<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
GREENBRIAR CORPORATION
(Name of Registrant As Specified in Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
........................................................................
2) Form, Schedule or Registration Statement No.:
........................................................................
3) Filing Party:
........................................................................
4) Date Filed:
........................................................................
<PAGE>
GREENBRIAR CORPORATION
4265 KELLWAY CIRCLE
ADDISON, TEXAS 75244
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 30, 1996
Dear Stockholders of Greenbriar Corporation:
You are cordially invited to attend a Special Meeting of Stockholders of
Greenbriar Corporation (the "Company") to be held at 9:00 a.m., local time on
December 30, 1996, at 4265 Kellway Circle, Addison, Texas 75244, to consider
and vote upon a proposal (the "Proposal") to approve the issuance of 1,300,000
shares (the "Acquisition Shares") of the Company's Common Stock in connection
with the Company's acquisition of American Care Communities, Inc. ("American
Care").
The accompanying Proxy Statement forms a part of this Notice. You are not
being asked to approve anything at the Special Meeting other than the Proposal.
Pursuant to rules of the American Stock Exchange (the "Exchange"), Stockholder
approval is required as a prerequisite to listing additional shares issued in
connection with an acquisition where the potential increase of common stock
would result in an increase in outstanding common shares of 20% or more. This
condition is raised by the Proposal, and you are being asked to approve the
Proposal with regard to the Acquisition Shares. See "Approval of Acquisition
Shares" in the accompanying Proxy Statement for a discussion of the effect of
such approval.
Only Stockholders of record at the close of business on December 9, 1996 who
own Common Stock or Series B, Series C or Series D Preferred Stock will be
entitled to vote at the Special Meeting or any adjournments thereof. The
affirmative vote of the holders of more than 50% of the outstanding shares of
Common Stock and Series B, C and D Preferred Stock of the Company, voting as one
class, present and voting at the Special Meeting on such date is necessary to
approve the Proposal.
All holders of Common Stock and Series B, C and D Preferred Stock, whether or
not they expect to attend the Special Meeting in person, are requested to
complete, sign, date and return the enclosed form of proxy in the accompanying
envelope (which requires no additional postage if mailed in the United States).
Your proxy will be revocable, either in writing or by voting in person at the
Special Meeting, at any time prior to its exercise.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT WITHOUT DELAY IN
THE ENCLOSED ENVELOPE. ANY HOLDER OF COMMON STOCK OR SERIES B, SERIES C OR
SERIES D PREFERRED STOCK ATTENDING THE MEETING MAY VOTE IN PERSON EVEN IF A
PROXY HAS BEEN RETURNED.
By Order of the Board of Directors
James R. Gilley, President
December 19, 1996
<PAGE>
GREENBRIAR CORPORATION
4265 KELLWAY CIRCLE
ADDISON, TEXAS 75244
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 30, 1996
This Proxy Statement (the "Proxy Statement") and the accompanying proxy card
are being furnished to the holders of common stock, par value $.01 per share
("Common Stock"), and Series B, Series C and Series D Preferred Stock, par value
$0.10 per share ("Preferred Stock") (collectively, the "Stockholders"), of
Greenbriar Corporation, a Nevada corporation ("Greenbriar" or the "Company"), in
connection with the solicitation of proxies by the Board of Directors of the
Company from the Stockholders for use at a special meeting of Stockholders of
the Company (the "Special Meeting"). At the Special Meeting, the Stockholders
of the Company will be asked to consider and vote upon a proposal (the
"Proposal") to approve the issuance of 1,300,000 shares (the "Acquisition
Shares") of the Company's Common Stock in connection with the Company's
acquisition of American Care Communities, Inc. ("American Care"). Neither
Nevada law nor the Company's Articles of Incorporation or Bylaws require
Stockholder approval of the Proposal; however, the rules of the American Stock
Exchange (the "Exchange") require prior Stockholder approval as a prerequisite
to listing additional shares issued in connection with an acquisition when the
potential increase of Common Stock is 20% or greater. This condition is raised
by the Proposal, and consequently, you are being asked to approve the Proposal
at the Special Meeting. See "Approval of Acquisition Shares" for a discussion
of the effect of such approval. Such effects include the possibility that,
under Nevada law, Stockholders voting in favor of the Proposal may be deemed to
have waived their rights to challenge such transaction, while Stockholders
voting against the Proposal or abstaining from voting will continue to retain
those rights. Any such challenge could include allegations that the controlling
Stockholders of the Company violated a fiduciary duty or duty of fairness to the
Company or the other Stockholders in the valuation and terms of the issuance of
the shares, and Stockholders voting in the favor of the Proposal could also
waive their right to bring these claims. A positive Stockholder vote may also
have the effect of protecting such controlling Stockholders from such claims on
the theory that the Stockholders have ratified the actions in accordance with
Nevada law and the Company's Bylaws. It should also be noted that under Nevada
law Stockholders do not have dissenters' rights resulting from the Proposal, nor
do they have preemptive rights to acquire any of the Acquisition Shares. This
Proxy Statement and the enclosed form of proxy is being mailed on or about
December 19, 1996.
AVAILABLE INFORMATION
Greenbriar is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and copies of such materials are available for
inspection and reproduction at the public reference facilities of the Commission
at its New York regional office, 75 Park Place, New York, New York 10007, and at
its Chicago regional office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials also can
be obtained by mail from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
material filed by the Company can be inspected at the offices of the Exchange,
86 Trinity Place, New York, New York 10006-1881.
1
<PAGE>
VOTING AND PROXY INFORMATION
The Board of Directors of the Company has fixed the close of business on
December 9, 1996, as the record date (the "Record Date") for determining the
holders of Common Stock and Preferred Stock entitled to receive notice of and to
vote at the Special Meeting. At the close of business on the Record Date, there
were outstanding 5,172,242 shares of Common Stock, 3,096 shares of Series B
Preferred Stock, 10,000 shares of Series C Preferred Stock, and 675,000 shares
of Series D Preferred Stock, the only outstanding securities of the Company
entitled to vote at the Special Meeting. The Common Stock, Series B, Series C
and Series D Preferred Stock were held by approximately 3,850, 18, 1 and 5
stockholders of record, respectively.
For each share held on the Record Date, a holder of Common Stock or Preferred
Stock is entitled to one vote on all matters properly brought before the
Stockholders at the Special Meeting. Such votes may be cast in person or by
proxy. Abstentions may be specified as to the approval of the Proposal. Under
the rules of the Exchange, brokers holding shares for customers have authority
to vote on certain matters when they have not received instructions from the
beneficial owners, and do not have such authority as to certain other matters
(so-called "broker non-votes"). The Exchange rules prohibit member firms of the
Exchange from voting on the Proposal without specific instructions from
beneficial owners. The affirmative vote, either in person or by proxy, of the
holders of more than 50% of the shares of Common Stock and Series B, Series C
and Series D Preferred Stock outstanding as of the Record Date, voting as one
class, is necessary to approve the Proposal. Accordingly, if a Stockholder
abstains from voting certain shares on the approval of the Proposal, it will
have the effect of a negative vote, but if a broker indicates that it does not
have authority to vote certain shares, those shares will not be considered as
shares present and entitled to vote with respect to the approval of the Proposal
and therefore will have no effect on the outcome of the vote.
On the Record Date, 1,210,000 shares of Common Stock, representing
approximately 20.6% of shares entitled to vote at the Special Meeting, were
held, through a wholly owned corporation, by James R. Gilley, President and
Chief Executive Officer of the Company. An additional 667,000 shares
(approximately 11.4% of shares entitled to vote) were held of record by Mr.
Gilley, Mr. Gilley's spouse and adult children, as individuals, and a further
530,000 shares (approximately 9%) are held by Mr. and Mrs. Gilley and such adult
children as trustees for various family trusts. Mr. and Mrs. Gilley, the wholly
owned corporation and one of the family trusts and an adult child of Mr. and
Mrs. Gilley own all 675,000 outstanding shares of Series D Preferred Stock
(approximately 11.5% of shares entitled to vote). Also, Victor L. Lund, a
Director of the Company, owns 1,214,961 shares of Common Stock, representing
approximately 20.7% of shares entitled to vote. All such persons have indicated
they will vote their shares, comprising a total of more than 73.2% of shares
outstanding, for the approval of the Proposal, which will insure such approval
by the Stockholders.
All shares of Common Stock and Preferred Stock that are represented at the
Special Meeting by properly executed proxies received by the Company prior to or
at the Special Meeting and not revoked will be voted at the Special Meeting in
accordance with the instructions indicated in such proxies. Unless instructions
to the contrary are specified in the proxy, each such proxy will be voted FOR
the Proposal to approve the issuance of the Acquisition Shares.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company, before the vote is taken at the Special
Meeting, a written notice of revocation bearing a date later than the date of
the proxy, (ii) duly executing and delivering a subsequent proxy relating to the
same shares, or (iii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation should be sent to:
Corporate Secretary, Greenbriar Corporation, 4265 Kellway Circle, Addison,
Texas 75244.
2
<PAGE>
APPROVAL OF ACQUISITION SHARES
Neither Nevada law nor the Company's Articles of Incorporation or Bylaws
require Stockholder approval of the Proposal to authorize the issuance of the
Acquisition Shares. However, the rules of the Exchange require prior
Stockholder approval as a prerequisite to listing additional shares issued in
connection with an acquisition where the potential increase of Common Stock is
20% or more. This condition is raised by the issuance of the Acquisition
Shares, and consequently, the Stockholders are being asked to approve the
Proposal at the Special Meeting.
THE AMERICAN CARE ACQUISITION
Until 1994, the Company's business was the acquisition, operation and sale of
retirement, nursing and other health care facilities, as well as commercial real
estate, and the manufacture and sale or lease of mobility assistance equipment,
which it conducted under the name "Medical Resource Companies of America."
During 1994, the Company began a series of steps to focus its business on the
development, management and ownership of assisted living facilities. The
Company's historical businesses during the past five years have been ownership
and operation of skilled nursing and retirement centers, real estate investments
and manufacture and leasing of electric convenience vehicles and wheelchairs.
The nursing and retirement centers and convenience vehicle businesses have been
sold, and the real estate investments are being liquidated. Revenues and
earnings in years prior to 1996 are attributed to these prior businesses.
During 1994, the Company began independently to develop its assisted living
business, began construction of its first assisted living facility in July 1995,
and opened such facility to residents on May 30, 1996. By July 1, 1996, the
Company (not including the properties of Wedgwood Retirement Inns, Inc.) had
three additional assisted living facilities under construction and nine under
development. In order to increase the Company's presence in the assisted living
industry the Company acquired (the "Wedgwood Acquisition") Wedgwood Retirement
Inns, Inc. ("Wedgwood") in March 1996. Wedgwood and its principals owned
various interests in 15 predecessor entities, each of which owned, leased or
managed at least one assisted or independent living facility. As a result of
the Wedgwood Acquisition, the Company now owns these entities and owns, leases
or manages their facilities. All entities are owned 100% by the Company except
for one facility owned 40% by minority owners and two entities owned 51% by
Victor L. Lund. The Company has an option to purchase Mr. Lund's interests for
$10,000.
In furtherance of its expansion strategy, the Company entered into an
Agreement and Plan of Merger (the "Agreement") on November 21, 1996 pursuant to
which American Care Communities, Inc. ("American Care") will be merged
(the"American Care Acquisition") with and into a wholly owned subsidiary of the
Company in exchange for 1,300,000 shares of the Company's Common Stock (the
"Acquisition Shares"). The American Care Acquisition has been approved by
unanimous vote of the stockholders and board of directors of American Care, and
the closing of the American Care Acquisition is expected to occur on December
30, 1996, following the Special Meeting.
American Care was founded in July 1993 to acquire, develop and operate
assisted living facilities and currently owns, operates or manages a total of 16
assisted or independent living facilities with a capacity for 1,275 residents.
American Care's facilities are located in North Carolina, South Carolina and
Florida and it manages one facility in Maine. Upon closing of the American Care
Acquisition, the Company will own or operate these facilities. The American
Care Acquisition also will provide the Company with additional operational
expertise and managerial talent.
The consideration for the American Care Acquisition will be 1,300,000 shares
of Common Stock issuable to the sellers (the "Sellers"), who consist of 12
persons, all of whom were previously unrelated to the Company. Such purchase
price was determined through arms' length negotiations. The Company's Common
Stock closed on the Exchange at $15.88 on October 14, 1996, the day before the
Company announced its intent to acquire American Care. The Sellers include the
following persons who own either 5% or more of American Care or who are
officers or directors of American Care.
3
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENTAGE CURRENT
COMMON STOCK OF ACQUISITION RELATIONSHIP TO
SELLER TO BE RECEIVED SHARES AMERICAN CARE
- ----------------------------- -------------- ---------------- -------------------------
<S> <C> <C> <C>
Floyd B. Rhoades/(1)(2)/ 870,517 67.0% Chairman, President and
Chief Executive Officer
Sharon J. Rhoades/(1)/ 119,249 9.2% Director, Executive Vice
President of Operations
and Secretary
Gary S. Smith 95,399 7.3% Director, Executive Vice
President of Administration
and Treasurer
Ian A.W. Howes 35,775 2.8% Vice President of Finance
and Chief Financial Officer
Glenn Kiger 5,962 0.5% Vice President
----------- --------
1,126,902 86.7%
</TABLE>
_____________________
(1) Floyd B. Rhoades and Sharon J. Rhoades are husband and wife.
(2) 45,500 shares of Mr. Rhoades shares will be withheld as security for
repayment of obligations of American Care to satisfy claims of brokers in
the transaction.
Upon closing of the American Care Acquisition, the Company will enter into an
employment agreement with Floyd B. Rhoades pursuant to which Mr. Rhoades will
agree to serve, for three years following closing of the American Care
Acquisition, as President and Chief Executive Officer of the Company, and will
serve as a Director and member of the Executive Committee of the Board of
Directors with a term expiring in 1998. Mr. Rhoades will receive an annual
salary of $200,000 and will be entitled to participate in all executive bonus
programs at levels equal to those available to comparable executive positions.
American Care has also entered into an Employment Agreement with Sharon J.
Rhoades, who is the wife of Floyd B. Rhoades, to serve as Vice President-
Government Relations, for a period of three years for a salary of $125,000 per
year and an amendment to the Employment Agreement with Ian A. W. Howes to
provide for 12 months severance pay in the amount of $100,000 upon any
termination.
The Company's Board of Directors, and the stockholders and Board of Directors
of American Care, have approved the Agreement and the American Care Acquisition.
Closing of the American Care Acquisition is contingent upon the Stockholders of
the Company approving the issuance of the Acquisition Shares, and the Company
receiving approval from the Exchange for the listing of the Acquisition Shares,
on or before December 31, 1996, as well as certain standard closing conditions
for transactions of this type which may be enforced or waived by the Company's
Board of Directors in its discretion. No governmental approvals are required to
be obtained prior to consummating the American Care Acquisition.
At the closing of the American Care Acquisition, the Sellers will enter into
registration rights agreements with the Company pursuant to which the Company
will agree to register the Acquisition Shares of each Seller under limited
circumstances, as follows: (i) commencing two years after the closing of the
American Care Acquisition, the Company will give the holders of such shares the
right to demand registration of all or a portion of such Seller's Acquisition
Shares; and (ii) the Company will agree to give the holders of Acquisition
Shares "piggy-back" registration rights to include all or a portion of the
shares in any other registration statement filed by the Company under the
Securities Act of 1933 (other than on Form S-8 or Form S-4), subject to certain
rights of the Company not to include all or a portion of such shares under
certain circumstances. The Company will agree to pay all expenses of the demand
or piggy-back registration, other than underwriting fees, discounts or
commissions.
4
<PAGE>
The American Care Acquisition is intended to be accounted for as a "pooling of
interests" transaction. It also qualifies as a non-taxable reorganization to
the Company, American Care and the Stockholders under the Internal Revenue Code
of 1986.
The Proposal requires Stockholder approval because under the rules of the
Exchange the effect of issuing the Acquisition Shares is an additional listing
with the Exchange of shares issuable in connection with an acquisition that will
represent more than 20% of shares of Common Stock previously outstanding.
Certain financial information of the Company and American Care, on an
historical and pro forma basis, is included elsewhere in this Proxy Statement.
PROPOSAL TO APPROVE ISSUANCE OF ACQUISITION SHARES
The Company is submitting the Proposal to authorize the issuance of 1,300,000
shares of Common Stock in connection with the acquisition of American Care.
Stockholders may vote for or against or abstain from voting on the Proposal.
In considering their vote on the Proposal, Stockholders should give special
consideration to the following matters:
Effect on Outstanding Shares. Prior to the issuance there will be a total of
5,860,338 shares outstanding having voting rights, of which 5,172,242 (88.3%)
are Common Stock, and 688,096 shares (11.7%) are shares of voting Preferred
Stock. Following issuance of the Acquisition Shares, the existing holders of
100% of the Common Stock will own 79.9% of all shares of Common Stock
outstanding.
Waiver of Rights. Stockholders should be aware that under Nevada law, any
Stockholders voting in favor of the Proposal may be deemed to have waived their
rights to challenge transactions contemplated by the Proposal, while
Stockholders voting against the Proposal or abstaining from voting will continue
to retain those rights. Any such challenge could include allegations that the
controlling Stockholders of the Company violated a fiduciary duty or duty of
fairness to the Company or the other Stockholders in the valuation and terms of
the issuance of the shares, and Stockholders voting in favor of the Proposal
could also waive their right to bring these claims. If a majority of the
unaffiliated Stockholders approve the Proposal, the controlling Stockholders may
be protected from such claims on the theory that the Stockholders have ratified
the actions in accordance with Nevada law and the Company's Bylaws. It should
also be noted that under Nevada law Stockholders do not have dissenters' rights
resulting from the Proposal, nor do they have preemptive rights to acquire any
of the Acquisition Shares.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF GREENBRIAR
At a meeting on October 14, 1996, the Board of Directors of Greenbriar
approved the American Care Acquisition by means of a merger into a subsidiary of
the Company and determined that such actions are in the best interests of
Greenbriar and its Stockholders and recommended that the Stockholders approve
and adopt the Proposal to issue the Acquisition Shares in the merger.
In reaching its conclusion to approve the American Care Acquisition and the
Proposal, the Board of Directors considered the following factors and weighed
the positive and negative attributes discussed below:
(1) The most positive feature of the acquisition was its effect on the
Company's growth strategy. Greenbriar began during 1994 to shift its focus from
its historical businesses into the assisted living industry and by early 1996
had disposed of all of its businesses other than the ownership of certain
investment real properties and its developmental efforts in assisted living. In
March 1996, the Company acquired Wedgwood, which owned or operated 16 assisted
living facilities and had a seasoned management team, giving the Company
5
<PAGE>
an immediate presence in the assisted living industry. The acquisition of
American Care will approximately double the Company's portfolio of assisted
living facilities and add more key management to the Company, including an
executive with extensive experience in the industry who will become the
President and Chief Executive Officer of Greenbriar. The Board of Directors
discussed the American Care Acquisition and reviewed its structure,
documentation and terms with legal counsel representing Greenbriar in the
transaction. The Board considered the value of the Acquisition Shares that would
be issued in the American Care Acquisition and the employment and contracting
obligations to American Care management. The Board of Directors concluded that
these terms were in the Company's and the Stockholders' best interests. Such
acquisition was believed to be compatible with the Company's strategy of growing
its assisted living business through a combination of acquisitions and internal
development. The industry is in a rapid phase of growth and consolidation, and
several assisted living companies completed or initiated initial public
offerings in 1995 and 1996, some of which became public after completing a
series of consolidating acquisitions. The need to take advantage of available
opportunities led the Board of Directors to continue to rely on acquisitions as
a means of becoming a major competitor in the assisted living industry.
(2) The Board positively considered the geographical locations of the American
Care facilities in the Southeastern United States as providing a balance to the
Company's existing concentration of properties in the Pacific Northwest and
Southwest. American Care's offices in Raleigh, North Carolina, will become a
regional office of the Company and provide a base for additional management,
development and acquisition in the Eastern United States.
(3) The Board also positively considered the key management of American Care
to be added to the Company's executive staff. The Board interviewed Floyd B.
Rhoades and approved his election to become the President and Chief Executive
Officer of the Company upon the closing of the American Care Acquisition. Mr.
Rhoades will move from North Carolina to Dallas to head the Company's operations
in the assisted living industry.
(4) The Board took cognizance that the addition of 16 properties and American
Care's corporate overhead could place additional demands on the Company's
working capital. Although management believes the Company has sufficient
working capital to meet its future obligations, its rapid growth through the two
acquisitions in 1996 will require that the Company's properties be integrated
quickly and managed efficiently to obtain the maximum benefit of the Company's
resources.
(5) The Board also noted that the time required to conclude the American Care
Acquisition and obtain Stockholder approval of the Proposal would cause the
Company to postpone its previously announced plan to conduct a public offering
of Common Stock to obtain additional capital to finance the development of
assisted living centers. The Company will attempt to renew its plan for an
equity offering during 1997.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Greenbriar consists of 100,000,000 shares of
Common Stock, par value $.01 per share ("Common Stock"), and 10,000,000 shares
of Preferred Stock, par value $.10 per share (the "Preferred Stock"). The
authorized Preferred Stock may be designated in series, and five series of
Preferred Stock have been designated, three of which are outstanding.
The holders of Common Stock have no preemptive, conversion or redemption
rights. The outstanding shares of Common Stock are fully paid and nonassessable.
The holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company has not paid cash dividends on the Common Stock
during the last two fiscal years, and the Board of Directors currently intends
to retain earnings for further development of its business and not to pay cash
dividends on the Common Stock in the foreseeable future. No dividends can be
paid on
6
<PAGE>
the Common Stock while dividends are in arrears on any Series of Preferred
Stock. The Company is not currently in arrears on any dividends payable on the
Preferred Stock. The holders of Common Stock are entitled to one vote per share
on all matters submitted to a vote of Stockholders and do not possess cumulative
voting rights. The registrar and transfer agent for the Common Stock is American
Stock Transfer and Trust Company, New York, New York.
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF
MANAGEMENT BEFORE AND AFTER AMERICAN CARE ACQUISITION
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of September 30, 1996, certain information
with respect to all Stockholders known by the Company to own beneficially more
than 5% of the outstanding Common Stock and Series C and D Preferred Stock
(which are the only outstanding classes of voting securities of the Company,
except for Series B Preferred Stock), as well as information with respect to the
Company's Common Stock and Series C and D Preferred Stock owned beneficially by
each director, which includes James R. Gilley, Gene S. Bertcher, Robert L.
Griffis and W. Michael Gilley, constituting all executive officers whose
compensation from the Company in 1995 exceeded $100,000, and by all directors
and executive officers as a group. Unless otherwise indicated, each of such
stockholders has sole voting and investment power with respect to the shares
beneficially owned. The number of shares of Series B Preferred Stock
outstanding and convertible into Common Stock is immaterial and no information
has been provided below regarding Series B Preferred Stock ownership. All shares
of Common Stock have been adjusted for the 1 for 5 reverse split effected in
December 1995.
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------- -------------------------------------------------------------------------------
AFTER
ACQUISITION
NUMBER OF SHARES-- SHARES
NUMBER PERCENT NUMBER PERCENT ASSUMING FULL PERCENT ISSUED-
NAME AND ADDRESS OF OF OF OF CONVERSION OF PREFERRED OF PERCENT
OF BENEFICIAL OWNER SHARES SERIES SHARES CLASS STOCK BY HOLDERS CLASS OF CLASS
- ---------------------- ---------- --------- ---------- ----------- ------------------------ --------- ----------
Series D Preferred Stock/(1)/
---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
James R. Gilley 637,943/(2)/ 94.5% 2,346,000/(3)/ 43.7% 2,664,971 46.1% 37.7%
4265 Kellway Circle
Addison, TX 75244
Sylvia M. Gilley 637,943/(2)/ 94.5% 2,346,000/(3)/ 43.7% 2,664,971 46.1% 37.7%
13711 Creekside Place
Dallas, TX 75248
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- -----------------------------------------------------------------------------
AFTER
ACQUISITION
NUMBER OF SHARES-- SHARES
NUMBER PERCENT NUMBER PERCENT ASSUMING FULL PERCENT ISSUED-
NAME AND ADDRESS OF OF OF OF CONVERSION OF PREFERRED OF PERCENT
OF BENEFICIAL OWNER SHARES SERIES SHARES CLASS STOCK BY HOLDERS CLASS OF CLASS
- ---------------------- ---------- ---------- ---------- ----------- ------------------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Michael Gilley 37,057/(4)/ 5.5% 261,000/(4)/ 5.0% 279,528 5.0% 4.1%
4265 Kellway Circle
Addison, TX 74244
Victor L. Lund - - 1,214,961 23.5% 1,214,961 21.7% 17.7%
816 N.E. 87th Ave.
Vancouver, WA 98664
Paul W. Dendy - - 26,133/(5)/ 0.5% 26,133 0.5% 0.4%
816 N.E. 87th Ave.
Vancouver, WA 98664
Mark W. Hall - - 80,368/(5)/ 1.6% 80,368 1.4% 1.2%
816 N.E. 87th Ave.
Vancouver, WA 98664
Gene S. Bertcher - - 80,000/(6)/ 1.5% 80,000 1.4% 1.2%
4265 Kellway Circle
Addison, TX 75244
Robert L. Griffis - - 30,000/(7)/ 0.6% 30,000 0.5% 0.4%
4265 Kellway Circle
Addison, TX 75244
Michael E. McMurray - - - - - - -
5330 Merrick Rd.
Massapequa, NY 11758
Matthew G. Gallins - - 25,000A/(8)/ 0.5% 25,000 0.4% 0.3%
715 Stadium Drive
Winston-Salem, NC 27101
Paul G. Chrysson - - - - - - -
1045 Burke Street
Winston-Salem, NC 27101
Richards D. Barger - - 200 - 200 - -
945 San Marino Ave.
San Marino, CA 91108
Steven R. Hague - - - - - - -
1650 Bank One Tower
221 W. Sixth Street
Austin, TX 78701
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------------- ----------------------------------------------------------------------------
AFTER
ACQUISITION
NUMBER OF SHARES SHARES
NUMBER PERCENT NUMBER PERCENT ASSUMING FULL PERCENT ISSUED-
NAME AND ADDRESS OF OF OF OF CONVERSION OF PREFERRED OF PERCENT
OF BENEFICIAL OWNER SHARES SERIES SHARES CLASS STOCK BY HOLDERS CLASS OF CLASS
- --------------------- --------- --------- ---------- ---------- ------------------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Don C. Benton - - - - - - -
9200 Inwood Road
Dallas, TX 75220
Series C Preferred Stock
------------------------
Cove Capital Corporation 10,000/(9)/ 100.0% - - 66,667 1.2% 1.0%
245 East 54th Street
New York, NY 10022
All executive officers 675,000/(1)(2)(4)/ 100.0% 4,063,662 75.1% 4,401,161 75.7% 61.8%
and directors as a group
(13 persons)
</TABLE>
____________________
(1) Represents Series D Preferred Stock which votes with Common Stock and
Series B and C Preferred Stock as one class. Series D Preferred Stock is
convertible into Common Stock, beginning March 15, 1997, at a rate of one
share of Common Stock for two shares of Series D Preferred Stock.
(2) Consists of 355,927 shares owned by JRG Investments Co., Inc., a
corporation wholly owned by James R. Gilley ("JRG"), 157,613 shares owned
by Sylvia M. Gilley, 117,653 shares owned by a grantor trust for the
benefit of Mr. and Mrs. Gilley and 6,750 shares owned by James R. Gilley.
Sylvia M. Gilley is the spouse of James R. Gilley. Other than shares owned
by the trust, JRG and Mr. Gilley disclaim any beneficial ownership in the
shares owed by Mrs. Gilley, and Mrs. Gilley disclaims any beneficial
ownership in the shares owned by JRG and Mr. Gilley.
(3) Consists of 1,210,000 shares of Common Stock owned by JRG, 400,000 shares
of Common Stock owned by a grantor trust for the benefit of James R. and
Sylvia M. Gilley, options to James R. Gilley to purchase 200,000 shares of
Common Stock at $10.75 per share, exercisable through December 1, 2000, and
536,000 shares of Common Stock owned of record by Mrs. Gilley. Other than
shares owned by the grantor trust, Mrs. Gilley disclaims any beneficial
ownership of the shares owned by Mr. Gilley and JRG. Mr. Gilley and JRG
disclaim beneficial ownership of the shares owned by Mrs. Gilley. Mr.
Gilley and JRG have pledged 1,166,363 shares of Common Stock, and Mr.
Gilley has pledged all of his shares in JRG, to MS Holding Corp., a
nonaffiliated entity, as collateral for repayment of a $5,700,000
promissory note payable by JRG to MS Holding Corp. The note requires
payment of annual interest only until May 23, 1997, when the principal
balance and all accrued interest is due and payable. Failure to repay such
note when due could have an effect on the control of the Company. Of the
shares of Common Stock owned by the grantor trust, 200,000 shares were
acquired by the trust from the Company in November 1993 in consideration of
a $2,250,000 partial recourse promissory note executed by the grantor trust
and Mr. Gilley (as co-maker). This note bears interest at an annual rate of
5.5% until November 2003, when the entire principal balance and all accrued
interest is due. The note is collateralized by the 200,000 shares purchased
by the grantor trust, and the grantor trust and Mr. Gilley (as co-maker)
have personal recourse only for the first 20% of the principal balance.
9
<PAGE>
(4) W. Michael Gilley is the adult son of James R. Gilley and Sylvia M. Gilley.
Consists of 101,000 shares of Common Stock and 37,057 shares of Series D
Preferred Stock owned of record, and 130,000 shares of Common Stock owned
by five trusts for which Mr. Gilley acts as co-trustee for the benefit of
the children and grandchildren of James R. and Sylvia M. Gilley. Of the
101,000 shares of Common Stock, 46,000 shares were issued for promissory
notes of $237,500, for which 30,000 shares are currently pledged as
collateral.
(5) Includes options to purchase 10,000 shares of Common Stock each, all of
which are vested.
(6) Consists of 60,000 shares of Common Stock issued for promissory notes of
$92,500, for which 13,000 shares are currently pledged as collateral, and
options to purchase 20,000 shares of Common Stock for $11.25 per share, all
of which are vested.
(7) In November 1992, Mr. Griffis obtained a loan from the Company for $75,000
which was used to exercise options to purchase 30,000 shares of the
Company's Common Stock. The loan is collateralized by the shares purchased
by Mr. Griffis.
(8) Consists of 20,000 shares of Common Stock owned by a trust for which Mr.
Gallins acts as co-trustee for the benefit of one of the grandchildren of
James R. and Sylvia M. Gilley, 3,000 shares of Common Stock owned by
Matthew G. Gallins LLC, and 2,000 shares of Common Stock owned by Mr.
Gallins' minor children, for which he serves as custodian. Mr. Gallins
disclaims beneficial ownership of the 20,000 shares held in trust.
(9) Represents Series C Preferred Stock which votes with Common Stock and
Series B and D Preferred Stock as one class. Series C Preferred Stock is
convertible into Common Stock at a rate of 6.67 shares of Common Stock for
each share of Series C Preferred Stock.
MARKET PRICE AND DIVIDEND POLICY
The Company's Common Stock is listed on the American Stock Exchange and
traded under the symbol "GBR".
10
<PAGE>
As of the Record Date, there were approximately 3,850 stockholders of record
of the Common Stock. The following table sets forth the high and low sales
prices on the American Stock Exchange for the periods indicated.
<TABLE>
<CAPTION>
PRICE RANGE OF COMMON STOCK
----------------------------
HIGH LOW
-------------- ------------
<S> <C> <C>
Fiscal Year Ended December 31, 1994:
First Quarter $ 16 1/2 $9 1/16
Second Quarter 11 1/4 8 1/8
Third Quarter 10 5/8 5 5/16
Fourth Quarter 7 3/16 4 3/8
Fiscal Year Ended December 31, 1995:
First Quarter 8 3/4 5
Second Quarter 10 15/16 5 5/16
Third Quarter 13 7/16 9 1/16
Fourth Quarter 13 7/16 7 3/16
Fiscal Year Ended December 31, 1996:
First Quarter 16 3/4 9 7/16
Second Quarter 17 5/8 14
Third Quarter 17 3/8 15 5/8
Fourth Quarter/(1)/ 16 14
</TABLE>
____________________________
/(1)/Through November 25, 1996
The above prices have been adjusted to reflect a one for five reverse split of
the Common Stock that occurred on December 1, 1995.
PROXY SOLICITATION
Proxies are being solicited from the Company's Stockholders by and on behalf
of the Board of Directors of the Company. The cost of solicitation of proxies
will be paid by the Company. In addition to solicitation by use of the mails,
proxies may be solicited by directors, officers, and employees of the Company in
person or by telephone, telegram, or other means of communication. Such
directors, officers, and employees will not be additionally compensated for such
services but may be reimbursed for out-of-pocket expenses incurred by them in
connection with such solicitation. Arrangements will also be made with
custodians, nominees, and fiduciaries for the forwarding of proxy solicitation
materials to beneficial owners of Common Stock held of record by such persons.
OTHER MATTERS
The Board of Directors does not intend to bring any other matters before the
Special Meeting and has not been informed that any other matters are to be
presented to the Special Meeting by others. In the event that other matters
properly come before the Special Meeting or any adjournments thereof it is
intended that the persons named in the accompanying proxy and acting thereunder
will vote in accordance with their best judgement.
11
<PAGE>
DEADLINE FOR SUBMISSION
OF PROPOSALS TO BE PRESENTED
AT THE 1997 ANNUAL MEETING OF STOCKHOLDERS
Any Stockholder who intends to present a proposal at the 1997 Annual Meeting
of Stockholders must file such proposal with the Company by January 3, 1997 for
possible inclusion in the Company's proxy statement and form of proxy relating
to the meeting.
FORWARD LOOKING STATEMENTS
Certain statements included in this Proxy Statement are forward looking
statements that predict the future development of the Company. The realization
of these predictions will be subject to a number of variable contingencies, and
there is no assurance that they will occur in the time frame proposed. The risks
associated with the potential actualization of the Company's plans include:
contractor delays, the availability and cost of financing, availability of
managerial oversight and regulatory approvals, to name a few.
FINANCIAL INFORMATION
The consolidated financial statements of the Company as of December 31, 1995
and for each of the two years in the period ended December 31, 1995, included in
this Proxy Statement, have been audited by Grant Thornton LLP, independent
certified public accountants, as stated in their report thereon. The unaudited
consolidated financial statements of the Company as of September 30, 1996 and
for the nine months ended September 30, 1995 and 1996, have not been audited,
but in the opinion of management contain all accruals and adjustments necessary
to present fairly such financial information as of such dates and for such
periods. Results for the nine months ended September 30, 1996 are not
necessarily indicative of results that can be expected for the full year.
A representative of Grant Thornton LLP will be present at the Special Meeting
and will have an opportunity to make a statement, if such representative so
desires, and to respond to appropriate questions raised orally at the meeting.
The combined financial statements of American Care as of December 31,
1995 and for each of the two years in the period ended December 31, 1995,
included in this Proxy Statement, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as stated in their report thereon. The unaudited
combined financial statements of American Care as of September 30, 1996 and for
the nine months ended September 30, 1995 and 1996, have not been audited, but in
the opinion of American Care's management contain all accruals and adjustments
necessary to present fairly such financial information as of such dates and for
such periods. Results for the nine months ended September 30, 1996 are not
necessarily indicative of results that can be expected for the full year.
By Order of the Board of Directors
James R. Gilley,
President and Chief Executive Officer
12
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
GREENBRIAR CORPORATION MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATION........................................ F-3
AMERICAN CARE COMMUNITIES, INC. MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............................ F-8
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS......................... F-11
Pro Forma Condensed Combined Balance Sheet as of September 30, 1996....... F-12
Pro Forma Condensed Combined Statements of Operations for the years ended
December 31, 1994 and 1995.............................................. F-13
Pro Forma Condensed Combined Statements of Operations for the nine months
ended September 30, 1995 and 1996....................................... F-15
Notes to Pro Forma Condensed Combined Financial Statements................ F-17
GREENBRIAR CORPORATION
Report of Independent Certified Public Accountants........................ F-18
Consolidated Balance Sheets as of December 31, 1995
and September 30, 1996 (unaudited)...................................... F-19
Consolidated Statements of Operations for the years
ended December 31, 1994 and 1995, and for the
nine months ended September 30, 1995 (unaudited) and 1996 (unaudited)... F-21
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1994 and 1995,
and the nine months ended September 30, 1996 (unaudited)................ F-22
Consolidated Statements of Cash Flows for the years
ended December 31, 1994 and 1995, and the
nine months ended September 30, 1995 (unaudited) and 1996 (unaudited)... F-23
Notes to Consolidated Financial Statements................................ F-25
AMERICAN CARE COMMUNITIES, INC.
Report of Independent Accountants......................................... F-38
Combined Balance Sheets as of December 31, 1995
and September 30, 1996 (unaudited)...................................... F-39
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Combined Statements of Operations and
Accumulated Deficit for the years
ended December 31, 1994 and 1995, and for the nine months
ended September 30, 1995 (unaudited) and 1996 (unaudited)................ F-41
Combined Statements of Cash Flows for the years
ended December 31, 1994 and 1995, and the nine months
ended September 30, 1995 (unaudited) and 1996 (unaudited)................ F-42
Notes to Combined Financial Statements..................................... F-43
</TABLE>
F-2
<PAGE>
GREENBRIAR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
OVERVIEW
During 1994 the Company began a series of steps to focus its business on the
development, construction, management and ownership of assisted living
properties. In addition to its assisted living operations, the Company's
historical businesses during the past five years have included ownership and
operation of skilled nursing centers, real estate investments and manufacture
and leasing of electric convenience vehicles and wheelchairs. The nursing
centers and convenience vehicle businesses have been sold, and the real estate
investments are being liquidated. Also, in 1994 and 1995, the Company sold its
existing assisted living/retirement facilities. Revenues and earnings in years
prior to 1996 are attributed to these prior businesses. During 1994, the
Company began independently to develop its assisted living business, began
construction of its first assisted living facility in July 1995, and opened such
facility to residents on May 30, 1996. By September 30, 1996, the Company was
operating 17 assisted living facilities and had seven additional assisted living
facilities under construction (i.e., construction activities have commenced and
are ongoing) and was developing 11 additional assisted living facilities. In
order to increase the Company's presence in the assisted living industry, the
Company acquired Wedgwood in March 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had positive working capital of $4,179,000.
During the first quarter of 1996, the Company sold the American Mobility Group,
Inc. ("AMI"), which was a continuation of the Company's program of selling its
non-strategic assets and using the proceeds to invest in existing operations.
The sale of AMI is not expected to have a material impact on the Company's
liquidity. In March 1996, the Company acquired Wedgwood. As of September 30,
1996, the Company and Wedgwood have combined assets of $94,899,000, combined
liabilities of $54,502,000 and combined stockholders' equity of $40,397,000.
The Company has sufficient liquidity and capital resources to meet its current
obligations.
Net cash used for operating activities during the nine months ended September
30, 1996 was $2,360,000, principally constituting general and administrative
expenses and, in anticipation of continued growth, the cost of locating and
developing new sites for assisted living facilities.
Net cash used in investing activities during the nine months ended September
30, 1996 was $7,694,000, resulting primarily from development and construction
of assisted living facilities in Texas.
Net cash provided by financing activities during the nine months ended
September 30, 1996 was $7,080,000 resulting principally from the proceeds from
loans or leases which were used by the Company to finance the development and
construction of assisted living facilities.
During the past five years the Company has met its needs for liquidity and
capital resources primarily from profitable sales of assets acquired for
investment, and, to a lesser extent, from cash flow from operated businesses.
The assets acquired and sold have included real estate properties acquired in
the merger in 1993 with EquiVest Inc. ("EquiVest"), six skilled nursing
facilities, two retirement centers, AMI and an eating disorder facility.
As of September 30, 1996 the Company owned three retail centers located in
Georgia and one shopping center located in North Carolina. The Company has an
agreement for the sale of the three retail centers and anticipates the sale will
occur in the fourth quarter of 1996. The Company is seeking a buyer for the
North Carolina property. The Company anticipates that the properties will be
sold for an amount which at least equals the book value of $5,405,000.
Since January 1, 1994, the sources of cash from investment activities included
approximately $18,200,000 received in January 1995 from the sale of The
Fountainview retirement facility in West Palm Beach, Florida; approximately
$26,600,000 in proceeds from the sale of the properties acquired in the merger
with EquiVest; and approximately $6,900,000 in proceeds from the sale of the
Rivermont retirement facility in December 1994.
F-3
<PAGE>
Net cash used in financing activities since January 1, 1994 have consisted
primarily of repayments of mortgage indebtedness as real estate investments were
sold totaling approximately $50,000,000, payments of preferred dividends
totaling approximately $400,000, and repurchases of Common Stock totaling
approximately $2,000,000, offset by additional borrowings of approximately
$15,600,000 for real estate investments and working capital.
The Company will utilize additional financing to develop additional assisted
living facilities currently under construction and development. Seven
facilities were under construction as of September 30, 1996. The Company is
responsible for arranging financing for six of them and a development partner is
responsible for arranging financing for the seventh. The six facilities for
which the Company is arranging financing are subject to fixed cost construction
contracts and other arrangements estimated to cost approximately $25,421,000 and
are estimated to be substantially completed by December 31, 1997.
The Company currently has a number of sites under development (i.e., the site
is under control of the Company and development activities such as site
permitting, preparation of surveys, architectural plans and negotiation of
construction contracts have commenced). The number of facilities that are
actually constructed is dependent, in large part, on the availability of
financing for both construction and start up costs. Further, the Company's
development growth will be balanced with its acquisition of existing facilities.
As of September 30, 1996, the Company has loans in place or has received
commitments for future financing, subject, in the case of the commitments, to
final documentation, as follows:
(i) Health Care REIT, Inc. has issued a commitment to provide $60
million over three years to acquire and pay 100% of the construction
costs of assisted living facilities to be leased to the Company. The term
of the leases will range from 11 years to 14 years plus two five year
renewal options, with lease payments based upon the interest rate on U.S.
Treasury notes plus 3.75%, subject to inflation adjustments not to exceed
.25% per year. A 1% commitment fee is required. The Company will have the
option to purchase each facility at the end of the term for its original
cost plus 50% of the increase in its fair market value. As additional
security to the lessor, the Company will provide a letter of credit for
5% of the amount financed, a first lien on personal property and
receivables of the facility, and subordination of management fees and
rentals from subtenants.
(ii) In 1995 Health Care REIT, Inc. provided mortgage loan
commitments for two facilities totaling $16,891,000. Of that amount,
$4,536,000 was used to refinance one of the facilities (Camelot) and
$5,625,000 is being used to construct another facility (Villa de la Rosa)
which will open in the fourth quarter of 1996. The balance includes
$5,160,000 to fund construction of the Camelot Assisted Living facility
scheduled to begin construction in the third quarter of 1996 and $645,000
to fund certain improvements to the existing Camelot facility that is
currently under construction, along with $925,000 for the construction of
a second Villa de la Rosa, which is not presently scheduled for
development and is not included in the development and construction
total. The construction loans convert to term loans upon completion of
construction. The term loans mature in seven to ten years, initially bear
interest at a rate of 4.5% over the corresponding U.S. Treasury Note rate
and are secured by the facilities, an assignment of leases, rents and
management contract, letters of credit, and an assignment of the
facilities licenses and permits.
(iii) Commitments from First National Bank & Trust Co. of
McAlester, Oklahoma of $5.2 million to provide mortgage financing for the
two assisted living facilities under construction in Muskogee, Oklahoma
and Sherman, Texas. Such loans require a 2% commitment fee and are
payable in 10 years (but callable at the discretion of the bank in 5
years) based on a 20 year amortization, with interest at prime plus 2%
(subject to a minimum interest rate of 8.70% and a maximum interest rate
of 12.75%).
(iv) In 1995 Investors Real Estate Trust ("IRET") issued a
commitment to provide 100% of the construction costs up to $2,810,000 for
the Sweetwater Springs, Georgia facility that opened in October 1996.
Upon completion the facility will be leased to the Company for a term of
15 years. In 1996 the commitment was increased by $1,540,000 to a maximum
of $4,350,000 in order to provide for the construction of a second phase
of the facility, consisting of 16 Alzheimer's special care units. The
monthly lease payments will be based on the funded amount and on annual
interest rates of 11.0% for the first five years, 12.65% for the next
five years and 14.55% for the last five years of the lease. The Company
has an option to purchase the facility at fair market value during the
first nine months of the fourteenth year of the lease. The lease is
secured by the facility.
F-4
<PAGE>
In addition to development and construction financing Comerica Bank-Texas has
issued a commitment to provide $1,600,000 to finance buses and other vehicles to
transport residents of the Company's facilities. Each vehicle will be financed
at 90% of cost, and the loan for each vehicle will be amortized over 48 months.
The interest rate will be prime plus one percent.
The Company believes it has adequate resources to complete its facilities
currently under construction and development and currently plans to use the
balance of such committed sources and its net working capital in excess of
operating needs for future development of assisted living facilities.
Future development activities of the Company are dependent upon obtaining
capital and financing through various means, including financing obtained from
sale/leaseback transactions, construction financing, long-term state bond
financing, debt or equity offerings and, to the extent available, cash generated
from operations. There can be no assurance that the Company will be able to
obtain adequate capital to finance its projected growth. Although the Company
announced in October 1996 that it planned to file a registration statement for a
public offering of Common Stock, such offer has been postponed pending the
completion of the American Care Acquisition.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED TO THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1995
Revenues and Operating Expenses from Assisted Living Operations. Effective
March 31, 1996, the Company acquired Wedgwood which operates 16 assisted living
facilities in six states, with a capacity for 1,276 residents (including 111
residents who have purchased units from the Company), consisting of 15
facilities owned by the Company or in which it has ownership or leasehold
interests and one facility managed for a third party. The revenue and related
operating expenses from the assisted living operations reflect the operations of
those 15 facilities, as well as one facility which opened in June 1996.
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
SEPTEMBER 30, 1996
----------------------------------
(Amounts in thousands)
Stabilized Start-up
Facilities Facilities
(1) (2) Total
---------- ---------- ---------
<S> <C> <C> <C>
Assisted living facility income $3,940 $ 553 $4,493
Assisted living facility operating expenses 2,268 574 2,842
------ ----- ------
Gross operating income 1,672 (21) 1,651
Lease expense 371 61 432
Facility depreciation and amortization 320 101 421
------ ----- ------
Income (loss) from facility operations $ 981 $(183) $ 798
====== ===== ======
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1996
----------------------------------
(Amounts in thousands)
Stabilized Start-up
Facilities Facilities
(1) (2) Total
---------- ---------- -------
<S> <C> <C> <C>
Assisted living facility income $7,851 $ 961 $8,812
Assisted living facility operating expenses 4,507 1,041 5,548
------ ------ ------
Gross operating income 3,344 (80) 3,264
Lease expense 764 122 886
Facility depreciation and amortization 655 171 826
------ ------ ------
Income (loss) from facility operations $1,925 $ (373) $1,552
====== ====== ======
</TABLE>
__________________________
(1) Stabilized facilities are those facilities that have been
operating for one year or have achieved stabilized occupancy of 95%.
(2) Start-up facilities are those facilities that have not been
operating for one year and have not achieved a stabilized occupancy of 95% or
more.
(3) The Company had 12 stabilized and 4 start-up facilities
(4) The Company had no assisted living facilities during the first
quarter of 1996.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses were $881,000 and $2,400,000 for the three and nine
months ended September 30, 1996. Such expenses for the comparable period in
1995 were $647,000 and $1,947,000. The increases were due primarily to the
acquisition of Wedgwood.
Interest Expense. Interest expense for the three and nine months
ended September 30, 1996 was $816,000 and $1,614,000 as compared to none and
$98,000 for the comparable periods in 1995. The increase in interest expense
represents the interest incurred on the mortgage debt and financing obligations
on the Wedgwood properties.
Gain on Sales of Assets. Gain on sales of assets during the three and
nine month periods ended September 30, 1995 were $1,146,000 and $6,950,000,
respectively. These gains were from the sale of The Fountainview in January
1995 ($5,149,000), the sale of an economic interest in a legal claim in June
1995 ($655,000) and the sale of the Company's rights to the funds in an escrow
account in the year 2028 ($1,146,000).
Discontinued Operations. Earnings from discontinued operations
include both AMI, which was sold in February 1996, and the real estate
operations that are for sale. AMI had earnings of $29,000 and $8,000 for the
three and nine months ended September 30, 1995, respectively. The real estate
operations had earnings of $54,000 and $170,000 for the three and nine months
ended September 30, 1996, respectively, and earnings of $121,000 and $154,000
for the comparable periods in 1995. The sale in the first quarter of 1996 of
AMI resulted in a gain on sale, net of tax, of $580,000.
FISCAL 1995 AS COMPARED TO FISCAL 1994
Revenues. The Company reported revenue from operations of $557,000
and net earnings of $5,797,000 or $1.57 per share for the year ended December
31, 1995 compared to revenue from operations of $7,939,000 and net earnings of
$1,788,000 or $.40 per share for the year ended December 31, 1994.
F-6
<PAGE>
Gain on Sale of Assets. Gain on sales of assets for the year ended
December 31, 1995 was $6,950,000. This compares to $2,803,000 for the year
ended December 31, 1994. Absent recognition of these gains, the Company would
have had losses before income taxes in both 1995 and 1994.
In January 1995 the Company sold what was then its remaining
retirement and assisted living facility, The Fountainview, at a gain of
$5,149,000. The Company determined to sell it because of the increased
competition in West Palm Beach and to the refinancing required as a result of
the pending maturity of existing financing. During 1994 the Company owned both
The Fountainview and Rivermont Retirement Center, which was sold in December
1994. The assisted living revenues and expenses for 1994 reflect the operations
for both The Fountainview and Rivermont for the entire year. The assisted
living revenue and expenses for 1995 reflect the operations of The Fountainview
for one month.
In June 1995 the Company sold its economic interest in a legal claim
with respect to Wespac Investors Trust III. The sales price was $1,085,000 and
the Company recorded a gain of $654,000. Separately, the Company acquired 49%
of the outstanding common stock of Wespac Investors Trust III in a private
transaction. The Company immediately sold its economic interest in that stock
at no gain or loss.
As part of a larger transaction that occurred in 1992 the Company
received the rights to the interest on certain escrow funds in the year 2028.
At the time of the transaction, for accounting purposes, the Company placed no
value on that right. In August 1995 the Company sold its rights to the future
interest for $1,140,000 in cash.
General and Administrative Expense. General and administrative
expenses were $2,688,000 in 1995 as compared to $3,502,000 in 1994. The most
significant reason for this decrease was the sale of The Fountainview in January
1995.
Interest Income. Interest income was $1,176,000 in 1995 as compared
to $208,000 in 1994. Interest expense was $101,000 in 1995 as compared to
$2,221,000 in 1994. As the Company sells assets, it increases the cash it has
available for investments. The increase in interest income reflects the
interest received on those investments. The decrease in interest expense was
caused principally by two factors. First, when the Company sold its assets it
was also relieved of the obligation to pay interest on liabilities associated
with those assets. Second, the Company used certain of its available cash to
pay down corporate debt which further reduced interest expense in 1995.
Deferred Taxes. At December 31, 1995, the Company had a deferred tax
asset of $2,150,000. The asset is expected to be recovered within two to three
years from earnings from current operations as well as gains from sales of
assets.
EFFECT OF INFLATION
The Company's principal sources of revenues are from resident fees
from Company-owned or leased assisted living facilities and management fees from
facilities operated by the Company for third parties. The operation of the
facilities are affected by rental rates which are highly dependent upon market
conditions and the competitive environment in the areas where the facilities are
located. Compensation to employees is the principal cost element relative to
the operations of the facilities. Although the Company has not historically
experienced any adverse effects of inflation on salaries or other operating
expenses, there can be no assurance that such trends will continue or that
should inflationary pressures arise that the Company will be able to offset such
costs by increasing rental rates or management fees.
F-7
<PAGE>
AMERICAN CARE COMMUNITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
OVERVIEW
American Care was incorporated in July 1993. For the first five months
of its existence, American Care conducted market evaluations, arranged sources
of financing and negotiated the purchase of Berne Village, its first residence.
The acquisition of Berne Village was consummated in December 1993, at which time
American Care began its assisted living operations. Since that time, American
Care has achieved significant growth in revenues, primarily due to its
acquisition and operation of assisted living communities. From its inception,
American Care has incurred net losses and, as of September 30, 1996, it had an
accumulated deficit of approximately $2 million. Losses have resulted primarily
from expenses associated with acquiring a significant number of assisted living
communities, including costs associated with renovations and improvements.
American Care currently owns, operates or manages a total of 16 assisted living
facilities, with a capacity for 1,275 residents.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
Operating Revenues. Operating revenues increased 124.9% to
$11,006,041 for the nine months ended September 30, 1996 from $4,892,805 for
the nine months ended September 30, 1995. The increase was primarily
attributable to the acquisition, in December 1995, of the remaining 70% of five
assisted living communities in which a 30% minority interest had been acquired
in January 1995. The increase was also due to the acquisition of one assisted
living community in June 1995 and three assisted living communities in December
1995.
Operating Expenses. Operating expenses, which include resident
operating expenses and operating lease expenses, increased 197% to $8,831,234
for the nine months ended September 30, 1996 from $2,973,918 for the same
period in 1995. The increase was primarily due to the one acquisition in June
and to the three acquisitions in December 1995. As a percentage of total
operating revenues, operating expenses increased to 80.2% for the first nine
months of 1996 from 60.7% for the first nine months of 1995. The increase was
primarily due to the December 1995 acquisitions, of which one was new and in
fill-up mode and another had been neglected and had a low occupancy.
General and Administrative. General and administrative expenses
increased 74.3% to $1,512,303 during the first nine months of 1996 from $867,820
for the first nine months of 1995. The increase was attributable to the write-
off of approximately $401,000 in deferred costs associated with an attempted
initial public offering and other equity financings as well as the hiring of
additional administrative and operational staff following the 1995 acquisitions.
As a percentage of total operating revenues, general and administrative expenses
decreased to 13.7% during the first nine months of 1996 from 17.7% during the
first nine months of 1995.
Depreciation and Amortization. Depreciation and amortization
increased 40.0% to $478,837 for the nine months ended September 30, 1996 from
$342,056 for the nine months ended September 30, 1995. The increase was
primarily due to the acquisition in June 1995 and to one of three acquisitions
in December 1995 which were depreciated during the first nine months of 1996. As
American Care enters into sale and leaseback transactions, it anticipates that
its depreciation expense as a percentage of total operating revenues should
decrease and its lease rental expenses should increase.
Net Interest Expense. Net interest expense increased 27.1% to
$1,300,835 for the nine months ended September 30, 1996 from $1,023,254 for
the nine months ended September 30, 1995. The increase was primarily due to
increased debt service costs associated with the acquisition of the assisted
living communities acquired in June 1995 and in December 1995. As a percentage
of total operating revenues, net interest expenses decreased to 11.8% for the
nine months ended September 30, 1996 from 20.9% for the nine months ended
September 30, 1995.
Net Loss. Net loss increased 316.9% to ($1,124,268) for the nine
months ended September 30, 1996 from ($269,670) for the nine months ended
September 30, l995, as a result of the factors outlined above.
F-8
<PAGE>
FISCAL 1995 AS COMPARED TO FISCAL 1994
Operating Revenues. Operating revenues increased 89.9% to $7,406,763
in 1995 from $3,900,619 in 1994. The increase was primarily attributable to the
acquisition of five additional assisted living communities during 1995
(including the facility sold in August 1996) and to an improvement in the
operating performance of the assisted living communities acquired by American
Care prior to 1995. American Care also acquired a minority interest in five
other assisted living communities in January 1995, and acquired a 100% interest
in these communities in December 1995. However, the impact of these transactions
on 1995 revenues was not significant.
Operating Expenses. Operating expenses, which include resident
operating expenses and operating lease expenses, increased 74% to $4,814,763 in
1995 from $2,766,400 in 1994. The increase was primarily due to the 1995
acquisitions. As a percentage of total operating revenues, operating expenses
decreased to 65% in 1995 from 70.9% in 1994. The decrease was primarily the
result of improvements in the operating performance of the 1994 acquisitions.
General and Administrative. General and administrative expenses
increased 104.9% to $1,259,740 in 1995 from $614,932 in 1994. The increase was
attributable to the hiring of additional administrative staff to support the
operations of American Care following the 1995 acquisitions, and to the
expansion of American Care's leased office space in June 1995. As a percentage
of total operating revenues, general and administrative expenses increased to
17% in 1995 from 15.8% in 1994.
Depreciation and Amortization. Depreciation and amortization
increased 107.1% to $483,272 in 1995 from $233,408 in 1994. The increase was
primarily due to 1995 being the first full year in which the facilities acquired
in 1994 were depreciated. As a percentage of total operating revenues,
depreciation and amortization increased to 6.5% in 1995 from 6% in 1994. The
increase was primarily due to the acquisition of two assisted living communities
during the first half of 1995 both of which were debt financed. As American Care
enters into sale and leaseback transactions, its depreciation expense as a
percentage of total operating revenues should decrease and its lease rental
expenses should increase.
Net Interest Expense. Net interest expense increased 167.9% to
$1,424,671 in 1995 from $531,770 in 1994. The increase was primarily due to
increased debt service costs associated with the acquisition of three assisted
living communities during 1995 which were debt financed and as a result of
American Care increasing its borrowings secured against Berne Village. As a
percentage of total operating revenues, interest expense increased to 19.2% in
1995 from 13.6% in 1994.
Net Loss. Net loss increased 113.4% to $524,778 in 1995 from $245,891
in 1994, as a result of the factors outlined above.
LIQUIDITY AND CAPITAL RESOURCES
Since its first acquisition in December 1993, American Care has
financed its operations and its acquisition program through a combination of
short-term debt, real estate mortgage financing, seller leases and indebtedness
guaranteed by its stockholders. American Care's permanent mortgage financing
provide for balloon repayments in the next four to eleven years, bear interest
at market rates ranging from the prime rate plus 1/2% for variable rates to a
range of 10.0% to 11.35% for fixed rates, and are secured by one or more of the
residential communities.
On August 1, 1996, American Care divested an assisted living residence
in North Carolina for $1,575,000. This residence was one of four residences
owned by American Care and secured by a note to Health and Retirement Properties
Trust, Inc. ("HRPT"). American Care has used approximately $175,000 for working
capital and closing costs, and the remaining $1,400,000 was escrowed by HRPT to
be applied to capital improvements to the three remaining secured properties.
American Care plans to use this sum to carry out capital improvements to Berne
Village, Graybrier and Rose Tara Plantation, and as of September 30, 1996 had
drawn approximately $200,000 for this purpose.
In October 1995, American Care issued a note to CRM Assisted Living
Company, LLC ("CRM") for $500,000 bearing interest at an annual rate of 6.23%.
The capital was utilized by American Care for working capital purposes. This
note will be canceled at the closing of the American Care Acquisition in
exchange for 44,643 of the Acquisition Shares; at which time Greenbriar will
also grant to an affiliate of CRM an immediately exercisable option to acquire
17,551 of the Acquisition Shares for an exercise price of $2.00 per share, in
return for advisory services to be provided by such affiliate.
F-9
<PAGE>
EFFECT OF INFLATION
American Care's principal source of revenues are from resident fees
from American Care-owned or leased assisted living facilities and management
fees from facilities operated by American Care for third parties. The operation
of the facilities are affected by rental rates which are highly dependent upon
market conditions and the competitive environment in the areas where the
facilities are located. Compensation to employees is the principal cost element
relative to the operations of the facilities. Although American Care has not
historically experienced any adverse effects of inflation on salaries or other
operating expenses, there can be no assurance that such trends will continue or
that should inflationary pressures arise that American Care will be able to
offset such costs by increasing rental rates or management fees.
F-10
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed combined financial information has
been prepared by the Company based on the audited financial statements and the
related notes thereto of the Company, Wedgwood and American Care for the years
ended December 31, 1994 and 1995, the unaudited financial statements of the
Company and American Care as of September 30, 1996 and for the nine months ended
September 30, 1995 and 1996, and Wedgwood for the three months ended March 31,
1996, and give effect to the American Care and Wedgwood Acquisitions as though
they occurred January 1, 1994, and reflect the assumptions and adjustments
described in the accompanying notes. The Wedgwood Acquisition has been
accounted for using the purchase method of accounting. The results of
operations of Wedgwood are reflected in the historical statement of operations
of the Company beginning April 1, 1996. The American Care Acquisition has been
accounted for as a pooling of interests. The following unaudited pro forma
condensed combined financial information is not necessarily indicative of the
actual results that would have been achieved if the Wedgwood and American Care
Acquisitions had actually been completed as of the date indicated, or which may
be realized in the future. The pro forma statement of operations for the years
ended December 31, 1995 and 1994 and the nine months ended September 30, 1995
also gives effect to the disposition of The Fountainview (January 1995). The
unaudited pro forma condensed combined financial information should be read in
conjunction with the financial statements of the Company and American Care and
the related notes thereto included elsewhere in this Proxy. See "Index to
Consolidated Financial Statements."
F-11
<PAGE>
GREENBRIAR CORPORATION
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
(Amounts in thousands)
September 30, 1996
<TABLE>
<CAPTION>
Greenbriar American Pro forma
ASSETS Corporation Care Adjustments Combined
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,225 $ 24 $ - $ 4,249
Accounts receivable
Trade 746 353 - 1,099
Other - 99 - 99
Real estate operations held for sale,
at lower of cost or market 5,405 - - 5,405
Other current assets 1,151 1,388 - 2,539
------- ------- ----- --------
Total current assets 11,527 1,864 - 13,391
INVESTMENT IN SECURITIES, AT COST 4,266 - - 4,266
NOTES RECEIVABLE 8,959 - - 8,959
PROPERTY AND EQUIPMENT, AT COST
Land 7,832 2,435 - 10,267
Buildings and improvements 48,628 9,295 - 57,923
Furniture, fixtures, and equipment 2,078 1,561 - 3,639
Construction in process 6,790 5,214 - 12,004
------- ------- ----- --------
65,328 18,505 - 83,833
Less accumulated depreciation
and amortization 1,106 911 - 2,017
------- ------- ----- --------
64,222 17,594 - 81,816
RESTRICTED CASH AND INVESTMENTS 3,521 - - 3,521
OTHER ASSETS 2,404 1,833 - 4,237
------- ------- ----- --------
$94,899 $21,291 $ - $116,190
======= ======= ===== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 977 $ 5,638 $(500)(7) $ 6,115
Due to affiliates 589 358 - 947
Long-term debt collateralized by property
under contract of sale 903 - - 903
Accounts payable - trade 2,335 1,301 - 3,636
Accrued expenses 1,455 1,126 800 (6) 2,721
Other current liabilities 1,089 37 - 1,126
------- ------- ----- --------
Total current liabilities 7,348 8,460 300 15,448
LONG-TERM DEBT, less current maturities 43,034 14,788 - 57,822
DEFERRED INCOME TAXES 1,037 - - 1,037
DEFERRED GAIN 3,083 - - 3,083
STOCKHOLDERS' EQUITY (DEFICIT) 40,397 (1,957) (300)(6)(7) 38,800
------- ------- ----- --------
$94,899 $21,291 $ - $116,190
======= ======= ===== ========
</TABLE>
See accompanying explanatory notes.
F-12
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For the year ended December 31, 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined
Less operations before
of the American
Foundationview Pro Forma Care American Pro Forma
Company (4) Wedgwood Adjustments acquisition Care Adjustments Combined
------- -------------- -------- ------------ ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Assisted living facilities $ 7,939 $(6,000) $12,018 $ - $13,957 $ 3,708 $ - $17,665
Expenses
Assisted living facilities 5,059 (4,340) 8,585 - 9,304 2,766 - 12,070
Facility depreciation and
amortization - - 1,216 (95)(1) 1,121 233 - 1,354
General and administrative 3,502 (293) 738 - 3,947 615 - 4,562
------- ------- ------- ------ ------- ------- ----- -------
8,561 (4,633) 10,539 (95) 14,372 3,614 - 17,986
------- ------- ------- ------ ------- ------- ----- -------
Operating profit (loss) (622) (1,367) 1,479 95 (415) 94 - (321)
Other income (expense)
Interest and dividend income 208 - 74 - 282 8 - 290
Interest expense (2,221) 1,647 (2,191) - (2,765) (540) - (3,305)
Gain on sales of assets 2,803 - - - 2,803 - - 2,803
Other - - 77 - 77 192 - 269
------- ------- ------- ------ ------- ------- ----- -------
790 1,647 (2,040) - 397 (340) - 57
Earnings (loss) from
continuing operations
before income taxes 168 280 (561) 95 (18) (246) - (264)
Income tax expense
(benefit) (201) - - 194 (3) (7) - (93)(3) (100)
------- ------- ------- ------ ------- ------- ----- -------
Earnings (loss) from
continuing operations 369 280 (561) (99) (11) (246) 93 (164)
Preferred dividend
requirement (327) - - (320)(2) (647) - - (647)
------- ------- ------- ------ ------- ------- ----- -------
Earnings (loss) from
continuing operations
allocable to common
stockholders $ 42 $ 280 $ (561) $ (419) $ (658) $ (246) $ 93 $ (811)
======= ======= ======= ====== ======= ======= ===== =======
Earnings (loss) per share
from continuing operations $0.01 $(0.16)
Weighted average number of
common and equivalent
shares outstanding 3,679 4,979
</TABLE>
See accompanying explanatory notes.
F-13
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For the year ended December 31, 1995
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined
Less operations before
of the American
Foundationview Pro Forma Care American Pro Forma
Company (4) Wedgwood Adjustments acquisition Care Adjustments Combined
------- -------------- -------- ------------ ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Assisted living facilities $ 557 $ (557) $14,940 $ - $14,940 $ 6,811 $ - $21,751
Expenses
Assisted living facilities 322 (322) 10,916 - 10,916 4,815 - 15,731
Facility depreciation and
amortization - - 1,374 (95)(1) 1,279 483 - 1,762
General and administrative 2,688 (38) 959 - 3,609 1,260 - 4,869
------- ------- ------- ------- ------- ------- ------- -------
3,010 (360) 13,249 (95) 15,804 6,558 - 22,362
------- ------- ------- ------- ------- ------- ------- -------
Operating profit (loss) (2,453) (197) 1,691 95 (864) 253 - (611)
Other income (expense)
Interest and dividend
income 1,176 - 160 - 1,336 23 - 1,359
Interest expense (101) 73 (2,843) - (2,871) (1,447) - (4,318)
Gain on sales of assets 6,950 (5,149) - - 1,801 - - 1,801
Other 239 - 94 - 333 646 - 979
------- ------- ------- ------- ------- ------- ------- -------
8,264 (5,076) (2,589) - 599 (778) - (179)
Earnings (loss) from
continuing operations
before income taxes 5,811 (5,273) (898) 95 (265) (525) - (790)
Income tax expense
(benefit) 94 - - (184)(3) (90) - (210)(3) (300)
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
continuing operations 5,717 (5,273) (898) 279 (175) (525) 210 (490)
Preferred dividend
requirement (225) - - (320)(2) (545) - - (545)
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
continuing operations
allocable to common
stockholders $ 5,492 $(5,273) $ (898) $ (41) $ (720) $ (525) $ 210 $(1,035)
======= ======= ======= ======= ====== ======= ======= =======
Earnings (loss) per share
from continuing operations $1.55 $(0.21)
Weighted average number of
common and equivalent
shares outstanding 3,539 4,839
</TABLE>
See accompanying explanatory notes.
F-14
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For the nine months ended September 30, 1995
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined
Less operations before
of the American
Foundationview Pro Forma Care American Pro Forma
Company (4) Wedgwood Adjustments acquisition Care Adjustments Combined
------- -------------- -------- ------------ ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Assisted living facilities $ 555 $ (555) $10,905 $ - $10,905 $ 4,773 $ - $15,678
Expenses
Assisted living facilities 276 (276) 7,980 - 7,980 2,974 - 10,954
Facility depreciation and
amortization 42 (42) 893 (77)(1) 816 342 - 1,158
General and administrative 1,947 (40) 686 - 2,593 868 - 3,461
------- ------- ------- ------- ------- ------- ------- -------
2,265 (358) 9,559 (77) 11,389 4,184 - 15,573
------- ------- ------- ------- ------- ------- ------- -------
Operating profit (loss) (1,710) (197) 1,346 77 (484) 589 - 105
Other income (expense)
Interest and dividend income 941 - 61 - 1,002 4 - 1,006
Interest expense (98) 73 (1,958) - (1,983) (1,027) - (3,010)
Gain on sales of assets 6,950 (5,149) - - 1,801 - - 1,801
Other 14 - 123 - 137 164 - 301
------- ------- ------- ------- ------- ------- ------- -------
7,807 (5,076) (1,774) - 957 (859) - 98
Earnings (loss) from
continuing operations
before income taxes 6,097 (5,273) (428) 77 473 (270) - 203
Income tax expense
(benefit) 2,069 - - (1,889)(3) 180 - (103)(3) 77
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
continuing operations 4,028 (5,273) (428) 1,966 293 (270) 103 126
Preferred dividend
requirement (176) - - (240)(2) (416) - - (416)
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
continuing operations
allocable to common
stockholders $ 3,852 $(5,273) $ (428) $ 1,726 $ (123) $ (270) $ 103 $ (290)
======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share
from continuing operations $1.08 $(0.06)
Weighted average number of
common and equivalent
shares outstanding 3,551 4,851
</TABLE>
See accompanying explanatory notes.
F-15
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For the nine months ended September 30, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined
before
American
Pro Forma Care American Pro Forma
Company Wedgwood(5) Adjustments acquisition Care Adjustments Combined
------- ----------- ------------ ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Assisted living facilities $ 8,898 $ 4,262 $ - $13,160 $10,894 $ - $24,054
Expenses
Assisted living facilities 5,548 3,182 - 8,730 7,077 - 15,807
Lease expense 886 - - 886 1,755 - 2,641
Facility depreciation and
amortization 826 488 (95)(1) 1,219 479 - 1,698
General and administrative 2,400 322 - 2,722 1,519 - 4,241
------- ------- ------- ------- ------- ------- -------
9,660 3,992 (95) 13,557 10,830 - 24,388
------- ------- ------- ------- ------- ------- -------
Operating profit (loss) (762) 270 95 (397) 64 - (333)
Other income (expense)
Interest and dividend
income 674 13 - 687 8 - 695
Interest expense (1,614) (845) - (2,459) (1,309) - (3,768)
Gain on sales of assets 32 - - 32 - - 32
Other (53) 28 - (25) 113 - 88
------- ------- ------- ------- ------- ------- -------
(961) (804) - (1,765) (1,188) - (2,953)
Loss from continuing
operations before
income taxes (1,723) (534) 95 (2,162) (1,124) - (3,286)
Income tax benefit (656) - (167)(3) (823) - (426)(3) (1,249)
------- ------- ------- ------- ------- ------- -------
Loss from continuing operations (1,067) (534) 262 (1,339) (1,124) 426 (2,037)
Preferred dividend
requirement (247) - (80)(2) (327) - - (327)
------- ------- ------- ------- ------- ------- -------
Loss from continuing
operations
allocable to common
stockholders $(1,314) $ (534) $ 182 $(1,666) $(1,124) $ 426 $(2,364)
======= ======= ======= ======= ======= ======= =======
Loss per share from
continuing operations $(0.37) $(0.49)
Weighted average number of
common and equivalent
shares outstanding 3,559 4,859
</TABLE>
See accompanying explanatory notes.
F-16
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed combined financial statements reflect the acquisition
by the Company in March 1996 of substantially all of the assets and
liabilities of a number of companies under common control and managed by
Wedgwood and the proposed acquisition of American Care. The total purchase
price for Wedgwood was $17,223,000, consisting of preferred stock valued at
$16,203,000 and cash and transaction costs totaling approximately $1,020,000.
The preferred stock issued includes 675,000 shares of Series D Preferred
Stock which was issued to James R. Gilley, Chief Executive Officer of the
Company, and members of his family. These shares were valued at Mr. Gilley's
cost in the acquired property of approximately $2,300,000. The consideration
for the proposed acquisition of American Care, which is to be accounted for
as a pooling of interests, is 1,240,000 shares of the Company's common stock.
B. The pro forma financial statements reflect the following adjustments:
1. To reflect the difference in depreciation and amortization on Wedgwood
property and equipment and other assets due to change in asset bases and
lives under purchase accounting using lives from 5 to 35 years; Wedgwood
historically had utilized lives of 5 to 28 years.
2. To reflect the dividend requirement on the Series D Preferred Stock issued
in the acquisition of Wedgwood.
3. To adjust income tax expense based upon applying the statutory tax rate to
pre-tax income. If the Wedgwood acquisition had taken place at January 1,
1994, the deferred tax liabilities arising from the transaction would have
eliminated the need for a change in the deferred tax asset valuation
allowance at that date. Accordingly, there would have been no change in
the valuation allowance during the year ended December 31, 1995 and,
therefore, the effective tax rate would have approximated 38%. The
Company considers the use of its net operating loss carryforwards as a
result of Wedgwood acquisition to be more likely than not.
4. In January 1995, the Company sold The Fountainview. The pro forma
statements of operations reflect the operations of the Company as adjusted
to reflect this disposition.
5. The statement of operations of Wedgwood covers the three months ended
March 31, 1996. Beginning April 1, 1996, Wedgwood operations are
consolidated with the Company.
6. To accrue professional fees, estimated by the Company to be $800,000,
related to the proposed merger with American Care. These expenses as well
as professional fees provided in exchange for options, valued at
approximately $200,000, to purchase shares of the Company's common stock,
have not been reflected in the pro forma combined statements of
operations, but will be included in future statements of operations of
the Company.
7. To reflect the retirement of a $500,000 note payable in exchange for
44,643 shares of the Company's common stock.
F-17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Greenbriar Corporation
We have audited the accompanying consolidated balance sheet of Greenbriar
Corporation and subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows each of the two years in the period then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Greenbriar
Corporation and subsidiaries as of December 31, 1995, and the consolidated
results of their operations and their consolidated cash flows for each of the
two years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Dallas, Texas
March 8, 1996 (except for the third paragraph
of Note B, as to which the date is
August 16, 1996)
F-18
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1995 1996
------------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,199 $ 4,225
Accounts receivable - trade 23 746
Deferred income tax benefit 2,150 -
Real estate operations held for sale, at lower of cost
or market - 5,405
Other current assets 1,536 1,151
------- -------
TOTAL CURRENT ASSETS 10,908 11,527
REAL ESTATE OPERATIONS HELD FOR SALE,
AT LOWER OF COST OR MARKET 3,190 -
NET ASSETS OF MOBILITY GROUP 3,371 -
INVESTMENT IN SECURITIES, AT COST 1,853 4,266
MORTGAGE NOTES RECEIVABLE 7,368 8,959
PROPERTY AND EQUIPMENT, AT COST
Land 322 7,832
Buildings and improvements 767 48,628
Equipment and furnishings 203 2,078
Construction in progress 1,576 6,790
------- -------
2,868 65,328
Less accumulated depreciation 252 1,106
------- -------
2,616 64,222
RESTRICTED CASH AND INVESTMENTS - 3,521
OTHER ASSETS 466 2,404
------- -------
$29,772 $94,899
======= =======
</TABLE>
F-19
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
-------------- -----------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Note payable $ - $ -
Current maturities of long-term debt 8 977
Due to affiliates - 589
Long-term debt collateralized by properties under
contract of sale - 903
Accounts payable - trade 412 2,335
Accrued expenses 343 1,455
Other current liabilities 130 1,089
------- -------
TOTAL CURRENT LIABILITIES 893 7,348
LONG-TERM DEBT 901 43,034
DEFERRED INCOME TAXES - 1,037
DEFERRED GAIN 3,083 3,083
STOCKHOLDERS' EQUITY
Series B cumulative convertible preferred stock, $.10 par value;
liquidation value of $1,330 and $353, respectively;
authorized, 100 shares; issued and outstanding, 14 shares
and 4 shares, respectively 1 1
Series C cumulative convertible preferred stock, $.10 par
value; liquidation value of $2,000; authorized, issued and
outstanding, 20 and 10 shares, respectively 2 1
Series D cumulative preferred stock, $.10 par value; liquidation value
of $3,375; authorized, issued and outstanding, 675 shares in 1996 - 68
Common stock, $.01 par value; authorized, 20,000 shares; issued and
outstanding, 3,452 and 5,170 shares, respectively 35 51
Additional paid-in capital 33,957 50,026
Accumulated deficit (6,584) (7,234)
------- -------
27,411 42,913
Less stock purchase notes receivable (including $2,438
from related parties) (2,516) (2,516)
------- -------
24,895 40,397
------- -------
$29,772 $94,899
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Nine months
Year ended December 31, ended September 30,
------------------------- ---------------------
1994 1995 1995 1996
------------ ----------- --------- ----------
(unaudited)
<S> <C> <C> <C> <C>
REVENUE
Assisted living facility income $ 7,939 $ 557 $ 555 $ 8,812
Other - - - 86
------- ------- ------- -------
7,939 557 555 8,898
OPERATING EXPENSES
Assisted living facility operations 5,059 322 276 5,548
Lease expense - - - 886
Facility depreciation and amortization - - 42 826
Corporate, general and administrative 3,502 2,688 1,947 2,400
------- ------- ------- -------
8,561 3,010 2,265 9,660
------- ------- ------- -------
Operating loss (622) (2,453) (1,710) (762)
Other income (expense)
Interest and dividend income 208 1,176 941 674
Interest expense (2,221) (101) (98) (1,614)
Gain on sales of assets 2,803 6,950 6,950 32
Settlement of lawsuit - - - (120)
Minority interest in earnings of consolidated
partnership - - - (76)
Other - 239 14 143
------- ------- ------- -------
790 8,264 7,807 (961)
------- ------- ------- -------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 168 5,811 6,097 (1,723)
INCOME TAX EXPENSE (BENEFIT) (201) 94 2,069 (656)
------- ------- ------- -------
EARNINGS FROM CONTINUING OPERATIONS 369 5,717 4,028 (1,067)
DISCONTINUED OPERATIONS
Earnings from operations, net of income taxes 241 19 162 170
Gain on disposal, net of income taxes 1,178 61 - 580
------- ------- ------- -------
NET EARNINGS (LOSS) 1,788 5,797 4,190 (317)
Preferred stock dividend requirement (327) (225) (176) (247)
------- ------- ------- -------
Earnings (loss) allocable to common stockholders $ 1,461 $ 5,572 $ 4,014 $ (564)
======= ======= ======= =======
Earnings (loss) per share
Continuing operations $.01 $1.55 $1.08 $(0.37)
Net earnings $.40 $1.57 $1.13 $(0.16)
Weighted average number of common and
equivalent shares outstanding 3,679 3,539 3,551 3,559
</TABLE>
The accompanying notes are an integral part of this statement.
F-21
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Preferred Common Stock
stock stock Additional purchase
----------------------- ------------------- paid in Accumulated notes Treasury Total
Shares Amount Shares Amount capital deficit receivable stock equity
------------ --------- -------- --------- -------- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 1,075 $ 107 18,395 $ 183 $36,132 $(13,616) $(2,250) $(7) $20,549
Issuance of shares - - 147 2 179 - (188) 7 -
Dividends on preferred
stock, including
imputed dividends of $42 44 4 - - 131 (328) - - (193)
Net earnings - - - - - 1,788 - - 1,788
------ ----- ------- ----- ------- -------- ---------- ------ -------
Balance at December 31, 1994 1,119 111 18,542 185 36,442 (12,156) (2,438) - 22,144
Issuance of shares - - 116 1 77 - (78) - -
Conversion of preferred
stock (1) - 19 - - - - - -
Conversion of
subordinated debt - - 67 1 199 - - - 200
Purchase of common stock - - (1,226) (12) (1,998) - - - (2,010)
Purchase of preferred
stock (1,085) (108) - - (976) - - - (1,084)
Dividends on preferred
stock 1 - - - 73 (225) - - (152)
One-for-five reverse
stock split - - (14,066) (140) 140 - - - -
Net earnings - - - - - 5,797 - - 5,797
------ ----- ------- ----- ------- -------- ---------- ------ -------
Balances at December 31, 1995 34 3 3,452 35 33,957 (6,584) (2,516) - 24,895
Net loss - - - - - (317) - - (317)
Conversion of preferred
stock (1,971) (196) 1,730 16 180 - - - -
Purchase of common stock - - (12) - (120) - - - (120)
Dividends on preferred
stock 1 - - - 69 (333) - - (264)
Issuance of preferred
stock - purchased company 2,625 263 - - 15,940 - - - 16,203
------ ----- ------- ----- ------- -------- ---------- ------ -------
Balances at September 30,
1996 (unaudited) 689 $ 70 5,170 $ 51 $50,026 $ (7,234) $(2,516) $ - $40,397
====== ===== ======= ===== ======= ======== ========== ====== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-22
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine months
ended
Year ended December 31, September 30,
----------------------- ---------------
1994 1995 1995 1996
------- ------- ------- ------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 1,788 $ 5,797 $ 4,190 $ (317)
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities
Discontinued operations (1,419) 80 (162) (750)
Depreciation and amortization 1,306 182 76 854
Gain on sales of assets (4,633) (7,043) (6,950) (32)
Recognition of deferred gain (1,070) - - -
Stock dividends on investment securities - (175) - -
Changes in operating assets and liabilities
Due from (to) affiliates - - 3 (135)
Accounts receivable (72) 1,902 795 (166)
Refundable income taxes 945 - - -
Assets held for resale - - - -
Deferred income tax benefit 369 35 1,781 (197)
Other current and noncurrent assets (2,381) (9) 1,197 (2,358)
Accounts payable and other liabilities 818 (3,546) (2,246) 751
------- ------- ------- -------
TOTAL ADJUSTMENTS (6,137) (8,574) (5,506) (2,033)
------- ------- ------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES OF:
Continuing operations (4,349) (2,777) (1,316) (2,350)
Discontinued operations 627 227 336 (10)
------- ------- ------- -------
NET CASH USED IN OPERATING ACTIVITIES (3,722) (2,550) (980) (2,360)
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine months
ended
Year ended December 31, September 30,
----------------------- ---------------
1994 1995 1995 1996
---------- ---------- ------- ------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of assets $ 32,196 $ 21,885 $ 19,361 $ 256
Collections of notes receivable - - 1,500 175
Proceeds from sales of discontinued operations 6,557 - - -
Additions to real estate (462) (54) - -
Purchase of property and equipment (608) (1,809) (43) (8,517)
Net cash effect of (sale) purchase of subsidiary (273) - - 739
Additions to notes receivable - (668) (5,478) (347)
Investing activities of discontinued operations (344) (348) 483 -
-------- -------- -------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 37,066 19,006 15,823 (7,694)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 11,156 - - 7,692
Payments on debt
Affiliates (1,625) - - -
Other (35,434) (14,321) (14,140) (243)
Dividends on preferred stock (193) (152) (92) (247)
Purchase of common and preferred stock - (3,095) (1,301) (122)
Purchase of treasury stock - - (1,085) -
Other - - (17) -
-------- -------- -------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (26,096) (17,568) (16,635) 7,080
-------- -------- -------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 7,248 (1,112) (1,792) (2,974)
Cash and cash equivalents at beginning of period 1,063 8,311 8,202 7,199
-------- -------- -------- -------
Cash and cash equivalents at end of period $ 8,311 $ 7,199 $ 6,410 $ 4,225
======== ======== ======== =======
</TABLE>
See Note C for supplemental disclosure of cash flows and noncash investing and
financing transactions.
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations
--------------------
As discussed in Note B, Greenbriar Corporation (formerly Medical Resource
Companies of America) has disposed of substantially all of its nonassisted-
living operating assets. Its business will consist of development and operation
of assisted living facilities which provide housing, hospitality and personal
and healthcare services to elderly individuals. At December 31, 1995, the
Company had one facility under construction and sites under contract for four
facilities. In March 1996, the Company acquired a business that operates 16
facilities. See Note O.
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Greenbriar
Corporation and its majority-owned subsidiaries (collectively, the Company).
All significant intercompany transactions and accounts have been eliminated.
Depreciation
------------
Depreciation is provided for in amounts sufficient to relate the cost of
property, plant and equipment to operations over their estimated service lives.
Depreciation is computed by the straight-line method.
Profit Recognition on Sales of Real Estate
------------------------------------------
Gains on sales of real estate are recognized when the requirements of Statement
of Financial Accounting Standards No. 66, "Accounting for Sales of Real
Estate," are met. Until the requirements for full profit recognition have been
met, a transaction is accounted for using either the deposit, cost recovery,
installment sale or financing method, whichever is appropriate under the
circumstances.
Use of Estimates
----------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Cash Equivalents
----------------
The Company considers all short-term deposits and money market investment with
a maturity of less than three months to be cash equivalents.
Impairment of Notes Receivable
------------------------------
A note receivable is identified as impaired when it is probable that interest
and principal will not be collected according to the contractual terms of the
note agreement. The accrual of interest is discontinued on such notes, and no
income is recognized until all past due amounts of principal and interest are
recovered in full.
F-25
<PAGE>
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
Impairment of Long-Lived Assets
-------------------------------
The Company reviews its long-lived assets and certain identifiable intangibles
for impairment when events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. In reviewing
recoverability, the Company estimates the future cash flows expected to result
from using the assets and eventually disposing of them. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized based
on the asset's fair value.
Stock Options
-------------
Statement of Financial Accounting Standards No. 123 is effective for 1996
establishes financial accounting and reporting standards, based on fair value,
for stock-based compensation plans. However, the statement permits, as an
alternative, the use of existing accounting rules based on intrinsic values for
such plans. The Company has elected to continue use of the intrinsic value
method and will provide the pro forma disclosures prescribed by the statement.
Interim Statements
------------------
In the opinion of management, the unaudited interim financial statements as of
September 30, 1996 and for the nine-month periods ended September 30, 1995 and
1996 include all adjustments, consisting only of those of a normal recurring
nature, necessary to present fairly the Company's financial position as of
September 30, 1996 and the results of its operations and cash flows for the
nine-month periods ended September 30, 1995 and 1996. The results of operations
for the nine months ended September 30, 1996 are not necessarily indicative of
the results to be expected for the full year.
Reclassifications
-----------------
Certain reclassifications have been made to the financial statements to
classify revenues and expenses in a manner consistent with the Company's
assisted living operations as presented in the financial statements as of and
for the period ended September 30, 1996.
F-26
<PAGE>
GREENBRIAR CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE B - DISCONTINUED OPERATIONS
In 1994, management concluded that operation of skilled medical care
facilities, consisting of nursing homes and eating disorder clinics, was not in
the best interest of the Company. In September 1994, the Company sold its
investment in Remuda Ranch Center for Anorexia and Bulimia, Inc. for shares of
the buyer's preferred stock, which is not marketable, valued at $1,678,000.
The sale resulted in a gain of $804,000. The preferred stock bears a
cumulative dividend of 8% and is convertible into shares of common stock equal
to approximately 4.9% of the outstanding shares at December 31, 1995.
Valuation was based on discounted future cash flows. In December 1994, the
Company's subsidiary, Altman Nursing, Inc., sold its two skilled nursing
facilities for an aggregate price of $6,400,000, which resulted in a gain of
$981,000. The aggregate gain of $1,785,000 has been presented net of
applicable income taxes of $607,000
In 1995, management decided to sell the mobility products segment. The segment
was sold in February 1996 for stock and notes valued at approximately
$4,300,000. A gain of approximately $930,000, less applicable income taxes,
was recorded in the first quarter of 1996.
In August 1996, the Company entered into contracts to sell three of its four
remaining real estate assets. The fourth property, a shopping center, is being
marketed and management expects to complete the sale within a year.
Accordingly, the Company's real estate operations have been reflected as
discontinued operations. Management expects that the proceeds from the sales
will be at least equal to the $5,432,000 carrying value of the real estate
assets.
F-27
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE B - DISCONTINUED OPERATIONS - CONTINUED
Summarized balance sheet data for the mobility products segment is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1995
------------
<S> <C>
Assets
Current assets
Cash $ 220
Inventories 363
Other 174
------
Total current assets 757
Net property, plant and equipment 989
Other noncurrent assets, primarily goodwill and patents 1,811
------
3,557
Liabilities
Current liabilities 186
------
Net assets $3,371
======
</TABLE>
The operations of the skilled medical care segment, mobility products segment
and real estate segment have been presented in the accompanying financial
statements as discontinued operations.
Summarized operating results of these segments are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- ------
<S> <C> <C>
Revenues $17,650 $2,815
======= ======
Income before income taxes $ 362 28
Income tax expense 121 9
------- ------
Net income from operations $ 241 $ 19
======= ======
</TABLE>
F-28
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE C - CASH FLOW INFORMATION
Supplemental information on cash flows and noncash investing and financing
transactions is as follows (in thousands):
<TABLE>
<CAPTION>
Year ended
December 31,
---------------
1994 1995
-------- -----
<S> <C> <C>
Supplemental cash flow information
Interest paid $ 3,722 $ 211
Income taxes paid 27 46
Supplemental data on noncash investing and financing activities
Stock dividend paid on preferred shares 93 73
Sale of stock in exchange for notes receivable from
employees and officers 186 78
Conversion of subordinated debt to common stock - 200
Sale of subsidiary
Securities received $(1,678) $ -
Assets sold 4,462 -
Liabilities transferred (3,861) -
Gain on sale 804 -
------- -----
Net cash effect of sale of subsidiary $ (273) $ -
======= =====
</TABLE>
NOTE D - DEBT
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1995
------------
<S> <C>
Mortgage notes payable to a corporation bearing interest
at 11.52%; principal and interest payable in monthly
installments through maturity in 2004. $909
Less: Current maturities (8)
----
$901
===
</TABLE>
F-29
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE E - INCOME TAXES
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $7,500,000 which expire between 1999 and 2008. However,
approximately $5,100,000 of these net operating loss carryforwards have
limitations that restrict utilization to approximately $600,000 for any one
year. Also, carryforwards of $1,800,000, which expire between 2006 and 2008,
may only be used to offset future taxable income of the subsidiaries in which
the losses were generated.
The following is a summary of the components of income tax expense (benefit)
from continuing operations (in thousands):
<TABLE>
<CAPTION>
Year ended
December 31,
-------------------
1994 1995
----------- ------
<S> <C> <C>
Current $ 160 $ 151
Deferred (361) (57)
------ -----
$(201) $ 94
====== ====
</TABLE>
Deferred tax assets and associated valuation allowances were comprised of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
1995
-------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $2,570
Real estate 141
Charitable contribution carryforwards 606
Tax credits 220
Accrued expenses 103
Other 195
------
Total deferred tax assets 3,835
Valuation allowance (1,430)
Deferred tax liabilities:
Investment in securities (237)
Other (18)
------
Total deferred tax liabilities (255)
-------
Net deferred tax asset $ 2,150
=======
</TABLE>
F-30
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - INCOME TAXES - CONTINUED
Management expects the net deferred tax asset will be recovered within two to
three years from earnings of the Company.
Following is a reconciliation of income tax expense from continuing operations
with the amount of tax computed at the statutory rate (in thousands):
<TABLE>
<CAPTION>
Year ended
December 31,
----------------
1994 1995
------ --------
<S> <C> <C>
Tax at the statutory rate $ 57 $ 1,976
Amortization of intangibles 113 30
Change in deferred tax asset valuation allowance,
exclusive of reductions for sold company in 1994 (547) (1,895)
Correction of prior period estimates 138 -
Other 38 (17)
----- -------
Tax expense $(201) $ 94
===== =======
</TABLE>
Reductions in the deferred tax valuation allowance result from assessments made
by the Company each year of its expected future taxable income available to
absorb its carryforwards.
NOTE F - STOCKHOLDERS' EQUITY
On November 17, 1995, the Board of Directors authorized a one-for-five reverse
stock split effective December 1, 1995. All share and per share data has been
retroactively restated to give effect to the stock split.
The Series B preferred stock has a liquidation value of $1 per share and is
convertible into common stock over a ten-year period at prices escalating from
$25.00 per share in 1993 to $55.55 per share by 2001. Dividends at a rate of 6%
are payable in cash or preferred shares at the option of the Company. At
December 31, 1995, there were cumulative, unpaid dividends of approximately
$73,000.
The Series C preferred stock has a liquidation value of $1 per share and is
convertible into common stock at a price of $15.00 per share. Dividends are
payable in cash at a rate of 6%.
F-31
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - STOCKHOLDERS' EQUITY - CONTINUED
Information relating to stock option activity during 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------------
1994 1995
---------- ----------
<S> <C>
Outstanding at beginning of year 327,500 155,500
Granted - 10,000
Canceled (30,000) -
Expired - (10,000)
Reacquired (142,000) -
-------- -------
Outstanding at end of year 155,500 155,500
======== =======
</TABLE>
The options are exercisable at various times through 2005 at prices ranging
from $11.25 to $13.20 per share. In 1994, the Company purchased options
covering 142,000 shares of common stock from a former employee/director for
$178,000.
At December 31, 1995, options to purchase 133,500 shares were exercisable.
NOTE G - EARNINGS PER SHARE
Earnings per share are determined by dividing net earnings, adjusted for
preferred stock dividends, by the weighted average number of common shares
outstanding during the period. Dilutive stock options are included in weighted
average shares outstanding. Fully diluted earnings per share, giving effect to
assumed conversion of convertible preferred stock and notes, are not presented
because the effect of these securities is insignificant.
NOTE H - SALES OF ASSETS
Gains on the sale of assets result from the following transactions (amounts in
thousands):
<TABLE>
<CAPTION>
1995 Gain
------ ------
<S> <C>
Sale of Fountainview retirement center for cash of approximately $18,000 $5,149
Sale of economic interest in legal claim for for $1,085 in cash 654
Sale of rights to the interest on escrow funds for cash of $1,140 1,140
Other 7
-----
$6,950
=====
</TABLE>
F-32
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - SALES OF ASSETS, CONTINUED
<TABLE>
<CAPTION>
1994 Gain
------ --------
<S> <C>
Sale of Rivermont retirement center for cash of approximately $6,900 $1,720
Recognition of deferred gain on long-term care facilities sold in 1991
for approximately $15,400 in notes 1,070
Other 13
-----
$2,803
=====
</TABLE>
The sale of the economic interest in a legal claim resulted from a claim the
Company held against Wespac Investors Trust III ("Wespac") based upon an award
of legal fees following a protracted lawsuit. Wespac subsequently filed for
protection under Chapter 11 of the Bankruptcy Code. The Company then sold its
claim for $1,085,000. The buyer required the acquisition of the interest of an
unrelated 49% Wespac shareholder as a condition precedent to the purchase of
the claim. To facilitate the transaction, the Company acquired the 49% equity
interest from the shareholder and immediately conveyed the interest to such
buyer. The Company recorded a gain on the sale of its claim of $654,000, the
excess of the proceeds of $1,085,000 over the Company's cost of the claim of
$431,000.
At December 31, 1995, the balance sheet reflects a deferred gain of $3,083,000.
This gain resulted from the sale in 1991 of four nursing homes in exchange for
notes in the principal amount of $15,400,000. The original gain of $7,259,000
was deferred and is being accounted for by the installment method. Sales in
previous years by the Company of some of the notes resulted in a reduction of
the deferred gain to $3,083,000.
NOTE I - RELATED PARTY TRANSACTIONS
1994
----
The Company sold to W. Michael Gilley, Executive Vice-President/Director of the
Company, 30,000 shares of common stock for a non interest bearing note of
$187,500; principal is due in December 1999. Additional loans to executives
and directors of $55,000 were made in 1994. Also, a former executive of the
Company was paid commissions of $145,000 relating to the sale of property.
Sylvia Gilley, wife of the Company's Chief Executive Officer, James R. Gilley,
made a loan of $1,000,000 to the Company. The loan was repaid during 1994.
1995
----
The Company purchased land from Sylvia Gilley for $221,000.
F-33
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - CONTINGENCIES
Southern Care Corp. Litigation
------------------------------
The Company and a subsidiary, CareAmerica, Inc. (CareAmerica) are defendants in
lawsuits brought by a corporation that purchased nursing homes from the Company
in 1991. The plaintiff alleges mismanagement of the homes during the period
that CareAmerica provided management services, seeks damages in excess of
$1,500,000, seeks cancellation of $6,700,000 of mortgage notes payable to the
Company and secured by the nursing homes, and seeks recovery of interest
payments made on the mortgage notes. The Company has filed a counterclaim for
breach of the management contract and to confirm the indebtedness. The
plaintiff terminated the contract and claimed that the mortgage notes had
previously been discharged. The Company believes that the plaintiff's actions,
including payments against the indebtedness, are inconsistent with the
plaintiff's claims that the notes have been discharged. The Company intends to
vigorously contest those lawsuits and pursue its counterclaims.
Other Litigation
----------------
The Company is also defendant in several other lawsuits arising in the ordinary
course of business. Management of the Company is of the opinion that these
lawsuits will not have a material effect on the consolidated results of
operations or financial position of the Company.
Recent Developments in Southern Care Corp. Litigation (Unaudited)
-----------------------------------------------------------------
In October 1996 the trial court granted plaintiff's motion for summary judgment
on the issue of whether the indebtedness was discharged. A notice of appeal has
been filed by the Company on that ruling and an appeal will be filed. The
Company does not believe that the court's ruling is correct, and believes that
it will prevail on its appeal, although there can be no assurance.
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
values at December 31, 1995:
Cash and cash equivalents - The carrying amount approximates fair value
because of the short maturity of these instruments.
Investment in securities - The investment in securities consists of 8%
convertible preferred stock of a private company. Fair value, based on
estimated future discounted cash flows, approximates carrying value.
Mortgage notes receivable - The mortgage notes receivable consist primarily of
$6,700,000 of notes with a stated interest rate of 14% due in 2021 from
Southern Care Corp., the plaintiff in the lawsuit discussed in Note K. The
obligor has brought suit to cancel the notes, and as a result, future cash
flows are not predictable. Therefore, it is not practicable to estimate the
fair value of the note.
Long-term debt - The fair value of the Company's long-term debt is estimated
based on market rates for the same or similar issues. At December 31, 1995,
the carrying amount of long-term debt approximates its fair value.
Accounts receivable and payable - The carrying amount approximates fair value
because of their short maturity.
F-34
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - NOTES RECEIVABLE
Stock Purchase Notes
--------------------
<TABLE>
<CAPTION>
December 31,
1995
--------------
(in thousands)
<S> <C>
Related party
Note from James R. Gilley, chief executive officer, principal
and interest at 5-1/2%, due November 2003 $2,250
Note from W. Michael Gilley, executive vice-president/director,
noninterest-bearing and due in December 1999 188
Other employees 78
-----
$2,516
=====
</TABLE>
All stock purchase notes are collateralized by common stock of the company and
are presented in the balance sheet as a deduction from stockholders' equity.
Mortgage Notes
--------------
<TABLE>
<CAPTION>
December 31,
1995
--------------
(in thousands)
<S> <C>
Notes receivable from a corporation, collateralized by a third
lien on real property, interest at 14% due annually, principal
due in 2021 $6,700
Other notes 668
-----
$7,368
=====
</TABLE>
In connection with certain litigation in which the Company is defendant (see
Note J), the maker of the $6,700.000 note stopped making the interest payments
required under the note. As a result, the Company ceased recording the accrual
of interest income. Had the Company been accruing interest on this note, the
amount recognized would have been approximately $900,000 in 1995. No interest
income was recognized on this note in 1995.
Based on the value of the underlying collateral at December 31, 1995, no
impairment reserve is required for this note.
F-35
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1995, the Company made an adjustment to reduce the
deferred tax valuation allowance by $1,895,000.
During the fourth quarter of 1994, the Company wrote off goodwill related to a
1992 acquisition of approximately $150,00, made other adjustments reducing
earnings by approximately $175,000 and reduced the deferred tax valuation
allowance by approximately $550,000. The goodwill write off resulted from the
decision to discontinue the sale of mobility products to third parties.
The adjustments to the deferred tax valuation allowance resulted from
assessments made by the Company of its expected future taxable income available
to absorb its net operating loss carryfowards.
NOTE N - ACQUISITION OF WEDGWOOD RETIREMENT INNS, INC. AND AFFILIATES
In March 1996, the Company acquired substantially all of the assets and
liabilities of a number of companies under common control and managed by
Wedgwood Retirement Inns, Inc. The business of these companies consists of the
operation of 16 assisted living, congregate and Alzheimer's facilities. To
structure the Wedgwood acquisition as a tax-free exchange, the Company also
acquired a shopping center in North Carolina from James R. Gilley and members
of his family (the Gilley Group). Due to the fact that the Gilley Group is a
majority shareholder of Greenbriar and owner of the shopping center, the
property was recorded at the Gilley Group's historical cost basis of
approximately $2,300,000. Consideration given was 675,000 shares of Series D
preferred stock. Wedgwood's assets were valued at approximately $58,000,000
($54,000,000 of property and equipment) and liabilities assumed were
approximately $44,000,000. In exchange, Greenbriar issued 1,949,950 shares of
Series E preferred stock, valued at approximately $14,000,000, to the Wedgwood
shareholders. The Series D and E preferred stock is convertible, upon approval
of the common stockholders, into 1,962,458 shares of common stock.. The
operations of Wedgwood will be reflected in the consolidated financial
statements of the Company beginning April 1, 1996.
F-36
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE N - ACQUISITION OF WEDGWOOD RETIREMENT INNS, INC. AND AFFILIATES -
CONTINUED
The following table presents pro forma unaudited consolidated results of
operations for the nine-month periods ended September 30, 1995 and 1996,
assuming that the acquisition had taken place on January 1, 1995. The pro
forma results are not necessarily indicative of the results of operations that
would have occurred had the acquisition been made on January 1, 1995, or of
future results of operations of the combines companies (in thousands):
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
1995 1996
------ ------
<S> <C> <C>
Revenue $10,905 $13,160
Earnings (loss) from continuing operations 3,472 (1,339)
Net earnings (loss) 3,634 (589)
Preferred stock dividend requirement 416 327
Earnings (loss) from continuing operations allocable
to common stockholders 3,056 (916)
Net earnings (loss) allocable to common stockholders 3,218 (1,666)
Earnings (loss) per share
Continuing operations 0.59 (0.47)
Net earnings 0.62 (0.26)
</TABLE>
NOTE O - SUBSEQUENT EVENTS (UNAUDITED)
On October 10, 1996 The Company and American Care Communities, Inc., ("American
Care") a privately held company, entered into a binding agreement whereby
American Care would be merged into the Company.
American Care, based in Cary, North Carolina, currently owns or leases 15
assisted living facilities with approximately 1,350 units. Thirteen of the
facilities are located in North Carolina, one in Florida and one in Maine.
The purchase price for all shares of common stock of American Care will be
1,300,000 shares of Greenbriar common stock. The combination will be accounted
for as a pooling of interests for accounting purposes.
F-37
<PAGE>
Report of Independent Accountants
---------------------------------
The Board of Directors
American Care Communities, Inc. and Subsidiaries
We have audited the accompanying combined balance sheet of American Care
Communities, Inc. and Subsidiaries as of December 31, 1995, and the related
combined statements of operations and accumulated deficit, and cash flows for
the years ended December 31, 1995 and 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of American Care
Communities, Inc. and Subsidiaries as of December 31, 1995, and the combined
results of their operations and their cash flows for the years ended December
31, 1995 and 1994 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note J to the
financial statements, the Company has suffered recurring losses from operations
and has a stockholders' deficit that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note J. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Coopers & Lybrand L.L.P.
Raleigh, North Carolina
February 16, 1996
F-38
<PAGE>
American Care Communities, Inc. and Subsidiaries
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1995 1996
------------- ------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 423,521 $ 24,421
Resident accounts receivable, net of allowance for
uncollectible accounts $74,193 in 1995 and
$48,829 in 1996 235,625 353,201
Accounts receivable, stockholder 12,000 12,000
Other accounts receivable 257,929 86,542
Prepaid expenses and inventories 70,610 80,774
Deposits 23,060 22,070
Other current assets 325 1,285,228
----------- -----------
Total current assets 1,023,070 1,864,236
Property and equipment, at cost
Land and land improvements 2,071,702 2,435,413
Leasehold improvements 29,219 207,635
Buildings and improvements 9,976,598 9,087,780
Furniture and equipment 1,109,689 1,378,326
Transportation equipment 178,350 183,008
Construction in process 1,377,489 5,214,072
----------- -----------
14,743,047 18,506,234
Less accumulated depreciation and amortization 581,572 911,314
----------- -----------
14,161,475 17,594,920
Deposits 1,007,452 691,591
Goodwill, net of accumulated amortization of $53,431
in 1995 891,206 567,078
Organizational costs, net of accumulated amortization of
$34,519 in 1995 and $47,866 in 1996 65,120 45,180
Deferred financing costs, net of accumulated amortization
of $34,714 in 1995 and $72,010 in 1996 438,332 428,683
Covenant not to compete, net of accumulated amortization
of $20,163 in 1995 89,837 -
Deferred start-up costs - 99,585
Other deferred financing and acquisition costs 307,958 -
----------- -----------
$17,984,450 $21,291,273
=========== ===========
</TABLE>
F-39
<PAGE>
American Care Communities, Inc. and Subsidiaries
COMBINED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
December 31, September 30,
LIABILITIES AND STOCKHOLDERS' DEFICIT 1995 1996
------------- --------------
(unaudited)
<S> <C> <C>
Current liabilities
Current maturities of long-term debt $ 817,925 $ 5,638,545
Notes payable, stockholder - 357,973
Accounts payable, trade 804,878 1,301,411
Accrued expenses 611,830 908,582
Accrued interest 140,824 217,024
Deferred income - 36,775
----------- -----------
Total current liabilities 2,375,457 8,460,310
Notes payable, stockholder 357,974 -
Long-term debt, less current maturities 16,083,705 14,787,917
----------- -----------
16,441,679 14,787,917
Stockholders' deficit
Common stock; no par value; 100,000 shares authorized;
1,000 shares issued and outstanding at December 31, 1995 - -
Additional paid-in capital 1,000 1,000
Accumulated deficit (833,686) (1,957,954)
----------- -----------
Total stockholders' deficit (832,686) (1,956,954)
----------- -----------
$17,984,450 $21,291,273
=========== ===========
</TABLE>
The accompanying notes are an integal part of these statements.
F-40
<PAGE>
American Care Communities, Inc. and Subsidiaries
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
------------------------- -------------------------------
1994 1995 1995 1996
----------- ------------ ------------ -----------------
(unaudited)
<S> <C> <C> <C> <C>
Revenues
Rental income $3,707,698 $6,810,504 $4,773,332 $10,893,631
Other operating income 192,921 596,259 119,473 112,410
Interest income 8,331 22,619 3,826 7,879
---------- ---------- ---------- -----------
Total revenues 3,908,950 7,429,382 4,896,631 11,013,920
Expenses
Residence operating expenses 2,554,300 4,408,662 2,765,280 7,076,688
General and administrative 614,932 1,259,740 867,820 1,519,403
Rent expense 212,100 406,101 208,638 1,754,546
Depreciation and amortization 233,408 483,272 342,056 478,837
Interest expense 540,101 1,447,290 1,027,080 1,308,714
---------- ---------- ---------- -----------
Total expenses 4,154,841 8,005,065 5,210,874 12,138,188
---------- ---------- ---------- -----------
Loss before equity earnings in
investment and loss on
disposal of investment (245,891) (575,683) (314,243) (1,124,268)
Equity earnings in investment - 90,363 44,573 -
Loss on disposal of investment - (39,458) - -
---------- ---------- ---------- -----------
Net loss (245,891) (524,778) (269,670) (1,124,268)
Accumulated deficit at beginning of year (63,017) (308,908) (308,908) (833,686)
---------- ---------- ---------- -----------
Accumulated deficit at end of year $ (308,908) $ (833,686) $ (578,578) $(1,957,954)
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integal part of these statements.
F-41
<PAGE>
American Care Communities, Inc. and Subsidiaries
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
-------------------------------- ---------------------------
1994 1995 1995 1996
---------------- -------------- ------------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (245,891) $ (524,778) $ (269,670) $(1,124,268)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization 233,408 483,272 342,056 478,837
Gain on disposal of property - - - (3,472)
Changes in assets and liabilities
Resident accounts receivable (30,056) (205,569) (31,861) (117,576)
Accounts receivable, stockholder 1,000 (12,000) (12,000) -
Other accounts receivable 8,744 (250,839) 7,090 171,387
Prepaid expenses and inventories (16,275) (31,846) (1,754) (10,164)
Other current assets (13,337) 13,012 13,337 (1,384,488)
Accounts payable, trade 211,979 538,695 (6,660) 496,533
Accrued expenses 151,104 434,889 169,316 296,752
Accrued interest 40,717 78,979 76,486 76,200
Other current liabilities - - 21,417 -
Deferred income (5,200) - - 36,775
----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities 336,193 523,815 307,757 (1,083,484)
Cash flows from investing activities
Acquisitions of assets (4,689,528) (7,369,187) (5,111,923) (5,334,715)
Proceeds on sale of property - - - 1,575,000
Disposals of property and equipment 1,000 - - -
Deposits on acquisitions (55,000) 56,988 73,266 8,442
Decrease (increase) in other assets (18,990) (126,782) (1,046,311) 353,503
----------- ----------- ----------- -----------
Net cash used in investing activities (4,762,518) (7,438,981) (6,084,968) (3,397,770)
Cash flows from financing activities
Principal payments on long-term debt (278,515) (9,589,139) (142,455) (1,422,754)
Proceeds from issuance of long-term debt 4,851,757 18,454,937 7,299,597 4,947,586
Deposits on financing obligations (32,500) (1,000,000) (1,000,000) 308,409
Deferred financing and acquisition costs - (781,004) (421,056) 248,913
----------- ----------- ----------- -----------
Net cash provided by financing
activities 4,540,742 7,084,794 5,736,086 4,082,154
----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalent 114,417 169,628 (41,125) (399,100)
Cash and cash equivalents
Beginning of year 139,476 253,893 253,893 423,521
----------- ----------- ----------- -----------
End of year $ 253,893 $ 423,521 $ 212,768 $ 24,421
=========== =========== =========== ===========
Supplemental disclosures of cash flow information -
Cash paid during the year for interest $ 499,384 $ 1,368,311 $ 1,002,834 $ 1,419,438
=========== =========== =========== ===========
Noncash investing activities -
Goodwill associated with acquisition (disposition) of assets $ 451,522 $ 493,115 $ 361,766 $ (317,571)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-42
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations and Basis of Combination
-----------------------------------
American Care Communities, Inc. and Subsidiaries (the "Company") was founded in
1993 with the mission of developing, acquiring, leasing and operating assisted
living and retirement communities. The Company adheres to a philosophy of
service that views residents as unique, important and valuable.
At December 31, 1995, the Company either owned or operated a total of 14
assisted living residences located in North Carolina and Florida, and managed a
residence located in Maine, in which a stockholder of the Company has a 10%
non-controlling interest.
The combined financial statements at December 31, 1995 include the accounts of
American Care Communities, Inc. and the following wholly-owned subsidiaries;
American Countytime, Inc., Rose Manor of Cary, Inc., American Care Communities
of Sanford, Inc., American Care Communities of Florida, Inc. and
Phoades/Powell, Inc. As permitted by ARB No. 51, the combined financial
statements include the accounts of the following entities, which are affiliated
companies to American Care Communities, Inc. and Subsidiaries, related through
common ownership:
Berne Village, LLC
Graybrier, LLC
Rose Terrace of Wendell, LLC
Rose Tara Plantation, Inc.
Lake James, LLC
RRSP, Inc.
All significant intercompany balances and transactions have been eliminated
from the combined financial statements.
Basis of Presentation
---------------------
The accompanying financial statements have been prepared in accordance with
principles contained in the American Institute of Certified Public Accountants
Audit Guide "Audits of Providers of Health Care Services."
Rental Income
-------------
Rental income is reported at the estimated net realizable value from residents,
third-party payors, and others for services rendered.
The Company provides services to both responsible parties and residents covered
under the North Carolina State Assistance Plan.
F-43
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
Concentration of Credit Risk
----------------------------
Financial instruments which potentially subject the Company to a concentration
of credit risk consists principally of cash and cash equivalents and accounts
receivable. The Company places its cash in federally insured financial
institutions which limits its credit exposure. At December 31, 1995, the
Company had $813,430 on deposit with two Federally insured financial
institutions, which exceeds the $100,000 per institution FDIC insurance limit.
The Company has accounts receivable, the collectibility of which is dependent
upon the performance of certain governmental programs. Management does not
believe there are significant credit risks associated with these governmental
programs. With respect to the remaining portion of accounts receivable, an
allowance for uncollectible accounts is provided in an amount equal to the
estimated losses to be incurred in collection of the receivables. The allowance
is based on historical collection experience and a review of the current status
of the existing receivables.
Depreciation and Amortization
-----------------------------
Depreciation and amortization of property and equipment is computed using the
straight-line method. The estimated useful lives of property and equipment are
as follows:
<TABLE>
<S> <C>
Land improvements 5 to 10 years
Leasehold improvements 3 to 7 years
Buildings and improvements 5 to 40 years
Furniture and equipment 3 to 7 years
Transportation equipment 3 to 5 years
</TABLE>
Expenditures for repairs and maintenance are charged to expense as incurred.
The costs of major renewals and betterments are capitalized and depreciated
over their estimated useful lives. Upon disposition of property and equipment,
the cost and related accumulated depreciation amounts are relieved and any
resulting gain or loss is reflected in operations.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash on hand and on deposit with banks, as
well as financial instruments with a maturity of 90 days or less when
purchased.
Inventory
---------
The Company values its inventory, consisting principally of food and medical
supplies, at the lower of cost (first-in, first-out) or market.
F-44
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
Organizational Costs
--------------------
Organizational costs relate to organizational activities surrounding the
acquisitions of residences and are being amortized on the straight-line method
over five years.
Deposits
--------
Deposits include cash paid in connection with possible acquisitions, deposits
for certain equipment and utilities and cash paid in connection with the
$11,500,000 indebtedness.
Goodwill
--------
Goodwill is being amortized on the straight-line method over a period of
fifteen years.
Deferred Financing Costs
------------------------
Deferred financing costs are being amortized over the terms of the related
borrowings under a method which approximates the effective interest method.
Covenant Not to Compete
-----------------------
Covenant not to compete is being amortized over a period of five years under
the straight-line method.
Other Deferred Financing and Acquisition Costs
----------------------------------------------
Other deferred financing and acquisition costs includes costs incurred for a
proposed capital financing and costs incurred for the acquisition of additional
residences which were not closed at December 31, 1995.
Estimates
---------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
December 31, 1995 and the reported amounts of revenues and expenses during each
of the two years then ended. Actual results could differ from those estimates.
Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. Management estimates that
the carrying value of long-term indebtedness (Note B) approximates fair value
at December 31, 1995.
F-45
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
Interim Statements
------------------
In the opinion of management, the unaudited interim financial statements as of
September 30, 1996 and for the nine-month periods ended September 30, 1995 and
1996 include all adjustments, consisting only of those of a normal recurring
nature, necessary to present fairly the Company's financial position as of
September 30, 1996 and the results of its operations and cash flows for the
nine-month periods ended September 30, 1995 and 1996. The results of
operations for the nine months ended September 30, 1996 are not necessarily
indicative of the results to be expected for the full year.
NOTE B - LONG-TERM DEBT
<TABLE>
<S> <C>
Long-term debt at December 31, 1995 is summarized as follows:
Prime (8.5% at December 31, 1995) plus .5% to 1% notes payable
in monthly installments of interest only, with final payments in
February 1996 through July 1996 $ 144,421
Prime (8.5% at December 31, 1995) plus .5% to. 75% notes payable in
aggregate monthly installments of $36,906 including interest with
final installments due March 1997 through December 1998,
collateralized by property and equipment 3,254,245
8.99% to 10% notes payable in aggregate monthly installments of $6,802
including interest, with final installments due March 1996 through
February 2000, collateralized by property and equipment 451,484
6.23% to 9.25% notes payable in monthly installments of interest only,
with final installments due in 1996 1,551,480
11.35% mortgage loan payable in monthly installments of interest only
through January 1997 with a final balloon payment in 2007,
collateralized by property and equipment 11,500,000
-----------
16,901,630
Less current maturities 817,925
-----------
$16,083,705
===========
</TABLE>
F-46
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED
NOTE B - LONG-TERM DEBT - CONTINUED
Subsequent to December 31, 1995, the Company refinanced a $1,051,480 note
payable that was due in 1996, with a $5,065,000 construction note payable in
monthly installments of interest only with a final payment of interest and
principal on April 16, 1997. The proceeds of the note are to be used for
construction of Rose Manor of Cary. The note is collateralized by property and
equipment and is guaranteed by certain stockholders of the Company.
Aggregate annual principal maturities of long-term debt at December 31, 1995
are as follows:
<TABLE>
<S> <C>
1996 $ 817,925
1997 1,367,197
1998 1,704,815
1999 286,472
2000 1,753,298
Thereafter 10,971,923
-----------
$16,901,630
===========
</TABLE>
The loan agreements contain various restrictive covenants, including the
requirement the Company submit audited financial statements within a certain
period of time. The Company was not in compliance with one of these covenants
at December 31, 1995, which was subsequently waived by the lender.
Approximately $5,001,072 of the long-term indebtedness at December 31, 1995 is
guaranteed by certain stockholders of the Company.
NOTE C - OPERATING LEASES
The Company leases three residences and office space from unrelated parties and
five residences from a related party (Note D) under operating lease agreements
which expire from July 1997 through January 2010 and has various other
equipment operating leases. The Company has the option to extend the residence
leases for various five year periods. Rental expense under these lease
agreements was $406,101 and $212,100 in 1995 and 1994, respectively. In
accordance with the residence and office space lease agreements, the Company is
responsible for operating and maintaining the buildings in good order, repair
and operating condition, and promptly make all repairs, renewals, replacements,
additions and improvements necessary to maintain the current condition of the
residence.
F-47
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED
NOTE C - OPERATING LEASES - CONTINUED
Future minimum rental payments are summarized as follows:
<TABLE>
<S> <C>
1996 $2,299,888
1997 2,423,795
1998 2,392,851
1999 2,100,220
2000 2,067,678
</TABLE>
NOTE D - EQUITY INVESTMENT
Prior to December 27, 1995, the Company had a 30% non-controlling interest in
Rhoades/Powell, Inc. and 30% non-controlling interest in Powell/Rhoades, LLC.
Powell/Rhoades, LLC owns five residences located in North Carolina. These
residences are leased to Rhoades/Powell, Inc. under a fifteen year operating
lease agreement (Note C). The Company has recorded equity earnings (loss) from
these investments of $148,497 and $(58,134), respectively, for the year ended
December 31, 1995 in the accompanying financial statements. Unaudited
financial information for Rhoades/Powell, Inc. and Powell/Rhoades, LLC for the
361 days ended December 27, 1995 is as follows:
<TABLE>
<CAPTION>
Rhoades/ Powell/
Powell, Inc. Rhoades, LLC
------------ -------------
<S> <C> <C>
Revenues $4,056,105 $1,139,968
Expenses 3,561,115 1,333,749
---------- ----------
Net income (loss) $ 494,990 $ (193,781)
========== ==========
</TABLE>
On December 27, 1995, the Company sold its 30% interest in Powell/Rhoades, LLC
incurring a loss on disposal of $39,458 and purchased the remaining 70%
interest in Rhoades/Powell, Inc.
F-48
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED
NOTE E - INCOME TAXES
The Company accounts for income taxes under the provisions of statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). Under SFAS No. 109, deferred income taxes are determined based on
temporary differences between the financial statement and tax basis of assets
and liabilities, using enacted tax rates expected to be in effect during the
years in which the differences are expected to reverse, and on available tax
credits and carryforwards.
During 1995, the Company incurred a net loss of $524,778, thus, no provision
for income taxes is included in the accompanying financial statements. At
December 31, 1995, the Company had a net deferred tax asset of $194,000,
consisting of the following significant components:
<TABLE>
<S> <C>
Deferred tax asset:
Net operating losses $213,000
Bad debt deduction disallowance 12,500
Tax depreciation (45,000)
Other 13,500
--------
$194,000
========
</TABLE>
The Company has placed a full valuation allowance on the deferred tax asset
since it is more likely than not that the future tax benefit will not be
realized due to the historical losses from operations and going concern
considerations (Note J).
NOTE F - TRANSACTIONS WITH RELATED PARTIES
At December 31, 1995, the Company owed one of its stockholders a total of
$357,974 in non-secured notes payable at annual interest rates of 8%. These
notes are due the earlier of August 15, 1997 or the closing of a private equity
placement and have been classified as long-term liabilities in the accompanying
balance sheet. Included in accrued interest in the accompanying financial
statements is $29,216 and $11,067 in 1995 and 1994, respectively, related to
these notes. Also, included in interest expense is $18,149 and $7,200 in 1995
and 1994, respectively, related to these notes. Included in accounts payable,
trade at December 31, 1995 is $7,660 due to two stockholders of the Company for
expenses incurred on behalf of the Company. Accounts receivable, stockholder
represents a non-interest-bearing advance, due on demand to one of the
stockholders of the Company.
F-49
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED
NOTE G - MANAGEMENT CONTRACT
During 1995, the Company managed an assisted living residence under contractual
agreement. Under the terms of the agreement, the Company was responsible for
supervising the operations of the residence, maintaining appropriate
accounting records and compliance with all pertinent requirements of
contractual agreements. Included in other revenues in the accompanying
financial statements is revenue of $17,500 related to this contract. The
contract expires in December 1999.
NOTE H - PROFESSIONAL LIABILITY INSURANCE
The Company is insured under occurrence-based policies for the purpose of
providing professional liability insurance. These policies cover only claims
occurred during the policy term. Coverage includes policies on professional
liability limited to $1,000,000 per occurrence at each residence and aggregate
coverage of $2,000,000 to $3,000,000 per residence. One residence located in
Florida is insured under a claims-made policy for the purpose of providing
professional liability insurance. This policy covers only claims reported to
the insurance carrier during the policy term. Coverage under this policy
includes professional liability limited to $1,000,000 per occurrence and
aggregate coverage of $1,000,000.
NOTE I - COMMITMENTS
The Company is currently constructing Rose Manor of Cary, Inc., a 72-bed
assisted living residence located in Cary, North Carolina. Construction is
scheduled to be completed in September 1996 at a cost of approximately
$5,000,000.
NOTE J - GOING CONCERN
At December 31, 1995, the Company had a stockholders' deficit of $832,686 and
current liabilities were greater than current assets in the amount of
$1,352,387. In addition, the Company has incurred net losses of $524,778 and
$245,891 for the years ended December 31, 1995 and 1994, respectively, caused,
in part, by the Company's rapid growth. Management is currently evaluating
different financing options including the restructuring of current debt
agreements and capital investment from outside parties through which it
believes the Company can continue its growth. Should management be unable to
execute such an arrangement or reduce its operating expenses in line with its
revenues it would raise substantial doubt about the Company's ability to
continue as a going concern.
F-50
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS-CONTINUED
NOTE K - SUBSEQUENT EVENTS (UNAUDITED)
Acquisitions
------------
Effective January 1, 1996, the following entities were acquired as wholly-owned
subsidiaries of American Care Communities, Inc.:
Berne Village, Inc. (formerly Berne Village, LLC)
Graybrier, Inc. (formerly Graybrier, LLC)
Rose Terrace of Wendell, Inc. (formerly Rose Terrace of Wendell, LLC)
Lake James, Inc. (formerly Lake James Acquisition, LLC)
Rose Tara Plantation, Inc.
RRSP, Inc.
Commitments
-----------
The Company has entered into a contractual commitment for the purchase of a 55-
bed residence located in South Carolina for $2,250,000.
Disposal of Residence
---------------------
On August 1, 1996, the Company sold the assets of Lake James, Inc. for
$1,575,000. Approximately $175,000 of the proceeds were used for working
capital and closing costs and the remaining $1,400,000 has been escrowed for
capital improvements at Berne Village, Inc., Graybrier, Inc. and Rose Tara
Plantation, Inc.
Stock Options
-------------
Effective March 6, 1996, the Company adopted an incentive stock option plan
under Section 422 of the Internal Revenue Code. The plan reserves 50 shares of
common stock for the benefit of key employees. At May 29, 1996, 39 shares had
been granted, none of which had been exercised. Options under this plan are
exercisable at no less than fair market value at the date of grant and vest
ratably over a three-year period. All unexercised options expire three years
from the date of grant.
401(k) Plan
-----------
Effective January 1, 1996, the Company adopted the American Care Communities
401(k) Plan (the "Plan") which requires contributions each year from the
Company equal to 50% of the first 6% of the participants annual contribution to
the Plan. Any additional Company contribution to the Plan is at the discretion
of the Company's Board of Directors. The company may terminate the Plan at any
time. Upon termination, participants would become fully vested in all Company
contributions and Plan earnings.
F-51
<PAGE>
American Care Communities, Inc. and Subsidiaries
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
NOTE K - SUBSEQUENT EVENTS (UNAUDITED) - CONTINUED
Proposed Merger
---------------
On September 16, 1996, the Company began merger discussions with Greenbriar
Corporation ("Greenbriar") and entered into an Agreement and Plan of Merger on
November 21, 1996. Pursuant to the Agreement, the Company will be merged with
and into a wholly-owned subsidiary of Greenbriar in exchange for 1,300,000
shares of Greenbriar's common stock at an agreed value of $16 per share. The
closing of the merger is subject to shareholder approval and is expected to
occur on December 30, 1996.
In connection with the proposed merger, in September 1996, the Company wrote-
off $400,809 of deferred financing costs associated with previously proposed
capital financings for the Company, of which $292,502 was included in other
deferred financing and acquisition costs at December 31, 1995.
F-52
<PAGE>
GREENBRIAR CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (1) acknowledges receipt of the Notice of Special
Meeting of Stockholders of Greenbriar Corporation (the "Company") to be held at
the offices of the Company in Addison, Texas, on December 30, 1996, beginning at
9:00 a.m., Dallas Time, and the Proxy Statement in connection therewith and (2)
appoints Oscar W. Smith, Jr. and Glen H. Campbell, and each of them, the
undersigned's proxies with full power of substitution for and in the name, place
and stead of the undersigned, to vote upon and act with respect to all of the
shares of Common Stock and Series B, C and D Preferred Stock of the Company
standing in the name of the undersigned, or with respect to which the
undersigned is entitled to vote and act, at the meeting and at any adjournment
thereof.
The undersigned directs that the undersigned's proxy be voted as follows:
<TABLE>
<S> <C> <C> <C>
1. APPROVE PROPOSAL TO [_] FOR [_] AGAINST [_] ABSTAIN
APPROVE THE ISSUANCE approval approval from voting
OF THE ACQUISITION SHARES
IN CONNECTION WITH THE
AMERICAN CARE ACQUISITION
</TABLE>
2. IN THE DISCRETION OF THE PROXIES, ON ANY OTHER MATTER WHICH MAY PROPERLY
COME BEFORE THE MEETING.
This proxy will be voted as specified above. IF NO SPECIFICATION IS MADE,
PROXY WILL BE VOTED FOR APPROVAL OF THE PROPOSAL.
The undersigned hereby revokes any proxy heretofore given to vote or act
with respect to the Common Stock or Series B, C and D Preferred Stock of the
Company and hereby ratifies and confirms all that the proxies, their
substitutes, or any of them may lawfully do by virtue hereof.
If more than one of the proxies named shall be present in person or by
substitute at the meeting or at any adjournment thereof, the majority of the
proxies so present and voting, either in person or by substitute, shall exercise
all of the powers hereby given.
Please date, sign and mail this proxy in the enclosed envelope. No postage
is required.
Date____________ ___, 1996
________________________________________
Signature of Stockholder
________________________________________
Signature of Stockholder
Please date this proxy and sign your name
exactly as it appears hereon. Where there is
more than one owner, each should sign. When
signing as an attorney, administrator,
executor, guardian or trustee, please add
your title as such. If executed by a
corporation, the proxy should be signed by a
duly authorized officer.
