SETTLEMENT AND RESTRUCTURING AGREEMENT



         THIS AGREEMENT, made as of the 1st day of October, 2000, by and among

ADVOCAT INC., a Delaware corporation ("Advocat"), of 277 Mallory Station Road,

Suite 130, Franklin, Tennessee 37067, DIVERSICARE LEASING CORP., a Tennessee

corporation ("DLC"), of 277 Mallory Station Road, Suite 130, Franklin, Tennessee

37067, STERLING HEALTH CARE MANAGEMENT, INC., a Kentucky corporation ("SHCM"),

of 277 Mallory Station Road, Suite 130, Franklin, Tennessee 37067, DIVERSICARE

MANAGEMENT SERVICES CO., a Tennessee corporation ("DMSC"), of 277 Mallory

Station Road, Suite 130, Franklin, Tennessee 37067, ADVOCAT FINANCE, INC., a

Delaware corporation ("AFI"), of 277 Mallory Station Road, Suite 130, Franklin,

Tennessee 37067, OMEGA HEALTHCARE INVESTORS, INC., a Maryland corporation

("Omega"), of 900 Victors Way, Suite 350, Ann Arbor, Michigan 48108, and

STERLING ACQUISITION CORP., a Kentucky corporation ("Acquisition"), of 900

Victors Way, Suite 350, Ann Arbor, Michigan 48108.



RECITALS:



         A.       Omega, individually and/or through its wholly-owned subsidiary

Acquisition, as lessor, and Advocat, through its wholly owned subsidiary DLC,

and/or DLC's wholly owned subsidiary SHCM, as lessees, are parties, via mesne

assignments, subleases and other agreements, to four (4) master leases

(identified on Schedule 1 hereto as the "1992 Master Lease", the "1994 Master

Lease", the "1997 Master Lease", and the "West Liberty Master Sublease", and

collectively referred to herein as the "Master Leases") covering, in the

aggregate, twenty-eight (28) nursing care facilities located variously in

Kentucky, Tennessee, West Virginia, Alabama, Arkansas and Ohio, listed by name

and location on Schedule 1 (the "Master Leased Facilities").



         B.       Omega is the mortgagee of three (3) nursing care facilities

located in Florida (the "Florida Mortgaged Facilities"), listed by name and

location on Schedule 2 hereto, owned by Counsel Nursing Properties, Inc., a

Delaware corporation ("CNP"), and leased by CNP to DLC, pursuant to a Mortgage

Note in the original principal amount of $7,031,250, as amended and restated

(the "CNP Note"), secured by a Mortgage and Security Agreement and Fixture

Filing of even date therewith (the "CNP Mortgage"). DLC is obligated, under the

terms of the subject lease(s), to make debt service payments under the CNP Note

directly to Omega.



         C.       Omega is also the mortgagee of four (4) nursing care

facilities located in Florida (the "Florida Managed Facilities"), listed by

name, location and owner on Schedule





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3 hereto, owned by various sister corporations of Emerald Healthcare, Inc., a

Florida corporation ("Emerald"), and managed by DMSC, a wholly owned subsidiary

of Advocat.



         D.       Counsel Corporation, an Ontario corporation ("Counsel") has

provided a financial undertaking to Omega relative to the obligations of the

lessee under the 1992 Master Lease and of CNP under the CNP Note and CNP

Mortgage.



         E.       Advocat and/or certain of its subsidiaries and/or affiliates

have provided guaranties pertaining to the Master Leases and the CNP Note and

CNP Mortgage (the "Advocat Guaranties"), and DMSC has (i) subordinated its

management fees with respect to the Florida Managed Facilities, and (ii)

undertaken to make certain advances to the Florida Managed Facilities, as

provided in the relevant documents.



         F.       Advocat and its subsidiaries have been in default of their

various obligations to Omega and its subsidiaries since March 1, 2000 by virtue

of, among other things, non-payment of rental and other obligations under the

Master Leases and debt service under the CNP Note.



         G.       Advocat has made partial payments to Omega since April 24,

2000, being the date of a Standstill Agreement (the "Standstill Agreement"), the

expiration date of which has been extended by the parties through September 30,

2000.



         H.       The parties have reached a settlement of the foregoing

defaults, and have agreed upon a restructuring of their various agreements and

undertakings with respect to the Master Leased Facilities, the Florida Mortgaged

Facilities and the Florida Managed Facilities, all as more particularly set

forth hereinbelow.



         NOW, THEREFORE, in consideration of the foregoing and the mutual

covenants contained herein, and for other good and valuable consideration, the

receipt and adequacy of which are acknowledged hereby, Omega, Acquisition,

Advocat, DLC, SHCM, AFI and DMSC covenant and agree as follows:



         1.       Acknowledgment of Default. A. Advocat, DLC, SHCM, AFI and DMSC

each acknowledges and agrees that: (i) DLC and SHCM are in material default

under the Master Leases; (ii) CNP is in material default under the CNP Note and

CNP Mortgage, and Advocat and DLC are in material default of their obligations

to Omega with respect thereto; (iii) all required notices of default under the

Master Leases, the CNP Note and CNP Mortgage, and the Advocat Guaranties have

been given or waived by all necessary parties, (iv) all grace and cure periods

relating to the aforementioned defaults under the





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{PAGE}   3



Master Leases, the CNP Note and CNP Mortgage, the Advocat Guaranties, or

otherwise required by applicable law, have expired without the defaults having

been cured, and (v) the existence of the defaults now entitles Omega and its

subsidiaries to exercise (subject only to the terms of the Standstill Agreement)

all of their respective rights and remedies under the Master Leases, the CNP

Mortgage, the Advocat Guaranties and applicable law. Advocat, DLC, SHCM, AFI and

DMSC further acknowledge that none of Advocat, DLC, SHCM, AFI or DMSC has any

claim or cause of action against Omega, Acquisition, or any of their respective

subsidiaries and affiliates, nor any defense to their respective obligations

under the Master Leases or with respect to the CNP Note and CNP Mortgage or any

defense to or right of set-off against the Master Lease Arrearage, the Interest

Arrearage, and/or the CNP Principal (all as defined below). The parties hereto

acknowledge and agree that the foregoing defaults under the Master Leases and

the applicable and relevant obligations of Advocat under the Advocat Guaranties

with respect thereto will be cured and/or settled upon and by virtue of the

consummation of the transactions contemplated by this Agreement relating to the

Master Leased Facilities. Further, the parties acknowledge and agree that the

foregoing defaults under the CNP Note and CNP Mortgage, and the applicable and

relevant obligations of Advocat under the Advocat Guaranties with respect

thereto will be cured and/or settled upon consummation of the transactions

contemplated by Paragraph 3 relating to the Florida Mortgaged Facilities.

However, except as specifically provided herein, pending consummation of those

transactions, Omega retains all rights under the CNP Note and the CNP Mortgage

against CNP and Counsel and all rights under the Advocat Guaranties as they

relate to the CNP Note and CNP Mortgage.



         B.       The parties to this Agreement acknowledge and agree that the

unpaid balance (excluding out-of-pocket costs and expenses incurred by Omega

and/or its subsidiaries, and net of payments made pursuant to the Standstill

Agreement) for Minimum Rent, Additional Rent and franchise and similar tax

obligations of DLC and SHCM under the Master Leases as of September 30, 2000 is

$2,985,111.99 (the "Master Lease Arrearage"), and that the unpaid balance

(excluding out-of-pocket costs and expenses incurred by Omega and/or its

subsidiaries, and net of payments made pursuant to the Standstill Agreement) for

interest, accrual interest, late charges and prepayment penalty under the CNP

Note as of September 30, 2000, is $1,056,568.25 (the "Interest Arrearage"). The

parties also acknowledge that the principal balance on the CNP Note, in the

amount of $7,031,025 (the "CNP Principal") is due and owing.



         2.       Closings.



         A.       Initial Closing.





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{PAGE}   4



                  (I)      Time and Place. The consummation of the transactions

contemplated by this Agreement and pertaining to the Master Leased Facilities

and the Florida Managed Facilities (the "Initial Closing") shall take place on

or before November 15, 2000 (the "Initial Closing Date"), with an effective date

of October 1, 2000 (the "Effective Date"). The Initial Closing Date may be

extended by mutual agreement of the parties, but no such extension shall operate

to postpone the Effective Date. The Initial Closing shall be held at the offices

of Harwell Howard Hyne Gabbert & Manner, P.C., 315 Deaderick Street, Suite 1800,

Nashville, Tennessee 37238-1800, or at such other place as shall be mutually

agreed upon by Omega and Advocat.



                  (II)     Initial Closing Documents. The following documents

and instruments shall be executed and/or delivered at the Initial Closing:



         (i)      The Amended and Restated Master Lease (reference Paragraph

4.A);



         (ii)     The Amended and Restated Security Agreement (reference

Paragraph 4.B);



         (iii)    UCC Financing Statements (reference Paragraph 4.B);



         (iv)     The Amended and Restated Guaranty (reference Paragraph 4.C);



         (v)      The Amended and Restated Memoranda of Leases (reference

Paragraph 4.D);



         (vi)     The Reaffirmation of Obligations (reference Paragraph 5);



         (vii)    The intercreditor agreement to be executed by and between

Omega, Acquisition and AmSouth (reference Paragraphs 4 and 8);



         (viii)   The Subordinated Note (reference Paragraph 10);



         (ix)     The Stock Subscription Agreement (reference Paragraph 11);



         (x)      The parties shall execute a closing statement reflecting the

transactions contemplated to occur at the Initial Closing;



         (xi)     In addition, Advocat, DLC, SHCM, AFI and DMSC shall each

deliver to Omega and Acquisition a certificate, signed by the Secretary or

Assistant Secretary of





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each such entity, confirming the incumbency of its respective officers, and to

which are attached the following:



         (aa)     a copy of the articles of incorporation or certificate of

incorporation of each entity, as amended, and certified by the Secretary of

State of the jurisdiction of incorporation as of a date not more than 40 days

prior to the Initial Closing;



         (bb)     a true, correct and complete copy of the current bylaws of

each entity, as amended;



         (cc)     a true, correct and complete copy of the resolutions adopted

by the Board of Directors of each entity, authorizing the execution and delivery

of this Agreement and the consummation of the transactions contemplated herein;



         (dd)     a certificate of good standing for each entity, issued as of a

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