<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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[ ] 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):
[X] $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:
[ ] 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>
PRELIMINARY COPY FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION NOVEMBER 27, 1996
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 16, 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 16, 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 3,830, 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 were
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)/ 872,062 67.1% Chairman, President and
Chief Executive Officer
Sharon J. Rhoades/(1)/ 119,461 9.2% Director, Executive Vice
President of Operations
and Secretary
Gary S. Smith 95,568 7.4% Director, Executive Vice
President of Administration
and Treasurer
Ian A.W. Howes 35,838 2.8% Vice President of Finance
and Chief Financial Officer
Glenn Kiger 5,973 0.5% Vice President
----------- --------
1,128,902 87.0%
</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.
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 (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 "Authorized 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 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 3,830 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 the Managements' Discussion and Analysis of
Financial Condition and Results of Operations 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 Flow 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 Flow 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 & amortization 655 171 826
------ ------ ------
Income (loss) from facility oeprations $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 $4,892,905 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 month 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 Cramer, Rosenthal 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 60,000 of the
Acquisition Shares.
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 1,126 140 (6)(7) 2,721
Other current liabilities 1,089 37 - 1,126
------- ------- ----- --------
Total current liabilities 7,348 8,460 (360) 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) 360 (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 1,300,000 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 $200,000,
related to the proposed merger with American Care. These expenses have not
been reflected in the pro forma combined statements of operations, but
will be reflected in future statements of operations of the Company.
7. To reflect the retirement of a note payable in the amount of $500,000 and
related accrued interest of $60,000 to a creditor in exchange for 60,000
shares of the Company's common stock. The transaction results in a premium
on retirement of debt of approximately $100,000, which has not been
reflected in the pro forma combined statements of operations, but will be
reflected in future statements of operations of the Company.
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>
PRELIMINARY COPY
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 James R. Gilley and Gene S. Bertcher, 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.
<PAGE>
Exhibit A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of November 21, 1996,
among American Care Communities, Inc., a North Carolina corporation (the
"Company"); Floyd B. Rhoades ("Rhoades") and Gary S. Smith ("Smith"), who
collectively are the owners of 81% of the issued and outstanding common stock of
the Company (the "Shareholders"); Greenbriar Corporation, a Nevada corporation
(the "Parent"); and American Care Communities, Inc., a Nevada corporation, and a
wholly-owned Subsidiary of Parent ("Purchaser"); and
WHEREAS, the respective Boards of Directors of Parent, the Purchaser and
the Company have duly approved the acquisition of the Company by means of a
Merger of the Company with and into the Purchaser pursuant to the terms of this
Agreement, it is therefore agreed as follows:
ARTICLE I.
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of Nevada corporation law
(Chapter 78, Nevada Revised Statutes) and the North Carolina Business
Corporation Act (the "Acts" or each an "Act"), the Company shall be merged with
and into the Purchaser (the "Merger") as soon as practicable following the
satisfaction or waiver, if permissible, of the conditions set forth in Article
VI hereof. Following the Merger the Purchaser shall continue as the surviving
corporation (the "Surviving Corporation") and continue its existence under the
laws of the State of Nevada, and the separate corporate existence of the Company
shall cease.
SECTION 1.2 Effective Time. The Merger shall be consummated by filing
with the North Carolina and Nevada Secretaries of State the Articles or
Certificates of Merger in the form attached hereto as Exhibit "A" (the "Articles
-----------
of Merger") (the time of such filing being the "Effective Time").
SECTION 1.3 Effects of the Merger. The Merger shall have the effects set
forth in Sections 450 through 470 of the Nevada Act and Section 55-11-06 of the
North Carolina Act. As of the Effective Time, the Company shall merge with and
into the Purchaser, and the Purchaser shall continue to be a direct wholly-owned
Subsidiary of Parent.
SECTION 1.4 Articles of Incorporation and By-Laws. The Articles of
Incorporation of the Purchaser, and the Bylaws of the Purchaser, both as in
effect at the Effective Time, shall be the Articles of Incorporation and By-Laws
of the Surviving Corporation.
1
<PAGE>
SECTION 1.5 Directors. As of the Effective Time, Floyd B. Rhoades shall
become an additional director of the Parent, and the directors of the Purchaser
will remain the directors of the Surviving Corporation.
SECTION 1.6 Officers. Upon execution of this Agreement and satisfaction
of all conditions to the Closing of the Merger other than the approval of the
Stockholder of the Parent, Floyd B. Rhoades shall become the President and Chief
Executive Officer and a member of the Executive Committee of the Parent. The
officers of the Purchaser will remain as the officers of the Surviving
Corporation as of the Effective Time.
SECTION 1.7 Conversion of Shares.
(a) All 1,000 shares of common stock, no par value ("Shares"), of the
Company issued and outstanding immediately prior to the Effective Time, all 39
Shares of the Company reserved for issuance or issued under outstanding employee
stock options, and, as of the Effective Time, all principal and accrued interest
outstanding and owed to CRM Assisted Living Company, LLC shall, by virtue of the
Merger and without any action on the part of any holder thereof, be converted
into the right to receive a total of 1,300,000 newly issued, fully paid, and
non-assessable shares of the common stock, par value $0.01 per share, of the
Parent. The relative number of shares of the Parent's Common Stock issuable to
each of the three groups stated above shall be set forth in the Disclosure
Schedule; however, in no event will any fractional shares of the Parent's Common
Stock be issued. Cash will be paid in lieu of fractional shares at the rate of
$16.00 per share of Parent's Common Stock. The shares of the Parent's Common
Stock issuable pursuant to this Section together with cash in lieu of fractional
shares are referred to herein as the "Merger Consideration." All shares
representing the Merger Consideration shall be unregistered shares of the Parent
and shall bear the Parent's customary legend restricting further transfer of the
shares unless in compliance with all federal and state securities laws and any
applicable contractual restrictions.
(b) The Parent Common Stock comprising the Merger Consideration will
be issued at the Closing (as hereinafter defined). A total of 45,500 shares
issued pursuant to this Section 1.7 shall be held by the Parent as security for
the obligation described in Section 9.2.
(c) Each shareholder of the Company shall receive at Closing a
Registration Rights Agreement in the form attached hereto as Exhibit B.
SECTION 1.8 Company Options. The Company's stock options outstanding at
the Effective Time, if any, shall be converted into comparable options to
purchase the Parent Common Stock. Any Incentive Stock Option (as defined in
Section 422 of the Internal Revenue Code of 1986, as amended) of the Company
shall be exchanged for Parent Incentive Stock Options. The number of shares
issuable upon exercise are included in the Merger Consideration described in
Section 1.7.
2
<PAGE>
SECTION 1.9 Closing. Upon the terms and subject to the conditions hereof,
as soon as practicable after the mutual agreement of the Company, the Parent and
the Purchaser that all conditions described in Article VI have been satisfied or
waived by the applicable party, the Company and Purchaser shall execute in the
manner required by the Acts and deliver to the Nevada and North Carolina
Secretaries of State duly executed and verified Articles of Merger, and the
parties shall take such other and further actions as may be required by law to
make the Merger effective. Contemporaneous with the filings referred to in this
Section, a closing (the "Closing") will be held at such place as the parties may
agree for the purpose of implementing all transactions described in this
Agreement.
ARTICLE II.
DISSENTING SHARES; EXCHANGE OF SHARES
SECTION 2.1 Dissenting Shares. By virtue of Nevada Revised Statutes Sec.
78.482, the shareholders of Parent are not entitled to exercise any dissenter's
rights in connection with the Merger. It is a condition to Parent's obligation
to complete the Merger that no shareholder of the Company, including the
Shareholders, shall exercise any dissenter's rights.
SECTION 2.2 Exchange of Shares. (a) At the Closing, the Parent shall pay
the cash in lieu of fractional shares and cause its transfer agent (the "Agent")
to issue to the shareholders of the Company in exchange for their Shares a
certificate or certificates representing the Merger Consideration, and such
surrendered certificates representing the Shares shall then be canceled. If
payment of the Merger Consideration is to be made to a person other than the
person in whose name the certificate surrendered is registered, it shall be a
condition of issuance that the certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
such issuance shall pay transfer or other taxes required by reason of the
payment to a person other than the registered holder of the certificate or
certificates surrendered or established to the satisfaction of the Parent that
such tax has been paid or is not applicable. Until surrendered in accordance
with the provisions of this Section 2.2, and, at the Effective Time, each
certificate representing the Shares shall represent for all purposes the right
to receive the Merger Consideration.
(b) At and after the Effective Time there shall be no transfers of
Shares which were outstanding immediately prior to the Effective Time on the
stock transfer books of the Company. If, after the Effective Time, certificates
are presented to the Company, they shall be canceled and exchanged for the
Merger Consideration provided in this Article II. At the close of business on
the day prior to the Effective Time the stock ledger of the Company shall be
closed.
3
<PAGE>
(c) From and after the Effective Time, holders of certificates
formerly evidencing Shares shall cease to have any rights as shareholders of the
Company, except as provided herein or by law.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SHAREHOLDERS
The Company and the Shareholders jointly and severally represent and
warrant to the Parent and Purchaser as follows:
SECTION 3.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of North Carolina. All Subsidiaries (as defined herein) of the Company
are legal entities that are duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation or
formation. Each of the Company and its Subsidiaries has all requisite power and
authority to own or operate its properties and conduct its business as it is now
being conducted. The Company and each of its Subsidiaries is duly qualified and
in good standing as a foreign corporation or entity authorized to do business in
each of the jurisdictions in which the character of the properties owned or held
under lease by it or the nature of the business transacted by it makes such
qualification necessary, except where the failure to qualify would not have a
Material Adverse Effect. The Company has delivered to Purchaser true and
correct copies of the Articles of Incorporation and Bylaws of the Company and
each Subsidiary.
SECTION 3.2 Capitalization; Subsidiaries. (a) The authorized capital
stock of the Company consists of 100,000 Shares. As of October 1, 1996, 1,000
Shares were issued and outstanding. Except as described in the Disclosure
Schedule, since October 1, 1996, the Company has not issued any shares or other
capital stock, and has not repurchased or redeemed any Shares. Neither the
Company nor any Subsidiary has any shares of its capital stock reserved for
issuance, except for the 39 Shares issuable pursuant to warrants and outstanding
employee stock options that are described on the Disclosure Schedule ("Employee
Options"). All issued and outstanding Shares are validly issued, fully paid,
non-assessable and free of preemptive rights.
(b) The Disclosure Schedule sets forth the name, the number of shares
of authorized capital stock and the number of issued and outstanding shares of
capital stock or other indicia of ownership of each direct or indirect
subsidiary of the Company (a "Subsidiary or together the "Subsidiaries"). Except
as set forth in the Disclosure Schedule, all of the outstanding shares of
capital stock or other indicia of ownership of each Subsidiary are owned by the
Company, beneficially and of record. Except as set forth in the Disclosure
Schedule, all of such shares of capital stock or other indicia of ownership of
the Subsidiaries are owned free and clear of all liens,
4
<PAGE>
charges, encumbrances, rights of others, mortgages, pledges or security
interests, and are not subject to any agreements or understandings among any
persons with respect to the voting or transfer of such shares or other indicia
of ownership. Except as described in the Disclosure Schedule, there are no
outstanding subscriptions, options, convertible securities, warrants or claims
of any kind issued or granted by or binding on the Company or any Subsidiary to
purchase or otherwise acquire any security of or equity interest in the Company
or any of such Subsidiaries. All of the outstanding shares of capital stock of
each such Subsidiary which is a corporation have been duly authorized and
validly issued and are fully paid and non-assessable, and none has been issued
in violation of the pre-emptive rights of any shareholder.
SECTION 3.3 Authority Relative to this Agreement. The Company has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby shall, as of the Closing, have been duly and validly authorized by the
Board of Directors and shareholders of the Company, and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions so contemplated. This Agreement has been duly
and validly executed and delivered by the Company and, assuming this Agreement
constitutes a valid and binding obligation of each of Parent and Purchaser, this
Agreement constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with and subject to its terms and conditions.
SECTION 3.4 Financial Statements. The Company has delivered to Purchaser
copies of its consolidated financial statements as of and for the years ended
December 31, 1993, 1994 and 1995, certified by Coopers & Lybrand, L.L.P., and
for the six months ended June 30, 1995 and 1996 (the "Company Financial
Statements." Each of the Company Financial Statements fairly presents the
financial position of the entity or entities to which it relates as of its date,
and each of the related consolidated statements of operations and retained
earnings and cash flows or equivalent statements in the Company Financial
Statements (including any related notes and schedules) fairly presents the
results of operations, retained earnings and cash flows, as the case may be, of
the entity or entities to which it relates for the period set forth therein
(subject in the case of unaudited interim statements, to normal year-end audit
adjustments) in each case in accordance with generally accepted accounting
principles applicable to the particular entity consistently applied throughout
the periods involved, except as may be noted therein. The accounts receivable,
notes receivable and any other contingent asset reflected on the latest balance
sheet of the Company arose from bona fide transactions in the ordinary course of
business, and, to the best of the Company's knowledge, are not subject to any
offset or counterclaim.
SECTION 3.5 Consents and Approvals; No Violation. Except as described in
the Disclosure Schedule, neither the execution and delivery of this Agreement by
the Company nor the
5
<PAGE>
consummation of the transactions contemplated hereby nor compliance by the
Company with any of the provisions hereof will (a) conflict with or result in
any breach of any provision of the Articles of Incorporation, By-laws or other
organization documents of the Company or any Subsidiary, (b) require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Authority (as defined herein), except (i) pursuant to the
Securities Act and the Exchange Act, (ii) the filing of the Articles of Merger
pursuant to the Acts, (iii) such filings and approvals as may be required under
the "blue sky", takeover or securities laws of various states, or (iv) where the
failure to obtain such consent, approval, authorization or permit, or to make
such filing or notification, would not in the aggregate have a Material Adverse
Effect (as defined herein), (c) result in a material default (with or without
due notice or lapse of time or both) (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, Contract (as hereinafter defined),
license, agreement or other instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company, any of its Subsidiaries
or any of their respective assets may be bound, except for such defaults (or
rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been requested, (d) result in the creation or
imposition of any lien, charge or other encumbrance on the assets of the Company
or any of its Subsidiaries, or (e) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company, any of its Subsidiaries
or any of their respective assets.
SECTION 3.6 Litigation, etc. Except as described in the Disclosure
Schedule, (a) there is no action, claim, or proceeding pending or, to the
knowledge of the Company, threatened, to which the Company or any of its
Subsidiaries is or would be a party before any court or Governmental Authority
acting in an adjudicative capacity, or any arbitrator or arbitration tribunal;
(b) neither the Company nor any of its Subsidiaries is subject to any
outstanding order, writ, injunction or decree; and (c) since December 31, 1995,
there have been no claims made or actions or proceedings brought against any
officer or director of the Company arising out of or pertaining to any action or
omission within the scope of his employment or position with the Company. All
litigation and other administrative, judicial or quasi-judicial proceedings to
which the Company is a party or to which it has been threatened to the Company's
knowledge to be made a party, are described in the Disclosure Schedule.
SECTION 3.7 Changes. Except as expressly contemplated by this Agreement
or as reflected in the Disclosure Schedule or in the Company Financial
Statements, since December 31, 1995, the Company and the Subsidiaries have
conducted their business only in the ordinary and usual course, and, except as
set forth in the Disclosure Schedule or in the Company Financial Statements,
none of the following has occurred, except as shall have occurred in the
ordinary course of its business:
6
<PAGE>
(a) any material adverse change in the condition (financial or
other), results of operations, business, assets, customer, supplier and employee
relations of the Company and its Subsidiaries, taken as a whole;
(b) any change in accounting methods, principles or practices by the
Company materially affecting its assets, liabilities or business, except insofar
as may have been required by a change in generally accepted accounting
principles;
(c) any damage, destruction or loss, whether or not covered by
insurance, resulting in a Material Adverse Change of the Company and its
Subsidiaries;
(d) any declaration, setting aside or payment of dividends or
distributions in respect of the Shares, or any redemption, purchase or other
acquisition of any of the securities of the Company or its Subsidiaries;
(e) any issuance by the Company of, or commitment of the Company to
issue, any Shares or other capital stock or securities convertible into or
exchangeable or exercisable for Shares or other capital stock;
(f) any entry by the Company or any of its Subsidiaries into any
commitment or transaction material to the condition (financial or other),
business or operations of the Company and its Subsidiaries, taken as a whole,
which is not in the ordinary course of business and consistent with past
practice;
(g) any revaluation by the Company or any of its Subsidiaries of any
of their respective assets, including without limitation, writing down the value
of assets or writing off notes or accounts receivable other than in the ordinary
course of business and consistent with past practice;
(h) any agreement by the Company to do any of the things described in
the preceding clauses (a) through (g) other than as expressly contemplated or
provided for herein; or
(i) any waiver by the Company or any of its Subsidiaries of any
rights that, singularly or in the aggregate, are material to the business,
assets, financial condition, or results of operation of the Company and its
Subsidiaries, taken as a whole.
7
<PAGE>
SECTION 3.8 Definitions, Representations, and Warranties Concerning
Environmental Matters.
(a) Definitions:
(i) "Environmental Claim" shall mean any and all
administrative, regulatory or judicial actions, suits, demands, demand
letters, directives, claims, liens, investigations, proceedings or notices
of noncompliance or violation (written or oral) by any person alleging
potential liability (including, without limitation, potential liability for
enforcement, investigatory costs, cleanup costs, governmental response
costs, removal costs, remedial costs, natural resources damages, property
damages, personal injuries or penalties) arising out of, based on or
resulting from: (A) the presence or release into the environment of any
Environmental Hazardous Materials at any location, whether or not owned by
the Company or a Subsidiary; or (B) circumstances forming the basis of any
violation or alleged violation of any Environmental Law; or (C) any and all
claims by any person seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence or
Environmental Release of any Environmental Hazardous Materials.
(ii) "Environmental Laws" shall mean all federal, state, local
statute, law, rule, ordinance, code, policy, rule of common law and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without
limitation, laws and regulations relating to Environmental Releases or
threatened Environmental Releases of Environmental Hazardous Materials, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Environmental
Hazardous Materials.
(iii) "Environmental Hazardous Materials" shall mean: (A) any
petroleum or petroleum products, radioactive materials, asbestos in any
form that is or could become friable, urea formaldehyde foam insulation,
transformers or other equipment that contain dissolved fluid containing
polychlorinated biphenyls (PCBs), and radon gas; and (B) any chemicals,
materials or substances which are now defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants," or words of similar import, under
any Environmental Law; and (C) any other chemical, material, substance or
waste, exposure to which is prohibited, limited or regulated by any
Governmental Authority.
8
<PAGE>
(iv) "Environmental Release" shall mean any release, spill,
emission, leaking, injection, deposit, disposal, discharge, dispersed,
leaching or migration into the atmosphere, soil, surface water, groundwater
or property.
(b) Except as set forth in the Disclosure Schedule, the Company and
all of its Subsidiaries: (i) are currently and at all times in the past has been
in compliance in all material respects with all applicable Environmental Laws;
and (ii) have not received any communication (written or oral) from a
governmental authority that alleges that the Company or a Subsidiary is or was
not in compliance with applicable Environmental Laws.
(c) Except as set forth in the Disclosure Schedule, the Company and
the Subsidiaries have to their knowledge obtained all environmental health and
safety permits, registrations, approvals, licenses and governmental
authorizations (collectively, the "Environmental Permits") necessary for its
operations, and to their knowledge all such permits are in good standing and to
their knowledge the Company and the Subsidiaries are in material compliance with
all terms and conditions of the Environmental Permits. A list of all
Environmental Permits is included in the Disclosure Schedule.
(d) Except as set forth in the Disclosure Schedule, there is no
Environmental Claim pending or, to the knowledge of the Company or any
Subsidiary, threatened against the Company or any Subsidiary; or pending against
any person whose liability for any Environmental Claim the Company or a
Subsidiary has or may have retained or assumed either contractually or by
operation of law; or against any real or personal property or operations which
the Company or a Subsidiary owns, leases, operates, uses or manages.
(e) Except as set forth in the Disclosure Schedule, to the knowledge
of the Company and the Subsidiaries there have been no Environmental Releases of
any Environmental Hazardous Material on real property owned, used, leased,
managed or operated by the Company or any Subsidiary that require reporting or
other response under Environmental Laws.
(f) Except as set forth in the Disclosure Schedule, to the knowledge
of the Company, Environmental Hazardous Materials have not at any time been
generated, used, treated, recycled or stored on, or transported to or from, or
disposed of on the Property.
(g) Except as set forth in the Disclosure Schedule, to the knowledge
of the Company: there are not now and never have been any underground storage
tanks or pipelines located at, on or under the Property; there is no asbestos
contained in, forming part of, or contaminating any part of the Property; no
polychlorinated biphenyls (PCBs) are used, stored,
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located at or contaminate any part of the Property; and, no wetland areas as
defined by federal, state or local law are located on the Property.
(h) Except as set forth in the Disclosure Schedule, to the knowledge
of the Company, no real property at any time owned, operated, leased, used or
controlled by the Company or a Subsidiary is currently listed on the National
Priorities List or the Comprehensive Environmental Response, Compensation and
Liability Information System, both promulgated under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), or, to the knowledge of the Company, on any comparable state or
local list and neither the Company or any Subsidiary has received any written
notice from any person under or relating to a violation of CERCLA or any
comparable state or local law.
(i) To the knowledge of the Company, no off-site location at which
the Company or any Subsidiary has disposed or arranged for the disposal of any
waste is listed on the National Priorities List or on any comparable state or
local list and neither the Company nor any Subsidiary has received any written
notice from any person with respect to any off-site location, of potential or
actual liability or a written request for information from any government or
person under or relating to CERCLA or any comparable state or local law.
(j) The Disclosure Schedule includes a list of all environmental
studies, audits, or investigations that have been conducted by the Company
regarding the Property. All books, records, environmental studies or audits
listed in the Disclosure Schedule to the knowledge of the Company are accurate
and true. The Company has given Parent access to all records and files in its
possession at both its corporate headquarters and its facilities currently
owned, operated, leased, managed, used or controlled by the Company and the
Subsidiaries, including, without limitation, all reports, studies, analyses,
tests or monitoring results pertaining to the existence of Environmental
Hazardous Materials or any other environmental concerns relating to facilities
or properties owned, operated, leased, managed, used or controlled by the
Company or a Subsidiary or concerning compliance with or liability under any
Environmental Laws and the Occupational Safety and Health Act or the equivalent
such Act under state law.
(k) Except as set forth in the Disclosure Schedule, to the knowledge
of the Company the Property is not subject to any United States or state
environmental liens.
(l) Except as set forth in the Disclosure Schedule and except for
construction contracts, financing transactions, purchase agreements and related
documents entered into in the ordinary course of business, the Company and the
Subsidiaries are not a party, whether as a direct signatory or as successor,
assign or third-party beneficiary, or otherwise bound, to any contract
(excluding insurance policies disclosed on the Disclosure Schedule) under which
the Company or any Subsidiary is obligated by, or entitled to the benefits of,
directly or indirectly, any representation,
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warranty, indemnification, covenant, restriction or other undertaking concerning
Environmental Laws or the environmental conditions of the Property.
(m) Except as set forth in the Disclosure Schedule and except for
construction contracts, financing transactions, purchase agreements and related
documents entered into in the ordinary course of business, neither the Company
nor any Subsidiary has released any other person from any claim under any
Environmental Law or waived any rights concerning the environmental condition
of the Property, which release or waiver would have a Material Adverse Effect on
the Company.
(n) The Disclosure Schedule contains a list of all current and past
insurance policies covering the Property or operation of the Company and the
Subsidiaries.
(o) The properties of the Company are, to the best of its knowledge,
in good repair and working order, reasonable wear and tear excepted, and are not
in immediate need of any major repair or material capital expenditure except as
noted on the Disclosure Schedule.
SECTION 3.9 ERISA Matters. The Company, each of its Subsidiaries and all
"Employee Benefit Plans" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), that cover any of its or
their employees (which Employee Benefit Plans are listed on the Disclosure
Schedule), comply in all material respects with all applicable laws,
requirements and orders under ERISA and the Internal Revenue Code of 1986, as
amended (the "Code"), the breach or violation of which would have a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole; the
present value of all the assets of each of its Employee Benefit Plans that it is
subject to Title IV of ERISA equals or exceeds to the knowledge of the Company
the present value of all of the benefits accrued under each such Employee
Benefit Plan as of the end of most recent plan year with respect to such plan
ending prior to the date hereof, calculated on the basis of the actuarial
assumptions used in the last actuarial evaluation for each such plan; none of
the employees of the Company or any of its Subsidiaries is covered by a
collective bargaining agreement; neither the Company nor any of its Subsidiaries
has ever contributed to a "multiemployer plan" as defined in Section 3(37) of
ERISA; neither the Employee Benefit Plans nor any fiduciary or administrator
thereof has engaged in a "prohibited transaction" as defined in Section 406 of
ERISA or, where applicable, Section 4975 of the Code for which no exemption is
applicable, that may have any Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole, nor to the knowledge of the Company have there
been any "reportable events" as defined in Section 4043 of ERISA for which the
thirty-day notice has not been waived.
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SECTION 3.10 Taxes, Tax Returns.
(a) The Company has or within two business days from the date hereof
will deliver to Parent copies of the federal income tax returns of the Company
for each of the last three fiscal years and all schedules and exhibits thereto.
Except as set forth on the Disclosure Schedule, each of the Company and its
Subsidiaries for which it files returns has duly and timely filed in correct
form all federal, state and local information returns and tax returns required
to be filed by it and such Subsidiaries on or prior to the date hereof (all such
returns to the knowledge of the Company being accurate and complete in all
material respects) and, to the knowledge of the Company, has duly paid or made
provision for the payment of all taxes and other governmental charges which have
been incurred or are due or claimed to be due from them by any Governmental
Authority (including, without limitation, those due in respect of their
properties, income, business, capital stock, franchises, licenses, sales and
payrolls) other than taxes or other charges (i) which are not yet delinquent or
are being contested in good faith and set forth in the Disclosure Schedule, (ii)
have not been finally determined or (iii) that would not have a Material Adverse
Effect on the Company. The liabilities and reserves for taxes in the Company
Financial Statements are sufficient to the best of the Company's knowledge in
the aggregate for the payment of all unpaid federal, state and local taxes
(including any interest or penalties thereon), whether or not disputed or
accrued, for the period ended September 30, 1996 or for any year or period prior
thereto, and for which the Company or any of its Subsidiaries may be liable in
its own right or as transferee of the assets of, or successor to, any
corporation, person, association, partnership, joint venture or other entity.
(b) To the knowledge of the Company, (i) proper and accurate amounts
have been withheld by the Company and its Subsidiaries from their employees and
others for all prior periods in compliance in all material respects with the tax
withholding provisions of applicable federal, state and local laws and
regulations, and proper due diligence steps have been taken in connection with
back-up withholding, (ii) federal, state and local returns which are accurate
and complete in all material respects have been filed by the Company and each of
its Subsidiaries for all periods for which returns were due with respect to
income tax withholding, Social Security and unemployment taxes and (iii) the
amounts shown on such returns to be due and payable have been paid in full, or
adequate provision therefore has been included by the Company in the most recent
Company Financial Statements.
SECTION 3.11 Tax Audits. Except as disclosed in the Disclosure Schedule,
(i) no audit of any material federal, state or local U.S. return of the Company
or any Subsidiary is currently in progress, nor has the Company or any
Subsidiary been notified that such an audit is contemplated by any taxing
authority, (ii) neither the Company nor any Subsidiary has extended any statute
of limitations with respect to the period for assessment of any federal, state
or local U.S. tax, (iii) neither the Company nor any Subsidiary contemplates the
filing of an amendment to any return, which amendment would have a Material
Adverse Effect on the Company, and (iv) neither the
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Company nor any Subsidiary has any actual or potential material liability for
any tax obligation of any taxpayer other than the Company or its Subsidiaries.
Except as disclosed in the Disclosure Schedule, there are no material tax claims
pending against the Company or any Subsidiary and there are no material tax
claims to the knowledge of the Company threatened to be asserted against the
Company or any Subsidiary. For purposes of this Section 3.11, "tax" and "taxes"
shall include all income, gross receipt, franchise, excise, real and personal
property, sales, ad valorem, employment, withholding and other taxes imposed by
any foreign, federal, state, municipal, local, or other Governmental Authority
including assessments in the nature of taxes.
SECTION 3.12 Undisclosed Liabilities. The Company is not liable for or
subject to any material Liabilities (as hereinafter defined), except (a)
Liabilities adequately disclosed or reserved for in the most recent Company
Financial Statements and not heretofore paid or discharged, (b) Liabilities
under any contract, commitment or agreement specifically disclosed on the
Disclosure Schedule, or (c) Liabilities incurred, consistent with past practice,
in or as a result of the ordinary course of business of the Company since the
date of the most recent Company Financial Statements. As used in this
Agreement, the term "Liability" or "Liabilities" includes any material direct or
indirect liability, indebtedness, obligation, guarantee or endorsement (other
than endorsements of notes, bills, and checks presented to banks for collection
or deposit in the ordinary course of business), whether known or unknown,
accrued, absolute, contingent or otherwise.
SECTION 3.13 No Default; Compliance.
(a) Except as set forth in the Disclosure Schedule, to the knowledge
of the Company, neither the Company nor any of its Subsidiaries is in material
default under, and no condition exists that with notice or lapse of time or both
would constitute a material default under, (i) any mortgage, loan agreement,
indenture, evidence of indebtedness or other instrument evidencing borrowed
money to which either the Company or any of its Subsidiaries is a party or by
which either the Company or any of its Subsidiaries or its properties is bound,
(ii) any judgment, order or injunction of any court, arbitrator or governmental
agency or (iii) any other agreement, contract, lease, license or other
instrument, which default or potential default might reasonably be expected to
have a Material Adverse Effect.
(b) Except as set forth in the Disclosure Schedule, the Company and
each of its Subsidiaries have complied in all material respects with all laws,
regulations, orders, judgments or decrees of any federal or state court or
Governmental Authority applicable to their respective businesses and operations,
non-compliance with which might reasonably be expected to have a Material
Adverse Effect.
SECTION 3.14 Representations and Warranties Continuing. The
representations and warranties set forth herein shall be true and correct on the
date hereof and subject to an update of the
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Disclosure Schedule from time to time, at all times prior to the Effective Time
as if made from time to time, including, without limitation, at the Effective
Time and the Closing.
SECTION 3.15 Contracts and Commitments. Except as listed and described in
the Disclosure Schedule or the Company Financial Statements, neither the Company
nor any of its Subsidiaries is a party to, nor are they or their assets bound by
any written or oral covenant, contract, agreement or understanding (a
"Contract"), including the following:
(a) Contract with any present or former stockholder, director,
officer, employee or consultants;
(b) Contract with any labor union or other representative of
employees;
(c) Contract for the future purchase of, or payment for, supplies or
products, or for the performance of services by a third party, involving
payment or potential payment by the Company of $10,000 or more under any
one Contract or series of related Contracts;
(d) any Contract, including, without limitation, any outstanding
quotations, bids or proposals, to sell goods or to perform services in an
aggregate amount in excess of $10,000;
(e) distributorship, representative or sales agency agreement,
contract or commitment;
(f) conditional sale agreement or lease under which the Company is
either the seller or purchaser, lessor or lessee, involving annualized
payments or potential payments by or to the Company that is in excess of
$10,000;
(g) Contract (including, without limitation, any note, debenture,
bond, conditional sale or equipment trust agreement, letter of credit
agreement or loan agreement) for the borrowing or lending of money more
than $10,000 (including, without limitation, those to or from officers,
directors or shareholders of the Company, or any affiliates or members of
their immediate families, for a line of credit, or for a guarantee,
security, indemnitee, pledge or undertaking of the indebtedness or
obligations of any other person);
(h) Contract for any charitable or political contribution;
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(i) Contract for any capital expenditure involving future payments,
which, together with future payments under all other existing Contracts for
the same capital project, are in excess of $10,000;
(j) Contract limiting or restraining the Company from engaging or
competing in any lines of business with any person, nor is any officer or
employee of the Company subject to any such agreement, contract or
commitment;
(k) license, franchise, distributorship or other Contract relating in
whole or in part to any ideas, technical assistance or other know-how of or
used by the Company;
(l) Contract greater than $10,000 which is expected to continue for
more than six months from the date hereof;
(m) Contract not made in the ordinary course of business;
(n) any guaranty, direct or indirect, of any person of any contract,
lease or agreement in an amount greater than $10,000 entered into by the
Company or any of its Subsidiaries;
Except as may be disclosed on the Disclosure Schedule: each of the
Contracts listed on the Disclosure Schedule is valid and enforceable in
accordance with its terms; to the best of the Company's knowledge, the
Company and the other parties thereto are in substantial compliance with
the provisions thereof; except as may be disclosed on the Disclosure
Schedule, neither the Company nor any other party is (or by reason of the
consummation of the transactions contemplated by this Agreement, will be)
in default in the performance, observance or fulfillment of any obligation,
covenant or condition contained therein and no event has occurred or is
anticipated to occur (including the consummation of the transactions
contemplated by this Agreement) which with or without the giving of notice
or lapse of time, or both, would constitute a default or give the right of
termination thereunder.
SECTION 3.16 Compliance with Law and Permits. To its knowledge, the
Company has owned and operated its properties and assets in substantial
compliance with the provisions and requirements of all laws, orders,
regulations, rules and ordinances issued or promulgated by all Governmental
Authorities having jurisdiction with respect thereto, except where the failure
to own and operate such properties and assets in compliance with such provisions
and requirements would not reasonably be expected to have a Material Adverse
Effect. All material governmental certificates, consents, permits, licenses or
other authorizations with regard to the ownership or operation by the Company or
its Subsidiaries of their respective properties and assets have been
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obtained, and to the knowledge of the Company no violation exists in respect of
such licenses, permits or authorizations, except where the failure to obtain and
hold such permits, or any violation thereof by the Company or its Subsidiaries,
would not reasonably be expected to have a Material Adverse Effect. To the
knowledge of the Company, none of the documents and materials filed with or
furnished to any Governmental Authority with respect to the properties, assets
or businesses of the Company or its Subsidiaries contains any untrue statement
of a material fact or fails to state a material fact necessary to make the
statements therein not misleading.
SECTION 3.17 Title to Property. Except as disclosed on the Disclosure
Schedule, the Company and each of its Subsidiaries has good and marketable
title, insured with respect to properties and assets which currently are of a
type for which insurance is generally available, free and clear (except as
indicated in the Disclosure Statement or in the most recent Company Financial
Statements and liens for current taxes not yet due and payable), of all security
interests, liens, encumbrances and encroachments of a material nature, to its
real property and other property and assets that are material to the Company's
business on a consolidated basis.
SECTION 3.18 Insurance and Bank Accounts. (a) The Disclosure Schedule
sets forth a complete and accurate list and description of all insurance
policies in force naming the Company, any of its Subsidiaries or any employees
of any of them as an insured or beneficiary or as a loss payable payee or for
which the Company or any of its Subsidiaries has paid or is obligated to pay all
or part of the premiums. Neither the Company nor its Subsidiaries have received
notice of any pending or threatened termination or retroactive premium increase
with respect thereto, and the Company and its Subsidiaries are in compliance in
all material respects with all conditions contained therein. There are no
pending material claims against such insurance by the Company or any of its
Subsidiaries as to which insurers have denied liability, no defenses provided by
insurers under reservations of rights, and no material claim under such
insurance that has not been properly filed by the Company or its Subsidiaries.
(b) The Disclosure Schedule contains a list of all bank and
investment accounts maintained by the Company, including the account numbers,
recent balance, institution, and persons having signing authority.
SECTION 3.19 Employees. The Disclosure Statement sets forth a list of the
employees of the Company and the Subsidiaries, stating with respect to each the
name, date of hire and rate of compensation. Except as described in the
Disclosure Statement, there are no claims or disputes pending with any employee
regarding workers' compensation, unemployment benefits, discrimination
(including discrimination based on any disability), or compensation, and no
employment or collective bargaining agreements are in effect covering any such
person.
SECTION 3.20 Investment Representations.
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(a) The Shareholders are acquiring the Merger Consideration for their
own accounts, not as nominee or agent, for investment and not with a view to, or
for resale in connection with, any distribution in violation of the Securities
Act of 1933 (the "Securities Act"), or any state securities laws, and they have
no present intention of, or agreement relating to, selling, granting
participation in or otherwise distributing such Merger Consideration in
violation of such laws.
(b) The Shareholders understand that (i) the Parent's Common Stock
comprising the Merger Consideration has not been registered under the Securities
Act or any state securities laws by reason of specific exemptions therefrom,
that the Merger Consideration may be sold, transferred or otherwise disposed of
only if such disposition is registered under the Securities Act and applicable
state securities laws or is exempt from such registration, and that they must
therefore bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities Act and
applicable state securities laws or is exempt from such registration; and (ii)
each certificate representing the Merger Consideration will be endorsed with a
legend substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED UNLESS AND UNTIL EITHER SUCH SHARES ARE
REGISTERED UNDER THE APPLICABLE FEDERAL AND STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) Each Shareholder is a knowledgeable and experienced investor and
has had an opportunity to ask questions and review information about the
business and financial condition of the Parent. Each Shareholder acknowledges
receipt of an Annual Report of the Parent, all Quarterly Reports since the date
of the Annual Report, the latest draft of the Parent's Form S-1 Registration
Statement, and such other information as has been requested.
(d) Each Shareholder acknowledges that he will be required to execute
an agreement in connection with the Parent's pending public offering to the
effect that he or she will not sell any shares of the Parent's Common Stock for
a period of 180 days after the effective date of the public offering.
(e) Each shareholder who is an "affiliate" of the Company
acknowledges that he or she will also be required to execute an agreement with
Parent in the form of Exhibit C further restricting sales of Parent Common Stock
in violation of accounting rules applicable to "Pooling of Interests"
transactions.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF PARENT AND PURCHASER
Parent and Purchaser jointly and severally represent and warrant to the
Company and the Shareholders as follows:
SECTION 4.1 Organization and Qualification. Each of Parent and Purchaser
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada. All Subsidiaries of the Parent are legal entities
that are duly organized, validly existing and in good standing under the laws of
their respective jurisdictions of incorporation. Each of the Parent and its
Subsidiaries has all requisite power and authority to own or operate its
properties and conduct its business as it is now being conducted. The Parent and
each of its Subsidiaries is duly qualified and in good standing as a foreign
corporation or entity authorized to do business in each of the jurisdictions in
which the character of the properties owned or held under lease by it or the
nature of the business transacted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not have
a Material Adverse Effect on the Parent.
SECTION 4.2 Capitalization; Subsidiaries. (a) The authorized capital
stock of the Parent consists of 100,000,000 shares of Parent's Common Stock, and
10,000,000 shares of preferred stock, par value $0.10 per share. As of October
1, 1996, 5,172,242 shares of Parent's Common Stock, and 1,727 shares of Series B
Preferred Stock, 10,000 shares of Series C Preferred Stock and 675,000 shares of
Series D Preferred Stock (together the "Preferred Shares") were issued and
outstanding. The Preferred Shares are convertible into 452,091 shares of Parent
Common Stock. Except as described in the Disclosure Schedule, since October 1,
1996, the Parent has not issued any shares of capital stock, and has not
repurchased or redeemed any shares of its capital stock. Neither the Parent nor
any Subsidiary has any shares of its capital stock reserved for issuance, except
for 385,500 shares of Common Stock issuable pursuant to stock options, none of
which is outstanding, and 452,090 shares reserved for issuance upon conversion
of the Preferred Shares. No other options, warrants or other securities
convertible into Common Stock are outstanding. All issued and outstanding shares
of capital stock of Parent are validly issued, fully paid, non-assessable and
free of preemptive rights.
(b) Except as set forth in the Disclosure Schedule, all of the
outstanding shares of capital stock of each of the Parent's Subsidiaries are
owned, directly or indirectly, by the Parent, beneficially and of record. All of
such shares of capital stock of the Subsidiaries are owned free and clear of all
liens, charges, encumbrances, rights of others, mortgages, pledges or security
interests, and are not subject to any agreements or understandings among any
persons with respect to the voting or transfer of such shares. Except as
described in the Disclosure Schedule or the Parent SEC
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Reports (defined below), there are no outstanding subscriptions, options,
convertible securities, warrants or claims of any kind issued or granted by or
binding on the Parent and Purchaser to purchase or otherwise acquire any
security of or equity interest in any of such Subsidiaries. All of the
outstanding shares of capital stock of each such Subsidiary have been duly
authorized and validly issued and are fully paid and non-assessable, and none
has been issued in violation of the pre-emptive rights of any stockholder.
SECTION 4.3 Authority Relative to this Agreement. The Parent and
Purchaser have all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
sole shareholder of the Purchaser and the Boards of Directors of the Parent and
Purchaser, and no other corporate proceedings on the part of the Parent and
Purchaser are necessary to authorize this Agreement or to consummate the
transactions so contemplated, other than the possible requirement to obtain a
vote of the stockholders of Parent as described in Section 1.7(b). This
Agreement has been duly and validly executed and delivered by the Parent and
Purchaser and, assuming this Agreement constitutes a valid and binding
obligation of the Company, this Agreement constitutes a valid and binding
agreement of the Parent and Purchaser, enforceable against the Parent and
Purchaser in accordance with and subject to its terms and conditions.
SECTION 4.4 SEC Reports. Since January 1, 1993, to the best of its
knowledge the Parent has filed all required forms, reports and documents
("Parent SEC Reports") with the Securities and Exchange Commission (the "SEC")
required to be filed by it pursuant to the federal securities laws and the SEC
rules and regulations thereunder, all of which have complied in all material
respects with all applicable requirements of the Securities Act and the
Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and
interpretive releases promulgated thereunder. None of such Parent SEC Reports,
including without limitation any financial statements, notes, or schedules
included therein, at the time filed, contained, or, if to be filed in the future
will contain, any untrue statement of a material fact, or omitted, omit or will
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
Each of the consolidated balance sheets in or incorporated by reference
into the Parent SEC Reports fairly presents or will fairly present the financial
position of the entity or entities to which it relates as of its date, and each
of the related consolidated statements of operations and retained earnings and
cash flows or equivalent statements in the Parent SEC Reports (including any
related notes and schedules) fairly presents or will fairly present the results
of operations, retained earnings and cash flows, as the case may be, of the
entity or entities to which it relates for the period set forth therein (subject
in the case of unaudited interim statements, to normal year-end audit
adjustments) in each case in accordance with generally-accepted accounting
principles applicable to the particular
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entity consistently applied throughout the periods involved, except as may be
noted therein. The consolidated financial statements included or to be included
in the Parent SEC Reports are hereinafter sometimes collectively referred to as
the "Parent Financial Statements."
SECTION 4.5 Consents and Approvals; No Violation. Except as described in
the Disclosure Schedule, neither the execution and delivery of this Agreement by
the Parent and Purchaser nor the consummation of the transactions contemplated
hereby nor compliance by the Parent and Purchaser with any of the provisions
hereof will conflict with or result in any breach of any provision of the
Articles of Incorporation or By-laws of the Parent or any Subsidiary, require
any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, except pursuant to the Securities
Act and the Exchange Act, the filing of Articles of Merger pursuant to the
Acts, such filings and approvals as may be required under the "blue sky",
takeover or securities laws of various states, or where the failure to obtain
such consent, approval, authorization or permit, or to make such filing or
notification, would not in the aggregate have a Material Adverse Effect, result
in a material default (with or without due notice or lapse of time or both) (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
Contract, license, agreement or other instrument or obligation to which the
Parent or any of its Subsidiaries is a party or by which the Parent, any of its
Subsidiaries or any of their respective assets may be bound, except for such
defaults (or rights of termination, cancellation or acceleration) as to which
requisite waivers or consents have been requested or which, in the aggregate,
would not have a Material Adverse Effect, result in the creation or imposition
of any lien, charge or other encumbrance on the assets of the Parent or any of
its Subsidiaries, or violate any order, writ, injunction, decree, statute, rule
or regulation applicable to the Parent, any of its Subsidiaries or any of their
respective assets, except for violations which would not in the aggregate have a
Material Adverse Effect.
SECTION 4.6 Litigation, etc. Except as described in the Disclosure
Schedule or the Parent SEC Reports, there is no action, claim, or proceeding
pending or, to the knowledge of the Parent and Purchaser, threatened, to which
the Parent or any of its Subsidiaries is or would be a party before any court or
Governmental Authority acting in an adjudicative capacity or any arbitrator or
arbitration tribunal with respect to which there is a reasonable likelihood of a
determination having, or which, insofar as reasonably can be foreseen, in the
future would have a Material Adverse Effect on the Parent and Purchaser and
since December 31, 1995, there have been no claims made or actions or
proceedings brought against any officer or director of the Parent and Purchaser
arising out of or pertaining to any action or omission within the scope of his
employment or position with the Parent and Purchaser, which claim, action or
proceeding would involve a Material Adverse Effect on the Parent and Purchaser
taken as a whole. All litigation and other administrative, judicial or quasi-
judicial proceedings to which the Parent and Purchaser is a party or to which it
has been threatened to the Parent's knowledge to be made a party, are described
in the Disclosure Schedule.
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SECTION 4.7 Compliance with Law and Permits. To its knowledge, the Parent
and its Subsidiaries have owned and operated their properties and assets in
substantial compliance with the provisions and requirements of all laws, orders,
regulations, rules and ordinances issued or promulgated by all Governmental
Authorities having jurisdiction with respect thereto, except where the failure
to own and operate such properties and assets in compliance with such provisions
and requirements would not reasonably be expected to have a Material Adverse
Effect. All material governmental certificates, consents, permits, licenses or
other authorizations with regard to the ownership or operation by the Parent or
its Subsidiaries of their respective properties and assets have been obtained
and to its knowledge no violation exists in respect of such licenses, permits or
authorizations, except where the failure to obtain and hold such permits, or any
violation thereby by the Company or its Subsidiaries, would not reasonably be
expected to have a Material Adverse Effect. To its knowledge, none of the
documents and materials filed with or furnished to any Governmental Authority
with respect to the properties, assets or businesses of the Parent or its
Subsidiaries contains any untrue statement of a material fact or fails to state
a material fact necessary to make the statements therein not misleading.
SECTION 4.8 Changes. Except as expressly contemplated by this Agreement
or as reflected in the Disclosure Schedule or in the Parent Financial Statements
or Parent SEC Reports, since December 31, 1995, the Parent and its Subsidiaries
have conducted their business only in the ordinary and usual course, and, except
as set forth in the Disclosure Schedule or in the Parent Financial Statements or
Parent SEC Reports, none of the following has occurred, except as shall have
occurred in the ordinary course of its business:
(a) any material adverse change in the condition (financial or
other), results of operations, business, assets, customer, supplier and employee
relations of the Parent and its Subsidiaries, taken as a whole;
(b) any change in accounting methods, principles or practices by the
Parent materially affecting its assets, liabilities or business, except insofar
as may have been required by a change in generally accepted accounting
principles;
(c) any damage, destruction or loss, whether or not covered by
insurance, resulting in a Material Adverse Change of the Parent and its
Subsidiaries;
(d) any declaration, setting aside or payment of dividends or
distributions in respect of the Shares, or any redemption, purchase or other
acquisition of any of the securities of the Parent or its Subsidiaries;
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(e) any issuance by the Parent of, or commitment of the Parent to
issue, any Shares or other capital stock or securities convertible into or
exchangeable or exercisable for Shares or other capital stock;
(f) any entry by the Parent or any of its Subsidiaries into any
commitment or transaction material to the condition (financial or other),
business or operations of the Parent and its Subsidiaries, taken as a whole,
which is not in the ordinary course of business and consistent with past
practice;
(g) any revaluation by the Parent or any of its Subsidiaries of any
of their respective assets, including without limitation, writing down the value
of assets or writing off notes or accounts receivable other than in the ordinary
course of business and consistent with past practice;
(h) any agreement by the Parent to do any of the things described in
the preceding clauses (a) through (g) other than as expressly contemplated or
provided for herein; or
(i) any waiver by the Parent or any of its Subsidiaries of any rights
that, singularly or in the aggregate, are material to the business, assets,
financial condition, or results of operation of the Parent and its Subsidiaries,
taken as a whole.
SECTION 4.9 Definitions, Representations, and Warranties Concerning
Environmental Matters.
(a) Definitions:
(i) "Environmental Claim" shall mean any and all
administrative, regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance or violation (written or oral) by any person alleging potential
liability (including, without limitation, potential liability for enforcement,
investigatory costs, cleanup costs, governmental response costs, removal costs,
remedial costs, natural resources damages, property damages, personal injuries
or penalties) arising out of, based on or resulting from: (A) the presence or
release into the environment of any Environmental Hazardous Materials at any
location, whether or not owned by the Company or a Subsidiary; or (B)
circumstances forming the basis of any violation or alleged violation of any
Environmental Law; or (C) any and all claims by any person seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from the presence or Environmental Release of any Environmental
Hazardous Materials.
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(ii) "Environmental Laws" shall mean all federal, state, local
statute, law, rule, ordinance, code, policy, rule of common law and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without
limitation, laws and regulations relating to Environmental Releases or
threatened Environmental Releases of Environmental Hazardous Materials, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Environmental
Hazardous Materials.
(iii) "Environmental Hazardous Materials" shall mean: (A) any
petroleum or petroleum products, radioactive materials, asbestos in any
form that is or could become friable, urea formaldehyde foam insulation,
transformers or other equipment that contain dissolved fluid containing
polychlorinated biphenyls (PCBs), and radon gas; and (B) any chemicals,
materials or substances which are now defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants," or words of similar import, under
any Environmental Law; and (C) any other chemical, material, substance or
waste, exposure to which is prohibited, limited or regulated by any
Governmental Authority.
(iv) "Environmental Release" shall mean any release, spill,
emission, leaking, injection, deposit, disposal, discharge, dispersed,
leaching or migration into the atmosphere, soil, surface water, groundwater
or property.
(b) Except as set forth in the Disclosure Schedule, the Parent and
all of its Subsidiaries: (i) are currently and at all times in the past has
been in compliance in all material respects with all applicable Environmental
Laws; and (ii) have not received any communication (written or oral) from a
governmental authority that alleges that the Parent or a Subsidiary is or was
not in compliance with applicable Environmental Laws.
(c) Except as set forth in the Disclosure Schedule, the Parent and
the Subsidiaries have to their knowledge obtained all environmental health and
safety permits, registrations, approvals, licenses and governmental
authorizations (collectively, the "Environmental Permits") necessary for its
operations, and to their knowledge all such permits are in good standing and to
their knowledge the Parent and the Subsidiaries are in material compliance with
all terms and conditions of the Environmental Permits. A list of all
Environmental Permits is included in the Disclosure Schedule.
(d) Except as set forth in the Disclosure Schedule, there is no
Environmental Claim pending or, to the knowledge of the Parent
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or any Subsidiary, threatened against the Parent or any Subsidiary; or pending
against any person whose liability for any Environmental Claim the Parent or a
Subsidiary has or may have retained or assumed either contractually or by
operation of law; or pending against any real or personal property or operations
which the Parent or a Subsidiary owns, leases, operates, uses or manages.
(e) Except as set forth in the Disclosure Schedule, to the knowledge
of the Parent and the Subsidiaries there have been no Environmental Releases of
any Environmental Hazardous Material on real property owned, used, leased,
managed or operated by the Parent or any Subsidiary that require reporting or
other response under Environmental Laws.
(f) Except as set forth in the Disclosure Schedule, to the knowledge
of the Parent, Environmental Hazardous Materials have not at any time been
generated, used, treated, recycled or stored on, or transported to or from, or
disposed of on the Property.
(g) Except as set forth in the Disclosure Schedule, to the knowledge
of the Parent: there are not now and never have been any underground storage
tanks or pipelines located at, on or under the Property; there is no asbestos
contained in, forming part of, or contaminating any part of the Property; no
polychlorinated biphenyls (PCBs) are used, stored, located at or contaminate any
part of the Property; and, no wetland areas as defined by federal, state or
local law are located on the Property.
(h) Except as set forth in the Disclosure Schedule, to the knowledge
of the Parent, no real property at any time owned, operated, leased, used or
controlled by the Company or a Subsidiary is currently listed on the National
Priorities List or the Comprehensive Environmental Response, Compensation and
Liability Information System, both promulgated under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), or to the knowledge of the Parent on any comparable state or local
list and neither the Parent or any Subsidiary has received any written notice
from any person under or relating to a violation of CERCLA or any comparable
state or local law.
(i) To the knowledge of the Parent, no off-site location at which the
Parent or any Subsidiary has disposed or arranged for the disposal of any waste
is listed on the National Priorities List or on any comparable state or local
list and neither the Parent nor any Subsidiary has received any written notice
from any person with respect to any off-site location, of potential or actual
liability or a written request for information from any government or person
under or relating to CERCLA or any comparable state or local law.
(j) The Disclosure Schedule includes a list of all environmental
studies, audits, or investigations that have been conducted by the Parent
regarding the Property. All books, records, environmental studies or audits
listed in the Disclosure Schedule to the knowledge of the Parent are
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accurate and true. The Parent has given Company access to all records and files
in its possession at both its corporate headquarters and its facilities
currently owned, operated, leased, managed, used or controlled by the Parent and
the Subsidiaries, including, without limitation, all reports, studies, analyses,
tests or monitoring results pertaining to the existence of Environmental
Hazardous Materials or any other environmental concerns relating to facilities
or properties owned, operated, leased, managed, used or controlled by the Parent
or a Subsidiary or concerning compliance with or liability under any
Environmental Laws and the Occupational Safety and Health Act or the equivalent
such Act under state law.
(k) Except as set forth in the Disclosure Schedule, to the knowledge
of the Parent the Property is not subject to any United States or state
environmental liens.
(l) Except as set forth in the Disclosure Schedule and except for
construction contracts, financing transactions, purchase agreements and related
documents entered into in the ordinary course of business, the Parent and the
Subsidiaries are not a party, whether as a direct signatory or as successor,
assign or third-party beneficiary, or otherwise bound, to any contract
(excluding insurance policies disclosed on the Disclosure Schedule) under which
the Parent or any Subsidiary is obligated by, or entitled to the benefits of,
directly or indirectly, any representation, warranty, indemnification, covenant,
restriction or other undertaking concerning Environmental Laws or the
environmental conditions of the Property.
(m) Except as set forth in the Disclosure Schedule and except for
construction contracts, financing transactions, purchase agreements and related
documents entered into in the ordinary course of business, neither the Parent
nor any Subsidiary has released any other person from any claim under any
Environmental Law or waived any rights concerning the environmental condition
of the Property, which release or waiver would have a Material Adverse Effect on
the Parent.
(n) The Disclosure Schedule contains a list of all current and past
insurance policies covering the Property or operation of the Parent and the
Subsidiaries.
(o) The properties of the Parent are in good repair and working
order, reasonable wear and tear and ordinary maintenance excepted, and are not
in immediate need of any major repair or material capital expenditure except as
noted on the Disclosure Schedule.
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SECTION 4.10 ERISA Matters. The Parent, each of its Subsidiaries and all
"Employee Benefit Plans" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), that cover any of its or
their employees (which Employee Benefit Plans are listed on the Disclosure
Schedule), comply in all material respects with all laws, requirements and
orders under ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"), the breach or violation of which would have a Material Adverse Effect
on the Parent and its Subsidiaries, taken as a whole; the present value of all
the assets of each of its Employee Benefit Plans that it is subject to Title IV
of ERISA equals or exceeds to the knowledge of the Parent the present value of
all of the benefits accrued under each such Employee Benefit Plan as of the end
of most recent plan year with respect to such plan ending prior to the date
hereof, calculated on the basis of the actuarial assumptions used in the last
actuarial evaluation for each such plan; none of the employees of the Parent or
any of its Subsidiaries is covered by a collective bargaining agreement; neither
the Parent nor any of its Subsidiaries has ever contributed to a "multiemployer
plan" as defined in Section 3(37) of ERISA; neither the Employee Benefit Plans
nor any fiduciary or administrator thereof has engaged in a "prohibited
transaction" as defined in Section 406 of ERISA or, where applicable, Section
4975 of the Code for which no exemption is applicable, that may have any
Material Adverse Effect on the Parent and its Subsidiaries, taken as a whole,
nor to the knowledge of the Parent have there been any "reportable events" as
defined in Section 4043 of ERISA for which the thirty-day notice has not been
waived.
SECTION 4.11 Taxes, Tax Returns.
(a) The Company has or within two business days from the date hereof
will deliver to Parent copies of the federal income tax returns of the Company
for each of the last three fiscal years and all schedules and exhibits thereto.
Except as set forth on the Disclosure Schedule, each of the Parent and its
Subsidiaries for which it files returns has duly and timely filed in correct
form all federal, state and local information returns and tax returns required
to be filed by it and such Subsidiaries on or prior to the date hereof (all such
returns to the knowledge of the Parent being accurate and complete in all
material respects) and, to the knowledge of the Parent, has duly paid or made
provision for the payment of all taxes and other governmental charges which have
been incurred or are due or claimed to be due from them by any Governmental
Authority (including, without limitation, those due in respect of their
properties, income, business, capital stock, franchises, licenses, sales and
payrolls) other than taxes or other charges (i) which are not yet delinquent or
are being contested in good faith and set forth in the Disclosure Schedule,
(ii) have not been finally determined or (iii) that would have a Material
Adverse Effect on the Parent. The liabilities and reserves for taxes in the
Parent Financial Statements are sufficient in the aggregate for the payment of
all unpaid federal, state and local taxes (including any interest or penalties
thereon), whether or not disputed or accrued, for the period ended September 30,
1996 or for any year or period prior thereto, and for which the Parent or any of
its Subsidiaries may be liable in its own right
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or as transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity.
(b) To the knowledge of the Parent, (i) proper and accurate amounts
have been withheld by the Parent and its Subsidiaries from their employees and
others for all prior periods in compliance in all material respects with the
tax withholding provisions of applicable federal, state and local laws and
regulations, and proper due diligence steps have been taken in connection with
back-up withholding, (ii) federal, state and local returns which are accurate
and complete in all material respects have been filed by the Parent and each of
its Subsidiaries for all periods for which returns were due with respect to
income tax withholding, Social Security and unemployment taxes and (iii) the
amounts shown on such returns to be due and payable have been paid in full, or
adequate provision therefore has been included by the Parent in the most recent
Parent Financial Statements.
SECTION 4.12 Tax Audits. Except as disclosed in the Disclosure Schedule,
(i) no audit of any material federal, state or local U.S. return of the Parent
or any Subsidiary is currently in progress, nor has the Parent or any Subsidiary
been notified that such an audit is contemplated by any taxing authority, (ii)
neither the Parent nor any Subsidiary has extended any statute of limitations
with respect to the period for assessment of any federal, state or local U.S.
tax, (iii) neither the Parent nor any Subsidiary contemplates the filing of an
amendment to any return, which amendment would have a Material Adverse Effect on
the Parent, and (iv) neither the Parent nor any Subsidiary has any actual or
potential material liability for any tax obligation of any taxpayer (including,
without limitation, any affiliated group of corporations or other entities which
included the Parent or any Subsidiary during a prior period) other than the
Parent or its Subsidiaries. Except as disclosed in the Disclosure Schedule,
there are no material tax claims pending against the Parent or any Subsidiary
and there are no material tax claims to the knowledge of the Parent threatened
to be asserted against the Parent or any Subsidiary. For purposes of this
Section 4.12, "tax" and "taxes" shall include all income, gross receipt,
franchise, excise, real and personal property, sales, ad valorem, employment,
withholding and other taxes imposed by any foreign, federal, state, municipal,
local, or other Governmental Authority including assessments in the nature of
taxes.
SECTION 4.13 Undisclosed Liabilities. The Parent is not liable for or
subject to any material Liabilities, except (a) Liabilities adequately disclosed
or reserved for in the most recent Parent Financial Statements or Parent SEC
Reports and not heretofore paid or discharged, (b) Liabilities under any
contract, commitment or agreement specifically disclosed on the Disclosure
Schedule, or (c) Liabilities incurred, consistent with past practice, in or as a
result of the ordinary course of business of the Parent since the date of the
most recent Parent Financial Statements.
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SECTION 4.14 No Default; Compliance.
(a) Except as set forth in the Disclosure Schedule, neither the
Parent nor any of its Subsidiaries is in material default under, and no
condition exists that with notice or lapse of time or both would constitute a
material default under, (i) any mortgage, loan agreement, indenture, evidence of
indebtedness or other instrument evidencing borrowed money to which either the
Parent or any of its Subsidiaries is a party or by which either the Parent or
any of its Subsidiaries or its properties is bound, (ii) any judgment, order or
injunction of any court, arbitrator or governmental agency or (iii) any other
agreement, contract, lease, license or other instrument, which default or
potential default might reasonably be expected to have a Material Adverse
Effect.
(b) Except as set forth in the Disclosure Schedule, the Parent and
each of its Subsidiaries have complied in all material respects with all laws,
regulations, orders, judgments or decrees of any federal or state court or
Governmental Authority applicable to their respective businesses and operations,
non-compliance with which might reasonably be expected to have a Material
Adverse Effect.
SECTION 4.15 Representations and Warranties Continuing. The
representations and warranties set forth herein shall be true and correct on the
date hereof and subject to an update to the Disclosure Schedule from time to
time, at all times prior to the Effective Time as if made from time to time,
including, without limitation, at the Effective Time and the Closing.
SECTION 4.16 Contracts and Commitments. Except as listed and described in
the Disclosure Schedule, the Parent Financial Statements or the Parent SEC
Reports, neither the Parent nor any of its Subsidiaries is a party to, nor are
they or their assets bound by any written or oral covenant, Contract, agreement
or understanding, including the following:
(a) Contract with any present or former stockholder,
director, officer, employee or consultants;
(b) Contract with any labor union or other representative
of employees;
(c) Contract for the future purchase of, or payment for,
supplies or products, or for the performance of services by a
third party, involving payment or potential payment by the Parent
of $10,000 or more under any one Contract or series of related
Contracts;
(d) any Contract, including, without limitation, any
outstanding quotations, bids or proposals, to sell goods or to
perform services in an aggregate amount in excess of $10,000;
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(e) distributorship, representative or sales agency
agreement, contract or commitment;
(f) conditional sale agreement or lease under which the
Parent is either the seller or purchaser, lessor or lessee,
involving annualized payments or potential payments by or to the
Parent that is in excess of $10,000;
(g) Contract (including, without limitation, any note,
debenture, bond, conditional sale or equipment trust agreement,
letter of credit agreement or loan agreement) for the borrowing
or lending of money more than $10,000 (including, without
limitation, those to or from officers, directors or shareholders
of the Parent, or any affiliates or members of their immediate
families, for a line of credit, or for a guarantee, security,
indemnitee, pledge or undertaking of the indebtedness or
obligations of any other person);
(h) Contract for any charitable or political contribution;
(i) Contract for any capital expenditure involving future
payments, which, together with future payments under all other
existing Contracts for the same capital project, are in excess of
$10,000;
(j) Contract limiting or restraining the Parent from
engaging or competing in any lines of business with any person,
nor is any officer or employee of the Parent subject to any such
agreement, contract or commitment;
(k) license, franchise, distributorship or other Contract
relating in whole or in part to any ideas, technical assistance
or other know-how of or used by the Parent;
(l) Contract greater than $10,000 which is expected to
continue for more than six months from the date hereof;
(m) Contract not made in the ordinary course of business;
(n) any guaranty, direct or indirect, of any person of any
contract, lease or agreement in an amount greater than $10,000
entered into by the Parent or any of its Subsidiaries.
Except as may be disclosed on the Disclosure Schedule, each of the
Contracts listed on the Disclosure Schedule is valid and enforceable in
accordance with its terms; the Parent and,
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to the best of the Parent's knowledge, the Parent and the other parties
thereto are in substantial compliance with the provisions thereof; except
as may be disclosed on the Disclosure Schedule, neither the Parent nor any
other party is (or by reason of the consummation of the transactions
contemplated by this Agreement, will be) in default in the performance,
observance or fulfillment of any obligation, covenant or condition
contained therein and no event has occurred or is anticipated to occur
(including the consummation of the transactions contemplated by this
Agreement) which with or without the giving of notice or lapse of time, or
both, would constitute a default or give the right of termination
thereunder.
SECTION 4.17 Title to Property. Except as disclosed on the Disclosure
Schedule, the Parent and each of its Subsidiaries has good and marketable title,
insured with respect to properties and assets which currently are of a type for
which insurance is generally available, free and clear (except as indicated in
the Disclosure Schedule or in the most recent Parent Financial Statements and
liens for current taxes not yet due and payable), of all security interests,
liens, encumbrances and encroachments of a material nature, to its real property
and other property and assets that are material to the Parent's business on a
consolidated basis.
SECTION 4.18 Insurance and Bank Accounts. (a) The Disclosure Schedule
sets forth a complete and accurate list and description of all insurance
policies in force naming the Parent, any of its Subsidiaries or any employees of
any of them as an insured or beneficiary or as a loss payable payee or for which
the Parent or any of its Subsidiaries has paid or is obligated to pay all or
part of the premiums. Neither the Parent nor its Subsidiaries have received
notice of any pending or threatened termination or retroactive premium increase
with respect thereto, and the Parent and its Subsidiaries are in compliance in
all material respects with all conditions contained therein. There are no
pending material claims against such insurance by the Parent or any of its
Subsidiaries as to which insurers have denied liability, no defenses provided by
insurers under reservations of rights, and no material claim under such
insurance that has not been properly filed by the Parent or its Subsidiaries.
(b) The Disclosure Schedule contains a list of all bank and
investment accounts maintained by the Parent, including the account numbers,
recent balance, institution, and persons having signing authority.
SECTION 4.19 Employees. The Disclosure Statement sets forth a list of the
employees of the Parent and the Subsidiaries, stating with respect to each the
name, date of hire and rate of compensation. Except as described in the
Disclosure Statement, there are no claims or disputes pending with any employee
regarding workers' compensation, unemployment benefits, discrimination
(including discrimination based on any disability), or compensation, and no
employment or collective bargaining agreements are in effect covering any such
person.
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SECTION 4.20 Parent Common Stock. The shares comprising the Merger
Consideration will have been duly authorized and, when issued in accordance with
the terms of the Articles of Merger and this Agreement, will be validly
authorized and issued and fully paid and nonassessable, and no shareholder of
Parent will have any preemptive rights or dissenter's right with respect
thereto.
ARTICLE V.
COVENANTS
SECTION 5.1 Conduct of Business of the Company. Except as contemplated by
this Agreement or disclosed in the Disclosure Schedule, during the period from
the date of this Agreement to the Effective Time, the Company and its
Subsidiaries will each conduct their operations according to their ordinary and
usual course of business and consistent with past practice. Without limiting the
generality of the foregoing, and except as otherwise expressly provided in this
Agreement or disclosed in the Disclosure Schedule, neither the Company nor any
of its Subsidiaries will, prior to the Effective Time, without the prior written
consent of Parent (a) issue, sell or pledge, or authorize or propose the
issuance, sale or pledge of (i) additional shares of capital stock of any class,
or securities convertible into any such shares, or any rights, warrants or
options to acquire any such shares or other convertible securities, other than
pursuant to commitments outstanding at the date hereof and referred to in
Section 3.2, or (ii) any other securities in respect of, in lieu of or in
substitution for, capital stock outstanding on the date hereof; (b) purchase or
otherwise acquire, or propose to purchase or otherwise acquire, any outstanding
securities; (c) declare or pay any dividend or distribution on any shares of its
capital stock; (d) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into an agreement in principle or an
agreement with respect to, any merger, consolidation or business combination
(other than the Merger), any acquisition of a material amount of assets or
securities, any disposition of a material amount of assets or securities or any
material change in its capitalization, or any entry into a material contract or
any release or relinquishment of any material contract rights, not in the
ordinary course of business; (e) propose or adopt any amendments to its charter
or by-laws; (f) enter into, assign or terminate, or amend in any material
respect, any Contract other than in the ordinary course of business; (g)
acquire, dispose of, encumber or relinquish any material asset (other than sale
of real properties at prices equal to or greater than their carrying values);
(h) waive, compromise or settle any right or claim that would adversely affect
the ownership, operation or value of any asset; (i) make any capital
expenditures other than pursuant to existing capital expenditure programs that
are disclosed in the Disclosure Schedule; (j) allow or permit the expiration,
termination or cancellation at any time prior to the Effective Time of any of
the insurance policies or coverages or surety bonds currently maintained by or
on behalf of the Company unless replaced with a policy, coverage or bond having
substantially the same coverage and similar terms and conditions; (k) increase,
directly or indirectly, the salary or other compensation of any officer or
member of management, enter into any employment agreement with any person or pay
or enter into any
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agreement to pay any bonuses or other extraordinary compensation to any officer
of the Company or its Subsidiaries or to any member of management or other
employees, or institute any general increase in rates of compensation for its
employees, or increase, directly or indirectly, any provisions or other benefits
of any of such persons; or (l) waive, settle or compromise any material
litigation or other claim on a basis materially adverse to the Company.
SECTION 5.2 No Solicitations. Neither the Parent nor any of its
Subsidiaries shall, and they shall use their best efforts to ensure that none of
their respective affiliates, officers, directors, representatives or agents
shall, directly or indirectly, solicit, initiate or encourage (including by way
of furnishing information) any corporation, partnership, person, entity or group
concerning any merger, sale of substantial assets (except as permitted by
Section 5.1(g)) outside the ordinary course of business, sale of shares of
capital stock or similar transaction involving the Company or any of its
Subsidiaries or divisions (other than the transactions contemplated by this
Agreement). The Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. The parties will promptly
communicate to the other the terms of any proposal or inquiry, oral or written,
which may be received in respect of any such transaction, and will inform the
other prior to the time that it furnishes any information to, or engages in
negotiations or discussions with, any third party with respect to the
acquisition of either party.
SECTION 5.3 Access to Information.
(a) Between the date of this Agreement and the Effective Time, the
parties will afford to one another and their authorized representatives
reasonable access (subject to tenants' rights) to the assisted living
facilities, offices, and other real property and to the books and records of
such party and its Subsidiaries, will permit the parties and their
representatives to make such reasonable inspections as they may require and will
cause their officers and those of their Subsidiaries to furnish the parties and
their representatives with such financial and operating data, environmental
assessments and other information with respect to the business and Real Property
of the parties and their Subsidiaries as they and their representatives may from
time to time reasonably request. No inspection or examination by either party
will constitute a waiver of any claim against the other party for
misrepresentation or breach of this Agreement.
(b) The parties will hold and will cause their representatives to
hold in strict confidence, unless compelled to disclose by judicial or
administrative process, or, in the opinion of counsel, by other requirements of
law, all documents and information concerning the parties furnished to them and
their representatives in connection with the transactions contemplated by this
Agreement (except to the extent that such information can be shown to have been
(i) in the public domain through no fault of the parties or their
representatives, or (ii) later lawfully acquired by the parties or their
representatives from other sources unless they or their representatives know
that such
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other sources are not entitled to disclose such information) and will not
release or disclose such information to any other person, except their auditors,
attorneys, financial advisors and other consultants and advisors in connection
with this Agreement, provided that such person shall have first been advised of
the confidentiality provision of this Section 5.3. If the transactions
contemplated by this Agreement are not consummated, such confidence shall be
maintained except to the extent such information can be shown to have been (i)
in the public domain through no fault of Parent, Purchaser or their
representatives, or (ii) later lawfully acquired by the parties or
representatives from other sources, and, if requested by the other party will,
and will cause its agents, auditors, consultants, representatives and advisors
to, return to the other or destroy all copies of written information furnished.
(c) Parent agrees to furnish the Shareholders, upon their request, at
the time of filing, with copies of all reports and filing (including exhibits
and schedules) filed by Parent with the SEC between the date hereof and the
Closing and issuance of the Merger Consideration.
SECTION 5.4 Best Efforts. Subject to the terms and conditions herein
provided, and to the fiduciary duties of the Boards of Directors of the parties
under applicable law, each of the parties hereto agrees to use its best efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
SECTION 5.5 Consents. Parent and the Company each will use its best
efforts to obtain such consents of third parties to agreements which would
otherwise be violated by any provisions hereof, to take all actions necessary to
effect the transactions contemplated hereby, and to make such filings with
Governmental Authorities necessary to consummate the transactions contemplated
by this Agreement including, without limitation, (a) the vigorous defense of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transaction contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or Governmental Authority vacated or reviewed, and (b) the
execution and delivery of any additional instruments (including any required
supplemental indentures) necessary to consummate the transactions contemplated
by this Agreement.
SECTION 5.6 Public Announcements. Parent and the Company will consult
with each other before issuing any press release or otherwise making any public
statements with respect to the existence of this Agreement or the Merger and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange.
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SECTION 5.7 Noncompete Agreements.
(a) For a period of three years following the date of Closing or the
termination of employment with the Parent or Purchaser that extends past the
date of Closing, neither Rhoades nor Smith shall directly or indirectly (i) act
or serve as an employee (except in a capacity which does not involve management,
executive, policy-making, sales, marketing, product development, finance, or
accounting activities or advice to management, sales, marketing, development or
accounting personnel), officer, director, manager, trustee, agent, operator,
advisor, or consultant for any Competing Business (as defined below) operating
within the Area; (ii) have any beneficial ownership or equity interest (except
for an ownership interest of less than one percent in any company subject to the
reporting requirements of the Exchange Act) in any Competing Business operating
within the Area, whether such interest is derived as a sole proprietor, partner,
shareholder, beneficiary, or otherwise, or have any right, option, agreement,
understanding, or arrangement to acquire any such interest; (iii) solicit,
divert, or appropriate, or attempt to solicit, divert, or appropriate to or for
a Competing Business the business of any person or entity located within the
Area which was a customer of the Company on or within one year prior to the
Closing Date (or later termination of employment) or the business of which the
Company had solicited within one year prior to the Closing Date (or later
termination of employment).
(b) For the purposes of this Section 5.7, "Competing Business" means
any business which is engaged in the ownership or management of assisted living
residences and facilities. "Area" shall mean any state of the United States in
which the Parent or its Subsidiaries owned or managed one or more assisted
living facilities at the date of this Agreement or at any time thereafter that
the Shareholder is employed by the Parent or a Subsidiary.
(c) If any Shareholder commits a breach, or threatens to commit a
breach of the provisions of subsection (a) above, Purchaser shall have the right
and remedy to have the provisions of subsection (a) specifically enforced by any
court having jurisdiction, it being acknowledged and agreed that any such breach
or threatened breach will cause irreparable injury to Purchaser and that money
damages will not provide an adequate remedy to Purchaser.
(d) If any of the covenants contained in subsection (a) above, or any
part thereof, are hereafter construed to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
(e) If any of the covenants contained in subsection (a) above, or any
part thereof, are held to be unenforceable because of the scope or duration of
such provision or the geographic area covered thereby, the parties agree that
the court making such determination shall have the power to reduce the scope,
duration, or area of such provision and, in its reduced form, said provision
shall then be enforceable.
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SECTION 5.8 Pooling. From and after the date hereof and until the
expiration of the Restricted Period (as defined below), Parent and the Company
shall use commercially reasonable efforts to prevent any of its or their
Subsidiaries or affiliates of parties from taking any action, or failing to take
any reasonable action, that would jeopardize the treatment of the Merger as a
"pooling of interest." For purposes hereof, the Restricted Period shall mean
the period commencing on the date hereof and terminating on the date on which
thirty days of combined operations are publicly announced by Parent.
SECTION 5.9 Collateral. Parent and Purchaser shall use their reasonable
best efforts to cause Company's lenders at the Effective Time to release
Rhoades' collateral securing obligations of the Company and to release Rhoades
and any other shareholder of the Company from personal liability for any Company
loan or obligation.
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.1 Conditions to Soliciting a Vote of Stockholders. Promptly
following execution of this Agreement, the parties will undertake to take the
following actions as conditions to Parent's solicitation of proxies from its
stockholders to approve the issuance of the Parent Common Stock or Merger
Consideration:
(a) This Agreement and the transactions contemplated hereby shall have
been adopted by the affirmative vote of all shareholders of the Company by the
requisite vote, and no shareholder of the Company shall have exercised any
dissenter's right.
(b) The Boards of Directors of the Parent and the Company and the Board of
Directors and Shareholder of the Purchaser shall have approved this Agreement.
(c) No statute, rule, regulation, executive order, decree, or injunction
shall have been enacted, entered, promulgated or enforced by any court of
competent jurisdiction in the United States or domestic Governmental Authority
which prohibits or restricts the consummation of the Merger.
(d) There shall have been no material adverse change in the business,
properties, or financial condition of any party to this Agreement.
(e) All parties shall have delivered all documents and taken all other
actions required by this Agreement.
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(f) All representations and warranties of any party shall be true and
effective as of the date of mailing the proxies.
(g) Floyd B. Rhoades shall have executed and delivered the Employment
Agreement in the form attached hereto as Exhibit D.
(h) Parent and the Company shall have reached a satisfactory agreement
with CRM Assisted Living Company, LLC to convert the Company's indebtedness to
such firm into shares of Parent Common Stock.
SECTION 6.2 Conditions to the Closing. Immediately prior to the Effective
Time, the Company and the Parent shall cause to be delivered to each other or to
have received the following:
(a) A certificate, dated the date of the Effective Time of the chief
executive and chief financial officer certifying that all representations and
warranties made herein are true and correct as of the date made and as of the
Effective Time and that all agreements or other actions required to be performed
prior to the Effective Time as a condition to consummating the Merger have been
performed or taken and such conditions satisfied in accordance with the terms of
this Agreement.
(b) An opinion of counsel to the Company dated the date of the
Effective Time in form and substance satisfactory to the Parent and its counsel
as to the matters set forth in Sections 3.1, 3.2, 3.3 and 3.6 and such other
matters as the Parent shall request, which opinion may contain customary
exceptions and qualifications.
(c) An opinion of counsel to the Parent and the Purchaser dated as of
the Effective Time as to each of the matters set forth in Sections 4.1, 4.2, 4.3
and 4.6, and such other matters as the Company may request, which opinion may
contain customary exceptions and qualifications.
(d) An opinion of tax counsel to the Company to the effect that the
Merger will constitute a reorganization that qualifies under Section
368(a)(i)(A) of the Internal Revenue Code of 1986.
(e) No statute, rule, regulation, executive order, decree, or
injunction shall have been enacted, entered, promulgated or enforced by any
court of competent jurisdiction in the United States or domestic Governmental
Authority which prohibits or restricts the consummation of the Merger.
(f) There shall have been no material adverse change in the business,
properties, or financial condition of any party to this Agreement.
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(g) All parties shall have delivered all documents, exhibits and
schedules and taken all other actions required by this Agreement.
(h) All representations and warranties of any party shall be true
and effective as of the Effective Time.
(i) At the Closing, each Shareholder shall deliver a release of all
claims he may have against the Company or any Subsidiary.
(j) Stockholders of the Parent constituting a majority of shares
outstanding at a duly called stockholders' meeting, following the filing and
clearance of a proxy statement meeting the requirements of Exchange Act shall
have voted to approve the issuance of the Parent Common Stock comprising the
Merger Consideration and the Merger Consideration shall be issued.
(k) The Parent shall have received approval of the listing of the
shares of Parent's Common Stock on the American Stock Exchange.
(l) The parties to the Merger shall have executed and delivered
agreements in the form of Exhibits A, B and C.
(m) All shareholders of the Company other than Messrs. Rhoades and
Smith shall have executed and delivered a letter joining in the representations
contained in Section 3.20 hereof and a release of all claims he or she may have
against the Company or any Subsidiary.
ARTICLE VII.
TERMINATION, AMENDMENTS; WAIVER
SECTION 7.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the Parent and Company, but prior to the Effective Time:
(a) by mutual written consent duly authorized by the Boards of
Directors of Company, Parent and Purchaser;
(b) by Parent or the Company if the Effective Time shall not have
occurred on or before December 31, 1996, unless such failure is caused by
the party seeking termination;
(c) by Parent or the Company if any court of competent jurisdiction
or other Governmental Authority shall have issued an order, decree or
ruling or taken any other action
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restraining, enjoining or otherwise prohibiting the Merger or if litigation
or proceedings shall be pending that are reasonably likely to result in any
of the foregoing;
(d) by the Company, if Parent or Purchaser shall not have performed
all obligations required to be performed by them under this Agreement,
except where any failures to perform would, in the aggregate, not
materially impair or delay the ability of Parent, Purchaser and the Company
to effect the Merger;
(e) by the Company or Parent, if there shall have been a breach of
any of the covenants contained herein or if any representation or warranty
made by any other party is untrue in any material respect;
SECTION 7.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party or its directors, officers, or shareholders, other than the provisions
of Sections 5.3(b) and 9.9.
SECTION 7.3 Amendment. This Agreement may be amended only by means of an
instrument in writing signed on behalf of all the parties.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken by or on behalf of the respective Boards of
Directors of the Company, Parent and Purchaser, may (a) extend the time for the
performance of any of the obligations or other acts of any other applicable
party hereto, (b) waive any inaccuracies in the representations and warranties
contained herein by any other applicable party or in any document, certificate
or writing delivered pursuant hereto by an other applicable party, or (c) waive
compliance with any of the agreements of any other applicable party or with any
conditions to its own obligations. Any agreement on the part of any other
applicable party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.1 Purchaser's Right to Indemnification. Company and the
Shareholders, jointly and severally (on a proportional basis as to the
Shareholders in regard to the number of shares held by each), shall and do
hereby indemnify and hold harmless, Parent, Purchaser, and their shareholders,
directors, officers, employees, agents and representatives from any and all
liabilities, obligations, claims, contingencies, damages, costs and expenses
(including all court costs and reasonable attorneys' fees) that Purchaser or any
such other indemnified party may suffer or incur as a result of or relating to
the material breach or inaccuracy of any of the representations, warranties,
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covenants or agreements made by Company and/or the Shareholders herein or
pursuant hereto. Each Shareholder's liability under this Section shall be
limited to the value of the Merger Consideration received by such Shareholder.
The Shareholders may satisfy any such obligation under this Section by
transferring shares of Parent Common Stock to the Parent on the basis of the
market price of the Parent Common Stock averaged over five (5) trading days
commencing after the later of (i) the date notice was given of the claim, or
(ii) the date Parent issued a press release describing any loss incurred due to
such claim.
SECTION 8.2 Company's or Shareholders' Right to Indemnification.
Purchaser and Parent shall and do hereby indemnify and hold Company and the
Shareholders, and their directors, officers, employees, agents and
representatives harmless from any and all liabilities, obligations, claims,
contingencies, damages, costs and expenses (including all court costs and
reasonable attorneys' fees) that Company or any such indemnified party may
suffer or incur as a result of or relating to: (a) the breach or inaccuracy, or
any alleged breach or inaccuracy, of any of the representations, warranties,
covenants or agreements made by Purchaser and Parent herein or pursuant hereto;
(b) any personal guaranty or personal obligations of a shareholder in connection
with a Company obligation; and (c) those liabilities, obligations, claims,
contingencies and encumbrances accruing or arising after the Closing in
connection with the business of the Purchaser, except to the extent that such
liabilities, obligations, claims, contingencies or encumbrances are attributable
to a breach of warranty, representation or covenant by Company and/or the
Shareholders prior to the Closing.
SECTION 8.3 Notice. The party seeking indemnification hereunder
("Indemnitee") shall promptly, and within 30 days after notice to it (notice to
------------
Indemnitee being the filing of any action, receipt of any claim in writing or
similar form of actual notice) of any claim as to which it asserts a right to
indemnification, notify the party from whom indemnification is sought
("Indemnitor") of such claim. Indemnitee shall bill Indemnitor for any such
------------
claims no more frequently than on a monthly basis, and Indemnitor shall promptly
pay (or cause to be paid) Indemnitee upon receipt of any such bill. The failure
of Indemnitee to give the notification to Indemnitor contemplated above in this
Section shall not relieve Indemnitor from any liability or obligation that it
may have pursuant to this Agreement unless the failure to give such notice
within such time shall have been materially prejudicial to it, and in no event
shall the failure to give such notification relieve Indemnitor from any
liability it may have other than pursuant to this Agreement.
SECTION 8.4 Third-Party Claims. If any claim for indemnification by
Indemnitee arises out of an action or claim by a person other than Indemnitee,
Indemnitor may, by written notice to Indemnitee, undertake to conduct the
defense thereof and to take all other steps or proceedings to defeat or
compromise any such action or claim, including the employment of counsel;
provided that Indemnitor shall reasonably consider the advice of Indemnitee as
to the defense or compromise of such actions and claims, and Indemnitee shall
have the right to participate, at its own expense, in such proceedings, but
control of such proceedings shall remain exclusively with Indemnitor.
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Indemnitee shall provide all reasonable cooperation to Indemnitor in connection
with such proceedings. Counsel and auditor costs and expenses and court costs
and fees of all proceedings with respect to any such action or claim shall be
borne by Indemnitor. If any such claim is made hereunder and Indemnitor does not
elect to undertake the defense thereof by written notice to Indemnitee,
Indemnitee shall be entitled to control such proceedings and shall be entitled
to indemnity with respect thereto pursuant to the terms of this Article VIII. To
the extent that Indemnitor undertakes the defense of such claim by written
notice to Indemnitee and diligently pursues such defense at its expense,
Indemnitee shall be entitled to indemnification hereunder only to the extent
that such defense is unsuccessful as determined by a final judgment of a court
of competent jurisdiction, or by written acknowledgment of the parties.
SECTION 8.5 Time to Assert Claims. Any claim asserted pursuant to Section
8.1 or Section 8.2 above must be asserted by written notice given by one party
to the other on or before the date of the release of the first audit report of
the Parent containing combined financial statements of the Parent and the
Company, not to exceed one (1) year from the date of Closing.
SECTION 8.6 Access to Records. Shareholders, or their agents, shall be
afforded reasonable access to the Parent's and Purchaser's books and records
during normal business hours upon reasonable notice for the purpose of verifying
any claim against Shareholders hereunder. Shareholders or their agents may be
required to sign an appropriate confidentiality agreement prior to any
inspection of books and records hereunder.
SECTION 8.7 Arbitration. All disputes under this Article VIII shall be
settled by arbitration in Dallas, Texas, before three arbitrators pursuant to
the rules of the American Arbitration Association. Each party shall select one
arbitrator and the two arbitrators shall select a third. Arbitration may be
commenced at any time by any party hereto giving written notice to each other
party to a dispute that such dispute has been referred to arbitration under this
Section 8.7. Any award rendered by the arbitrators shall be conclusive and
binding upon the parties hereto; provided, however, that any such award shall be
accompanied by a written opinion giving the reasons for the award. This
provision for arbitration shall be specifically enforceable by the parties and
the decision of the arbitrators shall be final and binding and there shall be no
right of appeal therefrom. Each party shall pay its own expenses of arbitration
and the expenses of the arbitrators shall be equally shared; provided, however,
that if in the opinion of the arbitrators any claim for indemnification or any
defense or objection thereto was unreasonable, the arbitrators may assess, as
part of their award, all or any part of the arbitration expenses of the other
party (including reasonable attorney's fees) and of the arbitrators against the
party raising such unreasonable claim, defense or objection.
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ARTICLE IX.
MISCELLANEOUS
SECTION 9.1 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person or
persons any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.2 Brokerage Fees and Commissions. The Shareholders shall be
responsible for payment with funds that are not the Company's any brokerage
commissions resulting from the Merger, specifically including the commission due
to The Robinson-Humphrey Company, Inc. Parent and Purchaser represent that they
have incurred no obligation for brokerage commissions. The Company agrees that
45,500 shares of common stock out of the Merger Consideration shall be held by
the Parent as collateral security for the agreement of the Company in this
Section 9.2. To the extent that the Company or the Parent becomes obligated to
pay any commissions, and such obligation is not paid by the Shareholders, the
Parent shall recoup the amount of its payment by cancelling all or a portion of
the shares held as collateral in satisfaction of the Shareholders' obligation,
and, as its sole remedy, offsetting such cancelled shares against the amount
paid by it at the rate of $16.00 per share cancelled.
SECTION 9.3 Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, among the parties or any of them with respect to the subject matter hereof
and (b) shall not be assigned by operation of law or otherwise.
SECTION 9.4 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
SECTION 9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by facsimile telegram or telex, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
If to the Company:
American Care Communities, Inc.
107 Edinburgh South, Suite 213
Cary, North Carolina 27511
Attention: Floyd B. Rhoades
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with a copy (which shall not affect
the validity of notice hereunder) to:
Wyrick Robbins Yates & Ponton L.L.P.
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
Attention: Larry E. Robbins
If to Parent or Purchaser:
Greenbriar Corporation
4265 Kellway Circle
Addison, Texas 75244
Attention: Gene S. Bertcher
with a copy (which shall not affect
the validity of notice hereunder) to:
Glast, Phillips & Murray, P.C.
2200 One Galleria Tower
13355 Noel Road, L.B. 48
Dallas, Texas 75240-6657
Attention: Ronald L. Brown
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, REGARDLESS OF THE
LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.
SECTION 9.7 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same agreement.
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SECTION 9.9 Expenses. Except as otherwise provided herein, the Parent,
Purchaser and Company shall bear and pay all costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial or other consultants,
investment bankers, accountants and counsel.
SECTION 9.10 Certain Definitions.
(a) "Material Adverse Effect" shall mean any adverse change in the
financial condition, assets, business or operations of any party and its
Subsidiaries which is material to such party taken as a whole.
(b) "Subsidiary" shall mean, when used with reference to an entity,
any corporation, a majority of the outstanding voting securities of which are
owned directly or indirectly by such entity, including, without limitation, the
entities listed on attached Exhibit E. Such term shall also refer to any other
partnership, limited partnership, joint venture, trust, or other business entity
in which a party hereto owns a material interest.
SECTION 9.11 Performance by Purchaser. Parent agrees to cause Purchaser
to comply with its obligations hereunder and to cause Purchaser to consummate
the Merger as contemplated herein.
SECTION 9.12 Disclosure Schedule. Within ten business days after the
execution hereof, the Company and the Parent shall deliver the Disclosure
Schedule to each other. The Disclosure Schedule shall be updated from time to
time and prior to the Closing to report any changes in the information contained
therein. The Disclosure Schedule shall contain all information required to
disclose fully any exception or qualification to this Agreement and shall cross
reference the section of this Agreement so qualified.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year set forth above.
GREENBRIAR CORPORATION,
a Nevada corporation
By: /s/ James R. Gilley
-------------------------------------
James R. Gilley, President
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AMERICAN CARE COMMUNITIES, INC.,
a Nevada corporation
By: /s/ James R. Gilley
-------------------------------------
James R. Gilley, President
AMERICAN CARE COMMUNITIES, INC.,
a North Carolina corporation
By: /s/ Floyd B. Rhoades
-------------------------------------
Floyd B. Rhoades, President
SHAREHOLDERS:
/s/ Floyd B. Rhoades
----------------------------------------
Floyd B. Rhoades
/s/ Gary S. Smith
----------------------------------------
Gary S. Smith
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EXHIBIT A-1
ARTICLES OF MERGER OF AMERICAN CARE COMMUNITIES, INC. (Nevada)
The undersigned corporation DOES HEREBY CERTIFY:
1. That the name and state of incorporation of each of the constituent
corporations of the merger is as follows:
Name State of Incorporation
---- ----------------------
American Care Communities, Inc. Nevada
American Care Communities, Inc. North Carolina
2. The surviving corporation is American Care Communities, Inc., a Nevada
corporation.
3. An Agreement and Plan of Merger has been approved by the Boards of
Directors of each corporation and submitted to the shareholders of each for
approval.
4. The designation, number of outstanding shares and number of shares
entitled to vote and cast in favor of the merger were as follows:
(a) American Care Communities, Inc. (Nevada) - 1000 shares
of common stock outstanding; 1000 shares cast in favor of the
merger
(b) American Care Communities, Inc. (North Carolina) - 1000
shares of common stock outstanding; 1000 shares cast in favor of
the merger
The number of votes cast for the merger by the shareholders of each class
of each Corporation entitled to vote was sufficient for approval by the
shareholders of that class of Shares.
5. The complete executed Agreement and Plan of Merger is on file at the
principal office of the Surviving Corporation at 4265 Kellway Circle, Addison,
Texas 75244, and a copy will be furnished without charge upon request by any
shareholder of either corporation.
Dated: ___________________, 19_____.
AMERICAN CARE COMMUNITIES, INC.
By: ___________________________________
Name: _____________________________
Title: ____________________________
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By: ___________________________________
Name: _____________________________
Title: Secretary
THE STATE OF ___________
COUNTY OF ______________
The foregoing Articles of Merger were acknowledged before me, the
undersigned Notary Public, by __________________________ and
___________________________, the ___________________________ and
__________________________ respectively of AMERICAN CARE COMMUNITIES, INC., a
Nevada corporation.
Dated: ___________________, 19____.
________________________________________
Notary Public in and for
________________________________________
THE STATE OF ___________
COUNTY OF ______________
The foregoing Articles of Merger were acknowledged before me, the undersigned
Notary Public, by __________________________ and ___________________________,
the ___________________________ and __________________________ respectively of
AMERICAN CARE COMMUNITIES, INC., a North Carolina corporation.
Dated: ___________________, 19____.
________________________________________
Notary Public in and for
________________________________________
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EXHIBIT A-2
CERTIFICATE OF MERGER
AMERICAN CARE COMMUNITIES, INC.
(NORTH CAROLINA)
[TO COME]
IN WITNESS WHEREOF, the constituent corporations have caused this
certificate to be signed by their respective Presidents and Secretaries, this
_____ day of ________________________, 1992.
AMERICAN CARE COMMUNITIES, INC.
ATTEST:
By: ___________________________________
By:_______________________ President
Secretary
AMERICAN CARE COMMUNITIES, INC.
ATTEST:
By: ___________________________________
By:________________________ President
Secretary
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Exhibit B
EXHIBIT "B"
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is entered into as of this
____ day of _________________, 1996, by and between GREENBRIAR CORPORATION, a
Nevada corporation (the "Company"), and _______________________ (the
"Shareholder") and evidences that for good and valuable consideration, the
receipt and sufficiency of which is acknowledged, the parties hereto agree as
follows:
ARTICLE I.
INTRODUCTION
Section 1.1. Recitals. The Company and Shareholder (among others) have
entered into an Agreement and Plan of Merger dated ___________, 1996 (the
"Merger Agreement"), pursuant to which the Company will issue ____ shares of the
Company's common stock, par value $0.01 per share, to Shareholder, in connection
with the acquisition of American Care Communities, Inc. This Agreement shall
become effective upon the issuance of such securities to Shareholder. Certain
capitalized terms used in this Agreement are defined in Article VI hereof;
references to sections shall be to sections of this Agreement.
ARTICLE II.
DEMAND REGISTRATION
Section 2.1. Request. At any time after two years from the closing of the
Merger Agreement, upon the written request of a Shareholder, requesting that the
Company effect the registration under the Securities Act of all or part of such
Shareholders' Registrable Securities and specifying the intended method of
disposition thereof, the Company will use its best efforts to effect the
registration under the Securities Act of the Registrable Securities which the
Company has been so requested to be registered by such Shareholder for
disposition in accordance with the intended method of disposition stated in such
request; provided, that, the provisions of this Article II shall not require the
Company to effect more than two registrations of Registrable Securities.
Section 2.2. Registration Statement Form. Registrations under this Article
II shall be on an appropriate registration form of the Commission (i) as shall
be selected by the Company and shall be reasonably acceptable to the Shareholder
and (ii) as shall permit the disposition of such Registrable Securities in
accordance with the intended method or methods of disposition specified in their
request for such registration. The Company agrees to include in any such
registration statement all information which holders of Registrable Securities
being registered shall reasonably request.
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Section 2.3. Expenses. The Company will pay all Registration Expenses in
connection with any registrations requested pursuant to this Article II.
Section 2.4. Selection of Underwriters. If a requested registration
pursuant to this Article II involves an underwritten offering, the underwriter
or underwriters thereof shall be selected by the Company and shall be reasonably
acceptable to a majority of the shareholders included in the offering.
Section 2.5. Priority in Requested Registrations. If a requested
registration pursuant to this Article II involves an underwritten offering, and
the managing underwriter shall advise the Company in writing (with a copy to
each holder of Registrable Securities requesting registration) that, in its
opinion, the number of securities requested to be included in such registration
(including securities of the Company which are not Registrable Securities)
exceeds the number which can be sold in such offering within a price range
reasonably acceptable to the Company and to the holders of a majority (by number
of shares) of the Registrable Securities requested to be included in such
registration, the Company will include in such registration, to the extent of
the number which the Company is so advised can be sold in such offering, the
Registrable Securities, and other securities of the Company to be included in
such registration in proportion to the amounts of each originally proposed to be
included.
Section 2.6. Not a Requested Registration if Company Participates. If the
Company registers any of its securities on its own behalf in a Registration
initiated as a requested registration pursuant to this Article II, such
requested registration shall not count for the purposes of determining the
number of requested registrations which holders of Registrable Securities are
entitled to under this Article II; provided, however, that the registration
shall continue to be a requested registration for all other purposes.
ARTICLE III.
"PIGGY BACK" REGISTRATION
Section 3.1. Right to Include Registrable Securities. If the Company at any
time proposes to file a registration statement under the Securities Act covering
any of its securities (other than a registration on Form S-8 or S-4, or any
successor or similar forms, other than pursuant to Article II, [and other than
in the currently planned Company registration statement on Form S-1 -Rhoades
only], whether or not for sale on its own account, it will each such time give
prompt written notice to all holders of Registrable Securities of its intention
to do so and of such holders' rights under this Article III. Upon the written
request of any such holder made within 30 days
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after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such holder and the
intended method of disposition thereof), the Company will use its best efforts
to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the holders
thereof, to the extent requisite to permit the disposition (in accordance with
the intended methods thereof as aforesaid) of the Registrable Securities so to
be registered, by inclusion of such Registrable Securities in the registration
statement which covers the securities which the Company proposes to register;
provided, that if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason either not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities and, thereupon, (i) in
the case of a determination not to register, shall be relieved of its obligation
to register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith), without prejudice, however, to the rights of any holder or holders
of Registrable Securities entitled to do so to request that such registration be
effected as a registration under Article II and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities, for the same period as the delay in registering such
other securities. No registration effected under this Article III shall relieve
the Company of its obligation to effect any registration upon request under
Article II. The Company will pay all Registration Expenses incurred by holders
by Registrable Securities in connection with each registration of Registrable
Securities requested pursuant to this Article III.
Section 3.2. Priority in Piggy-Back Registrations. If (i) a registration
pursuant to this Article III involves an underwritten offering of the securities
being registered, whether or not for sale for the account of the Company, to be
distributed (on a firm commitment basis) by or through one or more underwriters
of recognized standing under underwriting terms appropriate for such a
transaction, and (ii) the managing underwriter of such underwritten offering
shall inform the Company and holders of the Registrable Securities requesting
such registration by letter of its belief that the distribution of all or a
specified number of such Registrable Securities concurrently with the securities
being distributed by such underwriters would interfere with the successful
marketing of the securities being distributed by such underwriters (such writing
to state the basis of such belief and the approximate number of such Registrable
Securities which may be distributed without such effect), then the Company may,
upon written notice to all holders of such Registrable Securities, reduce pro
rata (if and to the extent stated by such managing underwriter to be necessary
to eliminate such effect) the number of such Registrable Securities and
securities proposed to be sold by any person other than the Company the
registration of which shall have been requested by each holder of Registrable
Securities and each person other than the Company so that the resultant
aggregate number of such Registrable
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Securities so included in such registration shall be equal to the number of
shares stated in such managing underwriter's letter.
ARTICLE IV.
REGISTRATION PROCEDURES
Section 4.1. Preparation of Filings. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Articles II or III, the
following shall apply:
(a) Registration Statement. The Company shall promptly prepare and
file (in the case of a registration pursuant to Article II, such filing to be
made within 90 days after the initial request of the holder of Registrable
Securities or in any event as soon after such request as possible) with the
Commission the requisite registration statement to effect such registration
(including such audited financial statements as may be required by the
Securities Act or the rules and regulations promulgated thereunder) and
thereafter use its best efforts to cause such registration statement to
become and remain effective.
(b) Amendments. The Company shall prepare and file with the
Commission such amendments, post effective amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective and to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for nine months or such
shorter period as all Registerable Securities have been sold in accordance
with the intended methods of disposition specified by the holders thereof;
and in the case of a registration under Article III, such period of time as
the Company determines.
(c) Copies of Documents. The Company shall furnish to each seller of
Registrable Securities covered by such registration statement and each
underwriter, if any, of the securities being sold by such seller such number
of conformed copies of such registration statement and of each amendment and
supplement thereto (in each case including all exhibits to such Registration
Statement), such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed pursuant to Rule 424 under the
Securities Act and such other documents, as such seller and underwriter, if
any, may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities owned by such Seller (it being
understood that the Company consents to the use of the prospectus and any
amendments or supplement thereto by each holder of Registrable Securities
covered by the Registration Statement and the underwriter or underwriters, if
any, in
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connection with the offering and sale of Registrable Securities covered by
the prospectus or any amendment or supplement thereto).
(d) Blue-Sky. The Company will use its best efforts to register or
qualify all Registrable Securities under the securities laws or blue sky laws
of the jurisdictions as any seller thereof and any underwriter of the
securities being sold by such seller and any Requesting Holder shall
reasonably request, to keep such registrations or qualifications in effect
for so long as such registration statement remains in effect, and take any
other action which may be reasonably necessary or advisable to enable such
seller and underwriter to consummate the disposition in such jurisdictions of
the securities owned by such seller, except that the Company shall not for
any such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the requirements
of this subsection (d) be obligated to be so qualified, or to consent to
general service of process in any such jurisdiction.
(e) Other Approvals. The Company will use its best efforts to cause
all Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the intended disposition of such Registrable Securities.
(f) Opinions; Comfort Letters. The Company shall furnish to each
seller of Registrable Securities a signed counterpart, addressed to such
seller, (and the underwriters, if any) of
(i) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting
agreement), reasonably satisfactory in form and substance to
such seller, and
(ii) a "comfort" letter, dated the effective date of
such registration statement (and, if such registration
includes an underwritten public offering, a letter dated the
date of the closing under the underwriting agreement),
signed by the independent public accountants who have
certified the Company's financial statements included in
such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in
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the case of the accountants' letter, such other financial matters, and, in
the case of the legal opinion, such other legal matters, as such seller or
such Requesting Holder (or the underwriters, if any) may reasonably request.
(g) Notice of Events. The Company will notify each seller of
Registrable Securities covered by such registration statement at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, upon the Company's discovery that, or upon the happening of
any event as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of any such
seller promptly prepare and furnish to such seller and each underwriter, if
any, a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made.
(h) Earnings Statement. The Company will otherwise use its best
efforts to comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve
months, but not more than eighteen months, beginning with the first full
calendar month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act, and will furnish to each such seller and each Requesting
Holder at least five business days prior to the filing thereof a copy of any
amendment or supplement to such registration statement or prospectus and
shall not file any thereof to which any such seller or any Requesting Holder
shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the requirements of
the Securities Act or of the rules or regulations thereunder.
(i) Listing. The Company will cause all Registrable Securities
covered by the registration statement to be listed on each securities
exchange or traded or quoted on each market on which the same class of
securities issued by the Company are then listed, traded or quoted.
(j) Transfer Agent. The Company will provide a transfer agent,
registrar and a CUSIP number for all Registrable Securities no later than the
effective date of such Registration Statement.
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(k) Access. The Company will make available for inspection by any
holder of Registrable Securities included in such registration statement, any
underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any such
seller or underwriter (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such Inspector in connection with such registration
statement; provided that records which the Company determines, in good faith,
to be confidential and which it notifies the Inspectors are confidential
shall not be disclosed to the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in the
registration statement or (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction;
provided, further, that any decision not to disclose information pursuant to
clause (i) shall be made after consultation with counsel for the Company and
counsel for such holders; and each holder of Registrable Securities agrees
that it will, upon learning that disclosure of such Records is sought in a
court of competent jurisdiction, give notice to the Company and allow the
Company at its expense, to undertake appropriate action and to prevent
disclosure of the Records deemed confidential.
Section 4.2. Data from Holders of Registerable Securities. The Company may
require each seller of Registrable Securities as to which any registration is
being effected to furnish the Company such information regarding such seller and
the distribution of such securities as the Company may from time to time
reasonably request in writing.
Section 4.3. Discontinuance of Use of Prospectus. Each holder of
Registrable Securities agrees by acquisition of such Registrable Securities
that, upon receipt of any written notice from the Company of the occurrence of
any event of the kind described in Section 4.1(g), such holder will forthwith
discontinue such holder's offer of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 4.1(g) and, if so directed by the Company, will deliver
to the Company (at the Company's expense) all copies, other than permanent file
copies, then in such holder's possession of the prospectus relating to such
Registrable Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the period mentioned in Section
4.1(b) shall be extended by the length of the period from and including the date
when each seller of any Registrable Securities covered by such registration
statement shall have received such notice to the date on which each such seller
has received the copies of the supplemented or amended prospectus contemplated
by Section 4.1(g).
Section 4.4. References to Holders in Registration Statements. If any
registration or comparable statement refers to any holder of Registrable
Securities by name or otherwise as
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the holder of any securities of the Company then such holder shall have the
right to require (i) the insertion therein of language, in form and substance
satisfactory to such holder, to the effect that the holding by such holder of
such securities is not to be construed as a recommendation by such holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such holder will assist in meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to such holder by name or otherwise is not required by the Securities Act or any
similar federal statute then in force, the deletion of the reference to such
holder.
Section 4.5. Underwritten Offerings. If requested by the underwriters for
any underwritten offering by holders of Registerable Securities pursuant to a
registration requested under Article II, the Company will enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in form and substance to the Company, each such
holder and the underwriters, and to contain such representations and warranties
by the Company and such other terms as are generally prevailing in agreements of
this type, including, without limitation, indemnities to the effect and to the
extent provided in Section 5.1. The holders of the Registrable Securities will
cooperate with the Company in the negotiation of the underwriting agreement and
will give consideration to the reasonable suggestions of the Company regarding
the form thereof; provided, that nothing herein contained shall diminish the
foregoing obligations of the Company. The holders of Registrable Securities to
be distributed by such underwriters shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. Any such holder of Registrable Securities
shall not be required to make any representations or warranties to or agreements
with the Company or the underwriters other than representations, warranties or
agreements regarding such holder, such holder's Registrable Securities and such
holder's intended method of distribution and any other representation required
by law.
Section 4.6. Holdback Agreements. The Company agrees (i) if so required by
a managing underwriter of an offering of Registerable Securities not to effect
any public sale or distribution of its equity securities or securities
convertible into or exchangeable or exercisable for any of such securities
during the seven days prior to and the 90 days after any underwritten
registration pursuant to Articles II or III has become effective, except as part
of such underwritten registration and except pursuant to registrations on Form
S-8, or any successor or similar forms thereto, and (ii) to cause each holder of
its securities or any securities convertible into or exchangeable or exercisable
for any of such securities, in each case purchased directly from the Company at
any time after the date of this Agreement (other than in a public offering) to
agree not to effect any such public sale or distribution of such securities
during such period except as part of such underwritten registration.
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Section 4.7. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel and accountants, the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such holders' and such
underwriters' respective counsel, to conduct a reasonable investigation within
the meaning of the Securities Act.
Section 4.8. Rights of Requesting Holders. The Company will not file any
registration statement under the Securities Act (other than by a registration on
Form S-8), unless it shall first have given to each holder of Registrable
Securities at the time outstanding at least thirty days prior written notice
thereof. The Company shall provide any Person who requests, within thirty days
after such notice (a "Requesting Holder"), the following: (i) all information,
documents and other materials such Requesting Holder would be entitled to if
such Requesting Holder were a seller of Registerable Securities; and (ii) the
rights to participate and access provided to sellers of Registerable Securities.
In addition, if any such registration statement refers to any Requesting Holder
by name or otherwise then such holder shall have the right to require (i) the
insertion therein of language, in form and substance satisfactory to such
holder, to the effect that the holding by such holder of such securities does
not necessarily make such holder a "controlling person" of the Company within
the meaning of the Securities Act and is not to be construed as a recommendation
by such holder of the investment quality of the Company's debt or equity
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such holder by name or otherwise is not
required by the Securities Act or any rules and regulations promulgated
thereunder, the deletion of the reference to such holder.
ARTICLE V.
INDEMNIFICATION
The Company and the Shareholder agree to enter into typical and customary
indemnification and contribution agreements with the underwriters, if any, and
each other, regarding the actions of and information supplied by each in
connection with a registration of securities pursuant to this Agreement.
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ARTICLE VI.
DEFINITIONS
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Commission: The Securities and Exchange Commission or any other Federal
agency at the time administering the Securities Act.
Common Stock: The common stock, par value $.01, of the Company.
Company: As defined in the introductory paragraph of this Agreement.
Exchange Act: The Securities Exchange Act of 1934, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time. Reference to a particular section of the
Exchange Act shall include a reference to the comparable section, if any, of any
such similar federal statute.
Merger Agreement: As defined in Section 1 of this Agreement.
Person: A corporation, association, partnership, organization, business,
individual, governmental agency or political subdivision thereof.
Registrable Securities: (a) any shares of Common Stock issued pursuant to the
Merger Agreement, (b) any securities issued or issuable pursuant to the Merger
Agreement or any Common Stock referred to in the foregoing subdivision by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise. As
to any particular Registrable Securities, once issued such securities shall
cease to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (b) they shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act, (c) they shall have been otherwise transferred, new certificates for them
not bearing a legend restricting further transfer shall have been delivered by
the Company and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force, or (d) they shall have ceased to be outstanding.
Registration Expenses: All costs, fees and expenses of attorneys,
accountants, experts, printers and all filing fees with the Commission, the
American Stock Exchange or such other stock exchange on which the Company's
common stock is traded, or other applicable governmental authority, but not
including the discounts and commissions payable to underwriters, brokers or
dealers.
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Requesting Holder: As defined in Section 4.8 of this Agreement.
Securities Act: The Securities Act of 1933, or any similar Federal statute,
and the rules and regulations of the Commission thereunder, all as of the same
shall be in effect at the time. References to a particular section of the
Securities Act of 1933 shall include a reference to the comparable section, if
any, of any such similar Federal statute.
Shareholder. As defined in Section 1 of this Agreement.
ARTICLE VII.
RULE 144
Section 7.1. Rule 144. The Company shall timely file the reports required
to be filed by it under the Securities Act and the Exchange Act (including but
not limited to the reports under Sections 13 and 15(d) of the Exchange Act
referred to in subparagraph (c)(1) of Rule 144 adopted by the Commission under
the Securities Act) and the rules and regulations adopted by the Commission
thereunder (or, if the Company is not required to file such reports, will, upon
the request of any holder of Registrable Securities, make publicly available
other information) and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as to whether it has
complied with such requirements.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1. Remedies. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach of any
representation or covenant in this Agreement and hereby agrees to waive the
defense in any action for specific performance of such an obligation that a
remedy at law would be adequate.
Section 8.2. Adjustments Affecting Registrable Securities. The Company
will not take any action, or permit any change to occur, with respect to the
Registrable Securities which would adversely affect the ability of the holders
of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement.
Section 8.3. Assignment. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition,
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and whether or not any express assignment shall have been made, the provisions
of this Agreement which are for the benefit of the parties hereto other than the
Company shall also be for the benefit of and enforceable by any subsequent
holder of any Registrable Securities.
Section 8.4. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
Section 8.5. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS
OF THE STATE OF TEXAS WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.
Section 8.6. Entire Agreement. This Agreement embodies the entire agreement
and understanding between the Company and each other party hereto and supersedes
all prior agreements and understandings relating to the subject matter hereof.
Section 8.7. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
Section 8.8. Notices. Except as otherwise provided in this Agreement, all
communications provided for hereunder shall be in writing and sent by first-
class mail, postage prepaid, and (a) if addressed to a party to the Merger
Agreement other than the Company, addressed to such party in the manner set
forth in the Merger Agreement or at such other address as such party shall have
furnished to the Company in writing, or (b) if addressed to any other holder of
Registrable Securities, at the address that such holder shall have furnished to
the Company in writing, or, until any such other holder so furnishes to the
Company an address, then to and at the address of the last holder of such
Registrable Securities who has furnished an address to the Company, or (c) if
addressed to the Company, to the attention of its President, or at such other
address, or to the attention of such other officer, as the Company shall have
furnished to each holder of Registrable Securities at the time outstanding.
Section 8.9. No Implied Waiver. No course of dealing between the Company
and the Shareholder or any other holder of Registrable Securities and no delay
in exercising any right, power or remedy conferred hereby or now or hereafter
existing at law or in equity, by statute or otherwise, shall operate as a waiver
of, or otherwise prejudice, any such right, power or remedy.
Section 8.10. No Inconsistent Agreements. Without the written consent of
the holders of a majority of the then outstanding Registrable Securities, the
Company will not on or after the date of this Agreement enter into any agreement
with respect to its securities which is inconsistent with the rights granted to
the holders of Registrable Securities in this Agreement or otherwise conflicts
with the provisions hereof. The Company has not previously entered
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into any agreement with respect to its securities granting any registration
rights to any Person. The rights granted to the holders of Registrable
Securities hereunder do not in any way conflict with and are not inconsistent
with the rights granted to the holders of the Company's securities under any
agreements previously entered into by the Company.
Section 8.11. Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute one and the same instrument.
Section 8.12. Amendments and Waivers. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of 51% or more of the shares of Registrable Securities. Each holder of
any Registrable Securities at the time or thereafter outstanding shall be bound
by any consent authorized by this section 5, whether or not such Registrable
Securities shall have been marked to indicate such consent.
Section 8.13. Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election, be treated as the holder of
such Registrable Securities for purposes of any request or other action by any
holder or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership of such Registrable Securities.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered by their respective officers thereunto duly authorized as of the date
first above written.
Attest: GREENBRIAR CORPORATION
_________________________ By:
__________________________________
James R. Gilley, Chairman
__________________________________
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Exhibit C
EXHIBIT C
Greenbriar Corporation
4265 Kellway Circle
Addison, TX 75244-2033
Re: Affiliate Status
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be
an "affiliate" of American Care Communities, Inc., a North Carolina corporation
("ACC"), as the term "affiliate" is (i) defined for purposes of paragraphs (c)
and (d) of Rule 145 of the Rules and Regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), and/or (ii) used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Merger Agreement, dated as of October
___, 199__ (the "Agreement"), by and among Greenbriar Corporation, a Nevada
corporation ("Greenbriar"), American Care Communities, Inc., a Nevada
corporation ("American"), and ACC, ACC will be merged with and into American
(the "Merger").
As a result of the Merger, I may receive shares of Common Stock of
Greenbriar, $.01 par value per share (the "Greenbriar Common Stock"), or options
to purchase Greenbriar Common Stock. I will receive ___ shares of Greenbriar
Common Stock (or options to purchase ___ shares of Greenbriar Common Stock) in
exchange for each share of common stock, no par value per share, of ACC ("ACC
Common Stock") (or options to purchase ACC Common Stock) owned by me at the time
of the Merger.
I represent and warrant to, and covenant with, Greenbriar that in the
event I receive any Greenbriar Common Stock or options to purchase Greenbriar
Common Stock as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of any
Greenbriar Common Stock issued to me in the Merger in violation
of the Act or the Rules and Regulations.
B. I shall not make any sale, transfer or other disposition of any
Greenbriar Common Stock issued to me in the Merger until the
provisions for a "pooling of interests" as specified in Section
5.8 of the Merger Agreement have been satisfied.
C. I have carefully read this letter and the Agreement and discussed
their requirements and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of any Greenbriar
Common Stock issued to me in the Merger, to the extent I felt
necessary, with my counsel or counsel for ACC.
D. I have been advised that the issuance of Greenbriar Common Stock
to me in the Merger will not be registered with the Commission
under the Act. I have also
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been advised that I may not sell, transfer or otherwise dispose
of any Greenbriar Common Stock issued to me in the Merger unless
(i) such sale, transfer or other disposition has been registered
under the Act, (ii) such sale, transfer or other disposition is
made in conformity with the volume and other limitations of Rule
145 promulgated by the Commission under the Act, or (iii) in the
opinion of counsel reasonably acceptable to Greenbriar, which
opinion shall be submitted in writing to Greenbriar in form and
substance reasonably satisfactory to Greenbriar, such sale,
transfer or other disposition is otherwise exempt from
registration under the Act.
E. I understand that Greenbriar is under no obligation to register
under the Act the sale, transfer or other disposition by me or on
my behalf of any Greenbriar Common Stock issued to me in the
Merger or to take any other action necessary in order to make
compliance with an exemption from such registration available.
F. I have no present intention to sell or dispose of any shares of
ACC Common Stock now owned or of any shares of Greenbriar Common
Stock to be received by me in or as a result of the Merger.
G. I also understand that stop transfer instructions will be given
to Greenbriar's transfer agent with respect to the Greenbriar
Common Stock issued to me in the Merger and that there will be
placed on the certificates representing the Greenbriar Common
Stock issued to me in the Merger, or any substitution therefor, a
legend stating in substance:
"The shares represented by this certificate were
issued in a transaction to which Rule 145
promulgated under the Securities Act of 1933, as
amended, applies. The shares represented by this
certificate may only be transferred in accordance
with the terms of a letter dated _____________,
1996 from the registered holder hereof to
Greenbriar Corporation, a copy of which letter is
on file at the principal office of Greenbriar
Corporation.
H. I also understand that unless the transfer by me of any
Greenbriar Common Stock issued to me in the Merger has been
registered under the Act or is a sale made in conformity with the
provisions of Rule 145, Greenbriar reserves the right to put the
following legend on the certificates issued to my transferee:
"The shares represented by this certificate have
not been registered under the Securities Act of
1933, as amended, and were acquired from a
person who received such shares in a transaction
to which Rule 145 promulgated under the
Securities Act of 1933,
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as amended, applies. The shares have been
acquired by the holder not with a view to, or
for resale in connection with, any distribution
thereof within the meaning of the Securities Act
of 1933, as amended, and may not be sold, pledged
or otherwise transferred except in accordance
with an exemption from the registration
requirements of the Securities Act of 1933, as
amended."
It is understood and agreed that the legends set forth in Paragraphs G
and H above shall be removed by delivery of substitute certificates without such
legend if the undersigned shall have delivered to Greenbriar an opinion of
counsel in form and substance reasonably satisfactory to Greenbriar, to the
effect that such legend is not required for purposes of the Act. Prior to any
transfer of any of the Greenbriar Common Stock, I will give notice to Greenbriar
of my intention to effect such offer, sale or transfer, describing the proposed
transaction in sufficient detail to enable Greenbriar and its counsel to
determine that the proposed transaction will not violate the Act.
DATED AS OF _________________, 1996
Sincerely,
________________________________________
AGREED AND ACKNOWLEDGED:
GREENBRIAR CORPORATION
By:__________________________
Name:________________________
Title:_______________________
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Exhibit D
EXHIBIT D
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the ______ day of
________________, 1996, between Greenbriar Corporation, a Nevada corporation
(hereinafter referred to as "Employer"), and FLOYD B. RHOADES (hereinafter
referred to as "Employee").
In consideration of the mutual promises hereinafter set forth, the parties
hereto agree as follows:
1. EMPLOYMENT. Employer agrees to employ Employee and Employee agrees to
serve Employer, upon the terms and conditions hereinafter set forth.
2. TERM. The employment of Employee hereunder and this Employment
Agreement shall commence the date hereof and shall continue in effect for a
period of three years or until terminated sooner pursuant to Section 7 hereof.
3. DUTIES. During the term of this Agreement, Employee shall be engaged
as an executive employee of Employer and shall report to the Board of Directors
and Executive Committee of Employer. Employee's initial title shall be President
and Chief Executive Officer of Employer, with such powers and duties in those
capacities as are set forth in the Bylaws of Employer. If Employee is elected or
appointed with the Employee's consent to an office with any of Employer's
subsidiaries or affiliates during the term of this Agreement, the Employee will
serve in such capacity or capacities without additional compensation. Employee
shall also be appointed as a Class I member of the Board of Directors with a
term expiring in 1998 and as a member of the Executive Committee of Employer.
Employee shall perform his duties from the Employer's main office in Addison,
Texas.
4. EXTENT OF SERVICES. During the term of this Agreement, Employee shall
devote substantially his entire working time, attention, and energies to the
business of Employer, and shall not during the term of service be actively
engaged in any other business activities. However, this shall not be construed
as preventing Employee from investing the Employee's personal assets in such
form or manner as may require occasional or incidental services on the part of
Employee in the management, conservation and protection of such investments and
provided that such investments cannot be construed as being competitive or in
conflict with the business of Employer.
5. COMPENSATION.
5.1. Base Salary. Employer will pay Employee during the Employee's term of
service hereunder, as compensation for the Employee's services, the sum of
$200,000 per year (sometimes hereinafter referred to as the "Base Salary"),
payable in biweekly or other installments in accordance with the general
practices of the Employer. Employee shall be entitled to participate in any and
all executive bonus programs at levels equal to those of employees in comparable
executive
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positions.Any bonus compensation shall be payable in the discretion of the Board
of Directors of the Employer.
5.2 Benefits.
5.2.1. The Employee shall be entitled to the same benefits generally
provided to other executives of Employer of comparable rank and responsibility
as well as to those generally provided to all officers of Employer in accordance
with the policies of the Employer from time to time. These are to include, but
not be limited to, health insurance and vacation pursuant to the Employer's
standard policy.
5.2.2. The Employer shall compensate or provide the designated
beneficiaries of Employee with the benefits accrued or vested under any
compensation and/or other benefit plan of the Employer in which Employee was a
participant as of the date of his death.
6. EXPENSES. During the term of employment provided for herein,
Employer shall pay or reimburse Employee, in accordance with its standard
policy, upon submission of vouchers by the Employee for all reasonable expenses
incurred by the Employee in the interest of Employer's business.
7. TERMINATION.
7.1. Termination Events. Subject to the provisions of Paragraph 7.2 of
this Section, this Agreement shall terminate:
7.1.1. Upon death of Employee.
7.1.2. At the option of the Employer if Employee shall become disabled and
remain disabled for a period of six (6) months. Disability shall be defined as
Employee's inability through illness or other cause to perform his normal work
load as measured by the twelve (12) months preceding the commencement of such
disability. During such disability, Employee shall be compensated in accordance
with Employer's standard policy regarding disability.
7.1.3. Upon mutual agreement.
7.1.4. At any time at the option of Employee.
7.1.5. At the Employer's option for any good cause. For purposes of this
Section, "good cause" for termination shall mean: (a) the conviction of Employee
of any act involving moral turpitude, or (b) any material breach by Employee of
any of the terms of, or the failure to perform any covenant contained in, this
Agreement.
7.1.6. For any reason other than those set forth in Sections 7.1.1.,
7.1.2., 7.1.3., 7.1.4 or 7.1.5.
EMPLOYMENT AGREEMENT Page 2
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7.2. Consequences of Termination.
7.2.1. Upon death of Employee, all base salary payments under Section 5.1
shall be paid to the end of the term hereof.
7.2.2. If the Employer terminates the Employee because of the disability of
the Employee, such termination will be treated the same as a termination due to
death under Section 7.2.1 with the termination date being the date specified by
the Employer after the six month disability period.
7.2.3. Upon termination by mutual agreement under Section 7.1.3 or by the
Employee under Section 7.1.4., the Employee shall be paid all salary prorated to
the date of termination.
7.2.4. Upon termination under Section 7.1.6., Employee shall be entitled to
receive severance compensation equal to all Base Salary remaining under the term
specified in Section 2, at the rate then in effect under Section 5.1, payable
over such remaining term.
8. TRADE SECRETS AND CONFIDENTIAL INFORMATION. During the term of this
Agreement, Employee will have access to customer lists and compilations of
information and records specific to and regularly used in the operation of the
business of Employer. Employee acknowledges that such information constitutes
valuable and confidential information of the Employer. Employee shall not
disclose any of the aforesaid private company secrets, directly or indirectly,
nor use them in any way, either during the term of this Agreement or after
termination of employment. All files, records, electronic and magnetic files,
documents, specifications, equipment and similar information relating to the
business of Employer, whether prepared by Employee or otherwise coming into
Employee's possession, shall remain the exclusive property of Employer and shall
not be removed from the premises of Employer except as shall be necessary for
Employee to perform Employee's duties under this Agreement. Upon termination of
this Agreement for any reason, Employee will deliver all such materials in his
possession and all copies thereof to Employer.
9. GENERAL PROVISIONS.
9.1 Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by certified mail by
Employer to the residence of Employee, or by Employee to Employer's principal
office.
9.2. Assignability. This Agreement and the rights, interests and benefits
hereunder shall not be assignable or in any way alienated by Employee. Employer
shall have the right of assignment and transfer of its rights hereunder to any
successor to the majority of its assets and any such successor shall be bound by
the terms hereof.
EMPLOYMENT AGREEMENT Page 3
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9.3. Waiver of Breach. The waiver by Employer or Employee of a breach of
any provisions of this Agreement by the other shall not operate or be construed
as a waiver of any subsequent breach.
9.4. Entire Agreement. This instrument contains the entire agreement of
the parties. It may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
9.5. Attorneys' Fees. In the event that there shall be any litigation or
court proceeding with respect to this Agreement or the obligations of the
parties hereunder, the prevailing party shall be entitled to recover reasonable
attorneys' fees and costs from the other party.
9.6. Governing Law. This Employment Agreement shall be governed by the
laws of the State of Texas.
IN WITNESS WHEREOF, Employer has caused this Employment Agreement to be
executed in its corporate name by its corporate officers thereunto duly
authorized, and Employee has executed this Employment Agreement.
EMPLOYEE:
________________________________________
FLOYD B. RHOADES
EMPLOYER:
GREENBRIAR CORPORATION
By:_____________________________________
James R. Gilley, President
EMPLOYMENT AGREEMENT Page 4
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