or fraudulent act, or (ii) with respect to
misappropriation of funds, such funds are not reimbursed to Owner
within 45 days after notice from Owner to Agent, or (iii) with respect
to fraudulent acts, Owner is not reimbursed for any damages caused by
such acts within 45 days after notice from Owner to Agent.

(g) In the event that Agent fails in a material way to
operate, lease and maintain the Projects as required under the terms
of this Agreement, the Management Plans and/or the Marketing Plans,
such failure continues for 60 days after Owner's written notice
thereof to Agent and Agent does not cure such failure during such
60-day period (unless Agent is in good faith using commercially
reasonable efforts to cure such failure, in which case such period
shall be extended for two years) and such failure is the result of
Agent's willful misconduct, gross negligence or unlawful act as
finally determined by a court having jurisdiction regarding such
matter.

(h) In the event that (i) Agent's or its assignee is
dissolved (ii) Agent's real estate brokerage license, if such license
is legally required as a condition to manage or

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<PAGE> 15
lease the Project, is terminated or (iii) Agent or its assignee cease
to continue to do business for any reason Owner may terminate this
Agreement by notice to Agent.

(i) Owner may terminate this Agreement by written notice
to Agent in the event that none of James Stroud, Jeffrey Beck or Keith
Johannessen is an executive officer of Agent and Owner has not
approved the individual replacing any of such persons as an executive
officer, which approval shall not be unreasonably withheld.

(j) In the event that this Agreement is assigned by Agent
in breach of Paragraph 27(h).

Upon termination, Agent will submit to Owner any financial statements required,
and after the Principal Parties have accounted to each other with respect to
all matters outstanding as of the date of termination, Owner will furnish Agent
security, in the form and principal amount satisfactory to Agent, against any
obligations or liabilities which the Agent may properly have incurred on behalf
of Owner hereunder.

All notices required under this Paragraph 26 shall be in accordance with
Subparagraph 27(b) below.

27. Interpretative Provisions.

(a) This Agreement may be executed in several
counterparts, each of which shall constitute a complete original
Agreement, which may be introduced in evidence or used for any other
purpose without production of any of the, other counterparts.

(b) Except as otherwise provided in this Agreement, all
notices under this Agreement shall be in writing and shall be
delivered by personal service, by overnight courier from whom a
receipt can be obtained or by certified or registered mail, return
receipt requested, from one party to the other at the following
addresses or such other address as one party may advise the other by
written notice:

If to Agent: Capital Senior Living, Inc.
14160 Dallas Parkway, Suite 300
Dallas, TX 75240
Attn.: Mr. Keith Johannessen, President

If to Owner: NHP Retirement Housing Partners I Limited Partnership
c/o Capital Realty Group Senior Housing, Inc.
14160 Dallas Parkway, Suite 300
Dallas, TX 75240
Attn.: Mr. James A. Stroud, Chief Operating Officer
Mr. Jeffrey L. Beck, Chief Executive Officer

15
<PAGE> 16
The date of receipt of notice shall be the date delivered if personally
delivered or five days after the date of mailing if mailed.

(c) The rights and remedies of either of the parties
hereunder shall not be mutually exclusive, i.e., the exercise of one
or more of the provisions hereof shall not preclude the exercise of
any other provisions hereof. Each of the parties confirms that
damages at law will be an inadequate remedy for a breach or threatened
breach of this Agreement and agrees that, in the event of a breach or
threatened breach of any provision hereof, the respective rights and
obligations hereunder shall be enforceable by specific performance,
injunction, or other equitable remedy, but nothing herein contained is
intended to, nor shall it, limit or affect any rights at law or by
statute or otherwise of any party aggrieved as against the other for a
breach or threatened breach of any provision hereof, it being the
intention of this Subparagraph 27(c) to make clear the agreement of
the parties that the respective rights and obligations of the parties
hereunder shall be enforceable in equity as well as at law or
otherwise.

(d) All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all
other genders; and the singular shall include the plural and vice
versa. Titles of Articles, Subparagraphs and Paragraphs are for
convenience only, and neither limit nor amplify the provisions of this
Agreement itself. The use herein of the word "including," when
following any general statement, term or matter, shall not be
construed to limit such statement, term or matter to the specific
items or matters set forth immediately following such word or to
similar terms or matters, whether or not non-limiting language (such
as without limitation, or, but not limited to, or words of similar
import) is used with reference thereto, but rather shall be deemed to
refer to all other items or matters that could reasonably fall within
the broadest possible scope of such general statement term or matter.

(e) Each party hereto agrees, without any additional
consideration, to do all acts and things and to make, execute and
deliver such written instruments, as shall from time to time be
reasonably required to carry out the terms and provisions of this
Agreement.

(f) Should any litigation be commenced between the
parties hereto or their representatives or should any party institute
any proceeding in bankruptcy or similar court which has jurisdiction
over any party hereto or any or all of his or its property or assets
concerning any provision of this Agreement or the rights and duties of
any person or entity in relation thereof, the party or parties
prevailing in such litigation shall be entitled in addition to such
other relief as may be granted, to a reasonable sum as and for his or
its or their attorneys' fees and court costs in such litigation which
shall be determined by the court in such litigation or in a separate
action brought for that purpose.

(g) In the event that any provision of this Agreement
shall be held to be invalid or unenforceable, the same shall not
affect in any respect whatsoever the validity or enforceability of the
remainder of this Agreement.

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<PAGE> 17
(h) Except as provided herein to the contrary, this
Agreement shall be binding upon and inure to the benefit of the
parties signatory hereto, their respective heirs, executors, legal
representatives and permitted successors and assigns. Neither this
Agreement nor any portion thereof including, but not limited to, any
money due or to become due under this Agreement, may be assigned by
either party except upon written consent of all the Principal Parties
hereto. This Agreement is a personal service contract; except as
specifically provided herein, Agent's duties may not be delegated to
another party, except for delegation of nominal duties in the ordinary
course of business or as otherwise permitted hereunder, without in
each instance the prior written consent of Owner, which may or may not
be given in Owner's sole discretion. Notwithstanding the foregoing,
Owner consents to the sale, assignment, contribution or similar
transfer of all or a portion of this Agreement to an Affiliate of
Agent.

(i) This Agreement and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance
with the laws of Texas.

(j) No consent or waiver, express or implied, by a party
to or of any breach or default by the other party in the performance
by such other party of its obligations hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach or
default in the performance by such other party of the same or any
other obligations of such other party hereunder. Failure on the part
of a party to complain of any other party in default, irrespective of
how long such failure continues, shall not constitute a waiver by such
party of its rights hereunder. The giving of consent by a party in
any one instance shall not limit or waive the necessity to obtain such
party consent in any future instance.

28. Indemnifications.

(a) Agent's Indemnity: Owner shall indemnity and hold
Agent harmless from all claims, actions, liabilities, expenses and
attorney's fees not covered by insurance in connection with, arising
from, or incurred as a result of Agent performing its duties under
this Agreement, including, without limitation, damage to property and
injury or death of any employee, tenant, guest, invitee, trespasser or
other person whatsoever, alleged or actual defective construction of a
Project or any equipment thereon, and the failure of Agent to pay any
expenses and costs of a Project as required by this Agreement if
necessary funds are not made available to Agent by Owner; provided,
however, that Owner shall not indemnify Agent from and against any of
the foregoing claims, actions, liabilities, expenses or attorney's
fees, arising from or incurred as a result of Agent's gross
negligence, willful misconduct or unlawful act.

(b) Owner's Indemnity: Agent shall indemnify and hold
Owner harmless from all claims, actions, liabilities, expenses and
attorney's fees not covered by insurance arising from or incurred as a
result of any gross negligence, willful misconduct or unlawful act
performed by Agent in regard to the management of a Project, including
the acts of Agent's employees, servants and agents, and violation of
any statute, ordinance,

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<PAGE> 18
law or regulation of any governmental body, public authority or
official thereof having jurisdiction.

29. No Partner Liability. Notwithstanding anything to the
contrary contained in this Agreement, the Owner shall not have any personal
liability for the payment of any fee, compensation or reimbursement under this
Agreement, including any interest thereon. Agent (a) shall look solely to the
assets of the Partnership for the payment of such fee, compensation or
reimbursement, and (b) shall not seek a deficiency or other personal judgment
against the Owner for such payment.

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

OWNER:

NHP RETIREMENT HOUSING PARTNERS I
LIMITED PARTNERSHIP, a Delaware
limited partnership

By: Capital Realty Group Senior
Housing, Inc., General Partner

By: /s/ Jeffrey L. Beck
-----------------------------
Jeffrey L. Beck
Chief Executive Officer

AGENT:

CAPITAL SENIOR LIVING, INC.,
a Texas corporation

By: /s/ James A. Stroud
---------------------------------
James A. Stroud, Chief
Operating Officer

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<PAGE> 19
SCHEDULE I

Properties: The Atrium of Carmichael, Carmichael, California

Crosswood Oaks Apartments, Citrus Heights, California

The Heatherwood, Southfield, Michigan

The Veranda Club, Boca Raton, Florida

The Amberleigh at Woodstream Farms, Amherst, New York

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<PAGE> 20
EXHIBIT X
FEE SCHEDULE

<TABLE>
<S> <C>
Amberleigh
- ----------

Monthly Management Fee Greater of 5 % or $10,900 per month

Food Services Fee Greater of 20% of actual cost or $8,500 per month

Atrium of Carmichael
- --------------------

Monthly Management Fee 5%

Food Services Fee 20 % of actual cost

Crosswood Oaks
- --------------

Monthly Management Fee 5%

Food Services Fee 20 % of actual cost

Heatherwood
- -----------

Monthly Management Fee Greater of 5% or $9,000 per month

Food Services Fee Greater of 20% of actual cost or $7,500 per month

Veranda Club
- ------------

Monthly Management Fee Greater of 5% or $9,650 per month

Food Services Fee Greater of 20 % of actual cost or $8,000 per month

</TABLE>

<PAGE> 1

EXHIBIT 10.25

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (the "Agreement") effective the 1st day of
April, 1997 by and between BUCKNER RETIREMENT SERVICES, INC., ("Buckner"), a
non-profit corporation organized under the laws of the state of Texas, and
CAPITAL SENIOR MANAGEMENT 1, INC., (Capital), a for-profit corporation
organized under the laws of the state of Texas.

PREAMBLE

BUCKNER by this Agreement is engaging Capital to provide management
services relating to the operation of Buckner Baptist Haven, a senior living
community located in Houston, Texas ("the Facility").

Capital and Buckner share a commitment to make the retirement years of
residents as meaningful and comfortable as possible. Both share the philosophy
that the retirement environment should allow for and encourage contained
personal growth and independent living for the elderly, and when independent
living is no longer possible, then the same retirement environment should have
the flexibility to provide quality health care in the midst of a high degree of
understanding, compassion and companionship enhanced by and based upon the
prior years of residence in the same community.

This Agreement is founded on the following assumptions:

Buckner retains primary responsibility to:

a. Establish the policies of the Facility and to plan
for its short-range and long-range goals.

b. Review and evaluate the performance of Capital in
carrying out the established policies and in
attaining the goals established by Buckner.

c. Annually review and approve the budget.

d. Annually review the policies and goals which have
been established.

e. Provide Christian social service ministry from the
Facility that is resident and community- based.

Capital assumes primary responsibility to:
<PAGE> 2
a. Implement the policies established by Buckner.

b. Supervise the day-to-day management of the Facility,
including all resident activities.

c. Provide to Buckner full, timely and accurate
information as to past operations.

d. Provide to Buckner projections and recommendations
relating to the future operations of the Facility.

The parties therefore agree as follows:

I. RESPONSIBILITIES OF CAPITAL

A. RECOMMENDED POLICIES. Capital shall recommend policies and
goals to be established by Buckner and shall evaluate such
policies and goals on an ongoing basis.

B. MANAGEMENT DUTIES. Capital shall supervise the operation of
the Facility, provide management services, install operating
procedures and oversee day-to-day operations, all subject to
and in accordance with the budgets and policies established by
Buckner.

C. MARKETING DUTIES. Capital shall manage and supervise the
marketing program. Capital shall periodically review the
residency agreement and recommend changes thereto as and if
required.

D. EMPLOYEES. All Facility-based Employees, including the
administrative employees, shall be employees of Capital with
the exception of Buckner ministry-based employees. Capital
shall have sole authority over Facility-based Employees and
Non-Facility-based Employees who are directly responsible for
the Facility and all matters pertaining thereto and shall be
responsible for all actions and omissions of such employees
occurring pursuant to Capital's employee policy manual. All
costs of hiring, equipping and providing the services of
Facility-based Employees, including, but not limited to,
compensation, health insurance, employer liability insurance,
payroll taxes, bonding, workers' compensation insurance,
benefits and vacations shall be treated as an expense of
Capital to be reimbursed from the cash flow provided by the
Facility operations if sufficient to reimburse such expenses;
if said cash flow is not sufficient, such expenses shall be
reimbursed by Buckner.

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<PAGE> 3
E. OPERATING PROCEDURES. Capital shall develop, install and
maintain operating procedures, systems and controls.

F. FACILITY EXPANSION. Capital shall make recommendations
regarding construction, remodeling or expansion of the
Facility.

G. BUDGETS. Capital shall prepare annual operating budgets for
revenue, expense and cash flow of the Facility and a capital
expenditures budget. Budgets shall be prepared in advance of
each fiscal year. Cash flow projections shall accompany each
operating budget. It is to be understood that budgets are
only estimates and guidelines of future results and that
budget overruns may occur from time to time.

H. FINANCIAL CONTROLS. Capital shall establish and maintain a
system of financial controls for the Facility.

I. MONTHLY FINANCIAL STATEMENTS. Capital shall provide to
Buckner, on a monthly basis, financial statements and related
financial reports.

J. MARKETING REPORTS. Capital shall, on a weekly and monthly
basis, provide sales and occupancy reports to Buckner, as well
as the results of the annual resident satisfaction survey.

K. LEGAL COUNSEL. Capital, at Facility expense, shall coordinate
with Buckner the utilization of legal counsel relating to
Facility operations.

L. RENTAL COLLECTIONS AND DISBURSEMENTS. Capital shall collect
the revenues from the residents and, on behalf of Buckner,
deposit all such funds in a residential depository account at
a FDIC insured bank approved by Buckner. The style of the
account shall be in the name of the Facility with designated
representatives from Buckner and Capital being the only
parties authorized to draw from said account.

On an as needed basis, Capital shall transfer the funds from
the above stated account into an Operating Expense Account in
the name of the Facility. The account shall be in a FDIC
insured bank approved by Buckner. The style of the account
shall be in the name of the Facility with designated
representatives from Buckner and Capital being the only
parties authorized to draw from said account. Capital shall
pay out of such Operating Expense Account all operating
expenses (including Capital's Management Fee and any other
sums due to Capital from Buckner), and all other sums properly
payable pursuant to any of the provisions of this Agreement.
Capital shall hold, remit or expend the balance of such funds,
if any, as Buckner may direct. These funds shall

3
<PAGE> 4
not be co-mingled with funds from any other projects and/or
facilities managed and/or operated by Capital.

M. ACCOUNTING SYSTEMS AND SOFTWARE. Capital shall provide to
Buckner, during the term of this Agreement, appropriate
on-site accounting systems and software, which shall include
complete accounting, bookkeeping and record keeping services
for the Facility, specifically including, but not limited to,
resident billings, accounts payable, accounts receivable,
general ledger and inventory records, and maintain demographic
information on the residents. Acquisition of software,
software maintenance and update charges will be budgeted
expenses of the Facility. Payroll processing may be delegated
to a third party, the cost of which will be the responsibility
of the Facility.

II. BUCKNER'S RESPONSIBILITIES

A. POLICIES. Buckner shall establish the policies for the
Facility.

B. GOALS. Buckner shall establish the short range and long range
goals of the Facility.

C. BUDGETS. Buckner shall review and approve budgets for the
operation of the Facility.

D. CAPITAL'S PERFORMANCE. Buckner shall review and evaluate the
performance of Capital in carrying out the policies for the
Facility.

E. LEGAL COUNSEL. Buckner shall obtain legal counsel to perform
all necessary legal services relating to Buckner's ownership
of the Facility.

F. AUDITS. Buckner, at its discretion, may engage certified
public accountants to perform annual audits of the Facility as
well as prepare any other reports required for federal or
state regulatory agencies which require licensure and/or
certification. Every quarter, upon receipt of reasonable
notice to Capital, all financial records pertaining to the
Facility will be open for inspection and review by Buckner's
representatives. All labor and expense associated with such
review shall be borne by Buckner.

G. DIRECTIVES. In order to assure proper coordination, Buckner
shall issue any directions concerning the operations of the
Facility only through the President or Vice President of
Capital.

H. OPERATING REPORTS. During the term of this Agreement,
Buckner shall, within fourteen (14) days of issuance, furnish
to Capital copies of

4
<PAGE> 5
any and all Facility-related reports, including the annual
audit (if any) as well as copies of the minutes of all local
advisory Board meetings, other than items relating to the
performance of Capital.

I. ADVISORY BOARD MEETINGS. If applicable, during the term of
this Agreement, a representative of Capital shall be a member
of the local advisory board and attend any regular or special
meeting of the local advisory Board other than any part
thereof involving evaluation of the performance of Capital
under this Agreement. Buckner shall give Capital the same
notice of local advisory Board meetings as is required to be
given to Board members.

J. CHANGE OF RESIDENCY AGREEMENT. Buckner shall not change the
Residency Agreement without consulting with and seeking
approval of Capital unless required to do so to comply with
any applicable law or regulation.

K. DECISIONS. Buckner shall examine documents submitted by
Capital and render decisions pertaining thereto promptly to
avoid unreasonable delay.

L. UNIFORM ACCOUNTS. Facility shall use the uniform chart of
accounts recommended by Capital.

M. FURNISHING INFORMATION. Buckner agrees at its expense to
install and maintain a computer terminal compatible with the
mainframe computer currently in use by Capital and to transmit
data to the Capital mainframe computer via telephone lines.

III. INSURANCE.

A. Capital shall maintain, in full force and effect, at the
Facility's expense, the following insurance protecting Buckner
and Capital and their officers and employees:

1. Employee's fidelity insurance

2. Worker's compensation and employers liability
insurance

3. Professional liability insurance

5
<PAGE> 6
Such policy or policies shall be written by a responsible
insurance company or companies satisfactory to Buckner and in
kind and amounts satisfactory to Buckner. Certificates of
insurance showing compliance with the foregoing requirements
shall be furnished by Capital to Buckner. Certificates shall
state that the policy or policies will not be canceled or
altered without at least 30 days prior written notice to
Buckner.

B. Buckner shall procure and maintain, in full force and effect,
at Buckner's expense the following insurance protecting
Buckner and Capital and their officers and employees:

2. Insurance for automobiles owned or hired by Buckner
or Capital and used in connection with the Facility.

IV. TERM AND TERMINATION OF THIS AGREEMENT.

A. TERM AND TERMINATION WITHOUT CAUSE. This Agreement shall
commence on the date set forth on the first page hereof and
continue for a period of five (5) years, except that either
party may terminate this Agreement on thirty days notice after
the earlier of the move-out of the final resident from the
Facility, or after the Fixed Term (as hereinafter defined) by
giving ninety (90) days written notice to the other party. The
Fixed Term shall be thirty-six (36) months, except that if tax
exempt financing is not utilized or if the U.S. Treasury
Department liberalizes its current published advance ruling
guidelines (Rev. Proc. 82-14, 1982-1 C.B. 459) to extend the
period in which a management contract may be non-terminable
without adversely affecting the tax-exempt status of bonds
issued to finance the Facility to which the management
contract relates, and if, in the opinion of bond counsel, such
Treasury action applies to the bonds issued to finance the
Facility, then the Fixed Term shall be the maximum period
allowed for advance ruling purposes, but not more than five
(5) years. If Buckner terminates the Agreement prior to the
expiration of the Fixed Term for any reason other than the
move out of the final

6
<PAGE> 7
resident as listed above, or if Capital terminates this
Agreement during the Fixed Term for cause as provided in
Paragraph IV. B. below, severance compensation in an amount
equal to the then-current monthly management fee times the
number of months remaining in the Fixed Term shall be paid to
Capital upon the effective date of termination. Any such
termination shall be effective upon the expiration of the
ninety (90) day period following the giving of the notice or
on such later date as may be specified in the notice.

B. TERMINATION FOR CAUSE.

1. This Agreement may be terminated by Buckner for cause
for the following reasons:

a. In the event of material breach by Capital of
a material term hereof, which breach is not
cured within sixty (60) days after notice by
Buckner and such failure is the result of
Capital's willful misconduct, gross
negligence or unlawful act.

b. In the event that a petition in bankruptcy is
filed by Capital or its permitted assignee,
or in the event Capital or its permitted
assignee makes an assignment for the benefit
of creditors or takes advantage of an
insolvency act, by notice to Capital or
assignee.

c. In the event that (i) Capital's or any
permitted assignee's corporate existence is
dissolved and the duties under this Agreement
are not assumed by Capital or an affiliate of
Capital or (ii), Capital or any permitted
assignee ceases to do business for any
reason, by notice to Capital or such assignee
and the duties under this Agreement are not
assumed by Capital or Capital's affiliate.

d. In the event of a change of controlling
ownership interest in Capital or Capital
Senior Living, Inc. Controlling ownership
shall be defined as a change of greater than
50% from the present 100% ownership of James
A. Stroud and Jeffrey L. Beck and affiliates
of which they control. Notwithstanding the
above, in the event that a public offering of
the stock of Capital or Capital Senior
Living, Inc, the controlling ownership shall
be defined as a change of greater than an
aggregate 30% ownership of James A. Stroud
and Jeffrey L. Beck and affiliates of which
they control, as well as ownership of current
management of Capital or Capital Senior
Living, Inc.

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<PAGE> 8
2. This Agreement may be terminated by Capital in the
event that Capital fails to receive reimbursement of
reimbursable expenses or any compensation due Capital
pursuant to the terms of this Agreement or any other
compensation due Capital, and such failure continues
for a period of sixty (60) days after Capital's
written notice thereof to Buckner; however, this
Agreement shall not be so terminated if Buckner pays
Capital all such expenses and compensation then due
and payable on or before the expiration of said sixty
(60) day period.

3. No termination of this Agreement shall affect any
obligation owing by either party hereto to the other
which accrued prior to the effective date of such
termination.

C. COVENANTS SURVIVING TERMINATION. The termination of this
Agreement shall not terminate the right of Capital to
indemnification relating to events occurring during the term
of this Agreement under Article VI. L. and to protection of
its property rights under Article VI.B.

V. COMPENSATION

A. OPERATIONS MANAGEMENT FEES. Buckner shall pay to Capital a
fee in the amount set forth below, payable on the fifteenth
day of each month commencing with the second month this
Agreement is executed and ending on the last day of the month
after which this Agreement is terminated:

1. The amount to be paid monthly shall be the greater of
$5,000.00 per month or 5% of Gross Revenues generated
during the immediately preceding month. "Gross
Revenues" shall be defined as gross monthly revenues
from the operation of the Facility. Gross Revenues
shall not include (i) security deposits received from
residents and, if applicable, interest accrued
thereon for the benefit of the residents until such
deposits or interest are applied for rental payments;
(ii) proceeds from the sale or depositions of all or
any part of such Facility; (iii) insurance proceeds
received by Buckner as a result of any insured loss
(except proceeds for rent loss insurance); (iv)
capital contributions made by any partner of Buckner;
(v) loans by Buckner; and (vi) proceeds from capital,
financing and any other transactions not in the
ordinary course of operation of such Facility. The
Monthly Management Fee for the Facility shall be
payable monthly in arrears following calculations
thereof upon submission of a monthly statement for
such Facility from Capital. It is agreed between
Buckner and Capital that if the

8
<PAGE> 9
Gross Revenues of the Facility are insufficient to
pay all disbursements, including the Monthly
Management Fee or any portion thereof, then Buckner
shall remain responsible for such disbursements. It
is further agreed between Buckner and Capital that in
no event will any disbursement be made to Buckner
from any Facility Account until all accrued and
unpaid fees to Capital and repayments, if any, to
Capital for Capital's advancement of funds to cover
any insufficiencies in such Facility's Rental or
Payroll Account have been paid in full.

B. CERTAIN EXPENSES. In accordance with the Annual Budgets, the
Facility will reimburse Capital for the cost of reasonable
transportation, lodging and meal expenses for
non-Facility-based employees of Capital or its outside
consultants when traveling in connection with the performance
of the services being performed pursuant to this Agreement,
together with any reasonable long distance telephone expenses,
copying, mailing or express shipments and other miscellaneous
out of pocket expenses that relate to the marketing and
management of the Facility. Relocation, education,
professional memberships and licensing expenses of the
Facility-based administrative employees shall also be an
expense of the Facility.

VI. MISCELLANEOUS

A. INSURANCE-SUBROGATION. No indemnity shall be paid to the
other party under this Agreement where the claim, damage,
liability, loss or expense incurred was or was not required to
be insured against. Any insurance policies obtained by the
parties pursuant to this Agreement shall contain provisions or
have the effect of waiving any right of subrogation by the
insurer of one party against the other party or its insurer.

B. PROPERTY OF CAPITAL. Trade names, including the name "Buckner
Baptist Haven," ideas and documents, forms, occupancy
development material, specifically for and related to Buckner
Baptist Haven shall be the property of Buckner. Trade names,
ideas and documents, forms and occupancy development material,
not directly related to the Facility and supplied by Capital
are to be considered proprietary and will remain the property
of Capital. Buckner may use such materials which are the
property of Capital and information in the operation and
management of the Facility, as may be recommended by Capital,
but may not use such materials or information after
termination of this Agreement for the development or expansion
of the Facility or for new projects for itself or others
without the written consent of Capital.

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<PAGE> 10
C. STATUS OF PARTIES. It is expressly understood and agreed that
Capital shall act as an independent contractor in the
performance of this Agreement. No provision hereof shall be
deemed or construed to create a partnership or a joint venture
between Buckner with respect to the Facility or otherwise.

D. ADDITIONAL ACTION. In order to carry out the intent and
spirit of this Agreement, Buckner and Capital will do all acts
and things necessary including the execution of other
agreements.

E. ENTIRE AGREEMENT. This Agreement sets forth the entire
Agreement between Capital and Buckner. Any change or
modification of this Agreement must be in writing and signed
by all parties hereto.

F. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their
successors and assigns.

G. ASSIGNMENT, ETC. Capital shall not, without Buckner's prior
written approval (which approval shall not be unreasonably
withheld), assign any of its rights or obligations under this
Agreement.

H. GOVERNING LAW. This Agreement, its interpretation, validity
and performance shall be governed by the laws of the State of
Texas.

I. NO PERSONAL LIABILITY. This Agreement has been executed on
behalf of Buckner and Capital by their respective officers
solely in their representative capacities and no officer,
director, agent, employee or attorney of Buckner or Capital
shall have any personal liability hereunder to any person.

J. NON-COMPETE. Without the prior written consent of Capital,
for a period of three years following termination of this
Agreement, Buckner will not employ or engage any person who
was a Capital employee hired by Capital on or after the
effective date of this Agreement and who was not previously an
employee of Buckner. Additionally, Capital will not operate,
manage or develop any facilities within a 5 mile radius of the
Facility except for any facility owned by Buckner.

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<PAGE> 11
L. INDEMNIFICATION. Buckner will indemnify and hold harmless
Capital from any and all liability arising incident to
Buckner's performance of its duties under this Agreement.
Capital will indemnify and hold harmless Buckner from any and
all liabilities arising incident to Capital's performance of
its duties under this Agreement.

M. Buckner shall also indemnify and hold Capital harmless against
any and all losses, costs or expenses incurred by Capital by
reason of, arising out of or in any way related to
noncompliance by the Facility with all applicable state,
federal and local laws, ordinances, rules and regulations
relating to the physical condition of the property of the
Facility, provided Capital shall promptly notify Buckner of
Capital's knowledge of any such noncompliance.

N. ARBITRATION. In the event of any dispute, claim or
controversy of any kind between the parties, concerning this
Agreement or the termination of this Agreement, the matter
shall be submitted to arbitration in accordance with rules of
the American Arbitration Association, except that the
selection of the Arbitrator shall be done pursuant to this
Paragraph and the proceeding shall be governed solely by the
Selected Arbitrator. The parties jointly shall agree on an
arbitrator. If the parties are unable to agree, in good faith
within a reasonable time, on the selection of an arbitrator,
either party may request appointment of an arbitrator chosen
by the American Arbitration Association who shall be the
Selected Arbitrator. Such arbitrator shall be limited in his
decision to a choice between the final selection as requested
by each party. Said arbitration shall be held in Dallas/Ft.
Worth, Texas or such other place as is mutually agreeable.
The arbitration decision shall be final and binding on both
parties unless the arbitration is fraudulent or so grossly
erroneous as to necessarily imply bad faith. Costs of
arbitration are to be shared by both parties equally, provided
that the arbitrator may choose to award the costs of
arbitration against the losing party if the arbitrator
determined that the final position urged by the losing party
was not reasonable.

<TABLE>
<S> <C>
BUCKNER RETIREMENT SERVICES, INC. CAPITAL SENIOR MANAGEMENT 1, INC.

By: /s/ KENNETH T. HALL By: /s/ DAVID R. BRICKMAN
-------------------------------- --------------------------------

Title: President/CEO Title: V.P.
----------------------------- -----------------------------
</TABLE>

<PAGE> 1

Exhibit 10.26
MANAGEMENT AGREEMENT

This Management Agreement (the "Agreement") dated as of November 30, 1992,
between Capital Realty Group Senior Housing, Inc. d/b/a Capital Senior Living,
Inc., a Texas corporation ("Manager"), and Jacques-Miller Healthcare
Properties, L.P., a Delaware limited partnership ("Owner").

W I T N E S S E T H:

WHEREAS, owner beneficially owns Cedarbrook, Cane Creek, Crenshaw Creek,
and Sandybrook, that certain 144 bed facilities (collectively the "Facility"),
located at Gallatin and Goodlettsville, Tennessee, Martin, Tennessee, Waxhaw
Township, South Carolina, and Mt. Dora, Florida respectively; and

WHEREAS, Manager has certain asset management and property management
duties under the First Amendment To Restated Lease Agreement dated November 30,
1992 regarding the Facility (the "Lease"); and

WHEREAS, Owner is indebted to Third National Bank and First American
National Bank in the approximate amount of $4,000,000.00 which is secured by
the Lease; and

WHEREAS, Owner desires to engage Manager and Manager is willing, to provide
leasing, releasing, leasing related services, and asset management related
services regarding the Facility, pursuant to the terms and conditions set forth
herein.

NOW THEREFORE, for and in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. Retention of Manager. Owner hereby retains Manager to provide
leasing, releasing, leasing related services, and asset
management related services in connection with the Facility
under the terms and conditions set forth herein.

2. Responsibilities of Manager. During the Term, as defined
below, Manager shall provide the following leasing, releasing,
leasing related services, and asset management related
services to Owner in connection with the operation of the
Facility.

A. Leasing Services. Manager shall select and direct
the performance of the Facility lessee, and Manager
shall be responsible for the operation of the
Facility and execution on a daily basis of policies
established by Manager and Owner in accordance with
this Agreement.
<PAGE> 2
B. Releasing Services. Manager shall select, negotiate,
and cause to be documented any releasing or
modification of the lease to the Facility in
accordance with terms and provisions that are
acceptable to owner and recommended by Manager in
accordance with this Agreement.

C. Fiscal Year: Budget. The fiscal year for the
Facility shall be January 1 - December 31st. Within
approximately 60 days following the date of this
agreement, Manager shall review and modify the
Facility's current repair and improvement budget and
submit this revised budget to Owner for approval. In
addition, at least forty-five (45) days prior to the
start of each fiscal year, Manager shall prepare and
submit to Owner for its review and approval, which
approval shall not be unreasonably withheld, an
annual repair and improvement budget for the
following year (the "Budget"). Thereafter, Manager
shall be entitled to make or commit Owner to make
expenditures which are reflected in the Budget, as
well as expenditures which individually do not exceed
10% of the amounts set forth therein for the
applicable capital item (the "Budget Threshold").
Except for emergency repairs referred to in section
2(H), any unbudgeted expenditures and/or expenditures
in excess of the Budget Threshold shall be subject to
Owner's approval, which shall not be unreasonably
withheld.

D. Operational Policies. Manager shall maintain all
operational policies necessary to establish and
maintain the operational standards appropriate for
the nature of the Facility.

E. On-Site Inspection. Manager shall visit and perform
an on-site review of the Facility on at least a
quarterly basis, which on-site review shall include
lessee's general ledger, financial statements, cost
reports, reimbursement information, survey reports,
and any notices of deficiency from Medicare,
Medicaid, any other payor, or any state or federal
regulatory agency.

F. Information. Manager may develop any necessary
informational material, mass media releases and other
related publicity materials in connection with the
Facility.

G. Regulatory Compliance. Manager shall use its best
efforts to obtain and/or maintain all licenses,
permits, qualifications and approvals from any
applicable governmental or regulatory authority
necessary for the lawful operation of the Facility.

H. Capital Equipment and Improvement. Manager shall
advise Owner as to capital equipment and Facility
improvements which are needed to maintain or upgrade
the quality of the Facility and said equipment, or to
replace obsolete or rundown equipment. Owner shall
review and act upon Manager's recommendations as
expeditiously as possible. Manager shall
<PAGE> 3
not be liable for any cost or liability which owner
may incur in the event Owner disregards Manager's
recommendations. Manager shall make all necessary
and approved repairs, replacements and maintenance
within the budgetary limits set forth in the annual
capital expenditure budget prepared by Manager
pursuant to Section 2(C). Notwithstanding any
contrary provisions in this Agreement, Manager shall
be entitled, without Owner's consent, to make or
commit Owner to make unbudgeted expenditures and/or
expenditures in excess of the Budget Threshold for
the purposes of emergency repairs involving manifest
danger to persons or property or required to avoid
suspension of any necessary service at the Facility.
However, in no instance shall these unbudgeted
expenditures exceed $5,000 without the prior
authorization of the owner.

I. Ancillary Services. Manager shall negotiate for the
provision of necessary ancillary services through
qualified contractors and on an ongoing basis shall
review and analyze the performance of said ancillary
services contractors and, if necessary, shall
negotiate additional or alternative contractual
arrangements therefor. If any contracts for such
services are with related parties to the Manager they
will not exceed the cost of similar services that
could be provided by an unrelated third party.

J. Legal Matters. Manager and Owner shall jointly agree
on appropriate legal counsel for matters pertaining
to the Facility. Owner shall be responsible for all
legal fees, including allocated charges for internal
counsel.

K. Bookkeeping and Accounting. Manager shall provide
bookkeeping and accounting procedures regarding the
Facility and the preparation of proper financial
records. Bookkeeping and accounting procedures and
systems shall be in accordance with the operation
capital and cash programs developed by Manager, which
programs shall conform to generally accepted
accounting principles.

L. Reports. Manager shall prepare and provide to Owner
the following reports, which shall reflect operations
at the Facility:

i. A monthly balance sheet and income statement
prepared in accordance with generally
accepted accounting principles consistently
applied;

ii. Monthly operating trend report;

iii. Monthly facility comparison report
comparing month to date and year to date;

iv. Monthly cash summary and census summary;

3
<PAGE> 4
v. Monthly accounts receivable aging and
accounts payable aging schedules;

vi. On a quarterly basis, a cost report analysis
and marketing analysis;

vii. On an annual basis, a repair and improvement
budget analysis and insurance coverage
analysis;

viii. On an annual basis, each Facility's state
survey, cost report and fire inspection
report;

ix. Any additional reasonable operational
information which may from time to time be
specifically requested by Owner.

M. Insurance. Manager shall cause to be obtained and
maintained all such insurance coverage, which shall
include property damage insurance covering the
Facility and the furniture, fixtures and equipment
situated therein, and comprehensive general liability
and professional liability insurance, for the
protection of Owner, Manager, lessee, Facility
employees and volunteers of the Facility. Any
changes in insurance carrier or coverage deemed
necessary by Manager shall be implemented only
following review and approval by Owner.

3. Term. This agreement shall become effective the day and year
first written above and shall continue in full force and
effect until October 31, 2002, hereinafter referred to as the
"Term", unless sooner terminated as provided in paragraph 9
below.

4. Management Fees. For services performed hereunder, owner
shall pay to Manager the following:

A. Management Fee. Commencing with January 1, 1993,
Owner shall pay to Manager six percent (6%) of the
Gross Revenues generated during the immediately
preceding month and shall be payable on the 15th day
of the month following that month in which revenues
were actually collected. "Gross Revenues" shall mean
all collected cash receipts generated by the
Facility. If the services of Manager commence or
terminate other than on the first day of a month, the
compensation set forth in the Section 4(B) shall be
prorated for the number of days for which services
are actually rendered.

B. Expense Reimbursement. Owner shall reimburse Manager
for the following items:

4
<PAGE> 5
i. Reasonable food, lodging and travel expenses
for service to the Facility.

ii. Any other items set forth in this Agreement
as reimbursable items.

C. Late Charges. Owner shall pay to Manager, to the
extent permitted by applicable law, interest on any
amount owing to Manager under this Agreement which is
not paid when due, for any period for which any of
the same is overdue (without regard to any grace
period), at a rate equal to the lesser of (i) four
percent in excess of the rate announced from time to
time by Chase Manhattan Bank, N.A. as its prime or
reference rate, as such rate may change from time to
time, and (ii) the maximum rate of interest permitted
by applicable law.

D. Method of Payment. Owner shall pay the amounts set f
orth in Sections 4(B) and (C) monthly, in advance, no
later than the fifteenth (15th) day of the month
during which such amounts are earned or paid.
Manager shall be entitled to disburse all such
amounts to itself out of the accounts provided for in
Section 2(D).

5. Proprietary Interest. The systems, methods, procedures and
controls employed by Manager and any written materials or
brochures developed by Manager to document the same shall not,
at any time, be utilized, distributed copies or otherwise
employed or acquired for use outside of this Facility, except
with Manager's prior written consent, which Manager may
withhold in its sole discretion. Neither owner nor owner's
designee shall be entitled to utilize any written material or
brochure outside of this Facility which Manager may have
developed to document said systems, methods, procedures or
controls.

6. No Guaranty of Profitability. Owner acknowledges that Manager
does not guaranty that the Facility will be profitable.

7. Owner Inspection. During the term, Owner shall have the
right, upon request and at reasonable times, to inspect the
Facility and to inspect and/or audit all books and records
pertaining to the operation thereof.

8. Responsibility for Funding. Owner shall make funds available
sufficient to fund the repair and improvement budget referred
to in Section 2(C).

9. Termination.

A. This agreement may be terminated by the Owner:

1. In the event of material breach by Manager of a material
term hereof, which breach is not cured within 60 days after
notice by the Owner (unless

5
<PAGE> 6
Manager is using commercially reasonable efforts to cure such failure,
in which case such period shall be extended for one year) and such
failure is the result of Manager's willful misconduct, gross
negligence, or unlawful act as finally determined, by a court having
such jurisdiction regarding such matter.

2. In the event that a petition in bankruptcy is filed by Manager or
its permitted assignee, or in the event Manager or its permitted
assignee makes an assignment for the benefit of creditors or takes
advantage of an insolvency act, by notice to the manager or assignee.

3. In the event that (i) Manager's or any permitted assignee's
corporate existence is dissolved and the duties under this Agreement
are not assumed by Manager or Manager's Affiliate (ii) Manager or any
permitted assignee ceases to do business for any reason, by notice to
the Manager or such assignee, and the duties under this Agreement are
not assumed by Manager or Manager's Affiliate.

B. This agreement may be terminated by Manager in the
event that Manager fails to receive reimbursement of
reimbursable expenses or any compensation due Manager
pursuant to the terms of this Agreement, or any other
compensation due Manager, and such failure continues
for a period of 60 days after Managers written notice
thereof to Owner. Manager may terminate this
Agreement effective immediately upon expiration of
60-day period without further notice to Owner;
provided, however, that this Agreement shall not be
so terminated if the Owners pay Manager all such
expenses and compensation then due and payable on or
before the expiration of said 60-day period.

C. No termination of this Agreement shall affect any
obligation owing by either party hereto to the other
which accrued prior to the effective date of such
termination.

D. Notwithstanding any earlier provisions, and as per
Section N, Number 8 of the Restated Limited
Partnership Agreement of Jacques-Miller Healthcare
Properties, L.P., the Parties' agree that should the
Manager become an affiliated party (as defined in
Section B of the Restated Limited Partnership
Agreement of Jacques-Miller Healthcare Properties,
L.P.) with the General Partners of Jacques-Miller
Healthcare Properties, L.P., either Manager or Owner
may terminate this Agreement on sixty (60) days
written notice; Provided however, that such
cancellation provision shall be deemed waived if
Manager disassociates itself from the General
Partners during any such sixty (60) day notice
period. Alternatively, Manager may successfully avoid
the sixty (60) day cancellation clause by assigning
its management obligations to an unaffiliated entity
reasonably judged to be capable of fulfilling the
Partnership needs for such services.

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<PAGE> 7
10. Miscellaneous.

A. Disclaimer of Employment of Facility Employees. No
person employed by the owner will be an employee of
Manager, and Manager shall have no liability for
payment of their wages, payroll taxes and other
expenses of employment. All such persons will be
employees of the Owner, or, pursuant to Section (K)
hereof, independent contractors or the employees or
independent contractors.

B. Relationship of the Parties: Disclaimer of Liability:
Indemnification. The relationship of Manager to
Owner shall be that of an independent contractor and
all acts performed by Manager pursuant to this
Agreement during the Term shall be deemed to be
performed in its capacity as an independent
contractor. Manager shall not be liable for any
loss, expense or liability incurred by or asserted
against Owner, unless such loss, expense cost or
liability results from the gross negligence or
willful misconduct of Manager. Owner shall indemnify
and hold Manager harmless from and against any and
all loss, expense, cost or liability incurred by or
asserted against Manager arising from or related to
the Facility; provided, however, that Owner shall not
be obligated to indemnify Manager for any loss,
expense, cost or liability which results from
Manager's gross negligence or willful misconduct.

C. Employee Non-solicitation. Recognizing the unique
services provided by employee of Manager, during the
Tern and for a period of two (2) years after
termination of this Agreement, Owner shall not
directly or indirectly solicit or employ any
employees of Manager to become employees of Owner
without Manager's prior written consent, which
Manager nay withhold in its sole discretion.
Likewise, Manager shall not directly or indirectly
solicit or employ any employees of Owner to become
employees of Manager without owner's prior written
consent, which Owner may withhold in its sole
discretion.

D. Assignment: Binding Effect. This Agreement shall not
be assigned by either party without the prior written
consent of the other party, which consent shall not
be unreasonably withheld, Notwithstanding the
foregoing, Manager may assign its rights and
obligations hereunder to an entity controlling,
controlled by or under common control with Manager.
This Agreement shall be binding upon and insure to
the benefit of the permitted successors and assigns
of the parties.

E. Notices. All notices required or permitted hereunder
shall be given in writing and shall be personally
delivered or be sent by registered or certified mail,
postage prepaid, to the following addresses or at
such other places as either party shall designate in
writing:

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<PAGE> 8
If to Manager: Mr. Larry C. Dingmann
14160 Dallas Parkway
Suite 300
Dallas, TX 75240

If to owner: Jacques-Miller Healthcare
Properties, L.P.
c/o Jacques-Miller, Inc., Managing
General Partners
102 Woodmont Blvd, Suite 400
Nashville, TN 37205
Attn: David Griffin, President

Notices shall be deemed effective upon receipt.

F. Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the
subject matter hereof and shall supersede all prior
understandings, agreements or arrangements, oral or
written, between the parties.

G. Amendment. This Agreement shall not be modified or
amended except by written instrument signed by both
of the parties.

H. Captions. The captions and headings used herein are
for convenience of reference only and shall not be
construed in any manner to limit or modify any, of
the terms hereof.

I. Attorney's Fees. In the event either party brings an
action to enforce this Agreement, the prevailing
party in such action shall be entitled to recover
from the other all costs incurred in connections
therewith, including reasonable attorney's fees.
Reasonably attorney's fees shall include reasonable
charges allocated for internal counsel.

J. Severability. In the event one or more of the
provisions of this Agreement is deemed to be invalid,
illegal or unenforceable in any respect under
applicable laws, the validity, legality and
enforceability of the remaining provisions hereof
shall not, in any way, be impaired thereby.

K. Representations. Each of the parties represents and
warrants to the other as follows:

i. The execution, delivery and performance of
this Agreement (a) are within the corporate
and partnership powers of the respective
parties,

8
<PAGE> 9
(b) have been duly authorized by all
necessary corporate or partnership action,
and (c) do not and will not (1) require any
consent or approval by stockholders or
partners, or (2) violate any provision of any
law, rule, regulation, order, writ, judgment,
decree or award presently in effect having
applicability to the parties or the articles
of incorporation, bylaws, partnership or
joint venture agreements of the parties.

ii. This Agreement constitutes the valid and
binding obligations of Owner and Manager,
respectively, enforceable in accordance with
its terms.

L. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but
all of which together shall constitute but one and
the same instrument.

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

N. Access to Records, Cost Reports and Financial
Statements. Each of the parties hereby grant the
other, and the appropriate governmental agency access
to all contracts, books, documents and records
necessary to verify the costs of any contract between
any subcontractor and Medicaid/Medicare provider in
accordance with state/federal statutory and/or
regulatory requirements.

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<PAGE> 10
IN WITNESS WHEREOF, the parties have each caused the Agreement to be duly
executed by its duly authorized officer, as of the date first written above.

Owner: Jacques-Miller Healthcare Properties, L.P.

c/o Jacques-Miller, Inc., Managing General Partner

By: Capital Realty Group Properties, Inc., Its Agent

By: /s/ James A. Stroud, President
-----------------------------------
James A. Stroud, President

Manager: Capital Realty Group Senior Housing, Inc.

d/b/a Capital Senior Living, Inc.

By: /s/ Larry C. Dingmann
-----------------------------------
Larry C. Dingmann
Senior Vice President

<PAGE> 1
EXHIBIT 10.27

MANAGEMENT AGREEMENT

DATED AS OF JULY 29, 1996

BETWEEN

ILM I LEASE CORPORATION,

AS OWNER

AND

CAPITAL SENIOR MANAGEMENT 2, INC.,

AS MANAGER

AND

CAPITAL SENIOR LIVING, INC.

AS GUARANTOR
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I

GENERAL PROVISIONS
------------------

Section 1.01. Employment as Exclusive Leasing Agent and
Manager . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Manager's Duties Generally . . . . . . . . . . . . . 2
Section 1.03. Term of Agreement . . . . . . . . . . . . . . . . . 3
Section 1.04. Compensation . . . . . . . . . . . . . . . . . . . . 3
Section 1.05. Termination . . . . . . . . . . . . . . . . . . . . 3
Section 1.06. Insurance . . . . . . . . . . . . . . . . . . . . . 7
Section 1.07. Plans and Specifications . . . . . . . . . . . . . . 12
Section 1.08. Ethical Standards . . . . . . . . . . . . . . . . . 12
Section 1.09. Cooperation and Consultation with Third Parties . . 12
Section 1.10. Indemnities . . . . . . . . . . . . . . . . . . . . 12
Section 1.11. Guaranty . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.12. Real Estate Tax Assessments . . . . . . . . . . . . 13
Section 1.13. Policies and Procedures Manual . . . . . . . . . . . 13

ARTICLE II

LEASING
-------

Section 2.01. Manager's Duties Generally As Leasing Agent . . . . 13
Section 2.02. Negotiation and Execution of Leases . . . . . . . . 13
Section 2.03. Liaison with Tenants . . . . . . . . . . . . . . . . 14
Section 2.04. Marketing of Rental Space . . . . . . . . . . . . . 14
Section 2.05. Advertising . . . . . . . . . . . . . . . . . . . . 14

ARTICLE III

ADMINISTRATIVE SUPPORT
----------------------

Section 3.01. Personnel . . . . . . . . . . . . . . . . . . . . . 14
Section 3.02. Contracts . . . . . . . . . . . . . . . . . . . . . 16
Section 3.03. Status Reports . . . . . . . . . . . . . . . . . . . 16
Section 3.04. Records . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.05. Obligations Under Tenant Leases . . . . . . . . . . 17
Section 3.06. Tenant Compliance . . . . . . . . . . . . . . . . . 17
Section 3.07. Licensing . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>

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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV

MAINTENANCE AND OPERATIONS
--------------------------

Section 4.01. Engineering Management Services . . . . . . . . . . 18
Section 4.02. Preventative Maintenance . . . . . . . . . . . . . . 18
Section 4.03. Capital Improvements; Expansion . . . . . . . . . . 18
Section 4.04. Personnel Training . . . . . . . . . . . . . . . . . 20
Section 4.05. Maintenance . . . . . . . . . . . . . . . . . . . . 20
Section 4.06. Supervision of Contracts . . . . . . . . . . . . . . 20
Section 4.07. Service Requests . . . . . . . . . . . . . . . . . . 20
Section 4.08. Emergencies . . . . . . . . . . . . . . . . . . . . 21
Section 4.09. Regulatory Requirements . . . . . . . . . . . . . . 21
Section 4.10. Inventory . . . . . . . . . . . . . . . . . . . . . 21
Section 4.11. Security . . . . . . . . . . . . . . . . . . . . . . 22

ARTICLE V

FINANCIAL MANAGEMENT
--------------------

Section 5.01. Bank Account . . . . . . . . . . . . . . . . . . . . 22
Section 5.02. Collections and Deposits . . . . . . . . . . . . . . 22
Section 5.03. Disbursements . . . . . . . . . . . . . . . . . . . 22
Section 5.04. Examinations and Audits of Accounts . . . . . . . . 23
Section 5.05. Books and Records . . . . . . . . . . . . . . . . . 23
Section 5.06. Budget . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.07. Obligations for Expenses . . . . . . . . . . . . . . 24

ARTICLE VI

MISCELLANEOUS
-------------

Section 6.01. No Partnership or Joint Venture . . . . . . . . . . 25
Section 6.02. Notices . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.03. Applicable Law . . . . . . . . . . . . . . . . . . . 26
Section 6.04. Successors and Assigns . . . . . . . . . . . . . . . 26
Section 6.05. Confidentiality . . . . . . . . . . . . . . . . . . 27
Section 6.06. Manager's Insignia . . . . . . . . . . . . . . . . . 28
Section 6.07. Entire Agreement . . . . . . . . . . . . . . . . . . 28
Section 6.08. Captions, Gender, Number . . . . . . . . . . . . . . 28
Section 6.09. Severability . . . . . . . . . . . . . . . . . . . . 28
Section 6.10. Days . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>

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<PAGE> 4
EXHIBIT A
TO MANAGEMENT AGREEMENT

List of Properties

EXHIBIT B
TO MANAGEMENT AGREEMENT

Fees and Compensation of Manager

EXHIBIT C
TO MANAGEMENT AGREEMENT

Budget

EXHIBIT D
TO MANAGEMENT AGREEMENT

D-1 Form of Monthly Status Report
D-2 Form of Quarterly Status Report
D-3 Form of Annual Fiscal Year Status Report
D-4 Form of Annual Calendar Year Status Report

EXHIBIT E
TO MANAGEMENT AGREEMENT

Form of Rent Roll

EXHIBIT F
TO MANAGEMENT AGREEMENT

List of Non-Property Staff

EXHIBIT G
TO MANAGEMENT AGREEMENT

Properties on Which Feasibility Study
Will Be Conducted Within Three Months

-iii-
<PAGE> 5
MANAGEMENT AGREEMENT

THIS AGREEMENT, dated as of July 29, 1996, by and between ILM I LEASE
CORPORATION, a Virginia corporation (the "Owner"), and CAPITAL SENIOR
MANAGEMENT 2, INC., a Texas corporation (the "Manager") and CAPITAL SENIOR
LIVING, INC., a Texas corporation (the "Guarantor"), recites and provides:

RECITALS

WHEREAS, the Owner leases the real estate and related personal property
described on Exhibit A hereto (collectively, the "Properties" and each
individually, a "Property").

WHEREAS, each of the Properties is operated as an assisted living or
congregate care facility;

WHEREAS, the Manager has experience and expertise in the management of
assisted living and congregate care facilities;

WHEREAS, the Owner wishes the Manager to manage the Properties, and the
Manager desires to do so, pursuant to the terms and conditions set forth in
this Agreement.

AGREEMENT

NOW, THEREFORE, for and in consideration of the mutual covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Owner and Manager agree as
follows.

ARTICLE I

GENERAL PROVISIONS

Section 1.01. Employment as Exclusive Leasing Agent and Manager. The
Owner hereby employs Manager as its exclusive agent for leasing, operating and
managing the Properties. Manager accepts such employment and agency and,
subject to the terms and conditions hereof and such express restrictions or
limitations on its authority and, to the extent not inconsistent with the terms
and conditions hereof, such written instructions as may from time to time be
given by the Owner, agrees to perform the duties and obligations described
herein. In its performance of its duties under this Agreement, Manager shall
be an independent contractor rather than an employee of the Owner.

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<PAGE> 6
Section 1.02. Manager's Duties Generally.

(a) Manager shall assist the Owner in the leasing, management,
operation, supervision, control and administration of the Properties and, by
its execution hereof, Manager accepts the relationship of trust and confidence
established between itself and the Owner. In accepting its employment
hereunder, Manager shall (i) perform its responsibilities hereunder with the
same or a greater degree of diligence, competence and care exercised by leading
real estate brokers, agents and managers of facilities of the same or similar
type as the Properties in the general areas in which the Properties are located
and (ii) act with due care in its management of the Owner's funds and property
and avoid conflicts of interest or self dealing that would be detrimental to
the interests of the Owner. In addition to the obligations expressly provided
for in this Agreement, Manager shall do such other things on behalf of the
Owner that are consistent with this Agreement, necessary or appropriate, in the
judgment of the Owner, and communicated to the Manager, for the proper and
profitable operation of the Properties.

(b) Without limiting the restrictions placed upon the Manager
pursuant to Subsection (a), the Manager hereby agrees that:

(i) during the Term of this Agreement neither the
Manager nor any person controlling, controlled by or under common control with
the Manager (an "Affiliate") shall develop, finance, operate, manage or acquire
any direct or indirect interest in any assisted living or congregate care
facility (as the case may be) located within ten miles of any of the Properties
(a "Competing Facility") without the prior written consent of the Owner,
provided, however, that in the event that the Manager enters into a Portfolio
Transaction, the Manager may own, operate or manage, as applicable, one
Competing Facility connected with a Portfolio Transaction and located within
such radius if (A) with respect to a Portfolio Transaction in which the Manager
acquires the ownership of a Competing Facility, the Manager provides the Owner,
or the Owner's designee, with an option to purchase and lease back such
Competing Facility at a fair market value, as determined by an appraisal from
an independent appraiser acceptable to the Owner and the Manager; (B) the
Manager does not relocate any Property Staff involved in the marketing of any
of the Properties to such Competing Facility or otherwise employ any marketing
materials or trade secrets specifically developed for use in the Properties;
and (C) the Manager does not reposition the Competing Facility to compete
directly with the Property located closest to such Competing Facility. For
purposes of this Subsection, "Portfolio Transaction" shall mean a single
transaction in which the Manager acquires the ownership of, leasehold interest
in, or is contracted to manage, at least five operating assisted living or
congregate care facilities.

(ii) during the Term of this Agreement and for a period
of two years thereafter, neither the Manager nor any Affiliate will, in
connection with any assisted living or congregate care facility (as the case
may be) in which it directly or indirectly owns an interest or which it
manages, solicit any of the tenants of the Properties or interfere, either
directly or

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<PAGE> 7
indirectly, in any manner, with any relationship between the tenants of the
Properties and their landlord(s).

(iii) for a period of two years after the expiration of
this Agreement, neither the Manager nor any Affiliate will solicit any of the
Property Staff (as defined in Section 3.01) or interfere, either directly or
indirectly, in any manner, with their employment by the Owner, another lessee
or owner of the Properties, or the successor to the Manager, as applicable.

(iv) neither the Manager nor any of its Affiliates,
directors, officers or Non-Property Staff (as defined in Section 3.01) shall
trade in any securities issued by the Owner or PaineWebber Independent Living
Mortgage Fund, Inc., a Virginia corporation.

(c) If any provision of this Section is deemed invalid by a
court of competent jurisdiction, the covenants contained herein shall be
applicable and enforceable for such lesser period of time and for such lesser
activity included within such limitations, as such court may then or thereafter
determine to be reasonable and proper under the circumstances.

(d) In the event that any provision hereof is deemed to be
unenforceable, the remainder of this Section shall not be affected thereby and
each provision hereof shall be valid and enforced to the fullest extent
permitted by law.

(e) The Manager hereby acknowledges that the damages the Owner
would sustain in the event of any violation of the provisions of this Section
are difficult or impossible to ascertain. Accordingly, the Manager hereby
agrees that the Owner shall be entitled, in addition to any other remedy or
damages available to it in the event of any such violation, to injunctive
relief to restrain such violation by the Manager and any person or entity
acting for or with the Manager.

Section 1.03. Term of Agreement. The initial term of this Agreement
(the "Initial Term") shall commence on July 29, 1996 and shall continue through
either (i) December 31, 1999 or (ii) in the event that certain Facilities Lease
Agreement dated as of September 1, 1995 between ILM Holding, Inc. and the Owner
(the "Facilities Lease") is extended for any period following December 31,
1999, the earlier of (A) five years from the date of this Agreement or (B) the
period during which the Facilities Lease is extended. Unless the Owner gives
the Manager notice of termination of this Agreement at least thirty days prior
to the expiration of the Initial Period, upon the expiration of the Initial
Term, this Agreement shall extend automatically for additional one month
periods (the "Renewal Terms") until terminated as provided herein (the Initial
Term as extended through any Renewal Terms, herein referred to as the "Term").
If the Owner gives the Manager notice of termination of this Agreement thirty
days prior to the expiration of the Initial Period, this Agreement shall
terminate and no additional fees shall be payable hereunder.

-3-
<PAGE> 8
Section 1.04. Compensation. As compensation for Manager's performance
of its obligations hereunder, the Owner agrees to pay to Manager the fees for
each Property as set forth on Exhibit B attached hereto.

-4-
<PAGE> 9
Section 1.05. Termination.

(a) Termination for Cause. The Owner may elect to terminate
this Agreement with respect to all the Properties immediately upon the
occurrence of a Default by notifying the Manager in writing that this Agreement
has been terminated (a "Notice of Default"). For purposes of this Agreement,
"Default" shall mean:

(i) Manager's gross negligence or wilful misconduct in
the performance of its duties under this Agreement;

(ii) The revocation of any license or permit necessary
for the performance by Manager of its duties hereunder or for the operation of
any of the Properties as congregate care or assisted living facilities, as the
case may be, or Manager's failure to keep any such license or permit in force
for any reason whatsoever which license or permit is not reinstated before a
material adverse impact or effect on the operation of the affected Property or
Properties or, if later, the expiration of sixty days after Manager is
initially notified of such revocation or failure by applicable authorities or
the Owner;

(iii) The violation by Manager of any material provision
of this Agreement, provided, however, that no default shall be deemed to have
occurred if the Manager cures such violation within thirty days after the
Owner's written notice to Manager of such violation;

(iv) The violation by Manager of any material provision
of that certain Management Agreement, of even date herewith, between Manager
and ILM II Lease Corporation (the "ILM II Agreement") relating to properties
leased by ILM II Lease Corporation ("ILM II"), which violation entitles ILM II
under the ILM II Agreement to terminate such ILM II Agreement;

(v) The entry by a court of competent jurisdiction of a
decree or order for relief in respect of Manager, the Guarantor or either of
Jeffrey Beck or James Stroud (the "Shareholders") in an involuntary case or
proceeding under any bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, trustee or similar official of Manager, the Guarantor or
the Shareholders or of all or any substantial part of the property of any of
them, or ordering the reorganization of Manager or the Guarantor or the winding
up of either of their affairs or liquidation of either of their property, and
such decree or order shall continue unstayed and in effect for a period of 30
days; or

(vi) The consent or acquiescence by Manager, the
Guarantor or either of the Shareholders to the entry of any decree or order
described in Subsection 1.05(a)(v) hereof, the commencement by Manager or the
Guarantor of a voluntary case or proceeding under any bankruptcy, insolvency or
similar law, the making by Manager or the Guarantor of any

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<PAGE> 10
general assignment for the benefit of creditors, or Manager's or the
Guarantor's failure or admission in writing of its inability to pay its debts
as they become due.

Manager shall notify the Owner in writing of the occurrence of any of the
events specified in Sections 1.05(a)(i)-(vi) above promptly after it first
learns of such event.

(b) Termination Without Cause. Subject to compliance with
Section 2 (Right of Offer) of that certain Agreement of even date herewith
between PaineWebber Independent Living Mortgage Fund, Inc., ILM Holding, Inc.,
Owner and Manager, the Owner may terminate this Agreement with respect to any
or all of the Properties by delivering a Notice of Termination to the Manager
thirty days prior to (i) the sale to an unaffiliated third party of such
Property by the owner thereof, or (ii) the transfer to an unaffiliated third
party of 50 percent or more of the ownership interest in ILM Holding, Inc., or
PaineWebber Independent Living Mortgage Fund, Inc.

For purposes of this Section, "Effective Date" shall mean (i) with
respect to a Notice of Termination delivered pursuant to Section 1.05(a), the
date of such Notice of Termination and (ii) with respect to a Notice of
Termination delivered pursuant to Section 1.05(b), the date thirty days
following the date of delivery of such Notice of Termination.

(i) Within ten business days following the date of any
Notice of Termination, Manager shall provide the Owner with the following items
to facilitate the transfer of leasing and management responsibilities to the
Owner or its designee in a comprehensive and professional manner:

(A) A schedule of termination activities
including notices to vendors, contractors and banks and meetings with the
successor entity responsible for the leasing and management of the Properties;

(B) An itemized statement of the amounts due
hereunder from the Owner to the Manager;

(C) An itemized statement of the amounts due
suppliers of services and goods which have been ordered by Manager in the name
of the Owner;

(D) An itemized statement of all accounts
receivable due the Owner from any source; and

(E) A list of all records, reports, financial
statements, files and similar materials in Manager's possession related to the
Properties.

(ii) On the Effective Date of the Notice of Termination,
Manager shall:

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<PAGE> 11
(A) Deliver to the Owner all funds collected and
held for the account of the Owner including, without limitation, passbook
accounts, negotiable and investment instruments, demand deposits and petty
cash, whether any of the foregoing is received before or after the termination
hereof;

(B) Deliver to the Owner all property and
documents and all records, reports, files and similar materials relating to the
Properties;

(C) Assign to the Owner, or its designee, all
contracts not otherwise in the name of the Owner relating to the operation or
leasing of any of the Properties and assign, to the extent transferable, to the
Owner, or its designee, all applicable licenses and permits necessary to
operate the Properties as congregate care or assisted living (as the case may
be) facilities;

(D) Deliver to the Owner a complete list of all
contracts, agreements and obligations entered into or incurred by Manager on
behalf of the Owner during the Term hereof; and

(E) Furnish such other information and take such
other actions as the Owner shall reasonably require to transfer Manager's
leasing and management responsibilities to the Owner or its designee.

(iii) Within 25 days after the Effective Date of the
Notice of Termination, Manager shall deliver to the Owner a full accounting,
including a statement showing all payments collected by it and all moneys held
by it, for the period following the last date covered by the last accounting
furnished to the Owner.

(iv) Manager's obligation to deliver to the Owner or its
designee the items described in this Section 1.05(c) shall be a continuing
obligation with respect to any of those items that may be in or come into
Manager's possession or control on or after the effective date of termination
of this Agreement.

(v) Manager shall cooperate fully with the Owner or its
designee in the transfer of, or in obtaining, all applicable licenses and
permits necessary to operate the Properties as congregate care or assisted
living (as the case may be) facilities and of management, leasing and licensing
operational responsibilities to the Owner or such designee.

(d) Casualty or Condemnation. Notwithstanding the foregoing
or anything to the contrary contained in this Agreement, either the Manager or
the Owner may elect to terminate this Agreement immediately with respect to a
Property subject to a Casualty or Condemnation Event (as defined herein) by
giving written notice of termination to the other party; provided, however,
that as to any Property for which this Agreement is so terminated and at which
the Owner thereafter commences operations as an assisted living or congregate
care facility, as the case may be, prior to the termination of this Agreement
with respect to all

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<PAGE> 12
of the Properties, Manager shall have the option to re-commence providing
services at such Property pursuant to the terms hereof. For purposes hereof, a
"Casualty or Condemnation Event" shall mean damage to a Property by fire,
smoke, lightning, wind storm, explosion, riot, vandalism, malicious mischief,
theft and such other casualty hazards and risks to the extent that the Property
cannot, in the Manager's or Owner's (as the case may be) reasonable judgment,
be economically operated as the type of facility it was prior to such casualty
and (i) such casualty occurred within 24 months of the end of the Term, or (ii)
such casualty is an event for which insurance coverage is not required under
Section 1.06, and a condemnation or taking by eminent domain which is either
(i) 50% or more of the Property (measured by any of gross area, rentable square
footage or number of rental units) or (ii) such portion or portions of the
Property so that the portion remaining cannot, in the Manager's or Owner's (as
the case may be) reasonable judgement, be economically operated as the type of
facility it was prior to the taking.

(e) Partial Termination. In the event that this Agreement is
terminated with respect to one or more, but less than all, of the Properties,
the term "Properties" shall thereafter refer only to such remaining Properties.

(f) Termination by Manager. Manager may terminate this
Agreement by written termination notice to Owner in the event that Manager
fails to receive reimbursement of reimbursable expenses or any compensation due
Manager pursuant to the terms of this Agreement, and such failure continues for
a period of sixty (60) days after Manager's written notice of such failure to
Owner.

(g) Effect of Termination. No termination of this Agreement
shall affect any obligation owing by either party hereto to the other which
accrued prior to the Effective Date of the Notice of Termination.

Section 1.06. Insurance.

(a) Owner's Insurance Coverage. The Manager will obtain at
Owner's sole cost and expense the following coverage for the Owner with respect
to the Properties. Owner retains the right to procure all such insurance for
itself should it see fit rather than having the Manager procure such insurance
on behalf of Owner.

(i) Building Insurance. The Manager shall obtain a
building and contents insurance policy with comprehensive all risk coverage
with respect to the buildings and personal property components of the
Properties (including, without limitation, any such personal property
components owned by Manager) and which shall not exclude the following: fire,
lighting, extended coverage, theft, flood, earthquake (where available),
vandalism, sprinkler leakage, water damage, collapse and debris removal.

The amount of such insurance shall not be less than the full replacement
cost except where sublimits are appropriate (and a replacement cost endorsement
shall be provided for

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<PAGE> 13
these purposes permitting payment of the loss without a requirement to rebuild)
as determined by an insurance appraisal or such other valuation with provisions
for the use of indexes at interim dates to increase the value for inflation.

The policy shall contain an endorsement called an "Agreed Amount
Endorsement" which shall waive any and all coinsurance provisions under the
policy as it applies to the coverage.

(ii) Business Interruption and Loss of Rent Insurance.
The Manager shall obtain a business interruption and loss of rent insurance
policy with coverage against all of the risks referred to in Subsection (a)(i)
above. The insurance shall be in an amount equal to not less than 100% of the
annual rent roll schedules of the Properties covering all tenants and shall be
endorsed to cover unoccupied and unleased space at pro forma rents and shall
include gross budgeted revenues for all other activities. The policy shall
contain an Agreed Amount Endorsement waiving all coinsurance provisions.

(iii) Comprehensive General Liability Insurance. This
policy shall include coverage for claims arising from bodily injury, personal
injury, and property damage occurring upon, in, or about each of the
Properties. The coverage shall be on an occurrence basis, and the minimum
limits shall be not less than $1,000,000. Coverage for liquor law liability
shall also be included if required by law.

The policy should cover the following hazards: premises and operation;
incidental malpractice; comprehensive owned and non-owned auto liability
insurance; and coverage for hired vehicles on an "if any" basis.

(iv) Umbrella Liability Coverage. A policy shall be
obtained, providing coverage in an amount equal to at least $10,000,000 in
excess of the coverage to be maintained pursuant to Subsection (iii) of this
Section 1.06(a).

(v) Additional Insurance. Owner shall have the right
to require Manager to obtain and maintain, if requested in writing and at
Owner's sole cost and expense, such other insurance as Owner may from time to
time deem reasonably necessary, and which insurance is normal and customary for
other operations of improved property similar to the Properties.

(vi) Priority of Coverage. Owner's insurance will be
primary as to any insurance carried by Manager, and any such coverage of
Manager will be excess insurance to the extent that Manager is acting within
the scope of its duties under this Agreement.

(b) Manager's Operational Insurance Coverage. Throughout the
Term of this Agreement, the Manager shall procure and maintain, at Owner's sole
cost and expense, the following insurance coverage. Owner retains the right to
procure all such insurance for itself or the Manager, as appropriate, should it
see fit rather than having the Manager procure

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<PAGE> 14
such insurance; provided, however, that to the extent that the Manager
identifies such insurance coverage which otherwise conforms with the
requirements of this Section 1.06 but the Owner procures such insurance
pursuant hereto which is other than that so identified by Manager, "Net Cash
Flow," as calculated pursuant to Exhibit B, will be calculated assuming
insurance costs equal to the premiums and costs applicable to the coverage so
identified by the Manager to the extent such premiums and costs are less than
those applicable to the coverage so procured by the Owner.

(i) Worker's Compensation and Unemployment
Compensation. Workers' compensation and unemployment compensation with respect
to the Property Staff in full compliance with all applicable state and federal
laws and regulations;

(ii) Employer's Liability Insurance. Employer's
liability insurance in an amount not less than $100,000 for each accident,
$500,000 for each disease policy limit and $100,000 for diseases for each
employee covering all Property Staff;

(iii) Comprehensive Automobile Liability Insurance.
Comprehensive automobile liability insurance coverage with respect to those
motor vehicles owned by the Owner which are used by the Property Staff in
connection with the Properties which has limits for bodily injury of not less
than $250,000 per person and $500,000 per accident and property damage of
$100,000 per accident. The comprehensive automobile liability policy shall
include blanket non-owned coverage;

(iv) Employee Dishonesty Insurance. Employee dishonesty
insurance with respect to the Property Staff and any agents against employee
dishonesty in an amount not less than the greater of (A) One Million Five
Hundred Thousand Dollars ($1,500,000.00) or (B) an amount equal to the average
monthly receipts from all of the Properties;

(v) Professional Liability Insurance. Professional
liability insurance in an amount equal to at least $1,000,000 with respect to
bodily injury, property damage or personal injury arising out of professional
acts, errors or omissions;

(vi) Fiduciary Liability Insurance. In the event that
the Manager makes any employee benefit plan available to the Property Staff,
fiduciary liability insurance in an amount equal to at least $1,000,000 with
respect to claims alleging breach of fiduciary obligations under the Employment
Retirement Income Security Act of 1974 and any acts, errors or omissions
committed in connection with the administration of any employee benefit plans
for the Property Staff;

(vii) Employment Practices Insurance. Employment
practices insurance in an amount equal to at least $1,000,000 with respect to
lawsuits brought by employees alleging wrongful discharge, discrimination,
harassment or other employment related exposure with respect to the Property
Staff; and

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<PAGE> 15
(viii) Umbrella Liability Coverage. A policy shall be
obtained, providing coverage in an amount equal to at least $10,000,000 in
excess of the coverage to be maintained pursuant to Subsections (i) through
(vii) of this Section 1.06(b).

(ix) Other Insurance. Such other insurance as may be
carried at similar properties as Owner may from time to time reasonably deem
necessary in connection with or for the performance of Manager's duties
hereunder.

(c) Manager's Insurance Coverage. Throughout the Term of this
Agreement, the Manager shall procure and maintain, at Manager's sole cost and
expense, the following insurance coverage:

(i) Comprehensive General Liability Insurance.
Comprehensive general liability insurance which includes coverage for all Non-
Property Staff (as defined in Section 3.01(b)) and if Manager is found to be
acting outside the scope of his duties under this Agreement, with minimum
limits of at least $1,000,000 per occurrence for bodily injury, personal injury
and property damage;

(ii) Worker's Compensation and Unemployment
Compensation. Workers' compensation and unemployment compensation with respect
to the Non-Property Staff in full compliance with all applicable state and
federal laws and regulations;

(iii) Employer's Liability Insurance. Employer's
liability insurance in an amount not less than $100,000 for each accident,
$500,000 for each disease policy and $100,000 for diseases for each employee
covering all Non-Property Staff performing any work relating to the Properties;

(iv) Comprehensive Automobile Liability Insurance.
Comprehensive automobile liability insurance coverage with respect to those
motor vehicles owned by the Manager which are used by Non-Property Staff in
connection with the Properties which has limits for bodily injury of not less
than $250,000 per person and $500,000 per accident and property damage of
$100,000 per accident. The comprehensive automobile liability policy shall
include blanket non-owned coverage;

(v) Umbrella Liability Insurance. An "umbrella"
liability coverage providing coverage in an amount equal to at least
$10,000,000 in excess of the coverage to be maintained pursuant to Subsections
(i), (iii) and (iv) above;

(vi) Employee Dishonesty Insurance. Employee dishonesty
insurance with respect to the Non-Property Staff and any agents, officers and
employees of the Manager against dishonesty by any of such persons in an amount
not less than the greater of (A) One Million Five Hundred Thousand Dollars
($1,500,000.00) or (B) an amount equal to the average monthly receipts from all
of the Properties;

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(vii) Fiduciary Liability Insurance. Fiduciary liability
insurance in an amount equal to at least $1,000,000 with respect to claims
alleging breach of fiduciary obligations under the Employment Retirement Income
Security Act of 1974 and any acts, errors or omissions committed in connection
with the administration of any employee benefit plans made available to the
Non-Property Staff;

(viii) Employment Practices Insurance. Employment
practices insurance in an amount equal to at least $1,000,000 with respect to
lawsuits brought by employees alleging wrongful discharge, discrimination,
harassment or other employment related exposure with respect to Non-Property
Staff; and

(d) Payment of Insurance. The insurance required by
Subsection (a) and (b) of this Section, whether obtained by Manager on behalf
of Owner or by Owner directly, shall be an operating expense of the applicable
Property and paid from such Property's revenues or reserves or by the Owner, as
directed by the Owner. The insurance coverage required pursuant to Subsection
(c) shall be paid for by the Manager from its own funds.

(e) Policy Requirements. The policies described in
Subsections (a) through (c) above shall be in form and substance satisfactory
to the Owner and with insurance companies that are acceptable to Owner,
reputable and properly licensed in each State in which they propose to effect
coverage. Manager shall furnish Owner with certificates of insurance or
certified copies of each of the insurance polices required to be obtained and
maintained by Manager pursuant to the terms of this Agreement. The insurance
policies required pursuant to Subsection (a) shall be in the name of the Owner
with the Manager named as an additional insured party. The insurance policies
required pursuant to Subsections (b) and (c) shall be in the name of the
Manager with the Owner named as an additional insured party. Each insurance
policy required by this Section shall provide that such policies shall not be
canceled or otherwise modified without 45 days' prior written notice to Owner.
At least fifteen days prior to the extension of any such policy Manager shall
furnish Owner with evidence that the insurance policies required hereunder have
been renewed. Manager shall in all cases obtain the Owner's prior written
approval before obtaining, renewing, cancelling or modifying the coverages
under any insurance policies required hereunder. Manager shall make periodic
reports and recommendations to the Owner regarding the adequacy of the then
current insurance policies and provide the Owner with adequate warning of any
potential lapses in coverage of which Manager becomes aware.

(f) Waiver of Subrogation. Owner and Manager hereby waive and
release any and all claims either may have or acquire against the other by way
of subrogation or otherwise, for any loss or damage occasioned by the
negligence of either of them or their respective agents, employees,
contractors, licensees or invitees, which results in any loss or

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damage to person or property and which is fully insured against by either Owner
or Manager in accordance with the terms of this Agreement. Each party agrees
to obtain from its respective insurance carriers waiver of subrogation
endorsements to all such insurance policies maintained hereunder (excluding
workmen's compensation or employer's liability insurance) providing that each
insurance carrier waives its right of subrogation against the other party in
the event of any loss or damage which is fully insured against pursuant to the
provisions of this Agreement. In the event that such endorsements cannot be
obtained and the mutual waiver contained herein would invalidate any such
insurance policy, then the provisions of this Subsection (f) shall be
inapplicable to such insurance policy.

(g) Compliance With Insurance Requirements. Manager shall use
its best efforts to assure that each Property is not used for any purpose which
may void or impair, or increase the premium payable under, any policy of
insurance held by Owner pursuant to the terms of this Section 1.06, or which
may render any loss under any such policy uncollectible.

(h) Insurance Claims. Manager shall promptly report to Owner,
and the insurance agent, broker or adjustor designated by Owner, all damages,
accidents or claims relating to the ownership, maintenance or operation of any
Property and shall cooperate with such agent, broker or adjustor in connection
with its investigation thereof and its reporting to the appropriate insurance
carrier. Manager shall not compromise or settle any claims against insurance
carriers without the prior written approval of Owner.

Section 1.07. Plans and Specifications. To the extent that they are
within the Owner's possession, the Owner shall furnish Manager with a set of
plans and specifications for each Property and, with the aid of these documents
and its own inspections, Manager shall become and remain knowledgeable with
respect to the organization, location, character, plan and operation of the
lighting, plumbing, heating, air conditioning and all other mechanical systems
and equipment of each Property.

Section 1.08. Ethical Standards. In any transaction with vendors,
contractors or others who provide services or goods for the Owner or the
Properties, Manager shall act at all times in the best interests of the Owner
and shall credit to the Owner all discounts, commissions, rebates, finders fees
and similar amounts obtainable as a result of such transactions. Manager shall
not enter into any agreement to provide goods or services for any Property with
any party, partnership, corporation or other entity related to or affiliated
with Manager without the prior written approval of the Owner.

Section 1.09. Cooperation and Consultation with Third Parties. The
Owner may appoint and employ auditors, attorneys, appraisers and other persons
for the purpose of rendering advice about or for conducting research and
inquiry with respect to the leasing, management, operation and valuation of any
Property and, in any such case, Manager shall cooperate fully with such persons
and, within the authority invested in such persons, communicate all information
requested and advise and consult with them in good faith.

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Section 1.10. Indemnities. Subject to the provisions of Section 1.06
hereof, the Owner shall indemnify and hold Manager harmless from and against
all loss, cost, expense, claims and liability arising out of or in connection
with the management, operation and leasing of the Property, except for acts of
Manager which constitute a breach of the provisions of this Agreement or are
otherwise outside the scope of its employment and Manager's own negligence or
misconduct (such acts together referred to as "Unauthorized Acts"). Subject to
the provisions of Section 1.06 hereof, Manager shall indemnify and hold the
Owner harmless from and against all loss, cost, expense, claims and liability
arising out of or in connection with Manager's Unauthorized Acts.

Section 1.11. Guaranty. The Manager's obligations pursuant to this
Agreement, including, without limitation, the indemnification obligations set
forth in Section 1.10, shall be guaranteed by Capital Senior Living, Inc. (the
"Guarantor"). The Guarantor guarantees the full and prompt payment of all
amounts payable by the Manager hereunder and all amounts which may become due
and arising as a result of the Default by the Manager. Upon the Default by the
Manager in the performance of any of its obligations hereunder, and without
further notice, or the resort to any property of the Manager which may be in
the possession of or otherwise available to the Owner and without exhausting
all remedies available to the Owner against the Manager, the Guarantor shall
perform the obligations described above. The Guarantor shall have all rights
of the Manager hereunder regarding any event which, with the giving of
requisite notice hereunder and the passage of time would result in a Default
hereunder, including but not limited to defenses, notices, cure periods and any
counterclaims.

Section 1.12. Real Estate Tax Assessments. Manager shall review for
accuracy and reasonableness all real estate tax assessments and shall advise
the Owner of the results of such review. If during the Term, the Owner shall
elect to protest any real or personal property tax assessment in connection
with Property, Manager shall cooperate with the Owner and its tax advisors in
connection therewith. The Manager will have no responsibility for the
institution of any legal proceedings in connection with tax assessments.

Section 1.13. Policies and Procedures Manual. In connection with the
performance of its obligations under this Agreement, and after review of the
Owner's existing policies and procedures manual, Manager shall develop a
policies and procedures manual and provide same to Owner for review and
approval within six months from the effective date of this Agreement.
Following the approval of the policies and procedures manual submitted by
Manager (the "Manual"), Manager shall utilize the Manual in connection with the
leasing, management or operation of the Properties and shall submit any
proposed modifications to the Manual to the Owner in writing. Following the
Owner's review and approval of such modifications, the Manager shall utilize
the modified Manual.

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ARTICLE II

LEASING

Section 2.01. Manager's Duties Generally As Leasing Agent. Manager
shall use its best efforts to lease and keep leased all leasable space in the
Properties to such tenants as it may deem compatible with the character and
locations of the Properties. Manager shall use its best efforts to develop and
maintain the character and reputation of each of the Properties while
maintaining the highest possible net income. Manager shall be familiar with
all tenant leases for the Properties, particularly with regard to the services,
charges and procedures applicable to the various tenants.

Section 2.02. Negotiation and Execution of Leases. Manager shall
respond to all inquiries concerning tenant leases and shall conduct all
negotiations in connection with their execution, renewal, extension,
modification, amendment or termination. All leases entered into after the date
hereof shall be in such form as may be approved by the Owner, and Manager shall
furnish the Owner executed originals of such leases upon request.

Section 2.03. Liaison with Tenants. Manager shall schedule and
coordinate tenant moves, maintain personal contact with tenants and serve as
liaison with the Owner in order to minimize misunderstandings and receive and
resolve tenant complaints in a timely and courteous manner.

Section 2.04. Marketing of Rental Space. Manager shall develop a
comprehensive, professional program for marketing each Property (a "Marketing
Plan") and, following the approval of each Marketing Plan by the Owner,
implement and monitor the effectiveness of such Marketing Plan.

Section 2.05. Advertising. Manager, at the Owner's expense and in
accordance with the Budget (as that term is defined in Section 5.06 below) and
the Marketing Plan, shall advertise, to such extent and in such media as
Manager deems advisable, the availability of units in each of the Properties;
provided, however that Manager shall pay all costs associated with
advertisements that do not relate specifically and exclusively to the
availability of rental space in, or the operational needs of, the Properties,
unless otherwise approved in writing by the Owner.

ARTICLE III

ADMINISTRATIVE SUPPORT

Section 3.01. Personnel.

(a) Property Staff. Based upon the Budget, job standards,
wage rates and the applicable Plan of Operation (as defined in Subsection (c),
below), Manager shall recruit, hire, train, supervise and discharge all on-site
management, administrative, maintenance, cleaning and other personnel,
including, without limitation, the Property director or administrator
(collectively, the "Property Staff") necessary to properly manage, administer,

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repair, maintain and otherwise operate each Property. The Property Staff may
be full-time, part-time, temporary or contract personnel. The Property Staff
shall be employees of Manager and not the Owner, provided, however, that the
costs of such Property Staff shall be paid from the Owner's funds. Manager
shall pay wages and required payroll taxes and all costs and expenses of such
Property Staff from the Owner's funds and shall make provision at the Owner's
expenses for employee group benefits as agreed upon by the Owner. Manager will
abide by all local, state and federal laws, regulations and guidelines in
administering the payroll. Manager will cause to be prepared and filed all
forms, reports and returns as required by law in connection with unemployment
insurance, workers' compensation insurance, withholding tax, social security
and other similar taxes now in effect. In addition Manager shall take such
actions as may be necessary to comply with the provisions of wage, hour,
health, safety, income tax, social security, unemployment compensation,
workman's compensation and similar laws, regulations and requirements relating
to the Property Staff. Manager shall, at the request of Owner, provide Owner
with the then-current list of Property Staff.

(b) Manager's Personnel. The Manager shall maintain sufficient
personnel to fulfill its obligations hereunder. Prior to the commencement of
its duties hereunder, Manager shall provide the Owner with a listing of the
personnel which it intends to employ in connection with the obligations to be
performed by Manager hereunder (the "Non-Property Staff"), together with a job
description for each member of the Non-Property Staff. The Owner and the
Manager shall mutually agree upon the personnel required by the Manager to
fulfill its obligations hereunder. The Manager shall, upon the request of
Owner, provide Owner with a list of the then-current Non-Property Staff. The
Owner shall have no authority to provide directions to the Managers employees
or to terminate such employees employment by the Manager. Nothing in this
section is intended or shall be construed to make any person employed by the
Manager an employee of the Owner, to influence the hiring decisions of the
Manager or to alter the relationship between the Owner and Manager of
independent contractor. The Manager acknowledges that in entering into this
Agreement the Owner is relying upon the experience and capabilities of the
employees of the Manager and the Shareholders. Accordingly, the Manager agrees
to maintain each of positions listed on Exhibit F to this Agreement (the
"Positions") and shall not eliminate or change any of the Positions without the
prior written consent of the Owner. The initial occupants of each of the
Positions are listed on Exhibit F and the Manager agrees to keep each of the
Positions permanently occupied during the Term by personnel with experience and
capabilities similar or superior to the individuals listed on Exhibit F (the
"Personnel"), with any vacancies in any such Positions occurring during such
Term to be filled on a timely basis. The Manager shall notify the Owner of any
change in the Personnel and shall supply the Owner with information which is
reasonably sufficient to demonstrate the calibre and experience of any
replacement Personnel.

(c) Plan of Operation. The Owner shall provide to Manager
and the Manager shall review the current plan of operation (if any) for each
Property. The revised plan of operation for each Property or, in the event
that there is no existing plan of operation, a plan of operation developed by
the Manager (the "Plan of Operation") shall be (i) describe

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each of the services to be supplied to tenants at such Property, (ii) list all
Property Staff that will be required at such Property in order to provide such
services to the tenants, to provide management and administrative services for
such Property (other than such administrative services as are to be provided by
the Manager hereunder) or to maintain the Property. The Plan of Operation for
each Property shall be submitted to the Owner thirty days after the
commencement of the Manager's duties hereunder and must be approved by the
Owner in writing within thirty days following receipt thereof. The Owner and
the Manager shall review the Plan of Operation for each Property not less than
annually and shall amend the Plan of Operation from time to time as
appropriate.

(d) Job Descriptions. To the extent that they are within the
Owner's possession, Owner shall provide to Manager and Manager shall review or
develop job descriptions for all Property Staff positions based upon the Plan
of Operation. Manager shall furnish the job descriptions, along with job
performance standards, to the Owner to delineate clearly between Manager's
exclusive responsibilities which are to be performed by the Non-Property Staff,
and those responsibilities that are delegated by Manager to the Property Staff.

Section 3.02. Contracts.

(a) Renewal and Execution. Manager shall be familiar with the
provisions of, and provide to the Owner copies of, all material contracts
affecting the leasing, management or operation of each Property. At least
sixty (60) days prior to the scheduled termination of any of these contracts,
Manager shall recommend to the Owner whether such contracts should be renewed,
modified or canceled, and renew, modify or cancel such contracts as the Owner
may direct. Where new contracts are necessary, Manager shall recommend to the
Owner for its approval contracts from responsive and responsible contractors
for work to be performed according to written specifications developed by
Manager in consultation with the Owner. Manager shall assure that all
contractors are properly insured (and bonded, if appropriate) for the duration
of their contracts. Except for emergencies and those cases where the Owner
authorizes otherwise due to the size or nature of the contract, all contracts
and procurements shall be let by competitive bidding procedures. Manager, its
employees and the Property Staff shall disclose to the Owner the extent of any
financial interest that it or they may have in any firm or person providing
goods or services to the Owner pursuant to any such contracts. Manager shall
exploit fully all commonality of contracting and purchasing so as to accrue to
the Owner all possible benefits deriving from a unified procurement policy.

(b) Supervision and Enforcement. Manager shall supervise and
oversee the activities of all contractors, review the quality of their
workmanship, enforce contractors' warranties and approve all work and materials
prior to payment therefor.

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Section 3.03. Status Reports.

(a) Monthly Status Reports. Manager shall prepare and deliver
to the Owner within the prescribed time period set forth on Exhibit D-1 a
written Monthly Status Report in the form attached hereto as Exhibit D-1.

(b) Quarterly Status Reports. The Manager shall submit to the
Owner within 15 days following the end of each fiscal quarter, a report in the
form of Exhibit D-2 attached hereto.

(c) Annual Fiscal Year Status Reports. The Manager shall
submit to the Owner within 30 days following the end of each fiscal year, a
report in the form of Exhibit D-3 attached hereto.

(d) Annual Calendar Year Status Reports. The Manager shall
submit to the Owner within 15 days following the end of each calendar year, a
report in the form of Exhibit D-4 attached hereto.

(e) Other. Manager shall prepare and deliver to the Owner
such other reports and/or statements in such form as may reasonably be
requested by the Owner from time to time, which reports shall be delivered
within 30 days after request thereof (or as soon thereafter as is practicable).

Section 3.04. Records. Manager shall maintain and keep complete,
accurate and up-to-date all books and records of the Owner relating to each
Property including, without limitation, all accounting and financial records,
rent rolls, memoranda, correspondence, notices and all other such records as
may be appropriate or customary in connection with the leasing and operation of
the Property and the transaction of business with third parties including,
without limitation, suppliers, employees, labor unions and governmental or
municipal authorities. All of these records shall be kept and maintained
available for inspection at any and all reasonable times during normal business
hours by any person authorized in writing by the Owner, but not by others.

Section 3.05. Obligations Under Tenant Leases. Manager shall comply
with all requirements respecting the operation or maintenance of each Property
imposed upon the Owner as "landlord" under any lease for the Properties.
Manager's duties hereunder shall include, without limitation, the selection and
supervision of all contractors or others providing required tenant services or
performing tenant repair or capital improvement work at the Properties.

Section 3.06. Tenant Compliance. Manager shall monitor the performance
of all tenants and use its best efforts to secure the full compliance by
tenants with the terms and provisions of their leases. Manager shall inform
all tenants of such rules, regulations and notices as may be promulgated by the
Owner or Manager. Manager, at the expense of and using attorneys approved by
the Owner, may institute legal proceeding in its own name or in the name of the
Owner to collect rent, security deposits and other tenant charges, to oust or

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dispossess tenants or others occupying the Property and otherwise to enforce
the rights of the Owner with respect thereto. Manager shall secure the prior
written approval of the Owner before instituting legal proceedings or
compromising or settling any such claim or proceeding. Manager shall give the
Owner prompt written notice of all matters involving actual or threatened
litigation.

Section 3.07. Licensing. The Manager shall be responsible for
obtaining all licenses, permits or other authorizations (the "Permits")
necessary to operate each of the Properties as an assisted living or congregate
care facility (as the case may be) in the name of the Owner or such other name
as the Owner may designate. All amounts payable to state or local governmental
authorities with respect to the Permits for a Property, and all legal fees
incurred in connection with obtaining such Permits with the prior written
permission of the Owner, shall be paid by the Owner. Upon request, the Manager
shall provide such assistance as may be necessary in order to obtain Permits
for such other affiliate of the Owner with respect to any of the Properties,
whether such Permits are required by applicable law or are being requested at
the option of the Owner or the applicable affiliate.

ARTICLE IV

MAINTENANCE AND OPERATIONS

Section 4.01. Engineering Management Services.

(a) Benchmark Study. Upon the commencement of the Initial
Term, Manager shall perform a walk-through of each Property and shall note
corrective and deferred maintenance work or capital improvements required to be
performed. Promptly after the completion of such walk-through, Manager shall
prepare and deliver to the Owner a report containing the results of that study.

(b) Quarterly Inspections. Manager shall conduct physical
inspections of each Property at least quarterly unless the Owner reasonably
determines that a more frequent inspection is necessary. Specific problems
shall be investigated on an "as-needed" basis. Manager shall submit to the
Owner a written report containing findings, conclusions and recommendations of
actions to be taken to correct deficiencies noted during the inspections. This
quarterly inspection and report shall address deficiencies found in, among
other areas, the building foundations, exterior, roof, flashings, concrete
work, sidewalks, retaining walls, parking areas, gutter and downspout systems,
mechanical equipment and utility distribution systems.

(c) Engineering On-Site Inspections. At the request of the
Owner, and at the Owner's expense, Manager shall employ or retain a licensed,
experienced mechanical engineer or engineering firm to conduct engineering on-
site inspections of any Property. During each of these inspections, the
engineering firm shall: (i) inspect all mechanical

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equipment for corrective maintenance and other action that should be completed
by the Property Staff or outside contractors; (ii) review preventive
maintenance records, logs and other related records to evaluate work completed;
(iii) review energy practices; (iv) consult with the Property Staff on the
findings with regard to the foregoing items; and (v) submit to the Owner a
written, itemized report with respect to the foregoing immediately following
each inspection.

Section 4.02. Preventative Maintenance. To the extent that they are
within the Owner's possession, Owner shall provide to the Manager the current
preventative maintenance program for each Property. Manager shall review or
develop, as applicable, a program designed to keep each Property and all
installed mechanical and electrical systems in proper condition. Following the
Owner's review and approval of such program for each Property, Manager shall
maintain such program on a regular basis and such program shall reflect the
useful lives of the various components and items of equipment comprising the
Property. Manager shall establish and monitor a seasonal maintenance program
for the heating and cooling systems in the Property to assure that they are in
good working order and conserve utility consumption.

Section 4.03. Capital Improvements; Expansion.

(a) Predevelopment. Manager agrees within 3 months of the date of this
Agreement to undertake a feasibility study with respect to the expansion of the
Properties listed on Exhibit G and within 6 months of the date of this
Agreement to undertake a feasibility study with respect to each of the other
Properties. If, based upon the results of the study with respect to any
Property, Manager believes that such Property should be expanded or improved,
Manager shall recommend such action to the Owner. If the Owner decides to
proceed with the expansion of such Property, the Owner shall so notify the
Manager. Within 30 days from the date of receipt by the Manager of such
notice, the Manager shall prepare and deliver to the Owner a proposed budget
and schedule with respect to the Predevelopment Costs (as defined below) which
would be incurred in connection with the expansion of such Property. The
budget shall list each fee or other cost which will be incurred prior to the
commencement of the construction or renovation of the Property including,
without limitation, land use study, preconstruction plan, legal, licensure and
zoning, working drawings, environmental report, a market analysis and financing
plan (the "Predevelopment Costs"). Following approval of the budget and
schedule, by the Owner, the Manager shall, as Owner's agent, contract for each
of the services listed in the budget and the schedule and approved in writing
by the Owner (the "Predevelopment Services"). The Owner shall be responsible
for the payment of each of the Predevelopment Costs in accordance with the
budget. Following performance of the Predevelopment Services and based upon
the results thereof, the Manager shall develop a development plan (the
"Development Plan") which shall be submitted to the Owner.

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notify the Manager and the Manager shall, within thirty days of the date of
receipt of such notice contract as Owner's agent for each of the services
required pursuant to the Development Plan and Manager shall otherwise commence
the execution of the Development Plan. The Owner agrees to be responsible for
obtaining the financing, and shall be solely responsible for all liability
associated with such financing. Manager agrees to fund for the first year only
up to $170,000.00 with respect to all operating losses with respect to any
Property subject to development or expansion where operating costs (not
including financing costs) exceed revenue for such Property or portion of a
Property (the "Start Up Losses"). The Manager shall provide Owner with a
detailed accounting relating to the developed Property or expanded portion of a
Property. All Start Up Losses shall be funded from Manager's own funds and
shall not be paid from the Checking Account described in Section 5.03.

(c) Fee Compensation. Manager shall be paid a seven percent (7%)
development fee on the total project cost, which shall include the
Predevelopment Costs, all third party hard and soft costs set forth in the
Development Plan but excluding any third party financing costs (the "Total
Project Cost"). Following the completion of the construction of any expanded
or additional portions of a Property, such Property shall for all purposes
hereunder be deemed to be one of the Properties and the Manager shall receive
the same compensation with respect to such expanded Property or developed
Property as set forth on Exhibit B. Manager shall be entitled to receive
repayment of any Start Up Losses incurred with respect to any Property upon the
earlier of the sale or refinancing of such Property or the termination of this
Agreement.

(d) No Subcontracting. The management and coordination of the expansion
of any Property shall not be subcontracted by the Manager to any other person;
provided, however, that such management and coordination may be subcontracted
to Manager's affiliate, Capital Senior Development, Inc. provided that Manager
shall bear all costs of such subcontract arrangement.

Section 4.04. Personnel Training. Manager shall outline in writing the
training needs of the Property Staff and establish a training program that will
teach, maintain and improve the technical proficiency of each member in his or
her assigned job.

Section 4.05. Maintenance. Manager shall be responsible, at Owner's
expense, for maintaining the Properties according to standards at least
comparable to similar properties in the general areas in which they are
located. Manager's maintenance responsibilities shall include, without
limitation, interior cleaning, exterior window cleaning, painting, decorating,
grounds care and landscaping, plumbing, electrical repair, carpentry,
plastering and such other normal maintenance and repair work as may be
necessary. The areas and items to be maintained shall include, without
limitation, roofing, mechanical and other equipment, building exterior surfaces
(including windows), parking areas, sidewalks, gutters, walkways, hallways,
stairwells, storage rooms, the management office and all other related areas
including fencing, signs and lighting. The Property Staff shall, at least
weekly, conduct walk through inspections of these areas to assure that they are
receiving adequate and appropriate

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care. Manager shall supervise the work of the Property Staff to assure that it
is performed in accordance with the Owner's standards.

Section 4.06. Supervision of Contracts. Manager shall arrange for,
coordinate, supervise and enforce the conditions of all contracts necessary or
advisable for the proper operation of the Properties including, without
limitation, contracts for the maintenance and repair work described in Section
4.05 above and for water, sewer, electricity, telephone, vermin extermination,
trash removal, landscaping, heating fuels, air conditioner contractual
maintenance, and snow and ice removal. All such contracts shall be at the
Owner's expense. Such contracts entered into during the Term shall provide for
cancellation by the Owner without penalty upon 30 days written notice and shall
not terminate upon the termination of this Agreement, unless the Owner has
agreed otherwise in writing. Any such contracts in manager's possession at the
commencement of the Term which do not allow for such 30-day cancellation will
be identified by Manager and reported to the Owner within 30 days of the
commencement of operations. Further, Manager shall place orders for such
equipment, tools, appliances, materials, and supplies as are required to
adequately maintain and operate the Properties. Such equipment, tools,
appliances, supplies and materials shall be used only for operating,
maintaining and repairing the Properties, unless the cost thereof is prorated
on a basis satisfactory to the Owner.

Section 4.07. Service Requests. Manager shall maintain business-like
relations with tenants of the Properties and receive, record and take
appropriate action with respect to any service requests that may be made.
Complaints of a serious nature shall, after investigation, be reported to the
Owner in a timely manner, together with appropriate recommendations. Manager
shall make reasonable efforts to obtain full compliance by tenants for all
items of maintenance for which they are individually responsible. Scheduled
outages of water, electricity or other services shall be reported to the Owner
and to all tenants, individually, as promptly, fully and courteously as
possible and in a manner and at a time which are customary under the
circumstances or as may otherwise be required by applicable law. Unscheduled
material outages shall be reported to the Owner and the tenants as soon after
occurring as is reasonably possible.

Section 4.08. Emergencies.

(a) Services. To the extent that they are within Owner's
possession, Owner shall provide to the Manager details of the current 24-hour,
seven day-a-week maintenance emergency system and any system designed to be
responsive to emergencies (the "Emergency System"). Manager shall review or
develop, as applicable, the Emergency System for each Property and shall submit
such Emergency System to the Owner for the Owner's review and approval. An
emergency is defined as any condition of, in or acting on a Property which if
not responded to could injure or damage or impose a threat of injury or damage
to property or persons. The definition of an emergency includes, without
limitation, fire, flood, insufficient heat during winter weather, lack of hot
water and utility shut offs. Following the review of the Emergency System for
each Property submitted by the Manager, the Manager shall insure that

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<PAGE> 27
all appropriate Property Staff and Non-Property Staff are familiar with the
applicable Emergency System and shall undertake periodic reviews to insure that
such Emergency System is being complied with.

(b) Readiness. In addition to such programs as may be
required by applicable state or local law, rules or regulations, Manager shall
establish, with the approval of the Owner, a comprehensive program ensuring
that emergencies are dealt with by the Property Staff and outside agencies in a
manner in the best interests of the Owner and the Properties and in compliance
with applicable law. This responsibility shall include notification and
testing procedures as may be necessary.

Section 4.09. Regulatory Requirements. Manager shall take such action
as may be necessary to (a) obtain and maintain all licenses, permits and
approvals necessary for the operation and maintenance of the Properties and (b)
comply with all laws, ordinances, orders and requirements affecting each
Property (or the Owner or Manager in connection therewith) imposed by any
governmental or quasi-governmental authority having jurisdiction, including but
not limited to building codes, anti-discrimination laws, zoning and licensing
requirements affecting the Property. Manager shall give the Owner prompt
written notice of any violation or claimed violation of any such requirement.

Section 4.10. Inventory. Manager shall comply with and shall deliver
such reports and other information as may be required pursuant to the inventory
control system for all supplies and equipment used at each Property. The
Manager and the Owner shall from time to time, at Owner's request, monitor the
compliance by the Manager with the inventory control system and make such
amendments or modification to such system as the Owner may deem reasonably
necessary.

Section 4.11. Security. Manager shall consult with the Owner to plan,
arrange and supervise a comprehensive security program for each Property. This
program shall include, without limitation, that adequate communications
equipment is operable and available to the Property Staff and all Property
Staff are fully aware of their security responsibilities. Detailed security,
fire and safety procedures shall be developed and distributed to the Owner, all
tenants and the Property Staff. Manager shall maintain effective liaison with
local fire and police organizations and keep detailed logs covering all
security incidents. Manager shall promptly inform the Owner of all security
incidents and other material matters prejudicial to the security and safety of
any Property.

ARTICLE V

FINANCIAL MANAGEMENT

Section 5.01. Bank Account. Manager shall open and maintain, for each
Property, in a local bank selected by the Owner, a checking account (the
"Checking Account") for moneys

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<PAGE> 28
to be paid or received by Manager in connection with its duties hereunder. The
Checking Account shall be in the name determined by the Owner and the Owner
shall pay all costs (if any) charged by the bank for maintaining the account
including monthly service fees and the cost of blank checks; provided, however,
that Manager shall pay all costs charged by the bank on account of Manager's
errors or negligence in maintaining the Checking Account including, without
limitation, the maintenance of any necessary cash reserve therein. Manager
shall not deposit any of its funds to the Checking Account or otherwise
commingle its funds with the Owner's funds. Manager shall have authority to
endorse checks payable to the Owner and deposit funds paid or payable to the
Owner into the Checking Account.

Section 5.02. Collections and Deposits. Manager shall collect and
deposit in each Checking Account all rents, security deposits, late charges,
insurance and condemnation proceeds, fees, refunds and other monies due from
any source which are payable to the Owner in connection with the leasing and
operation of the related Property; provided, however, that Manager shall
deposit security deposits in bank accounts selected by and owned by Owner and
shall otherwise handle security deposits in accordance with applicable law.
All amounts deposited to the Checking Account shall be swept by the Manager
from the Checking Account on a regular basis into an Operating Expense Account
(herein so called) for such Property. Each Operating Expense Account shall be
in an FDIC insured bank approved by Owner and shall be owned by Owner. The
style of the Operating Expense Account shall be in the name of the Property
with designated representatives from Owner and Manager being the only parties
authorized to draw from said accounts.

-24-
<PAGE> 29
not incur any obligation in excess of $2,000 which is not specifically included
in the Budget, and neither shall Manager incur any substantial overrun of any
budgeted item without the Owner's prior written approval. Where an emergency
relating to a Property precludes Manager's obtaining the prior written consent
of the Owner, Manager shall make reasonable expenditures as necessary to abate
the emergency and shall use its best efforts to contact the Owner by telephone
or otherwise as soon as possible. Manager shall also notify the Owner in
writing of any such emergency expenditures within 24 hours thereafter. Except
as specifically authorized by the Owner, Manager will not incur any obligation
(whether or not in the Budget) which will exceed $10,000 or mature more than
one year after its creation. At least two but no more than three persons
(including Property Staff) shall be responsible for handling cash in order to
maintain adequate financial control procedures.

Section 5.04. Examinations and Audits of Accounts. The Checking
Accounts, the Operating Expense Accounts and any other accounts maintained by
Manager in the name of or for the benefit of the Owner may be examined by the
Owner or its designated representatives during normal business hours. The
Owner shall have the right to cause an audit of such accounts at any time at
its expense and Manager shall make its facilities available for, and cooperate
in, any such audit. In addition, Manager shall promptly supply to the Owner's
accountants, without charge therefor, all records or documents respecting any
Property that such accountant may request in connection with audits of the
Owner's accounts and preparation of necessary tax returns.

Section 5.05. Books and Records. Manager shall maintain, in a manner
consistent with generally accepted accounting principles, a system of books and
records that fully and accurately detail all financial transactions with
respect to the leasing and operation of each Property. Such books and records
shall be (a) the property of the Owner, (b) maintained at Manager's office at
the Property or at the Manager's corporate office, (c) available to the Owner
upon reasonable request and (d) delivered to the Owner upon the termination of
this Agreement.

Section 5.06. Budget.

(a) Annual Operating and Capital Budget. The Budget shall
serve as the major control under which Manager shall operate each Property and
there shall be no substantial deviations therefrom, excluding deviations for
such expenses as utilities, fuel, insurance and other expenses not within the
control of Manager, except as may be approved in writing by the Owner. No
expenses may be incurred and no commitments may be made by Manager in the name
of the Owner in connection with the maintenance and operation of any Property
in excess of the amounts allocated to the various classifications of expense in
the Budget for that Property, except as otherwise provided herein.

-25-
<PAGE> 30
herein called the "Budget"). Other than with respect to the budget for fiscal
year 1997, Manager shall submit to the Owner, at least 45 days prior to the end
of the Owner's fiscal year, a proposed budget for the next ensuing fiscal year.
Manager shall within ninety days of the date of this Agreement submit a budget
to the Owner for the period beginning on the date of this Agreement and ending
immediately prior to the end of the Owner's fiscal year 1997. The proposed
budget submitted by Manager shall include an analysis of repair and maintenance
needs, operating expenses and any capital improvements anticipated for that
period. Reserve fund requirements, adjusted for inflationary factors, shall
also be included on an updated cost basis in the proposed budget. Reasonable
supporting schedules shall be submitted with the proposed budget. The proposed
budget will reflect a "three (3) year cycle" and will be based on actual income
and expenses for the past completed year and projected income and expenses for
the current year and for the future year for which the Budget is being
prepared. Increases or decreases in actual or estimated amounts for income and
expense items shall also be shown as percentage increases or decreases. The
proposed budget also shall contain a forecast of cash flow for each month of
the budget period, an assessment of personnel needs for operating the Property,
a forecast of rental rates, an analysis of leases then in effect, and such
other supplemental information as may be reasonably required by the Owner.
Following the review and approval of a budget by the Owner, the Manager shall
implement such budget and perform in accordance therewith.

Section 5.07. Obligations for Expenses. All obligations and expenses
incurred by Manager in accordance with this Agreement shall be deemed to be
obligations and expenses of the Owner, the parties acknowledging that Manager
may engage, at the Owner's expense, independent contractors and service
providers as permitted under this Agreement, as may be usual and customary in
the circumstances in connection with the performance of Manager's duties
hereunder. The salaries and benefits of the Non-Property Staff of Manager
shall be paid by the Manager from its own funds. Manager shall be reimbursed
for any costs and expenses (other than those described in the immediately
preceding sentence) related to a Property, including, without limitation, those
for office supplies, postage, copying charges, telephone tolls, computer time,
travel and entertainment. Such reimbursement shall be paid monthly from the
Operating Expense Account and shall be limited to an amount equal to $90,000
during any consecutive twelve month period (or a pro rata amount for any period
less than twelve months) (the "Maximum Reimbursement Amount"). The Maximum
Reimbursement Amount shall be increased on August 31, 1997 and on each August
31 thereafter during the Term of this Agreement (a "Review Date") by the lesser
of (i) the percentage change in the CPI during the twelve months immediately
preceding such Review Date or (ii) 3%. For purposes of this Section, CPI
means the Consumer Price Index for Urban Wage Earners and Clerical Workers,
U.S. City Average (1967 = 100) Unadjusted, all items indexed published by the
Bureau of Labor Statistics, United States Department of Labor (the "Department
of Labor"). If the CPI shall cease to be compiled and published at any time
before an adjustment is to be calculated on a Review Date, but a comparable
successor index is compiled and published by the Department of Labor, the
adjustments under this Section shall be computed according to such successor
index, with such mutually agreed upon adjustments in the index to reflect any
difference in the method of computation used in the CPI. If on any Review Date,

-26-
<PAGE> 31
neither the CPI nor a comparable successor index is available from the
Department of Labor, the parties hereto shall mutually agree upon an index for
"all items" compiled and published by another branch of the federal government
or by an institution or organization generally recognized as an authority by
financial and insurance institutions to be used as a basis for such
calculations.

ARTICLE VI

MISCELLANEOUS

Section 6.01. No Partnership or Joint Venture. This Agreement is a
management agreement only and does not grant to Manager any ownership right or
interest in any of the Properties or any other property of the Owner pertaining
thereto. This Agreement is not intended to and does not constitute a
partnership or joint venture of any kind between the Owner and Manager with
respect to the operation of the Properties or any other matter.

Section 6.02. Notices. Any notice that is provided for in this
Agreement shall be in writing, shall be given either manually or by mail,
telegram, radiogram or cable, and shall be deemed sufficiently given if and
when received by the party to be notified at its address set forth below or if
and when mailed by registered or certified mail, postage prepaid, addressed to
such party at such address (any single notice given pursuant to this Section
6.02 to the address designated below for Manager shall be deemed as notice so
given to both the Manager and Guarantor). Any party and any representative
designated below may, by notice to the others, change its address for receiving
such notices. Refusal to accept such notice or inability to deliver such
notice on account of a change in address not given the other addressees shall
be deemed receipt of notice.

If to the Owner or any affiliate:

ILM I Lease Corporation,
c/o PaineWebber Properties Incorporated
265 Franklin Street, 16th Floor
Boston, Massachusetts 02110
Attn: John B. Watts, III

with a copy to:

Hunton & Williams
951 E. Byrd Street
Richmond, Virginia 23219
Attn: Kenneth J. Alcott, Esq.

-27-
<PAGE> 32
If to Manager or Guarantor:

Capital Senior Living, Inc., and
Capital Senior Management 2, Inc.
14160 Dallas Parkway
Suite 300
Dallas, Texas 75240
Attn: Keith Johannessen and
David Brickman

Section 6.03. Applicable Law. This Agreement shall be executed,
construed and performed in accordance with the laws of the Commonwealth of
Virginia.

Section 6.04. Successors and Assigns. This Agreement shall bind and
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that Manager shall not assign its rights or
delegate its duties hereunder to any party by operation of law, or otherwise,
and no shares of stock in the Manager shall be transferred without the prior
written consent of the Owner, which consent may be withheld in the Owner's sole
discretion. Notwithstanding the foregoing, Manager may, without Owner's
consent, enter into a merger transaction with Capital Senior Living, Inc. or an
affiliate or Capital Senior Living, Inc. or assign its rights and delegate its
duties hereunder to Capital Senior Living, Inc. or an affiliate of Capital
Senior Living, Inc., provided, however, that no such merger or assignment shall
relieve the Manager or the Guarantor from any of its obligations under this
Agreement. Any attempted assignment or delegation by Manager other than as
permitted hereby shall be void and of no force or effect. The Owner shall be
entitled, at any time during the Term and in its sole discretion, to assign its
rights and benefits under this Agreement to any entity which is an affiliate of
the Owner or of any shareholder thereof so long as such assignee assumes the
Owner's obligations hereunder and agrees to be bound by the terms and
conditions hereof.

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<PAGE> 33
Section 6.05. Confidentiality

(a) Confidential Information; Representatives. For purposes of this
Section:

(i) The term "Confidential Information" shall be deemed to
include all information concerning the Properties (including those Properties
with respect to which this Agreement has been terminated) and the Owner
(whether prepared by the Owner, its Representatives or otherwise and
irrespective of the form of communication) which is furnished to the Manager or
Representative of the Manager (collectively, the "Management Group") now or in
the future by the Owner or by its Representatives or is developed by the
Manager during the course of the performance of its duties hereunder, together
with all notes, analyses, compilations, studies, interpretations or other
documents prepared by any member of the Management Group which contain, reflect
or are based upon, in whole or in part, the information furnished to any member
of the Management Group pursuant hereto. The term "Confidential Information"
does not include information which (1) is or becomes generally available to the
public other than as a result of a disclosure in violation of this Agreement by
any member of the Management Group, or (2) as shown by written records, was
lawfully within the Management Group member's possession prior to its being
furnished to the Management Group member by or on behalf of the Owner or
developed by the Manager during the course of the performance of Manager's
duties hereunder, provided that the source of such information was not known by
such Management Group member to be bound by a confidentiality agreement with or
other contractual, legal or fiduciary obligation of confidentiality to the
Owner or any other party with respect to such information.

(ii) The term "Representatives" shall mean, collectively, and as
applicable, a person's directors, officers, employees, affiliates (as such term
is defined under the Securities Exchange Act of 1934, as amended), agents or
advisors (including, without limitation, attorneys, accountants, consultants,
bankers and financial advisors).

(b) Use of Confidential Information. The Manager hereby agrees that
each member of the Management Group shall use the Confidential Information
solely for the purpose of managing the Properties or otherwise performing or
assisting the Manager in the performance of its obligations under this
Agreement, that the Confidential Information will be kept confidential and that
no member of the Management Group will use the Confidential Information for any
other purpose or disclose any of the Confidential Information in any manner
whatsoever; provided, however, that the Manager may make any disclosure of the
Confidential Information to the extent that the Owner gives its prior written
consent. It is understood and agreed that the Manager shall inform each member
of the Management Group of the confidential nature of the Confidential
Information prior to delivery thereof to such person, and of the obligation to
not contact or communicate with the persons described above, and that by
receiving such materials, such member of the Management Group will be deemed to
have agreed to be bound by this Agreement. In any event, the Manager shall be
responsible for any breach of this Agreement by the Manager or by any member of
the Management Group, unless such Management Group member has signed a separate
Confidentiality

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<PAGE> 34
Agreement with the Owner, and the Manager agrees, at the Manager's sole
expense, to take all reasonable measures (including but not limited to court
proceedings) to restrain any member of the Management Group from prohibited or
unauthorized contacts or disclosure or use of the Confidential Information.
Notwithstanding any other provision of this Agreement, the foregoing
restriction shall continue in full force and effect throughout the Term and
following the termination of this Agreement.

(c) Remedies of Owner. The Manager agrees that the Owner shall be
entitled to equitable relief, including injunction and specific performance, in
the event of any breach of the provisions of this Section and that the Manager
shall not oppose the granting of such relief. The Manager also agrees that the
Manager will not seek and agrees to waive (and will use the Manager's
reasonable efforts to cause each Management Group member not to seek and to
waive) any requirement for the securing or posting of a bond in connection with
the Owner's seeking or obtaining such relief.

Section 6.06. Manager's Insignia. Except to the extent required by
applicable state or local laws, rules and regulations or as may be approved in
writing by the Owner, (i) the Manager shall not display signs, nameplates or
other insignia at any Property disclosing the Manager's name, its corporate
logo or any tradename or trademark (collectively, "Insignia") or identifying
the Manager as the operator of a Property or otherwise and (ii) all advertising
information, circulars, stationary or other printed materials used in the
operations of or distributed by each of the Properties shall be in the name of
and bear the corporate logo or other trademark of the Owner.

Section 6.07. Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersede all prior and contemporaneous negotiations, understandings and
agreements, written or oral, between the parties. This Agreement shall not be
amended or modified, and no waiver of any provision hereof shall be effective,
unless set forth in a written instrument authorized and executed with the same
formality as this Agreement.

Section 6.08. Captions, Gender, Number. The captions hereof are for
convenience of reference only and shall neither limit nor enlarge the
provisions hereof. All personal pronouns used herein, whether used in the
masculine, feminine or neuter gender, shall include all other genders. The
singular shall include the plural and vice versa unless the context requires
otherwise.

Section 6.09. Severability. If any provision hereof, or the
application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of the provisions hereof, or the
application of such provision to other persons or circumstances, shall not be
affected thereby, and each provision hereof shall be valid and enforceable to
the fullest extent permitted by law.

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<PAGE> 35
Section 6.10. Days. If any action is required to be performed, or if
any notice, consent or other communication is to be given, on a day that is a
Saturday or Sunday or a legal holiday in the jurisdiction in which the action
is required to be performed or in which is located the intended recipient of
such notice, consent or other communication, such performance shall be deemed
to be required, and such notice, consent or other communication shall be deemed
to be given, on the first business day following such Saturday, Sunday or legal
holiday. Unless otherwise specified herein, all references herein to a "day"
or "days" shall refer to calendar days and not business days.

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<PAGE> 36
WITNESS the following signatures.

OWNER:

ILM I LEASE CORPORATION

By: /s/ JOHN B. WATTS
--------------------------------------
Title: President
-------------------------------

MANAGER:

CAPITAL SENIOR MANAGEMENT 2, INC.
a Texas corporation.

By: /s/ DAVID R. BRICKMAN
--------------------------------------
Title: Vice President
-------------------------------

GUARANTOR:

CAPITAL SENIOR LIVING, INC.
a Texas corporation.

By: /s/ DAVID R. BRICKMAN
--------------------------------------
Title: Vice President
-------------------------------

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<PAGE> 37
EXHIBIT A

TO MANAGEMENT AGREEMENT

List of Properties

Independence Village
East Lansing, Michigan

Independence Village
Winston Salem, North Carolina

Independence Village
Peoria, Illinois

Independence Village
Raleigh, North Carolina

Sedgwick Plaza
Wichita, Kansas

Crown Pointe
Omaha, Nebraska

West Shores
Hot Springs, Arkansas

Villa Santa Barbara
Santa Barbara California
<PAGE> 38
EXHIBIT B

FEES AND COMPENSATION OF MANAGER

1. Base Management Fee. Owner shall pay Manager a fee in the amount of 4%
of the monthly Gross Operating Revenue recognized during each month of the Term
with respect to the Properties ("Base Management Fee"). The Base Management
Fee shall be payable monthly in arrears on the fifteenth day of each month or,
if such day is not a business day, the immediately succeeding business day (a
"Payment Date"). For purposes hereof, "Gross Operating Revenue" shall mean,
with respect to a Property, all revenue from whatever source derived except (i)
proceeds from the sale, refinancing, assignment or other disposition of all or
any portion of the Property, (ii) security deposits, advance rents or amounts
paid by reason of the breach of any lease, license, concession or similar
agreement (unless and until such deposits or payments shall have been applied
by the Owner to the payment of current or past due fixed rent), (iii) proceeds
from any casualty insurance policies or condemnation awards except payments
under policies for business or rental interruption, all as calculated pursuant
to generally accepted accounting principles.

2. Incentive Management Fee. As additional compensation for Manager's
performance of its obligations hereunder, Owner agrees to pay to Manager an
Incentive Management Fee (as hereinafter defined). The Incentive Management
Fee shall be payable monthly in arrears on each Payment Date. The aggregate
amount of the Incentive Management Fee payable during each fiscal year during
the Term of this Agreement shall be calculated following the preparation of the
audited financial statements of the Owner for such fiscal year. Any amount due
to or owing by the Manager as a result of such calculation may be deducted from
or added to any amounts payable to the Manager on any succeeding Payment Date
or, if there is no succeeding Payment Date, by certified check. The Incentive
Management Fee shall be an amount equal to twenty-five percent (25%) of the
amount, if any, by which the average monthly Net Cash Flow for each property
for the twelve (12) month period ending on the last day of each calendar month
(a "Calculation Date") exceeds the Base Amount. The Base Amount for each
property for the period commencing on the date of this Agreement and ending
August 31, 1997 shall be the amount set forth below:

<TABLE>
<CAPTION>
Annual Monthly
Base Base Percent
ILM I Amount Amount of Fund
------ ------ -------
<S> <C> <C> <C>
Crown Pointe 1,079,190 89,933 14.6%
East Lansing 1,283,230 106,936 17.4%
Peoria 1,026,683 85,557 13.9%
Raleigh 1,246,988 103,916 16.9%
Sedgwick Plaza 951,523 79,294 12.9%
Villa Santa Barbara (25%) 239,178 19,931 3.2%
West Shores 734,261 61,188 9.9%
Winston Salem 826,555 68,880 11.2%
-----
</TABLE>
<PAGE> 39
Each August 31 (the "Anniversary Date") the Base Amount shall be increased by
(i) the percentage increase in the CPI at the end of such twelve (12) month
period ending on such Anniversary Date, provided, however, that the percentage
increase in any twelve (12) month period shall not exceed three percent (3%)
and (ii) 15% of the sum of (A) the Total Project Cost and (B) the development
fees paid to Manager, incurred in connection with the development of any of the
Properties during such twelve month period and actually paid or expended during
such period.

For purposes hereof, "Net Cash Flow" shall mean, with respect to any
period, the profit or loss generated by the Property for such period,
determined in accordance with generally accepted accounting principles
consistently applied, but subject to Section 1.06(b) and the following
adjustments. The Net Cash Flow shall be:

(i) increased by the sum of:

(A) to the extent included in the computation of such profit or
loss;

(1) depreciation, amortization and other non-cash charges
included in the computation of such profit or loss; and

(2) expenses incurred during such period but not paid
during such period; and

(B) to the extent not otherwise included in the computation of
such profit or loss:

(1) payments with respect to the Property from the
proceeds of business and rental interruption insurance;
and

(2) revenues received during such period;

(ii) reduced by the sum of:

(A) to the extent not otherwise included in the computation of
such profit or loss:

(1) expenses paid during such period except for any such
payments made out of the proceeds from any sale,
refinancing, condemnation, casualty, assignment or other
disposition of all or any part of the Properties;

(2) a management fee of 4.5%; and

(3) actual cash expenditures for ordinary and routine
capital improvements at the Property; and
<PAGE> 40
(B) to the extent included in the computation of such profit or
loss, revenues recognized during such period but for which
payment was not received during such period.

(iii) all gains and losses from, and proceeds from, the sale,
refinancing, condemnation, casualty, assignment or other disposition of all or
any part of the Property (other than the proceeds of any business or rental
interruption insurance or eminent domain awards or payments to compensate for
lost rentals in respect of any period) shall be excluded from the computation
of Net Cash Flow.
<PAGE> 41
EXHIBIT C

TO MANAGEMENT AGREEMENT

Budget Items
<PAGE> 42
EXHIBIT D

TO MANAGEMENT AGREEMENT

D-1 FORM OF MONTHLY STATUS REPORT

The monthly status report will be provided within 15 days after the end of each
month and will include the following reports:

Reports for each Property:

(a) Accrual basis operating statement (Income and Expense Statement) showing
figures for the current month, year-to-date and comparison with budget
(b) Balance sheet
(c) General ledger

Summary reports for all Properties in the Fund:

1. Occupancy percentage history report including occupancy for each
Property and the weighted average occupancy percentage for all
Properties in the Fund. Report will compare current period to previous
period, to the same period one year ago and to the occupancy levels at
transfer of management.
2. Accrual basis operating statement totaling operation of all Properties
in the Fund (Income and Expense Statement) showing figures for the
current month, year-to-date and comparison with budget
3. Balance sheet totaling all Properties in the Fund
4. Capital expenditure status report by Property with Fund totals,
including a breakdown of capital improvements in process and those
completed during the month by Property, type of asset and amount
5. Narrative report recommending corrective actions and other capital items
to be approved for the following month as well as any upcoming
significant expenditures

An additional monthly status report will be provided within 20 days after the
end of the month and will include the following reports for each Property:

1. Narrative explanations of significant variations from budget
2. Rent roll
3. Detailed occupancy/leasing report with summary information about move-
ins and move-outs
4. Report of accidents and other mishaps
5. Summary of staff turnover
6. General information regarding Property operations (legislation,
governmental decisions, tax rulings, insurance, financial and other
practices) which come to Manager's attention in the normal course of
business
7. Accounts payable
<PAGE> 43
8. Cash receipts and cash disbursements journals
9. Copy of journal entries (as may be requested by the Owner from time to
time)
10. Copy of bank statement(s)
11. Bank reconciliation(s)
12. Detailed Management Fee invoices and corporate expense distribution
report
13. Rent proof report (includes outstanding balance at beginning of month,
current charges, cash received and month-end balance per tenant)

D-2 FORM OF QUARTERLY STATUS REPORT

Manager will submit the following reports within 15 days after the end of each
fiscal quarter (fiscal quarters ending November 30, February 28, May 31, August
31):

1. Economic occupancy summary for the quarter for each Property and the
weighted average for all Properties in the Fund with comparisons to the
previous quarter and to the same quarter one year ago
2. One-paragraph narrative description of each Property's operations for
the quarter including:

o Changes in occupancy levels
o Planned changes in property operations
o Changes in local market conditions (new competition, etc.)
o Changes in, or results of, ongoing marketing strategies
o Other events of interest

D-3 FORM OF ANNUAL FISCAL YEAR STATUS REPORT

Manager will submit reports as required to assist independent auditing firm
with annual audit including preparation of audited work paper packages

D-4 FORM OF ANNUAL CALENDAR YEAR STATUS REPORT

Within 15 days after the end of the calendar year, Manager will submit
operating statements for each Property and a summary totaling the operations of
all of the Properties in the Fund for the calendar year for preparation of
Forms 1099 and calendar-year tax returns
<PAGE> 44
EXHIBIT E

TO MANAGEMENT AGREEMENT

Form of Rent Roll
(included in Form E-1)
<PAGE> 45
EXHIBIT F

TO MANAGEMENT AGREEMENT

List of Non-Property Staff

Keith Johannessen - President
Fred Tanner - Executive Vice President
James Bloomquist - Vice President, Capital Senior
Development, Inc.
Rob Goodpaster - National Marketing Director
David Brickman - Vice President
Robert Hollister - Controller
Marilyn Teel - Regional Manager
Lesley Tejada - Regional Executive Director
Gary Vasquez - Regional Executive Director
Laurie Okeon - Regional Executive Director
<PAGE> 46
EXHIBIT G

TO MANAGEMENT AGREEMENT

Properties on Which Feasibility Study Will Be Conducted Within Three Months
- --------------------------------------------------------------------------------
Hot Springs, Arkansas

Omaha, Nebraska

<PAGE> 1
EXHIBIT 10.28

MANAGEMENT AGREEMENT

DATED AS OF JULY 29, 1996

BETWEEN

ILM II LEASE CORPORATION,

AS OWNER

AND

CAPITAL SENIOR MANAGEMENT 2, INC.,

AS MANAGER

AND

CAPITAL SENIOR LIVING, INC.

AS GUARANTOR
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I

GENERAL PROVISIONS

Section 1.01. Employment as Exclusive Leasing Agent and Manager . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Manager's Duties Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.03. Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.04. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.05. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.06. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1.07. Plans and Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.08. Ethical Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.09. Cooperation and Consultation with Third Parties . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.10. Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.11. Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.12. Real Estate Tax Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.13. Policies and Procedures Manual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

ARTICLE II

LEASING

Section 2.01. Manager's Duties Generally As Leasing Agent . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.02. Negotiation and Execution of Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.03. Liaison with Tenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.04. Marketing of Rental Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.05. Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

ARTICLE III

ADMINISTRATIVE SUPPORT

Section 3.01. Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.02. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.03. Status Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.04. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.05. Obligations Under Tenant Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.06. Tenant Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.07. Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>

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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV

MAINTENANCE AND OPERATIONS

Section 4.01. Engineering Management Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.02. Preventative Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.03. Capital Improvements; Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.04. Personnel Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.05. Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.06. Supervision of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.07. Service Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.08. Emergencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.09. Regulatory Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.10. Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.11. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

ARTICLE V

FINANCIAL MANAGEMENT

Section 5.01. Bank Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.02. Collections and Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.03. Disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.04. Examinations and Audits of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.05. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.06. Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.07. Obligations for Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

ARTICLE VI

MISCELLANEOUS

Section 6.01. No Partnership or Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.03. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.04. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.05. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.06. Manager's Insignia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.07. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.08. Captions, Gender, Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.09. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.10. Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>

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<PAGE> 4
EXHIBIT A
TO MANAGEMENT AGREEMENT

List of Properties

EXHIBIT B
TO MANAGEMENT AGREEMENT

Fees and Compensation of Manager

EXHIBIT C
TO MANAGEMENT AGREEMENT

Budget

EXHIBIT D
TO MANAGEMENT AGREEMENT

D-1 Form of Monthly Status Report
D-2 Form of Quarterly Status Report
D-3 Form of Annual Fiscal Year Status Report
D-4 Form of Annual Calendar Year Status Report

EXHIBIT E
TO MANAGEMENT AGREEMENT

Form of Rent Roll

EXHIBIT F
TO MANAGEMENT AGREEMENT

List of Non-Property Staff

EXHIBIT G
TO MANAGEMENT AGREEMENT

Properties on Which Feasibility Study
Will Be Conducted Within Three Months

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<PAGE> 5
MANAGEMENT AGREEMENT

THIS AGREEMENT, dated as of July 29, 1996, by and between ILM II LEASE
CORPORATION, a Virginia corporation (the "Owner"), and CAPITAL SENIOR
MANAGEMENT 2, INC., a Texas corporation (the "Manager") and CAPITAL SENIOR
LIVING, INC., a Texas corporation (the "Guarantor"), recites and provides:

RECITALS

WHEREAS, the Owner leases the real estate and related personal
property described on Exhibit A hereto (collectively, the "Properties" and each
individually, a "Property").

WHEREAS, each of the Properties is operated as an assisted living or
congregate care facility;

WHEREAS, the Manager has experience and expertise in the management of
assisted living and congregate care facilities;

WHEREAS, the Owner wishes the Manager to manage the Properties, and
the Manager desires to do so, pursuant to the terms and conditions set forth in
this Agreement.

AGREEMENT

ARTICLE I

GENERAL PROVISIONS

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<PAGE> 6
Section 1.02. Manager's Duties Generally.

(a) Manager shall assist the Owner in the leasing,
management, operation, supervision, control and administration of the
Properties and, by its execution hereof, Manager accepts the relationship of
trust and confidence established between itself and the Owner. In accepting
its employment hereunder, Manager shall (i) perform its responsibilities
hereunder with the same or a greater degree of diligence, competence and care
exercised by leading real estate brokers, agents and managers of facilities of
the same or similar type as the Properties in the general areas in which the
Properties are located and (ii) act with due care in its management of the
Owner's funds and property and avoid conflicts of interest or self dealing that
would be detrimental to the interests of the Owner. In addition to the
obligations expressly provided for in this Agreement, Manager shall do such
other things on behalf of the Owner that are consistent with this Agreement,
necessary or appropriate, in the judgment of the Owner, and communicated to the
Manager, for the proper and profitable operation of the Properties.

(b) Without limiting the restrictions placed upon the
Manager pursuant to Subsection (a), the Manager hereby agrees that:

(ii) during the Term of this Agreement and for a
period of two years thereafter, neither the Manager nor any Affiliate will, in
connection with any assisted living or congregate care facility (as the case
may be) in which it directly or indirectly owns an interest or which it
manages, solicit any of the tenants of the Properties or interfere, either
directly or

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<PAGE> 7
indirectly, in any manner, with any relationship between the tenants of the
Properties and their landlord(s).

(iii) for a period of two years after the expiration
of this Agreement, neither the Manager nor any Affiliate will solicit any of
the Property Staff (as defined in Section 3.01) or interfere, either directly
or indirectly, in any manner, with their employment by the Owner, another
lessee or owner of the Properties, or the successor to the Manager, as
applicable.

(c) If any provision of this Section is deemed invalid by
a court of competent jurisdiction, the covenants contained herein shall be
applicable and enforceable for such lesser period of time and for such lesser
activity included within such limitations, as such court may then or thereafter
determine to be reasonable and proper under the circumstances.

(d) In the event that any provision hereof is deemed to
be unenforceable, the remainder of this Section shall not be affected thereby
and each provision hereof shall be valid and enforced to the fullest extent
permitted by law.

(e) The Manager hereby acknowledges that the damages the
Owner would sustain in the event of any violation of the provisions of this
Section are difficult or impossible to ascertain. Accordingly, the Manager
hereby agrees that the Owner shall be entitled, in addition to any other remedy
or damages available to it in the event of any such violation, to injunctive
relief to restrain such violation by the Manager and any person or entity
acting for or with the Manager.

Section 1.03. Term of Agreement. The initial term of this Agreement
(the "Initial Term") shall commence on July 29, 1996 and shall continue through
either (i) December 31, 2000 (except for the Property known as Villa Santa
Barbara, located in Santa Barbara, California, for which the "Initial Term"
shall continue through December 31, 1999) or (ii) in the event that that
certain Facilities Lease Agreement dated as of September 1, 1995 between ILM II
Holding, Inc. and the Owner (the "Facilities Lease") is extended for any period
following December 31, 2000, the earlier of (A) five years from the date of
this Agreement or (B) the period during which the Facilities Lease is extended.
Unless the Owner gives the Manager notice of termination of this Agreement at
least thirty days prior to the expiration of the Initial Period, upon the
expiration of the Initial Term, this Agreement shall extend automatically for
additional one month periods (the "Renewal Terms") until terminated as provided
herein (the Initial Term as extended through any Renewal Terms, herein referred
to as the "Term"). If the Owner gives the Manager notice of termination of
this Agreement thirty days prior to the expiration of the Initial Period, this
Agreement shall terminate and no additional fees shall be payable hereunder.

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<PAGE> 8
Section 1.04. Compensation. As compensation for Manager's
performance of its obligations hereunder, the Owner agrees to pay to Manager
the fees for each Property as set forth on Exhibit B attached hereto.

Section 1.05. Termination.

(i) Manager's gross negligence or wilful misconduct
in the performance of its duties under this Agreement;

(ii) The revocation of any license or permit
necessary for the performance by Manager of its duties hereunder or for the
operation of any of the Properties as congregate care or assisted living
facilities, as the case may be, or Manager's failure to keep any such license
or permit in force for any reason whatsoever which license or permit is not
reinstated before a material adverse impact or effect on the operation of the
affected Property or Properties or, if later, the expiration of sixty days
after Manager is initially notified of such revocation or failure by applicable
authorities or the Owner;

(iii) The violation by Manager of any material
provision of this Agreement, provided, however, that no default shall be deemed
to have occurred if the Manager cures such violation within thirty days after
the Owner's written notice to Manager of such violation;

(iv) The violation by Manager of any material
provision of that certain Management Agreement, of even date herewith, between
Manager and ILM I Lease Corporation (the "ILM I Agreement") relating to
properties leased by ILM I Lease Corporation ("ILM I"), which violation
entitles ILM I under the ILM I Agreement to terminate such ILM I Agreement;

(v) The entry by a court of competent jurisdiction
of a decree or order for relief in respect of Manager, the Guarantor or either
of Jeffrey Beck or James Stroud (the "Shareholders") in an involuntary case or
proceeding under any bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, trustee or similar official of Manager, the Guarantor or
the Shareholders or of all or any substantial part of the property of any of
them, or ordering the reorganization of Manager or the Guarantor or the winding
up of either of their affairs or liquidation of either of their property, and
such decree or order shall continue unstayed and in effect for a period of 30
days; or

(vi) The consent or acquiescence by Manager, the
Guarantor or either of the Shareholders to the entry of any decree or order
described in Subsection 1.05(a)(v) hereof,

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<PAGE> 9
the commencement by Manager or the Guarantor of a voluntary case or proceeding
under any bankruptcy, insolvency or similar law, the making by Manager or the
Guarantor of any general assignment for the benefit of creditors, or Manager's
or the Guarantor's failure or admission in writing of its inability to pay its
debts as they become due.

Manager shall notify the Owner in writing of the occurrence of any of the
events specified in Sections 1.05(a)(i)-(vi) above promptly after it first
learns of such event.

(b) Termination Without Cause. Subject to compliance
with Section 2 (Right of Offer) of that certain Agreement of even date herewith
between PaineWebber Independent Living Mortgage Inc. II, ILM II Holding, Inc.,
Owner and Manager, the Owner may terminate this Agreement with respect to any
or all of the Properties by delivering a Notice of Termination to the Manager
thirty days prior to (i) the sale to an unaffiliated third party of such
Property by the owner thereof, or (ii) the transfer to an unaffiliated third
party of 50 percent or more of the ownership interest in ILM II Holding, Inc.,
or PaineWebber Independent Living Mortgage Inc. II.

(i) Within ten business days following the date of
any Notice of Termination, Manager shall provide the Owner with the following
items to facilitate the transfer of leasing and management responsibilities to
the Owner or its designee in a comprehensive and professional manner:

(A) A schedule of termination activities
including notices to vendors, contractors and banks and meetings with the
successor entity responsible for the leasing and management of the Properties;

(B) An itemized statement of the amounts
due hereunder from the Owner to the Manager;

(C) An itemized statement of the amounts
due suppliers of services and goods which have been ordered by Manager in the
name of the Owner;

(D) An itemized statement of all
accounts receivable due the Owner from any source; and

(E) A list of all records, reports,
financial statements, files and similar materials in Manager's possession
related to the Properties.

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<PAGE> 10
(ii) On the Effective Date of the Notice of
Termination, Manager shall:

(A) Deliver to the Owner all funds
collected and held for the account of the Owner including, without limitation,
passbook accounts, negotiable and investment instruments, demand deposits and
petty cash, whether any of the foregoing is received before or after the
termination hereof;

(B) Deliver to the Owner all property
and documents and all records, reports, files and similar materials relating to
the Properties;

(C) Assign to the Owner, or its
designee, all contracts not otherwise in the name of the Owner relating to the
operation or leasing of any of the Properties and assign, to the extent
transferable, to the Owner, or its designee, all applicable licenses and
permits necessary to operate the Properties as congregate care or assisted
living (as the case may be) facilities;

(D) Deliver to the Owner a complete list
of all contracts, agreements and obligations entered into or incurred by
Manager on behalf of the Owner during the Term hereof; and

(E) Furnish such other information and
take such other actions as the Owner shall reasonably require to transfer
Manager's leasing and management responsibilities to the Owner or its designee.

(iv) Manager's obligation to deliver to the Owner or
its designee the items described in this Section 1.05(c) shall be a continuing
obligation with respect to any of those items that may be in or come into
Manager's possession or control on or after the effective date of termination
of this Agreement.

(v) Manager shall cooperate fully with the Owner or
its designee in the transfer of, or in obtaining, all applicable licenses and
permits necessary to operate the Properties as congregate care or assisted
living (as the case may be) facilities and of management, leasing and licensing
operational responsibilities to the Owner or such designee.

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<PAGE> 11
and at which the Owner thereafter commences operations as an assisted living or
congregate care facility, as the case may be, prior to the termination of this
Agreement with respect to all of the Properties, Manager shall have the option
to re-commence providing services at such Property pursuant to the terms
hereof. For purposes hereof, a "Casualty or Condemnation Event" shall mean
damage to a Property by fire, smoke, lightning, wind storm, explosion, riot,
vandalism, malicious mischief, theft and such other casualty hazards and risks
to the extent that the Property cannot, in the Manager's or Owner's (as the
case may be) reasonable judgment, be economically operated as the type of
facility it was prior to such casualty and (i) such casualty occurred within 24
months of the end of the Term, or (ii) such casualty is an event for which
insurance coverage is not required under Section 1.06 and a condemnation or
taking by eminent domain which is either (i) 50% or more of the Property
(measured by any of gross area, rentable square footage or number of rental
units) or (ii) such portion or portions of the Property so that the portion
remaining cannot, in the Manager's or Owner's (as the case may be) reasonable
judgement, be economically operated as the type of facility it was prior to the
taking.

(e) Partial Termination. In the event that this
Agreement is terminated with respect to one or more, but less than all, of the
Properties, the term "Properties" shall thereafter refer only to such remaining
Properties.

(g) Effect of Termination. No termination of this
Agreement shall affect any obligation owing by either party hereto to the other
which accrued prior to the Effective Date of the Notice of Termination.

Section 1.06. Insurance.

(a) Owner's Insurance Coverage. The Manager will obtain
at Owner's sole cost and expense the following coverage for the Owner with
respect to the Properties. Owner retains the right to procure all such
insurance for itself should it see fit rather than having the Manager procure
such insurance on behalf of Owner.

(i) Building Insurance. The Manager shall obtain
a building and contents insurance policy with comprehensive all risk coverage
with respect to the buildings and personal property components of the
Properties (including, without limitation, any such personal property
components owned by Manager) and which shall not exclude the following: fire,
lighting, extended coverage, theft, flood, earthquake (where available),
vandalism, sprinkler leakage, water damage, collapse and debris removal.

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<PAGE> 12
The amount of such insurance shall not be less than the full
replacement cost except where sublimits are appropriate (and a replacement cost
endorsement shall be provided for these purposes permitting payment of the loss
without a requirement to rebuild) as determined by an insurance appraisal or
such other valuation with provisions for the use of indexes at interim dates to
increase the value for inflation.

The policy shall contain an endorsement called an "Agreed Amount
Endorsement" which shall waive any and allcoinsurance provisions under the
policy as it applies to the coverage.

(ii) Business Interruption and Loss of Rent
Insurance. The Manager shall obtain a business interruption and loss of rent
insurance policy with coverage against all of the risks referred to in
Subsection (a)(i) above. The insurance shall be in an amount equal to not less
than 100% of the annual rent roll schedules of the Properties covering all
tenants and shall be endorsed to cover unoccupied and unleased space at pro
forma rents and shall include gross budgeted revenues for all other activities.
The policy shall contain an Agreed Amount Endorsement waiving all coinsurance
provisions.

(iii) Comprehensive General Liability Insurance.
This policy shall include coverage for claims arising from bodily injury,
personal injury, and property damage occurring upon, in, or about each of the
Properties. The coverage shall be on an occurrence basis, and the minimum
limits shall be not less than $1,000,000. Coverage for liquor law liability
shall also be included if required by law.

(iv) Umbrella Liability Coverage. A policy shall
be obtained, providing coverage in an amount equal to at least $10,000,000 in
excess of the coverage to be maintained pursuant to Subsection (iii) of this
Section 1.06(a).

(v) Additional Insurance. Owner shall have the
right to require Manager to obtain and maintain, if requested in writing and at
Owner's sole cost and expense, such other insurance as Owner may from time to
time deem reasonably necessary, and which insurance is normal and customary for
other operations of improved property similar to the Properties.

(vi) Priority of Coverage. Owner's insurance will
be primary as to any insurance carried by Manager, and any such coverage of
Manager will be excess insurance to the extent that Manager is acting within
the scope of its duties under this Agreement.

(b) Manager's Operational Insurance Coverage. Throughout
the Term of this Agreement, the Manager shall procure and maintain, at Owner's
sole cost and expense,

-8-
<PAGE> 13
the following insurance coverage. Owner retains the right to procure all such
insurance for itself or the Manager, as appropriate, should it see fit rather
than having the Manager procure such insurance; provided, however, that to the
extent that the Manager identifies such insurance coverage which otherwise
conforms with the requirements of this Section 1.06 but the Owner procures such
insurance pursuant hereto which is other than that so identified by Manager,
"Net Cash Flow," as calculated pursuant to Exhibit B, will be calculated
assuming insurance costs equal to the premiums and costs applicable to the
coverage so identified by the Manager to the extent such premiums and costs are
less than those applicable to the coverage so procured by the Owner.

(iv) Employee Dishonesty Insurance. Employee
dishonesty insurance with respect to the Property Staff and any agents against
employee dishonesty in an amount not less than the greater of (A) One Million
Five Hundred Thousand Dollars ($1,500,000.00) or (B) an amount equal to the
average monthly receipts from all of the Properties;

(v) Professional Liability Insurance.
Professional liability insurance in an amount equal to at least $1,000,000 with
respect to bodily injury, property damage or personal injury arising out of
professional acts, errors or omissions;

(vi) Fiduciary Liability Insurance. In the event
that the Manager makes any employee benefit plan available to the Property
Staff, fiduciary liability insurance in an amount equal to at least $1,000,000
with respect to claims alleging breach of fiduciary obligations under the
Employment Retirement Income Security Act of 1974 and any acts, errors or
omissions committed in connection with the administration of any employee
benefit plans for the Property Staff;

(vii) Employment Practices Insurance. Employment
practices insurance in an amount equal to at least $1,000,000 with respect to
lawsuits brought by

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<PAGE> 14
employees alleging wrongful discharge, discrimination, harassment or other
employment related exposure with respect to the Property Staff; and

(viii) Umbrella Liability Coverage. A policy shall
be obtained, providing coverage in an amount equal to at least $10,000,000 in
excess of the coverage to be maintained pursuant to Subsections (i) through
(vii) of this Section 1.06(b).

(ix) Other Insurance. Such other insurance as may
be carried at similar properties as Owner may from time to time reasonably deem
necessary in connection with or for the performance of Manager's duties
hereunder.

(c) Manager's Insurance Coverage. Throughout the Term
of this Agreement, the Manager shall procure and maintain, at Manager's sole
cost and expense, the following insurance coverage:

(i) Comprehensive General Liability Insurance.
Comprehensive general liability insurance which includes coverage for all
Non-Property Staff (as defined in Section 3.01(b)) and if Manager is found to
be acting outside the scope of his duties under this Agreement, with minimum
limits of at least $1,000,000 per occurrence for bodily injury, personal injury
and property damage;

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<PAGE> 15
Million Five Hundred Thousand Dollars ($1,500,000.00) or (B) an amount equal to
the average monthly receipts from all of the Properties;

(vii) Fiduciary Liability Insurance. Fiduciary
liability insurance in an amount equal to at least $1,000,000 with respect to
claims alleging breach of fiduciary obligations under the Employment Retirement
Income Security Act of 1974 and any acts, errors or omissions committed in
connection with the administration of any employee benefit plans made available
to the Non-Property Staff;

(ix) Other Insurance. Such other insurance as may
be carried at similar properties as Owner may from time to time reasonably deem
necessary in connection with or for the performance of Manager's duties
hereunder.

(e) Policy Requirements. The policies described in
Subsections (a) through (c) above shall be in form and substance satisfactory
to the Owner and with insurance companies that are acceptable to Owner,
reputable and properly licensed in each State in which they propose to effect
coverage. Manager shall furnish Owner with certificates of insurance or
certified copies of each of the insurance polices required to be obtained and
maintained by Manager pursuant to the terms of this Agreement. The insurance
policies required pursuant to Subsection (a) shall be in the name of the Owner
with the Manager named as an additional insured party. The insurance policies
required pursuant to Subsections (b) and (c) shall be in the name of the
Manager with the Owner named as an additional insured party. Each insurance
policy required by this Section shall provide that such policies shall not be
canceled or otherwise modified without 45 days' prior written notice to Owner.
At least fifteen days prior to the extension of any such policy Manager shall
furnish Owner with evidence that the insurance policies required hereunder have
been renewed. Manager shall in all cases obtain the Owner's prior written
approval before obtaining, renewing, canceling or modifying the coverages under
any insurance policies required hereunder. Manager shall make periodic reports
and recommendations to the Owner regarding the adequacy of the then current
insurance policies and provide the Owner with adequate warning of any potential
lapses in coverage of which Manager becomes aware.

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<PAGE> 16
(f) Waiver of Subrogation. Owner and Manager hereby
waive and release any and all claims either may have or acquire against the
other by way of subrogation or otherwise, for any loss or damage occasioned by
the negligence of either of them or their respective agents, employees,
contractors, licensees or invitees, which results in any loss or damage to
person or property and which is fully insured against by either Owner or
Manager in accordance with the terms of this Agreement. Each party agrees to
obtain from its respective insurance carriers waiver of subrogation
endorsements to all such insurance policies maintained hereunder (excluding
workmen's compensation or employer's liability insurance) providing that each
insurance carrier waives its right of subrogation against the other party in
the event of any loss or damage which is fully insured against pursuant to the
provisions of this Agreement. In the event that such endorsements cannot be
obtained and the mutual waiver contained herein would invalidate any such
insurance policy, then the provisions of this Subsection (f) shall be
inapplicable to such insurance policy.

(h) Compliance With Insurance Requirements. Manager
shall use its best efforts to assure that each Property is not used for any
purpose which may void or impair, or increase the premium payable under, any
policy of insurance held by Owner pursuant to the terms of this Section 1.06,
or which may render any loss under any such policy uncollectible.

(i) Insurance Claims. Manager shall promptly report to
Owner, and the insurance agent, broker or adjustor designated by Owner, all
damages, accidents or claims relating to the ownership, maintenance or
operation of any Property and shall cooperate with such agent, broker or
adjustor in connection with its investigation thereof and its reporting to the
appropriate insurance carrier. Manager shall not compromise or settle any
claims against insurance carriers without the prior written approval of Owner.

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<PAGE> 17
management, operation and valuation of any Property and, in any such case,
Manager shall cooperate fully with such persons and, within the authority
invested in such persons, communicate all information requested and advise and
consult with them in good faith.

Section 1.10. Indemnities. Subject to the provisions of Section 1.06
hereof, the Owner shall indemnify and hold Manager harmless from and against
all loss, cost, expense, claims and liability arising out of or in connection
with the management, operation and leasing of the Property, except for acts of
Manager which constitute a breach of the provisions of this Agreement or are
otherwise outside the scope of its employment and Manager's own negligence or
misconduct (such acts together referred to as "Unauthorized Acts"). Subject to
the provisions of Section 1.06 hereof, Manager shall indemnify and hold the
Owner harmless from and against all loss, cost, expense, claims and liability
arising out of or in connection with Manager's Unauthorized Acts.

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<PAGE> 18
ARTICLE II

LEASING

ARTICLE III

ADMINISTRATIVE SUPPORT

Section 3.01. Personnel.

(a) Property Staff. Based upon the Budget, job
standards, wage rates and the applicable Plan of Operation (as defined in
Subsection (c), below), Manager shall recruit,

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<PAGE> 19
hire, train, supervise and discharge all on-site management, administrative,
maintenance, cleaning and other personnel, including, without limitation, the
Property director or administrator (collectively, the "Property Staff")
necessary to properly manage, administer, repair, maintain and otherwise
operate each Property. The Property Staff may be full-time, part-time,
temporary or contract personnel. The Property Staff shall be employees of
Manager and not the Owner, provided, however, that the costs of such Property
Staff shall be paid from the Owner's funds. Manager shall pay wages and
required payroll taxes and all costs and expenses of such Property Staff from
the Owner's funds and shall make provision at the Owner's expenses for employee
group benefits as agreed upon by the Owner. Manager will abide by all local,
state and federal laws, regulations and guidelines in administering the
payroll. Manager will cause to be prepared and filed all forms, reports and
returns as required by law in connection with unemployment insurance, workers'
compensation insurance, withholding tax, social security and other similar
taxes now in effect. In addition Manager shall take such actions as may be
necessary to comply with the provisions of wage, hour, health, safety, income
tax, social security, unemployment compensation, workman's compensation and
similar laws, regulations and requirements relating to the Property Staff.
Manager shall, at the request of Owner, provide Owner with the then-current
list of Property Staff.

(b) Manager's Personnel. The Manager shall maintain
sufficient personnel to fulfill its obligations hereunder. Prior to the
commencement of its duties hereunder, Manager shall provide the Owner with a
listing of the personnel which it intends to employ in connection with the
obligations to be performed by Manager hereunder (the "Non- Property Staff"),
together with a job description for each member of the Non-Property Staff. The
Owner and the Manager shall mutually agree upon the personnel required by the
Manager to fulfill its obligations hereunder. The Manager shall, upon the
request of Owner, provide Owner with a list of the then-current Non-Property
Staff. The Owner shall have no authority to provide directions to the Managers
employees or to terminate such employees employment by the Manager. Nothing in
this section is intended or shall be construed to make any person employed by
the Manager an employee of the Owner, to influence the hiring decisions of the
Manager or to alter the relationship between the Owner and Manager of
independent contractor. The Manager acknowledges that in entering into this
Agreement the Owner is relying upon the experience and capabilities of the
employees of the Manager and the Shareholders. Accordingly, the Manager agrees
to maintain each of positions listed on Exhibit F to this Agreement (the
"Positions") and shall not eliminate or change any of the Positions without the
prior written consent of the Owner. The initial occupants of each of the
Positions are listed on Exhibit F and the Manager agrees to keep each of the
Positions permanently occupied during the Term by personnel with experience and
capabilities similar or superior to the individuals listed on Exhibit F (the
"Personnel"), with any vacancies in any such Positions occurring during such
Term to be filled on a timely basis. The Manager shall notify the Owner of any
change in the Personnel and shall supply the Owner with information which is
reasonably sufficient to demonstrate the calibre and experience of any
replacement Personnel.

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<PAGE> 20
(c) Plan of Operation. The Owner shall provide to
Manager and the Manager shall review the current plan of operation (if any) for
each Property. The revised plan of operation for each Property or, in the
event that there is no existing plan of operation, a plan of operation
developed by the Manager (the "Plan of Operation") shall be (i) describe each
of the services to be supplied to tenants at such Property, (ii) list all
Property Staff that will be required at such Property in order to provide such
services to the tenants, to provide management and administrative services for
such Property (other than such administrative services as are to be provided by
the Manager hereunder) or to maintain the Property. The Plan of Operation for
each Property shall be submitted to the Owner thirty days after the
commencement of the Manager's duties hereunder and must be approved by the
Owner in writing within thirty days following receipt thereof. The Owner and
the Manager shall review the Plan of Operation for each Property not less than
annually and shall amend the Plan of Operation from time to time as
appropriate.

(d) Job Descriptions. To the extent that they are within
the Owner's possession, Owner shall provide to Manager and Manager shall review
or develop job descriptions for all Property Staff positions based upon the
Plan of Operation. Manager shall furnish the job descriptions, along with job
performance standards, to the Owner to delineate clearly between Manager's
exclusive responsibilities which are to be performed by the Non-Property Staff,
and those responsibilities that are delegated by Manager to the Property Staff.

Section 3.02. Contracts.

(a) Renewal and Execution. Manager shall be familiar
with the provisions of, and provide to the Owner copies of, all material
contracts affecting the leasing, management or operation of each Property. At
least sixty (60) days prior to the scheduled termination of any of these
contracts, Manager shall recommend to the Owner whether such contracts should
be renewed, modified or canceled, and renew, modify or cancel such contracts as
the Owner may direct. Where new contracts are necessary, Manager shall
recommend to the Owner for its approval contracts from responsive and
responsible contractors for work to be performed according to written
specifications developed by Manager in consultation with the Owner. Manager
shall assure that all contractors are properly insured (and bonded, if
appropriate) for the duration of their contracts. Except for emergencies and
those cases where the Owner authorizes otherwise due to the size or nature of
the contract, all contracts and procurements shall be let by competitive
bidding procedures. Manager, its employees and the Property Staff shall
disclose to the Owner the extent of any financial interest that it or they may
have in any firm or person providing goods or services to the Owner pursuant to
any such contracts. Manager shall exploit fully all commonality of contracting
and purchasing so as to accrue to the Owner all possible benefits deriving from
a unified procurement policy.

(b) Supervision and Enforcement. Manager shall supervise
and oversee the activities of all contractors, review the quality of their
workmanship, enforce contractors' warranties and approve all work and materials
prior to payment therefor.

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Section 3.03. Status Reports.

(a) Monthly Status Reports. Manager shall prepare and
deliver to the Owner within the prescribed time period set forth on Exhibit D-1
a written Monthly Status Report in the form attached hereto as Exhibit D-1.

(b) Quarterly Status Reports. The Manager shall submit
to the Owner within 15 days following the end of each fiscal quarter, a report
in the form of Exhibit D-2 attached hereto.

(c) Annual Fiscal Year Status Reports. The Manager shall
submit to the Owner within 30 days following the end of each fiscal year, a
report in the form of Exhibit D-3 attached hereto.

(d) Annual Calendar Year Status Reports. The Manager
shall submit to the Owner within 15 days following the end of each calendar
year, a report in the form of Exhibit D-4 attached hereto.

(e) Other. Manager shall prepare and deliver to the
Owner such other reports and/or statements in such form as may reasonably be
requested by the Owner from time to time, which reports shall be delivered
within 30 days after request thereof (or as soon thereafter as is practicable).

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<PAGE> 22
using attorneys approved by the Owner, may institute legal proceeding in its
own name or in the name of the Owner to collect rent, security deposits and
other tenant charges, to oust or dispossess tenants or others occupying the
Property and otherwise to enforce the rights of the Owner with respect thereto.
Manager shall secure the prior written approval of the Owner before instituting
legal proceedings or compromising or settling any such claim or proceeding.
Manager shall give the Owner prompt written notice of all matters involving
actual or threatened litigation.

ARTICLE IV

MAINTENANCE AND OPERATIONS

Section 4.01. Engineering Management Services.

(a) Benchmark Study. Upon the commencement of the
Initial Term, Manager shall perform a walk- through of each Property and shall
note corrective and deferred maintenance work or capital improvements required
to be performed. Promptly after the completion of such walk-through, Manager
shall prepare and deliver to the Owner a report containing the results of that
study.

(b) Quarterly Inspections. Manager shall conduct
physical inspections of each Property at least quarterly unless the Owner
reasonably determines that a more frequent inspection is necessary. Specific
problems shall be investigated on an "as-needed" basis. Manager shall submit
to the Owner a written report containing findings, conclusions and
recommendations of actions to be taken to correct deficiencies noted during the
inspections. This quarterly inspection and report shall address deficiencies
found in, among other areas, the building foundations, exterior, roof,
flashings, concrete work, sidewalks, retaining walls, parking areas, gutter and
downspout systems, mechanical equipment and utility distribution systems.

(c) Engineering On-Site Inspections. At the request of
the Owner, and at the Owner's expense, Manager shall employ or retain a
licensed, experienced mechanical

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<PAGE> 23
engineer or engineering firm to conduct engineering on-site inspections of any
Property. During each of these inspections, the engineering firm shall: (i)
inspect all mechanical equipment for corrective maintenance and other action
that should be completed by the Property Staff or outside contractors; (ii)
review preventive maintenance records, logs and other related records to
evaluate work completed; (iii) review energy practices; (iv) consult with the
Property Staff on the findings with regard to the foregoing items; and (v)
submit to the Owner a written, itemized report with respect to the foregoing
immediately following each inspection.

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<PAGE> 24
Section 4.03. Capital Improvements; Expansion.

(a) Predevelopment. Manager agrees within 3 months of the date of
this Agreement to undertake a feasibility study with respect to the expansion
of the Properties listed on Exhibit G and within 6 months of the date of this
Agreement to undertake a feasibility study with respect to each of the other
Properties. If, based upon the results of the study with respect to any
Property, Manager believes that such Property should be expanded or improved,
Manager shall recommend such action to the Owner. If the Owner decides to
proceed with the expansion of such Property, the Owner shall so notify the
Manager. Within 30 days from the date of receipt by the Manager of such
notice, the Manager shall prepare and deliver to the Owner a proposed budget
and schedule with respect to the Predevelopment Costs (as defined below) which
would be incurred in connection with the expansion of such Property. The
budget shall list each fee or other cost which will be incurred prior to the
commencement of the construction or renovation of the Property including,
without limitation, land use study, preconstruction plan, legal, licensure and
zoning, working drawings, environmental report, a market analysis and financing
plan (the "Predevelopment Costs"). Following approval of the budget and
schedule, by the Owner, the Manager shall, as Owner's agent, contract for each
of the services listed in the budget and the schedule and approved in writing
by the Owner (the "Predevelopment Services"). The Owner shall be responsible
for the payment of each of the Predevelopment Costs in accordance with the
budget. Following performance of the Predevelopment Services and based upon
the results thereof, the Manager shall develop a development plan (the
"Development Plan") which shall be submitted to the Owner.

(b) Development. Following the receipt by Owner of the Development
Plan for a Property, the Owner shall determine whether to proceed with the
construction at such Property. If the Owner approves the commencement of such
construction, the Owner shall notify the Manager and the Manager shall, within
thirty days of the date of receipt of such notice contract as Owner's agent for
each of the services required pursuant to the Development Plan and Manager
shall otherwise commence the execution of the Development Plan. The Owner
agrees to be responsible for obtaining the financing, and shall be solely
responsible for all liability associated with such financing. Manager agrees
to fund for the first year only up to $170,000.00 with respect to all operating
losses with respect to any Property subject to development or expansion where
operating costs (not including financing costs) exceed revenue for such
Property or portion of a Property (the "Start Up Losses"). The Manager shall
provide Owner with a detailed accounting relating to the developed Property or
expanded portion of a Property. All Start Up Losses shall be funded from
Manager's own funds and shall not be paid from the Checking Account described
in Section 5.03.

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<PAGE> 25
be one of the Properties and the Manager shall receive the same compensation
with respect to such expanded Property or developed Property as set forth on
Exhibit B. Manager shall be entitled to receive repayment of any Start Up
Losses incurred with respect to any Property upon the earlier of the sale or
refinancing of such Property or the termination of this Agreement.

(d) No Subcontracting. The management and coordination of the
expansion of any Property shall not be subcontracted by the Manager to any
other person; provided, however, that such management and coordination may be
subcontracted to Manager's affiliate, Capital Senior Development, Inc. provided
that Manager shall bear all costs of such subcontract arrangement.

Section 4.04. Personnel Training. Manager shall outline in writing
the training needs of the Property Staff and establish a training program that
will teach, maintain and improve the technical proficiency of each member in
his or her assigned job.

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operating, maintaining and repairing the Properties, unless the cost thereof is
prorated on a basis satisfactory to the Owner.

Section 4.08. Emergencies.

Section 4.09. Regulatory Requirements. Manager shall take such
action as may be necessary to (a) obtain and maintain all licenses, permits and
approvals necessary for the operation and maintenance of the Properties and (b)
comply with all laws, ordinances, orders and requirements affecting each
Property (or the Owner or Manager in connection therewith) imposed by any
governmental or quasi-governmental authority having jurisdiction, including but
not limited to building codes, anti-discrimination laws, zoning and licensing
requirements

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affecting the Property. Manager shall give the Owner prompt written notice of
any violation or claimed violation of any such requirement.

Section 4.11. Security. Manager shall consult with the Owner to
plan, arrange and supervise a comprehensive security program for each Property.
This program shall include, without limitation, that adequate communications
equipment is operable and available to the Property Staff and all Property
Staff are fully aware of their security responsibilities. Detailed security,
fire and safety procedures shall be developed and distributed to the Owner, all
tenants and the Property Staff. Manager shall maintain effective liaison with
local fire and police organizations and keep detailed logs covering all
security incidents. Manager shall promptly inform the Owner of all security
incidents and other material matters prejudicial to the security and safety of
any Property.

ARTICLE V

FINANCIAL MANAGEMENT

Section 5.01. Bank Account. Manager shall open and maintain, for
each Property, in a local bank selected by the Owner, a checking account (the
"Checking Account") for moneys to be paid or received by Manager in connection
with its duties hereunder. The Checking Account shall be in the name
determined by the Owner and the Owner shall pay all costs (if any) charged by
the bank for maintaining the account including monthly service fees and the
cost of blank checks; provided, however, that Manager shall pay all costs
charged by the bank on account of Manager's errors or negligence in maintaining
the Checking Account including, without limitation, the maintenance of any
necessary cash reserve therein. Manager shall not deposit any of its funds to
the Checking Account or otherwise commingle its funds with the Owner's funds.
Manager shall have authority to endorse checks payable to the Owner and deposit
funds paid or payable to the Owner into the Checking Account.

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on a regular basis into an Operating Expense Account (herein so called) for
such Property. Each Operating Expense Account shall be in an FDIC insured bank
approved by Owner and shall be owned by Owner. The style of the Operating
Expense Account shall be in the name of the Property with designated
representatives from Owner and Manager being the only parties authorized to
draw from said accounts.

Section 5.03. Disbursements. On the 15th day of each calendar month
or, if such day is not a business day, the immediately succeeding business day,
the Manager shall deliver to the Owner a check representing all amounts in the
Operating Expense Account (after allowing for outstanding checks written and
deposits made pursuant to this Agreement which had not yet cleared such
Operating Expense Account) in excess of the sum of (i) the amounts to be
expended or disbursed by the Manager with respect to the Properties during such
calendar month as set forth in the Budget; (ii) amounts expended in any prior
month in excess of the amount specified in the Budget with respect to which the
Manager has not yet been reimbursed and which have been approved in writing by
the Owner; and (iii) a cushion equal to 5% of the aggregate amount to be
expended in accordance with the Budget in the immediately succeeding month or
such other amount as may be designated by the Owner. Manager shall pay out of
the Operating Expense Account for each Property all operating expenses of such
Property in accordance with the Budget for such Property, as permitted by this
Agreement or as otherwise approved in writing by the Owner. Manager shall
hold, remit or expend the funds in the Checking Accounts and Operating Expense
Accounts according to the Budget or the directions of the Owner. The funds in
the Checking Accounts and Operating Expense Accounts shall not be co-mingled
with funds from any other projects or facilities managed or operated by Manager
and Manager shall compile detailed records concerning all transactions relating
to the Checking Accounts and Operating Expense Accounts and shall promptly
deliver to Owner copies of all statements or other correspondence received by
Manager with respect to such Checking Accounts and Operating Expense Accounts.
Except in emergencies, Manager shall not incur any obligation in excess of
$2,000 which is not specifically included in the Budget, and neither shall
Manager incur any substantial overrun of any budgeted item without the Owner's
prior written approval. Where an emergency relating to a Property precludes
Manager's obtaining the prior written consent of the Owner, Manager shall make
reasonable expenditures as necessary to abate the emergency and shall use its
best efforts to contact the Owner by telephone or otherwise as soon as
possible. Manager shall also notify the Owner in writing of any such emergency
expenditures within 24 hours thereafter. Except as specifically authorized by
the Owner, Manager will not incur any obligation (whether or not in the Budget)
which will exceed $10,000 or mature more than one year after its creation. At
least two but no more than three persons (including Property Staff) shall be
responsible for handling cash in order to maintain adequate financial control
procedures.

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<PAGE> 29
cooperate in, any such audit. In addition, Manager shall promptly supply to
the Owner's accountants, without charge therefor, all records or documents
respecting any Property that such accountant may request in connection with
audits of the Owner's accounts and preparation of necessary tax returns.

Section 5.06. Budget.

(a) Annual Operating and Capital Budget. The Budget
shall serve as the major control under which Manager shall operate each
Property and there shall be no substantial deviations therefrom, excluding
deviations for such expenses as utilities, fuel, insurance and other expenses
not within the control of Manager, except as may be approved in writing by the
Owner. No expenses may be incurred and no commitments may be made by Manager
in the name of the Owner in connection with the maintenance and operation of
any Property in excess of the amounts allocated to the various classifications
of expense in the Budget for that Property, except as otherwise provided
herein.

(b) Budget Preparation. Manager shall prepare for the
Owner's written approval operating and capital budgets for each Property
addressing each of the items listed on Exhibit C attached hereto (with the
Owner-approved budget in effect from time to time being herein called the
"Budget"). Other than with respect to the budget for fiscal year 1997, Manager
shall submit to the Owner, at least 45 days prior to the end of the Owner's
fiscal year, a proposed budget for the next ensuing fiscal year. Manager shall
within ninety days of the date of this Agreement submit a budget to the Owner
for the period beginning on the date of this Agreement and ending immediately
prior to the end of the Owner's fiscal year 1997. The proposed budget
submitted by Manager shall include an analysis of repair and maintenance needs,
operating expenses and any capital improvements anticipated for that period.
Reserve fund requirements, adjusted for inflationary factors, shall also be
included on an updated cost basis in the proposed budget. Reasonable
supporting schedules shall be submitted with the proposed budget. The proposed
budget will reflect a "three (3) year cycle" and will be based on actual income
and expenses for the past completed year and projected income and expenses for
the current year and for the future year for which the Budget is being
prepared. Increases or decreases in actual or estimated amounts for income and
expense items shall also be shown as percentage increases or decreases. The
proposed budget also shall contain a forecast of cash flow for each month of
the budget period, an assessment of personnel needs for operating the Property,
a forecast of rental rates, an analysis of leases then in effect, and such
other supplemental information as may be reasonably required by the

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Owner. Following the review and approval of a budget by the Owner, the Manager
shall implement such budget and perform in accordance therewith.

Section 5.07. Obligations for Expenses. All obligations and expenses
incurred by Manager in accordance with this Agreement shall be deemed to be
obligations and expenses of the Owner, the parties acknowledging that Manager
may engage, at the Owner's expense, independent contractors and service
providers as permitted under this Agreement, as may be usual and customary in
the circumstances in connection with the performance of Manager's duties
hereunder. The salaries and benefits of the Non-Property Staff of Manager
shall be paid by the Manager from its own funds. Manager shall be reimbursed
for any costs and expenses (other than those described in the immediately
preceding sentence) related to a Property, including, without limitation, those
for office supplies, postage, copying charges, telephone tolls, computer time,
travel and entertainment. Such reimbursement shall be paid monthly from the
Operating Expense Account and shall be limited to an amount equal to $60,000
during any consecutive twelve month period (or a pro rata amount for any period
less than twelve months) (the "Maximum Reimbursement Amount"). The Maximum
Reimbursement Amount shall be increased on August 31, 1997 and on each August
31 thereafter during the Term of this Agreement (a "Review Date") by the lesser
of (i) the percentage change in the CPI during the twelve months immediately
preceding such Review Date or (ii) 3%. For purposes of this Section, CPI
means the Consumer Price Index for Urban Wage Earners and Clerical Workers,
U.S. City Average (1967 = 100) Unadjusted, all items indexed published by the
Bureau of Labor Statistics, United States Department of Labor (the "Department
of Labor"). If the CPI shall cease to be compiled and published at any time
before an adjustment is to be calculated on a Review Date, but a comparable
successor index is compiled and published by the Department of Labor, the
adjustments under this Section shall be computed according to such successor
index, with such mutually agreed upon adjustments in the index to reflect any
difference in the method of computation used in the CPI. If on any Review Date,
neither the CPI nor a comparable successor index is available from the
Department of Labor, the parties hereto shall mutually agree upon an index for
"all items" compiled and published by another branch of the federal government
or by an institution or organization generally recognized as an authority by
financial and insurance institutions to be used as a basis for such
calculations.

ARTICLE VI

MISCELLANEOUS

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Section 6.02. Notices. Any notice that is provided for in this
Agreement shall be in writing, shall be given either manually or by mail,
telegram, radiogram or cable, and shall be deemed sufficiently given if and
when received by the party to be notified at its address set forth below or if
and when mailed by registered or certified mail, postage prepaid, addressed to
such party at such address (any single notice given pursuant to this Section
6.02 to the address designated below for Manager shall be deemed as notice so
given to both the Manager and Guarantor). Any party and any representative
designated below may, by notice to the others, change its address for receiving
such notices. Refusal to accept such notice or inability to deliver such
notice on account of a change in address not given the other addressees shall
be deemed receipt of notice.

If to the Owner or any affiliate:

ILM II Lease Corporation,
c/o PaineWebber Properties Incorporated
265 Franklin Street, 16th Floor
Boston, Massachusetts 02110
Attn: John B. Watts, III

with a copy to:

Hunton & Williams
951 E. Byrd Street
Richmond, Virginia 23219
Attn: Kenneth J. Alcott, Esq.

If to Manager or Guarantor:

Capital Senior Living Inc., and
Capital Senior Management 2, Inc.
14160 Dallas Parkway
Suite 300
Dallas, Texas 75240
Attn: Keith Johannessen and
David Brickman

Section 6.03. Applicable Law. This Agreement shall be executed,
construed and performed in accordance with the laws of the Commonwealth of
Virginia.

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<PAGE> 32
sole discretion. Notwithstanding the foregoing, Manager may, without Owner's
consent, enter into a merger transaction with Capital Senior Living, Inc. or an
affiliate or Capital Senior Living, Inc. or assign its rights and delegate its
duties hereunder to Capital Senior Living, Inc. or an affiliate of Capital
Senior Living, Inc., provided, however, that no such merger or assignment shall
relieve the Manager or the Guarantor from any of its obligations under this
Agreement. Any attempted assignment or delegation by Manager other than as
permitted hereby shall be void and of no force or effect. The Owner shall be
entitled, at any time during the Term and in its sole discretion, to assign its
rights and benefits under this Agreement to any entity which is an affiliate of
the Owner or of any shareholder thereof so long as such assignee assumes the
Owner's obligations hereunder and agrees to be bound by the terms and
conditions hereof.

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<PAGE> 33
Section 6.05. Confidentiality

(a) Confidential Information; Representatives. For purposes of
this Section:

(ii) The term "Representatives" shall mean, collectively, and
as applicable, a person's directors, officers, employees, affiliates (as such
term is defined under the Securities Exchange Act of 1934, as amended), agents
or advisors (including, without limitation, attorneys, accountants,
consultants, bankers and financial advisors).

(b) Use of Confidential Information. The Manager hereby agrees
that each member of the Management Group shall use the Confidential Information
solely for the purpose of managing the Properties or otherwise performing or
assisting the Manager in the performance of its obligations under this
Agreement, that the Confidential Information will be kept confidential and that
no member of the Management Group will use the Confidential Information for any
other purpose or disclose any of the Confidential Information in any manner
whatsoever; provided, however, that the Manager may make any disclosure of the
Confidential Information to the extent that the Owner gives its prior written
consent. It is understood and agreed that the Manager shall inform each member
of the Management Group of the confidential nature of the Confidential
Information prior to delivery thereof to such person, and of the obligation to
not contact or communicate with the persons described above, and that by
receiving such materials, such member of the Management Group will be deemed to
have agreed to be bound by this Agreement. In any event, the Manager shall be
responsible for any breach of this Agreement by the Manager or by any member of
the Management Group, unless such Management Group member has signed a separate
Confidentiality

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<PAGE> 36
WITNESS the following signatures.

OWNER:

ILM I LEASE CORPORATION

By: /s/ JOHN B. WATTS
--------------------------------------
Title: President
-------------------------------

MANAGER:

CAPITAL SENIOR MANAGEMENT 2, INC.
a Texas corporation.

By: /s/ DAVID R. BRICKMAN
--------------------------------------
Title: Vice President
-------------------------------

GUARANTOR:

CAPITAL SENIOR LIVING, INC.
a Texas corporation.

By: /s/ DAVID R. BRICKMAN
--------------------------------------
Title: Vice President
-------------------------------

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<PAGE> 37
EXHIBIT A

TO MANAGEMENT AGREEMENT

List of Properties

Crown Villa
Omaha, Nebraska

Overland Park Place,
Overland Park, Kansas

The Palms,
Fort Myers, Florida

Rio Las Palmas
Stockton, California

Villa at Riverwood
St. Louis County, Missouri

Villa Santa Barbara
Santa Barbara, California
<PAGE> 38
EXHIBIT B

FEES AND COMPENSATION OF MANAGER

1. Base Management Fee. Owner shall pay Manager a fee in the amount of
4% of the monthly Gross Operating Revenue recognized during each month of the
Term with respect to the Properties ("Base Management Fee"). The Base
Management Fee shall be payable monthly in arrears on the fifteenth day of each
month or, if such day is not a business day, the immediately succeeding
business day (a "Payment Date"). For purposes hereof, "Gross Operating
Revenue" shall mean, with respect to a Property, all revenue from whatever
source derived except (i) proceeds from the sale, refinancing, assignment or
other disposition of all or any portion of the Property, (ii) security
deposits, advance rents or amounts paid by reason of the breach of any lease,
license, concession or similar agreement (unless and until such deposits or
payments shall have been applied by the Owner to the payment of current or past
due fixed rent), (iii) proceeds from any casualty insurance policies or
condemnation awards except payments under policies for business or rental
interruption, all as calculated pursuant to generally accepted accounting
principles.

<TABLE>
<CAPTION>
Annual Monthly
Base Base Percent
ILM II Amount Amount of Fund
------ ------ -------
<S> <C> <C> <C>
Crown Villa 610,714 50,848 12.2%
Overland Park Place 1,023,810 85,318 20.5%
The Palms 1,075,844 89,654 21.6%
Rio Las Palmas 866,739 72,228 17.4%
The Villa at Riverwood 693,291 57,774 13.9%
Villa Santa Barbara (75%) 717,533 59,794 14.4%
-----
</TABLE>

Each August 31 (the "Anniversary Date") the Base Amount shall be increased by
(i) the percentage increase in the CPI at the end of such twelve (12) month
period ending on such
<PAGE> 39
Anniversary Date, provided, however, that the percentage increase in any twelve
(12) month period shall not exceed three percent (3%) and (ii) 15% of the sum
of (A) the Total Project Cost and (B) the development fees paid to Manager,
incurred in connection with the development of any of the Properties during
such twelve month period and actually paid or expended during such period.

For purposes hereof, "Net Cash Flow" shall mean, with respect to any
period, the profit or loss generated by the Property for such period,
determined in accordance with generally accepted accounting principles
consistently applied, but subject to Section 1.06 (b) and the following
adjustments. The Net Cash Flow shall be:

(i) increased by the sum of:

(A) to the extent included in the computation of such
profit or loss;

(1) depreciation, amortization and other
non-cash charges included in the computation
of such profit or loss; and

(2) expenses incurred during such period but
not paid during such period; and

(B) to the extent not otherwise included in the
computation of such profit or loss:

(1) payments with respect to the Property
from the proceeds of business and rental
interruption insurance; and

(2) revenues received during such period;

(ii) reduced by the sum of:

(A) to the extent not otherwise included in the
computation of such profit or loss:

(1) expenses paid during such period except
for any such payments made out of the
proceeds from any sale, refinancing,
condemnation, casualty, assignment or other
disposition of all or any part of the
Properties;

(2) a management fee of 4.5%; and

(3) actual cash expenditures for ordinary and
routine capital improvements at the Property;
and

(B) to the extent included in the computation of such
profit or loss, revenues recognized during such
period but for which payment was not received during
such period.
<PAGE> 40
(iii) all gains and losses from, and proceeds from, the sale,
refinancing, condemnation, casualty, assignment or other disposition of all or
any part of the Property (other than the proceeds of any business or rental
interruption insurance or eminent domain awards or payments to compensate for
lost rentals in respect of any period) shall be excluded from the computation
of Net Cash Flow.
<PAGE> 41
EXHIBIT C

TO MANAGEMENT AGREEMENT

Budget Items
<PAGE> 42
EXHIBIT D

TO MANAGEMENT AGREEMENT

D-1 FORM OF MONTHLY STATUS REPORT

The monthly status report will be provided within 15 days after the end of each
month and will include the following reports:

Reports for each Property:

(a) Accrual basis operating statement (Income and Expense Statement)
showing figures for the current month, year- to-date and comparison
with budget
(b) Balance sheet
(c) General ledger

Summary reports for all Properties in the Fund:

1. Occupancy percentage history report including occupancy for each
Property and the weighted average occupancy percentage for all
Properties in the Fund. Report will compare current period to
previous period, to the same period one year ago and to the occupancy
levels at transfer of management.
2. Accrual basis operating statement totaling operation of all Properties
in the Fund (Income and Expense Statement) showing figures for the
current month, year-to-date and comparison with budget
3. Balance sheet totaling all Properties in the Fund
4. Capital expenditure status report by Property with Fund totals,
including a breakdown of capital improvements in process and those
completed during the month by Property, type of asset and amount
5. Narrative report recommending corrective actions and other capital
items to be approved for the following month as well as any upcoming
significant expenditures

An additional monthly status report will be provided within 20 days after the
end of the month and will include the following reports for each Property:

1. Narrative explanations of significant variations from budget
2. Rent roll
3. Detailed occupancy/leasing report with summary information about
move-ins and move-outs
4. Report of accidents and other mishaps
5. Summary of staff turnover
6. General information regarding Property operations (legislation,
governmental decisions, tax rulings, insurance, financial and other
practices) which come to Manager's attention in the normal course of
business
7. Accounts payable
<PAGE> 43
8. Cash receipts and cash disbursements journals
9. Copy of journal entries (as may be requested by the Owner from time to
time)
10. Copy of bank statement(s)
11. Bank reconciliation(s)
12. Detailed Management Fee invoices and corporate expense distribution
report
13. Rent proof report (includes outstanding balance at beginning of month,
current charges, cash received and month-end balance per tenant)

D-2 FORM OF QUARTERLY STATUS REPORT

Manager will submit the following reports within 15 days after the end of each
fiscal quarter (fiscal quarters ending November 30, February 28, May 31, August
31):

1. Economic occupancy summary for the quarter for each Property and the
weighted average for all Properties in the Fund with comparisons to
the previous quarter and to the same quarter one year ago
2. One-paragraph narrative description of each Property's operations for
the quarter including:

o Changes in occupancy levels
o Planned changes in property operations
o Changes in local market conditions (new
competition, etc.)
o Changes in, or results of, ongoing marketing
strategies
o Other events of interest

D-3 FORM OF ANNUAL FISCAL YEAR STATUS REPORT

Manager will submit reports as required to assist independent auditing firm
with annual audit including preparation of audited work paper packages

D-4 FORM OF ANNUAL CALENDAR YEAR STATUS REPORT

TO MANAGEMENT AGREEMENT

Form of Rent Roll
(included in Form E-1)
<PAGE> 45
EXHIBIT F

TO MANAGEMENT AGREEMENT

List of Non-Property Staff

<TABLE>
<S> <C>
Keith Johannessen - President
Fred Tanner - Executive Vice President
James Bloomquist - Vice President, Capital Senior
Development, Inc.
Rob Goodpaster - National Marketing Director
David Brickman - Vice President
Robert Hollister - Controller
Marilyn Teel - Regional Manager
Lesley Tejada - Regional Executive Director
Gary Vasquez - Regional Executive Director
Laurie Okeon - Regional Executive Director
</TABLE>
<PAGE> 46
EXHIBIT G

TO MANAGEMENT AGREEMENT

Properties on Which Feasibility Study Will Be Conducted Within Three Months
- --------------------------------------------------------------------------------
Fort Myers, Florida

<PAGE> 1
EXHIBIT 23.1

Consent of Independent Auditors

We consent to the reference to our firm under the caption "Summary Financial
Data", "Selected Financial Data" and "Experts" and to the use of our report
dated July 3, 1997, in the Registration Statement (Form S-1) and related
Prospectus of Capital Senior Living Corporation for the registration of
9,000,000 shares of its common stock.

Ernst & Young LLP

Dallas, Texas
August 5, 1997

<PAGE> 1
EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

The Partners
HealthCare Properties, L.P.:

We consent to the inclusion of our report dated February 7, 1997, except as to
the fifth paragraph of note 4, which is as of March 21, 1997, with respect to
the consolidated balance sheets of HealthCare Properties, L.P. and Subsidiaries
(a Delaware Limited Partnership) as of December 31, 1996 and 1995, and the
related consolidated statements of operations, partnership equity, and cash
flows for each of the years in the three-year period ended December 31, 1996,
which report appears in the Form S-1 of Capital Senior Living Corporation dated
August 5, 1997, and to the reference to our firm under the heading "Experts" in
the prospectus.

KPMG Peat Marwick LLP

Dallas, Texas
August 5, 1997