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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-8187
GREENBRIAR CORPORATION
(Name of Small Business Issuer in its charter)
NEVADA 75-2399477
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
4265 KELLWAY CIRCLE, DALLAS, TEXAS 75244
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (972) 407-8400
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were: $29,785,000.
The aggregate market value of the voting stock held by non-affiliates of the
issuer, computed by reference to the closing sales price on March 26, 1997, was
approximately $35,400,000.
At March 26, 1997, the issuer had outstanding approximately 6,550,000 shares of
par value $.01 Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-KSB incorporates certain information
by reference from the definitive Proxy Statement for the registrant's Annual
Meeting of Stockholders to be held on May 22, 1997.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
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GREENBRIAR CORPORATION
Index to Annual Report on Form 10-KSB
Fiscal year ended December 31, 1996
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PART I PAGE
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Item 1: Description of Business 3
Item 2: Description of Properties 16
Item 3: Legal Proceedings 17
Item 4: Submission of Matters to a Vote of Security Holders 18
PART II
Item 5: Market for Common Equity and Related Stockholder Matters 18
Item 6: Management's Discussion and Analysis or Plan of Operation 18
Item 7: Financial Statements 23
Item 8: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 23
PART III
Item 9: Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act 24
Item 10: Executive Compensation 24
Item 11: Security Ownership of Certain Beneficial Owners and
Management 24
Item 12: Certain Relationships and Related Transactions 24
PART IV
Item 13: Exhibits and Reports On Form 8-K 24
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PART I
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ITEM 1: DESCRIPTION OF BUSINESS
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OVERVIEW AND BACKGROUND OF ASSISTED LIVING OPERATIONS
Greenbriar Corporation, including its acquired subsidiaries Wedgwood Retirement
Inns, Inc. and American Care Communities, Inc., (the "Company") is an
established assisted living company that operates assisted and independent
living communities designed to serve the needs of the elderly population.
Assisted living residents generally comprise frail elderly persons who require
assistance with the activities of daily living such as ambulation, bathing,
eating, personal hygiene, grooming and dressing, but who do not generally
require more expensive skilled nursing care. Independent living residents
typically require only occasional assistance but receive other support services.
In addition, the Company also develops and operates communities for residents
suffering from Alzheimer's or other related dementia, a growing specialty within
the assisted living industry.
As of March 1997, the Company operated 34 communities in 11 states, with a
capacity of 2,700 residents, consisting of 31 communities in which the Company
has ownership or leasehold interests and two communities managed for third
parties. In addition, the Company leases one community that is managed by a
third party. The Company plans to pursue an aggressive growth strategy through
development and construction and, when opportunities arise, to acquire other
communities and assisted living companies through strategic acquisitions. As of
March 1997, the Company had four assisted living communities with capacity for
368 residents under construction or development.
The Company existed from 1981 until 1989 as a real estate investment trust. In
late 1989, control of the Company changed to current management, who undertook
to dispose of its REIT properties and establish a new focus on services and
products to the elderly. In 1991 the REIT was reorganized as a Nevada
Corporation. Until 1994, the Company's business was the acquisition, operation
and sale of retirement, nursing and other healthcare communities, as well as
commercial real estate, and the manufacture and sale or lease of mobility
assistance equipment. In 1994 the Company decided to change its business
emphasis to the assisted living industry, and by early 1996 it had sold its
existing nursing homes and retirement centers, most of its commercial real
estate, and its mobility equipment subsidiaries.
During 1995 and 1996 the Company began developing and constructing assisted
living communities; however, the significant growth that occurred was through
two acquisitions that were completed in 1996. In March 1996 the Company
acquired Wedgwood Retirement Inns, Inc., a Vancouver, Washington based company
with 16 communities in six states. In December 1996 the Company acquired
American Care Communities, Inc., a Cary, North Carolina based company with 16
communities in three states.
ACQUISITION OF WEDGWOOD RETIREMENT INNS, INC.
Effective March 31, 1996, Greenbriar acquired (the "Wedgwood Acquisition")
Wedgwood Retirement Inns, Inc. ("Wedgwood"), which along with its principals
owned various interests in 15 predecessor entities, each of which owned, leased
or managed at least one assisted or independent living community.
Wedgwood was one of the first builders and management companies in the
retirement and assisted living industry. At the time of the acquisition
Wedgwood owned and managed 1,292 units of full-service retirement and assisted
living, including some that provide Alzheimer's care. The communities were
located in six states: Washington, Oregon, California, Idaho, New Mexico and
Texas. As of March 1996, Wedgwood had three communities under construction,
containing 225 assisted living units and Alzheimer's beds.
Wedgwood was purchased from 23 individuals, all of whom were unrelated to
Greenbriar.
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 property was valued at its current independently appraised
value of $3,375,000. Consideration given was 675,000 shares of Series D
Preferred Stock. Greenbriar issued 1,949,950 shares ($14,000,000) of Series E
Preferred Stock and $220,000 in cash and notes to the
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Wedgwood shareholders. Both classes of stock, which are unregistered and would
have no trading market unless converted to Common Stock, will be entitled to one
vote per share on all matters to come before a meeting of stockholders. The
Series D Preferred Stock will bear a cumulative quarterly dividend of 9.5% per
year.
At a stockholders' meeting held in September 1996, the stockholders of
Greenbriar voted to allow both series of preferred stock to convert into
unregistered shares of Greenbriar Common Stock, with the Series E convertible at
1.2 shares for each share of Greenbriar Common Stock and Series D convertible at
two shares for each share of Greenbriar Common Stock. As such, the Series D
would convert into 337,500 shares and the Series E would be convertible into
1,624,958 shares. Immediately after the shareholder vote, the Series E
shareholders converted their holdings into unregistered Greenbriar Common Stock.
ACQUISITION OF AMERICAN CARE COMMUNITIES, INC.
Effective 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 owned or leased 15 assisted
living communities with approximately 1,350 units, located primarily in North
Carolina and managed one community for a third party. 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 accounts and
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 45,500 shares of the
Company's Common Stock acquired in the merger. For accounting purposes, this
transaction, valued at $600,000, has been reflected as a contribution of capital
with a corresponding charge to operations.
In addition to the charge to earnings noted above, both Greenbriar and American
Care incurred legal, accounting and other costs in completing the acquisition.
In accordance with the pooling of interest rules of accounting, these costs have
been charged to earnings in the period the combination occurred.
The acquisitions of American Care and Wedgwood provide the Company with the
opportunity for long term cost savings by consolidating the accounting, legal
and other administrative functions.
REAL ESTATE OPERATIONS
As of March 1997, the Company owned three shopping centers in Georgia and one
shopping center in North Carolina. While all the centers are profitable, they
do not fit into the Company's long range strategic plans and commitment to the
assisted living industry. The Company is actively attempting to sell all the
centers and currently has a firm contract to sell its North Carolina center. The
transaction is scheduled to close in the second quarter of 1997.
THE ASSISTED LIVING INDUSTRY
The Company believes that the assisted living industry is emerging as a
preferred alternative to meet the growing demand for a cost-effective setting in
which to care for the elderly who do not require the more intensive medical
attention provided by a skilled nursing center, but who cannot live
independently due to physical or cognitive frailties. In general, assisted
living represents a combination of housing, general support services and 24-hour
a day personal care services designed to aid elderly residents with the
activities of daily living ("ADLs"). Certain assisted living communities may
also provide assistance to residents with low acuity medical needs, or may offer
higher levels of personal assistance for incontinent residents or residents with
Alzheimer's disease or other forms of dementia. Generally, assisted living
residents have higher levels of need than those of residents of independent
retirement living communities but lower than those of residents in skilled
nursing centers. Annual expenditures in the assisted living industry have been
estimated to be approximately $14 billion, including communities ranging from
"board and care" to full-service assisted living communities such as those
operated by the Company.
The Company believes that assisted living is one of the fastest growing segments
of elderly care and will continue to experience significant growth due to the
following:
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Consumer Preference. The Company believes that assisted living is
increasingly becoming the setting preferred by prospective residents and
their families in which to care for the frail elderly. Assisted living
offers residents greater independence in a residential setting, which the
Company believes results in a higher quality of life than that experienced
in more institutional or clinical settings, such as skilled nursing
centers.
Demographic and Social Trends. The target market for the Company's services
is generally persons 75 years and older, one of the fastest growing
segments of the U.S. population. According to the U.S. Census Bureau, the
portion of the U.S. population age 75 and older is expected to increase by
34%, from approximately 13.0 million in 1990 to over 17.4 million by the
year 2000, and the number of persons age 85 and older, as a segment of the
U.S. population, is expected to increase approximately 39% during the 1990s
from 3.1 million to approximately 4.3 million. It is estimated that the
total U.S. population will increase by approximately 11% during the same
period. It is further estimated that approximately 57% of the population of
seniors over age 85 need assistance with ADLs and approximately 50% of such
seniors develop Alzheimer's disease or other forms of dementia. According
to the United States Bureau of the Census, the median net worth of
householders age 75 and older has increased from $61,491 in 1988 to $76,541
in 1992. Accordingly, the Company believes that the number of seniors who
are able to afford high-quality residential environments, such as those
offered by the Company, has increased in recent years.
Lower Average Cost. The Company believes that the average annual cost to
residents receiving assisted living care in the Company's assisted living
communities is significantly less than the cost of receiving similar care
in a skilled nursing center. According to the Marion Merrell Dow Inc.
Managed Care Digest Series, Institutional Digest 1995, the average annual
cost per person in 1994 in the United States for private nursing home care
was approximately $36,000. During the three months ended March 31, 1997,
the average annualized revenue per resident (independent and assisted
living) in the Company's communities was approximately $18,000.
Changing Supply of Long-term Care Beds. Most of the states in which the
Company currently operates have enacted certificate of need ("CON") or
similar legislation that restricts the supply of licensed nursing center
beds. These laws generally limit the construction of nursing centers and
the addition of beds or services to existing nursing centers, and hence
tend to limit the available supply of traditional nursing home beds. In
addition, some long-term care centers have started to convert traditional
nursing home beds into sub-acute beds. The Company also believes that high
construction costs and limits on government reimbursement for the full cost
of construction and start-up expenses also will constrain the growth and
supply of traditional nursing home centers and beds. The Company expects
that this tightening supply of nursing beds coupled with the aging
population will create an increased demand for assisted living communities.
BUSINESS STRATEGY
The Company believes that significant growth opportunities exist to provide
assisted living services to the rapidly growing elderly population. The
Company has aggressively expanded its operations through the acquisition of
communities and assisted living companies. The Company also seeks to improve
the operating performance of its communities through the continued enhancement
of its operations. The Company is developing and constructing communities in
markets where it already has its management infrastructure in place and in
markets that are under served.
The majority of the Company's current communities are operated and marketed on
a private-pay, single occupancy basis. Most double occupancy is non-related
people who are state-assisted residents. Most of the Company's state-assisted
residents are in the North Carolina communities. North Carolina has one of the
best reimbursement rates in the nation for assisted living and was a pioneer
in supporting the development of assisted living as one way of containing
costs of caring for the state's aging population.
As America ages, the Company believes that more states will adopt a
reimbursement policy similar to North Carolina, primarily a double occupancy
approach. Some, however, may stress a single occupancy approach. The Company
believes that the assisted living industry will primarily continue as a
private-pay industry for the foreseeable future, but may become more price-
sensitive as more people need assisted living and for longer periods due to
increased life spans. Costs of caring for an aging America may become more of
a private-pay, state-assisted partnership than currently exists.
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The Company uses the same development strategy for special care units in
combined Alzheimer's and assisted living communities and in dedicated special
care communities. The units and common space are designed for flexibility so
that they can be primarily single occupancy or primarily double occupancy -
again, based on market demand
The Company believes that this occupancy-flexible development strategy will
provide a competitive advantage over its competitors who do not have units and
common space large enough to readily accommodate double occupancy.
To facilitate its construction and development strategy, the Company has entered
into a Construction Management Agreement with Victor L. Lund, the founder of
Wedgwood and a director of the Company, pursuant to which Mr. Lund agreed to
serve, for three years following closing of the Wedgwood Acquisition, as a
construction manager to oversee the Company's construction of up to 20 assisted
living communities, including those that provide Alzheimer's care.
The top management of the Company has extensive acquisition experience and
contacts in the assisted living and long-term care industry. The rapid growth
achieved this past year came from two major acquisitions. The Company believes
that acquisition is the best way to meet its growth goals. The assisted living
industry is very fragmented and still primarily a single proprietor business.
Acquisition Strategy. The Company may acquire one or more communities or
assisted living companies as a means to enter new markets and may also make
acquisitions within its existing regions to gain further market share and
leverage its existing operating infrastructure. In reviewing acquisition
opportunities, the Company considers, among other things, the competitive
climate, the current reputation of the community or the operator, the quality of
the management, the need to reposition the community in the marketplace and
costs associated therewith, the construction quality and any need for
renovations of the community and the opportunity to improve or enhance operating
results.
Operating Strategy. The Company's operating strategy is to achieve and sustain a
strong competitive position within its chosen markets as well as to continue to
enhance the performance of its operations. The Company also will seek to enhance
its current operations by (i) maintaining and improving occupancy rates at its
communities; (ii) opportunistically increasing resident service fees; and (iii)
improving operating efficiencies.
Other Residents Customized Care and Service Packages. The Company continually
seeks to expand its range of services to meet the evolving needs of its
residents. The Company offers each of its residents a personalized assisted
living service plan which may include any combination of basic support care,
personal care, supplemental services, wellness services, and if needed,
Alzheimer's and special care services, subject to the level of services allowed
to be offered by the licensing in place at each community. By offering services
in an "unbundled" manner, charging only for the services needed and involving
the active participation of the resident, the Company is able to customize its
service plans to meet the specific needs of each resident. As a result, the
Company believes that it is able to maximize customer satisfaction while
avoiding the high cost of delivering all services to all residents without
regard to need or choice. The care plan for each resident is periodically
reviewed and updated by the Company, the resident and the resident's family and
the resident's physician.
Maintain and Improve Occupancy Rates. The Company also seeks to maintain and
improve occupancy rates by continuing to (i) attract new residents through
marketing programs directed towards family decision makers, namely adult
children and potential residents, (ii) actively seek referrals from hospitals,
rehabilitation hospitals, physicians' clinics, home healthcare agencies and
other acute and sub-acute healthcare providers in the markets served by the
Company and (iii) develop new market niches such as respite care, adult day care
and other specialty care programs sought by caregivers.
Selectively Increase Service Pricing Levels. The Company regularly reviews
opportunities to increase resident service fees within its existing markets,
while maintaining competitive market positions. In keeping with this strategy,
the Company will continue to offer high quality assisted living services at
average to above average prices and generally target private-pay residents. The
Company's private-pay residents are typically seniors who can afford to pay for
services from their own and their families' financial resources. Such resources
may include social security, investments, proceeds from the sale of their
residence, contributions from family members and insurance proceeds from long-
term care insurance policies.
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Improve Operating Efficiencies. The Company seeks to improve operating results
of its communities by actively monitoring and managing its operating costs. In
addition, the Company believes that concentrating communities within selected
geographic regions may enable the Company to achieve operating efficiencies
through economies of scale, reduce corporate overhead and provide for more
effective management supervision and financial controls. The Company also
believes that it will be able to obtain volume discounts through enhanced
purchasing power for a variety of items including food supplies, insurance,
equipment and other items.
Offer Alzheimer's Dedicated Communities. As of March 1997, the Company had
eleven communities with distinct special care wings specifically designed to
serve the needs of individuals with Alzheimer's disease and other forms of
dementia through the provision of a variety of specialty care services. The
Company plans to build a portion of its new communities with a distinct
Alzheimer's wing which will allow the Company to offer this service to the
elderly with this disease and other forms of dementia, will create an
opportunity for residents to age in place within the same community, and will
allow special security and support of Alzheimer's residents. The Company
believes this will allow it to continue serving residents for a longer period of
time, and provide a desirable alternative for its residents and their families.
However, most of the new communities will be designed to be flexible enough to
allow the Alzheimer's wing to be used only for assisted living residents if
demand for Alzheimer's care is not adequate to justify maintaining a distinct
Alzheimer's program in a particular community. The Company's experience and
research indicate that Alzheimer's residents often respond better by sharing a
suite with another Alzheimer's resident rather than being in a single occupancy
suite. Consequently, the Company's Alzheimer's programs are designed to allow
double occupancy, although rooms are available on a single occupancy basis.
ASSISTED LIVING SERVICES
The Company offers a wide range of assisted living care and services to its
residents. The residents are allowed to select among the services offered beyond
basic support services and are charged only for the services they need.
Management believes this provides the Company with a competitive advantage over
other service providers in the industry who offer discrete levels of services
and base their charges on the level of services offered regardless of whether a
resident requires or uses all of the services available at a particular level.
The services offered by the Company can generally be categorized as follows
. Basic Support Services. These services include providing up to three
meals per day in a common dining room, special dietary planning,
laundry, general housekeeping, organized social and other activities,
transportation, communities maintenance, utilities (except telephone)
and 24-hour security.
. Supplemental Services. These services include performing, coordinating
or assisting with bill paying, banking, personal shopping,
transportation, appointments, pet care and reminder services.
. Personal Care Services. These services include providing assistance
with activities of daily living (the ADL's) such as ambulation,
bathing, eating, dressing, personal hygiene and grooming.
. Wellness Services. These services include assistance with the
administration of medication and health monitoring by a nurse, which
are provided as permitted by government regulation.
. Alzheimer's and Special Care Services. The Company has a distinct
Alzheimer's special care wing in eleven of its existing communities
and generally plans to include a distinct Alzheimer's wing in the
communities constructed and developed by the Company. Alzheimer's care
includes a higher 24-hour staff ratio to provide oversight and
activity programs scheduled around-the-clock in the Alzheimer's wing,
which is secured from the rest of the building and includes secured
outdoor walking paths.
PROPERTIES
Operating Communities. The following table sets forth the information with
respect to communities that were operated by the Company at March 31, 1997. The
Company owns, leases, holds equity interest in or manages, on
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behalf of third parties, these communities. The Company considers its
communities to be in good operating condition and suitable for the purpose for
which they are being used.
EXISTING COMMUNITIES
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COMPANY
CARE RESIDENT OPERATIONS % OCC. AT
COMMUNITY NAME: LOCATION LEVEL UNITS CAPACITY(1) COMMENCED OWNERSHIP 3/31/97
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<S> <C> <C> <C> <C> <C> <C> <C>
Owned or Leased and
MANAGED BY COMPANY:
Camelot (6)(8) Harlingen, TX S 171 171 9/94 Owned(2) 90%
Crown Pointe Corona, CA S, FE 148 148 1/93 Owned(2)(5) 92
The Greenbriar at Denison Denison, TX FE, DC 44 65 5/96 Owned(2) 28
The Greenbriar at Muskogee Muskogee, OK FE 48 58 3/97 Owned(2) 7
Lincolnshire Lincoln City, OR S, FE 64 64 11/95 Owned(2) 80
Meadowbrook Place Baker City, OR FE 50 50 12/92 Owned(2) 96
Pacific Pointe(6) King City, OR S 113 113 1/93 Leased(3) 98
Rose Garden Estates Ritzville, WA FE 21 21 11/95 Owned(2) 81
Summer Hill(6) Oak Harbor, WA FE 59 61 2/94 Owned(2) 87
Sweetwater Springs Lithia Springs, GA FE 49 49 10/96 Leased(9) 22
The Terrace(6) Portland, OR FE, DC 65 69 5/91 Owned(2) 94
Villa del Rey(6) Merced, CA S 92 92 12/79 Leased(3) 99
Villa del Rey Roswell, NM S, FE 134 134 10/88 Leased(4)(7) 84
Villa del Rey(6) Visalia, CA S 98 98 12/79 Leased(3) 95
Villa del Sol Roswell, NM S 12 12 12/95 Owned(2) 92
La Villa Roswell, NM FE,DC 80 91 11/96 Owned(2) 36
Wedgwood Terrace(6) Lewiston, ID FE, DC 40 51 11/95 Leased(3) 88
Berne Village(6) New Bern, NC S,FE,DC 147 148 12/93 Owned(2) 93
Country Oaks(6) Chiefland, FL FE 41 58 12/95 Owned(2) 42
Country Time Inn(6) Kings Mountain,NC FE,DC 32 55 6/95 Owned(2) 71
Graybrier(6) Southern Pines, NC FE,DC 61 88 2/94 Owned(2) 94
Oakridge(6) Sanford, NC FE 43 85 12/95 Leased(3) 95
Red Oak(6) Greenville, NC FE 32 58 2/95 Leased(3) 97
Rose Manor of Cary Cary, NC FE,DC 56 62 10/96 Owned(2) 45
Rose Tara Plantation(6) King, NC FE 35 65 9/94 Owned(2) 97
Rose Terrace(6) Wendell, NC FE,DC 51 100 5/94 Leased(3) 100
Rose Vista Village(6) Fayetteville, NC S,FE 65 94 2/95 Leased(3) 84
Rose Vista Village(6) Goldsboro, NC S,FE 65 94 2/95 Leased(3) 88
Rose Vista Village(6) Kinston, NC S,FE 65 94 2/95 Leased(3) 73
Rose Vista Village(6) Wilson, NC S,FE, DC 80 122 2/95 Leased(3) 98
Royal Oaks(6) Sanford, NC FE 25 38 12/95 Leased(3) 71
Subtotal/Average 2,086 2,509 82
----- ----- --
MANAGED, BUT OWNED
BY THIRD PARTY:
Timberhill Place(6) Corvallis, OR FE 60 60 5/95 Managed 95
Scarborough Terrace(6) Scarborough, ME FE,DC 57 75 1/96 Managed 38
LEASED,
MANAGED BY THIRD PARTY:
Neawanna by the Sea Seaside, OR S, FE 59 59 1/90 Leased(4)(7) 93
Total 2,262 2,702 79
===== ===== ==
</TABLE>
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 residents, although capacity exists for additional
residents with double occupancy of more units.
(2) 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 Crown 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 4.75% at December 31, 1996.
Future communities owned and mortgaged by the Company will likely be
pledged as collateral
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for mortgage credit lines, which relate to more than one community. See
Item 6. "Management's Discussion and Analysis or Plan of Operation -
Liquidity and Capital Resources."
(3) Leased from third party individuals or partnership. Initial lease terms
generally range from 10 to 20 years, and mature between 1999 and 2011.
The Company is responsible for all costs including repairs to the
community, property taxes and other direct operating costs of the
community. Leases generally include clauses that allow for rent to
increase over time based on a specified schedule or on an increase in the
consumer price index. Generally, the Company has an option to purchase
the community after a specified period, or at expiration of the lease, at
a price generally equal to market value. As of December 31, 1996, the
Company had available, subject to periodic review, commitments for
approximately $60 million of lease credit lines for future communities.
See Item 6. "Management's Discussion and Analysis or Plan of Operation -
Liquidity and Capital Resources."
(4) Community is leased from a Real Estate Investment Trust. The lease was
part of a sale - leaseback transaction. The lease commenced in 1994 and
expires in 2009. The Company has an option to purchase the community in
2004 and in 2009 for an amount equal to the greater of the sales price or
the current replacement cost less actual depreciation.
(5) Company owns 60% of real estate and the lessee.
(6) Community was not constructed by Wedgwood, Greenbriar, or American Care
(7) Company owns 49% of lessee. Victor L. Lund, a director of the Company,
owns the other 51%, and the Company has an option to purchase his
interests in these entities for $10,000.
(8) Of these units, 113 have been sold to residents who then pay a reduced
monthly fee. The Company 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.
(9) Leased from a REIT for 15 years expiring in 2011.
Communities Under Construction. As of March 31, 1997, the Company was in
various stages of construction of four assisted living communities (i.e.
construction activities have commenced and are ongoing). Set forth below is
certain information with respect to communities under construction as of March
31, 1997.
COMMUNITIES UNDER CONSTRUCTION
<TABLE>
<CAPTION>
CARE RESIDENT ANTICIPATED ANTICIPATED
COMMUNITY NAME LOCATION LEVEL UNITS CAPACITY OPENING OWNERSHIP
- -------------- -------- ----- ----- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Greenbriar at Sherman Sherman, TX FE, DC 48 65 Q1-98 Own
Camelot Harlingen, TX S, FE, DC 138 147 Q4-97 Own
Oak Park Clermont, FL FE 60 60 Q3-97 Lease
Woodmark at Steel Lake Federal Way, WA FE, DC 89 96 Q2-97 Manage
--- ---
335 368
</TABLE>
Plans for Construction. The Company generally retains independent general
contractors to construct its communities. The Company approves 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. The Company estimates the average capitalized cost to
develop, construct and open a community (including land acquisition,
architectural and engineering, construction period interest and loan fees) to be
approximately $71,000 per unit, and average construction time for a typical
community to be approximately six to twelve months, depending upon the number of
units. The Company estimates that, once opened, it takes approximately six to
twelve additional months after licensure for each community to achieve a
stabilized occupancy level of 95% or higher. The Company anticipates that each
community will have an average operating loss (before depreciation) of
approximately $350,000 prior to reaching stabilized occupancy.
The Company believes quality independent general construction contractors are
readily available to build its communities at competitive prices. The Company
has entered into a Construction Management Agreement with Victor L. Lund, the
founder of Wedgwood and a director of the Company, to oversee construction of up
to 20 communities through 1998.
Development and Construction Risks. The Company'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 the Company has extensive
development experience, closely manages each development project and regularly
monitors the contractors constructing the Company's communities, project
management is subject to a number of contingencies over which the Company has
little or no control and which might adversely affect project costs and
completion time. Such
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contingencies include shortages of, or the inability to obtain, labor or
materials, the inability of contractors to perform under their contracts,
strikes, adverse weather conditions and changes in applicable laws or
regulations or in the method of applying such laws and regulations. The Company
intends to rely on third-party developers to construct some of the new assisted
living communities planned by the Company. There can be no assurance that the
Company 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. As a result of these
various factors, there can be no assurance that the Company will not experience
construction delays, that it will be successful in developing and constructing
currently planned or additional communities or that any developed community will
be economically successful. If the Company's planned development is delayed, the
Company's business, operating results and financial condition could be adversely
affected.
Need for Additional Financing; Risk of Rising Interest Rates, Development Delays
and Cost Overruns. To achieve its growth objectives, the Company will need
sufficient financial resources to fund its development, construction and
acquisition activities. Accordingly, the Company's future growth will depend on
its ability to obtain additional financing on acceptable terms. The Company
expects to experience negative cash flow from operations for at least 12 to 18
months following March 1997 as it continues to develop and construct assisted
living communities. There can be no assurance that any newly constructed
communities will achieve a stabilized occupancy rate and attain a resident mix
that meet the Company's expectations or generate sufficient positive cash flow
to cover operating and financing costs associated with such communities. The
Company will, from time to time, seek additional funding through public or
private financing, 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
the Company finances its activities through debt, sale/leaseback or leasing
arrangements, the Company may become subject to certain financial and other
covenants which may restrict its ability to pursue its rapid 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 the Company. A
lack of available funds may require the Company to delay, scale back or
eliminate all or some of its development and acquisition projects and could have
a material adverse effect on the Company's business, financial condition and
results of operations. See Item 6. "Management's Discussion and Analysis or
Plan of Operation - Liquidity and Capital Resources."
Repair and Maintenance. The Company conducts routine repairs and maintenance of
its communities on a regular basis, as needed. Several of the Company's
communities acquired in the Wedgwood and American Care Acquisitions have been in
operation for ten years or more. The Company has reviewed each community and
plans to spend up to approximately $1.5 million in repairs, maintenance and
improvements to certain of these communities over the next 12 months. The
Company has no other current plans for significant expenditures relating to its
existing communities, and considers them to be in good repair and working order.
COMMUNITY DESCRIPTION
The Company's existing communities as of March 1997 range in size from 12 to 171
units, are from one to three stories, and from 10,000 to 148,000 square feet.
Most of the new communities to be constructed by the Company will have 44 to 60
units, one or two stories and 35,000 to 70,000 square feet. 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 680-850 square feet for a two bedroom unit.
Assisted living units typically include a private bathroom, kitchenette,
closets, 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.
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OPERATIONS
The day-to-day operations of each community are managed by an Executive Director
who is responsible for all operations of the community, including overseeing the
quality of care and services, marketing, coordinating social activities,
monitoring financial performance and ensuring appropriate maintenance of grounds
and building. The Company also consults with outside providers, such as
pharmacists and dieticians, to assist residents with medication review, menu
planning and response to any special dietary needs. Personal care, dietary
services, housekeeping and laundry services are performed primarily by line
staffs who are either part or full-time employees of the Company and who are
trained to perform a variety of such services. Most building maintenance
services are performed by part or full-time employees, while elevator, HVAC
maintenance and landscaping services are generally performed by third party
contractors.
The Company's senior management and other personnel located at the Dallas, Texas
executive office and King City, Oregon and Cary, North Carolina regional offices
provide support services to each of the Company's communities, including
development of operational standards, budgets and quality assurance programs,
recruiting, training, and financial and accounting services, such as data
processing, accounts payable, billing and payroll services. Corporate personnel
and community Executive Directors collaborate with respect to the establishment
of community goals and strategies, quality assurance oversight, development of
Company policies and procedures, development and implementation of new programs,
cash management, human resource management and community development
The Company has attracted and continues to seek highly dedicated, experienced
personnel. The Company has created formal training programs accompanied by
review and evaluation procedures to help ensure quality care for its residents.
The Company has a national learning center at its Dallas corporate headquarters
to provide training for community Executive Directors and other personnel. The
Company believes that education, training and development enhance the
effectiveness of its employees. All employees are required to complete the
Company's training program, which includes a core curriculum comprised of
personal care basics, job related specific training, Alzheimer's disease
processes, first aid, fire safety, nutrition, infection control and customer
service. Executive Directors receive training in all of these areas, plus
marketing, community relations, healthcare management, life skills programming
and fiscal management. In addition to classroom training, the Company's
communities provide new employees with on the job training, utilizing
experienced staff as trainers and mentors.
QUALITY ASSURANCE
The Company coordinates quality assurance programs at each of its communities
through its corporate headquarters staff and through its regional operations
staff. The Company's commitment to quality assurance is designed to achieve a
high degree of resident and family member satisfaction with the care and
services provided by the Company. In addition to ongoing training and
performance reviews of all employees, the Company's quality control measures
include:
Advisory Board. The Company has assembled an Advisory Board of five experts to
advise the Company with regard to design criteria, internal and external
decoration and enhancing the functioning of individuals with Alzheimer's disease
who can benefit from assisted living.
The Advisory Board will (i) review and recommend policies concerning programs
and services, (ii) serve as a resource to the Company in program development and
evaluation, (iii) identify trends and gaps in service, (iv) design and
participate in education and training programs for staff, family members and
caregivers, (v) interpret implications of legislation affecting the elderly,
(vi) provide extra-organizational viewpoints, (vii) study, evaluate and document
the effectiveness of services and recommend changes needed in programs, (viii)
review proposals for research and (ix) help establish standards. However, the
Advisory Board has no executive authority, only advisory.
The current members of the Advisory Board are:
Herbert Shore, Ed.D. is president of Shore & Associates Geriatric and
Elderly Services, Dallas, Texas. Dr Shore Serves as Chairman of the
Greenbriar Advisory Board. He has been a long term care administrator and
has previously taught at the Center for Studies in Aging at the University
of North Texas.
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Dee Carlson, M.A. is President of Alzheimer's Care, Consultation, Education
and Training ("A.C.C.E.T."), which provides consulting services for
communities and organizations servicing individuals with dementia and their
families. A.C.C.E.T. is located in Lexington, Kentucky. Prior to forming
A.C.C.E.T., Ms. Carlson was Education and Family Services Director for the
Alzheimer's Disease Center, Mayo Clinic, Rochester, Minnesota.
Robert Ellis Rousch, Jr., Ed.D. is affiliated with the Huffington Center on
Aging, Baylor College of Medicine, Houston, Texas. Dr. Rousch is an
Educator and Administrator, and he previously directed the Texas Consortium
for Geriatric Research and Education Centers.
Audrey S. Weiner; DSW is the Senior Vice-President/Administrator of the
Sarah Neuman Home in Mamaroneck, New York. A practitioner, Dr. Weiner has
had extensive experience designing programs, services and communities for
Alzheimer patients. She worked at the Brookdale Institute on Aging in New
York City.
Donald R. Benton, D. Hum. and D.Min. is President of The Kindness
Foundation of Dallas, Texas. He retired from the Methodist Ministry after
44 years of service.
The Advisory Board will meet as a group at least quarterly and spend 20 to 30
hours per quarter on Advisory Board related activities. Each member will receive
$2000 for attending each official meeting. All expenses related to meeting
attendance will also be paid by the Company. In recognition for the service of
the Advisory Board, each member will be awarded 100 shares of Common Stock for
the initial year of service and an additional 100 shares for each year of
service thereafter.
Family and Resident Feedback. The Company surveys residents on an annual basis
to monitor the quality of services provided to residents and the level of
satisfaction of residents and their families. The Company is presently
implementing surveys of family members of residents to monitor the quality of
services.
Regular Community Inspections. Community inspections are conducted by regional
vice presidents and other regional staff on a regular basis. These inspections
cover the appearance of the exterior and grounds; the appearance and cleanliness
of the interior; the professionalism and friendliness of staff; resident care
plans; the quality of activities and the dining program; observance of residents
in their daily living activities; and compliance with governmental regulations.
A detailed community audit program is used to assure the inspections are
thorough and to facilitate corrective action if required.
MARKETING
The Company's marketing and sales efforts are undertaken on regional and local
levels. This effort is intended to create awareness of the Company and its
services among prospective residents, their families, other key decision-makers
and professional referral sources. The corporate marketing staff develops
overall strategies for promoting the Company throughout its markets and
continuously assesses the success of its efforts. Most communities have on staff
a community relations coordinator dedicated to sales and marketing activities,
who is guided and trained by corporate marketing personnel. For smaller
communities with no community relations coordinator, the Executive Director
performs these sales and marketing functions.
Prior to opening new communities, the Company commences an aggressive marketing
campaign by opening a sales office in close proximity to the community. During
this pre-opening marketing period, the Company's personnel actively contact
local referral sources, which generally account for a majority of resident
referrals. In addition, the Company typically engages in more traditional types
of marketing activities, such as direct mailings, print advertising, signs and
yellow page 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.
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GOVERNMENT REGULATION
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.
In the states in which the Company operates, a license is not required to
provide basic support services. Currently, assisted living and Alzheimer's care
communities are not specifically regulated as such by the federal government
However, the Company's communities are subject to regulation and licensing 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 the Company's communities are required to possess
state licenses in order to provide the levels and types of services they provide
in the states in which they operate. A limited number of the Company's
communities are not required to possess such licenses, however, because they do
not supply care and/or supervision to an extent requiring them to be licensed
under their respective state's laws. The Company's communities are also 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. The Company has obtained all required licenses for each of its
communities and expects that it will obtain all required licenses for each new
community. Each of the Company's licenses must be renewed annually.
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. If federal and state
reimbursements increase or there is overbuilding in the industry, other states
may initiate CON requirements. If this occurs, the operators who can grow
rapidly in the next few years could have a distinct advantage, inasmuch as this
barrier to entry could limit overbuilding and competition, such as occurred in
some nursing home markets in the past.
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, the Company receives deficiency reports. The
Company reviews such reports and seeks 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 failure
by the Company to comply with applicable requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company believes that its communities are in substantial
compliance with all applicable regulatory requirements. No actions are currently
pending against any of the Company's communities nor have any of the Company's
communities been cited in the past for any significant non-compliance with
regulatory requirements.
Twelve states have already elected to participate in the Medicaid Home and
Community Care Options Act of 1990 ("MHCCOA") and several other states are
studying the program. Texas, where the Company is headquartered, is one of the
states that have already elected to participate in the program. Under MHCCOA,
states now have the option to use Medicaid funds to support services for low
income, frail older persons, in places of residence other than nursing centers.
The program allows the state to amend its Medicaid statutes to use funds in this
manner, thus avoiding the repeated process of obtaining a Medicaid waiver. Any
community participating in this payment program must meet all applicable state
and federal rules and regulations.
The Company participates in federal and state reimbursement programs. However,
the Company expects the bulk of its revenues to come from private-payment.
Conversely, if the proposed Medicaid block grants are signed into law, the
Company could experience a dramatic increase in revenues from these sources,
particularly with respect to its double occupancy units. Many of the Company's
existing and to be built communities can accommodate double occupancy and still
provide a quality lifestyle.
The Americans with Disabilities Act ("ADA"), enacted July 26, 1990, has had and
will have a major effect on the full service residential retirement and
assisted living industry. The communities developed or acquired by the Company
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must be in compliance with this act. 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.
In compliance with the underlying state bond financing, rents at one community
in Oregon must be approved by an agency of the state. Two other communities
financed with loans guaranteed by the Department of Housing and Urban
Development ("HUD") have rents requiring approval by HUD. The Company has not
experienced any denials of requested rents or rent increases.
COMPETITION
The long-term care industry generally is highly competitive and it is
anticipated that the assisted living and Alzheimer's care businesses in
particular will become increasingly competitive in the future. The Company
competes with other assisted living companies and numerous other companies
providing similar long-term care alternatives such as home health agencies,
community-based service programs, retirement communities and convalescent
centers (nursing homes). In addition, the Company competes with a number of tax-
exempt nonprofit organizations which can finance capital expenditures on a tax-
exempt basis or receive charitable contributions unavailable to the Company and
which are generally exempt from income tax. While there are currently few
assisted living and Alzheimer's care communities in some of the markets where
the Company operates and plans to operate, the Company expects that, as assisted
living receives increased attention and the number of states which participate
in MHCCOA increases, competition will 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 the Company,
particularly with respect to Alzheimer's care services. Many of the Company's
present and potential competitors have, or may have access to, greater
financial, management and other resources than those of the Company. There can
be no assurance that competitive pressures will not have a material adverse
effect on the Company.
The Company competes with other providers of elderly residential care on the
basis of the breadth and quality of its services, the quality of its communities
and price. The Company believes that it competes favorably in these areas and in
its recruitment and retention of qualified healthcare personnel and reputation
among local referral sources. The Company also competes with other providers of
long-term care in the acquisition and development of additional communities.
As noted, the Company competes with other providers of long-term care with
respect to attracting and retaining qualified and skilled personnel. In recent
years, the healthcare industry has experienced a shortage of qualified
healthcare professionals. The Company's operations require few professionally
certified (RN or LPN) staff, primarily for supervision of care staff. While the
Company has been able to retain the services of an adequate number of
professionals to staff its communities appropriately and maintain its standards
of quality care, there can be no assurance that continued shortages will not
affect the ability of the Company to maintain the desired staffing levels.
The Company is seeking sites and acquisition candidates primarily in non-
metropolitan communities located in the western, southern and southeast regions
of the United States that are not currently served or are under served. It is
identifying these markets and intends to provide premier services and amenities
at average to above average prices. It is also providing special care services
in a residential setting for those with memory loss and Alzheimer's, the primary
cause of memory loss. These residents are not mixed with other assisted living
residents. The Company believes that this combination of target markets and
services may improve its ability to compete with non-specialized assisted living
communities and nursing homes.
INSURANCE
The provision of personal and healthcare services entails an inherent risk of
liability. Compared to more institutional long-term care communities, assisted
living communities of the type operated by the Company, especially its dementia
care communities, offer residents a greater degree of independence in their
daily lives. This increased level of independence, however, may subject the
resident and the Company to certain risks that would be reduced in more
institutionalized settings. The Company currently maintains liability insurance
intended to cover such claims which it believes is adequate based on the nature
of the risks, its historical experience and industry standards. The Company
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also carries property insurance on each community in amounts that it believes to
be adequate and standard in the industry.
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 community,
whether or not such community 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.
The Company has conducted environmental assessments of all of the sites
currently under construction or development, as well as twenty-one of its
existing communities that it operates plus one community it leases that is
operated by a third party. These assessments have not revealed any environmental
liability that the Company believes would have a material adverse effect on the
Company's business, assets or results of operations, nor is the Company aware of
any such environmental liability. Wedgwood has operated, for periods ranging
from one year to 18 years, nine communities for which environmental assessments
have not been obtained. The Company 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. The Company 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.
CONTROL BY INSIDERS
As of March 31, 1997, the Company's officers and directors and entities with
which they are affiliated beneficially owned approximately 71.5% of the
outstanding shares of Common Stock; Mr. James R. Gilley, Chairman of the Board
of the Company, a corporation wholly owned by him, and his spouse and adult
children (as individuals or as trustees for various family trusts), beneficially
owned an aggregate of approximately 35.2% of the outstanding Common Stock of the
Company, Mr. Victor Lund, a director of the Company and the founder of Wedgwood,
beneficially owned approximately 18.9% of the outstanding shares of Common
Stock, and Floyd B. Rhoades, President and Chief Executive Officer of the
Company and a founder of American Care, beneficially owned approximately 13.3%
of the outstanding shares of Common Stock. In addition, the Gilley family owns
series D Voting Preferred Stock, which for stockholder votes, is the equivalent
of 675,000 Common Shares. Accordingly, such individuals will have the ability,
by voting their shares in concert, to control or significantly influence (i) the
election of the Company's Board of Directors and, thus, the direction and future
operations of the Company, and (ii) the outcome of all other matters submitted
to the Company's stockholders, including mergers, consolidations, and the sale
of all or substantially all of the Company's assets. In addition, the Company's
officers and directors, including James R. Gilley, currently hold options or
conversion rights to acquire 558,000 shares of Common Stock, certain of which
options are subject to vesting requirements. The issuance of additional shares
of Common Stock pursuant to the exercise of these stock options granted to
management under the Company's stock option plan, would increase the number of
shares held by the Company's executive officers and directors in the future.
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ANTI-TAKEOVER PROVISIONS
The Company'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. The Company is also subject to Sections
78.411-78.444 of the Nevada Revised Statutes (the "Control Act") which general
prohibits any business combination involving the Company and a person that
beneficially owns 10% or more of the outstanding Common Stock or an affiliate or
associate of the Company who within the past three years was the beneficial
owner, directly or indirectly, or 10% or more of the outstanding Common Stock,
except under certain circumstances. The application of the Control Act and/or
the provisions of the Company's Articles of Incorporation and Bylaws could
delay, deter or prevent a merger, consolidation, tender offer, or other business
combination or change of control involving the Company that some or a majority
of the Company's stockholders might consider to be in 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, and may adversely affect the market price of, and the voting and other
rights of, the holders of Common Stock.
Shares Eligible for Future Sale. The Company presently has a total of 6,557,000
shares of Common Stock outstanding. Of these shares, 1,189,000 shares are freely
tradable without restriction or limitation under the Securities act, except for
shares owned by "affiliates" (as that term is defined under the rules and
regulations under the Securities Act) of the Company. The remaining 5,368,000
shares are "restricted" securities within the meaning of Rule 144 under the
Securities Act. Unless registered under the Securities Act prior thereto, these
restricted shares will not become eligible to be sold publicly until future
periods. There are also shares of Common Stock issuable upon the exercise of
stock options and conversion of Preferred Stock. No prediction can be made as to
the effect, if any, that future sales of shares, or the availability of shares
for future shares, will have on the market price of the Common Stock from time
to time. The sale of substantial amounts of Common Stock, or the perception that
such sales could occur, could adversely affect prevailing market prices for the
Common Stock.
EMPLOYEES
At March 1997, the Company employed approximately 1,384 employees, including 920
full-time and 464 part-time employees. The Company believes it maintains good
relationships with its employees. None of the Company's employees are
represented by a collective bargaining group.
CORPORATE OFFICES
The Company's principal office is a 27,500 square feet building that it owns in
Dallas, Texas. Wedgwood's principal executive offices were located in Vancouver,
Washington, where Wedgwood leased approximately 6,000 square feet of office
space for $6,194 per month. This lease expired during December 1996, but
Wedgwood has an agreement to continue to lease the space through April 30, 1997.
American Care's principal executive offices are located in Cary, North Carolina.
American Care leases 5,300 square feet for $3,065 per month. The lease expires
September, 1998.
An integral factor in the Company's decision to acquire American Care was the
belief that there would be cost saving in consolidating the operations of
Greenbriar, Wedgwood and American Care. The Company is in the process of closing
its corporate offices in Vancouver and Cary and transferring a significant
portion of those operations to the corporate offices in Dallas. The Company's
Dallas office will meet the Company's needs for the foreseeable future.
ITEM 2: DESCRIPTION OF PROPERTIES
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See Item 1 for a discussion of properties owned or leased by the Company.
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ITEM 3: LEGAL PROCEEDINGS
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The Company is involved from time to time in legal proceedings that are
incidental to its business. The following are the legal proceedings that are
pending at March 1997.
SOUTHERN CARE CORP. VS. GREENBRIAR, ET AL.
In Southern Care Corp. v. Medical Resource Companies of America, (former name of
Greenbriar) 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 the Company sold to plaintiff.
The Company has filed a counterclaim for breach of the management contract
between the homes and a Company subsidiary. At the same time that Plaintiff
unilaterally and without notice terminated the management contract, the
Plaintiff also claimed that indebtedness of approximately $6.7 million assigned
to the Company 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. The Company
disputes this claim and has filed a counterclaim to confirm the indebtedness.
The Company plans to vigorously contest and defend and vigorously pursue its
counterclaims against Plaintiff. The Company 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. The Company 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. The
Company's basis in the indebtedness, net of related deferred gains, is
approximately $4.2 million.
In 1995 the plaintiff and the Company 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
the Company on that ruling. 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.
In addition to other causes of action that the Company may file against the
plaintiff, the Company filed a negligence action against a law firm and against
a lawyer with that firm, relating to their involvement with the assignment,
described above. The Company 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 the Company. The Company believes should it not prevail against
Southern Care on the indebtedness issue, that it will prevail on this claim,
although there can be no assurance.
HEALTH CARE PROPERTY INVESTORS VS. GREENBRIAR, ET AL.
In October, 1996, Health Care Property Investors, Inc. filed a complaint for
unspecified damages against the Company, Victor Lund, a director of the Company,
and related entities and others. Health Care Property Investors alleges that
entities related to the Company had breached terms of two leases of communities
through a transfer of control of the tenant without the payment of "transfer
consideration" called for in the leases. In addition, Health Care Property
Investors alleges that the Company tortuously interfered with the leases because
of the transfer.
The Company believes that transfer consideration is not due, pursuant to the
leases, as Victor Lund continues to own a majority interest in the tenants and
that there has been no tortuous interference in the leases.
BENETIC FINANCIAL VS. WEDGWOOD ET AL.
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 in this action. Plaintiff alleges that he delivered a
loan brokerage agreement to Wedgwood, which they verbally accepted. The Company
understood that Plaintiff was acting as a potential partner and was not
providing services to the Company. This suit was filed after the statute of
limitations had expired for a verbal or an implied contract. If the Plaintiff
can
17
<PAGE>
prove that there was verbal acceptance of the contract, a four-year statute of
limitations applies and has not expired. The Company believes that the statue of
limitations has expired on this action and there is little or no liability for
any of Plaintiff's services.
The Company has been named as defendant in other lawsuits in the ordinary course
of business. Management is of the opinion that these lawsuits will not have a
material effect on the financial condition or results of operations of the
Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
A special meeting of stockholders was held on December 30, 1996 solely for the
purpose of voting on the issuance of 1,300,000 shares in connection with the
merger of American Care into a subsidiary of Greenbriar. The proposal was
approved by a vote of 4,362,123 shares for 0 shares against and 60 shares
abstaining.
PART II
-------
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------- --------------------------------------------------------
The Company's Common Stock is traded under the symbol "GBR" and is listed on the
American Stock Exchange. The high and low closing sales prices of the Company's
Common Stock on the American Stock Exchange during the last two fiscal years.
<TABLE>
<CAPTION>
1996 1995
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $16 3/4 $ 9 7/16 $ 8 3/4 $ 5
Second Quarter 17 5/8 14 10 5/16 5 5/16
Third Quarter 17 3/8 15 5/8 13 7/16 9 1/16
Fourth Quarter 16 12 3/8 13 7/16 7 3/16
</TABLE>
The above prices have been adjusted to reflect a one for five reverse split of
the Common Stock that occurred on December 1, 1995.
The Company has not paid cash dividends on its Common Stock during at least the
last ten fiscal years and, for the foreseeable future, the Company expects to
retain all earnings to finance the future expansion and development of its
business. Any determination to pay cash dividends in the future will be at the
discretion of the Board of Directors and will be dependent on the Company's
financial condition, results of operations, contractual restrictions, capital
requirements, business prospects and such other factors as the Board of
Directors deems relevant. The Company's ability to pay dividends in the future
may be limited by the terms of future debt financings and other arrangements.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ------- ---------------------------------------------------------
OVERVIEW
During 1994 the Company began a series of steps to focus its business on the
development, management and ownership of assisted living properties. The
Company'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, the Company 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,
the Company (not including the communities of Wedgwood and American Care) had
three additional assisted living communities under construction. In order to
increase the Company's presence in the assisted living industry, create
geographic diversity and obtain experienced personnel, the Company 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 the Company do not
18
<PAGE>
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, the Company'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 December 31, 1996, the Company had a deficit in working capital of
$2,544,000. During the first quarter of 1996, the Company sold American
Mobility Group, Inc. ("AMI"), which was a continuation of the Company's program
of selling its non-strategic assets and using the proceeds to invest in existing
operations. The sale of AMI did not have a material impact on the Company's
liquidity. In March 1996, the Company acquired Wedgwood. As of December 31,
1996, the Company had assets of $116,701,000, liabilities of $80,549,000 and
stockholders' equity of $36,152,000. The Company has sufficient liquidity and
capital to meet its current obligations.
As of March 1997 the Company owned three shopping centers in Georgia and one
shopping center in North Carolina. While all the centers are profitable, they
do not fit into the Company's long range strategic plans and commitment to the
assisted living industry. The Company is actively attempting to sell all the
centers and currently has a firm contract to sell its North Carolina center.
The transaction is scheduled to close in the second quarter of 1997. The
Company anticipates that the centers will be sold for an amount which at least
equals the book value of $5,379,000.
As of December 31, 1996, the Company has loans in place or has received
commitments for future financing, subject, in the case of the commitments, to
final documentation, as follows:
(i) Health Care REIT, Inc. has issued a commitment to provide $60 million
over three years to acquire and pay 100% of the construction costs of
assisted living communities to be leased to the Company. The term of the
leases will range from 11 years to 14 years plus two five-year renewal
options, with lease payments based upon the interest rate on U.S.
Treasury notes plus 3.75%, subject to inflation adjustments not to
exceed .25% per year. A 1 % commitment fee is required, as each lease is
entered into. The Company 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,
the Company will provide a letter of credit for 5% of the amount
financed, a first lien on personal 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 March 31, 1997, the Company 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) The Company has obtained commitments from First National Bank & Trust
Co. of McAlester, Oklahoma of $5.2 million to provide mortgage financing
for the two assisted living Communities under construction in Muskogee,
Oklahoma and Sherman, Texas. Such loans require a 2% commitment fee and
are payable in 10 years (but callable at the discretion of the bank in 5
years) based on a 20 year amortization, with interest at a prime plus 2%
(subject to a minimum interest rate of 8.70% and a maximum interest rate
of 12.75%).
19
<PAGE>
The Community in Muskogee was completed in March 1997 and the Sherman
Community is in the early stages of construction.
(iv) In 1995 Investors Real Estate Trust ("IRET") issued a commitment to
provide 100% of the construction costs up to $2,810,000 for Sweetwater
Springs in Lithia Springs, Georgia that opened in October 1996. Upon
completion the community was leased to the Company for a term of 15
years. In 1996 the commitment was increased by $1,540,000 to a maximum
of $4,350,000 in order to provide for the construction of a second phase
of the community consisting of 16 Alzheimer's special care units. The
monthly lease payments will be based on the funded amount and on annual
interest rates of 11.0% for the first five years, 12.65% for the next
five years and 14.55% for the last five years of the lease. The Company
has an option to purchase the Community at fair market value during the
first nine months of the fourteenth year of the lease. The lease is
secured by the community.
Construction of the second phase has been deferred indefinitely. Though
some of the additional funding has been utilized, the remaining funds
available are considered sufficient to complete the second phase.
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 the Company'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.
The Company believes it has adequate resources to complete its communities
currently under construction and development and plans to use the balance of
such committed sources and its net working capital in excess of operating needs
for future development of assisted living communities.
Future development activities of the Company are dependent upon obtaining
capital and financing through various means, including financing obtained from
sale/leaseback transactions, construction financing, long-term state bond
financing, debt or equity offerings and, to the extent available, cash generated
from operations. There can be no assurance that the Company will be able to
obtain adequate capital to finance its projected growth.
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 16
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 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.
20
<PAGE>
The following table summarizes income (loss) from community operations. This
table does not include interest or corporate general and administrative
expenses.
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
before interest and taxes $ 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.
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
the Company, 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, the Company 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, the
Company's sale of American Mobility Inc. resulted in a gain on sale, net of tax,
of approximately $520,000.
21
<PAGE>
Deferred Taxes. At December 31, 1996, the Company 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 decrease 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 the Company sells assets, it increases the cash it has
available for investments. The increase in interest income reflects the
interest received on those investments. The decrease in interest expense was
caused principally by two factors. First, when the Company sold its assets it
was also relieved of the obligation to pay interest on liabilities associated
with those assets. Second, the Company used certain of its available cash to
pay down corporate debt, which further reduced interest expense in 1995.
Gain on Sale of Assets. During 1995 the Company continued its program of
selling assets that were not essential to its new business focus on assisted
living. In January 1996, the Company 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 the Company sold its economic interest in a legal claim with
respect to Wespac Investors Trust III. The sales price was $1,085,000 and the
Company recorded a gain of $654,000. Separately, the Company acquired 49% of
the outstanding common stock of Wespac Investors Trust III in a private
transaction. The Company immediately sold its economic interest in that stock
at no gain or loss.
As part of a larger transaction that occurred in 1992 the Company received the
rights to the interest on certain escrow funds in the year 2028. At the time of
the transaction, for accounting purposes, the Company placed no value on that
right. In August 1995 the Company sold its rights to the future interest for
$1,140,000 in cash.
EFFECT OF INFLATION
The Company's principal sources of revenues are from resident fees from Company-
owned or leased assisted living communities and management fees from communities
operated by the Company 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 the Company has not historically
experienced any adverse effects of inflation on salaries or other operating
expenses, there can be no assurance that such trends will continue or that
should inflationary pressures arise that the Company will be able to offset such
costs by increasing rental rates or management fees.
22
<PAGE>
FORWARD LOOKING STATEMENTS
Certain statements included in this Management's Discussion and Analysis are
forward looking statements that predict the future development of the Company.
The realization of these predictions will be subject to a number of variable
contingencies, and there is no assurance that they will occur or be realized in
the time frame proposed. The risks associated with the potential actualization
of the Company's plans include: contractor delays, the availability and cost of
financing, availability of managerial oversight and regulatory approvals, to
name a few.
ITEM 7: FINANCIAL STATEMENTS
- ------- --------------------
The financial statements required by this Item begin at page F-1 hereof.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
23
<PAGE>
PART III
--------
The information required by Items 9, 10, 11 and 12 is incorporated by reference
into this Form 10-KSB from the Company's definitive Proxy Statement for its
Annual Meeting of Stockholders to be held May 22, 1997, which definitive Proxy
Statement will be filed with the Securities and Exchange Commission on or before
April 30, 1997.
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
- -------- --------------------------------
(a) The following exhibits required to be filed by Item 601 of Regulation
S-B are filed as part of this Annual Report on Form 10-KSB:
Exhibit
Number Description of Exhibits
- ------ -----------------------
3.1 Articles of Incorporation of Medical Resource Companies of America
("Registrant") (filed as Exhibit 3.1 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
3.1.1 Restated Articles of Incorporation of Greenbriar Corporation.
3.2 Bylaws of Registrant (filed as Exhibit 3.2 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
3.2.1 Amendment to Section 3.1 of the Bylaws of Registrant adopted upon
approval of the Merger (filed as Exhibit 3.2.1 to Registrant's Form S-
4 Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
3.3 Certificate of Decrease in Authorized and Issued Shares.
4.1 Certificate of Designations, Preferences and Rights of Preferred Stock
dated October 7, 1992 relating to Registrant's Series A Preferred
Stock (filed as Exhibit 4.1 to Registrant's Form S-4 Registration
Statement, Registration No. 33-55968, and incorporated herein by this
reference).
4.1.2 Certificate of Designations, Preferences and Rights of Preferred Stock
dated May 7, 1993, relating to Registrant's Series B Preferred Stock
(filed as Exhibit 4.1.2 to Registrant's Form S-3 Registration
Statement, Registration No. 33-64840, and incorporated herein by this
reference.
4.1.3 Certificate of Designations, Preferences and Rights of Preferred Stock
dated August 18, 1993, relating to Registrants' Series C Preferred
Stock (filed as Exhibit 4.1.3 to Registrant's Form 10-KSB for the year
ended December 31, 1993).
4.1.3.1 Amendment to Certificate of Designations, Preferences and Rights of
Preferred Stock dated August 18, 1993, relating to Registrants' Series
C Preferred Stock.
4.1.4 Certificate of Designations, Preferences and Rights of Preferred Stock
dated March 15, 1996, relating to Registrants' Series D Preferred
Stock.
4.1.5 Certificate of Designations, Preferences and Rights of Preferred Stock
dated March 15, 1996, relating to Registrants' Series E Preferred
Stock.
4.3.2 Registration Rights Agreement dated April 27, 1990 between
Registrant's predecessor and International Health Products, Inc.
(assumed by Registrant), which has been assigned to JRG Investments,
Inc., relating to 4,150,000 shares (830,000 post December 1995 shares)
of Registrant's Common Stock, the benefits of which were further
assigned to Professional Investors Insurance, Inc.
24
<PAGE>
as to 600,000 shares (120,000 post December 1995 shares) in November
1992 (filed on June 5, 1990, as an Exhibit to the Registrant's
predecessor's Current Report on Form 8-K and incorporated herein by
reference).
4.3.3 Form of Assignment of Registration Rights Agreement dated September
30, 1992 between JRG Investments, Inc. and Professional Investors
Insurance, Inc. relating to 600,000 shares (120,000 post December 1995
shares) of Registrant's Common Stock (filed as Exhibit 4.3.3 to
Registrant's Form S-4 Registration Statement, Registration No. 33-
55968, and incorporated herein by this reference).
4.4 Form of Registration Rights Agreement dated December 1, 1991 between
Registrant and W. Michael Gilley (filed as Exhibit 4.4 to Registrant's
Form S-4 Registration Statement, Registration No. 33-55968, and
incorporated herein by this reference).
4.5.1 Stock Purchase Agreement dated May 7, 1993 for the purchase of
Complete Corporation and Remuda Acquisition Corporation (filed as
Exhibit 4.5.1 to Registrant's Form 10-KSB for the year ended December
31, 1993).
4.5.2 Registration Rights Agreement dated May 7, 1993 granted to the
shareholders of Complete Corporation and Remuda Acquisition Corp.
(filed as Exhibit 4.5.2 to Registrant's Form 10-KSB for the year ended
December 31, 1993).
4.5.3 Agreement and Plan of Merger dated June 30, 1994 with New Life
Treatment Centers, Inc. relating to the disposition of Remuda Ranch
Center for Anorexia and Bulimia, Inc. (filed as Exhibit 4.5.3 to
Registrant's Form 10-KSB for the year ended December 31, 1994).
4.5.4 Amended and Restated Certificate of Incorporation of New Life
Treatment Centers, Inc. (filed as Exhibit 4.5.4 to Registrant's Form
10-KSB for the year ended December 31, 1994).
4.5.5 Registration Right Agreement dated July 29, 1994 re. New Life
Treatment Centers, Inc. (filed as Exhibit 4.5.5 to Registrant's Form
10-KSB for the year ended December 31, 1994).
4.5.6 Restricted Stock Agreement dated July 29, 1994 re. New Life Treatment
Centers, Inc. (filed as Exhibit 4.5.6 to Registrant's Form 10-KSB for
the year ended December 31, 1994).
4.6.1 Stock Purchase Agreement dated August 16, 1993 for the issuance of
Series C Preferred Stock (filed as Exhibit 4.6.1 to Registrant's Form
10-KSB for the year ended December 31, 1993).
4.6.2 Stock Purchase Agreement dated August 16, 1993 between Clay Capital
Corporation and Altman Nursing, Inc. (filed as Exhibit 4.6.2 to
Registrant's Form 10-KSB for the year ended December 31, 1993).
4.7.1 Stock Purchase Agreement dated January 30, 1996 between Joseph L.
Durant, Innovative Health Services, Inc. and Medical Resource
Companies of America (filed as Exhibit 4.7.1 to Registrant's Form 8-K,
dated February 20, 1996, and incorporated herein by this reference).
4.8.1 Stock Purchase Agreement dated March 15, 1996 between Wedgwood
Retirement Inns, Inc., Victor L. Lund, Paul Dendy, Mark Hall, Frank R.
Reeves, Doris Thornsbury, Teresa Waldroff and Medical Resource
Companies of America (filed with Registrant's 8-K, dated March 15,
1996, and incorporated herein by this reference).
4.8.2 Amendment to Stock Purchase Agreement (dated March 15, 1996) dated
March 15, 1996 between Wedgwood Retirement Inns, Inc., Victor L. Lund,
Paul Dendy, Mark Hall, Frank R. Reeves, Doris Thornsbury, Teresa
Waldroff and Medical Resource Companies of America (filed with
Registrant's 8-K, dated March 15, 1996, and incorporated herein by
this reference).
25
<PAGE>
4.9.1 Amendment to Agreement and Plan of Merger dated November 21, 1996,
among Registrant and American Care Communities, Inc., Floyd B. Rhoades
and Gary L. Smith (filed with Registrant's Form 8-K dated December 31,
1966 and incorporated herein by reference).
4.9.2 Amendment to Agreement and Plan of Merger dated December 30, 1996.
4.9.3 Registration Rights Agreement dated December 30, 1996 between
Registrant and Floyd B. Rhoades.
4.9.4 Employment Agreement dated December 30, 1996 with Floyd B. Rhoades.
10.1 Real Estate Lease of Alpha Mobility, Inc. (filed as Exhibit 10.1 to
Registrant's Form S-4 Registration Statement, Registration No. 33-
55968, and incorporated herein by this reference).
10.3.2 Form of $62,500 Promissory Note dated December 27, 1991 payable to
Registrant by Gene S. Bertcher representing the purchase price for
250,000 shares (50,000 post December 1995 shares) of Registrant's
Common Stock (filed as Exhibit 10.3.2 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.3.3 Form of Renewal of Promissory Note dated October 14, 1992 extending
the maturity date of the Promissory Note referenced in Exhibit 10.3.2
(filed as Exhibit 10.3.3 to Registrant's Form S-4 Registration
Statement, Registration No. 33-55968, and incorporated herein by this
reference).
10.3.4 Form of Security Agreement - Pledge (non-recourse) between Gene S.
Bertcher and Registrant securing the Promissory Note referenced in
Exhibit 13.3.2. (Filed as Exhibit 10.3.4 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.4.1 Form of Stock Option to purchase 150,000 shares (30,000 post December
1995 shares) of Registrant's Common Stock issued to Robert L. Griffis
on October 12, 1992 (filed as Exhibit 10.4.1 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.4.2 Form of $75,000 Promissory Note dated October 12, 1992 payable to
Registrant by Robert L. Griffis representing the purchase price for
150,000 shares (30,000 post December 1995 shares) of Registrant's
Common Stock (filed as Exhibit 10.4.2 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.4.3 Form of Security Agreement - Pledge (non-recourse) between Registrant
and Robert L. Griffis securing the Promissory Note referenced in
Exhibit 10.4.2 (filed as Exhibit 10.4.3 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.6.1 Form of Stock Option to purchase 100,000 shares (20,000 post December
1995 shares) of Registrant's Common Stock issued to Oscar Smith on
October 1, 1992 (filed as Exhibit 10.6.1 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.6.2 Form of $50,000 Promissory Note dated October 1, 1992 payable to
Registrant by Oscar Smith representing the purchase price for 100,000
shares (20,000 post December 1995 shares) of Registrant's Common Stock
(filed as Exhibit 10.6.2 to Registrant's Form S-4 Registration
Statement, Registration No. 33-55968, and incorporated herein by this
reference).
10.6.3 Form of Security Agreement - Pledge (non-recourse) between Registrant
and Oscar Smith securing the Promissory Note referenced in Exhibit
10.6.2 (filed as Exhibit 10.6.3 to Registrant's Form S-4 Registration
Statement, Registration No. 33-55968, and incorporated herein by this
reference).
26
<PAGE>
10.7.1 Form of Stock Option to purchase 80,000 shares (16,000 post December
1995 shares) of Registrant's Common Stock issued to Lonnie Yarbrough
on October 12, 1992 (filed as Exhibit 10.7.1 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.7.2 Form of $40,000 Promissory Note dated October 12, 1992 payable to
Registrant by Lonnie Yarbrough representing the purchase price for
80,000 shares (16,000 post December 1995 shares) of Registrant's
Common Stock (filed as Exhibit 10.7.2 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.7.3 Form of Security Agreement - Pledge (non-recourse) between Registrant
and Lonnie Yarbrough securing the Promissory Note referenced in
Exhibit 10.7.2 (filed as Exhibit 10.7.3 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.8.1 Form of Stock Option to purchase 80,000 shares (16,000 post December
1995 shares) of Registrant's Common Stock issued to Dennis McGuire on
October 1, 1992 (filed as Exhibit 10.8.1 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.8.2 Form of $40,000 Promissory Note dated October 1, 1992 payable to
Registrant by Dennis McGuire representing the purchase price for
80,000 shares (16,000 post December 1995 shares) of Registrant's
Common Stock (filed as Exhibit 10.8.2 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.8.3 Form of Security Agreement - Pledge (non-recourse) between Registrant
and Dennis McGuire securing the Promissory Note referenced in Exhibit
10.8.2 (filed as Exhibit 10.8.3 to Registrant's Form S-4 Registration
Statement, Registration No. 33-55968, and incorporated herein by this
reference).
10.9.1 Form of Stock Option to purchase 10,000 shares (2,000 post December
1995 shares) of Registrant's Common Stock issued to Michael Merrell on
October 12, 1992 (filed as Exhibit 10.9.1 to Registrant's Form S-4
Registration Statement, Registration No. 33-55968, and incorporated
herein by this reference).
10.9.2 Form of $5,000 Promissory Note dated October 12, 1992 payable to
Registrant by Michael Merrell representing the purchase price for
10,000 shares (2,000 post December 1995 shares) of Registrant's Common
Stock (filed as Exhibit 10.9.2 to Registrant's Form S-4 Registration
Statement, Registration No. 33-55968, and incorporated herein by this
reference).
10.9.3 Form of Security Agreement - Pledge (non-recourse) between Registrant
and Michael Merrell securing the Promissory Note referenced in Exhibit
10.9.2 (filed as Exhibit 10.9.3 to Registrant's Form S-4 Registration
Statement, Registration No. 33-55968, and incorporated herein by this
reference).
10.9.4 Form of $187,000 promissory note dated December 29, 1994, payable to
Registrant by W. Michael Gilley representing the purchase price for
150,000 shares (30,000 post December 1995 shares) of Registrant's
Common Stock (filed as Exhibit 10.9.4 to Registrant's Form 10-KSB for
the year ended December 31, 1994).
10.9.5 Form of Security Agreement-Pledge between Registrant and W. Michael
Gilley securing the promissory note referenced in Exhibit 10.9.4
(filed as Exhibit 10.9.5 to Registrant's Form 10-KSB for the year
ended December 31, 1994).
10.9.6 Form of $62,500 promissory note dated December 29, 1994, payable to
Registrant by L.A. Tuttle representing the purchase price of 50,000
shares (10,000 post December 1995 shares) of Registrant's Common Stock
(filed as Exhibit 10.9.6 to Registrant's Form 10-KSB for the year
ended December 31, 1994).
27
<PAGE>
10.9.7 For of Security Agreement-Pledge between Registrant and L.A. Tuttle
securing the promissory note reference in Exhibit 10.9.6 (filed as
Exhibit 10.9.7 to Registrant's Form 10-KSB for the year ended December
31, 1994).
10.11 Stock Exchange Agreement dated December 31, 1991 for the acquisition
of CareAmerica, Inc. (filed as Exhibit 10.13 to Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1991 and
incorporated herein by reference).
10.12 Employment Agreement and Agreement Not to Compete between Registrant
and Dennis McGuire dated November 1, 1990 (filed as Exhibit 10.12 to
Registrant's Form S-4 Registration Statement, Registration No. 33-
55968, and incorporated herein by this reference).
10.13 Registrant's 1992 Stock Option Plan (filed as Exhibit 10.13 to
Registrant's Form S-4 Registration Statement, Registration No. 33-
55968, and incorporated herein by this reference).
10.13.1 Amendment to Registrant's 1992 Stock Option Plan (filed as Exhibit
10.13.1 to Registrant's Form 10-KSB for year ended December 31, 1994).
10.20.2 Contract of Sale dated December 28, 1994 with Autumn America
Retirement, Ltd. regarding the sale of Fountainview Retirement Center
(filed as Exhibit 10.20.2 to Registrant's Form 10-KSB for year ended
December 31, 1994).
10.20.3 Exchange Agreement dated December 20, 1994 to settle the Fountainview
second mortgage profit participation, (filed as Exhibit 10.20.3 to
Registrant's Form 10-KSB for year ended December 31, 1994).
10.21.1 Extended and Consolidated Promissory Note in the principal amount of
$5,700,000 dated effective May 23, 1992 payable by JRG Investment Co.,
Inc. to M.S. Holding Co. Corp. (filed as Exhibit 10.22.1 to
Registrant's Form S-4 Registration Statement, Registration No. 33-
55968, and incorporated herein by this reference).
10.21.2 Extended and Consolidated Pledge Agreement dated effective May 23,
1992 between JRG Investment Co., Inc. and M.S. Holding Co. Corp.
securing the Note referenced in Exhibit 10.22.1 (filed as Exhibit
10.22.2 to Registrant's Form S-4 Registration Statement, Registration
No. 33-55968, and incorporated herein by this reference).
10.21.3 Pledge Agreement dated as of May 23, 1992 between James R. Gilley and
M.S. Holding Co. Corp. (filed as Exhibit 10.22.3 to Registrant's Form
S-4 Registration Statement, Registration No. 33-55968, and
incorporated herein by this reference).
10.21.4 Irrevocable Proxy from James R. Gilley to M.S. Holding Co. Corp.
relating to shares of capital stock of JRG Investment Co., Inc. (filed
as Exhibit 10.22.4 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this reference).
10.21.5 Blank Assignment and Power of Attorney signed by JRG Investment Co.,
Inc. relating to 482,000 (96,400 post December 1995 shares) shares of
Registrant's Common Stock (filed as Exhibit 10.22.5 to Registrant's
Form S-4 Registration Statement, Registration No. 33-55968, and
incorporated herein by this reference).
10.21.6 Blank Assignment and Power of Attorney signed by JRG Investment Co.,
Inc. relating to 1,268,000 shares (236,600 post December 1995 shares)
of Registrant's Common Stock (filed as Exhibit 10.22.6 to Registrant's
Form S-4 Registration Statement, Registration No. 33-55968, and
incorporated herein by this reference).
28
<PAGE>
10.21.7 Three Blank Assignments and Powers of Attorney signed by JRG
Investment Co., Inc., each relating to 600,000 shares (120,000 post
December 1995 shares) of Registrant's Common Stock (filed as Exhibit
10.22.7 to Registrant's Form S-4 Registration Statement, Registration
No. 33-55968, and incorporated herein by this reference).
10.21.8 Blank Assignment and Power of Attorney signed by JRG Investment Co.,
Inc. relating to 2,281,818 shares of Registrant's Common Stock (filed
as Exhibit 10.22.8 to Registrant's Form S-4 Registration Statement,
Registration No. 33-55968, and incorporated herein by this reference).
10.21.9 Blank Assignment and Power of Attorney signed by JRG Investment Co.,
Inc. relating to 905,557 shares of Registrant's Series A Preferred
Stock (filed as Exhibit 10.22.9 to Registrant's Form S-4 Registration
Statement, Registration No. 33-55968, and incorporated herein by this
reference).
10.22 Purchase and Sale Agreement dated February 1, 1993 for the purchase of
nursing homes in Houston and San Antonio, Texas (filed as Exhibit
10.23 to Registrant's Form S-4 Registration Statement, Registration
No. 33-55968, and incorporated herein by this reference).
10.23.3 Assets Purchase Agreement dated December 13, 1994 with Hermann Park
Manor and HCCI-Houston, Inc. for the Sale of Hermann Park manor (filed
as Exhibit 10.23.3 to Registrant's Form 10-KSB for the year ended
December 31, 1994).
10.23.4 Assets Purchase Agreement dated December 13, 1994 with Alta Vista
Nursing Center, Inc. and HCCI-Houston, Inc. for the Sale of Alta Vista
Nursing Center (filed as Exhibit 10.23.4 to Registrant's Form 10-KSB
for the year ended December 31, 1994).
10.25.1 Agreement dated September 14, 1994 to terminate and settle Executive
Employment Agreement with Arthur G. Weiss (filed as Exhibit 10.25.1 to
Registrant's Form 10-KSB for the year ended December 31, 1994).
10.30.2 Memorandum of Understanding amending Exhibit 10.30.1. (Filed as
Exhibit 10.30.2 to Registrant's Form 10-KSB for the year ended
December 31, 1993).
10.30.3 Letter dated January 6, 1995, terminating Stock Purchase Agreement
relating to Bankers Protective Life Insurance Company. (Filed as
Exhibit 10.30.3 to Registrant's Form 10-KSB for the year ended
December 31, 1994).
10.33 Stock Option Agreement dated November 21, 1993 between Registrant and
Arthur G. Weiss. (Filed as Exhibit 10.33 to Registrant's Form 10-KSB
for the year ended December 31, 1993).
10.34 Stock Option Agreement dated November 21, 1993 between Registrant and
Gene S. Bertcher. (Filed as Exhibit 10.34 to Registrant's Form 10-KSB
for the year ended December 31, 1993).
10.35.1 Purchase Agreement dated December 6, 1994 with Arizona Baptist
Retirement Centers, Inc. for the Sale of Rivermont at the Trails.
(Filed as Exhibit 10.35.1 to Registrant's Form 10-KSB for the year
ended December 31, 1994).
**10.36 Stock Option Agreement dated December 31, 1996 between Registrant and
James R. Gilley covering 200,000 shares of Common Stock.
**10.37 Employment Agreements dated December 31, 1996
**10.38 Stock Purchase Warrant dated December 31, 1996 between registrant and
The April Trust
**22.1 Subsidiaries of Registrant.
29
<PAGE>
**23.1 Consent of Grant Thornton.
**27.1 Financial Data Schedule required by Item 601 of Regulation S-B.
** Filed herewith.
(b) Reports on Form 8-K - none
30
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Act"), the Company has duly caused this Annual Report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
GREENBRIAR CORPORATION
April 10, 1997 By: /s/ Gene S. Bertcher
------------------------------------------
Gene S. Bertcher
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
31
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GREENBRIAR CORPORATION
April 10, 1997 By: /s/ James R. Gilley
-----------------------------------------
James R. Gilley, Chairman
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
April 10, 1997 /s/ James R. Gilley
---------------------------------------------------
JAMES R. GILLEY, CHAIRMAN OF THE BOARD AND DIRECTOR
/s/ Floyd B. Rhoades
---------------------------------------------------
April 10, 1997 FLOYD B. RHOADES, PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
April 10, 1997 /s/ Richards D. Barger
---------------------------------------------------
RICHARDS D. BARGER, DIRECTOR
April 10, 1997
/s/ Don C. Benton
---------------------------------------------------
April 10, 1997 DON C. BENTON, DIRECTOR
/s/ Paul G. Chrysson
April 10, 1997 ---------------------------------------------------
PAUL G. CHRYSSON, DIRECTOR
/s/ Matthew G. Gallins
April 10, 1966 ---------------------------------------------------
MATTHEW G. GALLINS, DIRECTOR
/s/ Steven R. Hague
April 10, 1966 ---------------------------------------------------
STEVEN R. HAGUE, DIRECTOR
/s/ Michael E. McMurray
April 10, 1966 ---------------------------------------------------
MICHAEL E. MCMURRAY, DIRECTOR
/s/ Victor L. Lund
---------------------------------------------------
VICTOR L. LUND, DIRECTOR
32
<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 the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
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 audit provides 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 the year then
ended, in conformity with generally accepted accounting principles.
We previously audited and reported on the consolidated balance sheet of
Greenbriar Corporation and subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the two years in the period then ended, prior to their
restatement for the 1996 pooling of interests. The contribution of Greenbriar
Corporation and subsidiaries to total assets, revenues and net earnings
represented 62 percent, 7 percent and 110 percent of the respective restated
totals in 1995. The contribution of Greenbriar Corporation and subsidiaries to
revenues and net earnings represented 67 percent and 116 percent of the
respective restated totals in 1994. Separate financial statements of American
Care Communities, Inc. included in the 1995 restated consolidated balance sheet
and the 1995 and 1994 consolidated statements of operations, changes in
stockholders' equity and cash flows were audited and reported on separately by
other auditors.
F-1
<PAGE>
We also have audited the combination of the accompanying consolidated balance
sheet as of December 31, 1995 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the two
years in the period then ended, after restatement for the 1996 pooling of
interests; in our opinion, such consolidated statements have been properly
combined on the basis described in Note B of the notes to the consolidated
financial statements.
/s/ GRANT THORNTON LLP
Dallas, Texas
March 27, 1997
F-2
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
December 31,
<TABLE>
<CAPTION>
ASSETS 1996 1995
-------- -------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,784 $ 7,623
Accounts receivable - trade 561 259
Deferred income tax benefit - 2,150
Real estate operations held for sale,
at lower of cost or market 5,379 -
Other current assets 665 1,899
-------- -------
TOTAL CURRENT ASSETS 9,389 11,931
REAL ESTATE OPERATIONS HELD FOR SALE,
AT LOWER OF COST OR MARKET - 3,190
NET ASSETS OF MOBILITY GROUP - 3,371
DEFERRED INCOME TAX BENEFIT 868 -
INVESTMENT IN SECURITIES, AT COST 4,086 1,853
MORTGAGE NOTES RECEIVABLE 8,768 7,368
PROPERTY AND EQUIPMENT, AT COST
Land and improvements 10,566 2,394
Buildings and improvements 69,369 10,773
Equipment and furnishings 4,317 1,491
Construction in progress 3,836 2,953
-------- -------
88,088 17,611
Less accumulated depreciation 2,635 834
-------- -------
85,453 16,777
DEPOSITS 5,553 1,007
GOODWILL AND OTHER INTANGIBLES 1,199 1,484
OTHER ASSETS 1,385 775
-------- -------
$116,701 $47,756
======== =======
</TABLE>
F-3
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Amounts in thousands, except per share data)
December 31,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,588 $ 826
Notes payable - stockholder 930 -
Long-term debt collateralized by properties under
contract of sale 901 -
Accounts payable - trade 3,810 1,217
Accrued expenses 3,482 1,032
Other current liabilities 1,223 130
-------- -------
TOTAL CURRENT LIABILITIES 11,934 3,205
LONG-TERM DEBT 54,717 16,485
NOTES PAYABLE - STOCKHOLDER - 358
FINANCING OBLIGATIONS 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 13 shares,
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 and 20 shares, respectively 1 2
Series D cumulative convertible preferred stock, $.10 par value; liquidation
value of $3,375; authorized, issued and outstanding, 675 shares in 1996 68 -
Common stock, $.01 par value; authorized, 20,000 shares; issued and
outstanding, 6,471 and 4,752 shares, respectively 65 48
Additional paid-in capital 51,232 34,565
Accumulated deficit (12,642) (7,418)
-------- -------
38,725 27,198
Less stock purchase notes receivable (including $2,438
from related parties) (2,573) (2,573)
-------- -------
36,152 24,625
-------- -------
$116,701 $47,756
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share data)
Year ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Assisted living operations $29,673 $ 7,368 $11,647
Other 112 596 193
------- ------- -------
29,785 7,964 11,840
OPERATING EXPENSES
Assisted living operations 19,439 4,731 7,613
Lease expense 3,712 406 212
Facility depreciation and amortization 2,001 483 233
General and administrative 6,731 3,948 4,118
Merger and transition expense 2,836 - -
------- ------- -------
34,719 9,568 12,176
------- ------- -------
Operating loss (4,934) (1,604) (336)
Other income (expense)
Interest and dividend income 771 1,199 216
Interest expense (4,457) (1,548) (2,761)
Gain (loss) on sales of assets (21) 6,950 2,803
Other 646 289 -
------- ------- -------
(3,061) 6,890 258
------- ------- -------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (7,995) 5,286 (78)
INCOME TAX EXPENSE (BENEFIT) (2,400) 94 (201)
------- ------- -------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS (5,595) 5,192 123
DISCONTINUED OPERATIONS
Earnings from operations, net of income taxes 238 19 241
Gain on disposal, net of income taxes 520 61 1,178
------- ------- -------
NET EARNINGS (LOSS) (4,837) 5,272 1,542
Preferred stock dividend requirement (365) (225) (327)
------- ------- -------
Earnings (loss) allocable to common stockholders $(5,202) $ 5,047 $ 1,215
======= ======= =======
Earnings (loss) per share
Continuing operations $(1.13) $1.03 $(.04)
Net earnings (loss) $ (.99) $1.04 $ .24
Weighted average number of common and
equivalent shares outstanding 5,259 4,839 4,979
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<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 Treasury
Shares Amount Shares Amount capital deficit receivable stock Total
------- ------- -------- -------- ------------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994
- as previously reported 1,075 $ 107 18,395 $ 183 $36,132 $(13,616) $(2,250) $ (7) $20,549
Merger with American Care
Communities, Inc. - - 6,500 65 556 (63) (57) - 501
------ ----- ------- ----- ------- -------- ------- ------ -------
Balances at January 1, 1994
- restated 1,075 107 24,895 248 36,688 (13,679) (2,307) (7) 21,050
Issuance of shares - - 147 2 179 - (188) 7 -
Dividends on preferred
stock, including
imputed dividends of $42 44 4 - - 131 (328) - - (193)
Net earnings - - - - - 1,542 - - 1,542
------ ----- ------- ----- ------- -------- ------- ------ -------
Balances at December 31, 1994 1,119 111 25,042 250 36,998 (12,465) (2,495) - 22,399
Issuance of shares - - 116 1 77 - (78) - -
Conversion of preferred
stock (1) - 19 - - - - - -
Conversion of subordinated
debt - - 67 1 199 - - - 200
Purchase of common stock - - (1,226) (12) (1,998) - - - (2,010)
Purchase of preferred stock (1,085) (108) - - (976) - - - (1,084)
Dividends on preferred stock 1 - - - 73 (225) - - (152)
One-for-five reverse stock
split - - (19,266) (192) 192 - - - -
Net earnings - - - - - 5,272 - - 5,272
------ ----- ------- ----- ------- -------- ------- ------ -------
Balances at December 31, 1995 34 3 4,752 48 34,565 (7,418) (2,573) - 24,625
Issuance of preferred stock 2,625 264 - - 15,938 - - - 16,202
Conversion of preferred
stock (1,970) (197) 1,731 17 180 - - - -
Purchase of common stock - - (12) - (123) - - - (123)
Dividends on preferred stock 1 - - - 72 (387) - - (315)
Capital contribution - - - - 600 - - - 600
Net loss - - - - - (4,837) - - (4,837)
------ ----- ------- ----- ------- -------- ------- ------ -------
Balances at December 31, 1996 690 $ 70 6,471 $ 65 $51,232 $(12,642) $(2,573) $ - $36,152
====== ===== ======= ===== ======= ======== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $(4,837) $ 5,272 $ 1,542
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities
Discontinued operations (758) (80) (1,419)
Depreciation and amortization 2,001 483 233
(Gain) loss on sales of assets 19 (7,043) (4,633)
Recognition of deferred gain - - (1,070)
Stock dividends on investment securities (133) (175) -
Capital contributions as payment for services 600 - -
Deferred income taxes (1,979) 35 369
Changes in operating assets and liabilities,
net of effect of acquisition
Accounts receivable 255 1,434 (92)
Refundable income taxes - - 945
Other current and noncurrent assets 905 154 (1,105)
Accounts payable and other liabilities 2,893 (2,493) 1,217
------- ------- -------
NET CASH USED IN OPERATING ACTIVITIES
OF CONTINUING OPERATIONS (1,034) (2,413) (4,013)
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES OF DISCONTINUED OPERATIONS (85) 387 627
------- ------- -------
NET CASH USED IN OPERATING ACTIVITIES (1,119) (2,026) (3,386)
</TABLE>
F-7
<PAGE>
GREENBRIAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Amounts in thousands)
Year ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of assets $ $ 21,885 $ 32,196
Collections of notes receivable 123 - -
Proceeds from sales of discontinued operations - - 6,557
Additions to real estate - (54) (462)
Purchase of property and equipment (16,534) (9,178) (5,298)
Net cash effect of (sale) purchase of subsidiary - - (273)
Additions to notes receivable (23) (668) -
Investing activities of discontinued operations - (348) (344)
Cash received in acquisition of business 739 - -
Other - (70) (73)
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (15,695) 11,567 32,303
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 15,461 18,455 16,008
Payments on debt
Affiliates - (1,625)
Other (1,426) (23,910) (35,713)
Dividends on preferred stock (315) (152) (193)
Purchase of common and preferred stock (123) (3,094) -
Deposits on financing obligations (1,622) (1,000) -
Deferred financing and acquisition costs - (782) (32)
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 11,975 (10,483) (21,555)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (4,839) (942) 7,362
Cash and cash equivalents at beginning of year 7,623 8,565 1,203
-------- -------- --------
Cash and cash equivalents at end of year $ 2,784 $ 7,623 $ 8,565
======== ======== ========
</TABLE>
See Note D for supplemental disclosure of cash flows and noncash investing and
financing transactions.
The accompanying notes are an integral part of these statements.
F-8
<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.
F-9
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
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.
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.
Reclassifications
-----------------
Certain reclassifications have been made to the financial statements for 1994
and 1995 to classify revenues and expenses in a manner consistent with the
Company's assisted living operations as presented in the financial statements
as of and for the year ended December 31, 1996.
F-10
<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,
---------------
1996 1995
------ ------
<S> <C> <C>
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>
F-11
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - ACQUISITIONS - CONTINUED
- ---------------------------------
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 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
Wedgewood 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,
--------------------------
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Revenue
Greenbriar $13,523 $ 557 $ 7,939
American Care 16,262 7,407 3,901
------- ------ -------
Combined $29,785 $7,964 $11,840
======= ====== =======
Earnings (loss) from continuing operations
Greenbriar $(3,483) $5,717 $ 369
American Care (2,112) (525) (246)
------- ------ -------
Combined $(5,595) $5,192 $ 123
======= ====== =======
Net earnings (loss)
Greenbriar $(2,725) $5,797 $ 1,788
American Care (2,112) (525) (246)
------- ------ -------
Combined $(4,837) $5,272 $ 1,542
======= ====== =======
</TABLE>
F-12
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - DISCONTINUED OPERATIONS
In 1994, management concluded that operation of skilled medical care
facilities, consisting of nursing homes and eating disorder clinics, was not in
the best interest of the Company. In September 1994, the Company sold its
investment in Remuda Ranch Center for Anorexia and Bulimia, Inc. for shares of
the buyer's preferred stock, which is not marketable, valued at $1,678,000. The
sale resulted in a gain of $804,000. The preferred stock bears a cumulative
dividend of 8% and is convertible into shares of common stock equal to
approximately 5% of the outstanding shares at December 31, 1996. Valuation was
based on discounted future cash flows. In December 1994, the Company's
subsidiary, Altman Nursing, Inc., sold its two skilled nursing facilities for
an aggregate price of $6,400,000, which resulted in a gain of $981,000. The
aggregate gain of $1,785,000 for both transactions, net of applicable income
taxes of $607,000, was recorded in 1994.
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 skilled medical care segment, mobility products segment
and real estate segment have been presented in the accompanying financial
statements as discontinued operations.
Summarized operating results of these segments are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----- ------ -------
<S> <C> <C> <C>
Revenues $864 $2,815 $17,650
==== ====== =======
Earnings before income taxes $361 $ 28 $ 362
Income tax expense 123 9 121
---- ------ -------
Net earnings $238 $ 19 $ 241
==== ====== =======
</TABLE>
F-13
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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,
---------------------------
1996 1995 1994
-------- ------ --------
<S> <C> <C> <C>
Supplemental cash flow information
Interest paid $ 4,460 $1,579 $ 4,221
Income taxes paid 95 46 27
Supplemental data on noncash investing and financing activities
Stock dividend paid on preferred shares 72 73 93
Sale of stock in exchange for notes receivable from
employees and officers - 78 186
Conversion of subordinated debt to common stock - 200 -
Goodwill associated with acquisition of assets - 493 452
Sale of subsidiary
Securities received $ (4,300) $(1,678)
Assets sold 3,780 4,462
Liabilities transferred - (3,861)
Gain on sale 520 804
-------- -------
Net cash effect of sale of subsidiary $ - $ (273)
======== =======
Business acquired
Fair value of assets acquired $ 59,890
Cash received 739
Stock issued (16,202)
--------
Liabilities assumed $ 44,427
========
</TABLE>
F-14
<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 1995
------- -------
<S> <C> <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 3,254
Mortgage note payable to a financial institution bearing interest at 11.35%;
collateralized by property and equipment 11,500 11,500
Other 538 2,557
------- -------
56,305 17,311
Less: current maturities 1,588 826
------- -------
$54,717 $16,485
======= =======
</TABLE>
F-15
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - DEBT - CONTINUED
Aggregate annual principal maturities of long-term debt at December 31, 1996
are as follows: (in thousands)
<TABLE>
<CAPTION>
<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 other 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 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 $1,167,000 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 5 year renewal options and rates based upon the yield of
United States Treasury notes plus 3.75%, adjusted annually for inflation. A
commitment fee of 1% is required at the date each of the aforementioned leases
is executed. At December 31, 1996, there were no amounts outstanding under this
arrangement.
F-16
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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>
<CAPTION>
<S> <C>
1997 $ 5,327
1998 5,458
1999 5,189
2000 4,461
2001 3,651
-------
Thereafter
$24,086
=======
</TABLE>
Lease expense in 1996, 1995 and 1994 was $5,153,000, $2,082,000, and $212,000
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.
The following is a summary of the components of income tax expense (benefit)
from continuing operations (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Current $ 23 $ 151 $ 160
Deferred (2,423) (57) (361)
------- ----- -----
$(2,400) $ 94 $(201)
======= ===== =====
</TABLE>
F-17
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - INCOME TAXES - CONTINUED
Deferred tax assets, liabilities and associated valuation allowances were
comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 5,422 $ 2,783
Real estate 40 141
Charitable contribution carryforwards 207 606
Tax credits 436 220
Accrued expenses 407 103
Financing obligations 1,802 -
Other 609 221
------- -------
Total deferred tax assets 8,923 4,074
Valuation allowance (418) (1,624)
Deferred tax liabilities:
Investment in securities (104) (237)
Property and equipment (7,476) (45)
Other (57) (18)
------- -------
Total deferred tax liabilities (7,637) (300)
------- -------
Net deferred tax asset $ 868 $ 2,150
======= =======
</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-18
<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,
------------------------
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Tax expense (benefit) at the statutory rate $(2,718) $ 1,797 $ (27)
Amortization of intangibles - 30 113
Change in deferred tax asset valuation allowance,
exclusive of reductions for business sold in 1994
and business purchased in 1996 418 (1,716) (463)
Correction of prior period estimates - - 138
Other (100) (17) 38
------- ------- -----
Tax expense $(2,400) $ 94 $(201)
======= ======= =====
</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 at a rate of 6%.
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%
F-19
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - STOCKHOLDERS' EQUITY - CONTINUED
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.
In 1996, the Company granted to its Chief Executive Officer options, not
covered by the Plan, for 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
-------- ------
(in thousands)
<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.
F-20
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - STOCKHOLDERS' EQUITY - CONTINUED
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
-------------------
Weighted
average
exercise
Shares price
--------- --------
<S> <C> <C>
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
======
<CAPTION>
1995
-------------------
Weighted
average
exercise
Shares price
-------- ------
<S> <C> <C>
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
======== ======
<CAPTION>
1994
-------------------
Weighted
average
exercise
Shares price
-------- ------
<S> <C> <C>
Outstanding at beginning of year 327,500 $13.04
Cancelled (30,000) 12.50
Reacquired (142,000) 12.50
--------
Outstanding at end of year 155,500 $13.63
======== ======
Options exercisable at December 31, 1994 141,500 $13.86
======== ======
</TABLE>
Information about stock options outstanding at December 31, 1996 is
summarized as follows:
F-21
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - STOCKHOLDERS' EQUITY - CONTINUED
<TABLE>
<CAPTION>
Options outstanding
-----------------------------
Weighted average
Number remaining Weighted average
Range of exercise prices outstanding contractual life exercise price
------------------------ ----------- ---------------- ----------------
<S> <C> <C> <C>
$11.25 to $15.75 587,500 10.57 $12.20
Options exercisable
-----------------------------
Number Weighted average
Range of exercise prices exercisable exercise price
------------------------ ----------- ----------------
$11.25 to $15.75 577,500 $12.21
</TABLE>
In 1994, the Company purchased options covering 142,000 shares of common
stock from a former employee director for $178,000.
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 1994 and anti-dilutive in
1996.
NOTE K - SALES OF ASSETS
Gains on the sale of assets in 1995 and 1994 (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
======
1994
----
Sale of Rivermont retirement center for cash of approximately $6,900 $1,720
Recognition of deferred gain on long-term care facilities sold in 1991
for approximately $15,400 in notes 1,070
Other 13
------
$2,803
======
</TABLE>
F-22
<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 and 1995, the balance sheet reflects a deferred gain of
$3,083,000. This gain resulted from the sale in 1991 of four nursing homes
in exchange for notes 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
1994
----
The Company sold to W. Michael Gilley, Executive Vice-President/Director of
the Company, 30,000 shares of common stock for a non interest bearing note
of $187,500; principal is due in December 1999. Additional loans to
executives and directors of $55,000 were made in 1994. Also, a former
executive of the Company was paid commissions of $145,000 relating to the
sale of property.
Sylvia Gilley, wife of the Company's Chief Executive Officer, James R.
Gilley, made a loan of $1,000,000 to the Company. The loan was repaid
during 1994.
1995
----
The Company purchased land from Sylvia Gilley for $221,000.
1996
----
See Note B with respect to related party transactions for 1996.
F-23
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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.
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.
F-24
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
Long-term debt - The fair value of the Company's long-term debt is estimated
based on market rates for the same or similar issues. At December 31, 1995,
the carrying amount of long-term debt approximates its fair value.
Accounts receivable and payable - The carrying amount approximates fair
value because of their short maturity.
The estimated fair value of the Company's financial instruments are as follows:
(in thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1996 1995
------------------ -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 2,784 $2,784 $ 7,623 $7,623
Accounts receivable - trade 561 561 259 259
Investment in securities 4,086 4,086 1,853 1,853
Mortgage notes receivable 8,768 8,768 7,368 7,368
Financial Liabilities:
Accounts payable - trade (1,588) (1,588) (826) (826)
Notes payable - stockholder (930) (930) (358) (358)
Long-term debt collateralized by
properties under contract of sale (901) (901) - -
Long-term debt (56,305) (56,305) (17,311) (17,311)
</TABLE>
NOTE O - NOTES RECEIVABLE
Stock Purchase Notes
--------------------
<TABLE>
<CAPTION>
December 31,
-----------------
1996 1995
------ ------
(In thousands)
<S> <C> <C>
Related party
Note from James R. Gilley, chief executive officer, principal
and interest at 5-1/2%, due November 2003 $2,250 $2,250
Note from W. Michael Gilley, executive vice-president/director,
noninterest-bearing and due in December 1999 (Note L) 188 188
Other 135 135
------ ------
$2,573 $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 1995
------ ------
(In thousands)
<S> <C> <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 $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 68 668
------ ------
$8,768 $7,368
====== ======
</TABLE>
F-25
<PAGE>
GREENBRIAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE O - NOTES RECEIVABLE - CONTINUED
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.
During the fourth quarter of 1995, the Company made an adjustment to reduce
the deferred tax valuation allowance by $1,895,000.
During the fourth quarter of 1994, the Company wrote off goodwill related to
a 1992 acquisition of approximately $150,000, made other adjustments
reducing earnings by approximately $175,000 and reduced the deferred tax
valuation allowance by approximately $550,000. The goodwill write off
resulted from the decision to discontinue the sale of mobility products to
third parties.
The adjustments to the deferred tax valuation allowance resulted from
assessments made by the Company of its expected future taxable income
available to absorb its net operating loss carryfowards.
F-26
<PAGE>
EXHIBIT 10.36
GREENBRIAR CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT
Optionee: James R. Gilley
Number of Shares: 200,000
Option Exercise Price: $13.275
Date of Grant: December 31, 1996,
1.1.1. Grant of Options. Greenbriar Corporation ("Company") hereby grants
----------------
to the above-named optionee ("Optionee"), Non-Qualified Stock Options
(collectively, "Options") to purchase at the Option Exercise Price (set forth
above) per share and on the terms and conditions set forth in this agreement
("Agreement") that number of shares, as adjusted as herein provided (as so
adjusted, "Option Shares"), of its common stock, $.01 par value per share
("Common Stock"), as is set forth above. The exercise price is the fair market
value per share of the Common Stock as reflected by the closing price of the
Common Stock on the American Stock Exchange for the ten trading days ended
December 31, 1996, pursuant to a grant by the Compensation Committee of the
Company that was approved by the Board of Directors.
1.1.1. Term of Options and Limitations on Right to Exercise. The Options
----------------------------------------------------
shall become exercisable in full on the date hereof and listing of the shares of
Common Stock on the American Stock Exchange, and shall expire at 5:00 p.m.,
Dallas, Texas time, on December 31, 2006, unless sooner terminated pursuant
hereto.
1.1.1. Exercise of Options. Other terms, times and conditions of exercise of
-------------------
the Options are as follows:
(a) Prior to the Expiration Date, the Options shall be fully exercisable in
whole or in part for a number of shares up to the aggregate number of all
of the Option Shares.
(a) Upon the death or Disability of the Optionee, the Optionee or the personal
representative of the Optionee, as applicable, may exercise the Options to
the extent not previously exercised (and, in the case of death, to the
extent the Options could have been exercised by the Optionee on the date of
death) subject to the terms set forth in this Agreement, until their
termination as provided by Section 2 hereof.
(a) The Options shall be exercised by written notice directed to the Secretary
of the Company. Such written notice shall be accompanied by full payment
in cash for the number of Option Shares specified in such written notice.
(a) If the Optionee is subject to restrictions regarding the Optionee's right
to sell shares of Common Stock under applicable securities laws and as a
consequence exercise of the Options would not be taxable under the
provisions of Section 83(c) of the Code, the Optionee, upon exercise of the
Options, shall be authorized to make an election to be taxed upon
exercise of the Options under Section 83(b) of the Code. To effect
such election, the Optionee may file an appropriate election with the
Internal Revenue Service within thirty (30) days after exercise of the
Options and otherwise in accordance with applicable Treasury
Regulations.
(a) The Optionee recognizes that the Committee may make such provisions and
take such steps as it may deem necessary or appropriate for the withholding
of any taxes that the Company or any subsidiary of the Company is required
by any law or regulation or any governmental authority, whether
<PAGE>
federal, state or local, domestic or foreign, to make in connection with
the Optionee's exercise of the Options.
(a) Subject to the terms of this Agreement, the Options may be exercised at any
time and without regard to any other option to purchase stock of the
Company held by the Optionee.
g. In the event the outstanding shares of Common Stock 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 subject to this Option shall be
proportionately and appropriately adjusted. Following a transaction
described 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
Company 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 the Optionee that the Options shall apply with
appropriate adjustments as determined by the Company to the securities
of the successor corporation to the Optionee would have been entitled,
or (iii) take action that is some combination of aspects of (i) and
(ii). The determination by the Company 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.
1.1.1. Nontransferability. The Options are not transferable except by will
------------------
or by the laws of descent and distribution and are subject to the provisions of
Section 7 hereof. The Options may be exercised during the lifetime of the
Optionee only by the Optionee.
1.1.1. Limitation of Rights. The Optionee shall have no rights as a
--------------------
stockholder with respect to the Option Shares until the Optionee shall become
the holder of record of such Option Shares. Neither the Plan, the granting of
the Options nor this Agreement shall impose any obligation on the Company or any
subsidiary of the Company to continue the employment of the Optionee.
1.1.1. Optionee's Best Efforts Covenant. The Optionee hereby agrees to use
--------------------------------
the Optionee's best efforts to provide services to the Company in a workmanlike
manner and to promote the Company's interests.
1.1.1. Restrictions on Transfer and Pledge. Except as otherwise provided
-----------------------------------
herein, the Options and all rights and privileges granted hereunder shall not be
transferred, assigned, pledged or hypothecated in any way, whether by operation
of law or otherwise, and shall not be subject to execution, attachment or
similar process.
1.1.1. Restrictions on Issuance of Option Shares. If at any time the Board
-----------------------------------------
of Directors or the Committee determines, in its discretion, that listing,
registration or qualification of the Option Shares covered by the Options upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition to the exercise of the Options, the Options may not be exercised in
whole or in part unless and until such listing, registration, qualification,
consent or approval has been effected or obtained free of any conditions not
acceptable to the Board of Directors or the Committee. The Board or Committee,
as the case may be, shall make such a determination, and notify the Optionee of
its determination, within two (2) days after receiving the Optionee's written
notice of exercise of his Options. In the event of any such determination by
the Board or the Committee, the Company shall use its best efforts to effect or
obtain such listing, registration, qualification, consent or approval.
<PAGE>
1.1.1. Successors. This Agreement shall be binding upon any successor of the
----------
Company, in accordance with the terms of this Agreement and the Plan.
1.1.1. Stock Reserve. The Company shall at all times during the term of
-------------
this Agreement reserve and keep available such number of shares of Common Stock
as shall be sufficient to satisfy the requirements of this Agreement. The
Company shall pay all original issue taxes (if any) on the exercise of the
Options, and all other fees and expenses necessarily incurred by the Company in
connection therewith.
11. Stockholder Approval. This Agreement shall be subject to the
--------------------
receipt of approval by the Stockholders of the Company if required by the rules
of the American Stock Exchange, and to the listing of the shares underlying the
options on the American Stock Exchange.
12. Investment Intent. The Optionee hereby represents and warrants as
-----------------
follows:
a. The Shares will be acquired for the Optionee's own account
without the participation of any other person, with the intent of holding
the Shares for investment and without the intent of participating, directly
or indirectly, in a distribution of the Shares and not with a view to, or
for resale in connection with, any distribution of the Shares or any
portion thereof.
b. The Optionee, through the Optionee's position with the
Company, has access to all material information with regard to the Company.
c. The Optionee will not acquire the Shares based upon any
representation, oral or written, by any person with respect to the future
value of or income from the Shares but rather upon an independent
examination and judgment as to the prospects of the Company.
d. The Shares were not offered to the Optionee by means of
publicly disseminated advertisements or sales literature, nor is the
Optionee aware of any offers made to other persons by such means .
e. The Optionee acknowledges that the Optionee must continue to
bear the economic risk of the investment in the Shares for an indefinite
period and recognizes that the Shares will be: (i) transferred without
registration under any state or federal law relating to the registration of
securities for sale; and (ii) issued and transferred in reliance on the
exemption from registration provided by Section 4(2) of the United States
Securities Act of 1933, as amended (the "1933 Act").
IN WITNESS WHEREOF, Greenbriar Corporation acting by and through its
duly authorized officers, has caused this Agreement to be executed, and the
Optionee has executed this Agreement, effective this 9th day of January, 1997.
GREENBRIAR CORPORATION
By: /s/ Gene S. Bertcher
--------------------------------------------------
Name: Gene S. Bertcher
-------------------------------------------
Title: Executive Vice President
-------------------------------------------
/s/ James R. Gilley
------------------------------------------------------
OPTIONEE - James R. Gilley
<PAGE>
EXHIBIT 10.37
EMPLOYMENT AGREEMENT
This Employment Agreement shall commence on the 1st day of January,
1997, between Greenbriar Corporation, a Nevada corporation (hereinafter referred
to as "Employer"), and GENE S. BERTCHER (hereinafter referred to as "Employee").
In consideration of the mutual promises hereinafter set forth, the
parties hereto agree as follows:
1. EMPLOYMENT. Employer agrees to employ Employee and Employee agrees to
serve Employer, upon the terms and conditions hereinafter set forth.
1. TERM. The employment of Employee hereunder and this Employment
Agreement shall commence the date hereof and shall be deemed to recommence on
each day of the term hereof, and shall continue in effect for a period of two
years from the date of each commencement or recommencement or until terminated
sooner pursuant to Section 7 hereof.
1. DUTIES. During the term of this Agreement, Employee shall be engaged as
an executive employee of Employer and shall report to the Board of Directors
and Executive Committee of Employer. Employee's title shall be Executive Vice
President of Employer, with such powers and duties in those capacities as are
set forth in the Bylaws of Employer. If Employee is elected or appointed with
the Employee's consent to an office with any of Employer's subsidiaries or
affiliates during the term of this Agreement, the Employee will serve in such
capacity or capacities without additional compensation. Employee shall perform
his duties from the Employer's main office in Addison, Texas.
1. EXTENT OF SERVICES. During the term of this Agreement, Employee shall
devote substantially his entire working time, attention, and energies to the
business of Employer, consistent with the time and effort he has devoted to the
business of Employer in the past, and shall not during the term of service be
actively engaged in any other business activities. However, this shall not be
construed as preventing Employee from investing the Employee's personal assets
in such form or manner as may require occasional or incidental services on the
part of Employee in the management, conservation and protection of such
investments and provided that such investments cannot be construed as being
competitive or in conflict with the business of Employer.
1. COMPENSATION.
1.1. Base Salary. Employer will pay Employee during the Employee's term of
service hereunder, as compensation for the Employee's services, the sum of
$180,000 per year (sometimes hereinafter referred to as the "Base Salary"),
payable in biweekly or other installments in accordance with the general
practices of the Employer. Employee shall be entitled to participate in any and
all executive bonus programs at levels equal to those of employees in comparable
executive positions. Any bonus compensation shall be payable in the discretion
of the Board of Directors of the Employer.
1.2. Benefits.
1.1.1. The Employee shall be entitled to the same benefits generally provided
to other executives of Employer of comparable rank and responsibility as well as
to those generally provided to all officers of Employer in accordance with the
policies of the Employer from time to time. These are to include, but not be
limited to, health insurance and vacation pursuant to the Employer's standard
policy.
1.1.1. The Employer shall compensate or provide the designated beneficiaries of
Employee with the benefits accrued or vested under any compensation and/or other
benefit plan of the Employer in which Employee was a participant as of the date
of his death.
<PAGE>
1. EXPENSES. During the term of employment provided for herein, Employer
shall pay or reimburse Employee, in accordance with its standard policy, upon
submission of vouchers by the Employee for all expenses incurred by the Employee
in the interest of Employer's business.
1. TERMINATION.
1.1. Termination Events. Subject to the provisions of Paragraph 7.2 of this
Section, this Agreement shall terminate:
1.1.1. Upon death of Employee.
1.1.1. At the option of the Employer if Employee shall become disabled and
remain disabled for a period of six (6) months. Disability shall be defined as
Employee's inability through illness or other cause to perform his normal work
load as measured by the twelve (12) months preceding the commencement of such
disability. During such disability, Employee shall be compensated in accordance
with Employer's standard policy regarding disability.
1.1.1. Upon mutual agreement.
1.1.1. At any time at the option of Employee.
7.1.5. At the Employer's option for any good cause. For purposes of
this Section, "good cause" for termination shall mean: (a) the conviction of
Employee of any act involving moral turpitude, or (b) any material breach by
Employee of any of the terms of, or the failure to perform any covenant
contained in, this Agreement.
7.1.6. By the Employee for "Good Reason." For purposes of this
Agreement, "Good Reason" shall mean the occurrence after a Change in Control of
any of the events or conditions described in Subsections (1) through (9) hereof:
(1) a change in the Employee's status, title, position
or responsibilities (including reporting responsibilities) which,
in the Employee's reasonable judgment, represents an adverse
change from his status, title, position or responsibilities as in
effect immediately prior thereto; the assignment to the Employee
of any duties or responsibilities which, in the Employee's
reasonable judgment, are inconsistent with his status, title,
position or responsibilities; or any removal of the Employee from
or failure to reappoint or reelect him to any of such offices or
positions, except in connection with the termination of his
employment pursuant to Sections 7.1.1, 7.1.2, 7.1.3, 7.1.4 or
7.1.5, other than Good Reason;
(2) a reduction in the Employee's base salary or any
failure to pay the Employee any compensation or benefits to which
he is entitled within five days of the date due;
(3) a failure to increase the Employee's base salary at
least annually at a percentage of base salary no less than the
average percentage increases (other than increases resulting from
the Employee's promotion) granted to the Employee during the
three full years ended prior to a Change in Control (or such
lesser number of full years during which the Executive was
employed);
(4) the Employer's requiring the Employee to be based
at any place outside 50 miles from Dallas, Texas, except for
reasonably required travel on the Employer's business which is
not greater than such travel requirements prior to the Change in
Control;
(5) the failure by the Employer to (a) continue in
effect (without reduction in benefit level, and/or reward
opportunities) any material compensation or employee
<PAGE>
benefit plan in which the Employee was participating immediately
prior to the Change in Control, unless a substitute or
replacement plan has been implemented which provides
substantially identical compensation and benefits to the Employee
or (b) provide the Employee with compensation and benefits, in
the aggregate, at least equal (in terms of benefit levels and/or
reward opportunities) to those provided for under each other
compensation or employee benefit plan, program and practice as in
effect at any time within ninety (90) days preceding the Change
in Control Date or at any time thereafter;
(6) the insolvency or the filing (by any party,
including the Employer) of a petition for the bankruptcy of the
Employer;
(7) any material breach by the Employer of any
provisions of this Agreement;
(8) any purported termination of the Employee's
employment for Cause by the Company which does not comply with
the terms of Section 7.1.5.; or
(9) the failure of the Employer to obtain an agreement,
satisfactory to the Employee, from any successor or assign of the
Employer to assume and agree to perform this Agreement, as
contemplated in Section 9.2.
Any event or condition described in Section 7.1.6 (1)-(9) which occurs
prior to a Change in Control but which the Employee reasonably demonstrates (a)
was at the request of a third party who had indicated an intention or taken
steps reasonably calculated to effect a Change in Control (a "Third Party"), or
(b) otherwise arose in connection with, or in anticipation of a Change in
Control, shall constitute Good Reason for purposes of this Agreement
notwithstanding that it occurred prior to the Change in Control. The
Executive's right to terminate his employment pursuant to Section 7.1.6 shall
not ve affected by his incapacity due to physical or mental illness.
7.1.7. For any reason other than those set forth in Sections 7.1.1.,
7.1.2., 7.1.3., 7.1.4, 7.1.5 or 7.1.6.
1.1. Consequences of Termination.
1.1.1. Upon termination by mutual agreement under Section 7.1.3, by the
Employee under Section 7.1.4., or for good cause under Section 7.1.5, the
Employee shall be paid all salary prorated to the date of termination.
1.1.1. Upon termination under Section 7.1.1., 7.1.2., 7.1.6. or 7.1.7,
Employee (or his estate) shall be entitled to receive (1) severance
compensation in lieu of any further compensation after the termination date in a
single payment in cash in an amount equal to two times the Employee's base
salary at the highest rate in effect at any time subsequent to the 90th day
prior to the termination date; and (2) for eighteen (18) months, the Employer's
current cost sharing shall continue on behalf of the Employee and his dependents
and beneficiaries in regard to the life insurance, disability, medical, dental
and hospitalization benefits provided to the Employee at any time during the 90-
day period prior to the termination date.
The amounts provided for in Section 7.2 shall be paid within five days
after the Employee's Termination Date. The Employee shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise and no such payment shall be offset or reduced by
the amount of any compensation or benefits provided to the Employee in any
subsequent employment. The severance pay and benefits provided for in Sections
7.2.4 shall be in lieu of any other severance pay to which the Executive may be
entitled under any Company severance plan, program or arrangement.
8. TRADE SECRETS AND CONFIDENTIAL INFORMATION. During the term of this
Agreement, Employee will have access to customer lists and compilations of
information and records specific to and regularly used in the operation of the
business of Employer. Employee acknowledges that such information constitutes
valuable and
<PAGE>
confidential information of the Employer. Employee shall not disclose any of the
aforesaid private company secrets, directly or indirectly, nor use them in any
way, either during the term of this Agreement or after termination of
employment. All files, records, electronic and magnetic files, documents,
specifications, equipment and similar information relating to the business of
Employer, whether prepared by Employee or otherwise coming into Employee's
possession, shall remain the exclusive property of Employer and shall not be
removed from the premises of Employer except as shall be necessary for Employee
to perform Employee's duties under this Agreement. Upon termination of this
Agreement for any reason, Employee will deliver all such materials in his
possession and all copies thereof to Employer.
9. GENERAL PROVISIONS.
9.1 Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by certified mail by
Employer to the residence of Employee, or by Employee to Employer's principal
office.
9.2. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the Employer, its successors and assigns, and the
Employer shall require any successor or assign to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Employer would be required to perform if no such succession or assignment had
taken place. The term "Employer" as used herein shall include successors and
assigns. The term "successors and assigns" as used herein shall mean a
corporation or other entity acquiring all or substantially all the assets and
business of the Employer (including this Agreement) whether by operation of law
or otherwise. Neither this Agreement nor any right or interest hereunder shall
be assignable or transferable by the Employee, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Employee's
legal personal representative.
9.3. Waiver of Breach. The waiver by Employer or Employee of a breach of
any provisions of this Agreement by the other shall not operate or be construed
as a waiver of any subsequent breach.
9.4. Entire Agreement. This instrument contains the entire agreement of
the parties. It may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
9.5. Attorneys' Fees. In the event that there shall be any litigation or
court proceeding with respect to this Agreement or the obligations of the
parties hereunder, the prevailing party shall be entitled to recover reasonable
attorneys' fees and costs from the other party.
9.6. Governing Law. This Employment Agreement shall be governed by the
laws of the State of Texas.
10. Definitions.
10.1. Change in Control. For purposes of this Agreement, a "Change in
Control" shall mean any one or more of the following events:
(a) An acquisition (other than directly from the Employer) of any
voting securities of the Employer (the "Voting Securities") by any
"Person" (the term person is used for the purposes of Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
immediately after which such Person has "Beneficial Ownership" (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of
twenty-five percent (25%) or more of the combined voting power of the
Employer's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which would
cause a Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or trust forming a part
thereof) maintained by (A) the Employer or (B) any corporation or
other Person of which a majority of its voting power or its voting
equity
<PAGE>
securities or equity interest is owned, directly or indirectly, by the
Employer (for purposes of this definition, a "Subsidiary" (ii) the
Employer or its Subsidiaries, or (iii) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);
(b) The Individuals who, as of December 30, 1996, are members of the
Board (the "Incumbent Board"), cease to constitute at least two-third
of the members of the Board. Provided, however, that if after the
election, or nomination for election by the Employer's common
stockholders, if any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for
purposes of this Plan, be considered as a member of the Incumbent
Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the board (a "Proxy
Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(c) Approval by stockholders of the Employer of:
(1) a merger, consolidation or reorganization involving the
Employer, unless such a merger, consolidation or
reorganization is a "Non-Control Transaction." A "Non-
Control Transaction" shall mean a merger, consolidation or
reorganization of the Employer where:
(i) the stockholders of the Employer, immediately
before such merger, consolidation or reorganization, own
directly or indirectly immediately following such merger,
consolidation or reorganization, seventy percent (70%) of
the combined voting power of the outstanding Voting
Securities of the corporation resulting from such merger or
consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such
merger, consolidation or reorganization,
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of the
agreement providing for such merger, consolidation or
reorganization constitute at least two-third of the members
of the board of directors of the Surviving Corporation, or a
corporation beneficially directly or indirectly owning a
majority of the Voting Securities of the Surviving
Corporation, and
(iii) no Person other than (a) the Employer, (b)
any Subsidiary, (c) any employee benefit plan (or any trust
forming a part thereof) maintained by the Employer, the
Surviving Company, the Surviving Corporation, or any
Subsidiary, or (d) any Person who, immediately prior to such
merger, consolidation or reorganization had Beneficial
Ownership of fifty-one percent (51%) or more of the then
outstanding Voting Securities, has Beneficial Ownership of
fifty-percent (51%) or more of the combined voting power of
the Surviving Corporation's then outstanding Voting
Securities.
(2) A plan of complete liquidation or dissolution of the
Company, or
(3) An agreement for the sale or other disposition of all or
substantially all of the assets of the Employer to any
Person (other than a transfer to a Subsidiary):
(d) Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any Person (the "Subject
Person") acquired Beneficial Ownership of more than the permitted
amount of the then outstanding Voting Securities as a result of the
acquisition of Voting
<PAGE>
Securities by the Employer which, by reducing the number of shares
Beneficially Owned by Subject Persons, provided that if a Change in
Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Employer, and
after such share acquisition by the Employer, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting Securities
Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
IN WITNESS WHEREOF, Employer has caused this Employment Agreement to
be executed in its corporate name by its corporate officers thereunto duly
authorized, and Employee has executed this Employment Agreement.
EMPLOYEE:
/s/ Gene S. Bertcher
-------------------------------------
GENE S. BERTCHER
EMPLOYER:
GREENBRIAR CORPORATION
By: /s/ James R. Gilley
-----------------------------------
Name: James R. Gilley
-----------------------------------
Title: Chairman, President & CEO
-----------------------------------
By: /s/ Michael E. McMurray
----------------------------------------
Name: Michael E. McMurray
---------------------------------
Title: Chairman, Compensation Committee
---------------------------------
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement shall commence on the 1st day of January,
1997, between Greenbriar Corporation, a Nevada corporation (hereinafter referred
to as "Employer"), and JAMES R. GILLEY (hereinafter referred to as "Employee").
In consideration of the mutual promises hereinafter set forth, the
parties hereto agree as follows:
1. EMPLOYMENT. Employer agrees to employ Employee and Employee agrees to
serve Employer, upon the terms and conditions hereinafter set forth.
1. TERM. The employment of Employee hereunder and this Employment
Agreement shall commence the date hereof and shall be deemed to recommence on
each day of the term hereof, and shall continue in effect for a period of three
years from the date of each commencement or recommencement or until terminated
sooner pursuant to Section 7 hereof.
1. DUTIES. During the term of this Agreement, Employee shall be engaged
as an executive employee of Employer and shall report to the Board of Directors
and Executive Committee of Employer. Employee's title shall be Chairman of the
Board of Directors of Employer, with such powers and duties in those capacities
as are set forth in the Bylaws of Employer. If Employee is elected or appointed
with the Employee's consent to an office with any of Employer's subsidiaries or
affiliates during the term of this Agreement, the Employee will serve in such
capacity or capacities without additional compensation. Employee shall continue
to serve as a member of the Board of Directors and as a member of the Executive
Committee of Employer. Employee shall perform his duties from the Employer's
main office in Addison, Texas.
1. EXTENT OF SERVICES. During the term of this Agreement, Employee shall
devote substantially his entire working time, attention, and energies to the
business of Employer, consistent with the time and effort he has devoted to the
business of Employer in the past, and shall not during the term of service be
actively engaged in any other business activities. However, this shall not be
construed as preventing Employee from investing the Employee's personal assets
in such form or manner as may require occasional or incidental services on the
part of Employee in the management, conservation and protection of such
investments and provided that such investments cannot be construed as being
competitive or in conflict with the business of Employer.
1. COMPENSATION.
1.1. Base Salary. Employer will pay Employee during the Employee's term of
service hereunder, as compensation for the Employee's services, the sum of
$460,000 per year (sometimes hereinafter referred to as the "Base Salary"),
payable in biweekly or other installments in accordance with the general
practices of the Employer. Employee shall receive fully vested nonqualified
stock options for 200,000 shares of common stock on December 31 of each year of
the term hereof in lieu of any cash bonus, with such options to be issued with
exercise prices equal to the average closing price of the common stock for the
ten trading days preceding December 31 and for terms of ten years each.
1.1. Benefits.
1.1.1. The Employee shall be entitled to the same benefits generally
provided to other executives of Employer of comparable rank and responsibility
as well as to those generally provided to all officers of Employer in accordance
with the policies of the Employer from time to time. These are to include, but
not be limited to, health insurance and vacation pursuant to the Employer's
standard policy.
1.1.1. The Employer shall compensate or provide the designated
beneficiaries of Employee with the benefits accrued or vested under any
compensation and/or other benefit plan of the Employer in which Employee was a
participant as of the date of his death.
<PAGE>
1. EXPENSES. During the term of employment provided for herein, Employer
shall pay or reimburse Employee, in accordance with its standard policy, upon
submission of vouchers by the Employee for all expenses incurred by the Employee
in the interest of Employer's Business.
1. TERMINATION.
1.1. Termination Events. Subject to the provisions of Paragraph 7.2 of this
Section, this Agreement shall terminate:
1.1.1. Upon death of Employee.
1.1.1. At the option of the Employer if Employee shall become disabled and
remain disabled for a period of six (6) months. Disability shall be defined as
Employee's inability through illness or other cause to perform his normal work
load as measured by the twelve (12) months preceding the commencement of such
disability. During such disability, Employee shall be compensated in accordance
with Employer's standard policy regarding disability.
1.1.1. Upon mutual agreement.
1.1.1. At any time at the option of Employee.
7.1.5. At the Employer's option for any good cause. For purposes of
this Section, "good cause" for termination shall mean: (a) the conviction of
Employee of any act involving moral turpitude, or (b) any material breach by
Employee of any of the terms of, or the failure to perform any covenant
contained in, this Agreement.
7.1.6. By the Employee for "Good Reason." For purposes of this
Agreement, "Good Reason" shall mean the occurrence after a Change in Control of
any of the events or conditions described in Subsections (1) through (9) hereof:
(1) a change in the Employee's status, title, position
or responsibilities (including reporting responsibilities) which,
in the Employee's reasonable judgment, represents an adverse
change from his status, title, position or responsibilities as in
effect immediately prior thereto; the assignment to the Employee
of any duties or responsibilities which, in the Employee's
reasonable judgment, are inconsistent with his status, title,
position or responsibilities; or any removal of the Employee from
or failure to reappoint or reelect him to any of such offices or
positions, except in connection with the termination of his
employment pursuant to Sections 7.1.1, 7.1.2, 7.1.3, 7.1.4 or
7.1.5, other than Good Reason;
(2) a reduction in the Employee's base salary or any
failure to pay the Employee any compensation or benefits to which
he is entitled within five days of the date due;
(3) a failure to increase the Employee's base salary at
least annually at a percentage of base salary no less than the
average percentage increases (other than increases resulting from
the Employee's promotion) granted to the Employee during the
three full years ended prior to a Change in Control (or such
lesser number of full years during which the Executive was
employed);
(4) the Employer's requiring the Employee to be based
at any place outside 50 miles from Dallas, Texas, except for
reasonably required travel on the Employer's business which is
not greater than such travel requirements prior to the Change in
Control;
(5) the failure by the Employer to (a) continue in
effect (without reduction in benefit level, and/or reward
opportunities) any material compensation or employee benefit plan
in which the Employee was participating immediately prior to the
Change in
<PAGE>
Control, unless a substitute or replacement plan has
been implemented which provides substantially identical
compensation and benefits to the Employee or (b) provide the
Employee with compensation and benefits, in the aggregate, at
least equal (in terms of benefit levels and/or reward
opportunities) to those provided for under each other
compensation or employee benefit plan, program and practice as in
effect at any time within ninety (90) days preceding the Change
in Control Date or at any time thereafter;
(6) the insolvency or the filing (by any party,
including the Employer) of a petition for the bankruptcy of the
Employer;
(7) any material breach by the Employer of any
provisions of this Agreement;
(8) any purported termination of the Employee's
employment for Cause by the Company which does not comply with
the terms of Section 7.1.5.; or
(9) the failure of the Employer to obtain an agreement,
satisfactory to the Employee, from any successor or assign of the
Employer to assume and agree to perform this Agreement, as
contemplated in Section 9.2.
Any event or condition described in Section 7.1.6 (1)-(9) which occurs
prior to a Change in Control but which the Employee reasonably demonstrates (a)
was at the request of a third party who had indicated an intention or taken
steps reasonably calculated to effect a Change in Control (a "Third Party"), or
(b) otherwise arose in connection with, or in anticipation of a Change in
Control, shall constitute Good Reason for purposes of this Agreement
notwithstanding that it occurred prior to the Change in Control. The
Executive's right to terminate his employment pursuant to Section 7.1.6 shall
not ve affected by his incapacity due to physical or mental illness.
7.1.7. For any reason other than those set forth in Sections 7.1.1.,
7.1.2., 7.1.3., 7.1.4, 7.1.5 or 7.1.6.
1.1. Consequences of Termination.
1.1.1. Upon termination by mutual agreement under Section 7.1.3, by the
Employee under Section 7.1.4., or for good cause under Section 7.1.5, the
Employee shall be paid all salary prorated to the date of termination.
1.1.1. Upon termination under Section 7.1.1., 7.1.2., 7.1.6. or 7.1.7,
Employee (or his estate) shall be entitled to receive (1) severance
compensation in lieu of any further compensation after the termination date in a
single payment in cash in an amount equal to three times the Employee's base
salary at the highest rate in effect at any time subsequent to the 90th day
prior to the termination date; and (2) for eighteen (18) months, the Employer's
current cost sharing shall continue on behalf of the Employee and his dependents
and beneficiaries in regard to the life insurance, disability, medical, dental
and hospitalization benefits provided to the Employee at any time during the 90-
day period prior to the termination date.
The amounts provided for in Section 7.2 shall be paid within five days
after the Employee's Termination Date. The Employee shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise and no such payment shall be offset or reduced by
the amount of any compensation or benefits provided to the Employee in any
subsequent employment. The severance pay and benefits provided for in Sections
7.2.4 shall be in lieu of any other severance pay to which the Executive may be
entitled under any Company severance plan, program or arrangement.
8. TRADE SECRETS AND CONFIDENTIAL INFORMATION. During the term of
this Agreement, Employee will have access to customer lists and compilations of
information and records specific to and regularly used in the operation of the
business of Employer. Employee acknowledges that such information constitutes
valuable and confidential information of the Employer. Employee shall not
disclose any of the aforesaid private company secrets, directly or indirectly,
nor use them in any way, either during the term of this Agreement or after
termination of employment. All files, records, electronic and magnetic files,
documents, specifications, equipment and similar
<PAGE>
information relating to the business of Employer, whether prepared by Employee
or otherwise coming into Employee's possession, shall remain the exclusive
property of Employer and shall not be removed from the premises of Employer
except as shall be necessary for Employee to perform Employee's duties under
this Agreement. Upon termination of this Agreement for any reason, Employee will
deliver all such materials in his possession and all copies thereof to Employer.
9. GENERAL PROVISIONS.
9.1 Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by certified mail by
Employer to the residence of Employee, or by Employee to Employer's principal
office.
9.2. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the Employer, its successors and assigns, and the
Employer shall require any successor or assign to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Employer would be required to perform if no such succession or assignment had
taken place. The term "Employer" as used herein shall include successors and
assigns. The term "successors and assigns" as used herein shall mean a
corporation or other entity acquiring all or substantially all the assets and
business of the Employer (including this Agreement) whether by operation of law
or otherwise. Neither this Agreement nor any right or interest hereunder shall
be assignable or transferable by the Employee, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Employee's
legal personal representative.
9.3. Waiver of Breach. The waiver by Employer or Employee of a breach
of any provisions of this Agreement by the other shall not operate or be
construed as a waiver of any subsequent breach.
9.4. Entire Agreement. This instrument contains the entire agreement
of the parties. It may not be changed orally, but only by an agreement in
writing, signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
9.5. Attorneys' Fees. In the event that there shall be any litigation
or court proceeding with respect to this Agreement or the obligations of the
parties hereunder, the prevailing party shall be entitled to recover reasonable
attorneys' fees and costs from the other party.
9.6. Governing Law. This Employment Agreement shall be governed by the
laws of the State of Texas.
10. Definitions.
10.1. Change in Control. For purposes of this Agreement, a "Change in
Control" shall mean any one or more of the following events:
(a) An acquisition (other than directly from the Employer) of any
voting securities of the Employer (the "Voting Securities") by
any "Person" (the term person is used for the purposes of Section
13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty-five percent (25%)
or more of the combined voting power of the Employer's then
outstanding Voting Securities; provided, however, in determining
whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as hereinafter
defined) shall not constitute an acquisition which would cause a
Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or trust forming a
part thereof) maintained by (A) the Employer or (B) any
corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is
owned, directly or indirectly, by the Employer (for purposes of
this definition, a "Subsidiary" (ii) the Employer or its
Subsidiaries, or (iii) any Person in connection with a "Non-
Control Transaction" (as hereinafter defined);
<PAGE>
(b) The Individuals who, as of December 30, 1996, are members of the
Board (the "Incumbent Board"), cease to constitute at least two-third
of the members of the Board. Provided, however, that if after the
election, or nomination for election by the Employer's common
stockholders, if any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for
purposes of this Plan, be considered as a member of the Incumbent
Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the board (a "Proxy
Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(c) Approval by stockholders of the Employer of:
(1) a merger, consolidation or reorganization involving the
Employer, unless such a merger, consolidation or
reorganization is a "Non-Control Transaction." A "Non-Control
Transaction" shall mean a merger, consolidation or
reorganization of the Employer where:
(i) the stockholders of the Employer, immediately
before such merger, consolidation or reorganization, own
directly or indirectly immediately following such merger,
consolidation or reorganization, seventy percent (70%) of
the combined voting power of the outstanding Voting
Securities of the corporation resulting from such merger
or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as
their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization,
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of the
agreement providing for such merger, consolidation or
reorganization constitute at least two-third of the
members of the board of directors of the Surviving
Corporation, or a corporation beneficially directly or
indirectly owning a majority of the Voting Securities of
the Surviving Corporation, and
(iii) no Person other than (a) the Employer, (b)
any Subsidiary, (c) any employee benefit plan (or any
trust forming a part thereof) maintained by the Employer,
the Surviving Company, the Surviving Corporation, or any
Subsidiary, or (d) any Person who, immediately prior to
such merger, consolidation or reorganization had
Beneficial Ownership of fifty-one percent (51%) or more of
the then outstanding Voting Securities, has Beneficial
Ownership of fifty-percent (51%) or more of the combined
voting power of the Surviving Corporation's then
outstanding Voting Securities.
(2) A plan of complete liquidation or dissolution of the Company,
or
(3) An agreement for the sale or other disposition of all or
substantially all of the assets of the Employer to any Person
(other than a transfer to a Subsidiary):
(d) Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person")
acquired Beneficial Ownership of more than the permitted amount of the
then outstanding Voting Securities as a result of the acquisition of
Voting Securities by the Employer which, by reducing the number of
shares Beneficially Owned by Subject Persons, provided that if a
Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of Voting Securities by the Employer,
and after such share acquisition by the Employer, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting Securities
Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
<PAGE>
IN WITNESS WHEREOF, Employer has caused this Employment Agreement to
be executed in its corporate name by its corporate officers thereunto duly
authorized, and Employee has executed this Employment Agreement.
EMPLOYEE:
/s/ James R. Gilley
-----------------------------------------
JAMES R. GILLEY
EMPLOYER:
GREENBRIAR CORPORATION
By: /s/ Gene S. Bertcher
--------------------------------------
Name: Gene S. Bertcher
-----------------------------------
Title: Executive Vice President & CFO
----------------------------------
By: /s/ Michael E. McMurray
--------------------------------------
Name: Michael E. McMurray
------------------------------------
Title: Chairman, Compensation Committee
-----------------------------------
<PAGE>
Exhibit 10.38
GREENBRIAR CORPORATION
A NEVADA CORPORATION
STOCK PURCHASE WARRANT
TO PURCHASE 108,000 SHARES OF COMMON STOCK
PAR VALUE $0.01 PER SHARE
DECEMBER 31, 1996
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN ACQUIRED FOR INVESTMENT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY SHALL HAVE BEEN RECEIVED BY THE
COMPANY TO THE EFFECT THAT SUCH SALE, TRANSFER OR ASSIGNMENT WILL NOT BE IN
VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND
REGULATIONS THEREUNDER, OR APPLICABLE STATE SECURITIES LAWS.
1. Basic Terms. This certifies that, for value received, The April Trust (the
"Holder") is entitled, subject to the terms and conditions of this Warrant,
until the expiration date, to purchase 108,000 whole shares of Common Stock, par
value $0.01 per share (the "Common Stock"), of Greenbriar Corporation, a Nevada
corporation (the "Company") from the Company at the purchase price of $10.00 per
share (the "Purchase Price"), on delivery of this Warrant to the Company with
Form of Election to Purchase in the form of Exhibit A duly executed and payment
of the Purchase Price (in cash or by cashier's check payable to the order of the
Company) for each share purchased; provided, however, that in lieu of cash the
Optionee may exercise the Option by instructing the Company to withhold from the
Shares otherwise issuable upon the exercise of the Option that number of Shares
having a fair market value equal to the cash Exercise Price of the Shares being
purchased. For this purpose, the per share value of the Shares shall be the fair
market value on the date of exercise (or, if the date or exercise is not a
trading date, on the first trading date immediately preceding the date of
exercise), which shall be the average of the highest and lowest sales prices of
shares of common stock of the Company on the American Stock Exchange (or, if the
shares of common stock of the Company are not listed on the American Stock
Exchange, Inc., on the principal national stock exchange on which shares are
listed or, if not so listed, on the quotation service on which such shares are
listed) as reported in The Wall Street Journal-Southwest Edition, on such date.
This Warrant shall be exercisable at any time, in whole or in part, from the
date hereof until October 1, 2006.
2. Company's Covenants as to Common Stock. Shares deliverable on the
exercise of this Warrant shall, at delivery, be fully paid and non-assessable,
and free from taxes, liens and charges with respect to their purchase. The
Company shall take any necessary steps to assure that the par value per share of
the Common Stock is at all times equal to or less than the then current Purchase
Price per share of the Common Stock issuable pursuant to this Warrant. The
Company shall at all shall at all times reserve and hold available sufficient
shares of Common Stock to satisfy all conversion and purchase rights of
outstanding convertible securities, options and warrants.
3. Method of Exercise; Fractional Shares. The purchase rights represented by
this Warrant are exercisable at the option of the Holder in whole or in part,
from time to time, within the period above specified; provided, however, that
purchase rights are not exercisable with respect to a fraction of a share of
Common Stock. In lieu of issuing a fraction of a share remaining after exercise
of this Warrant as to all full shares covered hereby, the Company shall either
(1) pay therefor cash equal to the same fraction of the then current Warrant
purchase price per share or, at its option, (2) issue scrip for the fraction, in
registered or bearer form approved by the Board of Directors of the Company,
which shall entitle the Holder to receive a certificate for a full share of
Common Stock on surrender of scrip aggregating a full share. Scrip may become
void after a reasonable period (but not less than six months after the
expiration date of this Warrant) determined by the Board of Directors and
specified in the scrip. In case of the exercise of this Warrant for less than
all the shares purchasable, the Company shall cancel the Warrant and execute and
deliver a new Warrant of like tenor and date for the balance of the shares
purchasable. Upon the date of receipt by the Company of an exercise of the
Warrant ("Exercise Date"), the Warrant shall be deemed to have been exercised as
to the number of shares so purchased, and the person so exercising the Warrant
shall become a holder of record of shares of Common Stock on the Exercise Date.
<PAGE>
4. Adjustments of Shares and Purchase Price. The initial number of shares
of Common Stock purchasable upon exercise of this Warrant and the Purchase
Price shall be subject to adjustment from time to time after the date hereof
as follows:
A. In case the Company shall (1) pay a dividend in, or make a
distribution of, Common Stock or of any other interests in the Company
convertible into Common Stock, (2) subdivide its outstanding Common Stock
into a greater number of such Common Stock, or (3) combine its outstanding
Common Stock into a smaller number of such Common Stock, the total number
of shares of Common Stock and the interests in the Company convertible
into Common Stock purchasable upon the exercise of each Warrant
outstanding immediately prior thereto shall be adjusted so that the Holder
of any Warrant thereafter surrendered for the purchase of Common Stock
shall be entitled to receive at the same aggregate Purchase Price the
number of shares of Common Stock which he would have owned or have been
entitled to receive immediately following any of the events described
above had such Warrant been exercised in full immediately prior to any
such event. An adjustment made pursuant to this Subsection shall, in the
case of a dividend in Common Stock, become effective as of the record date
therefor and, in the case of a subdivision or combination, be made as of
the effective date thereof. If, as a result of an adjustment made pursuant
to this subsection, the Holder of any Warrant thereafter surrendered for
exercise shall become entitled to receive Common Stock together with one
or more other interests in the Company, the Company and the Holder shall
determine the allocation of the adjusted Purchase Price between or among
such Common Stock and such interests.
B. In the event of any adjustment of the total number of shares of
Common Stock purchasable upon the exercise of the then outstanding
Warrants pursuant to Subsection A above, the Purchase Price per share
applicable to each such outstanding Warrant shall be adjusted to be the
amount resulting from dividing the number of shares of Common Stock
(including fractional shares) covered by such Warrant immediately after
such adjustment into the total amount payable upon exercise of such
Warrant in full immediately prior to such adjustment.
C. In case the Company shall issue rights or warrants to all holders of
Common Stock entitling them (for a period expiring within 45 days after
the record date mentioned below) to subscribe for or purchase Common Stock
at a price per share less than the average market value at the closing
price for 20 consecutive trading days ending on the trading date
immediately preceding the issue date ("Average Market Value"), the
Purchase Price shall be adjusted so that the same shall equal the price
determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, or which the numerator shall be the number of
shares of Common Stock outstanding on the record date plus the number of
additional shares which the aggregate offering price of the total number
of shares offered for subscription or purchase would purchase at such
Average Market Value per share, and of which the denominator shall be the
number of shares outstanding on such record date plus the number of shares
offered for subscription or purchase. Such adjustments shall be made
whenever such rights or warrants are issued, and shall become effective as
of the record date for the determination of shareholders entitled to
receive such rights or warrants.
D. In the event of any capital reorganization or any reclassification
of the Common Stock (except as provided in Subsection (A) above or
Subsection (H) below) any Holder of Warrants upon exercise thereof, shall
be entitled to receive, in lieu of the Common Stock to which he would have
become entitled upon exercise immediately prior to reorganization or
reclassification, the Shares of Common Stock, or other interests of the
Company or property of the Company that he would have been entitled to
receive at the same aggregate Purchase Price upon such reorganization or
reclassification if his Warrants had been exercised immediately prior
thereto; and in any such case, appropriate provision shall be made for the
application of this Section 4 with respect to the rights and interests
thereafter of the Holders of Warrants (including but not limited to the
allocation of the adjusted Purchase Price between or among the shares of
Common Stock and any other interests in the Company, to the end that this
Section 4 (including the adjustments of the number of shares of Common
Stock or other interests in the Company purchasable and the Purchase Price
thereof) shall thereafter be reflected, as nearly as reasonably
practicable, in all subsequent exercises of the Warrants for any shares of
Common Stock or other interests in the Company, or other property,
thereafter deliverable upon the exercise of the Warrants.
<PAGE>
E. No adjustment in the Purchase Price under this Section 4 shall be made
unless such adjustment would require an increase or decrease of at least one
percent in the Purchase Price; provided, however, that any adjustments which
by reason of this subsection are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 4 shall be made to the nearest cent or to the nearest one-
hundredth of a share as the case may be.
F. Whenever the number of shares of Common Stock or other securities
purchasable upon exercise of a Warrant or the Purchase Price is adjusted as
provided in this Section 4, the Company will promptly file with the Holder a
certificate signed by the President or Executive Vice President and by the
Secretary or an Assistant Secretary of the Company setting forth the number
and kind of shares of Common Stock or other interests in the Company
purchasable and the Purchase Price, as so adjusted, stating that such
adjustments in the number of shares of Common Stock or number or kind of
other interests in the Company, or in the Purchase Price, conform to the
requirements of this Section 4, and setting forth a brief statement of the
facts accounting for such adjustments. Promptly after receipt of such
certificate, the Company will mail a brief summary thereof to the Holder;
provided, however, that failure to file or to give any notice required under
this Subsection, or any defect therein, shall not affect the legality or
validity of any such adjustments under this Section 4.
G. In case of any consolidation of the Company with, or merger of the
Company with, or merger of the Company into, another corporation or other
entity (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding shares of Common Stock), or in
case of any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as an entirety, the corporation or
other entity formed by such consolidation or merger or the entity which shall
have acquired such assets, as the case may be, shall execute and deliver to
the Holder a supplemental warrant providing that the Holder shall have the
right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and amount of interests and other
securities and property receivable upon such consolidation, merger, sale or
transfer by a Holder of the number of shares of Common Stock for which such
Warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided in this Section. The above provision of this Subsection
shall similarly apply to successive consolidations, mergers, sales or
transfers.
H. Irrespective of any adjustments in the Purchase Price or in the number
of kind of interests in the Company issuable upon exercise of Warrants,
Warrant Certificates theretofore or thereafter issued may continue to express
the same price and number and kind of interests as are stated in the similar
Warrant Certificates initially issuable pursuant to this Warrant.
I. The Company may retain a firm of independent public accountants of
recognized standing, which may be the firm regularly retained by the Company,
selected by the Board of Directors of the Company and not disapproved by the
Holder, to make any computation required under this Section, and a
certificate signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section.
5. Limited Rights of Holder. This Warrant does not entitle the Holder to any
voting rights or other rights as a shareholder of the Company, or to any other
rights whatsoever except the rights herein expressed. No dividends are payable
or will accrue on this Warrant or the shares purchasable hereunder until, and
except to the extent that, this Warrant is exercised.
6. Exchange for Other Denominations. This Warrant is exchangeable, on its
surrender by the registered owner to the Company, for new Warrants of like tenor
and date representing in the aggregate the right to purchase the number of
shares purchasable hereunder in denominations designated by the registered owner
at the time of surrender.
7. Transfer. Holder acknowledges that this Warrant and the shares of Common
Stock or other securities into which this Warrant is exercisable have not been
registered under the Securities Act or any state securities laws, but have been
and will be issued pursuant to exemptions therefrom. Accordingly, Holder
acknowledges and agrees that this Warrant and the securities acquired by it upon
exercise hereof may be transferred
<PAGE>
or assigned to another party only in accordance with a valid registration
statement or an exemption from registration under the Securities Act and any
applicable state securities laws.
Subject to applicable securities laws, this Warrant and all rights
hereunder are transferable by the Holder hereof in person or by duly authorized
attorney on the books of the Company upon surrender of this Warrant at the
principal offices of the Company, together with the Form of Assignment attached
hereto as Exhibit B duly executed. Absent any such transfer, the Company may
deem and treat the registered Holder of this Warrant at any time as the absolute
owner hereof for all purposes and shall not be affected by any notice to the
contrary. With regard to the shares issuable to Holder upon exercise of this
Warrant, Holder shall have the registration rights described in Exhibit B to the
Agreement and Plan of Merger, dated the date hereof between the Company and
American Care Communities, Inc., except that the Holder shall have piggy-back
registration rights relating to the currently planned Company registration on
Form S-1 described in such Exhibit B and Holder?s rights shall not be subject to
amendment without prior consent.
8. Recognition of Registered Owner. Prior to due presentment for registration
of transfer of this Warrant, the Company may treat the registered owner as the
person exclusively entitled to receive notices and otherwise to exercise rights
hereunder.
9. Notice and Effect of Dissolution, etc. In case of a voluntary or
involuntary dissolution, liquidation, or winding up of the Company (other than
in connection with the consolidation or merger covered by Section 4 above) is at
any time proposed, the Company shall give at least 30 days' prior written notice
to the Holder. Such notice shall contain: (1) the date on which the transaction
is to take place; (2) the record date (which shall be at least 30 days after the
giving of the notice) as of which holders of Common Shares will be entitled to
receive distributions as a result of the transaction; (3) a brief description of
the transaction; (4) a brief description to be made to the holders of Common
Shares as a result of the transaction; and (5) an estimate of the fair value of
the distributions. On the date of the transaction, it if actually occurs, this
Warrant and all rights hereunder shall terminate.
10. Method of Giving Notice; Extent Required. Notices shall be given by
certified first class mail, postage prepaid, addressed to the Holder at the
address of the owner appearing in the records of the Company or to the Company
at its principal office, or at such other addresses as to which either the
Holder or the Company gives the other written notice as provided herein.
11. Renewal Warrant. This Warrant is issued in substitution for and renewal of
that certain Stock Purchase Warrant dated March 24, 1993, issued originally by
Medical Resource Companies of America (now known as Greenbriar Corporation) to
FFP Partnership, L.P., for the purchase of 540,000 shares of Common Stock, which
have been adjusted to 108,000 shares in connection with a one-for-five reverse
split of the Common Stock in 1995, which original Stock Purchase Warrant is
hereby canceled and substituted.
Witness the seal of the Company and the signatures of its authorized
officers.
GREENBRIAR CORPORATION
By: /s/ Gene S. Bertcher
-----------------------------------------
Gene S. Bertcher, Executive Vice President
<PAGE>
EXHIBIT A
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if He Desires to Exercise Warrants Evidenced
by the Within Warrant Certificate)
To: GREENBRIAR CORPORATION
The undersigned hereby irrevocably elects to exercise Warrants evidenced by
the within Warrant Certificate for, and to purchase thereunder,
________________________ full Shares of Greenbriar Corporation, Common Stock
issuable upon exercise of said Warrants and delivery of $10.00 for each share
purchased.
--------------------------------------------------
(name of holder)
By:
-----------------------------------------------
Title:
--------------------------------------
TAXPAYER IDENTIFICATION NUMBER:
--------------------------------------------------
If said number of Warrants shall not be all the Warrants evidenced by the
within Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercised by issued in the name of
and delivered to
- -----------------------------------------------------------------
(Please Print Name and Address)
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Dated: , 19 Signature:
---------------- ---- ----------------------------------
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT
(To be executed by the registered holder if he desires to assign warrants
evidenced by the within warrant certificate. Any such assignment is subject to
certain restrictions contained in the Warrant Certificate.)
FOR VALUE RECEIVED _________________________________________ hereby sells,
assigns and transfers unto ________________________ Warrants to purchase
_________ shares of Common Stock, par value $0.01 per share, of Greenbriar
Corporation, evidenced by the within Warrant Certificate, and does hereby
irrevocably constitute and appoint _____________________, Attorney to transfer
the said Warrants evidenced by the within Warrant Certificate on the books of
the Company, with full power of substitution.
Dated: ____________________, 19_____.
__________________________________________
<PAGE>
EXHIBIT 22.1
GREENBRIAR CORPORATION
ALL ENTITIES AS OF MARCH 1997
1. Altman Nursing, Inc
2. American Care Communities, Inc.
3. American Care Communities of Florida, Inc.
4. American Care Communities of Sanford, Inc.
5. American Care Properties I, Inc.
6. American Country Time, Inc.
7. Assisted Lending, Inc.
8. Berne Village, Inc.
9. CareAmerica, Inc.
10. Carolina Care Communities, Inc.
11. Complete Corporation*
12. Crown Pointe Development - Corona (LP)
13. Crown Pointe, Inc.
14. Equivest Fairington, Ltd.
15. Equivest, Inc.
16. Equivest Oak Tree, Ltd.
17. Equivest West, Inc.*
18. Graybrier, Inc.
19. Greenbriar Corporation
20. Greenbriar Payroll Company
21. Harlingen Retirement LC
22. Hermiston Assisted Living, Inc.
23. King City Retirement Corporation
24. Lake James, Inc.
25. Lewiston Group LLC
26. Liberty Acquired Brain Injury Habilitation Services, Inc.
27. Lincolnshire Partners
28. Medical Concepts, Inc.*
29. MRC Assisted Living, Inc.
30. Neawanna By The Sea Limited Partnership
31. Oak Harbor Retirement Center, Inc.
32. Oak Harbor Retirement Center LP
33. Oak Park-Clermont, Inc.
34. Paradise-Greenbriar, Inc.
35. Remuda Acquisition Corp.
36. Retirement Housing Associates (LP)
37. Rhoades/Powell, Inc.
38. Rose Arbor of Ocala, Inc.
39. Rose Garden Estates LLC
40. Rose Manor of Cary, Inc.
41. Rose Tara Plantation, Inc.
42. Rose Terrace of Wendell, Inc.
43. Roswell Retirement Ltd. Co.
44. Roswell Senior Apartments Ltd. Co.
45. RRSP, Inc.
46. Sweetwater Springs Group, LLC
47. Tara Management, Inc.
48. The Briarcliff at Texarkana, Inc.
49. The Denison-Greenbriar Inc.
50. The Greenbriar at Muskogee, Inc.
51. The Greenbriar at Sherman, Inc.
52. The Terrace Retirement, Inc.
53. Villa Del Rey-Roswell Limited Partnership
54. Villa Del Rey-Seaside, Inc.
55. VLS & Associates, Inc.
56. Wedgwood Corporation
57. Wedgwood Retirement Inns, Inc.
58. Woodmark at Steel Lake LLC
- ------------
* inactive
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 27, 1997 accompanying the consolidated
financial statements included in the Annual Report of Greenbriar Corporation on
Form 10-KSB for the year ended December 31, 1996. We hereby consent to the
incorporation by reference of said report in the Registration Statements of
Greenbriar Corporation on Form S-3 (File No. 33-64840) and Form S-8 (File
No. 33-65856).
/s/ Grant Thornton LLP
- ----------------------
GRANT THORNTON LLP
Dallas, Texas
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-KSB audited consolidated balance sheet as of December 31, 1996 and the
audited consolidated statement of earnings for the year ended December 31, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,784
<SECURITIES> 0
<RECEIVABLES> 561
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,257
<PP&E> 88,088
<DEPRECIATION> 2,635
<TOTAL-ASSETS> 116,701
<CURRENT-LIABILITIES> 11,934
<BONDS> 54,717
0
70
<COMMON> 65
<OTHER-SE> 36,017
<TOTAL-LIABILITY-AND-EQUITY> 116,701
<SALES> 0
<TOTAL-REVENUES> 29,785
<CGS> 0
<TOTAL-COSTS> 34,719
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,457
<INCOME-PRETAX> (7,995)
<INCOME-TAX> 2,400
<INCOME-CONTINUING> (5,595)
<DISCONTINUED> (758)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,837)
<EPS-PRIMARY> (.99)
<EPS-DILUTED> 0
</TABLE>
