Document:

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                                                                  EXHIBIT 10.6

                                 PROMISSORY NOTE

$2,913,000.00                                              Nashville, Tennessee
                                                           March 29, 2001

        FOR VALUE RECEIVED, the undersigned DIVERSICARE PINEDALE, LLC, a
Delaware limited liability company, having an address at 277 Mallory Station
Road, Suite 130, Franklin, Tennessee 37067 (the "Borrower"), hereby promises to
pay to the order of GMAC COMMERCIAL MORTGAGE CORPORATION, a California
corporation, having an address at 200 Witmer Road, Horsham, Pennsylvania 19044
(the "Lender"), its successors and assigns as holder of this Note or, if this
Note has then been endorsed "to bearer," to the bearer of this Note (the Lender,
its said successors and assigns, and any such bearer, being hereinafter
sometimes referred to collectively as the "Holder"), at the Lender's said
address or at such other place or to such other person as may be designated in
writing to the Borrower by the Lender, the principal sum of Two Million Nine
Hundred Thirteen Thousand and No/100 Dollars ($2,913,000.00) (the "Loan"),
together with interest on the unpaid balance thereof at the rate hereinafter set
forth.

        ON THE TERMS AND SUBJECT TO THE CONDITIONS which are hereinafter set
forth:

        Section 1. Interest Rate and Payment Dates.

        1.1 Initial Rate and Initial Payment. Interest shall accrue on the
outstanding balance of the principal amount outstanding hereunder from time to
time from and after the date hereof at the rate of 8.5838 percent per annum
until the first Rate Adjustment Date (as defined below). On each successive Rate
Adjustment Date, the rate of interest at which interest accrues shall be
adjusted to the then applicable Note Rate (as defined below). Interest for the
period beginning on the date of this Note and ending on and including the last
day of the month in which this Note is dated shall be payable on the date
hereof. Interest shall be paid in arrears and shall be computed on the basis of
a 360-day year and actual number of days elapsed for any whole or partial month
in which interest on the loan is being calculated and shall be charged on the
principal balance outstanding from time to time.

        1.2 Rate Adjustment Date and Payment Adjustment Dates. The interest rate
shall be adjusted on the dates (each being a "Rate Adjustment Date") described
in this paragraph. The first Rate Adjustment Date shall be April 1, 2001, and
subsequent Rate Adjustment Dates shall fall on the first day of each subsequent
one month anniversary thereafter. The first payment adjustment date shall be May
1, 2001, and subsequent payment adjustment dates shall fall on the first day of
each calendar month thereafter during the term of the Loan.

        1.3 Default Interest Rate. If the Borrower fails to make any payment of
principal, interest or fees on the date on which such payment becomes due and
payable (including applicable grace periods) whether at maturity or by
acceleration or on any other date, such payment shall accrue interest from the
date on which such payment was due (and not the date of the payment

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default) until paid at the fluctuating rate ("Default Rate") which is the lesser
of (a) five (5) percentage points above the then applicable LIBOR Rate (as
defined below) and (b) the maximum rate permitted by applicable law.

        1.4 LIBOR Rate. The LIBOR Rate shall mean the average of London
Interbank Offered Rates ("LIBOR") for a term of one month determined solely by
Holder as of each Rate Adjustment Date plus three hundred fifty (350) basis
points per annum, determined in the manner herein set forth below. On each Rate
Adjustment Date, Holder will obtain the one month LIBOR (in U.S. Dollar
deposits) from the appropriate Bloomberg display page available as of the close
of business announced on the last business day of the month immediately
preceding the Rate Adjustment Date. In the event Bloomberg ceases publication or
ceases to publish the one month LIBOR, Holder shall select a comparable
publication to determine the one month LIBOR and provide notice thereof to
Borrower. LIBOR may or may not be the lowest rate based upon the market for U.S.
Dollar deposits in the London Interbank Eurodollar Market at which the Holder
prices loans on the date on which the LIBOR Rate is determined by Holder as set
forth above.

        1.5 LIBOR Rate Adjustments. This Note shall bear interest at the rate
set forth above or at the applicable LIBOR Rate until a new LIBOR Rate is
determined on each Rate Adjustment Date in accordance with the provisions
hereof; provided, however, that, if Holder at any time determines, in the sole
but reasonable exercise of its discretion, that it has miscalculated the amount
of the monthly payment of principal and/or interest (whether because of a
miscalculation of the LIBOR Rate or otherwise), then Holder shall give notice to
Borrower of the corrected amount of such monthly payment (and the corrected
amount of the LIBOR Rate, if applicable) and (a) if the corrected amount of such
monthly payment represents an increase thereof, then Borrower shall, within ten
(10) calendar days thereafter, pay to Holder any sums that Borrower would have
otherwise been obligated under this Note to pay to Holder had the amount of such
monthly payment not been miscalculated, or (b) if the corrected amount of such
monthly payment represents a decrease thereof and Borrower is not otherwise in
breach or default under any of the terms and provisions of the Note or the Loan
Agreement, then Borrower shall, within (10) calendar days thereafter be paid the
sums that Borrower would not have otherwise been obligated to pay to Holder had
the amount of such monthly payment not been miscalculated.

        1.6 LIBOR Unascertainable. If (a) on any date on which the LIBOR Rate
would otherwise be set, Holder shall have determined in good faith (which
determination shall be conclusive) that (i) adequate and reasonable means do not
exist for ascertaining the one month LIBOR, or (ii) a contingency has occurred
which materially and adversely affects the London Interbank Eurodollar Market at
which Holder prices loans on the date on which the LIBOR Rate is determined by
Holder as set forth above, or (b) at any time Holder shall have determined in
good faith (which determination shall be conclusive) that the making,
maintenance or funding of any part of the Loan has been made impracticable or
unlawful by compliance by Holder in good faith with any Law or guideline or
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof or with any request or
directive of any such Governmental Authority (whether or not having the force of
law) then, and in any such event, Holder may notify Borrower of such
determination. Upon such date as shall be specified in such notice (which shall
not be earlier than the date such notice is given) the obligation of Holder to

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charge interest to Borrower at the LIBOR Rate shall be suspended until Holder
shall have later notified Borrower of Holder's determination in good faith
(which determination shall be conclusive) that the circumstances giving rise to
such previous determination no longer exist.

        1.7 U.S. Treasury Securities. If Holder notifies Borrower of a
determination under subsection 1.6 hereof for purposes of calculating the LIBOR
Rate, the one month LIBOR shall automatically be converted to the "Index" of the
weekly average yield on United States Treasury Securities adjusted to a constant
maturity of one year, as made available by the Federal Reserve Board 45 days
prior to the Rate Adjustment Date.

        1.8 Reimbursement for Increased Costs. If any law or guideline or
interpretation or application thereof by any Governmental Authority charged with
the interpretation or administration thereof or compliance with any request or
directive of any Governmental Authority (whether or not having the force of law)
now existing or hereafter adopted (a) subjects Holder to any tax or changes the
basis of taxation with respect to this Note, the Loan or payments by Borrower of
principal, interest or other amounts due from Borrower hereunder or thereunder
(except for taxes on the overall net income or overall gross receipts of Holder
imposed as a result of a present or former connection between the jurisdiction
of the Governmental Authority imposing such tax on Holder, provided, that this
exclusion shall not apply to a connection arising solely from Holder having
executed, delivered, performed its obligations under or received a payment
under, or enforced any of the Loan Documents (as defined in Section 8.1.1
below)), or (b) imposes upon Holder any other condition or expense with respect
to this Note, the Loan or its making, maintenance or funding of any part of the
Loan or any security therefor, and the result of any of the foregoing is to
increase the cost to, reduce the income receivable by, or impose any expense
(including, without limitation, loss of margin) upon Holder with respect to the
Note, or the making, maintenance or funding of any part of the Loan, by an
amount which Holder deems to be material, Holder may from time to time notify
Borrower of the amount determined in good faith (using any averaging and
attribution methods) by Holder (which determination shall be conclusive) to be
necessary to compensate Holder for such increase, reduction or imposition and,
if Borrower is by law prohibited from paying any such amount, Holder may elect
to declare the unpaid principal balance hereof and all interest accrued thereon
immediately due and payable. Such amount shall be due and payable by Borrower to
Holder ten (10) days after such notice is given.

        Section 2. Payments.

        2.1 Intentionally Deleted.

        2.2 Principal and Interest Payments. Commencing on May 1, 2001 and
continuing on the first day of each calendar month thereafter through and
including the Maturity Date (defined below) monthly payments of principal and
interest in installments in such amount as is necessary, taking into account the
then effective LIBOR Rate to fully amortize the unpaid principal balance of the
Note over an assumed period of 25 years; provided, however, the entire unpaid
principal balance together with interest thereon shall be due and payable in
full on April 1, 2006.

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        Section 3. Application of Payments. Payments made by Borrower on account
hereof shall be applied, first, toward any Late Fees (hereinafter defined) or
other fees and charges due hereunder, second, toward payment of any interest due
at the Default Rate, third, toward payment of any interest due at the then
applicable LIBOR Rate set forth in Section 1.4 above, and fourth, toward payment
of principal. Notwithstanding the foregoing, if any advances made by Holder
under the terms of any instruments securing this Note have not been repaid, any
payments made may, at the option of Holder, be applied, first, to repay such
advances, and interest thereon, with the balance, if any, applied as set forth
in the preceding sentence.

        Section 4. Maturity. Anything in this Note to the contrary
notwithstanding, the entire unpaid balance of the principal amount hereof and
all interest accrued thereon, to and including the Maturity Date (as defined
below), (including interest accruing at the Default Rate) and all Late Fees (as
defined below) shall, unless sooner paid, and except to the extent that payment
thereof is sooner accelerated, be and become due and payable on April 1, 2006
(the "Maturity Date"). Notwithstanding anything contained herein, if repayment
of the Loan is funded from the proceeds of any refinancing of the Loan pursuant
to which Holder does not receive a contractually agreed upon sum for the
arrangement thereof, then Borrower shall pay to Holder a premium equal to one-
half of one percent (.05%) of the outstanding principal balance of the Note on
the date of such prepayment.

        Section 5. Prepayment.

        Prepayment of the Loan in full or in part shall be permitted at any time
during the term of the Loan without penalty, upon not less than thirty (30) and
not greater than forty (40) days prior written notice to Lender specifying the
date on which prepayment is to be made. Any such prepayment shall be credited,
first, toward any Late Fees due hereunder, second, toward payment of any
interest due at the Default Rate, third, toward payment of any interest due
hereunder at the LIBOR Rate, and, fourth, toward payment of principal; provided,
however, that if any advances made by Holder under the terms of any instruments
securing this Note have not been repaid, any payments made may, at the option of
Holder, be applied, first, to repay such advances, and interest thereon, with
the balance, if any, applied as set forth in the preceding sentence.
Notwithstanding anything contained herein, if such prepayment set forth herein
is funded from the proceeds of any refinancing of the Loan pursuant to which the
Holder does not receive a contractually agreed upon sum for the arrangement
thereof, then Borrower shall pay to Holder a repayment in full as premium equal
to one half of one percent (.05%) of the outstanding principal balance of the
Note on the date of such prepayment (which balance shall be calculated exclusive
of any voluntary partial prepayment).

        Section 6. Method of Payment.

        Each payment of the Loan Obligations (as defined in the Loan Agreement)
shall be paid directly to the Holder in lawful tender of the United States of
America. Each such payment shall be paid by 1:00 p.m. Horsham, Pennsylvania,
time on the date such payment is due, except if such date is not a Business Day
(as defined in the Loan Agreement) such payment shall then be due on the first
Business Day after such date. Any payment received after 1:00 p.m. Horsham,

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Pennsylvania, time shall be deemed to have been received on the immediately
following Business Day.

        Section 7. Security.

        The debt evidenced by this Note is to be secured by, among other things,
(a) a Mortgage and Security Agreement (the "Mortgage") of even date herewith by
and between Borrower and Holder, and intended to be recorded in the office of
the Judge of Probate of Jackson County, Arkansas and covering all of that real
property in the said Jackson County, Arkansas, which is described in Exhibit "A"
thereto (the "Property"), and (b) a Guaranty Agreement of even date herewith
("Guaranty Agreement"), given by Advocat Inc., a Delaware corporation (the
"Guarantor"), for the benefit of Holder.

        Section 8. Default.

        8.1 Events of Default. Anything in this Note to the contrary
notwithstanding, on the occurrence of any of the following events (each of which
is hereinafter referred to as an "Event of Default"), the Holder may, in the
exercise of its sole and absolute discretion, accelerate the debt evidenced by
this Note, in which event the entire outstanding principal balance and all
interest and fees accrued thereon shall immediately be and become due and
payable without further notice:

            8.1.1 Failure to Pay or Perform. If (a) the Borrower fails in making
any payment to the Holder of any or all sums due hereunder within ten (10) days
after such payment becomes due or on the Maturity Date or (b) there exists an
uncured default under any other document or instrument evidencing or securing
the Loan (collectively, the "Loan Documents") which has been executed by
Borrower and/or Guarantor, and such default is not cured within the grace or
cure period, if any, provided in any of such Loan Documents.

            8.1.2 Bankruptcy.

                  (a) If the Borrower or Guarantor (i) applies for or consents
to the appointment of a receiver, trustee or liquidator of the Borrower or
Guarantor, as the case may be, or of all or a substantial part of its assets,
(ii) files a voluntary petition in bankruptcy, or admits in writing its
inability to pay its debts as they come due, (iii) makes an assignment for the
benefit of creditors, (iv) files a petition or an answer seeking a
reorganization or an arrangement with creditors or seeking to take advantage of
any insolvency law, (v) performs any other act of bankruptcy, or (vi) files an
answer admitting the material allegations of a petition filed against the
Borrower or Guarantor in any bankruptcy, reorganization or insolvency
proceeding; or

                  (b) if (i) an order, judgment or decree is entered by any
court of competent jurisdiction adjudicating the Borrower or Guarantor a
bankrupt or an insolvent, or approving a receiver, trustee or liquidator of the
Borrower or Guarantor or of all or a substantial part of its assets, or (ii)
there otherwise commences with respect to the Borrower or Guarantor or any of
its assets any proceeding under any bankruptcy, reorganization, arrangement,
insolvency, readjustment, receivership or like law or statute, and if such
order, judgment, decree or proceeding

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continues unstayed for any period of sixty (60) consecutive days after the
expiration of any stay thereof.

            8.1.3 Judgments. If any judgment for the payment of money in excess
of $100,000.00 hereafter awarded against the Borrower or Guarantor by any court
of competent jurisdiction remains unsatisfied or otherwise in force and effect
for a period of thirty (30) days after the date of such award.

            8.1.4 Cross-Defaults. Pursuant to that certain
Cross-Collateralization and Cross-Default Agreement of even date herewith by
and among the Borrower, Diversicare Windsor House, LLC, a Delaware limited
liability company ("Windsor House") and the Lender, the Loan shall be
cross-defaulted with a loan made by the Lender to Windsor House.

        8.2 No Impairment of Rights. Nothing in this Section shall be deemed in
any way to alter or impair any right which the Holder has under this Note or the
Mortgage, or any of the other Loan Documents or at law or in equity, to
accelerate such debt on the occurrence of any other Event of Default provided
herein or therein, whether or not relating to this Note.

        8.3 Late Fees. Without limiting the generality of the foregoing
provisions of this Section, if any payment of interest or principal is not made
prior to ten (10) days after the date on which it becomes due, the Borrower
shall thereupon automatically become obligated immediately to pay to the Holder
a late charge equal to the lesser of five percent (5%) of the amount of such
payment or the maximum amount permitted by applicable law ("Late Fees") to
defray the expenses incurred by Holder in handling and processing such
delinquent payment and to compensate Holder for the loss of use of such
delinquent payment, which sum shall be due and payable immediately thereupon.

        Section 9. Costs of Enforcement.

        The Borrower shall pay to the Holder on demand by the latter the amount
of any and all expenses incurred by the Holder (a) in enforcing its rights
hereunder or under the Mortgage and/or the Loan Documents, (b) as the result of
a default by the Borrower in performing its obligations under this Note,
including but not limited to the expense of collecting any amount owed
hereunder, and of any and all reasonable attorneys' fees incurred by Holder in
connection with such default, whether suit be brought or not, or (c) in
protecting the security hereof. Such expenses shall be added to the principal
amount hereof, shall be secured by the Mortgage and shall accrue interest at the
Default Rate.

        Section 10. Borrower's Waiver of Certain Rights.

       The Borrower and any endorser, guarantor or surety hereby waives the
exercise of any and all exemption rights which it holds at law or in equity with
respect to the debt evidenced by this Note, and of any and all rights which it
holds at law or in equity to require any valuation, appraisal or marshalling, or
to have or receive any presentment, protest, demand and notice of dishonor,

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protest, demand and nonpayment as a condition to the Holder's exercise of any of
its rights under this Note or the Loan Documents.

        Section 11. Extensions.

        The Maturity Date and/or any other date by which any payment is required
to be made hereunder may be extended by the Holder from time to time in the
exercise of its sole discretion, without in any way altering or impairing the
Borrower's or Guarantor's liability hereunder.

        Section 12. General.

        12.1 Applicable Law. This Note shall be given effect and construed by
application of the laws of the State of Tennessee (without regard to the
principles thereof governing conflicts of laws), and any action or proceeding
arising hereunder, and each of Holder and Borrower submits (and waives 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 District Court for the Middle District of Tennessee or any successor
federal court having original jurisdiction.

        12.2 Headings. The headings of the Sections, subsections, paragraphs and
subparagraphs hereof are provided herein for and only for convenience of
reference, and shall not be considered in construing their contents.

        12.3 Construction. As used herein, (a) the term "person" means a natural
person, a trustee, a corporation, a limited liability company, a partnership and
any other form of legal entity, and (b) all references made (i) in the neuter,
masculine or feminine gender shall be deemed to have been made in all such
genders, (ii) in the singular or plural number shall be deemed to have been
made, respectively, in the plural or singular number as well, and (iii) to any
Section, subsection, paragraph or subparagraph shall, unless therein expressly
indicated to the contrary, be deemed to have been made to such Section,
subsection, paragraph or subparagraph of this Note.

        12.4 Severability. No determination by any court, governmental body or
otherwise that any provision of this Note or any amendment hereof is invalid or
unenforceable in any instance shall affect the validity or enforceability of (a)
any other such provision or (b) such provision in any circumstance not
controlled by such determination. Each such provision shall be valid and
enforceable to the fullest extent allowed by, and shall be construed wherever
possible as being consistent with, applicable law.

        12.5 No Waiver. The Holder shall not be deemed to have waived the
exercise of any right which it holds hereunder unless such waiver is made
expressly and in writing. No delay or omission by the Holder in exercising any
such right (and no allowance by the Holder to the Borrower of an opportunity to
cure a default in performing its obligations hereunder) shall be deemed a waiver
of its future exercise. No such waiver made as to any instance involving the
exercise of any such right

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shall be deemed a waiver as to any other such instance, or any other such right.
Further, acceptance by Holder of all or any portion of any sum payable under, or
partial performance of any covenant of, this Note, the Mortgage or any of the
other Loan Documents, whether before, on, or after the due date of such payment
or performance, shall not be a waiver of Holder's right either to require prompt
and full payment and performance when due of all other sums payable or
obligations due thereunder or hereunder or to exercise any of Holder's rights
and remedies hereunder or thereunder.

        12.6 Waiver of Jury Trial; Service of Process; Court Costs. BORROWER
HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWER
AND THE HOLDER MAY BE PARTIES ARISING OUT OF, IN CONNECTION WITH, OR IN ANY WAY
PERTAINING TO, THIS NOTE AND/OR ANY OF THE OTHER LOAN DOCUMENTS. IT IS AGREED
AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL
CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS
AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER IS KNOWINGLY,
WILLINGLY AND VOLUNTARILY MADE BY THE BORROWER, UPON CONSULTATION WITH COUNSEL
OF BORROWER'S CHOICE, AND THE BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS
OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF
TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWER
FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF
THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS
HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF
ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER
WITH COUNSEL. BORROWER HEREBY IRREVOCABLY DESIGNATES NATIONAL REGISTERED AGENTS,
INC. (THE "AGENT"), 9 EAST LOOCKERMAN STREET, DOVER, DELAWARE 19901 AS ITS
REGISTERED AGENT FOR THE PURPOSE OF RECEIVING SERVICE OF ALL LEGAL NOTICES AND
PROCESS ISSUED BY ANY COURT IN THE STATE OF ALABAMA AS WELL AS SERVICE OF ALL
PLEADINGS AND OTHER DOCUMENTS RELATED TO ANY LEGAL PROCEEDING OR ACTION ARISING
OUT OF THIS NOTE. BORROWER AGREES THAT SERVICE UPON THE AGENT SHALL BE VALID
REGARDLESS OF BORROWER'S WHEREABOUTS AT THE TIME OF SUCH SERVICE AND REGARDLESS
OF WHETHER BORROWER RECEIVES A COPY OF SUCH SERVICE, PROVIDED THAT THE HOLDER
SHALL HAVE MAILED A COPY TO BORROWER IN ACCORDANCE WITH THE NOTICE PROVISIONS
HEREIN. BORROWER AGREES TO PAY ALL COURT COSTS AND REASONABLE ATTORNEY'S FEES
INCURRED BY HOLDER IN CONNECTION WITH ENFORCING ANY PROVISION OF THIS NOTE.
NOTWITHSTANDING THE FOREGOING, HOLDER AGREES TO USE REASONABLE EFFORTS TO
PROVIDE BORROWER WITH NOTICE OF THE FILING OF ANY LAWSUIT BY HOLDER AGAINST
BORROWER.

        12.7 Offset. Upon the occurrence of an Event of Default, the Holder may
set-off against any principal and interest owing hereunder, any and all credits,
money, stocks, bonds or other

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security or property of any nature whatsoever on deposit with, or held by, or in
the possession of, the Holder, to the credit of or for the account of the
Borrower, without notice to or consent of the Borrower or Guarantor.

        12.8 Non-Exclusivity of Rights and Remedies. None of the rights and
remedies herein conferred upon or reserved to Holder is intended to be exclusive
of any other right or remedy contained herein or in any of the other Loan
Documents and each and every such right and remedy shall be cumulative and
concurrent, and may be enforced separately, successively or together, and may be
exercised from time to time as often as may be deemed necessary or desirable by
Holder.

        12.9 Incorporation by Reference. All of the agreements, conditions,
covenants and provisions contained in each of the Loan Documents are hereby made
a part of this Note to the same extent and with the same force and effect as if
they were fully set forth herein. Borrower covenants and agrees to keep and
perform, or cause to be kept and performed, all such agreements, conditions,
covenants and provisions strictly in accordance with their terms.

        12.10 Joint and Several Liability. If Borrower consists of more than one
person and/or entity, each such person and/or entity agrees that its liability
hereunder is joint and several.

        12.11 Business Purpose. Borrower represents and warrants that the Loan
evidenced by this Note is being obtained solely for the purpose of acquiring or
carrying on a business, professional or commercial activity and is not for
personal, agricultural, family or household purposes.

        12.12 Interest Limitation. Notwithstanding anything to the contrary
contained herein or in the Mortgage or in any other of the Loan Documents, the
effective rate of interest on the obligation evidenced by this Note shall not
exceed the lawful maximum rate of interest permitted to be paid. Without
limiting the generality of the foregoing, in the event that the interest charged
hereunder results in an effective rate of interest higher than that lawfully
permitted to be paid, then such charges shall be reduced by the sum sufficient
to result in an effective rate of interest permitted and any amount which would
exceed the highest lawful rate already received and held by the Holder shall be
applied to a reduction of principal and not to the payment of interest. Borrower
agrees that for the purpose of determining highest rate permitted by law, any
non-principal payment (including, without limitation, Late Fees and other fees)
shall be deemed, to the extent permitted by law, to be an expense, fee or
premium rather than interest. This provision shall control every other provision
of this Note and the other Loan Documents with respect to the changing,
collecting and payment of interest on the indebtedness evidenced hereby.

        12.13 Modification. This Note may be modified, amended, discharged or
waived only by an agreement in writing signed by the party against whom
enforcement of such modification, amendment, discharge or waiver is sought.

        12.14 Time of the Essence. Time is strictly of the essence of this Note.

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        12.15 Negotiable Instrument. The Borrower agrees that this Note shall be
deemed a negotiable instrument, even though this Note may not otherwise qualify,
under applicable law, absent this paragraph, as a negotiable instrument.

        12.16 Interest Rate After Judgment. If judgment is entered against the
Borrower on this Note, the amount of the judgment entered (which may include
principal, interest, fees, Late Fees and costs) shall bear interest at the
Default Rate, to be determined on the date of the entry of the judgment.

        12.17 Relationship. Borrower and Holder intend that the relationship
between them shall be solely that of creditor and debtor. Nothing contained in
this Note or in any of the other Loan Documents shall be deemed or construed to
create a partnership, tenancy-in-common, joint tenancy, joint venture or
co-ownership by or between Borrower and Holder.

        12.18 WAIVER OF AUTOMATIC STAY. BORROWER HEREBY AGREES THAT, IN
CONSIDERATION OF LENDER'S AGREEMENT TO MAKE THE LOAN AND IN RECOGNITION THAT THE
FOLLOWING COVENANT IS A MATERIAL INDUCEMENT FOR LENDER TO MAKE THE LOAN, IN THE
EVENT THAT BORROWER SHALL (A) FILE WITH ANY BANKRUPTCY COURT OF COMPETENT
JURISDICTION OR BE THE SUBJECT OF ANY PETITION UNDER ANY SECTION OR CHAPTER OF
TITLE 11 OF THE UNITED STATES CODE, AS AMENDED ("BANKRUPTCY CODE"), OR SIMILAR
LAW OR STATUTE; (B) BE THE SUBJECT OF ANY ORDER FOR RELIEF ISSUED UNDER THE
BANKRUPTCY CODE OR SIMILAR LAW OR STATUTE; (C) FILE OR BE THE SUBJECT OF ANY
PETITION SEEKING ANY REORGANIZATION, ARRANGEMENT, COMPOSITION, READJUSTMENT,
LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL
OR STATE ACT OR LAW RELATING TO BANKRUPTCY, INSOLVENCY, OR OTHER RELIEF FOR
DEBTORS; (D) HAVE SOUGHT OR CONSENTED TO OR ACQUIESCED IN THE APPOINTMENT OF ANY
TRUSTEE, RECEIVER, CONSERVATOR, OR LIQUIDATOR; OR (E) BE THE SUBJECT OF AN
ORDER, JUDGMENT OR DECREE ENTERED BY ANY COURT OF COMPETENT JURISDICTION
APPROVING A PETITION FILED AGAINST ANY BORROWER FOR ANY REORGANIZATION,
ARRANGEMENT, COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR
RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO
BANKRUPTCY, INSOLVENCY OR RELIEF FOR DEBTORS, THEN, SUBJECT TO COURT APPROVAL,
HOLDER SHALL THEREUPON BE ENTITLED AND BORROWER HEREBY IRREVOCABLY CONSENTS TO,
AND WILL NOT CONTEST, AND AGREES TO STIPULATE TO RELIEF FROM ANY AUTOMATIC STAY
OR OTHER INJUNCTION IMPOSED BY SECTION 362 OF THE BANKRUPTCY CODE, OR SIMILAR
LAW OR STATUTE (INCLUDING, WITHOUT LIMITATION, RELIEF FROM ANY EXCLUSIVE PERIOD
SET FORTH IN SECTION 1121 OF THE BANKRUPTCY CODE) OR OTHERWISE, ON OR AGAINST
THE EXERCISE OF THE RIGHTS AND REMEDIES OTHERWISE AVAILABLE TO HOLDER AS
PROVIDED IN THE LOAN DOCUMENTS, AND AS OTHERWISE PROVIDED BY LAW, AND BORROWER
HEREBY IRREVOCABLY WAIVES ITS RIGHTS TO OBJECT TO SUCH RELIEF.

                                       10
<PAGE>   11

        12.19 Acknowledgment By Guarantor. Guarantor has acknowledged this Note
below for purposes of confirming its obligations all as more specifically set
forth in the Guaranty Agreement.

              [REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

                                       11

<PAGE>   12

        IN WITNESS WHEREOF, the Borrower has executed and sealed this Note or
caused it to be executed and sealed on its behalf by its duly authorized
representatives, the day and year first above written, and the obligations under
this Note shall be binding upon Borrower's successors and assigns.

WITNESS:                                BORROWER:

                                        DIVERSICARE PINEDALE, LLC, a Delaware
                                        limited liability company
------------------------------
                                        By:  Diversicare Leasing Corp., a
                                             Tennessee corporation, its sole
                                             member

[Print Name]                               By:
                                              ----------------------------------
                                              James F. Mills, Jr., Senior Vice
                                              President

ACKNOWLEDGED BY GUARANTOR:

GUARANTOR:

ADVOCAT INC.

----------------------------------

By:___________________________ (SEAL)
Its:___________________________

STATE OF ____________   )

___________ COUNTY      )

         Before me, a Notary Public of said County and State, personally
appeared ____________________, with whom I am personally acquainted (or proved
to me on the basis of satisfactory evidence) and who, upon oath, acknowledged
her/himself to be the _________________________ of, Diversicare Leasing Corp., a
Tennessee corporation and the sole member of Diversicare Pinedale, LLC, a
Delaware limited liability company, the within named Borrower, and that s/he, as
such _________________________ of said corporation, executed the foregoing
instrument for the purposes therein contained, by signing the name of said
limited liability company by her/himself as _______________________ the sole
member of the Borrower.

         Witness my hand and notarial stamp or seal this __ day of _______, 2001

                                              ----------------------------------
                                              Notary Public

                                              My Commission Expires:
                                                                    ------------
[stamp or seal]

                                       12<PAGE>   1

                                                                  EXHIBIT 10.7

                               GUARANTY AGREEMENT

         THIS GUARANTY AGREEMENT (this "Guaranty") is made as of the 29th day of
March, 2001, by ADVOCAT INC., a Delaware corporation ("Guarantor"), for the
benefit of GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation
(including its successors, transferees and assigns, "Lender").

                                    RECITALS

         A. DIVERSICARE WINDSOR HOUSE, LLC, a Delaware limited liability company
("Borrower"), has borrowed the sum of FOUR MILLION SEVEN HUNDRED NINE THOUSAND
NO/100 DOLLARS ($4,709,000.00) (the "Loan") from Lender, evidenced by Borrower's
Promissory Note of even date herewith (the "Note") and that certain Loan
Agreement by and between Lender and Borrower of even date herewith (the "Loan
Agreement"), and secured by, among other things, a Mortgage and Security
Agreement, of even date herewith (the "Mortgage") granting a first lien on a
skilled nursing facility known as Windsor House of Huntsville, which is located
in the City of Huntsville, County of Madison, State of Alabama (the "Facility").

         B. The Note, the Loan Agreement, the Mortgage and the other documents,
certificates, instruments and agreements executed by Borrower in connection with
the Loan or to otherwise evidence or secure the Loan, and all renewals,
supplements, or amendments thereto or a part thereof, are collectively referred
to as the "Loan Documents".

         C. As a condition of making the Loan, Guarantor has agreed to guaranty,
absolutely and unconditionally, payment of the Guaranty Obligations (as defined
below), subject to the terms and conditions set forth in this Guaranty.

                                    AGREEMENT

         NOW THEREFORE, in consideration of the above and as an inducement to
Lender to make the Loan evidenced by the Note and the Loan Agreement, and as
security for the payment of the Loan and all interest from time to time accrued
and unpaid thereon, and all expenses, fees, charges and other amounts from time
to time due and owing to Lender under the Note, and the other Loan Documents,
and for the performance of all covenants, agreements and other obligations from
time to time owing to, or for the benefit of, Lender pursuant to the Loan
Documents (collectively referred to herein as the "Guaranty Obligations"),
Guarantor, intending to be legally bound, hereby covenants, agrees, represents
and warrants as follows:

         1. Guaranty. Guarantor hereby absolutely and unconditionally guarantees
to the Lender the full, regular and punctual payment and performance of the
Guaranty Obligations within ten (10) days of the Lender's demand therefor.
Without limiting the generality of the foregoing, "Guaranty Obligations" is used
herein in its most comprehensive sense to include all debts, obligations and

<PAGE>   2

indebtedness described in the Loan Documents, whether now or hereafter made,
incurred, or created, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and
regardless of whether there is any recourse with respect to any portion of such
Guaranty Obligations as against Borrower or any member of Borrower. In addition,
Guarantor guarantees the full payment of, and agrees to reimburse Lender for,
all costs of collection incurred by Lender in enforcing the Guaranty Obligations
and pursuing any remedies set forth in the Loan Documents and/or the Guaranty,
including, without limitation, court costs and actual attorneys' fees
(including, but not limited to, fees in any bankruptcy or appellate proceeding).

         2. Payments. All payments to be made by Guarantor to Lender hereunder
shall be made in lawful money of the United States of America, in immediately
available funds, at 200 Witmer Road, Horsham, Pennsylvania 19044, or such other
location designated by Lender in writing, and shall be accompanied by a notice
from Guarantor stating that such payments are made under this Guaranty. All
payments available to Lender for application in payment or reduction of the
Guaranty Obligations may be applied by Lender in such manner and in such amount,
and at such time or times and in such order and priority as Lender may see fit
and to the payment or reduction of such portion of the Guaranty Obligations as
Lender may elect.

         3. Subsequent Acts by Lender. Lender may, in its sole discretion and
without notice to Guarantor, take any action which might otherwise be deemed a
legal or equitable release or discharge of Guarantor's obligations hereunder
without either impairing or affecting the liability of Guarantor for payment of
the Guaranty Obligations (but in no event shall Lender collect more than the
aggregate amount of the Guaranty Obligations), which actions might include, by
way of illustration and not limitation:

            (a) at any time or from time to time, the time for Borrower's
performance of or compliance with any provision of the Loan Documents may be
extended or such performance or compliance may be waived by Lender;

            (b) the acceptance of partial payment of the Guaranty Obligations;

            (c) any of the acts permitted in the Loan Documents may be
performed;

            (d) the Loan Documents may from time to time be amended and/or
renewed by Borrower and Lender for the purpose of adding any provisions thereto
or changing in any manner the rights of Lender or of Borrower thereunder;

            (e) the maturity date of the Note may be changed or renewed in whole
or in part;

            (f) the maturity of the Note may be accelerated in accordance with
the terms of the Loan Documents or any future agreement between Borrower and
Lender or the holder of such Note;

                                       2
<PAGE>   3

            (g) any collateral security for all or any part of the Guaranty
Obligations may be exchanged, released, compromised, consolidated, surrendered
or otherwise dealt with, and Lender's interest therein may be released and may
or may not be perfected;

            (h) the settlement, release, compounding, compromise, cancellation,
rearrangement or consolidation of any of the Guaranty Obligations;

            (i) the collection of or other liquidation of any claims Lender may
have in respect to the Guaranty Obligations;

            (j) the granting of indulgences, forbearance, compromises,
extensions or adjustments in respect to any covenant or agreement under the Loan
Documents; and/or

            (k) the release from liability of any Guarantor and/or any
additional parties who may guarantee payment of the Guaranty Obligations or any
portion thereof.

         4. Certain Rights, Subordination, Etc.

            (a) Lender may pursue its rights and remedies under this Guaranty
and shall be entitled to payment hereunder notwithstanding any other guaranty of
all or any part of the Guaranty Obligations, and notwithstanding any action
taken by Lender to enforce any of its rights or remedies under such other
guaranty, or any payment received thereunder (but in no event shall Lender
collect more than the aggregate amount of the Guaranty Obligations).

            (b) Any obligation or debt of Borrower now or hereafter held by
Guarantor is hereby subordinated to the Guaranty Obligations and, except for the
obligations due under the Management Agreement (as defined in the Loan
Agreement), which obligations are governed by the Subordination Agreement (as
defined in the Loan Agreement), Guarantor shall not enforce or collect any such
indebtedness from Borrower. Nevertheless, upon request by Lender, Guarantor
shall collect, enforce and receive such indebtedness of Borrower to Guarantor.
Any sums collected at Lender's request or collected in contravention of the
prohibition set forth herein shall be held by Guarantor as trustee for Lender
and shall be paid over to Lender on account of the Guaranty Obligations;
provided, however, that such payments shall not impair, reduce or affect in any
manner the liability of Guarantor under the other provisions of this Guaranty
(but in no event shall Lender collect more than the aggregate amount of Guaranty
Obligations).

            (c) Guarantor agrees that if any Event of Default exists under the
Loan Documents ("Event of Default") and is continuing, (i) such Guarantor shall
not accept payment from any other guarantor of any Guaranty Obligations by way
of contribution or similar rights on account of any payment made hereunder by
Guarantor to Lender, all of which rights are hereby subordinated to Guarantor's
obligations hereunder to Lender, (ii) Guarantor will not take any action to
exercise or enforce any rights to such contribution, and (iii) if Guarantor
should receive payment, satisfaction or security for any indebtedness of
Borrower to Lender, the same shall be delivered to Lender in the form received,
endorsed or signed as may be appropriate for application on account of or as
security

                                       3
<PAGE>   4
for the indebtedness of Borrower to Lender and, until so delivered, shall be
held in trust for Lender as security for the indebtedness of Borrower to Lender.

            (d) In the event of any default by Borrower with respect to the
Guaranty Obligations, Guarantor agrees to pay or perform on demand the Guaranty
Obligations in the time and manner as provided in Paragraph 1 hereof. Lender
shall not be under a duty to protect, secure or insure or be required to
liquidate any security or lien provided by the Mortgage or other such collateral
held by Lender prior to making such demand.

            (e) Notwithstanding any payment or payments made by Guarantor under
this Guaranty, Guarantor expressly, irrevocably and unconditionally waives and
releases any and all "claims" (as that term is defined in the Bankruptcy Reform
Act of 1978, as amended, 11 U.S.C. Sections 101 et seq., and the regulations
adopted and promulgated pursuant thereto (collectively, the "Bankruptcy Code"))
it may now or hereafter have against Borrower, and shall not be entitled to, and
hereby expressly waives, any and all rights of subrogation, reimbursement,
indemnity, exoneration and contribution against Borrower, which Guarantor may
now or hereafter have against Borrower without regard to whether any such right
or claim arises expressly; provided, that such waiver and release shall not be
effective as to any such claim or entitlement or such subrogation and other
rights that accrue after the indefeasible (as determined under the Bankruptcy
Code) payment, performance or other satisfaction in full of the Guaranty
Obligations.

         5. Representations and Warranties. Each Guarantor represents and
warrants to Lender that:

            (a) Existence, Power and Qualification. Guarantor is a duly
organized and validly existing corporation, 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.

            (b) Power and Authority. Guarantor has full power and authority to
incur the Guaranty Obligations provided for herein, all of which have been
authorized by all proper and necessary action.

            (c) Financial Condition. The financial statements of the Guarantor
heretofore furnished to Lender are complete and correct and fairly present the
financial condition of the Guarantor as of the date thereof. Since the date of
said financial statements there has been no material adverse change in the
financial condition or operations, or the business taken as a whole, of
Guarantor from that set forth therein.

            (d) Litigation. There are no legal or arbitral proceedings or any
proceedings by or before any governmental or regulatory authority or agency now
pending or, to the best of Guarantor's knowledge, threatened against Guarantor,
in which an adverse decision could materially and adversely affect the financial
condition of Guarantor.

                                       4
<PAGE>   5

            (e) No Breach. The execution and delivery of this Guaranty, the
consummation of the transactions herein contemplated and compliance with the
terms and provisions hereof will not (i) conflict with or result in a breach of,
or require any consent (not heretofore obtained at the time this representation
is made) under, any applicable law, administrative proceeding or regulation, or
any order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which Guarantor is a party or by which
Guarantor is bound or to which Guarantor is subject, (ii) constitute a default
under any such agreement or instrument or under Guarantor's articles of
incorporation or any other agreement or instrument binding upon Guarantor, or
(iii) result in the creation or imposition of any lien upon any of the revenues
or assets of Guarantor pursuant to the terms of any such agreement or
instrument.

            (f) Approvals. To the best of Guarantor's knowledge, no
authorizations, approvals, or consents of (other than those heretofore obtained
and in full force and effect), and no filings or registrations with (other than
those heretofore obtained and in full force and effect), any governmental or
regulatory authority or agency are necessary for the execution, delivery or
performance by Guarantor of this Guaranty or for the validity or enforceability
thereof.

            (g) Taxes, etc. Guarantor has filed all United States federal and
state tax returns and all other tax returns that are required to be filed by
Guarantor and has paid all taxes due pursuant to such returns or pursuant to any
assessment received by Guarantor, except such taxes, the payment of which is not
yet due, or which if due, is not yet delinquent or is being contested in good
faith or which has not been finally determined.

            (h) Benefit. The making of the Loan by Lender to Borrower will
directly benefit Guarantor.

         6. Financial Covenants and Other Information. Guarantor shall provide
Lender 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 of Guarantor prepared
by a nationally recognized accounting firm or independent certified public
accountant acceptable to Lender, which statements shall be prepared in
accordance with GAAP and shall include a balance sheet and a statement of income
and expenses for the year then ended.

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

            (c) As soon as available, but in no event more than 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 Guarantor, together with all supporting
documentation and required schedules.

                                       5
<PAGE>   6

         The Lender further reserves the right to require such other financial
information of Guarantor in such form and at such other times (including monthly
or more frequently, but not more frequently than reasonable) as Lender shall
deem reasonably necessary, and Guarantor agrees promptly to provide or to cause
to be provided, such information to Lender. All financial statements must be in
form and detail as Lender may from time to time reasonably request.

         7. Guaranty is a Continuing Obligation. The obligations of the
Guarantor under this Guaranty shall be continuing, absolute, irrevocable and
unconditional under all circumstances, and shall remain in full force and effect
or be reinstated, until all of the Guaranty Obligations shall have been paid and
performed in full, irrespective of the bankruptcy, insolvency, merger,
reorganization, termination, discontinuation or dissolution of the Borrower or
any assignment for the benefit of creditors by the Borrower. The Guarantor
acknowledges and agrees that Guarantor's obligations hereunder shall apply to
and continue with respect to any of the obligations of the Borrower under the
Loan Documents which are subsequently recovered from the Lender for the reasons
set forth below. In the event that any payment by or on the behalf of the
Borrower to Lender is held to constitute a preference, fraudulent transfer or
other voidable payment under any bankruptcy, insolvency or similar law, or if
for any other reason the Lender is required to refund such payment or pay the
amount thereof to any other party, including, without limitation, as a result of
the appointment of a receiver, intervenor, or conservator of, or trustee or
similar officer for, the Borrower or of any substantial part of its property or
otherwise, such payment by the Borrower or any other party to the Lender shall
not constitute a release of the Guarantor from any liability hereunder, and this
Guaranty shall continue to be effective or shall be reinstated (notwithstanding
any prior release, surrender or discharge by the Lender of this Guaranty or of
the Guarantor), as the case may be, with respect to, and this Guaranty shall
apply to, any and all amounts so refunded by the Lender or paid by the Lender to
another party (which amounts shall constitute part of the Guaranty Obligations),
and any interest paid by the Lender and any attorneys' fees, costs and expenses
paid or incurred by the Lender in connection with any such event. It is the
intent of the Guarantor and the Lender that the obligations and liabilities of
the Guarantor hereunder are absolute and unconditional under any and all
circumstances and that until the Guaranty Obligations are fully and finally paid
and performed, and not subject to refund or disgorgement, the obligations and
liabilities of the Guarantor hereunder shall not be discharged or released, in
whole or in part, by any act or occurrence that might, but for the provisions of
this Guaranty, be deemed a legal or equitable discharge or release of a
guarantor. In the event Lender has reasonable cause to believe that it may have
to pay back or return any sums as a result of any ruling under the Bankruptcy
Code, the Lender shall be entitled to continue to hold this Guaranty in its
possession for a period of one year from the later of (a) the date the Guaranty
Obligations are paid and performed in full, or (b) if not paid in accordance
with the Guaranty Obligations, the expiration or termination of the Loan, and
for so long thereafter as may be necessary to enforce any obligation of the
Guarantor hereunder and/or to exercise any right or remedy of the Lender
hereunder.

         8. This Section Intentionally Deleted.

         9. Waiver and Release of Subrogation and Participation. Guarantor shall
have no right of subrogation in or under the Guaranty Obligations, and no rights
of reimbursement, indemnity or contribution from the Borrower or any other
rights by law, equity, statute or contract that would

                                       6
<PAGE>   7

give rise to a creditor-debtor relationship between Guarantor and the Borrower.
Guarantor shall have no right to participate in any way in any of the collateral
which is conveyed under the Loan Documents as security for the Guaranty
Obligations. Guarantor hereby explicitly waives and releases any of the
above-described rights of subrogation, reimbursement, indemnity, contribution,
participation, and any right to require the marshaling of Borrower's assets
under any circumstances.

         10. Continuing Validity. Guarantor further agrees that the validity of
this Guaranty and the obligations of Guarantor hereunder shall in no way be
terminated, affected or impaired (a) by reason of the assertion by Lender of any
rights or remedies which it may have under or with respect to either the Note,
the Mortgage, or the other Loan Documents, against any person obligated
thereunder or against the owner of the premises covered by the Mortgage, (b) by
reason of any failure to file or record any of such instruments or to take or
perfect any security intended to be provided thereby, (c) by reason of the
commencement of a case under the Bankruptcy Code by or against any person
obligated under the Note, the Mortgage or the other Loan Documents, or the death
of any Guarantor, or (d) by reason of any payment made on the Guaranty
Obligations or any other indebtedness arising under the Note, the Mortgage or
the other Loan Documents, whether made by Borrower or Guarantor or any other
person, which is required to be refunded pursuant to any bankruptcy or
insolvency law; it being understood that no payment so refunded shall be
considered as a payment of any portion of the Guaranty Obligations, nor shall it
have the effect of reducing the liability of Guarantor hereunder. It is further
understood, that if Borrower shall have taken advantage of, or be subject to the
protection of, any provision in the Bankruptcy Code, the effect of which is to
prevent or delay Lender from taking any remedial action against Borrower,
including the exercise of any option Lender has to declare the Guaranty
Obligations due and payable on the happening of any default or event by which
under the terms of the Note, the Mortgage or the other Loan Documents, the
Guaranty Obligations shall become due and payable, Lender may, as against
Guarantor, nevertheless, declare the Guaranty Obligations due and payable and
enforce any or all of its rights and remedies against Guarantor provided for
herein.

         11. Notice. All notices given under this Guaranty shall be in writing
and shall be either hand delivered or mailed, by certified U.S. mail, return
receipt requested, first class postage prepaid, to the other party, at its
address set forth below or at such other address as such party may designate by
notice to the other party:

            (a)   If to Guarantor:

                  Advocat Inc.
                  277 Mallory Station Road, Suite 130
                  Franklin, Tennessee 37067
                  Attn: CFO

                  with a copy to:

                  John N. Popham, IV,  Esq.
                  Harwell, Howard, Hyne, Gabbert & Manner, PC
                  1800 First American Center

                                       7
<PAGE>   8

                  315 Deaderick Street
                  Nashville, Tennessee 37238-1800

            (b)   If to Lender:

                  GMAC Commercial Mortgage Corporation
                  200 Witmer Road
                  Horsham, Pennsylvania 19044
                  Attention: Servicing Department

                  with a copy to:

                  Kay K. Bains, Esq.
                  Walston, Wells, Anderson & Bains, LLP
                  505 20th Street North, Suite 500
                  Birmingham, AL 35203

        12. No Waiver by Lender; Remedies. No failure on the part of Lender or
the holder of the Note to exercise, and no delay in exercising, any right
hereunder or thereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right. Guarantor hereby
agrees that all rights and remedies that Lender is afforded by reason of this
Guaranty are separate and cumulative and may be pursued separately,
successively, or concurrently, as Lender deems advisable. In addition, all such
rights and remedies are non-exclusive and shall in no way limit or prejudice
Lender's ability to pursue any other legal or equitable rights or remedies that
may be available. Failure of Lender to insist upon strict performance or
observance of any of the terms, provisions and covenants hereof or to exercise
any right herein contained shall not be construed as a waiver or relinquishment
of the right to demand strict performance at another time. Receipt by Lender of
any payment or performance on the Guaranty Obligations shall not be deemed a
waiver of the breach of any provision hereof or of any of the Loan Documents.
Without limiting the generality of the foregoing, Guarantor agrees that in any
action by Lender by reason of the Guaranty Obligations, Lender, at its election,
may proceed (a) against Guarantor together with Borrower, (b) against Guarantor
and Borrower, individually, or (c) against Guarantor only without having
commenced any action against, or having obtained any judgment against, Borrower.

        13. Certain Waivers by Guarantor. AS A FURTHER INDUCEMENT TO LENDER
TO MAKE THE LOAN AND IN CONSIDERATION THEREOF, GUARANTOR FURTHER COVENANTS AND
AGREES THAT SERVICE OF ANY SUMMONS AND COMPLAINT OR OTHER PROCESS IN ANY SUCH
ACTION OR PROCEEDING MAY BE MADE BY REGISTERED OR CERTIFIED MAIL DIRECTED TO
GUARANTOR AT GUARANTOR'S ADDRESS HEREINABOVE SET FORTH, GUARANTOR HEREBY WAIVING
PERSONAL SERVICE THEREOF. GUARANTOR HEREBY WAIVES THE PLEADING OF ANY STATUTE OF
LIMITATIONS AS A DEFENSE TO THE OBLIGATIONS HEREUNDER. GUARANTOR HEREBY WAIVES
NOTICE OF THE ACCEPTANCE HEREOF, PRESENTMENT, DEMAND FOR PAYMENT, PROTEST,
NOTICE OF PROTEST, OR

                                       8
<PAGE>   9

ANY AND ALL NOTICE OF NON-PAYMENT, NON-PERFORMANCE OR NON-OBSERVANCE, OR OTHER
PROOF, OR NOTICE OR DEMAND.

        THE GUARANTOR FURTHER WAIVES AND AGREES NOT TO ASSERT: (A) ANY RIGHT TO
REQUIRE LENDER TO PROCEED AGAINST BORROWER OR TO PROCEED AGAINST ANY OTHER
GUARANTOR, OR TO PROCEED AGAINST OR EXHAUST ANY SECURITY FOR THE GUARANTY
OBLIGATIONS, OR TO PURSUE ANY OTHER REMEDY AVAILABLE TO LENDER, OR TO PURSUE ANY
REMEDY IN ANY PARTICULAR ORDER OR MANNER, (B) THE BENEFIT OF ANY STATUTE OF
LIMITATIONS AFFECTING GUARANTOR'S LIABILITY HEREUNDER OR THE ENFORCEMENT HEREOF,
(C) NOTICE OF THE EXISTENCE, CREATION OR INCURRING OF NEW OR ADDITIONAL
INDEBTEDNESS OF BORROWER TO LENDER, (D) THE BENEFITS OF ANY STATUTORY PROVISION
LIMITING THE LIABILITY OF A SURETY, (E) ANY DEFENSE ARISING BY REASON OF ANY
DISABILITY OR OTHER DEFENSE OF BORROWER OR BY REASON OF THE CESSATION FROM ANY
CAUSE WHATSOEVER (OTHER THAN PAYMENT IN FULL) OF THE LIABILITY OF BORROWER FOR
THE GUARANTY OBLIGATIONS, (F) THE BENEFITS OF ANY STATUTORY PROVISION LIMITING
THE RIGHT OF LENDER TO RECOVER A DEFICIENCY JUDGMENT, OR TO OTHERWISE PROCEED
AGAINST ANY PERSON OR ENTITY OBLIGATED FOR PAYMENT OF THE GUARANTY OBLIGATIONS,
AFTER ANY FORECLOSURE OR TRUSTEE'S SALE OF ANY SECURITY FOR THE GUARANTY
OBLIGATIONS, AND (G) ANY OTHER DEFENSE OR CIRCUMSTANCE WHICH MIGHT OTHERWISE
CONSTITUTE A LEGAL OR EQUITABLE DISCHARGE OF GUARANTOR'S LIABILITY HEREUNDER,
ARISING FROM OR OUT OF THE LOAN, THE LOAN DOCUMENTS AND/OR THE FACILITY.

        14. Waiver of Automatic Stay. GUARANTOR HEREBY AGREES THAT, IN
CONSIDERATION OF LENDER'S AGREEMENT TO MAKE THE LOAN AND IN RECOGNITION THAT THE
FOLLOWING COVENANT IS A MATERIAL INDUCEMENT FOR LENDER TO MAKE THE LOAN, IN THE
EVENT THAT GUARANTOR SHALL (A) FILE WITH ANY BANKRUPTCY COURT OF COMPETENT
JURISDICTION OR BE THE SUBJECT OF ANY PETITION UNDER ANY SECTION OR CHAPTER OF
TITLE 11 OF THE UNITED STATES CODE, AS AMENDED ("BANKRUPTCY CODE"), OR SIMILAR
LAW OR STATUTE, (B) BE THE SUBJECT OF ANY ORDER FOR RELIEF ISSUED UNDER THE
BANKRUPTCY CODE OR SIMILAR LAW OR STATUTE, (C) FILE OR BE THE SUBJECT OF ANY
PETITION SEEKING ANY REORGANIZATION, ARRANGEMENT, COMPOSITION, READJUSTMENT,
LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL
OR STATE ACT OR LAW RELATING TO BANKRUPTCY, INSOLVENCY, OR OTHER RELIEF FOR
DEBTORS, (D) HAVE SOUGHT OR CONSENTED TO OR ACQUIESCED IN THE APPOINTMENT OF ANY
TRUSTEE, RECEIVER, CONSERVATOR, OR LIQUIDATOR, OR (E) BE THE SUBJECT OF AN
ORDER, JUDGEMENT OR DECREE ENTERED BY ANY COURT OF COMPETENT JURISDICTION
APPROVING A PETITION FILED AGAINST GUARANTOR FOR ANY REORGANIZATION,
ARRANGEMENT, COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR

                                       9
<PAGE>   10

RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO
BANKRUPTCY, INSOLVENCY OR RELIEF FOR DEBTORS, THEN, SUBJECT TO COURT APPROVAL,
LENDER SHALL THEREUPON BE ENTITLED AND GUARANTOR HEREBY IRREVOCABLY CONSENTS TO,
AND WILL NOT CONTEST, AND AGREES TO STIPULATE TO RELIEF FROM ANY AUTOMATIC STAY
OR OTHER INJUNCTION IMPOSED BY SECTION 362 OF THE BANKRUPTCY CODE, OR SIMILAR
LAW OR STATUTE (INCLUDING, WITHOUT LIMITATION, RELIEF FROM ANY EXCLUSIVE PERIOD
SET FORTH IN SECTION 1121 OF THE BANKRUPTCY CODE) OR OTHERWISE, ON OR AGAINST
THE EXERCISE OF THE RIGHTS AND REMEDIES OTHERWISE AVAILABLE TO LENDER AS
PROVIDED IN THIS AGREEMENT AND/OR THE LOAN DOCUMENTS, AND AS OTHERWISE PROVIDED
BY LAW, AND GUARANTOR HEREBY IRREVOCABLY WAIVES GUARANTOR'S RIGHTS TO OBJECT TO
SUCH RELIEF.

        15. Guaranty of Payment. This is a guaranty of payment and not of
collection and upon any default of Borrower under the Note, the Mortgage, the
Loan Agreement or the other Loan Documents, Lender may, at its option, proceed
directly and at once, without notice, against Guarantor to collect and recover
the full amount of the liability hereunder or any portion thereof, without
proceeding against Borrower or any other person, or foreclosing upon, selling,
or otherwise disposing of or collecting or applying against any of the Facility
or other collateral for the Loan.

            (a) Joint and Several Liability. The term "Guarantor" as used in
this Guaranty shall refer individually and collectively to all signers of this
Guaranty. Each undertaking herein contained shall be the joint and several
undertaking of each signer hereof if more than one, and it is specifically
agreed that Lender may enforce the provisions hereof with respect to one or more
of such signers without seeking to enforce the same as to all or any such
signers. Guarantor hereby waives any requirement of joinder of all or any other
of the parties hereto in any suit or proceeding to enforce the provisions
hereof.

            (b) Assignment. Lender may assign this Guaranty or any rights or
powers hereunder, in whole or in part, in connection with the sale of the Note
and assignment of the Mortgage. The duties and obligations of Guarantor may not
be delegated or transferred by Guarantor without the prior written consent of
Lender which may be withheld in its absolute discretion. Each reference herein
to Lender shall be deemed to include its successors and assigns, to whose favor
the provisions of this Guaranty shall also inure. Each reference herein to
Guarantor shall be deemed to include the heirs, executors, administrators, legal
representatives, successors and assigns of Guarantor, all of whom shall be bound
by the provisions of this Guaranty. If any party hereto shall be a partnership
or a limited liability company, the agreements and obligations on the part of
Guarantor herein contained shall remain in force and application notwithstanding
any changes in the individuals or entities composing the partnership or the
limited liability company, and the term "Guarantor" shall include any altered or
successive partnerships and any altered or successive limited liability
companies but the predecessor partnerships and their partners, and the
predecessor limited liability companies and their members, shall not thereby be
released from any obligations or liability hereunder.

                                       10
<PAGE>   11

        16. Intentionally Deleted.

        17. Waiver of Trial by Jury; Service of Process. GUARANTOR HEREBY WAIVES
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE GUARANTOR AND THE LENDER
MAY BE PARTIES ARISING OUT OF, IN CONNECTION WITH, OR IN ANY WAY PERTAINING TO,
THIS AGREEMENT AND/OR ANY OF THE OTHER LOAN DOCUMENTS. IT IS AGREED AND
UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST
PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. THIS WAIVER IS KNOWINGLY,
WILLINGLY AND VOLUNTARILY MADE BY THE GUARANTOR, AND THE GUARANTOR HEREBY
REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE GUARANTOR FURTHER REPRESENTS AND WARRANTS THAT GUARANTOR
HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS
WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE
REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED BY GUARANTOR OF GUARANTOR'S
OWN FREE WILL, AND THAT GUARANTOR HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER
WITH COUNSEL. GUARANTOR AGREES TO PAY ALL COURT COSTS AND REASONABLE ATTORNEY'S
FEES INCURRED BY LENDER IN CONNECTION WITH ENFORCING ANY PROVISION OF THIS
AGREEMENT. NOTWITHSTANDING THE FOREGOING, LENDER AGREES TO USE REASONABLE
EFFORTS TO PROVIDE GUARANTOR WITH NOTICE OF THE FILING OF ANY LAWSUIT BY LENDER
AGAINST GUARANTOR.

        18. Power and Authority. Guarantor (and its representative, executing
below, if any) has full power, authority and legal right to execute this
Guaranty and to perform all its obligations under this Guaranty.

        19. Complete Agreement; Modification; Waiver. All understandings,
representations and agreements heretofore had with respect to this Guaranty are
merged into this Guaranty which are incorporated herein which alone fully and
completely expresses the agreement of Guarantor and Lender. In no event shall
any modification or waiver of the provisions of this Guaranty be effective
unless in writing executed by Lender. Any waiver granted by Lender shall be
applicable only in the specific instance for which it is given.

        20. Governing Law. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE FACILITY IS LOCATED AND
APPLICABLE FEDERAL LAW.

        21. Counterparts; Construction. This Guaranty may be executed in any
number of counterparts, all of which when taken together shall constitute one
and the same instrument. Words of any gender used in this Guaranty shall be held
and construed to include the other gender, and

                                       11
<PAGE>   12

words in the singular shall be held and construed to include the plural, and
words in the plural shall be held and construed to include the singular, unless
this Guaranty or the context otherwise requires.

        22. Review by Guarantor. GUARANTOR HAS RECEIVED COPIES OF, AND HAS HAD
THE OPPORTUNITY TO REVIEW, ALL OF THE LOAN DOCUMENTS REFERRED TO IN THIS
GUARANTY. GUARANTOR HAS DISCUSSED THIS GUARANTY WITH GUARANTOR'S LEGAL COUNSEL,
AND GUARANTOR UNDERSTANDS THE NATURE AND EXTENT AND THE LEGAL AND PRACTICAL
CONSEQUENCES OF GUARANTOR'S LIABILITY UNDER THIS GUARANTY.

        23. No Oral Agreement. To the extent allowed by law, Guarantor agrees to
be bound by the terms of the following notice:

        NOTICE:        THIS GUARANTY AND THE OTHER LOAN DOCUMENTS CONSTITUTE A
                       WRITTEN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT
                       BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
                       EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF
                       THE PARTIES.

                       THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
                       PARTIES RELATING TO THE LOAN.

                         [SIGNATURES BEGIN ON NEXT PAGE]

        IN WITNESS WHEREOF, this Guaranty has been duly executed by the
undersigned as of the day and year first written above.

                                       GUARANTOR:

WITNESS:                               ADVOCAT INC., a Delaware corporation

-----------------------------          -----------------------------------------
                                       By:
                                          --------------------------------------
                                        Its:
                                            ------------------------------------

STATE OF _____________ )

                                       12

<PAGE>   13

______________ COUNTY )

        I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that _________________, whose name as _________________ of
Advocat Inc., a Delaware corporation, is signed to the foregoing instrument and
who is known to me, acknowledged before me on this day that, being informed of
the contents of said instrument, he, as such officer and with full authority,
executed the same voluntarily for and as the act of said corporation.

        Given under my hand and official seal this the ____ day of March, 2001.

                                                 ------------------------------
                                                 Notary Public

AFFIX SEAL
My commission expires:
                      ----------

                                       13

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