Document:

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                                                                  Exhibit 10.124

                    CONSTRUCTION LOAN AND SECURITY AGREEMENT

                                     BETWEEN

                             ALS-CLARE BRIDGE, INC.

                                       AND

                                 SOVEREIGN BANK

                             DATED AS OF MAY 1, 1998

<PAGE>   2
                                      INDEX

<TABLE>
<CAPTION>
Section Heading                                                              Page
<S>      <C>                                                                 <C>
1.       The Loan..............................................................1

2.       The Project...........................................................1

3.       Construction Contracts; Capital Costs.................................1

4.       Collateral; General Assignment........................................1

5.       Conditions Precedent..................................................3

6.       Disbursement and Application of Loan Proceeds.........................3

7.       Representations and Warranties........................................5

8.       Construction of Improvements..........................................7

9.       Completion............................................................7

10.      Extensions of Construction Period; Failure to Achieve
           Breakeven Operation.................................................8

11.      Other Construction Obligations and Covenants of Borrower..............9

12.      Change Orders........................................................10

13.      Inspections..........................................................10

14.      No Representation by Inspections.....................................10

15.      Compliance With Contracts............................................11

16.      Compliance With All Laws.............................................11

17.      Proof of Title.......................................................11

18.      Warrant of Attorney..................................................11

19.      Indemnity............................................................11

20.      Defaults.............................................................11
</TABLE>

                                      (i)
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<TABLE>
<CAPTION>
Section Heading                                                             Page

<S>      <C>                                                                <C>
21.      Cross Default and Cross Collateralization............................11

22.      Notices..............................................................12

23.      Severability.........................................................12

24.      Third Parties........................................................12

25.      Complete Agreement...................................................12

26.      Governing Law........................................................12

27.      Waiver of Jury Trial.................................................12

28.      Counterparts.........................................................12

29.      Miscellaneous........................................................12
</TABLE>

                                    EXHIBITS

         A        -        Legal Description of Property
         B        -        List of Plans
         C        -        Statement of Sources and Application of Funds
         D        -        Loan Advance Requisition Form
         E        -        Loan Advance Certificate

                                      (ii)
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                    CONSTRUCTION LOAN AND SECURITY AGREEMENT

         This Agreement is made as of this 1st day of May, 1998 between
ALS-CLARE BRIDGE, INC. ("Borrower"), a Delaware corporation with an address at
c/o Alternative Living Services, Inc., 450 North Sunnyslope Road, Brookfield,
Wisconsin 53003 and SOVEREIGN BANK, ("Bank"), with an address at Two Aldwyn
Center, Lancaster Avenue and Route 320, Villanova, Pennsylvania 19085.

         Intending to be legally bound, Borrower and Bank hereby agree as
follows:

         1.       The Loan. Pursuant to a Commitment Letter dated February 9,
1998 (such letter, including the General Conditions attached thereto, the
"Commitment Letter") and subject to the terms and conditions of this Agreement,
Bank agrees to lend to Borrower Three Million Four Hundred Fifty Thousand
Dollars ($3,450,000) (the "Funds" or the "Loan"). All capitalized terms used in
this Agreement and not otherwise defined shall have the meanings given to them
in the Commitment Letter.

         2.       The Project. Borrower owns approximately 5.0 acres of land
situated near the intersection of Blue Course and Whitehall Road, Furguson
Township, Centre County, Pennsylvania and more fully described in Exhibit A
attached hereto (the "Property"), and proposes to construct thereon a 20,987
square foot assisted living facility and related site improvements (the
"Improvements") as more fully described in the plans, drawings and
specifications prepared by Adrian Guszkowski (the "Architect"), delivered to
Bank and listed in Exhibit B attached hereto, as modified by any Change Orders
effected in accordance with the terms hereof (the "Plans"). The Property and the
Improvements are sometimes hereinafter collectively called the "Project".

         3.       Construction Contracts; Capital Costs. Borrower, as owner of
the Property, has entered into an agreement (the "Architect's Agreement") with
the Architect for the rendering of architectural services in connection with the
Project, and a guaranteed maximum price general construction contract dated
February 24, 1998 (the "General Contract") with Continuing Care Concepts, Inc.
(the "General Contractor") for the construction of the Improvements. The
Statement of Sources and Application of Funds attached hereto as Exhibit C is an
estimate of the capital requirements for the Project. Borrower will use the
Funds only to finance costs that have been or will be incurred by Borrower to
construct and complete the Improvements and other costs associated with the
development of the Project.

         4.       Collateral: General Assignment. Borrower hereby grants to
Bank, as security for the performance of this Agreement and payment of the
principal of and interest on the Note and all advances now or hereafter made by
Bank to or for the benefit of Borrower under this Agreement, the Mortgage or any
instrument delivered to Bank pursuant to this Agreement or any other evidence of
indebtedness, a security interest in (a) all materials delivered to the site of
the Project but not yet incorporated therein, now owned or hereafter acquired,
(b) all machinery, equipment, fixtures, furnishings, furniture, appliances,
general intangibles, accounts and other personalty of Borrower, now owned or
hereafter acquired, and intended to be incorporated into or used in connection
with construction or completion of the Improvements, (c) all insurance on

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all the foregoing and the proceeds of any sale or exchange of the foregoing in
whole or in part, and (d) all property of Borrower which at any time Bank shall
have or have the right to have in its possession, or which is in transit to it,
including without limitation, any balance or share of any deposit, trust,
agency, escrow or other account with Bank and any amounts which may be owing
from time to time by Bank to Borrower. Borrower hereby also assigns and grants
to Bank a security interest in, and agrees Bank shall have and be able to
exercise, until all amounts payable to Bank under the Note, the Mortgage: or
this Agreement have been paid in full, all of Borrower's right, title and
interest in, to and under all contracts, instruments, documents, licenses,
permits, surveys, approvals and agreements of any kind relating to construction
of the Improvements or marketing, sale, leasing, financing or operation of all
or any part of the Project, now owned or hereafter acquired, and the; proceeds
of any of the foregoing, including without limitation the Plans, the General
Contract, the Architect's Agreement and the Project Permits (as hereinafter
defined) provided that so long as no Event of Default (as hereinafter defined)
shall have occurred and be continuing hereunder, Borrower shall have the
benefits of such right, title and interest, except Borrower shall not terminate,
cancel or amend or suffer or permit the termination, cancellation or amendment
or default or expiration of any assigned instrument without Bank's prior
approval, except for any amendment (i) for which Bank's consent is not otherwise
expressly required by the terms of the Collateral Documents (as hereinafter
defined), (ii) which does not increase the cost of the Project or otherwise
jeopardize or adversely affect the completion or operation of the Project or
Bank's security for the Loan and (iii) of which Bank is given a copy. Borrower
shall continue to be solely liable for all obligations of Borrower under any
assigned instrument and neither Borrower nor any other party thereto shall look
to Bank to pay or perform any of such obligations unless and until Bank shall
have notified such party in writing that Bank has elected to assume such
obligations, and then only to the extent set forth in such assumption. In the
event of foreclosure of the Mortgage, the purchaser at such foreclosure shall
also acquire all of the right, title and interest of Borrower in, to and under
said contracts, instruments, documents, licenses, permits, surveys, approvals
and agreements, but such purchaser shall be liable only for the obligations
expressly assumed by such purchaser. The foregoing constitutes a security
agreement under the Uniform Commercial Code.

           For purposes of this Agreement, the term "Collateral" shall
mean the right, title and interest of Bank in the property described in the
Mortgage and the property described in this Section 3, and the term "Collateral
Documents" shall mean such instruments and the Surety and the Completion
Guaranty (each as hereinafter defined).

           Borrower will execute or join with Bank in executing such
financing statements and continuation statements under the Uniform Commercial
Code or other applicable law as Bank may specify in order to perfect and
maintain perfection of Bank's security interest in any of the Collateral and
will pay the costs of filing the same in such public offices as Bank may
designate.

           5.       Conditions Precedent. The obligation of Bank to make the
first advance of the Funds hereunder is subject to the condition precedent that
Bank shall have received (a) each of the items specified in Section 1 of the
General Conditions to the Commitment Letter in form and substance satisfactory
to Bank and Bank's counsel, and (b) the commitment fee specified in Section
5(A)(i) of the Commitment Letter.

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           6.       Disbursement and Application of Loan Proceeds. So long as
there has occurred no Event of Default or any event or condition which, with the
passage of time or giving of notice or both could become an Event of Default,
Bank shall be obligated to advance the Funds against the Note upon Borrower's
request during the period commencing on the date of this Agreement and ending no
later than the last day of the eighteenth full month thereafter (the
"Construction Period") (as such period may be extended in accordance with
Section 10 of this Agreement), in amounts not in excess of costs which have been
incurred by Borrower for the development of the Project, as verified by Bank,
pursuant to Exhibit C and the Plans and subject to all limitations set forth in
the notes to Exhibit C.

           Each request for an advance shall be made by a loan advance
requisition in the form attached hereto as Exhibit D, delineating the Funds to
be drawn against each item listed in Exhibit C (or at Bank's request, against a
more detailed breakdown of items). Each loan advance requisition shall be
accompanied by (a) as Bank may require from time to time, a copy of the AIA form
of requisition to Borrower from the General Contractor; (b) a certificate of
Borrower in the form attached hereto as Exhibit E; (c) an approval by Bank's
inspector of the requested advance; and (d) if requested by Bank, an endorsement
to the Bank's title insurance policy insuring Bank against any loss occasioned
by any liens of record, statutory or otherwise, held by mechanics, workmen,
contractors, suppliers or the employees or agents of any of them with respect to
the Project and that since the issuance of the Bank's Title Insurance Policy or
the last such endorsement, there has been no change in the state of title to the
Property and there have occurred no survey or other exceptions not previously
approved by Bank.

           Anything herein to the contrary notwithstanding, (i) advances
of the Funds pursuant to Borrower's request shall be limited to no more than
once every two weeks, except as Bank in its discretion may otherwise permit from
time to time, (ii) each Loan advance requisition shall be for a minimum
aggregate amount of $100,000; and (iii) the aggregate of all advances made by
Bank at any time shall not exceed, in Bank's opinion, the value of work done and
materials physically incorporated into the Improvements or delivered to and
securely stored on the Property.

           Sums advanced under the Note from time to time shall be
deposited by Bank into an account of Borrower at Bank, except that upon the
occurrence of an Event of Default, Bank shall have the option of disbursing the
Funds directly to the third parties to whom payments are due for Project costs.
All payments for Project costs made by Borrower shall be made promptly from
accounts at Bank regardless of the source of funds therefor. Bank may require
copies of any or all checks written by Borrower or the General Contractor for
payment of Project costs to be submitted to and approved by Bank prior to
issuance. In no event shall any Funds be used by Borrower for any purpose other
than payment of the costs and expenses shown on Exhibit C without Bank's prior
specific written approval.

           Anything herein to the contrary notwithstanding, Bank may from
time to time, at its option, without requests or orders or vouchers from
Borrower, advance Funds against the Note and disburse the same to itself for
payment of interest due and payable under the Note.

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           Any Project costs incurred in excess of the respective
budgeted amounts for the items shown on Exhibit C shall be promptly paid by
Borrower from sources other than the Funds. Should it appear at any time that
the balance of the Funds to be advanced against the Note is insufficient, in
Bank's reasonable judgment, to complete the Improvements, Bank may require that
Borrower pay, and Borrower will pay to Bank within 30 days of receipt of notice
from Bank, for disbursement by Bank, an amount equal to the deficiency, as
determined by Bank, and Bank shall not be obligated to make any further advances
of the Funds until such amount is paid to Bank and disbursed for payment of
Project costs. Notwithstanding the foregoing provisions, if the whole amount
allocated to any component of Project cost as set forth on Exhibit C is not, or
in Bank's judgment, will not be expended to complete the work covered by such
component, with Bank's approval, Borrower may request such excess to be
reallocated and used for any other component of Project cost as set forth on
Exhibit C prior to making any deposit required by the previous sentence,
provided that any proposed reallocation of Project cost components included
under the General Contract shall also be approved by the General Contractor.

           All conditions to the obligation of Bank to make advances
hereunder are imposed solely and exclusively for the benefit of Bank and its
assigns, and no other person shall have standing to require satisfaction of such
conditions in accordance with their terms or be entitled to assume that Bank
will make or not make advances in the absence of strict compliance with any or
all thereof, and no other person shall, under any circumstances, be deemed to be
a beneficiary of such conditions, any or all of which may be freely waived in
whole or in part by the Bank at any time if, in its sole discretion, it deems it
advisable to do so. In no event shall any other party be deemed to be a
beneficiary of the Funds that may be advanced to Borrower pursuant to the terms
hereof or have any right to an accounting therefor. Bank shall not in any way or
for any purpose be deemed to be or to become a partner of or a joint venturer or
a member of a joint enterprise with Borrower in connection with the construction
or installation of the Improvements or the ownership, development or operation
of the Project or the Loan contemplated herein.

           7.       Representations and Warranties. Borrower represents and
warrants that:

                    (a)      Borrower is a corporation duly formed, validly
existing and in good standing under the laws of the State of Delaware, is duly
qualified and in good standing to conduct business in those jurisdictions in
which its ownership of property or the conduct of its business requires such
qualification, and has the requisite power and authority to make and perform its
obligations under this Agreement, the Note and the Collateral Documents and
under all other documents delivered to Bank pursuant hereto and to carry out the
transactions contemplated hereby and thereby.

                    (b)      The execution, delivery and performance of this
Agreement and the execution and delivery of the Note and the Collateral
Documents have been duly authorized by all requisite corporate action of
Borrower and will not violate any provision of law or any, judgment, order or
regulation of any court or of any public or governmental agency or authority
applicable to Borrower or the certificate of incorporation or by laws of
Borrower or conflict with or result in a breach of any of the terms, conditions
or provisions of or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the

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<PAGE>   8
properties or assets of Borrower pursuant to the terms of any agreement,
indenture or instrument to which Borrower is a party or by which Borrower or any
of its properties are bound.

                    (c)      This Agreement, the Note and the Collateral
Documents when executed and delivered by Borrower will be the legal, valid and
binding obligations of the parties thereto in accordance with their respective
terms.

                    (d)      There is no claim, litigation or governmental
proceeding against Borrower now pending or, to the knowledge of Borrower,
threatened, which is substantial in amount or which, if adversely determined
would have a material adverse effect on the financial condition or business of
Borrower, or would adversely affect the Project or the ability of Borrower to
perform its respective obligations under this Agreement, the Note or the
Collateral Documents, except such as are adequately covered by insurance and
have been disclosed in the financial statements hereinafter referred to or
except such as have been disclosed to Bank in writing.

                    (e)      Borrower has filed all federal, state and local tax
returns required to be filed and has paid all taxes as shown on said returns to
be due.

                    (f)      Borrower has no knowledge of any violation, nor is
there any notice or other record of any violation, of any zoning, subdivision,
environmental, building or other statute, ordinance, regulation, restrictive
covenant or other restriction applicable to the Property or the Project.

                    (g)      The Plans, the Property, the construction thereon
of the Improvements as contemplated by this Agreement, the use of the Property
and the Improvements for the purpose contemplated hereby and the development,
construction and operation of the Project do and shall, in all respects, comply
with, and are lawful, permitted and conforming uses under, all applicable
building, fire, safety, subdivision, zoning, sewer, environmental, securities,
health, insurance and other laws, ordinances, rules, regulations and plan
approval conditions of any governmental or public body or authority and Borrower
has obtained all permits, licenses or approvals from such governmental or public
bodies or authorities which are a necessary precondition to the construction of
the Improvements.

                    (h)      No approval, consent or authorization of, or
registration, declaration or filing with, any governmental or public body or
authority is required in connection with the valid execution, delivery and
performance of this Agreement, the General Contract or the Collateral Documents,
the issuance of the Note or the carrying out by Borrower of the transactions
contemplated hereby, except such as have been or will, prior to the first
advance hereunder, be obtained.

                    (i)      There exist no liens, encumbrances or other charges
against the Property, the Improvements or any property relating thereto other
than the Mortgage and the security interests created hereby or pursuant hereto,
including statutory and other liens of mechanics, workmen, contractors,
subcontractors, suppliers, taxing authorities (other than taxes

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<PAGE>   9
not yet due and payable) and others, except those disclosed to and approved by
Bank (the "Permitted Liens").

                    (j)      All utility services necessary for construction and
operation of the Project, including water supply, storm and sanitary sewer
facilities, gas, electricity and telephone facilities are, or prior to the
Completion Date (as hereinafter defined) will be, available within the
boundaries of the Property.

                    (k)      All roads necessary for the full utilization of the
Property and the Improvements for their intended purposes have either been
completed or the necessary rights-of-way therefor have been acquired by the
appropriate governmental authority or others or have been or will, prior to the
Completion Date, be dedicated to public use and accepted by such governmental
authority, and all necessary steps have been taken by Borrower and all such
governmental authority or others to assure complete construction and
installation thereof by the Completion Date.

                    (1)      The General Contract is in full force and effect
and has not been amended, modified or altered without Bank's written consent,
and Borrower is not in default thereunder, and, to the best knowledge and
information of Borrower, the General Contractor is not in default under the
General Contract, and there are no events, occurrences or conditions which with
the passage of time or the giving of notice or both, would constitute a default
thereunder.

          All of the above representations and warranties shall be continuing
and survive the making of this Agreement and the issuance of the Note.

           8.       Construction of Improvements. Borrower will proceed
diligently to construct the Improvements upon the Property, according to Exhibit
C and the Plans, without delay or stoppage of fifteen working days or more, in a
good and workmanlike manner, employing therefor workmen and materials
satisfactory in quantity and quality to Bank.

           9.       Completion. The Improvements shall be completed on or before
the date that is eighteen (18) months from the date of this Agreement (the
"Completion Date") and at completion the Property and the Improvements shall be
free of any and all private or governmental charges or claims (filed or not) of
any nature, except for the Mortgage, the 1 security interests created hereby,
other interests granted to Bank and the Permitted Liens. Borrower will deliver
to Bank certified copies of all use, occupancy or completion certificates in
connection with the Project, immediately upon issuance.

           As used in this Agreement the terms "complete", "completed" and
"completion" mean, with respect to the Improvements, that:

                    (a)      all Improvements are, in Bank's reasonable
judgment, substantially physically complete in accordance with the Plans;

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<PAGE>   10
                    (b)      Borrower has received all permits, approvals and
certificates required by law prior to the use and occupancy thereof and has
furnished true copies of such permits, approvals and certificates to Bank;

                    (c)      the Property and the Improvements are free of any
and all private or governmental charges, claims or liens (filed or not) of any
nature excepting only the Mortgage, the security interests created hereby or
pursuant hereto, other liens in Bank's favor and Permitted Liens; and

                    (d)      The Project has achieved "breakeven operation". For
purposes of this Agreement, the term "breakeven operation" shall mean that the
Project's "debt service coverage ratio" as defined in Section 4.03 of the
Mortgage is not less than 1.0 to 1. For purposes of this Section 9, the
determination of "breakeven operation" shall be based on Project operating
statements submitted in accordance with Section 11. Further, for purposes of
this Section 9 and Section 10, the determination of "breakeven operation" shall
be made assuming that debt service consists of interest payable on the amount of
the Loan outstanding after the final requisition, at a rate equal to the Fixed
Rate (as defined in the Note) determined on the fifteenth day of the month for
which any operating statement is submitted based on a five (5) year Fixed Rate
Period, and amortizing as provided in the Note.

           10.      Extensions of Construction Period: Failure to Achieve
Breakeven Operation. Borrower shall have the option of extending the duration of
the Construction Period beyond eighteen months for one (1) additional six (6)
month period upon satisfaction of the following terms and conditions:

                    (a)     Borrower shall give not less than thirty (30) nor
more than sixty (60) days' prior written notice to Bank of Borrower's request to
extend the maturity date of the Note for the additional six month period;

                    (b)     Bank shall have received the commitment fee
specified in Section 5(A)(ii) of the Commitment Letter; and

                    (c)     At and as of the time any such extension is to take
effect

                            (i)     the Project shall not have achieved
         breakeven operation;

                            (ii)    there shall have occurred no Event of
         Default, or any event or condition which, with the passage of time or
         giving of notice or both could become an Event of Default, provided
         that if Borrower cures any such event or condition existing at such
         time, within the applicable grace period set forth herein, if any, this
         condition shall be deemed satisfied as of the date of such cure;

                            (iii)   the costs incurred to date and remaining to
         be incurred for the completion of construction of the Improvements are
         within the budgeted amounts set forth on Exhibit C; and

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<PAGE>   11

                            (iv)    the amount remaining in the budget category
         interest reserve is, in Bank's reasonable judgment, sufficient to cover
         the payment of interest during the remaining term of the Construction
         Period, as extended.

           Notwithstanding anything to the contrary in this Section 10 or
in this Agreement, the Construction Period shall end on the last day of the
month selected by Borrower after the Project achieves breakeven operation, but
not later than the eighteenth month after the execution of this Agreement (or
the twenty-fourth month if the Borrower elects to extend such period in
accordance with this Section 10). On the first day of the month immediately
following the month in which the Construction Period ends, Borrower shall pay to
Bank the commitment fee specified in Section 5(B) of the Commitment Letter.

           If the Project fails to achieve breakeven operation by failing
to generate net operating income sufficient to meet the required debt service
coverage ratio, the entire outstanding principal amount of the Note and all
interest accrued thereon shall be due and payable on the last day of the
Construction Period (as it may have been extended), unless Borrower shall
promptly (i) make a prepayment sufficient to reduce projected debt service such
that the required debt service coverage ratio is met (such amount, the
"Shortfall") or (ii) obtain and deliver to Bank a letter of credit in form and
substance acceptable to Bank for a term of twelve (12) months, equal to the
Shortfall, but in no case to exceed $1,000,000, or (iii) provide Bank with some
combination of prepayment and letter of credit in the combined amount of the
Shortfall. If Borrower delivers a letter of credit, Borrower shall either (x)
achieve breakeven operation, or (y) make a prepayment equal to the Shortfall (as
reduced by any prepayment made in accordance with Subsections (i) or (iii)
above). If Borrower has not achieved breakeven operation or made such required
prepayment at least ten (10) days before the expiration of the letter of credit,
Bank may exercise its right to draw on the letter of credit up to the amount of
the Shortfall.

           11.      Other Construction Obligations and Covenants of Borrower.

                    (a)      Borrower will not, without first obtaining written
approval of Bank, (i) execute any contract, subcontract or purchase order or
permit any subcontract or purchase order to be executed by any person or persons
with whom it has contracted in connection with the Improvements (except for such
contracts, subcontracts or purchase orders that have been executed prior to the
date hereof and that have been approved by Bank) unless the amounts thereof are
within the amounts budgeted therefor as set forth on Exhibit C; or (ii) execute
any amendment or modification to the Plans, the General Contract or any contract
the effect of which would be either to increase or decrease the amount to be
paid by or on behalf of Borrower under any contract except as permitted by
Section 12 of this Agreement.

                    (b)      Borrower will not, without Bank's prior written
consent, contract for any services, work or materials if such are not required
by the Plans or if payment therefor is required to be made regardless of the
nondelivery or nonfurnishing of such materials or services or work.

                                       8
<PAGE>   12

                    (c)      Borrower will forward to Bank promptly after
receipt, copies of all notices, permits or other documents (excepting only
notices for non-delinquent taxes due) received by Borrower from any governmental
authority relating to the Property or the Improvements or from any person
claiming a mechanic's or materialmen's lien against the Property or the Project.

                    (d)      Prior to making final payment under any contract
relating to construction of the Improvements, Borrower will, upon Bank's written
request, require the contractor thereon to deliver to Borrower, from such
contractor and all of such contractor's subcontractors or materialmen, a general
release of mechanics' and materialmen's liens and Borrower will promptly deliver
to Bank copies of all such releases so obtained, certified by Borrower to be
true and correct.

                    (e)      Beginning no later than the first month following
the opening of the Facility, Borrower shall submit, no later than twenty (20)
days after the end of each month, an operating statement for the Project,
detailing, inter alia, the number of beds occupied and the actual net operating
income (as defined in the Mortgage) of the Project in the preceding month. At
the expiration of the Construction Period, and provided there exists no Event of
Default (as defined in the Mortgage) or condition which, with the passage of
time, the giving of notice or both would become an Event of Default, Borrower
shall have no further obligation to submit such operating statements.

           12.      Change Orders. Borrower will not permit, without the prior
written consent of Bank, the performance of any work pursuant to any amendment
or modification of the Plans, the General Contract or any subcontract or
purchase order (any such amendment or modification being hereinafter called a
"Change Order") which (a) would impair the Project, (b) would result in an
increase or decrease in excess of $10,000 in the aggregate of the contract
prices for the construction of the Improvements or (c) when aggregated with
other Change Orders theretofore effected, would result in an increase or
decrease in excess of $50,000 in the aggregate of the contract prices for the
construction of the Improvements.

           13.     Inspections. Borrower will permit and assist Bank or Bank's
representatives to make inspections of the Property and the Improvements and
Borrower's books and records relating thereto at such time or times as Bank may
reasonably request. Borrower agrees to pay Bank an inspection fee of $500.00 for
each site visitation conducted by Bank or its representative until the principal
of and interest on the Note have been paid in full, provided that such visits at
Borrower's expense shall not be conducted more frequently than once in
connection with each request for an advance of Funds except when Borrower
requests and Bank agrees to more than one advance of the Funds per calendar
month and during such periods as an Event of Default shall have occurred and be
continuing. If upon any such inspection, Bank in writing condemns as unsound or
improper and not in substantial compliance with the Plans, any portion of the
Improvements or any materials used or to be used therein, Borrower will within
24 hours commence to remove from the Property or the Improvements (as the case
may be) all condemned materials, and will take down and replace (or, at Bank's
option, repair) any portion of the Improvements so condemned.

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<PAGE>   13
           14.      No Representation by Inspections. Bank's inspections are
solely for the protection of Bank's security and no action or inaction by Bank
shall constitute any representation that the Improvements comply with the Plans
or that the Improvements are sound or free from defects in material, design or
workmanship or that Bank approves thereof.

           15.      Compliance With Contracts. Borrower will comply with all
requirements and satisfy all conditions of all contracts, bonds or insurance
which insure or relate to all or any part of this Agreement, the Property, the
Improvements or Borrower. The foregoing includes without limitation compliance
with all the terms and satisfaction of all the conditions of the General
Contract. In the event of a failure by Borrower to comply with any of such terms
or satisfy any of such conditions, Bank may undertake such compliance or
satisfaction on Borrower's behalf and any sums expended by Bank in connection
therewith shall be deemed advances hereunder against the Note and secured by the
Collateral Documents.

           16.      Compliance With All Laws. Borrower will comply with all laws
applicable to Borrower or the Property or the Improvements, including without
limitation zoning and use laws and building restrictions and regulations.

           17.      Proof of Title. Borrower will deliver to Bank, upon demand,
any contracts, bills of sale, statements, receipted vouchers or agreements under
which Borrower claims title to any materials, fixtures, equipment, machinery,
appliances, furniture, furnishings or other personal property incorporated in
the Improvements or subject to the lien of the Mortgage or included in the
Collateral.

           18.      Warrant of Attorney. Borrower hereby irrevocably appoints
Bank as attorney-in-fact to do in Borrower's stead all things believed by Bank
reasonably necessary to effect performance of this Agreement, including without
limitation filing notices in public records and endorsing checks or drafts
payable to Borrower and Bank jointly. The foregoing appointment is coupled with
an interest and is solely for protection of Bank's security and, therefore, is
not intended to confer any right of action on any third party.

           19.      Indemnity. Borrower hereby indemnifies Bank and agrees to
hold Bank harmless from any loss, expense or damage on account of anything
arising out of or in connection with this Agreement, the Note, the Collateral
Documents, the Property, the Improvements or any of the documents and
instruments delivered to Bank in compliance with this Agreement unless caused
solely by the Bank's gross negligence or willful misconduct. This indemnity
shall survive the completion of the Improvements and payment of the Note.

           20.      Defaults. The occurrence of an "Event of Default" as defined
in the Mortgage shall constitute an event of default hereunder and under the
Note and the Collateral Documents.

           21.      Cross Default and Cross Collateralization. The Loan and the
Mortgage are cross defaulted and cross collateralized with loans given or being
given from Bank to (a) Borrower (the "East Hempfield Loan"), (b)
ALS-WovenHearts, Inc. (the "Bristol Loan"), (c) ALS-WovenHearts, Inc. (the
"Chambersburg Loan"), and (d) ALS-Wynwood, Inc. (the "New

                                       10
<PAGE>   14

Castle Loan") (the East Hempfield Loan, the Bristol Loan, the Chambersburg Loan
and the New Castle Loan are hereinafter collectively referred to as the "Other
Loans") so that an Event of Default (as defined in the Mortgage) under this Loan
or the Other Loans shall constitute an Event of Default under this Loan and all
of the Other Loans, and the mortgaged property for each of this Loan and the
Other Loans shall secure this Loan and all of the Other Loans.

           22.      Notices. Any notice, demand or request under this Agreement
shall be made in accordance with Section 6.03 of the Mortgage.

           23.      Severability. If any provision hereof or of the Note is
found by a court of competent jurisdiction to be prohibited or unenforceable, it
shall be ineffective only to the extent of such prohibition or unenforceability,
and such prohibition or unenforceability shall not invalidate the balance of
such provision to the extent it is not prohibited or unenforceable, nor
invalidate the other provisions hereof.

           24.      Third Parties. This Agreement shall be binding upon and
inure to the benefit of Bank and Borrower and their respective successors and
assigns. Borrower may not, without the prior written consent of Bank, assign any
of its rights or obligations under this Agreement. The parties intend that no
other person or entity is to have any claim or any interest under this
Agreement, and no other person or entity is to have any right of action hereon
or hereunder.

           25.      Complete Agreement. Taken together with the Note, the
Collateral Documents and the other instruments, contracts and documents
delivered in compliance herewith, this Agreement is a complete memorandum of the
agreement of Borrower and Bank. Waivers or modifications of any provision hereof
must be in writing signed by the party to be charged with the effect thereof.

           26.      Governing Law. Except to the extent applicable law may
require otherwise, this Agreement shall be construed in accordance with and
governed by the substantive laws of the Commonwealth of Pennsylvania.

           27.      Waiver of Jury Trial. Borrower and Bank hereby waive the
right to trial by jury in any action arising hereunder.

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

           29.      Miscellaneous. The captions preceding the text of the
Sections of this Agreement are for convenience of reference and shall not
constitute a part of this Agreement, nor shall they in any way affect its
meaning, construction or effect. Unless the context clearly indicates a contrary
intent:

                                       11
<PAGE>   15

                    (a) The term "Borrower" shall mean the person oar persons
specifically named herein as "Borrower" and their respective heirs, executors,
administrators, successors and assigns;

                    (b)      The term "Bank" shall mean the person specifically
named herein as "Bank" or any successor to or assignee of its rights hereunder
and under the Note;

                    (c)      The word "person" shall mean individual,
corporation, partnership, joint venture or unincorporated association;

                    (d)      The use of any gender shall include all genders;

                    (e)      The singular number shall include the plural and
the plural the singular as the context may require;

                    (f)      If Borrower is more than one person, all
agreements, conditions, covenants, provisions, stipulations, warrants of
attorney, authorizations, waivers, releases, options, undertakings, indemnities,
rights and benefits made or given by Borrower shall be joint and several and
shall legally bind and affect all persons who are defined as "Borrower" as fully
as though all of them were specifically named herein wherever the term
"Borrower" is used, and each of them shall be deemed to have made the
representations and warranties of herein set forth.

               [THE REMAINDER OF THIS PAGE INTENTIONALLY OMITTED]

                                       12
<PAGE>   16
           IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.

                         BORROWER:

                         ALS-CLARE BRIDGE, INC., a
                         Delaware corporation

                         By:      /s/ Thomas E. Komula
                                -----------------------------------
                         Name:    Thomas E. Komula
                                -----------------------------------
                         Title:   Vice President
                                -----------------------------------

                         BANK:

                         SOVEREIGN BANK

                         By:      /s/ William J. Mattern
                                -----------------------------------
                         Name:    William J. Mattern
                                -----------------------------------
                         Title:   Assistant Vice President
                                -----------------------------------

                                       13
<PAGE>   17
                                    EXHIBITS

A        -        Legal Description of Property

B        -        List of Plans

C        -        Statement of Sources and Application of Funds

D        -        Loan Advance Requisition Form

E        -        Loan Advance Certificate<PAGE>   1
                                                                EXHIBIT 10.125

                    OPEN-END MORTGAGE AND SECURITY AGREEMENT

                                 by and between

                             ALS-CLARE BRIDGE, INC.
                                  ("Mortgagor")

                                       and

                                 SOVEREIGN BANK
                                  ("Mortgagee")

                                 Dated: May 1, 1998

                                 Premises: Assisted Living Facility located near
                                 the intersection of Blue Course and Whitehall
                                 Road, Furguson Township, Centre County,
                                 Pennsylvania
<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
                  <S>                                                      <C>
                  Parties                                                    1

                  Granting Clause                                            1

                  Obligations Secured                                        4

                  Habendum                                                   5
</TABLE>

<TABLE>
<S>      <C>                                                                 <C>
                                    ARTICLE I
                           COVENANTS AND AGREEMENTS OF MORTGAGOR..............6
1.01     Payment and Performance of Secured Obligations.......................6
1.02     Warranty of Title....................................................6
1.03     Maintenance, Repair and Alterations..................................7
1.04     Required Insurance...................................................8
1.05     Delivery of Policies; Payment of Premiums............................9
1.06     Insurance Proceeds..................................................11
1.07     Assignment of Policies Upon Foreclosure.............................13
1.08     Indemnification; Subrogation; Waiver of Offset......................13
1.09     Taxes and Impositions...............................................14
1.10     Utilities...........................................................18
1.11     Mortgagor's Lease and Easement Obligations..........................18
1.12     Compliance with Laws; Actions Affecting Premises....................18
1.13     Actions by Mortgagee to Preserve Premises...........................18
1.14     Survival of Warranties..............................................19
1.15     Eminent Domain......................................................19
1.16     Additional Security.................................................21
1.17     Successors and Assigns..............................................21
1.18     Inspections.........................................................21
1.19     Liens...............................................................21
1.20     Mortgagee's Powers..................................................22
1.21     Tradenames; Fictitious Name Registration............................22
1.22     Representations and Warranties Concerning ERISA.....................23
1.23     Mortgagor's Existence; Transfers....................................23
1.24     Mortgagee's Right to Publicize Source of Financing..................24
1.25     Advance Money Mortgage..............................................24

                                   ARTICLE II
                           ASSIGNMENT OF RENTS, ISSUES AND PROFITS...........24
2.01     Assignment of Rents.................................................24
2.02     Collection Upon Default.............................................25
2.03     Assignment of Leases................................................25
</TABLE>
                                       ii
<PAGE>   3
                                   ARTICLE III
                               SECURITY AGREEMENT.............................26
3.01     Creation of Security Interest........................................26
3.02     Warranties, Representations and Covenants of Mortgagor...............26

                                   ARTICLE IV
                               FINANCIAL COVENANTS............................27
4.01     Financial Reporting..................................................27
4.02     Reserves.............................................................28
4.03     Debt Service Coverage Ratio..........................................28

                                    ARTICLE V
                              DEFAULTS AND REMEDIES...........................29
5.01     Events of Default....................................................30
5.02     Acceleration Upon Default; Additional Remedies.......................32
5.03     Foreclosure and Other Actions by Mortgagee...........................35
5.04     Recovery of Expenses by Mortgagee....................................36
5.05     Mortgagee's Right of Possession in Case of Default...................36
5.06     Application of Income Received by Mortgagee..........................38
5.07     Appointment of Receiver..............................................39
5.08     Remedies Not Exclusive...............................................40

                                   ARTICLE VI
                                  MISCELLANEOUS...............................41
6.01     Governing Law........................................................41
6.02     Mortgagor Waiver of Rights...........................................41
6.03     Giving of Notice.....................................................42
6.04     Counsel Fees.........................................................43
6.05     Limitation of Interest...............................................43
6.06     Statements by Mortgagor..............................................44
6.07     Captions.............................................................44
6.08     Invalidity of Certain Provisions.....................................44
6.09     Subrogation..........................................................44
6.10     No Merger............................................................45
6.11     Definitions..........................................................45
6.12     Amendments...........................................................46

Exhibit A - Property Description

                                      iii
<PAGE>   4
                    OPEN-END MORTGAGE AND SECURITY AGREEMENT
            THIS IS AN OPEN-END MORTGAGE AND SECURES FUTURE ADVANCES

         THIS MORTGAGE AND SECURITY AGREEMENT made the 1st day of May, 1998, by
and between ALS-CLARE BRIDGE, INC., a Delaware corporation ("Mortgagor"), whose
place of business and mailing address is c/o Alternative Living Services, Inc.,
450 North Sunnyslope Road, Brookfield, Wisconsin 53005 and SOVEREIGN BANK
("Mortgagee"), with offices at Two Aldwyn Center, Lancaster Avenue & Route 320,
Villanova, Pennsylvania 19085;

                                   WITNESSETH:

         Pursuant to a Construction Loan and Security Agreement (the "Loan
Agreement") between Mortgagor and Mortgagee of even date herewith, Mortgagor has
executed and delivered to Mortgagee its promissory note (as hereinafter amended,
restated, renewed, extended or modified, the "Note") bearing even date herewith
wherein Mortgagor promises to pay to Mortgagee the principal sum of Three
Million Four Hundred Fifty Thousand Dollars ($3,450,000) lawful money of the
United States of America, with interest thereon at the rate and times, in the
manner and according to the terms and conditions specified in the Note, all of
which are incorporated herein by reference.

         NOW, THEREFORE, in consideration of the indebtedness described above
and other good and valuable consideration, receipt of which is hereby
acknowledged, and intending to be legally bound, Mortgagor has granted,
conveyed, bargained, sold, aliened, enfeoffed, released, confirmed and
mortgaged, and by these presents does hereby grant, convey, bargain, sell,
alien, enfeoff, release, confirm and mortgage unto Mortgagee and does agree that
Mortgagee shall have a security interest: in that certain real estate described
in Exhibit A attached hereto and made a part hereof (the "Property").

         TOGETHER WITH, all rents, issues, profits, royalties, income,
reversions and remainders, and other benefits derived from the Property, subject
to the right, power and authority hereinafter given to Mortgagor to collect and
apply such rents; and

         TOGETHER WITH, all leasehold estate, right, title and interest of
Mortgagor in and to all leases, occupancy agreements, subleases, permits,
licenses, franchises or certificates covering the Property or any portion
thereof now existing or entered into, and all right, title and interest of
Mortgagor thereunder, including, without limitation, all cash or security
deposits, advance rentals, and deposits or payments of similar nature; and

         TOGETHER WITH, all right, title and interest of Mortgagor in and to all
options to purchase or lease the Property or any portion thereof or interest
therein, and any greater estate in the Property now owned or hereafter acquired;
and

         TOGETHER WITH, all interests, estate or other claims, both in law and
in equity, which Mortgagor now has or hereafter may acquire in the Property; and
<PAGE>   5

         TOGETHER WITH, any and all tenements, hereditaments and appurtenances
belonging to the Property or any part thereof hereby mortgaged or intended so to
be, or in any way appertaining thereto, and all streets, alleys, gores,
passages, ways, watercourses, water rights and all leasehold estates, easements,
rights of way and covenants now existing or hereafter created for the benefit of
Mortgagor or any subsequent owner or tenant of the Property over ground
adjoining the Property and all rights to enforce the maintenance thereof,
including, without limitation, the easements described in Exhibit A attached
hereto and made a part hereof, and all other rights, liberties and privileges of
whatsoever kind or character, and all the estate, right, title, interest,
property, possession, claim and demand whatsoever, at law or in equity, of
Mortgagor in and to the Property or any part thereof; and

         TOGETHER WITH, all right, title and interest of Mortgagor, now owned or
hereafter acquired, in and to any land lying within the right-of-way of any
street, open or proposed, adjoining the Property, and any and all sidewalks,
alleys and strips and gores of land adjacent to or used in connection with the
Property; and

         TOGETHER WITH, all right, title and interest of Mortgagor in and to any
and all buildings and improvements now or hereafter erected on the Property, and
the fixtures, attachments, appliances, equipment, machinery, and other articles
attached to said buildings and improvements (the "Improvements"); and

         TOGETHER WITH, all right, title and interest of Mortgagor in and to all
tangible personal property now or hereafter owned or leased by Mortgagor and now
or at any time hereafter located on or at the Property or used in connection
therewith or the business conducted thereon or related to the planning,
development, financing or operation thereof (the "Personal Property"),
including, but not limited to: all building materials and equipment, goods,
machinery, tools, insurance proceeds, equipment (including fire sprinklers and
alarm systems, office air conditioning, heating, refrigerating, electronic
monitoring, entertainment, recreational, window or structural cleaning rigs,
maintenance, equipment for the exclusion of vermin or insects, removal of dust,
refuse or garbage and all other equipment of every kind), lobby and all other
indoor or outdoor furniture (including tables, chairs, planters, desks,
partitions, sofas, shelves, lockers and cabinets), decorative accessories, works
of art, wall safes, furnishings, appliances, (including refrigerators, fans,
heaters, stoves, water heaters and incinerators), inventory, rugs, carpets and
other floor coverings, plants, draperies and drapery rods and brackets, awnings,
window shades, venetian blinds, curtains, lamps, chandeliers and other lighting
fixtures and office maintenance and other supplies; and

         TOGETHER WITH, all the estate, interest, right, title, other claim or
demand, including claims or demands with respect to the proceeds of insurance
with respect thereto, which Mortgagor now has or may hereafter acquire in the
Property, Improvements and Personal Property, and any and all awards made for
the taking by eminent domain or condemnation, or by any proceeding or purchase
in lieu thereof, of the whole or any part of the Property, Improvements and
Personal Property, including, without limitation, any awards resulting from a
change of grade of streets and awards for severance damages; and

                                       2
<PAGE>   6
         TOGETHER WITH, all right, title and interest of Mortgagor in and to any
management and operating agreement between Mortgagor, as owner and Alternative
Living Services, Inc., as manager and operator of the Premises (as that term is
defined hereinbelow);

         TOGETHER WITH, all right, title and interest of Mortgagor arising under
any contracts and subcontracts, including, without limitation, all rights
arising under any performance and payment bonds, now or hereafter executed with
respect to the Premises;

         TOGETHER WITH, (to the extent assignable in accordance with their terms
and applicable laws), all permits, licenses, approvals or agreements of any kind
relating to the construction, development, use, occupancy or operation of the
Premises;

         TOGETHER WITH, (to the extent assignable in accordance with their terms
and applicable laws), all right, title and interest of Mortgagor in, to and
under all contracts, instruments, documents, licenses, permits, surveys,
approvals, special ordinances and agreements of any kind relating to
construction of improvements on the real estate described in this financing
statement, now owned or hereafter acquired, including without limitation, plans
and specifications, construction contracts, architects' agreements and
engineers' agreements;

         TOGETHER WITH, all right, title and interest of Mortgagor in and to all
deposits (including tenants' security deposits), funds, instruments, accounts
receivable, documents and general intangibles arising out of or used in
connection with the operation of the Premises and all notes anal chattel paper
arising from or by virtue of any transaction related to the Premises
(hereinafter collectively referred to as the "Accounts"); and

         TOGETHER WITH, all right, title and interest of Mortgagor in and to all
reserve or escrow agreements now or hereafter created and the funds established
thereby, pursuant to the Mortgage, the Note or the Commitment (as that term is
defined hereinbelow).

         All of the above mentioned Property, Improvements, Personal Property
and the balance of the entire estate, property and interest hereby conveyed to
Mortgagee is sometimes hereafter collectively referred to as the "Premises".

                          FOR THE PURPOSE OF SECURING:

                  (a)      Performance of all obligations of Mortgagor under the
Loan Agreement.

                  (b)      Payment of the indebtedness evidenced by the Note,
and any and all modifications, extensions and renewals thereof, including
indebtedness arising as a result of advances made in the future, and all
interest provided for in the Note.

                  (c)      Payment and performance of all obligations of
Mortgagor under any agreement made between Mortgagor and Mortgagee related to
the use of the loan proceeds evidenced by the Note, and of each agreement of
Mortgagor incorporated by reference therein or herein, or contained therein or
herein; and

                                       3
<PAGE>   7
                  (d)      Payment and performance of all obligations of
Mortgagor under the commitment issued to Mortgagor by Mortgagee by letter dated
February 9, 1998, (the "Commitment") and each agreement of Mortgagor
incorporated by reference therein or herein.

                  (e)      Payment of all sums advanced by Mortgagee to protect
the Premises or its interests therein, with interest thereon at the rate of five
percent (5%) per annum higher than the rate specified in the Note, or the
maximum rate of interest permitted by law in the Commonwealth of Pennsylvania
from time to time, whichever shall be less (the "Default Rate").

                  (f)      Payment and performance of the obligations and
agreements of Alternative Living Services, Inc. (the "Shareholder") under a
Guaranty and Surety Agreement and Guaranty of Completion (the "Guaranties") of
even date herewith, or of any other guarantor of or surety for any of the
obligations of Mortgagor contained in this Mortgage, the Note or any other
instrument given to evidence or further secure the payment and performance of
any obligation secured hereby.

                  (g)      Payment and performance under the loans from
Mortgagee (i) in the amount of $3,450,000 to Mortgagor with respect to the
property in East Hempfield, Pennsylvania, (ii) in the amount of $1,750,000 to
ALS-WovenHearts, Inc. with respect to the property in Bristol, Pennsylvania,
(iii) in the amount of $3,377,216 to ALS-WovenHearts, Inc. with respect to the
property in Chambersburg Boro, Pennsylvania, and (iv) in the amount of
$6,001,700 to ALS-Wynwood, Inc. with respect to the property in New Castle,
Delaware (collectively, the "Other Loans").

                  (h)      Payment of all other sums, with interest thereon,
which hereafter may be loaned to Mortgagor, its successors or assigns, by
Mortgagee, when evidenced, by a promissory note or notes reciting that they are
secured by this Mortgage.

                  (i)      Performance of the obligations and agreements of
Mortgagor and the Shareholder contained in the Assignment of Leases and
Agreements Affecting Real Estate (the "Assignment of Leases"), the Escrow,
Pledge and Security Agreement (the "Escrow, Pledge and Security Agreement") and
the Environmental Indemnity Agreement (the "Environmental Indemnity Agreement"),
all of even date herewith and any such assignment and agreement which may be
executed hereafter between, Mortgagor and Mortgagee which secures the Note, and
each agreement of Mortgagor incorporated by reference therein or herein, or
contained therein or herein.

                  (j)      Payment and performance of all obligations and
agreements of Mortgagor contained herein or incorporated herein by reference.

         This Mortgage, the Loan Agreement, the Note, the Assignment of Leases,
the Escrow, Pledge and Security Agreement, the Environmental Indemnity
Agreement, the Guaranties and any other instrument given to evidence or further
secure the payment and performance of any obligation secured hereby are
sometimes hereinafter collectively referred to as the "Loan Documents".

                                       4
<PAGE>   8
         TO HAVE AND TO HOLD the Premises hereby conveyed or mentioned and
intended so to be, unto Mortgagee, to its own use forever.

         PROVIDED ALWAYS, and this instrument is upon the express condition
that, if Mortgagor pays to Mortgagee the principal sum mentioned in the Loan
Documents, the interest thereon and all other sums payable by Mortgagor to
Mortgagee as are secured hereby, in accordance with the provisions of the Loan
Documents, at the times and in the manner specified, without deduction, fraud or
delay, and Mortgagor performs and complies with all the agreements, conditions,
covenants, provisions and stipulations contained herein and in the other Loan
Documents, then this Mortgage and the estate hereby granted shall cease and
become void.

         TO PROTECT THE SECURITY OF THIS MORTGAGE, MORTGAGOR HEREBY COVENANTS
AND AGREES AS FOLLOWS:

                                    ARTICLE I
                      COVENANTS AND AGREEMENTS OF MORTGAGOR

         Until the indebtedness secured hereby is fully repaid, Mortgagor hereby
represents, covenants, warrants and agrees:

         1.01     Payment and Performance of Secured Obligations.  Mortgagor
shall pay to Mortgagee, in accordance with the terms of the Note, the principal
thereof and interest thereon and other sums set forth therein and in the other
Loan Documents; shall perform and comply with all the agreements, conditions,
covenants, provisions and stipulations of the Loan Documents; and shall timely
perform all of its obligations and duties under any lease, easement agreement,
license, permit, approval, covenant or other agreement, now or hereafter in
effect, relating to, affecting, created for the benefit of, or used in
connection with the operation of all or any portion of the Premises.

         1.02     Warranty of Title.

                  (a)      Mortgagor warrants that it has good and marketable
fee simple title to the Property and the Improvements.

                  (b)      Mortgagor warrants that this Mortgage is a valid
first lien on the Premises, and that Mortgagee, subject to Mortgagor's right of
possession prior to default, shall. quietly enjoy and possess the Premises.
Mortgagor shall preserve such title and the validity and priority of the lien
hereof and shall forever warrant and defend the same to Mortgagee against the
claims of all persons and parties whatsoever.

                  (c)      Without the prior written consent of mortgagee, which
consent may be unreasonably withheld by Mortgagee, Mortgagor shall not permit to
exist any lien except a "Permitted Lien" (as hereinafter defined) on all or any
portion of the Premises, including any beneficial interest in the Premises nor
shall Mortgagor incur any indebtedness for money borrowed which is secured by a
lien other than a Permitted Lien upon the Premises or any part

                                       5
<PAGE>   9
thereof, including any beneficial interest therein, other than the indebtedness
secured hereby and subordinate indebtedness to the Shareholder made with the
prior written consent of Bank, which consent shall not be unreasonably withheld.
For purposes of this Mortgage, "Permitted Lien" shall mean a purchase money
lien, lien or other security interest, including a lease obligation, on any item
of Personal Property created in connection with the acquisition of Personal
Property of Mortgagor, so long as such item of Personal Property is not affixed
to the Improvements and so long as the aggregate amount of Permitted Liens shall
not exceed $150,000.00.

         1.03     Maintenance, Repair and Alteration.  Mortgagor shall keep the
Premises, including the Property and the Improvements constituting any part
thereof, in good order and condition and in a rentable and tenantable state of
repair; shall make or cause to be made, as and when necessary, all repairs,
renewals and replacements, structural and non-structural, exterior and interior,
ordinary and extraordinary, foreseen and unforeseen; shall not remove, demolish
or alter (except such alterations as may be required by laws, ordinances or
regulations and except alterations not exceeding $50,000 at any one time and not
exceeding an aggregate of $250,000 during the time the Note remains outstanding)
any of the Improvements; shall complete promptly and in good and workmanlike
manner any building or other improvement which may be constructed on the
Property and promptly restore in like manner any Improvements which may be
damaged or destroyed thereon, and promptly pay when due all claims for labor
performed and materials furnished therefor; shall comply with all laws,
ordinances, regulations, covenants, conditions and restrictions now or hereafter
affecting the Premises or any part thereof or requiring any alterations or
improvements; shall not commit or permit any waste or deterioration of the
Premises; shall keep and maintain abutting grounds, sidewalks, roads, parking
and landscape areas in good and neat order and repair; shall comply with the
provisions of any lease, easement or other agreement affecting all or any part
of the Premise; shall not commit, suffer or permit any act to be done in or upon
the Premises in violation of any law, ordinance or regulation; and shall not
permit the Premises or any part thereof to become vacant, deserted or unguarded.

         1.04     Required Insurance.  Mortgagor shall provide, maintain and
keep in force the following insurance coverage with respect to the Premises,
written by stock or non-assessable mutual carriers with a general policy holders
rating of "B" or better and a financial rating of VI or better in the most
recent edition of "Best's Key Rating Guide, Property-Casualty":

                  (a)      Insurance against loss or damage to the Improvements
and the Personal Property by fire and any of the risks covered by insurance of
the type now known as "fire and extended coverage", in an amount not less than
the full replacement cost (as such replacement cost is determined by Mortgagee
from time to time) of the Personal Property and the Improvements, including the
cost of debris removal (exclusive of the cost of excavations, foundations, and
footings). The policies of insurance carried in accordance with this
subparagraph (a) shall contain a "replacement cost coverage endorsement" and
shall at all times be in amounts sufficient to prevent the application of any
so-called "co-insurance" provisions;

                  (b)      Business interruption insurance and/or loss of rental
value insurance insuring against any abatement of rent and/or other payments or
any tenant's failure to

                                       6
<PAGE>   10
perform any other duties or obligations required pursuant to leases and rental
contracts relating to the Premises, resulting from fire or other casualty, for a
period of eighteen (18) months;

                  (c)      Comprehensive commercial general liability insurance
on an "occurrence basis" against claims for bodily injury or property damage
occurring on, in or about: the Premises, such insurance to afford immediate
minimum protection to a combined single limit of not less than One Million
Dollars ($1,000,000) per occurrence and not less than One Million Dollars
($1,000,000) in the aggregate;

                  (d)      If the Premises are in an area designated by the
Secretary of Housing and Urban Affairs as an area having special flood or mud
slide hazards, flood insurance: in an amount equal to the full replacement cost
of the Improvements and any and all personal property used or to be used in
connection therewith; and

                  (e)      Such other insurance, and in such amounts, as may
from time to time be reasonably required by Mortgagee against the same or other
hazards and risks insured against. by the operators of like properties in the
locality of the Property.

         All policies of insurance (other than liability policies) required by
the terms of this Mortgage shall contain an endorsement or agreement by the
insurer that any loss shall be payable in accordance with the terms of such
policy notwithstanding any act or negligence of Mortgagor which might otherwise
result in forfeiture of said insurance and shall have attached thereto a
lender's loss payable endorsement for the benefit of Mortgagee, not subject to
contribution, in form satisfactory to mortgagee, and shall contain the further
agreement of the insurer waiving all rights of set off, counterclaim or
deductions against Mortgagee.

         1.05     Delivery of Policies; Payment of Premiums.  All policies of
insurance required by the terms of this Mortgage shall be issued by companies
and in amounts satisfactory to Mortgagee.

         (a)      Mortgagor shall furnish Mortgagee with a signed duplicate
original policy with respect to all required insurance coverage. If Mortgagee
shall in its discretion consent to Mortgagor providing any of the required
insurance through blanket policies carried by Mortgagor and covering more than
one location, Mortgagor shall furnish Mortgagee with a certificate of insurance
for each such policy setting forth the coverage, the limits of liability, the
name of the carrier, the policy number and the expiration date. At least thirty
(30) days prior to the expiration of each such policy, Mortgagor shall furnish
Mortgagee with evidence satisfactory to Mortgagee of the payment of premium and
the reissuance of a policy continuing insurance in force as required by this
Mortgage. All policies required to be maintained pursuant to this Mortgage shall
be in form satisfactory to Mortgagee; shall be maintained in full force and
effect; shall be assigned and delivered to Mortgagee, with premiums prepaid, as
collateral security for payment of the indebtedness secured hereby; and shall
contain a provision that such policies will not be cancelled or materially
amended, which term shall include any reduction in the scope or limits of
coverage, without at least thirty (30) days prior written notice to Mortgagee.

                                       7
<PAGE>   11
                  (b)      In the event Mortgagor shall at: any time fail to
provide, maintain, keep in force or deliver and furnish to Mortgagee the
policies of insurance required by this Section 1.05, Mortgagee may procure such
insurance or single-interest insurance for such risks covering Mortgagee's
interest, and Mortgagor will pay or reimburse the cost of all premiums thereon
promptly upon demand by Mortgagee, and until such payment is made the amount of
all such premiums together with interest thereon at the Default Rate shall be
secured by this Mortgage.

         (c)      Upon the occurrence of an Event of Default (as defined in
Article V hereof), or an occurrence which, with the passage of time, the giving
of notice or both would become an Event of Default, Mortgagor shall, at
Mortgagee's request, deposit with Mortgagee, in monthly installments, an amount
equal to one-twelfth of the estimated aggregate annual insurance premiums on all
policies of insurance required by this Mortgage. Mortgagor further agrees, upon
Mortgagee's request, to cause all bills, statements or other documents relating
to the foregoing insurance premiums to be sent or mailed directly to Mortgagee.
Upon receipt of such bills, statements or other documents, and providing
Mortgagor has deposited sufficient funds with Mortgagee pursuant to this Section
1.05, Mortgagee shall pay such amounts as may be due thereunder out of the funds
so deposited with Mortgagee. If at any time and for any reason the funds
deposited with Mortgagee are or will be insufficient to pay such amounts as may
then or subsequently be due, Mortgagee shall notify Mortgagor and Mortgagor
shall immediately deposit an amount equal to such deficiency with Mortgagee.
Notwithstanding the foregoing, nothing contained herein shall cause Mortgagee to
be deemed a trustee of said funds or to be obligated to pay any amounts in
excess of the amount of funds deposited with Mortgagee pursuant to this Section
1.05. Mortgagee may commingle said deposits with its own funds and Mortgagor
shall be entitled to no interest on said funds. After the occurrence of an Event
of Default, Mortgagee may impound or reserve for future payment of premiums such
portion of such payments as Mortgagee may in its absolute discretion deem
proper, applying the balance on the principal of or interest on the obligations
secured hereby. Should Mortgagor fail to deposit with Mortgagee (exclusive of
any portion of said payments which may have been applied by Mortgagee to the
payment of the principal of or interest on the indebtedness secured by the Loan
Documents) sums sufficient to fully pay such premiums at least thirty (30) days
before they may be due, Mortgagee may, at Mortgagee's election, but without any
obligation so to do, advance any amounts required to make up the deficiency,
which advances, if any, shall be secured hereby and shall be repayable to
Mortgagee as herein elsewhere provided, or at its option Mortgagee may, without
making any advance whatsoever, apply any sums held by it upon any obligation of
the Mortgagor secured hereby. Should any default occur or exist in the payment
or performance of Mortgagor's and/or any guarantor's obligations under the terms
of the Loan Documents, Mortgagee may, at any time at Mortgagee's option, apply
any sums or amounts in its hands received pursuant hereto, or as rents or income
of the Premises or otherwise, to the payment or discharge of any indebtedness of
Mortgagor or obligation of Mortgagor secured hereby in such manner and order as
Mortgagee may elect. The receipt, use or application of any such sums paid by
Mortgagor to Mortgagee hereunder shall not be construed to affect the maturity
of any indebtedness secured by this Mortgage or any of the rights or powers of
Mortgagee under the terms of the Loan Documents or any of the obligations of
Mortgagor and/or any guarantor under this Mortgage.

                                       8
<PAGE>   12
         1.06     Insurance Proceeds. In the event of any damage to or
destruction of the Premises or any part thereof, Mortgagor shall give prompt
written notice thereof to Mortgagee, and the following provisions shall apply:

                  (a)      If an Event of Default (as hereinafter defined) shall
have occurred and be continuing hereunder, or if the estimated cost of
restoration exceeds $125,000, Mortgagee shall receive all insurance proceeds and
shall have the right to apply such proceeds, after deducting therefrom all costs
and expenses (regardless of the particular nature thereof and whether incurred
with or without suit), including reasonable attorneys' fees, incurred by it in
connection with the collection of such proceeds, to the payment of the principal
sum of the Note, all interest accrued thereon and all sums payable to Mortgagee
by Mortgagor under the Loan Documents, in which event the following provisions
shall apply:

                           (i)     All proceeds of insurance shall be payable
to Mortgagee, and Mortgagee is hereby authorized and empowered by Mortgagor to
settle, adjust or compromise any claims for loss, damage or destruction under
any policy or policies of insurance.

                           (ii)    Except to the extent that insurance proceeds
are received by Mortgagee and applied to the indebtedness secured hereby,
nothing herein contained shall be deemed to excuse Mortgagor from repairing or
maintaining the Premises as provided in Section 1.03 hereof or restoring all
damage or destruction to the Premises, regardless of whether or not there are
insurance proceeds available or whether any such proceeds are sufficient in
amount, and the application or release by Mortgagee of any insurance proceeds
shall not cure or waive any Event of Default or notice of default under this
Mortgage or invalidate any act done pursuant to such notice.

                  (b)      If an Event of Default shall not have occurred and be
continuing hereunder; or if the cost of restoration is less than $125,000; or if
an Event of Default shall have occurred and be continuing hereunder or the cost
of restoration equals or exceeds $125,000, but Mortgagee shall not have elected
to avail itself of its rights under Section 1.06(a), the following provisions
shall apply:

                           (i)     Mortgagor shall have the right to adjust or
compromise any claim under any policy of insurance, but Mortgagee shall have the
right to monitor the settlement process and the consent of Mortgagee shall be
required for any settlement, adjustment or compromise of any such claim.

                           (ii)    Mortgagee shall have the right to retain and
apply the proceeds of any rent insurance and/or business interruption insurance
on account of the payments of the regular monthly installments of principal and
interest as they fall due. If Mortgagee receives proceeds of rent insurance
and/or business interruption insurance beyond those required to be applied for
the current month, Mortgagee may retain such additional proceeds in escrow, for
the account of Mortgagor, and so apply such proceeds on a monthly basis;
provided that any proceeds of such insurance in excess of those reasonably
estimated by Mortgagee to be required to pay all monthly installments of
principal and interest during the estimated period of restoration and leaseup
shall be paid over to Mortgagor to meet the other expenses of the Premises.

                                       9
<PAGE>   13
                           (iii)   Provided that (a) Mortgagee is satisfied that
there are sufficient proceeds of hazard and rental interruption insurance to
complete restoration of the same value and character as existed prior to such
damage and to fulfill Mortgagor's obligations with respect to the indebtedness
secured hereby, and (b) the insurers do not deny liability as to the insureds,
Mortgagee will consent to the use of the net proceeds of any casualty insurance
for restoration of the Premises in accordance with the following conditions:

                                   (A)      prior to commencement of
restoration, the contracts, contractors, plans and specifications for the
restoration shall have been approved by Mortgagee;

                                   (B)      at the time of any disbursement
there shall not be an Event of Default hereunder, or an event which with the
passage of time or giving of notice, or both, could become an Event of Default;
no mechanics' or materialmen's liens shall have been filed and remain
undischarged, and a satisfactory bringdown of title insurance shall be delivered
to Mortgagee;

                                   (C)      disbursements shall be made from
time to time each in an amount not exceeding the cost of the work completed
since the previous disbursement, upon receipt of satisfactory evidence (from an
architect or engineer satisfactory to Mortgagee and retained by Mortgagor at
Mortgagor's expense to supervise the restoration) of the stage of completion and
of performance of the work in good and workmanlike manner in accordance with the
contracts, plans and specifications; and

                                   (D)      the restoration fund shall be
deposited in a restricted money market account with Mortgagee (the "Restoration
Account").

         If, prior to commencement of restoration, or at any time during the
restoration, the estimated cost of restoration, as determined by Mortgagee,
exceeds the net amount of insurance proceeds received, such difference shall be
paid by Mortgagor to Mortgagee for deposit in the Restoration Account and
disbursed prior to the disbursement of insurance proceeds. Any sum so added by
Mortgagor which remains in the Restoration Account upon completion of
restoration shall be refunded to Mortgagor. All insurance proceeds, if any,
remaining after completion of repairs and restoration or after the occurrence of
an Event of Default hereunder shall be applied by Mortgagee to the then
outstanding principal balance of the indebtedness secured hereby.

         1.07     Assignment of Policies Upon Foreclosure. In the event of
foreclosure of this mortgage or other transfer of title or assignment of the
Premises in extinguishment, in whole or in part, of the debt secured hereby, all
right, title and interest of Mortgagor in and to all policies of insurance
required by this Mortgage shall inure to the benefit of and pass to the
successor or successors in interest to Mortgagor or the purchaser or grantee of
the Premises.

         1.08     Indemnification; Subrogation; Waiver of Offset.

                  (a)      If Mortgagee is made a party defendant to any
litigation concerning this Mortgage or the Premises or any part thereof or
therein, or the occupancy thereof

                                       10
<PAGE>   14
by Mortgagor or persons claiming through Mortgagor, then Mortgagor shall
indemnify, defend and hold Mortgagee harmless from all liability arising by
reason of such litigation, including reasonable attorneys' fees and expenses
incurred by Mortgagee in any such litigation, whether or not any such litigation
is prosecuted to judgment. If Mortgagee commences an action against Mortgagor to
enforce any of the terms hereof or because of the breach by Mortgagor of any of
the terms hereof, or for the recovery of any sum secured :hereby, Mortgagor
shall pay to Mortgagee reasonable attorneys' fees and expenses, and the right to
such attorneys' fees and expenses shall be deemed to have accrued on the
commencement of such action, and shall be enforceable whether or not such action
is prosecuted to judgment. If Mortgagor shall breach any term of this Mortgage,
Mortgagee may employ an attorney or attorneys to protect its rights hereunder,
and in the event of such employment following any breach by Mortgagor, Mortgagor
shall pay to Mortgagee the reasonable attorneys' fees and expenses incurred by
Mortgagee, whether or not an action is actually commenced against Mortgagor by
reason of such breach.

Notwithstanding the foregoing, Mortgagor's obligation to Indemnify Mortgagee
shall not extend to any liability incurred by or asserted against Mortgagee to
the extent arising from Mortgagee's gross negligence or willful misconduct.

                  (b)      Mortgagor waives any and all right to claim or
recover against Mortgagee, its officers, employees, agents and representatives,
for loss of or damage to Mortgagor, the Premises, property of Mortgagor or the
property of others under the control of Mortgagor from any cause insured against
or required to be insured against by the provisions of this Mortgage.

                  (c)      Except as otherwise specifically provided in the Note
or this Mortgage, all sums payable by Mortgagor hereunder shall be payable
without notice, demand, counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of Mortgagor hereunder shall in no way be released, discharged
or otherwise affected (except as expressly provided herein) by reason of: (i)
any damage to or destruction of or any condemnation or similar taking of the
Premises or any part thereof; (ii) any restriction or prevention of or
interference with any use of the Premises or any part thereof; (iii) any title
defect or encumbrance or any eviction from the Property or the Improvements or
any part thereof by title paramount or otherwise; (iv) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceeding relating to Mortgagee, or any action taken with respect to
this Mortgage by any trustee or receiver of Mortgagee, or by any court, in any
such proceeding; (v) any claim which Mortgagor has or might have against
Mortgagee; (vi) any default or failure on the part of Mortgagee to perform or
comply with any of the terms hereof or of any other agreement with Mortgagor; or
(vii) any other occurrence whatsoever, whether similar or dissimilar to the
foregoing; and whether or not Mortgagor shall have notice or knowledge of any of
the foregoing. Except as expressly provided herein, Mortgagor waives all rights
now or hereafter conferred by statute or otherwise to any abatement, suspension,
deferment, diminution or reduction of any sum secured hereby and payable by
Mortgagor.

         1.09     Taxes and Impositions.

                                       11
<PAGE>   15

                  (a)      Mortgagor agrees to pay, at least ten (10) days prior
to the accrual of any interest or penalty thereon, all real property taxes and
assessments, general and special, and all other taxes arid assessments of any
kind or nature whatsoever, including, without limitation, nongovernmental levies
or assessments such as maintenance charges, owner association dues or charges or
fees, levies or charges resulting from covenants, conditions and restrictions
affecting the Premises, charges for any easement or agreement maintained for the
benefit of the Premises, which are assessed or imposed upon any of the Premises,
or against Mortgagor or arising in respect of the occupancy, use or possession
thereof, or become due and payable in respect thereof, or upon any Personal
Property, equipment or other facilities used in the operation or management
thereof (all of which taxes, assessments and other governmental charges of a
like or different nature are hereinafter referred to as "Impositions");
provided, however, that if any such Imposition lawfully may be paid in
installments, Mortgagor may pay such Imposition together with any accrued
interest on the unpaid balance of such Imposition, in installments as they
become due , and before any fine, penalty, interest or cost may be added thereto
for the nonpayment of any such installment and interest.

                  (b)      If under the provisions of any law or ordinance now
or hereafter in effect there shall be assessed or . imposed (i) a tax or
assessment on the Premises in lieu of or in addition to the Impositions payable
by Mortgagor pursuant to subparagraph (a) hereof, or (ii) a license fee, tax or
assessment on Mortgagee measured by or based in whole or in part upon the amount
of the outstanding obligations secured hereby, then all such taxes, assessments
or fees shall be deemed to be included within the term "Impositions" as defined
in subparagraph (a) hereof, and Mortgagor shall pay and discharge the same as
herein provided with respect to the payment of Impositions and if such
Impositions are not paid by Mortgagor, then at the option of Mortgagee, all
obligations secured hereby together with all accrued interest thereon, shall
immediately become due and payable. Anything to the contrary herein
notwithstanding, Mortgagor shall have no obligation to pay any franchise,
estate, inheritance, income, excess profits or similar tax levied on Mortgagee
or on the obligations secured hereby.

                  (c)      Subject to the provisions of subsection (d) of this
Section 1.09, Mortgagor covenants to furnish Mortgagee within thirty (30) days
after the date upon which any such Imposition is due and payable by Mortgagor,
official receipts of the appropriate taxing or other authority, or other proof
satisfactory to Mortgagee, evidencing the payments thereof.

                  (d)      Mortgagor shall have the right, before any
delinquency occurs, to contest or object to the amount or validity of any such
Imposition by appropriate legal proceedings, but this shall not be deemed or
construed in any way as relieving, modifying or extending the covenants of
Mortgagor to pay any such Imposition at the time and in the manner provided in
this Section 1.09, unless Mortgagor shall have given prior written notice to
Mortgagee of intent to so contest or object to an Imposition, and unless, at
Mortgagee's sole option, (i) Mortgagor shall demonstrate to Mortgagee's
satisfaction that the legal proceeding shall operate conclusively to prevent the
sale of the Premises, or any part thereof, to satisfy such Imposition prior to
final determination of such proceedings; or (ii) Mortgagor shall furnish a good
and sufficient bond or surety as requested by and satisfactory to Mortgagee; or
(iii) Mortgagor shall have provided Mortgagee with a good and sufficient
undertaking as may be required or permitted by law to accomplish a stay of such
proceedings.

                                       12
<PAGE>   16
                  (e)      Mortgagor shall pay to Mortgagee on the day monthly
installments of interest or of principal and interest, as the case may be, are
payable under the Note until the Note is paid in full, an amount equal to
one-twelfth of the annual total of Impositions reasonably estimated by Mortgagee
to be assessed against the Premises in order to pay the installment of taxes and
assessments next due on the Premises. Mortgagor further agrees to cause all
bills, statements or other documents relating to Impositions to be sent or
mailed directly to Mortgagee. Upon receipt of such bills, statements or other
documents, and provided that Mortgagor has deposited sufficient funds with
Mortgagee pursuant to this Section 1.09, Mortgagee shall pay such amounts as
many be due thereunder out of the funds so deposited with Mortgagee. If at any
time and for any reason the funds deposited with Mortgagee are or will be
insufficient to pay such amounts as may then or subsequently be due, Mortgagee
shall notify Mortgagor and Mortgagor immediately shall deposit an amount equal
to such deficiency with Mortgagee. Notwithstanding the foregoing, nothing
contained herein shall cause Mortgagee to be deemed a trustee of such funds or
to be obligated to pay any amounts in excess of the amount of funds deposited
with Mortgagee pursuant to this Section 1.09. Mortgagee may commingle such
deposits with its own funds and Mortgagee shall not be obliged to pay or allow
any interest on any sums held by Mortgagee pending disbursement or application
hereunder, and Mortgagee after the occurrence of an Event of Default may impound
or reserve for future payment of Impositions such portion of such payments as
Mortgagee may in its absolute discretion deem proper, applying the balance to
the principal of or interest on the obligations secured hereby. Should Mortgagor
fail to deposit with Mortgagee (exclusive of any portion of said payments which
may have been applied by Mortgagee to the payment of the principal of or
interest on the indebtedness secured by the Loan Documents) sums sufficient to
fully pay such Impositions at least thirty (30) days before accrual of any
interest or penalty thereon, Mortgagee may, at Mortgagee's election, but without
any obligation so to do, advance any amounts required to make up the deficiency,
which advances, if any, shall accrue interest at the Default Rate, shall be
secured hereby and shall be repayable to Mortgagee as herein elsewhere provided,
or at the option of Mortgagee the latter may, without making any advance
whatsoever, apply any sums held by it upon any obligation of the Mortgagor
secured hereby. Should any default occur or exist in the payment or performance
of Mortgagor's and/or any guarantor's obligations under the terms of the Loan
Documents, Mortgagee may, at any time at Mortgagee's option, apply any sums or
amounts in its hands received pursuant hereto, or as rents or income of the
Premises or otherwise, to the payment or discharge of any indebtedness or
obligation of Mortgagor secured hereby in such manner and order as Mortgagee may
elect. The receipt, use or application of any such sums paid by Mortgagor to
Mortgagee hereunder shall not be construed to affect the maturity of any
indebtedness secured by this Mortgage or any of the rights or powers of
Mortgagee under the terms of the Loan Documents or any of the obligations of
Mortgagor and/or any guarantor under this Mortgage.

                  (f)      If Mortgagor or any successor or grantee of Mortgagor
is or shall be or become a corporation, a limited liability company or a limited
or general partnership, it shall keep in effect its existence and rights as such
corporation, company or partnership under the laws of the state of its
incorporation or formation and its right to own property and transact business
in the state in which the Premises is situated during the entire time that it
has any ownership or other interest in the Premises. For all periods during
which the title to the Premises

                                       13
<PAGE>   17
or any part thereof shall be held by a corporation or other entity subject to
corporate taxes or taxes similar to corporate taxes, Mortgagor shall file or
cause to be filed returns for such taxes with the proper authorities, bureaus or
departments and shall cause to be paid, when due and before interest or
penalties are due thereon, all taxes payable by such corporation or other entity
to the United States, to such state of incorporation or formation and to the
state in which the Premises is situated and any political subdivision thereof,
and shall produce to Mortgagee receipts showing payment of any and all such
taxes, charges or assessments prior to the last dates upon which such taxes,
charges or assessments are payable without interest or penalty charges;
provided, however, that Mortgagor shall have the right before any delinquency
occurs to contest or object to the amount or validity of any such taxes, charges
or assessments in good faith and by appropriate legal proceedings, but this
shall not be deemed or construed in any way as relieving, modifying or extending
Mortgagor's obligation to pay any such taxes, charges or assessments at the time
such contest, objection and legal proceedings have been terminated or
discontinued adversely to Mortgagor. Within ten (10) days of receipt thereof,
Mortgagor shall produce to Mortgagee all settlements, notices of deficiency or
overassessment and any other notices pertaining to Mortgagor's tax liability,
which may be issued by the United States, such state of incorporation or
formation, the state in which the Premises is situated and any political
subdivision thereof. If at any time the United States or any department or
bureau thereof shall require Internal Revenue stamps on the Note secured hereby,
Mortgagor on demand shall pay for. them with any interest or penalties payable
thereon.

         1.10     Utilities.  Mortgagor shall pay when due all utility charges
incurred by Mortgagor for the benefit of the Premises or which may become a
charge or lien against the Premises for gas, electricity, water or sewer
services furnished to the Premises and all other assessments or charges of a
similar nature, whether public or private, affecting the Premises or any portion
thereof, whether or not such taxes, assessments or charges are liens thereon.

         1.11     Mortgagor's Lease and Easement Obligations.  Mortgagor shall
pay when due all rents and other payments and perform all covenants and
agreements contained in any lease, sublease, ground lease or easement which may
constitute a portion of or an interest in the Premises, and shall not surrender,
assign or sublease any such lease, sublease, ground lease or easement, nor take
any other action which would affect or permit the termination of any such lease,
sublease, ground, lease or easement. Mortgagor covenants to furnish to Mortgagee
within thirty (30) days after the date upon which such rents or other payments
are due and payable by Mortgagor, receipts or other evidence satisfactory to
Mortgagee evidencing the payment thereof.

         1.12     Compliance with Laws; Actions Affecting Premises.  Mortgagor
shall promptly and faithfully comply with and obey all laws, ordinances, rules,
regulations, requirements and orders of every governmental authority or agent
having jurisdiction of the Premises. Mortgagor shall appear in and contest any
action or proceeding purporting to affect the security hereof or the rights or
powers of Mortgagee, and Mortgagor shall pay all costs and expenses, including
reasonable attorneys' fees, in any such action or proceeding.

         1.13     Actions by Mortgagee to Preserve Premises. Should Mortgagor
fail to make any payment or to do any act as and in the manner provided in any
of the Loan Documents, Mortgagee in its sole discretion, without obligation so
to do and without notice to or demand

                                       14
<PAGE>   18
upon Mortgagor and without releasing Mortgagor from any obligation, may make or
do the same in such manner and to such extent as Mortgagee may deem necessary to
protect the security hereof. In connection therewith, without limiting its
general powers, Mortgagee shall have and is hereby given the right, but not the
obligation, (i) to enter upon and take possession of the Premises; (ii) to make
additions, alterations, repairs and improvements to the Premises which it may
consider necessary or proper to keep the Premises in good condition and repair;
(iii) to appear and participate in any action or proceeding affecting or which
may affect the security hereof or the rights or powers of Mortgagee; (iv) to
pay, purchase, contest or compromise any encumbrance, claim, charge, lien or
debt which in the judgment of Mortgagee may affect or appear to affect the
security of this Mortgage or be prior or superior hereto; and (v) in exercising
such powers, to pay all necessary expenses, including the fees and expenses of
counsel and/or other necessary or desirable consultants. Immediately upon demand
therefor by Mortgagee, Mortgagor shall pay or reimburse all costs and expenses
incurred by Mortgagee in connection with the exercise by Mortgagee of the
foregoing rights, including, without limitation, costs of evidence of title,
court costs, appraisals, surveys and attorneys' fees.

         1.14     Survival of Warranties.  Mortgagor shall fully and faithfully
satisfy and perform the obligations of Mortgagor contained in the Commitment and
in the other Loan Documents and each agreement of Mortgagor incorporated by
reference therein or herein and any modification or amendment therefor. All
representations, warranties and covenants of Mortgagor contained therein or
herein or incorporated by reference therein or herein shall survive the closing
and funding of the loan evidenced by the Note and shall remain continuing
obligations, warranties and representations of Mortgagor during any time when
any portion of the indebtedness secured by this Mortgage shall remain
outstanding.

         1.15     Eminent Domain.  Should the Premises, or any part thereof or
interest therein, be taken or damaged by reason of any public improvement,
eminent domain or other similar proceeding, ("Condemnation"), or should
Mortgagor receive any notice or other information regarding such proceeding,
Mortgagor shall give prompt written notice thereof to Mortgagee, and the
following provisions shall apply:

                  (a)      In the event of a Condemnation (x) requiring $50,000
or more to restore the Premises to the same value and character as existed
before the Condemnation or (y) requiring less than $50,000 to so restore
occurring after an. Event of Default has occurred and while such Event of
Default is continuing hereunder:

                           (i)     Mortgagee shall receive all compensation,
awards and other payments of relief therefor made or granted for the benefit of
Mortgagor. Mortgagee shall have the exclusive right to settle, adjust or
compromise any claim and shall be entitled, at Mortgagee's option, to commence,
appear in and prosecute in its own name any action or proceedings. All such
compensation, awards, damages, rights of action and proceeds awarded to
Mortgagor (the "Proceeds") shall be deemed assigned to Mortgagee, and Mortgagor
agrees to execute such further assignments of the Proceeds as Mortgagee may
require. Such assignment shall not relieve Mortgagor of its obligations to
continue to pay and perform the obligations and indebtedness secured hereby or
such portion thereof as remains unpaid after any application by Mortgagee,
pursuant to this Section 1.15, of the Proceeds to the obligations or
indebtedness so secured.

                                       15
<PAGE>   19

                           (ii)    Mortgagee shall have the right to apply all
such Proceeds, after deducting therefrom all costs and expenses (regardless of
the particular nature thereof and whether incurred with or without suit),
including reasonable attorneys' fees, incurred by it in connection with the
collection of such Proceeds, to the indebtedness secured hereby. Such
application or release shall not, by itself, cure or waive any default hereunder
or notice of default under this Mortgage or invalidate any act done pursuant to
such notice.

                  (b)      In the event of a condemnation of less than all or
substantially all of the Premises and so long as an Event of Default shall not
have occurred hereunder (or if an Event of Default shall have occurred hereunder
but Mortgagee shall not have elected to avail itself of its rights under
subparagraph (a)):

                           (i)     Mortgagor shall have the exclusive right to
settle, adjustment or compromise any claim, but Mortgagee shall have the right
to monitor the settlement process and the consent of Mortgagee shall be required
for any settlement, adjustment or compromise of any such claim in excess of
$50,000.

                           (ii)    Provided that (a) Mortgagee is satisfied
that there are sufficient Proceeds to complete restoration of the Improvements
to the same value and character as extended prior to the Condemnation and to
fulfill Mortgagor's obligations with respect to the indebtedness secured hereby,
Mortgagee shall apply the net Proceeds to restoration of the Improvements on the
terms and subject to the conditions set forth in Section 1.06(b)(iii).

                           (iii)   If, prior to the commencement of
restoration, or at any time during restoration, the estimated cost of
restoration, as determined by Mortgagee, exceeds the net Proceeds, such
difference shall be paid by Mortgagor to Mortgagee for deposit into the
Restoration Account and disbursed prior to the disbursement of any Proceeds. Any
sum so added by Mortgagor which remains in the Restoration Account upon
completion of restoration shall be refunded by Mortgagor. All Proceeds, if any,
remaining after completion of restoration or after the occurrence of an Event of
Default hereunder shall be applied by Mortgagee to the then outstanding
principal balance of the indebtedness secured hereby.

         1.16     Additional Security. In the event Mortgagee at any time holds
additional security for any of the obligations secured hereby, it may enforce
the sale thereof or otherwise realize upon such additional security, at its
option, either before or concurrently with or after enforcing its remedies
hereunder or under any of the Loan Documents.

         1.17     Successors and Assigns. This Mortgage shall apply to, inure to
the benefit of and bind all parties hereto, their successors, representatives
and assigns.

         1.18     Inspections. Mortgagee, its agents, representatives and
workers, are authorized to enter at any reasonable time upon or in any part of
the Premises for the purpose of inspecting the same and for the purpose of
performing any of the acts it is authorized to perform under the terms of any of
the Loan Documents.

                                       16
<PAGE>   20

         1.19     Liens. (a) Mortgagee may, at its sole option, declare the
entire unpaid balance of the principal of and the accrued interest on the Note
and all other sums secured by this Mortgage immediately due and payable if
Mortgagor, without the prior written consent of Mortgagee, shall create or cause
or permit to exist any lien on, or security interest in, the Mortgaged Property,
including any furniture, fixtures, appliances, equipment or other items of
personal property which are intended to be or become part of the Mortgaged
Property, except the lien created hereby, any other liens granted to or
heretofore approved by Mortgagee, purchase money liens for furniture, fixtures
and/or equipment not to exceed $150,000.00 in the aggregate and the Permitted
Liens and except in connection with subordinate financing from the Shareholder
and made with the prior written consent of Bank, which consent shall not be
unreasonably withheld.

                  (b)      Prior to the commencement of any construction,
renovation, improvement or other work on the Premises, Mortgagor shall file or
cause to be filed waivers of mechanics' liens in a form and manner satisfactory
to Mortgagee. Mortgagor shall pay and promptly discharge, at Mortgagor's cost
and expense, all liens, encumbrances and charges upon the Premises, or any part
thereof or interest therein; provided, that Mortgagor shall have the right to
contest in good faith the validity of any such lien, encumbrance or charge,
provided Mortgagor shall first deposit with Mortgagee a bond or other security
satisfactory to Mortgagee in such amounts as Mortgagee shall require, and
provided further that Mortgagor shall thereafter diligently proceed to cause
such lien, encumbrance or charge to be removed and discharged. If Mortgagor
shall fail to discharge any such lien, encumbrance or charge, or provide such
security, then, in addition to any other right or remedy of Mortgagee, Mortgagee
may, but shall not be obligated to, discharge the same, either by paying the
amount claimed to be due, or by procuring the discharge of such lien by
depositing in court a bond or the amount claimed or otherwise giving security
for such claim, or in such manner as is or may be prescribed by law; and all
funds advanced by Mortgagee to pay such obligations, liabilities, costs and
expenses shall be reimbursed by Mortgagor upon demand by Mortgagee together with
interest thereon until reimbursement at the Default Rate; and all such advances
with interest thereon as aforesaid shall be secured by this Mortgage and the
other Loan Documents.

         1.20     Mortgagee's Powers. Without affecting the liability of any
other person liable for the payment or performance of any obligation secured
hereby, and without affecting the lien or charge of this Mortgage upon any
portion of the Premises not then or theretofore released as security for the
full amount and extent of all unpaid and unperformed obligations, Mortgagee may,
from time to time and without notice (i) release any person so liable, (ii)
extend the maturity or alter any of the terms of any such obligation or grant
other indulgences, (iii) release or reconvey, or cause to be released or
reconveyed at any time at Mortgagee's option, any parcel, portion or interest in
all or any part of the Premises, (iv) take or release any other or additional
security for any obligation herein mentioned, (v) make compositions or other
arrangements with debtors in relation thereto, or (vi) advance additional funds
to protect the security hereof and pay or discharge the obligations of Mortgagor
hereunder or under the Loan Documents, and all amounts so advanced, with
interest thereon at the rate set forth in the Note, shall be secured hereby.

                                       17
<PAGE>   21
         1.21     Tradenames; Fictitious Name Registration. At the request of
Mortgagee, Mortgagor shall execute a certificate in form satisfactory to
Mortgagee listing the tradenames under which Mortgagor intends to operate the
Property and Improvements, and representing and warranting that Mortgagor does
business under no other tradename with respect to the Property and Improvements.
Mortgagor shall immediately notify Mortgagee in writing of any change in said
tradenames, and will, upon request of Mortgagee, execute additional UCC
financing statements and other instruments revised to reflect the change in
tradename. Mortgagor shall make all filings and take all other steps required in
order to comply with applicable fictitious name statutes, and shall provide
evidence of such compliance to Mortgagee.

         1.22     Representations and Warranties Concerning ERISA. No employee
benefit plan maintained by Mortgagor which is subject to Part 3 of Title I of
the Employee Retirement Income Security Act of 1974 has an accumulated funding
deficiency (as such term is defined therein), and Mortgagor has not incurred any
liability to the Pension Benefit Guaranty Corporation. The foregoing
representation and warranty shall survive the execution of this Mortgage and the
Loan Documents, and shall continue in full force and effect so long as any
obligations secured hereby are unpaid or this Mortgage remains in effect.

         1.23     Mortgagor's Existence; Transfers.

                  (a)      Mortgagor, and any subsequent owner of any of the
Premises, shall do all things necessary to preserve and keep in full force and
effect its and their existence, franchises, rights and privileges as a
corporation, limited liability company or partnership, as the case may be, under
the laws of the state of its and their formation and its and their right to own
property and transact business in the state in which the Premises are situate.
Neither Mortgagor nor any subsequent owner of the Premises or any portion
thereof, shall amend or modify (in any way that would adversely affect the
rights of Mortgagee) or cancel the certificate of incorporation, partnership
agreement or operating agreement (as the case may be) of Mortgagor or such
subsequent owner without the prior written consent of Mortgagee. Neither the
composition nor form of business association of Mortgagor may be modified,
amended or altered, nor may the ownership of Mortgagor or the Premises, in whole
or. in part, be sold, transferred, assigned or otherwise disposed of (other than
as expressly set forth in subparagraph (b)) without the prior written consent of
Mortgagee, which consent may require such other terms and conditions as are
acceptable to Mortgagee.

                  (b)      Notwithstanding anything in subparagraph (a) to the
contrary, (i) so long as the Shareholder shall continue to manage and operate
the Premises and shall, directly or indirectly, control a majority in interest,
including voting interest, in the Mortgagor, the Shareholder may transfer all or
any part of its ownership interests in Mortgagor, and Mortgagor may issue and
deliver shares to any Person, and (ii) Mortgagor may transfer the Premises to
any single purpose entity in which the Shareholder directly or indirectly
controls a majority in interest, including voting interest, subject to this
Mortgage and the assignment and assumption of the Loan Documents, all without
the prior written consent of, or notice to, the Mortgagee.

         1.24     Mortgagee's Right to Publicize Source of Financing. Mortgagee
shall have the right to announce and publicize the source of financing for the
Improvements and/or the

                                       18
<PAGE>   22
Property, and to select the media, means and frequency of such publicity, which
may include, but need not be limited to, the placing of a financing sign on the
Property and the use of advertisements and other devices of Mortgagee's choice.

         1.25     Advance Money Mortgage.

                  (a)      This Mortgage secures future advances made pursuant
to this Mortgage or pursuant to the Loan Documents. Without limiting the
foregoing, this Mortgage secures all advances made by Mortgagee of any kind or
nature described in 42 Pa. C.S.A. ss. 8144.

                  (b)      If Mortgagor sends a written notice to Mortgagee
which purports to limit the indebtedness secured by this Mortgage and
to release the obligation of Mortgagee to make any additional advances to or for
the benefit of Mortgagor, such a notice shall be ineffective as to any future
advances made: (i) to pay taxes, assessments, maintenance charges and insurance
premiums; (ii) for costs incurred for the protection of the Premises or the lien
of this Mortgage; (iii) on account of expenses incurred by Mortgagee by reason
of a default of Mortgagor hereunder or under the Loan Documents; and (iv) on
account of any other costs incurred by Mortgagee to protect and preserve the
Premises or the lien of this Mortgage. It is the intention of the parties hereto
that any such advance made by Mortgagee after any such notice by Mortgagor shall
be secured by the lien of this Mortgage on the Premises.

                                   ARTICLE II
                     ASSIGNMENT OF RENTS, ISSUES AND PROFITS

         2.01     Assignment of Rents. Mortgagor hereby assigns and transfers to
Mortgagee all the rents, issues and profits of the Premises, now or hereafter
existing, and hereby gives to and confers upon Mortgagee the right, power and
authority to collect such rents, issues and profits. Mortgagor irrevocably
appoints Mortgagee Mortgagor's true and lawful attorney-in-fact, at the option
of Mortgagee at any time and from time to time, to demand, receive arid enforce
payment, to give receipts, releases and satisfactions, and to sue, in the name
of Mortgagor or Mortgagee, for all such rents, issues and profits and apply them
to the indebtedness secured hereby; provided, however, that Mortgagor shall have
the right to collect such rents, issues and profits (but not more than one month
in advance) prior to or at any time there is not an Event of Default (as such
term is hereinafter defined in Section 5.01) under any of the Loan Documents.
The assignment of the rents, issues and profits of the Premises in this Article
II is intended to be an absolute assignment from Mortgagor to Mortgagee and not
merely the passing of a security interest. The rents, issues and profits are
hereby assigned absolutely by Mortgagor to Mortgagee contingent only upon the
occurrence of an Event of Default under any of the Loan Documents.

         2.02     Collection Upon Default. Upon the occurrence of any Event of
Default under any of the Loan Documents, Mortgagee may, at any time and from
time to time without notice, either in person, by agent or by a receiver
appointed by a court, and without regard to the adequacy of any security for the
indebtedness hereby secured, enter upon and take possession of the Premises, or
any part thereof, in its own name and sue for of otherwise collect such rents,

                                       19
<PAGE>   23
issues and profits, including those past due and unpaid, and apply the same,
less costs and expenses of operation and collection, including attorneys' fees,
upon any indebtedness secured hereby, and in such order as Mortgagee may
determine. The collection of such rents, issues and profits, or the entering
upon and taking possession of the Premises, or the application thereof as
aforesaid, shall not cure or waive any default or notice of default hereunder or
invalidate any act done in response to such default or pursuant to such notice
of default.

         2.03     Assignment of Leases. Mortgagor agrees to assign and transfer
to Mortgagee as additional security for the payment of the indebtedness secured
hereby all present and future leases upon all or any part of the Premises and
further agrees to execute and deliver, at the request of Mortgagee, all such
further assurances and assignments of leases with respect to the Premises as
Mortgagee shall from time to time require. In the event Mortgagor has sold,
transferred and assigned, or may hereafter sell, transfer and assign, to
Mortgagee, its successors and assigns, any interest of Mortgagor as lessor in
any lease or leases, Mortgagor expressly covenants and agrees that if Mortgagor,
as lessor under said lease or leases so assigned, shall fail to perform and
fulfill any material term, covenant, condition or provision in said lease or
leases, or any of them, on Mortgagor's part to be performed or fulfilled, at the
times and in the manner in said lease or leases provided, or if Mortgagor shall
suffer or permit to occur any breach or default under the provisions of any such
assignment of any lease or leases, then and in any such event, such breach or
default shall constitute an Event of Default hereunder as such term is defined
in Section 5.01 hereof.

                                   ARTICLE III
                               SECURITY AGREEMENT

         3.01     Creation of Security Interest. Mortgagor hereby grants to
Mortgagee a security interest in Mortgagor's interest in all of the Personal
Property, the Accounts, all other personal property now or hereafter owned by
Mortgagor and located in, on or at the Property or the Improvements and the
proceeds thereof, for the purpose of securing all obligations of Mortgagor
contained in any of the Loan Documents.

         3.02     Warranties, Representations and Covenants of Mortgagor.
Mortgagor hereby warrants, represents and covenants as follows:

                  (a)      Except for the security interest granted hereby,
Mortgagor is, and as to the portions of the Personal Property and
Accounts to be acquired after the date hereof will be, the sole owner of the
Personal Property and Accounts free from any lien, security interest,
encumbrance or claim thereon of any kind whatsoever other than Permitted Liens.
Mortgagor will notify Mortgagee of, and will defend the Personal Property and
Accounts against, all claims and demands of all persons at any time claiming the
Personal Property, the Accounts or any interest therein.

                  (b)      Mortgagor will not assign, pledge, encumber or lease
(other than with Permitted Liens), or sell, convey or in any manner transfer the
Personal Property, the Accounts or portions thereof without the prior written
consent of Mortgagee.

                                       20
<PAGE>   24

                  (c)      The Personal Property will be kept on or at the
Property, and Mortgagor will not remove any portion or item of Personal Property
affixed or attached to the Property without the prior written consent of
Mortgagee, except such portions or items of Personal Property which are consumed
or worn out in ordinary usage, and are promptly replaced by Mortgagor with new
items of equal or greater quality.

                  (d)      At the request of Mortgagee, Mortgagor will join with
Mortgagee in executing one or more financing statements and renewals,
continuation statements and amendments thereof pursuant to the Pennsylvania
Uniform Commercial Code in form satisfactory to Mortgagee, and will pay the cost
of filing the same in all public offices wherever filing is deemed by Mortgagee
to be necessary or desirable. Without limiting the foregoing, Mortgagor hereby
irrevocably appoints Mortgagee attorney-in-fact for Mortgagor to execute,
deliver and file such instruments for and on behalf of Mortgagor, and Mortgagor
will pay the costs of any such filing.

                  (e)      All covenants and obligations of Mortgagor contained
herein relating to the Premises shall be deemed to apply to the Personal
Property and the Accounts whether or not expressly referred to herein.

                  (f)      This Mortgage constitutes a Security Agreement as
defined in the Uniform Commercial Code of the Commonwealth of Pennsylvania.

                  (g)      Notwithstanding any release of any or all of that
property included in the Premises which is deemed "real property", any
proceedings to foreclose this Mortgage or its satisfaction of record, the terms
hereof shall survive as a security agreement with respect to the security
interest created hereby and referred to above until the repayment or
satisfaction in full of the obligations of Mortgagor as are now or hereafter
evidenced by the Note.

                  (h)      Mortgagor hereby appoints Mortgagee or substitutes
appointed by Mortgagee or its successors and assigns as Mortgagor's true and
lawful attorney, for Mortgagor and in Mortgagor's name to perform and do all
every act and thing whatsoever requisite and necessary to be done under all
contracts, licenses, leases and similar documents and agreements in which
Mortgagee has a security interest, upon an Event of Default hereunder. This
appointment shall be coupled with an interest and shall be non-cancelable except
upon satisfaction of the indebtedness secured hereby. Mortgagor hereby ratifies
and confirms all that Mortgagee shall lawfully do or cause to be done pursuant
hereto.

                                   ARTICLE IV
                               FINANCIAL COVENANTS

         4.01     Financial Reporting. Mortgagor shall deliver or cause to be
delivered to Mortgagee (i) no later than March 1 of each year, an income and
expense statement for the Premises, reflecting the Premises' financial condition
as of each December 31, certified by Mortgagor's Chief Financial officer as true
and correct, (ii) as soon as practicable, but in any event within 10 days after
filing, copies of Mortgagor's federal tax returns, (iii) no later than the
twentieth day of each month, a rent roll for the Premises, (iv) no later than
April 30 of each year,

                                       21
<PAGE>   25
the annual report (Form 10-K) of the Shareholder as submitted to the Securities
and Exchange Commission, and (v) such other financial information as Mortgagee
may from time to time reasonably request, all of the foregoing in form and
content reasonably acceptable to Mortgagee. Mortgagor further agrees to make the
books and accounts relating to the Premises available for inspection by
Mortgagee or its representatives upon request at any reasonable time.

         4.02     Reserves. Mortgagor shall establish with Mortgagee a bank
account to be disbursed only for capital expenditures at or in connection with
the Premises, all in accordance with the Escrow, Pledge and Security Agreement.

         4.03     Debt Service Coverage Ratio.

                  (a)      Beginning no later than the last day of the sixth
full month after the month in which the Premises achieve "breakeven operation"
(as defined in the Loan Agreement), the ratio of "net operating income" to "debt
service" shall at no time be less than 1.20 to 1.0. Mortgagee's determination as
to Mortgagor's compliance with this Section 4.03 shall be based on the
information provided pursuant to Section 4.01 of this Mortgage and the
certificates supplied pursuant to Section 4.04 of this Mortgage. For purposes
hereof "Net Operating Income" for any period shall mean the amount by which the
aggregate of all rents, occupancy charges, payments for assisted living services
and other charges or sums received in such period with respect to the occupancy,
use or right to use all or any part of the Improvements and the services
available to its residents under any occupancy agreement, lease, license or
other agreement exceeds the aggregate amount of money actually expended in such
period on a cash basis pursuant to arms length transactions for the following:
labor costs; general maintenance, repairs and replacements; management fees to
Alternative Living Services, Inc. equal to the greater of five percent (5%) of
gross income of the Premises or the actual fee payable under any management
agreement approved by Mortgagee; costs of licenses, permits, and similar fees
relating to the operation of the Premises; premiums for insurance; charges for
electricity and other utilities, assessments, real estate taxes, water charges
and sewer rents (or the amounts deposited into escrow therefor); amounts
required to be paid into the escrow account at Bank for capital expenditures
pursuant to the Escrow, Pledge and Security Agreement; and other customary and
reasonable expenses in connection with the operation, maintenance and
preservation of the Property and the Improvements, all of which are subject to
Mortgagee's approval. Notwithstanding the foregoing, for purposes of calculating
such ratio for any period, any item of income collected or expense paid that is
applicable to other periods shall be amortized in equal installments over the
periods to which each such item of income or expense is applicable, so that only
that portion of such income and expense applicable to the period for which the
ratio is being calculated shall be included in such calculation. Without
limiting the generality of those items which shall not be included among the
expenses allowable for purposes of calculating net operating income, the
following shall be specifically excluded from such calculation: debt service;
capital expenditures; depreciation and other non-cash items; and prepaid
expenses that are not customarily prepaid in the ordinary course of business.
For purposes hereof, "debt service" for any period shall mean all principal and
interest which would be payable by Mortgagor in any such period pursuant to a
note in the outstanding principal amount of the Note, accruing interest at the
applicable rate set forth in the Note and amortizing over the applicable period
of time set forth in the Note.

                                       22
<PAGE>   26
                  (b)      Notwithstanding anything in Article V of this
Mortgage to the contrary, Mortgagor's failure to maintain the ratio of net
operating income to debt service required by the previous subparagraph shall not
constitute an Event of Default, so long as Mortgagor (i) deposits funds, or a
letter of credit in accordance with the Loan Agreement, with Mortgagee
sufficient to attain a 1.20 to 1.0 debt service coverage ratio and such funds,
or letter of credit, remain deposited with Mortgagee until a 1.20 to 1.0 debt
service coverage ratio has been reached and maintained for twelve consecutive
months, and (ii) Mortgagor delivers or causes to be delivered to Mortgagee
monthly operating statements for the Premises and such other additional
financial information as Mortgagee shall request until the debt service coverage
ratio meets or exceeds 1.20 to 1.0 for twelve consecutive months.

         4.04     Compliance Certificates. Mortgagor shall deliver to Mortgagee
together with the statements and reports delivered pursuant to subsection 4.01
of this Mortgage, and more often as Mortgagee may reasonably request or as
Mortgagor may desire, a certificate stating whether or not the covenants in
subsection 4.03 of this Mortgage have been met and Mortgagor shall attach to
such certificate the calculations and other information necessary to evidence
such compliance.

                                    ARTICLE V
                              DEFAULTS AND REMEDIES

         5.01     Events of Default. The occurrence of any one or more of the
following events shall constitute a default (an "Event of Default") by Mortgagor
hereunder:

                  (a)      Default shall be made in the payment of any
installment of principal or interest or any other sum secured hereby within five
(5) days after notice from Mortgagee that such sum is due and payable (other
than sums due on the "Maturity Date" of the Note, for which no notice shall be
required);

                  (b)      Mortgagor shall file a voluntary petition in
bankruptcy or shall be adjudicated a bankrupt or insolvent, or shall commence a
federal bankruptcy proceeding in which an order for relief or such other court
order or statutory procedure which authorizes the case to proceed is entered
against it, or shall file any petition or answer seeking or acquiescing in any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief for itself under any present or future federal, state or other
statute, law or regulation relating to bankruptcy, insolvency or other relief
for debtors; or shall seek or consent to or acquiesce in the appointment of any
custodian, trustee, receiver or liquidator of Mortgagor or of all or any part of
the Premises, or of any or all of the royalties, revenues, rents, issues or
profits thereof, or shall make any general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts generally as
they become due;

                  (c)      A court of competent jurisdiction shall enter an
order for relief, order, judgment or decree approving a petition filed against
Mortgagor seeking any reorganization, dissolution or similar relief under any
present or future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors, and such

                                       23
<PAGE>   27
order for relief, order, judgment or decree shall remain unvacated and unstayed
for an aggregate of sixty (60) days (whether or not consecutive) from the first
day of entry thereof; or any custodian, trustee, receiver or liquidator of
Mortgagor or of all or any part of the Premises, or of any or all of the
royalties, revenues, rents, issues or profits thereof, shall be appointed
without the consent or acquiescence of Mortgagor and such appointment shall
remain unvacated and unstayed for an aggregate of sixty (60) days (whether or
not consecutive);

                  (d)      A writ of execution or attachment or any similar
process shall be issued or levied against all or any part of or interest in the
Premises, or any judgment involving monetary damages shall be entered against
Mortgagor which shall become a lien on the Premises or any portion thereof or
interest therein and such execution, attachment or similar process or judgment
is not released, bonded, satisfied, vacated or stayed within thirty (30) days
after its entry or levy;

                  (e)      There shall have occurred a transfer of title,
conveyance, transfer of control or disposition by Mortgagor of all or any part
of Mortgagor's right, title and interest in and to the Premises, or any part
thereof, whether voluntarily or by operation of law, other than in accordance
with Section 1.23 (b) of this Mortgage;

                  (f)      There has occurred a breach of or default by
Mortgagor under any term, covenant, agreement, condition or provision, contained
in any of the Loan Documents or any part thereof not referred to in this Section
4.01 and such breach or default remains uncured more than thirty (30) days after
notice , given by Mortgagee to Mortgagor of such default or breach, provided,
that if such default or breach cannot be cured within thirty (30) days with the
exercise of reasonable diligence by the Mortgagor, then so long as Mortgagor is
proceeding diligently to cure such default or breach, and completes such cure
within ninety (90) days, such shall not constitute an Event of Default
hereunder;

                  (g)      Any representation or warranty made by Mortgagor in
any Loan Document or in any other instrument which pertains to this Mortgage or
any obligation secured hereby proves to be incorrect, now or hereafter, in any
material respect;

                  (h)      A default by Mortgagor in any payment of principal or
interest on any other obligation for borrowed money in excess of $50,000 or in
the performance of any other provision contained in any instrument under which
any such obligation is created or secured, if an effect of such default is to
cause or permit the holder to cause such obligation to become due prior to its
stated maturity;

                  (i)      A final judgment or judgments for the payment of
money shall be rendered against Mortgagor and Mortgagor shall have failed to
satisfy the same or to have obtained a stay on the execution on such judgment or
to have bonded the same to Bank's reasonable satisfaction for a period of thirty
(30) consecutive days following the later of the date of entry hereof or the
date Mortgagor has notice thereof;

                  (k)      Any Improvement is damaged or destroyed by an
uninsured casualty and Mortgagor fails to provide satisfactory evidence to
Mortgagee within thirty (30)

                                       24
<PAGE>   28
days of such casualty that the necessary funds for satisfactory restoration of
the Improvements will be available at the time of restoration;

                  (l)      Construction of the Improvements is stopped for
fifteen consecutive working days or more;

                  (m)      Mortgagor fails, in the opinion of Mortgagee, to
employ sufficient workmen and materials in the performance of the construction
of the Improvements to enable the Improvements to be completed by the Completion
Date (as defined in the Loan Agreement);

                  (n)      Mortgagor fails to qualify for an advance of funds
under the Loan Agreement within five (5) days after receipt of notice from
Mortgagee that Mortgagor's request for such advance does not qualify pursuant to
the requirements of the Loan Agreement;

                  (o)      The Premises do not achieve "breakeven operation" on
or before the last day of the Construction Period (as defined in the Loan
Agreement) as such period may be extended pursuant to the terms of Section 10 of
the Loan Agreement (taking into account any reduction in the outstanding
principal amount of the Note by reason of Mortgagor's pay down of the Note or
the posting of a letter of credit, in each case as provided in Section 10 of the
Loan Agreement; or

                  (p)      An Event of Default has occurred under any of the
Other Loans.

         5.02     Acceleration Upon Default: Additional Remedies.

                  (a)      Upon the occurrence of an Event of Default, Mortgagee
may declare all indebtedness secured hereby to be due and payable and the same
shall thereupon become due and payable without any presentment, demand, protest
or notice of any kind. When the entire indebtedness shall become due and
payable, either because of maturity or because of the occurrence of an Event of
Default, or otherwise, then forthwith, Mortgagee may:

                           (i)     Either in person or by agent, enter into
possession of the Premises, or any part thereof, in its own name, without legal
action, and by force if necessary, and do any acts which it deems necessary or
desirable to preserve the value, marketability or rentability of the Premises,
or any part thereof or interest therein, increase the income therefrom or
protect the security hereof, and, with or without taking possession of the
Premises, sue for or otherwise collect the rents, issues and profits thereof,
including those past due and unpaid, and including sums payable for use and
occupation and apply such sums in accordance with Section 5.06 hereof. The
entering upon and taking possession of the Premises, the collection of such
rents, issues and profits and the application thereof as aforesaid, shall not
cure or waive any default or notice of default hereunder or invalidate any act
done in response to such default or pursuant to such notice of default and,
notwithstanding the continuance in possession of the Premises or the collection,
receipt and application of rents, issues or profits, Mortgagee shall be entitled
to exercise every right provided for in any of the Loan Documents or by law upon
occurrence of any event of default, including the right to foreclose this
Mortgage. FOR THE PURPOSE OF ENABLING MORTGAGEE TO OBTAIN POSSESSION OF THE
PREMISES IN THE EVENT OF ANY

                                       25
<PAGE>   29

DEFAULT HEREUNDER OR UNDER THE NOTE OR ANY OTHER LOAN DOCUMENT, MORTGAGOR HEREBY
AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD IN THE COMMONWEALTH
OF PENNSYLVANIA OR ELSEWHERE, AS ATTORNEY FOR MORTGAGOR AND ALL PERSONS CLAIMING
UNDER OR THROUGH MORTGAGOR, TO APPEAR FOR AND CONFESS JUDGMENT AGAINST
MORTGAGOR, AND AGAINST ALL PERSONS CLAIMING UNDER OR THROUGH MORTGAGOR, IN AN
ACTION IN EJECTMENT FOR POSSESSION OF THE PREMISES, IN FAVOR OF MORTGAGEE, FOR
WHICH THIS MORTGAGE, OR A COPY THEREOF VERIFIED BY AFFIDAVIT, SHALL BE
SUFFICIENT WARRANT; AND THEREUPON A WRIT OF POSSESSION MAY IMMEDIATELY ISSUE FOR
POSSESSION OF THE PREMISES, WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER AND
WITHOUT ANY STAY OF EXECUTION. IF FOR ANY REASON AFTER SUCH ACTION HAS BEEN
COMMENCED IT SHALL BE DISCONTINUED, OR POSSESSION OF THE PREMISES SHALL REMAIN
IN OR BE RESTORED TO MORTGAGOR, MORTGAGEE SHALL HAVE THE RIGHT FOR THE SAME
DEFAULT OR ANY SUBSEQUENT DEFAULT TO BRING ONE OR MORE FURTHER ACTIONS AS ABOVE
PROVIDED TO RECOVER POSSESSION OF THE PREMISES. MORTGAGEE MAY CONFESS JUDGMENT
IN AN ACTION FOR EJECTMENT BEFORE OR AFTER THE INSTITUTION OF PROCEEDINGS TO
FORECLOSE THIS MORTGAGE OR TO ENFORCE THE NOTE OR ANY OTHER LOAN DOCUMENT, OR
AFTER ENTRY OF JUDGMENT THEREIN OR ON THE NOTE, OR AFTER A SHERIFF'S SALE,
JUDICIAL SALE OR OTHER FORECLOSURE SALE OF THE PREMISES IN WHICH MORTGAGEE IS
THE SUCCESSFUL BIDDER, IT BEING THE UNDERSTANDING OF THE PARTIES THAT THE
AUTHORIZATION TO PURSUE SUCH PROCEEDINGS FOR OBTAINING POSSESSION AND CONFESSION
OF JUDGMENT IS AN ESSENTIAL PART OF THE REMEDIES FOR ENFORCEMENT OF THE
MORTGAGE, THE NOTE AND THE OTHER LOAN DOCUMENTS, AND SHALL SURVIVE ANY EXECUTION
SALE TO MORTGAGEE;

                           (ii)    Commence an action to foreclose this
Mortgage, appoint a receiver, or specifically enforce any of the covenants
hereof;

                           (iii)   Exercise any or all of the remedies available
to a secured party under the Pennsylvania Uniform Commercial Code, including,
but not limited to:

                                   (1)      Either personally or by means of a
court appointed receiver, taking possession of all or any of the Personal
Property and excluding therefrom Mortgagor and all others claiming under
Mortgagor, and thereafter holding, storing, using, operating, managing,
maintaining and controlling, making repairs, replacements, alterations,
additions and improvements to and exercising all rights and powers of Mortgagor
in respect of the Personal Property or any part thereof. In the event Mortgagee
demands or attempts to take possession of the Personal Property in the exercise
of any rights under any of the Loan Documents, Mortgagor promises and agrees
promptly to turn over and deliver complete possession thereof to Mortgagee;

                                   (2)      Without notice to or demand upon
Mortgagor, making such payments and doing such acts as Mortgagee may deem
necessary to protect its security interest in the Personal Property, including
without limitation, paying, purchasing, contesting or compromising any
encumbrance, charge or lien which is prior to or superior to the security
interest granted hereunder, and in exercising any such powers or authority to
pay all expenses incurred in connection therewith;

                                   (3)      Requiring Mortgagor to assemble the
Personal Property or any portion thereof, at a place designated by Mortgagee and
reasonably convenient

                                       26
<PAGE>   30
to both parties, and promptly to deliver such Personal Property to Mortgagee, or
an agent or representative designated by it. Mortgagee, and its agents and,
representatives shall have the right to enter upon any or all of Mortgagor's
Premises and property to exercise Mortgagee's rights hereunder;

                                   (4)      Selling, leasing or otherwise
disposing of the Personal Property at public sale, with or without having the
Personal Property at the place of sale, and upon such terms and in such manner
as Mortgagee may determine. Mortgagee may be a purchaser at any such sale;

                                   (5)      Unless the Personal Property is
perishable or threatens to decline speedily in value or is of a type customarily
sold on a recognized market, Mortgagee shall give Mortgagor at least ten (10)
days prior written notice of the time and place of any public sale of the
Personal Property or other intended disposition thereof. Such notice may be
mailed to Mortgagor at the address set forth at the beginning of this Mortgage.

                           (iv)    At any time prior to completion of
construction of the Improvements: (1) decline to advance any additional funds to
or for the benefit of Mortgagor or any other person or entity; (2) order
construction of the Improvements stopped; and (3) make such additions, changes
or corrections to the plans and, specifications for the Improvements as
Mortgagee shall deem necessary or desirable.

                  (b)      Upon the acceleration of the maturity of the
indebtedness as herein provided, a tender of payment of the amount necessary to
satisfy the entire indebtedness secured hereby made at any time prior to
foreclosure sale (including sale under the power of sale) by Mortgagor, its
successors or assigns or by anyone in behalf of Mortgagor, its successors or
assigns, shall constitute an evasion of the prepayment terms of the Note and be
deemed to be a voluntary prepayment thereunder, and any such payment, to the
extent permitted by law, will therefore include the additional payment, if any,
required under the prepayment privilege contained in the Note.

         5.03     Foreclosure and Other Actions by Mortgagee. Where the
indebtedness hereby secured, or any part thereof, shall become due, whether upon
maturity, by acceleration, or otherwise, Mortgagee may institute an action of
mortgage foreclosure against the Premises, or take such other action at law or
in equity for the enforcement of this Mortgage and the Note and realization on
the mortgage security or any other security herein or elsewhere provided for as
the law may allow, and may proceed therein to final judgment and execution for
the entire unpaid balance of the principal debt, with interest at the rate
stipulated in the Note to the date of default, and thereafter at the Default
Rate, together with all other sums due by Mortgagor in accordance with the
provisions of the Note, this Mortgage, and the other Loan Documents, including
all sums which may have been loaned by Mortgagee to Mortgagor after the date of
this Mortgage and pursuant to the terms of this Mortgage, and all sums which may
have been paid, incurred or advanced by or on behalf of Mortgagee for taxes,
water or sewer rents, charges or claims, payments of prior liens, insurance or
repairs to the Premises, appraiser's fees, outlays for documentary and expert
evidence, stenographers' charges, publication costs, and costs (which may be
estimated as to items to be expended after entry of judgment) of procuring all
such

                                       27
<PAGE>   31
abstracts of title, title searches and examinations, title insurance policies,
and similar data and assurances with respect to title as Mortgagee may deem
reasonably necessary either to prosecute such suit or to evidence to bidders at
any sale which may be had pursuant to such judgment the true condition of the
title to or the value of the Premises, all costs of suit, together with interest
at the Default Rate on any judgment obtained by Mortgagee from and after the
date of such judgment including the period from and after the date of any
Sheriff's or judicial sale until actual payment is made of the full amount due
Mortgagee, and an attorney's commission for collection which shall be the lesser
of five percent (5%) of the total of the foregoing sums or $10,000.00. Any real
estate or interest therein sold pursuant to any writ of execution issued on a
judgment obtained by virtue of the Note or this Mortgage, or pursuant to any
other judicial proceedings under this Mortgage, may be sold in one parcel, as an
entirety, or in such parcels, and such interests, and in such manner or order as
Mortgagee in its sole discretion may elect.

         5.04     Recovery of Expenses by Mortgagee. All expenditures and
expenses of the nature mentioned in Section 5.03, and such reasonable expenses
and fees as may be incurred in the protection. of the Premises and the
maintenance of the lien of this Mortgage, including the reasonable fees of any
attorney employed by Mortgagee in any litigation or proceeding affecting this
Mortgage, the Note or other Loan Documents, or the Premises, including probate
and bankruptcy proceedings, or in preparation for the commencement or defense of
any proceeding or threatened suit or proceeding, whether incurred before or
after the entry of a judgment in favor of Mortgagee for the unpaid balance of
the debt evidenced by the Note, shall be immediately due and payable by
Mortgagor, with interest thereon at the Default Rate and shall be secured by
this Mortgage. Mortgagee shall have the right, from time to time, to bring an
appropriate action to recover any sums required to be paid by Mortgagor under
the terms of this Mortgage, as they become due, without regard to whether or not
the principal indebtedness or any other sums evidenced by the Note and secured
by this Mortgage shall be due, and without prejudice to the right of Mortgagee
thereafter to bring an action of mortgage foreclosure, or any other action, for
any default by Mortgagor existing at the time the earlier action was commenced.

         5.05     Mortgagee's Right of Possession in Case of Default. In any
case in which under the provisions of this Mortgage Mortgagee has a right to
institute foreclosure proceedings, whether before or after the whole principal
sum secured hereby is declared to be immediately due, and whether before or
after the institution of legal proceedings to foreclose the lien hereof and
before or after sale thereunder, Mortgagee in its own discretion, without
obligation so to do and without notice to or demand upon Mortgagor, except as
specifically provided herein, and without releasing Mortgagor from any
obligation, may make any payment or do any act in such manner and to such extent
as Mortgagee may deem necessary to protect the security hereof. In connection
therewith (without limiting the foregoing general powers), Mortgagee shall have
and is hereby given the right, but not the obligation, (i) to make additions,
alterations, repairs, decorations, renewals, replacements, betterments and
improvements to the Premises which it may consider necessary or proper to keep
the Premises in good condition and repair; (ii) to appear and participate in any
action or proceeding affecting or which may affect the security hereof or the
rights or powers of Mortgagee; (iii) to pay, purchase, contest or compromise any
encumbrance, claim, charge, lien or debt which, in the judgment of Mortgagee,
may affect or appears to affect the security of this Mortgage or be prior or
superior hereto; and (iv) in exercising such powers, to pay necessary expenses,
including employment of counsel or other

                                       28
<PAGE>   32
necessary or desirable consultants. Immediately upon demand therefor by
Mortgagee, Mortgagor shall pay all costs and expenses incurred by Mortgagee in
connection with the exercise by Mortgagee of the foregoing rights, including,
without limitation, costs of evidence of title, court costs, appraisals, surveys
and reasonable attorneys' fees. All such sums, as well as costs, advanced by
Mortgagee pursuant hereto or pursuant to any other Loan Document, shall be
secured hereby, and shall bear interest at the Default Rate from the date of
payment by Mortgagee until the date of repayment. In addition, upon demand of
Mortgagee, Mortgagor shall surrender to Mortgagee, and Mortgagee shall be
entitled to take actual possession of, the Premises or any part thereof
personally, or by its agent or attorneys, as for condition broken. In such
event, Mortgagee in its discretion may, with or without force and with or
without process of law, enter upon and take and maintain possession of all or
any part of the Premises, together with all documents, books, records, papers
and accounts of Mortgagor relating thereto, and may exclude Mortgagor, and
Mortgagor's agents or servants wholly therefrom and may as attorney-in-fact or
agent of Mortgagor, or in its own name as Mortgagee and under the powers herein
granted, hold, operate, manage and control the Premises and conduct the
business, if any, thereof, either personally or by its agents, and with full
power to use such measures, legal or equitable, as in its discretion or in the
discretion of its successors or assigns may be deemed proper or necessary to
enforce the payment or security of the avails, rents, issues, and profits of the
Premises, including actions for the recovery of rent, and with full power: (a)
to cancel or terminate any lease or sublease for any cause or on any ground
which would entitle Mortgagor to cancel such lease or sublease; (b) to elect to
disaffirm any lease or sublease, which is then subordinate to the lien hereof;
(c) to extend or modify any then existing leases and to make new leases, which
extensions, modifications and new leases may provide for terms to expire beyond
the maturity date of the indebtedness secured hereby and beyond the date of the
issuance of a deed or deeds to a purchaser or purchasers at a foreclosure sale,
it being understood and agreed that any such leases, and the options or other
such provisions to be contained therein, shall be binding upon Mortgagor and all
persons whose interests in the Premises are subject to the lien hereof and upon
the purchaser or purchasers at any foreclosure sale, notwithstanding any
discharge or satisfaction of the mortgage indebtedness, satisfaction of any
foreclosure decree or deficiency judgment, or issuance of any bill of sale or
deed to any purchaser; (d) to make all necessary or proper repairs, decorations,
renewals, replacements, alterations, additions, betterments and improvements to
the Premises as may seem judicious to Mortgagee; (e) to insure and reinsure the
Premises and all risks incidental to Mortgagee's possession, operation and
management thereof; and (f) to receive all of such avails, rents, issues and
profits, hereby granting full power and authority to exercise each and every of
the rights, privileges and powers herein granted at any and all times hereafter,
without notice to Mortgagor. Notwithstanding the foregoing rights and powers of
Mortgagee, Mortgagee shall not be obligated to perform or discharge, nor does it
hereby undertake to perform or discharge, any obligation, duty or liability
under any lease of the Premises or any part thereof. Mortgagor shall and does
hereby agree to indemnify and hold Mortgagee harmless of and from any and all
liability, loss , or damage which it may or might incur under such leases or
under or by reason of the assignment thereof and of and from any and all claims
and demands whatsoever which may be asserted against it by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants or agreements contained in such leases. Should Mortgagee incur
any such liability, loss or damage, under such leases or under or by reason of
the assignment thereof, or in the defense of any claims or demands with respect
thereto, the amount thereof, including costs,

                                       29
<PAGE>   33

expenses and reasonable attorneys' fees, shall be secured hereby, and Mortgagor
shall reimburse Mortgagee therefor immediately upon demand.

         All references in this Section 5.05 to "leases" shall include all
leases and/or occupancy agreements affecting the Property and Improvements
whether superior or subordinate to this Mortgage.

         5.06     Application of Income Received by Mortgagee. Mortgagee, in the
exercise of the rights and powers hereinabove conferred upon it by Article II
and Section 5.05 hereof shall have full power to use and apply the avails,
rents, issues and profits of the Premises to the payment of or on account of the
following, in, such order as Mortgagee may determine:

                  (a)      to the payment of the operating expenses of the
Premises, including costs of management and leasing thereof (which shall include
reasonable compensation to Mortgagee and its agent or agents, if management be
delegated to an agent or agents, and shall also include lease commissions and
other compensation and expenses of seeking and procuring tenants and entering
into leases), established claims for damages, if any, and premiums on insurance
hereinabove authorized;

                 (b)      to the payments of taxes and special assessments now
due or which may hereafter become due on the Premises, and of all rents due or
which may hereafter become due under any underlying lease;

                 (c)      to the payment of all repairs, decorating, renewals,
replacements, alterations, additions, betterments, and improvements of the
Premises, including the cost from time to time of installing or replacing the
Personal Property therein, and of placing the Premises in such condition as
will, in the judgment of Mortgagee, make it readily rentable;

                 (d)      to the payment of any indebtedness secured hereby or
any deficiency which may result from any foreclosure sale upon the Premises, or
any part thereof.

         5.07     Appointment of Receiver. Upon, or at any time after the filing
of an action to foreclose this Mortgage, the court in which such action is filed
may appoint a receiver of the Premises. Such appointment may be made either
before or after sale, without notice, without regard to the solvency or
insolvency of Mortgagor at the time of application for such receiver and without
regard to the then current value of the Premises, and Mortgagee or any agent of
Mortgagee may be appointed as such receiver. Such receiver shall have power: (a)
to collect the rents, issues and profits of the Premises during the pendency of
such foreclosure suit as well as during any other times when Mortgagor, except
for the intervention of such receiver, would be entitled to collect such rents,
issues and profits; (b) to extend or modify any then existing leases and to make
new leases, which extensions, modifications and new leases may provide for terms
to expire, or for options to lessees to extend or renew terms to expire, beyond
the maturity date of the indebtedness secured hereby and beyond the date of the
issuance of a deed or deeds to a purchaser or purchasers at a foreclosure sale,
it being understood and agreed that any such leases, and the options or other
such provisions to be contained therein, shall be binding upon Mortgagor and all
persons whose interests in the Premises are subject to the lien

                                       30
<PAGE>   34
hereof and upon the purchaser or purchasers at any foreclosure sale,
notwithstanding any discharge: or satisfaction of the mortgage indebtedness,
satisfaction of any foreclosure decree or deficiency judgment, or issuance of
any bill of sale or deed to any purchaser; and (c) to exercise all other powers
which may be necessary or are usual in such cases for the protection,
possession, control, management and operation of the Premises during the whole
of such period. The court from time to time may authorize the receiver to apply
the net income in his hands in payment in whole or in part of: (a) the
indebtedness secured hereby, or by any judgment or decree foreclosing this
mortgage, or any tax, special assessment or other lien which may be or become
superior to the lien hereof or of such judgment: or decree, provided such
application is made prior to foreclosure sale; (b) and all rents due or which
may become due under any underlying lease; or (c) the deficiency judgment, in
case of an execution sale and deficiency judgment.

         5.08     Remedies Not Exclusive.  Mortgagor hereby agrees that:

                  (a)      Mortgagee shall be entitled to enforce payment and
performance of any indebtedness or obligation secured hereby and to exercise all
rights, remedies and powers under this Mortgage or any other Loan Documents and
the warrants contained therein or any other agreement or any laws now or
hereafter in force, notwithstanding that some or all of such indebtedness and
obligations secured hereby may now or hereafter be otherwise secured, whether by
mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the
acceptance of this Mortgage nor its enforcement whether by court action or other
powers herein contained shall prejudice or in any manner affect Mortgagee's
right to realize upon or enforce this Mortgage and any other security now or
hereafter held by Mortgagee in such order and manner as it may in its absolute
discretion determine.

                  (b)      No remedy herein conferred upon or reserved to
Mortgagee is intended to be exclusive of any other remedy herein or by law
provided or permitted, but each shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute. Every power or remedy given by any of the Loan Documents
to Mortgagee or to which Mortgagee may be otherwise entitled maybe exercised
separately, successively, concurrently or independently, from time to time and
as often as it may be deemed expedient by Mortgagee and Mortgagee may pursue
inconsistent remedies.

                  (c)      The failure to exercise any such right or remedy
shall in no event be construed as a waiver or release thereof. Any failure by
Mortgagee to insist upon strict performance by Mortgagor of any of the terms and
provisions of this Mortgage or of the other Loan Documents shall not be deemed
to be a waiver of any of the terms or provisions of the Mortgage or other Loan
Documents, and Mortgagee shall have the right thereafter to insist upon strict
performance by Mortgagor of any and all of them.

                  (d)      Neither Mortgagor nor any other person now or
hereafter obligated for payment of all or any part of the sums now or hereafter
secured by this Mortgage shall be relieved of such obligation by reason of the
failure of Mortgagee to comply with any request of Mortgagor or of any other
person so obligated to take action to foreclose on this Mortgage or otherwise
enforce any provisions of the Mortgage or the other Loan Documents, or by reason
of

                                       31
<PAGE>   35

the release, regardless of consideration, of all or any part of the security
held for the indebtedness secured by this Mortgage, or by reason of any
agreement or stipulation between any subsequent owner of the Premises or any
interest therein and Mortgagee extending the time of payment or modifying the
terms of the Mortgage or other Loan Documents without first having obtained the
consent of Mortgagor or such other person; and in the latter event Mortgagor and
all such other persons shall continue to be liable to make payments according to
the terms of any such extension or modification agreement, unless expressly
released and discharged in writing by Mortgagee.

                  (e)      Mortgagee may release, regardless of consideration,
any part of the security held for the indebtedness secured by this Mortgage
without, as to the remainder of the security, in anyway impairing or affecting
the lien of this Mortgage or its priority over any subordinate lien.

                                   ARTICLE VI
                                  MISCELLANEOUS

         6.01     Governing Law. This Mortgage shall be subject to and governed
by the laws of the Commonwealth of Pennsylvania. In the event that any provision
or clause of any of the Loan Documents conflicts with applicable laws, such
conflicts shall not affect other provisions of such Loan Documents which can be
given effect without the conflicting provision, and to this end the provisions
of the Loan Documents are declared to be severable. This instrument cannot be
waived, amended, changed, released, discharged or satisfied orally, but only by
an instrument in. writing signed by the party against whom enforcement of any
waiver, amendment, change, release, discharge or satisfaction is sought.

         6.02     Mortgagor Waiver of Rights. Mortgagor waives the benefit of
all laws now existing or that hereafter may be enacted providing for (i) any
appraisal before sale of any portion of the Premises, and (ii) the benefit of
all laws that may be hereafter enacted in: any way extending the time for the
enforcement of the collection of the Note or the debt evidenced thereby or
creating or extending a period of redemption from any sale made in collecting
such debt. To the full extent Mortgagor may do so, Mortgagor agrees that
Mortgagor will not at any time insist upon, plead, claim or take the benefit or
advantage of any law now or hereafter in force providing for any appraisal,
valuation, stay, extension or redemption, and Mortgagor, for itself and its
successors and assigns, and for any and all persons ever claiming any interest
in the Premises, to the extent permitted by law, hereby waives and releases all
rights of redemption, valuation, appraisal, stay of execution, notice of
election to mature or declare due the whole of the secured indebtedness and
marshalling in the event of foreclosure of the liens hereby created. Mortgagor
hereby waives and releases all errors, defects and imperfections in any
proceeding instituted by Mortgagee under the Note or this Mortgage or the other
Loan Documents, or any of them, and unless specifically required herein, all
notices of Mortgagor's default or of Mortgagee's election to exercise, or
Mortgagee's actual exercise of any option under the Note or this Mortgage or the
other Loan Documents. If any law referred to in this Section and now in force of
which Mortgagor, or its successors and assigns or other person may take
advantage despite this Section, shall hereafter be repealed or cease to be in
force, such law shall not thereafter be deemed to preclude the application of
this Section. Mortgagor expressly waives and relinquishes

                                       32
<PAGE>   36
any and all rights and remedies which Mortgagor may have or be able to assert by
reason of the laws of the Commonwealth of Pennsylvania pertaining to the rights
and remedies of sureties.

         6.03     Giving of Notice.

                  (a)      Any notice, demand or request under the Mortgage or
the Note shall be in writing and shall be delivered by personal service or shall
be sent postage prepaid by registered or certified mail, return receipt
requested, addressed to the parties at the addresses set forth below, or at such
other address as either party, by written notice given to the other parties
hereto, may designate from time to time.

                    Mortgagor

                    ALS-Clare Bridge, Inc.
                    c/o Alternative Living Services, Inc.
                    450 North Sunnyslope Road
                    Brookfield, Wisconsin  53003
                    Attn:  Chief Financial Officer

                    with a copy to:

                    Drinker Biddle & Reath LLP
                    Philadelphia National Bank Building
                    1345 Chestnut Street
                    Philadelphia, Pennsylvania  19107-3496
                    Attn:  Charles B. Congdon, Esquire

                    Mortgagee:

                             Sovereign Bank
                             Two Aldwyn Center
                             Lancaster Avenue & Route 320
                             Villanova, Pennsylvania  19085
                             Attention:  Mr. William Mattern

                    with a copy to:

                             Ballard Spahr Andrews & Ingersoll
                             1735 Market Street, 51st Floor
                             Philadelphia, PA  19103
                             Attention:  Philip B. Korb, Esquire

                   (b)      Each notice, demand or request shall be deemed to
have been given on the date it is delivered in the case of personal service, or,
in the case of certified or registered mail, on the date it is deposited with
the Postal Service.

                                       33
<PAGE>   37
         6.04     Counsel Fees. If Mortgagee becomes a party to any suit or
proceeding affecting the Premises or title thereto, the lien created by this
Mortgage or Mortgagee's interest therein, or if Mortgagee or any successor or
assignee of Mortgagee has engaged counsel to prepare or review any of the Loan
Documents in preparation for the granting of the loan to Mortgagor evidenced
thereby, the costs, expenses and counsel fees of Mortgagee shall be paid by
Mortgagor to Mortgagee on demand and until paid they shall be deemed to be part
of the indebtedness evidenced by the Note and secured by this Mortgage.

         6.05     Limitation of Interest. It is the intent of Mortgagor and
Mortgagee in the execution of this Mortgage and the Note and all other
instruments securing the Note to contract in strict compliance with the usury
laws of the Commonwealth of Pennsylvania governing the loan evidenced by the
Note. In furtherance thereof, Mortgagee and Mortgagor stipulate and agree that
none of the terms and provisions contained in the Loan Documents shall ever be
construed to create a contract for the use, forbearance or detention of money
requiring payment of interest at a rate in excess of the maximum interest rate
permitted to be charged by the laws of the Commonwealth of Pennsylvania
governing the loan evidenced by the Note. Mortgagor or any guarantor, endorser
or other party now or hereafter becoming liable for the payment of the Note
shall never be liable for unearned interest on the Note and shall never be
required to pay interest on the Note at a rate in excess of the maximum interest
that may be lawfully charged under the laws of the Commonwealth of Pennsylvania
and the provisions of this Section shall control over all other provisions of
the Note and any other instrument executed in connection herewith which may be
in apparent conflict herewith. In the event it is determined that any holder of
the Note has collected monies which are deemed to constitute interest and are
deemed to increase the effective interest rate on the Note to a rate in excess
of that permitted to be charged by the laws of the Commonwealth of Pennsylvania,
all such sums deemed to constitute interest in excess of such legal rate shall
be refunded to Mortgagor immediately after such determination. Such refund may
be made by application of the amount involved against the sums due under the
Note, but such crediting shall not cure or waive any default by Mortgagor
remaining uncorrected.

         6.06     Statements by Mortgagor. Mortgagor, within ten (10) days after
being given notice by mail, will furnish to Mortgagee a written statement
stating the unpaid principal of and interest on the Note and any other amounts
secured by this Mortgage and stating whether any offset or defense exists
against such principal and interest.

         6.07     Captions. The captions or headings at the beginning of each
Section hereof are for the convenience of the parties, are not a part of this
Mortgage and do not affect the meaning of the provisions of this Mortgage.

         6.08     Invalidity of Certain Provisions. If the lien of this Mortgage
is invalid or unenforceable as to any part of the debt, or if the lien is
invalid or unenforceable as to any part of the Premises, the unsecured or
partially secured portion of the debt shall be paid completely prior to the
payment of the remaining and secured or partially secured portion of the debt,
and all payments made on the debt, whether voluntary or under foreclosure or
other enforcement action or procedure, shall be considered to have been first
paid on and applied to the full payment of that portion of the debt which is not
secured or fully secured by the lien of this Mortgage.

                                       34
<PAGE>   38
         6.09     Subrogation. To the extent that proceeds of the loan
evidenced by the Note are used to pay any outstanding lien, charge or prior
encumbrance against the Premises, such proceeds have been or will be advanced by
Mortgagee at Mortgagor's request and Mortgagee shall be subrogated to any and
all rights and liens held by any owner or holder of such outstanding liens,
charges and prior encumbrances, irrespective of whether such liens, charges or
encumbrances are released.

         6.10     No Merger. If both the lessor's and lessee's estates under any
lease or any portion thereof which constitutes a part of the Premises shall at
any time become vested in one owner, this Mortgage and the lien created hereby
shall not be destroyed or terminated by application of the doctrine of merger,
and, in such event, Mortgagee shall continue to have and enjoy all of the rights
and privileges of Mortgagee as purchaser at any such foreclosure sale shall so
elect. No act by or on behalf of Mortgagee or any such purchaser shall
constitute a termination of any lease or sublease unless Mortgagee or such
purchaser shall give written notice thereof to such tenant or subtenant.

         6.11     Definitions. Whenever used in this Mortgage, unless the
context clearly indicates a contrary intent:

                  (a)      The word "Mortgagor" shall mean the person named in
this Mortgage and who executes the same and any subsequent owner of the Premises
and his or its respective heirs, executors, administrators, successors,
representatives and assigns;

                  (b)      The word "Mortgagee" shall mean the person who is the
owner and holder of the Note whether or not specifically named herein as
"Mortgagee", or any subsequent owner and holder of the Note and this Mortgage;

                  (c)      The word "person" shall mean individual, corporation,
partnership or unincorporated association;

                  (d)      The use of any gender shall include all genders;

                  (e)      The singular number shall include the plural and the
plural the singular as the context may require.

                  (f)      If Mortgagor be or consist of more than one person,
all agreements, conditions, covenants, provisions, stipulations, warrants of
attorney, authorizations, waivers, releases, options, undertakings, rights and
benefits made or given by Mortgagor shall be joint and several, and shall bind
and affect all persons who are defined as "Mortgagor" as fully as though all of
them were specifically named herein wherever the word "Mortgagor" is used.

         6.12     Amendments. This Mortgage may be amended only by written
agreement, executed by all of the parties hereto, and no other purported
agreement, written or oral, shall be effective to vary the terms hereof.

                                       35
<PAGE>   39
         IN WITNESS WHEREOF, Mortgagor has caused this mortgage to be duly
executed the day and year first above written.

                                            ALS-CLARE BRIDGE, INC., a Delaware
                                            corporation

         [Corporate Seal]

Attest:  /s/ Joyce Hansen                   By:  /s/ Thomas E. Komula
       ---------------------------              -------------------------------
Name:    Joyce Hansen                       Name: Thomas E. Komula
       ---------------------------               ------------------------------
Title:   Executive Asst.                    Title: Vice President
       ---------------------------                -----------------------------

The precise address of Mortgagee is:

Sovereign Bank
Two Aldwyn Center
Lancaster Avenue & Route 320
Villanova, Pennsylvania  19085

         /s/ William J. Mattern
------------------------------------------------
Agent for Mortgagee

                                       37
<PAGE>   40

STATE OF WISCONSIN                          )
                                            )  ss
COUNTY OF WAUKESHA                          )

                  On this 1st day of May, 1998, before me, the subscriber, a
Notary Public in and for the State and the County aforesaid, personally appeared
Tom Komula, who acknowledged himself to be the Vice President of ALS-Clare
Bridge, Inc., a Delaware corporation, and that he, as such officer, being
authorized to do so, executed the foregoing Mortgage for the purposes therein
contained by signing the name of the corporation by himself as officer, and
desired that the same might be recorded as such.

                  IN WITNESS WHEREOF, I hereunto set my hand and official seal.

                                 /s/ Paul K. O'Connor
                                 ---------------------------
                                     Notary Public

(NOTARIAL SEAL)

My Commission is permanent

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