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On September 1, 2010, we at Graymark Healthcare, Inc. (“we,” the “Company,” or “Graymark”) and our subsidiary, ApothecaryRx, LLC (“ARX”), executed an Asset Purchase Agreement (“Agreement”) with Walgreen Co. (“Walgreens” or “Buyer”) providing for the sale of substantially all the assets of ARX to Buyer (the “Asset Sale”). On October 29, 2001 we, ARX and Buyer executed an amendment to the Agreement.

The Agreement provides that in consideration for the ARX assets being purchased and liabilities being assumed, Buyer will pay in cash $25,500,000 plus up to $7,000,0000 for inventory (the “Inventory Amount”) and any security deposits, but less any payments remaining under goodwill protection agreements and any amounts due under promissory notes at closing which are assumed by Buyer (the “Purchase Price”). The assets being purchased by Buyer (the “Purchased Assets”) include (1) substantially all the assets and properties of ARX primarily used in or relating to the ownership and operation of ten retail pharmacies (the “Operate Location Pharmacies”), including all personal property, prescription files and records, customer lists and patient profiles, prescription pharmaceutical inventory, trademarks and trade names and related goodwill, and software and books, permits, and contracts, and (2) all prescriptions, prescription files and records, customer lists and patient profiles, prescription pharmaceutical inventory, trademarks and trade names, and software and books and records related to eight retail pharmacies (the “File Transfer Pharmacies”). ARX will retain all cash, cash deposits, and accounts receivable, agreements not assumed by Buyer, certain equipment and fixtures, and any personal property not located at the Operate Location Pharmacies.

The liabilities being assumed by Buyer include all obligations of ARX under certain contracts, including leases for the Operate Location Pharmacies and goodwill protection agreements, purchased by Buyer arising after the closing of the transaction and all obligations arising from operation of the retail pharmacy businesses purchased following the closing of the transaction.

On December 6, 2010, we and ARX completed the sale of assets relating to our independent pharmacy business. We received approximately $24.5 million in net proceeds from the sale of assets of which $2.0 million was deposited into an indemnity escrow account as previously agreed. These proceeds are net of approximately $1.0 million of security deposits transferred to Buyer and the assumption by Buyer of liabilities associated with goodwill protection agreements and promissory notes. We also received an additional $3.8 million for the sale of inventory to Buyer at 17 of our pharmacies with the inventory for the remaining pharmacy being sold as part of the litigation settlement, see Item 8.01 - Other Events below. We were not required to fund the additional $1.5 million escrow which was contemplated by the Amendment No. 1 to the Agreement.

As part of our previously agreed to debt reduction, we have reduced the outstanding balance of our Arvest credit facility by approximately $22.0 million from the proceeds of the Asset Sale and intend to further reduce our outstanding balance under this facility by an additional $3.0 million within the next 30 days. We intend to continue to collect retained accounts receivable and realize additional proceeds from the sale of any remaining inventory, equipment and fixtures not sold to Buyer.

On December 7, 2010, Graymark Healthcare, Inc. issued a press release announcing the completion of its divestiture of its independent pharmacy business. The full text of the press release issued in connection with the announcement is attached as Exhibit 99.2 to this Current Report on Form 8-K.

On December 6, 2010, we settled the litigation with certain former employees of our retail pharmacy in Sterling, Colorado and their affiliates. As part of the settlement, we and Walgreens sold assets to certain of the defendants comprising the long-term care pharmacy business and certain other assets and we agreed to revoke the preliminary injunction and the defendants agreed to non-competition arrangements. We previously reported in our most recent quarterly report on form 10-Q, that on October 8, 2010, we commenced litigation in U.S. District Court for the District of Colorado against certain former employees of our retail pharmacy in Sterling, Colorado and their affiliates. We claimed, among other things, breaches of certain contractual arrangements and seek monetary damages. On October 13, 2010, a stipulated preliminary injunction was issued in our favor.

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(b) Pro Forma Financial Information.

The unaudited pro forma condensed combined financial information with respect to the transaction described in Item 2.01 is filed as Exhibit 99.1.

(d) Exhibits.
 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 

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EXHIBIT INDEX  

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