8-K

 
                      SECURITIES AND EXCHANGE COMMISSION

                             Washington, DC  20549
                            ______________________



                                   FORM 8-K


                                CURRENT REPORT



Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported):  December 31, 1996


                            GREENBRIAR CORPORATION
 
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


       NEVADA                      0-8187                 75-2399477
- ----------------------------     -----------          -------------------

(State or other jurisdiction     (Commission             (IRS Employer
    of incorporation)            File Number)         Identification No.)
 


                  4265 KELLWAY CIRCLE, ADDISON, TEXAS  75244
                  ------------------------------------------

              (Address of principal executive offices) (Zip Code)



Registrant's telephone number, including area code:  (972) 407-8400

 
ITEM 1.   CHANGES IN CONTROL OF REGISTRANT.

          Not Applicable


ITEM 2.   ACQUISITION OR DISPOSITION OF ASSETS.

ACQUISITION OF AMERICAN CARE COMMUNITIES, INC.

     On December 31, 1996, the Company acquired American Care Communities, Inc.
("ACC"), a private company, by means of a merger of ACC into a wholly owned
subsidiary of Registrant.

     ACC was founded in July 1993 to acquire, develop and operate assisted
living facilities. ACC, which is headquartered in Cary, North Carolina,
currently owns, operates or manages a total of 15  assisted or independent
living facilities with a capacity for 1,275 residents. ACC has thirteen
facilities  located in North Carolina, one in Florida and one in Maine.

     The consideration for the American Care acquisition was 1,300,000 shares of
unregistered Greenbriar common stock issued to the sellers who consist of 12
persons all of whom were previously unrelated to the company.  Such
consideration was determined by means of arms' length negotiations among the
parties.

     Upon the closing of the acquisition, Floyd  B. Rhoades, who, until the
acquisition, was Chairman, President, Chief Executive Officer and the majority
shareholder of ACC, entered into a three year employment agreement to become
President and Chief Executive Officer of Greenbriar Corporation. Mr. Rhoades has
also become a member of the Company's Board of Directors and Executive
Committee.

 
ITEM 3.  BANKRUPTCY OR RECEIVERSHIP.

               Not Applicable


ITEM 4.  CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.

               Not Applicable

ITEM 5.  OTHER EVENTS.

               Not Applicable

ITEM 6.  RESIGNATIONS OF REGISTRANT'S DIRECTORS.

               Not Applicable

ITEM 7.  FINANCIAL STATEMENTS AND EXHIBITS.


     (a)  Not Applicable

     (b)  The financial statements required to be filed with respect to
          this acquisition will be filed by amendment.

     (c)  Exhibits

               (2) - Agreement and Plan of Merger


ITEM 8.  CHANGE IN FISCAL YEAR.

               Not Applicable

 
                                      SIGNATURES



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


                                             GREENBRIAR CORPORATION
                                 
                                 
Dated:  January 13, 1997                     By:  /s/ Gene Bertcher
                                 
                                             Name:  Gene Bertcher
                                 
                                             Title:  Chief Financial Officer

EX-2

 
                                                                       EXHIBIT 2

                         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

 
     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

 
     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

 
          (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

 
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

 
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

 
          (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

 
     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

 
               (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, 

                                       9

 
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, 

                                       10

 
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.

                                       11

 
     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 

                                       12

 
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 

                                       13

 
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;

                                       14

 
          (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 

                                       15

 
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.

                                       16

 
          (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 (A) such shares are
          registered under the applicable Federal and state Securities laws or
          (B) 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.

                                       17

 
                                  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 

                                       18

 
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 

                                       19

 
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 (i) conflict with or result in any breach of any provision of the
Articles of Incorporation or By-laws of the Parent or any Subsidiary, (ii)
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, except (A) pursuant to the
Securities Act and the Exchange Act, (B) the filing of Articles of Merger
pursuant to the Acts, (C) such filings and approvals as may be required under
the "blue sky", takeover or securities laws of various states, or (D) 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, (iii) 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, (iv) 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 (v) 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.

                                       20

 
     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;

                                       21

 
          (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.

                                       22

 
               (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 or any
Subsidiary, threatened against the Parent 

                                       23

 
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

                                       24

 
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.

                                       25

 
     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 

                                       26

 
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.

                                       27

 
     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;

                                       28

 
          (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,

                                       29

 
     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.

                                       30

 
     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

                                       31

 
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

                                       32

 
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.

                                       33

 
     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.

                                       34

 
     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.

                                       35

 
          (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.

                                       36

 
          (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 

                                       37

 
     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,

                                       38

 
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.

                                       39

 
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.

                                       40

 
                                  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

                                       41

 
          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 9.6 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.

                                       42

 
     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

                                       43

 
                                        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


                               EHXIBITS OMITTED

                                       44