LEASE AGREEMENT
   Exhibit A
    ARTICLE 1
 1.1 Lease and Leased Property
 Exhibit A




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1.2 Definitions
 Affiliate
 Architect
 Business Day
 2




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Citation
 Commencement Date
 Completion Date substantially completed
 Construction Contracts
 CPI
 Declaration Exhibit F
 Development Budget
 Development Costs
 3




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Facility
 Facility FF&E
 General Contractor
 Governmental Authority
 Governmental Requirement
 Hazardous Materials
 Hazardous Materials Law
 Improvements
 Intangible Property
 4




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Lease Year
 Notice
 Offsite Improvements
 Overdue Rate
 Plans
 Primary Intended Use
 Prime Rate
 Punch List Items
 Term; Term of this Lease; Lease Term; Term hereof
 Total Project Costs Exhibit
B
 Unavoidable Delays
 5




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WVDH
 WVDH Approvals:
 Lessor
 ARTICLE 2
 2.1 Term; Commencement Date
 2.2 Renewal
 6




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ARTICLE 3
 3.1 Development Budget; Plans
 Contracting for Construction
       7




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3.2 Construction of Improvements; Offsite Improvements Exhibit B Exhibit B
   8




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3.3 Change Orders
 3.4 Progress of Construction; Access to Improvements
 9




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3.5 Lessee Furniture, Furnishings and Equipment
 3.6 Commencement of Construction; Delay of Commencement Date; Termination by Lessee.
 10




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3.7 Compliance with Governmental Requirements; Inspection by Licensing Authority.
 3.8 Condition of Premises; Acceptance
 3.9 Representations, Warranties and Covenants of Lessor
  11




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Exhibit C
    12




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3.10 Failure to Construct
 13




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3.11 Conditions to Lease.
    ARTICLE 4
 4.1 Rent
 4.2 Adjustment to Rent
  4.3 Security Deposit
 14




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4.4 Late Payment
 4.5 Proration for Partial Periods
 ARTICLE 5
 5.1 Property Taxes
 15




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5.2 Notice of Taxes
 5.3 Proration of Taxes
 5.4 License Fees and Business Taxes
 5.5 Utility Charges
 5.6 Insurance Premiums
 5.7 Absolute Net Lease
 16




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ARTICLE 6
 6.1 Ownership of the Leased Property
 6.2 Lessees Personal Property
 6.3 Landlords Security Interest
 6.4 Financing Statements
 17




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6.5 Excluded Lessees Personal Property
 ARTICLE 7
 7.1 Licenses and Permits
 7.2 Use of the Leased Property.
 Permitted Use.
 18




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No Impairment of Title.
 Compliance.
 Easements.
 19




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7.3 Environmental Matters
  20




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ARTICLE 8
 8.1 Maintenance and Repair
 8.2 Surrender
 8.3 Replacement Property
 21




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8.4 Signage
 ARTICLE 9
 9.1 Improvements, Alterations and Additions by Lessee
 22




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9.2 Liens
 ARTICLE 10
 10.1 Permitted Contests
 23




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ARTICLE 11
 11.1 General Insurance Requirements
    24




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11.2 Replacement Cost
 11.3 Waiver of Subrogation
 11.4 Lessees Personal Property
 11.5 Blanket Policy
 ARTICLE 12
 12.1 Insurance Proceeds Payable on Damage or Destruction
 25




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12.2 Restoration in the Event of Damage or Destruction Covered.
    12.3 Lessees Personal Property; Business Interruption
 12.4 Excess Proceeds
 26




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12.5 Standard of Work
 12.6 Effect of Termination
 12.7 Failure to Repair
 12.8 Unavoidable Delays
 ARTICLE 13
 13.1 Condemnation.
   27




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13.2 Awards
 13.3 Standard of Work
 13.4 Failure to Repair
 13.5 Unavoidable Delays
 ARTICLE 14
 14.1 Events of Default
 28




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29




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14.2 Remedies
   30




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14.3 Additional Expenses
 14.4 Legal Expenses
 14.5 Waiver of Appraisement, Valuation, etc
 14.6 Overdue Sums
 ARTICLE 15
 15.1 Lessors Right to Cure Lessees Default
 31




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ARTICLE 16
 16.1 Holding Over
 ARTICLE 17
 17.1 Subordination, Non-Disturbance and Attornment
 32




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17.2 Facility Mortgage Agreements
 17.3 Estoppel Certificates
 ARTICLE 18
 18.1 Indemnification
  33




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ARTICLE 19
 19.1 Assignment and Subletting
 19.2 Permitted Assignments
 ARTICLE 20
 20.1 Lessors Right to Inspect
 34




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ARTICLE 21
 21.1 Quiet Enjoyment
 21.2 No Encumbrance by Lessor
 ARTICLE 22
 22.1 Notices
  
  
  35




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ARTICLE 23
 23.1 Option to Purchase th
 Month of Exercise
    
    Percentage ofOf Option
    
    Total Project Costs12  23
    
    110%24  35
    
    112%36  47
    
    114%48  60
    
    120%
  23.2 Notice of Election
 23.3 Title Insurance Exhibit C
 36




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23.4 Survey
 23.5 Lessors Costs
 23.6 Lessees Costs
 23.7 Closing
  37




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23.8 Risk of Loss
 23.9 Condemnation
 23.10 Default.
 38




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23.11 Prorated Rent
 23.12 Expiration
 23.13 Election to Acquire Lessor.
 ARTICLE 24
 24.1 Lessors Event of Default
 39




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24.2 No Lessors Event of Default
 24.3 Legal Expenses
 ARTICLE 25
 25.1 Miscellaneous.
 Choice of Law.
 Consents
 Amendments in Writing.
 Severability.
 Successors.
 No Waiver.
 Remedies Cumulative.
 40




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No Merger of Title.
 No Partnership.
 Recordation of Lease.
 Time.
 Headings.
 Sale by Lessor.
 Guaranty of Advocat, Inc. Exhibit
D
 Guaranty of Lessors Obligation Exhibit E
 Attorneys Fees.
 41




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ARTICLE 26
 26.1 Financial, Management and Regulatory Reports
      26.2
  42




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26.3 Lessor Financial Statements.
 ARTICLE 27
 27.1 Covenant Not to Compete
 27.2 Enforceability; Lessee Right to Terminate
  43




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ARTICLE 28
 28.1 Transfer of Operations Upon Termination.
 Surrender of Possession
 Removal of Personal Property
 Title to Personal Property Not Removed
 Lessors Option to Purchase Lessees Personal Property.
 44




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Management of Leased Property
 Correction of Deficiencies
 Change of Ownership and Transfer of Licenses
 Licensure and Certificate of Need
 Management or Supervisory Employees
 Transfer of Residents
 45




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LESSOR:
A.B.E., LLCBy:
    /s/ Edward A. BellIts: Member LESSEE:
DIVERSICARE ROSE TERRACE, LLCBy:
    Diversicare Leasing Corp., its sole memberBy:
    /s/ William R. Council, IIIIts: President and CEO JOINDER
  /s/ Edward A. BellEdward A. Bell, Member/s/ Larry W. WillsLarry W. Wills, Member 46




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EXHIBIT A
 Description of Land
  1 2




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EXHIBIT B
 Total Project Costs
 LAND COST FOR PROJECT, net of escrow deposits previously paid
    
    $
    750,000Building construction cost
    
    
    4,935,000Equipment to stock and operate facility
    
    
    620,000INTEREST CARRY FOR 10 MONTHS
    
    
    144,818ARCHITECT FEES ( includes $42,750 already paid by Lessee)
    
    
    165,000LEGAL FEES
    
    
    50,000ENGINEERING FEES
    
    
    40,000PERMITS
    
    
    5,000CONTINGENCY FUND
    
    
    395,000TOTAL PROJECT COST BEFORE ADVOCAT CON COSTS
    
    $
    7,104,818




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EXHIBIT C
 Permitted Exceptions
 1.
    
    Real property taxes for the year in which the Commencement Date occurs, not yet due and
payable, and subsequent years.
 2.
    
    Forty (40) foot easement to Virginia Power Company granted by the following deeds: (1) from
J. H. Sunderland, dated August 27, 1920 of record in Bond, Contract and Lease Book 50 at page
457; and (2) from W. M. Sunderland, dated October 20, 1920 of record in Bond, Contract and
Lease Book 51 at page 303, Cabell County Clerks Office and as shown on the survey entitled
ALTA/ACSM Survey Diversicare Management Services prepared by Randolph Engineering dated June
22, 2008, Project No. 2008100, Sheet 1 of 1.
 3.
    
    The Existing Facility Mortgage.




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EXHIBIT D
 Guaranty of Lease
       ARTICLE 1.
 GUARANTY




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ARTICLE 2.
 GENERAL COVENANTS AND WAIVERS OF
GUARANTOR; REMEDIES AND RIGHTS OF LESSOR
      ARTICLE 3.
 MISCELLANEOUS PROVISIONS




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GUARANTOR
ADVOCAT INCBy:Its:




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EXHIBIT E
 Guaranty of Lease
       ARTICLE 1.
 GUARANTY
   ARTICLE 2.
 GENERAL COVENANTS AND WAIVERS OF
GUARANTOR; REMEDIES AND RIGHTS OF LESSOR




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ARTICLE 3.
 MISCELLANEOUS PROVISIONS




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GUARANTORBy:Edward A. BellBy:Larry W. Wills




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EXHIBIT F
 Declaration of Easements and Restrictions
 
 
 DECLARATION OF EASEMENTS AND RESTRICTIONS
 Declaration  Effective Date A.B.E., LLC, Grantor [New entity to be formed by ABE] Grantee
 RECITALS
 Route 60 Exhibit Grantors Property
 Exhibit B Grantees Property Grantee s Intended Use




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ARTICLE I
ACCESS DRIVE EASEMENT
 1.1 Grant and Description of Easements Exhibit C Exhibit D
 1.2 Purpose of Access Easement
 1.3 Non-Exclusive Use .
 1.4 Maintenance of Access Easement




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1.5 Work and Construction .
    1.6 Grantors Reservation of Rights




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1.7 Traffic Control; Unimpeded Access




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ARTICLE II
UTILITY EASEMENTS
 2.1 Grant of Utility Easements . Exhibit E Exhibit F
 2.2 Purpose of Utility Easements .
 2.3 Storm Drainage Easement . Storm Drainage Easement Exhibit G Storm Drainage Facilities
 2.4 Maintenance of Utilities .




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2.5 Work and Construction .




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ARTICLE III
INITIAL INSTALLATION OF ACCESS DRIVE AND UTILITIES
 3.1 Initial Extension of Access Drive and Utilities to Grantees Property .
 ARTICLE IV
SIGNAGE EASEMENT AND RESTRICTIONS
 4.1 Sign Easement . Exhibit H .
 4.2 Restrictions on Grantors Property . Exhibit I




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ARTICLE V
TERM AND EFFECT; QUIET ENJOYMENT
 5.1 Term; Binding Effect; Covenants Running With The Land
 5.2 Subdivision .
 5.3 Not a Public Dedication; Ownership and Control




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5.4 Quiet Enjoyment .
 ARTICLE VI
CONDEMNATION OR CASUALTY
 6.1 Condemnation
 6.2 Casualty Loss .
 ARTICLE VII
INDEMNITY
 7.1 Indemnity




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ARTICLE VIII
BREACH
 8.1 Breach; Remedies
 Self Help Wall Street Journal
 Injunctive Relief and Other Remedies
 Lien
 8.2 Remedies Not Exclusive .




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8.3 Attorneys Fees .
 ARTICLE IX
MISCELLANEOUS
 9.1 Singular and Plural
 9.2 Invalidity of Particular Provisions
 9.3 Controlling Law
 9.4 No Waiver
 9.5 Negation of Partnership
 9.6 Mortgages .
 9.7 Amendments




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GRANTOR:A.B.E., LLCBy:Name:Its:GRANTEE:
[_________________________________]By:Name:Its:




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Notary PublicMy Commission Expires:
 
   Notary PublicMy Commission Expires:




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CONSENT OF MORTGAGE HOLDER
   [_______________________________________]By:Name:Title: 
   Notary PublicMy Commission Expires:




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EXHIBIT A
 GRANTORS PROPERTY
  1 2 1 2 1 2 1 2 1 2 1 2 3 4 1 2




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EXHIBIT B
 GRANTEES PROPERTY
  1 2




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EXHIBIT C
 DESCRIPTION OF ACCESS EASEMENT PARCEL
               3 4
 3 4




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EXHIBIT D
 LOCATION OF ACCESS EASEMENT




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EXHIBIT E
 DESCRIPTION OF UTILITY EASEMENTS PARCEL
 Right of Way for Utilities
               3 4
 3 4




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Sanitary Sewer Easement:
 Exhibit E




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EXHIBIT F
 LOCATION OF UTILITY EASEMENTS




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EXHIBIT G
 STORM DRAINAGE FACILITIES




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EXHIBIT H
 SIGN EASEMENT
 Exhibit H




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EXHIBIT I
 RESTRICTIONS
 1.
    
    Nursing home;2.
    
    Assisted living facility;3.
    
    Any establishment that would produce strong odors or excessive noise or that creates a fire,
explosive or other hazard (does not include a service station or convenience store providing
gasoline pumps);4.
    
    Any land use involving temporary structure;5.
    
    Mobile home or trailer park;6.
    
    Sex industry establishments;7.
    
    Mortuary or funeral home;8.
    
    Cemetery;9.
    
    Factory;10.
    
    Flea Market;11.
    
    Public swimming pool;12.
    
    Liquor store (does not include a restaurant whose primary business is the sale of food with
the incidental sale of alcohol for consumption on the premises or a convenience store whose
primary business is the sale of food, beverages or other household supplies to customers of
which the sale of alcoholic beverages is an incidental part;13.
    
    Automobile, truck, trailer, motorbike, farm or construction equipment, boat or recreational
vehicle repair facility;14.
    
    Veterinary hospital or animal raising facilities (does not prohibit pet supply shops);15.
    
    Mining operations;16.
    
    Head shop store;17.
    
    Gun range or for the sale of fireworks;18.
    
    Junkyard or stockyard.