8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)
October 24, 2006 (October 20, 2006)

ADVOCAT INC.

(Exact name of registrant as specified in its charter)

Delaware	001-12996	62-1559667
(State or other jurisdiction of incorporation)	(Commission File Number)	(Employer Identification Number)

1621 Galleria Boulevard Brentwood, TN 37027-2926
(Address of principal executive offices)

(615) 771-7575
(Registrant’s telephone number, including area code)

Not applicable
(Former name or former address, if changed since last report)

     Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

     o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

     o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

     o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

     o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 1.01. Entry into a Material Definitive Agreement.
	Item 3.02. Unregistered Sales of Equity Securities.
	Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
	Item 9.01. Financial Statements and Exhibits.
SIGNATURES
EXHIBIT INDEX
EX-10.1 RESTRUCTURING STOCK ISSUANCE AND SUBSCRIPTION AGREEMENT
EX-10.2 THIRD AMENDMENT TO CONSOLIDATED AMENDED AND RESTATED MASTER LEASE
EX-10.3 SUBORDINATED PROMISSORY NOTE
EX-99.1 PRESS RELEASE DATED OCTOBER 24,2006.

Item 1.01. Entry into a Material Definitive Agreement.

On October 20, 2006 Advocat Inc. (the “Company”) entered into a Restructuring Stock Issuance and Subscription Agreement (“ Restructuring Agreement”) and a Third Amendment to Consolidated Amended and Restated Master Lease with Omega Healthcare Investors, Inc. (the “Lease Amendment”). The Restructuring Agreement provided for the Company’s outstanding Series B Preferred Stock, currently held by Omega, to be exchanged for a newly created Series C Preferred Stock.

The Lease Amendment provides for the term of the lease to be extended until September 30, 2018, with an extension right for an additional 12 year term. As described in Item 3.02 below, the Lease Amendment also provides for an increased annual rent payment of approximately $687,000 per year, as a result of restructuring the preferred stock. Other than the foregoing change in rent, there is no change in the base rental amounts as a result of the Lease Amendment. The base rent is still subject to annual escalations equal to the lesser of 2 times CPI or 3.0%. In addition, Omega agreed to provide up to $5 million to fund capital improvements made to certain nursing centers by June 30, 2008. The annual base rent related to these nursing centers will be increased to reflect the amount of capital improvements made to the facilities. The Company is currently reviewing its portfolio of nursing centers to select the centers for renovation.

In connection with the Restructuring Agreement, the Company also replaced a Subordinated Promissory Note which was convertible at the Company’s option with a new Subordinated Note, which is not convertible. The new Subordinated Note is in the principal amount of $2,533,614.53, bears interest at 7% and matures on September 30, 2007. Except for eliminating the conversion feature, the terms of the new Subordinated Note are the same as the original Convertible Subordinated Note.

A press release regarding these transactions is attached as an exhibit hereto.

Item 3.02. Unregistered Sales of Equity Securities.

In connection with the Restructuring Agreement, on October 20, 2006 the Company issued to Omega 5,000 shares of Series C Preferred Stock in exchange for the 393,658 shares of Series B Preferred Stock held by Omega. The new Series C Preferred Stock has a stated value of approximately $4.9 million and carries an annual dividend rate of 7% of its stated value (similar to the terms of the Series B Preferred Stock). The Series C Preferred Stock will pay quarterly cash dividends. The Series C Preferred Stock is not convertible, but is redeemable at its stated value at Omega’s option after September 30, 2010, and is redeemable at its stated value at Advocat’s option, subject to certain limitations.

The following is a summary of the differences between the Series B Preferred Stock and the new Series C Preferred Stock:

• The initial stated value of the Series B Preferred Stock was $3.3 million, however the Company has not paid any dividends (other than the dividend for the quarter ended September 30, 2006). As a result, the redemption price of the Series B Preferred Stock was $4.9 million. The stated value of the Series C preferred Stock is $4.9 million.

• The Series B Preferred Stock accrued dividends at a rate of 7% per annum on its stated value. The Series C Preferred Stock accrues dividends at a rate of 7% per annum on its stated value.

• The Series B Preferred Stock was convertible into shares of the Company’s common stock at a rate of 1.7949 shares of Common Stock per share of Series B Preferred Stock. As a result, the 393,658 outstanding shares of Series B Preferred Stock was convertible into 706,577 shares of common stock. In addition, the accrued but unpaid dividends were also convertible into common stock at the current market price. The Series C Preferred Stock is not convertible.

• The Series B Preferred Stock was redeemable at its stated value plus all accrued and unpaid dividends at any time on or after September 30, 2007, at Omega’s election. The Series C Preferred Stock is redeemable at its stated value plus all accrued and unpaid dividends at Omega’s option at any time on or after September 30, 2010 and at the Company’s option upon 90 days notice, at any time after September 30, 2007, subject to certain restrictions as a result of Omega’s REIT status.

The Company and Omega agreed that the value of the conversion feature was $6.7 million calculated as follows:

Number of shares		792,382
Average daily trading price		x $18.87
As converted value	$	14,952,000
Effective discount negotiated		x22.3	%
Resulting value of the transaction	$	11,619,000
Less: Face amount of Series C Preferred	$	4,918,000
Value of conversion feature	$	6,701,000

The parties then agreed to an effective capital rate of 10.25% over the new term of the Lease Amendment, which resulted in the increase rent payments of $687,000 per year.

The accounting of the forgoing transactions is as follows. Advocat is compensating Omega for the elimination of the conversion feature by paying additional amounts annually ($687,000 beginning January 1, 2007). The form of these additional payments is “rent expense,” however, under generally accepted accounting principles (“GAAP”), this “rent expense” is not reflected as rent expense in the financial statements. The credit in the original journal entry is to an account called “premium on preferred stock.” Effectively, the Series C Preferred Stock is being recorded at the stated value of the Series B Preferred Stock ($4.9 million) plus the negotiated value of the conversion feature ($6.7 million) for a total value of $11.6 million. As of the date of the transaction, total shareholders’ capital (i.e. common equity plus preferred stock) is unchanged; the debit to “paid in capital” is offset by the credit to “premium on preferred stock.” Going forward, the premium on preferred stock will be reduced by the amount of the additional rental payments made to Omega. The final aspect of accounting for the elimination of the conversion feature is that the future payment stream to Omega must be discounted at the implicit rate and therefore a small amount of interest expense will be recognized over the twelve year term of the lease.

Finally, Advocat needs to account for the effect of the lease renewal. The renegotiated lease is equivalent to starting a new lease, and GAAP requires the Company to measure the effects of future scheduled rent increases. Under GAAP, the total rental payments are summed and

recorded on a straight-line basis over the twelve year term of the lease. The extension of the lease term requires additional periods of scheduled rent increases be included in the calculation. As a result, the Company will report an increase to rent expense of $2.7 million annually. These increases are essentially a non-cash adjustment at the start of the lease term. They will only result in additional cash outlay as the 3 percent annual increases take effect each year.

Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

In connection with the Restructuring Agreement, on October 20, 2006, the Company filed a Certificate of Designation with the Secretary of State of Delaware, which contained the relative rights and preferences of the newly issued Series C Preferred Stock as summarized above.

Item 9.01. Financial Statements and Exhibits.

          (c) Exhibits

Number		Exhibit
	10.1	Restructuring Stock Issuance and Subscription Agreement dated as of October 20, 2006 between Advocat Inc. and Omega Healthcare Investors, Inc.
	10.2	Third Amendment to Consolidated Amended and Restated Master Lease executed as of October 20, 2006, to be effective as of October 1, 2006 by and between Sterling Acquisition Corp. and Diversicare Leasing Corporation.
	10.3	Subordinated Promissory Note in the amount of $2,533,614.53 issued to Omega HealthCare Investors Inc. dated as of October 1, 2006.
	99.1	Press release dated October 24, 2006

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

ADVOCAT INC.
By:	/s/ L. Glynn Riddle, Jr.
	L. Glynn Riddle, Jr.
	Chief Financial Officer

Date: October 24, 2006

EXHIBIT INDEX

Number		Exhibit
	10.1	Restructuring Stock Issuance and Subscription Agreement dated as of October 20, 2006 between Advocat Inc. and Omega Healthcare Investors, Inc.
	10.2	Third Amendment to Consolidated Amended and Restated Master Lease executed as of October 20, 2006, to be effective as of October 1, 2006 by and between Sterling Acquisition Corp. and Diversicare Leasing Corporation.
	10.3	Subordinated Promissory Note in the amount of $2,533,614.53 issued to Omega HealthCare Investors Inc. dated as of October 1, 2006
	99.1	Press Release dated October 24, 2006.

EX-10.1

Exhibit 10.1

RESTRUCTURING STOCK ISSUANCE AND SUBSCRIPTION AGREEMENT

     This Restructuring Stock Issuance and Subscription Agreement (“Agreement”) is entered into this 20th day of October, 2006 between Advocat Inc., a Delaware corporation (“Advocat”), and Omega Healthcare Investors, Inc., a Maryland corporation (“Omega”).

RECITALS

     A. Advocat and Omega and certain of their affiliates have entered into that certain Settlement and Restructuring Agreement dated November 8, 2000 (the “2000 Agreement”) pursuant to which Advocat and Omega have agreed to restructure their relationship.

     B. Pursuant to the 2000 Agreement, on November 8, 2000, Advocat issued to Omega 393,658 shares of Series B Preferred Stock (the “Series B Preferred Stock”) and delivered to Omega its Subordinated Note in the face amount of $1,700,000 (the “2000 Note”).

     C. Also pursuant to the 2000 Agreement, STERLING ACQUISITION CORP., a Kentucky corporation (“Lessor”), which is a wholly owned subsidiary of Omega, and DIVERSICARE LEASING CORPORATION, a Tennessee corporation (“Lessee”), which is a wholly owned subsidiary of Advocat, entered into that certain Consolidated Amended and Restated Master Lease dated as of November 8, 2000, but effective as of October 1, 2000, which has subsequently been amended by a First Amendment to Consolidated Amended and Restated Master Lease dated as of September 30, 2001 and a Second Amendment to Consolidated Amended and Restated Master Lease dated as of June 15, 2005 (as amended, the “Master Lease”).

     E. The parties desire to further restructure their relationship, including (i) the surrender for cancellation by Omega of the Series B Preferred Stock and the 2000 Note, (ii) the issuance to Omega by Advocat of shares of new Series C Preferred Stock Stock having the powers, preferences and rights as provided in the Certificate of Designation of Advocat (“Designation”) as attached hereto as Exhibit A, (iii) the delivery to Omega by Advocat of a new subordinated promissory note substantially in the form attached as Exhibit B (the “New Note”), and (iv) the amendment of the Master Lease by Lessor and Lessee to increase the rent payable under, and extend the term of, the Master Lease, all as set forth in this Agreement.

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Advocat and Omega agree as follows:

     1. Restructuring Transactions.

     1.1 Surrender of Series B Preferred Stock. Omega hereby surrenders to Advocat for cancellation the Series B Preferred Stock. On or before the date of this Agreement, Advocat shall pay accrued and unpaid dividends for the period of July 1, 2006 thru September 30, 2006. Except as set forth in the preceding sentence, upon the surrender of the Series B Preferred Stock, Omega releases Advocat from any obligation

to pay any accrued but unpaid dividends with respect to the Series B Preferred Stock. Advocat shall promptly cancel the Series B Preferred Stock.

     1.2 Cancellation of 2000 Note. Omega hereby surrenders to Advocat for cancellation the 2000 Note. On or before the date of this Agreement, Advocat shall pay accrued and unpaid interest on the 2000 Note for the period of July 1, 2006 thru September 30, 2006. Except as set forth in the preceding sentence, Omega hereby releases Advocat from any obligation to pay any outstanding Principal or accrued interest with respect to the 2000 Note.

     1.3 Issuance of New Shares. Advocat hereby issues to Omega and Omega accepts from Advocat, subject to the terms and conditions hereof, five thousand (5,000) shares of Advocat Series C Preferred Stock (the “New Shares”). Advocat shall deliver to Omega concurrently with the execution and delivery of this Agreement a stock certificate evidencing its ownership of the New 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.

     1.4 Delivery of New Note. Advocat hereby delivers to Omega the New Note.

     1.5 Amendment of Master Lease. Omega hereby agrees to cause Lessor, and Advocat hereby agrees to cause Lessee, to deliver concurrently with the execution of this Agreement the Third Amendment to Consolidated Amended and Restated Master Lease substantially in the form of Exhibit C to this Agreement.

     2. Termination of Registration Rights Agreement. Omega and Advocat hereby terminate the Registration Rights Agreement dated as of November 8, 2000.

     3. Representations and Warranties of Advocat. Advocat hereby represents and warrants to Omega as of the date of this Agreement 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.

     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

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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 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 New Shares pursuant to this 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 New Shares, such New 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 Amended and Restated Rights Agreement dated as of December 7, 1998 by and between Advocat and SunTrust Bank, 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;

     (c) result in the creation of any Lien (as defined in Section 10.7 below) upon, or any Person (as defined in Section 10.7 below) obtaining the right to acquire, any of the New 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 10.7 below), to which Advocat or any of its assets is subject;

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     (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, other than Consents obtained by Advocat.

     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 shares have been designated Series A Junior Participating Preferred Stock of which none are issued and outstanding, 600,000 shares have been designated Series B Convertible Preferred Stock, 393,658 shares of which were held prior to the date of this Agreement by Omega, and five thousand (5,000) shares have been designated Series C Preferred Stock of which none are issued and outstanding immediately prior to the issuance of the New 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) 5,835,287 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) Five thousand (5,000) shares of Series C Preferred Stock, duly issued and outstanding and owned of record and beneficially by Omega;

     (d) 405,500 shares of Common Stock reserved for issuance upon the exercise of outstanding options; and

     (e) 368,100 shares of Common Stock reserved for issuance pursuant to the Advocat Inc. 2005 Long-Term Incentive Plan.

There are no declared but unpaid dividends or undeclared dividend arrearages on any shares of capital stock of Advocat other than undeclared dividend arrearages with respect to the Series B Preferred Stock, which obligation shall terminate upon the surrender of the Series B Preferred Stock. Except for the Series B Preferred Stock which is cancelled pursuant to this Agreement and the securities for which shares of Common Stock have been reserved under (d) and (e) above, there are no outstanding convertible securities of Advocat.

     4. Representations and Warranties of Omega. Omega hereby represents and warrants to Advocat as follows:

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     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 New 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 New 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 New Shares have not been registered under the Securities Act or any state securities law or any other applicable securities legislation, that the New Shares must be held indefinitely unless they are subsequently registered or an exemption from such registration is available and that Advocat is under no obligation to register the New 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 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 New 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, and in the documents and agreements which evidence or secure the transactions contemplated by the Transaction Documents (as defined in Section 10.7 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.

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     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 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 New Shares, 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 by independent public accountants selected by Advocat and reasonably acceptable to Omega; and

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     (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 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 New Shares pursuant to Section 11 of the Designation.

     8. AmSouth Consent. Omega hereby acknowledges the AmSouth Consent, a copy of which is attached hereto, and hereby agrees that Omega will not deem it to be an Event of Default (as defined in Section 10.7 below) if Advocat does not pay dividends on the Series C Preferred Stock because Advocat is prohibited from paying such dividends as provided in the AmSouth Consent; provided such failure to pay dividends does not continue for more than two consecutive quarters.

     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 New Shares, and if Omega’s attorneys or accountants recommend a restructuring of the relationship between Omega and Advocat as set forth in this 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.

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     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 New 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 New Shares may assign the rights granted pursuant to Sections 5 and 6 of this Agreement to any subsequent holder of the New Shares.

     10.3 This Agreement and the documents which evidence or secure the transactions contemplated by this 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 Notices. Any notice, request or other communication to be given by any party hereunder shall be in writing and shall be sent by registered or certified mail, postage prepaid, by overnight delivery with a commercial overnight carrier, with written verification of receipt or by hand delivery or facsimile transmission to the following address:

To Advocat:	Advocat, Inc.
	1621 Galleria Boulevard
	Brentwood, TN 37027
	Attn: Chief Financial Officer
	Telephone No.: (615) 771-7575
	Facsimile No.: (615) 771-7409
With copy to	Harwell Howard Hyne Gabbert & Manner, P.C.
(which shall not	315 Deaderick Street, Suite 1800
constitute notice):	Nashville, TN 37238
	Attn: John N. Popham, IV
	Telephone No.: (615) 256-0500
	Facsimile No.: (615) 251-1057
To Omega:	Omega Healthcare Investors, Inc.
	9690 Deereco Road, Suite 100
	Timonium, MD 21093

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	Attn.: Daniel J. Booth
	Telephone No.: (410) 427-1700
	Facsimile No.: (410) 427-8800
And with copy to	Doran Derwent, PLLC
(which shall not	125 Ottawa Ave., N.W., Suite 420
constitute notice):	Grand Rapids, Michigan 49503
	Attn: Mark E. Derwent
	Telephone No.: (616) 233-9720
	Facsimile No.: (616) 451-8697

or to such other address as either party may hereafter designate. Notice shall be deemed to have been given on the date of delivery if such delivery is made on a business day, or if not, on the first business day after delivery. If delivery is refused, notice shall be deemed to have been given on the date delivery was first attempted. Notice sent by facsimile transmission shall be deemed given upon confirmation that such notice was received at the number specified above or in a notice to the sender.

     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 in any material respect, Omega is materially and adversely affected thereby, and Advocat fails within thirty (30) days after Notice from Omega thereof to cure such condition by terminating such adverse effect and making Omega whole for any damages suffered therefrom, or, if with due diligence such cure cannot be effected within thirty (30) days, if Advocat has failed to commence to cure the same within the thirty (30) days or failed thereafter to proceed promptly and with due diligence to cure such condition and complete such cure, (iii) an Event of Default under any of the Transaction Documents which is not cured within the applicable cure period, (iv) if Advocat fails to observe or perform any term, covenant or condition of the New Shares other than the payment of a dividend as provided in the following item and such failure is not cured within a period of thirty (30) days after notice thereof from Omega; and (v) if Advocat fails to pay when due any dividend on the New Shares and such failure is not cured within a period of five (5) days after notice thereof from Omega provided that Advocat shall be entitled to such notice and may avail itself of such cure period no more than two (2) times in any calendar year.

     “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.

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     “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.

     “Transaction Documents” means this Agreement, the Master Lease, the New Note, the New Shares, all documents which evidence or secure the transactions contemplated by this Agreement, the Master Lease, the New Note, the New Shares 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.

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     In witness whereof the parties have executed this Restructuring Stock Issuance and Subscription Agreement as of the date first set forth above.

ADVOCAT INC.
By:	/s/ William R. Council, III
Name:	William R. Council, III
Title:	President and CEO
OMEGA HEALTHCARE INVESTORS, INC.
By:	/s/ Taylor Picket
Name:	Taylor Picket
Title:	Chief Executive Officer

Exhibits and Schedules:

Exhibit A	Designation
Exhibit B	New Note
Exhibit C	Third Amendment to Consolidated Amended and Restated Master Lease

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EX-10.2

Exhibit 10.2

THIRD AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

     This Third Amendment to Consolidated Amended and Restated Master Lease (this “Amendment”) is executed and delivered as of this 20^th day of October, 2006, to be effective as of October 1, 2006 (the “Effective Date”) by and between STERLING ACQUISITION CORP., a Kentucky corporation (“Lessor”), the address of which is 9690 Deereco Road, Suite 100, Timonium, MD 21093, and DIVERSICARE LEASING CORP., a Tennessee corporation, the address of which is 1621 Galleria Boulevard, Brentwood, TN 37027.

RECITALS:

     A. Lessee has executed and delivered to Lessor a Consolidated Amended and Restated Master Lease dated as of November 8, 2000, but effective as of October 1, 2000, as amended by a First Amendment to Consolidated Amended and Restated Master Lease dated as of September 30, 2001, and a Second Amendment to Consolidated Amended and Restated Master Lease dated as of June 15, 2005 (the “Existing Master Lease”) pursuant to which Lessee leased from Lessor certain healthcare facilities.

     B. Pursuant to that certain Restructuring, Stock Issuance and Subscription Agreement dated as of the date of this Amendment among Advocat Inc., a Delaware corporation (“Advocat”), Omega Healthcare Investors, Inc. (“Omega”), a Maryland corporation, Lessor, and Lessee, Lessor and Lessee have agreed, among other things, to (i) have the Initial Term expire as of September 30, 2006, (ii) exercise the first twelve year Renewal Term, (iii) add a second twelve year Renewal Term, and (iv) increase the Base Rent payable under the Existing Master Lease, all as set forth in this Amendment.

     NOW THEREFORE, the parties agree as follows:

     1. Definitions. Any capitalized term used but not defined in this Amendment will have the meaning assigned to such term in the Existing Master Lease. From and after the date of this Amendment, each reference in the Existing Master Leases or the other Transaction Documents to the “Lease” or “Master Lease” means, as applicable, the Existing Master Lease or Existing Master Leases as modified by this Amendment.

     2. Term. Section 1.2 of the Existing Master Lease is hereby amended and restated as follows:

     1.2 Term. The initial term of this Lease (“Initial Term”) shall be six (6) Lease Years. The Initial Term shall commence on the Commencement Date and end on the Initial Term Expiration Date, subject to renewal as set forth in Section 1.3, below.

     3. Renewal Options. Section 1.3 of the Existing Master Lease is hereby amended and restated as follows:

     1.3 Options to Renew. Lessee is hereby granted two (2) options to renew this Lease for an additional, successive period of twelve (12) Lease Years, for a maximum Term if such options are exercised of thirty (30) Lease Years, on the following terms and conditions: (a) the second option to renew is exercisable only by Notice to Lessor at least three hundred sixty-five (365) days prior to the expiration of the first Renewal Term; (b) the absence of any Event of Default both at the time a renewal option is exercised and at the commencement of a Renewal Term is a condition precedent to any renewal of the Term; and (c) during a Renewal Term, all of the terms and conditions of this Lease shall remain in full force and effect.

     4. Exercise of First Renewal Option. Lessor and Lessee hereby agree that the first Renewal Option has been exercised and the first Renewal Term has commenced as of the Effective Date.

     5. Tenant Improvement Allowance.

          (a) Pursuant to the Existing Master Lease, Lessor agreed to make available to Lessee the Improvement Allowance. As of the Effective Date, Lessor has advanced $3,854,180.35 of the Improvement Allowance, leaving a balance of $1,145,819.65 which may be funded. Lessee acknowledges and agrees that, as of the Effective Date, the Improvement Allowance Adjustment Amount (which is an annual amount) is $395,053.49.

          (b) In connection with this Amendment, Lessor has agreed to make available to Lessee an additional improvement allowance equal to $5,000,000.00 to be used for certain capital improvements to the Facilities. Such additional improvement allowance shall be used only for completion of capital improvements to the Facilities which shall be approved and constructed in accordance with the terms and provisions of Paragraph 2 of the Second Amendment to Consolidated and Restated Master Lease dated as of June 25, 2005 (the “Second Amendment”). The term “Capital Improvements” as and where used in Paragraph 2 of the Second Amendment shall be deemed to include such capital improvements. The additional $5,000,000.00 improvement allowance shall be requested and disbursed in accordance with the provisions of Paragraph 3 of the Second Amendment. The term “Improvement Allowance”, as and where used in Paragraph 3 of the Second Amendment, shall be deemed to include and refer to the additional $5,000,000.00 improvement allowance, except that such additional improvement allowance shall be available for Capital Improvements completed on or before June 30, 2008 and the final request for disbursement shall be no later than August 31, 2008. The Base Rent payable under the Existing Master Lease shall be increased by the Improvement Allowance Adjustment Amount for each disbursement of such additional $5,000,000.00 improvement allowance as provided in Paragraph 4 of the Second Amendment. In the event Lessor fails to pay Lessee any installment request for the additional improvement allowance as provided in Paragraph 3 of the Second Amendment, Lessee shall have the rights and remedies provided in Paragraph 4 of the Second Amendment and the provisions of Paragraph 4 of the Second Amendment shall apply to Lessee’s exercise of such rights and remedies.

     6. Settlement and Restructuring Agreement. Lessor and Omega (which joins in this Amendment for the sole purpose of agreeing to the provisions of this Section 6) hereby acknowledge and agree that the obligations of Lessee and its Affiliates, Advocat, SHCM, AFI

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and DMSC (as defined in the Settlement and Restructuring Agreement) to comply with Paragraph 4.F (creation of New Sub), Paragraphs 4.G and 4.H (New Cash Management System) and Paragraph 14.B (Deferred Compensation) of the Settlement and Restructuring Agreement are hereby waived and released by Lessor and Omega. Except for the obligations waived and released in the preceding sentence, neither Lessor or Omega, nor Lessee, Advocat, SHCM, AFI or DMSC, are aware of any default, or nay circumstances which with the giving of notice or passage of time (or both) would constitute a default, on the part of Lessee, Advocat, SHCM, AFI, or DMSC in the performance of any of their respective obligations under the Settlement and Restructuring Agreement as of the date of this Amendment. Notwithstanding the foregoing, Lessor and Omega acknowledge and agree that, from and after the Effective Date, Lessee shall have the right, but shall not be obligated, to create the NewSub as contemplated by Paragraph 4.F. of the Settlement and Restructuring Agreement and, subject to the requirements of Paragraph 4.F., make the transfer of the Facilities provided for therein.

     7. Definitions.

          (a) The following definitions set forth in Section 2.1 of the Existing Master Lease are hereby amended and restated as follows:

     Advocat: Advocat, Inc., a Delaware corporation, and its successors by merger, consolidation, reorganization or other business combination.

     Approval Threshold: Two Hundred Thousand Dollars ($200,000.00).

     Base Amount: means (i) during the first three months of the first Renewal Term (October 1, 2006 thru December 31, 2006), the annual sum of Twelve Million Nine Hundred Forty Three Thousand Three Hundred Fifty and 96/100 Dollars ($12,943,350.96), and (ii) on and after January 1, 2007, the annual sum of Thirteen Million Six Hundred Thirty Thousand One Hundred Fifty Six Dollars and 18/100 ($13,630,156.18).

     Base Rent:

     (A) During the Initial Term, the Base Rent shall be:

(1) For the first Initial Term (being the period of October 1, 2000 thru September 30, 2006), the amount set forth for such period in the Existing Master Lease;

(2) For the first (1^st) Lease Year of the first Renewal Term (October 1, 2006 thru September 30, 2007), the Base Amount plus the Improvement Allowance Adjustment Amount (as adjusted during such Lease Year);

(3) For each of the second (2^nd) through twelfth (12^th) Lease Years of the first Renewal Term, the lesser of (i) the Base Amount as of the end of first (1st) Lease Year of the Renewal Term plus Improvement Allowance Adjustment Amount, increased by a percentage equal to two (2) times the percentage increase in the CPI (if positive) from the commencement date

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of the first Renewal Term to the Adjustment Date in each of the second (2nd) through twelfth (12^th) Lease Years, as applicable (the “Adjustment Date”), and (ii) the product of the Base Amount as of the end of the first Lease Year plus the Improvement Allowance Adjustment Amount and the following factor:

Lease Year During
First Renewal Term	Applicable Factor
2		1.030
3		1.061
4		1.093
5		1.126
6		1.159
7		1.194
8		1.230
9		1.267
10		1.305
11		1.344
12		1.384

     Under no circumstances will the Base Rent in any Lease Year be less than the Base Rent during the preceding Lease Year.

     (B) During the second Renewal Term, the Base Rent shall be:

     (1) For the first Lease Year of the second Renewal Term, the greater of (a) the Base Rent during the last Lease Year of the Initial Term and (b) the Fair Market Rent for the Leased Properties on the first day of such Renewal Term as agreed upon by Lessor and Lessee, or, if prior to the commencement of the Renewal Term they are unable to agree, as determined by an appraisal pursuant to Article XXXII of this Lease; provided, however, that the Base Rent for the first Lease Year of the second Renewal Term shall not exceed one hundred ten percent (110%) of the Base Rent for the Lease Year immediately preceding the commencement of the second Renewal Term; and

     (2) For each of the second (2^nd) through the twelfth (12^th) Lease Years during the second Renewal Term, the lesser of (i) the Base Rent for the first (1st) Lease Year of the second Renewal Term, increased by a percentage equal to two (2) times the percentage increase in the CPI (if positive) from the commencement date of the second Renewal Term to the Adjustment Date in each of the second (2^nd) through twelfth (12^th) Lease Years, as applicable (the “Adjustment Date”), and (ii) the product of the Base Rent during the first (1^st) Lease Year of the second Renewal Term and the following factor:

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Lease Year During
Second Renewal Term	Applicable Factor
2		1.030
3		1.061
4		1.093
5		1.126
6		1.159
7		1.194
8		1.230
9		1.267
10		1.305
11		1.344
12		1.384

     Under no circumstances will the Base Rent in any Lease Year during the Renewal Term be less than the Base Rent during the preceding Lease Year.

     Current Ratio: At any period, the Facilities Current Assets divided by the Facilities Current Liabilities.

     Debt Service: With respect to any fiscal period of the Facilities, the sum of (a) all interest due on Debt during the period (other than interest imputed, pursuant to GAAP, on any Capitalized Lease Obligations and interest on Debt that comprises Purchase Money Financing), (b) all payments of principal of Debt required to be made during the period and (c) all Rent due during the period.

     Distribution: Any payment or distribution of cash or any assets of the Facilities to one or more shareholders of Lessee or to any Affiliate of Lessee, whether in the form of a dividend, a fee for management in excess of the fee required by the terms of a Management Agreement, a payment for services rendered (except as provided in the next sentence), a reimbursement for overhead incurred on behalf of the Facilities, or a payment on any debt required by this Lease to be subordinated to the rights of Lessee. Notwithstanding the foregoing, none of the following are a Distribution: (i) payment of the fee permitted by the terms of the Management Agreement, (ii) any payment pursuant to a contract with an Affiliate of Lessee or Sublessee which contract is upon terms and conditions that are fair and substantially similar to those that would be available on an arm’s length basis, (iii) reimbursement by Lessee or Sublessee to an Affiliate for third party expenses (but not overhead) paid by the Affiliate on behalf of or which are fairly allocable to the Facilities, and (iv) so long as (1) Advocat and Lessee maintain financial records which will make it possible to identify (x) funds deposited into such account from the Facilities and (y) expenses of the Facilities paid with funds in such account and (2) no Event of Default under subsections (a), (b), (c), (d), (k), (o) or (p) of the definition of Event of Default has occurred and is continuing, deposit of Lessee’s or Sublesser’s funds

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into a concentration account maintained by Advocat to be used in accordance with existing practices.

     EBITDARM: For any period, the sum of (a) Net Income of Lessee arising solely from the operation of the Facilities during the period, and (b) the amounts deducted in computing the Net Income of the Lessee for the period for (i) the provision for self-insured, professional and general liability, (ii) depreciation, (iii) amortization, (iv) Base Rent, (v) interest (including any payments in the nature of interest under Capitalized Leases and interest on any Purchase Money Financing), (vi) income taxes (or, if greater, income taxes actually paid during the period) and (vii) management fees, less (c) the Cash Cost of Self-Insured Professional and General Liability. The Cash Cost of Self-Insured Professional and General Liability shall mean: For any period, the total cash expenditure associated with professional and general liability related settlements, legal fees, or administration for all facilities owned and/or operated by Lessee and Affiliates divided by the total number of licensed beds for all facilities owned and/or operated by Lessee and Affiliates, then multiplied by the number of licensed beds for the Facilities that are part of the Leased Properties subject to this Lease.

     Expiration Date: The Initial Term Expiration Date, the First Renewal Term Expiration Date or the Second Renewal Term Expiration Date, as applicable.

     Facilities Current Assets: At any date, all assets of the Facilities that, on a consolidated basis in conformity with GAAP, should be carried as current assets on the balance sheet of Lessee (which includes Sublessee) at such date.

     Facilities Current Liabilities: At any date, all liabilities of the Facilities that, on a consolidated basis in conformity with GAAP, should be carried as current liabilities on the balance sheet of Lessee (which includes Sublessee) at such date.

     First Renewal Term Expiration Date: September 30, 2018.

     Initial Term Expiration Date: September 30, 2006

     Second Renewal Term Expiration Date: September 30, 2030.

     Security Deposit: means (i) the Three Hundred Forty Thousand Three Hundred Four and 35/100 Dollars ($340,304.35), delivered and held in accordance with Article XXXIX hereof plus accrued interest, (ii) any Increase (as defined in Section 39.2), and (iii) the A/R Replacement Security Deposit (as defined below).

     Stock Issuance and Subscription Agreement: The Restructuring Stock Issuance and Subscription Agreement of even date with this Amendment by and between Advocat, Omega, Lessor and Lessee.

     Subordinated Note: The Subordinated Note of even date herewith from Advocat to Omega in the original principal amount of Two Million Five Hundred Thirty-Three Thousand Six Hundred Fourteen and 53/100 Dollars ($2,533,614.53).

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     Transfer: The (a) assignment, mortgaging or other encumbering of all or any part of Lessee’s interest in this Lease or in the Leased Properties, or (b) subletting of the whole or any part of any Leased Property, or (c) entering into of any Management Agreement or other arrangement under which any Facility is operated by or licensed to be operated by an entity other than Lessee, or (d) merger, consolidation or reorganization of a corporate Lessee or Manager (except, for Manager only, to an Affiliate), or the sale, issuance, or transfer, cumulatively or in one transaction, of any voting stock of Lessee or Manager (except, for Manager only, to an Affiliate) by Persons who are stockholders of record of Lessee, which results in a change of Control of Lessee or Manager (except, for Manager only, to an Affiliate), or (e) sale, issuance or transfer, cumulatively or in one transaction, of any interest, or the termination of any interest, in Lessee or Manager (except, for Manager only, to an Affiliate), if Lessee or such Manager, is a joint venture, partnership, limited liability company or other association, which results in a change of Control of such joint venture, partnership or other association, or (d) sale, issuance or transfer, cumulatively or in one transaction, of any direct or indirect interest in Lessee if after such transaction(s), Lessee ceases to be Controlled, directly or indirectly, by Advocat, or (e) merger, consolidation, reorganization or other business combination involving Advocat in which Advocat is not the surviving entity unless the successor entity of Advocat executes and delivers to Lessor a Guaranty, in substantially the form of the Guaranty executed by Advocat, pursuant to which the successor entity guarantees to Lessor the payment and performance by Lessee of its obligations under this Lease.

          (b) The following subparagraphs of the definition of “Event of Default” set forth in Section 2.1 of the Existing Master Lease are hereby amended and restated as follows:

          (g) Any representation or warranty made by Lessee in the Stock Issuance and Subscription Agreement, or in the certificates delivered in connection therewith, proves to be untrue when made in any material respect, Lessor is materially and adversely affected thereby, and Lessee fails within thirty (30) days after Notice from Lessor thereof to cure such condition by terminating such adverse effect and making Lessor whole for any damage suffered therefrom, or, if with due diligence such cure cannot be effected within thirty (30) days, if Lessee has failed to commence to cure the same within the thirty (30) days or failed thereafter to proceed promptly and with due diligence to cure such condition and complete such cure prior to the time that such condition causes a default in any Facility Mortgage or any other lease to which Lessee is subject and prior to the time that the same results in civil or criminal penalties to Lessor, Lessee, any Affiliates or either or the Leased Properties;

*****

          (i) Subject to Section 33.2, Lessee defaults, or permits a default (which default was not exclusively in Lessor’s control) under any Facility Mortgage, related documents or obligations thereunder which default is not cured within any applicable cure period provided for therein;

*****

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          (m) Intentionally Deleted;

          (n) Intentionally Deleted;

*****

          (q) A default by Lessee occurs under any other contract affecting any Facility or Lessee, which default results in a material adverse affect on any Facility or Lessee, and which default is not cured within the applicable time period, if any; provided that such conditions shall not be an Event of Default if such conditions at any time are applicable to two (2) or fewer Facilities and Lessee is in good faith contesting such default and, if legal proceedings are commenced with respect to such default, will conduct such contest pursuant to the provisions of Section 12.1 as if such default constituted a “Claim” under such Section;

          (r) AmSouth Bank (or its successors and assigns) declares an event of default under the AmSouth Loan Documents, and accelerates any or all of the indebtedness evidenced and secured thereby, or commences any action against Lessee or Sublessee to realize on AmSouth’s interest in the accounts receivable from the Facilities under the AmSouth Loan Documents.

     8. Lessee’s Personal Property.

     (a) Section 6.3 of the Existing Master Lease is hereby amended and restated in its entirety as follows:

     6.3 Lessee’s Personal Property. Lessee shall provide and maintain during the Term such Personal Property, in addition to Lessor’s Personal Property, as shall be necessary and appropriate in order to operate the Facilities for the Primary Intended Use in compliance with all licensure and certification requirements, in compliance with all applicable Legal Requirements and Insurance Requirements and otherwise in accordance with customary practice in the industry for the Primary Intended Use (“Lessee’s Personal Property”). Except to the extent specifically allowed under Section 8.2.1.4, without the prior written consent of Lessor, which consent shall not be unreasonably withheld, Lessee shall not permit or suffer Lessee’s Personal Property to be subject to any lien, charge, encumbrance, financing statement or contract of sale or the like other than that provided for in Section 6.4 below. Except for those items of Personal Property listed on Schedule A which shall at all times belong to and may be removed by Lessee, upon the expiration of the Term or the earlier termination of this Lease, without the payment of any additional consideration by Lessor, Lessee shall be deemed to have sold, assigned, transferred and conveyed to Lessor all of Lessee’s right, title and interest in and to any of Lessee’s Personal Property. In connection with any Personal Property sold, assigned, transferred or conveyed to Lessor pursuant to the preceding sentence, Lessor shall assume any lease or equipment financing obligations of Lessee permitted under Section 8.2.1.4 hereof. Both parties agree that Lessor owned all of the Personal Property at the Facilities at the commencement of the Existing Leases.

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     (b) Section 34.1 of the Existing Master Lease is hereby amended and restated in its entirety as follows:

     34.1 Disposition of Personal Property on Termination: Upon the expiration or earlier termination of this Lease, Lessee shall immediately surrender, turn over and deliver to Lessor, without the payment of any additional consideration by Lessor, all Personal Property then located on or at or used in the operation of the Leased Properties, other than the items of Personal Property listed on Schedule A attached hereto. Upon Lessor’s request, Lessee shall, without any charge or cost to Lessor, execute and deliver to Lessor such bills of sale, assignments or other instruments necessary, appropriate or reasonably requested by Lessor to establish Lessor’s ownership of such Personal Property.

          (c) Lessee acknowledges and agrees that, as of the date of this Amendment, all of Lessee’s Personal Property currently located at the Facilities, other than the items of Personal Property listed on Schedule A attached to the Existing Master Lease, is Personal Property that shall be sold, assigned, transferred and conveyed to the Lessor as provided in Section 6.3, above, upon the expiration or earlier termination of the Term.

     9. Certain Covenants. Sections 8.2.1.1, 8.2.1.2, 8.2.1.3, 8.2.1.4 and 8.2.1.6 of the Existing Master Lease are hereby amended and restated in their entirety as follows:

              8.2.1.1 Limitation of Distributions. In the absence of an Event of Default, or other event that with notice and/or the passage of time would become an Event of Default, in or with respect to any Lease Year, Lessee shall not make any Distributions, unless all three (3) of the following conditions have been met for the prior four (4) calendar quarters and such conditions will still be met following such payment or distribution: (1) Lessee’s Coverage Ratio for the preceding four (4) calendar quarters equals or exceeds 1.7; (2) Lessee’s Stressed Coverage Ratio for the preceding four (4) calendar quarters equals or exceeds 1.25; and (3) if such Distribution had been made on the last day of the preceding month, following such Distribution Lessee’s Current Ratio would have equaled or exceeded 1.3. From and during an Event of Default, or other event that with notice and/or the passage of time would become an Event of Default, Lessee shall not make any Distributions. This Subsection is a limitation on Distributions, and Lessee’s failure to comply with one or more of the three (3) conditions set forth above shall not be a default or Event of Default hereunder, unless a Distribution is made during a period of time when any one or more of such conditions is not satisfied.

              8.2.1.2 Accounts Receivable Financing. Except as may be expressly provided in Section 39.5 of this Lease and the Intercreditor Agreement, Lessee and/or Sublessee shall not pledge or otherwise encumber any of the accounts receivable generated through the operation of the Facilities to secure principal and interest on any Debt.

              8.2.1.3 Guarantees Prohibited. Neither Lessee nor any Sublessee shall guarantee any indebtedness of any Affiliate or other third party, except those guarantees for the benefit of AmSouth in effect as of the Commencement Date or as may be required

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under the AmSouth Loan Documents as of the Commencement Date or those guarantees for the benefit of any working capital lender to whom a first priority security interest in the accounts receivable from the Facilities has been granted in accordance with the requirements of Section 39.5 of this Lease.

              8.2.1.4 Equipment Financing. The aggregate amount of principal, interest and lease payments due from Lessee and/or Sublessee with respect to any equipment leases or financing secured by equipment utilized in the operation of the Facilities shall not at any time during the Term exceed $750,000.00 in any one Lease Year.

* * * **

              8.6 Separateness. From and after a transfer of Lessee’s interest to New Sub as contemplated by the Settlement and Restructuring Agreement, New Sub, as Lessee hereunder, shall:

              a. Maintain records and books of account separate from those of any Affiliate.

              b. Conduct its own business in its own names and not in the name of any Affiliate (except to the extent that the business of the Facilities may be conducted in the name of the Manager).

              c. Maintain financial statements separate from any Affiliate.

              d. Maintain any contractual relationship with any and all Affiliates, except upon terms and conditions that are fair and substantially similar to those that would be available on an arm’s length basis.

              e. Except for the benefit of AmSouth (or its successors and assigns) as set forth in the Intercreditor Agreement or as otherwise required under the AmSouth Loan Documents, or for the benefit of any working capital lender as required under the Line of Credit Documents described in Section 39.5 of this Lease, not guarantee or become obligated for the debts of any other entity, including any Affiliate, or hold out its credit, jointly or severally, as being available to satisfy the obligations of others, except for obligations which represent Lessee’s or Sublessee’s trade payables or accrued expenses incurred by Manager in the ordinary course of owning and operating the Facilities.

              f. Except for the benefit of AmSouth (or its successors and assigns) as set forth in the Intercreditor Agreement, or any working capital lender as set forth in the intercreditor agreement required under Section 39.5 of this Lease, not pledge its assets, jointly or severally, for the benefit of any other entity, including any Affiliate.

              g. Hold itself out an to the public as a legal entity separate from any Affiliates.

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              h. At all times cause its Board of Directors to hold appropriate meetings (or act by unanimous consent) to authorize all appropriate corporate actions, and in authorizing such actions, to observe all formalities.

     10. Amount of Alternations and Additions. The amount specified in the first clause (c) of Section 10.1 of the Existing Master Lease shall be and hereby is increased from One Hundred Thousand Dollars ($100,00.00) to One Hundred Fifty Thousand Dollars ($150,000.00).

     11. Insurance.

          (a) Section 13.2.1 of the Existing Master Lease is amended and restated as follows:

          13.2.1 Loss or damage by fire, vandalism and malicious mischief, earthquake, extended coverage perils commonly known as “Special Risk”, and all physical loss perils normally included in such Special Risk insurance, including but not limited to sprinkler leakage, in an amount not less than one hundred percent (100%) of Replacement Cost) provided that earthquake coverage and flood coverage may have a sublimit coverage of $5,000,000.00);

          (b) Paragraph 5 of the Second Amended is hereby amended and restated in its entirety as follows:

      5. Insurance. Lessor acknowledges that the liability insurance coverage and the malpractice insurance coverage required pursuant to Sections 13.2.4 and 13.2.5 of the Lease, are currently unavailable generally in the nursing home industry at commercially affordable rates and that Lessee currently maintains and has in place general liability and malpractice insurance with single limit coverage of One Hundred Thousand Dollars ($100,000.00) per occurrence and Five Hundred Thousand Dollars ($500,000.00) cumulative, with a deductible of Twenty Five Thousand Dollars ($25,000.00). Lessor hereby agrees that, the provisions of Sections 13.2.4 and 13.2.5 of the Lease to the contrary notwithstanding, until such time as the insurance coverage required therein is generally available in the nursing home industry at commercially affordable rates, Lessee shall not be required obtain the coverages required therein and Lessor agrees to accept Lessee’s current coverage in lieu thereof for the first Renewal Term of the Lease. Lessee shall not be deemed to be in default of the provisions of Article XIII of the Lease as a result thereof. Lessee shall provide Lessor, on an annual basis, information from its insurance carrier and from comparable insurance carriers of the costs of insurance premiums to meet Lessor’s insurance requirements. At such time as the premium amounts quoted are commercially affordable, Lessee shall immediately purchase any and all insurance policies necessary to meet the requirements of Sections 13.2.4 and 13.2.5 of the Lease. This provision does not relieve Lessee from its agreement of indemnity under Article XXI of the Lease nor does it modify the provisions thereof. Notwithstanding the foregoing, Lessee acknowledges and agrees that the provisions of this Paragraph 5 shall not be applicable in the event of any Transfer. Lessee acknowledges and agrees that Lessor shall have the right to withhold its consent to any proposed Transfer unless,

11

among other things, the Transferee agrees to provide the insurance coverage required by the provisions of Sections 13.2.4 and 13.2.5 of the Lease.

         12. Notices. The addresses of the Lessor and the Lessee for purposes of giving any notice, request or other communication currently set forth in Section 31.1 of the Existing Master Lease are hereby amended and restated as follows:

To Lessee:	Diversicare Leasing Corp.
	c/o Advocat Inc.
	1621 Galleria Boulevard
	Brentwood, TN 37027
	Attention: Chief Financial Officer
	Telephone No.: (615) 771-7575
	Facsimile No.: (615) 771-7409
To Lessor:	Sterling Acquisition Corp.
	c/o Omega Healthcare Investors, Inc.
	9690 Deereco Road, Suite 100
	Timonium, MD 21093
	Telephone No.: (410) 427-1700
	Facsimile No.: (410) 427-8800
And with copy to	Doran Derwent, PLLC
(which shall not	125 Ottawa Ave., N.W., Suite 410
constitute notice):	Grand Rapids, Michigan 49503
	Attn: Mark E. Derwent
	Telephone No.: (616) 233-9720
	Facsimile No.: (616) 451-8697

13. Facility Mortgage. Section 33.2 of the Existing Master Lease is herby amended and restated as follows:

      33.2 Compliance With Facility Mortgage. Except for payments due under any Facility Mortgage (which shall be the responsibility of the Mortgagor thereunder), Lessee covenants and agrees that, to the extent within Lessee’s control, it will duly and punctually observe, perform and comply with all of the terms, covenants and conditions (including, without limitation, covenants requiring the keeping of books and records and delivery of financial statements and other information) of any Facility Mortgage as to which Lessee has been given Notice and that it will not directly or indirectly do any act or suffer or permit any condition or thing to occur that is within Lessee’s control, which would or might constitute a default under a Facility Mortgage as to which Lessee has been given Notice. Anything in this Lease to the contrary notwithstanding, (i) if the time for performance of any act required of Lessee by the terms of a Facility Mortgage as to which Lessee has been given Notice is shorter than the time allowed by this Lease for performance of such act by Lessee, then Lessee shall perform such act within the time limits specified in this Lease and (ii) Lessee shall not be required to comply with the terms, covenants and conditions of any Facility Mortgage that materially (i) alter the

12

economic terms of this Lease, (ii) diminish the rights of Lessee under this Lease in any material respect, or (iii) increase the obligations of Lessee under this Lease in any material respect.

14. New Section 39.5 is hereby added to the Existing Master Lease as follows:

          39.5 Line of Credit; A/R Replacement Security Deposit.

     (a) Line of Credit. As of the date of this Amendment, pursuant to the Security Agreement, Lessee has granted to Lessor a first priority security interest in the accounts receivable generated by the Facilities. Lessee currently has a working capital line of credit with AmSouth Bank under the AmSouth Loan Documents. AmSouth Bank currently has a security interest in the accounts receivable from the Facilities that is subordinate to the security interest of the Lessor in accordance with the Intercreditor Agreement. If Lessee and/or the Sublessees, or any Affiliate of Lessee (other than Affiliates who are the operators of the Florida Managed Facilities, as defined in the Settlement and Restructuring Agreement), obtain, concurrently with or after the date of this Amendment, a working capital line of credit (the “Line of Credit”) from a third-party working capital lender that requires that, in order to secure the Line of Credit, Lessee and/or the Sublessees must grant to the working capital lender a first priority security interest in the accounts receivable from the Facilities accruing during the Term, then Lessor will subordinate its security interest in the accounts receivable from the Facilities accruing during the Term to the security interest of such working capital lender, provided that:

     (i) The working capital lender executes and delivers to Lessor an intercreditor agreement in form and substance reasonably satisfactory to Lessor; and

     (ii) The lien of Lessor in accounts receivable from the Facilities shall be subordinated to the lien of the working capital lender therein only to the extent of amounts advanced from time to time by the working capital lender to Lessee and/or the Sublessees with respect to the Facilities and only in the amount of $12,000,000.00, plus interest, penalties and other charges under the loan documents evidencing the Line of Credit (the “Line of Credit Documents”) with respect to principal amounts advanced;

     (iii) Lessee delivers to Lessor the A/R Replacement Security Deposit and the Letter of Credit Agreement (as defined below);

     (iv) The Advocat/AmSouth Indebtedness (as defined in the Intercreditor Agreement) has been repaid in full; and

     (v) As of the date of entry by Lessor into the intercreditor agreement, no Event of Default has occurred and is continuing.

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     (b) Lessee acknowledges and agrees that on the occurrence of a “Default”, “Event of Default” or similar event or occurrences which causes the lender under the Line of Credit Documents to accelerate any or all of the indebtedness thereby or to exercise any rights or remedies under such documents to realize on its interest in the accounts receivable from the Facilities, or to cease funding under the Line of Credit, which is not cured within any applicable cure period under the Line of Credit Documents or any written agreement by lender, shall constitute an Event of Default under this Lease.

     (c) Concurrently with the delivery of the intercreditor agreement by Lessor pursuant to Section 39.5(a) above, Lessee shall deliver to Lessor an additional Security Deposit in the amount equal to six (6) times the monthly Base Rent then payable under this Lease (the “Initial Amount”), in the form of an absolute, unconditional site draft letter of credit for a term of one (1) year (renewable automatically) issued by an “A” rated financial institution (“A/R Replacement Security Deposit”), which Lessor shall hold as security for the full and faithful performance by Lessee of each and every term, provision, covenant and condition of this Lease in accordance with, and subject to, the terms and conditions of a Letter of Credit Agreement in form and substance reasonably acceptable to Lessor (the “Letter of Credit Agreement”). On the first anniversary of the delivery of the A/R Replacement Security Deposit, and each subsequent anniversary, the amount of the A/R Replacement Security Deposit required to be maintained by Lessee on deposit with Lessor shall be reduced by 16.66% (or 1/6) of the Initial Amount if and only if on the applicable anniversary date (i) Lessee has maintained a Stressed Coverage Ratio for the trailing twelve months of at least 1.45 and (ii) no Event of Default exists. Notwithstanding the foregoing, at no time shall the A/R Replacement Security Deposit be less than fifty percent (50%) of the Initial Amount.

     15. Representations and Warranties of Lessee. Lessee hereby represents and warrants to Lessor that (i) it has the right and power and is duly authorized to enter into this Agreement; (ii) the execution of this Agreement does not and will not constitute a breach of any provision contained in any agreement or instrument to which Lessee is or may become a party or by which Lessee is or may be bound or affected; (iii) Lessee (or the Sublessee of the Boone and Laurel Facilities is described in Section 22.1) is the licensed operator of all of the Facilities and, except for the Boone and Laurel Facilities described in Section 22.1, has not subleased all or any portion of any of the Facilities; (iv) “NewSub” (as defined in the Settlement and Restructuring Agreement) was never created; and (v) the Reimbursement Note (as defined in the Intercreditor Agreement) has been repaid in full.

     16. Expenses of Lessor. Lessee shall pay all reasonable expenses of Lessor incurred in connection with this Amendment, including reasonable attorneys’ fees.

     17. Execution and Counterparts . This Amendment may be executed in any number of counterparts, each of which, when so executed and delivered, shall be deemed to be an original, but when taken together shall constitute one and the same Amendment.

     18. Headings. Section headings used in this Amendment are for reference only and shall not affect the construction of the Amendment.

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     19. Enforceability. Except as expressly and specifically set forth herein, the Existing Master Lease remains unmodified and in full force and effect. In the event of any discrepancy between the Existing Master Lease and this Amendment, the terms and conditions of this Amendment will control and the Existing Master Lease is deemed amended to conform hereto.

[SIGNATURE PAGES, ACKNOWLEDGEMENTS, AND JOINDER FOLLOW]

15

Signature Page to
THIRD AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

LESSOR:
STERLING ACQUISITION CORP., a Kentucky corporation
By: Name:	/s/ Taylor Picket Taylor Picket
Title:	Chief Executive Officer

STATE OF	)
	)	ss.
COUNTY OF	)

     This instrument was acknowledged before me on the                      day of                                        , 2006, by                                                             , the                                            of STERLING ACQUISITION CORP., a Kentucky corporation, on behalf of said company.

Notary Public,	County,
My commission expires:

Signature Page 1 of 2

Signature Page to
THIRD AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

LESSEE:

DIVERSICARE LEASING CORP., a Tennessee corporation
By: Name:	/s/ William R. Council, III William R. Council, III
Title:	President and CEO

STATE OF	)
	)	SS
COUNTY OF	)

     This instrument was acknowledged before me on the                      day of                     , 2006, by                     , the                      of DIVERSICARE LEASING CORP., a Tennessee corporation, on behalf of said company

Notary Public,	County,
My commission expires:

Signature Page 2 of 2

Acknowledgment to
THIRD AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

     The undersigned hereby consent to the transactions contemplated by this Third Amendment to Consolidated Amended and Restated Master Lease (the “Third Amendment”), ratify and affirm their respective Guaranties, Pledge Agreements, Security Agreements, Subordination Agreements and other Transaction Documents, and acknowledge and agree that the performance of the Master Lease and obligations described therein are secured by their Guaranties, Pledge Agreements, Security Agreement, Subordination Agreement and other Transaction Documents on the same terms and conditions in effect prior to this Amendment. The undersigned hereby join in the execution of this Third Amendment for the limited purpose of agreeing to the provisions of Section 6 and for no other purpose.

ADVOCAT, INC. a Delaware corporation
By: Name:	/s/ William R. Council, III William R. Council, III
Title:	President and CEO

STATE OF	)
	)	ss.
COUNTY OF	)

     The foregoing instrument was acknowledged before me this ___ day of ______, 2006, by ________________________, who is ________________________ of ADVOCAT, INC. a Delaware corporation, on behalf of the corporation, who acknowledged the same to be his or her free act and deed and the free act and deed of the corporation.

Notary Public,	County,
My Commission Expires:

Acknowledgement — Page 1 of 4

Acknowledgment to
THIRD AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation
By: Name:	/s/ William R. Council, III  William R. Council, III
Title:	President and CEO

STATE OF	)
	)	ss.
COUNTY OF	)

     The foregoing instrument was acknowledged before me this ___ day of ____________, 2006, by _______________, who is ___________________________of DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee corporation, on behalf of the corporation, who acknowledged the same to be his or her free act and deed and the free act and deed of the corporation.

Notary Public,	County,
My Commission Expires:

Acknowledgement — Page 2 of 4

Acknowledgment to
THIRD AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

ADVOCAT FINANCE INC., a Delaware corporation
By: Name:	/s/ William R. Council, III  William R. Council, III
Title:	President and CEO

STATE OF	)
	)	ss.
COUNTY OF	)

     The foregoing instrument was acknowledged before me this ___ day of ____________, 2006, by __________________, who is ___________________________of ADVOCAT FINANCE INC., a Delaware corporation, on behalf of the corporation, who acknowledged the same to be his or her free act and deed and the free act and deed of the corporation.

Notary Public,	County,
My Commission Expires:

Acknowledgement — Page 3 of 4

Acknowledgment to
THIRD AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

STERLING HEALTH CARE MANAGEMENT, INC., a
Kentucky corporation
By:	/s/ William R. Council, III
Name:	William R. Council, III
Title:	President and CEO

STATE OF	)
	)	ss.
COUNTY OF	)

     This foregoing instrument was acknowledged before me on the ______ day of _________, 2006, by _________, who is ________________________ of STERLING HEALTH CARE MANAGEMENT, INC., a Kentucky corporation, on behalf of said corporation, who acknowledged the same to be his or her free act and deed and the free act and deed of the corporation.

Notary Public,	County,
My Commission Expires:

Acknowledgement — Page 4 of 4

Joinder to
THIRD AMENDMENT TO CONSOLIDATED
AMENDED AND RESTATED MASTER LEASE

     The undersigned hereby join in the execution of this Third Amendment to Consolidated Amended and Restated Master Lease for the limited purpose of agreeing to the provisions of Section 6 and for no other purpose.

OMEGA HEALTHCARE INVESTORS, INC.,
a Maryland corporation
By: Name:	/s/ Taylor Picket  Taylor Picket
Title:	Chief Executive Officer

STATE OF	)
	)	ss.
COUNTY OF	)

     This instrument was acknowledged before me on the ______ day of __________, 2006, by _______________, the of ______________________________ OMEGA HEALTHCARE INVESTORS, INC., a Maryland corporation, on behalf of said corporation.

Notary Public,	County,
My Commission Expires:

Joinder — Page 1 of 1

EX-10.3

Exhibit 10.3

SUBORDINATED NOTE

$2,533,614.53 Franklin, Tennessee
Dated as of October 1, 2006

     FOR VALUE RECEIVED, Advocat Inc., a Delaware corporation, with an address of 1621 Galleria Boulevard, Brentwood, TN 37027 (“Borrower”), hereby promises to pay to Omega Healthcare Investors, Inc., a Maryland corporation with an address of 9690 Deereco Road, Suite 100, Timonium, MD 21093 (“Payee”), or to order, the principal sum of Two Million Five Hundred Thirty Three Thousand Six Hundred Fourteen Dollars and Fifty Three Cents ($2,533,614.53), 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 shall be payable (subject to Section 2) in cash quarterly beginning on December 31, 2006 and continuing on the last day of each quarter thereafter. To the extent accrued interest is not paid quarterly, 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 (subject to Section 2) in full on September 30, 2007 (the “Maturity Date”).

     1. Intentionally omitted.

     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; and (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.

     (b) Borrower shall notify Payee in writing before or at the time an interest payment is due if a Default Restriction has occurred. 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.

     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 (“Lessee”), to Sterling Acquisition Corp., a Kentucky corporation (“Lessor”), in connection with the Consolidated Amended and Restated Master Lease between Lessor and Lessee dated as of November 8, 2000, as amended by a First Amendment to Consolidated Amended and Restated Master Lease dated as of September 30, 2001, a Second Amendment to Consolidated Amended and Restated Master Lease dated as of June 15, 2005, and a Third Amendment to Consolidated Amended and Restated Master Lease dated as of the date of this Note (as amended, the “Master Lease”), and the Restructuring, Stock Issuance and Subscription Agreement among Borrower, Payee, Lessee and Lessor dated as of the date of this Note (the “Restructuring Agreement”) (collectively, the “Security Documents”). Reference is

2

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 Principal or interest payable under this Note and such failure is not cured within a period of five (5) days after notice thereof from Omega provided that Borrower shall be entitled to such notice and may avail itself of such cure period no more than two (2) times in any calendar year; (ii) the Borrower fails to perform any other obligation under this Note and such failure is not cured within a period of thirty (30) days after notice thereof from Omega; (iii) an Event of Default under the Master Lease which is not cured during any applicable cure period; or (iii) an Event of Default under any of the Security Documents which is not cured during any applicable cure period.

     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 (except as specifically required in Section 4 of this Note), all of which are expressly waived. 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.

     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.

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     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.

     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

4

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.

5

     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:	/s/ William R. Council, III
Name:	William R. Council, III
Title:	President and CEO

AGREED TO AND ACCEPTED BY PAYEE;
OMEGA HEALTHCARE INVESTORS, INC.
By: Name:	/s/ Taylor Picket Taylor Picket
Title:	Chief Executive Officer

6

EX-99.1

EXHIBIT 99.1

Company Contact:	Investor Relations:
William R. Council, III	Rodney O’Connor
President and CEO	Cameron Associates
(615) 771-7575	(212) 554-5470

ADVOCAT ANNOUNCES RESTRUCTURING OF CONVERTIBLE PREFERRED STOCK AND
AMENDMENT AND RENEWAL OF MASTER LEASE AGREEMENT

Lessor to Provide $5 million in Additional Capital to Fund Renovations

BRENTWOOD, Tenn. (October 24, 2006) — Advocat (NASDAQ: AVCA), which provides long term care services to nursing home patients, today announced that it has entered into an agreement to restructure its Series B Redeemable Convertible Preferred Stock held by Omega Healthcare Investors (together with its subsidiaries, “Omega”), a publicly owned REIT, eliminating the option of Omega to convert the Preferred Stock into shares of Advocat common stock. Advocat and Omega also agreed to extend the term of its lease covering 29 nursing centers it currently leases from Sterling Acquisition Corp., a wholly-owned subsidiary of Omega.

In addition, Omega agreed to provide up to $5 million to fund capital improvements made to certain nursing centers by June 30, 2008. The annual base rent related to these nursing centers will be increased to reflect the amount of capital improvements made to the facilities. The Company is currently reviewing its portfolio of nursing centers to select the centers for renovation.

Preferred Stock Restructuring

The Convertible Series B Preferred Stock held by Omega will be exchanged for a new Series C Preferred Stock that is not convertible. The new Series C Preferred Stock has a stated value of approximately $4.9 million and an annual dividend rate of 7% of its stated value (similar to the terms of the Series B Preferred Stock). The Series C Preferred Stock will pay dividends in cash quarterly. The Series C Preferred Stock is redeemable at stated value at Omega’s option after September 30, 2010, and is redeemable at stated value at Advocat’s option, subject to certain limitations. On October 20, 2006, Advocat declared and paid the quarterly dividend on the Series B Preferred Stock for the quarter ended September 30, 2006.

The Series B Preferred Stock was convertible, under certain circumstances, into approximately 800,000 common shares of Advocat (or approximately 14% of the common shares outstanding prior to conversion). Advocat and Omega agreed to value this conversion feature at a discount of approximately 22.3% to the underlying market value (approximately $15 million) of the common stock. As consideration for eliminating this conversion feature, the Company will increase its rental payments to Omega by approximately $687,000 per year, beginning January 2007.

Avondale Partners LLC advised Advocat in relation to the Preferred Stock Restructuring.

Master Lease Amendment

Advocat and Omega also agreed to amend and renew the master lease covering 29 nursing centers. The initial term of the lease was set to expire in September 2010, with a ten year renewal option. The amended master lease commences on October 1, 2006, and extends to September 30, 2018. The amendment also provides for a renewal option of an additional twelve years. Consistent with prior terms, the lease provides for annual increases in lease payments equal to the lesser of two times the increase in the consumer price index or 3.0%. Under generally accepted accounting principles, the Company is required to record these scheduled rent increases on a straight line basis over the 12 year term of the renewal period. As a result of recording these increases, the Company’s annual rent expense will increase by approximately $2.7 million, although this increase has no effect on cash rent payments other than the payments associated with the restructuring of the preferred stock described above.

CEO Remarks

“We are pleased to reach these agreements with Omega,” commented William R. Council, CEO of Advocat. “The elimination of the conversion feature removes a significant dilution to our current shareholders, and provides a greater degree of stability in our capital structure. We are pleased that Omega agreed to discount the value of the underlying shares, capturing that value for Advocat’s current shareholders.

“The early renewal of the lease provides more stability and long term certainty for our nursing center operations, particularly in light of the contemplated facility renovations. We are pleased that Omega is showing its continued support for this important strategic initiative by agreeing to provide up to $5 million in financing for these facility renovations. The renovation funding is in addition to the previous $5 million funding for renovations which we are completing in 2006. We appreciate the support we receive from Omega.

“The deal is accretive on a pro forma basis for 2005, and flat on a pro forma basis for the six months ended June 30, 2006. We have illustrated the effects of these transactions in pro forma financial statements included below, and will hold a conference call Wednesday, October 25, at 7:30 A.M. Central, 8:30 A.M. Eastern, to discuss this transaction.”

CONFERENCE CALL INFORMATION

The conference call information is as follows:

Date:	Wednesday, October 25, 2006
Time:	7:30 A.M. Central, 8:30 A.M. Eastern
Webcast Links:	http://phx.corporate-ir.net/playerlink.zhtml?c=77083&s=wm&e=1406596
	www.irinfo.com/avc
	www.streetevents.com
Dial in numbers:	(866) 383-8008 (domestic) or (617) 597-5341(international)
Passcode:	74178378

A replay of the conference call will be accessible two hours after its completion through November 1, 2006 by dialing (888) 286-8010 (domestic) or (617) 801-6888 (international) and entering passcode 60673267.

About Advocat

Advocat provides long-term care services to nursing home patients in eight states, primarily in the southeast. The Company has 43 centers containing 4,505 licensed nursing beds. For additional information about the Company, visit Advocat’s web site: http://www.irinfo.com/avc.

Forward-Looking Statements

Forward-looking statements made in this release involve a number of risks and uncertainties, including but not limited to, changes in governmental reimbursement, government regulation and health care reforms, the increased cost of borrowing under our credit agreements, ability to control ultimate professional liability costs, the accuracy of our estimate of our anticipated professional liability expense, the impact of future licensing surveys, the outcome of regulatory proceedings alleging violations of laws and regulations governing quality of care or violations of other laws and regulations applicable to our business, changing economic conditions as well as other risk factors detailed in the Company’s Securities and Exchange Commission filings. The Company has provided additional information in its Annual Report on Form 10-K for the fiscal year ended December 31, 2005, as well as in other filings with the Securities and Exchange Commission, which readers are encouraged to review for further disclosure of other factors that could cause actual results to differ materially from those indicated in the forward-looking statements. Advocat Inc. is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet services.

-Financial Tables to Follow-

UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial statements have been prepared to give effect to a material transaction described herein and are based upon the assumptions and adjustments described in the notes to the unaudited pro forma condensed consolidated financial statements included herein. The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the financial position or results of operations that would have actually been reported had the material transaction occurred on the dates indicated, nor are they necessarily indicative of the future financial position or results of operations of Advocat. The unaudited pro forma condensed consolidated financial statements include adjustments, which are based upon preliminary estimates, to reflect the transactions described in this press release. Due to these varying assumptions, actual results may differ from the pro forma adjustments presented herein.

These unaudited pro forma condensed consolidated financial statements are based upon, and should be read in conjunction with the historical consolidated financial statements of Advocat and related notes contained in the reports and other information Advocat has filed with the United States Securities and Exchange Commission.

ADVOCAT INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2006
(In thousands, unaudited)

				Pro Forma			Pro Forma As
	Historical			Adjustments			Adjusted
ASSETS:
Current Assets	$	34,734					$	34,734
Noncurrent assets, net		50,952						50,952
TOTAL ASSETS	$	85,686					$	85,686
LIABILITIES AND SHAREHOLDERS’ DEFICIT:
Current Liabilities	$	30,343					$	30,343
Noncurrent Liabilities		52,144						52,144
Series B Redeemable Convertible Preferred Stock		4,918		$	(4,918	)(1)		—
Series C Preferred Stock, at stated value					4,918	(2)		4,918
Premium on preferred stock					6,701	(2)		6,701
Shareholders’ Deficit		(1,719	)		(6,701	)(3)		(8,420	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	$	85,686		$	—		$	85,686

Notes to Pro Forma Adjustments:

The following pro forma adjustments present the effects of the restructuring of preferred stock and the amendment to the master lease on the Condensed Consolidated Balance Sheet of Advocat as of June 30, 2006 as if they occurred on June 30, 2006.

(1)	To record the retirement of the Series B Redeemable Convertible Preferred Stock.
(2)	To record the issuance of Series C Preferred Stock at its stated value of $4,918 and to record a preferred stock premium of $6,701, representing the value of the canceled conversion feature associated with the retired Series B Redeemable Convertible Preferred Stock.
(3)	To record a reduction in Paid in Capital for the value of the conversion feature associated with the retired Series B Redeemable Convertible Preferred Stock.

ADVOCAT INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2006
(Unaudited)
(In thousands, except per share data)

				Pro Forma Adjustments
							After Effects
							of
				Conversion			Conversion			Effects of
				Feature			Feature			Lease			Pro Forma
	Historical			Elimination			Elimination			Renewal			As Adjusted
PATIENT REVENUES, NET	$	107,082					$	107,082					$	107,082
EXPENSES:
Operating		81,298						81,298						81,298
Lease		7,653						7,653			1,363	(4)		9,016
Professional liability		(6,000	)					(6,000	)					(6,000	)
General and administrative		7,197						7,197						7,197
Stock-based compensation		5,012						5,012						5,012
Depreciation		1,870						1,870						1,870
		97,030						97,030			1,363			98,393
OPERATING INCOME		10,052						10,052			(1,363	)		8,689
OTHER INCOME (EXPENSE):
Other income		795						795						795
Interest expense		(1,876	)		(98	)(1)		(1,974	)					(1,974	)
		(1,081	)		(98	)		(1,179	)					(1,179	)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		8,971			(98	)		8,873			(1,363	)		7,510
PROVISION (BENEFIT) FOR INCOME TAXES		(1,116	)		(37	)(2)		(1,153	)		(518	)(2)		(1,671	)
NET INCOME FROM CONTINUING OPERATIONS		10,087			(61	)		10,026			(845	)		9,181
PREFERRED STOCK DIVIDENDS		168						168						168
NET INCOME FROM CONTINUING OPERATIONS FOR COMMON STOCK	$	9,919		$	(61	)	$	9,858			(845	)	$	9,013
NET INCOME PER COMMON SHARE:
Per common share — basic	$	1.73		$	(0.01	)	$	1.72		$	(0.15	)	$	1.57
Per common share — diluted	$	1.53		$	0.14		$	1.67		$	(0.14	)	$	1.53
WEIGHTED AVERAGE COMMON SHARES:
Basic		5,743						5,743						5,743
Diluted		6,544			(635	)(3)		5,909						5,909

Notes to Pro Forma Adjustments:

The following pro forma adjustments present the effects of the restructuring of preferred stock and the amendment to the master lease on the Consolidated Statement of Operations of Advocat for the six months ended June 30, 2006 as if these transactions occurred on January 1, 2006.

(1) To record imputed interest expense associated with the required payments to be made for the cancellation of the conversion feature in the restructuring of preferred stock.

(2)	Income tax effects of the transaction are reflected at the statutory rate for Federal and state income taxes, 38%. The Company’s effective tax rate differs materially from the statutory rate mainly due to changes in the valuation allowance for net deferred tax assets.
(3)	To record a reduction in the number of diluted shares outstanding for the effects of the cancellation of the conversion feature associated with the preferred stock. Omega, as a Real Estate Investment Trust, is limited in the amount of ownership in Advocat it can hold. The computation of diluted earnings per share has historically reflected the effects of these limitations on the number of common shares issued. The total number of shares that could be issued without these limitations is approximately 0.8 million.
(4)	To record the effects of scheduled rent increases for the amended Master Lease on a straight-line basis.

ADVOCAT INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2005
(Unaudited)
(In thousands, except per share data)

				Pro Forma Adjustments
							After Effects
							of
				Conversion			Conversion			Effects of
				Feature			Feature			Lease			Pro Forma
	Historical			Elimination			Elimination			Renewal			As Adjusted
PATIENT REVENUES, NET	$	203,658					$	203,658					$	203,658
EXPENSES:
Operating		155,512						155,512						155,512
Lease		15,836						15,836			2,726	(4)		18,562
Professional liability		(3,962	)					(3,962	)					(3,962	)
General and administrative		13,311						13,311						13,311
Depreciation		3,493						3,493						3,493
		184,190						184,190			2,726			186,916
OPERATING INCOME		19,468						19,468			(2,726	)		16,742
OTHER INCOME (EXPENSE):
Other income		695						695						695
Interest expense		(3,382	)		(196	)(1)		(3,578	)					(3,578	)
		(2,687	)		(196	)		(2,883	)					(2,883	)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		16,781			(196	)		16,585			(2,726	)		13,859
PROVISION (BENEFIT) FOR INCOME TAXES		(13,820	)		(74	)(2)		(13,894	)		(1,036	)(2)		(14,930	)
NET INCOME FROM CONTINUING OPERATIONS		30,601			(122	)		30,479			(1,690	)		28,789
PREFERRED STOCK DIVIDENDS		318						318						318
NET INCOME FROM CONTINUING OPERATIONS FOR COMMON STOCK	$	30,283		$	(122	)	$	30,161		$	(1,690	)	$	28,471
NET INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE:
Per common share — basic	$	5.29		$	(0.02	)	$	5.27		$	(0.30	)	$	4.97
Per common share — diluted	$	4.69		$	0.46		$	5.15		$	(0.29	)	$	4.86
WEIGHTED AVERAGE COMMON SHARES:
Basic		5,725						5,725						5,725
Diluted		6,498			(636	)(3)		5,862						5,862

Notes to Pro Forma Adjustments:

The following pro forma adjustments present the effects of the restructuring of preferred stock and the amendment to the master lease on the Consolidated Statement of Operations of Advocat for the year ended December 31, 2005 as if these transactions occurred on January 1, 2005.

(1) To record imputed interest expense associated with the required payments to be made for the cancellation of the conversion feature in the restructuring of preferred stock.

(2)	Income tax effects of the transaction are reflected at the statutory rate for Federal and state income taxes, 38%. The Company’s effective tax rate differs materially from the statutory rate mainly due to changes in the valuation allowance for net deferred tax assets.
(3)	To record a reduction in the number of diluted shares outstanding for the effects of the cancellation of the conversion feature associated with the preferred stock. Omega, as a Real Estate Investment Trust, is limited in the amount of ownership in Advocat it can hold. The computation of diluted earnings per share has historically reflected the effects of these limitations on the number of common shares issued. The total number of shares that could be issued without these limitations is approximately 0.8 million.
(4)	To record the effects of scheduled rent increases for the amended Master Lease on a straight-line basis.

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