TAX ALLOCATION AGREEMENT

EXHIBIT I TO THE SEPARATION AGREEMENT

TAX ALLOCATION AGREEMENT dated as of November 10, 2006 (this “ Agreement ”), among EXTENDICARE INC., a Canadian corporation (“ Extendicare ”), EXTENDICARE HOLDINGS, INC., a Wisconsin corporation (“ EHI ”), and ASSISTED LIVING CONCEPTS, INC., a Nevada corporation (“ ALC ” and, collectively with EHI and Extendicare, the “ Companies ”).

                WHEREAS, as of the date of this Agreement, EHI and ALC belong to an Affiliated Group that has elected to file consolidated U.S. federal income Tax Returns;

                WHEREAS, as of the date of this Agreement, EHI is an indirect, wholly owned subsidiary of Extendicare;

                WHEREAS, as of the date of this Agreement, Extendicare Health Services Inc. is a direct, wholly owned subsidiary of EHI ( EHSI );

                WHEREAS, as of the date of this Agreement, ALC is a direct, wholly owned subsidiary of EHSI;

                WHEREAS, Extendicare will purchase the stock of ALC from EHSI in exchange for a note with a face amount equal to the fair market value of ALC (the “ ALC Purchase ”);

                WHEREAS, ALC will reorganize its share capital to create two classes of common shares (the ALC Class A Shares and the ALC Class B Shares) which will have similar voting rights to the subordinate voting and multiple voting common shares of Extendicare, respectively;

                WHEREAS, pursuant to the Plan of Arrangement, the existing subordinate voting shareholders of Extendicare (other than any dissenters) will exchange each of their shares for one new Extendicare Common Share and one ALC Class A Share and the existing multiple voting shareholders of Extendicare (other than any dissenters) will exchange each of their shares for 1.075 new Extendicare Common Shares and one ALC Class B Share (the “ ALC Distribution ”);

                WHEREAS, pursuant to the Plan of Arrangement and immediately after the ALC Distribution, the new Extendicare Common Shares will be transferred to Newco for Newco Notes or, at the election of certain holders, to Extendicare Holding Partnership in exchange for units of Extendicare Holding Partnership, and the Newco Notes will then immediately be transferred to Extendicare REIT in exchange for REIT Units (the “ Conversion ” and, together with the ALC Distribution, the “ Separation ”); and

                WHEREAS, the Companies desire to allocate the Tax liabilities and benefits of transactions that occur on or prior to, and that may occur after, the date on which the Separation occurs (the “ Separation Date ”) and to provide for certain other Tax matters.

                NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Companies (each on behalf of itself, each of its Affiliates and its future Affiliates) hereby agree as follows:

ARTICLE I

Definitions

                The following terms shall have the following meanings:

                “ Adjustment Request ” means any claim or request filed with any governmental authority for any adjustment of Tax, Refund or change in available Tax attributes.

                “ Affiliate ” of any person means any other person that, after the Separation, controls, is controlled by, or is under common control with such person. For purposes of this definition, “ control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contract or otherwise.

                “ Affiliated Group ” means an affiliated group of corporations within the meaning of Section 1504(a) of the Code, or any analogous concept under local, state or foreign law for the taxable period in question.

                “ Agreement ” is defined in the preamble.

                “ ALC ” is defined in the preamble.

                “ ALC Class A Shares ” is defined in the Arrangement Agreement.

                “ ALC Class B Shares ” is defined in the Arrangement Agreement.

                “ ALC Distribution ” is defined in the recitals.

                “ ALC Group ” means ALC and its Affiliates.

                “ ALC Purchase ” is defined in the recitals.

                “ Applicable Rate ” means the sum of (i) the prime rate of interest per annum published in the print edition of The Wall Street Journal, the international daily newspaper published in New York City, and (ii) 2%; each change in the prime rate shall be effective from and including the date such change is published in The Wall Street Journal.

                “ Arrangement Agreement ” means the Arrangement Agreement, dated as of September 11, 2006, among Extendicare REIT, Extendicare Trust, Extendicare Holding General Partner Inc., Extendicare Holding Partnership, Extendicare, Extendicare Acquisition Inc., Extendicare ULC and ALC.

                “ Assumed Liabilities ” is defined in the Separation Agreement.

                “ Code ” means the Internal Revenue Code of 1986, as amended.

                “ Companies ” is defined in the preamble.

                “ Conversion ” is defined in the recitals.

                “ Due Date ” means, with respect to any Tax Return, the date on which such Tax Return is due to be filed with the appropriate Taxing Authority pursuant to applicable law, giving effect to any applicable extensions.

                “ EHI ” is defined in the preamble.

                “ EHSI ” is defined in the recitals.

                “ EHSI Assisted Living Facilities ” is defined in the Separation Agreement.

                “ Extendicare ” is defined in the preamble.

                “ Extendicare Common Shares ” is defined in the Plan of Arrangement.

                “ Extendicare Group ” means Extendicare and its Affiliates. For the avoidance of doubt, the Extendicare Group excludes any entity that is a member of the ALC Group.

                “ Extendicare Holding Partnership ” means Extendicare Limited Partnership, a limited partnership existing under the laws of the Province of Ontario.

                “ Extendicare REIT ” means Extendicare Real Estate Investment Trust, a trust established under the laws of the Province of Ontario.

                “ Final Determination ” means the final resolution of liability for any Tax for any taxable period by or as a result of: (i) a final and unappealable decision, judgment, decree or other order by any court of competent jurisdiction; (ii) a final settlement with the IRS, a closing agreement or accepted offer in compromise under Code Sections 7121 or 7122 or a comparable settlement, agreement or accepted offer in compromise under the laws of another jurisdiction; (iii) any allowance of a Refund, but only after the expiration of all periods during which such Refund may be recovered by the Taxing Authority imposing the Tax; or (iv) any other final disposition, including by reason of the expiration of the applicable statute of limitations.

                “ Group ” means the Extendicare Group or the ALC Group, or both, as the context requires.

                “ Indemnifying Party ” has the meaning set forth in Section 5.01.

                “ Indemnitee ” has the meaning set forth in Section 5.01.

                “ Intended Tax Treatment ” has the meaning set forth in Section 4.01.

                “ IRS ” means the United States Internal Revenue Service.

                “ Joint Return ” means any Return for an Affiliated Group that includes both a member of the Extendicare Group and a member of the ALC Group.

                “ Newco ” is defined in the Plan of Arrangement.

                “ Newco Notes ” is defined in the Plan of Arrangement.

                “ Past Practices ” has the meaning set forth in Section 3.03.

                “ Plan of Arrangement ” is defined in the Arrangement Agreement.

                “ Pre-Separation Period ” means any taxable period (or portion thereof) ending on or before the Separation Date.

                “ Refund ” means any cash refund of Tax or reduction of Tax by means of credit, offset or otherwise.

                “ REIT Unit ” is defined in the Arrangement Agreement.

                “ Separate Return ” means (i) in the case of the ALC Group, a Tax Return of any member of that Group (including any consolidated, combined, affiliated or unitary Return) that does not include, for all or any portion of the relevant taxable period, any member of the Extendicare Group and (ii) in the case of the Extendicare Group, a Tax Return of any member of that Group (including any consolidated, combined, affiliated or unitary Return) that does not include, for all or any portion of the relevant taxable period, any member of the ALC Group.

                “ Separation ” is defined in the recitals.

                “ Separation Agreement ” means the Separation Agreement, dated as of November 10, 2006, between Extendicare and ALC.

                “ Separation Date ” is defined in the recitals.

                “ Tax ” means all forms of taxation, levies or duties imposed, or required to be collected or withheld, including charges, together with any related interest, penalties or other additional amounts. For the avoidance of doubt, Tax includes Canadian employment insurance premiums, Canada or provincial pension plan contributions, Canadian employee health premiums and Canadian workers’ compensation premiums imposed by the government of Canada or a province of Canada.

                “ Tax Advisor ” means a U.S. tax counsel or other tax advisor of recognized national standing.

                “ Tax Contest ” means an audit, review, examination, assessment, reassessment or any other administrative or judicial proceeding with the purpose or effect of determining or redetermining Tax (including any administrative or judicial review of any Adjustment Request).

                “ Tax Dispute ” means any dispute arising in connection with this Agreement.

                “ Tax Return ” or “ Return ” means any return, filing, report, questionnaire, information statement, claim for refund, or other document required or permitted to be filed, including any amendments that may be filed, for any taxable period with any Taxing Authority (whether or not a payment is required to be made with respect to such filing).

                “ Taxing Authority ” means any governmental authority that imposes, assesses or collects Tax, including the IRS, any U.S. state or local taxing authority, the Canada Revenue Agency, the Ontario Ministry of Finance and any other relevant provincial taxing authority.

                “ Transaction Agreements ” means this Agreement, the Arrangement Agreement, the Plan of Arrangement and the Separation Agreement.

                “ Transactions ” means the transactions described on Exhibit A, including the ALC Purchase, the ALC Distribution and the Conversion, and any other transactions related thereto or otherwise contemplated by the Transaction Agreements.

ARTICLE II

Liability For Tax

                SECTION 2.01. Ordinary Course Tax . (a) Subject to Section 2.02, ALC shall be liable, and shall indemnify and hold the Extendicare Group harmless, for all Tax that is attributable to members of the ALC Group for all periods. The amount of Tax “attributable to” the ALC Group shall be determined in accordance with the principles described in Exhibit B.

               (b) EHI shall be liable, and shall indemnify and hold the ALC Group harmless, for all Tax that is attributable to members of the Extendicare Group for all periods. The amount of Tax “attributable to” members of the Extendicare Group shall be determined in accordance with the principles described in Exhibit B.

               (c) For purposes of this Section 2.01, all Tax that is attributable to each EHSI Assisted Living Facility listed on Schedule 2.01(c) (i) shall be treated as attributable to the Extendicare Group for all periods (or portion thereof) ending on the date listed on Schedule 2.01(c) with respect to such EHSI Assisted Living Facility and (ii) shall be treated as attributable to the ALC Group for all periods (or portion thereof) beginning on or after the date listed on Schedule 2.01(c) with respect to such EHSI Assisted Living Facility.

               (d) EHI and ALC shall agree on a reasonable apportionment between the Extendicare Group and the ALC Group of any existing limitation under Code Section 382 that applies to any net operating loss carryforwards in the existing Extendicare Group, and any comparable limitations under state or local law.

                SECTION 2.02. Transaction Taxes . EHI shall be liable, and shall indemnify and hold the ALC Group harmless, for any Tax resulting from, or arising in connection with, the Transactions.

                SECTION 2.03. Refunds . Any Refund attributable to (i) any Tax for which any member of the ALC Group is responsible under this Article II shall be for the account of ALC and (ii) any Tax for which any member of the Extendicare Group is responsible under this Article II shall be for the account of EHI. To the extent a party receives a Refund that is for the account of the other party under the preceding sentence,

the recipient-party shall pay or cause to be paid the amount of the Refund to the other party. If all or any portion of such Refund is not paid to the other party within 30 days after receipt, interest shall accrue on the unpaid portion of such Refund at the Applicable Rate compounded quarterly.

                SECTION 2.04. Tax Sharing Agreements . Except as set forth in this Agreement, any and all existing Tax sharing agreements, arrangements, understandings and practices regarding Tax and its payment, allocation or sharing between any member of the ALC Group and any member of the Extendicare Group shall be terminated as of the Separation. This Section 2.04 does not address any Tax sharing agreements solely between members of the ALC Group or solely between members of the Extendicare Group.

ARTICLE III

Preparation and Filing of Tax Returns

                SECTION 3.01. Extendicare Responsibility . (a) Subject to paragraph (b), EHI shall make all determinations with respect to, shall have ultimate control over the preparation of, and shall file all (i) Joint Returns and (ii) Separate Returns of the Extendicare Group, in each case as it determines to be mandatory or advisable and for all taxable periods.

                    (b) If, in connection with the preparation of any Joint Return, EHI modifies any information relating to, or provided in, the pro forma federal and state income Tax Returns or other information related to members of the ALC Group prepared by ALC and provided to EHI pursuant to Section 3.02, the portions of the Joint Returns that include such information shall be submitted to ALC no later than 15 days prior to the Due Date for such Joint Returns (or if such Due Date is within 15 days following the Separation Date, as promptly as practicable following the Separation Date). Within 5 days after delivery of any such revised portions of any Joint Return, ALC shall provide comments to EHI in writing where ALC objects to any revisions that could, in its reasonable discretion, be expected to adversely impact any member of the ALC Group. Such ALC comments shall be incorporated into the Joint Return.

                SECTION 3.02. ALC Responsibility . (a) ALC shall make all determinations with respect to, shall have ultimate control over the preparation of, and shall file all Separate Returns of the ALC Group as it determines to be mandatory or advisable and for all taxable periods.

                    (b) ALC shall prepare and provide to EHI all federal and state income Tax Return workpapers and other information related to members of the ALC Group required to complete any Joint Return, at least 30 days prior to the Due Date of the relevant Joint Return.

                SECTION 3.03. Tax Accounting Practices . Any Tax Return for any Pre-Separation Period shall be prepared in accordance with practices, accounting methods, elections, conventions and Tax positions used with respect to the Tax Return in question for periods prior to the Separation (“ Past Practices ”) and, in the case of any item the treatment of which is not addressed by Past Practices, in accordance with generally accepted Tax accounting practices. Notwithstanding the foregoing, for any Tax Return described in the preceding sentence, (i) a party will not be required to follow Past Practices with either the written consent of the other party (not to be unreasonably withheld) or a “should” level opinion from a Tax Advisor that the proposed method of reporting is correct and (ii) all Tax Returns shall be filed in a manner consistent with the Intended Tax Treatment, unless otherwise required by a Final Determination.

                SECTION 3.04. Right to Review Tax Returns . Upon request, each party shall make available to the other party the portion of Pre-Separation Period Tax Returns that relates to the ALC Group that the first party is responsible for preparing under this Article III.

                SECTION 3.05. Payment of Tax. The party responsible under this Agreement for preparing a Tax Return shall remit, or cause to be remitted, in a timely manner to the appropriate Taxing Authority all Tax due in connection with that Tax Return. For the avoidance of doubt, this Section shall not in any way affect any right of indemnification under this Agreement.

                SECTION 3.06. Adjustment Requests. (a) Except with the written consent of EHI (not to be unreasonably withheld), ALC will not file any Adjustment Request with respect to any Joint Return, unless required by law. Except with the written consent of ALC (not to be unreasonably withheld), EHI will not file any Adjustment Request with respect to any Joint Return, unless required by law.

                    (b) Any Adjustment Request made under this Section 3.06 shall be prepared by the party that filed the Tax Return to be adjusted. The party preparing the Adjustment Request shall be reimbursed for its internal preparation and filing costs at a rate of $30 per hour, without regard to the identity of the persons assigned to prepare the Adjustment Request, and, if the parties engage a third party to prepare the Adjustment Request, the parties shall bear the out-of-pocket costs of engaging such third party in proportion to the benefit that each would receive from the proposed adjustment.

                    (c) ALC agrees to waive its right to carry back any loss incurred by any member of the ALC Group during any taxable period following Separation, to the extent permitted by law.

ARTICLE IV

Intended Tax Treatment

                SECTION 4.01. Intended Tax Treatment. Each of Extendicare, EHI and ALC agree to treat the Transactions for all U.S. Tax purposes as set out in Exhibit C (the “ Intended Tax Treatment ”), unless otherwise required by a Final Determination.

ARTICLE V

Tax Contests; Indemnification; Cooperation

                SECTION 5.01. Notice . As soon as practicable and, in any event, within 30 days after a party (the “ Indemnitee ”) becomes aware of the existence of a Tax Contest that may give rise to an indemnification claim under this Agreement by it against the other party (the “ Indemnifying Party ”), the Indemnitee shall notify the Indemnifying Party of the Tax Contest, and thereafter shall promptly forward or make available to the Indemnifying Party copies of notices and communications wi