OPERATIONS TRANSFER AGREEMENT

Exhibit 10.1

OPERATIONS TRANSFER AGREEMENT

     This OPERATIONS TRANSFER AGREEMENT (“ Agreement ”), is entered into effective as of July 20, 2007, by and among DIVERSICARE TREEMONT, LLC, a Delaware limited liability company (“ Diversicare Treemont ”), DIVERSICARE DOCTORS, LLC, a Delaware limited liability company (“ Diversicare Doctors ”), DIVERSICARE ESTATES, LLC, a Delaware limited liability company (“ Diversicare Estates ”), DIVERSICARE KATY, LLC, a Delaware limited liability company (“ Diversicare Katy ”), DIVERSICARE HUMBLE, LLC, a Delaware limited liability company (“ Diversicare Humble ”), DIVERSICARE NORMANDY TERRACE, LLC, a Delaware limited liability company (“ Diversicare Normandy ”), and DIVERSICARE BALLINGER, LLC, a Delaware limited liability company (“ Diversicare Ballinger ”) (each of the forgoing are individually a “ New Operator ” and collectively the “ New Operators ”), DIVERSICARE TEXAS I, LLC, a Delaware limited liability company (“ Diversicare Texas ”) (Diversicare Texas and the New Operators are collectively the “ Diversicare Parties ”), and SENIOR MANAGEMENT SERVICES OF AMERICA NORTH TEXAS, INC., a Texas corporation (“ SMS North Texas ”), SENIOR MANAGEMENT SERVICES OF ESTATES AT FORT WORTH, INC., a Texas corporation (“ SMS Estates ”), SENIOR MANAGEMENT SERVICES OF DOCTORS AT DALLAS, INC., a Texas corporation (“ SMS Doctors ”), SENIOR MANAGEMENT SERVICES OF HUMBLE, INC., a Texas corporation (“ SMS Humble ”), SENIOR MANAGEMENT SERVICES OF KATY, INC., a Texas corporation (“ SMS Katy ”), SENIOR MANAGEMENT SERVICES OF TREEMONT, INC., a Texas corporation (“ SMS Treemont ”), SENIOR MANAGEMENT SERVICES OF HERITAGE OAKS AT BALLINGER, INC., a Texas corporation (“ SMS Heritage Oaks ”), and SENIOR MANAGEMENT SERVICES OF NORMANDY AT SAN ANTONIO, INC., a Texas corporation (“ SMS Normandy ”) (SMS Estates, SMS Doctors, SMS Humble, SMS Katy, SMS Treemont, SMS Heritage Oaks and SMS Normandy are each individually a “ Transferor ” and collectively the “ Transferors ”) (SMS North Texas and the Transferors are collectively the “ SMS Parties ”). This Agreement shall be deemed a separate and distinct agreement by and between each SMS Party and its corresponding Diversicare Party.

RECITALS

     A. Transferors currently operate seven (7) skilled nursing facilities as follows: SMS Treemont operates Treemont Nursing and Rehabilitation Center, 5550 Harvest Hill Road, Suite 500, Dallas, Texas (the “ Treemont Facility ”); SMS Doctors operates Doctors Healthcare Center, 9009 White Rock Trail, Dallas, Texas (the “ Doctors Facility ”); SMS Estates operates Estates Healthcare Center, 201 Sycamore School Road, Fort Worth, Texas (the “ Estates Facility ”); SMS Katy operates Oakmont Nursing and Rehabilitation Center of Katy, 1525 Tull Drive, Katy, Texas (the “ Katy Facility ”); SMS Humble operates Oakmont Nursing and Rehabilitation Center of Humble, 8450 Will Clayton Parkway, Humble, Texas (the “ Humble Facility ”); SMS Normandy operates Normandy Terrace Nursing and Rehabilitation Center, 841 Rice Road, San Antonio, Texas (the “ Normandy Terrace Facility ”); and SMS Heritage Oaks operates Heritage Oaks Nursing and Rehabilitation Center, 2001 6th Street, Ballinger, Texas (the “ Heritage Oaks Facility ”) (each of the foregoing is individually a “ Facility ” and collectively the “ Facilities ”).

     B. Each respective Transferor is also the employer of each Facility’s employees (the “ Employees ”).

     C. SMS North Texas leases all of the Facilities from OHI Asset (TX), LLC (“ Omega ”) pursuant to a Consolidated Master Lease dated as of June 1, 2005 (the “ Omega Lease ”).

     D. Each Transferor subleases its respective Facility from SMS North Texas pursuant to a Sublease dated April 30, 2004 (each herein a “Sublease” and collectively the “ Subleases ”).

     E. On January 17, 2007, the SMS Parties filed a voluntary petition for relief under chapter 11 of title 11 of the United States Bankruptcy Code (the “ Bankruptcy Code ”) in the United States Bankruptcy Court for the Northern District of Texas (the “ Bankruptcy Court ”).

     F. Pursuant to that certain First Amended Chapter 11 Plan Proposed by the Debtors , dated May 17, 2007 (the “ Plan ”), SMS North Texas and the Transferors propose to transfer operations of the Facilities and sell or assign certain assets associated therewith to Diversicare Texas and the New Operators. Capitalized terms used but not defined herein have the meanings assigned to them in the Plan or Appendix 1 to the First Amended Disclosure Statement in Support of Chapter 11 Plan Proposed by the Debtors , dated June 17, 2007 (as amended, modified or restated, the “ Disclosure Statement ”).

     G. The transfer of (i) the Omega Lease to Diversicare Texas and (ii) the operations of the Facilities from the Transferors to the New Operators shall be effective as of 12:01 a.m. local time on the day immediately following the date of the Closing (as defined in Section 4.1) (the “ Transfer Date ”).

     H. Diversicare Texas, SMS North Texas, Transferors and New Operators desire to enter into this Agreement in order to assign the Omega Lease from SMS North Texas to Diversicare Texas and facilitate, effective as of the Transfer Date, the orderly transition of each Facility’s operations, and the sale of certain assets, from Transferors to New Operators.

AGREEMENT

     NOW, THEREFORE, in consideration of the mutual promises contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree that:

SECTION 1
PURCHASE AND SALE OF BUSINESS OPERATION

     1.1 Purchase Price . On the terms and subject to the conditions set forth in this Agreement, in consideration for (i) the assignment to Diversicare Texas of the Omega Lease and Subleases and (ii) the transfer to each New Operator of the Acquired Assets (as defined below) and any and all business activities of each Transferor associated with such Transferor’s operation of its respective Facility (individually a “ Business ” and collectively the “ Businesses ”), the Diversicare Parties will pay to the SMS Parties the following:

          (a) Base Purchase Price . At Closing, the Diversicare Parties will pay the following amounts to the SMS Parties (collectively, the “ Base Purchase Price ”):

               (i) $8,500,00.00; and

               (ii) plus $70,000.00 as the parties’ agreed-upon value of the usable inventory (at cost) located in the Facilities on the Closing Date (as defined below).

          (b) Additional Purchase Price . In addition to the Base Purchase Price, at Closing the Diversicare Parties will assume and agree to pay to the applicable third party or otherwise perform the following obligations of the SMS Parties as additional consideration for the Acquired Assets (herein, the “ Additional Purchase Price ”):

               (i) the obligation of SMS North Texas to provide a Security Deposit in the amount of $826,875 pursuant to Section 38.1 of the Omega Lease;

               (ii) the sum of up to $108,837.32 to pay the unpaid balances owing on the vehicles listed on Schedule 1.3(b) , but excluding any vehicles not used at the Facilities;

               (iii) the 2007 real and personal property taxes related to the Facilities;

               (iv) an amount sufficient to assume the paid time off liabilities for the Retained Employees (as defined in Section 3.4 below) identified on Schedule 1.1(b)(iv) to be attached hereto by the parties at Closing; and

               (v) the cure amounts for the Assumed Contracts listed on Schedule 1.1(b)(v); provided, however, that except as provided in Section 1.1(b)(i) above, all cure amounts required to assume and assign the Omega Lease shall be paid at Closing by the SMS Parties.

     The Base Purchase Price and the Additional Purchase Price are collectively, the “Purchase Price”. The Base Purchase Price shall be payable at Closing in immediately available funds by wire transfer to the account designated in writing by the SMS Parties. The parties agree to reasonably allocate the Purchase Price among the various components of the Acquired Assets.

     1.2 Deposit . Simultaneously with the execution and delivery of this Agreement to the SMS Parties (but in any event no later than July 20, 2007), the Diversicare Parties shall submit a cashier’s check in the amount of $250,000.00 (the “ Deposit ”) payable to Senior Management Services of Treemont, Inc. The Deposit shall be held by the SMS Parties until Closing or until such amount is returned in accordance with the provisions of this Agreement or the Bid Procedures set forth in the Disclosure Statement. If the Diversicare Parties are the Purchaser, the Deposit shall be applied against, and the Base Purchase Price reduced by, such amount.

     1.3 Acquired Assets . On the Transfer Date (as defined in Section 4.2 below) and subject to the terms and conditions of this Agreement, (i) Diversicare Texas will purchase and acquire from SMS North Texas, and SMS North Texas shall transfer, assign and convey to Diversicare Texas, all of SMS North Texas’s right, title and interest as tenant under the Omega Lease and as sublessor under the Sublease, and (ii) each New Operator will purchase and acquire from Transferor, and Transferor will sell, assign, transfer and deliver, or cause to be sold,

assigned, transferred and delivered, to New Operator, free and clear of all liens, claims, encumbrances and interests, all right, title and interest in, to and under all of the assets, property, rights, licenses and business, wherever located, real, personal or mixed, tangible or intangible, owned, held or used in the conduct of the Business by each Transferor as the same will exist on the Closing Date (collectively, the “ Acquired Assets ”), including, all right, title and interest of each Transferor in, to, and under the following assets:

          (a) Equipment . All the furnishings, furniture, supplies, tools, equipment, and other tangible personal property of every kind and description owned or used by any Transferor in operating its Facility, including that equipment listed on Schedule 1.3(a) , (collectively, the “ Equipment ”). The SMS Parties represent and warrant that, to the SMS Parties’ knowledge, all of the Equipment is owned by the respective Transferors and none is subject to any equipment lease except as expressly noted on Schedule 1.3(a) .

          (b) Vehicles . All vehicles listed on Schedule 1.3(b) , all of which shall be owned (and not leased) by a Transferor or an affiliate thereof immediately prior to Closing. To the extent vehicles listed on Schedule 1.3(b) are owned by Serenity Management Services, Inc., such vehicles shall be deemed to be acquired by the New Operators of the Facilities where such vehicles are located.

          (c) Inventory . All inventory and supplies, including perishables and expendables owned or used by any Transferor in the operation of its Facility, whether or not carried on the Books and Records (the “ Inventory ”).

          (d) Intellectual Property . All (i) trademarks, service marks, copyrights, and all applications and registrations therefore, and any trade, registered, or assumed names, including the names “Treemont Nursing and Rehabilitation Center”, “Doctors Healthcare Center”, “Estates Healthcare Center”, “Oakmont Nursing and Rehabilitation Center of Katy”, “Oakmont Nursing and Rehabilitation Center of Humble”, “Normandy Terrace Nursing and Rehabilitation Center”, and “Heritage Oaks Nursing and Rehabilitation Center”, any and all derivatives thereof, (ii) any Internet website domain names; (iii) trade secrets, know how, methods and other intellectual property rights and intangible property; (iv) software and computer programs; and (v) any other confidential or proprietary information relating to the Business (collectively, the “ Intellectual Property ”).

          (e) Omega Lease . All rights under the Omega Lease and all subleases executed in connection therewith and such other rights and obligations as set forth in greater detail in the Assumption and Assignment of Leasehold Interests, to be executed and delivered at Closing (the “ Lease Assignment ”).

          (f) Contract Rights . All rights under the executory contracts and unexpired leases (collectively, the “ Assumed Contracts ”) listed on Schedule 1.3(f) . No obligation under any contract or lease is expressly or impliedly assumed except to the extent it is specifically listed on Schedule 1.3(f) . The Diversicare Parties may amend Schedule 1.3(f) to remove contracts or leases at any time before Closing by written notice to the SMS Parties.

          (g) Permits, Etc . Each Transferor’s transferable federal, state and local permits, authorizations, franchises, licenses, registrations, qualifications, consents, approvals, waivers and all agency listings owned or used by Transferor in the operation of its Facility (collectively, the “ Permits ”), but expressly excluding any Permits designated as excluded from the Acquired Assets.

          (h) Books, Records and Information . All confidential information, files, manuals, information, records (including financial, personnel, payroll and patient records), billing records, data, databases, plans, books, ledgers, business plans, projections, documents, lists, and any other recorded knowledge (whether in hard or electronic copy) pertaining to the Acquired Assets and/or to the Business, including without limitation all employment files, medical records with respect to Residents of its Facility, cost reports, surveys with plans of correction, copies of historical financial records, electronic files, and any other operational data solely related to the operation of and located at such Facility as authorized, and to the extent permissible, by applicable law (collectively, “ Books and Records ”), other than the SMS Parties’ tax filings and related records and any books and records which Transferor is required by law to retain.

          (i) Unlisted Assets . All other assets and Facilities not specifically identified in this Section 1.3 that are used in conducting the Business or owned by any SMS Party and not specifically excluded under the terms of this Agreement.

     1.4 Excluded Assets . Notwithstanding Section 1.3 above, the assets of the SMS Parties identified in this Section 1.4 (the “Excluded Assets”) are not included in the Acquired Assets and will not be sold or transferred to the Diversicare Parties hereunder.

          (a) Receivables . All notes receivable, accounts receivable, cost report settlements receivable and other receivables or amounts of any kind that are payable or due any SMS Party and any and all rights of any SMS Party which secure or guarantee payment of same, subject to the transfer and settlement process set forth in Section 3.5 below.

          (b) Cash and Security; Deposits . All of SMS Parties’ cash and cash equivalents, petty cash, security and utility deposits and prepaid expenses, wherever located, including, without limitation, any amounts currently held by Omega as a Security Deposit pursuant to Section 38.1 of the Omega Lease.

          (c) Contracts . Any executory contracts and unexpired leases not included in the Assumed Contracts (herein the “ Excluded Contracts ”).

          (d) Organizational Records . Each SMS Party’s tax returns and other records having to do with the organization of such SMS Party.

          (e) Excluded Permits . The Transferor’s Medicaid provider numbers and related provider agreements.

          (f) Claims, Etc . To the extent such rights existed prior to the Transfer Date, all of SMS Parties’ setoff and recoupment rights against third parties that assert claims against the SMS Parties’ estates, to the extent the SMS Parties elect to assert such rights.

          (g) Rights under this Agreement . The rights which accrue or will accrue to the SMS Parties under this Agreement.

          (h) Causes of Action . Causes of action that arise in favor of the SMS Parties on and prior to the Transfer Date, including those causes of action arising under §§ 544, 547, 548, 549, 550 and 553 of the Bankruptcy Code.

     1.5 Excluded Liabilities . Except as expressly provided in this Agreement, the Diversicare Parties shall not assume any claims, lawsuits, liabilities, obligations, or debts of the SMS Parties or any other person (“ Excluded Liabilities ”), including without limitation: (a) malpractice or other tort claims to the extent based on acts or omissions of any SMS Party occurring on or before the Transfer Date, or claims for breach of contract to the extent based on acts or omissions of any SMS Party occurring on or before the Transfer Date; (b) any accounts payable, taxes, or other obligation or liability of any SMS Party to pay money incurred by SMS Party on or prior to the Transfer Date, including without limitation all Medicaid, Medicare, Veterans Administration and other overpayments, if any, relating to periods prior to the Transfer Date; (c) any claims, lawsuits, liabilities or obligations regarding the Resident funds (as set forth in Section 3.2) occurring or related to occurrences prior to the Transfer Date; (d) all costs or obligations required to cure any defaults under the Omega Lease other than the security deposit obligation expressly assumed under Section 1.1(b)(i) above; and (e) any other obligations or liabilities incurred by any SMS Party prior to the Transfer Date, subject to the obligations of the New Operators under any Assumed Contracts.

SECTION 2
DELIVERIES UPON CLOSING DATE

     2.1 SMS Parties’ Deliveries Upon Closing Date . The SMS Parties shall deliver the following to the applicable Diversicare Party on the Closing Date (as defined in Section 4.1 below):

          (a) The accounting of Resident funds required by Section 3.2 hereof.

          (b) The Confirmation Order (as defined in Section 9.4(a) below), the Cure Amount Order and evidence of compliance with Section 2.4(d) below.

          (c) Duly executed Bills of Sale with respect to the Acquired Assets, Assignment and Assumption Agreements with respect to the Assumed Contracts, the Lease Assignment, and Certificates of Title covering the vehicles identified on Schedule 1.3(b) , each sufficient to convey title to the Acquired Assets, free and clear of all liens, in form and substance acceptable to the New Operators.

          (d) A closing statement (the “ Closing Statement ”) setting forth the calculation of the Base Purchase Price, the then known prorations set forth in Sections 2.3 and 3.6, the Resident fund accounting set forth in Section 3.2 and any Base Purchase Price adjustments pursuant to Section 3.4(b), subject to adjustment pursuant to Section 3.8.

          (e) The Collection Services Agreement in mutually acceptable form setting forth the parties agreements with respect to billing and collection services to be provided by

Diversicare Management Services Co., an affiliate of the Diversicare Parties, after the Transfer Date.

          (f) All documents required to evidence the Post Confirmation Credit Facility to be provided by Diversicare Leasing Corp. to the Liquidating Trust in the original principal amount of up to $2,200,000.00.

          (g) Possession of the Acquired Assets.

     2.2 Diversicare Parties’ Deliveries Upon Closing . The Diversicare Parties shall deliver to the SMS Parties at the Closing:

          (a) The payment in immediately available funds of the Base Purchase Price subject to any adjustment set forth on the Closing Statement. The Diversicare Parties and the SMS Parties agree that the Deposit will be applied to the payment of the Base Purchase Price and so reflected on the closing statement.

          (b) The Collection Services Agreement in mutually acceptable form setting forth the parties agreements with respect to billing and collection services to be provided by Diversicare Management Services Co., an affiliate of the Diversicare Parties, after the Transfer Date.

          (c) All documents required to evidence the Post Confirmation Credit Facility to be provided by Diversicare Leasing Corp. to the Liquidating Trust in the original principal amount of up to $2,200,000.00.

          (d) All other documents and agreements necessary to consummate the transactions described herein.

     2.3 Prorations . Utilities that are the responsibility of the SMS Parties shall be metered as of the date of Closing, with the SMS Parties responsible for accrued utility expenses so determined and the Diversicare Parties responsible for utility expenses accruing from and after the date of Closing as well as the transfer of service to the Diversicare Parties’ account as of the date of the Closing. If any statement or invoice necessary to make the foregoing determination has not yet been received and the amount due thereunder is not otherwise ascertainable, then proration and payment therefor will be deferred and addressed pursuant to Section 3.8 of this Agreement.

     2.4 Conditions to the Diversicare Parties’ Obligation to Close . The obligations of the Diversicare Parties under this Agreement are subject to the satisfaction, on or prior to the Closing Date, of all the following conditions, compliance with which, or the occurrence of which, may be waived in writing, in whole or in part, by the Diversicare Parties:

          (a) Representations, Warranties and Covenants.

               (i)  Continued Accuracy of Representations and Warranties . All representations and warranties of the SMS Parties contained in this Agreement will be true and

correct in all material respects as of the Closing Date with the same force and effect as if made on and as of the Closing Date.

               (ii)  Performance of Agreements . The SMS Parties will have performed and satisfied all covenants and conditions in all material respects required by this Agreement to be performed or satisfied by it on or prior to the Closing Date.

          (b) Confirmation Order . The Bankruptcy Court will have entered either (i) the Confirmation Order (as defined in Section 9.4(a)), which will not have been stayed, modified, reversed or amended in any manner adverse to the Diversicare Parties, and all other orders, approvals and consents from the Bankruptcy Court required to transfer the Facilities or (ii) an order in form substantially similar to the Confirmation Order approving the transactions described herein, which order will not have been stayed, modified, reversed or amended in any manner adverse to the Diversicare Parties, and all other orders, approvals and consents from the Bankruptcy Court required to consummate the transactions described herein.

          (c) Deleted.

          (d) Cure Amount Order . The Bankruptcy Court shall have entered a final order setting forth the cure amounts for each Assumed Contract (the “ Cure Amount Order ”).

          (e) Other Documents . The SMS Parties will have executed and delivered to the Diversicare Parties such other documents, bills of sale, assignments and other instruments of transfer or conveyance as may be necessary to evidence and effect the sale, assignment, transfer, conveyance and delivery of the Acquired Assets to the Diversicare Parties or as reasonably requested by the Diversicare Parties.

          (f) Change of Ownership Approval . The appropriate state agency or agencies will have accepted for interim approval the New Operators’ change of ownership application for the operation of the Facilities as skilled nursing facilities.

          (g) Material Adverse Change . No material adverse change shall have occurred with respect to the Facilities, taken as a whole, their financial condition or the Acquired Assets, between the date of this Agreement and the Closing Date.

     2.5 Conditions to the SMS Parties’ Obligations to Close . The obligations of the SMS Parties hereunder are subject to the satisfaction, on or prior to the Closing Date, of all of the following conditions, compliance with which, or the occurrence of which, may be waived, in writing, in whole or in part by the SMS Parties.

          (a) Representations, Warranties and Covenants.

               (i)  Continued Accuracy of Representations and Warranties . All representations and warranties of the Diversicare Parties contained in this Agreement will be true in all respects as of the Closing Date with the same force and effect as if made on and as of the Closing Date.

               (ii)  Performance of Agreements . The Diversicare Parties will have performed and satisfied all covenants and conditions required by this Agreement to be performed or satisfied by it on or prior to the Closing Date, including payment of the Purchase Price.

          (b) Confirmation Order . The Bankruptcy Court will have entered (i) the Confirmation Order, which will not have been stayed, modified, reversed or amended in any manner adverse to the Diversicare Parties, and all other orders, approvals and consents from the Bankruptcy Court required to transfer the Acquired Assets or (ii) an order in form substantially similar to the Confirmation Order reasonably satisfactory to the Diversicare Parties approving the transactions described herein, which order will not have been stayed, modified, reversed or amended in any manner adverse to the Diversicare Parties, and all other orders, approvals and consents from the Bankruptcy Court required to consummate the transactions described herein.

          (c) Post Confirmation Credit Facility . The parties will have executed and delivered all documents necessary to consummate the Post Confirmation Credit Facility.

SECTION 3
TRANSFER OF OPERATIONS

     3.1 Effectiveness of Transfer; Cooperation .

          (a) The transfer of (i) operations of each Facility from the applicable Transferor to the applicable New Operator, (ii) the assignment of the Omega Lease from SMS North Texas to Diversicare Texas and (iii) the assignment of the Subleases from each Transferor to the corresponding New Operator shall become effective as 12:01 a.m. local time on the Transfer Date.

          (b) The parties hereto agree to cooperate with each other to effect an orderly transfer of the operations of each Facility. Following the execution hereof, each Transferor shall, at the applicable New Operator’s sole expense, use commercially reasonable efforts to cooperate with such New Operator to furnish all requested documentation and to execute all documents and consents reasonably necessary for such New Operator to obtain any required licenses, agreements, certificates and consents, necessary to operate the Facility not already in possession of such New Operator, from third parties and government program agencies. Each New Operator shall promptly apply for issuance of all such required licenses and shall complete all change of ownership applications for its Transferor’s existing Medicare provider numbers and agreements and apply for the New Operator’s own Medicaid provider numbers and agreements.

     3.2 Resident Funds; Advance Payments .

          (a) Prior to Closing, and subject to adjustment by Transferors and New Operators within thirty (30) days following the Transfer Date, each Transferor will provide its New Operator with an accounting of all funds belonging to Residents (defined below) at its Facility that are held by such Transferor in a custodial capacity and an accounting of all advance payments received by each of them pertaining to Residents at such Facility. Such accounting will set forth the names of the Residents for whom such funds are held and the amounts held on behalf of each Resident, and shall be true, correct and complete as of the Transfer Date. In this Agreement, “ Residents ” shall mean all residents of any Facility pursuant to agreements and

arrangements with the applicable Transferor entered into in the ordinary course of such Transferor’s business.

          (b) On the Closing Date, each Transferor shall transfer such funds to a bank account designated by its New Operator, and such New Operator shall promptly acknowledge the receipt thereof and upon such transfer shall assume all of Transferor’s financial and custodial obligations with respect to such amounts deposited. As of the date of receipt of such funds, each Transferor is relieved of all fiduciary and custodial obligations with respect to such funds actually transferred to its New Operator and such New Operator shall assume all such obligations and be directly accountable to the Residents with respect to all transferred funds.

          (c) With respect to such trust accounts for Residents, upon its receipt thereof, each New Operator shall assume custody of such accounts and agrees to treat such accounts in the fiduciary capacity required by law. Each New Operator agrees to indemnify and hold its Transferor harmless from all liabilities, claims, and demands that may be asserted against such Transferor in connection with all amounts received by such New Operator pursuant to this Section 3.2 and New Operator’s treatment of such amounts following the Closing Date (collectively, the “ Assumed Obligations ”).

          (d) Notwithstanding the above, the New Operators will not assume liability for amounts due to Residents of any Facility on or before the Transfer Date who are listed (whether by individual Resident name or in another manner) as creditors in the Transferor’s bankruptcy case, to the extent a Resident’s claim is listed as a liability of the Transferor’s bankruptcy case. At the Closing, Transferor shall provide New Operator with a list of all such Residents and amounts as of the Transfer Date.

     3.3 Final Cost Reports . Each Transferor shall prepare and file with the appropriate governmental authorities a final cost reports for its Facility (and any other cost reports for periods ending on or before the Transfer Date that are not yet filed) within the time frame required by law. Each such cost report shall be prepared in accordance with all applicable laws and regulations. Each New Operator shall cooperate with the appropriate Transferor, the Plan Agent and their respective agents, representatives and advisors, in filing such final cost reports and any appeals related thereto and shall make any information related to such matters in its possession available to such Transferor or the Plan Agent.

     3.4 Employees .

          (a) Each Transferor shall terminate the employment of all of its Employees effective as of the Transfer Date and, except as set forth in Section 3.4(b) below, shall pay all wages and benefits due as of the Transfer Date to all of the Employees in accordance with Transferor’s standard policies and applicable laws to the extent permitted by the Bankruptcy Court. Following the Transfer Date, Transferors shall have no liability or obligation to continue any benefits provided to Employees prior to the date thereof under any employee benefit program offered by any SMS Party, except to the extent required by applicable law and ordered by the Bankruptcy Court.

          (b) Each Transferor will provide its New Operator with a list of Facility Employees at least five (5) business days prior to the Closing Date (“ Transferor’s Employees ”). The New Operator shall rehire, or cause to be rehired, at least the minimum number of such Transferor’s Employees necessary to avoid creating any obligation under the WARN Act (defined in Section 3.4(c) below) on the part of the Transferor; provided, that the SMS Parties shall provide to the Diversicare Parties a complete list of all Employees terminated in the ninety (90) day period ending on the Closing Date. The New Operators shall provide the Transferors at least two (2) business days prior to the Closing Date with a list of Employees to whom they do not intend to offer employment. Those Employees employed by a New Operator or its designee shall be referred to as the “ Retained Employees .” Nothing herein is otherwise intended to limit or restrict changes in services or positions of any Retained Employees after the Transfer Date so long as such changes are made in compliance with the WARN Act. As to the Retained Employees only, New Operators or their designees shall assume, and be obligated to pay when due, any and all earned or accrued paid time off earned prior to the Transfer Date as provided in Section 1.1(b)(iv). To the extent any Transferor’s Employee is not a Retained Employee as of the Transfer Date, the Transferors shall retain any liability for, and be obligated to pay any and all earned or accrued vacation and other pa