LOAN AND SECURITY AGREEMENT

Exhibit 10.2

LOAN AND SECURITY AGREEMENT

      THIS LOAN AND SECURITY AGREEMENT (the “Agreement”), made as of August 10, 2007, between Diversicare Leasing Corp., a Tennessee corporation, hereinafter referred to as the “Lender”, and Bridge Associates LLC, as trustee for the SMSA Creditors’ Trust, a Texas trust, hereinafter referred to as “Borrower”.

      WHEREAS, twenty-four entities (individually the “Debtor” and collectively the “Debtors”) filed voluntary chapter 11 petitions on January 17, 2007, and these bankruptcy cases are being jointly administered in the case of Senior Management Services of Treemont, Inc. , Bankruptcy Case No. 07-30230, in the U.S. Bankruptcy Court for the Northern District of Texas;

      WHEREAS, a Liquidating Trust (as defined in the Modified Plan and sometimes referred to herein as the “SMSA Creditors’ Trust”) has been established pursuant to the terms of the First Amended Chapter 11 Plan Proposed dated June 17, 2007 jointly filed by the Debtors, which plan was modified and filed as the First Amended Modified Chapter 11 Plan Proposed by the Debtors (the “Modified Plan”);

      WHEREAS, on August 1, 2007, the Bankruptcy Court held a hearing on the Modified Plan and entered an order confirming the Modified Plan on such date (the “Confirmation Order”);

      WHEREAS, Borrower is the duly appointed and serving trustee of the SMSA Creditors’ Trust, as well as the Plan Agent (as defined in the Modified Plan);

      WHEREAS , Lender has agreed to loan to Borrower up to Two Million Two Hundred Thousand Dollars ($2,200,000.00) (the “Loan”); and

      WHEREAS, as a condition to the Loan, Borrower has agreed to grant Lender a first priority security interest in certain collateral described herein;

      NOW, THEREFORE , for good and valuable consideration Lender and Borrower hereby agree as follows:

     1.1 Subject to the terms and conditions of this Agreement, Lender will loan to Borrower the amount of up to Two Million Two Hundred Thousand Dollars ($2,200,000.00) (the “Indebtedness”).

     1.2 This Loan is not a revolving credit facility. Each dollar advanced by the Lender shall reduce the amount available to Borrower regardless of whether or not any monies previously advanced have been repaid. Lender shall have no obligation to re-advance any amount that has been previously advanced and repaid.

     1.3 This Loan shall be evidenced by a promissory note (the “Note”) in favor of the Lender bearing interest at the rate of twelve and one-half percent (12.5%) per annum. All

[ Signature Page — Loan and Security Agreement ]

amounts of principal, interest, fees and expenses remaining outstanding pursuant to the Note shall be payable in full by no later than August 10, 2008.

     1.4 This Loan is secured by a first priority security interest in certain collateral as described below.

     1.5 The monies advanced hereunder shall only be used to pay undisputed or court-approved Administrative Expenses, Priority Claims, Priority Tax Claims, Convenience Claims, Miscellaneous Secured Claims and periodic payments due to undisputed or court-approved Class 1 Priority Claims pursuant to the Modified Plan and to pay reasonable and legitimate expenses of the Plan Agent/Trustee, including attorneys’ fees, incurred after the effective date of the Modified Plan.

     1.6 The Borrower, may request advances from the Lender to pay when due any of the items identified in paragraph 1.5 hereof when the Debtors and the Borrower do not have sufficient cash to pay these claims or expenses. Requests for advances shall be made in writing and delivered to Lender by facsimile, email or overnight delivery at the following address:

c/o Advocat Inc.
1621 Galleria Boulevard
Brentwood, Tennessee 37027-2926
Attn: Glynn Riddle, CFO
Facsimile: (615) 771-7409
Email: griddle@Advocat-Inc.com

     Each request for an advance against the principal amount of the Loan shall state the amount of cash currently held by the Borrower and Debtors, shall identify the nature and amount of the claims or expenses that are then due for payment, and shall be signed by the Borrower as an acknowledgement that the information set forth in the request is true to the best of the Borrower’s knowledge, information and belief. The Lender shall advance the sum requested to the Borrower by wire transfer within three business days of the receipt of the request for an advance until such time as a maximum of $2,200,000 has been advanced to the Borrower; provided, however that notwithstanding any other provision in this Agreement, the Note, the Confirmation Order or any other document or instrument to the contrary, no advances shall be made hereunder above a maximum of $1,950,000 unless the parties mutually agree at the time of such advance. No advances hereunder shall be made prior to the Closing Date. Upon the full execution of this Agreement and the satisfaction of the conditions to closing set forth in Section IV, Lender shall provide an initial funding under the Loan in the amount of $1,800,000.

          1.7 Lender shall wire approved and appropriate advances pursuant to the following account:

Senior Management Services of Palestine, Inc.
Plains Capital Bank
Dallas, Texas
ABA#111 322 994
Acct #3100005713
Name of Account: Palestine Operating Account

     2.1 The Borrower hereby absolutely assigns to Lender and grants to Lender a security interest in the following property whether now or hereafter arising, whether now owned or hereafter acquired and wherever located (hereinafter collectively referred to as the “Collateral”):

          a. All accounts, accounts receivable and contract rights providing for payments of money to any Debtor or Borrower, including specifically, but without limitation, healthcare insurance and all other receivables and amounts due from private insurance programs, federal and state health care reimbursement programs, including all Medicare and Medicaid programs, as well as all amounts due to any Debtor or the Borrower with respect to current cost reports, prior year cost reports, and terminating cost reports, if any (collectively the “Accounts”), chattel paper, documents, and instruments evidencing the Accounts, and all intangible personal property relating to the recordation, monitoring, collection, servicing and payment of Accounts and data processing contracts, computer software licenses, cash management contracts and other contracts and licenses relating to the servicing of Accounts. Notwithstanding the foregoing, “Accounts” as used herein shall be limited to those Accounts of the Debtors described on Exhibit A ; and

          b. All proceeds, products, rents and profits of or from any and all of the property described in paragraph 2.1a. and, to the extent not otherwise included, all payments under insurance (whether or not Lender is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral. For purposes of this Agreement, the term “proceeds” includes whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary.

     All of which hereinafter sometimes is referred to collectively as the “Collateral.”

     2.2 Lender shall have the right, in accordance with the terms of the Collection Services Agreement between the parties of even date herewith, to collect the Accounts or proceeds therefrom, and apply same to the Indebtedness as provided in the Note.

     3.1 Affirmative Covenants and Warranties . The Borrower hereby covenants and warrants that:

          a. Borrower is a limited liability company organized and existing under the laws of the State of Delaware; Borrower’s place of business, principal residence and chief executive office is located in New York at 747 Third Avenue, Suite 32A, New York, New York 10017. Any notices hereunder may be sent to the address appearing after Borrower’s signature. Borrower will notify Lender promptly in writing of any change in the location of its principal place of business or its status as Trustee of the SMSA Creditors’ Trust or Plan Agent (as defined in the Modified Plan).

          b. Borrower is the owner of the Collateral free from any adverse lien, except for the existing lien of OHI Asset (SMS) Lender, Inc., pursuant to the Debtor-in-Possession

Financing Agreement dated May 4, 2007, the outstanding balance of which, if any, shall be paid in full by the Borrower in accordance with the Modified Plan prior to requesting any advances from Lender on this Loan. Borrower will defend the Collateral against all claims and demands of all persons at any time claiming or asserting a lien, security interest, or claim against any the Collateral or the proceeds thereof.

          c. Attached as Exhibit B to this Agreement is the Borrower’s good faith, best estimate of a budget reflecting the timing and anticipated amount of advances to be requested pursuant to paragraph 1.6 hereof, including the initial request being made as of the date of this Agreement.

          d. So long as any amount remains due and owing to Lender related to this Indebtedness, then Borrower shall make no distributions to claimants or creditors other than those expressly authorized and identified in paragraph 1.5 hereof.

          e. If any of Borrower’s Accounts should be evidenced by promissory notes, trade acceptances, or other instruments for the payment of money, Borrower immediately upon demand by Lender will deliver same to Lender, appropriately endorsed to Lender’s order. Regardless of the form of such endorsement, Borrower hereby waives presentment, demand, notice of dishonor, protest and notice of protest, and all other notices with respect thereto.

          f. Borrower will cooperate as reasonably requested by the Lender with the collection of the Accounts or providing any information or assistance necessary for the Lender to collect the Accounts.

          g. The Confirmation Order and the Modified Plan provide that the Collateral is free and clear of all liens, claims and encumbrances, and that the liens granted herein constitute duly perfected, first priority liens on and security interests in the Collateral. At the request of Lender, Borrower will join with Lender in executing one or more financing statements pursuant to the Uniform Commercial Code, in form satisfactory to Lender, and will pay the cost of filing or recording the same or this Agreement in all public offices wherever filing or recording is deemed by Lender to be necessary or desirable. A copy of this Security Agreement or copies of any financing statements executed herewith may be filed in lieu of originals in any public office.

          h. Neither the execution, the delivery nor the performance of this Agreement and all related documents by Borrower will constitute a default under or conflict with the trust agreement creating the SMSA Creditors’ Trust or any agreement, contract, document, or instrument to which Borrower is now a party. The execution of all