STATE OF NORTH CAROLINA
                      DEPARTMENT OF THE SECRETARY OF STATE

                              ARTICLES OF AMENDMENT
                              BUSINESS CORPORATION


Pursuant to ss.55-10-06 of the General Statutes of North Carolina, the
undersigned corporation hereby submits thE following Articles of Amendment for
the purposes of amending its Articles of Incorporation.


1.   The name of the corporation is: DIVERSIFIED SENIOR SERVICES, INC.

2.   The text of each amendment adopted is as follows (STATE BELOW OR ATTACH):

     SEE  EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF

3.   If an amendment provides for an exchange, reclassification, or cancellation
     of issued shares, provisions for implementing the amendment, if not
     contained in the amendment itself, are as follows:

     N/A

4.   The date of adoption of each amendment was as follows: March 15, 1999

5.   (Check either a, b, c, or d, whichever is applicable)

     a._________ The amendment(s) was (were) duly adopted by the incorporators
     prior to the issuance of shares.

     b._________ The amendment(s) was (were) duly adopted by the board or
     directors prior to the issuance of shares.

     c. X The amendment(s) was (were) duly adopted by the board or directors
     without shareholder action as shareholder action was not required because
     (SET FORTH A BRIEF EXPLANATION OF WHY SHAREHOLDER ACTION WAS NOT REQUIRED)
     THE ARTICLES OF INCORPORATION OF THE COMPANY AUTHORIZE THE DIRECTORS SO TO
     ACT.

     d._________ The amendment(s) was (were) approved by shareholder action, and
     such shareholder approval was obtained as required by Chapter 55 of the
     North Carolina General Statutes.

6.   These articles will be effective upon filing, unless a delayed time and
     date is specified:
     ---------------------------------------------------------------------------

This the 19th day of March, 1999.







                                        DIVERSIFIED SENIOR SERVICES, INC.
                                        ------------------------------------
                                           Name Of Corporation



                                        /S/ SUSAN L. CHRISTIANSEN
                                        ------------------------------------
                                               Signature


                                       SUSAN L. CHRISTIANSEN, PRESIDENT
                                        ------------------------------------
                                         Type or Print name and Title

Notes:

1.   Filing fee is $50. This document and one exact or conformed copy of these
     articles must be filed with the Secretary of State.

(REVISED MAY 1998)
<PAGE>
                                   Exhibit A


                       CERTIFICATE OF DESIGNATION, POWERS,
                      PREFERENCES AND RIGHTS OF THE SERIES
                                       OF
                                 PREFERRED STOCK
                                       OF
                        DIVERSIFIED SENIOR SERVICES, INC.
                                TO BE DESIGNATED
               12% SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK


          Pursuant to Section 55-6-02 of the North Carolina Business Corporation
Act, we, the undersigned, Susan L. Christiansen and Joanne Ragan, being
respectively the President and the Secretary of Diversified Senior Services,
Inc. (the "COMPANY"), a Company organized and existing under the North Carolina
Business Corporation Act, DO HEREBY CERTIFY that the following resolution was
duly adopted by the Board of Directors of the Company by unanimous written
consent, and that said resolution has not been rescinded or amended and is in
full force and effect at the date hereof:

          RESOLVED, that, pursuant to authority expressly granted to and vested
in the Board of Directors by the provisions of the Articles of Incorporation, as
amended to date, the Board of Directors hereby creates a series of a series of
Preferred Stock of the Company, no par value per share and a stated value of
$2,000 per share, to be designated "12% Series B Cumulative Convertible
Preferred Stock" and to consist of Three Thousand (3,000) shares, and hereby
fixes the powers, designations, preferences and relative, participating,
optional and other rights of the shares of such series, and the qualifications,
limitations, or restrictions thereof (in addition to those provisions set forth
in the Articles of Incorporation, as amended, which are applicable to the 12%
Series B Cumulative Convertible Preferred Stock), as follows:

          Section 1. DESIGNATION, AMOUNT, PAR VALUE, STATED VALUE AND RANK. The
series of Preferred stock shall be designated as 12% Series B Cumulative
Convertible Preferred Stock (the "SERIES B PREFERRED STOCK"), and the number of
shares so designated shall be 3,000 (which shall not be subject to increase
without the consent of the holders of the Series B Preferred Stock ("HOLDERS")).
Each share of Series B Preferred Stock shall have a no par value per share and a
stated value of $2000 per share (the "STATED VALUE").

          The Series B Preferred Stock shall rank senior to the Junior
Securities (as defined below) and all other series of preferred stock of the
Company issued and outstanding on the Original Issue Date as to distributions
and upon liquidation, dissolution or winding up.

          Section 2. DIVIDENDS.

          (a) AMOUNT OF DIVIDENDS. The holders of Series B Preferred Stock shall
be entitled to receive, in preference to the holders of Common Stock or any
other Junior Securities, cumulative annual dividends at the annual rate of 12%
of the Stated Value in cash for each share of Series B Preferred Stock held.
Such dividends shall be payable as and when declared by the Board of Directors
out of the assets of the Company legally available for payment thereof.
Dividends shall be paid in cash. Dividends payable to holders of Series B
Preferred Stock, as aforesaid, whether or not declared by the Board of
Directors, shall accrue from and after the date of original issuance of the
Series B Preferred Stock and shall be paid semi-annually in arrears on the first
business day of January and July in each year (each, a "Dividend Date"),
commencing on July 1, 1999. Dividends will be payable to holders of record as
they appear on the stock books of the Company on the record date, which will be
the December 15 or June 15, as the case may be, before the related Dividend
Date.

          (b) PAYMENT OF DIVIDENDS ON COMMON STOCK AND JUNIOR SECURITIES. No
cash dividends may be paid, or funds set apart for payment, on shares of any
class of Junior Securities until all accrued dividends on the Series B Preferred
Stock have been paid in full or declared and funds set apart for payment thereof
in full. Additionally, the Company shall not declare or make any dividend or
distribution with respect to Common Stock, other than regular cash dividends or
dividends payable solely in shares of Common Stock, unless each holder of Series
B Preferred Stock concurrently receives dividends or distributions equal in
amount and in the same kind of property (whether cash, securities or other
property) as such holder would be entitled to receive if all of the outstanding
Series B Preferred Stock were converted into Common Stock as of the record date
of such dividend or distribution with respect to Common Stock. As used herein,
the term "regular cash dividends" shall mean any cash dividend publicly
characterized by the Board of Directors at the time of its declaration as a
regular dividend, whether payable on a quarterly, semi-annual or annual basis.

          Section 3. JUNIOR SECURITIES. So long as any Series B Preferred Stock
shall remain outstanding, neither the Company nor any subsidiary thereof shall
redeem, purchase or otherwise acquire otherwise than upon conversion or exchange
directly or indirectly any Junior Securities, nor shall the Company directly or
indirectly pay or declare any dividend or make any distribution (other than a
dividend or distribution described in Section 6) upon, nor shall any
distribution be made in respect of, any Junior Securities, nor shall any monies
be set aside for or applied to the purchase or redemption (through a sinking
fund or otherwise) of any Junior Securities.

          Section 4. VOTING RIGHTS. The holders of Series B Preferred Stock
shall have no right to vote, except as otherwise required by North Carolina law.
However, so long as any shares of Series B Preferred Stock are outstanding, the
Company shall not and shall cause its subsidiaries not to, without the written
consent of the holders of 66 2/3% of the shares of the Series B Preferred Stock
then outstanding, (a) amend, alter or change the preferences or rights of any
series or class of capital stock of the Company (including the Series B
Preferred Stock) or the qualifications, limitations or restrictions thereof if
such amendment, alteration or change adversely affects the powers, preferences
or rights given to the Series B Preferred Stock, (b) alter or amend this
Certificate of Designation, (c) authorize or create any class or series of any
class of capital stock ranking as to distribution of assets upon a Liquidation
(as defined in Section 5) or otherwise senior to the Series B Preferred Stock,
(d) amend its Articles of Incorporation, bylaws or other charter documents so as
to affect adversely any rights of any Holders, (e) increase the authorized
number of shares of Series B Preferred Stock, and (f) enter into any agreement
with respect to the foregoing.

          Section 5. LIQUIDATION. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "LIQUIDATION"),
the Holders shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Series B Preferred
Stock an amount equal to the Stated Value before any distribution or payment
shall be made to the holders of any Junior Securities, and if the assets of the
Company shall be insufficient to pay in full such amounts, then the entire
assets to be distributed to the holders of Series B Preferred Stock shall be
distributed among the holders of Series B Preferred Stock and the holders of all
securities ranking PARI PASSU to the Series B Preferred Stock ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than 50% of the voting power of the Company is disposed of, or a consolidation
or merger of the Company with or into any other company or companies shall not
be treated as a Liquidation, but instead shall be subject to the provisions of
Section 6(c)(ii). The Company shall mail written notice of any such Liquidation,
not less than 45 days prior to the payment date stated therein, to each record
holder of Series B Preferred Stock.

          Section 6. CONVERSION.

          (a) (i) Each share of Series B Preferred Stock shall be convertible
into shares of Common Stock (subject to Section 6(a)(ii) and Section 6(a)(iii))
at the Conversion Ratio (as defined in Section 9) at the option of the Holder in
whole or in part at any time after the Original Issue Date. The Holders shall
effect conversions by surrendering the certificate or certificates representing
the shares of Series B Preferred Stock to be converted to the Company, together
with the form of conversion notice attached hereto as EXHIBIT A (the "CONVERSION
NOTICE"). Each Conversion Notice shall specify the number of shares of Series B
Preferred Stock to be converted. The date on which such conversion is to be
effected shall be the date the Holder delivers such Conversion Notice by
facsimile (the "CONVERSION DATE"). Subject to Sections 6(a)(ii) and 6(b) hereof,
each Conversion Notice, once given, shall be irrevocable. If the Holder is
converting less than all shares of Series B Preferred Stock represented by the
certificate or certificates tendered by the Holder with the Conversion Notice,
or if a conversion hereunder cannot be effected in full for any reason, the
Company shall promptly deliver to such Holder (in the manner and within the time
set forth in Section 6(b)) a certificate for such number of shares as have not
been converted.

          (ii) If on the Conversion Date applicable to any conversion, (A) the
     Common Stock is then listed for trading on the Nasdaq National Market, the
     New York Stock Exchange, the American Stock Exchange or The Nasdaq Small
     Cap Market, (B) the Conversion Price then in effect is such that the
     aggregate number of shares of Common Stock that would then be issuable upon
     conversion of all outstanding shares of Series B Preferred Stock, together
     with any shares of Common Stock previously issued upon conversion of Series
     B Preferred Stock, would equal or exceed 20% of the number of shares of
     Common Stock outstanding on the Original Issue Date (the "ISSUABLE
     MAXIMUM"), and (C) the Company has not previously obtained (or attempted
     pursuant to clause (1) of this subsection to obtain) Shareholder Approval
     (as defined below), then the Company shall issue to any Holder so
     requesting conversion of Series B Preferred Stock its pro rata portion of
     the Issuable Maximum in the same ratio that the number of shares of Series
     B Preferred Stock held by any such Holder bears to all shares of Series B
     Preferred Stock then outstanding and, with respect to any shares of Common
     Stock that otherwise would have been issuable to such Holder in respect of
     the Conversion Notice at issue in excess of the Issuable Maximum, the
     Company shall at the Holder's request, (1) as promptly as possible but in
     no event later than 45 days after such Conversion Date, convene a meeting
     of the holders of the Common Stock and use its best efforts to obtain the
     Shareholder Approval or a waiver of such approval from The Nasdaq Stock
     Market or the appropriate exchange, and (2) as promptly as possible from
     time to time, after a written request by the Holder, issue shares of Common
     Stock at a Conversion Price equal to the Per Share Market Value on the
     Trading Day immediately preceding the date of such request for all or a
     portion of the shares of Series B Preferred Stock held by such Holder as
     would cause the number of shares of Common Stock issuable upon such
     conversion to exceed the Issuable Maximum. "SHAREHOLDER APPROVAL" means the
     approval by a majority of the total votes cast on the proposal, in person
     or by proxy, at a meeting of the shareholders of the Company held in
     accordance with the Company's Articles of Incorporation and bylaws, of the
     issuance by the Company of shares of Common Stock exceeding the Issuable
     Maximum as a consequence of the conversion of Series B Preferred Stock into
     Common Stock at a price less than the greater of the book or market value
     on the Original Issue Date as and to the extent required pursuant to Rule
     4460(i) or Rule 4310(c)(25) of The Nasdaq Stock Market, Inc.'s Marketplace
     Rules (or any successor or replacement provision thereof).

          (iii) In no event shall a Holder be permitted to convert any shares of
     Series B Preferred Stock in excess of the number of such shares upon the
     conversion of which, (x) the number of shares of Common Stock owned by such
     Holder (other than shares of Common Stock issuable upon conversion of
     shares of Series B Preferred Stock) plus (y) the number of shares of Common
     Stock issuable upon such conversion of such shares of Series B Preferred
     Stock, would be equal to or exceed (z) 9.999% of the number of shares of
     Common Stock then issued and outstanding, including shares issuable on
     conversion of the Series B Preferred Stock held by such Holder after
     application of this Section 6(a)(iii). As used herein, beneficial ownership
     shall be determined in accordance with Section 13(d) of the Exchange Act
     and the rules and regulations thereunder. To the extent that the limitation
     contained in this Section 6(a)(iii) applies, the determination of whether
     shares of Series B Preferred Stock are convertible (in relation to other
     securities owned by a Holder) and of which shares of Series B Preferred
     Stock are convertible shall be in the sole discretion of such Holder, and
     the submission of shares of Series B Preferred Stock for conversion shall
     be deemed to be such Holder's determination of whether such shares of
     Series B Preferred Stock are convertible (in relation to other securities
     owned by a Holder) and of which shares of Series B Preferred Stock are
     convertible, in each case subject to such aggregate percentage limitation,
     and the Company shall have no obligation to verify or confirm the accuracy
     of such determination. Nothing contained herein shall be deemed to restrict
     the right of a Holder to convert such shares of Series B Preferred Stock at
     such time as such conversion will not violate the provisions of this
     paragraph. The provisions of this Section 6(a)(iii) may be waived by a
     Holder of Series B Preferred Stock as to itself (and solely as to itself)
     upon not less than 75 days prior notice to the Company, and the provisions
     of this Section 6(a)(iii) shall continue to apply until such 75th day (or
     later, if stated in the notice of waiver). No conversion in violation of
     this paragraph but otherwise in accordance with this Certificate of
     Designation shall affect the status of the securities issued upon such
     conversion as validly issued, fully-paid and nonassessable.

          (b) (i) Not later than seven (7) Trading Days after any Conversion
Date, the Company will deliver to the applicable Holder by express courier (A) a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by SECTION 3.1(B) of the
Purchase Agreement) representing the number of shares of Common Stock being
acquired upon the conversion of shares of Series B Preferred Stock (subject to
reduction pursuant to Section 6(a)(ii) and Section 6(a)(iii)), and (B) one or
more certificates representing the number of shares of Series B Preferred Stock
not converted. If in the case of any Conversion Notice such certificate or
certificates are not delivered to or as directed by the applicable Holder by the
seventh Trading Day after the Conversion Date (the "DELIVERY DATE"), the holder
shall be entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the certificates
representing the shares of Series B Preferred Stock tendered for conversion,
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to the delivery of such notice of revocation, except
that any amounts described in Sections 6(b)(ii) and (iii) shall be payable
through the date notice of rescission is given to the Company.

          (ii) The Company understands that a delay in the delivery of the
     shares of Common Stock upon conversion of shares of Series B Preferred
     Stock and failure to deliver certificates representing the unconverted
     shares of Series B Preferred Stock beyond the Delivery Date could result in
     economic loss to the Holder. If the Company fails to deliver to the Holder
     such certificate or certificates pursuant to this Section hereunder by the
     Delivery Date, the Company shall pay to such Holder, in cash, an amount per
     Trading Day for each Trading Day until the earlier of the date such
     certificates are delivered or the date the conversion is rescinded pursuant
     to Section 6(b)(i) above, together with interest on such amount at a rate
     of 15% per annum, accruing until such amount and any accrued interest
     thereon is paid in full, equal to (i) 1% of the Stated Value of the shares
     of Series B Preferred Stock requested to be converted for the first five
     Trading Days after the Delivery Date and (ii) 2% of the Stated Value of the
     shares of Series B Preferred Stock requested to be converted for each
     Trading Day thereafter (which amounts shall be paid as liquidated damages
     and not as a penalty). Nothing herein shall limit a Holder's right to
     pursue actual damages for the Company's failure to deliver certificates
     representing shares of Common Stock upon conversion within the period
     specified herein (including, without limitation, damages relating to any
     purchase of shares of Common Stock by such Holder to make delivery on a
     sale effected in anticipation of receiving certificates representing shares
     of Common Stock upon conversion, as provided in Section 6(b)(iii) below),
     and such Holder shall have the right to pursue all remedies available to it
     at law or in equity (including, without limitation, a decree of specific
     performance and/or injunctive relief).

          (iii) In addition to any other rights available to the Holder, if the
     Company fails to deliver to the Holder such certificate or certificates
     pursuant to Section 6(b)(i) by the Delivery Date and if after the Delivery
     Date the Holder purchases (in an open market transaction or otherwise)
     shares of Common Stock to deliver in satisfaction of a sale by such Holder
     of the Underlying Shares which the Holder anticipated receiving upon such
     conversion (a "BUY-IN"), then the Company shall pay in cash to the Holder
     (in addition to any remedies available to or elected by the Holder) the
     amount by which (A) the Holder's total purchase price (including brokerage
     commissions, if any) for the shares of Common Stock so purchased exceeds
     (B) the aggregate Stated Value of the shares of Series B Preferred Stock
     for which such conversion was not timely honored, together with interest
     thereon at a rate of 15% per annum, accruing until such amount and any
     accrued interest thereon is paid in full (which amount shall be paid as
     liquidated damages and not as a penalty). For example, if the Holder
     purchases shares of Common Stock having a total purchase price of $11,000
     to cover a Buy-In with respect to an attempted conversion of $10,000
     aggregate Stated Value of the shares of Series B Preferred Stock, the
     Company shall be required to pay the Holder $1,000, plus interest. The
     Holder shall provide the Company written notice indicating the amounts
     payable to the Holder in respect of the Buy-In.

          (c) (i) Prior to December 14, 1999, the conversion price for each
share of Series B Preferred Stock (the "CONVERSION PRICE") in effect on any
Conversion Date shall be $4.00. On and after December 14, 1999, the Conversion
Price for each share of Series B Preferred Stock in effect on any Conversion
Date shall be the lesser of (A) $4.00 and (B) an the Per Share Market Value for
the Trading Day having the lowest Per Share Market Value during the thirty
Trading Days prior to the Conversion Date, except that if during any period (a
"BLACK-OUT PERIOD"), a Holder is unable to trade any Common Stock issued or
issuable upon conversion of Series B Preferred Stock immediately due to the
postponement of filing or delay or suspension of effectiveness of a registration
statement or because the Company has otherwise informed such Holder that an
existing prospectus cannot be used at that time in the sale or transfer of such
Common Stock, such Holder shall have the option but not the obligation on any
Conversion Date within ten Trading Days following the expiration of the
Black-out Period of using the Conversion Price applicable on such Conversion
Date or any Conversion Price selected by such Holder that would have been
applicable had such Conversion Date been at any earlier time during the
Black-out Period or within the ten Trading Days thereafter.

          (ii) In case the Company after the Original Issue Date shall do any of
     the following (each, a "TRIGGERING EVENT") (a) consolidate with or merge
     into any other person and the Company shall not be the continuing or
     surviving Company of such consolidation or merger, or (b) permit any other
     person to consolidate with or merge into the Company and the Company shall
     be the continuing or surviving person but, in connection with such
     consolidation or merger, any capital stock of the Company shall be changed
     into or exchanged for securities of any other person or cash or any other
     property, or (c) transfer all or substantially all of its properties or
     assets to any other person, or (d) effect a capital reorganization or
     reclassification of its capital stock, the holders of the Series B
     Preferred Stock then outstanding shall have the right thereafter to convert
     such shares only into the shares of stock and other securities, cash and
     property receivable upon or deemed to be held by holders of Common Stock
     following such Triggering Event, and the holders of the Series B Preferred
     Stock shall be entitled upon such event to receive such amount of
     securities, cash or property as the shares of the Common Stock of the
     Company into which such shares of Series B Preferred Stock could have been
     converted immediately prior to such Triggering Event would have been
     entitled. The terms of any such Triggering Event shall include such terms
     so as to continue to give to the holder of Series B Preferred Stock the
     right to receive the securities, cash or property set forth in this Section
     6(c)(ii) upon any conversion following such Triggering Event. This
     provision shall similarly apply to successive Triggering Events.

          (iii) If:

               A.   the Company shall declare a dividend (or any other
                    distribution) on its Common Stock; or

               B.   the Company shall declare a special nonrecurring cash
                    dividend on or a redemption of its Common Stock; or

               C.   the Company shall authorize the granting to all holders of
                    the Common Stock rights or warrants to subscribe for or
                    purchase any shares of capital stock of any class or of any
                    rights; or

               D.   the approval of any shareholders of the Company shall be
                    required in connection with any Triggering Event; or

               E.   the Company shall authorize the voluntary or involuntary
                    dissolution, liquidation or winding up of the affairs of the
                    Company;


then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Series B Preferred Stock, and shall cause to be
mailed to the Holders of Series B Preferred Stock at their last addresses as
they shall appear upon the stock books of the Company, at least 30 calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; PROVIDED, HOWEVER, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert shares of Series B Preferred
Stock during the 30-day period commencing the date of such notice to the
effective date of the event triggering such notice.

          (d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Series B Preferred Stock free from preemptive
rights or any other actual contingent purchase rights of persons other than the
holders of Series B Preferred Stock, not less than such number of shares of
Common Stock as shall (subject to any additional requirements of the Company as
to reservation of such shares set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 6(c)) upon the
conversion of all outstanding shares of Series B Preferred Stock. The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable and
freely tradable.

          (e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make such a cash payment, the holder of a share of
Series B Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.

          (f) The issuance of certificates for shares of Common Stock on
conversion of Series B Preferred Stock shall be made without charge to the
holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate.

          (g) Shares of Series B Preferred Stock converted into Common Stock
shall be canceled and shall have the status of authorized but unissued shares of
undesignated preferred stock.

          (h) Any and all notices or other communications or deliveries to be
provided by the holders of the Series B Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the President and to the Secretary of the
Company at the facsimile telephone number or address of the principal place of
business of the Company as set forth in the Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder of
Series B Preferred Stock at the facsimile telephone number or address of such
holder appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earlier of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:00 p.m., New York City time, (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
5:00 p.m., New York City time, on any date and earlier than 11:59 p.m., New York
City time, on such date, (iii) receipt, if sent by a nationally recognized
overnight courier service, or (iv) actual receipt by the party to whom such
notice is required to be given.

          (i) In the event a Holder shall elect to convert any shares of Series
B Preferred Stock as provided herein, the Company cannot refuse conversion based
on any claim that such Holder or any one associated or affiliated with such
Holder has been engaged in any violation of law, unless, an injunction from a
court or regulatory body, on notice, restraining and or adjoining conversion of
all or of said shares of Series B Preferred Stock shall have issued and the
Company posts a surety bond for the benefit of such Holder in the amount of the
difference between the Conversion Price and the Per Share Market Value on the
Trading Day preceding the date of the attempted conversion multiplied by the
number of shares of Series B Preferred Stock sought to be converted, which bond
shall remain in effect until the completion of arbitration/litigation of the
dispute and the proceeds of which shall be payable to such Holder in the event
it obtains judgment. Any Holder which becomes subject to an injunction of the
type described in the preceding sentence shall notify the Company of such within
one day of becoming aware of such injunction.

          Section 7. OPTIONAL REDEMPTION.

          (a) REDEMPTION RIGHT. The Company shall have the right to redeem the
outstanding Series B Preferred Stock, in whole or in part, at any time and from
time to time, from and after the first day on which Per Share Market Value
exceeds $8.00 by paying to the holders thereof in cash 100% of the Stated Value,
together with all accrued and unpaid dividends thereon through the Redemption
Date (as defined in below).

          (b) NOTICE OF REDEMPTION. If any shares of Series B Preferred Stock
are to be redeemed pursuant to Section 7(a) hereof, notice thereof (the
"Redemption Notice") shall be sent at least 30 and not more than 60 days prior
to the date fixed for redemption (the "Redemption Date") to each holder of
record whose Series B Preferred Stock is to be redeemed, by first class mail,
postage pre-paid, to such holder at such holder's address as the same shall
appear on the books of the Company. The Redemption Notice shall state (a) the
Redemption Date, (b) the redemption price, (c) the then current Conversion Rate,
(d) that the shares called for redemption may be converted at any time before
the close of business on the business day preceding the Redemption Date, (e)
that holders who want to convert shares of Series B Preferred Stock must satisfy
the requirements of Section 6(a) hereof, (f) the place at which certificates for
shares of Series B Preferred Stock called for redemption must be surrendered to
collect the redemption price, (g) that dividends on shares of Series B Preferred
Stock called for redemption cease to accrue at the close of the last day of
business prior to the Redemption Date and (h) the Section of this Certificate of
Designation, Powers, Preferences and Rights pursuant to which they are to be
redeemed.

          (c) PARTIAL REDEMPTION. If less than all of the outstanding shares of
Series B Preferred Stock are to be redeemed, the shares to be redeemed shall be
determined PRO RATA or by lot in a manner fixed by the Board of Directors. On or
after the Redemption Date, each holder of shares of Series B Preferred Stock
that were called for redemption shall present and surrender the certificate or
certificates for such shares to the Company at the place designated in the
Redemption Notice and thereupon the redemption price of such shares shall be
paid to, or to the order of, the person whose name appears on such certificate
or certificates as the owner thereof. From and after the Redemption Date, unless
the Company shall default in the payment of redemption price pursuant to the
Redemption Notice, all dividends on the Series B Preferred Stock shall cease to
accrue and all rights of the holders thereof as stockholders of the Company,
except the right to receive the redemption price (but without interest thereon),
shall cease and terminate. Any and all shares of Series B Preferred Stock
redeemed, purchased or otherwise acquired by the Company thereafter shall be
cancelled and returned to the status of authorized and unissued Preferred Stock.

          (d) TRANSFER BOOKS. To facilitate the redemption of any shares of
Series B Preferred Stock, the Board of Directors is authorized to cause the
transfer books for such Series B Preferred Stock to be closed as to the shares
to be redeemed, unless the rules of any national securities exchange or
automated quotation system on which the Series B Preferred Stock may be listed
or quoted prohibit the closing of such transfer books.

          Section 8. NO PREEMPTIVE RIGHTS. No holder of Series B Preferred Stock
shall have any preemptive or preferential right of subscription to any shares of
stock of the Company, or to options, warrants or other interests therein or
therefor, or to any obligations convertible into stock of the Company, issued or
sold, or any right of subscription to any thereof other than such, if any, as
the Board of Directors, in its discretion, from time to time may determine and
at such price or prices as the Board of Directors from time to time may fix
pursuant to the authority conferred by the Company's Articles of Incorporation.

          Section 9. DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:

          "COMMON STOCK" means the common stock, no par value, of the Company
and stock of any other class into which such shares may hereafter have been
reclassified or changed.

          "CONVERSION RATIO" means, at any time, a fraction, of which the
numerator is Stated Value and of which the denominator is the Conversion Price
at such time.

          "INDEPENDENT APPRAISER" means a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) that is regularly engaged in
the business of appraising the capital stock or assets of corporations or other
entities as going concerns, and which is not affiliated with either the Company
or any Holder.

          "JUNIOR SECURITIES" means the Common Stock and all other equity
securities of the Company which are junior in rights and liquidation preference
to the Series B Preferred Stock.

          "NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.

          "ORIGINAL ISSUE DATE" shall mean the date of the first issuance of any
shares of the Series B Preferred Stock regardless of the number of transfers of
any particular shares of Series B Preferred Stock and regardless of the number
of certificates which may be issued to evidence such Series B Preferred Stock.

          "PER SHARE MARKET VALUE" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on The Nasdaq Small-Cap
Market, the Nasdaq National Market or other registered national stock exchange
on which the Common Stock is then listed or if there is no such price on such
date, then the closing bid price on such exchange or quotation system on the
date nearest preceding such date, or (b) if the Common Stock is not listed then
on The Nasdaq Small-Cap Market, the Nasdaq National Market or any registered
national stock exchange, the closing bid price for a share of Common Stock in
the over-the-counter market, as reported by NASDAQ or in the National Quotation
Bureau Incorporated or similar organization or agency succeeding to its
functions of reporting prices) at the close of business on such date, or (c) if
the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the holder, or (d) if the
Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Independent Appraiser selected in good faith by
the holders of a majority in interest of the shares of the Series B Preferred
Stock; PROVIDED, HOWEVER, that the Company, after receipt of the determination
by such Independent Appraiser, shall have the right to select an additional
Independent Appraiser, in which case, the fair market value shall be equal to
the average of the determinations by each such Independent Appraiser; and
PROVIDED, FURTHER that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other similar
transactions during such period. The determination of fair market value by an
Independent Appraiser shall be based upon the fair market value of the Issuer
determined on a going concern basis as between a willing buyer and a willing
seller and taking into account all relevant factors determinative of value, and
shall be final and binding on all parties. In determining the fair market value
of any shares of Common Stock, no consideration shall be given to any
restrictions on transfer of the Common Stock imposed by agreement or by federal
or state securities laws, or to the existence or absence of, or any limitations
on, voting rights.

          "PERSON" means an individual or Company, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.

          "PURCHASE AGREEMENT" means the Securities Purchase Agreement, dated as
of the Original Issue Date, among the Company and the original holders of the
Series B Preferred Stock.

          "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company and the
original Holders.

          "TRADING DAY" means (a) a day on which the Common Stock is traded on
The Nasdaq Small-Cap Market, the Nasdaq National Market or other registered
national stock exchange on which the Common Stock has been listed, or (b) if the
Common Stock is not listed on The Nasdaq Small-Cap Market, the Nasdaq National
Market or any registered national stock exchange, a day or which the Common
Stock is traded in the over-the-counter market, as reported by the OTC Bulletin
Board, or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day
on which the Common Stock is quoted in the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); PROVIDED, HOWEVER, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.

          "UNDERLYING SHARES" means the number of shares of Common Stock into
which the Shares are convertible in accordance with the terms hereof and the
Purchase Agreement.

          IN WITNESS WHEREOF, we have subscribed this document on the date
indicated below and do hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by us and are true and correct.



Date:  March 19, 1999


                                        /s/ SUSAN L. CHRISTIANSEN
                                        ------------------------------------
                                        Name:  Susan L. Christiansen
                                        Title:  President


                                        /s/ JOANNE RAGAN
                                        ------------------------------------
                                        Name:  Joanne Ragan
                                        Title:  Secretary

<PAGE>
                                    EXHIBIT A

                        DIVERSIFIED SENIOR SERVICES, INC.
                                CONVERSION NOTICE


Reference is made to the Certificate of Designation, Powers, Preferences and
Rights of the Series of Preferred Stock of Diversified Senior Services, Inc. to
be Designated 12% Series B Cumulative Convertible Preferred Stock (the
"CERTIFICATE OF DESIGNATION"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of 12% Series B Cumulative Convertible Preferred Stock, no par value
per share and stated value $2,000 per share (the "PREFERRED SHARES"), of
Diversified Senior Services, Inc., a North Carolina Company (the "COMPANY"),
indicated below into shares of Common Stock, no par value (the "COMMON STOCK"),
of the Company, by tendering the stock certificates(s) representing the share(s)
of Preferred Shares specified below as of the date specified below.

                               Date of Conversion:

                   Number of Preferred Shares to be converted:

          Stock certificate no(s). of Preferred Shares to be converted:

     The Common Stock have been sold pursuant to the Registration Statement (as
     defined in the Registration Rights Agreement): YES_____ NO_____

Please confirm the following information:

                        Conversion Price: $______________

                 Number of shares of Common Stock to be issued:

                            ------------------------

     Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:

     Issued to: ___________________________________________

     Facsimile Number: ___________________________________

     Authorization: _______________________________________

<PAGE>
     By:________________________________________

     Title: ________________________________________

     Dated: _____________________________________________

     Account Number: ____________________________________
                     (if electronic book entry transfer)

     Transaction Code Number: _____________________________
                     (if electronic book entry transfer)


                                 PRICES ATTACHED