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                                                                  EXHIBIT 10.7


                           INDEMNIFICATION AGREEMENT
                              (Eric K. Davidson)

            This Indemnification Agreement (this "Agreement"), made and entered
into this 13th day of August, 1996, (the "Effective Date") by and between ARV
Assisted Living, Inc., a California corporation (the "Company"), and the
undersigned director or officer of the Company (the "Indemnitee"):

            WHEREAS, highly competent persons are becoming more reluctant to
serve publicly-held corporations as directors or in other capacities unless they
are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the Company; and

            WHEREAS, the current impracticability of obtaining adequate
insurance and the uncertainties relating to indemnification have increased the
difficulty of attracting and retaining such persons; and

            WHEREAS, the Board of Directors of the Company (the "Board of
Directors") has determined that the inability to attract and retain such persons
is detrimental to the best interests of the Company's shareholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future; and

            WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and

            WHEREAS, Indemnitee is willing to serve, continue to serve and to
take an additional service for or on behalf of the Company on the condition that
he be so indemnified;

            NOW, THEREFORE, in consideration of the promises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:

            Section 1. Services by Indemnitee. Indemnitee agrees to serve as a
director or officer of the Company and/or any of its subsidiaries at the request
of the Company. Indemnitee may at any time and for any reason resign from such
position (subject to any other contractual obligation or any obligation imposed
by operation of law). The Company shall have no obligation under this Agreement
to continue Indemnitee in any position with the Company.

            Section 2. Indemnification--General. The Company shall indemnify,
and advance Expenses (as hereinafter defined), to Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may thereafter from
time to time permit. The rights of Indemnitee 


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provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.

            Section 3. Proceedings Other Than Proceedings by or in the Right of
the Company. Subject to the exclusions set forth in Section 12 herein,
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 3 if, by reason of his Corporate Status (as hereinafter defined), he is,
or is threatened to be made, a named party to any threatened, pending or
completed Proceeding (as hereinafter defined), other than a Proceeding by or in
the right of the Company. Pursuant to this Section 3, Indemnitee shall be
indemnified against his Costs (as hereinafter defined) 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 Company, and with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful.

            Section 4. Proceedings by or in the Right of the Company. Subject to
the exclusions set forth in Section 12 herein, Indemnitee shall be entitled to
the rights of indemnification provided in this Section 4 if, by reason of his
Corporate Status, he is, or is threatened to be made, a party to any threatened,
pending or completed Proceeding brought by or in the right of the Company to
procure a judgment in its favor. Pursuant to this Section, Indemnitee shall be
indemnified against Costs 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
Company. Notwithstanding the foregoing, no indemnification against such Costs
shall be made in respect of any claim, issue or matter in such Proceeding as to
which Indemnitee shall have been adjudged to be liable to the Company if
applicable law prohibits such indemnification; provided, however,
that, if applicable law so permits, indemnification against Costs shall
nevertheless be made by the Company in such event if and only to the extent that
the appropriate court in the State of California, or the court in which such
Proceeding shall have been brought or is pending, shall determine.

            Section 5. Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.

            Section 6. Indemnification for Expenses of a Witness.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding,
he shall be indemnified against all Expenses actually and reasonably incurred by
him or on his behalf in connection therewith.

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            Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.

            Section 8. Procedure for Determination of Entitlement to
Indemnification.

            a. To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.

            b. Upon written request by Indemnitee for indemnification pursuant
to the first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) (unless
Indemnitee shall request that such determination be made by the Board of
Directors or the shareholders, in which case by the person or persons or in the
manner provided for in clauses (ii) or (iii) of this Section 8(b)) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; (ii) if a Change of Control shall not have occurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee or (C) if directed by the shareholders of the Company; or (iii) as
provided in Section 9(b) of this Agreement; and, if it is so determined that
Indemnitee is entitled to indemnification, payment to Indemnitee shall be made
within ten days after such determination. Indemnitee shall cooperate with the
person, persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
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            c. In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b) hereof, the
Independent Counsel shall be selected as provided in this Section 8(c). If a
Change of Control shall not have occurred, the Independent Counsel shall be
selected by the Board of Directors, and the Company shall give written notice to
Indemnitee advising him of the identity of the Independent Counsel so selected.
If a Change or Control shall have occurred, the Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board of Directors, in which event the preceding sentence shall
apply), and Indemnitee shall give written notice to the Company advising it of
the identity of the Independent Counsel so selected. In either event, Indemnitee
or the Company, as the case may be, may, within seven days after such written
notice of selection shall have been given, deliver to the Company or to
Indemnitee, as the case may be, a written objection to such selection. Such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 18 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
made, the Independent Counsel so selected may not serve as Independent Counsel
unless and until a court has determined that such objection is without merit.
If, within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 8(a) hereof, no Independent Counsel shall
have been selected and not objected to, either the Company or Indemnitee may
petition the appropriate court in the State of California or other court of
competent jurisdiction for resolution of any objection which shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the Court or by such other person as the Court shall designate, and the
person with respect to whom an objection is so resolved or the person so
appointed shall act as Independent Counsel under Section 8(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 8(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon the due
commencement of any judicial proceeding or arbitration pursuant to Section
10(a)(iii) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).

            Section 9.  Presumptions and Effect of Certain Proceedings.

            a. If a Change of Control shall have occurred, in making a
determination with respect to entitlement to Indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.

            b. If the person, persons or entity empowered or selected under
Section 8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have 

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made a determination within 60 days after receipt by the Company of the request
therefor, the requisite determination of entitlement to indemnification shall be
deemed to have been made and Indemnitee shall be entitled to such
indemnification, absent (i) a misstatement by Indemnitee of a material fact, or
an omission of a material fact necessary to make Indemnitee's statement not
materially misleading, in connection with the request for indemnification, or
(ii) a prohibition of such indemnification under applicable law; provided,
however, that such 60-day period may be extended for a reasonable time, not to
exceed an additional 30 days, if the person, persons or entity making the
determination with respect to entitlement to indemnification in good faith
requires such additional time for the obtaining or evaluating of documentation
and/or information relating thereto; and provided, further, that the foregoing
provisions of this Section 9(b) shall not apply (i) if the determination of
entitlement to indemnification is to be made by the shareholders pursuant to
Section 8(b) of this Agreement and if (A) within 15 days after receipt by the
Company of the request for such determination the Board of Directors has
resolved to submit such determination to the shareholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
shareholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose within 60 days
after having been so called and such determination is made thereat, or (ii) if
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 8(b) of this Agreement.

            c. The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not meet any
applicable standard of conduct required for indemnification or, with respect to
any criminal Proceeding, that Indemnitee had reasonable cause to believe that
his conduct was unlawful.

            Section 10.  Remedies of Indemnitee.

            a. In the event that (i) a determination is made pursuant to Section
8 of this Agreement that Indemnitee is not entitled to indemnification under
this Agreement, (ii) advancement of Expenses is not timely made pursuant to
Section 7 of this Agreement, (iii) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b) of
this Agreement and such determination shall not have been made and delivered in
a written opinion within 90 days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
6 of this Agreement within ten days after receipt by the Company of a written
request therefor, or (v) payment of indemnification is not made within ten days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Sections 8 and 9 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of California, or in any other
court of competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Indemnitee shall commence such proceeding seeking an
adjudication within 180 days following the date on which Indemnitee first has
the right to commence such proceeding

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pursuant to this Section 10(a). The Company shall not oppose Indemnitee's right 
to seek any such adjudication.

            b. In the event that a determination shall have been made pursuant
to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 10
shall be conducted in all respects as a de novo trial on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. In
any judicial proceeding commenced pursuant to this Section 10, the Indemnitee
shall have the burden of proving that Indemnitee is entitled to indemnification
or advancement of Expenses, as the case may be; provided, however, that if a
Change of Control shall have occurred, the Company shall have the burden of
proving that Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be.

            c. If a determination shall have been made or deemed to have been
made pursuant to Section 8 or 9 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding commenced pursuant to this Section 10, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law.

            d. The Company and the Indemnitee shall be precluded from asserting
in any judicial proceeding commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court that the Company and the
Indemnitee are bound by all the provisions of this Agreement.

            e. In the event that Indemnitee, pursuant to this Section 10, seeks
a judicial adjudication to enforce his rights under, or to recover damages for
breach of, this Agreement, Indemnitee shall be entitled to recover from the
Company, and shall be indemnified by the Company against, any and all expenses
(of the types described in the definition of Expenses in Section 18 of this
Agreement) actually and reasonably incurred by him in such judicial
adjudication, but only if he prevails therein. If it shall be determined in said
judicial adjudication that Indemnitee is entitled to receive part but not all of
the indemnification or advancement of expenses sought, the expenses incurred by
Indemnitee in connection with such judicial adjudication shall be appropriately
prorated.

            Section 11. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.

            a. The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Articles of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or any provision hereof shall be
effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal.

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            b. To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee, agent or
fiduciary under such policy or policies.

            c. In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.

            d. The Company may, to the full extent authorized by law, create a
trust fund, grant a security interest and/or use other means (including, without
limitation, letters of credit, surety bonds and other similar arrangements) to
ensure the payment of such amounts as may become necessary or desirable to
effect indemnification provided hereunder.

            Section 12. Exclusions. Notwithstanding the foregoing, the Company
shall not be liable under this Agreement to pay any Expenses in connection with
any claim made against the Indemnitee:

            a. If it is established that the act or omission of the director was
material to the matter giving rise to the proceeding; and (i) was committed in
bad faith, or (ii) was the result of active and deliberate dishonesty, or (iii)
in the case of any criminal proceeding, the director had reasonable cause to
believe that the act or omission was unlawful.

            b. In connection with a judicial action by or in the right of the
Company, in respect of any claim, issue or matter as to which the Indemnitee
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the Company, unless and only to the extent that any
court in which such action was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, the Indemnitee is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper.

            c. If it is proved by final judgment in a court of law or other
final adjudication to have been based upon or attributable to the Indemnitee's
in fact having gained any improper personal profit or advantage in money,
property or services.

            d. For a disgorgement of profits made from the purchase and sale by
the Indemnitee of securities pursuant to Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any state
statutory law or common law.

            e. Brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the foregoing,
the Indemnitee shall be

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protected under this Agreement as to any claims upon which suit may be
brought against him by reason of any alleged dishonesty on his part, unless a
judgment or other final adjudication thereof adverse to the Indemnitee shall
establish that he committed (i) acts of active and deliberate dishonesty, (ii)
with actual dishonest purpose and intent, (iii) which acts were material to the
cause of action so adjudicated.

            f. For any judgment, fine or penalty which the Company is prohibited
by applicable law from paying as indemnity or for any other reason.

            Section 13. Duration of Agreement. This Agreement shall continue
until and terminate upon the later of: (a) ten years after the date that
Indemnitee shall have ceased to serve as a director, officer, employee, agent or
fiduciary of the Company or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which Indemnitee
served at the request of the Company; or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 10 of this Agreement relating
thereto. This Agreement shall be binding upon the Company and its successors and
assigns and shall inure to the benefit of Indemnitee and his heirs, executors
and administrators.

            Section 14. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.

            Section 15. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding, or any claim therein, brought or made
by him against the Company, other than those incurred by the Indemnitee in
successfully enforcing the Agreement.

            Section 16. Identical Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall for all purposes be deemed to
be an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.

            Section 17. Headings. The headings of the paragraphs of this 
Agreement are inserted for convenience only and shall not be deemed to 
constitute part of this Agreement or to affect the construction thereof.
<PAGE>   9
            Section 18. Definitions. For purposes of this Agreement:

            a. "Change in Control" means a change in control of the Company
occurring after the Effective Date of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the Effective Date (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing thirty percent (30%) or more of the combined voting power of the
Company's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board of Directors in office immediately prior
to such person attaining such percentage; (ii) the Company is a party to a
merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board of Directors in office
immediately prior to such transaction or event constitute less than a majority
of the Board of Directors thereafter; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (including for this purpose any new director whose
election or nomination for election by the Company's shareholders was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute at
least a majority of the Board of Directors.

            b. "Corporate Status" describes the status of a person who is or was
a director, officer, employee, agent or fiduciary of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.

            c. "Costs" means Expenses, judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with such proceeding or any claim, issue or matter herein.

            d. "Disinterested Director" means a director of the Company who is
not and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.

            e. "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.

            f. "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five 
<PAGE>   10
years has been, retained to represent: (i) the Company or Indemnitee in any
matter material to either such party or (ii) any other party to the Proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's rights under this Agreement.

            g. "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, whether or 
not initiated prior to the Effective Date, except a proceeding initiated by an 
Indemnitee pursuant to Section 10 of this Agreement to enforce his rights 
under this Agreement.

            Section 19. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.

            Section 20. Notice by Indemnitee. Indemnitee agrees promptly to
notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder.

            Section 21. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:

            If to Indemnitee, to:         Eric K. Davidson
                                          1425 Santanella Terrace
                                          Corona del Mar, CA 92625

            If to the Company, to:        ARV Assisted Living, Inc.
                                          245 Fischer Avenue
                                          Suite D-1
                                          Costa Mesa, California 92626
                                          Attention: President

or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.

            Section 22. Governing Law. The parties agree that this Agreement
shall be governed by, and construed and enforced in accordance with, the laws of
the State of California.

<PAGE>   11
            Section 23. Miscellaneous. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.

            IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.

ARV ASSISTED LIVING, INC.,
a California corporation



By:  /s/ Gary L. Davidson
    --------------------------------------
         Gary L. Davidson, Chairman of the 
         Board & Chief Executive Officer


INDEMNITEE



/s/ Erik K. Davidson
---------------------------------
    Eric K. Davidson