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Exhibit 10.1
 
FORBEARANCE AGREEMENT

This Forbearance Agreement (the “Agreement”) is entered into this 6th day of
October, 2011, by and between PrairieStone Pharmacy, LLC (“PrairieStone”),
Arcadia Resources, Inc. (“Arcadia”) and H.D. Smith Wholesale Drug Co. (“HDS”). 

WHEREAS, HDS and PrairieStone have entered into that certain Line of Credit and
Security Agreement dated as of April 23, 2010 (the “Credit Agreement”) and in
connection with the Credit Agreement PrairieStone executed the Line of Credit
Note dated April 23, 2010 (the “Note”); and

WHEREAS, Arcadia executed the Unlimited Continuing Guaranty in favor of HDS
dated April 23, 2010 (the “Guaranty,” and together with the Credit Agreement and
the Note, the “Loan Documents”); and

WHEREAS, PrairieStone acknowledges that it is in default of its obligations
under the Credit Agreement and the Note.

NOW, THEREFORE, in consideration of the undertakings set forth in this
Agreement, and for other good and valuable consideration, the parties hereby
agree as follows:

1.           From now until the earlier of (a) November 18, 2011, or (b) two (2)
business days following the receipt of notification from the Potential
Purchasers (as defined in Section 5 below) that each of them has terminated
their due diligence or are no longer interested in pursuing the acquisition of
assets of PrairieStone  (the “Forbearance Period”), HDS will forbear from
enforcing its rights under the Line of Credit and Security Agreement dated as of
April 23, 2011 and related documents (collectively, the “Loan Documents”).

2.           Upon execution of the Agreement, Arcadia will wire transfer
$100,000 to HDS to be placed by HDS in a separate collateral reserve account
(the “Collateral Deposit Account”) to be drawn upon by HDS in the event of
Arcadia’s failure to make the payments, if any, required to be made by it under
paragraph 3 below.

3.           Arcadia will pay to HDS each week during the Forbearance Period an
amount equal to the decline, if any, in the value of the Collateral (consisting
of PrairieStone’s cash, inventory and accounts receivable) measured as of the
close of business on Friday, October 7, 2011.  PrairieStone will provide HDS by
5:00 on Monday a cash flow statement and collateral reconciliation statement as
of the close of business on Friday of the prior week.  The form of this
statement is attached as Exhibit A.  In addition, PrairieStone will provide a
detailed accounts receivable report, bank statements and other documentation
reasonably requested by HDS to support the information in Exhibit A.  Any
payment pursuant to this Section 3 will be made in accordance with such
statements by wire transfer of immediately available funds for receipt on the
Tuesday following the delivery of the statements to HDS the prior day.
 
 
 

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4.           PrairieStone will pay accrued interest due on indebtedness
evidenced by the Loan Documents by ACH draft.  The interest payment due October
1 will be paid upon execution of the Agreement.  The interest payment due
November 1, 2011 will be paid on the due date.

5.           PrairieStone will seek during the Forbearance Period to sell the
stock or assets of PrairieStone (a “Sale Transaction”) to third parties
previously identified to HDS (the “Potential Purchasers”).  If a Sale
Transaction is consummated, HDS agrees that it will accept the net cash proceeds
in satisfaction of PrairieStone’s and Arcadia’s obligations under the Loan
Documents, provided the amount of such net cash proceeds is at least $2
million.    In addition, the Potential Purchaser shall be obligated to assume
any outstanding trade payables of PrairieStone for goods purchased.

6.           During the Forbearance Period, PrairieStone will permit Alan Carey,
a consultant to HDS, to have access to information regarding PrairieStone in
accordance with the terms of the Confidentiality Agreement dated October 4,
2011.  The sole purpose of Mr. Carey’s assignment will be to advise HDS with
respect to an orderly wind down of the business in the event the Sale
Transaction does not take place by November 18, 2011.   

7.           PrairieStone will operate the business in the ordinary course
during the Forbearance Period.

8.           HDS will cooperate with PrairieStone in the sale process.  HDS
understands any sale will require the consent of key customers such as
WellPoint.  HDS will permit any purchaser to continue to participate in the HDS
Major Value network.

9.           Within seven (7) calendar days of the execution of this Agreement,
PrairieStone and HDS will mutually agree on a plan to wind down the business in
the event a Sale Transaction is not completed, which shall include a weekly
budget of cash receipts and expenses (the “Plan”).  The Plan will ensure
compliance with all applicable laws, regulations, rules and professional
requirements applicable to a pharmacy closure.   If the Forbearance Period ends
without a completed Sale Transaction, then (a) PrairieStone will implement the
Plan; (b) PrairieStone will immediately surrender to HDS all Collateral not
reasonably required to implement the Plan, and (c) PrairieStone will pay to HDS
all cash receipts at the end of each week that are in excess of the budgeted
amount needed to pay cash expenses.  If PrairieStone and HDS are unable to
mutually agree on the Plan, then at the conclusion of the Forbearance Period, if
a Sale Transaction is not completed, PrairieStone will immediately surrender all
collateral to HDS.

10.         Whether or not a Sale Transaction is completed, HDS shall have the
right to receive any funds in the Collateral Deposit Account at the end of the
Forbearance Period and will apply such funds to outstanding obligations of
PrairieStone.

11.         PrairieStone and Arcadia waive and release HDS from any claims and
defenses as of the date hereof, and waive the right to a jury trial.
 
 
 

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12.         PrairieStone reaffirms all of its Loan Documents with HDS.  Arcadia
reaffirms and agrees to all terms set forth in the Guaranty and all other Loan
Documents to which it is a party, and agrees with and consents to the terms set
forth in this Agreement.

13.         In the event the Collateral Deposit Account balance falls below
$100,000, Arcadia shall cause a Potential Purchaser to deposit a sufficient
amount of funds to bring the balance of the Collateral Deposit Account back to
$100,000 within three (3) calendar days of the balance falling below
$100,000.  If Arcadia fails to cause the Collateral Deposit Account to be funded
to a balance of $100,000 within three (3) calendar days, then this Forbearance
Agreement shall immediately terminate with no further action or notice required
by HD Smith.

 
PRAIRIESTONE PHARMACY, LLC
     
/s/ Marvin R. Richardson
     
ARCADIA RESOURCES, INC.
     
/s/ Marvin R. Richardson
     
H.D. SMITH WHOLESALE DRUG CO.
     
/s/ Henry Dale Smith Jr.

 

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