**Exhibit 10.3**
**SECOND AMENDMENT TO EMPLOYMENT AGREEMENT**
     This Second Amendment to Employment Agreement, dated December 1, 2003 (the“Original Employment Agreement”), dated as of July 16, 2004, is entered into byand between Assisted Living Concepts, Inc. (the “Company”) and Edward A. Barnes(the “Employee”).
**RECITALS**
     Whereas, the Employee is Senior Vice President, Chief Financial Officer,Treasurer and Secretary of the Company and is party to the Original EmploymentAgreement.
     Whereas, the Company desires to amend the Original Employment Agreement toprovide certain additional benefits to the Employee as provided herein.
**AGREEMENT**
     NOW THEREFORE, for good and valuable consideration, the receipt andsufficiency of which is hereby acknowledged, the Company and the Employee agreeas follows:
     1. Sale of the Company Defined. A “Sale of the Company” shall mean theoccurrence of any of the following:
     (a) the sale of all or substantially all of the assets of the Company andits subsidiaries, taken as a whole, to any individual or entity (a “Person”) orgroup of Persons;
     (b) the consummation of any consolidation, liquidation, recapitalization,stock sale or merger involving the Company:
          (i) in which the Company is not the continuing or surviving corporation,other than a consolidation or merger:
               (1) with a wholly-owned subsidiary of the Company in which all of thecommon stock of the Company outstanding immediately prior to the effectivenessthereof is changed into or exchanged for the same consideration, or
               (2) in which the stockholders of the Company immediately prior to theconsummation of such consolidation or merger own greater than 50% of the totalvoting power of all classes of capital shares of the continuing or survivingcorporation immediately following the consummation of such consolidation ormerger;
          (ii) pursuant to which the shares of common stock of the Company areconverted into cash, securities, or other property, unless the stockholders ofthe Company immediately prior to the consummation of such consolidation ormerger own greater than 50% of the total voting power of all classes of capitalshares of the continuing or surviving corporation immediately following theconsummation of such consolidation, merger, liquidation, recapitalization orsale of stock; or
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          (iii) pursuant to which the stockholders immediately prior to theconsummation of such consolidation, merger, liquidation, recapitalization orsale of stock hold 50% or less of the total voting power of all classes ofcapital shares of the continuing or surviving corporation immediately followingthe consummation of such consolidation, merger, liquidation, recapitalizationor sale of stock.
     2. Sale Incentive Compensation. Upon the consummation of a Sale of theCompany, Employee shall receive a cash bonus (the “Sale Incentive Bonus”) equalto    % of the Bonus Pool. The Bonus Pool shall be equal to (a) the applicablepercentage (the “Percentage”) set forth below, multiplied by (b) the finaladjusted aggregate proceeds in excess of the Base Amount (currently $71,235,520as calculated and based on the assumptions described below) distributed ordistributable to the Company’s stockholders and option holders as a result ofthe Sale of the Company (the “Excess Proceeds”), determined as follows:     **Excess Proceeds** **Percentage**Zero to $7,051,965  3%More than $7,051,965 but not more than $14,175,485  4%More than $14,175,485 but not more than $21,299,005  5%More than $21,299,005 but not more than $28,422,525  6%More than $28,422,525  7%
     The Base Amount shall equal the final adjusted aggregate amount of theCompany’s securities to be purchased in connection with a sale of the Company,including the amount of issued and outstanding shares of the Company’s commonstock (currently, 6,431,925 shares), all shares held in the reserve from thebankruptcy (currently, 68,241 shares), and outstanding options (currently623,354), the sum of which is currently 7,123,520 times $10 equals $71,235,520.By way of example, if the Company received an offer of $11.80 per share for allof its securities, the Excess Proceeds would be calculated as follows:7,123,520 x $11.80 = $84,057,536 minus $71,235,520 (the Base Amount) =$12,822,016. The applicable percentage would be 4% and the Bonus Pool would be$12,822,016 x 4% = $512,880.64 of which Employee would receive $210,281.06.
     The Sale Incentive Bonus shall terminate and be of no further force oreffect upon the earlier of the date that the Board adopts a resolution to ceaseexploring strategic alternatives or dissolves the Special Committee establishedby the Board on May 14, 2004 to explore strategic alternatives.
     3. Change in Control Severance Benefit. If within twelve (12) monthsafter the occurrence of a Change in Control (as defined below) (a) the Companyterminates the Employee’s employment for any reason or (b) the Employee resignsat any time after any diminution in the Employee’s job title, duties orcompensation or the relocation of the Employee, without the Employee’s consent,to an office in a different geographic region than the region in which theEmployee resided as of the occurrence of the Change in Control, the Companyshall continue to pay to the Employee for twelve (12) months thereafter theEmployee’s salary in effect as of the date of the Employee’s termination orresignation.
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     A Change in Control shall mean:
     (a) Sale of the Company; or
     (b) the acquisition by any Person individually or any Persons actingtogether that would constitute a “group” for purposes of Section 13(d) of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), together withany affiliates thereof, of beneficial ownership (as defined in Rule 13d-3 underthe Exchange Act) of greater than 50% of the total voting power of all classesof capital shares of the Company entitled to vote generally in the election ofdirectors of the Company; or
     (c) the first day on which a majority of the members of the Board ofDirectors of the Company (the “Board”) are not Continuing Directors. AContinuing Director shall mean, as of the date of determination, any member ofthe Board who was a member of the Board on June 18, 2004 or was nominated forelection by, or elected to the Board with the approval of, a majority of thepersons who were members of the Board on June 18, 2004.
     Notwithstanding clause (a) of Section 1, a Change in Control cannot bedeemed to have occurred as a result of a transaction in which the holders ofthe shares of common stock of the Company immediately prior to the sale of allor substantially all of the Company’s assets have immediately after such assetsale, directly or indirectly, more than 50% of the total voting power of allclasses of capital shares of the corporation to which such assets were sold.
     Notwithstanding clause (b) of this Section 3, a Change in Control will notbe deemed to have occurred solely by virtue of any of the following Personsfiling or becoming obligated to file a report under or in response to Schedule13D or Schedule 14D-1 (or any successor schedule, form, or report) under theExchange Act disclosing beneficial ownership by it of shares or securities ofthe Company, of greater than 50% of the total voting power of all classes ofcapital stock of the Company or otherwise: (1) the Company; (2) any subsidiaryof the Company; (3) any employee share purchase plan, share option plan, orother share incentive plan or program; (4) any retirement plan or automaticdividend reinvestment plan; or (5) any substantially similar plan of theCompany or any subsidiary of the Company or any Person holding securities ofthe Company for or pursuant to the terms of any such employee benefit plan.
     If the severance benefits provided for in this Section 3 are availablepursuant to the terms contained herein, such severance benefits shall be inlieu of the severance benefits associated with termination without causecurrently provided in Section 8 of the Original Employment Agreement. Thechange in control severance benefits provided in this Section 3 shall terminateand be of no further legal force or effect on the 180th calendar day after theearlier of the date that the Board adopts a resolution to cease exploringstrategic alternatives or dissolves the Special Committee established by theBoard on May 14, 2004 to explore strategic alternatives.
     4. Governing Law; Arbitration. The Original Employment Agreement, asamended by this Amendment, shall be governed by and construed in accordancewith the laws of the State of Texas as applied to agreements between Texasresidents entered and to be performed entirely within Texas. Any disputebetween the Employee and the Company arising under or related to
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this Agreement or otherwise concerning the employment of the Employee bythe Company or the termination of such employment shall be resolved bysubmitting the matter to binding arbitration in accordance with this Section 5.Arbitration shall be conducted in Dallas, Texas pursuant to the proceduralrules then in effect of the American Arbitration Association and shall be heardby a single arbitrator, reasonably agreed to by the parties, who shall be anattorney at law licensed to practice and in good standing in the State of Texasand knowledgeable in employment matters. If the parties cannot agree to anarbitrator within 30 days of the date either party initiates the arbitration,the American Arbitration Association shall appoint an arbitrator. The decisionof such arbitrator shall be final and binding on the parties and may be enteredfor enforcement in any court or tribunal of competent jurisdiction andauthority. The arbitrator shall award such damages or other relief as thearbitrator deems appropriate and may, but shall not be required to, award legalfees and costs to the prevailing party. All costs of such arbitration(excluding fees, disbursements and expenses of counsel, advisors, witnesses andexperts) shall be borne equally by the parties, subject to the arbitrator’saward of costs and legal fees, if any.
     5. Counterparts. This Amendment may be executed in one or morecounterparts, none of which need contain the signature of more than one partyhereto, and each of which shall be deemed to be an original, and both of whichtogether shall constitute a single Agreement.
     6. Original Employment Agreement. Except as expressly amended hereby, allterms and conditions of the Original Employment Agreement are unchanged andshall remain in full force and effect.
     7. Headings. The various headings in this Amendment are inserted forconvenience only and are not part of this Amendment.
     In Witness Whereof, the Company and Employee have duly executed thisAmendment as of the day and year first written above.   COMPANY: EMPLOYEE:   Assisted Living Concepts, Inc.     By /s/ LEONARD TANNENBAUM /s/ EDWARD A. BARNES     Leonard Tannenbaum, Chairman of Edward A. Barnes, Senior Vice President,       the Compensation Committee Chief Financial Officer, Treasurer and Secretary
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