<PAGE>
                                                                    EXHIBIT 10.2

                                 LOAN AGREEMENT

     THIS LOAN AGREEMENT (this "Agreement") is made as of August 31, 2005, by
and between DIVERSICARE BRIARCLIFF, LLC, a Delaware limited liability company
(together with its successors and assigns, "Borrower"), and GMAC COMMERCIAL
MORTGAGE CORPORATION, a California corporation (together with its successors and
assigns, "Lender").

                                    RECITALS:

     A. Borrower has requested that Lender make a loan to Borrower in the
principal sum of $8,000,000.00.

     B. Lender has agreed to make such loan on the terms and conditions
hereinafter set forth.

                                    AGREEMENT

     NOW, THEREFORE, it is hereby agreed as follows:

                                    ARTICLE I
                 DEFINITIONS, ACCOUNTING PRINCIPLES, UCC TERMS.

     1.1 As used in this Agreement, the following terms shall have the following
meanings unless the context hereof shall otherwise indicate:

          "ACCOUNTS" has the meaning given to that term in the Mortgage.

          "ACTUAL MANAGEMENT FEES" means actual management fees paid or incurred
in connection with operation of the Facility.

          "AFFILIATE" means, with respect to any Person, (a) each Person that
controls, is controlled by or is under common control with such Person, (b) each
Person that, directly or indirectly, owns or controls, whether beneficially or
as a trustee, guardian or other fiduciary, any of the Stock of such Person, and
(c) each of such Person's officers, directors, members, joint venturers and
partners.

          "A/R LENDER" means AmSouth Bank, an Alabama state banking corporation,
its successors and assigns.

          "A/R LOAN" means that certain indebtedness and obligations of
Guarantor, Borrower and their Affiliates, to the A/R Lender evidenced by and
described in that certain Master Amendment to Loan Documents and Agreement dated
as of November 8, 2000, effective as of October 1, 2000, and the documents and
instruments executed in connection therewith, together with any amendments
thereto, and any modifications, renewals and extensions thereof,

<PAGE>

which indebtedness and obligations are secured, in part, by a first priority
lien in the Accounts of the Facility.

          "ASSIGNMENT OF LEASES AND RENTS" means that certain Assignment of
Leases and Rents of even date herewith by and between Borrower and Lender.

          "ASSIGNMENT OF LICENSES" means that certain Assignment of Licenses,
Permits and Contracts of even date herewith by Borrower to and for the benefit
of Lender.

          "ASSUMED MANAGEMENT FEES" means assumed management fees of five
percent (5%) of net patient revenues of the Facility (after Medicaid and
Medicare contractual adjustments).

          "BUSINESS DAY" means a day, other than Saturday or Sunday and legal
holidays, when Lender is open for business.

          "CLOSING DATE" means the date on which all or any part of the Loan is
disbursed by Lender to or for the benefit of Borrower.

          "COMMITMENT LETTER" means the commitment letter issued by Lender to
Borrower dated August 24, 2005.

          "CROSS-COLLATERALIZATION AGREEMENT" means, the
Cross-Collateralization, Cross-Default and Mortgage Modification Agreement of
even date herewith by and between Borrower, Lender and the Related Borrowers.

          "DEBT SERVICE COVERAGE RATIO" means a ratio in which the first number
is the sum of "net pre-tax income" of Borrower from usual operations of the
Facility as set forth in the financial statements provided to Lender (without
deduction for Actual Management Fees or management expenses paid or incurred in
connection with the operation of the Facility), calculated based upon the
preceding twelve (12) months (or such lesser period of time as shall have
elapsed following the closing of the Loan), plus Loan interest expense or
Facility lease expense to the extent deducted in determining net income and
non-cash expenses or allowances for depreciation and amortization of the
Facility for such period, less either Assumed Management Fees or Actual
Management Fees (based upon the covenant to which such definition relates) for
such period and the second number is the sum of the principal amounts due (even
if not paid) on the Loan (but which shall not include that portion associated
with any balloon payment of the Loan) for the applicable period plus the
interest due on the Loan for the applicable period. In calculating "net pre-tax
income," Extraordinary Income and Extraordinary Expenses shall be excluded.

          "DEBT SERVICE RESERVE FUND AGREEMENT" means that certain Debt Service
Reserve Fund Escrow and Security Agreement of even date herewith between Lender
and Borrower.

          "DEFAULT" means the occurrence or existence of any event which, but
for the giving of notice or expiration of time or both, would constitute an
Event of Default.


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<PAGE>

          "DEFAULT RATE" has the meaning given to that term in the Note.

          "ENVIRONMENTAL PERMIT" means any permit, license, or other
authorization issued under any Hazardous Materials Law with respect to any
activities or businesses conducted on or in relation to the Land and/or the
Improvements.

          "EQUIPMENT" has the meaning given to that term in the Mortgage.

          "EVENT OF DEFAULT" means any "Event of Default" as defined in Article
VII hereof.

          "EXTRAORDINARY INCOME AND EXTRAORDINARY EXPENSES" means material items
of a character significantly different from the typical or customary business
activities of Borrower which would not be expected to recur frequently and which
would not be considered as recurring factors in any evaluation of the ordinary
operating processes of Borrower's business, and which would be treated as
extraordinary income or extraordinary expenses under GAAP.

          "EXHIBIT" means an Exhibit to this Agreement, unless the context
refers to another document, and each such Exhibit shall be deemed a part of this
Agreement to the same extent as if it were set forth in its entirety wherever
reference is made thereto.

          "FACILITY" means the nursing home facility known as "Briarcliff Health
Care Center" presently an 120-bed licensed skilled nursing facility located on
the Land, as it may now or hereafter exist, together with any other general or
specialized care facilities, if any (including any Alzheimer's care unit,
subacute nursing and/or assisted living facility), now or hereafter operated on
the Land.

          "GAAP" means, as in effect from time to time, generally accepted
accounting principles consistently applied as promulgated by the Financial
Accounting Standards Board.

          "GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, and any Person exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to such government.

          "GUARANTOR" means Advocat Inc., a Delaware corporation.

          "GUARANTY AGREEMENT" means that certain Guaranty of even date herewith
from Guarantor to and for the benefit of Lender.

          "HAZARDOUS MATERIALS" means petroleum and petroleum products and
compounds containing them, including gasoline, diesel fuel and oil; explosives;
flammable materials; radioactive materials; polychlorinated biphenyls ("PCBs")
and compounds containing them; lead and lead-based paint; asbestos or
asbestos-containing materials in any form that is or could become friable;
underground storage tanks, whether empty or containing any substance; any
substance the presence of which on the Land and/or the Improvements is
prohibited by any federal, state or local authority; any substance that requires
special handling; and any other material or substance now or in the future
defined as a "hazardous substance," "hazardous


                                       3

<PAGE>

material," "hazardous waste," "toxic substance," "toxic pollutant,"
"contaminant," or "pollutant" within the meaning of any Hazardous Materials Law.

          "HAZARDOUS MATERIALS LAWS" means all federal, state, and local laws,
ordinances and regulations and standards, rules, policies and other governmental
requirements, administrative rulings and court judgments and decrees in effect
now or in the future and including all amendments, that relate to Hazardous
Materials and apply to Borrower or to the Land and/or the Improvements.
Hazardous Materials Laws include, but are not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601,
et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq., the
Clean Water Act, 33 U.S.C. Section 1251, et seq., and the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, and their state analogs.

          "IMPROVEMENTS" means all buildings, structures and improvements of
every nature whatsoever now or hereafter situated on the Land, including but not
limited to, all gas and electric fixtures, radiators, heaters, engines and
machinery, boilers, ranges, elevators and motors, plumbing and heating fixtures,
carpeting and other floor coverings, water heaters, awnings and storm sashes,
and cleaning apparatuses which are or shall be attached to the Land or said
buildings, structures or improvements.

          "INDEBTEDNESS" means any (a) obligations for borrowed money, (b)
obligations, payment for which is being deferred by more than ninety (90) days,
representing the deferred purchase price of property other than accounts payable
arising in connection with the purchase of inventory customary in the trade and
in the ordinary course of Borrower's business, (c) obligations, whether or not
assumed, secured by Liens or payable out of the proceeds or production from the
Accounts and/or property now or hereafter owned or acquired, and (d) the amount
of any other obligation (including obligations under financing leases) which
would be shown as a liability on a balance sheet prepared in accordance with
GAAP.

          "INTERCREDITOR AGREEMENT" means that certain Intercreditor Agreement
dated December 27, 1996, by and among First American National Bank (predecessor
to A/R Lender), Lender, Guarantor, Manager, and certain subsidiaries of
Guarantor, as amended and modified.

          "INVENTORY" has the meaning given to that term in the Mortgage.

          "LAND" means the land described in Exhibit "A" attached hereto and
made a part hereof.

          "LEASES" has the meaning given to that term in the Mortgage.

          "LIEN" means any voluntary or involuntary mortgage, security deed,
deed of trust, lien, pledge, assignment, security interest, title retention
agreement, financing lease, levy, execution, seizure, judgment, attachment,
garnishment, charge, lien or other encumbrance of any kind, including those
contemplated by or permitted in this Agreement and the other Loan Documents.


                                       4

<PAGE>

          "LOAN" means the Loan in the principal sum of $8,000,000.00 made by
Lender to Borrower as of the date hereof.

          "LOAN DOCUMENTS" means, collectively, the Commitment Letter, this
Agreement, the Note, the Mortgage, the Assignment of Leases and Rents, the
Assignment of Licenses, the Guaranty Agreement, the Debt Service Reserve Fund
Agreement, the Subordination Agreement, the Cross-Collateralization Agreement,
together with any and all other documents executed by Borrower or others,
evidencing, securing or otherwise relating to the Loan.

          "LOAN OBLIGATIONS" means the aggregate of all principal and interest
owing from time to time under the Note and all expenses, charges and other
amounts from time to time owing under the Note, this Agreement or the other Loan
Documents and all covenants, agreements and other obligations from time to time
owing to, or for the benefit of, Lender pursuant to the Loan Documents.

          "MANAGED CARE PLANS" means any health maintenance organization,
preferred provider organization, individual practice association, competitive
medical plan, or similar arrangement, entity, organization, or Person.

          "MANAGEMENT AGREEMENT" means that certain Management Agreement of even
date herewith between Manager and Borrower, obligating Manager to operate and
manage the Facility.

          "MANAGER" means Diversicare Management Services, Co., a Tennessee
corporation, and any successor manager of the Facility approved by Lender in
writing.

          "MATURITY DATE" means September 1, 2008.

          "MEDICAID" means that certain program of medical assistance, funded
jointly by the federal government and the States, for impoverished individuals
who are aged, blind and/or disabled, and/or members of families with dependent
children, which program is more fully described in Title XIX of the Social
Security Act (42 U.S.C. Sections 1396 et seq.) and the regulations promulgated
thereunder.

          "MEDICARE" means that certain federal program providing health
insurance for eligible elderly and other individuals, under which physicians,
hospitals, skilled nursing homes, home health care and other providers are
reimbursed for certain covered services they provide to the beneficiaries of
such program, which program is more fully described in Title XVIII of the Social
Security Act (42 U.S.C. Sections 1395 et seq.) and the regulations promulgated
thereunder.

          "MORTGAGE" means that certain Deed of Trust and Security Agreement of
even date herewith from Borrower in favor of or for the benefit of Lender,
encumbering the real estate located in Anderson County, Tennessee, which is more
particularly described in Exhibit "A" hereto, and upon which the Facility is
located.

          "MORTGAGED PROPERTY" has the meaning given to that term in the
Mortgage.


                                       5

<PAGE>

          "NOTE" means the Promissory Note of even date herewith in the
principal amount of the Loan payable by Borrower to the order of Lender.

          "O&M PROGRAM" means a written program of operations and maintenance
established or approved in writing by Lender relating to any Hazardous Materials
in, on or under the Land and/or the Improvements.

          "OFAC LIST" means the list of specially designated nationals and
blocked Persons subject to financial sanctions that is maintained by the U.S.
Treasury Department, Office of Foreign Assets Control and any other similar list
maintained by the U.S. Treasury Department, Office of Foreign Assets Control
pursuant to any Requirements of Law, including, without limitation, trade
embargo, economic sanctions, or other prohibitions imposed by Executive Order of
the President of the United States. The OFAC List currently is accessible
through the internet website www.treas.gov/ofac/t11sdn.pdf.

          "PERMITS" means all licenses, permits and certificates used or
necessary in connection with the construction, ownership, operation, use or
occupancy of the Mortgaged Property and/or the Facility, including, without
limitation, business licenses, state health department licenses, food service
licenses, licenses to conduct business, certificates of need and all such other
permits, licenses and rights, obtained from any governmental, quasi-governmental
or private person or entity whatsoever concerning ownership, operation, use or
occupancy.

          "PERMITTED ENCUMBRANCES" has the meaning given to that term in Section
5.2 hereof.

          "PERSON" means any individual, partnership, limited partnership,
corporation, limited liability company, business trust, joint stock company,
trust, unincorporated association, joint venture, governmental authority or
other form of legal entity of whatever nature.

          "PROCEEDS" has the meaning given to that term in the Mortgage.

          "REIMBURSEMENT CONTRACTS" means all third-party reimbursement
contracts relating to the Facility which are now or hereafter in effect with
respect to residents or patients qualifying for coverage under the same,
including Medicare and Medicaid, Managed Care Plans and private insurance
agreements, and any successor program or other similar reimbursement program
and/or private insurance agreements, now or hereafter existing.

          "RELATED BORROWERS" means those borrowers more particularly described
in Exhibit "G" attached hereto.

          "RELATED LOANS" means the loans more specifically described on Exhibit
"G" attached hereto made by Lender to the Related Borrowers.

          "RENTS" has the meaning given to that term in the Mortgage.

          "REQUIREMENTS OF LAW" means (a) the organizational documents of an
entity, and (b) any law, regulation, ordinance, code, decree, treaty, ruling or
determination of an


                                       6

<PAGE>

arbitrator, court or other Governmental Authority, or any Executive Order issued
by the President of the United States, in each case applicable to or binding
upon such Person or to which such Person, any of its property or the conduct of
its business is subject including, without limitation, laws, ordinances and
regulations pertaining to the zoning, occupancy and subdivision of real
property.

          "SINGLE PURPOSE ENTITY" means a Person which complies with the
requirements of Section 5.4.

          "STOCK" means all shares, options, warrants, general or limited
partnership interests, membership interests, participations or other equivalents
(regardless of how designated) in a corporation, limited liability company,
partnership or any equivalent entity, whether voting or nonvoting, including,
without limitation, common stock, preferred stock, or any other "equity
security" (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended).

          "SUBORDINATION AGREEMENT" means that certain Subordination of
Management Agreement of even date herewith by and among Borrower, Manager, and
Lender.

     1.2 Singular terms shall include the plural forms and vice versa, as
applicable, of the terms defined.

     1.3 Each term contained in this Agreement and defined in the Uniform
Commercial Code (the "UCC") in effect from time to time in the state in which
the Land is located shall have the meaning given to such term in the UCC, unless
the context otherwise indicates, and shall include, without limitation, the
meaning set forth in this Agreement.

     1.4 All accounting terms used in this Agreement shall be construed in
accordance with GAAP, except as otherwise specified.

     1.5 All references to other documents or instruments shall be deemed to
refer to such documents or instruments as they may hereafter be extended,
renewed, modified, or amended and all replacements and substitutions therefor.

     1.6 All references herein to "Medicaid" and "Medicare" shall be deemed to
include any successor program thereto.

                                   ARTICLE II
                                TERMS OF THE LOAN

     2.1 THE LOAN. Borrower has agreed to borrow the Loan from Lender, and
Lender has agreed to make the Loan to Borrower, subject to Borrower's compliance
with and observance of the terms, conditions, covenants, and provisions of this
Agreement and the other Loan Documents, and Borrower has made the covenants,
representations, and warranties herein and therein as a material inducement to
Lender to make the Loan. On the Closing Date, $2,377,000.00 of the Loan shall be
disbursed to Lender and applied to the outstanding debts of


                                       7

<PAGE>

Diversicare Assisted Living Services NCI, LLC and/or Diversicare Assisted Living
Services NC II, LLC.

     2.2 SECURITY FOR THE LOAN. The Loan will be evidenced, secured and
guaranteed by the Loan Documents.

     2.3 LIMITATION ON INTEREST. All agreements between Borrower and Lender,
whether now existing or hereafter arising and whether written or oral, are
hereby limited so that in no contingency, whether by reason of acceleration of
the maturity of any indebtedness governed hereby or otherwise, shall the
interest contracted for, charged or received by Lender exceed the maximum amount
permissible under applicable law. If, from any circumstance whatsoever, interest
would otherwise be payable to Lender in excess of the maximum lawful amount, the
interest payable to Lender shall be reduced to the maximum amount permitted
under applicable law; and, if from any circumstance the Lender shall ever
receive anything of value deemed interest by applicable law in excess of the
maximum lawful amount, an amount equal to any excessive interest shall be
applied to the reduction of the principal of the Loan and not to the payment of
interest, or, if such excessive interest exceeds the unpaid balance of principal
of the Loan, such excess shall be refunded to Borrower. All interest paid or
agreed to be paid to Lender shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full period until
payment in full of the principal of the Loan (including the period of any
renewal or extension thereof) so that interest thereon for such full period
shall not exceed the maximum amount permitted by applicable law. This paragraph
shall control all agreements between the Borrower and Lender.

                                   ARTICLE III
                    BORROWER'S REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into this Agreement, and to make the Loan to
Borrower, Borrower represents and warrants to Lender as follows:

     3.1 EXISTENCE, POWER AND QUALIFICATION. Borrower is a duly organized and
validly existing Delaware limited liability company, has the power to own its
properties and to carry on its business as is now being conducted, and is duly
qualified to do business and is in good standing in every jurisdiction in which
the character of the properties owned by it or in which the transaction of its
business makes its qualification necessary.

     3.2 POWER AND AUTHORITY. Borrower has full power and authority to borrow
the indebtedness evidenced by the Note and to incur the Loan Obligations
provided for herein, all of which have been authorized by all proper and
necessary limited liability company action on the part of Borrower. All
consents, approvals authorizations, orders or filings of or with any court or
governmental agency or body, if any, required for the execution, delivery and
performance of the Loan Documents by Borrower have been obtained or made.

     3.3 SINGLE PURPOSE ENTITY. Borrower is a Single Purpose Entity.

     3.4 PENDING MATTERS.


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<PAGE>

          (a) Operations; Financial Condition. Except as shown on Schedule 3.4,
no action or investigation is pending or, to the best of Borrower's knowledge,
threatened against Borrower before or by any court or administrative agency
which might result in any material adverse change in the financial condition,
operations or prospects of Borrower or any lower reimbursement rate under the
Reimbursement Contracts. Borrower is not in violation of any agreement, the
violation of which might reasonably be expected to have a material adverse
effect on its business or assets, and Borrower is not in violation of any order,
judgment, or decree of any court, or any statute or governmental regulation to
which Borrower is subject.

          (b) Land and Improvements. There are no proceedings pending, or, to
the best of Borrower's knowledge, threatened, to acquire through the exercise of
any power of condemnation, eminent domain or similar proceeding any part of the
Land, the Improvements or any interest therein, or to enjoin or similarly
prevent or restrict the use of the Land or the operation of the Facility in any
manner. None of the Improvements is subject to any unrepaired casualty or other
damage.

     3.5 FINANCIAL STATEMENTS ACCURATE. All financial statements heretofore or
hereafter provided by Borrower are and will be true and complete in all material
respects as of their respective dates and fairly present the financial condition
of Borrower, and there are no material liabilities, direct or indirect, fixed or
contingent, as of the respective dates of such statements which are not
reflected therein or in the notes thereto or in a written certificate delivered
with such statements. The financial statements of Borrower have been prepared in
accordance with GAAP. There has been no material adverse change in the financial
condition, operations, or prospects of Borrower since the dates of such
statements except as fully disclosed in writing with the delivery of such
statements. All financial statements of the operations of the Facility
heretofore or hereafter provided to Lender are and will be true and complete in
all material respects as of their respective dates.

     3.6 COMPLIANCE WITH FACILITY LAWS. The Facility is duly licensed as an
120-bed skilled nursing facility under the applicable laws of the state where
the Land is located and is currently operated as a skilled nursing facility.
Borrower is the lawful owner of all Permits for the Facility, including, without
limitation, the Certificate of Need and/or the Nursing Home License issued by
the Tennessee Department of Health, Health Care Facilities, if applicable, which
(a) are in full force and effect, (b) constitute all of the permits, licenses
and certificates required for the use, operation and occupancy thereof, (c) have
not been pledged as collateral for any other loan or Indebtedness, (d) are held
free from any restriction or any encumbrance which would materially adversely
affect the use or operation of the Facility and (e) are not provisional,
probationary or restricted in any way. Borrower and Manager as well as the
operation of the Facility are in compliance in all material respects with the
applicable provisions of all laws, rules, regulations and published
interpretations to which the Facility is subject. No waivers of any laws, rules,
regulations, or requirements (including, but not limited to, minimum foot
requirements per bed) are required for the Facility to operate at the foregoing
licensed bed capacity. All Reimbursement Contracts are in full force and effect
with respect to the Facility, and Borrower and Manager are in good standing with
all the respective agencies governing such applicable Facility licenses, program
certification and Reimbursement Contracts. Borrower and Manager are current in
the payment of all so-called provider specific taxes or other assessments


                                       9

<PAGE>

with respect to such Reimbursement Contracts. Borrower will maintain the
Certificate of Need, if applicable, and/or any required Permits in full force
and effect. In the event Lender acquires the Facility through foreclosure or
otherwise, neither Lender nor a subsequent manager, a subsequent lessee or any
subsequent purchaser (through foreclosure or otherwise) must obtain a
Certificate of Need prior to applying for and receiving a license to operate the
Facility and certification to receive Medicare and Medicaid payments (and its
successor programs) for patients having coverage thereunder provided that no
service or bed complement is changed.

     3.7 MAINTAIN BED CAPACITY. Neither Borrower nor Manager has granted to any
third party the right to reduce the number of licensed beds in the Facility or
to apply for approval to transfer the right to any or all of the licensed
Facility beds to any other location.

     3.8 MEDICARE AND MEDICAID COMPLIANCE. The Facility is in compliance with
all requirements for participation in Medicare and Medicaid, including without
limitation, the Medicare and Medicaid Patient Protection Act of 1987. The
Facility is in conformance in all material respects with all insurance,
reimbursement and cost reporting requirements and has a current provider
agreement which is in full force and effect under Medicare and Medicaid.

     3.9 THIRD PARTY PAYORS. There is no threatened or pending revocation,
suspension, termination, probation, restriction, limitation, or nonrenewal
affecting Borrower, Manager or the Facility or any participation or provider
agreement with any third-party payor, including Medicare, Medicaid, Blue Cross
and/or Blue Shield, and any other private commercial insurance managed care and
employee assistance program (such programs, the "Third-Party Payors' Programs")
to which Borrower or Manager presently is subject. All Medicare (if any),
Medicaid (if any) and private insurance cost reports and financial reports
submitted by Borrower or Manager are and will be materially accurate and
complete and have not been and will not be misleading in any material respects.
No cost reports for the Facility remain "open" or unsettled except as otherwise
disclosed.

     3.10 GOVERNMENTAL PROCEEDINGS AND NOTICES. Neither Borrower nor Guarantor
nor Manager nor the Facility is currently the subject of any proceeding by any
governmental agency, and no notice of any violation has been received from any
federal, state or local government or quasi-governmental body or agency or any
administrative or investigative body that would, directly or indirectly, or with
the passage of time:

          (a) have a material adverse impact on Borrower's or Manager's ability
to accept and/or retain residents at the Facility or result in the imposition of
a fine, a sanction, a lower rate certification or a lower reimbursement rate for
services rendered to eligible residents against or in respect of the Facility;

          (b) modify, limit or annul or result in the transfer, suspension,
revocation or imposition of probationary use of any of the Permits; or

          (c) affect Borrower's continued participation in the Medicare or
Medicaid programs or any other Third-Party Payors' Programs, or any successor
programs thereto, at current rate certifications.


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<PAGE>

     3.11 PHYSICAL PLANT STANDARDS. To the best of Borrower's knowledge, the
Facility and the use thereof comply in all material respects with all applicable
local, state and federal building codes, fire codes, health care,
nursing/assisted living/senior housing facility (as applicable) and other
similar regulatory requirements (the "Physical Plant Standards"), and except as
set forth on Schedule 3.11 attached hereto, no waivers of Physical Plant
Standards exist at the Facility.

     3.12 PLEDGE OF RECEIVABLES. With the exception of the A/R Loan, Borrower
has not pledged its Accounts as collateral security for any loan or Indebtedness
other than, if applicable, the Loan.

     3.13 PAYMENT OF TAXES AND PROPERTY IMPOSITIONS. Borrower has filed all
federal, state, and local tax returns which it is required to file and has paid,
or made adequate provision for the payment of, all taxes and assessments which
are shown pursuant to such returns or are required to be shown thereon,
including, without limitation, provider taxes which are due and owing as of the
date hereof. All such returns are complete and accurate in all respects.
Borrower has paid or made adequate provision for the payment of all applicable
water and sewer charges, ground rents (if applicable) and Taxes (as defined in
the Mortgage) with respect to the Land and/or the Improvements which are due and
owing as of the date hereof.

     3.14 TITLE TO MORTGAGED PROPERTY. Borrower has good and marketable title to
all of the Mortgaged Property, subject to no lien, mortgage, pledge,
encroachment, zoning violation, or encumbrance, except Permitted Encumbrances
which do not materially interfere with the security intended to be provided by
the Mortgage or the current use or operation of the Land and the Improvements or
the current ability of the Facility to generate net operating income sufficient
to service the Loan. All Improvements situated on the Land are situated wholly
within the boundaries of the Land.

     3.15 PRIORITY OF MORTGAGE. The Mortgage constitutes a valid first lien
against the real and personal property described therein, prior to all other
liens or encumbrances, including those which may hereafter accrue, excepting
only Permitted Encumbrances which do not and will not materially and adversely
affect (a) the ability of Borrower to pay in full the principal of and interest
on the Note when due, (b) the security (and its value) intended to be provided
by the Mortgage or (c) the current use of the Land and the Improvements.

     3.16 LOCATION OF CHIEF EXECUTIVE OFFICES. The location of Borrower's chief
executive office(s) are set forth on Exhibit "B" hereto. Borrower has no
place(s) of business other than the locations of the Facility(ies) listed on
Exhibit "B".

     3.17 DISCLOSURE. All information furnished or to be furnished by Borrower
to Lender in connection with the Loan or any of the Loan Documents is, or will
be at the time the same is furnished, accurate and correct in all material
respects and complete insofar as completeness may be necessary to provide Lender
with true and accurate knowledge of the subject matter.


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<PAGE>

     3.18 TRADE NAMES. Neither Borrower nor the Facility, which operates under
the trade name "Briarcliff Health Care Center", has changed its name, been known
by any other name, or been a party to a merger, reorganization or similar
transaction within the last three (3) years.

     3.19 ERISA. As of the date hereof and throughout the term of this
Agreement,

          (a) Borrower is not an "employee benefit plan," as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), subject to Title I of ERISA, and none of the assets of Borrower
constitute "plan assets" (within the meaning of Department of Labor Regulation
Section 2510.3-101) of one or more such plans, and

          (b) Borrower is not a "governmental plan" within the meaning of
Section 3(32) of ERISA, and transactions by or with Borrower are not be subject
to state statutes regulating investments of, and fiduciary obligations with
respect to, governmental plans.

          The execution and delivery of the Loan Documents and the borrowing of
indebtedness hereunder do not constitute a non-exempt prohibited transaction
under Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986,
as amended (the "Code").

     3.20 OWNERSHIP. The ownership interests of the Persons comprising Borrower
and each of the respective interests in Borrower are correctly and accurately
set forth on Exhibit "C" hereto.

     3.21 COMPLIANCE WITH APPLICABLE LAWS. The Facility and its operations and
the Land and Improvements comply in all material respects with all covenants and
restrictions of record and applicable laws, ordinances, rules and regulations,
including, without limitation, the Americans with Disabilities Act and the
regulations thereunder, and all laws, ordinances, rules and regulations relating
to zoning, setback requirements and building codes and there are no waivers of
any building codes currently in existence for the Facility.

     3.22 SOLVENCY. Borrower is solvent for purposes of 11 U.S.C. Section 548,
and the borrowing of the Loan will not render Borrower insolvent for purposes of
11 U.S.C. Section 548.

     3.23 MANAGEMENT AGREEMENT. The Management Agreement is in full force and
effect, and there are no defaults (either monetarily or non-monetarily) by
Manager or Borrower thereunder.

     3.24 OTHER INDEBTEDNESS. With the exception of the A/R Loan, Borrower has
no outstanding Indebtedness, secured or unsecured, direct or contingent
(including any guaranties), other than indebtedness which represents trade
payables or accrued expenses incurred in the ordinary course of business of
owning and operating the Mortgaged Property; no other debt incurred by Borrower
after the date hereof will be secured (senior, subordinate or pari passu) by the
Mortgaged Property.

     3.25 OTHER OBLIGATIONS. Borrower has no material financial obligation under
any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which Borrower is a party or by which Borrower or the Mortgaged
Property is otherwise bound, other


                                       12

<PAGE>

than obligations incurred in the ordinary course of the operation of the
Mortgaged Property and other than obligations under the Mortgage, the other Loan
Documents and the A/R Loan.

     3.26 FRAUDULENT CONVEYANCES. Borrower (a) has not entered into this
Agreement or any of the other Loan Documents with the actual intent to hinder,
delay, or defraud any creditor and (b) has received reasonably equivalent value
in exchange for its obligations under the Loan Documents. Giving effect to the
transactions contemplated by the Loan Documents to the best of Borrower's
knowledge, the fair saleable value of Borrower's assets exceeds and will,
immediately following the execution and delivery of the Loan Documents, be
greater than Borrower's probable liabilities, including the maximum amount of
its contingent liabilities or its debts as such debts become absolute and
mature. Borrower's assets do not and, immediately following the execution and
delivery of the Loan Documents will not, constitute unreasonably small capital
to carry out its business as conducted or as proposed to be conducted. Borrower
does not intend to, and does not believe that it will, incur debts and
liabilities (including, without limitation, contingent liabilities and other
commitments) beyond its ability to pay such debts as they mature (taking into
account the timing and amounts to be payable on or in respect of obligations of
Borrower).

     3.27 NO CHANGE IN FACTS OR CIRCUMSTANCES. All information in any
application for the Loan submitted to Lender (the "Loan Application") and in all
financial statements, rent rolls, reports, certificates and other documents
submitted in connection with the Loan Application are complete and accurate in
all material respects. There has been no material adverse change in any fact or
circumstance that would make any such information incomplete or inaccurate.

     3.28 NO ILLEGAL ACTIVITY AS SOURCE OF FUNDS. No portion of the Mortgaged
Property has been or will be purchased, improved, equipped or furnished with
proceeds of any illegal activity.

     3.29 COMPLIANCE WITH ANTI-TERRORISM, EMBARGO, SANCTIONS AND ANTI-MONEY
LAUNDERING LAWS. Borrower, and to the best of Borrower's knowledge, after having
made diligent inquiry, (a) each Person owning an interest in Borrower, (b) each
Guarantor, (c) Manager, and (d) each tenant at the Property: (i) is not
currently identified on OFAC List, and (ii) is not a Person with whom a citizen
of the United States is prohibited to engage in transactions by any trade
embargo, economic sanction, or other prohibition of United States law,
regulation, or Executive Order of the President of the United States. Borrower
has implemented procedures, and will consistently apply those procedures
throughout the term of the Loan, to ensure the foregoing representations and
warranties remain true and correct during the term of the Loan.

     3.30 FRAUD AND ABUSE.

          (a) ANTI-KICKBACK LAW. After consultation with counsel concerning the
federal anti-kickback law (42 U.S.C.A. SEC. 1320a-7b(b)), neither Borrower nor
its agent have offered or given any remuneration or thing of value to any person
to encourage referral to the facility nor has Borrower or its agent solicited or
received any remuneration or thing of value in


                                       13

<PAGE>

exchange for Borrower's agreement to make referrals or to purchase goods or
services for the Facility.

          (b) RELATIONSHIPS. No physician or other healthcare practitioner has
an ownership interest in, or financial relationship with (other than for
rendering services to patient residents), the Borrower, Manager or the Facility.

          (c) REQUIRED ADJUSTMENTS. With the exception of those cost reports
shown on Schedule 3.30, all cost report periods for all Facility payors have
been closed and settled, and all required adjustments have been fully paid
and/or implemented.

     3.31 COMPLIANCE PROGRAM. Borrower has adopted and is adhering to a
compliance program meeting the guidelines published by the Office of the
Inspector General on March 16, 2000, at 65 Fed. Reg. 14289. Borrower's
designated compliance officer is Bob Rice.

                                   ARTICLE IV
                        AFFIRMATIVE COVENANTS OF BORROWER

     Borrower agrees with and covenants unto Lender that until the Loan
Obligations have been paid in full, Borrower shall:

     4.1 PAYMENT OF LOAN/PERFORMANCE OF LOAN OBLIGATIONS. Duly and punctually
pay or cause to be paid the principal and interest of the Note in accordance
with its terms and duly and punctually pay and perform or cause to be paid or
performed all Loan Obligations hereunder and under the other Loan Documents.

     4.2 MAINTENANCE OF EXISTENCE. Maintain its existence as a Delaware limited
liability company in good standing under the laws of the jurisdiction of its
organization or formation, and, in each jurisdiction in which the character of
the property owned by it or in which the transaction of its business makes
qualification necessary, maintain good standing and qualification to do
business.

     4.3 MAINTENANCE OF SINGLE PURPOSE STATUS. Maintain its existence as a
Single Purpose Entity.

     4.4 ACCRUAL AND PAYMENT OF TAXES. During each fiscal year, make accurate
provision for the payment in full of all current tax liabilities of all kinds
including, without limitation, federal and state income taxes, franchise taxes,
payroll taxes, provider taxes (to the extent necessary to participate in and
receive maximum funding pursuant to Reimbursement Contracts), Taxes (as defined
in the Mortgage), all required withholding of income taxes of employees, all
required old age and unemployment contributions, and all required payments to
employee benefit plans, and pay the same when they become due.

     4.5 INSURANCE. Maintain, at its expense, the following insurance coverages
and policies with respect to the Mortgaged Property and the Facility, which
coverages and policies must be acceptable to Lender's insurance consultant in
its reasonable discretion:


                                       14

<PAGE>

          (a) Comprehensive "all risk" insurance, including coverage for
windstorms and hail, in an amount equal to 100% of the full replacement cost of
the Facility, which replacement cost shall be determined by the "Insurable
Value" or "Cost Approach to Value" reflected in the most recent Lender approved
appraisal for the Facility, without deduction for depreciation. Such insurance
shall also include (i) agreed insurance amount endorsement waiving all
co-insurance provisions, and (ii) an "Ordinance or Law Coverage" endorsement if
the Facility or the use thereof shall constitute a legal non-conforming
structure or use.

          (b) Commercial general liability insurance against claims for sexual
harassment abuse of residents and/or patients, personal injury, bodily injury,
death or property damage, in or about the Facility to be on a so-called
"occurrence" basis for at least $1,000,000.00 per occurrence and $3,000,000.00
in the aggregate with a $5,000,000.00 umbrella coverage.

          (c) Professional liability insurance against claims for personal
injury, bodily injury or death, in or about the Facility to be on a so-called
"occurrence" basis for at least $1,000,000.00 per occurrence and $3,000,000.00
in the aggregate.

          (d) Business interruption income insurance for the Facility in an
amount equal to 100% of the net income plus carrying costs and extraordinary
expenses of the Facility for a period of twelve (12) months as projected based
on Borrower's reasonable estimate thereof as approved by Lender, containing a
90-day extended period of indemnity endorsement, provided that any covered loss
thereunder shall be payable to Lender.

          (e) Flood Hazard insurance if any portion of the Improvements is
located in a "flood zone area," as identified in the Federal Register by the
Federal Emergency Management Agency as a 100-year flood zone or "special flood
hazard area" and in which flood insurance is available. In lieu thereof, Lender
will accept proof, satisfactory to it in its sole discretion, that the
Improvements are not within the boundaries of a designated area.

          (f) Workers' compensation insurance, if applicable and required by
state law, subject to applicable state statutory limits, and employer's
liability insurance with a limit of $1,000,000.00 per accident and per disease
per employee with respect to the Facility.

          (g) Comprehensive boiler and machinery insurance, including property
damage coverage and time element coverage in an amount equal to 100% of the full
replacement cost, without deduction for depreciation, of the Facility housing
the machinery, if steam boilers, pipes, turbines, engines or any other pressure
vessels are in operation with respect to the Facility. Such insurance coverage
shall include a "joint loss" clause if such coverage is provided by an insurance
carrier other than that which provides the comprehensive "all risk" insurance
described above.

          (h) During the period of any construction and/or renovation of capital
improvements with respect to the Facility or any new construction at the
Facility, builder's risk insurance for any improvements under construction
and/or renovation, including, without limitation, costs of demolition and
increased cost of construction or renovation, in an amount


                                       15

<PAGE>

equal the amount of the general contract plus the value of any existing purchase
money financing for improvements and materials stored on or off the Property,
including "soft cost" coverage.

          (i) If the Facility is located in a seismically active area or an area
prone to geologic instability and mine subsidence, Lender may require an
inspection by a qualified structural or geological engineer satisfactory to
Lender, and at Borrower's expense. The Facility must be structurally and
geologically sound and capable of withstanding normal seismic activity or
geological movement. Lender reserves the right to require earthquake insurance
or Maximum Probable Loss insurance on a case by case basis in amounts determined
by Lender.

          (j) Such other insurance coverages as may be deemed necessary at any
time during the term of the Loan and as shall be provided within such time
periods as Lender may determine, in each case, in its commercially reasonable
discretion.

     All insurance policies shall have a term of not less than one year and
shall be in the form and amount and with deductibles as, from time to time,
shall be acceptable to Lender in its reasonable discretion. All such policies
shall provide for loss payable solely to Lender and shall contain a standard
"non-contributory mortgagee" endorsement or its equivalent relating, among other
things, to recovery by Lender notwithstanding the negligent or willful acts or
omissions of Borrower and notwithstanding (i) occupancy or use of the Facility
for purposes more hazardous than those permitted by the terms of such policy,
(ii) any foreclosure or other action taken by Lender pursuant to the Mortgage
upon the occurrence of an Event of Default thereunder, or (iii) any change in
title or ownership of the Facility.

     All insurance policies must be written by a licensed insurance carrier in
the State in which the Facility is located and such insurance carrier must have
a long-term senior debt rating of at least "A" by Standard and Poor's Rating
Service; provided, that if the initial principal balance of the Loan is in
excess of $25,000,000.00, such insurance carrier must have a long-term senior
debt rating of at least "AA" by Standard & Poor's Rating Service.

     All liability insurance policies must name "GMAC Commercial Mortgage
Corporation and its successors and/or assigns as their interests may appear" as
additional insureds, and all property insurance policies must name "GMAC
Commercial Mortgage Corporation and its successors and/or assigns" as the named
mortgage holder entitled to all insurance proceeds. Lender shall have the right,
without Borrower's consent, by notice to the insurance company, to change the
additional insured and named mortgagee endorsements in connection with any sale
of the Loan. Notwithstanding anything contained herein, Borrower shall be
entitled to all insurance proceeds covered by and disbursed under the
above-referenced comprehensive all risk insurance policy provided such proceeds
do not exceed $25,000.00 per occurrence.

     All insurance policies for the above-required insurance must provide for
thirty (30) days prior written notice of cancellation to Lender.

     Policies or binders, together with evidence of the above required insurance
on ACORD Form 27 or its equivalent, must be submitted to Lender prior to setting
the interest rate on the Loan.


                                       16

<PAGE>

     With respect to insurance policies which require payment of premiums
annually, not less than thirty (30) days prior to the expiration dates of the
insurance policies obtained pursuant to this Agreement, Borrower shall pay such
amount, except to the extent Lender is escrowing sums therefor pursuant to the
Loan Documents. Not less than thirty (30) days prior to the expiration dates of
the insurance policies obtained pursuant to this Agreement, originals or
certified copies of renewals of such policies (or certificates evidencing such
renewals) bearing notations evidencing the payment of premiums or accompanied by
other evidence satisfactory to Lender of such payment, which premiums shall not
be paid by Borrower through or by any financing arrangement, shall be delivered
by Borrower to Lender at the address set forth in Section 8.7 hereof and in
Exhibit "B" hereto. Borrower shall not carry separate insurance, concurrent in
kind or form or contributing in the event of loss, with any insurance required
under this Section 4.5. If the limits of any policy required hereunder are
reduced or eliminated due to a covered loss, Borrower shall pay the additional
premium, if any, in order to have the original limits of insurance reinstated,
or Borrower shall purchase new insurance in the same type and amount that
existed immediately prior to the loss.

     If Borrower fails to maintain and deliver to Lender the original policies
or certificates of insurance required by this Agreement, Lender may, at its
option, procure such insurance and Borrower shall pay or, as the case may be,
reimburse Lender for, all premiums thereon promptly, upon demand by Lender, with
interest thereon at the Default Rate from the date paid by Lender to the date of
repayment and such sum shall constitute a part of the Loan Obligations.

     The insurance required by this Agreement may, at the option of Borrower, be
effected by blanket and/or umbrella policies issued to Borrower or to an
Affiliate of Borrower covering the Facility and the properties of such
Affiliate; provided that, in each case, the policies otherwise comply with the
provisions of this Agreement and allocate to the Facility, from time to time,
the coverage specified by this Agreement, without possibility of reduction or
coinsurance by reason of, or damage to, any other property (real or personal)
named therein. If the insurance required by this Agreement shall be effected by
any such blanket or umbrella policies, Borrower shall furnish to Lender original
policies or certified copies thereof, with schedules attached thereto showing
the amount of the insurance provided under such policies which is applicable to
the Facility.

     Neither Lender nor its agents or employees shall be liable for any loss or
damage insured by the insurance policies required to be maintained under this
Agreement; it being understood that (a) Borrower shall look solely to its
insurance company for the recovery of such loss or damage, (b) such insurance
company shall have no rights of subrogation against Lender, its agents or
employees, and (c) Borrower shall use its best efforts to procure from such
insurance company a waiver of subrogation rights against Lender. If, however,
such insurance policies do not provide for a waiver of subrogation rights
against Lender (whether because such a waiver is unavailable or otherwise), then
Borrower hereby agrees, to the extent permitted by law and to the extent not
prohibited by such insurance policies, to waive its rights of recovery, if any,
against Lender, its agents and employees, whether resulting from any damage to
the Facility, any liability claim in connection with the Facility or otherwise.
If any such insurance policy shall prohibit Borrower from waiving such claims,
then Borrower must obtain from such insurance company a waiver of subrogation
rights against Lender.


                                       17

<PAGE>

     Borrower appoints Lender as Borrower's attorney-in-fact to cause the
issuance of an endorsement of any insurance policy to bring Borrower into
compliance herewith and, as limited above, at Lender's sole option, to make any
claim for, receive payment for, and execute and endorse any documents, checks or
other instruments in payment for loss, theft, or damage covered under any such
insurance policy; provided, however, that in no event will Lender be liable for
failure to collect any amounts payable under any insurance policy.

     4.6 PROCEEDS OF INSURANCE OR CONDEMNATION. If, after damage to or
destruction of or condemnation of the Mortgaged Property (or any part thereof),
the net Proceeds of insurance or condemnation (after payment of Lender's
reasonable costs and expenses in connection with the administration thereof)
are:

          (a) less than Seventy-Five Thousand Dollars ($75,000.00), Lender shall
deliver such proceeds to Borrower to be applied within thirty (30) days
thereafter to the repair, restoration and replacement by Borrower of the
Improvements, Equipment and Inventory damaged, destroyed or taken,

     or

          (b) Seventy-Five Thousand Dollars ($75,000.00) or more and Lender
agrees, at its option, to make such net Proceeds available to Borrower, Lender
shall make such net Proceeds available to Borrower on the following terms:

               (i) The aggregate amount of all such Proceeds shall not exceed
the aggregate amount of all such Loan Obligations;

               (ii) At the time of such loss or damage and at all times
thereafter while Lender is holding any portion of such Proceeds, there shall
exist no Default or Event of Default;

               (iii) The Improvements, Equipment, and Inventory to which loss or
damage has resulted shall be capable of being restored to its preexisting
condition and utility in all material respects with a value equal to or greater
than that which existed prior to such loss or damage and such restoration shall
be capable of being completed prior to the earlier to occur of (i) the
expiration of business interruption insurance as determined by an independent
inspector or (ii) the Maturity Date;

               (iv) Within thirty (30) days from the date of such loss or damage
Borrower shall have given Lender a written notice electing to have the Proceeds
applied for such purpose;

               (v) Within sixty (60) days following the date of notice under the
preceding subparagraph (iv) and prior to any Proceeds being disbursed to
Borrower, Borrower shall have provided to Lender all of the following:

                    (A) complete plans and specifications for restoration,
repair and replacement of the Improvements, Equipment and Inventory damaged to
the condition, utility and value required by (iii) above,


                                       18

<PAGE>

                    (B) if loss or damage exceeds One Hundred Thousand Dollars
($100,000), fixed-price or guaranteed maximum cost bonded construction contracts
for completion of the repair and restoration work in accordance with such plans
and specifications,

                    (C) builder's risk insurance for the full cost of
construction with Lender named under a standard mortgagee loss-payable clause

                    (D) such additional funds as in Lender's reasonable opinion
are necessary to complete such repair, restoration and replacement, and

                    (E) copies of all permits and licenses necessary to complete
the work in accordance with the plans and specifications;

               (vi) Lender may, at Borrower's expense, retain an independent
inspector to review and approve plans and specifications and completed
construction and to approve all requests for disbursement, which approvals shall
be conditions precedent to release of Proceeds as work progresses;

               (vii) No portion of such Proceeds shall be made available by
Lender for architectural reviews or for any other purposes which are not
directly attributable to the cost of repairing, restoring or replacing the
Improvements, Equipment and Inventory to which a loss or damage has occurred
unless the same are covered by such insurance;

               (viii) Borrower shall diligently pursue such work and shall
complete such work prior to the earlier to occur of the expiration of business
interruption insurance or the Maturity Date;

               (ix) Each disbursement by Lender of such Proceeds and deposits
shall be funded subject to conditions and in accordance with disbursement
procedures which a commercial construction lender would typically establish in
the exercise of sound banking practices and shall be made only upon receipt of
disbursement requests on an AIA G702/703 form (or similar form approved by
Lender) signed and certified by Borrower and, if required by Lender, its
architect and general contractor with appropriate invoices and lien waivers as
required by Lender; and

               (x) Lender shall have a first lien on and security interest in
all building materials and completed repair and restoration work and in all
fixtures and equipment acquired with such Proceeds, and Borrower shall execute
and deliver such mortgages, deeds of trust, security agreements, financing
statements and other instruments as Lender shall request to create, evidence, or
perfect such lien and security interest.

     In the event and to the extent that such Proceeds are Seventy-Five Thousand
Dollars ($75,000.00) or more and are not required to be used for the repair,
restoration and replacement of the Improvements, Equipment and Inventory to
which a loss or damage has occurred, or, if the conditions set forth herein for
such application are otherwise not satisfied, then Lender shall be entitled
without notice to or consent from Borrower to apply such Proceeds, or the
balance thereof, at Lender's option either (a) to the full or partial payment or
prepayment of the Loan


                                       19
<PAGE>

Obligations (without premium) in the manner aforesaid or (b) to the repair,
restoration and/or replacement of all or any part of such Improvements,
Equipment and Inventory to which a loss or damage has occurred. Any excess
Proceeds after such application by Lender shall be paid to Borrower.

     4.7 FINANCIAL AND OTHER INFORMATION. Provide Lender, and cause Guarantor
and Manager to provide to Lender, at its address set forth in Section 8.7 and at
GMAC Commercial Mortgage Corporation, 2200 Woodcrest Place, Suite 305,
Birmingham, Alabama 35209, the following financial statements and information on
a continuing basis during the term of the Loan:

          (a) Within one hundred twenty (120) days after the end of each fiscal
year of the Guarantor, audited financial statements prepared in accordance with
GAAP by a nationally recognized accounting firm or independent certified public
accounting firm acceptable to the Lender, which statements shall include a
balance sheet and a statement of income and expenses for the year then ended. In
lieu of its obligations hereunder, Guarantor may submit to Lender, upon its
filing thereof, a copy of its Form 10-K as filed with the United States
Securities and Exchange Commission.

          (b) Within one hundred twenty (120) days after the end of each fiscal
year of the Facility and Borrower (if different from the Facility) unaudited
financial statements of the operations of the Facility, internally prepared in
accordance with GAAP, and shall include a balance sheet and a statement of
income and expenses for the year then ended, and shall be certified as true and
correct in all material respects by a financial officer of Borrower. Lender
reserves the right, upon an Event of Default under the Loan Documents, to
require that such statements be audited by a nationally recognized accounting
firm or independent certified public accounting firm acceptable to Lender.

          (c) Within one hundred twenty (120) days after the end of each fiscal
year of Manager, unaudited financial statements of Manager, internally prepared
in accordance with GAAP, acceptable to Lender, which statements shall include a
balance sheet and a statement of income and expenses for the year then ended,
and shall be certified as true and correct by a financial officer of Manager.
Lender reserves the right, upon an Event of Default under the Loan Documents to
require that such statements be audited by a nationally recognized accounting
firm or independent certified public accounting firm acceptable to Lender.

          (d) Within forty-five (45) days after the end of each fiscal quarter
of the Facility, unaudited interim financial statements of the operations of the
Facility, certified as true and correct in all material respects by a financial
officer of the Borrower, prepared in accordance with GAAP, which statements
shall include a balance sheet and statement of income and expenses for the
quarter then ended.

          (e) Within forty-five (45) days after the end of each fiscal quarter
of Borrower, unaudited interim financial statements of Borrower, certified as
true and correct in all material respects by a financial officer of Borrower,
prepared in accordance with GAAP, which


                                       20

<PAGE>

statements shall include a balance sheet and statement income and expenses for
the quarter then ended.

          (f) Within forty-five (45) days after the end of each fiscal quarter
of Guarantor, unaudited interim financial statements of Guarantor, certified as
true and correct in all material respects by a financial officer of Guarantor
prepared in accordance with GAAP, which statements shall include a balance sheet
and a statement of income and expenses for the quarter then ended.

          (g) Within forty-five (45) days after the end of each fiscal quarter
of Manager, unaudited interim financial statements of Manager, certified as true
and correct in all material respects by a financial officer of Manager, prepared
in accordance with generally accepted accounting principles consistently
applied, which statements shall include a balance sheet and a statement of
income and expenses for the quarter then ended.

          (h) Within forty-five (45) days after the end after each fiscal
quarter of Borrower, a statement of the number of bed days available and the
actual patient days incurred for such quarter, together with quarterly census
information of the Facility as of the end of such quarter in sufficient detail
to show patient-mix (i.e., private, Medicare, Medicaid, and V.A.) on a daily
average basis for such year through the end of such quarter, certified by the
chief financial officer of Borrower or Manager to be true and correct. Such
statements of the Facility shall be accompanied by the Summary of Financial
Statements and Census Data attached hereto as Exhibit "D".

          (i) If requested by Lender, within thirty (30) days after the filing
deadline, as may be extended from time to time, copies of all federal, state and
local tax returns of Borrower and Guarantor, together with all supporting
documentation and required schedules.

          (j) If and to the extent applicable, within twenty (20) days after
filing or receipt, all Medicaid cost reports and any amendments thereto filed
with respect to the Facility and all responses, audit reports, or other
inquiries with respect to such cost reports.

          (k) If and to the extent applicable, within ten (10) days after
receipt, copies of all licensure and certification survey reports and statements
of deficiencies (with plans of correction attached thereto).

          (l) If and to the extent applicable, within ten (10) days after
receipt, a copy of the "Medicaid Rate Calculation Worksheet" (or the equivalent
thereof) from the applicable agency.

          (m) If and to the extent applicable, within ten (10) days of receipt,
a statement of the number of resident days for which the Facility has received
the Medicare default rate for any applicable period. For purposes herein,
"default rate" shall have the meaning ascribed to it in that certain applicable
Medicare rate notification letter prepared in connection with any review or
survey of the Facility.


                                       21

<PAGE>

          (n) Within three (3) days after receipt, any and all notices
(regardless of form) from any and all licensing and/or certifying agencies,
including but not limited to, that the Facility's license is being downgraded to
a substandard category, revoked or suspended, or that action is pending or being
considered to downgrade to a substandard category, revoke or suspend the
Facility's license or certification.

          (o) If requested by Lender, evidence of payment by Borrower or Manager
of any applicable provider bed taxes or similar taxes, which taxes Borrower or
Manager agrees to pay.

          (p) Within one hundred twenty (120) days after the end of each of
Borrower's fiscal years, and more frequently, if requested by Lender, an aged
accounts receivable report for the Facility in sufficient detail to show amounts
due from each class of patient-mix, if applicable (i.e., private, Medicare,
Medicaid and V.A.), by the account age classifications of 30 days, 60 days, 90
days, 120 days, and over 120 days.

     Lender reserves the right to require that the annual and/or quarterly
financial statements of Borrower, Guarantor and Manager be audited and prepared
by a nationally recognized accounting firm or independent certified public
accounting firm acceptable to Lender, at their respective sole cost and expense,
if (i) an Event of Default exists, (ii) if required by internal policy or by any
investor in any securities backed in whole or in part by the Loan or any rating
agency rating such securities, or (iii) if Lender has reasonable grounds to
believe that the unaudited financial statements do not accurately represent the
financial condition of Borrower, Guarantor or Manager, as the case may be.

     Lender further reserves the right to require such other financial
information of Borrower, Guarantor, Manager and/or the Facility, at such other
times (including monthly or more frequently, but not more frequently than
reasonable) as it shall deem necessary. All financial statements must be in the
form and detail as Lender shall from time to time request.

     4.8 COMPLIANCE CERTIFICATE. At the time of furnishing the quarterly
operating statements required under Section 4.7 herein, furnish to Lender a
compliance certificate in the form attached hereto as Exhibit "E" executed by a
financial officer of Borrower.

     4.9 BOOKS AND RECORDS. Keep and maintain at all times at the Facility or
Manager's offices, and upon Lender's request make available at the Facility,
complete and accurate books of account and records (including copies of
supporting bills and invoices) adequate to reflect correctly the results of the
operation of the Facility, and copies of all written contracts, leases (if any),
and other instruments which affect the Mortgaged Property, which books, records,
contracts, leases (if any) and other instruments shall be subject to examination
and inspection at any reasonable time by Lender (upon reasonable advance notice,
which for such purposes only may be given orally, except in the case of an
emergency or following an Event of Default, in which case no advance notice
shall be required); provided, however, that if an Event of Default has occurred
and is continuing, Borrower shall deliver to Lender upon written demand all
books, records, contracts, leases (if any) and other instruments relating to the
Facility or its operation and Borrower authorizes Lender to obtain a credit
report on Borrower at any time.


                                       22

<PAGE>

     4.10 PAYMENT OF INDEBTEDNESS. Duly and punctually pay or cause to be paid
all other Indebtedness now owing or hereafter incurred by Borrower in accordance
with the terms of such Indebtedness, except such Indebtedness owing to those
other than Lender which is being contested in good faith and with respect to
which any execution against properties of Borrower has been effectively stayed
and for which reserves and collateral for the payment and security thereof have
been established in sufficient amounts as determined by Lender in its sole
commercially reasonable discretion.

     4.11 RECORDS OF ACCOUNTS. Maintain all records, including records
pertaining to the Accounts of Borrower, at the principal place of business of
Borrower as set forth in this Agreement.

     4.12 CONDUCT OF BUSINESS. Conduct, or cause Manager to conduct, the
operation of the Facility at all times in a manner consistent with the level of
operation of the Facility as of the date hereof, including without limitation,
the following:

          (a) to maintain the standard of care for the residents of the Facility
at all times at a level necessary to ensure quality care for the residents of
the Facility in accordance with customary and prudent industry standards;

          (b) to operate the Facility in a prudent manner and in compliance with
applicable laws and regulations relating thereto and cause all Permits,
Reimbursement Contracts (if any), and any other agreements necessary for the use
and operation of the Facility or, if applicable, as may be necessary for
participation in the Medicaid, Medicare, or other applicable reimbursement
programs (if any) to remain in effect without reduction in the number of
licensed beds authorized for use in the Medicaid, Medicare, or other applicable
reimbursement programs;

          (c) to maintain sufficient Inventory and Equipment of types and
quantities at the Facility to enable Borrower to perform operations of the
Facility adequately;

          (d) to keep all Improvements and Equipment located on or used or
useful in connection with the Facility in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needed and proper repairs, renewals, replacements, additions, and improvements
thereto to keep the same in good operating condition;

          (e) to maintain sufficient cash in the operating accounts of the
Facility in order to satisfy the working capital needs of the Facility; and

          (f) to keep all required Permits current and in full force and effect.

     4.13 PERIODIC SURVEYS. Furnish or cause Manager to furnish to Lender,
within three (3) days of receipt, a copy of any Medicare, Medicaid, or other
licensing agency survey or report and any statement of deficiencies and/or any
other report or notices (regardless of form) indicating that any action is
pending or being considered to downgrade the Facility to a substandard category,
or revoke or suspend the Facility's license or certification, and within the
time period required by the particular agency for furnishing a plan of
correction also furnish or cause to be furnished to Lender a copy of the plan of
correction generated from such survey or


                                       23

<PAGE>

report for the Facility, and correct or cause to be corrected any deficiency,
the curing of which is a condition of continued licensure or for full
participation in Medicaid, Medicare or other reimbursement program pursuant to
any Reimbursement Contract for existing residents or for new residents to be
admitted with Medicaid or Medicare coverage, by the date required for cure by
such agency (plus extensions granted by such agency).

     4.14 DEBT SERVICE COVERAGE REQUIREMENTS.

          (a) Maintain (commencing with the closing of the Loan) and within
forty-five (45) days after the end of each fiscal quarter of Borrower, provide
evidence to Lender of the achievement of, the following debt service coverage
ratios until the Loan is paid in full:

               (i) a Debt Service Coverage for the Facility, after deduction of
Actual Management Fees, of not less than 1.0 to 1.0; and

               (ii) a Debt Service Coverage for the Facility after deduction of
Assumed Management Fees, of not less than 1.25 to 1.0.

          (b) If Borrower fails to achieve or provide evidence of achievement of
the Debt Service Coverage for the Facility, Borrower may deposit with Lender, at
Borrower's option within fifteen (15) days of such failure, additional cash or
other liquid collateral in an amount which, when added to the first number of
the debt service coverage calculation, would have resulted in the noncomplying
debt service requirement having been satisfied. If after Borrower has deposited
such additional cash or liquid collateral, Borrower again fails to achieve or
provide evidence of the achievement of the Debt Service Coverage for the
Facility requirements set forth above and such failure continues for two (2)
consecutive quarters, Borrower may deposit with Lender, at Borrower's option
within fifteen (15) days after written notice to Borrower of such failure,
additional cash or other liquid collateral (with credit for amounts currently
being held by Lender pursuant to the foregoing sentence), in an amount which, if
the same had been applied on the first (1st) day of the first quarter for which
such noncompliance of the debt service coverage requirement occurred to reduce
the outstanding principal indebtedness of the Loan, would have resulted in the
noncomplying debt service coverage requirement having been satisfied. Any
additional cash or liquid collateral deposited by Borrower hereunder in order to
achieve the required Debt Service Coverage for the Facility and cure any
existing default with respect thereto will be held by Lender in a standard
custodial account and shall constitute additional collateral for the Loan
Obligations and an "Account" as defined in this Agreement, and, upon the
occurrence of an Event of Default, may be applied by Lender, in such order and
manner as Lender may elect, to the reduction of the Loan Obligations. Borrower
shall not be entitled to any interest earned on such additional collateral.
Provided that there is no outstanding Default or Event of Default, such
additional collateral which has not been applied to the Loan Obligations will be
released by Lender at such time as Borrower provides Lender with evidence that
the required debt service coverage requirements outlined above have been
achieved and maintained (without regard to any cash deposited pursuant to this
Section 4.14) for two (2) consecutive fiscal quarters.


                                       24

<PAGE>

     4.15 OCCUPANCY. Maintain or cause to be maintained at all times, a daily
average annual occupancy for the Facility, as tested quarterly (on the basis of
a calendar year), of eighty percent (80%) or more (based on the number of beds
available at the Facility).

     4.16 CAPITAL EXPENDITURES. Maintain, and/or cause Manager to maintain, the
Facility in good condition and make minimum capital expenditures for the
Facility in each fiscal year, in an amount equal to $300 per bed (or the
appropriate prorated amount for any partial fiscal year), (which capital
expenditures may include ordinary repairs and routine maintenance), commencing
the first year of the Loan term and continuing throughout the Loan term, and,
within forty-five (45) days after the end of each fiscal year, provide evidence
thereof satisfactory to Lender. In the event that Borrower shall fail to meet
such requirement or to provide such evidence, Borrower shall, upon Lender's
written request, immediately establish and maintain a capital expenditures
reserve fund with Lender equal to the difference between the required amount per
unit and the amount per unit actually spent by Borrower. Borrower grants to
Lender a lien on and a right of setoff against all moneys in the capital
expenditures reserve fund, and Borrower shall not permit any other Lien to exist
upon such fund. Moneys on deposit in such capital expenditures reserve fund will
be disbursed to Borrower monthly upon Lender's receipt of satisfactory evidence
that Borrower has caused to be made the required capital expenditures. Upon
Borrower's or Manager's failure to adequately maintain the Facility in good
condition, Lender may, but shall not be obligated to, make such capital
expenditures and may apply the moneys in the capital expenditures reserve fund
for such purpose. To the extent there are insufficient moneys in such capital
expenditures reserve fund for such purposes, all funds advanced by Lender to
make such capital expenditures shall constitute a portion of the Loan
Obligations, shall be secured by the Mortgage and shall accrue interest at the
Default Rate until paid. Upon the occurrence of an Event of Default, Lender may
apply any moneys in the capital expenditures reserve fund to the Loan
Obligations, in such order and manner as Lender may elect. For any partial
fiscal year during which the Loan is outstanding, the required expenditure
amount shall be prorated by multiplying the required amount per unit amount by a
fraction, the numerator of which is the number of days during such year for
which all or part of the Loan is outstanding and the denominator of which is the
number of days in such year. During the term of the Loan, Lender may, from time
to time, engage a professional building inspector to conduct an inspection of
the Facility.

     4.17 MANAGEMENT AGREEMENT. Maintain the Management Agreement in full force
and effect and timely perform all of Borrower's obligations thereunder and
enforce performance of all obligations of Manager thereunder and not permit the
termination, amendment or assignment of the Management Agreement unless the
prior written consent of Lender is first obtained, which consent shall not be
unreasonably withheld. Borrower will enter into and cause Manager to enter into
the Subordination Agreement. Borrower will not enter into any other management
agreement without Lender's prior written consent, which consent may be in the
sole and absolute discretion of Lender.

     4.18 UPDATED APPRAISALS. For so long as the Loan remains outstanding, if
any Event of Default shall occur hereunder, or if, in Lender's judgment, a
material depreciation in the value of the Land and/or the Improvements shall
have occurred, then in any such event, Lender, may cause the Land and
Improvements to be appraised by an appraiser selected by Lender, and in


                                       25

<PAGE>

accordance with Lender's appraisal guidelines and procedures then in effect, and
Borrower agrees to cooperate in all respects with such appraisals and furnish to
the appraisers all requested information regarding the Land and Improvements and
the Facility. Borrower agrees to pay all reasonable costs incurred by Lender in
connection with such appraisal which costs shall be secured by the Mortgage and
shall accrue interest at the Default Rate until paid.

     4.19 COMPLY WITH COVENANTS AND LAWS. Comply, in all material respects, with
all applicable covenants and restrictions of record and all laws, ordinances,
rules and regulations and keep the Facility and the Land and Improvements in
compliance with all applicable laws, ordinances, rules and regulations,
including, without limitation, the Americans with Disabilities Act and
regulations promulgated thereunder, and laws, ordinances, rules and regulations
relating to zoning, health, building codes, setback requirements, Medicaid and
Medicare laws and keep the Permits for the Facility in full force and effect.

     4.20 TAXES AND OTHER CHARGES. Subject to Borrower's right to contest the
same as set forth in Section 9(c) of the Mortgage, pay all taxes, assessments,
charges, claims for labor, supplies, rent, and other obligations which, if
unpaid, might give rise to a Lien against real or personal property of the
Borrower, except Liens to the extent permitted by this Agreement.

     4.21 COMMITMENT LETTER. Provide all items and pay all amounts required by
the Commitment Letter. If any term of the Commitment Letter shall conflict with
the terms of this Agreement, this Agreement shall govern and control. As to any
matter contained in the Commitment Letter, and as to which no mention is made in
this Agreement or the other Loan Documents, the Commitment Letter shall continue
to be in effect and shall survive the execution of this Agreement and all other
Loan Documents.

     4.22 CERTIFICATE. Upon Lender's written request, furnish Lender with a
certificate stating that Borrower has complied with and is in compliance with
all terms, covenants and conditions of the Loan Documents to which Borrower is a
party and that there exists no Default or Event of Default or, if such is not
the case, that one or more specified events have occurred, and that the
representations and warranties contained herein are true and correct with the
same effect as though made on the date of such certificate.

     4.23 DEBT SERVICE RESERVE FUND. Pursuant to the Debt Service Reserve Fund
Agreement, establish and maintain a debt service reserve fund with Lender equal
to approximately three (3) months of debt service payments with respect to the
Note as reasonably estimated by Lender, rounded upward to the nearest One
Thousand Dollars ($1,000).

     4.24 INTENTIONALLY DELETED.

     4.25 INTENTIONALLY DELETED.

     4.26 NOTICE OF FEES OR PENALTIES. Notify Lender in writing, within three
(3) business days of Borrower's knowledge thereof, of the assessment by any
state or, if applicable, any Medicare, Medicaid, health or licensing agency of
any fines or penalties against Borrower, Manager, or the Facility.


                                       26

<PAGE>

     4.27 LOAN CLOSING CERTIFICATION. Immediately notify Lender in writing upon
Borrower's knowledge thereof, in the event any representation or warranty
contained in that certain Loan Closing Certification of even date herewith,
executed by Borrower for the benefit of Lender, becomes untrue or there shall
have been any material adverse change in any such representation or warranty.

     4.28 COMPLIANCE WITH ANTI-TERRORISM, EMBARGO, SANCTIONS AND ANTI-MONEY
LAUNDERING LAWS. Borrower shall comply with all Requirements of Law relating to
money laundering, anti-terrorism, trade embargos and economic sanctions, now or
hereafter in effect. Upon Lender's request from time to time during the term of
the Loan, Borrower shall certify in writing to Lender that Borrower's
representations, warranties and obligations under Sections 3.28 and 3.29 and
this Section 4.28 remain true and correct and have not been breached. Borrower
shall immediately notify Lender in writing if any of such representations,
warranties or covenants are no longer true or have been breached or if Borrower
has a reasonable basis to believe that they may no longer be true or have been
breached. In connection with such an event, Borrower shall comply with all
Requirements of Law and directives of Governmental Authorities and, at Lender's
request, provide to Lender copes of all notices, reports and other
communications exchanged with, or received from, Governmental Authorities
relating to such an event. Borrower shall also reimburse Lender any expense
incurred by Lender in evaluating the effect of such an event on the Loan and
Lender's interest in the collateral for the Loan, in obtaining any necessary
license from Governmental Authorities as may be necessary for Lender to enforce
its rights under the Loan Documents, and in complying with all Requirements of
Law applicable to Lender as the result of the existence of such an event and for
any penalties or fines imposed upon Lender as a result thereof.

                                    ARTICLE V
                         NEGATIVE COVENANTS OF BORROWER

     Until the Loan Obligations have been paid in full, Borrower shall not:

     5.1 ASSIGNMENT OF LICENSES AND PERMITS. Assign or transfer any of its
interest in any Permits or Reimbursement Contracts (including rights to payment
thereunder) pertaining to the Facility, or assign, transfer, or remove or permit
any other Person to assign, transfer, or remove any records pertaining to the
Facility including, without limitation, resident records, medical and clinical
records (except for removal of such patient records as directed by the residents
owning such records), without Lender's prior written consent, which consent may
be granted or refused in Lender's sole discretion.

     5.2 NO LIENS; EXCEPTIONS. Create, incur, assume or suffer to exist any Lien
upon or with respect to the Facility, any of its properties, rights, income or
other assets relating thereto, including, without limitation, the Mortgaged
Property whether now owned or hereafter acquired, other than the following
permitted Liens ("Permitted Encumbrances"):

          (a) Liens at any time existing in favor of Lender;

          (b) Liens which are listed in Exhibit "F" attached hereto;


                                       27

<PAGE>

          (c) Inchoate Liens arising by operation of law for the purchase of
labor, services, materials, equipment or supplies, provided payment shall not be
delinquent and, if such Lien is a lien upon any of the Land or Improvements,
such Lien must be fully disclosed to Lender and bonded off and removed from the
Land and Improvements within thirty (30) days of its creation, in a manner
satisfactory to Lender;

          (d) Liens incurred in the ordinary course of business in connection
with workers' compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for money borrowed or
for credit received with respect to property acquired) entered into in the
ordinary course of business as presently conducted or to secure obligations for
surety or appeal bonds;

          (e) Liens for current year's taxes, assessments or governmental
charges or levies provided payment thereof shall not be delinquent; and

          (f) Liens related to the A/R Loan.

          (g) Liens securing purchase money loans not to exceed $300,000 in the
aggregate at any one time outstanding.

          (h) Liens related to the Related Loans.

     5.3 MERGER, CONSOLIDATION, ETC. Except as otherwise provided in the
Mortgage, consummate any merger, consolidation or similar transaction, or sell,
assign, lease or otherwise dispose of (whether in one transaction or in a series
of transactions), all or substantially all of its assets (whether now or
hereafter acquired), without the prior written consent of Lender, which consent
may be granted or refused in Lender's sole discretion.

     5.4 MAINTAIN SINGLE PURPOSE ENTITY STATUS.

          (a) Engage in any business or activity other than the ownership,
operation and maintenance of the Mortgaged Property, and activities incidental
thereto;

          (b) Acquire or own any material assets other than (i) the Mortgaged
Property, and (ii) such incidental machinery, equipment, fixtures and other
personal property as may be necessary for the operation of the Mortgaged
Property;

          (c) Merge into or consolidate with any Person or dissolve, terminate
or liquidate in whole or in part, transfer or otherwise dispose of all or
substantially all of its assets (except as permitted in the Loan Documents) or
change its legal structure, without in each case Lender's consent;

          (d) Without the prior written consent of Lender, amend, modify,
terminate or fail to comply with the provisions of its Partnership Agreement,
Articles or Certificate of Incorporation, Operating Agreement or similar
organizational document, as same may be further amended or supplemented, if such
amendment, modification, termination or failure to comply


                                       28

<PAGE>

would adversely affect its status as a Single Purpose Entity or its ability to
perform its obligations hereunder, under the Note or any other document
evidencing or securing the Loan;

          (e) Own any subsidiary or make any investment in, any Person without
the consent of Lender;

          (f) Commingle its funds or assets with assets of, or pledge its assets
with or for, any of its general partners, members, shareholders, Affiliates,
Lessee, principals or any other Person; except for daily sweeps to a master
concentration account with the A/R Lender from which necessary operating funds
will be disbursed to a control account for the benefit of Borrower;

          (g) Incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation), other than the Loan trade payables or
accrued expenses incurred in the ordinary course of business, payable within 90
days of the date incurred, based on historical amounts, and the obligations to
the A/R Lender;

          (h) Fail to maintain its records, books of account and bank accounts
separate and apart from those of its general partners, members, shareholders,
principals and Affiliates, the Affiliates of any of its general partners,
members, shareholders, principals, and any other Person;

          (i) Enter into any contract or agreement with any of its general
partners, members, shareholders, principals or Affiliates (other than the
Management Agreement), or the Affiliates of any of its general partners,
members, shareholders, principals, except upon terms and conditions that are
intrinsically fair and substantially similar to those that would be available on
an arms-length basis with third parties;

          (j) Seek its dissolution or winding up in whole, or in part;

          (k) Maintain its assets in such a manner that it will be costly or
difficult to segregate, ascertain or identify its individual assets from those
of any of its general partners, members, shareholders, principals and
Affiliates, the Affiliates of any of its general partners, members,
shareholders, principals or any other Person;

          (l) Hold itself out to be responsible for the debts of another Person
or pay another Person's liabilities out of its own funds other than the A/R
Loan;

          (m) Make any loans or advances to any third party, including any of
its general partners, members, shareholders, principals or Affiliates, or the
Affiliates of any of its general partners, members, shareholders, principals;

          (n) Fail to have prepared and filed its own tax returns, or tax
returns consolidated with the Guarantor;

          (o) Fail either to hold itself out to the public as a legal Person
separate and distinct from any other Person or to conduct its business solely in
its own name, in order not (i) to mislead others as to the identity with which
such other party is transacting business, or (ii) to


                                       29

<PAGE>

suggest that it is responsible for the debts of any third party (including any
of its members or Affiliates, or any general partner, member, principal or
Affiliate thereof); or

          (p) Fail to maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in light of
its contemplated business operations.

     5.5 CHANGE OF BUSINESS. Make any material change in the nature of its
business as it is being conducted as of the date hereof.

     5.6 CHANGES IN ACCOUNTING. Change its methods of accounting, unless such
change is permitted by GAAP, and provided such change does not have the effect
of curing or preventing what would otherwise be an Event of Default or Default
had such change not taken place.

     5.7 ERISA.

          (a) Agree to, enter into or consummate any transaction which would
render it unable to confirm that (i) it is not an "employee benefit plan" as
defined in Section 3(32) of ERISA, which is subject to Title I of ERISA, or a
"governmental plan" within the meaning of Section 3(32) of ERISA; (ii) it is not
subject to state statutes regulating investments and fiduciary obligations with
respect to governmental plans; and (iii) less than twenty-five percent (25%) of
each of its outstanding class of equity interests are held by "benefit plan
investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2);

          (b) Engage in a non-exempt prohibited transaction described in Section
406 of ERISA or Section 4975 of the Code, as such sections relate to Borrower,
or in any transaction that would cause any obligation or action taken or to be
taken hereunder (or the exercise by Lender of any of its rights under the Loan
Documents) to be a non-exempt prohibited transaction under ERISA.

     5.8 TRANSACTIONS WITH AFFILIATES. Enter into any transaction (other than
the Management Agreement) with a Person which is an Affiliate of Borrower other
than in the ordinary course of its business and on fair and reasonable terms no
less favorable to Borrower, than those they could obtain in a comparable
arms-length transaction with a Person not an Affiliate.

     5.9 TRANSFER OF OWNERSHIP INTERESTS. Except as otherwise allowable under
the Mortgage, and except for the pledge of Borrower's membership interest as
collateral security for the A/R Loan, permit a change in the percentage
ownership interest of the Persons owning the Borrower, unless the written
consent of Lender is first obtained, which consent may be granted or refused in
Lender's sole discretion.

     5.10 CHANGE OF USE. Alter or change the use of the Facility or enter into
any management agreement for the Facility other than the Management Agreement or
enter into any operating lease for the Facility, unless Borrower first notifies
Lender and provides Lender a copy of the proposed lease agreement or management
agreement, obtains Lender's written consent


                                       30

<PAGE>

thereto, which consent may be withheld in Lender's sole discretion, and obtains
and provides Lender with a subordination agreement in form satisfactory to
Lender, as determined by Lender in its sole discretion, from such manager or
lessee subordinating to all rights of Lender.

     5.11 PLACE OF BUSINESS. Change its chief executive office or its principal
place of business without first giving Lender at least thirty (30) days prior
written notice thereof and promptly providing Lender such information and
amendatory financing statements as Lender may request in connection therewith.

     5.12 ACQUISITIONS. Directly or indirectly, purchase, lease, manage, own,
operate, or otherwise acquire any property or other assets (or any interest
therein) which are not used in connection with the operation of the Facility.

     5.13 DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. Except as hereinafter
provided or as otherwise consented to by Lender in writing, declare or pay any
distributions to its shareholders, members or partners, as applicable, or
purchase, redeem, retire, or otherwise acquire for value, any ownership
interests in Borrower now or hereafter outstanding, return any capital to its
shareholders, members or partners, as applicable, or make any distribution of
assets to its shareholders, members, or partners, as applicable. Notwithstanding
the foregoing, Lender acknowledges and agrees that transfers of cash pursuant to
the cash management program of Borrower and its Affiliates shall not constitute
or be deemed to be distributions for purposes of this Section 5.13.

     5.14 DISPOSITION OF ASSETS/RELEASE. Dispose of, sell, transfer, alien or
release any Collateral, Property, or Assets (as such terms are defined in the
mortgages or deeds of trust governing the Related Loans) owned by the Borrower
or a Related Borrower unless Lender has agreed, in its sole discretion to
release a Related Loan or the Loan.

                                   ARTICLE VI
                              ENVIRONMENTAL HAZARDS

     6.1 PROHIBITED ACTIVITIES AND CONDITIONS. Except for matters covered by a
written program of operations and maintenance approved in writing by Lender (an
"O&M Program") or matters described in Section 6.2, Borrower shall not cause or
permit to exist any of the following:

          (a) The presence, use, generation, release, treatment, processing,
storage (including storage in above ground and underground storage tanks),
handling, or disposal of any Hazardous Materials in, on or under the Land, any
Improvements, or any other property of Borrower that is adjacent to the Land in
violation of applicable Hazardous Materials Laws;

          (b) The transportation of any Hazardous Materials to, from, or across
the Land;

          (c) Any occurrence or condition on the Land or in the Improvements or
any other property of Borrower that is adjacent to the Land, which occurrence or
condition is or may be in violation of Hazardous Materials Laws;


                                       31

<PAGE>

          (d) Any violation of or noncompliance with the terms of any
Environmental Permit with respect to the Land, the Improvements or any property
of Borrower that is adjacent to the Land; or

          (e) Any Lien (whether or not such Lien has priority over the Lien
created by the Mortgage) upon the Land or any Improvements imposed pursuant to
any Hazardous Materials Laws.

The matters described in clauses (a) through (e) above are referred to
collectively in this Article VI as "Prohibited Activities and Conditions" and
individually as a "Prohibited Activity and Condition."

     6.2 EXCLUSIONS. Notwithstanding any other provision of Article VI to the
contrary, "Prohibited Activities and Conditions" shall not include the safe and
lawful use and storage of quantities of (a) pre-packaged supplies, medical
waste, cleaning materials and petroleum products customarily used in the
operation and maintenance of comparable facilities, (b) cleaning materials,
personal grooming items and other items sold in pre-packaged containers for
consumer use and used by occupants of the Facility, and (c) petroleum products
used in the operation and maintenance of motor vehicles from time to time
located on the Land's parking areas, so long as all of the foregoing are used,
stored, handled, transported and disposed of in compliance with Hazardous
Materials Laws.

     6.3 PREVENTIVE ACTION. Borrower shall take all appropriate steps (including
the inclusion of appropriate provisions in any Leases approved by Lender which
are executed after the date of this Agreement) to prevent its employees, agents,
contractors, tenants and occupants of the Facility from causing or permitting
any Prohibited Activities and Conditions.

     6.4 O & M PROGRAM COMPLIANCE. If an O&M Program has been established with
respect to Hazardous Materials, Borrower shall comply in a timely manner with,
and cause all employees, agents and contractors of Borrower and any other
Persons (excluding trespassers) present on the Land to comply with the O&M
Program. All costs of performance of Borrower's obligations under any O&M
Program shall be paid by Borrower, and Lender's out-of-pocket costs incurred in
connection with the monitoring and review of the O&M Program and Borrower's
performance shall be paid by Borrower upon demand by Lender. Any such
out-of-pocket costs of Lender which Borrower fails to pay promptly shall become
an additional part of the Loan Obligations.

     6.5 BORROWER'S ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. Borrower
represents and warrants to Lender that, except as previously disclosed by
Borrower to Lender in writing:

          (a) Borrower has not at any time caused or permitted any Prohibited
Activities and Conditions.

          (b) No Prohibited Activities and Conditions exist or have existed.


                                       32

<PAGE>

          (c) The Land and the Improvements do not now contain any underground
storage tanks, and, to the best of Borrower's knowledge after reasonable and
diligent inquiry, the Land and the Improvements have not contained any
underground storage tanks in the past. If there is an underground storage tank
located on the Land or the Improvements which has been previously disclosed by
Borrower to Lender in writing, that tank complies with all requirements of
Hazardous Materials Laws.

          (d) Borrower has complied with all Hazardous Materials Laws, including
all requirements for notification regarding releases of Hazardous Materials,
relating to the Land. Without limiting the generality of the foregoing, Borrower
has obtained all Environmental Permits required for the operation of the Land
and the Improvements in accordance with Hazardous Materials Laws now in effect
and all such Environmental Permits are in full force and effect. During
Borrower's ownership of the Land, and, to the best of Borrower's knowledge after
reasonable and diligent inquiry, no event has occurred with respect to the Land
and/or Improvements that constitutes or, with the passing of time or the giving
of notice, would constitute, noncompliance with the terms of any Environmental
Permit.

          (e) There are no actions, suits, claims or proceedings pending or, to
the best of Borrower's knowledge after reasonable and diligent inquiry,
threatened that involves the Land and/or the Improvements and allege, arise out
of, or relate to any Prohibited Activity and Condition.

          (f) Borrower has not received any written complaint, order, notice of
violation or other communication from any Governmental Authority with regard to
air emissions, water discharges, noise emissions or Hazardous Materials, or any
other environmental, health or safety matters affecting the Land, the
Improvements or any other property of Borrower that is adjacent to the Land. The
representations and warranties in this Article VI shall be continuing
representations and warranties that shall be deemed to be made by Borrower
throughout the term of the Loan evidenced by the Note and until all of the Loan
Obligations have been paid in full.

     6.6 NOTICE OF CERTAIN EVENTS. Borrower shall promptly notify Lender in
writing of any and all of the following that may occur:

          (a) Borrower's discovery of any Prohibited Activity and Condition.

          (b) Borrower's receipt of or knowledge of any complaint, order, notice
of violation or other communication from any Governmental Authority or other
Person with regard to present or future alleged Prohibited Activities and
Conditions or any other environmental, health or safety matters affecting the
Land, the Improvements or any other property of Borrower that is adjacent to the
Land.

          (c) Any representation or warranty in this Article VI which becomes
untrue at any time after the date of this Agreement.

          Any such notice given by Borrower shall not relieve Borrower of, or
result in a waiver of, any obligation under this Agreement, the Note, or any of
the other Loan Documents.


                                       33

<PAGE>

     6.7 COSTS OF INSPECTION. Borrower shall pay promptly the costs of any
environmental inspections, tests or audits ("Environmental Inspections")
required by Lender in connection with any foreclosure or deed in lieu of
foreclosure or, if required by Lender, as a condition of Lender's consent to any
"Transfer" (as defined in the Mortgage), or required by Lender following a
commercially reasonable determination by Lender that Prohibited Activities and
Conditions may exist. Any such costs incurred by Lender (including the fees and
out-of-pocket costs of attorneys and technical consultants whether incurred in
connection with any judicial or administrative process or otherwise) which
Borrower fails to pay promptly shall become an additional part of the Loan
Obligations. The results of all Environmental Inspections made by Lender shall
at all times remain the property of Lender, and Lender shall have no obligation
to disclose or otherwise make available to Borrower or any other party such
results or any other information obtained by Lender in connection with its
Environmental Inspections. Lender hereby reserves the right, and Borrower hereby
expressly authorizes Lender, to make available to any party, including any
prospective bidder at a foreclosure sale of the Mortgaged Property, the results
of any Environmental Inspections made by Lender with respect to the Mortgaged
Property. Borrower consents to Lender notifying any party (either as part of a
notice of sale or otherwise) of the results of any of Lender's Environmental
Inspections. Borrower acknowledges that Lender cannot control or otherwise
assure the truthfulness or accuracy of the results of any of its Environmental
Inspections and that the release of such results to prospective bidders at a
foreclosure sale of the Mortgaged Property may have a material and adverse
effect upon the amount which a party may bid at such sale. Borrower agrees that
Lender shall have no liability whatsoever as a result of delivering the results
of any of its Environmental Inspections to any third party, and Borrower hereby
releases and forever discharges Lender from any and all claims, damages, or
causes of action, arising out of, connected with or incidental to the results
of, the such delivery of any of Lender's Environmental Inspections.

     6.8 REMEDIAL WORK. If any investigation, site monitoring, containment,
clean-up, restoration or other remedial work ("Remedial Work") is necessary to
bring Borrower into compliance with any Hazardous Materials Law or order of any
Governmental Authority that has or acquires jurisdiction over the Land, the
Improvements or the use, operation or improvement of the Land under any
Hazardous Materials Law, Borrower shall, by the earlier of (a) the applicable
deadline required by Hazardous Materials Law or (b) thirty (30) days after
notice from Lender demanding such action, begin performing the Remedial Work,
and thereafter diligently prosecute it to completion, and shall in any event
complete such work by the time required by applicable Hazardous Materials Law.
If Borrower fails to begin on a timely basis or diligently prosecute any
required Remedial Work, Lender may, at its option, cause the Remedial Work to be
completed, in which case Borrower shall reimburse Lender on demand for the cost
of doing so. Any reimbursement due from Borrower to Lender shall become part of
the Loan Obligations.

     6.9 COOPERATION WITH GOVERNMENTAL AUTHORITIES. Borrower shall cooperate
with any inquiry by any Governmental Authority and shall comply with any
governmental or judicial order which arises from any alleged Prohibited Activity
and Condition.

     6.10 INDEMNITY.


                                       34

<PAGE>

          (a) Borrower shall hold harmless, defend and indemnify (i) Lender,
(ii) any prior owner or holder of the Note, (iii) any Person who is or will have
been involved in the servicing of the Note, (iv) the officers, directors,
partners, agents, shareholders, employees and trustees of any of the foregoing,
and (v) the heirs, legal representatives, successors and assigns of each of the
foregoing (together, the "Indemnitees") from and against all proceedings,
claims, damages, losses, expenses, penalties and costs (whether initiated or
sought by any Governmental Authority or private parties), including fees and out
of pocket expenses of attorneys and expert witnesses, investigatory fees, and
remediation costs, whether incurred in connection with any judicial or
administrative process or otherwise, arising directly or indirectly from any of
the following except to the extent the same relate solely to Hazardous Materials
first introduced to the Property or any part thereof by anyone other than
Borrower or an Affiliate of Borrower following foreclosure of the Mortgage (or
the delivery and acceptance of a deed in lieu of foreclosure).

               (i) Any breach of any representation or warranty of Borrower in
this Article VI;

               (ii) Any failure by Borrower to perform any of its obligations
under this Article VI;

               (iii) The existence or alleged existence of any Prohibited
Activity and Condition;

               (iv) The presence or alleged presence of Hazardous Materials in,
on, around or under the Land, the Improvements or any property of Borrower that
is adjacent to the Land; or

               (v) The actual or alleged violation of any Hazardous Materials
Law.

          (b) Counsel selected by Borrower to defend Indemnitees shall be
subject to the approval of those Indemnitees. Notwithstanding anything contained
herein, any Indemnitee may elect to defend any claim or legal or administrative
proceeding at Borrower's expense, if such Indemnitee has reason to believe that
its interests are not being adequately represented or diverge from other
interests being represented by such counsel (but Borrower shall be obligated to
bear the expense of at most only one such separate counsel). Nothing contained
herein shall prevent an Indemnitee from employing separate counsel in any such
action at any time and participating in the defense thereof at its own expense.

          (c) Borrower shall not, without the prior written consent of those
Indemnitees who are named as parties to a claim or legal or administrative
proceeding (a "Claim") settle or compromise the Claim if the settlement (i)
results in the entry of any judgment that does not include as an unconditional
term the delivery by the claimant or plaintiff to Lender of a written release of
those Indemnitees, satisfactory in form and substance to Lender; or (ii) may
materially and adversely affect any Indemnitee, as determined by such Indemnitee
in its sole discretion.


                                       35

<PAGE>

          (d) The liability of Borrower to indemnify the Indemnitees shall not
be limited or impaired by any of the following, or by any failure of Borrower or
any guarantor to receive notice of or consideration for any of the following:

               (i) Any amendment or modification of any Loan Document;

               (ii) Any extensions of time for performance required by any of
the Loan Documents;

               (iii) The accuracy or inaccuracy of any representations and
warranties made by Borrower under this Agreement or any other Loan Document;

               (iv) The release of Borrower or any other Person, by Lender or by
operation of law, from performance of any obligation under any of the Loan
Documents;

               (v) The release or substitution in whole or in part of any
security for the Loan Obligations; or

               (vi) Lender's failure to properly perfect any lien or security
interest given as security for the Loan Obligations; or

               (vii) Any provision in any of the Loan Documents limiting
Lender's recourse to property securing the Loan or limiting the personal
liability of Borrower or any party for payment of all or any part of the Loan.

          (e) Borrower shall, at its own cost and expense, do all of the
following:

               (i) Pay or satisfy any judgment or decree that may be entered
against any Indemnitee or Indemnitees in any legal or administrative proceeding
incident to any matters against which Indemnitees are entitled to be indemnified
under this Article VI;

               (ii) Reimburse Indemnitees for any expenses paid or incurred in
connection with any matters against which Indemnitees are entitled to be
indemnified under this Article VI; and

               (iii) Reimburse Indemnitees for any and all expenses, including
fees and costs of attorneys and expert witnesses, paid or incurred in connection
with the enforcement by Indemnitees of their rights under this Article VI, or in
monitoring and participating in any legal or administrative proceeding.

          (f) In any circumstances in which the indemnity under this Article VI
applies, Lender may employ its own legal counsel and consultants to prosecute,
defend or negotiate any claim or legal or administrative proceeding and Lender,
with the prior written consent of Borrower (which shall not be unreasonably
withheld, delayed or conditioned) may settle or compromise any action or legal
or administrative proceeding. Borrower shall reimburse Lender upon demand for
all costs and expenses incurred by Lender, including all costs of settlements


                                       36

<PAGE>

entered into in good faith, and the fees and out of pocket expenses of such
attorneys and consultants.

          (g) The provisions of this Article VI shall be in addition to any and
all other obligations and liabilities that Borrower may have under the
applicable law or under the other Loan Documents, and each Indemnitee shall be
entitled to indemnification under this Article VI without regard to whether
Lender or that Indemnitee has exercised any rights against the Land and/or the
Improvements or any other security, pursued any rights against any guarantor, or
pursued any other rights available under the Loan Documents or applicable law.
If Borrower consists of more than one Person or entity, the obligation of those
Persons or entities to indemnify the Indemnitees under this Article VI shall be
joint and several. The obligations of Borrower to indemnify the Indemnitees
under this Article VI shall survive any repayment or discharge of the Loan
Obligations, any foreclosure proceeding, any foreclosure sale, any delivery of
any deed in lieu of foreclosure, and any release of record of the lien of the
Mortgage.

                                   ARTICLE VII
                         EVENTS OF DEFAULT AND REMEDIES

     7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following
shall constitute an "Event of Default" hereunder:

          (a) The failure by Borrower to pay any installment of principal,
interest, or other payments required under the Note, the Mortgage or any other
Loan Document within ten (10) days after the same becomes due;

          (b) Any failure by Borrower to provide and maintain in full force and
effect the insurance coverage required by Section 4.5(a) - (j), inclusive, of
this Agreement;

          (c) The violation by Borrower of any covenant set forth in Article V
hereof;

          (d) The failure by Borrower to deliver or cause to be delivered the
financial statements and information set forth in Section 4.7 of this Agreement
within the times required, and such failure is not cured within thirty (30) days
following Lender's written notice to Borrower thereof;

          (e) The failure by Borrower or Guarantor to establish and maintain the
capital expenditures reserve fund in accordance with Section 4.16 of this
Agreement;

          (f) The failure of Borrower properly and timely to perform or observe
any covenant or condition set forth in this Agreement (other than those
specified in this Section 7.1) or any of the other Loan Documents which failure
is not cured within any applicable cure period as set forth herein or in such
other Loan Document, or, if no cure period is specified therefor, is not cured
within thirty (30) days after notice to Borrower of such Default; provided,
however, that if such Default cannot be cured within such thirty (30) day
period, such cure period shall be extended for an additional sixty (60) days, as
long as Borrower is diligently and in good faith prosecuting said cure to
completion;


                                       37

<PAGE>

          (g) The filing by Borrower, Guarantor or Manager of a voluntary
petition, or the adjudication of any of the aforesaid Persons, or the filing by
any of the aforesaid Persons of 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 if any of the aforesaid Persons should seek or
consent to or acquiesce in the appointment of any trustee, receiver or
liquidator for itself or of all or any substantial part of its property or of
any or all of the rents, revenues, issues, earnings, profits or income thereof,
or the mailing of any general assignment for the benefit of creditors or the
admission in writing by any of the aforesaid Persons of its inability to pay its
debts generally as they become due;

          (h) The entry by a court of competent jurisdiction of an order,
judgment, or decree approving a petition filed against Borrower, Guarantor or
Manager which petition seeks any reorganization, arrangement, composition,
readjustment, liquidation, 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, which order, judgment or
decree remains unvacated and unstayed for an aggregate of sixty (60) days
(whether or not consecutive) from the date of entry thereof, or the appointment
of any trustee, receiver or liquidator of any of the aforesaid Persons or of all
or any substantial part of its properties or of any or all of the rents,
revenues, issues, earnings, profits or income thereof which appointment shall
remain unvacated and unstayed for an aggregate of sixty (60) days (whether or
not consecutive);

          (i) Unless otherwise permitted hereunder or under any other Loan
Documents, the sale, transfer, lease, assignment, or other disposition,
voluntarily or involuntarily, of the Mortgaged Property, or any part thereof,
except for Permitted Encumbrances as described in Section 5.2 above, or any
further encumbrance of the Mortgaged Property (except for Permitted
Encumbrances), unless the prior written consent of Lender is obtained;

          (j) Any certificate, statement, representation, warranty or audit
heretofore or hereafter furnished by or on behalf of Borrower, Guarantor or
Manager or any of their respective officers, directors or trustees pursuant to
or in connection with this Agreement (including, without limitation,
representations and warranties contained herein or in any Loan Documents) or as
an inducement to Lender to make the Loan to Borrower, (i) proves to have been
false in any material respect at the time when the facts therein set forth were
stated or certified, or (ii) proves to have omitted any substantial contingent
or unliquidated liability or claim against Borrower, Guarantor or Manager or
(iii) on the date of execution of this Agreement there shall have been any
materially adverse change in any of the acts previously disclosed by any such
certificate, statement, representation, warranty or audit, which change shall
not have been disclosed to Lender in writing at or prior to the time of such
execution;

          (k) The occurrence of a default (after expiration of applicable notice
and cure periods) under or with respect to any of the Related Loans;


                                       38

<PAGE>

          (l) The failure of Borrower to correct or to cause Manager to correct,
within the time deadlines set by any applicable Medicare, Medicaid or licensing
agency, any deficiency which would result in the following actions by such
agency with respect to the Facility;

               (i) a termination of any Reimbursement Contract or any Permit; or

               (ii) a ban on new admissions generally or, if applicable, on
admission of patients otherwise qualifying for Medicare or Medicaid coverage;

          (m) The assessment against Borrower, Manager, or the Facility of any
fines or penalties by any state or any Medicare, Medicaid, health or licensing
agency having jurisdiction over such Persons or the Facility in excess of
$50,000.00;

          (n) A final judgment is rendered by a court of law or equity against
Borrower in excess of $25,000.00, or Manager or Guarantor in excess of
$100,000.00, and the same remains undischarged for a period of thirty (30) days,
unless such judgment is either (i) fully covered by collectible insurance and
such insurer has within such period acknowledged such coverage in writing, or
(ii) although not fully covered by insurance, enforcement of such judgment has
been effectively stayed, such judgment is being contested or appealed by
appropriate proceedings and Borrower, Guarantor or Manager as the case may be,
has established reserves adequate for payment in the event such Person is
ultimately unsuccessful in such contest or appeal and evidence thereof is
provided to Lender; or

          (o) The occurrence of any material adverse change in the financial
condition or prospects of Borrower or Guarantor or Manager, or the existence of
any other condition which, in Lender's reasonable determination, constitutes a
material impairment of any such Person's ability to operate the Facility or of
such Person's ability to perform their respective obligations under the Loan
Documents, which is not remedied within thirty (30) days after written notice.

     Notwithstanding anything in this Section, all requirements of notice shall
be deemed eliminated if Lender is prevented from declaring an Event of Default
by bankruptcy or other applicable law. The cure period, if any, shall then run
from the occurrence of the event or condition of Default rather than from the
date of notice.

     7.2 REMEDIES. Upon the occurrence of any one or more of the foregoing
Events of Default, Lender may, at its option:

          (a) Declare the entire unpaid principal of the Loan Obligations to be,
and the same shall thereupon become, immediately due and payable, without
presentment, protest or further demand or notice of any kind, all of which are
hereby expressly waived; and/or

          (b) Proceed to protect and enforce its rights by action at law
(including, without limitation, bringing suit to reduce any claim to judgment),
suit in equity and other appropriate proceedings including, without limitation,
for specific performance of any covenant or condition contained in this
Agreement; and/or


                                       39

<PAGE>

          (c) Exercise any and all rights and remedies afforded by the laws of
the United States, the states in which any of the Mortgaged Property is located
or any other appropriate jurisdiction as may be available for the collection of
debts and enforcement of covenants and conditions such as those contained in
this Agreement and the Loan Documents; and/or

          (d) Exercise the rights and remedies of setoff and/or banker's lien
against the interest of Borrower in and to every account and other property of
Borrower which is in the possession of Lender or any Person who then owns a
participating interest in the Loan, to the extent of the full amount of the
Loan; and/or

          (e) Exercise its rights and remedies pursuant to any other Loan
Documents.

                                  ARTICLE VIII
                                  MISCELLANEOUS

     8.1 WAIVER. No remedy conferred upon, or reserved to, Lender in this
Agreement or any of the other Loan Documents is intended to be exclusive of any
other remedy or remedies, and each and every remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing in law or in equity. Exercise of or omission to exercise any right of
Lender shall not affect any subsequent right of Lender to exercise the same. No
course of dealing between Borrower and Lender or any delay on Lender's part in
exercising any rights shall operate as a waiver of any of Lender's rights. No
waiver of any Default under this Agreement or any of the other Loan Documents
shall extend to or shall affect any subsequent or other, then existing, Default
or shall impair any rights, remedies or powers of Lender.

     8.2 COSTS AND EXPENSES. Borrower will bear all taxes, fees and expenses
(including actual attorneys' fees and expenses of counsel for Lender) in
connection with the Loan, the Note, the preparation of this Agreement and the
other Loan Documents (including any amendments hereafter made), and in
connection with any modifications thereto and the recording of any of the Loan
Documents. If, at any time, a Default occurs or Lender becomes a party to any
suit or proceeding in order to protect its interests or priority in any
collateral for any of the Loan Obligations or its rights under this Agreement or
any of the Loan Documents, or if Lender is made a party to any suit or
proceeding by virtue of the Loan, this Agreement or any Mortgaged Property and
as a result of any of the foregoing, Lender employs counsel to advise or provide
other representation with respect to this Agreement, or to collect the balance
of the Loan Obligations, or to take any action in or with respect to any suit or
proceeding relating to this Agreement, any of the other Loan Documents, any
Mortgaged Property, Borrower, Guarantor or Manager, or to protect, collect, or
liquidate any of the security for the Loan Obligations, or attempt to enforce
any security interest or lien granted to Lender by any of the Loan Documents,
then in any such events, all of the actual attorney's fees arising from such
services, including attorneys' fees for preparation of litigation and in any
appellate or bankruptcy proceedings, and any expenses, costs and charges
relating thereto shall constitute additional obligations of Borrower to Lender
payable on demand of Lender. Without limiting the foregoing, Borrower has
undertaken the obligation for payment of, and shall pay, all recording and
filing fees, revenue


                                       40

<PAGE>

or documentary stamps or taxes, intangibles taxes, and other taxes, expenses and
charges payable in connection with this Agreement, any of the Loan Documents,
the Loan Obligations, or the filing of any financing statements or other
instruments required to effectuate the purposes of this Agreement, and should
Borrower fail to do so, Borrower agrees to reimburse Lender for the amounts paid
by Lender, together with penalties or interest, if any, incurred by Lender as a
result of underpayment or nonpayment. Such amounts shall constitute a portion of
the Loan Obligations, shall be secured by the Mortgage and shall bear interest
at the Default Rate (as defined in the Note) from the date advanced until
repaid.

     8.3 PERFORMANCE OF LENDER. At its option, upon Borrower's failure to do so,
Lender may make any payment or do any act on Borrower's behalf that Borrower or
others are required to do to remain in compliance with this Agreement or any of
the other Loan Documents, and Borrower agrees to reimburse Lender, on demand,
for any payment made or expense incurred by Lender pursuant to the foregoing
authorization, including, without limitation, attorneys' fees, and until so
repaid any sums advanced by Lender shall constitute a portion of the Loan
Obligations, shall be secured by the Mortgage and shall bear interest at the
Default Rate (as defined in the Note) from the date advanced until repaid.

     8.4 INDEMNIFICATION. Except to the extent caused solely by the gross
negligence of willful misconduct or illegal activity of the Indemnified Parties,
Borrower shall, at its sole cost and expense, protect, defend, indemnify and
hold harmless the Indemnified Parties from and against any and all claims,
suits, liabilities (including, without limitation, strict liabilities), actions,
proceedings, obligations, debts, damages, losses, costs, expenses, diminutions
in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts
paid in settlement, punitive damages, foreseeable and unforeseeable
consequential damages, of whatever kind or nature (including but not limited to
reasonable attorneys' fees and other costs of defense) imposed upon or incurred
by or asserted against Lender by reason of (a) ownership of the Note, the
Mortgage, the Mortgaged Property or any interest therein or receipt of any
Rents, (b) any amendment to, or restructuring of, the Loan Obligations and/or
any of the Loan Documents, (c) any and all lawful action that may be taken by
Lender in connection with the enforcement of the provisions of the Mortgage or
the Note or any of the other Loan Documents, whether or not suit is filed in
connection with same, or in connection with Borrower, Guarantor, Manager and/or
any partner, joint venturer, member or shareholder thereof becoming a party to a
voluntary or involuntary federal or state bankruptcy, insolvency or similar
proceeding, (d) any accident, injury to or death of persons or loss of or damage
to property occurring in, on or about the Land, the Improvements or any part
thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways, (e) any use, nonuse or condition in, on or about
the Land, the Improvements or any part thereof or on the adjoining sidewalks,
curbs, adjacent property or adjacent parking areas, streets or ways, (f) any
failure on the part of Borrower, Guarantor or Manager to perform or comply with
any of the terms of this Agreement or any of the other Loan Documents, (g) any
claims by any broker, Person or entity claiming to have participated in
arranging the making of the Loan evidenced by the Note, (h) any failure of the
Land and/or Improvements to be in compliance with any applicable laws, (i)
performance of any labor or services or the furnishing of any materials or other
property with respect to the Land, the Improvements or any part thereof, (j) the
failure of any Person to file timely with the Internal Revenue Service an
accurate Form 1099-b, statement for recipients of proceeds from real estate,


                                       41

<PAGE>

broker and barter exchange transactions, which may be required in connection
with the Mortgage, or to supply a copy thereof in a timely fashion to the
recipient of the proceeds of the transaction in connection with which the Loan
is made, (k) any misrepresentation made to Lender in this Agreement or in any of
the other Loan Documents, (l) any tax on the making and/or recording of the
Mortgage, the Note or any of the other Loan Documents; (m) the violation of any
requirements of the Employee Retirement Income Security Act of 1974, as amended,
(n) any fines or penalties assessed or any corrective costs incurred by Lender
if the Facility or any part of the Land and/or Improvements is determined to be
in violation of any covenants, restrictions of record, or any applicable laws,
ordinances, rules or regulations, or (o) the enforcement by any of the
Indemnified Parties of the provisions of this Section 8.4. Any amounts payable
to Lender by reason of the application of this Section 8.4, shall become
immediately due and payable, and shall constitute a portion of the Loan
Obligations, shall be secured by the Mortgage and shall accrue interest at the
Default Rate (as defined in the Note). The obligations and liabilities of
Borrower under this Section 8.4 shall survive any termination, satisfaction,
assignment, entry of a judgment of foreclosure or exercise of a power of sale or
delivery of a deed in lieu of foreclosure of the Mortgage. For purposes of this
Section 8.4, the term "Indemnified Parties" means Lender and any Person who is
or will have been involved in the origination of the Loan, any Person who is or
will have been involved in the servicing of the Loan, any Person in whose name
the encumbrance created by the Mortgage is or will have been recorded, any
Person who may hold or acquire or will have held a full or partial interest in
the Loan (including, without limitation, any investor in any securities backed
in whole or in part by the Loan) as well as the respective directors, officers,
shareholder, partners, members, employees, agents, servants, representatives,
contractors, subcontractors, affiliates, subsidiaries, participants, successors
and assigns of any and all of the foregoing (including, without limitation, any
other Person who holds or acquires or will have held a participation or other
full or partial interest in the Loan or the Mortgaged Property, whether during
the term of the Mortgage or as a part of or following a foreclosure of the Loan
and including, without limitation, any successors by merger, consolidation or
acquisition of all or a substantial portion of Lender's assets and business).

     8.5 HEADINGS. The headings of the Sections of this Agreement are for
convenience of reference only, are not to be considered a part hereof, and shall
not limit or otherwise affect any of the terms hereof.

     8.6 SURVIVAL OF COVENANTS. All covenants, agreements, representations and
warranties made herein and in certificates or reports delivered pursuant hereto
shall be deemed to have been material and relied on by Lender, notwithstanding
any investigation made by or on behalf of Lender, and shall survive the
execution and delivery to Lender of the Note and this Agreement.

     8.7 NOTICES, ETC. Any notice or other communication required or permitted
to be given by this Agreement or the other Loan Documents or by applicable law
shall be in writing and shall be deemed received (a) on the date delivered, if
sent by hand delivery (to the person or department if one is specified below)
with receipt acknowledged by the recipient thereof, (b) three (3) Business Days
following the date deposited in U.S. mail, certified or registered, with


                                       42

<PAGE>

return receipt requested, or (c) one (1) Business Day following the date
deposited with Federal Express or other national overnight carrier, and in each
case addressed as follows:

          If to Borrower:

               Diversicare Briarcliff, LLC
               c/o Advocat Inc
               1621 Galleria Blvd.
               Brentwood, TN 37027-2926
               Attn: Glynn Riddle

          If to Lender:

               GMAC Commercial Mortgage Corporation
               200 Witmer Road
               Horsham, Pennsylvania 19044-0809
               Attn: Servicing Department

               and

               GMAC Commercial Mortgage Corporation
               2200 Woodcrest Place, Suite 305
               Birmingham, AL 35209
               Attn: Laura McDonald

          with a copy to:

               Shannon B. Lisenby, Esquire
               Bradley Arant Rose & White LLP
               One Federal Place
               1819 Fifth Avenue North
               Birmingham, AL 35203-2119

Either party may change its address to another single address by notice given as
herein provided, except any change of address notice must be actually received
in order to be effective.

     8.8 BENEFITS. All of the terms and provisions of this Agreement shall bind
and inure to the benefit of the parties hereto and their respective successors
and assigns. No Person other than Borrower or Lender shall be entitled to rely
upon this Agreement or be entitled to the benefits of this Agreement.

     8.9 PARTICIPATION. Borrower acknowledges that Lender may, at its option,
sell participation interests in the Loan or to other participating banks or
Lender may (but shall not be obligated to) assign its interest in the Loan to
its affiliates, or to other assignees (the "Assignee") to be included as a pool
of properties to be financed in a proposed Real Estate Mortgage Investment
Conduit (REMIC). Borrower agrees with each present and future participant in the
Loan or Assignee of the Loan that if an Event of Default should occur, each
present and future


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<PAGE>

participant or Assignee shall have all of the rights and remedies of Lender with
respect to any deposit due from Borrower. The execution by a participant of a
participation agreement with Lender, and the execution by Borrower of this
Agreement, regardless of the order of execution, shall evidence an agreement
between Borrower and said participant in accordance with the terms of this
Section. If the Loan is assigned to the Assignee, the Assignee will engage an
underwriter (the "Underwriter"), who will be responsible for the due diligence,
documentation, preparation and execution of certain documents required in
connection with the offering of interests in the REMIC. Borrower agrees that
Lender may, at its sole option and without notice to or consent of Borrower,
assign its interest in the Loan to the Assignee for inclusion in the REMIC and,
in such event, Borrower agrees to provide the Assignee with such information as
may be reasonably required by the Underwriter in connection therewith or by an
investor in any securities backed in whole or in part by the Loan or any rating
agency rating such securities. Borrower irrevocably waives any and all right it
may have under applicable law to prohibit such disclosure, including, but not
limited to, any right of privacy, and consents to the disclosure of such
information to the Underwriter, to potential investors in the REMIC, and to such
rating agencies.

     8.10 SUPERSEDES PRIOR AGREEMENTS; COUNTERPARTS. This Agreement and the
instruments referred to herein supersede and incorporate all representations,
promises and statements, oral or written, made by Lender in connection with the
Loan. This Agreement may not be varied, altered, or amended except by a written
instrument executed by an authorized officer of Lender. This Agreement may be
executed in any number of counterparts, each of which, when executed and
delivered, shall be an original, but such counterparts shall together constitute
one and the same instrument.

     8.11 LOAN AGREEMENT GOVERNS. The Loan is governed by the terms and
provisions set forth in this Loan Agreement and the other Loan Documents and in
the event of any irreconcilable conflict between the terms of the other Loan
Documents and the terms of this Loan Agreement, the terms of this Loan Agreement
shall control; provided, however, that in the event that there is any apparent
conflict between any particular term or provision which appears in both this
Loan Agreement and the other Loan Documents and it is possible and reasonable
for the terms of both this Loan Agreement and the Loan Documents to be performed
or complied with, then, notwithstanding the foregoing, both the terms of this
Loan Agreement and the other Loan Documents shall be performed and complied
with.

     8.12 CONTROLLING LAW. THE PARTIES HERETO AGREE THAT THE VALIDITY,
INTERPRETATION, ENFORCEMENT AND EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TENNESSEE AND THE
PARTIES HERETO SUBMIT (AND WAIVE ALL RIGHTS TO OBJECT) TO NON-EXCLUSIVE PERSONAL
JURISDICTION IN THE STATE OF TENNESSEE FOR THE ENFORCEMENT OF ANY AND ALL
OBLIGATIONS UNDER THE LOAN DOCUMENTS EXCEPT THAT IF ANY SUCH ACTION OR
PROCEEDING ARISES UNDER THE CONSTITUTION, LAWS OR TREATIES OF THE UNITED STATES
OF AMERICA, OR IF THERE IS A DIVERSITY OF CITIZENSHIP BETWEEN THE PARTIES
THERETO, SO THAT IT IS TO BE BROUGHT IN A UNITED STATES DISTRICT COURT, IT SHALL
BE BROUGHT IN THE UNITED STATES


                                       44

<PAGE>

DISTRICT COURT FOR THE MIDDLE DISTRICT OF TENNESSEE OR ANY SUCCESSOR FEDERAL
COURT HAVING ORIGINAL JURISDICTION.

     8.13 WAIVER OF JURY TRIAL. BORROWER AND LENDER HEREBY WAIVE ANY RIGHT THAT
EITHER OR BOTH MAY HAVE TO A TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF,
DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY RELATED TO
THIS AGREEMENT OR THE LOAN, OR (B) IN ANY WAY CONNECTED WITH OR PERTAINING OR
RELATED TO OR INCIDENTAL TO ANY DEALINGS OF LENDER AND/OR BORROWER WITH RESPECT
TO THE LOAN DOCUMENTS OR IN CONNECTION WITH THIS AGREEMENT OR THE EXERCISE OF
EITHER PARTY'S RIGHTS AND REMEDIES UNDER THIS AGREEMENT OR OTHERWISE OR THE
CONDUCT OR THE RELATIONSHIP OF THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES
WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT
OR OTHERWISE. BORROWER AGREES THAT LENDER MAY FILE A COPY OF THIS AGREEMENT WITH
ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND BARGAINED AGREEMENT
OF BORROWER IRREVOCABLY TO WAIVE ITS RIGHTS TO TRIAL BY JURY AS AN INDUCEMENT TO
LENDER TO MAKE THE LOAN, AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
ANY DISPUTE OR CONTROVERSY WHATSOEVER (WHETHER OR NOT MODIFIED HEREIN) BETWEEN
BORROWER AND LENDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION
BY A JUDGE SITTING WITHOUT A JURY.

                    [SIGNATURES APPEAR ON THE FOLLOWING PAGE]


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<PAGE>

     IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be
properly executed by their respective duly authorized representatives as of the
date first above written.

                                        BORROWER:

                                        DIVERSICARE BRIARCLIFF, LLC, a
                                        Delaware limited liability company

                                        By: Diversicare Leasing Corp., a
                                        Tennessee corporation,
                                        its sole member


                                        /s/ Glynn Riddle, Jr.
                                        ----------------------------------------
                                        By: Glynn Riddle, Jr.
                                        Its: Chief Financial Officer


                                        LENDER:

                                        GMAC COMMERCIAL MORTGAGE CORPORATION, a
                                        California corporation


                                        /s/ Laura Y. McDonald
                                        ----------------------------------------
                                        By: Laura Y McDonald
                                        Its: Senior Vice President


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