Document:

LOAN AGREEMENT

                                  BY AND AMONG

                        OMEGA HEALTHCARE INVESTORS, INC.
                         STERLING ACQUISITION CORP. AND
                             DELTA INVESTORS I, LLC,

                            THE PROVIDENT BANK, AGENT

                                       AND

                        VARIOUS LENDERS DESCRIBED HEREIN

                                  August 16, 2000

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                                TABLE OF CONTENTS
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Article 1         DEFINITIONS.....................................................................................1
         Section 1.1       Provisions Pertaining to Definitions...................................................1
         Section 1.2       Defined Terms..........................................................................1
         Section 1.3       GAAP..................................................................................18

Article 2         THE LOANS......................................................................................18
         Section 2.1       Revolving Loan A......................................................................18
         Section 2.2       Revolving Loan B......................................................................19
         Section 2.3       Loan Advances.........................................................................19
         Section 2.4       The Notes.............................................................................19
         Section 2.5       Interest Payable on the Loans.........................................................20
         Section 2.6       Principal Repayments on the Loans.....................................................21
         Section 2.7       Certain Fees..........................................................................22
         Section 2.8       Payments and Computations.............................................................23
         Section 2.9       Payments to be Free of Deductions.....................................................24
         Section 2.10      Permitted Use of Loan Proceeds........................................................25
         Section 2.11      Additional Costs, Etc.................................................................25
         Section 2.12      Agent and Lender Statements...........................................................25

Article 3         SECURITY.......................................................................................26
         Section 3.1       Security Interest.....................................................................26
         Section 3.2       [Reserved]............................................................................26
         Section 3.3       Financing Statements; Additional Documents............................................26
         Section 3.4       Accounts; Chattel Paper; Lease Agreements.............................................27
         Section 3.5       Removal and Substitution of Real Property Collateral..................................27
         Section 3.6       Between Agent and Lender..............................................................29
         Section 3.7       Release of Collateral.................................................................29
         Section 3.8       Payment of Expenses...................................................................30

Article 4         REPRESENTATIONS AND WARRANTIES.................................................................30
         Section 4.1       Organization..........................................................................30
         Section 4.2       Power, Authority, Consents............................................................30
         Section 4.3       No Violation of Law or Agreements.....................................................31
         Section 4.4       Due Execution, Validity, Enforceability...............................................31
         Section 4.5       Title to Properties; Certificate of Need..............................................31
         Section 4.6       Judgments, Actions, Proceedings.......................................................31
         Section 4.7       No Defaults, Compliance With Laws.....................................................32
         Section 4.8       Burdensome Documents..................................................................32
         Section 4.9       Financial Statements and Information..................................................32
         Section 4.10      Tax Returns...........................................................................33

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         Section 4.11      Intangible Assets.....................................................................33
         Section 4.12      Regulation U..........................................................................33
         Section 4.13      Full Disclosure.......................................................................33
         Section 4.14      Licenses and Approvals................................................................33
         Section 4.15      ERISA.................................................................................34
         Section 4.16      REIT Status...........................................................................34
         Section 4.17      General Collateral Representations....................................................34

Article 5         CONDITIONS TO THE LOANS........................................................................35
         Section 5.1       General Conditions Precedent..........................................................35
         Section 5.2       Certain Post-Closing Real Property Collateral Matters.................................38
         Section 5.3       Further Conditions Precedent to Loans.................................................39

Article 6         DELIVERY OF FINANCIAL REPORTS, DOCUMENTS AND OTHER INFORMATION.................................39
         Section 6.1       Annual Financial Statements...........................................................39
         Section 6.2       Quarterly Financial Statements........................................................40
         Section 6.3       Compliance Information................................................................40
         Section 6.4       Certificate of Accountants............................................................40
         Section 6.5       Business Plan and Budget..............................................................40
         Section 6.6       Operator Reports......................................................................41
         Section 6.7       Accountants' Reports..................................................................41
         Section 6.8       Copies of Documents...................................................................41
         Section 6.9       Notices of Defaults...................................................................41
         Section 6.10      ERISA Notices and Requests............................................................41
         Section 6.11      Notice of Operator Insolvency.........................................................42
         Section 6.12      Additional Information................................................................42

Article 7         AFFIRMATIVE COVENANTS..........................................................................42
         Section 7.1       Books and Records.....................................................................42
         Section 7.2       Inspections and Audits................................................................42
         Section 7.3       Maintenance and Repairs...............................................................42
         Section 7.4       Continuance of Business...............................................................42
         Section 7.5       Copies of Corporate Documents.........................................................43
         Section 7.6       Perform Obligations...................................................................43
         Section 7.7       Notice of Litigation..................................................................43
         Section 7.8       Insurance.............................................................................43
         Section 7.9       Financial Covenants...................................................................44
         Section 7.10      Notice of Certain Events..............................................................44
         Section 7.11      Comply with ERISA.....................................................................45
         Section 7.12      Environmental Compliance..............................................................45
         Section 7.13      Compliance with Laws..................................................................45
         Section 7.14      Maintenance of REIT Status............................................................45
         Section 7.15      Maintenance of Interest Rate Protection...............................................45

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         Section 7.16      Payment of Indebtedness...............................................................46
         Section 7.17      Payment of Fees.......................................................................46
         Section 7.18      Further Assurances....................................................................46
         Section 7.19      Omega's Depository Accounts...........................................................46
         Section 7.20      Unencumbered Facilities...............................................................46

Article 8         NEGATIVE COVENANTS.............................................................................47
         Section 8.1       Liens.................................................................................47
         Section 8.2       Mergers, Acquisitions.................................................................47
         Section 8.3       Changes in Structure..................................................................47
         Section 8.4       Disposition of Real Property Collateral...............................................47
         Section 8.5       Fiscal Year...........................................................................47
         Section 8.6       ERISA Obligations.....................................................................47
         Section 8.7       Capital Expenditures..................................................................48
         Section 8.8       Hazardous Material....................................................................48
         Section 8.9       Limitation on Nature of Business......................................................48
         Section 8.10      Limitation on Investments.............................................................48
         Section 8.11      Limitation on Indebtedness............................................................50
         Section 8.12      Transactions with Affiliates..........................................................50
         Section 8.13      No Additional Bank Accounts...........................................................51
         Section 8.14      Limitation on Negative Pledge Agreements..............................................51
         Section 8.15      Redemptions; Distributions............................................................51
         Section 8.16      Variable Rate Limitation..............................................................52
         Section 8.17      Use of Cash...........................................................................52

Article 9         EVENTS OF DEFAULT..............................................................................52
         Section 9.1       Events of Default.....................................................................52
         Section 9.2       Remedies..............................................................................55
         Section 9.3       No Implied Waiver; Rights Cumulative..................................................57
         Section 9.4       Set-Off; Pro Rata Sharing.............................................................57

Article 10        CONCERNING AGENT AND LENDERS...................................................................57
         Section 10.1      Appointment of Agent..................................................................57
         Section 10.2      Authority.............................................................................57
         Section 10.3      Acceptance of Appointment.............................................................58

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         Section 10.4      Collateral Matters....................................................................58
         Section 10.5      Agency for Perfection.................................................................59
         Section 10.6      Application of Moneys.................................................................60
         Section 10.7      Reliance by Agent.....................................................................60
         Section 10.8      Exculpatory Provisions................................................................60
         Section 10.9      Action by Agent ......................................................................61
         Section 10.10     Amendments, Waivers and Consents......................................................61
         Section 10.11     Indemnification.......................................................................62
         Section 10.12     Reimbursement of Agent ...............................................................62
         Section 10.13     Sharing of Funds Received.............................................................62
         Section 10.14     Dealing with Lenders..................................................................62
         Section 10.15     Agent as Lender.......................................................................63
         Section 10.16     Duties not to be Increased............................................................63
         Section 10.17     Lender Credit Decisions...............................................................63
         Section 10.18     Resignation of Agent..................................................................63
         Section 10.19     Assignment of Notes; Participation ...................................................63

Article 11        PROVISIONS OF GENERAL APPLICATION..............................................................64
         Section 11.1      Term of Agreement.....................................................................65
         Section 11.2      Notices...............................................................................66
         Section 11.3      Survival of Representations...........................................................66
         Section 11.4      Amendments............................................................................66
         Section 11.5      Costs, Expenses, Taxes and Indemnification............................................66
         Section 11.6      Release...............................................................................67
         Section 11.7      Language..............................................................................67
         Section 11.8      Binding Effect: Assignment............................................................68
         Section 11.9      Governing Law:  Jurisdiction and Venue................................................68
         Section 11.10     WAIVER OF JURY TRIAL .................................................................68
         Section 11.11     Waivers...............................................................................68
         Section 11.12     Interpretation and Proof of Loan Documents............................................69
         Section 11.13     Integration of Schedules and Exhibits ................................................69
         Section 11.14     Headings .............................................................................69
         Section 11.15     Counterparts..........................................................................69
         Section 11.16     Severability..........................................................................69
         Section 11.17     One General Obligation ...............................................................69

Certain Loan Documents

         Form of Note
         Form of Mortgage
         Form of Security Agreement
         Form of Compliance Certificate
         Form of Borrowing Base Certificate

Schedules

         1.1      Lenders and Loan Commitments
         1.2      Lenders' Closing Fees
         1.3      Real Property Collateral
         4.1      States of Incorporation and Qualification, and Capitalization of Borrower and Subsidiaries
         4.2      Necessary Consents
         4.6      Judgments, Actions, Proceedings
         4.7      Defaults; Compliance with Laws, Regulations, Agreements

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         4.8      Burdensome Documents
         4.9(a)   Exceptions re Financial Statements
                             --
         4.14     Violations/Revocations of Licenses and Approvals
         4.15     Multiemployer Plans
4.17     UCC Filing Offices
         4.17(e)  Real Property Collateral Lease Representations and Warranties
         8.1      Permitted Security Interests, Liens and Encumbrances
         8.10     Additional Permitted Investments
         8.11     Additional Permitted Indebtedness

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                                 LOAN AGREEMENT

     This Loan  Agreement (the  "Agreement")  is made and entered into as of the
16th day of August,  2000,  by and among Omega  Healthcare  Investors,  Inc.,  a
Maryland  corporation  ("Omega"),  and its  subsidiaries,  Sterling  Acquisition
Corp., a Kentucky  corporation  and Delta  Investors I, LLC, a Maryland  limited
liability  company  (Omega  and  such  subsidiaries  being  hereafter  sometimes
collectively referred to as "Borrowers",  or individually as a "Borrower"),  the
"Lenders"  (as  hereafter  defined),  and The  Provident  Bank,  an Ohio banking
corporation in its capacity as Agent for the Lenders under this Agreement.

                             ARTICLE 1 DEFINITIONS.

         Section 1.1 Provisions  Pertaining  to  Definitions.

For all purposes of this Agreement, unless otherwise expressly specified:

                  (a) The  expression  "this  Agreement"  shall  mean  this Loan
Agreement  (including  all of the Schedules  and Exhibits  hereto) as originally
executed,  or, if  supplemented,  amended or restated  from time to time,  as so
supplemented, amended or restated;

                  (b) Unless the context clearly  indicates the contrary,  words
importing  the singular  only shall  include the plural and vice versa,  and all
references to dollars shall be United States Dollars;

                  (c) All of the uncapitalized terms contained in this Agreement
which are defined under the UCC will,  unless  defined in the Loan  Documents or
the context clearly indicates  otherwise,  have the meanings provided for in the
UCC;

                  (d) The term  "including" is used by way of  illustration  and
not by way of limitation; and

                  (e) The  definition of any  document,  agreement or instrument
includes  all  schedules,  attachments  and exhibits  thereto and all  renewals,
extensions, supplements, restatements and amendments thereof

         Section 1.2 Defined Terms.

As used in  this  Agreement,  the  following  terms  shall  have  the  following
meanings:

         "Accountants"  mean Ernst & Young LLP or such  other firm of  certified
public  accountants  selected  by Omega and  acceptable  to Agent and  Requisite
Lenders.

         "Accounts" mean, with respect to any Person,  such Person's  "accounts"
(as defined in the UCC), rental agreements,  contracts,  notes,  bills,  drafts,
acceptances, documents of title and other contract rights, rights to payment and

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other  forms of  obligation  for the  payment  of  money,  whether  now owned or
existing  or  hereafter  acquired  or arising or in which such Person now has or
hereafter acquires any rights or interests,  including,  without limitation, all
(i)  accounts  receivable  (whether  or not  specifically  listed  on  schedules
furnished  to Agent or any Lender),  accounts  created by or arising from all of
such Person's sales of goods, financial instruments, documents, permits or other
items, or rendition of services,  including funds transfer services,  made under
any of such  Person's  trade names or styles,  or through  any of such  Person's
subsidiaries  or  divisions,  and all  accounts  acquired by  assignment  in the
ordinary course of business;  (ii) unpaid seller's rights (including rescission,
replevin,  reclamation  and  stopping in transit)  relating to the  foregoing or
arising  therefrom;  (iii)  rights  to  any  goods  represented  by  any  of the
foregoing,  including  returned or repossessed  goods;  (iv) reserves and credit
balances  held by such  Person  with  respect  to any such  accounts  or account
debtors;  (v)  guarantees  or  collateral  for any of the  foregoing;  and  (vi)
insurance policies or rights relating to any of the foregoing.

         "Additional Equity Contribution" has the same meaning as in the
Investment Agreement.

         "Adjusted  EBITDA"  means for any  period,  with  respect to Omega on a
consolidated  basis,  determined in accordance  with GAAP, the sum of net income
(or net loss) for such period  plus the sum of all  amounts  treated as expenses
for: (a) interest,  (b) depreciation,  (c) amortization,  and (d) all accrued or
paid taxes on or measured by income to the extent included in the  determination
of such net  income (or net loss);  provided,  however,  that net income (or net
loss) shall be computed without giving effect to  extraordinary  losses or gains
(it  being  acknowledged  that  non-cash  gains  or  losses  associated  with or
resulting from property  dispositions  or non-cash  impairment  charges shall be
treated as extraordinary);  and provided further,  however, that the calculation
of Adjusted  EBITDA for any period  during which an  Investment or a Disposition
was effected  shall be determined on a pro forma basis as if such  Investment or
Disposition were effected on the first day of such period.

         "Affiliate"  means, as to any Person, any other Person that directly or
indirectly controls,  or is under common control with, or is controlled by, such
Person. As used in this definition,  "control" (including,  with its correlative
meanings,   "controlled   by"  and  "under  common  control  with")  shall  mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies  (whether through  ownership of securities or partnership
or other ownership interests,  by contract or otherwise),  provided that, in any
event: (a) any Person that owns directly or indirectly five (5%) percent or more
of the securities  having ordinary voting power for the election of directors or
other  governing  body of a  corporation  or five  (5%)  percent  or more of the
partnership  or other  ownership  interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such corporation
or other Person; and (b) each shareholder,  director and officer of any Borrower
shall be deemed to be an Affiliate of Borrowers.

         "Agency  Fees" mean annual fees,  in an aggregate  amount not to exceed
$50,000 per annum,  payable by Borrowers (i) to Agent,  for its own benefit,  in
the  amount  of  $25,000,  and (ii) to Agent for each  Lender  in the  amount of
$5,000.
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         "Agent"  means  Provident  acting in the  capacity as Agent for Lenders
under the Loan Documents and includes any other Person or Persons  succeeding to
the functions of Agent on, and subject to, the terms of this Agreement.

         "Aggregate  EBITDAR" means,  for any period,  the sum of the amounts of
EBITDAR for each  Facility  included  in Real  Property  Collateral  during such
period  attributable to the time during which each such facility was included in
Real Property Collateral,  or for the immediately preceding four (4) consecutive
quarters if the Facility has been included in the Real Property  Collateral  for
fewer than four (4) quarters.

         "Aggregate Rent Ratio" means, for all of the Facilities included in the
Real Property  Collateral,  the ratio, as of each  Computation  Date, of (i) the
Aggregate EBITDAR for such Facilities for the four fiscal quarters ending on the
date ninety (90) days before such Computation Date, to (ii) the aggregate rental
payments  made to the  Borrowers  under  the  lease,  master  lease,  management
agreement or similar  agreement  between the Borrowers and the Operators of such
Facilities for the same four fiscal  quarters (or such shorter  period  included
within such four quarter  period as each such  Facility was included in the Real
Property Collateral).

         "Appraisal"  means an  appraisal  providing an  assessment  of the fair
market  value of a Property  (whether  appraised on a  stand-alone  basis or "in
bulk" together with similar  Properties)  which is independently and impartially
prepared by a nationally  recognized  appraiser or an  appraiser  acceptable  to
Agent  and  having  substantial  experience  in the  appraisal  of  health  care
facilities  and  conforming  to  Uniform  Standards  of  Professional  Appraisal
Practice adopted by the Appraisal Standards Board of the Appraisal Foundation.

         "Borrowing  Base" means,  as of any date as of which the amount thereof
shall be determined,  an amount,  determined based on the most recent Compliance
Certificate submitted by Borrowers pursuant to the terms hereof, equal to 75% of
the product of (i) Aggregate EBITDAR, multiplied by (ii) 6.14. In no event shall
the Borrowing Base exceed the Maximum Commitment for the Loans.

         "Borrowing Base Certificate" means a certificate, in form and substance
satisfactory to Agent, setting forth the calculation of the Borrowing Base.

         "Business Day" means any day other than  Saturday,  Sunday or any other
day on which commercial banks in Cincinnati,  Ohio are authorized or required to
close.

         "Capital  Expenditures"  mean, for any period,  the aggregate amount of
all  payments  made or to be made during  such period by any Person  directly or
indirectly  for the purpose of  acquiring,  constructing  or  maintaining  fixed
assets, real property or equipment that, in accordance with GAAP, would be added
as a debit  to the  fixed  asset  account  of such  Person,  including,  without
limitation,  all amounts  paid or payable  during  such  period with  respect to
Capitalized  Lease  Obligations and interest that are required to be capitalized
in accordance with GAAP.
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         "Capitalized  Lease" means any lease,  the  obligations  to pay rent or
other amounts under which constitute Capitalized Lease Obligations.

         "Capitalized Lease Obligations" mean, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal  property which obligations are
required to be  classified  and  accounted  for as a capital  lease on a balance
sheet of such Person under GAAP and, for purposes of this Agreement,  the amount
of such  obligations  shall be the  capitalized  amount  thereof,  determined in
accordance with GAAP.

         "Cash" means, as to any Person, such Person's cash and Cash Equivalents

         "Cash  Equivalents"  mean (i) marketable direct  obligations  issued or
unconditionally  guaranteed or insured by the United States Government or issued
by any  agency  thereof  and  backed by the full  faith and credit of the United
States,  in each  case  maturing  within  three  (3)  months  from  the  date of
acquisition  thereof;  (ii)  investments in  certificates of deposit or bankers'
acceptances maturing within three (3) months from the date of acquisition issued
by any  Lender  or any other  commercial  bank  organized  under the laws of the
United  States or any state  thereof  that is a member  of the  Federal  Reserve
System having  capital  surplus and undivided  profits  aggregating at least Two
Hundred Fifty Million Dollars  ($250,000,000);  (iii)  investments in commercial
paper of any Lender or of any other  Person and  maturing  not more than six (6)
months  from the  date of  acquisition  thereof;  (iv)  obligations  of the type
described  in (i),  (ii) or  (iii)  above  purchased  pursuant  to a  repurchase
agreement  obligating the counterpart to repurchase  such  obligations not later
than thirty (30) days after the purchase  thereof,  secured by a fully perfected
security interest in any such obligation,  and having a market value at the time
such  repurchase  agreement  is  entered  into  of not  less  than  100%  of the
repurchase  obligation of the issuing bank, (v) time deposits or Eurodollar time
deposits  maturing no more than thirty (30) days from the date of creation  with
commercial banks having membership in the Federal Deposit Insurance  Corporation
in amounts not exceeding the lesser of One Hundred Thousand  Dollars  ($100,000)
or the maximum  insurance  applicable to the  aggregate  amount of such Person's
deposits in such  institution,  and (vi)  investments  in money  market funds in
aggregate  amount  of no  more  than  $3,000,000  at any  time  outstanding  and
substantially  all of whose  assets are  comprised  of  securities  described in
clauses (i) through (v) above.

          "CERCLA" means the Comprehensive Environmental Response Compensation
and Liability Act of 1980, 42 U.S.C. ss.9601, et seq.

         "Certificate  of  Need"  means  all  necessary  licenses,  permits  and
governmental  authorizations  required by any governmental authority in order to
permit the operation of each Facility from time to time included within the Real
Property Collateral as a health care facility.

         "Change in Control" means the  occurrence of any of the following:  (a)
any Person, or a group of related Persons,  other than Explorer Holdings,  L.P.,
or any successor or assign  thereof,  shall acquire (i) beneficial  ownership in

<PAGE>

excess of 25% of the outstanding  stock of Omega or other voting interest having
ordinary  voting  powers  to elect a  majority  of the  directors,  managers  or
trustees of Omega  (irrespective of whether at the time stock of any other class
or classes  shall have or might have voting power by reason of the  happening of
any contingency) or (ii) all or  substantially  all of the Investments of Omega,
or (b) a majority  of the Board of  Directors  of Omega,  at any time,  shall be
composed  of Persons  other than (i)  Persons  who were  members of the Board of
Directors on the date of this Agreement, or (ii) Persons who subsequently become
members  of the  Board  of  Directors  on the date of this  Agreement,  or (iii)
Persons who subsequently become members of the Board of Directors and who either
(x) are appointed or  recommended  for election with the  affirmative  vote of a
majority of the directors in office as of the date of this  Agreement or (y) are
appointed or recommended for election with the affirmative vote of a majority of
the Board of Directors of Omega then in office.

         "Chattel  Paper" means  "chattel  paper" as such term is defined in the
UCC, now owned or existing or hereafter acquired or arising or in which a Person
now has or hereafter acquires any rights or interests.

         "Closing Date" means the day on which the Lenders  become  obligated to
make the Loans pursuant to this Agreement.

         "Closing  Fee" means a fee  payable by  Borrowers  to each Lender on or
before the Closing  Date in the  respective  amounts  set forth in Schedule  1.2
hereto.

         "Code"  means the Internal  Revenue Code of 1986,  as it may be amended
from time to time, and the regulations promulgated thereunder.

         "Collateral"  means  the  Real  Property  Collateral  and  all  of  the
following  located on,  generated by, arising from, or used in connection  with,
the Real  Property  Collateral:  a Borrower's  Certificates  of Need,  Accounts,
Inventory, Equipment, General Intangibles, fixtures, leases, money, goods, motor
vehicles,  leasehold  improvements,   Documents,   Instruments,  Chattel  Paper,
Intellectual  Property,  inventory  subject  to leases and  rights  under  lease
agreements for the leasing of inventory,  money,  deposit accounts,  securities,
funds,  rights to draw on letters of credit,  permits,  licenses and the Cash or
noncash  produces and Proceeds  (including  insurance or other rights to receive
payment with respect  thereto) of any of the  foregoing and all  accessions  and
additions to and replacements and substitutions for the foregoing, and all books
and records  (including,  without  limitation,  customer  lists,  credit  files,
computer  programs,  printouts and other computer materials and records of Omega
and each  Subsidiary)  (whether  or not stored in written  or  electronic  form)
pertaining to any of the foregoing.

         "Compliance  Certificate"  means a  certificate  in form and  substance
satisfactory  to  Agent,  executed  by the  chief  executive  officer  or  chief
financial  officer of Omega:  (a) to the effect that as of the effective date of
the  certificate,  no Default or Event of Default under this Agreement exists or
would  exist  after  giving  effect to any  action  intended  to be taken by any
Borrower as described in such certificate,  including,  without limitation, that

<PAGE>

the  covenants  set forth in Section  7.9 hereof are and will be fully  complied
with,  together  with a  calculation  in  reasonable  detail,  and in  form  and
substance satisfactory to Agent, of such compliance,  and (b) to the effect that
the representations and warranties  contained in Article 4 are true and with the
same effect as though such  representations and warranties were made on the date
of such certificate,  except for changes in the ordinary course of business none
of which, either singly or in the aggregate, have had a Material Adverse Effect.

         "Computation Date" means the last day of each fiscal quarter of Omega.

         "Debenture"  means these certain  Subordinated  Debentures  maturing on
February 1, 2001.

         "Default"  means an event which with notice or lapse of time,  or both,
would constitute an Event of Default.

         "Disposition"  means the sale,  lease,  conveyance,  transfer  or other
disposition  of any Real  Property  Collateral  (whether  in one or a series  of
transactions),   including  accounts  and  notes  receivable  (with  or  without
recourse) and sale-leaseback transactions.

         "Document"  means any  "document,"  as such term is defined in the UCC,
now owned or existing or hereafter  arising or acquired or in which a Person now
has or hereafter acquires any rights or interests.

         "Dollars" and "$" mean lawful money of the United States of America.

         "EBITDA" means, for any period, with respect to Omega on a consolidated
basis,  determined in accordance  with GAAP, the sum of net income (or net loss)
for such  period,  plus the sum of all  amounts  treated as  expenses  for:  (a)
interest,  (b) depreciation,  (c) amortization,  and (d) all accrued taxes on or
measured  by income to the  extent  included  in the  determination  of such net
income (or net loss); provided,  however, that net income (or net loss) shall be
computed  without  giving  effect to  extraordinary  losses or gains or interest
income.

         "EBITDAR" means, for any period, with respect to a Facility included in
Real Property Collateral during such period, determined in accordance with GAAP,
the sum of net income (or net loss) after first  subtracting a 4% management fee
for such period, and then adding the sum of all amounts treated as expenses for:
(a) interest,  (b) depreciation,  (c) amortization,  (d) all accrued taxes on or
measured  by income to the  extent  included  in the  determination  of such net
income (or net loss),  and (e) the amount of all rental  payments  to a Borrower
with respect to such Facility;  provided, however, that net income (or net loss)
shall be computed  without  giving  effect to  extraordinary  losses or gains or
interest income.

         "Employee  Benefit  Plan" means any  employee  benefit  plan within the
meaning of Section 3(3) of ERISA which is subject to ERISA.
<PAGE>

         "Environmental  Laws and Regulations" mean individually or collectively
any applicable local, state or federal law, statute,  rule,  regulation,  order,
ordinance,  common law, or permit or license term or condition pertaining to the
environment or to environmental contamination,  regulation, management, control,
treatment,  storage,  disposal,  containment,  removal,  clean-up,  reporting or
disclosure, including, but not limited to CERCLA (including, but not limited to,
the Superfund Amendments and Reauthorization Act), the Resource Conservation and
Recovery  Act  (including,  but not  limited to, the  Hazardous  and Solid Waste
Amendments of 1984), the Toxic Substances  Control Act, the Clean Water Act, the
Safe Drinking Water Act, and the Clean Air Act, all as now or hereafter amended.

         "Environmental  Liability"  means any  liability  under any  applicable
Environmental  Laws and  Regulations  for any  disposal,  release or  threatened
release of a hazardous  substance  pollutant or  contaminant  as those terms are
defined under CERCLA, and any liability which would require a removal,  remedial
or response action, as those terms are defined under CERCLA, by any person or by
any  environmental  regulatory  body  having  jurisdiction  over  Omega  and its
Subsidiaries  and/or any  liability  arising  under any  Environmental  Laws and
Regulations for Omega's or any Subsidiary's failure to comply with such laws and
regulations,  including without limitation, the failure to comply with or obtain
any applicable environmental permit.

         "Environmental  Proceeding" means any judgment,  action,  proceeding or
investigation pending before any court or governmental  authority,  with respect
to Omega or any  Subsidiary  and arising under or relating to any  Environmental
Laws and Regulations.

         "Equipment"  means any "equipment," as such term is defined in the UCC,
now owned or existing or hereafter acquired or arising (or in which a Person now
has or hereafter acquires any rights or interests),  and shall include,  without
limitation, any and all additions, substitutions, and replacements of any of the
foregoing,  wherever located, together with all attachments,  components,  parts
and accessories  installed  thereon or affixed  thereto,  and all other tangible
personal property not otherwise described herein.

         "Equity Contribution" means the $100,000,000 purchase of Omega's Series
C Preferred Stock by Explorer Holdings, L.P.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
it may be amended from time to time, and the regulations promulgated thereunder.

         "ERISA Affiliate"  means, as applied to any Borrower,  any corporation,
person or trade or business  which is a member of a group which is under  common
control with any  Borrower,  who  together  with any  Borrower,  is treated as a
single  employer  within the meaning of Section 414(b) - (o) of the Code and, if
applicable, Section 4001(a)(14) and (b) of ERISA.

         "Event of Default" has the meaning provided in Article 9 hereof.
<PAGE>

         "Facility"  means a health care facility  offering health  care-related
products  and  services,  including  any  acute  care  hospital,  rehabilitation
hospital,  nursing home,  retirement center,  long-term care facility,  assisted
living  facility,  or medical office building,  and facilities  directly related
thereto.

         "Fleet  Obligations"  means the obligations of Omega and certain of its
Affiliates  under the Loan Agreement dated as of June 15, 2000,  among Omega and
certain of its Affiliates,  the "Banks" named therein,  and Fleet Bank, N.A., as
Agent for such Banks, and under the other agreements,  documents and instruments
entered into in connection therewith.

         "Funded  Indebtedness"  means  as of any  date  of  determination,  all
Indebtedness   of  Omega  on  a  consolidated   basis  (other  than   contingent
liabilities).

         "GAAP" means generally accepted accounting principles, as in effect in
the United States.

         "General  Intangibles" mean any "general  intangibles," as such term is
defined in the UCC, now owned or existing or  hereafter  acquired or arising (or
in which a Person now has or hereafter acquires any rights or interests) and, in
any event, shall include, without limitation,  all right, title and interest now
in  existence  or hereafter  arising in or to all  customer  lists,  trademarks,
service  marks,  patents,   rights  in  intellectual   property,   trade  names,
copyrights, trade secrets,  proprietary or confidential information,  inventions
and technical information,  procedures,  designs, knowledge, know-how, software,
data bases, data, processes, models, drawings,  materials, and records now owned
or hereafter  acquired,  and any and all goodwill and rights of indemnification,
and tax refunds and tax refund claims, pension plan refunds and reversions.

         "Hazardous  Materials" mean any toxic chemical,  hazardous  substances,
contaminants or pollutants,  medical  wastes,  infectious  wastes,  or hazardous
wastes defined as such, or included under or regulated by the Environmental Laws
and Regulations.

         "Head Office" means, in relation to Agent, the head office of Provident
located at One East  Fourth  Street,  Cincinnati,  Ohio  45202,  or such  office
designated  in writing to Borrowers  and Lenders by  Provident or any  successor
Agent.

         "Healthcare Assets" means as of any date as of which the amount thereof
is to be determined, the aggregate amount equal to the sum of:

                  (i) the Appraised  Value of each Facility  owned entirely by a
"borrower"  (as  defined  in the  loan  agreement  with  respect  to  the  Fleet
Obligations) and leased to an Operator; plus

                  (ii)  the  lesser  of the  Appraised  Value  of  any  Facility
encumbered by a "mortgage" (as defined in the loan agreement with respect to the
Fleet  Obligations) or the outstanding  principal amount of the "mortgage" which
encumbers any such Facility.
<PAGE>

         "Indebtedness"  means, with respect to any Person, all: (a) liabilities
or obligations,  direct and  contingent,  which in accordance with GAAP would be
included in  determining  total  liabilities as shown on the liability side of a
balance  sheet of such  Person  at the date as of  which  Indebtedness  is to be
determined,  including,  without  limitation,  contingent  liabilities  that  in
accordance with such principles,  would be set forth in a specific Dollar amount
on the liability side of such balance sheet, and Capitalized  Lease  Obligations
of such Person;  (b)  liabilities or obligations of others for which such Person
is  directly  or  indirectly  liable,  by way of  guaranty  (whether  by  direct
guaranty, suretyship, discount, endorsement, take-or-pay agreement, agreement to
purchase or advance or keep in funds or other  agreement  having the effect of a
guaranty) or otherwise;  (c) liabilities or obligations  secured by Liens on any
assets of such Person, whether or not such liabilities or obligations shall have
been assumed by it; and (d) liabilities or obligations of such Person, direct or
contingent,  with  respect to letters of credit  issued for the  account of such
Person and bankers acceptances created for such Person.

         "Indebtedness  for Borrowed  Money" means at any  particular  time, all
Indebtedness (i) in respect of any money borrowed; (ii) evidenced by any loan or
credit agreement,  promissory note,  debenture,  bond, guaranty or other similar
written  obligation to pay money; or (iii) under any Capitalized  Lease,  all as
determined in accordance with GAAP.

         "Instruments"  mean  "instruments," as such term is defined in the UCC,
now owned or existing or hereafter  acquired or arising or in which a Person now
has or hereafter acquires any rights or interests.

         "Intellectual  Property" means all copyrights,  patents and trademarks,
together with (a) all inventions,  processes,  production  methods,  proprietary
information,  know-how  and trade  secrets;  (b) all  licenses  or user or other
agreements granted to any obligor with respect to any of the foregoing,  in each
case whether now or thereafter owned or used including,  without limitation, the
licenses or other agreements with respect to copyrights,  patents or trademarks;
(c) all information,  customer lists,  identification of suppliers, data, plans,
blueprints,  specifications,  designs,  drawings,  recorded knowledge,  surveys,
engineering reports,  test reports,  manuals,  materials  standards,  processing
standards,  performance  standards,  catalogs,  computer and automatic machinery
software  and  programs;  (d) all  field  repair  data,  sales  data  and  other
information   relating  to  sales  or  service  of  products  now  or  hereafter
manufactured;  (e) all accounting information and all media on which or in which
any  information  or  knowledge or data or records may be recorded or stored and
all computer  programs used for the compilation or printout of such information,
knowledge,  records or data;  (f) all licenses,  consents,  permits,  variances,
certifications and approvals of governmental agencies now or hereafter held by a
Person;  and (g) all causes of action,  claims and  warranties  now or hereafter
owned or acquired by a Person in respect of any of the items listed above.

         "Interest  Coverage"  means,  as at the last day of any fiscal quarter,
the  ratio,  determined  by  dividing  EBITDA by  Interest  Expense;  all of the
foregoing  calculated by reference to the immediately  preceding four (4) fiscal
quarters of Omega ending on such date of determination,  but excluding  interest
on the  Debentures  and any other  Indebtedness  repaid with the proceeds of the
Equity Contribution or the Additional Equity Contribution.
<PAGE>

         "Interest  Expense" means, for any period, on a combined basis, the sum
of all interest paid or payable  (excluding  unamortized debt issuance costs) on
all items of  Indebtedness of Omega on a consolidated  basis  outstanding at any
time during such period.

         "Interest  Rate" means (a) the  Prime-Based  Rate,  with respect to any
portions of the Loans that are not LIBOR Loans,  and the LIBOR-Based  Rate, with
respect any portions the Loans that are LIBOR Loans, and (b) with respect to any
other Obligations, a rate equal to the Prime Rate plus two percent (2%).

         "Interest  Rate  Adjustment  Date"  means  (i)  with  respect  to those
portions of the Loans which are LIBOR  Loans,  the first day of the LIBOR Period
for which  LIBOR-Based  Rate is being  determined  for each such LIBOR Loan, and
(ii) with respect to those portions of the Loans which are not LIBOR Loans, each
date upon which the Prime Rate from time to time changes.

         "Interest  Rate  Protection"  means  one or more  agreements  providing
interest rate  protection  with respect to the interest  payable by Borrowers in
connection with the Loans, in form and substance satisfactory to Agent.

         "Inventory"   means,   with  respect  to  any  Person,   such  Person's
"inventory"  (as  defined in the UCC) and other  goods (as  defined in the UCC),
including without  limitation:  (i) all raw materials,  work in process,  parts,
components, assemblies, supplies and materials used or consumed in such Person's
business,  wherever  located and whether in the possession of such Person or any
other Person;  (ii) all goods,  wares and  merchandise,  finished or unfinished,
held for sale or lease or leased or furnished or to be furnished under contracts
of service, wherever located and whether in the possession of such Person or any
other Person; and (iii) all goods returned to or repossessed by such Person.

         "Investment"  means  all  investments  in any  other  Person  by  stock
purchase,  capital contribution,  loan, advance, guaranty of any Indebtedness or
creation or assumption of any other liability in respect of any  Indebtedness of
such other Person,  or the transfer or sale of Property  (otherwise  than in the
ordinary  course of the  business)  to any other Person for less than payment in
full in cash of the transfer or sale price or the fair value thereof  (whichever
of such price or value is higher),  or the  acquisition  or purchase of Property
(otherwise than in the ordinary course of business) of any other Person.

         "Investment  Agreement" means the Investment  Agreement dated as of May
11, 2000 by and between Omega and Explorer  Holdings,  L.P., a Delaware  limited
partnership, as the same has been amended as of the date hereof.

         "Latest Balance Sheet" has the meaning provided in Section 4.9 hereof.
<PAGE>

         "Lenders" mean collectively  each of the banks or lending  institutions
set forth on Schedule 1.1 and their respective  successors and assigns,  and any
financial  institutions which,  pursuant to the terms of this Agreement,  become
from time to time a party to this  Agreement  after the date of this  Agreement,
and "Lender" means any one of Lenders.

         "Leverage  Ratio" means, as of any date of determination  thereof,  the
quotient  of (a) Funded  Indebtedness  as of such date  divided by (b)  Adjusted
EBITDA for the period of four  consecutive  fiscal  quarters  ending on, or most
recently before, such date.

         "LIBOR-Based Rate" means an annual rate of interest equal to the sum of
(i) the LIBOR  Rate in effect as of the first day of LIBOR  Period for which the
LIBOR-Based Rate is being determined, plus (ii) the LIBOR Margin.

         "LIBOR  Election" means an effective  election by Borrowers to have the
principal balance of the Loans, or one or more designated portions thereof, bear
interest at the LIBOR-Based  Rate for the LIBOR Period as designated  therein in
accordance with the provisions of Section 2.5(a).

         "LIBOR  Loan" means all or such  portions of the Loans with  respect to
which a LIBOR Election shall have been made for the applicable LIBOR Period with
respect thereto.

         "LIBOR Margin" means one of the following percentages, depending on the
Leverage  Ratio,  as  determined  by  Agent as of the  Computation  Date for the
immediately preceding fiscal quarter:

          Leverage  Ratio  LIBOR  Margin  Greater  than or equal to 5.0:1  3.25%
          Greater than or equal to 4.5:1, but less than 5.0:1 3.00% Greater than
          or equal to 4.0:1, but less than 4.5:1 2.75% Less than 4.0:1 2.50%

         "LIBOR Period" means a period consisting of one (1), two (2), three (3)
or six (6) calendar  months,  as designated by Borrowers  from time to time in a
LIBOR Election.

         "LIBOR Rate" means,  as  applicable to any LIBOR Loan, an interest rate
per annum equal to the  quotient of (i) the rate of interest  Agent may quote to
Borrowers, from time to time and subject to change without notice, determined on
the basis of the  offered  per annum  rate,  estimated  per annum  rate,  or the
arithmetic mean of the per annum rates determined by Agent and rounded upward to
two decimal points in its reasonable  discretion for deposits in U.S. Dollars in
an amount comparable to the LIBOR Loan for the LIBOR Period,  which shall appear
on page BBAM,  captioned  British Bankers Assoc.  Interest  Settlement Rates, of
Bloomberg,  a service of Bloomberg Partners (or such other page that may replace

<PAGE>

such page on that service for the purpose of displaying  the LIBOR Rate),  or if
such service  ceases to be available,  such other  reasonable  source  reporting
"London Interbank Offered Rates" of major banks on the date that is two Business
Days prior to the  commencement  of the LIBOR  Period,  divided by (ii) a number
equal to one minus the aggregate  (without  duplication) of the rates (expressed
as a decimal fraction) of the LIBOR Reserve Requirements current on the date two
Business Days prior to the commencement of the LIBOR Period.

         "LIBOR Reserve  Requirements"  means,  for any LIBOR Period for which a
LIBOR Election is effective, the maximum reserves (whether basic,  supplemental,
marginal,  emergency or  otherwise)  prescribed by the Board of Governors of the
Federal  Reserve System (or any successor) with respect to liabilities or assets
consisting  of or  including  eurocurrency  funding,  currently  referred  to as
"Eurocurrency liabilities" (as defined in Regulation D of the Board of Governors
of the Federal Reserve System), having a term equal to the LIBOR Period.

          "Licenses and Permits" mean all licenses,  permits,  registrations and
recordings thereof and all applications incorporated into such licenses, permits
and  registrations  now owned or  hereafter  acquired by any Person and required
from time to time for the business operations of such Person.

         "Lien" means any mortgage,  deed of trust,  pledge,  security interest,
encumbrance,  lien, claim or charge of any kind (including any agreement to give
any of the foregoing),  any conditional sale or other title retention agreement,
any lease in the nature of any of the foregoing,  and the filing of or agreement
to give any financing statement under the UCC.

         "Loan  Commitment"  means, in relation to any particular  Lender,  such
Lender's Revolving Loan A Commitment and Revolving Loan B Commitment.

         "Loan Documents" mean this Agreement,  the Notes,  Security  Documents,
and all other  documents  executed  and  delivered  in  connection  herewith  or
therewith, including all amendments,  modifications and supplements of or to all
such documents.

         "Loan Limit" means, as of any date of determination, an amount equal to
the lesser of (i) the Maximum  Commitment for the Loans,  and (ii) the Borrowing
Base.

         "Loans" mean,  collectively,  Revolving  Loan A and  Revolving  Loan B.
"Loan" means,  individually,  each advance of Revolving Loan A and/or  Revolving
Loan B.

         "Material  Adverse  Effect"  means any fact or  circumstance  which (a)
materially and adversely affects the business,  operation, property or financial
condition  of the  Borrowers  taken as a whole,  or (b) has a  material  adverse
effect on the ability of the Borrowers to perform their  respective  obligations
under this Agreement, the Notes or the other Loan Documents.

         "Maximum  Commitment"  means (i) Sixty-Five  Million and 00/100 Dollars
($65,000,000.00)  with respect to Revolving  Loan A, (ii) Ten Million and 00/100

<PAGE>

Dollars  ($10,000,000.00)  with respect to Revolving Loan B, (iii)  Seventy-Five
Million and 00/100  Dollars  ($75,000,000.00)  with  respect to the Loans on and
after the Closing Date and prior to the  Termination  Date of Revolving  Loan B,
and (iv) Sixty-Five Million and 00/100 Dollars ($65,000,000.00) on and after the
Termination  Date of  Revolving  Loan B and  prior  to the  Termination  Date of
Revolving Loan A.

         "Mortgage(s)"  mean  mortgages of Real Property  Collateral in favor of
Agent, for the benefit of Lenders, in form and substance satisfactory to Agent.

         "Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which any Borrower or any ERISA  Affiliate is making,  or
is accruing an obligation to make,  contributions or has made, or been obligated
to make, contributions within the preceding six (6) years.

         "Net   Issuance   Proceeds"   mean,  in  respect  of  any  issuance  of
Indebtedness  or equity,  the proceeds in Cash  received by any Borrower upon or
simultaneously with such issuance,  net of direct costs of such issuance and any
taxes paid or payable by the recipient of such proceeds.

         "Net Loss" means with respect to any period, the excess, if any of: (i)
the aggregate amount of expenses of Omega on a consolidated basis, over (ii) the
aggregate  amount of revenues of Omega on a  consolidated  basis,  in each case,
during such period,  as to all the foregoing,  as determined in accordance  with
GAAP.

         "Net  Proceeds"  mean, in respect of any  Disposition,  the proceeds in
Cash received by a Borrower upon or simultaneously with such Disposition, net of
(i)  direct  costs of such  Disposition,  (ii) any taxes  paid or payable by the
recipient of such  proceeds,  and (iii) amounts  required to be applied to repay
any  Indebtedness  secured  by a lien on the asset  which is the  subject of the
Disposition.

         "Notes" mean,  collectively,  the Revolving Loan A Notes and the
Revolving Loan B Notes. "Note" means,  individually,  any one of the Notes,
unless specifically identified.

         "Obligations"  mean,  collectively,  all  of  the  Indebtedness  of any
Borrower to Agent or any  Lender,  whether now  existing or  hereafter  arising,
whether or not currently  contemplated,  including,  without  limitation,  those
arising under the Loan Documents.

         "Omega's Fixed Coverage  Ratio" means, as at the last day of any fiscal
quarter,  with respect to the immediately  preceding four (4) fiscal quarters of
Omega ending on such date,  the ratio of (x) EBITDA,  to (y) the sum of Interest
Expense, and Cash dividends.

         "Operator"  means the lessee of any Real  Property  Collateral,  to the
extent that such entity controls the operation of such Real Property Collateral.
<PAGE>

         "Operator  Aggregate  Rent  Ratio"  means,  for  all of the  Facilities
included in the Real Property Collateral operated by a particular Operator,  the
ratio,  as of each  Computation  Date  of (i) the  Aggregate  EBITDAR  for  such
Facilities  for the four  fiscal  quarters  ending on the date  ninety (90) days
before such  Computation  Date, to (ii) the aggregate rental payments accrued in
accordance with GAAP to the Borrowers under the lease, master lease,  management
agreement or similar  agreement  between the  Borrowers and the Operator of such
Facilities for the same four fiscal  quarters (or such shorter  period  included
within such four quarter  period as each such  Facility was included in the Real
Property Collateral).

         "Patents"  mean all of the  following  in which a Person  now  holds or
hereafter acquires any interest:  (i) all letters patent of the United States or
any country,  all registrations and recordings thereof, and all applications for
letters   patent  of  the  United  States  or  any  other   country,   including
registrations,  recordings  and  applications  in the United  States  Patent and
Trademark  Office or in any similar office or agency of the United  States,  any
state or  territory  thereof  or any  other  country,  and  (ii)  all  reissues,
continuations, continuations-in-part or extensions thereof.

         "PBGC" means  the Pension Benefit Guaranty Corporation.

         "Permitted  Liens" mean,  as to any Person:  (a) pledges or deposits by
such Person under  workers'  compensation  laws,  unemployment  insurance  laws,
social  security  laws,  or  similar  legislation,  or good  faith  deposits  in
connection  with  bids,  tenders,  contracts  (other  than  for the  payment  of
Indebtedness  of such  Person),  or leases to which such  Person is a party,  or
deposits to secure public or statutory obligations of such Person or deposits of
Cash or United States Government Bonds to secure surety, appeal,  performance or
other similar bonds to which such Person is a party, or deposits as security for
contested  taxes or import duties or for the payment of rent;  (b) liens imposed
by law, including without limitation, carriers',  warehousemen's,  materialmen's
and  mechanics'  liens,  or liens arising out of judgments or awards or judicial
attachment  liens  against  such Person with respect to which such Person at the
time shall  currently be prosecuting an appeal or  proceedings  for review;  (c)
liens for taxes not yet subject to penalties for non-payment and liens for taxes
the payment of which is being contested as permitted by Section 7.6 hereof;  (d)
non-consensual  liens that have been bonded within thirty (30) days after notice
of such lien(s) by a Person (not an Affiliate of Omega) reasonably  satisfactory
to Agent in an  aggregate  amount  secured  by all such  liens  not in excess of
$5,000,000;  (e) minor  survey  exceptions,  minor  encumbrances,  easements  or
reservations  of, or rights of, others for rights of way,  highways and railroad
crossings,  sewers,  electric  lines,  telegraph and  telephone  lines and other
similar  purposes,  or  zoning  or  other  restrictions  as to the  use of  real
properties, or Liens incidental to the conduct of the business of such Person or
to the ownership of such Person's  property that were not incurred in connection
with Indebtedness of such Person,  all of which Liens referred to in this clause
(e) do not in the  aggregate  materially  impair the value of the  properties to
which  they  relate  or  materially  impair  their use in the  operation  of the
business  taken as a whole of such Person,  and as to all the foregoing  only to
the extent  arising and continuing in the ordinary  course of business;  and (f)
existing leases on the Real Property Collateral disclosed to Agent.
<PAGE>

         "Person" means an individual, a corporation,  a partnership,  a limited
liability company, a joint venture,  a trust or unincorporated  organization,  a
joint stock company or other similar organization, a government or any political
subdivision  thereof,  a court, or any other legal entity,  whether acting in an
individual, fiduciary or other capacity.

         "Plan"  means at any time an  employee  pension  benefit  plan  that is
covered by Title IV of ERISA or subject to the minimum  funding  standards under
Section  412 of the Code and is either:  (a)  maintained  by a Borrower  for its
employees,  or (b) maintained pursuant to a collective  bargaining  agreement or
any other arrangement under which more than one employer makes contributions and
to  which  any  Borrower  is then  making  or  accruing  an  obligation  to make
contributions or has within the preceding five plan years made contributions.

         "Post-Default  Rate"  means a rate  per  annum  equal  to four  percent
(4.00%) in excess of the Interest Rate.

         "Prime-Based Rate" means an annual rate of interest equal to the sum of
(i) the Prime Rate as in effect from day to day plus (ii) the Prime Margin.

         "Prime Margin" means one of the following percentages, depending on the
Leverage  Ratio,  as  determined  by  Agent as of the  Computation  Date for the
immediately preceding fiscal quarter:

          Leverage  Ratio                                   Prime  Margin
          Greater  than or equal to 5.0:1                       2.25%
          Greater than or equal to 4.5:1, but
               less than 5.0:1                                   2.00%
          Greater than or equal to 4.0:1, but
               less than 4.5:1                                   1.75%
          Less than 4.0:1                                        1.50%

         "Prime Rate" means the rate of interest  established  from time to time
by Agent as its prime rate at its Head  Office,  whether  or not Agent  shall at
times lend to other borrowers at lower rates of interest.

         "Proceeds" mean  "proceeds," as such term is defined in the UCC and, in
any event, shall include,  without  limitation,  (i) any and all proceeds of any
insurance,  indemnity,  warranty  or  guaranty  payable  from  time to time with
respect to any of the  Collateral,  and (ii) any and all  payments  (in any form
whatsoever)  made or due and payable  from time to time in  connection  with any
requisition,  confiscation,  condemnation,  seizure or  forfeiture of all or any
part of the Collateral by any governmental body, authority, bureau or agency (or
any Person acting under color of governmental authority).

         "Projections"  mean the (a) annual  cash flow  projections  relating to
Omega and its  Subsidiaries for the years ending December 31, 2001 and 2002, and

<PAGE>

(b) quarterly cash flow  projections  relating to Omega and its Subsidiaries for
the period  commencing  April 1, 2000 through and  including  March 31, 2001, in
each case including  balance sheets and statements of operations  (together with
related assumptions) as furnished by Omega to Agent.

         "Property"  means any estate or  interest  in any kind of  property  or
asset, whether real, personal or mixed, and whether tangible or intangible.

         "Pro Rata Share" means,  in relation to any particular  item, the share
of any  Lender in such item,  which  shall be in the same  proportion  which the
aggregate amount of all of the obligations  owing to such Lender with respect to
such  item  at  such  time  shall  bear to the  aggregate  amount  of all of the
obligations  owing to all Lenders  with respect to such item at such time net of
any and all charges or fees due and payable to Agent under the Loan Documents.

         "Provident" means The Provident Bank, an Ohio banking corporation.

         "Real Property Collateral" means that real property owned by a Borrower
subject to the Mortgages and serving as collateral  for the Loans,  as set forth
in Schedule 1.3 hereto,  including the Facilities  listed, and any real property
hereafter  substituted  for the same or otherwise  serving as collateral for the
full and timely  payment and  performance  of the  Obligations  and subject to a
Mortgage and the terms and conditions of this Agreement.

         "Reference  Period"  means,  with respect to a  particular  Computation
Date, the period of four consecutive quarters ending on such Computation Date.

         "REIT Status" means, with respect to any Person,  (a) the qualification
of such Person as a real estate  investment trust under Sections 856 through 860
of the Code, and (b) the  applicability  to such Person and its  shareholders of
the method of taxation provided for in Sections 857 et seq. of the Code.

         "Rent Ratio"  means,  for each  Facility  included in the Real Property
Collateral,  the ratio, as of each  Computation Date of (i) the EBITDAR for such
Facility for the four fiscal quarters ending on the date ninety (90) days before
such Computation  Date, to (ii) the aggregate rental payments made to a Borrower
under the lease, master lease, management agreement or similar agreement between
the Borrower and the Operator of such Facility for the same four fiscal quarters
(or such shorter period  included with such four quarter period as such Facility
was included in the Real Property Collateral).

         "Requisite  Lenders"  mean at any time those  Lenders  whose  aggregate
outstanding Loans equals or exceeds fifty-one percent (51%) of the sum of all of
the outstanding Loans.

         "Revolving Loan A" means all loans made pursuant to Section 2.1 and any
amounts  added to the  principal  balance of  Revolving  Loan A pursuant to this
Agreement.
<PAGE>

         "Revolving  Loan A  Commitment"  means,  in relation to any  particular
Lender,  the maximum  amount of Revolving  Loan A to be loaned by such Lender to
Borrowers as set forth in Schedule 1.1.

         "Revolving Loan A Notes" shall mean, collectively, the promissory notes
payable jointly and severally by Borrowers to the order of a Lender, in form and
substance satisfactory to Agent and Lenders, executed and delivered by Borrowers
as of the Closing Date with respect to Revolving Loan A.

         "Revolving Loan B" means all loans made pursuant to Section 2.2 and any
amounts  added to the  principal  balance of  Revolving  Loan B pursuant to this
Agreement.

         "Revolving  Loan B  Commitment"  means,  in relation to any  particular
Lender,  the maximum  amount of Revolving  Loan B to be loaned by such Lender to
Borrowers as set forth in Schedule 1.1.

         "Revolving Loan B Notes" shall mean, collectively, the promissory notes
payable jointly and severally by Borrowers to the order of a Lender, in form and
substance satisfactory to Agent and Lenders, executed and delivered by Borrowers
as of the Closing Date with respect to Revolving Loan B.

         "Security  Agreement" means a security agreement executed by a Borrower
granting  Agent,  for  the  benefit  of  Lenders,  a  security  interest  in the
Collateral  other  than  the Real  Property  Collateral,  in form and  substance
satisfactory to Agent.

         "Security  Documents" mean all documents providing  collateral security
for the full and timely payment and performance of the Obligations and the terms
and conditions of this  Agreement,  including  Mortgages,  Security  Agreements,
Guaranties and UCC financing statements.

         "Subsidiary"  means,  with  respect  to any  person,  any  corporation,
partnership,  limited liability company,  joint venture or other entity, whether
now  existing  or  hereafter  organized  or  acquired:  (a)  in  the  case  of a
corporation,  of which a majority of the securities having ordinary voting power
for the election of directors  (other than securities  having such power only by
reason of the happening of a  contingency)  are at the time owned by such Person
and/or  one  or  more  Subsidiaries  of  such  Person,  (b)  in  the  case  of a
partnership, limited liability company, or other entity, in which such Person is
a general  partner or manager or  managing  member or of which a majority of the
partnership  or other  equity  interests  are at the time  owned by such  Person
and/or one or more of its  Subsidiaries,  or (c) in the case of a joint venture,
in  which  such  Person  is a joint  venturer  and of  which a  majority  of the
ownership  interests  are at the time owned by such Person and/or one or more of
its  Subsidiaries.  Unless the context  otherwise  requires,  references in this
Agreement to "Subsidiary" or "Subsidiaries"  shall be deemed to be references to
a Subsidiary or Subsidiaries of Omega.
<PAGE>

         "Tangible Net Worth" means the sum of capital  surplus,  earned surplus
(after the  reduction  for common and preferred  dividends)  and capital  stock,
minus deferred  charges,  intangibles and treasury  stock,  all as determined in
accordance with GAAP consistently applied.

         "Termination Date" means the earliest of (i) June 30, 2005 with respect
to Revolving Loan A, (ii) March 31, 2002 with respect to Revolving Loan B, (iii)
the date upon which the entire  principal of the Notes shall become due pursuant
to the  provisions  hereof  (whether  as a result  of  acceleration  by Agent or
Requisite  Lenders  or  otherwise),  or  (iv)  the  date  upon  which  the  Loan
Commitments terminate pursuant to Section 9.1.

         "UCC" means the Uniform  Commercial  Code as the same may, from time to
time, be in effect in the State of Ohio,  provided,  however,  that in the event
that, by reason of mandatory  provisions  of law, any or all of the  attachment,
perfection or priority of Agent's security  interest in any of the Collateral is
governed by the Uniform  Commercial  Code as in effect in a  jurisdiction  other
than the State of Ohio, the term "UCC" shall mean the Uniform Commercial Code as
in effect in such other  jurisdiction  for  purposes  of the  provisions  hereof
relating  to  such  attachment,  perfection  or  priority  and for  purposes  of
definitions related to such provisions.

         "Unused  Facility Fee" means a fee payable to Agent, for the benefit of
Lenders,  equal to one of the following  percentages  per annum (computed on the
basis of a 360-day  year for the  actual  number of days  elapsed)  on the daily
unused balance of the Maximum Commitment, as determined quarterly by Agent as of
the Computation Date for the immediately preceding fiscal quarter:

         Leverage Ratio Unused Facility Fee Greater than or equal to 5.0:1 0.50%
         Greater than or equal to 4.5:1,  but less than 5.0:1 0.45% Greater than
         or equal to 4.0:1, but less than 4.5:1 0.35% Less than 4.0:1 0.30%

         Section 1.3 GAAP. Any accounting  terms used in this Agreement that are
not  specifically  defined herein shall have the meanings  customarily  given to
them in accordance with GAAP as in effect on the date of this Agreement,  except
that references in Article 5 to such principles shall be deemed to refer to such
principles  as in  effect  on the  date of the  financial  statements  delivered
pursuant thereto.

                              ARTICLE 2. THE LOANS.

         Section 2.1  Revolving  Loan A.

Each Lender  having a Revolving  Loan A  Commitment,  severally and not jointly,
will,  subject to the terms and conditions of this Agreement,  make its Pro Rata
Share of Revolving Loan A to Borrowers,  in an aggregate amount not to exceed at
any time such Lender's  Revolving  Loan A Commitment,  at such times and in such
amounts as shall be  requested  by  Borrowers  in  compliance  with Section 2.3.
Borrowers  may  borrow,  repay and  reborrow  Revolving  Loan A on and after the
Closing  Date until the  Termination  Date of  Revolving  Loan A, subject to the
terms and conditions of this Agreement.
<PAGE>

         Section 2.2  Revolving  Loan B.

Each Lender  having a Revolving  Loan B  Commitment,  severally and not jointly,
will,  subject to the terms and conditions of this Agreement,  make its Pro Rata
Share of Revolving Loan B to Borrowers,  in an aggregate amount not to exceed at
any time such Lender's  Revolving  Loan B Commitment,  at such times and in such
amounts as shall be  requested  by  Borrowers  in  compliance  with Section 2.3.
Borrowers  may  borrow,  repay and  reborrow  Revolving  Loan B on and after the
Closing  Date until the  Termination  Date of  Revolving  Loan B, subject to the
terms and conditions of this Agreement.

         Section 2.3  Loan Advances

                  (a) All advances of the Loans shall be  effectuated at Omega's
request either through wire transfer as directed by Omega or by receipt by Agent
of a check drawn on an account of Omega  maintained with Agent.  Any request for
advance by wire  transfer  may be  transmitted  to Agent at its Head  Office via
facsimile,  provided  Omega  immediately  notifies  Agent by  telephone  of such
transmission.  All such requests for wire transfer advances shall be made to and
received by Agent not later than 11:00 a.m. Cincinnati, Ohio time on the date on
which such advance is requested to be made, and each such check or wire transfer
request  shall be deemed to be a request for an advance of the Loans on the date
when received and  processed by Agent.  Each request for an advance of the Loans
shall be made only by a duly authorized  officer of Omega identified to Agent as
such.  Each  request  for an  advance of the Loans must be in an amount not less
than $1,000,000.

                  (b) On and after the Closing Date and prior to the Termination
Date of Revolving  Loan B, the amount of each advance made under this  Agreement
shall be allocated  86.67% to Revolving  Loan A and 13.33% to Revolving  Loan B.
Thereafter,  the amount of each advance under this Agreement  shall be allocated
100% to  Revolving  Loan A. Agent shall  promptly  notify each Lender of its Pro
Rata Share of each requested Loans advance and the date of such advance.  On the
borrowing date specified in such notice, each Lender shall make its share of the
advance  available  at the Head Office of Agent for  deposit to such  account as
Agent shall  designate,  no later than 1:00 p.m.  Cincinnati  time in Federal or
other immediately available funds.

                  (c) On the  Closing  Date,  as provided in Section 3.5 hereof,
and not later than forty-five (45) days after each Computation Date (ninety (90)
days in the case of a fiscal year-end Computation Date),  Borrowers shall submit
to Agent a Borrowing  Base  Certificate,  setting forth the  calculation  of the
Borrowing Base as of such Computation Date.  Lenders shall have no obligation to
fund any  request  for an advance of the Loans  unless  Agent  shall have timely
received and shall have approved such Borrowing Base Certificate.
<PAGE>

         Section  2.4 The  Notes.

The absolute and  unconditional,  joint and several,  obligation of Borrowers to
repay to each Lender such  Lender's Pro Rata Share of the principal of Revolving
Loan A and the interest thereon shall be evidenced by a separate  Revolving Loan
A Note and the amount of such Lender's Revolving Loan A Commitment,  dated as of
the Closing Date. The absolute and unconditional,  joint and several, obligation
of  Borrowers  to repay  to each  Lender  such  Lender's  Pro Rata  Share of the
principal of Revolving  Loan B and the interest  thereon shall be evidenced by a
separate  Revolving Loan B Note in the amount of such Lender's  Revolving Loan B
Commitment,  dated as of the Closing Date. All payments under the Notes shall be
made to Agent at its Head  Office,  for the account of Lenders,  and Agent shall
allocate all payments  received  from  Borrower  among all Lenders in accordance
with Section 2.8(b).

         Section 2.5       Interest Payable on the Loans.

                  (a) Determination  of  Interest  Rate For the Loans.  The
Interest  Rate for the Loans shall be  determined  as follows:

                    (i) During the applicable  LIBOR Period specified in a LIBOR
               Election,  the  principal  balance of such  portions of the Loans
               which are the subject of such LIBOR  Election shall bear interest
               at the applicable LIBOR-Based Rate. The principal balance of such
               portions  of the Loans  other  than the LIBOR  Loans  shall  bear
               interest at the Prime Based Rate.  The  foregoing  provisions  of
               this clause (i) are  subject to  imposition  of the  Post-Default
               Rate as provided in Section 2.5(d).

                    (ii) On the  Closing  Date and from time to time as provided
               below, Borrowers may make a LIBOR Election in accordance with the
               following provisions of this clause (ii). Any LIBOR Election,  in
               order to be effective,  must be made by written notice, signed by
               a duly authorized  officer of Omega  identified to Agent as such,
               given to Agent and actually  received by Agent,  and must specify
               the  portions of the Loans which are the subject  thereof and the
               LIBOR Period applicable thereto.  Any LIBOR Election shall become
               effective  as of  the  first  day  of the  calendar  month  first
               occurring not less than three Business Days after Agent's receipt
               of the LIBOR  Election,  and shall remain  effective,  as to each
               LIBOR Loan specified  therein,  until the end of the LIBOR Period
               applicable thereto  (excluding the last day thereof).  Other than
               with the consent of Agent, Borrowers may not have more than three
               LIBOR Loans  outstanding at any time, and any LIBOR Election that
               would  result in more than three LIBOR  Loans  being  outstanding
               shall not be effective.

                    (iii) The Prime-Based  Rate and the LIBOR-Base Rate shall be
               adjusted on each Interest Rate  Adjustment  Date, to be effective
               upon such change.

                    (iv)  Notwithstanding  any other  provisions of this Section
               2.5(a)  to the  contrary,  (A)  Borrowers  may  not  make a LIBOR
               Election if, at any time,  deposits in Dollars for the  requested
               LIBOR Period are not  available to Agent in the London  interbank
               market, or (B) Borrowers may not make a LIBOR Election,  and if a
               LIBOR  Election is in effect with respect to LIBOR Loan, it shall

<PAGE>

               be  terminated  if,  at  any  time,  by  reason  of  national  or
               international  financial,  political or economic conditions or by
               reason of any applicable law, treaty, rule or regulation (whether
               domestic  or  foreign)  now  or  hereafter  in  effect,   or  the
               interpretation  or  administration  thereof  by any  governmental
               authority  charged  with  the  interpretation  or  administration
               thereof,  or  compliance  by  any  Lender  with  any  request  or
               directive of such  authority  (whether or not having the force of
               law),  including,  without limitation,  exchange controls,  Agent
               reasonably  determines  that  it is  impracticable,  unlawful  or
               impossible  for  any  Lender  to  maintain  LIBOR  Loans  at  the
               LIBOR-Based Rate.

                  (b) Interest Rate on Other Obligations. The outstanding amount
of any  Obligations  other than the Loans shall bear interest at the  applicable
Interest  Rate,  subject to the imposition of  Post-Default  Rate as provided in
Section 2.5(d).

                  (c) Interest  Payments.  Borrower shall pay to Agent,  for the
account of  Lenders,  (i)  interest  accrued  through the date of payment on the
outstanding  principal  amount of each  LIBOR Loan in arrears on the last day of
each LIBOR Period applicable thereto, and (ii) interest accrued through the date
of payment on each Loan other than a LIBOR Loan monthly in arrears commencing on
August  31,  2000  and  continuing  on the  last  day of each  calendar  quarter
thereafter; provided, however, that if Borrowers elect, pursuant to this Section
2.5,  to convert a portion of the Loan other than a LIBOR Loan to a LIBOR  Loan,
Borrowers  shall pay all interest  accrued but unpaid on the portion of the Loan
being  converted  for the  period  commencing  on the date of the last  interest
payment for such portion of the Loan to (but not including) the first day of the
LIBOR  Period  for the  LIBOR  Loan  into  which  such  portion  of the Loan was
converted. Except as otherwise provided in this Section 2.5, Borrowers shall pay
to Agent,  for the  benefit of  Lenders,  interest  accrued  through the date of
payment on all other Obligations immediately upon demand.

                  (d)  Post-Default  Rate.  Upon the  occurrence  and during the
continuance of any Event of Default,  the outstanding  principal and all accrued
and  unpaid  interest,  as well as any other  Obligations  due  Lenders or Agent
hereunder or under any Loan  Document,  shall bear interest at the  Post-Default
Rate from the date on which  such Event of Default  shall have  occurred  to the
date on which such Event of Default shall have been waived or cured.

         Section 2.6 Principal Repayments on the Loans.

                  (a) Repayments on the Loans. Borrowers shall have the right to
repay the principal of the Loans in full or in part at any time and from time to
time,  without  any  penalty or premium  except as  provided  in Section  2.7(a)
hereof.

                  (b) Loan Overadvance. Subject to the provisions of Section 3.5
hereof,  if at any time the amount of the Loans outstanding to Borrowers exceeds
the Loan Limit,  Borrowers  shall be obligated to  immediately  repay the amount
that exceeds the Loan Limit.
<PAGE>

                   (c) Net Proceeds.  If any Borrower shall at any time agree to
a Disposition,  Borrowers  shall promptly  notify Agent of such  Disposition and
shall repay the Loans in an amount equal to the  aggregate  Net Proceeds of such
Disposition  unless,  pursuant to Section 3.5 and 8.4,  additional Real Property
Collateral is substituted  for the Real Property  Collateral that is the subject
of the Disposition.

                  (d) Net  Issuance  Proceeds.  If any  Borrower  shall make any
public or private  issuance of  Indebtedness or equity (other than in connection
with any dividend reinvestment  program(s),  the Investment Agreement, the Fleet
Obligations  or any  other  issuance  of  Indebtedness  or equity of up to Fifty
Million  ($50,000,000) Dollars received prior to February 1, 2001 (provided that
such Indebtedness by its terms matures later than December 31, 2002)), Borrowers
shall promptly  notify Agent of such issuance and,  immediately  upon receipt of
such Net Issuance Proceeds, repay the Loans as follows: (i) if and to the extent
that  pursuant to the Fleet  Obligations  any  Borrower is required to apply Net
Issuance  Proceeds to repay the Fleet  Obligations and the Net Issuance Proceeds
exceed the amount necessary to reduce the then outstanding  Fleet Obligations to
zero or (ii) the Fleet  Obligations  have been terminated not in connection with
or as a result of replacement financing. If the Fleet Obligations are terminated
in connection with or as a result of replacement  financing  (whether secured or
unsecured), then any subsequent Net Issuance Proceeds shall be applied, on a pro
rata basis (in accordance with the relative aggregate commitments of the lenders
under the replacement  financing and the aggregate  commitments of Lenders under
this Agreement), to repay the then outstanding obligations under the replacement
financing and the Loans.

         Section 2.7  Certain Fees.

                  (a) LIBOR  Prepayment  Fee. If (i) Borrowers  fail to borrow a
LIBOR  Loan that is the  subject  of a LIBOR  Election  or (ii) Agent or Lenders
receive or recover,  whether by voluntary or mandatory prepayment,  acceleration
or  otherwise,  all or any  part of a LIBOR  Loan  prior  to the last day of the
applicable  LIBOR Period,  then  Borrowers  shall pay to Agent,  for the ratable
benefit of Lenders, in addition to any other Obligations, a LIBOR prepayment fee
in an amount equal to the  "interest  differential  amount" as described  below;
provided that if the "interest  differential  amount" is a negative number, then
there shall be no LIBOR prepayment fee. The "interest differential amount" shall
be determined by (I) multiplying (A) the difference  between the LIBOR Rate used
in determining the then effective LIBOR-Based Rate for the applicable LIBOR Loan
and the  then  current  "bid  side"  reinvestment  LIBOR  Rate as of the date of
determination  by (B) the amount of the LIBOR Loan which  Borrowers have prepaid
or failed to borrow, and (II) multiplying the product determined in (I) above by
a fraction,  the numerator of which is the number of days remaining  through the
last day of the applicable LIBOR Period, and the denominator of which is 360.

                  (b) Unused Facility Fee. Borrowers shall pay to Agent, for the
benefit of Lenders,  the Unused  Facility Fee, which shall commence to accrue on
the  Closing  Date,  in  quarterly   installments  in  arrears  with  the  first
installment  being due on September 30, 2000 and subsequent  installments due on
the  last  day  of  each  succeeding   calendar  quarter  thereafter  until  the
Termination  Date for all of the Loans, at which time all accrued amounts of the
Unused Facility Fee shall be immediately due and payable.
<PAGE>

                  (c)  Agency  Fees.  On or  before  the  Closing  Date and each
anniversary of the Closing Date,  Borrowers  shall pay the Agency Fees to Agent,
for the benefit of Agent and for the benefit of Lenders,  in accordance with the
definition of "Agency Fees".

         Section 2.8 Payments and Computations.

                  (a) Time and Place of  Payments.  Notwithstanding  anything in
this Agreement or any of the other Loan Documents to the contrary,  each payment
to be made by Borrowers  to Agent or any Lender  under this  Agreement or any of
the other Loan  Documents,  shall be made  directly  to Agent,  at Agent's  Head
Office,  not later than 12:00 noon Eastern Standard or Eastern Daylight Time, as
applicable,  in  Cincinnati,  Ohio,  on the due  date of each  such  payment  in
immediately  available and freely  transferable funds. Agent will promptly cause
to  be  distributed   to  each  Lender  in  immediately   available  and  freely
transferable funds such Lender's Pro Rata Share of each such payment received by
Agent.  In order to cause timely payment to be made to Agent of all  Obligations
as and when due, Borrowers hereby authorize and direct Agent, at Agent's option,
to debit any account of any Borrower  with Agent or to initiate an advance under
the Loans  (thereby  increasing  the  principal  balance of the Loans) when such
Obligations become due.

                  (b) Application of Funds.  Notwithstanding  anything herein to
the contrary,  the funds received by Agent with respect to the Obligations shall
be applied as follows:

                    (i) No  Default.  If the  Notes  have not  been  accelerated
               pursuant  to Section  9.1 and if no Event of  Default  shall have
               occurred and be continuing at the time Agent receives such funds,
               in  the  following  manner:  (a)  first,  to the  payment  of all
               reasonable  fees,  charges and other sums (with the  exception of
               principal and interest) due and payable to Agent or Lenders under
               the Notes,  this  Agreement  or the other Loan  Documents at such
               time; (b) second,  if the payment is made on the Termination Date
               of  Revolving  Loan B, and such date is not also the  Termination
               Date of Revolving Loan A, to the payment of all interest  accrued
               on the  principal of the  Revolving  Loan B Notes,  in accordance
               with each Lender's Pro Rata Share of Revolving Loan B; (c) third,
               if such payment is made on the Termination Date of Revolving Loan
               B, and such date is not also the  Termination  Date of  Revolving
               Loan A, to the  payment of all  principal  outstanding  under the
               Revolving Loan B Notes, in accordance with each Lender's Pro Rata
               Share of Revolving Loan B; (d) fourth,  (A) 86.67% to the payment
               of all interest due and payable on the principal of the Revolving
               Loan A Notes,  in accordance with each Lender's Pro Rata Share of
               Revolving  Loan A, and (B) 13.33% to the payment of all  interest
               due and payable on the principal of the  Revolving  Loan B Notes,
               in accordance with each Lender's Pro Rata Share of Revolving Loan
               B; (e)  fifth,  (I)  86.67%  to the  payment  of the  outstanding
               principal  amount of the  Revolving  Loan A notes,  in accordance
               with each  Lender's Pro Rata Share of Revolving  Loan A, and (II)
               13.33% to the payment of the outstanding  principal amount of the
               Revolving Loan B Notes, in accordance with each Lender's Pro Rata
               Share of Revolving Loan B; (f) sixth, to the other Obligations in
               such amounts and in such order and priority as Agent, in its sole
               discretion may determine; and (g) seventh, to Borrowers.
<PAGE>

                    (ii) Default. If the Notes have been accelerated pursuant to
               Section 9.1, or if an Event of Default shall have occurred and be
               continuing  at  the  time  Agent  receives  such  funds,  in  the
               following  manner:  (a) first, to the payment or reimbursement of
               Lenders  and Agent for all  costs,  expenses,  disbursements  and
               losses which shall have been  incurred or sustained by Lenders or
               Agent in or incidental to the  collection of the  Obligations  or
               the exercise,  protection or  enforcement by Lenders and Agent of
               all or any of the  rights,  remedies,  powers and  privileges  of
               Lenders and Agent under this Agreement,  the Notes, or any of the
               other Loan Documents and in and towards the provision of adequate
               indemnity to Agent and any of Lenders  against all taxes or Liens
               which by law shall have, or may have, priority over the rights of
               Agent or  Lenders  in and to such  funds and (b)  second,  to the
               payment of all of the  Obligations  in  accordance  with  Section
               2.8(b)(i).

                  (c) Payments on Business  Days.  If any sum would (but for the
provisions of this Section 2.8(c)) become due and payable to Agent or any Lender
by Borrowers  under any of the Loan Documents on any day which is not a Business
Day,  then  such sum shall  become  due and  payable  on the  Business  Day next
succeeding the day on which such sum would otherwise have become due and payable
hereunder or thereunder,  and interest payable to Agent or any Lender under this
Agreement or any of the other Loan Documents  shall continue to accrue and shall
be adjusted by Agent accordingly.

                  (d)  Computation  of Interest.  All  computations  of interest
payable under this Agreement, the Notes or any of the other Loan Documents shall
be computed by Agent on the basis of the actual principal amount  outstanding on
each day during the payment  period and shall be  calculated on the basis of the
actual  number of days  elapsed  during such period for which  interest is being
charged,  predicated on a year consisting of three hundred sixty (360) days. The
daily interest charge shall be one-three  hundred sixtieth (1/360) of the annual
interest  amount.  Each  determination of any interest rate by Agent pursuant to
this Agreement,  any Note or any of the other Loan Documents shall be conclusive
and  binding on  Borrowers  in the absence of manifest  error.  Absent  manifest
error, a certificate or statement signed by an authorized officer of Agent shall
be conclusive evidence of the amount of the Obligations due and unpaid as of the
date of such certificate or statement.

         Section 2.9 Payments to be Free of Deductions.

Each  payment  to be made  by  Borrowers  to  Agent  or any  Lender  under  this
Agreement,  any  Note  or any of the  other  Loan  Documents  shall  be  made in
accordance with Section 2.8,  without set-off or counterclaim and free and clear
of and without any deduction of any kind for any taxes, levies, imposts, duties,
charges,  fees,  deductions,  withholdings,  compulsory  loans,  restrictions or
conditions  of any nature now or  hereafter  imposed or levied by any  political
subdivision  or any taxing or other  authority  therein,  unless a  Borrower  is
compelled by law to make any such  deduction or  withholding.  In the event that
any such  obligation  to deduct or  withhold  is imposed  upon a  Borrower  with
respect to any such payment  payable by  Borrowers  to Agent or any Lender,  (a)
Borrowers  shall be permitted to make the deduction or  withholding  required by

<PAGE>

law in respect of the said payment, and (b) there shall become and be absolutely
due and  payable by  Borrowers  to Agent or such Lender on the date on which the
said payment shall become due and payable,  and Borrowers  hereby promise to pay
to Agent  or such  Lender  on such  date,  such  additional  amount  as shall be
necessary  to enable  Agent or such Lender to receive the same net amount  which
Agent or such Lender would have received on such due date had no such obligation
been   imposed  by  law.   Anything  in  this   Section  2.9  to  the   contrary
notwithstanding, the foregoing provisions of this Section 2.9 shall not apply in
the case of any deductions or withholdings made in respect of taxes charged upon
or by  reference  to the overall  net  income,  profits or gains of Agent or any
Lender.

         Section 2.10  Permitted  Uses of Loan  Proceeds.

Borrowers  represent,  warrant  and  covenant  to Agent and each Lender that all
proceeds  of the Loans shall be used by the  Borrower  solely for the purpose of
repayment of existing  Indebtedness  for Borrowed Money of Borrowers  (including
the payments  required under Section 5.1(i) of this Agreement),  and for general
corporate and working  capital  purposes  (including  without  limitation  those
contemplated by Sections 8.2, 8.10 and 8.15 of this Agreement).

         Section 2.11  Additional  Costs,  Etc.

If any Lender shall reasonably determine that any future applicable law, rule or
regulation,  or any  change  in any  present  law  or in the  interpretation  or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration  thereof, or compliance
by any Lender with any request or directive  regarding capital adequacy (whether
or not  having  the  force  of law)  from any such  authority,  central  bank or
comparable  agency,  has or would have the effect of reducing the rate of return
on such Lender's  capital as a consequence of its  obligations  hereunder,  to a
level below that which such Lender could have  achieved  but for such  adoption,
change or  compliance  by any amount deemed by such Lender to be material and is
not otherwise  reflected in the interest and other charges  payable by Borrowers
hereunder,  then Borrowers shall pay to such Lender upon written demand, setting
forth a brief  explanation of the amounts demanded,  such amount or amounts,  in
addition to the amounts payable under the other  provisions of this Agreement or
the Notes, as will compensate such Lender for such reduction.  Determinations by
any Lender of the  additional  amount or amounts  required  to  compensate  such
Lender in  respect  of the  foregoing  shall be  conclusive  in the  absence  of
manifest error. In determining  such amount or amounts,  such Lender may use any
reasonable averaging and attribution methods.

         Section  2.12 Agent and Lender Statements.

A  statement  signed by an officer of any Lender  setting  forth any  additional
amount  required to be paid by Borrowers to Agent or such Lender under  Sections
2.9 or 2.11, and the computations made by Agent or such Lender to determine such
additional  amount or  amounts,  shall be  submitted  by Agent or such Lender to
Borrowers in  connection  with each demand made at any time by Agent (and copies
thereof  delivered  to each other  Lender) or such Lender  under  either of such
Sections.  A claim by Agent or any Lender for all or any part of any  additional
amounts  required to be paid by Borrowers under Sections 2.9 or 2.11 may be made

<PAGE>

before or after any  payment to which such claim  relates.  Each such  statement
shall, in the absence of manifest error,  constitute  conclusive evidence of the
additional amount required to be paid to Agent or such Lender,  provided it sets
out in  reasonable  detail the  reasons for such  notice and the  averaging  and
attribution  methods used by Agent or such Lender to  determine  the amounts set
forth in such notice.

                              ARTICLE 3. SECURITY.

         Section 3.1 Security Interest.

To secure  the due and  punctual  payment,  performance  and  observance  of the
Obligations,  each Borrower  hereby grants to,  creates in favor of, and pledges
and  collaterally  assigns  to Agent,  for the  benefit of  Lenders,  a lien and
security interest in and to all of said Borrower's Collateral. To further secure
the due and punctual  payment,  performance  and observance of the  Obligations,
each Borrower has executed and delivered Security  Documents  applicable to such
Borrower's Collateral; and shall deliver to Agent, to the extent required herein
or upon Agent's  request in  accordance  with the terms of this  Agreement,  all
Instruments,  Documents  and Chattel  Paper in which said  Borrower from time to
time has an interest and included within the Collateral and such other documents
as Agent may request to perfect a security interest in the Collateral.

         Section 3.2   [RESERVED].

         Section 3.3 Financing Statements;  Additional Documents.

Each  Borrower  shall take all action  necessary or as  reasonably  requested by
Agent to  continue  as  perfected  the first lien and  security  interest in the
Collateral,  except for such  Collateral  in which a first lien can be perfected
only by possession  and such  possession is not required by Agent.  Such filings
shall be in form and substance  required by Agent,  and Borrowers  shall pay all
costs of recording and filing  financing  statements  (and any  continuation  or
termination  statements with respect thereto) and any other  documents,  titles,
statements,  assignments or the like  reasonably  required to create,  maintain,
preserve  or perfect  the liens or  security  interests  granted  under the Loan
Documents,  together  with  costs  and  expenses  of any  lien  or UCC  searches
reasonably  required  by Agent in  connection  with the  making of the Loan.  At
Agent's  request,  each Borrower shall execute and deliver to Agent, at any time
and from time to time hereafter,  all supplemental  documentation that Agent may
reasonably  request to perfect,  maintain,  preserve or  continue  the  security
interest and liens granted Agent,  for the benefit of Lenders,  hereby and under
any of the other Loan Documents,  in form and substance acceptable to Agent, and
pay the costs of preparing  and  recording or filing of the same.  Each Borrower
agrees that a carbon, photographic, or other reproduction of this Agreement, any
Security  Agreement  or of a financing  statement is  sufficient  as a financing
statement.  Except as  otherwise  provided  in this  Agreement,  each  Borrower,
immediately on acquiring  Collateral for which separate  perfection is necessary
or reasonably  considered desirable by Agent, shall deliver to Agent any and all
evidence of ownership of any such property and shall take all such action as may
be reasonably  necessary to perfect Agent's security  interest in such property.
Each  Borrower  shall  perform  all  reasonable  acts and execute or cause to be
executed all documents as Agent  reasonably  deems  necessary or  desirable,  to
establish,   perfect,   record  and  maintain  the  security   interest  in  the
Intellectual  Property  included in the Collateral  and the goodwill  symbolized
thereby (whether now existing or hereafter acquired).
<PAGE>

         Section  3.4  Accounts;  Chattel  Paper;  Lease  Agreements.

After the occurrence of an Event of Default and during the continuance  thereof,
Agent  shall have the right at any time to notify any Person  obligated  to make
payments to each  Borrower  with  respect to Accounts,  Chattel  Paper and lease
agreements  included in the  Collateral to make such payments  directly to or at
the direction of Agent, for the benefit of Lenders.

         Section 3.5  Removal and Substitution of Real Property Collateral.

                  (a) Each Borrower may, upon written  notice to Agent,  request
that any Property serving as Real Property Collateral  hereunder be removed from
serving as such and the Mortgage thereon released and terminated. So long as the
removal of such  Property  from the Real  Property  Collateral  will not cause a
Default or Event of Default hereunder, cause the Aggregate Rent Ratio to be less
than 1.25:1 or cause the  outstanding  principal  balance of the Loans to exceed
the Loan Limit, and so long as Agent shall consent to such removal (such consent
not to be  unreasonably  withheld),  Agent shall,  upon receipt of such request,
notify such Borrower of the  acceptance of the same and deliver to said Borrower
documentation sufficient to release and terminate the Mortgage on such Property.

                  (b) In the event that a Borrower  requests  that any  Property
serving as Real  Property  Collateral  hereunder be removed from serving as such
and the Mortgage thereon  released and terminated,  but such removal and release
would cause a Default or Event of Default  hereunder,  cause the Aggregate  Rent
Ratio to be less than 1.25:1 or cause the outstanding  principal  balance of the
Loans to exceed the Loan Limit,  the  requesting  Borrower  may  substitute  new
Property,  in accordance with Section 3.5(c), so that as a result of the removal
and  substitution  transaction,  no Default or Event of Default  would exist nor
would the  Aggregate  Rent Ratio be less than  1.25:1 nor would the  outstanding
principal balance of the Loans exceed the Loan Limit.

                  (c) Adding new Property to the Real  Property  Collateral,  or
substituting  new  Property for Property  being  removed from the Real  Property
Collateral, shall be subject to the Person owning the Property in question being
a Subsidiary of Omega,  such Person  executing and delivering to Agent,  if such
Person is not already a Borrower,  such  documents  and  agreements as Agent may
require to cause such Person to become a Borrower under the Loan Documents,  and
Omega and/or such Person (i) delivering to Agent a Compliance  Certificate and a
Borrowing Base Certificate showing, among other things, that as a result of such
transaction,  no Default or Event of Default will exist nor will the outstanding
principal  balance of the Loans exceed the Loan Limit,  (ii) delivering to Agent
prior to the date of such addition or substitution all those items listed in and
otherwise  satisfying  the conditions set forth in Section 5.1(e) and 5.2 hereof
(regardless  of the date set forth in said  Section  5.1(e)  and 5.2),  and such
other  information and documents as have been requested by Agent with respect to
the Property  proposed to be included in the Real Property  Collateral,  in form
and  substance  satisfactory  to Agent,  and (iii)  paying all  costs,  fees and
expenses as provided in Section 3.8. In no event shall any new Property be added
to the Real Property Collateral or substituted for Property which is included in
the Real Property  Collateral if such addition or  substitution  (i) would cause
the Aggregate Rent Ratio to be less than 1.25:1,  or (ii) such Property would be
excludable from Real Property Collateral pursuant to Section 3.5(d).
<PAGE>

                  (d) With  respect to any  Property  serving  as Real  Property
Collateral,  upon  the  occurrence  of any  one of the  following  events,  such
Property  shall be deemed  removed from the Real  Property  Collateral,  and the
EBITDA  and  EBITDAR  thereof  shall  not  be  included  in any  calculation  or
determination under this Agreement:

                    (i) upon the  occurrence  and  continuance  for a period  in
               excess of three (3)  months of a  default  which  relates  to the
               failure  to pay (other  than  through  application  of a security
               deposit) any monetary  obligation  under,  or any termination of,
               any lease, master lease,  management agreement,  or other similar
               form of  agreement  or contract  between  such  Borrower  and the
               Operator for such Property;

                    (ii) upon the  attachment to such Property of any Lien other
               than a Permitted Lien;

                    (iii) upon the  occurrence  of any damage or other  casualty
               to, or the taking of, through  eminent domain or otherwise,  such
               Property;

                    (iv) upon Agent's inability, following reasonable efforts to
               do so, to perfect its security interest in such Property;

                    (v) any Borrower shall fail to provide any item with respect
               to such  Property as required by Section 5.2 hereof,  or any such
               item shall not be satisfactory in form and substance to Agent;

                    (vi) if the Rent Ratio for such Property  shall be less than
               1.25:1 as of any Computation  Date, unless (A) if the Operator of
               the  Facility at such  Property is  Advocat,  Advocat's  Operator
               Aggregate Rent Ratio is equal to or greater than .80:1 as of such
               Computation  Date, or (B) if the Operator of the Facility at such
               Property is a Person other than Advocat, such Operator's Operator
               Aggregate  Rent  Ratio is equal to or greater  than  1.25:1 as of
               such Computation Date; or

                    (vii) if, as of any Computation  Date, the ratio between (A)
               the aggregate  rental  payments  made to the  Borrowers  properly
               allocable  to the  Facilities  under  the  lease,  master  lease,
               management  agreement  or similar  agreement  between  any of the
               Borrowers and the Operators of the Facilities  which comprise the
               Real Property  Collateral for the four fiscal  quarters ending on
               the date ninety days before such  Computation  Date,  and (B) the
               sum of all interest paid or payable on the Obligations (excluding
               unamortized  debt  issuance  costs)  for  the  same  four  fiscal
               quarters  (computed on an annualized  basis if the Loans have not
               been in place for such four  quarters) is less than 1.10 to 1.00;
               or
<PAGE>

                    (viii) any Security Document shall cease to be in full force
               and effect or shall cease to give Agent the Liens purported to be
               created  thereby  in favor of Agent,  for the  benefit of Lenders
               (unless  due to acts or  omissions  of Agent,  such as failure to
               file continuation statements).

               Such removal  shall proceed in the same manner as a removal under
               Sections 3.5(a) and (b) above.

                  (e) If the outstanding principal balance of the Loans shall at
any time exceed the Loan Limit,  Agent shall so notify the  Borrowers,  and they
shall,  within  twenty-four (24) hours thereafter,  notify Agent that either (i)
Borrowers shall  immediately  make a payment on the Loans, or (ii) the Borrowers
shall within fifteen (15) days after Agent's notice add new Property to the Real
Property Collateral in accordance with Section 3.5(c), such that the outstanding
principal balance of the Loans will no longer exceed the Loan Limit, and pay the
fees and expenses  associated  therewith  as provided in Section 3.8;  provided,
however,  that in connection with any addition of new Property,  Borrowers shall
have a reasonable  time (not to exceed sixty (60) days after Agent's  notice) to
provide such items of information  with respect to the new Property which cannot
reasonably be provided within the fifteen day period.

                  (f) If the  Aggregate  Rent Ratio shall be less than 1.25:1 as
of any  Computation  Date, the Borrowers  shall within fifteen (15) days add new
Property to the Real Property  Collateral in accordance with Section 3.5(c) such
that the Aggregate Rent Ratio is no longer less than 1.25:1; provided,  however,
that in  connection  with any addition of new Property,  Borrowers  shall have a
reasonable  time (not to exceed sixty (60) days after Agent's notice) to provide
such  items  of  information  with  respect  to the new  Property  which  cannot
reasonably be provided within the fifteen day period.

         Section 3.6 Between Agent and Lenders

As between Lenders and Agent, (a) Agent will hold all items of the Collateral at
any time received under this Agreement in accordance with the terms hereof,  and
(b) by accepting the benefits of this Agreement,  each Lender  acknowledges  and
agrees that (1) the  obligations  of Agent as a holder of the Collateral and any
interest therein and with respect to any disposition of any of the Collateral or
any interest therein shall be only those obligations expressly set forth in this
Agreement,  and (2)  subject to the  provisions  of Section  10.9  hereof,  this
Agreement may be enforced  against any Borrower only by the action of Agent, and
that no  Lender  shall  have any  right  individually  to seek to  enforce  this
Agreement against any Borrower,  it being understood and agreed that such rights
and remedies may be  exercised  by Agent,  for the benefit of Lenders,  upon the
terms and conditions of this Agreement.  As between  Borrowers and Agent,  Agent
shall be  conclusively  presumed to be acting as agent for Lenders with full and
valid authority to so act or refrain from acting.

         Section 3.7 Release of Collateral.

Upon  Borrowers'  full  performance  of their  Obligations,  including,  without
limitation, payment in full of the Notes, and termination of Borrowers' right to
borrow under this Agreement,  Agent shall,  upon payment of fees and expenses as
provided in Section 3.8, release its security  interest in all Collateral.  Upon
any sale of  Collateral  permitted  pursuant to this  Agreement  or the Security
Documents, Agent shall, upon payment of fees and expenses as provided in Section
3.8, release its interest in the portion of the Collateral  being sold,  without
prejudice to the continuation of its lien on any other Collateral.
<PAGE>

         Section 3.8 Payment of Expenses.

In connection with any  transaction  pursuant to this Article 3, Borrowers shall
pay all of Agent's fees, costs and expenses in connection therewith,  including,
without  limitation,  fees and costs of Agent's  counsel and recording  fees and
costs.

                   ARTICLE 4. REPRESENTATIONS AND WARRANTIES.

         Borrowers, and, as applicable,  each Borrower,  represents and warrants
to Agent and each  Lender as  follows  (with the  making of each  advance on the
Loans  after  the  date  of  this   Agreement   being  deemed  to  constitute  a
representation  and  warranty  that the matters  specified in this Article 4 are
true  and  correct  on  and  as  of  the  date  of  such  advance   unless  such
representation  and  warranty  indicates  that it is being made as of a specific
date):

         Section 4.1  Organization.

                  (a) Each Borrower is duly organized and validly existing under
the laws of the state of its  organization,  is  qualified  and licensed in each
jurisdiction  wherein the character of the property owned or held under lease by
it,  or the  nature of its  business,  makes  such  qualification  necessary  or
advisable,  and has the power to own its assets and to transact  the business in
which it is presently  engaged and in which it proposes to be engaged.  Schedule
4.1 hereto accurately and completely  lists, as to each Borrower:  (i) its state
of incorporation and those states in which it is qualified to do business,  (ii)
the classes and number of authorized and  outstanding  shares of each Borrower's
capital stock, and (iii) the business in which each Borrower is engaged.  All of
the foregoing  shares or other equity  interests that are issued and outstanding
have been duly and validly issued and are fully paid and nonassessable.

                  (b)  Each  Borrower  is in  good  standing  in  its  state  of
organization  and in each state in which it is qualified  to do business.  There
are no jurisdictions other than as set forth on Schedule 4.1 hereto in which the
character of the  properties  owned or proposed to be owned by each  Borrower in
which the  transaction  of the business of said  Borrower as now conducted or as
proposed to be conducted requires or will require that Borrower to qualify to do
business  and as to which  failure so to qualify  could have a Material  Adverse
Effect on said Borrower.

                  (c) Each  Borrower  other than Omega is wholly owned by Omega,
either directly or indirectly though one or more wholly owned entities.

         Section 4.2 Power, Authority,  Consents.

Each Borrower has the power to execute,  deliver and perform the Loan  Documents
to be  executed by it, and has the power to borrow  hereunder  and has taken all
necessary corporate action to authorize the borrowing hereunder on the terms and
conditions of this  Agreement.  Each  Borrower has taken all  necessary  action,
corporate or otherwise, to authorize the execution,  delivery and performance of
the Loan  Documents to be executed by it. Except as set forth in Schedule 4.2 no

<PAGE>

consent  or  approval  of  any  Person  (including,   without  limitation,   any
stockholder  of a Borrower),  no consent or approval of any lender,  landlord or
mortgagee,  no waiver of any Lien or right of distraint or other  similar  right
and no  consent,  license,  certificate  of  need,  approval,  authorization  or
declaration  of any  governmental  authority,  bureau or  agency,  is or will be
required  in  connection  with the  execution,  delivery or  performance  by the
Borrowers  of their  respective  obligations  under the Loan  Documents,  or the
validity or enforcement thereof.

         Section  4.3 No  Violation  of Law or  Agreements.

The execution and delivery by each Borrower of each Loan Document to which it is
a party and  performance  by it hereunder and  thereunder,  will not violate any
provision of law and will not conflict  with or result in a breach of any order,
writ, injunction,  ordinance,  resolution,  decree, or other similar document or
instrument of any court or governmental authority, bureau or agency, domestic or
foreign,  or any certificate of  incorporation  or by-laws of said Borrower,  or
create  (with or  without  the  giving of  notice  or lapse of time,  or both) a
default under or breach of any agreement,  bond,  note or indenture to which the
Borrower  is a  party,  or by  which  said  Borrower  is  bound  or any of their
respective  properties  or assets is  affected,  except  for such  defaults  and
breaches which in the aggregate could not have a Material  Adverse Effect on the
Borrower,  or result in the imposition of any Lien of any nature whatsoever upon
any of the properties or assets owned by or used in connection with the business
of said Borrower.

         Section 4.4 Due Execution, Validity, Enforceability.

This  Agreement  and each other Loan Document to which a Borrower is a party has
been duly executed and delivered by the Borrower in question and constitutes the
valid and legally binding obligation thereof, enforceable in accordance with its
terms,  except as such  enforcement  may be  limited by  applicable  bankruptcy,
insolvency, reorganization,  moratorium, or other similar laws, now or hereafter
in effect,  relating  to or  affecting  the  enforcement  of  creditors'  rights
generally and except that the remedy of specific performance and other equitable
remedies are subject to judicial discretion.

         Section 4.5 Title to Properties; Certificate of Need.

Each  Borrower  has good and  marketable  title  in fee  simple  to all its Real
Property Collateral, except for such defects in title as could not, individually
or in the  aggregate,  have a  Material  Adverse  Effect.  To  the  best  of the
Borrowers' knowledge,  each Operator has a valid Certificate of Need for each of
such Operator's  Facilities  which are included in the Real Property  Collateral
except where a Certificate  of Need is not required  under the laws of the state
or other jurisdiction in which the Facility is located.

         Section 4.6  Judgments,  Actions,  Proceedings.

Except as set forth on Schedule 4.6 hereto, there are no outstanding  judgments,
actions  or  proceedings,   including,  without  limitation,  any  Environmental
Proceeding,  pending  before  any  court or  governmental  authority,  bureau or
agency,  with  respect to or, to the best of  Borrowers'  knowledge,  threatened
against or affecting any Borrower involving, which would have a Material Adverse
Effect on such Borrower,  nor, to the best of Borrowers' knowledge, is there any
reasonable  basis for the  institution of any such action or proceeding  that is
probable of assertion,  nor are there any such actions or  proceedings  in which
any Borrower is a plaintiff or complainant.
<PAGE>

         Section 4.7 No Defaults,  Compliance With Laws.

Except as set forth on Schedule 4.7 hereto,  no Borrower is in default under any
agreement,  ordinance,  resolution,  decree,  bond,  note,  indenture,  order or
judgment to which it is a party or by which it is bound,  or any other agreement
or other instrument by which any of the properties or assets owned by it or used
in the conduct of its business is affected,  which default could have a Material
Adverse Effect on said Borrower. Each Borrower has complied and is in compliance
in  all  respects  with  all  applicable   laws,   ordinances  and  regulations,
resolutions,  ordinances, decrees and other similar documents and instruments of
all courts and  governmental  authorities,  bureaus and  agencies,  domestic and
foreign,  including,  without  limitation,  all  applicable  provisions  of  the
Americans with Disabilities Act (42 U.S.C.  ss.12101-12213)  and the regulations
issued  thereunder  and  all  applicable  Environmental  Laws  and  Regulations,
non-compliance with which could have a Material Adverse Effect on said Borrower.
No  event  has  occurred  and is  continuing,  and no  condition  exists,  which
constitutes a default or an event of default.

         Section 4.8  Burdensome Documents.

Except as set forth on Schedule  4.8 hereto,  no Borrower is a party to or bound
by, nor are any of the  properties  or assets owned by any Borrower  used in the
conduct of its  respective  businesses  affected by, any  agreement,  ordinance,
resolution, decree, bond, note, indenture, order or judgment, including, without
limitation,  any of the foregoing relating to any Environmental Liability,  that
materially and adversely affects its businesses, assets or conditions, financial
or otherwise.

         Section 4.9  Financial Statements and Information.

                  (a) The  financial  statements  delivered by Omega to Agent in
connection with this transaction and in preparation for the closing thereof (the
"Current Financial Statements") are complete and present fairly the consolidated
financial  position of Omega as of the date  thereof,  and have been prepared in
accordance with GAAP. To the best knowledge of Borrowers and except as set forth
on Schedule 4.9(a), Borrowers do not have any material obligation,  liability or
commitment,   direct  or  contingent   (including,   without   limitation,   any
Environmental  Liability),  that  is  not  reflected  in the  Current  Financial
Statements  which would be required to be so reflected in accordance  with GAAP.
There  has  been  no  material  adverse  change  in the  financial  position  or
operations  of any of  Borrowers  since  the date of the  latest  balance  sheet
included in the Current Financial Statements (the "Latest Balance Sheet"),  and,
since the date thereof, there has been no adverse development in the business or
operations or prospects of any Borrower which,  individually or in the aggregate
might reasonably expect it to have a Material Adverse Effect thereon. Borrowers'
fiscal years are the twelve-month period ending on December 31 in each year.

                  (b) The  Projections  have been  prepared  on the basis of the
assumptions  accompanying  them and reflect as of the date thereof  Omega's good
faith projections,  after reasonable analysis, of the matters set forth therein,
based on such assumptions.
<PAGE>

                  (c) To the best of Borrowers' knowledge (based solely upon the
financial statements provided by the relevant Operators to Borrowers and without
independent  investigation),  the  information  concerning  the  EBITDAR of each
Property  included in the Real  Property  Collateral  which has been provided by
Borrowers to Agent is accurate and complete.

         Section 4.10 Tax Returns.

Each Borrower has filed all federal,  state and local tax returns required to be
filed by it and has not  failed to pay any  taxes,  or  interest  and  penalties
relating thereto, on or before the due dates thereof.  Except to the extent that
reserves  therefor are reflected in the Financial  Statements:  (i) there are no
material  federal,  state or local tax  liabilities  of any Borrower,  due or to
become due for any tax year ended on or prior to the date of the Latest  Balance
Sheet relating thereto, whether incurred in respect of or measured by the income
of such entity, that are not properly reflected in the Latest Balance Sheet, and
(ii) there are no material claims pending or, to the knowledge of each Borrower,
proposed or threatened  against said  Borrower for past federal,  state or local
taxes,  except those,  if any, as to which proper  reserves are reflected in the
Financial Statements.

         Section 4.11 Intangible  Assets.

Each Borrower possesses all patents, trademarks, service marks, trade names, and
copyrights,  and rights with respect to the foregoing,  necessary to conduct its
business as now conducted and as proposed to be conducted,  without any conflict
with the patents,  trademarks,  service marks,  trade names,  and copyrights and
rights with respect to the foregoing, of any other Person.

         Section 4.12 Regulation U.

No part of the proceeds  received by the  Borrowers  from the Loans will be used
directly or  indirectly  for: (a) any purpose other than as set forth in Section
2.10 hereof,  or (b) the purpose of  purchasing  or carrying,  or for payment in
full or in part of Indebtedness that was incurred for the purposes of purchasing
or  carrying,  any  "margin  stock",  as such term is  defined  in  ss.221.3  of
Regulation U of the Board of Governors of the Federal Reserve System, 12 C.F.R.,
Chapter II, Part 221.

         Section 4.13 Full Disclosure.

None of the Financial  Statements  nor any  certificate,  opinion,  or any other
statement made or furnished in writing to Agent or any Lender by or on behalf of
the Borrowers in connection with this Agreement or the transactions contemplated
herein,  contains any untrue  statement of a material  fact, or omits to state a
material fact  necessary in order to make the  statements  contained  therein or
herein not misleading,  as of the date such statement was made. There is no fact
known to the Borrower that has, or would in the now  foreseeable  future have, a
Material  Adverse  Effect on the  Borrowers,  which  fact has not been set forth
herein, in the Financial Statements or any certificate, opinion or other written
statement so made or furnished to Agent.

         Section 4.14  Licenses and Approvals.

                  (a) Each  Borrower  has all  necessary  licenses,  permits and
governmental authorizations,  including,  without limitation,  licenses, permits
and  authorizations   arising  under  or  relating  to  Environmental  Laws  and
Regulations,  to own and operate its  properties and to carry on its business as
now conducted,  the absence of which would have a Material Adverse Effect on the
Borrowers taken as a whole.

                  (b) To the best knowledge of each Borrower,  other than as set
forth on  Schedule  4.14  hereto,  no  violation  exists of any  applicable  law

<PAGE>

pertaining to the ownership or operation of any Facility  constituting  the Real
Property  Collateral  that  would  have a  reasonable  likelihood  of leading to
revocation of any license necessary for the operation thereof.

         Section 4.15  ERISA.

                  (a) Except as set forth on Schedule  4.15 hereto,  no Employee
Benefit Plan is  maintained  or has ever been  maintained by any Borrower or any
ERISA Affiliate, nor has any Borrower or any ERISA Affiliate ever contributed to
a Multiemployer Plan.

                  (b) There are no agreements which will provide payments to any
officer,  employee,  shareholder or highly compensated  individual which will be
"parachute  payments"  under  280G of the  Code  that are  nondeductible  to any
Borrower  and which will be subject to tax under  Section 4999 of the Code which
could have a Material Adverse Effect on the Borrowers taken as a whole.

         Section 4.16 REIT Status.

Omega  currently has REIT Status and has maintained  such status on a continuous
basis  since its  formation.  None of Omega's  Subsidiaries  currently  has REIT
Status but each is designated as a qualified REIT Subsidiary.

         Section 4.17  General Collateral Representation.

                  (a)  Each  Borrower  is the  sole  owner  of and has  good and
marketable  title to its Collateral,  free from all Liens in favor of any Person
other than Agent,  for the benefit of Lenders,  and except  Permitted Liens, and
has full  right  and  power to grant  Agent a  security  interest  therein.  All
information  furnished  to  Agent  concerning  the  Collateral  is and  will  be
complete, accurate and correct in all material respects when furnished.

                  (b) No security  agreement,  financing  statement,  equivalent
security or Lien instrument or continuation  statement  covering all or any part
of the Collateral is on file or of record in any public  office,  except such as
may have been filed (i) by any  Borrower  in favor of Agent,  for the benefit of
Lenders,  pursuant  to this  Agreement,  or  (ii) in  respect  of the  items  of
Collateral subject to the Permitted Liens.

                  (c) The provisions of this  Agreement and, when executed,  the
Security Agreements,  will create in favor of Agent, for the benefit of Lenders,
a valid and  continuing  lien on, and,  subject to the  Permitted  Liens,  first
security  interest  in, the  Collateral  under  Article 9 of the UCC.  Financing
statements have been or will be, within thirty (30) days following the execution

<PAGE>

hereof,  duly  executed on behalf of each  Borrower,  and,  when such  financing
statements are duly filed in the filing offices listed on Schedule 4.17, and the
requisite  filing fees are paid,  such  filings  will be  sufficient  to perfect
security  interests  in  such of the  Collateral  described  in  such  financing
statements as can be perfected by filing,  which  perfected  security  interests
will,  subject to the Permitted  Liens,  be prior to all other Liens in favor of
others and rights of others,  enforceable  as such as against  creditors  of and
purchasers from each Borrower.

                  (d) No Person now having  possession  or control of any of the
Collateral  consisting of Inventory or Equipment  included within the Collateral
has issued, in receipt therefor, a negotiable bill of lading,  warehouse receipt
or other document of title.

                  (e) The  information  concerning the master  leases,  facility
leases,  subleases and all other interests held in the Real Property  Collateral
by any Operator,  as set forth in Schedule  4.17(e),  truly and accurately  sets
forth the status of said master leases, facility leases, subleases and all other
interests held in the Real Property Collateral by the Operators thereof, and the
relationship  between the Borrower owning such Real Property  Collateral and the
Operator thereof with respect thereto.

                       ARTICLE 5. CONDITIONS TO THE LOANS.

         Section 5.1 General Conditions Precedent.

The  obligation  of Lenders to make the Loans or any  portion  thereof  shall be
subject to the  satisfaction,  on or prior to the Closing  Date,  of each of the
following conditions precedent:

                  (a) Certified  Copies of Charter  Documents and Bylaws.  Agent
shall have  received  (i) a copy,  certified  by the  Secretary  or an Assistant
Secretary  of each  Borrower  to be true and  complete  on and as of the Closing
Date,  of the  charter  or other  organization  documents  and  by-laws  of each
Borrower  as in  effect  on the  Closing  Date  (together  with  any  amendments
thereto);  and (ii) the charter or other organization documents of each Borrower
certified by the applicable Secretary of State.

                  (b) Proof of Corporate  Authority.  Agent shall have  received
copies,  certified by the Secretary or an Assistant  Secretary of Borrower to be
true and complete on and as of the Closing  Date, of records of all action taken
by each Borrower to authorize  (i) the execution and delivery of this  Agreement
and the  other  Loan  Documents  to  which  it is or is to  become  a  party  as
contemplated or required by this Agreement:  (ii) each Borrower's performance of
all of its  obligations  under  the Loan  Documents;  and  (iii)  the  making by
Borrowers of the borrowings  contemplated hereby.  Provided that such a document
or its equivalent is available in the applicable  jurisdiction of  organization,
Agent shall have received from the  applicable  Secretary of State a Certificate
of Good  Standing of recent date  certifying  the existence and good standing of
each Borrower under the laws of the applicable  state of  incorporation  and its
good standing in each state where each Borrower,  as applicable,  is required to
qualify to conduct business.
<PAGE>

                  (c)  Closing   Certificate.   Agent  shall  have   received  a
certificate,  dated as of the Closing Date, signed by a duly authorized  officer
of each  Borrower  and (a) giving the name and bearing a specimen  signature  of
each  individual  who shall be authorized (i) to sign, in the name and on behalf
of each Borrower,  each of the Loan Documents to which said Borrower is or is to
become a party,  and (ii) to give  notices and to take other action on behalf of
said Borrower  under the Loan  Documents,  and (b)  certifying  that each of the
representations and warranties made by or on behalf of any Borrower are true and
correct on and as of the Closing  Date,  and that no Default or Event of Default
exists on and as of the Closing Date.

                  (d)  Loan  Documents  Etc.  Each of the Loan  Documents  to be
executed and delivered as of the Closing Date,  including,  without  limitation,
the Notes  and the  Security  Agreements,  shall  have  been  duly and  properly
authorized  and  executed and  delivered by the parties  thereto and shall be in
full force and effect on and as of the Closing Date.

                  (e) Real Property Collateral.

                    (i) Agent shall have  received a Mortgage for each  Property
               included  in the Real  Property  Collateral,  duly  executed  and
               delivered by the appropriate Borrower in recordable form together
               with  such  financing  statements  as may be  needed  in order to
               perfect the security  interests  granted by such Mortgage and any
               fixtures  and  other  property  therein  described  which  may be
               subject to the UCC, in each case appropriately completed and duly
               executed  and in proper  form for filing in all  offices in which
               required.

                    (ii) With  respect to each  Property  covered by a Mortgage,
               Agent  shall have  received  an ALTA Loan  Policy Form B-1970 (or
               such  other  form that may be  acceptable  to Agent)  issued by a
               title  insurance  company  satisfactory  to Agent,  insuring  the
               validity and priority of the Liens  created  under such  Mortgage
               for and in amounts  satisfactory to Agent,  with all standard and
               general exceptions deleted and endorsed over so as to afford full
               "extended form coverage"  subject only to such  exceptions as are
               satisfactory  to Agent and including such  endorsements  as Agent
               may require,  including,  without limitation, a "Revolving Credit
               Endorsement" and a "Tie-in Endorsement".

                    (iii)  Borrowers  shall  have  paid  the  applicable   title
               insurance  company all expenses and premiums of issuing the title
               insurance policies and endorsements described above. In addition,
               Borrowers  shall  have  paid to the  applicable  title  insurance
               company or Agent an amount  equal to all  mortgage  and  mortgage
               recording taxes,  intangible  taxes,  stamp taxes and other taxes
               payable in  connection  with the  execution  and  delivery of the
               Mortgages and the  recording of the Mortgages in the  appropriate
               offices.

                  (f)   Insurance.   Agent   shall  have   received   copies  of
certificates  of  insurance  executed by each  insurer or its  authorized  agent
evidencing  the insurance  required to be  maintained  by Borrowers  pursuant to
Section 7.8.
<PAGE>

                  (g)  Legality of  Transactions.  No change in  applicable  law
shall have occurred as a consequence  of which it shall have become and continue
to be unlawful (i) for Agent or any Lender to perform any of its  agreements  or
obligations  under  any of the  Loan  Documents  to  which  it is a party on the
Closing  Date;  or (ii) for any  Borrower  to perform any of its  agreements  or
obligations  under  any of the  Loan  Documents  to  which  it is a party on the
Closing Date.

                  (h) Closing Fee.  Borrowers shall have paid the Closing Fee to
Agent, for the benefit of Lenders.

                  (i) Payment of Indebtedness.  Simultaneous with the closing of
the Loans,  Borrowers shall pay in full all of any Borrower's  obligations under
(1) the Loan  Agreement  dated March 31,  1999,  as amended,  between  Omega and
Provident,  and (2) the Loan and Security Agreement,  as amended, dated December
30, 1994 between Provident and Sterling Acquisition Corp.

                  (j) Interest Rate Protection. Borrowers shall provide evidence
satisfactory to Agent that they have obtained the Interest Rate Protection.

                  (k) Consents.  Agent shall have received evidence satisfactory
to it that all waivers,  consents,  approvals and  authorizations  identified in
Schedule 4.2 hereto have been obtained,  in form and substance  satisfactory  to
Agent.

                  (l)  Performance,  Etc.  Each  Borrower  shall  have  duly and
properly performed, complied with and observed each of its covenants, agreements
and obligations contained in each of the Loan Documents executed by it as of the
Closing  Date,  and no  condition  shall  exist  as of the  Closing  Date  which
constitutes a Default or an Event of Default.

                  (m) Proceedings and Documents. All corporate, governmental and
other  proceedings  in connection  with the  transactions  contemplated  by this
Agreement,  each of the other Loan Documents,  and all instruments and documents
incidental  thereto  shall be in form and  substance  satisfactory  to Agent and
Lenders,  and Agent  shall  have  received  all such  counterpart  originals  or
certified or other  copies of all such  instruments  and  documents as Agent and
each Lender shall have requested.

                  (n)  Compliance  with  Laws.  The  borrowings  made under this
Agreement are and shall be in compliance with the requirements of all applicable
laws,  regulations,   rules  and  orders,  including  without  limitation,   the
requirements  imposed by the Board of  Governors of the Federal  Reserve  System
under Regulations U, G and X, and by the SEC.

                  (o) Borrowing Base Certificate.  Agent shall have received the
initial Borrowing Base Certificate, in form and content satisfactory to Agent.
<PAGE>

                  (p)  Actions  to Perfect  Liens.  Agent  shall  have  received
evidence in form and substance satisfactory to it that all filings,  recordings,
registrations and other actions,  including,  without limitation,  the filing of
duly  executed  financing  statements,  necessary  or, in the  opinion of Agent,
desirable to perfect the Liens created by the Security Documents shall have been
completed.
                  (q) Legal  Opinion.  Agent and Lenders  shall have  received a
written  legal  opinion,  addressed to Agent and each Lender and dated as of the
Closing  Date,  from  legal  counsel  for  Borrowers,   in  form  and  substance
satisfactory to Agent.

                  (r) Legal Fees.  Borrowers shall have reimbursed Agent for all
reasonable fees and disbursements of legal counsel to Provident which shall have
been  incurred by  Provident  through the Closing  Date in  connection  with the
preparation,  negotiation,  review, execution and delivery of the Loan Documents
and the handling of any other matters incidental thereto.

                  (s) Results of Investigations. The results of Agent's and each
Lender's and their respective counsel's investigations  concerning the Borrowers
and  the   Collateral,   including   without   limitation,   insurance   review,
environmental  review,  lien search  review,  third party  consent and  approval
review,  and review of leases shall be  reasonably  satisfactory  to Agent,  the
Lenders and their respective counsel.

                  (t)  Non-Permitted  Liens.  Agent shall have received evidence
satisfactory  to it that all Liens on the  Collateral  which  are not  Permitted
Liens have been released.

                  (u)  Changes:  None  Adverse.  From  the  date of the  Current
Financial  Statements referred to in Section 4.9 to the Closing Date, no changes
shall have occurred in the assets, liabilities,  financial condition,  business,
operations  or  prospects  of  the  Borrowers  which,  individually  or  in  the
aggregate, are materially adverse thereto.

                  (v)  Financial  Statements.  Agent  shall  have  received  the
Current Financial Statements referred to in Section 4.9, certified by an officer
of Omega, and shall have been satisfied that such Current  Financial  Statements
accurately reflect the consolidated financial status and condition of Omega.

                  (w) Fleet  Waiver.  Agent shall have received from Fleet Bank,
N.A. (in its  capacity as agent under the loan  agreement  evidencing  the Fleet
Obligations)  a waiver or other  writing in form and substance  satisfactory  to
Agent with respect to Section  2.6(e) (Net  Issuance  Proceeds) and Section 7.12
(Use of Cash) of the Fleet Loan Agreement.

         Section 5.2 Certain  Post-Closing  Real  Property  Collateral  Matters.

After the Closing Date,  Borrowers shall, at Borrowers' expense (except that, in
the case of the Appraisals referred to below,  Lenders shall pay 50% of the cost
of any such  Appraisals  requested by Lenders other than  Appraisals for Elliott
Nursing and Rehabilitation  Center, Laurel Nursing and Rehabilitation Center and
Lynwood  Nursing  Home the  cost of which  shall  be  completely  at  Borrower's
expense),  provide the  following  with respect to any or all of the  Properties
included in the Real  Property  Collateral,  within 90 days after the request of
Agent, unless otherwise specified:
<PAGE>

                  (a) a recent Appraisal;

                  (b) a survey of recent  date in such form and  depicting  such
matters as may be  required  by Agent and,  to the extent not  addressed  in the
foregoing survey, a flood plain certification in form and substance satisfactory
to Agent,  and also evidence that the  appropriate  Borrower has, if applicable,
obtained flood insurance in form and substance satisfactory to Agent;

                  (c)  an  environmental  survey  and  assessment  in  form  and
substance satisfactory to Agent, and the conditions disclosed in such survey and
assessment shall be satisfactory to Agent; and

                  (d) Agent shall have received,  not later than August 31, 2000
(i) estoppel  certificates  from all tenants of all  Properties  included in the
Real Property Collateral, in form and substance satisfactory to Agent.

         Section 5.3 Further  Conditions  Precedent to Loans.

The  obligation  of Lenders to make any advance on the Loans shall be subject to
the  satisfaction,  prior thereto or concurrently  therewith,  of the conditions
precedent set forth in Section 5.1 and, as applicable,  Section 5.2, and each of
the following conditions precedent:

                  (a) Legality of Transactions. It shall not be unlawful (a) for
any Lender or Agent to perform any of its agreements or obligations under any of
the Loan  Documents  to which  such  Person is a party on the date on which such
Loan  is to be  made or (b) for any  Borrower  to  perform  any of its  material
agreements or obligations under any of the Loan Documents.

                  (b)    Representations    and   Warranties.    Each   of   the
representations  and warranties  made by or on behalf of any Borrower to Lenders
or Agent in this  Agreement  or any other  Loan  Document  (a) shall be true and
correct in all material  respects  when made and (b) shall,  for all purposes of
this  Agreement,  be deemed to be repeated  on and as of the date of  Borrowers'
request for such Loan and shall be true and correct in all material  respects as
of such date.

                  (c) No Default.  No event  shall have  occurred on or prior to
such date and be continuing on such date,  and no condition  shall exist on such
date, which constitutes a Default or Event of Default.

                  (d) Maximum Credit. The making of the advance shall not result
in the outstanding balance of the Loans exceeding the Loan Limit.
<PAGE>

    ARTICLE 6. DELIVERY OF FINANCIAL REPORTS, DOCUMENTS AND OTHER INFORMATION

         Until termination of the Loan Commitments, payment in full of the Notes
and full and complete  performance of all other Obligations  arising  hereunder,
Borrowers shall deliver to Agent:

         Section  6.1  Annual  Financial   Statements.

Annually,  as soon as available,  but in any event within ninety (90) days after
the last day of each of its  fiscal  years,  a  consolidated  and  consolidating
balance  sheet of Omega and its  Subsidiaries  as at such last day of the fiscal
year,  and  consolidated  and  consolidating  statements  of income and retained
earnings and  statements  of Cash Flow,  for such fiscal year,  each prepared in
accordance with GAAP consistently  applied, in reasonable detail, and, as to the
consolidated  statements,  certified  without  qualification by Ernst & Young or
another nationally recognized independent public accounting firm or by any other
certified public accounting firm satisfactory to Agent, and certified, as to the
consolidating  statements,  by the chief  financial  officer of Omega, as fairly
presenting  the  financial  position and results of  operations of Omega and its
Subsidiaries  as at and for the  year  ending  on its date  and as  having  been
prepared  in  accordance  with GAAP;  provided,  however,  Omega may satisfy its
obligations to deliver the consolidated  financial  statements described in this
Section 6.1 by  furnishing  to Agent a copy of its annual report on Form 10-K in
respect of such fiscal year together with the financial  statements  required to
be attached  thereto,  provided  Omega is required to file such annual report on
Form  10-K  with the  Securities  and  Exchange  Commission  and such  filing is
actually made.

         Section 6.2 Quarterly Financial Statements.

As soon as available, but in any event within forty-five (45) days after the end
of each of Omega's fiscal  quarters,  a consolidated and  consolidating  balance
sheet of Omega  and its  Subsidiaries  as of the  last day of such  quarter  and
consolidated and  consolidating  statements of income and retained  earnings and
statements of Cash Flow,  for such quarter,  and on a comparative  basis figures
for the  corresponding  period of the immediately  preceding fiscal year, all in
reasonable  detail,  each such statement to be certified in a certificate of the
chief financial officer of Omega as accurately presenting the financial position
and the results of operations of Omega and its  Subsidiaries  as at its date and
for such quarter and as having been prepared in accordance with GAAP (subject to
year-end  audit  adjustments);   provided,   however,   Omega  may  satisfy  its
obligations to deliver the consolidated  financial  statements described in this
Section 6.2 by furnishing  to Agent a copy of its quarterly  report on Form 10-Q
in  respect  of such  fiscal  quarter  together  with the  financial  statements
required  to be  attached  thereto,  provided  Omega is  required  to file  such
quarterly  report on Form 10-Q with the Securities  and Exchange  Commission and
such filing is actually made.

         Section 6.3 Compliance Information.

Prior to taking any  action  pursuant  to Section  3.5  hereof,  promptly  after
receipt of written request therefore, and in any event not later than forty-five
(45) days  after the end of each of  Omega's  fiscal  quarters  (other  than the
fourth  quarter)  or ninety days after the end of each of Omega's  fiscal  year,
Borrowers  shall  submit a Compliance  Certificate  to Agent.  Promptly  after a
written request  therefor,  such other financial data or information  evidencing
compliance with the requirements of this Agreement, the Notes and the other Loan
Documents,  as Agent may reasonably  request from time to time.  Borrowers shall
submit to Agent a  Compliance  Certificate  upon the  acquisition  of a Facility
pursuant to Section 8.2, which acquisition exceeds ten percent (10%) of the then
value of the Health Care Assets.
<PAGE>

         Section 6.4 Certificate of Accountants.

At the same time as it delivers  the  financial  statements  required  under the
provisions  of Section 6.1  hereof,  a copy of any  certificate  prepared by the
Accountants  and required by Section 5.5 of the loan  agreement  evidencing  the
Fleet Obligations.

         Section 6.5  Business  Plan and Budget.

Not later than January 31st in each fiscal year, copies of Omega's business plan
and  budget  for  such  fiscal  year  (together  with a copy in  writing  of the
assumptions on which such business plan and budget were based), each prepared by
Omega's  chief  financial   officer  and   illustrating   the  projected  income
statements,  balance  sheets  and  statements  of  changes  in  cash  flow  on a
consolidated basis.

         Section 6.6  Operator  Reports.

Such  information  regarding  the  Operators  as  Agent  may  from  time to time
reasonably request.

         Section 6.7 Accountants' Reports.

Promptly upon receipt thereof, copies of all other reports submitted to Omega by
its  Accountants in connection with any annual or interim audit or review of the
books of Omega or its Subsidiaries made by such Accountants.

         Section  6.8  Copies  of  Documents.

Promptly upon their becoming available, copies of any: (i) financial statements,
non-routine reports, notices (other than routine  correspondence),  requests for
waivers and proxy  statements,  in each case,  delivered  by Omega or any of its
Subsidiaries  to  any of  their  respective  existing  lending  institutions  or
creditors;  (ii)  correspondence  or notices received by Omega from any federal,
state or local governmental  authority that regulates the operations of Omega or
any  of  its  Subsidiaries,  relating  to an  actual  or  threatened  change  or
development that would be materially  adverse to Omega or any Subsidiary;  (iii)
registration  statements  and any amendments and  supplements  thereto,  and any
regular and periodic reports,  if any, filed by Omega or any of its Subsidiaries
with any securities  exchange or with the Securities and Exchange  Commission or
any governmental authority succeeding to any or all of the functions of the said
Commission;  (iv) letters of comment or  correspondence  sent to Omega or any of
its Subsidiaries by any such securities  exchange or such Commission in relation
to  Omega  or any of its  Subsidiaries  and its  affairs;  (v)  written  reports
submitted by Omega or any of its  Subsidiaries  to its Accountants in connection
with any annual or interim audit of the books of Omega or its Subsidiaries  made
by such accountants;  and (vi) any appraisals and environmental surveys received
by any Borrower with respect to the Real Property  Collateral during the term of
this Agreement.

         Section 6.9 Notices of Defaults.

Promptly,  notice of the  occurrence of any Default or Event of Default,  or any
event that would constitute or cause a Material Adverse Effect in the condition,
financial or otherwise,  or the  operations of Omega and its  Subsidiaries  on a
consolidated basis.
<PAGE>

         Section 6.10 ERISA Notices and Requests.

                  (a)  Concurrently  with such filing,  a copy of each Form 5500
that is filed with respect to each Plan with the IRS; and

                  (b) Promptly,  upon their becoming  available,  copies of: (i)
all  correspondence  with the PBGC, the Secretary of Labor or any representative
of the IRS with respect to any Plan,  relating to an actual or threatened change
or development  that would be materially  adverse to Omega or its  Subsidiaries;
(ii) all actuarial valuations received by any Borrower with respect to any Plan;
and (iii) any notices of Plan termination  filed by any Plan  Administrator  (as
those terms are used in ERISA) with the PBGC and of any notices from the PBGC to
any Borrower  with  respect to the intent of the PBGC to  institute  involuntary
termination proceedings.

         Section 6.11 Notice of Operator Insolvency.

Promptly,  notice that any  Operator has made an  assignment  for the benefit of
creditors,  filed  or had  filed  against  it a  petition  in  bankruptcy,  been
adjudicated insolvent, petitioned or applied to any tribunal for the appointment
of a receiver,  custodian or trustee for such Operator or a substantial  part of
its assets,  or commenced any proceeding  under any bankruptcy,  reorganization,
arrangement,  readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction.

         Section 6.12  Additional  Information.

Such other material additional  information regarding the business,  affairs and
condition  of  Borrowers  as Agent  may from  time to time  reasonably  request,
including,  without  limitation,  quarterly  schedules,  in form  and  substance
satisfactory  to  Agent,  with  respect  to Omega on a  consolidated  basis,  of
recorded  liabilities,  unfunded commitments,  contingent  liabilities and other
similar material items.

                        ARTICLE 7. AFFIRMATIVE COVENANTS.

         Until the termination of the Loan  Commitments,  payment in full of the
Notes  and  full and  complete  performance  of all  other  Obligations  arising
hereunder, each Borrower, and, as applicable, each other Borrower shall:

         Section 7.1 Books and Records.

Keep proper books of record and account in a manner  reasonably  satisfactory to
the  Agent in  which  full and true  entries  shall be made of all  dealings  or
transactions in relation to its business and activities.

         Section 7.2 Inspections and Audits.

Permit  Agent to make or  cause to be made  (prior  to an Event of  Default,  at
Lender's  expense and after the  occurrence of and during the  continuance of an
Event of Default, at Borrowers'  expense),  inspections and audits of any books,
records and papers of any Borrower  and to make  extracts  therefrom  and copies
thereof,  or to make appraisals,  inspections and examinations of any properties
and  facilities of any Borrower on  reasonable  notice,  at all such  reasonable
times and as often as Agent may reasonably require, in order to assure that each
Borrower  is and will be in  compliance  with their  obligations  under the Loan
Documents.
<PAGE>

         Section 7.3  Maintenance  and Repairs.

Cause to be maintained in good repair,  working order and condition,  subject to
normal wear and tear, all material  properties  (including,  but not limited to,
the Real Property Collateral) and assets from time to time owned by any Borrower
and used in or necessary for the operation of its businesses,  and make or cause
to be made all  reasonable  repairs,  replacements,  additions and  improvements
thereto.

         Section  7.4  Continuance  of  Business.

Do, or cause to be done, all things reasonably necessary to preserve and keep in
full force and effect the corporate  existence of each Borrower and all permits,
rights and  privileges  necessary for the proper  conduct of its  business,  and
continue  to engage  in the same line of  business  and  comply in all  material
respects with all applicable laws, regulations and orders.

         Section 7.5 Copies of Corporate Documents.

Subject to the prohibitions  set forth in Article 8 hereof,  promptly deliver to
the Agent  copies of any  amendments  or  modifications  to the  certificate  of
incorporation  and  by-laws  of each  Borrower,  certified  with  respect to the
certificate  of  incorporation  by  the  Secretary  of  State  of its  state  of
incorporation  and,  with respect to the by-laws,  by the secretary or assistant
secretary of such corporation.

         Section  7.6  Perform  Obligations.

Pay and discharge  all of the  obligations  and  liabilities  of each  Borrower,
including,  without limitation,  all taxes, assessments and governmental charges
upon its income and properties when due, unless and to the extent only that such
obligations,  liabilities,  taxes, assessments and governmental charges shall be
contested in good faith and by appropriate  proceedings  and that, to the extent
required by generally accepted accounting  principles then in effect, proper and
adequate book reserves  relating  thereto are established by such Borrower,  and
then only to the extent that a bond is filed in cases where the filing of a bond
is necessary to avoid the creation of a Lien against any of its properties.

         Section 7.7  Notice of Litigation.

Promptly notify Agent in writing of any litigation, legal proceeding or dispute,
other than disputes in the ordinary course of business or, whether or not in the
ordinary  course of  business,  involving  amounts  in  excess  of Five  Million
($5,000,000)  Dollars,  affecting any Borrower,  whether or not fully covered by
insurance, and regardless of the subject matter thereof (excluding, however, any
actions relating to workers'  compensation  claims or negligence claims relating
to  use  of  motor  vehicles,   if  fully  covered  by  insurance,   subject  to
deductibles).

         Section 7.8  Insurance.

                  (a) Maintain with responsible  insurance companies  acceptable
to the Agent such  insurance on such of the  properties  of Omega and each other
Borrower, in such amounts and against such risks as is customarily maintained by
similar  businesses  and cause each  Operator to do so; (ii) file with the Agent
upon its request a detailed  list of the insurance  then in effect,  stating the
names of the insurance  companies,  the amounts and rates of the insurance,  the
dates of the expiration  thereof and the  properties and risks covered  thereby,
and (iii) within ten (10) days after  notice in writing  from the Agent,  obtain
such additional insurance as the Agent may reasonably request; and
<PAGE>

                  (b)  Carry all  insurance  available  through  the PBGC or any
private insurance companies covering its obligations to the PBGC.

         Section 7.9  Financial Covenants.

                  (a) Omega shall have and maintain, on a consolidated basis, as
at the last day of each fiscal quarter of Omega:

                    (i) A ratio of  Indebtedness  to  Tangible  Net Worth of not
               more than 1.50 to 1.00 ; and

                    (ii)   Tangible   Net  Worth   (after  the  Initial   Equity
               Contribution of $100,000,000) of not less than $445,000,000, plus
               50% of (i) the Net Issuance Proceeds received by Omega (or any of
               its  Subsidiaries)  in connection with the issuance of any equity
               interest  in Omega (or any of its  Subsidiaries)  other  than any
               such  equity  interests  issued in  connection  with the  Initial
               Equity Contribution and any dividend reinvestment program(s), and
               (ii)  the  value  (determined  in  accordance  with  GAAP) of any
               capital stock issued by Omega upon the  conversion of convertible
               Indebtedness; and

                    (iii) Omega's Fixed  Coverage Ratio of not less than 1.00 to
               1.00;

                    (iv) Interest Coverage of not less than 200%; and

                    (v) A Leverage Ratio of not greater than 5.00:1.00.

                  (b) Omega, on a consolidated basis, shall not incur a Net Loss
in any fiscal year commencing with the fiscal year ending December 31, 2001.

                  (c) For each period of four consecutive (4) quarters ending on
a  Computation  Date,  there  shall  be  maintained  for  the  aggregate  of the
Facilities included in the Real Property Collateral during such period:

                    (i) Aggregate EBITDAR of not less than $16,300,000; and

                    (ii) An Aggregate Rent Ratio of not less than 1.25:1.

                  (d) For each period of four (4) fiscal  quarters ending on the
date ninety days before any Computation  Date, there shall be maintained a ratio
between  (A)  the  aggregate  rental  payments  made to the  Borrowers  properly
allocable to the Facilities under the lease, master lease,  management agreement
or similar  agreement  between any of the  Borrowers  and the  Operators  of the

<PAGE>

Facilities which comprise the Real Property  Collateral,  and (B) the sum of all
interest paid or payable on the Obligations (excluding unamortized debt issuance
costs) for the same four fiscal quarters (computed on an annualized basis if the
Loans  have not been in place for such four  quarters)  of not less than 1.10 to
1.00

         Section 7.10  Notice of Certain Events.

                  (a) Promptly  notify Agent in writing of the occurrence of any
Reportable  Event,  as  defined in  Section  4043 of ERISA,  if a notice of such
Reportable  Event is required  under ERISA to be delivered to the PBGC within 30
days  after  the  occurrence  thereof,  together  with  a  description  of  such
Reportable  Event  and a  statement  of the  action  any  Borrower  or the ERISA
Affiliate  intends to take with  respect  thereto,  together  with a copy of the
notice thereof given to the PBGC.

                  (b)  Promptly  notify  Agent in writing if any  Borrower or an
ERISA  Affiliate  receives an assessment  of withdrawal  liability in connection
with a complete or partial  withdrawal with respect to any  Multiemployer  Plan,
together  with a  statement  of the  action  that such  Borrower  or such  ERISA
Affiliate intends to take with respect thereto.

                  (c) Promptly notify Agent in writing if any Borrower receives:
(i) any notice of any violation or administrative or judicial complaint or order
having been filed or about to be filed against any Borrower or Operator alleging
violations of any Environmental Law and Regulation,  or (ii) any notice from any
governmental body or any other Person alleging that such Borrower or Operator is
or may be subject to any  Environmental  Liability;  and  promptly  upon receipt
thereof,  provide Agent with a copy of such notice  together with a statement of
the action such Borrower or Operator intends to take with respect thereto.

                  (d) Promptly  notify Agent in writing of the occurrence of any
of the events specified in Section 3.5(d) hereof.

         Section 7.11 Comply with ERISA.

Materially  comply with all  applicable  provisions of ERISA and the Code now or
hereafter in effect.

         Section 7.12  Environmental  Compliance.

Operate all property owned, operated or leased by it (including, but not limited
to, any Real Property  Collateral) in compliance with all Environmental Laws and
Regulations, such that no Environmental Liability arises under any Environmental
Laws and  Regulations,  which  would  result  in a Lien on any  property  of any
Borrower (including, but not limited to, any Real Property Collateral).

         Section 7.13  Compliance with Laws.

                  (a)  Comply  in all  material  respects  with  all  applicable
federal,  state and local laws, rules,  regulations and orders pertaining to the
operation of its business,  paying before the same become  delinquent all taxes,
assessments  and  governmental  charges  or levies  imposed  upon it or upon its

<PAGE>

income or profits or any  Collateral,  and  paying  all lawful  claims  which if
unpaid  might  become a Lien upon any of its  Collateral,  except to the  extent
contested in good faith by proper  proceedings  which stay the imposition of any
penalty, fine or Lien resulting from the non-payment thereof and with respect to
which adequate reserves have been set aside for the payment thereof.

                  (b)  Promptly  notify  Agent in the  event  that any  Borrower
receives any notice,  claim or demand from any governmental agency which alleges
that any Borrower or any  Operator is in material  violation of any of the terms
of, or has materially failed to comply with any applicable order issued pursuant
to, any federal,  state or local statute  regulating its operation and business,
including,  but not  limited to, the  Occupational  Safety and Health Act or any
Environmental Law.

         Section 7.14 Maintenance of REIT Status.

Omega shall maintain its REIT Status.

         Section 7.15  Maintenance of Interest Rate Protection.

Borrowers shall maintain the Interest Rate Protection.

         Section 7.16  Payment of  Indebtedness.

Each Borrower will jointly and severally, duly and punctually pay or cause to be
paid principal and interest on the Loans and all fees and other amounts  payable
hereunder or under the Loan  Documents in accordance  with the terms  hereunder.
Each Borrower  shall pay all other  Indebtedness  (whether  existing on the date
hereof or  arising at any time  thereafter)  punctually  within  any  applicable
period of grace  except to the extent that any such  obligation  is contested in
good faith by proper  proceedings or Borrowers have provided Agent evidence that
any Lien resulting from the non-payment  thereof has been bonded or with respect
to which adequate reserves have been set aside for the payment thereof.

         Section 7.17  Payment of Fees.

                  (a) Borrowers  shall pay to Agent all fees required to be paid
pursuant to the Loan Documents when due.

                  (b) Agent may  provide  for the  payment  of any fees or other
charges  under this Section or otherwise  under this  Agreement by advancing the
amount thereof for the benefit of Borrowers under the Loans.

         Section  7.18  Further  Assurances.

Each  Borrower  and  each of the  Subsidiaries  will  execute,  acknowledge  and
deliver, or cause to be executed,  acknowledged and delivered,  any and all such
further assurances and other agreements or instruments,  and take or cause to be
taken all such other action, as shall be reasonably requested by Agent from time
to time in order to give full effect to any of the Loan Documents

         Section 7.19 Omega's Depository Accounts.

Within ninety (90) days after the Closing Date, Omega and its Subsidiaries shall
concentrate all of their bank and depository accounts with Provident, including,
without  limitation,  all demand deposit,  time deposit,  concentration and zero

<PAGE>

balance  accounts,  except that Omega and its  Subsidiaries  may maintain one or
more operating  accounts with local financial  institutions as may reasonably be
required (as  determined  by Omega in the exercise of its business  judgment) in
connection with the business of Omega or the Subsidiaries.

         Section  7.20   Unencumbered   Facilities.

Borrowers shall maintain sufficient  unencumbered Facilities to enable Borrowers
to  comply  with  Borrowers'  potential  obligations  to  substitute  or add new
Property  to the  Real  Property  Collateral  pursuant  to  Section  3.5 of this
Agreement.

                         ARTICLE 8. NEGATIVE COVENANTS.

         Until termination of the Loan Commitments, payment in full of the Notes
and full and complete  performance of all other Obligations  arising  hereunder,
each Borrower,  and, as  applicable,  each other Borrower shall not do, agree to
do, or permit to be done, any of the following:

         Section 8.1  Liens.

Create, or assume or permit to exist, any Lien on any Collateral, except:

                  (a) Permitted Liens;

                  (b) Purchase money Liens on Collateral acquired or held by any
Borrower in the ordinary course of business,  securing  Indebtedness incurred or
assumed for the purpose of  financing  all or any part of the cost of  acquiring
such  Collateral  provided,  that (i) any such Lien attaches to such  Collateral
concurrently with or within twenty (20) days after the acquisition thereof, (ii)
such Lien attaches  solely to such  Collateral so acquired in such  transaction,
and (iii) the principal  amount of the debt secured thereby does not exceed 100%
of the cost of such Collateral; and

                  (c) As set forth on Schedule 8.1 hereto.

         Section 8.2 Mergers,  Acquisitions.

Except as expressly  permitted by this Agreement,  merge or consolidate with any
Person, or, acquire all or substantially all of the assets or any of the capital
stock of any Person  unless (a) the  Borrower is the  surviving  entity,  (b) no
Default or Event of Default  exists or will occur after giving  effect  thereto,
and (c) the consideration paid in connection with any such merger or acquisition
does not  exceed an amount  equal to  twenty-five  percent  (25%) of  Healthcare
Assets as of the date of the consummation of such  transaction,  prior to giving
effect to such transaction.

         Section 8.3 Changes in Structure.

Except for  supplemental  issuance of Omega's  authorized  common and  preferred
stock and as otherwise  expressly  permitted  under Sections 8.10 and 8.15, make
any  changes in the  equity  capital  structure  of any  Borrower,  or amend its
certificate  of  incorporation  or by-laws in a manner which would be reasonably
likely to cause a Material Adverse Effect.
<PAGE>

         Section  8.4  Disposition  of  Real  Property   Collateral.

Make  any  Disposition  of any  Real  Property  Collateral,  or  enter  into any
agreement to do so, which would result in the outstanding  principal  balance of
the Loans being in excess of the Loan Limit following such  Disposition,  unless
(a) the Disposition is at fair market value,  (b) at the time of the Disposition
no Default  or Event of Default  exists,  and (c) (i) any  mandatory  prepayment
required  in  connection  therewith  under  Section  2.6(c) is made as  provided
therein,  or (ii) an  additional  Facility  or other  real  estate  owned by the
Borrower  in  question  is  substituted  pursuant  to Section 3.5 hereof as Real
Property Collateral for the Property which is the subject of the Disposition.

         Section 8.5  Fiscal Year.

Change its fiscal year.

         Section 8.6 ERISA Obligations.

Permit the  establishment  of any  Employee  Benefit  Plan or amend any Employee
Benefit Plan which  establishment  or amendment could result in liability to any
Borrower or increase the obligation for post-retirement  welfare benefits of any
Borrower which liability or increase,  individually or together with all similar
liabilities and increases,  has a Material Adverse Effect on the Borrowers taken
as a whole.

         Section 8.7 Capital  Expenditures.

Except  as  otherwise  permitted  under  this  Agreement,  make or be or  become
obligated to make  Capital  Expenditures  in the  aggregate  for  Borrowers on a
consolidated  basis,  during  each fiscal  year of  Borrowers,  in excess of Two
Hundred Fifty Thousand ($250,000) Dollars.

         Section 8.8  Hazardous  Material.

Cause or permit:  (i) any  Hazardous  Material  to be placed,  held,  located or
disposed of, on, under or at any  Facility or any part thereof  (including,  but
not limited to, any Facility  serving as Real Property  Collateral),  except for
such  Hazardous   Materials  that  are  necessary  for  any  Borrower's  or  any
Subsidiary's or any Operator's operation of its business thereon and which shall
be used,  stored,  treated and  disposed of in  compliance  with all  applicable
Environmental  Laws and Regulations or (ii) such Facility or any part thereof to
be used as a collection,  storage,  treatment or disposal site for any Hazardous
Material.  Each  Borrower  acknowledges  and agrees that Agent and Lenders shall
have no liability or responsibility for either:

                  (a) damage, loss or injury to human health, the environment or
natural  resources  caused by the  presence,  disposal,  release  or  threatened
release of Hazardous Materials on any part of any Facility; or

                  (b) abatement  and/or  clean-up  required under any applicable
Environmental Laws and Regulations for a release, threatened release or disposal
of any Hazardous  Materials  located at any Facility or used by or in connection
with any Borrower's or any Subsidiary's or any Operator's business.
<PAGE>

         Section 8.9 Limitation on Nature of Business.

Each  Borrower  will not at any time make any  material  change in the nature of
their collective business as carried on at the date hereof or undertake, conduct
or transact any business in a manner prohibited by applicable law.

         Section 8.10 Limitation on Investments.

Make,  or suffer to exist,  any  Investment  (as  defined  below) in any Person,
including, without limitation, any shareholder, director, officer or employee of
Omega or any of its Subsidiaries, except:

                  (a)      Investments in:

                    (i) obligations issued or guaranteed by the United States of
               America;

                    (ii) certificates of deposit,  bankers acceptances and other
               "money  market  instruments"  issued by any bank or trust company
               organized  under the laws of the United  States of America or any
               State  thereof and having  capital  and  surplus in an  aggregate
               amount of not less than $100,000,000;

                    (iii) open  market  commercial  paper  bearing  the  highest
               credit  rating  issued by  Standard  & Poor's  Corporation  or by
               another nationally recognized credit rating agency;

                    (iv)  repurchase  agreements  entered  into with any bank or
               trust  company  organized  under the laws of the United States of
               America or any State thereof and having capital and surplus in an
               aggregate amount of not less than $100,000,000 relating to United
               States of America government obligations; and

                    (v) shares of "money market  funds",  each having net assets
               of not less than $100,000,000;

               in each case  maturing  or being due or  payable in full not more
               than 180 days after the Borrower's acquisition thereof.

                  (b)  The  acquisition  by  Omega  and its  Subsidiaries,  on a
consolidated  basis, of Healthcare Assets consisting of Facilities and mortgages
(as  "Mortgages"  are defined in the Loan  Agreement  with  respect to the Fleet
Obligations)  which do not exceed twenty-five (25%) percent of Healthcare Assets
in any single  transaction or series of related  transactions  as at any date of
determination thereof, prior to giving effect to any such acquisition.

                  (c) Investments  for working capital  purposes in Subsidiaries
that are operating one or more  Facilities  as a consequence  of a  foreclosure,
deed-in-lieu  of  foreclosure,  termination  of a lease or similar  event,  such
investments of working capital to be limited to the amounts reasonably necessary
to  maintain  the  Facilities  in  compliance  with all  applicable  laws and to
maintain the Facilities'  eligibility for  reimbursement as a provider of health
care  services  under the  Medicare  and  Medicaid  programs  or any  equivalent
government insurance program that is a successor thereto.

                  (d) (i) Investments in subsidiaries in an amount equal to that
amount, if any, by which One Hundred Million  ($100,000,000) Dollars exceeds the
portion of the "Liquidity  Commitment" (as defined in the Investment  Agreement)
actually funded and applied to pay the Debentures, provided such Investments may
only be made from and after the payment in full of the  Debentures  or, if prior

<PAGE>

to the payment in full of the  Debentures,  upon  satisfaction  to Lenders  that
sources of funds are and will remain  available to repay in full the Debentures,
and (ii)  Investments  in  Subsidiaries  in an amount not to exceed Two  Hundred
Fifty Million  ($250,000,000) in the aggregate,  in each case, such subsidiaries
or Subsidiaries  established for the purpose of acquiring  Facilities  leased to
one or more operators or making loans to operators secured by mortgages in favor
of such  subsidiaries or Subsidiaries,  as the case may be;  provided,  however,
that in no event  shall the  aggregate  amount of  Investments  made  under this
subsection 8.10(d) exceed $250,000,0000.

                  (e) In addition to other Investments permitted by this Section
8.10, other  Investments by Omega on a consolidated  basis,  which do not exceed
Twenty-Five Million ($25,000,000) Dollars in the aggregate at any time.

                  (f) As set forth on Schedule 8.10 hereto.

For purposes of this Section 8.10, "Investments" shall mean, by any Person:

                    (i) the amount paid or committed to be paid, or the value of
               property or services  contributed or committed to be contributed,
               by such Person for or in connection  with the acquisition by such
               Person of any stock,  bonds,  notes,  debentures,  partnership or
               other  ownership  interests  or  other  securities  of any  other
               Person; and

                    (ii) the amount of any advance,  loan or extension of credit
               by such Person, to any other Person, or guaranty or other similar
               obligation  of such Person with  respect to any  Indebtedness  of
               such other Person, and (without duplication) any amount committed
               to be advanced,  loaned,  or extended by such Person to any other
               Person,  or any amount the  payment of which is  committed  to be
               assured by a guaranty  or similar  obligation  by such Person for
               the benefit of, such other Person.

         Section 8.11  Limitation on Indebtedness.

Create, incur, permit to exist or have outstanding any Indebtedness, except:

                  (a) Indebtedness of the Borrowers to the Lenders and the
Agent under this Agreement and the Notes;

                  (b) The Fleet Obligations;

                  (c) Taxes, assessments and governmental charges,  non-interest
bearing accounts payable and accrued  liabilities,  in any case not more than 90
days past due from the  original  due date  thereof,  and  non-interest  bearing
deferred liabilities other than for borrowed money (e.g.,  deferred compensation
and deferred taxes), in each case incurred and continuing in the ordinary course
of business;

                  (d) Indebtedness secured by the security interests referred to
in subsection 8.1(b) hereof;
<PAGE>

                  (e)   Indebtedness   consisting  of   contingent   obligations
permitted by Section 7.3 of the loan agreement evidencing the Fleet Obligations;

                  (f) As set forth on Schedule 8.11 hereto; and

                  (g)  Indebtedness,  the terms of which  shall not  require any
principal payments thereon prior to the currently scheduled  termination date of
the Fleet Obligations.

         Section  8.12  Transactions   with  Affiliates.

Except as expressly  permitted by this  Agreement,  directly or indirectly:  (a)
make any  Investment  in an  Affiliate;  (b) transfer,  sell,  lease,  assign or
otherwise  dispose of any assets to an Affiliate;  (c) merge into or consolidate
with or purchase  or acquire  assets  from an  Affiliate;  or (d) enter into any
other  transaction  directly  or  indirectly  with  or for  the  benefit  of any
Affiliate  (including,   without  limitation,   guarantees  and  assumptions  of
obligations  of  an  Affiliate);   provided,  however,  that:  (i)  payments  on
Investments  expressly  permitted by Section  8.10 hereof may be made,  (ii) any
Affiliate who is a natural  person may serve as an employee or director of Omega
or any Subsidiary and receive  reasonable  compensation for his services in such
capacity,  and  (iii)  any  Borrower  may  enter  into any  transaction  with an
Affiliate  providing  for the leasing of property,  the  rendering or receipt of
services or the purchase or sale of product,  inventory  and other assets in the
ordinary  course of business if the monetary or business  consideration  arising
therefrom  would  be  substantially  as  advantageous  to such  Borrower  as the
monetary or  business  consideration  that would  obtain in a  comparable  arm's
length transaction with a Person not an Affiliate.

         Section 8.13 No Additional Bank Accounts.

Except as  provided  in Section  7.19,  no  Borrower  shall  open,  maintain  or
otherwise have any bank accounts and Omega shall not permit its  Subsidiaries to
do so.

         Section 8.14  Limitation  on Negative  Pledge  Agreements.

No Borrower  shall enter into any  agreement,  document or  instrument  with any
lender  or other  party or  entity  which  would  prohibit  the  Borrowers  from
complying  with the  Obligations  under Section 3.5 hereof as the same may arise
from time to time.

         Section 8.15  Redemptions; Distributions.

  No Borrower shall:

                  (a) Purchase, redeem, retire or otherwise acquire, directly or
indirectly, or make any sinking fund payments with respect to, any shares of any
class of stock of Omega or any  Subsidiary  now or hereafter  outstanding or set
apart any sum for such purpose unless (i) the Debentures  have been paid in full
or the Requisite Lenders are satisfied that sources of funds are and will remain
available to repay the  Debentures in full, and (ii) after giving effect thereto
(A) no Event of Default  shall  exist,  (B) there shall be at least  $15,000,000
available under the Revolving Loan A Commitment or the Credit  Commitment  under
the Fleet Obligations or any other line of credit or similar  facility;  and (C)
the aggregate  amount of all such  purchases,  redemptions and payments shall be
less than $15,000,000; or
<PAGE>

                  (b) Declare or pay any dividends or make any  distribution  of
any  kind on  Omega's  outstanding  stock,  or set  aside  any sum for any  such
purpose, except that:

                    (i) Omega may  declare and make  dividend  payments or other
               distributions payable solely in its common stock;

                    (ii) Omega may declare and make "payment in kind"  dividends
               or other distributions to the holders of its preferred stock.

                    (iii) if no Default or Event of Default exists or will occur
               after  giving  effect  thereto,  Omega may  declare  and pay cash
               dividends in any fiscal  quarter in an amount,  when added to the
               cash  dividends  paid with  respect to the three (3)  immediately
               preceding fiscal quarters, that does not exceed ninety-five (95%)
               percent of EBITDA (which shall be calculated  without adding back
               interest  expense  for the  purpose  hereof)  for those  four (4)
               fiscal quarters calculated on a rolling four-quarter basis; and

                    (iv) If a Default or Event of Default  exists or would occur
               after giving effect thereto,  Omega may declare and pay dividends
               in any fiscal quarter in the minimum amount necessary to maintain
               its REIT status.

         Section 8.16 Variable Rate Limitation.

Omega  shall  not  permit  more  than 20% of its  Indebtedness  (other  than the
Obligations),  on a  consolidated  basis,  to bear  interest at other than fixed
rates;  provided,  however,  that if and to the extent that such Indebtedness is
subject  to one or more  agreements  providing  protection  with  respect to the
interest payable thereunder,  such Indebtedness shall be deemed to bear interest
at a fixed rate.

         Section 8.17 Use of Cash.

Use, or permit to be used, in any manner or to any extent,  each Borrower's Cash
from  operations for the benefit of any Person,  except : (a) in connection with
the payment or prepayment of expenses (other than Capital Expenditures) directly
incurred for the benefit of each  Borrower in the  maintenance  and operation of
its business, in each case only in the ordinary course of its business,  (b) for
the  payment of  scheduled,  required  payments  of  principal  and  interest on
Indebtedness  of each  Borrower  permitted to exist  hereunder,  (c) payments or
prepayments of (i)  Indebtedness for borrowed money permitted to exist hereunder
provided  the  final  maturity  of  such  Indebtedness  is not  later  than  the
Termination  Date of Revolving Loan A or (ii) the Obligations  arising under the
Loan  Documents,  or (iii)  the  Fleet  Obligations  and (d) for  uses  that are
otherwise specifically permitted by this Agreement.

                          ARTICLE 9. EVENTS OF DEFAULT.

         Section  9.1  Events of  Default.

If any one or more of the following events ("Events of Default") shall occur and
be  continuing,  the Loan  Commitments  shall  terminate  and the entire  unpaid
balance of the principal of and interest on the Notes  outstanding and all other
Obligations and Indebtedness of Borrowers to Agent and Lenders arising hereunder
and under the other Loan Documents shall immediately become due and payable upon

<PAGE>

written  notice to that effect given to  Borrowers by Agent  (except that in the
case of the occurrence of any Event of Default described in Subsection 9.1(f) no
such notice  shall be  required),  without  presentment  or demand for  payment,
notice of  non-payment,  protest or further notice or demand of any kind, all of
which are expressly waived by Borrowers:

                  (a)  Payments.  Failure by any Borrower to make any payment or
mandatory  repayment  of  principal  or  interest  upon the Notes or to make any
payment of any other Obligations when due; or

                  (b) Certain  Covenants.  Failure by any Borrower to perform or
observe any applicable provision of Sections 7.8 or 7.9 or Article 8 hereof; or

                  (c) Other  Covenants.  Failure by any  Borrower  to perform or
observe any other applicable term, condition or covenant of this Agreement or of
any of the other  Loan  Documents  to which it is a party,  which  shall  remain
unremedied for a period of thirty (30) days after notice thereof shall have been
given to such Borrower by Agent; or

                  (d) Other Defaults.

                    (i) Failure by any Borrower to make,  within any  applicable
               grace period,  any payment in excess of  $5,000,000.00  due under
               any  Indebtedness,  whether such payment is due at maturity or in
               the ordinary course of such Indebtedness; or

                    (ii) Any default under any material Indebtedness of Omega or
               any  of  its   Subsidiaries   which  gives  the  holder  of  such
               Indebtedness  the right to accelerate the due date of any portion
               of such Indebtedness.

                  (e)  Representations  and Warranties.  Any  representation  or
warranty made in writing to Agent or any Lender in any of the Loan  Documents or
in connection  with the making of the Loans,  or any  certificate,  statement or
report made or  delivered in  compliance  with this  Agreement,  shall have been
false or misleading in any material respect when made or delivered, which in any
event results in a Material Adverse Effect; or

                  (f)  Bankruptcy.

                    (i) Any Borrower shall make an assignment for the benefit of
               creditors,   file  a  petition  in  bankruptcy,   be  adjudicated
               insolvent,  petition or apply to any tribunal for the appointment
               of a  receiver,  custodian,  or  any  trustee  for it or him or a
               substantial  part of its or his  assets,  or shall  commence  any
               proceeding  under any  bankruptcy,  reorganization,  arrangement,
               readjustment  of debt,  dissolution or liquidation law or statute
               of any  jurisdiction,  whether now or hereafter in effect, or any
               Borrower shall take any corporate  action to authorize any of the
               foregoing  actions;  or there  shall  have  been  filed  any such
               petition or application,  or any such proceeding  shall have been

<PAGE>

               commenced  against  it or him,  that  remains  undismissed  for a
               period of thirty (30) days or more; or any order for relief shall
               be entered in any such proceeding;  or any Borrower by any act or
               omission  shall  indicate  its or his consent to,  approval of or
               acquiescence  in any such petition,  application or proceeding or
               the appointment of a custodian, receiver or any trustee for it or
               him or any substantial  part of any of its or his properties,  or
               shall suffer any  custodianship,  receivership  or trusteeship to
               continue  undischarged  for a period of thirty (30) days or more;
               or

                    (ii) Any Borrower shall  generally not pay its debts as such
               debts become due; or

                    (iii)  Any  Borrower  shall  have  concealed,   removed,  or
               permitted to be concealed or removed,  any part of its  Property,
               with intent to hinder,  delay or defraud its  creditors or any of
               them or made or suffered a transfer of any of its  property  that
               may be fraudulent under any bankruptcy,  fraudulent conveyance or
               similar  law; or shall have made any  transfer of its Property to
               or for the benefit of a creditor  at a time when other  creditors
               similarly  situated have not been paid; or shall have suffered or
               permitted,  while  insolvent,  any creditor to obtain a Lien upon
               any of its Property  through legal  proceedings or distraint that
               is not vacated within thirty (30) days from the date thereof; or

                  (g)  Judgments.  Any  judgment  against  any  Borrower  or any
attachment,  levy or execution against any of its Properties (including, but not
limited to, the Collateral) for any amount in excess of $2,500,000  shall remain
unpaid, unstayed on appeal,  undischarged,  unbonded or undismissed for a period
of thirty (30) days or more; or

                  (h)  ERISA.

                    (i) The  termination  of any Plan or the  institution by the
               PBGC of proceedings for the involuntary  termination of any Plan,
               in either case, by reason of, or that results or could result in,
               a "material  accumulated funding deficiency" under Section 412 of
               the Code; or

                    (ii) Failure by any Borrower to make required contributions,
               in accordance with the applicable provisions of ERISA, to each of
               the Plans hereafter established or assumed by it; or

                    (i) Material  Adverse  Effect.  There shall occur a Material
               Adverse Effect; or

                  (j) REIT Status Etc.  Omega shall at any time fail to maintain
its REIT Status, or any Borrower shall lose,  through  suspension,  termination,
impoundment,  revocation, failure to renew or otherwise, any material license or
permit; or
<PAGE>

                  (k) Change of Control. Any Change of Control shall occur; or

                  (l) Default by Facility  Operator.  Ninety (90) days after the
occurrence  of any  default by any  Operator  in the  payment of amounts due and
owing under any lease, master lease, note, mortgage or deed of trust (or related
security  documents) between such Operator and any Borrower,  or any other event
of default by an  Operator  under the  applicable  lease,  master  lease,  note,
mortgage or deed of trust (or related  security  documents) as a result of which
any Borrower accelerates the obligations of such Operator,  with respect in each
case to an Operator whose aggregate  rental payments  account for 15% or more of
the aggregate rental payments of all of the Operators; or

                  (m)  Environmental.  Any Borrower or any of the Real  Property
Collateral  shall  become  subject  to one or more liens for costs or damages in
excess of $,5,000,000  individually or in the aggregate under any  Environmental
Laws and  Regulations and such liens shall remain in place for 30 days after the
creation thereof.

         Section  9.2  Remedies.

From and after the  occurrence of an Event of Default  which is  continuing  and
which has not been waived by Agent at the direction of Requisite Lenders,  Agent
may, and upon request of Requisite Lenders, shall:

                  (a) subject always to the provisions of Section 10.9,  proceed
to protect and enforce all or any of its or Lenders'  rights,  remedies,  powers
and  privileges  under  this  Agreement,  the  Notes  or any of the  other  Loan
Documents  by action at law,  suit in equity or other  appropriate  proceedings,
whether for specific  performance of any covenant  contained in this  Agreement,
any Note or any of the other Loan  Documents,  or in aid of the  exercise of any
power granted to Agent herein or therein.  In the event that Agent shall fail or
refuse to so proceed,  Requisite  Lenders  shall,  subject to the  provisions of
Section 10.9, be entitled to take such action as they shall deem  appropriate to
enforce their rights hereunder and under the other Loan Documents;

                  (b) remove from any premises where same may be located any and
all  Collateral  or any  and  all  documents,  instruments,  files  and  records
(including the copying of any computer records), and any receptacles or cabinets
containing same,  relating to the Collateral,  and Agent may use (at the expense
of any  Borrower)  such  of the  supplies  or  space  of any  Borrower,  at such
Borrower's  place of  business or  otherwise,  as may be  necessary  to properly
administer  and control  the  Collateral  or the  handling  of  collections  and
realizations thereon;

                  (c) bring suit, in the name of Borrowers or Lenders, on any of
the Collateral and generally have all other rights  respecting such  Collateral,
including  without  limitation  the right to  accelerate  or extend  the time of
payment,  settle,  compromise,  release in whole or in part any amounts owing on
such Collateral and issue credits in the name of any Borrower or Lenders;

                  (d) sell, assign and deliver such Collateral and any returned,
reclaimed or repossessed merchandise,  with or without advertisement,  at public
or  private  sale,  for cash,  on credit or  otherwise,  at  Agent's  discretion
exercised  with the  consent  of  Requisite  Lenders,  and any Lender may bid or
become a purchaser at any such sale,  free from any right of  redemption,  which
right is hereby expressly waived by each Borrower;
<PAGE>

                  (e) (i) notify the account  debtor on any of the Collateral of
Lenders' security interest therein; (ii) demand that monies due or to become due
be paid directly to Agent for the account of Lenders;  (iii) open any Borrower's
mail and collect any and all amounts due such  Borrower  from  account  debtors;
(iv) enforce  payment of the Collateral by legal  proceedings or otherwise;  (v)
exercise  all  of  any  Borrower's  rights  and  remedies  with  respect  to the
collection of the Collateral; (vi) settle, adjust, compromise, modify, extend or
renew  any of the  Collateral;  (vii)  settle,  adjust or  compromise  any legal
proceedings  brought  to  collect  any of the  Collateral;  (viii) to the extent
permitted by  applicable  law,  sell or assign any of the  Collateral  upon such
terms, for such amounts and at such time or times as Agent deems advisable; (ix)
with the consent of Requisite Lenders, grant waivers or indulgences with respect
to, accept partial payments from, discharge, release, surrender,  substitute any
customer  security for, make compromise with or release,  any other party liable
on, any of the  Collateral;  (x) take  control,  in any  manner,  of any item of
payment or proceeds from any account  debtor;  (xi) prepare,  file, and sign any
Borrower's name on any proof of claim in bankruptcy or similar  document against
any account  debtor;  (xii)  endorse the name of any Borrower upon any document,
instrument,  invoice,  freight  bill,  bill of lading  or  similar  document  or
agreement  relating  to any of the  Collateral;  and (xiii) use the  information
recorded on or contained in any data processing  equipment or computer  hardware
or software  relating to any of the Collateral or proceeds  thereof to which any
Borrower has access; and

                  (f) foreclose the security  interests  created pursuant to the
Loan Documents by any available judicial procedure, or take possession of any or
all of the Collateral  without judicial process and enter any premises where any
such  Collateral  may be  located  for the  purpose of taking  possession  of or
removing the same.

                  Agent shall have the right,  without notice of  advertisement,
to sell,  lease,  or  otherwise  dispose  of all or any part of the  Collateral,
whether in its then condition or after further preparation or processing, in the
name of any  Borrower,  or Lenders,  or in the name of such other party as Agent
may  designate,  either at public or private sale or at any broker's  board,  in
lots  or in  bulk,  for  cash  or for  credit,  with or  without  warranties  or
representations,  and upon  such  other  terms  and  conditions  as Agent in its
discretion  exercised with the consent of Requisite  Lenders may deem advisable,
and Agent or any other Lender shall have the right to purchase at any such sale.
If any such  Collateral  shall require  rebuilding,  repairing,  maintenance  or
preparation,  Agent  shall  have the  right,  at its  option,  to do such of the
aforesaid as is  necessary,  for the purpose of putting such  Collateral in such
saleable  form as Agent shall deem  appropriate.  Each Borrower  agrees,  at the
request of Agent,  to assemble such Collateral and to make it available to Agent
at places which Agent shall  reasonably  select,  whether at the premises of any
Borrower  or  elsewhere,  and to  make  available  to  Agent  the  premises  and
facilities  of the Borrowers for the purpose of Agent's  taking  possession  of,
removing or putting such  Collateral  in saleable  form.  However,  if notice of
intended  disposition  of any  Collateral  is required by law, it is agreed that
five (5) Business Days notice shall constitute reasonable  notification and full
compliance  with the law.  Agent shall be entitled  to use all  intangibles  and

<PAGE>

computer  software  programs and data bases used by any  Borrower in  connection
with its business or in connection  with the  Collateral.  The net Cash proceeds
resulting from Agent's  exercise of any of the foregoing rights (after deducting
all charges,  costs and expenses including reasonable  attorneys' fees) shall be
applied by Agent to the  payment of the  Obligations,  whether  due or to become
due, in such order as Agent may elect but in  accordance  with each Lender's Pro
Rata Share.  Borrowers shall remain liable to Lenders for any deficiencies,  and
Lenders in turn agree to remit to Borrowers any surplus resulting therefrom. The
enumeration  of the foregoing  rights is not intended to be  exhaustive  and the
exercise of any right shall not preclude the exercise of any other  rights,  all
of which shall be cumulative.

         Section 9.3 No Implied Waiver;  Rights  Cumulative

No delay on the part of Agent or any Lender in  exercising  any  right,  remedy,
power or privilege  under any of the Loan Documents or provided by statute or at
law or in equity or otherwise shall impair,  prejudice or constitute a waiver of
any such right,  remedy,  power or  privilege or be construed as a waiver of any
Default or Event of Default or as an  acquiescence  therein.  No right,  remedy,
power or privilege  conferred on or reserved to Agent or any Lender under any of
the Loan  Documents or otherwise is intended to be exclusive of any other right,
remedy,  power or privilege.  Each and every right,  remedy, power and privilege
conferred on or reserved to Agent or any Lender under any of the Loan  Documents
or otherwise  shall be cumulative and in addition to each and every other right,
remedy,  power or  privilege  so  conferred  on or reserved to Agent or any such
Lender and may be  exercised  at such time or times and in such order and manner
as Agent or any such Lender  shall (in its sole and  complete  discretion)  deem
expedient.

         Section 9.4 Set-Off; Pro Rata Sharing.

If any Event of Default shall at any time occur,  and for so long as it shall be
continuing,  any deposits,  balances or other sums credited by or due from Agent
or such  Lender or any of the  offices or branches of Agent or any Lender to any
Borrower,  may,  without  any  prior  notice  of any kind to such  Borrower,  or
compliance  with any other  conditions  precedent  now or  hereafter  imposed by
statute,  rule or law or  otherwise  (all of  which  are  hereby  expressly  and
irrevocably waived by each Borrower),  be immediately set off,  appropriated and
applied by Agent or such  Lender  toward the  payment  and  satisfaction  of the
Obligations  (but not to any other  obligations  of  Borrowers  to Agent or such
Lender  until all of the  Obligations  have been paid in full) in such order and
manner  as  Agent or such  Lender  (in its sole  and  complete  discretion)  may
determine, subject, however, to the provisions of Section 10.13.

                    ARTICLE 10 -CONCERNING AGENT AND LENDERS

         Agent and Lenders agree as follows:

         Section 10.1 Appointment of Agent

Each Lender hereby appoints Provident to serve as Agent under this Agreement and
the other Loan Documents,  and in such capacity to administer this Agreement and
the other Loan Documents.
<PAGE>

         Section 10.2 Authority.

Each Lender hereby irrevocably  authorizes Agent (i) to take such action on such
Lender's  behalf  under  this  Agreement  and the other  Loan  Documents  and to
exercise such powers and to perform such duties  hereunder and thereunder as are
delegated to or required of Agent by the terms hereof or thereof,  together with
such powers as are reasonably  incidental thereto;  and (ii) to take such action
on such Lender's  behalf as Agent shall consider  necessary or advisable for the
protection,  collection or  enforcement  of any of the  Obligations.  Agent will
promptly  notify each Lender as soon as it becomes aware of any Default or Event
of Default; provided,  however, that Agent shall not be deemed to have knowledge
of any item until such time as Agent's officers  responsible for  administration
of the Loans shall receive  written notice  thereof or have actual  knowledge of
such event.  If any Lender becomes aware of any Default or Event of Default,  it
shall promptly notify Agent thereof; provided,  however, that a Lender shall not
be  deemed  to have  knowledge  of any item  until  such  time as such  Lender's
officers  responsible  for  administration  of the Loans shall  receive  written
notice thereof or have actual knowledge of such event.

         Section  10.3  Acceptance  of  Appointment.

Agent  hereby  accepts  its  appointment  as Agent for each  Lender  under  this
Agreement and the other Loan Documents,  but only on the terms set forth in this
Agreement, including the following:

                  (a) Agent makes no representation as to the value, validity or
enforceability  of this Agreement or of any of the other Loan Documents or as to
the  correctness  of any statement  contained in this Agreement or in any of the
other Loan Documents;

                  (b) Agent may exercise its powers and perform its duties under
this  Agreement  and the other Loan  Documents  either  directly  or through its
agents or attorneys;

                  (c) Agent shall be entitled to obtain from counsel selected by
it with reasonable care advice with respect to legal matters  pertaining to this
Agreement  or any of the other  Loan  Documents  and shall not be liable for any
action taken,  omitted to be taken or suffered in good faith in accordance  with
the advice of such counsel;

                  (d) Agent  shall not be  required  to use its own funds in the
performance  of any of its  duties or in the  exercise  of any of its  rights or
powers,  and Agent  shall not be  obligated  to take any  action  which,  in its
reasonable  judgment,  would  involve it in any expense or  liability  unless it
shall have been  furnished  security or  indemnity  in an amount and in form and
substance satisfactory to it; and

                  (e) Agent,  in performing its duties and functions  under this
Agreement and the other Loan Documents for the benefit of Lenders, will exercise
the same care which it normally  exercises in making and handling loans in which
it alone is interested, but does not assume further responsibility.
<PAGE>

         Section 10.4  Collateral Matters.

                  (a)  Release  of  Collateral.   Lenders   hereby   irrevocably
authorize  Agent,  at its option  and in its  discretion,  to  release  any Lien
granted to or held by Agent upon any Property covered by the Security  Documents
(i) upon termination of the Loan Commitments and payment and satisfaction of all
Obligations;  or  (ii)  constituting  Property  being  sold  or  disposed  of if
Borrowers  certifies to Agent that the sale or disposition is made in compliance
with  the  provisions  of this  Agreement  (and  Agent  may  rely in good  faith
conclusively  on any  such  certificate,  without  further  inquiry);  or  (iii)
constituting  Property  leased to a Borrower  under a lease which has expired or
been  terminated in a transaction  permitted under this Agreement or is about to
expire  and which has not been,  and is not  intended  by such  Borrower  to be,
renewed or extended.  Upon request by Agent at any time, any Lender will confirm
in writing Agent's  authority to release  particular  types or items of Property
covered by the Security Documents pursuant to this Section 10.4(a).

                  (b) Confirmation of Authority:  Execution of Releases. Without
in any manner limiting Agent's  authority to act without any specific or further
authorization or consent by Requisite Lenders (as set forth in Section 10.4(a)),
each  Lender  agrees to confirm in  writing,  upon  request  by  Borrowers,  the
authority to release any Property  covered by the Security  Documents  conferred
upon Agent under  clauses (i) through  (iii) of Section  10.4(a).  So long as no
Event of Default is then continuing,  upon receipt by Agent of confirmation from
Requisite  Lenders of its authority to release any  particular  item or types of
Property covered by the Security Documents,  and upon at least five (5) Business
Days prior written request by Borrowers,  Agent shall (and is hereby irrevocably
authorized by Lenders to) execute such documents as may be necessary to evidence
the release of the Liens granted to Agent for the benefit of Lenders or pursuant
hereto  upon such  Collateral;  provided,  however,  that (i) Agent shall not be
required to execute any such document on terms which, in Agent's opinion,  would
expose  Agent to liability or create any  obligation  or entail any  consequence
other than the release of such Liens without recourse or warranty, and (ii) such
release shall not in any manner  discharge,  affect or impair the Obligations or
any Liens upon (or  obligations  of any  Borrower in respect  of) all  interests
retained by such Borrower,  including  (without  limitation) the proceeds of any
sale, all of which shall continue to constitute part of the Property  covered by
the Security Documents.

                  (c) Absence of Duty. Agent shall have no obligation whatsoever
to any Lender or any other  Person to assure  that the  Property  covered by the
Security Documents exists or is owned by any Borrower or is cared for, protected
or insured or has been  encumbered  or that the Liens granted to Agent herein or
pursuant  hereto  have  been  properly  or  sufficiently  or  lawfully  created,
perfected,  protected or enforced or are entitled to any particular priority, or
to  exercise  at all or in any  particular  manner  or  under  any duty of care,
disclosure  or  fidelity,  or  to  continue  exercising,   any  of  the  rights,
authorities  and powers granted or available to Agent in this Section 10.4 or in
any of the Loan Documents, it being understood and agreed that in respect of the
Property covered by the Security Documents or any act, omission or event related
thereto, Agent may act in any manner it may deem appropriate, in its discretion,
given Agent's own interest in Property covered by the Security  Documents as one
of Lenders and that Agent shall have no duty or liability  whatsoever  to any of
the other Lenders, except that Agent shall be required to exercise the same care
which it would in dealing with loans for its own account.
<PAGE>

         Section 10.5 Agency for  Perfection.

Each  Lender  hereby  appoints  each  other  Lender as agent for the  purpose of
perfecting  Lenders'  security  interest in Collateral which, in accordance with
Article 9 of the UCC in any  applicable  jurisdiction,  can be perfected only by
possession.  Should any Lender (other than Agent) obtain  possession of any such
Collateral,  such Lender shall notify Agent thereof,  and, promptly upon Agent's
request  therefor,  shall deliver such Collateral to Agent or in accordance with
Agent's  instructions.  Each  Lender  agrees  that it will not  have  any  right
individually  to enforce or seek to enforce any Security  Document or to realize
upon any security for the Obligations,  it being understood and agreed that such
rights and remedies may be exercised only by Agent.

         Section 10.6 Application of Moneys.

All moneys  realized by Agent under the Loan Documents shall be held by Agent to
apply in accordance with Section 2.8(b).

         Section 10.7 Reliance by Agent.

Agent shall be entitled to rely on any notice, consent, certificate,  affidavit,
letter, telegram,  telecopy,  facsimile or teletype message,  statement,  order,
instrument  or other  document  believed  by it to be genuine and correct and to
have been signed or sent by the proper  person or persons.  Agent shall deem and
treat the  payee of any Note as the  absolute  owner  thereof  for all  purposes
hereof until such time as it receives  actual notice of an assignment  permitted
hereunder of such payee's  interest,  together with the written agreement of the
assignee in form and substance satisfactory to Agent that such assignee is bound
by this Agreement as a "Lender" hereunder.

         Section  10.8  Exculpatory  Provisions.

Neither Agent nor any of its  shareholders,  directors,  officers,  employees or
agents shall be liable in any manner to any Lender for any action taken, omitted
to be taken  or  suffered  in good  faith  by it or them  under  any of the Loan
Documents or in connection therewith,  or be responsible for the consequences of
any oversight or error of judgment, except for losses due to gross negligence or
willful misconduct of Agent or such shareholder,  director, officer, employee or
agent. Without limiting the generality of the foregoing sentence of this Section
10.8,  under no  circumstances  shall Agent be subject to any  liability  to any
Lender on account  of any  action  taken or omitted to be taken by such Agent in
compliance with the direction of Requisite  Lenders or all Lenders,  as the case
may be, as provided for hereunder.

                  Agent shall not be responsible in any manner to any Lender for
the due  execution,  effectiveness,  genuineness,  validity  or  enforceability,
perfection or recording of this  Agreement,  any of the Notes,  any of the other
Loan Documents or for any certificate, report or other document used under or in
connection  with this Agreement or any of the other Loan  Documents,  or for the
truth or accuracy of any recitals,  statements,  warranties  or  representations
contained  herein or in any  certificate,  report or other  document at any time
hereafter  furnished or purporting to have been  furnished to it by or on behalf
of any Borrower or any other Person, or be under any obligation to any Lender to
ascertain or inquire as to the  performance or observance by any Borrower or any
other Person of any of the covenants, agreements or conditions set forth in this
Agreement,  the Notes or any of the other Loan Documents or as to the use of any
moneys lent hereunder or thereunder.
<PAGE>

                  Agent  shall not be  obligated  to take any  action or refrain
from taking any action  under any Loan  Document  that might,  in its  judgment,
involve it in any expense or liability  until it shall have been  indemnified to
its satisfaction by or received an agreement to indemnify from each Person which
such  Agent   reasonably   believes  may  be  an  intended   recipient  of  such
distribution. If a court of competent jurisdiction shall adjudge that any amount
received and distributed by Agent is to be repaid,  each Person to whom any such
distribution  shall have been made shall either repay to Agent its proportionate
share of the amount so  adjudged to be repaid or shall pay over the same in such
manner and to such Persons as shall be determined by such court.

         Section 10.9 Action by Agent.

Except as otherwise  expressly  provided under this Agreement or in any other of
the Loan Documents,  Agent will take such action,  assert such rights and pursue
such remedies  under this  Agreement  and the other Loan  Documents as Requisite
Lenders or all  Lenders,  as the case may be as provided  for  hereunder,  shall
direct.  Except as otherwise  expressly  provided in any of the Loan  Documents,
Agent will not (and will not be obligated to) take any action, assert any rights
or pursue any remedies  under this  Agreement or any of the other Loan Documents
in  violation  or  contravention  of any express  direction  or  instruction  of
Requisite Lenders or all Lenders,  as the case may be as provided for hereunder.
Agent may refuse  (and will not be  obligated)  to take any  action,  assert any
rights or pursue  any  remedies  under this  Agreement  or any of the other Loan
Documents  without the express  written  direction and  instruction of Requisite
Lenders or all  Lenders,  as the case may be as provided for  hereunder.  In the
event Agent fails,  within a commercially  reasonable time, to take such action,
assert such rights, or pursue such remedies as Requisite Lenders or all Lenders,
as the case may be as provided for hereunder,  direct,  Requisite Lenders or all
Lenders,  as the case may be as provided for hereunder,  shall have the right to
take such action, to assert such rights, or pursue such remedies for the benefit
of all  Lenders  unless the terms  hereof  otherwise  require the consent of all
Lenders  to the  taking of such  actions.  All  notices  and  other  information
delivered  by a Borrower to Agent  hereunder,  if material to Lenders,  shall be
delivered  within a  reasonable  time  (and in any  event not more than five (5)
days) after  Agent's  receipt of same by Agent to each Lender.  No Lender (other
than  Provident,  acting in its capacity as Agent) shall be entitled to take any
enforcement  action  of any kind  under  any of the Loan  Documents,  except  as
expressly  provided in this  Agreement.  Action  that may be taken by  Requisite
Lenders or all  Lenders,  as the case may be as provided  for  hereunder  may be
taken pursuant to a vote at a meeting (which may be held by telephone conference
call) of all Lenders, or pursuant to the written consent of such Lenders.

         Section 10.10 Amendments,  Waivers and Consents.

Any provision of this  Agreement,  the Notes or the other Loan  Documents may be
amended or waived upon the consent of Requisite Lenders, and after such consent,
Agent, for the benefit of Lenders, may execute and deliver to Borrower a written
instrument waiving or amending such provision;  provided,  however, that neither
this Agreement,  the Notes,  nor any of the other Loan Documents may be amended,
waived or a variation  therefrom or  forbearance  with respect to such variation
consented  to without  the  written  consent  of Agent and all of Lenders  which
effect (i) a change in the Maximum  Commitment (other than a change provided for
in this  Agreement);  (ii) a change in any  Lender's  Loan  Commitment;  (iii) a

<PAGE>

reduction in the interest  rates or reduction of the  principal set forth in the
Notes;  (iv) an extension of the maturity date on the Notes; (v) a change in the
payment  schedule or scheduled date for the payment of or amount of any interest
or principal; (vi) any change in, or any waiver of, any provision in Section 7.9
(which  consent  will not be  unreasonably  withheld);  (vii) a  change  in this
paragraph,  the  definition  of  Requisite  Lenders  or any  provision  of  this
Agreement which requires consent or action of all Lenders for action thereunder;
(viii) a change in the obligations and liabilities of Agent; (ix) a change which
increases the obligations of any Lender;  or (x) a change in any fees or charges
hereunder or in Sections 2.11 or 11.5.

         Section 10.11  Indemnification.

Each  Lender  agrees to  indemnify  Agent (to the extent  Agent is not  promptly
reimbursed by Borrower),  in accordance with such Lender's Pro Rata Share of the
Loans, from and against any and all liabilities,  obligations,  losses, damages,
penalties,  interests,  actions,  judgments  and  suits  of any  kind or  nature
whatsoever  which may be imposed  on,  incurred  by or  asserted  against  Agent
relating to or arising out of this  Agreement or any of the other Loan Documents
or relating to any action taken or omitted by such Agent under this Agreement or
any of the other Loan Documents, provided that no Lender shall be liable for any
portion of such liabilities,  obligations, losses, damages, penalties, interest,
actions,  judgments  or suits  resulting  from Agent's own gross  negligence  or
willful misconduct.

         Section 10.12  Reimbursement  of Agent.

Each Lender further agrees to reimburse  Agent, in accordance with such Lender's
Pro Rata Share of the Loans, for any reasonable  out-of-pocket costs or expenses
incurred by Agent in connection with its duties under this Agreement (including,
but not limited to,  reasonable fees and  disbursements  of counsel,  travel and
living expenses away from home of employees or agents of Agent and  compensation
of  agents  or of  experts  employed  by Agent to render  services  for  Lenders
hereunder),  but only to the  extent  such  fees,  disbursements,  expenses  and
compensation  have not been promptly  reimbursed  to Agent by Borrowers.  If any
such sums are reimbursed to Agent by Borrowers after one or more of Lenders have
reimbursed  Agent for such sums,  Agent will refund such sums ratably to Lenders
who contributed such sums.

         Section 10.13 Sharing of Funds  Received.

Each Lender and Agent  agrees with Agent and each of the other  Lenders  that if
such Lender shall receive from Borrowers or any other Person or Persons, whether
by payment  received  otherwise  than in  accordance  with the terms of the Loan
Documents,  exercise  of  the  right  of  set-off,  counterclaim,   cross-claim,
enforcement  of any claim,  or  proceedings  against  any  Borrower or any other
Person or Persons,  proof of claim in bankruptcy,  reorganization,  liquidation,
receivership or other similar  proceedings,  or otherwise,  and shall retain and
apply to the payment of any of the  Obligations  owing to such Lender any amount
in excess of its share of the  payments  received  by all  Lenders  and Agent in
respect  of all  of  the  Obligations,  such  Lender  will  promptly  make  such
dispositions and  arrangements  with the other Lenders and Agent with respect to
such  excess,  either by way of  distribution,  pro tanto  assignment  of claim,
subrogation or otherwise, as shall result in each Lender receiving in respect of
the Obligations owing to it, its share of such payments; provided, however, that
the payment of the principal balance and all accrued interest and other fees and
charges due under the Revolving B Notes on the Termination Date thereof,  as set
forth in the Revolving B Notes and herein, shall not be deemed a payment subject
to the provisions of this Section.
<PAGE>

         Section 10.14 Dealing with Lenders.

Agent may at all times deal solely with the several  Lenders for all purposes of
this  Agreement  and  the   protection,   enforcement   and  collection  of  the
Obligations,  including without  limitation the acceptance and reliance upon any
certificate,  consent  or other  document  executed  on behalf of one or more of
Lenders and the  division of payments  pursuant  hereto.  Agent shall not have a
fiduciary  relationship  in respect  of any Lender by reason of this  Agreement.
Agent shall have no implied  duties to Lenders,  or any obligation to Lenders to
take any  action  hereunder  except  any action  specifically  provided  by this
Agreement to be taken by Agent.

         Section 10.15 Agent as Lender.

Provident shall have, in its capacity as a Lender,  the same obligations and the
same rights, remedies,  powers and privileges under this Agreement and the other
Loan Documents as it would have were it not also an Agent.

         Section 10.16 Duties Not to be Increased.

The duties and  liabilities  of Agent  under this  Agreement  and the other Loan
Documents shall not be increased or otherwise  changed without its express prior
written  consent.  Agent  shall have no duty to provide  information  to Lenders
except as expressly set forth herein.

         Section 10.17 Lender Credit Decisions.

Each Lender acknowledges that it has, independently of and without reliance upon
Agent or any of the other Lenders,  made its own credit analysis and decision to
enter into this  Agreement and the other Loan  Documents to which it is a party.
Each  Lender  also  acknowledges  that it  will,  independently  of and  without
reliance upon Agent or any of the other Lenders, continue to make its own credit
decisions  in taking or not taking  action  under this  Agreement  or any of the
other Loan  Documents  and in  determining  the  compliance  or lack  thereof by
Borrowers  and any other Person with any provision of any Loan Document or other
document or agreement.

         Section 10.18  Resignation of Agent.

Provident  and any  successor  Agent  may  resign  as such at any time by giving
thirty  (30)  days'  prior  written  notice of  resignation  to each  Lender and
Borrowers,  such  resignation  to be effective on the date which is specified in
such notice; provided, however, that, if Provident, in its capacity as a Lender,
still owns,  directly or  indirectly,  more than fifty percent (50%) of the then
outstanding  balance of the Loans,  it shall not be permitted to resign as Agent
without the written  consent of all of the Lenders,  which  consent shall not be
unreasonably  withheld.  Upon any such  resignation by Provident as Agent, or in
the event the  office of Agent  shall  thereafter  become  vacant  for any other
reason,  Requisite  Lenders shall appoint a successor Agent, by an instrument in
writing  signed  by such  Lenders  and  delivered  to such  successor  Agent and
Borrowers, whereupon such successor Agent shall succeed to all of the rights and
obligations  of the retiring  Agent as if originally  named.  The retiring Agent
shall duly assign,  transfer and deliver to such  successor  Agent all moneys at
the time held by the retiring  Agent  hereunder  after  deducting  therefrom its
expenses for which it is entitled to be reimbursed.  Upon such succession of any

<PAGE>

such successor Agent, the retiring Agent shall be discharged from its duties and
obligations  hereunder,  except for its gross  negligence or willful  misconduct
arising  prior  to its  retirement  or  removal  hereunder.  After  any  Agent's
resignation,  the  provisions  of  Article 10 shall  continue  in effect for its
benefit in respect  of any  actions  taken or omitted to be taken by it while it
was acting as Agent.

         Section 10.19 Assignment of Notes: Participation.

                  (a) Each  Lender may,  with  thirty (30) days prior  notice to
Agent and to each other Lender,  assign to one or more banks or other  financial
institutions all or a portion of its rights and obligations under this Agreement
and the Notes;  provided that (i) for each such assignment,  the parties thereto
shall execute and deliver an assignment  and assumption  agreement,  in form and
substance  acceptable  to  Agent,  together  with  any  Notes  subject  to  such
assignment,  (ii) each such assignment  shall be for not less than $1,000,000 of
the assigning  Lender's Loan Commitment,  and shall be in increments of not less
than $100,000 of the assigning  Lender's Loan  Commitment,  and (iii) each other
Lender  shall have the right,  exercisable  by notice to the Agent  within  such
thirty (30) day notice period,  to participate in such  assignment on a pro rata
basis according to the amount of each such assigning Lender's Credit Commitment.
Upon such execution and delivery of such assignment and assumption  agreement to
Agent,  from  and  after  the  date  specified  as the  effective  date  in such
agreement,  (x) the assignee  thereunder  shall be a party  hereto,  and, to the
extent that rights and  obligations  hereunder have been assigned to it pursuant
to such  agreement,  such assignee  shall have the rights and  obligations  of a
Lender  hereunder,  and (y) the assignor  thereunder  shall,  to the extent that
rights and  obligations  hereunder  have been  assigned  by it  pursuant to such
agreement,  relinquish its rights (other than any rights it may have pursuant to
Section 11.5 which will survive) and be released from its obligations under this
Agreement  (and,  in the case of an  assignment  covering  all or the  remaining
portion of an assigning  Lender's rights and  obligations  under this Agreement,
such Lender shall cease to be a party hereto).

                  (b) Each  Lender may,  with  thirty (30) days prior  notice to
Agent  and  to  each  other  Lender,  sell  participations  of  its  rights  and
obligations  under the Loan  Documents  to one or more  banks or other  entities
(including,  without limitation, up to such portion of its Loan Commitment,  the
Loans owing to it, and the Notes held by it); provided,  however,  that (i) such
Lenders'  obligations under the Loan Documents  (including,  without limitation,
its Loan  Commitment)  shall  remain  unchanged,  (ii) such Lender  shall remain
solely  responsible  to the other  parties  hereto for the  performance  of such
obligations,  (iii) such Lender shall remain the holder of any such Note for all
purposes of the Loan Documents,  (iv) the participating  banks or other entities
shall be entitled to the cost  protection  provisions of Sections 2.11 and 11.5,
but a participant  shall not be entitled to receive  pursuant to such provisions
an amount  larger  than its share of the amount to which  Lender  granting  such
participation  would  have been  entitled,  (v)  Borrowers,  Agent and the other
Lenders shall  continue to deal solely and directly with such selling  Lender in
connection with such Lender's  rights and obligations  under the Loan Documents,
(vi) no such transfer shall include the transfer of any of such Lender's  rights
to grant consents or approve  amendments or  modifications to the Loan Documents
except  with  respect to those items  requiring  the action of or consent by all
Lenders or affecting the rights and  obligations of Agent,  and (vii) each other

<PAGE>

Lender  shall have the right,  exercisable  by notice to the Agent  within  such
thirty (30) day notice  period,  to participate in such sale on a pro rata basis
according to the amount of each such assigning Lender's Credit Commitment. It is
understood  and  agreed  that each  Lender  may  share  any and all  information
received by it from or on behalf of any Borrower  pursuant to this  Agreement or
any of the other Loan Documents with any participant or prospective  participant
of such Lender.

                 ARTICLE 11 - PROVISIONS OF GENERAL APPLICATION

         Section 11.1 Term of Agreement.

This Agreement shall continue in full force and effect and the duties, covenants
and  liabilities  of the Borrowers  hereunder and all the terms,  conditions and
provisions  hereof  relating  thereto shall continue to be fully operative until
all Obligations to Agent and each Lender have been satisfied in full.

         Section 11.2  Notices.

                  (a) All  notices  and other  communications  pursuant  to this
Agreement shall be in writing,  and shall be delivered by certified mail, return
receipt requested,  regularly scheduled overnight delivery service,  telecopy or
hand-delivery, addressed as follows:

                           (i)      If to any Borrower, at:
                                    c/o Omega Healthcare Investors, Inc.
                                    900 Victors Way/Suite 350
                                    Ann Arbor, Michigan 48103
                                    Attention: Carol Albaugh
                                    Telecopier No: (734) 887-0201

                                    with a copy to:

                                    c/o Omega Healthcare Investors, Inc.
                                    900 Victors Way/Suite 350
                                    Ann Arbor, Michigan 48103
                                    Attention: Susan A. Kovach, Esq.,
                                               General Counsel
                                    Telecopier No: (734) 887-0201

                           (ii)     If to Agent, at:

                                    The Provident Bank
                                    One East Fourth Street
                                    Cincinnati, Ohio 45202
                                    Attn: Steven Bloemer
                                    Fax Number: (513) 579-2201
<PAGE>

                                    With a copy to:
                                    Kohnen & Patton LLP
                                    1400 Carew Tower
                                    441 Vine Street
                                    Cincinnati, OH 45202
                                    Attn:  Joseph Beech III, Esq.
                                    Fax Number:  (513) 381-5823

                           (iii) If to a Lender,  at such  address  set forth on
                          Schedule 1.1;

or to such  other  addresses  or by way of such  other fax  numbers as any party
hereto shall have designated in a written notice to the other parties hereto.

                  (b) Except as otherwise  expressly provided herein, any notice
or other  communication  pursuant to this  Agreement or any other Loan  Document
shall be deemed to have been duly given or made and to have become effective (i)
when delivered in hand to the party to which it is directed,  or (ii) if sent by
regularly scheduled overnight delivery service or by telecopy,  when received by
the addressee;  or (iii) if sent by certified mail, return receipt requested, on
the fifth (5th)  Business Day following  the date of mailing,  whichever of (i),
(ii) or (iii) shall be the earliest.

         Section  11.3  Survival of  Representations.

All representations and warranties made by or on behalf of the Borrowers in this
Agreement or any of the other Loan Documents shall be deemed to have been relied
upon by Agent and each Lender notwithstanding any investigation made by Agent or
any Lender and shall survive the  execution  and delivery of the Loan  Documents
and the making of the Loan.

         Section 11.4  Amendments.

Each of the Loan  Documents  may be  modified,  amended or  supplemented  in any
respect  whatever only with the prior  written  consent or approval of Agent and
Requisite  Lenders or all  Lenders  (as the case may be) and each  other  Person
which is a party to such  Loan  Document,  all in  accordance  with the terms of
Section 10.10.

         Section 11.5 Costs, Expenses, Taxes and Indemnification.

                  (a) Each  Borrower,  jointly  and  severally,  absolutely  and
unconditionally  agrees to pay to Agent,  for the respective pro rata account of
Agent and each  Lender,  upon  demand by Agent or any  Lender at any time and as
often as the occasion  therefor  may  require,  whether or not all or any of the
transactions   contemplated   by  any  of  the  Loan  Documents  are  ultimately
consummated (i) all reasonable  out-of-pocket  costs and expenses which shall at
any time be incurred or  sustained by Agent or any of its  directors,  officers,
employees  or agents as a  consequence  of, on account of, in relation to or any
way in connection with the preparation,  negotiation,  execution and delivery of
the Loan Documents and the perfection and  continuation of the rights of Lenders
and Agent in connection with the Loans, as well as the preparation, negotiation,
execution,  or delivery or in connection  with the amendment or  modification of

<PAGE>

any of the Loan Documents or as a consequence  of, on account of, in relation to
or any way in  connection  with  the  granting  by Agent  or any  Lender  of any
consents,  approvals or waivers under any of the Loan Documents  including,  but
not limited  to,  reasonable  attorneys'  fees and  disbursements;  and (ii) all
reasonable out-of-pocket costs and expenses which shall be incurred or sustained
by Agent or any Lender or any of their directors,  officers, employees or agents
as a consequence of, on account of, in relation to or any way in connection with
the exercise,  protection or enforcement (whether or not suit is instituted) any
of its rights, remedies, powers or privileges under any of the Loan Documents or
in connection with any litigation,  proceeding or dispute in any respect related
to any of the relationships under, or any of the Loan Documents (including,  but
not limited to, all of the reasonable  fees and  disbursements  of  consultants,
legal  advisers,  accountants,  experts and agents for Agent or any Lender,  the
reasonable travel and living expenses away from home of employees,  consultants,
experts or agents of Agent or any  Lender,  and the  reasonable  fees of agents,
consultants  and experts not in the full-time  employ of Agent or any Lender for
services rendered on behalf of Agent or any Lender).

                  (b) Each Borrower shall, jointly and severally, absolutely and
unconditionally  indemnify and hold harmless  Agent and each Lender  against any
and all claims,  demands,  suits, actions,  causes of action,  damages,  losses,
settlement  payments,  obligations,  costs,  expenses and all other  liabilities
whatsoever which shall at any time or times be incurred or sustained by Agent or
any  Lender or by any of their  shareholders,  directors,  officers,  employees,
Subsidiaries,  Affiliates  or agents on account or in relation to, or in any way
in connection  with, any of the  arrangements or transactions  contemplated  by,
associated  with  or  ancillary  to  this  Agreement  or any of the  other  Loan
Documents other than by reason of the gross negligence or willful  misconduct of
the  indemnified  party,   whether  or  not  all  or  any  of  the  transactions
contemplated  by,  associated with or ancillary to this Agreement or any of such
Loan Documents are ultimately consummated.

                  (c) Each  Borrower  hereby  covenants and agrees that any sums
expended  by Agent or any Lender for which Agent or any Lender is entitled to be
reimbursed  pursuant to this Section 11.5 shall be  immediately  due and payable
upon demand by Agent or any Lender,  and shall bear interest at the Post-Default
Rate from the date Agent or any such Lender  demand  payment until the date such
payment is made in full to Agent or such Lender.

                  (d) The party  prevailing  in any action,  suit or  proceeding
arising out of or in any way in  connection  with this  Agreement  or any of the
transactions  contemplated  hereby  shall be  entitled to  reimbursement  of all
reasonable fees of its attorneys  incurred in connection with such action,  suit
or proceedings.

         Section 11.6 Release.

Each  Borrower  hereby  releases  the  Lenders and the Agent,  their  respective
predecessors  in  interest  and  any  subsidiaries  thereof,  and  all of  their
respective officers, directors, agents, representatives or counsel, from any and
all claims, causes of action, suits, debts or obligations, liabilities, demands,

<PAGE>

losses, costs and expenses,  (including attorney's fees), of any kind, character
or nature whatsoever, known or unknown, fixed or contingent, which such Borrower
may  have or  claim  to have  now or  which  may  hereafter  arise  out of or in
connection  with any act or  omission  existing or  occurring  prior to the date
hereof, including, without limitation, any claims, causes of action, liabilities
or demands  arising in connection with the any prior  relationship  between said
Borrower  and the  Lenders  and the  Agent,  their  respective  predecessors  in
interest and any subsidiaries  thereof,  and all of their  respective  officers,
directors,  agents,  representatives  or  counsel,  whether  arising  under  any
documents,  instruments or agreements  evidencing said prior  relationship or in
connection  with such  relationship  in general.  The provisions of this section
shall be binding on each Borrower,  its successors and assigns,  and shall inure
to the benefit of the Lenders and the Agent, and their respective successors and
assigns.

         Section  11.7  Language.

All notices, applications, certificates, reports, financial statements and other
financial  information,  correspondence  and all other  communications  from any
Borrower to Agent or any Lender  pursuant to this  Agreement or any of the other
Loan  Documents  shall be in the English  language or shall be accompanied by an
English translation thereof completely satisfactory to Agent or such Lender.

         Section  11.8  Binding  Effect:  Assignment.

This  Agreement  shall be binding  upon and inure to the  benefit of the parties
hereto and their respective successors in title and assigns; provided,  however,
that (i) a Borrower may not assign or delegate any of its rights or  obligations
hereunder to any Person or Persons  without the express prior written consent of
Agent and all  Lenders;  and (ii) no Lender may assign or delegate its rights or
obligations hereunder to any Person or Persons except in accordance with Section
10.19.

         Section 11.9 Governing Law:  Jurisdiction  and Venue.

The undersigned  agree that inasmuch as this  Agreement,  the Notes and the Loan
Documents  are to be executed by the Borrowers and accepted by Agent and Lenders
in  Cincinnati,  Ohio and the  funds to be  disbursed  under  the Loan are to be
disbursed in Ohio, this instrument and the rights and obligations of all parties
hereunder shall be governed by and construed  under the substantive  laws of the
State of Ohio,  without  reference  to the conflict of laws  principles  of such
state.

         Agent,  each Lender and each  Borrower  hereby  designate all courts of
record sitting in Cincinnati,  Ohio, both state and federal, as forums where any
action,  suit or proceeding in respect of or arising out of this Agreement,  the
Notes, Loan Documents, or the transactions contemplated by this Agreement may be
prosecuted as to all parties, their successors and assigns, and by the foregoing
designations  Agent, each Lender,  and each Borrower consent to the jurisdiction
and venue of such courts. EACH BORROWER WAIVES ANY AND ALL PERSONAL RIGHTS UNDER
THE LAWS OF ANY OTHER STATE TO OBJECT TO  JURISDICTION  WITHIN THE STATE OF OHIO
FOR THE PURPOSES OF LITIGATION TO ENFORCE SUCH OBLIGATIONS OF SUCH BORROWER.  In
the event such  litigation  is commenced,  each Borrower  agrees that service of
process may be made and personal  jurisdiction  over such  Borrower  obtained by
service of a copy of the  summons,  complaint  and other  pleadings  required to
commence such  litigation upon such Borrower at the address set forth in Section
11.2.  Each Borrower  recognizes and agrees that the agency has been created for
the  benefit  of the  Borrowers,  and Agent and each  Lender and agree that this
agency shall not be revoked, withdrawn or modified without the consent of Agent.
<PAGE>

         Section  11.10  WAIVER  OF  JURY  TRIAL

AS  A  SPECIFICALLY  BARGAINED  INDUCEMENT  FOR  LENDERS  TO  EXTEND  CREDIT  TO
BORROWERS,  AND AFTER HAVING THE OPPORTUNITY TO CONSULT  COUNSEL,  EACH BORROWER
HEREBY  EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING
RELATING TO THIS AGREEMENT OR ARISING IN ANY WAY FROM THE OBLIGATIONS.

         Section  11.11  Waivers.

Except to the  extent  expressly  provided  elsewhere  in this  Agreement,  each
Borrower  waives notice of nonpayment,  demand,  notice of demand,  presentment,
protest  and notice of protest  with  respect to the  Obligations,  or notice of
acceptance  hereof,  notice of the Loans  made,  credit  extended,  or any other
action  taken in  reliance  hereon,  and all other  demands  and  notices of any
description, except such as are expressly provided for herein.

         Section  11.12  Interpretation  and Proof of Loan  Documents.

Whenever  possible,  the  provisions  of each Loan Document will be construed in
such a manner  as to be  consistent  with this  Agreement  and each  other  Loan
Document.  If any of the provisions of any Loan Document are  inconsistent  with
this Agreement, such provisions of this Agreement will supersede such provisions
of such Loan  Document.  This  Agreement,  the Loan  Documents and all documents
relating  hereto,  including,  without  limitation,  (a)  consents,  waivers and
modifications  which may hereafter be executed,  (b) documents received by Agent
or any  Lender  at the  closing  or  otherwise,  and (c)  financial  statements,
certificates and other information previously or hereafter furnished to Agent or
any  Lender,  may be  reproduced  by Agent or such  Lender  by an  photographic,
photostatic,  microfilm,  micro-card,  miniature  photographic  or other similar
process and Agent or such Lender may destroy any original  document  (other than
any Note) so  reproduced.  Each  Borrower  agrees and  stipulates  that any such
reproduction  shall be  admissible  in  evidence as the  original  itself in any
judicial  or  administrative  proceeding  (whether  or not  the  original  is in
existence and whether or not such  reproduction was made by Agent or such Lender
in the  regular  course of  business)  and that any  enlargement,  facsimile  or
further  reproduction  of such  reproduction  shall  likewise be  admissible  in
evidence.

         Section 11.13  Integration of Schedules and Exhibits.

The Exhibits and  Schedules  annexed to this  Agreement  are an integral part of
this Agreement and are incorporated herein by reference.

         Section  11.14  Headings.

The headings of the Articles,  Sections and  paragraphs of this  Agreement  have
been inserted for  convenience of reference only and shall not be deemed to be a
part of this Agreement.
<PAGE>

         Section  11.15  Counterparts.

This  Agreement may be executed in any number of  counterparts,  but all of such
counterparts  shall together  constitute  but one agreement.  In making proof of
this  Agreement,  it shall not be  necessary to produce or account for more than
one  counterpart  hereof  signed by each of the parties  hereto.  Any  documents
delivered by, or on behalf of,  Borrowers by fax  transmission (i) may be relied
on by Agent and Lenders as if the document were a manually  signed  original and
(ii) will be binding on Borrowers for all purposes of the Loan Documents.

         Section 11.16  Severability.

Any provision of this  Agreement  which is prohibited and  unenforceable  in any
jurisdiction  shall,  as to such  jurisdiction,  be ineffective to the extent of
such  prohibition  or  unenforceability   without   invalidating  the  remaining
provisions  hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.

         Section  11.17 One General  Obligation.

The  Loans and all  advances  by  Lenders  to  Borrowers  under  this  Agreement
constitute one loan, and all Obligations of Borrowers to Agent and Lenders under
this Agreement constitute one general obligation. It is expressly understood and
agreed  that all of the  rights  of  Agent  and each  Lender  contained  in this
Agreement  shall likewise apply insofar as applicable to any  modification of or
supplement to this Agreement.

                         [Signatures on following page.]

<PAGE>

               IN WITNESS WHEREOF,  the parties have caused this Agreement to be
               duly executed and  delivered by their proper and duly  authorized
               officers.

                                            THE PROVIDENT BANK

                                 By:      /s/ Steven J. Bloemer
                                          ---------------------------
                                 Its:     Vice President
                                 Printed: Steven J. Bloemer

                                             ONE VALLEY BANK

                                 By:     /s/ Timothy Paxton
                                         -------------------
                                 Its:   Vice President

                                        GREAT AMERICAN INSURANCE COMPANY

                                 By:    /s/ Ronald C. Hayes
                                        -------------------------
                                 Its:   Assistant Vice President

                                       GREAT AMERICAN LIFE INSURANCE COMPANY

                                 By:    /s/ Mark Muething
                                        ------------------------
                                 Its:   Executive Vice President

                                  OMEGA HEALTHCARE INVESTORS, INC.

                                     STERLING ACQUISITION CORP.

                                         DELTA INVESTORS I, LLC

                                  By: /s/ F. Scott Kellman
                                      ------------------------

         F.  Scott  Kellman,   as  Chief   Operating   Officer  of  all  of  the
aforementioned  corporations or limited liability  companies,  has executed this
Loan  Agreement  and  intending  that  all  corporations  or  limited  liability
companies  above named are bound and are to be bound by the one  signature as if
he had  executed  this Loan  Agreement  separately  for each of the above  named
corporations.
<PAGE>

                                 FORM OF NOTE

                        REVOLVING LOAN A PROMISSORY NOTE

$50,000,000.00                                                 Cincinnati, Ohio
                                                              August ____, 2000

         THIS  REVOLVING  LOAN A PROMISSORY  NOTE (this  "Note") is executed and
delivered  as of the date  hereof  jointly  and  severally  by OMEGA  HEALTHCARE
INVESTORS, INC., a Maryland corporation,  STERLING ACQUISITION CORP., a Kentucky
corporation,  and DELTA INVESTORS I, LLC, a Maryland limited  liability  company
(hereafter  collectively  referred  to  as  "Borrowers",  or  individually  as a
"Borrower"), to THE PROVIDENT BANK, an Ohio banking corporation ("Lender").

         This  Note has been  executed  and  delivered  by  Borrowers  to Lender
pursuant to a certain Loan Agreement dated as of August ____,2000,  by and among
Borrowers,  The Provident Bank, an Ohio banking  corporation,  as Agent, and the
Lenders listed on Schedule 1.1 thereto (the "Loan Agreement"), and is subject to
the terms and conditions of the Loan Agreement,  including  without  limitation,
acceleration upon the terms provided therein.  All capitalized terms used herein
which are defined in the Loan  Agreement and not otherwise  defined herein shall
have the meanings given in the Loan Agreement.

         Borrowers, for value received,  jointly and severally promise to pay to
the order of  Lender,  at  Agent's  Head  Office,  for the  account of Lender in
accordance  with the Loan  Agreement,  the  principal  sum of Fifty  Million and
00/100 Dollars  ($50,000,000.00),  being the amount of Lender's Revolving Loan A
Commitment,  or so much  thereof as is then  currently  outstanding  and owed by
Borrower to Lender as Revolving Loan A pursuant to the Loan Agreement,  together
with interest thereon at the Interest Rate. Interest on the principal balance of
this Note shall be due and  payable  (i) with  respect to each  LIBOR  Loan,  in
arrears  on the last day of each  LIBOR  Period  applicable  thereto,  (ii) with
respect to each Loan other than a LIBOR Loan,  monthly in arrears  commencing on
August 31, 2000 and the last day of each calendar  month  thereafter,  and (iii)
with  respect to a Loan other  than a LIBOR Loan which is  converted  to a LIBOR
Loan in  accordance  with  the  provisions  of the  Loan  Agreement,  on the day
immediately  preceding the first day of the  applicable  LIBOR Period.  Interest
shall be  computed  on the basis of the actual  number of days  elapsed  over an
assumed year consisting of three hundred sixty (360) days. The entire  principal
balance of this Note and all accrued but unpaid  interest  shall,  if not sooner
paid or required to be paid pursuant to the Loan  Agreement,  be due and payable
in full on June 30, 2005.  This Note is subject to mandatory  prepayment  and/or
acceleration as provided in the Loan Agreement.

         This Note may be  prepaid  in full or in part at any time and from time
to time;  provided,  however,  that any  prepayment  in full may be subject to a
prepayment fee as provided in Section 2.7(a) of the Loan Agreement.
<PAGE>

         Upon the occurrence and during the continuance of any Event of Default,
the outstanding  principal and all accrued and unpaid  interest,  as well as any
other  Obligations due Lender  hereunder or under any Loan Document,  shall bear
interest at the  Post-Default  Rate from the date on which such Event of Default
shall have  occurred to the date on which such Event of Default  shall have been
waived or cured.

         Upon the occurrence and during the continuance of any Event of Default,
the entire  principal  balance of this Note and all accrued but unpaid  interest
shall,  upon notice by Agent to Borrowers,  become  immediately due and payable,
except that if there shall be an Event of Default  under  Section  9.1(f) of the
Loan Agreement,  the entire  principal  balance of this Note and all accrued but
unpaid interest shall become immediately due and payable without notice.

         Subject to the terms and conditions of the Loan Agreement and until the
Termination  Date,  Borrowers may borrow,  repay and reborrow  from Lender,  and
Lender will lend and relend to  Borrowers,  such amounts not to exceed  Lender's
Revolving Loan A Commitment as Borrowers may from time to time request.

         Borrowers hereby: (i) waive presentment, notice of presentment, demand,
notice of demand,  protest,  notice of protest and notice of nonpayment  and any
other  notice  required  to be given by law,  except as  otherwise  specifically
provided in the Loan  Agreement,  in connection  with the delivery,  acceptance,
performance,  default or enforcement of this Note or any indorsement or guaranty
of this Note;  and (ii) consent to any and all delays,  extensions,  renewals or
other modifications of this Note or waivers of any term hereof or the failure to
act on the part of Agent or Lender or any  indulgence  shown by Agent or Lender,
from time to time and in one or more  instances  (without  notice to or  further
assent from Borrowers), and agree that no such action, failure to act or failure
to exercise  any right or remedy on the part of Agent or Lender shall in any way
affect or impair the  obligations  of  Borrowers  or be construed as a waiver by
Lender of, or otherwise affect, any of Lender's rights under this Note, or under
any  indorsement  or  guaranty  of this  Note.  Borrowers  further  jointly  and
severally agree to reimburse Agent and Lender for all advances,  charges,  costs
and  expenses,  including  reasonable  attorneys'  fees,  incurred  or  paid  in
exercising  any  right,  power  or  remedy  conferred  by this  Note,  or in the
enforcement of this Note.

         Anything  herein to the contrary  notwithstanding,  the  obligations of
Borrowers under this Note, the Loan Agreement and any other Loan Documents shall
be subject to the limitation  that payments of interest shall not be required to
the extent that  receipt of any such  payment by Lender would be contrary to the
provisions  of law  applicable  to Lender  limiting the maximum rate of interest
that may be charged or collected by Lender.  Without  limiting the generality of
the foregoing,  all calculations of the rate of interest contracted for, charged
or  received  under this Note  which are made for the  purposes  of  determining
whether such rate of interest exceeds the maximum rate of interest  permitted by
applicable  law shall be made,  to the extent  permitted by  applicable  law, by
amortizing, prorating, allocating and spreading in equal parts during the period
of the full stated term of this Note all  interest at any time  contracted  for,
charged or received in connection with the indebtedness  evidenced by this Note,
and then to the  extent  that any  excess  remains,  all  such  excess  shall be
automatically  credited against and in reduction of the principal  balance,  and
any portion of said excess which exceeds the principal  balance shall be paid by
Lender to  Borrowers,  it being the intent of the  parties  hereto that under no
circumstances  shall  Borrowers be required to pay any interest in excess of the
highest rate permissible under applicable law.
<PAGE>

         The  provisions  of this Note shall be governed by and  interpreted  in
accordance with the laws of the State of Ohio.

         Borrowers  hereby designate all courts of record sitting in Cincinnati,
Ohio and having  jurisdiction  over the subject  matter,  state and federal,  as
forums where any action, suit or proceeding in respect of or arising from or out
of this Note, its making,  validity or performance,  may be prosecuted as to all
parties,  their  successors  and  assigns,  and  by  the  foregoing  designation
Borrowers consent to the jurisdiction and venue of such courts.

                  IN  ACCORDANCE  WITH  SECTIONS  11.9  AND  11.10  OF THE  LOAN
AGREEMENT,  AND AFTER  HAVING  AN  OPPORTUNITY  TO  CONSULT  COUNSEL,  BORROWERS
EXPRESSLY  WAIVE  (i) ANY AND ALL  PERSONAL  RIGHTS  UNDER THE LAWS OF ANY OTHER
STATE TO  OBJECT  TO  JURISDICTION  WITHIN  THE  STATE OF OHIO FOR  PURPOSES  OF
LITIGATION TO ENFORCE THE  OBLIGATIONS  OF ANY  BORROWER,  AND (ii) THE RIGHT TO
TRIAL BY JURY IN ANY  LAWSUIT OR  PROCEEDING  RELATING  TO THIS NOTE OR THE LOAN
AGREEMENT OR ARISING IN ANY WAY FROM THE OBLIGATIONS.

         TIME IS OF THE ESSENCE IN THE  PERFORMANCE  OF THE  OBLIGATIONS OF THIS
NOTE.

                        (Signatures appear on next page)

<PAGE>

         IN WITNESS  WHEREOF,  Borrowers  have executed this Note as of the date
set forth above.

                        OMEGA HEALTHCARE INVESTORS, INC.

                                          By: _________________________________

                                          Name: ______________________________

                                          Title: _______________________________

                           STERLING ACQUISITION CORP.

                                           By: _________________________________

                                           Name: _______________________________

                                           Title:  _____________________________

                            DELTA INVESTORS I, LLC

                                            By: ________________________________

                                            Name: ______________________________

                                            Title: _____________________________

<PAGE>
                                FORM OF MORTGAGE

-----------------------------------------------------------------------------
                     OPEN-END MORTGAGE, ASSIGNMENT OF RENTS
                             AND SECURITY AGREEMENT

            [THIS INSTRUMENT SECURES FUTURE ADVANCES AND OBLIGATIONS]

THIS  OPEN-END  MORTGAGE,  ASSIGNMENT  OF  RENTS  AND  SECURITY  AGREEMENT  (the
"Instrument")  is  made  this  _____  day  of  August,  2000,  between  STERLING
ACQUISITION  CORP.,  a Kentucky  corporation,  whose address is 900 Victors Way,
Suite 350, Ann Arbor,  Michigan 48108 (the "Borrower"),  and THE PROVIDENT BANK,
AGENT,  an Ohio banking  corporation,  whose address is One East Fourth  Street,
Cincinnati, Ohio 45202, ("Agent").

WHEREAS,  pursuant to the terms of a certain Loan Agreement  dated August _____,
2000 (as such agreement may be amended,  modified or  supplemented  from time to
time, the "Loan Agreement")  between Agent,  Borrower and Lenders (as defined in
the Loan Agreement),  Lenders have agreed to extend credit to Borrower up to the
aggregate   maximum   principal   amount   of   Seventy-Five   Million   Dollars
($75,000,000.00),  with the balance of the  indebtedness if not sooner paid, due
and payable on __________________, 2005 (the "Loan"); and

WHEREAS,  such  indebtedness is evidenced by: (i) the Loan Agreement;  and (iii)
Borrower's  revolving  promissory  notes of even date therewith,  in the maximum
original  principal  amount of  Seventy-Five  Million  Dollars  ($75,000,000.00)
("Notes"),  bearing  interest  at the rate of  interest  set forth  therein  and
providing  for the payment of principal  and  interest,  with the balance of the
indebtedness if not sooner paid, due and payable on  ___________________,  2005;
and

WHEREAS,  the Loan is made pursuant to the terms of, and in  accordance  with or
reliance upon,  certain other agreements and documents,  which include,  without
limitation,  the Loan Agreement,  and the Loan Documents (as defined in the Loan
Agreement).

NOW THEREFORE, TO SECURE TO AGENT the repayment of the Obligations, as that term
is defined in the Loan Agreement, BORROWER DOES HEREBY MORTGAGE, WARRANT, GRANT,
BARGAIN,  SELL,  ASSIGN AND CONVEY TO AGENT, ITS SUCCESSORS AND ASSIGNS,  all of

<PAGE>

Borrower's  estate,  right,  title and  interest  in, to and under that  certain
parcel of real  property  commonly  known as Carter  Nursing and  Rehabilitation
Center, 250 McDavid Blvd., Grayson,  Kentucky, as more particularly described in
Exhibit  "A",  attached  hereto  and made a part  hereof,  whether  now owned or
hereafter  held or acquired  (the "Land"),  together  with all right,  title and
interest  which  Borrower  may have in and to all  improvements,  buildings  and
structures  thereon of every nature  whatsoever,  whether now owned or hereafter
held or acquired  (the  "Improvements",  which  together  with the Land shall be
referred to as the "Premises") and all appurtenances to said Premises, including
and together with:

     (a) all right,  title and interest,  if any,  including any  after-acquired
right,  title and interest,  and including any right of use or occupancy,  which
Borrower may now have or hereafter  acquire in and to (i) all easements,  rights
of way, gores of land or any lands occupied by streets, ways, alleys,  passages,
sewer  rights,  water  courses,  water  rights and  powers,  and  public  places
adjoining  said  Land,  and  any  other   interests  in  property   constituting
appurtenances to the Land, or which hereafter shall in any way belong, relate or
be appurtenant  thereto,  and (ii) all hereditaments,  gas, oil,  minerals,  and
easements,  of every  nature  whatsoever,  located in or on the Premises and all
other  rights  and  privileges   hereunto  belonging  or  appertaining  and  all
extensions, additions,  improvements,  betterments,  renewals, substitutions and
replacements   to,  or  of  any  of  the  rights  and  interests   described  in
subparagraphs (i) and (ii) above (hereinafter the "Property Rights"); and

     (b) all right,  title and  interest,  if any,  in and to all  fixtures  and
appurtenances  of every nature  whatsoever  now or  hereafter  located in, on or
attached  to, and used or intended to be used in  connection  with,  or with the
operation of, the  Premises,  including,  but not limited to (i) all  apparatus,
machinery  and  equipment  of  Borrower;  and  (ii) all  extensions,  additions,
improvements,  betterments,  renewals,  substitutions, and replacements to or of
any of the  foregoing  (the  "Fixtures");  as well as all personal  property and
equipment  of every  nature  whatsoever  now or  hereafter  located in or on the
Premises, including but not limited to all right, title and interest, if any, in
and to (iii) all screens,  window shades, blinds,  wainscoting,  storm doors and
windows,  floor  coverings,   and  awnings  of  Borrower;  (iv)  all  apparatus,
machinery,  equipment and  appliances of Borrower not included as Fixtures;  (v)
all items of furniture, furnishings, and personal property of Borrower; (vi) all
other personal  property of Borrower and all rights and things of value of every
kind and  nature,  tangible or  intangible,  absolute  or  contingent,  equal or
equitable,  including  without  limitation:  (a) all lists of  lessees  or other
customer lists, books and records,  ledger and account cards, computer tapes and
programs,  software,  disks, printouts and records,  whether now in existence or
hereafter  created,  of Borrower relating to the Premises;  (b) all right, title
and  interest,  if  any,  in  and  to  all  management  agreements,   consulting
agreements,  employment  agreements  and  other  agreements  pertaining  to  the
Premises,  now existing or hereafter arising, each as amended from time to time,
including  without  limitation  all rights and  privileges  thereunder;  (c) all
right, title and interest, if any, in and to all licenses,  permits,  approvals,
authorizations,  qualifications,  registrations  and  recording  thereof and all
applications incorporated into such licenses, permits, approvals, authorizations
and registrations now owned or hereafter  acquired by Borrower and required from
time to time for the business operations of Borrower or the Premises, including,

<PAGE>

but not limited to,  Certificates  of Need, to the extent that assignment of the
same is permissible  under  applicable law; (d) all liens,  security  interests,
mortgages,   security,   warranties,   guarantees,   sureties,   payment  bonds,
performance  bonds,  insurance  policies,  maintenance,  repair  or  replacement
agreements, and other contractual obligations of any contractor,  subcontractor,
surety, guarantor,  manufacturer, dealer, laborer, supplier or materialman, with
respect to the Premises;  (e) all causes of action,  goodwill,  trade names, tax
refund claims,  and all rights to  indemnification  of Borrower;  (f) all plans,
specifications and drawings relating to the Premises in Borrower's possession or
under its reasonable control; and (g) all claims,  rights,  powers or privileges
and  remedies  relating  to the  foregoing  or arising in  connection  therewith
including,  without limitation,  all rights to make determinations,  to exercise
any election (including,  but not limited to, election of remedies) or option or
to give or  receive  any  notice,  consent,  waiver or  approval;  and (vii) all
extensions, additions,  improvements,  betterments, renewals, substitutions, and
replacements  to or of  any  of  the  foregoing  (iii)  -  (vi)  (the  "Personal
Property").  It is mutually agreed, intended and declared, that the Premises and
all of  the  Property  Rights  and  Fixtures  owned  by  Borrower  (referred  to
collectively  herein as the "Real Property")  shall, so far as permitted by law,
be deemed  to form a part and  parcel  of the Land and for the  purpose  of this
Instrument to be real estate and covered by this  Instrument.  It is also agreed
that if any of the property  herein  mortgaged is of a nature so that a security
interest  therein can be  perfected  under the  Uniform  Commercial  Code,  this
Instrument shall constitute a security  agreement,  fixture filing and financing
statement,  and  Borrower  agrees to  execute,  deliver  and file or refile  any
financing  statement,  continuation  statement,  or other  instruments Agent may
reasonably  require from time to time to perfect or renew such security interest
under the Uniform  Commercial  Code. To the extent  permitted by law, (i) all of
the  Fixtures  are  or  are to  become  fixtures  on the  Land;  and  (ii)  this
instrument,  upon  recording or  registration  in the real estate records of the
proper office,  shall  constitute a  "fixture-filing"  within the meaning of the
Uniform Commercial Code. The remedies for any violation of the covenants,  terms
and conditions of the agreements herein contained shall be as prescribed herein,
in Paragraph 14 hereof or by general law, or, as to that part of the security in
which a security interest may be perfected under the Uniform Commercial Code, by
the specific  statutory  consequences now or hereafter  enacted and specified in
the Uniform Commercial Code, all at the Agent's sole election; and

     (c) (i) all the estate,  right, title and interest of the Borrower,  in and
to  all  judgments,  insurance  proceeds,  awards  of  damages  and  settlements
resulting from condemnation  proceedings or the taking of the Real Property,  or
any part thereof,  under the power of eminent domain or for any damage  (whether
caused by such taking or otherwise) to the Real Property,  the Personal Property
or any part thereof, or to any rights appurtenant  thereto,  and all proceeds of
any sales or other  dispositions of the Real Property,  the Personal Property or
any part  thereof;  and  (except  as  otherwise  provided  herein or in the Loan
Agreement) the Agent is hereby authorized to collect and receive said awards and
proceeds and to give proper receipts and acquittance therefor,  and to apply the
same as provided in the Loan Agreement;  and (ii) all contract  rights,  general

<PAGE>

intangibles, actions and rights in action, relating to the Real Property, or the
Personal  Property,  including,  without  limitation,  all  rights to  insurance
proceeds  and unearned  premiums  arising from or relating to damage to the Real
Property;   and  (iii)  all   proceeds,   products,   replacements,   additions,
substitutions,  renewals  and  accessions  of and to the  Real  Property  or the
Personal Property.  (The rights and interests  described in this Paragraph shall
hereinafter be called the "Intangibles.")

AS ADDITIONAL SECURITY FOR THE OBLIGATIONS SECURED HEREBY,  BORROWER DOES HEREBY
CONVEY,  TRANSFER AND ASSIGN TO AGENT from and after the date hereof  (including
any period of redemption),  primarily and on a parity with said real estate, and
not  secondarily,  all the rents,  issues and profits of the Real Property;  all
rents, issues, profits, revenues,  royalties,  bonuses, rights and benefits due,
payable or  accruing  (including  all  deposits  of money as advance  rent,  for
security or as earnest  money or as down  payment for the purchase of all or any
part of the Real  Property  or the  Personal  Property);  all  monies due and to
become due to Borrower under any lease for services,  materials or installations
supplied,  whether or not the same were  supplied  under the terms of any lease;
all the proceeds of all such rents,  both cash and non-cash  including,  but not
limited to, any minimum rents,  additional  rents,  percentage  rents,  parking,
maintenance,  insurance and tax contributions,  any damages following default by
lessee under any lease;  any  penalties or premiums  payable by lessee under any
lease;  and the  proceeds  of any  policy of  insurance  covering  loss of rents
resulting from  destruction  of any portion of the Real Property  (collectively,
the  "Rents")  under any and all present and future  leases,  contracts or other
agreements  between  Borrower  and any other  party or parties  relative  to the
ownership of the Real  Property or the Personal  Property or to the occupancy of
all or any portion of the Real Property (the "Leases", which term shall include,
but not be limited to, that certain  Master Lease between  Borrower,  as lessor,
and Sterling Health Care Management,  Inc., as lessee (the "Master Lease")). The
term "Rents" shall include,  but not be limited to, that portion of the "Minimum
Rent" (as that term is defined in the Master  Lease)  indicated  on Exhibit  "B"
attached  hereto  and  made a part  hereof.  With  respect  to said  conveyance,
transfer and assignment of such Rents, Borrower further covenants and agrees:

          (a) Borrower and Agent intend that this assignment shall be a present,
     absolute  and   unconditional   assignment  and  shall,   immediately  upon
     execution,  give Agent the right to collect  the Rents and to apply them in
     payment of the  principal  and  interest  and all other sums payable on the
     Obligations.  However, Agent hereby grants to Borrower the right to collect
     and use the Rents as they become due and payable under the Leases,  subject
     to the provisions set forth below and in the Loan  Agreement,  but not more
     than one (1)  month in  advance  thereof,  until  an Event of  Default  (as
     defined in the Loan Agreement) has occurred, provided that the existence of
     such  right  shall  not  operate  to  subordinate  this  assignment  to any
     subsequent  assignment,  in  whole or in part,  by  Borrower,  and any such
     subsequent  assignment  shall be subject to the rights of Agent  under this
     Instrument.

          (b) Upon the occurrence of an Event of Default:  (1) Borrower  agrees,
     upon demand, that Agent may assume the management of the Real Property, and
     collect the Rents,  applying  the same upon the  Obligations  in the manner

<PAGE>

     provided in the Loan  Agreement;  and (2) Borrower  hereby  authorizes  all
     lessees,  guarantors,  purchasers or other  persons  occupying or otherwise
     acquiring  any  interest in any part of the Real  Property to pay the Rents
     due under the  Leases  with  respect  to the Real  Property,  but only with
     respect to the Real Property,  to the Agent upon request of the Agent,  and
     Borrower shall, at the request of Agent,  notify such lessees,  guarantors,
     purchasers  or other  persons  that they are so  authorized  and  directed.
     Borrower  hereby  appoints Agent as its true and lawful attorney in fact to
     manage said  property and collect the Rents,  with full power to bring suit
     for collection of the Rents and possession of the Real Property, giving and
     granting unto Agent and unto its agent or attorney full power and authority
     to do and  perform  all and every act and thing  whatsoever  requisite  and
     necessary to be done in the  protection  of the security  hereby  conveyed;
     provided,  however, that (i) this power of attorney and assignment of rents
     shall not be construed as an  obligation  upon Agent to make or cause to be
     made any repairs  that may be needful or  necessary  and (ii) Agent  agrees
     that until such Event of Default,  Agent shall  permit  Borrower to perform
     the aforementioned  management  responsibilities,  including collecting the
     Rents.

          (c) Upon Agent's receipt of the Rents, at Agent's option,  it may pay:
     (1) reasonable charges for collection hereunder, costs of necessary repairs
     and other costs  requisite and  necessary  during the  continuance  of this
     power of attorney and  assignment of rents,  (2) general and special taxes,
     insurance  premiums,  and (3) the  balance  of the  Rents  pursuant  to the
     provisions of the Loan Agreement.  This power of attorney and assignment of
     Rents shall be irrevocable  until this Instrument shall have been satisfied
     and released of record and the releasing of this Instrument  shall act as a
     revocation of this power of attorney and  assignment of rents.  Agent shall
     have and hereby expressly  reserves the right and privilege (but assumes no
     obligation) to demand,  collect, sue for, receive and recover the Rents, or
     any part  thereof,  now existing or hereafter  made,  and apply the same in
     accordance with the provisions of the Loan Agreement.

All of the property described in the foregoing  subparagraphs,  and each item of
property  therein  described,  including  but not  limited  to,  the  Land,  the
Premises,  the Property Rights,  the Fixtures,  the Real Property,  the Personal
Property,  the Intangibles and the Rents, is herein collectively  referred to as
the "Mortgaged Property".

Nothing herein  contained shall be construed as  constituting  Agent a mortgagee
in-possession in the absence of the taking of actual possession of the Mortgaged
Property by Agent.  Nothing  contained in this Instrument  shall be construed as
imposing on Agent any of the  obligations  of the lessor under any Leases of the
Real Property.  In the exercise of the powers herein granted Agent, no liability
shall be asserted or enforced  against Agent, all such liability being expressly
waived and released by Borrower.

This  Instrument  shall also secure the unpaid balances of future and additional
loan  advances  made at any time while this  Instrument  remains  unreleased  of
record, whether made pursuant to an obligation of Agent or otherwise.  Such loan
advances  are or may be evidenced by the Notes,  the Loan  Agreement  and one or

<PAGE>

more subsequent notes executed in substitution  therefor.  The maximum principal
amount of unpaid loan  indebtedness to be secured by this Instrument,  exclusive
of  interest  thereon,  which  may be  outstanding  at any time is  Seventy-Five
Million  Dollars  ($75,000,000.00).  In addition to any other debt or obligation
secured hereby,  this Instrument  shall secure:  (i) unpaid balances of advances
made for the payment of taxes, assessments,  insurance premiums, and other costs
incurred for the  protection of the  Mortgaged  Property or the security of this
Instrument;  and, (ii) to the extent permitted by law, Agent's collection costs,
including its attorneys fees.

Borrower,  as  an  integral  part  of  this  Instrument,   covenants,  warrants,
represents and agrees as follows:

1. PAYMENT OF  OBLIGATIONS.  Borrower  shall promptly pay when due the principal
and  interest on the  indebtedness  evidenced  by the Notes,  any late  charges,
prepayment  premiums  or other sums  required  to be paid by the Notes,  and all
other Obligations secured by this Instrument.

2. REPRESENTATIONS AND WARRANTIES. Except as otherwise set forth in Article 4 of
the Loan Agreement, Borrower hereby covenants, represents and warrants that:

          (a)  Borrower  is lawfully  seized of a fee simple  estate in the real
     property hereby conveyed and has the right to mortgage,  convey,  grant and
     assign the Mortgaged  Property;  the  Mortgaged  Property is subject in all
     cases to no lien,  charge or encumbrance  other than liens  permitted under
     Section 8.1 of the Loan  Agreement;  this  Instrument  is and will remain a
     valid and enforceable  first lien on the Mortgaged  Property;  and Borrower
     shall cooperate to preserve such title, and will forever warrant and defend
     the title,  validity and priority of the lien hereof  against the claims of
     all  persons  and  parties  whomsoever,  except for liens  permitted  under
     Section 8.1 of the Loan Agreement.

          (b) Borrower is duly authorized to make and enter into this Instrument
     and to carry out the transactions contemplated herein.

          (c) This  Instrument has been duly executed and delivered  pursuant to
     authority  legally adequate  therefor;  Borrower has been and is authorized
     and empowered by all necessary  persons  having the power of direction over
     it to execute and deliver  said  instrument;  said  instrument  is a legal,
     valid and binding  obligation of Borrower,  enforceable in accordance  with
     its terms,  subject,  however,  to bankruptcy and other law,  decisional or
     statutory,  of general application  affecting the enforcement of creditors'
     rights,  and to the fact that the  availability  of the remedy of  specific
     performance or of injunctive  relief in equity is subject to the discretion
     of the court before which any proceeding therefor may be brought.

          (d) Borrower is not in default under any  instruments  or  obligations
     relating to the  Mortgaged  Property and no party has asserted any claim of
     default against Borrower relating to the Mortgaged Property.
<PAGE>

          (e)  The  execution  and   performance  of  this  Instrument  and  the
     consummation of the transactions hereby contemplated will not result in any
     breach of, or constitute a default under, any mortgage,  lease,  bank loan,
     or loan and security  agreement,  trust  indenture,  or other instrument to
     which  Borrower is a party or by which it may be bound or affected;  nor do
     any such instruments impose or contemplate any obligations which are or may
     be inconsistent  with any other  obligations  imposed on Borrower under any
     other instrument(s) heretofore or hereafter delivered by Borrower.

          (f)  There  are  no  actions,  investigations,  suits  or  proceedings
     (including, without limitation, any condemnation or bankruptcy proceedings)
     that are  pending  or  threatened  against  or  affecting  Borrower  or the
     Mortgaged Property and that, if determined adversely to Borrower would have
     a material adverse effect on the Mortgaged  Property or Borrower's  ability
     to repay the Obligations,  or which may materially and adversely affect the
     validity or  enforceability  of this  Instrument,  at law or in equity,  or
     before or by any  governmental  authority;  Borrower is not in default with
     respect  to any  writ,  injunction,  decree  or  demand of any court or any
     governmental authority affecting the Mortgaged Property.

          (g) To the best of Borrower's  knowledge,  the Real Property presently
     complies in all materials respects with, and will continue to comply in all
     material respects with, all applicable restrictive covenants and applicable
     zoning ordinances and building codes.

       (h)(i)     To the best of Borrower's knowledge, the operations at the
                  Real Property and the Real Property itself presently comply in
                  all material respects with, and will continue to comply in all
                  material respects with, all applicable  environmental,  health
                  and  safety  statutes,   regulations  and  other  governmental
                  requirements;

         (ii)     Borrower has obtained and will  maintain,  or has required its
                  Operator  (as  defined  in the  Loan  Agreement)  at the  Real
                  Property to obtain and maintain, all environmental, health and
                  safety  permits  necessary  for  the  operations  of the  Real
                  Property;  to the Borrower's best knowledge,  all such permits
                  are in good  standing  and  Borrower  is and  will  remain  in
                  compliance  in  all  material  respects  with  all  terms  and
                  conditions of such permits;

         (iii)    neither Borrower nor, to the best of Borrower's knowledge, any
                  of the Real  Property or its present  operations is subject to
                  any order from or agreement with any governmental authority or
                  private party respecting the release or threatened  release of
                  a contaminant or pollutant into the environment;

         (iv)     with respect to the Real Property or the  operations  thereof,
                  to the best of Borrower's knowledge,  there are no judicial or
                  administrative proceedings pending alleging a violation of any
                  environmental  health or safety  statute,  regulation or other
                  governmental requirement;

         (v)      to the best of  Borrower's  knowledge,  none of the present or
                  past  operations  of the Real  Property  is the subject of any
                  investigation by any governmental authority evaluating whether
                  any  remedial  action  is needed to  respond  to a release  or
                  threatened  release of a  contaminant  or  pollutant  into the
                  environment;

         (vi)     Borrower   has  not  filed  any  notice   under  any  statute,
                  regulation,  or other governmental requirement indicating past
                  or present  treatment,  storage  or  disposal  of a  hazardous
                  waste,  as that term is  defined  under 40 CFR Part 261 or any
                  State equivalent;

         (vii)    Borrower  has  not  filed  any  notice  under  any  applicable
                  statute,   regulation   or  other   governmental   requirement
                  reporting a release of a  contaminant  or  pollutant  into the
                  environment;

         (viii)   there is not now, nor to the best of Borrower's  knowledge has
                  there  ever  been,   on  or  in  the  Real  Property  (A)  any
                  generation,  treatment,  recycling, storage or disposal of any
                  material  quantities  of  hazardous  waste,  as  that  term is
                  defined under 40 CFR Part 261 or any state equivalent,  except
                  in compliance  with  applicable  laws (B) any  polychlorinated
                  biphenyls used in hydraulic oils, or other  equipment,  or (C)
                  any friable asbestos containing material;

         (ix)     to  the  best  of its  knowledge,  Borrower  has  no  material
                  contingent   liability  in  connection  with  any  release  or
                  threatened  release of any contaminants  into the environment;
                  and

         (x)      to the best of Borrower's knowledge, none of the Real Property
                  is or  will  become  subject  to  any  lien  in  favor  of any
                  governmental  entity for (A) liability  under federal or state
                  environmental laws or regulations, or (B) damages arising from
                  or costs incurred by such governmental entity in response to a
                  release or threatened  release of a  contaminant  or pollutant
                  into the environment.

          (i) To the best of Borrower's knowledge,  Borrower and/or its Operator
     owns, is licensed, or otherwise has the right to use or is in possession of
     all licenses, permits and government approvals or authorizations,  patents,
     trademarks,   service   marks,   trade   names,   copyrights,   franchises,
     authorizations  and other rights that are necessary  for its  operations on
     the Real  Property,  without  conflict  with the rights of any other person
     with respect thereto.

          (j) All Leases  currently in effect relating to the Real Property have
     been disclosed to Agent.

          (k) The  Mortgaged  Property  is  currently  in  service  and is being
     utilized for the purposes intended.

<PAGE>

3.  APPLICATION  OF PAYMENTS.  Unless  applicable  law provides  otherwise,  all
payments  received  by Agent from  Borrower  under the Notes or this  Instrument
shall be applied by Agent as set forth in the Loan Agreement.

4. TAXES AND IMPOSITIONS. (a) Borrower agrees to pay or cause to be paid, before
any  penalty or interest  attaches,  all  general  taxes and all special  taxes,
special assessments, water, drainage and sewer charges and all other charges, of
any kind whatsoever, ordinary or extraordinary, which may be levied, assessed or
imposed on or against the Mortgaged  Property  (all of which taxes,  assessments
and charges are hereinafter referred to as "Impositions") and, at the request of
Agent, to exhibit to Agent official receipts evidencing such payments; provided,
however,  that in the case of any special assessment (or other imposition in the
nature  of a special  assessment)  payable  in  installments,  each  installment
thereof shall be paid prior to the date on which each such  installment  becomes
due and payable.  Borrower  agrees to exhibit to Agent, at least annually and at
any time upon request,  official  receipts  showing  payment of all  Impositions
which Borrower is required or elects to pay or cause to be paid hereunder.

          (b) If Borrower fails to pay or cause to be paid such Impositions when
     due and such failure  continues  beyond any applicable grace or cure period
     set forth herein or in the Loan  Agreement,  Agent shall have the option to
     pay and  discharge  the same  without  notice  to  Borrower  and any sum so
     expended by Agent shall at once become  indebtedness owing from Borrower to
     Agent,  shall be  immediately  due and  payable by Borrower  with  interest
     thereon to the extent  legally  enforceable  at the  Post-Default  Rate (as
     defined  in  the  Loan  Agreement)  and  shall  together  be  added  to the
     Obligations secured hereunder.

          (c) In the event that any court of last resort  enters a decision that
     the  undertaking  by the Borrower  provided for in this  Paragraph 4 to pay
     Impositions  in connection  with the Mortgaged  Property,  or the manner of
     collection of any such taxes, is legally inoperative or cannot be enforced,
     so as to affect adversely the Agent, Agent shall have the right to exercise
     any remedies it would have upon the  occurrence  of an Event of Default (as
     hereinafter  defined) under this  Instrument  with respect to the Mortgaged
     Property,  and shall be  entitled to apply any  amounts  realized  from the
     exercise of such  remedies to the  Obligations,  regardless of whether such
     Obligations are then due and payable,  in such manner as Agent, in its sole
     discretion,  shall determine;  provided,  however, that Borrower,  upon the
     prior  written  consent  of Agent,  shall have the right to contest in good
     faith any such tax, assessment or charge.

5. CHANGES IN TAXATION.  Borrower agrees that, if the United States or any State
or any of their subdivisions  having  jurisdiction shall levy, assess, or charge
any tax,  assessment  or  imposition  upon  this  Instrument  or the  credit  or
indebtedness  secured hereby or the interest of Agent in the Mortgaged  Property
or upon Agent by reason of or as holder of any of the foregoing, or in the event
that any law is enacted  changing in any way the laws now in force with  respect
to the  taxation of  mortgages or debts  secured  thereby for any purpose,  then
Borrower  shall  pay  (or  reimburse  Agent  for)  such  taxes,  assessments  or
impositions and, unless all such taxes,  assessments and impositions are paid or
reimbursed by Borrower when and as they become due and payable,  all sums hereby
secured  shall  become  immediately  due and  payable,  at the  option of Agent,
notwithstanding  anything contained herein or in any law heretofore or hereafter
enacted.
<PAGE>

6.  INSURANCE.  (a)  Borrower  shall  maintain,  or shall cause its  Operator to
maintain, in full force and effect,  during the term of this Instrument,  at the
expense of  Borrower or the  Operator,  the  property  and  liability  insurance
required under the Leases.  If Borrower fails to provide or cause to be provided
the aforesaid insurance,  and such failure continues beyond any applicable grace
or cure period set forth herein or in the Loan  Agreement,  Agent shall have the
option to procure and maintain such insurance  without  notice to Borrower.  Any
sum so expended by Agent shall at once become  indebtedness  owing from Borrower
to Agent and shall immediately  become due and payable by Borrower with interest
thereon to the extent  legally  enforceable at the  Post-Default  Rate and shall
together be added to the Obligations secured hereby.

          (b)  Borrower  shall  notify  Agent,  in  writing,  of any loss to the
     Mortgaged Property  ("Property  Damage"),  and Borrower shall, if necessary
     under Section 3.5 of the Loan  Agreement,  substitute new property to serve
     as of Real  Property  Collateral  (as  defined  and set  forth  in the Loan
     Agreement).

7. FUNDS FOR IMPOSITIONS. (a) Agent, upon the occurrence of an Event of Default,
shall have the right to require  that  Borrower  pay to Agent on the day monthly
installments  are  payable  under the Notes (or on  another  day  designated  in
writing  by  Agent),  until  all  Obligations  are paid in full,  a sum  (herein
"Funds") equal to one-twelfth  (1/12) of the annual  Impositions,  as reasonably
estimated  initially and from time to time by Agent on the basis of  assessments
and bills and reasonable  estimates thereof. At Agent's option,  Agent from time
to time may waive,  and, after any such waiver,  may reinstate the provisions of
this Paragraph requiring the monthly payments prescribed herein.

          (b) Agent  shall  apply the Funds to pay said  Impositions  so long as
     Borrower is not in breach of any  covenant or agreement of Borrower in this
     Instrument.  Agent  shall make no charge for so holding  and  applying  the
     Funds,   analyzing  said  account  or  for  verifying  and  compiling  said
     assessments  and bills.  Agent shall not be required  to pay  Borrower  any
     interest,  earnings  or  profits  on the Funds and shall  have the right to
     commingle the Funds with the general funds of Agent.

          (c) If the amount of the Funds held by Agent  shall  exceed the amount
     deemed necessary by Agent to provide for the payment of such Impositions as
     they fall due,  such  excess  shall be  credited  to  Borrower  on the next
     monthly installment or installments of Funds due. If at any time the amount
     of the Funds held by Agent shall be less than the amount  deemed  necessary
     by Agent to pay  Impositions as they fall due,  Borrower shall pay to Agent
     an amount necessary to make up the deficiency within thirty (30) days after
     notice from Agent to Borrower  requesting payment thereof.  Upon Borrower's
     breach of any covenant or agreement of Borrower in this  Instrument,  Agent
     may,  at its  option,  apply  any  Funds  held  by  Agent  at the  time  of
     application  (i) to pay  Impositions,  or (ii)  as a  credit  against  sums
     secured by this Instrument.
<PAGE>

8.  CONDEMNATION.  Borrower  shall  immediately  notify  Agent of any  action or
proceeding  relating to any  condemnation  or other  taking,  whether  direct or
indirect, of the Mortgaged Property, or any part thereof, and Borrower shall, if
necessary  under Section 3.5 of the Loan  Agreement,  substitute new property to
serve as of Real  Property  Collateral  (as  defined  and set  forth in the Loan
Agreement).

9. PRESERVATION AND MAINTENANCE OF MORTGAGED PROPERTY.  Borrower:  (a) shall not
commit waste or permit impairment or deterioration of the Mortgaged Property and
shall not abandon the  Mortgaged  Property;  (b) shall  reconstruct,  restore or
repair, or shall cause the Operator to reconstruct,  restore or repair, promptly
and in a good and workmanlike  manner all or any part of the Mortgaged  Property
to the equivalent of its original  condition,  or such other  condition as Agent
may approve in writing (such approval not to be unreasonably  withheld),  in the
event of any damage,  injury or loss thereto,  whether or not insurance proceeds
or  condemnation  awards or damages are available or adequate to cover, in whole
or in part, the costs of such  reconstruction,  restoration or repair; (c) shall
keep, or shall cause the Operator to keep, the Mortgaged Property in good order,
condition  and repair  and shall  replace,  or cause the  Operator  to  replace,
fixtures,  equipment,  machinery and  appliances on the Mortgaged  Property when
necessary to keep such items in good repair,  and will make or cause to be made,
as and when the same shall become necessary,  all structural and  nonstructural,
interior and  exterior,  ordinary  and  extraordinary,  foreseen and  unforeseen
repairs,  replacements and renewals  necessary to that end; (d) shall comply, or
shall cause the Operator to comply,  in all material  respects  with all zoning,
building,  health and environmental  laws,  ordinances and regulations,  and all
other laws,  regulations  and  requirements of any  governmental  body or agency
(whether federal,  state or local) having  jurisdiction  over the Borrower,  the
Mortgaged  Property,  or the  use  and  occupancy  thereof  by  Borrower  or the
Operator;  (e) shall  comply,  or shall  cause the  Operator  to comply,  in all
material respects with all covenants,  restrictions and agreements affecting the
Mortgaged  Property;  and (f) shall generally operate and maintain the Mortgaged
Property in a manner to insure maximum  income.  Neither  Borrower nor any other
person shall remove, demolish or alter any improvement now existing or hereafter
erected on the Mortgaged Property without the prior written consent of Agent.

10. USE OF MORTGAGED  PROPERTY.  Unless  required by applicable  law,  permitted
pursuant to the Leases or unless Agent has otherwise agreed in writing, Borrower
shall not allow  changes  in the use for which all or any part of the  Mortgaged
Property was intended at the time this  Instrument was executed.  Borrower shall
not  initiate,  approve,  participate  in  or  acquiesce  to  any  change  in or
modification  to the zoning in effect for the Mortgaged  Property or any portion
thereof unless Agent shall consent to such action.

11.  RESTRICTIONS ON LEASES.  (a) Borrower shall not enter into any lease of the
Mortgaged  Property  without the prior written consent of the Agent.  All leases
now or hereafter  permitted  to be entered into by Borrower  will be in form and
substance  subject to the approval of Agent.  Borrower  has provided  Agent with
true and accurate  copies of all Leases  currently in effect  regarding the Real
Property,  and Agent hereby  consents to the same. (b) All permitted  leases and
subleases  of  the  Mortgaged  Property  to  which  Borrower  is a  party  shall
specifically  provide  that (i) that the tenant  thereof  shall attorn to Agent,

<PAGE>

such attornment to be effective upon Agent's acquisition of title to Guarantor's
interest in the  Mortgaged  Property and (ii) that the  attornment of the tenant
shall not, in any event, be terminated by foreclosure.  (c) If Borrower  becomes
aware that any tenant under a permitted  Lease proposes to do, or is doing,  any
act or thing which may give rise to any right of set-off against Rent,  Borrower
shall (i) take such  steps as shall be  reasonably  calculated  to  prevent  the
accrual of any right to a set-off against Rent, (ii) notify Agent thereof and of
the amount of such  set-off,  and (iii) within ten (10) days after such accrual,
reimburse  the tenant who shall have acquired such right to set-off or take such
other steps as shall effectively discharge such set-off and as shall assure that
Rent  thereafter due shall continue to be payable  without set-off or deduction.
(d) If any Lease provides for a security deposit paid by the lessee to Borrower,
this Instrument  transfers to Agent all of Borrower's right,  title and interest
in and to the security  deposit;  provided that Borrower shall have the right to
retain said security  deposit so long as no Event of Default has occurred  under
this  Instrument or under the Loan  Agreement or the other Loan  Documents;  and
provided  further that Agent shall have no obligation to the lessee with respect
to such security deposit unless and until Agent comes into actual possession and
control of said deposit. (e) In the event that Borrower terminates any Lease, or
modifies or amends any Lease or any of the terms  thereof,  Borrower  shall,  if
necessary  under Section 3.5 of the Loan  Agreement,  substitute new property to
serve as of Real  Property  Collateral  (as  defined  and set  forth in the Loan
Agreement).  Borrower  shall provide Agent with true and accurate  copies of any
documents terminating, modifying or amending any Leases permitted hereunder. (f)
Borrower  shall not  collect  any Rents more than thirty (30) days in advance of
the date on which they become due.  (g)  Borrower  shall not discount any future
accruing  Rents  nor  grant any  concession  in the form of a  waiver,  release,
reduction,  discount  or other  alteration  of Rents due or to become  due.  (h)
Without the prior written  consent of Agent,  Borrower  shall not consent to any
assignment of any lessee's  interest in a Lease,  or any subletting  thereunder.
(i) Borrower  shall not execute any further  assignment  of any of the Leases or
Rents or any interest  therein or suffer or permit any such  assignment to occur
by operation of law. (j) Borrower  shall  faithfully  perform and  discharge all
obligations of the lessor under any Lease,  and shall give prompt written notice
to Agent of any notice of  Borrower's  default  received  from any lessee or any
other person and furnish  Agent with a complete  copy of said  notice.  Borrower
shall  appear in and  defend,  at no cost to  Agent,  any  action or  proceeding
arising under or in any manner connected with any Lease. If reasonably requested
by Agent,  Borrower  shall  enforce  each Lease and all  remedies  available  to
Borrower  against the lessee in the case of an Event of Default  under any Lease
by the  lessee.  (k)  Borrower  shall use its best  efforts to deliver to Agent,
promptly  within  thirty  (30)  days  after  request,   duly  executed  estoppel
certificates from any one or more lessees as required by Agent attesting to such
facts  regarding the Leases as Agent may reasonably  require,  including but not
limited  to  attestations  that each Lease  covered  hereby is in full force and
effect,  that the lessee is in occupancy and paying rent on a current basis with
no rental offsets or claims,  that no rental has been paid more than thirty (30)
days in advance other than as provided for in the Leases,  and that there are no
actions,  whether  voluntary or otherwise,  pending against the lessee under the
bankruptcy laws of the United States or any state thereof.
<PAGE>

12. TRANSFERS OF INTEREST IN MORTGAGED PROPERTY. Except as otherwise provided in
the Loan  Agreement,  Borrower  shall not  make,  create or suffer to be made or
created any sale, transfer, conveyance, assignment or further encumbrance of the
Mortgaged Property, or any part thereof, or any interest therein without Agent's
prior written consent, which consent shall not be unreasonably withheld. A sale,
transfer,  conveyance or assignment  means the conveyance by the Borrower of any
legal or equitable  right,  title or interest in the  Mortgaged  Property or any
part thereof,  whether such conveyance is voluntary or involuntary,  by outright
sale,  deed,  installment  sale  contract,  land contract,  lease,  lease option
contract,  pledge  or any other  method of  transferring  any  interest  in real
property.  Any  encumbrance  means a lien,  mortgage  or any  other  encumbrance
subordinate  or superior to Agent's  mortgage  excepting,  however,  those Liens
permitted  pursuant to Section 8.1 of the Loan  Agreement.  Borrower  shall pay,
when due,  the  claims of all  persons  supplying  labor or  materials  to or in
connection with the Mortgaged  Property.  Borrower  hereby  covenants and agrees
that  Agent  shall be  subrogated  to the  lien of any  mortgage  or other  lien
discharged, in whole or in part, by the indebtedness secured hereby.

13. INSPECTION.  Agent, or any person designated by Agent in writing, shall have
the right, from time to time hereafter, to call at the Premises (or at any other
place where  information  relating thereto is kept or located) during reasonable
business hours and, with reasonable  advance notice, to make such inspection and
verification of the Premises, and the affairs, finances and business of Borrower
in connection  with the  Premises,  as Agent may consider  reasonable  under the
circumstances,  and to  discuss  the same  with any  officers  or  directors  of
Borrower.

14. SECURITY  AGREEMENT.  This Instrument shall constitute a Security  Agreement
within the meaning of the UCC (as defined in the Loan Agreement) with respect to
so much of the equipment  and/or  furnishings  attached to or used in connection
with the premises as are  considered  or as shall be  determined  to be personal
property or "fixtures" (as defined in the UCC),  together with all  replacements
thereof,  substitutions  therefor or additions  thereto (all included within the
term "Fixtures",  as set forth hereinabove),  and that a security interest shall
attach thereto for the benefit of the Agent to secure the indebtedness evidenced
by the Notes or other obligations  secured by this Instrument and all other sums
and charges which may become due hereunder or  thereunder.  The Borrower  hereby
appoints the Agent as its lawful agent and attorney-in-fact to prepare,  execute
and file  financing  and  continuation  statements  with respect to the Fixtures
without the signature of the Borrower. If there shall exist a default under this
Instrument,  the Agent, pursuant to the appropriate provisions of the UCC, shall
have  the  option  of  proceeding  as to both  real  and  personal  property  in
accordance  with its rights and  remedies  in respect to the real  property,  in
which event the default provisions of the UCC shall not apply. The parties agree
that, in the event the Agent shall elect to proceed with respect to the Fixtures
separately  from the  real  property,  unless a  greater  period  shall  then be
mandated by the UCC, ten (10) days notice of the sale of the  Fixtures  shall be
reasonable  notice.  The  expenses of  retaking,  holding,  preparing  for sale,
selling  and the like  incurred  by the  Agent  shall be  assessed  against  the
Borrower and shall include, but not be limited to, any legal expenses reasonably
incurred by the Agent.  The Borrower agrees that it will not remove or permit to
be removed  from the  Premises  any of the  Fixtures  without the prior  written
consent of the Agent except as hereinabove provided. All replacements,  renewals
and  additions to the Fixtures  shall be and become  immediately  subject to the
security  interest  of this  Instrument  and  the  provisions  of this  Security
Agreement.  The Borrower  warrants and represents that,  except for the Liens in
Section  8.1 of  the  Loan  Agreement,  all  Fixtures  now  are,  and  that  all
replacements thereof,  substitutions  therefor or additions thereto,  unless the
Agent  otherwise  consents,  will be, free and clear of liens,  encumbrances  or
security interests of others created after the date hereof.
<PAGE>

15.  BOOKS  AND  RECORDS.  Borrower  shall  keep and  maintain  at all  times at
Borrower's  address stated  herein,  or such other place as Agent may approve in
writing, complete and accurate books of accounts and records adequate to reflect
correctly the results of the  operation of the Mortgaged  Property and copies of
all written  contracts,  leases and other instruments which affect the Mortgaged
Property. Such books, records,  contracts, leases and other instruments shall be
subject to examination and inspection at any reasonable time by Agent.  Borrower
shall  furnish,  upon  request  by  Agent,  a rent  schedule  for the  Mortgaged
Property,  certified by Borrower,  in form and content  acceptable to Agent. The
provisions  of this  Paragraph  15  shall  be in  addition  to any  requirements
contained in the Loan Agreement.

16.  HAZARDOUS  SUBSTANCES.  (a) Borrower hereby covenants and agrees with Agent
that the following terms shall have the following meanings:

                  (1)  "Environmental  Laws" mean all  federal,  state and local
laws,  statutes,  ordinances and codes relating to the use, storage,  treatment,
generation, transportation,  processing, handling, production or disposal of any
Hazardous   Substance  and  the  rules,   regulations,   policies,   guidelines,
interpretations, decisions, orders and directives with respect thereto.

                  (2)  "Hazardous  Substance"  means,  without  limitation,  any
flammable explosives,  radioactive materials,  asbestos,  urea formaldehyde foam
insulation,  polychlorinated biphenyls,  petroleum and petroleum based products,
methane, hazardous materials, hazardous wastes, hazardous or toxic substances or
related  materials,  as defined  in the  comprehensive  Environmental  Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C.  Sections 9601, et
seq.),  the  Hazardous  Materials  Transportation  Act,  as  amended  (49 U.S.C.
Sections 1801, et seq.), the Resource  Conservation and Recovery Act, as amended
(42 U.S.C. Sections 6901, et seq.), the Toxic Substances Control Act, as amended
(15 U.S.C. Sections 2601, et seq.), or any other applicable Environmental Laws.

                  (3)  "Indemnitee"  means Agent,  its  participants in the loan
evidenced  by the Notes and all  subsequent  holders of this  Instrument,  their
respective  successors  and  assigns,  their  respective  officers,   directors,
employees,  agents,  representatives,  contractors  and  subcontractors  and any
subsequent  owner of the Mortgaged  Property who acquires  title thereto from or
through Agent.

                  (4)  "Release"  has the same  meaning as given to that term in
the  Comprehensive  Environmental  Response,  Compensation  and Liability Act of
1980,  as  amended  (42  U.S.C.  Section  9601,  et seq.),  and the  regulations
promulgated thereunder.

               (b)  Borrower  represents  and  warrants  to Agent  that,  to its
          knowledge after due investigation:
<PAGE>

                  (1) that Mortgaged Property is not being and has not been used
for the storage, treatment,  generation,  transportation,  processing, handling,
production  or  disposal  of  any  Hazardous   Substance  in  violation  of  any
Environmental Laws;

                  (2) the  Mortgaged  Property  does not contain  any  Hazardous
Substance in violation of any Environmental Laws;

                  (3) there has been no Release of any  Hazardous  Substance on,
at or from the  Mortgaged  Property  or any  Mortgaged  Property  adjacent to or
within the  immediate  vicinity of the  Mortgaged  Property and Borrower has not
received  any form of notice or  inquiry  with  regard to such a Release  or the
threat of such a Release;

                  (4) no  event  has  occurred  with  respect  to the  Mortgaged
Property which, with the passage of time or the giving of notice, or both, would
constitute a violation of any applicable Environmental Laws;

                  (5) there are no  agreements  or orders or  directives  of any
federal,  state  or local  governmental  agency  or  authority  relating  to the
Mortgaged  Property which require any work, repair,  construction,  containment,
clean up, investigations, studies, removal or other remedial action with respect
to the Mortgaged Property; and

                  (6)  there  are no  actions,  suits,  claims  or  proceedings,
pending or  threatened,  which seek any remedy that arise out of the  condition,
ownership,  use,  operation,  sale,  transfer  or  conveyance  of the  Mortgaged
Property   and  (i)  a  violation  or  alleged   violation  of  any   applicable
Environmental  Laws, (ii) the presence of any Hazardous  Substance or Release of
any Hazardous Substance or the threat of such a Release, or (iii) human exposure
to any Hazardous Substance.

               (c) Borrower covenants and agrees with Agent as follows:

                  (1)  Borrower  shall  keep,  and shall  cause  all  operators,
tenants, sub-tenants, licensees and occupants of the Mortgaged Property to keep,
the Mortgaged  Property free of all Hazardous  Substances,  except for Hazardous
Substances stored, treated, generated, transported, processed, handled, produced
or disposed of in the normal  operation of the Mortgaged  Property in accordance
with all Environmental Laws.

                  (2) Borrower shall comply with, and shall cause all Operators,
tenants,  sub-tenants,  licensees  and  occupants of the  Mortgaged  Property to
comply with, all Environmental Laws.

                  (3) Borrower shall  promptly  provide Agent with a copy of all
notifications  which  Borrower  gives or  receives  with  respect to any past or
present  Release of any Hazardous  Substance or the threat of such a Release on,
at or from the  Mortgaged  Property  or any  Mortgaged  Property  adjacent to or
within the immediate vicinity of the Mortgaged Property.
<PAGE>

                  (4) Borrower shall undertake and complete all  investigations,
studies, sampling and testing for Hazardous Substances required by Agent and, in
accordance with all  Environmental  Laws, all removal and other remedial actions
necessary  to contain,  remove and clean up all  Hazardous  Substances  that are
determined  to be  present  at  the  Mortgaged  Property  in  violation  of  any
Environmental Laws.

                  (5) Agent  shall have the right,  but not the  obligation,  to
cure any  violation by Borrower of the  Environmental  Laws and Agent's cost and
expense to so cure shall be secured by this Instrument.

               (d) (1)  Borrower  covenants  and  agrees,  at its sole  cost and
          expense,  to indemnify,  defend and save harmless  Indemnitee from and
          against  any  and  all  damages,  losses,  liabilities,   obligations,
          penalties,  claims, litigation,  demands, defenses,  judgments, suits,
          actions, proceedings, costs, disbursements and/or expenses (including,
          without  limitation,  reasonable  attorneys'  and  experts'  fees  and
          expenses)  of any kind or nature  whatsoever  which may at any time be
          imposed upon,  incurred by or asserted or awarded  against  Indemnitee
          arising  out  of  the  condition,  ownership,  use,  operation,  sale,
          transfer or conveyance of the Mortgaged  Property and (i) the storage,
          treatment,   generation,    transportation,    processing,   handling,
          production or disposal of any Hazardous  Substance,  (ii) the presence
          of any Hazardous  Substance or a Release of any Hazardous Substance or
          the threat of such a Release,  (iii) human  exposure to any  Hazardous
          Substance,  (iv) a  violation  of  any  Environmental  Laws,  or (v) a
          material  misrepresentation  or  inaccuracy in any  representation  or
          warranty or material breach of or failure to perform any covenant made
          by Borrower herein (collectively, the "Indemnified Matters").

                  (2) The liability of Borrower to Indemnitee hereunder shall in
no way be limited, abridged, impaired or otherwise affected by (i) the repayment
of all sums and the satisfaction of all obligations of Borrower under the Notes,
this Instrument or other Loan Documents, (ii) the foreclosure of this Instrument
or the acceptance of a deed in lieu thereof, (iii) any amendment or modification
of the Notes,  this  Instrument or other Loan Documents by or for the benefit of
Borrower or any subsequent owner of the Mortgaged Property,  (iv) any extensions
of time for payment or  performance  required by the Notes,  this  Instrument or
other Loan  Documents,  (v) the release or  discharge of this  Instrument  or of
Borrower,  any guarantor of the loan  evidenced by the Notes or any other person
from the performance or observance of any of the agreements, covenants, terms or
conditions  contained  in the Notes,  this  Instrument  or other Loan  Documents
whether by Agent,  by  operation of law or  otherwise,  (vi) the  invalidity  or
unenforceability of any of the terms or provisions of the Notes, this Instrument
or other Loan Documents, (vii) any exculpatory provision contained in the Notes,
this  Instrument or other Loan  Documents  limiting  Agent recourse to Mortgaged
Property  encumbered  by this  Instrument  or to any other  security or limiting
Agent rights to a deficiency  judgment against  Borrower,  (viii) any applicable
statute  of  limitations,  (ix)  the  sale or  assignment  of the  Notes or this
Instrument, (x) the sale, transfer or conveyance of all or part of the Mortgaged
Property,  (xi) the  dissolution or liquidation of Borrower,  (xii) the death or

<PAGE>

legal  incapacity of Borrower,  (xiii) the release or discharge,  in whole or in
part, of Borrower in any bankruptcy,  insolvency,  reorganization,  arrangement,
readjustment, composition, liquidation or similar proceeding, or (xiv) any other
circumstances  which might otherwise  constitute a legal or equitable release or
discharge, in whole or in part, of Borrower under the Notes or this Instrument.

                  (3) The  foregoing  indemnity  shall be in addition to any and
all other  obligations and liabilities  Borrower may have to Agent at common law
and under the Loan Agreement.  In the event of a conflict between the provisions
of this Paragraph 16 and the Loan  Agreement,  the provisions of either the Loan
Agreement or this Paragraph 16 shall control, at Agent's option.

               (e) Agent shall have the right to perform or to require  Borrower
          to  perform  an  environmental  audit  and/or  an  environmental  risk
          assessment  of the Real Property  waste  management  practices  and/or
          waste   disposal   sites  used  by   Borrower,   provided   that  such
          environmental  audits and/or  environmental  risk  assessments are not
          required more  frequently  than once annually and Agent has reasonable
          cause  to  believe  that  the  Real  Property  is  contaminated.   The
          environmental  audit shall: (1) investigate any environmental  hazards
          or conditions  for which Borrower may be liable with regard to (i) the
          Real Property, (ii) waste management practices and/or (iii) waste site
          disposal  sites used by  Borrower;  and,  (2)  determine  whether  the
          Borrower's  operations  on the Real  Property  comply in all  respects
          deemed material by Agent with all applicable environmental, health and
          safety  statutes and  regulations.  Said audit and/or risk  assessment
          must be by an  environmental  consultant  satisfactory  to  Agent  and
          Borrower, and the audit and/or risk assessment must be satisfactory to
          Agent and  Borrower.  All costs and expenses  incurred by Agent in the
          performance of any environmental audit and/or risk assessment shall be
          secured  by this  Instrument  and shall be payable  by  Borrower  upon
          demand or charged to  Borrowers'  loan  balance at the  discretion  of
          Agent.

               (f) To the extent that the  provisions  of this Section 16, other
          than the  indemnification  provisions of Subsection (d), would require
          Borrower to take any action with respect to the Mortgaged Property, in
          lieu of taking  such  action,  Borrower  may elect to  substitute  the
          Mortgaged Property pursuant to Section 3.5 of the Loan Agreement.

17. REMEDIES.

               (a)  If  any  Event  of  Default   shall  have  occurred  and  be
          continuing,  then to the extent  permitted by  applicable  law, and in
          addition to any rights or remedies provided in the Loan Agreement, the
          following provisions shall apply:

                    (i) All Obligations  shall,  at the option of Agent,  become
               immediately  due  and  payable  without  presentment,  demand  or
               further notice.

                    (ii) It shall be lawful for Agent to: (i)  immediately  sell
               the Mortgaged Property either in whole or in separate parcels, as
               prescribed  by State law,  under  power of sale,  which  power is
               hereby  granted to Agent to the full  extent  permitted  by State
               law,  and  thereupon,  to make and  execute  to any  purchaser(s)
               thereof deeds of conveyance  pursuant to applicable law; or, (ii)
               immediately  foreclose this Instrument by legal proceedings.  The
               court in which any  proceeding  is  pending  for the  purpose  of
               foreclosure  of this  Instrument  may,  at  once  or at any  time

<PAGE>

               thereafter,  either  before or after  sale,  without  notice  and
               without  requiring  bond,  and without  regard to the solvency or
               insolvency  of any person  liable for payment of the  Obligations
               secured  hereby,  and  without  regard  to the then  value of the
               Mortgaged  Property  or the  occupancy  thereof  as a  homestead,
               appoint a  receiver  (the  provisions  for the  appointment  of a
               receiver and assignment of rents being an express  condition upon
               which  the loan  evidenced  by the Loan  Agreement  and the other
               financial  accommodations  to the Loan  Agreement  and the  other
               financial  accommodations  to  Borrower  have been  made) for the
               benefit of Agent,  with power to  collect  the Rents,  due and to
               become due, during such  foreclosure  suit and the full statutory
               period of  redemption.  The  receiver,  out of such  Rents,  when
               collected, may pay costs incurred in the management and operation
               of the Real  Property,  prior and coordinate  liens,  if any, and
               taxes, assessments, water and other utilities and insurance, then
               due or  thereafter  accruing,  and  may  make  and  pay  for  any
               necessary repairs to the Real Property or the Personal  Property,
               and may, to the extent  permitted  by law, pay all or any part of
               the  Obligations  then due and  payable,  or other  sums  secured
               hereby  or any  deficiency  decree  entered  in such  foreclosure
               proceedings.

                    (iii) It is  agreed  that the  then  owner of the  Mortgaged
               Property, if said owner is the occupant of the Mortgaged Property
               or any part thereof,  shall immediately  surrender  possession of
               the  Mortgaged  Property so  occupied  to the Agent,  and if such
               occupant is permitted  to remain in  possession,  the  possession
               shall be as  tenant  of the Agent  and such  occupant  shall,  on
               demand,  pay monthly in advance to the Agent a reasonable  rental
               for the space so occupied and in default  thereof,  such occupant
               may be dispossessed by the usual summary proceedings.  In case of
               foreclosure  and the  appointment  of a  receiver  of Rents,  the
               covenants herein contained may be enforced by such receiver.

                    (iv) Agent  shall,  at its  option,  have the right,  acting
               through its agents or attorneys,  either with or without  process
               of law, forcibly or otherwise,  to enter upon and take possession
               of the Mortgaged Property,  expel and remove any persons,  goods,
               or chattels occupying or upon the same, to collect or receive all
               the rents,  issues and profits  thereof and to manage and control
               the same, and to sublease the same or any part thereof, from time
               to  time,   and,  after   deducting  all  actual  and  reasonable
               attorneys' and  paralegals'  fees and expenses,  and all expenses
               incurred in the  protection,  care,  maintenance,  management and
               operation of the  Mortgaged  Property,  apply the  remaining  net
               income upon the  Obligations or other sums secured hereby or upon
               any deficiency  decree entered in any foreclosure  proceedings as
               set forth in the Loan Agreement.

          (b) In any  foreclosure of this  Instrument by action,  or any sale of
     the Mortgaged  Property under power of sale granted herein,  there shall be
     allowed (and  included in the decree for sale in the event of a foreclosure
     by action), to be paid out of the rents or the proceeds of such foreclosure
     proceeding or sale:

               (i) all of the  Obligations  and other sums secured  hereby which
          then remain unpaid;
<PAGE>

               (ii) all other items  advanced or paid by Agent  pursuant to this
          Instrument, with interest thereon to the extent legally enforceable at
          the Post-Default Rate (as defined in the Loan Agreement) from the date
          of advancement; and

               (iii)  all  court  costs,  attorneys'  and  paralegals'  fees and
          expenses,   appraiser's  fees,  advertising  costs,  notice  expenses,
          expenditures  for  documentary  and  expert  evidence,  stenographer's
          charges,  publication  costs,  and costs (which may be estimated as to
          items to be  expended  after  entry of the  decree) of  procuring  all
          abstracts of title, title searches and examinations, title guarantees,
          title insurance policies,  Torrens  certificates and similar data with
          respect to title which  Agent may deem  necessary.  All such  expenses
          shall become additional Obligations secured hereby and immediately due
          and payable,  with interest thereon to the extent legally  enforceable
          at the Post-Default Rate, when paid or incurred by Agent in connection
          with  any  proceedings,  including  but not  limited  to  probate  and
          bankruptcy  proceedings,  to which Agent  shall be a party,  either as
          plaintiff,  claimant or defendant, by reason of this Instrument or any
          indebtedness hereby secured or in connection with the preparations for
          the  commencement  of any suit  for the  foreclosure,  whether  or not
          actually  commenced,  or sale under power of sale. The proceeds of any
          sale (whether through a foreclosure  proceeding or Agent's exercise of
          the  power of sale)  shall be  distributed  and  applied  to the items
          described in (i), (ii), and (iii) of this Paragraph 17(b), as provided
          in the Loan  Agreement,  and any surplus of the  proceeds of such sale
          shall be paid to Borrower or such other  parties as may be entitled to
          receive the same.

18. SALE OF PARCELS.  To the extent permitted by law, if more than one property,
lot or  parcel  is  covered  by  this  Instrument,  and if  this  Instrument  is
foreclosed  upon,  or  judgment  is entered  upon any  Obligations,  or if Agent
exercises  its power of sale,  execution  may be made upon or Agent may exercise
its power of sale against any one or more of the properties, lots or parcels and
not upon the others, or upon all of such properties or parcels,  either together
or separately,  and at different  times or at the same time, and execution sales
or sales by advertisement may likewise be conducted  separately or concurrently,
in each case at Agent's election.

19. WAIVER OF REDEMPTION RIGHTS. Borrower represents that it has been authorized
to, and Borrower does hereby,  waive (to the full extent  permitted  under state
law) any and all  statutory  or  equitable  rights  of  redemption  from sale by
advertisement  or  sale  under  any  order  or  decree  of  foreclosure  of this
Instrument  on behalf of Borrower and each and every  person,  except  decree or
judgment  creditors  of  Borrower,  acquiring  any  interest  in or title to the
Mortgaged Property  subsequent to the date hereof.  Borrower agrees, to the full
extent  permitted by law, that in case of an Event of Default,  neither Borrower
nor anyone  claiming  through or under it shall or will set up, claim or seek to
take advantage of any  appraisement,  valuation,  stay, or extension laws now or
hereafter in force, in order to prevent or hinder the enforcement or foreclosure
of this  Instrument or the absolute sale of the Mortgaged  Property or the final
and absolute putting into possession  thereof,  immediately  after such sale, of
the  purchaser  thereat,  and  Borrower,  for itself and all who may at any time
claim  through  or under  it,  hereby  waives,  to the full  extent  that it may
lawfully so do, the benefit of all such laws,  and any and all right to have the
assets comprising the Mortgaged  Property  marshaled upon any foreclosure of the
lien hereof and agrees that Agent or any court having  jurisdiction to foreclose
such lien may sell the Mortgaged Property in part or as an entirety.
<PAGE>

20.  PROTECTION  OF AGENT'S  SECURITY.  (a) If  Borrower  fails to  perform  the
covenants  and  agreements  contained  in this  Instrument  or if any  action or
proceeding is commenced which affects the Mortgaged Property or title thereto or
the interest of Agent therein,  including,  but not limited to, eminent  domain,
insolvency,  code  enforcement,  or  arrangements  or  proceedings  involving  a
bankrupt or decedent,  then, at Agent's option, Agent may make such appearances,
disburse such sums and take such actions as Agent deems  necessary,  in its sole
discretion,  to protect Agent's interest herein,  including, but not limited to,
(1) disbursement of attorney fees, (2) entry upon the Mortgaged Property to make
repairs, and (3) procurement of satisfactory insurance.

          (b) Any amounts  disbursed  by Agent  pursuant to this  Paragraph  20,
     together with interest  thereon,  shall become  additional  indebtedness of
     Borrower  secured by this  Instrument.  Unless  Borrower and Agent agree to
     other terms of payment,  such amounts shall be immediately  due and payable
     and shall bear interest from the date of disbursement to the extent legally
     enforceable at a rate equal to the Post-Default  Rate set forth in the Loan
     Agreement.  Nothing  contained in this  Paragraph 20 shall require Agent to
     incur any expense or take any action hereunder.

21.  MODIFICATION OR EXTENSION NOT A RELEASE.  From time to time,  Agent may, at
Agent's  option,  without giving notice to or obtaining the consent of Borrower,
Borrower's  successor or assigns,  or of any  guarantors,  without  liability on
Agent's part and notwithstanding  Borrower's breach of any covenant or agreement
of Borrower in this Instrument,  extend the time for payment of the indebtedness
evidenced by the Notes or any part thereof, reduce the payments thereon, release
anyone  liable  on any of said  indebtedness,  accept  a  renewal  note or notes
therefor,  agree  with  Borrower,  in  writing,  to modify the terms and time of
payment of said indebtedness,  release from the lien of this Instrument any part
of the  Mortgaged  Property,  take or  release  other  or  additional  security,
reconvey any part of the Mortgaged  Property,  consent to any map or plan of the
Mortgaged  Property,  consent  to the  granting  of any  easement,  join  in any
extension or  subordination  agreement,  and agree in writing  with  Borrower to
modify the rate of interest or period of amortization of the Notes.  Any actions
taken by Agent  pursuant to the terms of this  Paragraph 21 shall not affect the
obligation  of Borrower,  or Borrower's  successors or assigns,  to pay the sums
secured by this  Instrument  and to observe the covenants of Borrower  contained
herein, shall not affect the guaranty of any person, corporation, partnership or
other  entity for  payment of the  indebtedness  secured  hereby,  and shall not
affect the lien or priority of the lien hereof on the Mortgaged Property.

22.  FORBEARANCE BY AGENT NOT A WAIVER.  Any  forbearance by Agent in exercising
any right or remedy  hereunder,  or otherwise  afforded by applicable law, shall
not be a waiver of or preclude  the  exercise  of any such right or remedy.  The
acceptance by Agent of payment of any sum secured by this  Instrument  after the
due date of such  payment  shall  not be a waiver  of  Agent's  right to  either
require  prompt  payment  when due of all other  sums so secured or to declare a
default for failure to make prompt payment.
<PAGE>

23. REMEDIES  CUMULATIVE.  Agent shall have any additional  remedies provided in
the Loan Agreement.  Each remedy or right of Agent shall not be exclusive of but
shall be in addition to every other remedy or right now or hereafter existing at
law or in equity. No delay in the exercise or omission to exercise any remedy or
right  accruing  on any  default  shall  impair  any such  remedy or right or be
construed to be a waiver of any such default or acquiescence  therein, nor shall
it affect any  subsequent  default of the same or in  different  nature.  To the
extent   permitted  by  law,  every  such  remedy  or  right  may  be  exercised
concurrently or  independently  and when and as often as may be deemed expedient
by Agent.

24.  ESTOPPEL  CERTIFICATE.  Borrower  shall,  within  ten (10) days of  written
request from Agent,  furnish Agent with a written statement,  duly acknowledged,
setting  forth the sums  secured by this  Instrument  and any right of  set-off,
counterclaim or other defense which exists against such sums and the obligations
of Borrower under the Notes and this Instrument.

25. NOTICE.  All notices and demands  hereunder  shall be made in writing and in
the  manner,  and to the  addresses,  provided  for in Section  11.2 of the Loan
Agreement,  and shall be deemed delivered in accordance with Section 11.2 of the
Loan Agreement.

26.  SUCCESSORS  AND ASSIGNS BOUND;  JOINT AND SEVERAL  LIABILITY;  AGENTS.  The
covenants and agreements  herein  contained shall bind, and the rights hereunder
shall inure to, the  respective  successors  and assigns of Agent and  Borrower,
subject to the  provisions  of Paragraph  12 hereof.  This  Instrument,  and any
instrument  or documents  made in  connection  herewith,  may be assigned by the
Agent  without  notice to or the  consent of Borrower  or any other  party.  All
covenants and agreements of Borrower  shall be joint and several.  In exercising
any rights  hereunder or taking any actions  provided for herein,  Agent may act
through its employees, agents or independent contractors as authorized by Agent.

27. CAPTIONS. The captions and headings of the paragraphs of this Instrument are
for  convenience  only  and  are  not to be  used to  interpret  or  define  the
provisions hereof.

28.  GOVERNING LAW. This Instrument shall be construed under and governed by the
laws of the state wherein the Mortgaged Property is situated.

29. SEVERABILITY.  Wherever possible, each provision of this Instrument shall be
interpreted  in such manner as to be effective and valid under  applicable  law,
but if any provision of this Instrument  shall be prohibited by or invalid under
applicable  law,  such  provision  shall be  ineffective  to the  extent of such
prohibition or invalidity,  without invalidating the remainder of such provision
or the remaining provisions of this Instrument.

30. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the right to assert
any  statute  of  limitations  as a bar to the  enforcement  of the lien of this
Instrument or to any action brought to enforce the Notes or any other obligation
secured by this Instrument.
<PAGE>

31.  COMPLIANCE WITH SECTION 1445 OF INTERNAL REVENUE CODE.  Section 1445 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") provides
that a transferee  of a U.S.  real  property  interest  must withhold tax if the
transferor is a foreign person. To inform Agent that the withholding of tax will
not be  required  in the  event of any  disposition  of the  Mortgaged  Property
pursuant  to the terms of this  Instrument,  Borrower  hereby  certifies,  under
penalty of perjury, that:

          (a)  Borrower  is  not a  foreign  corporation,  foreign  partnership,
     foreign  trust,  or  foreign  estate,  as those  terms are  defined  in the
     Internal Revenue Code and the regulations promulgated thereunder; and

          (b)  Borrower's  principal  place of  business  is as set forth at the
     beginning of this Instrument.

32. CHANGE IN LAW. In the event of the enactment after the date hereof and prior
to  foreclosure  of any  law,  rule or  regulation  of any  governmental  entity
deducting  from the value of the Mortgaged  Property for the purpose of taxation
any lien or security interest  thereon,  or changing in any way the laws for the
taxation of mortgages,  deeds of trust or other liens or debts secured  thereby,
or the manner of collection of such taxes, so as to affect this Instrument,  the
Obligations,  Agent or the holders of the Obligations,  then, and in such event,
Borrower  shall,  on demand,  pay to Agent or such holder or reimburse  Agent or
such holder for payment of, all taxes,  assessments,  charges or liens for which
Agent or such holder is or may be liable as a result  thereof,  provided that if
any such payment or reimbursement shall be unlawful or would constitute usury or
render the Obligations  wholly or partially  usurious under applicable law, then
Agent may, at its option, declare the Obligations immediately due and payable or
require  Borrower  to pay or  reimburse  Agent for  payment  of the  lawful  and
non-usurious portion thereof.

33. DOCUMENT  STAMPS.  Borrower agrees that, if the United States  Government or
any department, agency or bureau thereof or any state or any of its subdivisions
shall at any time require  documentary  stamps to be affixed to the  Instrument,
Borrower  will,  upon  request,  pay for such stamps in the required  amount and
deliver them to Agent, and Borrower agrees to indemnify Agent against  liability
on account of such documentary  stamps,  whether such liability arises before or
after payment of the Obligations and regardless of whether this Instrument shall
have been released.

34. FURTHER ASSURANCES. Borrower agrees that, upon request of Agent from time to
time, it will execute,  acknowledge and deliver all such additional  instruments
and further assurances of title and will do or cause to be done all such further
acts and things as may reasonably be necessary to fully effectuate the intent of
this  Instrument.  In  the  event  that  Borrower  shall  fail  to do any of the
foregoing, Agent may, in its sole discretion, do so in the name of Borrower, and
Borrower  hereby  appoints  Agent  as  its  attorney-in-fact  to do  any  of the
foregoing.

35. NO MERGER. In the event of a foreclosure of this Instrument, the Obligations
then due the Agent shall not be merged into any decree of foreclosure entered by
the court, and Agent may  concurrently or subsequently  seek to foreclose one or
more mortgages or deeds of trust which also secure said Obligations.
<PAGE>

36. PRECEDENCE OF DOCUMENTS.  Except as otherwise specifically set forth herein,
in the event of a conflict or  inconsistency  between  this  Instrument  and the
provisions of the Loan  Agreement,  the provisions of the Loan  Agreement  shall
govern.  Except as  otherwise  provided  herein,  any terms  defined in the Loan
Agreement shall have the same meaning herein.

37. MODIFICATION AND AMENDMENT.  Neither this Instrument nor any term hereof may
be  changed,  waived,  discharged  or  terminated  orally,  or by any  action or
inaction, but only by an instrument in writing signed by the party against which
enforcement of the change,  waiver,  discharge or termination is sought.  To the
extent  permitted by law,  any  agreement  hereafter  made by Borrower and Agent
relating to this Instrument shall be superior to the rights of the holder of any
intervening lien or encumbrance.

38. JURISDICTION,  VENUE AND WAIVER OF TRIAL BY JURY. The Borrower hereby waives
any and every right to interpose any counterclaim in any action or proceeding on
or related to this  Instrument.  The Borrower hereby submits to the jurisdiction
of the courts of the state  wherein the Real Property is located and agrees with
the Agent that  personal  jurisdiction  over the  Borrower  shall rest with such
courts  for  purposes  of any action on or  related  to this  Instrument  or the
enforcement  of same.  The Borrower  hereby  waives  personal  service by manual
delivery  and agrees that  service of process may be made by postpaid  certified
mail directed to the Borrower at the Borrower's address set forth at the address
recited in the preamble  hereto or at such other address as may be designated in
writing by the Borrower to the Agent, and that upon mailing of such process such
service be  effective  with the same  effect as though  personally  served.  The
Borrower hereby  expressly  waives any and every right to a trial by jury in any
action on or related to this Instrument or the enforcement of same.

39. WAIVER OF  MARSHALING.  Notwithstanding  the existence of any other security
interests in the Mortgaged  Property held by Agent or by any other party,  Agent
shall have the right to determine the order in which any or all of the Mortgaged
Property shall be subjected to the remedies  provided  herein.  Agent shall have
the  right  to  determine  the  order  in  which  any  or  all  portions  of the
indebtedness  secured hereby are satisfied  from the proceeds  realized upon the
exercise of the remedies  provided herein.  Borrower,  any party who consents to
this Instrument and any party who now or hereafter  acquires a security interest
in the  Mortgaged  Property and who has actual or  constructive  notice  hereof,
hereby  waives  any and all  right  to  require  the  marshaling  of  assets  in
connection with the exercise of any of the remedies  permitted by applicable law
or provided herein.

PROVIDED,  however,  that  these  presents  are upon the  condition  that if the
Borrower  shall well and truly pay to Agent,  its  successors  and assigns,  the
total of the indebtedness  secured hereby,  and shall fully keep and perform all
of the conditions, covenants and agreements to be kept and performed by Borrower
under  this  Instrument,  then  this  Instrument  shall be void and upon  demand
therefor  following such payment, a satisfaction or release of mortgage shall be
provided by Agent to Borrower or such other party as may be required by law.
<PAGE>

IN WITNESS WHEREOF, the said Borrower hereunto duly authorized,  has caused this
Instrument to be executed.

Signed and acknowledged in the              STERLING ACQUISITION CORP.
presence of the following:

______________________________      By: ________________________________________
Printed: _______________________    Printed: ___________________________________

Printed: _______________________    Title: _____________________________________

STATE OF __________________ )
                            ) ss.:
COUNTY OF ________________  )

On   the   _____   day   of   August,    2000,   before   me   personally   came
_____________________________,  to me  known,  who being by me duly  sworn,  did
depose and say that he/she is the duly authorized ______________________________
of STERLING  ACQUISITION CORP., a Kentucky  corporation,  described in and which
executed the foregoing instrument;  and that the foregoing instrument was signed
on  behalf  of  said   corporation,   and  said   ______________________________
acknowledged  the  execution of said  instrument to be his/her free act and deed
and the free act and deed of the corporation.

IN TESTIMONY  WHEREOF,  I have hereunto set my hand and affixed my official seal
as of the day and year first above written.

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

<PAGE>

                                    EXHIBIT A

                                LEGAL DESCRIPTION

<PAGE>

                                    EXHIBIT B

                                  Assigned Rent

         The total rent due and payable from  Sterling  Health Care  Management,
Inc. to  Borrower  attributable  to the  Mortgaged  Property,  which rent equals
$237,665 per annum, as increased  pursuant to the Master Lease dated December 1,
1994 and amended March 3, 1999.
<PAGE>
                           FORM OF SECURITY AGREEMENT

         THIS  SECURITY  AGREEMENT  ("Security  Agreement")  entered  into  this
_____day of August,  2000,  by and between  DELTA  INVESTORS  I, LLC, a Maryland
limited  liability  company  corporation,  having  its  principal  office at 900
Victors  Way,  Suite  350,  Ann  Arbor,  Michigan  48108  ("Borrower"),  and THE
PROVIDENT BANK, AGENT, an Ohio banking corporation,  having its principal office
at One East Fourth Street, Cincinnati, Ohio 45202 ("Agent").

         1.       Granting Clause.

         To secure the  Obligations  (as defined in Section 2 hereof),  Borrower
hereby grants to Agent, to the extent of Borrower's  right,  title and interest,
if any, in the following,  a security  interest in all of the following  located
on,  generated by,  arising from, or used in connection  with, the Real Property
Collateral listed in Exhibit "A" hereto, as the same may be amended from time to
time  (the  "Premises"):  Borrower's  Accounts,  Inventory,  Equipment,  General
Intangibles,   fixtures,   leases,  money,  goods,  motor  vehicles,   leasehold
improvements,  Documents,  Instruments,  Chattel Paper,  Intellectual  Property,
inventory subject to leases and rights under lease agreements for the leasing of
inventory, money, deposit accounts, securities, funds, rights to draw on letters
of credit,  permits,  licenses  and the cash or noncash  produces  and  Proceeds
(including insurance or other rights to receive payment with respect thereto) of
any of the foregoing and all  accessions and additions to and  replacements  and
substitutions for the foregoing,  and all books and records (including,  without
limitation, customer lists, credit files, computer programs, printouts and other
computer materials and records of Borrower and each Subsidiary)  (whether or not
stored in written or electronic  form)  pertaining to any of the foregoing (such
property is hereinafter referred to as the "Collateral"). Capitalized terms used
but not defined herein shall have the meanings  assigned to them in that certain
Loan Agreement (as hereinafter defined).

         2.       Obligations Secured Hereby.

         Borrower and Agent have entered  into a certain  Loan  Agreement  dated
August ____,  2000 (as such agreement may be amended,  modified or  supplemented
from time to time, the "Loan Agreement"),  providing for extensions of credit to
be made by the Lenders to Borrower,  in accordance with the terms and conditions
of the Loan  Agreement,  on a revolving  credit basis in the  aggregate  maximum
principal   amount  of   Seventy-Five   Million   Dollars  and  00/100   Dollars
($75,000,000.00)  (the  "Loan").  To induce  Agent and Lenders to enter into the
Loan  Agreement and to extend the credit  thereunder,  Borrower  hereby grants a
security  interest  in the  Collateral  to Agent to secure  the full and  timely
payment and  performance of the  Obligations,  as defined in the Loan Agreement,
including, but not limited to, the full and timely payment of all sums due under
the Notes.

<PAGE>

         3.       Borrower's Representations, Warranties and Covenants.

                  (a) Collateral.  Borrower hereby  represents and warrants that
(i) except for the  security  interest  granted  hereby and the Liens  permitted
under Section 8.1 of the Loan Agreement, Borrower is, or to the extent that this
Security Agreement provides that the Collateral is to be acquired after the date
hereof  will be,  the  owner of the  Collateral  free  and  clear of all  liens,
pledges, security interests or other encumbrances of any nature whatsoever;  and
(ii) upon  execution of this  Security  Agreement  and  recording of  applicable
financing statements, the security interest granted hereby will otherwise be the
only security interest in the Collateral.

                  (b) Enforceability.  Borrower represents and warrants that the
execution and performance of this Security Agreement has been duly authorized by
all  appropriate  action of Borrower and this  Security  Agreement has been duly
executed by Borrower,  delivered to Agent and constitutes  the legal,  valid and
binding  obligation of Borrower,  enforceable  against it in accordance with its
terms, subject to applicable  bankruptcy laws. Neither the execution or delivery
by Borrower of this Security  Agreement nor the  consummation by Borrower of the
transactions  contemplated hereby nor compliance by Borrower with the provisions
hereof,  conflicts  with or results in a breach of any of the  provisions of the
organizational  documents  of  Borrower  or  of  the  provisions  of  any  other
agreement,  instrument or understanding to which it is a party or by which it or
any of its assets or properties are bound.

                  (c) Protection of Collateral.  (i) Except for Permitted  Liens
or as otherwise provided herein, Borrower will keep the Collateral free from any
lien,  security interest or other  encumbrance  adverse to the security interest
granted  hereby and in good order and repair  (ordinary  wear and tear excepted)
and will not waste or destroy the Collateral or any part thereof;  (ii) Borrower
will  not  use  the  Collateral  in  violation  of  any  statute,  ordinance  or
regulation; (iii) Agent may examine and inspect the Collateral at any reasonable
time,  wherever  located;  (iv)  Borrower will at any time and from time to time
execute and  deliver all such  supplements  and  amendments  hereto and all such
financing statements,  continuation statements, instruments of further assurance
and other  instruments  and will take such  other  action,  as Agent  reasonably
requests  and  reasonably  deems  necessary  or  advisable  to (a) grant Agent a
security  interest  in all or any  portion of the  Collateral,  (b)  maintain or
preserve the lien of this Security  Agreement to carry out more  effectively the
purpose hereof, (c) perfect,  publish notice of or protect the validity of or of
any  grant  made or to be made by this  Security  Agreement,  (d)  enforce  this
Security Agreement,  or (e) preserve and defend the Collateral and the rights of
Agent  therein  against  the claims  and  demands of all  persons  and  entities
claiming the same or any interest therein.

                  (d)  Performance  of  Obligations.  Borrower  will  punctually
perform and observe or cause to be punctually  performed and observed all of the
Obligations.

                  (e)  Maintenance  and  Inspection  of Records.  Borrower  will
maintain accurate and complete records in respect of the Collateral and shall at
all reasonable  times allow Agent by any officer,  employee or agent to examine,
audit or inspect  (including  making  extracts from) such records and to arrange
for  verification  of the  Collateral.  Borrower  also  agrees to  furnish  such
information or reports relating to the Collateral as Agent may from time to time
reasonably request.
<PAGE>

                  (f)      Insurance and Taxes.

                           (i)   Insurance of  Collateral.  Borrower  agrees to
maintain,  or shall  require its Operator for such  Premises to maintain,
insurance at all times with respect to the  Collateral in accordance  with the
lease between  Borrower and its Operator for such Premises and the Mortgage in
favor of Agent on the Premises.

                           (ii)  Payment  of  Taxes  and  Assessments.  Borrower
agrees to promptly pay, or cause its  Operator  for  such  Premises to  promptly
pay,  when due all  taxes  and assessments imposed on or with respect to all the
Collateral.  If such taxes and assessments  are not paid when due, Agent may do
so for  Borrower's account and all expenditures so paid by Agent will be payable
upon Agent's demand and until paid by Borrower will accrue interest at the Post-
Default Rate.  Notwithstanding the  foregoing,  Borrower  shall be  permitted to
contest  the  amount  or  the validity, in whole or  in part, of  any tax or tax
claim.

                  (g)  Location  of  Collateral.  Borrower  covenants  that  the
Collateral  will  be  kept at all  times  on or in the  Premises  and  that  the
Collateral will not be removed,  in whole or in part, from such Premises without
the prior  written  consent  of Agent;  provided,  however,  Agent  agrees  that
Borrower may, at any time and from time to time,  (i)  substitute or replace the
Collateral  ("Substituted or Replaced  Collateral")  with Collateral of equal or
greater value and that Borrower may, in connection  with each such  substitution
or  replacement,  remove  the  Substituted  or  Replaced  Collateral  from  such
Premises,  and (ii)  dispose of or replace  Collateral  in the same  manner that
Borrower is permitted under the Loan Agreement.

                  (h)   Survival  of   Representations   and   Warranties.   All
representations and warranties made by Borrower in this Security Agreement shall
survive the  execution  and delivery of this  instrument  until such time as the
Notes and all other Obligations  shall have been paid or otherwise  satisfied in
full.

         4. Borrower's Rights with Respect to Collateral.

         Unless and until the  occurrence  of an Event of Default  which has not
otherwise  been waived in writing,  Borrower shall have the right to utilize the
Collateral in the ordinary  course of its business and to  substitute,  replace,
transfer,  sell or dispose of the Collateral in accord with Section 3(g) hereof,
but shall not have the right to otherwise sell,  lease or dispose of or transfer
the  Collateral  or any  interest  therein  other  than in  connection  with the
Disposition  of the  Premises  in  accordance  with  Section  8.4  of  the  Loan
Agreement;  provided,  however,  so long as an Event of  Default  shall not have
occurred and be  continuing,  any portion of the  Collateral  which  constitutes
Inventory  or Accounts  may be sold or  transferred  in the  ordinary  course of
business.  Unless an Event of Default  shall have  occurred  and be  continuing,
Borrower  shall  not  be  required  to  deliver   certificates   or  instruments
representing or evidencing letters of credit or security or liquidity  deposits,
which the Borrower holds in connection with any of the Collateral.
<PAGE>

         5.       Events of Default and Remedies.

                  (a) Rights and Remedies upon an Event of Default. If any Event
of Default  under the Loan  Agreement  shall have occurred and has not otherwise
been  waived in  writing,  Agent may  proceed to protect  and enforce its rights
under this  Security  Agreement  by suit in  equity,  action at law or any other
appropriate  proceeding  and Agent shall have,  without  limitation,  all of the
rights and remedies provided by applicable law,  including,  without limitation,
the rights and remedies of a secured party under the UCC of the state  governing
disposition  of the  Collateral.  Borrower  shall be liable  for any  deficiency
remaining after the collection of the Collateral and application of the proceeds
to the Obligations to the fullest extent permitted by applicable law.

                  (b) Power of Attorney with Respect to the Collateral. Provided
an Event of Default has occurred and has not been waived in writing, Agent shall
have the right  with  respect  to the  payment  of the  Obligations,  whether as
scheduled,  by acceleration,  or otherwise,  to notify any account debtor of its
security interest in the Accounts and to require payments to be made directly to
Agent at such  address  or in such  manner as Agent may deem  appropriate.  Upon
request of Agent upon the  occurrence  of an Event of Default which has not been
waived in writing, Borrower will so notify the account debtors and will indicate
on all  billings to the account  debtors that the Accounts are payable to Agent.
Provided an Event of Default has occurred and has not  otherwise  been waived in
writing,  in order to facilitate  direct  collection,  Borrower  hereby appoints
Agent and any officer or employee of Agent,  as the agent to (i)  receive,  open
and dispose of all mail addressed to Borrower and take therefrom any payments on
or proceeds of the  Collateral,  in which Borrower shall  cooperate,  to receive
Borrower's mail,  including  notifying the post office authorities to change the
address for  delivery  of mail  addressed  to Borrower to such  address as Agent
shall  designate,  (ii)  endorse the name of Borrower in favor of Agent upon any
and all checks,  drafts, money orders, notes,  acceptances or other evidences or
payment or  Collateral  that may come into  Agent's  possession,  (iii) sign and
endorse the name of Borrower on any invoice or bill of lading relating to any of
the Accounts,  on  verifications  of Accounts  sent to any  Borrower,  to drafts
against  account  debtors,  to assignments of Accounts and to notices to account
debtors,  and (iv) do all acts and things  necessary to carry out this  Security
Agreement, including signing the name of Borrower on any instruments required by
law in connection  with the  transactions  contemplated  hereby and on financing
statements as permitted by the UCC.  Borrower  hereby  ratifies and approves all
acts  of  such   attorneys-in-fact,   and  neither  Agent  nor  any  other  such
attorney-in-fact  shall be liable for any acts of commission or omission, or for
any error of judgment or mistake of fact or law. This power,  being coupled with
an  interest,   is  irrevocable  so  long  as  any  of  the  Obligations  remain
unsatisfied.

                  Agent shall not,  under any  circumstances,  be liable for any
error or omission or delay of any kind occurring in the  settlement,  collection
or payment of any Accounts or any instrument  received in payment thereof or for
any damage resulting  therefrom except for such acts or omissions resulting from
Agent's gross negligence or willful misconduct.  Upon the occurrence of an Event
of Default which has not been waived in writing, Agent may, without notice to or

<PAGE>

consent from Borrower, sue upon or otherwise collect, extend the time of payment
of, or compromise or settle for cash, credit or otherwise upon any terms, any of
the Accounts or any  securities,  Instruments  or insurance  applicable  thereto
and/or release the obligor thereon.  If an Event of Default has occurred and has
not been  waived in  writing,  Agent is  authorized  to accept the return of the
goods  represented  by any of the  Accounts  without  notice  to or  consent  by
Borrower, or without discharging or any way affecting the Obligations hereunder.

                  Agent  shall  not be  liable  for or  prejudiced  by any loss,
depreciation  or other damage to Accounts or other  Collateral  unless caused by
Agent's gross negligence or willful misconduct,  and Agent shall have no duty to
take any action to preserve or collect any Account or other Collateral.

                  (c)  Distribution  of  Collateral.  Upon  enforcement  of this
Security Agreement following the occurrence of an Event of Default, the proceeds
of the Collateral shall be applied as provided in the Loan Agreement.

                  (d)   Costs   and   Expenses.    Borrower    absolutely    and
unconditionally  agrees to pay to Agent,  upon demand by Agent,  all  reasonable
out-of-pocket costs and expenses which shall be reasonably incurred or sustained
by Agent or any of its directors, officers, employees or agents as a consequence
of, on account of, in relation to or any way in  connection  with the  exercise,
protection  or  enforcement  (whether or not suit is  instituted)  of any of its
rights,  remedies,  powers or privileges under this Security Agreement or any of
the Loan  Documents or in, to or under all or any part of the  Collateral  or in
connection with any litigation,  proceeding or dispute in any respect related to
this Security Agreement or any of the Loan Documents (including, but not limited
to, all of the reasonable fees and disbursements of consultants, legal advisers,
accountants,  experts  and agents for Agent,  the  reasonable  travel and living
expenses away from home of employees,  consultants,  experts or agents of Agent,
and the reasonable fees of agents,  consultants and experts not in the full-time
employ of Agent for  services  rendered  on behalf of Agent),  except any of the
foregoing resulting from the gross negligence or willful misconduct of Agent.

                  (e) Right of Set-Off.  Borrower  hereby  confirms to Agent the
continuing and immediate  right of set-off of Agent and the Lenders with respect
to all  deposits,  balances  and other sums  credited by or due from Agent,  the
Lenders or any of the offices or branches thereof to Borrower, which right is in
addition  to any  other  rights  which  Agent  may have  under  applicable  law.
Regardless  of the adequacy of any  Collateral,  if any  principal,  interest or
other  sum  payable  by  Borrower  to Agent  under  the Notes or any of the Loan
Documents is not paid to Agent  punctually  when the same shall first become due
and payable  (after giving effect to any  applicable  grace  period),  or if any
Event of  Default  shall at any time  occur and not be waived  in  writing,  any
deposits,  balances or other sums credited by or due from Agent,  the Lenders or
any of the offices or branches thereof to Borrower may, without any prior notice
of any kind to  Borrower  (all of which are  hereby  expressly  and  irrevocably
waived by Borrower to the extent  permitted  by law),  be  immediately  set off,
appropriated  and  applied  by Agent  or the  Lenders  toward  the  payment  and
satisfaction  of the  Obligations  (but  not to any  other  obligations  of such
Borrower to Agent until all of the  Obligations  have been paid in full) in such
order and manner as Agent (in its sole and complete discretion) may determine.
<PAGE>

         6.       No Waiver; Cumulative Remedies.

         Agent shall not by any act,  delay,  omission or otherwise be deemed to
have waived any of its rights or remedies hereunder and no waiver shall be valid
unless in writing,  signed by the Agent, and then only to the extent therein set
forth.  A waiver by Agent of any right or remedy  hereunder  on any one occasion
shall  not be  construed  as a bar to any  right or  remedy  which  Agent  would
otherwise have had on any future  occasion.  No failure to exercise or any delay
in  exercising  on the part of Agent any right,  power or  privilege  hereunder,
shall operate as a waiver thereof;  nor shall any single or partial  exercise of
any right,  power or privilege  hereunder preclude any other or further exercise
thereof or the exercise of any other right,  power or privilege.  The rights and
remedies  herein  provided are  cumulative  and not  exclusive of any rights and
remedies provided by law.

         7.       Severability of Provisions.

         The  provisions of this Security  Agreement are  severable,  and if any
clause or provision hereof shall be held invalid or unenforceable in whole or in
part, then such invalidity or unenforceability  shall attach only to such clause
or provision,  or part thereof and shall not in any manner affect such clause or
provision  in any other  jurisdiction  or any other  clause or provision in this
Security Agreement in any jurisdiction.

         8.       Amendments; Choice of Law; Binding Effect.

         (a) None of the terms or provisions  of this Security  Agreement may be
altered,  modified or amended except by an instrument in writing,  duly executed
by each of the parties hereto.

         (b) This Security  Agreement  shall be governed by and be construed and
interpreted in accordance with the laws of the State of Ohio.

         (c) This  Security  Agreement  shall be  binding  upon and inure to the
benefit of the parties hereto and their respective successors and assigns.

         9.       Notices.

         All notices and demands  hereunder  shall be made in writing and in the
manner,  and  to the  addresses,  provided  for  in  Section  11.2  of the  Loan
Agreement,  and shall be deemed delivered in accordance with Section 11.2 of the
Loan Agreement.

         10.      Headings.

         The descriptive headings herein used are for convenience only and shall
not be deemed to limit or otherwise  effect the  construction  of any provisions
hereof.

<PAGE>

         11.      Counterpart Execution.

         This Security Agreement may be executed in several counterparts each of
which together shall constitute one and the same agreement.

         12.      Defeasance Clause.

         If  Borrower  shall pay or cause to be paid the Notes  secured  by this
Security  Agreement and perform or cause to be performed the other  Obligations,
or if any Premises is actually removed from serving as Real Property  Collateral
in accordance  with the provisions of the Loan Agreement  (other than Subsection
3.5(d)),  then the security  interest in the Collateral  granted hereby shall be
void and terminated  and Agent agrees to promptly  execute such documents and do
such acts as are necessary to release and terminate such liens.

         IN WITNESS WHEREOF, the undersigned have caused this Security Agreement
to be duly executed and  delivered by their  respective  officers  hereunto duly
authorized, at Cincinnati, Ohio on the day and year first above written.

THE PROVIDENT BANK                  DELTA INVESTORS I, LLC

                                    By: Omega Healthcare Investors, Inc., Member

By: _____________________________   By: ____________________________

Printed: ________________________   Printed: _______________________

Title: __________________________   Title: _________________________

<PAGE>

                              EXHIBIT A - PREMISES

Meadowbrook Manor
3951 East Blvd.
Los Angeles, California

Sierra Vista
3455 East Highland Ave.
Highland, California

SunBridge Care and Rehabilitation for Homestead
1500 East Maine St.
Lancaster, Ohio

SunBridge Care and Rehabilitation for Circleville
1155 Atwater Ave.
Circleville, Ohio

SunBridge Care and Rehabilitation for Putnam
300 Seville Road
Hurricane, West Virginia
<PAGE>
                         FORM OF COMPLIANCE CERTIFICATE

Reference is hereby made to that certain Loan  Agreement  dated as of August 11,
2000 by and between Omega Healthcare  Investors,  Inc., a Maryland  corporation,
Sterling Acquisition Corp., a Kentucky corporation,  and Delta Investors I, LLC,
a Maryland limited liability company,  as Borrowers,  and The Provident Bank, an
Ohio  banking  corporation,  as Agent for the  Lenders  (the "Loan  Agreement").
Capitalized terms not defined herein shall have the meanings ascribed to them in
the Loan and Security Agreement.

The undersigned officer of Borrower hereby certifies to Agent that (i) Borrowers
are in compliance  with the covenants set forth above pursuant to Section 7.9 of
the  Loan  Agreement,  and that all of the  computations  provided  below of the
financial  covenants  are  correct and  complete as of  _______________________,
______  and  are in  conformity  with  the  terms  and  conditions  of the  Loan
Agreement; (ii) the representations and warranties contained in Article 4 of the
Loan  Agreement  are  true  and  correct  as  though  such  representations  and
warranties  were  made on the  date of such  certificate;  and no  changes  have
occurred in the assets and liabilities or in the financial condition,  business,
operations or prospects of Borrowers,  which,  individually or in the aggregate,
are materially  adverse to Borrower;  and (iii) no Event of Default has occurred
and is continuing.

Certificate Number:                                   ___________________
Date:                                                 ___________________
Period:                                               ___________________

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Section 7.9 (a)                                                         Actual             Default (Y/N)
 (i) Indebtedness to Tangible Net Work not more than 1.50:1.00         _______               _______

(ii) Tangible Net Work of not less than $445,000,000                   _______               _______
      Plus 50% of Net Issuance Proceeds

(iii) Fixed Charge Coverage not less than 1.00:1.00                    _______               _______

(iv) Interest Coverage of not less than 200%                           _______               _______
(v) Leverage Ratio of not greater than 5.00:1.00                       _______               _______

Section 7.9 (c) for Real Property Collateral
(i) Aggregate EBITDAR of not less than $16,300,000                     _______               _______

(ii) Aggregate Rent Ratio of not less than 1.25:1.00                   _______               _______

Section 7.9 (d) Aggregate Rent to Interest
Not less than 1.10 to 1.00                                             _______               _______
</TABLE>

Agreed and Acknowledged:

By: ______________________________________

Its: ______________________________________

<PAGE>
                     FORM OF BORROWING BASE CERTIFICATE

     As required by the Loan Agreement by and among Omega Health Care Investors,
Inc. and Affiliates  ("Borrower")  and The Provident Bank, as Agent, for Lenders
Dated August 11, 2000.

Certificate Number:                                           ___________

Date:                                                         ___________

Period:                                                       ___________

         Aggregate EBITDA for Period.                         ___________
         ( See Attached Schedule)

                  Multiplied by a factor of                      6.14

         EBITDAR Value (a)                                    ___________

                  Multiplied by an advance rate (b)              75%

         Net Available Borrowing Base                         ___________
         Lesser of $75,000,000 or, (a) times (b)

         Outstanding Loan Balance as of _________.            ___________

         Excess / (Deficit)                                   ___________

The  undersigned  hereby  acknowledges  and confirms  that the  calculation  and
information  supplied  above is true and  correct  without  material  adjustment
representing  the true and correct  Borrowing  Base of the  Borrower as required
under the Loan Agreement.

Agreed and Acknowledged:

By: ___________________________________

Its: ___________________________________

Date:_____________
<PAGE>

                                  SCHEDULE 1.1
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                          LENDERS AND LOAN COMMITMENTS

<TABLE>
<CAPTION>

                                                             Revolving Loan A           Revolving Loan B
Name and Address of Lender                                      Commitment                 Commitment
<S>     <C>    <C>    <C>    <C>    <C>    <C>

The Provident Bank                                            $50,000,000.00                  $-0-
One E. Fourth St., 211 A
Cincinnati, OH 45202
Attn.:  Mr. Steven Bloemer
Phone : (513) 579-8722
Fax:  (513) 579-2201

Great American Insurance Company                               $7,500,000.00                  $-0-
c/o American Money Management
One East Fourth St., 4th Floor
Cincinnati, OH 45202
Attn.: Roger Miller
Phone:  (513) 579-2484
Fax:  (513) 579-2945

Great American Life Insurance Company                          $7,500,000.00                  $-0-
c/o American Money Management
One East Fourth St., 4th Floor
Cincinnati, OH 45202
Attn.: Roger Miller
Phone:  (513) 579-2484
Fax:  (513) 579-2945

One Valley Bank                                                    $-0-                  $10,000,000.00
One Valley Square
Summers & Lee St.
Charleston, WV 25326
Attn.:  Tim Paxton
Phone:  (304) 348-7003
Fax:  (304) 341-1037

</TABLE>

<PAGE>

                                  SCHEDULE 1.2
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                            CLOSING FEES AND EXPENSES

          Fees to Provident Capital Corp.               $  750,000
          Fees to Provident Bank                           526,042
          Expenses to Provident Capital Corp.                4,820
          Fees to Great American Insurance Company          75,000
          Fees to Great American Life Insurance Company     75,000
          Fees to One Valley Bank                           18,750
          Fees and Expenses to Kohnen & Patton              88,394
                                                          --------
                                                        $1,538,006
                                                        ==========

<PAGE>

                                  SCHEDULE 1.3
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                            REAL PROPERTY COLLATERAL

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

---------------------------------------------------------------------------------------------------------------------------
                                        Facility
             Property Name               Number           Address                City          County     State    Zip
---------------------------------------------------------------------------------------------------------------------------

Advocat Inc. (103)
---------------------------------------------------------------------------------------------------------------------------
  Best Care, Inc.                         204    2159 Dogwood Ridge        Wheelersburg     Scioto         OH     45694
---------------------------------------------------------------------------------------------------------------------------
                                                 Lick Creek Road
  Boone Health Care Center, Inc.          205    P.O. Box 605              Danville         Boone          WV     25053
---------------------------------------------------------------------------------------------------------------------------
  Boyd Nursing and Rehab Center           242    12800 Princeland Drive    Ashland          Boyd           KY     41102
---------------------------------------------------------------------------------------------------------------------------
  Canterbury Health Center                113    1720 Knowles Road         Phenix City      Russell        AL     36867
---------------------------------------------------------------------------------------------------------------------------
                                                 250 McDavid Boulevard
  Carter Nursing & Rehab Center           206    P.O. Box 904              Grayson          Carter         KY     41143
---------------------------------------------------------------------------------------------------------------------------
                                                 Howard Creek Road
  Elliott Nursing & Rehab Center          243    Route 32                  Sandy Hook       Elliott        KY     41171
---------------------------------------------------------------------------------------------------------------------------
  Laurel Nursing  & Rehab Center          244    HC 75, Box 153,
                                                 Clinic Rd                 Ivydale          Clay           WV     25113
---------------------------------------------------------------------------------------------------------------------------
  Lynwood Nursing Home                    121    4164 Halls Mills Road     Mobile           Mobile         AL     36693
---------------------------------------------------------------------------------------------------------------------------
  Northside Health Care                   128    700 Hutchins Avenue       Gadsden          Etowah         AL     35902
---------------------------------------------------------------------------------------------------------------------------
  Ouachita Nursing /Pine Manor Apts.      123    1411 Country Club Road    Camden           Ouachita       AR     71701
---------------------------------------------------------------------------------------------------------------------------
  Pocahontas Nursing & Rehab Center       124    105 Country Club Road     Pocahontas       Randolph       AR     72455
---------------------------------------------------------------------------------------------------------------------------
                                                 James Hannah Drive
  South Shore Nursing & Rehab Center      207    P.O. Box 489              South Shore      Greenup        KY     41175
---------------------------------------------------------------------------------------------------------------------------
                                                 Route 5 Wells Hill
  West Liberty Nursing & Rehab Center     210    774 Liberty Road          West Liberty     Morgan         KY     41472
---------------------------------------------------------------------------------------------------------------------------
  Westside Health Care Center             129    4320 Judith Lane          Huntsville       Madison        AL     35805
---------------------------------------------------------------------------------------------------------------------------
  Wurtland Nursing & Rehab Center         209    100 Wurtland Avenue       Wurtland         Greenup        KY     41144
---------------------------------------------------------------------------------------------------------------------------

Sun Healthcare Group, Inc. (123)
---------------------------------------------------------------------------------------------------------------------------
  Meadowbrook Manor                       347    3951 East Boulevard       Los Angeles      Los Angeles    CA     90066
---------------------------------------------------------------------------------------------------------------------------
  Meydenbauer Medical & Rehabilitation
Ctr                                       326    150-102nd Avenue SE       Bellevue         King           WA     98004
---------------------------------------------------------------------------------------------------------------------------
  Sierra Vista                            352    3455 E. Highland Avenue   Highland         Los Angeles    CA     92346
---------------------------------------------------------------------------------------------------------------------------
  SunBridge Care & Rehab - Homestead      364    1900 E. Main Street       Lancaster        Fairfield      OH     43130
---------------------------------------------------------------------------------------------------------------------------
  SunBridge Care & Rehab for
Circleville                               362    1155 Atwater Avenue       Circleville      Pickaway       OH     43113
---------------------------------------------------------------------------------------------------------------------------
  SunBridge Care & Rehab for Mount
Olive                                     252    228 Smith Chapel Road     Mount Olive      Wayne          NC     28365
---------------------------------------------------------------------------------------------------------------------------
  SunBridge Care & Rehab for Putnam       402    300 Seville Road          Hurricane        Putnam         WV     25526
---------------------------------------------------------------------------------------------------------------------------
  SunBridge Care & Rehab for Siler City   249    900 West Dolphin Street   Siler City       Chatham        NC     27344
---------------------------------------------------------------------------------------------------------------------------
  SunBridge Care & Rehab for the Triad    251    707 North Elm Street      Highpoint        Guilford       NC     27262
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                                  SCHEDULE 4.1
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                      STATES OF INCORPORATION, ORGANIZATION
               AND QUALIFICATION, AND CAPITALIZATION OF BORROWERS

For each Borrower:

Name
----

1.       State of Incorporation/Organization
2.       Capitalization
3.       Business
4.       States of Qualification

Omega Healthcare Investors, Inc. ("OHI")
----------------------------------------

1.   Maryland
2.   100,000,000  common shares,  $.10 par,  20,115,024 o/s as of July 31, 2000;
     10,000,000  preferred shares,  $1.00 par, 2,000,000 Series A o/s, 2,300,000
     Series B o/s and 1,000,000 Series C o/s
3.   Investing in, or providing financing to, income-producing properties in the
     healthcare industry, particularly in the long-term care segment
4.   None other than Maryland

Delta Investors I, LLC
----------------------

1.   Maryland
2.   OHI is the sole member and manager
3.   Purchase (and/or otherwise acquire) ownership and/or leasehold interests in
     one or more nursing  homes,  and assume (and/or  otherwise  incur) any such
     obligations,  and conduct any such  operations,  as shall be  incidental or
     reasonably related thereto
4.   None other than Maryland

Sterling Acquisition Corp.
--------------------------

1.   Kentucky
2.   1,000 shares authorized, $.01 par, 100 issued to OHI
3.   Investing in, or providing financing to, income-producing properties in the
     healthcare industry, particularly in the long-term care segment
4.   None other than Kentucky

<PAGE>

                                  SCHEDULE 4.2
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                                REQUIRED CONSENTS

                                      None
                                      ----

<PAGE>

                                  SCHEDULE 4.6
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                         JUDGMENTS, ACTIONS, PROCEEDINGS

Res-Care Inc. v. Omega Healthcare Investors,  Inc., United States District Court
--------------------------------------------------------------------------------
for the Western District of Kentucky, Civil Action No. 95-42-LS):
-----------------------------------------------------------------

     Claim:    Res Care  claims  that  Omega was  obligated  to reduce the rents
               payable by Res Care under leases of four facilities in Indiana as
               a result of alleged changes in federal or state medicare/medicaid
               reimbursement  after  execution of the leases.  Omega claims that
               (a) its  obligation to  renegotiate  the lease was not triggered,
               because no change had occurred after execution of the leases, (b)
               even if Omega were obligated to renegotiate,  the language of the
               leases  did  not  require  that  the  renegotiation  result  in a
               reduction in rent and (c) Res Care mooted its claim by exercising
               its option to purchase the facilities.

     Status:   In late  1999,  the judge  granted  Omega's  motion  for  summary
               judgment,  holding that the case was mooted.  In early 1999,  the
               judge  reversed  himself,  but found that (a) the  obligation  to
               renegotiate  is merely an  agreement to agree and does not result
               in an agreement to reduce the rents;  (b) as a result,  the court
               cannot  substitute  its judgment as to the rent payable;  and (c)
               the only issues  remaining  were whether Omega  breached its good
               faith  obligation  to  renegotiate  and, if so, what damages flow
               from that breach.

Omega Healthcare Investors, Inc. v. Res-Care, Inc.
--------------------------------------------------

      Claim:   Omega  claims  that,  by turning  in to the State of Indiana  the
               licenses to operate four ICF/MRDD  facilities located in Indiana,
               Res-Care  breached  its  obligations  under  the  leases of those
               facilities to return the facilities to Omega,  upon expiration of
               the leases, in the condition required under the leases.

      Status:  The case is in the discovery phase.

Karrington Health, Inc. v. Omega Healthcare Investors, Inc.
------------------------------------------------------------

      Claim:   Karrington  Health,  Inc.  ("KHI")  claims that Omega  breached a
               commitment  to provide $95 million in  construction  financing to
               KHI. Omega contends,  among other things,  that it did not have a
               contractual obligation to provide such financing.

      Status:  Omega has filed its motion for summary  judgment as to liability;
               KHI has not yet responded
<PAGE>

Madison/OHI Liquidity Investors, LLC v. Omega Healthcare Investors, Inc.
------------------------------------------------------------------------

      Claim:   Madison/OHI  Liquidity  Investors,  LLC  ("Madison")  claims that
               Omega  breached and  anticipatorily  breached a revolving  credit
               loan  agreement  under  which  Madison is the  borrower.  Madison
               alleges that Omega  breached the  agreement by refusing to fund a
               draw request and seeks damages of approximately $700,000. Madison
               further alleges that Omega anticipatorily  breached the agreement
               as  a  result  of  statements  made  by  Essel  Bailey,   Omega's
               then-President and CEO, to the effect that Omega was experiencing
               liquidity  problems and would like to reduce its  exposure  under
               the loan agreement.  Madison seeks damages of  approximately  $15
               million in  connection  with its  anticipatory  breach  claim or,
               alternatively,   it  seeks  specific   performance  of  the  loan
               agreement,  as  modified in  accordance  with a course of conduct
               that Madison  alleges has been  established.  Omega contends that
               (a) Omega informed Madison that it was ready, willing and able to
               perform  its  obligations  under  the  loan  agreement   (without
               modification  for the  alleged  course of  conduct,  which  Omega
               denies) and (b) during  such time as Madison is in default  under
               the loan agreement, Omega is not obligated to fund draw requests.

      Status:  Omega has given Madison  notice of default on numerous  occasions
               and has filed a counterclaim against Madison with respect to such
               defaults.  The  defaults  have  ripened  into  events of default;
               accordingly,  Omega has given  Madison  notice  that the debt has
               been  accelerated.  Omega  intends to amend its  counterclaim  to
               pursue its remedies  against  Madison.  Omega further  intends to
               pursue its remedies against Bryan Gordon and Ronald M. Dickerman,
               who have given limited  personal  guaranties to Omega as security
               for the obligations of Madison under the loan agreement.

Ronald M.  Dickerman  v. Omega  Healthcare  Investors,  Inc.,  Essel W. Bailey,
--------------------------------------------------------------------------------
Jr.,  David A. Stover and F. Scott Kellman
------------------------------------------

      Claim:   10b-5  class  action   securities   claim   alleging   fraudulent
               disclosure and failure to disclose (Note that the name plaintiff,
               Mr. Dickerman, is a partner in Madison)

      Status:  Claim has been made upon the D&O insurance policies, which have a
               combined limit of $15 million; answer due September 1

Benjamin A.  LeBorys v. Omega  Healthcare  Investors,  Inc.,  Essel W.  Bailey,
--------------------------------------------------------------------------------
Jr.,  David A. Stover and Scott F. Kellman
------------------------------------------

      Claim:   Same claim as in the Dickerman class action, including the same
               class period

      Status:  Omega has not yet been served with the complaint
<PAGE>

                                  SCHEDULE 4.7
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                           FAILURE TO COMPLY WITH LAWS

                                      None

<PAGE>

                                  SCHEDULE 4.8
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                              BURDENSOME DOCUMENTS

                Loan Agreement dated June 15, 2000 between Omega
                     and certain Subsidiaries, as Borrowers,
               and Fleet Bank and certain banks signatory thereto

              Investment Agreement dated May 11, 2000 between Omega
                           and Explorer Holdings, L.P.

            Stockholders Agreement dated July 17, 2000 between Omega
                           and Explorer Holdings, L.P.

<PAGE>

                                 SCHEDULE 4.9(a)
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                MATERIAL LIABILITIES AND OBLIGATIONS IN ADDITION
                ------------------------------------------------
            TO THOSE DISCLOSED ON THE COMPANY'S FINANCIAL STATEMENTS
            --------------------------------------------------------

1.   Any liability associated with any litigation described in Schedule 4.6.

2.   Future Currency Contract  assigned by the Company to Omega Worldwide,  Inc.
     on April 2, 1998 with respect to the requirement to sell 20 million pbs for
     $31,740,000 on October 7, 2007.

3.   Guaranty by the Company of  obligations of Omega  Worldwide,  Inc. to Fleet
     Bank, as Agent, pursuant to Guaranty dated November 20, 1998.

4.   Guaranty by the Company of the  obligations of certain of its  Subsidiaries
     (and  Subsidiaries  of Bayside  Street II,  Inc.) to  Healthcare  Personnel
     Associates with respect to employees of Company  Properties  recovered from
     RainTree Healthcare Corporation

5.   Obligations  to  fund  operations  and  capital   expenditures  at  Company
     Properties  recovered  from The Frontier  Group,  Inc. and its  affiliates,
     RainTree Healthcare Corporation, Extendacare or Sun Healthcare Group, Inc.;
     potential  liabilities  (other than liabilities  associated with failure by
     the Company to maintain its  qualification  as a REIT)  associated with the
     operation by Subsidiaries  (and Subsidiaries of Bayside Street II, Inc.) of
     Company  Properties  recovered from RainTree  Healthcare  Corporation,  The
     Frontier  Group,  Inc. and its  affiliates,  Extendacare  or Sun Healthcare
     Group, Inc.

6.   Obligations to fund under Loan Agreement  dated October 2, 1998 between the
     Company and Madison/OHI Liquidity Investors LLC

7.   Obligations to fund working capital pursuant to loan documents  between the
     Company  and   Subsidiaries  and  Essex   Healthcare   Corporation,   Metro
     Health/Indiana, Inc. and Metro Health/Indiana III, Inc.

8.   Mortgages, deeds of trust and/or related security interests encumbering any
     assets  that  secure  from  time to time  any  loan  or  loans  made by The
     Provident Bank and certain other lenders pursuant to this Agreement.

9.   Mortgages, deeds of trust and/or related security interests encumbering any
     assets that secure from time to time the Fleet Obligations.

10.  Indemnification  obligations as seller with respect to any assets  disposed
     of by Omega or any Subsidiary, including any indemnification obligations in
     connection  with the sale of facilities to Metro  Health/Indiana,  Inc. and
     Metro Health/Indiana III, Inc.

11.  Obligations  to  employees  and  directors  under  employee  benefit  plans
     described in Schedule  4.15,  compensation  agreements  dated June 15, 2000
     between the Company and each of F. Scott  Kellman,  Susan Allene Kovach and
     Laurence D. Rich,  severance and consulting  agreements between the Company
     and each of Essel W. Bailey, Jr. and David A. Stover

12.  Extraordinary obligations for legal expenses and consulting fees (including
     fees of the Company's  financial  advisor) incurred from and after April 1,
     2000.

<PAGE>

                                  SCHEDULE 4.14
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                       VIOLATIONS/REVOCATIONS OF LICENSES

                                      None

<PAGE>

                                  SCHEDULE 4.15
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                             EMPLOYEE BENEFIT PLANS

            Metropolitan Life Insurance Company Life Insurance Policy
         Metropolitan Life Insurance Company Long-Term Disability Policy
                     Principal Financial Group Dental Policy
            Blue Cross/Blue Shield Traditional Health Insurance Plan
         Blue Cross/Blue Shield Preferred Provider Health Insurance Plan
                   Company-Sponsored 401-K Profit Sharing Plan
                         1993 Deferred Compensation Plan
                            2000 Stock Incentive Plan
                                Section 125 Plan

<PAGE>

                                  SCHEDULE 4.17
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                               UCC FILING OFFICES
                               ------------------

I.       UCC-1 FINANCING STATEMENTS

         A.  Omega Healthcare Investors, Inc.
          1. Alabama Secretary of State (Canterbury, Lynwood, Northside,
              Westside)
          2. Arkansas Secretary of State (Ouachita, Pocahontas)
          3. Michigan Secretary of State
          4. North Carolina Secretary of State (Mt. Olive, Siler City, Triad)
          5. Clerk of Oauchita County, Arkansas (Oauchita)
          6. Clerk of Randolph County, Arkansas (Pocahontas)
          7. Clerk of Wayne County, North Carolina (Mt. Olive)
          8. Clerk of Chatham County, North Carolina (Siler City)
          9. Clerk of Guilford County, North Carolina (Triad)

         B.  Sterling Acquisition Corp.
          1. Michigan Secretary of State
          2. Kentucky Secretary of State (Boyd, Carter, Elliot, South Shore,
              Wurtland, West Liberty)
          3. Ohio Secretary of State (Best Care)
          4. West Virginia Secretary of State (Boone, Laurel)
          5. Scioto County Recorder (Best Care)
          6. Clerk of Boyd County, Kentucky (Boyd)
          7. Clerk of Carter County, Kentucky (Carter)
          8. Clerk of Elliott County, Kentucky (Elliott)
          9. Clerk of Greenup County, Kentucky (South Shore, Wurtland)
         10. Clerk of Morgan County, Kentucky (West Liberty)

         C.  Delta Investors I, LLC
          1. California Secretary of State (Meadowbrook, Sierra Vista)
          2. Michigan Secretary of State
          3. Ohio Secretary of State (Homestead, Circleville)
          4. Washington Secretary of State (Meydenbauer)
          5. West Virginia Secretary of State (Putnam)
          6. Recorder of Fairfield County, Ohio (Homestead)
          7. Recorder of Pickaway County, Ohio (Circleville)

II.      FIXTURE FILINGS

         A.  Omega Healthcare Investors, Inc.
          1. Russell County, Alabama (Canterbury)
          2. Mobile County, Alabama (Lynwood)
          3. Etowah County, Alabama (Northside)
          4. Madison County, Alabama (Westside)
          5. Clerk of Oauchita County, Arkansas - Fixture Filing (Oauchita)
          6. Clerk of Randolph County, Arkansas - Fixture Filing (Pocahontas)
          7. Clerk/Register of Deeds of Wayne County, North Carolina (Mt. Olive)
          8. Clerk/Register of Deeds of Chatham County, North Carolina
              (Siler City)
          9. Clerk/Register of Deeds of Guilford County, North Carolina (Triad)

         B.  Sterling Acquisition Corp.
          1. Clerk of Boyd County, Kentucky - Fixture Filing (Boyd)
          2. Clerk of Carter County, Kentucky - Fixture Filing (Carter)
          3. Clerk of Elliott County, Kentucky - Fixture Filing (Elliott)
          4. Clerk of Greenup County, Kentucky - Fixture Filing (South Shore,
              Wurtland)
          5. Clerk of Morgan County, Kentucky - Fixture Filing (West Liberty)
          6. Clerk of Boone County, West Virginia (Boone)
          7. Clerk of Clay County, West Virginia (Laurel)

         C.  Delta Investors I, LLC
          1. Clerk/Recorder of Los Angeles County, California (Meadowbrook)
          2. Clerk/Recorder of San Bernardino County, California (Sierra Vista)
          3. Clerk/Recorder of King County, Washington (Meydenbauer)
          4. Clerk of Putnam County, West Virginia (Putnam)

<PAGE>

                                SCHEDULE 4.17(e)
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                                STATUS OF LEASES

Sun - Delta I Lease
-------------------

The entities identified on Schedule 1 are the lessees  (collectively,  "Lessee")
under the Facility Leases and Master Lease Agreement dated as of October 7, 1997
with  Delta  Investors  I, LLC  ("Lessor"),  as amended  by First  Amendment  of
Purchase Agreement,  Master Lease Agreement,  Facility Leases and Guaranty dated
April 23, 1998, by First Amendment of Security  Agreements and Second  Amendment
of Purchase Agreement, Master Lease Agreement, Facility Leases and Guaranty, and
four  (4)  Leases  dated  February  28,  1997  between  Delta I  Investors,  LLC
(successor  to  Omega  Healthcare  Investors,  Inc.)  and  SunBridge  Healthcare
Corporation or Mediplex  Management of Palm Beach County,  Inc., as the case may
be, in each case as  further  amended by  Assumption  and  Amendment  of Delta I
Master Lease  Agreement and Delta I Transaction  Documents  dated as of November
30, 1999 (collectively, and as so amended, the "Lease").

Borrowers  previously  have  delivered  to Agent a true and correct  copy of the
Lease;  the Lease is now in full  force  and  effect  and has not been  amended,
modified or assigned except as disclosed to Agent; and the Lease constitutes the
entire agreement between Lessor and Lessee.

To the best of  Borrowers'  knowledge,  there  exist no  defenses  or offsets to
enforcement  of the Lease;  there are,  as of the date  hereof,  no  breaches or
uncured defaults on the part of Lessee or Lessor thereunder; and there exists no
assignment, hypothecation,  subletting or other transfer of Lessor's interest in
the Lease, except as contemplated by this Agreement.

The Minimum Rent for the Lease Year 2000 is $7,168,491.73.  All Rent that is due
has been paid, and there are no unpaid Additional  Charges owing by Lessee under
the Lease as of the date  hereof.  No  Minimum  Rent or other  items  (including
without limitation  security deposit and any impound account or funds) have been
paid by Lessee in advance  under the Lease except for the security  deposit held
by Lessor  in the form of  irrevocable  letters  of  credit  in the  amounts  of
$514,500, $154,801 and $1,443,730,  respectively, and the monthly installment of
Minimum Rent that became due on August 1, 2000.

Lessee has no claim against Lessor for any security deposit,  impound account or
prepaid Rent except as provided in paragraph (iv) above.

Lessor  has not begun any  action,  or given or  received  any  notice,  for the
purpose of termination of the Lease.

All capitalized terms used herein and not defined herein shall have the meanings
for such terms set forth in the Lease.
<PAGE>

Sun - Liberty Lease
-------------------

         (i)  Regency-North  Carolina,  Inc. is the lessee  ("Lessee") under the
Amended, Consolidated and Restated Lease dated as of February 1, 1996 with Omega
Healthcare Investors, Inc. ("Lessor"), as amended by Assumption and Amendment of
Liberty Lease and Liberty Transaction Documents (as so amended, the "Lease").

         (ii)  Borrowers  previously  have delivered to Agent a true and correct
copy of the  Lease;  the Lease is now in full  force and effect and has not been
amended,  modified  or  assigned  except as  disclosed  to Agent;  and the Lease
constitutes the entire agreement between Lessor and Lessee.

         (iii) To the best of Borrowers'  knowledge,  there exist no defenses or
offsets to  enforcement  of the  Lease;  there are,  as of the date  hereof,  no
breaches  or uncured  defaults on the part of Lessee or Lessor  thereunder;  and
there  currently  exists  no  assignment,  hypothecation,  subletting  or  other
transfer  of  Lessor's  interest in the Lease,  except as  contemplated  by this
Agreement.

         (iv) The  Minimum  Rent for the Lease  Year  February  1, 2000  through
January 31, 2001 is $2,971,706.16  All Rent that is due has been paid, and there
are no unpaid Additional  Charges owing by Lessee under the Lease as of the date
hereof. No Minimum Rent or other items (including  without  limitation  security
deposit  and any  impound  account or funds) have been paid by Lessee in advance
under the Lease except for the security  deposit held by Lessor in the amount of
$453,887.33 (of which Omega has applied $28,662.74 to cure certain defaults, but
as to which Lessee is obligated,  pursuant to the  Forbearance  Agreement  dated
October 13, 1999 to replenish the security  deposit in the amount of $28,662.74)
and the monthly installment of Minimum Rent that became due on July 1, 2000.

         (v)  Lessee  has no claim  against  Lessor  for any  security  deposit,
impound account or prepaid Rent except as provided in paragraph (iv) above.

         (vi) Lessor has not begun any action,  or given or received any notice,
for the purpose of termination of the Lease.

         (vii) All  capitalized  terms used herein and not defined  herein shall
have the meanings for such terms set forth in the Lease.

Advocat - 1992 Master Lease
---------------------------

         (i) Advocat,  Inc.  ("Advocat"),  is the indirect parent of Diversicare
Leasing Corp. (the  "Tenant"),  the tenant under that certain Master Lease dated
August 14, 1992 (as amended,  the "1992 Master Lease"),  which  includes,  among
other facilities, the following facilities:

                  A.       Canterbury Health Center
                  B.       Northside Health Center
                  C.       Ouachita Nursing/Pine Manor Apartments
                  D.       Pocahontas Nursing & Rehabilitation Center
                  E.       Westside Health Care Center
                  F.       Lynwood Nursing Home

         (ii)     The current contractual annual base rent payable under the
 1992 Master Lease is $8,677,214.38.
<PAGE>

Advocat - 1994 Master Lease and Sublease
----------------------------------------

         (i) Tenant is also the tenant  under that  certain  Master  Lease dated
December 1, 1994 (as amended,  the "1994 Master Lease"),  which includes,  among
other facilities, the following facilities:

                  A.       Best Care Health Center
                  B.       Boyd Nursing & Rehabilitation Center
                  C.       Elliott Nursing & Rehabilitation Center
                  D.       Carter Nursing & Rehabilitation Center
                  E.       South Shore Nursing & Rehabilitation Center
                  F.       Wurtland Nursing & Rehabilitation Center

         (ii) Tenant is also the sub-tenant  under that certain Master  Sublease
dated December 1, 1994 (as amended, the "1994 Master Sublease"),  which includes
the following facility:

                  A.       West Liberty Nursing & Rehabilitation Center

         (iii)    The current contractual annual base rent payable under th
1994 Master Lease is $2,887,681,85.

         (iv)     The current contractual annual base rent payable under the
1994 Master Sublease is $198,734.95.

Advocat - 1997 Master Lease
---------------------------

         (i) Tenant is also the parent of Sterling Health Care Management,  Inc.
("SHCM"),  the tenant under that certain Master Lease dated February 1, 1997 (as
amended, the "1997 Master Sublease"), which includes the following facility:

                  A.       Boone Healthcare Center
                  B.       Laurel Nursing & Rehabilitation Center

         (ii)     The current contractual base rent payable under the 1997
Master Sublease is $762,132.59.

Advocat -- Standstill Agreement and Restructuring
-------------------------------------------------

         (i) Pursuant to that certain Standstill Agreement dated April 17, 2000,
as  amended  and  extended  from  time to  time,  Advocat,  Tenant  and SHCM are
collectively  currently  paying  $200,000 per week to Omega for  payments  owing
under the 1992 Master Lease,  the 1994 Master Lease,  the 1994 Master  Sublease,
the 1997 Master Lease and a promissory  note dated August , 1992 in the original
principal amount of $7,031,250.

         (ii)  Omega  and  Advocat  are  in  the   process  of   negotiating   a
restructuring   of  their   relationship,   and  Omega   anticipates   that  the
restructuring will result in the execution of a new master lease with respect to
the facilities covered by the 1992 Master Lease, the 1994 Master Lease, the 1994
Master  Sublease and the 1997 Master  Lease,  as reflected on the attached  Term
Sheet.

<PAGE>

                                  SCHEDULE 8.1
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                                 PERMITTED LIENS
                                 ---------------

1.       Mortgages, deeds of trust and/or related security interests encumbering
         any assets that secure from time to time the Fleet Obligations;

2.       Mortgages,  deeds of trust or financing  leases  securing the following
         bond financings:
<TABLE>
<CAPTION>

      Operator                 Facility               Bond Proceeds             Bond Issue         Loan/Lease Maturity
      --------                 --------               -------------             ----------         -------------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Advocat                    Laurel Manor Health         $2,310,000             IRB South Trust           2017/2002
                           Center (New Tazwell)                                Alabama
Advocat                    Manor House of Dover        $1,395,000             IRB South Trust           2011/2002
                                                                               Alabama
Sun Healthcare Group       SunRise Care & Rehab for    $3,635,000             IRB South Trust           2016/2006
                           La Follette                                         Alabama
Sun Healthcare Group       SunRise Care & Rehab for    $1,205,000             IRB Bank of New York      2014/2006
                           Maynardville
</TABLE>

3.       Mortgages,  deeds of trust and/or related security  interests  securing
         any  other  Indebtedness   (including  the  Indebtedness  described  on
         Schedule  8.11),  provided that the aggregate  principal  amount of all
         outstanding Indebtedness of Omega and its Subsidiaries, determined on a
         consolidated  basis,  that is secured by any  mortgage,  lien,  charge,
         pledge or security interest of any kind does not exceed 40% of Adjusted
         Total Assets (as defined on Schedule  8.11);  provided,  however,  that
         nothing  herein  shall be deemed to permit the filing or placing of any
         mortgage,  lien,  charge,  pledge or security interest of any kind upon
         the Real Property  Collateral other than a Mortgage as set forth in the
         Loan Agreement.

<PAGE>

                                  SCHEDULE 8.10
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                              PERMITTED INVESTMENTS
                              ---------------------
<TABLE>
<CAPTION>
                                                                         Investment at
                                                                         June 30, 2000
                                                                         -------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Core Real Estate Investments
----------------------------
Advocat Inc.                                                                  $111,452,261
Alden Management Services, Inc.                                                 31,327,356
Alterra Healthcare Corporation                                                  34,085,000
Covenant Care, Inc.                                                              1,966,096
Eldorado Care Center, Inc. & Magnolia Manor, Inc.                                5,100,000
Emerald Healthcare, Inc.                                                        11,024,884
Essex Healthcare Corporation                                                    16,433,498
HQM of Floyd County, Inc.                                                       10,250,000
Hunter Management Group, Inc.                                                    8,150,866
Integrated Health Services, Inc                                                161,084,097
Kansas & Missouri, Inc.                                                          2,500,000
Liberty Assisted Living Centers, LP                                              5,995,490
Mariner Post-Acute Network                                                      58,800,000
Peak Medical of Idaho, Inc.                                                     10,500,000
Rocky Mountain Health Care                                                       1,879,726
Senior Care Properties, Inc.                                                     5,882,009
Sun Healthcare Group, Inc.                                                     240,531,601
Texas Health Enterprises/HEA Mgmt. Group, Inc.                                   6,264,560
Tiffany Care Centers, Inc.                                                       5,060,406
TLC Healthcare, Inc.                                                            29,123,805
USA Healthcare, Inc.                                                            17,212,798
Washington N & R                                                                12,152,174
                                                                               -----------
Total Core Real Estate Investments                                            $786,776,627
                                                                              ============

                              Assets Held for Sale
                              --------------------
Extendacare, Inc.                                                              $20,647,603
Emerald Healthcare, Inc.                                                           899,845
RainTree Healthcare Corporation                                                  6,756,596
Res-Care, Inc.                                                                   1,478,559
Sun Healthcare Group, Inc.                                                       6,344,721
Senior Care Properties, Inc.                                                     4,442,323
OHIMA, Inc. and OHI (CT), Inc.                                                   6,166,262
                                                                               -----------
Total Assets Held for Sale                                                     $46,735,909
                                                                               ===========

                                Other Real Estate
                                -----------------
Sunrise                                                                           $798,051
OHIMA, Inc. and OHI (CT), Inc.                                                  60,809,900
Meadowbrook Healthcare of N.C.                                                   7,500,000
RainTree Healthcare Corporation, including Bayside Street, Inc. and             76,825,156
   Bayside Street II, Inc.
                                                                              ------------
Total Other Real Estate                                                       $145,933,107
                                                                              ============

Other Investments
-----------------
Investment in Omega Worldwide, Inc.                                             $6,816,096
Investment in Principal Healthcare Finance Limited                               1,615,083
Investment in PHFT (Australia)                                                   1,266,000
American Healthcare Centers, Inc.                                                7,517,798
Investment in Partnerships - Post Offices                                       15,747,422
                                                                                ----------
Total Other Investments                                                        $32,962,399
                                                                               ===========

Notes Receivable
----------------
Metro Health I                                                                  $1,800,000
Metro Health III                                                                   320,000
Metro-Health/Indiana                                                             3,499,292
Alden Management Services, Inc.                                                    424,097
Emerald Healthcare, Inc.                                                           106,529
Essex Healthcare Corporation                                                     4,400,000
Madison/OHI Liquidity Investors, Inc.                                            7,256,005
Five Star                                                                        1,672,150
BJ Development - Warren Park                                                     1,292,366
BJ Development - Southeastern                                                      438,275
Oakwood Living Centers                                                           6,000,000
Parkview Hospice                                                                    40,000
TLC Healthcare, Inc.                                                               300,000
                                                                               -----------
Total Notes Receivable                                                         $27,548,714
                                                                               ===========
</TABLE>
<PAGE>

                                  SCHEDULE 8.11
                                TO LOAN AGREEMENT
                                  BY AND AMONG
                        OMEGA HEALTHCARE INVESTORS, INC.
                        AND CERTAIN OF ITS SUBSIDIARIES,
                           THE BANKS SIGNATORY HERETO
                                       AND
                            THE PROVIDENT BANK, AGENT

                      PERMITTED INDEBTEDNESS AND GUARANTIES
                      -------------------------------------

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

8.5% Subordinated Convertible Debentures issued January                                                 $48,405,000
24, 1996 and due February 1, 2001
6.95% Senior Unsecured Notes issued June 10, 1998 and due                                              $125,000,000
June 1, 2002
6.95% Senior Unsecured Notes issued July 31, 1997 and due                                              $100,000,000
August 1, 2007
Industrial Revenue Bonds (Salem, WV) issued September 30,                                                $1,885,000
1996 and due September 1, 2010
Industrial Revenue Bonds (Beckley, WV) issued September                                                  $2,760,000
30, 1996 and due September 1, 2012
</TABLE>

Obligations  of a Borrower  in  connection  with a lease of a  Facility  if such
Borrower has  subleased  the Facility or assigned the lease,  or right to lease,
the Facility to an Operator.  Such obligations  shall be treated as Indebtedness
if and to the extent the Operator,  during any fiscal year of the Borrowers,  is
not obligated to fulfill such obligations.

Obligations  of a Borrower  incurred in connection  with, or as a result of, the
exercise by such Borrower or any Subsidiary of its remedies under any agreements
evidencing any lease or mortgage with an operator or any other  obligations of a
Borrower  incurred  in  connection  with,  or as a result of,  attempts  by such
Borrower or a Subsidiary to preserve the value of its property or collateral.

Guaranty by Omega to Fleet Bank of the obligations of Omega Worldwide, Inc. in
an amount that, as of July 7, 2000, was not greater than $6,850,000.

The Fleet Obligations

The Obligations of Borrowers under this Agreement,

Each of the borrowings described on Schedule 8.1

Any other  borrowings  by a Borrower,  provided  that at any time the  aggregate
amount of Indebtedness of Omega and its Subsidiaries,  on a consolidated  basis,
does not exceed 60% of the sum ("Adjusted Total Assets") of (a) the total assets
of Omega and its  Subsidiaries  (defined  as the sum of the  original  cost plus
capital improvements of real estate assets of Omega and its Subsidiaries on such
date, before depreciation and amortization),  determined on a consolidated basis
as of the end of the calendar  quarter  covered in Omega's Annual Report on Form
10-K or Quarterly  Report on Form 10-Q, as the case may be, most recently  filed
with the Securities and Exchange Commission prior to date of determination;  and
(b) the  purchase  price of any  real  estate  assets  or  mortgages  receivable
acquired,  and the amount of any securities  offering  proceeds received (to the
extent  that  such  proceeds  were not used to  acquire  real  estate  assets or
mortgages  receivable  used to reduce  indebtedness)  by Omega or any Subsidiary
since the end of such calendar quarter.SETTLEMENT AND RESTRUCTURING AGREEMENT

         THIS AGREEMENT,  made as of the 1st day of October,  2000, by and among
ADVOCAT INC., a Delaware corporation  ("Advocat"),  of 277 Mallory Station Road,
Suite 130,  Franklin,  Tennessee 37067,  DIVERSICARE  LEASING CORP., a Tennessee
corporation ("DLC"), of 277 Mallory Station Road, Suite 130, Franklin, Tennessee
37067,  STERLING HEALTH CARE MANAGEMENT,  INC., a Kentucky corporation ("SHCM"),
of 277 Mallory Station Road, Suite 130, Franklin,  Tennessee 37067,  DIVERSICARE
MANAGEMENT  SERVICES  CO., a  Tennessee  corporation  ("DMSC"),  of 277  Mallory
Station Road, Suite 130,  Franklin,  Tennessee 37067,  ADVOCAT FINANCE,  INC., a
Delaware  corporation ("AFI"), of 277 Mallory Station Road, Suite 130, Franklin,
Tennessee  37067,  OMEGA  HEALTHCARE  INVESTORS,  INC.,  a Maryland  corporation
("Omega"),  of 900  Victors  Way,  Suite 350,  Ann Arbor,  Michigan  48108,  and
STERLING  ACQUISITION  CORP.,  a Kentucky  corporation  ("Acquisition"),  of 900
Victors Way, Suite 350, Ann Arbor, Michigan 48108.

RECITALS:

         A.  Omega,  individually  and/or  through its  wholly-owned  subsidiary
Acquisition,  as lessor,  and Advocat,  through its wholly owned subsidiary DLC,
and/or DLC's wholly owned  subsidiary SHCM, as lessees,  are parties,  via mesne
assignments,   subleases  and  other  agreements,  to  four  (4)  master  leases
(identified  on Schedule 1 hereto as the "1992 Master  Lease",  the "1994 Master
Lease",  the "1997 Master Lease",  and the "West Liberty Master  Sublease",  and
collectively  referred  to  herein  as the  "Master  Leases")  covering,  in the
aggregate,  twenty-eight  (28)  nursing  care  facilities  located  variously in
Kentucky,  Tennessee, West Virginia,  Alabama, Arkansas and Ohio, listed by name
and location on Schedule 1 (the "Master Leased Facilities").

         B. Omega is the mortgagee of three (3) nursing care facilities  located
in Florida (the "Florida Mortgaged Facilities"),  listed by name and location on
Schedule  2 hereto,  owned by  Counsel  Nursing  Properties,  Inc.,  a  Delaware
corporation  ("CNP"),  and leased by CNP to DLC,  pursuant to a Mortgage Note in
the original  principal amount of $7,031,250,  as amended and restated (the "CNP
Note"),  secured by a Mortgage and Security Agreement and Fixture Filing of even
date therewith (the "CNP  Mortgage").  DLC is obligated,  under the terms of the
subject  lease(s),  to make debt service payments under the CNP Note directly to
Omega.

         C. Omega is also the  mortgagee  of four (4)  nursing  care  facilities
located in Florida (the "Florida Managed Facilities"),  listed by name, location
and owner on Schedule 3 hereto,  owned by various sister corporations of Emerald
Healthcare,  Inc.,  a Florida  corporation  ("Emerald"),  and managed by DMSC, a
wholly owned subsidiary of Advocat.

         D. Counsel Corporation, an Ontario corporation ("Counsel") has provided
a financial undertaking to Omega relative to the obligations of the lessee under
the 1992 Master Lease and of CNP under the CNP Note and CNP Mortgage.

         E. Advocat and/or certain of its  subsidiaries  and/or  affiliates have
provided  guaranties  pertaining  to the Master  Leases and the CNP Note and CNP
Mortgage  (the  "Advocat  Guaranties"),   and  DMSC  has  (i)  subordinated  its
management  fees  with  respect  to the  Florida  Managed  Facilities,  and (ii)
undertaken  to make  certain  advances to the  Florida  Managed  Facilities,  as
provided in the relevant documents.

         F. Advocat and its  subsidiaries  have been in default of their various
obligations  to Omega and its  subsidiaries  since  March 1, 2000 by virtue  of,
among other things, non-payment of rental and other obligations under the Master
Leases and debt service under the CNP Note.

         G.  Advocat has made  partial  payments to Omega since April 24,  2000,
being the date of a  Standstill  Agreement  (the  "Standstill  Agreement"),  the
expiration date of which has been extended by the parties through  September 30,
2000.

         H. The parties have reached a settlement of the foregoing defaults, and
have agreed upon a restructuring  of their various  agreements and  undertakings
with respect to the Master Leased Facilities,  the Florida Mortgaged  Facilities
and  the  Florida  Managed  Facilities,  all  as  more  particularly  set  forth
hereinbelow.

         NOW,  THEREFORE,  in  consideration  of the  foregoing  and the  mutual
covenants contained herein, and for other good and valuable  consideration,  the
receipt  and  adequacy of which are  acknowledged  hereby,  Omega,  Acquisition,
Advocat, DLC, SHCM, AFI and DMSC covenant and agree as follows:

         1. Acknowledgment of Default.  A. Advocat, DLC, SHCM, AFI and DMSC each
acknowledges and agrees that: (i) DLC and SHCM are in material default under the
Master  Leases;  (ii)  CNP is in  material  default  under  the CNP Note and CNP
Mortgage,  and Advocat and DLC are in material  default of their  obligations to
Omega with  respect  thereto;  (iii) all required  notices of default  under the
Master Leases,  the CNP Note and CNP Mortgage,  and the Advocat  Guaranties have
been given or waived by all necessary  parties,  (iv) all grace and cure periods
relating to the  aforementioned  defaults under the Master Leases,  the CNP Note
and CNP Mortgage,  the Advocat  Guaranties,  or otherwise required by applicable
law, have expired without the defaults having been cured,  and (v) the existence
of the defaults now entitles  Omega and its  subsidiaries  to exercise  (subject
only to the terms of the Standstill  Agreement) all of their  respective  rights
and remedies under the Master Leases,  the CNP Mortgage,  the Advocat Guaranties
and applicable law.  Advocat,  DLC, SHCM, AFI and DMSC further  acknowledge that
none of Advocat, DLC, SHCM, AFI or DMSC has any claim or cause of action against
Omega, Acquisition,  or any of their respective subsidiaries and affiliates, nor
any  defense to their  respective  obligations  under the Master  Leases or with
respect to the CNP Note and CNP  Mortgage  or any defense to or right of set-off
against the Master  Lease  Arrearage,  the  Interest  Arrearage,  and/or the CNP
Principal (all as defined below).  The parties hereto acknowledge and agree that
the foregoing  defaults  under the Master Leases and the applicable and relevant
obligations of Advocat under the Advocat Guaranties with respect thereto will be
cured and/or settled upon and by virtue of the  consummation of the transactions
contemplated  by  this  Agreement  relating  to the  Master  Leased  Facilities.
<PAGE>
Further, the parties acknowledge and agree that the foregoing defaults under the
CNP Note and CNP  Mortgage,  and the  applicable  and  relevant  obligations  of
Advocat under the Advocat  Guaranties  with respect thereto will be cured and/or
settled  upon  consummation  of the  transactions  contemplated  by  Paragraph 3
relating to the Florida Mortgaged  Facilities.  However,  except as specifically
provided herein,  pending consummation of those transactions,  Omega retains all
rights under the CNP Note and the CNP  Mortgage  against CNP and Counsel and all
rights  under  the  Advocat  Guaranties  as they  relate to the CNP Note and CNP
Mortgage.

         B. The parties to this Agreement  acknowledge and agree that the unpaid
balance (excluding out-of-pocket costs and expenses incurred by Omega and/or its
subsidiaries, and net of payments made pursuant to the Standstill Agreement) for
Minimum Rent,  Additional  Rent and franchise and similar tax obligations of DLC
and SHCM under the Master Leases as of September 30, 2000 is $2,985,111.99  (the
"Master Lease Arrearage"),  and that the unpaid balance (excluding out-of-pocket
costs  and  expenses  incurred  by Omega  and/or  its  subsidiaries,  and net of
payments  made  pursuant to the  Standstill  Agreement)  for  interest,  accrual
interest, late charges and prepayment penalty under the CNP Note as of September
30,  2000,  is  $1,056,568.25  (the  "Interest  Arrearage").  The  parties  also
acknowledge  that the  principal  balance  on the CNP  Note,  in the  amount  of
$7,031,025 (the "CNP Principal") is due and owing.

         2.       Closings.

         A.       Initial Closing.

                  (I) Time  and  Place.  The  consummation  of the  transactions
contemplated  by this Agreement and  pertaining to the Master Leased  Facilities
and the Florida Managed  Facilities (the "Initial  Closing") shall take place on
or before November 15, 2000 (the "Initial Closing Date"), with an effective date
of October 1, 2000 (the  "Effective  Date").  The  Initial  Closing  Date may be
extended by mutual agreement of the parties, but no such extension shall operate
to postpone the Effective Date. The Initial Closing shall be held at the offices
of Harwell Howard Hyne Gabbert & Manner, P.C., 315 Deaderick Street, Suite 1800,
Nashville,  Tennessee  37238-1800,  or at such other  place as shall be mutually
agreed upon by Omega and Advocat.

                  (II) Initial Closing  Documents.  The following  documents and
instruments shall be executed and/or delivered at the Initial Closing:

(i) The Amended and Restated Master Lease (reference Paragraph 4.A);

(ii)The Amended and Restated Security Agreement (reference Paragraph 4.B);

(iii) UCC Financing Statements (reference Paragraph 4.B);

(iv) The Amended and Restated Guaranty (reference Paragraph 4.C);
<PAGE>
(v) The Amended and Restated Memoranda of Leases (reference Paragraph 4.D);

(vi) The Reaffirmation of Obligations (reference Paragraph 5);

(vii)  The  intercreditor  agreement  to  be  executed  by  and  between  Omega,
Acquisition and AmSouth (reference Paragraphs 4 and 8);

(viii) The Subordinated Note (reference Paragraph 10);

(ix) The Stock Subscription Agreement (reference Paragraph 11);

(x) The parties shall execute a closing  statement  reflecting the  transactions
contemplated to occur at the Initial Closing;

(xi) In addition,  Advocat,  DLC, SHCM, AFI and DMSC shall each deliver to Omega
and Acquisition a certificate, signed by the Secretary or Assistant Secretary of
each such entity,  confirming the incumbency of its respective officers,  and to
which are attached the following:

(aa) a copy of the articles of  incorporation or certificate of incorporation of
each  entity,  as  amended,  and  certified  by the  Secretary  of  State of the
jurisdiction  of  incorporation  as of a date not more than 40 days prior to the
Initial Closing;

(bb) a true,  correct and complete copy of the current bylaws of each entity, as
amended;

(cc) a true,  correct and complete copy of the resolutions  adopted by the Board
of Directors  of each entity,  authorizing  the  execution  and delivery of this
Agreement and the consummation of the transactions contemplated herein;

(dd) a  certificate  of good  standing for each entity,  issued as of a date not
earlier than 40 days prior to the Initial  Closing by the  Secretary of State of
the jurisdiction of its incorporation; and

(ee) a certificate of authority issued by the relevant Secretaries of
State of the  jurisdictions  in which the Master Leased  Facilities are located,
confirming that DLC, SHCM and DMSC, as  appropriate,  are authorized to transact
business as a foreign corporation in such states.

                  (III) Initial Closing  Actions.  At the Initial  Closing,  the
following actions shall be taken:

(i) Acquisition shall call, and AmSouth Bank shall fund,  $3,000,000 of the 1992
Letter  of  Credit  (reference  Paragraph  7),  for  payment  to  Omega  and for
application  against  amounts owing under the CNP Note. Upon receipt by Omega of
the  $3,000,000,  the amount of any claim which Omega may assert on the CNP Note
shall be reduced by the amount by which the claim would have been reduced if the
$3,000,000 were applied first against the Interest Arrearage, second against the
applicable  Prepayment  Premium (as defined in the CNP Note),  and third against
the CNP Principal.
<PAGE>
(ii) Acquisition shall release the balance of the 1992 letter of credit over and
above the foregoing  $3,000,000 and shall release the Other Letter of Credit (as
defined in Paragraph 7).

                  (IV)  Prorations.  There will be no prorations with respect to
the Master Leased  Facilities  between and among the parties hereto,  as DLC and
SHCM are,  and DLC will  remain  solely  responsible  for all taxes,  insurance,
utilities  and other items  typically  prorated  under the terms of the existing
leases thereof and continuing under the Amended and Restated Master Lease.

         B.       Deferred Closing.

                  (I) Time  and  Place.  The  consummation  of the  transactions
contemplated  by  this  Agreement  and  pertaining  to  the  Florida   Mortgaged
Facilities and CNP/Counsel obligations (the "Deferred Closing") shall take place
on or before one hundred  twenty (120) days after the Initial  Closing Date (the
"Deferred  Closing  Date").   The  parties   acknowledge  that  Omega's  limited
forbearance  under  Paragraph  3.D shall expire at the end of the  foregoing one
hundred twenty (120) day period, unless extended by Omega in writing, at Omega's
sole election.  The Deferred Closing Date may be extended by mutual agreement of
the parties, but no such extension shall operate to postpone the Effective Date.
The Deferred Closing shall be held at the offices of Harwell Howard Hyne Gabbert
&  Manner,  P.C.,  315  Deaderick  Street,  Suite  1800,  Nashville,   Tennessee
37238-1800, or at such other place as shall be mutually agreed upon by Omega and
Advocat.

                  (II) Deferred Closing Documents.  The following  documents and
instruments shall be executed and/or delivered at the Deferred Closing:

(i) All documents and instruments  necessary or appropriate to the conveyance of
the Hardee Manor facility from CNP to Acquisition,  and its  incorporation  into
the Amended and Restated Master Lease (reference Paragraph 3.A);

(ii) An escrow  agreement  with  respect  to  Desoto  Manor  and  Leesburg,  and
amendment of the CNP Mortgage related thereto (reference Paragraph 3.B);
<PAGE>
(iii) An  amendment to the Amended and Restated  Security  Agreement  (reference
Paragraph 4.B), adding Hardee Manor thereto;

(iv) UCC Financing Statements for Hardee Manor(reference Paragraph 4.B);

(v) An Amended and  Restated  Memorandum  of Lease for Hardee  Manor  (reference
Paragraph 4.D);

(vi) The Mutual Release by and between  Counsel and Omega  (reference  Paragraph
9);

(vii) The parties shall execute a closing statement  reflecting the transactions
contemplated hereby;

                  (III) Prorations.  There will be no prorations with respect to
Hardee  Manor  between and among the parties  hereto,  as DLC is and will remain
solely responsible for all taxes, insurance, utilities and other items typically
prorated under the terms of the existing leases thereof and continuing under the
Amended and Restated Master Lease.

         3.  Disposition  of  Florida  Mortgaged  Facilities;  Forbearance.  The
Florida Mortgaged  Facilities shall be transferred  and/or closed, in accordance
with the following and subject to the limitations contained in Paragraph 3.D:

         A. Hardee Manor. At or before the Deferred Closing, Advocat shall cause
CNP to convey,  transfer and assign Hardee Manor (including without  limitation,
land,  building and other  improvements,  all furniture,  fixtures and equipment
located therein and used or usable in connection with the operation  thereof) to
Acquisition, in lieu of partial foreclosure of the mortgage covering the Florida
Mortgaged Facilities.  Such conveyance and assignment shall be free and clear of
the existing  lease to DLC, all  mortgages  and other liens and/or  encumbrances
whatsoever other than the existing CNP Mortgage. Upon conveyance to Acquisition,
Hardee  Manor  shall be added to the  Amended and  Restated  Master  Lease to be
executed by Acquisition, as lessor, and DLC, as lessee, pursuant to Paragraph 4,
below. Advocat and DLC agree to promptly and timely cooperate,  and to cause CNP
to cooperate,  with Acquisition in connection with any necessary  certificate of
need ("CON") and/or licensing  transfers  necessary or appropriate to effect the
conveyance  of Hardee  Manor to  Acquisition  and the  addition  thereof  to the
Amended and Restated Master Lease.

         B. Desoto  Manor and  Leesburg.  Within one hundred  twenty  (120) days
after the Initial  Closing,  Advocat shall cause CNP to place warranty deeds and
<PAGE>
bills of sale covering Desoto Manor and Leesburg  irrevocably into escrow with a
title  company  designated  by Omega.  The  deeds and bills of sale  shall be in
recordable  form,  but blank as to grantee.  At the same time,  the CNP Mortgage
shall  be  amended  to (i)  discharge  Hardee  Manor  from  the  lien of the CNP
Mortgage;  (ii) provided that the conditions of Subparagraph 3.D and Paragraph 9
hereof  have  been met,  release  CNP,  Advocat  and DLC from  their  respective
obligations to pay the debt under the CNP Note and CNP Mortgage;  and (iii) have
the CNP  Mortgage  continue in full force and effect for the purpose of securing
the continuing  post-Closing  obligations of Advocat,  DMSC,  SHCM and DLC under
this Agreement.  DLC shall have the period of one hundred twenty (120) days from
and after the Initial  Closing (the  "Advocat  Option  Period")  during which to
elect to either retain or sell Desoto Manor and/or  Leesburg.  Written notice of
such  election  shall be  given by DLC to  Acquisition  not  later  than two (2)
business days  following the  expiration of the Advocat  Option  Period.  If DLC
elects to retain either or both facilities, Acquisition's name shall be inserted
as grantee in the  applicable  warranty  deed(s) and  bill(s) of sale,  and such
instruments shall be released from escrow to Acquisition. Simultaneously, Desoto
Manor  and/or  Leesburg,  as the case may be,  shall be added to the Amended and
Restated  Master  Lease,  which shall be amended for such purpose and to provide
for  rent at fair  market  value  for  the  added  facility  or  facilities.  If
Acquisition  and DLC cannot in good faith agree upon fair market  value  rental,
then such  determination  shall be made by an  arbitrator  jointly  selected  by
Acquisition and DLC, whose decision shall be final. If DLC elects to sell either
or  both  of  Desoto  Manor  and/or  Leesburg,  then in  such  event  Omega  and
Acquisition shall have the period of forty-five (45) days from and after receipt
of DLC's  notice to that effect (the "Omega  Option  Period"),  during  which to
elect (as to each  applicable  facility),  by written  notice to Advocat and DLC
given  within two (2) business  days  following  expiration  of the Omega Option
Period,  either to acquire the  facility(ies) for a purchase price of one dollar
($1.00),  or to permit DLC to sell the  facility(ies)  to one or more  unrelated
third  parties.   If  Omega  elects  to  acquire  either  or  both   facilities,
Acquisition's  name (or such other name as Omega may designate in writing) shall
be inserted as grantee in the applicable  warranty  deed(s) and bill(s) of sale,
and such instruments shall be released from escrow to Omega. If Omega elects not
to acquire either or both facilities,  DLC's name (or such other name as Advocat
may  designate  in  writing)  shall be  inserted  as grantee  in the  applicable
warranty  deed(s) and bill(s) of sale,  and such  instruments  shall be released
from  escrow  to  Advocat.  If  Omega  and  Acquisition  permit  the sale of the
facility(ies),   Advocat  and  DLC  shall   promptly   commence   marketing  the
facility(ies). Advocat and DLC shall have the period of one hundred eighty (180)
days during  which to attempt to sell the  facility(ies)  as  operating  nursing
homes.  If they are unable to accomplish the sale of one or both (as applicable)
facility(ies)  within  such  one  hundred  eighty  (180)  days,  the  applicable
facility(ies)  shall be closed,  and the real estate and other assets comprising
the  facilities  sold as soon as reasonably  practicable.  In any event,  eighty
percent  (80%) of the Net  Sales  Proceeds  from the sale of  either  or both of
Desoto Manor and/or Leesburg shall be paid over to or at the direction of Omega.
As used herein,  "Net Sale Proceeds" shall be the gross sale price less (i) bona
fide  commissions  payable to third party  brokers not related to or  affiliated
with Advocat, DLC, CNP or any subsidiary or affiliate thereof, and (ii) ordinary
and customary  closing costs and expenses,  including title insurance  premiums,
transfer or stamp taxes, and property tax prorations).

         C. Indemnity Obligation.  Advocat, DLC and DMSC, jointly and severally,
shall  defend,  indemnify  and  hold  harmless  Omega,  Acquisition,  and  their
respective  officers,  directors,  shareholders,  successors  and  assigns  (the
"Indemnified Parties"),  with respect to any of the Florida Mortgaged Facilities
conveyed to Omega, Acquisition, or designees thereof, from and against:
<PAGE>
                  1.       Health Care Laws.

                  All cost report  settlements  and audits  arising  from CNP's,
Advocat's or DLC's ownership or operation of such Florida  Mortgaged  Facilities
prior to the conveyance of such Facilities to the  Indemnified  Parties or their
designees,  and any liability,  including  without  limitation  Medicare  and/or
Medicaid  clawback  liability,  pursuant  to any  federal,  state or local laws,
rules,   ordinances,   regulations   and   all   administrative   and   judicial
interpretations  applicable to it  pertaining to operation of a skilled  nursing
facility prior to such conveyance,  including without limitation, Title XVIII of
the Social Security Act, 42 U.S.C. Sections 1395-1395ccc (the Medicare statute);
Title XIX of the Social  Security  Act,  42 U.S.C.  Sections  1396 et seq.  (the
Medicaid statute); the Federal Programs Anti-Kickback Statute, 42 U.S.C. Section
1320a-7b(b);  the Stark Law, 42 U.S.C.  Section 1395nn; the False Claims Act, 31
U.S.C. Sections 3729 et seq. (as amended); the Program Fraud Civil Remedies Act,
31  U.S.C.  Section  3801 et seq.;  the  federal  Anti-Kickback  Act,  42 U.S.C.
Sections  52 et seq.;  the Civil  Monetary  Penalties  Law,  42  U.S.C.  Section
1320a-7a;  and the Criminal Penalties Law for Acts Involving Federal Health Care
Programs,   42  U.S.C.  Section  1320a-7b;   and  all  applicable   implementing
regulations,  rules,  ordinances  and orders,  as well as any similar  state and
local  statutes and  regulations  relating to health care service  providers and
suppliers (the "Health Care Laws").

         2.       Environmental.

         Any claims,  (including,  without  limitation,  third party  claims for
personal  injury or real or  personal  property  damage  or  damage  to  natural
resources or the environment),  actions,  administrative  proceedings (including
formal proceedings),  judgments,  damages,  penalties, fines, costs, liabilities
(including  sums paid in settlements of claims),  interest or losses,  including
reasonable  attorneys'  fees and expenses  (including any such fees and expenses
incurred in enforcing  this  Agreement or  collecting  any sums due  hereunder),
reasonable  consultant fees, and reasonable expert fees, together with all other
costs and expenses of any kind or nature (collectively,  the "Costs") that arise
directly  or  indirectly  from  or in  connection  with  the  violation  of  any
applicable  Environmental  Law (as defined below) by CNP,  Advocat and/or DLC or
the  presence,  storage,  transportation,  disposal or release of any  Hazardous
Substance (as defined  below) in or into the  structure,  building,  air,  soil,
surface water,  groundwater or soil vapor (collectively,  the "Environment") at,
on,  under,  from,  or within the Florida  Mortgaged  Facilities  or any portion
thereof,  to the extent that such Costs  result from such  conditions  or events
occurring  prior  to  the  date  of  conveyance  of  the  Facility(ies)  to  the
Indemnified Parties, their designees, or any of them.

         As used  herein,  "Environmental  Laws"  shall  mean  and  refer to all
federal,  state  and  local,  civil  and  criminal  laws,  regulations,   rules,
ordinances, codes, decrees, judgments,  directives, policies or guidance, common
law, or judicial or administrative orders relating to pollution or protection of
the  environmental,  natural  resources or human  health and safety,  including,

<PAGE>

without  limitation,  laws  relating  to  releases  or  threatened  releases  of
Hazardous Substances [as defined below] (including, without limitation, releases
to ambient air, surface water, groundwater, land, surface and subsurface strata)
or  otherwise  relating  to  the  manufacture,  processing,  distribution,  use,
treatment,  storage,  release,  transport,  disposal or  handling  of  Hazardous
Substances.  "Environmental  laws" includes,  without  limitation,  CERCLA,  the
Hazardous  Materials  Transportation  Act (19 U.S.C.  ss.ss.1801  et seq.),  the
Resource  Conservation  and Recovery Act (42 U.S.C.  ss.ss.  6901 et seq.),  the
Federal Water Pollution  Control Act (33 U.S.C.  ss.ss. 1251 et seq.), the Clean
Air Act (42 U.S.C.  ss.ss.7401 et seq.),  the Toxic  Substances  Control Act (15
U.S.C.  ss.ss.2601  et seq.),  the Oil  Pollution  Act (33 U.S.C.  ss.ss.2701 et
seq.),  the  Emergency  Planning  and  Community  Right-to-Know  Act (42  U.S.C.
ss.ss.11001  et  seq.),  the  Occupational  Safety  and  Health  Act (29  U.S.C.
ss.ss.651 et seq.),  and all other state and local laws  analogous to any of the
above.  "Hazardous  Substances"  shall mean and refer to any  hazardous or toxic
substance,  material or waste, pollutant or contaminant,  flammable or explosive
material,  radioactive  material,  dioxins,  heavy metals,  radon gas, asbestos,
petroleum  products  or  by-products,   polychlorinated  biphenyls,  medical  or
infectious waste or materials,  or any other substance,  waste or material which
is included under or regulated by any Environmental Law.

         3.       Other Matters.

         Any and all losses, damages, costs, expenses, liabilities,  obligations
and claims of any kind (including, without limitation,  reasonable attorney fees
and other legal costs and  expenses)  which the  Indemnified  Parties may at any
time  suffer or incur,  or become  subject  to, as a result of or in  connection
with:

          (a) the  operation of the Florida  Mortgaged  Facilities  prior to the
     respective date(s) of conveyance thereof to the Indemnified Parties,  their
     designees, or any of them; or

          (b) any suit,  action or other proceeding  brought by any governmental
     authority  or person  arising  out of, or in any way related to, any of the
     matters referred to in this Paragraph 3.C.

         D. Limited  Forbearance;  Action upon/Release of CNP Note Indebtedness.
Subject to the timely consummation of those transactions  covered by the Initial
Closing,  and provided  that (i) DLC shall make current  interest  payments,  in
arrears,  on the CNP Note in the amount of $16,666.00 per month from the Initial
Closing Date  (commencing  November 15, 2000) through the Deferred Closing Date,
(ii) Advocat, DLC, SHCM and DMSC shall otherwise comply in all respects with the
terms and conditions of this Agreement, and (iii) no Triggering Event shall have
occurred as defined in Paragraph  4.G,  Omega agrees to forbear from  exercising
its remedies under the CNP Note and CNP Mortgage,  and based on the undertakings
of Counsel and/or Advocat (including the Advocat Guaranty) with respect thereto,
for the period of one hundred twenty (120) days  following the Initial  Closing.
During the time,  and so long as, DLC shall  timely make the  interest  payments

<PAGE>

under sub-subparagraph  3.D.(i),  Acquisition shall reduce the monthly Base Rent
installments  under the Amended and Restated Master Lease by an equal amount. If
the Deferred  Closing timely occurs,  including the consummation of the transfer
of Hardee Manor and its incorporation into the Amended and Restated Master Lease
pursuant to and as contemplated in Paragraph 3.A, and further  conditioned  upon
Omega's receipt at the Initial  Closing of the $3,000,000  payment in accordance
with  Paragraph  7,  below,  Omega  shall  release  Advocat  and DLC from  their
obligations  to pay the principal and any further unpaid  interest  indebtedness
(beyond that to which the $3,000,000  payment is applied) under the CNP Note and
the CNP Mortgage; provided, however, that Advocat shall not be released from its
guaranty  of the  CNP  Mortgage  to the  extent  of any  continuing  obligations
following  its  amendment  as  contemplated  by  Paragraph  3.B. If the Deferred
Closing  does not occur  within one  hundred  twenty  (120) days  following  the
Initial  Closing,  Omega  shall be free to  exercise  any and all its rights and
remedies under the CNP Note, the CNP Mortgage, the Advocat Guaranty with respect
thereto, and the undertakings of Counsel with respect thereto.

         4.  Amended  and  Restated   Master  Lease;   Divestiture   of  Certain
Facilities; Cash Management System Requirements.

         A. Omega  shall  cause  title to the  Master  Leased  Facilities  to be
consolidated  into  Acquisition at or prior to the Initial  Closing.  SHCM shall
simultaneously  assign its interest in the Master Leased  Facilities  covered by
the 1997 Master Lease to DLC. At the Initial  Closing,  Acquisition,  as lessor,
and DLC,  as lessee,  shall  enter into an Amended  and  Restated  Master  Lease
consolidating,  amending  and  restating  the  Master  Leases,  and  adding  (or
providing for the  subsequent  addition,  pursuant to Paragraph  3.A, of) Hardee
Manor to the Master Leased  Facilities,  all in substantially  the form attached
hereto as Exhibit "B" (the "Amended and Restated Master  Lease").  In connection
therewith:

         B. At Initial Closing,  DLC shall enter into and execute an Amended and
Restated Security  Agreement,  covering all of the Master Leased Facilities,  in
substantially the form attached hereto as Exhibit "C", together with amended and
restated UCC financing  statements  for each of the Master Leased  Facilities in
form satisfactory to Acquisition.

         C. Also at Initial  Closing,  Advocat,  AFI and DMSC  shall  execute an
Amended and Restated  Guaranty,  in  substantially  the form attached  hereto as
Exhibit "D".

         D. Also at Initial  Closing,  Acquisition  and DLC shall  enter into an
Amended and Restated  Memorandum of Lease for each of the jurisdictions in which
the Master Leased  Facilities are located,  in  substantially  the form attached
hereto  as  Exhibit  "E";  provided,  however,  that  an  Amended  and  Restated
Memorandum  of Lease for  Hardee  Manor  shall be entered  into at the  Deferred
Closing.

         E. Also at Initial Closing, DLC and SHCM shall enter into a sublease of
the Master Leased  Facilities  covered by the 1997 Master  Lease,  in conformity
with the requirements of Paragraph 13 of this Agreement.  DLC and SHCM shall, at
Initial Closing, execute and deliver to Acquisition the collateral documents for
subleases as described in Paragraph 13.

<PAGE>

         F. No later than one hundred  eighty (180) days  following  the Initial
Closing,  Advocat  and DLC shall  create a new wholly  owned  subsidiary  of DLC
("NewSub"), and shall transfer to NewSub all of DLC's ownership,  tenancy and/or
operation  of each  facility,  including  all accounts  receivable  and personal
property,  included in the Master Leased Facilities (including within the Master
Leased Facilities for purposes of this determination  Hardee Manor, Desoto Manor
and Leesburg) leased by DLC under the Amended and Restated Master Lease, so that
the assets of NewSub shall be limited to the Master  Leased  Facilities.  NewSub
shall  assume  all  obligations  of  DLC  with  respect  to  the  Master  Leased
Facilities. NewSub shall be created as a single purpose entity, and its articles
of  incorporation   and  bylaws  (or  articles  of  organization  and  operating
agreement,  if NewSub is created as a limited  liability  company) shall contain
language   reasonably   satisfactory   to  Omega  and  in  compliance  with  its
obligations, if any, to AmSouth with respect, and limited, to potential guaranty
of DLC's obligations to AmSouth and/or pledge of its stock/membership  interests
to AmSouth,  to effectuate such status.  In connection  with the foregoing,  DLC
shall promptly  initiate and  diligently  pursue to completion all necessary and
appropriate  actions  to  make  SHCM  and  all  other  Sublessees  wholly  owned
subsidiaries  of  NewSub.  Upon  the  completion  of the  requirements  of  this
Paragraph  4.F, all  references  to DLC in  Paragraph  4.G shall be deemed to be
requirements of NewSub.

         G. Within ninety (90) days from the Initial Closing, DLC (or NewSub, as
the case may be) and its  permitted  sublessees  (the  "Sublessees")  will, as a
material  inducement to Omega and Acquisition to enter into this Agreement,  and
as an express covenant under the Amended and Restated Master Lease,  establish a
new cash  management  system (the "New Cash  Management  System").  The new Cash
Management System will include the following procedures:

(i) If a Facility is  operated  by a  Sublessee,  all  receipts  related to that
Facility  shall be  deposited  daily  into one or more  accounts  in the name of
Sublessee.

(ii) If a Facility is operated by DLC or NewSub,  all  receipts  related to that
Facility shall be deposited daily into one or more accounts maintained by DLC or
NewSub in the name of the Facility.  The accounts  maintained by each  Sublessee
and by DLC or NewSub in the name of Facilities into which funds are deposited as
set forth in this  clause  (ii) and in clause (i) are herein  referred to as the
"Facility Accounts".

(iii) On a daily  basis,  the  balance in each  Facility  Account  may, at DLC's
(NewSub's)  option,  be transferred into a concentration  account  maintained by
Advocat (the "Advocat Concentration Account").

(iv) DLC  ("NewSub")  shall  promptly  establish,  with  AmSouth Bank or another
financial   instution   satisfactory  to  Omega  and  Acquisition,   a  separate
concentration account, unrelated to the Advocat Concentration Account, and which
shall be referred to herein as the "DLC  Concentration  Account".  DLC  (NewSub)
shall make, and thereafter maintain, a deposit or deposits in amounts sufficient
to keep the DLC Concentration Account open and operative at all times.

<PAGE>

(v) In the absence of a Triggering  Event,  funds from Facility  Accounts  swept
into the Advocat  Concentration Account may continue to be commingled with funds
from other facilities owned or operated by Advocat,  DLC and/or their respective
affiliates,  and utilized in accordance with existing  practices.  Advocat shall
maintain  financial  records  which will make it possible to identify  (x) funds
deposited into the Advocat  Concentration  Account from the Facilities,  and (y)
expenses of the Facilities paid with funds in the Advocat Concentration Account.
For  purposes  hereof,  "Triggering  Event"  shall  mean  any one or more of the
following:

         (1)      DLC (or NewSub, as the case may be) shall fail to pay the Base
                  Rent and/or Impositions as defined in the Amended and Restated
                  Master  Agreement,  or Advocat  fails to pay any  principal or
                  interest due under the  Subordinated  Note in accordance  with
                  its terms,  and Omega  shall  provide a copy of notice of such
                  default to AmSouth Bank;

         (2)      Acquisition  gives  notice of  termination  of the Amended and
                  Restated  Master  Lease  following  an Event of  Default,  and
                  provides a copy of such notice to AmSouth Bank;

         (3)      An  involuntary  bankruptcy  proceeding  is initiated  against
                  Advocat,  DLC (or  NewSub,  as the case may be), or Advocat or
                  DLC (or New Sub,  as the case may be):  (i)  admits in writing
                  its  inability to pay its debts  generally as they become due,
                  (ii)  files a petition  in  bankruptcy  or a petition  to take
                  advantage  of  any  insolvency  law,  (iii)  makes  a  general
                  assignment for the benefit of its creditors,  (iv) consents to
                  the appointment of a receiver of itself or of the whole or any
                  substantial  part of its property,  or (v) files a petition or
                  answer seeking reorganization or arrangement under the Federal
                  bankruptcy laws or any other  applicable law or statute of the
                  United States of America or any state thereof,  subject to the
                  applicable  provisions of the  Bankruptcy  Code (11 USC ss.101
                  et. seq.);

         (4)      AmSouth  Bank or any  successor  thereto  declares an event of
                  default,  and accelerates any or all of the  indebtedness,  or
                  commences any action  against DLC (or NewSub,  as the case may
                  be) or any  sublessee,  or takes  any  action  to  realize  on
                  AmSouth's  junior interest in accounts  receivable,  under any
                  document or  instrument  evidencing  an obligation of Advocat,
                  DLC,  NewSub  or any  affiliate  of any  of the  foregoing  to
                  AmSouth Bank; or

         (5)      AmSouth  Bank  declines,  for any  reason,  to fund a  working
                  capital  or other  advance  under  any line of credit or other
                  credit facility of Advocat, DLC or any affiliate of either.

<PAGE>

(vi) In connection with the foregoing, and as a material inducement to Omega and
Acquisition  to enter into this  Agreement,  Advocat  and/or  DLC shall  provide
AmSouth written notice clearly  identifying the Facility Accounts at AmSouth and
any other  account  at  AmSouth  which  holds only funds of NewSub or any of its
sublesees.

(vii) From and after a Triggering Event,  except for incidental expenses paid at
the Facility level, all expenses of DLC/NewSub and the Sublessees (the "Facility
Expenses") shall be paid by DLC/NewSub, either on its own behalf or on behalf of
the Sublessees,  from the DLC Concentration  Account.  After a Triggering Event,
under no  circumstances  will funds of DLC/NewSub or any Sublessee be commingled
with funds  belonging  to Advocat or any  affiliate  of Advocat  (except for the
Sublessees).

         H. As a material  inducement  for Omega and  Acquisition  to enter into
this Agreement, and as an express covenant under the Amended and Restated Master
Lease,  Advocat and DLC/New Sub shall not transfer,  or permit the transfer,  of
the  Advocat  Concentration  Account  or the DLC  Concentration  Account  to any
financial  institution  other  than  AmSouth  Bank,  unless  the new  depository
institution  (the  "Replacement  Bank")  shall  first  execute an  intercreditor
agreement with Omega and Acquisition  substantially similar to the intercreditor
agreement executed with AmSouth Bank pursuant to Paragraph 8.D, below.

         5. Florida Managed Facilities.  All existing contractual  relationships
of the parties,  including  without  limitation for purposes hereof the existing
management  agreements and subordination of management fees with and by DMSC and
the  Advocat  guaranties  of DMSC's  performance,  with  respect to the  Florida
Managed  Facilities  shall  remain in  existence  without  modification.  Omega,
Advocat and DMSC shall  execute,  at the Initial  Closing,  a  Reaffirmation  of
Obligations  in  substantially  the form  attached  hereto as Exhibit  "F".  The
parties acknowledge that DMSC has not heretofore executed and joined in the Cash
Collateral  Agreement  dated as of August 1,  1998,  pertaining  to the  Florida
Managed  Facilities.  Advocat  and Omega shall  negotiate,  prior to January 31,
2001,  an  amendment  to that  instrument  which will (i)  resolve,  in a manner
consistent with the intent of the Cash Collateral  Agreement,  DMSC's reasonable
objections to the flow of funds established  thereby, and (ii) provide a consent
by Advocat and DMSC to the sale or transfer of the Florida  Managed  Facilities,
or any of them, to or at the  direction of Omega,  provided,  however,  that any
such sale or  transfer  shall be subject to the  concomitant  assignment  of the
existing DMSC  management  agreement,  which will remain in effect in accordance
with its terms following such sale or transfer.

         6. Capital Expenditures Undertaking. As a material inducement for Omega
and Acquisition  entering into this Agreement and  consummating the transactions
contemplated  hereby,  and as an express covenant under the Amended and Restated
Master Lease, DLC (or NewSub, as applicable) agrees to undertake special project
capital  expenditures  ("Special Project Capital  Expenditures") with respect to
the Master Leased Facilities  (including,  for purposes hereof,  Hardee Manor if
and when it is added to the  Amended  and  Restated  Master  Lease  pursuant  to
Paragraph 3.A) in the cumulative  amount of not less than One Million and no/100
Dollars  ($1,000,000.00)  during the first two (2) Lease Years under the Amended

<PAGE>

and Restated Master Lease. The Special Project Capital Expenditures shall be for
items  intended to enhance the  marketability  and  functionality  of the Master
Leased  Facilities,   and  shall  be  subject  to  the  reasonable  approval  of
Acquisition,  to be  obtained  in writing in  advance  of the  expenditure.  The
Special Project Capital  Expenditures shall be in addition to the annual Minimum
Qualified Capital  Expenditures  required under Section 8.3.2 of the Amended and
Restated Master Lease. Advocat shall guaranty the performance of and payment for
the Special Project Capital  Expenditures.  DLC/NewSub shall in any event expend
not less than Two Hundred Fifty  Thousand and no/100  Dollars  ($250,000.00)  by
June 30,  2001,  and  shall  expend  (unless  prevented  from  doing so by Force
Majeure,  as defined in the Amended and Restated Master Lease) not less than Two
Hundred Fifty Thousand and no/100 Dollars ($250,000.00),  on a cumulative basis,
in each  subsequent  six (6) month  period  thereafter  during  the two (2) year
period  therefor.  DLC/NewSub  shall not  receive a credit for  expenditures  on
Special  Project  Capital  Expenditures  against  its annual  Minimum  Qualified
Capital Expenditures obligations under Section 8.3.2 of the Amended and Restated
Master Lease;  provided,  however, that the Special Project Capital Expenditures
shall be  undertaken  and  performed in  accordance  with the  requirements  for
Qualified  Capital  Expenditures  projects under the Amended and Restated Master
Lease,  and that  failure  (i) to  spend,  or have  plans  in  place  reasonably
acceptable to Omega to spend, for Special Project Capital Expenditures, at least
Five Hundred Thousand and no/100 Dollars  ($500,000.00),  on a cumulative basis,
by September 30, 2001 or to spend, or have plans in place reasonably  acceptable
to Omega to  spend,  for  Special  Project  Capital  Expenditures,  at least One
Million and no/100 Dollars  ($1,000,000.00),  on a cumulative  basis, by May 31,
2002, or (ii) to timely deposit the required expenditure amount into the Special
Project Capital Expenditures Reserve described below, shall in either such event
constitute an Event of Default under the Amended and Restated  Master Lease.  If
and to the extent the Minimum Qualified Capital  Expenditures budget of $325 per
bed per year during the first two (2) Lease Years is not  sufficient to fund all
the scheduled capital expenditure items set forth on Schedule 4, attached hereto
and  incorporated  herein by  reference,  DLC/NewSub  may utilize funds from the
Special  Project  Capital  Expenditures  funding to  complete  Schedule 4 items.
Without  limitation of the foregoing,  if and to the extent  DLC/NewSub fails to
make Special  Project  Capital  Expenditures  of Two Hundred Fifty  Thousand and
no/100 Dollars ($250,000.00) by June 20, 2001 and Two Hundred Fifty Thousand and
no/100  Dollars  ($250,000.00)  in each six (6) month  period  thereafter,  on a
cumulative  basis in  accordance  with the  foregoing,  an  amount  equal to the
unexpended amount, less any funds already so deposited, shall be deposited on or
before  the  fifteenth  (15th)  day of  the  month  following  the  end of  such
applicable  period, by DLC/NewSub into the Capital  Expenditure  Reserve Account
established  and  administered  under and  pursuant to the Amended and  Restated
Lease.  DLC/NewSub  shall  provide  reports  to  Acquisition  of the  status  of
completion and funding of Special  Project Capital  Expenditures,  commencing on
June 30, 2001 for the prior six (6) month period, and at the end of each six (6)
month period thereafter during the first two (2) Lease years.

         7. Letters of  Credit/Security  Deposit.  The parties  acknowledge that
Omega and  Acquisition  now hold security  deposits with respect to the CNP Note
and Master Leased Facilities as follows: (i) a letter of credit in the amount of
$3,800,000 (the "1992 Letter of Credit") which secures  obligations  relating to
the CNP Note and the 1992  Master  Lease,  (ii) a second  letter of credit  (the
"Other Letter of Credit") in the amount of $1,150,000 which secures  obligations
under all of the Master  Leases  other than the 1992 Master  Lease,  and (iii) a
cash deposit in the amount of $340,304.35,  which secures  obligations under all
of the Master  Leases  other than the 1992 Master  Lease.  The cash  deposit was
previously applied by Omega/Acquisition  against unpaid rent, but the letters of

<PAGE>

credit have not been called,  pursuant to and based on the Standstill Agreement.
The  letters  of  credit  were  issued  by  AmSouth  Bank   ("AmSouth")  or  its
predecessors.  AmSouth  maintains  a first  priority  security  interest  in the
accounts  receivable of the Master  Leased  Facilities,  as security for,  among
other things,  the letters of credit. At the Initial Closing,  and in connection
with  (and  conditioned   upon)  the   consummation  of  the   restructuring  of
Advocat/DLC/SHCM's  debt with and by AmSouth,  including without  limitation the
release by AmSouth  of its first  priority  security  interest  in the  accounts
receivable  of the Master Leased  Facilities  (including,  for purposes  hereof,
Hardee  Manor),  Omega/Acquisition  shall (x) call and retain  $3,000,000 of the
1992 Letter of Credit, (y) release and relinquish the remaining $800,000 balance
of the 1992  Letter of  Credit,  and the  $1,150,000  under the Other  Letter of
Credit,  and  (z)  reverse  the  prior  application  of the  cash  deposit.  The
$3,000,000  shall be applied  against the  balance  owing on the CNP Note as set
forth  in  Paragraph  2B.(III).  The  prior  cash  deposit  shall be held as the
security deposit under the Amended and Restated Master Lease. In connection with
the foregoing,  Omega and Acquisition shall terminate and discharge the existing
Letter of Credit  Agreements.  The parties hereto agree that (i)  Acquisition is
incurring  substantial losses by the restructuring of the 1992 Master Lease into
the Amended and Restated Master Lease,  and (ii) not more than $3,000,000 of the
1992 Letter of Credit is fairly allocable to the CNP Note.

         8. AmSouth  Restructuring.  The obligation of Omega and  Acquisition to
proceed  to  Initial  Closing  hereunder  and  to  consummate  the  transactions
contemplated hereby is expressly conditioned on the simultaneous consummation of
a  debt  restructuring  by  and  between  AmSouth  and  Advocat/DLC  (and  their
respective subsidiaries and affiliates), incorporating the following:

         A. AmSouth shall release and relinquish its existing  $3,000,000  first
priority  security  interest in the  accounts  receivable  of the Master  Leased
Facilities and the Florida Mortgaged  Facilities.  The parties  acknowledge that
AmSouth  will  continue to have a fully  subordinated  security  interest in the
subject accounts receivable,  which shall be subject to the terms and conditions
of the intercreditor agreement referred to in subparagraph 8.D, below.

         B. The $3,000,000 draw by Omega on the letters of credit shall become a
separate  indebtedness  of Advocat to  AmSouth,  in  reduction  of the  existing
promissory note, line of credit and overline indebtedness of Advocat to AmSouth.
The  new  indebtedness  shall  be  evidenced  by  a  new  promissory  note  (the
"Non-Accrual  Note"),  which  shall not bear  interest,  and which shall be paid
solely as follows:  (i) first,  all net proceeds from the  anticipated  sale, if
any,  received by Advocat or its  subsidiaries/affiliates  of the  nursing  home
facilities located in Texas and owned by Texas Diversicare  Limited  Partnership
("TDLP") and the  Carteret  nursing home  facility,  located in North  Carolina,
shall be applied against the  Non-Accrual  Note; (ii) in the event the foregoing
amounts are not  sufficient  to liquidate  the  Non-Accrual  Note in full,  then
surplus  cash flow of Advocat (to be defined in terms  satisfactory  to Advocat,
but  in  no  event  shall   surplus   cash   include  any  amounts   payable  to
Omega/Acquisition  under the Amended and Restated  Master Lease, or required for
the  operation  of  the  Master  Leased  Facilities)  shall  be  applied  to the
Non-Accrual Note until it has been paid in full.
<PAGE>

         C. At the Effective Date, the interest rate on the existing  promissory
note,  overline and line of credit (the "AmSouth  Debt") shall be established at
nine and one-half percent (9 1/2%) per annum.  Principal payments on the AmSouth
Debt shall be made solely from surplus cash flow (defined in accordance with and
subject to subparagraph B, above) after payment in full of the Non-Accrual Note.

         D. Documentation of the foregoing debt  restructuring  shall be in form
satisfactory to Omega,  and at Initial Closing,  Omega,  Acquisition and AmSouth
shall  enter into an  intercreditor  agreement  in form  satisfactory  to Omega,
implementing  both the matters set forth in this Paragraph 8 and the matters set
forth in Subparagraphs 4.F and 4.G.

         9. Counsel.  Upon the last to occur of (i) consummation of the transfer
of Hardee Manor to Acquisition in accordance  with Paragraph 3.A, (ii) execution
by CNP  of  all  documents  and  instruments  necessary  or  appropriate  to the
consummation  of the  transactions  contemplated  by  Paragraph  3.B,  and (iii)
Advocat's   certification  to  Omega  that  it  has  satisfactorily  reached  an
accommodation with Counsel with respect to Advocat's  Canadian  subsidiaries and
affiliates and their  contractual and other  relationships  with Counsel,  Omega
shall  release  Counsel  and  its  subsidiaries,  and the  officers,  directors,
shareholders,  attorneys,  successors  and assigns  thereof,  and Counsel  shall
release Omega, Acquisition and their respective subsidiaries,  and the officers,
directors, shareholders, attorneys, successors and assign thereof, pursuant to a
Mutual Release in form satisfactory to the parties thereto.

         10.  Subordinated  Note. At Initial Closing,  Advocat shall execute and
deliver  to  Omega a  Subordinated  Note in the par  amount  of  $1,700,000,  in
substantially the form attached hereto as Exhibit "H".

         11. Preferred  Stock. At Initial Closing,  Advocat shall issue to Omega
its preferred  stock having a liquidation  preference  valued at $3,300,000 plus
accrued and unpaid  dividends,  if any, and having conversion  rights,  dividend
provisions,  mandatory conversion and mandatory redemption provisions and dates,
and such other terms and  conditions as are set forth in the Stock  Subscription
Agreement  to  be  executed  by  Omega  and  Advocat  at  Initial  Closing,   in
substantially the form attached hereto as Exhibit "I".

         12.  Closing  and Sale of  Facilities.  Omega  and  Advocat  shall  use
commercially reasonable efforts, following the Initial Closing, (i) to define an
appropriate  process under which certain of the Master Leased  Facilities  which
are, or which may later become, no longer economically viable as skilled nursing
facilities, and approving or implementing the alternative use of such facilities
during the term of the  Amended  and  Restated  Master  Lease,  (ii) to work out
structural  issues relating to licensure and liability  compartmentalization  by
the  potential  use of  subleases,  and (iii) to work out  structural  issues to
minimize,  to the extent  practicable,  the corporate state tax in Alabama.  The
foregoing  undertakings  are  independent  of, and shall not  modify,  impair or
abrogate in any way the  effectiveness  of the Amended and Restated Master Lease
or  any  other  undertakings  or  liabilities  of  Advocat/DLC/SHCM  under  this
Agreement  or under any other  document or  instrument  executed  in  connection
herewith or otherwise  remaining in effect  between or among them  following the
Initial Closing hereunder. Any implementation of agreement reached in connection

<PAGE>

with, or as a result of, the undertakings and consideration by Omega and Advocat
as described  in this  Paragraph  shall be  implemented  by written  instrument,
signed  by  Omega,  Advocat,  and  any  other  party  to be  charged  therewith.
Notwithstanding  any of the foregoing,  and in any event: (a) none of the Master
Leased  Facilities  listed on Schedule 5, attached  hereto,  shall be subject to
closure or alternative  uses during the initial term of the Amended and Restated
Master Lease without the prior written consent of Omega and any lender holding a
first mortgage on the subject facilities; and (b) there will be no adjustment in
base rent under the Amended and Restated  Master Lease as a  consequence  of the
closing or  alternative  use of any of the Master Leased  Facilities  (provided,
however,  that with respect to closed facilities,  the CPI adjustments otherwise
required by the Amended and Restated  Master Lease shall not apply after closure
thereof).

         13. Sublease of Facilities.  Omega and Acquisition acknowledge that, at
or following the Initial  Closing,  DLC/NewSub may desire to sublease certain of
the Master Leased Facilities to wholly-owned  subsidiaries of DLC,  including in
particular but without  limitation SHCM. Omega and Acquisition hereby consent to
such  subleasing  of certain  of the  Master  Leased  Facilities,  provided  the
following  conditions  are  satisfied  prior  to any  such  sublease:  (a)  each
sublessee shall execute,  as security for the Amended and Restated Master Lease,
but subject to the terms and conditions of the AmSouth  intercreditor  agreement
executed pursuant to Paragraph 8.D, (i) a Sublease Guaranty in the form attached
hereto as Exhibit "J" whereby each  sublessee  jointly and severally  guaranties
Advocat's/DLC's/SHCM's  obligations under the Amended and Restated Master Lease,
(ii) a  Security  Agreement  based  upon the form of the  Amended  and  Restated
Security Agreement attached hereto as Exhibit "C", and (iii) those UCC financing
statements as deemed necessary by Acquisition to secure those interests  granted
by the  Security  Agreement;  and,  (b)  Advocat or DLC,  as  applicable,  shall
execute,  as security for the Amended and Restated Master Lease,  but subject to
the  terms  and  conditions  of the  AmSouth  intercreditor  agreement  executed
pursuant to Paragraph 8.D, (i) a pledge of the stock (or  membership  interests,
if a limited  liability  company) of any such sublessee in the form of the Stock
Pledge  Agreement  attached  hereto  as  Exhibit  "K" , and  (ii)  a  collateral
assignment of the sublease.

         14. Payments Until Initial Closing;  Deferred Compensation.  A. Advocat
shall continue to pay Omega  $209,134.62 per week during the period from October
1, 2000  through the Initial  Closing  Date,  which shall be credited at Initial
Closing  against the accrued Base Rent  otherwise due and payable at the Initial
Closing.

         B. Advocat and DLC  acknowledge and agree that the amount of rent which
Acquisition is forbearing  from receiving as a consequence of entering into this
Agreement   and  the  Master  Lease   totals  at  least  Five  Million   Dollars
($5,000,000).  In order to  induce  Omega  and  Acquisition  to enter  into this
Agreement,  Advocat and DLC jointly and severally  agree to pay  Acquisition  as
damages the amount of  ($5,000,000),  together  with  interest  thereon from the
Effective  Date through the date of payment at the rate of eleven  percent (11%)
per  annum.  Such  amount  shall be payable  at the  expiration  of the Term (as
defined in the Amended and Restated Master Lease) or earlier  termination of the
Lease.  Omega and Acquisition  agree to waive and forever forgive any obligation
of either Advocat or DLC to pay such amount provided DLC/ NewSub fulfills in all

<PAGE>

material  respects its obligations  under the Amended and Restated Master Lease,
to transfer the  Facilities  and Lessee's  Personal  Property (as defined in the
Amended and Restated  Master Lease,  subject to the excluded  items  therein) to
Acquisition at the expiration of the Term or earlier  termination of the Amended
and Restated Master Lease.  However,  unless waived and forgiven as set forth in
the preceding sentence,  such amount shall be immediately due and payable at the
end of the Term or  earlier  termination  of the  Master  Lease.  Payment of the
amount owing under this  Paragraph  14.B shall be a  non-recourse  obligation of
Advocat and DLC secured  (which  security  interest  shall be  acknowledged  and
covered by the Amended and Restated Security Agreement to be executed at Initial
Closing,  and by the security agreements to be executed by any sublessees of the
Facilities)  solely by the Lessee's  Personal Property located at the Facilities
at the expiration of the Term or earlier termination of the Amended and Restated
Master Lease.  Advocat and DLC  acknowledge  that their  obligations  under this
Paragraph  14.B are  independent  of and do not  arise  under  the  Amended  and
Restated Master Lease.

         15. Survival of Provisions;  Default.  A.  Representations  made by any
party hereto,  as well as the provisions hereof which contemplate or necessarily
involve actions or representations by any party hereto after the Initial Closing
and/or the  Deferred  Closing,  shall  survive  the Initial  Closing  and/or the
Deferred Closing, as the case may be.

           B. In the event of a default by Advocat,  DLC,  SHCM,  AFI or DMSC in
the timely  performance of their  respective  obligations  under this Agreement,
Omega  and  Acquisition  shall  have  the  right,  upon  written  notice  to the
defaulting  party,  to  pursue  an  action  for  specific  performance  of  this
Agreement,  and to pursue any other remedies under  applicable law. In the event
of a  default  by  Omega  or  Acquisition  in the  timely  performance  of their
respective  obligations under this Agreement,  Advocat, DLC, SHCM , AFI and DMSC
shall have the right,  upon written notice to the defaulting party, to pursue an
action  for  specific  performance  of this  Agreement,  and to pursue any other
remedies under applicable law.

         16. Time of the  Essence.  Time shall be of the essence in all respects
with respect to Advocat's and DLC's performance under this Agreement.

         17.  Notices.  All notices given pursuant to this Agreement shall be in
writing and shall be delivered by ordinary  first class mail (postage  prepaid),
personal delivery, overnight courier service, or confirmed fax, at the addresses
set forth below:

         If to Advocat, DLC, SHCM, AFI or DMSC:
<PAGE>

                                    Advocat Inc.
                                    277 Mallory Station Road, Suite 130
                                    Franklin, Tennessee 37067
                                    Attention: Chief Financial Officer
                                    Telephone No.: (615) 771-7575
                                    Facsimile No.: (615) 771-7409

         With a copy to:            Harwell Howard Hyne Gabbert & Manner, P.C.
                                    315 Deaderick Street
                                    Nashville, Tennessee 37238
                                    Attention: Mark Manner
                                    Telephone No.:  (615) 256-0500
                                    Facsimile No.: (615) 251-1059

         If to Omega or Acquisition:

                                   Omega Healthcare Investors, Inc.
                                   900 Victors Way, Suite 350
                                   Ann Arbor, Michigan 48108
                                   Attention: Susan Allene Kovach
                                   Telephone No.: (734) 887-0200
                                   Facsimile No.: (734) 887-0201

         With a copy to:           Fred J. Fechheimer
                                   Dykema Gossett PLLC
                                   39577 Woodward Avenue, Suite 300
                                   Bloomfield Hills, Michigan 48304-2820
                                   Telephone No.: (248) 203-0743
                                   Facsimile No.:  (248) 203-0763

All notices  given by personal  delivery or confirmed  fax will be  conclusively
deemed given upon the date of personal  delivery or faxing,  as applicable;  all
notices given by mail or overnight  courier service will be conclusively  deemed
given on the business day immediately following the date the notice is deposited
in the mail or with the overnight courier service.

         18. Authority.  Advocat,  DLC, SHCM, AFI and DMSC jointly and severally
represent and warrant to Omega and Acquisition that the execution,  delivery and
performance  of this  Agreement  has been duly  approved and  authorized  by all

<PAGE>

necessary  corporate  action of  Advocat,  DLC,  SHCM,  AFI and DMSC  (including
without  limitation,  all necessary  action of the shareholders and directors of
Advocat,  DLC,  SHCM,  AFI and DMSC),  and that no consent or approval  from any
other person or entity is required for the due and valid execution, delivery and
performance  of this Agreement by Advocat,  DLC,  SHCM, AFI and DMSC.  Omega and
Acquisition jointly and severally  represent and warrant to Advocat,  DLC, SHCM,
AFI and DMSC that the execution,  delivery and performance of this Agreement has
been duly approved and authorized by all necessary corporate action of Omega and
Acquisition   (including  without  limitation,   all  necessary  action  of  the
shareholders  and  directors of Omega and  Acquisition),  and that no consent or
approval  from any other  person or  entity  is  required  for the due and valid
execution, delivery and performance of this Agreement by Omega and Acquisition.

         19. Releases.  A. Subject to, and in consideration  for, Omega entering
into this  Agreement and  consummating  the  transactions  contemplated  hereby,
Advocat,  DLC, SHCM, AFI and DMSC  (collectively,  the "Advocat  Entities",  and
individually,   an   "Advocat   Entity"),   conditioned   upon   and   effective
simultaneously with the consummation of the transactions  contemplated hereby at
Initial Closing,  releases and forever  discharges Omega,  Acquisition and their
respective  successors,  assigns,  agents,  shareholders,  directors,  officers,
employees,  agents,  parent corporations,  subsidiary  corporations,  affiliated
corporations,  affiliates,  and each of them,  from any and all  claims,  debts,
liabilities,  demands,  obligations,  costs,  expenses,  actions  and  causes of
action,  of every nature and  description,  whether known or unknown,  absolute,
mature,   or  not   yet   due,   liquidated   or   non-liquidated,   contingent,
non-contingent,  direct or indirect or otherwise,  which any Advocat  Entity now
has or at any time may hold, by reason of any matter,  cause or thing  occurred,
done,  omitted  or  suffered  to be  done on or  prior  to the  Initial  Closing
(collectively,  "Omega Liabilities"),  other than from Omega Liabilities arising
out of this  Agreement  or any  document or  instrument  executed in  connection
herewith  or in  consummation  of the  transactions  contemplated  hereby.  Each
Advocat  Entity waives the benefits of any law,  which may provide in substance:
"A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of  executing  the  release,  which if
known by him must have materially affected his settlement with the debtor." Each
Advocat  Entity  understands  that the facts which it believes to be true at the
time of  making  the  release  provided  for  herein  may  later  turn out to be
different than it believes now or at the time of granting such release, and that
information which is not now or then known or suspected may later be discovered.
Each Advocat  Entity accepts this  possibility,  and each Advocat Entity assumes
the risk of the facts  turning out to be  different  and new  information  being
discovered; and each Advocat Entity further agrees that the release provided for
herein  shall in all  respects  continue  to be  effective  and not  subject  to
termination  or  rescission  because of any  difference in such facts or any new
information.

         B. Release of Advocat Entities.  Subject to, and in consideration  for,
the  Advocat  Entities   entering  into  this  Agreement  and  consummating  the
transactions  contemplated hereby, Omega and Acquisition  (together,  the "Omega
Entities", and individually, an "Omega Entity"),  conditioned upon and effective
simultaneously with the consummation of the respective transactions contemplated
hereby at Initial  Closing or thereafter in  accordance  herewith,  releases and
forever  discharges  the Advocat  Entities  (expressly  excluding,  for purposes
hereof, Counsel Corporation and CNP) and their respective  successors,  assigns,

<PAGE>

agents,   shareholders,   directors,   officers,   employees,   agents,   parent
corporations, subsidiary corporations, affiliated corporations,  affiliates, and
each of them, from any and all claims, debts, liabilities, demands, obligations,
costs, expenses,  actions and causes of action, of every nature and description,
whether  known or  unknown,  absolute,  mature,  or not yet due,  liquidated  or
non-liquidated,  contingent,  non-contingent,  direct or indirect or  otherwise,
which any Omega  Entity  now has or at any time may hold,  with  respect  to the
following  obligations  arising  under the Master  Leases and in existence as of
September  30, 2000 (but not as to any such  obligations  arising from and after
October 1, 2000 under the Amended and Restated Master Lease, nor as to any other
obligations  under the Master Leases not specifically  included in the following
listing):

(i). The payment of "Minimum  Rent" and  "Additional  Fixed Rent" (as defined in
and to the extent applicable to the Master Leases);

(ii). The payment of any franchise tax incurred by an Omega Entity in connection
with the collection of any type of rent under the Master Leases;

(iii). The payment of any late fees or default  interest  incurred in connection
with the failure to pay Minimum Rent and any franchise tax; and

(iv).  The payment of attorneys'  fees and costs  incurred by an Omega Entity in
connection  with the  collection  of past due  amounts  owing  under the  Master
Leases.

As of the last to occur of (aa)  transfer of Hardee  Manor to  Acquisition,  and
incorporation  of Hardee  Manor into the Amended and  Restated  Master  Lease in
accordance  with  Paragraph  3.A,  (bb)  execution by CNP of all  documents  and
instruments  necessary to effect the disposition of DeSoto Manor and Leesburg in
accordance  with  Paragraph  3.B, and (cc) receipt by  Omega/Acquisition  of the
$3,000,000.00  in  letter  of  credit  proceeds  pursuant  to  Paragraph  7, the
foregoing  release by the Omega  Entities  shall also  extend to the  payment of
principal  under  the CNP Note  and the CNP  Mortgage  (but  not any  continuing
obligations   under  the  CNP  Mortgage   following  the  amendment  thereof  as
contemplated  in  Subparagraph  3.B,  above,  nor  Advocat's  guaranty  of  such
continuing   obligations  under  the  CNP  Mortgage,  nor  Advocat's  and  DLC's
continuing obligations under Paragraph 14.B, above).

Each Omega Entity understands that the facts which it believes to be true at the
time of  making  the  release  provided  for  herein  may  later  turn out to be
different than it believes now or at the time of granting such release, and that
information which is not now or then known or suspected may later be discovered.
Each Omega Entity  accepts this  possibility,  and each Omega Entity assumes the
risk  of the  facts  turning  out to be  different  and  new  information  being
discovered;  and each Omega Entity further agrees that the release  provided for
herein  shall in all  respects  continue  to be  effective  and not  subject  to
termination  or  rescission  because of any  difference in such facts or any new
information.
<PAGE>

         Notwithstanding anything to the contrary contained in this Paragraph 19
or  otherwise,  this  release  shall only be  effective on and as of the Initial
Closing or such later  applicable  date set forth in this  Paragraph  19, as the
case may be and not otherwise.

              20.  Non-Disclosure.  A. Until Omega and Advocat mutually agree to
publicly  announce this  Agreement,  (i) the parties  hereto,  and each of their
officers,  directors,  employees,  agents,  consultants and advisors, shall keep
confidential  all terms hereof and information  contained  herein (except to the
extent required either (a) in connection with the satisfaction of the conditions
contained herein (including,  without limitation,  providing such information to
its creditors and their advisors),  (b) by the Securities  Exchange Act of 1934,
as amended, and the rules and regulations  promulgated thereunder (the "Exchange
Act"),  or (c) reporting  requirements,  if any, of the New York Stock  Exchange
("NYSE Requirements"), (ii) neither Advocat, DLC, SHCM, DMSC, nor any persons or
entities  affiliated with any of them or their officers,  directors,  employees,
agents,  consultants  and  advisors  (within  the  meaning of Rule 405 under the
Securities  Act of 1933,  as amended)  shall trade in Omega's  stock,  and (iii)
neither Omega,  Acquisition,  nor any persons or entities affiliated with any of
them or their officers,  directors,  employees, agents, consultants and advisors
(within the meaning of Rule 405 under the  Securities  Act of 1933,  as amended)
shall trade in Advocat's  stock.  Advocat,  DLC, SHCM and DMSC  acknowledge that
Omega  may  disclose  the  existence  of this  Agreement  and  the  transactions
contemplated  hereby in  appropriate  public  filings under the Exchange Act, or
pursuant  to the NYSE  Requirements.  Omega  and  Acquisition  acknowledge  that
Advocat may  disclose  the  existence  of this  Agreement  and the  transactions
contemplated  hereby in  appropriate  public  filings under the Exchange Act. No
press releases with respect to this Agreement or the  transactions  contemplated
hereby shall be issued absent the prior mutual approval of Omega and Advocat.

              B.  Notwithstanding  subparagraph A, above,  each party hereto may
and shall give all required  notices of the existence of this  Agreement and the
pending  consummation  of the  transactions  contemplated  hereby to any and all
appropriate governmental authorities.

              C. The parties  agree not to disclose or permit  their  respective
representatives,  attorneys,  auditors or agents to  disclose,  except as may be
required  by  law  or  performance  hereunder,   any  confidential,   non-public
information  of the others which is obtained by any of them in  connection  with
the transactions contemplated by this Agreement.

              21. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES  THE  RIGHT TO TRIAL BY JURY IN ANY  ACTION  OR  PROCEEDING  BASED  UPON,
ARISING  OUT OF, OR IN ANY WAY  RELATING  TO:  (i) THIS  AGREEMENT,  OR (ii) ANY
CONDUCT,  ACTS OR  OMISSIONS  OF ANY  PARTY  HERETO  OR ANY OF THEIR  DIRECTORS,
TRUSTEES, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED
WITH THEM; IN EACH OF THE FOREGOING CASES,  WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
<PAGE>

              22. Miscellaneous. The recitals to this Agreement are incorporated
into and made a part of this  Agreement.  This  Agreement may be executed in any
number  of  counterparts,  each of  which  counterparts,  when so  executed  and
delivered,  shall be deemed to be an original,  but all such counterparts  taken
together shall constitute one and the same  instrument.  This Agreement shall be
binding upon and inure to the benefit of the parties and their respective heirs,
legatees, personal representatives,  successors and permitted assigns; provided,
however,  neither  Advocat,  DLC,  SHCM,  AFI nor DMSC may assign its respective
rights or duties  hereunder or in  connection  herewith or any  interest  herein
(voluntarily,  by operation of law, as security or otherwise)  without the prior
written  consent of Omega,  which consent may be withheld in the sole discretion
of Omega.  This  Agreement  shall not be  construed so as to confer any right or
benefit  upon any person  other than the  parties  to this  Agreement  and their
respective successors and permitted assigns. This Agreement shall be governed by
and construed only in accordance with Michigan law,  without regard to conflicts
of law principles; provided, however, that applicable state law shall control to
the  extent  necessary  to  effect  the real  property  remedies  of  Omega  and
Acquisition  set  forth  herein.  Any  provision  of  this  Agreement  which  is
prohibited or unenforceable in any jurisdiction  shall, as to such jurisdiction,
be ineffective to the extent of such  prohibition  or  unenforceability  without
invalidating  the  remaining  provisions  hereof or  affecting  the  validity or
enforceability  of such provision in any other  jurisdiction,  which  provisions
shall  remain in full  force and  effect.  This  Agreement,  the  Schedules  and
Exhibits  hereto,  constitute  the entire  agreement  between the  parties  with
respect to the transaction herein  contemplated and, except as set forth herein,
supersede  all  prior  agreements  or  negotiations  between  the  parties.  Any
modification  or  amendment  to this  Agreement  shall be  effective  only if in
writing and executed by the party against whom  enforcement of the  modification
or  amendment  is  sought.  Section  headings  used  in this  Agreement  are for
convenience  of  reference  only and shall not affect the  construction  of this
Agreement. ADVOCAT, DLC, SHCM, AFI AND DMSC EACH HAS ENTERED INTO THIS AGREEMENT
VOLUNTARILY,  WITHOUT DURESS OR INFLUENCE,  WITHOUT  RELYING ON ANY AGREEMENT OR
REPRESENTATION NOT SPECIFICALLY SET FORTH IN THIS AGREEMENT, AND AFTER HAVING AN
ADEQUATE OPPORTUNITY TO CONSULT WITH COUNSEL OF THEIR CHOICE.

              23. Exhibits and Schedules.  The following  Exhibits and Schedules
are attached to, and incorporated by reference in, this Agreement:

              EXHIBITS:

              Exhibit "A"           [Intentionally Deleted]

              Exhibit "B"           Amended and Restated Master Lease - Filed
                                      Separately

              Exhibit "C"           Form of Amended and Restated Security
                                      Agreement

              Exhibit "D"           Form of Amended and Restated Guaranty
<PAGE>

              Exhibit "E"           Form of Amended and Restated Memorandum of
                                      Lease

              Exhibit "F"           Form of Reaffirmation of Obligations
                                      (Florida Managed Facilities)

              Exhibit "G"           [Intentionally Deleted]

              Exhibit "H"           Form of Subordinated Note

              Exhibit "I"           Form of Stock Subscription Agreement

              Exhibit "J"           Form of Sublease Guaranty

              Exhibit "K"           Form of Stock Pledge Agreement

              Exhibit "L            [Intentionally Deleted]

              SCHEDULES:

              Schedule 1            Master Leased Facilities

              Schedule 2            Florida Mortgaged Facilities

              Schedule 3            Florida Managed Facilities

              Schedule 4            Certain Qualified Capital Expenditures Items

              Schedule 5            Master Leased Facilities Not Subject to
                                      Closure

              IN  WITNESS  WHEREOF,   the  parties  hereto  have  executed  this
Agreement as of the date first above written.

                         [SIGNATURES ON FOLLOWING PAGE]

ADVOCAT INC., a Delaware corporation        DIVERSICARE LEASING CORP., a
Tennessee corporation

<PAGE>

By: /s/ James F. Mills, Jr.               By: /s/ James F. Mills, Jr.
    ------------------------                  --------------------------
Its: Senior Vice President                Its: Senior Vice President

STERLING HEALTH CARE MANAGEMENT                      DIVERSICARE MANAGEMENT
INC., a Kentucky corporation corporation             SERVICES CO., a Tennessee

By:  /s/ James F. Mills, Jr.                         By: /s/ James F. Mills, Jr.
     -----------------------                             ----------------------
     James F. Mills, Jr.                                 James F. Mills, Jr.
Its: Senior Vice President                           Its: Senior Vice President

ADVOCAT FINANCE, INC., a Delaware
corporation

By:  /s/ James F. Mills, Jr.
     -------------------------
Its:  Senior Vice President

OMEGA HEALTHCARE INVESTORS, INC.,                 STERLING ACQUISITION CORP., a
a Maryland corporation                            Kentucky corporation

By: /s/ Susan Allene Kovach                       By:  /s/ Susan Allene Kovach
    -----------------------                            ------------------------
        Susan Allene Kovach                                Susan Allene Kovach
        Vice President                                     Vice President

<PAGE>
                                    EXHIBIT C

                 FORM OF AMENDED AND RESTATED SECURITY AGREEMENT

         THIS AMENDED AND RESTATED SECURITY AGREEMENT (the "Security Agreement")
is made  and  entered into as of November  ,  2000  by and between  DIVERSICARE
LEASING CORP., a Tennessee corporation (the "Debtor"),  and STERLING ACQUISITION
CORP., a Kentucky corporation ("Secured Party").

                                    RECITALS:

         A. Capitalized  terms used and not otherwise  defined herein shall have
the meanings given them in Article I below.

         B.  Concurrently  herewith,  Secured Party and Debtor have entered into
the Lease, pursuant to which Secured Party has leased to Debtor the Facilities.

         C. This  Security  Agreement  is  intended  to  consolidate,  amend and
restate those certain  security  agreements  previously  delivered to secure the
1992 Master Lease,  the 1994 Master Lease,  the 1997 Master Lease,  and the West
Liberty Master Lease into one document.

         D. The  obligations  of the  Original  Security  Agreements  have  been
assigned to, and assumed by, the Debtor.

         E. The rights,  title and  interests to the  Collateral  secured by the
Original  Security  Agreements have been assigned to, and assumed by, the Debtor
subject to the security interests of the Secured Party.

         F. The rights and  obligations of the lessee under the Original  Master
Leases  have been  assigned  to,  and  assumed  by,  the  Debtor,  as the lessee
thereunder.

         G. The rights and  obligations of the lessors under the Original Master
Leases have been assigned to, and assumed by, the Secured  Party,  as the lessor
thereunder.

         H. As a condition to Secured Party's agreement to enter into the Lease,
Secured Party has required  Debtor to enter into this Security  Agreement and to
grant, amend and restate security interests to Secured Party as herein provided.

         NOW,  THEREFORE,  in order to induce  Secured  Party to enter  into the
Lease, and for other good and valuable consideration the receipt and sufficiency
of which hereby are acknowledged, the parties agree as follows:
<PAGE>

                             ARTICLE I - DEFINITIONS

         This Security  Agreement is executed and  delivered in connection  with
the Lease. Terms defined in the Commercial Code (as hereinafter defined) and not
otherwise  defined in this  Security  Agreement  or in the Lease  shall have the
meanings  ascribed to those  terms in the  Commercial  Code.  In addition to the
other definitions  contained  herein,  when used in this Agreement the following
terms shall have the following meanings:

         "1992  Master  Lease"  means the certain  master lease dated August 14,
1992  between  Omega  Healthcare  Investors,  Inc.  as lessor,  and  Diversicare
Corporation of America, as lessee, for the facilities described therein.

         "1994 Master  Lease" means the certain  master lease dated  December 1,
1994 between Secured Party as lessor, and Sterling Health Care Management, Inc.,
as lessee, for the facilities described therein.

         "1997 Master Lease" means the certain  master lease dated March 1, 1997
between Secured Party as lessor,  and Sterling Health Care Management,  Inc., as
lessee, for the facilities described therein.

         "Collateral" means the collateral described in Article II, Section 2
below.

         "Commercial Code" means the Uniform  Commercial Code, as enacted and in
force from time to time in the state in which the Facilities are located.

         "Debtor's Personal Property" means any tangible personal property owned
by Debtor and not used in connection with the operation of the Facilities.

         "Facilities" means the healthcare facilities identified on attached
Schedule 1.

         "Lease"  means the  Consolidated  Amended  and  Restated  Master  Lease
executed  concurrently  herewith by Secured  Party,  as lessor,  and Debtor,  as
lessee of the Facilities.

         "Original  Master Leases" means the 1992 Master Lease,  the 1994 Master
Lease,  the 1997 Master Lease, and the West Liberty Master Lease, collectively.

         "Original  Security  Agreements" means any and all security  agreements
delivered to secure the Original Master Leases or any one of them.

         "Settlement and Restructuring  Agreement" means that certain settlement
and restructuring  agreement by and among Advocat, Inc., a Delaware corporation,
Debtor,   Sterling  Health  Care  Management,   Inc.,  a  Kentucky  corporation,
Diversicare Management Services Co., a Tennessee  corporation,  Omega Healthcare
Investors,  Inc.,  a  Maryland  corporation,  and  Secured  Party  of even  date
herewith.
<PAGE>

         "Subordinated Note" means that certain  subordinated note from Advocat,
Inc., a Delaware  corporation to Omega  Healthcare  Investors,  Inc., a Maryland
corporation  in  the  original   principal   amount  of  Three  Million  Dollars
($3,000,000.00) Dollars of even date herewith.

         "West Liberty Master Lease" means the certain first amendment to master
sublease  dated  March 3,  1999  between  OS  Leasing  Company  as  lessor,  and
Diversicare Leasing Corp., as lessee, for the facilities described therein.

                             ARTICLE II - AGREEMENT

         1. GRANT OF SECURITY INTEREST.  Debtor hereby grants to Secured Party a
continuing  security  interest  in the  Collateral  to secure the payment of all
amounts now or  hereafter  due and owing to Secured  Party from Debtor under the
Lease, or any extension or renewal  thereof,  and any and all other  obligations
incurred  in  connection  therewith,  together  with all  other  obligations  or
indebtedness  of Debtor and/or  Advocat,  Inc. to Secured Party under the Lease,
Settlement and Restructuring  Agreement,  and Subordinated Note however created,
evidenced or arising, whether direct or indirect, absolute or contingent, now or
hereafter   existing,   due  or  to  become  due,  plus  all  interest,   costs,
out-of-pocket  expenses  and  reasonable  attorneys'  fees  which may be made or
incurred by Secured Party in the  administration,  and  collection  thereof (the
"Liabilities"),  and in the  protection,  maintenance,  and  liquidation  of the
Collateral.  This Security  Agreement  shall be and become  effective  when, and
continue in effect as long as, any  Liabilities  of Debtor to Secured  Party are
outstanding and unpaid, and except as otherwise  permitted pursuant to the terms
of this Agreement,  the Settlement and  Restructuring  Agreement,  or the Lease,
Debtor  will not sell,  assign,  transfer,  pledge or  otherwise  dispose  of or
encumber any  Collateral to any third party while this Security  Agreement is in
effect  without  the  prior  and  express  written  consent  of  Secured  Party.
Notwithstanding  the  foregoing,  the  obligation of Debtor to pay Secured Party
Five Million Dollars  ($5,000,000) plus interest thereon as set forth in Section
15 of the Settlement and  Restructuring  Agreement  shall be secured only by the
Equipment (as hereinafter defined).

         2. COLLATERAL. The "Collateral" covered by this Agreement is all of the
personal  property  described  below  that  Debtor  now owns or shall  hereafter
acquire or create,  immediately  upon the acquisition or creation  thereof,  and
that is located at or used  exclusively in connection with, or arises from or in
connection with Debtor's use and operation of, the Facilities, consisting of the
following:

                  (a)  Accounts.  To the extent  permitted by law, all accounts,
Health Care Insurance  Receivables (as defined in Revised Article 9, hereinafter

<PAGE>

deferred),  accounts receivable,  deposits,  prepaid items,  documents,  chattel
paper,  instruments,  contract  rights  (including  rights under any  management
agreement  or  franchise  agreement  with  respect to the  Facilities),  general
intangibles,  choses in action,  including  any right to any refund of any taxes
paid to any governmental authority prior to or after the date of this Agreement,
and all  ledgers,  printouts,  papers,  data,  file  materials  and  information
relating to any account debtors in respect  thereof,  and/or to the operation of
the Debtor's  business  relating to the Facilities,  and all rights of access to
such books, records, ledgers,  printouts,  data, file materials and information,
and all property in which such books, records,  ledgers,  printouts,  data, file
materials and information are stored (the "Accounts"); and

                  (b)  Certificates of Need. To the extent permitted by law, all
Certificates  of Need now or hereafter  issued in connection with the Facilities
(the "Certificates"); and

                  (c) Equipment.  All equipment,  furniture,  fixtures and other
personal  property  used in  connection  with the  operation of the  Facilities,
whether now owned or hereafter acquired by Debtor, together with all accessions,
additions,  parts, attachments,  accessories, or appurtenances thereto including
but not  limited to linens,  motor  vehicles,  furniture,  fixtures  and movable
equipment,  leasehold  improvements,  and all  books  and  records  now owned or
hereafter acquired  pertaining to any of the above described property other than
Debtor's  Personal  Property,  but specifically  excluding any computer readable
memory and any  computer  hardware or software  necessary to process such memory
(the "Equipment") and

                  (d) Insurance  Rights.  All rights  under  contracts  of
insurance  now owned or  hereafter acquired covering any of the Collateral
("Insurance Rights"); and

                  (e) Inventory. All inventory and goods, now owned or hereafter
acquired, including but not limited to, raw materials, work in process, finished
goods, food, medicines, tangible property, stock in trade, wares and merchandise
used in or sold in the  ordinary  course  of  business  at the  Facilities  (the
"Inventory"); and

                  (f)  Medicaid.  To the extent  permitted by law, all rights to
reimbursement under 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. ss.ss. 1396 et seq.) and the regulations promulgated thereunder; and

                  (g)  Medicare.  To the extent  permitted by law, all rights to
reimbursements under 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. ss.ss. 1395 et seq.) and the regulations promulgated thereunder; and
<PAGE>

                  (h) Other Property. All other tangible and intangible property
of Debtor now or hereinafter acquired by Debtor and located at the Facilities or
used  exclusively in connection with the operation of the Facilities,  including
without  limitation,  but specifically  excluding  Debtor's  continuous  quality
improvement  program,  manuals and materials;  management  information  systems;
policy, procedure and educational manuals and materials; and similar proprietary
property including any right to the use of the name "Diversicare"' and

                  (i) Patient  Agreements.  To the extent  permitted by law, any
and all contracts,  authorizations,  agreements or consents made by or on behalf
of any patient or resident of any of the Facilities, or any other person seeking
or obtaining  services or goods from Debtor,  pursuant to which Debtor  provides
skilled nursing care,  intermediate  care,  personal care and/or assisted living
facilities,  or any form of  patient  or  residential  care,  as well as related
services at any of the Facilities (as such contracts, authorizations, agreements
or  consents  may be  amended,  supplemented,  renewed,  replaced,  extended  or
modified from time to time);  including consents to treatment and assignments of
payment of benefits (collectively, the "Patient Agreements");and

                  (j) Permits. To the extent permitted by law, (i) the operating
licenses for each of the Facilities, any certificate of need, any other license,
permit,  approval or  certificate  which from time to time,  may be issued or is
required to be issued by the United States,  any state or local  government,  or
any  agency or  instrumentality  of any of the  foregoing  with  respect  to the
construction,  installation or operation of any of the Facilities or any portion
or component of any of the  Facilities,  the  providing of any  professional  or
other  services  by  the  Debtor,  the  purchase,  sale,  dispensing,   storage,
prescription  or use of drugs,  medications or the like by Debtor,  or any other
operations or businesses of Debtor; and (ii)  certifications and eligibility for
participation  by Debtor,  in respect of its operation of any of the Facilities,
in programs or arrangements  of or  reimbursement  from any third-party  payors,
including  Medicare  and  Medicaid;  and (iii) all other  licenses  permits  and
certificates used or useful in connection with the ownership,  operation, use or
occupancy of any of the Facilities (collectively, the "Permits"); and

                  (k) Investment  Property.  All Investment Property (as defined
in the Uniform Commercial Code), other than a security,  whether certificated or
uncertificated, in a subsidiary or affiliate of Debtor; and,

                  (l)  Proceeds.  Proceeds  arising out of the  operation of the
Facilities, including, without limitation, proceeds of hazard or other insurance
policies and eminent  domain or  condemnation  awards,  of all of the  foregoing
described  Inventory or  Equipment,  together with any and all deposits or other
sums at any time credited by or due from Secured Party to Debtor and any and all
instruments,  documents,  policies and  certificates  of insurance,  securities,

<PAGE>

goods, accounts receivable,  choses in action, chattel paper, cash, property and
the proceeds thereof (whether or not the same are Collateral or Proceeds thereof
hereunder) owned by Debtor or in which Debtor has an interest,  which are now or
at any time  hereafter in possession or under the control of Secured Party or in
transit by mail or carrier to or from Secured Party or in the  possession of any
third party acting on behalf of Secured Party, without regard to whether Secured
Party received the same in pledge,  for safekeeping,  as agent for collection or
transmission or otherwise,  or whether Secured Party has conditionally  released
the same (the "Proceeds"); and

                  (m) Reimbursement  Contracts.  To the extent permitted by law,
all rights to third-party  reimbursement  contracts for the Facilities 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; and

                  (n) Rights. All rights, remedies,  powers and/or privileges of
Debtor with respect to any of the foregoing.

         The form of a description of the Collateral to be attached to financing
statements  executed by Debtor in  connection  herewith  is  attached  hereto as
Exhibit A. Except to the extent set forth above, the term  "Collateral" does not
include Debtor's Personal Property.

         3.       PERFECTION OF SECURITY INTEREST.

                  (a) Debtor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral pledged by Debtor hereunder, without the signature of
Grantor where permitted by law. A copy of each such statement and amendment will
be timely provided to Debtor. Debtor shall execute and deliver to Secured Party,
concurrently with Debtor's execution of this Security Agreement, and at any time
or times hereafter at the request of Secured Party, all financing statements and
continuation financing statements (where not covered by the foregoing sentence),
assignments,  affidavits,  reports, notices, letters of authority, vehicle title
notations and all other documents that Secured Party may reasonably  request, in
a form  reasonably  satisfactory  to  Secured  Party,  to perfect  and  maintain
perfected  Secured Party's  security  interests in the  Collateral.  In order to
fully consummate all of the transactions  contemplated  hereunder,  Debtor shall
make  appropriate  entries  on its books and  records  disclosing  the  security
interests created hereby in the Collateral.

         4.  WARRANTIES  AND  COVENANTS.  In  addition  to  the  warranties  and
representations,  if any, made in the Lease,  Debtor  warrants,  represents  and
agrees that:

                  (a) To the extent  permitted  by law,  Debtor has rights in or
the power to transfer  the  Collateral,  and is and will be the lawful  owner or
lessee of all of the Collateral, with the right, to the extent permitted by law,
to subject the owned or leased  property to the  security  interests  of Secured
Party hereunder;
<PAGE>

                  (b) Except for the security interests in the Collateral herein
granted to Secured Party and as described in the  Settlement  and  Restructuring
Agreement, there are no other adverse claims, liens, restrictions on transfer or
pledge,  or security  interests in the Collateral that are known to Debtor,  and
there are no financing  statements  covering any of the Collateral  filed in any
public office created by or known to Debtor prior to the date hereof,  except as
previously  disclosed by Debtor to Secured  Party.  Debtor shall defend  Secured
Party  against  any  claims  and  demands  of any and all other  persons  to the
Collateral inconsistent with this Agreement;

                  (c)  All of the  Collateral  is or  will  be  (upon  delivery)
located at the Facilities or at the chief executive offices of Debtor;

                  (d) Except as permitted  under the Lease or hereunder,  Debtor
shall not remove  the  Collateral  from the  Facilities  or its chief  executive
offices  without  Secured  Party's  prior  written  consent and shall not use or
permit the Collateral to be used for any unlawful purpose whatsoever.  Except as
permitted  under the Lease or hereunder,  Debtor shall not remove any Collateral
from the  state in which  the  Facilities  or its chief  executive  offices  are
located, without the prior written consent of Secured Party;

                  (e)  Except as  permitted  under the Lease,  Debtor  shall not
conduct business under any name at the Facilities other than that given above or
set forth on attached  Schedule 1, nor will Debtor change or reorganize the type
of business entity under which it presently does business, except upon prior and
express  written  approval of Secured  Party,  and, if such approval is granted,
Debtor  agrees  that  all  documents,   instruments  and  agreements  reasonably
requested by Secured Party and relating to such change shall be prepared,  filed
and recorded at Debtor's expense before the change occurs;

                  (f)  Debtor  shall  not  remove  any  records  concerning  the
Collateral located at the Facilities or its chief executive offices nor keep any
of its records  concerning the same at any other location  unless written notice
thereof is given to Secured Party at least ten (10) days prior to the removal of
such records to any new addresses; and

                  (g) Debtor has the right and power and is duly  authorized  to
enter into this Security  Agreement.  The  execution of this Security  Agreement
does not and will not  constitute  a breach of any  provision  contained  in any
agreement  or  instrument  to which  Debtor is or may become a party or by which
Debtor is or may be bound or affected.

                  (h) Debtor  shall not  change the state of its  incorporation,
and shall not change its corporate name without  providing  Secured Party thirty
(30) days prior written notice.
<PAGE>

                  (i)  Debtor's  (i) chief  executive  office is  located in the
state of Tennessee,  (ii) state of incorporation is the state first set forth in
the first paragraph of this Security  Agreement (the "Debtor State"),  and (iii)
exact  legal  name is as set  forth  in the  first  paragraph  of this  Security
Agreement.

                  (j) Debtor shall at all times  maintain the Collateral in good
order  and  repair  and  with  reasonable  promptness  make  all  necessary  and
appropriate  repairs  thereto  of every  kind and  nature  whether  ordinary  or
extraordinary,  foreseen  or  unforeseen,  or arising  by reason of a  condition
whether or not existing prior to the date of this Security Agreement.  It is the
intention of this  provision  that the level of  maintenance  of the  Collateral
shall be not less than that of a first class nursing home operator making use of
the Collateral for its intended use.

                  (k) All agreements and papers required to be filed, registered
or recorded in order to create in favor of the Secured Party a perfected lien in
the  Collateral  have been,  or will be,  filed,  registered  or recorded in the
appropriate filing offices, and to the best of Debtor's knowledge, no further or
subsequent  filing,  refiling,   registration,   re-registration,   recorded  or
re-recording  is  necessary  in  any  jurisdiction,  except  as  provided  under
applicable law with respect to the filing of continuation statements.

         5.       COLLECTION OF ACCOUNTS.

                  (a) Secured  Party  hereby  authorizes  and permits  Debtor to
collect the Accounts  from its debtors.  This  privilege  may be  terminated  by
Secured  Party at any time after notice from Secured  Party upon the  occurrence
and during the  continuance  of a  Triggering  Event  under the  Settlement  and
Restructuring Agreement (a "Notice of Default"),  and Debtor shall execute, upon
demand  therefor,  such assignments so as to vest in Secured Party full title to
the Accounts (to the extent  permitted under  applicable law), and Secured Party
thereupon  shall be entitled to and have all of the  ownership,  title,  rights,
securities  and guarantees of Debtor with respect  thereto,  and with respect to
the property evidenced thereby,  including the right of stoppage in transit, and
Secured  Party may  notify  any  debtor or  debtors  of the  assignments  of the
Accounts and collect the same;  thereafter,  Debtor will receive all payments on
the  Accounts  as agent of and for  Secured  Party and will  transmit to Secured
Party, on the day of receipt thereof, all original checks, drafts,  acceptances,
notes and other evidence of payment  received in payment of or on account of the
Accounts,  including all cash moneys  similarly  received by Debtor.  Until such
delivery,  Debtor  shall  keep all such  remittances  separate  and  apart  from
Debtor's own funds,  capable of identification as the property of Secured Party,
and shall hold the same in trust for Secured Party. After Notice of Default from
the Secured Party,  all items or amounts that are delivered by Debtor to Secured
Party on account of partial or full  payment or  otherwise as Proceeds of any of
the Collateral shall be deposited in accordance with the terms of the Settlement
and  Restructuring  Agreement.  To the extent permitted by law, Secured Party or
its  representatives is hereby authorized to endorse, in the name of Debtor, any

<PAGE>

item, howsoever received by Secured Party,  representing any payment on or other
proceeds of any of the Collateral, and may endorse or sign the name of Debtor to
any accounts, invoices,  assignments,  financing statements, notices to debtors,
bills of lading,  storage receipts, or other instruments or documents in respect
to Accounts or the property covered thereby  requested by Secured Party.  Debtor
shall promptly give Secured Party,  upon demand,  copies of all Accounts,  to be
accompanied  by such  information  and by such  documents  or copies  thereof as
Secured  Party may  reasonably  require.  After  Notice of Default  from Secured
Party,  Debtor shall  maintain such records with respect to the Accounts and the
conduct and operation of its business as Secured Party may  reasonably  request,
and will furnish to Secured Party all  information  with respect to the Accounts
and the  conduct  and  operation  of its  business,  including  balance  sheets,
operating  statements  and other  financial  information,  as Secured  Party may
reasonably request from time to time.

                  (b) Until such time as Secured  Party shall  notify  Debtor of
the  revocation of such power and  authority by reason of an a Triggering  Event
(and effective only during the continuance thereof), Debtor (i) may, only in the
ordinary course of business,  at its own expense,  sell,  lease or furnish under
contracts  of  service  any of the  Inventory  normally  held by Debtor for such
purpose;  (ii)  may use  and  consume  any raw  materials,  work in  process  or
materials,  the use and  consumption  of which is necessary in order to carry on
Debtor's business at the Facilities;  (iii) replace Equipment in accordance with
the  provisions of the Lease;  and (iv) shall,  at its own expense,  endeavor to
collect, as and when due, all amounts due with respect to any of the Collateral,
including  the taking of such action with respect to such  collection as Secured
Party may reasonably  request or, in the absence of such request,  as Debtor may
deem  advisable.  A sale in the ordinary  course of business shall not include a
transfer in partial or total satisfaction of a debt.

         6.  INSPECTIONS/INFORMATION.  Debtor shall permit  Secured Party or its
agents upon reasonable  written request and during business hours to have access
to and to inspect  any of the  Collateral.  Secured  Party may from time to time
inspect, check, make copies of, or extracts from the books, records and files of
Debtor relating to the  Collateral,  and Debtor shall make the same available to
Secured Party upon reasonable written notice and during business hours.  Secured
Party's right of access and inspection  shall be subject to any  prohibitions or
limitations  on  disclosure  under  applicable  law,   including  any  so-called
"Patient's Bill of Rights" or similar legislation, including such limitations as
may be  necessary  to  preserve  the  confidentiality  of  the  Facility-patient
relationship and the physician-patient relationship.

         7.       DEFAULT/REMEDIES

                  (a) The  occurrence of any "Event of Default"  under the Lease
or a default under the Settlement and Restructuring Agreement shall constitute a
Security  Agreement  Event of Default  without  any  additional  notice or grace
period.  In addition,  the following shall also constitute a Security  Agreement
Event of Default:
<PAGE>

                    (i) If any of the  representations  or  warranties  made  by
                    Debtor  hereunder  prove  to be  untrue  when  made  in  any
                    material  respect,   the  Secured  Party  or  Collateral  is
                    materially and adversely  affected thereby,  and same is not
                    cured  within  fifteen (15) days after  written  notice from
                    Secured Party thereof; or

                    (ii) If  Debtor  fails to  perform  any term,  covenant,  or
                    condition of this Security Agreement and such failure is not
                    cured  within  fifteen (15) days after  written  notice from
                    Secured  Party  thereof;  unless such  default by its nature
                    cannot be cured within said fifteen (15) days in which event
                    Debtor shall have such additional  time, not to exceed sixty
                    (60) days from the date of such notice, as may be reasonably
                    required  under  the  circumstances  to cure  such  default,
                    provided Debtor commences such cure within said fifteen (15)
                    day period and diligently prosecutes such cure thereafter.

                  (b) Whenever a Security  Agreement Event of Default shall have
occurred and so long as its  continues,  Secured Party may exercise from time to
time any rights and remedies, including the right to immediate possession of the
Collateral,  available  to it  under  the  Lease,  this  Security  Agreement  or
applicable law.  Secured Party shall have the right to hold any property then in
or upon the Facilities (but excluding any property  belonging to patients at the
Facilities) at the time of repossession  not covered by this Security  Agreement
until  return is demanded in writing by Debtor.  Debtor  agrees,  in case of the
occurrence  of a Security  Agreement  Event of Default  and upon the  request of
Secured  Party,  to  assemble,  at  its  expense,  all of  the  Collateral  at a
convenient  place  acceptable  to Secured  Party and to pay all costs of Secured
Party of collection of all the Liabilities, and enforcement of rights hereunder,
including reasonable attorneys' fees and legal expenses, including participation
in bankruptcy  proceedings,  and the expenses of locating the Collateral and the
expenses  of any  repairs  to any realty or other  property  to which any of the
Collateral  may be affixed or be a part.  If the  Collateral is disposed of at a
public  sale,  the  parties  agree  that a public  sale  with at least  ten (10)
calendar  days  prior  notice  to,  Debtor  and  notice  to  the  public  by one
publication in a local newspaper is commercially reasonable. If any notification
of intended  disposition  of any of the  Collateral  is  required  by law,  such
notification,  if mailed,  shall be deemed reasonably and properly given if sent
at least ten (10) days before  such  disposition,  by first class mail,  postage
prepaid,  addressed to the Debtor  either at the address set forth in the notice
section hereof,  or at any other address of the Debtor  appearing on the records
of Secured Party.

                  (c) TO THE EXTENT PERMITTED BY LAW, DEBTOR AGREES THAT SECURED
PARTY SHALL,  UPON THE  OCCURRENCE OF ANY SECURITY  AGREEMENT  EVENT OF DEFAULT,
HAVE THE RIGHT TO  PEACEFULLY  RETAKE ANY OF THE  COLLATERAL.  DEBTOR WAIVES ANY
RIGHT  IT MAY  HAVE,  IN SUCH  INSTANCE,  TO A  JUDICIAL  HEARING  PRIOR TO SUCH
RETAKING.

<PAGE>

         8.  INDEMNITY.  In addition to the  indemnities set forth in the Lease,
Debtor  shall  protect  (except  to the  extent  same  is  caused  by the  gross
negligence or wilful  misconduct of Secured Party),  indemnify and hold harmless
Secured Party and its officers, employees, directors and agents from and against
all liabilities,  obligations, claims, damages, penalties, causes of action, and
out-of-pocket  costs and expenses  whatsoever  (including,  without  limitation,
reasonable attorneys' fees and expenses) imposed upon or incurred by or asserted
against Secured Party or its officers, employees, directors or agents, by reason
of the ownership,  use,  construction and operation of the Collateral by Debtor,
its  officers,  directors,  servants,  agents  and  employees  or by  reason  of
enforcement of Secured  Party's rights  hereunder or under the Lease. As used in
this Security  Agreement,  the term "attorneys'  fees" includes fees incurred in
any  appeal  and/or  enforcement  proceedings.  In  case  any  action,  suit  or
proceeding is brought  against  Secured Party by reason of any such  occurrence,
Debtor,  upon request of Secured  Party,  shall at Debtor's  expense  cause such
action,  suit or proceeding  to be resisted and defended by counsel  approved by
Secured Party with respect to proceedings and matters  involving  Secured Party.
Any amounts  payable to Secured  Party  under this  Section 8 which are not paid
within thirty (30) days after written demand therefor shall bear interest at the
Overdue Rate as  specified  in the Lease from the date of such demand,  and such
amounts,  together with such  interest,  shall be  indebtedness  secured by this
Security Agreement.  The obligations of Secured Party under this Section 8 shall
survive the  expiration  or earlier  termination  of the Term of the Lease for a
period of three (3) years;  provided,  however,  if Secured  Party has delivered
notice to Debtor of a claim or  potential  claim under this  Section 8, then the
obligations  of Debtor shall be extended with respect to such claim or potential
claim until the final resolution of such claim or potential claim by the parties
thereto.

         9.  CONCERNING  REVISED ARTICLE 9 OF THE UNIFORM  COMMERCIAL  CODE. The
parties  acknowledge  and agree to the  following  provisions  of this  Security
Agreement  in  anticipation  of  the  possible  application,   in  one  or  more
jurisdictions to the transactions  contemplated hereby, of the revised Article 9
of the Uniform Commercial Code in the form or substantially in the form approved
in  1998  by  the  American  Law  Institute  and  the  National   Conference  of
Commissioners on Uniform State Law ("Revised Article 9").

                  (a)  Attachment.  In applying the law of any  jurisdiction  in
which  Revised  Article 9 is in  effect,  the  Collateral  is all  assets of the
Debtor,  whether or not within  the scope of Revised  Article 9. The  Collateral
shall include,  without  limitation and without  limitation to the Collateral as
defined herein, the following categories of assets as defined in Revised Article
9:  goods  (including   inventory,   equipment  and  any  accessions   thereto),
instruments  (including  promissory  notes),   documents,   accounts  (including
health-care-insurance   receivables),   chattel  paper   (whether   tangible  or
electronic),  deposit  accounts,  letter-of-credit  rights  (whether  or not the
letter of credit is evidenced by a writing),  commercial tort claims, securities

<PAGE>

and all  other  investment  property,  general  intangibles  (including  payment
intangibles  and software),  supporting  obligations and any and all proceeds of
any thereof,  wherever located, whether now owned and hereafter acquired. If the
Debtor,  or any of them, shall at any time,  whether or not Revised Article 9 is
in effect in any particular  jurisdiction,  acquire a commercial tort claim with
respect to a Facility, as defined in Revised Article 9, Debtor shall immediately
notify the Secured Party, in a writing signed by Debtor,  of the details thereof
and grant to Secured  Party in such writing a security  interest  therein and in
the proceeds thereof,  all upon the terms of this Security Agreement,  with such
writing to be in form and substance satisfactory to Secured Party.

                  (b)  Perfection  by Filing.  Secured Party may at any time and
from time to time, pursuant to the provisions of this Agreement,  file financing
statements,  continuation  statements and  amendments  thereto that describe the
Collateral as all assets of Debtor or words of similar  effect and which contain
any  other  information  required  by  Part  5 of  Revised  Article  9  for  the
sufficiency or filing office acceptance of any financing statement, continuation
statement or amendment,  including  whether that Debtor is an organization,  the
type of organization and any organization identification number(s) issued to the
Debtor.  Debtor agrees to furnish any such information to Secured Party promptly
upon  request.  Any  such  financing  statements,   continuation  statements  or
amendments  may be signed by Secured  Party on behalf of Debtor,  as provided in
this Agreement,  and may be filed at any time in any jurisdiction whether or not
Revised Article 9 is then in effect in that jurisdiction.

                  (c) Other  Perfection,  etc. Debtor shall at any time and from
time to time,  whether or not Revised  Article 9 is in effect in any  particular
jurisdiction,  take such  steps as  Secured  Party may  reasonably  request  for
Secured  Party  (a)  to  obtain  an   acknowledgment,   in  form  and  substance
satisfactory  to Secured  Party,  of any bailee having  possession of any of the
Collateral  that the bailee  holds such  Collateral  for Secured  Party,  (b) to
obtain "control" of any investment property, deposit accounts,  letter-of-credit
rights or electronic chattel paper (as such terms are defined in Revised Article
9 with  corresponding  provisions in Rev.  ss.ss.9-104,  9-105,  9-106 and 9-107
relating to what constitutes  "control" for such items of Collateral),  with any
agreements  establishing  control to be in form and  substance  satisfactory  to
Secured Party, and (c) otherwise to insure the continued perfection and priority
of  Secured  Party's  security  interest  in any of  the  Collateral  and of the
preservation  of its rights therein,  whether in anticipation  and following the
effectiveness of Revised Article 9 in any jurisdiction.

                  (d) Savings Clause.  Nothing contained in this Section 9 shall
be construed to narrow the scope of Secured Party's security  interest in any of
the Collateral or the  perfection or priority  thereof or to impair or otherwise
limit any of the rights, powers,  privileges or remedies of Secured Party except
(and then only to the extent)  mandated by Revised  Article 9 to the extent then
applicable.
<PAGE>

                  (e) Nothing  contained in this Section 9 shall be construed as
granting a security  interest in any assets of Debtor,  except  assets which are
located at or are used exclusively in connection with, or which arise from or in
connection with Debtor's use and operation of, the Facilities.

         10.      GENERAL

                  (a) Time shall be deemed of the essence  with  respect to this
Security Agreement.

                  (b) Secured Party shall be deemed to have exercised reasonable
care in the custody and  preservation  of any Collateral in its possession if it
takes such action for that purpose as Debtor requests in writing, but failure of
Secured  Party to comply with any such  request  shall not of itself be deemed a
failure to exercise  reasonable  care.  Failure of Secured  Party to preserve or
protect any rights with  respect to such  Collateral  against any prior  parties
shall not be deemed a failure to  exercise  reasonable  care in the  custody and
preservation of such Collateral.

                  (c) Any delay on the part of Secured Party in  exercising  any
power,  privilege or right under the Lease, this Security Agreement or under any
other instrument or document executed by Debtor in connection herewith shall not
operate as a waiver  thereof.  No single or  partial  exercise  thereof,  or the
exercise of any other power,  privilege or right shall preclude other or further
exercise  thereof,  or the exercise of any other power,  privilege or right. The
waiver by Secured  Party of any default by Debtor shall not  constitute a waiver
of any subsequent defaults but shall be restricted to the default so waived.

                  (d) All rights, remedies and powers of Secured Party hereunder
are irrevocable and cumulative,  and not alternative or exclusive,  and shall be
in  addition  to all  rights,  remedies  and  power is given by the Lease or the
Commercial Code, or any other applicable laws now existing or hereafter enacted.

                  (e)  Whenever  the  singular  is used  hereunder,  it shall be
deemed to include the plural (and vice-versa), and reference to one gender shall
be  construed  to include all other  genders,  including  neuter,  whenever  the
context of this  Security  Agreement so requires.  Section  captions or headings
used in this Security Agreement are for convenience and reference only and shall
not affect the construction thereof.

                  (f)  Whenever   possible  each   provision  of  this  Security
Agreement shall be interpreted in such manner as to be effective and valid under
applicable  law,  but if any  provision  of this  Security  Agreement  shall  be
prohibited  by  or  invalid  under  applicable  law,  such  provision  shall  be
ineffective  to  the  extent  of  such   prohibition   or  invalidity,   without
invalidating the remainder of such provision or the remaining provisions of this
Security Agreement.
<PAGE>

                  (g)  This  Security  Agreement  may be  executed  in  multiple
counterparts,  each of which shall be  considered  an original but all of which,
when taken together, shall constitute one agreement.

                  (h) The rights and privileges of Secured Party hereunder shall
inure to the benefit of its successors and assigns,  and this Security Agreement
shall be binding on all assigns  and  successors  of Debtor as may be  permitted
under the Lease.

                  (i) In the  event  of any  action  to  enforce  this  Security
Agreement  or  to  protect  the  security  interest  of  Secured  Party  in  the
Collateral,  or to protect,  preserve,  maintain,  process,  assemble,  develop,
insure,  market or sell any Collateral,  Debtor agrees to pay the costs owed and
expenses  thereof,  together with  reasonable  and  documented  attorneys'  fees
(including fees incurred in appeals and post judgment enforcement proceedings).

                  (j) THIS SECURITY AGREEMENT SHALL BE CONSTRUED, AND THE RIGHTS
AND  OBLIGATIONS  OF THE  DEBTOR  AND  SECURED  PARTY  SHALL BE  DETERMINED,  IN
ACCORDANCE  WITH THE LAWS OF THE STATE OF MICHIGAN,  EXCEPT THAT THE LAWS OF THE
STATE WHERE THE  COLLATERAL IS LOCATED SHALL GOVERN THIS SECURITY  AGREEMENT (A)
TO THE EXTENT  NECESSARY  TO PERFECT  AND/OR  ENFORCE THE LIENS  CREATED BY THIS
SECURITY  AGREEMENT  AND TO THE EXTENT  NECESSARY  TO OBTAIN THE  BENEFIT OF THE
RIGHTS AND REMEDIES SET FORTH HEREIN WITH RESPECT TO THE COLLATERAL, AND (B) FOR
PROCEDURAL  REQUIREMENTS THAT MUST BE GOVERNED BY THE LAWS OF THE STATE IN WHICH
THE COLLATERAL IS LOCATED.

                  (k) DEBTOR  CONSENTS  TO IN PERSONAM  JURISDICTION  BEFORE THE
STATE AND  FEDERAL  COURTS OF THE STATE IN WHICH THE  COLLATERAL  IS LOCATED AND
MICHIGAN  AND AGREES THAT ALL DISPUTES  CONCERNING  THIS  SECURITY  AGREEMENT BE
HEARD IN THE  STATE  AND  FEDERAL  COURTS  LOCATED  IN THE  STATE  IN WHICH  THE
COLLATERAL IS LOCATED OR IN MICHIGAN.  DEBTOR AGREES THAT SERVICE OF PROCESS MAY
BE EFFECTED UPON IT UNDER ANY METHOD  PERMISSIBLE UNDER THE LAWS OF THE STATE IN
WHICH THE COLLATERAL IS LOCATED OR MICHIGAN,  AND DEBTOR  IRREVOCABLY WAIVES ANY
OBJECTION  TO VENUE IN THE  STATE AND  FEDERAL  COURTS OF THE STATE IN WHICH THE
COLLATERAL IS LOCATED AND MICHIGAN.

                  (l) No amendment to this Security Agreement shall be effective
unless the same shall be in writing and signed by the parties.

                  (m) Nothing  contained herein shall be construed as in any way
modifying or limiting the effect of terms or conditions  set forth in the Lease,
but each and every term and condition hereof shall be in addition thereto.
<PAGE>

                  (n) All notices  required or permitted  to be given  hereunder
shall be given and deemed effective as provided in the Lease. The parties hereby
agree that a notice sent as specified  in this  paragraph at least ten (10) days
before the date of any intended  public sale or the date after which any private
sale or other  intended  disposition  of the  Collateral  is to be made shall be
deemed to be reasonable notice of such sale or other disposition.

                  (o) Upon the full payment,  satisfaction  and discharge of the
Liabilities  herein secured,  the security  interests  provided for herein shall
terminate  and Secured  Party shall file,  register or record UCC-3  termination
statements  or  other   appropriate   evidence  of  such  termination  with  the
appropriate  filing  offices in all  jurisdictions  necessary  to evidence  such
termination of the security interests herein provided.

         IN WITNESS WHEREOF,  the parties have executed this Security  Agreement
as of the date first written above.

                           SECURED PARTY:

                           STERLING ACQUISITION CORP.

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

                            DEBTOR:

                            DIVERSICARE LEASING CORP.

                         By:
                             -----------------------

                         Its:

<PAGE>

                                   SCHEDULE 1

DEBTOR:                           DIVERSICARE LEASING CORP.

SECURED PARTY:                    STERLING ACQUISITION CORP.

FACILITIES:

Alabama

Canterbury Health Facility
1720 Knowles Road
Phenix City, Alabama 36869
Russell County

Lynwood Nursing Home
4164 Halls Mills Road
Mobile, Alabama 36693
Mobile County

Northside Healthcare
700 Hutchins Avenue
Gadsden, Alabama 35904
Etowah County

Westside Healthcare
4320 Judith Lane
Huntsville, Alabama 35805
Madison County

Arkansas

Ash Flat Nursing and Rehabilitation Center
HC 67, Box 5A
Ash Flat, Arkansas 72513
Sharp County

<PAGE>

Des Arc Nursing and Rehabilitation Center
2216 West Main Street
Des Arc, Arkansas 72040
Prairie County

Eureka Springs Nursing and Rehabilitation Center
235 Huntsville Road
Eureka Springs, Arkansas 72632
Carroll County

Faulkner Nursing and Rehabilitation Center
2603 Dave Ward Drive
Conway, Arkansas 72032
Faulkner County

Garland Nursing and Rehabilitation Center
610 Carpenter Dam Road
Hot Springs, Arkansas 71901
Garland County

Ouachita Nursing and Rehabilitation Center
1411 Country Club Road
Camden, Arkansas 71701
Ouachita County

The Pines Nursing and Rehabilitation Center
534 Carpenter Dam Road
Hot Springs, Arkansas 71901
Garland County

Pocahontas Nursing and Rehabilitation Center
105 Country Club Road
Pocahontas, Arkansas 72455
Randolph County

Rich Mountain Nursing and Rehabilitation Center
306 Hornbeck
Mena, Arkansas 71953
Polk County

Sheridan Nursing and Rehabilitation Center
113 South Briarwood Drive
Sheridan, Arkansas 72150
Grant County
<PAGE>

Stillmeadow Nursing and Rehabilitation Center
105 Russelville Road
Malvern, Arkansas 72104
Hot Spring County

Walnut Ridge Nursing and Rehabilitation Center
1500 West Main
Walnut Ridge, Arkansas 72476
Lawrence County

Kentucky

Boyd Nursing and Rehabilitation
12800 Princeland Drive
Ashland, Kentucky 41102
Boyd County

Carter Nursing and Rehabilitation Center
P.O. Box 904 (250 McDavid Boulevard)
Grayson, Kentucky 41143
Carter County

Elliott Nursing and Rehabilitation Center
P.O. Box 694 (Route 32 East, Howard Creek Road)
Sandy Hook, Kentucky 41171
Elliott County

South Shore Nursing and Rehabilitation Center
P.O. Box 489 (James Hannah Drive)
South Shore, Kentucky 41175
Greenup County

West Liberty Nursing and Rehabilitation Center
P.O. Box 219 (774 Liberty Road)
West Liberty, Kentucky 41472
Morgan County

Wurtland Health Care Center
P.O. Box 677 (100 Wurtland Avenue)
Greenup, Kentucky 41144
Greenup County
<PAGE>

Ohio

Best Care
2159 Dogwood Ridge
Wheelersburg, Ohio 45694
Scioto County

Tennessee

Laurel Manor Health Care Facility
902 Buchanan Road
New Tazwell, Tennessee 37825
Claiborne County

Manor House of Dover
Highway 49 East, P.O. Box 399
Dover, Tennessee 37058
Stewart County

Mayfield Rehabilitation and Special Care Center
200 Mayfield Drive
Smyrna, Tennessee 37167
Rutherford County

<PAGE>

                                    EXHIBIT A

                     FORM OF EXHIBIT TO FINANCING STATEMENT

Debtor:                             DIVERSICARE LEASING CORP.

Secured Party:                    STERLING ACQUISITION CORP.

                            Description of Collateral

        All personal  property of Debtor described  below,  which it now owns or
shall hereafter acquire or create,  immediately upon the acquisition or creation
thereof and wherever situated, including, without limitation, the following:

         (a) Accounts. To the extent permitted by law, all accounts, Health Care
Insurance  Receivables (as defined in Revised Article 9, hereinafter  deferred),
accounts  receivable,   deposits,  prepaid  items,  documents,   chattel  paper,
instruments, contract rights (including rights under any management agreement or
franchise agreement with respect to the Facilities), general intangibles, choses
in  action,  including  any  right  to any  refund  of  any  taxes  paid  to any
governmental  authority  prior to or after the date of this  Agreement,  and all
ledgers, printouts, papers, data, file materials and information relating to any
account  debtors in respect  thereof,  and/or to the  operation  of the Debtor's
business  relating  to the  Facilities,  and all rights of access to such books,
records,  ledgers,  printouts,  data,  file materials and  information,  and all
property in which such books, records, ledgers,  printouts, data, file materials
and information are stored (the "Accounts"); and

         (b)  Certificates  of  Need.  To  the  extent  permitted  by  law,  all
Certificates  of Need now or hereafter  issued in connection with the Facilities
(the "Certificates"); and

         (c) Equipment.  All equipment,  furniture,  fixtures and other personal
property used in connection  with the operation of the  Facilities,  whether now
owned or hereafter acquired by Debtor, together with all accessions,  additions,
parts,  attachments,  accessories,  or appurtenances  thereto  including but not
limited to linens,  motor vehicles,  furniture,  fixtures and movable equipment,
leasehold  improvements,  and all  books  and  records  now  owned or  hereafter
acquired  pertaining to any of the above described  property other than Debtor's
Personal Property,  but specifically  excluding any computer readable memory and
any  computer  hardware or (except as set forth  herein)  software  necessary to
process such memory (the "Equipment") and

         (d)      Insurance  Rights.  All rights  under  contracts of  insurance
now owned or  hereafter  acquired covering any of the Collateral ("Insurance
Rights"); and
<PAGE>

         (e)  Inventory.  All  inventory  and  goods,  now  owned  or  hereafter
acquired, including but not limited to, raw materials, work in process, finished
goods, food, medicines, tangible property, stock in trade, wares and merchandise
used in or sold in the  ordinary  course  of  business  at the  Facilities  (the
"Inventory"); and

         (f)  Medicaid.   To  the  extent   permitted  by  law,  all  rights  to
reimbursement under 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. ss.ss. 1396 et seq.) and the regulations promulgated thereunder; and

         (g)  Medicare.   To  the  extent   permitted  by  law,  all  rights  to
reimbursements under 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. ss.ss. 1395 et seq.) and the regulations promulgated thereunder; and

         (h) Other  Property.  All other  tangible  and  intangible  property of
Debtor now or  hereinafter  acquired by Debtor and located at the  Facilities or
used  exclusively in connection with the operation of the Facilities,  including
without  limitation,  but specifically  excluding  Debtor's  continuous  quality
improvement  program,  manuals and materials;  management  information  systems;
policy, procedure and educational manuals and materials; and similar proprietary
property including any right to the use of the name "Diversicare"' and

         (i) Patient  Agreements.  To the extent  permitted  by law, any and all
contracts,  authorizations,  agreements  or consents made by or on behalf of any
patient or resident of any of the  Facilities,  or any other  person  seeking or
obtaining  services  or goods from  Debtor,  pursuant to which  Debtor  provides
skilled nursing care,  intermediate  care,  personal care and/or assisted living
facilities,  or any form of  patient  or  residential  care,  as well as related
services at any of the Facilities (as such contracts, authorizations, agreements
or  consents  may be  amended,  supplemented,  renewed,  replaced,  extended  or
modified from time to time);  including consents to treatment and assignments of
payment of benefits (collectively, the "Patient Agreements");and

         (j) Permits. To the extent permitted by law, (i) the operating licenses
for each of the Facilities,  any certificate of need, any other license, permit,
approval or certificate which from time to time, may be issued or is required to
be issued by the United States, any state or local government,  or any agency or
instrumentality  of any of  the  foregoing  with  respect  to the  construction,
installation  or operation of any of the  Facilities or any portion or component
of any of the Facilities, the providing of any professional or other services by

<PAGE>

the Debtor,  the purchase,  sale,  dispensing,  storage,  prescription or use of
drugs,  medications or the like by Debtor, or any other operations or businesses
of Debtor; and (ii)  certifications and eligibility for participation by Debtor,
in  respect  of  its  operation  of  any  of  the  Facilities,  in  programs  or
arrangements of or reimbursement from any third-party payors, including Medicare
and Medicaid;  and (iii) all other  licenses  permits and  certificates  used or
useful in connection with the ownership,  operation,  use or occupancy of any of
the Facilities (collectively, the "Permits"); and

         (k) Investment  Property.  All  Investment  Property (as defined in the
Uniform  Commercial  Code),  other  than a  security,  whether  certificated  or
uncertificated, in a subsidiary or affiliate of Debtor; and,

         (l) Proceeds.  Proceeds arising out of the operation of the Facilities,
including,  without  limitation,  proceeds of hazard or other insurance policies
and eminent domain or  condemnation  awards,  of all of the foregoing  described
Inventory or Equipment,  together with any and all deposits or other sums at any
time  credited  by or  due  from  Secured  Party  to  Debtor  and  any  and  all
instruments,  documents,  policies and  certificates  of insurance,  securities,
goods, accounts receivable,  choses in action, chattel paper, cash, property and
the proceeds thereof (whether or not the same are Collateral or Proceeds thereof
hereunder) owned by Debtor or in which Debtor has an interest,  which are now or
at any time  hereafter in possession or under the control of Secured Party or in
transit by mail or carrier to or from Secured Party or in the  possession of any
third party acting on behalf of Secured Party, without regard to whether Secured
Party received the same in pledge,  for safekeeping,  as agent for collection or
transmission or otherwise,  or whether Secured Party has conditionally  released
the same (the "Proceeds"); and

         (m) Reimbursement Contracts. To the extent permitted by law, all rights
to  third-party  reimbursement  contracts  for the  Facilities  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; and

         (n) Rights.  All rights,  remedies,  powers and/or privileges of Debtor
with respect to any of the foregoing.

        Except as stated above,  the term Collateral  does not include  Debtor's
Personal  Property (as defined in the Security  Agreement of even date  herewith
between  Secured  Party and Debtor  related to that  certain  Lease of even date
herewith between Secured Party, as lessor, and Debtor, as lessee).

<PAGE>
                                   EXHIBIT D

                                FORM OF GUARANTY

         This  GUARANTY   ("Guaranty")   is   given  as  of  November    ,  2000
("Effective Date"), by ADVOCAT,  INC., a Delaware corporation,  whose address is
277 Mallory  Station  Road,  Suite 130,  Franklin,  Tennessee  37067("Advocat"),
ADVOCAT FINANCE, INC. , a Delaware corporation  ("Finance") whose address is 277
Mallory  Station Road,  Suite 130,  Franklin,  Tennessee  37067 and  DIVERSICARE
MANAGEMENT SERVICES CO., a Tennessee corporation ("Management") whose address is
277 Mallory  Station Road,  Suite 130,  Franklin,  Tennessee  37067(jointly  and
severally  the   "Guarantors"   and   individually   referred  to  herein  as  a
"Guarantor"),  in favor of STERLING  ACQUISITION  CORP., a Kentucky  corporation
("Lessor")  whose  address is 900 Victors Way,  Suite 350,  Ann Arbor,  Michigan
48108, with reference to the following facts:

                                    RECITALS

         A.  Diversicare  Leasing Corp., a Delaware  corporation (the "Lessee"),
has executed and delivered to Lessor a Consolidated  Amended and Restated Master
Lease dated of even date  herewith  (the "Master  Lease")  pursuant to which the
Lessee is leasing from Lessor certain healthcare  facilities  identified therein
(the "Facilities").

         B. By a guaranty  dated May ___,  1994 and by an amended  and  restated
guaranty dated February 1, 1997, Advocat  guaranteed certain  obligations of the
Lessee and certain predecessors in interest as set forth therein.

         C. By a guaranty dated  February 1, 1997,  Finance  guaranteed  certain
obligations  of the Lessee and  certain  predecessors  in  interest as set forth
therein.

         D. By a guaranty dated February 1, 1997,  Management guaranteed certain
obligations  of the Lessee and  certain  predecessors  in  interest as set forth
therein.

         E.   Pursuant  to  Section  19(B)  of  that  certain   Settlement   and
Restructuring Agreement by and among Lessor, Omega Healthcare Investors, Inc., a
Maryland corporation,  Advocat,  Management, and Sterling Health Care Management
Corporation,  a  Kentucky  corporation  of even date  herewith,  and only to the
extent set forth therein,  Lessor released Advocat,  Finance and Management from
liability under those guarantees described above.

         F. Each Guarantor  continues to maintain a direct financial interest in
the Lessee and it is to the advantage of each  Guarantor  that Lessor enter into
the Master Lease.

         G. As a material  inducement to Lessor to lease the Facilities pursuant
to the  Master  Lease,  each  Guarantor  has  agreed to  jointly  and  severally
guarantee  the  payment of all  amounts  due from,  and the  performance  of all
obligations  undertaken  by the Lessee  under the Master  Lease and any security
agreements,  promissory notes, letter of credit agreements,  guarantees or other
documents  which evidence,  secure or otherwise  relate to the Master Lease (the
Master Lease and all such documents, and any and all amendments,  modifications,
extensions and renewals thereof, are hereinafter referred to collectively as the
"Sterling Transaction Documents"), all as hereinafter set forth.
<PAGE>

         WHEREFORE, the parties hereby agree as follows:

         1.  Defined Terms.  All  capitalized  terms used herein and not defined
herein shall have the meaning for such terms set forth in the Master Lease.

         2. Guaranty. Guarantors hereby unconditionally and irrevocably, jointly
and severally,  guarantee to Lessor (i) the payment when due of all Rent and all
other sums payable by the Lessee under the Master  Lease,  and (ii) the faithful
and prompt  performance when due of each and every one of the terms,  conditions
and  covenants  to be kept  and  performed  by the  Lessee  under  the  Sterling
Transaction  Documents,  any and all amendments,  modifications,  extensions and
renewals of the Sterling Transaction Documents, including without limitation all
indemnification  obligations,  insurance  obligations,  and all  obligations  to
operate,  rebuild,  restore or replace any  facilities  or  improvements  now or
hereafter  located on the real estate covered by the Master Lease.  In the event
of the failure of Lessee to pay any such  amounts  owed,  or to render any other
performance  required of Lessee under the Sterling Transaction  Documents,  when
due,  Guarantors shall forthwith perform or cause to be performed all provisions
of the Sterling Transaction Documents to be performed by Lessee thereunder,  and
pay all  damages  that may result from the  non-performance  thereof to the full
extent  provided under the Sterling  Transaction  Documents  (collectively,  the
"Obligations").  As to the Obligations,  each  Guarantor's  liability under this
Guaranty is without limit.

         3. Survival of Obligations.  The  obligations of Guarantors  under this
Guaranty with respect to the Sterling  Transaction  Documents  shall survive and
continue in full force and effect (until and unless all Obligations, the payment
and  performance  of which  are  hereby  guaranteed,  have been  fully  paid and
performed) notwithstanding:

         (a)      any amendment, modification, or extension of any Sterling
                  Transaction Document;

         (b)      any compromise,  release,  consent,  extension,  indulgence or
                  other  action  or  inaction  in  respect  of any  terms of any
                  Sterling Transaction Document or any other guarantor;

         (c)      any  substitution  or  release,  in whole  or in part,  of any
                  security for this Guaranty which Lessor may hold at any time;

         (d)      any exercise or non-exercise by Lessor of any right,  power or
                  remedy  under  or  in  respect  of  any  Sterling  Transaction
                  Document or any security held by Lessor with respect  thereto,
                  or any waiver of any such right, power or remedy;

         (e)      any  bankruptcy,  insolvency,   reorganization,   arrangement,
                  adjustment, composition, liquidation, or the like of Lessee or
                  any other guarantor;

         (f)      any  limitation of the Lessee's  liability  under any Sterling
                  Transaction   Document  or  any  limitation  of  the  Lessee's
                  liability  thereunder which may now or hereafter be imposed by
                  any  statute,  regulation  or rule of law, or any  illegality,
                  irregularity,  invalidity or unenforceability,  in whole or in
                  part,  of  any  Sterling  Transaction  Document  or  any  term
                  thereof;
<PAGE>

         (g)      any  sale,  lease,  or  transfer  of all or  any  part  of any
                  interest in any Facility to any other  person,  firm or entity
                  other than to Lessor;

         (h)      any act or  omission  by  Lessor  with  respect  to any of the
                  security  instruments  given or made as a part of the Sterling
                  Transaction  Documents  or any  failure  to  file,  record  or
                  otherwise perfect any of the same;

         (i)      any  extensions  of time for  performance  under the  Sterling
                  Transaction Documents, whether prior to or after maturity;

         (j)      the  release  of any  collateral  from  any  lien in  favor of
                  Lessor,   or  the  release  of  Lessee  from   performance  or
                  observation  of any of the  agreements,  covenants,  terms  or
                  conditions  contained in any Sterling  Transaction Document by
                  operation of law or otherwise;

         (k)      the fact that Lessee may or may not be personally  liable,  in
                  whole or in part, under the terms of any Sterling  Transaction
                  Document to pay any money judgment;

         (l)      the failure to give Guarantors any notice of acceptance,
                  default or otherwise;

         (m)      any other guaranty now or hereafter  executed by Guarantors or
                  anyone  else  in  connection  with  any  Sterling  Transaction
                  Document;

         (n)      any rights,  powers or privileges  Lessor may now or hereafter
                  have against any other person, entity or collateral; or

         (o)      any other circumstances,  whether or not Guarantors had notice
                  or knowledge thereof, other than the payment or performance of
                  all of the Obligations.

         4. Primary  Liability.  The liability of Guarantor  with respect to the
Sterling Transaction Documents shall be joint and several,  primary,  direct and
immediate, and Lessor may proceed against any Guarantor: (i) prior to or in lieu
of proceeding  against Lessee,  its assets,  any security deposit,  or any other
guarantor; and (ii) prior to or in lieu of pursuing any other rights or remedies
available  to Lessor.  All rights and  remedies  afforded to Lessor by reason of
this  Guaranty  or by law are  separate,  independent  and  cumulative,  and the
exercise  of any  rights or  remedies  shall not in any way limit,  restrict  or
prejudice the exercise of any other rights or remedies.

         In the event of any default under any Sterling Transaction  Document, a
separate action or actions may be brought and prosecuted against the Guarantors,
or any one of them, whether or not Lessee is joined therein or a separate action
or actions are brought against Lessee.  Lessor may maintain  successive  actions
for other  defaults.  Lessor's  rights  hereunder  shall not be exhausted by its
exercise of any of its rights or remedies or by any such action or by any number
of successive  actions until and unless all  indebtedness  and  obligations  the
payment and performance of which are hereby  guaranteed have been paid and fully
performed.
<PAGE>

         5.  Obligations  Not Affected.  In such manner,  upon such terms and at
such times as Lessor in its sole discretion  deems  necessary or expedient,  and
without  notice  to  Guarantors,  Lessor  may:  (a)  amend,  alter,  compromise,
accelerate,  extend  or  change  the  time  or  manner  for the  payment  or the
performance of any obligation hereby guaranteed;  (b) extend, amend or terminate
any of the Sterling Transaction  Documents;  or (c) release Lessee by consent to
any assignment (or otherwise) as to all or any portion of the obligations hereby
guaranteed.  Any  exercise or  non-exercise  by Lessor of any right hereby given
Lessor, dealing by Lessor with Guarantors or any other guarantor,  Lessee or any
other  person,  or change,  impairment,  release or  suspension  of any right or
remedy of Lessor  against any person  including  Lessee and any other  guarantor
will  not  affect  any  of the  obligations  of  Guarantors  hereunder  or  give
Guarantors any recourse or offset against Lessor.

         6. Waiver.  With respect to the Sterling  Transaction  Documents,  each
Guarantor  hereby waives and  relinquishes  all rights and remedies  accorded by
applicable law to sureties and/or guarantors or any other accommodation parties,
under any statutory provisions, common law or any other provision of law, custom
or  practice,  and agrees not to assert or take  advantage of any such rights or
remedies including, but not limited to:

         (a)      any right to require  Lessor to proceed  against Lessee or any
                  other  person or to proceed  against or exhaust  any  security
                  held by Lessor at any time or to  pursue  any other  remedy in
                  Lessor's power before  proceeding  against any Guarantor or to
                  require that Lessor cause a marshaling  of Lessee's  assets or
                  the assets,  if any,  given as collateral for this Guaranty or
                  to proceed  against  Lessee and/or any  collateral,  including
                  collateral,  if any,  given to secure  Guarantors'  obligation
                  under  this  Guaranty,  held by  Lessor  at any time or in any
                  particular order;

         (b)      any defense that may arise by reason of the incapacity or lack
                  of authority of any other person or persons;

         (c)      notice of the  existence,  creation or incurring of any new or
                  additional  indebtedness  or  obligation  or of any  action or
                  non-action  on the part of Lessee,  Lessor,  any  creditor  of
                  Lessee or any  Guarantor  or on the part of any  other  person
                  whomsoever  under this or any other  instrument  in connection
                  with any obligation or evidence of indebtedness held by Lessor
                  or in connection with any obligation hereby guaranteed;

         (d)      any defense based upon an election of remedies by Lessor which
                  destroys  or  otherwise  impairs  the  subrogation  rights  of
                  Guarantors  or the  right of  Guarantors  to  proceed  against
                  Lessee for reimbursement, or both;
<PAGE>

         (e)      any  defense  based  upon  any  statute  or rule of law  which
                  provides  that  the  obligation  of a surety  must be  neither
                  larger in amount nor in other  respects more  burdensome  than
                  that of the principal;

         (f)      any duty on the part of Lessor to disclose to  Guarantors  any
                  facts  Lessor  may  now  or  hereafter  know about the Lessee,
                  regardless  of whether  Lessor has reason to believe  that any
                  such  facts  materially  increase  the  risk beyond that which
                  each  Guarantor  intends  to  assume or has reason to  believe
                  that   such   facts  are   unknown  to  Guarantors  or  has  a
                  reasonable  opportunity   to   communicate  such   facts   to
                  Guarantors,   it   being   understood  and  agreed  that  each
                  Guarantor is fully  responsible for being and keeping informed
                  of   the  financial   condition  of  the  Lessee  and  of  all
                  circumstances   bearing   on   the  risk   of  non-payment  or
                  non-performance  of  any  obligations  or indebtedness  hereby
                  guaranteed;

         (g)      any  defense  arising  because of  Lessor's  election,  in any
                  proceeding  instituted  under the federal  Bankruptcy Code, of
                  the   application  of  Section  1111  (b)(2)  of  the  federal
                  Bankruptcy Code; and

         (h)      any  defense  based on any  borrowing  or grant of a  security
                  interest under Section 364 of the federal Bankruptcy Code.

         (i)      any extension of time conferred by any law now or hereafter in
                  effect and any  requirement  or notice of  acceptance  of this
                  Guaranty or any other notice to which the  undersigned may now
                  or  hereafter  be entitled to the extent such waiver of notice
                  is permitted by applicable law.

         7. Warranties. With respect to the Sterling Transaction Documents, each
Guarantor warrants that: (a) this Guaranty is executed at Lessee's request;  and
(b)  Guarantor  has  established  adequate  means of obtaining  from Lessee on a
continuing  basis  financial  and other  information  pertaining to the Lessee's
financial  condition.  Guarantors  agree to keep  adequately  informed from such
means of any facts,  events or  circumstances  which might in any way affect any
Guarantor's risks hereunder, and Guarantors further agree that Lessor shall have
no obligation to disclose to Guarantors  information or material acquired in the
course of Lessor's relationship with Lessee.

         8.  No-Subrogation.  Guarantors  shall have no right of subrogation and
waive any right to enforce any remedy which Lessor now has or may hereafter have
against Lessee and any benefit of, and any right to participate in, any security
now or hereafter held by Lessor with respect to the Master Lease.

         9. Subordination.  Upon the occurrence of an Event of Default under any
Sterling Transaction Document, which is not cured by Guarantor, the indebtedness
or obligations of Lessee to any Guarantor  shall not be paid in whole or in part
nor will  Guarantors  accept any payment of or on account of any amounts  owing,
without the prior written consent of Lessor and at Lessor's request,  Guarantors
shall  cause the  Lessee to pay to  Lessor  all or any part of the  subordinated
indebtedness until the obligations under the Sterling Transaction Documents have
been paid in full.  Any payment by Lessee in violation of this Guaranty shall be
received by Guarantors in trust for Lessor,  and Guarantors shall cause the same
to be paid to Lessor immediately on account of the amounts owing from the Lessee
to Lessor.  No such payment will reduce or affect in any manner the liability of
Guarantors under this Guaranty.
<PAGE>

         10. No Delay. Any payments required to be made by Guarantors  hereunder
shall become due on demand in accordance with the terms hereof  immediately upon
the happening of an Event of Default under any Sterling Transaction Document.

         11. Application of Payments.  With respect to the Sterling  Transaction
Documents,  and with or without notice to Guarantors,  Lessor,  in Lessor's sole
discretion  and at any time and from  time to time and in such  manner  and upon
such terms as Lessor  deems  appropriate,  may (a) apply any or all  payments or
recoveries from Lessee or from any other guarantor under any other instrument or
realized from any  security,  in such manner and order of priority as Lessor may
determine, to any indebtedness or other obligation of Lessee with respect to the
Sterling  Transaction  Documents and whether or not such  indebtedness  or other
obligation is guaranteed hereby or is otherwise secured or is due at the time of
such application,  and (b) refund to Lessee any payment received by Lessor under
the Sterling Transaction Documents.

           12.      Guaranty Default.

           (a) As used herein,  the term Guaranty Default shall mean one or more
of the following events (subject to applicable cure periods):

                    (i)    the failure of any  Guarantor  to pay the amounts
                           required to be paid  hereunder at the times specified
                           herein;

                    (ii)   the failure of any  Guarantor  to observe and perform
                           any covenants, conditions or agreement on its part to
                           be observed or  performed,  other than as referred to
                           in Subsection (i) above,  for a period of thirty (30)
                           days after  written  notice of such  failure has been
                           given to Guarantors  by Lessor,  unless Lessor agrees
                           in writing to an  extension of such time prior to its
                           expiration;

                    (iii) the  occurrence of a default under any other  guaranty
                          between Lessor and any Guarantor.

        (b) Upon the  occurrence  of a Guaranty  Default,  Lessor shall have the
right  to  bring  such  actions  at  law  or in  equity,  including  appropriate
injunctive  relief,  as it deems  appropriate to compel  compliance,  payment or
deposit,  and  among  other  remedies  to  recover  its  attorneys'  fees in any
proceeding, including any appeal therefrom and any post-judgement proceedings.

        13.   Financial   Statements.   Each   Guarantor   shall  deliver  those
Consolidated  Financial Statements and other certificates as required by Article
XXIII of the Master Lease in the form and at the times set forth therein.
<PAGE>

        14.       Miscellaneous.

        (a) No term,  condition  or  provision  of this  Guaranty  may be waived
except by an express  written  instrument  to that effect  signed by Lessor.  No
waiver of any term,  condition or provision  of this  Guaranty  will be deemed a
waiver of any other term, condition or provision, irrespective of similarity, or
constitute a continuing waiver of the same term, condition or provision,  unless
otherwise expressly provided.

        (b) If any one or more of the terms,  conditions or provisions contained
in this Guaranty is found in a final award or judgment  rendered by any court of
competent  jurisdiction to be invalid,  illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining terms, conditions and
provisions  of this  Guaranty  shall  not in any  way be  affected  or  impaired
thereby, and this Guaranty shall be interpreted and construed as if the invalid,
illegal, or unenforceable term,  condition or provision had never been contained
in this Guaranty.

        (c) THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE  WITH
THE LAWS OF THE STATE OF MICHIGAN,  EXCEPT THAT THE LAWS OF THE STATE IN WHICH A
FACILITY IS LOCATED SHALL GOVERN THIS  AGREEMENT TO THE EXTENT  NECESSARY (i) TO
OBTAIN THE BENEFIT OF THE- RIGHTS AND  REMEDIES SET FORTH HEREIN WITH RESPECT TO
SUCH FACILITY,  AND (ii) FOR PROCEDURAL  REQUIREMENTS  WHICH MUST BE GOVERNED BY
THE LAWS OF THE STATE IN WHICH SUCH FACILITY IS LOCATED. EACH GUARANTOR CONSENTS
TO IN PERSONAM  JURISDICTION BEFORE THE STATE AND FEDERAL COURTS OF MICHIGAN AND
AGREES  THAT ALL  DISPUTES  CONCERNING  THIS  GUARANTY BE HEARD IN THE STATE AND
FEDERAL  COURTS  LOCATED  IN THE  STATE OR  STATES  IN  WHICH  THE  FACILITY  OR
FACILITIES  ARE LOCATED OR IN MICHIGAN.  EACH  GUARANTOR  AGREES THAT SERVICE OF
PROCESS MAY BE EFFECTED UPON IT UNDER ANY METHOD  PERMISSIBLE  UNDER THE LAWS OF
THE STATE OR STATES IN WHICH THE FACILITY OR FACILITIES  ARE LOCATED OR MICHIGAN
AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF
THE STATE OR STATES IN WHICH THE  FACILITY  OR  FACILITIES  ARE  LOCATED  AND OF
MICHIGAN.

        (d) EACH  GUARANTOR  AND LESSOR HEREBY WAIVE TRIAL BY JURY AND THE RIGHT
THERETO IN ANY ACTION OR PROCEEDING  OF ANY KIND ARISING ON,  UNDER,  OUT OF, BY
REASON OF OR RELATING IN ANY WAY TO THIS GUARANTY OR THE INTERPRETATION,  BREACH
OR ENFORCEMENT THEREOF.

        (e) In the event of any suit, action, arbitration or other proceeding to
interpret  this  Guaranty,  or to determine  or enforce any right or  obligation
created  hereby,  the prevailing  party in the action shall recover such party's
actual  costs  and  expenses  reasonably   incurred  in  connection   therewith,
including,  but not  limited  to,  attorneys'  fees and  costs of  appeal,  post
judgment enforcement  proceedings (if any) and bankruptcy  proceedings (if any).
Any court, arbitrator or panel of arbitrators shall, in entering any judgment or
making any award in any such suit, action,  arbitration or other proceeding,  in
addition to any and all other relief awarded to such prevailing  party,  include
in  such-judgment  or award such party's  costs and expenses as provided in this
paragraph.
<PAGE>

         (f) Each  Guarantor (i)  represents  that it has been  represented  and
advised by counsel in  connection  with the  execution  of this  Guaranty;  (ii)
acknowledges receipt of a copy of the Sterling Transaction Documents;  and (iii)
further  represents  that  Guarantor  has been  advised by counsel  with respect
thereto. This Guaranty shall be construed and interpreted in accordance with the
plain meaning of its language,  and not for or against Guarantors or Lessor, and
as a whole, giving effect to all of the terms, conditions and provisions hereof.

         (g) Except as provided  in any other  written  agreement  now or at any
time  hereafter in force between  Lessor and  Guarantors,  this  Guaranty  shall
constitute  the entire  agreement of Guarantors  with Lessor with respect to the
subject  matter  hereof,  and  no  representation,   understanding,  promise  or
condition  concerning  the subject  matter hereof will be binding upon Lessor or
Guarantors unless expressed herein.

         (h) All stipulations,  obligations,  liabilities and undertakings under
this Guaranty shall be binding upon Guarantors and their  respective  successors
and  assigns  and shall  inure to the  benefit of Lessor  and to the  benefit of
Lessor's successors and assigns.

         (i) The  term  "Guarantor"  as used in this  Guaranty  shall  mean  the
"Guarantor and each of them, jointly and severally.

         (j) Whenever the singular shall be used  hereunder,  it shall be deemed
to include the plural (and  vice-versa)  and  reference  to one gender  shall be
construed to include all other genders,  including neuter,  whenever the context
of this Guaranty so requires.  Section captions or headings used in the Guaranty
are for convenience  and reference  only, and shall not affect the  construction
thereof.

                            [signatures on next page]

<PAGE>

         IN WITNESS  WHEREOF,  the  undersigned has executed this Guaranty as of
the date first written above.

                                   GUARANTORS:

                                  ADVOCAT, INC.

                                  By:
                                      -----------------------
                                  Its:     Executive Vice President

                                 ADVOCAT FINANCE, INC.

                                  By:
                                      -----------------------
                                  Its:     Executive Vice President

                                 DIVERSICARE MANAGEMENT SERVICES CO.

                                  By:
                                      -----------------------
                                  Its:     Executive Vice President

STATE OF ____________)
                                    ) ss.
COUNTY OF _________        )

         The foregoing  instrument was acknowledged before me this _____ day of
November, 2000, by James F. Mills, Jr., the Executive Vice President of Advocat,
Inc. known to me to be the person who executed this Guaranty.

                                    Notary Public, __________ County,
                                    My Commission Expires: _______________

<PAGE>

STATE OF ____________)
                                    ) ss.
COUNTY OF _________        )

         The foregoing  instrument was acknowledged before me this _____ day of
November,  2000, by James F. Mills, Jr.,  the  Executive  Vice  President of
Advocat  Finance,  Inc.  known to me to be the person who  executed  this
Guaranty.

                                     Notary Public, __________ County,
                                     My Commission Expires: _______________

STATE OF ____________)
                                    ) ss.
COUNTY OF _________        )

         The foregoing  instrument was acknowledged before me this _____ day of
November,  2000, by James F. Mills, Jr.,  the  Executive  Vice  President  of
Diversicare  Management  Services  Co.  known to me to be the person who
executed this Guaranty.

                                        Notary Public, __________ County,
                                        My Commission Expires: _______________

<PAGE>

                                   EXHIBIT E

         FORM OF MEMORANDUM OF CONSOLIDATED, AMENDED AND RESTATED LEASE

         THIS LEASE,  made and  entered  into as of October  _____,  2000 by and
between Sterling Acquisition Corp., a Kentucky corporation, having its principal
office at c/o Omega Healthcare Investors,  Inc., 900 Victors Way, Suite 350, Ann
Arbor,  Michigan  48108 as Lessor and  Diversicare  Leasing  Corp.,  a Tennessee
corporation,  having its  principal  office at c/o  Advocat,  Inc.,  277 Mallory
Station Road, Suite 130, Franklin, Tennessee 37067 as Lessee with respect to the
real property  identified  in Exhibit "A" attached  hereto and located in Phenix
City, Alabama.

                                   WITNESSETH:

1.       Omega   Healthcare   Investors,   Inc.,  a  Maryland   corporation  and
         Diversicare  Corporation of America,  a Delaware  corporation,  entered
         into a Master Lease dated August 11, 1992 (the  "Original  Lease"),  as
         evidenced by the Short Form Lease dated August 11, 1992 and recorded on
         August  14,  1992 in Book 753 at Page 186 in the Office of the Judge of
         Probate of Russell  County,  Alabama and as Assigned by the  Assignment
         and Assumption of Lease dated May 10, 1994 and recorded on June 7, 1994
         in Book 788 at Page 286 in the Office of the Aforesaid.

2.       Lessor and Lessee, as the successors-in-interest to the Original Lease,
         have entered into a Consolidated,  Amended and Restated Master Lease of
         even date herewith (the "Amended Lease").

3.       For and in  consideration of the rents reserved and the other covenants
         contained in the Amended Lease,  Lessor has and does hereby continue to
         lease to Lessee,  and Lessee has and does  hereby  continue to take and
         rent from  Lessor,  all of Lessor's  rights and  interest in and to the
         parcel of real property  described in Exhibit "A" and the improvements,
         fixtures, personal and other property included within the definition of
         "Leased Properties" as set forth in the Lease.
<PAGE>

4.       The Initial Term of the Amended Lease is approximately ten (10) years,
         commencing October 1, 2000 (the "Commencement Date") and ending on
         September 30, 2012.

5.       As more particularly provided in the Amended Lease, Lessee may elect to
         renew  the  original  term for one (1) ten (10) year  optional  renewal
         periods ("Renewal  Terms") for a maximum term, if exercised,  of twenty
         (20) years after the Commencement Date.

6.       This  instrument  is executed  and  recorded  for the purpose of giving
         notice of Lessee's  interest in the Leased Properties and giving notice
         of the  existence of the Lease,  to which  reference is made for a full
         statement of the terms and conditions thereof. The respective addresses
         of the parties hereto are:

                  Lessee:

                                    Diversicare Leasing Corp.
                                    c/o Advocat, Inc.
                                    277 Mallory Station Road, Suite 130
                                    Franklin, Tennessee 37067
                                    Attn: Chief Financial Officer
                                    Telephone:       (615) 771-7575
                                    Telecopier:      (615) 771-7409

                  Lessor:

                                    Sterling Acquisition Corp.
                                    c/o Omega Healthcare Investors, Inc.
                                    900 Victors Way, Suite 350
                                    Ann Arbor, Michigan 48108
                                    Attn.: F. Scott Kellman and
                                           Susan Allene Kovach
                                    Telephone:       (734) 887-0200
                                    Telecopier:      (734) 887-0201

<PAGE>

         IN WITNESS  WHEREOF,  the parties  have caused  this  instrument  to be
executed by their duly authorized  officer or officers and general partners,  as
applicable, all as of the day and date first above written.

LESSOR:                                     LESSEE:

STERLING ACQUISITION CORP.,                 DIVERSICARE LEASING CORP.,
a Kentucky corporation                      a Tennessee corporation

By:                                         By:
Name:                                       Name
Its:                                        Its:

<PAGE>

STATE OF MICHIGAN )
                                    )SS
COUNTY OF WASHTENAW        )

         On this _____ day of October,  2000, before me,  __________________,  a
Notary Public  within and for the County and State  aforesaid,  duly  qualified,
commissioned and acting, appeared in person the within named Susan A. Kovach, to
me  personally  well  known,  who stated that they were the Vice  President,  of
STERLING ACQUISITION CORP., a Kentucky corporation,  and were duly authorized in
their respective  capacities to execute the foregoing  Memorandum of Amended and
Restated Lease for and in the name and behalf of said  corporation,  and further
stated and  acknowledged  that they had so signed,  executed and delivered  said
Memorandum  of  Amended  and  Restated  Lease  in the  capacities  and  for  the
consideration and purposed therein mentioned and set forth.

         IN TESTIMONY  WHEREOF, I have hereunto set my hand and official seal on
this _____ day of October, 2000.
                                  -------------------------------
                                  Notary Public

                                  (NOTARY SEAL)

                                   My commission expires:__________

STATE OF _______________ )
                                    )SS
COUNTY OF _____________ )

         On this _____ day of October,  2000, before me,  __________________,  a
Notary Public  within and for the County and State  aforesaid,  duly  qualified,
commissioned and acting, appeared in person the within named  _________________,
to me personally well known,  who stated that they were the  __________________,
of DIVERSICARE LEASING CORP., a Tennessee corporation,  and were duly authorized
in their  respective  capacities to execute the foregoing  Memorandum of Amended
and  Restated  Lease  for and in the name and  behalf of said  corporation,  and
further stated and acknowledged that they had so signed,  executed and delivered
said  Memorandum  of Amended and Restated  Lease in the  capacities  and for the
consideration and purposed therein mentioned and set forth.

         IN TESTIMONY  WHEREOF, I have hereunto set my hand and official seal on
this _____ day of October, 2000.
                                  -------------------------------
                                  Notary Public

                                  (NOTARY SEAL)

                                   My commission expires:__________

<PAGE>

                                    Exhibit A

Name of Facility: Canterbury Health Facility

Facility Address: 1720 Knowles Road
                  Phenix City, Alabama 36868

Legal Description:

Part of Section  22,  Township 17 N, Range 30 E, Phenix  City,  Russell  County,
Alabama,  and being more  particularly  described  as  follows:  COMMENCE at the
northeastern  most corner of the  intersection of 23rd Court and Knowles Road in
Phenix City,  Alabama,  and run thence in a  northeasterly  direction  along the
Right of Way of Knowles  Road a distance  of 200.84  feet to the iron pin at the
point of beginning of the property  herein  conveyed;  thence North 43 deg. 11.5
min.  west a distance of 596.82 feet to an iron pin;  thence North 02 deg.  40.5
min. west 331.28 feet to an iron pin; thence North 87 deg. 03.5 min. East 621.16
feet to an iron pin;  thence south 38 deg. 00.5 min. East 439.27 feet to an iron
pin located on the right of way of Knowles  Road;  thence  South 45 deg. 03 min.
west along said ROW a distance  of 408.50 feet to an iron pin;  thence  continue
along said ROW along a curve  having a radius of 2824.93 feet an arc distance of
241.14 feet to the iron pin at the point of beginning.

SUBJECT TO a sixty foot  easement  for ingress and egress to the general  public
along the northeastern most line of subject property.

Being the same property conveyed to Omega Healthcare  Investors, Inc. by General
Warranty Deed from Counsel Nursing  Properties,  Inc. recorded in Vol. 753, Page
105 in the Probate Office of Russell County, Alabama.
<PAGE>
                                   EXHIBIT F

                      FORM OF REAFFIRMATION OF OBLIGATIONS
                          (FLORIDA MANAGED FACILITIES)

         THIS  REAFFIRMATION OF OBLIGATIONS is made this day of November,  2000,
by Advocat, Inc., a Delaware corporation ("Advocat"), and Diversicare Management
Services Co., a Tennessee  corporation ("DMSC"), to and for the benefit of Omega
Healthcare Investors, Inc., a Maryland corporation ("Omega").

RECITALS:

         A.  Omega is the holder of two (2)  Mortgage  Notes  (each a  "Mortgage
Note", and collectively,  the "Mortgage  Notes"),  being respectively a purchase
money note in the  original  principal  amount of  $12,891,500.00  and a working
capital note in the original  principal amount of $2,000,000.00 [a related third
Mortgage  Note,   representing  a  liquidity  deposit  loan  in  the  amount  of
$908,500.00  having  been  previously  paid in full] in the  aggregate  original
principal amount of $14,891,500.00  (such  indebtedness being referred to herein
as the "Loans"),  evidenced by four (4) Loan Agreements (the "Loan Agreements"),
and secured by four (4)  Mortgages,  Security  Agreements  and  Fixture  Filings
(collectively, the "Mortgages"), covering the following four (4) skilled nursing
facilities located in the State of Florida (each a "Facility", and collectively,
the "Facilities"):

Facility                                    Owner/Mortgagor

Emerald-Cedar Hills                         Emerald-Cedar Hills, Inc.

Emerald-Southern Pines                      Emerald-Southern Pines, Inc.

Emerald-Golfcrest                           Emerald-Golfcrest, Inc.

Emerald-Golfview                            Emerald-Golfview, Inc.

         B.  The  foregoing   Owners/Mortgagors  (the  "Emerald  Entities")  are
affiliates of Emerald Healthcare,  Inc., a Florida corporation  ("Emerald"),  by
virtue of common ownership thereof by R. Brent Maggio ("Maggio").

         C. DMSC is the  manager of each of the  Facilities,  pursuant to and by
virtue of four (4) separate management agreements,  one with each of the Emerald
Entities (the "Management  Agreements"),  and Advocat guaranteed the performance
by and  obligations  of DMSC  under the  Management  Agreements,  including  the
obligation to make certain working capital advances to the Emerald Entities,  by
virtue of four (4) separate  Guaranties  (the  "Guaranties"),  one given to each
Emerald Entity.
<PAGE>

         D.  DMSC  subordinated  its  rights  under the  Management  Agreements,
including  without  limitation  its fees  payable  thereunder,  to Omega and its
rights  under  the  Mortgage  Notes  and  Mortgages,  by  virtue  of  a  certain
Subordination  of Management  Agreement and Management Fees dated as of February
20, 1996 (the "Subordination Agreement").

         E. Omega,  Emerald,  the Emerald  Entities  and Maggio are parties to a
certain Cash  Collateral  Agreement dated as of August 1, 1998, not yet executed
by DMSC,  pursuant to which,  among other things,  DMSC was to have agreed,  and
Emerald, the Emerald Entities and Maggio have consented,  that DMSC would retain
and pay over to Omega all "Net Cash Receipts" (as defined in the Cash Collateral
Agreement) from the Facilities,  subject to and in accordance with its terms and
conditions.

         F. Omega and its  subsidiary  Sterling  Acquisition  Corp.,  a Kentucky
corporation     ("Acquisition"),     and     Advocat,     DMSC,     and    their
affiliates/subsidiaries   Sterling  Healthcare  Management,   Inc.,  a  Kentucky
corporation  ("SHCM") and  Diversicare  Leasing  Corp.,  a Delaware  corporation
("DLC"),  are parties to a certain Settlement and Restructuring  Agreement dated
as of October 1, 2000 (the "Settlement Agreement"),  pursuant to which they have
resolved  certain defaults of Advocat,  SHCM and DLC under  obligations to Omega
and Acquisition with respect to other skilled nursing home facilities  leased to
and operated by SHCM and/or DLC, and have restructured their  relationships with
respect thereto.

         G. As a condition  of, and an inducement  to Omega and  Acquisition  to
enter into,  the Settlement  Agreement,  Advocat and DMSC have agreed that their
obligations  to Omega with respect to the  Facilities  will remain in full force
and effect.

         NOW,  THEREFORE,  in  consideration  of the  foregoing  and  for  other
valuable  consideration,  the  receipt and  adequacy  of which are  acknowledged
hereby:

         1.  Advocat  and DMSC  acknowledge,  ratify and  reaffirm,  as if fully
restated herein in their  entirety,  the Management  Agreements,  Guaranties and
Subordination Agreement  (collectively,  the "Florida Emerald Agreements"),  and
all  of  their  individual  and  collective   responsibilities  and  obligations
thereunder,  and further covenant and agree that such instruments shall continue
to remain in full force and effect,  unabated and without  being  limited in any
respect by virtue of the Settlement  Agreement and the documents and instruments
executed  and or  delivered by the parties  thereto in the  consummation  of the
transactions contemplated therein.

         2. As indicated above,  DMSC has not heretofore  executed and joined in
the Cash  Collateral  Agreement.  Advocat  and Omega shall  negotiate,  prior to
January 31, 2001, an amendment to that instrument  which will (i) resolve,  in a
manner  consistent  with the  intent of the Cash  Collateral  Agreement,  DMSC's
reasonable  objections  to the  flow of  funds  established  thereby,  and  (ii)
acknowledge and reaffirm the consent by Advocat and DMSC to the sale or transfer
of the Florida Managed Facilities as provided in Paragraph 4, below.
<PAGE>

         3. Advocat and DMSC,  jointly and  severally,  warrant and represent to
Omega that (i) the Florida Emerald Agreements are in full force and effect as of
the date hereof, (ii) to their knowledge,  Advocat and DMSC have fully performed
all their respective  obligations  under the Florida Emerald  Agreements,  (iii)
neither has received any notice or  allegation of default from Emerald or any of
the Emerald  Entities with respect to the  obligations  of Advocat or DMSC under
the Florida Emerald Agreements, and (iv) neither the execution of the Settlement
Agreement  by  Advocat  and  DMSC,  nor  the  consummation  of the  transactions
contemplated thereby is inconsistent with, nor would constitute a default under,
the Management Agreements or the Guaranties.  The foregoing  representations and
warranties shall survive the  consummation of the  transactions  contemplated by
the Settlement Agreement.

         4.   Advocat  and  DMSC  each   consents  to  any   conveyance(s)   and
assignment(s) by one or more of the Emerald Entities and/or Emerald  Healthcare,
Inc. and/or Maggio, of their respective ownership and/or equity interests one or
more of the Facilities and/or the related Emerald  Entity(ies),  to Omega or its
designee, and Advocat and DMSC covenant and agree to recognize and attorn to the
assignment   of  the   relevant   Management   Agreement(s)   relating  to  such
Facility(ies).

         5. Advocat and DMSC acknowledge and agree that this Reaffirmation,  and
the  matters  set forth  herein,  constitute  a material  inducement  to Omega's
agreement  to enter into the  Settlement  Agreement,  and that  Omega  would not
consummate the  transactions  contemplated  in the  Settlement  Agreement in the
absence of the reaffirmations, representations and warranties set forth herein.

         6. This  Reaffirmation is given to, and for the express benefit of, and
may be relied upon by Omega and its successors and assigns.

                         [SIGNATURES ON FOLLOWING PAGE]

<PAGE>

         IN WITNESS WHEREOF,  Advocat and DMSC have executed this  Reaffirmation
as of the date first above written.

WITNESSES:                          ADVOCAT, INC., a Delaware
                                    corporation

                                    By:
                                    Its:

                                    DIVERSICARE MANAGEMENT SERVICES CO.,
                                    a Tennessee corporation

                                    By:
                                    Its:

STATE OF TENNESSEE                          )
                                       :SS
COUNTY OF                                   )

         The foregoing instrument was acknowledged before me this          day
of     , 2000, by               , the                                        of
Advocat, Inc., a Delaware corporation, on behalf of the corporation.

                                                   Notary Public
                                                   County, Tennessee
                                                   My commission expires:

STATE OF TENNESSEE                          )
                                       :SS
COUNTY OF                                   )

         The foregoing instrument was acknowledged before me this day of , 2000,
by , the of Diversicare  Management  Services Co., a Tennessee  corporation,  on
behalf of the corporation.

                                                     Notary Public
                                                     County, Tennessee
                                                     My commission expires:
<PAGE>

                                   EXHIBIT H

                           FORM OF SUBORDINATED NOTE

$1,700,000                                                  Franklin, Tennessee
                                                Dated as of November ____, 2000

         FOR VALUE  RECEIVED,  Advocat  Inc.,  a Delaware  corporation,  with an
address of 277  Mallory  Station  Road,  Suite 130,  Franklin,  Tennessee  37067
("Borrower"),  hereby  promises to pay to Omega  Healthcare  Investors,  Inc., a
Maryland  corporation  with an address of 900 Victors Way, Suite 350, Ann Arbor,
Michigan 48108  ("Payee"),  or to order,  the principal sum of One Million Seven
Hundred Thousand Dollars ($1,700,000),  and to pay interest from the date hereof
on the unpaid  principal  amount hereof at a rate of interest at all times equal
to seven  percent (7%) per annum,  which  interest  shall be accrued  quarterly.
Accrued interest ( including, but not limited to, all interest accruing from the
date of this Note but not paid  pursuant to this  sentence)  shall be payable in
cash quarterly  beginning with the quarter following the payment in full of that
certain Reimbursement Note dated the same date as this Note made by the Borrower
to AmSouth Bank (the  "Reimbursement  Note").  To the extent accrued interest is
not  paid  quarterly,  including  interest  payments  not made  pursuant  to the
preceding sentence, it shall be compounded quarterly.  Interest will be computed
on the basis of a 360-day year of twelve 30-day months.  The quarterly  interest
payments  shall be made on March 31,  June 30,  September  30 and  December  31.
Borrower may pre-pay  this Note in part or in full at any time without  penalty.
All  payments of principal  and interest  shall be in lawful money of the United
States,  and shall be made by wire transfer of  immediately  available  funds to
Payee or to such other account as is designated by Payee in writing to Borrower.
All outstanding  principal and accrued interest shall be due and payable in full
on September 30, 2007 (the "Maturity Date").

         1. (a) On the Maturity Date, the Borrower may, at its option subject to
the limitations  contained  below in Sections 1(b) and 1(c),  convert all or any
portion of the outstanding principal and accrued unpaid interest on this Note as
follows:

         (1)      If the  holder of this Note also  holds  shares of  Borrower's
                  Series B Convertible  Preferred Stock  ("Preferred  Stock") on
                  the  Maturity  Date,  then to shares of Preferred  Stock.  The
                  number of shares of Series B  Preferred  Stock to be issued in
                  respect of any of the principal and/or accrued unpaid interest
                  shall be equal to the amount of such principal  and/or accrued
                  unpaid interest divided by the Stated Value (as defined in the
                  Certificate of Designation of Series B Preferred Stock) of the
                  Series B Convertible Preferred Stock on the Maturity Date.

<PAGE>

         (2)      If the holder of this Note does not hold  shares of  Preferred
                  Stock on the  Maturity  Date,  then to  shares  of  Borrower's
                  Common Stock, $0.01 par value ("Common Stock").  The number of
                  shares of Common  Stock to be issued in  respect of any of the
                  principal and/or accrued unpaid interest shall be equal to (A)
                  (1)  the  amount  of  such  principal  and/or  accrued  unpaid
                  interest  divided  by (2) the  Stated  Value of the  Preferred
                  Stock (as defined in the  Certificate of Designation of Series
                  B  Preferred  Stock)  which  would then be in effect as of the
                  Maturity  Date  multiplied by (B) the  Conversion  Rate of the
                  Preferred  Stock (as defined in the Certificate of Designation
                  of Series B Preferred  Stock) which would then be in effect as
                  of the Maturity Date.

         (b) Borrower may not convert  outstanding  principal or accrued  unpaid
interest  into equity  securities  of Borrower  pursuant to Section  1(a) if the
aggregate  amount of outstanding  principal and accrued interest to be converted
is less than $250,000.  Borrower  shall not issue  fractions of shares of equity
securities upon conversion of this Note. If any fractional  share would,  except
for the  provisions of this Section  1(b),  be issuable upon  conversion of this
Note,  Borrower shall pay to the person entitled to receive such equity security
an amount in cash equal to (1) in the case of Preferred Stock, the value of such
fractional share  calculated  using the Stated Value,  calculated to the nearest
one-one  hundredth  (1/100) of a share; or (2) in the case of Common Stock,  the
value of such fractional  share  calculated using the quotient of (x) the Stated
Value of the  Preferred  Stock which would then be in effect as of the  Maturity
Date divided by (y) the Conversion Price of the Preferred Stock which would then
be in  effect  as of  the  Maturity  Date,  calculated  to the  nearest  one-one
hundredth (1/100) of a share.

         (c)   Notwithstanding   anything  in  this  Note,  the  Settlement  and
Restructuring  Agreement  dated the same date as this Agreement  among Borrower,
Payee and certain other  parties (the  "Restructuring  Agreement")  or any other
document, instrument or agreement between Borrower and Payee or any affiliate of
Payee,  Borrower may not convert any  outstanding  principal  or accrued  unpaid
interest into equity securities of Borrower, including Preferred Stock or Common
Stock, and the holders of this Note shall continue to hold this Note, unless, as
of the date of the proposed conversion:

                  (1)      Payee's accountants or legal counsel render a written
                           opinion (the "Conversion Opinion") to Payee that such
                           conversion  will not  result  in,  cause or  create a
                           material  risk of,  the Payee  losing its status as a
                           Real  Estate  Investment  Trust  under  the  Internal
                           Revenue Code of 1986, as amended; provided,  however,
                           that  Borrower  may convert a portion of  outstanding
                           principal  or accrued  unpaid  interest  into  equity
                           securities  of  Borrower  if Payee's  accountants  or
                           legal  counsel  render  a  Conversion   Opinion  with
                           respect to such portion and if subparagraphs (2) thru
                           (5) of this Section 1(c) are satisfied as of the date
                           of the proposed conversion;
<PAGE>

                  (2)      the Common Stock is registered pursuant to Section 12
                           of the  Securities  Exchange Act of 1934,  as amended
                           (the "34  Act") and  Borrower  has  timely  filed all
                           reports required to be filed by Borrower under the 34
                           Act within the previous two years;

                  (3)      no Default (as defined in Section 4 below) has
                           occurred and is continuing;

                  (4)      the Common  Stock is listed for trading on the Nasdaq
                           National Market,  the New York Stock Exchange or upon
                           a comparable national stock exchange; and

                  (5)      the average weekly trading volume of the Common Stock
                           over the prior four weeks was at least 500,000 shares
                           traded (as adjusted for stock splits, stock dividends
                           or similar transactions).

All costs associated with the Conversion Opinion shall be paid by Borrower.

         2. (a) Payment of this Note shall be  subordinated  in right of payment
and distribution of the assets of Borrower  (including without  limitation,  any
distribution  of the assets of  Borrower  to its  creditors  in any  insolvency,
bankruptcy,  reorganization  or similar  proceeding with respect to Borrower) to
all Senior  Indebtedness  (as defined below);  provided,  that Borrower may make
regular  quarterly  payments  of  interest  due on this Note as  provided in the
preceding   paragraph  and  payment  of  principal  upon  maturity   ("Permitted
Payments"),  unless (i) a Default (as  defined in any such Senior  Indebtedness)
has  occurred  or (ii) an event or  condition  which with the passage of time or
giving of notice, or both, could become a Default has occurred and is continuing
(collectively,  the "Default Restrictions").  For purposes of this Note, "Senior
Indebtedness"  shall mean the principal,  premium,  if any, and unpaid  interest
(including  interest  accruing  on or  after  the  filing  of  any  petition  in
bankruptcy or for reorganization  relating to the Company whether or not a claim
for  post-filing  interest  is  allowed  in  such  proceeding),  fees,  charges,
expenses,  reimbursement and indemnification  obligations, and all other amounts
payable under or with respect of (i) any indebtedness of the Company  (excluding
this Note and indebtedness by its terms expressly ranking subordinate to or pari
passu  with  this  Note,  herein,  the  "Subordinated  Indebtedness")  for money
borrowed, whether or not evidenced by debentures,  notes or similar instruments,
issued, incurred, or assumed by the Company and whether outstanding on the dates
of this Note or hereafter  created or incurred;  (ii) all indebtedness and other
obligations  guaranteed by the Company,  or the payment and performance of which
is secured by a lien on property or assets of the Company;  (iii) the Borrower's
Credit Facility with AmSouth Bank; (iv) the Borrower's mortgage obligations with
General Motors Acceptance Corporation; and (v) the Reimbursement Note.

<PAGE>

         (b) Borrower  shall  notify  Payee in writing  before or at the time an
interest  payment is due if a Default  Restriction  has  occurred.  Except  with
respect to payments  made to Payee  pursuant to Section  1(a) in the form of the
Corporation's  Series B Preferred  Stock or Common Stock,  if Payee receives any
cash payment on account of principal or of interest on this Note in violation of
these subordination provisions,  Payee shall receive the same as trustee for the
holders of the  Senior  Indebtedness  and will pay or  deliver  the same to such
holders immediately and Payee hereby assigns to such holders all rights of Payee
to  any  such  payments  and  Payee  shall  execute  such  agreements  as may be
reasonably  required to effectuate this  assignment.  Any amounts so paid to the
holders  of the  Senior  Indebtedness  shall be deemed  not to have been paid by
Borrower, or received by Payee, under this Note. If any event or condition which
is the subject of a Default  Restriction  shall be cured or waived in writing by
the holders of the Senior  Indebtedness,  within the applicable grace period, if
any,  provided in the Senior  Indebtedness,  Borrower  shall resume  payments of
interest  (including  any  past  due  interest)  on  this  Note  and may pay the
principal  of this Note,  according  to the terms set forth  herein,  subject to
future application of the Default Restrictions.  Payee acknowledges that this is
a continuing agreement of subordination, and the Borrower and its senior lenders
may amend,  modify or  extend,  and such  lenders  may grant  waivers  under the
provisions  of any such  Senior  Indebtedness  without  approval of or notice to
Payee.

         (c) Until the Senior  Indebtedness is paid in full, Payee shall not (a)
initiate or participate  with others in any suit,  action or proceeding  against
Borrower  to enforce  payment or collect all or part of the  indebtedness  under
this Note,  (b) accelerate the maturity of or increase the principal of or amend
the  subordination  provisions  of this Note,  (c) increase the interest rate on
this Note,  or (d)  exercise  any right of setoff  with  respect to, or take any
security from Borrower for, this Note.  Except to the extent expressly  provided
in this Note, nothing contained herein shall impair, between Borrower and Payee,
the obligations of Borrower to make payments of principal of or interest on this
Note to Payee as and when the same shall  become due and  payable in  accordance
with the terms hereof.

         (d) The holder of this Note by his acceptance  hereof  acknowledges and
agrees that the foregoing subordination  provisions are, and are intended to be,
an inducement and a consideration to each holder of Senior Indebtedness, whether
such Senior Indebtedness was created or acquired before or after the issuance of
this Note, and each holder of Senior  Indebtedness shall be deemed  conclusively
to have relied upon such subordination provisions in acquiring and continuing to
hold such Senior Indebtedness.
<PAGE>

         3. This Note is secured by all guaranties,  security interests,  liens,
assignments  and  encumbrances  granted  concurrently   herewith,   and  granted
previously  or from time to time  hereafter  by  Borrower  or any of  Borrower's
affiliates to Payee, or any of Payee's  affiliates,  including,  but not limited
to, the security  interests  granted by  Diversicare  Leasing  Corp., a Delaware
corporation,   to  Sterling  Acquisition  Corp.,  a  Kentucky  corporation,   in
connection  with the  Amended  and  Restated  Master  Lease (as  defined  in the
Restructuring Agreement) (collectively, the "Security Documents").  Reference is
hereby  made to the  Security  Documents  for  additional  terms and  conditions
concerning this Note.

         4. The occurrence of any of the following shall  constitute a "Default"
under this Note: (i) the Borrower fails to pay when due, whether by acceleration
or  otherwise,  any amount  payable under this Note; or (ii) an Event of Default
under the Amended and Restated  Master Lease; or (iii) an Event of Default under
any of the Security Documents.

         5. If a Default has occurred and is  continuing,  Payee may (subject to
the  limitations  set  forth  in  Section  2 of this  Note)  without  demand  of
performance  and  without  other  notice  declare  the unpaid  principal  of and
interest on this Note to be  immediately  due and  payable,  whereupon  the same
shall be due and payable without presentation,  demand, protest or notice of any
kind,  all of which  are  expressly  waived,  anything  herein  to the  contrary
notwithstanding.  Payee may proceed to protect and enforce Payee's rights either
by suit in equity and/or by action at law, whether for specific performance,  or
proceed to enforce any other legal or equitable  right as a holder of this Note.
All remedies of Payee  provided  herein are cumulative and concurrent and may be
exercised  independently,  successively or together against Borrower at the sole
discretion of Payee, shall not be exhausted by any exercise thereof,  and may be
exercised as often as occasion therefor may occur, and shall not be construed to
be waived or released by Payee's  delay in  exercising,  or failure to exercise,
them or any of them at any time it may be entitled to do so.

         6. All notices,  requests and other  communications  hereunder shall be
made in the manner set forth in the Restructuring Agreement.

         7.  Borrower  waives  presentment  for  payment,   demand,   notice  of
nonpayment, notice of protest and protest of this Note, and all other notices in
connection  with the  delivery,  acceptance,  performance,  default  (except  as
expressly provided herein) or enforcement of the payment of this Note and agrees
that the  liability  of  Borrower  shall not be in any  manner  affected  by any
indulgence,  extension  of time,  renewal,  waiver or  modification  granted  or
consented to by Payee.
<PAGE>

         8. Acceptance by Payee of any payment in an amount less than the amount
then due shall be deemed an acceptance on account only,  and Payee's  acceptance
of any such partial  payment  shall not  constitute a waiver of Payee's right to
receive the entire  amount  due.  Upon any  Default,  neither the failure of the
Payee to promptly  exercise its right to declare the  outstanding  principal and
accrued unpaid  interest  hereunder to be immediately  due and payable,  nor the
failure  of Payee to  demand  strict  performance  of any  other  obligation  of
Borrower or any other  person who may be liable  hereunder,  shall  constitute a
waiver of any such rights,  nor a waiver of such rights in  connection  with any
future  default on the part of  Borrower  or any other  person who may be liable
under this Note.

         9. Payee shall not by any act of omission  or  commission  be deemed to
have  waived any of its rights or  remedies  hereunder  unless such waiver be in
writing and signed by Payee, and then only to the extent  specifically set forth
therein;  a waiver of one event shall not be construed as continuing or as a bar
or waiver of such right or remedy on a subsequent event.

         10.  Unless a  Default  has  occurred  and not been  fully  cured,  all
payments  received  by Payee  under this Note shall be  applied,  subject to the
limitations  set forth in Section 2 of this Note,  first against  interest which
has accrued and not been paid, and second to principal, with the balance applied
against  principal  and any other amounts which may be owing to Payee under this
Note.  Following the  occurrence  of a Default,  and until such Default is fully
cured,  Payee may apply,  subject to the  limitations  set forth in Section 2 of
this Note, any payment which it receives,  whether directly from the Borrower or
as a consequence of realizing upon any security which it holds,  in its sole and
absolute  discretion,  to any amount owing to it under this Note or the Security
Documents.

         11. The Borrower shall pay to Payee,  immediately upon demand,  any and
all taxes  (including,  but not  limited to,  state  franchise  taxes)  assessed
against  Payee by reason of its  holding  of this Note and the  receipt by it of
interest  payments  hereunder  (other than income  taxes  assessed by the United
States,  or by any foreign  government or political  subdivision  thereof having
jurisdiction  over the Payee on such interest  payments),  and any and all other
sums and charges that may at any time become due and payable  under the Security
Agreements.

         12. The Borrower,  and any other person who may be liable  hereunder in
any capacity, agree to pay all costs of collection and any litigation, including
attorney fees (including any appeals  relating to such enforcement or collection
proceedings),  in case the  principal  of the Note or any  payment  of  interest
thereon  is not paid as it  becomes  due,  or in case it  becomes  necessary  to
protect the security for this Note, whether suit is brought or not.

         13. All payments by the Borrower  shall be paid in full without  setoff
or  counterclaim  and  without  reduction  for and free from any and all  taxes,
levies, imposts,  duties, fees, charges,  deductions or withholdings of any type
or nature  imposed by any  government  or any  political  subdivision  or taxing
authority thereof.

         14. IT IS SPECIFICALLY AGREED THAT TIME IS OF THE ESSENCE OF THIS NOTE.

<PAGE>

         15. All agreements between the Borrower, and any other party liable for
the  payment  of the  indebtedness  evidenced  by this Note,  and Payee,  or any
subsequent  holder of this Note,  whether now existing or hereafter  arising and
whether written or oral, are hereby limited so that in no  contingency,  whether
by reason of demand or  acceleration  of the maturity of this Note or otherwise,
shall the interest contracted for, charged,  received, paid or agreed to be paid
to the  holder  of  this  Note  exceed  the  maximum  amount  permissible  under
applicable law. If, from any circumstance  whatsoever,  interest would otherwise
be payable to the holder of this Note in excess of the  maximum  lawful  amount,
the interest  payable to the holder of this Note shall be reduced to the maximum
amount  permitted by applicable law; and if from any  circumstance the holder of
this Note 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 this Note and not
to the payment of interest,  or if such  excessive  interest  exceeds the unpaid
balance of the  principal  of this Note,  such  excess  shall be refunded to the
Borrower  or to  another  party,  or  parties,  liable  for the  payment  of the
indebtedness evidenced by this Note, as applicable.  All interest paid or agreed
to be  paid to the  holder  of this  Note  shall,  to the  extent  permitted  by
applicable  law, be amortized,  prorated,  allocated and spread through the full
period of this Note  (including  the period of any renewal or extension  hereof)
until payment in full of the principal so that the interest for such full period
shall not exceed the maximum  permitted by applicable law. This Section 15 shall
control all agreements between the Borrower and the holder of this Note.

         16.  If  any  provision  hereof  is  found  by  a  court  of  competent
jurisdiction to be prohibited or unenforceable,  it shall be ineffective only to
the extent of such  prohibition  or  unenforceability,  and such  prohibition or
unenforceability  shall not  invalidate  the  balance of such  provision  to the
extent  it  is  not  prohibited  or  unenforceable,  nor  invalidate  the  other
provisions hereof,  all of which shall be liberally  construed in favor of Payee
in order to effect the provisions of this Note.

         17. This Note shall be governed by and construed in accordance with the
internal  substantive  laws of the  State of  Delaware,  without  regard  to any
conflict of laws rule or principle  that would result in the  application of the
domestic substantive law of any other jurisdiction.

                          Signature on following page.

<PAGE>

         IN WITNESS WHEREOF,  Borrower has caused this  Subordinated  Note to be
executed  and  delivered by its proper and duly  authorized  officer the day and
year written above.

                                  ADVOCAT INC.

                                  By:
                                      -----------------------

AGREED TO AND ACCEPTED BY PAYEE;

OMEGA HEALTHCARE INVESTORS, INC.

By:
    --------------------
<PAGE>
                                    EXHIBIT I

               FORM OF STOCK ISSUANCE AND SUBSCRIPTION AGREEMENT

     This Stock Issuance and  Subscription  Agreement  ("Agreement")  is entered
into this ____ day of November,  2000 between Advocat Inc. ("Advocat") and Omega
Healthcare Investors, Inc. ("Omega").

         WHEREAS, Advocat and Omega and certain of their affiliates have entered
into that certain  Settlement and  Restructuring  Agreement dated November ____,
2000 (the  "Restructuring  Agreement")  pursuant to which Advocat and Omega have
agreed to restructure their relationship.

         WHEREAS, in accordance with Section 11 of the Restructuring  Agreement,
Advocat  has  agreed  to issue  Series B  Preferred  Stock  having  the  powers,
preferences  and rights as provided in the Certificate of Designation of Advocat
("Designation") as attached hereto as Exhibit A.

         NOW, THEREFORE,  for good and valuable  consideration,  the receipt and
sufficiency  of which  are  hereby  acknowledged,  Advocat  and  Omega  agree as
follows:

         1.  Issuance of Shares.  In  consideration  of the mutual  promises and
agreements set forth in, and the consummation of the  transactions  contemplated
by,  the  Restructuring  Agreement,  Advocat  hereby  issues  to Omega and Omega
accepts from Advocat, subject to the terms and conditions hereof, 393,658 shares
of Advocat Series B Convertible  Preferred Stock (the  "Shares").  Advocat shall
deliver to Omega  concurrently with the execution and delivery of this Agreement
a stock  certificate  evidencing  its  ownership  of the  Shares  and  bearing a
restrictive legend stating substantially the following:

         The shares  represented by this  certificate  have not been  registered
         under the  Securities  Act of 1933,  as amended.  Such shares have been
         acquired  for  investment  and  may  not be  offered  for  sale,  sold,
         delivered  after  sale,  transferred,  pledged or  hypothecated  in the
         absence of an effective  registration  statement  covering  such shares
         under the Securities Act or an opinion of counsel  satisfactory  to the
         company that such registration is not required.

         2. Registration  Rights Agreement.  Concurrently with the execution and
delivery  of this  Agreement,  Advocat  shall  execute  and  deliver  to Omega a
Registration   Rights   Agreement   (the   "Registration    Rights   Agreement")
substantially in the form of Exhibit B to this Agreement.

         3. Representations and Warranties of Advocat. Advocat hereby represents
and warrants to Omega as follows:

                  3.1 Advocat is a corporation duly organized,  validly existing
         and in good standing  under the laws of the State of Delaware,  and has
         all requisite  corporate  power and authority to own, lease and operate
         its properties and to carry on its business as now being conducted.

<PAGE>

                  3.2  Advocat  has the  full  right,  power  and  authority  to
         execute,  deliver  and carry out the  terms of this  Agreement  and all
         documents and agreements  necessary to give effect to the provisions of
         this Agreement and to consummate the transactions contemplated hereby.

                  3.3 The execution, delivery and consummation of this Agreement
         have been duly and properly  authorized by all necessary  action on the
         part of Advocat. The Board of Directors of Advocat has duly and validly
         approved  and taken all  corporate  action  required to be taken by the
         Board  of  Directors   for  the   consummation   of  the   transactions
         contemplated by this Agreement and the  Registration  Rights  Agreement
         including,  but not  limited  to, all  actions  required  to render the
         provisions  of Section  203 of the  Delaware  General  Corporation  Act
         restricting  business   combinations  with  "interested   shareholders"
         inapplicable to such  transactions and to provide that none of Omega or
         any of its affiliates shall become an"interested  shareholder" upon the
         execution and delivery of this  Agreement or the  acquisition of Shares
         or shares of Advocat's  Common Stock  pursuant to this  Agreement,  the
         conversion of the Shares,  or the acquisition of Shares pursuant to the
         Subordinated Note (as defined in the Restructuring Agreement).

                  3.4 This Agreement,  upon due execution and delivery  thereof,
         will   constitute   the  valid  and  binding   obligation  of  Advocat,
         enforceable in accordance with its terms.

                  3.5 Upon the issuance of the Shares,  such Shares will be duly
         authorized, validly issued, fully paid and nonassessable.

                  3.6  The  execution  and  delivery  of  this  Agreement,   the
         consummation of the transactions contemplated by this Agreement and the
         compliance with the terms of this Agreement do not and will not:

                           (a)  conflict  with or  result  in any  breach of any
                  provision  of any  agreement  or  other  instrument  to  which
                  Advocat is a party or by which it or any of its  property  may
                  be bound,  or  conflict  with or  result in any  breach of any
                  provision  of  Advocat's  Charter,  as amended by the attached
                  Designation,  Bylaws or the Rights Agreement dated as of March
                  13, 1995 by and between  Advocat  and Third  National  Bank in
                  Nashville, as amended (the "Rights Plan");

                           (b)  conflict  with,   result  in  a  breach  of  any
                  provision of,  constitute (with or without due notice or lapse
                  of time or both) a default under,  result in the  modification
                  or cancellation  of, result in any increase in the obligations
                  of Advocat or any of its  subsidiaries  under, or give rise to
                  any right of  termination or  acceleration  in respect of, any
                  contract, agreement, commitment, understanding, arrangement or
                  restriction  of any  kind to  which  Advocat  is a party or to
                  which Advocat or any of its property is subject;
<PAGE>

                           (c) result in the creation of any Lien (as defined in
                  Section 9.7 below) upon,  or any Person (as defined in Section
                  9.7 below) obtaining the right to acquire,  any of the Shares,
                  any equity interest in Advocat or any of Advocat's assets;

                           (d)  violate  or  conflict  with any law,  ordinance,
                  code, rule,  regulation,  decree, order or ruling of any court
                  or Governmental  Entity (as defined in Section 9.7 below),  to
                  which Advocat or any of its assets is subject;

                           (e) require any authorization, consent, order, permit
                  or  approval  of, or notice  to, or  filing,  registration  or
                  qualification   with,  any  governmental,   administrative  or
                  judicial authority  ("Consent"),  other than (1) the filing of
                  the Designation  with the Delaware  Secretary of State and (2)
                  the  filing  of a Form  D with  the  Securities  and  Exchange
                  Commission; or

                           (f)   require  any  Consent  of  any  Person  to  the
                  execution, delivery or performance of this Agreement or to the
                  consummation   of  the   transactions   contemplated   hereby,
                  including (but not limited to) Consents from parties to leases
                  or other agreements or commitments.

                  3.7 The  authorized  capital  stock  of  Advocat  consists  of
         20,000,000  shares of common  stock,  $0.01 par  value,  and  1,000,000
         shares of preferred  stock,  $0.10 par value of which 200,000 have been
         designated Series A Junior Participating  Preferred Stock of which none
         are issued and outstanding  and 600,000 have been  designated  Series B
         Convertible  Preferred  Stock of which none are issued and  outstanding
         immediately prior to the issuance of the Shares. After giving effect to
         the consummation of the transactions  (i.e., the Closing)  contemplated
         by this  Agreement,  the  only  shares  of  capital  stock  issued  and
         outstanding, reserved for issuance or committed to be issued will be:

                           (a) 5,491,621 fully paid and non-assessable
                  shares of Common Stock, duly issued and outstanding;

                           (b) 200,000  shares of Series A Junior Preferred
                  Stock  reserved for issuance  pursuant to the Rights Plan;

                           (c) 393,658 fully paid and  non-assessable  shares of
                  Series  B  Convertible   Preferred  Stock,   duly  issued  and
                  outstanding and owned of record and beneficially by Omega;

                           (d)  706,561  shares of Common Stock reserved for
                  issuance  upon  conversion  of the Series B Preferred Stock;
<PAGE>

                           (f)  441,892  shares of  Common  Stock  reserved  for
                  issuance  upon  the  conversion  of  all  accrued  and  unpaid
                  dividends on the Shares (calculated  assuming (1) a conversion
                  date of September  30, 2007,  (2) no change in the  Conversion
                  Price (as  defined in the  Designation)  and (3) no payment of
                  dividends on the Shares as of such date); and

                           (f)  206,342  shares of Series B Preferred  Stock and
                  370,356  shares of Common Stock reserved for issuance upon the
                  conversion of all unpaid  principal and one fiscal  quarter of
                  accrued interest under the Note (calculated assuming no change
                  in the Conversion Price) to either Series B Preferred Stock or
                  Common Stock, as applicable.

         There are no  declared  but unpaid  dividends  or  undeclared  dividend
         arrearages  on any shares of capital  stock of  Advocat.  Except as set
         forth on Schedule  3.7,  there are no  outstanding  options,  warrants,
         rights, calls, agreements,  convertible securities or other commitments
         or rights to purchase or acquire any unissued stock or other securities
         from Advocat,  and no other  securities of Advocat are reserved for any
         purpose.  Except as set forth on  Schedule  3.7,  there are no material
         contracts,  commitments,  agreements,  understandings,  arrangements or
         restrictions  to which  Advocat is a party which  relate to the capital
         stock of Advocat.

                  3.8 As of the date of this Agreement, the aggregate book value
         of  Advocat's  outstanding  "securities"  (as that term is  defined  in
         Investment Company Act of 1940) exceeds $60,000,000.

         4. Representations and Warranties of Omega. Omega hereby represents and
warrants to Advocat as follows:

                  4.1  Omega  is an  "accredited  investor"  as  defined  in the
         Securities Act of 1933, as amended (the  "Securities  Act"),  and rules
         and regulations promulgated thereunder.

                  4.2 The Shares are being  acquired by Omega solely for its own
         account  for  investment,  with  no  present  intention  of  making  or
         participating  in a  distribution  thereof  within  the  meaning of the
         Securities Act. None of the Shares will be sold or transferred by Omega
         in violation of the  Securities  Act, any state  securities  law or any
         other applicable securities  legislation and the financial condition of
         Omega  is such  that  Omega  can  bear  the  risk  of  this  investment
         indefinitely.

                  4.3 Omega is aware  that the Shares  have not been  registered
         under  the  Securities  Act or any  state  securities  law or any other
         applicable  securities  legislation,  that  the  Shares  must  be  held
         indefinitely  unless they are  subsequently  registered or an exemption
         from such registration is available and that, except as provided in the
         Registration  Rights  Agreement,  Advocat  is  under no  obligation  to
         register the Shares under the Securities Act, any state securities law,
         or any other applicable securities legislation.  Omega is aware that an
         exemption  from the  registration  requirements  of the  Securities Act

<PAGE>

         pursuant  to Rule  144  thereunder  is not  presently  available;  that
         Advocat has not  covenanted  to make  available an  exemption  from the
         registration  requirements  pursuant to such Rule 144 or any  successor
         rule for resale of the Shares; and that even if an exemption under Rule
         144 were  available,  the Rule  generally  permits only routine  public
         market sales of  securities in limited  amounts in accordance  with the
         terms and conditions of such Rule.

                  4.4 Omega  confirms that Advocat has made  available to Omega,
         or its  representatives,  the opportunity to ask questions of Advocat's
         officers and directors and to acquire such additional information about
         the business and financial condition of Advocat as Omega has requested,
         which additional information has been received.

                  4.5 Omega confirms that no  representations or warranties have
         been  made by  Advocat  other  than as set forth or  confirmed  in this
         Agreement,  in the  Restructuring  Agreement  and in the  documents and
         agreements  which evidence or secure the  transactions  contemplated by
         the Transaction Documents (as defined in Section 9.7 below).

         5.       Indemnification.

                  5.1  Advocat  agrees  to  indemnify  and hold  Omega,  and its
         successors  and  assigns,   harmless  from  and  against  any  and  all
         liabilities,    losses,   damages,   injuries,   liabilities,   claims,
         deficiencies,   judgments,   fines,   costs  and  expenses,   including
         reasonable counsel fees ("Losses"),  suffered, incurred or sustained by
         Omega or its  successors  or assigns  that result  from,  relate to, or
         arise out of:

                           (a) any breach of any  representation or warranty or
                  nonfulfillment of any agreement or covenant on the part of
                  Advocat under this Agreement; or

                           (b) any action, suit, claim or proceeding incident to
                  any of the foregoing or to the enforcement of this Section 5.

                  5.2 (a) If any third party shall  notify Omega with respect to
         any matter (a "Third Party  Claim")  which may give rise to a claim for
         indemnification  against Advocat (the "Indemnifying  Party") under this
         Section,  then Omega shall promptly  notify Advocat of such Third Party
         Claim in writing; provided, however, that no delay on the part of Omega
         in notifying  Advocat shall relieve  Advocat from any obligation  under
         this  Section  unless  (and  then  solely  to the  extent)  Advocat  is
         prejudiced by such delay.

                  (b)  Advocat  will have the right to assume the defense of the
         Third Party Claim with counsel  reasonably  acceptable  to Omega at any
         time within fifteen (15) days after Omega has given notice of the Third
         Party Claim;  provided,  however, that Advocat must conduct the defense

<PAGE>

         of the Third Party Claim actively and diligently to preserve its rights
         to assume the defense of the Third Party Claim;  and  provided  further
         that Omega may retain separate  co-counsel at its sole cost and expense
         and participate in the defense of the Third Party Claim.

                  (c) So long as  Advocat  has  assumed  and is  conducting  the
         defense of the Third  Party Claim in  accordance  with  Section  5.2(b)
         above,  Advocat  will not consent to the entry of any judgment or enter
         into any  settlement  with respect to the Third Party Claim without the
         prior written consent of Omega (not to be withheld unreasonably) unless
         the judgment or proposed  settlement involves only the payment of money
         damages by Advocat and does not impose an injunction or other equitable
         relief upon Omega.

                  (d) If Advocat  does not assume or conduct  the defense of the
         Third Party Claim in accordance with Section 5.2(b) above, however, (i)
         Omega may defend  against,  and consent to the entry of any judgment or
         enter into any settlement with respect to, the Third Party Claim in any
         manner it reasonably may deem  appropriate  (and Omega need not consult
         with, or obtain any consent from,  Advocat in connection  with any such
         defense,   consent  or  settlement),   and  (ii)  Advocat  will  remain
         responsible for any Losses Omega may suffer resulting from, arising out
         of,  relating  to, in the nature of, or caused by the Third Party Claim
         to the fullest extent provided in this Section 5.

         6. Financial  Statements and Other  Information.  If, at any time while
Omega holds any of the Shares (or any Common Stock of Advocat),  Advocat  ceases
to  have  registered  any  of  its  securities  pursuant  to  Section  12 of the
Securities  Exchange Act of 1934,  as amended (the "34 Act"),  or to timely file
all  reports  required  to be filed by Advocat  under the 34 Act,  Advocat  will
deliver to Omega, as applicable:

                  (a)  Audited   Annual   Financial   Statements.   As  soon  as
         practicable  after the end of each fiscal  year of Advocat,  and in any
         event  within  ninety  (90) days  thereafter,  a  consolidated  audited
         balance sheet of Advocat and its  subsidiaries  (if any), as of the end
         of such year, and consolidated audited statements of income, changes in
         retained  earnings  and  changes  in  cash  flows  of  Advocat  and its
         subsidiaries  (if any),  for such fiscal year,  prepared in  accordance
         with  GAAP and  setting  forth  in each  case in  comparative  form the
         figures for the previous fiscal year, all in reasonable  detail and, in
         the   case  of  the   consolidated   statements,   certified,   without
         qualification  or  explanation,   by  independent   public  accountants
         selected by Advocat and reasonably acceptable to Omega; and

                  (b)  Unaudited  Quarterly  Financial  Statements.  As  soon as
         practicable  after the end of each  fiscal  quarter of each fiscal year
         and, in any event within forty-five (45) days thereafter,  consolidated
         unaudited balance sheets of Advocat and its subsidiaries (if any) as of
         the end of such period, and consolidated unaudited statements of income
         and changes in cash flows of Advocat and its  subsidiaries (if any) for
         such  period  and for the  current  fiscal  year to date,  prepared  in

<PAGE>

         accordance with GAAP and setting forth in comparative  form the figures
         for the corresponding  periods of the previous fiscal year,  subject to
         changes  resulting  from  normal  year-end  audit  adjustments  and the
         absence of  footnotes,  all in  reasonable  detail and certified by the
         principal financial officer of the Company.

         7.  Redemption  Right upon Default.  Upon the occurrence of an Event of
Default (as defined in Section 10.7 below) and while it  continues,  Omega shall
have the option,  in addition to all other rights and remedies  available to it,
to cause Advocat to redeem all or any part of the Shares  pursuant to Section 11
of the Designation.

         8.  Public  Status.   So  long  as  any  of  the  Shares  shall  remain
outstanding,  Advocat shall cause the Common Stock to remain registered pursuant
to Section  12 of the 34 Act and shall use  commercially  reasonable  efforts to
timely file all reports required to be filed by the Company under the 34 Act.

         9.  Further Assurances and Information.

                  9.1 If, subsequent to the date of this Agreement,  the Federal
         government  issues or passes  rules,  regulations  or laws which  would
         cause Omega to lose, or be at a material risk of losing,  its status as
         a Real Estate Investment Trust under the Internal Revenue Code of 1986,
         as amended,  as a result of Omega  holding  the Shares,  and if Omega's
         attorneys or accountants  recommend a restructuring of the relationship
         between Omega and Advocat as set forth in the Restructuring  Agreement,
         then so long as the proposed  restructuring does not place Advocat in a
         materially  worse  position  relative to its position under the current
         structure  of the  relationship,  Advocat  shall  use its  commercially
         reasonable efforts to promptly take, or promptly cause to be taken, all
         actions and to execute all documents that are  reasonably  requested by
         Omega to restructure the relationship.

                  9.2 Within ten (10) days of the  receipt of a written  request
         from  Omega,  Advocat  shall  provide  to Omega  reasonable  access  to
         Advocat's books and records for the purpose of estimating the aggregate
         fair market value of Advocat's  outstanding  "securities" (as that term
         is defined  in  Investment  Company  Act of 1940) as of the date of the
         request.

         10.      Miscellaneous.

                  10.1 The representations,  warranties and agreements contained
         herein shall survive the  execution and delivery of this  Agreement and
         the purchase of the Shares.

                  10.2 This  Agreement  shall be binding upon and shall inure to
         the benefit of the parties and their  respective  permitted  successors
         and assigns. This Agreement may not be assigned, by operation of law or
         otherwise,  without  the prior  written  consent  of the  non-assigning
         party;  provided,  however, that Omega and any subsequent holder of the
         Shares may assign the rights  granted  pursuant  to Sections 5 and 6 of
         this Agreement to any subsequent holder of the Shares.
<PAGE>

                  10.3  This  Agreement,  the  Restructuring  Agreement  and the
         documents  which evidence or secure the  transactions  contemplated  by
         this Agreement and the  Restructuring  Agreement  constitute the entire
         agreement  of the parties  relating to the  subject  matter  hereof and
         there are no terms other than those  contained  herein.  This Agreement
         may not be  modified  or  amended  except  in a  writing  signed by the
         parties hereto.

                  10.4 This  Agreement  shall be  governed by and  construed  in
         accordance  with the  laws of the  State of  Delaware,  without  giving
         effect to its conflicts of law provisions.

                  10.5 This Agreement may be executed in counterparts, which
         together shall constitute one and the same agreement.

                  10.6 All notices and other communications under this Agreement
         shall be made in the manner specified in the Restructuring Agreement.

                  10.7 As used in this Agreement, the following terms shall have
         the following meanings:

                           "Event  of  Default"  means (i) if  Advocat  fails to
                  observe or perform or cause to be  observed or  performed  any
                  term, covenant or condition of this Agreement and such failure
                  is not cured  within a period of thirty (30) days after notice
                  thereof  from  Omega,  (ii) a  representation  or  warranty of
                  Advocat made in this Agreement is untrue when made or (iii) an
                  Event of Default under any of the Transaction Documents.

                           "Governmental Entity" means any Federal, state, local
                  or foreign government or any court of competent  jurisdiction,
                  administrative  agency  or  commission  or other  governmental
                  authority or instrumentality, domestic or foreign.

                           "Lien" or "Liens" means any pledge,  lien (including,
                  without limitation,  any tax lien), charge,  claim,  community
                  property interest, condition, equitable interest, encumbrance,
                  security interest,  mortgage,  option, restriction on transfer
                  (including  without limitation any buy-sell agreement or right
                  of first  refusal or offer),  forfeiture,  penalty,  equity or
                  other right of another Person of every nature and  description
                  whatsoever.

                           "Person" means any individual, legal entity, business
                  enterprise,   or  government,   governmental   body  or  unit,
                  including any corporation,  partnership,  limited partnership,
                  or limited liability company.
<PAGE>

                           "Transaction  Documents"  means this  Agreement,  the
                  Restructuring Agreement, the Amended and Restated Master Lease
                  (as defined in the Restructuring Agreement),  the Subordinated
                  Note, all documents which evidence or secure the  transactions
                  contemplated by this Agreement,  the Restructuring  Agreement,
                  the Amended and Restated Master Lease, the  Subordinated  Note
                  and  all  guaranties,   security  agreements,   cross  default
                  agreements and other documents granted concurrently  herewith,
                  and  granted  previously  or from  time to time  hereafter  by
                  Advocat to Omega, or any of Omega's affiliates..

                          Signatures on following page.

<PAGE>

         In witness  whereof the parties have executed this  Agreement as of the
date first set forth above.

                                  ADVOCAT INC.

                                  By:

                                  Title:

                                  OMEGA HEALTHCARE INVESTORS, INC.

                                  By:

                                  Title:

Exhibits and Schedules:

Exhibit A         Form of Designation
Exhibit B         Form of Registration Rights Agreement
Schedule 3.7      Options, Warrants, Etc.
<PAGE>
                                    EXHIBIT A

                                     FORM OF
                           CERTIFICATE OF DESIGNATION
                                       OF
                                  ADVOCAT INC.
                        Pursuant to the Provisions of the
                        Delaware General Corporation Law
--------------------------------------------------------------------------------

To the Secretary of State of the State of Delaware:
         Pursuant  to the  provisions  of Section  151 of the  Delaware  General
Corporation Law (the "Delaware Act"), the undersigned  corporation  submits this
Certificate of Designation for the purpose of designating a series of shares and
fixing and determining the relative rights and preferences thereof:

         1. The name of the corporation is Advocat Inc.
         2. The following resolution,  designating a series of shares of Advocat
Inc. (the  "Corporation")  and fixing and  determining  the relative  rights and
preferences  thereof,  was  duly  adopted  by  the  Board  of  Directors  of the
Corporation at a duly called meeting held on November 7, 2000.

         RESOLVED,  that pursuant to the powers expressly delegated to the Board
of Directors by Sections 4 and 12 of the  Certificate  of  Incorporation  of the
Corporation  and  pursuant to Section 102 of the Delaware  Act, the  Corporation
designates  as Series B  Convertible  Preferred  Stock (the  "Series B Preferred
Stock") that number of shares  having the powers,  preferences  and rights as is
set forth below.

         RESOLVED, that the President,  Chairman of the Board of Directors, Vice
President or Secretary of the Corporation, and each of them, be, and hereby are,
authorized  and  directed  to execute,  file and  deliver all such  instruments,
agreements,  applications  or other  documents or amendments to any thereof that
may be required, necessary or desirable to carry fully into effect the foregoing
resolution  and that the  execution,  filing or delivery of all of such shall be
deemed conclusive evidence of the approval and authorization by this Corporation
of such acts.  All terms used  herein  which are  defined in the  Charter of the
Corporation  shall have the same meaning  herein,  unless  defined herein or the
context otherwise requires.
<PAGE>

Section  1.  Designation  and  Amount.  Of  the  authorized  800,000  shares  of
undesignated  Preferred Stock,  600,000 shall be designated Series B Convertible
Preferred  Stock.  Such  number of  shares  may be  increased  or  decreased  by
resolution of the Board of Directors;  provided, that no resolution shall reduce
the  number  of shares of  Series B  Preferred  Stock to a number  less than the
number of shares then outstanding.

Section 2.  Dividends and  Distributions.  (a) The holders of Series B Preferred
Stock  shall be  entitled  to  receive,  when and as  declared  by the  Board of
Directors of the Corporation (the "Board of Directors"),  out of the net profits
of the  Corporation,  dividends  per share  equal to 7% per annum of the  Stated
Value (as herein defined) of such Series B Preferred Stock,  payable  quarterly.
No dividend shall be paid in cash prior to the later of (1) October 1, 2002, and
(2) the end of the fiscal quarter following the date that certain  reimbursement
promissory  note issued by the  Corporation to AmSouth Bank dated November ____,
2000 (the  "Reimbursement  Note") has been paid in full (the  "Dividend  Payment
Date"). Dividends on the outstanding shares of Series B Preferred shall begin to
accrue  and  accumulate  (whether  or not  declared)  from the Issue Date of the
Series B Preferred  Stock,  calculated on the basis of a 360-day year consisting
of twelve 30-day  months,  and shall accrue and  accumulate on a daily basis and
compound on a quarterly basis (to the extent not otherwise  declared and paid as
set forth above), in each case whether or not declared.  In the event the Series
B  Preferred  Stock is  converted  as  provided  in Section 8 below prior to the
Dividend Payment Date, accrued but unpaid dividends payable upon such conversion
shall be payable by promissory note maturing no later than the Dividend  Payment
Date in  substantially  the same form as the  Subordinated  Note (as  defined in
Section 11 below) or by conversion as provided in Section 8(e) below, but not in
cash.  Notwithstanding  anything to the  contrary  in this  Section 2, after the
Dividend  Payment Date,  the Board of Directors  shall declare  dividends on the
Series B Preferred Stock to the extent,  in its good faith  judgment,  there are
Available  Funds (defined in Section 12 below) to pay such quarterly  dividends.
To the extent there are  insufficient  Available Funds to pay all holders of the
Preferred  Stock  the full  quarterly  dividend  for any  quarter,  the Board of
Directors  shall declare a dividend to all holders of the  Preferred  Stock on a
pro rata basis to the extent of Available  Funds,  if any.  Holders of shares of
the Preferred Stock shall be entitled to receive such dividends in preference to
and in priority over dividends upon Junior Stock (defined in Section 12 below) .
All dividends  declared upon the Series B Preferred  Stock shall be declared pro
rata per share. For purposes hereof,  the term "Stated Value" shall mean $8.3829
per share, subject to appropriate adjustment in the event of any stock dividend,
stock split,  stock  distribution  or  combination  with respect to the Series B
Preferred Stock.

         (b) Dividends on the Series B Preferred  Stock shall be cumulative  and
compounded  quarterly and shall  continue to accrue  whether or not declared and
whether  or not in any  fiscal  year  there  shall  be net  profits  or  surplus
available for the payment of dividends in such fiscal year.

Section  3.  Liquidation,  Dissolution  or  Winding  Up. (a) In the event of any
voluntary  or  involuntary  liquidation,   dissolution  or  winding  up  of  the
Corporation,  the holders of shares of Series B Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation  available for

<PAGE>

distribution  to its  stockholders,  before  any  payment  shall  be made to the
holders of Junior  Stock,  an amount in cash equal to the Stated Value per share
plus any dividends  thereon  accrued but unpaid.  If upon any such  liquidation,
dissolution  or  winding  up of the  Corporation  the  remaining  assets  of the
Corporation  available  for  the  distribution  to  its  stockholders  shall  be
insufficient  to pay the holders of shares of Series B Preferred  Stock the full
amount  to which  they  shall be  entitled,  the  holders  of shares of Series B
Preferred Stock shall share ratably in any  distribution of the remaining assets
and funds of the Corporation in proportion to the respective amounts which would
otherwise  be  payable  in  respect  to  the  shares  held  by  them  upon  such
distribution  if all amounts payable on or with respect to said shares were paid
in full.

         (b) If any  shares of  Series A  Preferred  Stock are then  outstanding
based upon a Distribution  Date (as defined in the Rights  Agreement dated as of
March 13, 1995 by and between Advocat and Third National Bank in Nashville - the
"Rights  Agreement")  caused by an  Acquiring  Person (as  defined in the Rights
Agreement) other than the holder of the Series B Preferred Stock, then after the
payment of all preferential amounts required to be paid to the holders of Series
B  Preferred  Stock  pursuant  to  Section  3(a)  above and any other  series of
Preferred Stock which is senior in priority to the Series A Preferred Stock upon
the dissolution,  liquidation or winding up of the Corporation,  no distribution
shall be made (1) as to the  holders  of shares of stock  ranking  junior to the
Series A Preferred  Stock unless prior thereto the holders of Series B Preferred
Stock shall have  received an amount equal to accrued and unpaid  dividends  and
distributions  thereon,  whether or not  declared,  to the date of such payment,
plus an  amount  equal  to the  greater  of (i)  $100.00  per  share  or (ii) an
aggregate  amount  per  share,  subject  to  adjustment,  equal to 100 times the
aggregate  amount to be distributed per share to holders of Common Stock, or (2)
to the  holders  of Series A  Preferred  Stock or any other  stock  ranking on a
parity with the Series A Preferred Stock,  except  distributions made ratably on
the Series B Preferred  Stock and all other such parity stock in  proportion  to
the total amount to which the holders of all such shares are entitled  upon such
liquidation,  dissolution or winding up.  Notwithstanding the foregoing,  in the
event a holder of Series B  Preferred  Stock  transfers  any  shares of Series B
Preferred  Stock to an  Acquiring  Person,  then  the  rights  to  distributions
subsequent to the date of such transfer provided to such holder pursuant to this
Section 3(b) shall be null and void. In the event the  Corporation  shall at any
time after the date hereof  declare or pay any dividend on Common Stock  payable
in  shares  of  Common  Stock  or  effect  a  subdivision   or   combination  or
consolidation of the outstanding shares of Common Stock (by  reclassification or
otherwise)  into a greater or lesser number of shares of Common  Stock,  then in
each  such case the  aggregate  amount  to which  holders  of shares of Series B
Preferred  Stock were entitled  immediately  prior to the event  described under
clause  (1)  above  of the  immediately  prior  sentence  shall be  adjusted  by
multiplying  such amount by a fraction  the  numerator of which is the number of
shares  of  Common  Stock  outstanding  immediately  after  such  event  and the
denominator  of  which is the  number  of  shares  of  Common  Stock  that  were
outstanding immediately prior to such event.
<PAGE>

         (c) If no shares of Series A Preferred Stock are then outstanding, then
after the payment of all preferential amounts required to be paid to the holders
of Series B Preferred  Stock and any other  series of  Preferred  Stock upon the
dissolution, liquidation or winding up of the Corporation, the holders of shares
of Common  Stock then  outstanding  shall be entitled  to receive the  remaining
assets and funds of the Corporation available for distribution to stockholders.

         (d) The Corporation will mail written notice of any  distribution  upon
liquidation,  dissolution  or  winding  up,  not less than 30 days  prior to the
payment date stated therein, to each record holder of Series B Preferred Stock.

Section 4.Certain Restrictions.(a) At any time when there are accrued and unpaid
dividends and distributions, whether or not declared and whether before or after
the Dividend Payment Date, on shares of  Series B  Preferred  Stock outstanding,
the Corporation shall not:

                  (i) declare or pay dividends on, make any other  distributions
                  on,  or  redeem  or   purchase   or   otherwise   acquire  for
                  consideration  any shares of Junior Stock  (provided  that the
                  Corporation  may redeem shares of Common Stock from  employees
                  pursuant  to  rights  of  the  Corporation   under  employment
                  agreements or employee benefit plans);

                  (ii) except as  permitted  in  subparagraph  4(a)(iii)  below,
                  redeem, purchase or otherwise acquire for consideration shares
                  of any stock  ranking on a parity  (either as to  dividends or
                  upon liquidation, dissolution or winding up) with the Series B
                  Preferred Stock, provided that the Corporation may at any time
                  redeem,  purchase  or  otherwise  acquire  shares  of any such
                  parity  stock  in  exchange  for  shares  of any  stock of the
                  Corporation  ranking  junior  (either as to  dividends or upon
                  dissolution,  liquidation  or  winding  up)  to the  Series  B
                  Preferred Stock; or

                  (iii)  purchase or  otherwise  acquire for  consideration  any
                  shares of Series B Preferred Stock,  except in accordance with
                  a pro rata purchase offer for all or any portion of the shares
                  of Series B Preferred  Stock made in writing to all holders of
                  such shares upon such terms as the Board of  Directors,  after
                  consideration  of the  respective  annual  dividend  rates and
                  other relative rights and preferences of the respective series
                  and classes, shall determine in good faith will result in fair
                  and  equitable   treatment  among  the  respective  series  or
                  classes.

         (b) The Corporation  shall not permit any subsidiary of the Corporation
to purchase or otherwise  acquire for  consideration  any shares of stock of the
Corporation unless the Corporation could, under subparagraph (a) of this Section
4, purchase or otherwise acquire such shares at such time and in such manner.
<PAGE>

         (c)  So  long  as  any  shares  of  Series  B  Preferred  Stock  remain
outstanding,  the Corporation  shall not, without the vote or written consent by
the  holders of at least a majority of the then  outstanding  shares of Series B
Preferred Stock, voting together as a single class:

                  (i) authorize or issue, or obligate itself to issue, any other
                  equity security  (including any security  convertible  into or
                  exercisable for any equity  security) senior to or on a parity
                  with the Series B  Preferred  Stock as to  dividend  rights or
                  redemption rights or liquidation preferences;

                  (ii)  permit  any  subsidiary  to issue or sell,  or  obligate
                  itself  to issue or sell,  except  to the  Corporation  or any
                  wholly owned subsidiary, any stock or other equity interest of
                  such subsidiary;

                  (iii)  increase  or  decrease  (other  than by  redemption  or
                  conversion) the total number of authorized shares of Preferred
                  Stock.

Section 5. Voting Rights. Except as otherwise provided by law and Sections 4 and
14 of this Designation,  the holders of shares of Series B Preferred Stock shall
have no  voting  rights  and their  consent  shall not be  required  for  taking
corporation action.

Section 6. Reacquired  Shares.  Any shares of Series B Preferred Stock purchased
or  otherwise  acquired by the  Corporation  in any manner  whatsoever  shall be
retired and canceled  promptly after the  acquisition  thereof.  All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock that may be reissued as a part of a new series of Preferred Stock, subject
to the  restrictions  set  forth in other  Certificates  of  Designation,  or to
Certificates  of  Amendment,  creating a series of Preferred  Stock or any other
similar stock or is otherwise required by law.

Section 7.  Consolidation,  Merger, Etc. If the Corporation shall enter into any
consolidation, merger, share exchange, combination or other transaction in which
all or  substantially  all of the shares of the Corporation are exchanged for or
changed into other stock or securities,  cash, and/or any other property, and if
any  shares  of  Series A  Preferred  Stock are then  outstanding  based  upon a
Distribution  Date caused by an  Acquiring  Person  other than the holder of the
Series B Preferred Stock, then in any such case, at the option of the holders of
Series B Preferred  Stock,  each share of Series B Preferred  Stock shall at the
same time be similarly exchanged or changed into an amount per share, subject to
the provisions hereinafter set forth, equal to 100 times the aggregate amount of
stock,  securities,  cash and/or property (payable in kind), as the case may be,
into which or for which each share of Common Stock is changed or  exchanged.  If
the  Corporation  shall at any time  declare or pay any  dividend  on the Common
Stock,  or  effect  a  subdivision  or  combination  or   consolidation  of  the
outstanding  shares of Common Stock (by  reclassification  or otherwise)  into a
greater or lesser number of shares of Common  Stock,  then in each such case the
amount set forth in the  preceding  sentence  with  respect to the  exchange  or
change of shares of Series A Preferred  Stock  shall be adjusted by  multiplying

<PAGE>

such amount by a  fraction,  the  numerator  of which is the number of shares of
Common Stock  outstanding  immediately  after such event and the  denominator of
which is the number of shares of Common Stock that were outstanding  immediately
prior to such event.  Notwithstanding  the  foregoing,  in the event a holder of
Series B Preferred  Stock transfers any shares of Series B Preferred Stock to an
Acquiring  Person,  then the rights to  distributions  subsequent to the date of
such transfer  provided to such holder  pursuant to this Section 7 shall be null
and void.

Section  8.  Conversion.  (a) Each  share of  Series B  Preferred  Stock  may be
converted at any time, at the option of the holder  thereof,  into the number of
fully-paid  and  nonassessable  shares of Common Stock  obtained by dividing the
Stated Value by the  Conversion  Price then in effect (the  "Conversion  Rate"),
provided, however, that on any redemption of any Series B Preferred Stock or any
liquidation of the  Corporation,  the right of conversion shall terminate at the
close of business on the full  business  day next  preceding  the date fixed for
such redemption or for the payment of any amounts  distributable  on liquidation
to the  holders of Series B  Preferred  Stock.  The  initial  conversion  price,
subject to adjustment as provided  herein,  is equal to $4.6705 (the "Conversion
Price").  The initial  Conversion Rate for the Series B Preferred Stock shall be
1.7949  shares of Common  Stock for each one share of Series B  Preferred  Stock
surrendered for conversion.

         (b) The Corporation shall not issue fractions of shares of Common Stock
upon  conversion of Series B Preferred  Stock or scrip in lieu  thereof.  If any
fraction of a share of Common Stock  would,  except for the  provisions  of this
Section 8(b), be issuable upon conversion of any Series B Preferred  Stock,  the
Corporation  shall in lieu thereof pay to the person entitled  thereto an amount
in cash  equal to the  Current  Value (as  defined  in Section 12 below) of such
fraction of a share of Common Stock, calculated to the nearest one-one hundredth
(1/100) of a share.

         (c) In order to exercise the  conversion  privilege,  the holder of any
Series B Preferred  Stock to be converted  shall  surrender its  certificate  or
certificates  therefor to the  principal  office of the  transfer  agent for the
Series B Preferred Stock (or if no transfer agent be at the time appointed, then
the Corporation at its principal  office),  and shall give written notice to the
Corporation  at such  office  that the  holder  elects to  convert  the Series B
Preferred Stock represented by such  certificates,  or any number thereof.  Such
notice  shall  also  state  the  name or  names  (with  address)  in  which  the
certificate or  certificates  for shares of Common Stock which shall be issuable
on such  conversion  shall be issued,  subject to any  restrictions  on transfer
relating  to shares of the Series B  Preferred  Stock or shares of Common  Stock
upon  conversion  thereof.  If so  required  by  the  Corporation,  certificates
surrendered  for  conversion   shall  be  endorsed  or  accompanied  by  written
instrument or instruments of transfer,  in form satisfactory to the Corporation,
duly authorized in writing. The date of receipt by the transfer agent (or by the
Corporation  if  the  Corporation  serves  as its  own  transfer  agent)  of the
certificates  and notice shall be the  conversion  date. As soon as  practicable
after  receipt  of  such  notice  and  the  surrender  of  the   certificate  or
certificates  for Series B Preferred Stock as aforesaid,  the Corporation  shall
cause to be  issued  and  delivered  at such  office to such  holder,  or on its
written order, a certificate  or  certificates  for the number of full shares of
Common Stock issuable on such  conversion and, if less than all shares of Series
B Preferred Stock  represented by the certificate or certificates so surrendered
are being  converted,  a residual  certificate or certificates  representing the
shares of Series B Preferred Stock not converted.
<PAGE>

         (d) The  Corporation  shall at all times  when the  Series B  Preferred
Stock shall be outstanding  reserve and keep available out of its authorized but
unissued  stock,  for the purposes of effecting  the  conversion of the Series B
Preferred  Stock,  such number of its duly authorized  shares of Common Stock as
shall  from  time  to  time  be  sufficient  to  effect  the  conversion  of all
outstanding Series B Preferred Stock.

         (e) Upon any such  conversion,  any accrued but unpaid dividends on the
Series B Preferred Stock  surrendered  for conversion  (the "Unpaid  Dividends")
shall be paid:

         (1) to the extent available and subject to the limitations contained in
Section 9(c)(1), by conversion into additional shares of Common Stock;

         (2) to the extent the Unpaid Dividends can not be converted into Common
Stock, if the Reimbursement Note has been paid in full, then in cash; and

         (3) any remaining Unpaid Dividends, by promissory note.

A holder of shares of Series B Preferred  Stock may waive the payment of accrued
but  unpaid  dividends  in its sole  discretion.  If the holder of shares of the
Series B Preferred  Stock to be converted  accepts a promissory  note as payment
for any unpaid dividends  accrued on the shares to be converted,  the promissory
note shall be in substantially  the same form as the Subordinated  Note and will
mature  on the last day of the  quarter  following  the  payment  in full of the
Reimbursement Note. The number of additional shares of Common Stock to be issued
in respect of any Unpaid  Dividends shall be equal to the amount of such accrued
but unpaid  dividends  divided by the Current Value of the Common Stock.  To the
extent that any such dividend would result in the issuance of a fractional share
of Common Stock (which shall be determined with respect to the aggregate  number
of shares of Common Stock held of record by each holder) then the Current  Value
of such  fraction of a Share shall be paid in cash (unless  there are no legally
available  funds with which to make such cash payment,  in which event such cash
payment shall be made as soon as possible).

         (f) All  shares of  Series B  Preferred  Stock  which  shall  have been
surrendered  for  conversion as herein  provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote,  shall forthwith cease and terminate except
only the right to the  holder  thereof  to  receive  shares  of Common  Stock in
exchange therefor and payment of any accrued and unpaid dividends thereon.

Section 9. Mandatory  Conversion.  (a) Subject to the  limitations  set forth in
Section 9(c) below, the Corporation shall have the right to cause the conversion
of Series B Preferred  Stock into shares of Common  Stock at its then  effective
Conversion  Price  at  any  time,   provided  that  the  Current  Value  of  the
Corporation's  Common Stock on the date of the notice  described in Section 9(b)
below and on the Conversion  Date (as defined in Section 9(b) below) is equal to
or greater than 150% of the Conversion  Price.  In such a mandatory  conversion,
the  Corporation  will pay accrued and unpaid  dividends  as provided in Section
8(e).
<PAGE>

         (b) All holders of record of shares of Series B Preferred Stock will be
given at least 30 days' prior written  notice (the  "Conversion  Notice") of the
date  fixed  (the  "Conversion  Date") and the place  designated  for  mandatory
conversion of all (or if limited pursuant to Section  9(c)(1),  such portion) of
such  shares  of  Series B  Preferred  Stock  pursuant  to this  Section  9. The
Conversion  Notice will be sent by mail, first class,  postage prepaid,  to each
record  holder of shares of Series B Preferred  Stock at such  holder's  address
appearing on the stock register. On or before the date fixed for conversion each
holder of shares of Series B Preferred  Stock shall surrender its certificate or
certificates  for all such shares to the Corporation at the place  designated in
the Conversion Notice, and shall thereafter receive  certificates for the number
of shares of Common  Stock to which such  holder is  entitled  pursuant  to this
Section 9. Subject to Section 9(c), on the date fixed for conversion, all rights
with respect to the Series B Preferred Stock so converted will terminate, except
only the rights of the holders thereof,  upon surrender of their  certificate or
certificates  therefor,  to  receive  certificates  for the  number of shares of
Common  Stock into which such Series B Preferred  Stock has been  converted  and
payment of any  accrued  and unpaid  dividends  thereon.  If so  required by the
Corporation,  certificates  surrendered  for  conversion  shall be  endorsed  or
accompanied  by  written   instrument  or  instruments  of  transfer,   in  form
satisfactory to the  Corporation,  duly executed by the registered  holder or by
his  attorneys  duly  authorized  in  writing.  Subject  to  Section  9(c),  all
certificates evidencing shares of Series B Preferred Stock which are required to
be surrendered  for conversion in accordance with the provisions of Section 9(a)
shall,  from  and  after  the  date  such  certificates  are so  required  to be
surrendered,  be deemed to have been  retired  and  canceled  and the  shares of
Series B Preferred Stock represented thereby converted into Common Stock for all
purposes,  notwithstanding  the  failure  of the  holder or  holders  thereof to
surrender  such  certificates  on or prior to such date. As soon as  practicable
after the date of such mandatory conversion and the surrender of the certificate
or certificates for Series B Preferred Stock as aforesaid, the Corporation shall
cause to be issued and  delivered to such  holder,  or on its written  order,  a
certificate  or  certificates  for the  number of full  shares  of Common  Stock
issuable on such conversion in accordance with the provisions hereof and cash as
provided in Section  8(b) hereof in respect of any fraction of a share of Common
Stock otherwise issuable upon such conversion.

         (c) Notwithstanding  anything in this Designation to the contrary,  the
Corporation may not require conversion of the shares of Series B Preferred Stock
into shares of Common Stock pursuant to this  Designation and the holders of the
Series B  Preferred  Stock  shall  continue to hold shares of Series B Preferred
Stock  after  delivery of a  Conversion  Notice,  unless,  as of the date of the
proposed conversion:

                    (1) the  accountants or legal counsel of the holders of such
                    Series B Preferred  Stock to be  converted  render a written
                    opinion (the "Conversion  Opinion") to such holders prior to
                    conversion that such conversion will not result in, cause or
                    create a material  risk of, the holders  losing its or their

<PAGE>

                    status as a Real Estate  Investment Trust under the Internal
                    Revenue Code of 1986, as amended;  provided,  however,  that
                    the  Corporation  may  convert  a  portion  of the  Series B
                    Preferred  Stock to Common Stock pursuant to Section 9(a) if
                    the  accountants  or legal  counsel  of the  holders of such
                    Series B Preferred Stock to be converted render a Conversion
                    Opinion with  respect to such  portion and if  subparagraphs
                    (2) thru (5) of this  Section  9(c) are  satisfied as of the
                    date of the proposed conversion;

                    (2) the Common Stock is registered pursuant to Section 12 of
                    the  Securities  Exchange  Act of 1934,  as amended (the "34
                    Act") and the  Corporation  has  timely  filed  all  reports
                    required  to be filed by the  Corporation  under  the 34 Act
                    within the previous two years;

                    (3) no Event of Default (as defined in Section 12 below) has
                    occurred and is continuing;

                    (4) the  Common  Stock is listed  for  trading on the Nasdaq
                    National  Market,  the New  York  Stock  Exchange  or upon a
                    comparable national stock exchange; And

                    (5) the average  weekly  trading  volume of the Common Stock
                    over the prior four weeks was at least 500,000 shares traded
                    (as adjusted for stock  splits,  stock  dividends or similar
                    transactions).

All  costs  associated  with  the  Conversion  Opinion  shall  be  paid  by  the
Corporation.

         (d) If the Corporation may not convert all or any portion of the shares
of Series B Preferred  Stock (the  "Unconverted  Shares")  to the  Corporation's
Common Stock pursuant to Section 9(a) solely because of the limitation set forth
in Section 9(c)(1),  then, provided that the Reimbursement Note has been paid in
full, on the Conversion  Date, the Corporation may redeem all of the Unconverted
Shares at a per share  price in cash  equal to the  greater  of (1) the  Current
Value on the date of the Conversion Notice and (2) the closing price on the last
Trading Day (as defined in Section 12) immediately prior to the Conversion Date,
plus an amount equal to any dividends accrued but unpaid thereon (such amount is
hereinafter referred to as the "Corporation's Redemption Price").

         (e) On or  prior  to the  Conversion  Date,  each  holder  of  Series B
Preferred  Stock to be redeemed shall  surrender its certificate or certificates
representing  such shares to the  Corporation,  and thereupon the  Corporation's
Redemption  Price for such  shares  shall be  payable to the order of the person

<PAGE>

whose name appears on such  certificate or certificates as the owner thereof and
each surrendered  certificate shall be canceled.  In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued  representing  the  unredeemed  shares.  From and after the Conversion
Date,  unless  there  shall have been a default in payment of the  Corporation's
Redemption  Price,  all rights of the  holders of the Series B  Preferred  Stock
redeemed  (except the right to receive the  Redemption  Price upon  surrender of
their certificate or certificates)  shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the  Corporation
or be deemed to be outstanding for any purpose whatsoever.

Section 10.    Conversion Price. The Conversion Price per share for the Series B
Preferred  Stock  shall  be subject to adjustment from  time to time as provided
below.

         (a) Adjustments to Conversion Price Based on Changes in Capitalization.
If outstanding shares of the Junior Stock of the Corporation shall be subdivided
into a  greater  number  of  shares,  or a  dividend  in  Junior  Stock or other
securities of the Corporation  convertible into or exchangeable for Junior Stock
(in which latter event the number of shares of Junior  Stock  issuable  upon the
conversion  or  exchange  of such  securities  shall  be  deemed  to  have  been
distributed) shall be paid in respect to the Junior Stock of the Corporation, or
upon any other event which would reasonably require equitable adjustment for the
benefit of the  holders of Series B Preferred  Stock,  the  Conversion  Price in
effect  immediately  prior to such  subdivision  or at the  record  date of such
dividend  or at the date of such  other  event  shall,  simultaneously  with the
effectiveness of such subdivision or other event or immediately after the record
date  of  such  dividend,  be  proportionately   reduced,  and  conversely,   if
outstanding shares of the Common Stock of the Corporation shall be combined into
a smaller number of shares,  the Conversion Price in effect immediately prior to
such  combination   shall,   simultaneously   with  the  effectiveness  of  such
combination,  be  proportionately  increased.  Any  adjustment to the Conversion
Price under this subsection (a) shall become  effective at the close of business
on the date the  subdivision  or  combination  or other event referred to herein
becomes effective.

         (b) Adjustments to Conversion  Price Based on Future  Issuances.  If at
any time or from time to time the  Corporation  shall  issue or sell  Additional
Shares of Junior  Stock (as  hereinafter  defined)  other than in a  transaction
which falls within  subsection (a), for a consideration  per share less than the
then existing Conversion Price, then, and thereafter successively upon each such
issuance or sale, the Conversion Price shall,  pursuant to the following formula
(the "Conversion Formula"), be adjusted to a Conversion Price (calculated to the
nearest cent) determined by dividing:

                  (i) an  amount  equal to the sum of (A) the  Conversion  Price
                      immediately prior to such issue or sale, multiplied by the
                      number of shares of Junior Stock  outstanding at the close
                      of  business  on the day next  preceding  the date of such
                      issue or sale,  plus (B) the aggregate  consideration,  if
                      any,  received or to be received by the  Corporation  upon
                      such issue or sale, by
<PAGE>

                  (ii)  the number of shares of Junior Stock  outstanding at the
                        close  of  business  on the  date of such  issue or sale
                        after giving  effect to the issuance of such  Additional
                        Shares of Junior Stock.

         (c)  Definitions for Purposes of this Section 10.  Notwithstanding  any
contrary  definitions  in these  Articles,  for purposes of this Section 10, the
following definitions shall apply:

(1)  Consideration.  For the purpose of making any  adjustment in the Conversion
Price or number of shares of Common Stock acquired upon conversion of the Series
B  Preferred  Stock,  as  provided  above,  the  consideration  received  by the
Corporation for any issue or sale of securities shall:

                  (i) to  the  extent it  consists  of cash, be deemed to be the
                      amount of cash received by the Corporation for such shares
                      (or, if  such  shares  are  offered  by  the   Corporation
                      for subscription,  the subscription  price,  or,  if  such
                      shares  are  sold  to  underwriters  or dealers for public
                      offering without  a  subscription   offering, the  initial
                      public offering   price),   without   deducting  therefrom
                      any   compensation   or   discount  paid   or  allowed  to
                      underwriters  or  dealers  or  others  performing  similar
                      services  or  for  any  expenses  incurred  in  connection
                      therewith;

                  (ii) to the extent it consists of property other than cash, be
                        computed at the fair market value  thereof as determined
                        in  good  faith  by  the  Board  of   Directors  of  the
                        Corporation,  at or  about,  but as of,  the date of the
                        adoption of the resolution specifically authorizing such
                        issuance  or  sale,   irrespective   of  any  accounting
                        treatment  thereof;  provided,  however,  that such fair
                        market value as  determined by the Board of Directors of
                        the  Corporation,  when added to any cash  consideration
                        received in connection with such issuance or sale, shall
                        not exceed the aggregate  market price of the Additional
                        Shares of Junior Stock being  issued,  as of the date of
                        the adoption of such resolution; and

                  (iii) Additional Shares

                           (A)  if   Additional   Shares  of  Junior   Stock  or
                           Convertible  Securities (as  hereinafter  defined) or
                           rights  or  options  to  purchase  either  Additional
                           Shares of Junior Stock or Convertible  Securities are
                           issued  or  sold   together   with  other   stock  or
                           securities  or other  assets of the  Corporation  for
                           consideration  which covers both,  the  consideration
                           received for the  Additional  Shares of Junior Stock,
                           Convertible  Securities or rights or options shall be
                           computed  as that  portion  of the  consideration  so
                           received which is reasonably determined in good faith

<PAGE>

                           by the Board of  Directors of the  Corporation  to be
                           allocable to such Additional  Shares of Junior Stock,
                           Convertible  Securities or rights or options. For the
                           purpose of making any  adjustment  in the  Conversion
                           Price provided in this Section 10, if at any time, or
                           from time to time, the  Corporation  issues any stock
                           or  other  securities   convertible  into  Additional
                           Shares  of  Junior   Stock   (such   stock  or  other
                           securities   being   hereinafter   referred   to   as
                           "Convertible  Securities")  or issues  any  rights or
                           options to purchase Additional Shares of Junior Stock
                           or  Convertible  Securities  (such  rights or options
                           being hereinafter referred to as "Rights"), then, and
                           in each such case, the Corporation shall be deemed to
                           have  issued  at the  time  of the  issuance  of such
                           Rights or  Convertible  Securities the maximum number
                           of  Additional  Shares of Junior Stock  issuable upon
                           exercise or  conversion  thereof and to have received
                           in  consideration  for the issuance of such shares an
                           amount equal to the  aggregate  Effective  Conversion
                           Price of such Rights or Convertible  Securities.  For
                           the   purposes  of  this   Section   10,   "Effective
                           Conversion  Price"  shall mean an amount equal to the
                           sum of the lowest  amount of  consideration,  if any,
                           received  or  receivable  by  the  Corporation   with
                           respect to any one  Additional  Share of Junior Stock
                           upon issuance of the Rights or Convertible Securities
                           and upon their exercise or conversion,  respectively.
                           No further  adjustment of the Conversion  Price shall
                           be  made  as a  result  of  the  actual  issuance  of
                           Additional  Shares of Junior Stock on the exercise of
                           any  such  Rights  or  the  conversion  of  any  such
                           Convertible Securities;

                           (B) if the purchase price or rate at which any Rights
                           or  Convertible  Securities are  convertible  into or
                           exchangeable  for  Additional  Shares of Junior Stock
                           shall  change  at any time  (other  than  under or by
                           reason of  provisions  designed  to  protect  against
                           dilution),  the Conversion Price then in effect shall
                           forthwith be readjusted as otherwise  provided herein
                           to the  Conversion  Price  that  would  have  been in
                           effect  at such time had such  Rights or  Convertible
                           Securities  still   outstanding   provided  for  such
                           changed purchase price,  additional  consideration or
                           conversion  right,  as the case  may be,  at the time
                           initially  issued,  granted or sold.  If the purchase
                           price,  or the rate or the  additional  consideration
                           (if any) payable  upon the  exercise,  conversion  or
                           exchange  of any  Rights  or  Convertible  Securities
                           shall  be  changed  at  any  time  or  by  reason  of
                           provisions with respect  thereto  designed to protect
                           against dilution, then in the case of the delivery of
                           shares of Junior Stock upon  exercise,  conversion or
                           exchange of any such Rights or Convertible  Security,
                           the Conversion  Price then in effect hereunder shall,
                           upon  issuance  of such  shares of Junior  Stock,  be
                           adjusted  to such amount as would have  obtained  had

<PAGE>

                           such Right or Convertible  Security never been issued
                           and had adjustments  been made only upon the issuance
                           of the shares of Junior Stock  delivered as aforesaid
                           and for the consideration  actually received for such
                           Convertible Security and the Junior Stock;

                           (C) in the event of the  termination or expiration of
                           any right to exercise,  convert or exchange Rights or
                           Convertible Securities,  the Conversion Price then in
                           effect shall,  upon such  termination,  be changed to
                           the  Conversion  Price that would have been in effect
                           at the time of such  expiration  or  termination  had
                           such  Right or  Convertible  Security,  to the extent
                           outstanding  immediately  prior to such expiration or
                           termination,  never  been  issued,  and the shares of
                           Junior Stock issuable  thereunder  shall no longer be
                           deemed to be outstanding Junior Stock.

         (2)  Outstanding  Junior  Stock.  For  purposes of this  Section 10, in
determining  the  number  of  shares  of the  Junior  Stock of this  Corporation
outstanding  at any time,  there  shall be  included,  in addition to the Junior
Stock then issued and outstanding,  all Junior Stock then issuable upon exercise
of  all  outstanding  Rights  and  conversion  of  all  outstanding  Convertible
Securities.

         (3)  Additional  Shares of Junior Stock.  "Additional  Shares of Junior
Stock" as used in this  Section  10 shall  mean all  shares  of Junior  Stock or
Convertible  Securities and Rights issued by the  Corporation  subsequent to the
date of these Designation, other than (i) shares of Common Stock issued pursuant
to the  conversion of Series B Preferred  Stock,  and (ii) the issuance and sale
of, or the grant of options to purchase Common Stock, to employees, directors or
officers of, or bona fide  consultants to, the Corporation and its  subsidiaries
pursuant  to stock  plans or options or  agreements  adopted or  approved by the
Corporation's  Board of Directors  (including  shares issued or sold pursuant to
the  exercise  of any stock  option or  purchased  pursuant to a grant under the
Corporation's  stock  option  plans  or stock  purchase  plans  or  pursuant  to
agreements entered into for employee  compensation purposes prior to the date of
this Designation).

         (d)  Certification  of  Adjustments.  In each case of an  adjustment or
readjustment of the Conversion  Price or the number of shares of Common Stock or
other  securities  issuable upon conversion of the Series B Preferred  Stock, if
the change is greater than 1% from the previous change the  Corporation,  at its
expense,  shall cause independent public accountants selected by the Corporation
to compute such adjustment or  readjustment in accordance with this  Certificate
and to prepare a certificate showing such adjustment or readjustment,  and shall
mail such certificate,  by first-class mail, postage prepaid, to each registered
holder of the Series B Preferred  Stock at the holder's  address as shown on the
Corporation's  stock  transfer  books.  The  certificate  shall set  forth  such
adjustment  or  readjustment,  showing  in detail  the  facts  upon  which  such
adjustment or readjustment is based, including a statement of (i) the Conversion

<PAGE>

Price at the time in  effect  for the  Series B  Preferred  Stock,  and (ii) the
number  of shares of Common  Stock  and the type and  amount,  if any,  of other
property  which at the time would be received  upon  conversion  of the Series B
Preferred Stock. The form of such certificate shall be reasonably  acceptable to
the holders of record of a majority  of the shares of Series B  Preferred  Stock
then outstanding.

Section 11. Mandatory Redemption.

         (a) At any time on or  after  the  earlier  to occur of (1) an Event of
Default and (2) September 30, 2007,  holders of the Series B Preferred Stock may
require  the  Corporation  to redeem  all or a portion of the shares of Series B
Preferred Stock held by such holders (to the extent that such  redemption  shall
not violate any applicable provisions of the laws of the State of Delaware) at a
price in cash equal to the Stated  Value per share,  plus an amount equal to any
dividends accrued but unpaid thereon (such amount is hereinafter  referred to as
the "Redemption Price");  provided,  however, that if the Reimbursement Note has
not been paid in full as of the date the holders of the Series B Preferred Stock
require the  Corporation to redeem such shares of Series B Preferred  Stock (the
"Redemption  Date"), the Corporation may pay the Redemption Price by delivery of
a  promissory  note in the amount of the  Redemption  Price to the holder of the
Series B Preferred Stock to be redeemed. If the holder of shares of the Series B
Preferred Stock to be redeemed is to receive a promissory note as payment of the
Redemption Price, the promissory note shall be in substantially the same form as
the Subordinated  Note and will mature on the last day of the quarter  following
the payment in full of the  Reimbursement  Note. If the Corporation is unable on
the Redemption  Date to redeem any shares of Preferred Stock then to be redeemed
because  such  redemption  would  violate  the  applicable  laws of the State of
Delaware,  then the  Corporation  shall redeem such shares as soon thereafter as
redemption would not violate such laws.

         (b) On or  prior  to the  Redemption  Date,  each  holder  of  Series B
Preferred  Stock to be redeemed shall  surrender its certificate or certificates
representing such shares to the Corporation,  and thereupon the Redemption Price
of such shares shall be payable to the order of the person whose name appears on
such  certificate  or  certificates  as the owner  thereof and each  surrendered
certificate shall be canceled. In the event less than all the shares represented
by any  such  certificate  are  redeemed,  a new  certificate  shall  be  issued
representing the unredeemed  shares.  From and after the Redemption Date, unless
there shall have been a default in payment of the Redemption  Price,  all rights
of the holders of the Series B  Preferred  Stock  redeemed  (except the right to
receive  the   Redemption   Price  upon   surrender  of  their   certificate  or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be  transferred  on the books of the  Corporation  or be deemed to be
outstanding for any purpose whatsoever.

Section 12. Certain Definitions.  As  used  in this  Certificate,  the following
terms shall have the following respective meanings:

         "Available  Funds"  shall  mean any  funds  legally  available  for the
payment of dividends and interest accrued with respect to shares of the Series B
Preferred Stock.
<PAGE>

         "Business  Day" shall mean any day other than a  Saturday,  Sunday or a
day on which the Rights  Agent is  authorized  or  obligated by law or executive
order to close.

         "Current  Value" of any share of Preferred  Stock,  Common Stock or any
other  property on any date shall be  determined as provided in this Section 12.
In the case of publicly  traded  securities,  Current Value on any date shall be
deemed to be the average of the daily closing prices per share of such stock for
the  thirty  (30)  consecutive  Trading  Days  immediately  prior to such  date;
provided, however, that in the event the Current Value per share of any security
is determined  during a period which includes any date that is within 30 Trading
Days after the  announcement  by the issuer of such  security  of a dividend  or
distribution payable in shares of such securities or securities convertible into
shares  of  such  securities  (other  than  the  Rights),  or  any  subdivision,
combination or reclassification of such securities, then, and in each such case,
the Current Value shall be properly adjusted to take into account ex-dividend or
post-effective  date  trading.  The closing price for each day shall be the last
quoted  price or, if not so  quoted,  the  average of the high bid and low asked
prices in the  over-the-counter  market, as reported by the National Association
of Securities  Dealers,  Inc. , Automated  Quotation System or such other system
then in use, or, if on any such date such  securities are not quoted by any such
organization,  the average of the closing bid and asked prices as furnished by a
professional  market  maker making a market in such  securities  selected by the
Board or, if the  securities  are listed or  admitted to trading on the New York
Stock Exchange, the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal  consolidated  transaction reporting
system or, if such  securities  are not listed or admitted to trading on the New
York Stock  Exchange,  as reported  in the  principal  consolidated  transaction
reporting  system with respect to securities  listed on the  principal  national
securities  exchange on which such securities are listed or admitted to trading.
If the security is not publicly held or not so listed or traded, "Current Value"
means  the fair  value  of a share of  Preferred  Stock,  Common  Stock or other
property,  as  determined  by  a  "Big  Five"  or  other  nationally  recognized
accounting  firm (jointly  selected by the  Corporation  and holders of Series B
Preferred  Stock),  which shall be determined  based on the fair market value of
the Corporation and the number of outstanding shares of stock of the Corporation
(assuming full conversion of all convertible shares of stock of the Corporation)
and without any discount  relating to minority  ownership,  lack of liquidity or
similar factors.  If the holders of Series B Preferred Stock (voting as a class)
and the Corporation are unable to agree on the accounting  firm, then each shall
choose an accounting  firm,  and those  accounting  firms shall  jointly  select
another   nationally   recognized   accounting   firm  to   perform   the  value
determination.

         "Event of Default"  shall have such meaning as is ascribed to it in the
Stock Issuance and  Subscription  Agreement  between the  Corporation  and Omega
Healthcare Investors, Inc., a Maryland corporation.

         "Issue  Date"  means the date on which the shares of Series B Preferred
are issued.
<PAGE>

         "Junior  Stock" shall mean any shares of any series or class of capital
stock of the Corporation, other than the Series B Preferred Stock.

         "Subordinated  Note"  means  the  Subordinated  Note  in  the  original
principal amount of $1,700,000 from the Corporation in favor of Omega Healthcare
Investors, Inc., a Maryland corporation.

         "Trading  Day"  shall  mean  a day  on  which  the  principal  national
securities  exchange on which the shares of such security are listed or admitted
to trading is open for the  transaction  of  business  or, if the shares of such
security  are not  listed or  admitted  to trading  on any  national  securities
exchange, a Business Day.

Section 13. Costs.  The Corporation  shall pay all taxes and other  governmental
charges (other than any income or other taxes imposed upon the profits  realized
by the  recipient)  that may be imposed in respect of the issue or  delivery  of
shares of Common Stock or other securities or property upon conversion of shares
of Series B Preferred  Stock,  including  without  limitation,  any tax or other
charge (other than any transfer  tax) imposed in  connection  with the issue and
delivery  of  shares  of Common  Stock or other  securities  at the time of such
conversion  in a name other than that in which the shares of Series B  Preferred
Stock so converted were registered.

Section 14.  Amendment.  The  Corporation  shall not amend,  alter or repeal its
Certificate of  Incorporation,  its Bylaws or this Certificate of Designation in
any manner which would  materially  alter or change the powers,  preferences  or
rights of the Series B Preferred  Stock so as to effect them  adversely  without
the  affirmative  vote of the holders of at least a majority of the  outstanding
shares of Series B Preferred Stock, voting together as a class.

         This Certificate of Designation to the Charter of the Corporation shall
be effective  immediately upon filing thereof with the Secretary of the State of
Delaware.

                                                     ADVOCAT INC.
                                                     By:
                                                     Title:
                                                     Dated: November ____, 2000

<PAGE>
                                    EXHIBIT B

                          FORM OF REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this "Agreement") is made as of November __,
2000 by and among  ADVOCAT INC., a Delaware  corporation  (the  "Company"),  and
OMEGA  HEALTHCARE  INVESTORS,  INC.,  a  Maryland  corporation  (the  "Preferred
Stockholder").

                                    RECITALS

A. The Company,  the Preferred  Stockholder  and certain others are parties to a
Settlement  and  Restructuring  Agreement  dated  as of the  same  date  as this
Agreement (the "Restructuring Agreement").

B. Pursuant to the Restructuring Agreement, the Preferred Stockholder has agreed
to acquire  shares of the Company's Series B Convertible  Preferred  Stock  (the
"Preferred  Stock")  pursuant to that certain  Stock  Issuance and  Subscription
Agreement dated the same date as this Agreement (the "Stock Issuance Agreement")
provided that the Company enters into this Agreement.

C. Also pursuant  to the Restructuring Agreement,  the Company has issued to the
Preferred  Stockholder a  Subordinated  Note in the stated  principal  amount of
$1,700,000  dated the same date as this  Agreement,  which is  convertible  into
Common Stock of the Company (the "Subordinated Note").

                                   AGREEMENTS

In  consideration of the foregoing and the mutual covenants herein contained and
other good and valuable consideration,  the receipt and sufficiency of which are
acknowledged, the parties hereto agree as follows:

1.       Definitions.  In addition to terms defined elsewhere herein, as used in
this Agreement, the terms:

"Approved  Registration  Rights  Agreement"means a written agreement between the
Company and a holder of Common Stock or capital  stock  convertible  into Common
Stock which grants such holder  registration rights with respect to Common Stock
and (1) has been  consented to in writing by the  Preferred  Stockholder  or (2)
such  holder  has paid to the  Company an amount in the  aggregate  in excess of
$5,000,000 for such stock at a per share purchase price (assuming the conversion
of any  convertible  securities  into Common Stock) equal to or greater than the
Current Value as of the date of such transaction.

"Commission" means the Securities and Exchange Commission.
<PAGE>

"Current Value"  shall have the meaning assigned to such term in the Certificate
of  Designation  of  Advocat Inc.  pursuant to which the Company  designated the
Preferred Stock.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Public  Offering" means any offering by the Company of its equity securities to
the public pursuant to an effective  registration statement under the Securities
Act or any comparable  statement  under any comparable  federal  statute then in
effect.

"Registrable  Shares"  means at any time (i) any  shares  of Common  Stock  then
outstanding  and  beneficially  held,  directly  or  indirectly,  by a Preferred
Stockholder;  (ii) any shares of Common  Stock then  issuable  upon  exercise or
conversion  of any  Preferred  Stock,  or upon  conversion  of any accrued,  but
unpaid,  dividends  on the  Preferred  Stock,  held by a  Preferred  Stockholder
(including  any shares of Common Stock  issuable  upon exercise or conversion of
any Preferred  Stock  issuable  upon exercise or conversion of the  Subordinated
Note);  (iii)  any  shares  of Common  Stock  then  issuable  upon  exercise  or
conversion of the  Subordinated  Note;  and (iv) any shares of Common Stock then
issuable  directly  or  indirectly  upon the  conversion  or  exercise  of other
securities which were issued as a dividend or other distribution with respect to
or in  replacement  of any shares  referred to in (i), (ii) or (iii);  provided,
however,  that  Registrable  Shares shall not include any shares which have been
registered  pursuant to the Securities Act or which have been sold to the public
pursuant to Rule 144 under the Securities Act. For purposes of this Agreement, a
person will be deemed to be a holder of Registrable  Shares whenever such person
has the then-existing right to acquire such Registrable Shares (by conversion or
otherwise),  whether  or not such  acquisition  actually  has been  effected.  A
security shall cease to be a Registrable  Share when (i) it has been effectively
registered  under the  Securities  Act and  disposed of in  accordance  with the
registration  statement  covering  it or (ii) it is  distributed  to the  public
pursuant  to Rule  144 (or any  similar  provision  then  in  effect  under  the
Securities Act).

"Securities Act" means the Securities Act of 1933, as amended.

2. Demand Registration.

2.1  Requests  for  Registration.  Subject to the terms of this  Agreement,  the
Preferred   Stockholder  may,  at  any  time,  request  registration  under  the
Securities Act of all or part of its  Registrable  Shares  (provided that if the
request is for less than all of the  Registrable  Shares then held,  the request
must be for at least 25% of the  number of  shares  of  Common  Stock  which the
Preferred  Stockholder  would hold upon  conversion  of all shares of  Preferred
Stock held by the Preferred  Stockholder as of the date of this  Agreement),  on
Form S-1 or any similar long-form registration ("Long-Form Registration") or, if
available,  on  Form  S-2  or  S-3 or any  similar  short-form  registration  (a
"Short-Form Registration" - a Long Form Registration and Short Form Registration
are defined as a "Demand  Registration").  Within thirty (30) days after receipt

<PAGE>

of any request  pursuant to this  Section  2.1,  the  Company  will,  subject to
Section 2.2 below,  give  written  notice of such  request to all other  parties
hereto and will include in such registration all Registrable Shares with respect
to which the Company has received  written  requests for inclusion within thirty
(30) days after delivery of the Company's notice. The Preferred Stockholder will
be entitled to request two (2) Demand  Registrations  in which the Company  will
pay all  Registration  Expenses (as defined in Section 6 below).  A registration
will not  constitute  one of the  permitted  Demand  Registrations  until it has
become  effective.  The  Company  shall be  entitled  to  include  in any Demand
Registration shares to be sold by the Company for its own account, provided that
in the event that the number of shares  included  by the Company  exceeds  fifty
percent (50%) of the shares registered in such  registration,  such registration
will not count as a Demand Registration hereunder.

2.2  Priority.   The  Company  will  include  in  any  Demand  Registration  any
Registrable  Shares;  provided,  however,  if  the  Demand  Registration  is  an
underwritten  offering  and the  managing  underwriter(s)  advise the Company in
writing that in their opinion the number of securities  requested to be included
exceeds the number of securities  which can reasonably be sold in such offering,
the Company will include in such  registration,  first,  the Registrable  Shares
requested to be included in such  registration  or any previous  registration by
the Preferred Stockholder,  second, the securities that the Company will include
in such registration,  and third,  other securities  requested to be included in
such registration.

2.3  Restrictions.  The  Company  will not be  obligated  to effect  any  Demand
Registration  within nine months after the effective  date of a previous  Demand
Registration.  The Company may  postpone  for up to six (6) months the filing or
the effectiveness of a registration  statement for a Demand  Registration if the
Company's  Board of Directors  determines in good faith that the offering  would
have a harmful effect on the Company; provided,  however, that the Company shall
not be  entitled to delay the  effectiveness  of any Demand  Registration  for a
period in excess of nine (9) months in any twelve (12) month period  pursuant to
this and the preceding sentence.

2.4  Selection of  Underwriters.  The Company shall have the right to select the
managing  underwriter(s)  to administer  the offering  anticipated by any Demand
Registration,  provided  that  such  managing  underwriters  shall be  qualified
nationally  recognized  underwriters and subject to the Preferred  Stockholder's
approval which will not be unreasonably withheld or delayed.

3. Piggyback Registration.

3.1 Right to  Piggyback.  Whenever  the Company  proposes to register any of its
securities  under the Securities Act (other than on a registration  on Forms S-8
and  S-4  (or  comparable  forms)  or a  registration  of  non-convertible  debt
securities) on a registration form which may be used for the registration of any
Registrable  Shares (a "Piggyback  Registration"),  the Company will give prompt
written  notice to all holders of the  Registrable  Shares of its  intention  to

<PAGE>

effect such a registration and will include in such registration all Registrable
Shares (in  accordance  with the  priorities  set forth in Sections  3.2 and 3.3
below) with  respect to which the  Company has  received  written  requests  for
inclusion  within fifteen (15) days after the delivery of the Company's  notice.
The Company may withdraw its proposal at any time prior to the effective date of
the offering.

3.2  Priority  on  Primary  Registrations.  If a  Piggyback  Registration  is an
underwritten  primary  registration  on behalf of the Company  and the  managing
underwriters  advise the Company in writing that in their  opinion the number of
securities  requested  to be  included in such  registration  exceeds the number
which can reasonably be sold in such offering,  the Company will include in such
registration first, the securities that the Company proposes to sell; second, on
a pro rata basis (a) the  Registrable  Shares  requested  to be included in such
registration or any previous  registration by the Preferred  Stockholder and (b)
other securities required to be included in such Piggyback Registration pursuant
to an Approved  Registration  Rights  Agreement  (provided that in any event the
Preferred  Stockholder  shall be  entitled  to include  not less than 50% of the
number of such shares);  and third, other securities requested to be included in
such registration.

3.3 Priority on Secondary Registrations.  If one or more stockholders other than
a Preferred Stockholder requests that the Company make an underwritten secondary
registration  on its or their  behalf and the managing  underwriters  advise the
Company in writing that in their opinion the number of  securities  requested to
be included in such registration exceeds the number which can reasonably be sold
in such offering,  the Company will include in such registration first, on a pro
rata basis (a) the Registrable  Shares, if any, requested to be included therein
by the Preferred Stockholder and (b) other securities required to be included in
such  Piggyback  Registration  pursuant  to  the  Approved  Registration  Rights
Agreements  (provided  that in any  event  the  Preferred  Stockholder  shall be
entitled  to  include  in the  Piggyback  Registration  not less than 50% of the
number of such shares),  and, second,  other securities requested to be included
in such registration.

3.4 Other  Registrations.  If the Company has  previously  filed a  registration
statement with respect to Registrable  Shares  pursuant to Section 2 or pursuant
to this Section 3, and if such previous  registration  has not been withdrawn or
abandoned,  the  Company  will  not  file or  cause  to be  effected  any  other
registration  of any of its  equity  securities  or  securities  convertible  or
exchangeable  into or exercisable for its equity securities under the Securities
Act  (except  on Forms S-8 or S-4 or any  successor  form),  whether  on its own
behalf or at the  request of any holder or holders of such  securities,  until a
period  of at least six  months  has  elapsed  from the  effective  date of such
previous registration.

3.5 Selection of Underwriters.  In connection with any Piggyback Registration in
which the Purchaser has elected to include Registrable Shares, the Company shall
have the right to select the managing underwriters to administer any offering of
the Company's  securities in which the Company  participates  provided that such
managing underwriters shall be qualified nationally recognized underwriters.
<PAGE>

4. Holdback Agreements.

4.1 Holders' Agreements.  Each holder of Registrable Shares agrees not to effect
any public sale or distribution of equity  securities of the Company  (including
pursuant to Rule 144 under the Securities  Act), or any  securities  convertible
into or exchangeable or exercisable  for such  securities,  during the seven (7)
days prior to,  and during the one  hundred  eighty  (180) days  following,  the
effective  date of any  underwritten  registration  of the Company's  securities
(except as part of such underwritten registration),  or such other period as the
underwriters  managing  the  registered  public  offering  otherwise  reasonably
determine or reasonably require.

4.2 Company's  Agreements.  The Company agrees (i) not to effect any public sale
or distribution of its equity securities,  or any securities convertible into or
exchangeable or exercisable for such securities, during the seven (7) days prior
to, and during the one hundred eighty (180) days  following,  the effective date
of  any  underwritten   Demand   Registration  or  any  underwritten   Piggyback
Registration  (except as part of such  underwritten  registration or pursuant to
registrations  on Form  S-8 or any  successor  form),  unless  the  underwriters
managing  the  registered  public  offering  otherwise  agree,  and (ii) use its
reasonable  efforts to cause each  holder of at least  five  percent  (5%) (on a
fully diluted basis) of its equity  securities,  or any  securities  convertible
into or  exchangeable  or exercisable  for such securities who has acquired such
securities  directly  from the Company to agree not to effect any public sale or
distribution of any such  securities  during such period (except as part of such
underwritten  registration,  if otherwise  permitted),  unless the  underwriters
managing the registered public offering otherwise agree.

5.  Registration  Procedures.  Whenever the holders of  Registrable  Shares have
requested that any Registrable Shares be registered  pursuant to this Agreement,
the Company will use commercially  reasonable efforts to effect the registration
and sale of such  Registrable  Shares in accordance  with the intended method of
disposition thereof and, pursuant thereto,  the Company will as expeditiously as
possible:

     (a) prepare and file with the  Commission  a  registration  statement  with
respect to such Registrable  Shares and use commercially  reasonable  efforts to
cause such  registration  statement to become  effective  (provided  that before
filing a registration statement or prospectus,  or any amendments or supplements
thereto,  the Company will furnish copies of all such  documents  proposed to be
filed to the  counsel or  counsels  for the  holders of the  Registrable  Shares
covered by such registration statement);

     (b) prepare and file with the Commission such amendments and supplements to
such registration  statement and the prospectus(es) used in connection therewith
as may be necessary to keep such registration  statement  effective for a period
of four months or until  distribution is complete and comply with the provisions
of the Securities Act with respect to the disposition of all securities  covered
by such  registration  statement  during  such  period  in  accordance  with the
intended  methods  of  disposition  by the  sellers  thereof  set  forth in such
registration statement;
<PAGE>

     (c) furnish to each seller of  Registrable  Shares such number of copies of
such  registration  statement,   each  amendment  and  supplement  thereto,  the
prospectus(es)   included  in  such  registration   statement   (including  each
preliminary  prospectus)  and such other documents as such seller may reasonably
request in order to facilitate the disposition of the  Registrable  Shares owned
by such seller;

     (d) use  commercially  reasonable  efforts  to  register  or  qualify  such
Registrable  Shares  under  such  other  securities  or  blue  sky  laws of such
jurisdictions  as any seller  reasonably  requests and do any and all other acts
and things which may be reasonably  necessary or advisable to enable such seller
to consummate the disposition in such  jurisdictions  of the Registrable  Shares
owned by such  seller  (provided  that the  Company  will not be required to (i)
qualify  generally  to do  business  in any  jurisdiction  where  it  would  not
otherwise be required to qualify but for this subparagraph,  (ii) subject itself
to  taxation in any such  jurisdiction  or (iii)  consent to general  service of
process in any such jurisdiction);

     (e)  notify  each  seller of such  Registrable  Shares,  at any time when a
prospectus  relating  thereto is required to be delivered  under the  Securities
Act, of the happening of any event as a result of which the prospectus  included
in such registration  statement  contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading,  and,
at the request of any such seller,  the Company  will  prepare a  supplement  or
amendment to such prospectus so that, as thereafter  delivered to the purchasers
of such  Registrable  Shares,  such  prospectus  will  not  contain  any  untrue
statement  of a material  fact or omit to state any fact  necessary  to make the
statements therein not misleading;

     (f) cause  all such  Registrable  Shares  to be  listed on each  securities
exchange or national  quotation system on which similar securities issued by the
Company are then listed or quoted;

     (g) provide a transfer agent and registrar for all such Registrable  Shares
not later than the effective date of such registration statement;

     (h) enter into such customary agreements (including underwriting agreements
in customary  form) and take all such other actions as the holders of a majority
of the Registrable  Shares being sold or the  underwriters,  if any,  reasonably
request in order to expedite or facilitate the  disposition of such  Registrable
Shares (including, without limitation,  effecting a stock split or a combination
of shares), subject to any necessary shareholder approvals;
<PAGE>

     (i) upon prior notice and during normal  business  hours,  make  reasonably
available for inspection by any seller of Registrable  Shares,  any  underwriter
participating in any disposition  pursuant to such registration  statement,  and
any  attorney,  accountant  or  other  agent  retained  by any  such  seller  or
underwriter,  all financial and other records, pertinent corporate documents and
properties  of  the  Company,  and  cause  the  Company's  officers,  directors,
employees  and  independent  accountants  to supply all  information  reasonably
requested  by any such seller,  underwriter,  attorney,  accountant  or agent in
connection with such registration statement;

     (j) advise each seller of such Registrable Shares,  promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission  suspending the effectiveness of such  registration  statement or
the  initiation or  threatening  of any proceeding for such purpose and promptly
use all  reasonable  efforts to  prevent  the  issuance  of any stop order or to
obtain its withdrawal if such stop order should be issued;

     (k) as  long  as  practicable  prior  to  the  filing  of any  registration
statement or  prospectus,  or any amendment or  supplement to such  registration
statement  or  prospectus,  furnish  a copy  thereof  to  each  seller  of  such
Registrable  Shares and  refrain  from filing any such  registration  statement,
prospectus,  amendment or supplement to which counsel  selected by the Preferred
Stockholder  shall have  reasonably  objected on the grounds that such  document
does not comply in all material respects with the requirements of the Securities
Act or the rules and regulations thereunder, unless, in the case of an amendment
or  supplement,  in the  opinion of counsel  for the  Company the filing of such
amendment or supplement is  reasonably  necessary to comply with any  applicable
federal or state law and such filing will not violate applicable laws; and

     (l) at the request of any seller of such  Registrable  Shares in connection
with an underwritten offering,  furnish on the date or dates provided for in the
underwriting agreement: (i) an opinion of counsel, addressed to the underwriters
and  the  sellers  of  Registrable   Shares,   covering  such  matters  as  such
underwriters and sellers may reasonably  request,  including such matters as are
customarily  furnished in connection with an underwritten  offering;  and (ii) a
letter or letters  from the  independent  certified  public  accountants  of the
Company  addressed to the  underwriters  and the sellers of Registrable  Shares,
covering such matters as such  underwriters and sellers may reasonably  request,
in which letter(s) such accountants shall state, without limiting the generality
of the foregoing,  that they are independent certified public accountants within
the  meaning  of the  Securities  Act and that in their  opinion  the  financial
statements and other financial data of the Company  included in the registration
statement, the prospectus(es), or any amendment or supplement thereto, comply in
all  material  respects  with  the  applicable  accounting  requirements  of the
Securities  Act. In the case of an  underwritten  offering where the Company has
elected  not to conduct a "road  show",  the Company  will,  on no more than two
separate  occasions,  provide  for a  reasonable  period  of  time  officers  or
employees  reasonably selected by the underwriters to assist the underwriters in
their sales efforts on behalf of the sellers of Registrable Shares. In the event
that the requested assistance involves travel, costs incidental thereto shall be
for the account of such  sellers.
<PAGE>

     Each Holder  agrees that upon receipt of any notice from the Company of the
happening  of any event of the kind set forth in  Sections  5(e) and (j)  above,
such Holder will  discontinue its disposition of Registrable  Shares pursuant to
the registration statement relating thereto until such Holder receives copies of
the  supplement or amendment  contemplated  by Section 5(e) or the withdrawal of
the stop order contemplated by Section 5(j).

6. Registration Expenses.

6.1 Company's Expenses. All expenses incident to the Company's performance of or
compliance with this Agreement,  including  without  limitation all registration
and filing fees,  fees and expenses of  compliance  with  securities or blue sky
laws,  printing  expenses,   messenger  and  delivery  expenses,  and  fees  and
disbursements  of counsel for the Company and all independent  certified  public
accountants,  underwriters  (excluding  discounts  and  commissions)  and  other
persons  retained  by  the  Company  (all  such  expenses  being  herein  called
"Registration  Expenses"),  will be borne by the Company. The Company shall not,
however,  be required to pay for expenses of any  registration  proceeding begun
hereunder,  the  request  for  which  has  been  subsequently  withdrawn  by the
initiating holder unless (a) such withdrawal was at the Company's  request;  (b)
the withdrawal is based upon material adverse information concerning the Company
of which the initiating holder was not aware at the time of such request; or (c)
the  requesting  holder  agrees to  forfeit  its right to one  requested  Demand
Registration hereunder.

6.2  Holder's  Expenses.  Notwithstanding  anything  to the  contrary  contained
herein, each holder of Registrable Shares will pay all discounts and commissions
attributable to their respective  shares and all attorney fees and disbursements
for counsel  they retain in  connection  with the  registration  of  Registrable
Shares,  except that the Company will  reimburse  the party  initiating a Demand
Registration  (unless such demand is  withdrawn  in the manner  described in the
last sentence of Section 6.1) for the reasonable fees and  disbursements  of one
counsel  (subject to the approval of the Company which shall not be unreasonably
withheld or delayed) chosen by the party initiating such Demand  Registration in
connection with such Demand Registrations.

7. Indemnification.

7.1 By the Company. The Company agrees to indemnify,  to the extent permitted by
law,  each holder of  Registrable  Shares,  its officers and  directors and each
person who  controls  such holder  (within the  meaning of the  Securities  Act)
against all losses, claims, damages, liabilities and expenses (including without
limitation, attorney's fees) caused by any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus,  or any amendment thereof or supplement  thereto, or any omission or
alleged  omission of a material fact required to be stated  therein or necessary
to make the statements  therein not  misleading,  except insofar as the same are

<PAGE>

caused by or contained in any information furnished in writing to the Company by
such holder  expressly for use therein or by such holder's  failure to deliver a
copy  of  the  registration   statement  or  prospectus  or  any  amendments  or
supplements  thereto after the Company has furnished such holder with the number
of copies of the same requested  pursuant to Section 5(c). In connection with an
underwritten  offering,  the Company will  indemnify  such  underwriters,  their
officers and directors and each person who controls  such  underwriters  (within
the meaning of the  Securities  Act) to the same  extent as provided  above with
respect  to the  indemnification  of the  holders  of  Registrable  Shares.  The
payments  required  by this  Section  7.1 will be made  periodically  during the
course of the  investigation  or  defense,  as and when  bills are  received  or
expenses incurred.

7.2 By Each Holder.  In connection  with any  registration  statement in which a
holder of Registrable Shares is participating,  each such holder will furnish to
the Company in writing such information and affidavits as the Company reasonably
requests  for  use  in  connection  with  any  such  registration  statement  or
prospectus and, to the extent permitted by law, will indemnify the Company,  its
directors  and officers  and each person who  controls  the Company  (within the
meaning of the Securities Act) against any losses, claims, damages,  liabilities
and  expenses  (i)  resulting  from any untrue or alleged  untrue  statement  of
material fact contained in the registration statement, prospectus or preliminary
prospectus,  or any amendment thereof or supplement  thereto, or any omission or
alleged  omission of a material fact required to be stated  therein or necessary
to make the statements therein not misleading,  but only to the extent that such
untrue  statement or omission is contained  in any  information  or affidavit so
furnished  in  writing  by such  holder  and (ii) for such  holder's  failure to
deliver to any transferee a prospectus or and amendment or supplement previously
provided to the holder by the Company; provided that the obligation to indemnify
will be  several,  not joint and  several,  among such  holders  of  Registrable
Shares.

7.3 Procedure.  Any person entitled to  indemnification  hereunder will (i) give
prompt  written  notice to the  indemnifying  party of any claim with respect to
which it seeks  indemnification  and (ii)  unless  in such  indemnified  party's
reasonable  judgment  a  conflict  of  interest  between  such  indemnified  and
indemnifying  parties  may  exist  with  respect  to  such  claim,  permit  such
indemnifying  party to assume the defense of such claim with counsel  reasonably
satisfactory  to  the  indemnified  party.  If  such  defense  is  assumed,  the
indemnifying  party will not be subject to any liability for any settlement made
by the  indemnified  party  without its consent  (but such  consent  will not be
unreasonably  withheld). An indemnifying party who is not entitled to, or elects
not to,  assume the defense of a claim will not be obligated to pay the fees and
expenses  of  more  than  one  counsel  for  all  parties  indemnified  by  such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any  indemnified  party,  a  conflict  of  interest  may exist  between  such
indemnified party and any other of such indemnified parties with respect to such
claim.

7.4 Survival. The indemnification  provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the  indemnified  party or any officer,  director or controlling  person of such
indemnified  party and will  survive the  transfer of  securities,  but shall be

<PAGE>

subject to and subordinated to any contrary indemnification  provision contained
in any  underwriting  agreement  entered into in connection with an underwritten
public  offering.  The  Company  also  agrees  to make  such  provisions  as are
reasonably  requested by any indemnified party for contribution to such party in
the event the Company's indemnification is unavailable for any reason.

8.  Compliance  with Rule 144. At the request of any holder who proposes to sell
securities in compliance with Rule 144 of the  Commission,  the Company will use
its commercially  reasonable  efforts to (i) forthwith  furnish to such holder a
written  statement of compliance with the filing  requirements of the Commission
as set forth in Rule 144, as such rule may be amended from time to time and (ii)
make  available to the public and such holders such  information  as will enable
the holders to make sales pursuant to Rule 144.

9. Participation in Underwritten Registrations.  To the extent such requirements
are  consistent  with  the  terms  hereof,  no  person  may  participate  in any
registration  hereunder which is  underwritten  unless such person (a) agrees to
sell its  securities  on the basis  provided  in any  underwriting  arrangements
approved  by  such  person  or  persons  entitled   hereunder  to  approve  such
arrangements, (b) completes and executes all questionnaires, powers of attorney,
custody  agreements,  indemnities,  underwriting  agreements and other documents
reasonably  required  under the  terms of such  underwriting  arrangements,  (c)
provides all information  reasonably requested by the Company in connection with
such registration, including copies of documents, instruments and agreements and
(d) complies with all applicable federal and state securities laws in connection
with such registration.

10. Miscellaneous.

10.1 No Inconsistent  Agreements.  The Company will not hereafter enter into any
agreement with respect to its securities  which is inconsistent  with the rights
granted to the holders of Registrable Shares in this Agreement.

10.2 Public Status. The Company shall use its commercially reasonable efforts to
cause the  Common  Stock to remain  registered  pursuant  to  Section  12 of the
Securities  Exchange  Act of 1934,  as  amended  (the "34  Act")  and  shall use
commercially  reasonable efforts to timely file all reports required to be filed
by the Company under the 34 Act.

10.3 Adjustments  Affecting  Registrable  Shares.  The Company will not take any
action,  or permit any change to occur,  with  respect to its  securities  which
would  adversely  affect the  ability of the  holders of  Registrable  Shares to
include such Registrable  Shares in a registration  undertaken  pursuant to this
Agreement or which would adversely affect the  marketability of such Registrable
Shares in any such  registration,  including,  without  limitation,  effecting a
stock split or combination of shares.
<PAGE>

10.4 Other Registration Rights. Except as provided in this Agreement or pursuant
to an Approved  Registration  Rights  Agreement,  the Company will not hereafter
grant to any person or persons the right to request the Company to register  any
equity securities of the Company, or any securities  convertible or exchangeable
into or exercisable  for such  securities,  without the prior written consent of
the Preferred Stockholder.

10.5 Successors and Assigns.  Except as otherwise expressly provided herein, all
covenants and  agreements  contained in this Agreement by or on behalf of any of
the  parties  hereto  will  bind and  inure  to the  benefit  of the  respective
successors  and assigns of the parties  hereto,  whether so expressed or not. In
addition,  and  whether  or not  any  express  assignment  has  been  made,  the
provisions  of  this  Agreement  which  are  for the  benefit  of the  Preferred
Stockholder or holders of shares of stock hereunder are also for the benefit of,
and enforceable by, any subsequent holders of such shares of stock.

10.6 Severability.  Whenever possible,  each provision of this Agreement will be
interpreted  in such manner as to be effective and valid under  applicable  law,
but if any  provision of this  Agreement is held to be  prohibited by or invalid
under  applicable law, such provision will be ineffective  only to the extent of
such  prohibition  or  invalidity,  without  invalidating  the remainder of this
Agreement.

10.7  Descriptive  Headings.  The  descriptive  headings of this  Agreement  are
inserted for  convenience  of reference only and do not constitute a part of and
shall not be utilized in interpreting this Agreement.

10.8 Notices.  Any notices  required or permitted to be sent hereunder  shall be
made in the manner provided for in the Restructuring Agreement.

10.9 Governing  Law. All questions  concerning  the  construction,  validity and
interpretation of this Agreement, and the performance of the obligations imposed
by this  Agreement,  hall be  governed  by the  laws of the  State  of  Delaware
applicable to contracts made and wholly to be performed in that state.

10.10  Final  Agreement.   This  Agreement,   together  with  the  Restructuring
Agreement, the Stock Issuance Agreement and all other agreements entered into by
the parties hereto  pursuant to the  Restructuring  Agreement,  constitutes  the
complete and final agreement of the parties  concerning the matters  referred to
herein, and supersedes all prior agreements and understandings.
<PAGE>

10.11 Execution in Counterparts. This Agreement may be executed in any number of
counterparts,  each of which when so executed and  delivered  shall be deemed an
original, and such counterparts together shall constitute one instrument.  10.12
No Strict Construction. The language used in this Agreement will be deemed to be
the language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction will be used against any party.

                          Signatures on following page.

<PAGE>

         IN WITNESS WHEREOF,  the parties hereto have executed this Registration
Rights Agreement on the date first set forth above.

                                            THE COMPANY:
                                            ADVOCAT INC.
                                            By: ___________________________
                                            Name: ___________________________
                                            Title: ___________________________

                                            PREFERRED STOCKHOLDER:
                                            OMEGA HEALTHCARE INVESTORS, INC.
                                            By: ___________________________
                                            Name: ___________________________
                                            Title: ___________________________

<PAGE>
                                   EXHIBIT J

                                FORM OF GUARANTY
                                   (SUBLEASE)

         This  GUARANTY  ("Guaranty")  is  given  as  of  _______________,  2000
("Effective Date"), by  ____________________________________,  ("Guarantor"), in
favor of STERLING  ACQUISITION  CORP., a Kentucky  corporation  ("Lessor") whose
address is 900 Victors Way, Suite 350, Ann Arbor, Michigan 48108, with reference
to the following facts:

                                    RECITALS

         A. Diversicare  Leasing Corp., a Tennessee  corporation (the "Lessee"),
executed and  delivered  to Lessor a  Consolidated  Amended and Restated  Master
Lease dated ___________,  2000 (the "Master Lease") pursuant to which the Lessee
is leasing from Lessor certain  healthcare  facilities  identified  therein (the
"Facilities").

         B.  Guarantor,  subject to the  consent of Lessor,  intends to sublease
certain  Facilities from the Lessee pursuant to a sublease dated _______,  20___
(the  "Sublease")  by  and  between  Lessee,  as  sublessor  and  Guarantor,  as
sublessee.

         C. Guarantor is a wholly owned subsidiary of the Lessee and maintains a
direct  financial  interest in the Lessee.  It is to the  advantage of Guarantor
that Lessor  consent to the  Sublease and  continue to lease the  Facilities  to
Lessee pursuant to the Master Lease.

         D. As a material  inducement  for Lessor to consent to the Sublease and
to  continue to lease the  Facilities  to Lessee  pursuant to the Master  Lease,
Guarantor has agreed to guarantee  the payment of all amounts due from,  and the
performance of all  obligations  undertaken by the Lessee under the Master Lease
and any security  agreements,  promissory  notes,  letter of credit  agreements,
guarantees or other documents which evidence,  secure or otherwise relate to the
Master  Lease  (the  Master  Lease  and  all  such  documents,  and  any and all
amendments,  modifications,  extensions and renewals  thereof,  are  hereinafter
referred  to  collectively  as the  "Sterling  Transaction  Documents"),  all as
hereinafter set forth.

         WHEREFORE, the parties hereby agree as follows:

         1. Defined Terms.  All  capitalized  terms used herein and not defined
herein shall have the meaning for such terms set forth in the Master Lease.

         2.  Guaranty.   Guarantor  hereby   unconditionally   and  irrevocably,
guarantees  to Lessor  (i) the  payment  when due of all Rent and all other sums
payable by the Lessee under the Master  Lease,  and (ii) the faithful and prompt
performance  when  due of  each  and  every  one of the  terms,  conditions  and
covenants to be kept and performed by the Lessee under the Sterling  Transaction
Documents, any and all amendments, modifications, extensions and renewals of the

<PAGE>

Sterling Transaction Documents, including without limitation all indemnification
obligations,  insurance  obligations,  and all obligations to operate,  rebuild,
restore or replace any facilities or  improvements  now or hereafter  located on
the real estate covered by the Master Lease.  In the event of the failure of the
Lessee to pay any such amounts owed, or to render any other performance required
of the Lessee  under the Sterling  Transaction  Documents,  when due,  Guarantor
shall forthwith  perform or cause to be performed all provisions of the Sterling
Transaction  Documents  to be performed  by the Lessee  thereunder,  and pay all
damages  that may result  from the  non-performance  thereof to the full  extent
provided   under  the  Sterling   Transaction   Documents   (collectively,   the
"Obligations"). As to the Obligations, Guarantor's liability under this Guaranty
is without limit.

         3. Survival of  Obligations.  The  obligations of Guarantor  under this
Guaranty with respect to the Sterling  Transaction  Documents  shall survive and
continue in full force and effect (until and unless all Obligations, the payment
and  performance  of which  are  hereby  guaranteed,  have been  fully  paid and
performed) notwithstanding:

         (a)      any amendment, modification, or extension of any Sterling
                  Transaction Document;

         (b)      any compromise,  release,  consent,  extension,  indulgence or
                  other  action  or  inaction  in  respect  of any  terms of any
                  Sterling Transaction Document or any other guarantor;

         (c)      any  substitution  or  release,  in whole  or in part,  of any
                  security for this Guaranty which Lessor may hold at any time;

         (d)      any exercise or non-exercise by Lessor of any right,  power or
                  remedy  under  or  in  respect  of  any  Sterling  Transaction
                  Document or any security held by Lessor with respect  thereto,
                  or any waiver of any such right, power or remedy;

         (e)      any  bankruptcy,  insolvency,   reorganization,   arrangement,
                  adjustment, composition, liquidation, or the like of Lessee or
                  any other guarantor;

         (f)      any  limitation of the Lessee's  liability  under any Sterling
                  Transaction   Document  or  any  limitation  of  the  Lessee's
                  liability  thereunder which may now or hereafter be imposed by
                  any  statute,  regulation  or rule of law, or any  illegality,
                  irregularity,  invalidity or unenforceability,  in whole or in
                  part,  of  any  Sterling  Transaction  Document  or  any  term
                  thereof;

         (g)      any  sale,  lease,  or  transfer  of all or  any  part  of any
                  interest in any Facility to any other  person,  firm or entity
                  other than to Lessor;

         (h)      any act or  omission  by  Lessor  with  respect  to any of the
                  security  instruments  given or made as a part of the Sterling
                  Transaction  Documents  or any  failure  to  file,  record  or
                  otherwise perfect any of the same;
<PAGE>

         (i)      any  extensions  of time for  performance  under the  Sterling
                  Transaction Documents, whether prior to or after maturity;

         (j)      the  release  of any  collateral  from  any  lien in  favor of
                  Lessor,  or the  release of the  Lessee  from  performance  or
                  observation  of any of the  agreements,  covenants,  terms  or
                  conditions  contained in any Sterling  Transaction Document by
                  operation of law or otherwise;

         (k)      the fact that the Lessee may or may not be personally  liable,
                  in  whole  or  in  part,  under  the  terms  of  any  Sterling
                  Transaction Document to pay any money judgment;

         (l)      the failure to give Guarantor any notice of acceptance,
                  default or otherwise;

         (m)      any other  guaranty now or hereafter  executed by Guarantor or
                  anyone  else  in  connection  with  any  Sterling  Transaction
                  Document;

         (n)      any rights,  powers or privileges  Lessor may now or hereafter
                  have against any other person, entity or collateral; or

         (o)      any other  circumstances,  whether or not Guarantor had notice
                  or knowledge thereof, other than the payment or performance of
                  all of the Obligations.

         4. Primary  Liability.  The liability of Guarantor  with respect to the
Sterling Transaction Documents shall be joint and several,  primary,  direct and
immediate, and Lessor may proceed against the Guarantor: (i) prior to or in lieu
of proceeding against the Lessee, its assets, any security deposit, or any other
guarantor; and (ii) prior to or in lieu of pursuing any other rights or remedies
available  to Lessor.  All rights and  remedies  afforded to Lessor by reason of
this  Guaranty  or by law are  separate,  independent  and  cumulative,  and the
exercise  of any  rights or  remedies  shall not in any way limit,  restrict  or
prejudice the exercise of any other rights or remedies.

         In the event of any default under any Sterling Transaction  Document, a
separate action or actions may be brought and prosecuted  against the Guarantor,
or any one of them,  whether or not the  Lessee is joined  therein or a separate
action or actions are brought against the Lessee. Lessor may maintain successive
actions for other defaults.  Lessor's rights hereunder shall not be exhausted by
its  exercise  of any of its rights or  remedies or by any such action or by any
number of successive  actions until and unless all  indebtedness and obligations
the payment and  performance of which are hereby  guaranteed  have been paid and
fully performed.

         5.  Obligations  Not Affected.  In such manner,  upon such terms and at
such times as Lessor in its sole discretion  deems  necessary or expedient,  and
without  notice  to  Guarantor,   Lessor  may:  (a)  amend,  alter,  compromise,
accelerate,  extend  or  change  the  time  or  manner  for the  payment  or the
performance of any obligation hereby guaranteed;  (b) extend, amend or terminate
any of the Sterling Transaction Documents;  or (c) release the Lessee by consent
to any  assignment  (or  otherwise) as to all or any portion of the  obligations

<PAGE>

hereby  guaranteed.  Any exercise or  non-exercise by Lessor of any right hereby
given  Lessor,  dealing by Lessor with  Guarantor  or any other  guarantor,  the
Lessee or any other person, or change, impairment,  release or suspension of any
right or remedy of Lessor against any person  including the Lessee and any other
guarantor will not affect any of the obligations of Guarantor  hereunder or give
Guarantor any recourse or offset against Lessor.

         6.  Waiver.  With  respect  to  the  Sterling  Transaction   Documents,
Guarantor  hereby waives and  relinquishes  all rights and remedies  accorded by
applicable law to sureties and/or guarantors or any other accommodation parties,
under any statutory provisions, common law or any other provision of law, custom
or  practice,  and agrees not to assert or take  advantage of any such rights or
remedies including, but not limited to:

         (a)      any right to require  Lessor to proceed  against the Lessee or
                  any other person or to proceed against or exhaust any security
                  held by Lessor at any time or to  pursue  any other  remedy in
                  Lessor's  power  before  proceeding  against  Guarantor  or to
                  require that Lessor cause a marshaling of the Lessee's  assets
                  or the assets,  if any,  given as collateral for this Guaranty
                  or to  proceed  against  the  Lessee  and/or  any  collateral,
                  including  collateral,  if any,  given to  secure  Guarantor's
                  obligation under this Guaranty,  held by Lessor at any time or
                  in any particular order;

         (b)      any defense that may arise by reason of the incapacity or lack
                  of authority of any other person or persons;

         (c)      notice of the  existence,  creation or incurring of any new or
                  additional  indebtedness  or  obligation  or of any  action or
                  non-action on the part of the Lessee,  Lessor, any creditor of
                  the Lessee or the Guarantor or on the part of any other person
                  whomsoever  under this or any other  instrument  in connection
                  with any obligation or evidence of indebtedness held by Lessor
                  or in connection with any obligation hereby guaranteed;

         (d)      any defense based upon an election of remedies by Lessor which
                  destroys  or  otherwise  impairs  the  subrogation  rights  of
                  Guarantor  or the right of  Guarantor  to proceed  against the
                  Lessee for reimbursement, or both;

         (e)      any  defense  based  upon  any  statute  or rule of law  which
                  provides  that  the  obligation  of a surety  must be  neither
                  larger in amount nor in other  respects more  burdensome  than
                  that of the principal;

         (f)      any duty on the part of Lessor  to disclose to  Guarantor  any
                  facts  Lessor  may  now  or  hereafter  know about the Lessee,
                  regardless  of whether  Lessor has reason to believe  that any
                  such facts  materially  increase  the risk  beyond  that which
                  Guarantor intends to assume or has reason to believe that such
                  facts are unknown to Guarantor or has a reasonable opportunity
                  to communicate such facts to Guarantor,  it  being  understood
                  and agreed that Guarantor is  fully  responsible for being and

<PAGE>

                  keeping  informed of the  financial  condition  of  the Lessee
                  and of  all  circumstances  bearing on the risk of non-payment
                  or non-performance  of any obligations or indebtedness  hereby
                  guaranteed;

         (g)      any  defense  arising  because of  Lessor's  election,  in any
                  proceeding  instituted  under the federal  Bankruptcy Code, of
                  the   application  of  Section  1111  (b)(2)  of  the  federal
                  Bankruptcy Code; and

         (h)      any  defense  based on any  borrowing  or grant of a  security
                  interest under Section 364 of the federal Bankruptcy Code.

         (i)      any extension of time conferred by any law now or hereafter in
                  effect and any  requirement  or notice of  acceptance  of this
                  Guaranty or any other notice to which the  undersigned may now
                  or  hereafter  be entitled to the extent such waiver of notice
                  is permitted by applicable law.

         7.  Warranties.  With  respect to the Sterling  Transaction  Documents,
Guarantor  warrants that: (a) this Guaranty is executed at the Lessee's request;
and (b) Guarantor has established adequate means of obtaining from the Lessee on
a continuing  basis financial and other  information  pertaining to the Lessee's
financial  condition.  Guarantor  agrees to keep  adequately  informed from such
means of any  facts,  events  or  circumstances  which  might in any way  affect
Guarantor's risks hereunder, and Guarantor further agrees that Lessor shall have
no obligation to disclose to Guarantor  information or material  acquired in the
course of Lessor's relationship with Lessee.

         8.  No-Subrogation.  Guarantor  shall have no right of subrogation  and
waive any right to enforce any remedy which Lessor now has or may hereafter have
against Lessee and any benefit of, and any right to participate in, any security
now or hereafter held by Lessor with respect to the Master Lease.

         9. Subordination.  Upon the occurrence of an Event of Default under any
Sterling Transaction Document, which is not cured by Guarantor, the indebtedness
or obligations of Lessee to Guarantor  shall not be paid in whole or in part nor
will Guarantor accept any payment of or on account of any amounts owing, without
the prior written  consent of Lessor and at Lessor's  request,  Guarantor  shall
cause  the  Lessee  to  pay  to  Lessor  all or  any  part  of the  subordinated
indebtedness until the obligations under the Sterling Transaction Documents have
been paid in full. Any payment by the Lessee in violation of this Guaranty shall
be received by Guarantor in trust for Lessor, and Guarantor shall cause the same
to be paid to Lessor immediately on account of the amounts owing from the Lessee
to Lessor.  No such payment will reduce or affect in any manner the liability of
Guarantor under this Guaranty.

         10. No Delay. Any payments  required to be made by Guarantor  hereunder
shall become due on demand in accordance with the terms hereof  immediately upon
the happening of an Event of Default under any Sterling Transaction Document.
<PAGE>

         11. Application of Payments.  With respect to the Sterling  Transaction
Documents,  and with or without  notice to Guarantor,  Lessor,  in Lessor's sole
discretion  and at any time and from  time to time and in such  manner  and upon
such terms as Lessor  deems  appropriate,  may (a) apply any or all  payments or
recoveries from Lessee or from any other guarantor under any other instrument or
realized from any  security,  in such manner and order of priority as Lessor may
determine, to any indebtedness or other obligation of Lessee with respect to the
Sterling  Transaction  Documents and whether or not such  indebtedness  or other
obligation is guaranteed hereby or is otherwise secured or is due at the time of
such application,  and (b) refund to Lessee any payment received by Lessor under
the Sterling Transaction Documents.

           12.      Guaranty Default.

           (a) As used herein,  the term Guaranty Default shall mean one or more
of the following events (subject to applicable cure periods):

                    (i)    the failure of Guarantor to pay the amounts  required
                           to be paid  hereunder at the times specified herein;

                    (ii)   the failure of  Guarantor  to observe and perform any
                           covenants,  conditions or agreement on its part to be
                           observed or  performed,  other than as referred to in
                           Subsection  (i)  above,  for a period of thirty  (30)
                           days after  written  notice of such  failure has been
                           given to Guarantor by Lessor, unless Lessor agrees in
                           writing  to an  extension  of such time  prior to its
                           expiration;

                    (iii)  the  occurrence of a default under any other guaranty
                           between Lessor and Guarantor.

        (b) Upon the  occurrence  of a Guaranty  Default,  Lessor shall have the
right  to  bring  such  actions  at  law  or in  equity,  including  appropriate
injunctive  relief,  as it deems  appropriate to compel  compliance,  payment or
deposit,  and  among  other  remedies  to  recover  its  attorneys'  fees in any
proceeding, including any appeal therefrom and any post-judgement proceedings.

        13.  Financial  Statements.  Guarantor shall deliver those  Consolidated
Financial  Statements and other certificates as required by Article XXIII of the
Master Lease in the form and at the times set forth therein.

        14.  Miscellaneous.

        (a) No term,  condition  or  provision  of this  Guaranty  may be waived
except by an express  written  instrument  to that effect  signed by Lessor.  No
waiver of any term,  condition or provision  of this  Guaranty  will be deemed a
waiver of any other term, condition or provision, irrespective of similarity, or
constitute a continuing waiver of the same term, condition or provision,  unless
otherwise expressly provided.

        (b) If any one or more of the terms,  conditions or provisions contained
in this Guaranty is found in a final award or judgment  rendered by any court of
competent  jurisdiction to be invalid,  illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining terms, conditions and
provisions  of this  Guaranty  shall  not in any  way be  affected  or  impaired
thereby, and this Guaranty shall be interpreted and construed as if the invalid,
illegal, or unenforceable term,  condition or provision had never been contained
in this Guaranty.
<PAGE>

        (c) THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE  WITH
THE LAWS OF THE STATE OF MICHIGAN,  EXCEPT THAT THE LAWS OF THE STATE IN WHICH A
FACILITY IS LOCATED SHALL GOVERN THIS  AGREEMENT TO THE EXTENT  NECESSARY (i) TO
OBTAIN THE BENEFIT OF THE- RIGHTS AND  REMEDIES SET FORTH HEREIN WITH RESPECT TO
SUCH FACILITY,  AND (ii) FOR PROCEDURAL  REQUIREMENTS  WHICH MUST BE GOVERNED BY
THE LAWS OF THE STATE IN WHICH SUCH FACILITY IS LOCATED.  GUARANTOR  CONSENTS TO
IN PERSONAM  JURISDICTION  BEFORE THE STATE AND FEDERAL  COURTS OF MICHIGAN  AND
AGREES  THAT ALL  DISPUTES  CONCERNING  THIS  GUARANTY BE HEARD IN THE STATE AND
FEDERAL  COURTS  LOCATED  IN THE  STATE OR  STATES  IN  WHICH  THE  FACILITY  OR
FACILITIES ARE LOCATED OR IN MICHIGAN.  GUARANTOR AGREES THAT SERVICE OF PROCESS
MAY BE EFFECTED UPON IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE
OR STATES IN WHICH THE  FACILITY  OR  FACILITIES  ARE  LOCATED OR  MICHIGAN  AND
IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE
STATE OR STATES IN WHICH THE FACILITY OR FACILITIES ARE LOCATED AND OF MICHIGAN.

        (d)  GUARANTOR  AND  LESSOR  HEREBY  WAIVE  TRIAL BY JURY AND THE  RIGHT
THERETO IN ANY ACTION OR PROCEEDING  OF ANY KIND ARISING ON,  UNDER,  OUT OF, BY
REASON OF OR RELATING IN ANY WAY TO THIS GUARANTY OR THE INTERPRETATION,  BREACH
OR ENFORCEMENT THEREOF.

        (e) In the event of any suit, action, arbitration or other proceeding to
interpret  this  Guaranty,  or to determine  or enforce any right or  obligation
created  hereby,  the prevailing  party in the action shall recover such party's
actual  costs  and  expenses  reasonably   incurred  in  connection   therewith,
including,  but not  limited  to,  attorneys'  fees and  costs of  appeal,  post
judgment enforcement  proceedings (if any) and bankruptcy  proceedings (if any).
Any court, arbitrator or panel of arbitrators shall, in entering any judgment or
making any award in any such suit, action,  arbitration or other proceeding,  in
addition to any and all other relief awarded to such prevailing  party,  include
in  such-judgment  or award such party's  costs and expenses as provided in this
paragraph.

         (f) Guarantor (i) represents  that it has been  represented and advised
by counsel in connection with the execution of this Guaranty;  (ii) acknowledges
receipt  of a copy of the  Sterling  Transaction  Documents;  and (iii)  further
represents that Guarantor has been advised by counsel with respect thereto. This
Guaranty shall be construed and interpreted in accordance with the plain meaning
of its  language,  and not for or against  Guarantor or Lessor,  and as a whole,
giving effect to all of the terms, conditions and provisions hereof.

         (g) Except as provided  in any other  written  agreement  now or at any
time  hereafter in force  between  Lessor and  Guarantor,  this  Guaranty  shall
constitute  the entire  agreement of  Guarantor  with Lessor with respect to the
subject  matter  hereof,  and  no  representation,   understanding,  promise  or
condition  concerning  the subject  matter hereof will be binding upon Lessor or
Guarantor unless expressed herein.

         (h) All stipulations,  obligations,  liabilities and undertakings under
this Guaranty  shall be binding upon Guarantor and their  respective  successors
and  assigns  and shall  inure to the  benefit of Lessor  and to the  benefit of
Lessor's successors and assigns.

         (i) Whenever the singular shall be used  hereunder,  it shall be deemed
to include the plural (and  vice-versa)  and  reference  to one gender  shall be
construed to include all other genders,  including neuter,  whenever the context

<PAGE>

of this Guaranty so requires.  Section captions or headings used in the Guaranty
are for convenience  and reference  only, and shall not affect the  construction
thereof.

         IN WITNESS  WHEREOF,  the  undersigned has executed this Guaranty as of
the date first written above.

                                   GUARANTOR:

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

                                   By:  ________________________________
                                   Name:________________________________
                                   Its: ________________________________

STATE OF ___________       )
                                    ) ss.
COUNTY OF _________        )

                                    The foregoing instrument was acknowledged
                                    before me this _____ day of _________, 2000,
                                    by , the  ________________ of _____________
                                    known to me to be the person who executed
                                    this Guaranty.

<PAGE>
                                   EXHIBIT K

                            FORM OF PLEDGE AGREEMENT
                     (Sterling Health Care Management, Inc.)

         This Pledge  Agreement (this  "Agreement") is made as of November ____,
2000, between  DIVERSICARE LEASING CORP., a Tennessee  corporation  ("Pledgor"),
and STERLING ACQUISITION CORP., a Kentucky corporation ("Creditor").

                               STATEMENT OF FACTS

         A. Pledgor is the owner of 100% of the  outstanding  equity interest in
Sterling  Health Care  Management,  Inc., a Kentucky  corporation  (the "Pledged
Company").

         B. Pledgor and Creditor are parties to a certain Consolidated,  Amended
and  Restated  Master  Lease dated  November  ___,  2000 (the  "Master  Lease"),
pursuant to which  Creditor  leased  certain  skilled  nursing  facilities  (the
"Facilities") to Pledgor.

         C.  Pledgor,  subject to the consent of  Creditor,  intends to sublease
certain  Facilities to the Pledged Company pursuant to a sublease dated November
___,  2000 (the  "Sublease")  by and between  Pledgor,  as sublessor and Pledged
Company, as sublessee.

         D. As an  inducement  for  Creditor to consent to the  Sublease  and to
continue  to lease the  Facilities  to Pledgor  pursuant  to the  Master  Lease,
Pledgor  has  agreed  that  the due  performance  and  observance  of  Pledgor's
obligations  under the Master  Lease and security  agreements,  letter of credit
agreements,  guarantees or other documents  which evidence,  secure or otherwise
relate to the Master Lease (collectively, the "Lease Documents") will be secured
by a lien on the  Pledged  Collateral  (as that term is defined  below)  granted
pursuant to this Agreement.

         The parties therefore agree as follows:

         1. Intercreditor Agreement. Creditor, Omega Healthcare Investors, Inc.,
a Maryland  corporation  and AmSouth  Bank,  successor  in interest by merger to
First American National Bank ("AmSouth") are parties to a certain  Intercreditor
Agreement   dated  October  1,  2000  (the   "Intercreditor   Agreement").   The
Intercreditor  Agreement  governs  the  priority of AmSouth  and  Creditor  with
respect to their security  interests in the Pledged  Collateral (as  hereinafter
defined).  Pursuant  to the terms of the  Intercreditor  Agreement,  AmSouth  is
acting as collateral  agent for AmSouth and Creditor with respect to the Pledged
Collateral during the term of the Intercreditor Agreement.

         2.  Pledge;  Grant of  Security  Interest.  Subject to the terms of the
Intercreditor Agreement,  Pledgor hereby grants to Creditor a security interest,
on the following terms and subject to the following conditions, in:

<PAGE>

                    (a) all Pledgor's  right,  title and interest in the Pledged
                    Company (the "Pledged Securities");

                    (b) any equity  securities issued by the Pledged Company and
                    any options,  warrants or rights to acquire such securities,
                    owned or acquired by Pledgor, directly or indirectly, now or
                    at any time in the future;

                    (c) any securities or other  property  issued or distributed
                    to Pledgor  with  respect  to any  securities  described  in
                    clauses (a) or (b) above as a dividend or distribution or as
                    a  result   of  any   amendment   of  the   certificate   of
                    incorporation   or   other   charter   documents,    merger,
                    consolidation, redesignation,  reclassification, purchase or
                    sale  of  assets,   dissolution,  or  plan  of  arrangement,
                    compromise or reorganization of the issuer thereof;

                    (d) any rights  incidental  to the  ownership  of any of the
                    securities  described in clauses (a), (b) or (c) above, such
                    as voting,  conversion and registration rights and rights of
                    recovery for violations of applicable securities laws; and,

                    (e)  the  proceeds  of the  exercise,  redemption,  sale  or
                    exchange of any of the foregoing, or any dividend,  interest
                    payment or other distribution of cash or property in respect
                    thereof.

         All  of the  foregoing  may  be  referred  to  herein  as the  "Pledged
Collateral".

         3. Secured Obligations. The security interest described in Section 2 of
this Agreement  secures the prompt and full payment when due (and not merely the
ultimate  collectibility)  of all Rent and all other sums payable by the Pledgor
under  (i) the  Master  Lease and the full  performance  of all  obligations  of
Pledgor under the Lease  Documents,  (ii) any leases of the  Facilities  made by
Creditor  after the filing of a petition  for relief  pursuant to Section 364 of
the Bankruptcy Code (11 U.S.C.  ss.364) by Pledgor, and (iii) the obligations of
the mortgagors of the Florida  Mortgaged  Facilities (as defined in that certain
Settlement and  Restructuring  Agreement by and among Advocat,  Inc., a Delaware
corporation,  Pledgor,  Pledged Company,  Diversicare Management Services Co., a
Tennessee corporation, Omega Healthcare Investors, Inc., a Maryland corporation,
and Creditor of even date herewith (collectively the "Secured Obligations").

         4.       Delivery.

                    (a) Before,  or at the same time as the Pledgor has executed
                    and  delivered  this  Agreement  to  Creditor,  Pledgor  has
                    delivered to AmSouth,  as collateral agent, a fully executed
                    Assignment in Blank  (substantially in the form of Exhibit A
                    hereto) and with all necessary transfer tax stamps affixed.

<PAGE>

                    (b) If,  at any  time,  Pledgor  obtains  possession  of any
                    certificate or instrument  constituting or representing  any
                    of the  Pledged  Collateral  (other than  interest  and cash
                    dividends),   Pledgor  shall  deliver  such  certificate  or
                    instrument to AmSouth,  as collateral agent,  forthwith duly
                    endorsed  in  blank  without  restriction  or  with a  fully
                    executed  Assignment in Blank  (substantially in the form of
                    Exhibit A hereto) and with all necessary transfer tax stamps
                    affixed.

                    (c) If no Event of Default  (as defined in Section 11 below)
                    hasoccurred  and is  continuing,  Pledgor may retain for its
                    own use and shall not be required to deliver to Creditor any
                    interest  payments  on or any cash  dividends  or other cash
                    distributions;  if an Event of Default has  occurred  and is
                    continuing,  then  all  such  interest,  dividends  and cash
                    distributions  shall be delivered to AmSouth,  as collateral
                    agent,  for  application  by AmSouth,  as collateral  agent,
                    toward payment of the Secured Obligations in compliance with
                    the Intercreditor Agreement.

                    (d)  If  any of the  Pledged  Collateral  is  uncertificated
                    securities,   the  Pledgor  shall  either  (a)  procure  the
                    issuance of security  certificates to represent such Pledged
                    Collateral  and  endorse and deliver  such  certificates  as
                    required by  paragraph  (b) of this  Section 4, or (b) cause
                    the issuer thereof to register AmSouth, as collateral agent,
                    as the registered owner of such securities, or (c) cause the
                    issuer  thereof  to  enter  into an  agreement,  in form and
                    substance  satisfactory  to Creditor,  among Creditor and/or
                    AmSouth,  the  registered  owner of such  security,  and the
                    issuer  to the  effect  that the  issuer  will  comply  with
                    instructions  originated by Creditor  and/or AmSouth without
                    further consent by the registered owner.

                    (e) At Pledgor's expense,  Pledgor shall deliver to Creditor
                    and/or  AmSouth,   as  collateral   agent,   such  financing
                    statements,     continuation    statements,     conveyances,
                    certificates,   legal  opinions  or  other   instruments  as
                    Creditor  may at any time  reasonably  request or require to
                    protect,  assure  or  enforce  its  interests,   rights  and
                    remedies  under this  agreement.  The form of description of
                    the  Pledged   Collateral   to  be  attached  to   financing
                    statements  to be executed  by Debtor is attached  hereto as
                    Schedule 1.

                    (f) If AmSouth's security interest in the Pledged Collateral
                    is  terminated,  all  deliveries  required by this Section 4
                    shall be made directly to Creditor.

         5. Voting Rights. If no Event of Default has occurred or is continuing,
the Pledged  Collateral  will be registered in the name of Pledgor,  and Pledgor
may exercise any voting or consensual  rights that Pledgor may have as the owner
of the Pledged  Collateral for any purpose which is not  inconsistent  with this
Agreement.  Pledgor  shall  deliver to  Creditor  copies of all  notices,  proxy
statements,  proxies and other  information  or  instruments  in its  possession
concerning  such  exercise  and shall  not  exercise  any such  right if, in the
judgment of Creditor,  such exercise would have a material adverse effect on the
value of the Pledged  Collateral  or would  result in a violation  of any of the
terms of the  Lease  Documents.  If an  Event of  Default  has  occurred  and is
continuing,  Creditor,  subject to the terms of the Intercreditor Agreement, may
exercise  all voting or  consensual  rights of the owners of any of the  Pledged

<PAGE>

Collateral and Pledgor shall deliver to Creditor all notices,  proxy statements,
proxies and other  information and instruments  relating to the exercise of such
rights  received by Pledgor  from the  issuers of any of the Pledged  Collateral
promptly upon receipt  thereof and shall at the request of Creditor  execute and
deliver to Creditor any proxies or other  instruments which are, in the judgment
of  Creditor,  necessary  for  Creditor  to  validly  exercise  such  voting and
consensual rights.

         6.  Duty  of  Creditor.  The  duty  of the  Creditor  and  AmSouth,  as
collateral agent, with respect to the Pledged  Collateral shall be solely to use
reasonable care in the physical custody  thereof,  and the Creditor shall not be
under any  obligation  to take any action  with  respect  to any of the  Pledged
Collateral or to preserve rights against prior parties.  The powers conferred on
Creditor  hereunder are solely to protect its interest in the Pledged Collateral
and do not impose any duty upon it to exercise any such  powers.  Pledgor is not
looking to the Creditor to provide it with  investment  advice.  Creditor  shall
have no duty to ascertain or take any action with respect to calls, conversions,
exchanges,   maturities,   tenders  or  other  matters  concerning  any  Pledged
Collateral,  whether or not Creditor has or is deemed to have  knowledge of such
matters,  or as to the  taking of any  necessary  steps to  preserve  any rights
pertaining to any Pledged Collateral.

         7.   Subsequent   Changes   Affecting   Pledged   Collateral.   Pledgor
acknowledges  that it has made its own  arrangements  for  keeping  informed  of
changes or potential changes affecting the Pledged  Collateral  (including,  but
not  limited  to,  conversions,   subscriptions,   exchanges,   reorganizations,
dividends,  tender  offers,  mergers,  consolidations  and  shareholder or other
meetings)  and Pledgor  agrees that  Creditor  has no  responsibility  to inform
Pledgor of such matters or to take any action with  respect  thereto even if any
of the Pledged  Collateral  has been  registered  in the name of Creditor or its
agent or nominee.

         8.  Return of Pledged  Collateral.  The  security  interest  granted to
Creditor  hereunder  shall not terminate  and Creditor  shall not be required to
return  the  Pledged  Collateral  to Pledgor  unless  and until (a) the  Secured
Obligations have been fully paid or performed,  (b) all of Pledgor's obligations
hereunder  have been fully paid or  performed,  and (c) Pledgor  has  reimbursed
Creditor for any expenses of returning  the Pledged  Collateral  and filing such
termination  statements  and other  instruments  as are  required to be filed in
public offices under applicable laws.

         9.  Representations  and  Warranties.  Pledgor  hereby  represents  and
warrants to Creditor as follows:

                    (a)  Enforceability.  This  Agreement has been duly executed
                    and delivered by Pledgor,  constitutes its valid and legally
                    binding  obligation  and is enforceable  against  Pledgor in
                    accordance with its terms. Pledgor has the legal capacity to
                    enter into and perform all of its obligations and agreements
                    under this  Agreement.  No consent or approval for the entry
                    into and  performance  by  Pledgor  of its  obligations  and
                    agreements  under this Agreement is necessary other than the
                    consent of AmSouth.

<PAGE>

                    (b) No Conflict. The execution,  delivery and performance of
                    this  Agreement,  the grant of the security  interest in the
                    Pledged  Collateral  hereunder and the  consummation  of the
                    transactions  contemplated  hereby will not, with or without
                    the giving of notice or the lapse of time,  (a)  violate any
                    material  law   applicable  to  Pledgor;   (b)  violate  any
                    judgment,   writ,  injunction  or  order  of  any  court  or
                    governmental  body or officer  applicable  to  Pledgor;  (c)
                    violate or result in the breach of any material agreement to
                    which Pledgor is a party or by which any of its  properties,
                    including  the  Pledged  Collateral,  is bound;  (d) violate
                    Pledgor's articles of incorporation or organization, bylaws,
                    partnership,  shareholder  or operating  agreement;  nor (e)
                    violate  any  restriction  on  the  transfer  of  any of the
                    Pledged  Collateral.  Pledgor has the full and  unrestricted
                    right to pledge,  assign and create a security  interest  in
                    the Pledged  Collateral as described in and  contemplated by
                    this Agreement.  The execution,  delivery and performance of
                    this  Agreement  by  Pledgor  will not  affect or in any way
                    impair the Pledged  Collateral  or Pledgor's  or  Creditor's
                    rights or interests therein.

                    (c) No Consents. No consent,  approval,  license,  permit or
                    other  authorization  of any third party or any governmental
                    body or  officer  is  required  for  the  valid  and  lawful
                    execution  and  delivery  of this  Agreement,  the valid and
                    lawful  creation and perfection of the  Creditor's  security
                    interest in the Pledged  Collateral  or the valid and lawful
                    exercise by Creditor of remedies  available to it under this
                    Agreement  or  applicable  law or of the  voting  and  other
                    rights  granted  to it in  this  Agreement  except  for  the
                    consent  of  AmSouth  as  provided   in  the   Intercreditor
                    Agreement  and as may be  required  for the offer or sale of
                    those items of Pledged Collateral which are securities under
                    applicable securities laws.

                    (d)  Organization.   Pledgor  is  duly  organized,   validly
                    existing and in good standing under the laws of the State of
                    Tennessee.   Pledged  Company  is  duly  organized,  validly
                    existing and in good standing under the laws of its State of
                    Kentucky.  The Pledged  Securities are all of the issued and
                    outstanding securities issued by Pledge Company. The Pledged
                    Securities  have been duly  authorized and validly issued by
                    Pledge  Company and are fully paid and  non-assessable.  The
                    certificates  which  represent  the Pledged  Securities  are
                    valid and genuine  and have not been  altered and Pledgor is
                    the  appropriate  person to  endorse  them.  Except for this
                    Agreement, the Intercreditor Agreement, and other agreements
                    with AmSouth, neither Pledgor nor Pledge Company is bound by
                    any certificate of  incorporation  or  organization,  bylaw,
                    agreement or instrument  (including options,  warrants,  and
                    convertible  securities)  which  relates  to the  voting of;
                    restricts  the  transfer  of;  requires  Pledgor  or  Pledge
                    Company to issue or sell;  or  creates  rights in any person
                    (other  than  the  record   owner)  with   respect  to;  any
                    securities issued by Pledge Company.

<PAGE>

                    (e)  Security  Interest.  Subject  to the  rights of AmSouth
                    pursuant  to  Section  6  of  the  Intercreditor  Agreement,
                    Pledgor  is the  sole  record  and  beneficial  owner of the
                    Pledged  Securities,  subject to the  security  interest  of
                    AmSouth, free and clear of all other liens, encumbrances and
                    adverse claims,  and Pledgor has the  unrestricted  right to
                    grant  the  security  interest  provided  for  herein to the
                    Creditor.   Pledgor  has  duly  endorsed  and  delivered  to
                    AmSouth,  as  collateral  agent,  all  of  the  certificates
                    representing  the  Pledged  Securities  and has  granted  to
                    Creditor  a valid  and  perfected  first  priority  security
                    interest in the Pledged Securities,  subject to the security
                    interest of AmSouth, free of all other liens,  encumbrances,
                    transfer  restrictions and adverse claims. The certificates,
                    instruments  and other  writings  delivered  by  Pledgor  to
                    AmSouth, as collateral agent, pursuant to this Agreement are
                    all of the  certificates,  instruments  and  other  writings
                    representing  the  Pledged  Collateral  and all  rights  and
                    interests  with  respect  thereto.   The  security  interest
                    granted  hereby to Creditor  does now and shall at all times
                    during the term of this  Agreement  continue to constitute a
                    first and prior lien on the Pledged Collateral, subject only
                    to the security  interest of AmSouth and such matters as may
                    be  specifically  agreed to in  writing  by  Creditor.  This
                    representation  shall be deemed  made with  respect  to each
                    item of property that becomes Pledged  Collateral  after the
                    date hereof.

                    (f) Name and Address.  Pledgor's principal place of business
                    is  correctly  set forth under its  signature  at the end of
                    this Agreement.

         10. Agreements. So long as this Agreement is in effect, Pledgor shall:

                    (a)  Subject to the rights of AmSouth as  pledgee,  maintain
                    the  Pledged  Collateral  free  from  all  pledges,   liens,
                    encumbrances and security interests or other claims in favor
                    of others,  other than the  security  interests  in favor of
                    AmSouth and  Creditor,  and Pledgor  will defend the Pledged
                    Collateral against all claims and demands of all persons.

                    (b) Comply with the  requirements  of all applicable  state,
                    local and  federal  laws  necessary  to grant to  Creditor a
                    valid lien upon, and a duly perfected  security interest in,
                    the Pledged  Collateral in compliance with the  requirements
                    of this Agreement.

                    (c) Appear in and defend  any action or  proceeding  arising
                    out  of or  connected  with  this  Agreement,  and  pay  all
                    reasonable  costs  and  expenses  of  Creditor   (including,
                    without limitation,  reasonable attorneys' fees) in any such
                    action or proceeding in which Creditor appears or determines
                    to become involved.

                    (d) Not,  without  the prior  written  consent of  Creditor,
                    sell, assign,  encumber,  pledge,  hypothecate,  transfer or
                    otherwise  dispose  of the  Pledged  Collateral  or any part
                    thereof or any interest therein.

<PAGE>

                    (e) Provide  Creditor,  and Creditor's agents and attorneys,
                    reasonable  access to the books and  records of Pledgor  for
                    inspection  purposes  and  permit  Creditor  and  Creditor's
                    agents and attorneys to make copies hereof.

                    (f) Notify the  Creditor  at least  thirty  (30) days before
                    Pledgor  changes  its name or the  address of its  principal
                    place of business.

         11. Events of Default.  The  occurrence  of any of the following  shall
constitute an "Event of Default" under this Agreement:

                    (a) If the  Pledgor or the  Pledged  Company  fail to pay or
                    perform,  as the case may be, any of the Secured Obligations
                    when the same become due and payable or performable,  as the
                    case may be; or

                    (b) If an Event of Default  occurs under a Lease Document or
                    any guaranty,  promissory  note,  security  agreement,  loan
                    agreement or other agreement between Creditor and Pledgor or
                    Pledged Company; or

                    (c) If there is a breach of any  representation  or warranty
                    made by Pledgor in this Agreement; or

                    (d) If Pledgor:

                       (i) makes an assignment  for the benefit of, or enters
                           into any  composition or arrangement with, creditors;
                           or

                      (ii) generally does not pay its debts as such debts become
                           due; or

                     (iii) conceals,  removes,  or  permits to be  concealed  or
                           removed,  any part of its  property,  with  intent to
                           hinder,  delay or  defraud  its  creditors  or any of
                           them,  or makes or suffers a  transfer  of any of its
                           property   which   may  be   fraudulent   under   any
                           bankruptcy,  fraudulent conveyance or similar law, or
                           makes  any  transfer  of its  property  to or for the
                           benefit of a creditor at a time when other  creditors
                           similarly situated have not been paid; or

                    (e) The filing (i) of a involuntary  petition  under Section
                    303  of the  Bankruptcy  Code  (11  U.S.C.  ss.303)  against
                    Pledgor  which is not  dismissed  within thirty (30) days of
                    being  filed,  or (ii) of a  voluntary  petition  for relief
                    under any chapter of the Bankruptcy  Code (11 U.S.C.  ss.101
                    et seq.)

<PAGE>

                    (f) The  commencement  of a proceeding by or against Pledgor
                    under any statute or other law  providing  for an assignment
                    for the benefit of creditors, the appointment of a receiver,
                    or any other  similar law or  regulation,  whether  federal,
                    state or local, not dismissed within 30 days.

                    (g)  The  garnishment,  attachment,  levy or  other  similar
                    action taken by or on behalf of any creditor of the Pledgor,
                    or any of its properties which could have a material adverse
                    effect on the Pledgor.

         12. Remedies. Subject to the terms of the Intercreditor Agreement: Upon
and at any time after an Event of Default under this Agreement,  Creditor shall,
at its option and without  further  notice to Pledgor  (except for such  further
notices, if any, that may be required by law) be entitled to exercise any or all
rights and remedies provided  hereunder or by law,  including without limitation
the rights and remedies of a secured party under the Michigan Uniform Commercial
Code. Any requirement under the Michigan Uniform Commercial Code or otherwise of
reasonable  notice  shall be met if Creditor  sends  Pledgor  notice of sale and
other notices  required by law at least ten (10) days prior to the date of sale,
disposition  or other event  giving rise to the required  notice.  Any sale held
pursuant  to the  exercise  of  Creditor's  rights  hereunder  may be  public or
private,  and at such sale Creditor  shall have the right,  at any time and from
time to time, to the extent permitted by law, to sell, assign and deliver all or
any part of the Pledged Collateral,  at Creditor's office or elsewhere,  without
demand of  performance,  advertisement  of notice of intention to sell or of the
time or place of sale or  adjournment  thereof or any other notice (all of which
are hereby waived by Pledgor to the extent permitted by law), except such notice
as is required by  applicable  law and cannot be waived,  for cash, on credit or
for other property, for immediate or future delivery,  without any assumption or
credit risk, and,  provided that such is not in violation of applicable law, for
such  terms  as  Creditor  in  its  absolute  and  uncontrolled  discretion  may
determine.  In furtherance of Creditor's rights hereunder,  Creditor or AmSouth,
as collateral agent,  shall have the right, for and in the name, place and stead
of  Pledgor,  to  execute  endorsements,  assignments  or other  instruments  of
conveyance or transfer with respect to all or any of the Pledged Collateral. All
amounts collected by Creditor as the result of any action taken pursuant to this
Section 12, and the liquidation value of any other property received as a result
of such action,  shall,  subject to the Intercreditor  Agreement,  be applied by
Creditor as follows:

         (i)      First, to the payment of all fees and costs including, without
                  limitation, reasonable attorneys' fees, incurred in connection
                  with  the   collection  of  the  Secured   Obligations  or  in
                  connection  with the  exercise or  enforcement  of  Creditor's
                  rights, powers or remedies under this Agreement.

         (ii)     Second,  to the  payment and  satisfaction  of all of the
                  Secured Obligations.

<PAGE>

                    (b)  Creditor  shall  not be  obligated  to make any sale of
                    Pledged Collateral  regardless of notice of sale having been
                    given.  Creditor may adjourn any public or private sale from
                    time to time by  announcement  at the time and  place  fixed
                    therefor, and such sale may, without further notice, be made
                    at the time and  place  to  which it was so  adjourned.  If,
                    under the Michigan Uniform Commercial Code, the Creditor may
                    purchase  any part of the  Pledged  Collateral,  it may,  in
                    payment of any part of the purchase price thereof cancel any
                    part of the Secured Obligations.

                    (c) Pledgor shall  execute and deliver to the  purchasers of
                    the Pledged  Collateral all  instruments and other documents
                    necessary or proper to sell,  convey,  and transfer title to
                    such  Pledged  Collateral  and,  if  approval of any sale of
                    Pledged  Collateral by any  governmental  body or officer is
                    required,  Pledgor shall  prepare or cooperate  fully in the
                    preparation of and cause to be filed with such  governmental
                    body  or  officer  all  necessary  or  proper  applications,
                    reports,  and  forms and do all other  things  necessary  or
                    proper to expeditiously obtain such approval.

                    (d) The  remedies  provided  in this  Agreement  in favor of
                    Creditor  shall  not  be  deemed  exclusive,  but  shall  be
                    cumulative,  and shall be in addition to all other  remedies
                    in favor of Creditor existing at law or in equity.

         13.  Appointment  of Creditor as Agent.  Pledgor  hereby  appoints  and
constitutes   Creditor,   its   successors   and  assigns,   as  its  agent  and
attorney-in-fact  for  the  purpose  of  carrying  out  the  provisions  of this
Agreement  and taking any  action or  executing  any  instrument  that  Creditor
considers necessary for such purpose, including the power to endorse and deliver
in the name of and on behalf of Pledgor securities  certificates and execute and
deliver in the name of and on behalf of Pledgor  instructions  to the issuers of
uncertificated  securities, and to execute and file in the name of and on behalf
of Pledgor financing statements (which may be photocopies of this Agreement) and
continuations  and amendments to financing  statements in the State of Tennessee
or  elsewhere  and Forms 144 with the  United  States  Securities  and  Exchange
Commission.  This appointment is coupled with an interest and is irrevocable and
will not be  affected by the  dissolution  or  bankruptcy  of Pledgor nor by the
lapse of time. If Pledgor  fails to perform any act required by this  Agreement,
Creditor may perform such act in the name of and on behalf of Pledgor and at its
expense  which shall be  chargeable  to Pledgor  under this  Agreement.  Pledgor
hereby  consents  and agrees  that the  issuers of or  obligors  of the  Pledged
Collateral or any registrar or transfer  agent or trustee for any of the Pledged
Collateral  shall be  entitled  to accept the  provisions  hereof as  conclusive
evidence  of the rights of  Creditor  to effect any  transfer  pursuant  to this
Agreement  and the authority  granted to Creditor  herein,  notwithstanding  any
other  notice or  direction to the  contrary  heretofore  or hereafter  given by
Pledgor,  or any other  person,  to any of such issuers,  obligors,  registrars,
transfer agents, or trustees.  Notwithstanding the foregoing,  the terms of this
Section  13 shall not apply so long as  AmSouth  is acting as  collateral  agent
pursuant to the terms of the Intercreditor Agreement.

         14. Impact of Regulations.  Pledgor  acknowledges  that compliance with
the  Securities  Act of 1933 and the rules and  regulations  thereunder  and any
relevant state securities laws and other applicable laws may impose  limitations
on the right of Creditor to sell or otherwise dispose of securities  included in
the Pledged Collateral.  For this reason,  Pledgor hereby authorizes Creditor to
sell any  securities  included in the Pledged  Collateral  in such manner and to

<PAGE>

such  persons as would,  in the  judgment of  Creditor,  help to ensure that the
transfer of such securities  will be given prompt and effective  approval by any
relevant regulatory authorities and will not require any of the securities to be
registered  or  qualified  under  any  applicable   securities   laws.   Pledgor
understands  that  a  sale  under  the  foregoing   circumstances  may  yield  a
substantially  lower price for such Pledged  Collateral  than would otherwise be
obtainable if the same were registered and sold in the open market,  and Pledgor
shall not attempt to hold  Creditor  responsible  for selling any of the Pledged
Collateral  at an  inadequate  price even if  Creditor  accepts  the first offer
received or if only one possible  purchaser appears or bids at any such sale. If
Creditor  shall sell any securities  included in the Pledged  Collateral at such
sale,  Creditor  shall have the right to rely upon the advice and opinion of any
qualified appraiser or investment banker as to the commercially reasonable price
obtainable  on the sale thereof but shall not be obligated to obtain such advice
or opinion.

         15. Expenses. Pledgor will forthwith upon demand pay to Creditor:

                  (i) the  amount  of any  taxes  which  Creditor  may have been
         required to pay by reason of holding the Pledged  Collateral or to free
         any of the  Pledged  Collateral  from any lien  encumbrance  or adverse
         claim thereon other than liens in favor of AmSouth, and

                  (ii)  the  amount  of any  and  all  reasonable  out-of-pocket
         expenses,  including the fees and  disbursements  of counsel and of any
         brokers, investment brokers, appraisers or other experts, that Creditor
         may incur in connection with (A) the  administration  or enforcement of
         this Agreement, including such expenses as are incurred to preserve the
         value of the Pledged Collateral and the validity,  perfection, rank and
         value of Creditor's security interest therein, (B) the collection, sale
         or other disposition of any of the Pledged Collateral, (C) the exercise
         by Creditor of any of the rights  conferred  upon it hereunder,  or (D)
         any action or proceeding to enforce its rights under this  Agreement or
         in pursuit of any non-judicial  remedy hereunder  including the sale of
         the Pledged Collateral.

Any such amount not paid within  thirty (30) days of demand shall bear  interest
(computed  on the  basis  of the  number  of days  elapsed  over a year of three
hundred sixty-five (365) days) at a rate per annum equal to the Overdue Rate (as
defined in the Master Lease).

         16.  Indemnity.  The  Pledgor  shall  indemnify  the  Creditor  and its
directors,  officers,  employees,  agents and attorneys  against,  and hold them
harmless  from,  any  liability,  cost  or  expense,   including  the  fees  and
disbursements  of  their  legal  counsel,  incurred  by any of  them  under  the
corporate or securities laws applicable to holding or selling any of the Pledged
Collateral,   except  for  liability,   cost  or  expense  arising  out  of  the
recklessness or willful misconduct of the indemnified parties.

         17. Performance by Creditor. Subject to the Intercreditor Agreement, if
Pledgor  fails  to duly and  punctually  perform,  observe  or  comply  with any
condition, term or covenant contained in this Agreement,  Creditor, upon fifteen
(15) days prior written notice (provided,  however,  no notice shall be required

<PAGE>

if an Event of Default  exists  under the Master  Lease) and without  waiving or
releasing any of the Secured  Obligations,  may at any time  thereafter  perform
such condition,  term or covenant for the account and at the expense of Pledgor.
All sums paid or advanced in  connection  with the  foregoing  and all costs and
expenses (including, without limitation, reasonable attorneys' fees) incurred in
connection  therewith shall be paid by Pledgor to Creditor on demand,  and shall
constitute  and become a part of the Secured  Obligations  and Pledgor agrees to
reimburse  Creditor  for any  payment  made or any expense  incurred  (including
reasonable  attorneys' fees to the extent permitted by law) by Creditor pursuant
to this Agreement.

         18. Waivers. Pledgor hereby waives presentment, demand, protest, notice
of any default under the Lease Documents (except as otherwise provided herein or
therein). Neither the failure of nor any delay by any party to this Agreement to
enforce any right  hereunder or to demand  compliance with its terms is a waiver
of any right  hereunder.  No action taken  pursuant to this  Agreement on one or
more  occasions is a waiver of any right  hereunder or  constitutes  a course of
dealing that  modifies  this  Agreement.  No waiver of any right or remedy under
this  Agreement  shall be  binding on any party  unless it is in writing  and is
signed by the party to be charged.  No such waiver of any right or remedy  under
any  term of this  Agreement  shall  in any  event  be  deemed  to  apply to any
subsequent default under the same or any other term contained herein.

         19. Entire Agreement. This Agreement, the schedules and exhibits hereto
and the  agreements  and  instruments  required  to be  executed  and  delivered
hereunder  set forth the entire  agreement  of the parties  with  respect to the
subject matter hereof and supersede and discharge all prior agreements  (written
or oral) and negotiations  and all  contemporaneous  oral agreements  concerning
such subject matter and negotiations.  There are no oral conditions precedent to
the effectiveness of this Agreement.

         20.  Amendments.  No amendment,  modification  or  termination  of this
Agreement  shall be binding on any party  hereto  unless it is in writing and is
signed by the party to be charged.

         21. Severability.  If any term or provision set forth in this Agreement
shall be invalid or  unenforceable,  the  remainder  of this  Agreement,  or the
application of such terms or provisions to persons or circumstances,  other than
those to which it is held  invalid or  unenforceable,  shall be construed in all
respects as if such invalid or unenforceable term or provision were omitted.

         22.  Successors.  The terms of this Agreement shall be binding upon the
Pledgor, its heirs and personal representatives,  and shall inure to the benefit
of Creditor,  its corporate  successors and any holder, owner or assignee of any
rights in the Lease  Documents and will be enforceable by them as their interest
may appear.

         23. Third Parties.  Nothing herein  expressed or implied is intended or
shall be construed  to give any person other than the parties  hereto any rights
or remedies under this Agreement.

<PAGE>

         24. Saturdays, Sundays and Holidays. Where this Agreement authorizes or
requires a payment or performance on a Saturday,  Sunday or public holiday, such
payment  or  performance  shall  be  deemed  to be  timely  if made on the  next
succeeding business day.

         25.  Joint  Preparation.  This  Agreement  shall be deemed to have been
prepared  jointly by the  parties  hereto.  Any  ambiguity  herein  shall not be
interpreted  against any party hereto and shall be interpreted as if each of the
parties hereto had prepared this Agreement.

         26. Rules of  Construction.  In this  Agreement,  words in the singular
number include the plural, and in the plural include the singular;  words of the
masculine  gender  include the  feminine  and the neuter,  and when the sense so
indicates  words of the neuter  gender may refer to any gender and the word "or"
is disjunctive but not exclusive.  The captions and section numbers appearing in
this Agreement are inserted only as a matter of convenience. They do not define,
limit or describe the scope or intent of the provisions of this Agreement.

         27. Notices. All notices,  demands or requests required or permitted to
be given to either party hereto shall be in writing and shall be deemed given if
delivered  personally,  sent by reputable overnight courier, with acknowledgment
of receipt requested, or mailed by registered, overnight or certified mail, with
full postage paid thereon, return receipt requested (such notice to be effective
on the date such receipt is acknowledged), as follows:

                  Pledgor:
                  Diversicare Leasing Corp.
                  277 Mallory Station Road, Suite 130
                  Franklin, Tennessee 37067
                  Telephone No.: (615) 256-0500
                  Facsimile No.: (615) 771-7409

                  Creditor:
                  Sterling Acquisition Corp.
                  900 Victors Way, Suite 350
                  Ann Arbor, Michigan 48108
                  Attn:  Susan Allene Kovach, General Counsel
                  Telephone No.:  (734) 887-0200
                  Facsimile No.:   (734) 887-0201

or to such place and with such other copies as Pledgor or Creditor may designate
for itself by written notice to the other.

         28.  Counterparts.  This  Agreement  may be  executed  in any number of
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this  Agreement by signing and  delivering  one or more
counterparts.

<PAGE>

         29.  Choice  of Law;  Jurisdiction;  Venue.  This  Agreement  shall  be
construed,  and the rights and  obligations of the Pledgor and Creditor shall be
determined,  in accordance  with the laws of the State of Michigan,  except that
the laws of the state where the Pledged  Collateral is located shall govern this
Agreement  (a) to the extent  necessary  to  perfect  and/or  enforce  the liens
created by this  Agreement and to the extent  necessary to obtain the benefit of
the rights and remedies set forth herein with respect to the Pledged Collateral,
and (b) for  procedural  requirements  that must be  governed by the laws of the
state in which  the  Pledged  Collateral  is  located.  Pledgor  consents  to in
personam  jurisdiction before the state and Federal courts of the state in which
the Pledged  Collateral  is located and  Michigan  and agrees that all  disputes
concerning  this  Agreement be heard in the state and federal  courts located in
the state in which the collateral is located or in Michigan. Pledgor agrees that
service of process may be effected  upon it under any method  permissible  under
the laws of the  state in which the  collateral  is  located  or  Michigan,  and
Pledgor  irrevocably  waives  any  objection  to venue in the state and  Federal
courts of the state in which the collateral is located and Michigan.

         30. Waiver of Jury Trial.  The Pledgor hereby  voluntarily,  knowingly,
irrevocably and  unconditionally  waives and  relinquishes its Right to Trial by
Jury under the  Constitution  of the United States of America or of the State of
Michigan or any other  constitution,  statute or law in any civil legal  action,
suit or  proceeding  arising  out of or related to the  negotiation,  execution,
delivery,  performance,  breach or  enforcement  of this  Agreement or any other
agreement, document or instrument negotiated,  executed, delivered, entered into
or  performed  in  connection  with this  Agreement  or any of the  transactions
contemplated  hereby  or  thereby;  any  waiver,   modification,   amendment  or
termination  hereof or  thereof  or any  action  taken or  omission  made by the
Pledgor  or the  Creditor  or  any  of  their  respective  directors,  officers,
employees,  agents or attorneys  in  connection  with the payment,  performance,
exercise or  enforcement  of any right,  duty or  obligation  created or implied
hereby or thereby or arising hereunder or thereunder;  regardless of whether any
claim,  counterclaim  or  defense  in any such  action,  suit or  proceeding  is
characterized  as arising out of fraud,  negligence,  recklessness,  intentional
misconduct,  a breach of contract or fiduciary  duty, or violation of a statute,
law, ordinance, rule or regulation.

                            [signatures on next page]

<PAGE>

         IN WITNESS WHEREOF,  the parties have executed this Pledge Agreement as
of the date first above stated.

                                    PLEDGOR:

                                                     DIVERSICARE LEASING CORP.,
                                                     a Tennessee corporation
Address of
Place of Business:

277 Mallory Station Road, Suite 130         By:      __________________________
Fra                                         Its:     Senior Vice President

                                    CREDITOR:

                                                     Sterling Acquisition Corp.,
                                                     a Kentucky corporation

                                                     By:      __________________
                                                     Its:

STATE OF ______________ )
                        ) ss.
COUNTY OF ____________  )

The foregoing  instrument was  acknowledged  before me this ___ day of November,
2000 by James F. Mills,  Jr. who is the Senior  Vice  President  of  DIVERSICARE
LEASING CORP., a Tennessee corporation, on behalf of the corporation.

                                          --------------------------------------
                                          Notary Public,
                                           __________ County,
                                          My commission expires:

<PAGE>

STATE OF ___________       )
                           ) ss.
COUNTY OF ____________     )

         The foregoing  instrument  was  acknowledged  before me this ___ day of
November,  2000 by  Susan  A.  Kovach,  who is the Vice  President  of  STERLING
ACQUISITION CORP, a Kentucky corporation, on behalf of the corporation.

                                         --------------------------------------
                                         Notary Public,
                                         __________ County,
                                         My commission expires:

<PAGE>

                                    EXHIBIT A

                               ASSIGNMENT IN BLANK

                            DIVERSICARE LEASING CORP.

         For value received,  DIVERSICARE LEASING CORP., a Tennessee corporation
("Assignor"),        sells,        assigns        and        transfers        to
_____________________________________      ("Assignee"),     ___________________
(__________)   shares  of  common  stock  in   ____________________________,   a
_______________  corporation (the "Company"),  represented by Stock  Certificate
Number __ in the amount of _________ shares dated ______________ (the "Shares"),
and further irrevocably  appoints AMSOUTH BANK,  successor in interest by merger
to First  American  National Bank, as attorney in fact to transfer the Shares on
the books of the Company,  with full power of  substitution  and  resubstitution
(which power shall survive the dissolution of Assignor).

                                                     DIVERSICARE LEASING CORP.

Dated: November ___, 2000                   By:      ___________________________
                                            Its:

                                                     Signature Guaranteed:

                                            By:      ___________________________

<PAGE>

                                   SCHEDULE 1

                     FORM OF SCHEDULE TO FINANCING STATEMENT

Debtor:           DIVERSICARE LEASING CORP., a Tennessee corporation

Secured Party:    STERLING ACQUISITION CORP., a Kentucky corporation

                            Description of Collateral

                  The personal property of Debtor described below,  which it now
owns or shall hereafter  acquire or create,  immediately upon the acquisition or
creation thereof and wherever located, consisting of the following:

         (a)      all Debtor's right, title and interest in Sterling Health Care
                  Management, Inc., a Kentucky corporation ("Pledge Company");

         (b)      any  equity  securities  issued  by  Pledge  Company  and  any
                  options, warrants or rights to acquire such securities,  owned
                  or acquired by Debtor,  directly or indirectly,  now or at any
                  time in the future;

         (c)      any  securities or other  property  issued or  distributed  to
                  Debtor with respect to any securities described in clauses (a)
                  or (b) above as a dividend or  distribution  or as a result of
                  any amendment of the  certificate  of  incorporation  or other
                  charter  documents,  merger,   consolidation,   redesignation,
                  reclassification,  purchase or sale of assets, dissolution, or
                  plan  of  arrangement,  compromise  or  reorganization  of the
                  issuer thereof;

         (d)      any  rights   incidental  to  the  ownership  of  any  of  the
                  securities  described in clauses (a), (b) or (c) above such as
                  voting,  conversion  and  registration  rights  and  rights of
                  recovery for violations of applicable securities laws; and

         (e)      the proceeds of the exercise,  redemption, sale or exchange of
                  any of the  foregoing  or any  dividend,  interest  payment or
                  other distribution of cash or property in respect thereof.

                                    Notary Public, __________ County,
                                    My Commission Expires: _____________

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