Document:

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                                                                   EXHIBIT 10.30

                              EMPLOYMENT AGREEMENT

         THIS AGREEMENT is made as of this 1st day of December, 2003, by and
between Assisted Living Concepts, Inc, a Nevada corporation with a principal
address at 1349 Empire Central, Suite 900, Dallas, Texas 75247 ("ALC") and
Edward A. Barnes, an individual residing at 7230 Colgate, Dallas, Texas 75225
("Executive").

                                   WITNESSETH:

         WHEREAS, ALC desires to employ Executive as its Chief Financial Officer
("CFO"); and

         WHEREAS, Executive desires to be so employed by ALC; and

         WHEREAS, ALC and Executive desire to set forth in writing their
agreements regarding the employment and compensation of Executive;

         NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ALC and Executive hereby agree as
follows:

         1. Prior Agreements. This Agreement, when effective, shall be deemed to
revoke, rescind, and supersede any and all other promises, representations,
understandings, practices, and/or agreements, whether written or oral, express
or implied, between ALC and Executive relating to the terms of the Executive's
employment by ALC.

         2. Term. This agreement will remain in effect unless and until
terminated by either party in accordance with the terms herein.

         3. Employment. Executive will be employed as CFO, reporting and subject
to the supervision and control of the President and Chief Executive Officer
("CEO") and/or Board of Directors ("Board") of ALC. Executive shall timely and
faithfully perform and discharge his

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duties and devote substantially all of his time, attention, skills and efforts
to promote the interests of ALC. Except as otherwise agreed to by the CEO)
and/or Board, Executive shall not work with or accept or receive any
compensation or consideration from any other organization, firm, corporation,
person, or otherwise, for services to be performed or performed by Executive,
provided however that Executive may serve on civic or charitable boards or
committees, fulfill speaking engagements, and manage a financial portfolio of
personal investments so long as such activities do not interfere with the
performance of Executive's duties hereunder. Executive shall at all times act in
accordance with the policies, rules, and by-laws of ALC as established and/or
modified from time-to-time, and in accordance with applicable state, federal,
and local laws and regulations.

         4. Compensation.

         4.1 Salary. ALC shall pay Executive a base salary at the annualized
rate of One Hundred and Seventy-Five Thousand Dollars ($175,000.00) payable in
accordance with ALC's usual payroll practices, and subject to withholding
therefrom of federal and state income taxes, any other employment taxes required
to be collected or withheld, and other amounts required or requested by
Executive to be withheld. Executive's salary shall be subject to annual review
by the Board and Compensation Committee of ALC.

         4.2 Signing Bonus. Executive will receive a signing bonus in the amount
of thirty-five thousand dollars ($35,000.00) less applicable taxes.
Twenty-thousand dollars of the thirty-five thousand dollar ($35,000.00) bonus
will be paid in a lump-sum with the first payroll after Executive commences his
employment with ALC. The remaining fifteen-thousand dollars ($15,000.00) will be
paid on or before April 15, 2004 provided an accurate and timely audited annual
report has been filed.

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         4.3 Performance Bonus. Executive may, in the sole discretion of ALC, be
paid an annual bonus of up to 120% of base pay based on his performance and the
performance of ALC. Such bonus, if any, shall be in an amount to be determined
by the Compensation Committee of ALC and shall be calculated after ALC's annual
audit.

         4.4 Stock Options. Subject to stockholder approval and the separate
stock option agreement provided to Ed Barnes at the inception of this Employment
Agreement, Executive shall receive options for the purchase of thirty two
thousand five hundred (32,500) shares of ALC's common stock, par value $.01 per
share (the "Common Stock"). The options shall vest the earlier of: (a) the Sale
(as defined in Section 8.1) of ALC; or (b) over three years at the rate of 29.68
shares per calendar day. The exercise price for each share of Common Stock shall
be the closing price of a share of Common Stock as quoted on the OTC Bulletin
Board, on the first day of employment. Executive acknowledges that all options
shall be governed by ALC's stock option plan, which is currently under review,
and that any inconsistencies between this subparagraph and said stock option
plan shall be controlled by the stock option plan, provided that the exercise
price, number of shares and vesting schedule shall not be adversely affected
thereby.

         4.5 "Key Man" Life Insurance. ALC, in its discretion, may apply for and
procure in its own name and for its own benefit, life insurance on the life of
the Executive in any amount or amounts considered advisable by ALC, and
Executive shall submit to any medical or other examination, and shall execute
and deliver any application or other instrument in writing, reasonably necessary
to effectuate such insurance.

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         4.6 Director and Officer Insurance. Executive will be covered by the
terms of ALC's Director and Officer Insurance for any lawful activities
conducted or carried out by Executive within the scope of his employment.

         4.7 Indemnification. Executive, in any capacity on behalf of Company
or any of its subsidiaries or affiliates or otherwise serving at Company's
request, shall be entitled to exculpation, indemnification, and advancement of
expenses to the fullest extent not prohibited by Delaware or other applicable
law for any lawful activities conducted or carried out by Executive within the
scope of his employment.

         5. Other Benefits.

         5.1 Subject to Executive meeting the eligibility requirements of the
provider(s) (including without limitation any waiting periods), Executive shall
be eligible to participate in any health care plan, dental care plan, life
insurance plan, long-term disability insurance plan, retirement plan, 401(k)
plan and any other employee benefit plan sponsored or maintained by ALC from
time-to-time, on the same basis as other employees of ALC similarly situated.
Nothing in this Agreement shall obligate ALC to sponsor, maintain or provide
access to any such plans generally or limit the discretion of ALC to terminate
or modify the terms of any such plans or change providers thereof at any time
and for any reason.

         5.2 Executive shall be entitled to four (4) weeks of vacation per
calendar year. Fifty percent (50%) of any unused vacation time shall expire at
the close of business on December 31st of each year. Executive shall not be
entitled to any payment or other compensation in lieu of unused vacation time,
unless terminated for other than "good cause".

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         6. Reimbursement of Expenses

         6.1 ALC shall reimburse Executive for his documented, reasonable and
necessary out-of-pocket business expenses incurred by Executive in the
performance and discharge of his duties on behalf of ALC in accordance with and
subject to ALC's policies and procedures regarding expense reimbursement in
effect from time-to-time.

         7. Termination.

         7.1 This Agreement may be terminated at any time for any reason by
either party upon not less than thirty (30) days notice. If ALC terminates this
Agreement for "good cause", no advance notice shall be required. "Good cause"
shall include, but not be limited to, ALC's good faith belief that Executive has
engaged in conduct which constitutes gross negligence or fraud.

         8. Severance.

         8.1 If Executive is terminated by ALC during the first 12-months of his
employment for a reason other than "good cause" or is terminated during such
12-month period in connection with the "sale" of ALC, Executive shall receive
severance pay equal to the difference between the number of months he has been
employed by ALC and 12-months, but in no case less then three (3) months salary.
For example, if Executive's employment is terminated without "good cause" during
his fifth month of employment, Executive would be entitled to severance pay
equal to seven (7) months salary. "Sale" includes (a) a merger in which ALC is
not the surviving entity; (b) a stock sale in which the majority of ALC's
outstanding shares of common and/or preferred stock are sold; and (c) the sale
of all or substantially all of the assets of ALC. Executive shall be deemed to
have been terminated in connection with a sale if the purchaser/successor does
not offer Executive

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employment in a comparable position with substantially the same salary and
benefits. If Executive is terminated by ALC at any time after his first
12-months of his employment for a reason other than "good cause" or is
terminated in connection with the "sale" of ALC, Executive shall receive
severance pay equal to three (3) months salary.

         8.2 Severance will be paid in equal monthly installments, less
applicable taxes and other withholding, on or before the tenth (10th) day of
each month during such period, with the first such installment to be paid on or
before the tenth (10th) day of the month following such termination.

         8.3 In order to be eligible for and continue to receive monthly
severance payments, Executive will be required to sign a General Release of
claims against ALC and must continue to abide by applicable provisions of this
Agreement, including Paragraphs 9 and 10 and their respective subparagraphs.

         9. Restrictions on the Disclosure of Proprietary Information.

         9.1 Proprietary Information. For purposes of this Agreement, the term
"Proprietary Information" shall mean all confidential knowledge and information
in any form or medium which Executive acquires, learns or becomes aware of as a
result of or in connection with his employment with ALC concerning: (1) ALC's
business, financial condition, operations, strategic planning, research and
development activities, current or proposed products, product designs, trade
secrets, competitive business information, patents, patent rights, inventions,
technology, copyrights, software (including without limitation, source code,
object code and firmware), improvements, applications, processes, services, cost
and pricing policies, client lists, vendor relationships and contact lists; and
(2) information of the kind, type or nature described in the foregoing clause
(1) of or with respect to each third party with whom ALC at any time and from

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time-to-time enters a confidentiality or non-disclosure agreement pursuant to
which ALC is obligated to keep such third party's information confidential.
Notwithstanding the foregoing, Proprietary Information does not include
information which is or becomes part of the public domain through no fault of
Executive or which Executive can demonstrate was independently developed by him
without use of or reference to any Proprietary Information.

         9.2 Non-Disclosure and Non-Use Obligations. Executive agrees that he
will not at any time, without the prior written consent of ALC (which shall be
evidenced by a writing signed by a majority of ALC's Board or by action taken by
the Board a meeting), either during or after any termination of this Agreement,
divulge or disclose to anyone outside the ALC or its professional advisers, or
use or permit any third party to use for its own benefit, any such Proprietary
Information. Executive will not, during his or her engagement by the ALC
hereunder or at any time thereafter, use or attempt to use any such Proprietary
Information for any purpose other than Executive's provision of services to ALC,
and in no event in any manner which may injure or cause loss or may be
calculated or reasonably expected to injure or cause loss to ALC. Executive may
divulge or disclose Proprietary Information to Executive's legal advisers,
provided that such advisors agree to keep such Proprietary Information
confidential, or in response to a court or arbitration order.

         Executive further agrees not to make any notes, memoranda, flow charts,
logic diagrams, specifications, reports, compilations, analyses, sketches,
drawings, technical data, source code, object code, models or other physical
manifestations (or copies thereof) relating to any matter within the scope of
the Proprietary Information at any time other than for the benefit of ALC, or,
either during or after the termination of this Agreement, to use or permit to be
used any such

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information (or copies thereof) other than for the benefit of ALC. Upon
termination of this Agreement, Executive shall deliver to ALC at its address set
forth above all such notes, memoranda, flow charts, logic diagrams,
specifications, reports, compilations, analyses, sketches, drawings, technical
data, source code, object code, models and other physical manifestations and any
other related information and all copies thereof made during the term of this
Agreement.

         10. Certain Covenants of Executive.

         10.1 Non-Compete. During the time Executive is employed under this
Agreement (the "Restricted Period"), Executive shall not, in the United States
of America or in any foreign country, directly or indirectly: (i) engage in any
business engaged in by ALC or any business similar or related thereto
("Business") for his own account; (ii) enter the employ of or render any
services to any persons engaged in such activities; or (iii) become interested
in any person engaged in the Business, directly or indirectly, as an individual,
partner, shareholder, officer, director, principal, agent, employee, trustee,
consultant or in any other relationship or capacity; provided, however, that
Executive may own, directly or indirectly, solely as an investment, securities
of any person which are traded on any national securities exchange or NASDAQ if
Executive: (a) is not a controlling person of, or a member of a group which
controls such person or (b) does not, directly or indirectly, own 4% or more of
any class of securities of such person.

         10.2 Property of ALC. All property of ALC shall be delivered to ALC
promptly upon the termination of Executive's employment with ALC or any of its
affiliates or at any other time on request. Such property shall include, but is
not limited to, computers, keys, memoranda,

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notes, lists, records and other documents (and all copies thereof) made or
compiled by Executive or made available to Executive during or in connection
with his employment by ALC.

         10.3 Employees, Vendors and Customers of ALC. During the Restricted
Period and for a period of six months following the termination of the
Executive's employment with ALC or any of its affiliates (whether for "good
cause" or otherwise), Executive shall not, directly or indirectly: (i) hire,
solicit or encourage to leave the employment of ALC or any of its affiliates,
any employee of ALC or its affiliates or hire any such employee who has left the
employment of ALC or any of its affiliates within six (6) months of the
termination of such employee's employment with ALC or any of its affiliates, or
(ii) call upon, solicit, direct to others or place business or attempt to call
upon, solicit, direct away or place business with respect to any of ALC's
customers or prospects, vendors, or sales representatives.

         10.4 Consultants and Independent Contractors of ALC. During the
Restricted Period and for a period of six months following the termination of
Executive's employment with ALC or any of its affiliates (whether for cause or
otherwise), Executive shall not, directly or indirectly, hire, solicit or
encourage to cease to work with ALC or any of its affiliates, any consultant,
sales representative or other person then under contract with ALC or any of its
affiliates.

         10.5 Rights and Remedies Upon Breach. If Executive breaches, or
threatens to commit a breach of, any of the provisions of Paragraphs 9 and 10
and their respective subparagraphs, ALC shall have the following rights and
remedies, each of which shall be independent of the other and severally
enforceable, and all of which shall be in addition to, and not in lieu of, any
other rights and remedies available to ALC under law or in equity.

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                  (a) Specific Performance. The right and remedy to have
         Paragraphs 9 and 10 and their respective subparagraphs specifically
         enforced by any court having equity jurisdiction, it being acknowledged
         and agreed that any such breach or threatened breach will cause
         irreparable injury to ALC and its affiliates and that money damages
         will not provide an adequate remedy to ALC.

                  (b) Accounting. The right and remedy to require the Executive
         to account for and pay over to ALC all compensation, profits, monies,
         accruals, increments or other benefits (collectively, "Benefits")
         derived or received by Executive as a result of any transactions
         constituting a breach of Paragraphs 9 and 10 and their respective
         subparagraphs, and Executive shall account for and pay over such
         Benefits to ALC.

                  (c) Severability of Covenants. If any court determines that
         any of the covenants in Paragraphs 9 and 10 and their respective
         subparagraphs, or any parts thereof are invalid or unenforceable, the
         remainder shall not thereby be affected and shall be given full effect,
         without regard to the invalid portions.

                  (d) "Blue-Penciling". If any court construes any of the
         covenants Paragraphs 9 and 10 and their respective subparagraphs, or
         any part thereof, to be unenforceable because of the duration of such
         provision or the area covered thereby, such court shall have the power
         to reduce the duration or area of such provision and, in its reduced
         form, such provision shall then be enforceable and shall be enforced.

                  (e) Enforceability in Jurisdictions. The parties intend to and
         hereby confer jurisdiction to enforce covenants in Paragraphs 9 and 10
         and their respective subparagraphs upon the courts of any jurisdiction
         within the geographical scope of such

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         covenants. If the courts of any one or more of such jurisdictions hold
         the covenants wholly unenforceable under the law of that jurisdiction
         by reason of the breadth of such scope or otherwise, it is the
         intention of the parties that such determination not bar or in any way
         affect ALC'S right to the relief provided above in the courts of any
         other jurisdiction within the geographical scope of such covenants, as
         to breaches of such covenants in such other respective jurisdictions,
         such covenants as they relate to each jurisdiction being, for this
         purpose, severable into diverse and independent covenants.

         11. Additional Provisions.

         11.1 All notices, waivers, consents, requests, designations, demands or
other communications required or desired to be given by either party hereunder
to the other under this Agreement shall be in writing and shall be deemed to
have been given at the time when either personally served, sent by facsimile
transmission or reputable overnight courier, or mailed at any general or branch
United States Post Office enclosed in a certified postpaid envelope, return
receipt requested, addressed to the address of the respective parties stated
below, or to such changed address as such parties may have fixed by notice:

         If to ALC:

         Steven L. Vick
         President and CEO
         Assisted Living Concepts, Inc.
         1349 Empire Central
         Suite 900
         Dallas, Texas 75247

         If to Executive:

         Edward A. Barnes
         7230 Colgate
         Dallas, Texas 75225

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Such notices, if mailed, shall be deemed to have been received not later than
five (5) days from the date on which sent.

         11.2 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and there are no
terms hereof other than those contained herein. No variations, modifications, or
amendments hereof shall be deemed valid unless in writing and signed by both
parties hereto, and no waiver, modification or discharge of any of the terms,
conditions or provisions hereof shall be deemed valid unless by a writing signed
by the parties hereto.

         11.3 Governing Law and Arbitration. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas as applied to
agreements between Texas residents entered and to be performed entirely within
Texas. Any dispute between Executive and ALC arising under or related to this
Agreement or otherwise concerning the employment of Executive by ALC or the
termination of such employment shall be resolved by submitting the matter to
binding arbitration. Arbitration shall be conducted in Dallas, Texas pursuant to
the procedural rules then in effect of the American Arbitration Association and
shall be heard by a single arbitrator, reasonably agreed to by the parties, who
shall be an attorney-at-law licensed to practice and in good standing in the
State of Texas and knowledgeable in employment matters. The decision of such
arbitrator shall be final and binding on the parties and may be entered for
enforcement in any court or tribunal of competent jurisdiction and authority.
The arbitrator shall award such damages or other relief as he deems appropriate
and may, but shall not be required to, award legal fees and costs to the
prevailing party. All costs of such arbitration (excluding fees, disbursements
and expenses of counsel, advisors, witnesses and

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experts) shall be borne equally by the parties. This Subparagraph shall not
prevent ALC from seeking or obtaining injunctive relief where such remedy is the
appropriate form of remedy under the circumstances, including, without
limitation, for any breach of Paragraphs 9 and 10 above and their respective
subparagraphs.

         11.4 Assignment. This Agreement, together with any amendments hereto,
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors, assigns, heirs and personal representatives, except
that the rights and benefits of either of the parties under this Agreement may
not be assigned without the prior written consent of the other party.

         11.5 Headings. The headings at the beginning of each paragraph and/or
subparagraph of this Agreement are solely for the convenience and reference of
the parties and shall not be taken into account in construing this Agreement or
any part hereof. The use of the masculine tense herein shall, where the context
so indicates, be deemed to include the neuter and vice versa, and the use of the
singular shall be deemed to include the plural, and vice versa. As used herein,
the terms "Agreement" and "this Agreement" shall be deemed to mean this
Employment Agreement.

         11.6 Cooperation. Each of the parties hereto hereby agrees that he or
it will, from time-to-time hereafter, upon the other's reasonable request,
execute, acknowledge and deliver all such documents and do all such other acts
and things as the other, or his or its respective attorneys, may reasonably
request in order to carry out this Agreement and the actions contemplated
hereunder.

         11.7 ALC. As utilized herein, the term "ALC" shall include Assisted
Living Concepts, Inc. and its subsidiaries and affiliates unless the context
dictates to the contrary.

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         11.8 Severability. Should any paragraph, subparagraph or other term or
provision of this Agreement not be legally enforceable in any jurisdiction, the
remainder of the Agreement shall not be affected thereby. In addition, should a
court of competent jurisdiction determine that any paragraph, subparagraph or
other term or provision of this Agreement is not legally enforceable, the
Agreement shall be deemed modified to the minimum extent necessary to make it
legally enforceable.

         11.9 Execution In Counterparts. This Agreement may be executed in any
number of counterparts, each and all of which, when fully signed, shall be
deemed for all purposes to be an original. This Agreement shall be effective
upon execution by both parties.

         11.10 Right to Advice of Counsel. Executive acknowledges that he has
had the opportunity to consult with legal counsel and is fully aware of his
rights and obligations under this Agreement. Executive represents and warrants
that he is not a party to or bound by an agreement which in any way prevents,
limits, impairs or otherwise affects his ability to enter into and/or fully and
timely perform his obligations under this Agreement.

         11.11 Waiver. A party's failure to insist on compliance or enforcement
of any provision of this Agreement, shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that provision or
of any other provision of this Agreement by that party or any other party.

         IN WITNESS WHEREOF, ALC and Executive have duly executed this
Employment Agreement as a sealed instrument as of the day and year first above
written.

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                                        Assisted Living Concepts, Inc.:

                                        By:  /s/ STEVEN L. VICK
                                           -------------------------------------
                                           Steven L. Vick
                                           President and CEO

                                        Executive:

                                        /s/ EDWARD A. BARNES
                                        ----------------------------------------
                                        Edward A. Barnes

                                       15<PAGE>
                                                                   EXHIBIT 10.31

                             MASTER LEASE AGREEMENT

                                     Between

            LTC PROPERTIES, INC., AND TEXAS-LTC LIMITED PARTNERSHIP,
                                    as Lessor

                                       and

    ASSISTED LIVING CONCEPTS, INC., AND CARRIAGE HOUSE ASSISTED LIVING, INC.,
                                    as Lessee

                            Dated: November 30, 2001

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                             MASTER LEASE AGREEMENT

         THIS MASTER LEASE AGREEMENT (this "LEASE") is made effective as of
November 30, 2001, by and between LTC PROPERTIES, INC., a Maryland corporation
and TEXAS-LTC LIMITED PARTNERSHIP, a Texas limited partnership (collectively,
"LESSOR"), on the one hand, and ASSISTED LIVING CONCEPTS, INC., a Nevada
corporation and CARRIAGE HOUSE ASSISTED LIVING, INC., a Delaware corporation
(collectively, "LESSEE"), on the other, subject to the terms, conditions and
contingencies set forth below.

                                    RECITALS

         WHEREAS, one or the other party constituting Lessor owns (or leases,
with respect to the facility located in Newport, Oregon, as more particularly
described in SECTION 33.18 below) sixteen (16) assisted living facilities (as
more particularly defined below, the "FACILITIES"), and desires to lease them to
Lessee pursuant to the terms and conditions of this Lease; and

         WHEREAS it the parties' intention to set forth their respective
covenants and obligations in a single agreement, not merely as matter of
convenience, but because the leasing of all sixteen (16) Facilities as an
inseparable unit is a special and essential inducement to Lessor to enter into
this transaction, and but for the leasing of all sixteen (16) Facilities
together as an inseparable whole, Lessor would not have entered into this Lease;
and

         WHEREAS the parties agree and acknowledge that the amount set forth as
Minimum Rent (defined below) is calculated on the basis of leasing of all
sixteen (16) Facilities together as a single, inseparable group and is
non-allocable among the sixteen (16) Facilities, and that it would be impossible
to allocate to any one or more of the Facilities a divisible portion of the
Minimum Rent.

         NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt,
sufficiency and mutuality of which are hereby acknowledged, it is agreed as
follows:

                                   ARTICLE I

                  1.1. Leased Property. Upon and subject to the terms and
conditions hereinafter set forth, Lessor leases to Lessee, and Lessee rents or
hires from Lessor all of the following (the "LEASED PROPERTY"):

                  (i)      The real property particularly described in EXHIBIT
                           "A" (the "LAND");

                  (ii)     All of buildings, structures, Fixtures (as
                           hereinafter defined) and other improvements of every
                           kind including, but not limited to, alleyways and
                           connecting tunnels, sidewalks, utility pipes,
                           conduits and lines (on-site and offsite), parking
                           areas and roadways appurtenant to such buildings and
                           structures presently situated upon the Land,
                           including without limitation the Facilities (as
                           defined below) (collectively, the "LEASED
                           IMPROVEMENTS");

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                  (iii)    the easements, rights and appurtenances relating to
                           the Land and the Leased Improvements;

                  (iv)     the permanently affixed equipment, machinery,
                           fixtures, and other items of real and/or personal
                           property, including all components thereof, now and
                           hereafter located in, on or used in connection with,
                           or permanently affixed to or incorporated into the
                           Leased Improvements, including, without limitation,
                           all furnaces, boilers, heaters, electrical equipment,
                           heating, plumbing, lighting, ventilating,
                           refrigerating, incineration, air and water pollution
                           control, waste disposal, air cooling and
                           air-conditioning systems and apparatus, sprinkler
                           systems and fire and theft protection equipment, all
                           of which to the greatest extent permitted by law, are
                           hereby deemed by the parties hereto to constitute
                           real estate, together with all replacements,
                           modifications, alterations and additions thereto, but
                           specifically excluding all items included within the
                           category of Lessee's Personal Property as defined in
                           ARTICLE II below (collectively the "FIXTURES"); and

                  (v)      All of its right, title and interest in and to
                           personal tangible and intangible property including
                           all components thereof, owned by Lessor and now and
                           hereafter located in, on or used in connection with
                           the Leased Improvements.

         The Leased Property is demised subject to all covenants, conditions,
restrictions, easements and all other matters affecting title, whether or not of
record, the conditions and limitations expressly set forth herein, and any and
all matters created by or known to Lessee.

                  1.2. Term. Subject to the express condition to the
effectiveness of this Lease as set forth in SECTION 32.1 below, the term of this
Lease (the "TERM") shall commence on the later to occur of (i) January 1, 2002,
or (ii) the date upon which Lessee emerges from the Bankruptcy Cases (the later
to occur of (i) and (ii) shall be referred to as the "COMMENCEMENT DATE") and
shall expire (if not sooner terminated) at midnight (California time) on
December 31, 2008.

                                   ARTICLE II

         2. Definitions. For all purposes of this Lease, except as otherwise
expressly provided, (i) the terms defined in this ARTICLE II have the meanings
assigned to them in this ARTICLE II and include the plural as well as the
singular, (ii) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles at the time applicable, and (iii) the words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Lease as a whole and
not to any particular Article, Section or other subdivision:

         Additional Charges. As defined in ARTICLE III.

         Affiliate. When used with respect to any corporation, the term
"Affiliate" shall mean any person which, directly or indirectly, controls or is
controlled by or is under common control with

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<PAGE>

such corporation. For the purposes of this definition, "control" (including the
correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such person, through the ownership of voting securities,
partnership interests or other equity interests. For the purposes of this
definition, "person" shall mean any natural person, trust, partnership,
corporation, joint venture or other legal entity.

         Bankruptcy Cases. The Chapter 11 bankruptcy filed by Assisted Living
Concepts, Inc. in the United States Bankruptcy Court for the District of
Delaware, Case No. 01-10674, and the Chapter 11 bankruptcy filed by Carriage
House Assisted Living, Inc. in the United States Bankruptcy Court for the
District of Delaware, Case No. 01-1-670.

         Business Day. Each Monday, Tuesday, Wednesday, Thursday and Friday,
which is not a day on which national banks in the City of Los Angeles,
California, are authorized, or obligated, by law or executive order, to close.

         Change of Control. As defined in ARTICLE XVIII below.

         Consolidated Financials. For any Fiscal Year or other accounting period
for Lessee and its consolidated subsidiaries, statements of earnings and
retained earnings and of changes in financial position for such period and the
related balance sheet as of the end of such period, together with the notes
thereto, all audited by a certified public accountant and in reasonable detail
and setting forth in comparative form the corresponding figures for the
corresponding period in the preceding Fiscal Year, and prepared in accordance
with generally accepted accounting principles.

         Consolidated Net Worth. At any time, the sum of the following for
Lessee and its consolidated subsidiaries, on a consolidated basis determined in
accordance with generally accepted accounting principles:

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

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

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

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

                                      -3-
<PAGE>

         Controlling Entity. As defined in ARTICLE XVIII below.

         Encumbrance. As defined in ARTICLE XXXII.

         Event of Default. As defined in ARTICLE XVI.

         Facilities. Collectively, the sixteen (16) assisted living facilities
located at the following common addresses:

                  1301 Bennett Street, Burley, Idaho 83318
                  114 Corduroy Road, Kelso, Washington 98626
                  411 SE 35th Street, Newport, Oregon 97365
                  660 W. Honeysuckle Avenue, Hayden, Idaho 93835
                  715 W. Comstock, Nampa, Idaho 83651
                  2900 Corporate Drive, Troy, Ohio 45373
                  1120 N. First Street, Norfolk, Nebraska 68701
                  1313 Hackberry Street, Wahoo, Nebraska 68066
                  1649 Broadway Avenue, Hoquiam, Washington 98550
                  781 E. Country Road, Tiffin, Ohio 44883
                  3076 Shoshane Drive, Lake Havasu, Arizona 86403
                  2943 Desert Sky, Bullhead City, Arizona 86442
                  900 Pirate Drive, Wheelersburg, Ohio 45694
                  607 Virginia Avenue, Madison, Indiana 47250
                  1525 Highway 79 South, Wichita Falls, Texas 76302
                  2506 3rd Avenue North, Denison, Iowa 51142

         Facility. As the context requires, any one of the Facilities.

         Facility Mortgage. As defined in ARTICLE XIII.

         Facility Mortgagee. As defined in ARTICLE XIII.

         Fiscal Year. The twelve (12) month period from January 1 through
December 31 of the same calendar year (as prorated for any partial Fiscal Year
during the Term).

         Fixtures. As defined in ARTICLE I.

         Impositions. Collectively, all taxes (including, without limitation,
all ad valorem, sales and use, single business, gross receipts, transaction
privilege, rent or similar taxes as the same relate to or are imposed upon
Lessee or its business conducted upon the Leased Property), assessments
(including, without limitation, all assessments for public improvements or
benefits, whether or not commenced or completed prior to the date hereof and
whether or not to be completed within the Term), ground rents, water, sewer or
other rents and charges, excises, tax levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other governmental or public charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Property or the business conducted thereon by
Lessee (including all interest and penalties thereon due to any failure in
payment by Lessee), and all increases in all the above from any cause

                                      -4-
<PAGE>

whatsoever, including reassessment, which at any time prior to, during or in
respect of the Term may be assessed or imposed on or in respect of or be a lien
upon (a) Lessor's interest in the Leased Property, (b) the Leased Property or
any part thereof, or any rent therefrom or any estate, right, title or interest
therein, or (c) any occupancy, operation, use or possession of, or sales from,
or activity conducted on, or in connection with the Leased Property or the
leasing or use of the Leased Property or any part thereof by Lessee. Provided,
however, nothing contained in this Lease shall be construed to require Lessee to
pay (1) any tax based on net income (whether denominated as a franchise or
capital stock or other tax) imposed on Lessor, or (2) any transfer, or net
revenue tax of Lessor, or (3) any income or capital gain tax imposed with
respect to the sale, exchange or other disposition by Lessor of any Leased
Property or the proceeds thereof, or (4) any single business, gross receipts
(other than a tax on any rent received by Lessor from Lessee), transaction,
privilege, rent or similar taxes as the same relate to or are imposed upon
Lessor, and are unrelated to the Leased Property.

         Insurance Requirements. All terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy.

         Land. As defined in ARTICLE I.

         Lease. As defined in the Preamble.

         Lease Year. Each twelve (12) month period from January 1 in a calendar
year to December 31 in the same calendar year.

         Leased Improvements. As defined in ARTICLE I.

         Leased Property. As defined in ARTICLE I.

         Legal Requirements. All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
construction, use or alteration thereof, whether now or hereafter enacted and in
force, including any which may (i) require repairs, modifications or alterations
in or to the Leased Property, or (ii) in any way affect the use and enjoyment
thereof, and all permits, licenses and authorizations and regulations relating
thereto, and all covenants, agreements, restrictions and encumbrances contained
in any instruments (whether or not of record) or otherwise known to Lessee, at
any time in force affecting the Leased Property.

         Lessee. As defined in the Preamble.

         Lessee's Personal Property. All machinery, equipment, furniture,
furnishings, movable walls or partitions, computers or trade fixtures or other
personal property, and consumable inventory/and supplies, used in Lessee's
business on the Leased Property, including without limitation, all items of
furniture, furnishings, equipment, supplies and inventory, except items (i)
included within the definition of Fixtures; and (ii) personal property described
in SECTION 1.1(v), above.

         Lessor. As defined in the Preamble.

                                      -5-
<PAGE>

         Minimum Rent. As defined in SECTION 3.1.

         Notice. A notice given pursuant to ARTICLE XXXI hereof.

         Payment Date. Any due date for the payment of the installments of
Minimum Rent.

         Primary Intended Use. As defined in SECTION 7.2.2.

         Rent. Any monetary obligations owing under this Lease, including,
without limitation, Minimum Rent and Additional Charges.

         Term. As defined in SECTION 1.2 above.

         Unsuitable for its Primary Intended Use. A state or condition of any
Facility such that by reason of damage or destruction, or a partial taking by
Condemnation in the good faith judgment of Lessor and Lessee, reasonably
exercised, such Facility cannot be operated on a commercially practicable basis
for its Primary Intended Use taking into account, among other relevant factors,
the number of usable units affected by such damage or destruction or partial
Condemnation.

         Unavoidable Delays. Delays due to strikes, lock-outs, inability to
procure materials, power failure, acts of God, governmental restrictions, enemy
action, civil commotion, fire, unavoidable casualty or other causes beyond the
control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control of
either party hereto.

         The above does not include all the definitions to be used in this
Lease. Various definitions are included in the Sections below.

                                  ARTICLE III

                  3.1. Minimum Rent. Lessee will pay to Lessor in lawful money
of the United States of America which shall be legal tender for the payment of
public and private debts at Lessor's address set forth in ARTICLE XXXI or at
such other place or to such other person, firms or corporations as Lessor from
time to time may designate in a Notice, monthly rental payments on or before the
first Business Day of each calendar month of the Term ("MINIMUM RENT"). If
necessary, Minimum Rent shall be prorated for any partial month at the beginning
or end of the Term. Commencing on the Commencement Date, and through the first
calendar year of the Term, annual Minimum Rent shall be Three Million Five
Hundred Thirty Nine Thousand Eight Hundred Eighty Three and 18/100 Dollars
($3,539,883.18), payable in equal monthly installments of Two Hundred Ninety
Four Thousand Nine Hundred Ninety and 27/100 Dollars ($294,990.27) each. On
January 1, 2003, and on each January 1 thereafter for the duration of the Term,
(in each instance, an "ESCALATION DATE"), Minimum Rent shall increase by the
product of the Minimum Rent for the Lease Year immediately preceding the
Esclation Date, multiplied by two percent (2%); provided, however, if the
Commencement Date does not occur on January 1, 2002, "Lease Year" for purposes
of the first Lease Year of the Term shall mean the period from the Commencement
Date through December 31, 2002.

                                      -6-
<PAGE>

                  3.2. Additional Charges. In addition to Minimum Rent, (1)
Lessee, subject to its rights under ARTICLE XII, will also pay and discharge as
and when due and payable all other amounts, liabilities, obligations and
Impositions which Lessee assumes or agrees to pay under this Lease, including
but not limited to those set forth in ARTICLES IX and XIII, below, and (2) in
the event of any failure on the part of Lessee to pay any of those items
referred to in clause (1) above, Lessee will also promptly pay and discharge
every fine, penalty, interest and cost which may be added for non-payment or
late payment of such items (the items referred to in clauses (1) and (2) above
being referred to herein collectively as the "ADDITIONAL CHARGES)", and Lessor
shall have all legal equitable and contractual rights, powers and remedies
provided either in this Lease or by statute or otherwise in the case of
nonpayment of the Additional Charges. If any elements of Additional Charges are
not be paid within five (5) Business Days after due (after taking into account
applicable time periods during which Lessee may contest the Additional Charges
under ARTICLE XII), Lessee will pay Lessor on demand, as Additional Charges, a
late charge (to the extent permitted by law) in the amount of five percent (5%)
of the amount of the unpaid Additional Charges. To the extent that Lessee pays
any Additional Charges directly to Lessor (as opposed to the applicable third
party payee) pursuant to any requirement of this Lease, Lessee shall be relieved
of its obligation to pay such Additional Charges to the entity to which they
would otherwise be due.

                  3.3. Net Lease. Notwithstanding any provisions in this Lease
to the contrary, Minimum Rent shall be paid absolutely net to Lessor, so that
this Lease shall yield to Lessor the full amount of the installments of Minimum
Rent throughout the Term, all as more fully set forth in ARTICLES IV, IX AND
XIII, and other provisions of this Lease.

                  3.4. Non-Allocable Minimum Rent. Notwithstanding any language
contained in this Lease to the contrary, the parties agree and acknowledge that
the amount set forth as Minimum Rent is calculated on the basis of leasing of
all sixteen (16) Facilities together as a single, inseparable group and is
non-allocable among the sixteen (16) Facilities. Further notwithstanding any
language contained in this Lease to the contrary, the parties further agree and
acknowledge that it would be impossible to allocate to any one or more of the
Facilities a divisible portion of the Minimum Rent. Further notwithstanding any
language contained in this Lease to the contrary, Lessee agrees and acknowledges
that the leasing of the sixteen (16) Facilities as an inseparable whole was
accepted by Lessor as a special and essential inducement to enter into this
transaction, and but for Lessee's agreement to lease all sixteen (16) Facilities
as an inseparable whole, Lessor would not have entered into this Lease.

                  3.5 Late Charge. LESSEE HEREBY ACKNOWLEDGES THAT LATE PAYMENT
BY LESSEE TO LESSOR OF RENT (INCLUDING WITHOUT LIMITATION MINIMUM RENT) WILL
CAUSE LESSOR TO INCUR COSTS NOT CONTEMPLATED BY THIS LEASE, THE EXACT AMOUNT OF
WHICH WILL BE EXTREMELY DIFFICULT TO ASCERTAIN. SUCH COSTS INCLUDE, BUT ARE NOT
LIMITED TO, PROCESSING AND ACCOUNTING CHARGES. ACCORDINGLY, IF ANY INSTALLMENT
OF RENT SHALL NOT BE RECEIVED BY LESSOR WITHIN FIVE (5) BUSINESS DAYS AFTER SUCH
AMOUNT SHALL BE DUE, THEN WITHOUT ANY REQUIREMENT FOR NOTICE TO LESSEE, LESSEE
SHALL PAY TO LESSOR A LATE CHARGE EQUAL TO FIVE PERCENT (5%) OF SUCH OVERDUE
AMOUNT. THE PARTIES HEREBY AGREE THAT SUCH LATE CHARGE REPRESENTS A FAIR AND
REASONABLE ESTIMATE OF THE

                                      -7-
<PAGE>

COSTS LESSOR WILL INCUR BY REASON OF LATE PAYMENT BY LESSEE. ACCEPTANCE OF SUCH
LATE CHARGE BY LESSOR SHALL IN NO EVENT CONSTITUTE A WAIVER OF LESSEE'S DEFAULT
OR BREACH WITH RESPECT TOANY UNPAID OVERDUE AMOUNTS, NOR PREVENT LESSOR FROM
EXERCISING ANY OF THE OTHER RIGHTS AND REMEDIES GRANTED UNDER THIS LEASE, AT LAW
OR IN EQUITY. NOTWITHSTANDING THE FOREGOING, HOWEVER, THE ABOVE-REFERENCED LATE
CHARGE SHALL NOT BE IMPOSED ON ADDITIONAL PAYMENTS SO LONG AS LESSEE IS
CONTESTING SUCH ADDITIONAL PAYMENTS IN ACCORDANCE WITH ARTICLE XII BELOW.

INITIAL: LESSOR                                      LESSEE
                -----------------                           -----------------

                                   ARTICLE IV

                  4.1. Payment of Impositions. Subject to ARTICLE XII relating
to permitted contests, during the Term Lessee will pay, or cause to be paid, all
Impositions, before any fine, penalty, interest or cost may be added for
non-payment. Lessee, at its expense, shall, to the extent required or permitted
by Legal Requirements, prepare and file all tax returns and reports in respect
of any Imposition as may be required by governmental authorities. Any refund due
from any taxing authority in respect of any Imposition shall be paid over to or
retained by Lessee provided no Event of Default then exists, but if an Event of
Default has occurred and is continuing, such refund shall be paid over to
Lessor, and Lessee hereby authorizes Lessor to accept any such refunds directly,
and hereby authorizes any such taxing authority to pay such amounts directly to
Lessor upon receipt of written instructions to do so together with a statement
by Lessor that an Event of Default has occurred and is continuing. Any such
funds retained by Lessor due to an Event of Default shall be applied as provided
in ARTICLE XVI. Lessor and Lessee shall, upon request of the other, provide such
data as is maintained by the party to whom the request is made with respect to
the Leased Property as may be necessary to prepare any required returns and
reports. In the event governmental authorities classify any property covered by
this Lease as personal property, Lessee shall file personal property tax returns
in such jurisdictions where required. Lessor, to the extent it possesses the
same, and Lessee, to the extent it possesses the same, will provide the other
party, upon request, with cost and depreciation records necessary for filing
returns for any property so classified as personal property. Where Lessor is
legally required to file personal property tax returns, Lessee will be provided
with copies of assessment notices indicating a value in excess of the reported
value in sufficient time for Lessee to file a protest. Lessee may, upon notice
to Lessor, at Lessee's option and at Lessee's sole cost and expense, protest,
appeal or institute such other proceedings as Lessee may deem appropriate to
effect a reduction of real estate or personal property assessments and Lessor,
at Lessee's expenses as aforesaid, shall reasonably cooperate with Lessee in
such protest, appeal, or other action, provided that Lessee may not withhold
payments pending such challenges except under the conditions set forth in
ARTICLE XII. Billings for reimbursement by Lessee to Lessor of personal property
taxes shall be accompanied by copies of a bill therefor and payments thereof
which identify the personal property with respect to which such payments are
made.

                                      -8-
<PAGE>

                  4.2. Notice of Impositions. Upon its receipt of same, Lessor
shall give prompt Notice to Lessee for all Impositions payable by Lessee
hereunder of which Lessor obtains actual knowledge, but Lessor's failure to give
any such Notice shall in no way diminish Lessee's obligations hereunder to pay
such Impositions.

                  4.3. Adjustment of Impositions. Impositions imposed in respect
of the tax-fiscal periods during which the Term commences and terminates shall
be adjusted and prorated between Lessor and Lessee, whether or not such
Imposition is imposed before or after such commencement or termination, and
Lessee's obligation to pay its prorated share thereof after termination shall
survive such termination.

                  4.4. Utility Charges. Lessee will pay or cause to be paid all
charges for electricity, power, gas, oil, water and other utilities used in the
Leased Property and all operating expenses of the Leased Property of every kind
and nature during the Term.

                  4.5. Insurance Premiums. Lessee will pay or cause to be paid
all premiums for the insurance coverages required to be maintained pursuant to
ARTICLE XIII during the Term.

                                   ARTICLE V

                  5.1. No Termination, Abatement, etc. Lessee shall not be
entitled to any abatement, deduction, deferment or reduction of Rent, or set-off
against the Rent, nor shall the respective obligations of Lessor and Lessee be
otherwise affected by reasons of (a) any damage to, or destruction of, any
Leased property or any portion thereof; (b) the lawful or unlawful prohibition
of, or restriction upon, Lessee's use of the Leased Property, or any portion
thereof, the interference with such use by any person, corporation, partnership
or other entity, or by reason of eviction by paramount title; (c) any claim
which Lessee has or might have against Lessor or by reason of any default or
breach of any warranty by Lessor under this Lease or any other agreement between
Lessor and Lessee, or to which Lessor and Lessee are parties; (d) any
bankruptcy, insolvency reorganization, composition, readjustment, liquidation,
dissolution, winding-up or other proceedings affecting Lessor or any assignee or
transferee of Lessor; or (e) for any other cause whether similar or dissimilar
to any of the foregoing other than a discharge of Lessee from any such
obligations as a matter of law. Lessee hereby specifically waives all rights,
arising from any occurrence whatsoever, which may now or hereafter be conferred
upon it by law to (i) modify, surrender or terminate this Lease or quit or
surrender the Leased Property or any portion thereof; or (ii) entitle Lessee to
any abatement, reduction, suspension or deferment of the Rent payable under this
Lease. The obligations of Lessor and Lessee hereunder shall be separate and
independent covenants and agreements and the Rent due under this Lease shall
continue to be payable in all events, irrespective of Lessor's performance or
non-performance under this Lease, unless the obligations to pay the same shall
be terminated pursuant to the express provisions of this Lease or by termination
of this Lease.

                                   ARTICLE VI

                  6.1. Ownership of the Leased Property. Lessee acknowledges and
agrees that the Leased Property is the property of Lessor and that Lessee has
only the right to the exclusive possession and use of the Leased Property upon
the terms and conditions of this Lease. Lessee

                                      -9-
<PAGE>

acknowledges and agrees that this Lease does not grant an option or any other
type of right to purchase the Leased Property from Lessor and that any such
purchase by Lessee must be separately negotiated and documented.

                  6.2. Lessee's Personal Property. Lessee may (and shall as
provided hereinbelow), at its expense, install, affix or assemble or place on
any parcels of the Land or in any of the Leased Improvements, any items of
Lessee's Personal Property, and Lessee may, subject to the conditions set forth
below, remove the same upon the expiration or any prior termination of the Term.
Lessee shall provide and maintain during the Term all such Lessee's Personal
Property as shall be necessary in order to operate each Facility in compliance
with all licensure Legal Requirements and Insurance Requirements. All of
Lessee's Personal Property not removed by Lessee within thirty (30) days
following the expiration or earlier termination of this Lease shall be
considered abandoned by Lessee and may be used, appropriated, sold, destroyed or
otherwise disposed of by Lessor without first giving notice thereof to Lessee
and without any payment to Lessee and without any obligation to account
therefor. Lessee shall, at its expense, restore the Leased Property to the
condition required by SECTION 9.1, including repair of all damage to the Leased
Property caused by the removal of Lessee's Personal Property, whether effected
by Lessee or Lessor.

                                  ARTICLE VII

                  7.1. Condition of Leased Property. Lessee acknowledges receipt
and delivery of possession of the Leased Property and that Lessee has examined
and otherwise has knowledge of the condition of the Leased Property prior to the
execution and delivery of this Lease. Lessee accepts that the Leased Property
AS-IS. To the extent permitted by law, Lessor hereby assigns to Lessee, all of
Lessor's rights to proceed against any predecessor in title (but not against
Lessor) for breaches of warranties or representations, or for latent defects in
the Leased Property. Lessor shall reasonably cooperate with Lessee in the
prosecution of any such claim, in Lessor's or Lessee's name, all at Lessee's
sole cost and expense; provided, however, that all compensatory damages shall be
used by Lessee for repair or replacement of the items for which compensation was
granted. LESSOR MAKES NO WARRANTY OR REPRESENTATIONS, EXPRESS OR IMPLIED, IN
RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR
USE, DESIGN OR CONDITION FOR THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR
PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE
ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS
SATISFACTORY TO IT. WITHOUT LIMITING THE FOREGOING, IT SHALL BE LESSEE'S
RESPONSIBILITY TO DETERMINE THE AMOUNT OF REIMBURSEMENT AND OTHER PAYMENTS THAT
IT IS ENTITLED TO RECEIVE FROM THE FEDERAL, STATE OR LOCAL GOVERNMENTS AND
LESSEE'S OBLIGATIONS UNDER THIS LEASE SHALL NOT BE MODIFIED, CHANGED OR
OTHERWISE BE REDUCED IN THE EVENT THAT LESSEE HAS INCORRECTLY ANALYZED THE
AMOUNTS TO BE PAID TO LESSEE BY ANY GOVERNMENT OR AGENCY THEREOF.

                  7.2. Use of the Leased Property.

                                      -10-
<PAGE>

                           7.2.1 Lessee covenants that it will proceed with due
                  diligence and will exercise commercially reasonable efforts to
                  obtain and to maintain all approvals needed to use and operate
                  the Leased Property and each Facility in accordance with Legal
                  Requirements.

                           7.2.2 During the Term, Lessee shall use or cause to
                  be used the Facilities as assisted living or residential care
                  facilities, and for such other uses as may be necessary or
                  incidental to such use (the particular such use to which the
                  Leased Property is put is herein referred to as the "PRIMARY
                  INTENDED USE"). Lessee shall not use the Leased Property or
                  any portion thereof for any use other than the Primary
                  Intended Use without the prior written consent of Lessor,
                  which consent may be withheld in Lessor's sole and absolute
                  discretion. No use shall be made of the Leased Property, and
                  no acts shall be done, which will cause the cancellation of
                  any insurance policy covering the Leased Property or any part
                  thereof, nor shall Lessee sell or otherwise provide to
                  residents or patients therein, or permit to be kept, used or
                  sold in or about the Leased Property any article which may be
                  prohibited by Insurance Requirements or Legal Requirements.
                  Lessee shall, at its sole cost, comply with all Insurance
                  Requirements and Legal Requirements.

                           7.2.3 Lessee covenants and agrees that, subject to
                  closures resulting from fire or other casualty, condemnation
                  or Unavoidable Delays that may occur, during the Term it will
                  operate continuously the Leased Property in accordance with
                  its Primary Intended Use.

                           7.2.4 Lessee shall not commit or suffer to be
                  committed any waste on the Leased Property, or in any
                  Facility, nor shall Lessor cause or permit any nuisance
                  thereon. Lessor acknowledges that Lessee's operation of the
                  Facilities in accordance with the Primary Intended Use will
                  not constitute waste or nuisance.

                           7.2.5 Lessee shall neither suffer nor permit the
                  Leased Property or any portion thereof, including Lessee's
                  Personal Property, to be used in such a manner as it might
                  reasonably tend to impair Lessor's (or Lessee's, as the case
                  may be) title thereto or to any portion thereof, or (ii) may
                  reasonably make possible a claim or claims of adverse usage or
                  adverse possession by the public, as such, or of implied
                  dedication of the Leased Property or any portion thereof.

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

                           7.3.1 During the Term and for a period of two (2)
                  years thereafter, neither Lessee nor any of its Affiliates,
                  directly or indirectly, shall operate, own,

                                      -11-
<PAGE>

                  manage or have any interest in or otherwise participate in or
                  receive revenues from any other facility or institution
                  providing services or similar goods to those provided in
                  connection with any of the Facilities and the Primary Intended
                  Use, within a four (4) mile radius outward from the outside
                  boundary of each respective Facility. All distances shall be
                  measured on a straight line rather than on a driving distance
                  basis. In the event that any portion of such other facility or
                  institution is located within such restricted area the entire
                  facility or institution shall be deemed located within such
                  restricted area.

                           7.3.2 For a period of two (2) years following the
                  Term, neither Lessee nor any of its Affiliates shall, without
                  the prior written consent of Lessor, which consent may be
                  given or withheld in Lessor's sole discretion, actively
                  solicit the hiring, engagement or other employment of any
                  management or supervisory personnel then working on or in
                  connection with the Leased Property; provided however that the
                  provisions of this SECTION 7.3.2 shall not apply to management
                  or supervisory personnel, including without limitation
                  officers of Lessee, who do not have their primary place of
                  employment at the Leased Property.

                           7.3.3 During the Term and for a period of two (2)
                  years thereafter, Lessee shall not recommend or solicit the
                  removal or transfer of any resident or patient from the Leased
                  Property to any other facility or institution; provided
                  however that the provisions of this SECTION 7.3.3 shall not
                  apply to removals or transfers required for medically
                  appropriate reasons, or required during the period of
                  reconstruction or restoration, if any, permitted after any
                  casualty event pursuant to ARTICLE XIV below or after any
                  Condemnation pursuant to ARTICLE XV below.

                                  ARTICLE VIII

                  8.1. Compliance with Legal and Insurance Requirements,
Instruments, etc. Subject to ARTICLE XII relating to permitted contests, Lessee,
at its expense, will, during the Term, (a) comply with all Legal Requirements
and Insurance Requirements in respect of the use, operation, maintenance, repair
and restoration of the Leased Property, whether or not compliance therewith
requires structural changes in any of the Leased Improvements or interfere with
the use and enjoyment of the Leased Property and (b) procure, maintain and
comply with all licenses, certificates of need, provider agreements and other
authorizations required for any use of the Leased Property and/or Lessee's
Personal Property then being made, and for the proper erection, installation,
operation and maintenance of the Leased Property or any part thereof.

                  8.2. Legal Requirements Covenants. Lessee shall acquire and
maintain all licenses, certificates, permits, provider agreements and other
authorizations and approvals needed to operate the Leased Property for the
Primary Intended Use. Lessee further covenants and agrees to perform all
maintenance and alterations necessary to operate the Leased premises in
accordance with all Legal Requirements and Insurance Requirements. Lessee, may,
however, upon prior written notice to Lessor, contest the legality or
applicability of any such law, ordinance, rule or regulation,

                                      -12-
<PAGE>

or any licensure or certification decision if Lessee maintains such action in
good faith, with due diligence, without prejudice to Lessee's rights hereunder,
and at Lessee's sole cost and expense. If by the terms of any such law,
ordinance, rule or regulation, compliance therewith pending the prosecution of
any such proceeding may legally be delayed without the occurrence of any fine,
charge or liability of any kind against the Leased Property or Lessee's
leasehold interest therein and without subjecting Lessee or Lessor to any
liability, civil or criminal, for failure so to comply therewith, Lessee may
delay compliance therewith until the final determination of such proceeding. If
any lien, charge or civil or criminal liability would be incurred by reason of
any such delay, Lessee, on the prior written consent of Lessor, may nonetheless
contest as aforesaid and delay as aforesaid provided that such delay would not
subject Lessor to criminal liability and Lessee both (a) furnishes to Lessor
security satisfactory to Lessor (in its sole and absolute discretion) against
any loss or injury by reason of such contest or delay, and (b) prosecutes the
contest with due diligence and in good faith.

                                   ARTICLE IX

                  9.1. Maintenance and Repair.

                           9.1.1 Lessee, at its sole expense, will, during the
                  Term, keep the Leased Property and all private roadways,
                  sidewalks and curbs appurtenant thereto and which are under
                  Lessee's control (and Lessee's Personal Property) in good
                  order and repair (whether or not the need for such repairs
                  occurs as a result of Lessee's use, any prior use, the
                  elements or the age of the Leased Property, or any portion
                  thereof), and, with reasonable promptness, make all necessary
                  and appropriate repairs thereto of every kind and nature,
                  whether interior or exterior, structural or non-structural,
                  ordinary or extraordinary, foreseen or unforeseen or arising
                  by reason of a condition existing prior to or during the Term,
                  provided, however, that Lessee shall be permitted to prosecute
                  claims against Lessee's predecessors (but not Lessor) in title
                  for (i) breach of any representation or warranty, or (ii) any
                  latent defects in the Leased Property. All repairs shall be at
                  least equivalent in quality to the original work. Lessee will
                  not take or omit to take any action the taking or omission of
                  which might materially impair the value or the usefulness of
                  the Leased Property or any part thereof for its Primary
                  Intended Use.

                           9.1.2 Lessor shall not under any circumstances be
                  required to build or rebuild any improvements on the Leased
                  Property, or to make any repairs, replacements, alterations,
                  restorations or renewals of any nature or description to the
                  Leased Property, whether ordinary or extraordinary, structural
                  or non-structural, foreseen/unforeseen, in connection with
                  this Lease, or to maintain the Leased Property in any way.
                  Lessee hereby waives, to the extent permitted by law, the
                  right to make repairs at the expense of Lessor pursuant to any
                  law in effect at the time of the execution of this Lease or
                  hereafter enacted. Lessor shall have the right to give, record
                  and post, as appropriate, notices of non-responsibility (or
                  similar notices) under any mechanics' lien laws now or
                  hereafter existing.

                           9.1.3 Nothing contained in this Lease and no action
                  or inaction by Lessor shall be construed as constituting the
                  consent or request of Lessor, expressed or implied, to any
                  contractor, subcontractor, laborer, materialman or vendor to
                  or for the performance of any labor or services or the
                  furnishing of any materials or

                                      -13-
<PAGE>

                  other property for the construction, alteration, addition,
                  repair or demolition of or to the Leased Property or any part
                  thereof, or (ii) giving Lessee any right, power or permission
                  to contract for or permit the performance of any labor or
                  services or the furnishing of any materials or other property
                  in such fashion as would permit the making of any claim
                  against Lessor in respect thereof or to make any agreement
                  that may create, or in any way be the basis for any right,
                  title, interest, lien, claim or other encumbrance upon the
                  estate of Lessor in the Leased Property, or any portion
                  thereof. Lessor shall have the right to give, record and post,
                  as appropriate, notices of nonresponsibility (or similar
                  notices) under any mechanics' lien laws now or hereafter
                  existing.

                           9.1.4 Notwithstanding the provisions of SECTION 9.1.3
                  above, Lessee shall, without the prior consent of Lessee, be
                  entitled to construct, alter, add, repair or demolish portions
                  of the Leased Property, provided that the construction,
                  alteration, addition, repair or demolition does not, in any
                  single instance, cost more than $50,000, or exceed $100,000 in
                  the aggregate (per Facility) over any twelve (12) month
                  period, and does not reduce the value of the Leased Property.

                           9.1.5 Lessee will, upon the expiration or prior
                  termination of the Term, vacate and surrender the Leased
                  Property to Lessor in the condition in which the Leased
                  Property was originally received from Lessor, except as
                  repaired, rebuilt, restored, altered or added to as permitted
                  or required by the provisions of this Lease, and except for
                  ordinary wear and tear (subject to the obligation of Lessee to
                  maintain the Leased Property in good order and repair during
                  the Term).

                  9.2. Expenditures to Comply with Law. Without limiting
Lessee's obligations as set forth elsewhere in this Lease, during the Term,
Lessee will, at its sole cost and expense, make whatever expenditures (including
but not limited to capital and non-capital expenditures) that are required to
conform the Leased Property to such standards as may from time to time be
required by Legal Requirements, or capital improvements required by any
governmental agency having jurisdiction over the Leased Property as a condition
of the continued operation of the Leased Property for its Primary Intended Use,
pursuant to present or future Legal Requirements.

                  9.3. Encroachments, Restrictions. If any of the Leased
Improvements shall, at any time during the Term encroach upon any property,
street or right-of-way adjacent to the Leased Property, or shall violate the
agreements or conditions contained in any lawful restrictive covenant or other
agreement affecting the Leased Property, or any part thereof, or shall impair
the rights of others under any easement or right-of-way to which the Leased
Property is subject, then promptly upon the request of Lessor or at the behest
of any person affected by any such encroachment, violation or impairment, Lessee
shall, at its sole cost and expense, (and after Lessor's prior approval) subject
to Lessee's right to sue Lessor's predecessor in title (but not Lessor) with
respect thereto or contest the existence of any encroachment, violation or
impairment and in such case, in the event of an adverse final determination,
either (i) obtain valid and effective waivers or settlements of all claims,
liabilities and damages resulting from each such encroachment, violation or
impairment, whether the same shall affect Lessor or the Leased Property or (ii)
make such changes in the Leased Improvements, and take such other actions, as
Lessee in the good faith exercise of its judgment deems reasonably practicable
and necessary, to

                                      -14-
<PAGE>

remove such encroachment, and to end such violation or impairment, including, if
necessary, the alteration of any of the Leased Improvements, and in any event
take all such actions as may be necessary in order to be able to continue the
operation of the Leased Improvements for the Primary Intended Use substantially
in the manner and to the extent the Leased Improvements were operated prior to
the assertion of such violation, impairment or encroachment. Any such alteration
shall be made in conformity with the applicable requirements of ARTICLE IX.
Lessee's obligations under this SECTION 9.3 shall be in addition to and shall in
no way discharge or diminish any obligation of any insurer under any policy of
title or other insurance.

                                   ARTICLE X

                  10.1. Lessee's Obligations for Hazardous Materials. Lessee
shall, during the Term, at its sole cost and expense, take all actions as
required to cause the Leased Property including, but not limited to, the Land
and all Leased Improvements, to be free and clear of the presence of all
Hazardous Materials (defined below); provided, however, that Lessee shall be
entitled to use and maintain de minimus amounts of Hazardous Materials on the
Leased Property in connection with Lessee's business and in compliance with all
applicable laws. Lessee shall, upon its discovery, belief or suspicion of the
presence of Hazardous Materials on, in or under any part of the Leased Property,
including, but not limited to, the Land and all Leased Improvements, immediately
notify Lessor and, at its sole cost and expense cause any such Hazardous
Materials to be removed immediately, in compliance with all applicable laws and
in a manner causing the least disruption of or interference with the operation
of Lessee's business. Lessee shall fully indemnify, protect, defend and hold
harmless Lessor from any costs, damages, claims, liability or loss of any kind
or nature arising out of or in any way in connection with the presence,
suspected presence, removal or remediation of Hazardous Materials in, on, or
about the Leased Property, or any part thereof. Without limiting Lessee's other
obligations under this Lease, Lessee agrees, at Lessee's sole cost, to fully
comply with all recommendations set forth in any environmental report(s) that
may be obtained by or provided to Lessor or Lessee.

                  10.2. Definition of Hazardous Materials. For purposes of this
Lease, Hazardous Materials shall mean any biologically or chemically active or
other toxic or hazardous wastes, pollutants or substances, including, without
limitation, asbestos, PCBs, petroleum products and by-products, substances
defined or listed as "hazardous substances" or "toxic substances" or similarly
identified in or pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., as amended, and
as hazardous wastes under the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6010, et seq., any chemical substance or mixture regulated under the
Toxic Substance Control Act of 1976, as amended, 15 U.S.C.; 2601 et seq., any
"toxic pollutant" under the Clean Water Act, 33 U.S.C. Section 466 et seq., as
amended, any hazardous air pollutant under the Clean Air Act, 42 U.S.C. Section
7401 et seq., hazardous materials identified in or pursuant to the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1802, et seq., and any hazardous
or toxic substances or pollutant regulated under any other Legal Requirements.

                                   ARTICLE XI

         11. Liens. Subject to the provisions of ARTICLE XIII relating to
permitted contests, Lessee will not directly or indirectly create or allow to
remain and will promptly discharge at its

                                      -15-
<PAGE>

expense any lien, encumbrance, attachment, title retention agreement or claim
upon any part of the Leased Property or any attachment, levy, claim or
encumbrance in respect of the Rent, not including, however, (a) this Lease, (b)
restrictions, liens and other encumbrances which are consented to in writing by
Lessor, (c) liens for those taxes of Lessor which Lessee is not required to pay
hereunder, (d) subleases permitted by ARTICLE XXII, (e) liens for Impositions or
for sums resulting from noncompliance with any Legal Requirements so long as (1)
the same are not yet payable or are payable without the addition of any fine or
penalty or (2) such liens are in the process of being contested as permitted by
ARTICLE XII, or (f) liens of mechanics, laborers, materialmen, suppliers or
vendors for sums either disputed or not yet due, provided that any such liens
are in the process of being contested as permitted by ARTICLE XII.

                                  ARTICLE XII

         12. Permitted Contests. Lessee shall have the right to contest the
amount or validity of any Imposition or any Legal Requirement or Insurance
Requirement or any attachment, levy, encumbrance, charge or claim ("CLAIMS") not
otherwise permitted by ARTICLE XI, by appropriate legal proceedings in good
faith and with due diligence (but this shall not be deemed or construed in any
way as relieving, modifying or extending Lessee's covenants to pay or its
covenants to cause to be paid any such charges at the time and in the manner as
in this Lease provided), on condition, however, that such legal proceedings
cannot result in the sale of the Leased Property, or any part thereof, to
satisfy the same or cause Lessor or Lessee to be in default under any mortgage
or deed of trust encumbering any portion of the Leased Property or any interest
therein. Upon the reasonable request of Lessor, Lessee shall provide to Lessor
security satisfactory to Lessor (in Lessor's sole and absolute discretion) to
assure the payment of all Claims which may be assessed against the Leased
Property together with interest and penalties, if any, thereon. Lessor agrees to
join in any such proceedings (at Lessee's sole cost and expense) if the same be
required to legally prosecute such contest of the validity of such Claims;
provided, however, that Lessor shall not thereby be subjected to any liability
for the payment of any costs or expenses in connection with any proceedings
brought by Lessee; and Lessee shall indemnify and save harmless Lessor from any
such costs or expenses, including reasonable attorneys' fees and costs incurred
by Lessor. In the event that Lessee fails to pay any Claims when due or, upon
Lessor's request, to provide the security therefor as provided in this ARTICLE
XII and to diligently prosecute any contest of the same, Lessor may, upon thirty
(30) days advance written Notice to Lessee, pay such charges together with any
interest and penalties and the same shall be repayable to Lessee to Lessor at
the next Payment Date provided for in this Lease. Provided, however, that should
Lessor reasonably determine that the giving of such Notice would risk loss to
the Leased Property or impair the value of the Leased Property or in any way
cause damage to Lessor, then Lessor shall give such written Notice as is
practical under the circumstances. Lessee shall be entitled to any refund of any
Claims and such charges and penalties or interest thereon which have been paid
by Lessee or paid by Lessor and for which Lessor has been fully reimbursed.

                                  ARTICLE XIII

                  13.1. General Insurance Requirements. Subject to the
provisions of SECTION 13.8, during the Term, Lessee shall at all times keep the
Leased Property, and all property located in or on the Leased Property,
including Lessee's Personal Property, insured with the kinds and amounts of
insurance described below and any additional insurance reasonably

                                      -16-
<PAGE>

required by Lessor to protect its interest in the Leased Property. This
insurance shall be written by companies authorized to do insurance business in
the States in which the Leased Property is located. The policies must name
Lessor as an additional insured. Losses shall be payable to Lessor or Lessee as
provided in ARTICLE XIV. In addition, upon Lessor's written request, the
policies shall name as an additional insured the holder ("FACILITY MORTGAGEE")
of any mortgage, deed of trust or other security agreement and any other
Encumbrance placed on the Leased Property in accordance with the provisions of
ARTICLE XXXII by way of a standard form of mortgagee's loss payable endorsement.
Any loss adjustment shall require the written consent of Lessor, Lessee, and
each Facility Mortgagee. Evidence of insurance shall be deposited with Lessor
and, if requested, with any Facility Mortgagee. If any provision of any Facility
Mortgage requires deposits of premiums for insurance to be made with such
Facility Mortgagee, Lessee shall either pay to Lessor monthly the amounts
required and Lessor shall transfer such amounts to each Facility Mortgagee, or,
pursuant to written direction by Lessor, Lessee shall make such deposits
directly with such Facility Mortgagee. The policies on the Leased Property,
including the Leased Improvements, Fixtures and Lessee's Personal Property,
shall insure against the following risks:

                           13.1.1 Loss or damage by fire, vandalism and
                  malicious mischief, extended coverage perils commonly known as
                  "All Risk," specifically including wind, rain, earthquake,
                  sinkhole, mine subsistence, and all physical loss perils
                  normally included in such all Risk insurance, including but
                  not limited to sprinkler leakage and any such additional
                  coverage reasonably requested by Lessor, in an amount not less
                  than one hundred percent (100%) of the then full replacement
                  cost thereof (as defined below in SECTION 13.2);

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

                           13.1.3 Loss of rental under a rental value insurance
                  policy covering risk of loss during the first twelve (12)
                  months of reconstruction necessitated by the occurrence of any
                  of the hazards described in SECTION 13.1.1 or 13.1.2, or
                  otherwise as specified in this Lease, in an amount sufficient
                  to prevent Lessor from becoming a co-insurer;

                           13.1.4 Claims for personal injury under a policy of
                  comprehensive general public (and professional) liability
                  insurance with amounts, per Facility, of not less than One
                  Million Dollars ($1,000,000.00) per occurrence, and Three
                  Million Dollars ($3,000,000.00) in the aggregate;

                           13.1.5 Claims arising out of malpractice or other
                  professional actions or omissions under a policy of
                  professional liability insurance with amounts not less than
                  One Million Dollars ($1,000,000.00) per occurrence, and with
                  an annual aggregate of Three Million Dollars ($3,000,000.00);

                                      -17-
<PAGE>

                           13.1.6 Flood (when the Leased Property is located in
                  whole or in part within a designated flood plain area) and
                  such other hazards and in such amounts as may be customary for
                  comparable properties in the area and is available from
                  insurance companies authorized to do business in the
                  respective states in which each of the respective Facilities
                  is located at rates which are economically practicable in
                  relation to the risks covered;

                           13.1.7 Worker's Compensation and Employer's Liability
                  if required by any governmental authority or Legal
                  Requirement; and

                           13.1.8 Any other kinds of insurance, and in such
                  amounts, as Lessor may reasonably require from time to time to
                  the extent available in the state where the Leased Property is
                  located.

                  13.2. Replacement Cost. The term "full replacement cost" as
used herein, shall mean the actual replacement cost of the Leased Property
requiring replacement from time to time including an increased cost of
construction endorsement, less exclusions provided in the standard form of fire
insurance policy in the State where such policy has been issued. In the event
either party believes that full replacement cost (the then replacement cost less
such exclusions) has increased or decreased at any time during the Term, it
shall have the right to have such full replacement cost redetermined.

                  13.3. Additional Insurance. In addition to the insurance
described above, Lessee shall maintain such additional insurance as may be
reasonably required from time to time by Lessor or any Facility Mortgagee and
shall further at all times maintain, to the extent required by applicable law,
worker's compensation insurance coverage (including self-insurance) for all
persons employed by Lessee (or its agent or operator) on the Leased Property.

                  13.4. Waiver of Subrogation. All insurance policies carried by
either party covering any part of the Leased Property, the Fixtures, the
Facilities, or Lessee's Personal Property including without limitation,
contents, fire and casualty insurance, shall expressly waive any right of
subrogation on the part of the insurer against the other party. The parties
hereto agree that their policies will include such waiver clause or endorsement
so long as the same are obtainable without extra cost, and in the event of such
an extra charge the other party, at its election, may pay the same, but shall
not be obligated to do so.

                  13.5. Form Satisfactory, etc. All of the policies of insurance
referred to in this ARTICLE XIII shall be written in a form reasonably
satisfactory to Lessor and by insurance companies reasonably satisfactory to
Lessor (and, as applicable, any Facility Mortgagee). Subject to the foregoing,
Lessor agrees that it will not unreasonably withhold or delay its approval as to
the form of the policies of insurance or as to the insurance companies selected
by Lessee. Lessee shall pay all of the premiums therefor, and deliver such
policies or certificates thereof to Lessor prior to their effective date (and,
with respect to any renewal policy, prior to the expiration of the existing
policy), and in the event of the failure of Lessee either to effect such
insurance as herein called for or to pay the premiums therefor, or to deliver
such policies or certificates thereof to Lessor at the times required, Lessor
shall be entitled, but shall have no obligation, to effect such insurance and
pay the premiums therefor, which premiums shall be

                                      -18-
<PAGE>

repayable by Lessee to Lessor upon written demand therefor, and failure to repay
the same shall constitute an Event of Default within the meaning of SECTION
16.1. Each insurer mentioned in this ARTICLE XIII shall agree, by endorsement on
the policy or policies issued by it, or by independent instrument furnished to
Lessor, that it will give to Lessor (and to any Facility Mortgagee, if required
by the same) thirty (30) days' written notice before the policy or policies in
questions shall be altered, allowed to expire or canceled.

                  13.6. Increase in Limits. In the event that a Facility
Mortgagee shall at any time reasonably determine the limits of the personal
injury or property damage, or public liability insurance then carried to be
insufficient, Lessee shall thereafter carry the insurance with increased limits
until further changed pursuant to the provisions of this Section.

                  13.7. Blanket Policy. Notwithstanding anything to the contrary
contained in this ARTICLE XIII, Lessee's obligations to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by Lessee; provided,
however, that the coverage afforded Lessor will not be reduced or diminished or
otherwise be different from that which would exist under a separate policy
meeting all other requirements of this Lease by reason of the use of such
blanket policy of insurance, and provided further that the requirements of this
ARTICLE XIII shall be met in any such blanket policy.

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

                  13.9. Continuous Coverage. Lessee shall assure that there is
no gap in the insurance coverage provided in connection with any Facility at or
after the Commencement Date and, therefore, the insurance provided by Lessee
shall be continuous, with the types and amounts of coverage, described herein to
be applicable on the Commencement Date. To the extent there is not full,
complete and continuous coverage for all issues, no matter when arising, claimed
or occurring, Lessee shall, at its sole cost, obtain such insurance.

                                  ARTICLE XIV

                  14.1. Insurance Proceeds. All proceeds payable by reason of
any loss of or damage to the Leased Property, or any portion thereof, which is
insured under any policy of insurance required by ARTICLE XIII of the Lease
shall be paid to Lessee and applied to the reconstruction or repair, as the case
may be, of any damage to or destruction of the Leased Property, or any portion
thereof. The proceeds shall be used for the reconstruction or repair, as the
case may be, of any damage to or destruction of the Leased Property, or any
portion thereof.

                                      -19-
<PAGE>

The funds shall be disbursed based upon work performed. Any excess proceeds of
insurance remaining after the completion of the restoration or reconstruction of
the Leased Property shall go to Lessee. All salvage resulting from any risk
covered by insurance shall belong to Lessor except that any salvage relating to
Lessee's Personal Property shall belong to Lessee.

                  14.2. Reconstruction in the Event Damage of Destruction
Covered by Insurance Proceeds.

                           14.2.1 If during the Term, the Leased Property is
                  totally or partially destroyed by a risk covered by the
                  insurance described in ARTICLE XIII and whether or not any
                  Facility thereby is rendered Unsuitable for its Primary
                  Intended Use, Lessee shall restore the Leased Property to
                  substantially the same condition as existed immediately before
                  the damage or destruction. Lessee shall be entitled to the
                  insurance proceeds for the purpose of such repair and
                  restoration.

                           14.2.2 If the cost of the repair or restoration
                  exceeds the amount of proceeds received by Lessee or Lessor
                  from the insurance required under ARTICLE XIII as provided in
                  SECTION 14.1, above, Lessee shall be obligated, prior to
                  commencing the repair and restoration, to contribute any
                  excess amount needed to restore the Leased Property or to
                  provide Lessor with satisfactory evidence that such funds are,
                  and throughout the entire period of reconstruction will be,
                  available. If Lessee contributes such excess in cash, such
                  excess shall be paid by Lessee to Lessor to be held in trust,
                  together with any insurance proceeds, for application to the
                  cost of repair and restoration.

                  14.3. Reconstruction in the Event of Damage of Destruction Not
Covered by Insurance. If during the Term, the Leased Property is damaged or
destroyed irrespective of the extent of the damage from a risk not covered by
the insurance described in ARTICLE XIII, whether or not such damage renders any
portion of the Leased Property Unsuitable for Its Primary Intended Use, Lessee
shall restore the damaged Leased Property to substantially the same condition it
was in immediately before such damage or destruction and such damage or
destruction shall not terminate this Lease nor result in any reduction in Rent
(including without limitation Minimum Rent).

                  14.4. Lessee's Property. All insurance proceeds payable by
reason of any loss of or damage to any of Lessee's Personal Property shall be
paid to Lessee, and Lessee shall hold such insurance proceeds in trust to pay
the cost of repairing or replacing damaged Lessee's Personal Property.

                  14.5. Restoration of Lessee's Property. Without limiting
Lessee's obligation to restore the Leased Property as provided in SECTIONS 14.2
and 14.3, Lessee shall also restore all alterations and improvements made by
Lessee, including Lessee's Personal Property but only to the extent that
Lessee's Personal Property is necessary to the operation of the Leased Property
for its Primary Intended Use in accordance with applicable Legal Requirements.

                                      -20-
<PAGE>

                  14.6. No Abatement of Rent. This Lease shall remain in full
force and effect and Lessee's obligation to make rental payments and to pay all
other charges required by this Lease shall not be abated during the pendency of
repair or restoration.

                                   ARTICLE XV

         15. Condemnation.

                  15.1. Definitions.

                           15.1.1 "CONDEMNATION" means (a) the exercise of any
                  governmental power, whether by legal proceedings or otherwise,
                  by a Condemnor, (b) a voluntary sale or transfer by Lessor to
                  any Condemnor, either under threat of Condemnation or while
                  legal proceedings for Condemnation are pending.

                           15.1.2 "DATE OF TAKING" means the date the Condemnor
                  has the right to possession of the property being condemned.

                           15.1.3 "AWARD" means all compensation, sums or
                  anything of value awarded, paid or received on a total or
                  partial Condemnation.

                           15.1.4 "CONDEMNOR" means any public or quasi-public
                  authority, or private corporation or individual, having the
                  power of Condemnation.

                  15.2. Parties' Rights and Obligations. If during the Term
there is any taking of all or any part of the Leased Property or any interest in
this Lease by Condemnation, the rights and obligations of the parties shall be
determined by this ARTICLE XV.

                  15.3. Total Condemnation. If title to the fee of the whole of
the Leased Property shall be taken or condemned by any Condemnor, this Lease
shall cease and terminate as of the Date of Condemnation by said Condemnor. Upon
the termination of the Lease following a total Condemnation, all Rent
(including, without limitation, Minimum Rent, Additional Rent and Additional
Charges) paid or payable by Lessee hereunder shall be apportioned as of the date
of termination.

                  15.4. Allocation of Portion of Award. Any Award made with
respect to all or any portion of the Leased Property or for loss of rent, or for
loss of business, whether or not beyond the Term of this Lease, or for the loss
of value of the leasehold (including the bonus value of the Lease) shall be
solely the property of and payable to Lessor. Lessee shall be entitled to make a
separate claim for any of the following: (i) the taking of Lessee's Personal
Property (as long as such claim will not diminish Lessor's Award), (ii) the
removal or relocation expenses of Lessee (as long as such claim will not
diminish Lessor's Award), or (iii) any other loss (including, without
limitation, the value of Lessee's leasehold interest) that can be awarded to
Lessee separately from Lessor's claim provided any such separate claims will not
in any respect whatsoever diminish or threaten to diminish the total amounts to
be awarded to Lessor as set forth above or otherwise for Lessee's full fee
simple interest in the Leased Property. In any Condemnation proceedings, each of
the Lessor and Lessee shall each seek its own claim in

                                      -21-
<PAGE>

conformity herewith, at its own expense. Lessor's obligation to contribute part
of its Award for restoration is set forth in SECTION 15.5, below.

                  15.5. Partial Taking. If title to the fee of less than the
whole of the Leased Property shall be so taken or condemned, this Lease shall
continue in full force and effect, there shall be no reduction in Rent
(including, without limitation, Minimum Rent, Additional Rent and Additional
Charges).

                  15.6. Temporary Taking. Lessee agrees that if, at any time
after the date hereof, the whole or any part of the Leased Property or of
Lessee's interest under this Lease, shall be Condemned by any Condemnor for its
temporary use or occupancy, this Lease shall not terminate by reason thereof,
and Lessee shall continue to pay, in the manner and at the times herein
specified, the full amounts of Rent (including Minimum Rent, Additional Charges
and Additional Rent). Except only to the extent that Lessee may be prevented
from doing so pursuant to the terms of the order of the Condemnor, Lessee shall
also continue to perform and observe all of the other terms, covenants,
conditions and obligations hereof, on the part of the Lessee to be performed and
observed, as though such Condemnation had not occurred. In the event of any such
Condemnation as in this SECTION 15.6 described, the entire amount of any such
Award made for such temporary use, whether paid by way of damages, rent or
otherwise, shall be paid to Lessee, Lessee covenants that upon the termination
of any such period of temporary use of occupancy as set forth in this SECTION
15.6, it will, at its sole cost and expense, restore the Leased Property as
nearly as may be reasonably possible, to the condition in which the same was
immediately prior to the Condemnation.

                                  ARTICLE XVI

                  16.1. Events of Default. Any one or more of the following
events shall be an "EVENT OF DEFAULT":

                           (a)      if Lessee fails to make payment of the Rent
                                    payable by Lessee under this Lease when the
                                    same becomes due and payable and such
                                    failure is not cured by Lessee within a
                                    period of five (5) Business Days after
                                    notice thereof from Lessor; or

                           (b)      if Lessee fails to observe or perform any
                                    other term, covenant or condition of this
                                    Lease and such failure is not cured by
                                    Lessee within a period of thirty (30) days
                                    after Notice thereof from Lessor, unless
                                    such failure cannot with due diligence be
                                    cured within a period of thirty (30) days,
                                    in which case such failure shall not be
                                    deemed an Event of Default if Lessee
                                    proceeds promptly and with due diligence to
                                    cure the failure and diligently completes
                                    the curing thereof within ninety days of
                                    receipt of Lessor's Notice. No Event of
                                    Default shall be deemed to exist under this
                                    clause (b) during any time the curing
                                    thereof is prevented by an Unavoidable
                                    Delay, provided that upon the cessation of
                                    such Unavoidable Delay, Lessee shall remedy
                                    such default without further delay; or

                                      -22-
<PAGE>

                           (c)      if Lessee does any of the following: (i)
                                    admit in writing its inability to pay its
                                    debts generally as they become due; (ii)
                                    file a petition in bankruptcy or a petition
                                    to take advantage of any federal or state
                                    insolvency law; (iii) make a general
                                    assignment for the benefit of its creditors;
                                    (iv) consent to the appointment of a
                                    receiver of itself or of the whole or any
                                    substantial part of its property; or (v)
                                    file a petition or answer seeking
                                    reorganization or arrangement under the
                                    Federal bankruptcy laws or any other
                                    applicable law or statute of the United
                                    States of America or any state thereof, or

                           (d)      if Lessee, on a petition in bankruptcy filed
                                    against it, is adjudicated a bankrupt or an
                                    order for relief thereunder is entered
                                    against it or a court of competent
                                    jurisdiction shall enter an order or decree
                                    appointing, without the consent of Lessee, a
                                    receiver for Lessee or of the whole or
                                    substantially all of its property, or
                                    approving a petition filed against Lessee
                                    seeking reorganization or arrangement of
                                    Lessee under the federal bankruptcy laws or
                                    any other applicable law or statute of the
                                    United States of America or any state
                                    thereof and such judgment, order or decree
                                    shall not be vacated or set aside or stayed
                                    within ninety (90) days from the date of the
                                    entry thereof; or

                           (e)      if Lessee shall be liquidated or dissolved,
                                    or shall begin proceedings toward such
                                    liquidation or dissolution, or shall, in any
                                    manner, permit the sale or divestiture of
                                    substantially all of its assets other than
                                    in connection with a merger or consolidation
                                    of Lessee into, or a sale of substantially
                                    all of Lessee's assets to, another
                                    corporation, provided any such actions shall
                                    also constitute an Event of Default unless:
                                    (i) the survivor of such merger or the
                                    purchaser of such assets shall assume all of
                                    Lessee's obligations under this Lease by a
                                    written instrument, in form and substance
                                    reasonably satisfactory to Lessor,
                                    accompanied by an opinion of counsel,
                                    reasonably satisfactory to Lessor and
                                    addressed to Lessor, stating that such
                                    instrument of assumption is valid, binding
                                    and enforceable against the parties thereto
                                    in accordance with its terms (subject to
                                    usual bankruptcy and other creditor's rights
                                    exceptions); and (ii) immediately after
                                    giving effect to any such merger,
                                    consolidation or sale, Lessee or the other
                                    corporation (if not Lessee) surviving the
                                    same shall have a Consolidated Net Worth of
                                    not less than seventy five percent (75%) the
                                    Consolidated Net Worth of Lessee immediately
                                    prior to such merger, consolidation or sale,
                                    all as to be set forth in an Officer's
                                    Certificate and delivered to Lessor within a
                                    reasonable period of time after such merger,
                                    consolidation or sale; or

                           (f)      if the estate or interest of Lessee in the
                                    Leased Property or any part thereof be
                                    levied upon or attached in a proceeding and
                                    the same

                                      -23-

<PAGE>

                                    shall not be vacated or discharged within
                                    the later of ninety (90) days after
                                    commencement thereof or thirty (30) days
                                    after Notice thereof from Lessor, (unless
                                    Lessee shall be contesting such lien or
                                    attachment in good faith in accordance with
                                    ARTICLE XII hereof); or

                           (g)      if, except as a result of damage,
                                    destruction or a partial or total
                                    Condemnation, or Unavoidable delay, Lessee
                                    voluntarily ceases operation of the Leased
                                    Property for a period in excess of twenty
                                    four (24) hours; provided that Lessee may
                                    cease operations for more than twenty four
                                    (24) hours (i) if Lessee obtains Lessor's
                                    prior written approval (except in the case
                                    of an emergency where prior notice is not
                                    possible, and in such event, Lessee shall
                                    provide notice to Lessor as soon as
                                    reasonably practicable), and (ii) so long as
                                    such cessation of operations does not impair
                                    or threaten the status of effectiveness of
                                    the operating license or other certification
                                    for operating the Leased Property in
                                    accordance with its Primary Intended use; or

                           (h)      if any of Lessee's representations or
                                    warranties set forth in this Lease proves to
                                    be untrue when made in any material respect;
                                    or

                           (i)      if Lessee (or any of its Affiliates) commits
                                    an Event of Default under any other leases
                                    to which Lessee, and/or any Affiliate of
                                    Lessee, and/or any Controlling Entity of
                                    Lessee, and/or any of their respective (and
                                    permitted) heirs, successors and assigns is
                                    a party, and as to which Lessor and/or any
                                    Affiliate of Lessor, and/or any Controlling
                                    Entity of Lessor, and/or any of their
                                    respective (and permitted) heirs, successors
                                    and assigns is also a party. Without
                                    limiting the foregoing, an Event of Default
                                    hereunder shall constitute an Event of
                                    Default under any and all other such leases.
                                    The foregoing shall not, however, apply with
                                    respect to those five (5) leases between LTC
                                    and ALC relating to the five (5) assisted
                                    living facilities located at the following
                                    addresses: 1108 W. 5th Avenue, Kennewick,
                                    WA, 2001 W. 5th Street, Grandview, WA, 1018
                                    Whitman Street, Walla Walla, WA, 2647 NW
                                    Kent Street, Camas, WA, and 2610 SE 164th
                                    Avenue, Vancouver, WA; or

                           (j)      if Lessee fails to maintain in effect an
                                    operator's license required to operate any
                                    Facility, or if Lessee otherwise ceases to
                                    maintain in effect any license, permit,
                                    certificate or approval necessary or
                                    otherwise required to operate any Facility
                                    in accordance with its Primary Intended Use.

         Upon the occurrence of an Event of Default, in addition to all of
Lessor's other remedies, Lessor may terminate this Lease by giving Lessee not
less than ten (10) Business Days' Notice of such termination and upon the
expiration of the time fixed in such Notice, the Term shall terminate and all
rights of Lessee under this Lease shall cease.

                                      -24-
<PAGE>

         In the event litigation is commenced with respect to any alleged
default under this Lease, the prevailing party in such litigation shall receive,
in addition to its damages incurred, such sum as the court shall determine as
its reasonable attorneys' fees, and all costs and expenses incurred in
connection therewith. Lessor's fees, costs and expenses, including those related
to any insolvency proceedings filed by Lessee, shall constitute Additional
Charges hereunder.

                  16.2. Certain Remedies. In addition to all of its rights under
this Lease, Lessor shall have all remedies and rights provided in law and equity
as a result of an Event of Default. Without limiting the foregoing, if an Event
of Default occurs (and the event giving rise to such Event of Default has not
been cured within the curative period relating thereto as set forth in SECTION
16.1 above) whether or not this Lease has been terminated pursuant to SECTION
16.1, Lessee shall, to the extent permitted by law, if required by Lessor so to
do, immediately surrender to Lessor the Leased Property pursuant to the
provisions of SECTION 16.1 and quit the same and Lessor may enter upon and
repossess the Leased Property by reasonable force, summary proceedings,
ejectment or otherwise, and may remove Lessee and all other persons and any and
all personal property from the Leased Property subject to rights of any
residents or patients and to Legal Requirements.

                  16.3. Damages. Neither (a) the termination of this Lease
pursuant to SECTION 16.1, (b) the repossession of the Leased Property, nor (c)
the failure of Lessor, notwithstanding reasonable good faith efforts, to relet
the Leased Property, shall relieve Lessee of its liability and obligations
hereunder, all of which shall survive any such termination, repossession or
reletting. In the event of any such termination, Lessee shall forthwith pay to
Lessor all Rent due and payable through and including the date of such
termination.

         Lessor shall not be deemed to have terminated this Lease unless Lessor
delivers Notice to Lessee of such election. If Lessee voluntarily elects to
terminate this Lease, then in addition to all remedies available to Lessor,
Lessor may recover the sum of: (i) the worth at the time of award of the unpaid
Rent which had been earned at the time of termination; (ii) the worth at the
time of award of the amount by which the unpaid Rent which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that Lessee proves could have been reasonably avoided; (iii) the
worth at the time of award of the amount by which the unpaid Rent for the
balance of the Term after the time of award exceeds the amount of such rental
loss that Lessee proves could be reasonably avoided, and (iv) any other amount
necessary to compensate Lessor for all the detriment proximately caused by
Lessee's failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom, including
reasonable attorney fees, court costs and reasonable out-of-pocket expenses in
the enforcement of Lessor's rights hereunder.

         The "worth at the time of award" of the amounts referred to in
subparagraphs (i) and (ii) above is computed by allowing interest at the maximum
legal rate of interest permitted in accordance with the laws of the State of
California. The worth at the time of award of the amount referred to in
subparagraph (iii) is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%).

         Without limiting Lessor's other remedies provided herein and provided
by law, Lessor may continue the Lease in effect after Lessee's breach and
abandonment and recover Rent as it

                                      -25-

<PAGE>

becomes due, provided that, in such event, Lessee has the right to sublet or
assign subject only to reasonable conditions imposed by Lessor. Accordingly,
without termination of Lessee's right to possession of the Leased Property,
Lessor may demand and recover each installment of Rent and other sums payable by
Lessee to Lessor under this Lease as the same becomes due and payable, which
Rent and other sums shall bear interest at the maximum interest rate permitted
in accordance with the laws of the State of California, from the date when due
until paid, and Lessor may enforce, by action or otherwise, any other term or
covenant of this Lease.

                  16.4. Application of Funds. Any payments received by Lessor
under any of the provisions of this Lease during the existence or continuance of
any Event of Default shall be applied to Lessee's obligations in the order which
Lessor may determine or as may be prescribed by the laws of the State of
California.

                  16.5. Executory Contract. Should Lessee file any proceeding
under federal bankruptcy or other comparable federal or state insolvency laws,
it shall, in addition to any other requirement under 11 U.S.C., Section 365 or
other applicable provisions, be required to cure any and all obligations
hereunder prior to being allowed to assume this Lease.

                                  ARTICLE XVII

         17. Lessor's Right to Cure Lessee's Default. If Lessee fails to make
any payment or to perform any act required to be made or performed under this
Lease, and to cure the same within the relevant time periods provided in SECTION
16.1, Lessor, after thirty (30) days Notice to and demand upon Lessee, and
without waiving or releasing any obligation of Lessee or default, may (but shall
be under no obligation to) at any time thereafter make such payment or perform
such act for the account and at the expense of Lessee, and may, to the extent
permitted by law, enter upon the Leased Property for such purpose and take all
such action thereon as, in Lessor's opinion, may be necessary or appropriate
therefor. Provided, however, that should Lessor reasonably determine that the
giving of such Notice would risk loss to the Leased Property or cause damage to
Lessor, then Lessor shall give such written Notice as is practical under the
circumstances. No such entry shall be deemed an eviction of Lessee. In
exercising any remedy under this ARTICLE XVII, Lessor shall use its good faith
efforts not to violate any rights of residents of the applicable Facility. All
sums so paid by Lessor and all costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses, in each case) so incurred,
together with a late charge thereon (to the extent permitted by law) at the rate
set forth in SECTION 3.5 above from the date on which such sums or expenses are
paid or incurred by Lessor, shall be paid by Lessee to Lessor on demand. The
obligations of Lessee and rights of Lessee contained in this Article shall
survive the expiration or earlier termination of this Lease.

                                 ARTICLE XVIII

         18. Change of Control. If at any time during the term of this Lease
there shall be a Change of Control (as defined below) with respect to Lessee or
any corporation or other entity directly or indirectly controlling Lessee,
whether by operation of law or otherwise (a "CONTROLLING ENTITY"), then Lessee
shall provide Lessor with prior written notice of any such Change of Control
(the "CHANGE OF CONTROL NOTICE"), which Change of Control Notice shall describe
(a) the manner in which the Change of Control shall occur, (b) the parties to
the

                                      -26-

<PAGE>

transaction(s) resulting in the Change of Control and (c) the effective date of
the Change of Control. However, if applicable securities laws would prohibit
Lessee from providing Lessor with prior written notice of a Change of Control,
the Change of Control Notice shall be given as soon after securities laws would
allow disclosure of the Change of Control. Within sixty (60) days after Lessor's
receipt of a Change of Control Notice, or if a Change of Control Notice is not
given by Lessee, then at any time after Lessor becomes aware of a Change of
Control, Lessor, at Lessor's sole option (but subject to the provisions of
SECTION 18.1, below), shall have the right (but not the obligation) to declare
an Event of Default under this Lease and exercise Lessor's rights and remedies
under this Lease in connection with said Event of Default. Notwithstanding the
foregoing and anything to the contrary contained in this Lease, if Lessor elects
not to declare an Event of Default under this Lease upon a Change of Control,
then this Lease shall remain in full force and effect, and Lessee shall remain
fully obligated to Lessor to pay Rent and other charges from time to time due
and to perform all other obligations to be performed by Lessee under this Lease.
For purposes of this Lease, a Change of Control shall be deemed to occur if:

         (i) any Person (defined below) is or becomes the Beneficial Owner
(defined below), directly or indirectly, of securities (or other equity
interests) of Lessee and/or its Controlling Entity representing thirty percent
(30%) or more of the combined voting power of the then outstanding securities
(or equity interests) of Lessee and/or its Controlling Entity; or

         (ii) the stockholders (or holders of equity interests) of Lessee or its
Controlling Entity approve a merger or consolidation of Lessee or its
Controlling Entity (as applicable) with any other corporation (or other entity),
other than a merger or consolidation which would result in the voting securities
(or other equity interests) of Lessee or its Controlling Entity (as applicable)
which are outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities (or other
voting equity interests) of the surviving entity) more than sixty-nine and
nine-tenths percent (69.90%) of the combined voting power of the voting
securities (or other voting equity interests) of Lessee or its Controlling
Entity or such surviving entity immediately after such merger or consolidation;
provided, however, that a merger or consolidation effected to implement a
recapitalization of Lessee or its Controlling Entity (or similar transaction) in
which no Person acquires more than thirty percent (30%) of the combined voting
power of the then outstanding securities (or other voting equity interests) of
Lessee or its Controlling Entity shall not constitute a Change in Control; or

         (iii) the stockholders (or holders of voting equity interests) of
Lessee or its Controlling Entity approve a plan of complete liquidation of
Lessee or its Controlling Entity (as applicable) or an agreement for the sale or
disposition by Lessee or its Controlling Entity of all or substantially all of
the assets of Lessee or its Controlling Entity; or

         (iv) the creation or issuance of new stock (or other voting equity
interests) in one or a series of transactions by which an aggregate of more than
thirty percent (30%) of the stock (or other voting equity interests) of Lessee
or its Controlling Entity shall be vested in a party or parties who are not now
stockholders (or holders of equity interests) of Lessee or its Controlling
Entity.

         For purposes of this SECTION 18, the term "Person" shall have the
meaning ascribed thereto in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the

                                      -27-
<PAGE>

"Exchange Act"), and the term "Beneficial Owner" shall have the meaning ascribed
thereto in Rule 13d-3 of the Exchange Act.

         18.1 Notwithstanding anything set forth above in SECTION 18, if,
following a "Change of Control," the surviving entity has a Net Worth (defined
below) equal to or greater than Seventy-Five Million Dollars ($75,000,000.00),
Lessor shall not have the right to declare an Event of Default based on such a
Change of Control. (However, Lessee shall still be required to give Lessor the
Change of Control Notice provided in this SECTION 18, above.) The term "NET
WORTH" as used in this SECTION 18.1 shall mean an amount equal to the
shareholders' equity determined in accordance with generally accepted accounting
principles ("GAAP") minus total intangible assets. As used herein, total
intangible assets shall be deemed to include, but shall not be limited to, the
excess of cost over book value of acquired businesses accounted for by the
purchase method, formulae, trademarks, trade names, patents, patent rights and
deferred expenses (including, but not limited to, unamortized debt discount and
expense, organizational expense and experimental and development expenses).

                                  ARTICLE XIX

         19. Holding Over. If Lessee shall for any reason remain in possession
of the Leased Property after the expiration of the Term or earlier termination
of the Term hereof, such possession shall be as a month-to-month tenant during
which time Lessee shall pay as rental each month, the aggregate of (i) 150%
multiplied by the Minimum Rent payable with respect to the last month of the
Term, (ii) all Additional Charges accruing during such month and (iii) all other
sums payable by Lessee pursuant to the provisions of this Lease. During such
period of month-to-month tenancy, Lessee shall be obligated to perform and
observe all of the terms, covenants and conditions of this Lease, but shall have
no rights hereunder other than the right, to the extent given by law to
month-to-month tenancies, to continue its occupancy and use of the Leased
Property. Nothing contained herein shall constitute the consent, express or
implied, of Lessor to the holding over of Lessee after the expiration or earlier
termination of this Lease.

                                   ARTICLE XX

         20. Risk of Loss. During the Term of this Lease, the risk of loss or of
decrease in the enjoyment and beneficial use of the Leased Property in
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures,
attachments, levies or executions (other than those caused by Lessor) is assumed
by Lessee, and, in the absence of willful misconduct by Lessor, Lessor shall in
no event be answerable or accountable therefor, nor shall any of the events
mentioned in this Section entitle Lessee to any abatement or offset of Rent, or
any right to terminate this Lease. Without limiting the foregoing, Lessor shall
not be liable for injury or damage to the person or goods, wares, merchandise or
other property of Lessee, Lessee's employees, contractors, invitees, customers,
or any other person in or about the Leased Property, whether such damage or
injury is caused by or results from fire, steam, electricity, gas, water or
rain, or from the breakage, leakage, obstruction or other defects of pipes, fire
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures,
or from any other cause, whether the said injury or damage results from
conditions arising upon the Leased Property, or any part thereof, or from other
sources or places, and regardless of whether the cause of such damage or injury
or the means of

                                      -28-
<PAGE>

repairing the same is accessible or not, unless such damage or injury is a
result of the gross negligence or willful misconduct of Lessor. Lessor shall not
be liable for any damages arising from any act or omission of Lessee, or any
other party named above.

                                   ARTICLE XXI

         21. Indemnification. Notwithstanding the existence of any insurance
provided for in ARTICLE XIII, and without regard to the policy limits of any
such insurance, Lessee will protect, indemnify, save harmless and defend Lessor
from and against all liabilities, obligations, claims, damages, awards,
penalties, causes of action, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses), to the extent permitted by law,
imposed upon or incurred by or asserted against Lessor by reason of: (a) any
accident, injury to or death of persons or loss of or damage to property
occurring on or about the Leased Property or adjoining sidewalks, including
without limitation any claims of malpractice, (b) any occupancy, use, misuse,
non-use, condition, including any environmental conditions caused by Lessee,
maintenance or repair by Lessee of the Leased Property, (c) any Impositions
(which are the obligations of Lessee to pay pursuant to the applicable
provisions of this Lease), (d) any failure on the part of Lessee to in any way
perform or comply with any of the terms of this Lease, and (e) the
non-performance of any of the terms and provisions of any and all existing and
future subleases of the Leased Property (to the extent permitted) to be
performed by the Lessee thereunder. Any amounts which become payable by Lessee
under this Section shall be paid within ten (10) Business Days of receipt by
Lessee of Lessor's written demand for such sums, and if not timely paid, shall
bear a late charge (to the extent permitted by law), at the rate set forth in
SECTION 3.5 above, from the date of such determination to the date of payment.
Lessee, at its sole cost and expense, shall contest, resist and defend any such
claim, action or proceeding asserted or instituted against Lessor, or may
compromise or otherwise dispose of the same as Lessee sees fit, all at Lessee's
sole cost and expense. Nothing herein shall be construed as indemnifying Lessor
against its own gross negligence or willful misconduct or against the acts or
omissions of any subsequent lessee of the Leased Property in the event of the
termination by Lessor of Lessee's right to possession of the Leased Property
without termination of the Lease. Lessee's liability for a breach of the
provisions of this Article arising during the Term hereof shall survive any
termination of this Lease.

                                  ARTICLE XXII

         22. Subletting and Assignment. Subject to the permitted exceptions set
forth in SECTION 22.3 below, Lessee may not assign, sublease or sublet,
encumber, appropriate, pledge or otherwise transfer, the Lease or the leasehold
or other interest in the Leased Property without Lessor's consent, which may be
withheld in Lessor's sole and absolute discretion. Upon Lessor's consent (and,
in such cases where Lessor's consent is not required pursuant to SECTION 22.3
below), (a) in the case of a subletting, the sublessee shall comply with the
provisions of SECTION 22.2, (b) in the case of an assignment, the assignee shall
assume in writing and agree to keep and perform all of the terms of this Lease
on the part of Lessee to be kept and performed and shall be, and become, jointly
and severally liable with Lessee for the performance thereof, (c) an original
counterpart of each such sublease and assignment and assumption, duly executed
by Lessee and such sublessee or assignee, as the case may be, in a form and
substance satisfactory to Lessor, shall be delivered promptly to Lessor, and (d)
in case of either an

                                      -29-
<PAGE>

assignment or subletting, Lessee shall remain primarily liable, as principal
rather than as surety, for the prompt payment of the Rent and for the
performance and observance of all of the covenants and conditions to be
performed by Lessee hereunder. Nothing hereunder shall preclude Lessor from
selling the Leased Property or assigning or transferring its interest hereunder,
provided the new owner or assignee expressly assumes Lessor's obligations under
this Lease.

                  22.1. Attornment. Lessee shall insert in a sublease permitted
under SECTION 22.1 provisions to the effect that (a) such sublease is subject
and subordinate to all of the terms and provisions of this Lease and to the
rights of Lessor hereunder, (b) in the event this Lease shall terminate before
the expiration of such sublease, the sublessee thereunder at Lessor's option,
attorn to Lessor and waive any right the sublessee may have to terminate the
sublease or to surrender possession thereunder, as a result of the termination
of this Lease, and (c) in the event the sublessee receives a written Notice from
Lessor or Lessees assignees, if any, stating that Lessee is in default under
this Lease, the sublessee shall thereafter be obligated to pay all rentals
accruing under said sublease directly to the party giving such Notice, or as
such party may direct. All rents received from the sublessee by Lessor or
Lessor's assignees, if any, as the case may be, shall be credited against the
amounts owing by Lessee under this Lease.

                  22.2. Sublease Limitation. Anything contained in this Lease to
the contrary notwithstanding, Lessee shall not sublet the Leased Property on any
basis, such that the rental to be paid by the sublessee thereunder would be
based, in whole or in part, on either (i) the income or profits derived by the
business activities of the sublessee, or (ii) any other formula such that any
portion of the sublease rental received by Lessor would fail to qualify as
"rents from real property" within the meaning of Section 856(d) of the Code, or
any similar or successor provision thereto.

                  22.3. Permitted Acts. Anything contained in this Lease to the
contrary notwithstanding, Lessee shall have the right at any time during the
Term, without first seeking Lessor's consent, to (i) enter into rental
agreements with residents of the Facilities, and execute any documents necessary
in connection therewith, and (ii) sublease up to the greater of (a) 2,000 square
feet, or (b) ten percent (10%) of the total square footage of any Facility, to
any person or entity providing services related or ancillary to the operation of
such Facility or in connection with the provision of home health services both
within and outside such Facility. Provided, however, but for the fact that
Lessor's consent need not be obtained in such situations, all other restrictions
and provisions contained in this Article XXII or elsewhere in this Lease shall
apply.

                                 ARTICLE XXIII

         23. Compliance with Mortgage. Lessee shall comply with all applicable
provisions of any Facility Mortgage, and shall comply with any reasonable
request for information (including, without limitation, any financial
information that may not be expressly required in this Lease) from any Facility
Mortgagee.

                                      -30-
<PAGE>

                                  ARTICLE XXIV

         24. Lessor's Right to Inspect; Officer's Certificates; Books and
Records.

                  24.1. Lessor's Right to Inspect. Lessee shall permit Lessor
and its authorized representatives to inspect the Leased Property as well as
Lessee's books and records on reasonable notice (twenty-four (24) hours prior
notice shall be deemed reasonable) during usual business hours subject to any
security, health, safety or confidentiality requirements of Lessee or any Legal
Requirements or Insurance Requirements.

                  24.2. Officer's Certificates. At any time from time-to-time
upon not less than ten (10) days Notice by Lessor, Lessee will furnish to Lessor
a certified written certificate from a duly authorized officer of Lessee
certifying that this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth the
modifications), the date to which Rent has been paid and such other information
concerning this Lease as may be reasonably requested by Lessor and/or any
Facility Mortgagee. Any such certificate furnished, whether pursuant to this
SECTION 24.2 or some other provision in this Lease, may be relied upon by
Lessor, any prospective purchaser of the Leased Property and Facility Mortgagee.

                  24.3. Books and Records. In addition to all other obligations
to provide financial information contained elsewhere in this Lease, Lessee will
furnish the following to Lessor:

                           (a) Lessee shall keep adequate books and records of
                  account with respect to the Leased Property and each Facility
                  in accordance with generally accepted accounting principles
                  ("GAAP"), or in accordance with other methods elected by
                  Lessee from time to time and reasonably acceptable to Lessor
                  (such as the tax basis method of accounting, consistently
                  applied) and Lessee shall furnish to Lessor: (i) quarterly
                  operating statements of each Facility (the "PERIODIC OPERATING
                  STATEMENTS") detailing the revenues received, the expenses
                  incurred and the net operating income for that quarter and
                  containing appropriate year to date information, the Periodic
                  Operating Statements to be provided within forty-five (45)
                  days after the end of each of the first three fiscal quarters
                  of each fiscal year and within ninety (90) days after the end
                  of the fourth fiscal quarter of each fiscal year; and (ii) an
                  annual operating statement of each Facility (the "ANNUAL
                  OPERATING STATEMENT") detailing the total revenues received,
                  total expenses incurred, and total net operating income, the
                  Annual Operating Statement to be provided within ninety (90)
                  days after the close of each fiscal year of the Lessee.

                           (b) In addition to the financial reports specified in
                  the preceding paragraph, with respect to the Leased Property,
                  Lessee also shall deliver occupancy reports listing the number
                  of units, the percentage of occupancy, and the gross revenue
                  from residents (the "OCCUPANCY INFORMATION"), prepared and
                  certified by Lessee to Lessor (and upon request any Facility
                  Mortgagee) as true and correct, such Occupancy Information to
                  be provided on a quarterly basis, within forty-five (45) days
                  after the end of each of the first three fiscal quarters of

                                      -31-
<PAGE>

                  each fiscal year and within ninety (90) days after the end of
                  the fourth fiscal quarter of each fiscal year.

                           (c) Notwithstanding the foregoing. Lessor shall have
                  the option, which may be exercised by written notice to
                  Lessee, to require Lessee to furnish the Periodic Operating
                  Statements and the Occupancy Information on a monthly basis
                  (within thirty (30) days after the end of each calendar month)
                  for a period of twelve successive calendar months, commencing
                  with the first full calendar month following the date of such
                  notice.

                           (d) To the extent that Lessee, or any Controlling
                  Entity of Lessee, is required by any regulatory agency to file
                  financial statements or reports, within ten (10) calendar days
                  of such filing, Lessee shall deliver to Lessor a copy of any
                  such filing(s) and report(s). To the extent prepared, Lessee
                  shall also provide to Lessor on an annual basis, copies of
                  such financial statements and/or reports and/or filings
                  (whether audited or unaudited, depending on the practice of
                  such entities) prepared by any Controlling Entity.

                           (e) Lessee shall provide to Lessor (i) quarterly
                  operating statements (unaudited) of Lessee, detailing the
                  revenues received, the expenses incurred and the net operating
                  income for that quarter and containing appropriate year to
                  date information, to be provided within forty-five (45) days
                  after the end of each of the first three fiscal quarters of
                  each fiscal year and within ninety (90) days after the end of
                  the fourth fiscal quarter of each fiscal year; and (ii) an
                  annual operating statement (audited) of Lessee, detailing the
                  total revenues received, total expenses incurred, and total
                  net operating income, to be provided within ninety (90) days
                  after the close of each fiscal year of the Lessee.

                           (f) Without limiting any of the foregoing, within one
                  hundred twenty (120) calendar days following each Calendar
                  Year, Lessee shall deliver to Lessor a certified report,
                  reasonably acceptable to the Lessor and certified by the chief
                  financial officer of the Lessee, setting forth the Gross
                  Revenues for each Facility for the calendar year immediately
                  preceding ("Officer's Certificate").

         Whether or not expressly stated elsewhere above in this SECTION 24.3,
all information, reports, filings, etc. provided by Lessee to Lessor under this
SECTION 24.3 shall be (i) prepared in accordance with GAAP, and (ii) accompanied
with a written certificate from a duly authorized officer of Lessee certifying
that to the best knowledge of the officer executing such certificate, all
accompanying information is true and complete. In addition to all of the items
expressly identified and required elsewhere in this SECTION 24.3 (or elsewhere
in this Lease), Lessee shall promptly comply with any request by Lessor or any
Facility Mortgagee for the production of additional financial information
(whether relating to Lessee, or a Controlling Entity of Lessee) as may deemed
relevant or prudent by Lessor and/or any Facility Mortgagee.

                                      -32-
<PAGE>

                                  ARTICLE XXV

         25. No Waiver. The waiver by Lessor or Lessee of any term, covenant or
condition in this Lease shall not be deemed to be a waiver of any other term,
covenant or condition or any subsequent waiver of the same or any other term,
covenant or condition contained in this Lease. The subsequent acceptance of Rent
hereunder by Lessor or any payment by Lessee shall not be deemed to be a waiver
of any preceding default of any term, covenant or condition of this Lease, other
than the failure to pay the particular amount so received and accepted,
regardless of the knowledge of any preceding default at the time of the receipt
or acceptance.

                                  ARTICLE XXVI

         26. Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor now or hereafter
provided either in this Lease or by statute or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power and remedy and
the exercise or beginning of the exercise by Lessor of any one or more of such
rights, powers and remedies shall not preclude the simultaneous or subsequent
exercise by Lessor of any or all of such other rights, powers and remedies.

                                 ARTICLE XXVII

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

                                 ARTICLE XXVIII

         28. No Merger of Title. There shall be no merger of this Lease or of
the leasehold estate created hereby by reason of the fact that the same person,
firm, corporation or other entity may acquire, own or hold, directly or
indirectly, (a) this Lease or the leasehold estate created hereby or pay
interest in this Lease or such leasehold estate and (b) the fee estate in the
Leased Property.

                                  ARTICLE XXIX

         29. Conveyance by Lessor. If Lessor or any successor Lessor of the
Leased Property shall convey the Leased Property or assign its interest herein
in accordance with the terms hereof other than as security for a debt, provided
the new Lessor has agreed in writing for the benefit of Lessee to be bound by
all of the terms and conditions hereof, Lessor or such successor Lessor, as the
case may be, shall thereupon be released from all future liabilities and
obligations of Lessor under this Lease arising or accruing from and after the
date of such conveyance or other transfer as to the Leased Property and all such
future liabilities and obligations shall thereupon be binding upon the new
Lessor.

                                      -33-
<PAGE>

                                  ARTICLE XXX

         30. Quiet Enjoyment. So long as Lessee shall pay all Rent as the same
becomes due and shall comply with all of the terms of this Lease and perform its
obligations hereunder, Lessee shall peaceably and quietly have, hold and enjoy
the Leased Property for the Term hereof, free of any claim or other action by
Lessor or anyone claiming by, through or under Lessor, but subject to all
covenants, conditions, restrictions, easements and all other matters affecting
title, whether or not of record, the conditions and limitations expressly set
forth herein, and any and all matters created by or known to Lessee.

                                  ARTICLE XXXI

         31. Notices. All notices, demands, requests, consents, approvals and
other communications ("NOTICE" or "NOTICES") hereunder shall be in writing and
served upon the party being served either by (i) personal delivery, (ii)
registered or certified mail, return receipt requested and postage prepaid,
(iii) overnight delivery service, or (iv) facsimile transmission addressed to
the respective parties, as follows:

                If to Lessor:           LTC Properties, Inc.
                                        300 Esplanade Drive, Suite 1860
                                        Oxnard, California  93030
                                        Attn: Andre C. Dimitriadis
                                        Telephone: (805) 981-8660
                                        Facsimile: (805) 981-8663

                with a copy to:         LTC Properties, Inc.
                                        300 Esplanade Drive, Suite 1860
                                        Oxnard, California  93030
                                        Attn: Legal Department
                                        Telephone: (805) 981-3611
                                        Facsimile: (805) 981-3616

                                        Texas-LTC Limited Partnership
                                        300 Esplanade Drive, Suite 1860
                                        Oxnard, California  93030
                                        Attn: Andre C. Dimitriadis
                                        Telephone: (805) 981-8660
                                        Facsimile: (805) 981-8663

                with a copy to:         Texas-LTC Limited Partnership
                                        300 Esplanade Drive, Suite 1860
                                        Oxnard, California  93030
                                        Attn: Legal Department
                                        Telephone: (805) 981-3611
                                        Facsimile: (805) 981-3616

                                      -34-
<PAGE>

                If to Lessee:           Assisted Living Concepts, Inc.
                                        11835 NE Glenn Widing Drive, Building E
                                        Portland, Oregon  97220-9057
                                        Attn: General Counsel
                                        Telephone: (503) 408-5299
                                        Facsimile: (503) 255-9948

                with a copy to:         Assisted Living Concepts, Inc.
                                        11835 NE Glenn Widing Drive, Building E
                                        Portland, Oregon  97220-9057
                                        Attn: Chief Executive Officer
                                        Telephone: (503) 408-5299
                                        Facsimile: (503) 255-9948

                                        Carriage House Assisted Living, Inc.
                                        11835 NE Glenn Widing Drive, Building E
                                        Portland, Oregon  97220-9057
                                        Attn: General Counsel
                                        Telephone: (503) 408-5299
                                        Facsimile: (503) 255-9948

                with a copy to:         Carriage House Assisted Living, Inc.
                                        11835 NE Glenn Widing Drive, Building E
                                        Portland, Oregon 97220-9057
                                        Attn: Chief Executive Officer
                                        Telephone: (503) 408-5299
                                        Facsimile: (503) 255-9948

or to such other address or person as either party may hereafter designate by a
Notice pursuant to this Section. In all instances, Notice shall be deemed
effective upon proof of receipt (in the case of Notice via facsimile, proof of
receipt shall be established by electronic confirmation of a successful
transmission).

                                 ARTICLE XXXII

                  32.1. Lessor May Grant Liens. Lessor may, subject to the terms
and conditions set forth below in this SECTION 32.1, from time to time, directly
or indirectly, create or otherwise cause to exist any lien or encumbrance or any
other change of title ("ENCUMBRANCE") upon the Leased Property, or any portion
thereof or interest therein, whether to secure any borrowing or other means of
financing or refinancing. Upon the reasonable request of Lessor, Lessee shall
subordinate this Lease to the lien of a new mortgage on the Leased Property, on
the condition that the proposed mortgagee executes a non-disturbance agreement
recognizing this Lease and agreeing, on customary and commercially reasonable
terms and conditions, for itself and its successors and assigns, to comply with
the provisions of this ARTICLE XXXII. Lessee shall subordinate its interest to
any such Encumbrance, provided, however, that such future Encumbrance shall
provide that it is subject to the rights of Lessee under this Lease and that it
will enter into a nondisturbance agreement or customary and commercially
reasonable terms and

                                      -35-
<PAGE>

conditions upon a foreclosure sale or transfer in lieu thereof; provided,
however, that any such purchaser or transferee shall take title subject to
Lessee's rights hereunder, and provided further that any holder of an
Encumbrance shall (a) give Lessee the same notice, if any, given to Lessor of
any default or acceleration of any obligation underlying any such mortgage or
any sale in foreclosure under such mortgage, (b) permit Lessee to cure any such
default on Lessor's behalf within any applicable cure period, and Lessee shall
be reimbursed by Lessor or shall be entitled to offset against Rent payments
next accruing or coming due for any and all costs incurred in effecting such
cure, including without limitation out-of-pocket costs incurred to effect any
such cure (including reasonable attorneys' fees), (c) permit Lessee to appear
and to bid at any sale in foreclosure made with respect to any such mortgage,
and (d) provided that in the event of a foreclosure of all or any portion of the
Leased Property by a Facility Mortgagee, that the Facility Mortgagee shall be
bound by the terms and provisions of this Lease (provided Lessee is not then in
default of its obligations hereunder). Without limiting the generality of the
foregoing subparagraph (d), the parties acknowledge the existence of that
certain Revolving Credit Agreement dated October 31, 2000 ("CREDIT AGREEMENT")
by and between Lessor, as borrower, and Sanwa Bank California ("SANWA"), as
administrative agent for the lenders party to such agreement ("LENDERS"). It
shall be a condition to the effectiveness of this Lease that, prior to the
Commencement Date, Lessee receive a fully executed and notarized Subordination,
Non-Disturbance and Attornment Agreement (or its equivalent) in recordable form
and otherwise in form and substance reasonably acceptable to Lessee. Without in
any way diminishing Lessee's responsibilities set forth elsewhere in this Lease
with respect to the removal of liens affecting any part of the Leased Property,
Lessor hereby represents and warrants to Lessee that other than the Credit
Agreement and related security instruments, Lessor is not a party to any other
voluntary monetary liens or encumbrances affecting all or any portion of the
Leased Property, and has not received (at its offices in Oxnard, California)
written notice of the existence of any involuntary monetary liens or
encumbrances placed upon the Leased Property.

                  32.2. Breach by Lessor. It shall be a breach of this Lease if
Lessor fails to observe or perform any term, covenant or condition of this Lease
on its part to be performed, and such failure shall continue for a period of
thirty (30) days, after written Notice thereof from Lessee, unless such failure
cannot with due diligence be cured within a period of thirty (30) days, in which
case such failure shall not be deemed to continue if Lessor, within said thirty
(30) day period, proceeds promptly and with due diligence to cure the failure
and diligently completes the curing thereof. The time within which Lessor shall
be obligated to cure any such failure shall also be subject to extension of time
due to the occurrence of any Unavoidable Delay.

                                 ARTICLE XXXIII

         33. Miscellaneous.

                  33.1. Survival of Obligations. Anything contained in this
Lease to the contrary notwithstanding, all claims against, and liabilities of,
Lessee or Lessor arising prior to any date of termination of this Lease shall
survive such termination.

                  33.2. Late Charges; Interest. If any interest rate provided
for in any provision of this Lease is based upon a rate in excess of the maximum
rate permitted by applicable law, the parties agree that such charges shall be
fixed at the maximum permissible rate.

                                      -36-
<PAGE>

                  33.3. Transfer of Obligations. Upon the expiration or earlier
termination of the Term, Lessee shall use its best efforts to transfer to Lessor
or Lessor's nominee (or to cooperate with Lessor or Lessor's nominee in
connection with the processing by Lessor or Lessor's nominee of any applications
for) all licenses, operating permits and other governmental authorizations and
all contracts, including contracts with governmental or quasi-governmental
entities which may be necessary for the operation of each Facility; provided
that the costs and expenses of any such transfer or the processing of any such
application shall be paid by Lessor or Lessor's nominee.

                  33.4. Addendum, Amendments and Exhibits. All addenda,
amendments and exhibits attached to this Lease are hereby incorporated in this
Lease and made a part of this Lease.

                  33.5. Headings. The headings and paragraph titles in this
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part of this Lease.

                  33.6. Time. Time is of the essence of this Lease and each and
all of its provisions.

                  33.7. Applicable Law. This Lease shall be governed by and
construed in accordance with the laws of the State of California, but not
including its conflicts of laws rules; thus the law that will apply is the law
applicable to a transaction solely within the State of California.

                  33.8. Successors and Assigns. The covenants and conditions
contained in this Lease shall, subject to the provisions regarding conveyance by
Lessor (ARTICLE XXIX), apply to and bind the heirs, successor, executor,
administrators and assigns of Lessor and Lessee.

                  33.9. Limits of Lessor's and Lessee's Liability. Lessee
specifically agrees to look solely to Lessor's interest in the Leased Property
Lessor for recovery of any judgment against Lessor relating to this Lease, it
being specifically agreed that neither the assets of Lessor, nor any constituent
shareholder, officer or director of Lessor shall ever be personally liable for
any such judgment or the payment of any monetary obligation to Lessee.
Furthermore, in no event shall Lessor (original or successor) ever be liable to
Lessee for any indirect or consequential damages suffered by Lessee from
whatever cause. Lessor specifically agrees to look solely to the assets of
Lessee for recovery of any judgment against Lessee, it being specifically agreed
that no constituent shareholder, officer or director of Lessee shall ever be
personally liable for any such judgment or the payment of any monetary
obligation to Lessor. The provision contained in the foregoing sentence is not
intended to, and shall not, limit any right that Lessor might otherwise have to
obtain injunctive relief against Lessee or Lessee's successors in interest, or
any action not involving the personal liability of Lessee (original or
successor). Furthermore, in no event shall Lessee (original or successor) ever
be liable to Lessor for any indirect or consequential damages suffered by Lessor
from whatever cause.

                  33.10. Prior and Future Agreements. This Lease contains the
entire agreement of Lessor and Lessee with respect to the subject matter covered
or mentioned in this Lease, and no prior or contemporaneous agreements or
understanding pertaining to any such matters shall be

                                      -37-
<PAGE>

effective for any purpose. No provision of this Lease may be amended or
supplemented except by an agreement in writing signed by both Lessor and Lessee
or their respective successor in interest. This Lease shall not be effective or
binding on any party until fully executed by both Lessor and Lessee.

                  33.11. Partial Invalidity. Any provision of this Lease which
shall be held by a court of competent jurisdiction to be invalid, void or
illegal shall in no way affect, impair or invalidate any other provision or term
of this Lease, and such other provision or terms shall remain in full force and
effect.

                  33.12. Attorneys Fees. In the event of any action or
proceeding brought by one party against the other under this Lease, the
prevailing party shall be entitled to recover its reasonable attorneys' fees and
costs in such action or proceeding from the other party, including all
reasonable attorneys' fees incurred in connection with any appeals, and any
post-judgment reasonable attorneys' fees incurred in efforts to collect on any
judgment.

                  33.13. Authority of Lessor and Lessee. Lessor and Lessee each
hereby represent and warrant that the individuals signing on its behalf are duly
authorized to execute and deliver this Lease in their respective capacities, and
that this Lease is binding upon the entity for which it has been executed.

                  33.14. Relationship of the Parties. Nothing contained in this
Lease shall be deemed or construed by Lessor or Lessee, nor by any third party,
as creating the relationship of principal and agent or a partnership, or a joint
venture by Lessor or Lessee, it being understood and agreed that no provision
contained in this Lease nor any acts of Lessor and Lessee shall be deemed to
create any relationship other than the relationship of landlord and tenant.

                  33.15. Counterparts; Signatures by Facsimile. This Lease may
be executed in one or more separate counterparts, each of which, once they are
executed, shall be deemed to be an original. Such counterparts shall be and
constitute one and the same instrument. The parties may accept and rely upon
signatures delivered via facsimile.

                  33.16. Brokers. Lessor and Lessee each warrants that it has
had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease and it knows of no real estate broker or agent who is
entitled to a commission in connection with this Lease. Lessor and Lessee hereby
agree to indemnify the other and to hold the other harmless from and against any
and all costs, expenses, claims, damages, suits, including attorneys' fees, in
any way resulting from claims or demands for commissions or other compensation
from any real estate brokers claiming through such party with respect to this
Lease.

                  33.17. Condition on Termination. Upon any termination of the
Lease or any abandonment for whatever reason by Lessee of the Leased Property,
Lessee shall deliver up to Lessor the Leased Property in substantially the same
or better condition than it was at the commencement of the Lease, reasonable
wear and tear only excepted, and in a clean and sanitary state.

                                      -38-
<PAGE>

                  33.18. Ground Leased Facility. The Facility located in
Newport, Oregon is not owned by Lessor, but rather is the subject of a ground
lease dated January 11, 1996, as modified by The First Addendum to Ground Lease
(as modified, the "GROUND LEASE") between Lessor, as tenant (as successor in
interest to Lessee), and Fred A. Yeck and Ernest Yeck, together as landlord
("GROUND LESSOR"). Accordingly, rather than the fee owner of such Facility,
Lessor is instead the tenant under the Ground Lease, and therefore it is
Lessor's leasehold interest in such Facility that is being leased (in effect,
subleased) to Lessee hereunder. Lessee acknowledges the foregoing and
acknowledges that its occupancy of the facility located in Newport, Oregon shall
be subject to, and Lessee shall comply with, all provisions under the Ground
Lease, and shall not take any action or omit to take any action that would
result in an event of default under the Ground Lease. If requested, Lessee shall
enter into such other instruments, agreements, certificates, and provide such
documents and information as may be required by the Ground Lessor (or Lessor).

                    [SIGNATURES CONTAINED ON FOLLOWING PAGE]

                                      -39-
<PAGE>

         WHEREFORE, each of the parties has accepted and agreed by affixing
their respective authorized signatures below as of the date first above written.

"LESSOR"                           LTC PROPERTIES, INC., A MARYLAND CORPORATION

                                   By:    /s/ Wendy Simpson
                                          -------------------------------------
                                   Name:  Wendy Simpson
                                          -------------------------------------
                                   Title: Chief Financial Officer
                                          -------------------------------------

                                   TEXAS-LTC LIMITED PARTNERSHIP,
                                   A TEXAS LIMITED PARTNERSHIP

                                   By: L-TEX GP, Inc., a Delaware corporation

                                   By:    /s/ Wendy Simpson
                                          -------------------------------------
                                   Name:  Wendy Simpson
                                          -------------------------------------
                                   Title: Chief Financial Officer
                                          -------------------------------------

"LESSEE"                           ASSISTED LIVING CONCEPTS, INC.,
                                   A NEVADA CORPORATION

                                   By:    /s/ Wm. James Nicol
                                          -------------------------------------
                                   Name:  Wm. James Nicol
                                          -------------------------------------
                                   Title: CEO and President
                                          -------------------------------------

                                   CARRIAGE HOUSE ASSISTED LIVING, INC.,
                                   A DELAWARE CORPORATION

                                   By:    /s/ Wm. James Nicol
                                          -------------------------------------
                                   Name:  Wm. James Nicol
                                          -------------------------------------
                                   Title: CEO and President
                                          -------------------------------------

                                      -40-
<PAGE>

                                   EXHIBIT "A"

                               LEGAL DESCRIPTIONS

                                [TO BE ATTACHED]

                                      -1-

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