<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
General Form for Registration of Securities
of Small Business Issuers Under Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
RESIDENTIAL HEALTHCARE PROPERTIES, INC.
(Name of Small business Issuer in its charter)
NEVADA 75-2719614
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
4265 KELLWAY CIRCLE, ADDISON, TEXAS 75244
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (972) 407-8440
Securities to be registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
Common Stock, $.01 par value American Stock Exchange
Securities to be registered under Section 12(g) of the Act: None.
<PAGE>
EXPLANATORY NOTE
This Registration Statement on Form 10-SB has been prepared on a prospective
basis on the assumption that, among other things, the Spinoff (as hereinafter
defined) and the related transactions contemplated to occur prior to or
contemporaneously with the Spinoff will be consummated as contemplated by the
Information Statement. The failure of any of such transactions to occur or occur
as contemplated by the Information Statement would cause inaccuracies in the
Information Statement, and any significant inaccuracies will be reflected in an
amendment or supplement to this Registration Statement.
RESIDENTIAL HEALTHCARE PROPERTIES, INC.
CROSS REFERENCE BETWEEN INFORMATION INCLUDED IN INFORMATION STATEMENT
AND ITEMS OF FORM 10-SB INTO WHICH SUCH INFORMATION IS INCORPORATED BY
REFERENCE
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
The information required by this item is set forth under the captions
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business and Properties" in the
Information Statement of Residential Healthcare Properties, Inc. (the
"Registrant") attached as Annex A hereto (the "Information Statement") and is
incorporated herein by reference.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The information required by this item is set forth under the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Information Statement and is incorporated herein by reference.
ITEM 3. DESCRIPTION OF PROPERTY.
The information required by this item is set forth under the caption
"Business and Properties-- Properties" in the Information Statement and is
incorporated herein by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is set forth under the captions
"Security Ownership of Certain Beneficial Owners and Management" in the
Information Statement and is incorporated herein by reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The information required by this item is set forth under the captions
"Management--Directors and Executive Officers of RHP" in the Information
Statement and is incorporated herein by reference.
ITEM 6. EXECUTIVE COMPENSATION.
The information required by this item is set forth under the captions
"Management--Compensation of Directors," and "Management--Executive
Compensation" in the Information Statement and is incorporated herein by
reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is set forth under the caption
"Certain Relationships and Related Transactions" in the Information Statement
and is incorporated herein by reference.
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES.
The information required by this item is set forth under the caption
"Description of Capital Stock" in the Information Statement and is incorporated
herein by reference.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The information required by this item is set forth under the captions "The
Spinoff--Trading Market for RHP Common Stock" and "The Spinoff--Dividends on RHP
Common Stock," in the Information Statement and is incorporated herein by
reference.
ITEM 2. LEGAL PROCEEDINGS.
The information required by this item is set forth under the caption
"Business and Properties--Legal Proceedings" in the Information Statement and is
incorporated herein by reference.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Greenbriar acquired all of the Registrant's outstanding common stock for
nominal consideration in connection with the organization of the Registrant. The
Registrant believes the foregoing transaction is exempt from registration under
the Securities Act pursuant to Section 4(2) thereof on the basis of the non-
public nature of the offer and sale, including, among other things, the limited
number of offerees, the relationship to the issuer and the information available
to the purchaser.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information required by this item is set forth under the caption
"Liability of Directors and Officers--Indemnification of Directors and Officers"
in the Information Statement and is incorporated herein by reference.
PART F/S
See Index to Financial Statements on Page F-1 of the Information Statement
and the financial statements of Greenbriar Corporation which follow thereafter,
which are incorporated herein by reference.
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<S> <C>
(2)(a) Amended and Restated Articles of Incorporation of Registrant
(2)(b)* Bylaws of Registrant
(3)(a) Amended and Restated Articles of Incorporation filed as Exhibit (2)(a)
(3)(b)* Bylaws filed as Exhibit (2)(b)
(3)(c)* Specimen Common Stock certificate
(3)(d)* Form of Certificate of Designations, Preferences and Rights of Preferred Stock relating to Registrant's
Series A Senior Convertible/Exchangeable Preferred Stock
(3)(e)* Form of Certificate of Designations, Preferences and Rights of Preferred Stock relating to Registrant's
Series B Junior Preferred Stock
(3)(f)* Form of Certificate of Designations, Preferences and Rights of Preferred Stock relating to Registrant's
Series C Junior Preferred Stock
(3)(g)* Form of Registration Rights Agreement between the Registrant and the holders of Series C Junior
Preferred Stock
(6)(a)* Form of Distribution Agreement to be entered into between Greenbriar Corporation and Registrant
(6)(b) Form of Assignment and Assumption Agreement to be entered into between Greenbriar Corporation and
Registrant, and consented to by Paul W. Dendy
(6)(c) Form of Assignment and Assumption Agreement to be entered into between Greenbriar Corporation and
Registrant, and consented to by Gene S. Bertcher
(6)(d) Form of Assignment and Assumption Agreement to be entered into between Greenbriar Corporation and
Registrant, and consented to by James R. Gilley
(6)(e) Form of Management Services Agreement to be entered into between Greenbriar Corporation and Registrant
(6)(f) Form of Facilities Operating Lease
(6)(g) Form of Unconditional and Continuing Lease Guaranty to be entered into between Registrant and
Greenbriar Corporation
(6)(h)* Form of Stock Purchase Agreement by and among Registrant, Greenbriar Corporation and Lone Star
Opportunity Fund
(6)(i) Form of Lease Agreement by and between Registrant and Greenbriar Corporation
(6)(j) Form of Agreement for Right of First Refusal and Other Matters by and between Registrant and Greenbriar
Corporation
(6)(k) Employment Agreements of James R. Gilley and Gene S. Bertcher dated December 31, 1996 (incorporated by
reference to Exhibit 10.37 to Greenbriar Corporation's Annual Report on Form 10-KSB for the year ended
December 31, 1996)
(6)(l) Employment Agreement dated March 15, 1996 by and between Greenbriar Corporation and Paul W. Dendy, as
amended
(6)(m) Form of the Registrant's 1997 Stock Option Plan
(6)(n)* Form of Stock Options Agreement under the Registrant's 1997 Stock Option Plan
</TABLE>
- ------------------------
* To be filed by amendment
ITEM 2. DESCRIPTION OF EXHIBITS.
Not applicable
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
RESIDENTIAL HEALTHCARE PROPERTIES, INC.
By: /s/ JAMES R. GILLEY
------------------------------------------
Name: James R. Gilley
Title: Chairman of the Board
Date: September 12, 1997
</TABLE>
<PAGE>
GREENBRIAR CORPORATION (LETTERHEAD)
Date: September , 1997
To the Stockholders of Greenbriar Corporation.:
We are pleased to inform you that the Board of Directors of Greenbriar
Corporation ("Greenbriar") has approved a pro rata distribution of the
outstanding shares of common stock of its subsidiary, Residential Healthcare
Properties, Inc. ("RHP"), to holders of Greenbriar common stock to effect the
spinoff of RHP (the "Spinoff"). Each stockholder of Greenbriar will receive one
share of RHP common stock for every two shares of Greenbriar common stock held
at the close of business on September 18, 1997. Holders of Greenbriar options,
warrants and convertible preferred stock will receive equitable adjustments of
their rights to permit them effective participation in the Spinoff, to the
extent Greenbriar can reasonably make or cause RHP to make such adjustments. No
fractional shares will be issued in the Spinoff; in lieu thereof, American Stock
Transfer & Trust Company (the "Distribution Agent"), will aggregate all
fractional interests in shares of RHP common stock, sell such shares in the
public trading market and distribute the net proceeds thereof to the holders of
Greenbriar common stock entitled thereto.
The Spinoff is expected to be effective at 12:01 AM on October 1, 1997. At
the effective time of the Spinoff the common stockholders of Greenbriar together
with the previously existing stockholders of RHP will comprise the beneficial
owners of RHP, and RHP will thereafter account for its business separately from
Greenbriar, regardless of when shares of RHP common stock are actually
distributed. HOLDERS OF GREENBRIAR COMMON STOCK ARE NOT REQUIRED TO TAKE ANY
ACTION TO PARTICIPATE IN THE SPINOFF. A stockholder vote is not required to
approve the Spinoff, and, accordingly, your proxy is not being sought. RHP
intends to apply for listing its common stock on the American Stock Exchange
("AMEX") or the Nasdaq National Market.
The Spinoff is not a tax-free transaction, and therefore holders of
Greenbriar common stock may recognize a gain or loss upon receipt of RHP common
stock. Because of Greenbriar's current losses and accumulated deficits for tax
purposes, it is anticipated that most stockholders will not realize any gain
from the Spinoff. Instead, most stockholders will receive a return of capital
equal to the value of the shares of RHP common stock they receive in the
Spinoff. Nevertheless, some stockholders may recover more from the Spinoff than
their entire capital investment in Greenbriar, and in such cases any excess
recovery may be considered taxable gain. You should consult with your tax
advisor regarding the tax consequences of the Spinoff to you in light of your
particular circumstances.
Following the Spinoff, Greenbriar and RHP will operate as separate
companies, however, they will maintain certain mutually-beneficial
relationships. For instance, for a period of time Greenbriar will lease or
manage each of RHP's currently-owned assisted living, Alzheimer's care and
retirement properties. In addition, the companies anticipate that Greenbriar and
RHP will share certain facilities, and by agreement Greenbriar and RHP will
provide certain services to each other. Finally, RHP will hold approximately 20%
of the issued and outstanding shares of Greenbriar common stock, some of which
it will have received at the time of the Spinoff and some of which it will
purchase at fair market value shortly after the Spinoff.
The Board of Directors of Greenbriar believes the distribution of RHP common
stock to effect the Spinoff is in the best interests of Greenbriar and its
stockholders. Following the Spinoff, management of each company will be able to
concentrate its attention and resources on their respective core businesses
without regard to the corporate objectives, policies and investment standards of
the other. RHP will focus on its real estate acquisition, development, leasing
and sales business, and Greenbriar will focus on its business as an operating
and management company for assisted living, Alzheimer's care and retirement
communities.
The enclosed Information Statement provides a more complete discussion of
the Spinoff and the distribution of the shares, relationships and related
transactions, and it contains important financial and other information about
RHP, its organization, business, and management and other matters. Please read
the Information Statement carefully and keep it for future reference.
Sincerely,
- ------------------------
James R. Gilley, Chairman
<PAGE>
ANNEX A
INFORMATION STATEMENT
RESIDENTIAL HEALTHCARE PROPERTIES, INC.
COMMON STOCK, PAR VALUE $.01
This Information Statement is being furnished to stockholders of Greenbriar
Corporation, a Nevada corporation ("Greenbriar" as used herein refers to
Greenbriar Corporation and, unless the context otherwise requires, its
wholly-owned subsidiaries) in connection with the distribution by Greenbriar to
its common stockholders of all of the outstanding shares of common stock par
value $.01 (the "RHP Common Stock") of its subsidiary, Residential Healthcare
Properties, Inc., a Nevada Corporation ("RHP" as used herein refers to
Residential Healthcare Properties, Inc. and, unless the context otherwise
requires, its wholly-owned subsidiaries), the effect of which shall be the
spinoff of RHP (the "Spinoff").
The Spinoff is expected to occur on or about 12:01 AM on October 1, 1997
(the "Effective Date"). In the Spinoff one share of RHP Common Stock will be
distributed for every two shares of the common stock of Greenbriar, $.01 par
value per share ("Greenbriar Common Stock") held on September 18, 1997 (the
"Record Date"). Any holder of Greenbriar Common Stock who would otherwise
receive a fractional share of RHP Common Stock in the Spinoff will instead
receive cash for that fractional interest. No consideration will be required to
be paid by Greenbriar stockholders as of the Record Date for the shares of RHP
Common Stock to be received by them in the Spinoff, nor will they be required to
surrender or exchange shares of Greenbriar Common Stock to receive shares of RHP
Common Stock.
There is currently no public market for RHP Common Stock, although it is
expected that a "when-issued" trading market may develop on or about the Record
Date. RHP intends to apply for listing of RHP Common Stock on the American Stock
Exchange ("AMEX") or the Nasdaq National Market.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
YOU ARE NOT REQUIRED TO TENDER YOUR SHARES OF GREENBRIAR COMMON STOCK IN
ORDER TO PARTICIPATE IN THE DISTRIBUTION, AND WE ASK YOU NOT TO
SEND YOUR CERTIFICATES TO US. NO STOCKHOLDER APPROVAL OF
THE DISTRIBUTION IS REQUIRED OR SOUGHT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT.
THIS INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. ANY SUCH OFFERING MAY
ONLY BE MADE BY MEANS OF A SEPARATE PROSPECTUS PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT AND OTHERWISE
IN COMPLIANCE WITH APPLICABLE LAW.
The date of this Information Statement is September , 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION...................................................................................... iv
SUMMARY.................................................................................................... 1
INTRODUCTION............................................................................................... 5
THE SPINOFF................................................................................................ 6
Reasons For The Spinoff.................................................................................. 6
Manner of Effecting The Spinoff; Fractional Shares....................................................... 6
Trading Market for RHP Common Stock...................................................................... 7
Relationship Between Greenbriar and RHP after the Spinoff................................................ 7
Dividends on RHP Common Stock............................................................................ 9
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE SPINOFF..................................................... 9
Introduction............................................................................................. 9
Receipt of the Spinoff Shares by Greenbriar Stockholders................................................. 9
Special Rules Applicable to Corporate Stockholders--Deduction for Dividends Received..................... 11
Payment of the Spinoff by Greenbriar..................................................................... 12
Tax Consequences of Distribution to RHP.................................................................. 12
Tax Reporting............................................................................................ 12
Backup Withholding....................................................................................... 12
RISK FACTORS............................................................................................... 14
Operating Losses......................................................................................... 14
Ability to Continue Growth; Ability to Manage Rapid Expansion............................................ 14
Risks Associated With Acquisitions....................................................................... 14
Risks Associated with the Development of Properties...................................................... 15
Real Estate Investment Considerations.................................................................... 15
Engaging Third-Parties to Lease or Manage Properties..................................................... 17
Need for Additional Financing............................................................................ 17
Substantial Debt......................................................................................... 18
Conflicts of Interest of Certain Executive Officers and Directors........................................ 18
Dependence on Senior Management.......................................................................... 18
Control by Insiders...................................................................................... 18
Formation Transactions Not at Arm's Length............................................................... 19
Competition.............................................................................................. 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Government Regulation.................................................................................... 19
Anti-Takeover Provisions................................................................................. 21
Dividend Policy.......................................................................................... 22
Possible Adverse Effect of Shares Available for Future Sale on the Price of RHP Common Stock............. 22
BUSINESS AND PROPERTIES.................................................................................... 23
Overview................................................................................................. 23
History and Organization................................................................................. 23
Business Strategy........................................................................................ 23
Financing................................................................................................ 24
Properties............................................................................................... 25
Plans for Construction................................................................................... 28
Community Description.................................................................................... 29
Marketing................................................................................................ 29
Government Regulation.................................................................................... 30
Competition.............................................................................................. 31
Environmental Matters.................................................................................... 32
Employees................................................................................................ 32
Corporate Offices........................................................................................ 32
Legal Proceedings........................................................................................ 32
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES................................................................ 35
MANAGEMENT................................................................................................. 35
Directors and Executive Officers of RHP.................................................................. 35
Organization of the Board of Directors................................................................... 36
Compensation of Directors................................................................................ 37
Executive Compensation................................................................................... 37
Employment Agreements.................................................................................... 38
Stock Option Plan and Option Grants...................................................................... 38
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 40
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 42
DESCRIPTION OF CAPITAL STOCK............................................................................... 43
Authorized Shares........................................................................................ 43
Common Stock............................................................................................. 43
AUTHORIZED PREFERRED STOCK................................................................................. 44
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Terms of Series A Senior Convertible/Exchangeable Preferred Stock........................................ 44
Terms of Series B Junior Preferred Stock................................................................. 45
Terms of Series C Junior Preferred Stock................................................................. 46
No Preemptive Rights..................................................................................... 47
Transfer Agent and Registrar............................................................................. 47
CERTAIN RIGHTS OF HOLDERS OF COMMON STOCK; ANTITAKEOVER EFFECTS............................................ 47
Anti-Takeover Provisions................................................................................. 47
Special Meetings......................................................................................... 49
Mergers, Consolidations and Sales of Assets.............................................................. 49
Directors; Removal of Directors.......................................................................... 49
Amendments to Bylaws..................................................................................... 49
Appraisal Rights......................................................................................... 50
Distributions............................................................................................ 50
Preemptive Rights........................................................................................ 50
Cumulative Voting........................................................................................ 50
LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION....................................................... 51
Limitation on Liability of Directors..................................................................... 51
Indemnification of Directors and Officers................................................................ 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 52
Pro Forma Financial Statements............................................................................. 58
Index to Financial Statements.............................................................................. F-1
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION
RHP has filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form 10-SB (as the same may be amended or supplemented
from time to time, the "Registration Statement") under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") with respect to the RHP Common
Stock to be received by Greenbriar stockholders in the Spinoff. This Information
Statement does not contain all of the information set forth in the Registration
Statement and the exhibits thereto, to which reference is hereby made.
Statements made in this Information Statement as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description of the matter involved, and each such statement
is deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto filed by RHP with the
SEC may be inspected and copied at the public reference facilities of the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; as well as at the
Regional Offices of the SEC at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such information can be obtained by mail from the Public Reference
Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Filings with the SEC made through the Electronic Data
Gathering, Analysis, and Retrieval system are publicly available through the SEC
Web site (http:// www.sec.gov).
After the Effective Date, RHP will be required to comply with the reporting
requirements of the Exchange Act and will be required to file annual, quarterly
and other reports with the SEC. RHP also will be subject to the proxy
solicitation requirements of the Exchange Act and will furnish audited financial
statements to its stockholders in connection with its annual stockholders'
meeting.
Prior to the Effective Date, Greenbriar security holders with inquiries
relating to the Spinoff or RHP should contact Greenbriar by writing to
Attention: Director of Shareholder Relations, Greenbriar Corporation, 4265
Kellway Circle, Addison, Texas 75244 or by telephoning (972) 407-8400.
After the Effective Date, holders of RHP Common Stock with inquiries
relating to the Spinoff or their RHP shares should contact RHP by writing to
Attention: Director of Shareholder Relations, Residential Healthcare Properties,
Inc., 4265 Kellway Circle, Addison, Texas 75244 or by telephoning (972)
407-8440.
iv
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS INFORMATION STATEMENT, WHICH SHOULD BE READ IN ITS
ENTIRETY. THIS INFORMATION STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. RHP'S ACTUAL RESULTS COULD DIFFER FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH HEREIN UNDER "RISK FACTORS." CAPITALIZED TERMS USED
BUT NOT DEFINED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS INFORMATION
STATEMENT.
<TABLE>
<S> <C>
RESIDENTIAL HEALTHCARE
PROPERTIES, INC............. Following the Spinoff, RHP will own retirement, assisted
living and Alzheimer's care properties, along with some
commercial properties and undeveloped land, previously owned
by Greenbriar. RHP will seek to purchase, improve and market
additional real estate properties. While its focus will be
on retirement, assisted living and Alzheimer's care
properties (together sometimes referred to as "assisted
living" properties), RHP may choose to acquire or develop
other types of residential properties and commercial
properties. Assisted living properties primarily will be
leased to Greenbriar, although some may only be managed by
Greenbriar, or managed by other third-party management
companies, for the account of RHP. Other types of
residential properties, such as regular apartments, and
commercial properties generally will be managed for RHP by
third parties. See "Business and Properties."
THE DISTRIBUTION.............. Based on the number of shares of Greenbriar Common Stock
outstanding on August 15, 1997 Greenbriar estimates that it
will distribute approximately 3,360,000 shares of RHP Common
Stock, or one share of RHP Common Stock for every two shares
of Greenbriar Common Stock outstanding as of the Record Date
described below. Immediately following the Spinoff, the
holders of Greenbriar Common Stock on the Record Date will
own approximately 3,360,000 shares of RHP Common Stock,
which will represent 100% of the outstanding shares of RHP
Common Stock.
REASONS FOR THE SPINOFF....... The Greenbriar Board of Directors believes that the Spinoff
is in the best interests of Greenbriar and the stockholders
of Greenbriar. The reasons for the Board of Directors'
conclusions include, but are not limited to, the following:
(a) the Spinoff will permit Greenbriar to exit the business
of acquiring, developing and financing real estate
properties in order to concentrate all of its resources on
its business of operating and managing assisted living
communities; (b) following the Spinoff, RHP will have a
substantial core of assisted living properties it owns, most
of which it will have leased or contracted for management
with an experienced operating company, e.g., Greenbriar, and
it will have an experienced management team to lead its
business of acquiring developing, financing, selling and
leasing real estate of many types; (c) following the
Spinoff, each company will be able to focus on its business
without regard to the corporate objectives and policies of
the other company; (d) the narrower focus of each company
will permit it to offer incentives
</TABLE>
<PAGE>
<TABLE>
<S> <C>
more attractive and appropriate for the motivation and
retention of key employees in its respective market; and (e)
the narrower business focus of each company will permit a
more objective evaluation of each by the capital markets.
By focusing the real estate business in a separate company,
Greenbriar's general and administrative costs will be
reduced substantially, both in dollars and as a percentage
of revenues. RHP will assume the expenses associated with
the real estate development, acquisition and property
financing functions. See "The Spinoff."
RECORD DATE................... The record date for determining stockholders entitled to
receive the Spinoff Shares (as defined herein) will be at
the close of business on September 18, 1997.
THE SPINOFF................... The Effective Date of the Spinoff will be 12:01 AM on
October 1, 1997, or a later date if the conditions for the
Spinoff cannot be satisfied within a reasonable time frame.
At that time RHP will become independent from Greenbriar for
accounting purposes, and stockholders of Greenbriar will
become stockholders of record of RHP. A number of
transactions related to the Spinoff are expected to occur on
or about the Effective Date, including the issuance of stock
purchase rights to holders of Greenbriar options, warrants
and preferred stock to permit them to maintain the benefit
of their exercise or conversion rights, and shares of RHP
Common Stock will be distributed (the "Spinoff Shares"). The
date RHP Common Stock certificates are mailed to Greenbriar
stockholders, or their brokerage accounts are credited, may
occur after the Effective Date. See "The Spinoff."
Prior to or concurrent with the Spinoff, RHP will sell
1,020,000 shares of its Series C Junior Preferred Stock to
members of management. See "Certain Relationships and
Related Transactions." Effective on or about the time of the
Spinoff RHP expects to issue 1.5 million shares of its
Series A Senior Convertible/Exchangeable Preferred Stock and
one million shares of its Series B Junior Preferred Stock.
See "Certain Relationships and Related Transactions" and
"Description of Capital Stock."
DISTRIBUTION AGENT............ The Distribution Agent will be American Stock Transfer &
Trust Company, 40 Wall Street, New York, New York 10005.
FRACTIONAL SHARES............. No fractional shares will be issued in the Spinoff. Instead,
the Distribution Agent will aggregate all fractional
interests in shares of RHP Common Stock, sell such shares in
the public trading market and distribute the net proceeds
thereof to the holders of Greenbriar Common Stock otherwise
entitled to a fractional share. See "The Spinoff -- Manner
of Effecting the Distribution: Fractional Shares."
CERTAIN TAX CONSEQUENCES...... The amount of the Spinoff distribution received by most non-
corporate Greenbriar stockholders will be treated as a
taxable dividend to each such stockholder to the extent of
such stockholder's pro rata share of Greenbriar's current
and accumulated earnings and profits. Generally, any other
amount of the Spinoff distribution
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
received will first be treated as a nontaxable return of
capital to the extent of such stockholder's basis, and then
as a capital gain. Special tax treatment likely will apply
to Greenbriar's corporate stockholders. The amount of the
Spinoff distribution will be reported to the stockholders
and to the IRS, and under certain circumstances, Greenbriar
may be required to withhold taxes on the amount of the
Spinoff distribution to certain stockholders. It is also
possible that Greenbriar will recognize taxable gain from
the Spinoff. The Spinoff will have no current tax
consequences to RHP. Greenbriar stockholders are urged to
consult with their own tax advisors regarding the particular
tax consequences applicable to them. See "The Spinoff --
Certain Federal Income Tax Consequences of the Spinoff."
TRADING MARKET................ Currently, there is no public market for RHP Common Stock;
however, a "when issued" trading market is expected to
develop prior to the Effective Date. RHP intends to apply
for listing on AMEX or the Nasdaq National Market. See "The
Spinoff."
FINANCING..................... In connection with the Spinoff, RHP expects to receive
approximately $10 million of net cash from a series of
transactions that will result in the sale by RHP of shares
of its Series A Senior Convertible/Exchangeable Preferred
Stock and Series B Junior Preferred Stock and the purchase
by RHP of shares of Greenbriar Common Stock. See "Business
and Properties--Financing."
TRANSFER AGENT AND
REGISTRAR................... RHP has retained American Stock Transfer & Trust Company to
serve as transfer agent and registrar for the RHP Common
Stock.
RISK FACTORS.................. Stockholders should carefully consider each of the matters
discussed under the section entitled "Risk Factors" in this
Information Statement.
DIVIDENDS..................... Decisions regarding dividends on RHP Common Stock following
the Spinoff will be at the discretion of the RHP Board of
Directors; however, for the foreseeable future RHP
anticipates that earnings will be used principally to
support operations and finance continued expansion. See "The
Spinoff -- Dividends on RHP Common Stock."
PRINCIPAL OFFICE OF RHP....... RHP's principal office is located at 4265 Kellway Circle,
Addison, Texas 75244.
RELATIONSHIP WITH GREENBRIAR
AFTER THE SPINOFF........... Following the Spinoff, Greenbriar and RHP will act as
separate companies with distinct management personnel and
business purposes, provided, however, that Greenbriar's
Chairman of the Board will serve also as Chairman of the
Board and Chief Executive Officer of RHP. The companies also
will have entered into various agreements to define their
mutually-beneficial continuing business relationship, as
described below.
The companies anticipate that Greenbriar initially will
lease or manage substantially all of RHP's assisted living
center properties under agreements typical in the industry.
Greenbriar will be granted a right of first refusal to lease
or manage any additional assisted
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
living centers acquired or developed by RHP during the
5-year term of the agreement. For each property developed or
acquired by RHP, the decision whether to offer Greenbriar a
lease or a management contract at any given time will be
made by RHP. See "The Spinoff."
The companies anticipate that they will share the services
of certain of their employees for a period of time, and
Greenbriar will lease its principal offices and management
facilities from RHP. RHP will own approximately 20% of the
issued and outstanding shares of Greenbriar Common Stock. In
addition, shortly after the Spinoff Greenbriar will acquire
$10 million of RHP Series B Junior Preferred Stock for cash.
See "The Spinoff -- Relationship Between Greenbriar and RHP
after the Spinoff" and "Business and Properties --
Financing."
CERTAIN TRANSACTIONS WITH
MANAGEMENT.................. RHP has agreed to assume as of the Effective Date employment
contracts with certain members of management currently
employed by Greenbriar. The management employees have agreed
to leave the employment of Greenbriar and assume executive
positions with RHP, and they have agreed to take decreases
in their contractual salaries for the first year with RHP,
in some cases agreeing to complete elimination of cash
salaries for that period. As an inducement for their
employment and the employment of certain other new members
of management, RHP is offering to sell up to 1,020,000
shares of RHP Series C Junior Preferred Stock to these new
employees at a per share price of $2.00. See "Certain
Relationships and Related Transactions."
</TABLE>
4
<PAGE>
INTRODUCTION
RHP is a subsidiary of Greenbriar recently organized to own and operate that
portion of Greenbriar's business to be spun off to the Greenbriar common
stockholders. At the time of the Spinoff Greenbriar will own approximately
3,360,000 shares of RHP Common Stock (the "Spinoff Shares"), which will be all
of the outstanding shares of RHP Common Stock. The distribution to Greenbriar
common stockholders of all of the Spinoff Shares will effect the Spinoff of RHP
from Greenbriar as approved by Greenbriar's Board of Directors on August 19,
1997. As a result of the Spinoff, the current business conducted by Greenbriar
will be split into two companies. Greenbriar will remain primarily an operating
and management company for assisted living communities, leasing or managing
RHP's assisted living properties after the Spinoff and continuing to manage or
lease properties under existing agreements with third-party owners. RHP will be
a real estate acquisition, financing and development company, initially holding
substantially all of Greenbriar's former real properties. Greenbriar will
deliver certificates for the Spinoff Shares to American Stock Transfer & Trust
Company, who will be the distribution agent to handle the transfer and delivery
of the shares. Stockholders who have questions should contact Director of
Stockholder Relations at Greenbriar.
At the time of the Spinoff, RHP will own or lease assisted living
communities in 10 states with a capacity of 1,702 residents, and it will have
under construction five assisted living communities with an aggregate capacity
of 303 residents. RHP also will own its office building, one retail center with
23,000 square feet of commercial space, several parcels of undeveloped land and
mortgages secured by real estate.
RHP's principal executive office is located at 4265 Kellway Circle, Addison,
Texas 75244, and its telephone number is (972) 407-8440.
5
<PAGE>
THE SPINOFF
REASONS FOR THE SPINOFF
The Greenbriar Board of Directors believes that the value and potential of
Greenbriar's assisted living management services business and real estate
acquisition and development business (which will be transferred into RHP) may be
better realized if the businesses are operated through separate public
companies. Therefore, the Board of Directors has determined that the Spinoff is
in the best interests of the stockholders of Greenbriar. The Spinoff is designed
to separate the two businesses, which involve distinctly different products and
services, markets, opportunities, and investment, financial and operating
characteristics, so that each can adopt strategies and pursue objectives
appropriate to it.
The Spinoff will permit Greenbriar to exit the business of acquiring,
financing and developing real estate properties in order to concentrate all of
its resources on its business of operating and managing assisted living
communities, and it will permit RHP to enter the residential real estate market
with the ownership of a substantial core of assisted living properties. RHP will
have an experienced management team to lead its business of acquiring,
financing, developing and leasing residential real estate, and through its
relationship to Greenbriar it will have an experienced company operating or
managing its properties. The Spinoff will allow the management of each company
to focus its attention and resources on the challenges faced by their respective
core businesses without regard to corporate objectives, policies, and investment
standards of the other.
In addition, the Greenbriar Board of Directors believes that the access of
both companies to private and public capital markets may be enhanced by the
Spinoff. After the Spinoff, each business could be more objectively evaluated by
the capital markets on the basis of its individual merits. Separating the
companies should allow for increased executive focus for both Greenbriar and RHP
and more effective incentive programs for key employees of each company. The
Spinoff should also permit investors, customers, regulatory agencies and other
constituencies to evaluate the respective businesses of Greenbriar and RHP more
effectively.
MANNER OF EFFECTING THE SPINOFF; FRACTIONAL SHARES
The general terms and conditions relating to the Spinoff are set forth in a
Distribution Agreement between Greenbriar and RHP. See "The
Spinoff--Relationship Between Greenbriar and RHP After the Spinoff; Distribution
Agreement." In the Spinoff one share of RHP Common Stock will be distributed for
every two shares of Greenbriar Common Stock outstanding on the Record Date to
holders of record of Greenbriar Common Stock on the Record Date. American Stock
Transfer & Trust Company as distribution agent (the "Distribution Agent"), will
commence mailing the certificates representing shares of the RHP Common Stock to
or credit the brokerage accounts of Greenbriar Stockholders on or after the
Effective Date.
It is anticipated that, after the Record Date and prior to receipt of such
stock certificates, holders of shares of the RHP Common Stock will be able to
sell their shares on a "when-issued" basis to be settled following the receipt
of such certificates. A "when-issued" market in shares of RHP Common Stock may
not develop, however, and, accordingly, stockholders may not be able to sell
their shares of RHP Common Stock prior to the receipt of their certificates
representing such shares.
No certificates or scrip representing fractional shares of RHP Common Stock
will be issued to Greenbriar stockholders in the Spinoff. In lieu of receiving a
fractional share, each holder of Greenbriar Common Stock who would otherwise be
entitled to receive a fractional share of RHP Common Stock will receive cash for
such fractional interest. On or after the Effective Date, but not later than
forty-five business days after the Effective Date, the Distribution Agent will
cause all fractional shares of the RHP Common Stock to which Greenbriar
stockholders would otherwise be entitled to be aggregated and the resulting
shares sold for the account of such stockholders. After the Effective Date, the
Distribution Agent
6
<PAGE>
will compute the average price per share of RHP Common Stock resulting from all
such sales and will remit to each stockholder of Greenbriar entitled to a
fractional share of RHP Common Stock an amount equal to such average price
multiplied by his or her fractional interest (after making appropriate
deductions of any amount required for tax withholding purposes and after
deducting an amount equal to all brokerage charges, commissions, and transfer
taxes attributed to such sale).
The number and identity of stockholders of RHP immediately after the Spinoff
generally will include the number and identity of stockholders of Greenbriar
prior to the Spinoff. An aggregate of up to approximately 3,360,000 shares of
RHP Common Stock is expected to be distributed in the Spinoff to approximately
3,800 holders of record. The actual number of shares of RHP Common Stock to be
distributed and the number of stockholders will be determined as of the Record
Date.
Holders of Greenbriar Common Stock will not be required to pay cash or any
other consideration for the Spinoff Shares or to surrender or exchange
certificates representing shares of Greenbriar Common Stock in order to receive
shares of RHP Common Stock. The Spinoff does not affect the number of, or the
rights attaching to, the outstanding shares of Greenbriar Common Stock.
TRADING MARKET FOR RHP COMMON STOCK
Currently, there is no public market for RHP Common Stock. RHP intends to
apply for listing of RHP Common Stock on AMEX or the Nasdaq National Market.
Prices at which RHP Common Stock may trade on or about the Record Date before
the Spinoff in a "when-issued" trading market, if such a "when-issued" market
develops, and after the Spinoff cannot be predicted. Until RHP Common Stock is
fully distributed and an orderly market develops, the prices at which trading in
the stock occurs may fluctuate significantly. Trading prices for RHP Common
Stock will be determined by the marketplace, and may be influenced by many
factors, including, among others, the depth and liquidity of the market for RHP
Common Stock, investor perception of RHP and its business, RHP's financial
results, sales of substantial amounts of RHP Common Stock and general economic
and market conditions. No "when-issued" trades will settle prior to the
Effective Date, and if the Spinoff does not occur, then all when-issued trading
will be null and void.
Spinoff Shares received by the holders of Greenbriar Common Stock will be
freely transferable, except for shares received by persons who are deemed
"affiliates" of RHP under the Securities Act of 1933, as amended (the
"Securities Act"). Persons who are deemed affiliates of RHP after the Spinoff
generally include individuals or entities that control, are controlled by or are
under common control with RHP, and will include the directors, executive
officers and principal stockholders of RHP. Persons who are affiliates of RHP
will be permitted to sell the RHP Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements thereunder, such as under Rule 144.
RELATIONSHIP BETWEEN GREENBRIAR AND RHP AFTER THE SPINOFF
DISTRIBUTION AGREEMENT. In order to provide for an orderly transition to the
status of two separate companies, Greenbriar and RHP have entered into a
distribution agreement (the "Distribution Agreement"). The Distribution
Agreement summarized in this section is included as an exhibit to the
Registration Statement, of which this Information Statement forms a part, and
the following summary is qualified in its entirety by reference to the
Distribution Agreement as filed with the SEC.
The Distribution Agreement provides for, among other things, the principal
corporate transactions required to effect the Spinoff, the conditions that must
be satisfied prior to the Effective Date, the dividend to Greenbriar's common
stockholders in the form of RHP Common Stock, cooperation between Greenbriar and
RHP prior to the Spinoff, the indemnification by each party of the other against
certain liabilities, the transfer of certain employee relationships and
obligations, and the cooperation of certain legal, financial and other experts
during an interim period. The Distribution Agreement also will provide
7
<PAGE>
that Greenbriar and RHP will be granted access to certain records and
information in the possession of the other, and will require the retention by
each for a period of five years following the Spinoff of all such information in
its possession.
The Distribution Agreement also will provide for the allocation of certain
taxes. In general, Greenbriar will be responsible for filing all tax returns and
paying all taxes relating to periods through the Effective Date, and RHP will be
responsible for filing such tax returns and paying all such taxes as are
appropriate to RHP and its business for the period beginning after the Effective
Date. Greenbriar and RHP will agree to cooperate with one another and to share
Information in preparing such tax returns and in dealing with other tax matters.
Greenbriar's Board of Directors has the sole discretion to establish the
Record Date, the Effective Date and the date of the Spinoff distribution and any
appropriate procedures in connection with the Spinoff. The Spinoff will not
occur unless the following conditions have been satisfied: (1) all approvals of
third parties deemed necessary and material by Greenbriar's Board of Directors
have been received; (2) the Registration Statement has become effective under
the Securities Exchange Act; (3) the Spinoff distribution is payable in
accordance with applicable law; and (4) no order, injunction or decree issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing consummation of the Spinoff is in effect.
LEASES AND MANAGEMENT AGREEMENTS WITH GREENBRIAR; SALES OF PROPERTIES
SUBJECT TO LEASE OR A MANAGEMENT AGREEMENT. Greenbriar will lease or manage all
of RHP's currently-owned assisted living properties (including congregate care
retirement and Alzheimer's care properties) pursuant to one or more leases or
management agreements, with the exception of one RHP property managed by a
third-party. The companies also will enter into an agreement with an initial
term of five years which, among other provisions, will grant Greenbriar a right
of first refusal to enter into agreements to lease or manage, at RHP's option,
any additional assisted living, congregate retirement and Alzheimer's care
communities or skilled nursing facilities acquired or developed by RHP during
the term of the agreement.
The leases of RHP's existing properties and of future properties will be
triple net leases with terms, generally, of 20 years and such other provisions
as are typical of triple net leases. Greenbriar will have the right to renew the
leases for two 5-year terms. From inception of the leases on the existing
properties, expected to be approximately October 1, 1997, through December 31,
1997, the lease amount will be 22% of the monthly gross revenues (paid in
advance on an estimated basis) of each property, with a minimum of 22% of the
revenues during the period of May, June and July of 1997. In 1998, the monthly
lease amount will be the greater of 22% of gross revenues or the actual average
monthly rate paid during the period October 1, 1997 through December 31, 1997.
Beginning in the year 1999, the lease amount will be the greatest of (1) the
prior year's lease amount, (2) 22% of gross revenue and (3) a fixed dollar
amount negotiated between the parties prior to the inception of the lease. At
the inception of the fifth year of the lease (January 1, 2002) the fixed dollar
amount will increase to a higher number negotiated at the inception of the
lease, but the other terms for determining the lease amount will stay the same.
Leases entered into after the Spinoff will be on terms negotiated by RHP and
Greenbriar.
Any management agreement entered into with Greenbriar for properties owned
by RHP will be at fair market value with respect to management fees. Currently,
it is expected that Greenbriar will be paid a management fee of 6% of the gross
revenues of each of RHP's properties. The management agreements will be
cancelable on 60 days' notice. At any time, Greenbriar may be offered an
opportunity to lease the property at market rates. If Greenbriar chooses not to
enter into a lease, its management contract will become cancelable on 30 days'
notice at RHP's option. With respect to properties subject to a management
agreement, RHP, as owner, will retain substantially all risks of ownership.
RHP OWNERSHIP OF GREENBRIAR STOCK. On or about the time of the Spinoff, RHP
will own up to approximately twenty percent of the then outstanding common stock
of Greenbriar, or a maximum of 1,690,445 shares. It will receive approximately
857,112 shares from Greenbriar as a capital contribution,
8
<PAGE>
and it will acquire up to approximately 833,333 shares from Greenbriar shortly
after the Spinoff. RHP will purchase the shares for $15 million in cash at a
price equal to the then prevailing market price of the shares or $18 per share,
whichever is greater. See "Business and Properties--Financing." After the
Spinoff RHP will hold the shares of Greenbriar as a portfolio security for the
following purposes: (1) transfer of 857,112 shares to the holder(s) of RHP's
Series A Senior Convertible/Exchangeable Preferred Stock upon the exchange of
such preferred stock; and (2) the balance, amounting to 833,333 shares, will be
held for use as consideration in the acquisition by RHP of additional properties
or as the management of RHP should determine.
GREENBRIAR OWNERSHIP OF RHP STOCK. Shortly after the Spinoff, Greenbriar
will acquire one million shares of Series B Junior Preferred Stock of RHP for
$10 million. See "Business and Properties-- Financing" and "Authorized Preferred
Stock--Terms of Series B Junior Preferred Stock".
DIVIDENDS ON RHP COMMON STOCK
RHP anticipates that future earnings will be used principally to support
operations and to finance continued expansion, and, thus, RHP does not intend to
pay cash dividends on the RHP Common Stock for the foreseeable future. The
payment of cash dividends in the future will be at the discretion of RHP's Board
of Directors and will depend upon such factors as earnings levels, capital
requirements, RHP's financial condition, and other factors deemed relevant by
RHP's Board of Directors. However, the Board of Directors may declare a dividend
payable in stock of RHP.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE SPINOFF
INTRODUCTION
The discussion set forth below is a summary of the material tax consequences
respecting the Spinoff. The discussion does not purport to be a complete
analysis of all of the potential tax effects of the Spinoff or of ownership of
RHP Common Stock following the Spinoff. The discussion is limited to United
States Federal income tax matters. The discussion is based upon the Internal
Revenue Code of 1986, Treasury regulations, Internal Revenue Service ("IRS")
rulings, and judicial decisions now in effect, all of which are subject to
change at any time, possibly with retroactive effect, by legislative, judicial,
or administrative action.
The discussion does not address the tax consequences of receipt of the
Spinoff Shares to taxpayers which are subject to special rules that do not apply
to taxpayers generally, such as life insurance companies, tax-exempt
organizations, regulated investment companies, S corporations, financial
institutions, broker-dealers in securities, foreign entities, and nonresident
alien individuals.
RECEIPT OF SPINOFF SHARES BY GREENBRIAR STOCKHOLDERS
The Spinoff will be a taxable event to Greenbriar's stockholders for Federal
income tax purposes. The amount received in the Spinoff by each Greenbriar
stockholder for Federal income tax purposes will be the fair market value of RHP
Common Stock received by such stockholder as of the Effective Date (including
the fair market value of fractional shares). The amount received in the Spinoff
by each Greenbriar stockholder will be treated as a dividend (i.e., as ordinary
income) to such stockholder to the extent of such stockholder's pro rata share
of Greenbriar's current and accumulated earnings and profits as computed for
Federal income tax purposes. The amount received in the Spinoff by each
Greenbriar stockholder that is not treated as a dividend first will be treated
as a nontaxable return of capital to the extent of such stockholder's basis in
its Greenbriar Common Stock, and then as an amount received by such stockholder
from the sale or exchange of property. The amount that is treated as received by
a Greenbriar stockholder from the sale or exchange of property generally will be
a capital gain, and the capital gain will be long-term capital gain if the
stockholder has held its Greenbriar stock for more than eighteen months. For
purposes of determining the amount received in the Spinoff by a Greenbriar
stockholder that constitutes a dividend,
9
<PAGE>
the stockholder's pro rata share of Greenbriar's current and accumulated
earnings and profits will be based on the stockholder's percentage ownership of
Greenbriar Common Stock.
Greenbriar has current and accumulated tax losses. While Greenbriar does not
anticipate any earnings and profits from normal operations in its current fiscal
year, if (and to the extent that) the Spinoff Shares have a value in excess of
Greenbriar's basis in the RHP Common Stock, Greenbriar will realize gain to the
extent of such excess; and, if the gain causes Greenbriar to have current
earnings and profits for 1997, the Greenbriar stockholders will recognize
dividend income ratably to the extent of Greenbriar's current earnings and
profits for 1997.
Each Greenbriar stockholder for Federal income tax purposes will acquire an
initial tax basis in such stockholder's RHP Common Stock equal to the fair
market value of the property, i.e., the value of the RHP Common Stock, that is
received by such stockholder as of the Effective Date. Each Greenbriar
stockholder's holding period for RHP Common Stock received in the Spinoff will
begin on the Effective Date. Also, certain special rules, that permit a
deduction for certain dividends received by a corporation, generally will apply
in the case of corporations that receive Spinoff Shares, as described below
under the caption "Special Rules Applicable to Corporate Stockholders--Deduction
for Dividends Received."
As mentioned above, the amount received in the Spinoff by each Greenbriar
stockholder for Federal income tax purposes will be the fair market value of the
property, i.e., the value of the RHP Common Stock, that is received by such
stockholder as of the Effective Date (including the fair market value of
fractional shares). Greenbriar will make a determination of the fair market
value of RHP Common Stock as of the Effective Date after such date based on a
number of factors that will include, without limitation, the trading price of
RHP Common Stock at or near the Effective Date.
Prior to January 31, 1998, Greenbriar will report the amount of the Spinoff
received by each stockholder to such stockholder and to the IRS. There is no
assurance that the IRS or the courts will agree that the amount received in the
Spinoff by a Greenbriar stockholder is the amount determined by Greenbriar, and
it is possible that the IRS and the courts will ultimately determine that
Greenbriar's stockholders, or some of them, received a larger distribution
amount for Federal income tax purposes than the amounts reported to them by
Greenbriar. If the IRS were to challenge the amount of the distribution
reportable by any Greenbriar stockholder on such stockholder's Federal income
tax return, then such stockholder would have to bear the expenses and effort of
defending against or otherwise resolving such challenge.
10
<PAGE>
SPECIAL RULES APPLICABLE TO CORPORATE STOCKHOLDERS -- DEDUCTION FOR DIVIDENDS
RECEIVED
A corporate holder of Greenbriar Common Stock generally will be entitled, in
computing its taxable income for the tax year in which the Spinoff occurs, to a
deduction in an amount equal to 70 percent of the amount received by it in the
Spinoff that constitutes a dividend. This deduction does not apply to any
portion received in the Spinoff that constitutes a return of capital or taxable
gain, and it is subject to several limitations as described in the following
paragraphs. The dividends received deduction will be available only for
dividends received on shares of Greenbriar Common Stock that the corporate
holder has held for at least 46 days, or at least 91 days if the Spinoff amount
is deemed to be attributable to a period or periods aggregating more than 366
days. A holder's holding period for these purposes generally will be reduced by
periods during which: (i) the holder has an option to sell, is under a
contractual obligation to sell, or has made (but not closed) a short sale of
substantially identical stock or securities; (ii) the holder is the grantor of
an option to purchase substantially identical stock or securities; or (iii) the
holder's risk of loss with respect to the shares is considered diminished by
reason of the holding of one or more positions in substantially similar or
related property.
In addition to the foregoing, no dividends received deduction will be
allowed to a corporate holder of Greenbriar Common Stock for a dividend received
by such holder with respect to such stock to the extent that the holder is
obligated (whether pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related property.
The dividends received deduction allowed to a corporate holder of Greenbriar
Common Stock with respect to all dividends received by such holder during the
tax year in which the Spinoff occurs, and not simply the amount received in the
Spinoff that is a dividend or other dividends received by such holder from
Greenbriar, will be limited to a specified proportion of the holder's adjusted
taxable income for such year. Also, the dividends received deduction allowed to
a corporate holder may be reduced or eliminated in accordance with the rules set
forth in Section 246A of the Code if the holder has indebtedness that is
directly attributable to its investment in portfolio stock, such as the
Greenbriar Common Stock.
Special rules may apply to a corporate holder of Greenbriar Common Stock if
the amount received in the Spinoff by such holder is considered to be an
"extraordinary dividend" within the meaning of Section 1059 of the Code. If the
amount received in the Spinoff by a corporate holder constitutes an
extraordinary dividend with respect to such holder's Greenbriar Common Stock,
and if the holder has not held such stock for more than two years before
Greenbriar declared, announced, or agreed to the amount or payment of such
dividend, whichever is earliest, then the holder's basis in the stock will be
reduced (but not below zero) by any non-taxed portion of the dividend, which
generally is the amount of the dividends received deduction. For purposes of
determining if Greenbriar Common Stock has been held for more than two years,
rules similar to those that are applicable to determining how long such stock
has been held for purposes of the dividends received deduction will apply. Upon
the sale or disposition of Greenbriar Common Stock, any part of the non-taxed
portion of an extraordinary dividend that has not been applied to reduce basis
because of the limitation on reducing basis below zero will be treated as gain
from the sale or exchange of such stock. The amount received in the Spinoff by a
corporate holder of Greenbriar Common Stock generally will constitute an
"extraordinary dividend" if the amount received by such holder: (i) equals or
exceeds five percent of the holder's adjusted basis in the stock, treating all
dividends having ex-dividend dates within an 85-day period as one dividend; or
(ii) exceeds 20 percent of the holder's adjusted basis in the stock (determined
without regard to any reduction for the non-taxed portion of other extraordinary
dividends), treating all dividends having ex-dividend dates within a 365-day
period as one dividend. A holder may elect to use the fair market value of the
stock, rather than its adjusted basis, for purposes of applying the five percent
and 20 percent limitations, if the holder is able to establish such fair market
value to the satisfaction of the IRS.
In addition to the foregoing rules which limit the dividends received
deduction, a corporate holder of Greenbriar Common Stock, for purposes of
computing its alternative minimum tax liability, in general may
11
<PAGE>
be required to include in its alternative minimum taxable income the amount of
any dividends received deduction allowed in computing regular taxable income.
PAYMENT OF THE SPINOFF BY GREENBRIAR
Distributions of property made by Greenbriar to its stockholders with
respect to their stock, such as the Spinoff, must in certain circumstances be
treated as if Greenbriar sold the property in a taxable sale at its fair market
value. This rule will apply to the Spinoff if Greenbriar's tax basis in the
distributed property is less than the fair market value of the property at the
Effective Date. If the fair market value of the RHP Common Stock distributed in
the Spinoff exceeds Greenbriar's tax basis in such property at the Effective
Date, the Spinoff will be treated as a taxable sale to Greenbriar and Greenbriar
will recognize gain on the Spinoff in an amount equal to the excess of the fair
market value of the distributed property on the Effective Date over Greenbriar's
tax basis on such property. If, however, Greenbriar's tax basis in the RHP
Common Stock exceeds the fair market value of such property on the Effective
Date, then no gain or loss will be recognized by Greenbriar on the Spinoff.
As described above, the amount received in the Spinoff (i.e., the fair
market value of the property that is distributed) will be determined by
Greenbriar after the Spinoff based on a number of factors that will include,
without limitation, the trading price of RHP Common Stock at or near the
Effective Date. Accordingly, the actual tax impact of the Spinoff on Greenbriar
cannot be determined until after the Spinoff.
TAX CONSEQUENCES OF SPINOFF TO RHP
The distribution by Greenbriar to its stockholders, although consisting of
RHP Common Stock, will have no tax consequences to RHP. Geenbriar will transfer
certain assets to RHP and, RHP will assume certain liabilities of Greenbriar
with respect to those assets, and it will issue to Greenbriar the RHP Common
Stock that will be distributed by Greenbriar in the Spinoff. In that transaction
RHP will acquire a tax basis in the transferred assets that, in general, is
equal to Greenbriar's tax basis in such assets increased by any gain recognized
by Greenbriar on such transaction. It is anticipated that Greenbriar will not
recognize any gain on the transfer of the assets and liabilities to RHP, and
therefore it is anticipated that RHP's tax basis in the transferred assets will
be the same as Greenbriar's tax basis in such assets. Shortly after the Spinoff
RHP will purchase approximately 833,333 shares of Greenbriar Common Stock for
$15 million in cash. The exact number will be based on a purchase price of the
greater of $18 and the then prevailing market price. See "Business and
Properties--Financing." RHP will hold these shares with a tax basis of $15
million.
TAX REPORTING
As indicated above, the amount received in the Spinoff by each holder of
Greenbriar Common Stock will be determined by Greenbriar after the Spinoff based
on a number of factors that will include, without limitation, the trading price
of RHP Common Stock at or near the Effective Date. After this determination is
made (and within the time limit required by the Code) Greenbriar will report the
amount of the dividend received by each stockholder to such stockholder and to
the IRS.
BACKUP WITHHOLDING
Under Section 3406 of the Code and applicable regulations thereunder, a
holder of Greenbriar Common Stock may be subject to backup withholding with
respect to the amount paid to such holder on such stock in the Spinoff. If: (i)
the stockholder ("payee") fails to furnish or certify a taxpayer identification
number to the payor; (ii) the IRS notifies the payor that the taxpayer
identification number furnished by the payee is incorrect; (iii) there has been
a "notified payee underreporting" described in Section 3406(c) of the Code; or
(iv) there has been a "payee certification failure" described in Section 3406(d)
of
12
<PAGE>
the Code, then Greenbriar generally will be required to withhold an amount equal
to 31 percent of the amount paid to such stockholder in the Spinoff with respect
to such Stockholder's Greenbriar Common Stock. Any amounts withheld under the
backup withholding rules from a payment to a stockholder will be allowed as a
credit against the stockholder's Federal income tax liability or as a refund.
THE FOREGOING SUMMARY OF TAX CONSEQUENCES OF RECEIVING THE DISTRIBUTION AND
OWNING RHP COMMON STOCK MAY VARY DEPENDING ON A HOLDER'S PARTICULAR SITUATION.
GREENBRIAR STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES TO THEM OF RECEIPT OF THE SPINOFF SHARES AND
OWNERSHIP OF RHP COMMON STOCK, INCLUDING BUT NOT LIMITED TO THE APPLICATION TO
THEM OF FEDERAL ESTATE AND GIFT, STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.
13
<PAGE>
RISK FACTORS
The following risk factors, as well as the more detailed information
contained elsewhere in this Information Statement, should be considered in
evaluating RHP and its business prospects. This Information Statement contains
forward-looking statements which involve risks and uncertainties. RHP's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Information Statement.
OPERATING LOSSES
Principally as a result of RHP's development, construction, acquisition and
ownership activities, RHP anticipates that it will incur operating losses for
the 18 months following the Spinoff. RHP could, however, have significant gains
from the sale of assets. RHP may not achieve profitability, and it may
experience unforeseen expenses, difficulties, complications and delays which
could result in greater than anticipated operating losses or otherwise
materially adversely affect RHP's financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Conditions and Results of
Operations-- Liquidity and Capital Resources" and "Business and
Properties--Business Strategy."
ABILITY TO CONTINUE GROWTH; ABILITY TO MANAGE RAPID EXPANSION
RHP is subject to certain risks normally associated with an aggressive
expansion strategy focused on developing, constructing and acquiring additional
properties, including the risk that it will be unable to locate or acquire
additional properties, develop or construct or engage third-parties to develop
or construct, additional properties, identify and obtain necessary financing
commitments and locate and engage effective lessees or third-party management
service providers for RHP's properties. There can be no assurance that RHP will
be successful in developing, constructing or acquiring any additional properties
or that its business will achieve growth.
RISKS ASSOCIATED WITH ACQUISITIONS
To the extent that RHP's business strategy depends, in part, on seeking
additional real estate acquisition opportunities, RHP is subject to the risk
that it will experience difficulty and unanticipated expenses identifying
attractive future acquisition opportunities or completing such acquisitions once
identified. Acquisitions typically involve significant costs for due diligence
and professional fees and expenses, which are capitalized in consummated
transactions and expensed in transactions not consummated. In addition,
acquisitions are typically subject to a number of closing conditions, including
those regarding the status of title to real property included in the
acquisition, the results of environmental investigations performed on RHP's
behalf, the transfer of applicable licenses or permits and the availability of
appropriate financing, any of which could prohibit RHP from closing an
acquisition opportunity.
Even in a case of a successful acquisition, RHP is subject to the risk that
RHP may not be successful or timely in repositioning any acquired operations
which, due to underdevelopment, poor market positioning or some other factor,
require structural changes or other improvements. Any failure by RHP to make
necessary changes or successfully to reposition acquired properties may
adversely affect RHP's business, operating results and financial condition. In
undertaking acquisitions of operations, RHP also may be adversely affected by
unforeseen liabilities attributable to the prior operators of such operations,
against whom RHP may have little or no recourse. See "Business and
Properties--Business Strategy."
To the extent RHP acquires less than a controlling interest in an acquired
entity or property, it will be subject to the risks of being unable to control
all actions taken by the controlling entity, which could result in possible
dilution of the investment and disagreement over the policies and decisions
regarding the acquired property. While it generally will be RHP's intent to
acquire controlling interest with respect to all
14
<PAGE>
acquisitions, there are circumstances due to financing restrictions already in
place on an acquired property, tax considerations or other reasons that may
cause RHP to accept less than a controlling position.
RISKS ASSOCIATED WITH THE DEVELOPMENT OF PROPERTIES
RHP's business strategy depends, in part, on RHP's success in the
development of new properties. New project development is subject to a number of
risks, including risks of construction delays or cost overruns that may increase
project costs, risks that the properties will not achieve anticipated occupancy
levels or sustain anticipated rent levels (whether operated by a lessee or for
RHP through a management company), and new project commencement risks, such as
receipt of zoning, occupancy and other required governmental permits and
authorizations and the incurrence of development costs in connection with
projects that are not pursued to completion.
In addition, new developments can create financing risks. It will be the
policy of RHP to seek permanent or "mini-perm" financing before each
construction project is undertaken in order to avoid or mitigate financing
risks. A risk that RHP otherwise might face in its new developments is the risk
that permanent financing on some projects might not be available, or would be
available only on disadvantageous terms. In such case, if permanent debt or
equity financing of RHP generally were not available on acceptable terms, then
further development activities or other business activities might have to be
curtailed.
REAL ESTATE INVESTMENT CONSIDERATIONS
ECONOMIC PERFORMANCE AND VALUE OF PROPERTIES DEPENDENT ON MANY FACTORS. The
income from and market value of a property may be adversely affected by such
factors as changes in the general economic climate, local conditions such as an
oversupply of space or a reduction in demand for real estate in the area, the
attractiveness of the properties to lessees or residents and competition from
other available space. Real estate values also are affected by such factors as
government regulations and changes in real estate, zoning or tax laws, interest
rate levels, the availability of financing, and potential liability under
environmental and other laws.
Adverse economic conditions could adversely affect the ability of a
third-party operator to make payments to RHP with respect to leased properties,
resulting in a reduction in the cash flow of RHP and a decrease in the value of
the property leased to such third-party operator in the event the lease is
terminated and RHP is unable to lease the property to another third-party
operator on similar or better terms, or at all. In addition, RHP may experience
delays in enforcing its rights as lessor and may incur substantial costs in
protecting its investment. If the property is managed for RHP by a third-party
management company, RHP's operating income could be reduced or even become
negative in light of such conditions.
DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY TO MEET DEBT OBLIGATIONS AND
MAKE DISTRIBUTIONS. As a significant portion of RHP's initial income will be
derived from rental income from real property, revenues of properties managed by
third-party managers and lease payments from lessee operators, RHP's income and
cash flow would be adversely affected if a number of residents or one or more
lessees, such as Greenbriar, were unable to meet their obligations to RHP, or if
RHP was unable to lease on economically favorable terms a significant amount of
space in its properties. In addition, RHP's tenants may have the right to
terminate their leases upon the occurrence of certain customary events of
default. Month to month residents of retirement and assisted living properties
generally have the ability to vacate their apartments on 30 days notice. No
assurance can be given that leases that expire can be renewed, or that the
square footage covered by leases that expire or are terminated can be leased to
comparable tenants or on comparable terms, or at all. The assisted living and
retirement apartment industry experiences approximately a 40% annual turnover of
residents, usually due to illness. To the extent RHP operates properties
15
<PAGE>
by engaging third-party managers, RHP bears the risk of units being vacant;
however, to the extent RHP leases its properties, the lessee bears such risks.
RISK OF BANKRUPTCY OF MAJOR TENANTS. The bankruptcy or insolvency of a
major lessee or major tenant or of a number of smaller tenants would have an
adverse impact on the properties affected and, as a result, would have an
adverse impact on RHP. Under bankruptcy law, a tenant has the option of assuming
(continuing) or rejecting (terminating) any unexpired lease. If the tenant
assumes its lease with RHP, the tenant must cure all defaults under the lease
and provide RHP with adequate assurance of its future performance under the
lease. If the tenant rejects the lease, RHP's claim for breach of the lease
(absent collateral securing the claim) would be treated as a general unsecured
claim. General unsecured claims are the last claims to be paid in a bankruptcy
and therefore funds may not be available to pay such claims. The amount of the
claim would be capped at the amount owed for unpaid pre-petition lease payments
unrelated to the rejection, plus the greater of one year's lease payments or 15%
of the remaining lease payments payable under the lease (but not to exceed the
amount of three years' lease payments).
ILLIQUIDITY OF REAL ESTATE INVESTMENTS. Equity real estate investments are
relatively illiquid and therefore tend to limit the ability of RHP to vary its
portfolio quickly in response to changes in economic or other conditions. In
addition, mortgage payments and, to the extent the properties are not subject to
triple net leases, certain significant expenditures such as real estate taxes
and maintenance costs, generally are not reduced when circumstances cause a
reduction in income from the investment, and, should such events occur, RHP's
income and cash flow would be adversely affected. A portion of RHP's Properties
are mortgaged to secure payment of indebtedness, and if RHP were unable to meet
its mortgage payments, a loss could be sustained as a result of foreclosure on
such properties by the mortgagee.
ADDITIONAL COSTS FROM CHANGES IN LAWS. Laws affecting real estate
ownership, acquisition and development are subject to change from time to time
at federal, state and local levels. Sometimes these changes have the effect of
directly increasing the costs RHP faces in its business, although some of these
costs, such as changes in real estate taxes, income, service or transfer taxes,
may be passed on to triple net lessees and, to such extent, they will not affect
RHP with respect to its leased properties (except to the extent such additional
costs adversely impact the ability of such lessees to meet their lease payments
to RHP).
ENVIRONMENTAL LIABILITY RISKS ASSOCIATED WITH REAL PROPERTY. Under various
federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real estate may be held liable for the
cost of removal or remediation of certain hazardous or toxic substances that
could be located on, in or under such property. Such laws typically impose clean
up responsibility and liability without regard to whether the owner knew of or
caused the presence of the hazardous or toxic substances, and liability under
such laws has been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis for allocation of responsibility. The
costs of investigation, remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure properly to
remediate such property, may adversely affect the owner's ability to sell or
lease such property or to borrow using such property as collateral. In addition,
some environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
Finally, the owner of a site may be subject to common law claims by third
parties based on damages and costs resulting from environmental contamination
emanating from a site.
RHP has conducted environmental assessments of all of its sites currently
under construction, as well as 18 of its existing communities. These assessments
have not revealed, and RHP is not otherwise aware of, any environmental
liability that it believes would have a material adverse effect on RHP's
business, assets or results of operations. However, environmental assessments
may not detect all environmental contamination which may give rise to material
environmental liabilities. RHP has not been notified by any governmental
authority, and is not otherwise aware, of any material non-compliance, liability
or claim
16
<PAGE>
relating to hazardous or toxic substances or petroleum products in connection
with any of the properties it owns. See "Business and Properties--Environmental
Matters."
ENGAGING THIRD-PARTIES TO LEASE OR MANAGE PROPERTIES
LEASED PROPERTIES. RHP is subject to the risk that it will be unable to
engage third-party lessees, such as Greenbriar, to lease certain of its
properties on terms economically favorable to RHP in most cases for time periods
of approximately twenty years. If RHP fails to lease any of its properties, any
of its lessees fail to provide quality services in the operation of any
property, or any lessee fails to meet its payment obligations on leases with
RHP, then RHP's operating results and financial condition could be adversely
affected. RHP will also bear the risk that the long term nature of its leases
may lock RHP into a lease with terms that would be less favorable to RHP than it
might otherwise have been able to obtain from time to time during the term of
such leases.
MANAGED PROPERTIES. RHP will seek to engage third-party management
companies, such as Greenbriar, to manage certain of its properties on terms
economically favorable to RHP. RHP may experience difficulty locating, engaging
or working with a third-party management company, any of which could adversely
affect the property. In particular, the quality of the third-party management
company will directly affect the occupancy, rents and cost controls at each
property managed for RHP's account. Accordingly, the operating profit earned by
RHP after payment of all costs, including the management fee, will depend
largely on the quality of the management company. If RHP fails to locate a
third-party management company for a property or the third-party management
company provides poor quality services, the operating results for the property
will suffer and RHP's financial condition may be adversely affected.
RELIANCE ON GREENBRIAR. RHP will enter into an agreement with Greenbriar
pursuant to which Greenbriar will lease or manage all but one of RHP's existing
assisted living communities, and it will have a first right of refusal with
respect to leasing or the management of other such properties RHP acquires or
develops during the period ending 5 years after the Spinoff. RHP may not have
any means of controlling the operation of Greenbriar, and there can be no
assurance that Greenbriar will provide in the future the quality of services
currently provided and desired by RHP for its properties. Although RHP believes
the terms of the agreement are fair and reasonable to RHP, there can be no
assurance that in the future RHP could not obtain equal or higher quality
operations or management services and resulting income by engaging a different
third-party management company for one or more of its managed properties.
Initially, Greenbriar-leased or managed properties will constitute most of
RHP's revenue producing properties. If Greenbriar were to be unable to fulfill
its obligations under leases or management contracts with RHP with respect to
any of RHP's properties, including maintenance and operation of such properties,
because of financial problems or otherwise, then RHP's business, financial
condition and results of operations and the value of any of such properties may
be materially adversely affected. However, in such case, the leases or
management contracts may be canceled by RHP.
NEED FOR ADDITIONAL FINANCING
To achieve its growth objectives, RHP will need sufficient financial
resources to fund its development, construction and acquisition activities.
Accordingly, RHP's future growth will be subject to the risk of its ability to
obtain additional financing on acceptable terms. It is expected that RHP will
obtain financing from a number of sources, such as commercial banks, real estate
investment trusts, private investors in properties and public or private
investors in securities of RHP. Some of these sources may be the same as those
presently utilized by Greenbriar, but there is no assurance such sources also
will provide financing to RHP. At present, RHP does not have any lines of
credit, property financing commitments or equity investors committed to provide
financing to RHP, except for an expected agreement with Lone Star Opportunity
Fund ("Lone Star") under which Lone Star will make an equity investment in RHP,
which
17
<PAGE>
transaction is not certain to occur. See "Business and Properties--Financing"
and "Management's Discussion and Analysis or Plan of Operation--Liquidity and
Capital Resources."
Except for the sale of assets, RHP does not expect to experience positive
cash flow for at least 18 months following the Spinoff as it continues to
develop, construct and acquire additional properties. Newly developed properties
may not generate sufficient cash flow to cover financing and other costs of the
development. RHP, from time to time, will seek additional funding through public
or private sources, including equity or debt financing. If additional funds are
raised or acquisitions are made in exchange for equity securities, stockholders
may experience dilution. Further, such equity securities may have rights,
preferences or privileges senior to those of the Common Stock. To the extent RHP
finances its activities through debt, sale/leaseback or leasing arrangements,
RHP may become subject to certain financial and other covenants which may
restrict its ability to pursue an aggressive growth strategy. There can be no
assurance that adequate equity, debt, sale/leaseback or leasing financing will
be available as needed or on terms acceptable to RHP. A lack of available funds
may require RHP to delay, scale back or eliminate all or some of its development
and acquisition projects and could have a material adverse effect on RHP's
business, financial condition and results of operations.
SUBSTANTIAL DEBT
RHP has assumed approximately $65 million of Greenbriar's debt,
substantially all of which is secured by real estate, and long-term obligations
will increase significantly as RHP pursues its growth strategy. Failure to meet
these obligations by lack of cash flow or otherwise may result in RHP being in
default under its financing agreements, and RHP may lose control of those
properties which secure such financing. See "Management's Discussion and
Analysis or Plan of Operation--Liquidity and Capital Resources" and "Business
and Properties--Business Strategy."
CONFLICTS OF INTEREST OF CERTAIN EXECUTIVE OFFICERS AND DIRECTORS
From time to time RHP may enter into acquisition, development or financing
transactions in which one or more of its directors, executive officers or owners
of more than 5% of the outstanding Common Stock have an interest. The Conflicts
of Interest Committee of RHP's Board of Directors, which includes only outside
Directors, will review and investigate any perceived conflicts of interest
between RHP and such insiders. Notwithstanding such review, these transactions
may create actual or potential conflicts of interest on the part of such
persons. See "Management--Directors and Executive Officers of RHP."
DEPENDENCE ON SENIOR MANAGEMENT
RHP depends, and will continue to depend, upon the services of its senior
management. The loss of the services of any such senior management could have a
material adverse effect on RHP's financial condition or results of operations.
RHP will assume, as of the Effective Date, the employment agreements with each
of Messrs. Bertcher, Dendy, and Gilley. See "Management."
CONTROL BY INSIDERS
Following the Spinoff, Messrs. Gilley, Lund and Rhoades are expected to own
beneficially 36%, 16% and 11%, respectively, of the RHP Common Stock.
Accordingly, following the Spinoff, these individuals will have the ability, by
voting their shares in concert, to control or significantly influence (i) the
election of RHP's Board of Directors and, thus, the direction and future
operations of RHP, and (ii) the outcome of all other matters submitted to RHP's
stockholders, including mergers, consolidations, and the sale of all or
substantially all of RHP's assets. Furthermore, even upon the change of Series C
Junior Preferred Stock to RHP Common Stock (stockholder approval is required,
but approval is assumed on the basis of the ownership discussed above; see
"Authorized Preferred Stock--Terms of Series C Preferred Stock") Messrs. Gilley,
Lund and Rhoades will own beneficially 38%, 13% and 9%, respectively, of the RHP
18
<PAGE>
Common Stock. See "Management--Executive Compensation" and "Security Ownership
of Certain Beneficial Owners and Management."
FORMATION TRANSACTIONS NOT AT ARM'S LENGTH
The principal transactions described elsewhere herein which are to be
carried out in connection with the Spinoff, including those in which RHP will
acquire all of its initial assets and enter into management and leasing
arrangements with Greenbriar, were not negotiated at arm's-length. No
independent valuation or appraisal of the interests contributed to RHP in the
Spinoff and no independent review of the leasing, management, and other
arrangements RHP will enter into with Greenbriar was performed. Accordingly, the
terms of the Spinoff transactions may not be favorable to RHP, or may not be as
favorable as terms that RHP could have received had negotiations at arm's length
been conducted.
COMPETITION
There are numerous commercial developers, real estate companies and an
increasing number of owners and operators of assisted living and retirement
housing, many of which may have greater financial and other resources than RHP
or its management companies, that compete with RHP in seeking properties for
development and acquisition, seeking operators who will lease or purchase these
properties and seeking qualified third-party management companies to manage
properties. RHP expects that as the assisted living industry in particular
receives increased attention, and the number of states that include assisted
living services in their Medicaid programs increases, competition will increase
from new market entrants. As the number of RHP's competitors increases, and the
market for assisted living centers in particular become saturated, RHP may be
unable to compete successfully with such entities in its development,
acquisition, leasing and operating activities. Such competition could cause
RHP's properties to experience decreased occupancy, depressed margins and
lowered operating results, which could have a materially adverse effect on RHP's
ability to attract or retain third-party lessees or management companies for its
properties at existing payment and fee rate structures, and it may have a
materially adverse effect on RHP's operating results. See "Business and
Properties--Competition."
GOVERNMENT REGULATION
The healthcare industry is subject to extensive regulation and frequent
regulatory change at the federal and state levels. Numerous legislative
proposals have been introduced or proposed in the U.S. Congress and in some
state legislatures that would effect major changes in the healthcare industry
nationally or at the state level. The assisted living industry is relatively
new, and, accordingly, the manner and extent to which it is regulated at the
federal and state levels is evolving. Changes in the laws or new interpretations
of existing laws affecting owners or operators of assisted living communities
may have a significant impact on RHP's methods and costs of doing business.
To the extent that RHP operates properties for its own account, RHP may be
subject to certain government regulations including, but not limited to, the
following:
BUILDING CODES, LICENSES, AND SIMILAR REQUIREMENTS. Any failure of RHP or a
third-party management company engaged to operate an RHP property to satisfy
applicable regulations or to procure or maintain a required license could have a
material adverse effect on RHP. RHP's assisted living communities are subject to
regulation and licensing by federal, state and local health and social service
agencies and other regulatory authorities, although requirements vary from state
to state. In general, regulatory requirements address, among other things:
personnel education, training and records; community services, including
administration of medication, assistance with self-administration of medication
and limited nursing services; monitoring of resident wellness; physical plant
specifications; furnishing of resident units; food and housekeeping services;
emergency evacuation plans; and resident rights and responsibilities, including
in some states the right to receive certain healthcare services from providers
of a resident's
19
<PAGE>
choice. In addition, in some states in which RHP operates or intends to operate
its assisted living communities through third-party managers, a certificate of
need is required before the community can be opened. Assisted living communities
are also subject to state or local building code, fire code and food service
licensure or certification requirements, and are subject to periodic survey or
inspection by governmental authorities. In the event that RHP's properties
receive deficiency reports following an inspection, RHP will review such reports
and seek to take appropriate corrective action. Although most inspection
deficiencies are resolved through a plan of correction, the reviewing agency
typically is authorized to take action against a licensed community where
deficiencies are noted in the inspection process. Such action may include
imposition of fines, imposition of a provisional or conditional license or
suspension or revocation of a license or other sanctions, any of which could
adversely affect RHP's methods of operation, results of operations and costs of
doing business.
FEES AND FEE COLLECTION. Although RHP's third-party management companies
will be responsible for fees and fee collection for RHP's properties, RHP's
income from the properties will depend in part upon federal and state
reimbursement programs to pay resident fees. A reduction in these programs could
adversely affect fees collected at RHP's assisted living communities, produce a
downward pressure on all prices in the industry and cause an increase in
competition for private pay residents. Such occurrences could have a material
adverse effect on RHP's financial condition, results of operations and
prospects, and they also could have a material adverse affect on RHP's ability
to attract or retain third-party lessees or management companies for its
properties at existing lease or management fee rate structures.
Federal and state fraud and abuse laws, such as the Medicare/Medicaid
anti-kickback law, prohibit certain financial arrangements among healthcare
providers and others who may be in a position to refer or recommend patients to
such providers. Severe criminal penalties as well as exclusion from the Medicare
and Medicaid programs are provided for violations of these laws. These laws
forbid, among other things, certain direct and indirect payments or other
remuneration intended to induce the referral of patients to, the arranging for
services by, or the recommending of, a particular provider of healthcare items
or services. The Medicare/Medicaid anti-kickback law has been broadly
interpreted to apply to certain contractual relationships between healthcare
providers and sources of patient referral. Because these laws are sometimes
vague or ambiguous, have been infrequently interpreted by courts or regulatory
agencies, are subject to evolving interpretations over time, and because the
state laws also vary from state to state, it is sometimes difficult to determine
which business practices are or are not permitted pursuant to federal law or the
laws of any given state. Violation of these laws can result in loss of
licensure, civil and criminal penalties, and exclusion of healthcare providers
or suppliers from participation in (i.e., furnishing covered items or services
to beneficiaries of) the Medicare and Medicaid programs. RHP's properties may be
subject to these laws because (i) some of the communities provide services that
are covered and paid for by the Medicaid program, (ii) the state laws typically
apply to the operation of communities regardless of whether Medicare or Medicaid
payments are at issue, and (iii) as required under some state licensure laws,
and for the convenience of its residents, some of the third-party management
companies maintain contracts with certain healthcare providers and
practitioners, including pharmacies, visiting nurse organizations and hospices,
through which the healthcare providers make their healthcare items or services
(some of which may be covered by Medicare or Medicaid) available to community
residents. The federal government has issued regulations that describe some of
the conduct and business relationships permissible under the federal
anti-kickback statute, known as "Safe Harbors." The fact that a given business
arrangement does not fall within a Safe Harbor does not render the arrangement
illegal per se. However, business arrangements of healthcare providers that fail
to satisfy the applicable Safe Harbor criteria may risk increased scrutiny by
enforcement authorities. RHP believes that its business arrangements and those
of its third-party lessees and management companies fully comply with the
provisions of the federal anti-kickback statute.
The federal False Claims Act and related statutes provide for civil monetary
penalties and potential exclusion from the Medicare and Medicaid programs for
any person (or entity) who presents a claim to the
20
<PAGE>
government for services that were not provided as claimed, or for any person (or
entity) who presents a claim and "knows or should know that the claim is false
or fraudulent." Although the federal anti-kickback statute is criminal in
nature, the government has argued successfully that claims submitted for
Medicare or Medicaid services which arise from a violation of the anti-kickback
statute constitute "false claims" as well. Accordingly, the government has
recovered civil money penalties for violations of the anti-kickback statute. In
many cases, the government has extracted substantial settlement amounts from
healthcare providers as a condition for dropping false claim allegations.
Although RHP believes that its third-party management companies are in
compliance with federal and state healthcare anti-fraud and abuse laws, because
of the breadth of federal and state anti-kickback statutes, their ambiguity, and
the absence of court or agency decisions interpreting their application to many
types of arrangements such as those of RHP, there can be no assurance that such
laws will be interpreted in a manner consistent with the practices of RHP's
third-party management companies. See "Business and Properties--Government
Regulation."
The risks posed by federal anti-fraud and abuse prohibitions may be somewhat
heightened by sections of the federal False Claims Act that permit private
parties to bring what are known as "qui tam" or "whistleblower" lawsuits against
healthcare entities. The Act permits a private individual (the "relator"),
including an employee of a healthcare entity, to bring a lawsuit against an
entity for violations of the Act. Whistleblowers have received substantial
recoveries in such lawsuits. When a relator files such a lawsuit, the government
has the opportunity to intervene in its own behalf. Even if the government
decides not to intervene, however, the relator is permitted to pursue his or her
claims in court. This law has led to a proliferation of such claims in the
healthcare industry. Any determination that one of RHP's third-party lessee's or
management companies' practices do not comply with the laws may adversely affect
RHP's financial condition, results of operations and prospects and have a
material adverse affect on RHP's ability to attract or retain third-party
management companies for its properties at existing management fee rate
structures.
COSTS OF COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations
and commercial facilities are required to meet certain federal requirements
related to access and use by disabled persons. Failure to comply with the ADA
requirements could result in the imposition of fines by the U.S. government or
an award of damages to private litigants. Although RHP believes that its
properties are in compliance with the ADA, a determination that RHP's current or
future properties are not in compliance with the ADA could result in the
imposition of fines or an award of damages to a private litigant. If RHP were
required to make unanticipated expenditures to comply with the ADA, RHP's cash
flow could be adversely affected.
ANTI-TAKEOVER PROVISIONS
RHP's Articles of Incorporation and Bylaws contain, among other things,
provisions (i) establishing a classified board of directors; (ii) authorizing
shares of preferred stock with respect to which the Board of Directors has the
power to fix the rights, preferences, privileges and restrictions without any
further vote or action by the stockholders; (iii) requiring holders of at least
80% of the outstanding Common Stock to join together in requesting a special
meeting of stockholders; and (iv) prohibiting removal of a director other than
for "cause", and then only if the holders of at least 80% of the outstanding
Common Stock vote for such removal. RHP is also subject to Sections
78.411-78.444 of the Nevada Revised Statutes (the "Control Act") which
prohibits, except under certain circumstances, any business combination
involving certain related persons. A person would be such a related person if he
or she beneficially owns 10% or more of the outstanding RHP Common Stock or is
an affiliate or associate of RHP, who within the past three years was the
beneficial owner, directly or indirectly, of 10% or more of the outstanding RHP
Common Stock. The application of the Control Act and/or the anti-takeover
provisions of RHP's Articles of Incorporation or Bylaws could delay, deter or
prevent a merger, consolidation, tender offer, or other business combination or
change of control involving RHP that some or a majority of RHP's stockholders
might consider to be in
21
<PAGE>
their personal best interests, including offers or attempted takeovers that
might otherwise result in such stockholders receiving a premium over the market
price of the Common Stock. The impact of these measures on the voting and other
rights of the holders of Common Stock may adversely affect the market price of
the RHP Common Stock. RHP has taken steps to cause the Control Act not to apply
to Lone Star. See "Description of Capital Stock--Authorized Preferred Stock" and
"Certain Rights of Holders of Common Stock; Anti-Takeover Effects."
DIVIDEND POLICY
RHP expects to retain all earnings, excluding those earnings obligated to
pay dividends for the Series A and Series B Junior Preferred Stock, to finance
the future expansion and development of its business. Any future payment of cash
dividends will depend, among other factors, upon the earnings, capital
requirements, operating and financial condition of RHP, payments of dividends on
series of preferred stock and, more importantly, upon compliance with various
financial covenants contained in present and future financing agreements to
which RHP is or may become a party, the effect of which is to make the payment
of cash dividends unlikely during the foreseeable future. However, the Board of
Directors, subject to any restrictions arising under any outstanding class or
series of RHP preferred stock, may pay dividends in RHP common stock at its
discretion. See "Certain Rights of Holders of Common Stock; Antitakeover
Effects--Distributions" and "Authorized Preferred Stock."
POSSIBLE ADVERSE EFFECT OF SHARES AVAILABLE FOR FUTURE SALE ON THE PRICE OF RHP
COMMON STOCK
Sales of a substantial number of shares of RHP Common Stock, or the
perception that such sales could occur, could adversely affect the prevailing
market prices of RHP Common Stock. Options to purchase shares of RHP Common
Stock may be granted to officers, directors and management in the future under
RHP's 1997 Stock Option Plan. After the Spinoff RHP will have outstanding
options to purchase up to approximately 447,750 shares of RHP Common Stock. See
"Management--Stock Option Plan and Option Grants." RHP anticipates that it will
register shares under its option plan to permit resales by non-affiliates
without restriction, and affiliates of RHP also will have available to them the
ability to resell their shares under Rule 144 under the Securities Act. In
addition, RHP expects to issue 1.5 million shares of Series A
Convertible/Exchangeable Preferred Stock (the "Series A Preferred Stock") and
1,020,000 shares of Series C Junior Preferred Stock (the "Series C Preferred
Stock") on or about the time of the Spinoff. The Series A Preferred Stock may be
converted into 428,571 shares of RHP Common Stock at the option of the holder
thereof at any time between the second and third anniversary of the closing of
certain financing transactions expected to occur simultaneously with or
immediately after the Spinoff and must, in any event, be redeemed by the third
anniversary of such closing. The outstanding shares of Series C Preferred Stock
may be changed by vote of the stockholders into an equal number of shares of RHP
Common Stock, and the holders of such preferred stock will be granted
registration rights with respect to those underlying shares. See "Business and
Properties--Financing" and "Authorized Preferred Stock." No prediction can be
made as to the effect, if any, that the availability of RHP Common Stock for
future sale will have on the market price of shares. See "Management--Executive
Compensation" and "Security Ownership of Certain Beneficial Owners and
Management."
22
<PAGE>
BUSINESS AND PROPERTIES
OVERVIEW
RHP will be in the business of purchasing, improving, marketing, leasing and
operating (through third-party management companies) undeveloped, underdeveloped
and developed real estate properties. RHP's initial properties will consist
primarily of retirement, assisted living and Alzheimer's care properties
(together sometimes referred to as "assisted living" properties), along with
some residential apartment buildings, commercial properties and undeveloped
land. Substantially all the assisted living properties initially will be leased
to or managed by Greenbriar, and rental commercial properties will be managed
for RHP by third-party management service providers. The undeveloped land will
be held for future sale or development. RHP intends not to manage its
properties. RHP generally will enter into leasing arrangements whereby third
parties will operate the properties on a day-to-day basis, although some
properties will be managed by third parties, not leased. RHP's revenues will be
derived from fees pursuant to these third-party leases, from operations of
properties managed for it by third parties, from development activities on a fee
basis and from the revolving acquisition, development, and disposition of its
properties.
In certain circumstances, such as during the initial lease up period of a
newly developed or acquired, RHP may hire a third-party management company, such
as Greenbriar, to manage its property. RHP will maintain ownership of both the
realty and the business operation of that property. RHP expects that in nearly
all cases it will, after a period of time, (i) lease the property to Greenbriar
or another third-party, (ii) sell the property to a real estate investment trust
or other investors, including through investor syndicates, who would be expected
to lease the property to Greenbriar or other third-party operator or (iii) sell
the property outright to others in the industry who would operate the property
for their own account. RHP may engage third-party management service providers
to manage its residential apartment buildings and other types of residential
properties, and, to a lesser extent, other commercial properties.
RHP will pursue an aggressive expansion strategy focused on developing and
constructing or acquiring additional properties. RHP's growth strategy involves
the expansion of its real estate activities into a broad array of real estate
ownership and development.
HISTORY AND ORGANIZATION
Prior to the Spinoff, the distributing company, Greenbriar Corporation
("Greenbriar"), was originally organized and operated as a real estate
investment trust from 1974 through 1991, and then reorganized as a Nevada
corporation to acquire, operate and sell various types of healthcare facilities,
as well as commercial real estate, and to manufacture and sell or lease mobility
assistance equipment. In 1994, Greenbriar began focusing solely on opportunities
in the assisted living industry, and subsequently sold its existing nursing
homes and retirement center properties, as well as its mobility equipment
manufacturing properties.
During 1996, Greenbriar acquired 30 operational assisted living communities,
including, in March, Wedgwood Retirement Inns, Inc. ("Wedgwood"), which owned,
leased or managed 15 assisted or independent living communities, and in
December, American Care Communities, Inc. ("American Care"), which also owned,
operated or managed 15 assisted or independent living communities.
On July 30, 1997 Greenbriar formed RHP under the corporate laws of the State
of Nevada as a subsidiary with the intention of consolidating into it
substantially all of Greenbriar's real estate assets and then spinning it off to
Greenbriar's stockholders.
BUSINESS STRATEGY
RHP will be in the business of developing, acquiring, financing, owning,
leasing, selling, and, in some cases, operating real properties. The properties
will include the assisted living communities, land and some commercial
properties it will hold at the time of the Spinoff, additional like properties
and residential,
23
<PAGE>
retirement and apartment developments it may acquire and develop in the future.
Other opportunities may be taken from time to time to generate either short term
profits or long term equity appreciation through the purchase and sale,
ownership, leasing or other form of investment in a variety of real estate
properties or in companies in the real estate business.
As a part of this strategy, on or about September 5, 1997, Greenbriar
entered into agreements to acquire four properties with a total capacity of 284
residents from a group of private investors, developers and operators in South
Carolina. It is expected that these acquisitions will close prior to the
Effective Date. At the time of the acquisition two of the properties will be
operating, one of which will be about to begin construction on an expansion. One
property, which will house up to 50 residents, will be nearing completion of
construction and one, which will house up to 42 residents, is expected to begin
construction within weeks. The aggregate purchase price, a combination of
assumed debt, Greenbriar Common Stock and a minimal amount of cash, was $13.4
million, or approximately $47,000 per available resident The purchase price is
subject to a holdback of some of the stock paid to the sellers until
construction is completed within budget. All the construction has been financed.
In addition to the properties acquired, Greenbriar is gaining the benefit of
management expertise of the seller and their staff, and it expects to benefit
from a continuing development relationship with the sellers. These assets are
among those being transferred to RHP as a part of the Spinoff.
RHP believes that significant growth opportunities exist to provide assisted
living properties to the rapidly growing elderly population in particular.
According to FORTUNE magazine, the number of people over the age of 65 is
projected to double from 34.1 million in 1997 to 69.4 million in 2030. (FORTUNE,
August 18, 1997 issue, p. 59). In the last two years, Greenbriar aggressively
expanded its operations of assisted living communities through development and
the acquisition of assisted living companies. RHP intends to continue developing
and constructing communities in markets that are underserved where it has ready
access to third-party operators, such as Greenbriar. RHP will lease many of its
assisted living community properties to Greenbriar.
Senior RHP personnel have extensive acquisition, development and financing
experience in the assisted living and long-term care industry. RHP will leverage
off that expertise and intends to increase its market share by entering new
markets through the acquisition of one or more communities or assisted living
companies and by making acquisitions within its existing regions. In reviewing
acquisition opportunities, RHP considers, among other things, the competitive
climate, the current reputation of the community or the operator, the quality of
the management, RHP's likelihood of engaging the current management or another
third-party lessee or management company, such as Greenbriar, to operate the
property, any need to reposition the community in the marketplace and costs
associated therewith, the construction quality, any need for renovations of the
property and the opportunity to improve or enhance operating results.
FINANCING
On or about the Effective Date, RHP expects to close a Stock Purchase
Agreement with Greenbriar and Lone Star under which Lone Star will purchase from
RHP 1.5 million shares of Series A Senior Convertible/Exchangeable Preferred
Stock for $15 million (the "Financing Transaction"). There are certain financial
covenants to which RHP will be subject as a result of the Financing Transaction.
See "Capital Stock -- Terms of Series A Senior Convertible/Exchangeable
Preferred Stock." RHP will use the proceeds to purchase common stock of
Greenbriar shortly after the Spinoff, and it will sell its Series B Junior
Preferred Stock to Greenbriar for $10 million. See "The Spinoff--Relationship
Between Greenbriar and RHP after the Spinoff." The net effect of the
transactions will be to provide RHP with $10 million of working capital. See
"Capital Stock --Terms of Series B Junior Preferred Stock." RHP will be granted
certain demand registration rights with respect to the Greenbriar Common Stock
it purchases.
24
<PAGE>
PROPERTIES
Most of RHP's properties intially will be assisted living properties, which
are multi-unit residential properties designed to serve the needs of the elderly
population. Assisted living residents are usually elderly individuals who
require assistance with the activities of daily living, but who do not require
skilled nursing care on a regular basis. Some of RHP's facilities will provide
for the care of Alzheimer's residents, usually within a secured portion of an
assisted living property. RHP also will own retirement properties that provide a
number of services to the elderly, but which are not licensed as assisted living
properties. RHP also will own one retail center in Georgia, its office building
and some undeveloped land. RHP considers its communities to be in good operating
condition and suitable for the purpose for which they are being used, and RHP is
of the opinion that all of its properties are adequately covered by insurance.
FACILITIES LEASED TO GREENBRIAR. The following table sets forth certain
information as of August 25, 1997, with respect to facilities which will be
owned by RHP but leased to Greenbriar as of the Spinoff. All of these properties
are being operated as assisted living properties or retirement properties,
providing in almost every case basic support, and supplemental, personal care
and wellness services for elderly residents. Approximately half of the
facilities offer Alzheimer's and special care services as well.
<TABLE>
<CAPTION>
GREENBRIAR
CARE RESIDENT OPERATIONS
COMMUNITY NAME LOCATION LEVEL UNITS CAPACITY(1) COMMENCED(6)
- ------------------------------ ------------------------------ ------------ ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Crown Pointe(2)(3) Corona, CA S, FE 148 148 01/93
Wedgwood Terrace(3) Lewiston, ID FE, DC 40 51 11/95
Berne Village(3) New Bern, NC S, FE, DC 156 165 12/93
Graybrier(3) Southern Pines, NC FE, DC 56 92 02/94
Rose Tara Plantation(3) King, NC FE 35 65 09/94
Villa del Sol(3) Roswell, NM S 12 12 12/95
Lincolnshire(3) Lincoln City, OR S, FE 64 64 11/95
Meadowbrook Place(3) Baker City, OR FE 50 50 12/92
The Terrace(3) Portland, OR FE, DC 65 69 05/91
Maranatha Manor of Spartanburg, SC
Spartanburg(3) FE, DC 31 51 04/97
Windsor House West(3) Spartanburg, SC FE, DC 74 111 02/94
Summer Hill(3) Oak Harbor, WA FE 59 61 02/94
</TABLE>
25
<PAGE>
FACILITIES UNDER GREENBRIAR MANAGEMENT. The following table sets forth
certain information as of August 25, 1997, with respect to facilities which will
be owned and operated by RHP at the time of the Spinoff, but managed for RHP by
Greenbriar.
<TABLE>
<CAPTION>
TOTAL
ANNUAL
CARE RESIDENT PERCENT REVENUE
COMMUNITY NAME LOCATION LEVEL UNITS CAPACITY(1) LEASED ($000)
- -------------------------- -------------------------- --------- ----- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Country Oaks(3) Chiefland, FL FE 41 58 79% $ 482
Country Time Inn(3) Kings Mountain, NC FE, DC 32 54 89% 870
Rose Manor of Cary(3) Cary, NC FE, DC 55 61 54% 1,074
La Villa(3) Roswell, NM FE, DC 80 91 43% 910
Villa del Rey(5) Roswell, NM S, FE 134 134 81% 2,013
The Greenbriar at Muskogee, OK
Muskogee(3) FE 48 58 33% 96
Neawanna by the Sea(5) (7) Seaside, OR S, FE 59 59 100% 1,194
Camelot(3)(4) Harlingen, TX S 170 170 88% 1,602
The Greenbriar at Denison, TX
Denison(3) FE, DC 44 57 56% 542
Rose Garden Estates(3) Ritzville, WA FE 21 21 81% 352
<CAPTION>
GREENBRIAR
OPERATIONS
COMMUNITY NAME COMMENCED(6)
- -------------------------- ---------------
<S> <C>
Country Oaks(3) 12/95
Country Time Inn(3) 06/95
Rose Manor of Cary(3) 10/96
La Villa(3) 11/96
Villa del Rey(5) 10/88
The Greenbriar at
Muskogee(3) 03/97
Neawanna by the Sea(5) (7) 01/90
Camelot(3)(4) 09/94
The Greenbriar at
Denison(3) 05/96
Rose Garden Estates(3) 11/95
</TABLE>
- ------------------------
CARE LEVEL KEY:
(S) basic support and supplemental services are offered.
(FE) basic support, supplemental, personal care and wellness services are
offered ("Frail Elderly").
(DC) Alzheimer's and special care services are offered ("Dementia Care").
- ------------------------
(1) Anticipated number of primary residents (not including spouses), although
capacity exists for additional primary residents if double occupancy is
extended to more units.
(2) RHP owns 60% of the real estate and the operating entity (a partnership) of
this property.
(3) Subject to first mortgage. Historically, each community has generally been
pledged as collateral on a single mortgage or deed of trust securing a note
payable to a bank, financial institution, individual or other lender. The
mortgages and deeds of trust mature between 1997 and 2015 and bear interest
at fixed and variable interest rates ranging from 7.5% to 11.75% as of
December 31, 1996. The Crowne Pointe community is subject to a mortgage and
note payable to the Redevelopment Agency of the City of Corona, California,
is payable into a sinking fund semi-annually in increasing amounts from
$65,000 to $420,000 through May 2015, and bears interest at a variable
interest rate equal to 5.725% at June 30, 1997. Future communities owned and
mortgaged by RHP likely will be pledged as collateral for mortgage credit
lines, which relate to more than one community. See "Management's Discussion
and Analysis or Plan of Operation--Liquidity and Capital Resources."
(4) Of these units, 113 have been sold to residents who then pay a reduced
monthly fee. RHP agrees to repurchase the units that are sold at a price
ranging from 65% to 80% of the fair market value at the date of repurchase,
based upon the number of years the resident owned the unit.
(5) Leased from Health Care Property Investors, Inc. on March 15, 1994. The
leases are for a term of 15 years, with two 5-year extensions available. The
lessees have an option to purchase the properties at the end of the tenth
lease year and at the end of any term. The leases provide for minimum
payments of $1,167,000 per year in the aggregate, plus additional rent of
25% of the increase in annual revenues
26
<PAGE>
compared to a base year. Additional rent for the year ended December 31,
1996 was $11,000. The purchase option price is the greater of the lessor's
cost and the depreciated replacement cost of the improvements plus the fair
market value of the land. The lessees are partnerships owned 49% by RHP and
51% by Victor L. Lund, a director of RHP. RHP will have an option to
purchase his interests in these entities for $10,000 plus the payment of any
transfer consideration which might be due to the lessor. The partnerships
are managed by their respective general partners.
(6) Dates reflect the date operations commenced either by Greenbriar, Wedgwood,
American Care or Windsor, including periods before the respective
acquisitions by Greenbriar.
(7) Managed by a third-party on behalf of Greenbriar.
OTHER PROPERTIES. RHP will own as of the Effective Date, a 23,500 square
foot retail center in Roswell, Georgia, its office building in Addison, Texas, a
27,500 square foot building that it occupies and of which it will lease
approximately half to Greenbriar and one other tenant, and several parcels of
undeveloped land. The land includes 5.5 acres in Beaverton, Oregon on which an
assisted living and Alzheimer's care facility is planned and in the early stages
of development, and five parcels of land in Texas and North Carolina for which
there are no development plans at present. Such parcels may be sold or developed
as determined by management of RHP after the Spinoff.
COMMUNITIES UNDER CONSTRUCTION. As of August 25, 1997, five assisted living
communities that will be among the properties transfered to RHP in the Spinoff
were under construction. Set forth below is certain information with respect to
these communities.
<TABLE>
<CAPTION>
ANTICIPATED
CARE RESIDENT ANTICIPATED
COMMUNITY NAME LOCATION LEVEL UNITS CAPACITY OPENING
- ------------------------------------- ------------------------------------- --------- ----- ------------- -----------
<S> <C> <C> <C> <C> <C>
Greenbriar at Sherman Sherman, TX FE, DC 48 65 Q1-98
Oak Park Clermont, FL FE 60 60 Q4-97
Greenbriar at Camelot Harlingen, TX FE, DC 82 98 Q4-97
Windsor House Greenville Greenville, SC FE, DC 31 50 Q4-97
Windsor House Florence Florence, SC FE, DC 26 42 Q2-98
</TABLE>
- ------------------------
CARE LEVEL KEY:
(FE) basic support, supplemental, personal care and wellness services are
offered ("Frail Elderly").
(DC) Alzheimer's and special care services are offered ("Dementia Care").
MORTGAGE IN DEFAULT. In connection with Greenbriar's acquisition of
American Care Communities, Inc. and its subsidiaries ("ACC") on December 31,
1996, Greenbriar and ACC attempted to secure the consent to the sale from the
lender (the "Lender") on the Berne Village, Graybrier and Rose Tara Plantation
communities (the "Properties"). The loan (the "ACC Loan") is secured by the
Properties, which are being transferred to RHP in connection with the Spin-off.
In the opinion of Greenbriar, the Lender led ACC and Greenbriar to believe that
they would approve the acquisition of ACC if Greenbriar would execute a
reasonably acceptable guaranty (the "Guaranty"). After months of negotiations
the form of the Guaranty was finalized by counsel for the Lender and Greenbriar.
However, after the acquisition but prior to execution of the Guaranty, the
Lender advised Greenbriar that it was no longer willing to approve the
acquisition of ACC by Greenbriar under any circumstances and declared the ACC
Loan in default.
The outstanding principal and accrued but unpaid interest under the ACC Loan
is approximately $11,000,000. The Lender is also seeking payment of a
significant prepayment penalty, referred to in the loan documents as a
"make-whole" premium. RHP does not believe, as a matter of public policy, that
this premium is truly payable. Neither Greenbriar nor RHP is a party to the ACC
Loan and neither has guaranteed the ACC Loan.
27
<PAGE>
RHP does not currently have permission to acquire the Properties or the
entities that own the Properties. It does, however, expect to acquire the
Properties, or the entities that own the Properties, and to obtain financing to
pay off the Lender.
PLANS FOR CONSTRUCTION
NEW CONSTRUCTION. RHP generally will retain independent general contractors
to build its communities. RHP will approve all aspects of development including,
among other things, site selection, plans and specifications, the proposed
construction budget and selection of the architect and general contractor. RHP
estimates the average capitalized cost to develop, build and open a community
(including land acquisition, architectural and engineering costs and,
construction period interest and loan fees) to be approximately $70,000 to
$80,000 per unit, depending on a variety of factors, and average construction
time for a typical community to be approximately six to twelve months, depending
upon the number of units. RHP estimates that, once opened, it takes
approximately twelve to eighteen additional months after licensure for each
community to achieve a stabilized occupancy level of 90% or higher.
PLANNED RENOVATIONS. RHP presently plans to expand Maranatha Manor in
Spartanburg, South Carolina to increase resident capacity by 30 to a total of
81. Along with this new construction, certain improvements to the existing
buildings are underway. The total budget for this work is $824,000 and financing
has been obtained. There are no plans by RHP to renovate or expand any of the
other properties leased to Greenbriar. Of the communities to be owned by RHP and
managed by Greenbriar, Camelot has an on-going expansion program to build garden
homes, typically in duplex configurations. Streets and utilities have been
installed in a parcel of the campus that allows for construction of 60 garden
homes (30 duplexes), of which 6 garden homes have been built to date.
Construction of garden homes generally is begun upon receipt of earnest money
for the purchase, but RHP may from time to time build such units speculatively.
Garden home construction is financed through a revolving builder loan with a
local bank for 85% of cost with a maximum of $600,000 committed at any one time.
Several other properties have room on their sites and were designed to add units
as market conditions dictate. There are no specific plans to expand other
communities at this time.
RHP believes quality independent general construction contractors are
readily available to build its communities at competitive prices.
DEVELOPMENT AND CONSTRUCTION RISKS. RHP's growth strategy is dependent, in
part, on its ability to develop and construct additional communities.
Development projects generally are subject to various risks, including zoning,
permitting, healthcare licensing and construction delays that may result in
construction cost overruns, longer development periods and, accordingly, higher
than anticipated start-up losses. Although management of RHP has extensive
development experience, and they intend to closely manage each development
project and regularly monitor the contractors building RHP's communities,
project management is subject to a number of contingencies over which RHP has
little or no control and which might adversely affect project costs and
completion time. Also, RHP intends to rely on third-party developers to oversee
construction of some of the new assisted living communities planned by RHP.
There can be no assurance that RHP will not experience difficulties in working
with developers, project managers, general contractors and subcontractors, any
of which difficulties could result in increased construction costs and delays.
See "Risk Factors -- Development and Construction Risks."
NEED FOR ADDITIONAL FINANCING; RISK OF RISING INTEREST RATES, DEVELOPMENT
DELAYS AND COST OVERRUNS. To achieve its growth objectives, RHP will need
sufficient financial resources to fund its development, construction and
acquisition activities. Accordingly, RHP's future growth will depend on its
ability to obtain additional financing on acceptable terms. RHP expects to
experience negative cash flow from operations for at least 18 months following
the Effective Date, without the sale of any assets, as it continues to develop
and construct assisted living communities and while those properties managed for
RHP continue to experience lease up to residents. See "Risk Factors -- Need for
Additional Financing."
28
<PAGE>
COMMUNITY DESCRIPTION
Existing communities as of August 25, 1997 that are designated for transfer
to RHP in connection with the Spinoff range in size from 12 to 170 units with
10,000 to 148,000 total square feet and are from one to three stories. Most of
the new communities to be constructed by RHP will have 60 to 100 units and
42,000 to 75,000 square feet and will be one or two stories. Each community has
or will have a large family room, usually equipped with a fireplace, a spacious
open dining area, library, TV room, commercial kitchen, beauty salon, laundry,
and indoor and outdoor recreational areas. Units generally range in size from
approximately 330 to 400 square feet for a studio unit, to 470 to 650 square
feet for a one-bedroom unit, and to 680 to 850 square feet for a two-bedroom
unit. Assisted living units typically include a private bathroom, kitchenette,
closets, and living and sleeping areas, as well as a lockable door, emergency
call system, individual temperature controls, fire alarm and sprinkler system,
among other amenities.
Alzheimer's care units are approximately the same size as studios and
contain only sleeping, limited storage and, in some of the units, bathroom
areas. Most do not have emergency call systems but do have sprinkler and fire
alarm systems.
MARKETING
MARKETING TO RESIDENTS. Properties owned by RHP and managed for it by
Greenbriar or other third parties will be marketed to residents by the
management company, not by RHP. The management company's marketing and sales
efforts generally will be undertaken on regional and local levels. This effort
is intended to create awareness of the assisted living communities among
prospective residents, their families, other key decision makers and
professional referral sources. Management companies typically have a corporate
marketing staff that will develop overall strategies for promoting the
facilities throughout their markets and assess continuously the success of the
marketing efforts. Most communities have on staff a community relations
coordinator dedicated to sales and marketing activities, who is guided and
trained by the management company. For smaller communities with no community
relations coordinator, the Executive Director performs these sales and marketing
functions.
Prior to opening new communities, the management company, with RHP's
concurrence, will commence an aggressive marketing campaign by opening a sales
office in close proximity to the community. During this pre-opening marketing
period, the management company's personnel actively contact local referral
sources, which generally account for a majority of resident referrals. In
addition, the management company will engage in more traditional types of
marketing activities, such as direct mailings, print advertising, signs and
yellow pages advertising. These marketing activities and media advertisements
are directed to potential residents and their adult children, who often comprise
the primary decision makers for placing a frail elderly relative in an assisted
living setting.
With respect to properties leased from RHP by third-party lessees, all
marketing will be the responsibility of the lessee.
MARKETING TO LESSEES OR MANAGEMENT COMPANIES. Before RHP commits to
undertaking construction of a new property or acquisition of an existing
property that it intends to lease, whether to Greenbriar or to a third-party, or
for which it will hire a management company, it will discuss the proposed
property with one or more potential lessees or management companies. Such
discussions will include review of market conditions, such as demographics,
existing and proposed competition, local building regulations and costs,
proposed acquisition, construction and operating budgets, the availability of
financing and any such other matters as RHP would review in deciding whether
such a property would appear to represent a good investment. Should there be a
lack of interest on the part of potential lessees or management companies, RHP
management would consider such lack of interest before making a decision to go
ahead with the acquisition or construction. For a period of five years, all
proposed properties related to senior housing (excepting only age restricted
apartments without services), will be offered first to Greenbriar to lease or
manage. Marketing to third parties will occur when Greenbriar declines an
opportunity and after the
29
<PAGE>
expiration of Greenbriar's five year right of first refusal. Management of RHP
will utilize its broad array of existing contacts as well as contacts developed
in the future to market properties, whether to lessees or management companies,
many of whom are well known to RHP management.
GOVERNMENT REGULATION
Because RHP's properties will include assisted living centers, certain
government regulations may apply to RHP and/or a lessee or management company of
an RHP property. Healthcare is an area of extensive and frequent regulatory
change. In contrast, the assisted living industry is relatively new and,
accordingly, the manner and extent to which it is regulated at the federal and
state levels is evolving. It is not clear at this time what legislative and/or
regulatory changes will be adopted in the future and what the effect of such
changes will be on RHP, particularly since such regulations are more likely to
be imposed on the lessee or management company rather than the owner and
developer of assisted living centers. There are, however, certain building and
development requirements for assisted living with which RHP will already comply,
on new development, such as providing sprinkler systems, emergency call, fire
alarm and smoke alarm systems. RHP will need to stay current on regulations in
this area and will need to develop and construct its properties to comply with
such regulations. As a result, there can be no assurance that future changes in
healthcare legislation or regulations will not have a material adverse effect on
RHP. See "Risk Factors -- Government Regulation."
RHP's communities currently will be regulated by state and local health and
social service agencies and other regulatory authorities. Although regulatory
requirements vary from state to state, these requirements generally address,
among other things, staff education, training and records; staffing levels;
community services, including administration and assistance with
self-administration of medication; physical community specifications; size and
furnishing of community units and common areas; food and housekeeping services;
emergency evacuation plans; and resident rights and responsibilities. Most of
RHP's third-party management service providers will be required to possess state
licenses for each community they operate in order to provide the levels and
types of services they provide in the states in which they operate. Some of the
communities do not supply care and/or supervision to an extent requiring them to
be licensed under their respective state's laws. RHP's communities also will be
subject to various state or local building codes and other ordinances, including
safety codes. Management anticipates that the states which are establishing
regulatory frameworks for assisted living communities will require licensing of
assisted living communities and will establish varying requirements with respect
to such licensing. RHP will have obtained all required licenses for each of its
operating communities. Each of those licenses must be renewed annually.
Regulations involving day to day operations of assisted living communities
generally are the responsibility of the lessee or management company actually
operating the property, not the real estate owner, such as RHP.
Currently, only eight states (Kentucky, Connecticut, New York, Illinois,
Georgia, Missouri, New Jersey and South Dakota) have certificate of need ("CON")
requirements for assisted living communities, and RHP only will be operating in
one of such states, Georgia; however, RHP may expand into several other states
that have CON requirements. In addition, if federal and state reimbursements
increase or there is overbuilding in the industry, other states may initiate CON
requirements. The state of North Carolina is expected to enact this year a
12-month moratorium on issuing new assisted living licenses, which has the
effect of curtailing development of new assisted living properties not already
in a certain stage of development and state review. If this occurs widely, then
the operators who can grow rapidly in the next few years could have a distinct
advantage, inasmuch as new barriers to entry could limit destructive
overbuilding and competition, such as occurred in some nursing home markets in
the past. There can be no assurance, however, that RHP will be able to obtain
CONs in any jurisdiction where it may be required to obtain them in order to
expand.
Like healthcare centers, assisted living communities are subject to periodic
survey or inspection by governmental authorities. From time to time in the
ordinary course of business, RHP will receive
30
<PAGE>
deficiency reports. RHP will review such reports and seek to take appropriate
corrective action. Although most inspection deficiencies are resolved through a
plan of correction, the reviewing agency typically is authorized to take action
against a licensed community where deficiencies are noted in the inspection
process. Such action may include imposition of fines, imposition of a
provisional or conditional license, suspension or revocation of a license or
other sanctions. Any failure by RHP to comply with applicable requirements could
have a material adverse effect on RHP's business, financial condition and
results of operations. RHP believes that its communities will be those in
substantial compliance with all applicable regulatory requirements. Of the
communities being transferred to RHP in the Spinoff, however, actions are
currently pending against three communities in North Carolina that have
provisional licenses for technical violation, but RHP expects these actions to
be resolved by September 15, 1997. None of the communities have been cited in
the past for any significant non-compliance with regulatory requirements.
The Americans with Disabilities Act ("ADA") has had and will continue to
have a major effect on the full service residential retirement and assisted
living industry. The communities developed or acquired by RHP must be in
compliance with the ADA. The Fair Housing Amendments Act of 1988 also prohibits
discrimination against the handicapped in the sale or rental of a dwelling, or
in the provision of services or communities in connection with such a dwelling.
This intensifies the need to be in compliance with the ADA. Regulation of the
industry is likely to increase, particularly for those providers accepting
Medicaid reimbursements.
COMPETITION
The real estate development business is highly competitive, and it is
anticipated that development of assisted living and Alzheimer's care properties
in particular will become increasingly competitive in the future. Many of RHP's
present and potential competitors and the present and potential competitors of
Greenbriar have, or may have access to, greater financial, management and other
resources than those of RHP or Greenbriar. There can be no assurance that
competitive pressures will not have a material adverse effect on RHP.
RHP will compete with other real estate developers for third-party lessees
and management service providers specializing in long-term care alternatives. In
addition, RHP will compete with a number of tax-exempt nonprofit organizations
which can finance capital expenditures on a tax-exempt basis or receive
charitable contributions unavailable to RHP and which generally are exempt from
income tax. While there currently are few assisted living and Alzheimer's care
communities in some of the markets where RHP's communities are located, RHP
expects that, as assisted living receives increased attention and the number of
states which participate in the Medical Home and Community Care Options Act of
1990 ("MHCCOA"), which permits states to use Medicaid funds to support services
for low income, frail, older persons, in places of residence other than nursing
centers, increases, competition for services provided at RHP's communities will
also grow from existing and new companies focusing primarily on assisted living.
Nursing home centers that provide long-term care services are also a source of
competition for RHP communities, particularly with respect to Alzheimer's care
services.
RHP competes with other real estate developers on the basis of the breadth
and quality of its services, the quality of its communities and price. RHP
believes that it competes favorably in these areas and in its recruitment and
retention of qualified and effective third-party lessees and management service
providers. RHP also competes with other providers in the acquisition and
development of additional communities.
Management of RHP has considerable experience in and contacts for acquiring
and selling real estate of many types. However, there are many competitors in
real estate, from numerous large companies, to smaller companies, local
operators and individuals, any of whom may have much greater resources than RHP
or specific contacts or relationships that may create an advantage over other
competitors. While RHP will not attempt to compete in all aspects of real
estate, its management does plan to be opportunistic
31
<PAGE>
so that it can take advantage of its creativity and contacts to complete
transactions where there may not be significant competition. See "Risk Factors
- -- Competition."
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and clean
up costs incurred by such parties in connection with the contamination. Such
laws typically impose clean up responsibility and liability without regard to
whether the owner or operator knew of or caused the presence of the
contaminants, and the liability under such laws has been interpreted to be joint
and several unless the harm is divisible and there is a reasonable basis for
allocation of responsibility. The costs of investigation, remediation or removal
of such substances may be substantial, and the presence of such substances, or
the failure to remediate properly such property, may adversely affect the
owner's ability to sell or lease such property or to borrow using such property
as collateral. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. Persons who arrange for the disposal or
treatment of hazardous or toxic substances also may be liable for the costs of
removal or redemption of such substances at the disposal or treatment facility,
whether or not such facility is owned or operated by such person. Finally, the
owner or operator of a site may be subject to common law claims by third parties
based on damages and costs resulting from environmental contamination emanating
from a site.
RHP has conducted environmental assessments of all of the sites currently
under construction or development, as well as 18 of its existing communities.
These assessments have not revealed any environmental liability that RHP
believes would have a material adverse effect on RHP's business, assets or
results of operations, nor is RHP aware of any such environmental liability. RHP
believes that all of its communities are in compliance in all material respects
with all federal, state and local laws, ordinances and regulations regarding
hazardous or toxic substances or petroleum products, and it will be the
continuing responsibility of third-party lessees and management companies to
continue such compliance. RHP has not been notified by any governmental
authority, and is not otherwise aware, of any material non-compliance, liability
or claim relating to hazardous or toxic substances or petroleum products in
connection with any of its communities.
EMPLOYEES
As of October 1, 1997, RHP expects to employ approximately 12 full-time
employees. RHP believes it maintains good relationships with its employees. None
of RHP's employees is expected to be represented by a collective bargaining
group.
CORPORATE OFFICES
RHP's principal executive office is a 27,500 square feet building that it
owns in Addison, Texas. While more than half of the office space will be leased
to Greenbriar and another tenant, the offices are adequate for the foreseeable
future.
LEGAL PROCEEDINGS
By way of an indemnification agreement, RHP has assumed Greenbriar's
potential liability under certain lawsuits involving RHP's properties.
In SOUTHERN CARE CORP. V. MEDICAL RESOURCE COMPANIES OF AMERICA (now
Greenbriar Corporation), Civil Action No. 94-1132-K, Superior Court of Chatham
County, Georgia, the plaintiff seeks damages exceeding $1,500,000 relating to
the management and operation of four nursing homes Greenbriar sold to
32
<PAGE>
plaintiff. Greenbriar has filed a counterclaim for breach of the management
contract between the homes and a subsidiary of Greenbriar. At the same time that
plaintiff unilaterally and without notice terminated the management contract,
plaintiff also claimed that indebtedness of approximately $6.7 million assigned
to RHP was discharged. Plaintiff claims that the discharge occurred at the time
of the assignment despite the facts that (i) the assignment had occurred 24
months prior to their claim of discharge, (ii) plaintiff, at the time of the
assignment, had acknowledged in writing that the indebtedness was due and owing,
(iii) plaintiff paid approximately $1.2 million toward the indebtedness
subsequent to the assignment, and (iv) plaintiff apparently has continued to
accrue the indebtedness on its financial statements. Greenbriar disputed this
claim and has filed a counterclaim to confirm the indebtedness. RHP plans to
contest and defend this suit vigorously and pursue the counterclaims against
plaintiff. Greenbriar does not believe it has breached any obligation to
plaintiff regarding management of the nursing homes and does not believe
plaintiff will prevail on the merits, although there can be no assurance in this
regard. Greenbriar also does not believe the approximately $6.7 million of
indebtedness was discharged, and believes that it will prevail on this
counterclaim, although there can be no assurance. The amount of the
indebtedness, including accrued interest, is approximately $10 million. RHP's
basis in the indebtedness, net of related deferred gains, is approximately $4.2
million.
In 1995 the plaintiff and Greenbriar each filed cross motions for summary
judgment on the issue of whether the indebtedness was discharged. In October
1996 the trial court granted plaintiff's motion. An appeal has been filed by
Greenbriar on that ruling. Greenbriar does not believe that the court's ruling
is correct, and believes that it will prevail on its appeal, although there can
be no assurance.
In addition to other causes of action that Greenbriar may file against the
plaintiff, Greenbriar filed a negligence action against a law firm and against a
lawyer with that firm, relating to their involvement with the assignment,
described above. Greenbriar has been advised that these defendants carry a
professional liability policy with limits of $5 million. These defendants deny
liability and have filed a cross-action against, among others, a former officer
and director of Greenbriar. Greenbriar and RHP believe should Greenbriar not
prevail against Southern Care on the indebtedness issue, that it will prevail on
this claim, although there can be no assurance. This action has been non-suited
and by agreement with the cross-defendant law firm the statute of limitations
has been extended.
In HEALTH CARE PROPERTY INVESTORS, INC. V. GREENBRIAR CORPORATION, ET AL.,
Civil Action No. BC-160028, Superior Court of Los Angeles County, Health Care
Property Investors, Inc. ("HCPI"), which is the lessor of Neawanna by the Sea
and Villa del Rey-Roswell pursuant to leases between HCPI and Neawanna by the
Sea Limited Partnership ("Neawanna L.P.") and Villa del Rey-Roswell, Ltd.
("Roswell L.P."), (together the "Leases"), alleges in such suit that certain
aspects of the acquisition by Greenbriar of Wedgwood in March 1996 (the
"Wedgwood Acquisition") relating to Neawanna L.P. and Roswell L.P. were
consummated without the prior written consent of HCPI as required by the Leases,
and that the Leases have been breached and/or a fee is now due HCPI in
connection with the transfers. Additionally, HCPI alleges that Greenbriar
tortiously interfered with the Leases because of the transfer. RHP and
Greenbriar do not agree with HCPI's interpretation of the Leases and do not
believe that such prior written consent was necessary for the Wedgwood
Acquisition or that payment of a fee is now due as a result. RHP and Greenbriar
also do not believe Greenbriar tortiously interfered with the Leases.
In BENETIC FINANCIAL CORP. V. WEDGWOOD RETIREMENT INNS, INC., et al., Civil
Action No. EC-019343, Superior Court of Los Angeles County, the plaintiff seeks
to collect in excess of $1,000,000 on an alleged loan brokerage agreement. There
is no signed loan brokerage agreement between Wedgwood and the plaintiff.
Plaintiff alleges he delivered a loan brokerage agreement to Wedgwood which it
verbally accepted. Greenbriar understood that plaintiff was acting as a
potential partner and was not providing services to Greenbriar. The suit was
filed after the statute of limitations had expired for a verbal or an implied
contract. However, if the plaintiff can prove that there was verbal acceptance
of the contract, a four year statute of limitations may apply and this suit
would not be barred. RHP believes that the statute
33
<PAGE>
of limitations has expired on this action and there is little or no liability
for any of plaintiff's alleged services.
In CLAY CAPITAL CORPORATION V. GREENBRIAR CORPORATION, CARE AMERICA AND
JAMES R. GILLEY, Clay Capital alleges that certain repayments of loan proceeds
to Greenbriar from the sale of two nursing homes in 1994 were improper.
Plaintiff also claims that such loan was created to prevent payment of sums
alleged due it pursuant to a profit participation arrangement entered into by
one of the Company's subsidiaries (Care America) in 1993. The Plaintiff seeks in
excess of $1 million. Greenbriar and RHP believe that this claim is without
merit.
Greenbriar has been named as defendant in other lawsuits in the ordinary
course of business. Management does not believe these lawsuits will have a
material effect on the financial condition or results of operations of RHP.
34
<PAGE>
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
Management of RHP will develop and submit to its Board of Directors policy
recommendations to guide operation of the company. Once adopted by the Board of
Directors such policies may be amended or revised from time to time at the
discretion of the Board of Directors without a vote of the stockholders of RHP.
It is anticipated that policies will be proposed covering such activities as
investment in real estate, real estate mortgages or other real estate companies,
sales of properties and related assets, financing, conflicts of interest and
such other activities as management and the Board determine.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF RHP
The following table sets forth certain information with respect to each
person who is expected to be a director or an executive officer of RHP as of the
Effective Date. Each of the executive officers and directors currently in the
service of Greenbriar will, except as noted, be resigning their respective
positions in Greenbriar prior to the Effective Date.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
James R. Gilley(1)................................... 63 Chairman of the Board, Chief Executive Officer
Gene S. Bertcher(1).................................. 48 Director, President, Chief Operating Officer and
Treasurer
Paul W. Dendy........................................ 48 Executive Vice President and Chief Financial Officer
Mark E. Bennett...................................... 43 Executive Vice President and General Counsel
Ellis Short, IV(3)................................... 36 Director
Victor L. Lund(3).................................... 69 Director
Charles A. Betzel(2)................................. 64 Director
James G. Chrysson(2)................................. 41 Director
</TABLE>
- ------------------------
(1) Class I Director--term expires at Annual Stockholders' Meeting in 1998.
(2) Class II Director--term expires at Annual Stockholders' Meeting in 1999.
(3) Class III Director--term expires at Annual Stockholders' Meeting in 2000.
The following sets forth information regarding the individuals who will be
directors and executive officers of RHP immediately following the Spinoff:
James R. Gilley served as President and Chief Executive Officer of
Greenbriar from November 1989 until December 31, 1996, and as Chairman of
Greenbriar since November 1989 (except for the period March 1993 through May
1994). Following the Spinoff, he will continue to serve as Chairman of the Board
of Greenbriar.
Gene S. Bertcher has been Executive Vice President, Chief Financial Officer
and Treasurer of Greenbriar since November 1989, and served as a director of
Greenbriar from November 1989 until September 1996. Mr. Bertcher is a certified
public accountant.
Paul W. Dendy has served as Executive Vice President of Greenbriar since May
1996 and Executive Vice President of Wedgwood since May 1997. He was a member of
the board of directors of Greenbriar
35
<PAGE>
from May until September 1996. He served as President of Wedgwood from April
1996 until May 6, 1997. Prior to his appointment as President of Wedgwood, Mr.
Dendy had served as Vice President-Project Acquisitions and Financing of
Wedgwood since April of 1993. From 1989 to February 1993, he was Vice
President-Finance of Leisure Care, Inc., a privately held company in the
retirement housing and assisted living business.
Mark E. Bennett has been a partner in the law firm Bennett & Weston, P.C.
since 1995, and has served as general counsel to Greenbriar since May 1997.
Prior to being a partner with Bennett & Weston, P.C., Mr. Bennett was a partner
in Bennett & Kurtzman, P.C.
Ellis Short, IV has been a partner in the Lone Star Opportunity Fund since
January 1997. Prior to joining Lone Star, he served as a partner in the Brazos
Fund from June 6, 1993 until December 1996, and was an asset manager for General
Electric from August 1983 until May 1993.
Victor L. Lund has been a director of Greenbriar since March 1996. In 1977,
he founded Wedgwood Retirement Inns, Inc., which became a subsidiary of
Greenbriar in March 1996. Mr. Lund was President and Chief Executive Officer of
Wedgwood, positions he held until Wedgwood was acquired by Greenbriar.
Charles A. Betzel has been the owner and operator of Charles A. Betzel
Insurance since 1972. He is a licensed insurance agent.
James G. Chrysson has been a real estate building contractor and developer
with C.B. Development Co., Inc., a North Carolina real estate developer, since
1978. He serves on the Board of Directors of Southern Community Bank & Trust.
ORGANIZATION OF THE BOARD OF DIRECTORS
The Board of Directors has the following committees:
<TABLE>
<CAPTION>
COMMITTEE MEMBERS
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Executive: James R. Gilley, Chairman
James G. Chrysson
Charles A. Betzel
Ellis Short, IV
Audit: Ellis Short, IV, Chairman
Victor L. Lund
James G. Chrysson
Charles A. Betzel
Compensation: Charles A. Betzel, Chairman
James G. Chrysson
Ellis Short, IV
Gene Bertcher
Conflicts of Interest: James G. Chrysson, Chairman
Ellis Short, IV
Charles A. Betzel
</TABLE>
The Executive Committee oversees the normal business operations of RHP. The
Audit Committee recommends an independent auditor for RHP, consults with such
independent auditor and reviews RHP's financial statements. The Compensation
Committee fixes the compensation of officers and key employees of RHP and
administers RHP's stock option plans. The Conflicts of Interest Committee
receives and investigates any reports of or perceived conflicts of interest in
any activities undertaken by RHP.
36
<PAGE>
COMPENSATION OF DIRECTORS
RHP will pay each director a fee of $5,000 per year, plus a meeting fee of
$1,000 and expenses for each Board meeting attended.
EXECUTIVE COMPENSATION
RHP was incorporated in July for the purpose of being the vehicle for the
Spinoff. None of RHP's executive officers listed above will receive material
compensation from RHP prior to the Effective Date. RHP has agreed to assume
Greenbriar's obligations under the employment agreements of certain Greenbriar
employees who will be executive officers of RHP after the Spinoff. The following
table sets forth certain information regarding the annual compensation for
services in all capacities to Greenbriar for the year ended December 31, 1996,
with respect to the most highly-compensated Greenbriar executive officers who
will be executive officers of RHP ("Named Executive Officers"):
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS;
NAME AND SECURITIES
PRINCIPAL POSITION ANNUAL UNDERLYING ALL OTHER
WITH GREENBRIAR YEAR SALARY OPTIONS COMPENSATION(1)
- ------------------------------------------------------------- --------- ---------- ------------- -----------------
<S> <C> <C> <C> <C>
James R. Gilley,............................................. 1996 $ 460,000 200,000 $ 8,500
Chairman(2) 1995 460,000 200,000 7,500
1994 460,000 -- 6,500
Gene S. Bertcher,............................................ 1996 $ 180,000 -- $ 7,500
Executive Vice President and Chief Financial Officer 1995 172,500 -- 6,500
1994 150,000 20,000 6,500
Paul W. Dendy,............................................... 1996 $ 114,600 10,000 $ 5,500
Executive Vice President(3)
</TABLE>
- ------------------------
(1) Constitutes directors' fees paid by Greenbriar to the named individuals.
(2) James R. Gilley served as President and Chief Executive Officer of
Greenbriar until December 31, 1996.
(3) Paul W. Dendy was an employee of Greenbriar for only part of 1996.
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table summarizes certain information regarding options to
purchase Common Stock issued to the Named Executive Officers during the year
ended December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------
<S> <C> <C> <C> <C>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED FISCAL YEAR ($/SH) EXPIRATION DATE
- ---------------------------------------------------------- ----------- --------------- ----------- ---------------
James R. Gilley........................................... 200,000 46.3% $ 10.75 5/24/01
200,000 46.3% $ 13.275 12/31/06
Paul W. Dendy............................................. 10,000 2.3% $ 11.25 3/15/06
</TABLE>
37
<PAGE>
OPTIONS EXERCISED IN LAST FISCAL YEAR; FISCAL YEAR END OPTION VALUES
No options for Greenbriar Common Stock were exercised in the year ended
December 31, 1996. The following table summarizes certain information regarding
year end option values of the options held by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996
------------------------------ -------------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ----------------- ------------ -----------------
James R. Gilley.......................................... 400,000 -- $ 2,695,000 --
Gene S. Bertcher......................................... 20,000 -- 150,000 --
Paul W. Dendy............................................ 10,000 -- 75,000 --
</TABLE>
EMPLOYMENT AGREEMENTS
RHP has agreed to assume Greenbriar's obligations under the employment
agreements of certain Greenbriar employees who will be executive officers of RHP
after the Spinoff. On the Effective Date, RHP will assume Greenbriar's
obligations under the Employment Agreement by and between Greenbriar and James
R. Gilley dated January 1, 1997, except for the obligation to grant
non-qualified stock options on an annual basis, which obligation will remain
with Greenbriar. Mr. Gilley will serve as Chairman and Chief Executive Officer
of RHP for a three year term that recommences each day. The agreement provides
for base salary of $460,000 per annum and 200,000 fully vested, non-qualified
stock options each year in lieu of any cash bonus. The Agreement may be
terminated early only upon resignation, mutual consent or for good cause. Mr.
Gilley has agreed, effective with the Spinoff, to forego his salary for one
year. See "Certain Relationships and Related Transactions." Also on the
Effective Date, RHP will assume Greenbriar's obligations under the Employment
Agreement by and between Greenbriar and Gene S. Bertcher dated January 1, 1997.
Mr. Bertcher will serve as President and Chief Operating Officer under a
two-year term that recommences each day. The agreement provides for base salary
of $180,000 and a discretionary bonus, and may be terminated early only upon
resignation, mutual consent, or for good cause. Mr. Bertcher has agreed,
effective with the Spinoff, to forego his salary for one year. See "Certain
Relationships and Related Transactions."
In addition to the foregoing, RHP will assume Greenbriar's obligations under
an employment agreement with Paul W. Dendy dated March 15, 1996 that expires
March 15, 1999. Mr. Dendy will serve as Executive Vice President and Chief
Financial Officer at a base salary of $125,000 and a discretionary bonus, and
may be terminated early only upon resignation, mutual consent, or for good
cause. Mr. Dendy has agreed, effective as of the Spinoff, to forego $25,000 of
his salary for one year. See "Certain Relationships and Related Transactions."
STOCK OPTION PLAN AND OPTION GRANTS
The Compensation Committee will administer RHP's 1997 Stock Option Plan (the
"1997 Plan"), which will provide for grants of incentive and non-qualified stock
options to RHP's executive officers, as well as its directors and other key
employees. The 1997 Plan is also available to consultants of RHP. Grants under
the 1997 Plan will be to promote long-term performance of RHP, and,
specifically, to retain and motivate senior management in achieving a sustained
increase in stockholder value. Currently, the Plan has no pre-set formula or
criteria for determining the number of options that may be granted. The exercise
price for an option granted under the Plans is determined by the Compensation
Committee, in an amount not less than 100 percent of the fair market value of
RHP's Common Stock on the date of grant. The Compensation Committee reviews and
evaluates the overall compensation package of the executive officers and
determines the awards based on the overall performance of RHP and the individual
performance of the executive officers. RHP currently has reserved 500,000 shares
of RHP Common Stock
38
<PAGE>
for issuance under the 1997 Plan, of which 25,000 shares will be covered by
outstanding options as of the Effective Date. Those options will be awarded to
effect an equitable adjustment of certain options to purchase Greenbriar Common
Stock outstanding on the Effective Date.
Certain former employees or consultants of Greenbriar who are becoming
executive officers of RHP in the Spinoff and who hold pre-Spinoff options to
purchase Greenbriar Common Stock will be awarded options under the 1997 Plan to
purchase RHP Common Stock in the ratio of one option share of RHP for every two
option shares of Greenbriar in their original option agreements. These options
will by their terms require that any exercise will have to be made jointly with
the exercise of the counterpart Greenbriar options (which in turn will be
adjusted to accommodate this feature in converse, and which, together with the
related RHP options being awarded as of the Spinoff will be referred to herein
as the " 'stapled' options"). The total consideration required to exercise the
"stapled" options will equal the original amount required to exercise the
related Greenbriar options before the Spinoff, but it will be divided between
Greenbriar and RHP on an equitable basis based upon the market values of the
respective underlying shares after the Spinoff. Of these options, Gene S.
Bertcher will receive options to purchase 10,000 shares of RHP Common Stock, and
Paul W. Dendy and Mark E. Bennett each will receive options to purchase 5,000
shares of RHP Common Stock.
As of the Effective Date, RHP also will award James R. Gilley options to
purchase up to 422,750 shares of RHP Common Stock to effect an equitable
adjustment of (i) pre-Spinoff options he held to purchase 400,000 shares of
Greenbriar Common Stock; (ii) pre-Spinoff warrants he held to purchase up to
108,000 shares of Greenbriar Common Stock; and (iii) his right to convert
675,000 shares of Greenbriar Series D Preferred Stock into 337,500 shares of
Greenbriar Common Stock outstanding on the Effective Date. These new options
will have similar terms and will be coordinated in their exercise with the
existing Greenbriar options, warrants, and Greenbriar Series D Preferred Stock,
as adjusted, in a manner similar to the "stapled" options described above. See
"Certain Relationships and Related Transactions."
39
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the projected
beneficial ownership of equity securities of RHP immediately following the
Spinoff by: (i) each person known to RHP to own beneficially more than 5% of a
class of RHP's equity securities; (ii) each person who is or will be a director
of RHP or a Named Executive Officer; and (iii) all directors and executive
officers of RHP as a group. The information is based on ownership of equity
securities of Greenbriar as of August 15, 1997 and reflects the effect of the
distribution of RHP Common Stock in the Spinoff as well as the issuance of
shares of three series of preferred stock of RHP in transactions related to the
Spinoff and occurring on or about the Effective Date. Unless otherwise
indicated, all shares are owned directly and the indicated person has sole
voting and investment power.
<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED STOCK ---------------------------------------
----------------------------------------------- NUMBER OF
SERIES C JUNIOR SHARES
SERIES A PREFERRED PREFERRED ASSUMING
STOCK STOCK(3) FULL
----------------------- ---------------------- CONVERSION
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT OF STOCK PERCENT
NAME AND ADDRESS OF OF OF OF OF OF AND OPTIONS OF
OF BENEFICIAL OWNER(1) SHARES SERIES SHARES SERIES SHARES CLASS BY HOLDERS CLASS
- ----------------------------- ---------- ----------- --------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James R. Gilley.............. -- -- 485,000 47.6% 1,372,326(2) 36.0% 1,857,326 35.1%
4265 Kellway Circle
Addison, TX 75244
Victor L. Lund............... -- -- -- -- 607,481 15.9% 607,481 11.5%
816 N.E. 87th Ave.
Vancouver, WA.
Floyd B. Rhoades............. -- -- -- -- 435,259 11.4% 435,259 8.2%
4265 Kellway Circle
Addison, TX 75244
Gene S. Bertcher............. -- -- 205,000 20.1% 37,000 1.0% 242,000 4.6%
4265 Kellway Circle
Addison, TX 75244
Paul W. Dendy................ -- -- 50,000 4.9% 13,067 0.3% 63,067 1.2%
4265 Kellway Circle
Addison, TX 75244
Mark E. Bennett.............. -- -- 205,000 20.1% 5,000 0.1% 210,000 4.0%
4265 Kellway Circle
Addison, TX 75244
Lone Star Opportunity Fund... 1,500,000 100% -- -- -- -- 428,571 8.1%
600 N. Pearl,
Suite 1550, LB 161
Dallas, TX 76140
All executive officers and
directors as a group (8
persons)................... 1,500,000 100% 945,000 92.7% 2,470,132 64.9% 3,843,632 72.7%
</TABLE>
- ------------------------
(1) According to SEC rules, a person is the "beneficial owner" of securities if
he or she has or shares the power to vote them or to direct their investment
or has the right to acquire beneficial ownership of such securities within
60 days through the exercise of an option, warrant or right, the conversion
of a security or otherwise. To the knowledge of the Company, the indicated
owners will have sole voting and investment power with respect to shares
beneficially owned, except as otherwise noted. The ownership information
presented above: (1) assumes that no RHP stock options are exercised
40
<PAGE>
between August 15, 1997 and the Spinoff; and (2) reflects the distribution
ratio of one share of RHP Common Stock for every two shares of Greenbriar
Common Stock.
(2) These shares will consist of approximately 486,426 shares of RHP Common
Stock owned by JRG Investments Co., Inc., a corporation wholly owned by
James R. Gilley ("JRG"); 195,150 shares of RHP Common Stock owned by a
grantor trust for the benefit of James R. and Sylvia M. Gilley; 422,750
shares of RHP Common Stock subject to options awarded to Mr. Gilley; and
268,000 shares of RHP Common Stock owned of record by Mrs. Gilley. Mr.
Gilley and JRG disclaim beneficial ownership of the shares owned by Mrs.
Gilley. Of the shares of RHP Common Stock that will be owned by the grantor
trust, 100,000 shares will be dividends on Greenbriar Common Stock shares
acquired by the trust from Greenbriar in November 1993 in consideration of a
$2,250,000 partial recourse promissory note executed by the grantor trust
and Mr. Gilley (as co-maker). This note bears interest at an annual rate of
5.5% until November 2003, when the entire principal balance and all accrued
interest is due. After the Spinoff, the note will be collateralized by the
Greenbriar and RHP shares, and the grantor trust and Mr. Gilley (as
co-maker) have personal recourse only for the first 20% of the principal
balance.
(3) This figure includes shares sold to the holder by RHP as discussed in
"Certain Relationships and Related Transactions."
41
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Greenbriar will provide services to RHP including, but not limited to,
services related to office management, accounting and reporting, as well as
other miscellaneous services. RHP believes that certain of these service costs
will continue to be incurred after the Spinoff, but the amount is dependent on
the type and level of RHP activities.
On August 19, 1997, the Board of Directors approved the sale of RHP Series C
Junior Preferred Stock to certain executive officers named below (as indicated)
at $2 per share in a private sale. Each person will execute a promissory note in
favor of RHP, of which 20% is with recourse to the maker. The notes bear
interest at the rate of 6.55% per year and will be due upon any sale of the
stock, or in 10 years, whichever first occurs.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
James R. Gilley............................................................ 485,000
Gene S. Bertcher........................................................... 205,000
Mark E. Bennett............................................................ 205,000
Paul W. Dendy.............................................................. 50,000
Thomas L. Staley........................................................... 50,000
L.A.Tuttle................................................................. 25,000
</TABLE>
The holder of Series C Junior Preferred Stock will have certain rights effective
upon the change of those shares into RHP Common Stock to have those common
shares registered for resale under federal securities laws. See "Authorized
Preferred Stock -- Terms of Series C Junior Preferred Stock."
On September 10, 1997, an Indemnification Agreement and Release (the
"Agreement") was entered into by and between Greenbriar and Victor L. Lund and
Florence V. Lund ("Lund") providing for a complete indemnification of Lund by
Greenbriar for any and all lawsuits or claims arising in any way from the
business of Wedgwood Retirement Inns, Inc. or affiliates acquired by Greenbriar
on March 15, 1996. In the Distribution Agreement RHP is agreeing to indemnify
Greenbriar to the extent of Greenbriar's obligations to indemnify Lund under the
Agreement.
In connection with the Spinoff, and effective only upon the Effective Date,
RHP will grant certain stock options or other rights in RHP Common Stock to
holders of Greenbriar stock options, warrants or other rights, or amend or
modify their existing agreements, to the extent reasonable to provide such
persons with the same benefit of receiving Spinoff Shares with respect to the
shares of Greenbriar Common Stock underlying their option, warrant or other
right. RHP anticipates issuing options to purchase 25,000 shares of RHP Common
Stock to certain employees of Greenbriar who will become employed by RHP, in the
ratio of one option share of RHP for every two option shares of Greenbriar, to
be effective as of the Effective Date. In addition, RHP anticipates granting
non-qualified options to purchase 422,750 shares of RHP Common Stock to James R.
Gilley as an equitable adjustment for certain options, warrants and convertible
preferred stock, held by Mr. Gilley, such issuance to be effective as of the
Effective Date. See "Management -- Stock Option Plan and Option Grants."
James R. Gilley and his wife have personally guaranteed two loans of
Greenbriar with First National Bank & Trust Co. of McAlester, Oklahoma, which
are being assumed by RHP. The loans total $5.2 million and are intended to
provide mortgage financing for two assisted living communities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." Under the terms of the financing
Mr. and Mrs. Gilley can purchase the loans if they are in default.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED SHARES
The authorized capital stock of RHP consists of 100,000,000 shares of Common
Stock, par value of $.01 per share, and 10,000,000 shares of Preferred Stock,
par value $.01 per share (the "Authorized Preferred Stock"). The Authorized
Preferred Stock may be designated in series. After the Spinoff, there will be
issued and outstanding approximately 3,360,000 shares of Common Stock and
3,520,000 issued and outstanding shares of Preferred Stock.
COMMON STOCK
GENERAL. The holders of Common Stock have no preemptive, conversion or
redemption rights. The outstanding shares of Common Stock are fully paid and
non-assessable.
DIVIDENDS. The holders of Common Stock are entitled to receive such
dividends as may be declared from time to time by the Board of Directors of RHP
out of funds legally available therefor. RHP has not paid cash dividends on the
Common Stock to date, and the Board of Directors of RHP currently intends to
retain earnings for further development of RHP's business and, therefore, does
not intend to pay cash dividends on the Common Stock in the foreseeable future.
No dividends can be paid on the Common Stock while dividends are in arrears on
the Authorized Preferred Stock. RHP is not currently in arrears on any dividends
on the Authorized Preferred Stock.
VOTING RIGHTS. The holders of Common Stock are entitled to one vote per
share on all matters submitted to a vote of stockholders and do not possess
cumulative voting rights.
REGISTRAR AND TRANSFER AGENT. The registrar and transfer agent for the RHP
Common Stock is American Stock Transfer & Trust Company.
43
<PAGE>
AUTHORIZED PREFERRED STOCK
The Board of Directors of RHP has the authority to divide the Authorized
Preferred Stock into series, the shares of each series to have such relative
rights and preferences as shall be fixed and determined by the Board of
Directors. The provisions of a particular series of Authorized Preferred Stock,
as designated by the Board of Directors, may include restrictions on the payment
of dividends on Common Stock. Such provisions may also include restrictions on
the ability of RHP to purchase shares of Common Stock or to purchase or redeem
shares of a particular series of Authorized Preferred Stock. Depending upon the
voting rights granted to any series of Authorized Preferred Stock, issuance
thereof could result in a reduction in the voting power of the holders of Common
Stock. In the event of any dissolution, liquidation or winding up of RHP,
whether voluntary or involuntary, the holders of each series of the then
outstanding Authorized Preferred Stock may be entitled to receive, prior to the
distribution of any asset or funds to the holders of Common Stock, a liquidation
preference established by the Board of Directors, together with all accumulated
and unpaid dividends. Depending upon the consideration paid for Authorized
Preferred Stock, the liquidation preference of Authorized Preferred Stock and
other matters, the issuance of Authorized Preferred Stock could result in a
reduction in the assets available for distribution to the holders of Common
Stock in the event of the liquidation of RHP.
After the Effective Date, outstanding series of Authorized Preferred Stock
are expected to be Series A Senior Convertible/Exchangeable Preferred Stock
("Series A Preferred Stock"), Series B Junior Preferred Stock and Series C
Junior Preferred Stock. Following is a brief summary of certain provisions of
each of these series of Authorized Preferred Stock, as provided in the
respective Certificates of Designations, Preferences and Rights of Preferred
Stock by Resolution of the Board of Directors (with respect to the Series A
Preferred Stock, the "Series A Certificate").
TERMS OF SERIES A SENIOR CONVERTIBLE/EXCHANGEABLE PREFERRED STOCK
DIVIDENDS. Holders of Series A Preferred Stock will be entitled to
cumulative quarterly dividends beginning December 31, 1997 of $0.15 per share,
equal to an annual return of approximately 6%. Dividends on the Series A
Preferred Stock will be cumulative from the date of original issue, and all
accrued and unpaid dividends will bear interest of 12% from their respective
quarterly payment date until paid. At the election of the Board, dividends may
be accumulated and will be payable in cash when and as declared by the Board. No
dividends may be paid or declared and no distribution (of other securities or
any other property) may be made on Common Stock or any other class or series of
stock ranking junior to the Series A Preferred Stock while any dividends on
Series A Preferred Stock remain accumulated and unpaid. No Common Stock or any
other class or series of stock ranking junior to the Series A Preferred Stock
may be redeemed or purchased by RHP while any dividends on Series A Preferred
Stock remain accumulated and unpaid.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding
up of RHP, the holder of each share of Series A Preferred Stock then outstanding
will be entitled to be paid an amount in cash equal to $10.00 per share of such
Series A Preferred Stock, together with any accumulated and unpaid dividends
thereon, before any distribution or payment on the Common Stock, any other
series of Preferred Stock, or any other classes or series of capital stock of
RHP.
REDEMPTION. In general, Series A Preferred Stock will not be redeemable for
cash, even at maturity; however, under certain circumstances, the holders of
Series A Preferred Stock will have the option to receive certain cash payments
upon the exchange and conversion of the Series A Preferred Stock which will
represent a premium above the share's liquidation value. See "Exchange and
Conversion Rights."
EXCHANGE AND CONVERSION RIGHTS. Except upon the occurrence of certain
events as outlined in the Series A Certificate, the shares of Series A Preferred
Stock will in the aggregate be exchangeable and convertible into 857,142 shares
of Greenbriar Common Stock held by RHP and 428,571 shares of RHP
44
<PAGE>
Common Stock, respectively, subject to certain adjustments and partial exchange
and conversion as outlined in the Series A Certificate. The Series A Preferred
Stock may be exchanged and converted at any time between the second and third
anniversary of the closing of the Financing Transaction and, in any event, must
be redeemed by RHP on the date of the third anniversary of the Financing
Transaction. At the time of the exchange and conversion of the Series A
Preferred Stock into Greenbriar Common Stock and RHP Common Stock, respectively,
Lone Star may be entitled to a cash payment from RHP based on the value of the
stock received in the exchange and conversion. The cash payment, if any, will be
the amount necessary to create a 20% compounded rate of return to Lone Star,
after considering both the cash dividend and value of stock received in the
exchange and conversion. See "Business and Properties -- Financing."
VOTING RIGHTS. The holders of Series A Preferred Stock will be entitled to
elect a director to serve on the Board of Directors of RHP, provided that the
director is not a member of the Board of Directors of Greenbriar. The approval
of the holders of a majority of the Series A Preferred Stock will be required to
(a) amend, alter or repeal the articles of incorporation or bylaws of RHP; (b)
authorize, create or issue any additional shares of capital stock ranking prior
to or on a parity with the Series A Preferred Stock; (c) approve a merger,
consolidation or sale of a significant amount of assets of RHP, other than
certain permitted combinations as set forth in the Certificate; or (d) approve
the reorganization, restructuring, recapitalization or other similar transaction
involving RHP.
ANTI-DILUTION ADJUSTMENTS. Holders of Series A Preferred Stock are entitled
to certain customary anti-dilution rights in connection with maintaining the
value of its exchange rights, including adjustments for dividends and other
capital distributions of Greenbriar or RHP, the issuance by Greenbriar or RHP of
its common stock or common stock equivalents at below fair market value and the
repurchase by Greenbriar or RHP of its common stock or common stock equivalents
at above fair market value.
REGISTRATION RIGHTS. Holders of Series A Preferred Stock will be granted
certain registration rights with respect to the shares of RHP Common Stock and
Greenbriar Common Stock they receive upon conversion of their Series A Preferred
Stock. The registration rights, with certain limitations, grant the holders
thereof the right to have such shares registered under a registration statement
filed by RHP relating to the issuance of RHP Common Stock. RHP will bear the
expenses incident to the registration requirements with respect to such
registration rights, except that such expenses shall not include any
underwriting discount or commission, Securities and Exchange Commission or state
securities registration fees or transfer taxes relating to such shares. The
holders of Series A Preferred Stock have the right on two occasions to demand
registration, they have the right once a year to ask for a registration on Form
S-3, if available to RHP, and they have the right, subject to restrictions
required by the underwriters, to have their shares registered for resale in
registrations RHP may conduct.
TERMS OF SERIES B JUNIOR PREFERRED STOCK
DIVIDENDS. Shares of Series B Junior Preferred Stock (the "Series B Junior
Preferred Stock") will pay cumulative quarterly dividends beginning December 31,
1997 of $0.225 per share, equal to an annual return of approximately 9%.
Dividends on the Series B Junior Preferred Stock will be cumulative from the
date of original issue, and all accrued and unpaid dividends will bear interest
of 12% from their respective quarterly payment date until paid. At the election
of the Board, dividends may be accumulated and will be payable in cash or in
kind when and as declared by the Board. No dividends may be paid or declared and
no distribution (of other securities or any other property) may be made on
Common Stock or any other class or series of stock ranking junior to the Series
B Junior Preferred Stock while any dividends on Series B Junior Preferred Stock
remain accumulated and unpaid. No Common Stock or any other class or series of
stock ranking junior to the Series B Junior Preferred Stock may be redeemed or
purchased by RHP while any dividends on Series B Junior Preferred Stock remain
accumulated and unpaid.
45
<PAGE>
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding
up of RHP, the holder of each share of Series B Junior Preferred Stock then
outstanding will be entitled, after the liquidation preference of the Series A
Preferred Stock has been met, to be paid an amount in cash equal to $10 per
share of such Series B Junior Preferred Stock, together with any accumulated and
unpaid dividends thereon, before any distribution or payment on Common Stock.
Thereafter, the holders of Common Stock then outstanding will together be
entitled to receive ratably all the remaining assets of RHP.
REDEMPTION. Series B Junior Preferred Stock will be redeemable only for
cash and only after the third anniversary of the issuance of the Series A
Preferred Stock. The Series B Junior Preferred Stock is redeemable at $10 per
share.
CONVERSION. The Series B Junior Preferred Stock is not convertible to any
other class of stock.
VOTING RIGHTS. The holders of Series B Junior Preferred Stock will be
entitled to vote only on matters affecting the rights of the holders of the
Series B Junior Preferred Stock.
PREEMPTIVE RIGHTS. Holders of Series B Junior Preferred Stock have no
preemptive rights.
TERMS OF SERIES C JUNIOR PREFERRED STOCK
DIVIDENDS. The holders of Series C Junior Preferred Stock are entitled to
receive dividends on a pro rata basis with the holders of RHP Common Stock, as
such dividends may be declared from time to time by the Board of Directors of
RHP out of funds legally available therefor. RHP has not paid cash dividends on
the RHP Common Stock to date, and the Board of Directors of RHP does not intend
to pay cash dividends on the RHP Common Stock in the foreseeable future. See
"Description of Common Stock-- Common Stock--Dividends." Therefore, no cash
dividends have been paid on the Series C Junior Preferred Stock, and no such
dividends are anticipated to be paid in the near future. No dividends can be
paid on the RHP Common Stock or Series C Junior Preferred Stock while dividends
are in arrears on the Series A or Series B Preferred Stock. RHP is not currently
in arrears on any dividends on the Series A or Series B Preferred Stock.
VOTING RIGHTS. The holders of Series C Junior Preferred Stock will be
entitled to vote only on matters affecting the rights of the holders of Series C
Junior Preferred Stock, except that holders of Series C Junior Preferred Stock
will not be entitled to vote on whether such shares will be changed into shares
of RHP Common Stock. See "--Rights to Change upon Shareholder Approval."
RIGHTS TO CHANGE UPON SHAREHOLDER APPROVAL. Upon the approval of a majority
of the holders of RHP Common Stock at the first annual or a special meeting of
RHP shareholders after the Spinoff, each share of Series C Junior Preferred
Stock will be changed into and become one share of RHP Common Stock. If the
holders do not approve the change of Series C Junior Preferred Stock into RHP
Common Stock, then holders of Series C Junior Preferred Stock will continue to
be holders of Series C Junior Preferred Stock.
REGISTRATION RIGHTS. Holders of Series C Junior Preferred Stock will be
granted certain "demand" registration rights with respect to the shares of RHP
Common Stock they receive if the change of shares of Series C Junior Preferred
Stock into RHP Common Stock is approved by the holders of RHP Common Stock at
the first annual or at a special meeting of RHP shareholders after the Spinoff.
See "--Rights to Change upon Shareholder Approval." The registration rights,
with certain limitations, grant the holders thereof the right to have such
shares registered under a registration statement filed by RHP relating to the
issuance of RHP Common Stock. RHP will bear the expenses incident to the
registration requirements with respect to such registration rights, except that
such expenses shall not include any underwriting discount or commission,
Securities and Exchange Commission or state securities registration fees or
transfer taxes relating to such shares.
46
<PAGE>
NO PREEMPTIVE RIGHTS
Except for provisions applying to the Series A Preferred Stock, no holder of
any capital stock of RHP has any preemptive right to subscribe for or purchase
any securities of any class or kind of RHP.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company will be the transfer agent and
registrar for the RHP Common Stock immediately following the Spinoff.
CERTAIN RIGHTS OF HOLDERS OF COMMON STOCK;
ANTITAKEOVER EFFECTS
RHP is a Nevada corporation organized under Chapter 78 of the Nevada Revised
Statutes ("NRS"). Accordingly, the rights of the holders of Common Stock issued
will be governed by Nevada law in addition to the Articles of Incorporation
("Articles") and bylaws of RHP. Although it is impracticable to set forth all of
the material provisions of the NRS or RHP's Articles and bylaws, the following
is a summary of certain significant provisions of the NRS and/or RHP's Articles
and bylaws that affect the rights of securities holders.
ANTI-TAKEOVER PROVISIONS
SPECIAL MEETINGS OF STOCKHOLDERS; DIRECTOR NOMINEES. RHP's bylaws and
Articles provide that special meetings of stockholders may be called by
stockholders only if the holders of at least 80% of the Common Stock join in
such action. The bylaws and Articles also provide that stockholders desiring to
nominate a person for election to the Board of Directors must submit their
nominations to RHP at least 120 days in advance of the date on which the last
annual stockholders' meeting was held, and provide that the number of directors
to be elected (within the minimum-maximum range of 3-21 set forth in the
Articles and bylaws) shall be determined by the Board of Directors or by the
holders of at least 80% of the Common Stock. While these provisions of the
Articles and bylaws have been established to provide a more cost-efficient
method of calling special meetings of stockholders and a more orderly and
complete presentation and consideration of stockholder nominations, they could
have the effect of discouraging certain stockholder actions or opposition to
candidates selected by the Board of Directors and provide incumbent management a
greater opportunity to oppose stockholder nominees or hostile actions by
stockholders. The affirmative vote of holders of at least 80% of the Common
Stock is necessary to amend, alter or adopt any provision inconsistent with or
repeal any of these provisions.
REMOVAL OF DIRECTORS. The Articles of RHP provide that directors may be
removed from office only for "cause" by the affirmative vote of holders of at
least 80% of the Common Stock. "Cause" means proof beyond the existence of a
reasonable doubt that a director has been convicted of a felony, committed gross
negligence or willful misconduct resulting in a material detriment to RHP, or
committed a material breach of such director's fiduciary duty to RHP resulting
in a material detriment to RHP. The inability to remove directors except for
"cause" could provide incumbent management with a greater opportunity to oppose
hostile actions by stockholders. The affirmative vote of holders of at least 80%
of the Common Stock is necessary to amend, alter or adopt any provision
inconsistent with or repeal this provision.
CLASSIFICATION OF DIRECTORS. The Articles and bylaws divide the Board of
Directors into three classes, equal or approximately equal in number, serving
staggered three year terms. The Board of Directors is presently comprised of six
members (until subsequently changed by the Board of Directors or stockholders in
accordance with the procedures described above), with three Classes having two
members each. At each annual meeting of stockholders, directors in the Class
whose terms are expiring shall be elected for three-year terms to succeed those
whose terms expired. The affirmative vote of holders of at least 80% of the
Common Stock is necessary to amend, alter or adopt any provision inconsistent
with or repeal this provision.
47
<PAGE>
The provisions regarding classification of directors were established to
provide orderly transition and continuity in the membership of the Board of
Directors. Such procedures could, however, have the effect of providing
incumbent management a greater opportunity to oppose hostile actions by
stockholders. Moreover, it requires two annual meetings of stockholders to
consider and vote upon reelection or removal of a majority of the members of the
Board, rather than at each annual meeting of stockholders. Also, RHP's bylaws
provide that directors chosen to fill any vacancy (whether by increase in the
number of directors or as a result of resignation, removal or other events) will
serve until their successors are duly elected and shall qualify, unless sooner
displaced.
CONTROL SHARE STATUTE. Sections 78.378-78.3793 of the NRS constitute
Nevada's control share statute, which set forth restrictions on the acquisition
of a controlling interest in a Nevada corporation which does business in Nevada
(directly or through an affiliated corporation) and which has 200 or more
stockholders, at least 100 of whom are stockholders of record and residents of
Nevada. A controlling interest is defined as ownership of voting shares
sufficient to enable a person directly or indirectly and individually or in
association with others to exercise voting power over at least 20% but less than
33.3% of the voting shares, or at least 33.3% but less than a majority of the
voting shares, or a majority or more of the voting shares. Generally, any person
acquiring a controlling interest must request a special meeting of stockholders
to vote on whether the shares constituting the controlling interest will be
afforded full voting rights, or something less. The affirmative vote of the
holders of a majority of the voting shares, exclusive of the control shares, is
binding. If full voting rights are not granted, the control shares may be
redeemed by RHP under certain circumstances. If full voting rights are granted,
stockholders voting against such rights being granted may demand payment from
RHP for the fair value of their shares. The Board of Directors may adopt a
resolution amending the Bylaws within ten days following the acquisition of any
controlling interest to provide that the foregoing provisions shall not be
applicable to such acquisition. The foregoing provisions of the NRS do not
presently apply to RHP because (i) RHP has adopted a resolution electing not to
be governed by the provisions and (ii) RHP does not presently conduct business
in Nevada.
BUSINESS COMBINATION STATUTE. Sections 78.411-78.444 of the NRS set forth
restrictions and prohibitions relating to certain business combinations and
prohibitions relating to certain business combinations with interested
stockholders. These Sections generally prohibit any business combination
involving RHP and a person that beneficially owns 10% or more of the voting
shares (an "Interested Stockholder") (i) within three years after the date (the
"Acquisition Date") the Interested Stockholder became an Interested Stockholder,
unless, prior to the Acquisition Date, RHP's Board of Directors had approved the
combination or the purchase of shares resulting in the Interested Stockholder
becoming an Interested Stockholder; or (ii) unless three years have elapsed
since the Acquisition Date and the combination has been approved by the holders
of a majority of the voting shares not owned by the Interested Stockholder and
its affiliates and associates; or (iii) unless the holders of Common Stock will
receive in such combination, cash and/or property having a fair market value
equal to the higher of (a) the market value per share of Common Stock on the
date of announcement of the combination or the Acquisition Date, whichever is
higher, plus interest compounded annually through the date of consummation of
the combination less the aggregate amount of any cash dividends and the market
value of other dividends, or (b) the highest price per share paid by the
Interested Stockholder for shares of Common Stock acquired at a time when he
owned 5% or more of the outstanding shares of Common Stock and which acquisition
occurred at any time within three years before the date of announcement of the
combination or the Acquisition Date, whichever results in the higher price, plus
interest compounded annually from the earliest date on which such highest price
per share was paid less the aggregate amount of any cash dividends and the
market value of other dividends. For purposes of these provisions, a "business
combination" is generally defined to include (i) any merger or consolidation of
RHP or a subsidiary with or into an Interested Stockholder or an affiliate or
associate; (ii) the sale, lease or other disposition by RHP to an Interested
Stockholder or an affiliate or associate of assets of RHP representing 5% or
more of the value of its assets on a consolidated basis or 10% or more of its
earning power or net income; (iii) the issuance by RHP of any of its securities
to an Interested Stockholder or an affiliate or associate having an
48
<PAGE>
aggregate market value equal to 5% or more of the aggregate market value of all
outstanding shares of RHP; (iv) the adoption of any plan to liquidate or
dissolve RHP proposed by or under an agreement with the Interested Stockholder
or an affiliate or associate; (v) any receipt by the Interested Stockholder or
an affiliate, except proportionately as a stockholder, of any loan, advance,
guarantee, pledge or other financial assistance or tax credit or other tax
advantage provided by or through RHP; and (vi) any recapitalization or
reclassification of securities or other transaction that would increase the
proportionate shares of outstanding securities owned by the Interested
Stockholder or an affiliate. Sections 78.411-78.444 of the NRS are presently
applicable to RHP.
RHP has approved the issuance of the Series A Preferred Stock to Lone Star
and the acquisition of RHP Common Stock pursuant to conversion of the Series A
Preferred Stock for purposes of Section 78.438(1) of the NRS. Accordingly, the
provisions of the business combination statute will not apply to any business
combination between RHP and Lone Star.
SPECIAL MEETINGS
RHP's bylaws and Articles provide that special meetings of the stockholders
of RHP may be called by the Board of Directors, the Executive Committee of the
Board of Directors, written order of a majority of the members of either of the
foregoing, or upon written request of stockholders holding not less than 80% of
the Common Stock.
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS
Nevada law provides that an agreement of merger or consolidation, or the
sale or other disposition of all or substantially all of a corporation's assets,
must be approved by the affirmative vote of the holders of a majority of the
voting power of the corporation (except that no vote of the stockholders of the
surviving corporation is required to approve a merger if certain conditions are
met, unless the articles of incorporation of such corporation states otherwise,
and except that no vote of stockholders is required for certain mergers between
a corporation and a subsidiary), but does not require the separate vote of each
class of stock unless the corporation's articles of incorporation provides
otherwise (except that class voting is required in a merger if shares of the
class are being exchanged or if certain other rights of the class are affected).
RHP's Articles do not alter the provisions of Nevada law.
DIRECTORS; REMOVAL OF DIRECTORS
Under Nevada law, the number of directors may be fixed by, or determined in
the manner provided in, the articles of incorporation or by-laws, and the Board
of Directors may be divided into classes as long as at least 25% in number of
the directors are elected annually. Nevada law further requires that a
corporation have at least one director. Directors may be removed under Nevada
law with or without cause by the holders of not less than two-thirds of the
voting power of the corporation, unless a greater percentage is set forth in the
articles of incorporation. RHP's Articles permit removal of directors only for
cause by the holders of 80% or more of the voting power of all the shares of RHP
entitled to vote generally in the election of directors. See "Possible
Anti-Takeover Provisions -- Removal of Directors" and "-- Classification of
Directors", above, for a further discussion.
AMENDMENTS TO BYLAWS
RHP's bylaws may be amended by the Board of Directors or stockholders,
provided, however that certain provisions can only be amended by the affirmative
vote of holders of at least 80% of the Common Stock and provided further, that
no amendments to the Bylaws can occur without the approval of the holders of
Series A Senior Convertible/Exchangeable Preferred Stock. These provisions
relate to special meetings of stockholders, actions by written consent of
stockholders, nomination of directors by stockholders, and the procedures for
fixing the number of and electing directors.
49
<PAGE>
APPRAISAL RIGHTS
The NRS provides dissenting or objecting security holders with the right to
receive the fair value of their securities in connection with certain
extraordinary corporate transactions. These appraisal rights are available with
respect to certain mergers and share exchanges and in connection with the
granting of full voting rights to control shares acquired by an interested
stockholder. However, unless the transaction is subject to the control share
provisions of the NRS, a stockholder of a Nevada corporation may not assert
dissenters' rights in most cases, if the stock is listed on a national
securities exchange or held by at least 2,000 stockholders of record (unless the
articles of incorporation expressly provide otherwise or the security holders
are required to exchange their shares for anything other than shares of the
surviving corporation or another publicly held corporation that is listed on a
national securities exchange or held of record by more than 2,000 stockholders).
DISTRIBUTIONS
Dividends and other distributions to security holders are permitted under
the NRS as authorized by a corporation's articles of incorporation and its board
of directors if, after giving effect to the distribution, the corporation would
be able to pay its debts as they become due in the usual course of business and
the corporation's total assets would exceed the sum of its total liabilities
plus (unless the articles of incorporation provide otherwise) the amount needed
to satisfy the preferential rights on dissolution of holders of stock whose
preferential rights are superior to those of the shares receiving the
distribution.
PREEMPTIVE RIGHTS
Under the NRS, stockholders of Nevada corporations organized after October
1, 1991 are not entitled to preemptive rights unless the articles of
incorporation expressly grant those rights. A stockholder who has preemptive
rights is entitled, on terms and conditions prescribed by the board of
directors, to acquire proportional amounts of the corporation's unissued or
treasury shares in most instances in which the board has decided to issue them.
RHP's Articles expressly deny availability of preemptive rights to RHP's
stockholders.
CUMULATIVE VOTING
Under the NRS, the articles of incorporation of a corporation may provide
for cumulative voting, which means that the stockholders are entitled to
multiply the number of votes they are entitled to cast by the number of
directors for whom they are entitled to vote and then cast the product for a
single candidate or distribute the product among two or more candidates.
Cumulative voting is not available to stockholders of a Nevada corporation,
however, unless its articles expressly provide for that voting right, and RHP's
Articles do not contain a provision permitting stockholders to cumulate their
votes when electing directors.
50
<PAGE>
LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION
LIMITATION ON LIABILITY OF DIRECTORS
Section 78.037 of the NRS provides that a Nevada corporation may limit the
personal liability of a director or officer to the corporation or its
stockholders for breaches of fiduciary duty, except that such provision may not
limit liability for acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law, or payment of dividends or other
distributions in violation of the NRS. RHP's Articles provide that no director
shall be personally liable to RHP or its stockholders for monetary damages or
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to RHP or its stockholders, (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) liability under the NRS, or (iv) for any
transaction from which the director derived an improper personal benefit.
In the opinion of the Securities and Exchange Commission, the
indemnification and limitation of liability provisions described in
"Indemnification of Directors and Officers", above, and "Limitation on Liability
of Directors" would not eliminate or limit the liability of directors and
officers under the federal securities laws.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 78.751 of the NRS, directors and officers may be indemnified
for liabilities incurred in connection with specified actions (other than any
action brought by or in the right of the corporation), if they acted in good
faith and in the manner they reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
Further, directors and officers may be indemnified against expenses incurred in
connection with an action brought by or in the right of the corporation if such
director or officer satisfied the foregoing conditions and the director or
officer was not adjudged to be liable to the corporation in such action,
provided, the director or officer may be indemnified for expenses despite such
adjudication of liability if the court in which such action was brought
determines that the director or officer is fairly and reasonably entitled to
such indemnification in view of all the circumstances of the case. RHP's
Articles and the bylaws provide that RHP shall indemnify its directors and
officers to the fullest extent permitted by the NRS, and that such
indemnification shall not be deemed exclusive of any other rights to which such
officers or directors may be entitled under any agreement, insurance policy,
vote of stockholders or disinterested directors or otherwise. Section 78.752 of
the NRS provides that a corporation may purchase and maintain insurance or make
other financial arrangements on behalf of any officer or director for any
liability asserted against such officer or director in his capacity as such or
arising out of his status as such, whether or not the corporation had the
authority to indemnify such officer or director against such liability and
expenses; provided, however, no financial arrangement may provide protection for
a person adjudged by a court of competent jurisdiction to be liable for
intentional misconduct, fraud or a knowing violation of law, except with respect
to the advancement of expenses or indemnification ordered by a court. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers or controlling persons of RHP pursuant to the
foregoing provisions or otherwise, RHP has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in such act and is therefore unenforceable.
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Although the Spinoff will not involve the transfer of all of the assets and
liabilities of Greenbriar to RHP, it will involve the transfer of a substantial
portion of those assets and liabilities. Accordingly, RHP is considered the
successor to Greenbriar and its presentation of historical financial information
is that of Greenbriar's historical financial information. Management's
assessment of Greenbriar's performance over the past periods presented is
applicable to RHP.
OVERVIEW
During 1994 Greenbriar began a series of steps to focus its business on the
development, management and ownership of assisted living properties.
Greenbriar's historical businesses during the past five years have included
ownership and operation of skilled nursing and retirement centers, real estate
investments and manufacture and leasing of electric convenience vehicles and
wheelchairs. The nursing and retirement centers and convenience vehicle
businesses have been sold, and the real estate investments are being liquidated.
During 1994, Greenbriar began independently to develop its assisted living
business, began construction of its first assisted living community in July
1995, and opened such community to residents on May 30, 1996. By July 1, 1996,
Greenbriar (not including the communities of Wedgwood and American Care) had
three additional assisted living communities under construction. In order to
increase Greenbriar's presence in the assisted living industry, create
geographic diversity and obtain experienced personnel, Greenbriar acquired
Wedgwood in March 1996 and American Care in December 1996. The Wedgwood
Acquisition is accounted for as a purchase, and the historical financial
statements of Greenbriar do not include any revenues or earnings (losses)
attributed to Wedgwood prior to the acquisition. The American Care acquisition
has been accounted for as a pooling of interests and accordingly, Greenbriar's
financial statements have been restated to include the accounts and operations
of American Care for all periods prior to the acquisition.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, Greenbriar had a deficit in working capital of $4,308,000.
As of June 30, 1997, Greenbriar had assets of $115,088,000 liabilities of
$79,994,000 and stockholders' equity of $35,094,000. In July 1997, Greenbriar
refinanced three of its communities resulting in additional working capital of
approximately $2,800,000. Greenbriar is currently negotiating financings with
various financial institutions and other lenders. Greenbriar believes it has
sufficient liquidity and capital to meet its current obligations.
As of March 31, 1997, Greenbriar owned three shopping centers in Georgia and
one shopping center in North Carolina. While all the centers are profitable,
they do not fit into Greenbriar's long range strategic plans and commitment to
the assisted living industry. Greenbriar is actively attempting to sell all the
centers. In April 1997 Greenbriar sold the North Carolina center and received
cash proceeds of $2,734,000. Management expects that the proceeds from the sale
of the centers will be at least equal to the $3,087,000 book value of the real
estate assets.
As of June 30, 1997, Greenbriar had loans in place or had received
commitments for future financing, subject, in the case of the commitments, to
final documentation, as follows:
I. Health Care REIT, Inc. has issued a commitment to provide $60 million over
three years to acquire and pay 100% of the construction costs of assisted
living communities to be leased to Greenbriar. The term of the leases will
range from 11 years to 14 years plus two five-year renewal options, with
lease payments based upon the interest rate on U.S. Treasury notes plus
3.75%, subject to inflation adjustments not to exceed .25% per year. A 1%
commitment fee is required, as each lease is entered into. Greenbriar will
have the option to purchase each community at the end of the term for its
original cost plus 50% of the increase in its fair market value. As
additional security to the lessor, Greenbriar will provide a letter of
credit for 5% of the amount financed, a first lien on personal
52
<PAGE>
property and receivables of the community, and subordination of management
fees and rentals from subtenants.
The commitment is in three segments of $20 million each, with approval of the
REIT's Investment Committee before using the second and third segments. As
of June 30, 1997, Greenbriar had utilized $5.3 million of the commitment for
funding the Oak Park property under construction in Clermont, Florida.
II. In 1995 Health Care REIT, Inc. provided mortgage loan commitments for two
communities totaling $16,891,000. Of that amount, $4,536,000 was used to
refinance one of the communities (Camelot) and $5,625,000 was used to
construct another community (La Villa) which opened in the fourth quarter of
1996. The balance includes $5,160,000 to fund construction of the Camelot
Assisted Living community, which is under construction, and $645,000 to fund
certain improvements to the existing Camelot community that are almost
complete, along with $925,000 for the construction of a second phase of La
Villa, which is not presently scheduled for development and is not included
in the development and construction total. The construction loans convert to
term loans upon completion of construction. The term loans mature in seven
to ten years, initially bear interest at a rate of 4.5% over the
corresponding U.S. Treasury Note rate and are secured by the communities, an
assignment of leases, rents and management contract, letters of credit and
an assignment of the communities' licenses and permits.
III. Greenbriar has two loans from First National Bank & Trust Co. of McAlester,
Oklahoma totaling $5.2 million to provide mortgage financing for the two
assisted living Communities in Muskogee, Oklahoma and Sherman, Texas. Such
loans require a 2% commitment fee and are payable in 10 years (but callable
at the discretion of the bank in 5 years) based on a 20 year amortization,
with interest at a prime plus 2% (subject to a minimum interest rate of
8.70% and a maximum interest rate of 12.75%). As of June 30, 1997,
Greenbriar had utilized $2.6 million for the Muskogee Community and $522,000
for the Sherman Community.
The Community in Muskogee was completed in March 1997 and the Sherman
Community is in the early stages of construction.
In addition to development and construction financing described above,
Comerica Bank-Texas has issued a commitment to provide $1,600,000 to finance
buses and other vehicles to transport residents of Greenbriar's communities.
Each vehicle will be financed at 90% of cost and the loan for each vehicle will
be amortized over 48 months. The interest rate will be prime plus one percent.
Greenbriar believes it has adequate resources to complete its communities
currently under construction and development and plans to use the balance of
such committed resources for future development of assisted living communities.
Future development activities of Greenbriar are dependent upon obtaining
capital and financing through various means, including financing obtained from
sale/leaseback transactions, construction financing, long-term state bond
financing, debt or equity offerings and, to the extent available, cash generated
from operations. There can be no assurance that Greenbriar will be able to
obtain adequate capital to finance its projected growth.
FISCAL 1996 AS COMPARED TO FISCAL 1995
REVENUES AND OPERATING EXPENSES FROM ASSISTED LIVING OPERATIONS. Revenues
increased to $29,785,000 in 1996 as compared to $7,964,000 in 1995. The
principal reasons for the increase were the acquisition of Wedgwood and the
growth of American Care. Wedgwood was acquired effective March 31, 1996 and the
financial statements reflect nine months operations with respect to the 15
communities acquired in the Wedgwood acquisition. American Care in December 1995
acquired the remaining 70% of five assisted living communities in which a 30%
minority interest had been acquired in January 1995. The increase was also due
to the acquisition by American Care of one assisted living community in June
1995 and three
53
<PAGE>
assisted living communities in December 1995. Assisted living community
operations, lease expense, depreciation and amortization and interest expense
all increased substantially in 1996 as compared to 1995. The primary reason for
these increases, as discussed above, is the acquisition of Wedgwood and the
growth of American Care.
YEAR ENDED, DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
STABILIZED START-UP
COMMUNITIES COMMUNITIES TOTAL
------------ ------------ ---------
<S> <C> <C> <C>
Assisted Living Community Income.......................................... $ 28,129 $ 1,544 $ 29,673
Assisted Living Community Operating Expenses.............................. 17,717 1,722 19,439
------------ ------------ ---------
Gross Operating Income.................................................... 10,412 (178) 10,234
Lease Expense............................................................. 3,510 202 3,712
Community Depreciation & Amortization..................................... 1,616 385 2,001
------------ ------------ ---------
Income (Loss) from Community Operations................................... $ 5,286 $ (765) $ 4,521
</TABLE>
- ------------------------
(1) Stabilized communities are those communities that have been operating
for one year or have achieved stabilized occupancy of 95% or more.
(2) Start-up communities are those communities that have not been operating
for one year or have not achieved a stabilized occupancy of 95% or more.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. These expenses were
$6,731,000 in 1996 as compared to $3,948,000 in 1995. The increase in these
costs was primarily due to the acquisition of Wedgwood and American Care. The
increase in the size of Greenbriar, as well as the geographic dispersion of the
properties being managed requires additional general and administrative costs.
In addition, during 1996, Greenbriar, American Care and Wedgwood were operated
as three separate companies. Each company had its own corporate office,
executive officers, corporate staff, accounting department and other related
costs (See "--Merger and Transition Expenses").
MERGER AND TRANSITION EXPENSES. During 1996, both Greenbriar and American
Care, as separate companies, were attempting to raise money through the capital
markets. On a combined basis, the costs of these efforts were $774,000, which
the companies expensed during 1996.
The acquisition of American Care has been accounted for as a pooling of
interests. This method of accounting requires the companies to expense the cost
of the combination. The cost of lawyers, accountants, investment bankers and
other expenses related to the combination that was incurred by both Greenbriar
and American Care was approximately $983,000. These costs were expensed in 1996.
A key component of the acquisition of American Care was the opportunity it
provided for long-term cost savings by consolidating the accounting, legal and
other administrative functions of Greenbriar, American Care and Wedgwood. In the
fourth quarter of 1996, Greenbriar recorded a one-time charge to earnings of
$1,079,000 to reflect the anticipated cost of consolidating the three companies.
DISCONTINUED OPERATIONS. Earnings from discontinued operations reflect the
real estate operations, which are currently held for sale. In February 1996,
Greenbriar's sale of American Mobility Inc. resulted in a gain on sale, net of
tax, of approximately $520,000.
54
<PAGE>
DEFERRED TAXES. At December 31, 1996, Greenbriar had a deferred tax asset
of $868,000. The asset is expected to be recovered within 2-3 years from
earnings of current operations as well as gains from sales of assets.
FISCAL 1995 AS COMPARED TO FISCAL 1994
REVENUES. Operating revenues decreased 32.7% to $7,964,000 in 1995 from
$11,840,000 in 1994. The decrease was primarily due to the sale of The
Fountainview property in January 1995 and Rivermont Center in December 1994.
Revenues reflected in long term care for 1994 reflect the operations of both
properties for the entire year. Excluding the above mentioned properties
operating revenues increased to $7,964,000 in 1995 from $3,901,000 in 1994. The
increase was primarily attributable to the acquisition of five additional
assisted living communities during 1995 (including the community sold in August
1996) and to an improvement in the operating performance of the assisted living
communities acquired prior to 1995.
OPERATING EXPENSES. Operating expenses decreased 37.8% to $4,731,000 from
$7,613,000 in 1994. The decrease was due primarily to the sale of The
Fountainview and Rivermont Center noted above. Operating expenses exclusive of
Fountainview and Rivermont increased to $4,394,000 in 1995 as compared to
$2,766,000 in 1994. The increase was primarily due to the acquisitions in 1995.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
were $3,948,000 in 1995 as compared to $4,118,000 in 1994. The most significant
reason for this decrease was the sale of The Fountainview in January 1995.
Expenses for The Fountainview were $4,632,240 in 1994. The saving due to the
sale of The Fountainview was offset by increased costs at both Greenbriar and
American Care. Both companies increased administrative costs, in particular
personnel, to prepare for growth.
INTEREST INCOME AND EXPENSE. Interest income was $1,119,000 in 1995 as
compared to $216,000 in 1994. Interest expense was $1,548,000 in 1995 as
compared to $2,761,000 in 1994. As Greenbriar sells assets, it increases the
cash it has available for investments. The increase in interest income reflects
the interest received on those investments. The decrease in interest expense was
caused principally by two factors. First, when Greenbriar sold its assets it was
also relieved of the obligation to pay interest on liabilities associated with
those assets. Second, Greenbriar used certain of its available cash to pay down
corporate debt, which further reduced interest expense in 1995.
GAIN ON SALE OF ASSETS. During 1995 Greenbriar continued its program of
selling assets that were not essential to its new business focus on assisted
living. In January 1996, Greenbriar sold its mobility products subsidiaries, and
the financial statements reflect the revenue and costs associated with this
operation as discontinued operations. Gain on sales of assets for the year ended
December 31, 1995 was $6,950,000. This compares to $2,803,000 for the year ended
December 31, 1994. The majority of 1995's gain consists of $5,149,000 from the
sale of The Fountainview.
In April 1995 EquiVest sold a shopping center in Florida for $750,000 and
reported a gain of $100,000.
In June 1995 Greenbriar sold its economic interest in a legal claim with
respect to Wespac Investors Trust III. The sales price was $1,085,000 and
Greenbriar recorded a gain of $654,000. Separately, Greenbriar acquired 49% of
the outstanding common stock of Wespac Investors Trust III in a private
transaction. Greenbriar immediately sold its economic interest in that stock at
no gain or loss.
As part of a larger transaction that occurred in 1992 Greenbriar received
the rights to the interest on certain escrow funds in the year 2028. At the time
of the transaction, for accounting purposes, Greenbriar placed no value on that
right. In August 1995 Greenbriar sold its rights to the future interest for
$1,140,000 in cash.
55
<PAGE>
SIX MONTH PERIOD ENDED JUNE 30, 1997 COMPARED TO SIX MONTH PERIOD ENDED JUNE 30,
1996.
Revenues were $18,190,000 for the six months ended June 30, 1997 as compared
to $11,683,000 for the six months ended June 30, 1996. Community operating
expenses, which consists of assisted living community expenses, lease expense
and depreciation and amortization, were $15,567,000 for the six months ended
June 30, 1997 as compared to $9,806,000 for the six months ended June 30, 1996.
Wedgwood was acquired effective March 31, 1996 in a transaction accounted
for as a purchase. The revenue and related expenses for the three month period
ended March 31, 1996 for the 15 communities acquired through the Wedgwood
acquisition are not included in the amounts for the six month period ended June
30, 1996. The revenues and related expenses for Wedgwood for the three months
ended March 31, 1996 were $4,262,000 and $3,670,000, respectively. The balance
of the increases are due to the opening of new communities and increased census
at the existing communities.
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
STABILIZED START-UP
COMMUNITIES(1)(3) COMMUNITIES(2)(3) TOTAL
----------------- ----------------- ---------
Assisted Living Community Income................................ $ 16,858 $ 1,332 $ 18,190
Assisted Living Community Operating Expenses(4)................. 10,355 1,405 11,760
------- ------ ---------
Gross Operating Income (loss)................................... 6,503 (73) 6,430
Lease Expense................................................... 2,085 179 2,264
Community depreciation and amortization......................... 1,144 399 1,543
------- ------ ---------
Income (loss) from community operations......................... $ 3,274 $ (651) $ 2,623
------- ------ ---------
------- ------ ---------
</TABLE>
- ------------------------
(1) Stabilized communities are those communities that have been operating
for one year or have achieved stabilized occupancy of 95%.
(2) Start-up communities are those communities that have not been operating
for one year and have not achieved a stabilized occupancy of 95% or more.
(3) Greenbriar has 29 stabilized and 4 start-up communities.
(4) The community operating expenses do not include corporate general and
administrative expenses or lease expense for the respective communities.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $2,703,000 for the six months ended
June 30, 1997 compared to $2,197,000 for the six months ended June 30, 1996. The
increase was due primarily to the acquisition of Wedgwood and the growth of
Greenbriar.
INTEREST AND DIVIDEND INCOME
Interest and dividend income for the six months ended June 30, 1997 was
$233,000 compared to $485,000 for the comparable period in 1996. The decrease in
interest and dividend income is due to a decrease in cash available for
investment purposes.
56
<PAGE>
INTEREST EXPENSE
Interest expense for the six months ended June 30, 1997 was $3,169,000
compared to $1,688,000 for the comparable period in 1996. The increase in
interest expense represents the interest incurred on the mortgage debt and
financing obligations on the Wedgwood communities, as well as debt incurred on
new communities which opened in 1997 and 1996.
DISCONTINUED OPERATIONS
Earnings from discontinued operations consist of the Real estate operations
that are classified as held for sale.
The Real estate operations had net earnings of $123,000 for the six months
ended June 30, 1997 and earnings of $129,000 for the comparable period in 1996.
The decrease in 1997 was due to the sale of the North Carolina Shopping Center
which occurred in April 1997. That sale resulted in a gain of $323,000 net of
income tax, in 1997.
The sale in the first quarter of 1996 of the Mobility Group resulted in a
gain on sale, net of tax, of $580,000.
EFFECT OF INFLATION
Greenbriar's principal sources of revenues are from resident fees from
Company-owned or leased assisted living communities and management fees from
communities operated by Greenbriar for third parties. The operation of the
communities is affected by rental rates that are highly dependent upon market
conditions and the competitive environment in the areas where the communities
are located. Compensation to employees is the principal cost element relative to
the operations of the communities. Although Greenbriar has not historically
experienced any adverse effects of inflation on salaries or other operating
expenses, there can be no assurance that such trends will continue or that
should inflationary pressures arise that Greenbriar will be able to offset such
costs by increasing rental rates or management fees.
FORWARD LOOKING STATEMENTS
Certain statements included in this Management's Discussion and Analysis are
forward looking statements that predict the future development of Greenbriar
and/or RHP. The realization of these predictions will be subject to a number of
variable contingencies, and there is no assurance that they will occur or be
realized in the time frame proposed. The risks associated with the potential
actualization of Greenbriar's and/or RHP's plans include: contractor delays, the
availability and cost of financing, availability of managerial oversight and
regulatory approvals, to name a few.
57
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements present the
pro forma financial position of RHP as though the Spin-off had occurred on June
30, 1997 and the pro forma results of operations of RHP as though the Spin-off
had occurred on January 1, 1996. Because substantially all of Greenbriar's
assets and liabilities will be transferred to RHP in connection with the
Spinoff, Greenbriar is deemed to be the predecessor to RHP. Accordingly, these
pro forma statements are based on the audited financial statements of Greenbriar
for the year ended December 31, 1996 and the unaudited financial statements of
Greenbriar as of and for the six months ended June 30, 1997, included elsewhere
in this Registration Statement, and give effect to (1) the acquisition by
Greenbriar of four properties owned by Windsor House West, Inc. (Windsor)
subsequent to June 30, 1997 (2) the assets, liabilities and operations which
will be transferred to RHP, (3) adjustments to reflect the operations of RHP as
a stand-alone company, and (4) certain other transactions or events directly
related to the Spin-off as described in the notes to the pro forma statements.
The pro forma financial statements are not necessarily indicative of the actual
results that would have been achieved if the Spin-off had actually been
completed as of the date or dates indicated, or which may be realized in the
future. Such statements should be read in conjunction with the financial
statements of Greenbriar and the related notes thereto. See "Index to
Consolidated Financial Statements."
58
<PAGE>
RESIDENTIAL HEALTHCARE PROPERTIES, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
LESS
AMOUNTS
PRO FORMA RETAINED BY
GREENBRIAR WINDSOR ADJUSTMENTS GREENBRIAR SUBTOTAL
---------- -------- -------------- ------------- --------
<S> <C> <C> <C> <C> <C>
(NOTE A) (NOTE A) (NOTE B2) (NOTE B1)
ASSETS
Investment in real estate................ $ 89,347 $5,209 $3,337 $(1,461) $ 96,432
Notes receivable......................... 8,953 -- -- (127) 8,826
Investments in securities................ 4,325 -- -- -- 4,325
Cash and cash equivalents................ 299 -- -- (299) --
Other assets, net........................ 12,164 273 (6,590) 5,847
---------- -------- ------ ------------- --------
$115,088 $5,482 $3,337 $(8,477) $ 15,430
---------- -------- ------ ------------- --------
LIABILITIES AND SHAREHOLDERS EQUITY
Liabilities
Mortgage notes payable................. $ 57,057 $5,216 $-- $(1,189) $ 61,084
Financing obligations.................. 10,815 -- -- -- 10.815
Other notes payable.................... 1,871 550 -- (138) 2,283
Notes payable-stockholders............. 1,250 -- -- (259) 991
Deferred gain.......................... 3,083 -- -- -- 3,083
Other current liabilities.............. 5,918 53 -- (5,225) 746
---------- -------- ------ ------------- --------
Total Liabilities........................ 79,994 5,819 -- (6,811) 79,002
Series A 6% Junior Preferred Stock....... -- -- -- -- --
Equity:
Series B 9% Junior Preferred Stock..... 69 -- -- (69) --
Series C Junior Preferred Stock........ -- -- -- -- --
Common stock........................... 66 -- 2 (68) --
Additional paid-in capital............. 51,389 (337) 3,335 (17,959) 36,428
Accumulated deficit.................... (13,857) -- -- 13,857 --
---------- -------- ------ ------------- --------
37,667 (337) 3,337 (4,239) 36,428
Less stock purchase notes receivable..... (2,573) -- -- 2,573 --
---------- -------- ------ ------------- --------
35,094 (337) 3,337 (1,666) 36,428
---------- -------- ------ ------------- --------
$115,088 $5,482 $3,337 $(8,477) $115,430
---------- -------- ------ ------------- --------
<CAPTION>
PRO FORMA RHP PRO
ADJUSTMENTS FORMA
----------- --------
<S> <C> <C>
(NOTE B)
ASSETS
Investment in real estate................ $-- $96,432
Notes receivable......................... -- 8,826
Investments in securities................ 27,700(5) 32,025
Cash and cash equivalents................ 10,000 ( )(5 10,000
Other assets, net........................ 5,847
----------- --------
$37,700 $153,130
----------- --------
LIABILITIES AND SHAREHOLDERS EQUITY
Liabilities
Mortgage notes payable................. $-- $61,084
Financing obligations.................. -- 10,815
Other notes payable.................... -- 2,283
Notes payable-stockholders............. -- 991
Deferred gain.......................... -- 3,083
Other current liabilities.............. -- 746
----------- --------
Total Liabilities........................ -- 79,002
Series A 6% Junior Preferred Stock....... 15,000(3) 15,000
Equity:
Series B 9% Junior Preferred Stock..... 10(4) 10
Series C Junior Preferred Stock........ 1(6) 1
Common stock........................... 34(7) 34
Additional paid-in capital............. 9,990(4) 61,123
12,700(5)
2,039(6)
(34)(7)
Accumulated deficit.................... -- --
----------- --------
24,740 61,168
Less stock purchase notes receivable..... (2,040)(6) (2,040 )
----------- --------
22,700 59,128
----------- --------
$37,700 $153,130
----------- --------
</TABLE>
59
<PAGE>
RESIDENTIAL HEALTHCARE PROPERTIES, INC.
SIX MONTHS ENDED JUNE 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LESS
AMOUNTS
PRO FORMA RETAINED BY
GREENBRIAR WINDSOR ADJUSTMENTS GREENBRIAR SUBTOTAL
---------- -------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
(NOTE A) (NOTE A) (NOTE C) (NOTE C2)
REVENUE
Assisted living operations............. $18,126 $1,030 $-- $ (6,638) $12,518
Leases................................. -- -- -- -- --
Other.................................. 65 -- -- (33) 32
---------- -------- ----------- ------------- --------
18,191 1,030 -- (6,671) 12,550
OPERATING EXPENSES
Assisted living operations............. 11,760 664 -- (4,090) 8,334
Lease expense.......................... 2,264 -- -- (2,135) 129
Facility depreciation and
amortization......................... 1,543 51 43(1) (96) 1,541
General and administrative............. 2,703 -- -- (691) 2,012
Management fees........................ -- -- -- -- --
---------- -------- ----------- ------------- --------
18,270 715 43 (7,012) 12,016
---------- -------- ----------- ------------- --------
OPERATING PROFIT (LOSS).................. (79) 315 (43) 341 534
OTHER INCOME (EXPENSE)
Interest and dividend income........... 233 -- -- 2 235
Interest expense....................... (3,170) (198) -- 28 (3,340)
Other.................................. 503 -- -- 95 598
---------- -------- ----------- ------------- --------
(2,434) (198) -- 125 (2,507)
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES......... (2,513) 117 (43) 466 (1,973)
INCOME TAX EXPENSE (BENEFIT)............. (1,014) 47 (17)(7) 188 (796)
---------- -------- ----------- ------------- --------
EARNINGS FROM CONTINUING OPERATIONS...... (1,499) 70 (26) 278 (1,177)
Preferred stock dividend requirement..... (160) -- -- 160 --
---------- -------- ----------- ------------- --------
Earnings (loss) from continuing
operations allocable to common
stockholders........................... $(1,659) $ 70 $ (26) $ 438 $(1,177)
---------- -------- ----------- ------------- --------
---------- -------- ----------- ------------- --------
Loss per share from continuing
operations.............................
Weighted average number of common and
equivalent shares outstanding..........
<CAPTION>
PRO FORMA RHP
ADJUSTMENTS PRO FORMA
----------- ---------
<S> <C> <C>
(NOTE C)
REVENUE
Assisted living operations............. $ (7,981)(3) $ 4,537
Leases................................. 1,756(4) 1,756
Other.................................. -- 32
----------- ---------
(6,225) 6,325
OPERATING EXPENSES
Assisted living operations............. (4,868)(3) 3,466
Lease expense.......................... -- 129
Facility depreciation and
amortization......................... -- 1,541
General and administrative............. (1,154)(6) 858
Management fees........................ 571(5) 571
----------- ---------
(5,451) 6,565
----------- ---------
OPERATING PROFIT (LOSS).................. (774) (240)
OTHER INCOME (EXPENSE)
Interest and dividend income........... -- 235
Interest expense....................... -- (3,340)
Other.................................. -- 598
----------- ---------
-- (2,507)
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES......... (774) (2,747)
INCOME TAX EXPENSE (BENEFIT)............. 796(7) --
----------- ---------
EARNINGS FROM CONTINUING OPERATIONS...... (1,570) (2,747)
Preferred stock dividend requirement..... (1,950)(9) (1,950)
----------- ---------
Earnings (loss) from continuing
operations allocable to common
stockholders........................... $ (3,520) $(4,697)
----------- ---------
----------- ---------
Loss per share from continuing
operations............................. $ (1.40)
Weighted average number of common and
equivalent shares outstanding.......... 3,360
</TABLE>
60
<PAGE>
RESIDENTIAL HEALTHCARE PROPERTIES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LESS
AMOUNTS
PRO FORMA RETAINED BY
GREENBRIAR WINDSOR ADJUSTMENTS GREENBRIAR SUBTOTAL
---------- -------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
(NOTE A) (NOTE A) (NOTE C) (NOTE C2)
REVENUE
Assisted living operations......... $29,673 $1,210 $-- $(13,385) $ 17,498
Leases........................... -- -- -- -- --
Other............................ 112 -- -- (112) --
---------- -------- ----------- ------------- --------
29,785 1,210 -- (13,497) 17,498
OPERATING EXPENSES
Assisted living operations......... 19,439 994 -- (8,308) 12,125
Lease expense.................... 3,712 -- -- (3,712) --
Facility depreciation and
amortization................... 2,001 73 85(1) (124) 2,035
General and administrative......... 6,731 -- -- (2,422) 4,309
Management fees.................... -- -- -- -- --
Merger and transition expense...... 2,836 -- -- (866) 1,970
---------- -------- ----------- ------------- --------
34,719 1,067 85 (15,432) 20,439
---------- -------- ----------- ------------- --------
OPERATING PROFIT/(LOSS)............ (4,934) 143 (85) 1,935 (2,941)
OTHER INCOME (EXPENSE)
Interest expense................. (4,457) (210) -- 152 (4,515)
Other............................ 1,396 -- -- (700) 696
---------- -------- ----------- ------------- --------
(3,061) (210) -- (548) (3,819)
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES... (7,995) (67) (85) 1,387 (6,760)
INCOME TAX EXPENSE (BENEFIT)....... (2,400) (20) (26)(7) 416 (2,030)
---------- -------- ----------- ------------- --------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS....................... (5,595) (47) (59) 971 (4,730)
Preferred stock dividend
requirement...................... (365) -- -- 365 --
---------- -------- ----------- ------------- --------
Earnings (loss) from continuing
operations allocable to common
stockholders..................... $(5,960) $ (47) $ (59) $ 1,336 $ (4,730)
---------- -------- ----------- ------------- --------
---------- -------- ----------- ------------- --------
Loss per share from continuing
operations.......................
Weighted average number of common
and equivalent shares
outstanding......................
<CAPTION>
PRO FORMA RHP
ADJUSTMENTS PRO FORMA
--------------- ---------
<S> <C> <C>
(NOTE C)
REVENUE
Assisted living operations......... $(11,065)(3) $ 6,433
Leases........................... 2,434(4) 2,434
Other............................ -- --
--------------- ---------
(8,631) 8,867
OPERATING EXPENSES
Assisted living operations......... (7,242)(3) 4,883
Lease expense.................... -- --
Facility depreciation and
amortization................... -- 2,035
General and administrative......... (780)(6) 3,529
Management fees.................... 948(5) 948
Merger and transition expense...... -- 1,970
--------------- ---------
(7,074) 13,365
--------------- ---------
OPERATING PROFIT/(LOSS)............ (1,557) (4,498)
OTHER INCOME (EXPENSE)
Interest expense................. -- (4,515)
Other............................ -- 696
--------------- ---------
-- (3,819)
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES... (1,557) (8,317)
INCOME TAX EXPENSE (BENEFIT)....... 2,030(8) --
--------------- ---------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS....................... (3,587) (8,317)
Preferred stock dividend
requirement...................... (3,900)(9) (3,900)
--------------- ---------
Earnings (loss) from continuing
operations allocable to common
stockholders..................... $ (7,487) $(12,217)
--------------- ---------
--------------- ---------
Loss per share from continuing
operations....................... $ (4.51)
Weighted average number of common
and equivalent shares
outstanding...................... 2,710
</TABLE>
61
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying pro forma statements present the historical financial
statements of Greenbriar, deemed to be the predecessor to RHP, adjusted to give
effect to (1) the expected acquisition by Greenbriar subsequent to June 30,
1997, of four properties owned by Windsor in exchange for 160,000 shares of
Greenbriar common stock valued at $3,000,000, (2) the assets, liabilities and
operations of Greenbriar not transferred to RHP, (3) pro forma adjustments to
reflect RHP as a stand-alone company, (4) the sale by Greenbriar of
approximately 833,000 shares of its common stock to RHP for cash of $15,000,000,
(5) the contribution by Greenbriar of 732,112 shares of its common stock to RHP,
(6) the purchase by Greenbriar of 1,000,000 shares of Series B 9% Junior
Preferred Stock of RHP for $10,000,000, and (7) the sale by RHP of 1,500,000
shares of Series A 6% Senior Convertible/Exchangeable Preferred Stock for
$15,000,000.
The Series A preferred stock is exchangeable into 857,142 shares of
Greenbriar common stock and convertible into 428,571 shares of RHP common stock.
However, if the market value at the date of conversion of the common stock
received, when added to the cumulative cash dividends received, provides less
than a 20% compounded annual return (Targeted Return) RHP is obligated to pay
the holder of Series A preferred stock, cash sufficient to provide the Targeted
Return. The preferred dividend requirement for the Series A preferred stock is
calculated based upon the 20% Targeted Return.
NOTE B--PRO FORMA ADJUSTMENTS--CONDENSED BALANCE SHEET
Pro forma adjustments are as follows:
1. To eliminate assets and liabilities retained by Greenbriar.
2. To reflect the consideration given for Windsor and the application of
purchase accounting.
3. To reflect the sale of RHP of Series A 6% Senior Convertible/Exchangeable
Preferred Stock for $15 million.
4. To reflect the sale of RHP of Series B 9 % Junior Preferred Stock to
Greenbriar for $10 million.
5. To reflect the purchase by RHP from Greenbriar of approximately 833,000
shares of its common stock for $15 million and a contribution to RHP by
Greenbriar of 732,112 shares of its common stock. The shares have been valued at
$27.7 million, which reflects a discount of $5.6 million from current market
value due to a lack of registration rights and limitations on RHP's ability to
dispose of certain of the shares.
6. To reflect the sale of RHP Series C Junior Preferred Stock for notes in
the amount of $2.04 million. The notes bear interest at 8% per annum, are
collateralized by the shares of Series C Junior Preferred Stock and are due in
2007. The makers of the notes have personal liability only for the first 20% of
the principal balance.
7. To reflect the outstanding common shares of RHP.
NOTE C--PRO FORMA ADJUSTMENTS--CONDENSED STATEMENTS OF OPERATIONS
Pro forma adjustments are as follows:
1. To reflect the difference in depreciation and amortization on Windsor
real estate due to the change in asset basis under purchase accounting.
2. To eliminate revenues and expenses related to properties retained by
Greenbriar. Assisted living revenues and direct operating expenses, including
assisted living operations, lease expenses and facility
62
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--PRO FORMA ADJUSTMENTS--CONDENSED STATEMENTS OF OPERATIONS (CONTINUED)
depreciation and amortization retained by Greenbriar were determined based on
specific identification. General and administrative expenses, merger and
transition expenses and other income (expenses) that relate to specific
properties were allocated based on specific identification. Expenses not related
to specific properties were determined by management's estimates.
3. To eliminate the assisted living revenue and operating expenses related
to properties RHP will no longer operate after the Spin-off. These properties
(the "Leased Properies") will be leased to Greenbriar after the Spin-off.
4. To record lease revenue on the Leased Properies. The lease rates are
based on proposed lease agreements between RHP and Greenbriar to be effective
immediately after the Spin-off.
5. To record management fee expenses for services performed by Greenbriar in
connection with the operation of certain properties by RHP. The management fees
are based on proposed agreements to be effective immediately after the Spin-off.
6. To reflect the expected reductions of general and administrative expenses
subsequent to the Spin-off based on revised employee compensation arrangements
and the amount of charges to be made from Greenbriar to RHP for overhead costs.
7. Tax effect of pro forma adjustments.
8, To adjust income taxes to reflect a valuation allowance for RHP's net
deferred tax asset.
9. To reflect the dividend requirements on the Series A and Series B Junior
Preferred Stock as follows: (amounts in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Series A 6 % preferred stock...................................... $ 1,500 $ 3,000
Series B 9 % junior preferred stock............................... 450 900
------ ------
$ 1,950 $ 3,900
------ ------
------ ------
</TABLE>
- ------------------------
The preferred dividend requirement for the Series A preferred stock is
calculated based upon the 20% Targeted Return (see Note A).
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997................. F-3
Consolidated Statements of Operations for the years ended December 31, 1995 and 1996
and the six months ended June 30,1996 and 1997 (unaudited).......................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1995 and 1996 and the six months ended June 30, 1997 (unaudited)....... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1996
and the six months ended June 30, 1996 and 1997 (unaudited)......................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Greenbriar Corporation
We have audited the accompanying consolidated balance sheet of Greenbriar
Corporation and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Greenbriar
Corporation and subsidiaries as of December 31, 1996, and the consolidated
results of their operations and their consolidated cash flows for each of the
two years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Dallas, Texas
April 25, 1997
F-2
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................................... $ 2,784 $ 299
Accounts receivable--trade.......................................................... 561 1,114
Real estate operations held for sale, at lower of cost or market.................... 5,379 3,087
Other current assets................................................................ 665 1,128
------------- -----------
TOTAL CURRENT ASSETS.............................................................. 9,389 5,628
DEFERRED INCOME TAX BENEFIT........................................................... 868 1,686
INVESTMENT IN SECURITIES, AT COST..................................................... 4,086 4,325
MORTGAGE NOTES RECEIVABLE............................................................. 8,768 8,953
PROPERTY AND EQUIPMENT, AT COST
Land and improvements............................................................... 10,566 10,602
Buildings and improvements.......................................................... 69,369 71,087
Equipment and furnishings........................................................... 4,317 4,847
Construction in progress............................................................ 3,836 3,707
------------- -----------
88,088 90,243
Less accumulated depreciation..................................................... 2,635 3,983
------------- -----------
85,453 86,260
DEPOSITS.............................................................................. 5,553 4,542
GOODWILL AND OTHER INTANGIBLES........................................................ 1,199 1,043
OTHER ASSETS.......................................................................... 1,385 2,651
------------- -----------
$ 116,701 $ 115,088
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt................................................ $ 1,588 $ 1,871
Notes payable--stockholder.......................................................... 930 1,250
Long-term debt collateralized by properties under contract of sale.................. 901 897
Accounts payable--trade............................................................. 3,810 1,902
Accrued expenses.................................................................... 3,482 2,614
Other current liabilities........................................................... 1,223 1,402
------------- -----------
TOTAL CURRENT LIABILITIES.......................................................... 11,934 9,936
LONG-TERM DEBT........................................................................ 54,717 56,160
FINANCING OBLIGATIONS................................................................. 10,815 10,815
DEFERRED GAIN......................................................................... 3,083 3,083
STOCKHOLDERS' EQUITY
Series B cumulative convertible preferred stock, $.10 par value; liquidation value
of $310 and $1,330, respectively; authorized, 100 shares; issued and outstanding,
3 shares and 1 share, respectively................................................ 1 1
Series C cumulative convertible preferred stock, $.10 par value; liquidation value
of $1,000 and $2,000 respectively; authorized, issued and outstanding, 10
shares............................................................................ 1 --
Series D cumulative convertible preferred stock, $.10 par value; liquidation value
of $3,375; authorized, issued and outstanding, 675 shares......................... 68 68
Common stock, $.01 par value; authorized, 20,000 shares; issued and outstanding,
6,471 and 6,563 shares, respectively.............................................. 65 66
Additional paid-in capital.......................................................... 51,232 51,389
Accumulated deficit................................................................. (12,642) (13,857)
------------- -----------
38,725 37,667
Less stock purchase notes receivable (including $2,438 from related parties)........ (2,573) (2,573)
------------- -----------
36,152 35,094
------------- -----------
$ 116,701 $ 115,088
------------- -----------
</TABLE>
F-3
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1995 1997 1996
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE
Assisted living operations.......................................... $ 29,673 $ 7,368 $ 18,126 $ 11,683
Other............................................................... 112 596 64 --
--------- --------- --------- ---------
29,785 7,964 18,190 11,683
OPERATING EXPENSES
Assisted living operations.......................................... 19,439 4,731 11,760 7,458
Lease expense....................................................... 3,712 406 2,264 1,619
Facility depreciation and amortization.............................. 2,001 483 1,543 729
General and administrative.......................................... 6,731 3,948 2,703 2,197
Merger and transition expense....................................... 2,836 -- -- --
--------- --------- --------- ---------
34,719 9,568 18,270 12,003
--------- --------- --------- ---------
Operating loss.................................................. (4,934) (1,604) (80) (320)
Other income (expense)
Interest and dividend income........................................ 771 1,199 233 485
Interest expense.................................................... (4,457) (1,548) (3,169) (1,688)
Gain (loss) on sales of assets...................................... (21) 6,950 -- 32
Other............................................................... 646 289 503 416
--------- --------- --------- ---------
(3,061) 6,890 (2,433) (755)
--------- --------- --------- ---------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES......................................................... (7,995) 5,286 (2,513) (1,075)
INCOME TAX EXPENSE (BENEFIT).......................................... (2,400) 94 (1,014) (409)
--------- --------- --------- ---------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS...................... (5,595) 5,192 (1,499) (666)
DISCONTINUED OPERATIONS
Earnings from operations, net of income taxes....................... 238 19 123 129
Gain on disposal, net of income taxes............................... 520 61 323 580
--------- --------- --------- ---------
NET EARNINGS (LOSS)............................................. (4,837) 5,272 (1,053) 43
Preferred stock dividend requirement.................................. (365) (225) (160) (148)
--------- --------- --------- ---------
Earnings (loss) allocable to common stockholders...................... $ (5,202) $ 5,047 $ (1,213) $ (105)
--------- --------- --------- ---------
Earnings (loss) per share
Continuing operations............................................... $ (1.13) $ 1.03 $ (.23) $ (.14)
Net earnings (loss)................................................. $ (.99) $ 1.04 $ (.18) $ (.02)
Weighted average number of common and equivalent shares outstanding... 5,259 4,839 6,564 4,811
</TABLE>
F-4
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
STOCK
PREFERRED STOCK COMMON STOCK ADDITIONAL PURCHASE
---------------------- ---------------------- PAID IN ACCUMULATED NOTES
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE
--------- ----------- --------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 1,119 $ 111 $ 25,042 $ 250 $ 36,998 $ (12,465) $ (2,495)
Issuance of shares................. -- -- 116 1 77 -- (78)
Conversion of preferred stock...... (1) -- 19 -- -- -- --
Conversion of subordinated debt.... -- -- 67 1 199 -- --
Purchase of common stock........... -- -- (1,226) (12) (1,998) -- --
Purchase of preferred stock........ (1,085) (108) -- -- (976) -- --
Dividends on preferred stock....... 1 -- -- -- 73 (225) --
One-for-five reverse stock split... -- -- (19,266) (192) 192 -- --
Net earnings....................... -- -- -- -- -- 5,272 --
--------- ----- --------- ----- ----------- ------------ -----------
Balances at December 31, 1995........ 34 3 4,752 48 34,565 (7,418) (2,573)
Issuance of preferred stock........ 2,625 264 -- -- 15,938 -- --
Conversion of preferred stock...... (1,970) (197) 1,731 17 180 -- --
Purchase of common stock........... -- -- (12) -- (123) -- --
Dividends on preferred stock....... 1 -- -- -- 72 (387) --
Capital contribution............... -- -- -- -- 600 -- --
Net loss........................... -- -- -- -- -- (4,837) --
--------- ----- --------- ----- ----------- ------------ -----------
Balances at December 31, 1996........ 690 70 6,471 65 51,232 (12,642) (2,573)
Issuance of common stock under
stock option plans............... -- -- 18 -- 141 -- --
Conversion of preferred stock...... (14) (1) 74 1 -- -- --
Dividends of preferred stock....... -- -- -- -- 16 (162) --
Net loss........................... -- -- -- -- -- (1,053) --
--------- ----- --------- ----- ----------- ------------ -----------
Balances at June 30, 1997
(unaudited).......................... 676 $ 69 $ 6,563 $ 66 $ 51,389 $ (13,857) $ (2,573)
--------- ----- --------- ----- ----------- ------------ -----------
--------- ----- --------- ----- ----------- ------------ -----------
<CAPTION>
TOTAL
----------
<S> <C>
Balances at January 1, 1995 $ 22,399
Issuance of shares................. --
Conversion of preferred stock...... --
Conversion of subordinated debt.... 200
Purchase of common stock........... (2,010)
Purchase of preferred stock........ (1,084)
Dividends on preferred stock....... (152)
One-for-five reverse stock split... --
Net earnings....................... 5,272
----------
Balances at December 31, 1995........ 24,625
Issuance of preferred stock........ 16,202
Conversion of preferred stock...... --
Purchase of common stock........... (123)
Dividends on preferred stock....... (315)
Capital contribution............... 600
Net loss........................... (4,837)
----------
Balances at December 31, 1996........ 36,152
Issuance of common stock under
stock option plans............... 141
Conversion of preferred stock...... --
Dividends of preferred stock....... (146)
Net loss........................... (1,053)
----------
Balances at June 30, 1997
(unaudited).......................... $ 35,094
----------
----------
</TABLE>
F-5
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1995 1997 1996
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)........................................................ $ (4,837) $ 5,272 $ (1,053) $ 43
Adjustments to reconcile net earnings (loss) to net cash used in operating
activities
Discontinued operations.................................................. (758) (80) (446) (696)
Depreciation and amortization............................................ 2,001 483 1,543 729
(Gain) loss on sales of assets........................................... 19 (7,043) -- (32)
Stock dividends on investment securities................................. (133) (175) -- --
Capital contributions as payment for services............................ 600 -- -- --
Deferred income taxes.................................................... (1,979) 35 (818) 19
Changes in operating assets and liabilities, net of effect of acquisition
Accounts receivable.................................................... 255 1,434 (553) (269)
Other current and noncurrent assets.................................... 905 154 (947) (1,026)
Accounts payable and other liabilities................................. 2,893 (2,493) (2,918) 240
--------- --------- --------- ---------
Net cash used in operating activities of continuing operations....... (1,034) (2,413) (5,192) (992)
Net cash provided by (used in) operating activities of discontinued
operations................................................................. (85) 387 207 (190)
--------- --------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES................................ (1,119) (2,026) (4,985) (1,182)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of assets.............................................. $ -- $ 21,885 $ -- $ 256
Collections of notes receivable............................................ 123 -- 96 148
Additions to real estate................................................... -- (54) -- --
Purchase of property and equipment......................................... (16,534) (9,178) (2,155) (8,151)
Additions to notes receivable.............................................. (23) (668) (281) (459)
Investing activities of discontinued operations............................ -- (348) 2,734 (3)
Net cash received in acquisition of business............................... 739 -- -- 739
Other...................................................................... -- (70) -- --
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.................. (15,695) 11,567 394 (7,470)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings................................................... 15,461 18,455 2,751 4,420
Payments on debt........................................................... (1,426) (23,910) (705) (196)
Dividends on preferred stock............................................... (315) (152) (145) (80)
Purchase of common and preferred stock..................................... (123) (3,094) (1) (122)
Deposits on financing obligations.......................................... (1,622) (1,000) -- --
Deferred financing and acquisition costs................................... -- (782) -- --
Exercise of stock options.................................................. -- -- 206 --
Financing activities of discontinued operations............................ -- -- -- 17
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.................. 11,975 (10,483) 2,106 4,005
--------- --------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS............................ (4,839) (942) (2,485) (4,647)
Cash and cash equivalents at beginning of year............................... 7,623 8,565 2,784 7,623
--------- --------- --------- ---------
Cash and cash equivalents at end of year..................................... $ 2,784 $ 7,623 $ 299 $ 2,976
--------- --------- --------- ---------
</TABLE>
See Note D for supplemental disclosure of cash flows and noncash investing and
financing transactions.
F-6
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS
Greenbriar Corporation's business consists of development and operation of
assisted living facilities located throughout the United States, which provide
housing, hospitality and personal and healthcare services to elderly
individuals. At December 31, 1996, the Company had 31 facilities in operation,
in 10 states with a total capacity for 2,509 residents. Prior to 1996,
Greenbriar Corporation's business consisted of various segments not related to
the assisted living business (see Note C).
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Greenbriar
Corporation and its majority-owned subsidiaries (collectively, the Company). All
significant intercompany transactions and accounts have been eliminated.
ASSISTED LIVING FACILITY REVENUE
Assisted living facility revenue is reported at the estimated net realizable
value based upon expected amounts to be recovered from residents, third party
payors, and others for services rendered. Services provided by certain of the
Company's facilities are reimbursed under a state assistance plan.
DEPRECIATION
Depreciation is provided for in amounts sufficient to relate the cost of
property and equipment to operations over their estimated service lives, ranging
from 3 to 40 years. Depreciation is computed by the straight-line method.
PROFIT RECOGNITION ON SALES OF REAL ESTATE
Gains on sales of real estate are recognized when the requirements of
Statement of Financial Accounting Standards No. 66, "Accounting for Sales of
Real Estate," are met. Until the requirements for full profit recognition have
been met, a transaction is accounted for using either the deposit, cost
recovery, installment sale, or financing method, whichever is appropriate under
the circumstances.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CASH EQUIVALENTS
The Company considers all short-term deposits and money market investments
with a maturity of less than three months to be cash equivalents.
F-7
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A-- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
IMPAIRMENT OF NOTES RECEIVABLE
A note receivable is identified as impaired when it is probable that
interest and principal will not be collected according to the contractual terms
of the note agreement. The accrual of interest is discontinued on such notes,
and no income is recognized until all past due amounts of principal and interest
are recovered in full.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment when events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. In reviewing
recoverability, the Company estimates the future cash flows expected to result
from using the assets and eventually disposing of them. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized based on
the asset's fair value.
STOCK OPTIONS
The Company measures stock-based compensation cost as the excess of the
quoted market price of the Company's common stock over the amount the employee
must pay for the stock. The Company's policy is to generally grant stock options
at fair market value at the date of grant.
GOODWILL AND OTHER INTANGIBLES
Goodwill is being amortized on the straight-line method over a period of
fifteen years. Other intangibles include deferred financing costs, which are
being amortized over the terms of the related borrowings under a method which
approximates the interest method.
NEW ACCOUNTING PRONOUNCEMENT
The FASB has issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share, which is effective for financial statements issued after
December 15, 1997. Early adoption of the new standard is not permitted. The new
standard eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share. The adoption of this new
standard is not expected to have a material impact on the disclosure of earnings
per share in the financial statements.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements as
of June 30, 1997 and for the six-month periods ended June 30, 1996 and 1997
included all adjustments, consisting only of those of a normal recurring nature,
necessary to present fairly the Company's financial position as of June 30, 1997
and the results of its operations and cash flows for the six-month periods ended
June 30, 1996 and 1997. The results of operations for the six months ended June
30, 1997 are not necessarily indicative of the results to be expected for the
full year.
F-8
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--ACQUISITIONS
WEDGWOOD RETIREMENT INNS, INC. AND AFFILIATES
In March 1996, the Company acquired substantially all of the assets and
liabilities of a number of companies under common control and managed by
Wedgwood Retirement Inns, Inc. (Wedgwood). The business of these companies
consists of the operation of 16 assisted living, congregate and Alzheimer's
facilities. To structure the Wedgwood acquisition as a tax-free exchange, the
Company also acquired a shopping center in North Carolina from James R. Gilley
and members of his family (the Gilley Group). Due to the fact that the Gilley
Group is a majority stockholder of Greenbriar and owner of the shopping center,
the property was recorded at the Gilley Group's historical cost basis of
approximately $2,300,000. Consideration given was 675,000 shares of Series D
preferred stock. Wedgwood's assets were valued at approximately $58,000,000
($54,000,000 of property and equipment) and liabilities assumed were
approximately $44,000,000. In exchange, Greenbriar issued 1,949,950 shares of
Series E preferred stock, valued at approximately $14,000,000, to the Wedgwood
shareholders. In 1996, the stockholders of the Company granted conversion rights
to the series E preferred stock and it was converted into approximately
1,600,000 shares of the Company's common stock. The operations of Wedgwood have
been reflected in the consolidated financial statements of the Company since
April 1, 1996.
The following table presents pro forma unaudited consolidated results of
operations for the years ended December 31, 1996 and 1995, assuming that the
acquisition had taken place on January 1, 1995. The pro forma results are not
necessarily indicative of the results of operations that would have occurred had
the acquisition been made on January 1, 1995, or of future results of operations
of the combines companies (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Revenue..................................................................................... $ 34,047 $ 22,904
Earnings (loss) from continuing operations.................................................. (5,885) 4,662
Net earnings (loss)......................................................................... (5,127) 4,742
Preferred stock dividend requirement........................................................ (445) (545)
Earnings (loss) from continuing operations allocable to common stockholders................. (6,330) 4,117
Net earnings (loss) allocable to common stockholders........................................ (5,572) 4,197
Earnings (loss) per share
Continuing operations..................................................................... (1.20) .61
Net earnings (loss)....................................................................... (1.06) .62
</TABLE>
AMERICAN CARE COMMUNITIES, INC.
On December 31, 1996, the Company issued 1,300,000 shares of its common
stock in exchange for all of the outstanding common stock of American Care
Communities, Inc. (American Care). American Care, based in Cary, North Carolina
currently owns or leases 15 assisted living facilities with approximately 1,350
units, located primarily in North Carolina. The merger has been accounted for as
a pooling of interests and accordingly, the Company's consolidated financial
statements have been restated to include the operations of American Care for all
periods prior to the merger.
In connection with the merger, a shareholder of American Care settled
certain of American Care's obligations in exchange for approximately 45,000
shares of the Company's common stock received in the
F-9
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--ACQUISITIONS (CONTINUED)
merger. For accounting purposes, this transaction, valued at $600,000, has been
reflected as a contribution of capital with a corresponding charge to
operations. Additionally, the Company incurred expenses related to the merger of
$983,000, expenses related to attempted capital market activities of $774,000
and accrued severance costs related to the closure of the administrative offices
of American Care and Wedgwood of $1,079,000. These amounts have been included in
the statement of operations as merger and transition expense.
Separate results of operations for the periods prior to the merger with
American Care are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Revenue
Greenbriar................................................................................. $ 13,523 $ 557
American Care.............................................................................. 16,262 7,407
--------- ---------
Combined................................................................................... $ 29,785 $ 7,964
--------- ---------
Earnings (loss) from continuing operations
Greenbriar................................................................................. $ (3,483) $ 5,717
American Care.............................................................................. (2,112) (525)
--------- ---------
Combined................................................................................... $ (5,595) $ 5,192
--------- ---------
Net earnings (loss)
Greenbriar................................................................................. $ (2,725) $ 5,797
American Care.............................................................................. (2,112) (525)
--------- ---------
Combined................................................................................... $ (4,837) $ 5,272
--------- ---------
</TABLE>
NOTE C--DISCONTINUED OPERATIONS
In 1995, management decided to sell the mobility products segment. The
segment was sold in February 1996 for 8% preferred stock, which is not
marketable, and notes valued at approximately $4,300,000, based upon fair value
as determined by the Board of Directors. A gain of approximately $788,000, less
applicable income taxes, of $268,000 was recorded in 1996.
In 1996, the Company entered into negotiations to sell its remaining real
estate assets and anticipates completing the sales in 1997. Accordingly, the
Company's real estate operations have been reflected as discontinued operations.
Management expects that the proceeds from the sales will be at least equal to
the $5,379,000 carrying value of the real estate assets.
The operations of the mobility products segment and real estate segment have
been presented in the accompanying financial statements as discontinued
operations.
F-10
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--DISCONTINUED OPERATIONS (CONTINUED)
Summarized operating results of these segments are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Revenues......................................................................................... $ 864 $ 2,815
--------- ---------
Earnings before income taxes..................................................................... $ 361 $ 28
Income tax expense............................................................................... 123 9
--------- ---------
Net earnings................................................................................. $ 238 $ 19
--------- ---------
</TABLE>
NOTE D--CASH FLOW INFORMATION
Supplemental information on cash flows and noncash investing and financing
transactions is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
<S> <C> <C>
1996 1995
---------- ---------
Supplemental cash flow information
Interest paid.............................................................................. $ 4,460 $ 1,579
Income taxes paid.......................................................................... 95 46
Supplemental data on noncash investing and financing activities
Stock dividend paid on preferred shares.................................................... 72 73
Sale of stock in exchange for notes receivable from employees and officers................. -- 78
Conversion of subordinated debt to common stock............................................ -- 200
Goodwill associated with acquisition of assets............................................. -- 493
Sale of subsidiary
Securities and note received............................................................... $ (4,300)
Assets sold................................................................................ 3,780
Liabilities transferred.................................................................... --
Gain on sale............................................................................... 520
----------
Net cash effect of sale of subsidiary.................................................... $ --
----------
Business acquired
Fair value of assets acquired.............................................................. $ 59,890
Cash received.............................................................................. 739
Stock issued............................................................................... (16,202)
----------
Liabilities assumed...................................................................... $ 44,427
----------
</TABLE>
F-11
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E--DEBT
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Notes payable to financial institutions maturing in 2015; fixed and variable interest rates ranging
from 4.8% to 11.75% ; collateralized by, property, fixtures, equipment and the assignment of
rents............................................................................................. $ 13,319
Notes payable to individuals and companies maturing in 2022; variable and fixed interest rates
ranging from 7% to 12% collateralized by real property, personal property, fixtures, equipment and
the assignment of rents........................................................................... 12,391
Note payable to the Redevelopment Agency of the City of Corona, California, payable into a sinking
fund semi-annually in increasing amounts from $65 to $420 through May 1, 2015; variable interest
rate of 5.6% at December 31, 1996; collateralized by personal property, land, fixtures and
rents............................................................................................. 7,660
Notes payable to related parties maturing in 2001; interest rates ranging from 9.25% to 12%......... 1,196
Notes payable to a bank maturing in 2007; interest at prime (8.25% to December 31, 1996) plus 2.0%;
collateralized by property and equipment.......................................................... 1,658
Notes payable to financial institution maturing in 1997 through 2000; bearing interest at prime plus
.50% to 1.25%; collateralized by property and equipment........................................... 8,043
Mortgage note payable to a financial institution maturing in 2007; bearing interest at 11.35%;
collateralized by property and equipment.......................................................... 11,500
Other............................................................................................... 538
------------
56,305
Less: current maturities.......................................................................... 1,588
------------
$ 54,717
------------
------------
</TABLE>
Aggregate annual principal maturities of long-term debt at December 31, 1996
are as follows (in thousands):
<TABLE>
<S> <C>
1997............................................................... $ 1,588
1998............................................................... 7,568
1999............................................................... 2,750
2000............................................................... 4,529
2001............................................................... 4,990
Thereafter......................................................... 34,880
---------
$ 56,305
---------
---------
</TABLE>
Certain of the loan agreements contain various restrictive covenants, which
require, among others things, the maintenance of certain financial ratios, as
defined.
NOTE F--FINANCING OBLIGATIONS
The Company operates two properties that are financed through sale-leaseback
obligations. At the end of the tenth year of fifteen-year leases, the Company
has options to repurchase the facilities for the
F-12
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F--FINANCING OBLIGATIONS (CONTINUED)
greater of the sales prices or their fair market values. Accordingly, these
transactions have been recorded as financings, and the Company has recorded the
proceeds from the sales as financing obligations, classified the lease payments
as interest expense and continued to carry the facilities and record
depreciation. Payments under the lease agreements are $1,167 for each of the
years 1997 through 2001.
At December 31, 1996, the Company had a financing arrangement with a real
estate investment trust (the REIT). Under this arrangement, the REIT would
provide up to $60,000,000 over the next three years to be used to construct
assisted living facilities, which, upon completion, would be sold to the REIT
and leased back by the Company. The leases would have terms ranging from 11 to
14 years, with two five-year renewal options and rates based upon the yield of
United States Treasury notes plus 3.75%. At December 31, 1996, the only amount
amounts outstanding under this arrangement was $5,300,000 commitment for
construction.
NOTE G--OPERATING LEASES
The Company leases certain retirement centers under operating leases which
expire through the year 2011 and has various equipment operating leases. The
leases provide that the Company pay for property taxes, insurance, and
maintenance.
Future minimum payments following December 31, 1996 are as follows (in
thousands):
<TABLE>
<S> <C>
1997............................................................... $ 5,327
1998............................................................... 5,458
1999............................................................... 5,189
2000............................................................... 4,461
2001............................................................... 3,651
Thereafter......................................................... 27,959
---------
$ 52,045
---------
---------
</TABLE>
Lease expense in 1996 and 1995 was $5,153,000 and $2,082,000, respectively.
Certain leases contain rent escalation clauses which are based upon future
events or changes in indices.
NOTE H--INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $16,000,000 which expire between 1999 and 2011. However,
approximately $5,100,000 of these net operating loss carryforwards have
limitations that restrict utilization to approximately $600,000 for any one
year. Also, carryforwards of $1,800,000, which expire between 2006 and 2008, may
only be used to offset future taxable income of the subsidiaries in which the
losses were generated.
F-13
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--INCOME TAXES (CONTINUED)
The following is a summary of the components of income tax expense (benefit)
from continuing operations (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Current......................................................................................... $ 23 $ 151
Deferred........................................................................................ (2,423) (57)
--------- ---------
$ (2,400) $ 94
--------- ---------
--------- ---------
</TABLE>
Deferred tax assets, liabilities and associated valuation allowances were
comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.................................................................. $ 5,422
Real estate....................................................................................... 40
Charitable contribution carryforwards............................................................. 207
Tax credits....................................................................................... 436
Accrued expenses.................................................................................. 407
Financing obligations............................................................................. 1,802
Other............................................................................................. 609
------
Total deferred tax assets....................................................................... 8,923
Valuation allowance................................................................................. (418)
Deferred tax liabilities:
Investment in securities.......................................................................... (104)
Property and equipment............................................................................ (7,476)
Other............................................................................................. (57)
------
Total deferred tax liabilities.................................................................. (7,637)
------
Net deferred tax asset.......................................................................... $ 868
------
------
</TABLE>
Management expects the net deferred tax asset will be recovered within two
to three years from the Company's earnings from operations or gains on sales of
assets.
F-14
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--INCOME TAXES (CONTINUED)
Following is a reconciliation of income tax expense from continuing
operations with the amount of tax computed at the statutory rate (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Tax expense (benefit) at the statutory rate................................................... $ (2,718) $ 1,797
Amortization of intangibles................................................................... -- 30
Change in deferred tax asset valuation allowance, exclusive of reductions for business sold in
1994 and business purchased in 1996......................................................... 418 (1,716)
Correction of prior period estimates.......................................................... -- --
Other......................................................................................... (100) (17)
--------- ---------
Tax expense................................................................................... $ (2,400) $ 94
--------- ---------
--------- ---------
</TABLE>
Reductions in the deferred tax valuation allowance result from assessments
made by the Company each year of its expected future taxable income available to
absorb its carryforwards.
NOTE I--STOCKHOLDERS' EQUITY
STOCK SPLIT
On November 17, 1995, the Board of Directors authorized a one-for-five
reverse stock split effective December 1, 1995. All share and per share data
have been retroactively restated to give effect to the reverse stock split.
PREFERRED STOCK
The Series B preferred stock has a liquidation value of $100 per share and
is convertible into common stock over a ten-year period at prices escalating
from $25.00 per share in 1993 to $55.55 per share by 2001. Cumulative dividends
at a rate of 6% are payable in cash or preferred shares at the option of the
Company.
The Series C preferred stock has a liquidation value of $100 per share and
is convertible into common stock at a price of $15.00 per share. Cumulative
dividends are payable in cash in the amount of $320,000 per year.
The Series D preferred stock has a liquidation value of $5 per share and is
convertible into common stock at $10.00 per share. Cumulative dividends are
payable in cash at a rate of 9.5%
STOCK OPTIONS
In 1993, the Company established a long-term incentive plan (the Plan) for
the benefit of certain key employees. Under the Plan, up to 217,500 shares of
the Company's common stock are reserved for issuance. Options granted to
employees under the Plan become exercisable over a period as determined by the
Company and may be exercised up to a maximum of 10 years from date of grant.
F-15
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--STOCKHOLDERS' EQUITY (CONTINUED)
In 1996, the Company granted to the Chairman of the Board options, not
covered by the Plan, for a total of 400,000 shares of common stock which are
exercisable immediately and expire in 2006 through 2008.
Effective in 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation". As permitted under SFAS 123, the Company will
continue to measure stock-based compensation cost as the excess of the quoted
market price of the Company's common stock at the grant date over the amount the
employee must pay for the stock.
SFAS 123 requires disclosure of pro forma net earnings (loss) and pro forma
net income (loss) per share as if the fair value based method had been applied
in measuring compensation cost for stock-based awards granted in 1996 and 1995.
Management believes that 1996 and 1995 pro forma amounts are not representative
of the effects of stock-based awards on future pro forma net income (loss) and
pro forma net income (loss) per share because those pro forma amounts exclude
the pro forma compensation expense related to unvested stock options granted
before 1995.
Reported and pro forma net income (loss) and net income (loss) per share
amounts are set forth below (in thousands, except per share data):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net earnings (loss) allocable to common stockholders (amounts in thousands)
As reported........................................................................... $ (4,837) $ 5,272
Pro forma............................................................................. $ (8,153) $ 5,173
Net earnings (loss) per share
As reported........................................................................... $ (.99) $ 1.03
Pro forma............................................................................. $ (1.55) $ 1.02
</TABLE>
The fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: expected volatility of 35 percent for 1996 and 66 percent for 1995;
risk-free interest rates of 7.0 percent for 1996 and 6.5 percent for 1995; no
dividend yield; and expected lives of 10 years.
Additional information with respect to options outstanding at December 31,
1996, and changes for the three years then ended was as follows:
<TABLE>
<CAPTION>
1996
----------------------
<S> <C> <C>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- -----------
Outstanding at beginning of year............................................................ 155,500 $ 12.83
Granted..................................................................................... 432,000 11.98
--------- -----------
Outstanding at end of year.................................................................. 587,500 $ 12.20
--------- -----------
Options exercisable at December 31, 1996.................................................... 577,500 $ 12.21
--------- -----------
Weighted average fair value per share of options granted during 1996........................ $ 7.72
-----------
</TABLE>
F-16
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
1995
----------------------
<S> <C> <C>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- -----------
Outstanding at beginning of year............................................................ 155,500 $ 13.63
Granted................................................................................... 10,000 12.50
Expired................................................................................... (10,000) 25.00
--------- -----------
Outstanding at end of year.................................................................. 155,500 $ 12.83
--------- -----------
Options exercisable at December 31, 1995.................................................... 141,500 $ 12.96
--------- -----------
</TABLE>
Information about stock options outstanding at December 31, 1996 is
summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------
<S> <C> <C> <C>
WEIGHTED AVERAGE
NUMBER REMAINING WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
- ----------------------------------------------------------------- ----------- --------------------- -----------------
$11.25 to $15.75................................................. 587,500 8.3 $ 12.20
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
------------------------------
<S> <C> <C>
NUMBER WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES EXERCISABLE EXERCISE PRICE
- ------------------------------------------------------------------------------------ ----------- -----------------
$11.25 to $15.75.................................................................... 577,500 $ 12.21
</TABLE>
NOTE J--EARNINGS PER SHARE
Earning (loss) per share are determined by dividing net earnings or net
loss, after deduction of preferred stock dividends, by the weighted average
number of common and dilutive equivalent shares outstanding during the period.
Dilutive stock options are included in weighted average shares outstanding.
Fully diluted earnings per share, giving effect to assumed conversion of
convertible preferred stock and notes, are not presented because the effect of
these securities is insignificant in 1995 and anti-dilutive in 1996.
NOTE K--SALES OF ASSETS
Gains on the sale of assets in 1995 (sales in 1996 were not material) result
from the following transactions (in thousands):
<TABLE>
<CAPTION>
1995 GAIN
- ----------------------------------------------------------------------------------------------- ---------
<S> <C>
Sale of Fountainview retirement center for cash of approximately $18,000....................... $ 5,149
Sale of economic interest in legal claim for cash of $1,085.................................... 654
Sale of rights to the interest on escrow funds for cash of $1,140.............................. 1,140
Other.......................................................................................... 7
---------
$ 6,950
---------
</TABLE>
F-17
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K--SALES OF ASSETS (CONTINUED)
The sale of the economic interest in a legal claim resulted from a claim the
Company held against Wespac Investors Trust III ("Wespac") based upon an award
of legal fees following a protracted lawsuit. Wespac subsequently filed for
protection under Chapter 11 of the Bankruptcy Code. The Company then sold its
claim for $1,085,000. The buyer required the acquisition of the interest of an
unrelated 49% Wespac shareholder as a condition precedent to the purchase of the
claim. To facilitate the transaction, the Company acquired the 49% equity
interest from the shareholder and immediately conveyed the interest to such
buyer. The Company recorded a gain on the sale of its claim of $654,000, the
excess of the proceeds of $1,085,000 over the Company's cost of the claim of
$431,000.
At December 31, 1996, the balance sheet reflects a deferred gain of
$3,083,000. This gain resulted from the sale in 1991 of four nursing homes in
exchange for notes receivable of $15,400,000. The original gain of $7,259,000
was deferred and is being accounted for by the installment method. Sales in
previous years by the Company of some of the notes resulted in a reduction of
the deferred gain to $3,083,000.
NOTE L--RELATED PARTY TRANSACTIONS
1995
The Company purchased land from Sylvia Gilley for $221,000.
1996
See Note B with respect to related party transactions for 1996.
NOTE M--CONTINGENCIES
SOUTHERN CARE CORP. LITIGATION
The Company and a subsidiary, CareAmerica, Inc. (CareAmerica) are defendants
in lawsuits brought by a corporation that purchased nursing homes from the
Company in 1991. The plaintiff alleges mismanagement of the homes during the
period that CareAmerica provided management services and, seeks damages in
excess of $1,500,000, cancellation of $6,700,000 of mortgage notes payable to
the Company and secured by the nursing homes, and recovery of interest payments
made on the mortgage notes. The Company has filed a counterclaim for breach of
the management contract and to confirm the indebtedness. The plaintiff
terminated the contract and claimed that the mortgage notes had previously been
discharged. The Company believes that the plaintiff's actions, including
payments against the indebtedness, are inconsistent with the plaintiff's claims
that the notes have been discharged. The Company intends to vigorously contest
those lawsuits and pursue its counterclaims.
In October 1996, the trial court granted plaintiff's motion for summary
judgment on the issue of whether the indebtedness was discharged. A notice of
appeal has been filed by the Company on that ruling and an appeal will be filed.
The Company does not believe that the court's ruling is correct, and believes
that it will prevail on its appeal, although there can be no assurance.
IRS AUDIT
The Company's 1993 federal income tax return has been audited by the
Internal Revenue Service (IRS). The IRS has assessed an additional tax liability
of $321,000. Management of the Company believes that they are not liable for
additional taxes and plan to contest the IRS assessment.
F-18
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M--CONTINGENCIES (CONTINUED)
OTHER LITIGATION
The Company is also defendant in several other lawsuits arising in the
ordinary course of business. Management of the Company is of the opinion that
these lawsuits will not have a material effect on the consolidated results of
operations or financial position of the Company.
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
values at December 31, 1996:
CASH AND CASH EQUIVALENTS--The carrying amount approximates fair value
because of the short maturity of these instruments.
INVESTMENT IN SECURITIES--The investment in securities consists of
convertible preferred stock of private companies. Fair value, based on estimated
future discounted cash flows, approximates carrying value.
MORTGAGE NOTES RECEIVABLE--The mortgage notes receivable consist primarily
of $6,700,000 of notes with a stated interest rate of 14% due in 2021 from
Southern Care Corp., the plaintiff in the lawsuit discussed in Note M. The
obligor has brought suit to cancel the notes, and as a result, future cash flows
are not predictable. Management believes the value of the underlying collateral
is adequate to recover the carrying value of the note.
LONG-TERM DEBT--The fair value of the Company's long-term debt is estimated
based on market rates for the same or similar issues. The carrying amount of
long-term debt approximates its fair value.
ACCOUNTS RECEIVABLE AND PAYABLE--The carrying amount approximates fair value
because of their short maturity.
The estimated fair value of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
<S> <C> <C>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
Financial assets
Cash and cash equivalents............................................................... $ 2,784 $ 2,784
Accounts receivable--trade.............................................................. 561 561
Investment in securities................................................................ 4,086 4,086
Mortgages receivable.................................................................... 8,768 8,768
Financial liabilities
Accounts payable--trade................................................................. (1,588) (1,588)
Notes payable--stockholder.............................................................. (930) (930)
Long-term debt collateralized by properties under contract of sale...................... (901) (901
Long-term debt.......................................................................... (56,305) (56,305)
</TABLE>
F-19
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE O--NOTES RECEIVABLE
STOCK PURCHASE NOTES
<TABLE>
<CAPTION>
DECEMBER 31,
1996
(IN THOUSANDS)
---------------
<S> <C>
Related party
Note from James R. Gilley, chief executive officer, principal and interest at 5-1/2%, due
November 2003................................................................................. $ 2,250
Note from W. Michael Gilley, executive vice-president/director, noninterest-bearing and due in
December 1999................................................................................. 188
Other............................................................................................. 135
------
$ 2,573
------
</TABLE>
All stock purchase notes are collateralized by common stock of the Company
and are presented in the balance sheet as a deduction from stockholders' equity.
MORTGAGE NOTES
<TABLE>
<CAPTION>
DECEMBER 31,
1996
(IN THOUSANDS)
---------------
<S> <C>
Notes receivable from a corporation, collateralized by a third lien on real property, interest at
14% due annually, principal due in 2021......................................................... $ 6,700
Note receivable from a corporation, collateralized by its common stock, interest at prime plus 1%
(effective rate of 9.25% at December 31, 1996) due quarterly, principal due in annual
installments equal to the lesser of 25% of its net earnings or $400,000 through maturity in
2000............................................................................................ 2,000
Other............................................................................................. 68
------
$ 8,768
------
------
</TABLE>
In connection with certain litigation in which the Company is defendant (see
Note M), the maker of the $6,700,000 note stopped making the interest payments
required under the note. As a result, the Company ceased recording the accrual
of interest income. Had the Company been accruing interest on this note, the
amount recognized would have been approximately $900,000 in 1996 and 1995. No
interest income was recognized on this note in 1996 or 1995.
Based on the value of the underlying collateral at December 31, 1996, no
impairment reserve is required for this note.
NOTE P--FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1996, the Company wrote off certain offering
costs of approximately $670,000 and notes receivable of approximately $400,000.
Additionally, the Company made other adjustments reducing earnings by
approximately, $200,000.
F-20
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE P--FOURTH QUARTER ADJUSTMENTS (CONTINUED)
During the fourth quarter of 1995, the Company made an adjustment to reduce
the deferred tax valuation allowance by $1,895,000.
The adjustments to the deferred tax valuation allowance resulted from
assessments made by the Company of its expected future taxable income available
to absorb its net operating loss carryforwards.
F-21
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<S> <C>
(2)(a) Amended and Restated Articles of Incorporation of Registrant
(2)(b)* Bylaws of Registrant
(3)(a) Amended and Restated Articles of Incorporation filed as Exhibit (2)(a)
(3)(b)* Bylaws filed as Exhibit (2)(b)
(3)(c)* Specimen Common Stock certificate
(3)(d)* Form of Certificate of Designations, Preferences and Rights of Preferred Stock relating to Registrant's
Series A Senior Convertible/Exchangeable Preferred Stock
(3)(e)* Form of Certificate of Designations, Preferences and Rights of Preferred Stock relating to Registrant's
Series B Junior Preferred Stock
(3)(f)* Form of Certificate of Designations, Preferences and Rights of Preferred Stock relating to Registrant's
Series C Junior Preferred Stock
(3)(g)* Form of Registration Rights Agreement between the Registrant and the holders of Series C Junior
Preferred Stock
(6)(a)* Form of Distribution Agreement to be entered into between Greenbriar Corporation and Registrant
(6)(b) Form of Assignment and Assumption Agreement to be entered into between Greenbriar Corporation and
Registrant, and consented to by Paul W. Dendy
(6)(c) Form of Assignment and Assumption Agreement to be entered into between Greenbriar Corporation and
Registrant, and consented to by Gene S. Bertcher
(6)(d) Form of Assignment and Assumption Agreement to be entered into between Greenbriar Corporation and
Registrant, and consented to by James R. Gilley
(6)(e) Form of Management Services Agreement to be entered into between Greenbriar Corporation and Registrant
(6)(f) Form of Facilities Operating Lease
(6)(g) Form of Unconditional and Continuing Lease Guaranty to be entered into between Registrant and
Greenbriar Corporation
(6)(h)* Form of Stock Purchase Agreement by and among Registrant, Greenbriar Corporation and Lone Star
Opportunity Fund
(6)(i) Form of Lease Agreement by and between Registrant and Greenbriar Corporation
(6)(j) Form of Agreement for Right of First Refusal and Other Matters by and between Registrant and Greenbriar
Corporation
(6)(k) Employment Agreements of James R. Gilley and Gene S. Bertcher dated December 31, 1996 (incorporated by
reference to Exhibit 10.37 to Greenbriar Corporation's Annual Report on Form 10-KSB for the year ended
December 31, 1996)
(6)(l) Employment Agreement dated March 15, 1996 by and between Greenbriar Corporation and Paul W. Dendy, as
amended
(6)(m) Form of the Registrant's 1997 Stock Option Plan
(6)(n)* Form of Stock Options Agreement under the Registrant's 1997 Stock Option Plan
</TABLE>
- ------------------------
* To be filed by amendment
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
RESIDENTIAL HEALTHCARE PROPERTIES, INC.
The undersigned being all of the members of the Board of Directors of
Residential Healthcare Properties, Inc., a Nevada corporation, incorporated
on July 30,1997, under the provisions and subject to the requirements of
Title 7, Chapter 78 of Nevada Revised Statutes, and the acts amendatory
thereof (the "Act"), and hereinafter sometimes referred to as the General
Corporation Law of the State of Nevada, do hereby adopt and make the
following Amended and Restated Articles of Incorporation pursuant to the Act:
ARTICLE ONE
The name of the Corporation is Residential Healthcare Properties, Inc.
ARTICLE TWO
The address of the Corporation's principal office in the State of Nevada
is One East First Street, Reno, Nevada 89501, and the name of its registered
agent at such address is The Corporation Trust Company of Nevada.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the Act.
ARTICLE FOUR
The Corporation shall have authority to issue two classes of stock, and
the total number authorized shall be one hundred million (100,000,000) shares
of Common Stock of the par value of one cent ($.01) each, and ten million
(10,000,000) shares of Preferred Stock of the par value of one cent ($.01)
each. A description of the different classes of stock of the Corporation and
a statement of the designations and the powers, preferences and rights, and
the qualifications, limitations or restrictions thereof, in respect of each
class of such stock are as follows:
1. Issuance in Class or Series. The Preferred Stock may be issued from
time to time in one or more series, or divided into additional classes and
such classes into one or more series. The terms of a class or series,
including all rights and preferences, shall be as specified in the resolution
or resolutions adopted by the Board of Directors designating such class or
series which resolution
-1-
<PAGE>
or resolutions the Board of Directors is hereby expressly authorized to
adopt. Such resolution or resolutions with respect to a class or series shall
specify all or such of the rights or preferences of such class or series as
the Board of Directors shall determine, including the following, if
applicable: (a) the number of shares to constitute such class or series and
the distinctive designation thereof, (b) the dividend or manner for
determining the dividend payable with respect to the shares of such class or
series and the date or dates from which dividends shall accrue, whether such
dividends shall be cumulative, and, if cumulative, the date or dates from
which dividends shall accumulate and whether the shares in such class or
series shall be entitled to preference or priority over any other class or
series of stock of the Corporation with respect to payment of dividends; (c)
the terms and conditions, including price or a manner for determining the
price, of redemption, if any, of the shares of such class or series; (d) the
terms and conditions of a retirement or sinking fund, if any, for the
purchase or redemption of the shares of such class or series; (e) the amount
which the shares of such class or series shall be entitled to receive, if
any, in the event of any liquidation, dissolution or winding up of the
Corporation and whether such shares shall be entitled to a preference or
priority over shares of another class or series with respect to amounts
received in connection with any liquidation, dissolution or winding up of the
Corporation; (f) whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of stock of any other class or
classes, or any other series of the same or any other class or classes of
stock, of the Corporation and the terms and conditions of any such conversion
or exchange; (g) the voting rights, if any, of shares of stock of such class
or series in addition to those granted herein; (h) the status as to
reissuance or sale of shares of such class or series redeemed, purchased or
otherwise reacquired, or surrendered to the Corporation upon conversion; (i)
the conditions and restrictions, if any, on the payment of dividends or on
the making of other distributions on, or the purchase, redemption or other
acquisition by the Corporation or any subsidiary, of any other class or
series of stock of the Corporation ranking junior to such shares as to
dividends or upon liquidation; (j) the conditions, if any, on the creation of
indebtedness of the Corporation, or any subsidiary; and (k) such other
preferences, rights, restrictions arid qualifications as the Board of
Directors may determine.
All shares of the Common Stock shall be of the same class and shall have
equal dividend or distribution, liquidation and other rights.
All shares of the Common Stock shall rank equally, and all shares of the
Preferred Stock shall rank equally, and be identical within their classes in
all respects regardless of series, except as to terms which may be specified
by the Board of Directors pursuant to the above provisions. All shares of
any one series of a class of Preferred Stock shall be of equal rank and
identical in all respects, except that shares of any one series issued at
different times may differ as to the dates which dividends thereon shall
accrue and be cumulative.
2. Other Provisions. Shares of Common Stock or Preferred Stock of any
class or series may be issued with such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative participating,
option or special rights, and qualifications, limitations or
-2-
<PAGE>
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issuance of such stock adopted by the Board of
Directors. Any of the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions of any such class or series of
stock may be made dependent upon facts ascertainable outside the resolution
or resolutions of the Board of Directors providing for the issue of such
stock by the Board of Directors, provided the manner in which such facts
shall operate upon the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions or such class or series is
clearly set forth in the resolution or resolutions providing for the issue of
such stock adopted by the Board of Directors. Shares of Common or Preferred
Stock reacquired by the Corporation shall no longer be deemed outstanding and
shall have no voting or other rights unless and until reissued. Shares
reacquired by the Corporation may be canceled and restored to the status of
authorized and unissued stock by action of the Board of Directors.
3. Common Stock. Except as otherwise provided in any resolution or
resolutions adopted by the Board of Directors, the Common Stock shall (a)
have the exclusive voting power of the corporation; (b) entitle the holders,
thereof to one vote per share at all meetings of the stockholders of the
Corporation; (c) entitle the holders to share ratably, without preference
over any other shares of the Corporation, in all assets of the Corporation in
the event of any dissolution, liquidation or winding up of the Corporation;
and (d) entitle the record holder thereof on such record dates as are
determined, from time to time, by the Board of Directors to receive such
dividends, if any, if, as and when declared by the Board of Directors.
ARTICLE FIVE
The Corporation is to have perpetual existence.
ARTICLE SIX
No stockholder shall have any pre-emptive right to purchase shares of the
Corporation.
ARTICLE SEVEN
1. Designations. The governing board of the Corporation shall be
styled as a "Board of Directors," and any member of said Board shall be
styled as a "Director."
The number of members constituting the Board of Directors as of the dated
hereof is three (3); and the name and the post office address of said members
are as follows:
-3-
<PAGE>
Name Address
---- -------
James R. Gilley 4265 Kellway Circle
Addison, Texas 75244
Gene S. Bertcher 4265 Kellway Circle
Addison, Texas 75244
Thomas L. Staley 4265 Kellway Circle
Addison, Texas 75244
2. Number, Election and Terms of Directors. The business and affairs
of the Corporation shall be managed by a Board of Directors, which, subject
to the rights of the holders of any class or series of Preferred Stock of the
Corporation then outstanding to elect additional Directors under specified
circumstances, shall, consist of not less than three nor more than twenty-one
persons. The exact number of Directors within the minimum and maximum
limitations specified in the preceding sentence shall be fixed from time to
time by either (1) the Board of Directors pursuant to a resolution adopted by
a majority of the entire Board of Directors or (ii) the affirmative vote of
the holders of eighty percent (80%) or more of the voting power of all the
shares of the corporation entitled to vote generally in the election of
Directors voting together as a single class. No decrease in the number of
Directors constituting the Board of Directors shall shorten the term of any
Incumbent Director. The directors shall be divided into three classes of
equal or approximately equal number, with all three classes to be elected at
the first meeting of stockholders. The initial term of office of Class I
directors will expire at the annual meeting of stockholders in 1998; of Class
II directors at the annual meeting of stockholders in 1999; and of Class III
directors at the annual meeting of stockholders in 2000. Each director
elected shall hold office until his successor shall be elected and shall
qualify. At each annual meeting of stockholders beginning with the annual
meeting of stockholders in 1998, directors elected to succeed those whose
terms are then expiring shall be elected for a full term of office expiring
at the third succeeding annual meeting of stockholders after their election.
Should the number of directors which constitute the whole Board of Directors
be changed as permitted by this Paragraph 2 of Article 7, such majority of
the whole Board of Directors or such holders of eighty percent (80%) or more
of the voting power of the Corporation, as applicable, shall also fix and
determine the number of directors of which each class shall be comprised.
3. Stockholder Nomination of Director Candidates. Advance notice of
stockholder nominations for the election of Directors shall be at least 120
days in advance of the date in which the next previous annual meeting of
stockholders was held.
4. Newly-Created Directorships and Vacancies. Subject to the rights of
the holders of any series of any Preferred Stock then outstanding,
newly-created directorships resulting from any
-4-
<PAGE>
increase in the authorized number of Directors and any vacancies in the Board
of Directors resulting from the death, resignation, retirement,
disqualification, removal from office or other cause may be filled by a
majority vote of the Directors then in office even though less than a quorum,
or by a sole remaining Director.
5. Removal. Subject to the rights of the holders of any series of any
Preferred Stock then outstanding, any Director or the entire Board of
Directors, may be removed from office at any annual or special meeting called
for such purpose, and then only for cause and only by the affirmative vote of
the holders of eighty percent (80%) or more of the voting power of all of the
shares of the Corporation entitled to vote generally in the election of
Directors, voting together as a single class. As used herein, cause shall
mean only the following: proof beyond the existence of a reasonable doubt
that a Director has been convicted of a felony, committed gross negligence or
willful misconduct resulting in a material detriment to the Corporation, or
committed a material breach of his fiduciary duty to the Corporation
resulting in a material detriment to the Corporation.
6. Amendment, Repeal etc. Notwithstanding anything contained in these
Articles of Incorporation to the contrary, the affirmative vote of the
holders of eighty percent (80%) or more of the voting power of all of the
shares of the Corporation entitled to vote generally in the election of
Directors, voting together as a single class, shall be required to alter,
amend or adopt any provision inconsistent with or repeal this Article Seven,
or to alter, amend, adopt any provision inconsistent with or repeal
comparable sections of the Bylaws of the Corporation.
ARTICLE EIGHT
Notwithstanding anything contained in these Articles of Incorporation to
the contrary, the affirmative vote of the holders of eighty percent (80%) or
more of the voting power of all the shares of the Corporation entitled to
vote generally in the election of Directors, voting together as a single
class, shall be required to call a special meeting of stockholders or to
alter, amend, adopt any provision inconsistent with or repeal this Article
Eight, or to alter, amend, adopt any provision inconsistent with comparable
sections of the Bylaws.
ARTICLE NINE
No stock, whether paid up or issued as fully paid, shall be subject to
assessment to pay the debts of the Corporation.
ARTICLE TEN
The Corporation shall indemnify a person who is or was made a party to
any proceeding, or is threatened to be made a party to any proceeding,
including a proceeding by or in the right of the Corporation, because the
person is or was a director, advisory director, or officer of the Corporation
-5-
<PAGE>
or because, while a director, advisory director, or officer of the
Corporation, the person is or was serving any other legal entity in any
capacity at the request of the Corporation against all liabilities, fines,
penalties, and claims imposed upon or asserted against the person (including
amounts paid in settlement) and reasonable expenses incurred in the
proceeding (including reasonable attorneys' fees), except such liabilities
and expenses as are incurred because of the person's willful misconduct or
knowing violation of the criminal law. As a condition of the indemnification
set forth in this Article, the Corporation shall have the right to retain
counsel of its choosing to represent the party indemnified in accordance
with this provision, and the Corporation shall have the right to compromise
and settle any such matter, so long as any compromise or settlement shall not
impose on the indemnified party any liability or requirement to fund or
advance any consideration of any kind whatsoever in connection with such
compromise or settlement. The right to indemnify under this paragraph shall
inure to the benefit of heirs, executors and administrators of such a person.
The Corporation may, upon majority vote of a quorum of disinterested
directors, contract in advance to indemnify and advance the expenses of any
director, advisory director, or officer.
Unless a determination has been made that indemnification is not
permissible, the Corporation shall make advances and reimbursements for
expenses incurred by a director, advisory director, or officer in a
proceeding upon receipt of an undertaking from the director, advisory
director, or officer to repay the same if it is ultimately determined that
the director, advisory director, or officer is not entitled to
indemnification. Such undertaking shall be an unlimited unsecured general
obligation of the director, advisory director, or officer and shall be
accepted without reference to his ability to make repayment.
The Corporation may, to a lesser extent or to the same extent that the
Corporation is required to provide indemnification and make advances and
reimbursements for expenses to its present or former directors, advisory
directors, and officers, provide indemnification and make advances and
reimbursements for expenses to its present or former employees and agents,
the directors, advisory directors, officers, employees and agents of its
affiliates, subsidiaries and predecessor entities, and any person serving in
any other legal entity in any capacity at the request of the Corporation, and
may contract in advance to do so. The determination that indemnification
under this paragraph is permissible, the authorization of such
indemnification and the evaluation as to the reasonableness of expenses in a
specific case shall be made as authorized from time to time by general or
specific action of the Board of Directors, which action may be taken before
or after a claim for indemnification is made, or as otherwise provided by law.
The provisions of this Article shall be applicable from and after its
adoption, even though some or all of the underlying conduct or events
relating to the proceeding with respect to which indemnity is claimed may
have occurred before such adoption. No amendment, modification or repeal of
this Article shall diminish the rights provided here to any person arising
from conduct or events occurring before the adoption of the amendment,
modification or repeal.
-6-
<PAGE>
The Corporation may purchase and maintain insurance to indemnify it
against the whole or any portion of the liability assumed by it in accordance
with this Article and may also procure insurance on behalf of any person who
is or was a director, advisory director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against any
liability or expenses incurred by such person in any such capacity or arising
from the person's status as such, whether or not the Corporation would have
the power to indemnify the person against such liability under the provisions
of this Article.
Such indemnification shall not be deemed exclusive of any other rights
to which such person may be entitled, under any bylaws, agreements, vote of
stockholders or disinterested Directors, or otherwise.
-7-
<PAGE>
ARTICLE ELEVEN
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages or breach of fiduciary
duty as a director, except for liability (i) for any breach of the Directors'
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under the Act, or, (iv) for any transaction
from which the Director derived an improper personal benefit.
ARTICLE TWELVE
To the date of these Amended and Restated Articles of Incorporation no
stock of the Corporation has been issued.
In witness whereof, these Amended and Restated Articles of Incorporation
were executed by all of the Directors of the Corporation on this
______________ day of ____________, 1997.
_________________________________
James R. Gilley, Director
_________________________________
Gene S. Bertcher, Director
_________________________________
Thomas L. Staley, Director
-8-
<PAGE>
STATE OF TEXAS Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on this ____day of
________________, 1997, by JAMES R. GILLEY.
________________________________
[Seal]
Notary Public,
State of Texas
________________________________
Printed Name of Notary
My Commission Expires: ____________.
STATE OF TEXAS Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on this ____day of
________________, 1997, by GENE S. BERTCHER.
________________________________
[Seal]
Notary Public,
State of Texas
________________________________
Printed Name of Notary
My Commission Expires: ____________.
STATE OF TEXAS Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on this ____day of
________________, 1997, by THOMAS L. STALEY.
-9-
<PAGE>
________________________________
[Seal]
Notary Public,
State of Texas
________________________________
Printed Name of Notary
My Commission Expires: ____________.
-10-
<PAGE>
<PAGE>
Exhibit 6(b)
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT and ASSUMPTION AGREEMENT, effective the 30th day of
September 1997, by Greenbriar Corporation, a Nevada corporation (herein,
called "Assignor"), Residential Healthcare Properties, Inc., a Nevada
corporation (herein, called "Assignee"), and as consented to by Paul W. Dendy
(herein called "Employee");
W I T N E S S E T H:
FOR VALUE RECEIVED, Assignor, hereby grants, transfers and assigns to
Assignee all interests of Assignor in and relating to that employment
contract dated _____ (hereinafter called the "Employment Contract"), and
herewith Assignee hereby assumes all of Assignors obligations to Employee.
Assignor agrees to execute such further documents as Assignee or Employee may
reasonably require to evidence this assignment and assumption.
Employee consents to the transfer of the Employment Contract and waives
any right to accelerate performance by Assignor by reason of the transfer.
It is agreed that this waiver is made solely for the benefit of the Assignee,
and shall not constitute a waiver by Employee of any rights under the
Employment Contract.
Assignor and Employee hereby release each other from any continuing
obligation under the Employment Contract. Assignee and Employee are now
hereby bound by the Employment Contract, except that Employee's compensation
has been reduced by $25,000 from the period of October 1, 1997 through
September 30, 1998.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this instrument the day and
year first above written.
ASSIGNOR:
Greenbriar Corporation
______________________
Floyd Rhoades
President
ASSIGNEE:
Residential Healthcare
Properties, Inc.
___________________________
Mark E. Bennett
Executive Vice-President
EMPLOYEE:
___________________________
Paul W. Dendy
<PAGE>
Exhibit 6(c)
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT and ASSUMPTION AGREEMENT, effective the 30th day of
September 1997, by Greenbriar Corporation, a Nevada corporation (herein,
called "Assignor"), Residential Healthcare Properties, Inc., a Nevada
corporation (herein, called "Assignee"), and as consented to by Gene S.
Bertcher (herein called "Employee");
W I T N E S S E T H:
FOR VALUE RECEIVED, Assignor, hereby grants, transfers and assigns to
Assignee all interests of Assignor in and relating to that employment
contract dated _____ (hereinafter called the "Employment Contract"), and
herewith Assignee hereby assumes all of Assignors obligations to Employee.
Assignor agrees to execute such further documents as Assignee or Employee may
reasonably require to evidence this assignment and assumption.
Employee consents to the transfer of the Employment Contract and waives
any right to accelerate performance by Assignor by reason of the transfer.
It is agreed that this waiver is made solely for the benefit of the Assignee,
and shall not constitute a waiver by Employee of any rights under the
Employment Contract.
Assignor and Employee hereby release each other from any continuing
obligation under the Employment Contract. Assignee and Employee are now
hereby bound by the Employment Contract, except that Employee's compensation
has been reduced by $180,000 from the period of October 1, 1997 through
September 30, 1998.
IN WITNESS WHEREOF, the parties have executed this instrument the day and
year first above written.
ASSIGNOR:
Greenbriar Corporation
______________________
Floyd Rhoades
President
ASSIGNEE:
Residential Healthcare
Properties, Inc.
___________________________
Mark E. Bennett
Executive Vice-President
EMPLOYEE:
____________________________
Gene S. Bertcher
<PAGE>
Exhibit 6(d)
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT and ASSUMPTION AGREEMENT, effective the 30th day of
September 1997, by Greenbriar Corporation, a Nevada corporation (herein,
called "Assignor"), Residential Healthcare Properties, Inc., a Nevada
corporation (herein, called "Assignee"), and as consented to by James R.
Gilley (herein called "Employee");
W I T N E S S E T H:
FOR VALUE RECEIVED, Assignor, hereby grants, transfers and assigns to
Assignee all interests of Assignor in and relating to that employment
contract dated ______ (hereinafter called the "Employment Contract"), and
herewith Assignee hereby assumes all of Assignors obligations to Employee,
except for those grants of stock to be granted to Employee on December 31,
1997, 1998 and 1999 (the "Stock Grants"). Assignor agrees to execute such
further documents as Assignee or Employee may reasonably require to evidence
this assignment and assumption.
Employee consents to the transfer of the Employment Contract and waives
any right to accelerate performance by Assignor by reason of the transfer.
It is agreed that this waiver is made solely for the benefit of the Assignee,
and shall not constitute a waiver by Employee of any rights under the
Employment Contract.
Assignor and Employee hereby release each other from any continuing
obligation under the Employment Contract, except for the Stock Grants. Assignee
and Employee are now hereby bound by the Employment Contract, except that
Employee's compensation has been reduced by $460,000 from the period of October
1, 1997 through September 30, 1998.
IN WITNESS WHEREOF, the parties have executed this instrument the day and
year first above written.
ASSIGNOR:
Greenbriar Corporation
________________________
Floyd Rhoades
President
ASSIGNEE:
Residential Healthcare
Properties, Inc.
___________________________
Mark E. Bennett
Executive Vice-President
EMPLOYEE:
___________________________
James R. Gilley
<PAGE>
Exhibit 6(e)
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT ("Agreement") is made as of this
____day of __________ , 199__ , between Greenbriar Corporation, a Nevada
corporation, ("Manager"), and Residential Healthcare Properties, Inc., a
Nevada corporation ("Owner").
WHEREAS, Owner owns an assisted living facility consisting of ___ beds
and related amenities, located in ___________, and known as_____________
(hereinafter referred to as the "Facility");
WHEREAS, Manager is capable of managing the Facility to provide personal
and residential care services to the elderly.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF MANAGER
1.1 Appointment of Manager. Owner hereby appoints Manager and Manager
hereby accepts appointment, subject to the terms and conditions of this
Agreement, as the sole and exclusive Manager for the daily operation and
management of the Facility.
1.2 Management Services. Manager shall provide those Management Services
set forth in the Agreement.
ARTICLE II
DEFINITIONS
The following terms shall have the following meanings when used in the
Agreement:
2.1 Affiliate. The term "Affiliate" shall mean any one or more
individuals or entities which control, are controlled by, or are under common
control with the Manager or Owner.
2.2 Agreement. The terms "Agreement" and "this Agreement" shall mean
this Management Services Agreement between Owner and Manager, and any amendments
thereto as may be from time to time agreed to in writing by the parties.
2.3 Commencement of Management Services. The term "Commencement of
Management Services" shall mean that date when this Agreement is executed.
2.4 Facility. The term "Facility" shall mean the assisted living facility
<PAGE>
located in Lewiston, Idaho and, if incorporated by Owner, any other property
near or adjacent to the Facility which may be used in conjunction with the
Facility.
2.5 Facility Expense. The term "Facility Expense" shall mean an expense
directly related to the operating costs and staffing of the Facility, which
expenses and payment of expenses shall be administered by the Manager from
the Facility's income derived as further set forth herein.
2.6 Management Fee. The term "Management Fee" shall mean the fee
provided for in Article VI hereof.
2.7 Management Services. The term "Management Services" shall mean the
Managerial and personnel administration services described in Articles V,
VII, VIII, IX, X, and XIII hereof in particular, and in any other section of
this Agreement, all as are authorized and approved by Owner.
2.8 Manager. The term "Manager" shall mean Greenbriar Corporation, a
Nevada corporation, or its assigns as set forth in Article XIV, paragraph
14.9.
2.11 Operating Year. The term "Operating Year" shall mean the year
commencing on the date hereof.
2.12 Revenues. The term "Revenues" shall mean all monies received by
Manager from or on behalf of Residents and/or fees for ancillary services
provided to such Residents by Manager or Manager's employees, including any
community fee, with the exception of any pass-through fees and any escrow
monies held for the residents by the Manager. Any community fees or deposits
which are refunded to a resident shall be credited against revenues during
the month in which such refunds are made. Revenues shall also mean proceeds
from rental interruption insurance actually received and all applicable
miscellaneous revenues, such as that from vending machines.
2.13 State. The term "State" shall mean the State of ____, and any
regulatory agencies with overview authority or other authority over the
Facility, unless otherwise specifically indicated.
2.14 Term. The initial term of this Agreement shall be the period
beginning on the date this Agreement is executed and shall continue until
terminated as set forth in Article III below (the "Term").
ARTICLE III
TERMINATION OF AGREEMENT
3.1 Termination. Manager may terminate, subject to the provisions of
Section
<PAGE>
4.4, if Owner defaults under any material provision of this Agreement
as set forth in Article IV and Article IX. Owner may terminate this Agreement
sooner if Manager defaults under any material provision of this Agreement as
set forth in Article IV. This Agreement may also be terminated sooner by
Owner without penalty if Manager causes, or through its omissions permits,
the licenses for operation of the Facility to at any time be suspended,
terminated or revoked resulting in cessation of operations for more than 30
days at the Facility. Owner may terminate this Agreement in the event of the
institution of bankruptcy proceedings on behalf of Manager.
If any of these events occur, Manager shall be entitled to any fees
provided for herein which are earned as of the date of termination subject to
any claims or offsets of Owner. Manager shall turn over to Owner all funds in
any account maintained by or on behalf of Owner. Manager shall turn over to
Owner all books and records relating to the Facility and all files relating to
the Facility.
3.2 Termination without Cause. Either party may terminate this Agreement
on 60-days prior written notice to the other.
ARTICLE IV
DEFAULTS
4.1 Default by Manager. Manager shall be deemed to be in default under
this Agreement in the event Manager shall fail to keep, observe or perform
any material covenant, agreement, term or provision of this Agreement to be
kept, observed or performed by Manager, and such default shall continue for a
period of ten (10) days after written notice thereof by Owner to Manager in
case of monetary defaults or for a period of thirty (30) days after written
notice thereof by Owner to Manager in the case of non-monetary defaults or,
if such non-monetary default cannot be cured within such thirty (30) day
period, then an additional thirty (30) day period, provided Manager is
capable of curing same, has proceeded to commence cure of such default within
said period, and thereafter diligently prosecutes the cure to completion.
4.2 Default by Owner. Owner shall be deemed to be in default hereunder
in the event Owner shall fail to keep, observe or perform any material covenant,
agreement, term or provision of this Agreement to be kept, observed or performed
by Owner and such default shall continue for a period of ten (10) days after
written notice thereof by Manager to Owner in case of monetary defaults or for a
period of thirty (30) days after written notice thereof by Manager to Owner in
the case of non-monetary defaults, or, if such default cannot be cured within
such thirty (30) day period, then an
<PAGE>
additional period of thirty (30) days, provided that Owner is capable of curing
same, has proceeded to commence cure of such default within said period, and
therefore diligently prosecutes the cure to completion.
4.3 Remedies of Owner. Upon the occurrence of an event of default by
Manager as specified in Section 4.1 of this Agreement and expiration of any
applicable cure period provided by this Agreement, Owner shall be entitled to
terminate this Agreement, to remove Manager from the day-to-day management of
the Facility and replace Manager and otherwise to exercise all of its rights at
law or in equity.
4.4 Remedies of Manager. Upon the occurrence of an event of default by
Owner as specified in Section 4.2 of this Agreement and the expiration of any
applicable cure period provided by this Agreement, Manager shall be entitled to
terminate this Agreement and to exercise all of its rights at law or in equity.
4.5 No Waiver of Default. The failure of Owner or Manager to seek
remedy for any violation of, or to insist upon the strict performance of, any
term or condition of this Agreement shall not prevent a subsequent act by
Owner or Manager which would have originally constituted a violation of this
Agreement by Owner or Manager, from having all the force and effect of an
original violation. Owner or Manager may waive any breach or threatened
breach by Owner or Manager or any term or condition herein contained. The
failure by Owner or Manager to insist upon the strict performance of any one
of the terms or conditions of this Agreement or to exercise any right, remedy
or election herein contained or permitted by law shall not constitute or be
construed as a waiver or relinquishment for the future of such term,
condition, right, remedy or election, but the same shall continue and remain
in full force and effect. All rights and remedies that Owner or Manager may
have at law, in equity or otherwise for any breach of any term or condition
of this Agreement, shall be distinct, separate and cumulative rights and
remedies and no one of them, whether or not exercised by Owner or Manager,
shall be deemed to be in exclusion of any right or remedy of Owner or Manager.
4.7 Covenant of Owner. Owner shall fund the Facility consistent with the
funding described in the Approved Budget( as herein after defined).
ARTICLE V
DUTIES AND RIGHTS OF MANAGER
5.1 Management Services Duties. As Manager of the Facility, Manager
shall implement all aspects of the operation of the Facility in accordance
with the terms of
<PAGE>
this Agreement, and shall have responsibility and
commensurate authority for all such activities. In addition to any other
duties set forth in this Agreement, Manager shall:
A. Enter into all contracts, leases and agreements required in the
ordinary course of business for the supply, operation, maintenance, service
and insurance of the Facility (including but not limited to food
procurement, trash removal, pest control and elevator maintenance) and,
subject to adequate funds being available, pay the costs of all such
services when due. Manager shall not: enter into any agreement, contract or
lease unless it is provided for in the Approved Budget, except that Manager
may enter into agreements not provided for in the Approved Budget which, in
the aggregate, impose monetary obligations on the Owner not in excess of
$5,000.00 in any one Operating Year or which are approved in writing by
Owner and for which Owner has provided sufficient fund to cover any
shortfall in the Approved Budget.
B. Purchase such inventories, provisions, food, supplies and other
expendable items as are necessary and consistent with the Approved Budget
to operate and maintain the Facility in a proper manner and store the same
at the Facility.
C. Maintain all permits, licenses and documentation necessary for
the operation of the Facility. Manager shall provide, at no additional cost
to Owner, all required preparation of documents, records and filings
necessary to acquire, maintain and renew all necessary licenses and permits
for the Facility and shall assist Owner in processing applications for such
licenses and permits. Any fees due for the filing of applicable licenses
shall be a Facility Expense.
D. Provide care to Residents of the Facility as provided for in the
resident agreement agreed to by the parties consistent with the Approved
Budget.
E. In addition to any specific obligations set forth herein, Manager
shall do all things necessary to manage and administer the day-to-day
operations of the Facility consistent with the Approved Budget.
5.2 Personnel Administration. The personnel at the Facility shall be
employed by Manager. Manager shall be responsible for recruiting, hiring,
training, promoting, assigning, supervising and discharging the personnel of
the Facility and shall be responsible for the formulation, implementation,
modification and administration of wage scales, rates of compensation,
employee insurance, employee taxes, in-service training, attendance at
seminars or conferences, staffing schedules, job
<PAGE>
descriptions and personnel policies with respect to the personnel of the
Facility in accordance with the Approved Budget. Manager shall ensure that all
employees are properly licensed by the applicable authorities. All expenses of
Manager's employees utilized in managing the Facility, including but not limited
to salaries, wages, benefits, vacations, and employment taxes, shall be a
Facility expense and shall be paid by Owner in accordance with the Approved
Budget.
5.3 Purchasing. Manager shall use, on behalf of the Facility, such
purchasing systems and procedures developed by or otherwise available to
Manager for all items that are consistent with the Approved Budget. In
furtherance thereof, Manager shall utilize, to the extent that they offer
competitive prices, any national purchasing contracts that Manager may from
time to time have in effect with suppliers of equipment supplies provided
that the cost of such goods to the facility shall be no higher than the cost
paid by any other facility owned or managed by Manager or its affiliates.
Manager shall not enter into any purchase or service contract not generally
contained within the Approved Budget, without the prior written consent of
Owner. Any purchase by Manager made pursuant to or otherwise ancillary to
this Agreement and made in compliance with the terms of this Agreement shall
be made with Manager acting as agent for and at the expense of the Facility
or Owner. Manager shall indemnify and hold Owner harmless for any liabilities
or obligations arising from any purchase made by Manager which does not
comply with the Approved Budget or violate the conflict of interest
provisions set forth below. Manager shall fully disclose to Owner any
interest of Manager and/or Affiliate in any vendor and Manager shall
establish to Owner's reasonable satisfaction that the purchase or contract
was made after a competitive selection process and at a fair market price.
5.4 Leases. Manager shall submit any forms of resident agreements,
leases or other occupancy agreements used in the leasing of the Facility for
Owner's approval before they are used by Manager. Manager shall act as agent for
Owner in executing resident agreements, leases and occupancy agreements, but
Manager shall not enter into such agreement or lease for a duration of more than
one year without the prior consent of Owner. Manager will be responsible for
formulating and implementing procedures for all resident agreements, leases or
other occupancy agreements. All leases shall contain rents consistent with the
Approved Budget except as otherwise authorized by Owner in writing.
5.5 Maintenance and Repair. Manager shall make, install, or cause to be
made or installed, as a Facility Expense and in the name of Owner, all
necessary and
<PAGE>
proper repairs, replacements, additions, and improvements in
and to the Facility, its furnishings and equipment, in order to best keep and
maintain the same in good repair, working order, and condition. Any repairs,
replacements, additions or improvements that Manager determines will exceed
the budgeted amounts in the Approved Budget shall be submitted to Owner for
prior approval.
ARTICLE VI
MANAGEMENT FEES
6.1 Management Services Fee.
A. Operating Period. During all Operating Years as compensation
for all services rendered by Manager in accordance with this Agreement
inclusive, Owner shall pay Manager on a monthly basis in arrears a
management fee equal to 6% of Revenues. The Manager shall be permitted to
withdraw the sums due from the Facility's account for such Fees on the
first day of each month based on Manager's estimated amount of such Fees
using the prior month's fee. After the close of each calendar month, the
Manager shall send Owner and the Owner's accountant an invoice for the
Management Fee payable under this subparagraph 6.1(A) for such month,
accompanied by supporting calculations and records showing Revenues, cash
receipts, and the number of Residents for such month. Owner shall have five
(5) days to object to the calculations in writing, by sending a notice to
Manager specifying the grounds for the objection. If Owner objects, the
parties shall resolve the dispute within five (5) days of the date of such
objection or submit the matter to binding arbitration pursuant to the
provisions of this Agreement.
B. No Other Compensation Due. Except for the compensation
described above, the Manager shall not be entitled to any other
compensation or reimbursement from the Owner for any Management Services to
be provided by Manager under this Agreement.
ARTICLE VII
OPERATING PROFITS, CREDITS AND COLLECTIONS, AND
PROCEDURE FOR HANDLING RECEIPTS AND OPERATING CAPITAL
7.1 Operating Profits. Manager shall be responsible for collecting all
revenues and fees billed to Residents and for paying Facility Expenses as
agreed in the Approved Budget. The Management Fee will be deducted from the
Revenues as a
<PAGE>
Facility Expense.
7.2 Credits and Collections. Manager shall install credit and collection
policies and procedures, and Manager shall institute reasonable steps necessary
to effectuate monthly billing by the Facility, and the collection of accounts
and monies owed to the Facility. This also includes the institution of legal
proceedings in the name of Owner, Manager and/or the Facility, if necessary, and
authorized by Owner in writing after Manager has made its best efforts to
collect such accounts, and the enforcement of the rights of Owner as creditor
under any contract in connection with the rendering of any service or the
purchase of any goods. Any and all unreimbursed costs and/or fees charged by a
third party in connection with the collections and/or enforcement set forth in
this Section whose retention has been authorized by Owner shall be a Facility
Expense.
7.3 Depositories for Funds. Manager shall maintain accounts and
investments in such banks, savings and loan associations, and other financial
institutions as reasonably directed by Owner. These accounts shall be in the
Facility's name. Subject to the terms of this Agreement, including those
relating to the Approved Budget, Manager shall be authorized to access the
accounts without the approval of Owner. These accounts shall be segregated from
any other Manager's accounts and investments. Distributions shall be made to
Owner in the maximum amounts and with the maximum frequency permitted by the
applicable regulations and subject to the Approved Budget and any amendments
thereto. In the event this Agreement is terminated, Manager shall not make any
withdrawal or payment from any depository holding the Facility funds, and its
access to any Facility accounts shall be deemed irrevocably terminated.
ARTICLE VIII
FINANCIAL RECORDS
8.1 Accounting and Financial Records. Manager shall, at its own
expense, establish and administer accounting procedures and controls and
systems for the development, preparation and safekeeping of records and books
of accounting relating to the business and financial affairs of the Facility,
including payroll, accounts receivable and accounts payable, and shall
prepare a monthly profit and loss report for Owner within approximately
twenty (20) days of month end. Such records shall be on an accrual basis and
in accordance with generally accepted accounting principles and shall compare
monthly and year to date amounts with Approved Budgets. The Manager
<PAGE>
will cooperate with the Owner's accountant in formulating accounting and
financial reporting procedures and at accountant's request, will furnish all
back-up documentation for profit and loss reports furnished hereunder.
8.2 Reports. In addition to the monthly profit and loss report, required
pursuant to Sections 7.1 and 8.1, Manager shall keep Owner informed as to the
financial status, condition, and operation of the Facility and as to any State
or local reporting requirements in connection with the licenses and permits
necessary for Manager to operate the Facility, with written reports and such
other or special reports as Manager may from time to time determine are
necessary. In addition, Manager shall provide Owner with all standard reports
which Manager usually generates at other facilities which it owns or operates.
8.3 Access. Owner shall have the right at all reasonable times, during
normal business hours, to audit, examine, and make copies of books of account
maintained by Manager with respect to the Facility. Such right may be exercised
through any agent or employee designated by Owner or by an independent public
accountant designated by Owner. Further, at the end of the Term of this
Agreement, or upon other termination of this Agreement, as provided herein,
originals of all books and records kept for the Facility, including all records
kept on electronic media, and accounts and funds belonging to the Facility, are
to be promptly delivered to Owner.
ARTICLE IX
BUDGET
Manager will prepare a draft annual operating budget based on Manager's
experience in operating similar facilities. The draft budget will be
presented to Owner thirty (30) days prior to the commencement of any term or
renewal term under this Agreement for Owner's approval which shall not be
unreasonably withheld. In the event Owner has not notified Manager of
Owner's objections within ten (10) days of commencement of the term to which
the draft budget applies, the budget will be deemed not approved. Upon
approval by Owner the draft budget or an approved revision thereof shall be
the Approved Budget for purposes of this Agreement. Mid-term adjustments
will be developed by Manager if experience is significantly different than
budgeted and a mid-term budget will be present to Owner for approval in the
same manner as the original budget
In the event either party believes that the Approved Budget for an
Operating Year should be modified, either may propose such a modification in
writing no later than
<PAGE>
sixty (60) days before the commencement of such Operating Year.
ARTICLE X
OTHER FINANCIAL MATTERS
10.1 Employee Withholding. Manager shall comply with all applicable local,
State and Federal requirements concerning the withholding of taxes from employee
wages and sales taxes.
ARTICLE XI
INSURANCE
11.1 Insurance Coverage. Manager shall obtain and carry professional
liability insurance in its name for its operation of the Facility naming the
Owner and, if required, any Mortgagee as additional insured with a carrier
reasonably satisfactory to Owner licensed in the State of ____. Manager shall
also obtain liability insurance for Owner in Owner's name. Subject to the
provisions of any Mortgage for the Facility, Manager shall negotiate a
contract or contracts for, and keep in full force and effect, all policies of
property insurance of the type, extent, amount and cost of coverage which is
consistent with sound management of the Facility, insuring Owner, Manager and
the Facility against the risks customarily insured against for such a
facility. The cost of such insurance, including the Facility's share of
professional liability insurance, will be included in the Approved Budget as
a Facility Expense. Such insurance shall include coverage for building and
contents (full replacement value except excavation and foundation),
comprehensive general liability in the amount of at least $1,000,000 combined
single limit, overlying umbrella liability coverage in the amount of at least
$5,000,000, comprehensive automobile liability in the amount of at least
$1,000,000, statutory workers' compensation coverage in the amounts required
by applicable laws and business interruption, all of which coverage shall
name Manager and any lender as additional named insured to the extent their
interests may appear. Manager shall timely provide Owner with a certificate
or certificates issued by such insurers evidencing such insurance, which
certificate or certificates shall be cancelable only upon not less than
thirty (30) days prior written notice by the insurer to Manager and any
Lender, and all policies will be written so as to provide notice to Owner
prior to any action by the insurer to cancel the policy. Notwithstanding the
foregoing, unemployment and workers' compensation insurance for employees of
Owner shall be in Owner's name.
<PAGE>
11.2 Waiver of Subrogation. Owner and Manager each waive any right of
recovery against each other for any claims that may be brought for any loss
which is covered by insurance upon or relating to the Facility and the
furnishings and equipment located at the Facility. This waiver of
subrogation shall be valid and binding only in the event it is recognized and
accepted by the insurance companies under the policies obtained pursuant to
this Agreement. Each party further agrees that its sole source of
reimbursement of loss or damages shall be the insurance proceeds of the
policies to be provided under this Agreement, and that the other party shall
not be liable for any damage or loss in excess of such insurance coverage.
ARTICLE XII
LEGAL ACTIONS, GOVERNING LAW, ARBITRATION,
LIABILITY OF MANAGER AND INDEMNITY
12.1 Legal Actions. Legal counsel for Manager and Owner shall cooperate
in the defense or prosecution of any action affecting the Facility. Manager
shall not institute or defend any legal action affecting the Facility without
Owner's consent. Manager shall immediately forward all legal notices to Owner
which relate to the Facility. Manager shall advise and assist Owner in
instituting or defending any legal or regulatory action affecting the
Facility, in the name of Facility, Owner and/or Manager. All legal fees and
disbursements paid pursuant to a retainer agreement approved by Owner shall
be a Facility Expense. Manager shall not be entitled to any additional
compensation for performing its obligations under this Section.
Notwithstanding the foregoing, neither Owner nor the Facility shall be
responsible for any legal fees, disbursements, costs, judgments or
settlements caused by acts or omissions of the Manager which constitute
negligence, willful misconduct, a breach of this Agreement, or a breach of
applicable laws or regulations; Manager will be responsible for such items.
Manager shall assist Owner to take the acts necessary to protest or litigate
to a final decision in any appropriate court or forum, as a Facility Expense,
any violation, order, rule, or regulation affecting the Facility, except if
such violation is due to the negligence or willful misconduct of Manager, in
which case Manager will bear the expense. No legal action or proceeding
brought against the Owner or the Facility may be settled without the approval
of Owner. Owner shall have the absolute right to settle any action or
proceeding brought against the Owner or the Facility on any terms.
12.2 Legal Fees and Costs. In the event either party elects to incur
legal expenses to enforce or interpret any provision of this Agreement
against the other party
<PAGE>
to this Agreement, the prevailing party shall be entitled to recover such legal
expenses, including without limitation, reasonable attorney's fees, costs and
necessary disbursements, in addition to any other relief to which such party
shall be entitled.
12.3 Choice of Law and Venue. Whereas Manager's principal place of
business is in the State of Texas, and the Facility is located in the State of
____, the parties agree that this Agreement shall be governed by and construed
in accordance with the laws of Texas, which shall be the exclusive courts of
jurisdiction and venue for any litigation, special proceeding or other
proceeding between the parties that may be brought, or arise out of, or in
connection with, or by reason of this Agreement except for all arbitration
proceedings which shall be conducted in Dallas, Texas.
12.4 Liability of Manager.
A. Standard of Care. Manager agrees to exercise, with respect to
all services provided by Manager under or pursuant to this Agreement, due care,
skill, and diligence and shall take all actions necessary for the maintenance of
any license or permit required for the Facility.
B. Other Persons. Manager shall not be responsible for the acts or
omissions of any of Owner's other contractors or any subcontractor, or any
employees of Owner, or any persons representing Owner performing any services
for or in connection with the Facility.
C. Non-Recourse. In the event that Manager makes any claim against
Facility and Owner, Manager shall have no recourse to directors, officers,
employees, and shareholders of the Owner.
12.5 Indemnity. Manager will defend, indemnify and hold Owner harmless
from and against any claims, losses, expenses, costs, suits, actions,
proceedings, demands or liabilities that are asserted against, or sustained or
incurred by Owner because of Manager's breach of this Agreement or because of
legal actions or regulatory violations arising from Manager's negligence, fraud,
willful misconduct or acts or omissions which violate or cause the Facility to
violate any applicable law, regulation or ordinance or acts or omissions which
violate this Agreement. Further, Manager will defend, at its own expense, any
actions brought directly against Manager as a result of negligence in managing
and/or operating the Facility. The scope of the foregoing indemnities includes
any and all costs and expenses properly incurred in connection with any
proceedings to defend any indemnified claim, or to enforce the indemnity, or
both. Owner will defend, indemnify, and hold Manager harmless, from and against
any and all claims, expenses, losses, costs, suits, actions, proceedings,
demands, or
<PAGE>
liabilities that are asserted against, or sustained or incurred by
Manager in connection with or related to the performance of Manager's duties
under this Agreement or otherwise within the scope of the agency established by
the parties to this Agreement, except this indemnity shall not apply to claims
arising from Manager's acts or omissions which constitute negligence, willful
misconduct, fraud, breach of applicable laws, regulations or ordinances or
breach of this Agreement. The scope of the foregoing indemnities includes any
and all costs and expenses properly incurred in connection with any proceedings
to defend any indemnified claim, or to enforce the indemnity, or both. Recovery
upon an indemnity contained in this Agreement shall be reduced dollar-for-dollar
by any applicable insurance collected by either Owner or Manager.
12.6 Arbitration. It is the mutual intent of the parties hereto to
establish procedures to facilitate the informal and inexpensive resolution of
any disputes arising under this Agreement by mutual cooperation and without
resort to litigation. Accordingly, any controversy, dispute, or claim arising
out of or relating to this Agreement shall be resolved in accordance with the
following procedures:
A. The parties shall first attempt to negotiate a mutually
satisfactory resolution to the dispute as follows:
(1) The complaining party shall write a description of the
alleged dispute, controversy, claim, or breach of contract (hereinafter
"Dispute") and send it to the other party by certified or registered mail. This
letter shall explain the nature of the Dispute and refer to the relevant section
of the Agreement upon which the Dispute is based. The complaining party shall
also set forth a proposed solution to the Dispute, including a specific time
frame within which the parties must act.
(2) The party receiving the letter must respond in writing
within ten (10) days with an explanation, including references to the relevant
parts of the Contract and a response to the proposed solution.
(3) Within ten (10) day of receipt of this response, the parties
must meet and discuss options for resolving the Dispute. The complaining party
must initiate the scheduling
<PAGE>
of this resolution meeting.
B. If the parties are unable to satisfactorily resolve the Dispute
through negotiation, a mediation must be held within thirty (30) days of an
unsuccessful resolution meeting. The mediation will be held at the Dallas office
of Judicial Arbitration & Mediation Service, Inc. (J.A.M.S.). The complaining
party must contact J.A.M.S. to schedule the mediation. The parties may agree on
a jurist from the J.A.M.S. panel. If they are unable to agree, J.A.M.S. will
provide a list of three available jurists and each party may strike one. The
remaining jurist will serve as the mediator.
C. If the Dispute is not settled by mediation, the parties agree to
submit the Dispute to J.A.M.S. for binding arbitration. The parties may agree on
a jurist from the J.A.M.S. panel. The aggrieved party may initiate arbitration
by sending written notice of an intention to arbitrate by registered or
certified mail to all parties and to J.A.M.S. The notice must contain a
description of the Dispute, the amount involved, and the remedy sought. If the
parties are unable to agree on an arbitrator, J.A.M.S. will provide a list of
three available panel members and each party may strike one. The remaining
jurist will serve as the arbitrator. If the parties agree, the jurist that
serves as the mediator may serve as the arbitrator. If and when a demand for
arbitration is made by either party, the parties agree to execute a Submission
Agreement, provided by J.A.M.S., setting forth the rules and procedures to be
followed at the arbitration hearing. If the parties cannot agree on rules and
procedures to be followed at the arbitration hearing, the arbitrator shall
establish the rules and procedures. The parties agree that arbitration must be
initiated within one year after the claimed breach occurred and that the failure
to initiate arbitration within the one-year period constitutes an absolute bar
to the institution of any new proceedings. Any judgment or award entered by the
arbitrator may be entered on an ex parte basis in the Dallas County Courts or
any other court having jurisdiction over
<PAGE>
the party against whom the award is entered and enforced according to the terms
of the judgment or award. The venue of all hearings shall be in Dallas, County,
Texas.
D. If J.A.M.S. does not exist at the time a Dispute arises in
connection with this Agreement, these provisions shall continue in full force
and effect, subject to the following changes: In the event the parties are
unable to agree upon a mediator or alternative mediation service, the mediation
provision shall become null and void. If the parties are then unable to agree
upon an arbitrator or alternative arbitration service, the arbitration
provisions of this Section shall be fully enforceable, with Dallas County Courts
having jurisdiction to appoint a single arbitrator to arbitrate the Dispute.
E. In the event it is necessary for any party hereto, or its
authorized representative, successor, or permitted assign, to institute suit or
begin arbitration proceedings in connection with this Agreement or the breach
thereof, the prevailing party in such suit or proceeding shall be entitled to
reimbursement for its reasonable costs, expenses, and attorneys' fees incurred,
including costs, expenses, and attorneys' fees incurred on appeal or in
enforcing any arbitration award or judgment.
F. Notwithstanding the foregoing, either party shall have the right
to appeal the award of any arbitrator in the event that such award is made
contrary to applicable law.
ARTICLE XIII
REGULATORY AND CONTRACTUAL REQUIREMENTS
13.1 Regulatory and Contractual Requirements. Manager shall cause all
things to be done in and about the Facility reasonably necessary to comply
with the requirements of any applicable constitution, statute, ordinance,
law, rule, regulation, or order of any governmental or quasi-governmental
regulatory body or agency, or board of fire underwriters respecting the use
of the Facility or the construction, maintenance, or operation thereof.
Manager shall take all necessary actions to maintain all federal, State and
county permits and licenses needed for its management. Manager shall keep its
corporate organization in good standing in the State and shall maintain all
corporate
<PAGE>
permits and licenses required by the State.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 Additional Assurances. The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except
as may be herein specifically provided to the contrary; provided, however, at
the request of either party, the party requested shall execute such
additional instruments and take such additional acts as the requesting party
may deem necessary to effectuate this Agreement.
14.2 Consents, Approval and Discretion. Except as expressly provided
herein to the contrary, whenever this Agreement requires any consent or approval
to be given by either party or either party must or may exercise discretion, the
parties agree that such consent or approval shall not be unreasonably withheld
or delayed and such discretion shall be reasonably exercised, in good faith.
14.3 No Brokerage. Each party represents to the other that it has not
engaged a broker in connection with this transaction, and agrees to defend,
indemnify, and hold the other party harmless from any claim made by a broker
through the indemnifying party.
14.4 Notices. All notices, demands, consents, approvals, and requests
given by either party to the other hereunder shall be in writing and shall be
sent by hand, by overnight courier, or by registered or certified mail, postage
prepaid, to the parties at the following addresses:
Owner: Residential Healthcare Properties, Inc.
4265 Kellway Circle
Addison, Texas 75244-2033
Attn:_______________
Manager: Greenbriar Corporation
4265 Kellway Circle
Addison, Texas 75244-2033
Attention: ______________
or to such other address and to the attention of such other person as either
party may from time to time designate in writing. Notices shall be effective
upon receipt. Refusal to accept delivery shall constitute receipt.
14.5 Severability. If any term or provision of this Agreement or the
application
<PAGE>
thereof to any person or circumstance is held to be invalid or
unenforceable for any reason, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.
14.6 Gender and Number. Whenever the context of this Agreement requires,
the gender of all words herein shall include the masculine, feminine, and
neuter, and the number of all words herein shall include the singular and
plural.
14.7 Division and Headings. The divisions of this Agreement into
sections and subsections and the use of captions and headings in connection
therewith are solely for convenience and shall have no legal effect whatsoever
in construing the provisions of this Agreement.
14.8 Right to Perform. In the event that Owner or Manager shall fail to
perform any duty or fulfill any obligation hereunder to the material detriment
of the other, Owner or Manager, in addition to any rights or remedies available
to it under law, shall have the right, but not the obligation to perform any
such duty or fulfill any such obligation, but in no way obligating the party
beyond any termination period allowable hereunder.
14.9 Assignment by Manager. Manager shall not assign its rights or
obligations under this Agreement without Owner's consent which may be withheld
by Owner in its discretion, provided, however, Manager, shall have the right to
assign its rights and obligations under this Agreement to an Affiliate that is a
wholly-owned subsidiary of Greenbriar Corporation.
14.10 Assignment by Owner. Owner shall have the right to sell, lease and
convey the Facility, or any portion thereof, without the consent of Manager.
Any party to which the Facility, or any portion thereof, is conveyed shall
agree in writing to be bound by the terms of this Agreement and shall assume
Owner's obligations hereunder.
14.11 Entire Agreement/Amendment. With respect to the subject matter
hereof, this Agreement supersedes all previous contracts and constitutes the
entire Agreement between the parties, and no party shall be entitled to benefits
other than those specified herein. As between the parties, no oral statements or
prior written material not specifically incorporated herein shall be of any
force and effect. The parties specifically acknowledge that in entering into and
executing this Agreement, the parties rely solely upon the representations and
agreements contained in this Agreement and no others.
<PAGE>
All prior representationsor agreements not expressly incorporated herein,
whether written or verbal, are superseded, and no changes in or additions to
this Agreement shall be recognized unless and until made in writing and signed
by both parties hereto. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized offices, all as of the day and year
first above written.
WITNESS/ATTEST:
Manager:
[signature] Greenbriar Corporation
By: [signature]
Name:
Title: President
WITNESS/ATTEST: Owner:
Residential Healthcare Properties, Inc.
[signature] By: [signature]]
Name:
Title:
<PAGE>
EXHIBIT 6(f)
LEASE
BY AND BETWEEN
RESIDENTIAL HEALTH CARE PROPERTIES, INC.
("Landlord")
and
______________________________
("Tenant")
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - LEASE OF PREMISES 1
1.01 Lease of Premises 1
1.02 Habendum 1
ARTICLE II - USE OF PREMISES 2
2.01 Use of Premises 2
2.02 Continuous Occupancy and Operations 2
2.03 Title to Land and Improvements 2
ARTICLE III - TERM 2
3.01 Commencement Date 2
3.02 Original Term of Lease 2
3.03 Renewal Options 3
ARTICLE IV - BASIC RENT AND ADDITIONAL RENT 3
4.01 Basic Rent 3
4.02 Percentage Rental 5
4.03 Additional Rent 5
4.04 Net Lease; Non-Terminability 5
4.05 Place of Rent Payment 6
4.06 Late Payment Charge and Interest 6
ARTICLE V - PAYMENT OF IMPOSITIONS, TAXES AND ASSESSMENTS;
COMPLIANCE WITH LAWS AND ENVIRONMENTAL
MATTERS 7
5.01 Payment of Impositions 7
5.02 Compliance with Laws 8
5.03 Permitted Contests 8
5.04 Hazardous Materials 9
ARTICLE VI - MAINTENANCE, REPAIR AND ALTERATIONS 10
6.01 Maintenance and Repair 10
6.02 Alterations 10
6.03 Replacements of Personal Property 11
<PAGE>
6.04 No Liens 12
ARTICLE VII - INSURANCE AND INDEMNIFICATION 12
7.01 Property Insurance 12
7.02 Liability Insurance 13
7.03 Builder's Risk Insurance 13
7.04 Insurance Requirements 14
7.05 Replacement Value 14
7.06 Blanket Policy 14
7.07 No Separate Insurance 14
7.08 Mortgages 15
7.09 Damages for Tenant's Failure to Properly Insure 15
7.10 Casualty 15
7.11 Indemnification 17
7.12 Waiver of Subrogation 17
ARTICLE VIII - EMINENT DOMAIN 18
8.01 Definitions 18
8.02 Total Condemnation 18
8.03 Partial Condemnation 18
8.04 Award 19
8.05 Temporary Taking 19
ARTICLE IX - NEGATIVE COVENANTS 20
9.01 No Liens 20
9.02 No Transfer 20
9.03 No Dissolution 20
9.04 Change of Location or Name 20
ARTICLE X - AFFIRMATIVE COVENANTS 20
10.01 Perform Obligations 20
10.02 Proceedings to Enjoin or Prevent Occupancy 21
10.03 Documents and Information 21
<PAGE>
ARTICLE XI - REPRESENTATIONS AND WARRANTIES OF TENANT 22
11.01 Organization and Good Standing 22
11.02 Power and Authority 22
11.03 Enforceability 22
11.04 Solvency 23
11.05 No Litigation 23
11.06 Consents 23
11.07 No Violation 23
11.08 Reports and Statements 23
11.09 Chief Executive Office 24
ARTICLE XII - REPRESENTATIONS AND WARRANTIES OF LANDLORD 24
12.01 Organization and Good Standing 24
12.02 Power and Authority 24
12.03 Enforceability 24
ARTICLE XIII ASSIGNMENT AND SUBLETTING 24
13.01 Assignment and Subletting by Tenant 24
13.02 Assignment by Landlord 25
<PAGE>
ARTICLE XIV DEFAULT 25
14.01 Events of Default 25
14.02 Landlord's Remedies 27
14.03 Additional Rights of Landlord 29
14.04 Waivers by Tenant 29
ARTICLE XV MISCELLANEOUS 29
15.01 Notices, Demands and Other Instruments 29
15.02 Estoppel Certificates 30
15.03 Holding Over by Tenant 30
15.04 Parties Bound 31
15.05 No Merger 31
15.06 Surrender 31
15.07 Severability 31
15.08 Attorneys' Fees 32
15.09 Savings Clause 32
15.10 Force Majeure 32
15.11 Recording - Memorandum of Lease 32
15.12 Time of the Essence 32
15.13 Transfer of Landlord's Interest 32
15.14 Subordination 32
15.15 Table of Contents and Headings 33
15.16 Governing Law 33
15.17 Certain Definitions 33
15.18 Entry by Landlord 34
15.19 Relationship of Landlord and Tenant 34
15.20 Integration 34
15.21 Brokers 34
15.22 Interest 34
15.23 Quiet Possession 34
15.24 Complete Agreement 34
ARTICLE XVI FAIR MARKET VALUE 35
15.01 Fair Market Value 35
<PAGE>
ARTICLE XVII ALTERNATIVE DISPUTE RESOLUTION 36
17.01 Mediation 36
17.02 Arbitration 37
17.03 Location of Mediation or Arbitration 37
17.04 Reservation of Rights 37
17.05 Attorney-Client Privilege; Confidentiality 37
17.06 Third Parties 37
17.07 Attorneys Fees and Costs 38
Exhibit "A" - Legal Description of the Land
Exhibit "B" - Personal Property
<PAGE>
LEASE
THIS LEASE (this "Lease") is made and entered into as of the ____ day of
_____________, 1997 (the "Effective Date"), by and between RESIDENTIAL
HEALTHCARE PROPERTIES, INC, a Nevada corporation ("Landlord"), and
___________________________, a __________________ ("Tenant").
WITNESSETH:
FOR AND IN CONSIDERATION of the rents and covenants to be paid and
performed by Tenant hereunder, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
covenant and agree as follows:
ARTICLE I
LEASE OF PREMISES
Section 1.01 Lease of Premises. Subject to the terms and
conditions of this Lease, Landlord does hereby lease unto Tenant, and Tenant
does hereby lease from Landlord, those certain premises (the "Premises")
consisting of (a) the real property containing approximately ______
plus/minus acres located in the City of _______________, County of ________,
State of _______, which is more particularly described in Exhibit "A"
attached hereto and incorporated herein by reference for all purposes,
together with all of Landlord's rights, privileges, easements and
appurtenances pertaining to such real property (such real property, rights,
privileges, easements and appurtenances being collectively hereinafter called
the "Land"), (b) a _______ (__ ) unit, assisted living facility
[retirement and/or Alzheimer's care] (the "Facility") containing approximately
___________ square feet of gross floor area ("Floor Area") and other
improvements (such Facility and other improvements are hereinafter called the
"Improvements") now located on the Land, and (c) certain furniture, fixtures,
and equipment identified in Exhibit "B" attached hereto (the "Personal
Property").
Section 1.02 Habendum. TO HAVE AND TO HOLD the Premises for the exclusive
use by Tenant, its permitted successors and assigns, for the Term (as
hereinafter defined) subject to termination as herein provided and subject to
and upon the terms, conditions, covenants, agreements, provisions and
limitations agreed to and imposed upon Tenant hereunder.
<PAGE>
ARTICLE II
USE OF PREMISES
Section 2.01 Use of Premises. (a) Subject to the terms and provisions
hereof, Tenant shall use and occupy the Premises exclusively as an assisted
living facility [retirement and/or Alzheimer's care] (the "Facility") and for
all lawful and licensed ancillary uses, and for no other purpose without the
prior written consent of Landlord. Tenant shall obtain and maintain all
approvals, licenses and consents needed to use and operate the Premises as
herein permitted. Tenant shall deliver to Landlord complete copies of any
surveys, examinations, certification and licensure inspections, compliance
certificates and other similar reports issued to Tenant by any governmental
agency within ten (10) days after Tenant's receipt of each of such items.
(b) Notwithstanding the foregoing, Tenant shall not use or occupy, or
permit the Premises to be used or occupied, nor do or permit anything to be done
in or on the Premises in a manner which would (i) in any way make void or
voidable any insurance then in force on the Premises, (ii) make it impossible to
obtain the insurance required to be furnished by Tenant under this Lease, (iii)
constitute a public nuisance, or (iv) violate any present or future law,
regulation, ordinance or requirement of any governmental authority having
jurisdiction over the Premises.
Section 2.02 Continuous Occupancy and Operations. Tenant covenants and
agrees to occupy and use the entire Improvements continuously during the entire
term of this Lease for the purposes provided in Section 2.01(a) above, and will
operate such business during such period with diligence under the name
______________ and in accordance with the best standards of operation of such
assisted living facility business.
Section 2.03 Title to Land and Improvements. Landlord represents and
warrants to Tenant that Landlord is the owner of the Premises and has the right
to enter into this Lease and the Premises are free from all easements,
encumbrances, restrictions, liens and claims other than zoning and building
ordinances and easements, restrictions, covenants, and encumbrances and other
matters of record (the "Permitted Encumbrances").
ARTICLE III
TERM
<PAGE>
Section 3.01 Commencement Date. As used herein, the "Commencement Date"
shall mean_________________.
Section 3.02 Original Term of Lease. The "Original Term" of this Lease
shall commence at 12:01 a.m. on the Commencement Date and shall end at 11:59
p.m. on December 31, 2018, unless sooner terminated or extended as set forth
herein. Tenant hereby acknowledges that all obligations of Tenant under this
Lease including Tenant's obligation to pay all Basic Rent, Percentage Rent, and
Additional Rent (all as hereinafter defined) shall commence on the Commencement
Date as provided in Section 4.01 below.
Section 3.03 Renewal Options. (a) Subject to the conditions
hereinafter set forth and provided this Lease is then in effect, Tenant shall
have the right to renew the term of this Lease for two (2) consecutive renewal
terms of five (5) years each (each, a "Renewal Term"), by delivering written
notice (the "Renewal Notice") to Landlord of its exercise of such right at least
one hundred eighty (180) days before the end of the Original Term or any Renewal
Term, as the case may be. Subject to the terms of this Lease set forth below,
the first such Renewal Term shall begin upon the expiration of the Original Term
and the second Renewal Term shall begin upon the expiration of the first Renewal
Term. All of the terms, provisions and covenants of this Lease shall apply to
each Renewal Term except that Basic Rent for each Renewal Term shall be
established as provided in paragraph (b) below. Tenant shall have no right to
exercise any option under this Section 3.03 if any Event of Default (as
hereinafter defined) exists at the time of electing a renewal option or at the
time any Renewal Term would commence. If Tenant fails to give timely notice of
Tenant's intention to renew this Lease, the Term of this Lease shall expire on
the scheduled expiration date, and Tenant shall have no further option to renew
this Lease. If Tenant does not exercise any such option in a
timely manner, then Landlord shall have the right during the remainder of the
Term of this Lease to advertise the availability of the Premises for sale or
lease. In this Lease the phrases "term of this Lease," "term hereof," "Lease
Term," and "Term" mean the Original Term and any Renewal Term that may become
effective pursuant to this Section 3.03.
(b) If Tenant elects to renew the Term of this Lease as provided in
paragraph (a) above, the Basic Rent payable by Tenant to Landlord for the
Premises during the First Lease Year of the Renewal Term shall be the greater
of (i) the Basic Rent or the Percentage Rent which was payable by Tenant during
the final Lease Year of the Term of this Lease immediately preceding such
Renewal Term or (ii) the amount obtained by multiplying the Fair Market Value of
the property as determined in accordance with Article 16 below by the sum of the
yield quoted in the Wall Street Journal on the day immediately prior
<PAGE>
to thecommencement of the Renewal Term for the most actively traded 10-year
United States Treasury Security having a maturity date closest to the
expiration of the particular renewal period, plus 325 basis points. The
Basic Rent for subsequent Lease Years of the Renewal Term shall be calculated
as set forth in Section 4.01(g) below.
<PAGE>
ARTICLE IV
BASIC RENT AND ADDITIONAL RENT
Section 4.01 Basic Rent.
(a) Tenant covenants to pay to Landlord, without any prior demand
therefor and without any deduction or set-off whatsoever, as basic rent (the
"Basic Rent"), as hereinafter set forth during each Lease Year (as hereinafter
defined) of the Original Term of this Lease. The annual Basic Rent shall be
payable in monthly installments equal to 1/12th of the applicable annual Basic
Rent, each such monthly installment payable in advance on the first day of each
calendar month of each Lease Year during the Lease Term. The monthly
installment of Basic Rent for the first month of the Lease Term shall be paid by
Tenant to Landlord on or before the Commencement Date. Rent for any fractional
calendar month in which the Lease Term begins or terminates shall be prorated on
a per diem basis, based on the number of days in such month with respect to such
fractional calendar month. The term "Lease Year," as used herein shall mean,
except in the case of the "Initial Period" as defined below, the period that
begins on January 1 and ends on December 31 of each calender year. The "First
Lease Year" shall begin on January 1, 1998 and end on December 31, 1998.
(b) For the period beginning on the Commencement Date through
December 31, 1997 (the "Initial Period"), Tenant shall pay to Landlord Basic
Rent of $ ______________.
(c) For the First Lease Year, Tenant shall pay Basic Rent which shall
be equal to the greater of (1) $____________[the Basic Rent amount for the
Initial Period on an annualized basis]; or (2) the total actual rent paid for
the Initial Period including Percentage Rental.
(d) For the Second Lease Year, Tenant shall pay Basic Rent which
shall be equal to the greater of: (1) $_____________ [to be set for each
facility at Lease Inception] or (2) the actual rent paid for the First Lease
Year including Percentage Rental.
(e) For the Third Lease Year, Tenant shall pay Basic Rent which shall
be the greater of (1) the Basic Rent for the Second Lease Year; or (2) the total
actual rent paid for the Second Lease Year including Percentage Rental.
<PAGE>
(f) For the Fourth Lease Year, Tenant shall pay Basic Rent which
shall be the greater of (1) the Basic Rent for the Third Lease Year; or (2) the
total actual rent paid for the Third Lease Year including Percentage Rental.
(g) Commencing in the Fifth Lease Year, the Basic Rent shall be the
greater of (1) $__________ [to be set for each facility at Lease Inception]; (2)
the Basic Rent for the Fourth Lease Year; or (3) the actual total rent paid for
the Fourth Lease Year including Percentage Rental.
(h) Commencing on the Sixth Lease Year and thereafter, the Basic Rent
shall be the greater of: (1) the prior Lease Year's Basic Rent; or (2) the
actual total rent paid for the prior Lease Year including Percentage Rent.
(i) For the first month of each Lease Year following the Initial
Period, Tenant shall pay an estimated monthly Basic Rent payment which shall be
the Basic Rent, in the case of the First Lease Year, for the last month of the
Initial Period; and, in the case of subusequent Lease Years, shall be the Bgasic
Rent for the last month of the prior Lease Year. Tenant shall pay to Landlord,
at the time of furnishing the statement required to be given by Tenant in
accordance with Section 4.02 below, any difference between the estimated Basic
Rent for such month and the actual amount as determined in accordance with this
Lease.
Section 4.02 Percentage Rental. Commencing with the Commencement Date,
and thereafter throughout the Term, Tenant shall pay to Landlord, in addition
to the Base Rent, an amount by which twenty-two percent (22%) of the Gross
Revenue from the operation of the Facility exceeds the Base Rent ("Percentage
Rent"). Tenant shall submit to Landlord within thirty (30) days following the
end of the Initial Period and 30 days following the end of each quarter during
each Lease Year thereafter, a written statement certified by the chief financial
officer of Tenant setting forth the amount of the Gross Revenue of the Facility
during the Initial Period and the preceding quarter of the current Lease Year,
together with payment by Tenant of Percentage Rent, if any that may be due as
shown by said statement. "Gross Revenue" means all income from the operation of
the Facility during the Initial Period and each calander quarterof the
applicable Lease Year, excluding interest income and security deposits, but
including all income as determined in accordance with generally accepted
accounting principals.
Section 4.03 Additional Rent. Tenant covenants that all other amounts,
liabilities and obligations which Tenant assumes or agrees to pay or discharge
pursuant to this Lease together with every fine, penalty, interest and
<PAGE>
cost which may be added for nonpayment or late payment thereof, shall
constitute additional rent ("Additional Rent") hereunder (whether or not the
same be designated as "Additional Rent"). The term "Rent," as used herein,
shall collectively mean and refer to Basic Rent, Percentage Rent and all
other Additional Rent hereunder.
Section 4.04 Net Lease; Non-Terminability. Except as expressly set forth
to the contrary in this Lease:
(a) This is an absolutely net lease to Landlord. It is the intent of
the parties hereto that the Rent payable under this Lease shall be an absolutely
net return to Landlord and that Tenant shall pay all costs and expenses relating
to the Premises and the business operated thereon. Any amount or obligation set
forth in this Lease and relating to the Premises which is not expressly declared
to be that of Landlord shall be deemed to be an obligation of Tenant to be
performed by Tenant at Tenant's expense. Basic Rent, Percentage Rent, and
Additional Rent and all other sums payable hereunder by Tenant, shall be paid
without notice, demand, set off, counterclaim, abatement, suspension, deduction
or defense.
(b) Except as otherwise expressly provided in this Lease, this Lease
shall not terminate, nor shall Tenant have any right to terminate this Lease,
nor shall Tenant be entitled to any abatement or reduction of Rent hereunder,
nor shall the obligations of Tenant under this Lease be affected by reason of
(i) any damage to or destruction of all or any part of the Premises from
whatever cause; (ii) the taking of the Premises or any portion thereof by
condemnation, requisition or otherwise; (iii) the prohibition, limitation or
restriction of Tenant's use of all or any part of the Premises, or any
interference with such use; (iv) any eviction by paramount title or otherwise;
(v) Tenant's acquisition or ownership of all or any part of the Premises; (vi)
any default on the part of Landlord under this Lease, or under any other
agreement to which Landlord and Tenant may be parties; (vii) the failure of
Landlord to deliver possession of the Premises; or (viii) any other cause
whether similar or dissimilar to the foregoing, any present or future law to the
contrary notwithstanding.
(c) Tenant agrees that it will remain obligated under this Lease in
accordance with its terms, and it will not take any action to terminate, rescind
or avoid this Lease, notwithstanding (i) the bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding-up
or other proceeding affecting Landlord or its successors-in-interest, or (ii)
any action with respect to this Lease which may be taken by any trustee or
receiver of Landlord or its successors-in-interest or by any court in any such
proceeding.
<PAGE>
(d) It is the intention of the parties hereto that the obligations of
Tenant hereunder shall be separate and independent covenants and agreements;
that Basic Rent, Percentage Rent, Additional Rent and all other sums payable by
Tenant hereunder shall continue to be payable in all events; and that the
obligations of Tenant hereunder shall continue unaffected, unless the
requirement to pay or perform the same shall have been terminated pursuant to an
express provision of this Lease.
Section 4.05 Place of Rent Payment. All payments of Rent hereunder
shall be made to Landlord as the same become due and payable in lawful money of
the United States of America at the address of Landlord specified in Section
15.01 hereof or at such other address as Landlord may designate in accordance
with the provisions of said Section 15.01.
Section 4.06 Late Payment Charges and Interest. Tenant hereby
acknowledges that late payment by Tenant to Landlord of Rent under this Lease
will cause Landlord to incur various expenses not contemplated by this Lease,
the exact amount of which are presently difficult to ascertain. Accordingly, if
any payment of Rent shall not be received by Landlord within five (5) days of
the due date thereof, then, without limiting any other rights of Landlord under
this Lease, in each month in which any Rent or other payment for such month is
not timely paid, Tenant shall also pay Landlord a late charge equal to $1000.00,
which late charge shall be in addition to such required payment and shall
constitute Additional Rent hereunder. Landlord and Tenant agree that such late
charge represents a fair and reasonable estimate of the expenses that Landlord
will incur by reason of such late payment by Tenant. Acceptance of such late
charge by Landlord shall not constitute a waiver of Tenant's default with
respect to any such past due amounts, nor prevent Landlord from exercising any
other rights or remedies granted to Landlord under this Lease or at law or in
equity. In addition, any Rent or any other sum required to be paid by Tenant
under this Lease which is not paid within five (5) days of the due date, shall
bear interest, commencing on the sixth (6th) day after the due date thereof and
continuing until paid, at the lesser of (a) the maximum rate permitted by
applicable law, or (b) eighteen percent (18%) per annum. For purposes of any
time periods set forth in this Section 4.06, the payment due date shall be used
as the first day of any such period.
Section 4.07 Right to Audit. Landlord shall have the right from time to
time, upon notice to Tenant to audit the books and records of Tenant to
determine the accuracy of the determination of the Percentage Rental payable to
Landlord hereunder. In the event that such audit discloses a liability for rent
in excess of the Percentage Rent previously reported by Tenant to Landlord,
Tenant shall promptly to Landlord all deficiencies in the Rent
<PAGE>
payable to Landlord and the Basic Rent shall be redetermined for the
applicable Lease Year in accordance with the Percentage Rent as determined by
the audit. In addition should the audit disclose a lability for Rent to the
extent of five percent (5%) or more, Tenant shall on demand of Landlord pay
the cost of such audit in addition to the amount of any deficiency.
ARTICLE V
PAYMENT OF IMPOSITIONS, TAXES AND ASSESSMENTS;
COMPLIANCE WITH LAWS AND ENVIRONMENTAL MATTERS
Section 5.01 Payment of Impositions. (a) From and after the
Commencement Date, Tenant shall pay, discharge and satisfy the following charges
(the "Impositions") when due:
(i) all taxes, assessments (including assessments for benefits from
public works or improvements, whether or not begun or completed prior to
the Commencement Date and whether or not to be completed within the Term),
levies, fees, water and sewer rents and charges, and all other utility and
other governmental charges of every kind, general and special, ordinary and
extraordinary, together with, subject to the succeeding provisions of this
Section 5.01, any interest and penalties thereon, which accrue or are
payable during the Lease Term and which are imposed or levied upon or
assessed against (A) the Premises or any part thereof, (B) any Basic Rent,
Percentage Rent, or any Additional Rent reserved or payable hereunder, and
(C) this Lease or the leasehold estate hereby created or which arises in
respect of the operation, possession, occupancy or use of the Premises;
(ii) any gross receipts or similar taxes imposed or levied upon,
assessed against or measured by Basic Rent, Percentage Rent, or Additional
Rent payable by Tenant hereunder or levied upon or assessed against the
Premises;
(iii) all sales and use taxes which are levied or assessed against or
payable by Landlord and Tenant on account of the acquisition, leasing or
use of the Premises or any portion thereof; and
(iv) all charges for water, gas, light, heat, telephone, electricity,
power and other utilities and communications services rendered or used on
or about the Premises.
(b) Tenant agrees to furnish to Landlord, within thirty (30) days after
<PAGE>
written demand therefor, evidence of the payment of all Impositions. In
the event that any Imposition levied or assessed against the Premises becomes
due and payable during the Term hereof and may legally be paid in installments,
Tenant shall have the option to pay such Imposition in installments. Tenant
shall request the appropriate taxing and assessing authorities having
jurisdiction over the Premises to send directly to Tenant all tax bills,
assessments and notices pertaining to the Premises. Notwithstanding the
foregoing, for any such tax bills, assessments and notices that are not sent
directly to Tenant but are sent to Landlord, Landlord hereby covenants and
agrees to forward to Tenant all such tax bills, assessments and notices
pertaining to the Premises within ten (10) business days after Landlord receives
same, but Tenant's obligation to pay timely any amount that was the subject of
such tax bill, assessment and notice shall not be conditioned upon Landlord's
delivery of such item to Tenant within such time period. Without limiting any
of the other provisions of this Lease, from and after an Event of Default,
Tenant shall, at Landlord's election, deposit with Landlord on the first day of
each month the sum equal to 1/12th of the Impositions assessed against the
Premises for the preceding Lease Year, which sums shall be used by Landlord
toward payment of future Impositions. Tenant, on demand, shall pay to Landlord
any additional funds necessary to pay and discharge the obligations of Tenant
pursuant to the provisions of this Section. The receipt by Landlord of the
payment of such Impositions by and from Tenant shall only be as an accommodation
to Tenant, any Fee Mortgagee or assessing authorities, and shall not be
construed as rent or income to Landlord, Landlord serving, if at all, only as a
conduit for delivery purposes.
Section 5.02 Compliance with Laws. Tenant shall, at its own cost and
expense, obtain any and all business licenses, permits and/or approvals
necessary for the operation of Tenant's business on the Premises ("Governmental
Authorizations") and shall comply with all governmental statutes, laws, orders,
ordinances, rules and regulations applicable to the use of the Premises and all
requirements of the Fire Insurance Rating Organization, Board of Fire Insurance
Underwriters and any similar bodies having jurisdiction thereof (collectively,
"Legal Requirements"), including those which require the making of any
structural, unforeseen or extraordinary changes to the Premises, whether or not
any of the same involve a change of policy on the part of the body enacting the
same, and shall promptly comply with all governmental orders and directives
and/or demands from Landlord for the correction, prevention and abatement of
nuisances in or upon, or connected with, the Premises. Without limiting the
foregoing, Tenant shall, at its expense, comply with all changes required in
order to obtain and/or maintain the Required Insurance (as hereinafter defined),
and with the provisions of all contracts, agreements, instruments and
restrictions existing on the
<PAGE>
Commencement Date or thereafter suffered orpermitted by Tenant affecting the
Premises or any part thereof relating to the ownership, occupancy or use
thereof.
Section 5.03 Permitted Contests. Tenant shall not be required to
(a) pay any Imposition, (b) comply with any statute, law, rule, order,
regulation or ordinance, or (c) discharge or remove any lien, encumbrance or
charge against the Premises, so long as Tenant shall post a bond in an amount
and with a surety acceptable to Landlord and thereafter contest, in good faith
and at its sole expense, the existence, the amount or the validity thereof, the
amount of the damages caused thereby or the extent of its liability therefor, by
appropriate proceedings during the pendency of which there is prevented (i) the
collection of, or other realization upon, the tax, assessment, levy, fee, rent,
charge, lien or encumbrance so contested; (ii) the sale, forfeiture or loss of
the Premises, or any part thereof, or Basic Rent, Percentage Rent, or any
Additional Rent, or any portion thereof; (iii) any interference with the use or
occupancy of the Premises or any part thereof; and (iv) any interference with
the payment of Basic Rent, Percentage Rent, or any Additional Rent, or any
portion thereof. Tenant further agrees that each such contest shall be
diligently and continuously prosecuted to a final conclusion. Tenant shall
defend (with counsel reasonably acceptable to Landlord), indemnify and hold
Landlord harmless against, any and all losses, judgments, decrees and costs
(including all attorneys' fees, appearance costs and expenses) in connection
with any such contest and, promptly after the final settlement, compromise or
determination of such contest, shall fully pay and discharge the amounts which
shall be levied, assessed, charged or imposed or be determined to be payable in
connection therewith, together with all penalties, fines, interests, costs and
expenses thereof or in connection therewith, and perform all acts, the
performance of which shall be ordered or decreed as a result thereof.
Notwithstanding the foregoing, no such contest shall be pursued by Tenant if
doing so would subject Landlord or any Fee Mortgagee (as hereinafter defined) to
the risk of any criminal liability.
Section 5.04 Hazardous Materials. (a) Tenant shall not cause, or
suffer or permit Tenant's agents, contractors, employees, customers or persons
receiving or delivering goods or services to or from the Premises to cause, any
Hazardous Material (as hereinafter defined) to exist on or be discharged from
the Premises (whether originating thereon or migrating to the Premises from
other property) in violation of any Environmental Laws as hereinafter defined,
and Tenant shall promptly (i) remove any charge or lien upon any of the
Premises, and (ii) defend (with counsel reasonably acceptable to Landlord),
indemnify and hold Landlord, Fee Mortgagee and all of their successors and
assigns, harmless from and against any and all claims, expenses, liabilities,
losses or damages to or threatened against the Property, Landlord, Fee
<PAGE>
Mortgagee or any third party, resulting from any Hazardous Material that is
placed, generated or created in, on or under the Premises or is discharged
from the Premises after the Commencement Date.
(b) Tenant shall notify Landlord and Fee Mortgagee of any Hazardous
Material that exists on or is discharged from or onto the Premises (whether
originating thereon or migrating to the Premises from other property) within
ten (10) days after Tenant first has knowledge of the existence or discharge
of such Hazardous Material.
(c) Throughout the Term, Tenant shall comply, and cause the Premises
to comply, with all statutes, laws, ordinances, rules and regulations of all
local, state or federal authorities having authority over the Premises or any
portion thereof or their use including, without limitation, those relative to
any Hazardous Material, petroleum products, asbestos containing materials or
PCB's.
(d) "Hazardous Material" means any hazardous or toxic material,
substance or waste which is defined by those or similar terms or is regulated as
such under any Environmental Laws. "Environmental Laws" means any statute, law,
ordinance, rule or regulation of any local, county, state or federal authority
having jurisdiction over the Premises or any portion thereof or its use,
including, but not limited to: (i) the Federal Water Pollution Control Act (33
U.S.C. Section 1317) as amended; (ii) the Federal Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.) as amended; (iii) the
Comprehensive Environmental Response Compensation and Liability Act (42 U.S. C.
Section 9601 et seq.) as amended; (iv) the Toxic Substance Control Act (15
U.S.C. Section 2601) as amended; (v) the Clean Air Act (42 U.S.C. Section 7401),
as amended; and (vi)any similar state laws.
ARTICLE VI
MAINTENANCE, REPAIR REPLACEMENT AND ALTERATIONS
Section 6.01 Maintenance and Repair. Tenant agrees, at its sole expense,
to (a) keep and maintain the Premises, including any altered, rebuilt,
additional or substituted buildings, structures and other improvements thereto
and the Personal Property, in good repair and appearance, except for ordinary
wear and tear, and (b) make promptly all structural and nonstructural, foreseen
and unforeseen, ordinary and extraordinary changes and repairs of every kind
which may be required to keep the Premises in such good condition, repair and
appearance. Landlord shall not be required to
<PAGE>
maintain, repair or rebuild or make any alterations, replacements or renewals
of any nature to the Premises, or any part thereof, whether ordinary or
extraordinary, structural or nonstructural, foreseen or unforeseen. Tenant
hereby expressly waives the right to make repairs at the expense of Landlord
which may be provided for in any law in effect at the time of the
commencement of the Term of this Lease or which may thereafter be enacted,
but the foregoing waiver shall not be a waiver of rights expressly granted to
Tenant by the terms of this Lease. Tenant, at its own cost and expense,
shall care for and maintain the grounds around the Improvements, including
the regular mowing of grass, care of shrubs and general landscaping, and the
maintenance of the parking areas, driveways and alleys on the Land, and shall
maintain the whole of the Premises in a clean and sanitary condition. Tenant
acknowledges that Tenant is familiar in all respects with the Premises, has
inspected the same and has accepted the Premises as suitable for Tenant's use
as set forth in this Lease. Landlord makes no representation, express or
implied, as to the suitability or habitability of the Premises for any
particular purpose.
Section 6.02 Alterations. (a) Tenant shall not make any alterations,
additions or modifications to the Premises without the prior written consent of
Landlord (which consent shall not be unreasonably withheld), except for
installation of unattached, movable trade fixtures in the Facility which may be
installed without drilling, cutting or otherwise defacing any part of the
Premises. All alterations, additions and modifications made to the Premises by
Tenant other than unattached, movable trade fixtures shall remain upon the
Premises and become the property of Landlord upon the expiration or termination
of this Lease, unless Landlord requests their removal, in which event Tenant, at
Tenant's expense, shall remove the same and restore the Premises to their
original condition as of the Commencement Date. If Tenant fails to repair any
damage to the Premises caused by any removal of any alterations, additions or
modifications to the Premises, then Landlord shall have the right, but not the
obligation, to repair any such damage to the Premises and thereafter Tenant will
be obligated to reimburse Landlord for the reasonable costs of repairing such
damage. All plumbing or electrical wiring connections exposed as a result of
the removal of any alterations, additions or modifications shall be capped by
Tenant in a safe and workmanlike manner.
(b) Notwithstanding anything contained in paragraph (a) above to
the contrary, before approving any alterations, additions or modifications
for which Landlord's consent is required, Landlord may require Tenant to
furnish it with (i) plans and specifications detailing the work to be
completed, (ii) the names and addresses of the contractors to complete such
work and copies of the contracts entered into with such contractors, (iii)
all permits necessary for the
<PAGE>
construction of such alterations, additions or modifications, and (iv)
evidence of any insurance reasonably requested by Landlord in connection with
such alterations, additions and modifications, which insurance shall name
Landlord and any Fee Mortgagee as additional insured.
(c) All construction work done by Tenant within or upon the Premises
shall be performed in a good and workmanlike manner, in compliance with all
governmental requirements, and the requirements of any contract, mortgage, or
deed of trust to which Landlord may be a party.
(d) Tenant agrees that all improvements, alterations, repairs or
other work performed upon the Premises under any provision of this Lease
including, without limitation, any venting, opening, sealing, water proofing or
any altering of the roof of the Facility shall be performed under the direction
of a general contractor approved by Landlord in advance and that when completed
Tenant shall furnish to Landlord a certificate from such contractor stating that
all such alterations approved by Landlord have been completed in accordance with
plans and specifications previously approved by Landlord. Without limiting the
foregoing, the plans and drawings for installation or revision of mechanical,
electrical or plumbing systems shall be designed by an engineer approved by
Landlord in advance, such design work to be done at Tenant's expense. Tenant
shall defend (with counsel reasonably acceptable to Landlord), indemnify and
hold Landlord and any Fee Mortgagee harmless from and against all claims, liens,
costs, damages and expenses that may arise out of or in connection with any
changes, additions, alterations or modifications made to the Premises by Tenant.
Section 6.03 Replacements of Personal Property. Tenant shall not remove
any Personal Property from the Leased Property except to replace the Personal
Property by other similar items of equal quality and value. Items being
replaced by Tenant may be removed and shall become the property of Tenant and
items replacing the same shall be and remain the property of Landlord. Tenant
shall execute, upon written request from Landlord, any and all documents
necessary to evidence Landlord's ownership of the Personal Property and
replacements therefor. Tenant may finance replacements for the Personal
Property by equipment lease or by a security agreement and financing statement
if [i] Landlord has consented to the terms and conditions of the equipment lease
or security agreement; and [ii] the equipment lessor or lender has entered into
a non-disturbance agreement with Landlord upon terms and conditions reasonably
acceptable to Landlord, including without limitation, the following: [a]
Landlord shall have the right (but not the obligation) to assume such security
agreement or equipment lease upon the occurrence of an Event of Default under
this Lease; [b] the equipment lessor or lender shall notify Landlord of any
default by Tenant under the equipment lease or security agreement and give
Landlord a reasonable opportunity to cure such default; and [c] Landlord shall
have the right to
<PAGE>
assign its rights under the equipment lease, security agreement, or
non-disturbance agreement. Tenant, within 30 days after receipt of an invoice
from Landlord, shall reimburse Landlord for all costs and expenses incurred in
reviewing and approving the equipment lease, security agreement, and
non-disturbance agreement, including without limitation, reasonable attorneys'
fees and costs.
Section 6.04 No Liens. Tenant will not create or permit to be created or
to remain, directly or indirectly, and will promptly discharge, at its expense,
any mortgage, lien, encumbrance or charge on, pledge of or conditional sale or
other title retention agreement with respect to, the Premises or any part
thereof or Tenant's interest therein or Basic Rent, Percentage Rent, and
Additional Rent or other sums payable by Tenant under this Lease. Nothing
contained in this Lease shall be construed as constituting the consent or
request, expressed or implied, by Landlord to the performance of any labor or
services or of the furnishing of any materials for any construction, alteration,
addition, repair or demolition of or to the Premises or any part thereof by any
contractor, subcontractor, laborer, materialman or vendor. Notice is hereby
given that Landlord will not be liable for any labor, services or materials
furnished or to be furnished to Tenant, or to anyone holding the Premises or any
part thereof, and that no mechanic's or other liens for any such labor, services
or materials shall attach to or effect the interest of Landlord in and to the
Premises.
ARTICLE VII
INSURANCE AND INDEMNIFICATION
Section 7.01 Property Insurance. At Tenant's expense, Tenant shall
maintain in full force and effect a property insurance policy or policies
insuring the Premises against the following:
(a) Loss or damage commonly covered by a "Special Form" policy
insuring against physical loss or damage to the Improvements and any personal
property, including but not limited to, risk of loss from fire and other
hazards, collapse, transit coverage, vandalism, malicious mischief, theft,
earthquake (if the Premises are in earthquake zone 1 or 2) and sinkholes (if
usually recommended in the area of the Premises). The policy shall be in the
amount of the full replacement value (as defined in Section 7.05) of the
Improvements and any personal property and shall contain a deductible amount
acceptable to Landlord. Landlord shall be named as an additional insured. The
policy shall include a stipulated value endorsement or agreed amount endorsement
and endorsements for contingent liability for operations of building laws,
demolition costs, and increased cost of construction
<PAGE>
.
(b) If applicable, loss or damage by explosion of steam boilers,
pressure vessels or similar apparatus, now or hereafter installed on the
Premises, in commercially reasonable amounts acceptable to Landlord.
(c) Consequential loss of rents and income coverage insuring against
all "Special Form" risk of physical loss or damage with limits and deductible
amounts acceptable to Landlord covering risk of loss during the first twelve
(12) months of reconstruction, and containing an endorsement for extended period
of indemnity of at least six (6) months, and shall be written with a stipulated
amount of coverage if available at a reasonable premium.
(d) If the Premises are located, in whole or in part, in a federally
designated 100-year flood plain area, flood insurance for the Improvements in an
amount equal to the lesser of (i) the full replacement value of the
Improvements; or (ii) the maximum amount of insurance available for the
Improvements under all federal and private flood insurance programs.
(e) Loss or damage caused by the breakage of plate glass in
commercially reasonable amounts acceptable to Landlord.
(f) Loss or damage commonly covered by blanket crime insurance
including employee dishonesty, loss of money orders or paper currency,
depositors' forgery and loss of property of residents accepted by Tenant for
safekeeping, in commercially reasonable amounts acceptable to Landlord.
Section 7.02 Liability Insurance. At Tenant's expense, Tenant shall
maintain liability insurance against the following:
(a) Claims for personal injury or property damage commonly covered by
comprehensive general liability insurance with endorsements for incidental
malpractice, contractual, personal injury, owners' protective liability,
voluntary medical payments, products and completed operations, broad form
property damage and extended bodily injury, with commercially reasonable amounts
for bodily injury, property damage and voluntary medical payments acceptable to
Landlord, but with a combined single limit of not less that $5,000,000.00 per
occurrence.
(b) Claims for personal injury and property damage commonly covered
by comprehensive automobile liability insurance, covering all owned and
non-owned automobiles, with commercially reasonable amounts for bodily injury,
property damage and for automobile medical payments acceptable to Landlord, but
with a combined single limit of not less than $5,000,000.00 per
<PAGE>
occurrence.
(c) Claims for personal injury commonly covered by medical
malpractice insurance in commercially reasonable amounts acceptable to Landlord.
(d) Claims commonly covered by worker's compensation insurance for
all persons employed by Tenant on the Premises. Such workers' compensation
insurance shall be in accordance with the requirements of all applicable local,
state, and federal law.
Section 7.03 Builder's Risk Insurance. In connection with any
construction by Tenant, Tenant shall maintain in full force and effect a
builder's completed value risk policy ("Builder's Risk Policy") of insurance in
a non-reporting form insuring against all "Special Form" risk of physical loss
or damage to the Improvements, including, but not limited to, risk of loss from
fire and other hazards, collapse, transit coverage, vandalism, malicious
mischief, theft, earthquake (if the Premises are in earthquake zone 1 or 2) and
sinkholes (if usually recommended in the area of the Premises). The Builder's
Risk Policy shall include endorsements providing coverage for building materials
and supplies and temporary premises. The Builder's Risk Policy shall be in the
amount of the full replacement value of the Improvements and shall contain a
deductible amount acceptable to Landlord. Landlord shall be named as an
additional insured. The Builder's Risk Policy shall include an endorsement
permitting initial occupancy.
Section 7.04 Insurance Requirements. The following provisions shall
apply to all insurance coverage required hereunder:
(a) The form and substance of all policies shall be subject to the
approval of Landlord, which approval will not be unreasonably withheld.
(b) The carriers of all policies shall have a Best's Rating of "All
or better and a Best's Financial Category of X or higher and shall be authorized
to do insurance business in the state where the Premises are located.
(c) Tenant shall be the "named insured" and Landlord and any Fee
Mortgagee shall be an "additional insured" on each liability policy. On all
property and casualty policies, Landlord, any Fee Mortgagee and Tenant shall be
joint loss payees.
(d) Tenant shall deliver to Landlord certificates or policies showing
the required coverage and endorsements. The policies of insurance shall provide
<PAGE>
that the policy may not be canceled or not renewed, and no material change or
reduction in coverage may be made, without at least thirty (30) days' prior
written notice to Landlord.
(e) The policies shall contain a severability of interest and/or
cross-liability endorsement, provide that the acts or omissions of Tenant or
Landlord will not invalidate the coverage of the other party, and provide that
Landlord shall not be responsible for payment of premiums.
(f) All loss adjustment shall require the written consent of Landlord
and Tenant, as their interests may appear.
(g) At least thirty (30) days prior to the expiration of each policy,
Tenant shall deliver to Landlord a certificate showing renewal of such policy
and payment of the annual premium therefor or specifying other payment
arrangements acceptable to Landlord.
Section 7.05 Replacement Value. The term "replacement value" means the
actual replacement cost thereof from time to time including increased cost of
construction endorsement, with no reductions or deductions. Tenant shall, in
connection with each annual policy renewal, deliver to Landlord a
redetermination of the full replacement value by the insurer or an endorsement
indicating that the Premises are insured for their full replacement value. If
Tenant makes any permitted alterations to the Premises, Landlord may have such
full replacement value redetermined at any time after such permitted alterations
are made, regardless of when the full replacement value was last determined.
Section 7.06 Blanket Policy. Notwithstanding anything to the contrary
contained in this Article, Tenant may carry the insurance required by this
Article under a blanket policy of insurance, provided that the coverage afforded
Tenant will not be reduced or diminished or otherwise be different from that
which would exist under a separate policy meeting all of the requirements of
this Lease.
Section 7.07 No Separate Insurance. Tenant shall not take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article, or increase the amounts of any then existing
insurance, by securing an additional policy or additional policies, unless all
parties having an insurable interest in the subject matter of the insurance,
including Landlord and any Fee Mortgagee, are included therein as additional
insured or loss payees, the loss is payable under said insurance in the same
manner as losses are payable under this Lease, and such additional insurance is
not prohibited by the existing policies of insurance. Tenant immediately
<PAGE>
shall notify Landlord of the taking out of such separate insurance or the
increasing of any of the amounts of the existing insurance by securing an
additional policy or additional policies.
Section 7.08 Mortgages. The following provisions shall apply if
Landlord now or hereafter places a Fee Mortgage on the Premises or any part
thereof: (a) Tenant shall obtain a standard form of lender's loss payable
clause insuring the interest of the Fee Mortgagee; (b) Tenant shall deliver
evidence of insurance to such Fee Mortgagee; (c) loss adjustment shall
require the consent of the Fee Mortgagee; and (d) Tenant shall provide such
other information and documents as may be required by the Fee Mortgagee.
Section 7.09 Damages for Failure to Properly Insure. Landlord or any Fee
Mortgagee shall not be limited in the proof of any damages which Landlord or Fee
Mortgage may claim against Tenant arising out of or by reason of Tenant's
failure to provide and keep in force insurance, as provided above, to the amount
of the insurance premium or premiums not paid or incurred by Tenant and which
would have been payable under such insurance; but Landlord and any Fee Mortgagee
shall also be entitled to recover as damages for such breach, the uninsured
amount of any loss, to the extent of any deficiency in the Required Insurance
and damages, costs and expenses of suit suffered or incurred by reason of or
damage to, or destruction of, the Premises, occurring during any period when
Tenant shall have failed or neglected to provide the Required Insurance. Tenant
shall defend (with counsel reasonably acceptable to Landlord), indemnify and
hold harmless Landlord and any Fee Mortgagee for any liability incurred by
Landlord or any Fee Mortgagee for or arising out of the failure to pay any
deductibles for the Required Insurance.
Section 7.10 Casualty. (a) If the Premises or any part thereof shall be
damaged or destroyed by casualty, Tenant promptly shall notify Landlord thereof,
and, except as provided in this Section 7.10, Tenant, with reasonable promptness
and diligence, shall rebuild, replace and repair any damage or destruction to
the Premises, at its expense, in conformity with the requirements of Article VII
in such manner as to restore the same to the same condition, as nearly as
possible, as existed prior to such casualty, and there shall be no abatement of
Basic Rent, Percentage Rent, or Additional Rent.
(b) Insurance claims by reason of damage to or destruction of any
portion of the Premises shall be adjusted by Landlord and Tenant, but any Fee
Mortgagee shall have the right to join with Landlord and Tenant in adjusting any
such loss. Insurance proceeds shall be placed in an account controlled by
Landlord or Fee Mortgagee and shall be disbursed in the manner provided in this
Section 7.10. Any insurance proceeds remaining after Tenant has repaired
<PAGE>
the Premises pursuant to this Section 7.10 shall be paid to and shall be the
property of Fee Mortgagee, if Fee Mortgagee's lien documents require, otherwise
such sums shall be the property of Landlord.
(c) Before Tenant commences such repairing, restoration or
rebuilding, plans and specifications therefor, prepared by a licensed architect
satisfactory to Landlord (the "Approved Architect"), shall be submitted to
Landlord for approval, and Tenant shall furnish to Landlord (i) an estimate of
the cost of the proposed work, certified to by the Approved Architect, it being
agreed that the cost of repairing, restoring and reconstructing the Premises
shall include any and all costs and expenses for labor, materials, engineering,
design and architectural fees to be incurred in connection with such repair,
restoration or rebuilding of the Premises, (ii) names and addresses of Tenant's
proposed general contractors, (iii) copies of proposed contracts with general
contractors and the necessary permits, (iv) evidence of builder's risk,
liability and property damage insurance of the general contractor naming
Landlord and any Fee Mortgagee as additional insured in limits reasonably
acceptable to Landlord and any Fee Mortgagee, and (v) if required by any Fee
Mortgagee, payment and performance bonds covering the full amount of the
proposed contracts, all in form and substance reasonably satisfactory to Fee
Mortgagee. Tenant shall defend (with counsel reasonably acceptable to
Landlord), indemnify and hold Landlord harmless from and against all claims,
liens, costs, damages and expenses that may arise out of or in connection with
any changes, additions, alterations or improvements to the Premises by Tenant.
(d) Within thirty (30) days from the date of the determination of the
cost of the work by the Approved Architect, Tenant shall deposit with the party
holding the insurance proceeds, any excess in the estimated cost of the work
over the insurance proceeds held in an account pursuant to the provisions of
Paragraph (b) above. Tenant diligently and continuously shall pursue the
repair, restoration or rebuilding of the improvements in a good and workmanlike
manner, using only high quality materials. Proceeds of such insurance and
Tenant's deposit shall be made available to Tenant against Tenant's applications
for payment delivered to Landlord from time to time as such work or repair
progresses. In each application, Tenant shall (i) describe the work or repair
for which Tenant is requesting payment, (ii) confirm that the work to date has
been performed in accordance with the approved plans and specifications relating
thereto, (iii) confirm the costs incurred by Tenant in connection therewith,
(iv) confirm that except for bills for which Tenant is requesting reimbursement
pursuant to the current application, all bills for work and materials have been
paid in full, (v) state that Tenant has not theretofore received payment for
such work, (vi) confirm that the undisbursed funds in the account are sufficient
to pay in full the cost of completing the
<PAGE>
work free of liens or claims, and (vii) include any lien waivers reasonably
requested by Landlord or any Fee Mortgagee.
(e) In the event of damage to, or destruction of more than, thirty
percent (30%) of the then replacement cost of the Improvements on the Premises
(as determined by the Approved Architect) during the final twelve (12) months of
the term of this Lease or the first Renewal Term, Landlord may elect to
terminate this Lease and retain the insurance proceeds unless Tenant exercises
its option to renew as set forth in Paragraph (f) below. If Landlord elects to
terminate, Landlord shall give notice to Tenant (the "Termination Notice") of
Landlord's election within 30 days after receipt of Tenant's notice of damage.
If Tenant does not exercise its option to renew within 15 days after delivery of
the Termination Notice, this Lease shall terminate 15 days after the termination
notice. Tenant shall remain liable to Landlord for all Basic Rent, Percentage
Rent, and Additional Rent and all other obligations accrued under this Lease
through the effective date of termination.
(f) In the event of damage to, or destruction of more than, thirty
percent (30%) of the then replacement cost of the Improvements on the Premises
(as determined by the Approved Architect) during the final twelve (12) months of
the term of this Lease or the first Renewal Term, and Landlord gives the
Termination Notice, Tenant shall have the option to renew this Lease. Tenant
shall give Landlord irrevocable notice of renewal within 15 days after delivery
of the Termination Notice. If Tenant elects to renew, the Renewal Term will be
effective for the balance of the Original Term, plus the period of time
necessary to restore the Premises and five (5) years. The Renewal Term shall
commence on the third day following Landlord's receipt of Tenant's irrevocable
election to renew. If this Lease is not terminated under Section 7.10(e),
Tenant shall proceed to rebuild or repair the Improvements according to the
other provisions of this Section 7.10.
(g) Subject to the provisions of Section 7.03 and this section 7.10,
Landlord hereby covenants and agrees to deliver to Tenant, to the extent
available, any and all amounts requested by Tenant within twenty (20) days after
the date Tenant makes request therefor pursuant to the application for payment
described above. Landlord may withhold from such amounts up to ten percent
(10%) of any such request to insure completion of Tenant's repair obligation and
compliance with applicable mechanic and material lien statutes.
Section 7.11 Indemnification. Tenant agrees to pay and to protect,
defend (with counsel reasonably acceptable to Landlord), indemnify and hold
harmless Landlord, any Fee Mortgagee and their agents, successors and assigns
from and against any and all liabilities, losses, damages, costs,
<PAGE>
expenses (including all reasonable attorneys' fees and expenses), causes of
action, suits, claims, demands or judgments of any nature whatsoever arising
out of (a) any injury to, or the death of, any person or any damage to
property on the Premises or upon adjoining sidewalks, streets or ways, or
(b) the violation by Tenant of this Lease or any contract or agreement to
which Tenant is a party or any restriction, law, ordinance or regulation to
which Tenant or the Premises are subject, including all liabilities, losses,
damages, costs,expenses (including all reasonable attorneys' fees and
expenses), causes of action, suits, claims, demands or judgments arising or
claiming to arise from the sole or concurrent negligence of Landlord or
Landlord's agents, servants, partners, shareholders, officers, directors, or
employees. If Landlord, any Fee Mortgagee or any agent of Landlord or any
Fee Mortgagee shall be made a party to any litigation commenced against
Tenant for which Tenant is obligated to provide indemnification pursuant to
the terms of this Lease, and if Tenant, at its expense, shall fail to provide
Landlord, any Fee Mortgagee or their agents with counsel approved by
Landlord, Tenant shall pay all reasonable costs and reasonable attorneys'
fees and expenses incurred or paid by Landlord, any Fee Mortgagee or their
agents in connection with such litigation.
Section 7.12 Waiver of Subrogation. Notwithstanding any provision
contained herein to the contrary, Landlord and Tenant for themselves and their
respective insurers or any other party claiming through or under them by way of
subrogation or otherwise, each hereby waives any and all rights of recovery,
claim, action, or cause of action, against the other, its agents, servants,
partners, shareholders, officers, directors, or employees for any injury to or
death of any person or any loss or damage that may occur to the Premises, or any
improvements thereto, or any of its property located in, upon or constituting a
part of the Premises, which loss or damage is covered by valid and collectible
fire and extended coverage and liability policies, to the extent that such
loss or damage is recoverable thereunder, even if such injury, loss, or damage
is attributable to the sole or concurrent negligence of Landlord or Landlord's
agents, servants, partners, shareholders, officers, directors, or employees.
Inasmuch as the above mutual waivers will preclude the assignment of any
aforesaid claim by way of subrogation (or otherwise) to an insurance company (or
any other person), Landlord and Tenant severally agree immediately to give each
insurance company which has issued to it policies of insurance, written notice
of the terms of said mutual waivers, and to have said insurance policies
properly endorsed, if necessary, to prevent the invalidation of such insurance
coverage by reason of said waivers. Nothing contained in this waiver shall be
deemed to limit or reduce the indemnity of Landlord by Tenant
ARTICLE VIII
<PAGE>
EMINENT DOMAIN
Section 8.01 Definitions. As used in this Lease, the following words
shall have the following meanings:
(a) "Condemnation proceedings" means any action or proceeding brought
for the purpose of any taking of property or any property interest by competent
authority as a result of the exercise of the power of eminent domain,
condemnation or purchase under threat thereof or in lieu thereof;
(b) "Taking" or "taken" means the taking of, or damage to, property
or any property interest pursuant to condemnation proceedings; and
(c) "Date of taking" means the date on which a condemning authority
rightfully obtains physical possession of property pursuant to a taking.
Section 8.02 Total Condemnation. If all of the Premises should be
taken, this Lease shall terminate as of the date of taking of the Premises.
Section 8.03 Partial Condemnation. (a) If more than fifty percent
(50%) of the Floor Area of the Facility should be permanently taken for any
public or quasi-public use under any governmental law, ordinance or regulation
or by right of eminent domain or by private purchase in lieu thereof, this Lease
shall terminate and the Rent shall be abated during the unexpired portion of
this Lease, effective on the date physical possession is taken by the condemning
authority.
(b) If less than fifty percent (50%) of the Floor Area of the
Facility should be permanently taken as aforesaid, this Lease shall not
terminate; however, the Basic Rent payable hereunder during the unexpired
portion of this Lease shall be reduced in proportion to the Facility Floor Area
taken, effective on the date physical possession is taken by the condemning
authority. Following such partial taking, Tenant shall make all necessary
repairs or alterations necessary to make the Facility an architectural whole as
provided in Section 7.10 above, which Section shall be deemed to apply to
condemnation instead of casualty.
(c) If this Lease is terminated as provided in this Article VIII, all
compensation awarded for any taking (or the proceeds of private sale in lieu
thereof) of the Premises shall be the property of Landlord and Tenant hereby
assigns its interest in any such award to Landlord. If this Lease is not
terminated as provided in this Article VIII, then all compensation awarded for
any taking (or the proceeds of private sale in lieu thereof) of the Premises
shall
<PAGE>
be held by Landlord for the account of Tenant and Tenant shall use such
compensation to restore promptly the remainder of the Premises and the
Improvements to a complete unit of like quality, character and condition as that
which existed immediately prior to the taking. In this regard, before
commencing any restoration, Tenant must submit to Landlord, for approval, which
approval shall not be unreasonably withheld or delayed, (i) plans and
specifications for such restoration prepared by an Approved Architect; (ii) an
estimate of the cost of proposed restoration, certified to by the Approved
Architect, it being agreed that the cost of restoration includes any and all
costs and expenses for labor, materials, engineering, design, and architectural
fees incurred in connection with such restoration; (iii) copies of proposed
contracts with general contractors; (iv) evidence of builder's risk, liability,
and property damage insurance of the general contractor naming Landlord and any
Fee Mortgagee, as additional insured in limits reasonably acceptable to Landlord
and such Fee Mortgagee; and (v) if required by any Fee Mortgagee, payment and
performance bonds covering the full amount of the proposed contract, all in form
and substance reasonably satisfactory to any Fee Mortgagee. Within thirty (30)
days after determination by the Approved Architect of the cost of any
restoration work performed under this Article VIII, Tenant shall deposit into an
account controlled by Landlord or such Fee Mortgagee any excess in the estimated
cost of the restoration work of the compensation awarded in connection with the
taking and all funds held in said account shall be distributed in the same
manner as insurance proceeds are to be distributed under Article VII. If Tenant
does not complete the restoration within twelve (12) months after the date of
taking, then, unless the delay is for reasons not within the reasonable control
of Tenant, in addition to whatever other remedies Landlord may have either under
this Lease, at law or in equity, Landlord may retain the entire award or the
balance thereof remaining in the custody of Landlord, as the case may be, as
liquidated damages resulting from the failure of Tenant to comply with the
provisions of this Section 8.03. Any portion of such award as may not have to be
expended for such repairing or restoration shall be paid to Landlord.
Section 8.04 Award. All compensation awarded for any taking (or the
proceeds of private sale in lieu thereof) of all or any part of the Premises
shall be the property of Landlord, whether such damage shall be awarded as
compensation for diminution in the value of the leasehold or to the fee of the
Premises or otherwise, subject to disbursement to Tenant in accordance with the
provisions of this Lease, and Tenant hereby assigns to Landlord all of Tenant's
right, title and interest in and to any such compensation; provided that Tenant
shall be entitled to pursue a separate claim for damages to Tenant's personal
property, leasehold improvements, trade fixtures and equipment to the full
extent permitted under the laws of the state in which the
<PAGE>
Premises are situated. The termination of this Lease shall not affect the
rights of the respective parties to such awards.
Section 8.05 Temporary Taking. If any of the events described in
Sections 8.02 or 8.03 occur as a result of a taking for temporary use, then,
except as hereinafter provided, this Lease shall continue in full force and
effect, except that Tenant shall not be obligated to comply with any covenant or
provision of this Lease to the extent such compliance is rendered impossible or
impracticable by reason of the taking. In no event shall the Rent payable
hereunder abate or be reduced by reason of any such temporary taking.
ARTICLE IX
NEGATIVE COVENANTS
Tenant covenants and agrees that Tenant shall not do any of the following
without the prior written consent of Landlord:
Section 9.01 No Liens. Tenant shall not create, incur, or permit to exist
any lien, charge, encumbrance, easement or restriction upon the Premises or any
lien upon or pledge of any interest in Tenant.
Section 9.02 No Transfer. Tenant shall not sell, lease, sublease,
mortgage, convey, assign or otherwise transfer any legal or equitable interest
in the Premises or any part thereof.
Section 9.03 No Dissolution. Tenant shall not dissolve, liquidate,
merge, consolidate or terminate its existence or sell, assign, lease or
otherwise transfer (whether in one transaction or in a series of transactions)
all or substantially all of its assets (whether now owned or hereafter
acquired).
Section 9.04 Change of Location or Name. Tenant shall not change any
of the following without giving Landlord at least sixty (60) days advance
written notice; (a) the location of the principal place of business or chief
executive office of Tenant, or any office where any of Tenant's books and
records are maintained; or (b) the name under which Tenant conducts any of its
business or operations.
ARTICLE X
AFFIRMATIVE COVENANTS
Section 10.01 Perform Obligations. Tenant shall perform all of its
obligations under this Lease and comply with all legal requirements governing
<PAGE>
or relating to the Premises and/or the operation of the Facility.
Section 10.02 Proceedings to Enjoin or Prevent Occupancy. If any
proceedings are filed seeking to enjoin or otherwise prevent or declare invalid
or unlawful Tenant's occupancy, use, maintenance, or operation of the Facility
or any portion thereof, Tenant will cause such proceedings to be contested
vigorously in good faith, and in the event of an adverse ruling or decision,
prosecute all allowable appeals therefrom, and will, without limiting the
generality of the foregoing, resist the entry or seek the stay of any temporary
or permanent injunction that may be entered, and use its best efforts to bring
about favorable and speedy disposition of all such proceedings and any other
proceedings.
Section 10.03 Documents and Information. (a) Tenant, periodically
during the Term of the Lease, shall deliver to Landlord financial statements and
other documents requested by Landlord reflecting Tenant's financial condition.
With each delivery of such information to Landlord, Tenant shall also deliver to
Landlord a certificate signed by the Chief Financial Officer, general partner or
managing member (as applicable) of Tenant. Tenant shall furnish a monthly
profit and loss statement for the Facility within 30 days following the end of
each month, an annual Facility financial report or quarterly Facility financial
report, as applicable, and a quarterly Facility accounts receivable aging report
all in form reasonably acceptable to Landlord. In addition, Tenant shall
deliver to Landlord an annual Facility financial report and a quarterly Facility
accounts receivable aging report (based upon internal financial statements)
within sixty (60) days after the end of each fiscal year.
(b) Without limiting the foregoing, Tenant shall (i) supply promptly
Landlord with such information concerning its financial condition, affairs and
property, as Landlord may reasonably request from time to time hereafter; (ii)
notify promptly Landlord in writing of any condition or event that constitutes a
breach or Event of Default of any term, condition, warranty, representation or
provisions of this Lease or any other agreement, and of any material adverse
change in its financial condition; (iii) permit Landlord or any of its agents or
representatives to have access to and to examine all of its books and records
regarding the financial condition of the Facility at any time or times hereafter
during business hours and after reasonable oral or written notice; and (iv)
permit Landlord to copy and make abstracts from any and all of said books and
records.
(c) Tenant shall also furnish to Landlord financial statements
prepared by Guarantor on a consolidated basis for each quarter and annually.
The annual financial statements of Guarantor shall be audited statements and
<PAGE>
shall be prepared in accordance with generally accepted accounting procedures.
If either Tenant or any Guarantor is a "reporting company," then such company
may provide copies of its annual 10-K Reports and its quarterly 10-Q Reports in
lieu of the annual and quarterly statements which would otherwise be required
pursuant to this paragraph.
(d) Tenant shall, on request of Landlord from time to time, execute,
deliver and furnish documents as may be necessary to consummate the transactions
contemplated under this Lease. Within fifteen (15) days after a request from
Landlord, Tenant shall provide to Landlord such additional information regarding
Tenant, Tenant's financial condition or the Facility as Landlord, or any
existing or proposed creditor of Landlord (including, without limitation, any
Fee Mortgagee), or any auditor or underwriter of Landlord, may reasonably
require from time to time.
(e) Tenant shall transmit to Landlord, within five (5) business days
after receipt thereof, any material communication affecting the Facility or this
Lease, and Tenant will respond promptly to Landlord's inquiry with respect to
such information. Tenant shall notify promptly Landlord in writing after
Tenant has knowledge of any potential, threatened or existing litigation or
proceeding against, or investigation of, Tenant or the Facility that may affect
the right to operate the Facility or Landlord's title to the Premises or
Tenant's interest therein.
(f) All financial statements shall: (i) be prepared in accordance
with general accepted accounting principles consistently applied; and (ii)
fairly present the financial condition and performance for the relevant period
in all material respects.
(g) Tenant shall comply with all Legal Requirements affecting the
Premises and the operation of the Facility and keep all Government
Authorizations in full force and effect. Tenant shall pay when due all taxes
and governmental charges of every kind and nature that are assessed or imposed
upon Tenant at any time during the term of the Lease, including, without
limitation, all income, franchise, capital stock, property, sales and use,
business, intangible, employee withholding, and all taxes and charges relating
to Tenant's business and operations. Tenant shall be responsible for compliance
with all Legal Requirements affecting the Premises and the operation of the
Facility and Landlord shall have no responsibility for such compliance.
(h) If this Lease is terminated due to expiration of the Term,
pursuant to an Event of Default or for any reason, or if Tenant vacates the
Premises
<PAGE>
without termination of this Lease, if requested by Landlord, Tenant shall
execute, deliver and file all documents and statements requested by Landlord to
effect the transfer of the Facility license and Governmental Authorizations to
an entity designated by Landlord, subject to any required approval of
governmental regulatory authorities, and Tenant shall provide to Landlord all
information and records reasonably required by Landlord in connection with the
transfer of the license and Government Authorizations.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
Tenant hereby makes the following representations and warranties, as of the
Effective Date, to Landlord and acknowledges that Landlord is granting the Lease
in reliance upon such representations and warranties. Tenant's representations
and warranties shall survive the termination of this Lease.
Section 11.01 Organization and Good Standing. Tenant is a corporation,
duly organized, validly existing and in good standing under the laws of the
State of ________ and is qualified to do business in and is in good standing
under the laws of the State of _________. Guarantor is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
________ and is qualified to do business in and is in good standing under the
laws of the State of _________.
Section 11.02 Power and Authority. Tenant and Guarantor have the power
and authority to execute, deliver and perform this Lease. Tenant and Guarantor
have taken all requisite action necessary to authorize the execution, delivery
and performance of Tenant's obligations under this Lease and Guarantor's
obligations under the Guaranty.
Section 11.03 Enforceability. This Lease constitutes a legal, valid and
binding obligation of Tenant enforceable in accordance with its terms.
Section 11.04 Solvency. Tenant and Guarantor are solvent, and no
bankruptcy, insolvency, or similar proceeding is pending or contemplated by or,
to the knowledge of Tenant, threatened against Tenant or Guarantor.
Section 11.05 No Litigation. As of the Effective Date (a) there are
no actions or suits, or any proceedings or investigations by any governmental
agency or regulatory body pending against Tenant or any Guarantor; (b) Tenant
has not received notice of any threatened actions, suits, proceedings or
<PAGE>
investigations against Tenant or Guarantor at law or in equity, or before any
governmental board, agency or authority which, if determined adversely to Tenant
or Guarantor, would materially and adversely affect the right to operate the
Facility as presently contemplated, or the financial condition of Tenant or
Guarantor; (c) there are no unsatisfied or outstanding judgments against Tenant
or Guarantor; (d) there is no labor dispute materially and adversely affecting
the operation or business conducted by Tenant or Guarantor; and (e) neither
Tenant nor Guarantor has knowledge of any facts or circumstances which might
reasonably form the basis for any such action, suit or proceeding against Tenant
or Guarantor.
Section 11.06 Consents. The execution, deliver and performance of
this Lease and the Guaranty will not require any consent, approval,
authorization, order, or declaration of, or any filing or registration with, any
court or any federal, state or local entity, the absence of which would impair
materially the ability of Tenant to operate the Facility as it is presently
intended to be operated.
Section 11.07 No Violation. The execution, delivery and performance
of this Lease and the Guaranty (a) do not and will not conflict with, and do not
and will not result in a breach of Tenant's or Guarantor's organizational
documents; (b) do not and will not conflict with, and do not and will not result
in a breach of, and do not and will not constitute a default under (or an event
which, with or without notice or lapse of time, or both, would constitute a
default under), any of the terms, conditions or provisions of any agreement or
other instrument or obligation to which Tenant or Guarantor is a party or by
which its assets are bound; and (c) do not and will not violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Tenant or
Guarantor.
Section 11.08 Reports and Statements. All reports, statements,
certificates and other data furnished by or on behalf of Tenant and Guarantor to
Landlord in connection with this Lease, and all representations and warranties
made herein or in any certificate or other instrument delivered in connection
herewith and therewith, are true and correct in all material respects and do not
omit to state any material fact or circumstance necessary to make the statements
contained herein or therein, in light of the circumstances under which they are
made, not misleading as of the date of such report, statement, certificate or
other data. The copies of all agreements and instruments submitted to Landlord,
including, without limitation, all agreements relating to management of the
Facility are true, correct and complete copies and include all amendments and
modifications of such agreements.
Section 11.09 Chief Executive Office. Tenant maintains its chief
<PAGE>
executive office and its books and records at the address set forth in Section
15.01. Tenant does not conduct any of its business or operations other than at
its chief executive office and at the Premises.
ARTICLE XII
REPRESENTATIONS AND WARRANTIES OF LANDLORD
Section 12.01 Organization and Good Standing. Landlord is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of _________.
Section 12.02 Power and Authority. Landlord has the power and authority
to execute, deliver and perform this Lease. Landlord has taken all requisite
action necessary to authorize the execution, delivery and performance of
Landlord's obligations under this Lease.
Section 12.03 Enforceability. This Lease constitutes a legal, valid and
binding obligation of Landlord enforceable in accordance with its terms.
ARTICLE XIII
ASSIGNMENT AND SUBLETTING
Section 13. 01 Assignment and Subletting by Tenant. (a) Except as
permitted in subparagraph (d) below, Tenant shall not and may not assign or in
any manner transfer this Lease or any estate or interest therein, or sublet the
Premises or any part thereof, or grant any license, concession, management
agreement, or other right to occupy any portion of the Premises without the
prior written consent of Landlord, which may be granted or denied in Landlord's
sole and absolute discretion; provided, however, that Tenant may sublease,
without Landlord's prior written consent, a total of not more than
______________ (______) square feet of the Premises to third parties on a
month-to-month basis for the operation of a beauty shop, wellness clinic,
resident-operated gift shop or for the operation of similar enterprises and such
rent received by Tenant shall be included in the calculation of Gross Revenue.
Without limiting the foregoing, in no event shall an assignment or subletting by
Tenant hereunder relieve Tenant of any of its obligations under this Lease and
Tenant shall be responsible for causing the assignee or subtenant, as the case
may be, to comply with all of the terms and conditions of this Lease. An
assignment or sublease without the prior written consent of Landlord will be
void at Landlord's option. Landlord's consent to one assignment or sublease
will not waive the requirement of its consent to any subsequent assignment or
sublease.
<PAGE>
(b) Notwithstanding anything contained in paragraph (a) above to the
contrary, Tenant may enter into an occupancy agreement with residents of the
Premises without the prior written consent of Landlord provided that (i) the
agreement does not provide for life care services, (ii) Tenant may not collect
rent for more than two (2) months in advance, (iii) all residents of the
Premises are accurately shown in Tenant's accounting records, and (iv) the form
of such occupancy agreement has been submitted to and approved in writing by
Landlord.
(c) Tenant shall not mortgage, pledge or otherwise encumber its
interest in this Lease or in the Premises, except as otherwise expressly
provided herein.
(d) Notwithstanding the foregoing, Tenant may assign this Lease to
Greenbriar Corporation or an Affiliate of Tenant (as hereinafter defined) that
is wholly-owned by Greenbriar Corporation.
Section 13.02 Assignment by Landlord. In the event of the transfer
and assignment by Landlord of its interests in this Lease and in the Premises to
a person or entity expressly assuming Landlord's obligations under this Lease,
Landlord shall automatically be released from any further obligations hereunder,
and Tenant agrees to accept such successor in interest and to look solely to
such successor in interest for performance of Landlord's obligations arising
after the date of such assignment.
ARTICLE XIV
DEFAULT
Section 14.01 Events of Default. Any of the following occurrences or
acts shall constitute an event of default (herein called an "Event of Default")
under this Lease:
(a) Tenant shall fail to make any payment when due of Basic Rent,
Percentage Rent, and Additional Rent or other sum herein required to be paid by
Tenant hereunder;
(b) Tenant shall fail to observe or perform any other provision or
obligation hereof and such failure continues for twenty (20) days after Landlord
has given notice thereof to Tenant (provided, that in the event of such default
cannot with diligence be cured within such twenty (20) day period, if Tenant
shall proceed promptly and continuously to cure the same and thereafter shall
prosecute the curing of such default with diligence, the time within which such
<PAGE>
failure may be cured shall be extended for such period as may be necessary to
complete the curing of the same with diligence, but not to exceed an additional
sixty (60) days;
(c) Any representation or warranty of Tenant or Guarantor set forth
in any notice, certificate, demand, request or other instrument delivered
pursuant to, or in connection with, this Lease, shall either prove to be false
or misleading in any material respect as of the time when the same shall have
been made;
(d) Tenant or Guarantor shall (i) apply for or consent to the
appointment of, or the taking of possession by, any receiver, custodian,
trustee, United States Trustee or liquidator (or other similar official) of the
Premises or any part thereof or of any substantial portion of Tenant's or
Guarantor's (as applicable) property, or (ii) make a general assignment for the
benefit of its creditors, or (iii) file petition commencing a voluntary case
under or seeking to take advantage of any Federal Bankruptcy Code or any other
federal or state law (as now or hereafter in effect) relating to bankruptcy,
insolvency, reorganization, winding-up or adjustment of debts (hereinafter
collectively called "Bankruptcy Law"), or (v) take any action in furtherance of
any of the foregoing;
(e) If an order for relief against Tenant or Guarantor shall be
entered in any involuntary case under the Federal Bankruptcy Code or any similar
order against Tenant Guarantor shall be entered pursuant to any other Bankruptcy
Law, or if a petition commencing an involuntary case against Tenant or proposing
the reorganization of Tenant or Guarantor under any Bankruptcy Law shall be
filed and not be discharged or denied within sixty (60) days after such filing
(or such longer period of time as may be reasonably necessary, in Landlord's
sole discretion to obtain such discharge or denial and Tenant or Guarantor is
pursuing same with diligence), or if a proceeding or case shall be commenced in
any court of competent jurisdiction seeking (i) the liquidation, reorganization,
dissolution, winding-up or adjustment of debts of Tenant or Guarantor, or (ii)
the appointment of a receiver, custodian, trustee, United States Trustee or
liquidator (or any similar official) of the Premises or any part thereof or of
Tenant or of any substantial portion of Tenant's or Guarantor's property, or
(iii) any similar relief as to Tenant or Guarantor pursuant to any Bankruptcy
Law, and any such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be entered
and continue unstayed and in effect for sixty (60) days (or such longer period
of time as may be reasonably necessary, in Landlord's sole discretion, to obtain
such stay and Tenant or Guarantor is pursuing same with diligence);
<PAGE>
(f) Tenant shall desert or vacate any portion of the Premises;
(g) The business operated by Tenant shall be closed for any reason
whatsoever;
(h) Any Guarantor of this Lease, dissolves, mergers, is acquired by
any other entity is files a petition in bankruptcy or is adjudicated insolvent
under Chapter 11 United State Code, or other insolvency law or fails to comply
with any covenant or requirement of such Guarantor set forth in this Lease or in
any guaranty of Guarantor;
(i) Tenant, any Guarantor or any entity which is an affiliate of
Tenant or Guarantor, defaults on any obligation to Landlord including, without
limitation, any lease with Landlord and any applicable cure or grace period with
respect to default under such indebtedness or obligation expires with such
default having been cured. This provision shall apply to all such obligations
and agreements now existing or hereafter entered into and as they may be
extended, modified, renewed or amended from time to time. "Affiliate" means any
person, corporation, partnership, limited liability company or other legal
entity that directly or indirectly controls or is controlled by, or is under
common control with Tenant or Guarantor. "Control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management policies of such entity. "Affiliate" includes without limitation
Tenant and Greenbriar Corporation;
(j) The license for the Property or any other governmental permit
required for its operation is canceled, suspended, or otherwise invalidated or
notice of impending revocation proceedings is received and Tenant fails to
contest diligently such proceedings, or any reduction occurs in the number of
licensed beds or units at the Property.
Section 14.02 Landlord's Remedies. Upon the occurrence of any Event of
Default, Landlord shall have the option to pursue any one or more of the
following remedies:
(a) Terminate this Lease by notice to Tenant, in which event Tenant
shall surrender immediately the Premises to Landlord, and if Tenant fails to do
so, Landlord may, without prejudice to any other remedy which Landlord may have
under this Lease or applicable law, enter upon and take possession of the
Premises and expel or remove Tenant and any other persons who may be occupying
the Premises or any part thereof, by force if necessary, without being liable
for prosecution or any claim of damages therefor;
<PAGE>
(b) Enter upon and take possession of the Premises and expel or
remove Tenant and other person who may be occupying the Premises or any part
thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefor, and no such action by Landlord shall be construed as
an election on Landlord's part to terminate the Term of this Lease unless a
written notice of such intention is given to Tenant as provided in paragraph (a)
above;
(c) At any time or from time to time after the repossession of the
Premises or any part thereof pursuant to paragraph (b) above, whether or not the
Term of this Lease shall have been terminated pursuant to paragraph (a) above,
Landlord may (but shall be under no obligation to) relet the Premises or any
part thereof for the account of Tenant, in the name of Tenant or Landlord or
otherwise, without notice to Tenant, for such term or terms (which may be
greater or less than the period which would otherwise have constituted the
balance of the Term of this Lease) and on such conditions (which may include
concessions or free rent) and for such uses Landlord, in its sole and absolute
discretion, may determine, and Landlord may collect and receive any rents
payable by reason of such reletting and such rents so received shall be applied
first to additional costs incurred by Landlord in reletting (including tenant
finish expenses incurred by Landlord in preparing the Premises for a new tenant)
and then credited against amounts otherwise owed to Landlord hereunder.
Landlord shall not be responsible or liable for any failure to relet the
Premises or any part thereof or for any failure to collect any rent due upon any
such reletting;
(d) No termination of this Lease pursuant to paragraph (a) above, by
operation of law or otherwise, and no repossession of the Premises or any part
thereof pursuant to paragraph (b) above or otherwise, and no reletting of the
Premises or any part thereof pursuant to paragraph (c) above, shall relieve
Tenant of its liabilities and obligations hereunder, all of which shall survive
such expiration, termination, repossession or reletting;
<PAGE>
(e) In the event of any such termination or repossession, Tenant will
pay to Landlord the Basic Rent, Percentage Rent, and Additional Rent and other
sums required to be paid by Tenant to and including the date of such termination
or repossession and, thereafter, Tenant shall, until the end of what would have
been the Term of this Lease in the absence of such termination or repossession,
and whether or not the Premises or any part thereof shall have been relet, be
liable to Landlord for, and shall pay to Landlord (i) the Basic Rent, Percentage
Rent, and Additional Rent and other sums which would be payable under this Lease
by Tenant in the absence of such termination or repossession, less (ii) the net
proceeds, if any, of any reletting effected for the account of Tenant pursuant
to paragraph (c) above, after deducting from such proceeds all Landlord's
expenses incurred in connection with such reletting (including, without
limitation, all repossession costs, new tenant finish-out expenses, brokerage
commissions, legal expenses, attorneys' fees and employees' expenses). Tenant
will pay such current damages on the days on which the Basic Rent would have
been payable under this Lease in the absence of such termination or
repossession, and Landlord shall be entitled to recover the same from Tenant on
each such day;
(f) At Landlord's option, if Landlord terminates this Lease by reason
of an Event of Default, Tenant shall pay to Landlord the sum of all Rent and
other indebtedness accrued hereunder to the date of such termination, the
amounts of Landlord's expenses in connection with any reletting as stated in
Paragraph (e) above to the date of such termination or repossession, and, as
liquidated damages, an amount equal to the then present value of the Rent and
all other indebtedness as would otherwise have been required to be paid by
Tenant to Landlord during the period following the termination of the term
measured from the date of such termination to the date of expiration stated in
Section 3.02, less the then present fair market rental value of the Leased
Premises for such period; because of the difficulty of ascertaining the fair
market rental value of the Leased Premises and the costs and time associated
with reletting the Leased Premises, the Landlord and Tenant stipulate that such
fair market rental value shall in no event be deemed to exceed seventy-five
percent (75%) of the then present value of the Rent reserved for such period;
(g) In addition to any other remedy available to Landlord, in the
event Tenant should neglect to perform the maintenance required of it pursuant
to the terms of this Lease, and such failure shall not be cured after notice to
Tenant and expiration of any applicable curative period (including any
applicable right to extend the curative period) set forth herein (except Tenant
shall have no grace or curative period to correct any condition that poses an
imminent danger to persons or property), Landlord shall have the right, but not
the obligation, to cause repairs or corrections to be made, in which event the
<PAGE>
cost of such repairs shall be reimbursed by Tenant to Landlord within thirty
(30) days after Tenant receives written demand therefor from Landlord together
with copies of itemized invoices reflecting the cost of such repairs;
(h) In the event of any termination of this Lease by Tenant pursuant
to a right granted by this Lease or by operation of law, Tenant's liability for
the payment and performance of all covenants, debts, indemnities and other
obligations of Tenant under this Lease accrued through the date of termination
shall be unaffected by such termination and shall be enforceable against Tenant
in the same manner as if this Lease continued to be in full force and effect.
<PAGE>
Section 14.03 Additional Rights of Landlord. No right or remedy
herein conferred upon or reserved to Landlord is intended to be exclusive of any
other right or remedy, and each and every right and remedy shall be cumulative
and in addition to any other right or remedy given hereunder or now or hereafter
existing at law or in equity or by statute, unless expressly excluded by the
terms of this Lease. The failure of Landlord to insist at any time upon the
strict performance of any covenant or agreement or to exercise any option,
right, power or remedy contained in this Lease shall not be construed as a
waiver or a relinquishment thereof for the future. A receipt by Landlord of any
Basic Rent, Percentage Rent, and any Additional Rent or any other sum payable
hereunder with knowledge of the breach of any covenant or agreement contained in
this Lease shall not be deemed a waiver of such breach, and no waiver by
Landlord of any provision of this Lease shall be deemed to have been made unless
expressed in writing and signed by Landlord. In addition to other remedies
provided in this Lease, Landlord shall be entitled, to the extent permitted by
applicable law, to injunctive relief in case of the violation, or attempted or
threatened violation, of any of the covenants, agreements, conditions or
provisions of this Lease, or to decree compelling performance of any of the
covenants, agreements, conditions or provisions of this Lease, or to any other
remedy allowed to Landlord at law or in equity.
Section 14.04 Waivers by Tenant. Tenant hereby waives and surrenders
for itself and all those claiming under it, including creditors of all kinds,
any right of privilege which it or any of them may have under any present or
future construction, statute or rule of law to redeem the Premises or to have a
continuance of this Lease for the Term hereby demised after termination of
Tenant's right of occupancy by order or judgment of any court or by any legal
process or writ, or under the terms of this Lease or after the termination of
the term of this Lease as herein provided.
ARTICLE XV
MISCELLANEOUS
Section 15. 01 Notices, Demands and Other Instruments. All notices,
correspondence, documents or requests given, sent or required to be given with
respect to any matter pertaining to this Lease shall be in writing. Any
notices, correspondence, documents or requests required or permitted to be
delivered under this Lease shall be addressed to the applicable party at the
addresses set forth below, or to such other address as Landlord or Tenant may
designate in writing, and deemed delivered or received (a) regardless of whether
actually received or not, upon deposit in the United States mail, postage
prepaid, certified mail, return receipt requested, or (b) when actually received
if sent other than by certified mail.
<PAGE>
If to Tenant: ______________________________________
______________________________________
______________________________________
Attention: __________________________
(___) ______________________(Telephone)
(___) _______________________(Facsimile)
With a copy to:______________________________________
______________________________________
______________________________________
(___) ______________________(Telephone)
(___) _______________________(Facsimile)
If to Landlord:______________________________________
______________________________________
______________________________________
Attention: __________________________
(___) ______________________(Telephone)
(___) _______________________(Facsimile)
With a copy to:______________________________________
______________________________________
______________________________________
(___) ______________________(Telephone)
(___) _______________________(Facsimile)
Landlord and Tenant shall each have the right from time to time to specify
as its address for purposes of this Lease any other address in the United States
of America upon giving written notice thereof, similarly given, to the other
party.
Section 15.02 Estoppel Certificates. Tenant and Landlord will, at any
time and from time to time, upon not less than twenty (20) days prior request by
the other party, execute, acknowledge and deliver to the requesting party a
certificate certifying, to the extent correct, (a) that this Lease is unmodified
and in full effect (or setting forth any modifications and that this Lease is in
full effect as modified); (b) the amount of Basic Rent, Percentage Rent, and
Additional Rent payable and the dates to which the Basic Rent, Percentage Rent,
and Additional Rent and other sums payable hereunder have been paid; (c) that,
to its knowledge, no default exists hereunder on the part of the requesting
party and that there are no rental abatements, termination
<PAGE>
rights, defenses or offsets hereunder (or stating those rental abatements,
termination rights, defaults, defenses or offsets claimed by the recipient of
the request); (d) the commencement and expiration dates of this Lease; (e) the
amount of any security or other deposits; (f) that Tenant is in possession of
the Premises, and (g) such other matters as may reasonably be required by the
requesting party. Any such certificate may be relied upon by any Fee Mortgagee
or other mortgagee or prospective purchaser or prospective mortgagee of the
Premises. Tenant hereby irrevocably appoints Landlord Tenant's true and lawful
attorney-in-fact to deliver such certificate on behalf of Tenant should Tenant
refuse or fail to deliver any estoppel certificate when required to do so by
Landlord and such certificate shall be binding on Tenant as if and to the same
extent as if executed by Tenant.
Section 15.03 Holding Over by Tenant. It is covenanted and agreed that
in the event that Tenant remains in possession of the Premises after the
expiration of the Term of this Lease, without the execution of a new lease or of
an agreement extending the term hereof but is engaged in good faith negotiations
with Landlord for a new lease or extension, Tenant shall be deemed to be
occupying the Premises as a Tenant from month to month, subject to all of the
terms of this Lease as may be applicable to a month to month tenancy, and at the
Rent and other charges provided for in the last preceding year, prorated on a
monthly basis. If, however, Tenant has no agreement and is not negotiating with
Landlord in good faith, or if Landlord has notified Tenant in writing that it is
unwilling to negotiate with Tenant for a new lease, Tenant shall be deemed a
tenant at sufferance and shall pay as Basic Rent an amount equal to one hundred
fifty percent (150%) the Basic Rent provided for in the last preceding year, and
all Percentage Rent and Additional Rent.
Section 15.04 Parties Bound. This Lease shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors, and assigns where
permitted by this Lease.
Section 15.05 No Merger. There shall be no merger of this Lease or the
leasehold estate hereby created with the fee estate in the Premises or any part
thereof by reason of the same person acquiring or holding, directly or
indirectly, this Lease or the leasehold estate hereby created or any interest in
this Lease or in such leasehold estate as well as the fee estate in the Premises
or any portion thereof.
Section 15.06 Surrender. Upon the termination of this Lease, Tenant
shall peaceably surrender the Premises to Landlord in the same condition in
which they were received from Landlord at the commencement of this Lease,
<PAGE>
except as altered as permitted or required by this Lease, except for ordinary
wear and tear and except to the extent that the terms of this Lease expressly
relieve Tenant from the obligation to repair, restore or rebuild the Premises
following the occurrence of any casualty or condemnation. Provided that Tenant
is not in default hereunder, Tenant shall remove from the Premises prior to or
within a reasonable time (not to exceed thirty (30) days) after such termination
all property not owned by Landlord, and, at Tenant's expense, shall at such
times of removal, repair any damage caused by such removal. Property not so
removed shall become the property of Landlord. Landlord may thereafter remove
and dispose of such property, and the cost of removing and disposing of the
property, together with the cost of repairing any damage caused by such removal,
shall be borne by Tenant.
Section 15.07 Severability. Each and every covenant and agreement
contained in this Lease is separate and independent, and the breach of any
thereof by Landlord shall not discharge or relieve Tenant from any obligation
hereunder. If any term or provision of this Lease or the application thereof to
any person or circumstances or at any time to any extent be invalid and
unenforceable, the remainder of this Lease, or the application of such term or
provision to persons or circumstances or at any time other than those to which
it is invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and shall be enforced to the extent
permitted by law.
Section 15.08 Attorneys' Fees. In the event either party brings any
action or proceeding against the other party under this Lease to enforce the
terms and provisions of this Lease, the party losing in such action or
proceeding shall pay the reasonable attorneys' fees and expenses of the party
prevailing in such action or proceeding.
Section 15.09 Savings Clause. No provision contained in this Lease
which purports to obligate Tenant to pay any amount of interest or any fees,
costs or expenses which are in excess of the maximum permitted by applicable
law, shall be effective to the extent that it calls for payment of any interest
or other sums in excess of such maximum rate.
Section 15.10 Force Majeure. Whenever a period of time is herein
prescribed for action to be taken by Landlord or Tenant, such party shall not be
liable or responsible for, and there shall be excluded from the computation of
any such period of time, any delays due to strikes, riots, acts of God,
shortages of labor or materials, war, governmental laws, regulations or
restrictions or any other causes of any kind whatsoever which are beyond the
reasonable control of such party (a "Force Majeure Delay"). The provisions of
this section shall not operate to excuse Tenant from the prompt payment of
<PAGE>
Rent or any other payments required by the terms of this Lease.
Section 15.11 Recording - Memorandum of Lease. Landlord and Tenant
agree to execute, acknowledge and deliver at any time after the date of this
Lease, at the request of the other party, a short-form Memorandum of Lease in a
form reasonably acceptable to Landlord and Tenant, setting forth the
Commencement Date and Term hereof, the renewal options, and such other
provisions hereof (except those specifying the Basic Rent payable hereunder) as
Landlord and Tenant shall reasonably deem appropriate, and such Memorandum of
Lease may be recorded at Landlord's or Tenant's option.
Section 15.12 Time of the Essence. Time is of the essence of this Lease
and the provisions relating thereto shall be strictly construed.
Section 15.13 Transfer of Landlord's Interest. The term "Landlord," as
used in this Lease, so far as covenants or obligations on the part of Landlord
are concerned, shall be limited to mean and include only the owner or owners at
the time in question of the fee of the Premises, and in the event of any
transfer or transfers of the title to such fee, (a) Landlord herein named (and
in case of any subsequent transfer or conveyance, the then grantor)
automatically shall be freed, released and relieved, from and after the date of
such transfer or conveyance, of all liability as respects the performance of any
covenants or obligations on the part of Landlord contained in this Lease
thereafter to be performed; and (b) Tenant shall attorn to the then current
owner of the fee as provided below.
Section 15.14 Subordination. (a) Tenant accepts this lease subject and
subordinate to any Fee Mortgage presently existing or hereafter created upon the
Premises, and to any renewals and extensions thereof, but Tenant agrees that any
Fee Mortgagee shall have the right at any time to subordinate such Fee Mortgage
to this Lease. Landlord is hereby irrevocably vested with full power and
authority to subordinate this Lease to any Fee Mortgage hereafter placed upon
the Premises, and Tenant agrees upon demand to execute such further instruments
subordinating this Lease as Landlord may request, and, upon any failure of
Tenant to do so, without limitation of Landlord's other available remedies,
Landlord shall have the right to execute same as attorney-in-fact for Tenant.
Notwithstanding the foregoing, as a condition to Tenant's obligation to
subordinate hereunder, Landlord shall obtain and furnish to Tenant a
subordination, non-disturbance and attornment agreement (the "Non-Disturbance
Agreement") executed by Fee Mortgagee providing that Tenant's possession of the
Premises will not be disturbed so long as Tenant continues to perform its
obligations under this Lease and accept Fee Mortgagee as its landlord as
provided below.
<PAGE>
(b) Subject to the terms of the Non-Disturbance Agreement, Tenant
confirms that if by reason of a default under any Fee Mortgage, Fee Mortgagee or
its successor or assignee in interest becomes Landlord hereunder, Tenant shall
attorn to and shall recognize such Fee Mortgagee or its successor or assignee as
Tenant's landlord under this Lease, provided that such successor in interest
shall not (i) be bound by any payment of Rent for more than the current month to
any prior landlord; (ii) be bound by any amendment or modification of this Lease
made without the written consent of Fee Mortgagee or such successor or assignee
in interest; (iii) be liable in damages for any previous act or omission by any
prior landlord under this Lease; and (iv) have any obligation with respect to
any security deposited under this Lease unless such security has been physically
delivered to the party succeeding to the interest of Landlord. Tenant shall
execute and deliver, at any time and from time to time, upon request of Landlord
or of Fee Mortgagee, an instrument which reasonably may be necessary or
appropriate to evidence such attornment. Tenant waives the provisions of any
statute or rule of law now or hereafter in effect which may give or propose to
give Tenant any right or election to terminate this Lease or to surrender
possession of the Premises in the event any proceeding is brought by Fee
Mortgagee to acquire Landlord's interest hereunder
Section 15.15 Table of Contents and Headings. The table of contents and
headings used in this Lease are for convenient reference only and shall not to
any extent have the effect of modifying, amending or changing the provisions of
this Lease.
Section 15.16 Governing Law. This Lease shall be governed by and
interpreted under the laws of the State of _________, and all obligations of the
parties hereto are performable in ________ County, _________.
Section 15.17 Certain Definitions. (a) The term "Tenant's Certificate"
means a written certificate signed by the Chairman of the Board, the President
or any Vice President of Tenant.
(b) The term "Fee Mortgage" means any ground lease, mortgage, deed of
trust, security agreement, assignment of lease or other security instrument
encumbering the Premises, and all renewals, modifications, consolidations,
replacements and extensions thereof.
(c) The term "Fee Mortgagee" means any ground lessor, mortgagee or
beneficiary under a Fee Mortgage, and its successors and assigns.
(d) The term "Records" means the office of the County Clerk of ______
<PAGE>
County, _________.
Section 15.18 Entry by Landlord. Tenant shall permit Landlord and its
agents to enter upon the Premises at all reasonable times and upon no less than
one (1) day's prior notice to inspect and examine the Premises, to show the
Premises to prospective purchasers, mortgagees or tenants or to make repairs.
If Tenant is not present to open and permit an entry by Landlord into the
Facility at any time when entry therein is necessary because of an emergency,
Landlord or its agents shall not be liable for damages to property arising as a
result of such entry unless such damage is due to the gross negligence or
willful misconduct of Landlord.
Section 15.19 Relationship of Landlord and Tenant. Nothing herein
contained shall be deemed or construed by the parties hereto, nor by any third
party, as creating the relationship of principal and agent, partnership or joint
venture, between the parties hereto, it being understood and agreed that neither
the method for computation of Rent, nor any other provisions contained herein,
nor any act of the parties hereto, shall be deemed to create any relationship
between the parties hereto other than the relationship of landlord and tenant.
Section 15.20 Integration. This Lease contains the entire agreement
between the parties hereto with regard to the subject matter hereof, and
supersedes any prior understandings, agreements or negotiations. This Lease may
not be amended or modified except by a writing executed by both parties hereto.
Section 15.21 Brokers. Tenant and Landlord represent and warrant to each
other that neither has had any contacts or engaged in any actions which would
give rise to any claim from any broker in connection with the negotiation or
execution of this Lease, and hereby agree to indemnify and hold each other
harmless from any claim for a commission or fee by any party making such claim
upon the basis of any alleged contract or agreement with the indemnifying party.
Section 15.22 Interest. In the event either party fails to pay the
other any amount under this Lease when due (after expiration of any applicable
notice and grace period), such amount shall bear interest at the lesser of
eighteen percent (18%) per annum or the maximum non-usurious rate of interest
permitted under applicable law.
Section 15.23 Quiet Possession. Subject to the terms and provisions of
this Lease, Landlord hereby grants to Tenant lawful, peaceable and quiet
occupancy, possession and enjoyment of the Premises and all
<PAGE>
appurtenances and rights granted to Tenant under this Lease during the Term of
this Lease without hindrance or ejection by Landlord or the successors or
assigns of Landlord or anyone acting by, through or under Landlord.
Section 15.24 Complete Agreement. This Lease contains the entire
agreement between the parties hereto, and no agent, representative, salesman or
officer of Landlord has authority to make, or has made, any statement, agreement
or representation, either oral or written, in connection herewith, modifying,
adding or changing the terms and conditions herein set forth.
ARTICLE XVI
FAIR MARKET VALUE
Section 16.01 Fair Market Value. The fair market value (the "Fair Market
Value") of the Leased Property shall be determined as follows.
(a) The parties shall attempt to determine the Fair Market
Value by mutual agreement within 15 days after giving the Renewal Notice.
However, if the parties do not agree on the Fair Market Value within such 15-day
period, the parties shall endeavor to select a mutually acceptable appraiser to
determine the Fair Market Value. The costs of such appraiser shall be borne
equally by the parties. In the event the parties do not agree on an acceptable
appraiser within 15 days following the above 15-day period or either party
objects to the Fair Market Value determination by the selected appraiser the
provisions below shall apply.
(b) Landlord and Tenant shall each give the other party notice
of the name of an acceptable appraiser 45 days after giving of the Renewal
Notice. If the parties did not agree on an acceptable appraiser pursuant to
Paragraph (a) above, the two appraisers will then select a third appraiser
within an additional 5 days. Each appraiser must demonstrate to the reasonable
satisfaction of both Landlord and Tenant that it has significant experience in
appraising properties similar to the Premises. Within 5 days after designation,
each appraiser shall submit a resume to Landlord and Tenant setting forth such
appraiser's qualifications including education and experience with similar
properties. A notice of objections to the qualifications of any appraiser shall
be given within 10 days after receipt of such resume. If a party fails to
timely object to the qualifications of an appraiser, then the appraiser shall be
conclusively deemed satisfactory. If a party gives a timely notice of objection
to the qualifications of an appraiser, then the disqualified appraiser shall be
replaced by an appraiser selected by the qualified appraisers or, if all
appraisers are disqualified, then by an appraiser selected by a commercial
arbitrator acceptable to Landlord and Tenant.
(c) The Fair Market Value shall be determined by the
appraiser(s) within 60 days thereafter as follows. Each of the appraisers shall
be instructed to prepare an appraisal of the Premises in accordance with the
following instructions:
<PAGE>
The Premises is to be valued upon the three conventional
approaches to estimate value known as the Income, Sales
Comparison and Cost Approaches. Once the approaches are
completed, the appraiser correlates the individual
approaches into a final value conclusion.
The three approaches to estimate value are summarized as follows:
Income Approach: This valuation approach recognizes that
the value of the operating tangible and intangible assets
can be represented by the expected economic viability of the
business giving returns on and of the assets.
Sales Comparison Approach: This valuation approach is based
upon the principle of substitution. When a facility is
replaceable in the market, the market approach assumes that
value tends to be set at the price of acquiring an equally
desirable substitute facility. Since health care market
conditions change and frequently are subject to regulatory
and financing environments, adjustments need to be
considered. These adjustments also consider the operating
differences such as services and demographics.
Cost Approach: This valuation approach estimates the value
of the tangible assets only. Value is represented by the
market value of the land plus the depreciated reproduction
cost of all improvements and equipment.
In general, the Income and Sales Comparison Approaches are considered the best
representation of value because they cover both tangible and intangible assets,
consider the operating characteristics of the business and have the most
significant influence on attracting potential investors.
Unless the Fair Market Value has been determined in accordance with Subparagraph
(a) above, the appraised values submitted by the three appraisers (including the
Fair Market Value determined by the appraiser selected in accordance with
Subparagraph (a) above) shall be ranked from highest value to middle value to
lowest value, the appraised value (highest or lowest) which is furthest from the
middle appraised value shall be discarded, and the remaining two appraised
values shall be averaged to arrive at the Fair Market Value.
<PAGE>
ARTICLE XVII
ALTERNATIVE DISPUTE RESOLUTION
Section 17.01 Mediation. The parties agree that if a claim,
controversy or dispute arising out of or related to this Agreement cannot be
resolved by negotiation they will in good faith submit to mediation as a
condition precedent to initiation of arbitration. Mediation shall be initiated
by a party requesting same in writing, and shall be conducted in accord with the
Commercial Mediation Rules of the American Arbitration Association (the "AAA")
or other such body as the parties may agree to. If the parties do not agree to
a mediator within three (3) days of the written request for mediation, the party
requesting mediation shall request a list of mediators from the AAA and the
AAA's procedures for selection of a mediator shall apply. If the dispute has
not been resolved within 30 calendar days of the written request for mediation,
either party shall be free to initiate arbitration as herein provided Each
party shall bear its respective costs incurred and the parties shall share
equally the fees and expenses of the mediator.
Section 17.02 Arbitration. Any claim, controversy or dispute which
cannot be resolved by negotiation or mediation shall be resolved conclusively by
binding arbitration before three arbitrators in accord with the Commercial
Arbitration Rules of the American Arbitration Association and the provisions of
this Article. Each party shall appoint an arbitrator and the two arbitrators so
appointed shall appoint a third arbitrator. In the event of any inconsistency
between the provisions of this Article and the Commercial Arbitration Rules of
the American Arbitration Association, this Article shall control, subject to the
right to appeal as hereinafter set forth. Judgment on the award may be entered
in any court having jurisdiction thereof. In the event either party requests
injunctive relief, the AAA shall forthwith appoint a single arbitrator to
promptly hear such claim and such arbitrator shall have the authority to grant
any provisional remedy which would be available in a court of competent
jurisdiction. The arbitrator shall resolve all matters in accordance with
applicable substantive law. The arbitrator shall have authority to determine
(whether on a provisional or final basis) who shall bear the responsibility for
arbitration fees, arbitrators' fee, and attorneys' fees. All arbitration shall
be commenced within thirty (30) days of the demand therefor and any decision or
award shall be rendered within sixty (60) days thereafter. The award shall be
rendered in writing and shall set forth findings of fact and conclusions of law.
A party shall be entitled to appeal any error of law in connection with the
award of the arbitrators.
Section 17.03 Location of Mediation or Arbitration. Proceedings for
mediation or arbitration hereunder shall be conducted in Dallas, Texas.
Section 17.04 Reservation of Rights. Nothing in this Agreement shall be
deemed to limit the applicability of any otherwise applicable statutes of
limitations or
<PAGE>
repose and any waivers contained in this Agreement; limit the right of a party
to exercise self help remedies; or preclude a party from initiating litigation
for provisional or ancillary remedies such as injunctive relief to prevent
irreparable injury. The exercise of any remedy or the institution of any action
permitted by this provision shall not constitute a waiver of the right of any
party, including the plaintiff in any such action, to arbitrate the merits of
the controversy or claim giving rise to such remedies.
Section 17.05 Attorney-Client Privilege; Confidentiality. Any
attorney-client privilege or other protection against disclosure of confidential
information, including without limitation any protection afforded the
work-product of any attorney, that could otherwise be claimed by any party shall
be available to, and may be claimed by, any party in arbitration proceedings.
No party waives any attorney-client privilege or any other protection against
disclosure of confidential information by reason of anything contained in or
done pursuant to or in connection with this Article. Each party agrees to keep
all controversies and claims for mediation or arbitration and related
proceedings strictly confidential, except for disclosures of information
required by applicable law or regulation. In addition all conduct, statements,
offers and opinions, whether written or oral, made in the course of any
mediation shall be deemed made for the purpose of compromise and settlement.
Section 17.06 Third Parties. No arbitration or mediation proceeding
arising out of or related to this Agreement shall include by consolidation,
joinder or in any other manner, an additional person or entity not a party to
this Agreement, except by written consent containing specific reference to this
Agreement signed by the parties hereto and any other person or entity sought to
be joined. Consent to arbitration involving an additional person or entity shall
not constitute consent to arbitrate or mediate any claim not described in the
written consent or with a person or entity not named or described therein.
Section 17.07 Attorneys' Fees and Costs. In the event of arbitration
arising out of the interpretation or enforcement of this Agreement, the
prevailing party shall be entitled to receive, in addition to any other award,
his reasonable costs of proceeding, including reasonable attorneys' fees.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first above set forth.
LANDLORD:
------------------------------------
------------------------------------
By:
------------------------------
<PAGE>
Name:
------------------------------
Title
------------------------------
TENANT:
------------------------------------
------------------------------------
By:
-------------------------------------
Name:
--------------------------------------
Title:
---------------------------------
<PAGE>
EXHIBIT A
Legal Description of Land
(to be attached)
<PAGE>
EXHIBIT B
Personal Property
(to be attached)
<PAGE>
EXHIBIT 6(g)
UNCONDITIONAL AND CONTINUING LEASE GUARANTY
THIS GUARANTY is made effective as of ______________, 199__ (the "Effective
Date") by GREENBRIAR CORPORATION, a Nevada corporation ("Guarantor") in favor of
RESIDENTIAL HEALTHCARE PROPERTIES, INC., a Nevada corporation ("Landlord").
R E C I T A L S
A. Landlord is granting to _________________, Inc., a _______ corporation
("Tenant"), a lease of the real property located at _________________________,
________, _________ ("Property") pursuant to a Lease Agreement between Landlord
and Tenant of even date ("Lease").
B. The Facility and all improvements and fixtures now existing or
hereafter constructed and installed on the Property will be the property of
Landlord and will be included in the "Leased Property" under the Lease.
C. In order to extend the Lease to Tenant, Landlord requires that this
guaranty be provided by Guarantor. Tenant is a wholly-owned subsidiary of
Greenbriar Corporation Guarantor has determined that it will benefit from the
Lease to Tenant and has agreed to provide this guaranty to Landlord.
D. As used herein, "Lease Documents" means the Lease and all other
documents and agreements made in connection with the Lease, as amended,
modified, renewed or extended from time to time. "Rent" means all rent,
percentage rent, late charges, interest, taxes, utility charges, insurance
premiums and all other charges, expenses and amounts payable by Tenant to
Landlord pursuant to the Lease Documents. "Lease Obligations" means all of the
covenants, obligations and liabilities of Tenant under the Lease Documents,
including the payment of the Rent when due.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Guarantor agree as follows:
1. Guaranty. Guarantor, jointly and severally, unconditionally
guarantees the prompt payment when due of the Rent and the performance of the
Lease Obligations and shall indemnify Landlord and hold Landlord harmless from
any costs and in any way arising out of Tenant's failure to pay the Rent or
perform the Lease Obligations according to their terms.
2. Warranties.
<PAGE>
(a) Capacity. Greenbriar Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada. Guarantor warrants that Guarantor has taken all necessary corporate
action to incur the obligations of this guaranty and to execute, deliver and
perform this guaranty.
(b) Contracts. Guarantor warrants that there is no provision of
its Certificate of Incorporation or Bylaws or any existing indenture, contract,
or agreement to which Guarantor is a party or of any law, administrative
regulation, court order, or consent decree that would be contravened by the
execution, delivery, or performance of this guaranty.
(c) Inducement to Landlord; Waivers. Guarantor [1] acknowledges that
Landlord would not enter into the Lease with Tenant but for this guaranty; [2]
warrants that Guarantor has given this guaranty to induce Landlord to enter into
the Lease with Tenant; [3] agrees that Landlord may rely on this guaranty in
extending future Rent to Tenant without notice to Guarantor; [4] warrants that
Guarantor has received good and valuable consideration for this guaranty; [5]
waives acceptance of this guaranty; [6] waives protest and any other notice of
failure to pay the Rent or to perform any agreement relating to any Rent or
Security; [7] acknowledges that Guarantor has read this guaranty, the Lease and
all other documents in connection with the Lease; and [81] acknowledges that
Guarantor understands and agrees to Guarantor's obligations under this guaranty.
(d) No Reliance on Information from Landlord. Guarantor [1] warrants
that Guarantor has not relied on any information about the Tenant or any
guarantor of the Rent provided directly or indirectly by Landlord; [2] warrants
that Guarantor is familiar with Tenant and Tenant's affairs; [3] warrants that
Guarantor has had ample opportunity to investigate Tenant and Tenant's affairs,
and the effect that the Rent will have; [4] warrants that Guarantor has been
provided all information concerning Tenant and Tenant's affairs; [5] warrants
that Guarantor has had adequate opportunity to seek and evaluate professional
advice concerning Tenant, and this guaranty from advisors of Guarantor's
choosing, including financial and legal advice; and [6] agrees that Guarantor
shall not rely on any information provided by Landlord about Tenant, including
any other guarantor. Landlord has no obligation to provide Guarantor any
information about the Tenant.
(e) No Insolvency. On the date of the Guarantor's entering into this
guaranty and after giving effect to all indebtedness of the Guarantor, [1] the
Guarantor will be able to pay Guarantor's obligations as they become due and
payable; [2] the present fair saleable value of the Guarantor's assets exceeds
the amount that will be required to pay Guarantor's probable liability
<PAGE>
on its obligations as the same become absolute and mature; [3] the sum of the
Guarantor's property at a fair valuation exceeds Guarantor's indebtedness;
and [4] the Guarantor will have sufficient capital to engage in Guarantor's
businesses. The benefits accruing to Tenant under the Lease constitute fair
consideration and reasonably equivalent value for this guaranty.
3. Waivers. Without notice to or consent of Guarantor, Landlord may do
or refrain from doing anything affecting the Lease including the following: [a]
granting or not granting any indulgences to anyone liable for payment of the
Rent; [b] failing to get an enforceable agreement to repay the Rent; [c]
releasing anyone or any property from liability for payment of the Rent; [d]
changing the Lease; [e] extending the time for payment of the Rent including
extending the time beyond the term of the Lease; [f] exercising any right or
remedy including, without limitation, eviction of Tenant or termination of the
Lease; [g] applying any funds received from Tenant, Guarantor or any other party
and any other funds in such manner and in such order or priority as Landlord
elects in its sole discretion; and [h] delaying in enforcing or failing to
enforce any rights to payment of the Rent or the Lease.
4. Defects in Security, Etc. Guarantor's liability under this guaranty
shall not be affected by [a] any default in any of the Lease Documents when
accepted by Landlord or arising any time thereafter; [b] the death,
incompetence, insolvency, dissolution, liquidation, or winding up of affairs of
Tenant, Guarantor, or anyone liable under the Lease Documents or the start of
insolvency proceedings by or against any such person or entity; [c] any
termination of the leasehold estate created by the Lease to the extent Tenant
remained liable under the Lease; [d] the release or discharge of Tenant in any
creditors, receivership, bankruptcy, other insolvency proceedings, or other
proceedings; [e] impairment, limitation or modification of the liability of
Tenant or the estate of Tenant in bankruptcy or of any remedy for the
enforcement of Tenant's liability under the Lease, resulting from the operation
of any present or future provisions of the federal Bankruptcy Code or other
statutes or from the decision of any court; [f] the rejection or disaffirmance
of the Lease in any such proceedings; [g] the assignment or transfer of the
Lease by the Tenant; [k] any disability or other defense of Tenant; [h] the
cessation from any cause whatsoever of the liability of Tenant under the Lease;
or [i] any reorganization, merger, consolidation, combination, or sale of
substantially all the assets of Tenant.
5. Waiver of Surety's Defenses. GUARANTOR WAIVES ALL SURETYSHIP AND
OTHER SIMILAR DEFENSES.
6. Unconditional Obligation. If Tenant fails to pay all or any part
of
<PAGE>
any Rent when due after expiration of any applicable grace, notice or cure
period, Guarantor shall immediately pay to Landlord all amounts then due and
payable in connection with any Rent, regardless of whether or not Landlord
first pursues Tenant or exhausts any of its rights or remedies against
Tenant, any other Guarantor, or others. Guarantor shall not have any right
of subrogation to the rights of Landlord against any of the assets of Tenant
or any other guarantor of the Lease until after indefeasible payment in full
of all Rent due or to become due under the Lease.
7. Continuing Obligation. This guaranty shall extend and be applicable
to all renewals, amendments, extensions, consolidations, modifications,
increases and reductions of the Lease Documents. Guarantor's liability under
this guaranty shall not be reduced or canceled by any such action and shall be
deemed modified in accordance with the terms of such action, whether or not
Guarantor has notice of such action.
8. Subordination. Guarantor subordinates to and postpones in favor of
the Landlord [a] any present and future debts and obligations of Tenant to
Guarantor (the "Indebtedness") including but not limited to [i] salary, bonuses,
and other payments pursuant to any employment arrangement; [ii] fees,
reimbursement of expenses and other payments pursuant to any independent
contractor arrangement; [iii] principal and interest pursuant to any
Indebtedness; [iv] distributions payable to any shareholders or general or
limited partners of Tenant; and [v] lease payments pursuant to any leasing
arrangement; and [b] any liens or security interests securing payment of the
Indebtedness. Except as otherwise specified in the Lease, the provisions of
this paragraph shall be effective only [i] after the occurrence of an Event of
Default (as defined in the Lease) and until such Event of Default is cured, or
[ii] after the commencement of any bankruptcy or insolvency proceeding by or
against Tenant and until such proceeding is dismissed. Guarantor shall not ask
for, sue for, demand, take or receive any payment, by setoff or in any other
manner, including the receipt of a negotiable instrument, for all or any part of
the Indebtedness owed by Tenant, or any successor or assign of Tenant, including
without limitation a receiver, trustee or debtor in possession (the term
"Tenant" shall include any such successor or assign of Tenant) until the Rent
has been paid in full; however, if Guarantor receives such a payment, Guarantor
shall immediately deliver the payment to Landlord for credit against the then
outstanding balance of the Rent, whether matured or unmatured. Notwithstanding
any right of Guarantor to ask, demand, sue for, take or receive any payment with
respect to the Indebtedness, all rights, liens and security interests of the
Guarantor, whether now or hereafter arising, in any assets of the Tenant shall
be and hereby are subordinated to the rights of Landlord in such assets and
Guarantor shall have no right to possession of any
<PAGE>
such assets or to foreclose upon any such asset, whether by judicial action
or otherwise, unless and until the Rent has been paid in full. Guarantor
agrees that Landlord shall be subrogated to the Guarantor with respect to the
Guarantor's claims against Tenant and the Guarantor's rights, liens and
security interest, if any, in any of the Tenant's assets and proceeds thereof
until all of the Rent has been paid in full.
Any claim which Guarantor may make against Tenant or Tenant's estate in any
bankruptcy or insolvency proceedings shall be expressly subject to the terms of
this Section 8.
In the event of any distribution of the assets or readjustment of the
obligations and indebtedness of the Tenant, whether by reason of liquidation,
bankruptcy, arrangement, receivership, assignment for the benefit of creditors
or any other action or proceeding involving the readjustment of all or any of
the Indebtedness hereby subordinated, or the application of the assets of the
Tenant to the payment or liquidation thereof, Landlord shall be entitled to
receive payment in full of any and all of the Rent, due or not due, prior to the
payment of all or any part of the Indebtedness hereby subordinated, and in order
to enable Landlord to enforce its rights hereunder in any such action or
proceeding, Landlord is hereby authorized and empowered in its discretion to
make and present for and on behalf of Guarantor such proofs of claims against
the Tenant, if the Guarantor shall have failed to file any such proof of claim
within thirty (30) days after Landlord has requested Guarantor to file such
proofs of claim on account of the Indebtedness hereby subordinated, as Landlord
may deem expedient or proper and to vote such proofs of claims in any such
proceeding and to receive and collect any and all dividends or other payments or
disbursements made thereon in whatever form the same may be paid or issued and
to apply the same on account of any of the Rent.
In the event of any distribution, division or application, partial or
complete, voluntary or involuntary, by operation of law or otherwise, of all or
any part of the assets of the Tenant or the proceeds thereof, to the creditors
of the Tenant's business, or upon the sale of all or substantially all of the
Tenant's assets, then, and in any such event, any payment or distribution of any
kind or character, either in cash, securities or other property, which shall be
payable or deliverable upon or with respect to any or all of the Indebtedness
shall be paid or delivered directly to Landlord for application on any of the
Rent, due or not due, until such Rent shall have first been fully paid and
satisfied. After the occurrence and during the continuance of any Event of
Default, in the event that Guarantor shall fail or refuse to take any action
that Landlord requests in writing that the Guarantor takes with respect to the
Indebtedness within thirty (30) days of the Guarantor's receipt of such request,
<PAGE>
Guarantor authorizes and empowers Landlord to demand, sue for, collect and
receive every such payment or distribution and give acquittance therefor and to
file claims and take such other proceedings, in Landlord's own name or in the
name of Guarantor or otherwise, as Landlord may deem necessary or advisable for
the enforcement of this guaranty; and Guarantor will execute and deliver to
Landlord such powers of attorney, assignments or other instruments or documents,
as may be requested by Landlord in order to enable Landlord to enforce any and
all claims upon or with respect to any or all of the Indebtedness and to collect
and receive any and all payments of distributions which may be payable or
deliverable at any time upon or with respect to the Indebtedness, all for
Landlord's own benefit.
Should any payment, distribution, security, instrument or proceeds which
are subject to the subordination contained in the first paragraph of this
Section 8 be received by Guarantor upon, or with respect to, the Indebtedness
while such subordination provision is effective and prior to the satisfaction of
all of the Rent and termination of all financing arrangements between the Tenant
and Landlord, Guarantor shall receive and hold the same in trust as trustee, for
the benefit of Landlord and shall forthwith deliver the same to Landlord in
precisely the form received (except for the endorsement or assignment of the
Guarantor where necessary), for application on any of the Rent, due or not due,
and until so delivered, the same shall be held in trust by the Guarantor as the
property of Landlord. In the event of the failure of Guarantor to make any such
endorsement or assignment to Landlord, Landlord, or any of its officers or
employees, is hereby irrevocably authorized to make the same.
Any instrument evidencing any of the Indebtedness, or any portion thereof,
will, on the date hereof or promptly hereafter, be inscribed with a legend
conspicuously indicating that payment thereof is subordinated to the claims of
Landlord, pursuant to the terms of this guaranty, and will be delivered to
Landlord upon request therefor after the declaration of an Event of Default, if
such original is necessary in order to enable Landlord to take any action
permitted hereunder, including, without limitation, the filing of proofs of
claim on behalf of Guarantor.
This subordination shall continue and shall be irrevocable until all the
terms, covenants and conditions of the Rent have been fully and completely
performed by Tenant or otherwise discharged and released by Landlord, and the
Guarantor shall not be released from any duty, obligation or liability hereunder
so long as there is any claim of Landlord against Tenant arising out of the Rent
which has not been performed, settled or discharged in full.
<PAGE>
9. Financial Statements.
(a) Financial Statements. Not later than 120 days after the end of
each fiscal year, Greenbriar Corporation shall deliver to Landlord audited
financial statements with unaudited supplementary and consolidating schedules
showing each facility. In addition, not later than 45 days after the end of
each quarter, each Guarantor shall deliver to Landlord unaudited consolidated
financial statements of Guarantor for the preceding quarter.
(b) Certificate. With each delivery of financial statements,
Guarantor shall also provide to Landlord a Certificate of the Chief Financial
Officer of Guarantor as to the completeness and accuracy of such financial
statements.
(c) Tax Returns. Guarantor shall deliver to Landlord the federal tax
return of Guarantor for each year within 15 days after the filing of the return.
If the filing date for any tax return has been extended, Guarantor shall also
deliver to Landlord a copy of the extension application within 15 days after the
date of filing.
(d) Other Information. Guarantor shall promptly furnish to Landlord
such other information and statements concerning the business affairs and
financial condition of the Guarantor as Landlord may reasonably request.
Guarantor shall give Landlord access to all books, records, and financial data
of Guarantor by or through any of Landlord's officers, agents, attorneys or
accountants, at all reasonable times and from time to time. Landlord may
examine, inspect, and make extracts from Guarantor's books and other records at
all reasonable times and from time to time, subject, however, to any agreements
made by Landlord regarding confidentiality of such information.
(e) Covenants. Guarantor covenants that all financial statements of
Guarantor furnished Landlord will present fairly the financial condition of
Guarantor as of the dates of the statements and will be prepared in accordance
with generally accepted accounting principles applied on a basis consistently
maintained throughout the period involved.
10. No Conveyance. Guarantor shall not sell, convey, pledge, encumber
or otherwise transfer any ownership interest in Tenant now owned or hereafter
acquired, if any, without the prior written consent of Landlord.
11. Lease Covenants. Throughout the term of the Lease, Guarantor shall
comply with all requirements and covenants of the Lease applicable to
<PAGE>
Guarantor.
12. Subsequent Guaranties. No subsequent guaranty to Landlord by
Guarantor shall supersede or terminate this guaranty, but shall be an additional
guaranty unless otherwise stated therein and, if Guarantor has given a previous
guaranty to Landlord, this guaranty shall be in addition to the previous
guaranty.
13. Successors, Etc. This guaranty shall be binding upon not only
Guarantor but also Guarantor, its heirs, administrators, and personal
representatives and shall inure to the benefit of Landlord and its successors
and assigns.
14. Termination; Revocation. Subject to reinstatement pursuant to Section
15, this guaranty shall automatically terminate on the date on which all of the
Rent is paid in full. No revocation of this guaranty or any substitute guaranty
by Guarantor shall be effective until all of the Rent has been paid in full.
15. Survival. The obligations of the Guarantor under this guaranty will
continue to be effective or shall be reinstated, as the case might be, if at any
time any payment from the Tenant of any sum due to the Landlord is rescinded or
must otherwise be restored or returned by the Landlord on the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Tenant or as a
result of the appointment of a custodian, conservator, receiver, trustee or
other officer with similar powers with respect to the Tenant or any part of the
Tenant's property or otherwise.
16. Governing Law. This guaranty shall be governed by and construed in
accordance with the internal laws of the State of Texas, without giving effect
to the conflict of laws rules thereof.
17. Number; Gender. Where appropriate, the number of any word in this
guaranty shall include both singular and plural, the gender of any word shall be
masculine, feminine, or neuter.
18. Enforceability. If any provision of this guaranty or the application
thereof to anyone or any circumstance shall be adjudged invalid or unenforceable
to any extent, the application of the remainder of the provision to the party or
circumstance, the application of the provision to other parties or
circumstances, and the application of the remainder of this guaranty shall not
be affected thereby. Each provision of this guaranty shall be valid and
enforceable to the fullest extent permitted by law.
<PAGE>
19. No Waivers by Landlord. No forbearance by Landlord in exercising any
right under this guaranty, the lease or the Lease Documents shall operate as a
waiver thereof; no forbearance in exercising any right under this guaranty, on
any one or more occasions shall operate as a waiver of such right on any other
occasion; and no single or partial exercise of any right under this guaranty
shall preclude any other or further exercise thereof or the exercise of any
other right, power, or privilege. Landlord's rights under this guaranty are
cumulative and not exclusive of any rights or remedies that Landlord may
otherwise have.
20. Fees and Expenses. Guarantor shall pay to Landlord all costs and
expenses incurred by Landlord in enforcing or protecting Landlord's rights in
connection with this guaranty and in collecting payment on any Rent or this
guaranty, whether or not an Event of Default (as defined in the Lease) has
actually occurred or has been declared and thereafter cured, including, but not
limited to, [a] attorney's fees and paralegal fees; [b] the fees and expenses of
any litigation, administrative, bankruptcy, insolvency, receivership or any
other similar proceeding; [c] court costs; [d] the expenses of Landlord, its
employees, agents, and witnesses in preparing for litigation and for lodging,
travel, and attendance at pretrial hearings, depositions, and trials; and [e]
consulting fees and expenses incurred by Landlord in connection with any
litigation.
21. Notices. Any notices required or desired to be given under this
guaranty shall be in writing and shall be delivered in the manner set forth in
the Lease, and if to Landlord, delivered to Landlord at 4265 Kellway Circle,
Addison, Texas 75244, Attention: Thomas L. Staley, Esq., and if to a Guarantor,
to the address set forth opposite such Guarantor's signature, or to such other
address as Landlord or any Guarantor may hereafter give written notice thereof.
All notices shall be effective upon the earlier of actual receipt or three days
after deposit in the U.S. mail or one business day after deposit with a
nationally recognized overnight courier marked for overnight delivery.
22. Amendment. This guaranty may not be amended except in a writing
signed by Guarantor and Landlord. All references to this guaranty, whether in
this guaranty or any other document or instrument, shall be deemed to
incorporate all amendments, modifications, renewals and extensions of this
guaranty and all substitutions therefor made after the date hereof.
23. Joint and Several Liability. If more than one Guarantor, the
liability of each Guarantor under this guaranty is joint and several.
24. Counterparts. This guaranty may be executed in multiple counterparts,
each of which shall constitute an original and all of which
<PAGE>
together shall constitute one and the same instrument.
25. JURISDICTION AND VENUE. GUARANTOR IRREVOCABLY SUBMITS AND CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT HAVING
JURISDICTION OVER DALLAS COUNTY, TEXAS FOR ADJUDICATION OF ALL MATTERS IN
CONTROVERSY UNDER THIS GUARANTY, AND WAIVES ANY OBJECTIONS TO SUCH JURISDICTION
AND VENUE AND CONSENTS TO FULL FAITH AND RENT BEING GIVEN TO ANY DECISION OF
SUCH COURTS BY ANY OTHER STATE OR FEDERAL COURT OF THE UNITED STATES OF AMERICA.
GUARANTOR SHALL NOT ATTEMPT TO LITIGATE ANY MATTERS IN CONTROVERSY UNDER THIS
GUARANTY BEFORE ANY COURT OR TRIBUNAL OTHER THAN BEFORE A STATE OR FEDERAL COURT
HAVING JURISDICTION OVER DALLAS COUNTY, TEXAS. GUARANTOR WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON GUARANTOR AND CONSENTS THAT ALL SUCH SERVICE
OF PROCESS UPON THE GUARANTOR BE MADE BY REGISTERED OR CERTIFIED MAIL DIRECTED
TO GUARANTOR AT THE ADDRESS SET FORTH BELOW AND SHALL BE DEEMED TO BE COMPLETED
FIVE (5) DAYS AFTER POSTED.
<PAGE>
IN WITNESS WHEREOF, Guarantor executes and delivers to Landlord this
Unconditional and Continuing Guaranty effective as of the Effective Date.
GUARANTOR:
Address: GREENBRIAR CORPORATION
4265 Kellway Circle
Addison, Texas 75244 By: _______________________________
Title: _______________________________
LANDLORD:
Address: RESIDENTIAL HEALTHCARE PROPERTIES, INC.
4265 Kellway Circle
Addison, Texas 75244 By: _______________________________
Title: _______________________________
<PAGE>
EXHIBIT 6(i)
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is entered as of the ______ day of
___________, 1997, between Residential Healthcare Properties, Inc., a Nevada
corporation, ("Landlord"), and Greenbriar Corporation, a Nevada corporation
("Tenant").
ARTICLE I
Leased Premises, Term, and Use
Section 1.01. Leased Premises.
(a) Upon the terms, provisions and conditions hereof, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the premises
reflected on the floor plans set forth in Exhibit "A" hereto in the
building ("Building") located at 4265 Kellway Circle, Addison, Dallas
County, Texas, herein called the "Leased Premises."
(b) The "Rentable Area" of the Leased Premises is hereby stipulated and
agreed for all purposes to be ________________ square feet, and the
Rentable Area for the entire Building is hereby stipulated and agreed for
all purposes to be ___________ square feet.
Section 1.02. Term. Subject to the terms, provisions and conditions
hereof, this Lease shall continue in force for a term ("Term") of Three Years
(36 calendar months), beginning on the _______ day of
__________________________, 1997 (hereinafter called the "Commencement
Date") and ending on the _________ day of ____________________, 2002.
Section 1.03 Use. Tenant (and its permitted assignees and subtenants,
if any) will occupy and use the Leased Premises solely for general business
office purposes of a lawful nature and for no other purpose.
ARTICLE II
Rental
Section 2.01. Annual Rental. Tenant shall pay annual rental ("Annual
Rental") as follows:
(a) Beginning on the first day of the Term of this Lease the Annual
Rental shall be $125,000.00;
<PAGE>
(b) Commencing on the first anniversary of the Term, the Annual Rental
shall be $150,000.00; and
(c) Commencing on the second anniversary of the Term, the Annual Rental
shall be $175,000.000.
Section 2.03. Parking Charge. Tenant shall, at all times during the
Term, lease from Landlord parking rights for ________ cars in the covered
parking area, all at the monthly rate of $_________ per ________ car
entitled to park in the covered parking area ("Covered Parking Charge").
Tenant covenants and agrees to pay the Covered Parking Charge to Landlord
during the Term as rental hereunder.
Section 2.04. Payment of Rent. The term "Rent" as used herein shall
mean the Annual Rental, the Parking Charge and all other amounts provided for
in this Lease to be paid by Tenant, all of which shall constitute rental in
consideration for this Lease and the leasing of the Leased Premises. The
Rent shall be due and payable in advance in monthly installments on the first
day of each calendar month during the Term hereof, in legal tender of the
United States of America to Landlord at the address shown in Section 5.16 or
to such other person or at such other address as Landlord may from time to
time designate in writing. The Rent shall be paid without notice, demand,
abatement, deduction or offset except as otherwise expressly provided for in
Sections 5.01 and 5.02. If the Term commences or ends on other than the first
or last day of a calendar month, then the installment of Annual Rental and
the Covered Parking Charge for such partial month shall be appropriately
prorated. In no event shall Annual Rental or the monthly installments
thereof be less than the amounts specified in Section 2.01.
Section 2.05 Security Deposit. Landlord hereby acknowledges receipt
of $_________ representing the first month's rental paid in advance, to be
applied to the Rent for the first month of the Term when due, and an amount
of $_________________ representing Tenant's deposit ("Security Deposit") as
security for the full and faithful performance by Tenant of the terms,
conditions, and covenants of this Lease which are to be performed and kept by
Tenant. Landlord may apply any portion of the Security Deposit as may be
necessary to cure an Event of Default (hereinafter defined) by Tenant
hereunder, including (but not limited to) the failure of Tenant to pay Rent
or any other charges which accrue in favor of Landlord hereunder. In the
event Tenant fails to repair damages caused or occasioned by Tenant,
including damages caused by the removal of fixtures allowed to be removed
under Section 4.06, Landlord may apply any portion of the Security Deposit as
may be necessary to make such repairs. Any remaining balance of the Security
<PAGE>
Deposit shall not be considered as an advance payment of Rent or a measure of
Landlord's damages in the event of default by Tenant. Landlord's deduction
of the amounts owed by Tenant to Landlord from the Security Deposit shall in
no event release Tenant from being in default under the terms of this Lease.
Tenant shall at all times maintain the Security Deposit in the full amount
set forth in this Section 2.05, and shall upon demand of Landlord deposit
such additional amounts as may be necessary to replace any portion of the
deposit expended by Landlord pursuant to this Section. The Security Deposit
shall not accrue interest and may be place in the general operating funds of
Landlord.
ARTICLE III
Landlord's Services
Section 3.01. Services to be Furnished by Landlord.
(a) Landlord shall use all reasonable efforts to furnish, subject to the
Building Rules and Regulations (hereinafter defined) and Tenant's
performance of its obligations hereunder, the following services:
(1) Air-conditioning and heating in season, during Normal Building
Operating Hours (hereafter defined), at such temperatures and in
such amounts as are considered by Landlord to be standard;
(2) Hot and cold water at those points of supply provided for
lavatory and drinking purposes only;
(3) Janitor service in and about the Building and the Leased
Premises five (5) days per week, and periodic window washing;
however, Tenant shall pay, as additional Rent upon presentation of a
statement therefor by Landlord, the additional costs attributable to
the cleaning of improvements within the Leased Premises other than
Building Standard (hereinafter defined) improvements;
(4) Electricity and proper facilities to furnish sufficient
electrical power during Normal Building Operating Hours for normal
office machines and other machines of low electrical consumption,
but not including electricity or air-conditioning required for
electronic data processing equipment other than desk-top or lap-top
personal computers, special lighting in excess of Building Standard,
or any other item of electrical equipment which singly consumes more
than 0.5 kilowatts per hour at rated capacity or requires a voltage
other than 120 volts single phase; and
<PAGE>
(5) Replacement of fluorescent lamps in Building Standard light
fixtures installed by Landlord and incandescent bulb or fluorescent
lamp replacement in public toilet and restroom areas and stairwells.
(6) Such other services as Landlord and Tenant may agree upon form
time to time such as copy machines, facsimile machines, postage
meters, computer hardware and software, at rates and charges as the
parties may agree.
(b) Landlord shall furnish Tenant with keys to unlock the main door
entering the Leased Premises and appropriate access to the building
security system. Landlord shall furnish at the commencement of the Lease
Term an adequate number of keys for Tenant's employees designated by
Tenant has having rights to keyed access to the Leased Premises. Any
additional keys will be furnished at a charge by Landlord on an order
signed by Tenant or Tenant's authorized representative. All such keys
shall remain the property of Landlord. No additional locks shall be
allowed on any door of the Leased Premises without Landlord's permission,
and Tenant shall not make, or permit to be made any duplicates of such
keys, except those furnished by Landlord. Upon termination of this
Lease, Tenant shall surrender to Landlord all the keys for the Leased
Premises, and give to Landlord the explanation of the combination of all
locks for safes, safe cabinets, and vault doors, if any, in the Leased
Premises.
(c) "Normal Building Operating Hours" shall be from 8:30 a.m. to 5:30
p.m. Monday through Friday, and 8:00 a.m. to 1:00 P.M. Saturday,
exclusive of Sundays and "holidays." "Holidays" shall refer, without
limitation, to New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day, and other holidays as may be designated
by Landlord. If the holiday occurs on Saturday or Sunday, the Friday
preceding or the Monday following may, at Landlord's discretion, be
observed as a holiday.
(d) Failure by Landlord to any extent to furnish services hereunder or
cause any cessation thereof shall not render Landlord liable in any
respect for damages to either person or property, nor be construed as an
eviction of Tenant, nor work an abatement of Rent, nor relieve Tenant
from fulfillment of any covenant or agreement hereof. Should any of such
services be interrupted, Landlord shall use reasonable diligence to
restore the same promptly, but Tenant shall have no claim for rebate of
<PAGE>
Rent, damages, or eviction on account thereof.
(e) Tenant shall pay to Landlord, monthly as billed, as Additional Rent
hereunder, such charges as may be separately metered or as Landlord may
compute for (i) any utility services utilized by Tenant for computers,
data processing equipment or other similar electrical equipment; (ii)
extra lighting; (iii) air-conditioning, heating and other services in
excess of that stated in Sections 3.01(a)(1) and (5) hereof; or (iv)
other air-conditioning, heating and services not standard for the
Building or provided at times other than Normal Building Operating Hours.
Landlord may elect to estimate the charges specified to be paid by Tenant
under this Section 3.01 (e) and bill such charges to Tenant monthly in
advance, in which event Tenant shall pay such estimated charges and when
the actual amounts of such charges are determined by Landlord an
appropriate cash adjustment shall be made between Landlord and Tenant to
reflect any underpayment or overpayment of such charges because of any
difference between Landlord's estimate of, and the actual amount of such
charges. Tenant shall pay all costs associated with providing separate
utility meters to the Leased Premises. In the event separate utility
meters are provided to the Leased Premises, Landlord may elect to have
all charges for the utilities separately metered to the Leased Premises
billed directly to the Tenant.
Section 3.02. Repair and Maintenance by Landlord. Landlord shall not be
required to make any improvements or repairs of any kind or character to the
Leased Premises or the Building, except such repairs as may be required to
the Building corridors and lobbies and structural members of the Building,
and such repairs as may be deemed necessary solely by Landlord for normal
maintenance operations for the Building. This Section 3.02 shall not apply
in the case of damage or destruction by fire or other casualty (as to which
Section 5.02 shall apply) (or damage resulting from an eminent domain taking
(as to which Section 5.01 shall apply).
ARTICLE IV
Tenant's Covenants
Section 4.01. Payments by Tenant. Tenant agrees to pay timely the Rent
and all rents and sums provided to be paid to Landlord hereunder at the times
and in the manner herein provided and at all times to occupy and conduct
business in the Leased Premises.
Section 4.02. Certain Taxes. Tenant shall pay all ad valorem taxes on
all improvements installed in the Leased Premises that are in excess of those
<PAGE>
installed by Landlord from time to time as Building Standard.
Section 4.03. Repairs by Tenant. Tenant, at its cost, shall repair or
replace any damage to the Building, or any part thereof, caused by Tenant or
Tenant's agents, employees, invitees or visitors; provided if Tenant fails to
make such repairs or replacements promptly, Landlord may, at its option, make
such repairs or replacements and the cost thereof shall be payable by Tenant
on demand as a part of the Rent hereunder, and failure of Tenant to pay such
costs within ten (10) days shall constitute a failure to pay Rent when due
and an Event of Default by Tenant hereunder.
Section 4.04. Care of the Leased Premises. Tenant shall maintain the
Leased Premises in a clean, attractive condition, and not commit or allow any
waste or damage to be committed on or to any portion of the Leased Premises,
and at the expiration or termination of this Lease shall deliver up to the
Leased Premises to Landlord in as good condition as at date of possession by
Tenant, ordinary wear and tear excepted.
Section 4.05. Assignment or Sublease.
(a) Tenant shall not assign this Lease or sublease the Leased Premises
or any part thereof or mortgage, pledge or hypothecate its leasehold
interest or grant any concession or license within the Leased Premises
(any such assignment, sublease, mortgage, pledge, hypothecation, or grant
of a concession or license being hereinafter referred to in this Section
4.05 as a "Transfer") without the prior express written permission of
Landlord, and any attempt to effect a Transfer without such permission of
Landlord shall be void and of no effect. In order for Tenant to make a
Transfer, Tenant must request in writing Landlord's permission at least
sixty (60) days in advance of the date on which Tenant desires to make a
Transfer, after which Landlord shall then have a period of thirty (30)
days following receipt of such notice within which to notify Tenant in
writing that Landlord elects (i) to terminate this Lease as to the space
so affected as of the date so specified by Tenant in which event Tenant
will be relieved of all further obligations hereunder as to such space;
(ii) to permit Tenant to assign or sublet such space, subject, however,
to prior written approval of the proposed assignee or Subtenant by
Landlord and the Rent payable hereunder shall be adjusted to the then
prevailing market rent for similar building and space in the North Dallas
office market including proration charges for common area maintenance,
taxes and insurance; but in no event less than the Annual Rent provided
in Article II hereof; or (iii) to refuse consent to Tenant's requested
transfer and to continue this Lease in full force and effect as to
<PAGE>
the entire Leased Premises. If Landlord shall fail to notify Tenant in
writing of such election within said thirty (30) day period, Landlord
shall be deemed to have elected option (iii) above. The Prohibition
against a Transfer contained herein shall be construed to include a
prohibition against any Transfer by operation of law.
(b) Notwithstanding that the prior express written permission of
Landlord to a Transfer may have been obtained under the provisions of
Section 4.05(a), the following shall apply:
(1) In the event of an assignment or sublease, Tenant shall (i)
cause the assignee or Subtenant to assume expressly in writing and
to agree to perform all of the covenants, duties and obligations of
Tenant hereunder, and such assignee or Subtenant shall be jointly
and severally liable therefor along with Tenant; (ii) cause such
assignee or Subtenant to grant Landlord an express first and prior
contract lien and security interest in the same manner as the lien
granted by Tenant to Landlord under Section 5.03 hereof; (iii)
subordinate to Landlord's statutory lien and the aforesaid contract
lien and security interest any liens or other rights which Tenant
may claim with respect to any fixtures, equipment, goods,
merchandise or other property owned by or leased to the proposed
assignee or Subtenant or other party intending to occupy the Leased
Premises; and (iv) agree with Landlord that in the event that the
rent or other consideration due and payable by a Subtenant or
assignee under any such permitted sublease or assignment exceeds the
Rent for the portion of the Leased Premises so transferred, then
Tenant shall pay Landlord as additional rental hereunder all such
excess rental and other consideration immediately upon receipt
thereof by Tenant from such transferee;
(2) A signed counterpart of all instruments, relative to a Transfer
(executed by all parties to such transaction with the exception of
Landlord) shall be submitted by Tenant to Landlord prior to or
contemporaneously with the request for Landlord's written consent
thereto (it being understood that no such instrument shall be
effective without the written consent of Landlord);
(3) No usage of the Leased Premises different from the usage herein
provided to be made by Tenant shall be permitted, and all of the
terms and provisions of this Lease shall continue to apply after
<PAGE>
a Transfer; and
(4) In any case where Landlord consents to a Transfer, Tenant will
nevertheless remain directly and primarily liable for the
performance of all the covenants, duties and obligations of Tenant
hereunder (including, without limitation, the obligation to pay all
Rent herein provided to be paid), and Landlord shall be permitted to
enforce the provisions of this Lease against the undersigned Tenant
or any transferee, or both, without demand upon or proceeding in any
way against any other persons.
(c) If Tenant is a corporation then any transfer of this Lease by
merger, consolidation or dissolution or any change in ownership or power
to vote a majority of the voting stock in Tenant outstanding at the time
of execution of this Lease shall constitute a Transfer for the purposes
of this Lease. For purposes of this Section 4.05(c), the term "voting
stock" shall refer to shares of stock regularly entitled to vote for the
election of directors of the corporation involved.
(d) If Tenant is a general partnership having one or more corporations
as partners or if Tenant is a limited partnership having one or more
corporations as general partners, the provisions of Section 4.06(c) shall
apply to each of such corporations as if such corporations alone had been
the Tenant hereunder. If Tenant is a general or limited partnership,
joint venture, or other form of association, the transfer of a majority
of the ownership interests therein shall constitute a Transfer for the
purposes of this Lease.
(e) The consent by Landlord to a particular Transfer shall not be deemed
a consent to any other subsequent Transfer. If this Lease, the Leased
Premises or the Tenant's leasehold interest therein, or if any portion of
the foregoing is transferred, or if the Leased Premises are occupied in
whole or in part by anyone other than Tenant without the prior consent of
Landlord as provided herein, Landlord may nevertheless collect rent from
the transferee or other occupant and apply the net amount collected to
the Rent payable hereunder, but no such transaction or collection of rent
or application thereof by Landlord shall be deemed a waiver of the
provisions hereof or a release of Tenant from the further performance by
Tenant of its covenants, duties and obligations hereunder.
Section 4.06. Alterations, Additions, Improvements. Tenant will make no
alteration, change, improvement, repair, replacement or addition to the
<PAGE>
Leased Premises without the prior written consent of Landlord. Tenant may
remove its trade fixtures, office supplies and movable office furniture and
equipment not attached to the Building provided (i) such removal is made
prior to the termination or expiration of the Term; (ii) Tenant is not then
in default in the timely performance of any obligation or covenant under this
Lease; and (iii) Tenant promptly repairs all damage caused by such removal.
All other property at the Leased Premises and any alteration or addition to
the Leased Premises and any other articles attached or affixed to the floor,
wall, or ceiling of the Leased Premises is a part of the property of Landlord
and shall be surrendered with the Leased Premises as part thereof at the
termination or expiration of this Lease, without payment or compensation
therefor. If, however, Landlord so requests in writing, Tenant, prior to
termination or expiration of this Lease, will remove any and all alterations,
additions, fixtures, equipment and property placed or installed by Tenant or
installed by Landlord at Tenant's expense in the Leased Premises and will
repair any damage caused by such removal.
Section 4.07. Compliance with Laws and Usage; Liens. Tenant, at its
cost, shall comply with all federal, state, municipal and other laws and
ordinances applicable to the Leased Premises and the business conducted
therein by Tenant, and with the Building Rules and Regulations; will not
engage in any activity which would cause Landlord's fire and extended
coverage insurance to be canceled or the rate therefor to be increased (or,
at Landlord's option, will pay any such increase); and will not commit any
act which is a nuisance or annoyance to Landlord or to other tenants in the
Building or which might, in the exclusive judgment of Landlord, appreciably
damage Landlord's goodwill or reputation, or tend to injure or depreciate the
value of the Building. Tenant has no authority to encumber the Building or
Leased Premises with any lien, and Tenant shall not suffer or permit any such
lien to exist. Should any such lien hereafter be filed, Tenant promptly
shall discharge the same at its sole cost.
Section 4.08. Access by Landlord. Tenant shall permit Landlord or its
agents or representatives to enter into and upon any part of the Leased
Premises at all reasonable hours to inspect same; to clean; to make repairs,
alterations or additions thereto, as Landlord may deem necessary or
desirable; to show the Leased Premises to prospective purchasers or tenants;
or for any other purpose deemed reasonable by Landlord; and Tenant shall not
be entitled to any abatement or reduction of Rent by reason thereof.
Section 4.09. Landlord's Mortgagee. Tenant agrees with Landlord and
with the mortgagee of any mortgage or the beneficiary of any deed of trust
now or hereafter constituting a lien on the Building or the Leased Premises
("Landlord's Mortgagee") that any Landlord's Mortgagee shall have the right
at
<PAGE>
any time to elect, by notice in writing given to Tenant, to make this Lease
superior to the lien of such mortgage or deed of trust and upon the giving of
such notice to Tenant, this Lease shall be deemed prior and superior to the
mortgage or deed of trust in respect to which such notice is given; and at
the request of Landlord's Mortgagee, Tenant shall execute a recordable
instrument establishing this Lease as superior to such lien; or Landlord's
Mortgagee may, by like notice, make this Lease subordinate to such mortgage
or deed of trust. If Landlord's Mortgagee shall elect to make this Lease
subordinate to such mortgage or deed of trust, the same shall be
self-operative and no further certificate or instrument of subordination need
be required by any mortgagee. In confirmation of such subordination, however,
Tenant shall execute promptly any reasonable certificate or instrument that
Landlord may request. Tenant hereby constitutes Landlord as Tenant's
attorney-in-fact to execute such certificate or instrument for and on behalf
of Tenant. In the event of the enforcement by Landlord's Mortgagee of the
remedies provided for by law or by such mortgage or deed of trust, Tenant
will, upon request of any person or party succeeding to the interest of
Landlord as a result of such enforcement, automatically become the Tenant of
such successor in interest without change in terms or other provisions of
such Lease provided, however, that such successor in interest shall not be
(i) bound by any payment of Rent for more than one month in advance except
payments in the nature of security for the performance by Tenant of its
obligations under this Lease; (ii) subject to any offset, defense or damages
arising out of a default or any obligations of any preceding Landlord; or
(iii) bound by any amendment or modification of this Lease made without the
written consent of such trustee or such beneficiary or such successor in
interest. Upon request by such successor in interest, Tenant shall execute
and deliver reasonable instruments confirming the attornment provided for
herein.
Section 4.10. Estoppel Certificate. At Landlord's request from time to
time, Tenant will execute promptly, without further consideration, an
estoppel certificate addressed to Landlord's Mortgagee or to such party as
Landlord may designate certifying to such notice provisions and other matters
as Landlord's Mortgagee or as the other party designated by Landlord may
reasonably request. At Landlord's request from time to time, Tenant will
execute promptly, without further consideration, a certificate stating the
commencement and expiration dates of the Term, the rental then payable
hereunder, that there are not defaults on the part of Landlord or claims
against Landlord hereunder (or if there are any, stating the same with
particularity), and such other information pertaining to this Lease as
Landlord may reasonably request, addressed to such party as Landlord may
designate. Tenant hereby irrevocably appoints Landlord Tenant's true and
lawful attorney-in-fact to deliver such certificate on behalf of Tenant
should Tenant
<PAGE>
refuse or fail to deliver any estoppel certificate when required to do so by
Landlord and such certificate shall be binding on Tenant as if and to the
same extent as if executed by Tenant.
ARTICLE V
Mutual Covenants
Section 5.01. Condemnation, Loss or Damage. If the Leased Premises,
Building, or any part thereof shall be taken or condemned for any public
purpose (or conveyed in lieu or in settlement thereof) to such an extent as
to render the remainder of the Building or Leased Premises, in the opinion of
Landlord, not reasonably suitable for occupancy, this Lease shall, at the
option of either party, forthwith cease and terminate, and all proceeds from
any taking or condemnation of the Building and the Leased Premises shall
belong to and be paid to Landlord. If this Lease is not so terminated,
Landlord shall repair any damage resulting from such taking, to the extent
and in the manner provided in Section 5.02, and Annual Rental hereunder shall
be abated to the extent the Leased Premises are rendered untenantable during
the period of repair and thereafter be adjusted on an equitable basis
considering the areas of the Leased Premises taken and remaining.
<PAGE>
Section 5.02. Fire or Other Casualty; Certain Repairs.
(a) In the event of a fire or other casualty in the Leased Premises,
Tenant immediately shall give notice thereof to Landlord. If the Leased
Premises shall be partially destroyed by fire or other casualty so as to
render the Leased Premises untenantable in whole or in part in the
opinion of Landlord, the Annual Rental provided for herein shall abate as
to the portion of the Leased Premises rendered untenantable until such
time as the Leased Premises are tenantable as determined by Landlord and
Landlord agrees to commence and prosecute such repair work promptly and
with reasonable diligence. If such destruction results in the Lease
Premises being untenantable in substantial part for a period reasonably
estimated by Landlord to be six (6) months or longer after Landlord's
insurance settlement, or in the event of total or substantial damage or
destruction of the Building where Landlord decides not to rebuild, then
all Rent owed up to the date of such damage or destruction shall be paid
by Tenant and this Lease shall terminate upon notice thereof to Tenant.
Landlord shall give Tenant written notice of its decisions, estimates or
elections under this Section 5.02 within sixty (60) days after such
damage or destruction.
(b) Should Landlord elect to effect any repairs under Sections 5.01 or
5.02(a), Landlord shall be obligated only to restore or rebuild the
Leased Premises to a Building Standard condition, and then only to the
extent that insurance proceeds are actually available to Landlord
therefore. In the event the Annual Rental or any portion of the Annual
Rental is abated under Sections 5.01 or 5.02(a), the expiration date of
the Term specified in Section 1.02 shall be extended for the period of
such abatement. As used herein, "Building Standard" shall refer to those
services, those items of finish material, and the level of work generally
furnished by Landlord through the Building.
5.03. Security Interest. In consideration for the mutual benefits
arising under this Lease, and as security for Tenant's performance of all its
obligations under this Lease, Tenant hereby grants to Landlord a lien and
security interest in and on all property of Tenant now or hereafter placed in
or upon the Leased Premises, and such property shall be and remain subject to
such lien and security interest of Landlord for payment of all Rent and other
sums agreed to be paid by Tenant herein. The provisions of this Section 5.03
shall constitute a security agreement under the Texas Uniform Commercial Code
so that Landlord shall have and may enforce a security interest on all
property of
<PAGE>
Tenant now or hereafter placed in or on the Leased Premises, including but
not limited to all fixtures, machinery, equipment, furnishings and other
articles of personal property now or hereafter placed in or upon the Leased
Premises by Tenant. Landlord may at its election at any time file a copy of
this Lease as a financing statement. Landlord, as secured party, shall be
entitled to all of the rights and remedies afforded to a secured party under
the Texas Uniform Commercial Code, which rights and remedies shall be in
addition to and cumulative to the Landlord's liens and rights provided by law
or by the other terms and provisions of this Lease. Promptly upon request,
and without further consideration, Tenant agrees to execute as debtor such
additional financing statement or statements as Landlord may now or hereafter
reasonably request in order that Landlord's security interests may be
protected pursuant to the Texas Uniform Commercial Code.
5.04. Holding Over. If Tenant should remain in possession of the Leased
Premises after the termination or expiration of the Term without the
execution by Landlord and Tenant of a new lease, then Tenant shall be deemed
to be occupying the Leased Premises as a tenant-at-sufferance, subject to all
the covenants and obligations of this Lease, except that the daily Rent shall
be twice the per day Rent in effect immediately prior to such expiration or
termination, but such holding over shall not extend the Term.
5.05. Assignment by Landlord. Landlord shall have the right to transfer
and assign, in whole or in part, all its rights and obligations hereunder and
in the building and property referred to herein, and upon any such transfer
or assignment, no further liability or obligation shall accrue against
thereafter Landlord hereunder.
5.06. Recourse Limitation. Tenant specifically agrees to look solely to
Landlord's interest in the Building for the recovery of any judgment from
Landlord, it being agreed that Landlord shall never be personally liable for
any such judgment. The provision contained in the foregoing sentence shall
not limit any right that Tenant might otherwise have to obtain injunctive
relief against Landlord, or any other action not involving the liability of
Landlord to respond in monetary damages from assets other than Landlord's
interest in the Building.
5.07. Control of Common Areas and Parking Facilities by Landlord. All
automobile parking areas including (without limitation), driveways, entrances
and exits thereto, and other facilities furnished by Landlord, including all
parking areas, truck way or ways, loading areas, pedestrian walk-ways, ramps,
landscaped areas, stairways and other areas and improvements provided by
Landlord for the general use, in common, of tenants, their officers, agents,
<PAGE>
employees, invitees, licensees, visitors and customers shall be at all times
subject to the exclusive control and management of Landlord. Landlord shall
have the right from time to time to establish, modify and enforce reasonable
rules and regulations (herein called the "Building Rules and Regulations")
with respect to all facilities and areas mentioned in this Section; the
initial Building Rules and Regulations are set out in Exhibit "B" hereto and
are of equal dignity herewith.
5.08. Default by Tenant.
(a) Each of the following occurrences relative to Tenant shall
constitute an "Event of Default":
(1) Failure or refusal of Tenant to make the timely payment of any
Rent payable under this Lease when and as the same shall become due
and payable;
(2) The abandonment or vacating of the Leased Premises or any
significant portion thereof;
(3) The filing or execution or occurrence of a petition in
bankruptcy or other insolvency proceeding by or against Tenant or
any guarantor of Tenant obligations hereunder; or petition or answer
seeking relief under any provisions of the Bankruptcy act; or as
assignment for the benefit of creditors or composition; or a
petition or other proceeding by or against the Tenant for the
appointment of a trustee, receiver or liquidator of Tenant or any of
Tenant's property; or a proceeding by any governmental authority for
the dissolution or liquidation of Tenant or any guarantor of Tenant;
(4) Failure by Tenant in the performance of or compliance with any
of the agreements, terms, covenants or conditions provided in this
Lease, other than those referred to in (1), (2) or (3) above for a
period of ten (10) days after notice from Landlord to Tenant
specifying the items in default; or
(5) The occurrence of any other event herein provided to be an
Event of Default.
(b) This Lease and the Term and estate hereby made are subject to the
limitation that if and whenever any Event of Default shall occur,
Landlord may, at its option and without further written notice to Tenant,
in addition to all other remedies given hereunder or by law or equity, do
<PAGE>
any one or more of the following:
(1) Terminate this Lease, in which event Tenant shall surrender
immediately possession of the Leased Premises to Landlord;
(2) Enter upon and take possession of the Leased Premises and expel
or remove Tenant and any other occupant therefrom with or without
having terminated the Lease; and
(3) Apply all or any portion of the Security Deposit to cure such
Event of Default; and
(4) Alter locks and other security devices at the Leased Premises.
(c) Exercise by Landlord of any one or more remedies shall not
constitute an acceptance of surrender of the Leased Premises by Tenant,
it being understood that such surrender can be effected only by the
written agreement of Landlord and Tenant.
(d) If Landlord terminates this Lease by reason of an Event of Default,
Tenant shall pay to Landlord the sum of all Rent and other indebtedness
accrued hereunder to the date of such termination, the amounts stated in
Section 5.08(f) hereof, plus, as liquidated damages, an amount equal to
the then present value of the Rent and all other indebtedness as would
otherwise have been required to be paid by Tenant to Landlord during the
period following the termination of the term measured from the date of
such termination to the date of expiration stated in Section 1.02, less
the then present fair market rental value of the Leased Premises for such
period; because of the difficulty of ascertaining the fair market rental
value of the Leased Premises and the costs and time associated with
reletting the Leased Premises, the Landlord and Tenant stipulate that
such fair market rental value shall in no event be deemed to exceed
seventy-five percent (75%) of the then present value of the Rent reserved
for such period.
(e) If Landlord repossesses the Leased Premises without terminating the
Lease, then Tenant shall pay to Landlord all Rent and other indebtedness
accrued to the date of such repossession, plus Rent and other sums
required to be paid by Tenant during the remainder of the Term,
diminished by any net sums thereafter received by Landlord through
reletting the Leased Premises during said period (after deducting
expenses incurred by Landlord as provided below); re-entry by Landlord
<PAGE>
will not affect the obligations of Tenant for the unexpired Term. Tenant
shall not be entitled to any excess of any Rent obtained by reletting
over the Rent herein reserved. Actions to collect amounts due by Tenant
may be brought on one or more occasions, without the necessity of
Landlord's waiting until expiration of the Term.
(f) In case of an Event of Default, to the extent the same were not paid
or deducted, as appropriate, under Section 5.08(d) or (e), Tenant shall
also pay to Landlord: (i) broker's fees incurred by Landlord in
connection with reletting the whole or any part of the Leased Premises;
(ii) the cost of removing and storing Tenant's or any other occupant's
property; (iii) and the cost of repairing, altering, remodeling or
otherwise putting the Leased Premises into condition acceptable to a new
tenant or tenants; and (iv) all reasonable expenses incurred by Landlord
in enforcing Landlord's remedies, including reasonable attorneys' fees
and court costs.
(g) Upon termination or repossession of the Leased Premises for an Event
of Default, Landlord shall not be obligated to relet or attempt to relet
the Leased Premises, or any portion thereof, or to collect rental after
reletting, but Landlord shall have the option to relet or attempt to relet.
In the event of reletting, Landlord may relet the whole or any portion of
the Leased Premises for any period, to any tenant, and for any use and
purpose.
(h) If Tenant should fail to make any payment, perform any obligation,
or cure any default hereunder, Landlord, without obligation to do so and
without thereby waiving such failure or, default, may make such payment,
perform such obligation, and/or remedy such other default for the account
of Tenant (and enter the Leased Premises for such purpose), and Tenant
shall pay upon demand all costs, expenses and disbursements (including
reasonable attorneys' fees) incurred by Landlord in taking such remedial
action, plus interest thereon at the highest rate of interest permitted
by law.
5.09. Right to Relocate. Notwithstanding anything herein to the
contrary, Landlord shall in all cases retain the right and power to relocate
Tenant within the building in space which is comparable in size and location
and suited to Tenant's use, such right and power to be exercised reasonably
and such relocation to be made at Landlord's sole cost and expense. Landlord
shall not be liable or responsible for any claims, damages, or liabilities in
connection with or occasioned by such relocation. Landlord's reasonable
exercise of such right and power shall include, but, shall in no way be
limited to, a relocation to consolidate the rentable area occupied in order
to provide
<PAGE>
Landlord services more efficiently, or a relocation to provide
contiguous vacant space for a prospective tenant.
5.10. Non-Waiver. Neither acceptance of rent by Landlord nor failure by
Landlord to complain of any action, non-action or default of Tenant shall
constitute a waiver of any of Landlord's rights hereunder. Waiver by
Landlord of any right for any default of Tenant shall not constitute a waiver
of any right for either a subsequent default of the same obligation or any
other default.
5.11. Independent Obligations. The obligation of Tenant to pay all Rent
and other sums hereunder provided to be paid by Tenant and the obligation of
Tenant to perform Tenant's other covenants and duties hereunder constitute
independent unconditional obligations to be performed at all times provided
for hereunder, save and except only when an abatement thereof or reduction
therein is hereinabove expressly provided for and not otherwise. Tenant
waives and relinquishes all rights which Tenant might have to claim any
nature of lien against or withhold, or deduct from or offset against any Rent
and other sums provided hereunder to be paid Landlord by Tenant.
5.12. Time of Essence. In all instances where any act is required at a
particular indicated time or within a period, it is understood and stipulated
that time is of the essence.
5.13. Remedies Cumulative. Landlord may restrain or enjoin any breach
or threatened breach of any covenant, duty or obligation of tenant herein
contained without the necessity of proving the inadequacy of any legal remedy
or irreparable harm. The remedies of Landlord hereunder shall be deemed
cumulative and no remedy of Landlord, whether exercised by Landlord or not,
shall be deemed to be in exclusion of any other.
5.14. Insurance, Subrogation, Liability, Indemnity, and Waiver.
(a) Tenant shall maintain at its sole expense fire and extended coverage
insurance with vandalism and malicious mischief endorsements and a
sprinkler leakage endorsement (where applicable), on all of its personal
property, including removable trade fixtures, located in the Leased
Premises and on non-Building Standard leasehold improvements and all
additions and improvements made by Tenant.
(b) Tenant, at its sole expense, shall maintain in effect at all times
comprehensive general liability insurance, including contractual
liability coverage, naming Landlord as an additional insured, issued by
and binding upon some solvent insurance company authorized to do business
in Texas and satisfactory to Landlord, with bodily injury limits
<PAGE>
of not less than $1,000,000 for each occurrence and $5,000,000 in the
aggregate and property damage liability limits of not less than $500,000
for each occurrence and $1,000,000 in the aggregate. Tenant shall
provide to Landlord (i) copies of such insurance policies prior to the
Commencement Date of the Term, (ii) certificate of renewal at least
thirty (30) days prior to the expiration date of any such policies, and
(iii) copies of new policies at least thirty (30) days prior to
terminating, or changing insurance companies for, any such policies.
(c) Anything herein to the contrary notwithstanding each party hereto
hereby releases and waives all claims, rights of recovery and causes of
action that either party or any party claiming by, through or under such
party by subrogation (or otherwise may now or hereafter have against the
other party or any of the other party's partners, directors, officers,
employees or agents) for any loss or damage that may occur to the
Building, Leased Premises, Tenant improvements or any of the contents of
any of the foregoing by reason of fire or other casualty, or any other
cause except gross negligence or willful misconduct (but including
negligence of the parties hereto or their partners, directors, officers,
employees, or agents) that could have been insured against under the
terms of (i) any standard fire and extended coverage insurance policies
required under the terms of this Lease, or (ii) any other loss covered by
insurance required to be maintained under the terms of this Lease;
provided, however, that this waiver shall be ineffective against any
insurer of Landlord or Tenant to the extent that such waiver (i) is
prohibited by the laws and insurance regulations of the State of Texas or
(ii) would invalidate any insurance coverage of Landlord or Tenant. The
waiver set forth in this Section 5.14(c) shall not apply to any
deductibles on policies carried by Landlord nor to any coinsurance
penalty which Landlord might sustain.
(d) Except for any of the claims, rights of recovery and causes of
action that Landlord has released and waived pursuant to Section 5.14
(c), Tenant hereby releases, indemnifies, defends and holds harmless
Landlord and Landlord's partners, agents, directors, officers, employees,
invitees and contractors, from all claims, losses, costs, damages or
expenses (including, but not limited to, attorneys' fees) resulting or
arising from any and all injuries or death of any person or damage to any
property occurring during the Term caused or alleged to have been caused
by any act, omission, or neglect of Tenant or Tenant's directors,
officers, employees, agents, invitees or guests, or any parties
contracting with Tenant relating to the Leased Premises.
<PAGE>
(e) Tenant and Landlord agree that each shall not be responsible or
liable to the other, or to their agents, customers or invitees, for
bodily injury (fatal or non-fatal) or property damage occasioned by the
acts or omissions of any other tenant or such tenant's employees, agents,
contractors, customers or invitees within the Building, or for any loss
or damage to any property or persons occasioned by theft, fire, act of
God, public enemy, injunction, riot, strike, insurrection, war, court
order, requisition or order of governmental body or authority, or any
other cause beyond the control of either party, or for any inconvenience
or loss to either party in connection with any of the repair,
maintenance, damage, destruction, restoration or replacement referred to
in this Lease.
5.15. Venue; Governing Law. This Lease shall be governed by the laws of
the State of Texas. All monetary and other obligations of Landlord and
Tenant are performable exclusively in Addison, Dallas County, Texas.
5.16. Notice. Any notice which may or shall be given under the terms of
this Lease shall be in writing and shall be either delivered by hand or sent
by United States Registered or Certified Mail, postage prepaid, if for
Landlord to 4265 Kelllway Circle, Addison, Texas 75244 or if for Tenant, to
the Premises. Such addresses may be changed from time to time by either party
by giving notice as provided above. Notice shall be deemed given when
delivered (if delivered by hand) or when postmarked (if sent by mail).
5.17. Entire Agreement, Binding Effect, and Severability. This Lease
and any written addenda and all exhibits hereto (which are expressly
incorporated herein by this reference) shall constitute the entire agreement
between Landlord and Tenant; no prior written or prior or contemporaneous
oral promises or representations shall be binding. This Lease shall not be
amended, changed or extended except by written instrument signed by both
parties hereto. The provisions of this Lease shall be binding upon and inure
to the benefit of the heirs, executors, administrators, successors and
assigns of the parties, but this provision shall in no way alter the
restrictions on assignment and subletting applicable to Tenant hereunder. If
any provision of this Lease or the application thereof to any person or
circumstance shall at any time or to any extent be held invalid or
unenforceable, and the basis of the bargain between the parties hereto is not
destroyed or rendered ineffective thereby, the remainder of this Lease or the
application of such provision to persons or circumstances other than those as
to which it is held invalid or unenforceable shall not be affected thereby.
5.18. Right of Reentry. Upon the expiration or termination of the Term
for whatever cause, Landlord shall have the right to reenter immediately and
<PAGE>
reassume possession of the Leased Premises and remove Tenant's property
therefrom, and Tenant expressly acknowledges such right.
5.19. Number and Gender; Captions; References. Pronouns, where used
herein, of whatever gender, shall include natural persons, corporations, and
associations of every kind and character, and the singular shall include the
plural and vice versa where and as often as may be appropriate. Article and
section headings under this Lease are for convenience of reference and shall
not affect the construction or interpretation of this Lease. Whenever the
terms "hereof," "hereby," "herein," or words of similar import are used in
this Lease, they shall be construed as referring to this Lease in its
entirety rather than to a particular section or provision, unless the context
specifically indicates to the contrary. Any reference to a particular
"Article" or "Section" shall be construed as referring to the indicated
article or section of this Lease.
5.20. Delinquent Payments; Handling Charge. Any payments required of
Tenant hereunder, whether as Rent or otherwise, shall bear interest from the
time due until paid at the maximum rate of interest permitted by law.
Furthermore, should Tenant fail to pay timely any installment of Rent
hereunder, Landlord shall have the option to charge Tenant, as additional
Rent hereunder, a fee equal to Five Hundred Dollars ($500.00) to reimburse
Landlord for its cost and inconvenience incurred in dealing with Tenant's
delinquent payment. In no event, however, shall the charges imposed under
this Section 5.20 and elsewhere in this Lease, to the extent the same are
considered to be interest under applicable law, exceed the maximum rate of
interest allowable under applicable law.
5.21. Quiet Enjoyment. Tenant, on paying all sums herein called for and
performing and observing all of its covenants and agreements hereunder, shall
and may peaceably and quietly have, hold, occupy, use and enjoy the Leased
Premises during the Term subject to the provisions of this Lease ad
applicable governmental laws, rules and regulations; and Landlord agrees to
warrant and forever defend Tenant's right to such occupancy against the
claims of any and all persons whomsoever lawfully claiming the same or any
part thereof, by, through, or under Landlord, but not otherwise, subject only
to the provisions of this Lease and all applicable governmental laws, rules
and regulations.
5.22. Signs. No signs, symbols or identifying marks shall be placed in
or upon the Building, in the halls, elevators, staircases, entrances, or
exterior of the Building, or upon the doors or walls of the Leased Premises
without prior written approval of Landlord. Landlord agrees to provide and
install, at Tenant's cost, all letters or numerals on doors in the Leased
Premises. All such letters and numerals shall be in the Building Standard
<PAGE>
graphics, and no others shall be used or permitted on the Leased Premises
without written permission from Landlord
ARTICLE VI
RENEWAL OPTION
Subject to the conditions hereinafter set forth and provided this Lease is
then in effect, Tenant shall have the right to renew the term of this Lease
for one (1) renewal term of five (5) years (the "Renewal Term"), by
delivering written notice (the "Renewal Notice") to Landlord of its exercise
of such right at least one hundred eighty (180) days before the end of the
Term. Subject to the terms of this Lease set forth below, the Renewal Term
shall begin upon the expiration of the Term. All of the terms, provisions and
covenants of this Lease shall apply to each Renewal Term except that Rent for
the Renewal Term shall be the then prevailing market rent for similar
buildings and space in the north Dallas office market, including prorata
charges for common area maintenance taxes and insurance, but in no event less
than the Annual Rent payable during the final year of the Term. Tenant shall
have no right to exercise any option under this Section if any Event of
Default exists at the time of electing a renewal option or at the time the
Renewal Term would commence. If Tenant fails to give timely notice of
Tenant's intention to renew this Lease, the Term of this Lease shall expire
on the scheduled expiration date, and Tenant shall have no further option to
renew this Lease. If Tenant does not exercise any such option in a timely
manner, then Landlord shall have the right during the remainder of the Term
of this Lease to advertise the availability of the Premises for sale or
lease. In this Lease the phrases "term of this Lease," "term hereof," "Lease
Term," and "Term" mean the Original Term and any Renewal Term that may
become effective pursuant to this Section.
EXECUTED in multiple counterparts, each of which shall have the force and
effect of an original on the date first above written.
"LANDLORD"
RESIDENTIAL HEALTHCARE PROPERTIES, INC.
By:_____________________________________________
Name:___________________________________________
<PAGE>
Title:__________________________________________
Address 4265 Kellway Circle
Addison, TX 75244
"TENANT"
GREENBRIAR CORPORATION
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
<PAGE>
Agreement for Right of First Refusal and Other Matters
This Agreement is entered into as of this _____ day of _________, 1997 by
and between Residential Healthcare Properties, Inc. ("RHP") and Greenbriar
Corporation ("GBR").
W I T N E S S E T H :
WHEREAS RHP and GBR have determined that is in their best interest and mutual
benefit to enter into an agreement providing for the right of first refusal for
GBR to lease or manage at RHP's option, certain assisted living communities,
Alzheimer's care and/ or retirement living centers, or nursing homes
("Facility"or "Facilities") that may be owned, acquired, or developed by RHP;
and
WHEREAS RHP and GBR wish to set forth certain understandings regarding the sale
by means of real estate syndications of Facilities that may be leased by RHP, or
RHP's subsidiaries, to GBR, or its subsidiaries.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, it is agreed as
follows:
1. Term. The Term of this agreement shall commence on the date hereof and
shall expire at 5:00 p.m. Central Time on the day immediately preceding the
fifth (5th) anniversary of such date.
2. Grant of Right of First Refusal to Lease or Manage. In the event that
RHP desires to lease to a third party or engage the services of a third
party to manage any Facility acquired, constructed or developed by or for
RHP subsequent to the date hereof and during the term of this Agreement,
prior to leasing or entering into such agreements, RHP shall extend to GBR
the opportunity as determined by RHP, either to lease or to manage the
Facility upon the terms and condition as set forth below, prior to entering
into a lease or management agreement with any third party.
3. Management Agreement. The terms of the management agreement shall be
substantially in the form of Exhibit"A" attached hereto and shall provide
for a management fee of 6% of the Revenue of the Facility as defined in the
Management Agreement and shall be cancelable on 60-days prior written
notice and shall contain such other provisions as are consistent with the
terms of this Agreement.
4. Lease Agreement. The Lease Agreement shall be substantially in the form
of Exhibit"B" attached hereto and shall provide for a Rental amount equal
to the fair market
1
<PAGE>
rental as defined in the Lease Agreement and shall contain such other
provisions as are consistent with the terms of this Agreement.
5. Notification and Exercise of Option. RHP shall notify GBR of its intent
to enter into such third party lease agreement or management agreement by
written notice given in accordance with this Agreement. GBR shall have
twenty (20) days from the date of such notice in which to elect to enter
into the lease agreement or management agreement upon the terms set forth
in the notice, including the terms set forth in the attached Exhibits "A"
or "B." In the event that GBR has not notified RHP in writing within such
time period that GBR has elected the option to lease or manage the
Facility that is the subject of the notice, RHP shall be free to proceed to
lease the Facility or to enter into a management agreement for the
particular Facility as it sees fit.
6. Additional Right of First Refusal to Lease. GBR shall have the option,
during the term of any management agreement for a particular Facility,
should RHP desire to lease the facility to any third party, other than
pursuant to a financing lease or ground lease of the facility, to lease the
facility upon the terms and conditions as RHP shall be offered or is
willing to extend to a third party. RHP shall give GBR notice and GBR
shall exercise its option in accordance with the notice provision set forth
in Paragraph 5 above. In the event that GBR declines to exercise the
option granted in this Section 6, RHP shall be free to proceed to lease the
facility as it sees fit and the existing management agreement shall be
cancelable upon 30-days notice.
7. Certain Agreements Regarding Sale of Facilities to Real Estate
Syndications. The parties recognize that RHP as a real estate company
may, from time to time during the term of this Agreement, offer Facilities
that are owned by RHP and are subject to lease by GBR or its subsidiary for
sale to real estate syndications. GBR agrees to enter into a replacement
lease ("Replacement Lease") or cause its wholly-owned subsidiary to enter
into a Replacement Lease with the acquirer; provided the Replacement Lease
shall provide for an annual rental rate to be determined by multiplying
110% of the then current fair market value as determined by appraisal in
accordance with the appraisal provisions contained in the existing lease by
9.69%; a term not less than 10 years; tenant to be responsible for all
charges and expenses of ownership and operation of the Facility; and the
Replacement Lease provides for a right of first refusal for the tenant to
purchase the Facility should the acquirer elect to sell the Facility and to
participate in the appreciation of the Facility upon sale after the return
to the participants in the syndication of their original contribution.
Should GBR's subsidiary be the Tenant under any Replacement Lease, GBR
agrees to unconditionally guarantee the payment and performance of all
obligations of the tenant under the Replacement Lease. The parties agree
to incorporate an appropriate provision in all leases between GBR or its
subsidiaries and RHP to reflect the agreement of the parties contained
herein.
2
<PAGE>
8. Transfer, Assignment, and Change of Control.
A. Because of the trust and confidence that RHP places in the management
and ownership of GBR as it is presently constituted, RHP shall have the
right to terminate this agreement in the event that there is a material
change in the principal officers of GBR or change of control of GBR
resulting from the acquisition by any Person, or two or more Persons acting
in concert, of beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission) of 50% or more, or rights, options
or warrants to acquire 50% or more, of the outstanding shares of voting
stock of GBR. For purposes hereof "Person' shall mean any individual
(whether acting alone or in concert with others), any corporation,
partnership, trust, limited liability company, or any other legal entity no
matter how constituted.
B. Notwithstanding Paragraph B above, after making an election to
exercise the right of first refusal to lease or manage given pursuant to
this agreement, GBR may assign it interest in the particular right
exercised to a wholly-owned subsidiary of GBR. In the event that a
wholly-owned subsidiary of GBR should enter into a lease pursuant to this
agreement, GBR shall guaranty the payment and performance in accordance
with the "Unconditional and Continuing Lease Guaranty" in the form of
Exhibit "C" attached hereto.
9. Miscellaneous.
A. Saturdays, Sundays and Holidays.
For purposes of this Agreement, should any date specified herein as a
deadline fall on a Saturday, Sunday, or holiday, such date shall
automatically be extended to the next following day which is not a
Saturday, Sunday, or holiday.
B. Notice.
Any notice required or permitted to be delivered under this Agreement
shall be deemed received when sent by United States mail, postage
prepaid, certified mail, return receipt requested or by overnight
courier addressed to RHP or GBR, as the case may be, at the address
set forth below:
If to RHP: ______________________________________
______________________________________
______________________________________
Attention: __________________________
(___) ______________________(Telephone)
(___) _______________________(Facsimile)
3
<PAGE>
With a copy to:______________________________________
______________________________________
______________________________________
(___) ______________________(Telephone)
(___) _______________________(Facsimile)
If to GBR: ______________________________________
______________________________________
______________________________________
Attention: ________________________
(___) ______________________(Telephone)
(___) _______________________(Facsimile)
With a copy to:______________________________________
______________________________________
______________________________________
(___) ______________________(Telephone)
(___) _______________________(Facsimile)
C. Applicable Law.
This Agreement shall be construed under and in accordance with the
laws of the state where the Property is located.
D. Parties Bound.
Subject to the prohibition contained elsewhere in this Agreement, this
Agreement shall be binding upon and inure to the benefit of the
parties to this Agreement and their respective heirs, executors,
administrators, legal representatives, successors and assigns.
E. Construction.
4
<PAGE>
In case any one or more of the provisions contained in this Agreement
shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall
not affect any other provision of this Agreement, and this Agreement
shall be construed as if such invalid, illegal and unenforceable
provision had never been contained in this Agreement. Captions used
in this Agreement are for the convenience of the parties and shall not
be used in construing or interpreting any provision hereof.
F. Time of Essence.
Time is of the essence in the performance of the undertakings and
obligations of the parties under this Agreement.
G. Gender.
Words of any gender used in this Agreement shall be held and construed
to include any other gender, and words in the singular number shall be
held to include the plural, and vice versa, unless the context
requires otherwise.
10. Alternative Dispute Resolution.
A. Mediation. The parties agree that if a claim, controversy or
dispute arising out of or related to this Agreement cannot be resolved
by negotiation they will in good faith submit to mediation as a
condition precedent to initiation of arbitration. Mediation shall be
initiated by a party requesting same in writing, and shall be
conducted in accord with the Commercial Mediation Rules of the
American Arbitration Association (the "AAA") or other such body as the
parties may agree to. If the parties do not agree to a mediator
within three (3) days of the written request for mediation, the party
requesting mediation shall request a list of mediators from the AAA
and the AAA's procedures for selection of a mediator shall apply. If
the dispute has not been resolved within 30 calendar days of the
written request for mediation, either party shall be free to initiate
arbitration as herein provided Each party shall bear its respective
costs incurred and the parties shall share equally the fees and
expenses of the mediator.
B. Arbitration. Any claim, controversy or dispute which cannot be
resolved by negotiation or mediation shall be resolved conclusively by
binding arbitration before three arbitrators in accord with the
Commercial Arbitration Rules of the American Arbitration Association
and the provisions of this Article. Each party shall appoint an
arbitrator and the two arbitrators so appointed shall appoint a third
arbitrator. In the event of any inconsistency between the provisions
of this Article and the Commercial Arbitration Rules of the American
Arbitration Association, this Article shall control, subject to the
right to appeal as hereinafter set forth. Judgment on the award may
be entered in any court having jurisdiction thereof. In the event
either party requests injunctive relief, the AAA shall forthwith
appoint a single arbitrator to promptly hear such claim and such
arbitrator shall have the authority to grant any provisional remedy
which would be
5
<PAGE>
available in a court of competent jurisdiction. The arbitrator shall
resolve all matters in accordance with applicable substantive law. The
arbitrator shall have authority to determine (whether on a provisional or
final basis) who shall bear the responsibility for arbitration fees,
arbitrators' fee, and attorneys' fees. All arbitration shall be commenced
within thirty (30) days of the demand therefor and any decision or award
shall be rendered within sixty (60) days thereafter. The award shall be
rendered in writing and shall set forth findings of fact and conclusions
of law. A party shall be entitled to appeal any error of law in
connection with the award of the arbitrators.
C. Location of Mediation or Arbitration. Proceedings for mediation or
arbitration hereunder shall be conducted in Dallas, Texas.
D. Reservation of Rights. Nothing in this Agreement shall be deemed to
limit the applicability of any otherwise applicable statutes of limitations
or repose and any waivers contained in this Agreement; limit the right of a
party to exercise self help remedies; or preclude a party from initiating
litigation for provisional or ancillary remedies such as injunctive relief
to prevent irreparable injury. The exercise of any remedy or the
institution of any action permitted by this provision shall not constitute
a waiver of the right of any party, including the plaintiff in any such
action, to arbitrate the merits of the controversy or claim giving rise to
such remedies.
E. Attorney-Client Privilege; Confidentiality. Any attorney-client
privilege or other protection against disclosure of confidential
information, including without limitation any protection afforded the
work-product of any attorney, that could otherwise be claimed by any party
shall be available to, and may be claimed by, any party in arbitration
proceedings. No party waives any attorney-client privilege or any other
protection against disclosure of confidential information by reason of
anything contained in or done pursuant to or in connection with this
Article. Each party agrees to keep all controversies and claims for
mediation or arbitration and related proceedings strictly confidential,
except for disclosures of information required by applicable law or
regulation. In addition all conduct, statements, offers and opinions,
whether written or oral, made in the course of any mediation shall be
deemed made for the purpose of compromise and settlement.
G. Third Parties. No arbitration or mediation proceeding arising out of
or related to this Agreement shall include by consolidation, joinder or in
any other manner, an additional person or entity not a party to this
Agreement, except by written consent containing specific reference to this
Agreement signed by the parties hereto and any other person or entity
sought to be joined. Consent to arbitration involving an additional person
or entity shall not constitute consent to arbitrate or mediate any claim
not described in the written consent or with a person or entity not named
or described therein.
6
<PAGE>
H. Attorneys' Fees and Costs. In the event of arbitration arising
out of the interpretation or enforcement of this Agreement, the prevailing
party shall be entitled to receive, in addition to any other award, his
reasonable costs of proceeding, including reasonable attorneys' fees.
7
<PAGE>
Executed on behalf of the parties by their duly authorized officers as of the
day and year first written.
RESIDENTIAL HEALTHCARE PROPERTIES, INC.
By: _______________________________
Name: __________________________
Title: __________________________
GREENBRIAR CORPORATION
By: ______________________________
Name: _________________________
Title: _________________________
8
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of March ___, 1996, by and between
Medical Resource Companies of America, a Nevada corporation (the "Company"), and
Paul Dendy ("Employee");
W I T N E S S E T H:
WHEREAS, pursuant to the Stock Purchase Agreement dated January 26,
1996 by and between the Company, and Employee (the "Stock Purchase Agreement"),
Employee has agreed, among other things, to sell to the Company all of his or
her outstanding shares of capital stock of the Wedgwood Retirement Inns, Inc.
("Wedgwood");
WHEREAS, Employee will be a highly valued employee of the Company
whose qualifications are critical to the success of the Company and without whom
the business of the Company would be irreparably harmed;
WHEREAS, the Company desires to insure that the skills and experience
of Employee will remain available to the Company and will not be used to compete
against the Company;
WHEREAS, without Employee's agreement to continue in the employ of the
Company pursuant hereto, the Company would not have entered into the Stock
Purchase Agreement or agreed to consummate the transactions contemplated
thereby; and
WHEREAS, the parties hereto wish to enter into an agreement providing
for the continued employment of Employee by the Company;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained the parties hereto agree as follows:
1. Employment. The Company agrees to continue to employ Employee,
and Employee agrees to continue to serve the Company, upon the terms and
conditions hereinafter set forth.
2. Duties. During the term of this Agreement, Employee agrees to
devote his or her full business time and his or her best efforts to the affairs
of the Company. Employee shall render such executive, administrative and other
duties as are commensurate with his or her title and as may be requested from
time to time by the Board of Directors of the Company or Employee's immediate
supervisor. Employee will be based out of the Portland, Oregon/Vancouver,
Washington area unless otherwise agreed by Employee. The Company will provide,
at its expense,
<PAGE>
reasonably adequate office space, staff and equipment to support Employee's
duties.
3. Term. The term of Employee's employment hereunder shall commence
upon the closing of the Stock Purchase Agreement, and shall end one (1) year
thereafter, unless terminated prior thereto pursuant to Section 7 hereof. This
Agreement shall be renewable for two(2) successive one (1) year periods as long
as the parties hereto agree to the same for each period.
4. Compensation and Benefits. In consideration of the services to be
rendered by Employee during the Employment Period, Employee shall receive from
the Company the following compensation:
(a) Salary. Employee shall be compensated at an annual salary of
$125,000 per year, payable in twenty four equal semi monthly installments.
Salary amounts set forth above shall be reduced for income tax withholdings and
other normal employee deductions relating thereto. Employee shall also be
entitled to receive annual bonuses in accordance with the standard policy and
procedures of the Company in effect from time to time with respect to employees
at the executive level.
(b) Insurance. The Company shall provide life, medical and disability
insurance coverage to Employee comparable to the coverage provided to other
executive employees of the Company.
(c) Travel, Business and Entertainment Expenses. The Company shall
reimburse Employee, upon presentation of proper vouchers, for the reasonable
travel, entertainment and other business expenses incurred by him or her in the
performance of his or her duties hereunder pursuant to the standard policy and
procedures of the Company in effect from time to time with respect to employees
at the executive level, unless adjusted by the written agreement of Employee and
the Company.
(d) Vacation & Sick Leave. Employee shall be entitled to paid
vacation and sick leave each year in accordance with the standard policy and
procedures of the Company in effect from time to time with respect to employees
at the executive level. For 1996 the standard vacation policy and procedure is
to allow ten (10) days per year with accrual of up to thirty (30) days for
unused vacation. For 1996 the standard sick leave policy and procedure is to
allow ten (10) days per year with accrual of up to thirty (30) days for unused
sick leave.
(e) Mileage & Automobile Allowance. The Company shall reimburse
Employee, upon presentation of proper vouchers, on the mileage basis set by the
Internal Revenue Service, for the reasonable travel, entertainment and other
business mileage incurred by his in the performance of his
<PAGE>
duties hereunder, unless adjusted by the written agreement of Employee and
the Company. If the Employee is involved in the operation and management of
facilities, the Company shall continue to pay the Employee the automobile
allowance paid to him which Employee had been receiving prior to the date of
this Agreement, or an equivalent benefit, and Employee recognizes that such
amount will be taxable income to him.
(f) Stock Options. Employee shall be granted a qualified employee
stock option pursuant to the Company's Stock Option Plan. The option shall
cover 10,000 shares of the common stock of the Company, one third of which shall
vest on each anniversary of this agreement, shall be granted as of the
commencement date hereof, and shall have an exercise price equal to the closing
sale price of the Company's Common Stock on the date hereof, as reported by the
American Stock Exchange, and shall have a term of ten years (subject to earlier
termination as provided in the option agreement) from the date of grant.
Additional options will be granted on an annual basis at the discretion of the
board of directors of the Company, or a committee of the board of directors of
the Company. Such options shall continue to vest so long as Employee continues
to be employed by the Company.
5. Employee's Obligations. During the term of his or her employment
hereunder, Employee shall faithfully, industriously and to the best of his or
her ability, experience and talent, carry out his or her responsibilities and
duties hereunder. Employee shall not during his or her employment hereunder
engage, directly or indirectly, in any other material trade or business
activity, whether or not such trade or business activity is pursued for gain,
profit, or other advantage. Nothing in this Section 5 shall be construed to
prohibit Employee from having business interests or investing his or her assets
in such form or manner as he or she shall wish, so long as such investments or
business interests do not materially impair Employee's ability to perform their
obligations and duties to the Company, and so long as such business interests or
investments do not give Employee the right or ability to control or influence
the policy decisions of any business which is or might be in competition with
any of the businesses of the Company or any of their affiliated companies or
franchisees. Employee represents and warrants that he or she is in good health,
and is not on the date of this Agreement a party to any agreement, contract or
understanding, whether of employment or otherwise, which would in any way
restrict him or her from entering into this Agreement or undertaking or
performing employment in accordance with this Agreement.
6. Agreement Not to Compete.
(a) Employee covenants and agrees that, without the prior written
consent of the Company or its successors,
<PAGE>
for a period commencing on the date hereof and ending three years hereafter,
he or she shall not, directly or indirectly, individually or together or
through any affiliate or other firm, person, corporation or entity, except as
required in the performance of his or her duties as an employee or consultant
of the Company, (1) engage in or acquire any interest in any business
competitive with that conducted by the Company or any of their affiliates,
franchises, successors or assigns which are engaged in the full service
retirement center or assisted living business, including Alzheimer's care,
(collectively, the "Purchaser Companies"), in any state or foreign country
(except that he or she may acquire interests in companies whose shares are
traded on a national exchange or the NASDAQ or OTC markets and in which
Employee and his or her immediate relatives (consisting of siblings, parents,
grandparents, children and grandchildren) and affiliates own no more than 1%
of the outstanding shares), (2) approach, solicit, accept business from or
otherwise engage in business in any way with, any person or entity which is,
has been or becomes, a customer or client of the Purchaser Companies, or any
affiliate of such a person or entity, (3) approach, counsel or attempt to
induce any person who is then in the employ of any of the Purchaser Companies
to leave the employ of the Purchaser Companies, or employ or attempt to
employ any such person or any person who at any time during the preceding 24
months was in the employ of the Purchaser Companies, or (4) aid or counsel
any other person, firm or corporation to do any of the above.
Notwithstanding this paragraph, Employee may engage in the full service
retirement center or assisted living business, including Alzheimer's care,
following termination of his or her employment by the Company in the
Portland, Oregon metropolitan area (or the Dallas, Texas metropolitan area if
Employee has relocated to the Dallas, Texas metropolitan area) which is
greater than 5 miles from any facility operated or publicly announced by any
of the Purchaser Companies and 25 miles for any area outside of the Portland,
Oregon (or Dallas, Texas) metropolitan area.
(b) Employee further agrees that he or she will not at any time from
and after the date hereof (1) except during his or her engagement by the Company
or its affiliates, indicate on any stationery, business card or advertising,
solicitation or other business materials that he or she is or was formerly
associated with the Company or any affiliate thereof (provided that any factual
statement on resumes or other similar reference material of Employee shall not
be deemed to violate this provision), or (2) disclose, furnish or make
accessible to any person, or make use of, any confidential information obtained
by him or her while he or she was in the employ of the Company or its affiliates
as an employee or consultant, including, without limitation, information with
respect to any designs, procedures, customers, clients, advertising, finances,
financial condition, organization, personnel, business activities, budgets,
plans, objectives or strategies which are proprietary to the Purchaser
Companies', provided,
<PAGE>
however, that Employee may disclose such information as may be required by
law in connection with any judicial or administrative proceeding or inquiry.
(c) In view of the anticipated continuation of Employee's relationship
with the customers and employees of the Purchaser Companies pursuant to this
Agreement, and recognizing both the access to confidential financial and other
information derived by Employee pursuant to his or her employment with the
Company and the substantial sums to be paid to Employee pursuant to the terms of
this Agreement, Employee expressly acknowledges that the agreement not to
compete and related restrictive covenants set forth in this Section 6 are
reasonable and necessary in order to protect and maintain the proprietary
interests and other legitimate business interests of the Purchaser Companies and
that the enforcement of such agreement not to compete and related restrictive
covenants would not prevent him or her from earning a livelihood. Employee
further acknowledges (i) that it would be difficult to calculate damages to the
Company from any breach by Employee of his or her obligations under this Section
6, (ii) that injury to the Company from any such breach would be irreparable and
impossible to measure and (iii) that the remedy at law for any breach or
threatened breach of this Section 6 would therefore be an inadequate remedy and,
accordingly, that the Company shall, in addition to all other available remedies
(including, without limitation, seeking such damages as it can show it has
sustained by reason of such breach), be entitled to injunctive and other similar
equitable remedies without proving or showing any actual damage sustained by the
Company.
(d) The provisions of this Section 6 shall survive the termination of
Employee's employment for any reason whatsoever. In the event the provisions of
this Section 6 should ever be deemed to exceed the time or geographic
limitations permitted by applicable law, then such provisions shall be reformed
to the maximum time or geographic limitations permitted by applicable law. The
covenants contained in Section 6(a) shall be construed as a series of separate
covenants, one for each month of the year and for each county and for each state
of the United States encompassed by the covenants contained in Section 6(a). In
the event that any one or more of such covenants shall for any reason be held to
be invalid or unenforceable in any respect, such invalidity or unenforceability
shall not have any effect on any other such separate covenant, but such other
covenants shall be construed as if the invalid or unenforceable covenant had
never been contained in this Section 6(a).
7. Termination.
(a) As a material inducement for the Company to enter into the Stock
Purchase Agreement, Employee agrees to
<PAGE>
perform his or her duties hereunder during the period specified in Section 3.
(b) The termination provisions of this paragraph are all-inclusive.
This Agreement and the obligations of the Company and Employee hereunder shall
terminate (except as to such obligations as are expressly stated to survive such
termination) only in the following events: (i) upon Employee's death or upon
written notice from the Company to Employee in the event of permanent
disability, (ii) upon written notice from the Company to Employee in the event
Employee is convicted of any criminal act that is a felony or involves moral
turpitude, or (iii) upon written notice from the Company to Employee in the
event Employee commits an act of gross negligence or gross misconduct in the
performance of his or her duties or willfully violates any material provision of
this Agreement, (iv) upon payment by the Company to the Employee of the salary
for the remaining term of this Agreement or (v) upon the expiration of the term
of employment set forth in Section 3.
8. Miscellaneous.
(a) Notices. All notices which a party is required or may desire to
give to the other party under or in connection with this Agreement shall be
sufficient if given by addressing the same to the other party as follows:
If to Employee to:
Paul Dendy
816 N.E. Eighty-seventh Avenue
Vancouver, Washington 98664
If to the Company, to:
Medical Resource Companies of America
4265 Kellway Circle
Addison, TX 75244
Attn: Mark E. Bennett
or to such other place as may be designated in writing by like notice. Any
notice shall be deemed to have been given when personally delivered or five days
after mailing if mailed by certified or registered mail, postage prepaid, return
receipt requested, when addressed as required herein.
(b) Assignment. It is expressly intended that Section 6 of this
Agreement shall inure to the benefit of, and be enforceable by, the "Purchaser
Companies" as defined therein. This Agreement shall be binding upon and inure
to the benefit of Employee, his or her heirs, distributees and assigns and the
Company and its successors and assigns. Employee may not, without the express
written permission of the Company, assign or pledge any rights or obligations
hereunder.
<PAGE>
(c) Entire Agreement. This Agreement contains all of the terms and
conditions agreed upon by the parties relating to the subject matter of this
Agreement and supersedes any and all prior and contemporaneous agreements,
negotiations, correspondence, undertakings and communications of the parties,
oral or written, with respect to that subject matter.
(d) Amendment Waiver. No amendment or modification of this Agreement
shall be valid unless evidenced by a written instrument executed by the parties
hereto. No waiver by the Company of any breach by Employee of any provision or
condition of this Agreement shall be deemed a waiver of any similar or
dissimilar provision or condition at the same time or any prior or subsequent
time.
(e) Severability. The provisions of this Agreement and the covenants
herein contained shall be construed independently of each other, it being the
express intent of the parties hereto that the obligations of, and restrictions
on, the parties as provided herein shall be enforced and given effect to the
fullest extent legally permissible.
(f) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but which together shall
constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
(h) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
(i) Attorney's fees. If any legal action is brought by either of the
parties, the party in whose favor final judgment is entered shall be entitled to
recover reasonable attorney's fees from the other party in addition to any other
relief that may be awarded.
(j) MRC Payroll, Inc. It is understood and agreed that the actual
employer of the Employee will probably be MRC Payroll, Inc. ("Payroll") and that
Payroll and the Company will be considered one and the same for purposes of this
Agreement. Notwithstanding the foregoing, the Company agrees to perform or
cause to be performed all of the obligations, duties, and covenants set forth in
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
<PAGE>
MEDICAL RESOURCE COMPANIES OF
AMERICA
By:___________________________
James R. Gilley
President
EMPLOYEE:
______________________________
Paul Dendy
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT AGREEMENT, made and entered into this ___ day of
_________, 1996, by and between Greenbriar Corporation, formerly Medical
Resource Companies of America, a Nevada corporation (the "Company"), and Paul
Dendy ("Employee").
W I T N E S S E T H:
WHEREAS, the Company and Employee entered into an Employment Agreement
dated as of March 15, 1996 (the "Agreement") and
WHEREAS, the parties hereto are desirous of amending the Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained herein
and for other valuable consideration, the receipt and legal sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
Section 3 is hereby amended by changing the term of the Agreement to end
on March 15, 1999, unless terminated prior thereto pursuant to Section 7
of the Agreement.
Section 4 (a) is hereby amended to provide for an annual salary review on
March 15 of each year.
All other terms and conditions of the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year above first written.
EMPLOYEE: GREENBRIAR CORPORATION
_________________________ _________________________
Paul Dendy Name:
Title:
<PAGE>
RESIDENTIAL HEALTHCARE PROPERTIES, INC.
1997 STOCK OPTION PLAN
500,000 Shares
ARTICLE I
GENERAL
1.1 Purpose of the Plan.
The purpose of the Residential Healthcare Properties, Inc. 1997 Stock Option
Plan (the "Plan") is to assist Residential Healthcare Properties, Inc., a Nevada
corporation (the "Company"), in securing and retaining Key Participants of
outstanding ability by making it possible to offer them an increased incentive
to join or continue in the service of the Company and to increase their efforts
for its welfare through participation or increased participation in the
ownership and growth of the Company.
1.2 Definitions.
(a) "Acceleration Event" means any event which in the opinion of the
Board of Directors of the Company is likely to lead to changes in control
of share ownership of the Company, whether or not such change in control
actually occurs.
(b) "Award" means an Option granted to a Key Participant under the
Plan.
(c) "Board of Directors" or "Board" means the Board of Directors of
the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the committee referred to in Section 1.3.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Fair Market Value" means the closing price of the shares on the
American Stock Exchange or other exchange on which the Common Stock is
primarily traded on the day on which such value is to be determined or, if
no shares were traded on such day, on the next preceding day on which
shares were traded, as reported by THE WALL STREET JOURNAL. If at any time
shares of
- 1 -
<PAGE>
Common Stock are not traded on an exchange or in the over-the-counter
market, Fair Market Value shall be the value determined by the Board of
Directors or Committee administering the Plan, taking into consideration
those factors affecting or reflecting value which they deem appropriate.
(h) "Grantee" means a Key Participant to whom an Award is granted
under the Plan.
(i) "Incentive Share" means a share of Common Stock awarded to a Key
Participant under Article VI hereof on such terms as are determined by the
Committee.
(j) "Incentive Share Agreement" means a written agreement in such
form as the Board or Committee, as applicable, shall approve that evidences
the terms and conditions of an award of Incentive Shares hereunder.
(k) "Incentive Stock Option" means an option to purchase shares of
Common Stock which is intended to qualify as an incentive stock option as
defined in Section 422 of the Code.
(l) "Key Participant" means any person, including officers,
directors, agents and consultants of the Company or any Subsidiary who are
designated a Key Participant by the Board or Committee, as applicable, and
is or is expected to be primarily responsible for the management, growth,
or supervision of some part or all of the business of the Company. The
power to determine who is and who is not a Key Participant is reserved
solely for the Committee.
(m) "Nonqualified Stock Option" means an option to purchase shares of
Common Stock which is not intended to qualify as an Incentive Stock Option
as defined in Section 422 of the Code.
(n) "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
(o) "Optionee" means a Key Participant to whom an Option is granted
under the Plan.
(p) "Parent" means any corporation which qualifies as a parent of a
corporation under the definition of "parent corporation" contained in
Section 425(e) of the Code.
(q) "Subsidiary" means any corporation which qualifies as a
subsidiary of a corporation under the definition of "subsidiary
corporation" contained in Section 425(f) of the Code.
- 2
<PAGE>
(r) "Term" means the period during which a particular option may be
exercised as determined by the Committee and as provided in the option
agreement.
1.3 Administration of the Plan.
The Plan shall be administered by the Compensation Committee (the
"Committee") appointed by the Board of Directors consisting solely of two
or more Non-Employee Directors, as defined in Rule 16b-3 (see Section 1.10,
below), or in the absence of an appointment of such a Committee, the full
Board shall serve as the Committee. Subject to the control of the Board,
and without limiting the control over decisions described in Section 1.7,
the Committee shall have the power to interpret and apply the Plan and to
make regulations for carrying out its purpose. More particularly, the
Committee shall determine which Key Participants shall be granted Options
and the terms of such grants. When granting Options, the Committee shall
designate the Option as either an Incentive Stock Option or a Nonqualified
Stock Option. Determinations by the Committee under the Plan (including,
without limitation, determinations of the person to receive Awards, the
form, amount and timing of such Awards, and the terms and provisions of
such Awards and the agreements evidencing same) need not be uniform and may
be made by it selectively among persons who receive, or are eligible to
receive, Awards under the Plan, whether or not such persons are similarly
situated. In serving on the Committee, members thereof shall be considered
to be acting in their capacity as members of the Board of Directors and
shall be entitled to all rights of indemnification provided by the Bylaws
of the Company or otherwise to members of the Board of Directors.
1.4 Shares Subject to the Plan.
The total number of shares that may be purchased pursuant to Options under
the Plan shall not exceed 500,000 shares of Common Stock. Shares subject
to the Options which terminate or expire prior to exercise shall be
available for future Awards under the Plan without again being charged
against the limitation of 500,000 shares set forth above. Shares issued
pursuant to the Plan may be either unissued shares of Common Stock or
reacquired shares of Common Stock held in treasury.
1.5 Terms and Conditions of Options.
All Options shall be evidenced by agreements in such form as the Committee
shall approve from time to time subject to the provisions of Article II and
Article III, as appropriate, and the following provisions:
- 3 -
<PAGE>
(a) Exercise Price. The exercise price of the Option shall not be
less than the Fair Market Value (as determined by the Committee) of the
Common Stock at the time the Option is granted.
(b) Exercise. The Committee shall determine whether the Option shall
be exercisable in full at any time during the Term or in cumulative or
noncumulative installments during the Term.
(c) Termination of Employment or Contractor Relationship. An
Optionee's Option shall expire on the expiration of the Term specified in
Section 2.1 or 3.1 as the case may be, or upon the occurrence of such
events as are specified in the agreement. In the event of exercise of the
Option after termination of employment or contractor relationship, the
Optionee may exercise the Option only with respect to the shares which
could have been purchased by the Optionee at the date of such termination.
However, the Committee may, but is not required to, waive any requirements
made pursuant to Section 1.5(b) so that some or all of the shares subject
to the Option may be exercised within the time limitation described in this
subsection. An Optionee's employment or contractor relationship shall be
deemed to terminate on the last date for which he receives a regular wage,
salary or contract payment. Whether military, government or other service
or other leave of absence shall constitute a termination of employment
shall be determined in each case by the Committee at its discretion, and
any determination by the Committee shall be final and conclusive. A
termination of employment or contractor relationship shall not occur where
the Optionee transfers from the Company to one of its Subsidiaries or
transfers from a Subsidiary to the Company.
(d) Death or Disability. Upon termination of an Optionee's
employment or contractor relationship by reason of death or disability (as
determined by the Committee consistent with the definition of Section
422(c)(7) of the Code), the Option shall expire on the earlier of the
expiration of (i) the date specified in the Option which in no event shall
be later than 12 months after the date of such termination, or (ii) the
Term specified in Section 2.1 or 3.1 as the case may be. The Optionee or
his successor in interest, as the case may be, may exercise the Option only
as to the shares that could have been purchased by the Optionee at the date
of his termination of employment. However, the Committee may, but is not
required to, waive any requirements made pursuant to Section 1.5(b) so that
some or all of the shares subject to the Option may be exercised within the
time limitation described in this subsection.
(e) Payment. Payment for shares as to which an Option is exercised
shall be made in such manner and at such time or times as shall be provided
in the option agreement, including cash, Common Stock of the Company which
was previously acquired by the Optionee, or any combination thereof. The
Fair
- 4 -
<PAGE>
Market Value of the surrendered Common Stock as of the date of exercise
shall be determined in valuing Common Stock used in payment for Options.
(f) Nontransferability. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the Optionee, an Option shall be exercisable only by
the Optionee.
(g) Additional Provisions. Each option agreement may contain such
other terms and conditions not inconsistent with the provisions of the
Plan, including the award of cash amounts, as the Committee may deem
appropriate from time to time.
1.6 Stock Adjustments; Mergers.
(a) Generally. Notwithstanding Section 1.4, in the event the
outstanding shares are increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company
or of any other corporation by reason of any merger, sale of stock,
consolidation, liquidation, recapitalization, reclassification, stock split
up, combination of shares, stock dividend, or transaction having similar
effect, the total number of shares set forth in Section 1.4 shall be
proportionately and appropriately adjusted by the Committee.
(b) Options. Following a transaction described in subsection (a)
above, if the Company continues in existence, the number and kind of shares
that are subject to any Option and the option price per share shall be
proportionately and appropriately adjusted without any change in the
aggregate price to be paid therefor upon exercise of the Option. If the
Company will not remain in existence or substantially all of its voting
Common Stock and Common Stock will be purchased by a single purchaser or
group of purchasers acting together, then the Committee may (i) declare
that all Options shall terminate 30 days after the Committee gives written
notice to all Optionee's of their immediate right to exercise all Options
then outstanding (without regard to limitations on exercise otherwise
contained in the Options), or (ii) notify all Optionee's that all Options
granted under the Plan shall apply with appropriate adjustments as
determined by the Committee to the securities of the successor corporation
to which holders of the numbers of shares subject to such Options would
have been entitled, or (iii) take action that is some combination of
aspects of (i) and (ii). The determination by the Committee as to the
terms of any of the foregoing adjustments shall be conclusive and binding.
Any fractional shares resulting from any of the foregoing adjustments under
this section shall be disregarded and eliminated.
1.7 Acceleration Event.
- 5 -
<PAGE>
If an Acceleration Event occurs in the opinion of the Board of Directors,
based on circumstances known to it, the Board of Directors may direct the
Committee to declare that any or all Options granted under the Plan shall
become exercisable immediately notwithstanding the provisions of the
respective agreements granting any such Awards.
1.8 Notification of Exercise.
Options shall be exercised by written notice directed to the Secretary of
the Company at the principal executive offices of the Company. Such
written notice shall be accompanied by any payment required pursuant to
Section 1.5(e). Exercise by an Optionee's heir or the representative of
his estate shall be accompanied by evidence of his authority to so act in
form reasonably satisfactory to the Company.
1.9 Modification, Extension and Renewal of Awards.
Subject to the terms and conditions and within the limitations of the Plan,
the Committee may modify, extend or renew outstanding Awards or accept the
surrender of outstanding Awards (to the extent not theretofore exercised)
granted under the Plan or under any other plan of the Company or a
Subsidiary, and authorize the granting of new Awards pursuant to the Plan
in substitution therefor, and the substituted Awards may bear such
different or additional terms and conditions as the Committee shall deem
appropriate within the limitations of the Plan. Notwithstanding the
foregoing, however, no modification of an Award shall, without the consent
of the Grantee holding the Award, adversely affect the rights or
obligations of such Grantee.
1.10.Compliance with Rule 16b-3.
It is intended that the provisions of the Plan and any Award shall comply
in all respects with the terms and conditions of Rule 16b-3 under the
Securities Exchange Act of 1934, as in effect on April 1, 1997 and as
amended, or any successor provisions, as it relates to persons subject to
the reporting requirements of Section 16(a) of such Act. Any agreement
granting an Award shall contain such provisions as are necessary or
appropriate to assure such compliance. To the extent that any provision
hereof is found not to be in compliance with such rule as it relates to
such Act, such provision shall be deemed to be modified so as to be in
compliance with such rule, or if such modification is not possible, shall
be deemed to be null and void, as it relates to such Grantee.
ARTICLE II
INCENTIVE STOCK OPTIONS
- 6 -
<PAGE>
2.1 Terms of Incentive Stock Options.
Each Incentive Stock Option granted under the Plan shall be exercisable
only during a Term fixed by the Committee; provided, however, that the Term
shall end no later than 10 years after the date the Incentive Stock Option
is granted.
2.2 Limitation on Options.
The aggregate Fair Market Value of Common Stock (determined at the time the
Incentive Stock Option is granted) subject to Incentive Stock Options
granted to a Key Participant under all plans of the Key Participant's
employer corporation and its Parent or Subsidiary corporations and that
become exercisable for the first time by such Key Participant during any
calendar year may not exceed $100,000.
2.3 Special Rule for Ten Percent Shareholder.
If at the time an Incentive Stock Option is granted, a participant owns
stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of his employer corporation or of its Parent
or any of its Subsidiaries, as determined using the attribution rules of
Section 424(d) of the Code, then the terms of the Incentive Stock Option
shall specify that the option price shall be at least 110% of the Fair
Market Value of the stock subject to the Incentive Stock Option and such
Incentive Stock Option shall not be exercisable after the expiration of
five years from the date such Incentive Stock Option is granted.
2.4 Interpretation.
In interpreting this Article II of the Plan and the provisions of
individual option agreements, the Committee and the Board shall be governed
by the principles and requirements of Sections 421, 422 and 425 of the
Code, and applicable Treasury Regulations.
ARTICLE III
NONQUALIFIED STOCK OPTIONS
3.1 Terms and Conditions of Options.
In addition to the requirements of Section 1.5, each Nonqualified Stock
Option granted under the Plan shall be exercisable only during a Term fixed
by the Committee.
3.2 Section 83(b) Election.
- 7 -
<PAGE>
The Company recognizes that certain persons who receive Nonqualified Stock
Options may be subject to restrictions regarding their right to trade
Common Stock under applicable securities laws. Such may cause Optionee's
exercising such Options not to be taxable under the provisions of Section
83(c) of the Code. Accordingly, Optionee's exercising such Nonqualified
Stock Options may consider making an election to be taxed upon exercise of
the Option under Section 83(b) of the Code and to effect such election will
file such election with the Internal Revenue Service within thirty (30)
days of exercise of the Option and otherwise in accordance with applicable
Treasury Regulations.
ARTICLE IV
ADDITIONAL PROVISIONS
4.1 Stockholder Approval.
The Plan shall be submitted for the approval of the stockholders of the
Company at the first annual meeting of stockholders held subsequent to the
adoption of the Plan and in all events within one year of its approval by
the Board of Directors. If at said meeting the stockholders of the Company
do not approve the Plan, the Plan shall terminate.
4.2 Compliance with Other Laws and Regulations.
The Plan, the grant and exercise of Options hereunder, and the obligation
of the Company to sell and deliver shares under such Options, shall be
subject to all applicable Federal and state laws, rules, and regulations
and to such approvals by any government or regulatory agency as may be
required. The Company shall not be required to issue or deliver any
certificates for shares of Common Stock prior to (a) the listing of such
shares on any stock exchange on which the Common Stock may then be listed
and (b) the completion of any registration or qualification or exemption of
such shares under any Federal or state law, or any ruling or regulation of
any government body which the Company shall, in its sole discretion,
determine to be necessary or advisable.
4.3 Amendments.
The Board of Directors may discontinue the Plan at any time, and may amend
it from time to time, but no amendment, without approval by stockholders,
may increase the total number of shares which may be issued under the Plan.
Other than as expressly permitted under the Plan, no outstanding Award may
be revoked or altered in a manner unfavorable to the Grantee without the
consent of the Grantee.
- 8 -
<PAGE>
4.4 No Rights As Shareholder.
No Grantee shall have any rights as a shareholder with respect to any share
subject to his or her Option prior to the date of issuance to him or her of
a certificate or certificates for such shares.
4.5 Withholding.
Whenever the Company proposes or is required to issue or transfer shares of
Common Stock under the Plan, the Company shall have the right to require
the Grantee to remit to the Company an amount sufficient to satisfy any
Federal, state or local withholding tax liability in such form as the
Company may determine or accept in its sole discretion, including payment
by surrender or retention of shares of Common Stock prior to the delivery
of any certificate or certificates for such shares.
4.6 Continued Employment Not Presumed.
This Plan and any document describing this Plan and the grant of any Award
hereunder shall not give any Optionee or other Participant a right to
continued employment or directorship by the Company or its Subsidiaries or
affect the right of the Company or its Subsidiaries to terminate the
employment or directorship of any such person with or without cause.
4.7 Effective Date; Duration.
The Plan shall become effective as of September __, 1997 pursuant to Board
of Director and Stockholder approval received on such date and shall expire
on September __, 2007. No Awards may be granted under the Plan after
September __, 2007, but Awards granted on or before that date may be
exercised according to the terms of the related agreements and shall
continue to be governed by and interpreted consistent with the terms
hereof.
- 9 -
<PAGE>
- 10 -
