EX-10.146 ASSET PURCHASE AGREEMENT

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                                                                  Exhibit 10.146

                            ASSET PURCHASE AGREEMENT


     THIS ASSET PURCHASE AGREEMENT ("AGREEMENT"), is made effective as of
November 28, 2005, by and among DIVERSICARE ASSISTED LIVING SERVICES NC I, LLC,
a Delaware limited liability company ("DALS I"), DIVERSICARE ASSISTED LIVING
SERVICES NC II, LLC, a Delaware limited liability company ("DALS II") (DALS I
and DALS II are collectively, "SELLERS"), and AGEMARK ACQUISITION, LLC, a North
Carolina limited liability company ("BUYER").

     A. Sellers own and operate certain adult care home facilities located in
the State of North Carolina, as more fully described on Exhibit A (collectively,
the "FACILITIES").

     B. Sellers desire to sell and transfer the assets of the Facilities to
Buyer and Buyer desires to purchase the same from Sellers subject to the terms
and conditions of this Agreement.

     In consideration of the mutual covenants contained in this Agreement and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties intending to be legally bound hereby agree as
follows:

                          ARTICLE 1. PURCHASE AND SALE

     1.1 Purchase and Sale. Sellers agree at Closing (as defined herein), to
sell, transfer, assign, convey and deliver to Buyer, and Buyer agrees to
purchase, acquire and accept from Sellers all right, title and interest in and
to certain assets of Sellers related to the Facilities (collectively, the
"ASSETS"), as set forth below, but expressly excluding the "Excluded Assets" (as
defined in Section 1.2 below):

          (1) All right, title and interest of Sellers in and to all of the land
and real estate owned by Sellers and used in connection with the Facilities as
listed on Exhibit 1.1(1) attached hereto and in and to all structures,
improvements, fixed assets and fixtures including fixed machinery and fixed
equipment situated thereon or forming a part thereof and all appurtenances,
easements and rights-of-way related thereto (collectively, the "REAL ESTATE");

          (2) All tangible personal property, medical and other equipment,
machinery, data processing and computer hardware and software, furniture,
furnishings, appliances, vehicles and other tangible personal property owned by
Sellers and located at the Facilities (collectively, the "EQUIPMENT AND
FURNISHINGS");

          (3) All inventory of goods and supplies used or maintained in
connection with the Facilities including food, cleaning materials, disposables,
linens, consumables, office supplies, and medical supplies (collectively, the
"INVENTORY");

          (4) All personnel, resident/occupant and other records related to the
Facilities (including hard, electronic and microfiche copies) and all manuals,
books and records used in operating the Facilities including, without
limitation, personnel policies and files and manuals, accounting records, and
computer files;


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          (5) To the extent transferable, all licenses, permits, registrations,
certificates, accreditations and approvals necessary to operate the Facilities;

          (6) All plans and surveys, including "as-built" plans, those relating
to utilities, easements and roads, and plats, specifications, engineers'
drawings, architectural renderings and similar items in Sellers' possession;

          (7) All goodwill and, to the extent assignable by Sellers, all
warranties (express or implied) and rights and claims related to the Assets or
the operation of the Facilities, including those set forth on Exhibit 1.1(7)
attached;

          (8) All resident escrows, deposits and any prepaid rent or any other
fees paid by Facility residents related to the Facilities (the "DEPOSITS"),
including those set forth on Exhibit 1.1(8) attached;

          (9) The Leases and Contracts, as defined in Section 3.9, and as set
forth on Exhibit 3.(9) attached; and

          (10) Sellers' interest in any intellectual property owned, leased or
licensed by either Seller and utilized in connection with the Facilities,
including without limitation, all names used by the Facilities and all
derivatives thereof.

     1.2 Excluded Assets. Sellers are not selling and Buyer is not purchasing or
assuming obligations with respect to the following (collectively, the "EXCLUDED
ASSETS"):

          (1) Sellers' corporate and fiscal records and other records that
Sellers are required by law to retain in their possession and that are not
included in Section 1.1(4) above;

          (2) All accounts not included in Section 1.1(8) above, notes and other
receivables;

          (3) All cash, cash equivalents, cash deposits and escrows, bank
accounts, money market accounts, other accounts, certificates of deposit and
other investments of Sellers other than the Facilities' petty cash;

          (4) Sellers' provider agreements with Medicaid or any other
governmental payor program and any corresponding provider numbers;

          (5) Sellers' wide area network and associated software provided on the
Diversicare wide area network;

          (6) Sellers' continuous quality improvement program, manuals and
materials, management information systems, policy, procedure and educational
manuals and materials and similar proprietary property of Sellers;

          (7) Any rights in or to the use of the name "Advocat" or "Diversicare"
or any derivative thereof, except as set forth in Section 10.5 below;



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          (8) Any rights in or to the adult care home facility located at 400
Goldsboro Avenue, Carolina Beach, New Hanover County, North Carolina, known as
"Diversicare Assisted Living of Carolina Beach", including all real and personal
property related thereto;

         (9) The National Contracts, as defined in Section 3.9 below;

         (10) The regional office of Sellers' parent, Diversicare Assisted
Living Services NC, LLC, a Tennessee limited liability company ("DALS"), located
at 770-D Park Centre Drive, Kernersville, North Carolina 27284 (the "REGIONAL
OFFICE"), including DALS's lease of real property for said Regional Office and
all tangible personal property located at the Regional Office; and

         (11) Any other items listed on Exhibit 1.2.

     1.3 Assumed Contracts, Leases and Liabilities.

         (1) At Closing, Buyer will assume and agree to pay or perform, as the
case may be, those obligations of Sellers (i) arising from and after Closing
under the Leases and Contracts (as defined in Section 3.9 below) and (ii)
arising from all accrued vacation and sick leave for Employees (as defined in
Section 3.13) who are hired by Buyer or Buyer's agent at Closing (collectively,
the "ASSUMED LIABILITIES").

         (2) Except for the Assumed Liabilities, Buyer shall not assume, and
shall not be liable for, any debt, liability or obligation of Sellers of any
type or description whatsoever, whether related or unrelated to the Assets, the
Facilities or the transactions contemplated within this Agreement and Sellers
shall remain liable and responsible for the payment or performance, as the case
may be, of all such debts, liabilities and obligations.

     1.4 Excluded Liabilities. Without limiting the foregoing, Sellers shall
remain responsible for all debts, liabilities and obligations not expressly
assumed by Buyer (collectively, the "Excluded Liabilities"), including but not
limited to the following:

         (1) All obligations pursuant to or related to any loan or debt
obligations;

         (2) Liabilities, indebtedness, commitments or obligations and
responsibilities of any kind whatsoever (other than the Assumed Liabilities) of
Sellers arising from operations of the Facilities, relating to the time through
Closing;

         (3) All liabilities and commitments relating to the time periods
through Closing for income tax and other taxes; all employee (and former
employee) wages, salaries and benefits (unless specifically referred to in
Section 1.3(1)),

         (4) any liabilities of the Sellers under this Agreement;

         (5) any liability of the Sellers arising out of the injury to or death
of any person, or damage to or destruction of any property, whether based on
negligence, breach of warranty, strict liability, enterprise liability or any
other legal or equitable theory arising from or related to services provided by
the Sellers, to the extent any of such liabilities arose on or prior to the
Closing; and


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         (6) amounts owed by Sellers to any third party payors, including
Medicare and Medicaid, for the periods through Closing as a result of any
settlement or other adjustment process used by such third party payors,
including cost reports filed or to be filed.

                    ARTICLE 2. PURCHASE PRICE; ALLOCATIONS;
                      ACCOUNTS RECEIVABLE AND RESIDENT FUNDS

     2.1 Purchase Price. The purchase price payable by Buyer to Sellers for the
Assets shall be Eleven Million and No/100 Dollars ($11,000,000.00) (the
"PURCHASE PRICE"). The Purchase Price shall be payable at Closing by wire
transfer to an account designated by Sellers of immediately available, same day
federal funds. At Closing, the Escrow Amounts (as defined herein), together with
any interest earned thereon, shall be applied to the Purchase Price and Buyer
shall also receive a credit for vacation and sick leave as assumed by Buyer, or
Buyer's agent, pursuant to Section 1.3(1) above. The amount of the credit for
the assumed vacation and sick leave shall be equal to the amount accrued by
Sellers for such obligations, determined in accordance with generally accepted
accounting principles, applied consistently with Sellers' past practices. At
Closing, this amount shall be estimated based on Sellers' most currently
available financial reports and if there is any change in the amount accrued by
Sellers between the date of said financial report and the Closing Date, the
parties agree to settle on the appropriate adjustment in accordance with Section
2.2 below.

     2.2 Apportionable Income and Expenses. All income and expense attributable
to the operation of the Facilities (measured on an accrual basis) through 11:59
p.m. on the date of Closing shall be for the account of Sellers. Thereafter,
such income and expense shall be for the account of Buyer. All apportionable
items of operating income and expense applicable to any periods commencing
before Closing and continuing after Closing shall be prorated between Sellers
and, to the extent they are included within the Assumed Liabilities, Buyer.
Apportionable operating income and expenses shall include, but shall not be
limited to, such items as prepaid income, power and utility charges, personal
property taxes, real estate taxes and rents.


     If final prorations cannot be made at Closing for any item being prorated
under this Section 2.2, Buyer and Sellers agree to allocate such items on a fair
and equitable basis as soon as invoices or bills are available and applicable
reconciliation have been completed, with final adjustment to be made as soon as
reasonably possible after the Closing (but in no event later than ninety (90)
days after the Closing, except that adjustments arising from any tax protest
shall not be subject to such ninety (90) day limitation, but shall be made as
soon as reasonably possible), to the effect that income and expenses are
received and paid by the parties on an accrual basis with respect to their
period of ownership. Payments in connection with the final adjustment shall be
due no later than ninety (90) days after the Closing, except that adjustments
arising from any tax protest shall not be subject to such 90-day limitation, but
shall be made as soon as reasonably possible. Sellers shall have reasonable
access to, and the right to inspect and audit, Buyer's books to confirm the
final prorations for a period of one (1) year after the Closing. To the extent
invoices or bills for the current real estate tax year are not yet issued, the
parties shall prorate such taxes on the basis of the most recent tax year and
will adjust such proration within five (5) business days after Sellers or Buyer
receive the real estate tax invoice for the current tax year.


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     2.3 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in the manner set forth in Exhibit 2.3 attached hereto (the
"ALLOCATION"). The parties to this Agreement agree that the Allocation shall be
used by them for all purposes including tax, reimbursement and other purposes.
Each party to this Agreement agrees that it will report the transaction
completed pursuant to this Agreement in accordance with the Allocation,
including any report made under Section 1060 of the Internal Revenue Code of
1986, as amended (the "CODE"), and that no party will take a position
inconsistent with the Allocation except with the prior written consent of the
other parties hereto.

     2.4 Escrow Deposit. Buyer has previously deposited with Chicago Title
("ESCROW AGENT") the sum of One Hundred Thousand and No/100 Dollars
($100,000.00) (together with all interest thereon, the "ESCROWED AMOUNT"). The
Escrowed Amount shall be held by Escrow Agent and paid, disbursed or applied as
a credit against the Purchase Price as provided in this Agreement. The Escrowed
Amount shall be held or placed by Escrow Agent in an interest bearing account
and the term "Escrowed Amount" shall include any interest thereon. If the
Closing occurs, the Escrowed Amount will be credited against the Purchase Price.
If the Closing does not occur or the Agreement is otherwise terminated (i) by
reason of Buyer's default, Escrow Agent shall be irrevocably authorized and
directed to release the Escrowed Amount to Sellers and such amounts shall be
retained by Sellers as liquidated damages; or (ii) for any other reason, Escrow
Agent shall be irrevocably authorized and directed to release the Escrowed
Amount to the Buyer. This Agreement shall constitute both an agreement among
Sellers and Buyer and escrow instructions for Escrow Agent. If Escrow Agent
requires a separate or additional escrow agreement to hold the Escrowed Amount,
Buyer and Sellers hereby agree upon request by Escrow Agent to promptly execute
and deliver such agreement; provided, that such agreement shall not modify or
amend the provisions of this Agreement unless otherwise consented and agreed to
in writing by Sellers and Buyer.

     2.5 Accounts Receivable.

         (1) Sellers are not selling, and shall retain all right, title and
interest in and to all unpaid accounts receivable with respect to the Facilities
which relate to the period prior to the Closing Date, including, but not limited
to, any accounts receivable arising from rate adjustments which relate to the
period prior to the Closing Date even if such adjustments occur after the
Closing Date ("SELLERS' A/R"). Buyer (i) shall do nothing to interfere with any
and all of Sellers' rights with respect to the Sellers' A/R, including but not
limited to, the right to collect the same and to enforce any and all of Sellers'
rights with respect to Sellers' A/R; provided the Sellers shall not initiate any
litigation for collections against parties who continue to be residents of the
Facilities after Closing without Buyer's consent, and (ii) agrees that if it
receives any proceeds with respect to the Sellers' A/R, Buyer will hold such
proceeds in trust for Sellers and shall promptly turn over those proceeds to
Sellers without demand, in the form received. Sellers agree that if Sellers
receive any amounts with respect to accounts receivable for services provided
after the Closing of the Facilities, such amounts shall promptly (and in no
event more than five (5) business days after receipt by Sellers) be forwarded to
Buyer.

         (2) Within ten (10) business days following the Closing Date, Sellers
shall provide Buyer with a schedule setting forth by patient its outstanding
accounts receivable with respect to the Facilities as of the Closing Date.


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         (3) In furtherance and not in limitation of the requirements set forth
in Section 2.5, payments received by Buyer from and after the Closing Date from
third party payors, including but not limited to Medicare, Medicaid, managed
care and health insurance, shall be handled as follows:

             (a) If such payments specifically indicate on the accompanying
remittance advice, or the parties otherwise agree, that they relate to the
period prior to the Closing Date, the payments shall be forwarded to Sellers by
Buyer, along with the applicable remittance advice, promptly, but in no event
more than five (5) business days, after receipt thereof;

             (b) If such payments indicate on the accompanying remittance
advice, or the parties otherwise agree, that they relate to the period on or
after the Closing Date, they shall be retained by Buyer; and

             (c) If the period(s) for which such payments are made is not
indicated on the accompanying remittance advice, and the parties are unable to
agree as to the periods for which such payments relate, the parties shall assume
that each payment received within ninety (90) days after the Closing Date
relates to the oldest outstanding unpaid receivables for reimbursement and,
based on such assumption, the portion thereof which relates to the period on and
after the Closing Date shall be retained by Buyer and the balance shall be
remitted to Sellers promptly, but in no event more than five (5) business days,
after receipt thereof. After said ninety (90) day period, such payments which
fail to designate the period to which they relate shall be first applied to
current balances with any excess applied to reduce pre-Closing balances.

             (d) Any payments received by Buyer within ninety (90) days after
the Closing Date from or on behalf of private pay patients with outstanding
balances as of the Closing Date which fail to designate the period to which they
relate, will first be applied by Buyer to reduce the patients' pre-Closing Date
balances, with any excess applied to reduce any balances due for services
rendered by Buyer after the Closing Date.

             (e) In the event the parties mutually determine that they
misapplied any payment hereunder, the party that erroneously received the
payment shall remit it to the other party promptly, but in no event more than
five (5) business days, after the determination of misapplication is made.

             (f) For the six (6) month period following the Closing Date or
until Sellers receive payment of all accounts receivable attributed to the
operation of the Facilities prior to the Closing Date, whichever is sooner,
Buyer shall provide Sellers with an accounting by the 20th day of each month
setting forth all amounts received by Buyer during the preceding month with
respect to Sellers' A/R which are set forth in the schedule provided by Sellers
pursuant to Section 2.5. Sellers shall have the right to inspect all cash
receipts of Buyer during weekday business hours in order to confirm Buyer's
compliance with the obligations imposed on it under this Section.

          (4) The obligations of the parties to forward the accounts receivable
payments pursuant to this Section 2.5 are absolute and unconditional and
irrespective of


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any circumstances whatsoever which might constitute a legal or equitable
discharge, offset, counterclaim or defense of the parties, the right to assert
any of which is hereby waived.

     2.6 Transfer on Resident Trust Funds.

         (1) Upon execution of this Agreement, Sellers shall prepare and deliver
to Buyer a current true, correct, and complete accounting and inventory
(properly reconciled) of any resident trust funds and residents' property held
by Sellers in trust for residents at the Facility (collectively the "RESIDENT
TRUST FUNDS"). Not less than fourteen (14) days prior to Closing, Sellers shall
prepare and deliver to Buyer an updated true, correct and complete accounting
and inventory (properly reconciled) of the Resident Trust Funds.

         (2) As of the Closing Date, Sellers hereby agree to transfer to Buyer
the Resident Trust Funds and Buyer hereby agrees that it will accept such
Resident Trust Funds in trust for the residents/responsible parties and be
solely accountable to the residents/responsible parties for such Resident Trust
Funds in accordance with the terms of this Agreement and applicable statutory
and regulatory requirements.

         (3) Within five (5) days after the Closing Date, Sellers shall prepare
a final reconciliation comparing the actual Resident Trust Fund balance on the
Closing Date to the amount of the Resident Trust Funds transferred to Buyer at
the Closing and to the extent the former exceeds the latter, Sellers shall remit
such excess to Buyer or to the extent the latter exceeds the former, Buyer shall
remit such excess to Sellers.

         (4) Sellers shall have no responsibility to the applicable resident/
responsible party and regulatory authorities with respect to any Resident Trust
Funds delivered to Buyer.

              ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF SELLERS

         As a material inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, Sellers hereby represent and
warrant to Buyer, which representations and warranties shall be true and correct
on the date hereof and as of the date of Closing, as follows:

     3.1 Organization, Qualification and Authority. Each Seller is a limited
liability company organized, validly existing and in good standing in the State
of Delaware, and is in good standing and qualified to do business as a foreign
corporation in the State of North Carolina. Each Seller has full power and
authority to own, lease and operate its facilities and assets as presently
owned, leased and operated and to carry on its business as it is now being
conducted. Each Seller 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 give effect to the provisions of this Agreement and to
consummate the transactions contemplated on the part of such Seller hereby. The
execution, delivery and consummation of this Agreement, and all other agreements
and documents executed in connection herewith by each Seller, have been duly
authorized by all necessary action on the part of such Seller and Sellers have
provided Buyer certified copies of resolutions or consents of each Seller
evidencing such authorizations. No other action, consent or approval on the part
of Sellers or any other person or entity is necessary to authorize Sellers' due
and valid

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execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith. This Agreement and all other
agreements and documents executed in connection herewith by Sellers, upon
execution and delivery thereof, constitute the valid and binding obligations of
each Seller, enforceable in accordance with their respective terms.

     3.2 Absence of Default. The execution, delivery and consummation of this
Agreement and all other agreements and documents executed in connection herewith
by Sellers will not constitute a violation of, or be in conflict with, and will
not, with or without the giving of notice or the passage of time, or both,
result in a breach of, constitute a default under, or create or cause the
acceleration of the maturity of any debt, indenture, obligation or liability
affecting the Assets or the Facilities pursuant to, or result in the creation or
imposition of any security interest, lien, charge or other encumbrance upon any
of the Assets under: (1) any term or provision of the governing documents of
each Seller; (2) any contract, lease, purchase order, agreement, document,
instrument, indenture, mortgage, pledge, assignment, permit, license, approval
or other commitment to which either Seller is a party or by which either Seller
and/or the Assets are bound; (3) any judgment, decree, order, regulation or rule
of any court or regulatory authority; or (4) any law, statute, rule, regulation,
order, writ, injunction, judgment or decree of any court or governmental
authority or arbitration tribunal to which either Seller and/or the Assets are
subject or that would have an adverse effect on Buyer, the Facilities or the
Assets.

     3.3 Financial Statements. Attached hereto as Exhibit 3.3 are true and
correct copies of the unaudited balance sheets for each Facility as of December
31, 2003 and 2004, and unaudited income statements for the years then ending,
and the interim unaudited balance sheet and income statement of each Facility
for the eight (8) month period ended August 31, 2005 (collectively, the
"FINANCIAL STATEMENTS"). The Financial Statements are based on the books and
records of Sellers and present fairly and accurately the financial position of
the Facilities as of the periods specified, the results of its operation, and
all costs and expenses for the periods specified. The Financial Statements are
true, complete and correct and contain no untrue or misleading statements and do
not omit anything which would cause them to be misleading or inaccurate in any
respect. The Financial Statements have been prepared in compliance with
generally accepted accounting principles on an accrual basis, except that they
do not include footnotes and they are subject to normal year-end adjustments.

     3.4 Operations Since August 31, 2005. Except as set forth on Exhibit 3.4,
since August 31, 2005, there has been no:

         (1) Material change in the condition, financial or otherwise, of
Sellers, the Facilities or the Assets that has, or could reasonably be expected
to have, an adverse effect on any of the Assets, the Facilities or future
prospects of the Facilities, or the results of the operations of Sellers;

          (2) Uninsured loss, damage or destruction in excess of $10,000.00 of or
to any of the Assets;


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         (3) Sale, lease, transfer or other disposition by Sellers of, or
mortgages or pledges of or the imposition of any lien or encumbrance on, any
portion of the Assets, except as set forth on Exhibit 3.4(3) attached hereto;

         (4) Increase in the compensation payable by Sellers to any of their
employees other than those made in the ordinary course of business, or any
increase in, or institution of, any bonus, insurance, pension, profit-sharing or
other employee benefit plan or arrangements;

         (5) Strike, work stoppage or other labor dispute at any Facility;

         (6) Amendment to or change in the terms of any of the Leases and
Contracts or termination, waiver or cancellation of any rights or claims of
Sellers thereunder;

         (7) Assumption or creation of any liability outside of Sellers'
ordinary course of business in excess of $10,000.00, except as set forth on
Exhibit 3.4(7) attached hereto; or

         (8) Institution or settlement of any litigation, action or proceeding
before any court or governmental body relating to Sellers, the Facilities or the
Assets, except as set forth on Exhibit 3.4(8) attached hereto.

     3.5 Employment Discrimination. Except as disclosed in Exhibit 3.5 attached
hereto, no person or party (including, without limitation, any governmental
agency) has asserted, or to the best knowledge of Sellers, has threatened to
assert, any claim for any action or proceeding against either Seller (or any
officer, director, employee, agent or member of such Seller) arising out of any
statute, ordinance or regulation relating to wages, collective bargaining,
discrimination in employment or employment practices or occupational safety and
health standards including, without limitation, the Fair Labor Standards Act,
Title VII of the Civil Rights Act of 1964, as amended, the Occupational Safety
and Health Act, the Age Discrimination in Employment Act of 1967, the Americans
With Disabilities Act and the Family and Medical Leave Act.

     3.6 Licenses and Permits. The Facilities have all licenses, permits,
registrations, certificates and accreditations (collectively, the "LICENSES AND
PERMITS") necessary for Sellers to own, occupy and operate the Facilities as
adult care home facilities. To the knowledge of Sellers, there is no default
under any of the Licenses and Permits, nor do Sellers know of any ground for
revocation, suspension or limitation of any of the Licenses or Permits. No
written or, to Sellers' knowledge, verbal notices have been received by Sellers
with respect to any threatened or pending revocation, termination, suspension or
limitation of any of the Licenses and Permits.

     3.7 Compliance with Zoning, Land Use and Other Laws. Except as set forth on
Exhibit 3.7, none of the Real Estate is in material violation of any zoning,
public health, building code or other similar law applicable thereto or to the
ownership, occupancy and/or operation thereof, or there exist applicable
variances, conditional use permits, waivers or exemptions relating to the Real
Estate with respect to any non-conforming use or other zoning or building codes
matters.


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     3.8 Title to Assets.

         (1) Except as set forth on Exhibit 3.8(1), Sellers are the sole legal
and beneficial owners of, or have the exclusive, unrestricted right and
authority to use and transfer to Buyer, the personal property included in the
Assets, free and clear of all mortgages, security interests, liens, leases,
covenants, assessments, easements, options, rights of refusal, restrictions,
reservations, defects in the title, encroachments and other encumbrances.

          (2) The descriptions of the Real Estate contained in Exhibit 1.1(1)
hereto are complete and sufficient for their intended purposes and such
descriptions include all real property owned by Sellers in connection with the
Facilities. At Closing, Sellers will be the sole and exclusive record, legal and
equitable owners of all right, title and interest in and at Closing will have,
good, marketable and insurable title in fee simple to, and will be in possession
of all of the Real Estate used in connection with the Facilities; provided,
however, that at the Heritage Care of Seven Lakes Facility, a residence for the
Facility's manager located at Lot 129, McDougal Street, West End, North Carolina
27376 (the "SEVEN LAKES MANAGER'S RESIDENCE") is owned by Sellers' parent,
Diversicare Assisted Living Services NC, LLC, a Tennessee limited liability
company ("DALS"). At Closing, Sellers shall cause DALS to convey the Seven Lakes
Manager's Residence to Buyer on the same terms that the Real Estate is being
transferred by Sellers. At Closing, the Real Estate and the Seven Lakes
Manager's Residence shall be free and clear of all mortgages, liens, leases,
assessments, easements, covenants, options, rights of refusal, restrictions,
reservations, defects in title, encroachments and other encumbrances or claims
of any other person or party, except for (i) any lien to secure the payment of
real estate taxes, including special assessments, not delinquent, (ii) all
applicable laws, ordinances, rules and governmental regulations affecting the
use and occupancy of the Real Estate, (iii) easements, restrictions and other
matters applicable to the Real Estate that do not hinder, interfere with or
prohibit the use and occupancy of the Real Estate as adult care home facilities,
and (iv) those matters described on Exhibit 3.8(2) (the "PERMITTED EXCEPTIONS").
Sellers have, and will at Closing have, the full right and authority to transfer
and convey the Real Estate to Buyer as contemplated by the terms of this
Agreement, and to vest in Buyer good, marketable and insurable fee simple title
and the lawful right to possess and use the Real Estate. Title shall be
transferred in all cases by General Warranty Deed.

         (3) No other person or entity owns any interest in any of the Assets,
except as set forth on Exhibit 3.8(3) attached hereto

     3.9 Leases and Contracts.

         (1) Exhibit 3.9 attached hereto sets forth a complete and accurate list
of all material contracts, agreements, purchase orders, leases, subleases,
options and commitments, oral or written, and all assignments, amendments,
schedules, exhibits and appendices thereof, affecting or relating to the
Facilities or any Asset to which either Seller is a party or by which either
Seller, the Assets or the Facilities is bound or affected, including, without
limitation, service contracts, management agreements, equipment leases and
leases pertaining to any part of the Real Estate (collectively, the "LEASES AND
CONTRACTS"); provided, however, that for purposes of this Agreement, "Leases and


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Contracts" shall expressly exclude Sellers' "National Contracts" (herein so
called), which are also identified on Exhibit 3.9. Buyer acknowledges that the
National Contracts are excluded from the Leases and Contracts being assigned to
Buyer under this Agreement.

         (2) None of the Leases and Contracts have been modified, amended,
assigned, transferred or subordinated except as described on Exhibit 3.9 and
each is in full force and effect and is valid, binding and enforceable in
accordance with its respective terms.

         (3) No event or condition has happened or presently exists that
constitutes a default or breach or, after notice or lapse of time or both, would
constitute a default or breach by any party under any of the Leases and
Contracts. There are no counterclaims or offsets under any of the Leases and
Contracts.

         (4) None of the Leases and Contracts shall be amended between the date
hereof and Closing without the prior written consent of Buyer.

     3.10 Environmental Matters.

         (1) Hazardous Substances. As used in this Section, the term "HAZARDOUS
SUBSTANCES" means any hazardous or toxic substance, medical or biologic material
or waste or other material or waste including, but not limited to, those
substances, materials, and wastes defined in Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), listed in the United States Department of Transportation Table (49
CFR 172.101) or by the Environmental Protection Agency as hazardous substances
pursuant to 40 CFR Part 302, or which are regulated under any other
Environmental Law (as defined herein), or any hydrocarbons, petroleum, petroleum
products, asbestos, polychlorinated biphenyls, formaldehyde, radioactive
substances, flammables or explosives.

         (2) Compliance with Laws and Regulations. Except as set forth on
Exhibit 3.10, all operations, use or occupancy of the Real Estate, or any
portion thereof, by Sellers and any agent, contractor or employee of any agent
or contractor of Sellers (collectively, "AGENTS"), or any tenant or subtenant of
Sellers of any part of the Real Estate, have been in material compliance with
any and all laws, regulations, orders, codes, judicial decisions, decrees,
licenses, permits and other applicable requirements of governmental authorities
with respect to Hazardous Substances, pollution or protection of human health
and safety (collectively, "ENVIRONMENTAL Law") including, but not limited to,
the release, emission, discharge, storage and removal of Hazardous Substances.
Sellers, Affiliates and Agents have kept the Real Estate free of any lien
imposed pursuant to Environmental Law.

         (3) Except as set forth on Exhibit 3.10, neither Seller: (i) has either
received or been issued a notice, demand, request for information, citation,
summons or complaint regarding an alleged failure to comply with Environmental
Law; or (ii) is subject to any existing, pending, or threatened investigation or
inquiry by any governmental authority for failure to comply with, or any
remedial obligations under, Environmental Law, and there are no circumstances
known to Sellers which could serve as a basis therefor. Sellers have not assumed
any liability of any third party for clean up under, or noncompliance with,
Environmental Law.


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         (4) Neither Seller nor, to the knowledge of Sellers, the Agents have
transported or arranged for the transportation of any Hazardous Substances to
any location which is listed or, to Sellers' knowledge, proposed for listing
under Environmental Law, or is the subject of any enforcement action,
investigation or other inquiry under Environmental Law.

          Sellers shall promptly notify Buyer in writing of any order of which
either is aware, receipt of any notice of violation or noncompliance with any
Environmental Law, any threatened or pending action of which either is aware by
any regulatory agency or governmental authority, or any claims made by any third
party of which it is aware relating to Hazardous Substances on, emanations on or
from, releases on or from, any of the Real Estate which relate to the period
prior to Closing; and shall promptly furnish Buyer with copies of any written
correspondence, notices or legal pleadings and written summaries of any oral
communications or notices in connection therewith.

         (5) Other Environmental Matters. Sellers have furnished to Buyer a copy
of any environmental audit, study, report or other analysis on the Real Estate
in Sellers' possession, custody or control.

     3.11 Condemnation. No part of the Real Estate is currently subject to
condemnation proceedings and, to Sellers' knowledge, no condemnation or taking
is threatened or contemplated.

     3.12 Litigation. Except as set forth on Exhibit 3.12, neither Seller has
received notice of any violation of any law, rule, regulation, ordinance or
order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality. Except as set
forth in Exhibit 3.12 attached hereto, there are no lawsuits, proceedings,
actions, arbitrations, governmental investigations, claims, inquiries or
proceedings pending or, to Sellers' knowledge, threatened involving Sellers, any
of the Assets or the Facilities and Sellers know of no basis therefor. A list of
each lawsuit, administrative proceeding, governmental investigation, arbitration
or other action commenced against Sellers or involving the Real Estate or Assets
during the past three (3) years is set forth on Exhibit 3.12 attached hereto,
along with identifying information such as docket numbers and forum where any
such matter was pending.

     3.13 Sellers' Employees. Exhibit 3.13 attached hereto sets forth: (1) a
complete list of all of Sellers' employees at the Facilities and all employees
of DALS at the Regional Office (collectively, the "EMPLOYEES") and rates of pay;
(2) categorization of each such person as a full-time or part-time employee of
Sellers; (3) the employment dates and job titles of each such person; and (4)
true and complete copies of any and all fringe benefits and personnel policies.
For purposes of this Section, "PART-TIME employee" means an employee who is
employed for an average of fewer than twenty (20) hours per week or who has been
employed for fewer than six (6) of the twelve (12) months preceding the date on
which notice is required pursuant to the Worker Adjustment and Retraining
Notification Act ("WARN"), 29 U.S.C. Section 2102 et seq. Except as provided in
Exhibit 3.13, Sellers have no employment agreements with the Employees and all
such Employees are employed on an "at will" basis. Sellers and DALS will
terminate all of their employees at Closing. The parties expressly agree that
Sellers shall retain responsibility for and timely pay all salaries and wages,
paid time off benefits, related payroll taxes and all retention bonuses,
retirement


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and other fringe benefits that have accrued to the Employees through Closing;
provided that Buyer, or Buyer's agent, shall assume accrued vacation and sick
leave obligations pursuant to Section 1.3(1) above. Sellers shall use their best
efforts to retain the Employees in their current positions up to Closing.

     3.14 Labor Relations. Except as set forth on Exhibit 3.14, neither Seller
is a party to any labor contract, collective bargaining agreement, contract,
Letter of Understanding, or any other arrangement, with any labor union or
organization which obligates such Seller to compensate its employees at
prevailing rates or union scale nor are any of its employees represented by any
labor union or organization. There is no pending or threatened labor dispute,
work stoppage, unfair labor practice complaint, strike, administrative or court
proceeding or order between Sellers and any present or former employee(s) of
Sellers.

     3.15 Insurance. A complete and accurate list of all insurance policies held
by Sellers with respect to the Facilities is set forth on Exhibit 3.15 attached
hereto. True and complete copies of such policies have previously been provided
to Buyer. Exhibit 3.15 also sets forth a summary of Sellers' current insurance
coverage (listing type, carrier and limits), and includes a list of any pending
insurance claims relating to Sellers. Neither Seller is in default or breach
with respect to any provision of any such insurance policies nor has such Seller
failed to give any notice or to present any claim thereunder in due and timely
fashion.

     3.16 Broker's or Finder's Fee. Except for Marcus & Millichap, whose fees
shall be the responsibility of Sellers, neither Seller has