REPLACEMENT INTERCREDITOR AGREEMENT

Exhibit 10.5

REPLACEMENT INTERCREDITOR AGREEMENT

(Accounts Receivable)

     THIS INTERCREDITOR AGREEMENT is made as of the 4th day of August, 2006 (the "Effective Date"), by and between AMSOUTH BANK, an Alabama state banking corporation ("AmSouth"), Diversicare Afton Oaks, LLC, a Delaware limited liability company (the "Afton Oaks Borrower"); Diversicare Pinedale, LLC, a Delaware limited liability company (the "Newport Borrower"); Diversicare Windsor House, LLC, a Delaware limited liability company (the "Windsor Borrower"); Diversicare Briarcliff, LLC, a Delaware limited liability company (the "Briarcliff Borrower"); Diversicare Hartford, LLC, a Delaware limited liability company (the "Hartford Borrower"); Diversicare Chisolm, LLC, a Delaware limited liability company (the "Chisolm Borrower"); Diversicare Hillcrest, LLC, a Delaware limited liability company (the "Hillcrest Borrower"); Diversicare Yorktown, LLC, a Delaware limited liability company (the "Yorktown Borrower"); Diversicare Lampasas, LLC: a Delaware limited liability company (the "Lampasas Borrower"); and Diversicare Assisted Living Services NC I, LLC, a Delaware limited liability company (the "NC I Borrower") and Diversicare Assisted Living Services NC II, LLC, a Delaware limited liability company (the "NC II Borrower"; NC I Borrower and NC II Borrower are collectively known as the "Carolina Beach Borrower"), (Afton Oaks Borrower, Newport Borrower, Windsor Borrower, Briarcliff Borrower, Hartford Borrower, Chisolm Borrower, Hillcrest Borrower, Yorktown Borrower, Lampasas Borrower, and the Carolina Beach Borrower may be referred to collectively herein as, the "Borrower"), and CAPMARK FINANCE INC., a California corporation (formerly known as GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation) (the "Lender").

R E C I T A L S

      A. (i) Lender is the present owner and holder of that certain loan (the "Note I Loan") in the original principal amount of $22,500,000.00 made to Borrower, which Note I Loan is secured by, among other things, the following (collectively, the "Note I Security"): (i) first lien deed of trust or mortgage (collectively, the "Note I Mortgage") with respect to each Borrower’s right, title, and interest in and to its facilities (which are more particularly described on Schedule A attached hereto (the "Note I Facilities"), including the underlying real property (the "Note I Real Property"), the improvements thereon, and all equipment, fixtures, inventory, and personal property used in connection therewith, (ii) a first lien security interest and an assignment of Borrower’s interest in all general intangibles, licenses, permits, reimbursement contracts, leases and contracts, (iii) a first lien security interest and an assignment of Borrower’s interest in all rents and leases relating to the Note I Facilities, (iv) an assignment of the management contract and subordination of management fees, and (v) a second lien security interest in accounts receivable issuing from the Note I Facilities.

     (a) first lien deed of trust or mortgage (collectively, the "Note II Mortgage"; the Note I Mortgage, the Note II Mortgage, and the Second Mortgage, as defined below, are collectively referred to herein as the "Mortgage") with respect to each Borrower’s right, title, and interest in and to its facilities (which are more particularly described on Schedule A attached hereto (the "Note II Facilities"; the Note I Facilities and the Note II Facilities are collectively referred to herein as the "Facilities"), including the underlying real property (the "Note II Real Property"; Note I Real Property and Note II Real Property are collectively referred to herein as the "Real Property"), the improvements thereon, and all equipment, fixtures, inventory, and personal property used in connection therewith, (b) a first lien security interest and an assignment of Borrower’s interest in all general intangibles, licenses, permits, reimbursement contracts, leases and contracts, (c) a first lien security interest and an assignment of Borrower’s interest in all rents and leases relating to the Note II Facilities, (d) an assignment of the management contract and subordination of management fees, (e) a second lien security interest in accounts receivable issuing from the Note II Facilities, (f) an assignment of the DCMS Note Receivable and the Workers’ Comp Retro Premiums (both hereinafter defined on Schedule B), and (g) a second lien deed of trust or mortgage (the "Second Mortgage") with respect to the Borrower’s right, title, and interest in and to the Note I Facilities securing Note I Loan, including the Real Property.

     The Note I Security and the Note II Security may be referred to collectively herein as the "Security". The Note I Loan and Note II Loan may be referred to collectively herein as the "Mortgage Loan". The Note I Facilities and the Note II Facilities maybe referred to collectively herein as the "Facilities". The loan agreement, as defined herein, and all other documents or instruments listed on Schedule C attached hereto and made a part hereof, and all other documents or instruments now or hereafter executed by Borrower evidencing, securing or relating to the Mortgage Loan, as herein defined, and all amendments thereto and restatements or replacements thereof, as the same may be amended from time to time, are hereinafter referred to collectively as the "Mortgage Loan Documents." Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Mortgage Loan Documents.

     B. Pursuant to the terms of that Replacement Reduced and Modified Renewal Revolving Promissory Note executed by Diversicare Management Services, Co., a Tennessee corporation ("DMS") as of October 29, 2004, as amended in the maximum principal amount of $2,500,000.00, as further amended and decreased to the maximum principal amount of $2,300,000.00 (the "AmSouth Priority Amount"), AmSouth will continue to provide for the benefit of DMS, Borrower and certain entities related to Borrower or Corporate Guarantor, as defined below, a secured revolving credit facility, secured by, among other things, the Accounts (as hereinafter defined) of Borrower, the guaranty of Advocat Inc., a Delaware corporation (the "Corporate Guarantor"), the Stock (as hereinafter defined) and other things as set forth in that Master Amendment to Loan Documents and Agreement executed by AmSouth, Lender and

     C. AmSouth and Lender executed an Intercreditor Agreement, signed by DMS, Diversicare Leasing Corp., a Tennessee corporation ("DLC") and wholly owned subsidiary of Advocat Finance, Inc., a Tennessee corporation ("AFI") and wholly owned subsidiary of the Corporate Guarantor, and by Corporate Guarantor, dated as of Decmeber 27, 1996, as subsequently amended (the "Original Intercreditor Agreement"), which Original Intercreditor Agreement set forth certain rights and priorities with respect to the collateral securing AmSouth’s and Lender’s respective credit accommodations to Borrower, and Subsidiaries as defined therein.

     D. Since execution of the Original Intercreditor Agreement, AmSouth’s and Lender’s respective credit accommodations have changed substantially, and the parties heretohave entered into this Replacement Intercreditor Agreement in order to agree upon, reaffirm and restate the relative rights and priorities with respect to the collateral securing their credit accommodations to Borrower.

ARTICLE I
DEFINITIONS

     Section 1.1. Certain Definitions. Words and terms defined in the Recitals of this Agreement shall have the meanings therein ascribed to them, and, in addition, the following words and terms when used herein shall have the respective meanings indicated:

          "Accounts" has the meaning set forth on Schedule B attached hereto.

          "AmSouth Accounts" means certain assets of the Borrower as set forth on attached Schedule B hereto.

          "AmSouth Loan Agreement" means the Master Amendment.

          "AmSouth Loan Documents" shall mean, collectively, the Master Amendment, all Loan Documents as defined therein, all other documents or instruments now or hereafter executed by Borrower evidencing, securing or relating to the AmSouth Note, and all amendments thereto and restatements or replacements thereof.

          "AmSouth Obligations" means the loan obligations of the Borrower as more particularly set forth in the AmSouth Note and the AmSouth Loan Documents.

          "Availability" means the maximum loan availability of DMS in the amount of the AmSouth Priority Amount.

          "Business Day" means a day, other than Saturday or Sunday and legal holidays, when AmSouth and Lender are both open for business.

          "Common Collateral" has the meaning given such term in Section 2.5 hereof.

          "Default Notice" means a notice by Lender to AmSouth that an Event of Default (as defined in the Mortgage Loan Documents) exists pursuant to the Mortgage Loan Documents, a copy of which notice of Event of Default has been given to Borrower, unless Lender is prevented from giving notice to Borrower by bankruptcy or other applicable law.

          "Lender Accounts" has the meaning given such term in Section 2.2 hereof.

          "Lender Obligations" means the "Loan Obligations" as defined in the Mortgage Loan Documents.

          "Managed Health Care Plans" means, collectively, any health maintenance organization, preferred provider organization or the like.

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

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

          "Mortgage Loan Documents" has the meaning set forth in the Recitals hereof.

          "Patient Agreements" means collectively any and all contracts, authorizations, agreements or consents made by or on behalf of any patient or resident of the Facilities, or any other person seeking or obtaining services or Goods from Borrower, pursuant to which a Borrower provides skilled nursing care, intermediate care and/or assisted living facility, or any form of patient or residential care, as well as related services at the Facilities (as such contracts, authorizations, agreements or consents may be amended, supplemented, renewed, replaced, extended or modified from time to time). The Patient Agreements include consents to treatment and assignments of payment of benefits.

          "Payors" means and includes any and all patients or residents of the Facilities of Borrower, Managed Health Care Plans or other Third Party Payors, and all other persons or entities obligated on any Account, Document, Instrument, Chattel Paper or otherwise under any agreement for the payment or reimbursement for services rendered, Goods provided, or costs incurred by Borrower, or otherwise obligated on any indebtedness owing to Borrower.

          "Possession Date" means, with respect to the Facilities, the earlier to occur of the date upon which (a) Lender, or its nominee, has taken actual physical possession and control of such Facility, whether by foreclosure, deed in lieu of foreclosure, appointment of a receiver or other legal process and AmSouth has received five (5) Business Days notice thereof in accordance with Section 3.1 hereof, (b) Lender, or its nominee, has begun the operation and management of such Facility to the exclusion of the direct or indirect operation or management of such Facility by the Borrower and/or its agents and AmSouth has received five (5) Business Days notice thereof in accordance with Section 3.1 hereof, (c) sixty (60) days after Lender has given AmSouth a Default Notice with respect to an Event of Default (as defined in the Mortgage Loan Documents) which was not cured within such sixty (60) day period and AmSouth has received notice thereof in accordance with Section 3.1 hereof, (d) the date upon which all of the AmSouth Obligations have been indefeasibly paid in full and the AmSouth Loan Agreement has been terminated, or (e) the date upon which AmSouth has Ceased Funding.

          "Proceeds" means all proceeds (but specifically excluding all proceeds of insurance and condemnation) from the sale, exchange, transfer, collection, loss, damage, disposition, substitution or replacement of any of the Accounts.

          "Secured Lenders" shall mean, collectively, Lender and AmSouth.

          "Stock" shall mean, collectively, all stock of the Corporate Guarantor, and all stock, membership or partnership interests of the Subsidiaries.

          "Subsidiaries" shall mean, collectively, DMS, the Corporate Guarantor, AFI, DLC, Advocat Ancillary Services, Inc., a Tennessee corporation ("AAS")and wholly-owned subsidiary of DMS, Diversicare General Partner, Inc., a Texas corporation ("DGP") and wholly-owned subsidiary of DLC, First American Health Care, Inc., an Alabama corporation ("FAHC") and wholly-owned subsidiary of DLC, Diversicare Leasing Corp. of Alabama, an Alabama corporation ("DLCA") and wholly-owned subsidiary of DLC, Advocat Distribution Services, Inc.., a Tennessee corporation ("ADS") and wholly-owned subsidiary of DMS, Diversicare Assisted Living Services, Inc., a Tennessee corporation ("DALS") and a wholly-owned subsidiary of AFI, Diversicare Assisted Living Services, NC, LLC, a Tennessee limited liability company formed by DMS and DALS ("DALS-NC"), Sterling Health Care Management, Inc., a Kentucky corporation ("SHCM") and wholly-owned subsidiary of DLC, and any and all other

          "Third Party Payors" means any and all Managed Health Care Plans, private insurers, Blue Cross and/or Blue Shield plans, employee medical expense assistance programs, programs established, maintained and/or administered by any federal, state or local governmental authority (including, without limitation, Medicare and Medicaid programs), and other similar third party payors.

     The following terms shall have the same respective meanings as are given to those terms in the Uniform Commercial Code of the State of California, as amended: "Chattel Paper", "Contracts", "Contract Rights", "Documents", "General Intangibles", "Goods", "Instruments." Without limiting the foregoing, the following kinds and types of property to the extent related to the Facilities shall be included within the definition of "General Intangibles":

     (a) Permits, Patient Agreements, Provider Agreements and all other agreements (whether now existing or hereafter made) between any of the Borrower and any Third Party Payor relating to any rights of any Borrower or to payment and/or reimbursement from, or claims of Borrower against, any Third Party Payor;

     (b) All franchises, sub franchises, rights to distribute, sales agencies, licenses, permits, leases, rights to indemnification, rights as insured, including the right to be provided a defense, warranty rights, concessions and concession rights, customer lists, yellow page or trade journal listing, telephone numbers, and any and all other property or rights necessary, convenient, or proper with respect to the continued operation of the business of Borrower as now or hereafter conducted by any of the Borrower with respect to the operation or use of the Facilities;

     (c) All patents and patent applications, together with the right to sue for past, present, and future infringements, all rights corresponding thereto throughout the world and all reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof and all improvements thereon;

     (d) All trademarks, trade names, and trade secrets, together with the right to sue for past, present, and future violations corresponding thereto, and all good will associated therewith; and

          All copyrights, together with the right to sue for past, present, or future violations or infringements of rights of the copyrights, and all renewals, extension and continuations thereof.

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

     Section 1.4. All accounting terms used in this Agreement shall be construed in accordance with general accounting principles, except as otherwise defined.

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

     Section 1.6. Upon execution of this Agreement, the Original Intercreditor Agreement shall be terminated.

ARTICLE II
INTERCREDITOR AGREEMENT

     Section 2.1. Relative Security Interests in the Accounts. The rights and priorities in the Accounts described herein between the Secured Lenders shall be as set forth in this Agreement irrespective of: (a) the validity of any security interest of either of the Secured Lenders in any or all of the Accounts, (b) whether and in what order the security interests of the Secured Lenders in the Accounts were perfected, (c) the provisions of applicable law (bankruptcy or otherwise), or (d) which of the Secured Lenders has possession of the Accounts.

     Section 2.2. Rights in the Accounts and Related Collateral.

          (a) AmSouth Accounts. Except as provided in Section 2.2(b) below, AmSouth and Lender agree that at all times, whether before, during or after the pendency of any bankruptcy, reorganization or other insolvency proceeding, and notwithstanding the priorities that ordinarily would result under the Uniform Commercial Code as enacted in each and every applicable jurisdiction, and as amended from time to time, and other applicable law for the order of granting or perfecting of any security interests referred to herein, AmSouth shall have a first and prior security interest in, upon and to the AmSouth Accounts, and if AmSouth has advanced funds pursuant to the terms of the AmSouth Note within ninety (90) days immediately preceding the Possession Date (collectively, the "Prepossession Advance"), AmSouth shall have a first and prior security interest in, upon and to any Accounts which accrue or arise after the Possession Date but only up the total amount of the Prepossession Advance, and Lender shall have a second priority security interest in such AmSouth Accounts or Accounts. AmSouth shall have no interest in any collateral securing the Mortgage Loan Documents or any tangible or intangible property of Borrower or Corporate Guarantor other than the Accounts and Common Collateral to the extent described herein, and the Stock.

          (b) Lender Accounts. AmSouth and Lender agree that at all times, whether before, during or after the pendency of any bankruptcy, reorganization or other insolvency proceeding, and notwithstanding the priorities that ordinarily would result under the Uniform Commercial Code as enacted in each and every applicable jurisdiction, and as amended from time to time, and other applicable law for the order of granting or perfecting of any security interests referred to herein, on and after the Possession Date, Lender shall have a first priority

          (c) General Intangibles, Contract Rights and Agreements. Until such time as Lender has received payment in full of all Lender Obligations, Lender shall hold a first priority security interest in and to all of the General Intangibles and Contract Rights of the Borrower, including, but not limited to, all Patient Agreements, Permits and Provider Agreements, and the Proceeds and products thereof; provided; however, that to the extent any such Proceeds or products, or any other payments derived from such General Intangibles or Contract Rights are inextricably related to the collection of AmSouth Accounts, then the same shall be deemed to be AmSouth Accounts, and the relative interest of Lender and AmSouth shall be determined in accordance with Sections 2.2(a) and 2.2(b) hereof. Notwithstanding anything herein to the contrary, AmSouth Accounts shall not include any Permits related to the operation of the Facilities, and AmSouth shall have no right to transfer, sell, convey or otherwise affect the Permits related to the operation of the Facilities.

     Section 2.3. Release of Security Interest.

          (a) Upon receipt by AmSouth of payment in full of all AmSouth Obligations and termination of the AmSouth Loan Documents, AmSouth will notify Lender of such event in accordance with Section 3.1 below, and AmSouth, at Borrower’s expense, will execute any and all termination statements, UCC-3 amendments or releases (as applicable) to fully effectuate AmSouth’s release and extinguishment of its security interest in the AmSouth Accounts, Accounts, Lender Accounts, Common Collateral and the Stock.

          (b) Notwithstanding anything to the contrary contained herein or in the Mortgage Loan Documents, if any AmSouth Accounts are sold, transferred or conveyed or otherwise disposed of: (i) as permitted under the AmSouth Loan Documents, or (ii) as otherwise consented to by AmSouth and Borrower, or (iii) in conjunction with the exercise of AmSouth’s rights and remedies under the AmSouth Loan Documents, then, subject to the terms of this Agreement, Lender shall and hereby agrees to release any and all rights to and interests in such AmSouth Accounts (but not to the Proceeds thereof to the extent set forth in the last sentence of this Section 2.3(b)), and such AmSouth Accounts shall be transferred free and clear of all liens and security interests (including the lien of Lender). Lender shall execute such release documents as AmSouth may request, from time to time, to effectuate the terms hereof. To the extent that the Proceeds of any such sale of AmSouth Accounts exceed the AmSouth Obligations, then any such excess shall be delivered to Lender (to the extent that Lender is

     Section 2.4. Collection of Accounts.

          (a) Until such time as the AmSouth Obligations have been indefeasibly paid in full and the AmSouth Loan Documents have been terminated, Lender shall immediately deliver to AmSouth any payment it receives with respect to the AmSouth Accounts in precisely the same form received (but with the endorsement of Lender receiving the same where necessary) for application in reduction of the AmSouth Obligations, and agrees that until so delivered, the payment shall be held in trust for AmSouth as the property of AmSouth. Until the AmSouth Obligations are indefeasibly paid in full, Lender agrees that it will not institute any legal proceeding against Borrower with respect to any AmSouth Accounts or otherwise enforcing or exercising rights in the AmSouth Accounts for all or part of any amount due under the Mortgage Loan Documents. Any Proceeds received by Lender in excess of an amount necessary to satisfy in full the Lender Obligations shall otherwise be held by Lender in trust for AmSouth and remitted to AmSouth (to the extent that AmSouth is otherwise entitled thereto in accordance with the AmSouth Loan Documents and applicable law). Until all of the Lender Obligations are indefeasibly paid in full, AmSouth agrees that it will not institute any legal proceeding against Borrower with respect to any Lender Accounts or otherwise enforcing or exercising rights in the Lender Accounts for all or part of any amount due under the AmSouth Loan Documents.

          (b) At Lender’s option, at any time subsequent to the Possession Date, Lender may pay or cause to be paid the AmSouth Obligations to AmSouth. If Lender pays the AmSouth Obligations, Lender shall have a first priority security interest in and lien on all of the AmSouth Accounts and the Common Collateral, and AmSouth will execute and deliver to Lender releases and satisfactions of its security interests in all Accounts, Common Collateral and the Stock. In the event AmSouth fails to file such release and satisfaction within thirty (30) days after Lender’s written demand therefor, Lender is hereby authorized to file in AmSouth’s name, any releases and satisfactions necessary to effectuate the release contemplated hereby, and Lender will provide to AmSouth a copy of such release. AmSouth hereby constitutes and appoints Lender its true and lawful attorney-in-fact, with full power of substitution in the premises, to exercise such rights. This power of attorney shall be deemed to be a power coupled with an interest and shall be irrevocable so long as any of the Lender Obligations are outstanding. If Lender pays the AmSouth Obligations, Borrower agrees such payment, together with interest thereon at the interest rate set forth in the Mortgage Loan Documents, from the date paid, shall be a debt owing, jointly and severally, by Borrower to Lender and shall, together with all costs of collection, be secured by all of the Accounts and other Lender Collateral, and all such indebtedness, interest thereon and costs of collection, if any, shall be due and payable promptly on demand by Lender.

          (c) Subject to the limitations set forth in this Agreement, Lender agrees that it will not make any assertion or claim in any action, suit or proceeding of any nature whatsoever in any way challenging the priority, validity or effectiveness of the liens and security interests granted to AmSouth with respect to the AmSouth Accounts, the Accounts that accrue subsequent to the Possession Date up to the total amount of any Preposession Advance made by AmSouth,

          (d) Subject to the limitations set forth in this Agreement, AmSouth agrees that i