PURCHASE AND SALE AGREEMENT

 

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                                                                  Exhibit 10.121

 

                           PURCHASE AND SALE AGREEMENT

 

                                 BY AND BETWEEN

 

                 MCKESSON MEDICAL SURGICAL MINNESOTA SUPPLY INC.

 

                                    AS BUYER,

 

                                       AND

 

                       ADVOCAT DISTRIBUTION SERVICES, INC.

 

                                       AND

 

                      DIVERSICARE MANAGEMENT SERVICES, INC.

 

                                 AS SHAREHOLDER

 

                          DATED AS OF NOVEMBER 4, 2004

 

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                           PURCHASE AND SALE AGREEMENT

 

          THIS PURCHASE AND SALE AGREEMENT (the "Agreement") is made and dated

as of this 4th day of November, 2004, by and between McKesson Medical-Surgical

Minnesota Supply Inc. a Minnesota corporation ("Buyer"), Advocat Distribution

Services, Inc., a Tennessee corporation ("Seller") and Diversicare Management

Services, Inc. ("Shareholder").

 

                                    RECITALS

 

          A. Buyer desires to purchase certain assets owned or used by Seller

related exclusively to the medical supply business of Seller (the "Business"),

but not the internet based direct purchase business of Seller known as "Care

Products Direct" and/or "Senior Products Direct" (the "Retained Business"), on

the following terms and conditions. For purposes of certainty, the Retained

Business includes only the aspects of the business associated with direct

internet purchases.

 

          B. Seller desires to sell such assets to Buyer, on the following terms

and conditions.

 

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

covenants, representations, warranties, conditions, and agreement hereinafter

expressed, the Parties agree as follows:

 

                                    ARTICLE I

 

                                PURCHASE AND SALE

 

          1.1 Purchased Assets.

 

          In accordance with the terms and subject to the conditions hereof,

Seller hereby agrees to sell, convey, assign and deliver to Buyer, and Buyer

hereby agrees to purchase, assume and accept from Seller, all right, title and

interest of Seller in and to the following:

 

               (a) The customer agreements, identified on Schedule 1.1(a) (the

"Customer Agreements"), including their successors and assigns.

 

               (b) The customer lists described on Schedule 1.1(b), including

non-Avante and Avante customers as identified on Schedule 1.1(b) (all customers

identified on Schedule 1.1(a) and Schedule 1.1(b), are hereinafter "Customers");

 

               (c) Copies of all business records and other documents, discs,

tapes and other records related to the assets detailed in subparts (a) and (b)

above, including (but not limited to) all sales data, customer lists and

records, accounts, bids, contracts, supplier records, drawings, designs,

specifications, process information, performance data, and other information or

data related to the Business.

 

                (d) The foregoing assets and business to be purchased hereunder

are herein sometimes collectively called the "Assets". The Assets shall not

include cash, certificates

 

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of deposit, investments, notes receivable, amounts due from officers or

employees, prepaid expenses, interest receivable, life insurance, refunds,

rebates, accounts receivable accrued through the execution of this Agreement or

any assets related to the Retained Business or any assets not described in

Sections 1.1 (a), (b) or (c) or listed on Schedule 1.1 (the "Excluded Assets").

 

          1.2 Assumed Liabilities.

 

               (a) Subject to the terms and conditions hereof, on the execution

hereof, Seller agrees to assign and transfer to Buyer and Buyer agrees to assume

only the obligations and liabilities of Sellers under the Customer Agreements

identified on Schedule 1.1(a). The obligations and liabilities referred to in

this Section 1.2(a) are herein sometimes collectively called the "Assumed

Liabilities".

 

               (b) Notwithstanding the foregoing, if the assignment and transfer

of any of the Assumed Liabilities would cause a breach thereof and if no

required consent to such assignment and transfer has been obtained from the

third parties involved, then, without limiting the effects of any

representations and warranties hereunder, such Assumed Liabilities shall not be

assigned and transferred to Buyer, and Buyer shall not assume any of the

obligations and liabilities with respect thereto, but, instead, the Seller shall

continue to hold its interests in and be obligated under and for such Assumed

Liabilities, with such Assumed Liabilities to be held by Seller in trust for the

benefit of Buyer, and with Seller to receive in trust and remit as promptly as

possible to Buyer any money paid thereunder to Seller and Seller shall cooperate

in any reasonable arrangement or action requested by Buyer to secure for Buyer

all benefits under such Assumed Liabilities; provided however, at and effective

as of such time as any such required consent with respect to such Assumed

Liability shall be obtained, such Assumed Liability shall forthwith be

transferred and assigned to the Buyer, and all related obligations and

liabilities of Seller shall be simultaneously assumed by the Buyer hereunder.

 

               (c) Except as expressly provided in Sections 1.2(a) and 1.2(b)

Buyer does not hereby and will not assume or become liable for or successor to

and shall not be obligated to pay or satisfy any obligation, debt or liability

whatsoever, contingent or otherwise, of Seller or its respective affiliates with

respect to the Business, the Retained Business or the Excluded Assets or

otherwise, including, without limitation, (i) any liability for any taxes or

governmental charges, assessments or contributions of any nature whatsoever,

(ii) any liability for employment matters (whether in connection with or related

to employee benefit matters, employment agreements, labor agreements, plans or

arrangements, employment discrimination matters, worker's compensation and

occupational safety and health matters, labor disputes, unfair labor practices,

claims for overtime, back wages, vacation or minimum wage or otherwise), or

(iii) any claim, liability or obligation relating to or arising out of

circumstances or occurrences or the operations of Seller, the Business or the

Customer Contracts on or prior to the consummation of the transactions

contemplated hereby. No other statement in or provision of this Agreement other

than in Section 1.2(a) and 1.2(b) and no other statement, written or oral,

action, or failure to act includes or constitutes any such assumption or

agreement, and any statement to the contrary by any person is unauthorized and

hereby disclaimed.

 

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          1.3   Unfulfilled Orders.

 

                (a) Buyer agrees to fulfill, invoice and collect payments for any

orders for medical supplies received by Seller but not processed prior to the

date hereof, as set forth on Schedule 1.3 or received by Buyer and Seller on

November 4, 2004 (the "Unfulfilled Orders"). The Unfulfilled Orders are the

property of Buyer, and Seller shall have no rights with respect thereto,

including for the payments received with respect thereto.

 

          1.4 Purchase Price.

 

               (a) The purchase price (the "Purchase Price") to be paid to

Seller for the sale of the Assets to Buyer as provided for herein shall be Two

Hundred Twenty-five Thousand Dollars ($225,000) ("Preliminary Purchase Price"),

plus the Earn Out Consideration calculated pursuant to Section 1.4(c). One

Hundred Twenty-five Thousand Dollars of the Preliminary Purchase Price shall be

paid by Buyer to Seller in cashier's check or wire transfer of immediately

available funds upon execution hereof. The remaining One Hundred Thousand

Dollars of the Preliminary Purchase Price shall be paid by Buyer to Seller in

cashier's check or wire transfer of immediately available funds so long as Larry

Reger does not rescind the Non-Compete Agreement referenced in Section 1.6(c)

below. In the event Larry Reger does not rescind the Non-Compete Agreement,

Buyer shall pay Seller the remaining Preliminary Purchase Price eight (8)

calendar days from the date hereof.

 

               (b) The Seller shall be entitled, in the aggregate, to additional

consideration (the "Earn Out Consideration") and Buyer shall also make

additional payments, if any calculated and payable in accordance with the terms

and provisions of Section 1.5 below.

 

               (c) The Purchase Price provided for in this Agreement has been

determined by the parties through good faith arms-length bargaining to be the

fair market value of the assets transferred to Buyer hereunder and is in full

consideration of Seller's sale, transfer and delivery of Assets. No amount paid

hereunder is intended to be, nor shall it be construed as, an offer or payment

made, directly or indirectly, overtly or covertly, to induce the referral of

patients, the purchase, lease or order of any item or service, or the

recommending of or arranging for the purchase, lease or order of any item or

service.

 

          1.5 Earn-Out Consideration.

 

               (a) For each of the first eight three month periods following the

execution of this Agreement (each a "Measurement Period") and ending on the

second anniversary thereof, Buyer shall pay to Seller an amount equal to (A) 75%

of the total of (i) Gross Margin, if any, minus (ii) Bad Debt, relating to

Buyer's invoiced sales transactions for such period from all Avante Customers,

as identified on Schedule 1.1(b) and (B) 20% of the total of (i) Gross Margin,

if any, minus (ii) Bad Debt, relating to Buyer's invoiced sales transactions for

such period from all Non-Avante Customers, as identified on Schedule 1.1(b). The

maximum aggregate payout to Seller under this Section 1.5, Earn Out

Consideration, shall be Five Hundred Forty Thousand Dollars ($540,000.00).

 

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               (b) Within thirty (30) days following each of the Measurement

Periods, Buyer shall determine the amount due Seller, if any, under this Section

1.5. Specifically, within thirty (30) days following the end of each Measurement

Period, Buyer shall calculate the Gross Margin relating to Buyer's invoiced

sales transactions from the Customers for such period. Buyer shall deduct any

Bad Debt charged which relates to Buyer's invoiced sales transactions for such

period from the Customers during the Measurement Period from the Gross Margin as

calculated in the preceding sentence. To the extent any additional payments are

owed to Seller, such payments shall be made by Buyer within thirty (30) days

after the end of such Measurement Period. To the extent Buyer subsequently

determines it has overpaid Seller under this Section 1.5(b), such overpayment

shall be credited against payments owed by Buyer to Seller in any subsequent

Measurement Period, or if no additional payments are due hereunder, such

overpayment shall be refunded by Seller to Buyer as provided in the Bad Debt

Adjustment Amount calculation provided in Section 1.5(c).

 

               (c) Within two hundred ten (210) days following the eighth

Measurement Period, Buyer shall calculate as of the one hundred eightieth

(180th) day following the end of eighth Measurement Period, the difference

between (i) the total invoiced amount from all sales transactions from the

Customers that remains uncollected from all Measurement Periods minus (ii) the

total amount of Bad Debt deducted from the earn-out payments made pursuant to

this Section 1.5 for all Measurement Periods (the "Bad Debt Adjustment Amount").

To the extent the Bad Debt Adjustment Amount is a negative number, Buyer shall

pay Seller its share of the resulting amount as set forth in 1.5(a) above. To

the extent the Bad Debt Adjustment Amount is a positive number, Seller shall

refund to Buyer Seller's share of the resulting amount as set forth in 1.5(a)

above. The payment of the Bad Debt Adjustment Amount due from Buyer shall be

made by Buyer within two hundred ten (210) days following the end of the eighth

Measurement Period. Any payment of the Bad Debt Adjustment Amount due from

Seller shall be made by Seller within thirty (30) days following the receipt by

Seller of the documentation of the calculation of Bad Debt Adjustment Amount as

provided in Section 1.5(d).

 

               (d) Within thirty (30) days after the end of each Measurement

Period Buyer will provide to Seller documentation of the calculation of the

Gross Margin and Bad Debt according to Buyer's internal accounting practices as

specified by GAAP consistently applied and in accordance with this Agreement.

Within two hundred ten (210) days after the end of the eighth Measurement

Period, Buyer will provide to Seller documentation of the calculation of the Bad

Debt Adjustment Amount and in accordance with this Agreement. Seller or Seller's

duly authorized agent, who shall be subject to a non-disclosure agreement

reasonably satisfactory in form and substance to Buyer, shall have the right, at

all reasonable times, during normal business hours, and upon the giving of

reasonable notice, to examine, inspect and audit the records of Buyer pertaining

to such calculations. Seller agrees that any documentation pertaining to such

calculations that is copied by Seller will be used solely for the purpose of

evaluating such calculations, and that Seller will keep such documentation

strictly confidential. In the event that Seller disputes any payments made

pursuant to this Section 1.5, it shall notify Buyer within thirty (30) days

following payment by Buyer, or notification by Buyer that no amount is due, with

respect to a Measurement Period. If Seller does not so notify Buyer, Buyer's

calculations of Gross Margin, Bad Debt and payment, if any, to Seller shall be

deemed final.

 

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               (e) For the purposes of calculating any additional payments in

this Section 1.5, the following terms shall have the meanings specified.

 

               "GROSS MARGIN" means (expressed in dollars) the purchase price of

               all products sold by Buyer to all of the Customers invoiced by

               Buyer during the applicable Measurement Period; less Sales

               Returns, Allowances and other credits to customers; less Buyer's

               weighted average cost of product; plus customer charge back

               rebates.

 

               "SALES RETURNS" means credit at original Customer invoice prices

               for product returned by the Customer to Buyer less applicable

               restocking charges plus any actual freight charges incurred by

               Buyer for the return of the product, whether or not such return

               is pursuant to a transaction occurring prior to or after

               execution hereof.

 

               "ALLOWANCES" means credits to the Customer related to adjustments

               to the original invoice price and/or freight charged.

 

               "BAD DEBT" means the estimate of invoices that will be deemed

               non-collectible in the future pursuant to Buyer's policies and

               where credit is not issued for pricing or return of products.

                Seller expressly acknowledges and agrees that the determination

               of Bad Debt shall be determined by Buyer, consistent with its

               trade credit policies and practices, as disclosed in Schedule 1.5

               to this Agreement.

 

               "WEIGHTED AVERAGE COST OF PRODUCT" means Buyer's purchase order

               acquisition cost from vendors plus freight to Buyer's warehouses,

               and import duties and brokerage fees. Weighted average item costs

                are obtained by combining beginning inventory item costs with

               current daily purchase costs and by dividing the combined costs

               by the beginning inventory units on hand plus daily units

               received.

 

                "CUSTOMER CHARGE BACK REBATES" means rebates from vendors or

               manufacturers directed at specific Customers excluding any

               rebates relating to Buyer's prompt pay discounts, annual purchase

               incentive or volume incentive agreements.

 

               (f) No portion of the payment calculation shall be based on, and

Gross Margin shall not include, any of the following:

 

                    (i) Revenues generated pursuant to the contracts for

                    supplies provided by the Buyer directly to a patient of a

                    Customer and billed directly to Medicare Part B or a State

                    Medicaid Program;

 

                    (ii) Revenues generated from use of software systems;

 

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                     (iii) Revenues generated for billing services; or

 

                    (iv) Revenues from purchases of products by any current or

                    future customer of Buyer, except as set forth on Schedule

                    1.1.

 

                (g) During the Term and following the expiration or earlier

termination of this Agreement, Seller shall not directly or indirectly, in any

manner, recommend, influence, encourage, or cause Customers to purchase products

from Buyer.

 

                (h) The parties agree to negotiate in good faith to resolve any

disagreement over amounts owed. In the event the parties cannot resolve such

disagreement based on good faith negotiations within thirty (30) days of receipt

of such notice, the parties agree to arbitrate such issue as described in

paragraph 1.5(i) below.

 

               (i) All payments shall be made in the form of cash, wire

transfer, certified check or bank check.

 

               (j) The parties hereby agree to submit all disputes with respect

to payments to be made (or the methods of calculation thereof) under this

Section 1.5 ("Earn Out Disputes") to arbitration under the following provisions,

which arbitration shall be final and binding upon the parties, their successors

and assigns. The following provisions constitute a binding arbitration clause

under applicable law.

 

               The arbitration shall be conducted in Minneapolis, Minnesota, by

a panel of three arbitrators selected by agreement of the parties not later than

10 days after delivery of a demand for arbitration, or failing such agreement,

appointed pursuant to the commercial Arbitration Rules of the American

Arbitration Association, as amended from time to time (the "AAA Rules"). If an

arbitrator becomes unable to serve, his or her successor(s) shall be similarly

selected or appointed. The arbitration shall be conducted pursuant to the

Federal Arbitration Act and the AAA Rules. All hearings shall be conducted on an

expedited schedule, and all proceedings shall be confidential. Any party may at

its expense make a stenographic record thereof.

 

               Notwithstanding the foregoing: (i) each party shall be allowed to

conduct discovery through written requests for information, document requests,

requests for stipulations of fact, and depositions; (ii) the nature and extent

of such discovery shall be determined by the arbitrators, taking into account

the needs of the parties and the desirability of making discovery expeditious

and cost-effective; (iii) the arbitrators may issue orders to protect the

confidentiality of information to be disclosed in discovery; and (iv) the

arbitrators' discovery rulings may be enforced in any court of competent

jurisdiction.

 

               The arbitrators shall complete all hearings not later than 90

days after selection or appointment and shall make a final determination not

later than 30 days thereafter. The determination shall be in writing and shall

specify the factual and legal bases for the determination. All reasonable,

out-of-pocket costs and expenses of the arbitration, including the

 

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arbitrators' fees and expenses and fees and expenses of experts and attorneys

("Arbitration Costs") shall be paid by the non-prevailing party. In the event

that the final determination states that Buyer wrongfully offset or deducted

payments to Seller and Buyer is required to make a payment to Seller under such

final determination, such payment shall bear interest at the prime rate of

interest as published in the Wall Street Journal on the date of the final

determination for the period beginning on the date at which such payment should

have been made pursuant to this Section 1.5.

 

          1.6 Documents at Signing

 

          Simultaneously with the execution hereof, Seller is executing and

delivering to Buyer, or causing to be executed and delivered to Buyer, the

following (the "Related Agreements"):

 

               (a) Bill of Sale transferring to Buyer good and marketable title

to the Assets by Seller, free from all liens and encumbrances to Buyer, in the

form attached hereto as Exhibit A.

 

               (b) Assignment and Assumption Agreement in the form attached

hereto as Exhibit B.

 

               (c) A copy of the executed Non-Compete Agreement between Seller

and its employee, Larry Reger, in substantially the form attached hereto as

Exhibit C.

 

          1.7 Purchase Price Allocation. Buyer and Seller shall negotiate in

good faith the allocation of the Purchase Price among the Assets in accordance

with Sections 1060 of the Internal Revenue Code (the "Code"). The Parties will

prepare and file their tax returns and all other requested filings based on such

allocation and shall take no position contrary thereto. In the event that the

Buyer and Sellers do not agree upon such allocation prior to the date which is

sixty (60) days prior to the earliest date upon which either of Buyer or Seller,

as the case may be, U.S. federal tax return reflecting the transactions

contemplated by the this Agreement is due, each of the Parties may file IRS Form

8594 and any federal, state or local tax returns allocating the consideration in

the manner each believes appropriate, provided that such allocation is

reasonable and in accordance with Section 1060 of the Code and the regulations

thereu