**Exhibit 10.4****GUARANTY**     **THIS GUARANTY**(“**Guaranty**”) dated as of August 10, 2007, by **ADVOCAT INC.**, a Delawarecorporation (“**Guarantor**”), is to and for the benefit of **LASALLE BANK NATIONAL ASSOCIATION**, anational banking association (together with its successors and assigns, the “**Lender**”).**R E C I T A L S:**     A. **DIVERSICARE MANAGEMENT SERVICES CO.**, a Tennessee corporation, (together with each (i) ofthe other borrowers set forth on Schedule 1 to the Loan Agreement (as defined below) and (ii)additional borrowers from time to time party to the Loan Agreement (whether pursuant to anamendment, written joinder or otherwise), individually and collectively referred to herein as,“**Borrower**”, has requested that the Lender make certain revolving loans and a term loan(individually and collectively, the “**Loan**”) to Borrower pursuant to and in accordance with thatcertain Loan and Security Agreement dated of even date herewith by and among Borrower and theLender (as the same may be amended, supplemented, amended and restated or otherwise modified fromtime to time, the “**Loan Agreement**”); capitalized terms used but not defined herein shall have themeanings ascribed thereto in the Loan Agreement.     B. As security for repayment of the Loan, in addition to this Guaranty, certain other loanand security documents have been executed and delivered to the Lender. The Loan Agreement, theRevolving Credit Note, the Term Loan Note, the Blocked Account Agreements, this Guaranty, eachother guaranty delivered in favor of the Lender in connection with the Loan Agreement, and any andall other instruments, agreements, and documents executed in conjunction herewith and therewith(including, without limitation, each of the “Financing Agreements” (as defined in the LoanAgreement)) are hereinafter sometimes collectively referred to herein as the “**Loan Documents**.”     C. The Guarantor and Borrower are Affiliates of each other. Guarantor will derive substantialdirect and indirect benefit (financial and otherwise) from the Loan made to Borrower under the LoanAgreement. The Guarantor desires to induce the Lender to make the Loan to Borrower.     D. Lender is unwilling to make the Loan pursuant to the Loan Agreement unless Guarantorguarantees the payment of the principal and interest and all other amounts due or owing to theLender provided in the Loan Agreement and other Loan Documents and the performance by Borrower ofall of the covenants on Borrower’s part to be performed and observed pursuant to the terms thereof,and Guarantor has agreed to execute and deliver this Guaranty to Lender for its benefit.     **NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION RECEIVED**, the adequacy and sufficiency ofwhich is hereby acknowledged, and in further consideration of any advances, credit or otherfinancial accommodation heretofore, now or that may hereafter at any time be extended to Borrowerby Lender under, pursuant to or in connection with the Loan Documents, (a) Guarantor hereby,jointly and severally, together with each Other Guarantor (as defined in Section 3 below), and,unconditionally and irrevocably, guarantees,
 

 
irrespective of the validity or enforceability of any instrument, writing or agreementrelating to or the subject of any such advances, financial accommodation or loans (including, butnot limited to, the Loan Documents), and whether or not due or to become due before or after anybankruptcy or insolvency proceeding involving Borrower or would have become due but for Borrower’sbankruptcy proceeding, (i) the full and prompt payment to Lender at maturity, whether byacceleration or otherwise, and at all times thereafter of any and all “Liabilities” (as defined inthe Loan Agreement) of every kind and nature of Borrower to Lender (arising out of or in connectionwith the Loan, the Loan Agreement, and each of the other Loan Documents to which Borrower (or anyof its Affiliates) is a party, including, without limitation, for principal, interest, charges,fees, costs, expenses or otherwise), and whether or not due or to become due before or after anybankruptcy or insolvency proceeding involving Borrower or would have become due but for Borrower’sbankruptcy proceeding, howsoever evidenced, whether now existing or hereafter created or arising,directly or indirectly, primary or secondary, absolute or contingent, due or to become due, andhowsoever owned, held or acquired, whether through discount, overdraft, purchase, direct loan or ascollateral, or otherwise, and (ii) the prompt, full and faithful performance and discharge byBorrower of each and every of the terms, conditions, agreements, covenants, representations andwarranties on the part of Borrower contained in any agreement, the Loan Agreement and each of theother Loan Documents to which Borrower is a party, and any other promissory notes, loan agreements,or security agreements, or in any modification or addenda thereto or substitution thereof inconnection with any advance, credit or financial accommodation afforded by Lender to Borrower(collectively the “**Guaranteed Liabilities**”); and (b) Guarantor further agrees to pay all costs andexpenses, legal and/or otherwise (including, but not limited to, court costs and reasonableattorneys’ fees and expenses), paid or incurred by Lender in endeavoring to collect the GuaranteedLiabilities, the Extraordinary Claims (as hereinbelow defined), or in either case, any partthereof, or in enforcing this Guaranty or in defending any suit based on any act of commission oromission of Lender with respect to the Indebtedness, the Collateral (as defined in the LoanAgreement), or this Guaranty or in connection with any Recovery Claim (as hereinbelow defined) (the“**Enforcement Costs**”); and (c) Guarantor further agrees to pay any and all costs, losses, damagesand reasonable attorney’s fees incurred by the Lender in connection with any of the following: (i)misapplication or misappropriation of any insurance or condemnation proceeds; and (ii) Borrower orGuarantor institutes or becomes by virtue of a counterclaim a party to any case, action, suit, orproceeding which reduces, impedes or impairs Lender’s right of recourse to the Collateral or anypart thereof or Borrower or Guarantor engages in any act, omission, or misrepresentation which hasthe effect of suspending, delaying, reducing, impeding, or impairing the Lender’s right of recourseto the Collateral or any part thereof (each of the aforesaid are collectively referred to as an“**Extraordinary Claims**”). The Guaranteed Liabilities, the Enforcement Costs, and the ExtraordinaryClaims are collectively referred to as the “**Guaranteed Obligations**.” Capitalized terms usedherein and not otherwise defined herein shall have the meaning given to them in the Loan Agreement.     Guarantor hereby further agrees as follows:     **1. ****Continuing Guaranty**. This Guaranty includes any and all Guaranteed Obligationsarising under successive transactions continuing, compromising, extending, increasing, modifying,releasing, or renewingthe Guaranteed Obligations, changing the interest rate, payment terms, or other terms andconditions thereof, or creating new or additional
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Guaranteed Obligations after prior GuaranteedObligations have been satisfied in whole or in part. To the maximum extent permitted by law,Guarantor hereby waives any right to revoke this Guaranty as to future Liabilities. If such arevocation is effective notwithstanding the foregoing waiver, Guarantor acknowledges and agreesthat (a) no such revocation shall be effective until written notice thereof has been received byLender, (b) no such revocation shall apply to any Guaranteed Obligations in existence on such date(including, but not limited to, any subsequent continuation, extension, or renewal thereof, orchange in the interest rate, payment terms, or other terms and conditions thereof), (c) no suchrevocation shall apply to any Guaranteed Obligations made or created after such date to the extentmade or created pursuant to a legally binding commitment of Lender in existence on the date of suchrevocation, (d) no payment by Guarantor, Borrower, or from any other source, prior to the date ofsuch revocation shall reduce the maximum obligation of Guarantor hereunder, and (e) any payment byBorrower or from any source other than Guarantor, subsequent to the date of such revocation, shallfirst be applied to that portion of the Guaranteed Obligations as to which the revocation iseffective and which are not, therefore, guaranteed hereunder, and to the extent so applied shallnot reduce the maximum obligation of Guarantor hereunder.     **2. ****Performance Under This Guaranty**. If Borrower fails to make any payment of anyGuaranteed Obligations on or before the due date thereof and after the expiration of the applicablenotice and cure period, if any, or if Borrower shall fail, after the expiration of the applicablenotice and cure period, if any, to perform, keep, observe, or fulfill any other obligation,covenant or agreement referred to or contained in any instrument, writing, document or agreementrelating to the Guaranteed Obligations, Guarantor immediately shall cause such payment to be madeor each of such obligations to be performed, kept, observed, or fulfilled to the extent suchobligations constitute Guaranteed Obligations.     **3. ****Primary Obligations**. This Guaranty is a primary and original obligation ofGuarantor, is not merely the creation of a surety relationship, and is an absolute, unconditional,and continuing guaranty of payment and performance and not of collection which shall remain in fullforce and effect without respect to future changes in conditions, including any change of law orany invalidity or irregularity with respect to the issuance of any instrument, writing or agreementrelating to the Guaranteed Obligations. Guarantor agrees that Guarantor is directly and severallywith any other guarantors of the Guaranteed Obligations liable to Lender, that the obligations ofGuarantor hereunder are independent of the obligations of Borrower or any other guarantor, and thata separate action may be brought against Guarantor whether such action is brought against Borroweror any other guarantor of Borrower’s Indebtedness, obligations or liabilities to Lender (each an“**Other Guarantor**”) or whether Borrower or any such Other Guarantor is joined in such action.Guarantor agrees that Guarantor’s liability hereunder shall be immediate and shall not becontingent upon the exercise or enforcement of any lien, security interest, mortgage or realizationupon any security or collateral Lender may at any time possess. Guarantor agrees that any releasewhich may be given by Lender to Borrower or any Other Guarantor shall not release Guarantor.Guarantor consents and agrees that Lender shall be under no obligation to marshalany assets of Borrower or any Other Guarantor in favor of said Guarantor, or against or inpayment of any or all of the Guaranteed Obligations.     **4. ****Return of Payments**. Guarantor agrees that, if at any time all or any part of anypayment theretofore applied by Lender to any amounts due under the Loan or the Loan
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Agreement isrescinded or returned by Lender for any reason whatsoever (including, without limitation, theinsolvency, bankruptcy, liquidation or reorganization of any party), such amounts shall, for thepurposes of this Guaranty, be deemed to have continued in existence to the extent of such payment,notwithstanding such application by Lender and this Guaranty shall continue to be effective or bereinstated, as the case may be, as to such amounts due under the Loan and the Loan Agreement, allas though such application by Lender had not been made.     **5. ****Waivers.**     (a) Guarantor hereby waives: (1) notice of acceptance hereof; (2) notice of any Loan or otherfinancial accommodations made or extended to Borrower or the creation or existence of anyGuaranteed Obligations; (3) notice of the amount of the Guaranteed Obligations, subject, however,to Guarantor’s right to make inquiry of Lender to ascertain the amount of the GuaranteedObligations at any reasonable time; (4) notice of any adverse change in the financial condition ofBorrower or of any other fact that might increase Guarantor’s risk hereunder; (5) notice ofpresentment for payment, demand, protest, and notice thereof as to any promissory notes or otherinstruments, writing or agreements evidencing Guaranteed Obligations; (6) notice of any event ofdefault by Borrower under any instrument, writing or agreement with Lender including the LoanDocuments; and (7) all other notices (except if such notice is specifically required to be given toGuarantor hereunder) and demands to which Guarantor might otherwise be entitled.     (b) Guarantor hereby waives the right by statute or otherwise to require Lender to institutesuit against Borrower or under any other guaranty; or to exhaust any rights and remedies whichLender has or may have against Borrower or under any other guaranty; provided,however, that nothing herein contained shall prevent Lender from suing on the LoanAgreement or foreclosing any security interest or lien created by any of the other Loan Documents,or from exercising any other rights thereunder, and if such commercial code sale or other remedy isavailed of, only the net proceeds therefrom, after deduction of all charges and expenses of everykind and nature whatsoever relating to the proceedings or sale, shall be applied in reduction ofthe amount due on the Loan Agreement and other Loan Documents, and Lender shall not be required toinstitute or prosecute proceedings to cover any deficiency as a condition of any payment hereunderor enforcement hereof. At any sale of the security or collateral for the Loan, or any partthereof, whether by commercial code sale or otherwise, Lender may, at its discretion, purchase allor any part of such collateral offered for sale, for its own account, and may apply against theamount bid therefore the balance due it pursuant to the terms of the Loan Agreement and other LoanDocuments. Guarantor further agrees that Guarantor is bound to the payment of all GuaranteedObligations, whether now existing or hereafter accruing, as fully as if such Guaranteed Obligationswere directly owing to Lender by Guarantor. Guarantor further waivesany defense arising by reason of any disability or other defense (other than the defense thatthe Guaranteed Obligations shall have been fully and finally performed and indefeasibly paid) ofBorrower or by reason of the cessation from any cause whatsoever of the liability of Borrower inrespect thereof. Guarantor consents to any and all forbearances and extensions of the time ofpayment of the Loan Agreement or any of the other Loan Documents, and to any and all changes in theterms, covenants and conditions thereof hereafter made or granted, and to any part of thecollateral therefor; it being the intention and agreement hereof that Guarantor shall remainunconditionally liable as a principal as, to and until the Guaranteed Obligations shall have been
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fully repaid to Lender, and the terms, covenants and conditions of the Loan Agreement and of theother Loan Documents and all other notes, instruments, writing or agreements evidencing or securingthe Guaranteed Obligations shall have been fully performed and observed, notwithstanding any act,omission or thing which might otherwise operate as a legal or equitable discharge of Borrower orGuarantor.     (c) Guarantor hereby waives: (1) any rights to assert against Lender any defense (legal orequitable), setoff, counterclaim, or claim which Guarantor may now or at any time hereafter haveagainst Borrower or any other party liable to Lender (other than the defense that the GuaranteedObligations shall have been fully and finally performed and indefeasibly paid); and (2) anydefense, setoff, counterclaim, or claim, of any kind or nature, arising directly or indirectly fromthe present or future lack of perfection, sufficiency, validity, or enforceability of theGuaranteed Obligations or any security therefor (including, but not limited to, any of the LoanDocuments). Without limiting the generality of the foregoing or any other provisions of thisGuaranty, Guarantor agrees that this Guaranty shall not be discharged, limited, impaired oraffected by: (a) the transfer of all or any part of the personal property or real propertydescribed in any of the Loan Documents; (b) any sale, pledge, surrender, indulgence, alteration,substitution, exchange, modification or other disposition of any of the Guaranteed Obligations, allof which Lender is expressly authorized to make from time to time; (c) any failure, neglect oromission on the part of Lender to realize or protect any of the Guaranteed Obligations, or anypersonal property or real property or lien security given as security therefor, or to exercise anylien upon or right of appropriation of monies, credits or property of Borrower toward liquidationof the Indebtedness, or performance of the covenants guaranteed hereby; and (d) any proceedingswith respect to the voluntary or involuntary liquidation, dissolution, sale or other disposition ofall or substantially all the assets, the marshaling of assets and liabilities, receivership,insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement,imposition or readjustment of, or other similar proceedings affecting Borrower or any OtherGuarantor or any of their respective assets, it being expressly understood and agreed that no suchproceeding shall affect, modify, limit or discharge the liability or obligation of Guarantorhereunder in any manner whatsoever, and that Guarantor shall continue to remain absolutely liableunder this Guaranty to the same extent, and in the same manner, as if such proceedings had not beeninstituted.     (d) Guarantor hereby waives any right of subrogation Guarantor has or may have as againstBorrower until all preference periods under all applicable laws have expired. In addition,Guarantor hereby waives any right to proceed against Borrower, now or hereafter for contribution,indemnity, reimbursement and any other suretyship rights and claims, whether direct or indirect,liquidated or contingent, whether arising under express or implied contract orby operation of law, which Guarantor may now have or hereafter have as against Borrower.Until the Guaranteed Obligations are indefeasibly paid in full hereunder, Guarantor also herebywaives any right to recourse to or with respect to any asset of Borrower. Guarantor agrees that inlight of the immediately foregoing waivers, the execution of the Guaranty shall not be deemed tomake Guarantor a “creditor” of Borrower, and that for purposes of Sections 547 and 550 of theBankruptcy Code, Guarantor shall not be deemed a “creditor” of Borrower.     **6. ****Releases**. No release or discharge of the Other Guarantor, or of any other personor entity, whether primarily or secondarily liable for or obligated with respect to the Guaranteed
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Obligations, or the institution of bankruptcy, receivership, insolvency, reorganization,dissolution or liquidation proceedings by or against the Other Guarantor or any other person orentity, or the entry of any restraining or other order in any such proceeding, shall release ordischarge Guarantor, unless and until all of the Guaranteed Obligations shall have been fully paid.Notwithstanding anything to the contrary contained herein, Lender agrees that the obligations ofGuarantor under this Guaranty shall terminate, subject to **Sections 4**and **8**hereof, at the earlierof such time as (a) Lender shall have received indefeasible payment in full in cash of allGuaranteed Liabilities and all other Guaranteed Obligations under this Guaranty and all financingarrangements and accommodations between Borrower and Lender shall have been irrevocably terminatedand Lender has no obligations to make any loans, financial accommodations or advance any funds toBorrower which could constitute Liabilities. Release of this Guaranty, if it occurs, however,shall not affect, in any respect, the Loan or any other instrument securing or guarantying theLoan.     **7. ****Right of Setoff**. Guarantor agrees that Lender has all rights of setoff andbanker’s liens provided by applicable law. Following any default by Guarantor hereunder or anEvent of Default by Borrower under the Loan Agreement, any and all moneys, credits, deposits,accounts, or other property belonging to the Guarantor in transit to or in the possession or underthe control of Lender, or any agent or bailee of Lender, may, without notice and opportunity to beheard, be setoff against, and appropriated and applied against and towards the payment of any andall of the liabilities of Guarantor under this Guaranty. Following any default by Guarantorhereunder or an Event of Default by Borrower under the Loan Agreement, subject to the terms of theIntercreditor Agreements, Guarantor does hereby assign and transfer to Lender any and all cash,negotiable instruments, documents of title, chattel paper, securities, certificates of deposit,deposit accounts, other cash equivalents and other assets of said Guarantor in transit to, or inthe possession or control of Lender, or any agent or bailee of Lender for any purpose and to applythe same on any or all of the Guaranteed Obligations. The rights of the Lender under this Sectionare in addition to all other rights and remedies which the Lender may otherwise have in equity orat law.     **8. ****Recovery Claim**. Should a claim (“**Recovery Claim**”) be made upon Lender at any timefor recovery of any amount received by Lender in payment of the Guaranteed Obligations (whetherreceivedfrom Borrower, Guarantor pursuant hereto, or otherwise) and should Lender repay all or part ofsaid amount by reason of (a) any judgment, decree, or order of any court or administrative bodyhaving jurisdiction over Lender or any of its property; or (b) any reasonable settlement orcompromise of any such Recovery Claim effected by Lender with the claimant (including Borrower),Guarantor shall remain liable to Lender for the amount so repaid to the same extent as if suchamount had never originally been received by Lender, notwithstanding any termination hereof or thereturn of this document to Guarantor or the cancellation of any note or other instrument evidencingany of the Indebtedness.     **9. ****Assignments**. In the event Lender shall sell, assign or transfer the GuaranteedObligations, or any part hereof, or grant participations therein, each and every immediate orremote successive assignee, transferee, holder of or participant or other interests therein, of allor any part of the Guaranteed Obligations shall have the right to enforce this Guaranty by suit orotherwise for the benefit of such assignee, transferee, holder or participant, as fully as if suchassignee, transferee, holder or participant were herein by name specifically given such rights,
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powers and benefits; but Lender shall have an unimpaired, prior and superior right to enforce thisGuaranty for its benefit as to so much of the guaranteed debt as it has not sold, assigned ortransferred.     **10. ****Representations and Warranties**. Guarantor agrees that the following shallconstitute representations and warranties of Guarantor to Lender, which shall survive the executionand delivery hereof, and that Lender intends to make the Loan and other financial accommodations,if any, guaranteed hereby in reliance thereon:     (a) Guarantor is not in default under any agreement to which Guarantor is a party, the effectof which will materially impair performance by the Guarantor of Guarantor’s obligations pursuant toand as contemplated by the terms of this Guaranty, and neither the execution and delivery of thisGuaranty nor compliance with the terms and provisions of this Guaranty, will violate any law or anypresently existing regulation, order, writ, injunction or decree of any court or governmentaldepartment, commission, board, bureau, agency or instrumentality, will conflict or will beinconsistent with, or will result in any breach of, any of the terms, covenants, conditions orprovisions of, or constitute a default under, any indenture, mortgage, deed of trust, instrument,document, agreement or contract of any kind which creates, represents, evidences or provides forany lien, charge or encumbrance upon any of the property or assets of the Guarantor, or any otherindenture, mortgage, deed of trust, instrument, document, agreement or contract of any kind towhich Guarantor is a party or by which Guarantor may be bound of which the Guarantor is a party orby which Guarantor may be bound, or in the event of any such conflict, the required consent orwaiver of the other party or parties thereto has been validly granted, is in full force and effectand is valid and sufficient therefor. This Guaranty is the legal, valid and binding obligation ofthe Guarantor and is enforceable against the Guarantor in accordance with its terms.     (b) Except as set forth on Schedule 10(b) hereof, there are no actions, suits orproceedings pending or to the best of Guarantor’s knowledge threatened against the Guarantorbefore any court or any governmental, administrative, regulatory, adjudicatory orarbitrational body or agency of any kind which will materially adversely affect performance by theGuarantor of Guarantor’s obligations pursuant to and as contemplated by the terms and provisions ofthis Guaranty.     (c) Neither this Guaranty nor any document, financial statement (other than those of the SMSAParties), credit information, written certificate or written statement heretofore furnished orrequired herein to be furnished to Lender by the Guarantor contains any untrue statement ofmaterial fact or omits to state a fact material to this Guaranty.     (d) Guarantor is currently informed of the financial condition of Borrower and of all othercircumstances which a diligent inquiry would reveal and which would bear upon the risk ofnonpayment of the Guaranteed Obligations. Guarantor will continue to keep informed of thefinancial condition of Borrower and of all other circumstances which bear upon the risk ofnonpayment or nonperformance of the Guaranteed Obligations.     (e) As of the date hereof, the present fair saleable value of Guarantor’s assets is greaterthan the amount required to pay Guarantor’s total Indebtedness (contingent or otherwise),
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and isgreater than the amount that will be required to pay such Indebtedness as it matures and as itbecomes absolute and matured. The transactions contemplated hereby were effectuated without actualintent to hinder, delay or defraud present or future creditors of Guarantor; it is Guarantor’sexpress intention that Guarantor will maintain a Solvent financial condition, giving effect to theGuaranteed Obligations incurred hereunder, as long as any of the Guaranteed Obligations remainoutstanding or Guarantor is obligated to Lender in any other manner whatsoever. At all times untilthe Guaranteed Obligations remain satisfied and paid in full, the Guarantor shall keep and maintainassets sufficient to honor and pay any and all of the Guaranteed Obligations as and when due,subject to any express monetary limitation set forth herein.     **11. ****Subordination**. Any rights of Guarantor, whether now existing or later arising, toreceive payment on account of any Indebtedness (including interest) owed to Guarantor by Borrower,or to withdraw capital invested by Guarantor in Borrower, if any, or to receive and retaindistributions from Borrower if and solely as expressly provided in the Loan Agreement, shall at alltimes be subordinate as to Lien and time of payment, and in all other respects to the full andprior repayment to Lender of all of the Liabilities owing to Lender pursuant to the Loan Agreementand the other Loan Documents (including, without limitation, the Loan). Except for dividends ordistributions permitted by Section 9.9 of the Loan Agreement, Guarantor shall not be entitled toenforce or receive payment of any sums hereby subordinated until the Loan have been paid andperformed in full, and any such sums received in violation of this Guaranty shall not be commingledwith other monies of Guarantor and shall be received by Guarantor in trust for Lender.     **12. ****Payments; Application**. All payments to be made hereunder by Guarantor shall be made in lawful money of the UnitedStates of America at the time of payment, shall be made in immediately available funds, and shallbe made without deduction (whether for taxes or otherwise) or offset. All payments made byGuarantor hereunder shall be applied as follows; first, to all costs and expenses (including, butnot limited to, reasonable attorneys’ fees, expenses and court costs) incurred by Lender inenforcing this Guaranty or in collecting the Guaranteed Obligations; second, to all accrued andunpaid interest and fees owing to Lender constituting Guaranteed Obligations; and third, to thebalance of the Guaranteed Obligations.     **13. **[Intentionally Omitted]     **14. ****Notices**. Any notice or other communication required or permitted under thisGuaranty shall be in writing and personally delivered, mailed by registered or certified U.S. mail(return receipt requested and postage prepaid), sent by telecopier (with a confirming copy sent byregular mail), or sent by prepaid nationally recognized overnight courier service, and addressed tothe relevant party at its address set forth below, or at such other address as such party may, bywritten notice, designate as its address for purposes of notice under this Guaranty:If to Lender, at:LaSalle Bank National Association