Document:

EXHIBIT 10.2
                     EMPLOYMENT AGREEMENT - HARM SCHOLTENS

                              EMPLOYMENT AGREEMENT

THIS AGREEMENT is made and effective as of June 30, 1997 by and between
Triple-C-Inc., an Ontario corporation ("Triple-C"), and Harm Hilbert Victor
Scholtens, a resident of Ontario ("Executive"), and, for the purposes set forth
in Section 5 of this Agreement, RLD Enterprises, Inc., a Minnesota corporation
("Company").

WHEREAS, Executive has been serving as the Vice President of Sales and Marketing
of Triple-C since its inception; and

WHEREAS, the Company has acquired all of the capital stock of Triple-C pursuant
to that certain Stock Purchase Agreement dated effective as of June 30, 1997
(the "Purchase Agreement"), between the Company and Triple-C's former
shareholders (including Executive); and

WHEREAS, Triple-C and Executive desire to reduce the terms and conditions of
Executive's employment by Triple-C to writing in accordance with the provisions
of this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual promises
contained in this Agreement, the parties agree as follows:

1. Employment. Triple-C hereby retains and employs Executive as the Vice
President of Sales and Marketing of Triple-C, and Executive accepts such
employment.

2. Responsibilities. Executive shall be responsible for directing and managing
all aspects of Triple-C's business consistent with Executive's office set forth
in Section 1, implementing Triple-C goals and objectives as established from
time to time by Triple-C's board of directors, and such other duties and
responsibilities as may be reasonably established by the Triple-C board of
directors from time to time. Executive shall report directly to Triple-C's
President and perform such additional duties required of the Vice President of
Sales and Marketing of Triple-C in accordance with Triple-C's Bylaws.

3. Term of Employment. The term of this Agreement shall be for a period of three
(3) years commencing on the Effective Date. This Agreement shall automatically
renew for one (1) year renewal terms, unless and until either Triple-C or the
Executive shall give the other six (6) months prior written notice of
termination prior to the expiration of the original or renewal terms.

4. Compensation and Fringe Benefits. In full and complete consideration of all
of the services to be rendered by Executive to Triple-C in any capacity,
Triple-C shall pay Executive the following compensation and fringe benefits:

4.1 Compensation. Triple-C shall pay Executive an annualized base salary of
$140,000 (CND) payable at the rate of $11,667 (CND) per month, reduced by
applicable withholdings for Canadian, provincial, local or other applicable
income taxes and other deductions required by law.

4.2 Bonuses. During the term of Executive's employment, Triple-C shall pay
Executive an annual fiscal year-end bonus based upon the revenue and earnings
criteria for Triple-C, during the applicable timeframes set forth on Exhibit A
hereto ("Earnings Bonus"). The Earnings Bonus shall be computed, and
conclusively determined, from Triple-C's year end audited financial statements
for each fiscal year during the term of this Agreement, The Earnings bonus shall
be prorated on a daily basis to the extent Executive has not been employed by
Triple-C under this Agreement during the entire fiscal year. The Earnings Bonus
shall be paid to Executive within ten (10) days after the completion of each
fiscal year end audit. Executive shall also be entitled to receive such
additional bonuses as the Board of Directors of Triple-C may approve in its sole
and absolute discretion from time to time.

4.3 Reimbursement for Expenses. During the term of Executive's employment,
Triple-C shall reimburse Executive for all reasonable and necessary business
expenses incurred by him in connection with the performance of his duties under
this Agreement. Executive shall maintain and submit to Triple-C reasonable
records justifying reimbursement of any and all such expenses. Triple-C reserves
the right to withhold reimbursing any expenses until

<PAGE>

such time as proper documentation and accounting for such expenses are provided
to Triple-C. Executive's reimbursement for business expenses shall be subject to
any and all business expense policies and procedures implemented from
time-to-time by Triple-C for its employees generally.

4.4 Other Benefits. Executive shall be entitled to participate in all other
fringe benefit or employee benefit plans adopted by Triple-C from time-to-time
for the benefit of its employees generally. Nothing contained in this Agreement
shall require Triple-C to adopt, maintain or continue any such fringe benefit or
employee benefit plans, all of which shall be and remain within the sole
discretion of Triple-C.

4.5 Acknowledgment. Executive acknowledges and understands that some of the
benefits provided herein may be taxable to Executive as additional compensation,
and Triple-C will be required to report those items of additional compensation
on Executive's income reporting at the end of each calendar year.

4.6 Automobile Bonuses. During the Term of Employment, Executive shall be
entitled to continue to receive Executive's automobile bonus in the amount, and
payable at the times, heretofore received by Executive from Triple-C, all
consistent with past practice and subject to any limitations imposed from time
to time by Revenue Canada.

5. Company Rights and Obligations. The Company has joined this Agreement to
obtain the rights, and agree to the obligations, set forth in this Section 5.
The parties acknowledge that Executive is not employed by, and may not be deemed
employed by, the Company. The Company's obligations to Executive shall be
limited to those matters expressly set forth in this Section 5, and the Company
shall have no other liability or obligation to Executive under this Agreement
whatsoever.

5.1 Option Grant. In consideration of Executive's past, present and future
employment with Triple-C, the Company hereby grants to grant to Executive a
nonqualified option to acquire up to 100,000 shares of Company common stock par
value $.01 per share (the "Options"). The exercise price for the Options shall
be $5.50 (US) per share, and the Options shall expire, if not previously
exercised, on the date which is five (5) years after the date of this Agreement.
The Options shall vest and be exercisable according to the following schedule:

                    Vesting Date:       Options Vesting:
                    -------------       ----------------

                    June 30, 1998            33,333
                    June 30, 1999            33,333
                    June 30, 2000            33,334

The Options may be exercised as to vested Options only be a written notice of
intent to the Company stating the number of shares in respect of which the
Option is being exercised and shall be accompanied by payment for such shares in
cash. In the event that the Executive elects to exercise any Option after
vesting, and if the Company shall be required by reason thereof to withhold any
amounts by reason of any federal, provincial, state or local tax laws or
regulations, the Company shall be entitled to deduct and withhold such amounts
from the payment made by Executive, and the Executive shall pay to Company an
additional amount equal to such withholding. The Options (whether or not vested)
shall automatically terminate, before the end of the five (5) year term, as
follows: (i) six months after the death of the Executive, unless exercised as to
vested Options by the heir or executor of the estate of the Executive, or (ii)
immediately upon the voluntary resignation or termination for cause of the
Executive under this Agreement. The Executive shall provide the Company, at the
time of exercise of any Options, such investment representations as the company
shall reasonably require. Any shares issued pursuant to the Option shall bear
such restrictive legend as the Company shall reasonably require. The Options
shall not be assignable or transferable by Executive other than by will or by
laws of descent and distribution.

5.2 Company's Director Approval. Any decision to be made, and any action or
inaction to be taken, by Triple-C or its board of directors under this
Agreement, whether as to the duties and responsibilities assigned to Executive
from time to time, the extension, termination (and the determination of cause
associated therewith, if any) enforcement or modification of this Agreement, the
compensation (including additional bonuses, if any) available to Executive
hereunder, or otherwise, shall require the concurrence and approval of at least
one member of the board of directors that has been designated by the Company
(which shall not include Executive or any of Triple-C's other former
shareholders).

<PAGE>

5.3 Appointment to Board of Directors. The Company, as the sole shareholder of
Triple-C, shall take all action necessary to ensure that Executive is elected to
serve as a member of the board of directors of Triple-C for so long as Company
has any remaining unsatisfied obligations to Executive (or any other former
Triple-C shareholder) under the Purchase Agreement (and the related RLD Purchase
Note, the Repurchase Note and Pledge Agreement, as provided in the Purchase
Agreement). Upon satisfaction of all obligations of Company to Executive (and
such former shareholders), Executive shall no longer be entitled to be elected
to the board of directors.

6. Severance Payments. In the event Executive's employment with Triple-C is
terminated by Triple-C without cause during the term of this Agreement,
Executive shall be entitled to continue to receive from Triple-C as severance
payments ("Payments") after the effective date of such termination, (i) the
total remaining amount of the base compensation payable to Executive pursuant to
Section 4.1 through the end of the initial term of this Agreement but in no
event for a period of less than six (6) months and payable at the times provided
in Section 4.1, and (ii) the bonuses earned by Executive pursuant to Section
4.2, if any, for the year in which the termination occurs, prorated on a monthly
basis through the effective date of termination, and payable within ten (10)
days after completion of the fiscal year-end audit. In the event this Agreement
is not renewed at any time the Executive shall be entitled to continue to
receive from Triple-C as severance payments the base compensation payable to the
Executive pursuant to Section 4.1 for a period of six (6) months following the
end of the term or any non-renewed period.

7. Innovations and Ideas. Executive agrees and acknowledges that new and
valuable proprietary concepts, methods, processes, discoveries, innovations,
improvements, adaptions, ideas, technology and art work ("Innovations") may be
created, developed, originated, conceived or made by Executive, either alone or
jointly with other, in the course of his employment by Triple-C. All Innovations
shall be deemed "Work Made For Hire" and shall be the property of Triple-C,
which retains all rights to the Innovations, whether or not they are patentable,
trademarkable or copyrightable, and whether or not they are shown or described
in writing or reduced to practice. With respect to all Innovations created,
developed, originated, conceived or made by Executive, whether in whole or in
part, during the term of this Agreement, whether or not during working hours and
whether or not on Triple-C's premises, Executive shall:

(a) Maintain written records of all Innovations which the Executive believes has
commercial value to Triple-C, which written records if any shall be Triple-C's
property;

(b) Promptly and fully disclose and describe all Innovations to Triple-C;

(c) Assign, and Executive hereby does assign, to Triple-C all of his rights to
Innovations (including all inventions), to all applications for patents,
trademarks and copyrights in all countries, to all patents and copyrights
granted with respect to Innovations (including inventions) and all goodwill
attributable thereto worldwide; and

(d) Acknowledge and deliver promptly to Triple-C, without charge to Triple-C but
at the expense of Triple-C, such written instruments and cooperate and do such
other acts as may be necessary in the opinion of Triple-C or the Company to
preserve property rights to such Innovations against forfeiture, abandonment or
loss and to obtain patents, trademarks and copyrights and to vest the entire
right and title thereto exclusively in Triple-C.

8. Agreements Not to Compete and Not to Solicit.

8.1 Covenant Not to Compete. If Executive's employment is terminated for any
reason whatsoever and Triple-C pays the Payments as and when provided in section
6 (whether or not it is legally required to make those Payments), Executive
shall not, either individually or with others, directly or indirectly, and
during the term of this Agreement and for a period of one (1) year following the
termination of Executive's employment with Triple-C, render services as an
employee, representative, agent, consultant, independent contractor, owner or
shareholder of any company, corporation or other entity, which engages in any
geographic area within Canada served by Triple-C or the Company during the term
of this Agreement, in any business or activity in which either Triple-C or the
Company is engaged at the time of termination of Executive's employment. In the
event Triple-C does not make the Payments as and when provided above, Executive
shall not be bound by any of the restrictions contained in this Section 8, but
shall continue to be bound by any similar restrictions contained in or delivered
pursuant to the Purchase Agreement. For purposes of this Section 7 Triple-C and
Company shall each be deemed also engaged in a business or activity at the time
Executive's employment with Triple-C is terminated, if the board of directors of
Triple-C or the Company, as applicable, has adopted a formal resolution
approving that business or activity and Executive has knowledge of such
decision, or either Triple-C or the Company has made a public announcement of

<PAGE>

that business or activity, and Triple-C or the Company has made substantial
expenditures or commitments to implement, promote or develop that business or
activity.

8.2 Covenant Not To Solicit. Executive shall not, either individually or with
others, directly or indirectly, and during the term of this Agreement and for a
period of three (3) years following the termination of Executive's employment
with Triple-C, (a) solicit any person, business or entity that was customer,
supplier or distributor of Triple-C or the Company during the Term of
Employment, for purpose of providing or delivering products or services which
compete with the business, products or services of Triple-C or the Company, or
(b) employ or offer to employ any individual employed by Triple-C or the Company
during the Term of Employment, or advise or entice any such individual to leave
the employment of Triple-C or the Company.

8.3 Limitation of Scope Equitable Remedies. The parties agree that in the event
the above covenants against competition and solicitation shall be construed by
any court of competent jurisdiction to be too broad in scope, time or area or
otherwise, or any portion thereof is held invalid or unenforceable, then to the
extent that the same is valid and enforceable, it shall remain in full force and
effect, and any invalid or unenforceable provision shall be deemed limited to
the extent necessary to make such provision valid and enforceable while still
giving maximum effect to the expressed intent of the parties as described in
this Section. It is agreed that damages for any breach by Executive of these
covenants against competition and solicitation may be inadequate an that
Triple-C and/or the Company, or their respective successors or assigns shall be
entitled, in addition to money damages, to injunctive and any other relief
available at law or in equity.

9. Termination. The employment of Executive shall continue for the period set
forth in Section 3 hereof, subject to the following:

9.1 Termination for Cause. Triple-C may terminate Executive's employment
hereunder for cause, effective upon notice in writing to the Executive. "Cause,"
for purposes of this Agreement, shall be defined as becoming associated with
another company or other business which is in competition with Triple-C or the
Company, failing to perform the material duties of his employment as described
in Section 2 hereof, or other material breach of this Agreement, the conviction
or admission of committing an indictable offense, a determination by a trier of
fact with competent jurisdiction that Executive has committed a fraud,
dishonesty against Triple-C or the Company, misappropriation of Triple-C or the
Company's assets, embezzlement, or similar occurrence, and upon the giving of
such notice, Executive's employment pursuant to this Agreement shall immediately
terminate and neither Triple-C nor the Company shall have any further obligation
to Executive under this Agreement, except as to obligations of Triple-C
hereunder specifically to be performed following termination of his employment.

9.2 Disability. The employment of Executive shall, at the option of Triple-C,
terminate upon written notice to Executive in the event of the total disability
of Executive for a period of more than twelve (12) months, "Total Disability,"
for purposes of this Agreement, shall mean the physical or mental disability of
Executive as defined for purposes of Executive's long-term disability insurance
policy purchased in accordance with Section 4.4, or if none is in existence at
the time, as defined for purposes of obtaining any available governmental
disability benefits.

9.3 Death. Employment shall terminate upon the death of Executive and no
additional payments shall be made under the terms of this Agreement after the
end of the month in which Executive's death occurs.

9.4 Executive's Right to Terminate. Executive may terminate his employment under
this Agreement upon (a) the expiration of its term; (b) upon Triple-C's
dissolution, liquidation or bankruptcy; or (c) upon a material breach of this
Agreement by Triple-C provided that Executive has given Triple-C written notice
of such breach and Triple-C has not cured such breach within fifteen (15) days
after receipt of such notice.

10. Confidentiality.

10.1 Confidential Information. For all purposes of this Agreement, the term
"Confidential Information" means information not generally known that is
proprietary to or within the unique knowledge of either Triple-C or the Company
from which either of them derives economic value (whether or not conceived,
originated, discovered, or developed in whole or in part by Executive).
Confidential Information includes, but is not limited to, the following types of
information and other information of a similar nature (whether or not reduced to
writing), all of which Executive agrees constitutes the valuable trade secrets
of either Triple-C or the Company: research, development, know-how,
manufacturing plans and processes, marketing plans and techniques, existing and

<PAGE>

contemplated products and services, customers and prospective customer names and
related information, prices, sales, inventory, personnel, computer programs and
related documentation, technical and strategic plans, and all financial
information. Confidential information also includes any information of the
foregoing nature that either Triple-C or the Company treats as proprietary or
designates as Confidential Information, whether or not owned or developed by
either Triple-C or the Company. INFORMATION PUBLICLY KNOWN THAT IS GENERALLY
EMPLOYED BY THE TRADE AT OR AFTER THE TIME EXECUTIVE FIRST LEARNS OF SUCH
INFORMATION, OR GENERAL INFORMATION OR KNOWLEDGE THAT EXECUTIVE WOULD HAVE
LEARNED IN THE COURSE OF SIMILAR EMPLOYMENT OR WORK ELSEWHERE IN THE TRADE SHALL
NOT BE DEEMED PART OF THE CONFIDENTIAL INFORMATION.

10.2 Preservation of Confidentiality. During any term of this Agreement and at
all times thereafter, Executive agrees to receive, maintain, and use
Confidential Information in the strictest confidence and, except with the
consent of the board of directors of Triple-C or the Company, as applicable, or
as may be necessary for Executive to carry out his duties under this Agreement,
not to directly or indirectly reveal, report, publish, disclose, or transfer any
Confidential Information to any person, firm, corporation, or other entity or
utilize any Confidential Information for his own benefit or intended benefit or
for the benefit or intended benefit of any other person, firm, corporation or
other entity.

10.3 Ownership Return. Executive acknowledges that all notes, data, reference
materials, documentation, business plans, Triple-C or Company business and
financial records, computer programs, and other materials that in any way
incorporate, embody, or reflect any of the Confidential Information, whether
prepared by him or others, are the exclusive property of Triple-C or the
Company, as applicable, and Executive shall forthwith deliver to Triple-C or the
Company, as applicable, all such materials, including all copies or
memorializations thereof, in his possession or control whenever requested to do
so by Triple-C or the Company and in any event upon termination of his
employment with Triple-C.

11. Notices. Any and all notices, requests, demands, and other communications
hereunder shall be in writing, and shall be deemed to have been duly given if
delivered personally or mailed by first class certified or registered mail,
return receipt requested, postage prepaid, and addressed to both Triple-C and
the Company at their registered office or principal corporate headquarters and
to Executive at the last address provided to Company by Executive or at his home
or mailing address, or to such other address or person with respect to any party
as such party shall notify the other in writing as provided above. All such
notices or communications as set forth above shall be effective on the date of
personal delivery or on the date of deposit in the U.S. or Canadian mail, as
applicable.

12. Waiver. No failure on the part any party to exercise, and no delay in
exercising, any right hereunder will operate as a waiver thereof, nor will any
single or partial exercise of any right hereunder by any party preclude any
other or further exercise hereof or the exercise of any other right.

13. Complete Agreement. This Agreement, together with the Purchase Agreement and
any agreements related thereto, contains the entire agreement between the
parties with respect to the employment of the Executive and supersedes all prior
agreements and understandings between the parties with respect to such
employment, whether written or oral.

14. Amendment. Neither this Agreement nor any term or provision hereof may be
changed, waived, discharged or amended in any manner other than by instrument in
writing, signed by the Party against which the enforcement of the change,
waiver, discharge or amendment is sought.

15. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original and all of which shall constitute but
one Agreement.

16. Assignment. Executive acknowledges that this Agreement is a personal service
contract and may not be assigned by Executive. This Agreement may be assigned by
Triple-C or the Company to any other third party with the prior consent of
Executive, which consent shall not be unreasonably withheld. This Agreement
shall be binding upon Triple-C and the Company, their respective successors and
assigns, and upon the Executive, his estate, legal representative, heirs and
beneficiaries.

<PAGE>

17. Severability. The provisions of this Agreement shall be deemed severable,
and if any provisions of this Agreement or any portion thereof are held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any remaining portion of such provisions or of this Agreement.

18. Remedies not Exclusive. No remedy conferred hereunder is intended to be
exclusive and each remedy shall be cumulative and shall be in addition to every
other remedy at law or equity. The election of any one or more remedies shall
not constitute a waiver of any other remedy.

19. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario, Canada.

20. Captions and Headings. Caption and section headings used herein are for
convenience only and are not a part of this Agreement and shall not be used in
construing it.

IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of
the 30th day of June, 1997.

COMPANY:
RLD ENTERPRISES, INC.

By:   /s/ James M. Garlie
      ----------------------------
Its President

TRIPLE-C-INC:

By    /s/ James M. Garlie
      ----------------------------
Its
    ------------------------------

EXECUTIVE:

/s/ Harm Hilbert Victor Scholtens
----------------------------------<PAGE>

                                                                   EXHIBIT 10.24

                      SECOND AMENDMENT AND MODIFICATION OF
                            REIMBURSEMENT AGREEMENTS

     THIS SECOND AMENDMENT AND MODIFICATION OF REIMBURSEMENT AGREEMENTS (the
"Second Amendment") entered into as of the 28th day of July, 2000 by and between
ASSISTED LIVING CONCEPTS, INC., a Nevada corporation ("Borrower") and U.S. BANK
NATIONAL ASSOCIATION ("Bank") is made with reference to the following facts:

                                    RECITALS
                                    --------

     A.    Pursuant to Reimbursement Agreement dated as of November 1, 1996 by
and between Borrower and Bank (the "Washington Reimbursement Agreement"), Bank
issued a letter of credit on behalf of the Borrower in the total Stated Amount
of S8,667,671.20 (the "Washington Letter of Credit") to Norwest Bank Minnesota,
National Association., as Trustee under that certain Indenture of Trust dated as
of November 1, 1996, in connection with the issuance by the Washington State
Housing Finance Commission of $8,500,000 in aggregate principal amount of its
Variable Rate Demand Multifamily Revenue Bonds (Assisted Living Concepts, Inc.
Project), Series 1996 (the "Washington Bonds").  Borrower's obligations under
the Washington Reimbursement Agreement are secured, in part, by deeds of trust,
security agreements, assignments of leases and rents and fixture filings on five
real properties located in the State of Washington legally described in Exhibit
B-I through Exhibit B-5 to the Washington Reimbursement Agreement and by this
reference incorporated herein (collectively, "the Washington Properties) and
other security interests in other real and personal property owned by Borrower.

     B.    Pursuant to Reimbursement Agreement dated as of July 1, 1997 by and
between Borrower and Bank (the "Idaho Reimbursement Agreement"), Bank issued a
letter of credit on behalf of the Borrower in the total Stated Amount of
$7,494,987 (the "Idaho Letter of Credit") to First Security Bank, N.A., as
Trustee under that certain Indenture of Trust dated as of July 1, 1997, In
connection with the issuance by the Idaho Housing and Finance Association of
S7,350,000 in aggregate principal amount of its Variable Rate Demand Housing
Revenue Bonds (Assisted Living Concepts, Inc. Project), Series 1997 (the "Idaho
Bonds').  Borrower's obligations under the Idaho Reimbursement Agreement are
secured, in part, by deeds of trust, security agreements, assignments of leases
and rents and fixture filings on 4 real properties located in the State of Idaho
legally described in Exhibit B-1 through Exhibit B-4 to the Idaho Reimbursement
Agreement and by this reference incorporated herein (collectively, the "Idaho
Properties") and other security interests in other real and personal property
owned by Borrower.

     C.    Pursuant to Reimbursement Agreement dated as of July 1, 1998 by and
between Borrower and Bank (the "Ohio Reimbursement Agreement"), Bank issued a
letter of credit on behalf of the Borrower in the total Stated Amount of
$13,480,779 (the "Ohio Letter of Credit") to PNC Bank, National Association, as
Trustee under that certain Indenture of Trust dated as of July 1.  1998, in
connection with the issuance by the Ohio Housing Finance Agency of $12,690,000
in aggregate principal amount of its Variable Rate Demand Housing Revenue Bonds
(Assisted Living Concepts, Inc. Project) 1998 Series A-1 and $530,000 aggregate
principal amount of its Taxable Variable Rate Demand Housing Revenue Bonds
(Assisted Living Concepts, Inc. Project) 1998 Series A-2 (the "Taxable Bonds")
(collectively, the "Ohio Bonds").  Borrower's obligations under the Ohio
Reimbursement Agreement are secured, in part,
<PAGE>

by open-ended mortgages, security agreements, assignment of leases and rents and
fixture filings on 7 real properties located in the State of Ohio legally
described in Exhibit B-1 through Exhibit B-7 to the Ohio Reimbursement Agreement
and by this reference Incorporated herein (collectively, the. "Ohio Properties")
and other security interests in other real and personal property owned by
Borrower.

     D.  Pursuant to Amendment and Modification of Reimbursement Agreements
dated as of August 18, 1999 (the "Modification").  The Bank agreed to forbear
and waive certain defaults by Borrower under the Washington Reimbursement
Agreement, the Idaho Reimbursement Agreement and the Ohio Reimbursement
Agreement and the Related Documents (as defined in each Reimbursement Agreement)
in exchange for the modification and restructure of the Borrower's obligations
to the Bank as set forth in the Modification.  The Washington Reimbursement
Agreement, the Idaho Reimbursement Agreement and the Ohio Reimbursement
Agreement, each as modified by the Modification, are hereinafter referred to
collectively as the "Reimbursement Agreements."  The Washington Properties, the
Idaho Properties, the Ohio Properties and all other facilities owned or leased
by the Borrower that are financed with the proceeds of a Bank credit enhanced
bond issue, including, but not limited to, all facilities financed by the
Washington State Housing Finance Commission's Variable Rate Demand Multifamily
Revenue Bonds (LTC Properties, Inc. Project), Series 1995 are hereinafter
referred to collectively as the "Bond Financed Properties."

     E.  As part of the modification and restructure of the Borrower's
obligations to the Bank under the Reimbursement Agreements set forth in the
Modification, the Borrower deposited $8,300,000 in cash collateral with the Bank
(the "Cash Collateral"), which Cash Collateral constitutes security for any and
all indebtedness of Borrower to the Bank, including, but not limited to the
Borrower's obligations under the Reimbursement Agreements and the Related
Documents.  The Bank has since released $2,194,800 of the Cash Collateral to
Borrower pursuant to the terms of Section 3.B of the Modification.  The Bank
continues to hold $6,105,200 of the Cash Collateral pursuant to the terms of
Section 3.C of the Modification.

     F.  The Borrower has requested that Bank waive the Bank's right to
declare an Event of Default under the Reimbursement Agreements and Related
Documents (as defined in the Reimbursement Agreements) by reason of the
Borrower's anticipated failure to comply with the cash flow covenant set forth
in Section 7.01(G)(iii)(a) of the Reimbursement Agreements at the corporate
level for the quarters ending June 30, 2000 and September 30, 2000 and the Bank
is willing to waive the Bank's right to declare an Event of Default under the
Reimbursement Agreements on the express condition that Borrower agree to further
modify and restructure Borrower's obligations under the Reimbursement Agreements
and Related Documents (as defined in the Reimbursement Agreements) on the terms
and conditions hereinafter set forth.

     NOW, THEREFORE, in consideration of the foregoing recitals and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:

                                       2
<PAGE>

                                   AGREEMENT
                                   ---------

     1.  Incorporation of Recitals.  Each recital set forth above is
         -------------------------
incorporated into this Second Amendment as though fully set forth herein. Unless
the context clearly provides otherwise, all capitalized terms not otherwise
defined herein shall have the same meaning as set forth in the Modification.

     2.  Waiver of Right to Declare an Event of Default.  In exchange for the
         ----------------------------------------------
further modification and restructure of the Borrower's obligations to the Bank
under the Reimbursement Agreements on the terms and conditions hereinafter set
forth, the Bank will waive the Bank's right to declare an Event of Default under
the Reimbursement Agreements or any of the Related Document (as defined in the
Reimbursement Agreements) by reason of the Borrower's anticipated failure to
comply with the cash flow coverage covenant set forth in Section 7.01(G)(iii)(a)
of each of the Reimbursement Agreements at the corporate level for the quarters
ending June 30, 2000 and September 30, 2000, As of the date of this Second
Amendment Bank has not received written notice from any person of the occurrence
of an event that would constitute an Event of Default under the Reimbursement
Agreements or any of the Related Documents (as defined in the Reimbursement
Agreements).

     3.   Deposit of Additional Collateral to Secure Borrower's Obligations
          -----------------------------------------------------------------
Under the Reimbursement Agreements.  In exchange for the waiver of the Bank's
----------------------------------
right to declare an Event of Default under the Reimbursement Agreements,
Borrower and Bank agree as follows:

          A.  Additional Real Property Collateral.  As security for the
              -----------------------------------
Borrower's obligations to the Bank under the Reimbursement Agreements and the
other Related Documents, Borrower shall grant Bank (i) a first lien deed of
trust on the following three assisted living facilities located in the State of
Washington legally described in Exhibits A through C attached hereto and by this
reference incorporated herein:

<TABLE>
<CAPTION>
<S>                          <C>                                                   <C>
      Project Name                        Property Address                           County
      ------------                        ----------------                           ------
      Louisa House                2240 Main St., Ferndale, WA 98248                 Whatcom
     Franklin House             5713 Parker Road E., Sumner, WA 98390                Pierce
     Blossom House            5 100 W. Nob Hill Blvd., Yakima, WA 98908              Yakima
</TABLE>

(collectively, the "Additional Properties") by execution and delivery of a deed
of trust, security agreement, assignment of leases and rents and fixture filing
in the form attached hereto as Exhibit D and by this reference incorporated
herein (the "Additional Properties Deed of Trust"); (ii) a first lien assignment
of leases and cash collateral with respect to the Additional Properties by
execution and delivery of an assignment of leases and cash collateral in the
form attached hereto as Exhibit E and by this reference incorporated herein (the
"Additional Properties Assignment of Leases"), (iii) execution and delivery of a
first lien security interest in certain personal property used in connection
with the Additional Properties by UCC-1 financing statements for filing in the
States of Washington, Oregon and Nevada with respect to the Additional
Properties in the form attached hereto as Exhibit F and by this reference
incorporated herein.  In addition Borrower shall (i) enter in an environmental
indemnity agreement with respect to the Additional Properties by execution and
delivery of an unsecured environmental agreement in the form attached hereto as
Exhibit G and by this reference incorporated herein; (ii) execute an Assignment
of Operating Permits with respect to the Additional Properties in the

                                       3
<PAGE>

form attached hereto as Exhibit H, and (iii) execute a Borrower's Certificate
with respect to the Additional Properties in the form attached hereto as Exhibit
I and by this reference incorporated herein. The Additional Properties Deed of
Trust and Additional Properties Assignment of Leases on the Additional
Properties shall be insured by an ALTA extended coverage mortgagee's policy of
title insurance (Form B-10/17/70) (w/1984 amendments) issued by Chicago Title
Insurance Company in favor of Bank as the insured with liability in the amount
of $8,222,000, showing fee title to the Additional Properties vested in fee in
Borrower and insuring the first lien priority of the Additional Properties Deed
of Trust, subject only to such exceptions as may be authorized in writing by
Bank and containing such endorsements as may be requested by Bank,

          B.  Amendment to Section 3.B of the Modification.  Pursuant to the
              --------------------------------------------
Modification, Borrower deposited $8,300,000 in cash collateral with Bank ("Cash
Collateral"), which Cash Collateral constitutes security for any and all
indebtedness of Borrower to the Bank, including, but not limited to, the
Borrower's obligations to the Bank under the Reimbursement Agreements and the
Related Documents.  Prior to the date hereof, Borrower has released $1,194,400
of the Cash Collateral with respect to the Washington Properties and $1,000,400
with respect to the Idaho Properties.  Borrower acknowledges that Bank is
currently holding $6,105,200 in Cash Collateral.

     Section 3.B of the Modification is amended to read as follows:

     The Bank shall release $1,805,200 of the Cash Collateral to Borrower,
together with any interest accrued thereon, provided there is no Event of
Default under any of the Reimbursement Agreements or any of the Related
Documents (as defined in the Reimbursement Agreements) or this Second Amendment
and no event that with the giving of notice, the passage of time, or both, would
constitute an Event of Default under any of the Reimbursement Agreements, any of
the Related Documents or this Second Amendment, when each of the following
conditions has been met to the reasonable satisfaction of the Bank:

         (i)  Borrower has delivered the following with respect to each of the
Additional Properties:

              1.   MAI appraisals for each of the Additional Properties in
form, substance and amount satisfactory to Bank. The Appraised Value of the
Additional Properties, in the aggregate, shall not be less than Eight Million
Two Hundred Twenty Two Thousand Dollars ($8,222,000). Appraised Value shall mean
the fair market value of the Additional Properties as determined by the Bank
after internal review of MAI appraisals prepared in accordance with FIRREA
requirements;

              2.   Completed Certificates of Compliance with Access Laws and
Identification Agreements for the Additional Properties in form and substance
satisfactory to Bank,

              3.   Evidence satisfactory to Bank that all real and personal
property taxes and special assessments assessed against the Additional
Properties have been paid;

              4.   Evidence acceptable to Bank that each of the Additional
Properties is accessible via completed, dedicated streets which have been
accepted for public maintenance

                                       4
<PAGE>

and use by the appropriate City and/or County depending on location, or that an
easement creating a perpetual right of public access to a publicly dedicated
street, road or highway is in effect;

              5.   Receipt by Bank of an ALTA survey for each of the Additional
Properties certified to and satisfactory to Bank and the title insurance company
that will be insuring the first lien priority of the Additional Properties Deed
of Trust;

              6.   Receipt by the Bank of Environmental Questionnaires and
Disclosure Statements and Phase I Environmental Site Assessments for each of the
Additional Properties (prepared by environmental consulting firms acceptable to
Bank), each of which shall be in form and substance satisfactory to Bank;

              7.   Receipt of final unconditional certificate of occupancy for
each of the Additional Properties;

              8.   Copies of all licenses, permits and approvals necessary to
own and operate each of the Additional Properties as an assisted living facility
under Washington law including, but not limited to, copies of the current
boarding house licenses for each of the Additional Properties;

              9.   Receipt by the Bank of a certificate of an architect with
respect to compliance by each of the Additional Properties with the American
with Disabilities Act and the Fair Housing Act Amendments of 1988 (collectively
the "Access Laws");

              10.  Evidence of "all-risk" property, rental loss and
comprehensive general liability insurance for each of the Additional Properties
in form, substance and amount satisfactory to Bank naming the Bank as loss payee
or additional insured as appropriate;

              11.  A certificate by an architect or other person or entity
acceptable to Bank confirming that each of the Additional Properties has been
constructed and completed substantially in accordance with the plans and
specifications approved by the Government Body with jurisdiction over each of
the Additional Properties, and each of the Additional Properties complies with
all applicable building codes and zoning ordinances and all other applicable
federal and state laws, rules, regulations, codes and orders;

              12.  The receipt by the Bank of copies of all final unconditional
certificates of occupancy and other permits, if any, evidencing that each of the
Additional Properties complies with all applicable zoning ordinances, building
and use restrictions and codes and any requirements with respect to licenses,
permits, and agreements necessary for the lawful use and operation of each of
the Additional Properties and that necessary utilities and municipal services
required for each of the Additional Properties are in place,

              13.  The representations and warranties set forth in Article V1
of each of the Reimbursement Agreements are true and correct as of the date
hereof;

              14.  Receipt by Bank of a certified rent roll for each of the
Additional Properties for July 1, 2000, together with copies of rent rolls,
monthly occupancy reports,

                                       5
<PAGE>

monthly operating statements and monthly financial statements for each of the
Additional Properties from January 1, 1999 to present;

              15.  Receipt by Bank of copies of all compliance or inspection
audits, license suspension or revocation, notices or proceedings, regulatory
actions imposing limitations on admission of residents, notices of violation or
suspected violations of laws, rules and regulations, reports, notices or other
communication received by Borrower from any federal, state or local governmental
authority with jurisdiction over any of the Additional Properties or the
business of Borrower conducted thereon, including, but not limited to, the
Washington State Department of Health or the Washington State Department of
Social and Health Services, or if no such documents exist, a representation to
that effect by the chief executive officer of Borrower;

              16.  Receipt by Bank of copies of the residential form lease for
each of the Additional Properties, together with copies of all currently
effective leases with tenants of each of the Additional Properties;

              17.  Receipt of evidence of full payment for personal property in
which Bank has a security interest;

              18.  Evidence satisfactory to Bank that Borrower is in full
compliance with all the, terms, covenants, conditions and requirements imposed
by the Washington State Housing Finance Commission, the Idaho Housing and
Finance Association and the Ohio Housing Finance Agency in connection with the
issuance of the Washington Bonds, the Idaho Bonds or the Ohio Bonds, including,
but not limited to, any regulatory agreements executed with respect to the
Washington Bonds, the Idaho Bonds or the Ohio Bonds.

         (ii)   Borrower shall execute a Borrower's Certificate in form and
substance satisfactory to Bank whereby Borrower represents to Bank that, except
as disclosed in writing by the Borrower to Bank prior to the date hereof which
disclosure letter shall be attached as an exhibit to the Borrower's Certificate
and shall, except as disclosed to and approved by Bank, disclose no fact which
the Bank determines has a Material Adverse Effect on the legal existence or
powers of the Borrower or its financial condition or operations or has a
Material Adverse Effect on the ability of the Borrower to perform its
obligations under the Reimbursement Agreements or any of the Related Documents
or discloses Borrower's failure to comply with any Requirement of Law that might
result in any such effect, Borrower and each of the Bond Financed Properties and
the Additional Properties are in full compliance with all laws, rules,
regulations, orders and requirements of all federal, state and local government
authorities with jurisdiction over any of the Bond Financed Properties or the
Additional Properties or the business conducted by Borrower thereon, including
but not limited to, the Washington, Idaho or Ohio State Departments of Health or
Departments of Social and Health Services (collectively, "Regulators") and there
is no pending or, to the best of Borrower's knowledge, threatened, license
suspension, license revocation, limitation on admission of residents, notice of
violation or suspected violation of any laws, rules, regulations, reports,
notices or reporting requirements from any Regulator; and

         (iii)  There is no default by Borrower under this Second Amendment,
any of the Reimbursement Agreements or any of the Related Documents, and all
other covenants under the

                                       6
<PAGE>

Reimbursement Agreements and each of the Related Documents (as defined in the
Reimbursement Agreements) remains in compliance.

     In the event that the Additional Properties do not meet the conditions set
forth in Section 3.B(i) and (ii) above, or the Borrower fails to meet the
condition set forth in Section 3.B(iii) above Bank shall not be obligated to
release $1,805,200 of the Cash Collateral until Borrower provides Bank with
substitute real or personal property collateral as additional security for the
Borrower's obligation is to the Bank under the Reimbursement Agreements which is
satisfactory to Bank and which does meet the requirements set forth in Section
3.B(i) and (ii) above, and the Borrower satisfies the condition set forth in
Section 3.B(iii) above.  At such time as Borrower has provided satisfactory
substitute real or personal property collateral which meets the requirements set
forth in Section 3.B(i) and (ii) and the Borrower has satisfied the condition
set forth in Section 3.B(iii) above, the Bank will release its security
interests in the Additional Properties, unless and except to the parties agree
otherwise.

    4.   Modification and Restructure of Reimbursement Agreements and
         ------------------------------------------------------------
Modification.  In exchange for the waiver of the Bank's right to declare an
------------
Event of Default under the Reimbursement Agreements by reason of the Borrower's
anticipated failure to comply with the cash flow coverage covenant set forth in
Section 7.01(G)(iii)(a) of the Reimbursement Agreements at the corporate level
for the quarters ending June 30, 2000 and September 30, 2000, and in addition to
the Borrower's execution of the Additional Properties Deed of Trust in favor of
Bank encumbering the Additional Properties as security for the Borrower's
obligations to the Bank under the Reimbursement Agreements and Related Documents
(as defined in the Reimbursement Agreements) as required under Section 3 of this
Second Amendment, the Modification and each of the Reimbursement Agreements are
modified as follows:

         A.    Section 3.C of the Modification is amended to read as follows:

               The Bank shall release the remaining balance of the Cash
     Collateral in the amount of $4,300,000 to Borrower, together with any
     interest accrued thereon, provided there is no event of default under the
     Reimbursement Agreements or any of the Related Documents (as defined in the
     Reimbursement Agreements) and no event that with the giving of notice, the
     passage of time, or both, would constitute an Event of Default under the
     Reimbursement Agreements or any Related Documents (as defined in the
     Reimbursement Agreements), when each of the following conditions has been
     satisfied: (i) Each of the Bond Financed Properties independently meets the
     following cash flow coverage ratio requirements for any three consecutive
     quarters, commencing with any fiscal quarter on or after the fiscal quarter
     ending December 3l, 2000; and (ii) the Borrower is in compliance with the
     following corporate cash flow coverage ratio measured on Borrower-wide
     operations for three consecutive quarters, commencing with any fiscal
     quarter on or after the fiscal quarter ending December 31, 2000; and (iii)
     all other covenants under the Reimbursement Agreements and each of the
     Related Documents (as defined in the Reimbursement Agreements) remain in
     compliance.  For purposes of this Section 3.C the cash flow coverage ratio
     will be two independent tests and Borrower must comply with both tests and
     the other requirements in this Section 3.C in order to obtain a release of
     the remaining Cash Collateral.

                                       7
<PAGE>

               (a)   For the actual quarter, the Borrower's ratio of Net Income
     (which shall exclude any restructuring, extraordinary or changes in
     accounting charges) + Interest Expenses + Depreciation & Amortization
     divided by Interest Expense + pro rata (for the quarter) scheduled
     principal payments on all Indebtedness + pro rata (for the quarter) annual
     fees relating to the U.S. Bank Bonds and the U.S. Bank Letters of Credit
     shall be greater than or equal to 1.25:1.00, measured quarterly; and
                                                                      ---
               (b)   For the actual quarter, all Bond Financed Properties shall
     maintain a financial performance level such that the sum of their quarterly
     Net Income + Interest Expense + Depreciation and Amortization shall exceed
                                                                   ------------
     the sum of Interest Expense + pro rata (for the quarter) scheduled U.S.
     Bank Bonds principal payments + pro rata (for the quarter) annual fees
     relating to the U.S. Bank Bonds and the U.S. Bank Letters of Credit by 1.25
     times, measured quarterly.

               All cash flow coverage calculations for the Bond Financial
     Properties shall be based upon operating performance of the Bond Financed
     Properties and shall not take into consideration any cash collateral
     deposited with the Bank, including, but not limited to the remaining Cash
     Collateral, or the operating performance of the Additional Properties.

         B.    The annual letter of credit fee payable under Section 4.02 of the
Washington Reimbursement Agreement shall be increased to one and one-half
percent (1.50%) of the Stated Amount of the Letter of Credit as of each
anniversary date following the Date of Issuance (which amount shall be
calculated by the Bank) commencing with the letter of credit fee payable
December 1, 2000, and on the first day of each and every December thereafter
until the Termination Date,

         C.    The annual letter of credit fee payable under Section 4.02 of the
Idaho Reimbursement Agreement shall be increased to one and one-half percent
(1.50%) of the Stated Amount of the Letter of Credit as of each anniversary date
following the Date of Issuance (which amount shall be calculated by the Bank)
commencing with the letter of credit fee payable July 1, 2000, and on the first
day of each and every July thereafter until the Termination Date.

         D.    The fee letter referred to in Section 4.0 of the Ohio
Reimbursement Agreement shall be revised so that Borrower shall pay Bank an non-
refundable agency fee in the annual amount of $10,000 on July I of each year,
together with an annual letter of credit fee in the. amount of one and one-half
percent (1.50%) of the Stated Amount of the Letter of Credit as 01 each
anniversary date following the Date of Issuance (which amount shall be
calculated by the Bank) commencing with the letter of credit fee payable July 1,
2000, and on. the first day of each and every July thereafter until the
Termination Date.

         E.   Section 7.01(G) of each of the Reimbursement Agreements is amended
to add the following additional covenants, immediately following Section 7.01
(G)(iii):

                                       8
<PAGE>

              (i)  Borrower shall at all times maintain minimum cash balances
(excluding amounts that have been restricted), which cash balances shall be
measured at the end of each month:

<TABLE>
<CAPTION>
            Month                   Minimum Cash Balance Requirement
            -----                   --------------------------------
<S>                                           <C>
         July, 2000                            $5,500,000
         August, 2000                          $5,000,000
         September, 2000                       $5,500,000
         October, 2000                         $6,000,000
         November, 2000                        $1,000,000
         December, 2000                        $3,000,000
</TABLE>

              (ii) So long as there is no Event of Default under the
Reimbursement Agreements or any of the Related Documents, and no event that with
the giving of notice, the passage of time, or both, would constitute an Event of
Default under the Reimbursement Agreements or any of the Related Documents,
Borrower may make regularly scheduled installments of interest only payments
payable on May 1 and November 1 of each year on Borrower's 5.625% Convertible
Subordinated Debentures due May, 2003, issued in the original principal amount
of $75,000,000 and Borrower's 6.00% Convertible Subordinated Debentures due
November, 2002, issued in the original principal amount of $86,250,000
(collectively, the "Subordinated Debentures"). There shall be no payments of
principal, no prepayments of interest or principal, and no refinancing,
refunding, modification, restructure or redemption of the Subordinated
Debentures without the prior written consent of the Bank, which consent shall
not be unreasonably withheld.

              F.   Section 8.01 of each of the Reimbursement Agreements is
amended to add the following new Section 8.01(1) immediately following Section
8.01(k):

              (1)  there is any default under that certain Additional properties
     Deed of Trust, Security Agreement, Assignment of Leases and Rents and
     Fixture Filing dated July __, 2000 and recorded _______, 2000 in the
     official records of Whatcom, Pierce and Yakima Counties, Washington under
     Whatcom Recording No. ________, Pierce County Recording No. ___________ and
     Yakima County Recording No. ___________, and the same is not fully cured
     within the period of time, if any, provided for therein, and, if no period
     of cure is otherwise provided therein, within thirty (30) days after
     written notice from Bank to Borrower thereof

     5.   Confirmation.  The Reimbursement Agreements and each of the Related
          ------------
Documents (as defined in the Reimbursement Agreements) are each hereby modified
to provide that the term "Reimbursement Agreement" or "Reimbursement Agreements"
shall mean the Reimbursement Agreement or the Reimbursement Agreements, as
modified by this Second Amendment. Borrower hereby confirms, subject to this
Second Amendment, each of the covenants, agreements and obligations of Borrower
set forth in the Reimbursement Agreements or any of the Related Documents (as
defined in the Reimbursement Agreements). Borrower acknowledges and agrees that,
if and to the extent that the Bank has not heretofore required strict compliance
with the performance by Borrower of such covenants, agreements and obligations,
such action or inaction shall not constitute a waiver of, or otherwise affect in
any manner, Bank's rights and remedies under any of the Reimbursement
Agreements, as amended hereby, or any of the Related Documents (as defined in
the Reimbursement Agreements), including the right to require performance of
such covenants, agreements and obligations strictly in accordance with the terms
and provisions thereof except as waived herein. Each Deed of Trust or, with
respect to the Ohio Properties, Mortgage which secures the Borrower's
obligations under any Reimbursement Agreement is hereby modified to provide that
such Deed of Trust or Mortgage secures such Reimbursement Agreement as modified
hereby Borrower represents and warrants that (i) upon execution of this Second
Amendment; (ii) the encumbrance of the Additional Properties by execution,
delivery and recordation of the Additional Properties Deed of Trust, delivery,
recordation and/or filing and execution of the remaining documents described in
Section 3 of this Second Amendment, and (iii) the satisfaction of all of the
terms and conditions set forth in this Second Amendment, including, but not
limited to, payment of the restructuring fee and other costs and expenses set
forth in Section 15 of this Second Amendment, Borrower will not be in default in
the performance of any of the obligations, terms, covenants, conditions,
representations, warranties or other provisions set forth in the Reimbursement
Agreements or any of

                                       9
<PAGE>

the Related Documents (as defined in the Reimbursement Agreements), including
the right to require performance of such covenants, agreements and obligations
strictly in accordance with the term and provisions thereof except as waived
herein.  Each Deed of Trust or, with respect to the Ohio Properties, Mortgage
which secures the Borrower's obligations under any Reimbursement Agreement is
hereby modified hereby Borrower represents and warrants that (i) upon execution
of this Second Amendment; (ii) the encumbrance of the Additional Properties by
execution, delivery recordation and/or filing and execution of the remaining
documents described in Section 3 of this Second Amendment, and (iii) the
satisfaction of all the terms and conditions set forth in this Second Amendment,
including, but not limited to, payment of the restructuring fee and other costs
and expenses set forth in Section 15 of this Second Amendment, Borrower
representations, warranties or other provisions set forth in Section 15 of this
Second Amendment, Borrower will not be in default in the performance of any of
the obligations, terms, covenants, conditions, representations, warranties or
other provisions set forth in the Reimbursement Agreements or any of the Related
Documents (as defined in the Reimbursement Agreements).  Borrower has
no knowledge of any defenses, offsets or claims which may be asserted by
Borrower, or by anyone claiming by or through Borrower, to the indebtedness owed
by Borrower to Bank under the Reimbursement Agreements or any of the Related
Documents (as defined in the Reimbursement Agreements) or to the performance of
any of the obligations, terms, covenants, conditions, representations,
warranties or other provisions set forth in the Reimbursement Agreements or any
of the Related Documents (as defined in the Reimbursement Agreements).

     6.  Validity.  Except as specifically modified and amended by this Second
         --------
Amendment, all of the terms, covenants, conditions and provisions of the
Reimbursement Agreements and each of the Related Documents (as defined in the
Reimbursement Agreements) shall remain in full force and effect. Nothing herein
shall be deemed or construed to be an impairment of the lien of each Deed of
Trust or, with respect to the Ohio Properties, each Mortgage and the lien of
each Deed of Trust or each Mortgage shall remain a first lien against the
Washington Properties, the Idaho Properties or the Ohio Properties, as
applicable, described in such Deed of Trust or, with respect to the Ohio
Properties, such Mortgage.

     7.  Bankruptcy.  Borrower hereby represents and warrants that Borrower has
         ----------
not filed for relief under any chapter of Title 11 the United States Code, as
amended (hereinafter referred to as the "Bankruptcy Code") at any time prior to
the date of this Second Amendment, and that it has not been subject to an
involuntary petition under the Bankruptcy Code. Borrower further represents and
warrants that as of the date of this Second Amendment (i) Borrower is and
reasonably believes it will continue to be able to pay all of its creditors in a
timely manner; (ii) Borrower will not be rendered insolvent as a result of
entering into this Second Amendment and reasonably believes it will continue to
have assets which are reasonable in relation to its business; and (iii) the
agreements made and obligations provided for herein and the cure periods
provided to Borrower to cure the Event of Default set forth in Section 2 above,
were not made or incurred with any intent, actual or otherwise, to hinder, delay
or defraud any person or entity. Borrower waives its right pursuant to
Bankruptcy Code Section 1121(d) to seek any extension of the exclusive period in
which it may file a plan for reorganization and seek approval thereof. The
foregoing representations and warranties are a material inducement for Bank to
agree to enter into this Second Amendment. Nothing in this Section 7 shall be
deemed in any way to limit or restrict any of Bank's rights to seek in the
bankruptcy court any relief (or take any other action) that Bank, in Bank's sole
discretion, may deem appropriate in the event that a case under

                                      10
<PAGE>

the Bankruptcy Code is commenced by or against Borrower, and in particular, Bank
shall be free to move for an immediate vacation of the automatic stay under
Section 362 of the Bankruptcy Code, and Borrower agrees not to resist or oppose
any such motion. Bank shall also be free to move to terminate the exclusive
period under Section 1121 of the Bankruptcy Code and/or to dismiss the filed
bankruptcy case.

     8.  Release of Claims.
         -----------------

         (a) Release of All Claims.  Borrower, on behalf of itself, its
             ---------------------
affiliates and their respective successors and assigns (collectively, the
"Releasing Parties"), hereby release and forever discharge Bank and all of
Bank's officers, directors, employees, agents, attorneys, advisors, participants
and their respective successors and assigns (collectively, the "Released
Parties") from any and all claims, demands, debts, liabilities, contracts,
obligations, accounts, torts, causes of action or claims for relief of whatever
kind or nature, whether known or unknown, whether suspected or unsuspected,
which the Releasing Parties may have or which may hereafter be asserted or
accrue against Released Parties, or any of them, resulting from or in any way
relating to any act or omission done or committed by Released Parties, or any of
them, prior to the date hereof

         (b) Complete Defense.  This release by Releasing Parties shall
             ----------------
constitute a complete defense to any claim, cause of action, defense, contract,
liability, indebtedness or obligation released pursuant to this release.
Nothing in this release shall be construed as (or shall be admissible in any
legal action or proceeding as) an admission by Bank or any other Released Party
that any defense, indebtedness, obligation, liability, claim or cause of action
exists which is within the scope of those hereby released.

     9.  No Continuing Waiver.  No waiver of any of the provisions of the
         --------------------
Reimbursement Agreements or any of the Related Documents (as defined in the
Reimbursement Agreements) shall be deemed, or shall constitute, a continuing
waiver of any of the provisions of the Reimbursement Agreements or any of the
Related Documents (as defined in the Reimbursement Agreements) nor shall any
provision of this Second Amendment be deemed, or constitute, a waiver of any
other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver.  No waiver of any of the provisions of the Reimbursement
Agreements shall be binding unless executed in writing by the party making the
waiver.  Nothing contained in this Second Amendment or in any ongoing
discussions or negotiations between Borrower or Bank shall directly or
indirectly (i) create any obligation to make any further extension of credit;
(ii) create any obligation to make any further forbearance or waiver or defer
any enforcement action by Bank as a result of the occurrence of an Event of
Default under the Reimbursement Agreements or any of the Related Documents (as
defined in the Reimbursement Agreements) which is not described in Section 2 of
this Second Amendment or with respect to any Event of Default which is described
in Section 2 of this Second Amendment beyond the dates set forth in Section 2 of
this Second Amendment; (iii) constitute a consent or waiver of any past, present
or future Event of Default or other violation of any provision of the
Reimbursement Agreements or any of the Related Documents (as defined in the
Reimbursement Agreements) except to the extent expressly set forth in Section 2
of this Second Amendment; (iv) constitute a course of dealing or other basis for
altering any of Borrower's obligations to Bank under the Reimbursements
Agreements or any of the Related Documents (as defined in the Reimbursement
Agreements).  Bank expressly reserves all of its rights, powers and remedies
under the

                                      11
<PAGE>

Reimbursement Agreements and each of the Related Documents (as defined in the
Reimbursement Agreements).

    10.  Reaffirmation of Representations and Warranties.  Borrower does hereby
         -----------------------------------------------
reaffirm to Bank each of the representations, warranties, covenants and
agreements made by Borrower set forth in each of the Reimbursement Agreements
with the same force and effect as if each were separately stated herein and made
again as of the date hereof.  This reaffirmation shall not in any way limit,
derogate or abrogate the representations, warranties, covenants and agreements
made by Borrower as set forth in the Reimbursement Agreements.  Borrower further
represents and warrants to Bank that with the exception of the Borrower's
anticipated failure to comply with the cash flow covenant set forth in Section
7.01(G)(iii)(a) of the Reimbursement Agreements at the corporate level for the
quarters ending June 30, 2000 and September 30, 2000, as described in Section 2
of this Second Amendment, Borrower is in compliance with all of the terms,
covenants, representations, warranties and agreements made by Borrower in the
Reimbursement Agreements and each of the Related Documents (as defined in the
Reimbursement Agreements).  There is no Event of Default under and no event that
with the giving of notice, the passage of time, or both, would constitute an
Event of Default under any of the Reimbursement Agreements, or any of the
Related Documents (as defined in the Reimbursement Agreements).

    11.  Time is of the Essence.  Time is of the essence of this Second
         ----------------------
Amendment.

    12.  Binding Effect.  This Second Amendment shall be binding upon Borrower
         --------------
and its successors and permitted assigns and shall inure to the benefit of Bank
and its successors and assigns.

    13.  Prior Agreements.  The Reimbursement Agreements and each of the Related
         ----------------
Documents (as defined in the Reimbursement Agreements), including this Second
Amendment and the documents attached as exhibits to or referred to in this
Second Amendment (i) integrate all the terms and conditions mentioned in or
incidental to the Reimbursement Agreements and each of the Related Documents (as
defined in the Reimbursement Agreements), (ii) supersede all oral negotiations
and prior and other writings with respect to the subject matter thereof, and
(iii) are intended by the parties as the final expression of the agreement with
respect to the terms and conditions set forth in this Second Amendment modifying
and restructuring the Reimbursement Agreements and each of the Related Documents
(as defined in the Reimbursement Agreements) and as the complete and exclusive
statement of the terms agreed to by the parties. If there is any conflict
between the terms, conditions and provisions of this Second Amendment and those
of any of the Reimbursement Agreements or any of the Related Documents (as
defined in the Reimbursement Agreements), the terms, conditions and provisions
of this Second Amendment shall prevail.

    14.  No Rights Conferred on Others.  Nothing contained in this Second
      --------------------------------
Amendment, the Reimbursement Agreements or any of the Related Documents (as
defined in the Reimbursement Agreements) shall be construed as giving any
person, other than the parties hereto, any right, remedy or claim under or in
respect of this Second Amendment except for the rights granted to the Released
Parties in Section 8 hereof.

    15.  Costs and Expenses.  Bank's agreement to forbear and waive certain
         ------------------
Events of Default under the Reimbursement Agreements is expressly conditioned
upon payment to Bank of

                                      12
<PAGE>

a non-refundable restructuring fee of $75,000,00. Borrower shall reimburse Bank
for all fees, costs and expenses incurred by Bank in the negotiation,
preparation and administration of the modification and restructuring of the
Reimbursement Agreements and other Related Documents contemplated by this Second
Amendment. Such fees and costs include, but are not limited to, outside counsel
attorney fees and costs, inspection fees, title insurance premiums, appraisal
fees, environmental review fees, UCC searches filing and recording fees, and the
costs incurred to satisfy all terms of this Second Amendment. All such costs and
expenses shall be paid upon execution of this Second Amendment.

    16.  Governing Law.  This Second Amendment and the rights and obligations of
         -------------
the parties hereunder shall in all respects be governed by, and construed and
enforced in accordance with the laws of the State of Washington.  If any court
of competent jurisdiction determines any provision of this Second Amendment or
any of the Reimbursement Agreements or any of the Related Documents (as defined
in the Reimbursement Agreements) to be invalid, illegal or unenforceable, that
portion shall be deemed severed from the rest, which shall remain in full force
and effect as though the invalid, illegal or unenforceable portion had never
been a part hereof or of the Reimbursement Agreements or any of the Related
Documents (as defined in the Reimbursement Agreements).

    17.  Voluntary Agreement.  The Borrower acknowledges that the Borrower is
         -------------------
represented by legal counsel of the Borrower's choice, is fully aware of the
terms contained in this Second Amendment, and has voluntarily and without
coercion or duress of any kind entered into this Second Amendment and the
documents executed in connection with this Second Amendment.

    18.  Counterparts.  This Second Amendment may be executed in any number of
         ------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.

    19.  Notice re Oral Commitments.  Oral agreements or oral commitments to
         --------------------------
loan money, extend credit, or to forbear from enforcing repayment of a debt are
not enforceable under Washington law.

    IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.

           "Bank"                                         "Borrower"

U.S. BANK NATIONAL ASSOCIATION                   ASSISTED LIVING CONCEPTS, INC.,
                                                 a Nevada corporation

By                                               By
  ----------------------------                     -----------------------------
Name                                             Name
    --------------------------                       ---------------------------
Title                                            Title
     -------------------------                        --------------------------

                                      13

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