Letter Agreement regarding Multifamily Mortgage Note, dated as of December 20, 2012, by and among Red Mortgage Capital, LLC, Texas ALC Partners, L.P., ALC Properties, Inc. and Assisted Living Concepts, Inc

December 20, 2012

VIA EMAIL:   ***@***

and ***@***

Texas ALC Partners, L.P.

ALC Properties, Inc.

Assisted Living Concepts, Inc.

c/o Assisted Living Concepts, Inc.

Attn:  Mary T. Zak-Kowalcczyk, Secretary

Attn:  John Buono, Chief Financial Officer

W140 N 8981 Lilly Rd

Menomonee Falls, WI 53051

RE:

Fannie Mae Mortgage Loan Number 27-0002463 (“Mortgage Loan”), secured by, inter alia:

Chaparelle House, 1880 Harrison Street North, Twin Falls, Idaho 83301 (“Chaparelle House”);

Goldfinch House, 18 Reeves Road, Bridgetown, New Jersey (“Goldfinch House”);

Cameron House, 244 North Extension Road, Mesa, Arizona 85201

(“Cameron House”).  Chaparelle House, Goldfinch House, and Cameron House are collectively, the “Mortgaged Property”.

Dear Borrower:

Reference is hereby made to the $38,400,000 Multifamily Note dated December 29, 2003 (the “Note”), executed by Texas ALC Partners, L.P. and ALC Properties, Inc. (together, the “Borrower”), payable to the order of Red Mortgage Capital, LLC, f/k/a Red Mortgage Capital, Inc. (the “Servicer”).  The Note is secured by that certain Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated December 29, 2003, and recorded, among other places, with (a) the Recorder of Deeds of Twin Falls County, Idaho, as Instrument 2004-000845 (the “Chaparelle Security Instrument”); (b) the Recorder of Deeds of Cumberland County, New Jersey, in Book 3254, Page 17 (the “Goldfinch Security Instrument”); and (c) the Recorder of Deeds of Maricopa County, Arizona, at Instrument #375004374 (the “Cameron Security Instrument”).  The Chaparelle Security Instrument, the Goldfinch Security Instrument and the Cameron Security Instrument are herein collectively, the “Security Instrument.”   The Servicer assigned, negotiated and transferred the Note and the Security Instrument to Fannie Mae, the current owner and holder of the Note and the Security Instrument (“Fannie Mae”).

Reference is made to our letter to you dated August 24, 2012, as accepted and agreed by Texas ALC Partners, L.P.; ALC Partners, Inc.; and Assisted Living Concepts, Inc. (the “August 24 Letter”) whereby Fannie Mae agreed to forbear from exercising any of its rights on account of the Existing Defaults, in exchange for your prepayment as aforesaid on all three (3) of the above-described properties by the earlier to occur of (a) December 31, 2012, or (b) the Closing (as defined in the August 24, 2012 Letter).  Capitalized terms used herein and not otherwise defined shall have the meaning ascribed to them in the August 24 Letter.

This letter hereby extends the date by which the Mortgage Loan shall be prepaid in accordance with the August 24 Letter, to no later than the earlier of (a) January 31, 2013, or (b) the Closing.

Should we not timely receive sums sufficient to pay off the portion of the Note attributable to the Mortgaged Property the forbearance described in the August 24 Letter shall be null and void, and we shall, at our option, proceed against any or all of the properties securing the Mortgage Loan, whether against the Mortgaged Property herein defined or otherwise under the Loan Documents, and in addition thereto, we may at our option proceed to exercise any or all of our rights at law, in equity, and under the Loan Documents, including, without limitation, the right to accelerate the Note.

Except as otherwise specifically modified hereby, the terms and conditions of the August 24 Letter shall remain in full force and effect and are hereby reaffirmed and ratified.

Nothing contained herein shall be deemed to cure the Existing Defaults or waive any of the Lender’s rights and remedies arising because of the Borrower’s Existing Defaults.  Rather, the Existing Defaults and Servicer’s rights and remedies arising therefrom on behalf of Fannie Mae are hereby preserved.  However, if all of the conditions set forth in the August 24 Letter, as amended hereby, are fully and timely satisfied, for so long as no Event of Default other than the Existing Defaults occur, the Servicer on behalf of Fannie Mae agrees to forbear from exercising the rights and remedies which it is entitled to exercise as a result of the Existing Defaults with respect to the Borrowers, the Key Principal and/or their assets.  However, if an Event of Default occurs other than the Existing Defaults, the Servicer shall immediately be entitled to exercise and enforce all rights and remedies which are available to the lender under any of the Loan Documents, at law or in equity.

TIME IS STRICTLY OF THE ESSENCE AS TO ALL OF THE OBLIGATIONS OF THE BORROWERS HEREUNDER.

Please evidence your agreement to the terms hereof by your signatures below, and return a fully executed copy of this letter to the undersigned.  This letter agreement shall not be binding on Servicer or Fannie Mae unless and until a fully-executed copy is returned to the Undersigned.

Sincerely,

RED MORTGAGE CAPITAL, LLC,

a Delaware limited liability company

By:	/s/ William Koerner
Name:	William Koerner
Title:	Managing Director

{Signatures of Borrower and Key Principal on Following Page}

Accepted and agreed to:

TEXAS ALC PARTNERS, L.P.
By:	/s/ John Buono
Name:	John Buono
Title:	Sr. VP, CFO & Treasurer
ALC PARTNERS, INC.
By:	/s/ John Buono
Name:	John Buono
Title:	Sr. VP, CFO & Treasurer
ASSISTED LIVING CONCEPTS, INC.
By:	/s/ John Buono
Name:	John Buono
Title:	Sr. VP, CFO & Treasurer