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.

     (ii) Lender is the present owner and holder of that certain Loan (the “Note II Loan” ) in the original principal amount of $8,125,000 made to Borrower, which Note II Loan is secured by, among other things, the following (collectively, the “Note II Security” ):

     (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

certain Debtors as defined therein on November 8, 2000 to be effective as of October 1, 2000, as subsequently amended (the “Master Amendment”). (The Replacement Reduced and Modified Renewal Revolving Promissory Note, as amended is herein referred to as the “AmSouth Note”).

     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.

          “ Ceased Funding ” means, with respect to the Possession Date, the date that AmSouth has notified Lender in writing that it has determined to cease making further advances under the AmSouth Loan Documents.

          “ 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.

          “ Permits ” means: (a) the operating licenses for the Facilities, any certificate of need, and any other license, permit, approval or certificate which from time to time, may be issued or is required to be issued by the United States, any state or local government, or any agency or instrumentality of any of the foregoing with respect to the construction, installation or operation of the Facilities or any portion or component of the Facilities, the providing of any profession or other services by the Borrower, the purchase, sale, dispensing, storage, prescription or use of drugs, medications or the like by Borrower, or any other operations or businesses of Borrower; and (b) certifications and eligibility for participation by Borrower, with respect to its operation of the Facilities and any related businesses or operations, in programs or arrangements with, or reimbursement from Third Party Payors including Medicare and Medicaid; and (c) all other licenses, permits and certificates used or useful in connection with the ownership, operation, use or occupancy of the Facilities.

          “ 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

entities subsidiaries of the Borrower, DMS, DLC or any entity herein named, formed subsequent to the execution of this Agreement.

          “ 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