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Lease Termination and Operations Transfer Agreement

Entities:
Date:
2002
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ID:
#366947

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                              LEASE TERMINATION AND
                          OPERATIONS TRANSFER AGREEMENT

         THIS LEASE TERMINATION AND OPERATIONS TRANSFER AGREEMENT (the
"Agreement") is made and entered into as of the 31st day of March, 2002 by and
between  DIVERSICARE ASSISTED LIVING SERVICES, INC., a Tennessee corporation
("Lessee"), and  GUY S. PIERCE, an individual, and any person or entity to
whom this Agreement is assigned in accordance with Section 17 hereof
("Assignee").

                                    RECITALS

         A. Pursuant to each Lease And Option to Purchase identified on Exhibit
A attached hereto by and between Lessee and, as applicable, Pleasant Care
Associates, L.P. and Eakes Investment Company, L.P., as Lessors (each a "Lease"
and collectively, the "Leases"), Lessee is currently the lessee of the two (2)
adult care home facilities identified on Exhibit A attached hereto (each a
"Facility" and together the "Facilities"), located in the State of North
Carolina and the State of Virginia as more particularly set forth in Exhibit A
attached hereto.

         B. Lessee and Assignee wish to assign all of Lessee's right, title and
interest in, and under, the Leases to Assignee, with possession and operation of
the premises and property that are the subject of the Leases (the "Leased
Property") being turned over to Assignee. In connection with such assignment,
Assignee is willing to assume certain obligations with respect to each Facility,
subject to the terms and conditions set forth in this Agreement.

         C. In order to facilitate an orderly transfer of the operations of each
Facility from Lessee to Assignee, Lessee and Assignee desire to document certain
terms and conditions relevant to the transfer of operational control and
responsibility for each Facility.

         NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements of the parties set forth herein, the parties
hereto agree as follows:

                                    AGREEMENT

         1.       Termination; Surrender of Leased Property; Releases.

                  1.1 Transfer Date. If all of the conditions to the completion
of the transactions contemplated herein are satisfied, the closing of the
transactions contemplated herein (the "Transfer Date") shall occur and be
effective as of 12:01 a.m. on the date that the applicable governmental agencies
of the State of North Carolina and the State of Virginia having jurisdiction
over each Facility has approved the transfer of operations of the Facilities to
Assignee in accordance with applicable state laws relating to the change of
ownership/transfer of license of each Facility.

                  1.2 Assignment of Lease. On the Transfer Date, Lessee will
assign to Assignee all of its right, title and interest in, to and under each
Lease and Assignee will assume all of the rights


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and obligations of the Lessee under each Lease pursuant to an Assignment and
Assumption of Lease in the form attached hereto as Exhibit B to be executed by
Lessee and Assignee. On or before the Transfer Date, Assignee shall obtain the
acknowledgment and consent, in writing, of each Lessor under each Lease, to the
assignment of the Leases to Assignee and the release of Lessee from its duties
and obligations under each Lease. A short form memorandum of each Lease having
been previously recorded, on the Transfer Date the parties shall execute for
each Lease a Notice of Assignment of Lease in form sufficient for recording in
order to provide record notice of the assignment of each Lease by Lessee to
Assignee.

                  1.3 Delivery of Leased Property; Transfer of Lessee's Personal
Property. On the Transfer Date, Lessee will vacate and surrender to Assignee,
and will deliver possession and control to Assignee, all of the Leased Property
that is the subject of each Lease. On the Transfer Date, Lessee will also
transfer, assign and deliver to Assignee all of Lessee's right, title and
interest in and to, and the possession and control of, all equipment, motor
vehicles, machinery, furniture, fixtures, trade fixtures, inventory of goods and
supplies and all other tangible and intangible personal property owned or leased
by Lessee and located at or used in connection with and necessary for the
operation of each Facility ("Lessee's Personal Property"), including the right
to the use of the name under which each Facility is doing business or has done
business during Lessee's use and occupancy and the operations, policies and
procedures manuals specific to each Facility, if any, as were in place at the
Facility at the time the Facility was leased to Lessee by the owner thereof, but
excluding (i) any leased property that is the subject of a Declined Contract (as
defined in Paragraph 8), (ii) Lessee's wide area network and associated software
provided on the Diversicare wide area network, (iii) Lessee's continuous quality
improvement program, manuals and materials, management information systems,
policy, procedure and educational manuals and materials, and similar proprietary
property of Lessee, and (iv) any rights in or to the use of the name "Advocat"
or "Diversicare", or any derivative thereof, and subject to the rights of any
lessors of any of Lessee's Personal Property. On the Transfer Date, Lessee will
make, execute and deliver a Bill of Sale and Assignment in the form attached
hereto as Exhibit C sufficient to transfer Lessee's interest in Lessee's
Personal Property to Assignee. The presence of the Lessee's Personal Property at
each Facility on the Transfer Date shall constitute delivery thereof. Any items
of Lessee's Personal Property containing the name or logo of "Diversicare" or
"Advocat", or any derivative thereof, at any Facility as of the Transfer Date
shall be replaced and either destroyed by Assignee or returned to Lessee. As of
the Transfer Date, Assignee will discontinue the use of any stationary or other
supplies at any Facility which contain reference to such names.

                  1.4 Transfer As To Both Facilities. It is understood and
agreed that this Agreement is intended to and does provide for the assignment of
the Lease and transfer of operations for both Facilities, irrespective of the
fact that they are located in separate states requiring the approval of separate
governmental agencies and are owned by different third party lessors, and that
the closing of assignment of the Lease and transfer of operations of each
Facility, and the obligation of the Lessee to consummate the transactions
contemplated by this Agreement, is conditioned upon the closing of the
assignment of the Lease and transfer of operations of the other Facility as
provided for herein.



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         2.       As Is/Where Is.

         All of the Leased Property and Lessee's Personal Property will be
transferred and delivered to Assignee by Lessee on the Transfer Date, and will
be accepted by Assignee, "as is," "where is,", with no warranty of habitability,
use or fitness for habitation with respect to any real estate and improvements
and with no warranties, including the warranty of merchantability or fitness for
a particular purpose, with respect to all of the other property, and all of
which warranties (both express and implied) Lessee hereby disclaims. Assignee
has, or will have on or before the Transfer Date, examined and inspected the
Leased Property and Lessee's Personal Property and knows and is satisfied with,
or will know and be satisfied with, its condition and Assignee are not now
relying, and will not later rely, upon any representations or warranties made
(or asserted to have been made) by Lessee, Advocat or anyone claiming to act by,
through or under or on their behalf concerning the Leased Property and Lessee's
Personal Property. Prior to the Transfer Date, Assignee shall have the right,
upon reasonable advance notice and during normal business hours, to enter the
Facilities for the purpose of inspecting the Real and Personal Property and
determining Lessee's compliance with the terms of this Agreement, subject to any


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